Art.

1156 – An obligation is a juridical necessity to give, to

Classifications of a secondary character which can be gathered from scattered
do, or not to do.
provisions of the Civil Code such as:
1. Legal, conventional and penal;
Obligation, defined — 2. Real and personal;
- Sanchez Roman 3. Determinate and generic;
o “The juridical necessity to comply with a prestation” 4. Positive and negative;
- Manresa 5. Unilateral and bilateral;
o “legal relation established between one person and another, 6. Individual and collective;
whereby the latter is bound to the fulfillment of a prestation 7. Accessory and principal.
which the former may demand of him”
Classification of obligations according to Sanchez Roman:
Civil Obligation (Art. 1156) Natural Obligation 1. As to juridical quality
a. Natural
- One which has a binding force in law, - One which cannot be enforced by
When the obligation is i.a.w. natural law.
and which gives to the obligee or action, but which is binding on the
b. Civil
creditor the right of enforcing it party who makes it conscience and
When the obligation is i.a.w. positive law.
against the obligor or debtor in a court according to the natural law.
c. Mixed
of justice.
When the obligation is i.a.w. both natural and positive law.
- A civil obligation is based on positive - Natural obligation is based on equity
law. and natural law.
2. As to parties
- Enforceable in courts. - Not enforceable in courts.
a. Unilateral and bilateral
Unilateral – where only one party is bound
Requisites: Bilateral – where both parties are mutually or reciprocally bound.
1. A juridical or legal tie, which binds the parties to the obligation, and which
may arise from either bilateral or unilateral acts of persons; b. Individual and collective
2. An active subject known as the obligee or creditor, who can demand the Individual – only one obligor.
fulfillment of the obligation; Collective – several obligors. May be joint, when each obligor is liable
3. A passive subject known as the obligor or debtor, against whom the only for his proportionate share of obligation, or solidary, when each
obligation is juridically demendable; and obligor may be held liable for the for the entire obligation.
4. The fact, prestation or service which constitutes the object of obligation.
3. As to object
*The form in which the obligation is manifested is sometimes added as a fifth a. Determinate and generic
requisite. As a general rule, however, it cannot be considered as essential. Determinate – object is specific.
*It is only in obligations arising from certain contracts that it becomes essential. Generic – when the object is designated by its class or genus.

Classification of Obligations – The following is the primary classification of b. Simple and multiple
obligations under the Civil Code: Simple – when there is only one undertaking.
1. Pure and conditional Multiple – may be conjuctive, when all of the undertakings are
2. With a period demandable at the same time, or distributive, when only one
3. Alternative and facultative undertaking out of several is demandable.
4. Joint and solidary Distributive – may be alternative, whenthe obligor is allowed to
5. With a penal clause. choose one out of several obligations which may be due and
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 demandable, or facultative, when the obligor is allowed to substitute
another obligation for one which is due and demandable.
c. Positive and negative
Positive – when the obligor is obliged to give or to do something.
Negative – when the obligor must refrain from giving or doing
something.
c. With a term or period (a plazo)
When the obligation is subject to a term or period which may be
suspensive or from a day certain, in which case the obligation is
demandable only upon the expiration of the term;
Or resolutory or to a day certain, in which case the obligation
terminates upon the expiration of the term.

d. Real and personal

Real – when obligation consists in giving something.
Art. 1157 – Obligations arise from:
Personal – When obligation consists in doing or not doing something. 1. Law;
2. Contracts;
e. Possible and impossible 3. Quasi-contracts;
Possible – when obligation is capable of fulfillment in nature as well as 4. Acts or omissions punished by law; and
in law. 5. Quasi-delicts.
Impossible – when obligation is not capable of fulfillmenr either in
nature or in law.
1. LAW (Obligation ex lege)
f. Divisible and indivisible Imposed by law itself; must be expressly or impliedly set forth and cannot
Divisible – when obligation is susceptible of partial performance. be presumed (See art. 1158)
Indivisible – when obligation is not susceptible of partial performance.
2. CONTRACTS (Obligation ex contractu)
g. Principal and accessory Ariese from stipulations of the parties; meeting of the minds/ formal
Principal – when it is the main undertaking. agreement.
Accessory – when it is merely an undertaking to guarantee the Must be complied with in good faith because it is the “law” bet. Parties;
fulfillment of the principal obligation. neither party may unilaterally evade his obligation in the contract, unless:
a. Contract authorizes it
b. Other party assents
4. As to perfection and extinguishment. *Parties may freely enter into any stipulations, provided they are not
a. Pure contrary to law, morals, good customs, public order or public policy. (See
When the oblugation is not subject to any condition or term and is art. 1159)
immediately demandable.
3. QUASI-CONTRACTS (Obligation ex quasi-contractu)
b. Conditional Arise from lawful, voluntary and unilateral acts and which are enforceable
When the obligation is subject to a condition which may be to the end that no one shall be unjustly enriched or benefited at the
suspensive, in which case the happening or fulfillment of the condition expense of another.
resultes in the birth of the obligation; 2 kinds:
Or resolutory, in which case the happening or fulfillment of the a. Negotorium gestio – unauthorized management;
condition results in the extinguishment of the obligation. This takes place when a person voluntarily takes charge of another’s
abandoned business or property without the owner’s authority.
b. Solutio indebiti – undue payment;
This takes place when something is received when there is no right to
demand it, and it was unduly delivered thru mistake. (See art. 1160)
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4. DELICTS (Obligation ex maleficio or ex delicto)
Arise from civil liability which is the consequence of a criminal offense.
Governing rules:
a. Pertinent provisions of the RPC and other penal laws subject to Art.
2177 of the Civil Code. (Art. 100, RPC – Every person criminally liable is
also civilly liable)
b. Chapter 2, Preliminary title on Human relations (Civil Code)
c. Title 18 of Book IV of the Civil Code – on damages (art. 1161)
5. QUASI-DELICTS / TORTS (Obligations ex quasi-delicto or ex maleficio)
Arise from damage caused to another through an act or omission, there
being no fault or negligence, but no contractual relation exists between the
parties. (Art. 1162)
Art. 1158 – Obligations derived from law are not presumed.
Only those expressly determined in this Code or in special
laws are demandable, and shall be regulated by the
percepts of the law which establishes them; and as to what
has not been foreseen, by the provisions of this Book.
- 1. OBLIGATIONS ARISING FROM LAW.
- According to Manresa, when the law establishes or recognizes it and an act
or condition upon which it is based is nothing more than a factor for
determining the moment when it becomes demandable, then the law itself
is the source of the obligation;
- However, when the law merely recognizes or acknowledged the existence
of an obligation generated by an act which may consitute a contract, quasi-
contract, criminal offense or quasi-delict and its only purpose is to regulate
such obligation, then the act itself is the source of obligation and not the
law.
- Unless such obligations are EXPRESSLY provided by law, they are not
demandable and enforceable, and cannot be presumed to exist.
- The Civil Code can be applicable suppretorily to obligations arising from
laws other than the Civil Code itself.
- Special laws – refer to all other laws not containes in the CC.
Art. 1159. Obligations arising from contracts have the force
of law between the contracting parties and should be
complied in good faith.
- Consensual contracts – a contract is a meeting of minds bet. 2 persons
whereby one binds himself, with respect to the other, to give something or
to render some service. As a rule, contracts are bound not only to the
fulfillment of what has been expressly stipulated but also to all of the
consequences which according to their nature may be in keeping with
good faith, usage and law. (Tiu Peck vs CA)
- Real contracts – ex. Deposit, pledge and comoodatum, which are not
perfected until the delivery of the object of obligation.
- The moment contract is perfected, obligations which may be reciprocal or
unilateral arise.
- VALID CONTRACT
o Should not be against the law, contrary to morals, good customs,
public order and public policy.
o In the eyes of the law, a void contract does not exist and no
obligation will arise from it.
- OBLIGATIONS ARISING FROM CONTRACTS
o Primarily governed by stipulations, clauses, terms and conditions
of their agreements.
o If a contract’s prestation is unconscionable (unfair) or
unreasonable, even if it does not violate morals, law, etc., it may
not be enforced totally.
o Interpretation of contract involves a question of law.
- COMPLIANCE IN GOOD FAITH
o Compliance or performance in accordance with the stipulations or
terms of the contract or agreement.
o Good faith must be observed to prevent one party from taking
unfair advantage over the other.
o Royal lines vs. CA – evasion by a party of legitimate obligations
after receiving the benefits under the contract would constitute
unjust enrichment on his part. However, in default of an
agreement, the rules found in the Civil Code regulating such
obligations are applicable.
- FALSIFICATION OF A VALID CONTRACT
o Only the unauthorized insertions will be disregarded; the original
terms and stipulations should be considered valid and subsisting
for the parties to fulfill.
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 2. (Art. 32, 33, 34, CC) Second, where the law grants to the injured party the
right to institute a civil action which is entirely separate and distinct from
Art. 1160 – Obligations derived from quasi-contracts shall the criminal action.
be subject to the provisions of Chapter 1, Title XVII, of this
Book. - Art. 32, CC – Interferences by public officers or employees or by private
individuals with civil rights and liberties.
- Art. 33, CC – defamation, fraud & physical injuries
- QUASI-CONTRACT – juridical relation resulting from lawful, voluntary and
- Art. 34, CC – refusal or neglect of a city or municipal police officer to render
unilateral acts by virtue of which, both parties become bound to each
aid or protection in case of danger to life or property.
other, to the end that no one will be unjustly enriched or benefited at the
*In all of these cases, although the act or omission may constitute a criminal
expense of the other.
offense i.a.w. our penal laws, the injured party may institute a civil action to
- There is no consent – consent is PRESUMED.
recover damages which is entirely separate and distince from the criminal
action. Once the action is instituted, then it may proceed independently of the
1. Negotiorum Gestio
criminal action, and shall require only a preponderance of evidence.
Juridical relation which takes place when somebody voluntary manages the
property affairs of another wirhout the knowledge or consent of the latter;
Sec. 3 or Rule 111 of the RRC
owner shall reimburse the gestor for necessary and useful expenses
When civil action may proceed independently. – In the cases provided in Art. 32,
incurred by the latter for the performance of his function as gestor.
33, 34 and 2176 of the CC of the Philippines, the independent civil action may
be brought by the offended party. It shall proceed independently of the
2. Solutio Indebiti
criminal action and shall require only a preponderance of evidence. In no case,
Something is received when there is no right to demand it and it was
however, may the offended party recover twice for the same act or omission
unduly delivered through mistake; obligation to return the thing arises on
charges in the criminal action.
the part of the recipient. (e.g. If I let a storekeeper change my P500 bill and
by error he gives me P560, I have the duty to return the extra P60.)
Governing rules:
1. Pertinent provisions of the RPC and other penal laws subject ti Art. 2177 of
the CC.
Art. 1161 – Civil obligations arising from offenses shall be Art. 100, RPC – Every person criminally liable, is also civilly liable.
governed by the penal laws, subject to the provisions of 2. Chapter 2, Preliminary title, on Human Relations of the CC
Article 2177, and of pertinent provisions of Chapter 2, 3. Title 18 of Book IV of the Civil Code – on damages.
Preliminary Title, on Human Relations, and of Title XVIII of
CRIMINAL LIABILITY INCLUDES:
this Book, regulating damages.
a. RESTITUTION – restoration of property previously taken away; the thing
Prejudicial question elements: (Art. 36, CC) itself shall be restores, even though it be found in the possession of a third
1. The previously instituted civil action which involves an issue similar or person who has acquired it by lawful means, saving to the latter his action
intimately related to the issue raised in the subsequent criminal action; against the proper person who may be liable to him.
and b. REPARATION OF THE DAMAGE CAUSED – court determines the amount of
2. The resolution of such issue determines whether or not the criminal action damage: price of a thing, sentimental value, etc.
may proceed. c. INDEMNIFICATION FOR CONSEQUENTIAL DAMAGES – includes damages
suffered by the family of the injured party or by a third person by reason of
Independent civil action: the crime.
1. (Art. 31, 177, CC) First, where the civil action is based on an obligation not
arising from the act or omission complined of as a criminal offense or
felony; and
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Effect of acquittal in a criminal case: BASIS DELICTS QUASI-DELICTS
a. When acquittal is due to reasonable doubt – no civil liability 1. INTENT Criminal / malicious Negligence
b. When acquittal is due to exempting circumstances – there is civil liability 2. INTEREST Affects PUBLIC interest Affects PRIVATE interest
c. When there is preponderance of evidence – there is civil liability. 3. LIABILITY Criminal and civil liabilities Civil liability
4. PURPOSE punishment Indemnification
5.COMPROMISE Cannot be compromised Can be compromised
Art. 1162 – Obligations derived from quasi-delicts shall be 6. GUILT Proved beyond reasonable Preponderance of evidence
governed by the provisions of Chapter 2, Title XVII of the doubt
Book, and by special laws.

- QUASI-DELICT (culpa acquilana) – an act or omission by a person which

causes damage to another giving rise to an obligation to pay for the
damage done, there being fault or negligence but there is no pre-existing
contractual relation between parties.

Persons liable:
1. Father / Mother – damages caused by minor children who live with them
2. Guardians – damage caused by minors or incapacitated persons under
their authority
3. Owners and managers of establishment – damages caused by employees,
employed or in occasion of their functions.
4. Employers – damages caused by employees and household helpers acting
within the scope of their assigned tasks, even though not engaged in
business or industry.
5. State, when it acts through a special agent
6. Teachers or heads od establishments of arts and trades – damage caused
by pupils as long as in their custody.
*Responsibility of above shall cease if they can prove that they have observed all
the diligence of a good father to the family to prevent damage.

Requisites:
1. The fault or negligence of the defendant
2. The damage suffered or incurred by the plaintiff; and
3. The relation of cause and effect between the fault or negligence of the
defendant and the damage incurred by the plaintiff.
4. No pre-existing contractual relations bet the parties.

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CHAPTER 2
NATURE AND EFFECT OF OBLIGATIONS
Art. 1163. – Every person obliged to give something is also
obliged to take care of it with proper diligence of a good
father of a family, unless the law or the stipulation of the
parties requires another standard of care.
- Speaks of an obligation to take care of a DETERMINATE thing (that is one
which is specific; a thing identified by its individuality) which an obligor is
supposed to deliver to another.
- Reason: The obligor cannot take care of the whole class/genus.
DUTIES OF DEBTOR:
- Preserve or take care of the things due.
o DILIGENCE OF A GOOD FATHER
 A good father does not abandon his family, he is always
ready to provide and protect his family; ordinary care
which an average and resonably prudent man would do.
o ANOTHER STANDARD OF CARE
 Extraordinary diligence provided in the stipulation of the
parties.
o FACTORS TO BE CONSIDERED
 Diligence depends on the nature of obligation and
corresponds with the circumstances of the person, time,
and place.
- Debtor is not liable if his failure to deliver the thingis due to 1 events or
force majeure.. without negligence or fault in his part.
- Deliver the fruits of a thing
- Deliver the accessions/accessories
(Accession – anything attached to the principal thing either naturally or
artificially – magagamit pa din ang principal thing whether or not may
accession.
Accessory – anything that is necessary for the perfection, use, and
preservation of a thing – if wala yung accessory, hindi magagamit yung
thing)
- Deliver the thing itself
- Answer for damages in case of non-fulfillment or breach.
Art. 1164 – The creditor has a right to the fruits of the thing
from the time the obligation to deliver it arises. However,
he shall require no real right over it until the same has been
delivered to him.
- REAL RIGHT (jus in re) – right pertaining to person over a specific thing,
without a passive subject individually determined against whom such right
may be personally enforced.
o A right enforceable against the whole world.
- PERSONAL RIGHT (jus ad rem) – a right pertaining to a person to demand
from another, as a definite passive subject, the fulfillment of a prestation
to give, to do, or not to do.
o A right enforceable only against a definite person or group of
persons.
- Before the delivery, the creditor, in obligations to give, has merely a
personal right against the debtor – a right to ask delivery of the thing and
the fruits thereof.
- Once the thing and the fruits are delivered, then he acquires a real right
over them.
- Ownership is transferred by delivery which could be either actual or
constructive. (Art. 1477)
- The remedy of the buyer when thereis no delivery despite demand is to file
a complaint for “SPECIFIC PERFORMANCE AND DELIVERY” because he is
not yet the owner of the property before the delivery.
- ACTUAL DELIVERY – actual delivery of a thing from the hand of the grantor
to the hand of the grantee (personally), or manifested by certain
possessory acts executed by the grantee with the consent of the grantor
(realty).
- CONSTRUCTIVE TRADITION – representative of symbolical in essence and
with intention to deliver the ownership.
FRUITS:
1. NATURAL – spontaneous products if the soil, the young and other products
of animals.
2. INDUSTRIAL – produced by lands of any cultivation or labor;
3. CIVIL – those derived by virtue of juridical relation.
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 Art. 1165. – When what is to be delivered is a determinate
thing, the creditor, in addition, to the right granted him by
Article 1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the
obligation be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same
thing to two or more persons who do not have the same
interest he shall be responsible for any fortuitous event
until he has effected the delivery.
DETERMINATE THING
- Something which is susceptible of particular designation or specification;
- Obligation is extinguished if the thing is lost due to fortuitous events.
INDETERMINATE THING
- Something that has reference only to a class or genus;
- Obligation to deliver is not so extinguished by fortuitous events.
REMEDIES FOR FAILURE OF DELIVERY (determinate thing)
1. Complaint for specific performance – an action to compel the fulfillment of
the obligation.
2. Complaint for recission of the obligation – action to rescind.
3. Complaint for damages – action to claim for compensation of damages
suffered.
*As a general rule, “no person shall be responsible for those events which could not
be foreseen, or which, though foreseen, are inevitable, except:
1. In cases expressly specified by law
2. When it is stipulated by the parties
3. When the nature of the obligation requires assumption of risk.
*An indeterminate thing cannot be object of destruction by a fortuitous event
because genus never perishes.
Art. 1166. – The obligation to give a determinate thing
includes that of delivering all its accessions and accessories,
even though they may not have been mentioned.
ACCESSIONS – fruits of the thing or additions to improvements upon the principal.
- Those which are naturally or artificially attached to the thing.
ACCESSORIES – things included with the principal for the latter’s establishment,
better use, or completion.
When does right to fruits arise? – from the time the obligation to deliver arises.
- Conditional – from the moment the condition happens.
- With a term/period – upon the expiration of the term/period.
- Simple – from the perfection of the contract.
Art. 1167. If a person obliged to do something fails to do it,
the same shall be executed at his cost.
The same rule shall be observed if he does it in
contravention of the tenor of the obligation. Furthermore,
it may be decreed that what has been poorly done, be
undone.
THREE SITUATIONS:
1. Debtor’s failure to perform an obligation
Creditor may dothe obligation, or by another, at the expense of the debtor.
Recover damages.
2. Performance was contrary to the terms agreed upon.
Order of the court to undo the dame at the expense of the debtor.
3. Performance in a poor manner
Order of the court to undo the same at the expense of the debtor.
Rights of the obligee if there has been a contravention of the tenor of the
performance:
1. To have the obligation performed or executed at the expense of the
obligor
2. To ask that what has been poorly done be undone; and
3. To recover damages.
Example: Contractor; building collapsed.
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 Art. 1168. When the obligation consists in not doing, and
the obligor does what has been forbidden him, it shall also
be undone at his expense.
2 remedies:
1. BE undone
2. Indemnity for damages.
Example: storey house
Art. 1169. Those obliged to deliver or to do something incur
in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
1. When the obligation or the law expressly so
declares; or
2. When from the nature and the circumstances of the
obligation it appears that the designation of the
time when the thing is to be delivered or the
service is to be rendered was a controlling motive
for the establishment of the contract; or
3. When demand would be useless, as when the
obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by
the other begins.
DEFAULT
ORDINARY DELAY – failure to perform an obligation at an appointed time.
LEGAL DELAY (DEFAULT) – tantamount to non-fulfillment of the obligation and
arises after an extrajudicial (creditor demands from debtor the fulfillment of the
obligation either orally or in writing) or judicial (filed a complaint) demand was
made upon the debtor.
VOLUNTARY BREACH THROUGH DEFAULT OR MORA
KINDS:
1. MORA SOLVENDI
- Delay of the obligor to perform his obligation.
- Mora solvendi ex re – obligation to give
- Mora solvendi ex persona – obligation to do.
- Effects:
o Debtor – liable for damages and interests
o Debtor – liable for the loss of a thing due to a fortuitous event.
2. MORA ACCIPIENDI
- Delay of the obligor or creditor to accept the delivery of the thing which is
the object of obligation.
- Effects:
o Creditor – liable for damages
o Creditor – bears the risk of loss of the thing
o Debtor – not liable for interest from the time of creditor’s delay.
o Debtor – release himself from the obligation.
3. COMPENSATIO MORAE
- Delay of the parties or obligors in reciprocal obligations.
-
Requisites that obligor may be considered in default:
1. The obligation is demandable and already liquidated;
2. The obligor or debtor delays performance; and
3. The creditor requires the performance judicially or extra-judicially.
*Default/delay in negative obligation is not possible. In negative obligation, only
fulfillment and violation are possible.
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 Art. 1170. Those who in the performance of their Art. 1172. Responsibility arising from negligence in the
obligations are guilty of fraud, negligence, or delay, and performance of every kind of obligation is also
those who in any manner contravene in the tenor thereof, demandable, but such liability may be regulated by the
are liable for damages. courts, according to circumstances.

FRAUD (dolo) Court’s discretion because:

- deliberate intentional evasion of the faithful fulfillment of an obligation. a) Negligence depends upon the circumstance of a case – good or bad faith of
the obligor may be considered as well as the conduct or misconduct of the
NEGLIGENCE (culpa or fault) obligee.
- voluntary act or mission of diligence, there being no malice, which b) It is not as serious as fraud.
prevents the normal fulfillment of an obligation.
Negligence – lack of foresight or knowledge
DELAY (mora) Imprudence – lack of skill or precaution
- default or tardiness in the performance of an obligation after it has been
due and demandable. BASIS CULPA ACQUILANA CULPA CONTRACTUAL
Quasi-delict Breach of contract
CONTRAVENTION OF TERMS OF OBLIGATION (violatio) DEFINITION Negligence between Negligence in the
- violation of terms and conditions stipulated in the obligation; this must not parties not so related by performance of
be due to fortuitous event. pre-existing contract. contractual obligation
NATURE OF NEGLIGENCE Direct, substantive and Incidental to the
Art. 1171. Responsibility arising from fraud is demandable independent. performance of the
in all obligations. Any waiver of an action for future fraud is obligation.
GOOD FATHER OF THE Complete and proper Not complete and proper
void.
FAMILY DEFENSE defense defense in the selection
(parents, guardian, of employees.
- To allow such waiver will necessarily render the obligatory force of employers)
contracts illusory. PRESUMPTION OF No presumption. There is presumption.
- The law does not prohibit waiver of an action for damages based on fraud NEGLIGENCE Injured party must prove Defendant must prove
already committed. negligence of the that there was no
- Any deliberate deviation from the normal way of fulfilling the obligation defendant. negligence in the carrying
may be a proper basis for claim for damages against the guilty party. out of the terms of the
contract.
INCIDENTAL FRAUD
- Committed in the performance of an obligation already existing because of
a contract.

CAUSAL FRAUD
- Employed in the execution of contract in order to secure consent
- Remedy is annulment because of vitiation of consent.

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 Art. 1173. The fault or negligence of the obligor consists in
the omission of that diligence which is required by the
nature of the obligation and corresponds with the
circumstances of persons, of the time and of the place.
When negligence shows bad faith, the provisions of Articles
1171 and 2201, paragraph 2, shall apply.
Art. 1174. Except in cases expressly specified by the law, or
when it is otherwise declared by the stipulation, or when
the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events which,
could not be foreseen, or which, though foreseen, were
inevitable.

If the law or the contract does not state the diligence which Element: unforeseeability or inevitably would be sufficient to classify the event as
is to be observed in the performance, that which is fortuitous in character.
expected of a good father of a family shall be required.
FORTUITOUS EVENT
FRAUD distinguished from NEGLIGENCE - An occurrence or happening which could not be foreseen or even if
foreseen, is inevitable;
FRAUD NEGLIGENCE
- Absolutely independent of human intervention;
There is deliberate intention to cause There is NO deliberate intention to
- Act of God.
damage. cause damage.
Liability cannot be mitigated. Liability may be mitigated.
FORCE MAJEURE
Waiver of a future fraud is void. Waiver for future negligence may be
- An event caused by the legitimate or illegitimate acts of persons other than
allowed in certain cases:
the obligor; there is human intervention.
1. GROSS – can never be excused in
advance; against public policy.
Conditions which exempt obligor from liability:
2. SIMPLE – may be excused in certain
1. Event is independent of the will of the obligor;
cases.
2. It must either be unforeseeable or unavoidable;
3. Occurrence must render it impossible for the debtor to fulfill his obligation
DILIGENCE in a normal manner; and
- The attention and care required of a person in a given situation and is 4. The obligor is free of participation in injury to the creditor.
opposite of negligence.
- Kinds: Requisites of fortuitous event:
o Diligence of a good father – a good father does not abandon his 1. Independent of the human will (or at least the obligor’s);
family, he is always ready to provide and protect his family; 2. Unforeseen or unavoidable;
ordinary care which an average and reasonably prudent man 3. Of such character to render it impossible for the obligor to comply with his
would do. obligation in a normal manner;
o Diligence required by law governing the particular obligation. 4. Obligor- free from any participation/aggravation of the injury to the
o Diligence stipulated by the parties. obligee.
NEGLIGENCE Exceptions: (of caso fortuito)
- Consists in the omission of that diligence which is required by the nature of 1. Where such liability is expressly specified by the law
the particular obligation and corresponds with the circumstances of the 2. Where it is declared by stipulation of the parties; and
persons, of the time, and of the place. 3. Where the nature of the obligation requires the assumption of risk.
Add

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 4. When the object of the obligation is lost and the loss is due partly to the
fault of the debtor
5. When the object of the obligation is lost and the loss occurs after the
debtor has incurred in delay
6. When the debtor promised to deliver the same thing to 2 or more persons
who do not have the same interest
7. When the obligation to deliver arises from a criminal offense; and
8. When the obligation is generic.
Doctrine of volenti non fit injuria – no wrong is done to one who consents.
Doctrine of res ipsa loquitur – the thing speaks for itself
p. 100
Examples:
- Girl pendant at night – not liable; at this day & age – liable.
- Barge rammed bridge – not a fortuitous event. Res ipsa loquitur.
- Tire blowout – not fortuitous event.
- Windmill – not fortuitous event.
- La Mallorca vs De Jesus - Defective brakes, tire blowouts and others of a
similar nature cannot be classified as fortuitous events per se within the
meaning of the law.
What are the exceptions to the rule that the obligor or debtor cannot be held liable
for breach of the obligation by reason of a fortuitous event?
1. Where such liability is expressly specified by the law. This may be
illustrated by provisions of the NCC, such as those found in Arts. 552, par.
2, 1165, par. 3, 1268, 1942, 1979, 2147, 2148, and 2159, NCC.
2. Where such liability is declared by stipulation of the parties. Thus, if the
contracting parties expressly agree that the debtor can be held liable even
in case of fortuitous events, such an agreement shall be binding.
3. Where the nature of the agreement requires the assumption of risk. This is
an aspect of what is known as the doctrine of assumption of risk. As
applied to obligations, it refers to a situation in which the obligor or
debtor, with full knowledge of the risk, voluntarily enters into some
obligatory relation with the creditor or obligee. It is based on the principle
of volenti non fit injuria — no wrong is done to one who consents. This is
illustrated by obligations arising from insurance contracts and workmen’s
compensation acts.
Art. 1175. Usurious transactions shall be governed by
special laws.
USURY
- Cntracting or receiving something in excess of the amount allowed by law
for the loan or forbearance of money, goods or chattels.
- Taking of more interest for the use of money, goods or chattels or credit
than the law allows.
SIMPLE LOAN
- One of the parties delivers to another, money or other consumable thing
upon the condition that the same amount of the same kind and quality
shall be paid.
USURY LAW
- Makes the usurers criminally liable if the interest charged on loans are
more than the limit prescribed by law.
o CB Circular cannot repeal a law – the circular simply suspended
the Usury Law’s effectivity.
Art. 1176. The receipt of the principal by the creditor,
without reservation with respect to the interest, shall give
rise to the presumption that said interest has been paid.
The receipt of a later installment of a debt without
reservation as to prior installments, shall likewise raise the
presumption that such installments have been paid.
These are mere presumptions.
- To be sure – write the interest and the dates covered by such payment in
the receipt.
Example:
- Lease of property. Lessor gives receipt to lessee acknowledging the
payment of rent for the month of november without any reservation as to
the rentals for Sept and Oct which are not yet paid, there arises a
presumption that such rentals have already been paid. – BUT, can be
properly rebutted by competent evidence to the contrary.
Ochoa, SJ | Page 11 of 113
 Art. 1177. The creditors, after having pursued the property
in possession of the debtor to satisfy their claims, may
exercise all the rights and bring all the actions of the latter
for the same purpose, save those which are inherent in his
person; they may also impugn the acts which the debtor
may have done to defraud them.
Remedies available to creditors for the satisfaction of their claims:
1. Exact fulfillment with right to damages;
o An action where the creditor files an action in court for the
RECISSION of acts or contracts entered into by the debtor
designed to defraud the former.
Art. 1178. Subject to all the laws, all rights acquired in
virtue of an obligation are transmissible, if there has been
no stipulation to the contrary.
rd
May be assigned to 3 persons.

2. Exhaustion of the debtor’s properties still in his possession Exceptions:

o Writ of attachment (before judgment) 1. Not transmissible by their very nature, such as in the case of a purely
o Writ of execution (for final judgment not yet executed) personal right;
2. Where there is a stipulation of the parties that they are not transmissible;
3. ACCION SUBROGATORIA and
An action where the creditor whose claims had not been fully satisfied, 3. Where they are not transmissible by operation of law.
rd
may go after the debtor’s (3 person) of the defendant debtor.
o The creditor merely acts in the name and for the account of the
debtor after exhausting all of the assets of the latter.
rd
When can a creditor proceed directly against 3 persons in place of the
debtor?
o 1. The debtor to whom the right or action properly pertains must
be indebted to the creditor.
o 2. The creditor must be prejudiced by the inaction or failure of the
rd
debtor to proceed against the 3 person; and
o 3. The creditor must have first pursued or exhausted all of the
properties of the debtor which are not exempted from execution.

*Not included: rights which are purely personal in the sense that they are
inherent in the person of the debtor, such as rights arising from purely
personal or family relations or those which are public or honorary in
character.

4. ACCION PAULIANA
o Method by which the debtor may defeat the right of the creditor
is by means of a positive act whereby the latter is defrauded or
prejudiced.
o Based on the principle that the property of the debtor, whether
present or future, stands as a guaranty for the payment of the
obligation or credit.

Ochoa, SJ | Page 12 of 113

CHAPTER 3 Art. 1180. When the debtor finds himself to pay when his
DIFFERENT KINDS OF OBLIGATIONS
means permit him to do so, the obligation shall be deemed
Section 1 – Pure and Conditional Obligations
to be one with a period, subject to the provisions of Article
1197.
Art. 1179. Every obligation whose performance does not
depend upon a future or uncertain event, or upon a past
- Speaks of a period depending on the will of the DEBTOR. If its purpose is to
event unknown to the parties, is demandable at once.
delay, immediate action is allowed. The court fixes the terms.

Every obligation which contains a resolutory condition shall PERIOD

also be demandable, without prejudice to the effects of the - A future and certain event upon the arrival of which, the obligation subject
happening of the event. to it either arises ot is extinguished.

CONDITION INDICATIONS OF A TERM OR PERIOD:

- An event which is both future and uncertain upon which the existence or When the debtor binds himself to pay —
extinguishment of an obligation is made to depend. - When his means permit him to do so
- Little by little
PURE OBLIGATION - Asap
- An obligation which does not contain any condition or term upon which - From time to time
the fulfillment is made to depend; - As soon as I have the money
- Immediately demandable by the creditors and the debtor cannot be - In partial payment
excused from not complying with his prestation. - When in the position to pay.

