OBLIGATIONS and CONTRACTS

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TITLE I
OBLIGATIONS
CHAPTER ONE - GENERAL PROVISIONS
A. DEFINITION
Obligation is a legal relation established between one person and
another, whereby the latter is bound to the fulfillment of a prestation which the
former may demand from him. (Manresa)
B. ESSENTIAL REQUISITES OF AN OBLIGATION: (ARTICLE 1150-1162)

(PAVO)
a) PASSIVE SUBJECT (obligor/ debtor): one who has the duty of giving, doing
or not doing; person bound to the fulfillment.
b) ACTIVE SUBJECT (obligee/ creditor): one in whose favor the obligation is
constituted; person entitled to demand
c) VINCULUM JURIS/ LEGAL TIE: the efficient cause or the juridical tie
between two subjects by reason of which the debtor is bound in favor of the
creditor to perform the obligation.
d) OBJECT/ PRESTATION: the subject matter or conduct which has to be
observed by the debtor/ obligor. It is not a thing but a particular conduct of
the debtor.
1. Kinds
i. To do
ii. Not to do
iii. To give
2. Requisites
i. Licit
ii. Possible
iii. Determinate/ determinable
Obligations and Contracts

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iv. Must have pecuniary value
C. CLASSIFICATIONS OF OBLIGATIONS
a. As to SANCTION
1. CIVIL OBLIGATIONS- give a right of action to compel their

performance
2. NATURAL OBLIGATIONS- not 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 retention of
what has been delivered or rendered by reason thereof.
3. MORAL OBLIGATIONS- those cannot be enforced by action but which
are binding on the party who makes it in conscience and natural law.
b. As to PARTIES
1. UNILATERAL AND BILATERAL- unilateral, where only one party is

bound, and bilateral, where both parties are mutually or reciprocally
bound.
2. INDIVIDUAL AND COLLECTIVE- individual, where there is only one
obligor, and collective, where there are several obligors. The latter may
be joint, when each obligor is liable only for his proportionate share of
the obligation, or solidary, when each obligor may be held liable for the
entire obligation.
c. As to OBJECT
1. DETERMINATE AND GENERIC- determinate, when the object is

specific; generic, when the object is designated by its class or genus.
2. SIMPLE AND MULTIPLE- simple, when there is only one undertaking;
multiple, when there are several undertakings.

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3. POSITIVE AND NEGATVE- positive, when the obligor is obliged to give

or to do something; negative, when the obligor must refrain from giving
or doing something.
4. REAL AND PERSONAL- real, when the obligation consists in giving
something; personal, when the obligation consists in doing or not doing
something.
5. POSSIBLE AND IMPOSSIBLE- possible, when the obligation is capable
of fulfillment in nature as well as in law; impossible, when the
obligations is not capable of fulfillment either in nature or in law.
6. DIVISIBLE AND INDIVISIBLE- divisible, when the obligation is
susceptible of partial performance; indivisible, when the obligation is
not susceptible of partial performance.
7. PRINCIPAL AND ACCESSORY- Principal, when it is the main
undertaking; accessory, when it is merely an undertaking to guarantee
the fulfillment of the principal obligation
d. As to PERFECTION and EXTINGUISHMENT
1. PURE- when the obligation is not subject to any condition or term and
is immediately demandable
2. CONDITIONAL- when the obligation is subject to condition which may
be suspensive, in which case the happening or fulfillment of the
obligation results in the birth of the obligation, or resolutory, in which
case the happening or fulfillment of the condition results in the
extinguishment of the obligation
3. WITH A TERM or PERIOD- when the obligation is subject to a term or
period which may be suspensive or from a day certain, in which case
the obligation id demandable only upon the expiration of the term, or
resolutory or to a day certain, in which case the obligation terminates
upon the expiration of the term
e. As to PERFORMANCE

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1. Positive obligation- to give; to do

2. Negative obligation- not to do
D. SOURCES OF OBLIGATION (Art. 1157)
1. Law (obligation ex lege): Art.1158

2. Contracts (obligation ex contact): Art 1159
3. Quasi- contracts (obligation ex contractu): Art. 1160
DISTINGUISHED FROM OTHER SOURCES(LUV)
a) The act giving rise to a quasi- contract must be LAWFUL

distinguishing it from delict;
b) The act must be VOLUNTARY distinguishing it from a quasi- delict
which is based on fault or negligence;
c) The act must be UNILATERAL distinguishing it from contract which
is based on agreement
KINDS of QUASI-CONTRACT
i. NEGOTIORIUM GESTIO (Art. 2144): is the voluntary management of the

property or affairs of another without the owner’s authority.
ii. SOLUTIO INDEBITI (Art. 2145): is the juridical relation, which is created
when something is received when there is no right to demand it and it
was unduly delivered through mistake.
REQUISITES
 There is no right to receive the thing delivered;
 The thing was delivered through mistake
4. Acts or omissions punished by law (Art 1161)
NOTE:

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 Article 100 of the Revised Penal Code- Every person criminally liable
for a felony is also civilly liable.
 The civil liability springs out and is dependent upon the facts which,
if true, would constitute a crime.
 Such civil liability is necessary consequence of criminal responsibility,
and is to be declared and generally enforced in the criminal
proceeding EXCEPT where the injured party reserves his right to avail
himself of it in a distinct civil action or in cases where an independent
civil action is allowed by law.
SCOPE OF CIVIL LIABILITY

i. Restitution
ii. Reparation for damage caused
iii. Indemnity for consequential damages
EFFECT OF ACQUITTAL IN CRIMINAL CASE
GENERAL RULE: The acquittal of the accused in criminal case

does not prejudice the civil action, in which the offended party
may still be able to recover damages by a preponderance of
evidence.
EXCEPTION: Where judgment of acquittal contained a declaration

that no negligence can be attributed to the accused and that from
which the civil action might arise did not exist.
CRIMES WITHOUT CIVIL LIABILITY

i. Contempt
ii. Insults to persons in authority
iii. Gambling
iv. Violations of traffic regulations
5. Quasi- delicts
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It is an act or omission arising from fault or negligence which

causes damage to another, there being no pre-existing contractual
relations between the parties.
ELEMENTS: (ADDITIONAL)
i. That there exists a wrongful act or omission imputable to the

defendant by reason of his fault or negligence;
ii. That there exists a damage or injury, which must be proved by the
person claiming recovery;
iii. That there must be direct causal connection or a relation of cause and
effect between the fault or negligence and the damage or injury; or the
fault or negligence is the cause of the damage or injury.
CHAPTER TWO - NATURE AND EFFECT OF OBLIGATIONS
PERSONAL OBLIGATIONS: obligations to do or not to do; where the subject

matter is an act to be done or not to be done.
1. Positive-obligation to do
2. Negative-obligation not to do
REAL OBLIGATIONS: obligations to give; where the subject matter is a thing

which the obligor must deliver to the obligee.
1. Determinate or specific-object is particularly designated or physically

segregated from all others things of same class
2. Generic-object is designated by its class or genus
3. Limited Generic-generic objects confined to a particular class.
a. Ex: An obligation to deliver one of my horses
(Tolentino,Volume iv,p.91;De Leon,2003 ed.,p.7)
A. OBLIGATION TO GIVE
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a. DUTIES OF OBLIGOR IN AN OBLIGATION TO GIVE A DETERMINATE

THING (Arts.1163, 1164, 1166)
1. To deliver the thing itself (Art 1244 par 1)
The debtor of the 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.
2. To preserve the thing with due care (Art. 1163)
Every person obliged to give something is also obliged to take care of

the thing:
i. By the stipulation of the parties
ii. By the law
iii. If not stated, proper diligence of a good father of a family.
3. To deliver accessions and accessories (Art. 1166)
The obligation to give a determinate thing includes that of delivering

all its accession and accessories, even though they may not have been
mentioned.
i. ACCESSIONS- are the fruits of a thing or additions to

improvements upon a thing (principal).
ii. ACCESSORIES- are the things joined to or included with the
principal thing for the latter’s embellishment, better use, or
completion.
4. To deliver the fruits (Art 1164)

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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.
 NON NUDIS PACTIS, SED TRADITIONES DOMINIA RERYM

TRANSFERANTUR
As a consequence of certain contracts, it is not agreement but tradition or
delivery that transfers ownership.
5. To be liable for damages in case of fraud, negligence, or delay, in the

performance of his obligation, or contravention of the tenor thereof.
b. DUTIES OF OBLIGOR IN AN OBLIGATION TO GIVE A GENERIC THING

(Arts.1246 and 1170)
1. To deliver the fruits of the thing: Right to the fruits of the thing from the
obligation to deliver it arises;
2. To deliver its accessions and accessories (Art.1166)
i. Accessions-additions to or to improvements upon a thing.
Example:Air conditioner in a car
ii. Accessories-things joined to, or included with the principal thing for
its better use, embellishment or completion. Ex: key of a house ;frame
of a picture
3. To deliver the thing itself
Note: (Art. 1246)- When the obligation consists in the delivery of an

indeterminate or generic thing, whose quality and circumstances have
not been stated, the creditor cannot demand a thing of superior quality.
Neither can the debtor deliver a thing of inferior quality. The purpose of
the obligation and other circumstances shall be taken into consideration.

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4. To be liable for damages in case of fraud, negligence, or delay, in the

performance of his obligation, or contravention of the tenor thereof.
c. RIGHTS OF THE CREDITOR IN REAL OBLIGATION TO GIVE (Art.1165)
1. GENERIC REAL OBLIGATION (Obligation to deliver a generic thing)
a. To ask performance of the obligation

b. To ask that obligation be complied with the expense of the obligor
c. To recover damages in case of breach of obligation
NOTE: A generic real obligation can be performed by a third person since the
object is expressed only according to its family or genus.
2. DETERMINATE OR SPECIFIC REAL OBLIGATION(Obligation to deliver a

determinate thing):
i. To demand specific performance or fulfillment (if it is still possible) of the

obligation with a right to indemnity for damages
ii. To demand rescission of the obligation with right to recover damages
iii. To demand payment of damages when it is only feasible remedy
iv. If the obligation to deliver a determinate thing, the very thing itself must
be delivered and consequently, only the debtor can comply with the
obligation.
WHEN OBLIGATION TO DELIVER THE THING AND FRUIT ARISES
1. If the source of the obligation is law, quasi-contract, delict, quasi-delict ,it

arises from the time designated by law creating or regulating them;
2. If the source is contract, it arises from the time of the perfection of the
contract (i.e. meeting of the minds between the parties),
UNLESS:
a. the parties made a stipulation to the contrary,
b. the obligation is subject to a suspensive condition or period; arises
upon fulfillment of the condition or arrival of the period

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c .in a contract to sell, the obligation arises from the perfection of the
contract even if the obligation is subject to a suspense condition or a
suspensive period where the price has been paid.
B. OBLIGATION TO DO OR NOT TO DO
a. RIGHTS OF A CREDITOR IN PERSONAL OBLIGATION
1. POSITIVE PERSONAL OBLIGATIONS:
a. Performance at debtor’s cause: The obligee is entitled to have the thing

done in a proper manner, by himself or by the third person, at the
expense of the debtor.
b. To demand what has been poorly done be undone
c. To recover damages because of the breach of the obligation
2. NEGATIVE PERSONAL OBLIGATION
i. To have it undone at the expense of the obligor; and

ii. To ask for damages
DISTINGUISH PERSONAL RIGHT FROM REAL RIGHT
PERSONAL REAL
Jus ad rem ,a right enforceable only Jus in re,a right enforceable against the
against a definite person or a group of whole world
persons
Right pertaining to a person to demand Right pertaining to a person over a
from another, as a definite passive specific thing ,without a definite passive
subject, the fulfillment of the prestation to subject against whom the right may be
give, to do or not to do. personally enforced
KINDS of DELIVERY
a. ACTUAL DELIVERY (tradition)- where physically, the property changes hands.
b. CONSTRUCTIVE DELIVERY- that where the physical transfer is implied. This
is done by:

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1. TRADITIO SIMBOLICA (symbolical tradition)

Example: As when the keys of a bodega are given
2. TRADITIO LONGA MANU- delivery by mere consent or the pointing out of
the object
3. TRADITIO BREVI MANU-delivery by the short hand; that kind of delivery
whereby a possessor of a thing not an owner, becomes the possessor as
owners. (ex. When a tenant already in possession buys the house he is
renting.
4. TRADITIO CONSTITUTUM POSSESSORIUM- the opposite of brevimanu;
thus, the delivery whereby a possessor of a thing as an owner, retains
possession no longer as an owner, who sells a house, but remains in
possession as tenant of the same house
5. TRADITION BY THE EXECUTION OF LEGAL FORMS AND SOLEMNITIES-
like the execution of a public instrument selling land
C. BREACHES OF OBLIGATIONS (ARTS.1170-1174)
A. Voluntary-debtor in the performance of the obligation is guilty of:
1. Delay (Mora)
2. Fraud (Dolo)
3. Negligence (Culpa)
4. Contravention of the tenor of the obligation
NOTE: debtor is liable for damages
B. Involuntary-debtor is unable to comply with his obligation due to fortuitous

event/s
NOTE: debtor is NOT; liable for damages
A.1 DEFAULT OR DELAY (Mora)

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GENERAL RULE: Those obliged to deliver or to do something incur in delay

from the time the obligee judicially or extrajudicial demands from them the
fulfillment of their obligation. (Art.1169)
EXCEPTION: Demand by the creditor shall NOT be necessary in order that

delay may exist:
(1) When the obligation or the law expressly so declares;
(2) When from the nature and the circumstances of the obligation it appears
that 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 the demand would be useless, as when the obligor has rendered it
beyond his power to perform.
In reciprocal obligations, neither incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is comment
upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins.
NOTE: Art.1169 is applicable only when the obligation is to do something other

than the payment of money. In case of obligation for payment of sum of money,
the interest replaces the damages.
KINDS OF DELAY:
1.Mora solvendi-delay or default committed by debtor.
2.Mora accipiendi-delay or default committed by creditor
3. Compensatio Morae-default of both parties in reciprocal obligations.
GENERAL RULE: An action or suit can be filed at any time after the non-
compliance of the other party. However, damages or interest shall only start to
run after judicial or extra-judicial demand.
EXCEPTION: In ejectment and consignment cases, the extra-judicial demand

should first be made prior to the filling of a civil suit.
EFFECTS OF MORA

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A. MORA SOLVENDI
1. When it has for its object a determinate thing, the delay places the risk of
the thing on the debtor
2. Debtor becomes liable for damages for the delay
B. MORA ACCIPENDI
1. Responsibility of the debtor for the thing is reduced and limited to fraud
and gross negligence
2. Debtor is exempted from the risks of loss of thing, which automatically
pass to the creditor
3. All expenses incurred by the debtor for the preservation of the thing after
the mora shall be changeable to the creditor
4. If the obligation bears interest the debtor does not have to pay it from the
moment of the mora
5. The creditor becomes liable for damages.
6. The debtor may relieve himself of the obligation by the consignation of
the thing
C. COMPENSATIO MORAE
1. EXCEPTIO NON ADEMPLETI CONTRACTUS- one is not compelled to
perform if contracting party is not yet prepared to perform his prestation,
default of one causes the default of the other.
DEMAND IS NOT NECESSARY WHEN:
1. Law or obligation expressly declares so

2. Time is of the essence
3. Demand would be useless
NOTE: In reciprocal obligations, a party does not incur in delay for failure of
the other party to assume and perform the obligation imposed upon
him/her.
A. 2 FRAUD (Dolo)
It is the deliberate or intentional evasion of the normal fulfillment of an

obligation. (8 Manresa 72) It is the fraud in the performance or fulfillment of an
obligation already existing, as distinguished from the fraud referred to in Article
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1338 which is the cause of nullity of contracts and which exists before and at
the moment of creating the obligation.
Samson vs Court of Appeals,(G.R. No.108245, November 25,1994)
Bad faith is essentially a state of mind affirmatively operating with furtive

design or with some motive of ill-will .It does NOT simply connote bad judgment
or negligence. It imports a dishonest purpose or some moral obliquity and
conscious doing of wrong. Bad faith is thus 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.
TYPES OF FRAUD:
1. Causal fraud (Dolocausante) -fraud employed in the execution of the

contract
2. Incidental Fraud (DoloIncidente) -fraud in performance of obligation already

existing because of a contract
FRAUD IN THE CAUSAL FRAUD/DOLO CAUSANTE

PERFORMANCE /DOLO (ART.1338)
INCIDENTE(ART.1170)
Present during the performance of Present during the perfection of a contract
a pre-existing obligation
Purpose is to evade the normal Purpose is to secure the consent of
fulfillment of the obligation another to enter into the contract
Results in the breach of an Results in violation of consent ;voidable
obligation contract
Gives rise to a right I favor of the Gives rise to a right of an innocent party
creditor to recover damages to annul the contract
NOTE: Future fraud CANNOT be waived. However, the law does not prohibit
renunciation of the action for damages on the ground of past fraud.
REMEDIES OF DEFRAUDED PARTY

a. Specific performance (Art.1233)

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b. Resolve contract (Art. 1191)

c. Damages, in either case
A.3 NEGLIGENCE (culpa)
 Any voluntary act or omission, there being no malice which prevents the
normal fulfillment of an obligation.
 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(Art.1173)
KINDS OF NEGLIGENCE
a. Quasi-Delict (Culpa aquiliana/culpra extra contractual)-source of

obligation; wrong or negligence committed independent of contract and
without criminal intent.
b. Contractual Negligence (Culpa Contractual)-wrong or negligence of a
obligation or contract.
c. Criminal Negligence (Culpa Criminal)-wrong or negligence in the
commission of a crime.
INSTANCES WHERE THE LAW REQUIRES A HIGHER STANDARD OF CARE
A. Banks-as a business affected with interest, and because of the nature

of its functions, the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary
nature of their relationship.(Simex v. CA ,183 SCRA 360 ,
(G.R.No.88013,March 19,1990)
EXCEPTION: Extraordinary diligence does NOT cover transaction

outside bank deposits,i.e. commercial transactions Reyes v.CA,
(G.R.No.94214,December 1,1992)
B. Common Carriers-from the nature of the business and for reasons of

public policy, common carriers are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of the

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passengers transported by them according to all the circumstances of

each case (Art.1733)
Diligence of a good father of a family: ordinary care or that diligence

which an average or reasonably prudent person would exercise over his
own property.
NOTE: Rule on Standard of care
 That which the law requires ;or

 That stipulated by the parties; or
 In the absence of the two, diligence of a good father of a family.
DISTINGUISH FRAUD FROM NEGLIGENCE
FRAUD NEGLIGENCE
There is deliberate intention to There is no deliberate intention to cause
cause damage damage.
Liability CANNOT be mitigated Liability may be mitigated.
Presumed from the breach of a Must be clearly proved
contractual obligation
Waiver for future fraud is void. Waiver for future negligence may be
allowed in in certain cases.
DISTINGUISH NEGLIGENCE FROM CRIME
NEGLIGENCE CRIME
Any act with fault or negligence Acts punishable by law
Criminal intent unnecessary Necessary
Damages may be awarded to Some crimes do not give rise to civil
injured party liability
Violation of private rights Public rights
Preponderance of evidence Proof reasonable doubt
Can be compromised as any other Criminal liability can never be
civil liability compromised
Presumption of negligence Presumption of innocence
KINDS OF NEGLIGENCE, DISTINGUISHED

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CULPA AQUILIANA CULPA CONTRACTUAL

Negligence is substantive and Negligence merely an incident of
independent performance of an obligation.
There may or may not be a pre- There is a pre-existing contractual
existing contractual obligation relation.
Source of the obligation is the Source of the obligation is the breach of
negligence itself. the contractual obligation.
Negligence must be proved Proof of existing of the contract and its
breach is prima facie sufficient to
warrant recovery
Diligence in the selection and Diligence in the selection and supervision
supervision of the employees is a of the employees is not available as a
defense defense
EFFECTS OF CONTRIBUTORY NEGLIGENCE OF THE OBLIGEE
GENERAL RULE: Reduces or mitigates the damages which he can recover.
EXCEPTION: If the negligence act or omission of the creditor is the proximate

cause of the event, which lead to the damage or injury complained of ,he cannot
recover.
EFFECTS OF IMPOSSIBLE AND ILLEGAL CONDITIONS
CONDITION EFFECT ON EFFECT ON

OBLIGATION CONDITIONS
TO DO VOID VOID
Impossible or illegal
NOT to do an illegal thing VALID VALID
NOT TO DO AN VALID DISREGARD
IMPOSSIBLE THING CONDITION
Condition is pre-existing VALID VOID
and not dependent on the
fulfillment of impossible
condition for existence
Condition IMPOSSIBLE ONLY THE AFFECTED
but obligation DIVISIBLE OBLIGATION IS VOID

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A.4. CONTRAVENTION OF THE TENOR OF THE OBLIGATION
FORTUITIOUS EVENT (Force Majeure)
GENERAL RULE: No one should be held to account for fortuitous cases,

which are those situations that could not be foreseen, or which through
foreseen were inevitable.
EXCEPTION: There concurs a corresponding fraud, negligence, delay or
violation or contravention in the manner of the tenor of the obligation.
ELEMENTS OF A FORTUTIOUS EVENT:
1. The cause of breach is independent of the debtors’ will.
2. The event must be unforeseeable or unavoidable.
3. The events render performance impossible.
4. The debtor must be free from any participation, or aggravation
of the injury.(Arrt.1174)
NOTE: In the case of Republic v. Luzon Stevedoring ,(G.R. No.L-21749
,September 29 ,1967) ,the court held that the person obliged to perform an
obligation shall not excused from a fortuitous event when the nature of the
obligation requires the assumption of risk. In the other words, it is not enough
that the event should not be foreseen or anticipated, but it must be one that is
impossible to foresee or to avoid.
GENERAL RULE: The law protects the creditors. The creditors are given by law
all possible remedies to enforce such obligations.
A. SPECIFIC PERFORMANCE
To demand specific performance or fulfillment of the obligation with a
right to indemnity for damages.
B. RESCISSION
 It means to abrogate the contract from the beginning and to restore the
parties to the relative positions as if no contract has been made.
 It is “to declare the contract to void at the inception and to put an end to
it as though never was”
 It is predicated on the breach of faith by a party that violates the
reciprocity between them.

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NOTE: In the case Adorable v.Court and Appeals ,G.R.No.119466 ,November

25,1999,the Court held that UNLESS a debtor acted in fraud of his creditor, the
creditor has no right to rescind a sale made by the debtor to someone on the
mere ground that such sale made will prejudice the creditors’ rights in
collecting later on from the debtor. The creditor’s right against the debtor only a
personal right to receive payment for the loan; it is NOT a real right over the lot
subject to the deed of sale transferring the debtors’ property.
C. DAMAGES
To demand payment of damages when it is feasible remedy.
KINDS of DAMAGES
1. Moral
2. Exemplary
3. Nominal
4. Temperate
5. Actual
6. Liquidated
D.SUBSIDIARY REMEDIES OF CREDITORS
1. AccionSubrogatoria-action which the creditor may exercise in the

place of his negligent debtor in order to preserve or recover for the
patrimony of the debtor the product of such action, and then obtain
there forms the satisfaction of his own credit.
2. Accionpaulina-action to revoke or rescind acts which the debtor may
have done to defraud his creditor.
3. Acciondirecta-(Arts.1652, 1608, 1729, 1893)
CHAPTER THREE - KINDS OF CIVIL OBLIGATIONS
A. PURE OBLIGATIONS

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It is unqualified obligation which is demandable immediately. It is an

obligation whose performance does NOT depend upon a future and uncertain
event, or past event unknown to the parties.
B. CONDITIONAL OBLIGATION
It is exactly the reverse of a pure obligation. The performance in

conditional obligations depends upon a future or uncertain event or upon a
past event unknown to parties. Obligations, in which 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 (Art. 1181).
CHARACTERISTICS OF CONDITIONAL OBLIGATIONS:
1. Every future and uncertain event upon which an obligation or provision is

made to depend.
2. Even though the event is uncertain, it should be POSSIBLE.
3. The condition must be imposed by the WILL of the party and NOT a
necessary legal requisite.
4. Past event but unknown to the parties (the knowledge to be acquired in the
future of a past event which at that moment is unknown to the parties
interested, it is only in that sense that the event is be deemed uncertain.
Note:
When the debtor binds himself to pay when his means permit him to do
so, the obligation shall be deemed to be one with a period (Art. 1180).
In this case, the creditor must first ask the court to fix the period; otherwise the
action to collect the debt would be premature.
EFFECTS OF FAILURE TO COMPLY WITH CONDITION:
1. If condition is imposed on the PERFECTION of a contract – results in the

failure of the contract.

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2. If the condition is imposed on the PERFORMANCE of the obligation –

gives the other party the option either to refuse to proceed with the
compliance or to waive the condition.
KINDS OF CONDITIONS
1. As to effect on obligation
“Acquisition of rights and extinguishment or loss of those already acquired”-
( Art 1181)
SUSPENSIVE RESOLUTORY
Obligation arises Obligation is extinguished
When The juridical or legal tie Tie of law is consolidated, becomes

condition does not appear absolute
not fulfilled
Until it takes Obligation is a mere The effect flow, but over it hovers
place hope possibility of termination like Sword
of Damocles
Effect Acquisition of rights Extinguishment or loss of those

already acquired
Also known Condition Condition subsequent

as precedent/antecedent
a. SUSPENSIVE CONDITION
The performance or the happening of the condition gives rise of an

obligation. It also known as CONDITION PRECEDENT. It gives birth to
condition. It is not demandable at once.

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NOTE:
1. Retroactive effect when “suspensive” condition is fulfilled - The binding

tie of conditional obligation is produced from the TIME OF PERFECTION,
not happening of condition.
2. The effects of a conditional obligation to give, once the condition has
been fulfilled shall retroact to the day of the constitution of the
obligation. Nevertheless, when the obligation imposes reciprocal
prestations upon the parties, the fruits and interests during the
pendency of the condition shall be deemed to have been mutually
compensated. If the obligation is unilateral, the debtor shall appropriate
the fruits and interests received, UNLESS from the nature and
circumstances of the obligation it should be inferred that the intention of
the person constituting the same was different. (Art. 1187)
3. In obligations to do or not to do, the courts shall determine, in each case,
the retroactive effect of condition that has been complied with.
4. Until the fulfillment of suspensive condition, creditor cannot enforce the
obligation as his right then was merely an expectancy. However, upon
happening, the debtor can be compelled to perform.
5. REASON FOR RETROACTIVITY: Condition is only accidental and not an
essential element of the obligation. The obligation is constituted when
the essential elements which give rise there to concur.
6. Contracts entered into PENDENTE CONDITIONE (before happening of
suspensive condition)
o CREDITOR transfers his rights prior to happening of condition e.g.
mortgage over the property to be delivered to him
Effect: consolidate or makes effective the act performed.
o DEBTOR: cannot alienate or dispose the thing, if he does so, all such
contracts are abrogated and cease to have any effect upon happening
of the suspensive condition. But because delivery transfers real right
over the thing:
o 3rd person in good faith - retains ownership; debtor becomes
liable to creditor for damages.
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o 3rd person is in bad faith - he may be compelled to deliver the

thing to the creditor.
7. LIMITATIONS ON RETROACTIVITY (as dictated by justice and required
by practicability or convenience):
o loss of the thing by fortuitous event, debtor suffers the loss because
he is still the owner
o acts of administration before fulfillment not affected by retroactivity;
however abuse of rights in guise of administration are not allowed to
defeat rights of creditor
o usufructuary rights not within the principle of retroactivity of
conditional obligations
b. RESOLUTORY CONDITION
It is demandable at once. Once the condition is established or
acknowledged, the right to demand performance immediately exists and
therefore the obligation concomitant to the right can be demanded at
once. It is also known as CONDITION SUBSEQUENT and it extinguishes
the obligation.
NOTE:
In case of contract with 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.
2. As to cause or origin
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 3rd person, the obligation shall TAKE EFFECT in
conformity with the provisions of this Code. (Art. 1182)
a. POTESTATIVE OBLIGATION - the fulfillment of the obligation

entirely depends upon the sole will of the debtor.
GENERAL RULE: All potestative conditions are void
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EXCEPTION: Potestativeresolutory conditions are not void. If the

potestative condition id imposed not on the birth(SUSPENSIVE) of
the obligation but on its fulfillment resolutory, only the condition
is avoided, leaving unaffected the obligation itself.
KINDS OF POTESTATIVE CONDITION
1. Simple potestative - presupposes not only a manifestation of

will but also the realization of an external act
o On the part of the debtor: Does not prevent formation of

valid obligation because in part depends on
contingencies over which he has no control
2. Purely potestative - depends solely and exclusively upon the

will
o Destroys the efficacy of the legal tie

o Effect if fulfillment of condition depends solely on the will
of the debtor - VOID because it is a direct contravention
of Art 1308 on mutuality of contracts and to do so is to
sanction illusory conditions
o If depends exclusively on the will of creditor – VALID
o Applicable only to SUSPENSIVE and NOT to
RESOLUTORY
o Hence, resolutorypotestative (facultative) conditions are
perfectly valid, even if made to depend upon the
obligor/debtor, since the obligation is already in force
b. CASUAL- depends exclusively upon chance, will of a third person or

other factors, and not upon the will of the contracting parties

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c. MIXED- depends upon the will of one of the contracting parties and
other circumstances, including the will of third persons
3. As to possibility
a. 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. (Art
1183 ) The condition not to do an impossible thing shall be
considered as not having been agreed upon.
It may either be physical (contrary to the law of nature) or

juridical (contrary to law, morals, good customs, and public policy
AND restricts certain rights which are necessary for the free
development of human activity i.e. political rights, family rights and
constitutional rights and liberties e.g. condition not to change
domicile, religion or contract marriage)
ILLICIT CHARACTER
Determined not by the facts but by the effect upon one of the
parties. Thus, the criterion is subjective. Not the act but the
intention and its effect that determine the illicit character of the
condition.
Why? Impossibility of fulfillment implies he does not intend to be

bound, thus the nullity of the promise
EFFECT OF IMPOSSIBLE CONDITIONS
o Annuls only obligations which are POSITIVE and SUSPENSIVE. In the

case of a negative impossible condition, it’s considered as not written
and the obligation is converted to a pure and simple one.
o Applies only to contracts and not to simple and testamentary
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donations and to testamentary dispositions

o Impossibility of condition must exist at the time of the creation of the
obligation (not existence of a valid obligation subsequently rendered
impossible under Art 1266 on “subsequent impossibility”)
o DIVISIBLE OBLIGATION: part not affected by the impossible condition
shall remain valid
GENERAL RULE: Impossible condition annuls the obligation dependent
upon them
EXCEPTIONS:
i. Pre-existing obligation
ii. Divisible obligation
iii. Simple or remuneratory obligation
iv. Testamentary disposition
v. Negative impossible things
4. As to mode
a. POSITIVE (suspensive) - The condition that some event happen at a
determinate time shall EXTINGUISH the obligation as soon as the
time expires OR if it has become indubitable that the event will not
take place. (Art 1184)
 If there is no period fixed, the rule in Par 2 of Art 1185 is

applicable. Intention of the parties is controlling, and the time shall
be that which the parties may have probably contemplated, taking
into account the nature of the obligation.
b. NEGATIVE (suspensive)-The conditions that some event will not
happen at a determinate time shall render the obligation
EFFECTIVE from the moment the time indicated has elapsed OR if
it has become evident that the event cannot occur. (Art 1185)
 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 obligation.
LOSS, DETERIORATION or IMPROVEMENT pending to the happening
of the condition

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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(Art. 1189): If the thing is:
1. Loss without fault of debtor: obligation extinguished
2. Loss through the fault of debtor: obliged to pay damages. A thing is loss
when it:
a. Perishes
b. Goes out the commerce of man
c. Disappears in such a way that its existence is unknown or it cannot

be recovered
3. Deteriorates without fault of the debtor: impairment to be borne by the

creditor
4. Deteriorates through the fault of debtor: creditor may choose between

the rescission of the obligation and its fulfillment with indemnity for
damages in either case
5. Improved by its nature, time: inure to the creditor
6. Improved at the expense of the debtor: no other right than that granted to
the usufructuary
 Applicable only to obligations to deliver a determinate or specific thing. NO

application to generic objects (genus never perishes).
 Apply only in case suspensive condition is fulfilled.
NOTE:
1. When the conditions have for their purpose the EXTINGUISHMENT of an

obligation to give, the parties, upon the fulfillment of the said conditions,
shall return to each other what they have received. (Art 1190)
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2. 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.
3. As for obligations to do or not to do, the provisions of 2nd par of Art 1187
(courts shall determine) shall be observed as regards the effect of the
extinguishment of obligation.
4. The condition that some event happen at a determinate time shall
EXTINGUISH the obligation as soon as the time expires OR if it has become
indubitable that the event will not take place. (Art. 1184)
LOSS 1. Perishes
2.Goes out of the commerce of man
3.Disappears in such a way that its existence is
unknown or it cannot be recovered
DETERIORATION Any reduction or impairment in the substance or
value of a thing which does not amount to a loss.
The thing still exists at the time the condition is
fulfilled, but it is no longer intact, OR is less than
what it was when the obligation was constituted.
IMPROVEMENT Anything added to, incorporated in, or attached to
the thing that is due.
Effect of loss or deterioration
LOSS DETERIORATION
Without debtor’s Extinguished, unless Not liable for damage,

fault there is a stipulation to creditor must accept the
the contrary. Mode of thing in impaired condition
extinguishment Art
1262 Par 1
With debtor􏰅s fault Liable to damages upon May demand the thing OR
fulfillment of condition ask for rescission, in either
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case, creditor may recover

damages
Effect of improvement
MODE
By nature or time Inures to the benefit of the creditor by virtue

of principle of retroactivity of conditional
obligations
At debtors expense Only usufructuary rights; Governed by Art
579 (useful improvements or for mere
pleasure, remove if possible to remove
without damage to property) and Art 580
(set off the improvements he may have made
against any damage)
EFFECT OF PREVENTION OF THE FULFILLMENT OF THE CONDITION

BY THE OBLIGOR
The condition shall be deemed fulfilled when the obligor voluntarily prevents
fulfillment.( Art 1186)
CONSTRUCTIVE FULFILLMENT
A condition which although not exclusively within the will of the

debtor, may in some way be prevented by the debtor from happening.
REQUISITES:
a. Intent of the obligor to prevent the fulfillment of the condition
b. Actual prevention of the compliance
NOTE:
Why? Party to a contract may not be excused from performing his promise
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by the non-occurrence of the event which he himself prevented. Also applicable

to provocation of resolutory conditions
RECIPROCAL OBLIGATIONS
The power to rescind obligation is implied in reciprocal ones, in case

one of the obligors should not comply with what is incumbent upon him.
(Art 1191)
The injured party may choose between FULFILLMENT and the

RESCISSION of the obligation, with the payment of damages in either case.
He may also seek rescission, even after he has chosen fulfillment, if the
latter should become IMPOSSIBLE.
The court shall decree the rescission claimed UNLESS there be a just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third

persons who have acquired the thing, in accordance with Articles 1385 and
1388 and the Mortgage Law.
NOTE:
In case both parties have committed breach of obligation, the liability

of the first infractor shall be equitably tempered by the courts. If it cannot
be determined which of the parties first violated the contract, the same shall
be extinguished and each shall bear his own damages. (Art 1192)
CONCEPT RECIPROCITY arises from identity of cause and necessarily, two

obligations are created at the same time. Each party is a creditor and debtor of
the other and they are to perform simultaneously.

