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Civrev2 MT Compilation
Civrev2 MT Compilation
Civrev2 MT Compilation
SBM SYLLABUS C2022 ● Present article refers to civil obligations – enforceable in court when breached
● Does not cover natural obligations (Art 1423-1430) – cannot be enforced in court,
Note: Based on SBM’s syllabus, and note-takers used Mercado and Hard Notes reviewer, based on equity
SBM’s ppts, and Accountability class notes. No copyright infringement intended.
Kinds of Obligation
A. Juridical Enforceability
Basic Principles of Obligations (Art 1156)
CIVIL NATURAL OBLIGATION MORAL OBLIGATION
Art 1156. An obligation is a juridical necessity to give, to do, or not to do. OBLIGATION
If not fulfilled Special kind of obligation which cannot Arises not from positive
Meaning of Obligation:
when due and be enforced in court law but from the moral
● In case of noncompliance, there will be legal sanctions
demandable"may ● Authorizes retention of law, not enforceable in
● Legal relation established between one party and another where by the latter is
be enforced in voluntary court
bound to the fulfillment of a prestation which the former may demand of him
court through payment/performance by the ● Spiritual
action debtor obligation of a
Elements of an Obligation: ● ie. If A voluntary pays amount person in
owed to B despite prescription, relation to his
1. Active Subject – one who is demanding performance of the obligation (creditor, he cannot recover what he had God or Church
obligee) paid.
2. Passive Subject – one bound to perform the prestation to give, to do, or not to do
(debtor, obligor) B. Subject Matter
3. Prestation/Object – subject matter of the obligation, has economic value or 1. Real Obligation - obligation to give
susceptible of pecuniary substitution in case of noncompliance 2. Personal Obligation - obligation to to do or not to do
4. Efficient Cause – juridical tie by virtue of which the debtor is bound to perform
the prestation C. Number of persons bound to perform
1. Unilateral Obligation
● Only one of the parties is bound to fulfill a prestation
RIGHT OBLIGATION ● Family code provisions on parent having to support/rear their children
2. Bilateral Obligation
When there is a right … there is a corresponding obligation ● Both parties are bound to perform a part in the obligation ! ie. Reciprocal
obligations, contracts of sale
Right is an active aspect Obligation is the passive aspect
D. Capability of Fulfillment
1. Possible Obligation - Capable of accomplishment or fulfillment in nature or in law
Obligation to give
2. Impossible Obligation - Not capable of accomplishment or fulfillment in nature or in
● Delivery of movable or immovable thing
law
○ ie. Sale, deposit, pledge, donation, antichresis
E. Susceptibility of Partial Fulfillment
Obligation to do
1. Divisible Obligation - Susceptible of partial performance
● all kinds of works or services whether physical or mental
2. Indivisible Obligation -Not susceptible of partial performance
○ ie. Painting, modelling, singing
F. Dependence upon one another
Obligation not to do
1. Principal Obligation - Main obligation created by the parties
● Refraining from doing some acts
2. Accessory Obligation -Secondary obligation created to guarantee the fulfillment of
● Includes obligation not to deliver
the principal obligation
○ ie. Refraining from committing nuisance through noise
G. Existence of a burden or condition
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1. Pure Obligation – immediately due and demandable
2. Conditional Obligation- subject to a condition (suspensive or resolutory) Examples of sources of obligation
3. Obligation with a term – subject to the happening of an event which will surely
happen, although the date may not be known as of the moment. 1. Arising from law
a. Suspensive (from a day certain) – demandable only after the expiration of a. Duty of spouses to render mutual support and respect to one another
the term/period (Art 68, FC)
b. Resolutory (to a day certain) – terminates upon the expiration of the b. Duty of taxpayer to pay taxes to the government (Internal Revenue
term/period Code)
2. Arising from contract
H. Nature of Performance a. Payment of loan with interest
1. Positive Obligation – debtor is obliged to give or do something in favor of the 3. Arising from quasi-contract
creditor a. Duty of recipient to return what was delivered to him by mistake
2. Negative Obligation – debtor is obliged not to do something, or refrain from doing (solutio indebiti)
something 4. Arising from quasi-delict/ tort negligence
a. Duty of tortfeasor to pay damages for injuries or damages due to his
I. Nature of creation of the obligation fault, omission,
1. Legal Obligation – imposed by law
2. Conventional Obligation – established by agreement of the parties ie. Contracts
Sources of Obligations
J. Character of Responsibility or Liability
1. Joint Obligation – each debtor is liable only for a party of the whole liability and to 1. Law — Art. 1158
each creditor shall belong only a part of the correlative rights 2. Contracts – Arts. 1159, 1305
2. Solidary Obligation – debtor is answerable for the whole obligation without 3. Quasi-contracts — Arts. 1160, 2142-2175
prejudice to his right to collect from his co-debtors the latter’s shares in the 4. Acts or omissions punished by law — Arts. 1162, 2177, Arts. 100 &104 RPC
obligation 5. Quasi-delicts — Arts. 1162, 2176
K. Grant of right to choose one prestation out of several, or substitute the first one
1. Alternative Obligation – obligor may choose to completely perform one out of Art 1158. Obligations derived from law are not presumed. Only those expressly determined
several prestations in this Code or in special laws are demandable, and shall be regulated by the precepts of the
2. Facultative Obligation – only one prestation has been agreed upon, but the obligor law which establishes them; and as to what has not been foreseen, by the provisions of this
may render one in substitution of the first one Book.
L. Imposition of penalty
1. Simple Obligation – no penalty imposed for violations of the terms thereof ● Obligations derived from law - NEVER presumed
2. Obligations with a penal clause – imposes a penalty for violation of the terms ● Unless such obligations are expressly provided by law, they are not enforceable and
thereof demandable.
● Obligations arising from law – The Civil Code is applicable suppletorily
1. Restitution
Fault or Negligence:
● The thing itself shall be restored, even though it be found in the
● Omission of that diligence which is required by the nature of the obligation and
possession of third person who has acquired it by lawful means, saving
corresponds with the circumstances of the person, of the time, and of the place.
to the latter his action against the proper person who may be liable to
● Failure to observe for the protection of the interests of another person, that degree of
him
care, precaution and vigilance which the circumstances justly demand, whereby such
● Not applicable in case in which the thing has been acquired by the third
other person suffers injury.
person in the manner and under the requirements which by law, bar an
● Want of care as required by the attending circumstances (relative not absolute term)
action for its recovery.
2. Reparation
Doctrine of Proximate Cause:
● Court shall determine the amount of damage, taking into consideration
● Used in determining the liability of the tortfeasor in a quasi-delict.
the price of the thing, whenever possible, and its special sentimental
● Such adequate and efficient cause as, in the natural order of events, and under the
value to the injured party
particular circumstances surrounding the case, would necessarily produce the event.
3. Indemnification
● The result must be the natural and probable consequence such as ought to have been
● Consequential damages shall include not only those caused the injured
foreseen as likely to flow from the act complained of.
party, but also those suffered by his family or a by a third person by
reason of the crime.
Doctrine of Vicarious Liability:
4. Several and Subsidiary Liability of Principals, Accomplices and Accessories of a
● Obligations arising from quasi-delicts are demandable in certain cases, for the fault
felony
or negligence of others whom they are responsible for as parents, guardians,
● Shall be liable severally (in solidum) among themselves for their
teachers, or employers.
quotas, and subsidiary for those of other persons liable.
● Exception: To excuse themselves from liability, they must prove that they observed
all the diligence of a good father of a family to prevent damage.
Art 1162. Obligations derived from quasi-delicts shall be governed by the provisions of
Chapter 2, Title XVII of this Book, and by special laws. Basis Quasi-Delict Crime
Legal Basis There can be a quasi-delict as long There can be no crime unless there
Quasi Delict (Culpa Aquiliana), Concept: Of Liability as there is fault or negligence is a law clearly punishing such act.
● Art 2176. Whoever by act or omission causes damage to another, there being fault or resulting in damage/injury to
negligence, is obliged to pay for the damage done. Such fault or negligence, if there another. Broader is scope than
is no pre-existing contractual relation between the parties, is called a quasi-delict crime.
and is governed by the provisions of this Chapter.
● Equivalent of a tort in Anglo-American Law
Criminal Not necessary. Fault or negligence Essential for criminal liability to
Intent will suffice exist.
Basis of Civil Liability in Quasi-Delict:
● Founded on the principle of equity
● The consequences of the fault or negligence of a person shall not be borne by him, Nature Of Right violated is a private right. It Right violated is a public one. A
who without fault or negligence on his party, becomes the victim thereof. Right is against a private individual. crime is a wrong against the State.
● Offender must be held liable for the consequences of his acts or omissions which Violated
cause damage or injury to another.
Liability For Every quasi-delict gives rise to Some crimes (ie. Contempt, illegal
Damages liability for damages. possession of firearms) do not give
Elements of a Quasi-Delict rise to damages.
1. Fault or Negligence on the part of the defendant resulting in a wrongful Proofs Preponderance of evidence Proof beyond reasonable doubt
act/omission, whether voluntary or not, and whether criminal or not. Needed
2. Damage and injury suffered by another person.
3. Direct causal relation between the fault or negligence and the resulting damage
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Voluntary Fulfillment:
Sanction Or Reparation or indemnification of Imprisonment or fine, or both; ● For fulfillment to be voluntary, it must be spontaneous, free from any infirmity
Penalty damages sometimes with accessory penalties which vitiates consent. It is done with full knowledge of the debtor that he cannot be
compelled to pay the alleged obligations, and performance is free from error and
Civil and Natural (Art. 1423-1430) infirmity of consent.
● If there is a mistake in the payment, there is no fulfillment of a natural obligations.
Art. 1423. Obligations are civil or natural. Civil obligations give a right of action to compel The amount paid may be recovered under the principle of solutio indebiti.
their performance. Natural obligations, not being based on positive law but on equity and ● Payment made through coercive process, such as by writ of execution issued at the
natural law, do not grant a right of action to enforce their performance, but after voluntary instance of the prevailing party, is not voluntary fulfillment and as such the
fulfillment by the obligor, they authorize the retention of what has been delivered or provisions of natural obligations cannot be applied thereto.
rendered by reason thereof. Some natural obligations are set forth in the following articles.
May Natural Obligations Be Converted into Civil Obligations?
Natural Obligations, Basis: ● Natural obligations may be converted into civil obligations by acts of novation.
● Natural obligations are not based on positive law like statues. They are not written ● Thus, a prescribed debt is turned into a civil obligation when the debtor renounces
or promulgated laws, but derived merely from reason and nature. the defense of prescription, or he signed a document recognizing it with a promise to
● They are based on equity and natural law. They are based on good conscience and pay it at some future time. The natural obligation becomes a valid cause for a civil
compliance to which is anchored on some moral grounds. Consequently, if not obligation after it has been affirmed or ratified anew by the debtor.
fulfilled, there is no cause of action based on the breach thereof. Their performance
cannot be enforced in court as they are not legal obligations. Effect of Partial Performance:
● If only a part of the natural obligation has been fulfilled, this partial payment cannot
Nature of Natural Obligations: be recovered. It is converted into civil obligation if it is legally susceptible of
● Natural obligations are obligations without sanction susceptible of voluntary confirmation or ratification.
fulfillment and not through compulsion by legal means. ● However, if the fulfilled portion is not susceptible of confirmation or ratification,
● Compliance with natural obligations is discretionary. If a person chose to fulfill, he this portion can be the basis of a cause of action for recovery of what has been
cannot recover what he had delivered in compliance therewith. This is the juridical delivered because it has not been converted into a legal obligation.
effect of such obligations. Fulfillment places the debtor into estoppel from
recovering what had been paid or delivered. Enumerated Natural Obligations, Not Exclusive:
● The enumeration in the code is not limitative. Consequently, there are still others
Conditions For Natural Obligations: that may that may be considered natural obligations which satisfy the requirements
● For natural obligations to arise, it is necessary that what has been fulfilled as an of the definition or concept of natural obligations.
obligation is not prohibited by law, nor contrary to morals and good customs. ● The following also constitute natural obligations:
● If it is prohibited by law, or contrary to morals and good customs, there can be a 1. Support given to unrecognized illegitimate children by their putative
recovery of what has been delivered or paid provided the supposed debtor is not parents, including support given to illegitimate children by the putative
privy to the unlawful or immoral act. parents despite a judgment denying their recognition.
● There must be a previous juridical relationship between two persons for a natural 2. Interest voluntarily paid for the use of money, even if not interest is agreed
obligation to arise, but due to certain intervening circumstances like prescription or upon in writing.
invalidity of a will, it lost its legal enforceability leaving its fulfillment entirely to 3. Support given to relatives for whom the law made no provision for their
the free will or discretion of the supposed debtor. support.
● While equity urges its fulfillment, the law does not put any sanction for its 4. Indemnification given to a woman seduced, although the seduce was
non-fulfillment, thereby leaving its compliance solely to the will of the supposed acquitted of the charge of seduction.
debtor. The law comes into operation only after the voluntary fulfillment, by
preventing the supposed debtor from recovering what has been paid or delivered. Art. 1424. When a right to sue upon a civil obligation has lapsed by extinctive prescription,
the obligor who voluntarily performs the contract cannot recover what he has delivered or
Fulfillment of Natural Obligations: the value of the service he has rendered.
● Fulfillment does not refer alone to delivery of things, but also to the performance in
any manner that settles a claim. It covers the full extent of the juridical concept of
“payment” in Article 1232 which provides, “Payment means not only delivery of
money but also performance, in any manner, of an obligation.”
Art. 1425. When without the knowledge or against the will of the debtor, a third person Art, 1427. When a minor between eighteen and twenty-one years of age, who has entered
pays a debt which the obligor is not legally bound to pay because the action thereon has into a contract without the consent of the parent or guardian, voluntarily pays a sum of
prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to
recover what he has paid. recover the same from the obligee who has spent or consumed it in good faith. (1160a)
Minority, Concept, and R.A. No. 6809: Winning Party In A Case Who Delivers Or Pays The Claim; Consequences:
● Since the effectivity of R.A. No. 6809, legal age is now 18 years instead of 21 years. ● In the ordinary course of human interactions, a party defendant who won his case
● The said R.A. No. 6809 modifies the article, in such a way that the article cannot will be very glad and happy about his legal victory for he is freed from the liability
apply anymore to persons who are between 18 years and below 21 years because imputed to him.
such persons are now possess of full civil capacity with certain exceptions. ● Nevertheless, if the winning party, through the urges of his good conscience, paid
● The article now applies only to those below 18 years. Thus, a minor who enters into the losing party despite his knowledge of the dismissal of the latter’s claim, what has
a contract renders the contract voidable. If thereafter, the contract was annulled due
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been voluntarily delivered or paid by the former to the latter cannot be recovered
anymore. The retention is authorized by law as a fulfillment of a natural obligation.
Prescription of action to recover movables and immovables
Art. 1429. When a testate or intestate heir voluntarily pays a debt of the decedent Movable Immovable
exceeding the value of the property which he received by will or by the law of intestacy
from the estate of the deceased, the payment is valid and cannot be rescinded by the payer. 4 years with good faith & just 10 years with good faith & just title
Actions to demand Action to demand partition is imprescriptible or cannot be barred by 4 years Injury to rights
partition; laches, absent a clear repudiation of the co-ownership by a Quasi Delict (Art. 1146)
distinguished from co-owner. (De Leon, p. 253) Rescission/Annulment of contract
laches
1 year Forcible entry
Property of public Property of public dominion cannot be acquired by prescription for Illegal detainer
dominion they are outside the commerce of men. Defamation (Art. 1147)
5 years Other actions whose periods are not fixed by law (Art. 1149)
Right of reversion or reconveyance to the State of things which are
not susceptible of being appropriated is not barred by prescription.
(De Leon, p. 758) Rules in Computation of Period
1. Present possessor may tack his possession to that of his grantor or predecessor in
interest
Land of the public domain must be declared alienable and 2. Present possessor presumed to be in continuous possession even with intervening
disposable either by the President or the Secretary of the DENR to time unless contrary is proved
be the subject of appropriation. The period of possession prior to the 3. First day excluded, last day included
reclassification of the land as disposable cannot be considered in
Tacking Period
reckoning the prescriptive period in favor of the possessor. 1. There must be privity between previous and present possessor
(Republic v. De Guzman Vda. De Joson, GR No. 163767, 2014) 2. Possible when there is succession of rights
3. If character of possession different:
a. predecessor in bad faith / possessor in good faith – use extraordinary
prescription
Other Actions; Prescriptive Periods (Art. 1140-1149)
Interruption of prescription of actions
None Right of way 1. When they are filed before the court
Abatement of nuisance 2. When there is a written extrajudicial demand by the creditors
3. When there is any written acknowledgement of the debt by the debtor (Art. 1155)
Catungal vs. Was the condition void for being potestative? No. Was the rescission Article 1184. The condition that some event happen at a determinate time shall extinguish
Rodriguez valid? No. Such a condition is not purely potestative as petitioners the obligation as soon as the time expires or if it has become indubitable that the event will
contend. It is not dependent on the sole will of the debtor but also on the not take place.
will of third persons who own the adjacent land and from whom the road
right of way shall be negotiated. In sum, Rodriguez's option to rescind the This refers to positive conditions, while 1185 refers to negative conditions.
contract is not purely potestative but rather also subject to the same
mixed condition as his obligation to pay the balance of the purchase price Ex. A binds himself to give B, a 3rd year law student, a car if he becomes a lawyer in 2016.
- i.e., the negotiation of a road right of way. In the event the condition is Year 2016 has lapsed and B is still not a lawyer, obligation is extinguished. If B travels abroad
fulfilled (or the negotiation is successful), Rodriguez must pay the on a 5-year contract of employment in 2014, then obligation is also extinguished due to the
balance of the purchase price. certainty that it will not take place.
Effects of Possible or Impossible Conditions: Article 1185. The condition that some event will not happen at a determinate time shall
render the obligation effective from the moment the time indicated has elapsed, or if it has
Article 1183. Impossible conditions, those contrary to good customs or public policy and become evident that the event cannot occur.
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 If no time has been fixed, the condition shall be deemed fulfilled at such time as may have
condition shall be valid. probably been contemplated, bearing in mind the nature of the obligation.
The condition not to do an impossible thing shall be considered as not having been agreed
upon. The condition that some event will not happen at a specified time will make the
obligation effective only when:
a. Specified time has already lapsed without the event occurring
Impossible conditions b. Or if it has become definite that the event will not occur
● This article applies only to cases where the condition was already impossible from
the time of the constitution of the obligation. Hence, any supervening possibility will Ex. A binds himself to give B a parcel of land if B does not run for Mayor in their City within
not make the impossible condition possible unless the parties agree again, nor will a 6 years. Time elapsed and B did not run for Mayor, obligation to deliver land becomes
supervening impossibility make the possible condition an impossible one.
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effective. Also, if the City was erased due to a nuclear bomb, B can no longer run for Mayor in
that City, hence, obligation becomes effective too. 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
Constructive Fulfillment of Condition: from the nature and circumstances of the obligation it should be inferred that the intention
of the person constituting the same was different.
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents
its fulfillment. In obligations to do and not to do, the courts shall determine, in each case, the retroactive
effect of the condition that has been complied with.
● The Article refers to a constructive and not an actual fulfillment of the condition.
Mere intent to prevent the fulfillment is not enough without actual prevention of ● This article only applies to suspensive conditions where there was fulfillment.
fulfillment. The prevention must be consummated. These are the 2 requisites. ● Since the condition is merely an accidental element of the obligation, the effect of a
● When an obligor committed an act voluntarily which is not intended to prevent the conditional obligation to give, once the suspensive condition is fulfilled, shall
fulfillment of the condition, but nevertheless resulted in the frustration of the retroact to the date of the constitution of the obligation. This is similar to the
condition, there shall be no constructive fulfillment. legitimation of a natural child.
● This article is brought about by the principle that no person shall profit by his own ● If the object of the obligation is the delivery of a determinate thing, obligor should
wrong. not be allowed to alienate the property during the pendency of the suspensive
● If the parties stipulate that the obligation shall be extinguished if the condition could condition. If the obligor alienates the property, alienation will be abrogated upon the
not be fulfilled for “any reason,” then even if the obligor prevents its fulfillment, the happening of the condition unless the third person acted in good faith. If that is the
obligation shall still be extinguished. case, the only remedy then is to file for damages against the debtor. If the third
person acted in bad faith, he can be compelled to deliver upon the happening of the
Cases: suspensive condition.
● If it is the obligee who alienates the property before the condition is fulfilled, then
PLDT vs When PLDT abrogated the pension plan after the war, it voluntarily fulfillment of the condition will convalidate the alienation.
Jeturian prevented the fulfillment of its obligation to provide pension plans to its ● For practical reasons, delivery of fruits and interests accruing before the fulfillment
employees, thus, whether or not the employees have reached the age of of the suspensive conditions is not required. When the obligation imposes reciprocal
50, their rights are reserved for such benefits. prestations, the fruits and interests they receive during the pendency of the condition
shall be deemed to have been mutually compensated.
Valencia vs. Valencia is liable for damages. The putting up of a performance bond is ● If obligation is unilateral like in donation, debtor is allowed to appropriate the fruits
RFC not a condition before he could be compelled to make the installation. and interests received since the debtors has not received anything from the creditor.
Assuming that the bond is a condition, it was he who voluntarily
prevented its fulfillment. In either case, the existence of the contractual
relation between the parties did not depend upon the posting the Article 1188. The creditor may, before the fulfillment of the condition, bring the
performance bond. Although, the latter was essential to the birth of some appropriate actions for the preservation of his right.
of the rights stipulated in favor of petitioner herein, those of respondent
were not conditioned upon the giving of said performance bond. The debtor may recover what during the same time he has paid by mistake in case of a
suspensive condition
Labayan vs. There is another aspect to the case which has to do with the tenth
Talisay paragraph of the mutual obligations of the contract and which concerned Pending the happening of the suspensive condition, the creditor cannot compel the
the securing of the right- of-way for the proposed railroad. To get from debtor to perform the prestation.
the Hacienda Esmeralda No. 2 to the Hacienda Dos Hermanos, the Article does not grant any preference of credit but only allows the bringing of proper action
railroad would have to pass through the haciendas of Esteban de la Rama. for its preservation.
But he would not grant permission to use his land for this purpose in
1920, and only consented to do so in 1924. Here then was a clear case of However, the creditor may avail himself of some remedies such as:
such a condition of affairs as was contemplated by the contract. 1. Action for Prohibition restraining alienation of the thing during pendency
2. Petition for the Annotation of the creditor’s right
3. Action to demand security if debtor has become insolvent
Article 1187. The effects of a conditional obligation to give, once the condition has been 4. Action to set aside alienations made by the debtor in fraud of creditors
fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when 5. Actions against adverse possessors to interrupt the running time of prescriptive
the obligation imposes reciprocal prestations upon the parties, the fruits and interests during periods.
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Rules in Cases of Improvement, Deterioration, or Loss:
Article 1189. When the conditions have been imposed with the intention of suspending the As for the obligations to do and not to do, the provisions of the second paragraph of article
efficacy of an obligation to give, the following rules shall be observed in case of the 1187 shall be observed as regards the effect of the extinguishment of the obligation.
improvement, loss or deterioration of the thing during the pendency of the condition:
1. If the thing is lost without the fault of the debtor, the obligation shall be
extinguished; ● This article refers to the fulfillment of a resolutory condition. If the event happens,
2. If the thing is lost through the fault of the debtor, he shall be obliged to pay the obligation is considered as if it did not exist. Thus, the parties are bound to return
damages; it is understood that the thing is lost when it perishes, or goes out of what they have received from each other and return to the status quo.
commerce, or disappears in such a way that its existence is unknown or it cannot ● In reciprocal restitutions, the fruits and interests shall be compensated against each
be recovered; other.
3. When the thing deteriorates without the fault of the debtor, the impairment is to ● Same rules for loss, deterioration, or improvement in Art. 1189 will be applicable
be borne by the creditor; except the party bound to return something shall be considered as the debtor under
4. If it deteriorates through the fault of the debtor, the creditor may choose between the present article.
the rescission of the obligation and its fulfillment, with indemnity for damages in ● Retroactivity of the fulfillment of the condition shall be determined by the courts,
either case; taking into consideration the intention of the parties if they are determinable.
5. If the thing is improved by its nature, or by time, the improvement shall inure to
the benefit of the creditor; With a term or period — Arts. 1180, 1193-1198
6. If it is improved at the expense of the debtor, he shall have no other right than Article 1180. When the debtor binds himself to pay when his means permit him to do so,
that granted to the usufructuary the obligation shall be deemed to be one with a period, subject to the provisions of article
1197.
This article applies only to obligations to deliver a determinate or specific thing. No
application to generic objects. Also, it applies only when the suspensive condition is fulfilled.
Patente vs. WON the obligation is pure or the courts may fix a period? – Omega’s
During pendency, the thing can undergo some changes: Omega promissory note to Patente contained the condition that he will pay as
a. Loss soon as he has the money. This is a void condition for its fulfillment is
b. Deterioration or Impairment left solely to the will of the debtor. Still, the original intention was to
c. Improvement or Betterment grant the debtor a deadline for the payment, and to make it a pure and
unconditional obligation is to impose a completely different approach
● Gone out of commerce means that it is used to be sold in the market but is not a than agreed upon. Thus, when the time for payment of an obligation is
prohibited good. Ex. A land where a public plaza is built can no longer be alienated. left to the sole will of the debtor, and the condition is annulled, the
● Deterioration is making worse the condition of the thing. It is the impairment or reduction obligation does not become a pure and unconditional obligation. The
of its value. recourse of the creditor is to go to court and ask for setting a time limit
● Improvement is anything which increases the value of the thing. for the payment.
a. If improvement is due to nature/time, it belongs to the creditor.
b. If at the expense of the debtor, cannot claim indemnification but may enjoy Gaite vs. WON the obligation of Fonacier to pay Gaite is an obligation with a
usufructuary rights. Fonacier suspensive term or condition? The shipment or sale of the iron ore is
● Inure means “belong” not a condition or suspensive to the payment of the balance of
● Usufructuary means the right to enjoy the use and advantages of another person’s P65,000.00, but was only a suspensive period or term. It was intended
property. Merely to fix the future date of the payment. It is certain that the payment
will be made. What is uncertain is the exact date at which it will be made.
Nothing is found in the contract that Gaite assumed to run a risk of losing
Article 1190. When the conditions have for their purpose the extinguishment of an his right over the ore without getting paid for it. This is proved by the fact
obligation to give, the parties, upon the fulfillment of said conditions, shall return to each that Gaite insisted on a bond to guarantee the payment of P65,000.00.
other what they have received.
In case of the loss, deterioration or improvement of the thing, the provisions which, with Obligations with a Period
respect to the debtor, are laid down in the preceding article shall be applied to the party who Classification, In diem vs. Ex die, Legal, Conventional, Judicial,
is bound to return. Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be
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demandable only when that day comes. While a period has a suspensive or The former is known as a
resolutory effect, nonetheless, in the suspensive condition and the
Obligations with a resolutory period take effect at once, but terminate upon arrival of the former, it cannot prevent the birth of latter a resolutory condition.
day certain. the obligation in due time, and in the
latter, does not militate against its
A day certain is understood to be that which must necessarily come, although it may not be existence.
known when.
If the uncertainty consists in whether the day will come or not, the obligation is conditional, PNB vs. Defendant spouses entered into a mortgage contract with PNB payable in
and it shall be regulated by the rules of the preceding Section Lopez Vito 10 installments. The mortgage contact has a condition stating that if the
mortgagors at any time neglect, fail or refuse to comply with any or all
Arrival of the Term/Period is either Definite or Indefinite the stipulations or conditions of the contract., the mortgagee shall have
a. Definite – Exact date or time is known the right to declare such stipulations or condition violated and to proceed
b. Indefinite – Exact date or time is not known but is sure to come or happen.* for the foreclosure of the mortgage. However, the Lopez Vito were not
- *Uncertainty of the date does not convert it into a condition as long as able to pay the sums corresponding to six annual installments. Thus, PNB
there is no uncertainty as to whether it will happen or not. instituted an action demanding the defendants to pay the installments due
and unpaid, and the spouses contended that such action is premature. The
Other Classifications trial court ordered the spouses to pay PNB the unpaid installments but
1. Legal – Period is fixed by law reserved to PNB the proper action on the last installment since it is not
2. Conventional/Voluntary – Period is agreed upon by the parties yet demandable, hence the recourse to the Supreme Court.
3. Judicial – Period is fixed by the courts for the performance of the obligation or for
its extinguishment To determine whether the obligation is demandable, it has to be resolved
first whether the obligation was with a period or an obligation subject to a
“On or About” – Fulfillment may be made on the date, or a few days after, but not on a resolutory condition. The Court ruled that it is an obligation subject to a
remote date. resolutory condition. The non-fulfillment of the conditions of the contract
“On or Before” – Fulfillment may be made before the date, but the deadline is fixed. renders the period ineffective, and makes the obligation demandable at
the will of the creditor.
Requisites for a Valid Term/Period Victorias The seventh paragraph of one of the contracts, quoted by the appellant in
1. It must be future Planters vs. its brief, where the parties stipulated that in the event of flood, typhoon,
2. It must be certain, that is, sure to come but may be extended by mutual agreement Victorias earthquake, or other force majeure, war, insurrection, civil commotion,
3. It must be possible physically and legally Milling organized strike, etc., the contract shall be deemed suspended during said
period, does not mean that the happening of any of those events stops the
running of the period agreed upon. It only relieves the parties from the
Period Distinguished from Condition
fulfillment of their respective obligations during that time — the planters
Basis Period Condition from delivering sugar cane and the central from milling it.
Time Period always refers to the future. Condition can refer to a past
event unknown to the parties. Article 1194. In case of loss, deterioration or improvement of the thing before the arrival of
the day certain, the rules in article 1189 shall be observed
Fulfillment Sure to happen at an exact date known May or may not happen
from the start, or at an indefinite time, being an uncertain event.
Loss
but is sure to arrive.
● Through the fault of debtor – Obligor to pay damages "
● Without the fault of debtor – Obligation extinguished
Influence on No effect or influence upon the May cause the arising of an
the Obligation existence of the obligation but only in obligation, or the cessation of Deterioration
to be Fulfilled its demandability or performance. one already existing. ● Through the fault of debtor – Creditor may choose between rescission or fulfillment,
or Performed with damages
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● Without the fault of debtor – Impairment to be borne by the creditor Applicability:
● Applies only when the parties themselves have fixed a period on the performance of
Improvement the obligation.
● By its nature or time – Inure to the creditor ● Does not apply to a case where the Court was authorized by the parties to fix a
● At the expense of the debtor – No other right than usufructuary reasonable term.
WON the petitioner should have first brought an action to fix the date of
Note:
People’s Bank payment as provided by Article 1228 of the Civil Code
● The status of the obligation is suspended before the period of compliance had been
vs. Odom − It was expressly stipulated in that the obligation contracted by Odom
fixed.
shall expire and be due upon demand of the petitioner, and in view of the
● Rationale for fixing a period is to prevent debtors from not fulfilling their
fact that the latter deed was incorporated in Exhibit D and that Odom was
obligations forever without being liable for delay.
required by the petitioner to pay all his indebtedness, it is plain that the
● Prescriptive period for filing an action to fix the period is 10 years from the
obligation was without a term and that it became due and is demandable.
perfection of the contract.
Situations When The Court Will Fix A Period Gonzales vs. “I promise to pay ... as soon as possible.” - The Court held that such are
1. When no period is mentioned, but it is inferrable from the nature and Jose governed by Article 1128 (Art.1197 NCC) of the Civil Code because
circumstances of the obligation that a period was intended. under the terms thereof, the plaintiff (Gonzales) intended to grant the
Examples: benefit of the period to De Jose. As the PNs do not fix the period, it is for
- Contract of sale on credit without any time fixed for the payment the court to fix. But, the action to ask the court to fix the period has
- Contract for construction where the period of completion was not stated already prescribed (10-year prescription period) in accordance with Sec.
but intended 43 (1) of the Code of Civil Procedure.
- Contract of lease that states “as long as the tenant pays the stipulated rent”
- When the period is for a “reasonable time” agreed upon, there is a period Eleizegui vs. In this case, a conventional term was established. That being the case, it
fixed. The court will determine whether the reasonable time had elapsed. Manila Lawn erases the assumption that the lease was terminated by the notice given
- When the seller of a property is given the right to redeem but no period Tennis Club by the plaintiffs. Notice is only necessary when it becomes necessary to
was stipulated for the redemption, the court may fix the period. recourse to the legal term. It was apparent that the lessors did not intend
2. When the period is dependent upon the will of the debtor. to reserve to themselves the right to rescind the contract when they
Examples: expressly conferred upon the lessee this right by stipulating it in the
- When the debtor binds himself to pay when his means permit him to do so contract. Generally, if the term of the lease whose termination is at the
- When the debtor binds himself to pay as soon as possible or little by little ! sole will of the lessee, the courts must fix the period according to the
- When the debtor shall pay as soon as he has the money character and conditions of the mutual undertakings. Legal term will not
- When the duration of the lease is left to the will of the lessee be applied in this case as to the existence of an express stipulation stating
a conventional term at the sole will of the lessee.
Significance of The Court’s Fixing of The Period
● It is the duty of the court to fix the period if the parties intended it.
● When the court fixes the period, it merely ascertains the will of the parties and gives Article 1198. The debtor shall lose every right to make use of the period:
effect thereto. 1. When after the obligation has been contracted, he becomes insolvent, unless he
● The court does not modify or amend the obligation but carries out an implied gives a guaranty or security for the debt;
stipulation in the contract. 2. When he does not furnish to the creditor the guaranties or securities which he has
● It is essential that it be alleged that a period was clearly intended by the parties. promised;
● Specific performance cannot be demanded simultaneously with the petition for 3. When by his own acts he has impaired said guaranties or securities after their
fixing a period because the former is premature, unless the latter action will only be establishment, and when through a fortuitous event they disappear, unless he
a formality and serves no purpose but to delay. immediately gives new ones equally satisfactory;
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4. When the debtor violates any undertaking, in consideration of which the creditor Gaite vs. The period granted wherein Gaite should wait for the sale or shipment of
agreed to the period; Fonacier the ore before receiving payment was lost because of their failure to
5. When the debtor attempts to abscond. renew the bond of the Far Eastern Surety Company or else replace it with
an equivalent guarantee. The expiration of the bonding company's
undertaking substantially reduced the security of the vendor's rights as
Applicability: creditor for the unpaid P65,000.00. All the alternatives, therefore, lead to
● Applies only if the parties have designated or fixed a period for the fulfillment of the the same result: that Gaite acted within his rights in demanding payment
obligation. and instituting this action one year from and after the contract was
● It cannot apply to a case where no period is fixed by the parties. (Article 1197 shall executed, either because the appellant debtors had impaired the securities
apply) originally given and thereby forfeited any further time within which to
pay; or because the term of payment was originally of no more than one
Elaboration on the Five Instances year, and the balance of P65,000.00 became due and payable thereafter.
a. Insolvency
● Insolvency terminates the period. Obligation becomes due and demandable unless
The obligation between the parties was a reciprocal one, Woodcraft to
the debtor gives a guaranty or security for the payment of the debt.
Abesamis vs. furnish the vessel and Abesamis to furnish the logs. It was also an
● Insolvency does not have to be declared by the insolvency court. It is enough that
Woodcraft obligation with a term, which obviously was intended for the benefit of
the debtor could not pay his financial obligations due to lack of money or funds.
both parties. The obligation being reciprocal and with a period, neither
● Insolvency must be one occurring after the fixing of the term.
party could demand performance nor incur in delay before the expiration
of the period. Consequently, when the typhoon struck on May 5, 1951
b. Failure to Provide Guaranties or Securities
there was yet no delay on the part of Abesamis, and the corresponding
● When the debtor failed to provide the creditor the guaranties or securities he had
loss must be shouldered by Woodcraft.
promised, he loses the right to use the period.