CONDITIONAL OBLIGATION Art. 1181. In conditional obligations, the acquisition of

- An obligation subject to a condition. rights, as well the extinguishment or loss of those already
acquired, shall depend upon the happening of the event
a. Suspensive obligation which constitutes the condition.
o Its fulfillment gives rise to an obligation; the demandability of the
obligation or the effectivity of the contract can take place only
after the condition has been fulfilled. Suspensive condition
o Money after condition. - The acquisition of rights by the creditor upon happening of the event
o Hope or expectancy. which constitutes the condition;
o Condition precedent. - If such condition does not take place, it would be as of the conditional
obligation had never existed.
b. Resolutory obligation Example: promise to give a car after graduating from law school as cum laude.
o Its happening extinguishes the obligation which is already
existing. Resolutory condition
o Money before condition. - The rights and obligations already existing are under threat of extinction
o Pacto de retro – sells a parcel of land with right to repurchase. upon the happening or fulfillment of such condition.
o Condition subsequent. Example: Donation propter nuptias – if the marriage did not push through, the
donation may be revoked.
*Donation of land

Ochoa, SJ | Page 13 of 113

 Art. 1182. When the fulfillment of the condition depends
upon the sole will of the debtor, the conditional obligation
shall be void. If it depends upon chance or upon the will of
a 3rd person, the obligation shall take effect in conformity
with the provisions of this Code.
Percept contained in first sentence is applicable only to a suspensive condition.
Example: If the debtor binds himself to deliver to the creditor a certain car by the
end of Dec. 30, 1980, provided that he is in the mood to do so, the obligation is
void.
Except: If the debtor, binds himself to pay a previous indebtedness of P2000 to the
creditor by the end of December 1980, provided that he is in a good mood to do so,
although the condition is void on the ground that its fulfillment depends exclusively
upon the will of the debtor, the obligation itself is not void since it refers to a
pre-existing indebtedness.
If the condition is resolutory + potestative, the obligation, as well as the condition,
is valid even though the fulfillment of the condition is made to depend upon the will
of the debtor.
3 CONDITIONS UNDER THIS ARTICLE
1. Potestative – a suspensive condition which depends upon the will of one
of the contracting parties
o If sole will of debtor – void.
 Example: She would pay the obligation if she sold her
house.
o If at the creditor’s – still valid.
o This is to prevent the establishment of illusory obligations.
rd
2. Casual – the condition depends upon chance or the will of a 3 person –
valid.
o Example: Obligor promises to deliver his car to the obligee if a
certain candidate is elected to the President of the PH in 1969.
3. Mixed – The condition depends partly upon the will of the parties and
rd
partly upon chance or the will of 3 person – valid.
o Example: Where the payment of the balance of the purchase price
of a house and lot is subject to the condition that the premises
rd
shall be vacated by the occupant (3 person) and that the vendee
(debtor) shall see to it that said premises shall be vacated.
o Where the debtor promises to pay his debts to the creditor as
soon as he shall have received funds derived from the sale of his
house.
o Hermosa vs. Langara – mixed condition. Fulfillment depends not
only upon the will of the debtor but also upon the occurrence of
other factors, such as the acceptability of price and other
conditions of the sale, as well as the presence of a buyer, ready,
able and willing to purchase the property.
Art. 1183. Impossible conditions, those contrary to good
customs or public policy and those prohibited by law shall
annul the obligation which depends upon them. If the
obligation is divisible, that part thereof which is not
affected by the impossible or unlawful condition shall be
valid.
The condition not to do an impossible thing shall be
considered as not having been agreed upon.
POSSIBLE CONDITION
- If it is capable of realization or actualization according to nature, law,
public policy or good customs.
2 KINDS OF IMPOSSIBLE CONDITIONS:
1. Physically impossible – cannot exist or cannot be done in its nature.
Example: if A obligates himself to pay P10k to B if B can contract the
inhabitants of Mars – obligation is a nullity.
2. Legally impossible – contrary to law, good customs, or public policy.
Example: If C promises to D a parcel of land if the latter secures a divorce
from his wife.
Example of contrary to good customs: If E binds himself to deliver F a car if
E will go with him around the world for a trial honeymoon.
*If the obligation is a pre-existing obligation, and does not depend upon the
fulfillment of the condition for its perfection – condition is void, but not the
obligation.
Divisible – only the part which is not affected by unlawful condition is valid.
If the condition is not to do an impossible thing, it shall be considered as not
having been agreed upon. Consequently, the obligation becomes pure &
immediately demandable.
Ochoa, SJ | Page 14 of 113
When a conditional obligation is VOID – impossible conditions annul the obligation
which depends upon them; the obligor knows his obligation cannot be fulfilled, he
has no intention to comply with his obligation.
When a conditional obligation is VALID – if the condition is negative (not to do an
impossible thing), it is disregarded and the obligation is rendered pure and valid.
Only the affected obligation is void, if the obligation is divisible, and the part thereof
not affected by the impossible condition is valid.
Art. 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 become evident that the event cannot occur.
If no time has been fixed, the condition shall be deemed
fulfilled at such time as may have probably been
contemplated, bearing in mind the nature of the obligation.

Only the condition is void if there is already a pre-existing obligation and it does not
*This is a condition of non-happening of a future event.
depend upon the fulfillment of the condition which is impossible.
The obligation shall become effective and binding:
Art. 1184. The condition that some event happen at a 1. From the moment the time indicated has elapsed without the event taking
determinate time shall extinguish the obligation as soon as place;
the time expires or if it has become indubitable that the 2. From the moment it has become evident that the event cannot occur,
event will not take place. although the time indicated has not yet elapsed.

Example:
Positive condition - If A binds himself to give P5k to B provided that the latter SHALL NOT get
- Refers to the fulfillment of an event ot performance of an act. married before reaching the age of 25 the condition is negative. If B is not
yet married at the time when he reaches 25, the obligation becomes
Negative condition effective.
- Refers to the non-fulfillment or non-performance of an act.
1184 1185
POSITIVE SUSPENSIVE CONDITION (POSITIVE SUSPENSIVE) (NEGATIVE SUSPENSIVE)
The obligation is extinguished:
Jose obliges himself to give the Jose obliges himself to give the pregnant
1. As soon as the TIME EXPIRES without the event taking place;
pregnant woman Maria P5000 if she woman Maria P5000 if she would NOT
2. As soon as it has become certain that the EVENT WILL NOT TAKE PLACE
would give birth on or before give birth on December 30.
although the time specified has not yet expired.
December 30.
a. Jose is LIABLE if Maria gives birth on a. Jose is NOT LIABLE if Maria gives birth
*TIME IS THE CONDITION – should happen for the obligation to extinguish.
or before December 30. on December 30.
b. Jose is NOT LIABLE if Maria gives b. Jose is LIABLE if Maria DID NOT give
Examples:
birth after December 30. birth on December 30 – if Maria gives
- If A binds himself to give B 2000 if the latter passes the Bar Exam in his first
birth BEFORE or AFTER December 30.
attempt, and B flunks, the obligation is extinguished.
c. If Maria would have a miscarriage c. If Maria would have a miscarriage
- If X binds himself to give a new car to Y if the latter gets married to Z within
before December 30, the obligation is before December 30, the obligation is
5 years from the time of the constitution of the obligation, and at the
EXTINGUISHED. deemed FULFILLED.
expiration of 5 years, Y had not complied with the condition, the obligation
is extinguished.

Ochoa, SJ | Page 15 of 113

 Art. 1186. The condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfillment.
Doctrine of constructive fulfillment of suspensive conditions – obligor must have
actually prevented the obligee from complying with the condition, and that such
prevention must have been voluntary or willful in character.
*Only applicable to suspensive conditions.
Requisites:
1. The condition is suspensive;
2. The obligor actually prevents the fulfillment of the condition;
3. He acts voluntarily.
Malice or fraud is not required, as long as his purpose is to prevent the fulfillment of
the condition.
Art. 1187. The effects of a conditional obligation to give,
once the condition has been fulfilled, shall retroact to the
day of the constitution of the obligation. Nevertheless,
when the obligation imposes reciprocal prestations upon
the parties, the fruits and interests during the pendency of
the condition shall be deemed to have been mutually
compensated. If the obligation is unilateral, the debtor
shall appropriate the fruits and interests received, unless
from the nature and circumstances of the obligation it
should be inferred that the intention of the person
constituting the same was different.
In obligations to do and not to do, the courts shall
determine, in each case, the retroactive effect or the
condition has been complied with.

No person shall profit by his own wrong.
Example:
X agreed to paint the house of Y for P50k after completion. Before X could complete
the job, Y hired Z, another contractor who finished the painting. The condition –
painting of the house – is deemed fulfilled under Art 1186 and Y’s obligation to pay
X P50k is converted to a pure obligation.
- Applies only to FULFILLED suspensive conditions.
- Retroactive statute
- The effects of the obligation is deemed to commence not from the
fulfillment of the obligation but from the day of its constitution (similar to
the legitimation of a natural child)
- This article does not require the delivery of fruits or payment of interests
accruing (accumulating) before the fulfillment of the suspensive condition.
- Obligations to do or not to do – the retroactive effect shall be determined
by the court using its sound iscretion without disregarding the intentions of
the parties.

In obligations to give – If reciprocal character of obligation – the law, as a matter of

justice and convenience, considers the fruits and interests as the equivalent of each
other. In other words, they are deemed to compensate each other mutually.

In obligations to do or not to do - the retroactive effect shall be determined by the

court using its sound discretion without disregarding the intentions of the parties.

Ochoa, SJ | Page 16 of 113

 Art. 1188. The creditor may, before fulfillment of the
condition, bring the appropriate actions for the
preservation of his right.
The debtor may recover what during the same time he has
paid by mistake in case of a suspensive condition.
PRESERVATION OF THE RIGHTS OF CREDITOR
- The debtor may render nugatory (not serious, ignore) the obligation upon
the happening of the obligation.
o Action for prohibition restraining the alienation of the thing
pending the happening of the suspensive condition;
o Action to demand security if the debtor has become insolvent;
o Action to set aside alienations made by the debtor in fraud of
creditors;
o Actions against adverse possessors to interrupt the running
prescriptive period.
o To have his rights annotated in the registry.
Rights of the DEBTOR
- Entitled to recover what has been paid by mistake prior to the happening
of the suspensive condition.
Art. 1189. When the conditions have been imposed with
the intention of suspending the efficacy of an obligation to
give, the following rules shall be observed in case of
improvement, loss or deterioration of the thing during the
pendency of the condition:
1. If the thing is lost without fault of the debtor, the
obligation shall be extinguished;
2. If the thing is lost through the fault of the debtor,
he shall be obliged to pay damages; it is
understood that the thing is lost when it perishes,
or goes out of commerce, or disappears in such a
way that its existence is unknown or cannot be
recovered;
3. When the thing deteriorates without the fault of
the debtor, the impairment is to be borne by the
creditor;
4. If it deteriorates through the fault of the debtor,
the creditor may choose between the recission of
the obligation and its fulfillment, with indemnity
for damages in either case;
5. If the thing is improved by its nature, or by time,
the improvement shall inure to the benefit of the
creditor;
6. If it is improved at the expense of the debtor, he
shall have no right than that granted to the
usufructuary.

LOSS, DETERIORATION or IMPROVEMENT of the THING WHICH CONSTITUTES THE

OBJECT OF OBLIGATION.(Refers only to CONDITIONAL OBLIGATIONS to give a
determinate thing)

LOSS
1. Debtor without fault – obligation is extinguished.
2. Debtor with fault – obligation to pay damages.
DETERIORATION
1. Debtor without fault – impairment to be borne by creditor
2. Debtor with fault – creditor chooses: recission of obligation, fulfillment,
indemnity.

Ochoa, SJ | Page 17 of 113


IMPROVEMENT
1. By nature or time – inure to the benefit of the creditor
2. At the expense of the debtor – granted to usufructuary.
Art. 1190. When the conditions have for their purpose the
extinguishment of an obligation to give, the parties, upon
the fulfillment of said conditions, shall return to each other
what they have received.
In case of the loss, deterioration or improvement of the
thing, the provision which, with respect to the debtor, are
laid down in the preceding article shall be applied to the
party who is bound to return.
As for obligations to do and not to do, the provisions of the
second par of Art. 1187 shall be observed as regards the
effect of the extinguishment of the obligation.
RESOLUTORY CONDITIONS.
- Refers to the fulfillment of a resolutory condition.
- When the resolutory condition happened, the obligation is considered as id
it did not exist.
- The parties are bound to return or restore whatever they have received
from each other. – “reciprocal restitution”
- Donation propter nuptias – if the marriage does not happen, such
donation should be returned by the donor.
- In obligations to do and not to do, the courts shall determine, in each case,
the retroactive effect of the condition that has been complied with.
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment of
rescission of the obligation, with the payment of damages
in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there
be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law.
*No right can be said to be implied if expressly granted.
RECIPROCAL – arise from same cause; each is a debtor and creditor of the other
RECISSION – resolution or cancellation of contract.
- Applies only to reciprocal obligations where 2 parties are mutually debtor
and creditor of each other in the same transaction. The cause must be
identical and the obligations must arise simultaneously.
- The party who can demand rescission should be the party who is ready,
willing, and able to comply with his own obligations while the other is not
capable to perform his own.
REMEDIES:
1. Specific performance or fulfillment of obligation with damages.
2. Rescission of contract with damages.
Effect of rescission: the parties must surrender whatever they have received from
each other, and the obligation to pay is extinguished.
If there is an express stipulation of automatic rescission between parties – such
resolution shall take place only after the creditor has notified the debtor of his
choice of rescission subject to judicial scrutiny.
Ochoa, SJ | Page 18 of 113
Are Art. 1191 applicable to obligations arising from contracts of lease or of
partnership?
- Art. 1659 is the law of lease. – no discretionary power granted to courts.
- Partnership, as a general rule – apllicable. Except: one is bound to pay on
common funds.

Nature or character of the breach od which whill justify the injured party in bringing
an action either for fulfillment of the obligation plus damages or for rescission plus
damages?
- The general rule is that rescission will not be permitted for a slight or
casual breach of contract, but only for breaches as are substantial and
fundamental as to defeat the object of the parties in making the
agreement.

Art. 1192. In case both parties have committed a breach of

the obligation, the liability of the first infractor shall be
equitably tempered by the courts. If it cannot be
determined which of the parties first violated the contract,
the same shall be deemed extinguished, and each shall
bear their own damages.

FIRST INFRACTOR KNOWN

- The liability of the firstinfractor should be equitably reduced.
- Equitably offset each other’s damages.
- Fair to both parties because the second infractor also derived, or thought
he would derive, some advantahe by his own act or neglect.

FIRST INFRACTOR UNKNOWN

- The court shall declare the extinguishment of the obligation and each
other shall bear his own damages.
- Likewise just because it is PRESUMED that both at about the same time
tried to reap some benefit.

Ochoa, SJ | Page 19 of 113

Section 2. — Obligations with a Period. CLASSIFICATION OF TERM OR PERIOD
1. Suspensive or Resolutory
Art. 1193. Obligations for whose fulfillment a day certain Suspensive
o When obligation becomes demandable only upon arrival of a day
has beem fixed, shall be demandable only when that day
certain.
comes. o Example: If A donates a parcel of land to B and to be delivered
after his death.
Obligations with a resolutory period take effect at once,
but terminate upon arrival of the day certain. Resolutory
o When the obligation is demandable at once, although it is
A day certain is understood to be that which must terminated upon arrival of a day certain.
necessarily come, although it may not be known when. o Example: If C donates the usufruct or use and enjoyment of a
house and lot to D for 10 years, after the expiration of 10 years,
he will have to return the house & lot to the donor.

PERIOD/TERM 2. Legal, conventional or judicial

- Consists in a space or length of time upon the arrival of which, the Legal
demandability or the extinguishment of an obligation is determined; o When it is granted by law
- May be definite or indefinite
Conventional
PERIOD CONDITION o When it is stipulated by the parties
As to requisites Refers to an interval of Refers to a fact or event
time which if future and which is future and Judicial
certain uncertain o When it is fixed by the courts.
As to fulfillment An interval of time which Future and uncertain fact
must necessarily come or event which may or 3. Definite or indefinite
may not happen. Definite
As to influence on Merely exerts an Exerts an influence upon o When the date or time is known beforehand
obligation influence upon the time the very existence of the
of demandability or obligation itself Indefinite
extinguishment of o When it can only be determined by an event which must
obligation necessarily come to pass, although it may not be known when.
As to retroactivity of Does not have any Has retroactive effects
effects retroactive effect unless TERM – An event which will certainly come; EFFECT: demandable after a day certain
there is an agreement to CONDITION – Cannot be considered a day certain, for it may or may not happen;
the contrary EFFECT: demandable at once – and is extinguished upon arrival of a day certain, or
As to effect of will of When left exclusively on When left exclusively to expiration of term.
debtor the will of debtor, the will of the debtor, the
existence of obligation is very existence of the EFFECT OF FORTUITOUS EVENT
not affected. obligation is affected. - In obligations with a term or period, any stipulation in the contract to the
effect that in case of a fortuitous event the contract shall be deemed
suspended during the term or period does not mean the happening of the
foruitous event shall stop the running of the term or period agreed upon.
Ochoa, SJ | Page 20 of 113
 Its only effect is to relieve the contracting parties from the fulfillment of
their respective obligations during the term of period.
Victorias Planters vs. Victorias Millings
- To require the planters to deliver the sugar cane which they failed to
deliverduring the 4years of Japanese occupation and the 2 years after
liberation when the mill was being rebuilt is to demand from the obligors
the fulfillment of an obligation which was impossible of performance at the
time it became due.
- The performance od what the law written off cannot be demanded and
required. The prayer that the plaintiffs be compelled to deliver was
impossible, if granted, would in effect be an extension of the term of the
contract into by and between the parties.
Art. 1194. In case of loss, deterioration or improvement of
the thing before the arrival of the day certain, the rules of
Article 1189 shall be observed.
Art. 1195. Anything paid or delivered before the arrival of
the period, the obligor being unaware of the period or
believing that the obligation has become due and
demandable, may be recovered, with fruits and interests.
- Payment or delivery is done before the arrival of the period.
- Applies on obligations to give.
Consequences:
1. If not aware of the period – he can recover what paid or delivered
including fruits or interests.
2. If aware and paid voluntarily – cannot revover the delivery made.
Presumption: debtor knew that the debt was not yet due. He has the burden of
proving that he was unaware of the period.
Art. 1196. Whenever in an obligation a period is
designated, it is presumed to have been established for the
benefit of both the creditor and debtor, unless from the
tenor of the same or other circumstances it should appear
that the period has been established in favor of one or of
the other.
PRESUMPTION:
- Obligation with a period is for the benefit of both the creditor and debtor.
EXCEPTION:
- When it appears that the period is for the benefit of one or the other.
*This cannot apply when the court was authorized by the parties to fix a reasonable
term.
The benefit of the term may be the subject of stipulation of the parties.
1. Benefit of the creditor
o May demand fulfillment even before the arrival of the term
o But the debtor cannot require him to accept payment before the
expiration of the stipulated period.
o “After ___ years”
o Creditor will benefit from interests that will accrue before the
date.
2. Benefit of the debtor
o He cannot be compelled to pay prematurely, but he can if he
desires to do so.
o “within __ years”
o Creditor will not benefit from the interests if A decides to pay
early.
*The creditor may have reasons other than the maturity of interest, that’s why,
unless the creditor consents, the debtor has no right to accelerate the time of
payment even if the premature tender includes an offer to pay the principal and
interest in full.
Ochoa, SJ | Page 21 of 113
 Art. 1197. If the obligation does not fix a period, but from
its nature and the circumstances, it can be inferred that a
period was intended, the courts may fix the duration
thereof.
The courts shall also fix the duration of the period when it
depends upon the will of the debtor.
In every case, the courts will determine such period as may
under the circumstances have been probably contemplated
by the parties. Once fixed by the courts, the period cannot
be changed by them.
Judicial Period
- The duration/period thereof is fixed by a competent court i.a.w. the
causes expressly recognized by law.
Court will fix a period:
1. When no period is mentioned, but it is inferable from the nature and
circumstances of the obligation that a period was intended by the parties.
Example: Where the donor donated to the City of Manila a parcel of land
subject to the condition that it shall be converted into a public square, but
the deed of donation is silent with regard to the term or period for the
fulfillment of the condition.
*Cannot be applied to pure obligations.
2. When the period is dependent upon the will of the debtor.
Example: Promissory notes.
Gonzales vs Jose, 66 Phil. 369
- The action to ask the court to fix the period has already prescribed i.a.w.
Sec. 43(1) of the Code of Civil Procedure. This period of prescription is 10
years, which has already elapsed from the execution of the promissory
note until the filing of the action.
POTESTATIVE TERM
- Can be left to the will of the debtor because its influence does not go as far
as to determine the existence of the obligation.
- Delegation to debtor: merely the power to determine when the obligation
shall be fulfilled.
- In order to prevent nonfulfillment, the courts must fix the term/period.
POTESTATIVE CONDITION
- Cannot be left to the will of the debtor because it affects the very existence
of the obligation itself.
- Delegation to debtor: power to determine WON the obligation shall be
fulfilled.
*It is only after the durtation has been fixed by a proper court that any other action
involving the fulfillment or performance of the obligation can be maintained.
Manresa 158, quoted in Patente vs. Omega.
Where the essential allegations of the pleadings describe an obligation with an
indefinite period although the complaint does not ask for such relief. For this
purpose 2 ultimate facts should be alleged in the complaint:
1. Facts showing that a contract was entered into imposing one of the parties
an obligation in favor of the other; and
2. Facts showing that the performance of obligation was left to the will of the
obligor, or clearly showing or from which an inference can be reasonably
drawn that a period was intended.
*Effect of judicial period: it becomes a law governing their contract. Consequently,
the courts can have no power to change or modify the same.
Court cannot fix a period:
1. If there is a period agreed upon and it has already elapsed or expired.
2. From the very moment the parties give their acceptance and consent to
the period fixed by the court, it becomes a law governing their contract.
*An action combining such action with that of an action for specific performance
may be allowed if it can be shown that a separate action for specific performance
would be a mere formality because no additional proofs other than the admitted
facts will be presented and would serve no purpose other than to delay. Hence,
there is no obstacle to such cause of action. (Borromeo vs. CA, 47 SCRA 65)
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 Art. 1198. The debtor shall lose every right to make use of
the period:
1. When after the obligation has been contracted, he
becomes insolvent, unless he give a guaranty or
security for the debt;
2. When he does not furnish to the creditor the
guaranties or securities which he has promised;
3. When by his own acts he has impaired said
guaranties or securities after their establishment,
and when through a fortuitous event they
disappear, unless he immediately gives new ones
equally satisfactory.
4. When the debtor violates any undertaking, in
consideration of which the creditor agreed to the
period;
5. When the debtor attempts to abscond.
Song Fo vs. Oria
- The security for the payment of the purchase price of the launch itself
having disappeared as a result of the unforeseen event (vis major) and no
other security having been subtituted, therefore, the plaintiffs were clearly
entitled to recover judgment not only for the installments of the
indebtedness due under the terms of the contract at the time when they
instituted their action, but also for all installment which but for the loss of
the vessel, had not matured at the time.
IGIVA
I – When the debtor becomes insolvent
- The insolvency need not be judicially declared. It is sufficient that debtor
could not pay his debts due to lack of money or funds.
- It includes any case in which it would not be possible financially for the
debtor to comply with his obligation.
G – When the debtor does not furnish guaranties or securities;
I – When guaranties or securities given have been impaired or have disappeared;
- If security was lost through debtor’s fault – impairment.
- If security was lost through fortuitous event – disappearance.
V – When the debtor violates an undertaking.
- If such undertaking is the reason for the creditor to agree with such period.
A – When the debtor attempts to abscond (escape)
- Mere attempt to abscond is sufficient. It is an indication of bad faith.
GI (Gaite vs. Fonacier)
- Inasmuch as by his own act B has impaired the guaranty or security after its
establishment without giving another one which is equally satisfactory, it is
clear that he has now lost the benefit of the term or period. Consequently,
the case now falls squarely within the purview of pars. 2 and 3 of Art. 1198
of the NCC.
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Section 3 – ALTERNATIVE & FACULTATIVE OBLIGATIONS - Consent or concurrence of the creditor to the choice or selection made by
the debtor is NOT NECESSARY before the choice or selection can produce
CONJUCTIVE DISTRIBUTIVE effect. To hold otherwise would destroy the very nature of the right to
When all of the objects or When only one is demandable. select and the alternative character of the obligation for that matter.
prestations are demandable at the ALTERNATIVE FACULTATIVE
same time When it When it Art. 1202. The debtor shall lose the right of choice when
comprehends several comprehends only among the prestations whereby he is alternatively bound,
objects or one object or only one is practicable.
prestations which are prestation which is
- There being but one prestation available, this prestation becomes a simple
due, but it may be due, but it may be
obligation.
complied with by the complied with by
delivery or the delivery of
performance of only another object or Art. 1203. – If through the creditor’s acts the debtor cannot
one of them. the performance of make a choice according to the terms of the obligation, the
another prestation latter may rescind the contract with damages.
in substitution.
- If the debtor could not make a choice due to the creditor’s act of making
the prestations impossible, debtor may RESCIND the contract with
Art. 1199 – A person alternatively bound by different damages – RECISSION TAKES PLACE AT THE INITIATIVE OF THE DEBTOR.
prestations shall completely perform one of them.
Art. 1204. – The creditor shall have a right to indemnity for
The creditor cannot be compelled to receive part of one damages when, through the fault of the debtor, all the
and part of the other udertaking. things which are alternatively the object of the obligation
have been lost, or the compliance of the obligation has
Art. 1200. – The right of choice belongs to the debtor, become impossible.
unless it has been expressly granted to the creditor.
The indemnity shall be fixed taking as basis the value of the
The debtor shall have no right to choose those prestations last thing which disappeared, or that of the service which
which are impossible, unlawful or which could not have last became impossible.
been the object of obligation.
Damages other than the value of the last thing or service
General rule: Right of choice belongs to the debtor. may also be awarded.
Exceptions:
1. When the right of choice has been expressly granted to the creditor; and
2. When it has been expressly granted to a third person (not expressly
recognized by the Code, there is no reason why it should not be allowed)

Art. 1201. – The choice shall produce no effect except from

the time it has been communicated.
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 Art. 1205. – When the choice has been expressly given to ALTERNATIVE FACULTATIVE
the creditor, the obligation shall cease to be alternative As to objects due Several obligations are Only one object is due
due
from the day the selection has been communicated to the
As to compliance May be complied with by May be complied wirh by
debtor. the delivery of one of the the delivery of another
objects or by the object or by the
Until then the responsibility of the debtor shall be performance of one of performance of another
governed by the following rules: the prestations which are prestation in substitution
alternatively due of that which is due
Right of choice belongs to debtor, and loss or impossibility is due to a FORTUITOUS As to choice Right of choice may Right of choice pertains
EVENT: pertain even to the only to the debtor
- If one of the things is lost – debtor can still comply with the remainder. creditor or to a third
- If all of the things except one are lost – debtor must comply on that which person
remains. As to the effect of The loss or impossibility if The loss or impossibility
- If all of the things are lost – obligation is extinguished. fortuitous loss all of the objects or of the object or
prestations which are prestation which is due
Right of choice belongs to debtor, but loss or impossibility is due to THE FAULT OF due without any fault of without any fault of the
THE DEBTOR: the debtor is necessary to debtor is sufficient to
- If one of the things is lost: extinguish the obligation. extinguish the obligation
o creditor may choose any one of the remainders. As to effect of culpable The sulpable loss of any The culpable loss of the
o Creditor may choose the price or value of the one which was lost. loss of the objects which are object which the debtor
o May choose one or 2 plus damages. alternatively due before may deliver in
- If all things are lost or all prestations cannot be performed – the creditor the choice is made may substitution before the
shall have a right for damages. give rise to a liability on substitution is effected
the part of the debtor. does not give rise to any
Right of choice belongs to creditor, and loss or impossibility is due to a FORTUITOUS liaility on the part of such
EVENT: debtor.
- Debtor cannot be held liable.
IF loss or deterioration happened BEFORE substitution is made – obligor is not
liable.
Art. 1206. – When only one prestation has been agreed
upon, but the obligor may render another in substitution, AFTER substitution is communicated – obligor is liable for loss (through delay,
the obligation is called facultative. negligence or fraud.)

