OBLICON REVIEWER

Here, the creditor is whoever owns the land. X

TITLE I – OBLIGATIONS o
doesn’t care whether it’s A or B

Chapter 1 3. PRESTATION (OBJECT OF THE OBLIGATION)

GENERAL PROVISIONS o To give: delivery of a thing (e.g. delivery of a car)
o To do: service (painting job)
Art 1156. An obligation is a juridical necessity to give, to do or not to
Object of the Obligation Object of the Prestation
do.
Delivery of a car The car itself
OBLIGATIONS
Requisites:
o “ob” and “ligare” → “to bind or tie together”
a. Legal
o Elements
➢ Illegal – drugs; sexual services
o Active subject
o Passive subject
b. Possible in fact and in law
o Prestation
➢ Impossible in fact: Obligation to fly
o Legal bond (vinculum juris)
➢ Impossible in law: Obligation to deliver a specific car that has
been destroyed by a tornado
Elements:
1. ACTIVE SUBJECT
c. Determinate or Determinable
o Creditor (to give), obligee (to do)
➢ Determinate: Obligation to deliver the car parked in my
o Can be either natural or juridical person
garage
➢ Determinable: Obligation to sell a house after its construction
2. PASSIVE SUBJECT
o Debtor (to give), obligor (to do)
4. LEGAL BOND (VINCULUM JURIS)
o Can be either determinate or determinable at the time of
o Central element of the obligation
constitution
o This is what makes the obligation demandable and enforceable
o If the debtor does not comply, the creditor has the power to go to
3 Possible Scenarios:
court to compel the debtor to perform the obligation
a. DETERMINATE
o A promised B to deliver a cow.
Additional elements:
5. EFFICIENT CAUSE
b. DETERMINATE + DETERMINABLE
o Reason why the obligation is undertaken
o A made a promissory note payable to B or to order
o A promised to deliver a car to B in exchange of P300,000
o Here, the creditor is not necessarily B. The creditor
o Prestation: delivery of the car
is either B or to whomever the promissory note is
o Cause: to get the P300,000
endorsed
6. FORM
c. DETERMINABLE
o Manifestation of intent
o At the time of the constitution of the obligation, the creditor
is not yet known but the obligation is valid
o A mortgaged property to X pursuant to a loan. The mortgage KINDS OF OBLIGATIONS
attaches to the property. If A sells the property to B, the CIVIL NATURAL MORAL
annotation in the TCT will follow and B becomes the An obligation, if not A special kind of Stems from the
mortgagor. If A doesn’t pay, X goes against B. fulfilled when it obligation which is morality of a person;

OBLICON REVIEWER JADEL KAYE GINES | D 2025

 OBLICON REVIEWER

becomes due and not enforceable and not really covered by Art 1157. Obligations arise from:
demandable, may be not demandable in law (1) Law;
enforced in court court but can be (2) Contracts;
through action converted to civil (3) Quasi-contracts;
obligation (4) Acts or omissions punished by law; and
(5) Quasi-delicts.
It authorizes the
retention of the SOURCES OF OBLIGATIONS:
voluntary payment or 1. Law
performance made by 2. Contracts
the debtor 3. Quasi-contracts
4. Crimes/Delicts
NOTE: The obligor 5. Quasi-delicts
paid even after it has
prescribed and the CLASS NOTES
obligee retained the
Q: Would it be correct to say that obligations arise from law alone?
payment. This is just
A: YES.
because the obligee
still has a duty to pay, • It is the ultimate source of ALL obligations
it just prescribed. • Without the law, there is no legal tie
Based on law Based on equity and Based on morality • Example: Contract of sale
natural law o Proximate source: Contract
Sanction is judicial Sanction is the law, Sanction is o Ultimate source: Law
due process but only because conscience/morality, • Examples of Law being the Proximate source
conscience had law of the Church o Tax obligations
originally motivated o Marital obligations under the Family Code
the payment o Obligations arising from Labor Laws
Example: Contract of Example: A owes B P1 Example: Moral o Obligations arising from Election Laws
sale of car million. But the debt obligation to go to
has already Church on Sundays. Q: Is the list exclusive?
prescribed. If A, A: YES. See Sagrada Orden v. NACOCO
knowing that it has • Balane: Public offers could be a possible source however it is
prescribed, not in the code.
nevertheless still pays o Example: In commercials, there is an offer to replace
B, A cannot later on 30 sachets of Tide for one Venetian-cut glass until the
get back what he end of the year. There is no contract or quasi-
voluntarily paid. contract. But if before the end of the year, you
present your Tide sachets, you can demand for your
Here, at the time the glass.
debt prescribed, A o Q: Why can Public Offer be considered as a source?
already had a natural ▪ Because it is legally binding even if not part
obligation to pay of the 5 sources
o Q: Why is it binding?

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 OBLICON REVIEWER
▪ Because there is an assumption that there
was a contract between the parties
Sagrada Orden v. NACOCO
Facts: Sagrada initially owned a piece of real property in Pandacan,
Manila. This was taken from them by a Japanese Corporation, Taiwan
Tekkosho, under threats, duress, and intimidation. The land eventually
came into the possession of the Alien Property Custodian of the USA
pursuant to the Trading with the Enemy Act. The land was then
occupied by Copra Export Management, and eventually NACOCO.
Sagrada claimed that the land was obtained from them under threats,
duress, and intimidation, making the initial sale null and void. They
filed a case with the CFI to recover their property. The Alien Property
Custodian agreed with this and together, they filed a joint petition. The
CFI released the Alien Property Administrator and Republic of the
Philippines from liability, but allowed Sagrada to recover reasonable
rentals from National Coconut Corporation for occupying the premises.
In a separate case, the CFI ruled in favor of Sagrada and allowed them
to recover reasonable rentals from NACOCO from the time they began
occupying the premises until when they vacated it. NACOCO appealed
from the decision with the Supreme Court
Issue: W/N Sagrada is entitled to the rent from the time NACOCO
occupied the premises until they vacated it. – NO. NACOCO’s obligation
to pay rent did not have a basis under the law since the sources of
obligations are exclusive.
Held: The Court held that for someone to be liable for an obligation,
the obligation must arise from any of the four sources of obligations,
namely, law, contract of quasi-contract, crime, or negligence. This
list is exclusive. There was no crime committed since NACOCO entered
and occupied the premises with the permission of the entity which had
legal control of it at the time. There was also no negligence on their
part. There was also no contract between the Alien Property Custodian
and Taiwan Tekkosho which would make the former liable for the illegal
activity of the latter. Lastly, there was no law or principle in quasi-
contracts which could support Sagrada’s claim.
The Court reversed the decision of the CFI, and held that NACOCO did
not have to pay rentals since they did not have any obligations under
the four sources.
OBLICON REVIEWER
Obligations arising from Law
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 precepts of the law which establishes them; and
as to what has not been foreseen, by the provisions of this Book.
OBLIGATIONS ARISING FROM LAW (Obligation ex lege)
o Refers to law as the proximate source
o CANNOT BE PRESUMED; it must be EXPRESSLY determined in
either the Civil Code or in Special Laws
CLASS NOTES
Q: Why must it be express?
A: Because vagueness or harshness in the law which will be
implemented could lead to injustice. Hence the phrase “shall be
regulated by the precepts of the law which establishes them”
OSG v. Ayala
Facts: Respondents operate shopping malls in Metro Manila, which have
parking facilities for all motor vehicles inside the mall or in separate
buildings and/or separate lots. In 1999, the Senate Committees on
Trade and Commerce and on Justice and Human Rights concluded that
the collection of parking fees is contrary to the National Building Code,
and that according to Art. II of the Consumer Act of the Philippines, it is
the policy of the state to protect the interest of consumers and
promote the general welfare of the public, thereby ensuring that it will
avoid traffic congestion. Respondents herein allege that it is their legal
right to lease such parking space, and to provide such parking spaces for
free can be considered as an unlawful taking of property right.
Issue: W/N the obligation to provide free parking space to “protect the
interest of consumers and promote general welfare of the public” is
justified by any law? – NO. Obligations must be expressly stated in the
law and not presumed.
Held: The SC held that the NBC has no basis against the collection of
parking fees, as it does not impose that such parking spaces shall be
provided free of charge, and enforcing such would be tantamount to
unlawful taking of property without just compensation. For short, the
NBC does not expressly state that buildings such as malls must have
parking spaces that are “free of charge”.
CLASS NOTES
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 OBLICON REVIEWER
Q: What will prevail if provisions of the Civil Code and special laws are
contradicting?
A: Special law. Art. 1158 provides that obligates shall be regulated by
laws which establish them, only in their absence will the Civil Code
apply.
Q: What do we mean when we say that the law is the ultimate source v.
a proximate source of obligation?
A: Law creates the vinculum juris. Art. 1157 provides the proximate
sources.
Obligations arising from Contracts
Art 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good
faith.
OBLIGATIONS ARISING FROM CONTRACTS (Obligation ex contractu)
o Adopts 2 concepts of Roman Law
o Good faith
o Strict compliance by the parties
o Contract is the law between the parties and they are bound to
comply with what they have agreed upon
o Compliance or performance in accordance with the stipulations or
terms of the contract/agreement
Art 1305: A contract is a meeting of minds between 2 persons whereby
one binds himself, with respect to the other, to give something or to
render some service
GR: The parties may stipulate on anything
XPN: Art 1306 – Provided not contrary to law, morals, good customs,
public order, or public policy
CLASS NOTES
Q: Difference between obligatory force and compliance in good faith?
A: Obligatory force – Parties are supposed to comply with agreements in
the contracts because they have the force and effect of the law
Compliance in good faith – Taking measures to ensure that they satisfy
the contract
People’s Car v. Commando Security
OBLICON REVIEWER
Facts: On April 5, 1970, a security guard of the defendant while
assigned and on duty at plaintiff’s premises, without any consent,
approval or knowledge or orders of plaintiff or defendant brought out of
the compound of the plaintiff a car belonging to a customer and drove
it which ended in it falling into a ditch which amounted to total
damages of P8,489.10 In pursuance of their “Guard Service Contract,”
Plaintiff claims that defendant is liable for damages under par. 5 which
would make defendant liable for the total cost while defendant claims
that it is liable only under par. 4 which limits their liability to P1,000
only. RTC ruled that par. 4 should be followed.
Issue: W/N par 4 of the contract should be followed. – NO. Par 5 of the
Guard Service Contract applies.
Held: SC reversed the decision since par. 4 only applies if the damages
caused by their employees are done through negligence which, as the
facts show, clearly were not.
Obligations arising from Quasi-Contracts
Art 1160. Obligations derived from quasi-contracts shall be subject to
the provisions of Chapter 1, Title XVII, of this Book.
OBLIGATIONS ARISING FROM QUASI-CONTRACTS (Obligation ex quasi-
contractu)
o Governed by Title 17 of the Civil Code
QUASI-CONTRACT
o Lawful, voluntary, and unilateral acts and which are enforceable
to the end that no one shall be unjustly enriched or benefited at
the expense of another
Kinds:
1. NEGOTIORUM GESTIO (Unauthorized management)
o Takes place when a person voluntarily takes charge of another’s
abandoned business or property without the owner’s consent
o Here, the gestor shall be entitled to reimbursement for the
necessary and useful expenses
o Art 2144: While it is true that the owner is obliged to reimburse
the person who assumed management, the latter shall exercise
diligence and be responsible for management until the affair
terminates
Requisites:
a. Person voluntarily assumes management
b. Property/business is abandoned
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 OBLICON REVIEWER