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 Recognized “implied or tacit resolutory condition” imposed exclusively by

law, even if there is no corresponding agreement between parties. It is
also called RESOLUTION
 Power to rescind is given to the injured party.
Alternative remedies of injured party in case of breach - injured party
should choose only one, cannot ask for partial rescission and partial fulfillment.
1. Action for Fulfillment - When fulfillment no longer possible,

rescission takes place
2. Action for Rescission
REQUISITES FOR RESCISSION
a. One of the creditors failed to comply with what is incumbent upon him
b. Obligor who performed chose rescission over fulfillment or performance is

impossible
c. The breach is substantial so as to defeat the object of the parties in

making the agreement - it will
EXCEPTION: object is not yet delivered AND obligation has not yet been
performed
If the obligation has not yet been performed: extrajudicial declaration

of party willing to perform would suffice; can refuse to perform if the other
party is not yet ready to comply
If the injured party has already performed: cannot extrajudicially

rescind IF the other party opposes the rescission (otherwise, rescission
produces legal effect). In the case the other party impugns rescission, the
court comes in either to:
a. Declare the rescission as properly made
b. Give a period to the debtor in which to perform
EFFECTS OF RESCISSION
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1. Extinguishes obligatory relation as if it had never been created 􏰊

Equivalent to invalidate the juridical tie, leaving things in their status before
the celebration of the contract
2. Mutual restitution
Rescission Art 1380 Distinguished from Resolution Art 1191
Art 1191 Resolution Art 1380 Rescission
Similarities 1. Presuppose contracts validly entered into and existing

Rescission v. Annulment: the latter there is a defect
which vitiates/invalidates the contract
2. Mutual restitution when declared proper
Who may Only by a party to the Party to the contract suffering
demand contract lesion
Third parties prejudiced by the
contract
Grounds Non-performance Various reasons of equity
(implied tacit condition provided by the grounds, mainly
in reciprocal obligation) economic injury or lesions
Scope of judicial Court determines Sufficiency of reason does not
control sufficiency of reason to affect right to ask for rescission
justify extension of time (cannot be refused if all the
to perform obligation requisites are satisfied)
(whether slight or
casual breach)
Kind of Only to reciprocal Unilateral, reciprocal
obligation Even when contract is fully
applicable to fulfilled
Character Principal Remedy Secondary/Subsidiary
C. OBLIGATION WITH A PERIOD

Obligations 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

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but terminate upon arrival of the day certain. A “day certain” is understood to be
that which must necessarily come, although it may not be known when. If the
uncertainty consists in whether the day will come or not, the obligation is
CONDITIONAL, and it shall be regulated by the rules of the preceding Section. (Art
1193)
When the debtor binds himself to pay WHEN his means permit him to do so, the
obligation shall be deemed to be one with a period, subject to the provisions of Art
1197. (Art 1180)
Concept: A space of time which, exerting an influence on obligations a s a

consequence of a juridical act, suspends their demandability or determines their
extinguishment.
Requisites of Period
1. Future
2. Certain
3. Possible
Period/Term vs. Condition
AS TO TERM/PERIOD CONDITION
Fulfillment Event must Event is uncertain

necessarily come,
whether known before
hand OR at a time
which cannot be
predetermined
Influence on the obligation No effect on the Gives rise to an
existence, but only on obligation or
their demandability or extinguishes one
performance, HENCE, already existing
does not carry with it
any retroactive effect
Time Always to the future May refer to past event

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not know to the parties
Will of the debtor If dependent on will of If dependent on will of

debtor, merely debtor, ANNUL
empowers court to fix
such period
1. As to effect
a. SUSPENSIVE (Ex die) - Obligations whose fulfillment a day certain has been
fixed, shall be demandable only when that day comes. (Art 1193 Par 1)
o Must lapse before the performance of the obligation can be demanded

o Think: incubating period
o The obligor has the burden of proving any extension of the period by
satisfactory evidence
o SUSPENSION OF PERIOD: If a fortuitous event supervenes, the obligor is
merely relieved of the obligation to fulfill at that time, and does not stop
the running of the period because in effect that would be an extension of
the term of the contract. Force majeure cannot be deducted from the
period stipulated.
o MORATORIUM LAWS: postponement of the fulfillment of an obligation, an
extension of the period for the performance of the obligation, decreed by
the statute. However, to meet constitutional requirements: The suspension
should be definite and reasonable.
b. RESOLUTORY (In diem) - Obligations with a resolutory period take effect at

once but terminate upon arrival of the day certain. (Art 1193 Par 2)
o Period after which the performance must terminate
o Think: expiry date
2. As to expression
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a. EXPRESS - when specifically stated
b. IMPLIED - when parties “intended a period”
E.g. Art 1197 Par 3 (period has been contemplated by the parties) Art 1180
(promise to pay when able) or when a person undertakes to do some work which
can be done only during a particular season
3. As to definiteness
a. DEFINITE - refers to a fixed known date or time
b. INDEFINITENESS - event which will necessarily happen but the date of its
happening is unknown
 The uncertainty of the date of occurrence in indeterminate period DOES

NOT convert it into a condition, so long as there is no uncertainty as
whether it will happen or not.
 E.g. death of a person, movable religious holidays (Holy Week), events in civil
or political life (age of majority or becoming a qualified voter)
 Debtor promises to “pay when able” or “little by little” or “as soon as
possible”
 Two steps in dealing with an indefinite period
1. Make the indefinite period definite by asking for payment or making
an extrajudicial demand
2. Make judicial demand, then ask the courts to fix the period
 No need to file to actions, just ask for two prayers to avoid multiplicity of
suits: (1) fix period and (2) require the debtor to comply on the fixed period
(action for specific performance)
4. As to source
a. CONVENTIONAL/VOLUNTARY - stipulated by the parties
LEGAL - period fixed by law; spread in the CC e.g. Art 1682 lease of rural
land and Art 1687 lease of urban land; Franchise agreement in the
Constitution (for 25 years)
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JUDICIAL - set by the courts in case of implied and indefinite periods (See:
When courts may fix period)
Rules in case of loss, deterioration or improvement before arrival of

period in Art 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.
 Same as Art 1189 Effect of loss or deterioration

LOSS DETERIORATION
Without Extinguished, unless Not liable for damage, creditor
debtor’s fault there is a stipulation to must accept the thing in
the contrary. Mode of impaired condition
extinguishment Art
1262 Par 1
With debtor’s Liable to damages upon May demand the thing OR ask
fault fulfillment of condition for rescission, in either case,
creditor may recover damages
EFFECT OF IMPROVEMENT
MODE
By nature or time Inures to the benefit of the creditor by virtue

of principle of retroactivity of conditional
obligations
At debtor’s expense Only usufructuary rights; Governed by Art
579 (useful improvements or for mere
pleasure, remove if possible to remove without
damage to property) and Art 580 (set off the
improvements he may have made against any
damage)

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EFFECT OF PAYMENT IN ADVANCE
Anything paid or delivered before the arrival period, the obligor being
unaware of the period OR believing that the obligation has become due and
demandable, may be RECOVERED, with the fruits and interests. (Art 1195)
 Only applies to obligations to give

 The action only lies before the arrival of the day certain, when the day certain
comes cannot recover
 If the creditor refuses, debtor will have to go to the court, but when judgment
comes, the day certain has already arrived.
 Good faith/bad faith of the creditor in accepting the premature payment
is immaterial
 In accordance with solutioindebiti, good faith of creditor makes him liable to
restore the fruits and interests insofar as it benefited him.
 The same principle as regards fruits and interest is true for payment before
happening of suspensive
 condition in Art 1188 Par 2
 Fruits and interests not recoverable in these cases:
o Reciprocal obligation and there has been a premature performance
on both sides
o When the obligation is a loan on which the debtor is bound to pay
interest
o When the period is exclusively for the benefit of the creditor,
because the debtor who pays in advance loses nothing
o If payment was with knowledge of the term, it cannot be recovered
because it is considered as tacit waiver of the benefit of the term
(not only fruits and interest, but also principal)
Note:
In every case, the court shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed by
the courts, the period cannot be changed by them. (Art 1197 Par 3)
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BENEFIT OF PERIOD
1. For whose benefit and its effects
Creditor May demand performance anytime, but not

compelled to accept before period expires E.g.
payment of interest, wants to keep his money
safely invested instead of having it in his
hands, protects himself from sudden decline
in purchasing power of the currency loaned
Debtor May oppose a premature demand, but may
validly pay any time before period expires
E.g. time to raise money
Both Presumption in absence of stipulation or in

case of doubt.
Creditor must give consent first before debtor
may pay in advance especially when creditor
receives other benefits by reason of the term.
2. Presumption - for the benefit of BOTH the creditor and debtor
Whenever in an obligation a period is designated, it is presumed

to have been established for the benefit of BOTH creditor and 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 the other.
(Art 1196)
3. When debtor loses right to make use of period
The debtor shall lose every right to make use of the period. (Art 1198)
NOTE:
a. When after the obligation has been contracted, he becomes insolvent

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UNLESS he gives a guaranty or security for the debt - dovetail with

accionpauliana (prior credit although demandable later)
b. When he does not furnish to the creditor the guaranties or securities

which he has promised
c . 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
d. When the debtor violates any undertaking in consideration of which the

creditor agreed to the period
e. When the debtor attempts to abscond - shows bad faith
 “INSOLVENCY” need not be declared in an insolvency proceeding,

enough that he is in a state of financial difficulty that he is unable to pay
his debts
 “IMPAIRED” need not be total; “disappear through fortuitous event”
total, used in the sense of “loss”
 Obligation becomes immediately due and demandable even if period has
not yet expired; converted to a pure obligation
 Does not apply to extension of period fixed by moratorium statutes
WHEN COURT MAY FIX PERIOD
If the obligation does not fix a period, but from its nature and circumstance
it can be inferred that a period was intended, the courts may fix the duration
thereof. (Art 1197)
The courts shall also fix the duration of the period when it depends upon
the will of the debtor.
The courts shall determine which 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.

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1. Period is implied - a period was intended; also INDEFINITE PERIOD
2. Period depends solely on will of debtor
o If it were condition: void
D. ALTERNATIVE OBLIGATIONS - plurality of objects

Concept
1. Conjunctive - all prestations must be performed to extinguish obligation
2. Disjunctive - one or some prestations must be performed to extinguish

obligation
a. Alternative - Debtor must perform one of several alternatives, choice

belongs to debtor UNLESS expressly given to creditor
b. Facultative - One principal prestation but one or more substitutes, choice

belongs to DEBTOR ONLY
 Absent indication that it is facultative, the presumption is that it

is ALTERNATIVE because creditor would be at a disadvantage if
facultative. Facultative is never presumed.
A person alternatively bound by different prestations shall completely
perform one of them. Par 2. The creditor cannot be compelled to receive part
of one and part of the other undertaking. (Art 1199 )
RIGHT OF CHOICE - debtor unless expressly granted to creditor
The right of choice belongs to the debtor, UNLESS it has been

expressly granted to the creditor. (Art 1200)
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
o Grant to creditor cannot be implied

o Choice may also be entrusted by the parties to a third person
LIMITATIONS ON RIGHT OF CHOICE
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 Right to choose is indivisible (cannot choose part of one and part

of the other)
 Cannot choose prestations which are impossible, unlawful or
could not have been the object of the obligation (Art 1200, Par 2)
EFFECT OF NOTICE OF CHOICE
o The effect of notice of choice is to limit the obligation to the object or

prestation selected, with all the consequences which the law provides.
o The obligation is converted to a simple obligation to perform the
prestation chosen.
o Once the selection has been communicated, it becomes irrevocable.
WHEN NOTICE PRODUCES EFFECT
The choice shall produce no effect except from the time it has been
communicated. (Art 1201)
1. Notice of selection/choice may be in any form provided it is sufficient

to make the other party know that election has been made.
 Orally
 In writing
 Tacitly - tacit declaration of the selection may be done:
o performance by the debtor who has the right to choose or in
the acceptance of a prestation by the creditor when he has
the right of selection
o when the creditor sues for the performance of one of the
prestation
o Any other unequivocal terms
2. Law does not require the other party to consent to the choice made by
the party entitled to choose. A mere declaration of the choice,
communicated to the other party is sufficient - unilateral declaration of
will
3. Only possible EXCEPTION: Debtor has chosen a prestation which could
not have been the object of the obligation; creditor􏰅s consent thereto
would bring about a novation of the obligation

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4. Plurality of Subject
 Joint: choice must be consented by all, as none of them can extinguish
the obligation alone
 Solidary: choice by one will be binding personally upon him, but not as
to other
5. Right to choose is not lost by the mere fact that the party entitled to
choose delays in making his selection.
 Substituted performance - when the debtor does not want to make a
choice, creditor can ask the court for a 3rd party e.g. clerk of court,
sheriff, or any other knowledgeable 3rd person to choose
EFFECT OF LOSS OR IMPOSSIBILITY OF ONE OR ALL PRESTATIONS
1. The debtor shall lose the right of choice, when among the prestations
whereby he is alternatively bound, only one is practicable. (Art 1202)
i. Converted to a simple and pure obligation; The impossibility of the act
must not be due to creditor􏰅s act where Art 1403 shall apply.
ii. Creditor cannot claim damages, because it’s the debtor’s call
2. If through the creditor’s act, the debtor cannot make a choice according
to the terms of the obligation, the latter may rescind the contract with
damages. (Art 1203)
i. Impossibility due to creditor
3. The creditor shall have a right to indemnity for damages when, through
the fault of the debtor, (Art 1204)
i. ALL THE THINGS which are alternatively the object of the obligation
have been LOST or
ii. COMPLIANCE of the obligation has become IMPOSSIBLE.
4. 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.

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5. Damages other than the value of the last thing or service may also be
awarded.
i. Applies to cases where the debtor has the right to choose

ii. If only some of the prestations are lost/impossible, not liable for
damages because he can still comply by performing the remaining
prestations even if there is only one (Art 1202)
iii. LOSS THROUGH FORTUITOUS EVENTS: obligation is extinguished,
debtor not liable for damages.
6.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. (Art 1205)
Until then, the responsibility of the debtor shall be governed by the following
rules:
i. If ONE of the things is LOST through fortuitous event, he shall perform

the obligation by delivering that which the creditor should choose from
the remainder, or that which remains if only one subsists.
ii. 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 debtor has disappear, with a right to
damages.
iii. If ALL the things are LOST through the fault of the debtor, the choice by
the creditor shall fall upon the price of any of them, also with indemnity
for damages.
NOTE: The same rules shall be applied to obligations to do or not to do, in case
ONE, OR SOME OR ALL of the prestations should become IMPOSSIBLE.
E. FACULTATIVE OBLIGATION
When only one prestation has been agreed upon, but the obligor may render
another in substitution, the obligation is called facultative. (Art 1206)

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The LOST 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.
Concept - Only one prestation is due, but the obligor reserved the right to render
another in substitution Distinguished from Alternative Obligation
AS TO ALTERNATIVE FACULTATIVE
Contents of the Various prestations Only the principal constitutes
obligation all of which the obligation , the accessory
constitute parts of being only a means to facilitate
the obligation payment
Nullity of prestation Nullity of one Nullity of the principal prestation

prestation does not (e.g. when the object is unlawful
invalidate the or outside the commerce of man)
obligation which is invalidates the obligation.
still in force with
respect to those Creditor cannot demand the
which have no vice substitute even when this is
valid.
Creditor can choose
from the remainder
Choice Right to choose may Only the debtor can choose the
be given to the substitute prestation
creditor
Effect of Loss Only the Impossibility of the principal

(fortuitous event) IMPOSSIBILITY OF prestation is sufficient to
ALL the prestations extinguish the obligation, even if
due without fault of the substitute is possible.
the debtor
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extinguishes the Loss of substitute does not make

obligation debtor liable, unless substitution
has been made
Effect of Loss Debtor not liable if Debtor is liable Loss of the
(through fault) other prestation still substitute before substation
available If choice does not render debtor liable
belongs to creditor,
loss of one alternative
gives rise to liability
EFFECTS OF SUBSTITUTION
1. Before the substitution is effected, the substitute is not the prestation that is
due.
2. If the substitute prestation becomes impossible due to the fault or
negligence of the debtor - obligation is not affected, and he cannot be held
for damages, even if he acts with bad faith in rendering the substitute
impossible.
3. From the time the debtor communicates to the creditor that he elects to
perform the substitute prestation, substitution is effective.
F. JOINT OBLIGATIONS - plurality of subjects, the juridical tie that binds them
A. Concept : Each of the debtors is liable only for a proportionate part of the
debt, and each creditor is entitled only to a proportionate part of the credit.
Each creditor can recover only his share of the obligation and each debtor can
be made to pay only his part.
a. Requisites of Joint Obligations
1. Plurality of subjects
2. Determination of the shares in the demandability of the

fulfillment of the obligation

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b. Words used to indicate joint obligations

1. Mancomunada
2. Mancomunada Simple
3. Pro rata
4. We promise to pay” used by two or more signers
B. Presumption in Joint Obligation
The concurrence of two or more creditors or of two or more debtors in
one and the same obligation does not imply that each one of the former has a
right to demand, OR that each one of the latter is bound to render entire
compliance with the prestations. There is a SOLIDARY LIABILITY only when
the obligation expressly so states OR when the law OR the nature of the
obligation requires solidarity. (Art 1207)
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 debit
shall be presumed to be divided 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.( Art 1208)
a. Joint character is presumed

b. Equal shares
EFFECTS OF JOINT OBLIGATION
a. Extent of liability of debtor
1. Only with respect to his particular share in the debt
2. Vices of each obligation arising from the personal defect of a particular

debtor or creditor does not affect the obligation or rights of the others
3. The insolvency of a debtor does not increase the responsibility of his co-
debtors nor does it authorize a creditor demand anything from his co-
creditors
4. JOINT DIVISIBLE OBLIGATION: defense of res judicata is not extended

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from one debtor to another
b. Extent of right of creditor
1. Demand by one creditor upon one debtor produces the effects of default
only with respect to the creditor who demanded and the debtor on whom
the demand was made, but not with respect to others.
2. Interruption of prescription by the judicial demand of one creditor upon a

debtor does not benefit the other creditors nor interrupt the prescription as
to other debtors
c. In case of:
1. Novation: Affects only the share of the joint co-debtor in whom the
novation is created
2. Compensation: Affects only the share of the joint co-debtor in whom the
compensation takes place
3. Confusion: Art 1277 Confusion does not extinguish a joint obligation
except as regards the share corresponding to the creditor or debtor in
whom the two characters concur.
4. Remission: Benefits only the joint co-debtor in whom the remission is
granted, obligation extinguishe.
G. SOLIDARY OBLIGATIONS
Concept: Each of the debtors is liable for the entire obligation, and each creditor is
entitled to demand the whole obligation. Each creditor may enforce the entire
obligation and each debtor may be obliged to pay it in full.
a. Solidary obligations exist only by:

1. Stipulation of the parties
2. Law
3. Nature of obligation
4. Charge of condition is imposed upon legatees or heirs
5. Imputed by final judgment upon several defendants
b. Requisites of Joint Obligations

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1. Plurality of subjects
2. Determination of the shares in the demandability of the fulfillment

of the obligation
c. Words used to indicate joint obligations

1. Mancomunadasolidaria
2. Joint and several
3. In solidum
4. “I promise to pay” followed by the signature of two or more
personS
5. “Individuall and collectively”
KINDS OF SOLIDARY OBLIGATIONS
a. As to source
1. law, or the nature or the wording of the obligation (Art 1208)
2. CONVENTIONA-L by stipulation of parties
REAL nature of the obligation requires
b. As to parties bound
1. ACTIVE - solidarity of creditors; each has right to collect the whole of the
prestation from the common debtor
i. Mutual representation
ii. Each creditors represents the other in the act of receiving the payment
and in all other acts which tend to secure the credit or make it more
advantageous
iii. Death of solidary creditor does not transmit the solidrity to each of his
heirs but all of them taken together
iv. The credit and its benefit are divided equally among the creditors

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UNLESS there is an agreement among them to divide differently
2. PASSIVE - solidarity of debtors; each is liable to pay the whole to the

common creditor
i.Mutual guaranty
3. MIXED - simultaneously active and passive
c. As to uniformity
1. UNIFORM - same terms and condition for all

2. VARIED/NON-UNIFORM- Solidarity may exist although the creditors and the
debtors may not be bound in the same manner and by the same periods and
conditions. (Art 1211)
i. Effects of non-uniform solidary liability only the portion due at the
time of the demand is collectible from any of the debtors or by anyone
of the creditors
EFFECTS OF SOLIDARY OBLIGATIONS
a. SOLIDARY CREDITOR in relation to:
1. Common debtor
i. Right to demand
o Debtor may pay to any solidary creditor, but if a judicial demand

is made against him, he must pay only to the plaintiff. (Art 1214)
 Judicial demand revokes the tacit mutual representation
of co-creditors, though not perpetually: only until such
time the action exists.
 Payment to creditor who did not sue is a payment to 3rd
person.
 Same effect granted to extrajudicial demand.
 DEMAND BY SEVERAL CREDITORS: Pay the one who
notified him first. If simultaneous, debtor reserves the
right to choose.
 Does not apply to MIXED SOLIDARITY: solidary co-debtor
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may pay in behalf of the one to whom demand has been

made AND to any of the solidary creditors
o 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 be subsequently be directed against others, so long as the
debt has not been fully collected. (Art 1216)
o Payment made by one of the solidary debtors extinguishes
the obligation. If two or more solidary debtors offer to pay, the
creditor may choose which to accept. (Art 1217, Par 1)
o Each creditor may renounce his right even against the will of
the debtor, and the latter need not thereafter pay the obligation to
the former.
In case of novation, compensation, confusion, remission by a

creditor
o Novation, compensation, confusion or remission of the debt, made by

any of the solidary creditors OR with any of the solidary debtors, shall
extinguish the obligation, without prejudice to the provisions of Art
1219 i.e. responsibility of a solidary co-debtor with respect to
reimbursement prior to his remission (Art 1215 Par 1)
2. Solidary co-creditor/s
In case of novation, compensation, confusion, remission
o The creditor who may have executed any of these acts, as well as he
who collects the debt, shall be liable to others for the share in
the obligation corresponding to them (Art 1215 Par 2)
o Remission done by several but not all of the creditors: those who made
it do not have action against each other, but all of them liable
for the share of one who does not remit
PREJUDICIAL ACTS PROHIBITED

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o Each one of the solidary creditors may do whatever is useful to the

others, but not anything which may be prejudicial to the latter. (Art
1212)
 E.g. remission, novation, compensation and merger/confusion
 Take note that the same act is permitted by Art 1215, wherefore
Tolentino concludes that the provision is “unhappily
inaccurate”.
 To harmonize with Art 1215: The prejudicial acts are valid as to
the debtor, but not with respect to the co-creditors whose rights
subsists and can be enforced against the creditor who
performed prejudicial acts
Assignment of rights not allowed
o Solidary creditor cannot assign his rights without the consent of others
(Art 1213)
o Why? As a solidary creditor, he is an agent of others, cannot assign
that agency without the consent of his principals. Implies mutual
confidence may take into account the personal qualification of each
creditor.
o Assignment of rights allowed as to co-creditor
b. SOLIDARY DEBTOR in relation to:
1. Common creditor
Obligation to perform:
o Each one of the solidary co-debtor is bound to render entire
compliance with the prestations (Art 1207)
In case of novation, compensation, confusion, remission by a creditor
o Extinguishes the obligation without prejudice to the

responsibility of a solidary co-debtor with respect to
reimbursement prior to his remission (Art 1215 Par 1)
2. Solidary co-debtor
In case of payment by a co-debtor
o Payment by one of the solidary co-debtors extinguishes the

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obligation. (Art 1217, Par 1)

o Solidary co-debtor who paid may reimburse from his co-
debtors only the share which corresponds to each, with the
interest for the payment already made, but if the payment is
made before debt is due, no interest for the intervening
period may be demanded. (Art 1217, Par 3)
o Converted into a Joint Obligation as to co-debtors, but no
real case of subrogation because the old one is extinguished and
the new one is created
o Partial payment: may recover only insofar as the payment
exceeded his share of the obligation
NOTE:
1. When one of the solidary debtors is insolvent and cannot

reimburse, his share will be borne by all his co-debtors in
proportion to the debt of each. (Art 1217, Par 3)
2. Payment by co-debtor does not entitle him to reimburse from co-
debtors if such payment is made after the obligation has
prescribed or become illegal. (Art 1218)
3. Also applies to prior total remission in favor of one debtor
4. 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 debt had been
totally paid by anyone of them before remission was effected. (Art
1219).
5. Applies when one of the debtors has already paid the obligation in
full (in such a case, the obligation as to the creditor is already
extinguished and nothing more to remit even partially).
6. Relationship of the creditor with the solidary debtor does not
extend to the relationship among solidary co-debtors.
7. The remission of the whole obligation, obtained by one of the
solidary debtors, does not entitle him to reimbursement from his
co-debtors. (Art 1220)
In case of fortuitous event
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1. 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 (Art 1221, Par 1)
2. If there was fault on the part of any one of them, ALL shall be
responsible to the creditor, for the price and payment of damages
and interests, without prejudice to their action against the guilty or
negligent debtor. (Art 1221, Par 2)
3. Guilty creditor who pays indemnity cannot recover from his co-
debtors.
4. Other co-debtors who pay the indemnity can recover the full
amount from the guilty co-debtor.
5. If through a fortuitous event, the thing is LOST or the performance
of the prestation has become
IMPOSSIBLE after one of the solidary debtors has incurred in delay
through the judicial or extra-judicial demand upon him by creditor,
the provisions of the preceding paragraph shall apply. (Art 1221,
Par 3)
LOST or IMPOSSIBLE Obligation is extinguished

without fault / fortuitous
event
LOST or IMPOSSIBLE with All liable for damages and interest, but co-
fault of any one debtors have right against guilty debtor
LOST or IMPOSSIBLE All liable for damages and interest, but co-
without fault / fortuitous debtors have right against guilty debtor
event but after any one
incurred in delay
DEFENSES AVAILABLE TO A SOLIDARY DEBTOR AGAINST THE CREDITOR

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A solidary debtor may, in actions filed by the creditor, avail himself of all
defense which are of four types (Art 1222):
1. Those derived from the nature of the obligation
i. Connected with the obligation and derived from its nature

ii. Constitutes a total defense
iii. E.g. non-existence of the obligation because of illicit cause, object or
absolute simulation, nullity due to defect in capacity or consent of all the
debtors (minority, fraud or violence), unenforceability because of lack of
proper proof under the Statute of Fraud, non-performance of suspensive
condition or non-arrival of period affecting the entire obligation,
extinguishment of the obligation such as by payment and remission, all
other means of defense which may invalidate the original contract
iv. Look for these things because it will give you a total defense:
o Vices of consent
o Cause of action has prescribed
o Entire obligation is void
o Voidable at the instance of “all of them”, BUT if just one, you can
use the defense as well
2. Personal defenses
i. Total defense e.g. minority, insanity, fraud, violence, intimidation