● Thus, failure of the mortgagors to register the mortgage they had executed in favor
However, after the storm of May 5, 1951, Woodcraft was advised of the
of the mortgagee, and in mortgaging the same parcel of land to another entity, there
quantity of logs ready for shipment. Woodcraft gave assurance that a
is a non-fulfillment of the promise to furnish the creditor with the agreed security.
vessel was coming to load on June 25, 1951. Abesamis readied the
Obligation becomes due and demandable.
necessary quantity of logs but the vessel did not arrive. In this respect,
although the obligation would not become due until July 31, 1951,
c. Impairment of the Guaranties or Securities
Woodcraft waived the benefit of the period by assuring Abesamis that it
● When there is an impairment of the guaranties or securities caused thereon by the
would take delivery of the logs on June 25, 1951. On that date Abesamis
fault of the debtor, or got lost by fortuitous event, the obligation becomes due and
was ready to comply, but Woodcraft failed on his commitment, without
demandable immediately- unless the debtor immediately provides the creditor with
any satisfactory explanation for such failure. Therefore, Woodcraft
new guaranties or securities equally satisfactory as the first ones.
should bear the corresponding loss.
d. Violation of any undertaking
Song Fo vs. The security for the payment of the purchase price of the launch itself
● If the debtor has violated any undertaking, which undertaking is the reason for the
Oria having disappeared as a result of an unforeseen event (vis major), and no
creditor to agree to the contract, the term is terminated and the obligation becomes
other security having been substituted therefor, the plaintiffs were clearly
due and demandable at once.
entitled to recover judgment not only for the installments of the
● Thus, the employer may terminate the employment of an employee who made a
indebtedness due under the terms of the contract at the time when the
substantial breach of his employment contract, even if there was a fixed duration for
instituted their action, but also for all installments which, but for the loss
the job.
of the vessel had not matured at that time.
e. Attempt to Abscond
● The debtors’ act of absconding (leaving hurriedly and secretly, escaping) with the As to Plurality of Prestation (alternative — Arts. 1199-1205 -, facultative — Art. 1206)
intention to hide from and defraud creditors is an indication of bad faith. The term is
thus terminated. Grant of right to choose one prestation out of several, or substitute the first one
● Mere attempt to abscond is enough to render the obligation pure and immediately 1. Alternative Obligation – obligor may choose to completely perform one out of
demandable. several prestations
2. Facultative Obligation – only one prestation has been agreed upon, but the
obligor may render one in substitution of the first one
The creditor cannot be compelled to receive part of one and part of the other undertaking
Right of Choice:
● The general rule is that the right of choice belongs to the debtor unless that right had
Classification Of Obligations with Plurality of Prestations or Objects been expressly granted to the creditor.
a. Conjunctive Obligation – Debtor has to perform all the prestations to extinguish ● Implied grant of the right to the creditor is not allowed.
the obligation ● If it does not appear on the agreement as to who of the debtor and creditor has the
b. Alternative Obligation – Debtor has to completely perform only one of several right of choice, it is the debtor who can choose the prestation. The creditor shall
prestations have it only when expressly granted to him.
Example: A promised to give B a land, or a painting, or 500 pesos. The delivery of ● The debtor must choose and fulfill only one of the prestations which does not belong
one is enough. to any of the above unacceptable kinds.
c. Facultative Obligation – Debtor is bound to perform one prestation or deliver one
thing with a reserved right to choose another prestation or thing as substitute for the Purpose of Choice:
principal
Article 1201. The choice shall produce no effect except from the time it has been
Creditor Cannot Be Compelled To Receive Parts of the Prestations communicated.
● In the above example, the creditor cannot be compelled to receive part of the car,
part of the painting, or part of the money. Effectivity of the Choice
● However, if the creditor agrees to accept part of one and part of the other, there is no ● Choice produces no legal effect until it has been communicated to the other party.
prohibition. In that case, there is a novation in the prestation. ● Notice of choice may be effected in any form in the absence of any specific
requirement under the law.
Reyes vs. An election once made is binding on the person who makes it, and he will ● Hence, it can be done in writing, verbally, impliedly, or by any other unequivocal
Martinez not thereafter be permitted to renounce his choice and take an alternative means.
which was at first open to him. ● If the debtor, without announcing to the creditor his choice of the prestation simply
performed one of them, the performance is not binding. The debtor can recover what
By this contract Reyes was to be given the parcel described in clause 8, he had delivered, performed, or paid, under the law on quasi-contracts.
but in a proviso to said clause, the parties contracting with Reyes agreed
to assure to him certain other land containing an equivalent number of Effect of Choice or Selection
trees in case he should so elect. The prior history of the litigation shows ● Once the choice has been communicated, the effects are the following:
that the herein plaintiff elected to take and hold the parcel described in 1. Obligation becomes limited to the prestation chosen and all its natural
clause 8, and his right thereto has all along been recognized in the consequences.
dispositions made by the court with respect to said land. Reyes must be 2. The choice is irrevocable, otherwise, the other party might be exposed to
taken to have, elected to take that particular parcel and he is now damages which may arise for instance, from costly preparations in
estopped from asserting a contrary election to take the five parcels of anticipation of the performance of the announced prestation.
land described in paragraph IX of his complaint. But the facts show that
the title of this paragraph 8 parcel is still in the heirs of Inocente Martines Consent of the Other Party Not Required in the Making of Choice
and have not yet been transferred to Reyes. Reyes then must now have a ● In the making of the choice, the law does not require that the choosing party first
claim for damages for the value of the aforesaid property which we now secure the conformity of the other party. Otherwise, that will in effect frustrate the
have established, should be his. The Martinez heirs are allowed a period clear intention of the law and the alternative nature of the obligation. The decision in
of 3 months, extendible, to procure the execution of a sufficient deed Ong Guan in holding that the purpose of the notice is to give the other party the
conveying to Reyes, the paragraph 8 parcel. opportunity to express his consent is erroneous.
Ong Guan The defendant may build the house as an alternative prestation, freeing him Applicability:
Chan vs. from the payment of the sum in which the building was insured. This ● The article applies only when the right to choose belongs to the debtor.
Century conclusion is in line with The Civil Code’s Article 1131. ● It is Article 1205 which applies when the right to choose belongs to the creditor.
Insurance ● All prestations must have been rendered impossible due to the fault of the debtor.
Paying the sum in which the building was insured is one of the 2 prestations When only one or some of the prestations had been lost or become impossible, the
provided in one of the clauses stipulating the conditions of the policies. creditor cannot claim indemnity for damages because the debtor, who has the right
of choice, may still perform any of the remaining alternative prestations.
Based on the same Article of the Civil Code, the complete performance of ● If the impossibility is caused by the fault of the debtor, the creditor is entitled to
one of them is sufficient to extinguish the obligation. While there are several indemnity for damages.
prestations, only one is due. ● If all things which are alternatively the object of the obligation have been rendered
impossible of performance by fortuitous event, obligation is extinguished and the
debtor is released from responsibility unless the contrary had been stipulated by the
parties.
Article 1202. The debtor shall lose the right of choice when among the prestations whereby Example: A agreed to deliver B his 2020 model car with Plate Number 337 or his diamond
he is alternatively bound, only one is practicable. ring worth 200 pesos, or his condominium at Makati City. If A burned his car, threw his
diamond ring into boiling lava, and sold his condo, nothing is left of the prestations. B is
Applicability: entitled to indemnity for damages under 1204.
● Applies only to debtors with right of choice.
● If creditor is expressly given the right to choose, Article 1205 will apply. Indemnity for Damages, Mode of Determination
● Practicable means possible or lawful. ● The basis for the amount of indemnity is the value of the last thing whish
● If only one of the prestations is practicable, debtor loses his right of choice and the disappeared or that of the service which has become impossible last.
obligation loses its alternative character. The prestation becomes a simple obligation. ● Additional damages may be awarded to the creditor if there is any justification
therefor.
Article 1203. If through the creditor's acts the debtor cannot make a choice according to the
terms of the obligation, the latter may rescind the contract with damages. Article 1205. When the choice has been expressly given to the creditor, the obligation shall
cease to be alternative from the day when the selection has been communicated to the
debtor.
When Debtor Cannot Make A Choice Due to The Creditor’s Acts; Consequences:
● If the debtor cannot make any choice due to the creditor’s fault, he may rescind the Until then the responsibility of the debtor shall be governed by the following rules:
contract with damages. 1. If one of the things is lost through a fortuitous event, he shall perform the
● However, if the debtor is being prevented to choose only a particular prestation, and obligation by delivering that which the creditor should choose from among the
there are others available, he is free to choose any of the others, after notifying the remainder, or that which remains if only one subsists;
creditor of his decision. 2. If the loss of one of the things occurs through the fault of the debtor, the creditor
● The rescission mentioned in the law does not take place ipso facto but only upon the may claim any of those subsisting, or the price of that which, through the fault of
debtor’s initiative. the former, has disappeared, with a right to damages;
Example: A agreed to paint the house or the building of B at 100 pesos. B sold his commercial 3. If all the things are lost through the fault of the debtor, the choice by the creditor
building. Painting the building is now impossible due to a change of ownership. Debtor has shall fall upon the price of any one of them, also with indemnity for damages.
now the option to paint the house or rescind the contract with damages, if he suffered any.
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Classification of Obligations According to Number of Parties:
1. Individual Obligation – One debtor and one creditor.
The same rules shall be applied to obligations to do or not to do in case one, some or all of 2. Collective Obligation – Two or more debtors and two or more creditors. Has 2
the prestations should become impossible. kinds:
a. Joint Obligation – Entire obligation is paid proportionately by the debtors.
Applicability: b. Solidary Obligation – Each debtor is obliged to pay the entire obligation and
● Applies only when the right of choice has been expressly granted to the creditor. creditors may demand from any of the debtors the payment of the entire
● The obligation of the debtor ceases to be alternative from the day the selection of the obligation. Has 2 kinds:
specific prestation out of the two or several, had been communicated by the creditor. 1. Passive Solidarity – Solidarity on the part of the debtors.
From that moment on, the obligation is converted into a simple one. 2. Active Solidarity – Solidarity on the part of the creditors.
● If the creditor is guilty of delay, the debtor will not incur any delay for the reason
that until the obligation shall have become a simple obligation, the debtor would Presumption in Collective Obligation and its Rationale:
know now what prestation to perform. If there is any period in the obligation, the ● An obligation is presumed joint unless the contrary appears from the:
creditor is deemed to have waived the same. 1. Law (Legal Solidarity) – The law has its own legal reason.
2. Nature of the obligation (Real Solidarity) – The obligation requires
3) As to rights & obligations of multiple parties — Arts. 1207-1222 (Joint or Solidary solidarity.
— Arts. 927, 1824, 1911, 1915, 1945, 2157, 2194, 2146 Arts. 94, 121 FC ; Art. 90 RPC) 3. Stipulation of the parties (Conventional Solidarity) – Burden of solidarity is
assumed voluntarily.
Character of Responsibility or Liability ● If the obligation is silent, on the nature or character of the rights of creditors and
1. Joint Obligation – each debtor is liable only for a party of the whole liability and debtors, it is joint.
to each creditor shall belong only a part of the correlative rights ● The presumption is there because solidarity is burdensome on the debtors. It
2. Solidary Obligation – debtor is answerable for the whole obligation without increases their responsibilities and liabilities as against the solidary creditors whose
prejudice to his right to collect from his co-debtors the latter’s shares in the rights are correspondingly increased at the burden of the debtors. To favor the
obligation debtors, the law recognizes the existence of solidarity only in the situations
mentioned above.
Article 1207. The concurrence of two or more creditors or of two or more debtors in one Consequences of a Joint Obligation:
and the same obligation does not imply that each one of the former has a right to demand, 1. Each debtor is liable only for a proportionate part of the entire debt, the reason being
or that each one of the latter is bound to render, entire compliance with the prestation. that there are as many separate debts as there are debtors.
There is a solidary liability only when the obligation expressly so states, or when the law or 2. Each creditor, if there are several, is entitled only to a proportionate part of the
the nature of the obligation requires solidarity. credit. The reason is, there are as many separate credits as there are creditors.
3. Demand made by one creditor upon one debtor produces the effects of default only
Article 1208. If from the law, or the nature or the wording of the obligations to which the as between them.
preceding article refers the contrary does not appear, the credit or debt shall be presumed to 4. Interruption of prescription caused by the demand made by one creditor upon one
be divided into as many shares as there are creditors or debtors, the credits or debts being debtor will not benefit the co-creditors; neither will that demand interrupt the
considered distinct from one another, subject to the Rules of Court governing the prescription of the obligation as to the other debtors.
multiplicity of suits. (1138a) 5. Insolvency of a debtor will not increase the liability of his co-debtors, meaning, his
co-debtors will not answer for him. Neither will it allow a creditor to demand
anything from the co-creditors.
Concept of Joint Obligation 6. The vices of each obligation emanating from the personal defect of a particular
● A joint obligation is one in which each debtor is liable only for proportionate part of debtor or creditor will not affect the obligation or rights of the others.
the debt, and the creditor is entitled to demand only a proportionate part of the credit 7. As the credit or debt is presumed divided into as many shares as there are creditors
from each debtor. and debtors, a joint creditor cannot act in representation of the other creditors. A
debtor cannot be compelled to answer for the liability of other debtors.
Concept of Solidary Obligation: 8. If there is a breach of the obligation arising from the act of one of the debtors, he
● A solidary obligation is one in which each of the debtors is liable for the entire alone must bear the damages caused.
obligation and each of the creditors is entitled to demand the satisfaction of the 9. An acknowledgement made by one of the joint debtors as to the existence of the
whole obligation form any of all of the debtors. debt will not stop the running of the period of prescription as to the others. Same
rule applies if only one of the debtors paid.
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10. If the consent of one debtor is vitiated by the creditors, this will not affect the ● Example: A is indebted to X, Y, and Z who are solidary debtors. A can pay
liability of the other debtor whose consent is not vitiated. either to X, Y, or Z. The full payment to any of them extinguishes the
11. Defenses available to one debtor is not necessarily useful for the others. obligation.
Beneficial and Prejudicial acts of Solidary Creditor: Article 1215. Novation, compensation, confusion or remission of the debt, made by any of
● Relationship of mutual agency exists among solidary creditors. Acts of one will the solidary creditors or with any of the solidary debtors, shall extinguish the obligation,
affect the others because of their relationship. Solidary creditors may perform acts without prejudice to the provisions of article 1219.
which are useful or beneficial to the others.
● Every solidary creditor is benefited by the useful acts of any one of them. The creditor who may have executed any of these acts, as well as he who collects the debt,
● Example: Act of a solidary creditor in filing a complaint so that the obligation may shall be liable to the others for the share in the obligation corresponding to them.
bear legal interest.
● Demand of a solidary creditor which interrupts the running of the prescriptive period
of filing the action. Novation - There is novation when obligations are modified by:
● If a solidary creditor performs an act which is prejudicial to his co-creditors, the act 1. Changing their Object or Principal Conditions
may have valid legal effects, but the performing creditor shall be liable to his 2. Substituting the person of the debtor
co-creditors. 3. Subrogating a third person in the rights of the creditor (Art. 1291)
Compensation
Article 1213. A solidary creditor cannot assign his rights without the consent of the others. ● Takes place when two persons, in their own right, become creditors and debtors of
each other. (Art. 1278)
Rationale:
● There is a mutual agency among the solidary creditors. This mutual agency is the Confusion
essence of their active solidarity which is based on mutual trust and confidence. ● Takes place when the characters of creditor and debtor are merged in the same
● Thus, this agency cannot just be assigned to a third person without the consent of the person. (Art. 1275)
other creditors.
● With the consent of all, the rights may be assigned. Remission
● Without the consent, the assignee does not become a solidary creditor. Any payment ● Gratuitous abandonment by the creditor of his right. Acceptance by the obligor is
made to him by the debtor does not extinguish the obligation. He is considered a necessary. (Art. 1270)
stranger. His acts will not bind other creditors.
Effects of Execution of the Specified Four Modes of Extinguishing:
● These four modes are prejudicial to other solidary co-creditors, because said acts
Article 1214. The debtor may pay any one of the solidary creditors; but if any demand, have the effect of extinguishing the debt or obligation which is due to all of them.
judicial or extrajudicial, has been made by one of them, payment should be made to him. ● The co-creditors are not left without any recourse. The one who had collected the
debt shall be liable for the shares corresponding to all his co-creditors.
To Whom Payment Shall Be Made: ● The remission made by a solidary co-creditor to one of the solidary debtors, does not
● The debtor can actually pay any one of the solidary creditors! Can you believe that? release the latter from his responsibility towards the co-debtors, in case the debt had
● Payment, when accepted by any of the solidary creditors, will extinguish the been totally paid by anyone of them before the remission was effected. (Art. 1219)
obligation. ● If there is no such previous payment, all the solidary debtors are released from the
● HOWEVER, once there has been a demand, payment shall be made to the obligation. The solidary debtor who accepted the remission cannot seek
demanding creditor. reimbursement from his co-debtors.
● Payment to another creditor, once a demand has been made, will not extinguish the
obligation except insofar as the share of the payor is concerned. Article 1216. The creditor may proceed against any one of the solidary debtors or some or
● If there are other debtors to whom no demand was made, they are free to pay any of all of them simultaneously. The demand made against one of them shall not be an obstacle
the other solidary creditors – unless the first debtor had already fully paid the entire to those which may subsequently be directed against the others, so long as the debt has not
Passive Solidarity and Suretyship are not Identical: Effect of Partial Payment:
Basis Passive Solidarity Suretyship ● If the payment made by the solidary debtor is only partial, he is entitled to be
reimbursed only for such amount of money which he had paid in excess of his own
share in the obligation.
Nature of the Obligation Primary Subsidiary
● If there is no excess, he cannot seek reimbursement.
Extent of the Liability Solidary debtor liable for his Surety is responsible only Payor May Be Substituted as Party Plaintiff:
own obligation and that of his for the principal debtor ● Solidary debtor who paid the entire obligation may be substituted as plaintiff in the
co-debtors same action for the purpose of enforcing the payment of the contributions of the
co-debtors to which the former is entitled.
Right to Reimbursement Solidary debtor is entitled to be Surety is entitle to be ● This is not subrogation, as the right is not based on the original obligation but upon
reimbursed for what he has reimbursed for everything his payment.
paid, minus his own share that he has paid ● He does not step into the shoes of the creditor because he is entitled to collect only
the corresponding contribution of his co-debtors and not the whole amount.
Effect of Grant of If granted extension of time to If principal debtor is ● If payment was made before maturity of the debt, there shall be interests for the
Extension of Time to the pay, the co-debtors are not granted extension of time period between the date of payment and the date of maturity which the law refers to
Debtor to pay the released but shall remain liable without the consent of the as “intervening period.” [This is how it is written in the Pineda book. (Page 184,
Creditor for the whole obligation minus surety, the surety is bottom portion) I believe it should have read, “there shall be NO interests”.]
the share of the debtor who was released from the
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When Offer To Pay is Made by Two or More Solidary Debtors remitted. The reason is that after the prior payment of the entire obligation, there is nothing
● When two or more solidary debtors offer to pay, the creditor may choose which of more to remit because the obligation had already been extinguished.
the offers to accept. The law gives him the option.
Article 1220. The remission of the whole obligation, obtained by one of the solidary
Article 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his debtors, does not entitle him to reimbursement from his co-debtors.
co-debtors if such payment is made after the obligation has prescribed or become illegal.
Applicability:
Applicability: ● This article applies only when remission covers the whole or entire obligation and
● Applicable if payment of the obligation was made under the following situations: the remission is obtained by one of the solidary debtors without spending anything
a. Obligation had already prescribed due to the lapse of time required by law: for its grant.
- Example: A, B, and C are solidary debtors of D in the amount of $150. The creditor ● In case the remission is only partial, the solidary debtor who paid the unremitted part
did not make any demand for more than 10 years. Obligation already prescribed in of the obligation is entitled to reimbursement with respect only to the amount he
accordance with Article 1144. Still, A paid the entire obligation because he felt a actually paid.
sense of fairness within him. A is now precluded from seeking reimbursement from Example: A, B, and C are solidarily liable to D in the sum of $150. When A offered to pay the
B and C based on Art. 1218. entire obligation, D, by an impulse of sudden kindness, remitted the entire obligation resulting
b. Obligation has become illegal before it could be performed in the extinguishment thereof. A is not entitled to reimbursement from B and C because A did
- Example: A, B, and C solidarily bound themselves to make and deliver 100 air rifles not spend anything for the remission granted by D, the remission being a gratuitous one.
to D. Before the air rifles could be finished and delivered, an ordinance was passed
prohibiting the manufacture and sale of such rifles. Being the lil bitch that he is, A
still delivered the prohibited rifles to D. A cannot seek reimbursement from B and C Article 1221. If the thing has been lost or if the prestation has become impossible without
for the expenses he incurred in the manufacture and delivery, in accordance with the fault of the solidary debtors, the obligation shall be extinguished.
Article 1218.
○ The payor is not entitled to reimbursement in such situations. If there was fault on the part of any one of them, all shall be responsible to the creditor, for
the price and the payment of damages and interest, without prejudice to their action against
the guilty or negligent debtor.
Article 1219. The remission made by the creditor of the share which affects one of the
solidary debtors does not release the latter from his responsibility towards the co-debtors, in If through a fortuitous event, the thing is lost or the performance has become impossible
case the debt had been totally paid by anyone of them before the remission was effected. after one of the solidary debtors has incurred in delay through the judicial or extrajudicial
demand upon him by the creditor, the provisions of the preceding paragraph shall apply.
Applicability:
● This article applies to a situation where one of the solidary debtors paid the entire Effect of Loss of Thing or Impossibility of Prestation:
obligation to the creditor. Subsequently, the creditor remitted the share of one of the ● In case of loss of the thing or the impossibility of the prestation, the following rules
solidary debtors. The one whose share had been belatedly remitted is not released apply:
from his responsibility as to his co-debtors. This is to prevent the commission of 1. If there is no fault on the part of the solidary debtors, liability is extinguished.
fraud and unfairness to the co-debtor/s who paid the entire obligation. 2. If there is fault on the part of anyone of them, all will be liable because of their
● The creditor cannot, by his act of belated remission, exempt any debtor from the mutual agency, without prejudice to their action against the guilty or negligent
latter’s obligation to his co-debtors. Thus, if one of them is insolvent, the one whose solidary debtor.
share was remitted remains liable for the share of the insolvent who is bound to 3. If the loss or impossibility is due to a fortuitous event, there is no liability
make reimbursement for what had been paid by the paying debtor. unless there is delay. In which case, all will be liable without prejudice to their
● In passive solidarity, a dual relationship exists: the relationship of the solidary right to go against the guilty or negligent solidary debtor.
debtors to the creditor, and the relationship that exists between or among the ● If the thing was lost due to the fault of one and the creditor sued the guilty debtor
solidary debtors themselves. The creditor is not privy to the second relationship. and fortunately the latter fully paid him, the guilty solidary debtor cannot get any
Any belated remission by the creditor of the share of any debtor has no effect on the contribution from his co-debtors because he as the one who caused the loss. The one
internal relationship of the co-debtors. at fault will shoulder all the consequences.
● However if the thing was not lost, but there is merely a delay, fraud, or negligence
Example: A, B, and C solidarily owe D $150. A paid the entire obligation. Thereafter, D on the part of one of the solidary debtors, all will share in the payment of the
remitted the share of C. Can A seek reimbursement from B and C? The answer is yes. A can principal prestation. If there are damages and interest imposed, the debtor who was
collect $50 each from B and C even if the share of C in the obligation had been belatedly guilty of delay, fraud, or negligence, will shoulder not only his share in the
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prestation but also, will be liable alone to pay the amount of damages and interest
imposed. Article 1824. All partners are liable solidarily with the partnership for everything
● When the thing is lost or becomes impossible due to the fault of all of the debtors, or chargeable to the partnership under articles 1822 and 1823.
anyone of them, the obligation is converted into one of indemnity for damages. This
indemnity includes the price or value of the thing or prestation due plus damages Article 1911. Even when the agent has exceeded his authority, the principal is solidarily
and interest. liable with the agent if the former allowed the latter to act as though he had full powers
● Article 1221 is just a repetition of 1174, 1262, and 1266.
Article 1915. If two or more persons have appointed an agent for a common transaction or
undertaking, they shall be solidarily liable to the agent for all the consequences of the
Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all agency.
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 Article 1945. When there are two or more bailees to whom a thing is loaned in the same
to the others, he may avail himself thereof only as regards that part of the debt for which contract, they are liable solidarily.
the latter are responsible.
Article 2175. Any person who is constrained to pay the taxes of another shall be entitled to
Defenses Which a Solidary Debtor May Avail Himself Of: reimbursement from the latter.
● When a creditor files a complaint against a solidary debtor, whether the case is filed
solely against him or simultaneously against all of the solidary debtors, he may set Article 2194. The responsibility of two or more persons who are liable for quasi-delict is
up as defenses the following: solidary.
a. Defenses arising from the nature of the obligation such as payment,
prescription, remission, statute of frauds, presence of vices of consent, and Article 2146. If the officious manager delegates to another person all or some of his duties,
similar others. he shall be liable for the acts of the delegate, without prejudice to the direct obligation of
b. Defenses which are personal to him or which pertains to his own share the latter toward the owner of the business.
along such as minority, insanity and others purely personal to the solidary
debtor. The responsibility of two or more officious managers shall be solidary, unless the
c. Defenses personal to the other solidary debtors but only as regards that management was assumed to save the thing or business from imminent danger.
part of the debt for which the latter are liable.
Art. 94, FC. The absolute community of property shall be liable for:
Illustrative Cases: 1. The support of the spouses, their common children, and legitimate children of
● A mother and her two minor children signed a promissory note binding themselves either spouse; however, the support of illegitimate children shall be governed by
solidarily to pay Villa Abrille 10,000 pesos in legal currency of the Philippines two the provisions of this Code on Support;
years after the war. The money was used for the support of the children who are 2. All debts and obligations contracted during the marriage by the designated
minors. For failure to pay the indebtedness, the lender sued the mother and her administrator-spouse for the benefit of the community, or by both spouses, or by
minor children. The minority of the children was pleaded as defense. It was held that one spouse with the consent of the other;
the minority of the children did not completely release the mother from 3. Debts and obligations contracted by either spouse without the consent of the other
responsibility, because such defense is a personal defense of the minors. (Braganza to the extent that the family may have been benefited;
vs. De Villa Abrille) 4. All taxes, liens, charges and expenses, including major or minor repairs, upon the
● If a solidary debtor is granted an extension of time within which to pay the community property;
obligation, the solidary debtor against whom the action is filed for the enforcement 5. All taxes and expenses for mere preservation made during marriage upon the
of the entire obligation, may interpose as defense the extension of time granted to separate property of either spouse used by the family;
one of the solidary debtors but only with respect to that portion of the debt the 6. Expenses to enable either spouse to commence or complete a professional or
payment of which was extended. (Inchausti vs. Yulo) vocational course, or other activity for self-improvement;
7. Ante-nuptial debts of either spouse insofar as they have redounded to the benefit
Other solidary obligations: of the family;
8. The value of what is donated or promised by both spouses in favor of their
Article 927. If two or more heirs take possession of the estate, they shall be solidarily liable common legitimate children for the exclusive purpose of commencing or
for the loss or destruction of a thing devised or bequeathed, even though only one of them completing a professional or vocational course or other activity for
should have been negligent self-improvement;
Example: A and B undertook to deliver to C a valuable painting displayed for sale. The
Divisible and Indivisible Obligations painting was valued at $100. At the maturity date of the obligation, A was ready with his
$50 but B could not produce his share. Hence, they failed to comply with their joint
Article 1223. The divisibility or indivisibility of the things that are the object of obligations
indivisible obligation to deliver the painting to C. The obligation to deliver the painting is
in which there is only one debtor and only one creditor does not alter or modify the
converted into money obligation, meaning, A and B will be liable to pay C $100. A is
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3. Object of the obligation is susceptible of partial compliance (such as stage-by-stage
liable to pay C the amount of $50. But, he is not liable for the share of B. On the other construction of a building)
hand, B is now indebted to C in the sum of $50. Damages may be imposed against B the 4. Object of the obligation is the accomplishment of analogous things (such as when
erring debtor if warranted by the circumstances. the debtor is required to pay in installments)
Based on the same facts but with the modification that A and B are solidarily (not jointly) Effect of Illegality of a Part of a Contract
liable to deliver the painting to C, A can be made liable for the entire monetary obligation 1. Divisible Contract – If contract is divisible and a part of it is illegal, the illegal part
of $100 without prejudice to his right to go after B for the latter’s share in the obligation in is void and is not enforceable. The legal part remains valid and is enforceable.
the amount of $50. 2. Indivisible Contract – If the contract is indivisible and a part is illegal, the entire
contract is void and is not enforceable.
Article 1225. For the purposes of the preceding articles, obligations to give definite things Effect of Partial Performance of an Indivisible Obligation:
and those which are not susceptible of partial performance shall be deemed to be ● In an indivisible obligation, partial performance is tantamount to non-performance.
indivisible. ● Thus, a debtor who abandoned work he had started, cannot recover payment based
on quatum meruit for the partial works done. When an obligation is indivisible, it is
When the obligation has for its object the execution of a certain number of days of work, not susceptible to partial performance.
the accomplishment of work by metrical units, or analogous things which by their nature
are susceptible of partial performance, it shall be divisible. Supra 1209-1210
However, even though the object or service may be physically divisible, an obligation is Article 1209. If the division is impossible, the right of the creditors may be prejudiced only
indivisible if so provided by law or intended by the parties. by their collective acts, and the debt can be enforced only by proceeding against all the
debtors. If one of the latter should be insolvent, the others shall not be liable for his share.
In obligations not to do, divisibility or indivisibility shall be determined by the character of
the prestation in each particular case. Article 1210. The indivisibility of an obligation does not necessarily give rise to solidarity.
Nor does solidarity of itself imply indivisibility.
Indivisibility or Divisibility of a Thing, Different from Divisibility of Obligation
● The test of divisibility of an object is its susceptibility to physical division. 5) As to the presence of an accessory undertaking in case of breach (With a Penal
● The test of divisibility of an obligation is its susceptibility of partial performance or Clause — Arts. 1226-1230 or Liquidated Damages)
compliance.
Imposition of penalty
● The divisibility of an object does not necessarily carry with it the divisibility of an
1. Simple Obligation – no penalty imposed for violations of the terms thereof
obligation, unlike the indivisibility of an object which carries with it the
2. Obligations with a penal clause – imposes a penalty for violation of the terms
indivisibility of the obligation.
thereof
● While a divisible thing is that which can be physically divided without impairing its
usefulness or value and therefore is considered divisible, nevertheless, the obligation
to deliver it will be considered indivisible under two situations: Concept and Purpose of Penal Clause:
a. When the law so provides
b. When the parties intended that the obligation be indivisible Article 1226. In obligations with a penal clause, the penalty shall substitute the indemnity
for damages and the payment of interests in case of noncompliance, if there is no
Indivisible Obligations stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay
1. Obligations to give definite things – A specified diamond ring the penalty or is guilty of fraud in the fulfillment of the obligation.
2. Obligations which are not susceptible of partial performance – Creation of a
wedding dress The penalty may be enforced only when it is demandable in accordance with the provisions
3. If the law provides or if the parties intended it to be indivisible. of this Code.
Nature of Penalty:
● Penalty imposable is a substitute for the indemnity for (a) damages, and (b) payment Basis Obligation with a Penal Clause Alternative Obligation
of interests in case of breach of the obligation, unless there is a contrary stipulation,
unless there is a contrary stipulation, in which case additional damages may further Number of There is only one principal There are two or more obligations,
be recovered. Obligations obligation, the non-performance the fulfillment of one of which is
● It can be in the form of money or any other thing agreed upon, including an act, or of which makes the stipulated sufficient to satisfy the obligation.
an abstention. penalty enforceable.
Examples: Impossibility The impossibility of the principal The impossibility of one of the
1. In a contract for the sale of a subdivision lot, there was a stipulation that the buyer of Obligation obligation extinguishes the obligations, without fault of the
would complete a house within a year on the said lot, otherwise, the buyer will pay penalty. debtor, leaves the other prestation
the sum of 100 pesos to the seller. As the buyer failed to construct 50% of the subsisting.
proposed house, within the period stipulated, the penalty is demandable. However,
there being partial performance, the obligation of the debtor may be mitigated. Freedom to Obligor cannot choose to pay the The obligor can choose which
2. A penalty of 15% interest on the unpaid installment is a valid penal clause. Choose penalty to excuse himself from prestation or obligation to fulfill.
3. Imposition of attorney’s fees in case of breach is a valid penal clause. the principal obligation, unless
4. A stipulation that an employee shall be liable to his employer for damages if he given that right explicitly.
would engage in any business similar to that conducted by the employer is a valid
penal clause.
Example: A obligated himself to deliver a specific Mercedes Benz to B, or to pay B the sum
When Additional Damages May Be Recovered Aside From The Stipulated Penalty: of 2 million pesos. This obligation is an alternative obligation. A can choose which one to
● General Rule: Penalty takes place of indemnity for damages and for payment of deliver. However, if the obligation of A is to deliver the said car to B, and in case he fails to
interests. deliver, he will pay 2 million with 15% interests, the obligation is now with a penal clause.
● However, the rule is subject to certain exceptions where additional damages are A has no choice. He will deliver the money with interest, if he fails to deliver the car.
recoverable:
Distinctions Between Obligations With A Penal Clause and Facultative Obligation:
1. If the obligor refuses to pay the penalty
2. If the obligor is guilty of fraud in the fulfillment of the obligation; In case
of fraud, the difference between the proven damages and the stipulated Basis Obligation with a Penal Clause Facultative Obligation
damages may be recovered
3. If there is an express stipulation that other damages or interests are Power to make The obligor cannot substitute the The power of the obligor to
demandable in addition to the penalty in the penal clause. Substitution payment of penalty for the principal make substitution is absolute.
obligation, unless expressly allowed.
Penalty Clause Compared With Liquidated Damages:
● Penal clause is strictly penal in nature or cumulative in character and does not Demand for The creditor may demand both the Creditor cannot demand both
partake the nature of liquidated damages. fulfillment of principal and accessory obligations. prestations or obligations.
● However, in so far as legal results are concerned, there is no difference between both
penalty and liquidated damages, and either may be recovered without proving actual prestations
damages, and both may be reduced when found unconscionable or iniquitous.
Caridad The provisions in point, as the parties themselves have indicated in the Cabarroguis In obligations with a penal clause however, as provided in Art. 1226 of
Estate vs. contract, is a penal clause which carries the express waiver of the vendee vs. Vicente the NCC, the penalty shall substitute the indemnity and payment of
Santero to any and all sums he had paid when the vendor, upon his inability to interests. This is backed up by exceptions:
comply with his duty, seeks to recover possession of the property, a a. When the contrary is stipulated
conclusive recognition of the right of the vendor to said sums, and avoid b. When debtor refuses to pay the penalty imposed in the
unnecessary litigation designed to enforce fulfillment of the terms and obligation, in which case creditor is entitled to interest on the
conditions agreed upon. Said provision are not unjust or inequitable and amount of the penalty in accordance with Art. 2209
does not, appellant contends, make the vendor unduly rich at his cost and c. When obligor is guilty of fraud in the fulfillment of the
expense. obligation.
ARTICLE 1163. Every person obliged to give something is also obliged to take care of it ARTICLE 442. Natural fruits are the spontaneous products of the soil, and the young and
with the proper diligence of a good father of a family, unless the law or the stipulation of other products of animals.
the parties requires another standard of care. (1094a)
Industrial fruits are those produced by lands of any kind through cultivation or labor.
Duty of an Obligation obliged to deliver a determinate thing Civil fruits are the rents of buildings, the price of leases of lands and other property and the
● If the obligation to take care of this thing is not imposed upon the obligor until it is amount of perpetual or life annuities or other similar income. (355a)
finally delivered, the obligation to deliver may become illusory because the obligor
may not mind even if the thing is destroyed or lost
Notes:
Kind of Diligence Required ● No Delivery → No transfer of ownership is effected
● Standard of diligence required in the preservation or maintenance of the thing is that ● Remedy of buyer when there is no delivery despite demand → specific performance
kind of ordinary diligence, AKA “diligence of a good father of a family” and delivery
● Exception:
○ if by law, or Acquisition of a Real Right
○ by agreement, extraordinary diligence is required, then the obligor shall ● No real right over the property until it shall have been delivered to him.
exercise the same. ie, a common carrier is bound to exercise extraordinary ● A real right is a power over specific property and is binding against the whole world
diligence in carrying passengers to their destination. as compared to a personal right, which is a power demandable by one person against
● The loss of things while in the custody of the obligor, but without negligence or fault another person, for the latter to give, to do, or not to do.
on his party, does not make him liable therefor.