c. Person has no authority
d. Owner has no consent
e. Assumption of management in good faith (IMPORTANT)
Example: If through the efforts of X, a neighbor, the house of Y was saved
from being burned, Y has the obligation to reimburse X for the expenses X
incurred although Y did not actually give his consent to the act of X in
saving his house on the principle of quasi-contract.
wherein an entity can no longer be entitled to TCCs if it is filed out
of time.
Held: Upon their petition for review before the SC, the SC affirmed the
decision of the En Banc. SC ruled that failure of petitioner to comply
with the 120+30 day mandatory and jurisdictional period, petitioner lost
its right to claim a refund or credit of its alleged excess input VAT.
Principle of solutio indebiti doesn’t also apply in this case.

Q: A who was abroad assigns B as agent of his mango farm. B was reckless Obligations arising from Crime/Delict
in the management of the business. Can A have a cause of action against B
Art 1161. Civil obligations arising from criminal offenses shall be
under quasi-contract?
A: No liability under a quasi-contract, because in quasi-contracts, those governed by the penal laws, subject to the provisions of Article 2177, and
of the pertinent provisions of Chapter 2, Preliminary Title, on Human
who assume management are not authorized. Here, B was assigned and
Relations, and of Title XVIII of this Book, regulating damages.
was expressly authorized by A.

2. SOLUTIO INDEBITI (undue payment) CRIMES/DELICTS (Obligation ex maleficio or ex delicto)

o Takes place when something is received when there is no right to o Arises from civil liability which is the consequence of a criminal
demand it and it was unduly delivered thru mistake offense
Requisites:
a. Payment made through mistake GR: If you commit a crime, you are liable both criminally and civilly
b. No obligation to pay XPN: Victimless crimes (e.g. treason, rebellion)

Example: A ordered food from Grab not knowing that it was paid through CLASS NOTES
Grabpay. When B, the delivery guy arrived, A paid in cash knowing that it Q: What would make quasi-delict different from delict?
was not paid yet but in fact, it is already. A has the right to demand from A: Crimes are those that fall under the RPC or SPLs. If the act/omission
B since solution indebiti applies. does not under felonies/offenses, it cannot give rise to obligations
under delicts.
CBK v. CIR
Facts: Petitioner is a seller of electricity. It sold electricity to an 2 Aspects of Crimes
exempt entity, NPC, within the period of January to October 2005. In PUBLIC PRIVATE (Art 1161)
view of the said sales, it filed claims for the issuance of tax credit Offense against the State Offense against the person
certificates) TCCs for three quarters of 2005. The CIR, however, failed Involves criminal liability arising Involves civil indemnification of
to act on their administrative claim, hence, it filed a petition for review from crime the victim or his family for the
before the CTA division. The division granted partially the claim and wrong done
ordered the issuance of TCC for the 1st and 2nd and 3rd quarters. Upon RPC Civil Code
their motion for reconsideration to the CTA en banc, the en banc
reversed the division and ruled that all the claims were filed out of Governing Rules:
time. o See Art 2177, CC
o See also Art 100, RPC: Every person criminally liable for a felony
Issue: W/N CBK can recover by virtue of the principle of solution is also civilly liable
indebiti. – NO. Solutio indebiti does not apply. This a procedural o Chapter 2, Human Relations, CC
matter within the purview of the filing of claims from the BIR o Title 18 of Book IV, CC on damages

OBLICON REVIEWER JADEL KAYE GINES | D 2025

 OBLICON REVIEWER
NOTE: The same act (delict) resulting in damage may also constitute a
quasi-delict, or a breach in contract.
• Here, the injured part may choose from either three
(contractual breach, delict, or quasi-delict) which action to
pursue
Obligations arising from Quasi-Delict
Art 1162. Obligations derived from quasi-delicts shall be governed by the
provisions of Chapter 2, Title XVII of this Book, and by special laws.
QUASI-DELICT (Culpa Aquiliana)
o Art 2176: An act or omission, there being fault or negligence, by
a person which causes damage to another giving rise to an
obligation to pay for the damage done, but there is no pre-
existing contractual relation between parties
o Art 2177: Responsibility for fault or negligence under the
preceding article is entirely separate and distinct from the civil
liability arising from negligence under the Penal Code. But the
plaintiff cannot recover damages twice for the same act or
omission of the defendant.
o Art 2177: When the plaintiff’s own negligence was the immediate
and proximate cause of his injury, he cannot recover damages.
But if his negligence was only contributory, the immediate and
proximate cause of the injury being the defendant’s lack of due
care, the plaintiff may recover damages, but the courts shall
mitigate the damages to be awarded.
o Art 2194: The responsibility of two or more persons who are
liable for quasi-delict is solidary.
Requisites:
a. Act or omission
b. With fault/negligence
c. Damage is caused to the plaintiff
d. Direct causal relationship between the act/omission and the
damage to the plaintiff
e. No pre-existing contract between the parties
IMPORTANT NOTE: The existence of a contract does not bar a claim for a
quasi-delict (see Cangco v. MRR).
Meaning, even if there is a contract, the plaintiff can still sue based on
quasi-delict
VICARIOUS LIABILITY
- Liability of a person in substitution
OBLICON REVIEWER
Who are vicariously liable?
o Art 2180:
1. Father/Mother – Minor children who live with them
2. Guardians – Minor or incapacitated persons under their
authority and live with them
3. Owners and managers – Employees on the occasion of their
functions
4. Employers – employees, household helpers
5. State – Official who acts as a special agent
6. Teachers/Heads of establishments – Pupils, students,
apprentices
When can someone escape Vicarious Liability?
o When it is proven that the persons above exercised diligence of a
good father of a family to prevent damage
CLASS NOTES
Q: What would make quasi-delict different from delict?
A: Crimes are those that fall under the RPC or SPLs. If the act/omission
does not under felonies/offenses, it cannot give rise to obligations
under delicts.
Q: Can one act give rise to various sources of obligation?
A: Yes.
• Cangco: The same/act omission can give rise to a claim for
either quasi-delict or breach of contract
o Can claim for damages for either
o Contract – based on contract of carriage
o Quasi-delict – Negligence in the selection or
supervision
o The act that breached the contract is a quasi-delict
• Orient Freight: Closer to PSBA case
o Without a contract, the act complained of cannot be
basis of a claim
o Would not have been negligent if it were not based on
a pre-existing obligation (Trucking Services
Agreement)
o The negligent act complained of was incidental to the
contract–the basis was negligence in the performance
of an obligation
Cangco v. MMR
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 OBLICON REVIEWER
Facts: Jose Cangco was an employee (clerk) of the Manila Railroad
Company. He used the train everyday to get to his office in Manila. He
used a pass provided by the company which entitled him to ride the
trains free of charge. One day, he was returning home and as the train
approached the San Mateo station, he rose up from his seat in the
second class-car. He made his exit through the door; when he stepped
off from the train, his feet came in contact with a sack of watermelons
placed on the platform. Because of this, he fell violently and his body
rolled, placing him under a moving car. His arm was badly crushed and
lacerated.
The accident occurred between 7 and 8pm. The station was lit only by a
single light some distance away, so objects on the platform where the
accident occurred were difficult to see, especially to a person coming
from the train. According to testimony, the row of sacks were placed
about two feet from the edge of the platform. It is clear that Cangco’s
fall was because he stepped on the melons.
He was drawn from the car in an unconscious condition. The injuries
were very serious. Eventually, his arm was amputated.
He brought the case to recover damages to the Court of First Instance,
his action being founded upon the negligence of the servants and
employees of Manila Railroad Co. However, the CFI ruled in Manila
Railroad Co.’s favor, stating that while there was negligence on the part
of Manila Railroad, Cangco himself failed to observe due caution exiting
the train.
Issue: W/N there was a breach of contract between Manila Railroad Co.
and Cangco. – YES.
Held: The Court held that the employees of Manila Railroad Co. were
guilty of negligence for placing the sacks on the platform, causing
Cangco to fall. As such, Manila Railroad Co. is liable for the damage,
unless recovery is barred by Cangco’s own contributory negligence.
The foundation of Manila Railroad Co.’s liability is the contract of
carriage, and the obligation arises from the breach of such contract by
reason of the failure to exercise due care in its performance.
Therefore, the liability is direct and immediate, in contrast with the
presumptive responsibility for the negligence of its servants (Art. 1903
now Art. 1162, Civil Code), which can be rebutted by proof of due care
in selection and supervision. Art. 1903 now Art. 1162, Civil Code is not
OBLICON REVIEWER
applicable to obligations arising ex contractu (from a contract), but
only to extra-contractual obligations. The article only relates to culpa
aquiliana, and not to culpa contractual.
The contract of Manila Railroad Co. to transport Cangco, carried with it,
by implication, the duty, to provide him safe means of entering and
leaving its trains. That duty, being contractual, was direct and
immediate. Its non-performance could not be excused by proof that the
fault was morally imputable to its servants.
Orient Freight v. Keihin
Facts: Keihin entered into a Trucking Service Agreement with
Matsushita. Under the Trucking Service Agreement, Keihin-Everett
would provide services for Matsushita's trucking requirements. These
services were subcontracted by Keihin-Everett to Orient Freight,
through their own Trucking Service Agreement. When the Trucking
Service Agreement between Keihin-Everett and Matsushita, Keihin-
Everett executed an In-House Brokerage Service Agreement for
Matsushita.
An incident of loss of goods happened and Matsushita called up Kehin
regarding this matter. When contacted by Keihin-Everett about this
news, Orient Freight stated that the tabloid report had blown the
incident out of proportion. They claimed that the incident simply
involved the breakdown and towing of the truck driven by Cudas with
truck helper Aquino. They claimed that the truck was promptly released
and did not miss the closing time of the vessel intended for the
shipment.
Keihin-Everett directed Orient Freight to investigate the matter. Keihin-
Everett independently investigated the incident. When confronted with
Keihin-Everett's findings, Orient Freight admitted that its previous
report was erroneous and that pilferage was apparently proven.
After, Matsushita terminated its In-House Brokerage Service Agreement
with Keihin-Everett, citing loss of confidence as Keihin-Everett’s
nondisclosure of the incident amounted to fraud. As such, Keihin-
Everett demanded P2.5M from Orient Freight as indemnity for lost
income. It argued that Orient Freight’s acts caused the termination of
the contract with Matsushita.
Orient Freight refused to pay, and Keihin-Everett filed a complaint with
the RTC. Orient Freight claimed that its initial ruling was in good faith,
and that the contractual termination was a prerogative of Mastushita.
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 OBLICON REVIEWER
The RTC and CA ruled that Keihin is entitled for damages by virtue of
Art 2176 on quasi-contracts.
Issue: W/N the liability of Orient is based on a quasi-contract. – NO.
The liability is based on Art 1170 or negligence/breach in
performance of an obligation.
Held: The obligation to report what happened during the hijacking
incident does not appear in the plain text of the Trucking Service
agreement. The duty to investigate and report arose subsequent to the
Trucking Service Agreement
Both the trial court and CA erred in finding the petitioner’s negligence
of its obligation to report to be an action based on a quasi-delict. When
Keihin contacted Orient Freight regarding the news report and to
investigate the incident, petitioner’s obligation was created.
Thereafter, petitioner was alleged to have performed its obligation
negligently, causing damage to respondent.
The doctrine "the act that breaks the contract may also be a tort," on
which the lower courts relied, is inapplicable here. Petitioner's
negligence, arising as it does from its performance of its obligation to
respondent, is dependent on this obligation. Neither do the facts show
that Article 21 of the Civil Code applies, there being no finding that
petitioner's act was a conscious one to cause harm, or be of such a
degree as to approximate fraud or bad faith.
To be sure, there was inaction on the part of the defendant which
caused damage to the plaintiff, but there is nothing to show that the
defendant intended to conceal the truth or to avoid liability. When the
facts became apparent to defendant, the latter readily apologized to
Keihin and Matsushita for their mistake.
Consequently, Articles 1170, 1172, and 1173 of the Civil Code on
negligence in the performance of an obligation should apply.
LRTA v. Navidad
Facts: Nicanor Navidad was drunk when he entered the LRT station and
had an altercation with a security guard which led to him falling on the
tracks of the LRT. At the exact moment Navidad fell, an LRT came and
hit him causing his instantaneous death. His heirs filed damage against
Prudent Security, LRTA, the security guard, and the driver of the LRT.
Issue: W/N LRTA is liable under contract of carriage. – YES.
W/N Roman (driver) is liable. – NO.
OBLICON REVIEWER
W/N Prudent (Security agency) is liable. – NO.
W/N Escartin (Security guard) is liable. – NO.
Held:
1. LRTA’s liability: The Court held that a common carrier is
burdened with the duty of exercising utmost diligence in
ensuring the safety of passengers in all circumstances. The
foundation of LRTA's liability is the contract of carriage and its
obligation to indemnify the victim arises from the breach of
that contract by reason of its failure to exercise the high
diligence required of the common carrier.
2. Roman’s liability: There being no showing that Roman himself
is guilty of any culpable act or omission, he must also be
absolved from liability. Needless to say, the contractual tie
between the LRT and Navidad is not itself a juridical relation
between Navidad and Roman; thus, Roman can be made liable
only for his own fault or negligence.
3. Prudent and Escartin’s liability: Prudent’s liability, if at all,
could only be for tort under the provisions of Art 2176 (quasi-
contract) in connection with Art. 2180. BUT the premise,
however, for the employer's liability is negligence or fault on
the part of the employee. Once such fault is established, the
employer can then be made liable on the basis of the
presumption juris tantum (rebuttable presumption) that the
employer failed to exercise ordinary diligence in the selection
and supervision of its employees. The liability is primary and
can only be negated by showing due diligence in the selection
and supervision of the employee, a factual matter that has not
been shown.
However, there is nothing to link Prudent to the death of
Navidad, for the reason that the negligence of its employee,
Escartin, has not been duly proven.
LG Foods v. Agraviador
Facts: An information of Reckless Imprudence Resulting to Homicide was
filed against the driver of a truck who hit and immediately causing the
death of Charles Vallereja, a 7-year old. However, the trial could not be
concluded as the accused driver committed suicide. The aggrieved
spouses filed a complaint for damages against the LG Foods Corporation
as the employer which the latter answered in the negative arguing that
they exercised due diligence in the selection and supervision of their
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 OBLICON REVIEWER