(sufficient causes to annul consent)
ii. Partial defense e.g. special terms or conditions affecting his part of the
obligation
3. Defenses pertaining to his share
o Partial defense
o E.g. may share is not yet due, so you can only compel me to give the
share of the co-debtors
4. Those personally belonging to the other co-debtors - avail himself thereof
only as regards that part of the debt for which the latter are responsible

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o Partial defense only for the debtor-defendant y

o E.g. the co-debtor􏰅s share is not yet due, so you can only compel me to
give my share
EFFECTS OF THE DEFENSES
1. If derived from the nature: all the solidary co-debtors are benefited
2. If personal one: only him benefited (exclusively)
3. If personally to the co-debtor: partial defense
JOINT INDIVISIBLE OBLIGATIONS
Concept: Their tie is joint, but the performance is indivisible. One in which the
object of the object or prestation is indivisible, not susceptible of division; while
the tie between the parties is joint, that is liable only to a proportionate share.
(Art 1209)
1. Several creditors or debtors but the prestation is indivisible, obligation is

joint unless solidary has been stipulated
2. Midway between joint (no creditor can do prejudicial acts to others, no
debtor can be made to answer for the others) and solidarity (fulfillment
requires the concurrence of all the debtors, collective action is expressly
required for prejudicial acts)
Indivisibility distinguished from solidarity
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of
itself imply indivisibility.( Art 1210)
INDIVISIBILITY SOLIDARITY
Each creditor cannot demand Each creditor may demand the full prestation
more than his share and each and each debtor has the duty to comply with
debtor is not liable for more the entire prestation
than his share
Indivisibility refers to the Solidarity refers to the legal tie or vinculum

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prestation that is not capable defining the extent of liability

of partial performance
Only the debtor guilty of All of the debtors is liable for the breach of
breach of obligation is liable for obligation committed by any one of the
damages, thereby terminating debtors
the agency
Can exist even if there is only Can only exist when there is at least creditor
one debtor or only one creditor or debtors (requires plurality of subjects)
The other debtors are not liable The other debtors are proportionately liable in
in case of insolvency of one case of insolvency of one debtor
debtor
Effects of Joint Indivisible Obligation
If the division is impossible, the right of the creditors may be

prejudiced only by their collective acts (Art 1209)
1. Creditors prejudiced only by their collective acts
2. Co-debtors not liable for the share of the insolvent debtor
3. Creditor must proceed against all the joint debtors, because the
compliance of the obligation is possible only if all the joint debtors would
act together.
4. If one of the debtors cannot comply, the obligation is converted into

monetary consideration (liability for losses and damages). One who is
ready and willing to comply will pay his proportionate share plus damages
when his financial condition improves.
5. Debtor must deliver to all the creditors. If he delivers to only one, liable
for non-performance as to other creditors. Damages are divisible and each

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creditor can recover separately his proportionate share.
Liability for damages in case of breach
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 which the obligation consists. (Art
1224)
1. Gives rise to indemnity for damages, non-compliance with undertaking
2. Debtors ready to fulfill shall not be liable
H. DIVISIBLE AND INDIVISIBLE OBLIGATION - performance of the prestation and

not to the thing which is the object thereof
H.1 DIVISIBLE OBLIGATIONS
Concept : One which is susceptible of partial performance; debtor can legally

perform the obligation by parts and the creditor cannot demand a single
performance of the entire obligation.
1. DIVISIBILITY OF THINGS different from DIVISIBILITY OF OBLIGATIONS

i. Divisible Thing: When each one of the parts into which it is divided
forms a homogenous and analogous object to the other parts as well
as to the thing itself
ii. Indivisible Thing: When if divided into parts, its value is diminished
disproportionately
2. Test of Divisibility
i. Will or intention of the parties
ii. Objective or purpose of the stipulated prestation
iii. Nature of the thing

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iv. Provisions of law affecting the prestation

Effects of Divisible Obligations
1. 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 (Nature and Effect of
Obligations). (Art 1223)
2. A debt shall not be understood to have been paid unless the thing or
service in which the obligation consists has been completely delivered or
rendered as the case may be.( Art 1233)
H.2 INDIVISIBLE OBLIGATIONS
Concept: Whatever may be the nature of the thing which is the object thereof,
when it cannot be validly performed in parts.
Distinguished from Solidary Obligations
INDIVISIBILITY SOLIDARITY
Each creditor cannot demand more Each creditor may demand the full
than his share and each debtor is prestation and each debtor has the duty
not liable for more than his share to comply with the entire prestation
Indivisibility refers to the prestation Solidarity refers to the legal tie or

that is not capable of partial vinculum defining the extent of liability
performance
Only the debtor guilty of breach of All of the debtors is liable for the breach
obligation is liable for damages, of obligation committed by any one of
thereby terminating the agency the debtors
Can exist even if there is only one Can only exist when there is at least
debtor or only one creditor creditor or debtors (requires plurality of
subjects)
The other debtors are not liable in The other debtors are proportionately
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case of insolvency of one debtor liable in case of insolvency of one debtor
Kinds of Indivisible Obligations
a. NATURAL
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.( Art 1225 Par 1)
1. Obligation to give definite things
2. Not susceptible of partial performance
b. LEGAL
However, even though the object or service may be physically
divisible, an obligation is indivisible if so provided by law or intended by
parties.( Art 1225 Par 3)
Presumptions in Indivisible Obligations
a. OF INDIVISIBILITY
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. (Art 1225 Par 1)
o Presumption of indivisibility also applies in obligations to do
b. OF DIVISIBILITY
When the obligation has for its object the execution of 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, shall be divisible. (Art 1225 Par 2)
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NOTE:
Divisibility and indivisibility in obligations not to do Art 1225 Par 4 In

obligations not to do, divisibility or indivisibility shall be determined by the
character of the prestation in each particular case.
Effects of Indivisible Obligations
1. 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 (Nature and
Effect of Obligations).( Art 1223)
2. A debt shall not be understood to have been paid unless the thing or
service in which the obligation consists has been completely delivered or
rendered as the case may be.( Art 1233)
EXCEPTIONS:
a. Obligation has been substantially performed in good faith (Art 1234)
b. When the creditor accepts performance, knowing its completeness,

and without protest, the obligation is deemed fully performed (Art
1235)
3. 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, which the obligation
consists.( Art 1224)
Cessation of Indivisibility
1. Natural Indivisibility: conversion of the obligation to pay damages

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2. Conventional/Legal Indivisibility: novation, death of creditor

(division among heirs)
NOTE:
Entire and Severable Contracts - depends upon the consideration to be

paid, not upon its object
I. OBLIGATIONS WITH A PENAL CLAUSE

Concept: An accessory undertaking to assume greater responsibility in case of
breach. Attached to an obligation to insure performance.
o “Ad terrorem clause”

o Generally a sum of money, but can be any other thing stipulated by
the parties, including an act or abstention
o Double function: (1) provide for liquidated damages and (2) strengthen
the coercive force of the obligation by the treat of greater
responsibility in the event of breach
o Mere non-performance of the principal obligation gives rise to damages
o PENAL CLAUSE constitutes an exception to the general rules on the
recovery of losses and damages.
PRINCIPAL OBLIGATION ACCESSORY OBLIGATION

Can stand alone, independent of Attached to the principal in order to
other obligations complete it or take their place in case of
breach
OBLIGATIONS WITH A PENAL CONDITIONAL OBLIGATION

CLAUSE
There is already an existing No obligation before the suspensive

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obligation (the principal) from the condition happens, it is the fulfillment of

very beginning the condition that gives rise to the
obligation
Accessory obligation (penalty) is Principal obligation itself is dependent
dependent upon non- performance upon an uncertain event
of the principal obligation
OBLIGATIONS WITH A PENAL ALTERNATIVE OBLIGATION

CLAUSE
Only one prestation and it is only Two or more obligations are due, but
when this is not performed that the fulfillment of one of them is sufficient
penal clause is enforceable
Impossibility of the principal Impossibility of one of the obligations,
obligation also extinguishes the without the fault of the debtor, still leaves
penalty the other subsisting
He cannot choose to pay the penalty The debtor an choose which prestation to
to relieve himself of the principal fulfill
obligation, unless that right is
expressly granted to him
OBLIGATIONS WITH A PENAL FACULTATIVE OBLIGATION

CLAUSE
Payment of the penalty in lieu of the Power of the debtor to make substitution
principal can be made only by is absolute
express stipulation
Creditor may demand both Creditor can never demand both
prestation as long as such right is prestations
granted to him (i.e. complementary
penalty)
OBLIGATIONS WITH A PENAL GUARANTY

CLAUSE
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SIMILARITIES
Contract by virtue of which a person,
called the guarantor, binds himself to
fulfill the obligation of the principal debtor
in case the latter should fail to do so.
1. They are both intended to insure the performance of the principal obligation.
2. They are both accessory and subsidiary obligations.
3. Can be both assumed by a third person.
To pay the penalty is different from The object of the obligations of the
the principal obligation principal debtor and the guarantor is the
same.
Principal obligation and the penalty Principal debtor cannot be the guarantor
can be assumed by the same of the same obligation
person.
Penalty is extinguished by the Guaranty subsists even when the

nullity of the principal obligation, principal obligation is voidable or
except when the penal clause is unenforceable or is a natural one.
assumed by a third person However, if the penal clause is assumed
by a third person, the same principle will
apply as in the case of a guaranty.
Kinds of Penal Clause
1. As to effect
SUBSIDIARY - only the penalty may be enforced
 Presumed in Art 1227: “Cannot demand the fulfillment of the

obligation and the satisfaction of the penalty at the same time”
 COMPLEMENTARY - both principal obligation and penalty may
be enforced
o Only occurs by express stipulation of the parties
2. As to source

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i. CONVENTIONAL - by express stipulation of the parties
ii. LEGAL - by law
3. As to purpose
i. PUNITIVE - the right to damages, besides the penalty subsists; the

question of indemnity for damage is not resolved, but remains
subsisting
o Only occurs by express stipulation of the parties

o Value of the penal clause is much more than the value of the
principal, it’s purpose is to bludgeon the debtor into performing the
obligation
o The Courts are authorized to reduce the damages if:
 They find that the breach was not one that is wanton
(noodles) or done in callous disregard for the rights of the
creditor
 Treble damages
ii. REPARATORY - substitutes the damages suffered by creditor; the

matter of damages is generally resolved, and it represents the
estimate of the damages that a party might suffer from non-
performance of the obligation, thereby avoiding the difficulties of
proving such damages
o Presumption in Art 1226, Par 1: “Shall substitute the indemnity
for damages and the payment of interests in case of non-
compliance”
o Pre-agreed measure prior to the breach
o Cases when damages and interest may be recovered in addition to
the penalty
 There is an express provision to that effect
 Debtor refuses to pay the penalty
 Debtor is guilty of fraud in the non-fulfillment of the
obligation
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Demandability of penalty
The penalty may be enforced only when it is demandable in accordance with

the provisions of Code. (Art 1226 Par 2)
a. Only when the non-performance is due to the fault or fraud of the debtor
b. Non-performance gives rise to the presumption of fault - creditor does not

need to prove the fault of the debtor. Burden of proof for the excuse on the
debtor. (Art 1228)
c. When creditor elected fulfillment but the same has become impossible
(Art 1227)
o HOWEVER, penalty not enforceable when the principal obligation

becomes IMPOSSIBLE:
 Due to fortuitous event
 Because the creditor prevents the debtor from
performing the principal obligation
Effects of penal clause
1. Substitute for indemnity for damages and payment of interest (Art 1226)
EXCEPTION: Unless there is a stipulation to the contrary e.g. becomes a
facultative obligation
2. Not exempt debtor from performance 􏰆 penalty is not a defense for leaving
obligation unfulfilled Art 1227 The debtor cannot exempt himself from the
performance of the obligation by paying the penalty
EXCEPTION: Where this right to substitute penalty has been expressly
reserved for him
3. Creditor cannot demand both performance and penalty at the same time Art
1227 neither can the creditor demand the fulfillment of the obligation and
the satisfaction of the penalty at the same time􏰈 EXCEPTION: Unless this
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right has been clearly granted him
4. Creditor cannot collect other damages in addition to penalty Art 1226

Substitute the indemnity for damages and the payment of interest in case of
non-fulfillment
EXCEPTIONS:
1. There is an express provision to that effect
2. Debtor refuses to pay the penalty
3. Debtor is guilty of fraud in the non-fulfillment of the obligation
NOTE:
When penalty shall by equitably reduced Art 1229 The judge shall equitably
reduce the penalty when the principal obligation has been partly or irregularly
complied with by the debtor. Even if there is no performance, the penalty may
also be reduced by the courts if it is iniquitous or unconscionable.
Effects of Nullity of Principal Obligation or Penal Clause
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. (Art 1230)
GENERAL RULES:
1. Nullity of principal obligation Also nullifies the penal clause
EXCEPTION: Penal clause may subsist even if the principal obligation

cannot be enforced
2. When the penalty is undertaken by a 3rd person precisely for an

obligation which is unenforceable, natural or voidable assumes a form of
guaranty which is valid under Art 2052.
3. Nullity of principal obligation itself gives rise to liability of debtor for

damages e.g. vendor knew that the thing was inexistent at the time of the

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contract, vendor becomes liable for the damages although contract itself
is void
4. Nullity of penal clause does not affect the principal obligation. In the
case of non-performance, damages shall be determined by the same rules
as if no penalty had been stipulated. Penal clause may be void because
it is contrary to law, morals, good customs, public order or public policy.
Rationale: Penalty is merely an access.
IV. EXTINGUISHMENT OF OBLIGATIONS
A. Payment (Arts. 1236- 1238)

a. Application of payment (Arts. 1252-1254)
b. Dation in payment (Art. 1245)
c. Cession or Assignment (Art. 1255)
d. Tender of payment and Consignation (Arts. 1256- 1261)
B. Loss of the thing due or impossibility or difficulty of performance (Arts. 1262,

1266- 1257)
C. Condonation or Remission of debt

a. Express condonations and required formality thereof (Art. 1270)
b. Implied (Arts. 1271, 1272, 1274)
D. Confusion or merger of rights (arts. 1275, 1272)
E. Compensation
a. Kinds (Arts. 1278, 1279)
1. Legal compensation (Arts 1286-1290)
2. Agreement (Art. 1282)
3. Voluntary (Art 1282)
4. Judicial (Art 1283)
5. Facultative
b . Obligations NOT compensable (Arts. 1287-1288)
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F. Novation (Arts. 1291-1288)
EXTINGUISHMENT OF OBLIGATIONS
PRINCIPAL MODES (Mnemonics: PALORMECONO FRAP)

1. Payment or Performance
2. Loss of the thing due
3. Condonation or remission of debt
4. Confusion or Merger of rights
5. Compensation
6. Novation
Other modes
7. Annulment
8. Rescission
9. Fulfillment of resolutory condition
10.Prescription
Not stated in the Civil Code:
11.Death of a party in Personal Obligations
12.Mutual Desistance
13.Compromise
14.Impossibility of fulfillment
15.Happening of fortuitous event
16.Arrival of resolutory period
17.Will of one of the parties due to indeterminate duration or nature of the
prestation / unilateral withdrawal in Partnership
18.Change of civil status
19.Rebus sic stantibus (art. 1267)
20.Want of interest in someone circumstances
21.Abandonment in special cases
22.Insolvency judicially declared and debtor is discharged
A. PAYMENT or PERFORMANCE (Art. 1232)

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Payment means not only the delivery of money but also the performance, in
any other manner, of an obligation.
CONCEPT:
a. In broadest sense: consist in the fulfillment of the obligation either
voluntarily or involuntarily, including its extinguishment by any means or
mode whatsoever;
b. In its limited sense: it consists in the normal and voluntary fulfillment of
the obligation by the realization of the purposes for which it was constituted;
c. In its more limited sense: it consists in the fulfillment of the obligation by
the delivery of a sum of money.
When obligation is understood paid or performed (Art. 1233)

GENERAL RULE: A debt shall be understood to have been paid when it is
completely delivered or rendered.
EXCEPTIONS:
a. When the obligation has been substantially performed in good faith (Art.
1234)
In this case, the obligor may recover as though there had been a strict
and complete fulfillment.
b. When the oblige accepts the performance, knowing its incompleteness or

irregularity (Art. 1235)
The oblige is considered to be deemed fully complied with if the oblige
will not express any protest or objection.
Who may Pay or perform the Obligation

a. The debtor or obligor himself or his legal representative
b. Any third person
1. If payment made without the knowledge or against the will of the
debtor: the recovery is only up to the extent or the amount of the debt
at the time of the payment; the defense may only be availed of by the
obligor

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2. If the payment was with the knowledge of the debtor: the rights of the
reimbursement and subrogation are acquired by the third person
To whom payment must be made

a. The person in favor the obligation has been constituted
b. His successor in interest
c. Any person authorized by law or by the oblige at the time when payment is
due to receive it (not during the obligation is constituted)
Payment to Third Person

GENERAL RULE: Payment is Not valid, even though made in good faith.
EXCEPTION:
a. Payment which redounded to the benefit of the obligee
o Instances when the presumption that the payment redounded to the
benefit of the oblige:
1. After payment, third person acquires the creditor’s
(subrogation)
2. Creditor ratifies payment to third person
3. By creditor’s conduct, debtor has been led to make the
payment (estoppel)
b. Payment to the possessor of the credit, when made in good faith
REQUISITES:
1. Payment by debtor must be made in good faith
2. Creditor must be in possession of the credit and not merely the evidence of
indebtedness.
Right of creditor
GENERAL RULE: the debtor cannot compel the creditor to receive payment which
is different from what has been agreed upon
EXCEPTION:
1. When it is made by a third person who has an interest in the fulfillment of
the obligation, such as a joint debtor, guarantor or surety.

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2. When there is a stipulation to the contrary. In this case, the creditor is

deemed to have waived his right to refuse to deal with strangers to the
obligation.
Payment to incapacitated person valid if:

a. Incapacitated person kept the thing delivered, or
b. Insofar as the payment has been beneficial to him
Place of Payment
If there is no express designation or stipulation in the obligation with respect to
the place where payment shall be made, the following rules are applicable:
a. If the obligation is to deliver a determinate thing, the payment shall be
made at the place where the thing might be at the time the obligation was
constituted.
b. In any other case, the payment shall be made at the domicile of the debtor.
SPECIAL RULES/ FORMS OF PAYMENT

a. APPLICATION OF PAYMENTS
Concept: Application of payment may be defined as the designation of the
debt to which the payment must be applied when the debtor has several
obligations of the same kind in favor of the same creditor.
REQUISITES:
1. There must be only one debtor and only one creditor
2. There must be two or more debts of the same kind
3. All the debts must be due
Exceptions:
i. Parties so stipulate
ii. When application of payment is made by the party for whose benefit the
term has been constituted
iii. Payment is not enough to extinguish all debts
4. The amount paid by the debtor must not be sufficient to cover the total
amount of all the debts

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When Debts are not of same burden

When the debts due are not of the same burden, the rule is that the debt
which is most onerous to the debtor shall be deemed to have been satisfied.
From judicial decisions and work of commentators, the following rules may,
therefore, be stated:
i. Where there are various debts which are due and they were incurred at
different dates, the oldest are more onerous to the debtor than more
recent ones.
ii. Where one debt bears interest and the other does not , even if the latter
was incurred at an earlier date, the first is more onerous to the debtor.
As between two debts which bear interest, the debt with a higher
interest is more onerous to the debtor.
iii. Where one debtor is secured and the other is not, the first is more
onerous to the debtor.
iv. Where the debtor is bound as principal in one obligation and as a
guarantor or surety in another, the former is more onerous to him.
v. When the debtor is bound as a solidary debtor in one obligation and as
the sole debtor in another, the former is more onerous to him.
vi. Within a solidary obligation, the share which corresponds to a solidary
debtor would be most onerous to him.
vii. Where one obligation is for indemnity and the other is by way of penalty ,
the former is more onerous to the debtor.
viii. Where one debt is liquidated and the other is not, the former is
more onerous to the debtor.
How Application is Made:

1. Debtor makes the designation
i. If not, creditor makes it by so stating in the receipt that he issues-
UNLESS there is cause for invalidating the contract.
2. If neither the debtor nor creditor has made the application or if the
application is not valid, then application is made by operation of law.

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Who Makes Application of Debts

GENERAL RULE: Debtor
EXCEPTION: Creditor
1. Debtor without protest accepts receipt in which creditor specified
expressly and unmistakably the obligation to which such payment was to
be applied- debtor in this case renounced to right of choice.
2. When monthly statements were made by the bank specifying the
application and the debtor signed said statements approving the status
of her account as thus sent to her monthly by the bank
3. In case no application is made
i. Apply payment to the most onerous.
ii. If debts are of the same nature and burden, application shall be
made to all proportionately.
B. DATION IN PAYMENT
Mode of extinguishing an obligation whereby the debtor alienates in favor

of the creditor property for the satisfaction of monetary debt; extinguish up to
amount property UNLESS with contrary stipulation. A special form of payment
because one element of payment is missing: IDENTITY
REQUISITES FOR VALID DACION EN PAGO:

1. There must be the performance of the prestation in lieu of payment
(animosolvendi), which may consist in the delivery of a corporeal thing or
a real right or a credit against the third person.
2. There must be some difference between the prestation due and that
which is given in substitution (aliud pro alio)
3. 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.
CONDITIONS FOR A VALID DACION:

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1. If a creditor consents, because a sale presupposes the consent of both

parties
2. If dacion will NOT prejudice the other creditors
3. If debtor is NOT judicially declared insolvent
NOTE: DACION is governed by the law on sales.
DACION EN PAGO DISTINGUISHED FROM PACTUM COMMISORIUM

Dacion en Pago PactumCommisorium
There is an intervening Generally, only one single contract where the
agreement subsequent parties agree that in the event debtor fails to pay,
and independent from the the mortgaged or pledged property shall
original contract is enterd automatically be appropriated or owned by the
into by the parties to have creditor
the property to have the
property collaterizes in the
original agreement of the
debt
valid void
DACION EN PAGO DISTINGUISHED FROM PLEDGE

Dacion en Pago Pledge
Delivery and transfer of Delivery but no transfer of ownership
ownership
Presumed since less transmission of rights
DACION EN PAGO DISTINGUISHED FROM SALE

Dacion en Pago Sale
Preexisting credit none
Obligation extinguished Obligation arises
Less freedom in Greater freedom
determining the price
Total or partial Payment of price generally totally extinguishes
extinguishment

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If done by mistake, … recovery of the price paid

recovery of the thing
DACION EN PAGO DISTINGUISHED FROM ASSIGNMENT

Dacion en pago Assignment
Substitute forms of performance
One creditor Several creditors
Debtor not partially Debtor partially insolvent

insolvent
C. CESSION IN PAYMENT
the process by which debtor transfer all the properties not subject to
execution in favor of creditors is that the latter may sell them and thus, apply
the proceeds to their credits; extinguish up to amount of net proceeds (UNLESS
with contrary stipulation)
KINDS of ASSIGNMENT
1. Legal- governed by the insolvency law
2. Voluntary – agreement of creditors
REQUISITES OF VOLUNTARY ASSIGNMENT: (DACCI)

1. More than one debt
2. More than one creditor
3. Complete or partial insolvency of debtor
4. Abandonment of all debtor’s property not exempt from execution
5. Acceptance or consent on the part of the creditors
EFFECTS of ASSIGNMENT:
1. Creditors do not become the owner; they are merely assignees with
authority to sell
2. Debtor is released up to the amount of the net proceeds of the sale,
UNLESS there is a stipulation to the contrary

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3. Creditors will collect credits in the order of preference agreed upon, or in

default of agreement, in the order ordinarily established by law
DATION EN PAYMENT DISTINGUISHED FROM CESSION IN PAYMENT

Dation en Cession in payment
payment
As to number of One creditor Plurarity of creditors
parties
As to financial NOT necessarily Debtor must be partially or relatively
conditions of in state of insolvent
Parties financial difficulty
As to object Thing delivered is Universality of property of debtor is
considered as what is ceded
equivalent of
performance
As to effect Payment Merely releases debtor for net proceeds
extinguishes of things cede of, assigned, unless
obligation to the there is a contrary intention.
extent of the
value of the thing
delivered as
agreed upon,
proved or implied
from the conduct
of the creditor
D. TENDER OF PAYMENT and CONSIGNATION
TENDER OF PAYMENT - theact of offering the creditor what is due him

together with a demand that the creditor accept the same( when creditor
refuses without just cause to accept payment , he becomes in moraaccepiendi
and debtor released from responsibility if he consigns the thing or sum due)

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CONSIGNATION - the act of depositing the thing with the court of judicial
authorities whenever the creditor cannot accept or refuses to accept payment ;
generally requires prior tender of payment.
REQUISITES OD VALID CONSIGNATION: (VLPAS)

1. Existence of valid debt that was due
2. Consignation was made because of some legal cause- previous valed
tender was unjustly refused or circumstances making previous tender
exempt
3. Prior notice of consignation had been given to the person interested in
performance of obligation (1st notice) (art 1257)
4. Actual deposit/ consignation with proper judicial authorities
5. Subsequent notice of consignation (2nd notice)
EFFECTS: EEXTINGUISHMENT OF OBLIGATION

1. Debtor may ask judge to order cancellation of obligation
2. Running of interest is suspended
3. Before creditor accepts or before judge declares consignation has been
properly made, obligation remains (debtors bears risk of loss at the
meantime, after the acceptance of the creditor or after the judge declare
that consignation is properly made- risk of loss is shifted to the creditor)
CONSIGNATION WITHOUT PRIOR TENDER allowed in (Art. 1256):

1. Creditor absent or unknown/ does not appear at the place of payment
2. Incapacitated to receive payment at the time it is due
3. Refuses to issue receipt without just cause
4. Two or more creditor claiming same right to collect
5. Title of obligation has been lost
6. Debtor had previously been notified by the creditor that the latter would
not accept any payment. (Banahaw, Inc. vs. Dejarme, 55 Phil 338 (1930)
TENDER PAYMENT DISTINGUIHED FROM CONSIGNATION

Tender of payment Consignation

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Antecedent act; Principal act; produces the effects of payment

preparatory
Extrajudicial Judicial
E. LOSS OF THE THING DUE OR IMPOSSIBILITY OR DIFFICULTY OF

PERFORMANCE
LOSS OF THE THING DUE: the thing which constitutes the object of the
obligation PERISHES , or GOES OUT OF COMMERCE OF MAN, or
DISAPPEARS in such a way that its EXISTENCE IS UNKNOWN or it CANNOT
BE RECOVERED. It includes the impossibility or difficulty in the performance
of the obligation.
When is there Impossibility of Performance

a. Physical impossibility
b. Legal impossibility
1. Directly- caused as when prohibited by law
2. Indirectly- caused as when debtor required to enter a military draft
c. Moral impossibility (impracticability)(Art. 1267)
EFFECT OF LOSS IN OBLIGATION TO DELIVER A SPECIFIC THING

GENERAL RULE: Loss shall extinguish the obligation
EXCEPTIONS:
1. If by the law the obligor shall be liable even for fortuitous event
2. If by stipulation the obligor is liable even for fortuitous event
3. If the nature of the obligation requires the assumption of the risk
4. If the loss of the thing occurs after the obligor incurred in delay
5. If the obligor promised to deliver the same thing to two or more persons who
do not have the same interest
6. If the obligation is generic, UNLESS the object is particular class or group
with specific or determinate qualities
OBLIGATION TO DELIVER A GENERIC THING

GENERAL RULE: not extinguished
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EXCEPTIONS:
1. If the generic thing is delimited
2. If the generic thing has already been segregated
3. Monetary obligation
EFFECT OF IMPOSSIBILITY OR PERFORMANCE IN OBLIGATION TO DO

GENERAL RULE: Debtor is released when prestation becomes legally or physically
impossible without fault on part of debtor
EFFECT OF PARTIAL LOSS

1. When loss is significant- may be enough to extinguish obligation
2. When loss insignificant- NOT enough to extinguish obligation
NOTE:
o Judicial determination of extent is necessary
o Doctrine of Unforeseen Events: The court is authorized to release the
obligor, in whole or in part, when the service has become so difficult as to be
manifestly beyond the contemplation of the parties.
o Doctrine of Subjective Impossibility: The obligation undoubtedly becomes
impossible of there is no physical or legal loss but the object obligation
belongs to another person; the obligor must indemnify the oblige for the
damages suffered by the latter.
WHEN THING IS LOST IN THE POSSESSION OF THE DEBTOR

Presumption: Loss due to debtor’s fault (disputable)
Exception: Natural calamity, earthquake, flood, storm
REBUS SIC STANTIBUS: Agreement is valid only if the same conditions prevailing
at time of contracting continue to exist at the time of performance. Obligor
may be released in whole or in part based on this ground.
REQUISITES:
1. The event or change could not have been foreseen at the time of the
execution of the contract.

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2. The performance is extremely difficult, but not impossible (because if it is

impossible, it is extinguished by impossibility)
3. The event was not due to the act of any of the parties
4. The contract is for a future prestation
F. CONDONATION OR REMISSION OF DEBT
CONDONATION OR REMISSION: An act of liberality by virtue of which the

oblige, without receiving any price or equivalent, renounces the enforcement of
the obligation, as a result of which it is extinguished in its entirety or in that
part or aspect of the same to which the remission refers.
REQUISITES:
1. There must be an agreement
2. There must be a subject matter( object of the remission, otherwise there
would be nothing to condone)
3. Cause of condonation must be liberality (essentially gratuitous, an act of
liberality)
4. Parties must be capacitated and must consent; requires acceptance by
obligor; implied in mortis causa and expressed inter vivos
5. Formalities of a donation are required in the case of an express remission
6. Revocable- subject to rule on inofficious donation (excessive, legitime is
impaired)
7. Obligation remitted must have been demandable at the time of remission
8. Waivers or remission are not to be presumed generally
RULES IN INOFFICIOUS DONATIONS (Art 1270)
Effects of Renunciation of Principal or Accessory Obligation

The renunciation of the principal debt shall EXTINGUISH the accessory
obligations; but waiver of the latter shall leave the former in force.