Basis Real Right Personal Right
ARTICLE 1164. The creditor has a right to the fruits of the thing from the time the
obligation to deliver it arises. However, he shall acquire no real right over it until the same Creation Created by both title Created by title alone – save when the title
has been delivered to him. (1095) and mode. Directly is also the mode. It is not directly created
created over a thing. over a thing. It is exercised through another
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against whom the action is to be brought.
The requisite that a thing be determinate is satisfied if at the time the contract is entered
Object Generally → tangible. Intangible into, the thing is capable of being made determinate without the necessity of a new or
Object is specific further agreement between the parties. (n)
property or thing.
Kinds of Thing
Subject Definite active Active subject (creditor) and definite
subject (owner) and passive subject (debtor) 1. Determinate (specific) thing → Susceptible of particular designation or
Indefinite passive specification
subject (whole world) ○ Example: Mercedez Benz Model 2000 Chassis no 1234 Plate number
ABC 123
Enforceability Against the whole Enforceable only against the original debtor 2. Indeterminate (generic) thing → Not particularized or specified but has reference
world or his transferees charged with notice of the only to a class or genus
personal right ○ Example: car, chair, table
Example: A is obliged to give B on Dec. 3, 2004, a particular parcel of land. Remedies of Creditor when Debtor fails to deliver a Determinate Thing
● Before Dec. 3: B has no right whatsoever over the fruits.
● After Dec. 3: B, the creditor is entitled as of right to the fruits. 1. Specific Performance
● But if the fruits and the land are actually or constructively delivered only on Dec. 2. Rescission (Art 1380)
15, 2004, B becomes owner of said fruits and land only from said date. 3. Resolution (Art 1191)
● Between Dec. 3 and Dec. 15: B had only a personal right enforceable against A. 4. Damages – guilty of fraud, negligence, delay, contravene the tenor of the contract
● After Dec. 15: B has a real right over the properties, a right that is enforceable
against the whole world. Note: The creditor may also resort to action for specific performance against the debtor,
even if the obligation involves the delivery of an indeterminate thing. The compliance
being borne by the debtor.
ARTICLE 1165. When what is to be delivered is a determinate thing, the creditor, in
addition to the right granted him by article 1170, may compel the debtor to make the Liability of Debtor for loss of the thing due to Fortuitous Event
delivery. ● General Rule: no person shall be responsible for those events which could not be
foreseen, or which, though foreseen, were inevitable
If the thing is indeterminate or generic, he may ask that the obligation be complied with at ● Exceptions:
the expense of the debtor. 1. Expressly specified by law
2. Stipulated by the parties
If the obligor delays, or has promised to deliver the same thing to two or more persons who 3. Nature of the obligation requires an assumption of risk
do not have the same interest, he shall be responsible for any fortuitous event until he has ● Art 1165 (third paragraph) is an example of an exception provided by law – if the
effected the delivery. (1096) debtor is guilty of delay or has promised to deliver the same to two or more persons
who do not have common or the same interest, he shall be liable for the loss of the
thing by reason of the fortuitous event until he has effected the delivery thereof. (bad
ARTICLE 1460. A thing is determinate when it is particularly designated or physically faith on the part of the debtor)
segregated from all others of the same class. ● However, if the debtor bound himself to deliver generic things, he is not exempted
from complying with his obligation (again, genus never perishes)
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Kinds of Delay
ARTICLE 1246. When the obligation consists in the delivery of an indeterminate or
1. Ordinary Delay – mere failure to perform an obligation at the appointed time generic thing, whose quality and circumstances have not been stated, the creditor cannot
2. Extraordinary delay or legal delay – tantamount to non-fulfillment of the demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality.
obligation and arises after an extrajudicial or judicial demand had been upon the The purpose of the obligation and other circumstances shall be taken into consideration.
debtor. Debtor is said to be in default at this point.
Rule in Delivering Indeterminate or Generic Things - Rule of Medium Quality
● When the quality and circumstances of an indeterminate or generic thing supposed
ARTICLE 1166. The obligation to give a determinate thing includes that of delivering all to be delivered had not been stated, only the “ordinary” kind or category of said
its accessions and accessories, even though they may not have been mentioned. thing should be delivered.
○ Example: if the obligation consists in delivering a car of a particular brand
Accession, Meaning: (latest model), and there are three kinds of that brand with different costs,
● The fruits of, or additions to, or improvements upon, a thing (the principal), e.g., the one to be delivered is the second most powerful in the row.
house or trees on a land; rents of a building; air conditioner in a car; profits or ● The purpose and other circumstances shall be considered. Thus, in the example
dividends accruing from shares of stocks; etc. earlier, if the purpose is to secure the most powerful to be used in a race, then the car
● Includes everything which is produced by a thing, and all those incorporated or with the superior quality should be delivered.
attached thereto, either naturally or artificially (fruits). ● The law speaks of quality. Quantity is not mentioned. The reason is because if both
● Includes accession natural such as alluvial deposits quantity and quality are not determined, then the contact is considered void (Art.
● Includes accession industrial such as those built, planted, sowed on the land of the 1349 and 1409)
landowner
Breach of Obligations (Art 1170)
Accessories, Meaning ARTICLE 1170. Those who in the performance of their obligations are guilty of fraud,
● Things which are united or attached as ornaments to the principal thing ( ie. spare negligence, or delay, and those who in any manner contravene the tenor thereof, are liable
tire of a car, chairs in a moviehouse) for damages.
● Things joined to, or included with, the principal thing for the latter’s embellishment,
better use, or completion, e.g., key of a house; frame of a picture; bracelet of a
watch; machinery in a factory; bow of a violin. Note: Article 1170 refers to incidental fraud (dolo incidente) committed in the performance of
an obligation already existing because of contract. It is to be differentiated from causal fraud
Delivery of Determinate Thing includes all its Accessions and Accessories (dolo causante) or fraud employed in the execution of a contract under Article 1338, which
● However, the parties may stipulate that certain accessions or accessories shall be vitiates consent and makes the contract voidable and to incidental fraud under Article 1344
excluded as they have freedom to stipulate such (Art 1306) also employed for the purpose of securing the consent of the other party to enter into the
contract but such fraud was not the principal inducement to the making of the contract.
ARTICLE 1244. The debtor of a thing cannot compel the creditor to receive a different
one, although the latter may be of the same value as, or more valuable than that which is Grounds for liability for damages in the performance of obligations
due.
1. Fraud – intentional evasion of the faithful performance of the obligation. (bad
In obligations to do or not to do, an act or forbearance cannot be substituted by another act faith/dolo)
or forbearance against the obligee’s will. (1166a) 2. Negligence – omission of that diligence required by the nature of the obligation
and commensurate with the demands of the subsisting circumstances of time,
place, condition of the persons involved.
No payment or delivery of a different thing: 3. Delay – default or tardiness in the performance of the obligation after it has
● General Rule: Creditor shall be paid ONLY hat has been stipulated upon because become due and demandable.
the contract between the parties is the law between them. This applies even if the a. Obligation is demandable and already liquidated
thing offered is worth more than the thing agreed to. b. Debtor delays performance
● However, it is the compulsion that is barred. If the creditor consents, his acceptance c. Credit requires performance because it must appear that the tolerance of
of the substitute extinguishes the obligation. This happens in novation, and also in the credit must have ended
dacion en pago. 4. Violation of the terms of the contract – act of contravening the tenor or terms
○ The same applies to obligations to do and not to do.
CIVREV C2022 COMPILATION - DBN & MKG | SBM SYLLABUS | 37
● In fraud, the will of a person is maliciously misled by means of a false appearance of
or conditions of the contract. reality resulting in his damage and prejudice. Fraud does not necessarily need to
amount to estafa or felony to be considered as a fraud.
Use of the word “Fraud” in Article 1170 ● The article did not define fraud. This is because the circumstances evidencing fraud
● Fraud in this article means “bad faith” or malice (obligation is already in existence are as varied as the men who schemed the fraud in each case. Fraud is manifested in
as opposed to deceit in executing a contract) illimitable degrees or gradations. The causal fraud (efficient cause to the giving of
consent) or dolo causante is a ground for annulment of a contract while the
Damages for monetary obligations incidental fraud is a ground for damages.
● Shall consist in stipulated damages like when there is penalty clause, or when ● It is fraud to conceal fraud.
liquidated damages have been agreed upon.
● If no stipulation or agreement, the legal rate of interest will be imposed which is Requisites of Fraud (Dolo Causante)
pegged at 6% per annum.
1. Fraud is applied or utilized by one contracting party upon the other. (If both
Fortuitous Events; Exception
committed fraud, contract is valid) (Art. 1344)
● Generally, the debtor will be exempted
2. It must be serious deception or misrepresentation. (Art. 1344)
● Exceptions:
3. It must have induced the victim to enter into the contract. (Art. 1338)
a. Law expressly provides liability
4. It must have resulted in damage or injury to the victim.
b. Stipulation between the parties
c. Nature of obligation requires assumption of risk
Kinds of Fraud:
Manner of Breach: Fraud (Arts 1171, 1338, 1344) ● The civil code speaks of two different kinds of fraud which have no similarities.
a. The first kind is treated in Article 1170-71 centering on the performance
ARTICLE 1171. Responsibility arising from fraud is demandable in all obligations. Any
of the prestation
waiver of an action for future fraud is void.
b. The second kind is treated in Article 1338 centering on the celebration or
perfection of the contract
Fraud Referred to in the article: ● Fraud that justifies a prayer for annulment of contracts is different from the fraud
● Refers to the fraud in the performance of the obligation and not to the fraud in the that justifies a liability for damages
execution of the contract. It is intentional evasion of the normal fulfillment of the ● Fraud under 1338 refers to all kinds of deception, whether through insidious
obligation. machination, manipulation, concealment or misrepresentation to lead another party
into error.
Responsibility Arising from this kind of fraud is demandable in all obligations:
● The contract itself will remain intact and valid. The problem lies only in the
Basis Fraud in Performance Fraud in Perfection
implementation and not in the execution. Contract will not be void.
● The law does not allow any waiver of any action for future fraud. Such waiver is
void. Parties can simply disregard their commitments without fear of reprisals. Time of It occurs after the valid execution of It occurs before or simultaneous
There will be no obligatory force. However, the law does not prohibit waiver of an Occurrence the contract. It is employed in the with the creation or perfection
action for damages based on fraud already committed. (he can forgive the party, the performance of a pre-existing of the obligation.
law will not stop him). obligation.
Classes of default (mora): ARTICLE 1896. The agent owes interest on the sums he has applied to his own use from
the day on which he did so, and on those which he still owes after the extinguishment of the
1. Mora Solvendi – default on part of the debtor (inapplicable to natural and agency. (1724a)
negative obligations)
a. Obligation pertains to the debtor ARTICLE 1942. The bailee is liable for the loss of the thing, even if it should be
b. Obligation is determinate or liquidated; due and demandable through a fortuitous event:
c. Obligation has not been performed on its maturity date (1) If he devotes the thing to any purpose different from that for which it has been
d. There is demand (judicial or extrajudicial) loaned;
2. Mora Accipiendi – default on part of the creditor (unjustifiably refuses to accept (2) If he keeps it longer than the period stipulated, or after the accomplishment of the
payment/performance) use for which the commodatum has been constituted;
○ When obligation arose from a crime, the culprit is liable for the price of (3) If the thing loaned has been delivered with appraisal of its value, unless there is a
the thing even if the loss of the thing subject of the crime was due to a stipulation exempting the bailee from responsibility in case of a fortuitous event;
fortuitous event unless the creditor is guilty of mora accipiendi. (4) If he lends or leases the thing to a third person, who is not a member of his
3. Compensatio Morae – default on the part of both the debtor and creditor which household;
arises in reciprocal obligations. The effect is the default of one party neutralized (5) If, being able to save either the thing borrowed or his own thing, he chose to save
the other. the latter. (1744a and 1745)
In Contravention
ARTICLE 1165. When what is to be delivered is a determinate thing, the creditor, in
addition to the right granted him by article 1170, may compel the debtor to make the ARTICLE 1170. Those who in the performance of their obligations x x x those who in any
delivery. manner contravene the tenor thereof, are liable for damages.
If the thing is indeterminate or generic, he may ask that the obligation be complied with at
the expense of the debtor. EXCUSES
Acts of God and Fortuitous Events (Article 1174, 552, 1165, 2127, 2159) Nakpil v. The negligence of United Construction Inc. and Juan Nakpil and Sons Inc.
CA in the planning, specification, and construction of the Philippine Bar
ARTICLE 1174. Except in cases expressly specified by the law, or when it is otherwise Association Building led to its collapse during an unusually powerful
declared by stipulation, or when the nature of the obligation requires the assumption of risk, earthquake. This is evidenced by the fact that many other buildings older
no person shall be responsible for those events which could not be foreseen, or which, than it remained standing. If the happening of the fortuitous event or an act
though foreseen, were inevitable. (1105a) of God, there concurs a corresponding fraud, negligence, delay or violation
or contravention in any manner of the tenor of the obligation as provided
in Article 1170 which results in the loss or damage, the obligor cannot
Fortuitous Event escape liability.
● An occurrence or happening which could not be foreseen, or even if foreseen, is
inevitable.
Sia v. CA The bank’s negligence aggravated the injury or damage to the stamp
● Events beyond the control of the obligor. Must be impossible to foresee or to avoid.
collection. SBTC was aware of the floods of 1985 and 1986; it also knew
that the floodwaters inundated the room where the safe deposit box was
Essential Conditions: located. In view thereof, it should have lost no time in notifying the
petitioner in order that the box could have been opened to retrieve the
1. Cause of the breach must be independent of the debtor’s will stamps, thus saving the same from further deterioration and loss. In this
2. Event must either be unforeseeable or unavoidable respect, it failed to exercise the reasonable care and prudence expected of a
3. Event must be such as to render it impossible for the debtor to fulfill his good father of a family, thereby becoming a party to the aggravation of the
obligation in a normal manner injury or loss. As correctly held by the trial court, Security Bank was guilty
4. Debtor must be free from any participation in, or aggravation of, the injury to the of negligence.
creditor
RP v. Luzon The collision of Luzon Stevedoring’s barge with the supports of the
Stevedoring Nagtahan Bridge was not caused by a fortuitous event or force majeure.
Exceptions: The Nagtahan bridge was an immovable and stationary object provided
with openings for the passage of water craft, thus, it is undeniable that the
1. Specified by law unusual event that the barge rammed the bridge raises a presumption of
2. Express stipulation by the parties that there is liability even though negligence on the part of its employees manning the barge or the tugs that
non-performance is due to fortuitous events towed it. Luzon Stevedoring voluntarily entered the swollen stream
3. Nature of the obligation requires assumption of risk knowing the dangers that it posed. It therefore assured the risk and cannot
shed responsibility merely because the precautions it adopted turned out
insufficient.
Situations when the Law makes the Obligor liable even if due to Fortuitous Events:
NPC v. Strikes are included in the definition of force majeure since it is an event
Philipp which takes place by accident and could not have been foreseen and by
1. Obligor is in delay
Brothers law and by stipulation of the parties as per their agreement, Philipp
2. Obligor promised the same thing to 2 or more persons who do not have the same
Brothers is exempted from the liability of the effects of the delay in
interest
delivery of the coal. The Court stressed that even considering force
3. Possessor in bad faith and thing is lost or deteriorated due to fortuitous event
majeure as the reason for the delay in the first shipment, which exempted
4. Obligor contributed to the loss of the thing
Philipp Brothers from liability does not mean NAPOCOR is bound under
5. Obligor is guilty of fraud, negligence, delay, or violation of the tenor of the
any contract to approve Philipp Brothers pre-qualification for subsequent
agreement
biddings as it expressly reserved its right to reject bids.
6. If the adverse consequence is found to be partly the result of a person’s
participation or neglect to act and take steps in forestalling the damage/injury.
If the thing is indeterminate or generic, he may ask that the obligation be complied with at
ARTICLE 1165. When what is to be delivered is a determinate thing, the creditor, in the expense of the debtor.
addition to the right granted him by article 1170, may compel the debtor to make the
delivery. If the obligor delays, or has promised to deliver the same thing to two or more persons who
do not have the same interest, he shall be responsible for any fortuitous event until he has
If the thing is indeterminate or generic, he may ask that the obligation be complied with at effected the delivery. (1096)
the expense of the debtor.
ARTICLE 1166. The obligation to give a determinate thing includes that of delivering all
If the obligor delays, or has promised to deliver the same thing to two or more persons who its accessions and accessories, even though they may not have been mentioned.
do not have the same interest, he shall be responsible for any fortuitous event until he has supra, Compliance Arts. 1165-1166
effected the delivery. (1096)
supra, Compliance. ARTICLE 1167. If a person obliged to do something fails to do it, the same shall be
executed at his cost.
ARTICLE 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation becomes due, This same rule shall be observed if he does it in contravention of the tenor of the obligation.
and to the amount of the indemnity granted or owing to the proprietor from the insurers of Furthermore, it may be decreed that what has been poorly done be undone. (1098)
the property mortgaged, or in virtue of expropriation for public use, with the declarations,
amplifications and limitations established by law, whether the estate remains in the Coverage of the Article:
possession of the mortgagor, or it passes into the hands of a third person. (1877) 1. Obligor failed to fulfill a positive personal obligation (ie. to do something)
2. Obligor fulfilled the obligation but in contravention of the agreement.
UP BOC: Article 2127 is modified by the PPSA with regard to property included in a Real 3. There was fulfillment but the same was poor or inadequate.
Estate Mortgage. Under Art. 2127, a REM “extends to natural accessions, to the
improvements, growing fruits and the rents or income not yet received when the [principal] Remedies of the Creditor
obligation becomes due.” These personal properties are no longer covered by Art. 2127
1. If the debtor failed to fulfill the obligation, the same may be done by the creditor
ARTICLE 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest himself or by another person, but at the expense of the debtor.
if a sum of money is involved, or shall be liable for fruits received or which should have 2. If the obligation was done in violation of the agreement, the creditor or another
been received if the thing produces fruits. may execute the obligation at the expense of the debtor. (Same as #1)
3. If the performance is poor, the creditor may undo the same at the expense of the
He shall furthermore be answerable for any loss or impairment of the thing from any cause, debtor.
and for damages to the person who delivered the thing, until it is recovered. (1896a)
No Specific Performance allowed under this article:
Acts of Creditor (this is mora accipiendi) ● Present article refers to an obligation which ought to be done by the debtor himself,
● Mora Accipiendi – default on part of the creditor (unjustifiably refuses to accept therefore a positive personal obligation. Specific performance cannot be availed of
payment/performance) by the creditor because to do so will mean the compulsion of the debtor to do an act
which he refuses to do which is tantamount to involuntary servitude (not allowed by
our Constitution).
Exceptions:
● This article refers to a negative personal obligation. 1. Where they are not transmissible in their very nature (i.e. purely personal rights);
● The thing done or act performed shall be undone at the expense of the obligor. 2. Where there are stipulations by the parties that they are not transmissible;
● Damages may be claimed against him. 3. Where they are not transmissible by operation of law.
● Illustration: lessee obligated himself not to make any improvements without consent
of the lessor. In making improvements unilaterally, the improvements may be Rescission (Art. 1191-1192) - Power to Rescind in Reciprocal Obligations
undone at his expense in addition to damages. If the act could no longer be undone
ARTICLE 1191. The power to rescind obligations is implied in reciprocal ones, in case
physically or legally without doing injustice to third persons, the only remedy is
one of the obligors should not comply with what is incumbent upon him.
indemnification for damages against the obligor.
The injured party may choose between the fulfillment and the rescission of the obligation,
ARTICLE 1170. Those who in the performance of their obligations are guilty of fraud, with the payment of damages in either case. He may also seek rescission, even after he has
negligence, or delay, and those who in any manner contravene the tenor thereof, are liable chosen fulfillment, if the latter should become impossible.
for damages.
The court shall decree the rescission claimed, unless there be just cause authorizing the
supra, Compliance Arts. 1170 fixing of a period.
ARTICLE 1177. The creditors, after having pursued the property in possession of the This is understood to be without prejudice to the rights of third persons who have acquired
debtor to satisfy their claims, may exercise all the rights and bring all the actions of the the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. (1124)
latter for the same purpose, save those which are inherent in his person; they may also
impugn the acts which the debtor may have done to defraud them. (1111)
ARTICLE 1192. In case both parties have committed a breach of the obligation, the
liability of the first infractor shall be equitably tempered by the courts. If it cannot be
Extrajudicial Remedies: determined which of the parties first violated the contract, the same shall be deemed
● Ex. A demand letter, extrajudicial rescission extinguished, and each shall bear his own damages. (n)
Judicial Remedies:
● Ex. Action for performance, damages, rescission Resolution v. Rescission
● Article 1191 Rescission is different from Article 1381 Rescission.
Principal Remedies: ● The original term used for the Rescission in 1191 is RESOLUTION:
a. Action for Performance (Specific Performance or Obtain Compliance) ○ Rescission is a resolution or a cancellation of a contract.
b. Action for Damages (Exclusively or in addition to either of the first actions) Power to Rescind
c. Action for Rescission (In a reciprocal obligation) ● Means the right to cancel or resolve the contract or reciprocal obligations in case of
non-fulfillment on the part of one of the contracting parties.
Subsidiary Remedies: ● Failure without legal reason to comply with the terms of a contract is called a breach
a. Accion Subrogatoria – Creditor steps in the position of the debtor to collect valid of contract.
and demandable credit from those who owe the debtor. May be done extrajudicially. ● There can be no rescission of an obligation that is non-existent, hence when a
○ Limits: Not allowed to pursue actions which are personal to the debtor Ex. suspensive condition has not happened yet, then there cannot be a rescission.
The right to revoke a donation, right to exercise parental authority. ● The right to rescind is implied even absent any provision providing for a right to
b. Accion Pauliana – Action for the rescission of acts/contracts entered into by the rescind.
debtor designed to defraud the creditor
Effect of Rescission: Nature A principal action which seeks the A subsidiary action limited to cases
● General rule: to rescind a contract is not merely to terminate it, but to abrogate and resolution or cancellation of the or rescission for lesion as
undo it from the beginning. contract; resorted to when there is enumerated in Art. 1381; when
● Annuls the contract and restores the parties to the relative positions which they substantial breach of contract. creditor cannot collect from debtor
would have occupied if no such contract had ever been made. because of fraudulent
● Mutual restitution of the benefits received is required. Prescriptive period: 10 years schemes
In rescission Definition
● GR: To rescind a contract is not merely to terminate it, but to abrogate and undo ● Payment is the satisfaction or fulfillment of a prestation that is due, resulting in the
it from the beginning. extinguishment of the obligation of the debtor.
● Mutual restitution is required.
○ If one cannot give back, cannot exercise. Kinds of Payment
1. Voluntary - when the debtor willingly pays in money or performs the prestation
Due process → no deprivation of rights without following reqs under the law stipulated.
● Notified and opportunity to be heard 2. Involuntary - when the debtor is forced to deliver or perform by order of the court.
Substantial breach
Requisites of Valid Payment
● The only party who may invoke resolution is the injured/aggrieved party.
1. Capacity of the person paying
● Reciprocal or not, any party can exercise (1191 v 1381)
2. Capacity of the person receiving the payment
○ In 1191: reciprocal: inherent even if not stipulated 3. Delivery of the full amount or the full performance of the prestation
4. Propriety of the time, place, and manner of payment
Specific Performance 5. Acceptance of the payment by the creditor
Necessity of Judicial Approval (Heirs of JBL Reyes v. CA)
● In SP, there is always a need for judicial action if other party refuses to make the
delivery of the thing promised.
● In rescission, if there is an express stipulation of automatic rescission without Article 1233. A debt shall not be understood to have been paid unless the thing or service
need of judicial action, rescission is authorized without court intervention. in which the obligation consists has been completely delivered or rendered, as the case
may be.
Rationale Article 1235. When the obligee accepts the performance, knowing its incompleteness or
● In case of substantial compliance of the obligation, the obligee is benefited. So the irregularity, and without expressing any protest or objection, the obligation is deemed
obligor should be allowed to recover as if there had been a strict and complete fully complied with.
performance.
● There is substantial compliance by the debtor when in good faith, he has attempted Reason
to perform the contract or prestation, but through excusable neglect, failed to make a ● Although the obligation is not completely executed, the same is deemed fully
full and complete performance. fulfilled or performed because the obligee is placed under estoppel in accepting the
● The omission or defect contemplated in the article must be slight and unimportant. It payment or performance with actual knowledge of its incompleteness or irregularity.
must not be so material as to frustrate the accomplishment of the intended work. ● He has waived his right to question the defect when he made the acceptance without
● There must also be no willful or intentional deviation from the contract. any protest or objection thereto.
● Having received the benefits of the substantial compliance, the creditor cannot
require the performance of the unperformed portion of the obligation as a condition Example:
precedent to the payment of his own liability. ● Owner accepted and occupied a newly constructed house without protest. This
● Right to rescind cannot be availed of when there is substantial performance. would amount to an acknowledgement of the performance of the work by the
contractor. He is also estopped from setting up the claim that the material used in the
Case: construction of said house was not in accordance with the plans and specifications.
Angeles vs. Unilateral cancellation is unwarranted if there is only a slight or casual “Accept” - meaning
Calasanz breach on the fulfillment of the obligation. Apart from the initial down ● “Accept” means to take as “satisfactory or sufficient,” or to give assent or to agree
payment of 392 pesos, Calasanz received and accepted the aggregate or to accede to an incomplete performance.
amount of 4,533 pesos. Angeles have paid the monthly installments for 9 ● The law does not require the creditor to protest or object in a particular manner or at
years and full payment will be made in such a short time, thus not a particular time, so long as the acts of the creditor at the time of the payment or a
amounting to a substantial breach thereof. Courts should only order the reasonable time thereafter, shows that he is not satisfied with the said payment or
payment of the few remaining installments but not uphold the cancellation performance. If this is the case, obligation is not extinguished.
of the contract. ● When by the acts of the creditor himself caused the appearance of the defects in the
performance, he is estopped from objecting to the performance.
Pagsibigan Aside from the fact that the respondent bank was estopped from enforcing
Effect of Payment by and to Third Persons
vs. CA its right to foreclose by virtue of its acceptance of the delayed payments for
a period of more than six years, the application of such payment to the Article 1236. The creditor is not bound to accept payment or performance by a third
interest and the principal during the first three payments constitutes a virtual person who has no interest in the fulfillment of the obligation, unless there is a
waiver of the acceleration clause provided in the contract. We cannot stipulation to the contrary.
sustain the legality of the foreclosure under the peculiar facts of this
Refers to the very credit itself, that is, the Refers merely to the document representing
No payment or delivery of a different thing:
monetary prestation. or evidencing the credit.
● General Rule: Creditor shall be paid ONLY that has been stipulated upon because
the contract between the parties is the law between them. This applies even if the
In true possession of credit there must be an Ex: If a document which is payable to order thing offered is worth more than the thing agreed to.
actual and legal relation between the credit or to a definite person is in the possession of ● However, it is the compulsion which is barred. If the creditor consents, his
and the possessor of the document. someone but without any indorsement, the acceptance of the substitute extinguishes the obligation. This happens in novation,
possession is not of the credit but only of and also in dacion en pago.
Ex: An instrument payable to bearer is held the title, and payment to the holder is not a ● The same applies to obligations to do and not to do.
by the person to whom it is intended. This is valid payment
true possession of credit. Arts. 1246-1251
Article 1246. When the obligation consists in the delivery of an indeterminate or generic
Article 1243. Payment made to the creditor by the debtor after the latter has been judicially thing, whose quality and circumstances have not been stated, the creditor cannot
ordered to retain the debt shall not be valid. 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.
Applicability:
● The article applies to debts or credits and not to property.
● Properties are attached, while a credit on the other hand is garnished. Rule in Delivering Indeterminate or Generic Things:
● The law contemplates a situation where the debtor had been sued by his creditor and ● When the quality and circumstances of an indeterminate or generic thing supposed
a writ of garnishment was issued by the court enforced against another person who to be delivered had not been stated, only the “ordinary” kind or category of said
is the debtor of the defendant- debtor. The debtor of the defendant-debtor, who was thing should be delivered.
served the notice of garnishment, should not pay the credit garnished to the ● For example, if the obligation consists in delivering a car of a particular brand (latest
defendant-debtor because that credit is now subject to the outcome of the case and is model), and there are three kinds of that brand with different costs, the one to be
earmarked for the plaintiff-creditor in case of victory. By the garnishment, the delivered is the second most powerful in the row.
stranger becomes a forced intervenor. The garnished credit is deemed in custodia
legis. If the forced intervenor violates the writ of garnishment by paying the
CIVREV C2022 COMPILATION - DBN & MKG | SBM SYLLABUS | 54
● The purpose and other circumstances shall be considered. Thus, in the example
earlier, if the purpose is to secure the most powerful to be used in a race, then the car connote payment of fees in installments? The meaning of the proviso
with the superior quality should be delivered. only connotes that the heirs will pay at different times but does not
● The law speaks of quality. Quantity is not mentioned. The reason is because if both connote that of a separate payment in installments. The creditor cannot be
quantity and quality are not determined, then the contact is considered void (Art. compelled to partially receive the prestations in which the obligations
1349 and 1409) consist unless there is an express stipulation to that effect.
Article 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the Currency of Payment:
payment shall be for the account of the debtor. With regard to judicial costs, the Rules of Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if
Court shall govern. it is not possible to deliver such currency, then in the currency which is legal tender in the
Philippines. (This portion has been repealed)
Note:
● If there is no agreement regarding extrajudicial expenses, debtor shall bear the All monetary obligations shall be settled in the Philippine currency which is the legal
expenses because he is the one principally benefited as he is freed from the tender in the Philippines. However, parties may agree that the obligation or transaction
obligation by reason of the payment. shall be settled in any other currency at the time of payment. (new provision)
Effects of Partial Payment The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
Article 1248. Unless there is an express stipulation to that effect, the creditor cannot be through the fault of the creditor they have been impaired.
compelled partially to receive the prestations in which the obligation consists. Neither may
the debtor be required to make partial payments. In the meantime, the action derived from the original obligation shall be held in the
abeyance.
However, when the debt is in part liquidated and in part unliquidated, the creditor may
demand and the debtor may effect the payment of the former without waiting for the
liquidation of the latter. RA 529, RA 8183
RA 529 (this is amended my RA 8183): Every provision contained in, or made with
Partial Performance can be Refused: respect to, any obligation which provision purports to give the obligee the right to require
payment in gold or in a particular kind of coin or currency other than Philippine currency
● The debtor cannot make a partial payment or partial performance to the creditor
or in an amount of money of the Philippines measured thereby, be as it is hereby declared
unless there is an express agreement to that effect. The creditor therefore can refuse
against public policy, and null, void and of no effect, and no such provision shall be
partial payment or performance. Conversely, the debtor cannot be compelled to
contained in, or made with respect to, any obligation hereafter incurred. Every obligation
make partial payments if he is ready to make a full payment.
heretofore or hereafter incurred, whether or not any such provision as to payment is
● The reason behind this is that a debt is not understood to have been paid unless the
contained therein or made with respect thereto, shall be discharged upon payment in any
thing or service in which the obligation consists has been completely delivered or
coin or currency which at the time of payment is legal tender for public and private debts:
rendered as the case may be.
Provided, That, if the obligation was incurred prior to the enactment of this Act and
○ Example: A obligated himself to finish the construction of the house of B
required payment in a particular kind of coin or currency other than Philippine currency, it
with 7 bedrooms in a period of 8 months. A cannot compel B to receive
shall be discharged in Philippine currency measured at the prevailing rates of exchange at
the house where only 4 bedrooms had been finished, unless B agrees.
the time the obligation was incurred, except in case of a loan made in a foreign currency
● When the prestation is partly liquidated and partly unliquidated, the creditor may
stipulated to be payable in the same currency in which case the rate of exchange prevailing
demand the fulfillment of the liquidated portion, without waiting for the liquidation
at the time of the stipulated date of payment shall prevail. All coin and currency, including
of the unliquidated portion.
Central Bank notes, heretofore or hereafter issued and declared by the Government of the
○ Example: A borrowed money 100 pesos from B with interests based on
Philippines shall be legal tender for all debts, public and private.
the prevailing bank rates. The loan matured after one year. B can collect
the 100 pesos which is liquidated without waiting for the liquidation of the
RA 8183 (the new rule) - An Act Repealing RA. No 529 As Amended, Entitled “An Act
interests which have yet to be computed and determined.
To Assure the Uniform Value of Philippine Coin and Currency”: All monetary
obligations shall be settled in the Philippine currency which is legal tender in the
Nasser v. Did the clause “upon full payment of the corresponding liability of Philippines. However, the parties may agree that the obligation or transaction shall be
Cuevas party the lien on his/her share is extinguished” in the agreement settled in any other currency at the time of payment.
Applicability:
● Applies only to contractual obligations. Velasco v. It can be seen from the employment of the words “extraordinary inflation
● Applies only if there is an extraordinary inflation or deflation of the currency Meralco or deflation of the currency stipulated” that the legal rule envisions
stipulated, and when there is an official pronouncement or declaration of the contractual obligations where a specific currency is selected by the parties
existence of an extraordinary inflation or deflation. as the medium of payment; hence it is inapplicable to obligations arising
● As a declaration by the competent authorities is needed, extraordinary inflation or from tort and not from contract, as in the case at bar.
deflation cannot be presumed.
● If the inflation or deflation is just ordinary, that is, it is a universal trend which did
not spare the country, Article 1250 will not apply.
CIVREV C2022 COMPILATION - DBN & MKG | SBM SYLLABUS | 57
a. If the undertaking is to deliver a determinate thing, place of payment is
Filipino Pipe Extraordinary inflation exists "when there is a decrease or increase in the where the thing might be at the time the obligation was constituted.
Foundry vs. purchasing powerof the Philippine currency which is unusual or beyond b. In other cases, such as to deliver a generic thing or to perform a specific
NAWASA the common fluctuation in the value said currency, and such decrease or service, payment shall be made at the domicile of the debtor.
increase could not have reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the establishment of the Effect of Debtor’s Change of Domicile:
obligation. ● If done in bad faith or after having been in delay, additional expenses incurred by the
collecting party shall be borne by the debtor.
Example of extraordinary inflation: More recently, in the 1920's Germany ● These additional expenses do not cover the regular expenses incurred in going to the
experienced a case of hyperinflation. In early 1921, the value of the original place of the debtor.
German mark was 4.2 to the U.S. dollar. By May of the same year, it had ● If changing of domicile is done in good faith, such as for security reasons or for
stumbled to 62 to the U.S. dollar. And as prices went up rapidly, so that by being appointed as an officer in another place, the debtor will not be liable for
October 1923, it had reached 4.2 trillion to the U.S. dollar. additional expenses.
Gonzalo Thus, there is a difference between par value and rate of exchange: the first Note: In case of conflict between the parties’ stipulation on the place of payment and the rules
Maluel Co. is defined by law, and (as in the case of the peso) is based upon its gold on venue provided under the Rules of Court, the latter shall prevail.
vs. Central content. The second is conditioned by prevailing economic factors which
Bank bear upon the demand for a particular currency and its availability in the EXTINGUISHMENT: SPECIAL FORMS OF PAYMENT
market.
The par value of the peso is defined in the Central Bank Act, which is Special forms of payment:
seven and thirteen- twenty first (7-13/21) grains of gold, nineteenth 1. Dation in Payment
(0.900) fine. If the resolutions were meant to change the par value of the 2. Payment by Cession or Assignment
peso, they were null and void for not having complied with the requisites
under the said act, which provides that any modification in the gold or
DATION IN PAYMENT - Art. 1245
dollar value of the peso shall be made only by the President upon the
proposal of the Monetary Board and with the approval of Congress and the
proposal of the Monetary Board shall require the concurrence of at least ARTICLE 1245. Dation in payment, whereby property is alienated to the creditor in
five of the members. satisfaction of a debt in money, shall be governed by the law of sales. (n)
Concept:
Article 1251. Payment shall be made in the place designated in the obligation.
● Dation in payment or dacion en pago is the alienation by the debtor of a particular
property in favor of his creditor, with the latter’s consent, for the satisfaction of the
There being no express stipulation and if the undertaking is to deliver a determinate thing,
former’s money obligation to the latter, with the effect of extinguishing the money
the payment shall be made wherever the thing might be at the moment the obligation was
obligation.
constituted.