The loss or deterioration of the thing intended as a

substitute, through the negligence of the obligor, does not
render him liable. But once the substitution has been
made, the obligor is liable for the loss of the substitute on
account of his delay, negligence or fraud.
- The only one who is empowered to make the subtitution is the debtor.
- Necessary that debtor communicate the substitution to the creditor, if
notified -> simple obligation.
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Section 4 – Joint and Solidary Obligations
Art. 1207. – The concurrence of 2 or more creditors or of 2
or more debtors in one and the same obligation does not
imply that each one of the latter is bound to render, entire
compliance with the prestation. There is a solidary liability
only when the obligation expressly so states, or when the
law or the nature of the obligation requires solidarity.
Presumption: Joint (only when the obligation is silent)
Exception: 3 cases where collective obligations are solidary:
*Note: In all of these cases, each creditor is entitled to demand for the
payment of the entire credit, while each debtor can be compelled to pay for
the entire debt.
1. When the obligation states that there is solidarity
Must be expressly stated: (Inciong vs. CA)
“jointly and severally”
“individually and collectively”
2. When the law requires solidarity
Example: Civil code
RPC – liability of principals, accomplices and accessories of a felony.
3. When the nature of the obligation requires solidarity.
Example:
The responsibility of 2 or more persons guilty of a criminal offense or liable
for a tort is solidary.
Art. 1208. If from the law, or the nature of the wording of
the obligations to which the preceding article refers the
contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there
are creditors or debtors, the credits or debts being
considered distinct from one another, subject to the ROC
governing the multiplicity of suits.
JOINT DIVISIBLE OBLIGATIONS.
Consequences:
 Creditor – can demand only for the payment of his proportionate share of
the credit.
 Debtor – can be held liable only for the payment of his proportionate
share.
 Demand made by one creditor upon one debtor produces the effects of
default only as between them, but not with respect to others.
 The interruption of prescription caused by the demand made by 1 creditor
upon 1 debtor will not benefit the co-creditors.
 The insolvency of one debtor will not increase the liability of his co-
debtors, nor will it allow a creditor to demand anything from the co-
creditors.
Example: X, Y, Z owe A & B P12k.
X owe A 2k Y owe A 2k Z owe A 2k
X owe B 2k Y owe B 2k Z owe B 2k
Total: 12k
Art. 1209. If the division is impossible, the right of the
creditors may be prejudiced only by their collective acts,
and the debt can be enforced only by proceeding against all
of the debtors. If one of the latter (debtor) should be
insolvent, the others shall not be liable for his share.
JOINT INDIVISIBLE OBLIGATIONS.
- Solidarity is not provided and the prestation is not susceptible of division;
its fulfillment requires the concurrence of all debtors, while doing each
one’s parts.
- Joint with respect to the parties, indivisible with respect to the fulfillment
of the obligation.
o If 2 or more debtors: The fulfillment of obligation requires the
concurrence of all the debtors, although each for his own share.
o If 2 or more creditors: The concurrence or collective act of all the
creditors, although each for his own share, is also necessary for
the enforcement of the obligation.
 A creditor cannot act in representation of the others; not
susceptible of partial fulfillment.
Effect of insolvency: the others shall not be liable for the insolvent’s share.
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 Art. 1210. The indivisibility of an obligation does not the obligation, but in relation to the common creditor or
creditors, represents all of the other debtors.
necessarily give rice to solidarity. Nor does solidarity of
itself imply indivisibility. PASSIVE SOLIDARITY SURETYSHIP (Solidarity Guaranty)
Solidary debtor A person who binds hilself solidarily
 Solidarity is expressed in the stipulations of the party, law governing the with the principal debtor
obligation, or the nature of the obligation. Liable not only for the payment of debt -xxx
 INDIVISIBLE OBLIGATION – an obligation where the prestation or object to of another, but also for the payment of
be delivered cannot be performed by parts without altering its essence or a debt which is properly his own
subatance. Has a right to demand reimbursement If a surety pays the entire amount of
from his co-debtors of the shares which the obligation, he has a right to demand
BASIS INDIVISIBILITY SOLIDARITY corresponds to them in the obligation reimbursement from the principal
1. Nature Refers to the prestation Refers to the tie existing debtor of the entire amound he has
of the contract between the parties of paid.
the obligation (who is An extention of time granted by the An extended granted to the principal
liable) creditor to one of the solidary debtors debtor would release the surety from
2. Number of parties Does not require plurality Requires plurality of for the payment of the obligation the obligation.o
of parties parties without the knowledge or consent of
3. Effect of breach of Obligation is converted The liability, even if the other solidary debtors would not
obligation into monetary obligation converted into indemnity have the effect of releasing the latter
for indemnity for for damages, remains from their obligation
damages – each debtor is solidary.
liable only for his part in
the indemnity. 2. Active Solidarity (Solidarity of CREDITORS)
= indivisibility of the o Full payment to any of the creditors extinguishes the obligation.
obligation is terminated The creditor who received the entire amount will be liable to pay
the corresponding shares of his co-creditors in accordance with
their internal agreement.
Art. 1211. Solidarity may exist although the creditors and
o A tie existing among several creditors of one and the same
debtors may not be bound in the same manner and by the obligation by virtue of which each of them, in relation to his co-
same periods and conditions. creditors, possesses the character of creditor only with respect to
his share in the obligation, but in relation to the common debtors,
Kinds of solidarity represents all of the other creditors.
1. Passive Solidarity (Solidarity of DEBTORS) - Doctrine of mutual agency –Manresa / Principle of mutual representation
o Full payment made by anyone of the solidary debtors extinguishes o (Creditors) who are empowered to exercise not only their own
the obligation. The one who paid can claim reimbursement from rights, but also that of the others, against the debtor or debtors,
his co-debtors as regards their corresponding shares in the with the consequent obligation to render an accounting of his acts
obligation. to the other creditors
o A tie existing among several debtors of one and the same
obligation by virtue of which each of them, in relation to his co-
debtors, possesses the character of debtor only with his share in

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Example:
Sad Face, Happy, and Fanny got a loan of P150 from Smiley. They signed a
promissory note solidarily binding themselves to pay Smiley under the following
terms:
Sad Face will pay P50 with 3% on December 30, 2006
Happy will pay P50 with 4% on December 30, 2007
Fanny will pay P50 with 5% on December 30, 2008
On December 31, 2006, Smiley can collect his P50 with 3% from any one of the
debtors, but not the whole P150 because it is not yet entirely due. The maturity of
the other amounts should still be awaited. If maturity comes, Smiley can collect
from any of the debtors, because they are expressly solidary in liabilities, and not
affected by the secondary stipulations.
Art. 1212. Each one of the solidary creditors may do
whatever may be useful to the others, but not anything
which may be prejudicial to the latter.
Prejudicial acts:
1. Creditor to debtor:
The prejudicial act shall be valid and binding because of the principle of
mutual representation which exists among the creditors.
2. Among creditors: (Article 1212)
The creditor who performed a prejudicial act shall incur the obligation of
idemnifying the others for damages.
*Every solidary creditor is benefited by the useful acts of any one of them.
*If a solidary creditor performs an act which is not fair to his co-creditors, the act
may have valid legal effects or the obligation of the debtor due to them may be
extinguished, but the performing creditor shall be liable to his co-creditors.
Art. 1213. A solidary creditor cannot assign his rights
without the consent of the others.
ASSIGN – TRANSFER OF RIGHT
If assignee is a third person (outside the original solidary creditors), without the
consent of the others – this article is violated.
The assignee does not become a solidary creditor, and any payment made upon him
by the debtor does not extinguish the obligation. He is considered a STRANGER, and
his acts are not binding to the solidarity.
DOCTRINE OF MUTUAL AGENCY
- In solidary obligations, the act of one is the act of others.
- Exceptions:
1. Art. 1212 – a creditor may not perform an act prejudicial to other
creditors.
2. Art. 1213 – a creditor cannot transfer his right without consent of the
others.
Art. 1214. The debtor may pay any one of the solidary
creditors; but if any demand, judicial or extrajudicial, has
been made by one of them (creditors), payment should be
made to him.
- The debtor can pay any one of the solidary creditors. Such payment
accepted will extinguish the obligation.
- To avoid confusion on the payment of obligation, the debtor is required to
pay only to the demanding creditor and that payment is sufficient to effect
the extinguishment of the obligation.
- In case 2 or more demands, the first demand must be given priority.
Art. 1215. Novation, compensation, confusion or remission
of the debt, made by any of the solidary creditors or with
any of the solidary debtors, shall extinguish the obligation,
without prejudice to the provisions of Art. 1219.
The creditor who may have executed any of these acts, as
well as he who collects the debt, shall be liable to the
others for the share in the obligation corresponding to
them.
NOVATION – Art 1291 – obligations are modified by:
1. Changing their object or principal conditions;
2. Substituting the person of the debtor; and
3. Subrogating (placing) a third person in the rights of the creditor.
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COMPENSATION – takes place when 2 persons, in their own right, become creditors
and debtors of each other.
- The amount of one is covered by the amount of the other.
- Example:
Erap borrowed P100 from Fernando
Fernando borrowed P75 from Erap
Erap’s obligation to Fernando is now P25 only, because the original
obligation was offset by Fernando’s supposed-to-be obligation to Erap.
CONFUSION – takes place when the characters of creditor and debtor are merged
in the same person with respect to one and the same obligation.
REMISSION – an act of pure liberality by virtue of which the creditor, without
having received any compensation or equivalent, renounces his right to enforce the
obligation, thereby extinguishing the same either in its entirety or in the part or
aspect thereof to which the remission refers.
- EFFECTS OF REMISSION:
1. If remission covers the entire obligation: obligation is extinguished.
2. If remission is for the benefit of one of the debtors and it covers his
entire share in the obligation: he is released from the creditors, but
still bound to his co-debtors.
3. If remission is for the benefit of one of the debtors and it covers his
only a part of his share in the obligation: his character as a solidary
debtor is not affected; it continues both with respect to the creditors
and other debtors.
*These 4 modes of extinguishing obligations are acts prejudicial to the other
solidary co-creditors because these have the effect of extinguishing the debt or
obligation which is due to all of them.
*The only recourse of the co-creditors is to let the one who executed any of those
acts be liable for the shares corresponding to all his co-creditors.
Art. 1216. The creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously. The
demand made against one of them shall not be an obstacle
to those which may subsequently be directed against the
others, so long as the debt has not been fully collected.
When there is passive solidarity, the creditor can proceed against:
1. Any of the solidary debtors;
2. Some of the solidary debtors;
3. All of the solidary debtors, simultaneously.
Extrajudicial demands – first demand shall not prevent subsequent demands on the
other co-debtors, if co-debtor first to have been required to fulfill obligation did not
acton it.
Stronghold Insurance Company Inc vs. Republic-Asahi Glass Corporation
- Although the contract of a surety is in essence secondary only to a valid
principal obligation, his liability to the creditor or promisee of the principal
is said to be direct, primary or absolute; In other words, the surety is
directly and equally bound with the principal.
- Despite the death of the principal debtor, respondent (creditor) may still
sue petitioner (surety) alone, i.a.w. the solidary nature of the latter’s
liability under the performance bond.
Art. 1217. Payment made by one of the solidary debtors
extinguishes the obligation. If 2 or more solidary debtors
offer to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors
only the share which corresponds to each, with the interest
for the payment already made. If the payment is made
before the debt is due, no interest for the intervening
period may be demanded.
When one of the solidary debtors cannot, because of his
insolvency, reimburse his share to the debtor paying the
obligation, such share shall be borne by his all co-debtors,
in proportion to the debt of each.
Payment – consists in the delivery of the thing or the rendition of the service which
is the object of the obligation.
Interest – compensation for the use of borrowed money
Ochoa, SJ | Page 29 of 113
Partial payment – the solidary debtor who made the partial payment is entitled to
be reimbursed only for such amount of money which he had paid and which
exceeds his own share in the obligation.
If one of the debtors is insolvent and could not pay his share in the obligation, all
solidary debtors including the paying debtor shall share proportionately in the
settlement of the corresponding share of the insolvent debtor.
- His co-debtors will save his ass
Art. 1218. Payment by a solidary debtors shall not entitle
him to reimbursement from his co-debtors if such payment
is made after the obligation has prescribed or become
illegal.
No reimbursement if:
1. The obligation PRESCRIBES
o The creditor did not make any demand for more than 10 years.
2. The obligation became ILLEGAL
o Law has been passed, making such prestation illegal.
Art. 1219. The remission made by the creditor of the share
which affects one of the solidary debtors does not release
the latter from his responsibility towards the co-debtors, in
case the debt had been totally paid by anyone of them
before the remission was effected.
Any belated (delayed) remission by the creditor of the share of any of the debtor
has no effect on the internal relationship of the co-debtors.
Example:
Payment before remission:
- A, B, and C solidarily owe D P1,500. B paid the entire obligation. After
which, D remitted the share of C. B can collect P500 each from A and C
even if the share of C in the obligation had been remitted.
Remission before payment:
- A, B, and C solidarily owe D P1,500. D remitted the share of C. Thereafter, B
paid the entire obligation. B can collect P500 from A but not from C.
However, B may ask D to give back P500, which is the supposed to-to-be
share of C.
*After the prior payment of the entire obligation, there is nothing to remit
because the obligation had been extinguished.
Art. 1220. The remission of the whole obligation, obtained
by one of the solidary debtors, does not entitle him to
reimbursement from his co-debtors.
There is nothing to be reimbursed because he did not spend any money, the
remission being a gratuitous act.
Art. 1221. If the thing has been lost or if the prestation has
become impossible without the fault of the solidary
debtors, the obligation shall be extinguished.
If there was fault on the part of any one of them, all shall
be responsible to the creditor, for the price and the
payment of damages and interest, without prejudice to
their action against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the
performance has become impossible after one of the
solidary debtors has incurred in delay through the judicial
or extrajudicial demand upon him by the creditor, the
provisions of the preceding paragraph shall apply.
Loss or impossibility of performance:
1. NO FAULT – Obligation is extinguished.
2. FAULT of any one of them – all are liable.
o The obligation is converted into an obligation of indemnity for
damages, but the solidary character remains.
o The creditor can still proceed against one, some or all of the
debtors plus damages. (w/o prejudice to the right of action of the
debtors who paid to proceed against the guilty or negligent
debtor for reimbursement)
3. FORTUITOUS event but after delay on the part of the debtors – all are
liable.
Ochoa, SJ | Page 30 of 113
 o Obligation is converted into an obligation of indemnity for
damages, but the solidary character remains.
o The creditor can still proceed against one, some or all of the
debtors plus damages. (w/o prejudice to the right of action of the
debtors who paid to proceed against the guilty or negligent
debtor for reimbursement)
o If the creditors granted extention of time to other debtors, the
*If the thing due was not lost, but there is merely a delay, fraud, or negligence on
the part of one of the solidary debtors, all (including the innocent) debtors will
share in the payment of the principal prestation. The damahes and interest imposed
will be borne by the guilty debtor.
*Obligation to deliver is converted into an obligation to pay indemnity when there
is loss or impossibility of performance.
o If the debtors are a mother and 2 minor daughters, the mother
can interpose the defense of minority of her daughters, but the
mother will benefit only with regard to the debt for which the
minors were responsible.
 Amount equivalent to the extent that the minors had
been benefited by their share in the obligation.
debtor who has not granted can interpose the defense of
extention of time for payment, but only with regard to the part of
the debt for which the debtors benefited the time extention.
 Creditor must wait for the expiration before they can
collect from the debtor who has not granted time
extention.

Art. 1222. A solidary debtor may, in actions filed by the

creditor, avail himself of all defenses which are derived
from the nature of the obligation and those of which are
personal to him, or pertain to his own share. With respect
to those which personally belong to the others, he may
avail himself thereof only as regards that part of the debt
for which the latter are responsible.
DEFENSES AVAILABLE TO A SOLIDARY DEBTOR

1. Defenses derived from the NATURE OF THE OBLIGATION

o Payment or performance
o Res judicata
o Prescription
o Those which invalidate the contract such as mistake
o Violence
o Intimidation
o Undue influence
o Fraud
o And others of a similar nature.

2. Defenses PERSONAL TO HIM OR PERTAINING TO HIS OWN SHARE

o Minority
o Insanity

3. Defenses personal to the other solidary creditors, but ONLY TO THE PART
OF THE DEBT for which other debtors are liable.

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Section 5 – DIVISIBLE AND INDIVISIBLE OBLIGATIONS
Rachel obliges herself to deliver a car to Monica.
Object of Obligation/Prestation: delivery of a car
Object of Prestation: the car.
Art. 1223. The divisibility or indivisibility of the things that
are the object of obligations in which there is only one
debtor and only one creditor does not alter or modify the
provisions of Chapter 2 of this Title.

Rachel obliges herself to bake a cake for Monica. General rule on 1 creditor and 1 debtor:
Object of Obligation/Prestation: to bake a cake - The creditor cannot be compelled partially to receive the prestation in
Object of Prestation: the cake. which the obligation consists;
- Neither the debtor be required to make partial payments.
DIVISIBLE OBLIGATION - Exception:
- The object of the obligation is susceptible of partial performance. 1. When the obligation expressly stipulates the contrary.
- Kinds of division: 2. When the different prestations constituting the objects of the
o Quantitative obligation are subject to different terms and conditions; and
 When the thing can be materially divided into parts. 3. When the obligation is in part liquidated and in part unliquidated.
o Qualitative
 When the thing can be materially divided, but parts are Plurality of debtors and creditors:
not homogenous. 1. If Solidary: Art. 1211 to Art. 1222
 Example: Inheritance: car, house, land 2. If Joint and divisible: Art. 1208
o Intellectual or Ideal
 When the thing can only be separated into ideal or Art. 1208. If from the law, or the nature of the wording of the obligations to which the
preceding article refers the contrary does not appear, the credit or debt shall be
undivided parts. presumed to be divided into as many equal shares as there are creditors or debtors, the
 Example: co-ownership. credits or debts being considered distinct from one another, subject to the ROC
governing the multiplicity of suits.
INDIVISIBLE OBLIGATION
- The object of the obligation is not susceptible of partial performance. JOINT DIVISIBLE OBLIGATIONS.
Consequences:
- Kinds of indivisibility: o Creditor – can demand only for the payment of his proportionate share of the
o Legal indivisibility credit.
 When the law provides. o Debtor – can be held liable only for the payment of his proportionate share.
o Conventional indivisibility o Demand made by one creditor upon one debtor produces the effects of default
only as between them, but not with respect to others.
 Stipulation of parties o The interruption of prescription caused by the demand made by 1 creditor upon 1
o Natural or absolute debtor will not benefit the co-creditors.
 Nature of prestation does not admit of division o The insolvency of one debtor will not increase the liability of his co-debtors, nor
 Example: give a particular car, to sing a song. will it allow a creditor to demand anything from the co-creditors.
Example: X, Y, Z owe A & B P12k.
X owe A 2k Y owe A 2k Z owe A 2k
X owe B 2k Y owe B 2k Z owe B 2k
Total: 12k

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Art. 1224. A joint indivisible obligation gives rise to
indemnity for damages from the time anyone of the
debtors does not comply with his undertaking. The debtors
who may heve been ready to fulfill their promises shall not
contribute to the indemnity beyond the corresponding
portion of the price of the thing or of the value of the
service in which the obligation consists.
3. If Joint and indivisible: Art. 1209 & 1224.
Art. 1209. If the division is impossible, the right of the creditors may be prejudiced
only by their collective acts, and the debt can be enforced only by proceeding
against all of the debtors. If one of the latter (debtor) should be insolvent, the
others shall not be liable for his share.
JOINT INDIVISIBLE OBLIGATIONS.
o Solidarity is not provided and the prestation is not susceptible of division; its
fulfillment requires the concurrence of all debtors, while doing each one’s parts.
o Joint with respect to the parties, indivisible with respect to the fulfillment of the
obligation.
 If 2 or more debtors: The fulfillment of obligation requires the
concurrence of all the debtors, although each for his own share.
 If 2 or more creditors: The concurrence or collective act of all the
creditors, although each for his own share, is also necessary for the
enforcement of the obligation.
 A creditor cannot act in representation of the others; not
susceptible of partial fulfillment.
Effect of insolvency: the others shall not be liable for the insolvent’s share.
- If anyone of the debtors should fail or refuse to comply with the obligation,
it is converted into one of indemnity for damages.
- The debtors who may have been ready to comply with what is incumbent
upon them shall not contribute to the indemnity.
- If the other debtors also suffered damages as a result of the
transformation of the obligation into one of indemnity, they may also
recover such damages from the debtor who was at fault.
Art. 1225. For the purposes of the preceding articles,
obligations to give definite things and those which are not
suscetible of partial performance shall be deemed to be
indivisible.
When the obligation has for its object the execution of a
certain number of days of work, the accomplishment of
work by metrical units, or analogous things which by their
nature are susceptible of partial performance, it shall be
divisible.
However, even though the object or service may be
physically divisible, an obligation is indivisible if so
provided by law or intended by the parties.
In obligations not to do, divisibility or indivisibility shall be
determined by the character of the prestation in each
particular case.
Determination of divisibility or indivisibility:
- The purpose of the obligation is the controlling circumstance.
In obligations to give:
- Give something definite & by its nature indivisible = not susceptible of
partial compliance. -> indivisible.
- Give something divisible = susceptible of partial compliance -> divisible.
o Except!
 If provided by law or
 It is so intended by the parties (may be express or
implied)
 Although the object of the obligation can be
separated into parts, yet each part constitutes a
necessary complement of the other parts.
 From the very purpose of the obligation itself
which requires the delivery of all the parts.
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In obligations to do:
- If to perform some prestation or service which is not susceptible of partial
performance -> indivisible.
- If to perform prestation or service which is susceptible of partial
performance -> divisible.
o Except!
 If provided by law or
 It is so intended by the parties (may be express or
implied)
 Example of divisible: to consturct several
buildings within a certain compound.
 Example of indivisible: to construct all of the
apartment buildings.

In obligations not to do:

- Depends upon the character or prestation in each particular case.
- Depends upon the sound discretion of the court.

The ff are INDIVISIBLE OBLIGATIONS:

1. Obligation to give definite things
2. Obligations which are not susceptible of partial performance
3. Even though the object or service may be physically divisibile, it is
indivisible if:
a. The law so provides
b. When the parties intended it to be indivisible

The ff are deemed DIVISIBLE OBLIGATIONS:

1. When the object of the obligation is the execution of a certain number of
days of work
2. When the object of the obligation is the accomplishment of work
measured in units.
3. When the object of the obligation is susceptible of partial compliance
4. When the object of the obligation is such that the debtor is required to pay
in installments.

*If the contractis divisible, and a part of it is illegal, the illegal part is void, and the
rest shall be valid and enforceable.

*If the contract is indivisible, and a part of it is illegal, the entire contract is void.

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Section 6 – Obligations with a PENAL CLAUSE
Obligation with a penal clause, defined –
- To one which an accessory undertaking is attached for the purpose of
ensuring its iperformance by virtue of which the obligor is bound to pay a
stipulated indemnity/perform a stipulated prestation in case of breach.
Purpose:
1. General: Funcion coercitiva o de garantia
o to insure performance of the obligation
2. Compensatory: Funcion liquidatoria
o to liquidate the amount of damages to be awarded to the injured
party in case of breach of the principal obligation
3. Punitive: Funcion estrictamente penal
o To punish the obligor in case of breach of the principal obligation.
Kinds:
1. As to origin
a. Legal penal clause – when constituted by law
b. Conventional penal clause – when constituted by the parties.
2. As to purpose
a. Compensatory penal clause – when it is established for the
purpose of indemnifying the damages suffered by the
obligee/creditor in case of breach of the obligation.
b. Punitive penal clause – when it is established for the purpose of
punishing the obligor/debtor in case of breach of the obligation.
3. As to effect
a. Subsidiary or alternative penal clause – when only the penalty
may be demanded in case of breach of the obligation.
Example:
Marshall obliged himself to give Lily a specific car on Dec. 25, if he
fails to do so, Marshall will pay P100k. (no car)
b. Joint or cumulative penal clause – when the injured party may
demand the enforcement of both the penalty and the principal
obligation.
Example:
Marshall obliged himself to give Lily a specific car on Dec. 25, if he
fails to do so, Marshall, in addition to the car must pay Lily P100k.
(both car and P100k)
Art. 1226. In obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the
payment of interests in case of noncompliance, if there is
no stipulation to the contrary. Nevertheless, damages shall
be paid if the obligor refuses to pay the penalty or is guilty
of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in
accordance with the provisions of this Code.
General rule:
- The penalty is fixed by the contracting parties as a compensation or
substitute for:
1. damages
2. payment of interest in case of breach of the obligation (unless the
contrary is stipulated)
Exceptions:
- Additional damages may be recovered from:
1. If there is express stipulation that the other damages/interests are
demandable to the penalty in the penal clause.
Example:
o If the vendee fail to pay the installment amount in due time, the
vendot may rescind the contract and at the same time keep the
amount already paid.
2. If the debtor refuses to pay the penalty
3. If the debtor is guilty of fraud in the fulfillment of the obligation
“The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code.”
- Upon breach or nonfulfillment of the principal obligation by the debtor.
o The penalty stipulated becomes demandable, provided that it is
not contrary to law, morals, good customs, public order or public
policy.
- If both are unable to comply with their respective obligations:
o Such as fortuitous event: the penal clause cannot be invoked by
any one of them to the prejudice of the other.
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 Art. 1227. The debtor cannot exempt himself from the
performance of the obligation by paying the penalty, save
the case where this right has been expressly reserved for
him. Neither can the creditor demand the fulfillment of the
obligation and the satisfaction of the penalty at the same
time, unless this right has been clearly granted him.
However, if after the creditor has decided to require the
fulfillment of the obligation, the performance thereof
should become impossible without his fault, the penalty
may be enforced.
Art. 1228. Proof of actual damages suffered by the creditor
is not necessary in order that the penalty may be
demanded.
- The penalty is fixed for the purpose of compensating or substituting the
indemnity for damages and the payment of interests, proof of actual
damage by the creditor is not necessary.
- The penalty is exactly identical with whatis known as “liquidated damages”
(Art. 2226)
- One of the primary purposes in fixing a penalty or in liquidating damages,
is to avoid necessity of proving damages. (Lambert vs Fox, 26 Phil 558)

Ted obliged himself to construct the house of Robin and to finish it within 3 months, - If there is:
otherwise Ted is going to pay Robin P100k as penalty. What are the rights of the o Stipulation to the contrary
parties? o Refusal to pay penalty
o Fraud in the performance of the obligation
Limitation upon right of DEBTOR The creditor may recover damages aside from the penalty -> but he must
- The debtor cannot exempt himself from the performance of the principal prove the amount of damages actually suffered.
obligation by paying the stipulated penalty.
- Except: when the right is expressly reserved for him.
- Answer: Art. 1229. The judge shall equitably reduce the penalty
o Ted cannot just pay P100k and refuse to construct the house of when the principal obligation has been partly or irregularly
Robin, unless of course, there is an agreement giving him that complied with by the debtor. Even if there has been no
option. performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable.
Limitation upon right of CREDITOR
When penalty may be reduced:
- The creditor cannot demand the stipulated fulfillment of the principal
1. If the principal obligation has been partly complied with.
obligation and the penalty at the same time, unless:
2. If the principal obligation has been irregularly complied with.
1. When the creditor was clearly given the right to enforce both the
Example of #1 & #2:
principal obligation and penalty.
Barney promises to deliver 10 bottles of wine to Lily on Dec. 25, and upon failure to
Answer:
do so, Barney must pay a penalty of P5k.
o Robin cannot demand from Ted that he will construct the house
If Barney only delivered 9 bottles of wine on Dec. 25, the court may reduce the
and at the same time pay P100k, unless agreed upon.
penalty.
2. When the creditor has demanded fulfillment of the obligation but
3. If the penalty is inquitous or unconscionable even if there is no
cannot be fulfilled due to the:
performance.
a. Debtor’s fault – creditor may demand penalty.
Example:
b. Creditor’s fault – he cannot claim penalty.
Barney promises to pay Lily P10k on Dec. 25, and upon failure, to pay a penalty of
c. Fortuitous event – principal & penalty extinguished.
P50k.

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PENALTY NOT ENFORCEABLE:
1. Impossible performance of principal obligation due to fortuitous events.
2. Creditor prevented debtor from fulfilling the obligation.
3. Penalty is contrary ti good morals or good customs.
4. Both parties are gulty of breach of contract.
5. Breach of contract by the creditor.
6. None of the parties committed any willful or culpable violation of the
agreement.
Can the court DELETE the penalty clause?
- Yes. The stipulated penalty can be deleted in cases such as when there has
been a substantial performance in good faith by the obligor. (Art. 1234,
NCC)
- When the penalty clause itself suffers from fatal infirmity, or when
exceptional circumstacnes so exists as to warrant it. (Garcia vs. CA, 167
SCRA 815; Palmares vs CA, 288 SCRA 243….)
Umali vs. Miclat, 105 Phil 1007
- Under Art. 1226 of the NCC, the penalty takes place of interest only if there
is no stipulation to the contrary, and even then damages may still be
collected if the obligor refuses to pay the penalty. In this case not only
there is express stipulation to pay damages in addition to the penalty, but
defendant has failed to pay his obligation as well as the penalty. The
imposition of interest is, therefore, justified.
Art. 1230. The nullity of the penal clause does not carry
with it that of the principal obligation.
The nullity of the principal obligation carries with it that of
the penal clause.
Accessory follows the principal, and not vice versa.
Penalty is merely an accessory obligation.
If principal clause is void, penal clause is likewise void.
Example:
- Chandler obliged himself to give Ross a pack of cocaine, and in case of non
compliance, P500k will be forfeited from Chandler.
If penal clause is void, the validity of the principal is not affected. (since the
efficacy of such obligation is not dependent upon the efficacy of the penal clause)
Example:
- Chandler obliged himself to construct a house for Ross within 3mos. In
case Chandler is not able to perform his obligation within the stipulated
period, He will give Ross a pack of cocaine.
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CHAPTER 4 – EXTINGUISHMENT OF OBLIGATIONS
GENERAL PROVISIONS

Art. 1231. Obligations are extinguished:

1. By payment or performance;
2. By the loss of the thing due;
3. By the condonation or remission of the debt;
4. By the confusion or merger of the rights of creditor
and debtor;
5. By compensation;
6. By novation.

Other causes of extinguishment of obligations, such as

annulment, recission, fulfillment of a resolutory condition
and prescription, are governed elsewhere in this Code.
In addition:
1. Renunciation or waiver by the obligee/creditor
2. Compromise
3. Expiration of the resolutory term/period
4. Death of one of the contracting parties in certain contracts; or
5. The agreement of both contracting parties or what is sometimes known as
mutual assend or dissent.

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SECTION 1 – PAYMENT OR PERFORMANCE WHEN OBLIGATION IS UNDERSTOOD PAID OR PERFORMED:
1. Obligation to give – when the debtor has completely delivered the thing.
Art. 1232. Payment means not only the delivery of money 2. Obligation to do – when the debtor has completely rendered the service.
3. Obligation not to do – when the debtor completely refrained from doing
but also the performance, in any manner, of an obligation.
that which he had obligated himseld not to do.
CONCEPT OF PAYMENT OR PERFORMANCE
*Normal and voluntary fulfillmnent of the obligation by the realization of the
Art. 1234. If the obligation has been substantially
purposes for which it was constituted.
performed in good faith, the obligor may recover as though
*Juridical act which is voluntary, licit and made with the intent to extinguish an there had been a strict and complete fulfillment, less
obligation. damages suffered by the obligee.
EXCEPTION WHEN THE DEBT IS CONSIDERED PAID (1)
Payment = performance. SUBSTANTIAL COMPLIANCE IN GOOD FAITH FULE