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Requisites of Implied Condonation

1. Voluntary delivery – presumption; when evidence of indebtedness is
w/ debtor presumed voluntarily delivery by creditor; rebuttable
2. Effect of delivery of evidence of indebtedness is conclusion that debt is
condoned; already conclusion; voluntary delivery of private document
i. If in hands of joint debtor – only his share is condoned
ii. If in hands of solidary debtor - whole debt is condoned
iii. Tacit – voluntary destruction of instrument by creditor; made to
prescribe without demanding
G. CONFUSION OR MERGER OF RIGHTS

It is the meeting in one person of the qualities of creditor and debtor with
respect to the same obligation.
NOTE:
1. Erases the plurality of subjects of the obligation and extinguishes the
obligation because it is absurd that a person should enforce an obligation
against himself
2. May revoked, as a result of which the obligation is recreated in the same
condition that it had when merger took place
3. CAUSE OF MERGER: Anything that brings about succession to the credit
Requisites of Confusion
1. Must take place between the creditor and the principal debtor
2. Must be clear and definite
3. Obligation involved must be the same and identical- one obligation only
4. Evocable, if reason for confusion ceases, the obligation is revived
Effects of Confusion
1. In general : EXTINGUISHES the obligation
2. In case of:

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i. Joint obligations – extinguishes ONLY as regards the share

corresponding to the creditor or debtor in whom the two characters
concur
ii. Solidary Obligations – extinguishes the ENTIRE obligation
Confusion in Principal or Accessory Obligation

1. Merger releases the guarantor because they are merely accessory obligations
2. Guarantor acquires credit, his obligation as guarantor is extinguish, but the
principal obligation subsists which he can enforce against the debtor and
other co-guarantors
3. When mortgage property belongs to a third person, mortgagee acquires a
part of the property; the same is released from the encumbrance. The
Obligation merely becomes a partly (if the acquisition is not total) unsecured
obligation.
H. COMPENSATION
Set off; it is a mode of extinguishment to the concurrent amount the obligation

of persons who are in their own right reciprocally debtors or creditors.
REQUISITES:
1. Both parties must be principally creditors and debtors - in their own right
and as principals
2. Both debts must consist in sum of money or if consumable , of the same
kind or quality
3. Both debts are due
4. Both debts are liquidated and demandable (determined)
5. Neither debt must be retained in a controversy commenced by 3rd person
and communicated w/ debtor (neither debt is garnished)
KINDS OF COMPENSATION
a. Legal
• takes place by operation of law

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• as long as 5 requisites concur- even if unknown to parties and if payable in

diff places
• indemnity for expense of exchange
• even if not equal debts – only up to concurring amount
b. Conventional / Conventional
• agreement of parties is enough, forget other requirement as long as both
consented
• each of the parties can dispose of the credit he seeks to compensate
• they agree to the mutual extinguishment of their credits
c. Facultative – one party has choice of claiming/opposing one who has benefit
of period may choose to compensate:
i. Not all requisites are present
ii. Depositum; commodatum; criminal offense; claim for future support;
taxes
d. Judicial
• set off upon order of the court;
• needs pleading and proof;
• all requirements must concur EXCEPT liquidation
e. Total – when 2 debts are of the same amount
f. Partial – when 2 debts are not of the same amount
EFFECTS OF LEGAL COMPENSATION

1. Both debts are extinguished to the concurrent amount.
2. Interests stop accruing on the extinguished obligation or part
extinguished.
3. Period of prescription stops with respect to the obligation or part
extinguished
4. All accessory obligations of the principal which has been extinguished
are also extinguished.
5. If a person should have against him several debts which are susceptible
of compensation, the rules on application of payments shall apply to the
order of the compensation

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WHEN COMPENSATION IS NOT ALLOWED

1. Depositum
2. Commodatum
3. Support due to gratuitous title
4. Civil liability arising from a penal offense
NOTE:
A deposit is made or a commodatum is given on the basis of confidence
of the owner. It is therefore just that the depositary or borrower should in fact
perform his obligation; otherwise the trust of the depositor or lender would be
violated.
TITLE II
CONTRACTS
CHAPTER 1 - GENERAL PROVISIONS

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Contract – meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service.
Basic Principles or Characteristics of a Contract
1. Autonomy of Contract ( freedom to stipulate, freedom to contract, liberality

of contracts) – contracting parties may establish such stipulations, clauses,
terms, and conditions as they may deem convenient
Limitations Upon the Right to Contract
a. Not contrary to law
b. Not contrary to morals
c. Not contrary to good customs
d. Not contrary to public order
e. Not contrary to public policy
2. Mutuality of Contract – both parties are mutually bound. Its validity or
compliance cannot be left to the will of one of them. (1308)
The validity or fulfillment of a contract cannot be left to the will of one of
the contracting parties.
May the Determination of the Performance of a Contract be Left to a Third

Person?
YES. But the decision shall not be binding until it has been made known
to both contracting parties. (1309)
If the determination is evidently inequitable, it shall not be obligatory. In

such a case, the courts shall decide what is equitable under the
circumstances. (1310)
3. Obligatory – obligations arising from contract have the force of law between
the contracting parties and should be complied with in good faith
4. Relativity of Contract

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General Rule: a contract is binding only between the parties, their assigns
and heirs (1311)
Exceptions:
a. Only between the parties

 Where the obligations arising from contract are not transmissible by
nature (personal qualification is involved), by stipulation or by
provision of law (agency, partnership, commodatum)
b. Affects third persons or strangers

 Stipulation pour autrui (1311)
 Where a third person induces another ot violate his contract (1314)
 Where, in some cases, third persons may be adversely affected by a
contract where they did not participate
 Where the law authorizes the creditor to sue on a contract entered
into by his debtor
 Contracts creating status
 Contracts creating real rights (1312)
 Contracts entered into to defraud creditors (1313)
 Collective agreements where the majority rules over the minority
(CBA, suspension of payments under the insolvency law)
STIPULATION POUR AUTRUI

It is a stipulation in a contract clearly and deliberately conferring a favor
upon a third person who has a right to demand its fulfillment provided he
communicates his acceptance to the obligor before its revocation. (1311)
Test of beneficial stipulation - A mere incidental interest of a 3rd person is

not within the doctrine; it must be the purpose and intent of the stipulating
parties to benefit the third person
Requisites of stipulation pour autrui

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i. Stipulation in favor of third person is a part, not the whole of the

contract
ii. Favorable stipulation not conditioned or compensated by any kind of
obligation whatever
iii. Neither of the contracting parties bear the legal representation or
authorization of the third party
iv. Benefit to the 3rd person was clearly and deliberately conferred to by
parties
v. Third person communicated his acceptance to the obligor before the
latter revokes the same
A PERSON MAY BE BOUND BY THE CONTRACT ENTERED INTO IN HIS NAME

BY ANOTHER
TWO REQUISITES:
1. The person entering into the contract must be duly authorized,
expressly or impliedly, by the person in whose name he contracts or he
must have, by law, a right to represent him (guardian or administrator)
2. He must act within his authority (1317)
Both requisites must be present. Otherwise, the contract is unenforceable

unless there is ratification by the person in whose name the contract was entered
into before it is revoked by the other contracting party. (1403)
KIND/CLASSIFICATIONS OF CONTRACT
1. According to perfection or formation
a. Consensual – perfected by mere consent (1315)
b. Real – perfected by delivery of the subject mater (1316)
c. Formal or Solemn – perfected by execution of the required form
2. According to cause or equivalence of the value of prestation
a. Onerous – where there is an exchange of valuable consideration (sale,
lease, partnership)

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b. Where the party receives no equivalent prestation (donation,

commodatum)
c. Where the prestation is in exchange for a benefit or service that had
been rendered previously by the party remunerated
3. According to importance or dependence of one upon the other

a. Principal – can stand alone, contract may exist by itself (sale, lease)
b. Accessory – where the contract depends upon some other contract for
its existence (pledge, mortgage, guaranty)
c. The parties do not consider the contract as an end by itself, but as a
means thru which future transaction or contracts may be made
(agency, partnership)
4. According the parties obligated

a. Unilateral – only one party has obligation (loan, gratuitous deposit,
guaranty)
b. Bilateral or reciprocal – both parties have obligations (sale, lease,
partnership)
5. According to their name or designation

a. Nominate – has a name given by law
b. Innominate – no name given by law
i. Do ut des – I give that you may give
ii. Do utfacias – I give that you may do
iii. Faciout des – I give do that you may give
iv. Facioutfacias – I do that you may do
6. According to the risk of fulfillment

a. Commutative – real fulfillment, where equivalent values are stipulated
and given
b. Aleatory – fulfillment, benefit to each party depends upon chance
(insurance)

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7. According to the time of performance or fulfillment

a. Executed – one completed at the time the contract is entered into;
prestations are already complied with
b. Executor – one where the prestations are to be complied with at some
future time
c. Partially executed
8. According to subject matter

a. Contracts involving things
b. Contracts involving tights or credit
c. Contracts involving services
9. According to obligations imposed and required by law

a. Ordinary
b. Institutional (contract of marriage)
10. According to the evidence required for its proof

a. Those requiring merely oral or paroevidnce
b. Those requiring written proof
11. According to the number of persons actually and physically entering

into the contracts
a. Ordinary
b. Auto contracts – where only one person represents two opposite
parties, but in different capacities
12. According to the number of persons who participated in the drafting

of the contract
a. Ordinary
b. Contract of adherence/adhesion – where the terms and conditions of
the contract are already drafted by one party. The other party only
signifies his consent by signing the contract
c.

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13. According to the nature of the contract

a. Personal
b. Impersonal
STAGES OF A CONTRACT
1. Preparation/negotiation/conception/generation – parties come up with the
terms and conditions of the contract
2. Perfection/birth – meeting of the minds; meeting of offer and acceptance
3. Consummation/death/performance/termination – parties have performed
their respective obligation/s and the contract may be said to have been fully
executed
HOW ARE CONTRACTS PERFECTED?
General rule: by mere consent (1315, 1319)
Exceptions:
a) real contracts – consent + delivery (1316)

b) solemn or formal contracts – consent + compliance with special formalities
required by law (1356)
CHAPTER 2 - ESSENTIAL REQUISITES OF CONTRACTS
ELEMENTS OF A CONTRACT
1. Essential Elements/Requisites – those without which no contract can validly

exist (1318)
a. Consent
b. Object certain/subject matter
c. Cause or consideration
2. Natural Elements – presumed to exist by reason of the nature of the contract,
unless the contrary is stipulated (warranty against eviction and warranty
against hidden defects)

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3. Accidental Elements – existence of such is dependent on the agreement of the

parties or by stipulation (conditions, period, interest, penalty) (1306)
AUTO CONTRACTS – made by a person acting in another’s name in one capacity
COLLECTIVE CONTRACTS – will of majority binds a minority to an agreement

notwithstanding the opposition of the latter
CONTRACTS OF ADHESION – one party has already prepared a form of contract

containing the stipulation he desires, and he simply asks the other party to agree
to them if he wants to enter into the contract
CONSENT
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. (1319)
REQUIREMENTS:
1. Plurality of subject
2. Capacity
3. Intelligence and free will
4. Manifestation of intent of parties
5. Cognition by the other party
6. Conformity of manifestation and cognition

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1. Must be MANIFESTED by the concurrence of the offer and acceptance with

respect to object and cause
OFFER – unilateral proposition which one party makes to the other for the celebration
of the contract. It must be:
a. Elements of Valid Offer

 DEFINITE - so that upon acceptance an agreement can be reached on
the whole contract; not definite if object is not determinate
 COMPLETE - indicating with sufficient clearness the kind of contract
intended and definitely stating the essential conditions of the proposed
contract, as well as the non-essential ones desired by the offeror
 INTENTIONAL - should be serious and not made for fun or in jest
b. What may be fixed by the offeror - time, place and manner of acceptance
 The person making the offer may fix the time, place and manner of
acceptance, all of which must be complied with. (1321)
 Acceptance not made in the manner provided by the
offeror is ineffective.
c. When made through the agent - accepted from the time acceptance
communicated to the agent. An offer made through an agent is accepted from
the time acceptance is communicated to him. (1322)
d. Suppose the offerror has allowed the offeree a certain period to accept, may
the offer be withdrawn even before the expiration of the period?
General rule: Yes
Exceptions:
 The offer has already been accepted, and
 The option given the offeree is founded upon a consideration as
something paid or promised (1324)

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e. Business advertisements of things for sale - Unless it appears otherwise,

business advertisements of things for sale are not definite offers, but mere
invitation to make an offer. (1325)
f. Advertisement for bidders - Advertisements for bidders are simply invitations

to make proposals, and the advertiser is not bound to accept the highest of
lowest bidder, UNLESS the contrary appears. (1326)
 Not applicable to judicial sale wherein the highest bid must necessarily
be accepted
g. When offer becomes ineffective

 Death, civil interdiction, insanity or insolvency of either party before
acceptance is conveyed (1323)
 When the offer is expressly or impliedly rejected, revoked, withdrawn
before acceptance is communicated
 Qualified or conditional acceptance of the offer, which becomes a
counter-offer
 When the subject matter becomes illegal or impossible before
acceptance is communicated
 When the period of time given to the offeree within which he must
signify his acceptance has already lapsed or expired
ACCEPTANCE – an unaccepted offer does not give rise to consent
a. Must be absolute (Art 1319)

b. Kinds of acceptance
 EXPRESS (Art 1320)
 IMPLIED (Art 1320) arise from acts or facts which reveal the intent to
accept such as the consumption of things sent to the offeree, or the
fact of immediately carrying out the contract offered

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 QUALIFIED (Art 1319) not an acceptance but constitutes a counter-

offer
c. If made by letter or telegram
 Acceptance made by letter or telegram does not bind the offerer except
from the time it came to his knowledge. (Art 1319 Par 2)
Four theories on when the contract is perfected
1. Manifestation theory - counterofferee manifest his acceptance
2. Expedition Theory - sending of the letter, mailing if by letter
3. Reception Theory - receipt of the message of acceptance
4. Cognition Theory - knowledge of offeror of the acceptance,
“… except from the time of his knowledge” (art 1319 par 2)
d. Period of acceptance - When the offerer has allowed the offeree a certain
period to accept: (1324)
 Offeree may accept any time until such period expires.
 Acceptance beyond the time fixed is not legally an acceptance but
constitutes a new offer.
 Acceptance not made in the manner provided by the offeror is
ineffective.
 If offeror has not fixed the period, the offeree must accept immediately
within a reasonable tacit period.
 Offer implies an obligation on the part of the offeror to maintain it for
such a length of time as to permit the offeree to decide whether to
accept it or not.
 Extinguishment or annulment of offer
o Withdrawal by the offeror
o Lapse of the time for option period
o Legally incapacitated to act
o Offeree makes counter-offer

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o Contract becomes illegal
e. Contract of option – 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. (1324)
 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
 Must be supported by an independent consideration and the grant
must be exclusive
 If the option is not supported by an independent consideration, offeror
can withdraw the privilege at any time by communicating the
withdrawal to the other party, even if the “option” had already been
accepted.
f. Period for acceptance

 Stated fixed period in the offer
 No stated fixed period
o Offer is made to a person present – acceptance must be made
immediately
o Offer is made to a person absent – acceptance may be made
within such time that, under normal circumstances, an
answer can be received from him
o NOTE: Acceptance may be revoked before it comes to the

knowledge of the offerror.
g.Amplified acceptance – under certain circumstances, a mere amplification on

the offer must be understood as an acceptance of the original offer, plus a new
offer which is contained in the amplification.

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h. Rule on complex offers

 Offers are interrelated – contract is perfected if all the offers are
accepted
 Offers are not interrelated – single acceptance of each offer results in a
perfected contract unless the offeror has made it clear that one is
dependent upon the other and acceptance of both is necessary.
2. Necessary LEGAL CAPACITIES of the parties
Who cannot give consent (1327):
a. Unemancipated minors
b. Insane or demented persons
c. Deaf-mutes who do not know how to write
When offer and/or acceptance is made (1328)
a. During a lucid interval – VALID

b. In a state of drunkenness - VOIDABLE utter want of understanding
c. During a hypnotic spell - VOIDABLE utter want of understanding
Rules on Contracts Entered into by Minors
GENERAL RULE: Voidable
EXCEPTIONS:
a. Upon reaching the age of majority – they ratify the same

b. They were entered unto by a guardian and the court having
jurisdiction had approved the same
c. They were contracts for necessities such as food, but here the
persons who are bound to give them support should pay therefor
d. Minor is estopped for having misrepresented his age and misled the
other party (when age is close to age of majority

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c) The consent must be INTELLIGENT, FREE, SPONTANEOUS and REAL – A

contract where consent is given through mistake, violence, intimidation, undue
influence, or fraud is VOIDABLE. (1330)
a. Characteristics of consent
i. Intelligent – there is capacity to act (1327 and 1329)
ii. Free and voluntary – there is no vitiation of consent by reason
of violence or intimidation (1330)
iii. Conscious or spontaneous – there is no vitiation of consent by
reason of mistake, undue influence or fraud (1330)
b. Vices of Consent
i. Mistake or error – a wrong or false notion about such matter,

a belief in the existence of some circumstance, fact or event
which in reality does not exist.
In order that MISTAKE may invalidate consent, it should
refer to the substance of the thing which is the object of the
contract, or to those conditions which have principally moved one
or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the
parties will vitiate consent only when such identity or
qualifications have been the principal cause of the contract.
A simple mistake of account shall give rise to its correction.
(1331)
Kinds of Mistake
 Mistake of fact - generally not a ground for annulment of
contracts
o Ground of mistake based on error is limited to cases
in which it may reasonably be said that without such
error the consent would not have been given
o Effect of mistake is determined by whether the
parties would still have entered into the contract
despite knowledge of true fact influence upon party

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a. As to Invalidates consent if refers to the

substance of substance of the thing. But if mistake
object in lot number for instance, remedy is
only reformation of the contract.
b. As to principal
conditions Invalidates consent
(essential or
substantial in
character)
c. As to identity For identity/error as to person -
or qualifications generally not, except when
of one of the thequalification is the principal cause
parties of the contract especially ingratuitous
contracts.
For qualifications - Invalidates consent
Solvency of the party - not a cause of
nullity
d. As to For identity/error as to person -
quantity, as generally not, except when
distinguished thequalification is the principal cause
fromsimple of the contract especially ingratuitous
mistake of contracts.
account For qualifications - Invalidates consent
Solvency of the party - not a cause of
nullity
Error of account is a mistake in
computation, make propercorrection
Error as to quantity may vitiate a
contract if the primaryconsideration is
the quantity e.g. parcel of land was
actually only 10ha and not 30 ha
o Mistakes that do not affect the validity of the contract

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 Error with respect to accidental qualities of the

object of the contract
 Error in the value of the thing
 Error which refers not to conditions of the
thing, but to accessory matters in the
contract, foreign to the determination of the
objects
 Error of law – mistake as to the existence of a legal
provision or as to its interpretation or application
GENERAL RULE: Ignorantialegisneminemexcusat

Ignorance of the law excuses no one from compliance
therewith. (Art 3)
EXCEPTION: Mutual error of law

Mutual error as to the legal effect of an agreement when the
real purpose of the parties is frustrated, may vitiate
consent. (1334)
Requisites for mutual error of law
o Error must be as to the legal effect of an agreement
includes rights and obligations of the parties, not as
stipulated in the contract but as provided by law
o Must be mutual
o Real purpose of the parties is frustrated
 When one of the parties is unable to read and fraud is
alleged – burden of proof on party enforcing the contract
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. (1332)
 There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract.
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o Party cannot allege error which refers to a fact known

to him or which he should have known by ordinary
diligent examination of the facts
o Courts consider not only the objective aspect of the
case but also the subjective e.g. intellectual capacity
of the person who made the mistake
o E.g. caused by manifest negligence
ii. Violence and intimidation
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 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. (1335)
DURESS: degree of constraint or danger either actually inflicted

(violence) or threatened and impending (intimidation) sufficient to
overcome the mind and will of a person of ordinary firmness.
Seriousness of the evil or wrong measured both objectively (degree

of harm that the evil in itself is likely to produce) and subjectively
(determining the effect of the threat upon the mind of the victim in
view of his personal circumstances and his relation to the author
of the intimidation)
 VIOLENCE

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o Physical force or compulsion

o External and generally serve to prevent an act from
being done
o Requisites of Violence
 Irresistible physical force
 Such force is the determining cause for giving
consent
 INTIMIDATION
o Moral force or compulsion
o Internal operating upon the will and induces the
performance of an act
o Influences the mind to choose between two evils,
between the contract and the imminent injury
o Requisites of Intimidation
 Determining cause of the contract
 That the threatened act be unjust or unlawful
 Real and serious
 Produces a well-grounded fear the person
making it will carry it over
“Person” not limited to life and physical integrity but also includes
liberty ad honor, covers all injuries which are not patrimonial in
nature.
“Reasonable fear” fear occasioned by the threat must be

reasonable and well-grounded; it must be commensurate with the
threat.
 Effect of Violence and Intimidation - 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. (1336)
iii. Undue influence
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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.
(1337)
UNDUE INFLUENCE INTIMIDATION

There need not be an unjust or Unlawful or unjust act which is
unlawful act threatened andwhich causes
consent to be given
Moral coercion
By analogy, undue influence by a third person may also vitiate

consent (Art 1336)
iv. Fraud (dolocausante)
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. (1338)
 Requisites of Fraud
o Must have been employed by one contracting party
upon the other (Art 1342 and Art 1344)
 If both party, they cannot have action against
each other, fraud is compensated (1344)
o Induced the other party to enter into a contract (Art
1338)
o Must have been serious (Art 1344)
o Must have resulted in damage or injury to the party
seeking annulment
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ERROR FRAUD
Vitiate the consent only when it Mistake induced by fraud will
refers to the always vitiate consentwhen
matters mentioned in Art 1331 fraud has a decisive influence
on suchconsent
 Kinds of Fraud
o DoloCausante – determines or is the essential cause
of the consent; ground for annulment of contract
(1338)
o DoloIncidente – does not have such a decisive
influence and by itself cannot cause the giving of
consent, but only refers to some particular or
accident of the obligation; only gives rise to action for
damages. (1344 par 2)
 Failure to disclose facts, when there is a duty to reveal

them, as when the parties are bound by confidential
relations, constitutes FRAUD. (1339)
o GENERAL RULE: Silence or concealment does not

constitute a fraud
o EXCEPTIONS:
 There is a special duty to disclose certain
facts
 According to good faith and usages of
commerce the communication should have
been made
 The usual exaggerations in trade, when the other party

had an opportunity to know the facts, are NOT in
themselves fraudulent (1340)
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o Also known as TOLERATED FRAUD or unlawful

misrepresentation (dolus bonus) as long as they do
not go the the extent of malice
o Caveat emptor do not give rise for action for damages
because of their insignificance OR because the
stupidity of the victim is the real cause of his loss.
Import of “opportunity to know facts.”
 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. (1341)
 Effects of Fraud
o Nullity of the contract
o Indemnification for damages
v. Misrepresentation
 By a third person – misrepresentation by a third person
does NOT vitiate consent, unless such misrepresentation
has created substantial mistake and the same is mutual
(1342)
o GENERAL RULE: Fraud by third person does not
vitiate the contract
o EXCEPTIONS:
 If third person is in collusion with one of the
parties, he is considered an accomplice to the
fraud and contract becomes VOIDABLE
 If third person not in connivance with any of
the parties but leads them both into error
(mutual error), the consent is vitiated,
contract is VOIDABLE
o VIOLENCE AND INTIMIDATION BY THIRD PERSON:

annuls the contract
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o FRAUD BY THIRD PERSON: does not annul unless it

produces substantial mistake on the part of both
parties
o Justification for the difference:
 Party has nothing to do with fraud by a third
person and cannot be blamed for it
 Intimidation can be more easily resisted than
fraud
 Made in good faith – misrepresentation made in good faith is
not fraudulent but may constitute error. (1343)
 Active/Passive
o Applicable to legal capacity especially age
vi. Simulation of Contracts – declaration of 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.
 Kinds of Simulated Contract (1345)

o Absolute – parties do not intend to be bound at all
o Relative – the parties conceal their true agreement
 Effects of Simulation of Contract (1346)

o Absolute – fictitious contract; VOID
o Relative – parties are bound to the real or true
agreement except:
 If the contract should prejudice third persons
 Or if the purpose is contrary to law, morals,
public order, policy or good customs
 Requisites

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 An outward declaration of will different

from the will of the parties
 The false appearance must have been
intended by mutual agreement
 The purpose is to deceive third persons
ABSOLUTE (simulados) RELATIVE (disimulados)

Color of contract, without any Parties have an agreement
substance thereof, the parties which they conceal under
not having intention to be theguise of another contract
bound
VOID - Does not legally exist. VALID except when it
Illusory, mere phantom,injuring prejudices 3rd persons or has
3rd persons, generally an illicitpurpose
fraudulent 1. Ostensible acts apparent or
fictitious; contract thatthe
parties pretend to have
executed
2. Hidden act real; true
agreement between the parties
 Recovery under simulated contract in absolute simulation

o If does not have illicit purpose - prove simulation to
recover what may have been given
o If simulated has illegal object - IN PARI DELICTO
rules apply
OBJECT OF CONTRACTS
1. What may be the object of contracts (1347)

a. All things not outside the commerce of man
i. Including future things, do not belong to the obligor at the time the
contract is made; they may be made, raised or acquired by the
obligor after the perfection of the contract
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 Conditional – subject to the coming into existence of the

thing
 Aleatory – one of the parties bears the risk of the thing never
coming into existence
ii. Outside the commerce of man – all kinds of things and interests
whose alienation or free exchange is restricted by law or
stipulation, which parties cannot modify at will
 Services which imply an absolute submission by those who
render them, sacrificing their liberty, independence or own
beliefs or disregarding in any manner the equality and
dignity of persons e.g. perpetual servitude or slavery
 Personal rights e.g. patria potestas, marital authority,
status, capacity of persons, honorary titles
 Public offices, inherent attributes of the public authority,
political rights of individuals e.g. right of suffrage
 Property while they pertain to the public dominion
 Sacred things e.g. air and sea
b. All rights not intransmissible
c. All services not contrary to law, morals, good customs, public policy and
public order
2. Requisites of object of contracts

a. Within the commerce of man – either existing or in potency (1347)
b. Licit, not contrary to law, morals, good customs, public policy or public order
(1347)
c. Possible (1348)
d. Determinate as to its kind or determinable without the need to enter into a
new contract (1349)
e. Transmissible
3. What may NOT be the object of contracts

a. Contrary to law, morals, good customs, public policy or public order
b. Indeterminable as to their kind
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c. Outside the commerce of man

d. Intransmissible rights
e. Future inheritance, except when authorized by law (Art 1347 par 2)
f. Impossible things or services (1348)
i. Examples of impossible things
 Not susceptible of existing
 Outside the commerce of man
 Beyond the ordinary strength of power of man
ii. Liability for damages
 Debtor know of impossibility – liable for damages
 Debtor is ignorant of impossibility and ignorance if
justifiable – no liability for damages
 Both parties have knowledge of impossibility – no liability
for damages
iii. Impossibility must be actual and contemporaneous with the
making of the contract and not subsequent
 ABSOLUTE or objective – nobody can perform it
 RELATIVE or subjective – due to the special conditions or
qualification of the debtor it cannot be performed
o TEMPORARY – does not nullify the contract
o PERMANENT – nullifies the contract
CAUSE OF CONTRACT
1. Meaning of CAUSE
a. Why of a 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
2. Requisites of Cause
a. It must exist

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b. It must be true
c. It must be licit
3. As Distinguished from Object

a. Object is the starting point of agreement, without which the negotiations or
bargaining between the parties would never have begun
b. Object may be the same for both of the parties
c. Cause is different with respect to each party
4. As Distinguished from Consideration
CONSIDERATION CAUSE
Reason or motive or inducement by Why of contracts; essential reason that
which a man is moved into bind himself compels
by agreement contracting parties to celebrate the
contract
Requires a legal detriment to the Never rejects any cause as insufficient;
promisee more than a need not bematerial at all and may
moral duty consist in moral satisfaction for the
promissory
5. Causa in some contracts (1350)

a. Onerous contracts – the prestation of promise of a thing or service by the
other; need not be adequate or an exact equivalent in point of actual value
especially in dealing with objects which have rapidly fluctuating price
b. Remuneratory contracts – the service or benefit remunerated
c. Pure beneficence – mere liberality of the donor or benefactor (gratuitous)
d. Accessory – identical with cause of principal contract, the loan which it
derived its life and existence (ex: mortgage or pledge)
6. As distinguished from motive

The particular motives of the parties in entering into a contract are different from
the cause thereof. (1351)

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CAUSE MOTIVE
Direct and most proximate reason of a Indirect or remote reasons
contract
Objective and juridical reason of a Psychological or purely personal reason
contract
Always the same for both parties Differs with each person
GENERAL RULE: Motive does not affect the validity of the contract.
EXCEPTIONS:
a. When the motive of a debtor in alienating property is to defraud his creditors,
alienation is RESCISSIBLE
b. When the motive of a person in giving his consent is to avoid a threatened
injury, in case of intimidation, the contract is VOIDABLE
c. When the morive of a person induced him to act on the basis of fraud or
misrepresentation by the other party, the contract is likewise VOIDABLE
7. Defective Causes and their Effects
Absence of cause (1352) VOID – produce no legal effect

Illegality of cause (1352) VOID – produce no legal effect
Falsity of cause (1353) Voidable – party must prove that causeis
untruthful;presumptionof validitybutrebuttable
Cause not stated in the PresumedtoExist-burdenofproofis
contract (1354) onthepersonassailingitsexistence
Inadequacy of cause (1355) DoesnotInvalidateContractperse
Exceptions:
• fraud
• mistake
• undueinfluence
• casesspecifiedbylaw
-contractsenteredwhenwardsuffers
lesionofmorethan25%

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CHAPTER 3 - FORMS OF CONTRACT
FORM – insome kind of contracts only as contracts are generally consensual; form
is a manner in which a contract is executed or manifested.
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
3. Real – creation of real rights over immovable property must be written
When Form is Important

1. For validity (formal/solemn contracts)
2. For enforceability (statute of frauds)
3. For convenience
GENERAL RULE: Contracts shall be obligatory, in whatever form they may have
been entered into, provided the 3 essential requisites concur. (1356)
EXCEPTIONS: (1356)
1. When the law requires that a contract be in some form for VALIDITY –
donation and acceptance of real property
2. When the law requires that a contract be in some form in to be
ENFORCEABLE – statute of frauds; contract is valid but right to enforce
cannot be exercised; need retification to be enforceable
3. When law requires that a contract be in some form for convenience –
contract is valid and enforceable, needed only to bind 3 rd parties
Example: public documents needed for the ff:
 Contracts which object is creation, transmission or reformation

of real rights over immovable
 Cession, repudiation, renunciation of hereditary rights/CPG
 Power to administer property for another
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 Cession of action of rights proceeding from an act appearing in a

public instrument
 All other docs where amount involved is in excess 500 (must be
written even private documents)
Kinds of Formalities Required by Law
1. Ad esentia, ad solemnitatem – those required for the validity of contracts, such
as those referred to in
a. Art 748 Donation of movable

b. Art 749 Donation of immovable
c. Art 1874 Sale of piece of land through an agent
d. Art 2134 Contract of antichresis; amount of principal and of the interest
e. Art 1771 Partnership; immovable property or real rights are contributed
f. Art 1773 Partnership; inventory of immovable property contributed
g. Art 1956 Interest for using someone else’s money
h. Art 2140 Chattel mortgage
2. Those required, not for the validity, but to make the contract effective as
against third perosns, such as those covered by Article 1357 (if law requires a
special form, parties may compel each other to observe that form upon
perfection of the contract) and Article 1358 (documents which must appear in
a public document; it also constitutes constructive delivery)
a. Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property;
sales of real property or of an interest therein a governed by Articles 1403,
No. 2, and 1405
b. The cession, repudiation or renunciation of hereditary rights or of those of
the conjugal partnership of gains
c. The power to administer property, or any other power which has for its
object an act appearing or which should appear in a public document, or
should prejudice a third person

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d. The cession of actions or rights proceeding from an act appearing in a

public document.
All other contracts where the amount involved exceeds five hundred pesos
must appear in writing, even a private one. But sales of goods, chattels or
things in action are governed by Articles, 1403, No. 2 and 1405.
3. Ad probationem – those required for the purpose of proving the existence of

the contract, such as those under the Statute of Frauds in Art 1403
CHAPTER 4 - REFORMATION OF INSTRUMENTS
REFORMATION OF CONTRACTS – remedy to conform to real intention of

parties due to mistake, fraud, inequitable conduct, accident
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. (1359)
Reason for Reformation of Instruments