● Dation in payment is a form of novation in which there is a change in the object
involved in the original contract.
In any other case the place of payment shall be the domicile of the debtor.
● The thing offered as an accepted equivalent of the performance of the obligation is
considered as the object of the contract of sale, while the pre-existing debt is
If the debtor changes his domicile in bad faith or after he has incurred in delay, the
considered as the purchase price.
additional expenses shall be borne by him.
● Dation in payment extinguishes the whole obligation, unless otherwise provided by
the parties.
These provisions are without prejudice to venue under the Rules of Court.
● Example: A owes B. A could not pay his money obligations to B. A offered a
property as payment for his money obligations. If B agrees, there is dacion en pago.
Venue of Payment:
1. If there is a specific place designated, that place is where payment shall be made.
Elements of Dation in Payment:
2. If there is no agreement on where payment shall be made, the following rules shall
apply:
1. Existence of a money obligation
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2. Alienation to the creditor of a property by the debtor with the consent of the Caltex and held that the Deed of Assignment was not a dation in payment.
former
3. Satisfaction of the money obligation of the debtor LDB v. A dacion en pago is governed by the law of sales. Contracts of sale come
Enriquez with warranties, either express (if explicitly stipulated by the parties) or
implied (under Article 1547 et seq. of the Civil Code). In this case,
● Since the law on sales governs, the creditor is deemed as the vendee and the debtor
however, the BANK does not even point to any breach of warranty by
as the vendor.
DELTA in connection with the Dation in Payment. To be sure, the Dation in
● The reason why law on sale governs is because the undertaking really partakes the
Payment has no express warranties relating to existing contracts to sell over
nature of a sale. The creditor is really buying the thing or property of the debtor,
the assigned properties. As to the implied warranty in case of eviction, it is
payment or which is to be charged against the debtor’s debt.
waivable and cannot be invoked if the buyer knew of the risks or danger of
● Adjudicacion en pago and datio in solutum are legal terms synonymous with dacio
eviction and assumed its consequences.
en pago.
Tan Shuy Dation in payment extinguishes the obligation to the extent of the value of
Basis Dacion en pago Sale vs. Spouses the thing delivered, either as agreed upon by the parties or as may be
Maulawin proved, unless the parties by agreement – express or implied, or by their
Existence of There is a pre-existing credit. There is no pre-existing silence – consider the thing as equivalent to the obligation, in which case
pre-existing credit. the obligation is totally extinguished.
credit
Application of Payments - Arts. 1252-1254, 1248
Effect It extinguishes the obligation completely or It gives rise to obligations,
partially depending upon the agreement of to deliver on the part of the ARTICLE 1252. He who has various debts of the same kind in favor of one and the same
the parties. seller and to pay on the creditor, may declare at the time of making the payment, to which of them the same must
part of the buyer. be applied. Unless the parties so stipulate, or when the application of payment is made by
the party for whose benefit the term has been constituted, application shall not be made as
Cause or From the viewpoint of the creditor, the From the viewpoint of the to debts which are not yet due.
consideration cause is the acquisition of the object buyer, the cause is the
offered as payment; from the viewpoint of object; from the viewpoint If the debtor accepts from the creditor a receipt in which an application of the payment is
the debtor, the cause is the extinguishment of the seller, the cause is made, the former cannot complain of the same, unless there is a cause for invalidating the
of his debt. the price. contract.
Freedom to There is less freedom to bargain in the There is greater freedom in Application of Payments Defined:
bargain determination of the price because if the the determination of the ● Application of payments is the designation of the particular debt being paid by the
creditor refuses, the debtor will suffer price as the parties stand debtor who has 2 or more debts or obligations of the same kind in favor of the same
more. The debtor is forced to yield to the on equal footing at the creditor to whom the payment is made.
dictates of the creditor to save himself from bargaining table.
more inconvenience and embarrassment.
Right to Make Application of Payments Belongs Primarily to the Debtor:
Cases:
a. Debtor has the right to choose which debt of the several debts due shall be paid.
Caltex vs. After the execution of the Deed of Assignment, petitioner continued to b. Designation of the debt to which payment shall be made must be made at the
IAC charge respondent with interest on its overdue account. This was pursuant moment of payment.
to the Deed of Assignment which provides for respondent's obligation for c. If the debtor fails to exercise such right, the creditor may exercise it by issuing a
"applicable interest charges on overdue account." The charges for interest receipt wherein the debt paid is indicated. If the debtor accepts the receipt without
were made every month and not once did respondent question or take objection, payment is deemed applied to the debt indicated in the receipt.
exception to the interest. The foregoing subsequent acts of the parties d. If the assent or the acceptance of the receipt by the debtor is tainted with fraud,
clearly show that they did not intend the Deed of Assignment to have the intimidation, violence, or undue pressure, the application of payment shall be
effect of totally extinguishing the obligations. The Court rules in favor of invalid.
e. If both do not exercise the right, or if the application is void, Articles 1253 and
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1254 shall apply. make partial payment for the bigger debt unless there is an agreement to the
f. By mutual agreement, application of payment already made may be changed, contrary. (Art. 1248)
unless a third person is adversely affected. i.e., when payment is applied to a debt
for the release of a mortgage, and subsequently, a third party caused the
inscription of a lien over the property which was just released. Changing such Not Applicable to a Surety:
application of payment would then adversely affect the third party. ● Articles 1252 to 1254 do not apply to a person whose obligation as a mere surety is
both contingent and singular. His liability is confined to such obligation.
● He is entitled to have all payments applied exclusively to said obligation and to no
other.
Requisites for a Valid Application of Payment by the Debtor:
1. There is only one debtor and one creditor. ARTICLE 1253. If the debt produces interest, payment of the principal shall not be
2. The debtor owes the creditor two or more debts which are of the same kind or deemed to have been made until the interests have been covered.
identical specie such as money obligations obtained on different dates.
3. All the debts are due and demandable, except when there is a stipulation to the
Article is Directory and not Mandatory:
contrary or when the application is made by the party for whose benefit the term
● The Supreme Court has ruled that this article applies only if there is no verbal or
has been constituted.
written agreement to the contrary; this means that the article is merely directory and
4. The payment made by the debtor is not sufficient to cover or settle all the debts.
not mandatory.
Requisites for a Valid Application of Payment by the Creditor: ARTICLE 1254. When the payment cannot be applied in accordance with the preceding
rules, or if application can not be inferred from other circumstances, the debt which is most
1. The debtor did not make any designation on which debt should be paid when he onerous to the debtor, among those due, shall be deemed to have been satisfied.
made the payment.
2. The creditor issued a receipt expressing the application of the payment to a If the debts due are of the same nature and burden, the payment shall be applied to all of
particular debt. them proportionately.
3. The debtor assented to the application made by the creditor by accepting the
receipt w/o objections. Applicability
● Applies only in the following circumstances:
Contract means Assent in the Last Paragraph: a. When application of payment cannot be made in accordance with Art.
● In the last paragraph, the term ‘contract’ was used. It actually refers to the assent 1252 and 1253, or
given by the debtor in accepting the receipt. It must be noted that the debtor may or b. The application of payment cannot be inferred from other circumstances.
may not accept the receipt where the application is made. When the debtor rejects ● The rule to follow is then is that the debt which is the most onerous to the debtor
such application, Article 1254 will apply. shall be deemed to have been satisfied.
● If the debts happen to be of the same nature and burden, the payment shall be
applied to all proportionately.
Limitations on the Right of the Debtor to Choose the Debt to be Paid:
Onerous Debt Defined:
1. Debtor cannot apply payment to a debt not yet liquidated or due, unless there is a ● An onerous debts is one with a burden. i.e., a loan secured with a mortgage. The
contrary stipulation or he is the one given the benefit of the period or term. mortgage is a burden.
2. If creditor is given the benefit of the period or term, application of payment ● A contract is onerous when it has responsibilities or obligations which outweigh its
cannot be made by the debtor. advantages.
3. If there is an agreement as to which debts shall be paid first, debtor cannot change ● Determining the most burdensome debt is a question of fact and must be resolved on
it without consent of the creditor. the basis of the surrounding circumstances.
4. If there is a principal obligation which bears interests, the debtor cannot pay the
interests without first paying the principal (Article 1253)
5. A debtor cannot choose to pay a bigger debt partially when the payment can be Guides in Determining Which Debt is More Onerous:
applied as full payment to a smaller debt. The reason is that he is not allowed to
Financial Debtor is necessarily in a state of Debtor is not necessarily in a state of ARTICLE 1258. Consignation shall be made by depositing the things due at the disposal
Condition insolvency insolvency of judicial authority, before whom the tender of payment shall be proved, in a proper case,
of Debtor and the announcement of the consignation in other cases.
Effect Ownership is not transferred to the Ownership is transferred to the The consignation having been made, the interested parties shall also be notified thereof.
creditors creditor upon delivery
Concept of Tender of Payment and Consignation:
Novation It is not an act of novation of the It is an act of novation of the ● Tender of payment – is the voluntary act of the debtor whereby he offers to the
contract contract creditor for acceptance the immediate performance of the former’s obligation to the
latter.
Tender of Payment and Consignation - Arts. 1256-1261 ● Consignation – is the act of depositing the object of the obligation with the court or
competent authority after the creditor has unjustifiably refused to accept the same or
ARTICLE 1256. If the creditor to whom tender of payment has been made refuses without is not in a position to accept it due to certain reasons or circumstances.
just cause to accept it, the debtor shall be released from responsibility by the consignation ● Tender of payment is an antecedent of consignation, it is a preliminary act for the
of the thing or sum due. consummation of consignation. Consignation generally requires tender of payment,
subject to exceptions provided in the second paragraph of Article 1256.
Consignation alone shall produce the same effect in the following cases: [TENDER OF ● Before the consignation has been accepted by the creditor or before it has been
PAYMENT NOT NECESSARY] judicially declared as properly made, the debtor is still the owner of the thing or
1. When the creditor is absent or unknown, or does not appear at the place of amount deposited. Other parties have no right to oppose the withdrawal of such
payment; thing or amount.
2. When he is incapacitated to receive the payment at the time it is due;
3. When, without just cause, he refuses to give a receipt;
4. When two or more persons claim the same right to collect; Requisites of Consignation and their explanations:
5. When the title of the obligation has been lost.
1. There is an existing valid debt which is already due
○ Tender of payment not yet due may be refused by the creditor.
Presence of Creditor-Debtor Relationship is Required: ○ When there is no debt due, deposit of the thing with the court is not
● If there is no creditor-debtor relationship, consignation cannot apply. necessary.
● The debtor must be willing to pay or deliver, but the creditor unjustifiably refuses to
accept. 2. There is a prior valid tender of payment to the creditor (except when tender
● To shield himself from responsibility, debtor should make a tender of payment, is dispensable)
which if refused, should be followed by a complaint for consignation. ○ The tender of payment must be a valid one to be an effective antecedent
● The second paragraph lists situations when tender is dispensable. of consignation; Reqs:
i. Made before the act of consignation
ARTICLE 1257. In order that the consignation of the thing due may release the obligor, it ii. Unconditional
must first be announced to the persons interested in the fulfillment of the obligation. iii. Full amount including interests due must have been offered in
legal tender
The consignation shall be ineffectual if it is not made strictly in consonance with the ○ Mere sending of letters expressing intent to pay without any payment is
provisions which regulate payment. not a valid tender of payment.
○ Tender made must be proved by evidence. A formal complaint must be
commenced before the trial court to provide the proper venue for the
Consignation must first be Announced to the Creditor: determination if there is a valid tender of payment.
ARTICLE 1269. The obligation having been extinguished by the loss of the thing, the
creditor shall have all the rights of action which the debtor may have against third persons Rules on Payment
by reason of the loss. 1. Integrity of Payment
2. Made by the proper person
3. Capacity to make the payment of proper person
Consequences of Extinguishment By Loss: 4. It has to be made to the proper person
● There shall be a sort of subrogation whereby the creditor shall have all the rights of 5. Creditor has legal capacity to accept payment
action which the debtor may have against third persons by reason of the loss.
● The transfer of rights is by operation of law starting from the moment of
extinguishment of the obligation. i.e., thing due is insured by the debtor, but then it Rule No. 1 on Payment: Integrity of Payment
got lost due to reasons allowable by under the policy. The creditor can collect the ● Integrity of payment - the performance or the thing itself must be strictly
insurance indemnity from the insurer. complied. If it was agreed upon and the thing imposed by law → the debtor may
● Example: when the thing due is expropriated, the creditor can collect the compel the creditor to accept the payment. If the compliance is full, the creditor
compensation paid by the authorities for the taking of the property for public use. refuses → REMEDY: still payment (consignation). It must be complete.
● Example: S is obliged to deliver his car to B. But X destroys the car. B has a right to ○ If not strictly complied, if only substantial compliance → the thing
sue X. The right is given to B instead of S because otherwise S would unduly profit itself is not really delivered as agreed upon, the creditor has the right to
in that he will gain two things: first, his obligation to give the car or its value is refuse payment. Even if consignated, it is not valid since it is not what
is agreed upon.
CIVREV C2022 COMPILATION - DBN & MKG | SBM SYLLABUS | 68
○ If partial, the creditor cannot be compelled to accept partial payment ● Aside from creditor, you can have a:
unless there is stipulation to the contrary or it is partially liquidated or 1. successor-in-interest, or
partially unliquidated. 2. person authorized to receive such payment, or
3. person in possession of a particular credit.
XPNs on Integrity of Payment: ● GR: pay only to CR, successor in interest, person with the credit.
● The moment the thing is delivered completely and accepted by the creditor, the
moment the service is fully performed and accepted by the creditor, it is the point If payment is made to 3rd party
in time when obligation is extinguished. ● GR: Payment is not valid.
● XPNs: ○ XPN: Payment to the wrong person can still be valid if it is redounded
1. Substantial compliance - omission must be slight, not technical, to the benefit of the creditor.
unimportant. The performance must be in good faith. Incomplete
performance is due to excusable neglect. There was an honest to Rule No. 5: CR has the legal capacity to accept payment
goodness effort to extinguish the obligation by payment but it was not ● Payment to incapacitated person - payment is not valid
fully satisfied. ○ XPN: Can be valid if the person kept the thing and it became beneficial
2. Waiver of the balance - the acceptance does not result to the to him. It has the effect of extinguishing the obligation.
extinguishment of the obligation, unless the creditor waived his right
on the balance. If the creditor accepted as if it is full, then the _________________________________________________________________________
obligation is extinguished.
Requisites of Valid Payment
Rule No. 2: Made by the proper person (DR) 1. Delivery of the full amount or the full performance of the prestation
● There is juridical tie between debtor and creditor and debtor has obligation to 2. Capacity of the person paying
deliver a thing agreed upon. Usually, the creditor accepts and the obligation is 3. Capacity of the person receiving payment
extinguished. Proper person may be: 4. Propriety of the time, place, and manner of payment
1. Debtor, 5. Acceptance of the payment of the CR
2. Third person authorized by the parties,
3. Person who has an interest in the payment of the obligation → Take Notes:
note of the differences between third person and a person interested in ● Req 1 → integrity of payment
the fulfillment of the obligation ● Reqs 2 and 3 → capacity; you should know what affects legal capacity (age,
● What if done by a third party? The creditor cannot be compelled to accept the periods of hypnoticness, drunkenness, insanity)
payment of the 3rd party. If he accepts, it is valid and the obligation of the debtor ● Req 4 → where and how
is extinguished. ● Req 5 → delivery and acceptance
Rule No. 3: Capacity to make the payment of the proper person (DR) Payment
● What affects capacity? In Persons, when you have a legal impediment to enter ● Payment is the fulfillment or delivery of the prestation.
into contracts, if you do not have the free disposal of the thing due and capacity ● GR: CR shall be paid on what is only agreed upon. DR cannot compel the CR to
to alienate it, the performance of such prestation is considered as void. Even if accept other things.
you are the proper person who is paying. Creditors can refuse. ○ XPN: But if CR consents, the same will extinguish the obligation.
○ If creditor accepts, he bears the risk of accepting from a person who is Happens in novation or dacion en pago.
not capacitated to pay. Here, payment will be valid and obligation is ● Art. 1246 → talks about quality. Quantity not mentioned because if both not
extinguished. determined, contract is void.
○ If the payor is not capacitated, the creditor cannot accept payment. If ○ Quality → based on what is agreed upon by the parties (no compulsion
the creditor refuses, the debtor will try to make that consignment, for something more or less)
which will have no effect because he has no legal capacity.
HOWEVER, if the creditor accepts, payment is valid. How?
○ If there is payment, even if debtor is incapacitated, obligation is ● If monetary obligation → by delivery of the money; amount must be paid in full,
extinguished, payment is valid. unless otherwise stipulated in the contract
● To Give → by delivery of the thing
Rule No. 4: It has to be made to the proper person ● To do → by performance of the said personal undertaking
Consignation (check discussion above) DRILL Q: BAR QUESTION (2000) FORCE MAJEURE
Kristina brought her diamond ring to a jewelry shop for cleaning. The jewelry shop
Extraordinary Inflation/Deflation undertook to return the ring by February 1, 1999." When the said date arrived, the jewelry
1. There must be a BSP proclamation of the existence of the extraordinary inflation shop informed Kristina that the Job was not yet finished. They asked her to return five days
or deflation. later. On February 6, 1999, Kristina went to the shop to claim the ring, but she was
2. There must be a contractual obligation. informed that the same was stolen by a thief who entered the shop the night before. Kristina
3. Parties recognize the effects of the extraordinary inflation or deflation. filed an action for damages against the jewelry shop which put up the defense of force
4. Authorities must establish that the inflation/deflation must be majeure. Will the action prosper or not?
EXTRAORDINARY.
Jewelry shop is in delay (on Feb 1, 1999)
Student Q: Gcash payment There is loss, there is force majeure, and there is breach. Breach in obligation here is delay.
● If made electronically, it is not considered legal tender. It has to be in cash. Before Kristina can have a proper action for damages, she has first to establish that the
● Under e-commerce law, that currency in the form of electronic transmission is defense of force majeure is inapplicable. Delay is irrelevant here. It should be expressly
considered as legal tender. provided that there is a demand
● When a check is credited to the account of the creditor, it was considered as legal
tender, there being no objection on the part of the creditor. - For sir, you can use Requisites in order for debtor may be in default:
it by analogy but sir will look for the particular provision in E-commerce. 1. Obligation demandable and already liquidated
Currency transferred electronically should be considered as legal tender. 2. Debtor delays performance
Can we not argue that there is no contravention because there is already extension of Article 749. In order that the donation of an immovable may be valid, it must be made in a
term. Cr was informed and she went 5 days after which is an extension? public document, specifying therein the property donated and the value of the charges
Sir: You can answer that there is novation. Kristina consented impliedly. FE is not which the donee must satisfy.
available as there was already a breach of obligation.
● That would be a good answer if the q says that Kristina agrees to return to shop 5 The acceptance may be made in the same deed of donation or in a separate public
years after. There is express consent, so no more breach of obligation. document, but it shall not take effect unless it is done during the lifetime of the donor.
● Suggested answer: There was already entitlement to damages because the
obligor is already in delay. (UP suggested answer) If the acceptance is made in a separate instrument, the donor shall be notified thereof in an
authentic form, and this step shall be noted in both instruments. (633)
EXTINGUISHMENT 3: CONDONATION ● When the condonation is express, it is not enough that it be in writing.
● It must follow the formalities required of ordinary donations provided in Articles
Condonation or remission of the debt (Arts. 1270-1274, 748, 749) 748 and 749.
Article 1270. Condonation or remission is essentially gratuitous, and requires the ● When the condonation is oral and involves movable things, the same need not
acceptance by the obligor. It may be made expressly or impliedly. follow the formalities.
● There is no need for delivery anymore because the thing is already in the possession
One and the other kind shall be subject to the rules which govern inofficious donations. of the debtor.
Express condonation shall, furthermore, comply with the forms of donation. (1187) ● When the express condonation is defective for failure to follow the form of ordinary
contracts, it does not become an implied condonation with valid effect.
Acceptance By Debtor Required: Applicability and Coverage, Private Document Evidencing a Credit:
Article 745. The donee must accept the donation personally, or through an authorized ● Applies only to private documents evidencing credits like a private promissory note.
person with a special power for the purpose, or with a general and sufficient power; ● Cannot apply to public instruments evidencing credits because such instruments
otherwise, the donation shall be void. (630) ordinarily have other copies in the hands of the Notary Public who had notarized
them.
Article 746. Acceptance must be made during the lifetime of the donor and of the donee. (n)
Implied Renunciation of Action:
● Condonation is a donation of an existing credit in favor of the debtor. ● It is implied that the action for the enforcement of the debt had been renounced or
● As the liberality of a person cannot just be imposed upon another, it is required that remitted by the creditor when he voluntarily delivered to the debtor the private
the debtor gives his consent thereto by making an acceptance. document of credit.
● Condonation or remission is not a unilateral act. It is a bilateral act. ● The law does not state specifically the remission of the credit. The credit has not yet
● No acceptance, no remission. prescribed. It merely states the implication of renunciation of the action which the
● When accepted, subject to the rules on donation. creditor has against the debtor.
● Article 745 and 746 must be complied with to make the acceptance effective and ● This is because if the debt itself had already been renounced, subsequent payment
valid. will be void. However, if only the right of action is renounced, and the debtor pays
even after the prescription of the action, the payment could not be recovered
Limitation on Condonation: anymore because it constitutes a performance of a natural obligation.
Article 750. The donation may comprehend all the present property of the donor, or part Defense of Debtor and His Heirs when Waiver of Action is Challenged:
thereof, provided he reserves, in full ownership or in usufruct, sufficient means for the ● If the remission is claimed to be inofficious – meaning, it is excessive as it cannot be
support of himself, and of all relatives who, at the time of the acceptance of the donation, totally covered by the disposable free portion of the estate of the deceased creditor,
are by law entitled to be supported by the donor. Without such reservation, the donation or that is revocation is sought under Articles 750, 752, 760, and 761, the law
shall be reduced in petition of any person affected. (634a) provides a defense for the debtor or his heirs.
● The defense is that “the delivery of the document was made in virtue of payment of
Article 751. Donations cannot comprehend future property. By future property is the debt.”
understood anything which the donor cannot dispose of at the time of the donation. (635) ● According to Pineda, there is an absurdity in the article if this defense is pursued,
particularly because there is a presumption of renunciation of the action in the first
Article 752. The provisions of article 750 notwithstanding, no person may give or receive, part of the article. This presumption is not being maintained if the defense proffered
by way of donation, more than he may give or receive by will. The donation shall be by the debtor is payment.
inofficious in all that it may exceed this limitation. (636) ● The solution to this absurdity is that if the debt had actually been paid, the debtor
● It is subject to the rule that it shall not be inofficious. must give up the presumption of renunciation in his favor. He might as well present
● The creditor must reserve sufficient means for his own support and of all relatives the proofs of payment rather than lean on a presumption of remission which is
who are entitled to be supported by him at the time of the acceptance of the rebuttable.
condonation or remission. (Articles 750 and 752) ● If the debtor has no receipts to prove payment, there will be two presumption
available: either presumption of payment, or the presumption of remission. If they
Subject to Revocation: are not rebutted, the action of the creditor shall fall.
● If the condonation or remission is excessive or inofficious, it may be totally revoked ● In the face of these two favorable presumptions, presumption of payment should be
or reduced depending on whether or not it is totally or only partially inofficious. stressed because there is greater reciprocity of interests in that presumption.
● The grounds for revocation are found in Articles 760, 761, and 765 of the Code.
Effect of the Remission of the Principal on the Accessory: Furthermore, write-off cannot be likened to a novation, since the obligations
● If the principal debt has been remitted, the accessory obligation is extinguished. of both parties have not been modified. When a write-off occurs, the actual
● The reasons is that the existence of the accessory obligation is dependent upon the worth of the asset is reflected in the books of accounts of the creditor, but
principal. the legal relationship between the creditor and the debtor still remains the
● The principle “accessory follows the principal” applies. same – the debtor continues to be liable to the creditor for the full extent of
● Example: Monica borrowed money from May, and Mikey guaranteed the payment the unpaid debt.
of the loan. May remitted the entire obligation of Monica. The guarantee of Mikey is
then also extinguished.
● On the other hand, if the accessory alone is extinguished by remission, the principal EXTiNGUISHMENT 4: CONFUSION
stays.
● Thus, if May remitted the guarantee of Mikey, the loan of Monica remains. Confusion or Merger of Rights (Arts. 1275-1277, 1215, 1217)
Article 1275. The obligation is extinguished from the time the characters of creditor and
Article 1274. It is presumed that the accessory obligation of pledge has been remitted when debtor are merged in the same person. (1192a)
the thing pledged, after its delivery to the creditor, is found in the possession of the debtor,
or of a third person who owns the thing.
Applicability: Cases:
● The article refers to two kinds of mergers: Merger in the person of the principal Sochayseng We must not lose sight of the provision of article 1192 of the Civil Code
debtor or creditor, and merger in the person of the guarantor. vs. Trujillo (1275 NCC): "Whenever the characters of creditor and debtor are merged
a. the guaranty is also extinguished because it is just an accessory obligation in the same person, the obligation is extinguished." As regards to the
to the principal. amount of P320, it is extinguished since it is to be paid out of the total
b. the principal obligation will not be extinguished because the efficacy of amount of property that now belongs to Paulina
the principal is not dependent upon the accessory obligation.
Yek Ton Lin After the steamship Yusingco had been sold for the execution of the
Illustration: vs. Court of judgment rendered in favor of Vicente Madrigal, the only right left to the
● Alyssa owes Kit 100 pesos. Kyrah was taken in as a guarantor. Kit assigned this Appeals Yek Tong Fire and Marine Insurance was to collect its mortgage credit
particular credit to Ira. Later, Ira assigned this credit to Alyssa. There is now a from the purchaser thereof at public auction, inasmuch as the rule is that
merger in the characters of the principal debtor and creditor. Thusly, the principal a mortgage directly and immediately subjects the property on which it is
obligation of Alyssa is extinguished which carries the extinguishment too of Kyrah’s imposed, whoever its possessor may be, to the fulfillment of the
obligation as guarantor. obligation for the security of which it was created; but it so happens that
● Continuing from the same scenario, if Ira assigned her credit to Kyrah, there is a it cannot take such steps now because it was the purchaser of the
merger of the credit in the person of the guarantor. Kyrah is thus released from the steamship Yusingco at public auction, and it was so with full knowledge
guaranty because of the merger of the credit in her person. However, the principal that it had a mortgage credit on said vessel.
obligation of Alyssa remains. So, Kyrah can collect from Alyssa the 100 pesos.
Thus, there is no need for Madrigal to turn over to Yek Tong Fire and
Article 1277. Confusion does not extinguish a joint obligation except as regards the share Marine Insurance the amount of money paid by him by the provincial
corresponding to the creditor or debtor in whom the two characters concur. (1194) sheriff from the proceeds of the sale of steamship Yusingco. The
obligation was extinguished by virtue of Confusion or Merger of Rights.
Joint Obligation not Extinguished by Confusion, Exception: Chittick vs. “When a party dies, the heirs of the deceased may be allowed to be
● Generally, the emergence of confusion in one principal debtor or creditor will not Court of substituted for the deceased without requiring the appointment of an
extinguish the joint obligation because the confusion is not definite and complete Appeals executor or administrator and the court may appoint a guardian for the
with regard to the entire obligation. A part of the obligation still remains minor heirs.” In the case at bar, the counsel of Muriel failed to notify the
outstanding. court instantly of Muriel’s death, therefore the substitution was
● However, the law allows the merger as a mode of extinguishing the obligation with INVALID.
respect only to the share corresponding to the debtor or creditor concerned, in whom
the two characters of debtor and creditor converge.
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When the characters of creditor and debtor are merged in the same
person, the obligation is extinguished by virtue of a merger. A He who made the payment may claim from his co-debtors only the share which
creditor (mortgagee) who eventually owns the property of a debtor corresponds to each, with the interest for the payment already made. If the payment is made
(mortgagor) is an example of such merger. before the debt is due, no interest for the intervening period may be demanded.
When one of the solidary debtors cannot, because of his insolvency, reimburse his share to
Article 1215. Novation, compensation, confusion or remission of the debt, made by any of the debtor paying the obligation, such share shall be borne by all his co-debtors, in
the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, proportion to the debt of each. (1145a)
without prejudice to the provisions of article 1219. Supra, Solidary Obligation.
The creditor who may have executed any of these acts, as well as he who collects the debt, EXTINGUISHMENT 5: COMPENSATION
shall be liable to the others for the share in the obligation corresponding to them. (1143)
Arts. 1278-1290, 1243, 1215
Novation Article 1278. Compensation shall take place when two persons, in their own right, are
● There is novation when obligations are modified by: creditors and debtors of each other. (1195)
1. Changing their Object or Principal Conditions
2. Substituting the person of the debtor
3. Subrogating a third person in the rights of the creditor (Art. 1291) Concept:
● It is the off-setting of the respective obligations of TWO persons who stand as
Compensation principal creditors and debtors of each other, with the effect of extinguishing their
● Takes place when two persons, in their own right, become creditors and debtors of obligations to their current amount.
each other. (Art. 1278)
Example: Samantha borrowed 100 pesos from Bettina, and Bettina borrowed 50 pesos from
Samantha. Samantha now only owes Bettina 50 pesos, by reason of compensation. Kinds:
As to origin:
Confusion 1. Conventional or Voluntary – By agreement of the parties
● Takes place when the characters of creditor and debtor are merged in the same 2. Legal – By operation of law from the time all requisites of compensation concur
person. (Art. 1275) 3. Judicial – By judgment of the court when there is a counterclaim duly pleaded, and
the compensation is decreed.
Remission 4. Facultative – Takes place when it is claimed by one of the parties who has the right
● Gratuitous abandonment by the creditor of his right. Acceptance by the obligor is to object to it, but waives his objection thereto such as when the object of litigation
necessary. (Art. 1270) of such party is with a period for his benefit alone, and he renounces the period to
make the obligation become due. i.e., Gem borrowed 100 pesos from Natasha
Effects of Execution of the Specified Four Modes of Extinguishing: payable within 3 years. Natasha borrowed money from Gem for the same amount. If
● These four modes are prejudicial to other solidary co-creditors, because said acts Gem will renounce the term, there will be immediate compensation.
have the effect of extinguishing the debt or obligation which is due to all of them.
● The co-creditors are not left without any recourse. The one who had collected the As to extent:
debt shall be liable for the shares corresponding to all his co-creditors. 1. Total – Takes place when both obligations are totally extinguished because they
● The remission made by a solidary co-creditor to one of the solidary debtors, does not happen to be the same amount, or by agreement of the parties.
release the latter from his responsibility towards the co-debtors, in case the debt had 2. Partial – Takes place when after the operation of compensation, a balance still
been totally paid by anyone of them before the remission was effected. (Art. 1219) remains because the obligations are not of the same amount.
● If there is no such previous payment, all the solidary debtors are released from the
obligation. The solidary debtor who accepted the remission cannot seek Distinguished from Payment:
reimbursement from his co-debtors. (Art. 1220)
Compensation Payment
Article 1217. Payment made by one of the solidary debtors extinguishes the obligation. If There can be partial extinguishment; The performance must be complete
two or more solidary debtors offer to pay, the creditor may choose which offer to accept. unless waived by the creditor.
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Takes place by operation of law without Payment involves delivery or action, while if stated.
simultaneous delivery. (legal) compensation. 3. The two debts are due.
4. Liquidated and demandable.
Compensation is simplified or abbreviate 5. No retention or controversy commenced by 3rd parties.
payment, because the two debts are
extinguished without requiring the transfer
Elaboration:
of money or property.
1. Principal creditor and debtor of each other.
● Relationship must be a principal one. Obligation to a guarantor is not a principal
debt.
Distinguished from Merger or Confusion: 2. Both are sums of money or consumable things of the same kind and same quality if
stated.
Compensation Merger/Confusion ● When the debts consist of things, it is necessary that the things are consumable
which must be understood as fungible and therefore susceptible of substitution.
There are at least two persons who stand as There is only one person involved who ● More than that they must be of the same kind, and if quality is stated, same quality.
principal creditors and debtors of each becomes the debtor and creditor. ● Compensation is not proper when one of the debts consists in civil liability arising
other. from a penal offense, as the satisfaction of such obligation is imperative.
3. The two debts are due.
There are two obligations; There is only one. ● Both are mature debts that is due for payment.
● The law does not require that the parties’ obligations be incurred at the same time,
Distinguished from Counterclaim: what it requires only is that the obligations be due and demandable.
● When an obligation is payable on demand, not yet due until there is a demand.
Compensation Counterclaim ● In voluntary compensation, parties may agree upon compensation of debts which are
not yet due.
Takes place by mere operation of law Must be pleaded as part of the answer 4. Liquidated and demandable.
● It is liquidate when its amount is clearly fixed, or if it is not specifically fixed, a
Counterclaim is judicial compensation. simple mathematical computation will determine its value.
● If the amount is not fixed because it is still the subject of dispute, it is unliquidated.
● Not enough that they are liquidated, they must also be demandable. A debt is
Article 1279. In order that compensation may be proper, it is necessary: demandable when it is not yet barred by prescription and it is not illegal or invalid.
1. That each one of the obligors be bound principally, and that he be at the same 5. No retention or controversy commenced by 3rd parties
time a principal creditor of the other; ● A debt or thing cannot be the subject of compensation if it is also the subject of a
2. That both debts consist in a sum of money, or if the things due are consumable, garnishment, or if the thing is placed under custodia legis.
they be of the same kind, and also of the same quality if the latter has been stated;
3. That the two debts be due; Insular There can be a valid set off. both Insular and Capital were principal
4. That they be liquidated and demandable; Investment creditors of the other over debts which consist of consumable things or a
5. That over neither of them there be any retention or controversy, commenced by vs. Capital sum of money, Capital may validly set-off its claims for undelivered
third persons and communicated in due time to the debtor. (1196) One treasury bills against that of Insular’s claims.
Requisites of Legal Compensation: Second requisite only requires that the thing be of the same kind and
● All the requisites must be present before compensation can be effectual. quality, COEC T-Bills and IITC T- Bills are both government securities
● Their right as such creditors, or obligations such as debtors, need not spring from and the tripartite agreement recognized the monetary value and treated
one and the same contract or transaction. them as sums of money.
Both debts are due and remained unsatisfied, the existence and amount
Requisites: (SBM: Memorize this) are determined, and there was no retention or controversy commenced by
1. Principal creditor and debtor of each other. third persons. Therefore, in the case at bar, there was indeed a valid legal
2. Both are sums of money or consumable things of the same kind and same quality set-off/compensation
Article 1281. Compensation may be total or partial. When the two debts are of the same Gullas vs. As a rule, a bank has a right to set off the deposits in its hands for the
amount, there is a total compensation. (n) PNB payment of any indebtedness to it on the part of a depositor. The
relationship existing between a depositor and a bank is that of a creditor
and debtor.
Total/Partial:
● Total or partial compensation applies to all the different kinds of compensation.
Ong vs. Each one of the obligor be bound principally and that he be at the same
● Total compensation results when the two debts are of the same amount. If they are of
Court of time a principal creditor of the other. Mariano Ong, the private respondent,
different amounts, compensation is total as regards the smaller debt, and partial only
Appeals is not a debtor of Fermin Ong, it is only the latter who is
with respect to the larger debt.
indebted to Mariano Ong. Both debts consist in the sum of money, or if the
things due are consumable, they be of the same kind and of the same
Article 1282. The parties may agree upon the compensation of debts which are not yet due. quality, if the latter had been stated. Debts in the case at bar do not both
consist in a sum of money nor are they of the same quality or of the
same kind.
Voluntary Compensation
● Art. 1282 is an exception to the general rule that only debts which are due and
Perez vs. There was no legal compensation since the bills were not yet due and
demandable can be compensated.
Court of demandable as of the date of their assignment by MOJICA to MEVER nor
● Parties must have the capacity to dispose of their credits which they compensate, Appeals as of the date of surrender to CONGENERIC; for it to exist, the two debts,
otherwise, there will be no compensation. among other requisites, must be due and demandable.