employees and a prior conviction and insolvency of their driver is • In the context of damages in obligations, the award is compensatory
needed to hold them subsidiary liable. in nature
• There is a rule against double recovery
Issue: W/N LG Foods is subsidiarily liable under the RPC or Art 2176 on o One cannot sue for both quasi-delict and breach of
quasi-delict. – LG Foods is liable for quasi-delict. contract
o Choosing one cause of action will bar another action
Held: The Court held that the case is a negligence suit for quasi-delict,
• If both quasi-delict and breach of contract are available actions
under Art. 2176 pursuant to Art. 2180 of the Civil Code.
because of the same act, the following rules shall apply:
The complaint alleges negligence on the part of LG Foods for failing to
o Orient: Only applicable if such negligence caused
exercise ordinary diligence in the selection and supervision of his
injury to something independent of a contract
employee, which, if exercised, would have prevented the death of
➢ Quasi-delict will be available only if the act
Charles Vallejera.
could have given rise to an action that is
actionable on its own
Admittedly, the complaint did not explicitly state that plaintiff
o LRTA: There must be contractual privity. Heirs could
Vallejeras were suing the defendant petitioners for damages based on
not go after employees because the case was one of
quasi-delict. Clear it is, however, from the allegations of the complaint
breach of contract
that quasi-delict was their choice of remedy. They alleged gross fault
➢ No contractual relationship between
and negligence on the part of the driver and the failure of LG Foods, as
passenger & the driver, and between the heirs
employers, to exercise due diligence in the selection and supervision of
& the Security Agency, and passenger &
their employees.
security guard
For transportation cases, there is presumption of negligence when a
Had the respondent spouses sued based on Art. 103 of the RPC, they
carrier does not bring the passenger to his destination safely
would have alleged that the guilt of the driver had been proven beyond
reasonable doubt; that such accused driver is insolvent; that it is the
subsidiary liability of LG Foods as employers to pay for the damage done Culpa Aquiliana (Quasi- Culpa Contractual (Breach
by their employee (driver) based on the principle that every person delict) of contract
criminally liable is also civilly liable. Definition Negligence between Negligence in the
parties not so related by performance of
Victims of negligence or their heirs have a choice between an action to pre-existing contract contractual obligation
enforce the civil liability arising from culpa criminal under Article 100 Nature of Direct, substantive and Merely incidental, incident
of the Revised Penal Code, and an action for quasi-delict (culpa negligence independent to the performance of an
aquiliana) under Articles 2176 to 2194 of the Civil Code. obligation already existing
Negligence itself is the because of a contract.
source of obligation
CLASS NOTES
Contract is the source;
LG Foods: Subsidiary liability is only available when there is a final Negligence is incidental
judgment of conviction on the part of the employee. only to the obligation
• In case of insolvency, the employer shoulders the civil Nature of Obligation arises only There is already an
liabilities of the employees obligation when there is a breach. obligation which exists
• Typically, in civil cases, filing fees are paid. In criminal cases, Without breach, there is prior to or even without a
an injured party goes to the Prosecutor who would then handle no obligation. It is the breach. The breach of the
the case. breach itself which gives contract is immaterial to
rise to the obligation. the legal obligation.
CLASS NOTES

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 OBLICON REVIEWER

Ordinary Complete and proper Not complete and proper Presumptions Presumed negligent No presumption
diligence defense (insofar as defense in the selection of
Bus company must Plaintiff must
defense parents, guardian, employees (although this prove that there was prove negligence of
employers are concerned) may mitigate damages) no negligence in driver.
Presumption No presumption There is presumption performing the Only then, the bus
of obligation company can be
liable for
negligence Plaintiff must prove Defendant must prove that
negligence in the
negligence (Positive) there was no negligence in selection and
performing the obligation supervision
(Negative) Defense Bus company: Driver Bus company:
Example Driving recklessly, A hits a Contract of sale of watch (How) Complete defense – Incomplete defense Incomplete defense –
Fortuitous event – Extraordinary driver not insolvent
child. If both parties perform
diligence in driving NOTE: Proof of
their obligation, the Incomplete defense – diligence not
When did the obligation contract is extinguished. Extraordinary Bus company: available
come to being? There is no breach, but diligence in driving Incomplete defense
When there was injury due there is an obligation. – Ordinary Driver:
to negligence. (Negligence diligence in the Complete defense –
selection and Justifying/Exempting
per se does not give rise to supervision circumstance
a quasi-delict unless there NOTE: Fault of
is injury.) another not a proper
defense
Illustration on the Differences between CONTRACT, QUASI-DELICT, and
DELICT
Situation: Passenger, driver, bus company (Contract of Carriage)

CONTRACT QUASI-DELICT DELICT

Who will be Bus company Driver (why? Driver
sued? Because even
NOTE: Driver/EE without a contract, NOTE: Bus company
cannot be liable the act of the will only be
unless there is driver would still subsidiarily liable if:
stipulation of the constitute a tort,
liability of the Cangco) * There’s a final
driver/EE judgment finding the
Bus company – in driver guilty
the selection and * Driver is insolvent
supervision of EEs

Or BOTH
What to There is a contract Driver – his Driver’s guilt
prove? and there was a negligence in
breach driving the bus

Bus company - in
selection and
supervision
Degree of Preponderance of Preponderance of Proof beyond
proof evidence evidence reasonable doubt