4. Equity dictates the reformation of instrument in order that the true
intention of the contracting parties may be expressed. Unjust and
inequitable to allow the enforcement of a written instrument which does not
reflect or disclose the real meeting of the minds of the parties
5. Court do not attempt to make a new contract for the parties, but only to
make the instrument express their real agreement
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6. Statute of Frauds is no impediment to the reformation of an instrument

7. Distinguished from Annulment
REFORMATION ANNULMENT
Action presupposes a valid existing No meeting of the minds or the consent of
contract between the partiesand only the either one was
document or instrument which was drawn vitiated by mistake or fraud
up andsigned by them does not correctly
express the terms of agreement
Gives life to the contract upon certain Involves a complete nullification of
corrections contracts
Causes/ Grounds:
1. Mutual – instrument includes something which should not be there or omit
what should be there
a. Mutual
b. Mistake of fact
c. Clear and convincing proof
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 of Instruments

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 issue in pleadings

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NOTE: prescribes in 10 years from date of execution of instrument
Example of Cases where Reformation is Allowed

1. When a mutual mistake of the parties causes the failure of the instrument
to disclose their real agreement, said instrument may be reformed. (1361)
2. 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. (1363)
3. 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. (1364)
When Reformation NOT Available (1366)
1. Simple donation inter vivos
2. Wills
3. When real agreement is void
4. Estoppel when party has brought suit to enforce it
Implied ratification (Art 1367) – when one of the parties has brought an action
to enforce the instrument, he cannot subsequently ask for its reformation.
 There has been election between two inconsistent remedies, one in

affirmance, the other in disaffirmance
Who may ask for reformation
1. MUTUAL MISTAKE: either party or successor in interest

2. MISTAKE BY ONE: injured party, heirs or assigns
 Art 1368 Reformation may be ordered at the instance of either party or
his successors in interest, if the mistake was mutual; otherwise, upon
petition of the injured party, or his heirs and assigns.
 Art 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

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intention, the former may ask for the reformation of the instrument.
Procedure of reformation
 The procedure for the reformation of instrument shall be governed by

ROC to be promulgated by the Supreme Court. (1369)
NOTE: RA 8792 (E-COMMERCE ACT) – formal requirements to make

contracts effective as against third persons and to establish the existence of a
contract are deemed complied with provided that the electronic document is
unaltered and can be authenticated as to be useable for future reference
CHAPTER 5 - INTERPRETATION OF CONTRACTS
Primacy of intention
1. Verbaintentione non e contradebentinservare - words ought to be

subservient to the intent, not the intent to the word
2. Look for the contractual intent
a. 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. (1370)
b. 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. (1372)
 Generaliaverbasuntgeneraliterintelligencia - general things are to
understood in a general sense
How to determine intention
1. In order to judge the intention of the contracting parties, their

contemporaneous and subsequent acts shall be principally considered.
(1371)
2. Also take note of the usage and customs of the place How to interpret a

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contract
a. When it contains stipulations that admit of several meanings, it
shall be understood as bearing that import which is most
adequate to render it effectual. (1373)
b. When it contains various stipulations, some of which are doubtful
, 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. (1374)
c. When it contains words that have different significations it shall
be understood in that which is most in keeping with the nature
and object of the contract. (1375)
d. When it contains ambiguities and omission of stipulations, the
usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the
omission of stipulations which are ordinarily established. (1376)
e. With respect to the party who caused the obscurity, the
interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity. (1377)
 Contracts of adhesion - resolved against the party who
prepared the contract and in favor of the one who merely
adhered to it
f. When it is absolutely impossible to settle doubts by the rules
above, 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. (1378 par 1)
 In gratuitous contracts, incidental circumstances - least
transmission of rights and interests
 In onerous contracts - greatest reciprocity of interests
g. When the doubts are cast upon the principal objects so that what
may have been the intention or will of the parties cannot be
known, the contract shall be null and void. (1378 par 2)
Applicability of Rule 12, Rules of Court (now Secs. 10-19, Rule 130)

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 The principles of interpretation stated in Rule 123 of the Rules of Court

shall likewise be observed in the construction of contracts. (1379)
o Law in evidence; interpretation of documents)
In between VALID and DEFECTIVE contracts is RELATIVELY INEFFECTIVE -
ineffectively only with respect to certain parties, but are effective as to other
persons.
 Against voidable contract: ineffectiveness is produced ipso jurey

 Void or inexistent contract: can be made completely effective by the
consent of the person as to whom it is effective or by the cessation of the
impediment which prevents its complete ineffectiveness
o assignment of the lease by the lessee without the consent of the
lessor is ineffective only as regards the lessor
o transfer of a debt by the debtor to another, without the consent
of the creditor is ineffective as to the creditor
o the payment by a debtor to his creditor after the credit has been
garnished or attached by a third person is ineffective to the latter
CHAPTER VI - RESCISSIBLE CONTRACTS
DEFECTIVE CONTRACTS
Kinds of Defective Contracts
1. RESCISSIBLE – contract that has caused a particular damage to one of the
parties or to a third person and which for EQUITABLE REASONS may be set
aside even if valid
2. VOIDABLE OR ANNULLABLE (contratonulo) – contract in which CONSENT
of one of the parties is defective, either because of WANT OF CAPACITY or
because it is VITIATED, but which contract is VALID UNTIL JUDICIALLY
SET ASIDE
3. UNENFORCEABLE – contract that for some reason CANNOT BE
ENFORCED, UNLESS RATIFIED in the manner provided by law
4. VOID AND NON-EXISTENT (contratoinexistente) – contract which is an
ABSOLUTE NULLITY and produces NO EFFECT, as if it had never been
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executed or entered into
1. RESCISSIBLE CONTRACTS – Those which have caused a particular economic

damage either to one of the parties or to a third 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'
The following are rescissible contracts:

a. Under art 1381: Contracts entered into by persons exercising fiduciary
capacity
1. Entered into by guardian whenever ward suffers damage by more
than1/4 of value of object
(Guardian: authorized only to “manage” ward’s property, no power to
dispose without prior approval of court. Only includes those which
are “ordinary course” of management of estate of the wad, because if
sale, mortgage and other encumbrance AND not approved by court, it
becomes unenforceable.)
2. Agreed upon in representation of absentees, if absentee suffers lesion

by more than ¼ of value of property
(Same principle in relation to contracts by guardian)
3. Contracts where rescission is based on fraud committed on creditor
(accionpauliana)
Requisites of AccionPauliana
a. Plaintiff asking for rescission(subsidiary action) has a credit
prior to the alienation
b. Debtor has made subsequent contract, giving advantage to
third person
c. Creditor has no other remedy but to rescind the debtor’s
contract to the third person (last resort)
d. Act being impugned is fraudulent

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e. 3rd person who received the property is an accomplice in the

fraud.
 Credit must be existing at the time of the fraudulent alienation,

although not yet due. But at the time of accionpauliana, the credit
must already be due because it presupposes a judgment and
unsatisfied execution which cannot exist when the debt is not yet
demandable at the time the rescissory action is brought.
 GENERAL RULE: Credit is prior to the alienation
 EXCEPTION: Credit is after alienation but entitles to
accionpauliana because of some prior right
a. Claims were acknowledged by the debtor after the
alienation, but origin of which antedated the alienation
b. Those who become subrogated, after the alienation, the
rights of a creditor whose credits were prior to alienation
 Even secured credits are entitled to AP
 Conveyance was intentionally fraudulent which may be established
by the presumption in Art. 1387
 TEST OF FRAUD: Whether the conveyance was a bona fide
transaction or a trick and contrivance do defeat creditors or whether
it conserves to the debtor a special right; founded on good
consideration or is made with bona fide intent.
 Good consideration: Creditor is not prejudiced becomes the property
was merely replaced or substituted
 Badges of fraud applicable
4. Objects of litigation; contract entered into by defendant w/o

knowledge or approval of litigants or judicial authority
 To secure the possible effectivity of a calm
 Transferee of property in good faith who acquires property for
valuable consideration, without knowledge of the litigation or claim of
the plaintiff, cannot be deprived of property.

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5. Payment by an insolvent – on debts w/c are not yet due; prejudices

claim of others
6. Provided for by law - art 1526, 1534,1538, 1539, 1542, 1556, 1560,
1567and 1659
a. Their defect consist in injury or damage either to one of the
contracting parties or to third persons
LESION: injury which one of the parties suffers by virtue of
contract that is disadvantageous to him; must be known or cold
have been known at the birth of contract and not due to
subsequent thereto or unknown parties
e.g.
Art 1098 Partition, judicial and extrajudicial may be rescinded on
account of lesion
Art 1539 Sale of real estate of inferior thing
Art 1542 Sale of real estate made for lump sum
b. They are valid before rescission
c. They can be attacked directly only, not collaterally
d. They can be attacked only either by contracting party, or by third
person who is injured or defrauded
e. They can be convalidated only by prescription and not by
ratification
b. Under art 1382 - Payments made in a state of insolvency
a) Plaintiff has no other means to obtain reparation.

b) Plaintiff must be able to return whatever he may be obliged to
return due to rescission
c) The things must not have been passed to 3rd parties who did not
act in bad faith
d) It must be made within the prescribed period (of 4 years)

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RESCISSION
Art 1380 Contracts validly agreed upon may be rescinded in the cases
established by law.
Definition Remedy granted by to the contracting parties and even to third
persons, to secure the reparation of damages caused to them by a contract,
even if this should be valid, by means of the restoration of things to their
condition at the moment prior to the celebration of the said contract/
o Relief for protection of one of the contracting parties AND third persons
from all injury and damages contract may cause OR protect some
incompatible and preferent right created by the contract.
o Implies a contract which, even if initially valid, produces a lesion or
pecuniary damage to someone
o Set asides the act or the contract for justifiable reasons of equity
o Grounds for rescission can only be for legal cause
o Voidable contracts may also be rescinded
Rescission Art 1380 distinguished from Resolution Art 1191

Art 1191 Resolution Art 1380 Rescission
Similarities 1. Presuppose contracts validly entered into and
existing
o Rescission v. Annulment: the latter there is a
defect which vitiates/ invalidates the contract
2. Mutual restitution when declared proper
Who may Only by a party to the Party to the contract suffering
demand contract lesion
Third parties prejudiced by
the contract
Grounds Non-performance (implied Various reasons of equity
tacit condition in reciprocal provided by the grounds,
obligation) mainly economic injury or
lesions
Scope of Court determines Sufficiency of reason does not
judicial control sufficiency of reason to affect right to ask for
justify extension of time to rescission

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perform obligation
Kind of Only to reciprocal Unilateral, reciprocal
obligations Even when contract is fully
applicable to fulfilled
Character Principal remedy Secondary or subsidiary
MUTUAL DISSENT not the same with rescission, because mutual dissent
is tantamount to a simple creation of new contract for the dissolution of the
previous one. In order for rescission to take place, the requisites must first be
satisfied:
Requisites for Rescission:
1. The contract is rescissible
Art 1381 Kinds of rescissible contracts
Art 182 Payments made in a state of insolvency for obligations to whose
fulfillment the debtor could not be compelled at the time (has not yet
matured) they were effected, are also rescissible.
2. The party asking for rescission has no other legal means to obtain
reparation.
Art 1383 the action for rescission is subsidiary; it cannot be instituted
except when the party suffering from damage has no other legal means to
obtain reparation for the same.
3. He is able to return whatever he may be obliged to restore if rescission is
granted
Art 1385 “Rescission created the obligation to return the things which were
the object of the contract, together with their fruits, and the price with its
interest…”
4. The object of the contract has not passed legally to the possession of a third
person acting in good faith
Art 1385 “…consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged to restore.”
Art 1485 Par 3 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.

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5. The action for rescission is brought within the prescriptive period of four
years
Art 1389 the action to claim rescission must be commenced within four
years.
For persons under guardianship and for absentees, the period of four years
shall n9ot begin until the termination of the former’s incapacity or until the
domicile of the latter is known.
o Period commences on the termination of the ward’s incapacity or
absentee’s domicile is known.
Effect of Rescission
o If in fraud of the creditors: Property alienated reverts to the patrimony of
the debtor and becomes liable to creditor who sought rescission, under
its original liability as a guaranty of the debtor’s obligation
o Art 1385 Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price
with interest; consequently, it can be carried out only when he who
demands rescission can return whatever ha may be obliged to restore.
With respect to third persons who acquired the thing in good faith
 Transferee to property in good faith who acquires property for valuable
consideration, without knowledge of the litigation or claim of the plaintiff,
cannot be deprived of the property.
 Art 1385 Par 2 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
 Art 1385 Par 3 in this case, indemnity for damages
 Right of transferee to retain alienation:
o Nature of transfer
 ONEROUS
 Good faith – no rescission
 Bad faith – rescissible because of his complicity in the
fraud; not entitled for reimbursement because in pari
delicto; if not possible to return, indemnify the plaintiff;
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 GRATUITOUS
 Good faith – does not protect him because he gave nothing;
rescissible, though not required to restore the fruits
 Bad faith – rescissible because of his complicity in the
fraud; if not possible to return, indemnify the plaintiff
Who may bring action for rescission
1. Creditor injured
2. Heirs of the creditor injured
3. Creditors of creditor injured (by virtue of accionsubrogatoria)
OBLIGATION CREATED BY THE RESCISSION OF THE CONTRACT: Mutual

Restitution
a. Things w/c are the objects of the contract and their fruits
b. Price with interest
MUTUAL RESTITUTION NOT APPLICABLE WHEN
a. creditor did not receive anything from contract
b. thing already in possession of party in good faith; subject to

indemnity only; if there are 2or more alienations – liability of
1stinfract or
Extent of Rescission
Art 1384 Rescission shall be only to the extent necessary to cover the damages
caused.
 As to the excess, alienation is maintained even if transferee is in bad
faith
 Benefits only the plaintiff creditor, not everyone
 BUT if the transferee is willing to pay, no rescission
Presumptions of Fraud

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Art 1387 All contracts by virtue of which the debtor alienates property by
gratuitous title are presumed to have been entered into in fraud of creditors,
when the donor did not reserve sufficient property to pay all debts contracted
before the donation.
Alienations by onerous title are also presumed fraudulent when made by
persons against whom some judgment has been issued. The decision or
attachment need not to refer to the property alienated, and need not have been
obtained by the party seeking the rescission.
In addition to these presumptions, the design to defraud creditors may be roved
in any other manner recognized by the law of evidence.
 Rebuttal by evidence that conveyance was made:
o In good faith
o For a sufficient cause
 Effect of fraud: does not necessarily make the alienation rescissible. It is
only one of the requisites for accionpauliana. Can be overruled by a
transferee in good faith and for valuable consideration
BADGES OF FRAUD (indicia of fraud) – rules by which fraudulent character of

transaction may be determined
a. consideration of the conveyance is inadequate or fictitious

b. transfer was made by a debtor after a suit has been begun and while it is
pending against him
c. sale upon credit by an insolvent debtor
d. evidence of indebtedness or complete insolvency
e. transfer of all his property by a debtor when he is financially
embarrassed or insolvent
f. transfer made between father and son where there is present any of the
above circumstances
g. failure of the vendee to take exclusive possession of the property
Rescission in Art
1191RESCISSION IN ART. 1191 RESCISSION PROPER IN ART. 1381
It is a principal action retaliatory in it is a subsidiary remedy

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character
Only ground is non-performance of one’s There are 5 grounds to rescind. Non-

obligation or what is incumbent upon him performance by the other is not
important
Applies only to reciprocal obligation Applies to both unilateral and

reciprocal obligations
Only a party to the contract may demand Even a third person who is prejudiced
by the
fulfillment or seek the rescission of the
contract contract may demand the rescission
of the contract.
Court may fix a period or grant extension Court cannot grant extension of time
of time for the fulfillment of the obligation for fulfillment of the obligation
Its purpose is to cancel the contract Its purpose is to seek reparation for
the damage or injury caused, thus
allowing partial rescission of the
contract
Liability for acquiring in bad faith the things alienated in fraud of

creditors.
Art 1388 Whoever acquires in bad faith the things alienated in fraud of
creditors, shall indemnify the latter for damages suffered by them on account of
te alienation, whenever, due to any cause, it should be impossible for him to
return them.
If there are two or more alienations, the first acquirer shall be liable first,
and so on successively.
CHAPTER VII - VOIDABLE OR ANNULLABLE CONTRACTS
2. VOIDABLE CONTRACTS– intrinsic defect; valid until annulled; defect is due to

vice of consent or legal incapacity

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Kinds of Voidable/ Annullable Contracts

Art 1390 although no damage to contracting parties:
1. Want of capacity
2. Vitiated consent
CHARACTERISTICS of Voidable/ Annullable Contracts:
a. Effective until set aside
b. May be assailed or attacked only in an action for that purpose
c. Can be confirmed (NOTE: confirmation is the proper term for

curing the defect of avoidable contract)
d. Can be assailed only by the party whose consent was defective or
his heirs or assigns
ANNULMENT
Annulment distinguished from Rescission

NULLITY (Voidable) RESCISSION (Rescissible)
Declares inefficiency which Merely produces inefficiency, which did
contract already carries itself not exist essentially in the contract
(intrinsic defect) (external defect i.e. pecuniary damages or
prejudice to one of the contracting parties
or 3rd persons)
Requires act of ratification to be Needs no ratification to be effective
cured
Based on a vice of the contract Compatible with the perfect validity of the
which invalidates it contract
Annulment is a sanction based on Rescission is a remedy based on equity
law
Demanded only by the parties to Demanded even by third parties affected
the contract by it
Public interest predominates Private interest predominates
WHAT CONTRACTS ARE VOIDABLE:
a) Minors ( below 18 )

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b) Insane unless acted in lucid interval

c) Deaf mute who can’t read or write
d) Persons specially disqualified: civil interdiction
e) In state of drunkenness
f) In state of hypnotic spell
Grounds for Annulment (Art1390)

1. Incapacity to consent
 Not a requisite sine qua non of the contract; want is only
ground for annulment
2. Vices of consent: violence, intimidation, undue influence, mistake of
fraud
KINDS OF FRAUD IN THE PERFORMANCE OF OBLIGATION OR

CONTRACTS
a. Causal Fraud (dolocausante) – deception of serious character without

which the other party would not have entered into; contract is
VOIDABLE (Art. 1338)
b. Incidental Fraud (doloincidente) –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)
c. Tolerated Fraud – includes minimizing the defects of the thing,

exaggeration of its god qualities and giving it qualities it does not have;
LAWFUL misrepresentation
NOTE:
• Expression of an opinion – not fraud unless made by expert and other party
relied on the former’s special knowledge

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• 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.
Who may and may not institute an Action for Annulment (Art 1397)
A. MAY: All who are obliged principally or subsidiarily
Art. 1395. Action does not require conformity of the other party who has no
right to bring action for annulment
Requisites:
a. Interest in the contract – there must be legal capacity by being bound
to the contract either principally or subsidiarily
b. Victim and not the party responsible for the defect – he who comes to
the court must come with clean hands (so not applicable to the
successor in interest of the one who has contracted with a minor)
B. MAY NOT:
1. Capable parties cannot allege the incapacity of those with whom they
contracted
2. Parties who exerted intimidation, violence or undue influence or
employed fraud or caused mistake
3. Third person who is a stranger to the contract. UNLESS he can prove
that the contract prejudiced his rights with respect to one of the
contracting parties, he may ask for annulment. (e.g. guarantors and
sureties)
CAUSES OF EXTINCTION OF ACTION TO ANNUL
PRESCRIPTION of action for Annulment – after prescription, contract can

no longer be set aside
Art. 1391. Within 4 years

1. Intimidation, violence, undue influence - 4 years from time defect of consent
ceases
2. Mistake, fraud – 4 years from time of discovery
3. Incapacity - From time guardianship ceases

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 Extinctive prescription applies not only to action for annulment, but also
to the defense of nullity
 Applies to the parties of the contract, but NOT to third persons
Effects of Annulment – cleanses the contract from all its defect from the moment
it was constituted (retroactive effect), but does not prejudice rights of 3 rd persons
acquire before the ratification Art 1396
a. MUTUAL RESTITUTION (Art 1398) Restore to each other things which have
been the subject matter of the contract, together with the fruits and the
price with interest.
 EXCEPT in cases provided by law ( principle of unjust enrichment):
compensation, services rendered in contracts of service
 ELIMINATES AWARD FOR DAMAGES. But when there is loss or
suffered damages, injured party may be entitled to recover indemnity
for damages.
b. Art 1402 as long as one does not restore what he is bound to return, the
other cannot be compelled to return
 LOSS THROUGH PLAINTIFF’S (party entitled to bring action) FAULT
OR FRAUD: Action is extinguished, even if at the time of the loss the
plaintiff is still a minor or insane (Art 1401)
 LOSS THROUGH FORTUITOUS EVENT, BUT PLAINTIFF WILLING TO
PAY: Apply Art 1400, defendant should return but not including the
interest because the loss not due to his fault.
 LOSS OF FRUITS AND ACCESSIONS: Apply Art 1400, pay value if
cannot return (both plaintiff and defendant)
When one of the parties is incapacitated

Art 1399 not obliged to make the restitution EXCEPT insofar as he has been
benefited by the price/thing received
 Benefit not necessarily a material and permanent increase in fortune

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 Proof of benefit incumbent upon the defendant, in the absence of such

proof, the presumption is there is no benefit/profit to the incapacitated
person
 If still in the patrimony at the time incapacity ceases, deemed to have
been benefited. If he asks for annulment, he must return to the other
party. If he squanders, it is ratification.
Extinguishment of the Action
a. Art 1392 By ratification
Confirmation/ratification: cures a defect of nullity
Acknowledgment: remedies deficiency of proof
b. Art 1401. When the thing is lost through the fault of the person who has
the right to file the action
 LOSS NOT THROUGH THE FAULT, e.g. fortuitous event: not
extinguished because extinguishment limited only to the loss by
fault of the plaintiff. Unjust enrichment if the loss is returned for
the defendant to bear. Hence, the defendant cannot be obliged to
make restitution to the plaintiff because of Art 1402 (cannot
compelled to return if the other party does not return
 Cannot extinguish action for annulment by any event not
imputable to the fault or fraud of the plaintiff
RATIFICATION
REQUISITES of Ratification
1. Contract is voidable/annullable
2. Ratification is made with the knowledge of the cause of nullity
3. At the time of the ratification, the cause of nullity has already ceased
to exist.
Forms of Ratification
1. Art. 1393. EXPRESS or TACIT: execute an act which necessarily implies an
intention to waive his rights

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e.g. of EXPRESS: any oral or written manifestation of the person entitled to

ask for annulment that he agrees to be bound by the contract or that he will
not seek its annulment
e.g. of IMPLIED
 Silence or acquiescence
 Acts showing approval or adoption of the contract
 Acceptance and retention of benefits flowing therefrom
2. Art 1394. By the parties themselves or by the guardian in behalf of an
incapacitated party
- During the existence of incapacity
- Right to ratify is transmitted to the heirs of the party
entitled to such right.
-
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
NOTE:
Object is lost through a fortuitous event, the contract can still be

annulled, but the person obliged to return the same can beheld liable only for
the value of the thing at the time of the loss, but without interest thereon.
Ratification cleanses the contract of its defects from the moment it was
constituted.
CHAPTER VIII - UNENFORCEABLE CONTRACTS
UNENFORCEABLE CONTRACT– valid but cannot compel its execution unless

ratified extrinsic defect; produce legal effects only after ratified
Characteristics of Unenforceable contracts

1. They cannot be enforced by a proper action in court
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2. They are susceptible of ratification

3. They cannot be assailed by third persons (Art 1408)
KINDS of Unenforceable Contracts:
a. Unauthorized or No sufficient authority – entered into in the name of

another when:
i. No authority conferred
ii. In excess of authority conferred ( ultra vires)
b. Curable by Ratification - Both parties incapable of giving consent -2

minor or 2insane persons
c. Curable by Acknowledgment - Failure to comply with Statute of
Frauds
 Agreement to be performed within a year after making
contract
 Special promise to answer for debt, default or miscarriage
of another
 Agreement made in consideration of promise to marry
 Agreement for sale of goods, chattels or things in action at
price not less than500; exception: auction when recorded
sale in sales book
 Agreement for lease of property for more than one year and
sale of real property regardless of price
 Representation as to credit of another

Unenforceable distinguished from Rescissible and annullable
UNENFORCEABLE RESCISSIBLE AND ANNULLABLE
Produces no legal effect unless Produce legal effects unless set aside by
ratified by competent court competent court
TWO WAYS OF CURING UNENFORCEABLE CONTRACTS:
a. Failure of defendant to object in time, to the presentation of parole

evidence in court, the defect of unenforceability is cured

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b. 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
Art 1403 Par 2: Contracts covered by the Statute of Frauds

Statute of Frauds: descriptive of statutes which requires certain clauses
of contracts to be in writing. Merely regulates the formalities of the contract
necessary to render it enforceable.
 NOT APPLICABLE TO: (1) Action for specific performance, (2) Violation of
the contract
 APPLICABLE TO: Executory and not to complete or executed contracts;
intention of the parties become apparent by their execution. However,
partial performance must also be proven.
 Exclusive list of agreements/contracts enumerates; rule or exclusion
 A personal defense (hence cannot be raised by 3 rd persons) and the same
may be waived
 Does not determine credibility or weight of the evidence, merely
concerned with the admissibility thereof
Purpose of the Statute:Prevent (and not to encourage it) 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.
 Provides for the manner which contracts under it shall be proved
 Does not attempt to make contracts invalid if not executed in
writing, only makes ineffective the action for specific performance
 Principal aims (1) prevent commission of injustice due to faulty
memory, (2) discouraging intentional misrepresentations

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WRITTEN MEMORANDUM OR NOTE evidence of the agreement and is

used to show the intention of the parties.
Minimum requirement for written memorandum:

1. Names of the parties
2. Terms and conditions of the agreement
3. Description of the subject matter sufficient to render it capable of
identification
4. Date and place of the making of the agreement
5. Signature of the party assuming the obligation
How to ratify contracts under Statute of Frauds? Art1405

1. Failure to object to the presentation of oral/parole evidence to prove the
same
2. Acceptance of benefits under them; SOF cannot be invoked when the
contract has been partly executed
Right of the parties when a contract is ENFORCEABLE BUT a public

document is NECESSARY for its registration
Art 1406. May avail of their rights under Art 1357 (parties may compel
each other to observe the necessary form once the contract has been perfected)
Art 1403 Par 3: Contracts executed by parties who are both incapable of
giving consent to a contract
Article 1407
a. Effect of ratification by the parent or guardian of one of the parties: (express
or implied)
 Converts the contract into a voidable contract, at the option of the
party who has not ratifies.
 The non-ratifying party may: enforce the contract OR ask for the
annulment

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b. Effect of ratification by the parents or guardians of both parties: validated

from the inception.
CHAPTER IX - VOID OR INEXISTENT CONTRACTS
VOID OR INEXISTENT – of no legal effect
CHARACTERISTICS OF Void/Inexistent Contracts:
a. It produces no effect whatsoever either against or in favor of

anyone
b. There is no action for annulment necessary as such is nullity exist
ipso jure. A judicial declaration to that effect is merely a
declaration
c. It cannot be confirmed, ratified or cured (Art 1409)
d. If performed, restoration is in order, except if pari delicto will apply
e. The right to set up the defense of nullity cannot be waived
f. Imprescriptible
g. Anyone may invoke the nullity of the contract whenever its
juridical effects are asserted against him
ACCION REIVINDICATORIA – any person may invoke the inexistence of the

contract whenever judicial effects founded thereon are asserted against him
ACTION TO DECLARE NULLITY

- necessary because nobody can take the law into his own hands
- if the void contract is still executory, no party need to bring an
action; but if one party brings action to enforce it, nullity can be
set up as defense
Void/inexistent contracts distinguished from other defective contracts
VOID RESCISSIBLE
Defect is inherent in the contract Defect is in their effects, either to one

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itself of the parties or to a 3rd party

Matter of law and public interest Based on equity and more a matter of
private interest
No legal effects even if no action is No action, remains valid and produces
taken to set it aside all its effects
Action to declare nullity of void Action to rescind prescribes in 4 years
contracts never prescribes
VOID UNENFORCEABLE
Cannot be the basis of actions to enforce compliance
Can never be ratified and become Can be ratified and thereafter enforced
enforceable
There is no contract at all There is a contract which, however,
cannot be enforced unless properly
ratified
VOID VOIDABLE
One of those essential requisites is Essential requisites for validity is
wanting, either in fact or in law is present, BUT consent is vitiated
declared void by statute
No contract, but only appearance of Valid until set aside, validity may only
one, produces no effect even if not set be assailed directly, never by a 3rd
aside by direct action (collateral person
attack allowed)
Not susceptible for ratification May be rendered perfectly valid by
ratification
Action to declare nullity does not Action for annulment prescribes in 4
prescribe, permanent, even if the years
cause of nullity ceased to exist
KINDS OF VOID/INEXISTENT CONTRACTS (Art1409)
a. Those lacking in essential elements: no consent, no object, no cause

(inexistentones) – essential formalities are not complied with ( ex: donation
propter nuptias – should conform to formalities of a donation to be valid )
i. Those w/c are absolutely simulated or fictitious – no cause
ii. Those which cause or object did not exist at the time of the
transaction – no cause/object

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iii. Those whose object is outside the commerce of man – no

object
iv. Those w/c contemplate an impossible service – no object
v. Those w/c intention of parties relative to principal object of
the contract cannot be ascertained
b. Prohibited by law
c. Those expressly prohibited or declared void by law - Contracts w/c violate
any legal provision, whether it amounts to a crime or not
d. Illegal/Illicit ones – Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy ;
Ex: Contract to sell marijuana
Contracts that are VOID:

Art 1409 Par 1. Those whose cause, object or purpose is contrary to law,
morals, good customs, public order, or public policy
Art 1411 When the act constitutes a criminal offense (illegality of
cause or object)
KINDS OF ILLEGAL CONTRACTS
IN PARI DELICTO DOCTRINE
1. Both are in pari delicto

- Both parties are guilty, no action against each other; those
who come in equity must come with clean hands; applies
only to illegal contracts and not to inexistent contracts;
does not apply when a superior public policy intervenes
- BOTH will be prosecuted
- RPC provision relative to the disposal of effects/instruments
of a crime shall apply
EXCEPTION TO PARI DELICTO RULE – If purpose has not yet been
accomplished and If damage has not been caused to any 3rd person

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OTHER EXCEPTIONS:
a. Payment of Usurious interest

b. Payment of money or delivery of property for an illegal purpose, where
the party who paid or delivered repudiates the contract before the
purpose has been accomplished, or before any damage has been
caused to a 3rdperson
c. payment of money or delivery of property made by an incapacitated
person
d. agreement or contract which is not illegal per se and the prohibition
is assigned for the protection of the plaintiff
e. payment of any amount in excess of the maximum price of any article
or commodity fixed by law or regulation by competent authority
f. contract whereby a laborer undertakes to work longer than the
maximum number of hours fixed by law
g. one who lost in gambling because of fraudulent schemes practiced on
him is allowed to recover his losses (Art. 313 RPC)even if gambling is
prohibited.
2. ONLY ONE is guilty

- INNOCENT PARTY may claim what he has given
- INNOCENT PARTY not bound to comply with his promise
a. Art 1412 When the act is unlawful but does no criminal offense
IN PARI DELICTO RULE
1. BOTH parties at fault
- Neither party may recover what he has given by virtue of the contract
- Neither party may demand the performance of the other’s
undertaking
2. ONLY ONE is guilty
- INNOCENT PARTY may demand the return of what he has given
without obligation to comply with his promise
- PARTY AT FAULT cannot recover what he has given by reason of the
contract

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- PARTY AT FAULT cannot ask for the fulfillment of what has been
promised to him
o Not applicable to fictitious contracts because they refer to contracts with
an illegal cause or subject-matter (criminal offense OR illegal), OR to
contracts that are null and void ab initio. Fictitious or simulates
contracts don’t have cause.
EXCEPTIONS TO THE IN PARI DELICTO RULE

General Statement of the Exception (Art 1416): Agreement is not illegal
per se, but merely prohibited
o Prohibition is designed for the protection of the plaintiff
o Plaintiff may recover what he paid or delivered if public policy is
enhanced
o ILLEGAL PER SE – one that by universally recognized standards is
inherently or by its very nature bad, improper, immoral or contrary to
good conscience.
OTHER SPECIFIC EXCEPTIONS
b. Art 1414 When the PURPOSE is illegal and money is paid or properly
delivered therefore – maybe repudiated by one of the parties before the
purpose has been accomplished OR before any damage has been caused
to a 3rd person. Courts may allow the party repudiating the contract to
recover the money or property, if the public interest will thus be
subserved.
c. Art 1415 When the CONTRACT is illegal and one of the parties is
INCAPABLE of giving consent – courts may allow recovery of
money/property delivered by the incapacitated person, if interest of
justice so demands.
d. Art. 1417 When the amount paid exceeds the maximum fixed by law –
any person paying in excess the maximum price may recover such
excess

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e. Art 1418 When by virtue of contract a laborer undertakes to work

longer that the maximum number of hours of work fixed by law –
worker may demand additional compensation for service rendered
beyond the limit
f. Art 1419 When a laborer agrees to accept a lower wage than that set by
law – entitled to recover deficiency
g. Art 1420 When the contract is divisible – if illegal terms can be

separated from legal ones, enforce latter
o In case of doubt, contract is considered as divisible or separable.

o Exceptions:
1. Nature of contract requires indivisibility e.g. contract of
compromise
2. Intention of the parties is that the contract be entire e.g. if what is
void be the essential part, void the entire contract. Divisibility will
not only be followed when nullity affects only the secondary or
accessory obligations
h. Art 1422 When the contract is the DIRECT RESULT of a previous illegal
contract – also void and inexistent
Art 1409 Par 4 2. Those whose object is outside the commerce of man
Art 1409 Par 5 3. Those which contemplate an impossible service
Art 1409 Par 6 4. Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained
Art 1409 Par 7 5. Those expressly prohibited are declared void by law
CONTRACTS THAT ARE INEXISTENT

Art 1409 Par 2 1. Those which are absolutely simulated or fictitious

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Art 1345 Simulation of contracts may be ABSOLUTE (parties do not intend be

bound at all) or RELATIVE (parties conceal their true agreement
Art 1346. Absolute fictitious: void
Art 1409 Par 3 2. Those whose cause or object did not exist at the time of the
transaction
Right to set up defense of illegality cannot be waived (Art 1409)

The action or defense for the declaration of the inexistence of a contract
1. Art 1410 Does not prescribe, defect is permanent and incurable
2. Art 1421 is NOT available to 3rd persons whose interest is not directly affected
*Ratification may take the form of a new contract, in which case its validity shall be
determined only by the circumstances at the time of the execution of the new contract.
However, the same does not retroact to the constitution of the first contract.