● The requisites mentioned in Art. 1279 do not apply. The only requisites are:
1. Each of the parties has the right to dispose of the credit he seeks to
Mialhe vs. Compensation could not take place in this case because petitioners’ claim
compensate, and
Manalili against Halili was still being the subject of court litigation. It is a
2. They agree to the mutual extinguishment of their credits.
requirement, for compensation to take place, that the amount involved be
Cases:
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certain and liquidated. the assignment. (1198a)
Dalton vs. The consignation made by Dalton is NOT VALID because it did not satisfy
Assignment of Debts Subject to Compensation:
FGR Realty the mandatory requirements of a valid consignation given in the NCC.
● When all the requisites of compensation are present, compensation takes effect
Dalton’s failure to notify the respondents regarding the consignation
automatically ipso jure whether the parties are aware of it or not.
rendered such INEFFECTIVE/VOID/NOT VALID .
● If after automatic compensation one of the debts is assigned to a third person, the
assignment is ineffective because there is nothing more to assign, except only the
excess amounts.
Other kinds of Compensation ● Insofar as the excess is concerned, the assignment to 3rd person with the consent of
debtor constitutes subrogation of a third person in the rights of the creditor (Art.
Article 1283. If one of the parties to a suit over an obligation has a claim for damages 1300)
against the other, the former may set it off by proving his right to said damages and the
amount thereof. (n) Exception to the General Rule on Compensation:
● If compensation had already taken place ipso jure, but the parties nevertheless agreed to
Judicial Compensation Based on Judgment: waive, or not to pursue their rights under Art. 1290, then the effects will be in accordance
● If a plaintiff filed a complaint against a defendant for collection of sum of money, with the ff:
and the defendant has a claim for damages, the claim for damages if properly 1. Assignment with consent of the debtor – Here, the debtor cannot avail himself
pleaded and proven by evidence, will be converted into a liquidated claim payable in against the assignee, of any defense of compensation which he might have against
money. the assignor. Exception: If at the time of assignment, the debtor has notified the
● When the adjudication of the court has become final and executory, assuming the assignor the he is reserving his right to the compensation.
plaintiff’s claim for collection is justified, there will be a compensation between the 2. Assignment made with knowledge but without the consent of the debtor –The
plaintiff’s claim as against the defendant’s claim for damages. debtor retains his right to invoke against the assignee, the compensation of his debts
● The compensation retroacts to the date of the filing of the pleading where which fell due prior to the assignment. Debts falling due after the assignment are not
compensation was alleged and claimed. included.
3. Assignment made without the knowledge of the debtor – The debtor is allowed
by law to set up the compensation of all credits of the creditor prior to the
Article 1284. When one or both debts are rescissible or voidable, they may be compensated assignment as well as subsequent ones until the time that the debtor learns of the
against each other before they are judicially rescinded or avoided. (n) assignment. The compensation is set up against the assignee – not against the old
creditor.
Effect of Subsequent Rescission:
● Until the debts are rescinded, they can be compensated against each other. Assignment under the Article is Different from Cession under Article 1255:
● If the debt is rescinded or annulled, the compensation is automatically cancelled and ● Article 1255 refers to cession or assignment of the property of the debtor to his
there shall be restitution of what each party had received before the rescission. creditors in payment of his debts. In the present article, the one assigning rights is
● If the prescriptive period for the rescission or annulment of the debts had already the creditor in favor of a third person who need not be a creditor.
lapsed, there is automatic compensation and the same will not be disturbed.
Limitation to Assignment of Rights:
● A solidary creditor cannot assign his rights without the consent of the others
Article 1285. The debtor who has consented to the assignment of rights made by a creditor
in favor of a third person, cannot set up against the assignee the compensation which would
pertain to him against the assignor, unless the assignor was notified by the debtor at the Lifted from Vergara’s Reviewer:
time he gave his consent, that he reserved his right to the compensation. Compensation Before Assignment
● When compensation takes effect by operation of law or automatically, the debts
If the creditor communicated the cession to him but the debtor did not consent thereto, the are extinguished to the concurrent amount. If subsequently, the extinguished debt
latter may set up the compensation of debts previous to the cession, but not of subsequent is assigned by the creditor to a third person, the debtor can raise the defense of
ones. compensation with respect to the debt.
● The remedy of the assignee is against the assignor. Of course, the right to the
If the assignment is made without the knowledge of the debtor, he may set up the compensation may be waived by the debtor before or after the assignment.
compensation of all credits prior to the same and also later ones until he had knowledge of
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● Example: A owes B P3,000.00 due yesterday. B owes A P1,000.00 due also Legal Compensation:
yesterday. Both debts are extinguished up to the amount of P1,000.00. Hence, A ● Legal compensation takes place by operation of law. This rule applies even if the
still owes B P2,000.00 today. Now, if B assigns his right to C, the latter can debts are payable at different places.
collect only P2,000.00 from A. However, if A gave his consent to the assignment ● If debts are payable abroad and there is a need to use foreign currency, whoever
before it was made or subsequently (par. 1), A loses the right to set up the defense claims compensation must shoulder the expenses for the foreign exchange.
of compensation. So A will be liable to C for P3,000.00 but he can still collect the ● Similarly, expenses for transportation to the place of payment will be borne by the
P1,000.00 owed by B. In other words, the compensation shall be deemed not to party claiming Compensation.
have taken place. ● Impliedly, other kinds of expenses incurred by the claiming party shall not be
charged against the other.
Compensation After Assignment
1. Assignment with the consent of the debtor – Compensation is Ipso Jure; Retroactive:
Example: A owes B P3,000.00 due November 15.
● Compensation takes effect by operation of law even without the consent or
B owes A P1,000.00 due November 15.
knowledge of parties concerned as long as all the requisites mentioned are present.
B assigned his right to C on November 1 with the consent of A.
● Compensation when used as a defense, retroacts to the date when all its requisites
On November 15, A cannot set up against C, the assignee, the compensation
are fulfilled.
which would pertain to him against B, the assignor. In other words, A is liable to
C for P3,000.00 but he can still collect the P1,000.00 debt of B. However, if A,
while consenting to the assignment, reserved his right to the compensation, he Article 1287. Compensation shall not be proper when one of the debts arises from a
would be liable only for P2,000.00 to C. (par. 1) depositum or from the obligations of a depositary or of a bailee in commodatum.
2. Assignment with the knowledge but without the consent of debtor – Neither can compensation be set up against a creditor who has a claim for support due by
Example: A owes B P1,000.00 due November 1. B owes A P2,000.00 due gratuitous title, without prejudice to the provisions of paragraph 2 of article 301. (1200a)
November 10. A owes B P1,000.00 due November 15.
A assigned his right to C on November 12. A notified B but the latter did not give Debts or Obligations not subject to Compensation:
his consent to the assignment. How much can C collect from B? 1. Debts or obligations arising from contracts of depositum;
2. Debts arising from obligations of a depositary;
B can set up the compensation of debts on November 10 which was before the 3. Debts arising from obligations of a bailee in commodatum;
cession on November 12. (par. 2) There being partial compensation, the 4. Debts or claims for support due by gratuitous title.
assignment is valid only up to the amount of P1,000.00. But B cannot raise the 5. Debts or obligations consisting in civil liability arising from penal offense. (Art.
defense of compensation with respect to the debt of A due on November 15 which 1288)
has not yet matured. So, on November 12, B is liable to C for P1,000.00. Come 6. Debts or obligations due to the government, like taxes, fees, duties, and similar
November 15, A will be liable for his debt of P1,000.00 to B. others.
7. Support in arrears like future support is no longer subject to compensation.
3. Assignment without knowledge of the debtor –
Example: In the preceding example, let us suppose that the assignment was made Parties who cannot claim Compensation, Exceptions:
without the knowledge of B who learned of the assignment only on November 16. ● The parties who are not allowed to claim compensation are the depositary (a person
to whom something is lodged in trust) and bailee (a person to whom goods or
In this case, B can set up the compensation of credits before and after the property are delivered for a purpose for example repair, but no transfer of ownership
assignment. The crucial time is when B acquired knowledge of the assignment occurs.)
and not the date of the assignment. If B learned of the assignment after the debts ● The reason for the prohibition is to prevent breach of trust. However, the depositor
had already matured, he can raise the defense of compensation; otherwise, he and the bailor are allowed to claim compensation against the depositary and bailee
cannot. respectively. This is may be called a FACULTATIVE COMPENSATION.
Example: Sofia agreed to keep for safekeeping Elaine’s 100 pieces of 1k peso bills which
Article 1286. Compensation takes place by operation of law, even though the debts may be are newly printed. Elaine borrowed money from Sofia in the sum of 50k pesos. When
payable at different places, but there shall be an indemnity for expenses of exchange or Elaine asks for the return of her 100 pieces, Sofia offers only 50 pieces of the money
transportation to the place of payment. (1199a) claiming partial compensation as Elaine owes her 50k.
ARTICLE 1298. The novation is void if the original obligation was void, except when
annulment may be claimed only by the debtor, or when ratification validates acts which are ARTICLE 1299. If the original obligation was subject to a suspensive or resolutory
voidable. condition, the new obligation shall be under the same condition, unless it is otherwise
stipulated.
Effect of Invalidity of the Old Obligation:
● If it is the old obligation which is void, there is nothing to novate. So the new will Applicability:
also be void. ● Applies only to cases of original obligations subject to conditions, whether
● The action to set aside a void contract is an action for declaration of nullity, while an suspensive or resolutory.
action to set aside a voidable contract is referred to as an action for annulment.
Effect of the existence of Conditions in the Original Obligation on the New one:
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● In the absence of any contrary stipulation, the conditions attached to the original ● Voluntary subrogation must be clearly established with sufficient evidence.
shall also be considered as attached to the new obligations.
● Example: Naomi promised Alexandra with a building which could be converted into
a hospital, provided that Alexandra shall become a licensed doctor of medicine. ARTICLE 1301. Conventional subrogation of a third person requires the consent of the
Shortly thereafter, the parties agreed that instead of a building, Naomi will just give original parties and of the third person.
Alexa his resthouse in Baguio City. The second agreement did not make any
stipulation on the nature of the condition. The giving of the rest house is Conventional Subrogation - In conventional subrogation, the consent of all the parties is an
nevertheless subject to the same condition, that Alexa shall become a licensed essential requirement.
doctor of medicine. 1. The debtor – because he becomes liable under the new obligation to a new creditor.
2. The old or original creditor – because his right against the debtor is extinguished.
ARTICLE 1300. Subrogation of a third person in the rights of the creditor is either legal or 3. The new creditor – because he may dislike or distrust the debtor.
conventional. The former is not presumed, except in cases expressly mentioned in this
Code; the latter must be clearly established in order that it may take effect. Notes:
● In the absence of consent of all the parties, no subrogation will result.
● Assignment of rights is not subrogation.
● Active subjective novation is stricter than passive subjective novation because in the
latter, the consent of the old debtor is not even required in expromission.
Concept
● Subrogation is the active subjective novation characterized by the transfer to a third
person of all the rights appertaining to the creditor in the transaction concerned Basis Conventional Subrogation Assignment of Credits/Rights
including the right to proceed against the guarantors or possessors of mortgages, and
similar others subject to any applicable legal provision or any stipulation agreed Effect Extinguishes the original The transfer of the credit/right does not
upon by the parties in conventional subrogation. obligation and creates a new extinguish or modify the obligation. The
● It is the transfer of the credit of the creditor arising in a transaction, to a third person one. transferee becomes the new creditor for
with all the rights appertaining thereto, either against the debtor or against the third the same obligation.
persons.
● Rationale: Equity. It is designed to promote and to accomplish justice and is the Need for The consent of the debtor is The consent of the debtor is not
mode which equity adopts to compel the ultimate payment of a debt by one who in consent of necessary including the other necessary, notification is enough for the
justice and good conscience ought to pay. Debtor original parties. validity of the assignment.
● Limitation: A subrogee cannot succeed to a right not possessed by the subrogor.
Effectivity Effectivity begins from the Effectivity begins from the notification
moment of subrogation. of the debtor.
Kinds of Subrogation (Active Subjective Novation): Curability of The defect in the old The defect in the credit or rights is not
defect or vice obligation may be cured such cured by its mere assignment to a third
As to creation 1. Legal Subrogation – This is the subrogation that takes place by that the new obligation person.
virtue and operation of law (Art. 1302) becomes valid.
2. Voluntary or Conventional Subrogation – This is the
subrogation created by the agreement of the parties.
ARTICLE 1302. It is presumed that there is legal subrogation:
As to their 1. Total Subrogation – This is the subrogation where the credit or 1. When a creditor pays another creditor who is preferred, even without the debtor’s
extent rights of the creditor in the transaction are totally transferred to the knowledge;
third person. 2. When a third person, not interested in the obligation, pays with the express or
2. Partial Subrogation – This is the subrogation where only a part of tacit approval of the debtor;
the credit or rights of the creditor in the transaction are transferred 3. When, even without the knowledge of the debtor, a person interested in the
to the person. fulfillment of the obligation pays, without prejudice to the effects of confusion as
to the latter’s share.
Proving the Existence of Subrogation:
● Legal subrogation is not presumed except in the cases mentioned in article 1302.
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Legal Subrogation Not Presumed:
● Legal subrogation is subrogation by operation of law. ● Subrogation contemplates full substitution such that it places the party subrogated
● Generally, it is not presumed, unless there is a specific law providing for it. in the shoes of the creditor, and he may use all means which the creditor could
employ to enforce payment.
● Rule In Case A Solidary Debtor Pays: If the payor is a solidary debtor, once the
Three Exceptions: full payment is made the entire obligation is extinguished. Hence, there is nothing
more to subrogate. The payor cannot step into the position of the creditor because
First Presumption: he cannot enforce against his co-debtor’s the payment of the original obligation.
● The payment is made by a creditor to another who is preferred, meaning,
one who enjoys priority of payment under the rules on preference of credits. Example: Suppose in the same example, C is the guarantor of A. C is a person interested in
● The rule in Articles 1236 and 1237 referring to payments made by a third person the fulfillment of the obligation of A as he would be benefited by its extinguishment. If C
in behalf of the debtor does not apply in the first exception. pays B, even without the knowledge of A, C is subrogated in the rights of B. Confusion
takes place in the person of C. Hence, the guaranty is extinguished but the principal
Example: Isabel borrowed money from Lea and Bianca in the sum of 100 and 50 pesos, obligation still subsists. (Art. 1276)
respectively. Isabel’s loan from Lea is secured by a real estate mortgage, while Isabel’s loan
from Bianca is unsecured. Without the knowledge of Isabel, Bianca paid Lea all the A and B are joint debtors of C for the amount of P1,000.00. Without the knowledge of A, B
obligations of Isabel. By this development, Bianca becomes a mortgage creditor of Isabel at pays the debt of P1,000.00. In this case, B becomes a creditor of A for P500.00, the latter’s
the same time an ordinary creditor insofar as the 50 pesos is concerned. There is now a share of the debt but not for the remaining P500.00, the portion of the debt which
presumption that there is legal subrogation. Wherewith, Bianca can collect from Isabel and corresponds to B, which is extinguished by confusion or merger of rights.
if the latter failed to pay the mortgage obligations, Bianca can foreclose the mortgage. From
the proceeds of the foreclosure sale, Bianca’s credits shall be paid.
ARTICLE 1303. Subrogation transfers to the person subrogated the credit with all the
Second Presumption: rights thereto appertaining, either against the debtor or against third persons, be they
● A person not interested in the fulfillment of the obligation is someone who is guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation.
not a party to the obligation or contract. A person interested in the
fulfillment is someone connected to the obligation like a guarantor,
Effect:
co-debtor, or somebody who has a right on the property under consideration.
● Article applies to both legal and voluntary subrogations. Once subrogation takes
● When a third person without interest in the obligation pays the obligation of the
effect, the credit of the creditor as well as all the rights appurtenant thereto like
debtor, with the consent of the latter, he is entitled not only to be reimbursed for
guaranty are transferred. However in conventional subrogation, parties may stipulate
what he had paid but is also subrogated in all the rights of the creditor.
on the extinguishment of the accessories.
● If the third person made the payment without the consent of the debtor, the
● Example: Bea borrowed money from Nica. Monique stood as guarantor for the
former has no right to be subrogated in all the rights of the creditor. He can only
obligation of Bea. Nicole, a stranger to the contract, paid the obligations of Bea with
demand reimbursement for what he had paid and only to the extent of the benefit
the latter’s consent and that of Monique, the guarantor. If Bea could not pay the
enjoyed by the debtor (Art. 1236-37)
obligation to Nicole, who has been subrogated in the place of Nica, Nicole could
proceed against Monique, the guarantor. The reason is that the guaranty subsists in
Example: Camila borrowed money from Meg. The loan is secured by a real estate
the absence of a contrary agreement.
mortgage. Sofy paid all the obligations of Camila with the consent of the latter. The result
● If the credit transferred to the new creditor is subject to a suspensive condition, the
of the consented payment is the subrogation of Sofy into all the rights of Meg. Sofy may
credit cannot be collected until after the fulfillment of the said condition.
foreclose the mortgage if the mortgage obligations are not paid when they become due.
Continuing from the above, if the payment was made by Sofy without the consent of ARTICLE 1304. A creditor, to whom partial payment has been made, may exercise his
Camila, Sofy cannot be subrogated into the rights of Meg. This time, Art. 1236 applies. right for the remainder, and he shall be preferred to the person who has been subrogated in
his place in virtue of the partial payment of the same credit.
Third Presumption:
● In the third exception, the one who pays the obligation is someone interested
in the fulfillment of the obligation like a surety or guarantor. Rule of Preference In Case Of Partial Subrogation:
● Payment may be done without the knowledge of the debtor. Legal subrogation ● There is partial subrogation when the credit had not been entirely subrogated.
operates. ● It arises when a third person makes partial payment only to the creditor leaving the
● The co-debtor or guarantor is placed in the position of the old creditor. remainder of the credit as subsisting.
Delivery of a private document Accessory obligations deemed condoned You don't have to do anything, by There has to be active defense whereby
evincing a credit whenever principal obligations are condoned operation of law (when 5 elements are one party to a suit over an obligation will
(Art. 1273) present), such extinguishment is triggered have to assert and say, quits na tayo dito.
Presumption of voluntariness by when 5 elements are present That’s why an offset requires that
the creditor (1271-72) Pledge of a thing deemed remitted when the thing participation of one of the parties unlike in
pledged is found in the possession of debtor or legal compensation, there is no need.
the owner of the thing (1274)
Is writing-off a loan equal to a condonation or release of a debt by the creditors?
● Writing off the loan, not necessarily condonation.
Note: If the debtor already has the private document that indicates that debtor is indebted to ● Writing off is more of an accounting procedure to help accountants. There is no
the creditor, that is considered as an implied condonation. condonation if there is no acceptance. In writing off, just putting in the books,
a. Express - need instrument. there is no notice to the debtor. more on accounting entry. So neither offset nor
b. Implied - need conduct and presumption in your favor. condonation.
● Writing-off a loan - not necessarily condodation. This only an accounting
One thing to remember: ART. 1270! procedure. There is no notice on the debtor. It is only an accounting entry.
● No condonation when there is no acceptance by the debtor.
Confusion - 1 credit that goes around and merges into 1 person.
● In general, total extinguishment of obligation. When can there be no compensation?
● Depositary, bailee, and support
Legal Compensation; Requisites: (SBM: Memorize this)
Is there an implied novation which will have the effect of extinguishing OR (NOT 1. Conception or Generation – The first stage, where parties begin their initial
AND) creating a modified obligatory relation. negotiation and bargaining for the formation of the contract ending at the moment
of agreement of the parties. Also called preparatory stage.
Words and phrases that will give rise to your answer: subsequently entered into a contract 2. Perfection or Birth – The second stage where the contract is said to have been
(capacity and consent) born. Here, the parties had a meeting of minds as to the object, cause, or
consideration and other terms and conditions of the contract. It has passed the
New agreement extinguished the old agreement. New one is incompatible and preparatory stage.
irreconcilable. Price of P6k yo P4k. 3. Consummation or Fulfillment – This is the last stage which consists in the
performance or fulfillment by the parties of their obligations under the terms of
Sir: I can just modify the object, object benign the payment of sum of money. the perfected contract. Consummation is accomplishment, death or termination of
the contract. The parties ceased to be contractually related to one another.
Not about express or implied more on did it extinguish or did it modify? This is
implied novation. But the question now, did it extinguish or did it modify?
Extinguish - because the first one is by judgment and the latter one was by agreement or Basic Legal Principles Governing Contracts:
contract. Obviously there is a modification as to the amount but the phrase “subsequently
entered into contract” show second obligation arises from the contract. The agreement by 1. Freedom to Stipulate (Autonomy) – the parties are free to create or establish
parties extinguished the obligation imposed by the court by final judgment. stipulations, clauses, terms and conditions as they may deem convenient provided
these are not contrary to law, morals, good customs, public order, or public policy.
Implied novation that extinguishes the obligation. Key words are “obligation imposed by 2. Obligatory force of contracts – obligations arising from contracts have the force of
final judgment” “subsequently entered into contract” – different na. law between the contracting parties and should be complied with in good faith.
3. Mutuality of contracts – a contract binds both contracting parties and its validity or
the compliance cannot be left to the will of only one party.
CONTRACTS
4. Relativity of contracts – contracts take effect only between the parties, their assigns
and heirs except where the rights and obligations arising from the contract are not
Definition (Arts. 1305, 1491, 1646, 1890)
transmissible by their nature, by stipulation, or by law.
ARTICLE 1305. A contract is a meeting of minds between two persons whereby one binds 5. Perfection by mere consent of consensual contracts (Consensual)– consensual
himself, with respect to the other, to give something or to render some service. contracts are perfected by mere consent.
(2) Agents, the property whose administration or sale may have been intrusted to them, A contract entered into in the name of another by one who has no authority or legal
unless the consent of the principal has been given; representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed, before
(3) Executors and administrators, the property of the estate under administration; it is revoked by the other contracting party.
(4) Public officers and employees, the property of the State or of any subdivision thereof, or
of any government-owned or controlled corporation, or institution, the administration of Contracting in the Name of Another Person; Requirements:
which has been intrusted to them; this provision shall apply to judges and government ● A person who contracts in the name of another person must comply with any of the
experts who, in any manner whatsoever, take part in the sale; following:
1) He must have the authority to contract in the name of the other person
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other 2) He has a right to represent the latter under the law such as a duly
officers and employees connected with the administration of justice, the property and rights appointed guardian with respect to his ward.
in litigation or levied upon an execution before the court within whose jurisdiction or ● In case of non-compliance with any of the above conditions, the contract is rendered
territory they exercise their respective functions; this prohibition includes the act of an unenforceable contract, one which cannot be enforced in court.
acquiring by assignment and shall apply to lawyers, with respect to the property and rights
which may be the object of any litigation in which they may take part by virtue of their Unenforceable Contracts Are New in the Civil Code:
profession; ● A new class of defective contract is to a certain extent created by various decisions
of the Supreme Court.
(6) Any others specially disqualified by law. ● The term unenforceable is used as distinguished from voidable. The latter are
binding, unless annulled while the former cannot be sued upon or be enforced,
unless they are ratified.
ARTICLE 1646. The persons disqualified to buy referred to in articles 1490 and 1491, are
● Voidable contracts are farther away from absolute nullity than unenforceable
also disqualified to become lessees of the things mentioned therein.
contracts.
● In other words, an unenforceable contract occupies an intermediate ground between
ARTICLE 1890. If the agent has been empowered to borrow money, he may himself be a voidable and a void contract.
the lender at the current rate of interest. If he has been authorized to lend money at interest,
he cannot borrow it without the consent of the principal. Ratification of the Unenforceable Contracts Under the Article is Allowed:
● The contracts referred to in the article are susceptible of ratification expressly or
FUNDAMENTAL CHARACTERISTICS/PRINCIPLES impliedly.
● It is express when the confirmation of the act is done for instance in a sworn
statement where the party explicitly states that he gave his consent to the contract.
Fundamental Characteristics/Principles: ● It is implied when the confirmation can be deduced from the acts of the party in
whose behalf the contract was entered into. i.e., receiving benefits from the
1) Consensuality (Arts. 1305, 1317 Contract of Adhesion) unauthorized contracts.
2) Obligatory Force (Arts. 1159, 1315-1316, 749)
3) Autonomy (Arts. 1306, 1799, 2088, 2130) Effect of Ratification:
4) Relativity of Contracts — Arts. 1311-1314, 1177-1178, 1381(3) Privity of ● Ratification validates the act. It purges the contract of its defect from the moment it
Contracts was constituted and not from the time of ratification.
5) Mutuality (Arts. 1308-1310, 1182) ● Example: A contract entered into without authority in the name of a minor may be
ratified by him hen he reaches the age of majority.
Consensuality (Arts. 1305, 1317 Contract of Adhesion)
Liability of the Person who contracted without Authority:
ARTICLE 1305. A contract is a meeting of minds between two persons whereby one binds ● The person who contract in the name of another without authority shall be liable for
himself, with respect to the other, to give something or to render some service. damages to the party with whom he dealt with.
supra, Contracts intro
CIVREV C2022 COMPILATION - DBN & MKG | SBM SYLLABUS | 91
Availability of Ratification: ● In the absence of agreement or mutual assent of the parties, there can be no contract.
● Ratification may be effected only before the contract had been revoked by the other
contracting party. Once it has been revoked, there is nothing more to ratify. Once Perfected, a Consensual Contract cannot be Disregarded:
● In one case, AFP occupied a lot and agreed to pay the owner. The owner accepted
Cases the offer. However, there was a change in the Chief-of-Staff and the new Chief
refused to sign the papers for payment on the ground that the owner is entitled to a
Rallos v. Go Under Art. 1931, an act done by the agent after the death of his principal is lower amount. The contract has already been perfected previously, and the amount
Chan valid and effective only under two conditions, viz: (1) that the agent acted cannot now be changed.
without knowledge of the death of the principal and (2) that the third
person who contracted with the agent himself acted in good faith. These Case:
two requisites must concur the absence of one will render the act of the
agent invalid and unenforceable. In this case, the agent, Ramon, executed Luxuria Can the petitioners be compelled to execute a contract on the basis of a
the sale notwithstanding notice of the death of his principal Accordingly, Homes v. written authorization by Posadas? - NO. Since there was no perfected
the agent's act is unenforceable against the estate of his principal for having CA management contract and also considering that the parties are no longer in a
acted without authority. harmonious relationship, the Court finds no cogent reason for the execution
of a contract to develop a subdivision. The authorization letter is nothing
United Through Liboro’s endorsement, NAMARCO’s former Board of Directors, more than a “to-whom-it-may-concern” authorization letter to negotiate with
Namarco v. in its Resolution No. 14, was able to clarify and give proper authority on the squatters. Although it appears that there was an agreement for the
NAMARCO the Contract of Sale in favor of the Federation. development of the area, there is no showing that same was ever perfected
Aside from that, NAMARCO’s acceptance of the benefits (e.g. 5% and finalized.
mark-up) under the Contract of Sale constitutes an implied ratification by
its Board of Directors of the contract in question.
ARTICLE 1316. Real contracts, such as deposit, pledge and commodatum, are not
The ratification cleanses the contract of any defect; in this case, through perfected until the delivery of the object of the obligation
ratification, the necessary consent and authority was subsequently given.
(The acceptance of benefits and Resolution No. 14 are the ratification in
this case.) Perfection of Real Contracts:
● Article refers to real contracts which require delivery of the object for their validity,
in addition to the presence of the other essential elements of a contract: consent,
Obligatory Force (Arts. 1159, 1315-1316, 749) subject matter, and cause or consideration.
● Real contracts are perfected from the moment of delivery of the object of the
ARTICLE 1159. Obligations arising from contracts have the force of law between the
obligation. A contract of carriage is also a real contract. A loan contract is also a real
contracting parties and should be complied with in good faith.
contract perfected upon delivery of the object.
If the acceptance is made in a separate instrument, the donor shall be notified thereof in an e. Limitations by Public Policy – Public policy is the public, social, and legal
authentic form, and this step shall be noted in both instruments. interest in private law. It is a principle which restricts freedom of contract for the
good of the public. In the constitution, there is a declaration on the public policies
of the state, and a stipulation against these would be a stipulation against public
Autonomy (Arts. 1306, 1799, 2088, 2130) policy. A contract is contrary to public policy if it has a tendency to injure the
ARTICLE 1306. The contracting parties may establish such stipulations, clauses, terms public, is against the public good, or contravene some established interest of
and conditions as they may deem convenient, provided they are not contrary to law, morals, society, or is inconsistent with sound policy and good morals, or tends clearly to
good customs, public order, or public policy. undermine the security of individual rights. i.e., a stipulation exempting a carrier
from liability for its gross negligence, a stipulation in a contract surrendering
one’s right to vote and to run for public office.
Principle of Free Stipulation:
● By this principle, parties have the right to negotiate and agree on any stipulation.
● The right is guaranteed under the constitution, so the right of stipulation is both a Validity of Contracts, to be Sustained:
statutory and a constitutional right. ● When the stipulations are not against any of those mentioned above, the validity of
the contract must be sustained. Some examples of valid stipulations are as follows: a
stipulation that the mortgage debt shall not be paid during the war, a stipulation that
LIMITATIONS OF CONTRACT: if the debtors could not pay, they would mortgage their land to the creditor, etc.
These are valid stipulations.
● Freedom to stipulate is not an absolute right.
● The stipulations must not be contrary to law, morals, good customs, public order, Cases:
or public policy.
Azcuna Jr. The freedom of the contracting parties to make stipulations in their contract
a. Limitations by Law – Existing law enters into and forms part of a valid contract v. CA provided they are not contrary to law, morals, good customs, public order or
without the need for the parties expressly making reference to it. Acts contrary to public policy is so settled, and the Court finds nothing immoral or illegal
mandatory and prohibitory law are void except when the law itself authorizes with the indemnity/ penalty clause of the lease contract.
their validity. Violation of directory and suppletory laws do not make the act
void. i.e., a stipulation which deprives a court of jurisdiction is void. Manila Bay The Court held that it is within the right of the Sabenianos to rescind the
Club v. CA contract in view of the principle that contracts are considered as the law
b. Limitations by Morals – Morals referred to are those moral principles which are between the parties and also the “Freedom to Contract” doctrine providing
incontrovertible and accepted universally. They must have social and practical for the power of the parties to establish such stipulations, clauses, terms and
recognition. A full understanding of the Ten Commandments of God provides the conditions as they may want to include subject to the condition that they
perfect and immutable standard for determining what is good and what is evil. should not be contrary to law, morals, good customs, public policy or public
i.e., a contract where a man and a woman would get married but the woman order.
would be paid for entering into the relationship is void.
De Leon v. The court held that “relations” pertain to all kinds of relations, both marital
c. Limitations by Good Customs – Good customs refer to the generally accepted CA and property. Since the Letter- Agreement is premised on the termination of
principles of morality which have received some social and practical recognition either or both the marital or property relationship, it is void. Marriage is not
in the community for a long period of time. Thus, all contracts which have their a mere contract but a sacred social institution.
aims for immoral purposes are against good customs. Good morals and good
customs overlap each other, though sometimes they do not. i.e., a contract of Batarra v. A promise of marriage based upon carnal knowledge is an unlawful and
marriage with someone only for the purpose of economic gains since the other Marcos immoral consideration and no action can be maintained against Marcos by
spouse is very rich is contrary to good customs. Providing a penalty if one of the Batarra who was already over 23y/o and deemed to have voluntarily
parties would back out from his/her promise to marry is against good customs. participated in the act. Both parties were at fault.
Ferrazzini A provision in their contract states that once his employment is terminated,
Principle of Relativity of Contracts or Principle of Limited Effectivity:
v. GSell he cannot work anywhere in the Philippines for the next 5 years after his
● One of the characteristics of contracts is that they are binding or effective only
termination. SC ruled that such stipulation is an undue and unreasonable
between the contracting parties, their assigns, and heirs. This is the principle of
restraint of trade and therefore against public policy. It would force
relativity.
Ferrazzini to leave the Philippines in order to seek employment if ever Gsell
● It is understood that the rights are transmissible because if they are not, then they
decides not to allow him to work here. It was stated that Public Policy is the
only bind the actual parties in the contract.
principle under which freedom of contract or private dealing is restricted by
● Assigns and heirs are thus excluded when the right or obligation is personal to the
law for the good of the public.
party, such as the right to receive support. This is the principle of limited effectivity.
If the recipient dies, his heirs cannot continue with it as recipients.
Omico The contract of professional services entered into between private
Mining v. respondent and the petitioners, while the former was still a judge of the Test to Determine Transmissibility of Rights:
Vallejos Court of First Instance, constituted private practice of law and in ● Rights which are intransmissible are purely personal rights, either by provisions of
contravention of the express provision of Section 35 of Rule 138 of the law or by its nature.
Revised Rules of Court. ● A good measure for determining whether a contract terminates upon the death of
one of the parties is whether it is of such a character that it may be performed by the
The aforesaid contract is void because a contract, whose cause, object or promissor’s personal representative.
purpose is contrary to law, morals, good customs, public order or public ● Contracts which cannot be performed by anyone else are discharged by the death of
policy, is considered inexistent and void from the beginning. the promissory.
● Conversely, when the service or act may be performed by another, death does not
terminate the contract.
ARTICLE 1799. A stipulation which excludes one or more partners from any share in the
profits or losses is void.
Exceptions to the Principle of Relativity:
ARTICLE 2088. The creditor cannot appropriate the things given by way of pledge or 1. If the obligation is by their nature, not transmissible such as personal obligations.
mortgage, or dispose of them. Any stipulation to the contrary is null and void. i.e., obligation to give support.
2. If by stipulation of the parties, the obligation shall be performed only by the party
Pactum Commisorium - void. himself.
3. If under the provision of law, the obligation is intransmissible. i.e., obligations
ARTICLE 2130. A stipulation forbidding the owner from alienating the immovable arising from a contract of partnership.
mortgaged shall be void.
Third Persons are not Bound in Contracts Where they did not Participate:
Relativity of Contracts — Arts. 1311-1314, 1177-1178, 1381(3) Privity of Contracts ● Those who did not participate in the contract are not bound thereby.
DKC A good measure for determining whether a contract terminates upon the
Stipulation Pour Autrui: Holdings death of one of the parties is whether it is of such a character that it may be
● It is a stipulation in favor of a third person conferring a CLEAR and DELIBERATE vs. CA performed by the promissor's personal representative.
favor upon him and which stipulation is merely a part of the contract entered into by
the parties, neither of whom acted as agent of the third person, and which favor can In the case at bar, there is no personal act required from the late Encarnacion
be demanded by the third person if dully accepted by him before it could be Bartolome. Rather, the obligation of Encarnacion in the contract to deliver
revoked. possession of the subject property to petitioner upon the exercise by the
● A stipulation pour autrui cannot be revoked unilaterally by the obligor alone. The latter of its option to lease the same may very well be performed by her heir
conformity of the other contracting party is needed. Victor.
Requisites of Stipulation Pour Autrui: Marmot The sole purpose of Maris Trading in acquiring possessory rights over that
Hotel vs. specific portion of the land where well and pump and piping had been
1. There is a stipulation in favor of a third person CA installed, was to supply the water requirements of petitioner’s hotel. That
2. The stipulation is just a part of and not the whole obligation in the contract said purpose was known by respondent spouses, is made explicit by the
3. The favor or benefit must have been clearly and deliberately conferred by the second Memorandum of Agreement. Maris Trading itself had no need for a
parties upon a third person water supply facility; neither did the respondent spouses. The water facility
4. The favor or benefit conferred is not just an incidental benefit or interest was intended solely for Marmont Resort Hotel. The interest of Marmont
5. Neither of the parties bears the legal representation or authorization of the third cannot therefore be regarded as merely "incidental."
party
Coquia vs. Pursuant to the stipulations in the insurance policy, the Insurance Company
Fieldmen’s "will indemnify any authorized Driver who is driving the Motor Vehicle" of
Forms of Acceptance: Insurance the Taxi Company and, in the event of death of said driver, the Company
● Acceptance by the third person may be done expressly or impliedly. shall, likewise, "indemnify his personal representatives."
● The acceptance must be absolute, unconditional, and identical with the terms of the In fact, the Company "may, at its option, make indemnity payable directly to
offer. the claimants or heirs of claimants” - in other words, third parties.