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 OBLICON REVIEWER

Chapter 2 ACCESSORY OBLIGATIONS

NATURE AND EFFECT OF OBLIGATIONS A. Obligation to Exercise Due Diligence (Art 1163)
Summary Degrees of Diligence
KINDS OF PRESTATIONS Extraordinary diligence (ex. Contract of carriage)
o To give Diligence of a good father of a family (ex. To give a specific thing)
o Specific – Art 1163-1166 Slight diligence
o Generic – Art 1165 par 2
o To do: Art 1167 OBLIGATIONS TO DELIVER OBLIGATIONS TO
o Not to do: Art 1168 A SPECIFIC THING DELIVER A GENERIC
THING
Art 1163. Every person obliged to give something is also obliged to take Required care GR: Diligence of a good No required diligence
care of it with the proper diligence of a good father of a family, unless father of a family
the law or the stipulation of the parties requires another standard of (Ordinary diligence)
care. XPN: Law or stipulation
Art 1164. The creditor has a right to the fruits of the thing from the time requires different standard
the obligation to deliver it arises. However, he shall acquire no real right of care
over it until the same has been delivered to him. When From the time of the N/A because there is
Art 1166. The obligation to give a determinate thing includes that of diligence constitution of the nothing to take care of
delivering all its accessions and accessories, even though they may not arises obligation to the time of
have been mentioned. delivery

SPECIFIC THING
Primary Obligation
To deliver the specific thing
Specific/Determinate
One that is individualized and can
be identified or distinguished from
others of its kind
Black Innova with plate number
ABC 1234
Accessory Obligation
Obligation to exercise due
diligence
Obligation to deliver the fruits
Obligation to deliver the
accessions and accessories
Generic/Determinable
One that is indicated only by its
kind, without being designated
and distinguished from others of
the same kind
Becomes determinate by the time
of delivery
Example: Car, dog
B. Obligation to Deliver the Fruits (Art 1164)
o For specific thing only
FRUITS
Natural – spontaneous products of the soil, the young and other
products of animals (e.g. puppy, cow’s milk)
Industrial – produced by lands of any cultivation or labor (e.g.
rice)
Civil – those derived by virtue of juridical relation
When the obligation to deliver arises
Pure obligations Time of its creation/constitution
Obligations with a Upon happening of suspensive condition
suspensive condition
Obligations with a Tolentino: From the time the term arrives
suspensive term Caguioa: From the creation of the contract
Balane: From the time the term arrives

This is an open question

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 OBLICON REVIEWER

REAL RIGHT PERSONAL RIGHT 1. “Diligence of a good father of a family” varies according to the
Definition Right of a person over a Right of a person to obligation
specific thing even demand from another, as 2. Cannot deliver fruits of a generic thing
without a passive subject a definite passive subject, 3. Cannot deliver accessions and accessories of a generic thing
individually determined the fulfillment of a
prestation to give, to do, Remedies of Creditor in Obligations TO GIVE
or not to do
Art 1165. When what is to be delivered is a determinate thing, the
Enforceability Right is enforceable Right is enforceable only creditor, in addition to the right granted him by Article 1170, may compel
against the whole world against a definite person the debtor to make the delivery.
(i.e. extends to 3rd (i.e. against debtor, his
parties) heirs, etc) If the thing is indeterminate or generic, he may ask that the obligation
be complied with at the expense of the debtor.
Creditor may collect
damages from 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
Nature of Right for any fortuitous event until he has effected the delivery.
Before delivery of the thing Personal right
Upon delivery Real right Specific Thing Generic Thing
Primary Specific performance Direct performance or
Example: remedy Substitute performance
A sold B a mango plantation to be delivered on January 1. Come January 1, RULE: Debtor must
A did not deliver. (No demand from B) A instead sold the fruits to C, a deliver the very thing RULE: Creditor cannot a
buyer in good faith. B sues A for specific performance. Court awards the due, not something else, demand a thing of
plantation to B. even though substitute is inferior or superior
of greater value quality
Q: Does B have a right to the fruits? YES, as against A but NO, as against
Alternative Rescission/Resolution Rescission/Resolution
C— because B’s right over the fruits is only personal. B’s remedy is to go
Remedy
against A for the value of the fruits.
Fortuitous GR: Excuses debtor of N/A because debtor can
events non-performance just look for a different
C. Obligation to Deliver Accessions and/or Accessories (Art 1166)
XPN: thing of the same quality
o For specific thing only
(1) He incurs delay
(2) He is in bad faith
Accessions Accessories
Other remedies Damages Damages
Fruits of, additions to, or improves Things joined to or included with
upon a thing principal for better use,
Specific Substitute Other
completion, or enjoyment
performance performance remedies
NOT NECESSARY NECESSARY
Specific thing YES NO Damages
Example: Aircon of a car, Trees on Example: Keys of a house, bow of
Generic thing YES YES Damages
a land a violin

CLASS NOTES
CLASS NOTES
It is not the time element that is considered (whether obligor had time
Q: It is important to determine whether the obligation to be delivered is
a specific or a generic thing because: or not) but the non-fulfillment of obligation on the specific time given

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 OBLICON REVIEWER

Remedies of Creditor in Obligations TO DO Irregularity in Performance

Art 1167. If a person obliged to do something fails to do it, the same Art 1170. Those who in the performance of their obligations are guilty
shall be executed at his cost. of fraud, negligence, or delay, and those who in any manner contravene
the tenor thereof, are liable for damages.
This same rule shall be observed if he does it in contravention of the
tenor of the obligation. Furthermore, it may be decreed that what has IRREGULARITY OF PERFORMANCE
been poorly done be undone. A. Culpable (Attributable to the Debtor)
o Fraud (Art 1170 and 1171)
NOTE: Specific performance is NOT a remedy for obligations TO DO. It is o Negligence (Art 1170, 1172, 1173)
tantamount to involuntary servitude o Delay (Art 1169 and 1170)
B. Non-Culpable (Not attributable to the Debtor)
REMEDIES AVAILABLE TO THE CREDITOR o Fortuitous event (Art 1174)
Non-performance Performance is Performance in a
contrary to the poor manner
terms of the Irregularity in Performance: Fraud/Dolo
agreement Art 1171. Responsibility arising from fraud is demandable in all
Purely personal Damages only 1. Undoing; or obligations. Any waiver of an action for future fraud is void.
Not personal (eg. 1. Creditor himself 2. Substitute performance
Anyone can do it) perform at his + FRAUD/DOLO
expense; or Damages
2. Substitute - Art 1171: Malice or incidental fraud
performance from o Fraud is in the performance
another o Obligation is valid; Fraud does not affect the validity of
+ the contract
Damages o Example: Obligation to bake a low-fat cake but obligor
used a lot of sugar
Remedies of Creditor in Obligations NOT TO DO - Art 1338: Deceit or causal fraud
Art 1168. When the obligation consists in not doing, and the obligor does o Fraud is in the creation of the obligation/contract
what has been forbidden him, it shall also be undone at his expense. o Obligation is voidable; Fraud affects validity of the
contract
REMEDIES: Undoing + Damages o Example: Contract of sale of a diamond ring but the ring
is actually made of glass
SUMMARY OF REMEDIES (Art 1165 to 1168) Effects:
Specific Substitute Other (1) Specific or substitute performance
performance performance remedies (2) Rescission/Resolution
To give YES NO Damages (3) Plus Damages
Specific thing
To give YES YES Damages Waiver
Generic thing o FUTURE – not allowed; contrary to public policy
o PAST – allowed;
To do *NO. *YES Damages
o But in crimes, waiver of damages does not bar the state
Involuntary Only if not
in imposing criminal liability and continuing the case
servitude personal
Not to do N/A N/A Undoing +
Damages Legaspi Oil v. Oseraos

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 OBLICON REVIEWER

Facts: Petitioner, Legaspi Oil and Respondent Oseraos were engaged in the place. When negligence shows bad faith, the provisions of Articles
a contract wherein respondent was to deliver 100 metric tons of copra 1171 and 2201, paragraph 2, shall apply.
to petitioner at PHP 86.00 per 100 kilos. However, respondent was only
able to deliver 46,334 kilos of copra to petitioner thereby having a If the law or contract does not state the diligence which is to be observed
balance of 53,666 kilograms of copra undelivered. Petitioner made in the performance, that which is expected of a good father of a family
repeated demands to respondent to fulfill his end of the contract but shall be required.
such demands were left unheeded. This forced the petitioner to
purchase the remaining balance from the market at a higher price of NEGLIGENCE/CULPA
PHP 168.00 per 100 kilos. or a price differential of P86.00 per 100 kilos, - Absence of due diligence
a net loss of P46,152.76 chargeable against appellant. Petitioner then o Diligence: the care required of a person in a given
filed a complaint against respondent in CFI-Albay (now Albay RTC) situation
wherein the court decided in favor of petitioner and ordering - Relative concept; Depends on the following:
respondent to pay petitioner damages in the amount of PHP 48,152.76 o Nature of the obligation
and attorney's fees (P2,000.00), and litigation costs. Respondent o Nature of the circumstances of:
appealed to the Court of Appeals and said court issued a reversal of the o Persons
CFI-Albay decision. o Time
o Place
Issue: W/N Oseraos is liable for damages arising from fraud or bad faith Example: Diligence required in shipping antique and valuable
in deliberately breaching the contract of sale entered into by the paintings is different from that of ordinary paintings
parties. – YES. He is liable under Art 1170
Degrees of Negligence
Held: The conduct of Oseraos clearly manifests his deliberate o Gross negligence – material damage results by reason of
fraudulent intent to evade his contractual obligation for the price of inexcusable lack of precaution; something more than negligence is
copra had in the meantime more than doubled from P82.00 to P168 per involved
100 kilograms. Under Article 1170 of the Civil Code of the Philippines, o Simple negligence – lack of precaution in which the damage is not
those who in the performance of their obligation are guilty of fraud, immediate nor the danger is clearly manifest
negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages. Effects:
(1) Specific or substitute performance
Thus, private respondent is liable to pay respondent the amount of (2) Rescission/Resolution
P46,152.76 as damages. In case of fraud, bad faith, malice, or wanton (3) Plus damages
attitude, the guilty party is liable for all damages which may be
reasonably attributed to the non-performance of the obligation. Waiver:
o FUTURE
o if simple, allowed
Irregularity in Performance: Negligence/Culpa o if gross, not allowed; tantamount to waiver of future
Art 1172. Responsibility arising from negligence in the performance of fraud
every kind of obligation is also demandable, but such liability may be o PAST – allowed
regulated by the courts, according to the circumstances.
Art 1173. The fault or negligence of the obligor consists in the omission Chavez v. Gonzales
of that diligence which is required by the nature of the obligation and Facts: Chaves delivered a portable typewriter to Gonzales to have it
corresponds with the circumstances of the persons, of the time and of repaired. However, Gonzales was not able to finish the job despite
repeated reminders made by Chaves. Gonzales asked for the amount of
P6.00 for the purchase of spare parts, which was given by Chaves. After