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DEFECTIVE CONTRACTS
DEFFECTIVE AS TO NATURE EFFFECT ASSAILABLE? WHO CAN ASSAIL? WHEN TO CURABLE?
CONTRACTS OF DEFECT ON HOW? ASSAIL? HOW?
CONTRACT
RESCISSIBLE Contracts of VALID until Yes but only By ward Whithin 4 YES
(Arts 1381- guardians (acts rescinded through DIRECT years from By
1389) of action for Or by guardian ad gaining ratification
Economic administration) rescission. litem of ward during (minor) or (confirmation
prejudice or when wards NO rescission if: incapacity of ward regaining by the ward)
damage to: they represent a. Plaintiff has in action against (insane)
-Owner suffer lesion of other legal original guardian capacity
-3rd person more than 25% means to
-litigant of the value of obtain
thing reparation
Contracts in
Can generally (subsidiary)
representation VALID until By absentee Within 4 YES
be ASSAILED b. Plaintiff
of absentees rescinded years from By
and CURED cannot
when latter knowledge prescription
by: Injured return what
suffers lesion of of
party must be
more than 25% fraudulent
restored
of value of thing contract
Effect: Mutual c. Object in
restitution the hands of
- 3rd persons
in good faith

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145
d. Contract
approved by
court(Art138
6)
Contracts By plaintiff-creditor Within 4
entered into by VALID until By heirs of creditor years from YES by
debtor who is in rescinded YES but only By creditors of knowledge prescription
a state of through DIRECT creditors injured of
insolvency, i.e., action for (accionsubrogatoria) fraudulent
contracts rescission if: by other third contract
entered into in a. Plaintiff has parties prejudiced
fraud of other legal by the contract
creditors means to
(AccionPauliana) obtain
Contracts which
reparation
refer to things in VALID By party litigant Within 4 YES
(subsidiary)
litigation Until years from By
b. Plaintiff
without the rescinded knowledge prescription
cannot
knowledge and of
return what
approval of the fraudulent
must be
litigants or contract
restored
competent
c. Object in
judicial
the hands of
authority
3rd persons
All other
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contracts VALID until in good faith

declared by law resinded
to be subject of
rescission E.g.
Art 1098
DEFECTIVE AS TO NATURE OF EFFECCT ASSAILABLE? WHO CAN WHEN TO CURABLE?

CONTRACTS DEFECT ON HOW? ASSAIL? ASSAIL? HOW?
CONTRACT
VOIDABLE Want of capacity All who are Within 4 YES
(Arts 1390 – -age obliged years from By ratification
1402) - insanity VALID until YES. Both principally or cessation of By prescription
Vitiated consent annulled by through direct subsidiarily (re)gaining
court action and collateral (i.e. capacity
YES
EFFECTT: attacks. guarantors
Consent is vitiated Within 4 1. By
Cleanses defect and sureties)
by: years from: ratificati
of contract Action for
-mistake or error -cessation of on
Does not annulment Incapacitated
-violence and intimidation, -express
prejudice right party: not
intimidation(duress violence, -implied
of 3P prior to the party in
) undue (silence or
ratification capacity
- undue influence influence acquiescen
Mutual
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restitution - fraud, Victim:not (consensual ce, acts of

misrepresentation the party defect) showing
who cause -discovery of approval or
the defect mistake adoption of
contract,
acceptance
and
retention of
benefits)
2. By
prescrip
tion
YES. Not by
UNENFORCEAB Contract entered VALID direct action By owner of At any time By ratification
LE into name of But cannot but by property one party
(Arts 1403 – another without be DEFENSE of attempts to
1408 authority or in ENFORCED unenforceabilit enforce
excess of authority by proper y of contract contract
action in through against the
court motion to other
dismiss through a
complaint on court
the ground

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that contract
is
unenforceable
VALID but
Contracts covered cannot be YES. Not by At any time By
by Statute of ENFORCED direct action By other one party acknowledgme
Frauds and not by proper but by defense party attempts to nt
complying with action in of By his enforce By
requirement of a court unenforceabilit privies (heirs, contract performance of
written memo y of contract representativ against the oral contact
either through: es and other
1. Motion assigns) through a By failure to
to court action object
dismiss seasonable to
complai presentation of
nt on oral evidence
the
ground By acceptance
that of benefits
contract under the
is contract
unenfor
ceable
2. Objectio

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149
n to
present
ation of
oral
evidenc
e to
prove
contract
YES. Not by
Both parties are VALID but direct action By other At any time By
legally cannot be but by party one party confirmation
incapacitated to act ENFORCED DEFENSE of attempts to
by a proper unenforceabilit By his enforce
action in y of contract privies (heirs, contract
court through representativ against the
motion to es and other
dismiss assigns) through a
complaint on court action
the ground By guardian
that contract
is
unenforceable
VOID or
INEXISTENT Cause, object or DOES NOT YES. By innocent Imprescripti Cannot be

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(arts 1409- purpose of contract CREATE By an action party ble cured

1422) contrary to law, RIGHTS AND for declaration
good customs, CANNOT for nullity By 3rd
morals, public IMPOSE By defense of persons
order or public OBLIGATION nullity whose
policy (Art 1401 Par interest are
1) directly
affected
(if in pari
delicto,
neither has
an action
against each
other)
One on some of YES. By any of the Imprescripti Cannot be

essential requisites DOES NOT By an action contracting ble cured
of valid contract CREATE for declaration parties
lacking in fact or in RIGHTS AND for nullity By 3rd
law CANNOT By defense of persons
a. Absolutely IMPOSE nullity whose
simulated OBLIGATION interests are
b. Those whose directly

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cause or affected
object did
not exist
c. Object
outside the
commerce of
man
d. Contemplate
an
impossible
service
e. E. where
intention of
parties re:
principal
onject or
contract
cannot be
ascertained
(Art 1402 par
2 to 6)
By party
Contracts expressly DOES NOT YES. whose Imprescripti Cannot be
prohibited by law CREATE By an action protection ble cured

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(Art 1409 Par 7) RIGHTS AND for declaration the

CANNOT for nullity prohibition of
IMPOSE By defense of the law is
OBLIGATION nullity designed
By 3rd party
whose
interests are
directly
affected

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153
TITLE III
NATURAL OBLIGATIONS
Four types of obligations in juridical science – reduced to two by jurisprudence

1. MORAL obligations – duties of conscience completely outside the field of
law
2. NATURAL obligations – duties not sanctioned by any action but have a
relative judicial effect
3. CIVIL obligations – juridical obligations that are in conformity with positive
law but are contrary to juridical principles and susceptible of being
annulled; enforceable by action
4. Mixed obligations – full juridical effect; falls under civil obligations
Definition Art 1423 Not being based on positive law but on 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 that has been delivered
or rendered by reason thereof.
 Midway between civil and the purely moral obligation. “obligation without
a sanction,” susceptible of voluntary performance, but not through
compulsion by legal means
 Real obligation which law denies action, but which the debtor may
perform voluntarily
 Patrimonial and presupposes a prestation
Requisites of Natural Obligation

1. Juridical tie between two persons
2. Tie is not given effect by law but instead by the conscience of man –
distinguishes it from civil obligations
As distinguished from Civil Obligations

NATURAL CIVIL
As to enforceability Not by court actions, but Court action or coercive
by good conscience of power of public

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debtor authority
As to basis Equity and natural Positive law
justice
As distinguished from Moral Obligations

NATURAL PURELY MORAL
There is a juridical tie There is no juridical tie
Performance by the debtor is a legal Act is purely liberality
fulfillment of the obligation
A true obligation with a legal tie Matter is entirely within the domain of
between debtor and creditor morals
Conversion to Civil Obligation

GENERAL RULE: Partial payment of a natural obligation does not make it civil;
the part paid cannot be recovered but the payment of the balance cannot be
enforced. – applicable only to natural obligation because of prescription or lack
of formalities (nullity due to form e.g. Art 1430) and NOT to natural obligation
subject to ratification or confirmation.
 Payment by mistake is not voluntary and may be recovered. Payment is
voluntary when the debtor knew that the obligation is a natural one. One
who pays a natural obligation, believing it to be civil, does not thereby
recognize the natural obligation; and there being no civil obligation
either, he can recover what he has paid. The debtor however has the
burden of proving the mistake.
1. By novation
2. By confirmation or ratification
Examples:
Art 1424 when the 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.
Art 1425 when without the knowledge OR against the will of the debtor, a
3rd person pays a debt which the obligor is not legally bound to pay because
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the action thereon has prescribed, but the debtor later voluntarily
reimburses the third person the obligor cannot recover what he has paid
Art 1426 when a minor 18-21 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 that he has not
been benefited thereby, there is no right to demand the thing or price thus
returned.
Art 1427 when a minor 18-21 entered into a contract without the consent of
the parent or guardian, voluntarily pays a sum of money or delivers
fungible thing in fulfillment of an obligation, there shall be no right to
recover the same from the oblige who has spent or consumed it in good
faith.
- Not the voluntary payment that prevents recovery, but the
consumption or spending or the thing or money in good faith
- This article creates an exception to the rule of mutual
restitution. Minor would have been required to return whatever
he has received upon annulment of contract.
- Good faith: belief that the debtor has capacity to deliver the
object of contract
- Fungible thing: consumable
- Non-consumable: debtor cannot recover if no longer in the
possession of the creditor, because the right to recover
presupposes existence of thing.
Art 1428 when after an action to enforce a civil obligation has failed, the
defendant voluntarily performs the obligation, he cannot demand the return
of what he has delivered or the payment of the value of the service he has
rendered.
Art 1429 when a testate or intestate heir voluntarily pays a debt of a

decedent exceeding the value of the property which he received by will or by

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the law or testacy from the estate of the deceased, the payment is valid and
cannot be rescinded by the payer
Art 1430 when a will is declared void because it has not been executed in
accordance with the formalities required by law, but one of the intestate
heirs, after the settlement of the debts of the deceased, pays a legacy in
compliance with a clause in the defective will; the payment is effective and
irrevocable.
OBLIGATIONS AND CONTRACTS BAR QUESTIONS AND SUGGESTED ANSWERS

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OBLIGATIONS
Aleatory Contracts; Gambling (2004)
A. Mr. ZY lost P100,000 in a card game called Russian poker, but he had no
more cash to pay in full the winner at the time the session ended. He promised
to pay PX, the winner, two weeks thereafter. But he failed to do so despite the
lapse of two months, so PX filed in court a suit to collect the amount of P50,000
that he won but remained unpaid. Will the collection suit against ZY prosper?
Could Mrs. ZY file in turn a suit against PX to recover the P100,000 that her
husband lost? Reason. (5%)
SUGGESTED ANSWER:
A. 1. The suit by PX to collect the balance of what he won from ZY will not
prosper. Under Article 2014 of the Civil
Code, no action can be maintained by the winner for the collection of what he
has won in a game of chance. Although poker may depend in part on ability, it
is fundamentally a game of chance. 2) If the money paid by ZY to PX was
conjugal or community property, the wife of ZY could sue to recover it because
Article 117(7) of the Family Code provides that losses in gambling or betting are
borne exclusively by the loser-spouse. Hence, conjugal or community funds
may not be used to pay for such losses. If the money were exclusive property of
ZY, his wife may also sue to recover it under Article 2016 of the Civil Code if she
and the family needed the money for support.
ALTERNATIVE ANSWER (2):
A. (2). Mrs. ZY cannot file a suit to recover what her husband lost. Art 2014 of
the Civil Code provides that any loser in a game of chance may recover his loss
from the winner, with legal interest from the time he paid the amount lost. This
means that only he can file the suit. Mrs. ZY cannot recover as a spouse who
has interest in the absolute community property or conjugal partnership of
gains, because under Art. 117(7} of the Family Code, losses are borne
exclusively by the loser-spouse. Therefore, these cannot be charged against
absolute community property or conjugal partnership of gains. This being so,
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Mrs. ZY has no interest in law to prosecute and recover as she has no legal
standing in court to do so.
Conditional Obligations (2000)
Pedro promised to give his grandson a car if the latter will pass the bar
examinations. When his grandson passed the said examinations, Pedro refused
to give the car on the ground that the condition was a purely potestativeone. Is
he correct or not? (2%)
SUGGESTED ANSWER:
No, he is not correct. First of all, the condition is not purely potestative, because
it does not depend on the sole will of one of the parties. Secondly, even if it
were, it would be valid because it depends on the sole will of the creditor (the
donee) and not of the debtor (the donor).
Conditional Obligations (2003)
Are the following obligations valid, why, and if they are valid, when is the
obligation demandable in each case?
a) If the debtor promises to pay as soon as he has the means to pay;
b) If the debtor promises to pay when he likes;
c) If the debtor promises to pay when he becomes a lawyer;
d) If the debtor promises to pay if his son, who is sick with cancer, does not die
within one year. 5%
SUGGESTED ANSWER:
(a) The obligation is valid. It is an obligation subject to an indefinite period

because the debtor binds himself to pay when his means permit him to do so
(Article 1180, NCC). When the creditor knows that the debtor already has the
means to pay, he must file an action in court to fix the period, and when the
definite period as set by the court arrives, the obligation to pay becomes
demandable 9Article 1197, NCC).

Reviewer
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SUGGESTED ANSWER:
(b) The obligation “to pay when he likes” is a suspensive condition the
fulfillment of which is subject to the sole will of the debtor and, therefore the
conditional obligation is void. (Article 1182, NCC).
SUGGESTED ANSWER:
(c) The obligation is valid. It is subject to a suspensive condition, i.e. the future
and uncertain event of his becoming a lawyer. The performance of this
obligation does not depend solely on the will of the debtor but also on other
factors outside the debtor’s control.
SUGGESTED ANSWER:
(d) The obligation is valid. The death of the son of cancer within one year is
made a negative suspensive condition to his making the payment. The
obligation is demandable if the son does not die within one year (Article 1185,
NCC).
Conditional Obligations; Promise (1997)
In two separate documents signed by him, Juan Valentino "obligated" himself

each to Maria and to Perla, thus - 'To Maria, my true love, I obligate myself to
give you my one and only horse when I feel like It." - and - 'To Perla, my true
sweetheart, I obligate myself to pay you the P500.00 I owe you when I feel like
it." Months passed but Juan never bothered to make good his promises. Maria
and Perla came to consult you on whether or not they could recover on the
basis of the foregoing settings. What would your legal advice be?
SUGGESTED ANSWER:
I would advise Maria not to bother running after Juan for the latter to make
good his promise. [This is because a promise is not an actionable wrong that
allows a party to recover especially when she has not suffered damages
resulting from such promise. A promise does not create an obligation on the
part of Juan because it is not something which arises from a contract, law,
quasi-contracts or quasidelicts (Art, 1157)]. Under Art. 1182, Juan's promise to
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Maria is void because a conditional obligation depends upon the sole will of the
obligor. As regards Perla, the document is an express acknowledgment of a
debt, and the promise to pay what he owes her when he feels like it is
equivalent to a promise to pay when his means permits him to do so, and is
deemed to be one with an indefinite period under Art. 1180. Hence the amount
is recoverable after Perla asks the court to set the period as provided by Art.
1197, par. 2.
Conditional Obligations; Resolutory Condition (1999)
In 1997, Manuel bound himself to sell Eva a house and lot which is being
rented by another person, if Eva passes the
1998 bar examinations. Luckily for Eva, she passed said examinations.
(a) Suppose Manuel had sold the same house and lot to another before Eva
passed the 1998 bar examinations, is such sale valid? Why? (2%)
(b) Assuming that it is Eva who is entitled to buy said house and lot, is she
entitled to the rentals collected by Manuel before she passed the 1998 bar
examinations? Why? (3%)
SUGGESTED ANSWER:
(a) Yes, the sale to the other person is valid as a sale with a resolutory condition
because what operates as a suspensive condition for Eva operates a resolutory
condition for the buyer.
FIRST ALTERNATIVE ANS WER:
Yes, the sale to the other person is valid. However, the buyer acquired the
property subject to a resolutory condition of Eva passing the 1998 Bar
Examinations. Hence, upon Eva's passing the Bar, the rights of the other buyer
terminated and Eva acquired ownership of the property.
SECOND ALTERNATIVE ANSWER:

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The sale to another person before Eva could buy it from Manuel is valid, as the
contract between Manuel and Eva is a mere promise to sell and Eva has not
acquired a real right over the land assuming that there is a price stipulated in
the contract for the contract to be considered a sale and there was delivery or
tradition of the thing sold.
SUGGESTED ANSWER:
(b) No, she is not entitled to the rentals collected by Manuel because at the time
they accrued and were collected, Eva was not yet the owner of the property.
FIRST ALTERNATIVE ANSWER:
Assuming that Eva is the one entitled to buy the house and lot, she is not
entitled to the rentals collected by Manuel before she passed the bar
examinations. Whether it is a contract of sale or a contract to sell, reciprocal
prestations are deemed imposed A for the seller to deliver the object sold and for
the buyer to pay the price. Before the happening of the condition, the fruits of
the thing and the interests on the money are deemed to have been mutually
compensated under Article 1187.
SECOND ALTERNATIVE ANSWER:
Under Art. 1164, there is no obligation on the part of Manuel to deliver the
fruits (rentals) of the thing until the obligation to deliver the thing arises. As the
suspensive condition has not been fulfilled, the obligation to sell does not arise.
Extinguishment; Assignment of Rights (2001)
The sugar cane planters of Batangas entered into a longterm milling contract
with the Central Azucarera de Don
Pedro Inc. Ten years later, the Central assigned its rights to the said milling
contract to a Taiwanese group which would take over the operations of the
sugar mill. The planters filed an action to annul the said assignment on the
ground that the Taiwanese group was not registered with the Board of
Investments. Will the action prosper or not? Explain briefly.

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(5%)
(Note: The question presupposes knowledge and requires the application of the
provisions of the Omnibus Investment Code, which properly belongs to
Commercial law)
SUGGESTED ANSWER:
The action will prosper not on the ground invoked but on the ground that the
farmers have not given their consent to the assignment. The milling contract
imposes reciprocal obligations on the parties. The sugar central has the
obligation to mill the sugar cane of the farmers while the latter have the
obligation to deliver their sugar cane to the sugar central. As to the obligation to
mill the sugar cane, the sugar central is a debtor of the farmers. In assigning its
rights under the contract, the sugar central will also transfer to the Taiwanese
its obligation to mill the sugar cane of the farmers. This will amount to a
novation of the contract by substituting the debtor with a third party. Under
Article 1293 of the Civil Code, such substitution cannot take effect without the
consent of the creditor. The formers, who are creditors as far as the obligation
to mill their sugar cane is concerned, may annul such assignment for not
having given their consent thereto.
ALTERNATIVE ANSWER:
The assignment is valid because there is absolute freedom to transfer the credit
and the creditor need not get the consent of the debtor. He only needs to notify
him.
Extinguishment; Cause of Action (2004)
TX filed a suit for ejectment against BD for non-payment of condominium

rentals amounting to P150,000. During the pendency of the case, BD offered
and TX accepted the full amount due as rentals from BD, who then filed a
motion to dismiss the ejectment suit on the ground that the action is already
extinguished. Is BD’s contention correct? Why or why not? Reason. (5%)
SUGGESTED ANSWER:

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BD's contention is not correct. TX can still maintain the suit for ejectment. The
acceptance by the lessor of the payment by the lessee of the rentals in arrears
even during the pendency of the ejectment case does not constitute a waiver or
abandonment of the ejectment case. (SpousesClutario v. CA, 216 SCRA 341
[1992]).
Extinguishment; Compensation (2002)
Stockton is a stockholder of Core Corp. He desires to sell his shares in Core

Corp. In view of a court suit that Core
Corp. has filed against him for damages in the amount of P10 million, plus
attorney’s fees of P 1 million, as a result of statements published by Stockton
which are allegedly defamatory because it was calculated to injure and damage
the corporation’s reputation and goodwill. The articles of incorporation of Core
Corp. provide for a right of first refusal in favor of the corporation. Accordingly,
Stockton gave written notice to the corporation of his offer to sell his shares of P
10 million. The response of Core corp. was an acceptance of the offer in the
exercise of its rights of first refusal, offering for the purpose payment in form of
compensation or set-off against the amount of damages it is claiming against
him, exclusive of the claim for attorney’s fees. Stockton rejected the offer of the
corporation, arguing that compensation between the value of the shares and the
amount of damages demanded by the corporation cannot legally take effect. Is
Stockton correct? Give reason for your answer. (5%)
SUGGESTED ANSWERS:
Stockton is correct. There is no right of compensation between his price of P10

million and Core Corp.’s unliquidated claim for damages. In order that
compensation may be proper, the two debts must be liquidated and
demandable. The case for the P 10million damages being still pending in court,
the corporation has as yet no claim which is due and demandable against
Stockton.
ANOTHER MAIN ANSWER:

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The right of first refusal was not perfected as a right for the reason that there
was a conditional acceptance equivalent to a counter-offer consisting in the
amount of damages as being credited on the purchase price. Therefore,
compensation did not result since there was no valid right of first refusal (Art.
1475 & 1319, NCC)
ANOTHER MAIN ANSWER:
Even [if] assuming that there was a perfect right of first refusal, compensation
did not take place because the claim is unliquidated.
Extinguishment; Compensation vs. Payment (1998)
Define compensation as a mode of extinguishing an obligation, and distinguish

it from payment. [2%]
SUGGESTED ANSWER:
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 (Tolentino, 1991 ed., p. 365, citing 2 Castan 560and
Francia vs. IAC. 162 SCRA 753). It involves the simultaneous balancing of two
obligations in order to extinguish them to the extent in which the amount of one
is covered by that of the other. (De Leon, 1992 ed., p. 221,
citing 8 Manresa 401).
PAYMENT means not only delivery of money but also performance of an

obligation (Article 1232, Civil Code). In payment, capacity to dispose of the thing
paid and capacity to receive payment are required for debtor and creditor,
respectively: in compensation, such capacity is not necessary, because the
compensation operates by law and not by the act of the parties. In payment, the
performance must be complete; while in compensation there may be partial
extinguishment of an obligation (Tolentino, supra)
Extinguishment; Compensation/Set-Off; Banks (1998)

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X, who has a savings deposit with Y Bank in the sum of P1,000,000.00 incurs a
loan obligation with the said Bank in the sum of P800.000.00 which has
become due. When X tries to withdraw his deposit, Y Bank allows only
P200.000.00 to be withdrawn, less service charges, claiming that compensation

has extinguished its obligation under the savings account to the concurrent
amount of X's debt. X contends that compensation is improper when one of the
debts, as here, arises from a contract of deposit. Assuming that the promissory
note signed by X to evidence the loan does not provide for compensation
between said loan and his savings deposit, who is correct? [3%]
SUGGESTED ANSWER:
Y bank is correct. An. 1287, Civil Code, does not apply. All the requisites of Art.
1279, Civil Code are present. In the case of Gullas vs. PNB [62 Phil. 519), the
Supreme Court held: "The Civil Code contains provisions regarding
compensation (set off) and deposit. These portions of Philippine law provide that
compensation shall take place when two persons are reciprocally creditor and
debtor of each other. In this connection, it has been held that the relation
existing between a depositor and a bank is that of creditor and debtor, x xx As a
general rule, a bank has a right of set off of the deposits in its hands for the
payment of any indebtedness to it on the part of a depositor." Hence,
compensation took place between the mutual obligations of X and Y bank.
Extinguishment; Condonation (2000)
Arturo borrowed P500,000.00 from his father. After he had paid P300,000.00,
his father died. When the administrator of his father's estate requested payment
of the balance of P200,000.00. Arturo replied that the same had been condoned
by his father as evidenced by a notation at the back of his check payment for
the P300,000.00 reading: "In full payment of the loan". Will this be a valid
defense in an action for collection? (3%)
SUGGESTED ANSWER:
It depends. If the notation "in full payment of the loan" was written by Arturo's
father, there was an implied condonation of the balance that discharges the
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obligation. In such case, the notation is an act of the father from which
condonation may be inferred. The condonation being implied, it need not
comply with the formalities of a donation to be effective. The defense of full
payment will, therefore, be valid. When, however, the notation was written by
Arturo himself. It merely proves his intention in making that payment but in no
way does it bind his father (Yam v. CA, G.R No. 104726.11 February 1999).
In such case, the notation was not the act of his father from which condonation
may be inferred. There being no condonation at all the defense of full payment
will not be valid.
ALTERNATIVE ANSWER:
If the notation was written by Arturo's father, it amounted to an express

condonation of the balance which must comply with the formalities of a
donation to be valid under the 2nd paragraph of Article 1270 of the New Civil
Code.
Since the amount of the balance is more than 5,000 pesos, the acceptance by
Arturo of the condonation must also be in writing under Article 748. There
being no acceptance in writing by Arturo, the condonation is void and the
obligation to pay the balance subsists. The defense of full payment is, therefore,
not valid. In case the notation was not written by Arturo's father, the answer is
the same as the answers above.
Extinguishment; Extraordinary Inflation or Deflation (2001)
On July 1, 1998, Brian leased an office space in a building for a period of five
years at a rental rate of P1,000.00 a month. The contract of lease contained the
proviso that "in case of inflation or devaluation of the Philippine peso, the
monthly rental will automatically be increased or decreased depending on the
devaluation or inflation of the peso to the dollar." Starting March 1, 2001, the
lessor increased the rental to P2,000 a month, on the ground of inflation proven
by the fact that the exchange rate of the Philippine peso to the dollar had
increased from P25.00=$1.00 to P50.00=$1.00. Brian refused to pay the
increased rate and an action for unlawful detainer was filed against him. Will
the action prosper? Why? (5%)
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SUGGESTED ANSWER:
The unlawful detainer action will not prosper. Extraordinary inflation or

deflation is defined as the sharp decrease in the purchasing power of the peso.
It does not necessarily refer to the exchange rate of the peso to the dollar.
Whether or not there exists an extraordinary inflation or deflation is for the
courts to decide. There being no showing that the purchasing power of the peso
had been reduced tremendously, there could be no inflation that would justify
the increase in the amount of rental to be paid. Hence, Brian could refuse to
pay the increased rate.
ALTERNATIVE ANSWER:
The action will not prosper. The existence of inflation or deflation requires an
official declaration by the BangkoSentralngPilipinas.
ALTERNATIVE ANSWER:
The unlawful detainer action will prosper. It is a given fact in the problem, that
there was inflation, which caused the exchange rate to double. Since the
contract itself authorizes the increase in rental in the event of an inflation or
devaluation of the Philippine peso, the doubling of the monthly rent is
reasonable and is therefore a valid act under the very terms of the contract.
Brian's refusal to pay is thus a ground for ejectment.
Extinguishment; Loss (1994)
Dino sued Ben for damages because the latter had failed to deliver the antique
Marcedes Benz car Dino had purchased from Ben, which was—by agreement—
due for delivery on December 31, 1993. Ben, in his answer to Dino's complaint,
said Dino's claim has no basis for the suit, because as the car was being driven
to be delivered to Dino on January 1, 1994, a reckless truck driver had rammed
into the Mercedes Benz. The trial court dismissed Dino's complaint, saying
Ben's obligation had indeed, been extinguished by force majeure. Is the trial
court correct?
SUGGESTED ANSWER:

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a) No. Article 1262, New Civil Code provides, "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.
b) The judgment of the trial court is incorrect. Loss of the thing due by
fortuitous events or force majeure is a valid defense for a debtor only when the
debtor has not incurred delay. Extinguishment of liability for fortuitous event
requires that the debtor has not yet incurred any delay. In the present case, the
debtor was in delay when the car was destroyed on January 1, 1993 since it
was due for delivery on December 31, 1993. (Art. 1262 Civil Code)
c) It depends whether or not Ben the seller, was already in default at the time of
the accident because a demand for him to deliver on due date was not complied
with by him. That fact not having been given in the problem, the trial court
erred in dismissing Dino's complaint. Reason: There is default making him
responsible for fortuitous events including the assumption of risk or loss. If on
the other hand Ben was not in default as no demand has been sent to him prior
to the accident, then we must distinguish whether the price has been paid or
not. If it has been paid, the suit for damages should prosper but only to enable
the buyer to recover the price paid. It should be noted that Ben, the seller, must
bear the loss on the principle of res perit domino. He cannot be held answerable
for damages as the loss of the car was not imputable to his fault or fraud. In
any case, he can recover the value of the car from the party whose negligence
caused the accident. If no price has been paid at all, the trial court acted
correctly in dismissing the complaint.
Extinguishment; Loss; Impossible Service (1993)
In 1971, Able Construction, Inc. entered into a contract with Tropical Home
Developers, Inc. whereby the former would build for the latter the houses within
its subdivision. The cost of each house, labor and materials included, was
P100,000.00. Four hundred units were to be constructed within five years. In
1973, Able found that it could no longer continue with the job due to the
increase in the price of oil and its derivatives and the concomitant worldwide
spiraling of prices of all commodities, including basic raw materials required for

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the construction of the houses. The cost of development had risen to

unanticipated levels and to such a degree that the conditions and factors which
formed the original basis of the contract had been totally changed. Able brought
suit against Tropical Homes praying that the
Court relieve it of its obligation. Is Able Construction entitled to the relief

sought?
SUGGESTED ANSWER:
Yes, the Able Construction. Inc. is entitled to the relief sought under Article
1267, Civil Code. The law provides:
"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."
Extinguishment; Novation (1994)
In 1978, Bobby borrowed Pl,000,000.00 from Chito payable in two years. The
loan, which was evidenced by a promissory note, was secured by a mortgage on
real property. No action was filed by Chito to collect the loan or to foreclose the
mortgage. But in 1991, Bobby, without receiving any amount from Chito,
executed another promissory note which was worded exactly as the 1978
promissory note, except for the date thereof, which was the date of its
execution.
1) Can Chito demand payment on the 1991 promissory note in 1994?
2) Can Chito foreclose the real estate mortgage if Bobby fails to make good his
obligation under the 1991 promissory note?
SUGGESTED ANSWER:
1) Yes, Chito can demand payment on the 1991 promissory note in 1994.
Although the 1978 promissory note for P1 million payable two years later or in
1980 became a natural obligation after the lapse of ten (10) years, such natural
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obligation can be a valid consideration of a novated promissory note dated in

1991 and payable two years later, or in 1993. All the elements of an implied
real novation are present:
a) an old valid obligation;
b) a new valid obligation;
c) capacity of the parties;
d) animusnovandi or intention to novate; and
e) The old and the new obligation should be incompatible with each other on all
material points (Article 1292). The two promissory notes cannot stand together,
hence, the period of prescription of ten (10) years has not yet lapsed.
SUGGESTED ANSWER:
2) No. The mortgage being an accessory contract prescribed with the loan. The
novation of the loan, however, did not expressly include the mortgage, hence,
the mortgage is extinguished under Article 1296 of the NCC. The contract has
been extinguished by the novation or extinction of the principal obligation
insofar as third parties are concerned.
Extinguishment; Payment (1995)
In 1983 PHILCREDIT extended loans to Rivett-Strom Machineries, Inc.