● Thus, when a beneficiary entered into the possession of the property, there is
acceptance already. Mandarin While private respondent may not be a party to the said agreement, the
Villa vs. Agreement conferred a favor upon the private respondent, a holder of credit
Test to Determine the Nature of the Interest of the Third Person:
CIVREV C2022 COMPILATION - DBN & MKG | SBM SYLLABUS | 95
Article 1312 is an Exception to the General Rule of Relativity
CA card validly issued by BANKARD. This stipulation is a stipulation pour ● Even though third persons are not parties to the contracts under the article, they are
autri and under Article 1311 of the Civil Code private respondent may thus bound.
demand its fulfillment provided he communicated his acceptance to the ● A real estate mortgage which is duly recorded is a right in rem and is binding against
petitioner before its revocation. third persons. It is a lien on the property which is inseparable therefrom and remains
subsisting until discharged. Subsequent purchasers of said property are bound by the
Everett When private respondent formally claimed reimbursement for the missing said liens.
Steamship goods from petitioner and subsequently filed a case against the latter based
vs. CA on the very same bill of lading, it (private respondent) accepted the
provisions of the contract and thereby made itself a party thereto, or at least ARTICLE 1313. Creditors are protected in cases of contracts intended to defraud them.
has come to court to enforce it. Thus, private respondent cannot now reject
or disregard the carrier’s limited liability stipulation in the bill of lading. In
Accion Pauliana:
other words, private respondent is bound by the whole stipulations in the bill
● This article is also an exception to the rule of the principle of relativity of contracts.
of lading and must respect the same.
● When a debtor alienates a property without leaving enough for his creditors and his
intention is to defraud them, his creditors may file an action for rescission of the said
Kauffman The Court ruled in favor of Kauffman. Relying upon the intentions of the contracts, accion pauliana.
vs. PNB parties, it can be said that Kauffman was a third party whose interests were
incidental to the contract.
The bank’s promise to cause a definite sum of money to be paid to him in ARTICLE 1314. Any third person who induces another to violate his contract shall be
New York was a stipulation in his favor within the meaning of the Civil liable for damages to the other contracting party.
Code, and as such, he had the right to maintain an action to recover it.
He also signified his acceptance to the transfer by demanding the money
from PNB New York, therefore the provision on pour autrui was met. Effect of Interference with Contractual Relations:
● A third person who induces another to violate his contract without a valid excuse is
liable for damages to the other contracting party who is prejudiced by the said
Associated The fact that the promissory note was executed after the effectivity date of
interference.
Bank vs. the merger does not militate against petitioner. The agreement itself clearly
● This intermeddling is known in the law on torts as interference with contractual
CA provides that all contracts -- irrespective of the date of execution -- entered
relations.
into in the name of CBTC shall be understood as pertaining to the surviving
● Extent of the liability for damages of the intermeddler cannot be more than the
bank, herein petitioner.
liability that will be incurred by the party in whose behalf he intermeddled.
SC found no stipulation at all that would even resemble a provision in
consideration of a third person. The instrument itself does not disclose the Elements of Tortious Interference with Contractual Relations:
purpose of the loan contract. It merely lays down the terms of payment and
the penalties incurred for failure to pay upon maturity. 1. Existence of a valid contract
2. Knowledge on the part of the third person of the existence of the contract
3. Interference of the third person without legal justification or excuse
ARTICLE 1312. In contracts creating real rights, third persons who come into possession
of the object of the contract are bound thereby, subject to the provisions of the Mortgage Notes:
Law and the Land Registration Laws. ● Knowledge of the existence of the contract is an essential element to state a cause
of action.
● Liability of the intermeddler is solidary with the person whom he intermeddled
Concept of Real Right:
because the former has committed a tortious act or quasi-delict where liability is
● A real right is one which binds the property over which it is created or exercised.
solidary.
● Examples: A mortgage constituted on a titled property and duly registered, A
contract of lease of a parcel of land for more than one year which is duly registered.
● These real rights if recorded are binding upon third persons even if they did not Generally, Malice is Essential to Make Intermeddler Liable:
participate in the said contracts. ● There must be bad faith in inducing a contracting party to break his contractual
● However, if they are not registered, and the buyers of the properties have acted in relations with the other.
good faith, they are not bound to respect the mortgage or lease.
UCPB vs. The interest rates are dependent solely on the will of UCPB: it is 1st: Contract is CONSENSUAL:
Beluso determined by Branch Head who may chose any rate he desires. ● Stages of Contract: Negotiation, Perfection, Consummation
● The moment there is consent, there is already a contract.
In order that obligations arising from contracts may have the force of law ● XPN: Real contracts and formal contracts (when certain provisions of law require
between the parties, there must be mutuality between them based on their solemnities for their validity)
essential equality. A contract containing a condition which makes its ● Offer must be certain, acceptance must be absolute.
fulfillment dependent exclusively upon the uncontrolled will of one of the
parties, is void. Jardine Davies v. CA: Was there a perfect contract between Purefoods and Femsco?
● Yes. There was already a perfect contract since the conditions in the letter were
Joaquin vs. Atty. Joaquin, for himself and in his own name, contracted with Mitsumine not conditions where the perfection of the contract was dependent, rather they
Mitsumine for the acquisition and purchase of the said machine and received from him were conditions in performing the obligation. Even if we assume that the letter
the machine so purchased. was conditional counteroffer, subsequent acts such as the return of the bidding
bond and the payment of the all risk insurance policy confirmed that there was
He therefore cannot use as a defense that the vendor should collect the already a perfected contract.
balance of its price from a third person with whom the vendor did not ● Although there were conditions, it did not affect the acceptance given by the
contract and who did not receive the purchased machine, and in asserting winning bidder. Court considered that there were subsequent acts that confirmed
such a claim on the pretext that he made a mistake in contracting for that there was already meeting of the minds even if there was conditional
himself and not in the name of his client Macario Vito. acceptance, there were other circumstances whereby acceptance can be implied.
Garcia vs. The stipulation merely gave the vendor the “right to declare the contract 2nd: Obligatory force:
Legarda canceled and of no effect upon fulfillment of the conditions set forth in the ● Force of Law - juridical tie between parties that can be used to compel the parties
contracts. It does not leave the validity or compliance of the contract to perform the contract.
entirely to the will of one of the contracting parties. A contract expressly
giving to one party the right to cancel is valid; the reason being that when 3rd. Autonomy: not contract to law, morals, good customs, public order, public policy.
the contract was thus cancelled, the agreement of the parties was in reality ● Cui - awarding scholarships to attract students and keep them in school is not a
being fulfilled. It could be exercised, but only upon the other contracting good custom.
party committing the breach of contract of non-payment of the installments ● Ferazzini - Cannot work in the PH for 5 years upon termination. It is
agreed to it. unreasonable.
4th. Relativity: Between parties whose minds have met and to their heirs. XPN:
ARTICLE 1182. When the fulfillment of the condition depends upon the sole will of the obligations and rights that are intransmissible
debtor, the conditional obligation shall be void. If it depends upon chance or upon the will
of a third person, the obligation shall take effect in conformity with the provisions of this 5th Mutuality: Arts. 1347 and 1349 are important provisions.
Code. ● Both case refers to Contracts prior to death of one party
● Blas: Properties were not share on inheritance but conjugal
Supra, Kinds of Obligation. ● Uson: there was document executed prior to death of one party it was clear that
she renounced right to inherit in exchange for parcel of land
Class Notes
Contract Definition CLASSIFICATION OF CONTRACTS
CIVREV C2022 COMPILATION - DBN & MKG | SBM SYLLABUS | 99
Different classification of contracts: A contract of sale may be absolute or conditional.
1. According to degree of dependence: (preparatory, principal, accessory)
2. According to perfection: (consensual, real, formal) Article 1638. By the contract of barter or exchange one of the parties binds himself to give
3. According to solemnity or form one thing in consideration of the other's promise to give another thing.
4. According to purpose
5. According to cause ARTICLE 1642. The contract of lease may be of things, or of work and service.
6. According to risk: commutative or aleatory
7. According to name: nominate or innominate ARTICLE 1933. By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain time and return
it, in which case the contract is called a commodatum; or money or other consumable thing,
upon the condition that the same amount of the same kind and quality shall be paid, in
According to degree of dependence: (preparatory, principal, accessory) which case the contract is simply called a loan or mutuum.
a. Principal – can exist alone such as sale, lease, deposit commodatum. Commodatum is essentially gratuitous.
b. Accessory – cannot exist alone such as mortgage which depends upon the
existence of a contract of loan. Simple loan may be gratuitous or with a stipulation to pay interest.
c. Preparatory – those entered into for the creation of another contract such as an
agency. In agency, the principal gives authority to the agent to do a particular act. In commodatum the bailor retains the ownership of the thing loaned, while in simple loan,
Equipped with a SPA to sell, the agent, for instance, sells a property belonging to ownership passes to the borrower. (1740a)
the principal. Here, the agency was established in preparation for the contract of
sale. A partnership is also a preparatory contract. ARTICLE 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning the same. If
a. preparatory — Arts. 1479, 1767, 1868, the safekeeping of the thing delivered is not the principal purpose of the contract, there is
no deposit but some other contract.
Article 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
c. accessory — Arts. 2047, 2085
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is Article 2047. By guaranty a person, called the guarantor, binds himself to the creditor to
binding upon the promisor if the promise is supported by a consideration distinct from the fulfill the obligation of the principal debtor in case the latter should fail to do so.
price. (1451a)
If a person binds himself solidarily with the principal debtor, the provisions of Section 4,
Article 1767. By the contract of partnership two or more persons bind themselves to Chapter 3, Title I of this Book shall be observed. In such case the contract is called a
contribute money, property, or industry to a common fund, with the intention of dividing suretyship
the profits among themselves.
Article 2085. The following requisites are essential to the contracts of pledge and
Two or more persons may also form a partnership for the exercise of a profession. mortgage:
1. That they be constituted to secure the fulfillment of a principal obligation;
Article 1868. By the contract of agency a person binds himself to render some service or to 2. That the pledgor or mortgagor be the absolute owner of the thing pledged or
do something in representation or on behalf of another, with the consent or authority of the mortgaged;
latter 3. That the persons constituting the pledge or mortgage have the free disposal of
their property, and in the absence thereof, that they be legally authorized for the
purpose.
b. principal — Arts. 1458, 1638, 1642, 1933, 1962,
Third persons who are not parties to the principal obligation may secure the latter by
Article 1458. By the contract of sale one of the contracting parties obligates himself to pledging or mortgaging their own property. (1857)
transfer the ownership and to deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.
According to formation or perfection: (consensual, real, formal)
Article 1475. The contract of sale is perfected at the moment there is a meeting of minds SBM: Memorize
upon the thing which is the object of the contract and upon the price.
Art. 1403 (2): Those that do not comply with the Statute of Frauds as set forth in this
From that moment, the parties may reciprocally demand performance, subject to the number. In the following cases an agreement hereafter made shall be unenforceable by
provisions of the law governing the form of contracts. (1450a) action, unless the same, or some note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary evidence of its contents:
b. real - Arts. 1316, 1934, a. An agreement that by its terms is not to be performed within a year from the
Article 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected making thereof;
until the delivery of the object of the obligation. (n) b. A special promise to answer for the debt, default, or miscarriage of another;
c. An agreement made in consideration of marriage, other than a mutual promise to
marry;
Article 1934. An accepted promise to deliver something by way of commodatum or simple
d. An agreement for the sale of goods, chattels or things in action, at a price not less
loan is binding upon parties, but the commodatum or simple loan itself shall not be
than five hundred pesos, unless the buyer accept and receive part of such goods
perfected until the delivery of the object of the contract
and chattels, or the evidences, or some of them, of such things in action or pay at
the time some part of the purchase money; but when a sale is made by auction and
c. formal — Arts. 1356 entry is made by the auctioneer in his sales book, at the time of the sale, of the
amount and kind of property sold, terms of sale, price, names of the purchasers
Article 1356. Contracts shall be obligatory, in whatever form they may have been entered and person on whose account the sale is made, it is a sufficient memorandum;
into, provided all the essential requisites for their validity are present. However, when the e. An agreement for the leasing for a longer period than one year, or for the sale of
law requires that a contract be in some form in order that it may be valid or enforceable, or real property or of an interest therein;
that a contract be proved in a certain way, that requirement is absolute and indispensable. In f. A representation as to the credit of a third person.
such cases, the right of the parties stated in the following article cannot be exercised.
General Rule: Form is not Required in Consensual Contracts,: Examples of Formal Contracts: Donation of real property which requires a public
● As long as the essential requisites of the contracts are present, they are binding upon instrument for its validity. Donation of personal property the value of which is more than
the contracting parties regardless of whatever form they may have been entered into. five thousand pesos. Sale or transfer of large cattle requires registration and a certificate of
transfer. Negotiable instruments must be made in the form required by the Negotiable
Exceptions Instruments Law. Sale of a piece of land through an agent requires the authority of the
1. When the law requires that a contract be in certain form for its validity - agent to be in writing.
solemn/formal contracts
2. When the law requires that a contract be in certain form for its enforceability - Examples of Agreements which must be in Writing to be enforced: An agreement that
statute of frauds by its terms is not to be performed within a year from the making thereof. A special
According to solemnity or form — Arts. 1356 (supra) b. conveyance of use — Arts. 562, 1642, 1933,
Article 1356. Contracts shall be obligatory, in whatever form they may have been entered Article 562. Usufruct gives a right to enjoy the property of another with the obligation of
into, provided all the essential requisites for their validity are present. However, when the preserving its form and substance, unless the title constituting it or the law otherwise
law requires that a contract be in some form in order that it may be valid or enforceable, or provides. (467)
that a contract be proved in a certain way, that requirement is absolute and indispensable. In
such cases, the right of the parties stated in the following article cannot be exercised. Article 1642. The contract of lease may be of things, or of work and service.
Contract of Partition not Covered By Statue of Fraud: Article 1933. By the contract of loan, one of the parties delivers to another, either
● A note or memorandum is not necessary for the contract of partition. A writing of something not consumable so that the latter may use the same for a certain time and return
the contract of partition is not constitutive of its validity but merely evidential. it, in which case the contract is called a commodatum; or money or other consumable thing,
upon the condition that the same amount of the same kind and quality shall be paid, in
which case the contract is simply called a loan or mutuum.
Cases:
Commodatum is essentially gratuitous.
Tan vs. Was the oral partition of the lands valid and binding? – YES. The Court held
Lum that contracts are obligatory in whatever form they may have been entered into Simple loan may be gratuitous or with a stipulation to pay interest.
provided that all essential requirements are present. The fact that both lease
contract and deed of sale provides a definite portion of the land (1/18th share, In commodatum the bailor retains the ownership of the thing loaned, while in simple loan,
southeastern portion), indicates that there was a partition or else they could not ownership passes to the borrower. (1740a)
have specified such. Moreover, there was a judicial admission by Flora et al
that there was indeed a partition.
c. rendition of service — Arts. 1642, 1868
San An analysis of the facts and evidences leads to the conclusion that the Article 1642. The contract of lease may be of things, or of work and service.
Lorenzo agreement between Babasanta and the Spouses Lu is a contract to sell and not
Dev’t a contract of sale. After SLDC had paid more than one half of the agreed Article 1868. By the contract of agency a person binds himself to render some service or to
Corp. vs. purchase price, the Spouses Lu subsequently executed a Deed of Absolute Sale do something in representation or on behalf of another, with the consent or authority of the
CA in favor or SLDC. At the time both deeds were executed, SLDC had no latter.
knowledge of the prior transaction of the Spouses Lu with Babasanta. SLDC
qualifies as a buyer in good faith since there is no evidence extant in the
records that it had knowledge of the prior transaction in favor of Babasanta. According to cause (Arts. 1350):
a. Onerous – contracts providing for exchange of valuable considerations such as
According to purpose: sale
a. transfer of ownership — Arts. 725, 1458, 1638, a. Gratuitous – those where one party gives/does something to/for the other
without receiving any equivalent or compensation such as donation and
Article 725. Donation is an act of liberality whereby a person disposes gratuitously of a commodatum. Also called a lucrative contract.
thing or right in favor of another, who accepts it. (618a) b. Remunerative – those where one party gives something to another in
consideration of a previous or past deeds of the other.
Article 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership and to deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent. Article 1350. In onerous contracts the cause is understood to be, for each contracting party,
the prestation or promise of a thing or service by the other; in remuneratory ones, the
A contract of sale may be absolute or conditional service or benefit which is remunerated; and in contracts of pure beneficence, the mere
liberality of the benefactor.
Applicability:
Article 1307. Innominate contracts shall be regulated by the stipulations of the parties, by
● Applies only to a situation where the offeror has allowed the offeree a certain period
the provisions of Titles I and II of this Book, by the rules governing the most analogous
of time to accept.
nominate contracts, and by the customs of the place.
Time when Acceptance Should be Made:
Innominate contracts shall be governed by the following: 1. If a period is fixed – Acceptance should be made within the period fixed. If after
● Stipulations of the parties the lapse of the period, there is no more offer to accept. A delayed acceptance will
● Provisions of Obligations and Contracts in the Civil Code not result in the meeting of the minds.
● Rules governing the most analogues nominate contracts 2. If no period is fixed – Acceptance must be made immediately. This is similar to a
● Customs of the Place pure obligation. However, if the offer is made to a person who is not present,
acceptance should be made within such a time the acceptance could be received
Cases: from the offeree under normal circumstances.
CIVREV C2022 COMPILATION - DBN & MKG | SBM SYLLABUS | 104
Option Contract, Concept: contract. If the principal the purchase price, if the sale is finally consummated. It
● An option contract is a contract where the offeror grants the offeree, for a valuable contract is not consummated, is also a proof of the perfection of the contract (Art.
consideration, the privilege to buy or not buy certain objects at anytime within a the option money is not 1482) If the sale is not concluded, the earnest money
specified period and for a fixed price. refunded. shall be returned to the would-be- buyer unless there is
● An option contract is separate and distinct from the principal contract which the a contrary agreement.
parties may enter into later if they finally conclude their main agreement. It is
therefor a preparatory contract to the principal contract should the parties finally Rule in Case the Offer is Subsequently Revoked but the Offer is Already Accepted:
consummate their transaction which is under negotiation. The matter is said to be ● If the acceptance arrives first and came to the knowledge of the offeror, the contract
still under negotiation because the offeror may or may not take advantage of the is perfected.
privilege granted him. ● If it is the revocation which arrives first and came to the knowledge of the offeree,
no contract is perfected.
Kinds of Options Under the Article: ● Whichever of the two arrives first shall be the one considered effective. If they
1. Option without any consideration given by the offeree. arrived exactly at the same time, the perfection of the contract shall be sustained.
2. Option with a consideration given by the offeree which consideration is different
and distinct from the purchase price.
Sanchez In order that said unilateral promise may be binding upon the promisor,
Status of an Option without a Consideration; Effect: vs. Rigos Article 1479 requires the concurrence of a condition, namely, that the promise
● If the privilege granted to the offeree is not supported by a consideration, then the be supported by a consideration distinct from the price. Accordingly, the
option is just considered as an offer to sell. promisee cannot compel the promisor to comply with the promise, unless the
● In other words, if the option is given without a consideration, it is a mere offer to former establishes the existence of said distinct consideration. In other words,
sell, which is not binding until accepted. Hence, it may be withdrawn by the promisee has the burden of proving such consideration.
communicating the withdrawal to the offeree.
● The offeror incurs no liability for the withdrawal of the offer. The reason is because In accepted unilateral promise to sell, since there may be no valid contract
there is no contract perfected yet and the offeror is free to withdraw his offer. without a cause or consideration, the promisor is not bound by his promise
● If, however, acceptance is made before a withdrawal, it constitutes a binding and may, accordingly, withdraw it. Pending notice of its withdrawal, his
contract of sale. accepted promise partakes, however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale.
Consequences of Withdrawal of Offer with Consideration:
● If the offeror withdraw his offer after the offeree had given a consideration for the
option granted, which consideration is distinct from the purchase price or cause of Class Notes
the principal contract, the offeror is liable for damages which may be suffered by the
offeror. Option contract
● The reason for this is that there is already a contract – called an Option Contract. ● When the person is given a certain period to decide until when such person can
● Within the period granted to the offeree, the offeror must not deal with any other decide whether or not to accept the offer.
party involving the same subject matter of the option contract. The offer is an ● Preparatory contract before the principal contract.
exclusive deal with the offeree, until the lapse of the option period and the latter ● Contract by itself. If violated, there can be consequences such as damages.
failing to exercise the privilege granted him.
● If the offeree exercises his right to accept the offer within the period fixed, the Different kinds:
offeror cannot just back out from his commitment. ● With consideration - cannot be taken away unilaterally by the offeror (a contract
● If the offeror unjustifiably backs out, he may be required to execute the necessary of “option” is perfected; option is binding)
document of sale, and in addition, damages may be imposed upon him. ○ Offeror cannot withdraw offer. If he does, he is in breach of the option
contract.
Distinctions Between Option Money and Earnest Money: ● Without consideration - can be withdrawn before acceptance of the offeree.
○ IT IS A MERE OFFER TO SELL. Not binding until it is accepted. The
Option Money Earnest Money offeror can withdraw anytime.
○ But the moment there is an acceptance, there is already a perfected
Option money is the Earnest money is the payment made to the seller by the PRINCIPAL Contract.
consideration paid in an option buyer to show his good faith. It will constitute as part of
Granting that the appellant acted on time, payment of P800 fell short of
Acceptance, Forms: the appellee's requirement. The appellee wanted P1, 508.28 in cash. This
● May either be express or implied. Expressly in writing or verbally, Impliedly by the was the least she was entitled to, being the amount which the court below
conduct. had found to be due her.
Special Forms Of Acceptance: Zayco vs. Zayco and Serra entered into an option contract to buy Palma Central for
1. Silence – In certain specific cases, silence puts the silent party in estoppel (Arts. Serra P1M and that in case the part cannot pay the whole, then he will be given
1670 – 1873) (counteroffer) a period not exceeding 3 years to pay the balance. Zayco wrote a letter to
2. Presumption – The law presumes acceptance of an inheritance, if within 30 days Zerra accepting the contract and placing at his disposal a cash order of
from the approved partition, the heir has not repudiated the inheritance. (Art. 1057) Acceptance BPI of P100k, in part payment. Serra argued that since the contract does
should be not specify the amount of initial payment and the part to be paid within 3
Article 1321. The person making the offer may fix the time, place, and manner of unqualified years in the contract, Zayco’s acceptance is not sufficient to perfect the
acceptance, all of which must be complied with. (n) and at the contract.
For example, “For sale House and Lot located at 999 Taft Avenue, Manila. Price: 50 Article 40. Birth determines personality; but the conceived child shall be considered born
million. Negotiable. Contact Anton at the address.” Clearly, this is just an invitation to for all purposes that are favorable to it, provided it be born later with the conditions
make offers. If offers are made, the same may not be accepted by the advertiser. specified in the following article. (29a)
Article 41. For civil purposes, the foetus is considered born if it is alive at the time it is
(2) Advertisements for bidders: completely delivered from the mother's womb. However, if the foetus had an intra-uterine
Article 1326. Advertisements for bidders are simply invitations to make proposals, and the life of less than seven months, it is not deemed born if it dies within twenty-four hours after
advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. its complete delivery from the maternal womb. (30a)
Article 37. Juridical capacity, which is the fitness to be the subject of legal relations, is Exceptions:
inherent in every natural person and is lost only through death. Capacity to act, which is the 1. When the minor actively misrepresented his age on the contract by stating that he
power to do acts with legal effect, is acquired and may be lost. (n) is of age, and the other party was misled, the contract shall be binding upon him
on the basis of estoppel. If there is merely silence in the contract as to the age of
Article 38. Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and the minor, the fraud is not actual but only constructive, the minor is not bound by
civil interdiction are mere restrictions on capacity to act, and do not exempt the his signature. Yet, he must still make restitution up to the extent that the was
incapacitated person from certain obligations, as when the latter arise from his acts or from benefited. If the other party knew of the minority of the minor, he is bound
property relations, such as easements. (32a) thereby.
2. When the contract involves the sale and delivery of necessaries (or those which
Article 39. The following circumstances, among others, modify or limit capacity to act: constitute support), he is bound thereby.
age, insanity, imbecility, the state of being a deaf-mute, penalty, prodigality, family 3. When the minor, upon reaching the age of majority, ratifies the contract, he
relations, alienage, absence, insolvency and trusteeship. The consequences of these becomes bound thereby.
circumstances are governed in this Code, other codes, the Rules of Court, and in special 4. When the contract is in the form of savings account in the postal savings bank
laws. Capacity to act is not limited on account of religious belief or political opinion. provided the minor is at least 7 years of age, the same is valid.
5. When the contract is an insurance for life, health, and the accident on the minor’s
life.
Art. 1533(5) (Contributor’s note: I am not sure what’s (5) so i just pasted all):Where the
goods are of perishable nature, or where the seller expressly reserves the right of resale in Class Notes
case the buyer should make default, or where the buyer has been in default in the payment
of the price for an unreasonable time, an unpaid seller having a right of lien or having Telegram Acceptance - acceptance when there is knowledge
stopped the goods in transitu may resell the goods. He shall not thereafter be liable to the
original buyer upon the contract of sale or for any profit made by such resale, but may Requisites of a valid offer:
recover from the buyer damages for any loss occasioned by the breach of the contract of 1. Certain or definite offer so that, upon acceptance, an agreement can be reached.
sale. 2. Complete offer to indicate with sufficient clearness the kind of contract intended
and stating the essential conditions of the proposed contract.
Where a resale is made, as authorized in this article, the buyer acquires a good title as 3. Intentional offer with seriousness made in such manner that the other part would
against the original buyer. not fail to notice the juridical effects of his acceptance.
It is not essential to the validity of resale that notice of an intention to resell the goods be Acceptance must be unconditional and absolute.
given by the seller to the original buyer. But where the right to resell is not based on the
perishable nature of the goods or upon an express provision of the contract of sale, the Qualified Acceptance
giving or failure to give such notice shall be relevant in any issue involving the question ● Variation from the proposal either by way of omission, addition, or alteration.
whether the buyer had been in default for an unreasonable time before the resale was made. ● Considered as counteroffer.
● NOT acceptance; neither party is bound.
It is not essential to the validity of a resale that notice of the time and place of such resale ● BUT an acceptance is not conditional if the acceptor expresses dissatisfaction
should be given by the seller to the original buyer. with the offer, yet gives his unqualified assent, of id he adds immaterial words.
The seller is bound to exercise reasonable care and judgment in making a resale, and When offer becomes ineffective
subject to this requirement may make a resale either by public or private sale. He cannot, 1. Death, civil interdiction, insanity, insolvency
however, directly or indirectly buy the goods. 2. When the offeree expressly or impliedly rejects the offer (no meeting of the minds
there is a rejection. The offer has to be made again to be properly accepted)
Article 1782. Persons who are prohibited from giving each other any donation or advantage 3. When the offer is accepted with qualification or condition
cannot enter into universal partnership. 4. When before acceptance is communicated, the subject matter has become illegal
or impossible.
Article 1409. The following contracts are inexistent and void from the beginning: 5. When the period of time given to the offeree within which he must signify his
7. Those expressly prohibited or declared void by law. acceptance has already lapsed.
6. When the offer is revoked due time (that is, before the offeror has learned of its
Art. 87, FC. Every donation or grant of gratuitous advantage, direct or indirect, between acceptance by the offeree)
the spouses during the marriage shall be void, except moderate gifts which the spouses may
give each other on the occasion of any family rejoicing. The prohibition shall also apply to VICES OF CONSENT (ARTS. 1330-1346)
persons living together as husband and wife without a valid marriage.
Art. 234, FC. Emancipation takes place by the attainment of majority. Unless otherwise Article 1330. A contract where consent is given through mistake, violence, intimidation,
provided, majority commences at the age of eighteen years. undue influence, or fraud is voidable. (1265a)
Consent: ● In both concepts, there is a lack of full and correct knowledge about a thing.
● Consent is manifested by the meeting of the offer and the acceptance upon the thing ● Both are contemplated in the article and the NCC does not distinguish between
and the cause which are to constitute the contract. the two.
● Consent must be intelligent, free and spontaneous. If these requisites are absent, the
consent is said to be defected or vitiated and the ensuing contract voidable. Kinds of Mistake or Error which Vitiates Consent:
● Intelligence is vitiated by mistake or error; Freedom by intimidation, violence, or ● The only mistake or error which vitiates consent refers to the substance of the thing
undue influence; Spontaneity by fraud. – which is the object of the contract, or those conditions which have principally
moved one or both parties to enter into the contract.
Proof needed to Sustain Annulment:
● Full, clear, and convincing evidence is needed to annul a contract on the ground of Classification of Mistakes or Errors which Vitiate Consent:
vitiated consent. 1. Mistake of Fact – this is the mistake incurred by a party or both parties in the contract as
to the nature of the contract, the object, the substance of the thing, the quality of
Hernandez Was the receipt, and the quitclaim, valid? – NO. What is on record is conditions of the thing, the identity or qualification of the person, and the quantity of the
vs. that Cornelia asked for an accounting of the just compensation from thing where quantity is the main reason for the contract.
Hernandez Cecilio several times, but the request remained unheeded. Right at that a. Nature of the contract – if the mistake refers to the nature of the contract, the error
point, it can be already said that Cecilio violated the fiduciary or mistake goes to the essence thereof. This may invalidate the contract.
relationship of an agent and a principal. Instead of an accounting, what ● For example, a party who affixed his thumb mark on the document
Cornelia received was a receipt and quitclaim document that was ready presented to him which he believed to be a deed of mortgage and not a
for signing. As testified to by Cornelia, due to her frail condition and deed of sale, his consent is vitiated.
urgent need of money in order to buy medicines, she nevertheless signed b. Object of the contract – the mistake here refers to the substance of the thing itself,
the quitclaim in Cornelio’s favor. Quitclaims are also contracts and can that is, the very material of which the thing is made of.
be voided if there was fraud or intimidation that leads to lack of consent. ● For example, a buyer purchased a ring for a valuable consideration
Based on the attending circumstances, the receipt and quitclaim believing that it is pure gold, but actually is only gold-plated. His consent
document is an act of fraud perpetuated by Cecilio. is vitiated.
c. Quality or principal conditions of the thing – the condition must be the principal
reason why a party or the parties entered into the contract.
(1) Mistake: ● For example, a vendee agreed to purchase a parcel of land on the belief
that the land is free from any encumbrance. Turns out, land is being
Article 1331. In order that mistake may invalidate consent, it should refer to the substance
claimed by another person. The vendor honestly thought, his land is free
of the thing which is the object of the contract, or to those conditions which have
from any claim. This mistake vitiates the consent of the parties.
principally moved one or both parties to enter into the contract.
● On the other hand, accidental conditions or qualities, such as the particular
lot number of the land, or the boringness of a film that was rented, are
Mistake as to the identity or qualifications of one of the parties will vitiate consent only
accessory matters which do not invalidate the contract. They do not attach
when such identity or qualifications have been the principal cause of the contract.
to the essence of the thing.
d. Identity of the person or his qualifications – refers to an error made on the
A simple mistake of account shall give rise to its correction.
identity or qualification of one of the contracting parties. It is the identity of the
person, not the name. A mistake in the name but not as to the person will not vitiate
Applicability and Concept of Mistake: consent as long as the person is identifiable. Generally applies to obligations “to
● The article refers to mistakes of fact and not to mistakes of law. do”.
● Mistake is an erroneous belief about something. It is a belief on the existence of a ● Requisites of Mistake as to the Person:
thing, event, or circumstance, which in reality does not exist. 1. Mistake must be with respect to the identity of one of the
parties, or his qualifications
Mistake Distinguished from Ignorance:
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2. The identity or qualification is the principal reason why the ● If he could have discovered the error by observance of simple diligence, and by such
injured party entered into the contract omission, he had misled the other party to enter into the contract resulting in
● Example of Mistake as to Identity: Kim agreed to grant a loan to Jade, damages to the latter, the errant party will be responsible therefor. However, if the
on her belief that Jades’s guarantor is Zantua, on whom Kim as full trust party alleging the mistake knew the doubt, contingency or risk affecting the object
and confidence. It turned out, however, that the guarantor is actually a of the contract, there is no mistake. (Art. 1333)
different person named John Chua, and not Zantua. Here, the consent is ● The party who claimed he had made a mistake and would want to annul the contract
vitiated due to his mistake on the person of the guarantor. by reason thereof, is estopped from doing so, if he was aware of the existence of the
● Example of Mistake as to Qualification: Isabel engaged the services of real fact from which the mistake has allegedly arisen. For example, if the purchaser
Hazel to pose as a model for the front cover of her magazine, believing knew that the growing crops in a hacienda belonged to the lessee and not the owner,
that Hazel is such an empowering role model for the youth. It evolved that there is no error or mistake that vitiated the purchaser’s consent.
Hazel is different from the model that Isabel had in mind, it only happened ● Negligence for not reading the “fine prints” of the contract which a party signed
that Hazel has the same name as the other model. Isabel’s consent is cannot be considered as a vitiating factor in the consent given by such party. Such
vitiated, even though the Hazel that she hired is as beautiful as the other failure did not make the act of the signing party as involuntary.
Hazel. ● If the negligence is mutual, they do not have a cause of action against each other.
e. Quantity – mistake in quantity must be distinguished from a mistake or error in ● If the mistake is being employed merely as an excuse to evade the contract, but
accounting. In the first, there really exists an error as to the extent or dimension of actually, there is fraud, the misleading party will be liable for damages under Article
the object of the transaction or contract. In the second, there is no real mistake but 1171.
only a mistake on paper due to an erroneous mathematical computation. The
contract in the first is voidable, while the contract in the second is not.
● For example, a vendee is informed by the vendor that the subject matter of
the sale is a 30 hectare sugarland which would produce 2,000 piculs of Mistake or Error in the Motive/s of a Party Does Not Vitiate Consent:
sugar. Vendee paid 30,000. Later, it turned out that the land was only 18 ● If a contracting party was motivated to enter into the contract by reason personal to
hectares and production was only around 800 piculs. There was mistake in himself but which turned out to be wrong, the consent he gave to the contract is not
quantity and the contract was set aside. But if the error in the area of the vitiated. For example, Ysa purchased a car believing that her original car which was
land is not considered as essential to the contract, the sale is valid. car napped could no longer be recovered. However, the car was recovered and
● However, when Joyce purchased 10 boxes of Royce chocolate covered returned to her. The purchase of the new car could not be set aside by reason of the
potato chips as comfort food at the price of 500 pesos each but was quoted mistake or error in her motive.
in the contract as amounting to 3,600 pesos instead of 5,000, there is
merely an error in computation of the account which can be easily Cases:
corrected as it is just a matter of arithmetic. It will not invalidate the
contract. Gomez vs. Was the consent given by the respondents void by reason of error and
Linton deceit? – YES. The facts show conclusively that the respondents were
2. Mistake of Law – This is the mistake incurred by a party or both parties as to the legal misled and deceived by the petitioner as to the actual boundaries of he
effect of a certain transaction or act. Generally, mistake of law does not vitiate consent as land, and, as to the important fact, that petitioner could not make a good
to render the contract voidable, because ignorance is not an excuse. However, if mutual title to all of the land within the boundaries. Respondents admit that before
error of the contracting parties as to the legal effect of an agreement frustrates the the signing of the contract, plaintiff took them out over the land, which he
intention of the parties, such error or mistake may vitiate consent. proposed to sell and showed them the corners and exterior boundaries.
After the contract was signed and upon making further examinations of the
Error in the Making of Estimates: record title, it was found that a large portion of the most valuable part of
● Error in the estimation or calculation of the benefits derivable from a contract as the tract was not included in the land, which the petitioner proposed to
well as the expected expenses attendant thereto, is not a ground for annulment of the convey.
contract. These errors do not permeate to the essential elements of the contract itself.
● If the estimations were done in bad faith to induce the other party to enter into the Atilano vs. Atilino1 executed a DOS covering Lot E in favor of his brother, Atilano2
contract, there is fraud, which may now invalidate the contract. Atilano while retaining for himself the only remaining portion of the land, lot A.