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 OBLICON REVIEWER

getting exasperated with the delay, Chaves went to the house of Liability cannot be mitigated by Liability may be mitigated by
Gonzales and asked for the return of the typewriter. courts courts
Waiver of future fraud is VOID Waiver for future negligence may
Gonzales gave the typewriter in a wrapped package, however, upon be allowed in certain cases:
checking, Chaves discovered that the typewriter was in shambles, with Gross – NEVER
the interior cover and screws missing. As such, Chaves sent a letter to Simple – May be waived
the defendant formally demanding the return of the missing parts, the
interior cover and the sum of P6.00. Irregularity in Performance: Delay/Mora
Art 1169. Those obliged to deliver or to do something incur in delay from
Chaves had his typewriter repaired by Freixas Business Machines, and the time the obligee judicially or extrajudicially demands from them the
the repair job cost him a total of P89.85, including labor and materials. fulfillment of their obligation.
The lower court held that Gonzales is only liable up to the amount of However, the demand by the creditor shall not be necessary in order that
the missing parts which amounted to P31.10. Gonzales contends that delay may exist:
under Art 1197, the Court should fix the period within which he was to (1) When the obligation or the law expressly so declare; or
comply with the contract, before he could be liable for breach of (2) When from the nature and the circumstances of the obligation it
contract. 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
Issue: W/N Gonzales is liable for breach of contract (non-performance). establishment of the contract; or
– YES. He is liable under Art 1167 and Art 1170 (negligence). (3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
Held: Gonzales cannot invoke Article 1197 of the Civil Code for he
virtually admitted non-performance by returning the typewriter that he In reciprocal obligations, neither party incurs in delay if the other does
was obliged to repair in a non-working condition, with essential parts not comply or is not ready to comply in a proper manner with what is
missing. The fixing of a period would thus be a mere formality and incumbent upon him. From the moment one of the parties fulfills his
would serve no purpose than to delay. obligation, delay by the other begins.
Art 1167: Gonzales contravened the tenor of his obligation because he DELAY/MORA
not only did not repair the typewriter but returned it "in shambles", and - Non-fulfillment of the obligation with respect to time
is therefore liable under Art. 1167 for the cost of executing the - Only applies in obligations to give and to do
obligation in a proper manner. The cost of the execution of the
Requisites:
obligation in this case should be the cost of the labor or service (1) Obligation is demandable and already liquidated
expended in the repair of the typewriter, which is in the amount of (2) Debtor delays performance
P58.75. because the obligation or contract was to repair it. o Delay must be wrongful and unjustified
(3) Creditor demands the performance judicially or extrajudicially
Art 1170: Gonzales is likewise liable, under Article 1170 of the Code,
for the cost of the missing parts, in the amount of P31.10, for in his
Kinds of Delay:
obligation to repair the typewriter he was bound, but failed or
neglected, to return it in the same condition it was when he received A. MORA SOLVENDI
it. - Delay in performance incurred by debtor
Requisites:
Fraud Negligence (1) Obligation is demandable and already liquidated
Voluntary Voluntary (2) Debtor delays performance
o Delay must be wrongful and unjustified

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 OBLICON REVIEWER
(3) Creditor demands the performance judicially or extrajudicially
GR: There is no delay when there is no demand (judicial or
extrajudicial)
XPN:
(1) Stipulation
➢ Mere setting of due date is NOT ENOUGH
➢ Example: A promises to pay B P20,000 on or before May 31
without the need for a demand. If A fails to pay on May 31,
he is automatically in delay.
(2) When the law expressly declares
➢ Example: Filing of ITR
(3) When it appears from the nature and circumstances of the
obligation that time was a controlling motive for the establishment
of the contract
➢ Criterion: Actual intention of the parties and before the time
may be so regarded by a court, there must be a sufficient
manifestation of that intention
➢ Not necessary for the contract to expressly state that time is
of the essence—Intent is sufficient.
➢ Example: Wedding gown to be delivered before the wedding
(4) When demand would be useless, when the obligor has rendered it
beyond his power to perform
➢ When the debtor is hiding or absent
➢ Example: A sold the fruits of the mango plantation he already
sold to B to C. B need not make a demand on A to deliver the
fruits since demand would be useless
Effects of Mora Solvendi:
(1) If specific thing → risk is placed on the part of the debtor
(2) Damages
(3) Rescission/Resolution
(4) In case of fortuitous events + in delay
o Specific thing → still LIABLE
o Generic
▪ LIABLE regardless of delay
▪ PERFORMANCE – deliver a thing of the same
quality
B. MORA ACCIPIENDI
o Delay attributable to the creditor
o Happens when debtor makes payment/performance but
the creditor refuses to accept it without just cause
Requisites:
OBLICON REVIEWER
(1) Offer or performance by the debtor
(2) Offer must be to comply with the prestation as it should be
performed
(3) Creditor refuses the performance without just cause
Effects of Mora Accipiendi:
(1) Responsibility of debtor for the thing is limited to fraud and gross
negligence
(2) Debtor is exempted from risk of loss of thing which automatically
pass to creditor
(3) Expenses incurred by debtor for preservation of thing after the
delay shall be chargeable to creditor
(4) If the obligation has interest, debtor shall not have obligation to
pay the same from the time of the delay
(5) Creditor becomes liable for damages
(6) Debtor may relieve himself from consignation of the thing
C. COMPENSATIO MORAE
o Delay on both the debtor and creditor
o Applicable in reciprocal obligations
o NOTE: If the delay of one party is followed by that of the
other, the liability of the first infractor shall be equitably
tempered or balanced by the courts. If it cannot be
determined which of the parties is guilty of delay, the
contract shall be deemed extinguished and each shall
bear his own damages
CONTRAVENTION
- Broad term
- It can cover any breach, violation, irregularity, or improper
performance
- Catch-all term for any instance of culpable irregularity which may
include fraud, negligence, or delay
Irregularity in Performance: Fortuitous Event
Art 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were
inevitable.
GR: No liability, excuses the obligor from liability in case of fortuitous
events
XPN:
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 OBLICON REVIEWER
(1) Law expressly provides
a. Possessor in bad faith (Art 552)
b. Obligor in delay or has promised the same thing to 2 or
more persons who do not have the same interest (Art
1165)
c. Officious manager in certain cases (Art 2147)
i. He undertakes risky operations the owners is not
accustomed to embark upon
ii. He preferred his own interest to that of the
owner
iii. He fails to return the property/business despite
demand by its owners
iv. He assumed the management in bad faith
(2) Stipulation
(3) Nature of obligation requires assumption of risk
FORTUITOUS EVENT (Caso Fortuito)
o Non-culpable irregularity which excuses the obligor from liability
since these are acts of God or man or events independent of the
will of the parties which could not be foreseen or although
foreseen, were inevitable
o Other terms: force majeure, fuerza mayor, vis major, act of God,
act of man
o Could justify non-performance
Requisites: NO LIABILITY
(a) the cause of the breach of the obligation must be independent of the
will of the debtor;
(b) the event must be either unforeseeable or unavoidable;
(c) the event must be such as to render it impossible for the debtor to
fulfill his obligation in a moral manner; and
(d) the debtor must be free from any participation in, or aggravation of
the injury to the creditor.
Nakpil & Sons v. CA
Facts: Private respondent, Philippine Bar Association (PBA) entered into
a contract with petitioner, United Construction for the construction of
an office building in Intramuros, Manila. Juan F. Nakpil & Sons prepared
the plans and specifications of the building. The building was then
completed on June 1966. 2 years after, a strong earthquake caused the
building to sustain major damage. 2 earthquakes happened in 1970 and
in 1979, the building was finally demolished as it could collapse upon
happening of another strong earthquake. PBA allege that the damage in
the building could not have happened if not for the negligence of the
OBLICON REVIEWER
petitioners and that they should still be liable regardless of the
earthquake.
Issue: W/N petitioners are liable despite the happening of a fortuitous
event. – YES. They were negligent.
Held: The Court held that despite the earthquake, the petitioners are
still liable. An expert appointed by the Court found that there were
defects in the construction plan prepared by Nakpil & Sons and that
there were failure to observe the required workmanship and supervision
in the construction by the contractor. It has been held that when a
negligence of a person concurs with an act of God and causing injury,
such person is not exempt from liability because the negligence is
the proximate cause while the fortuitous event is the immediate
cause. Since the petitioners negligently created a dangerous situation
that could’ve been prohibited, if not lessened the damages, they are
still held liable despite the fortuitous event.
National Power Corp vs. CA
Facts: An early notice of an incoming super typhoon “Kading” was
published in newspapers and through radio announcements. Petitioners
manage the Angat Dam. They are aware that the dam can safely hold a
normal maximum headwater elevation at 217m but despite such
knowledge, petitioners maintained a reservoir water elevation beyond
the maximum and safe level. Hence, no sufficient allowance for rain
water. When the typhoon came, excessive rain water caused the
overflow in the dam which prompted petitioners to release water.
Thereafter causing a flashflood resulting to damages in property and
loss of life in nearby towns. Petitioners claim that they sent notices to
the nearby towns that in the event the dam reaches maximum level,
they will be intermittently releasing water.
Issue: W/N Napocor is liable. – YES.
Held: The Court ruled that Napocor should be held liable for the
damages incurred by the private respondents. It has been found that
the said notices were insufficient and ineffectual as it was not
forwarded to the proper authorities for effective dissemination. The
Court held that the incident is not attributable to the typhoon which
the petitioners could be excused from liability since they were
negligent in the management and operation of Angat Dam. If they
didn’t let the water level exceed the safe maximum levels, there
could’ve been sufficient allowance for rain water and if the notice they
sent contained the possible amount of water to be released and were
forwarded to towns within the appropriate radius, the flash flood and
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 OBLICON REVIEWER

damages in property and loss of life would have not occurred. Hence, *Accion Directa (only applicable to
they are liable. certain cases provided by law)

Art 1175. Usurious transactions shall be governed by special laws. (n) (1) LEVY AND EXECUTION
o Acts by the authorities of setting apart and appropriating a
property for the purpose of satisfying an obligation.
This provision is rendered INOPERATIVE.
o Procedure provided for by the Rules of Court (Rule 39 Sec 8-10)
Usury – interest rate
Exempt properties:
a. Family home (incl. land)
CB CIRCULAR 905: Removed ceiling on interest rate. Lenders and borrowers
XPT: if mortgage or the family home itself is the object of
may agree upon an interest rate.
the prestation!!!
b. Ordinary tools and implements personally used by him in his
Art 1176. The receipt of the principal by the creditor, without trade, employment, or livelihood
reservation with respect to the interest, shall give rise to the c. Animals used in his ordinary occupation (cows, carabao,
presumption that said interest has been paid. horses)
d. Clothing (except Jewelry)
The receipt of a later installment of a debt without reservation as to prior e. Household furniture (less than 100k)
installments, shall likewise raise the presumption that such installments f. Provisions for individual/family use for 4 months
have been paid. g. Professional libraries and equipment (lawyers, judges,
doctors, etc)
Applicable to: h. Fishing boat of a fisherman (less than 100K)
(1) Interest-bearing debts i. Salaries and wages within 4 months
(2) Rental payments j. Gravestones
k. Life insurance
1st par: interest must be paid first before the principal. l. Support, pension or gratuity from the government
2nd par: installments are paid in chronological order. m. Properties exempted by law