(RIVETTT-STROM), consisting of
US$10 Million for the cost of machineries imported and directly paid by
PHTLCREDIT, and 5 Million in cash payable in installments over a period of ten
(10) years on the basis of the value thereof computed at the rate of exchange of
the U.S. dollar vis-à-vis the Philippine peso at the time of payment. RIVETT-
STROM made payments on both loans which if based on the rate of exchange in
1983 would have fully settled the loans. PHILCREDIT contends that the
payments on both loans should be based on the rate of exchange existing at the
time of payment, which rate of exchange has been consistently increasing, and

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for which reason there would still be a considerable balance on each loan. Is the
contention of PHILCREDIT correct? Discuss fully.
SUGGESTED ANSWER:
As regards the loan consisting of dollars, the contention of PHILCREDIT is

correct. It has to be paid in Philippine currency computed on the basis of the
exchange rate at the TIME OF PAYMENT of each installment, as held in Kalalo
v. Luz, 34 SCRA 337. As regards the P5 Million loan in Philippine pesos,
PHILCREDIT is wrong. The payment thereof cannot be measured by the peso-
dollar exchange rate. That will be violative of the Uniform Currency Act (RA,
529] which prohibits the payment of an obligation which, although to be paid in
Philippine currency, is measured by a foreign currency. (Palanca v. CA, 238
SCRA593).
Liability; Lease; Joint Liability (2001)
Four foreign medical students rented the apartment of Thelma for a period of
one year. After one semester, three of them returned to their home country and
the fourth transferred to a boarding house. Thelma discovered that they left
unpaid telephone bills in the total amount of P80,000.00. The lease contract
provided that the lessees shall pay for the telephone services in the leased
premises. Thelma demanded that the fourth student pay the entire amount of
the unpaid telephone bills, but the latter is willing to pay only one fourth of it.
Who is correct? Why? (5%)
SUGGESTED ANSWER:
The fourth student is correct. His liability is only joint, hence, pro rata. There is
solidary liability only when the obligation expressly so states or when the law or
nature of the obligation requires solidarity (Art. 1207, CC). The contract of lease
in the problem does not, in any way, stipulate solidarity.
Liability; Solidary Liability (1998)
Joey, Jovy and Jojo are solidary debtors under a loan obligation of P300,000.00
which has fallen due. The creditor has, however, condoned Jojo's entire share

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in the debt. Since Jovy has become insolvent, the creditor makes a demand on
Joey to pay the debt.
1) How much, if any, may Joey be compelled to pay? [2%]
2) To what extent, if at all, can Jojo be compelled by Joey to contribute to such

payment? [3%]
SUGGESTED ANSWER:
1. Joey can be compelled to pay only the remaining balance of P200.000, in

view of the remission of Jojo's share by the creditor. (Art. 1219, Civil Code)
2. Jojo can be compelled by Joey to contribute P50.000 Art. 1217. par. 3, Civil
Code provides. "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." Since the
insolvent debtor's share which Joey paid was P100,000, and there are only two
remaining debtors - namely Joey and Jojo - these two shall share equally the
burden of reimbursement. Jojo may thus be compelled by Joey to contribute
P50.000.00.
Liability; Solidary Obligation (1992)
In June 1988, X obtained a loan from A and executed with Y as solidary co-
maker a promissory note in favor of A for the sum of P200,000.00. The loan was
payable at P20,000.00 with interest monthly within the first week of each
month beginning July 1988 until maturity in April 1989. To secure the
payment of the loan. X put up as security a chattel mortgage on his car, a
Toyota Corolla sedan. Because of failure of X and Y to pay the principal amount
of the loan, the car was extrajudicially foreclosed. A acquired the car at A's
highest bid of P120,000.00 during the auction sale. After several fruitless letters
of demand against X and Y, A sued Y alone for the recovery of P80.000.00
constituting the deficiency. Y resisted the suit raising the following defenses:
a) That Y should not be liable at all because X was not sued together with Y.
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b) That the obligation has been paid completely by A's acquisition of the car
through "dacion en pago" or payment by cession.
c) That Y should not be held liable for the deficiency of P80,000.00 because he
was not a co-mortgagor in the chattel mortgage of the car which contract was
executed by X alone as owner and mortgagor.
d) That assuming that Y is liable, he should only pay the proportionate sum of
P40,000.00.
Decide each defense with reasons.
SUGGESTED ANSWER:
(a) This first defense of Y is untenable. Y is still liable as solidary debtor. The
creditor may proceed against any one of the solidary debtors. The demand
against one does not preclude further demand against the others so long as the
debt is not fully paid.
(b) The second defense of Y is untenable. Y is still liable. The chattel mortgage is
only given as a security and not as payment for the debt in case of failure to
pay. Y as a solidary co-maker is not relieved of further liability on the
promissory note as a result of the foreclosure of the chattel mortgage.
(c) The third defense of Y is untenable. Y is a surety of X and the extrajudicial

demand against the principal debtor is not inconsistent with a judicial demand
against the surety. A suretyship may co-exist with a mortgage.
(d) The fourth defense of Y is untenable. Y is liable for the entire prestation
since Y incurred a solidary obligation with X. (Arts. 1207, 1216. 1252 and
2047 Civil Code; Bicol Savings and LoanAssociates vs. Guinhawa 188
SCRA 642)
Liability; Solidary Obligation; Mutual Guaranty (2003)

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A,B,C,D, and E made themselves solidarity indebted to X for the amount of

P50,000.00. When X demanded payment from A, the latter refused to pay on
the following grounds.
a) B is only 16 years old.
b) C has already been condoned by X
c) D is insolvent.
d) E was given by X an extension of 6 months without the consent of the other

four co-debtors.
State the effect of each of the above defenses put up by A on his obligation to
pay X, if such defenses are found to be true.
SUGGESTED ANSWERS:
(a) A may avail the minority of B as a defense, but only for B’s share of P
10,000.00. A solidary debtor may avail himself of any defense which personally
belongs to a solidary co-debtor, but only as to the share of that codebtor.
(b) A may avail of the condonation by X of C’s share of P 10, 000.00. 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 others, he may avail himself thereof only as regards that part of the debt for
which the latter are responsible. (Article 1222, NCC).
(c) A may not interpose the defense of insolvency of D as a defense. Applying the
principle of mutual guaranty among solidary debtors, A guaranteed the
payment of D’s share and of all the other co-debtors. Hence, A cannot avail of
the defense of D’s insolvency.
(d) The extension of six (6) months given by X to E may be availed of by A as a

partial defense but only for the share of E, there is no novation of the obligation
but only an act of liberality granted to E alone.

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Loss of the thing due; Force Majeure (2000)
Kristina brought her diamond ring to a jewelry shop for cleaning. The jewelry
shop undertook to return the ring by
February 1, 1999." When the said date arrived, the jewelry shop informed
Kristina that the Job was not yet finished.
They asked her to return five days later. On February 6, 1999, Kristina went to
the shop to claim the ring, but she was informed that the same was stolen by a
thief who entered the shop the night before. Kristina filed an action for damages
against the jewelry shop which put up the defense of force majeure. Will the
action prosper or not? (5%)
SUGGESTED ANSWER:
The action will prosper. Since the defendant was already in default not having
delivered the ring when delivery was demanded by plaintiff at due date, the
defendant is liable for the loss of the thing and even when the loss was due to
force majeure.
Non-Payment of Amortizations; Subdivision Buyer; When justified (2005)
Bernie bought on installment a residential subdivision lot from DEVLAND. After

having faithfully paid the installments for 48 months, Bernie discovered that
DEVLAND had failed to develop the subdivision in accordance with the
approved plans and specifications within the time frame in the plan. He thus
wrote a letter to
DEVLAND informing it that he was stopping payment. Consequently, DEVLAND

cancelled the sale and wrote Bernie, informing him that his payments are
forfeited in its favor.
a) Was the action of DEVLAND proper? Explain. (2%)

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SUGGESTED ANSWER:
No, the action of DEVLAND is not proper. Under Section 23 of Presidential

Decree No. 957, otherwise known as the
Subdivision and Condominium Buyer's Protection Decree, non-payment of

amortizations by the buyer is justified if non-payment is due to the failure of
the subdivision owner to develop the subdivision project according to the
approved plans and within the limit for complying. (Eugenio v. Drilon, G.R.
No. 109404, January 22, 1996)
b) Discuss the rights of Bernie under the circumstances. (2%)
SUGGESTED ANSWER:
Under P.D. No. 957, a cancellation option is available to Bernie. If Bernie opts
to cancel the contract, DEVLAND must reimburse Bernie the total amount paid
and the amortizations interest, excluding delinquency interest, plus interest at
legal rate. (Eugenio v. Drilon, G.R. No. 109404,January 22, 1996)
c) Supposing DEVLAND had fully developed the subdivision but Bernie

failed to pay further installments after 4 years due to business reverses.
Discuss the rights and obligations of the parties. (2%)
SUGGESTED ANSWER:
In this case, pursuant to Section 24 of P.D. No. 957, R.A. No. 6552 otherwise
known as the Realty Installment Buyer
Protection Act, shall govern. Under Section 3 thereof, Bernie is entitled: 1) to

pay without additional interest the unpaid installments due within a grace
period of four (4) months or one month for every year of installment paid; 2) if
the contract is cancelled, Bernie is entitled to the refund of the cash surrender
value equal to 50% of the total payments made. DEVLAND on the other hand
has the right to cancel the contract after 30 days from receipt by Bernie of
notice of cancellation. DEVLAND is however obliged to refund to Bernie 50% of

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the total payments made. (Rillo v. Court ofAppeals, G.R. No. 125347, June
19,1997)
Period; Suspensive Period (1991)
In a deed of sale of a realty, it was stipulated that the buyer would construct a
commercial building on the lot while the seller would construct a private
passageway bordering the lot. The building was eventually finished but the
seller failed to complete the passageway as some of the squatters, who were
already known to be there at the time they entered into the contract, refused to
vacate the premises. In fact, prior to its execution, the seller filed ejectment
cases against the squatters. The buyer now sues the seller for specific
performance with damages. The defense is that the obligation to construct the
passageway should be with a period which, incidentally, had not been fixed by
them, hence, the need for fixing a judicial period. Will the action for specific
performance of the buyer against the seller prosper?
SUGGESTED ANSWER:
No. the action for specific performance filed by the buyer is premature under
Art. 1197 of the Civil Code. If a period has not been fixed although
contemplated by the parties, the parties themselves should fix that period,
failing in which, the Court maybe asked to fix it taking into consideration the
probable contemplation of the parties. Before the period is fixed, an action for
specific performance is premature.
ALTERNATIVE ANSWER:
It has been held in Borromeo vs. CA (47 SCRA 69), that the Supreme Court
allowed the simultaneous filing of action to fix the probable contemplated period
of the parties where none is fixed in the agreement if this would avoid
multiplicity of suits. In addition, technicalities must be subordinated to
substantial justice.
ALTERNATIVE ANSWER:

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The action for specific performance will not prosper. The filing of the ejectment
suit by the seller was precisely in compliance with his obligations and should
not, therefore, be faulted if no decision has yet been reached by the Court on
the matter.
Obligations: (2007)
What are obligations without an agreement"? Give five examples of situations

giving rise to this type of obligations?
SUGGESTED ANSWER:
Obligations without an agreement are those which are not based on contract.
Apart from contracts,obligation may arise from (1) Law; (2) Quasi- contract; (3)
Delict; and (4) Quasi-delict.
Examples of situations giving rise to “Obligations without an agreement” are as

follows:
1. A law was passed requiring the payment of a specific kind of tax.
2. 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. (Article
2154, NCC)
3. A person, through negligence, caused damage or injury to another.
4. A person intentionally damaged a property of another.
5. The obligation of the culprit to pay actual damages for causing the death of a
person is one of which arises from quasi-delict. (Art. 2206, NCC)
Obligations: (2008)
Anthony bought a piece of untitled agricultural land from Bert. Bert, in turn,
acquired the property by forging Carlo’s signature in a deed of sale over the
property. Carlo had been in possession of the property for 8 years, declared it

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for tax purposes, and religiously paid all taxes due on the property. Anthony is
not aware of the defect in Bert’s title, but has been in actual physical
possession of the property from the time he bought it from Bert, who had never
been in possession. Anthony has since then been in possession of the property
for one year.
a) Can Anthony acquire ownership of the property by acquisitive prescription?

How many more years does he have to possess it to acquire ownership? (2%)
b) If Carlo is able to legally recover his property, can he require Anthony to

account for all the fruits he has harvested from the property while in
possession? (2%)
c) If there are standing crops on the property when Carlo recovers possession,
can Carlo appropriate them? (2%)
Obligations: (2008)
Raymond, single, named his sister Ruffa in his will as a devisee of a parcel of
land which he owned. The will imposed upon Ruffa the obligation of preserving
the land and transferring it, upon her death, to her illegitimate daughter Scarlet
who was then only one year old. Raymond later died, leaving behind his
widowed mother, Ruffa and Scarlet.
a) Is the condition imposed upon Ruffa to preserve the property and to transmit
it upon her death to Scarlet, valid? (1%)
b) If Scarlet predeceases Ruffa, who inherits the property? (2%)
c) If Ruffa predeceases Raymond, can Scarlet inherit the property directly from
Raymond? (2%)
Obligations and Contracts: (2008)

Eduardo was granted a loan by XYZ Bank for the purpose of improving a
building which XYZ leased from him. Eduardo, executed the promissory note
(“PN”) in favor of the bank, with his friend Recardo as cosignatory. In the PN,
they both acknowledged that they are “individually and collectively” liable and
waived the need for prior demand. To secure the PN, Recardo executed a real
estate mortgage on his own property. When Eduardo defaulted on the PN, XYZ

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stopped payment of rentals on the building on the ground that legal

compensation had set in. Since there was still a balance due on the PN after
applying the rentals, XYZ foreclosed the real estate mortgage over Recardo’s
property. Recardo opposed the foreclosure on the ground that he is only a co-
signatory; that no demand was made upon him for payment, and assuming he
is liable, his liability should not go beyond half the balance of the loan. Further,
Recardo said that when the bank invoked compensation between the rentals
and the amount of the loan, it amounted to a new contract or novation, and had
the effect of extinguishing the security since he did not give his consent (as
owner of the property under the real estate mortgage) thereto.
a) Can XYZ Bank validly assert legal compensation? (2%)
b) Can Recardo’s property be foreclosed to pay the full balance of the loan? (2%)
c) Does Recardo have basis under the Civil Code for claiming that the original
contract was novated? (2%)
Dux leased his house to Iris for a period of 2 years, at the rate of P25,000.00
monthly, payable annually in advance. The contract stipulated that it may be
renewed for another 2-year period upon mutual agreement of the parties. The
contract also granted Iris the right of first refusal to purchase the property at
any time during the lease, if Dux decides to sell the property at the same price
that the property is offered for sale to a third party. Twenty-three months after
execution of the lease contract, Dux sold the house to his mother for P2 million.
Iris claimed that the sale was a breach of her right of first refusal. Dux said
there was no breach because the property was sold to his mother who is not a
third party. Iris filed an action to rescind the sale and to compel Dux to sell the
property to her at the same price. Alternatively, she asked the court to extend
the lease for another 2 years on the same terms.
a) Can Iris seek rescission of the sale of the property to Dux’s mother? (3%)
b) Will the alternative prayer for extension of the lease prosper? (2%)

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Felipe borrowed $100 from Gustavo in 1998, when the Phil P – US$ exchange
rate was P56 – US$1. On March 1, 2008, Felipe tendered to Gustavo a cashier’s
check in the amount of P4,135 in payment of his US$ 100 debt, based on the
Phil P – US$ exchange rate at that time. Gustavo accepted the check, but forgot
to deposit it until Sept. 12, 2008. His bank refused to accept the check because
it had become stale. Gustavo now wants Felipe to pay him in cash the amount
of P5,600. Claiming that the previous payment was not in legal tender, and that
there has been extraordinary deflation since 1998, and therefore, Felipe should
pay him the value of the debt at the time it was incurred. Felipe refused to pay
him again, claiming that Gustavo is estopped from raising the issue of legal
tender, having accepted the check in March, and that it was Gustavo’s
negligence in not depositing the check immediately that caused the check to
become stale.
a) Can Gustavo now raise the issue that the cashier’s check is not legal tender?
(2%)
b) Can Felipe validly refuse to pay Gustavo again? (2%)
c) Can Felipe compel Gustavo to receive US$100 instead? (1%)
AB Corp. entered into a contract with XY Corp. whereby the former agreed to
construct the research and laboratory facilities of the latter. Under the terms of
the contract, AB Corp. agreed to complete the facility in 18 months, at the total
contract price of P10 million. XY Corp. paid 50% of the total contract price, the
balance to be paid upon completion of the work. The work started immediately,
but AB Corp. later experienced work slippage because of labor unrest in his
company. AB Corp.’s employees claimed that they are not being paid on time;
hence, the work slowdown. As of the 17th month, work was only 45%

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completed. AB Corp. asked for extension of time, claiming that its labor
problems is a case of fortuitous event, but this was denied by XY Corp. When it
became certain that the construction could not be finished on time, XY Corp.
sent written notice canceling the contract, and requiring AB Corp. to
immediately vacate the premises.
a) Can the labor unrest be considered a fortuitous event? (1%)
b) Can XY Corp. unilaterally and immediately cancel the contract? (2%)
c) Must AB Corp. return the 50% downpayment? (2%)
Obligation and Contracts: (2009)
Jude owned a building which he had leased to several tenants. Without

informing his tenants, Jude sold the building to Ildefonso. Thereafter, the latter
notified all the tenants that he is the new owner of the building. Ildefonso
ordered the tenants to vacate the premises within thirty (30) days from notice
because he had other plans for the building. The tenants refused to vacate,
insisting that they will only do so when the term of their lease shall have
expired. Is Ildefonso bound to respect the lease contracts between Jude and his
tenants? Explain your answer. (3%)
Obligations and Contracts: 2009
TRUE or FALSE. Answer TRUE if the statement is true, or FALSE if the

statement is false. Explain your answer in not more than two (2) sentences.
(5%)
[a] A clause in an arbitration contract granting one of the parties the power to
choose more arbitrators than the other renders the arbitration contract void.
[b] If there is no marriage settlement, the salary of a “spouse” in an adulterous

marriage belongs to the conjugal partnership of gains.
[c] Acquisitive prescription of a negative easement runs from the time the owner
of the dominant estate forbids, in a notarized document, the owner of the
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servient estate from executing an act which would be lawful without the
easement.
[d] The renunciation by a co-owner of his undivided share in the co-owned

property in lieu of the performance of his obligation to contribute to taxes and
expenses for the preservation of the property constitutes dacion en pago.
[e] A person can dispose of his corpse through an act inter vivos.
Sarah had a deposit in a savings account with Filipino Universal Bank in the
amount of five million pesos (P5,000,000.00). To buy a new car, she obtained a
loan from the same bank in the amount of P1,200,000.00, payable in twelve
monthly installments. Sarah issued in favor of the bank post-datedchecks, each
in the amount of P100,000.00, to cover the twelve monthly installment
payments. On the third, fourth and fifth months, the corresponding checks
bounced.
The bank then declared the whole obligation due, and proceeded to deduct the
amount of one million pesos (P1,000,000.00) from Sarah’s deposit after notice
to her that this is a form of compensation allowed by law. Is the bank correct?
Explain. (4%)
Marciano is the owner of a parcel of land through which a river runs out into
the sea. The land had been brought under the Torrens System, and is
cultivated by Ulpiano and his family as farmworkers therein. Over the years,
the river has brought silt and sediment from its sources up in the mountains
and forests so that gradually the land owned by Marciano increased in area by
three hectares. Ulpiano built three huts on this additional area, where he and
his two married children live. On this same area, Ulpiano and his family

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planted peanuts, monggo beans and vegetables. Ulpiano also regularly paid
taxes on the land, as shown by tax declarations, for over thirty years.
When Marciano learned of the increase in the size of the land, he ordered
Ulpiano to demolish the huts, and demanded that he be paid his share in the
proceeds of the harvest. Marciano claims that under the Civil Code, the
alluvium belongs to him as a registered riparian owner to whose land the
accretion attaches, and that his right is enforceable against the whole world.
[a] Is Marciano correct? Explain. (3%)
[b] What rights, if any, does Ulpiano have against Marciano? Explain. (3%)
Rosario obtained a loan of P100,000.00 from Jennifer, and pledged her

diamond ring. The contract signed by the parties stipulated that if Rosario is
unable to redeem the ring on due date, she will execute a document in favor of
Jennifer providing that the ring shall automatically be considered full payment
of the loan.
[a] Is the contract valid? Explain. (3%)
[b] Will your answer to [a] be the same if the contract stipulates that upon
failure of Rosario to redeem the ring on due date, Jennifer may immediately sell
the ring and appropriate the entire proceeds thereof for herself as full payment
of the loan? Reasons. (3%)

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CONTRACTS
Consensual vs. Real Contracts; Kinds of Real Contracts
(1998)
Distinguish consensual from real contracts and name at least four (4) kinds of
real contracts under the present law. [3%]
SUGGESTED ANSWER:
CONSENSUAL CONTRACTS are those which are perfected by mere consent (Art.
1315. Civil Code). REAL CONTRACTS are those which are perfected by the
delivery of the object of the obligation. (Art. 1316, Civil Code) Examples of real
contracts are deposit, pledge, commodatum and simple loan (mutuum).
Consideration; Validity (2000)
Lolita was employed in a finance company. Because she could not account for
the funds entrusted to her, she was charged with estafa and ordered arrested.
In order to secure her release from jail, her parents executed a promissory note
to pay the finance company the amount allegedly misappropriated by their
daughter. The finance company then executed an affidavit of desistance which
led to the withdrawal of the information against Lolita and her release from jail.
The parents failed to comply with their promissory note and the finance
company sued them for specific performance. Will the action prosper or not?
(3%)
SUGGESTED ANSWER:
The action will prosper. The promissory note executed by Lolita's parents is
valid and binding, the consideration being the extinguishment of Lolita's civil
liability and not the stifling of the criminal prosecution.
ALTERNATIVE ANSWER:
The action will not prosper because the consideration for the promissory note
was the non-prosecution of the criminal case for estafa. This cannot be done
anymore because the information has already been filed in court and to do it is
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illegal. That the consideration for the promissory note is the stifling of the
criminal prosecution is evident from the execution by the finance company of
the affidavit of desistance immediately after the execution by Lolita's parents of
the promissory note. The consideration being illegal, the promissory note is
invalid and may not be enforced by court action.
Contract of Option; Elements (2005)
Marvin offered to construct the house of Carlos for a very reasonable price of
P900,000.00, giving the latter 10 days within which to accept or reject the offer.
On the fifth day, before Carlos could make up his mind, Marvin withdrew his
offer.
a) What is the effect of the withdrawal of Marvin's offer? (2%)
SUGGESTED ANSWER:
The withdrawal of Marvin's offer will cause the offer to cease in law. Hence, even
if subsequently accepted, there could be no concurrence of the offer and the
acceptance. In the absence of concurrence of offer and acceptance, there can be
no consent. (Laudico v. Arias Rodriguez, G.R.No. 16530, March 31, 1922)
Without consent, there is no perfected contract for the construction of the
house of Carlos. (Salonga v. Farrales, G.R. No. L-47088, July 10,
1981) Article 1318 of the Civil Code provides that there can be no contract
unless the following requisites concur: (1) consent of the parties; (2) object
certain which is the subject matter of the contract; and (3) cause of the
obligation. Marvin will not be liable to pay Carlos any damages for withdrawing
the offer before the lapse of the period granted. In this case, no consideration
was given by Carlos for the option given, thus there is no perfected contract of
option for lack of cause of obligation. Marvin cannot be held to have breached
the contract. Thus, he cannot be held liable for damages.
b) Will your answer be the same if Carlos paid Marvin P10,000.00 as

consideration for that option? Explain. (2%)

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ALTERNATIVE ANSWER:
My answer will be the same as to the perfection of the contract for the
construction of the house of Carlos. No perfected contract arises because of lack
of consent. With the withdrawal of the offer, there could be no concurrence of
offer and acceptance. My answer will not be the same as to damages. Marvin
will be liable for damages for breach of contract of option. With the payment of
the consideration for the option given, and with the consent of the parties and
the object of contract being present, a perfected contract of option was created.
(San Miguel, Inc. v. Huang, G.R. No. 137290, July 31,2000) Under Article
1170 of the Civil Code, those who in the performance of their obligation are
guilty of contravention thereof, as in this case, when Marvin did not give Carlos
the agreed period of ten days, are liable for damages.
ALTERNATIVE ANSWER:
My answer will not be the same if Carlos paid Marvin P10,000.00 because an
option contract was perfected. Thus, if Marvin withdrew the offer prior to the
expiration of the 10-day period, he breached the option contract. (Article 1324,
Civil Code)
c) Supposing that Carlos accepted the offer before Marvin could

communicate his withdrawal thereof? Discuss the legal consequences.
(2%)
SUGGESTED ANSWER:
A contract to construct the house of Carlos is perfected. Contracts are perfected

by mere consent manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. (Gomez v.
Court of Appeals, G.R. No. 120747, September 21, 2000) Under Article 1315
of the Civil Code, Carlos and Marvin arebound to fulfill what has been expressly
stipulated and allconsequences thereof. Under Article 1167, if Marvin
wouldrefuse to construct the house, Carlos is entitled to have theconstruction
be done by a third person at the expense ofMarvin. Marvin in that case will be
liable for damages underArticle 1170.
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Inexistent Contracts vs. Annullable Contracts (2004)
Distinguish briefly but clearly between Inexistent contracts and annullable

contracts.
SUGGESTED ANSWER:
INEXISTENT CONTRACTS are considered as not having been entered into and,
therefore, void ob initio. They do not create any obligation and cannot be
ratified or validated, as there is no agreement to ratify or validate. On the other
hand, ANNULLABLE or VOIDABLE CONTRACTS are valid until invalidated by
the court but may be ratified. In inexistent contracts, one or more requisites of
a valid contract are absent. In anullable contracts, all the elements of a contract
are present except that the consent of one of the contracting parties was
vitiated or one of them has no capacity to give consent.
Nature of Contracts; Obligatoriness (1991)
Roland, a basketball star, was under contract for one year toplay-for-play
exclusively for Lady Love, Inc. However, evenbefore the basketball season could
open, he was offered amore attractive pay plus fringes benefits by Sweet
Taste,Inc. Roland accepted the offer and transferred to SweetTaste. Lady Love
sues Roland and Sweet Taste for breachof contract. Defendants claim that the
restriction to play forLady Love alone is void, hence, unenforceable, as it
constitutes an undue interference with the right of Roland to enter into
contracts and the impairment of his freedom to play and enjoy basketball. Can
Roland be bound by the contract he entered into with Lady Love or can he
disregard the same? Is he liable at all? How about Sweet Taste? Is it liable to
Lady Love?
SUGGESTED ANSWER:
Roland is bound by the contract he entered into with Lady Love and he cannot
disregard the same, under the principles of obligatoriness of contracts.
Obligations arising from contracts have the force of law between the parties.
SUGGESTED ANSWER:

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Yes, Roland is liable under the contract as far as Lady Love is concerned. He is
liable for damages under Article 1170 of the Civil Code since he contravened the
tenor of his obligation. Not being a contracting party, Sweet Taste is not bound
by the contract but it can be held liable under Art. 1314. The basis of its
liability is not prescribed by contract but is founded on quasi-delict, assuming
that Sweet Taste knew of the contract. Article 1314 of the Civil Code provides
that any third person who induces another to violate his contract shall be liable
for damages to the other contracting party.
ALTERNATIVE ANSWER:
It is assumed that Lady Love knew of the contract. Neither Roland nor Sweet
Taste would be liable, because the restriction in the contract is violative of
Article 1306 as being contrary to law morals, good customs, public order or
public policy.
Nature of Contracts; Privity of Contract (1996)
Baldomero leased his house with a telephone to Jose. The lease contract
provided that Jose shall pay for all electricity, water and telephone services in
the leased premises during the period of the lease. Six months later. Jose
surreptitiously vacated the premises. He left behind unpaid telephone bills for
overseas telephone calls amounting to over P20,000.00. Baldomero refused to
pay the said bills on the ground that Jose had already substituted him as the
customer of the telephone company. The latter maintained that Baldomero
remained as his customer as far as their service contract was concerned,
notwithstanding the lease contract between Baldomero and Jose. Who is
correct, Baldomero or the telephone company? Explain.
SUGGESTED ANSWER:
The telephone company is correct because as far as it is concerned, the only

person it contracted with was Baldomero. The telephone company has no
contract with Jose. Baldomero cannot substitute Jose in his stead without the
consent of the telephone company (Art. 1293, NCC). Baldomero is, therefore,
liable under the contract.