Kinds: Requisites:
1. Normal – debtor voluntary performs the prestation stipulated 1. Substantial compliance/performance
2. Abnormal – debtor is forced by means of a judicial proceeding to comply 2. Debtor must be in good faith.
with the prestation or pay indemnity.
3.
Art. 1233. A debt shall not be understood to have been Example:
paid unless the thing or service in which the obligation Ted obliged himself to deliver to Marshall 1000 bags of cement, but he only
delivered 950 bags due to shortage of cement (Ted must be willing to deliver
consists has been completely delivered or rendered, as the
completely, and the shortage must be beyond Ted’s control)
case may be.
-> Marshall may pay only the 950 bags.
WHEN THE DEBT IS CONSIDERED PAID.
Requisites:
Art. 1235. When the obligee accepts the performance,
1. Integrity of the prestation – prestation be fulfilled completely.
knowing its incompleteness or irregularity, and without
Example: Rachel bound herself to pay Joey P10k, she must give exactly
P10k. expressing any protest or objection, the obligation is
Exceptions: deemed fully complied with.
Art. 1234 – Substantial compliance in good faith. EXCEPTION WHEN THE DEBT IS CONSIDERED PAID (2)
Art. 1235 – Waiver/ Principle of estoppel WAIVER / PRINCIPLE OF ESTOPPEL
Art. 1254 – Application of payments if the debts are equally onerous
- The law presumes that when you accept the incomplete/irregular
2. Identity of the prestation – the very prestation must be delivered or payment, you are waiving your right to reject it.
performed.
Example: If the object of the prestation is a car, the debtor must deliver Requisites:
that car. 1. The creditor/obligee knows that the performance is incomplete/irregular
2. He accepts the performance without expressing any protest/objection.
Burden of proving payment:
- Creditor = obligation exist No required/specific form of protest/objection
- Debtor = proving payment (presentation of receipt) - As long as the creditor clearly acted showing that he is not satisfied/did not
agree with the irregular/incomplete delivery of the prestation.
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 Art. 1236. The creditor is not bound to accept payment or
performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to
the contrary.
Whoever pays for another may demand from the debtor
what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can recover
only insofar as the payment has been beneficial to the
debtor.
Persons who may pay the obligation:
1. Debtor himself/his legal representative
2. Any third person.
a. Any person who has an interest in the obligation (guarantors)
b. Third person who has NO interest in the obligation, UNLESS there
st
is stipulation that he can make payment (1 par, Article 1236)
rd
RIGHTS OF THE 3 person who made the payment:
1. With the debtor’s knowledge and consent:
a. reimbursement
b. subrogation
 The payor (3 person) steps into the shoes of
rd
the debtor.
 The payor (3 person) acquires the rights of the
rd
creditor.
2. Without the debtor’s consent or knowledge
a. Beneficial reimbursement – recovery is only up to
the extent of the amount of the debt at the time of
nd
the payment. (2 par, Art. 1236)
Art. 1237. Whoever pays in behalf of the debtor without
the knowledge or against the will of the latter, cannot
compel the creditor to subrogate him in his rights, such as
those arising from mortgage, guaranty, or penalty.
SUBROGATION REIMBURSEMENT
Recourse can be had to the mortgage There is no such recourse
or guaranty ot penalty
The debt is extinguished in one sense, New creditor has different rights
but a new creditor, with exactly the
same right as the old one, appears on
the scene
There is more than personal action of There is only a personal action to
recovery. recover the amount.
Example:
Marshall borrowed P1M from Lily payable on Dec. 25, 2020. The loan was secured
by a mortgage of Marshall’s Land. Without the knowledge of Marshall, Ted paid Lily
P1M. Marshall was benefited to the amount of P1M.
1. Can Ted claim reimbursement from Marshall?
-> Yes, only in as much as Marshall was benefited.
2. How much?
-> P1M only.
3. If Marshall cannot pay, may Ted foreclose the mortgage on Marshall’s
Land?
-> No, because Ted paid without the consent of Marshall, therefore, Ted
rd
(3 person) cannot compel Lily (the creditor) to subrogate him in her rights
such as those arising from mortgage, guaranty, or penalty.
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 Art. 1238. Payment made by a 3rd person who does not
intend to be reimbursed by the debtor is deemed to be a
donation, which requires the debtor’s consent. But the
payment is in any case valid as to the creditor who has
accepted it.
GRATUITOUS PAYMENTS / DONATION
As to Debtor:
- In ordinary donations, debtor’s consent is necessary.
- If consent is not secured -> Art. 1236 & 1237 applies.
As to Creditor:
- Debtor’s consent is immaterial.
- Payment is valid in any case.
Example:
Marshall owes Lily P1M, Ted, in behalf of Marshall, paid Lily P1M against the
consent of Marshall, although Ted had previously told Marshall that he has no
intention of being reimbursed. Lily, accepted the payment by Ted in behalf of
Marshall.
1. Is Marshall’s obligation toward Lily, extinguished?
nd
-> Yes. (2 par, Art. 1238). The payment is in any case valid as to Lily (the
creditor) who has accepted it.
2. May Ted recover from Marshall?
-> Yes. Even if Ted does not intend to be reimbursed. But still, Ted can
recover only in as much as Marshall was benefited.
3. If with Marshall’s consent, may Ted recover?
-> No. Payment is considered as donation.
Art. 1239. In obligations to give, payment made by one
who does not have the free disposal of the thing due and
capacity to alienate it shall not be valid, without prejudice
to the provisions of Article 1427 under the Title on “Natural
Obligations.”
EFFECT OF PAYMENT OF AN INCAPACITATED PERSON
Free disposal of the thing – the thing must be delivered must not be subject to any
claim, encumbrance..
Capacity to alienate – the person is not capacitated to enter into contracts.
BAYAD NG INCAPACITATED NA TAO IS NOT VALID. THE CREDITOR CANNOT BE
COMPELLED TO ACCEPT HIS PAYMENT.
Creditor cannot be compelled to accept the payment; as a result the consignation of
the thing due is not possible.
Art. 1240. Payment shall be made to the person in whose
favor the obligation has been constituted, or his successor
in interest, or any person authorized to receive it.
TO WHOM PAYMENT MUST BE MADE
1. In whose favor the obligation has been constituted.
o Not only the person at the time of the constitution, but also the
person at the time of payment. (#2)
2. Successor in inerest
o Subrogee
3. Any person authorized to receive it.
o Person authorized by the creditor
o Person authorized by law
 Guardian
 The executor or administrator of estate of a deceased
person
 Assignee or liquidator of partnership/corporation
*If the payment is made to a person other than those enumerated in Art. 1240, it
shall not be valid -> obligation is not extinguihed. Even if debtor acted in good faith.
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Payment is valid even not enumerated in Art. 1240 -> Art. 1241.
- Arcache vs. Lizares & Co., 91 Phil. 348:
rd
1. Payment made to a 3 person, provided that it has redounded to the
benefit of the creditor.
2. Payment made to the possessor of the credit, provided it was made in
good faith.
Art. 1241. Payment to a person who is incapacitated to
administer his property shall be valid if he has kept the
thing delivered, or insofar as the payment has been
beneficial to him.
Payment made to a 3rd person shall also be valid insofar as
it has redounded to the benefit of the creditor. Such
benefit to the creditor need not be proved in the following
cases:
1. If after the payment, the 3rd person acquires the
creditor’s rights;
2. If the creditor ratifies the payment to the 3rd
person;
3. If by the creditor’s conduct, the debtor has been
led to believe that the 3rd person had authority to
receive the payment.
PAYMENT TO INCAPACITATED PERSONS (1 par)
st
The payment is considered valid if:
1. He has kept the amount or thing paid or delivered, or
2. Insofar as the payment has been beneficial to him.^^^
rd
PAYMENT TO A 3 PERSON
The rule is that it shall be valid insofar as it has redounded to the benefit of the
creditor.
- The rule cannot be invoked without conclusive proof of the benefit to the
creditor.
- Burden of proof: debtor.
- Need not be proved:
1. If after the payment, the third person acquires the creditor’s rights.
2. If the creditor ratifies the payment to the third person;
3. If by the creditor’s conduct, the debtor has been led to believe that
rd
the 3 person had authority to receive the payment.
rd
*If payment to 3 person was made thru mistake and in good faith, the debtor can
still be held liable.
*If it becomes impossible for such debtor to recover what was unduly paid, any loss
resulting therefrom shall be borne by him unless there is a stipulation to the
contrary, or unless the creditor himself was responsible for the wrongful payment.
Art. 1242. Payment made in good faith to any person in
possession of the credit shall release the debtor.
PAYMENT TO POSSESSORS OF CREDIT
Requisites:
1. In good gaith
2. Possession of the credit (not possession of the document evidencing it)
Example:
Promissory note held by Marshall, payable to bearer, debtor paid to
Marshall -> valid.
Promissory note held by Marshall, states payable to Rachel, debtor paid to
Marshall -> invalid.
Art. 1243. Payment made to the creditor by the debtor
after the latter has been judicially ordered to retain the
debt shall not be valid.
PAYMENT AFTER JUDICIAL ORDER OF RETENTION
- The payment to the creditor after the credit has been attached or
garnished is void as to the party who obtained the attachment or
garnishment, to the extent of the amount of garnishment in his favor.
- The debtor upon whom garnishment order is served can always deposit
the money in the court by way of consignation anf thus relieve himself
from further liability.
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 Art. 1244. The debtor of a thing cannot compel the creditor Art. 1246. When the obligation consists in the delivery of
to receive a different one, although the latter may be of the an indeterminate or generic thing, whose quality and
same value as, or more valuable than that which is due. circumstances have not been stated, the creditor cannot
demand a thing of superior quality. Neither can the debtor
In obligations to do or not to do, an act or forbearance deliver a thing of inferior quality. The purpose of the
cannot be substituted by another act or forbearance obligation and other circumstances shall be taken into
against the obligee’s will. consideration.
WHAT MUST BE PAID. The rule of medium quality.
- The debtor cannot fulfill his obligation by delivering a thing which is
different from that which is due. Quality only, not quantity and kind.
- Except:
1. Facultative obligation (substitution) If therer is disagreement between the parties, the law steps in and declares
2. Other agreement resulting in whether the obligation has been complied with or not, depending upon the purpose
a. Dation in payment (Art. 1245) of such obligation and other circumstances.
b. Novation
3. Waiver by the creditor (may be express or implied) Art. 1247. Unless it is otherwise stipulated, the extrajudicial
expenses required by the payment shall be for the account
Art. 1245. Dation in payment, whereby property is of the debtor. With regard to judicial costs, the Rules of
alienated to the creditor in satisfaction of a debt in money, Court shall govern.
shall be governed by the law of sales.
EFFECT OF DATION IN PAYMENT. Debtor to pay extrajudicial expenses, unless stipulated.
- Dation in payment
o Obligation is monetary, but what to be paid is a property. *Payment is the debtor’s duty and it inures to his benefit in that he is discharged
o Manresa: transmission of ownership of a thing by the debtor to from the burden of the obligation.
the creditor as an accepted equivalent of the performance of the
obligation. Judicial costs -> ROC, discretion of court.
o Shall be governed by law of sales.

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 Art. 1248. Unless there is an express stipulation to that Art. 1249. The payment of debts in money shall be made in
effect, the creditor cannot be compelled partially to receive the currency stipulated, and if it is not possible to deliver
the prestation in which the obligation exists. Neither may such currency, then in the currency which is legal tender in
the debtor be required to make partial payments. the Philippines.

However, when the debt is in part liquidated and in part The delivery of promissory notes payable to order, or bills
1
unliquidated, the creditor may demand and the debtor may of exchange or other mercantile documents shall produce
effect the payment of the former without waiting for the effect of payment only when they have been cashed, or
liquidation for the latter. when through the fault of the creditor they have been
Article applicable only to an obligation with 1 debtor & 1 creditor. impaired. 2
General rule:
- Payment must be complete. In the meantime, the action derived from the original
- Requisites: (accdg to Castan) obligation shall be held in abeyance.
1. Identity – only the prestation agreed upon and no other must
be complied with.
Legal tender (RA 265; RA 529)
2. Completeness – the thing or service in which the obligation - Refers to such currency which may be used for the payment of all debts,
consists must be completely delivered or rendered.
whether public or private.
3. Indivisibility – payment or performance must be indivisible.
- Under our law, the legal tender of the PH would be all notes and coins
issued by the Central Bank.
Exceptions: (Art. 1248) - BSP Circular No. 537 series of 2006:
1. When the obligation expressly stipulates the contrary
o Coins in denomination of 1 peso, 5 peso and 10 pesos, shall be
2. When the different prestations which constitute the objects of the
legal tender in an amount not exceeding 1,000.
obligation are subject to different terms and conditions
o Coins in denomination of 1 cent, 5 cents, 10 cents, 25 cents, shall
3. When the obligation is in part liquidated and in part unliquidated.
be legal tender in an amount not exceeding 100.
Example:
Ted owes Barney P10k, payable on Dec 25, 2021. Ted is paying a Promissory note of
P10k.
1. Can Barney refuse to accept?
-> Yes, because it is not a legal tender.
2. Can Barney accept?
-> Yes, that is his option as a creditor.

3. If Barney accepts, does this mean that payment has been effected?
-> Not yet. It shall produce the effect of payment only when they have
nd
been cashed. (2 par, Art. 1249)

4. Supposing, Barney consented that Ted’s payment is a Promissory Note

payable 2 months later. Now, during the intervening perios, may Barney
bring an action to recover from Ted?
-> No. Pending the action of the mercantile documents, the action derived
rd
from the original obligation shall be held in abeyance. (3 par, Art. 1249)
Ochoa, SJ | Page 44 of 113
Payments with Japanese Military Notes
- “A payment made by a debtor during the enemy occupation of a pre-war
debt or obligation with Japanese notes and accepted by the creditor, is
valid and extinguishes the former’s obligation.” (Hillado vs. Dela Costa)
Payments with Emergency Notes
- What had been stated regarding payments with Japanese military notes
can also be applied to a certain extent to payments made with emergency
notes which were issued either by the Commonwealth government during
the invasion or by guerilla governmenrs during the occupation.
Payments with Negotiable Paper
- Negotiable paper or mercantile documents (promissory notes payable to
order, bills of exchange, checks) are not legal tender. -> does not produce
the effect of payment. (Belisario vs. Natividad, 60 Phil 156)
- The creditor may refuse it.
Art. 1250. In case an extraordinary inflation or deflation of
the currency stipulated should supervene, the value of the
currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement
to the contrary.
Extraordinary inflation/deflation – unusual or beyond the common fluctuation in
the value of currency, which the parties could not have reasonably foreseen or
which was manifestly beyond their contemplation at the time when the obligation
was established (4 Tolentino 284)
Applies only where a contract or agreement is involved. It does not apply where the
obligation to pay arises from law, independent of contracts.
Extraordinary inflation or deflation may be said to be: (requisites, also there must
be an official declaration from BSP)
1. There must be a decrease or increase in the purchasing power of the
currency which is unusual or beyond the common fluctuations in the value
of said currency
2. Such decrease or increase could not have reasonably foreseen or which
was manifestly beyond their contemplation of the parties at the time when
the obligation was established.
*Applicable only on contractual obligations, not obligations arising from torts.
*The law does not say that the value of the currency at the time of the
establishment of the obligation shall be the amount to be paid; it merely says it
shall be the basis of payment.
- The courts will be given latitude in the amount of fixing the amount to be
paid with the value of currency at the time when the obligation is
established as basis, unless of course there is an agreement to the
contrary.
Art. 1251. Payment shall be made in the place designated
in the obligation.
There being no express stipulation and if the undertaking is
to deliver a determinate thing, the payment shall be made
wherever the thing might be at the moment the obligation
was constituted.
In any other case, the place of payment shall be the
domicile of the debtor. (indeterminate thing)
If the debtor changes his domicile in bad faith or after he
has incurred in delay, the additional expenses shall be
borne by him.
The provisions are without prejudice to venue under the
Rules of Court.
PLACE OF PAYMENT.
If no stipulation:
1. Determinate thing – payment shall be made at the place where the thing
might be at the time the obligation was constituted.
o Example: car
2. In any other case – the payment shall be made at the domicile of the
debtor.
o This rule is intended to govern unilateral obligations.
o Example: rent
Ochoa, SJ | Page 45 of 113
 st
WHAT ARE THE FORMS OF PAYMENT? 1 scenario/General rule:
st
Debtor makes the designation – at the time of making the payment. (1 par)
nd
1. Subsection 1 (Art. 1252-Art.1254) – Application/imputation of payment 2 scenario/Exception:
2. Subsection 2 (Art. 1255) – Cession of payment or assignment Creditor makes the designation – issues receipt – and debtor accepts.
3. (Art. 1245) – Dation in payment (in this case, debtor may accept or reject such receipt)
4. Subsection 3 (Art. 1256-Art.1261) – Tender of payment and consignation - Unless there is a cause for invalidating such receipt e.g. fraud, intimidation,
nd
etc. (2 par.)
rd
SUBSECTION 1 – Application of Payment. 3 scenario: If no one makes a designation – application of payment is made by
operation of law.
Art. 1252. He who has various debts of the same kind in
When the application of payment is already made, may it be revocable?
favor if one and the same creditor, may declare at the time
- General rule: No.
of making the payment, to which of them the same must - Exception: Unless the parties agrees.
be applied. Unless the parties so stipulate, or when the - Exception to the exception: Even if parties agreed to revoke, still not
application of payment is made by the party for whose rd
allowed if there are 3 parties who will be prejudiced.
benefit the term has been constituted, application shall not
be made as to debts which are not yet due. Art. 1253. If the debt produces interests, payment of the
principal shall not be deemed to have been made until the
If the debtor accepts from the creditor a receipt in which an interests have been covered.
application of the payment is made, the former cannot
complain of the same, unless there is a cause for INTERESTS.
General rule: Payment applied to interests first.
invalidating the contract.
Exception: Unless creditor waives his right (or unless there is stipulation to the
APPLICATION OF PAYMENTS contrary)
Application of payment – designation of the debt to which should be applied when
payment is made by a debtor who owes several debts in favor if the same creditor. Baltazar vs. Lingayen, 14 SCRA 522
Requisites: - In the absence of verbal or written agreement to the contrary; in other
1. 1 debtor and 1 creditor words, it is merely directory, and not mandatory.
2. 2 or more debts of the same kind
o If not of the same kind, still possible if at the time the application Example:
is made, such obligation had already been converted into Principal debt – 10,000
obligations to indemnify with damages. Interest – 10% = 1,000
3. All the debts must be due Total: 11,000
o Except when: Debtor only paid P10,000
1. When there is a stipulation to the contrary Remaining 1,000 from his payment belongs to the principal debt.
2. The application of payment is made by the party whose
benefit the term of period has been constituted.
 Debtor may renounce the benefit of the term/period by
paying in advance.
4. The payment must not be sufficient to cover the total amount of all the
debts.
o This requisite is indispensable, otherwise, no necessity of
designating such payment.
Ochoa, SJ | Page 46 of 113
 Art. 1254. When the payment cannot be applied in Example:
Debts are:
accordance with the preceding rules, or if application
1. Unsecured debt
cannot be inferred from other circumstances, the debt 2. Debts secured with a mortgage of debtor’s property
which is most onerous to the debtor, among those due, 3. Debt bearing interest
shall be deemed to have been satisfied. 4. A debt in which the debtor is solidarily liable with another.

If the debts due are of the same nature and burden, the Answer:
payment shall be applied to all of them proportionately. The order in which the payment must be applied must be:
4. A debt in which the debtor is solidarily liable with another.
BY OPERATION OF LAW.
2. Debts secured with a mortgage of debtor’s property.
3. Debt bearing interest.
Rules in case NO APPLICATION OF PAYMENT has been voluntarily made:
1. Unsecured debt.
1. Apply to the most onerous debt
2. If debts are of the same nature and burden, application shall be made to
Onerous – more burdensome.
all, proportionately.
o Applicable only if it is impossible to determine which of the debts
Example of more onerous debt:
which are due is the most onerous or burdensome to the debtor
1. Interest bearing debt than a non-interest bearing debt st
by applying any of the rules stated in the 1 par of the article.
2. Older debts
3. Debts secured by a mortgage or by pledge
o Example:
4. An obligation with a penal clause

Jurado – more onerous:

1. The oldest are more onerous than recent ones (PNB vs. Veraguth, 50 Phil
353)
2. One debt bears interest and the other is not, the first (interest bearing) is
more onerous. (Menzi & Co. vs. Quing Chuan, 6 Phil 46)
3. One debt is secured, and the other is not, the first (secured debt) is more
onerous to the debtor. (Sanz vs. Lavin, 6 Phil 299)
4. Debtor as principal in one obligation, a surety in another, the first is more
onerous.
5. Debtor is a solidary debtor in one obligation, and a sole debtor in another,
the first is more onerous.
6. W/in a solidary obligation, the share which corresponds to a solidary
debtor would be most onerous to him.
7. One indemnity, one penalty, the first is more onerous.
8. One is liquidated, other is unliquidated, the first is more onerous.

Ochoa, SJ | Page 47 of 113

SUBSECTION 2 – Payment by Cession / Assignment
DATION CESSION
Art. 1255. The debtor may cede or assign his property to As to number of parties May be 1 creditor Plurality of creditors
the creditors in payment of his debts. This cession, unless As to financial Does not require Debtor in a state of partial
there is stipulation to the contrary, shall only release the condition insolvency or relative insolvency
As to object Delivery of a thing Delivery of all the property
debtor from responsibility for the net proceeds of the thing
equivalent of the
assigned. The agreements which, on the effect of the
performance of obligation
cession, are made between the debtor and his creditors As to effect The payment To release the debtor for
shall be governed by special laws. extinguishes the obligation NET PROCEEDS of the
CESSION OF PAYMENT OR ASSIGNMENT to the extent of the value things ceded/assigned.
- Cession or assignment is a special form of payment whereby the debtor of the thing
abandons all of his property for the benefit of his creditors in order that delivered either as agreed
from the proceeds thereof the creditor may obtain payment of their upon or as may be proved,
credits. (Manresa) unless the
- Property/properties of the debtor -> creditor -> sell properties -> proceeds silence of the parties
-> payment. signifies that they consider
the delivery of
Requisites: the thing as the equivalent
1. Plurality of debts of the performance of the
2. Partial or relative insolvency of the debtor obligation.
3. Acceptance of cession by the creditors. As to ownership Transfer of property No transfer of property,
Kinds: (governed by the law on only assigned for
a. Contractual (Art. 1255) sales) possession of such things
b. Judicial (Insolvency Law) – may be voluntary or involuntary. under the creditor’s
Effects: Unless there is a stipulation to the contrary, Creditor becomes the administration to proceed
1. The assignment does not make the creditors the owners of the owner of the property. with the sale.
property of the debtor. (RIGHT TO SELL THINGS)
2. The debtor is released from his obligation only up to the amount
of the net proceeds of the sale of the property assigned. Proceeds thereof would
apply to the debts pro rata,
Example: unless the contrary is
Debtor owes 2M. Assigned his property to creditor. stipulated.
Creditor proceeded with the sale but only worth 1.5M.
Debtor still owes 500k from the creditor.

Ochoa, SJ | Page 48 of 113

SUBSECTION 3 – Tender of payment and Consignation
SPECIAL REQUISITES OF CONSIGNATION:
1. That there is a debt due; (Art. 1256)
2. There must be a valid tender of payment, unless tender is excused; (Art.
1256)
3. Prior notice of consignation to persons interested in the fulfillment of
obligation; (Art. 1257)
o can be done simultaneously from the moment the tender of
payment was made.
4. That the thing or amount due had been placed at the disposal of judicial
authority. / Actual consignation (Art. 1258)
o Must be accompanied by proof that a valid tender has been
made.
o If deposited in court: converted into property in custodia legis
 Exempted from attachment and execution.
5. After the consignation has been made, the persons interested in the
fulfillment of the obligation had been notified thereof. / Subsequent
notice of consignation. (Art. 1258)
Art. 1256. If the creditor to whom tender of payment has
been made refuses without just cause to accept it, the
debtor shall be released from responsibility by the
consignation of the thing or sum due.
Consignation alone shall produce the same effect in the ff
cases:
1. When the creditor is absent or unknown, or does
not appear at the place of payment;
2. When he is incapacitated to receive the payment
at the time it is due;
3. When, without just cause, he refuses to give a
receipt;
4. When 2 or more persons claims the same right to
collect;
5. When the title of the obligation has been lost.
TENDER OF PAYMENT
- The act of the debtor offering to the creditor the thing or amount due.
- The act of offering.
- Act preparatory of consignation.
- Manifestation made by the debtor to the creditor of his decision to comply
immediately with his obligation.
- Extrajudicial in character
CONSIGNATION
- The act of depositing the thing or amount due with the proper court when
the creditor cannot accept or refuses to accept payment.
- Consignation must follow tender of payment to extinguish the obligation.
- Done after complying the formalities required by law.
- After consignation, the debtor may petition the judge to order the
cancellation of the obligation. (PNB vs. Relativo, 92 Phil 203)
- Judicial in character
- If consignation is done years after the tender of payment, the interest
must run from the time the tender was made up to the time of
consignation.
st
1 SPECIAL REQUISITE:
1. That there is a debt due.
nd
2 SPECIAL REQUISITE:
2. That there must be a valid tender of payment
Requirements:
a. The tender of payment must have been made prior to the
consignation;
b. It must be unconditional; and
c. The creditor must have refused the payment without just cause.
Unless tender is excused / Exceptions:
1. When the creditor is absent or unknown, or does not appear at the
place of payment;
2. When he is incapacitated to receive the payment at the time it is due;
3. When, without just cause, he refuses to give a receipt;
4. When 2 or more persons claims the same right to collect;
5. When the title of the obligation has been lost.
*Good faith of the debtor should in simple justice excuse him from paying interest
after the offer was rejected. (Araneta vs. Tuason de Paterno)
Ochoa, SJ | Page 49 of 113

Art. 1257. In order that the consignation of the thing due
may release the obligor, it must first be announced to the
persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made
strictly in consonance with the provisions which regulate
payment.
rd
3 SPECIAL REQUISITE:
3. Prior notice of consignation to persons interested in the fulfillment of the
obligation.
Example:
o A surety
o A guarantor
o Or a solidary co-debtor
“The consignation shall be ineffectual if it is not made strictly in consonance with
the provisions which regulate payment.”
- Refers to the general requisites of consignation (Arts. 1232-1251)
o The person who pays
o The person to whom payment is made
o The object of the obligation which must be paid or performed
o The time of payment or performance becomes demandable.. etc
Art. 1258. Consignation shall be made by depositing the
things due at the disposal of judicial authority, before
whom the tender of payment shall be proved, in a proper
case, and the announcement of the consignation in other
cases.
th
5 SPECIAL REQUISITE:
5. After the consignation has been made, the persons interested in the
fulfillment of the obligation had been notified thereof. / Subsequent
notice of consignation.
o If the consignation was accompanied by the corresponding
complaint for specific performance or cancellation of obligation,
automatically, the requirement is complied with, provided that
the other parties interested in the fulfillment of the obligation are
furnished copies thereof.
Upon compliance with all the requisites, 2 possible situations may arise:
1. The creditor may finally accept the payment -> payment settled.
2. Creditor still refuses to accept -> litigation -> debtor will be compelled to
bring an action for extinguishment/cancellation of obligation on the
ground of a valid and effective consignation.
Should there be a notice to the creditor prior and after the consignation was
made? Yes.
- To enable the creditor to withdraw the goods or money deposited. Indeed,
it would be unjust to make him suffer the risk of any deterioration,
depreciation or loss of such goods or money by reason of lack of
knowledge of consignation. (Cabanos vs. Calo, G.R. No. L-10927, Oct. 30,
1958)
- Filing of complaint to compel its acceptance on the part of the creditor can
be considered sufficient notice of the consignation to the creditor. (Ponce
de Leon vs. Syjuco, Inc., 90 Phil. 311)
*Immovables may be subject matter thereof. It should be allowed because it would
be unjust to charge the debtor indefinitely with the task of preserving the
immovable property which constitutes the object of the obligation. (Castan)

The consignation having been made, the interested parties

shall also be notified thereof.
th
4 SPECIAL REQUISITE:
4. That the thing or amount due had been placed at the disposal of judicial
authority. / Actual consignation
o Debtor deposits the thing or amount which the creditor had
refused, with the Clerk of Court.
o Normally: Action for consignation
o In reality: An action for specific performance of obligation or An
action for cancellation of the obligation.
Ochoa, SJ | Page 50 of 113
 Art. 1259. The expenses of consignation, when properly
made, shall be charged against the creditor.
EXPENSES OF CONSIGNATION
- Shall be borne by the creditor.
- Of course, the creditor is the one who refused the tender of payment
without just cause.
CONSIGNATION IS PROPERLY MADE WHEN:
1. When the creditor accepts the thing or amount deposited as payment of
the obligation without contesting the efficacy or validity of the
consignation -> obligation is cancelled/extinguished.
2. When the creditor contests the efficacy or validity of the consignation and
the court finally decides that it has been properly made. / cancels the
st
obligation at the instance of the debtor i.a.w. 1 par of Art. 1260.
Art. 1260. Once the consignation has been duly made, the
debtor may ask the judge to order the cancellation of the
obligation.
Before the creditor has accepted the consignation, or
before a judicial declaration that the consignation has been
properly made, the debtor may withdraw the thing or the
sum deposited, allowing the obligation to remain in force.
EFFECT OF CONSIGNATION
1. If creditor accepts the deposit without contesting the validity or efficacy of
the consignation -> obligation is cancelled/extinguished.
2. If creditor contests the validity -> litigation.
If creditor is not interested/absent -> litigation.
If debtor is able to establish that all of the requisites have been properly
made -> obligation is extinguished. (same as above �)
Debtor’s right to withdraw: before (1) creditor has accepted the consignation or
(2) before a judicial declaration that the consignation has been properly made ->
debtor will bear expenses of consignation.
How can the creditor prevent the debtor to withdraw the thing/money from
consignation?
- By immediately accepting the consignation.
What if the consignation is improperly made?
- Obligation exists.
- Consignation would produce no effect.
- Dismissal of case -> consignation would likewise produce no effect.
Art. 1261. If, the consignation having been made, the
creditor should authorize the debtor to withdraw the same,
he shall lose every preference which he may have over the
thing. The co-debtors, guarantors and sureties shall be
released.
EFFECT OF WITHDRAWAL
Withdrawal before the creditor has accepted the consignation/before judicial
declaration:
- Obligation remains in force.
After judicial declaration of consignation or cancellation of obligation, can the
debtor still withdraw the thing/deposit?
- Yes, upon consent of the creditor -> the obligation remains.
o But -> “Creditor shall lose every preference over the thing. The
co-debtors, guarantors and sureties shall be released.”
- The thing would be a privilege, not a right of the debtor.
Example:
Ross owe Rachel P10k. Joey is the guarantor of Ross.
Rachel refused to accept the tender of payment made by Ross.
Ross made proper Consignation.
The court cancelled the obligation.
Ross withdrew the deposit with Rachel’s consent.
Later on, Ross became insolvent.
Can Rachel can now proceed against Joey, the guarantor?
- No. If, the consignation having been made, the creditor should authorize
the debtor to withdraw the same, he shall lose every preference which he
may have over the thing. The co-debtors, guarantors and sureties shall be
released.
Ochoa, SJ | Page 51 of 113
SECTION 2 – LOSS OF THE THING DUE
Loss of the thing due
- the thing which constitutes the object of the obligation:
o perishes
o goes out of commerce of man
o disappears in such a way that its existence is unknown; or
o it cannot be recovered.
- Impossibility of compliance with the obligation through any cause.
- Synonymous with the term “impossibility of performance.”
o Physical impossibility
o Legal impossibility
Art. 1262. An obligation which consists in the delivery of a
determinate thing shall be extinguished if it should be lost
or destroyed without the fault of the debtor, and before he
has incurred in delay.
When by law or stipulation, the obligor is liable even for
fortuitous events, the loss of the thing does not extinguish
the obligation, and he shall be responsible for damages.
The same rule applies when the nature of the obligation
requires the assumption of risk.
LOSS IN DETERMINATE OBLIGATIONS TO GIVE / LOSS OF SPECIFIC THING
Requisites for extingushment of obligation:
1. Thing lost must be determinate
2. Thing is lost without fault of the debtor.
(if with fault = obligation to indemnify for damages)
3. Thing is lost before the debtor has incurred in delay.
(if with delay = obligation to indemnify damages)
st
Fortuitous event (Art. 1174) – pertains to 1 par of above article.
- An occurrence or happening which could not be foreseen or even if
foreseen, is inevitable;
- Absolutely independent of human intervention;
- Act of God.
FORCE MAJEURE
- An event caused by the legitimate or illegitimate acts of persons other than
the obligor; there is human intervention.
Conditions which exempt obligor from liability:
1. Event is independent of the will of the obligor;
2. It must either be unforeseeable or unavoidable;
3. Occurrence must render it impossible for the debtor to fulfill his obligation
in a normal manner; and
4. The obligor is free of participation in injury to the creditor.
Exceptions to the rule that the debtor cannot be held liable if the thing which
constitues the object of the obligation is lostor destroyed through a fortuitous
event:
1. When by law, the debtor is liable even for fortuitous event;
2. When by stipulation of parties, debtor is still liable even for fortuitous
events;
3. When the nature of the obligation requires assumption of risk (insurances);
4. When loss of the thing is due partly to the fault of the debtor;
5. When loss of the thing occurs after debtor incurred delay;
6. When the debtor promised to deliver the same thing to 2 or more persons
who do not have the same interest;
7. When the obligation to deliver arises from criminal offenses; and
8. Obligation is generic.
Art. 1263. In an obligation to deliver a generic thing, the
loss or destruction of anything of the same kind does not
extinguish the obligation.
LOSS OF GENERIC THING
Generic
- The object thereof is designated merely by its class/genus without any
particular designation.
- Genus never perishes (genus nunquam peruit)
Exception: When generic obligation whose object is a particular class or group with
specific or determinate qualities. (DELIMITED GENERIC)
Example:
Joey promises to deliver to Phoebe 100 sacks of rice by December 2021 harvest
from his farm.
- If there’s a typhoon (that hit his farm by Dec 2021) -> Joey not liable ->
obligation is extinguished.
If “Joey promises to deliver to Phoebe 100 sacks of rice” only:
- Obligation exists -> Joey can find another source of rice.
Ochoa, SJ | Page 52 of 113
 Art. 1264. The courts shall determine whether, under the
circumstances, the partial loss of the object of the
obligation is so important as to extinguish the obligation.
EFFECT OF PARTIAL LOSS
- Partial loss / destruction of the thing is of such importance that it would be
tantamoint to complete loss/destruction -> shall depend upon the sound
discretion of the court.
When is a partial loss considered as total loss?
- When the loss is so material and the remaining portions of the object is
insignificant or immaterial, partial loss of the thing may be considered as
total.
Example:
Loss of the body of a ballpen.
Art. 1265. Whenever the thing is lost in the possession of
the debtor, it shall be presumed that the loss was due to
his fault, unless there is proof to the contrary, and without
prejudice to the provisions of Article 1165. This
presumption does not apply in case of earthquake, flood,
storm or other natural calamity.
RULE IF THING IS IN DEBTOR’S POSSESSION.
Presumption: Debtor’s fault if thing is in his possession.
Unless: debtor proves that it is not his fault -> proof.
Presumption not applicable when: Natural calamity.
rd
3 par of Art. 1165: When the obligor delays, or has promised to deliver the same
thing to 2 or more persons who do not have the same interest, he shall be liable for
any fortuitous event until he has effected the delivery.
- Hence, in cases where Art. 1165, par 3 is applicable, even if the debtor can
prove the loss of the thing in his possession was not through his fault or
that it was through a fortuitous event, he shall still be liable for damages.
Example:
Joey borrowed Ross’ car.
The car was lost.
Presumption: Joey is at fault.
Presumption does not apply if: Joey proves that the loss of the car is due to
accidental fire (natural calamity)
Art. 1266. The debtor in obligations to do shall also be
released when the prestation becomes legally or physically
impossible without the fault of the obligor.
EFFECT OF IMPOSSIBILITY OF PERFORMANCE IN OBLIGATIONS TO DO / LOSS IN
PERSONAL OBLIGATIONS
“Becomes” – Impossibility must exist after the constitution of the obligation.
The prestation constituting the object of the obligation must have become legally or
physically impossible without the debtor’s fault and before he has incurred in delay.
Otherwise, the obligation shall be converted into one of indemnity for damages.
Legal Impossibility
1. Direct – when the law prohibits the performance or execution of the work
agreed upon, as where it is immoral or dangerous.
Legally impossible: “The same is true where compliance with the
prestation which constitutes the object of the obligation will prove
dangerous to life or property.” (Labayen vs. Talisay-Silay Milling Co. 52 Phil
440)
2. Indirect – where the law imposes duties of a superior character ypon the
obligor which are incompatible with the work agreed upon, although the
latter may be perfectly licit, as where the obligor is drafted for military
service or for a civil function.
Example:
Ross obliged himself to construct a commercial building for Rachel.
A week later, the area has been declared by law as a residential zone.
As a result, the obligation became legally impossible -> Needs building permit
that cannot be obtained -> Ross was released from the obligation.
Physical Impossibility
- Arises principally from the death of the obligor – when the act to be
performed requires his personal qualifications.
- Or from the death of the obligee – when the act can be of possible benefit
only to him.
- May also arise from mere accident or from the acts of debtor himself
which there is no fault.
rd
- Or from acts of 3 persons affecting the debtor’s capacity to execute the
work agreed upon.
Example:
Ross obliged himself to construct a commercial building for Rachel.
A week after, Ross died.
As a result, the obligation became physically impossible -> Ross was released
from the obligation.
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 Art. 1268. When the debt of a thing certain and
EFFECT IN OBLIGATIONS NOT TO DO.
determinate proceeds from a criminal offense, the debtor
Example:
When the obligor is compelled to do that which he had obligated himself to refrain
shall not be exempted from the payment of its price
from doing -> Art. 1266 applies. whatever may be the cause for the loss, unless the thing
having been offered by him to the person who should
receive it, the latter refused without justification to accept
Art. 1267. When the service has become so difficult as to
it.
be manifestly beyond the contemplation of the parties, the
obligor may also be released therefrom, in whole or in part. RULE IF OBLIGATION ARISES FROM CRIMINAL OFFENSE.
EXCEPTION TO OBLIGATORY FORCE OF A CONTRACT.
Applicable to cases where: (the debt proceeds from a criminal offense)
EFFECT OF RELATIVE IMPOSSIBILITY
- There is an obligation of restitution of a certain and determinate thing on
the part of the person criminally liable
“service” = performance of the obligation.
- Where such obligation arises by virtue of reparation or indemnification.
The court should be authorized to release the obligor in whole or in part.
Applicable to persons who are:
- Principally liable
It would be doing violence to that intention (refers to intention of parties that
- Subsidiarily liable
should govern) to hold the obligor still responsible.
In all of above circumstances, if the thing is lost, the debtor shall not be exempted
DOCTRINE OF UNFORESEEN EVENTS (rebus sic stantibus)
from the payment of the price of the thing, whatever may be the cause for loss.
- The parties stipulate in the ligfht of certain prevailing conditions, and once
- Except: when the obligee had refused to accept it without justification.
these consitions cease to exist, the contract also ceases to exist.
(MORA ACCIPIENDI)
- The disappearance of the basis of the contract gives rise to a right to relief
in favor of the party prejudiced. (Naga Tel Co. vs. CA)
Recourse of the debtor:
1. To make a consignation and thereby completely relieve himself from
Requisites: (Tagaytay Realty Co., Inc., vs. Arturo Gacutan, GR 160033, July 1, 2015)
liability; or
1. Event or change in the circumstances could not have been foreseen at the
2. Keep the thing in his possession
time of the execution of the contract;
But in case of fortuitous event: Art. 1262 & 1265 shall govern.
2. It makes the performance of the contract extremely difficult but not
impossible;
Example:
3. It must not be due to the act of any of the parties; and
Ted stole the car of Marshall. Ted is now ordered to return the car to him.
4. The contract is for a future prestation.
Before delivery, there was fire in Ted’s house which destroyed the car.
*Note: Mere inconvenience, or unexpected impediments, or increased
1. Is Ted’s obligation extinguished?
expenses did not suffice to relieve the debtor from a bad bargain.
No. Obligation to deliver a car arose from a criminal offense. He is liable
**Difficulty of performance should be such that one party must would be
even though the loss is due to a fortuitous event.
placed at a disadvantage by the unforeseen event.
2. Supposed, before the fire, Ted tendered the car but Marshall refused to
accept without just cause, is the obligation to deliver extinguished?
Example:
Yes. Marshall is in MORA ACCIPIENDI -> Creditor is in default.
Duty to construct a road -> earthquake -> which changed the condition of the land -
> such construction was possible but very dangerous to life or property (which is
not contemplated by the parties) -> debtor released from obligation.
*One party must ask for relief in court.
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 Art. 1269. The obligation having been extinguished by the
loss of the thing, the creditor shall have all the rights of
action which the debtor may have against the 3rd persons
by reason of the loss.
EFFECT OF EXTINGUISHMENT
rd
RIGHT OF CREDITOR TO PROCEED AGAINST 3 PERSONS RESPONSIBLE FOR THE
LOSS.
rd
All rights of action which the debtor may have against 3 persons by reason of the
loss are transmitted to the creditor by operation of law.
- Such transmission is made from the moment of the extinguishment of the
obligation.