Art 1177. The creditors, after having pursued the property in possession XPN to the XPN: If the property itself is the object of the
of the debtor to satisfy their claims, may exercise all the rights and bring prestation and the creditor wants to recover the purchase
all the actions of the latter for the same purpose, save those which are price of the said property itself
inherent in his person; they may also impugn the acts which the debtor
may have done to defraud them. (2) ACCION SUBROGATORIA
o Obligee is given the right to act on his obligor’s behalf
Art 1165, 1167, 1168, 1170 Art 1177 (Successive) o “My debtor’s debtor is my debtor”
Remedies granted to the obligee Remedies granted to the obligee o Creditor will go after the debtor (d2) of the debtor (d1)
to enforce the fulfillment of the for the purpose of enforcing
obligation compliance or fulfillment, he may Requisites:
go after the obligor’s property (a) Debt due is not purely personal to the debtor and both debts are due
(1) Specific performance – to give (1) Levy and execution of (b) Willful failure of the suing creditor’s debtor to collect
(2) Substitute performance obligor’s non-exempt property (c) Insufficiency of the debtor’s assets to satisfy his credit
(3) Rescission/Resolution (2) Accion Subrogatoria
(4) Damages (3) Accion Pauliana Extent of recovery: full amount or the entire property of the debtor’s
debtor (d2). Excess is turned over to the debtor (d1)

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Defenses of d2 if creditor comes after him: his debt is not yet due Onerous transfer Gratuitous transfer
GF/BF of transferee is material GF/BF of donee is immaterial
(3) ACCION PAULIANA o Good faith: conveyance ▪ donee will not suffer
o Rescissory act; rescission of an allegedly fraudulent sale to cannot be assailed (AP damage in returning the
prevent appropriation of debtor’s property in fulfillment of the will not prosper) property since he did not
obligation o Bad faith: transferee will pay for it
o Allows creditor to set aside transfers of property by their debtors be liable with his own
which defraud them by preventing them from obtaining full property (AP will prosper)
satisfaction for their credits
Extent of recovery: only to the amount of the debt and damages, if any.
Requisites:
i. Plaintiff is asking for rescission has a credit prior to the alienation, CLASS NOTES
although demandable later Q: if Art 1387 and badges of fraud not applicable, will AP still prosper?
ii. The debtor has made a subsequent contract conveying a patrimonial A: Yes. Because courts can still see if there is indeed fraud which is why
benefit to a third person fraud is not defined in the provision.
iii. The creditor has no other legal remedy to satisfy his claim
iv. The act being impugned is fraudulent
(4) ACCION DIRECTA
o Creditor is given the right to proceed against certain parties who
Fraud, presumed Fraud, need to prove (Badges of
may be indebted to their debtors
Fraud)
o Vs. Accion subrogatoria, gives the creditor the prerogative to act
Gratuitous: when donor did not o Consideration of the
in his own name
reserve sufficient property to pay conveyance is fictitious or
o Only applicable to instances provided for by law
all debts contracted before inadequate
o NOTE: Not a part of the successive measure. ONLY when the law
donation (Art 1387) – regardless if o Transfer made during a
so provides. The law just provides that you may use accion directa
there is writ or not. pending suit
in certain cases
o Sale upon credit by an
o Example: Lessor-Lessee-Sublessee; Laborer-Contractor-Owner
*Donee – shall be responsible when insolvent creditor
the donation has been made in o Evidence of large
Extent of recovery: only to the extent of his claim
fraud of the creditors indebtedness or complete
insolvency
Onerous: at the time of the o Transfer of all or nearly Art 1178. Subject to the laws, all rights acquired in virtue of an
alienation, judgment or writ of all properties, especially obligation are transmissible, if there has been no stipulation to the
attachment has been issued (writ when insolvent contrary.
does not have to be on the subject o Transfer between father
property itself) and son GR: Rights are transmissible either inter vivos or mortis cusa
o Failure of vendee to take Inter vivos Mortis causa
exclusive possession of all Subjective novation (active or Succession
the property passive)
Assignment of credit
v. The third person who received the property conveyed, if it is by
onerous title, has been an accomplice in the fraud XPN:
o Rescission does NOT apply to purchasers in GOOD (1) Obligations which by law or by nature are purely personal
FAITH. a. By nature

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 OBLICON REVIEWER

b. By law
i. Contract of partnership
ii. Contract of agency
iii. Contract of commodatum
(2) Stipulation

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 OBLICON REVIEWER

Facts: George Pay is a creditor of the late Justo Palanca. Pay’s claim is
Chapter 3 based on a promissory note dated January 30, 1952, whereby the late
Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to
DIFFERENT KINDS OF OBLIGATIONS pay George Pay the amount of P26,900.00, with interest at the rate of
12% per annum.
Summary:
Different Kinds of Obligations according to:
The promissory note is worded thus: “For value received from time to
I. Certainty and Time of Demandability – Sec 1&2 Art 1179-1198
time since 1947, we [jointly and severally promise to] pay to Mr.
A. Pure
[George Pay] at his office at the China Banking Corporation the sum of
B. Conditional
P26,900.00, with interest thereon at the rate of 12% per annum upon
C. With a Term/Period
receipt by either of the undersigned of cash payment from the Estate of
II. Manner of Choosing Prestations – Sec 3 Art 1199-1206
the late Don Carlos Palanca or upon demand.” This promissory note is
A. Alternative
signed by Rosa Gonzales Vda. de Carlos Palanca and Justo Palanca.
B. Facultative
III. Plurality of Subjects – Sec 4 Art 1207-1222
Pay bases his claim on the statement “upon demand.”
A. Joint
B. Solidary
Issue: W/N the right of creditor Pay has already prescribed. – YES. It is
IV. Manner or Performance – Sec 5 Art 1223-1225
a pure obligation which is immediately due and demandable.
A. Divisible
B. Indivisible
Held: The wording of the promissory note being "upon demand," the
V. Sanction for Breach – Sec 6 Art 1226-1230
obligation was immediately due. Since it was dated January 30, 1952,
A. Without a penal clause
it was clear that more "than ten (10) years has already transpired from
B. With a penal clause
that time until to-date. The action, therefore, of the creditor has
definitely prescribed.
Section 1. Pure and Conditional Obligations What is undeniable is that on August 26, 1961, more than fifteen years
Art 1179. Every obligation whose performance does not depend upon a after the execution of the promissory note on January 30, 1952, this
future or [and] uncertain event, or upon a past event unknown to the petition was filed. The defense interposed was prescription. Its merit is
parties, is demandable at once. rather obvious. Article 1179 of the Civil Code provides: "Every obligation
whose performance does not depend upon a future or uncertain event,
Every obligation which contains a resolutory condition shall also be or upon a past event unknown to the parties, is demandable at once."
demandable, without prejudice to the effects of those happening of the
event. The obligation being due and demandable, it would appear that the
filing of the suit after fifteen years was much too late. According to
A. PURE OBLIGATIONS the Civil Code, the prescriptive period for a written contract is that
• An obligation that is not subject to any condition or a term of 10 years.
• Essence: immediate demandability
• Example: Art 1180. When the debtor binds himself to pay when his means permit
o “I promise to pay you P1 million.” – Demandable at once him to do so, the obligation shall be deemed to be one with a period,
unless a period was really intended subject to the provisions of Article 1197. (n)
o “I’ll pay you P1 million on demand.”
B. OBLIGATIONS with a TERM/PERIOD
Pay v. Palangca • “when his means permit him to do so” – De Leon: NOT
POTESTATIVE. What depends upon the debtor’s will is not whether

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 OBLICON REVIEWER

he should pay or not pay (VOID) but only the duration of the 2 Kinds of Conditions (Art 1182-1192):
period.
Indications of the Debtor Binding Himself to Pay (VALID) SUSPENSIVE RESOLUTORY
o “little by little” Acquisition of rights Loss of rights
o “as soon as possible” ▪ If it doesn’t happen, it is ▪ If it happens, it produces
o “from time to time” as if the conditional the extinguishment or
o “as soon as I have the money” obligation had never loss of rights ALREADY
o “when I am able to” happened ACQUIRED.
▪ Before the SC takes
Art 1181. In conditional obligations, the acquisition of rights, as well as place, what is acquired is
the extinguishment or loss of those already acquired, shall depend upon mere hope or expectancy
the happening of the event which constitutes the condition. of acquiring a right
Definition
C. CONDITIONAL OBLIGATIONS The happening gives rise to the The happening extinguishes the
• An obligation subject to a condition. obligation obligation
Condition Example
▪ FUTURE AND UNCERTAIN EVENT upon which an I’ll give you a car if you pass your I’ll let you use my car until the
obligation is made to depend midterm exams in Oblicon. day you marry your boyfriend.
o Art 1179 says or → this is wrong
o Future but certain → TERM/PERIOD Other Kinds of Conditions:
o Uncertain but not future → Naturally impossible
o ALL CONDITIONS ARE FUTURE Whether by Will of parties, chance, 3rd person
▪ PAST EVENT UNKNOWN TO THE PARTIES a. Potestative
o The condition in a past event unknown to the b. Casual
parties is knowledge by the parties of the past c. Mixed
event Whether capable of being complied with wholly or partly
o Condition is the knowledge, not the event a. Divisible – susceptible of partial performance
• Example: b. Indivisible – not susceptible of partial performance
o “I’ll give you a car if you pass your midterm exams in Whether how many
Oblicon.” a. Joint – several conditions and all of which must be performed
b. Alternative – several conditions and only one must be
CONDITION PERIOD performed
Future and uncertain event the Future and certain event upon Whether act or inaction
happening of which either gives which the obligation subject to it a. Positive
rise or extinguishes an obligation either arises or is extinguished b. Negative
Q: Why is it important to distinguish? Whether expressly or impied
A: to know the demandability, the fulfillment a. Express – condition is stated expressly
There is an obligation but not yet There is an obligation that is b. Implied/Tacit – condition is merely inferred
demandable. demandable at once Whether it is capable of fulfillment
Example a. Possible – condition is capable of fulfillment, legally and
I’ll give you a car if you pass your I’ll give you a car on July 30, 2022 physically
midterm exams in Oblicon. b. Impossible
(suspensive)