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Nature of Contracts; Relativity of Contracts (2002)
Printado is engaged in the printing business. Suplico supplies printing paper to

Printado pursuant to an order agreement under which Suplico binds himself to
deliver the same volume of paper every month for a period of 18 months, with
Printado in turn agreeing to pay within 60 days after each delivery. Suplico has
been faithfully delivering under the order agreement for 10 months but
thereafter stopped doing so, because Printado has not made any payment at all.
Printado has also a standing contract with publisher Publico for the printing of
10,000 volumes of school textbooks. Suplico was aware of said printing
contract. After printing 1,000 volumes, Printado also fails to perform under its
printing contract with Publico. Suplico sues Printado for the value of the unpaid
deliveries under their order agreement. At the same time Publico sues Printado
for damages for breach of contract with respect to their own printing agreement.
In the suit filed by Suplico, Printado counters that: (a) Suplico cannot demand
payment for deliveries made under their order agreement until Suplico has
completed performance under said contract; (b) Suplico should pay damages for
breach of contract; and (c) with Publico should be liable for Printado’s breach of
his contract with Publico because the order agreement between Suplico and
Printado was for the benefit of Publico. Are the contentions of Printado tenable?
Explain your answers as to each contention. (5%)
SUGGESTED ANSWER:
No, the contentions of Printado are untenable. Printado having failed to pay for
the printing paper covered by the delivery invoices on time, Suplico has the
right to cease making further delivery. And the latter did not violate the order
agreement (Integrated Packaging Corporation v. Courtof Appeals, (333
SCRA 170, G.R. No. 115117, June 8, [2000]).Suplico cannot be held liable for
damages, for breach of contract, as it was not he who violated the order
agreement, but Printado. Suplico cannot be held liable for Printado’s breach of
contract with Publico. He is not a party to the agreement entered into by and
between Printado and Publico. Theirs is not a stipulation pour atrui. [Aforesaid]
Such contracts do could not affect third persons like Suplico because of the
basic civil law principle of relativity of contracts which provides that contracts
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can only bind the parties who entered into it, and it cannot favor or prejudice a
third person, even if he is aware of such contract and has acted with knowledge
thereof. (Integrated Packaging Corporationv. CA, supra.)
Rescission of Contracts; Proper Party (1996)
In December 1985, Salvador and the Star Semiconductor Company (SSC)

executed a Deed of Conditional Sale wherein the former agreed to sell his 2,000
square meter lot in Cainta, Rizal, to the latter for the price of P1,000,000.00,
payable P100,000.00 down, and the balance 60 days after the squatters in the
property have been removed. If the squatters are not removed within six
months, the P100,000.00 down payment shall be returned by the vendor to the
vendee,
Salvador filed ejectment suits against the squatters, but in spite of the decisions
in his favor, the squatters still would not leave. In August, 1986, Salvador
offered to return the P100,000.00 down payment to the vendee, on the ground
that he is unable to remove the squatters on the property. SSC refused to
accept the money and demanded that Salvador execute a deed of absolute sale
of the property in its favor, at which time it will pay the balance of the price.
Incidentally, the value of the land had doubled by that time. Salvador consigned
the P 100,000.00 in court, and filed an action for rescission of the deed of
conditional sale, plus damages. Will the action prosper? Explain.
SUGGESTED ANSWER:
No, the action will not prosper. The action for rescission may be brought only by
the aggrieved party to the contract.
Since it was Salvador who failed to comply with his conditional obligation, he is
not the aggrieved party who may file the action for rescission but the Star
Semiconductor Company. The company, however, is not opting to rescind the
contract but has chosen to waive Salvador's compliance with the condition
which it can do under Art. 1545, NCC.
ALTERNATIVE ANSWER:

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The action for rescission will not prosper. The buyer has not committed any
breach, let alone a substantial or serious one, to warrant the
rescission/resolution sought by the vendor. On the contrary, it is the vendor
who appears to have failed to comply with the condition imposed by the
contract the fulfillment of which would have rendered the obligation to pay the
balance of the purchase price demandable. Further, far from being unable to
comply with what is incumbent upon it, ie., pay the balance of the price - the
buyer has offered to pay it even without the vendor having complied with the
suspensive condition attached to the payment of the price, thus waiving such
condition as well as the 60-day term in its favor The stipulation that the
P100,000.00 down payment shall be returned by the vendor to the vendee if the
squatters are not removed within six months, is also a covenant for the benefit
of the vendee, which the latter has validly waived by implication when it offered
to pay the balance of the purchase price upon the execution of a deed of
absolute sale by the vendor. (Art.1545, NCC)
MULTIPLE CHOICE QUESTIONS

Reviewer
193
1. The parties to a bailment are the:
a. bailor;
b. bailee;
c. comodatario;
d. all the above;
e. letters a and b
2. A deposit made in compliance with a legal obligation is:
a. an extrajudicial deposit;
b. a voluntary deposit;
c. a necessary deposit;
d. a deposit with a warehouseman;
e. letters a and b
3. A contract of antichresis is always:
a. a written contract;
b. a contract, with a stipulation that the debt will be paid through receipt of the
fruits of an immovable;
c. Involves the payment of interests, if owing;
d. All of the above;
e. Letters a and b
4. An, assignee in a proceeding under the Insolvency Law does not have the duty
of:
a. suing to recover the properties of the state of the insolvent debtor;

Reviewer
194
b. selling property of the insolvent debtor;
c. ensuring that a debtor corporation operate the business efficiently and

effectively while the proceedings are pending;
d. collecting and discharging debts owed to the insolvent debtor.
5. In order to obtain approval of the proposed settlement of the debtor in an

insolvency proceeding.
a. the court must initiate the proposal
b. 2/3 of the number of creditors should agree to the settlement;
c. 3/5 of the number of creditors should agree to the settlement;
d. 1/3 of the total debts must be represented by the approving creditors;
e. Letters a and b
6. Upon the proposal of a third person, a new debtor substituted the original
debtor without the latter’s consent. The creditor accepted the substitution. Later,
however, the new debtor became insolvent and defaulted in his obligation. What is the
effect of the new debtor’s default upon the original debtor?
(A) The original debtor is freed of liability since novation took place and this relieved
him of his obligation.
(B) The original debtor shall pay or perform the obligation with recourse to the new
debtor.
(C) The original debtor remains liable since he gave no consent to the substitution.
(D) The original debtor shall pay or perform 50% of the obligation to avoid unjust
enrichment on his part.
7. Raul, Ester, and Rufus inherited a 10-hectare land from their father. Before the
land could be partitioned, however, Raul sold his hereditary right to Raffy, a stranger
to the family, for P5 million. Do Ester and Rufus have a remedy for keeping the land
within their family?
Reviewer
195
(A) Yes, they may be subrogated to Raffy’s right by reimbursing to him within the
required time what he paid Raul.
(B) Yes, they may be subrogated to Raffy’s right provided they buy him out before he
registers the sale.
(C) No, they can be subrogated to Raffy’s right only with his conformity.
(D) No, since there was no impediment to Raul selling his inheritance to a stranger.
8. When bilateral contracts are vitiated with vices of consent, they are rendered
(A) rescissible.
(B) void.
(C) unenforceable.
(D) voidable.
9. Contracts take effect only between the parties or their assigns and heirs, except
where the rights and obligations arising from the contract are not transmissible by
their nature, by stipulation, or by provision of law. In the latter case, the assigns or
the heirs are not bound by the contracts. This is known as the principle of
(A) Relativity of contracts.
(B) Freedom to stipulate.
(C) Mutuality of contracts.
(D) Obligatory force of contracts.
10. Lino entered into a contract to sell with Ramon, undertaking to convey to the
latter one of the five lots he owns, without specifying which lot it was, for the price of
P1 million. Later, the parties could not agree which of five lots he owned Lino
undertook to sell to Ramon. What is the standing of the contract?
(A) Unenforceable.
(B) Voidable.
Reviewer
196
(C) Rescissible.
(D) Void.
11. Six tenants sued X, the landowner, for willfully denying them water for their
farms, which water happened to flow from land under X’s control, his intention being
to force them to leave his properties. Is X liable for his act and why?
(A) No, because the tenants must be content with waiting for rainfall for their farms.
(B) No, since X owns both the land and the water.
(C) Yes, because the tenants’ farms have the natural right of access to water wherever
it is located.
(D) Yes, since X willfully caused injury to his tenants contrary to morals, good customs
or public policy.
12. Asiong borrowed P1 million from a bank, secured by a mortgage on his land.
Without his consent, his friend Boyong paid the whole loan. Since Asiong benefited
from the payment, can Boyong compel the bank to subrogate him in its right as
mortgagee of Asiong's land?
(A) No, but the bank can foreclose and pay Boyong back.
(B) No, since Boyong paid for Asiong’s loan without his approval.
(C) Yes, since a change of creditor took place by novation with the bank’s consent.
(D) Yes, since it is but right that Boyong be able to get back his money and, if not, to
foreclose the mortgage in the manner of the bank.
13. Rudolf borrowed P1 million from Rodrigo and Fernando who acted as solidary
creditors. When the loan matured, Rodrigo wrote a letter to Rudolf, demanding
payment of the loan directly to him. Before Rudolf could comply, Fernando went to see
him personally to collect and he paid him. Did Rudolf make a valid payment?
(A) No, since Rudolf should have split the payment between Rodrigo and Fernando.

Reviewer
197
(B) No, since Rodrigo, the other solidary creditor, already made a prior demand for
payment from Rudolf.
(C) Yes, since the payment covers the whole obligation.
(D) Yes, since Fernando was a solidary creditor, payment to him extinguished the
obligation.
14. Allan bought Billy’s property through Carlos, an agent empowered with a
special power of attorney (SPA) to sell the same. When Allan was ready to pay as
scheduled, Billy called, directing Allan to pay directly to him. On learning of this,
Carlos, Billy's agent, told Allan to pay through him as his SPA provided and to protect
his commission. Faced with two claimants, Allan consigned the payment in court. Billy
protested, contending that the consignation is ineffective since no tender of payment
was made to him. Is he correct?
(A) No, since consignation without tender of payment is allowed in the face of the
conflicting claims on the plaintiff.
(B) Yes, as owner of the property sold, Billy can demand payment directly to himself.
(C) Yes, since Allan made no announcement of the tender.
(D) Yes, a tender of payment is required for a valid consignation.
15. X sold Y 100 sacks of rice that Y was to pick up from X’s rice mill on a
particular date. Y did not, however, appear on the agreed date to take delivery of the
rice. After one week, X automatically rescinded the sale without notarial notice to Y. Is
the rescission valid?
(A) Yes, automatic rescission is allowed since, having the character of movables and
consumables, rice can easily deteriorate.
(B) No, the buyer is entitled to a customary 30-day extension of his obligation to take
delivery of the goods.
(C) No, since there was no express agreement regarding automatic rescission.
(D) No, the seller should first determine that Y was not justified in failing to appear.

Reviewer
198
16. Roy and Carlos both undertook a contract to deliver to Sam in Manila a boat
docked in Subic. Before they could deliver it, however, the boat sank in a storm. The
contract provides that fortuitous event shall not exempt Roy and Carlos from their
obligation. Owing to the loss of the motor boat, such obligation is deemed converted
into one of indemnity for damages. Is the liability of Roy and Carlos joint or solidary?
(A) Neither solidary nor joint since they cannot waive the defense of fortuitous event to
which they are entitled.
(B) Solidary or joint upon the discretion of Sam.
(C) Solidary since Roy and Carlos failed to perform their obligation to deliver the motor
boat.
(D) Joint since the conversion of their liability to one of indemnity for damages made it
joint.
17. ML inherited from his father P5 million in legitime but he waived it in a public
instrument in favor of his sister QY who accepted the waiver in writing. But as it
happened, ML borrowed P6 million from PF before the waiver. PF objected to the
waiver and filed an action for its rescission on the ground that he had the right to ML’s
P5 million legitime as partial settlement of what ML owed him since ML has proved to
be insolvent. Does PF, as creditor, have the right to rescind the waiver?
(A) No, because the waiver in favor of his sister QY amounts to a donation and she
already accepted it.
(B) Yes, because the waiver is prejudicial to the interest of a third person whose
interest is recognized by law.
(C) No, PF must wait for ML to become solvent and, thereafter, sue him for the unpaid
loan.
(D) Yes, because a legitime cannot be waived in favor of a specific heir; it must be
divided among all the other heirs.
18. A natural obligation under the New Civil Code of the Philippines is one which
Reviewer
199
(A) the obligor has a moral obligation to do, otherwise entitling the obligee to damages.
(B) refers to an obligation in writing to do or not to do.
(C) theobligee may enforce through the court if violated by the obligor.
(D) cannot be judicially enforced but authorizes the obligee to retain the obligor’s
payment or performance.
19. Anne owed Bessy P1 million due on October 1, 2011 but failed to pay her on
due date. Bessy sent a demand letter to Anne giving her 5 days from receipt within
which to pay. Two days after receipt of the letter, Anne personally offered to pay Bessy
in manager's check but the latter refused to accept the same. The 5 days lapsed. May
Anne’s obligation be considered extinguished?
(A) Yes, since Bessy’s refusal of the manager’s check, which is presumed funded,
amounts to a satisfaction of the obligation.
(B) No, since tender of payment even in cash, if refused, will not discharge the
obligation without proper consignation in court.
(C) Yes, since Anne tendered payment of the full amount due.
(D) No, since a manager’s check is not considered legal tender in the Philippines.
20. The presence of a vice of consent vitiates the consent of a party in a contract
and this renders the contract
(A) Rescissible.
(B) Unenforceable.
(C) Voidable.
(D) Void.
21. Which of the following statements is wrong?

Reviewer
200
(a) The possessor in bad faith shall reimburse the fruits received and those which the
legitimate possessor could have received.
(b) The possessor in bad faith has a right of reimbursement for necessary expenses
and those for the production, gathering and preservation of the fruits.
(c) The possessor in bad faith is not entitled to a refund of ornamental expenses.
(d) The possessor in bad faith is entitled to a refund of useful expenses.
22. The following are the elements of an obligation, except:
(a) Juridical/Legal Tie
(b) Active subject
(c) Passive subject
(d) Consideration
23. It is a conduct that may consist of giving, doing, or not doing something.
(a) Obligation
(b) Juridical necessity
(c) Prestation
(d) Contract
24. It is a juridical relation arising from lawful, voluntary and unilateral acts based
on the principle that no one should unjustly enrich himself at the expense of another.
(a) Quasi-contract
(b) Quasi-delict
(c) Contract
(d) Delict
25. The following are the elements of quasi-delict, except:

Reviewer
201
(a) Act or omission
(b) FauIt /negligence
(c) Damage/injury
(d) Pre-existing contract
26. A debtor is liable for damages in case of delay if he is guilty of any of the
following, except:
(a) default (mora)
(b) mistake
(c) negligence (culpa)
(d) breach through contravention of the tenor thereof
27. This term refers to a delay on the part of both the debtor and creditor in
reciprocal obligations.
(a) Mora accipiendi
(b) Mora sol vendi
(c) Compensation morae
(d) Solution indibiti
28. The following are the requisites of morasolvendi, except:
(a) Obligation pertains to the debtor and is determinate, due, demandable, and
liquidated.
(b) Obligation was performed on its maturity date.
(c) There is judicial or extrajudicial demand by the creditor.
(d) Failure of the debtor to comply with such demand.
29. It is an intentional evasion of the faithful performance of the obligation.

Reviewer
202
(a) Negligence
(b) Fraud
(c) Delay
(d) Mistake
30. The following are the requisites of fortuitous event, except:
(a) Cause is independent of the will of the debtor.
(b) The event is unforeseeable/unavoidable.
(c) Occurrence renders it absolutely impossible for the debtor to fulfill his obligation in
a normal manner; impossibility must be absolute not partial, otherwise not force
majeure.
(d) Debtor contributed to the aggravation of the injury to the creditor.
31. A debtor may still be held liable for loss or damages even if it was caused by a
fortuitous event in any of the following instances, except:
(a) The debtor is guilty of dolo, malice or bad faith, has promised the same thing to two
or more persons who do not have the same interest
(b) The debtor contributed to the loss.
(c) The thing to be delivered is generic.
(d) The creditor is guilty of fraud, negligence or delay or if he contravened the tenor of
the obligation.
32. Buko, Fermin and Toti bound themselves solidarily to pay Ayee the amount of
P5,000.00. Suppose Buko paid the obligation, what is his right as against his co-
debtors?
(a) Buko can ask for reimbursement from Fermin and Toti.
(b) Buko can sue Fermin and Toti for damages.

Reviewer
203
(c) Buko can sue for rescission ..
(d) Buko can claim a refund from Ayee.
33. Buko, Fermin and Toti bound themselves solidarily to pay Ayee the sum o'f
P10.000.00. When the obligation became due and demandable, Ayee sued Buko for
the payment of the P10,000.00. Buko moved to dismiss on the ground that there was
failure to implead Fermin and Toti who are indispensable parties. Will the motion to
dismiss prosper? Why?
(a) Yes, because Fermin and Toti should have been impleaded as their obligation is
solidary.
(b) No, because the creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously.
(c) No, because a motion to dismiss is a prohibited pleading.
(d) Yes, because Fermin and Toti should also pay their share of the obligation.
34. Buko, Fermin and Toti are solidary debtors of Ayee. Twelve (12) years after the
obligation became due and demandable,Buko paid Ayee and later on asked for
reimbursement of Fermin's and Toti's shares. Is Buko correct? Why?
(a) No, because the obligation has already prescribed.
(b) Yes, because the obligation is solidary.
(c) No, because .in solidary obligation any one of the solidary debtor•s can pay the
entire debt.
(d) Yes, because Fermin and Toti will be unduly enriched at the expense of Buko.
35. Buko, Fermin and Toti are solidary debtors under a loan obligation of
P300,000.00 which has fallen due. The creditor has, however, condoned Fermin's
entire share in the debt. Since Toti has become insolvent, the creditor makes a
demand on Buko to pay the debt. How much, if any, may Buko be compelled to pay?
(a) P2,200,000.00

Reviewer
204
(b) P300,000.00
(c) P100,000.00
(d) P2,150,000.00
36. Dina bought a car from Jai and delivered a check in payment of the same. Has
Dina paid the obligation? Why?
(a) No, not yet. The deliver/ 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.
(b) Yes, because a check is a valid legal tender of payment.
(c) It depends. If the check is a manager's check or cashier's check it will produce the
effect of payment. If it's an ordinary check, no payment.
(d) Yes, because a check is as good as cash.
37. The following are the requisites of legal compensation, except:
(a) That each of the obligors is bound principally and that he be the same time a
principal creditor of the other.
(b) That bo~h debts consist in a sum of money, or if the things due are consumable,
they be the same kind, and also of the same quality if the latter has been stated.
(c) That the two (2) debts are not yet due.
(d) That they be liquidated and demandable.
38. Which of the following statements is correct? =
(a) All contracts are perfected by mere consent.
(b) All contracts are perfected by delivery of the object.
(c) All contracts are required to be in writing.
(d) All contracts are required to have a valid consideration.

Reviewer
205
39. It is a principle which holds that parties are bound not only by what has been
expressly provided for in the contract but also to the natural consequences that flow
out of such agreement.
(a) Obligatory force of contracts
(b) Mutuality of contracts
(c) Autonomy of contracts
(d) Relativity of contracts
40. It is a principle which holds that contracts must be binding to both parties and
its validity and effectivity can never be left to the will of one of the parties.
41. It refers to the rule that a contract is binding not only between parties but
extends to the heirs, successors in interest, and assignees of the parties, provided that
the contract involved transmissible rights by their nature, or by stipulation or by law.
42. It is a rule which holds that the freedom of the parties to contract includes the
freedom to stipulate, provided the stipulations are not contrary to law, morals, good
customs, public order or public policy.

Reviewer
206
43. The following are the ways by which innominate contracts are regulated, except:
(a) By the stipulation of the parties.
(b) By the general principles of quasi-contracts and delicts
(c) By the rules governing the most analogous nominate contracts.
(d) By the customs of the place.
44. An offer becomes ineffective on any of the following grounds, except:
(a) Death, civil interdiction, insanity/insolvency of either party before acceptance is

conveyed.
(b) Acceptance of the offer by the offeree.
(c) Qualified/conditional acceptance of the offer, which becomes counter-offer.
(d) Subject matter becomes illegal/impossible before acceptance is communicated.
45. Which of the following statements is correct?
a) Offers in interrelated contracts are perfected upon consent.
b) Offers in interrelated contracts require a single acceptance.
c) Business advertisements are definite offers that require specific acceptance.
d) Advertisements for Bidders are only invitations to make proposals and the
advertiser is not bound to accept the highest/lowest bidder, unless it appears
otherwise.

Reviewer
207
46. The following are solemn contracts (Contracts which must appear in writing),
except:
(a) Donations of real estate or of movables if the value exceeds P5,000.00.
(b) Stipulation to pay interest in loans.
(c) Sale of land• through an agent (authority must be in writing).
(d) Construction contract of a building.
47. The following are rescissible contracts, except:
(a) Entered into by guardian whenever ward suffers damage more than Y.t of value of
property.
(b) Agreed upon in representation of absentees, if absentee suffers lesion by more than
Y.t of value of property.
(c) Contracts where fraud is committed on creditor (accionpauliana.).
(d) Contracts entered into by minors
48. The following are the requisites before a contract entered into in fraud of
creditors may be rescinded, except:
(a) There must be credit existing prior to the celebration of the contract.
(b) There must be fraud, or at least, the intent to commit fraud to the prejudice of the
creditor seeking rescission.
(c) The creditor cannot in any legal manner collect his credit (subsidiary character of
rescission)
(d) The object of the contract must be legally in the possession of a 3rd person in good
faith.
49. The following are the characteristics of a voidable contract, except:
(a) Effective until set aside.

Reviewer
208
(b) May be assailed/attacked only in an action for that purpose.
(c) Can be confirmed or ratified.
(d) Can be assailed only by either party.
50. The following are void contracts, except:
(a) Pactumcommissorium
(b) Pactum de non alienando
(c) Pactumleonina
(d) Pacta de retro
51. The borrower in a contract of loan or mutuum must pay interest to the lender.
(a) If there is an agreement in writing to that effect.
(b) As a matter of course.
(c) If the amount borrowed is very large.
(d) If the lender so demands at the maturity date.
52. The liability of the school, its administrators and teachers, or the individual,
entity or institution engaged in child care over the minor child for damage caused by
the acts or omissions of the unemancipated minor while under their supervision,
instruction or custody shall be:
(a) Joint and subsidiary
(b) Principal and solidary
(c) Principal and joint
(d) Subsidiaryand solidary.
53. The creditor has the right to the fruits of the thing from the time:
(a) the thing is delivered.

Reviewer
209
(b) the obligation to deliver the thing arises.
(c) the contract is perfected.
(d) the fruits are delivered.
54. If one of the parties to the contract is without juridical capacity, the contract is:
(a) voidable
(b) rescissible
(c) void
(d) unenforceable
55. When both parties to the contract are minors, the contract is:
(a) voidable
(b) rescissible
(c) void
(d) unenforceable
56. When the consent of one of the parties was vitiated, the contract is:
(a) voidable
(b) rescissible
(c) void
(d) unenforceable
57. An obligation which is based on equity and natural law is known as:
(a) pure
(b) quasi-contract

Reviewer
210
(c) civil
(d) natural
58. Consent was given by one in representation of another but without authority.
The contract is:
(a) voidable
(b) rescissible
(c) void
(d) unenforceable
59. Michael Fermin, without the authority of PascualLacas, owner of a car, sold the
same car in the name of Mr. Lacas to Atty. Buko. The contract between Atty. Buko
and Mr. Lacas is ---
(a) void because of the absence of consent from the owner, Mr. Lacas.
(b) valid because all of the essential requisites of a contract are present.
(c) unenforceable because Michael Fermin had no authority but he sold the car in the
name of Mr. Lacas, the owner.
(d) rescissible because the contract caused lesion to Atty. Buko.
60. Which of the following contracts is void?
(a) An oral sale of a parcel of land.
(b) A sale of land by an agent in a public instrument where his authority from the
principal is oral.
(c) A donation of a wrist watch worth P4,500.00.
(d) A relatively simulated contract.
61. Which of. the following expresses a correct principle of law? Choose the best
answer.

Reviewer
211
(a) Failure to disclose facts when there is a duty to reveal them, does not constitute
fraud.
(b) Violence or .intimidation does not render a contract annullable if employed not by a
contracting party but by a third person.
(c) A threat to enforce one's claim through competent authority, if the claim is legal or
just, does not vitiate consent.
(d) Absolute simulation of a contract always results in a void contract.
62. Aligada orally offered to sell his two-hectare rice land to Balane for P10Million.
The offer was orally accepted. By agreement, the land was to be deliyered (through
execution of a notarized Deed of Sale) and the •price was to be paid exactly one-month
from their oral agreement. Which statement is most accurate?
(a) If Aligada refuses to deliver the land on the agreed date despite payment by Balane,
the latter may not successfully sue Aligada because the contract is oral.
(b) If Aligada refused to deliver the land, Balane may successfully sue for fulfillment of
the obligation even if he has not tendered payment of the purchase price.
(c) The• contract between the parties is rescissible.
(d) The contract between the parties is subject to ratification by the parties.
63. Which of the following statements is wrong?
(a) Creditors are protected in cases of contracts intended to defraud them.
(b) Contracts take effect only between the parties, their assign 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.
(c) 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.

Reviewer
212
(d) In contracts creating real rights, third persons who come into• possession of the
object of the contract are not bound thereby.
64. Which phrase most accurately completes the statement -Any third person who
induces another to violate his contract:
(a) shall be liable for damages only if he is a party to the same contract.
(b) shall be liable for damages to the other contracting party.
(c) shall not be liable for damages to the other contracting party.
(d) shall not be liable for damages if the parties are in pari delicto.
65. Which phrase most accurately completes the statement - If at the time the
contract of sale is perfected, the thing which is the object of the contract has been
entirely lost:
(a) the buyer bears the risk of loss.
(b) the contract shall be without any effect.
(c) the seller bears the risk of loss.
(d) the buyer may withdraw from the contract.
66. A contract granting a privilege to a person, for which he has paid a

consideration, which gives him the right to buy certain merchandise or specified
property, from another person, at anytime within the agreed period, at a fixed price.
What contract is beina referred to?
(a) Option Contract
(b) Contract to Sell
(c) Contract of Sale
(d) Lease
67. Which of the following contracts of sale is void?

Reviewer
213
(a) Sale of EGM's car by KRP, EGM's agent, whose authority is not reduced into
writing.
(b) Sale of EGM's piece of land by KRP, EGM's agent, whose authority is not reduced
into writing.
(c) Sale of EGM's car by KRP, a person stranger to EGM, without EGM's consent or
authority.
(d) Sale of EGM's piece of land by KRP, a person stranger to EGM, without EGM's
consent or authority.

Reviewer

OBLIGATIONS and CONTRACTS

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OBLIGATIONS and CONTRACTS

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1

CHAPTER ONE - GENERAL PROVISIONS

B. ESSENTIAL REQUISITES OF AN OBLIGATION: (ARTICLE 1150-1162)

Obligations and Contracts

iv. Must have pecuniary value

1. CIVIL OBLIGATIONS- give a right of action to compel their

1. UNILATERAL AND BILATERAL- unilateral, where only one party is

1. DETERMINATE AND GENERIC- determinate, when the object is

Obligations and Contracts

3. POSITIVE AND NEGATVE- positive, when the obligor is obliged to give

d. As to PERFECTION and EXTINGUISHMENT

Obligations and Contracts

1. Positive obligation- to give; to do

D. SOURCES OF OBLIGATION (Art. 1157)

1. Law (obligation ex lege): Art.1158

DISTINGUISHED FROM OTHER SOURCES(LUV)

a) The act giving rise to a quasi- contract must be LAWFUL

i. NEGOTIORIUM GESTIO (Art. 2144): is the voluntary management of the

4. Acts or omissions punished by law (Art 1161)

Obligations and Contracts

SCOPE OF CIVIL LIABILITY

EFFECT OF ACQUITTAL IN CRIMINAL CASE

GENERAL RULE: The acquittal of the accused in criminal case

EXCEPTION: Where judgment of acquittal contained a declaration

CRIMES WITHOUT CIVIL LIABILITY

It is an act or omission arising from fault or negligence which

i. That there exists a wrongful act or omission imputable to the

CHAPTER TWO - NATURE AND EFFECT OF OBLIGATIONS

PERSONAL OBLIGATIONS: obligations to do or not to do; where the subject

REAL OBLIGATIONS: obligations to give; where the subject matter is a thing

1. Determinate or specific-object is particularly designated or physically

a. DUTIES OF OBLIGOR IN AN OBLIGATION TO GIVE A DETERMINATE

1. To deliver the thing itself (Art 1244 par 1)

The debtor of the thing cannot compel the creditor to receive a

2. To preserve the thing with due care (Art. 1163)

Every person obliged to give something is also obliged to take care of

3. To deliver accessions and accessories (Art. 1166)

The obligation to give a determinate thing includes that of delivering

i. ACCESSIONS- are the fruits of a thing or additions to

4. To deliver the fruits (Art 1164)

Obligations and Contracts

 NON NUDIS PACTIS, SED TRADITIONES DOMINIA RERYM

5. To be liable for damages in case of fraud, negligence, or delay, in the

b. DUTIES OF OBLIGOR IN AN OBLIGATION TO GIVE A GENERIC THING

2. To deliver its accessions and accessories (Art.1166)

i. Accessions-additions to or to improvements upon a thing.

Example:Air conditioner in a car

3. To deliver the thing itself

Note: (Art. 1246)- When the obligation consists in the delivery of an

Obligations and Contracts

4. To be liable for damages in case of fraud, negligence, or delay, in the

c. RIGHTS OF THE CREDITOR IN REAL OBLIGATION TO GIVE (Art.1165)

1. GENERIC REAL OBLIGATION (Obligation to deliver a generic thing)

a. To ask performance of the obligation

2. DETERMINATE OR SPECIFIC REAL OBLIGATION(Obligation to deliver a

i. To demand specific performance or fulfillment (if it is still possible) of the

WHEN OBLIGATION TO DELIVER THE THING AND FRUIT ARISES

1. If the source of the obligation is law, quasi-contract, delict, quasi-delict ,it

Obligations and Contracts

a. RIGHTS OF A CREDITOR IN PERSONAL OBLIGATION

1. POSITIVE PERSONAL OBLIGATIONS:

a. Performance at debtor’s cause: The obligee is entitled to have the thing