When Atilano2 become a widower, they had the land resurveyed so that it
Is the Party Who is the Source of the Mistake or Error Liable for Damages?: could properly be subdivided, and it was then discovered that the land they
● If a party has sustained damages by his reliance on the erroneous declaration of the were actually occupying on the strength of the DOS executed in 1920 was
other party, the latter may be held liable for damages if he is guilty of negligence. lot A and the land E while the land which remained in the possession of the
vendor, Atilano 1 was lot E and instead of A. The heirs of Atalino2 filed an
Presumption: Applicability:
● In the law on evidence, it is presumed that a person intends the ordinary ● Covers mistakes or errors which are not excusable.
consequences of his voluntary act. This principle that a party is presumed to know ● If the mistake could have been avoided by exercising ordinary prudence or by
the import of a document to which he affixes his signature is modified by article observing diligence to know the facts, or when it is so obvious and apparent that an
1332. Burden rests upon the party who seeks to enforce the contract to show that the ordinary person could have known it, a party cannot invoke mistake to seek the
other party fully understood the contents of the document. annulment of the contract.
● The mistake contemplated in this article which could constitute as a basis for the
When Presumption is Not Applicable: annulment of the contract is an excusable one. It must arise from facts unknown to
1. When one of the contracting parties is unable to read; the person. If the facts are known to him, or which he should have known by the
2. When the contract is written in a language not understood by the said party. exercise of ordinary diligence, he cannot allege mistake.
● Example: A bought B’s house along the edge of a hill. It collapsed after a strong
Allegation of Fraud or Mistakes by an Illiterate, Effects: typhoon.
There is intimidation when one of the contracting parties is compelled by a reasonable and
Rationale: well-grounded fear of an imminent and grave evil upon his person or property, or upon the
● When even the highest courts are sometimes divided upon difficult legal questions, person or property of his spouse, descendants or ascendants, to give his consent.
and when one-half of the lawyers in all controversies on a legal question are wrong,
why should a layman be held accountable for his honest mistake on a doubtful legal To determine the degree of intimidation, the age, sex and condition of the person shall be
issue? (Report of the Code Commission) borne in mind.
A threat to enforce one's claim through competent authority, if the claim is just or legal,
does not vitiate consent.
Requisites of Mutual Error:
1. The error must be mutual, that is, both parties are mistake about something but not
about the object, condition, personality or qualifications of a person as understood in Violence, Concept:
Art. 1331. ● It is an external and physical force or compulsion exerted upon a person to prevent
2. The error must refer to the legal effects of the agreement. Legal effect refers to the him from doing something or compelling him to do an act. Serious or irresistible
rights of the parties as stated in legal provisions and not as stipulated by the force is employed overcoming the mind of a person for the purpose of wresting his
contracting parties. consent.
For example: A is an heir of B, his deceased father. A sold his share to C which share is Elements of Violence:
indicated as his inheritance in the last will of his father. Both A and C believed that the sale 1. There is a physical force employed which must be serious or irresistible such that
is valid. So C paid the value of the property. However, the will was denied probate, the victim is left without any choice but to submit.
therefore A is not yet the owner of the property. There is mutual error and the sale is 2. The physical force employed is the determining cause in the giving of the
voidable. consent.
Nor was the petitioner’s ignorance of the true nature of the deed of conditional
sale probably true. By her own admission, she had asked the bank officer why Violence v. Intimidation
she had been made to sign a deed of conditional sale instead of an absolute Violence Intimidation
sale, which in itself reflected her full discernment of the matters subject of her
dealings with DBP. It consists of physical force which is It consists of moral force operating in the
serious or irresistible. will of a person.
(2) Violence:
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● Solicitation, importunity, argument, and persuasion do not constitute undue
It is external because it is exerted upon the It is internal because it operates in the mind influence, and a contract is not to be set aside merely because one party used these
body of the victim. It is physical of the person. It is a moral compulsion. means to obtain the consent of another.
compulsion. ● Giving of reluctant consent cannot be considered as vitiated consent because it is
clear that the person acted voluntarily and freely though he is reluctant.
There is no space of time to choose There is a brief space of time between the ● Reverential fear is the fear of displeasing persons to whom respect and obedience
between the physical compulsion and the threat and the actual act giving the victim a are due, and this does not vitiate consent.
act. They are simultaneously done. chance to choose between two evils: to do
what is being pressed upon him, or to suffer Circumstances Necessary in Determining Undue Influence:
the threatened act. ● The law mentions certain circumstances to be considered in resolving whether there
is undue influence, but these are not exclusive.
● Other circumstances may be considered if they lead to the determination of the
Article 1336. Violence or intimidation shall annul the obligation, although it may have existence of any kind of ascendancy or power of one person over the will of another,
been employed by a third person who did not take part in the contract. (1268) depriving the latter of his freedom of choice.
We conclude from the above that while the representation that plaintiff had Songco vs. Sellner bought Songco’s cane as it stood in the fields for the sum of 12k.
the exclusive franchise did not vitiate defendant's consent to the contract, it Sellner The PN in question was obtained from the defendant by means of certain
was used by plaintiff to get from defendant a share of 30 per cent of the net false and fraudulent representations based on estimates (3k piculs). The
profits; in other words, by pretending that he had the exclusive franchise crop turned out to produce 2k piculs, gross, and after the foll for milling
and promising to transfer it to defendant, he obtained the consent of the was deducted the net left to Sellner was very much less.
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● “Let the buyer beware.” The buyer has the duty to check the title of the seller over
the property plus other circumstances necessary for his own protection. Otherwise,
NO FRAUD. Songco knew at the time he made the representation in he would be buying the property at his own risk.
question that he was greatly exaggerating the probable produce of his fields. ● There is a presumption that a person takes ordinary care of his concerns, followed
While Songco had better experience and better information on which to by another presumption that the ordinary course of business has been followed.
form an opinion on this question than Sellner, the latter could judge his own Accordingly, let the buyer beware for he will assume the burden and consequences
eyes as to the character of the case. He knew what these same fields had of his imprudence and credulousness
been producing over a long period of years; he knew that by judging from
the customary yield, the harvest of this year should fall below the amount Mere expression of an opinion:
stated.
Article 1341. A mere expression of an opinion does not signify fraud, unless made by an
A misinterpretation upon a mere matter of opinion is not an actionable expert and the other party has relied on the former's special knowledge. (n)
deceit, nor is it a sufficient ground for avoiding a contract as fraudulent. It
is not every false representation relating to the subject matter of a contract
which will render it void. It must be as to matters of fact substantially Significance:
affecting the buyer's interest, not as to matters of opinion, judgment, ● A mere expression of opinion by an ordinary person does not signify fraud.
probability, or expectation. However, if it is made by an expert offered by one party and the other party relied on
the expertise of the said expert, there is fraud if the opinion contemplated in the
article is not an honest-to-goodness opinion but a false representation precisely
Azarraga Was there fraud in obtaining the consent of Gay? – NO. Before the
given to mislead the victim.
vs. Gay execution of the agreement, Gay went over to the lands in question to make
● An expert has a special knowledge on his field of discipline. He is a recognized
her own calculations, but despite this, she still was not able to ascertain the
authority in his line of business or profession. As such, his opinion is like a
difference in the land area. Another document was also delivered to Gay
statement of fact and if it is false, may be considered fraudulent giving rise to an
before the execution of the contract, which contains that the second parcel
action for annulment.
has 70 hectares, and yet, despite knowing this discrepancy, she still
proceeded with purchasing the land. If the land area is so important, the sale
When Expert was Engaged by the Plaintiff:
could have been made at a price per unit measure.
● If it is the plaintiff himself who hired the expert and he relied on the supposed
special knowledge of the said expert, and by reason of which he entered into the
Usual exaggerations in trade: contract but unfortunately, the expert’s opinion turned out to be wrong, the
plaintiff’s action for annulment must fall.
Article 1340. The usual exaggerations in trade, when the other party had an opportunity to ● The expert is considered the plaintiff’s own employee.
know the facts, are not in themselves fraudulent. (n) ● The plaintiff’s recourse is against the expert.
What Tolerated Fraud Covers: General Rule: Misrepresentation by Third persons Does not Vitiate Consent:
● Tolerated fraud usually refers to misrepresentation of traders tending to minimize ● Misrepresentation or fraud committed by a third person inducing a party to enter
the perceived defects of the thing or service advertised, or magnification of its into the contract does not vitiate consent and cause the nullity of the contract.
qualities. ● It may, however, give occasion for an action for damages against the third person by
● They generally do not affect the validity of the contract. They will constitute fraud the injured party.
when misrepresentations are set to deceive such as faking the quality of the thing ● Exception: if the third party acted in collusion with a party who benefited thereby,
purposely to mislead, and preventing attempts at verification by the other party. the contract may be annulled by the injured party. The complicity of a party and the
● When there is a written contract, what does not appear on the face of the contract third person make them solidarily liable to the innocent party.
should be regarded as “trader’s talk.”
Exception to the General Rule:
Caveat Emptor:
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● The fraud committed by the third person will make the contract voidable only if the the honest misrepresentation of Rico, but because of the substantial error on the part
following requisites concur: The representation created substantial mistake, and the of the parties.
mistake is mutual.
● The cause of the voidability of the contract is a complex one, that is, the
misrepresentation of the third person resulting in substantial mistake on the part of Asiain vs. Was the misrepresentation made in good faith, and does it constitute as
both parties. Jalandoni a ground for rescission? –YES. There was no fraud on Asiasin’s part
but rather a mutual mistake on both parties. Since the mistake is so
Rule in Case of Force and Intimidation Exerted by a Third Person: material as to go to the essence of the contract, it is a ground for relief
● The rule is different where the violence or intimidation is exercised by a third person and rescission. Innocent and mutual mistake alone are sufficient grounds
who did not participate in the contract. The contract shall be annulled by such for rescission.
violence or intimidation. Whereas, the fraud made by the third person does not
vitiate consent. It is well settled hat a purchaser of land, when it is sold in gross, or with
the description “more or less” does not thereby ipso facto take all the risk
of quantity in the tract If the difference between the real and represented
Hill vs. Veloso Can the defense of deceit be used in this case to nullify the promissory quantity is very great, both parties act obviously under a mistake which it
note? – NO. The deceit, in order that it may annul the consent, must be is the duty of the court of equity to correct. Mutual mistake of the
that which the law defines as a cause. Domingo Franco is not one contracting parties which is so material as to go to the essence of the
contracting party with regard to Maximina Ch. Veloso as the other contract is a ground for relief and rescission.
contracting party. They both are but one single contracting party in
contractual relation with, or as against, Michael & Co.
Article 1344. In order that fraud may make a contract voidable, it should be serious and
Domingo Franco, like any other person who might have been able to to should not have been employed by both contracting parties.
induce Maximina Ch. Veloso to act in the manner she is said to have
done, under the influence of deceit, would be, for this purpose, but a third Incidental fraud only obliges the person employing it to pay damages. (1270)
person . There would then not be deceit on the part of the one of the
contracting parties exercised upon the other contracting party, but deceit
practiced by a third person. Character of Fraud to Render a Contract Voidable:
● The fraud must be serious to vitiate consent. Moreover, it must not be mutual.
Deceit by a third person does not in general annul consent, and in support ● When fraud is sufficient to induce an ordinary prudent person into error, the fraud is
of this opinion it is alleged that, in such a case, the two contracting said to be serious. If it cannot deceive an ordinary prudent man, it is not serious.
parties act in good faith. ● Personal circumstances of the victim should be weighed and considered in
determining the influence of the fraudulent act upon a person.
● If both parties are in pari-delicto, the law will leave them where it finds them.
(2) In good faith: Neither of the parties could seek the annulment of the contract.
Article 1343. Misrepresentation made in good faith is not fraudulent but may constitute
error. (n) Incidental Fraud:
● Incidental fraud is not the reason why the party has entered into the contract; it does
not vitiate consent.
Effect of Misrepresentation: ● Even without it, the party just the same, would still have agreed to the contract.
● If the misrepresentation is done in bad faith, which means, it is deliberate and
intended, and the other party was induced to agree to the contract by the act of Simulation of a contract:
misrepresentation, there is fraud. The contract is voidable. (1) Absolute vs. relative:
● If the misrepresentation is made in good faith, the contract just the same is voidable,
not because of the misrepresentation but because of substantial error. This error is Article 1345. Simulation of a contract may be absolute or relative. The former takes place
tantamount to vitiated consent. when the parties do not intend to be bound at all; the latter, when the parties conceal their
● Example: Rico sold a fighting cock to Patch, an amateur in cock-fighting. Patch true agreement. (n)
needed a Texas fighting cock, a kind of cock which lasts long during engagements.
Rico honestly believed that the cock he gave to patch is a Texas cock. When the Article 1346. An absolutely simulated or fictitious contract is void. A relative simulation,
cock was pitted to another, it didn’t last long as its nature was too soft. It turned out when it does not prejudice a third person and is not intended for any purpose contrary to
that the cock is just an ordinary one. The sale of the cock is voidable, not because of law, morals, good customs, public order or public policy binds the parties to their real
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● In the event that the contract was intended for an illegal purpose, the contract is void
agreement. (n) and the parties have no cause of action against each other. (Article 1411)
No fraud
Class Notes: Vices of Consent ● Failure to disclose facts - not necessarily fraud/no fraud, only when there is duty
to disclose.
Mistake ● Usual exaggeration in trade - no fraud
● There can be mistakes of fact incurred by one or both parties. - Dealer’s talk or extraordinary seller’s talk
● 1331 also mentions mistake as to identity of qualifications of one of the parties - When other party had opportunity to know the facts
Difficulty of Performance is not identical with Impossibility of Performance: Determinate In Kind, Meaning:
● When there is a mere difficulty or great inconvenience, that is not an impossibility. ● A thing is determinate in kind when the specie is indicated such as a horse, a cow, a
Equity will not excuse the debtor from the bad bargains which he had entered into. dog.
He is liable for damages if he does not perform his prestation. ● Its particularization may be established by evidence. However, if the object is
○ Exception: When the debtor has obligated himself to do something which merely described as an animal, the contract is void because there are millions of
will prove dangerous to his life and property. To compel someone to fulfill animals, and even some people can be animals too if you know what I mean.
a contract which is undesirable and harmful is contrary to law and public ● Where the kind is undefined, there is no object and thus no contract is created by the
policy. parties.
ARTICLE 1351. The particular motives of the parties in entering into a contract are In making the donation in question, the late Salvador P. Lopez was not moved
different from the cause thereof. exclusively by the desire to benefit appellant Conchita Liguez, but also to
secure her cohabiting with him, so that he could gratify his sexual impulses.
Motive became the cause; motive is illegal, hence the donation is void
Cause Motive
Gonzales The court ruled that there was a consideration (10,000) and the subject matter
vs. was lawful. However as the contract in itself was fictitious and simulated
Cause is the direct reason Motive is the indirect reason for the contract
Trinidad price, the consideration being thus lacking, the contract was null and void per
for the contract.
se or nonexistent.
Cause is the objective and Motive is the psychological or personal purpose of a party
juridical reason for the in getting the object.
establishment of a contract. ARTICLE 1352. Contracts without cause, or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order
or public policy.
Cause is always the same in Motive differs with each person.
each kind of contract.
Effect of Absence of Cause, and When Unlawful + Others:
A contract without a cause A contract without motive or even with illegal motives does ● A contract without cause is void. If it has a cause but the same is unlawful, the
is void. not affect validity of the contract. contract is also void.
● A cause is unlawful if it is contrary to law, morals, good customs, public order or
Exception: If the motive predetermines the purpose of the public policy.
contract, motive may be regarded as cause. Thus, if a debtor ● Failure to pay consideration is different from lack of consideration, the former
has alienated his properties with the motive to defraud his results in a right to demand the fulfillment or cancellation, the latter prevents the
creditors, the alienation is rescissible. execution of a valid contract.
● Where the consideration in a deed of sale constituted nothing more than the
accumulated usurious interests, the said consideration is null and void because the
cause is illegal.
PBC vs. Although Atty. Alonzo (lawyer who prepared the contracts) declared that he
ARTICLE 1353. The statement of a false cause in contracts shall render them void, if it Lui She saw no money paid at the time of the execution of the documents, his
should not be proved that they were founded upon another cause which is true and lawful. negative testimony does not rule out the possibility that the considerations
were paid at some other time as the contracts in fact recite.
Effect of Statement of False Cause: What is more, the consideration need not pass from one party to the other at
● If a false cause is stated in the contract, the general rule is that the contract is void. the time a contract is executed because the promise of one is the
○ Exception: If the interested part can prove that the contract is founded consideration for the other. The illicit purpose, which was to transfer
upon another cause which is true and lawful, the contract will be saved ownership to an alien, becomes the illegal causa" rendering the contracts
from invalidity. void.
Applicability to Simulated Contracts; Void Contracts Not Subject to Ratification: Saquid vs. The third element (cause) is lacking because there was no transaction
● The article can apply to absolutely simulated contracts which are void contracts. If it Security between the parties for the proceeds of the loan which were used in
can be established that there is another cause for it which is valid, the contract will Finance purchasing the subject motor vehicle.
be considered valid. Inc.
● If the contract is relatively simulated, only the real agreement remains binding Under Article 1354 of the NCC, it is presumed that consideration exists and
between the parties, unless it prejudices the rights of third persons, or is contrary to is lawful unless the debtor proves the contrary. The presumption cannot be
law, morals, good customs, public order or public policy. overthrown by mere assertion that it has no consideration; alleged lack of
● Void contracts cannot be ratified. consideration must be shown by preponderance of evidence.
○ However, even if the cause is void, the contract can still be valid if another
cause which is true and lawful could be shown to support it. The following evidence were presented to show that they bought the car in
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cash, and not in installment basis: vehicle sales invoice, vehicle delivery indispensable. In such cases, the right of the parties stated in the following article cannot be
note, certificate of registration, official receipts. exercised.
Class Notes: 2. When the law requires that a contract be in certain form for its
Cause enforceability
● Arts. 1354 and 1350 ● The second refers to the agreements covered by the statute of frauds.
● A contract falling under the statute of frauds cannot be proved or
Lesion or inadequacy of cause established without the note, writing, or memorandum thereof, unless
● Lesion - basically kulang, bad bargain there has been a waiver such as when the party who can invoke the
● Instead of getting 10m for a 10m car, you only get 5m or 1m. But it does not benefits of the statute does not object to the presentation of oral
necessarily mean that if there is inadequacy of the cause, it does not mean that the evidence, or has received any benefits therefrom. It is understood that
cause is illegal or that it will invalidate the contract. the statue is applicable only to executory contracts and not to executed
● Lesion can be a ground for rescission of contract. Inadequacy of a cause can be contracts, whether completely or partially executed, which execution
basis for invalidating contract if by virtue of fraud, mistake, undue influence etc. however must be proved either by documentary or oral evidence.
● If it is gross inadequacy - suggests fraud or even undue influence which may be ● Examples of Agreements which must be in Writing to be enforced:
sufficient to prove vice in consent when taken in connection with other ○ An agreement that by its terms is not to be performed within
circumstances which can still invalidate the contract. a year from the making thereof.
● GR: contract cannot be subject to annulment simply because of lesion. ○ A special promise to answer for the debt, default, or
miscarriage of another.
○ An agreement made in consideration of marriage, other than a
FORM (Arts. 1356-1358)
mutual promise to marry.
ARTICLE 1356. Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity are present. However,
Contract of Partition not Covered By Statue of Fraud:
when the law requires that a contract be in some form in order that it may be valid or
● A note or memorandum is not necessary for the contract of partition. A writing of
enforceable, or that a contract be proved in a certain way, that requirement is absolute and
the contract of partition is not constitutive of its validity but merely evidential.
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● Example: The sale of land must appear in a public instrument in order to be
enforceable against third persons, the registration of the document is essential to
affect third persons.
ARTICLE 1357. If the law requires a document or other special form, as in the acts and
contracts enumerated in the following article, the contracting parties may compel each Cases:
other to observe that form, once the contract has been perfected. This right may be
exercised simultaneously with the action upon the contract. Shaffer vs. Shaffer filed a complaint against the defendant sps. Palma to recover sums
Palma of money and shares of stock. Lower court ruled that the action is based on
an agreement which involves the amount of P118k and that unless the
agreement is in writing it is unenforceable.
● The contract is valid even if it is not in writing because contracts
Applicability: are binding upon the parties in whatever form they may have been
● Applicable only when the form is needed for convenience and not for validity or entered into unless the law requires otherwise.
enforceability. ● It is true that Article 1358 of the Civil Code provides that
● The contracting parties may compel each other to observe the required form once contracts involving more than P500.00 must appear in writing but
the contract has been perfected and is enforceable under the Statute of Frauds. nothing is said therein that such requirement is necessary for their
Otherwise, the action for specific performance will not prosper. validity or enforceability.
● Example: Ghelyn leased a parcel of land belonging to Ysa for five years which lease
contract was done in a private instrument. Desiring to register the lease with the
Dauden vs. Actress filed a complaint to recover payment for the balance of her service.
registry of Deeds, Ghelyn filed a case for specific performance against Ysa to
delos The lower court judge dismissed due to lack of written agreement.
compel Ysa to execute the necessary document. Here, the action will prosper
Angeles
because the contract of lease is both valid and enforceable.
The Court held that the contract (compensation for services) is valid and
enforceable. It is true that it appears included in Article 1358, last clause,
ARTICLE 1358. The following must appear in a public document: providing that "all other contracts where the amount involved exceeds five
1. Acts and contracts which have for their object the creation, transmission, hundred pesos must appear in writing, even a private one."
modification or extinguishment of real rights over immovable property; sales of
real property or of an interest therein are governed by articles 1403, No. 2, and However, Article 1357 clearly indicates that contracts covered by Article
1405; 1358 are binding and enforceable by action or suit despite the absence of
2. The cession, repudiation or renunciation of hereditary rights or of those of the writing. It is not enough that the law should require that the contract be in
conjugal partnership of gains; writing, as it does in Article 1358. The law must further prescribe that
3. The power to administer property, or any other power which has for its object an without the writing the contract is not valid or not enforceable by action.
act appearing or which should appear in a public document, or should prejudice a
third person;
4. The cession of actions or rights proceeding from an act appearing in a public Special Forms of Contracts:
document.
1. For validity (Arts. 748, 749, 1744, 1773, 1874, 1956, 2134, Act 1147, Sec. 22),
All other contracts where the amount involved exceeds five hundred pesos must appear in 2. For enforceability (Arts. 1403, 1878),
writing, even a private one. But sales of goods, chattels or things in action are governed by 3. For greater efficacy or convenience (Arts. 1358)
articles 1403, No. 2 and 1405.
The acceptance may be made in the same deed of donation or in a separate public (c) An agreement made in consideration of marriage, other than a mutual promise
document, but it shall not take effect unless it is done during the lifetime of the donor. to marry;
If the acceptance is made in a separate instrument, the donor shall be notified thereof in an (d) An agreement for the sale of goods, chattels or things in action, at a price not
authentic form, and this step shall be noted in both instruments. less than five hundred pesos, unless the buyer accept and receive part of such
goods and chattels, or the evidences, or some of them, of such things in action, or
ARTICLE 1744. A stipulation between the common carrier and the shipper or owner pay at the time some part of the purchase money; but when a sale is made by
limiting the liability of the former for the loss, destruction, or deterioration of the goods to a auction and entry is made by the auctioneer in his sales book, at the time of the
degree less than extraordinary diligence shall be valid, provided it be: sale, of the amount and kind of property sold, terms of sale, price, names of the
1. In writing, signed by the shipper or owner; purchasers and person on whose account the sale is made, it is a sufficient
2. Supported by a valuable consideration other than the service rendered by the memorandum;
common carrier; and
3. Reasonable, just and not contrary to public policy. (e) An agreement for the leasing for a longer period than one year, or for the sale
of real property or of an interest therein;
ARTICLE 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made, signed by the parties, and (f) A representation as to the credit of a third person.
attached to the public instrument.
(3) Those where both parties are incapable of giving consent to a contract.
ARTICLE 1874. When a sale of a piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void. Unenforceable Contracts, Concept:
● Unenforceable contracts are those which cannot be enforced by action or complaint
ARTICLE 1956. No interest shall be due unless it has been expressly stipulated in writing. in court, unless that have been ratified by the parry or parties who did not give their
consent thereto.
ARTICLE 2134. The amount of the principal and of the interest shall be specified in ● They are midway between void and voidable contracts.
writing; otherwise, the contract of antichresis shall be void.
SECTION 22 OF ACT NO. 1147. "No transfer of large cattle shall be valid unless Kinds of Unenforceable Contracts:
registered, and a certificate of transfer secured as herein provided."
1. Those entered into in the name of another person by one who has no
authority/who acted beyond his powers.
For Enforceability (Arts. 1403, 1878) 2. Those that do not comply with the Statute of Frauds.
ARTICLE 1403. The following contracts are unenforceable, unless they are ratified: 3. Those where both parties are incapable of giving consent to a contract.
(1) Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers; Distinctions/Differences of the Similarities of the Three Kinds of Unenforceable
Three Kinds of Unenforceable Contracts:
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the Contracts:
following cases an agreement hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum, thereof, be in writing, and subscribed by the party 1. In the first kind, there is 1. They cannot be enforced or pursued in
charged, or by his agent; evidence, therefore, of the agreement cannot be received without a lack of consent on the court
the writing, or a secondary evidence of its contents: part of the person whose 2. They can be ratified, which means, they can
name the contract was be convalidated and become enforceable in
(a) An agreement that by its terms is not to be performed within a year from the entered into. court.
2. In the second kind, there 3. They cannot be attacked or assailed by third
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● The reason for excluding partially executed contracts from the rule is that fraud
is no written proof persons. The remedy of the third person is would otherwise be promoted, instead of prevented if one party would be able to
whatever by which the against the agent ho acted without authority keep the benefit.
contract may be proved. or acted beyond his authority.
3. In the third kind, while Enumeration of Contracts/Agreements Under the Statute is Exclusive:
there is consent, the According to Pineda, the grouping of the three ● The statute of frauds refers to specific kinds of transactions and cannot apply to any
same is absolutely unenforceable contracts is not logical because the other transaction that is not enumerated therein. The enumeration is exclusive. Thus,
vitiated because both second group which suffers from mere defects of an agreement creating an easement of right-of- way is not covered because it is not a
parties are incapable of formalities are placed in the category of contracts sale of real property or of an interest therein.
giving their consent to which suffer from lack of consent which affects not
the contract. only their enforceability but also their validity.
Unauthorized Contracts:
● The first kind refers to unauthorized contracts.
● Examples: A lawyer signed a compromise agreement for and in behalf of the client Consequence of Non-Compliance with the Statute of Frauds:
without the authority of the latter. An agent enters into a contract of sale in behalf of ● If a contract is among those covered by the Statute but not done in writing, such
the principal after the death of the principal and with the knowledge of such death. deficiency does not make the oral contract invalid or void. It merely renders the
Check the cases for further explanation. action for specific performance ineffective.
● The effect therefore of non-compliance with the Statute is that no action for the
Statute of Frauds: enforcement of the contract can be proved. Thus, any oral evidence being presented
● The term statute of frauds is descriptive of those laws, statutes, or provisions which may be objected for being inadmissible evidence. But the objection must be timely
require certain agreements to be in writing before they can be proved and enforced made.
in a judicial action. ● The absence of an objection at the proper time will result in an implied waiver of the
● The term is the name given to the well-celebrated statute passed in 1676 by the right to invoke this defense. In which case, the oral contract shall become binding
English Parliament requiring certain agreements to be reduced in writing before they upon the parties as if it were done in writing.
could be proved and enforced in court.
● The statute does not deprive the parties of the right to contract with respect to the Specific Actions Where the Statute of Frauds May be Invoked:
matters therein involved, but merely regulates the formalities of the contract ● The Statute of Frauds is a matter of personal defense and is also a ground for a
necessary to render it enforceable. motion to dismiss. It can be invoked before an answer is filed as a ground for a
motion to dismiss, or it can be interposed as an affirmative defense provided it is not
Purpose of the Statute: waived during the trial.
● The purpose of the statute is to prevent fraud and perjury in the enforcement of ● It can only be invoked in two kinds of cases, namely:
obligations, depending for their existence on the unassisted memory of witnesses, by 1. In complaints for specific performance where the defendants may frustrate
requiring certain enumerated contracts and transactions to be evidenced by a writing the actions by showing that the contracts in issue are among those covered
signed by the party to be charged. by Article 1403, par. 2 and are not evidenced by any written document, not
● It is obviously intended to close the door to the numerous frauds and perjuries to be or memorandum.
perpetrated when alleged obligations could be enforced based merely on the 2. In complaints for damages for violation of the contract. If there is no
recollection of witnesses whose memories as the years go by, may no longer be enforceable contract, naturally, there can be no basis for damages
defendable and reliable to serve them with perfection. grounded on violation thereof.
ARTICLE 1366. There shall be no reformation in the following cases: An Action Filed to Enforce the Instrument Bars Subsequent Action of Reformation:
1. Simple donations inter vivos wherein no condition is imposed; ● When a party has previously filed an action for the enforcement of the instrument,
2. Wills; he is no longer allowed to bring a subsequent action for the reformation thereof. He
3. When the real agreement is void. is placed under estoppel because in seeking the enforcement of the instrument, he is
considered to have ratified it.
● A party is not allowed to pursue two inconsistent positions regarding an instrument,
In SBM’s ppt: one for its affirmance and the other for its disaffirmance.
Reasons Why Reformation is Not Allowed:
ARTICLE 1368. Reformation may be ordered at the instance of either party or his
1. Unconditional Simple Donations Cannot be Reformed – the reason for this is successors in interest, if the mistake was mutual; otherwise, upon petition of the injured
that such unconditional donations are essentially gratuitous. Being acts of party, or his heirs and assigns.
liberality, courts should not interfere in such kind of donation. The donee has not
paid anything and consequently, it is inappropriate for him to sue the donor to
reform the deed of donation which the latter has executed unilaterally. Who can Initiate an Action for Reformation?:
1. If the mistake is mutual, either party or his successor in interest may file the case for
Exception: If the donation is subject to a condition, it partakes of the nature of a reformation.
contract. If the contract failed to express the intention of the parties on the agreed 2. If the mistake is only on one side, the injured party or his heirs or assigns may file
condition, the deed of donation can be reformed. the action.
2. Wills – are not allowed to be reformed. The reason for this is that the execution Indispensable Allegations in an Action for Reformation:
of a will is a personal act which can be revoked anytime by the testator. If the 1. The meeting of the minds on the real intention or agreement of the parties.
testator has changed his mind and desires to cancel his testamentary dispositions, 2. The instrument did not express the real intention or agreement of the parties.
all he has to do is to revoke the will by another will or codicil or execute overt 3. The reason for the failure of the instrument to express the real intention or
acts of revocation like tearing, burning, cancelling, or obliterating the will with agreement of the parties.
the intention of revoking it.
Prescriptive Period:
Exception: When there are imperfect or erroneous descriptions of persons or ● An action for reformation of a contract prescribes after ten years.
property, the mistakes and omissions must be corrected, if the error or errors
appear from the context of the will or from extrinsic evidence but excluding oral ARTICLE 1369. The procedure for the reformation of instrument shall be governed by
declarations of the testator as to his intention. rules of court to be promulgated by the Supreme Court.
● It must be noted it is only on these specific matters of misdescriptions
that a will may be corrected by the court, that is, in the course of the
probate proceedings. Rule on Reformation of Instrument:
● The testamentary dispositions themselves cannot be corrected by the ● An action for reformation of an instrument, to quiet title to real property or remove
court. The only person allowed to amend or add something to clouds therefrom, or to consolidate ownership under Article 1607, may be brought
testamentary dispositions is the testator himself. under Rule 63, declaratory relief and similar remedies.
● When the exception to correct is allowed, it is because the testator is
already dead and the court simply reads the intention of the testator on Jurisdiction:
the correct person/property imperfectly described. ● An action for reformation of instrument necessarily falls under the jurisdiction of the
Regional Trial Court. Any disagreement as to the nature of the parties’ relationship
CIVREV C2022 COMPILATION - DBN & MKG | SBM SYLLABUS | 137
which would require first an amendment or reformation of their contract is an issue
which the courts may and can resolve without the need of the expertise and adequate to render it effectual.
specialized knowledge of the Housing and Land Use Regulatory Board.
As a whole instead of in part - ARTICLE 1374. The various stipulations of a contract
INTERPRETATION OF CONTRACTS (ARTS. 1370-1379) shall be interpreted together, attributing to the doubtful ones that sense which may result
from all of them taken jointly.
ARTICLE 1370. If the terms of a contract are clear and leave no doubt upon the intention In keeping with nature - ARTICLE 1375. Words which may have different significations
of the contracting parties, the literal meaning of its stipulations shall control. shall be understood in that which is most in keeping with the nature and object of the
contract.
If the words appear to be contrary to the evident intention of the parties, the latter shall
prevail over the former. Usage and custom - ARTICLE 1376. The usage or custom of the place shall be borne in
mind in the interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established.
SBM: Memorize!
Construed against the one who caused obscurity - ARTICLE 1377. The interpretation of
ARTICLE 1371. In order to judge the intention of the contracting parties, their obscure words or stipulations in a contract shall not favor the party who caused the
contemporaneous and subsequent acts shall be principally considered. obscurity.
Legal Valid and legally Valid, binding, Inoperative until Generally, they
Concept of Rescissible Contract:
effect enforceable until and ratified. Not do not produce
● A rescissible contract is one which contains all the essential requisites of a contract
judicially enforceable enforceable in legal effects
which make it valid, but by reasons of injury or damage to either of the contracting
rescinded. until judicially court without with a few
parties or to third persons, such as creditors, may be rescinded.
annulled. proper ratification. exceptions
● An action to rescind under this article or an accion pauliana must be of last resort,
(void married
availed of only after all other legal remedies have been exhausted and have been
prode legitimate
proved futile.
children)
Nature There is a true alienation of There is no alienation of property but CBC vs. CA Assignment of rights to redeem in favor of Paulino is to rescinded since it
property. only pretension of alienation. was done to defraud China Bank. Despite Alfon’s knowledge that it is the
only property he had which his other creditors could levy, he still assigned
Purpose To set aside a contract validly To declare the inexistence of the his right to redeem his ½ share of the conjugal property in question from
entered into. absolutely simulated contract which Metrobank in favor of his son, Paulino. Also, the presumption that the
prejudices the rights of a third person conveyance is fraudulent has not been overcome. This presumption is
CIVREV C2022 COMPILATION - DBN & MKG | SBM SYLLABUS | 141
indebtedness. The sale is rescissible because it was made by the debtor who is in a
strengthened by the fact that the conveyance has virtually left Alfonso’s state of insolvency, in payment of an obligations which is not yet due.
other creditors with no property to attach. ● An insolvent will not be permitted to alienate his property without a full and fair
consideration where the conveyance was not done in good faith.
Oria vs. Hermanos received a favorable judgment against Oria Co. which was
McMicking under liquidation. When execution was placed in the hands of the sheriff, Kinds of Premature Obligations Covered:
Oria replied that there were no funds to pay the civil liability. A steamship ● The premature obligation which was paid by the insolvent debtor may include a
was then subjected to public auction where the highest bidder was void, natural, condoned, or prescribed obligation.
Gutierres Hermanos. Oria claims that he is the owner of the steamship due Contracts Entered Into By Guardians and Representatives of Absentees:
to the earlier sale by the company to him. ● If the contracts entered into by guardians or representatives are approved by the
court having jurisdiction over the proceedings, the contracts could not be rescinded.
The sale in the form in which it was made leaves the creditors ● Opposition to these contracts should have been timely made before the court. The
substantially without recourse. The property of the company is gone, its lack of opposition is deemed a waiver of the right to rescind.
income is gone, the business itself is likely to fail, the property is being ● Unless this presumption is rebutted with strong, clear, and convincing evidence,
dissipated, and is depreciating in value. contracts entered into by guardians and representatives which have been approved
by the court, cannot be the subject of rescission.
Contreras vs. The deed of mortgage in question has for its object a property in litigation, ● The court must, however, be a competent court and had observed due process.
CBC and it was executed by spouses Molina without the knowledge and
approval of neither the petitioner nor the court having cognizance of the Applicability; Payments:
litigation. Spouses Molina cannot allege that the 1⁄2 belonging to them ● The article does not refer to a contract but to payments made, that is why the same
was free from litigation because the action involved the whole property. were not included among the enumeration in Art. 1381.
● What is rescissible are the payments for obligations which are not yet due. Payments
Rosenroc v. This does not mean that respondents are left without any remedy for the must have been made by a payer-debtor who is in a state of insolvency.