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 OBLICON REVIEWER
Art 1182. When the fulfillment of the condition depends upon the sole
will of the debtor, the conditional obligation shall be void. If it depends
upon chance or upon the will of a third person, the obligation shall take
effect in conformity with the provision if the Code.
Kinds of Suspensive Conditions
a. POTESTATIVE
▪ SC depends upon the will of one of the contracting parties
Classifications:
o SUSPENSIVE C upon the will of the debtor:
▪ Requisites:
▪ Suspensive (if resolutory, VALID)
▪ Dependent on the will of the debtor
▪ Obligation → VOID
▪ Example: “I’ll give you my car if I’m in a good mood.”
▪ Why void? There is no juridical tie. In an obligation, it
has to be performed regardless of the will of the debtor.
There is no element of compulsion. Here, the creditor
being the active subject cannot do anything because the
condition depends upon the sole will of the debtor
▪ What if there’s a pre-existing obligation? Only the
condition is VOID; Obligation is unaffected
▪ Example: X borrowed money from Y payable in a
week. Subsequently, X promised to pay Y “after
I sell my pig”, Y agreed. Here, only the
condition is void, not the pre-existing obligation
to pay.
o SUSPENSIVE C upon the will of the creditor:
▪ Obligation → VALID
▪ Example: “I will pay you my indebtedness upon your
demand.”
▪ The obligation does not become illusory.
Normally, the creditor is interested in the
fulfillment of the obligation because it is for his
benefit. It is up to him whether to enforce his
right or not.
o RESOLUTORY C upon the will of the debtor:
▪ Obligation → VALID
▪ Example: “I will give you my car now. But if I resign from
work, I will get the car.”
▪ The fulfillment of the condition merely causes
the extinguishment or loss of rights already
OBLICON REVIEWER
acquired. The debtor is naturally interested in
its fulfillment.
b. CASUAL
▪ fulfillment of suspensive condition depends upon chance and/or
upon the will of a 3rd person and not on the will of the parties
▪ Obligation → VALID
▪ Example: “I’ll give you a car if I win the lottery.”
c. MIXED
▪ fulfillment of the suspensive condition depends partly upon the
will of a party to the obligation and partly upon chance and/or
the will of a 3rd person
▪ when the condition depends not only upon the will of a debtor,
but also upon chance or will of others
▪ Obligation → VALID
▪ Example: “I’ll give you a car if John marries you within 2 years.”
▪ Partly creditor; partly 3rd person-John
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.
IMPOSSIBLE CONDITIONS
o This article refers to suspensive conditions which are onerous in
nature
o A condition not capable of realization according to nature, law,
public policy or good customs
o Effect: annuls the obligation to which it is attached.
o Obligation → VOID
Kinds of Impossible Conditions:
1. Impossibility IN FACT
o Contrary to law of nature
o Suspensive condition not to do a physically impossible
thing is considered not imposed or not agreed upon
since there is no possibility that the condition will
happen to render the obligation void.
o Example: “I’ll give you my car if the sun rises in the west
and sets on the east.”
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 OBLICON REVIEWER

Art 1184. The condition that some event happen at a determinate time
2. Impossibility IN LAW shall extinguish the obligation as soon as the time expires or if it has
o Contrary to law, morals, good customs, public policy become indubitable that the event will not take place.
o Suspensive condition not to do a physically impossible
thing is considered VALID POSITIVE SUSPENSIVE CONDITIONS
o Example: A contract of sale of a house and lot o Non-occurrence of the condition PREVENTS the obligation from
with a stipulation that the vendee shall not use arising
the property for the manufacture of shabu. o “extinguish” is faulty wording
o If resolutory → Non-occurrence will make the right absolute
Impossible upon conception Impossible after o Example: I will allow you to use my house unless
(Original impossibility) (Supervening impossibility) candidate X wins the elections.
To do Condition: VOID Obligation: As if the
Obligation: VOID obligation did not exist Art 1185. The condition that some event happen at a determinate time
Not to do N/A shall render the obligation effective from the time indicated has elapsed,
In fact Considered not imposed or if it has become evident that the event cannot occur.
Obligation: PURE & VALID 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
In law Obligation: PURE & VALID nature of the obligation.
Divisible Partly void; partly valid
Pre- Condition: VOID NEGATIVE SUSPENSIVE CONDITIONS
existing Obligation: VALID o Non-occurrence will GIVE BIRTH to the obligation
obligation o If resolutory → Non-occurrence will extinguish the obligation

Art 1184 (Positive Suspensive) Art 1185 (Negative Suspensive)

NEGATIVE SUSPENSIVE CONDITIONS Example: Example:
o Non-performance or non-occurrence of a thing Jose obliges himself to give Jose obliges himself to give
o Functionally like a resolutory condition because the performance pregnant woman Maria P5000 if pregnant woman Maria P5000 if
or occurrence of the thing will cancel the obligation she gives births on or before she does not give birth on
o True where the condition has no determinate time but is December 30 December 30
indefinite/permanent
o But if the time specified for its non-occurrence is Jose is LIABLE if Maria gives birth Jose is NOT LIABLE if Maria gives
determinate → suspensive condition Art 1185 on or before December 30. birth on December 30.
Onerous Gratuitous Jose is NOT LIABLE if Maria gives Jose is LIABLE if Maria DID NOT
Contract of sale Donation/Succession birth after December 30. give birth on December 30. – If she
o Impossibility renders it o Impossibility renders it gives before BEFORE or AFTER
VOID pure/not imposable If Maria would have a miscarriage December 30
Why?: because the nature of Why?: because the nature of before December 30, the If Maria would have a miscarriage
the juridical act is onerous the juridical act is gratuitous obligation is EXTINGUISHED before December 30, the
and the defective condition and the raison d’etre is obligation is deemed FULFILLED.
undermines the cause liberality and not something
onerous

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 OBLICON REVIEWER
Art 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
o Refers to suspensive conditions
o DOES NOT APPLY to conditions based on chance
DOCTRINE OF CONSTRUCTIVE COMPLIANCE
o Considered as fulfilled a condition even if it has not in fact been
fulfilled
o Reason: one must not profit by his own fault; JUSTICE & EQUITY
Requisites:
(a) Condition must either be potestative or mixed
(b) Intent of the debtor to prevent fulfillment of the obligation
o Regardless if malicious or not, intent must be present
o Must be voluntary
(c) Actual prevention of compliance
o Intention without prevention or prevention without intention is
not sufficient
Example:
A promised to sell B a car if C will pass the bar.
On the day of the examination, A caused C to be poisoned and be
hospitalized. Hence, C cannot take the bar.
A is still bound to sell the car.
OBLICON REVIEWER
BUT if it turns out that C was really disqualified to take the bar (did not
finish high school), A is not liable.
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
prestation upon the parties, the fruits and interests during the pendency
of the condition shall be deemed to have been mutually compensated. If
the obligation is unilateral, the debtor shall appropriate the fruits and
interests received, unless from the nature and circumstances of the
obligation it should be inferred that the intention of the person
constituting the same was different.
In obligations to do and not to do, the courts shall determine, in each
case, the retroactive effect of the condition that has been complied with.
o Refers to suspensive conditions
PRINCIPLE OF RETROACTIVITY
o Fulfillment of suspensive conditions → Obligation arises
o From what day?
GR: from the day the obligation was constituted
XPT:
a. Fruits/Interest: the right will go to creditor on the day
the obligation arises (upon fulfillment of suspensive
condition)
b. Prescription: period runs upon fulfillment of suspensive
condition
o RETROACTIVITY is not absolute.
Obligations to give:
o Demandable upon fulfillment of suspensive condition
o Retroact to the day when the obligation was constituted
o WHY?:
o Condition is only an accidental element of a contract
o Had the parties known that the condition will happen,
they would’ve bound themselves under a pure obligation
o HENCE, the obligation should retroact from the time it is
constituted and not from the time when the condition is
fulfilled.
o Effect: creditor’s rights retroact (ex. Right of accretion,
house river example-change in size of the lot)
Obligations to do/not to do:
o Case-to-case basis
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 OBLICON REVIEWER

o As to DEBTOR:
As to the fruits/interest: o Type of solutio indebiti (payment by mistake)
o Reciprocal obligations o Debtor has RIGHT TO RECOVER
o Mutually compensated Requisites:
o If retroactive also the fruits, the creditor will be unduly (a) Payment made by mistake
advantaged (b) Demand is made before the happening of the condition
o Example: A promised to give B a mango tree while B
promised to give him a dog (pregnant) if candidate X wins Right to recover by debtor
the elections. The tree bore fruits and the dog gave Dr and Cr are aware *condition deemed waived
birth. X wins the elections. The mango fruits will be Dr aware + before condition *condition deemed waived
retained by A while the puppies will be retained by B Cr not aware
because fruits in reciprocal obligations are deemed to be Dr paid + condition happened + x
mutually compensated. not aware
o Unilateral obligations Dr paid by mistake ✓
o NO RETROACTIVE EFFECT because gratuitous Cr in GF Liability of creditor: Art 2160
o Example: A promised to give B a mango tree if B passes Impairment/Loss
the bar exams. A does not have to give B the mango Accessories and Accessions
fruits from the time the agreement up to the release of If Cr alienated, return the price or
the bar exam results because before the fulfillment of assign the action to collect the
the condition, the debtor owns the fruits. sum
Dr paid by mistake ✓
Q: Does it cover a generic thing? Cr in BF Liability of creditor: Art 2159
A: Not all the provision applies to a generic thing. ONLY THE FIRST
SENTENCE. The rest applies to specific thing only because obligation to Legal interest (sum of money)
Fruits (no money involved)
deliver fruits/accessories only apply to specific things
Impairment/Loss
Damages
Art 1188. The creditor may, before fulfillment of the condition, bring
Condition happens x*
the appropriate actions for the preservation of his right.
Liability of creditor: Fruits before
happening of condition
The debtor may recover what during the same time he has paid by
Condition does not happen ✓
mistake in case of a suspensive condition.

o Refers to suspensive conditions
RIGHTS PENDENTE CONDICIONE
o As to CREDITOR:
JBL: “to bring appropriate actions” refers to judicial actions. “to
take appropriate actions” is better since it does not limit the
coverage to judicial actions.
o Example: Creditor, before happening of condition, may
go to registry of property to annotate adverse claims on
the title
o BEFORE condition: he is not a creditor yet. He does not
have the right to demand performance
Art 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules
shall be observed in case of the improvement, loss or deterioration of
the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall
be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged
to pay damages; it is understood that the thing is lost when it perishes,
or goes out of commerce, or disappears in such a way that its existence
is unknown or it cannot be recovered;