Example:
Chandler obliged himself to deliver to Monica a specific watch.
Rachel kept that watch in her possession and lost it.
- Art. 1268: Monica has the right to sue Rachel. The obligation of Chandler
to deliver to Monica was extinguished due to the fault of Rachel.

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SECTION 3 – CONDONATION OR REMISSION OF THE DEBT
Remission – an act of liberality by virtue of which the obligee/creditor, without
receiving any price or equivalent, renounces the enforcement of the obligation, as a
result -> obligation extingushed in its entirety or in part to which the remission
refers.
- Gratuitous abandonment by the creditor of his right.
Requisites:
1. It must be gratuitous;
2. It must be accepted by the obligor/debtor; and
3. The obligation must be demandable.
Kinds:
1. As to form:
a. Express – when it is made i.a.w. the formalities prescribed by law
on donations.
b. Implied – Although not made i.a.w. the formalities on donations,
it can be deduced from the acts of the obligee/creditor.
2. As to extent:
a. Total – when the entire obligation is extinguished
b. Partial – refers only to the principal or accessory obligation or to
an aspect thereof which affects the debtor e.g. solidarity.
3. As to constitution:
a. Inter vivos – constituted by agreement of obligee and obligor ->
nature of a donation inter vivos.
b. Mortis causa – constituted by last will and testament -> nature of
a donation mortis causa.
Art. 1270. Condonation or remission is essentially
gratuitous, and requires the acceptance by the obligor. It
may be made expressly or impliedly.
One and the other kinds shall be subject to the rules which
govern inofficious donations. Express condonation shall,
furthermore, comply with the forms of donations.
GRATUITOUS CHARACTER OF REMISSION (1 par)
st
- Remission must be a pure act of liberality by the creditor for the benefit of
the debtor.
- The creditor should not have received any price or equivalent from the
debtor as a result of the renunciation.
NECESSITY OF ACCEPTANCE BY DEBTOR (1 par)
st
- An essential requisite.
- Shall be subject to the rules of inofficious donations.
- “inofficious” – no one can give more than which he can give by will. / Hindi
pwede ibigay lahat / sobra sobra sa kakayahan mo.
- A bilateral act -> in conformity with the rule which subjects express
remission to the forms of donations.
APPLICABILITY OF RULES ON DONATIONS (2 par)
nd
- Acceptance of the debtor.
- Governing forms of donations if remission is express
- Governing the extent or amount of donation
o Rules on inofficious donations.
 Art. 750, CC – The donation may comprehend all present
property of the donor, or part thereof, provided he
reserves xxx sufficient means for support of himself, and
of all relatives xxx are by law entitled to be supported by
the donor. Without such reservation, the donation shall
be reduced on petition of any person affected.
 Art. 751, CC – Donation cannot comprehend future
property (anything which the donor cannot dispose at
the time of donation.
 Art. 752 , CC – xxx no person may give or receive, by way
of donarion, more than he may give or receive by will.
 The donation shall be inofficious in all that it may exceed
this limitation.
 Art. 771, CC – xxx shall be reduced with regard to excess
xxx
- Governing the revocation of donations.
Ochoa, SJ | Page 56 of 113
 nd
FORM OF EXPRESS REMISSION (2 par)
- Express remission/condonation must comply with the forms of donations.
- Rationale: Remission/condonation of a debt is in reality a donation.
o Art. 748, CC – the donation of a movable may be made orally or in
writing. An oral donation requires simultaneous delivery of the
thing xxx. If the value of the personal property exceeds P5k, the
donation and acceptance must be made in writing.
o Art. 749, CC – the donation of an immovable xxx must be made in
a public document xxx
 Acceptance may be made in the same deed of donation
or in a separate public document xxx
 If the acceptance is made in a separate instrument, the
donor shall be notified xxx (must be noted in both
instruments)
- In obligations to do or not to do, the form of express remission must be
i.a.w. the less solemn formalities in Art. 748 with the necessary
qualification regarding delivery.
FORM OF IMPLIED REMISSION (Art. 1271-1274)
- No form required.
- May be deduced from any act/acts of the creditor which clearly show the
intent to condone the obligation.
If the remission is expressly made but failed to comply with the forms of
donation, can it be enforced as implied remission?
- No. The purpose of the last sentence of Art. 1270 would be defeated. An
express remission which is formally defective cannot affect the
obligee/creditor, unless new or other acts from which the remission may
be deduced should confirm the purpose expressed in the former.
Art. 1271. The delivery of a private document evidencing a
credit, made voluntarily by the creditor to the debtor,
implies the renunciation of the action which the former
had against the latter.
If in order to nullify this waiver it should be claimed to be
inofficious, the debtor and his heirs may uphold it by
proving that the delivery of the document was made in
virtue of payment of the debt.
EFFECT OF DELIVERY OF EVIDENCE OF CREDIT TO THE DEBTOR.
- If the creditor voluntarily delivers the private document evidencing the
credit to the debtor -> there is a presumption:
o Presumption that the creditor renounces his right of action
against the debtor for the collection of said credit.
Requisites:
1. The document evidencing the credit must have been delivered by the
creditor to the debtor;
2. That the document must be a private document; and
o If public document, the presumption does not arise. (Public
character of the document would always protect the interestof
the creditor)
3. That the delivery must be voluntarily. (Art. 1272)
o In the absence of proof to the contrary, an implied renunciation of
debt may be presumed.
nd
2 par:
- The heirs of the creditor:
o may nullify the renunciation by establishing that it is inofficious in
conformity with Art. 771 of the CC.
o Art. 771, CC – xxx shall be reduced with regard to excess xxx
- Debtor/ the heirs of the debtor:
o May uphold the renunciation by proving that the delivery of the
private document was made because the debt had already been
paid.
Example:
Marshall issued a promissory note in favor of Lily on the amount of 1M.
Lily delivered back voluntarily to Marshall the PN without collecting the 1M.
- There is a presumption of implied remission/condonation.
o Unless Lily proves that there is no remission/ She has a different
purpose why she delivered it back to Marshall.
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 Art. 1272. Whenever the private document in which the
debt appears is found in the possession of the debtor, it
shall be presumed that the creditor delivered it voluntarily,
unless the contrary is proved.
PRESUMPTION OF VOLUNTARY DELIVERY.
Where the promissory note evidencing the credit is in possession of the debtor:
Presumption:
- The creditor must have delivered it voluntarily to the debtor.
o In the absence of proof to the contrary, an implied renunciation of
debt may be presumed.
Art. 1273. The renunciation of the principal debt shall
extinguish the accessory obligations; but the waiver of the
latter shall leave the former in force.
EFFECT UPON ACCESSORY OBLIGATIONS.
Accessory follows the principal.
If joint:
- The remission can only affect the share of the creditor who makes the
remission and the corresponding share of the debtor in whose favor the
remission is made.
Art. 1274. It is presumed that the accessory obligation of
pledge has been remitted when the thing pledged, after its
delivery to the creditor, is found in the possession of the
debtor, or of a third person who owns the thing.
RULE IN PLEDGE
- If the thing pledged, after its delivery to the creditor, is found in the
rd
possession of the debtor or a 3 person who owns the thing, it is
presumed that the accessory obligation is remitted.
- The principal obligation for which the pledge is a security, is NOT
AFFECTED.
Example:
Rachel owes Monica P500k.
As a security/guaranty -> Rachel delivered/pledged her Rolex to Monica.
If it was seen that the Rolex is already in possession of Rachel —
- It is presumed that the accessory obligation (which is the Rolex) is already
remitted by Monica.
- P500k still subsists. This time, there is no more security/guaranty.
o Unless Monica disapproves by proving that she gave the Rolex
temporarily for e.g. repair
 Or Rachel was able to take possession of the Rolex
without her consent.

If solidary:
- Art. 1215, 1219 & 1220 shall govern:
Art. 1215. Novation, compensation, confusion or remission of the debt,
made by any of the solidary creditors or with any of the solidary debtors,
shall extinguish the obligation, without prejudice to the provisions of
Art. 1219.

The creditor who may have executed any of these acts, as well as he
who collects the debt, shall be liable to the others for the share in the
obligation corresponding to them.

Art. 1219. The remission made by the creditor of the share which affects
one of the solidary debtors does not release the latter from his
responsibility towards the co-debtors, in case the debt had been totally
paid by anyone of them before the remission was effected.

Art. 1220. The remission of the whole obligation, obtained by one of the
solidary debtors, does not entitle him to reimbursement from his co-
debtors.

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SECTION 4 – CONFUSION OR MERGER OF RIGHTS Art. 1276. Merger which takes place in the person of the
principal debtor or creditor benefits the guarantors.
Art. 1275. The obligation is extinguished from the time the Confusion which takes place in the person of any of the
characters of creditor and debtor are merged in the same latter (guarantor) does not extinguish the obligation.
person.
EFFECT UPON ACCESSORY OBLIGATIONS.

Confusion – the meeting in one and the same person of the qualities of creditor and Accessory obligation cannot exist without the principal obligation.
debtor with respect to one and the same obligation. Principal creditor + Principal debtor
= Extinguishment of principal obligation & accessory obligation
Impossibility of enforcing it since it would certainly be absurd for a person to Guarantors benefited.
enforce a claim against himself.
Subsidiary creditor or Subsidiary debtor (guarantor)
Requisites: = No extinguishment, only substitution of creditor or debtor.
1. That the merger of the characters of creditor and debtor must be in the
same person If several guarantors:
2. That it must take place in the person of either the principal creditor or the - Creditor + Guarantor “A”
principal debtor = Guarantor-creditor can demand performance from debtor, and in case of
3. That it must be complete and definite. default, even from his co-guarantors.
o Merely means that whether the merger refers to the entire - Debtor + Guarantor “A”
obligation or a part thereof -> that there will be a complete and = Creditor can demand the performance of obligation directly from the
definite meeting of all the qualities of creditor and debtor in the guarantor.
obligation or in the part thereof which is affected by the merger.

Kinds: Example:
1. As to cause/constitution: Joey owes Phoebe P1M.
a. Inter vivos Chandler is the guarantor of Joey.
 Constituted by the agreement of the parties Phoebe then assigned the credit to Rachel.
b. Mortis causa
 When constituted by succession. If Rachel assigned to Joey the 1M = Principal obligation extinguished, Chandler is
released from his obligation as a guarantor.
2. As to extent/effect: If Rachel assigned to Chandler the 1M = Contract of guaranty is extinguished but
a. Total not the principal obligation. Joey still owes Phoebe 1M.
 Extinguishment of the entire obligation.
b. Partial
 Extinguishment of only a part of the obligation.
1. When the confusion/merger refers only to a
part of the obligation.
2. When the obligation is joint.

Usual causes of confusion: Succession, donation, negotiation of a negotiable

instrument.

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 Art. 1277. Confusion does not extinguish a joint obligation
except as regards the share corresponding to the creditor
or debtor in whom the two characters concur.
EFFECT UPON COLLECTIVE OBLIGATIONS / MERGER IN JOINT OBLIGATIONS

Joint obligations
- the debt are distinct and separate from each other.
- If confusion is made only to one of the debtors, it shall only refer to the
share which corresponds to him.
- Partial extinguishment of the debt.
- The creditor can still proceed to the other debtors.

Solidary obligation
- entire obligation extinguished
- BUT! The debtor whom the confusion was made, has a right to demand
reimbursement from his co-debtors.

EFFECT OF REVOCATION OF CONFUSION

- If the confusion is constituted inter vivos or mortis causa, then it became a
nullity, the original obligation, as a general rule:
o is recreated in the same form and under the same condition in
which it was found before the merger took place.
o During such period from merging until revocation: cannot be
computed in the determination of the period of prescription (will
not run)
 Rationale: the creditor could not possibly have made a
demand.
Example:
- Joint:
Rachel and Monica jointly owes Ross P1M evidenced by a promissory note.
Ross endorsed the promissory note to Chandler.
Chandler endorsed the same promissory note to Monica.
Share of Monica is extinguished.
Rachel is still liable to pay Ross P500k.

- Solidary:
Rachel and Monica solidarily owes Ross P1M evidenced by a promissory
note.
Ross endorsed the promissory note to Chandler.
Chandler endorsed the same promissory note to Monica.
Obligation of Rachel & Monica is extinguished.
However, Monica may demand for reimbursement from Rachel.
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SECTION 5 – COMPENSATION 2. Voluntary
o When the parties are mutually creditors and debtors who agree to
Art. 1278. Compensation shall take place when 2 persons, compensate their respective obligations, even though all of the
requisites are not present.
in their own right, are creditors and debtors of each other.
o Facultative – effeected by a party who is entitled to oppose the
CONCEPT OF COMPENSATION. compensation because he would be prejudiced.
 If one is with a period, the other is pure, the former
Compensation – Mode of extinguishing in their concurrent amount those renounces the benefit of the term, making the
obligations of persons who in their own right are creditors and debtors of each compensation possible.
other.
- The amount of one is covered by the amount of the other.
- Simplified payment (pago abreviado)

Advantage over payment:

1. Facility of payment because it takes effect by operation of law
2. Guaranty for the effectivity of the credit.

COMPENSATION PAYMENT
Takes effect by operation of law Takes effect by act of the parties
Capacity to give and to acquire not Capacity to give and acquire is essential
necessary in payment
As a rule, partial As a rule, complete & divisible 3. Judicial
o Takes effect by judicial decree.
COMPENSATION CONFUSION  Where one of the parties to a suit over an obligation has
2 persons, who are creditors and 1 person in whom is merged the a claim for damages against the other -> the former sets
debtors of each other qualities of creditor and debtor it off by proving his right to said damage & the amount
2 obligations 1 obligation only thereof.

COMPENSATION COUNTERCLAIM As to effect:

2 debts must consist in money
Or if fungibles, must be of same kind &
quality
As a general rule, requires the debts
must be liquidated
Need not be pleaded
1. Total – compensated in equal amount
Not necessary
2. Partial – debts to be compensated are not equal in amount.
Not required to be liquidated
Must be pleaded to be effectual

Kinds of Compensation:
1. Legal
o When it takes effect by operation of law from the moment all of
the requisites are present (Art. 1278 & 1279)

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 Art. 1279. In order that compensation may be proper, it is
necessary:
1. That each one of the obligors be bound principally,
and that he be at the same time a principal creditor
of the other;
2. That both debts consist in a sum of money, or if the
things due are consumable, they be of the same
kind, and also of the same quality if the latter has
been stated;
3. That the 2 debts be due;
4. That they be liquidated and demandable;
5. That over neither of them there be any retention or
controversy, commenced by 3rd persons and
communicated in due time to the debtor.
REQUISITES OF LEGAL COMPENSATION
Art. 1280. Notwithstanding the provisions of the preceding
article, the guarantor may set up compensation as regards
what the creditor may owe the principal debtor.
RIGHT OF GUARANTOR TO SET UP COMPENSATION.
COMPENSATION BENEFITS GUARANTORS.
- The guarantor may set up compensation
o For the obligation where the creditor owes him; and
o Also for the obligation that the creditor owes the principal debtor.
Rationale: the bond of the guarantor cannot be resorted to as long as the debtor
can pay although it may be in the form of compensation and -> if the principal
obligation is extinguished, the accessory obligation of the guarantor is also
extinguished.

1. There must be 2 parties, who, in their own right, are principal creditors
and principal debtors of each other;
a. The parties be mutually creditors and debtors in their own right
b. They must be bound as principals.
c. Except: Right of guarantor to set up compensation (Art. 1280)

2. Both debts must consist in money, or if the things due are fungibles
(consumables), they must be of the same kind and quality;
o As a general rule not possible in obligations to do.

3. Both debts must be due;

o Debts are valid & legal & must be due. Art. 1281. Compensation may be total or partial. When the
2 debts are of the same amount, there is a total
4. Both debts must be liquidated and demandable; compensation.
o Debts already determined & must be due.
TOTAL OR PARTIAL COMPENSATION. Self explanatory.
rd
5. There must be no retention or controversy commenced by 3 persons
over either of the debts and communicated in due time to the debtor; Art. 1282. The parties may agree upon the compensation of
and debts which are not yet due.
- Retention – application of credit of one of the parties to the satisfaction of
rd
the claims of a 3 person. VOLUNTARY COMPENSATION.
-
rd
Controversy – refers to a case in which a 3 person claims to be a creditor. - Art. 1282 is an exception to the rule that both debts must be due -> Art.
- The effect of such case is a provisional suspension of the compensation. 1279 (legal compensation) will not apply anymore.
- If one is with a period, the other is pure, the former renounces the benefit
6. The compensation must not be prohibited by law. of the term, making the compensation possible.
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 Art. 1283. If one of the parties to a suit over an obligation
has a claim for damages against the other, the former may
set it off by proving his right to said damages and the
amount thereof.
JUDICIAL COMPENSATION OR SET-OFF
- When the defendant who has an unliquidated claim for damages against
the plaintiff sets it off by proving his right to said damages and the amount
thereof, it is converted into a liquidated claim by court decree:
o Compensation shall take effect from the moment the judgment
liquidating the claim has become final.
- Determination of the amount must be made in the proceedings.
Art. 1284. When one or both debts are rescissible or
voidable, they may be compensated against each other
before they are judicially rescinded or avoided.
RULES IN CASE OF RESCISSIBLE OR VOIDABLE DEBTS
Exception to the general rule of demandability that compensation shall take
place.
- Rescissible or voidable obligations are considered demandable are tainted
with vises are not yet judicially declared.
Valid until voided -> compensation is allowed.
If anulled after compensation -> as if there had been no compensation.
- Effect of annulment is retroactive.
Fraud
Voidable
Art. 1285. The debtor who has consented to the
assignment of rights made by a creditor in favor if a 3rd
person, cannot set up against the assignee the
compensation which would pertain him against the
assignor, unless the assignor was notified by the debtor at
the time he gave his consent, that he reserved his right to
the compensation.
If the creditor communicated the cession to him but the
debtor did not consent thereto, the latter may set up the
compensation of debts previous to the cession, but not of
subsequent ones.
If the assignment is made without the knowledge of the
debtor, he may set up compensation of all credits prior to
the same and also later ones until he had knowledge of the
assignment.
EFFECT OF ASSIGNMENT OF RIGHTS.
At the time the assignment of rights is made by a creditor to a 3
rd
person
compensation may have already taken place.
When the compensation has taken place – the assignee can only demand
indemnity for damages from the assignor on the ground of fraud.
When compensation has not taken place – Shall depend upon whether it was
made:
st
1 par: with consent, unless the debtor reserves his right to compensation.
With consent, but without reservation:
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With consent, but with reservation: Art. 1286. Compensation takes place by operation of law,
even though the debts may be payable at different places,
but there shall be an indemnity for expenses of exchange
or transportation to the place of payment.

Whoever claims for the compensation, he shall be liable for expenses of exchange
or transportation to the place of payment.

Art. 1287. Compensation shall not be proper when one of

nd
2 par: with knowledge of debtor but without consent
the debts arises from a depositum or from the obligations
o Notification before assignment – debtor can set up defense of of a depositary or of a bailee in commodatum.
compensation of debts prior to the assignment.
o Notification & assignment made subsequently – debtor can set up Neither can compensation be set up against a creditor who
defense of compensation of debts prior to the assignment. has a claim for support due by gratuitous title, without
prejudice to the provisions of par 2 of Art. 301.
DEBTS WHICH CANNOT BE COMPENSATED / LEGAL COMPENSATION CANNOT
TAKE PLACE.

1. Debts arising from contracts of depositum.

o “depositum” – for safekeeping and returning the same.

Answer: P500k only.

o Notification after assignment – same with “without knowledge of
debtor” —
rd
3 par: without the knowledge of the debtor.
o Debtor may set up defense of compensation of all the credits
which he may have against the assignor, and which may have
become demandable, before he was notified of the assignment. 2. Debts arising from contracts of commodatum.
o The remedy of the assignee is a personal action against the o “commodatum” – gratuitous contract whereby one of the parties
assignor. delivers to another something not consumable so that the latter
may use the same for a certain time and return it.

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 3. Claims for support due by gratuitous title Art. 1289. If a person should have against him several debts
which are susceptible of compensation, the rules on
application of payments shall apply to the order of the
compensation.
EFFECT OF COMPENSATION.

If the compensation is partial because the amounts are different, it is equally

evident that the extinguishment would be total with respect to one and partial with
respect to the other. (If no one informed on where the compensation must be
applied -> Rule on application of payments: the most onerous)

4. Obligations arising from criminal offenses (Art. 1288)

5. Certain obligations in favor if the government.
o Such as taxes, fees, duties.. etc.

Rationale: All prohibitions are based on justice, Some are based on trust and
confidence, other self-preservation.

Art. 1290. When all the requisites mentioned in Art. 1279

Art. 1288. Neither shall there be compensation if one of the
are present, compensation takes effect by operation of
debts consists in civil liability arising from a penal offense.
law, and extinguishes both debts to the concurrent
amount, even though the creditors and debtors are not
aware of the compensation.
WHEN COMPENSATION TAKES EFFECT.

1. Legal compensation
o Operates even against the will of the interested parties.
o Operates even without their consent.
o Effects arise on the very day on which all the requisites concur.

2. Voluntary compensation
o Will take effect from the moment agreed upon by the parties.

3. Judicial compensation
o Will take effect from the moment the judgment becomes final and
- Ganda cannot set up compensation. executory.
- But! Pogi can set up compensation.

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SECTION 6 – NOVATION  Combination of subjective and objective.
2. As to form or constitution (Art. 1292)
Art. 1291. Obligations may be modified by: a. Express
 When declared in unequivocal terms that the old
1. Changing their object or principal conditions;
obligation is extinguished by the new one.
2. Substituting the person of the debtor; b. Implied/tacit
3. Subrogating a 3rd person in the rights of the  Old and new obligations are incompatible with each
creditor. other on every point.
Novation
- Substitution or change of an obligation by another, resulting in its 3. As to extent or effect – depends when there is absolute extinguishment of
extinguishment or modification. the old obligation or merely a modification.
- One of the modes of extinguishing obligations through the creation of a a. Total
new one effected by the change or substitution of an obligatory relation by b. Partial
another with the intention of substantially extinguishing or modifying the
same. “1. Changing their object or principal conditions”
- Even though it extinguishes the obligation, it gives birth to another May be effected by:
obligation. 1. Changing the cause of the obligation
o Contract of loan converted into a contract of deposit.
Requisites (applicable to all kinds) 2. Changing the object of the obligation
1. A previous valid obligation. o Modification in the amount due
2. Agreement of the parties to the new obligation. o Any change where obligation to pay is converted into an
3. Extinguishment of the old obligation. obligation to render a personal service
4. Validity of the new obligation. o Same is true in dation in payment.
3. Changing the principal or essential conditions of the obligation
Novation may either be: o Must refer to a principal, not incidental condition redulting in the
1. Extinctive alteration or modification of the essence of the obligation.
o Old obligation is terminated by the creation of new one.
2. Modificatory Art. 1292. In order that an obligation may be extinguished
o Old obligation subsists to the extent it remains compatible with by another which substitutes the same, it is imperative that
the amendatory agreement. it be so declared in unequivocal terms, or that the old and
the new obligations be on every point incompatible with
Kinds:
1. As to essence:
each other.
a. Objective or real (Art. 1291 #1) FORM OF EXTINGUISHMENT.
 Change in either of the cause, object or principal
conditions. What is the form of this extinguishment?
b. Subjective or personal (Art. 1291 #2 & #3) - The CC does not provide for any specific form.
 Substitution of the person of the debtor (passive) (Art.
1293); or Express
rd
 Subrogation of a 3 person in the rights of the creditor - When declared in unequivocal terms that the old obligation is extinguished
(active) by the new one.
c. Mixed

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Implied/tacit
- Old and new obligations are incompatible with each other on every point.
- “incompatible” -> substantial changes.
- Test of incompatibility: whether the 2 obligations can stand together.
- Example:
o A third person proposed to the creditor that he is assuming the
entire obligation of the debtor -> the act of the creditor in
rd
accepting the offer merely implies that he is accepting such 3
person as an additional debtor.
o In the case of obligations with a term/period:
If there is a reduction/decrease of the duration of the term.
There is incompatibility and change of the principal condition of
the old obligation.
Requisites (applicable to all kinds)
1. A previous valid obligation.
2. Agreement of the parties to the new obligation.
3. Extinguishment of the old obligation.
4. Validity of the new obligation.
Art. 1293. Novation which consists in substituting a new
debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but
not without the consent of the creditor. Payment of the
new debtor gives him the rights mentioned in Art. 1236 and
1237.
NOVATION BY SUBSTITUTION OF DEBTOR.
1. Substitution by expromision
Requisites:
rd
a. Initiative must come from a 3 person/new debtor
b. Consent of the creditor to the substitution.
Kinds:
1. Substitution w/ knowledge and consent of old debtor; and
Rights of the new debtor upon payment of obligation:
 The new debtor can demand reimbursement from
original debtor
 Be subrogated in all of the rights of the creditor.

*The intent to substitute a new obligation for the old one must be clearly
established before we can say that there is a novation resulting in the
extinguishment of the old one and in the creation of a new one.
*Novation is never presumed. It must be explicitly stated or there must be manifest
incompatibility between the old and the new obligation in every aspect.
2.
2. Substitution w/out the knowledge or against the will of the old debtor.
Rights of the new debtor upon payment of obligation:
 The new debtor can demand reimbursement from the
original debtor only insofar as the payment has been
beneficial to such debtor.
Substitution by delegacion
Requisites:
a. The initiative for the substitution must come from the old debtor;
b. Consent of the new debtor;
c. Acceptance by the creditor.
Rights of the new debtor upon payment of obligation:
o The new debtor can demand reimbursement from original debtor
o Be subrogated in all of the rights of the creditor.

NECESSITY OF CREDITOR’S CONSENT

- Substitution of one debtor for another may delay temporary inability or
insolvency of the new debtor.
rd
- Mere act of creditor in accepting payments by a 3 party does not
constitute an implied acceptance of the substitution of the debtor.

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 Art. 1294. If the substitution is without knowledge or Art. 1296. When the principal obligation is extinguished in
against the will of the debtor, the new debtor’s insolvency consequence of a novation, accessory obligations may
or nonfulfillment of the obligation shall not give rise to any subsist only insofar as they may benefit 3rd persons who did
liability on the part of the original debtor. not give their consent.
EFFECT OF NONPAYMENT BY NEW DEBTOR EFFECT UPON ACCESSORY OBLIGATIONS.
SUBSTITUTION BY EXPROMISION
General rule: Extinguishment of principal obligations carries with it the accessory
If substitution without knowledge of old debtor: obligations.
- New debtor’s insolvency or nonfulfillment shall not revive the original Exception:
rd
debtor’s liability to the creditor. - “May subsist only insofar as they may benefit 3 persons who did not
give their consent.”
If substitution with knowledge of old debtor:
rd
- New debtor’s insolvency or nonfulfillment shall revive the original debtor’s *Not applicable by novations effected by subrogating a 3 person in the rights of
liability to the creditor. the creditor. (regulated by Art. 1303 & 1304)

Art. 1295. The insolvency of the new debtor, who has been
proposed by the original debtor and accepted by the
creditor, shall not revive the action of the latter against the
original obligor, except when said insolvency was already
existing and of public knowledge, or known to the debtor,
when he delegated his debt.
EFFECT OF NONPAYMENT BY NEW DEBTOR
SUBSTITUTION BY DELEGACION

General rule: Right of action of the creditor can no longer be revived.