Inquing unjustified violation of their right of first refusal. Their remedy however is
an action for damages against the heirs of the spouses Tiangco for the State of Insolvency, Meaning:
unjustified disregard of their right of first refusal. ● The word insolvency is understood in its vulgar and not technical sense as defined
under the Insolvency Law. In its vulgar sense, a person is considered insolvent when
it is impossible for him to fulfill his obligations because of financial constraints. He
ARTICLE 1382. Payments made in a state of insolvency for obligations to whose has more obligations than assets.
fulfillment the debtor could not be compelled at the time they were effected, are also ● The law does not require a judicial declaration of insolvency to make the payments
rescissible. rescissible.
ARTICLE 1383. The action for rescission is subsidiary; it cannot be instituted except
ARTICLE 1386. Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place
when the party suffering damage has no other legal means to obtain reparation for the same.
with respect to contracts approved by the courts.
No Rescission when Property had already been Legally Transferred to Third Person: Presumptions of Good Faith:
● If the property had already been alienated in favor of a third person, such as by way ● Generally, when a person acts, he is presumed to be acting in good faith.
of sale, and he is in good faith, the transfer of the property to him will be respected, ● Good faith is always presumed and upon him who alleges and imputes bad faith on
as he has a better and superior right than that of the complaining party whose claim the part of the possessor of the property rests the burden of proof. Further, a person
or right had not been preserved. If in bad faith, the property transferred to him could is presumed to take ordinary care of his concerns and that the law has been obeyed.
still be recovered, aside from the imposition of damages for the injury suffered by ● When the law presumes a transaction as fraudulent, that presumption is an exception
the complaining party. to the general rule of good faith stated in Art. 527.
● Although a transferee is in good faith, if he got the property gratuitously from the
debtor, he is obliged to return the thing under the principle that no person shall be Presumptions of Fraud are Rebuttable:
enriched at the expense and prejudice of other persons like the creditors. He will ● The legal presumption in Article 1387 are rebuttable, which means, they may be
restore the property in the condition it may be found without any liability to pay for overcome by clear, strong, and convincing evidence.
the fruits he had received, if there are any. More, he is entitled to reimbursement or ● Unless sufficiently controverted, the presumptions will maintain the existence of
necessary and useful expenses which he incurred. Even more, he is not liable for the fraud with all the consequences attendant thereto.
deterioration or loss of the thing possessed except when he acted with fraudulent ● The presumption of fraudulent transaction is not overcome by the mere fact that the
intent or negligence, after judicial summons had been received by him. deeds of sale in question were in the nature of public instruments. Their being
notarized does not render them immune and free from their fraudulent and deceptive
Persons Liable for Indemnity for Damages: elements.
● If creditors who desire to recover the property alienated to defraud them, failed in
their quest for rescission due to the lawful transfer of the possession or ownership of
property to a third person who acted in good faith, their recourse is to go after the Requisites to Overcome Statutory Presumption of Fraud:
person who had caused the loss.
● Thus, if it is guardian who is involved, he will be liable to indemnify the ward for 1. It must be proved affirmatively that the conveyance was done in good faith.
the value of the economic damage or lesion suffered by the latter. 2. It must also be established that the conveyance was for a sufficient and valuable
consideration.
Article 1385 has a Parallel Rule in Article 1402:
● The present article has a parallel rule in the Chapter on Voidable Contracts: Article Effect if there is no judgment against alienating debtor nor writ of preliminary
1402. As long as one of the contracting parties does not restore what in virtue of the attachment
decree of annulment he is bound to return, the other cannot be compelled to comply ● If there is no judgment rendered or any writ of preliminary attachment issued against
with what is incumbent upon him. (1308) the debtor, the presumption of fraud under the article will not apply.
● These two circumstances are conditions precedent which must be established.
ARTICLE 1387. All contracts by virtue of which the debtor alienates property by Otherwise, no fraud is presumed. However, if there is actually a fraud committed, it
gratuitous title are presumed to have been entered into in fraud of creditors, when the donor may still be proven by available competent evidence.
did not reserve sufficient property to pay all debts contracted before the donation.
Complaining creditor not confined to the Presumption to Prove Existence of Fraud:
Alienations by onerous title are also presumed fraudulent when made by persons against ● The creditor if he so desires may present other evidence to establish the existence of
whom some judgment has been rendered in any instance or some writ of attachment has the fraud more convincingly, although he already enjoys a favorable presumption.
been issued. The decision or attachment need not refer to the property alienated, and need ● Thus, the last paragraph of the law says, “In addition to these presumptions, the
not have been obtained by the party seeking the rescission. design to defraud creditors may be proved in any other manner recognized by the
law on evidence.
In addition to these presumptions, the design to defraud creditors may be proved in any
other manner recognized by the law of evidence. A Rescissible Contract is Valid Before its Rescission:
● Just like a voidable contract, a rescissible contract, until it is finally rescinded, is
considered a valid contract. It is legally effective and can transfer or convey title. It
Nature of Fraud:
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cannot be attacked collaterally like in a land registration proceeding. There is a need Rule When Transferee Is In Bad Faith; Sanctions:
for direct attack, that is, a specific action for rescission. ● Any person who being aware of the intention of the debtor to defraud his creditors,
still insisted on acquiring or purchasing the debtor’s property, will be liable to return
Existence of Fraud Does not Necessarily Bring About Rescission: the same to the particular creditor/s who had successfully instituted the complaint
● The presence of fraud in a transaction concluded by a debtor does not by itself make for rescission.
the contract rescissible. ● In case restitution is not possible, the transferee being in bad faith will be liable to
● Thus, if the transferee acted in good faith and the transaction was for a valuable pay indemnity to the suing creditor for the damages the latter suffered by reason of
consideration, rescission will not be granted. the alienation, even if the loss or destruction of the property is due to fortuitous
event. This is an imperative legal consequence because the law clearly states that the
Cases reason for the impossibility of returning could be due to any cause.
Cabaliw vs. The Court held that there is a presumption of fraud in this case. The Rule When There is A Second Transferee or More:
Sadorra circumstances involved shows that Benigno intended to defraud Isidora ● If the property had been alienated by the first transferee, the subsequent transferee/s
by selling the parcels of land knowing that the same were subject to a will be liable only if an action lies against the first transferee. This means that
judgment for support. rescission will not take place when the property alienated by the debtor had been
legally placed in the possession (or ownership) of a third person who did not act in
Alpuerto vs. Court held that the transaction is fraudulent and wholly fictitious bad faith. When the first transferee was in good faith, the property ceases to be part
Perez Pastor because of the circumstances surrounding the case: (1)Alpuerto is the of the patrimony of the debtor, and the latter’s creditors can not do anything to
son-in-law of Llenos, (2)an action was pending at the time of recover it.
conveyance and this was known by Alpuerto, (3)consideration for ● If the first transferee is in bad faith, the liability of the second transferee will now
transfer is less than half of the value of the property and (4) it does not depend upon his good faith or bad faith. If he is in good faith, he is not liable. If he
appear that Alpuerto’s resources are sufficient to enable him to readily is in bad faith, he is liable to restore the thing. If that is no longer possible, he will
command that sum. pay indemnity for the damages suffered by the creditor/s occasioned by the act of
alienation of the property.
Ayles vs. Reyes The court held that due to the fact, from the whole of the evidence,
independent of such presumptions, that the debtor went into a complete
state of insolvency, selling the property in question to his wife's parents, ARTICLE 1389. The action to claim rescission must be commenced within four years.
and the sales were simulated, the purchasers being accomplices in the
fraud — all with the purpose of frustrating the legitimate rights For persons under guardianship and for absentees, the period of four years shall not begin
pertaining to the Garay estate, and the liabilities contracted — it is until the termination of the former’s incapacity, or until the domicile of the latter is known.
obvious that there was no infringement of the said article and the
doctrine connected therewith.
Prescriptive Period For Rescissory Actions; Reckoning Time:
Lee vs First, Bangkok Bank failed to establish the alleged fraud. Second, the ● Generally, the prescriptive period within which to file a rescissory action is four
Bangkok Bank presumption of fraud on alienations by onerous title contemplated in the years. The reckoning time however, may vary depending upon the circumstances:
article implies a complete transfer and conveyance of ownership of real a. If the complaining party is a third person who has no participation in the
properties. In this case, the contract in question is a mortgage contract. contract, the prescriptive period is four years reckoned from the discovery
Mortgages do not contemplate absolute transfer of ownership; the of the fraudulent contract, or from the registration thereof, if real property
property is only subject to a lien. Therefore, the presumption of fraud in is involved.
Art. 1387 cannot apply in this case b. If the complaining party is a ward who intends to rescind the contracts
entered into by his guardians which prejudiced him, there being a
sufferance of economic lesion up to at least one- fourth of the value of the
ARTICLE 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, thing disposed of, the action must be filed within four years from the time
shall indemnify the latter for damages suffered by them on account of the alienation, of attainment of the age of majority.If the complaining party is an
whenever, due to any cause, it should be impossible for him to return them. absentee, he should file the action for rescission within four years from the
time his domicile has been known. An absentee is one who disappears
If there are two or more alienations, the first acquirer shall be liable first, and so on from his domicile and his whereabouts are unknown, without leaving an
successively. agent to administer his properties. Consequently, when he appears in his
ARTICLE 1390. The following contracts are voidable or annullable, even though there In case of mistake or fraud, from the time of the discovery of the same.
may have been no damage to the contracting parties:
1. Those where one of the parties is incapable of giving consent to a contract; And when the action refers to contracts entered into by minors or other incapacitated
2. Those where the consent is vitiated by mistake, violence, intimidation, undue persons, from the time the guardianship ceases.
influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are
susceptible of ratification. Applicability and Prescription:
● Article only applies to the parties in the contract. It does not apply to third persons
when the law allows them to question the validity of a contract.
Voidable Contract, Concept: ● Actions prescribe by the mere lapse of time fixed by law. It is one of the grounds for
● A voidable contract is one which has all the essential elements of a valid contract, extinguishing obligations. Failure to pursue an action within the period prescribed
except that the element of consent is vitiated or weakened either by the incapacity of by law will have the effect of extinguishing the action. When the contract is
one of the contracting parties, or by mistake, violence, intimidation, undue voidable, the four year prescription applies.
influence, or fraud.
Requisites of Ratification:
Right to Ratify is a Transmissible Right:
1. The contract is a voidable one ● The right to ratify, if not exercised by the proper party during his lifetime, may be
2. The confirmation is made by the injured contracting party exercised by his heirs it being a transmissible right.
3. The confirming party has full knowledge of the vice or defect of the contract
4. The cause of voidability should have already ceased or disappeared at the time of Effect of Lack of Ratification
the ratification. Otherwise, if the cause of voidability is still present, such as ● A defective contract like a voidable one, if not ratified, remains valid until annulled.
subsisting intimidation, the act of confirmation would also suffer from the very Within the prescriptive period for the filing of an action for annulment, the contract
vice or defect it is attempting to cure. is open to assailment. An unenforceable contract if not ratified remains ineffective.
It cannot be enforced.
● Void Contracts cannot be ratified because in the contemplation of the law, they do
not exist. Only existing contracts, though defective, may be ratified.
Forms of Ratification:
Cases:
1. Express – This takes place when the desire of the innocent party to convalidated
the contract, or his waiver or renunciation of his right to annul the contract is Soo Lim SC ruled that the contract had been ratified by the petitioner. It stated that the
clearly manifested verbally or formally in writing. v. Tan assumption that Uy Soo Lim might have had a right to rescind this contract on
2. Tacit or Implied – This takes place when the innocent party with full knowledge Unchuan the ground of minority, his action fails because with a full knowledge of his
of the vice which renders the contract voidable, and the same having ceased rights in the premises, he failed to disaffirm his contract within a reasonable
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time after reaching majority. Not only should plaintiff have refunded all was constituted.
moneys in his possession upon filing his action to rescind, but, by insisting
upon receiving and spending such consideration after reaching majority,
knowing the rights conferred upon him by law, he must be held to have Consequences of Ratification
forfeited any right to bring such action. ● One of the consequences of ratification of the contract is its legal purification and its
being made as a regular and untainted contract. The cleansing of the voidable
contract retroacts to the time of its constitution.
De Luna The letter is not a ratification of the sale, nor a confirmation of authorizing
● Action for annulment of the contract based on its original curable defects, can no
v. Linatoc another who acted without authority. The letter is one of recognition wherein
longer prosper after its due ratification or confirmation.
the husband stated that his wife sold the said property with his knowledge and
consent, and such that the requirement that an agent’s authority be in writing
Exceptions to the Effect of Retroactivity:
is fulfilled. Thus the wife is the husband’s agent. Mistake of law does not
● The rule of retroactivity shall not prejudice the rights of innocent third persons for
make a contract voidable, because ignorance of the law does not excuse
that will result in injustice which is not the intention of the law. In case of doubt in
anyone from its compliance. That the petitioners did not know the prohibition
the interpretation of laws it is presumed that the lawmaking body intended right and
against partition of the conjugal partnership property during marriage is no
justice to prevail.
valid reason why they should ask for the annulment of the sales.
Rosales v. The Court held that the contract of 1902 cannot be annulled because Rivera Example: Joyce who is a minor sold her property to Patch. The sale is voidable due to
Reyes ratified it by entering into the contract with Rosales in 1903, wherein he stated Joyce’s minority. After reaching the age of majority, Joyce borrowed money from Ghelyn,
he was 23 years of age, thus making applicable the provisions of article 1311 a money lender. Joyce could not pay Ghelyn. Since Ghelyn was charging high interest
of the Civil Code, which provides: "It shall be understood that there is an rates, Joyce, now being of legal age, ratified the sale she made in favor of Patch. Joyce’s
implied confirmation when, being aware of the cause of the nullity and such intention was to avoid paying her obligation to Ghelyn. Joyce has no other property by
cause having ceased to exist, the person who may have a right to invoke which she could satisfy the claim of Ghelyn. May Ghelyn rescind the sale made by
should execute an act which necessarily implies his wish to renounce such a Joyce when she was still a minor but which she ratified when she became of age?
right." ● Yes. Before the belated ratification, Ghelyn had already acquired a valid credit as
against Joyce. The retroactive effect of the ratification which cleanses the
voidable contract of its defect from its inception will not affect or prejudice the
ARTICLE 1394. Ratification may be effected by the guardian of the incapacitated person. right of Ghelyn, who is an innocent third person. Otherwise, injustice will result.
If Ghelyn was aware of the sale from the beginning, she is in bad faith and Patch
will get the property.
● If the persons enumerated in 1327, or those who are incapacitated to give consent,
continue with their condition of not being able to give consent, their guardian may
affect the ratification of the defective contract. ARTICLE 1397. The action for the annulment of contracts may be instituted by all who
are thereby obliged principally or subsidiarily. However, persons who are capable cannot
ARTICLE 1395. Ratification does not require the conformity of the contracting party who allege the incapacity of those with whom they contracted; nor can those who exerted
has no right to bring the action for annulment. intimidation, violence, or undue influence, or employed fraud, or caused mistake base their
action upon these flaws of the contract.
● It is the innocent party who has the prerogative to annul or not to annul a voidable
contract. The one who cause the vice of consent personally or through a third person Persons Who Can Institute Action for Annulment:
is not allowed to file a case of annulment because of the principle that he who comes ● Action for annulment may be instituted only by persons who are parties bound either
to court, must come with clean hands, and a guilty party is not allowed to benefit principally or subsidiarily by the contract and who are innocent of the act or acts
from his own wrong. constituting the reason for the voidability or annullability of the contract. The
● To require such conformity from the guilty party as a condition precedent, enables plaintiffs must be persons with interest in the contract.
the guilty party to scheme a way to back out of the contract by just refusing to give ● Example: A corporation acquired a lot and building which was being occupied by
his conformity. Absurdity is the result. several tenants. The tenants assailed the validity of the sale where they were not
privies. They being not parties to the contract, have no right to question the same.
● Exception to the Rule: A person who is not obliged principally or subsidiarily may
ARTICLE 1396. Ratification cleanses the contract from all its defects from the moment it exercise an action for nullity of the contract if he is prejudiced in his rights with
(3) Those where both parties are incapable of giving consent to a contract.
Modes of Ratification of Contract Infringing The Statute of Frauds:
● Unenforceable contracts are all susceptible of ratification. But unenforceable
Supra, Relativity of Contracts. contracts in paragraph 2 of Article 1403 may be ratified in two ways, namely:
a. Failure to object to the presentation of oral evidence. This is tantamount to
ARTICLE 1404. Unauthorized contracts are governed by article 1317 and the principles of a waiver. Contracts which infringed the Statute of Frauds ratified by the
agency in Title X of this Book. failure to object to the prestation of parol evidence are enforceable.
b. Acceptance of benefits under these contracts. This is equivalent to waiver
or estoppel. Hence, it only applies to executory contracts.
● If the oral contract was reduced into writing by the party charged, such exercise is
Article 1317. No one may contract in the name of another without being authorized by the
called recognition. It is in effect an express ratification of the contract.
latter, or unless he has by law a right to represent him.
Effect of Cross-Examination of the Witness:
A contract entered into in the name of another by one who has no authority or legal
● If the party in whose favor the statute may be invoked, cross-examined the witness
representation, or who has acted beyond his powers, shall be unenforceable, unless it is
who is testifying on the oral contract, the former is deemed to have waived the right
ratified, expressly or impliedly, by the person on whose behalf it has been executed, before
to object to the admission of the testimonial evidence.
it is revoked by the other contracting party. (1259a)
● The remedy of the party is to promptly object to the presentation of the witness
once it becomes apparent that no evidence in writing could be presented to prove the
● Articles 1868-1932 in the law on agency under Title X of the Code contract. The objection must be invoked during the “offer of the testimony” of the
witness, that is, before he testifies. Or, a motion to dismiss may be filed before
Unauthorized Contracts Are Susceptible To Ratification: answer to the complaint is filed.
● The ratification of an unauthorized contract has the effect of cleansing the contract
from all its defects from the moment it was constituted (Art. 1396). It has a
ARTICLE 1406. When a contract is enforceable under the Statute of Frauds, and a public
retroactive effect.
document is necessary for its registration in the Registry of Deeds, the parties may avail
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themselves of the right under Article 1357. CA more than a year should be put into writing and the Parol Evidence Rule
provides that when an agreement is put into writing, it shall be considered
that all terms are contained therein that anything not expressed is deemed not
Applicability and Availment of Article 1357: agreed upon.
● Applies only when the contract involved is both valid and enforceable. The other
party cannot be compelled to execute a public instrument to cover a contract which
is not valid and enforceable under the Statute of Frauds.
● If the contract is enforceable under the Statute of Frauds because it is duly evidenced
in by a writing, note, or memorandum, but it cannot be registered because it is not in ARTICLE 1407. In a contract where both parties are incapable of giving consent, express
a public instrument, the party concerned may compel the opposite party to formalize or implied ratification by the parent, or guardian, as the case may be, of one of the
it in the proper form required by law. contracting parties shall give the contract the same effect as if only one of them were
● If the latter refuses, the court will issue the necessary order to that effect. If despite incapacitated.
the order, the concerned party continues to refuse to execute the contract, the Court
may authorize the Deputy Clerk of Court to execute the document in behalf of the If ratification is made by the parents or guardians, as the case may be, of both contracting
refusing party. parties, the contract shall be validated from the inception.
Cases:
Almirol Section 335 refers to executory rather than executed contracts. In this case, Effect When Both Contracting Parties Are Incapable of Giving Consent:
vs. the contract was partially executed since a part of the price was paid by the ● When both parties to the purported contract are not capacitated to give consent, the
Monserrat applicants in 1912, and pursuant to said contract, spouses delivered the land contract is unenforceable. It cannot be enforced in court. It may however, be ratified:
and documents pertaining thereto. “Otherwise, injustice or unfairness will 1. If ratification is only on the side of one of the contracting parties, that is,
result as the other party had already benefited therefrom.” by the parent or guardian, the contract is transformed into a voidable
contract on the part of the party who did not ratify. It means it is now valid
and binding unless annulled by the court. Of course, instead of ratifying
Hernande When the essential requisites for the existence of a contract are present, the
the contract, the party who did not ratify may opt to pursue the annulment
z vs. contract is binding upon the parties, and, although required to be in writing
of the voidable contract.
Andal by article 1280 of the Civil Code, the plaintiff can maintain an action under
2. If ratification is made by both sides that is, by the parents or guardians, the
article 1279 to compel the execution of a written instrument. It says that
contract is validated from its inception. The validation is retroactive.
"Article 1279 does not impose an obligation, but confers a privilege upon
both contracting parties, and the fact that the plaintiff has not made use of
Can the Incapacitated Persons Themselves Ratify the Contract? :
same does not bar his action."
● If the parties’ ground for incapacity like minority had disappeared such as by
attainment of majority age, or if the incapacity is due to insanity and they regained
Robles vs. When a document, which is a statement of accounts, is offered in evidence their sanity, there is no question that they can ratify their previous acts. There is no
Lizarraga not to prove such accounts, but for the only purpose of showing the need for the law to include this expressly because it is deemed understood.
possessor's good faith, section 335 of the Code of Civil Procedure is not
applicable, and such a document is admissible in evidence although it is not Cases:
signed. In this case, the court rule that even if Exhibit A was unenforceable it
could be used as evidence since it was not intended to prove what was there Averia Statute of Frauds applies only to executory contracts and not to contracts
but only to prove that Robles was a possessor in good faith. vs. which are either partially or totally performed. In proving the fact of partial or
Averia total performance, oral evidence may be received. However, it is not enough
Reiss vs. While it is true that one of the plaintiffs in his disposition, made in the for a party to allege partial performance in order to render the Statute of
Memije United States, refers to the agreement as one whereby defendant Frauds inapplicable; such partial performance must be duly proved by either
"guaranteed" payment for the lumber, we are satisfied from all the evidence documentary or oral evidence.
that the word was not used by this witness in its technical sense, and that he
did not mean thereby to say that defendant guaranteed payment by the Abrenica It is held in general that by failing to object to the proof of an oral contract a
contractor, but rather that after satisfying plaintiffs as to his own financial vs. party waives the benefit of the statute and cannot afterward claim it. The court
responsibility, he obligated himself to pay for the lumber delivered to his Gonda held that as no timely objection or protest was made to the admission of the
contractor for use in his house. testimony of the plaintiff with respect to the contract; and as the motion to
strike out said evidence came too late, such is a waiver of the right to have
Syquia vs. The Court ruled that the Statute of Frauds requires that a period of lease for such evidence stricken out.
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These contracts cannot be ratified. Neither can the right to set up the defense of illegality be
ARTICLE 1408. Unenforceable contracts cannot be assailed by third persons. waived.
Third Persons Cannot Attack Unenforceable Contracts: The Article Provides For the Second Type of Void Contracts:
● As the defense of the Statute of Frauds is personal to the availing party in the ● The first type of void contract refers to Article 1318, or those which are lacking an
contract, it cannot set up as a defense by strangers to the transaction. Only the essential element thus rendering the contract void. The present Article provides for
contracting parties may attack unenforceable contracts. the second type of void contracts.
● However, void contracts may be attacked even by strangers whose interests are
directly affected. Voidable contracts may also be attacked by third persons who are Void or Inexistent Contracts; Concept:
prejudiced thereby. Rescissible contracts are subject to attack by creditors who are ● The code uses the words “void contracts” interchangeably with “inexistent
being defrauded by their debtors. contracts,” referring to contracts which have no force and effect from the beginning
and which cannot be ratified or validated by lapse of time.
● What does not exist cannot be ratified. However, there are void contracts which may
ARTICLE 1878. Special powers of attorney are necessary in the following cases: give rise to certain legal effects. Thus contracts of marriage tainted with
1. To make such payments as are not usually considered as acts of administration; psychological incapacity are void, yet the children conceived prior to the
2. To effect novations which put an end to obligations already in existence at the nullification of the marriage are legitimate children.
time the agency was constituted; ● Void contracts generally refer to agreements which are tainted with illegality or
3. To compromise, to submit questions to arbitration, to renounce the right to appeal immorality.
from a judgment, to waive objections to the venue of an action or to abandon a ● Illustrations: A contract of service for killing a person is void for being contrary to
prescription already acquired; law. A bigamous marriage is a void contract. It is both illegal and immoral.
4. To waive any obligation gratuitously;
● An inexistent contract is one which lacks one or more of the essential elements of a
5. To enter into any contract by which the ownership of an immovable is transmitted
contract, that is, it lacks any, some, or all of the following elements: consent, object,
or acquired either gratuitously or for a valuable consideration;
or cause. Illustrations: A deed of sale where the appearing purchase price had not
6. To make gifts, except customary ones for charity or those made to employees in
been paid by the buyer is an inexistent contract. It is a simulated contract and,
the business managed by the agent;
therefore, without effect between the parties. A donation of real property not done in
7. To loan or borrow money, unless the latter act be urgent and indispensable for the
a public instrument is also an inexistent contract.
preservation of the things which are under administration;
● Article 1409 provides that contracts which are expressly prohibited or declared void
8. To lease any real property to another person for more than one year;
by law are considered inexistent and void from the beginning.
9. To bind the principal to render some service without compensation;
10. To bind the principal in a contract of partnership;
11. To obligate the principal as a guarantor or surety; Characteristics of Void or Inexistent Contracts:
12. To create or convey real rights over immovable property;
13. To accept or repudiate an inheritance; 1. Generally, they produce no civil effects either in favor of or against anyone.
14. To ratify or recognize obligations contracted before the agency; 2. They are not susceptible to ratification.
15. Any other act of strict dominion. (n) 3. The right to set up the defense of their inexistence or absolute nullity cannot be
waived.
4. The action or defense for the declaration of the inexistence of the contracts does
Void or Inexistent — Arts. 1409-1422, 1318, 1353, 1378, 1491, 1898
not prescribe.
ARTICLE 1409. The following contracts are inexistent and void from the beginning: 5. The defense of illegality of contracts cannot be invoked by third persons whose
1. Those whose cause, object or purpose is contrary to law, morals, good customs, interests are not directly affected.
public order or public policy; 6. No action is needed to set them aside because their nullity exists ipso jure.
2. Those which are absolutely simulated or fictitious; However, if there has been performance already, the intervention of the court is
3. Those whose cause or object did not exist at the time of the transaction; necessary to declare its nullity and decree the restitution of what has been given
4. Those whose object is outside the commerce of men; by virtue thereof. No one should take the law into his own hands. The judgment
5. Those which contemplate an impossible service; of nullity is merely declaratory. If the void contract is still completely executory,
6. Those where the intention of the parties relative to the principal object of the no action is needed to declare its nullity. Anybody who tries to enforce it may be
contract cannot be ascertained; resisted by the other party by putting up the defense of nullity of the contract.
7. Those expressly prohibited or declared void by law. 7. Parties to a void agreement cannot expect the aid of the law – the courts leave
This rule shall be applicable when only one of the parties is guilty; but the innocent one Cases:
may claim what he has given, and shall not be bound to comply with his promise.
Batarra A promise of marriage based upon carnal connection is founded upon an
vs. Marcos unlawful consideration and no action can be maintained by the woman (over
Nullity of Contract Due to Illegality of Cause or Object: the age of 23) against the man because the act does not constitute the crime
● If a contract is void because of the nullity of the cause or object and it happens that of statutory rape, for the woman voluntarily participated in the act.
the transaction constitutes a criminal offense, both parties are in pari delicto, they
shall have no cause of action against each other. Santos vs. The principle of pari delicto has been applied by this Court in a number of
● This means, if the contract is still in the executory stage, they cannot compel one Roman cases wherein the parties to a transaction have proven to be guilty of having
another to fulfill their respective promises. Catholic effected the transaction with knowledge of the cause of its invalidity subject
● If the contract was already executed, they cannot get back what they had already Church to certain exceptions one of them being when its enforcement or application
paid or delivered to one another. The law will leave them where they are. runs counter to an avowed fundamental policy or to public interest.
Furthermore, the parties will be prosecuted for the crime committed. The things or
price subject of the contract may be confiscated by the State.
ARTICLE 1412. If the act in which the unlawful or forbidden cause consists does not
Applicability of Article 1411: constitute a criminal offense, the following rules shall be observed:
1. When the fault is on the part of both contracting parties, neither may recover
1. The contract entered into by the contracting parties is null and void and nullity what he has given by virtue of the contract, or demand the performance of the
arises from the illegality of the cause or object of the contract. Illegality of other’s undertaking;
motives is different. 2. When only one of the contracting parties is at fault, he cannot recover what he
2. The transaction agreed in the contract constitutes a crime. has given by reason of the contract, or ask for the fulfillment of what has been
3. The contracting parties are in pari delicto, that is, the fault of one party is more or promised him. The other, who is not at fault, may demand the return of what he
less equal or equivalent of the fault of the other party. has given without any obligation to comply with his promise.
Distinctions and Similarities Between Article 1414, 1415, and 1416: No Waiver of Minimum Wage:
ARTICLE 1378. When it is absolutely impossible to settle doubts by the rules established
Applicability: in the preceding articles, and the doubts refer to incidental circumstances of a gratuitous
● The article applies only if there are several stipulation, terms or conditions in the contract, the least transmission of rights and interests shall prevail. If the contract is
contract. if some of the stipulations are illegal and others are valid, the latter if onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.
separable from the former shall be effective and enforceable.
If the doubts are cast upon the principal object of the contract in such a way that it cannot
The rule of divisibility or separability cannot apply in two situations: be known what may have been the intention or will of the parties, the contract shall be null
a. When the contract by its nature requires indivisibility and void.
b. When the parties intended the contract to be entire or indivisible
Examples: Ysa agreed to sell and deliver to Joel certain amount of illegally cut logs ARTICLE 1491. The following persons cannot acquire by purchase, even at a public or
including the towing vessel to be used. The sale of the illegal logs may be avoided by judicial auction, either in person or through the mediation of another:
leaving the transaction on the towing vessel enforceable. However, if they intended the 1. The guardian, the property of the person or persons who may be under his
transaction to be entire, that is, without the logs the vessel would not be purchased, the guardianship;
entire transaction is void. In another case where there is a contract of loan, the borrower as 2. Agents, the property whose administration or sale may have been intrusted to
security for the payment executed a real estate mortgage using a fake title. The mortgage is them, unless the consent of the principal has been given;
void but the loan remains valid. 3. Executors and administrators, the property of the estate under administration;
4. Public officers and employees, the property of the State or of any subdivision
thereof, or of any government-owned or controlled corporation, or institution, the
Presumption: administration of which has been intrusted to them; this provision shall apply to
● In case of doubt on whether the terms of a contract are indivisible or divisible, the judges and government experts who, in any manner whatsoever, take part in the
same will be presumed as divisible. sale;
5. Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and
ARTICLE 1318. There is no contract unless the following requisites concur: other officers and employees connected with the administration of justice, the
1. Consent of the contracting parties; property and rights in litigation or levied upon an execution before the court
2. Object certain which is the subject matter of the contract; within whose jurisdiction or territory they exercise their respective functions; this
3. Cause of the obligation which is established. prohibition includes the act of acquiring by assignment and shall apply to
lawyers, with respect to the property and rights which may be the object of any
Supra, Contracts intro. litigation in which they may take part by virtue of their profession;
6. Any others specially disqualified by law.
ARTICLE 1353. The statement of a false cause in contracts shall render them void, if it
should not be proved that they were founded upon another cause which is true and lawful.
ARTICLE 1898. If the agent contracts in the name of the principal, exceeding the scope of
his authority, and the principal does not ratify the contract, it shall be void if the party with
Effect of Statement of False Cause: whom the agent contracted is aware of the limits of the powers granted by the principal. In
● If a false cause is stated in the contract, the general rule is that the contract is void. this case, however, the agent is liable if he undertook to secure the principal’s ratification.
● Exception: If the interested part can prove that the contract is founded upon another
cause which is true and lawful, the contract will be saved from invalidity.
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Class Notes: Defects of contract ● This is to prevent fraud in the enforcement of the obligations.
Rescissible contracts (damages)
● Enumeration is exclusive but #5 covers other contracts said by law to be Applicability:
rescissible - Executory NOT EXECUTED contracts. If partially executed or executed, you
● You have to distinguish 1381 with 1191. cannot avail of SOF.
● IF property was alienated in favor fo 3rd person but in good faith → transfer - There has been performance, equity dictates all evidence be admitted to prove
respected existence of alleged contract
● Remedy is go after some other person who caused the loss
● If with BF → property can still be recorded + damages Fraud will be propagated more if you allow exclusion of partially executed contracts.
● In 1191, damages basis will be 1170. The damage can extend beyond the actual
damages. For rescissible contracts, damages will be demanded form the person SoF is a personal defense that can be waived or lost depending on conduct of parties.
who caused the loss and only limited to the extent of that loss (another good
feature of 1381 contracts unlike 1191 where damages can extend beyond the Note//Memorandum
actual damages) ● If there is a note or memorandum pero walang contract, takes out the defense of
● Subsidiary action - Only up to the extent necessary to cover the damages. SoF.
● But the Note/memorandum must contain the following:
Voidable contracts (consent) 1. Names of parties
● Consent as an element of contracts there must be concurrence on the will of 2. Terms and conditions
offeror and consentor as to the thing and cause 3. Description of subject matter
● No consent = void → lacking one of the essential requisites so no contract 4. Place and date of making the agreement
● Consent defective = voidable → there is presence of all essential requisites but
one is defective 2 kinds of cases to invoke SoF:
● GR: minors cannot enter into contracts because of lack of legal capacity 1. Complaints for SP
- EXCN: 2. Complaints for damages
1. Active misrepresentation as to age of minor and the other was
misled. → binding upon the minor based on estoppel (Passive Failure to timely make defense of SoF, you will lose it.
misrepresentation) Silence → minor not bound. ● Say during trial, there was presentation of oral evidence to establish oral contract
2. When delivering necessaries (support) and do not object then it is considered as waived.
3. Minor ratifies contract upon reaching majority
● Prescription: When to count the 4 year period? From discovery of vice of Void contracts (Object or Cause)
consent or if vice is incapacity, reckoning point is cessation of guardianship. ● Art. 1409
- Registered lands, special reckoning period: Counted not form the actual
knowledge but form registration. Since registration is notice to the
whole world.
● Effects of Ratification: It cleanses the contract. The effect retroacts from the
moment it was constituted. Only the innocent party has the prerogative to annul
or not to annul a voidable contract.
Purpose of SoF:
● Back then, there was this effort to reduce certain contracts into writing for its
enforceability because of the frail human memory.
Nature of Defect Consent of one of the parties is vitiated. Consent is absent or is lacking. Presence of other defects will also render a
contract void.
Effectivity Effective and binding until annulled. Ineffective because it does not exist in contemplation of the law.
Susceptibility to Consolidation Susceptible to consolidation by ratification or by prescription. Not susceptible to consolidation by ratification or by prescription.
Prescriptability of Actions Action for annulment prescribes. Action or defense based on its inexistence or absolute nullity does not prescribe.
Waiver of Defect Defect may be waived. Right to set up the defense of illegality cannot be waived.
Nature of Defect Defect is intrinsic. There is a vice of consent which vitiates consent. Defect is External. It consists in damage or prejudice suffered by one of the
contracting parties or a third person like a creditor.
Effect of Damage or Prejudice Whether there is damage or not, contract is voidable. If there is no damage or prejudice, contract cannot be rescissible.
Basis of Defect Annulability of the contract is based on law. Rescissibility of the contract is based on equity.
Persons who can assail the Only parties to the contract can assail it. Third persons who are affected may assail it.
contract
Nature of Defect The defect is inherent in the contract itself. The defect is in its effects, which is either against one of the parties or a third person.
Interest Served Nullity is a matter of law and public interest. It is based on equity and is more a matter of private interest.
Consequences When No There are no legal effects even if no action is filed to set it aside. Contract remains valid if no action is filed. It produces legal effects.
Action is Filed
Prescription Action to declare its nullity does not prescribe. Action to rescind contract prescribes within four years.
Cause of Defect Absence of essential elements of a contract. Consent is vitiated or there is incapacity to give consent.
Effect It has no effect even if not set aside, because it is non-existent. It is a valid contract until it is set aside.
Against whom can nullity Its nullity can be set up against any person asserting a right arising from Its nullity can be set up only against a party thereto.
be set up it, and his successors in interest not protected by law.
Prescription Action to declare nullity of contract does not prescribe. Action to annul contract prescribes within four years.
Status There is no contract at all. There is a contract but which cannot be enforced.
Attack by Third Person It can be assailed by third persons whose interests are directly affected. It cannot be assailed by third persons.
Causes Causes of nullity are those enumerated in Article 1409. Cause of unenforceability are enumerated in Article 1403.