EXCEPT in the ff cases:

1. When the insolvency of the new debtor was already existing and of
public knowledge at the time the original debtor delegated his debt
2. When such insolvency was already existing and known to the original
debtor

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 Art. 1297. If the new obligation is void, the original one
shall subsist, unless the parties intended that the former
relation should be extinguished in any event.
EFFECT IF NEW and/or OLD OBLIGATIONS ARE VOID.
If old is void -> nothing to novate.
If old is extinguished -> nothing to novate.
If new is void -> no substitution -> old subsists. Unless: parties intended that former
obligation should be extinguished at any event.
Art. 1298. The novation is void if the original obligation was
void, except when annulment may be claimed only by the
debtor, or when ratification validates acts which are
voidable.
RULE IF OLD OBLIGATION IS VOIDABLE.
Voidable obligation is binding until annulled -> susceptible of ratification.
If debtor concurs in novation -> he impliedly renounces his right to ask for
annulment -> validates the novation.
If original debtor does not concur in substitution of debtors -> new debtor pays ->
old debtor can still avail himself the right to invoke the voidable character of the
obligation against any claim of the new debtor.
If new debtor aware of the defect -> he pays -> cannot avail himself the right to
invoke its voidable character against any claim of the creditor.
Art. 1299. If the original obligation was subject to a
suspensive or resolutory condition, the new obligation shall
be under the same condition, unless it is otherwise
stipulated.
EFFECT IF OLD OBLIGATION IS CONDITIONAL.
Rationale: Subsequent obligation was contracted on the basis of the efficacy of the
previous obligation as its equivalent.
If the suspensive condition is not fulfilled, the novation is valid.
Art. 1300. Subrogation of a 3rd person in the rights of a
creditor is either legal or conventional. The former is not
presumed, except in cases expressly mentioned in this
Code; the latter must be clearly established in order that it
may take effect.
NOVATION BY SUBROGATION.
Kinds:
1. Conventional subrogation (must be clearly established)
o That which takes place by agreement of the:
 original creditor
rd
 the 3 person substituting the original creditor
 and the debtor.
2. Legal subrogation. (not presumed)
o Which takes place by operation of law.
Art. 1301. Conventional subrogation of a 3rd person
requires the consent of the original parties and of the 3rd
person.
rd
There is however, a case in which the creditor may transmit his rights to a 3
person even without the consent of the debtor -> no novation. -> only assignment
of rights.
Art. 1302. It is presumed that there is legal subrogation:
1. When a creditor pays another creditor who is
preferred even without the debtor’s knowledge;
2. When a 3rd person, not interested in the obligation,
pays with express or tacit approval of the debtor;
3. When, even without the knowledge of the debtor,
a person interested in the fulfillment of the
obligation pays, without prejudice to the effects of
confusion as to the latter’s share.
LEGAL SUBROGATION.
General rule: Legal subrogation is not presumed.
Exceptions:
1. Subrogation may be effected even w/o debtor’s knowledge (rules on
preference of credits)
Ochoa, SJ | Page 69 of 113
 rd
2. If 3 person pays with knowledge:
o Entitled to demand reimbursement
o Entitled to be subrogated in all of the rights of the creditor.
rd
If 3 person pays without knowledge/against debtor’s will:
o Entitled to reimbursement only to the extent that the debtor was
benefited.
o No subrogation.

3. Person interested -> co-debtor, guarantor.. etc.

Art. 1303. Subrogation transfers to the person subrogated

the credit with all the rights thereto appertaining, either
against the debtor or against 3rd persons, be they
guarantors or possessors of mortgages, subject to
stipulation in a conventional subrogation.
EFFECT OF TOTAL SUBROGATION.

As to legal subrogation:
- Accessory obligations are not extinguished because in such obligations the
person subrogated also acquires all of the rights which the original creditor
rd
had against 3 persons.

As to conventional subrogation:
- Accessory obligations may be increased or decreased depending upon the
agreement of the parties.

Art. 1304. A creditor, to whom partial payment has been

made, may exercise his right for the remainder, and he
shall be preferred to the person who has been subrogated
in his place in virtue of the partial payment of the same
credit.
EFFECT OF PARTIAL SUBROGATION.
- Creditor’s right with respect to remainder are not affected by subrogation.
- Right of creditor shall be preferred.

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TITLE II – CONTRACTS 2. NATURAL
Chapter 1 – General Provisions o Derived from the nature of the contract
o Presumed by the law but can be excluded by contracting parties.
Art. 1305. A contract is a meeting of minds between two 3. ACCIDENTAL
o Those which exist only when the parties expressly provide for
persons whereby one binds himself, with respect to the
them for the purpose of limiting or modifying the normal effects
other, to give something or to render some service. of the contract.
Simply means an agreement or convention. o Example: conditions, terms, modes.
Juridical convention manifested in legal form, by virtue of which one or more
persons bind themselves in favor of another or others, or reciprocally, to the CHARACTERISTICS OF CONTRACTS
fulfillment of a prestation to give, to do, or not to do. (Sanchez Roman) 1. Obligatory force or character of contracts
o Contracting parties are bound, not only to the fulfillment, but also
Perfected promise – merely tends to insure and pave the way for the celebration of to all the consequences thereof.
a future contract.
2. Autonomy of contracts
Imperfect promise – mere unaccepted offer. o Art. 1306 / Sec. 1, Art. 3, 1987 Constitution
 Contracting parties may establish such agreements as
Pact – incidental part of a contract which can be separated from the principal they may deem convenient, provided they are not
agreement. contrary to law, morals, good customs, public order, or
public policy.
Stipulation – an essential and dispositive part which cannot be separated from such 3. Mutuality of contracts
principal agreement. o Art. 1308 - Contract’s validity or compliance cannot be left to the
will of one of the parties.
Auto-contracts – juridical relation wherein there is only one party involved, but in
reality, said party merely acts in the name and for the account of 2 distinct 4. Relativity of contracts
contracting parties. o Art. 1311, first par. – Contracts take effect only between the
- When a person, in his capacity as representative of another, contracts with parties, their assigns and heirs.
himself.
- When as a representative of 2 different persons, he brings out a contract Breach of contract – the failure, without legal reason, to comply with the terms of
between his principals by contracting with himself, unless there is conflict the contract. (Sps. Edgar and Dinah Omengan vs. PNB, G.R. No. 161319)
of interests or law expressly prohibits.
LIFE OF CONTRACTS
ELEMENTS OF CONTRACTS: 1. Generation
1. ESSENTIAL 2. Perfection
a. Common – present in all contracts: 3. Consummation
i. Consent of the contracting parties
ii. Object certain which is the subject of the contract CLASSIFICATION OF CONTRACTS
iii. Cause of the obligation which is established. 1. According to relation to other contracts:
b. Special – present only in certain contracts: a. Preparatory
i. Delivery in real contracts; or  Establishment of a condition in law which is necessary as
ii. Form in solemn contracts. preliminary step towards the celebration of another
c. Extraordinary or Peculiar – peculiar to a specific contract. subsequent contract.
i. Price in a contract of sale.  Example: partnership, agency
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 b. Principal  Example: Commodatum, gratuitous deposit
 Can subsist independently from other contracts b. Bilateral
 Example: sale, lease  Reciprocal obligations for both parties
c. Accessory  Example: sale, lease
 Can exist only as a consequence of, or inrelation with,
another prior contract 7. According to cause:
 Example: pledge, mortgage a. Onerous
 Those in which each of the party aspires to ptrocure for
2. According to perfection: himself a benefit through the giving of an equivalent or
a. Consensual compensation.
 Perfected by mere agreement of parties  Example: sale
 Example: sale, lease b. Gratuitous
b. Real  Those in which one of the parties proposes to give to the
 Requires consent of the parties and the delivery of the other the benefit without any equivalent or
object by one party to the other for its perfection. compensation.
 Example: commodatum, deposit, pledge  Example: commodatum

3. According to form: 8. According to the risks involved:

a. Common or informal a. Commutative
 Requires no particular form  Those where each of the parties acquires an equivalent
 Example: loan of his prestation and such equivalent is pecuniary
b. Special or formal appreciable and already determined from the moment of
 Requires some particular form the celebration of the contract.
 Example: donations, chattel mortgage  Example: lease
b. Aleatory
4. According to purpose:  Those where each of the parties has his account
a. Transfer of ownership acquisition of an equivalent of his prestation, but such
 Example: sale equivalent, is not yet determined at the moment of the
b. Conveyance of use celebration of the contract.
 Example: Commodatum  Depends upon the happening of an uncertain event thus,
c. Rendition of services charging the parties with the risk of loss or gain.
 Example: agency  Example: insurance

5. According to subject matter: 9. According to their names or norms regulating them:

a. Things a. Nominate
 Example: sale, deposit, pledge  Those which have their own individuality
b. Services  Regulated by special provisions of law
 Example: Agency, lease of services  Ecample: sale, lease
b. Innominate
6. According to nature of the vinivulum which they produce:  Lacks individuality
a. Unilateral  Not regulated by special provisions of law.
 Those which give rise to an obligation for one of the
parties.
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 Art. 1306. The contracting parties may establish such - Becomes binding between the parties upon its execution and not upon its
court approval.
stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy. Art. 1307. Innominate contracts shall be regulated by the
stipulations of the parties, by the provisions of Titles I and
RIGHT TO CONTRACT. / AUTONOMY OF CONTRACTS.
II of this Book, by the rules governing the most analogous
- Guaranteed in the Constitution.
- Freedom to contract is both a constitutional and a statutory right.
nominate contracts, and by the customs of the place.
NOMINATE AND INNOMINATE CONTRACTS.
Limitations:
Stipulations established by the contracting parties must not be contrary to: Nominate contracts
1. Law - Those which have their own distinctive individuality
a. Laws which are mandatory or prohibitive in character - Regukated by special provisions of law
b. Expressive of fundamental principles of justice - Example:
c. Those which impose essential requisites without the contract o Sales
cannot exist. o Barter or exchange
o Lease
2. Morals o Partnership
a. Those principles which are incontrovertible and are universally o Agency
admitted and which have received social and practical o Loan
recognition. o Deposit
o Aleatory contracts
3. Good customs  Insuracne
a. If a moral percept or custom is not recognized universally, but is  Gambling
sanctioned by the practice of a certain community.  Life annuity
o Compromise and arbitration
4. Public order o Guaranty
a. Safety; peace and order o Plege, mortgage and antichresis
b. Synonymous with public policy
Innominate contracts
5. Public policy - Those which lack individuality
a. Principle of law which freedom of contract is restriced by law for - Not regulated by special provisions of law.
the public good. - 4 kinds:
b. Tendency to injure public 1. Do ut des – I give what you give
c. Against public good 2. Do ut facias – I give what you do
d. Contravenes some established interests of society 3. Facio ut des – I do what you give
e. Inconsistent with sound policy or good morals 4. Facio ut facias – I do what you do
f. Tends to clearly undermine the security of individual rights

Compromise agreements
- Compromise is a contract whereby the parties, by making reciprocal
concessions, avoid a litigation or put an end to one already commenced.

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 Art. 1308. The contract must bind both contracting parties;
its validity or compliance cannot be left to the will of one of
them.
Art. 1309. The determination of the performance may be
left to a third person, whose decision shall not be binding
until it has been made known to both contracting parties.
Art. 1310. The determination shall not be obligatory if it is
evidently inequitable. In such case, the courts shall decide
what is equitable under the circumstances.
MUTUALITY OF CONTRACTS.
- Essential quality of the contracting parties.
Consequences:
1. Validity or fulfillment of a contract cannot be left to the will of one of the
contracting parties.
Prohibitions:
o Power to determine whether or not the contract shall be valid
o Power to determine whether or not the contract shall be fulfilled.
o Manresa: perfectly licit to leave the fulfillment of a contract to the
will of one of the contracting parties in the negative form of
recission.
2. Validity or fulfillment may be left to the will of a third person (Art. 1309).
o Decision shall not be binding until it has been made known to
each of the contracting parties.
rd
o Determination made by the 3 person should not be evidently
inequitable. (Art. 1310)
3. Validity or fulfillment can be left to chance.
Example:
Marshall sells his car to Ted. Contracted amount is P1M. If Marshall adjusted the
amount to P1.5M -> invalid. Validity or compliance cannot be left to one of the
contracting parties. (Art. 1308)
Marshall sells his car to Ted. Barney determines the amount of the car. -> valid.
rd
Determination may be left to a 3 person, provided that it shall not be binding until
it has been made known to both contracting parties. (Art. 1309)
Marshall sells his car to Ted. Barney told them that the amount of the car is P100M.
rd
-> invalid. Determination by such 3 person shall not be obligatory if it is evidently
inequitable. (Art. 1310)
Art. 1311. Contracts take effect only between the parties,
their assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible
by their nature, or by stipulation or by provision of law. The
heir is not liable beyond the value of the property he
received from the decedent.
If a contract should contain some stipulation in favor of a
3rd person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have
clearly and deliberately conferred a favor upon a 3rd
person.
st
1 par: PRINCIPLE OF RELATIVITY OF CONTRACTS
Contracts take effect only between:
- The parties, their assigns and heirs.
o The heirs cannot be charged directly with the payment of the
decedent’s obligation.
o It is the estate, rather than the heir, which must be considered as
the continuation of the decedent’s personality.
o Assignment or transfer by a contracting party has the effect of
subrogating the assignee to all of the rights and obligations of the
assignor.
- Except:
1. By their nature, as where special or personal qualification of the
obligor constitutes one of the principal motives for the establishment
of the contract; or
2. By stipulation of the parties, when contract expressly provides that the
obligor shall perform an act by himself and not thru another; or
3. By provision of law, as in case of those arising from a contract of
partnership or agency.
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He who is not a party to the contract, or an assignee thereunder, has no legal Art. 1312. In contracts creating real rights, 3rd persons who
capacity to challenge its validity.
come into possession of the object of the contract are
Even if voidable, it cannot be asserted by one who is not a party to the transaction
bound thereby, subject to the provisions of the Mortgage
or his representative. Law and the Land Registration Laws.
CONTRACTS CREATING REAL RIGHTS. / EXCEPTION TO THE PRINCIPLE OF
4 exceptional instances under the CC where a contract may produce effect either RELATIVITY.
rd
directly or indirectly on 3 persons: / Exception to the principle of relativity:
1. Art. 1311, par. 2 – Where the contract contains a stipulation in favor of a A real right is a right belonging to a person over a specific thing, without a passive
rd
3 person. subject individually determined, against whom such right may be personally
rd
2. Art. 1312 – Where the 3 person comes into possession of the object of a enforced.
contract creating a real right.
rd
3. Art. 1313 – Where the contract is enterned into in order to defraud a 3 A real right directly affects property subject to it; hence, whoever is in possession of
person. such property must recpect that real right.
rd
4. Art. 1314 – Where the 3 person induces a contracting party to violate his
contract. Example:
Marshall mortgaged his land to secure his debt to Ted registered in the Registry of
BENEFICIAL STIPULATION – stipulation pour autrui Property.
- Stipulation in a contract, clearly and deliberately conferred by the Marshall sold the same property to Barney.
rd rd
contracting parties as a favor upon a 3 person, who mas have accepted it Can Ted be considered a 3 party to Marshall’s contract with Barney? YES.
rd
before it could be revoked. Can Barney be considered a 3 party to Marshall and Ted’s contract? YES.
- Kinds: The effect of such registration is to create a real right which will be binding against
rd
1. Those intended for the sole benefit of the 3 person; the whole world. (Art. 2125, NCC)
rd
2. Those where an obligation is due from the promisee to the 3 person
which the former seeks to discharge by means of such stipulation.
Art. 1313. Creditors are protected in cases of contracts
- Requisites:
rd
1. That there must be a stipulation in favor of a 3 person intended to defraud them.
2. The stipulation must be a part, not the whole of the contract; CONTRACTS IN FRAUD OF CREDITORS.
3. The contracting parties must have clearly and deliberately conferred a
rd
favor upon a 3 person, not a mere incidental benefit or interest; When a debtor enters into a contract to defraud his creditors, the creditor may ask
rd
4. The 3 person must have communicated his acceptance to the obligor for its recission.
before its revocation;
5. Neither of the contracting parties beard the legal representatibe or Example:
rd
authorization of the 3 party. Robin has a debt of P1M to Lily.
rd
*Note: Acceptance of 3 person or beneficiary may be express or implied. Robin had became insolvent and donated her only property to Ted before the
(Florentino vs. Encarnacion, 79 SCRA 192) deadline of payment.
- Test of beneficial stipulation: Lily has been defrauded by Robin.
o Rely upon the intention of the parties as disclosed by their Lily has a right to impugn the contract between Robin and Ted even though she is
contract. not a party to their contract.

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 Art. 1314. Any 3rd person who induces another to violate
his contract shall be liable for damages to the other
contracting party.
INTERFERENCES WITH CONTRACTUAL RELATIONS.
The right to perform a contract and to reap the profits resulting from such
performance, and also the right to performance by the other party, are property
rights which entitle each party to protection, and to seek compensation by an
action in tort for any interference therewith.
Requisites:
1. The existence of a valid contract;
rd
2. Knowledge on the part of the 3 person of the existence of the contract;
rd
3. Interference by the 3 person without legal justification or excuse.
o Malice – intentional doing of a harmful act without legal
justification or excuse.
o “The indirect purpose of benefiting the defendant at the expense
of the plaintiff,” the intermeddler is liable if his advice is taken and
the contract broken. (Daywalt vs. Recoletos, 39 Phil. 587)
Example:
Piolo Pascual has a 3-year contract with ABSCBN.
Diether Ocampo induces Piolo to break his contract without justifiable cause.
ABSCBN may claim for damages against Diether Ocampo by virtue of Art. 1314.
Art. 1315. Contracts are perfected by mere consent, and
from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also
to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law.
Art. 1316. Real contracts, such as deposit, pledge or
commodatum, are not perfected until the delivery of the
object of the obligation.
PRINCIPLE OF CONSENSUALITY.
Concurrence of the wills of the contracting parties with respect to the object and
the cause of the contract.
General rule (Consensual contracts): perfection of a contract is produced by mere
consent.
Exception (Real contracts): On deposit, pledge, and commodatum, which cannot be
perfected after the delivery of the object by one of the contracting party to the
other.
Formal contracts: the form prescribed by law is essential for its validity.
Example:
June 26 – Marshall contracted a loan from Lily in the amount of P100k.
July 11 – Marshall promised to give a diamond ring as security for the loan.
Before July 11, even if Lily already handed the P100k to Marshall, the contract of
pledge is not yet perfected. The perfection is upon the delivery of the object
pledged.
Perfection of contract (in pledge): July 11.
Perfection of contract (loan): at the time Lily delivered to Marshall the P100k.
Art. 1317. No one may contract in the name of another
without being authorized by the latter, or unless he has by
law a right to represent him.
A contract entered into in the name of another by one who
has no authority or legal representation, or who has acted
beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person in whose
behalf it has been executed, before it is revoked by the
other contracting party.
CONTRACTS IN NAME OF ANOTHER.
No person may enter into a contract in the name of another unless he has been
duly authorized by the latter, or unless he has by law a right to represent him.
Requisites for a perseon to contract in the name of another:
1. He must be authorized (expressly or impliedly)
2. He must have by law, a right to represent him.
3. The contract must be subsequently ratified (expressly or impliedlt)
4. He must act within his power.
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CHAPTER 2 – ESSENTIAL REQUISITES OF CONTRACTS.
GENERAL PROVISIONS

Art. 1318. There is no contract unless the following

requisites concur:
1. Consent of the contracting parties;
2. Object certain which is the subject matter of the
contract;
3. Cause of the obligation which is established.
REQUISITES OF CONTRACTS IN GENERAL.

Elements of a contract: (See Art. 1305)

1. Essential – those without which there can be no contract.

a. Common – present in all contracts:
i. Consent of the contracting parties
ii. Object certain which is the subject of the contract
iii. Cause of the obligation which is established.
b. Special – present only in certain contracts:
i. Delivery in real contracts; or
ii. Form in solemn contracts.
c. Extraordinary or Peculiar – peculiar to a specific contract.
i. Price in a contract of sale.

2. Natural – those which are derived from the very nature of the contract.

3. Accidental – those which exist only when the contracting parties expressly
provide for them for the purpose of limiting or modifying the normal
effects of the contract.

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SECTION 1 – CONSENT
Art. 1319. Consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge. The
contract, in such a case, is presumed to have been entered
into in the place where the offer was made.
CONCEPT OF CONSENT.
“Consent” – merely means agreement of wills.
- Castan: it may be defined as the concurrence of the wills of the contracting
parties with respect to the object and the cause which shall constitute the
contract.
Requisites:
1. Art. 1319-1326 (Express)
The consent must be manifested by the concurrence of the offer and the
acceptance.
2. Art. 1327-1329 (Implied)
The contracting parties must possess the necessary legal capacity
3. Art. 1330-1346 (Implied)
The consent must be intelligent, free, spontaneous, and real.
When contracts are perfected –
General rule:
- From the moment that there is a manifestation of the concurrence
between the offer and the acceptance with respect to the object and the
cause which shall constitute the contract. (Art. 1319, par. 1)
But:
- If acceptance is made by letter or telegram:
o The contract is perfected from the moment that the offeror has
knowledge of such acceptance.
Except:
o Art. 54, Code of Commerce: contract is perfected from the
moment an answer is made accepting the offer.
 Applies only to purely commercial contracts.
 E.g. joint accounts, maritime contracts, etc.
Manifestation of consent:
- Once there is such a manifestation of the concurrence of the wills of the
contracting parties, the period or stage of negotiation is terminated. The
contract, if consensual, is finally perfected. (Manresa)
“entertain” – position to deliberate whether to perform or not to perform an act.
“willing to accept” – does not mean acceptance; disposition to accept the offer.
Offeror may still withdraw his offer or proposal so long as he still has no knowledge
of the acceptance by the offeree.
When something is desired which is not exactly what is proposed in the offer,
such acceptance is not sufficient to generate consent because any modification or
variation from the terms of the offer.
Art. 1320. An acceptance may be express or implied.
Express:
- Written or “yes”
Implied:
- Through acts / conducts or facts which reveal the intent to accept, such as
the consumption of the things sent to the offeree, or the fact of
immediately carrying out of the contract offered.
Art. 1321. The person making the offer may fix the time,
place, and manner of acceptance, all of which must be
complied with.
- The offer with a period lapses upon the termination of the period. Thus the
acceptance, to become effective, must be known to the offeror before the
period lapses.
Art. 1322. An offer made through an agent is accepted from
the time acceptance is communicated through him.
- An intermediary who has no power to bind either the offeror or offeree is
not an agent; his situation is similar to that of a letter carrier.
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 Art. 1323. An offer becomes ineffective upon the death,
civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed.
EFFECT OF DEATH, CIVIL INTERDICTION, INSANITY, OR INSOLVENCY
“conveyed” – moment when the offeror has knowledge of the acceptance by the
offeree.
An offer becomes ineffective upon death, civil interdiction, insanity, ort insolvency
of either party before the offeror has knowledge of the acceptance by the offeree.
Art. 1324. When the offerer has allowed the offeree a
certain period to accept, the offer may be withdrawn at
any time before acceptance by communicating such
withdrawal, except when the option is founded upon a
consideration, as something paid or promised.
PERIOD OF ACCEPTANCE: OPTIONS.
If the offer is without any consideration: the offeror may withdraw his offer by
communicating such withdrawal to the offeree at any time before acceptance.
If the offer is founded upon a consideration: the offeror cannot withdraw his offer.
Option contract/Option money: It is simply a contract by which the owner of
property agrees with another person that he shall have the right to buy his property
at a fixed price within a certain time.
Art. 1325. Unless it appears otherwise, business
advertisements of things for sale are not definite offers,
but mere invitations to make an offer.
When the advertisement does not have the necessary specification of essential
elements of the future contract, it cannot constitute an offer. The advertiser is free
to reject any offer that may be made.
Art. 1326. Advertisements for bidders are simply invitations
to make proposals, and the advertiser is not bound to
accept the highest or lowest bidder, unless the contrary
appears.
In judicial sales, however, the highest bid must necessarily be accepted.
Art. 1327. The following cannot give consent to a contract:
1. Unemancipated minors;
2. Insane or demented persons, and deaf-mutes who
do not know how to write.
LEGAL CAPACITY OF CONTRACTING PARTIES.
Insane or demented persons: it is enough that insanity existed at the time the
contract was made.
- State of drunkenness
- Under a hypnotic spell
- Suffering from any kind of mental illness.
- A person under guardianship for insanity may still enter into a valid
contract and even convey property, provided it is proven that at the time
of entering into said contracy, he was not insane or that his mental defect,
if mentally deranges, did not interfere with or affect his capacity to
appreciate the meaning and significance of the transaction entered into by
him. (Dumaguin vs. Reynolds, 48 Off. Gaz. 3887)
Presumption: Every person of legal age possesses the necessary capacity to execute
a contract. (may be rebutted by evid)
If only one of the contracting parties is incapacitated to give his consent, the
contract is voidable.
If both are incapacitated to give consent, the contract is unenforceable.
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Unemancipated minor: cannot give their consent to a contract.
(definition of inemancipated minor: any person under 18y/o who has not been
married or who is under the custody and control of the person’s parents, guardian..
etc)
Except: (contract may have all the effects of a valid contract)
1. Entered into by a minor who misrepresents his age
o They cannot, upon reaching the age of majority, annul the
contract on the ground of minority inasmuch as they are already
in estoppel.
2. Involves a sale and delivery of necessaries to the minor
3. Natural obligation and such obligation is fulfilled voluntarily by the minor
(18-21 y/o)
4. Marriage settlement or donation propter nuptias (20-21y/o)
5. Life, health or accident insurance (18 or more)
Deaf-mute:
1. Deaf-mute who knows how to write: valid.
2. Deaf-mute who does NOT know how to write: voidable or unenforceable.
Art. 1328. Contracts entered into during a lucid interval are
valid. Contracts agreed to in a state of drunkenness or
during a hypnotic spell are voidable.
The use of intoxicants does not necessarily mean a complete loss of understanding.
The same may be said of drugs. But a person, under the influence of
superabundance of alcoholic drinks or excessive usage of drugs, may have no
capacity to contract.
Art. 1329. The incapacity declared in Art. 1327 is subject to
the modification determined by law, and is understood to
be without prejudice to special disqualifications
established in the laws.
INCAPACITY TO CONTRACT – NOT TO GIVE CONSENT TO A CONTRACT.
Refer to those who are prohoboted from entering into a contract with certain
persons with regard to certain property under certain circumstances and NOT to
those who are incapacitated to give their consent to the contract.
E.g.
Insolvency Law – a person who is declared insolvent before he is discharged is
prohibited from entering into a contract.
Art. 1490, CC – husband and wife cannot sell to each other, except: (1) separation of
proprty was agreed upon in marriage settlements, and (2) if there has been judicial
separation of property under Art. 191.
Art. 1330. A contract where consent is given through
mistake, violence, intimidation, undue influence, or fraud is
voidable.
VICES OF CONSENT.
Requisites:
1. It should be intelligent
2. It should be free and voluntary
3. It should be spontaneous or conscious.
Defects of will: intelligence is vitiated by error; freedom by violence, intimidation or
undue influence; and spontaneity by fraud.
Art. 1331. In order that mistake may invalidate consent, it
should refer to the substance of the thing which is the
object of the contract, or to those conditions which have
principally moved one or both parties to enter into the
contract.
Mistake as to the identity or qualifications of one of the
parties will vitiate consent only when such identity or
qualifications have been the principal cause of the contract.
A simple mistake of account shall give rise to its correction.
MISTAKE.
- Manresa: mistake may be defined not only as the wrong conception of a
thing, but also as the lack of knowledge with respecto to a thing.
Mistake of fact (which will vitiate consent -> voidable)
- When one or both the contracting parties believe that a fact exists when in
reality it does not, or that such fact does not exist when in reality it does.
1. Mistake as to object (error in re)
a. Mistake as to the identity of the thing (error in corpore)
b. Mistake as to the substance of the thing (error in substantia)
c. Mistake as to the conditions of the thing
d. Mistake as to the quantity of the thing (error in quantitate)
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 2. Mistake as to person (error in persona)
Requisites:
a. The mistake must be either with regard to the identity or with
regard to the qualification of one of the contracting parties
b. Such identity or qualification must have been the principal
consideration of the contract.
Mistake of law (does not render a contract voidable, ignorantia legis neminem
excusat)
- When one or both the contracting parties arrive at an erroneous
conclusion regarding the interpretation of a queation of law or the legal
effects of a certain act or transaction.
Art. 1332. When one of the parties is unable to read, or if
the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been fully
explained to the former.
RULE WHERE A PARTY IS ILLITERATE.
Presumption: One always acts with due care and signs with full knowledge of the
content of the document. — NOT APPLICABLE IN THIS ARTICLE.
Burden of proof: Other party who is enforcing the contract — that he fully
explained the contract to the illiterate party.
- Intended for the protection of a party to a contract who is at a
disadvantage due to his illiteracy, ignorance, mental weakness or other
handicap.
Art. 1333. There is no mistake if the party alleging it knew
the doubt, contingency or risk affecting the object of the
contract.
To invalidate consent, the error must be excusable.
Art. 1334. Mutual error as to the legal effect of an
agreement when the real purpose of the parties is
frustrated, may vitiate consent.
MISTAKE OF LAW.
Requisites:
1. Mistake must be with respect to the legal effect of an agreement;
2. The mistake must be mutual;
3. The real purpose of the parties must have been frustrated.
Example:
Ted and Barney entered into a contract of sale instead of a contract of mortgage
believing the legal effects are the same. -> voidable/rescicssible.
Art. 1335. There is violence when in order to wrest consent,
serious or irresistible force is employed.
There is intimidation when one of the contracting parties is
compelled by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or
upon the person or property of his spouse, descendants or
ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and
condition of the person shall be borne in mind.
A threat to enforce one’s claim through competent
authority, if the claim is just or legal, does not vitiate
consent.
Art. 1336. Violence or intimidation shall annul the
obligation, although it may have been employed by a 3rd
person who did not take part in the contract.
VIOLENCE AND INTIMIDATION.
- Also known as duress.
- violence – external
- intimidation – internal
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Requisites of VIOLENCE:
1. The force employed to wrest consent must be serious or irresistible;
2. It must be the determining cause for the party upon whom it is employed
in entering the contract.
Requisites of INTIMIDATION:
1. One of the contracting parties is compelled to give his consent by a
reasonable and well-grounded fear of an evil;
2. The evil must be imminent and grave;
3. The evil must be unjust;
3. The evil must be the determining cause for the party upon whom it is
employed in entering the contract.
Art. 1337. There is undue influence when a person takes
improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice. The
following circumstances shall be considered: the
confidential, family, spiritual and other relations between
the parties, or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness, or
was ignorant or in financial distress.
UNDUE INFLUENCE.
- Undue influence invalidating a contract is that which substitutes the wishes
of another for those of a party to the contract or that which deprives the
latter of his free agency.
- Even if it can be established that a person entered into a contract through
the impotunity or persuasion of another against his better judgment, if the
deprivation of his free agency is not proved, there is no undue influence
which will invalidate the contract.
Test to determine WON there is undue influence which will invalidate the
contract:
- WON the influene exerted has so overpowered or subjugated the mind of
the contracting party as to destroy his free agency, making him express the
will of another rather than his own.
Art. 1338. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is
induced to enter into a contract which, without them, he
would not have agreed to.
FRAUD.
Kinds:
1. Fraud which is employed by a party to the contract in securing the consent
of the other party
2. Fraud which is employed by the obligor in the performance of a pre-
existing obligation.
Fraud which is present at the time of the birth or perfection of the contract:
1. Dolo causante
o Causal fraud – refers to those deceptions or misrepresentations of
a serious character employed by one party and without which the
other party would not have entered into the contract.
o Serious in character
o The cause which induces the party upon whom it is employed in
the contract
o The effect is to render the contract voidable
2. Dolo incidente
o Incidental fraud – refers to those deceptions or
misrepresentations which are not serious in character and
without which the other party would still have entered into the
contract. (Art. 1344)
o Not serious in character
o NOT the cause which induces the party upon whom it is employed
in the contract
o To render the party who employed it liable for damages.
Requisites:
1. Fraud or insiduous words or machinations must have been employed by
one of the contracting parties;
2. The fraud or insiduous words or machinations must have been serious;
3. The fraud or insiduous words or machinations must have induced the other
party to enter into the contract; and
4. The fraud should not have been employed by both of the contracting
rd
parties or by 3 persons.
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 Art. 1339. Failure to disclose facts, when there is a duty to Art. 1343. Misrepresentation made in good faith is not
reveal them, as when the parties are bound by confidential fraudulent but may constitute error.
relations, constitutes fraud.
EFFECT OF FAILURE TO DISCLOSE FACTS. Art. 1344. In order that fraud may make a contract
voidable, it should be serious and should not have been
Silence or concealment, by itself, does not constitute fraud, unless there is a special
employed by both contracting parties.
duty to disclose certain facts, or unless according to good faith and the usages of
commerce, the communication should be made.
Incidental fraud only obliges the person employing it to pay
However, innocent nondisclosure of a fact, when there is no duty to reveal it, does damages.
not constitute fraud; consequently, such nondisclosure does not affect the MAGNITUDE OF FRAUD.
formation of the contract or operate to dischrge the parties from their agreement.
Fraud is serious when it is sufficient to impress, or to lead an ordinarily prusent
Art. 1340. The usual exaggerations in trade, when the other person into error; that which cannot deceive a prudent person cannot be aground
party had an opportunity to know the facts, are not for nullity,
themselves fraudulent.
Besides being serious, the fraud mustbe the determining cause of the contract, it
EFFECT OF EXAGGERATIONS IN TRADE must be dolo causante.
- The thinking is that where the means of knowledge are athand and equally
available to both parties, one will not be heard to say thet he has been When both parties use fraud reciprocally, neither one has an action against the
deceived. other; the fraud of one compensates that of the other, neither party can ask for the
annulment of the contract.
Art. 1341. A mere expression of an opinion does not signify
fraud, unless made by an expert and the other party has Art. 1345. Simulation of a contract maybe absolute or
relied on the former’s special knowledge. relative. The former takes place when the parties fo not
EFFECT OF EXPRESSION OF OPINION. intend to be bound at all; the latter, when the parties
- An opinion of an expert is like a statement of fact, and if false, may be conceal their true agreement.
considered a fraud giving rise to annulment. - Simulation is the declaration of a fictitious will, deliberately made by
agreement of the parties, in order to produce, for the purposes of
Art. 1342. Misrepresentation by a 3rd person does not deception, the appearance of a juridical act which does not exist or is
vitiate consent, unless such misrepresentation has created different from thet which was really executed.
substantial mistake and the same is mutual.
rd
EFFECT OF MISREPRESENTATION BY 3 PERSONS. Art. 1346. An absolutely simulates or fictitious contract is
void. A relative simulation, when it does not prejudice a 3rd
rd
General rule: that the frauf employed bya 3 person upon one of the parties does person and is not intended for any purpose contrary to law,
not vitiate consent and cause the nullity of a contract. morals, good customs, public order or public policy binds
rd
Except: If one of the parties is in connivance with the 3 person, or knows of the the parties to their real agreement.
rd
fraud by the 3 person, and he is benefited thereby, he may be considered as an
SIMULATION OF CONTRACTS.
accomplice to the fraud -> contract becomes voidable.
- Castan: vices of declaration (vicios de la declaracion)

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Absolute: there is color of contract, without any substance thereof, the parties not
having any intention to be bound.
- Void.

Relative: when the parties state a false cause in the contract to conceal their true
agreement.
- Example: a deed of sale executed to conceal donation.
- Bind the partied and they may recover from each other what they may
have given under the contract.

Contract of adhesion:
- Its terms are prepared only by one party while the other party merely
affixes his signature.
- Just as binding as ordinary contracts.
- Not invalid per se.

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SECTION 2 – OBJECT OF CONTRACT 2. The object should be real or possible.
o It should exist at the moment of the celebration of the contract;
Object – the most fundamental, most indispensable in order to have at least the or
shadow of a contract. o Can exist subsequently in the future
o Contract interpretation according to Manresa:
Identical to object of obligation: Art. 1156. Consequently, the object of a contract 1. Conditional Contract
may be defined as the thing, right or service which is the subject matter of the The efficiacy should depend upon the future existence of the
obligation which is created or established. (Castan) thing.
2. Aleatory Contract
Art. 1347. All things which are not outside the commerce of If one of the contracting parties should bear the risk that the
men, including future things, may be the object of a thing will never come into existence.
contract. All rights which are not intransmissible may also  In case of doubt about the nature of contract: Art. 1378 –
doubt shall be resolved in favor of the greatest
be the object of contracts.
reciprocity of interests.
o Future inheritance: What is prohibited is a contract which deals
No contract may be entered into upon future inheritance with ANY PROPERTY OR RIGHT NOT INEXISTENCE or capable of
except authorized by law. determination at the time of the contract, that a person may in
the future acquire by succession. (Blas vs. Santos, 1 SCRA 899)
All services which are not contrary to law, morals, good  Exceptions/Allowed future inheritance in a contract:
customs, public order or public policy may likewise be the 1. Art. 130 – allows future spouses to give or donate to
object of a contract. each other in their marriage settlement their future
property to take effect upon the death of the donor
OBJECT OF CONTRACTS
and to the extent laid down by the CC re: testamentary
Requisites: succession; and
1. The object should be within the commerce of men. 2. Art. 1080 – allows a person to make partition of his
o Should be susceptible of appropriation estate by an act inter vivos, provided that the legitime
o Should be transmissible of compulsory heirs is not prejudiced.
o Items that cannot be object of contracts:
 By nature, common things:
 Air
 Sea
 Public areas.. etc
 By special prohibitions of law:
 Poisonous substances
 Drugs
 Explosives.. etc
 Rights which are not transmissible/personal in character:
 Husband & wife
 Paternity and filiation
 Rights which are honorary/political:
 Public office
 suffrage

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 Art. 1348. Impossible things or services cannot be the
object of contracts.
3. The object should be licit.
o Not contrary to law, morals, good customs, etc.
Absolute impossibility
Arises from the very nature or essence
of the act or service itself -> renders the
contract void.
Relative impossibility
Arises from the circumstances or
qualifications of the obligor rendering
him incapable of executing the act or
service, allows the perfection of the
contract, although the fulfillment
thereof is hardly probable.
Example:
Contract of partnership, one of the
partners obligates himself to contribute
to common funds an amount which is
beyond his means -> contract not void
because the impossibility may
disappear.
When the impossibility is permanent
example:
Unable to perform service which he
contracted because of total blindness ->
void.
Art. 1349. The object of every contract must be
determinate as to its kind. The fact that the quantity is not
determined shall not be an obstacle to the existence of the
contract. Provided it is possible to determine the same,
without the need of a new contract between the parties.
4. The object should be determinate.
o Possible of determination
Must be determinate as to its kind:
- The genus of the object should be expressed although there might be no
determination of the individual specie.
- If A and B enter into an agreement by virtue of which the former binds
himself to deliver “ten horses” to the latter, the contract is perfectly valid
since the law merely requires that the object must be determinate, or at
least, determinable, as to its kind.
The fact that the quantity is not determined shall not be an obstacle to the
existence of the contract. Provided it is possible to determine the same,
without the need of a new contract between the parties:
- Occurs in those cases where the contract itself has established the basis
upon which such quantity can be determined.
- Example: needs of a family, provisions needed for a factory, materials for a
particular work. -> valid.
- This can be determined from the purpose or motive of the contract itself.
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SECTION 3 – CAUSE OF CONTRACTS Art. 1351. The particular motives of the parties in entering
into a contract are different from the cause thereof.
Art. 1350. In onerous contracts the cause is understood to
be, for each contracting party, the prestation or promise of
Cause Motive
a thing or service by the other; in remuneratory ones, the Direct or most proximate reason of a Indirect or remote reasons
service or benefit which is remunerated; and in contracts of contract
pure beneficence, the mere liberality of the benefactor. Objective or juridical reason of a Psychological or purely personal reasons
CONCEPT OF CAUSE. contract
Always the same Differs for each contracting party
Cause – the reason which moves the contracting parties to enter into a contract. Legality or Illegality of the cause will Legality or Illegality of the motives will
affect the validity of a contract not affect the existence of a contract.
Onerous
- Dr. Tolentino: the object of an onerous contract is the same as to both Liguez vs. CA, 102 Phil. 577
parties, although the cause is different. - The motive may be regarded as causa when it predetermines the purpose
- Vendee/Buyer: of the contract.
o cause is the promise of the seller to sell the thing
o acquisition of the thing. Art. 1352. Contracts without cause, or with unlawful cause,
- Vendor/Seller:
produce no effect whatsoever. The cause is unlawful if it is
o cause is the promise of the buyer to buy the thing
contrary to law, morals, good customs, public order or
o acquisition of the purchase price.
- Accessory Contracts public policy.
o Mortgage contract as accessory contract: its cause is the very Essential requisites of cause:
cause of the principal contract from which it receives its life, and 1. It should be in existence at the time of the celebration of the contract;
without which it cannot exist as an independent contract, 2. The cause must be licit or lawful;
although it may secure an obligation incurred by another. 3. The cause should be true.
- Moral Obligations
o Not demandable in law but only in conscience
Art. 1353. The statement of a false cause in contracts shall
o Cannot constitute a sufficient cause or consideration to support
an onerous contract unless moral obligation is based on a
render them void, if it should not be proved that they were
previous civil obligation. founded upon another cause which is true and unlawful.
- Where the cause stated in the contract is false, the latter may nevertheless
Remuneratory be sustained by proof of another licit cause.
- The cause is the service or benefit which is remunerated.
- The object is the thing which is given in remuneration.
Art. 1354. Although the cause is not stated in the contract,
it is presumed that it exists and is lawful, unless the debtor
Gratuitous
- The cause is the liberality of the donor proves the contrary.
- The object is the thing which is given or donated. - Unless the contrary is proved, a contract is presumed to have a good and
sufficient consideration. This presumption applies when no cause is stated
in the contract.

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Art. 1355. Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract, unless
there has been fraud, mistake or undue influence.
- If there has been fraud, mistake, undue influence -> voidable.

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CHAPTER 3 – FORMS OF CONTRACTS Art. 1357. If the law requires a document or other special
form, as in the acts and contracts enumerates in the
Art. 1356. Contracts shall be obligatory, in whatever form following article, the contracting parties may compel each
they may have been entered into, provided all the essential other to observe that form, once the contract has been
requisites for their validity are present. However, when the perfected. This right may be exercises simultaneously with
law requires that a contract be in some form in order that it the action upon the contract.
may be valid or enforceable, or that a contract be proved in
a certain way, that requirement is absolute and
indispensable. In such cases, the right of the parties stated Art. 1358. The following must appear in a public document:
in the following articles cannot be exercised. 1. Acts and contracts which have for their object the
creation, transmission, modification or
FORM OF CONTRACTS.
extinguishment of real rights over immovable
General rule:
property; sales of real property or of an interest
- Obligatory provided that all the essential requisites are present. therein are governed by Articles 1403, No. 2 and
o Verbal extrajudicial partition of property is valid and binding 1405;
among the parties. (Duran vs. Cecilio, Hernandez vs. Andal) 2. The cession, repudiation or renunciation of
Exceptions: hereditary rights or of those of the conjugal
- Wherein the law prescribes a certain form either: partnership of gains;
o for validity; or 3. The power to administer property, or any other
 Classifications: power which has for its object an act appearing or
 Those which must appear in writing: which should appear in a public document, or
o Donations exceeding 5k pesos
should prejudice a 3rd person;
o Sale of a land through an agent
4. The cession of actions or rights proceeding from an
o Agreements regarding payment of
interest in contracts of loan act appearing in a public document.
o Antichresis
 Those which must appear in a public document: All other contracts where the amount involved exceeds 500
o Donations of immovable property pesos must appear in writing, even a private one. But sales
o Partnerships where immovable of goods, chattels or things in action are governed by
property or real rights are contributed Articles 1403, No. 2, and 1405.
to the common fund.
FORMALITIES FOR EFFICIACY.
 Those which must be registered:
o Chattel mortgages
General rule: Contracts are valid and binding from their perfection regardless of
o Sales or tranfers of large cattle.
form, whether they be oral or written.
o for enforceability.
Exception:
 Must be in writing and properly subscribed.
1. Contracts which the law requires that they be in some particular form in
 Governed by Statute of Frauds.
order to make them valid and enforceable.
2. Contracts that the law requires to be proved by some writing of its terms,
Forms of contracts required by law – also for convenience.
as those covered by the Statute of Frauds (Art. 1403[2]). (For enforceability
in court.)

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CHAPTER 4 – REFORMATION OF INSTRUMENTS
Art. 1359. When, there having been a meeting of the minds
of the parties to a contract, their true intention is not
expressed in the instrument purporting to embody the
agreement, by reason of mistake, fraud, inequitable
conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such true
intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but
annulment of the contract.
DOCTRINE OF REFORMATION OF INSTRUMENTS.
- Based on justice and equity
- Rationale: it would be unjust and inequitable to allow the enforcement of a
written instrument which does not reflect or disclose the real meeting of
the minds of the parties.
Requisites of reformation of instruments:
1. There must be meeting of the minds of the contracting parties;
2. Their true intention is not expressed in the instrument; and
3. Such failure to express their true intention is due to mistake, fraud,
inequitable conduct or accident.
Reformation Annulment
Presupposes a perfectly valid contract in Based on a defective contract in which
which there has been a meeting of the there has been no meeting of the minds
minds of the contracting parties. because the consent of one or both of
the contracting parties has been
vitiated.
Art. 1360. The principles of the general law on the
reformation of instruments are hereby adopted insofar as
they are not in conflict with the provisions of this Code.
CONTRACT OF ADHESION.
- Defined as one in which one of the parties imposes a ready made form of
contract, which the other party may accept or reject, but which the latter
cannot modify. (PCIB vs CA, 255 SCRA 299) -> This type of contract is as
binding as a mutually executed transaction. (Ayala Corp. vs. Ray Burton
Development Corp).
- A contract of adhesion is just as binding as ordinary contracts. It is true that
we have, on occasion, struck down such contracts as void when the weaker
party is imposed upon in dealing with the dominant bargaining party and is
reduced to the. Nevertheless, contracts of adhesion are not invalid per se;
they are not entirely prohibited. The one who adheres to the contract is in
reality free to reject it entirely; if he adheres, he gives his consent.
(Development Bank of the PH vs Perez, GR 14854, Nov. 11, 2004)
- The validity and/or enforceability of a contract of adhesion will have to be
determined by the peculiar circumstances obtaining in each case and the
situation of the parties concerned.
Art. 1361. When a mutual mistake of the parties causes the
failure of the instrument to disclose their real agreement,
said instrument may be reformed.
Example:
Agreement: Marshall sells his Toyota 86 to Ted for P1M.
Instrument: Marshall sells his Toyota Innova to Ted for P1M.
May the instrument be reformed? Yes.
Art. 1362. If one party was mistaken and the other acted
fraudulently or inequitably in such a way that the
instrument does not show their true intention, the former
may ask for the reformation of the instrument.
Example:
Agreement: Marshall borrowed money from Ted worth P1M.
Written instrument: Due to Ted’s fraudulent act, the contract provides that
Marshall was selling his car for P1M due to Ted’s fraudulent act.
Who may ask for reformation? Marshall only.
Ochoa, SJ | Page 90 of 113
 Art. 1363. When one party was mistaken and the other
knew or believed that the instrument did not state their
real agreement, but concealed that fact from the former,
the instrument may be reformed.
Who may ask for reformation? The party who acted in good faith. NOT the one
who concealed such fact.
Art. 1364. When through the ignorance, lack of skill,
negligence or bad faith on the part of the person drafting
the instrument or of the clerk or typist, the instrument
does not express the true intention of the parties, the
courts may order that the instrument be reformed.
Art. 1365. If 2 parties agree upon the mortgage or pledge or
real or personal property, but the instrument states that
the property is sold absolutely or with a right of
repurchase, reformation of the instrument is proper.
Example:
Agreement: Lily mortgaged her land in favor of Barney to secure her loan.
Written Instrument: provides for a Contract of sale instead of mortgage only.
May the instrument be reformed? Yes.
Art. 1366. There shall be no reformation in the following
cases:
1. Simple donations inter vivos wherein no condition
is imposed;
2. Wills;
3. When the real agreement is void.
Art. 1367. When one of the parties has brought an action to
enforce the instrument, he cannot subsequently ask for its
reformation.
Estoppel.
Example:
Agreement: Marshall sold his house to Ted.
Written instrument: Marshall provides for a Contract of Mortgage (fraudulent act
of Marshall). Both parties signed but all along Ted knew that it was a Contract of
sale.
Who may ask for reformation? Ted.
BUT! What if: If Ted asked for foreclosure of the Mortgaged land, he cannot
subsequently file reformation of the instrument to become a contract of sale.
Art. 1368. Reformation may be ordered at the instance of
either party or his successors in interest, if the mistake was
mutual; otherwise, upon petition of the injured party, or
his heirs and assigns.
Example:
Agreement: Marshall sold his house to Ted.
Written instrument: Marshall provides for a Contract of Mortgage (fraudulent act
of Marshall). Both parties signed but all along Ted knew that it was a Contract of
sale.
Who may ask for reformation? Ted.
What if Ted died? His successors/heirs/assigns may file for reformation.
May Marshall file for reformation? No.
May Marshall’s successors/heirs/assigns file for reformation? No. Because
Marshall is the one who acted fraudulently.
Art. 1369. The procedure for the reformation of
instruments shall be governed by the Rules of Court to be
promulgated by the Supreme Court.
Ochoa, SJ | Page 91 of 113
CHAPTER 5 – INTERPRETATION OF CONTRACTS.
Art. 1370. If the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control.
Art. 1372. However general the terms of a contract may be,
they shall not be understood to comprehend things that
are distinct and cases that are different from those upon
which the parties intended to agree.

If the words appear to be contrary to the evident intention
of the parties, the latter shall prevail over the former.
PRIMACY INTENTION OF PARTIES.
It is a cardinal rule that if the terms of a contract are clear and leave no doubt as to
the intention of the contracting parties, the literal meaning of its stipulation shall
control.
The intention of the contracting parties should always prevail because their will has
the force of law between them.
The character of the transaction between the parties is to be determined by their
intention, regardless of what language was used or what the form of the transfer
was.
Art. 1373. If some stipulation of any contract should admit
of several meanings, it shall be understood as bearing that
import which is most adequate to render it effectual.
Art. 1374. The various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly.
Art. 1375. Words which may have different significations
shall be understood in that which is most in keeping with
the nature and object of the contract.

The contract is the law between the parties and when the words of the contract are Art. 1376. The usage or custom of the place shall be borne
clear and can easily be understood, there is no room for construction (Olivares and in mins in the interpretation of the ambiguities of a
Robles vs. Sarmiento, G.R. 158384, June 12, 2008) contract, and shall fill the omission of stipulations which
are ordinarily established.
Art. 1371. In order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall
be principally considered. Art. 1377. The interpretation of obscure words or
stipulations in a contract shall not favor the party who
HOW TO JUDGE INTENTION.
caused the obscurity.
As a general rule, documents are interpreted in the precise terms in which they are
expressed, but the courts, in the exercise of their sound discretion, are called upon
to admit direct and simultaneous circumstantial evidence necessary for their
interpretation with the purpose of making the true intention of the parties prevail.

Example:
Where there is evidence regarding the intention of the parties to extend the
contract equivalent to the period of suspension caused by the war and the parties
understood the suspension to mean extension, it was held that the suspension of
the agreement means the extension of the same for a period equivalent to the
suspension.

Ochoa, SJ | Page 92 of 113

Art. 1378. When it is absolutely impossible to settle doubts
by the rules established in the preceding articles, and the
doubts refer to incidental circumstances of a gratuitous
contract, the least transmission of rights and interests shall
prevail. If the contract is onerous, the doubt shall be
settled in favor if the greatest reciprocity of interests.

If the doubts are cast upon the principal object of the

contract in such a way that it cannot be known what may
have been the intention or will of the parties, the contract
shall be null and void.

Art. 1379. The principles of interpretation stated in Rule

123 of the Rules of Court shall likewise be observed in the
construction of contracts.

Ochoa, SJ | Page 93 of 113

 Classes of DEFECTIVE CONTRACTS under the Civil Code:

RESCISSIBLE VOIDABLE UNENFORCEABLE VOID OR INEXISTENT

As to defect There is damage or injury either to There is vitiation of consent or The contract is entered into in One or some of the essential
one of the contracting parties or to legal incapacity of one of the excess or without any authority, or requisites of a valid contract are
rd
3 persons contracting parties does not comply with the Statute lacking either in fact or in law
of Frauds, or both contracting
parties legally incapacitated.

As to effect Considered valid and enforceable Considered valid and enforceable Cannot be enforced by a proper Do not, as a general rule, produce
until they are rescinded by a until they are annulled by a action in court any legal effect.
competent court competent court

As to The action for rescission may The action for annulment or the The corresponding action for The action for declaration of nullity
prescriptability of prescribe defense of annulability may recovery, if there was total or or inexistence or the defense of
action or defense prescribe partial performance of the nullity or inexistence does not
unenforceable contract under No. prescribe.
1 or No. 3 of Art. 1403, may
prescribe
As to susceptibility Not susceptible of ratification Susceptible of ratification Susceptible of ratification Not susceptible of ratification
of ratification

As to who may May be assailed not only by a May be assailed only by a May be assailed only by a May be assailed not only by a
assail contracts contracting party but even by a contracting party contracting party contracting party but even by a
third person who is prejudiced or third person whose interest is
damaged by the contract directly affected.

As to how May be assailed directly only, and May be assailed directly or May be assailed directly or May be assailed directly or
contracts may be not collaterally collaterally collaterally collaterally
assailed

Ochoa, SJ | Page 94 of 113

CHAPTER 6 – RESCISSIBLE CONTRACTS RESOLUTION OF RECIPROCAL
RESCISSIBLE CONTRACTS
OBLIGATIONS
Art. 1380. Contracts validly agreed upon may be rescinded As to contracts Any contract, whether Only reciprocal contracts may
in the cases established by law. which may be unilateral or reciprocal, may be be resolved.
rescinded or rescinded
RESCISSIBLE CONTRACTS IN GENERAL. resolved

A rescissible contract is valid because it contains all of the essential requisites Distinguished from rescission by mutual consent:
prescribed by law, BUT which is defective because of injury or damage to either of - Art. 1385 refers to contracts that are rescissible in accordance with law in
rd
the contracting parties or to 3 persons -> may be rescinded. the cases expressly fixed thereby, but it does not refer to contracts that are
rescinded by mutual consent and for the mutual convenience of the
Characteristics: contracting parties.
1. Their defect consists in injury or damage either to one of the contracting
parties or to third persons.
2. Before rescission, they are valid and, therefore, legally effective.
3. They can be attacked directly only, and not collaterally.
rd
4. They can be attacked only either by a contracting party or by a 3 person
who is injured or defrauded.
5. They are susceptible of convalidation only by prescription, and not by
ratification.

Rescission is a remedy -> by means of restoration of things to their condition prior

to the celebration of the contract.

Distinguished from resolution:

RESCISSIBLE CONTRACTS
As to party In rescission the action may be
who may instituted not only by a party
institute action to the contract but even by a
rd
3 person.
As to causes There are several causes or
grounds such as lesion, fraud
and others expressly specified
by law.
As to power of There is no power of the courts
the courts to grant an extension of time
for performance of the
obligation so long as there is a
ground for rescission
RESOLUTION OF RECIPROCAL
OBLIGATIONS
The action may be instituted
only by a party to the contract.
The only ground is failure of
one of the parties to
comply with what is incumbent
upon him
The law expressly declares that
courts shall have a
discretionary power to grant
an extension for performance
provided that there is a just
cause.
Ochoa, SJ | Page 95 of 113
Art. 1381. The following contracts are rescissible:
1. Those which are entered into by guardians
whenever the wards whom they represent suffer
lesion by more than ¼ of the value of the things
which are the object thereof;
2. Those agreed upon in representation of absentees,
if the latter suffer the lesion stated in the preceding
number;
3. Those undertaken in fraud of creditors when the
latter cannot in any manner collect the claims due
them;
4. Those which refer to things under litigation if they
have been entered into by the defendant without
the knowledge and approval of the litigants or of
competent judicial authority;
5. All other contracts especially declared by law to be
subject to recission.
1. Contracts in behalf of ward
o if he enters into a contract falling within the scope of his powers
as guardian of the person and property, or only of the property, of
his ward, such as when the contract involves acts of
administration, express judicial approval is not necessary, in which
case the contract is rescissible if the latter suffers the lesion or
damage mentioned in No. 1 of Art. 1381 of the Code.
o Example:
Marshall is the guardian of Ted (a minor)
Marshall sold 1M worth property of Ted for only 800k.
Can it be rescinded? No. Lesion is not more than 1/4.
What if Marshall sold the property for 500k? Can it be rescinded?
 Yes. Lesion is more than ¼ (loss of 250k or more of the
1M worth)
2. Contract in behalf of absentees
Requisites:
1. The contract must have been entered into by a guardian in behalf of
his ward or by a legal representative in behalf of an absentee;
2. The ward or absentee must have suffered lesion of more than 1/4 of
the value of the property which is the object of the contract;
3. The contract must have been entered into without judicial approval;
4. There must be no other legal means for obtaining reparation for the
lesion;
5. The person bringing the action must be able to return whatever he
may be obliged to restore;
6. The object of the contract must not be legally in the possession of a
third person who did not act in bad faith.
3. Contracts in fraud of creditors.
The action to rescind contracts in fraud of creditors is known as accion
pauliana. (Creditor has a right to rescind the contract)
Requisites:
1. There must be a credit existing prior to the celebration of the contract;
2. There must be a fraud, or at least, the intent to commit fraud, or at
least, the intent to commit fraud to the prejudice of the creditor
seeking the rescission;
3. The creditor cannot in any other legal manner collect his credit; and
4. The object of the contract must not be legally in the possession of a
third person who did not act in bad faith.
4. Contract referring to things under litigation.
o The purpose is to secure the possible effectivity of a claim
o Real right involved.
5. Other recissible contracts
o Example: Art. 1098, 1189, 1526, 1534, 1539, 1542, 1556, 1560,
1567, and 1659 of NCC.
Art. 1382. Payments made in a state insolvency for
obligations to whose fulfillment the debtor could not be
compelled at the time they were effected, are also
rescissible.
CONTRACTS BY INSOLVENT.
Requisites:
1. That it must have been made in a state of insolvency; and
2. That the obligation must have been one which the debtor could not be
compelled to pay at the time such payment was effected. / Obligation is
not yet due and demandable.
Refers to the financial situation of the debtor by virtue of which it is impossible for
him to fulfill his obligations.
Ochoa, SJ | Page 96 of 113
 Art. 1383. The action for rescission is subsidiary; it can not
be instituted except when the party suffering damage has
no other legal means to obtain reparation for the same.
SUBSIDIARY CHARACTER OF ACTION.
Before a party who is prejudiced can avail himself of this remedy, it is essential that
he has exhausted all of the other legal means to obtain reparation.
Parties who may institute action:
1. The person who is prejudiced, such as the party suffering the lesion in
rescissory actions on the ground of lesion, the creditor who is defrauded in
rescissory actions on the ground of fraud, and other persons authorized to
exercise the same in other rescissory actions;
2. Their representatives;
3. Their heirs
4. Their creditors by virtue of subrogatory action (Art. 1177)
Art. 1384. Rescission shall be only to the extent necessary
to cover the damages caused.
EXTENT OF RECISSION.
Recission does not necessarily have to be total in character; it may also be partial.
Purpose: to cover the damage caused.
A contract in fraud of creditors may be partially rescinded to an extent which is
sufficient to satisfy thye damage caused to the creditor.
Art. 1385. Rescission creates the obligation to return the
things which were the object of the contract, together with
their fruits, and the price with its interest; consequently, it
can be carried out only when he who demands rescission
can return whatever he may be obliged to restore.
Neither shall rescission take place when the things which
are the object of the contract are legally in the possession
of 3rd persons who did not act in bad faith.
In this case, indemnity for damages may be demanded
from the person causing the loss.
EFFECT OF RESCISSION IN CASE OF LESION.
The determination of the good or bad faith of the party obliged to restore is of
transcedental importance in order to assess the fruits or the value thereof which
must be returned as well as the expenses which must be reimbursed.
As a condition to the rescission of a contract of sale of a parcel of land, the vendor
must refund to the vendees (who are in good faith) an amount equal to the
purchase price, plus the sum expended by them in improving the land.
rd
3 persons:
1. Object must be legally in their posession (if immovable: must be
registered)
2. Must be in good faith.
Last remedy: indemnity for damages against the person who caused the loss.
(dirested against the guardian, representative of absentee.. etc)
Art. 1386. Rescission referred to in Nos. 1 and 2 of Article
1381 shall not take place with respect to contracts
approved by the courts.
Ochoa, SJ | Page 97 of 113
 Art. 1387. All contracts by virtue of which the debtor
alienates the property by gratuitous title are presumed to
have been entered into in fraud of creditors, when the
donor did not reserve sufficient property to pay all the
debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent
when made by persons against whom some judgment has
been rendered in any instance or some writ of attachment
has been issued. The decision or attachment need not refer
to the property alienated, and need not have been
obtained by the party seeking the rescission.
In addition to these presumptions, the design to defraud
creditors may be proved in any other manner recognized by
the law of evidence.
PROOF OF FRAUD / PRESUMPTIONS OF FRAUD (of creditors).
1. Alienations of property by gratuitous title if the debtor has not reserved
sufficient property to pay all of his debts contracted before such
alienations.
2. Alienations of property by onerous title if made by a debtor against whom
some judgment has been rendered in any instance or some writ of
attachment has been issued.
- This presumption becomes stronger when it is established that the
conveyance by the judgment debtor is for the purpose of preventing the
judgment creditor or other creditors from seizing the property. (Bachrach
vs. Peterson, 7 Phil. 571)
*Good faith consists in an honest intention to abstain from taking any
unconscentious advantage of another. Good faith is the opposite of fraud and of
bad faith and its nonexistence must be established by competent proofs. (Honrado
vs Marcayda, et. Al., 49 Off. Gaz. 1492, C.A.)
Determination WON a certain conveyance is fraudulent: Whether the conveyance
was bona fide transaction or merely a trick or contrivance to defeat creditors. Does
it prejudice the rights of the creditors? (Oria vs. McMicking, 21 Phil. 243)
The ff circumstances have been denominated by the courts as badges of fraud:
1. The fact that the cause or consideration of the conveyance is inadequate.
2. A transfer made by a debtor after suit hass been begun and while it is
pending against him.
3. A sale on credit by an insolvent debtor.
4. Evidence of large indebtedness or complete insolvency.
5. The transfer of all or nearly all of his property by a debtor, especially when
he is insolvent or greatly embarassed financially.
6. The fact that the transfer is made between father and son, when there are
present others of the above circumstances.
7. The failure of the vendee to take exclusive possession of all the property.
Art. 1388. Whoever acquires in bad faith the things
alienated in fraud of creditors shall indemnify the latter for
damages suffered by them on account of the alienation,
whenever, due to any cause, it should be impossible for
him to return them.
If there are 2 or more alienations, the first acquirer shall be
liable first, and so on successively.
EFFECT OF BAD FAITH.
If the property iss acquired by one who is not a purchaser in good faith ad for value,
it is clear that the contract or conveyance is rescissible.
*If the reason for impossibility of returning the property acquired in bad faith is a
fortuitous event, the under the principle announced in Art. 1174, NCC, there can be
no liability of the acquirer. (Manresa)
Art. 1389. The action to claim rescission must be
commenced within 4 years.
For persons under guardianship and for absentees, the
period of 4 years shall not begin until the termination of
the former’s incapacity, or until the domicile of the latter is
known.
PRESCRIPTIVE PERIOD.
1. No. 1 – from the restored legal capacity of the ward
2. No. 2 – counted from the domicile of the absentee is known
3. No. 3 & 4, art. 1382 – counted from the time of the discovery of fraud.
4. Other contracts rescissible by law – 6 mo or 40d, counted from day of
delivery.
Ochoa, SJ | Page 98 of 113
CHAPTER 7 – VOIDABLE CONTRACTS Art. 1390. The following contracts are voidable or
annullable, even though there may have been no damage
Voidable Contracts
- Those in which all of the essential elements for validity are present,
to the contracting parties:
although the element of consent is vitiated either by: 1. Those where one of the parties is incapable of
o Lack of legal capacity of one of the contracting parties giving consent to a contract;
o By mistake 2. Those where the consent is vitiated by mistake,
o Violence violence, intimidation, undue influence or fraud.
o Intimidation
o Undue influence These contracts are binding, unless they are annulled by a
o Fraud. proper action in court. They are susceptible of ratification.
- Binding until annulled by a competent court.
- 2 possible alternatives left to the party who may invoke its voidable CONTRACTS WHICH ARE VOIDABLE.
character
o To attack its validity; or *If consent is absolutley lacking or simulated, the contract is inexistent, not
o To convalidate it either by: voidable.
 Ratification; or by
 Prescription. *Whether a contract which the law considers as voidable has already been
consummated or is merely executory is immaterial; it can always be annulled by a
Characteristics: proper action in court.
1. Their defect consists in the vitiation of consent of one of the contracting
parties. Art. 1391. The action for annulment shall be brought within
2. They are binding until they are annulled by a competent court. 4 years.
3. They are susceptible of convalidation by ratification or by prescription.
rd
Their defect or voidable character cannot be invoked by 3 persons.
This period shall begin: In cases of intimidation, violence or
undue influence, from the time the defect of the consent
Voidable Rescissible
ceases.
The defect is intrinsic because it consists The defect is external because it consists
of a vice which vitates consent of damage or prejudice either to one of
rd
the contracting parties or to a 3 person In case of mistake or fraud, from the time of the discovery
The contract is voidable even if there is Not rescissible if there is no damage or of the same.
no damage or prejudice prejudice.
Annullability of the contract is based on Based on equity And when the action refers to contracts entered into by
the law minors or other incapacitated persons, from the time the
Not only a remedy but a sanction Mere remedy guardianship ceases.
Predominates public interest Predominates private interest
PRESCRIPTIVE PERIOD.
Causes for annulment different from-> Causes of rescission
Susceptible of ratification Not susceptible of ratification
*The dicovery of fraud is deemed to have taken place at the time of the
May be invoked only by a contracting May be invoked by either a contracting registration.
rd
party party or by 3 person who is prejudiced. *4 year period within which the private respondents could have filed the present
action could have filed the present action consequently commenced. (Carantes vs.
CA, 76 SCRA 514)
Ochoa, SJ | Page 99 of 113
*Even if his written contract is voidable because of minority he shall make
restitution to the extent that he may have been benefited by the money received
by him.
*That where minority is used as a defense and no positive relief is prayed for, the 4-
year period does not apply.
*Currently age 26: since more than 4 years already elapsed from the time Mario
had attained the age of 21, therefore, he can no longer interpose his minority as a
defense. (Braganza vs. Villa Abrille, 105 Phil 456)
Art. 1392. Ratification extinguishes the action to annul a
voidable contract.
Ratification definition –
- The act or means by virtue of which efficacy is given to a contract which
suffers from a vice of curable nullity. (Manresa)
Ratification requisites:
1. The contract should be tainted with a vice which is susceptible of being
cured.
2. The confirmation should be effected by the person who is entitled to do so
under the law. (Art. 1394 & 1395)
3. It should be effected with knowledge of the vice or defect of the contract.
(Art. 1393)
4. The cause of the nullity or defect should have already disappeared.
Example:
Barney, a minor, bought a land.
Upon reaching the age of majority, he sold the land to Robin. <- This act is where
Barney ratifies the contract. Action to file annulment has been extinguished.
Art. 1393. Ratification may be effected expressly or tacitly.
It is understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract
voidable and such reason having ceased, the person who
has a right to invoke it should execute an act which
necessarily implies an intention to waive his right.
FORMS OF RATIFICATION.
Express
- With knowledge of the reason which makes the contract voidable, and
expressly declared his desire to convalidate it/renounce his right to annul.
Implied
- A person who has a right to invoke it should execute an act which
necessarily implies an intention to waive his right.
- Example:
o A minor who had entered into a contract of sale, not only failed to
repudiate it upon reaching the age of majority, but also disposed
of the greater part of the proceeds after he became of age and
after he had knowledge of the facts which he now seeks to
disaffirm, it was held that there was a tacit ratification or
confirmation of the contract.
o Instead of demanding the annulment of a contract of sale, should
proceed to collect the greater part of the purchase price, as set
out in a promissory note, it is clear that there is already a tacit
confirmation of the contract.
Art. 1394. Ratification may be effected by the guardian of
the incapacitated person.
RATIFICATION REQUISITE #2
Art. 1395. Ratification does not require the conformity of
the contracting party who has right to bring the action for
annulment.
RATIFICATION REQUISITE #2
Art. 1396. Ratification cleanses the contract from all its
defects from the moment it was constituted.
EFFECT OF RATIFICATION.
Ochoa, SJ | Page 100 of 113
 Art. 1397. The action for the annulment of contracts may
be instituted by all who are thereby obliged principally or
subsidiarily. However, persons who are capable cannot
allege the incapacity of those with whom they contracted;
nor can those who exerted intimidation, violence, or undue
influence, or employed fraud, or caused mistake base their
action upon these flaws of the contract.
WHO MAY INSTITUTE ACTION. (Injured party)
Requisites required to confer the necessary capacity for the exercise of the action
for annulment:
1. Plaintiff must have an interest in the contract
o If not party/ no cause of action, manifestly without right of action
and personality such as to enable him to assail the validity of the
contract.
2. That the victim and not the party responsible for the vice or defect must be
the person who must assert the same. (Manresa)
o Based on principle of equity that whoever goes to court must do
so with clean hands. (Bastida vs. Dy Buncio & Co., 93 Phil 195)
rd
General rule: a 3 person who is a stranger to the contract cannot institute an
action for its annulment.
rd
Exception: if such 3 person is prejudiced in his rights with respect to one of the
contracting parties & can show detriment which would positively result to him from
the contract in which he has no intervention.
Art. 1398. An obligation having been annulled, the
contracting parties shall restore to each other the things
which have been the subject matter of the contract, with
their fruits, and the price with its interest, except in cases
provided by law.
In obligations to render service, the value thereof shall be
the basis for damages.
EFFECTS OF ANNULMENT. / PRINCIPLE OF MUTUAL RESTITUTION.
If contract not yet consummated: contracting parties shall be released from the
obligations therefrom.
If contract is consummated: rules on Art. 1398 & 1402 shall govern.
Art. 1399. When the defect of the contract consists in the
incapacity of one of the parties, the incapacitated person is
not obliged to make any restitution except insofar as he
has been benefited by the thing or price received by him.
RULE IN CASE OF INCAPACITY.
The rule is applicable only and exclusively to those cases where the nullity arises
from the incapacity of one of the contracting parties.
If nullity should arise from some other cause, the general rule enunciated in Art.
1398 shall govern.
If incapacitated can return the consideration, they must return such portion which
remains in his possession upon attaining capacity. Hence, if after attaining capacity,
it is established that he not only failed to ask for the annulment of the contract but
he also squandered that part of the consideration which remained, it is clear that
there is already an implied ratification or confirmation. (Uy Soo Lim vs. Tan
Unchuan, 38 Phil. 552)
Art. 1400. Whenever the person obliged by the decree of
annulment to return the thing can not do so because it has
been lost through his fault, he shall return the fruits
received and the value of the thing at the time of the loss,
with interest from the same date.
EFFECT OF FAILURE TO MAKE RESTITUTION. / LOSS DUE TO FAULT OF DEFENDANT
Applicable only when the loss of the thing is due to the fault of the party against
whom the action for annulment may be instituted.
Instead of being compelled to restore the thing, the defendant can only be
compelled to pay the value thereof at the time of the loss.
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 Art. 1401. The action for annulment of contracts shall be
extinguished when the thing which is the object thereof is
lost through the fraud or fault of the person who has a
right to institute the proceedings.

If the right of action is based upon the incapacity of any

one of the contracting parties, the loss of the thing shall
not be an obstacle to the success of the action, unless said
loss took place through the fraud or fault of the plaintiff.
LOSS DUE TO PLAINTIFF / FAULT OF PARTY WHO HAS A RIGHT TO INSTITUTE
ACTION.

Three modes whereby such actionb may be extinguished:

1. Prescription
2. Ratification
3. Loss of the thing which is the object of the contract through the fraud or
fault of the person who is entitled to institute the action.

Loss due to fortuitous event:

- Contract can still be annulled, but with this difference:
o The defendant can be held liable only for the value of the thing at
the time of the loss, but without interest thereon.
o If plaintiff who cannot return the thing due to fortuitous event: he
must pay to the defendant the value of the thing at the time of
the loss, but without interest thereon.

Art. 1402. As long as one of the contracting parties does

not restore what in virtue of the decree of annulment he is
bound to return, the other cannot be compelled to comply
with what is incumbent upon him.

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CHAPTER 8 – UNFORCEABLE CONTRACTS Art. 1403. The following contracts are unenforceable,
unless they are ratified:
Unenforceable contracts, defined –
- Those which cannot be enforced by a proper action in court, unless they
1. Those entered into in the name of another person
are ratified, because, either they are entered into without or in excess of by one who has been given no authority or legal
authority or they do not comply with the statute of frauds or both of the representation, or who has acted beyond his
contracting parties do not possess the required legal capacity. powers;
2. Those that do not comply with the Statute of
General classes of unenforceable contracts: Frauds as set forth in this number. In the following
1. Those contracts entered into the name of another person by one w/o any cases an agreement hereafter made shall be
authority or in excess of his authority. unenforceable by action, unless the same, or some
o No consent insofar as the person in whose name the contract is note or memorandum thereof, be in writing, and
entered into is concerned.
subscribed by the party charged, or by his agent;
2. Those which do not comply with the Statute of Frauds
o There is no writing, note or memo by which the contract may be
evidence, therefore, of the agreement cannot be
proved. received without the writing, or a secondary
3. Those where both contracting parties are legally incapacitated. evidence of its contents:
o Consent s absolutely vitiated by the legal incapacity of both of the a. An agreement that by its terms is not to be
contracting parties. performed within a year from the making
thereof;
Characteristics of unenforceable contracts: b. A special promise to answer for the debt,
1. They cannot be enforced by a proper action in court; default, or miscarriage of another,
2. Susceptible of ratification c. An agreement made in consideration of
rd
3. They cannot be assailed by 3 persons.
marriage, other than a mutual promise to
Unenforceable Rescissible
marry;
Cannot be enforced by a proper action Can be enforced, unless it is rescinded. d. An agreement for the sale of goods,
in court chattels or things in action, at a price not
Causes for the unenforceable character Causes for the rescissible character. less than Five hundred pesos, unless the
are different from-> buyer accept and receive part of such goods
Susceptible of ratification Not susceptible of ratification and chattels, or the evidences, or some of
rd rd
Cannot be assailed by 3 persons May be assailed by 3 persons who are them, of such things in action, or pay at the
prejudiced. time some part of the purchase money, but
when a sale is made by auction and entry is
Unenforceable Voidable made by the auctioneer in his sales book, at
Cannot be enforced by a proper action Can be enforced, unless it is annulled. the time of the sale, of the amount and
in court kind of property sold, terms of sale, price,
Causes for the unenforceable character Causes for the voidable character.
names of the purchasers and person on
are different from->
whose account the sale is made, it is a
sufficient memorandum;

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Art. 1403. The following contracts are unenforceable,
unless they are ratified:
*BP Blg. 25 – page.571 – Jurado Book.
e. An agreement for the leasing for a longer
period than 1 year, or for the sale of real
property or of an interest therein;
f. A representation as to the credit of a 3rd
person.
3. Those where both parties are incapable of giving
consent to a contract.
1. By the failure to object to the presentation of oral evidence to
prove the same; or
2. By the acceptance of benefits under them.
3. Contracts where both parties are incapacitated.
o If both incapacitated = unenforceable
o If one party is incapacitated = voidable.
Art. 1404. Unauthorized contracts are governed by Article
1317 and the principles of Agency in Title X of this Book.

1. Contracts without or in excess of authority.

Art. 1405. Contracts infringing the Statute of Frauds,
o No one may contract in the name of another without being
authorized by the latter; or referred to in No. 2 of Art. 1403, are ratified by the failure
o Unless he has a right to represent him, to object to the presentation of oral evidence to prove the
o If duly authorized, must be within scope of his powers. same, or by the acceptance of benefits under them.
o Such contract may be ratified, by the person in whose behalf it
has been executed, before it is revoked by the other contracting
party. Art. 1406. When a contract is enforceable under the
Statute of Frauds, and a public document is necessary for
2. Contracts infringing Statute of Frauds. its registration in the Registry of Deeds, the parties may
o A contract exists and is valid even though it is not clothes with the avail themselves of the right under Art. 1357.
necessary form. Consequently, the effect of non-compliance with
the requirement of the statute is simply that no action can be
enforced unless the requirement is complied with. Art. 1407. In a contract where both parties are incapable of
o The form requires is for evidential purposes only. giving consent, express or implied ratification by the parent
o If the parties permit a contract to be proved, without ny or guardian, as the case may be, of one of the contracting
objection, it is then just as binding as if the statute has been parties shall give the same effect as if only one of them
complied with. were incapacitated.
o 2(b) if the promise is a collateral (not the original) to the
agreement of another and the promisor becomes thereby merely
If ratification is made by the parents or guardians, as the
a surety, the promise must be in writing. (I will pay if he does
not..etc)
case may be, of both contracting parties, the contract shall
o 2(c) Marriage settlements, Donation propter nuptias shall be be validated from the inception.
regulated by the Statute of Frauds.
- The Statute of Frauds is applicable only to those contracts which are
Art. 1408. Unenforceable contracts cannot be assailed by
executory snf not to those which have been consummated either totally or
partially = there are benefits already = ratification. 3rd persons.
- Contracts infringing the Statute of Frauds are susceptible of ratification.
o Art. 1405:

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CHAPTER 9 – VOID OR INEXISTENT CONTRACTS. Void or inexistent Unenforceable
Void or inexistent contracts, defined – No contract at all There is actually a contract which cannot
- One which lacks absolutely either in fact or in law one or some of the be enforced by a court action, unless it is
elements which are essential (consent, object, cause) for its validity. ratified.
Causes are different from the -> Causes for the unenforceability
Contracts which are VOID Not susceptible of ratification Susceptible of ratification
- Refer to those where all of the requisites of a contract are present, but the rd
Can be assailed by 3 persons whose
rd
Cannot be assailed by 3 persons
cause, object or purpose is contrary to law, morals, good customs, public interests are directly affected
order or public policy, or contract itself is prohibited or declared void by
law.
- Principle of in pari delicto Art. 1409. The following contracts are inexistent and void
- May produce legal effects from the beginning:
1. Those whose cause, object or purpose is contrary to
Contracts which are INEXISTENT law, morals, good customs, public order or public
- Refer to those where one or some or all of those requisites which are policy;
essential for the validity of a contract are absolutely lacking, such as those 2. Those which are absolutely simulated or fictitious;
which are absolutely simulated or fictitious, or those where the cause or 3. Those whose cause or object did not exist at the
object did not exist at the time of the transaction. time of the transaction;
- Cannot produce legal effect whatsoever
4. Those whose object is outside the commerce of
men;
Void or inexistent Rescissible
5. Those which contemplate an impossible service;
Produces as a rule no effect even if it is Valid, unless rescinded
not set aside by a direct action 6. Those where the intention of the parties relative to
Defect consists in absolute lack in fact or The defect consists in lesion or damage the principal object of the contract cannot be
in law of one or some of the essential to one of the contracting parties or to ascertained;
rd
elements of a contract 3 persons 7. Those expressly prohibited or declares void by law.
The nullity or inexistence of the Based in equity
contracts is based on law These contracts cannot be ratified. Neither can the right to
Predominates public interest Predominates private interest set up the defense of illegality be waived.
Imprescriptible Prescriptible
rd rd CONTRACTS WHICH ARE VOID OR INEXISTENT.
The nullity cannot be assailed by 3 May be assailed by 3 persons
persons
1, 4, 5, 6 & 7 – VOID
2 & 3 – INEXISTENT
Void or inexistent Voidable
Produces as a rule no effect even if it is Valid, unless annulled Example of contrary to morals: Stipulations authorizing inquituous or
not set aside by a direct action. unconscionable interests.
Causes are different from the -> Causes for the annullability or relative
nullity Characteristics: (Tongoy vs CA, 123 SCRA 99)
Not susceptible of ratification Susceptible of ratification 1. As a general rule, they produce no legal effects whatsoever i.a.w. the
Imprescriptible Prescriptible principle “quod nullum est nullum producit effectum”
rd
Available to 3 persons whose interests Defense of annullability is not available 2. They are not susceptible of ratification.
rd
are directly affected to 3 persons.

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 3. The right to set up the defense of inexistence or absolute nullity cannot be
waived or renounced.
4. The action or defense for the declaration of their inexistence or absolute
nullity is impresciptible.
5. The inexistence or absolute nullity of a contract cannot be invoked by a
person whose interests are not directly affected.
*A void contract cannot be ratified. (even by amicable settlement)
*The absence of consent of one renders the sale null & void, while the vitiation
thereof make it merely voidable. Vitiation thereof makes it merely voidable.
Art. 1410. The action or defense for the declaration of the
inexistence of a contract does not prescribe.
IMPRESCRIPTIBILITY OF ACTION OR DEFENSE.
Defect is of such nature that it cannot be cured by prescription. (Eugenio vs.
Perdido, 97 Phil. 41)
Art. 1411. When the nullity proceeds from the illegality of
the cause or object of the contract, and the act constitutes
a criminal offense, both parties being in pari delicto, they
shall have no action against each other, and both shall be
prosecuted. Moreover, the provisions of the Penal Code
relative to the disposal of effects or instruments of a crime
shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is
guilty; but the innocent one may claim what he has given,
and shall not be bound to comply with his promise.
PRINCIPLE OF IN PARI DELICTO.
When the defect of a void contract consists in the illegality of the cause or object of
the contract, and both of the parties are at fault or in pari delicto, the law refuses
them every remedy and leaves them where they are.
In pari delicto applies only to cases of existing contracts with an illegal cause or
object and not to simulated or fictitious contracts nor to those which are inexistent
for lack of an essential requisite such as cause or consideration.
- Cannot be applied to inexistent ones (due open to attach even by the
parties thereto)
- Illegality must be with respect to the cause or the object. Not to the motive
of the contracting parties.
Exceptions:
1. Payment of usurious interest.
2. Payment of money or delivery of property for an illegal purpose, where the
party who paid or delivered repudiates the contract before the purpose
rd
has been accomplished, or before any damage has been caused to a 3
person.
3. Payment of money or delivery of property by an incapacitated person.
4. Agreement or contract which is not illegal per se but is merely prohibited
by law, and the prohibition is designed for the protection of the plaintiff. (If
public policy enhanced, injured party may recover)
5. Payment of an amount in excess of the max price of any article or
commodity fixed by law.
6. Contract whereby a laborer undertakes tro work longer than the max
number of hours fixed by law. (OT pay)
7. Contract whereby a laborer accepts a wage lower than the min wage fixed
by law.
Art. 1412. If the act in which the unlawful or forbidden
cause consists does not constitute a criminal offense, the
following rules shall be observed:
1. When the fault is on the part of both contracting
parties, neither may recover what he has given by
virtue of the contract, or demand the performance
of the other’s undertaking;
2. When only one of the contracting parties is at fault,
he cannot recover what he has given by reason of
the contract, or ask for the fulfillment of what has
been promised him. The other, who is not at fault,
may demand the return of what he has given
without any obligation to comply with this promise.
If one party at fault: Must distinguish if:
- The contract has already been executed; or
o Guilty party is barred from recovering what he has given to the
other party by reason of the contract.
o Innocent party may demand for the return of what he has given.
- one where it is merely executory.
o It cannot produce any legal effect whatsoever.
Ochoa, SJ | Page 106 of 113
 o Neither of the contracting parties can demand for the fulfillment
of any obligation arising from the contract nor be compelled to
comply with such obligations.
Art. 1413. Interest paid in excess of the interest allowed by
the usury laws may be recovered by the debtor, with
interest thereon from the date of payment.
RECOVERY BY DEBTOR OF USURIOUS INTEREST.
Under Sec. 6 of the Usury Law, on the other hand, the debtor may recover the
whole interest paid with costs and attorney’s fees in such sum as may be allowed by
the court in an action against the creditor if such action is brought within two years
after such payment.
In simple loan with stipulation of usurious interest the prestation of the debtor to
pay the principal debt, which is the cause of the contracts (Article 1350, Civil Code),
is not illegal. The illegality lies only as to the prestation to pay the stipulated
interest; hence, being separable, the latter only shouId be deemed void, since it is
the only one that is illegal.
When the Code speaks of “interest paid in excess of that allowed by the usury law,’’
it means the whole usurious interest. Thus, if the loan is P1,000.00, with interest of
20% per annum or P200 per year, and the borrower paid P200, the whole P200 is
the usurious interest. It is in this case that the law does not allow division. The
whole stipulation as to interest void, since payment of said interest is illegal.
The only change effected, therefore, by Art. 1413 of the Civil Code is not to provide
for the recovery of the interest paid in excess of that allowed by law, which the
Usury Law already provided for, but to add that the same can be recovered “with
interest thereon from the date of payment.”
This article which declares the contract itself — not merely the stipulation to pay
usurious interest — void, necessarily regards the prestation to pay such usurious
interest as an integral part of the cause, making it illegal.
Art. 1414. When money is paid or property delivered for an
illegal purpose, the contract may be repudiated by one of
the parties before any damage has been caused to a 3rd
person. In such case, the courts may, if the public interest
will thus be subserved, allow the party repudiating the
contract to recover the money or property.
Art. 1415. When one of the parties to an illegal contract is
incapable of giving consent, the courts may, if the interest
of justice so demands, allow recovery of money or property
delivered by the incapacitated person.
Art. 1416. When the agreement is not illegal per se but is
merely prohibited, and the prohibition by the law is
designed for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what he has paid
or delivered.
Art. 1417. When the price of any article or commodity is
determined by statute, or by authority of law, any person
paying an amount in excess of the maximum price allowed
may recover such excess.
Art. 1418. When the law fixes, or authorizes the fixing of
the maximum number of hours of labor, and a contract is
entered into whereby a laborer undertakes to work longer
than the maximum thus fixed, he may demand additional
compensation for service rendered beyond time limit.
Art. 1419. When the law sets, or authorizes the setting of a
minimum wage for laborers, and a contract is agreed upon
by which a laborer accepts a lower wage, he shall be
entitled to recover the deficiency.
Ochoa, SJ | Page 107 of 113
 Art. 1420. In case of a divisible contract, if the illegal terms
can be separated from the legal ones, the latter may be
enforced.

In a usurious contract of loan, there are always two stipulations. They are:
- first, the principal stipulation whereby the debtor undertakes to pay the
principal; and
- second, the accessory stipulation whereby the debtor undertakes to pay a
usurious interest.
These two stipulations are divisible.

It is clear that what is illegal is the prestation to pay the stipulated interest. Hence,
being separable, the latter only should be deemed void.

Art. 1421. The defense of illegality of contracts is not

available to 3rd persons whose interests are not directly
affected.

Art. 1422. A contract which is the direct result of a previous

illegal contract, is also void and inexistent.

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TITLE III – NATURAL OBLIGATIONS
Art. 1423. Obligations are civil or natural. Civil obligations
give a right of action to compel their performance. Natural
obligations, not being based on positive law but on equity
and natural law, do not grant a right of action to enforce
their performance, but after voluntary fulfillment by the
obligor, they authorize the relation of what has been
delivered or rendered by reason thereof. Some natural
obligations are set forth in the following articles.
CONCEPT OF NATURAL OBLIGATIONS.
- In other words, they refer to those “obligations without a sanction,
susceptible of voluntary performance, but not through compulsion by legal
means.” (Tolentino, Civil Code)
NATURAL OBLIGATIONS CIVIL OBLIGATIONS
Based on equity and natural law Based on positive law
Not enforceable by court action Enforceable by court action
NATURAL OBLIGATIONS MORAL OBLIGATIONS
There is a juridical tie between the No juridical tie whatsoever
parties which is not enforceable by
court action
Voluntary fulfillment of natural Does not produce any legal effect which
obligations by the obligor produces legal courts will recognize and protect.
effects which the courts will recognize
In all the specified cases of natural obligation recognized by the new Civil Code,
there is a moral but not a legal duty to perform or pay, but the person thus
performing or paying feels that in good conscience he should comply with his
undertaking which is based on moral grounds.
Art. 1424. When a right to sue upon a civil obligation has
lapsed by extinctive prescription, the obligor who
voluntarily performs the contract cannot recover what he
has delivered or the value of the service he has rendered.
Problem — A borrowed from B P1,000 which amount B failed to collect. After the
debt has prescribed, A voluntarily paid B who accepted the payment. After a few
months, being in need of money, A demanded the return of the P1,000 on the
ground that there was a wrong payment, the debt having already prescribed, B
refused to return the amount paid. May A succeed in collecting if he sues B in
court? Reason out your answer. (1970 Bar problem)
Answer — A will not succeed in collecting the P1,000 if he sues B in court. The case
is expressly covered by Art. 1424 of the Civil Code which declares that when a right
to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who
voluntarily performs the contract cannot recover what he has delivered or the value
of the service he has rendered.
Because of extinction prescriptive, the obligation of A to pay his debt of P1,000 to B
became a natural obligation. While it is true that a natural obligation cannot be
enforced by court action, nevertheless, after voluntary fulfillment by the obligor,
under the law, the obligee is authorized to retain what has been paid by reason
thereof. (Art. 1423, Civil Code.)
Art. 1425. When without the knowledge or against the will
of the debtor, a 3rd person pays a debt which the obligor is
not legally bound to pay because the action thereon has
prescribed but the debtor later voluntarily reimburses the
3rd person, the obligor cannot recover what he has paid.
Art. 1426. When a minor between 18 and 21 years of age
who has entered into a contract without the consent of the
parent or guardian, after the annulment of the contract
voluntarily returns the whole thing or price received,
notwithstanding the fact that he has not been benefited
thereby, there is no right to demand the thing or price thus
returned.
Art. 1427. When a minor between 18 and 21 years of age,
who has entered into a contract without the consent of the
parent or guardian, voluntarily pays a sum of money or
delivers a fungible thing in fulfillment of the obligation,
there shall be no right to recover the same from the obligee
who has spent or consumed it in good faith.
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Art. 1428. When, after an action to enforce a civil action
has failed, the defendant voluntarily performs the
obligation, he cannot demand the return of what he has
delivered or the payment of the value of the service he has
rendered.

Art. 1429. When a testate or intestate heir voluntarily pays

a debt of the decedent exceeding the value of the property
which he received by ill or by the law of intestacy from the
estate of the deceased, the payment is valid and cannot be
rescinded by the payer.

Art. 1430. When a will is declared void because it has not

been executed in accordance with the formalities required
by law, but one of the intestate heirs, after the settlement
of the debts of the deceased, pays a legacy in compliance
with a clause in the defective will, the payment is effective
and irrevocable.

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TITLE IV – ESTOPPEL
Art. 1431. Through estoppel an admission or
representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the
person relying thereon.
CONCEPT OF ESTOPPEL.
- Estoppel is a bar which precludes a person from denying or asserting
anything to the contrary of that which has, in contemplation of law, been
established as the truth, either by acts of judicial or legislative officers, or
by his acts, representations, or admissions, either express or implied. (28
Am. Jur. 2d. 599-600; De Leon p.830)
- Will afford solution to many questions which are not foreseen in our
legislation.
- Implementing Art. 1431 in Sec 2(a) of Rule 131 of the Rules of Court which
provides: “Whenever a party has, by his own declaration, act or omission,
intentionally and deliberately led another to believe a particular thing
true, and to act upon such belief, he cannot, in any litigation arising out
of such declaration, act, or omission, be permitted to falsify it.”
Art. 1432. The principles of estoppel are hereby adopted
insofar as they are not in conflict with the provisions of this
Code, the Code of Commerce, the Rules of Court and
special laws.
Art. 1433. Estoppel may be in pais or by deed.
SC classified estoppels into:
1. Estoppel in pais (by conduct)
o That which arises when one by his acts, representations, or
admissions, or by his silence when he ought to speak out,
intentionally or through culpable negligence, induces another to
believe certain facts to exist and such other rightfully relies and
acts on such belief, as a consequence of which he would be
prejudiced if the former is permitted to deny the existence of such
facts.
o Estoppel by silence (or inaction)
 which arises when a party, who has a right and
opportunity to speak or act as well as a duty to do so
under the circumstances, intentionally or through
culpable negligence, induces another to believe certain
facts to exist and such other relies and acts on such
belief, as a consequence of which he would be prejudiced
if the former is permitted to deny the existence of such
facts.
o Estoppel in pais by acceptance of benefits
 which arises when a party by accepting benefits derived
from a certain act or transaction, intentionally or
through culpable negligence, induces another to believe
certain facts to exist and such other relies and acts on
such belief, as a consequence of which he would be
prejudiced if the former is permitted to deny the
existence of such facts.
2. Estoppel by deed or by record; and
o Estoppel by deed
 Defined as a type of technical estoppel by virtue of which
a party to a deed and his privies are precluded from
asserting as against the other party and his privies any
right or title in derogation of the deed, or from
denying any material fact asserted therein.
o Estoppel by record
 Defined as a type or technical estoppel by virtue of which
a party and his privies are precluded from denying the
truth of matters set forth in a record whether judicial or
legislative.
 Estoppel by judgment
 Defined as the preclusion of a party to a case
from denying the facts adjudicated by a court of
competent jurisdiction.
 Bars the parties from raising any question that
might have been put in issue and decided in the
previous litigation
3. Estoppel by laches (doctrine of laches/stale demands)
o Failure or neglect, for an unreasonable and unexplained length of
time, to do that which, by exercising due diligence, could or
should have been done earlier.
Ochoa, SJ | Page 111 of 113
 o The party entitled to assert it either has abandoned it or declined Art. 1434. When a person who is not the owner of a thing
to assert it.
sells or alienates and delivers it, and later the seller or
o Which arises when a party, knowing his rights as against another,
takes no step or delays in enforcing them until the condition of
grantor acquires title thereto, such title passes by
the latter, who has no knowledge or notice that the former would operation of law to the buyer or grantee.
assert such rights, has become so changed that he cannot without
injury or prejudice, be restored to his former state. “that plaintiffs really paid for a portion of the lot in question pursuant to their
o Doctrine of laches agreement with the defendants that they would own one-half (1/2) of the land.”
 The discouragement of stale claims That sale, although not consigned in a public instrument or formal writing, is
 A question of the inequity or unfairness of permitting a nevertheless valid and binding between petitioners and private respondents, for the
right or claim to be enforced or asserted. time-honored rule is that even a verbal contract of sale or real estate produces legal
 Elements: effects between the parties. Although at the time said petitioner paid P1,000.00 as
1. Conduct on the part of the defendant, or of one part payment of the purchase price on January 19, 1946, private respondents were
under whom he claims, giving rise to the not yet the owners of the lot, they became such owners on January 24, 1947, when
situation of which complaint is made and for a deed of sale was executed in their favor by the Villarin spouses. (Bucton vs. Gabar,
which the complaint seeks a remedy; 55 SCRA 499)
2. Delay in asserting the complainant’s rights, the
complainant having had knowledge or notice, of
the defendant’s conduct and having been
Art. 1435. If a person in representation of another sells or
afforded an opportunity to institute a suit; alienates a thing, the former cannot subsequently set up
3. Lack of knowledge or notice on the part of the his own title as against the buyer or grantee.
defendant that the complainant would assert
the right on which he bases his suit; and
4. Injury or prejudice to the defendant in the event Art. 1436. A lessee or bailee is estopped from asserting title
relief is accorded to the complainant, or the suit to the thing leased or received, as against the lessor or
is not held to be barred. bailor.
LACHES PRESCRIPTION
Concerned with the effect of delay Concerned with the fact of delay
Principally a question of inequity or Question or matter of time
permitting a claim to be enforced.
(inequity being founded on some
changes in the condition of the
property or relation of the parties)
Not statutory Statutory
Equity Law
Not based on fixed time Based on fixed time

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Art. 1437. When in a contract between 3rd persons
concerning immovable property, one of them is misled by a
person with respect to the ownership or real right over the
real estate, the latter is precluded from asserting his legal
title or interest therein, provided all these requisites are
present:
1. There must be fraudulent representation or
wrongful concealment of facts known to the party
estopped;
2. The party precluded must intend that the other
should act upon the facts as misrepresented;
3. The party misled must have been unaware of the
true facts; and
4. The party defrauded must have acted in accordance
with the misrepresentation.

Art. 1438. One who has allowed another to assume

apparent ownership of personal property for the purpose
of making any transfer of it, cannot, if he received the sum
for which a pledge has been constituted, set up his own
title to defeat the pledge of the property, made by the
other to a pledgee who received the same in good faith and
for value.

Art. 1439. Estoppel is effective only as between the parties

thereto or their successors in interest.

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