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(3) When the thing deteriorates without the fault of the debtor, the o Disputable presumption of fault/negligence of the debtor if loss
impairment is to be borne by the creditor; occurred while the thing is in his possession (Art 1265)
(4) If it deteriorates through the fault of the debtor, the creditor may
choose between the rescission of the obligation and its fulfillment, with II. DETERIORATION
indemnity for damages in either case; o When its value is reduced or impaired with or without the fault
(5) If the thing is improved by its nature, or by time, the improvement of the debtor
shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other Kinds:
right than that granted to the usufructuary. Fortuitous deterioration
o Creditor bears it
o Refers to suspensive conditions Culpable deterioration
o Applies in obligation to deliver determinate/specific thing o Creditor may choose specific performance or rescission
o this contemplates total loss o Rescission: deterioration must be substantial
o If loss, deterioration and improvement happens after fulfilment → o Damages only: when deterioration is minimal
chapter 2 applies (delay, etc)
III. IMPROVEMENT
Requisites: o Include anything that enhances the value of the thing
(a) Obligation is subject to suspensive condition
(b) To deliver determinate/specific thing Kinds:
(c) There is loss, deterioration, or improvement before happening Fortuitous improvement (by nature/time)
of condition o Creditor benefits from it
(d) Suspensive condition happens o XPT: fruits that arise before fulfillment of condition
Improvement at Debtor’s expense
I. LOSS o Art 579. Usufructuary may make on the property useful
improvements for mere pleasure provided, he does not alter its
Kinds: form or substance; He may remove such improvements without
Fortuitous Loss (without debtor’s fault) damage to the property
o Perishes o Art 580. The usufructuary may set off the improvements he may
o Goes out of commerce have made on the property against any damage (not loss) to the
o It disappears in such a way that its existence is unknown same.
o It disappears in such a way that it cannot be recovered
o Total loss: Obligation is extinguished (Art 1189)
o Partial loss:
o That would amount to a loss important enough to be
considered a total loss (determined by courts) (Art 1263)
o That would merely be considered a deterioration of the
thing, in which case the rules on deterioration should
apply

Culpable Loss (with debtor’s fault)

o Obligation: Not extinguished, converted into a liability to pay
damages
o Choice is with the injured party

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 OBLICON REVIEWER
CLASS NOTES
Q: Why is Art. 1189 only applicable to determinate things?
A: Generic things can be replaced
Q: Who bears the risk of loss-creditor or debtor?
A: Before the happening of the condition, the risk is with the debtor.
• Art. 1189 only applies to circumstances before the happening
of the condition
• For improvements: A debtor cannot tell the creditor to pay the
value of improvements unless there is stipulation of the
contrary
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
provisions which, with respect to the debtor, are laid down in the
preceding article shall be applied to the party who is bound to return.
As for the obligations to do and not to do, the provisions of the second
paragraph of Article 1187 shall be observed as regards the effect of the
extinguishment of the obligation.
o Refers to resolutory conditions
1st par:
MUTUAL RESTITUTION
o Requires parties to respectfully return what they have received
Effects of fulfillment of Resolutory conditions:
o Obligations to give
o Obligation → EXTINGUISHED
o Treated as if obligation did not exist
o Hence, each party is bound to return whatever he has
received so that they may be returned to their original
condition (status quo) before the creation of the
obligation (Art 1190)
OBLICON REVIEWER
o Obligation of mutual restitution is absolute and the
obligation is deemed to not have existed upon happening
of resolutory condition. FRUITS are included. (Manresa)
o If thing returned is legally in the possession of a 3rd party
in good faith: No rescission. Remedy is to demand
damages from party who caused the loss (Art 1385, par 2)
o If condition not fulfilled: rights acquired by a part
become vested/absolute
o Obligations to do or not to do
o Case-to-case basis (courts will determine)
o Art 1187 applies
2nd par:
Loss, Deterioration, Improvements
o See Art 1189
o The debtor referred to in 1189 is the party obliged to return
3rd par: see above “Obligations to do or not to do”
Rescission/Resolution
Art 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with Articles 1385 and 1388
and the Mortgage Law.
o Applies to reciprocal obligations
o This refers to a breach in the obligation. The breach itself is a
resolutory condition (i.e. the obligation is valid and ongoing until
you commit a breach which will warrant “resolution”. Parties go
back to status quo before inception of the obligation)
o Balane: “Resolution” is more appropriate. “rescission” is
applicable to Art 1381 on rescissible contracts
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 OBLICON REVIEWER
1st par: Power to resolve is implied in reciprocal obligations in case one
party did not comply his obligation.
2nd par: Injured party has 2 choices whether fulfilment/performance or
resolution of the obligation with damages in both cases. These are
alternative remedies, not cumulative. He may choose to resolve even after
initially choosing fulfilment if fulfilment becomes impossible.
3rd par: Court shall decree the resolution claimed unless there is just cause
in authorizing the fixing of period.
4th par: The rights of 3rd persons who acquired the thing in accordance to
Art 1385, 1388 and the Mortgage Law is without prejudice.
Resolution (Art 1191) Rescission (Art 1381)
Speaks of breach of faith or There must be damage or injury.
contravention. Breach must be
substantial (Universal Foods)
Principal (JBL, concurring in Subsidiary (when it shows that
Universal case which became case there is no legal remedy left)
law)
RECIPROCAL OBLIGATIONS
o Each parties is the debtor and creditor of the other
o It imposes a counterpart prestation on the parties
o Arise from the same cause
o BUT not specified in the code whether it’s simultaneous or not
▪ Tolentino: it is to be performed simultaneously
so that performance of one is conditioned upon
simultaneous fulfillment of the other
Requisites:
(a) 2 prestations arising from the same source
(b) Each prestation is designed to be the counterpart of the other
Is judicial action required for a successful resolution?
UP v. De los Angeles
Facts: UP and ALUMCO entered into a logging agreement whereby
ALUMCO was granted exclusive authority to cut, collect and remove
timber from the Land Grant given to UP in consideration of payment of
royalties and forest fees. On Dec. 8, 1964, ALUMCO incurred an unpaid
account of P219,362.94 and despite repeated demands, failed to pay.
So UP sent a notice to rescind the logging agreement. ALUMCO executed
an instrument which stipulated that “in the event that the debtor fails
to comply with any of its promises, the Debtor agrees without
reservation that Creditor shall have the right to consider the Logging
Agreement rescinded, without the necessity of any judicial suit.”
ALUMCO again incurred an additional unpaid account. On July 19,1965,
OBLICON REVIEWER
UP informed ALUMCO that it had, as of that date, considered rescinded
the logging agreement.
Issue: W/N the unilateral resolution of UP is proper. – YES.
Extrajudicial resolution is allowed but subject to judicial review
should the other party file a case to the court assailing the
resolution.
Held: U.P. can treat its contract with ALUMCO rescinded, and may
disregard the same before any judicial pronouncement to that effect.
UP and ALUMCO expressly stipulated that upon default by the debtor,
UP has the right and the power to consider the Logging Agreement
rescinded without the necessity of any judicial suit. “There is nothing in
the law that prohibits the parties from entering into agreement that
violation of the terms of the contract would cause cancellation thereof,
even without court intervention. In other words, it is not always
necessary for the injured party to resort to court for rescission of
the contract.” It must be understood that the act of a party in treating
a contract as cancelled or resolved on account of infractions by the
other contracting party must be made known to the other and is always
provisional, being ever subject to scrutiny and review by the proper
court. The party who deems the contract violated many consider it
resolved or rescinded, and act accordingly, without previous court
action, but it proceeds at its own risk. For it is only the final judgment
of the corresponding court that will conclusively and finally settle
whether the action taken was or was not correct in law.
Effect of extrajudicial resolution if there is a stipulation:
o Resolution takes effect upon notice to other party
o Offending party can challenge the resolution in court
o Court decision:
o If proper → obligation is resolved at the time notice was
sent
o If not → obligation not deemed resolved
Effect if there is no extrajudicial resolution in the stipulation:
o UP case: “merely transfers to the defaulter the initiative of
instituting suit, instead of the rescinder.”
Summary of rulings on resolution (Balane and UP case):
o The right to resolve is inherent in reciprocal obligations. It exists
without need of stipulation to that effect.
o The breach of the obligation must be substantial
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 OBLICON REVIEWER
o Proof of substantial breach is a prerequisite for
resolution.[Zulueta v. Mariano].
o The aggrieved party may choose to resolve either judicially or
extrajudicially.
o The option to resolve extrajudicially is available even if such right
is not expressly agreed upon by the parties.
o If the option of extrajudicial resolution is exercised, the resolver
may treat the obligation as resolved, and act accordingly.
o Should the aggrieved party choose to resolve extrajudicially, the
other party has the right to go to court to challenge the propriety
of the extrajudicial resolution. Thus making it provisional (subject
to judicial review).
o Should the extrajudicial resolution be proper, it shall be deemed
to have taken effect upon notice.
o Should the extrajudicial resolution be improper, then the
obligation shall be deemed to have never been resolved.
o If the aggrieved party has performed the prestation, the aggrieved
party can demand recovery. If the defaulting party refuses to
return it, the aggrieved party must go to court in order to
recover.
Nissan Car Lease Philippines v. LMI
Facts: LMI, absolute owner of the property, and NCPLI entered into a
Contract of Lease. NCPLI became delinquent in the payment of monthly
rentals, so there was a verbal agreement for the debt to be covered by
a promissory note and 12 postdated checks, however, NCPLI failed to
comply with such. LMI sent a letter to NCPLI stating that they were
rescinding the contract due to the long overdue rental payments and
asked the latter to pay said rentals and vacate the premises. NCPLI
replied to LMI stating that they don’t intend to abandon the lease and
are making efforts to negotiate a sublease with Proton, who they
entered into a Memorandum of Agreement with. LMI, not agreeing with
NCLPI’s reply, decided to directly enter into a Contract of Lease with
Proton over said property, and LMI, in addition, filed a complaint to
claim damages from NCLPI. RTC and CA ruled in favor of LMI.
Issue: W/N LMI can extrajudicially resolve the contract of lease even
without stipulation and if it is proper. – YES & YES.
Held: SC ruled in favor of LMI, stating that although there is no express
provision in NCLPI and LMI’s Contract of Lease regarding extrajudicial
rescission, LMI can still do so pursuant to Art 1191 of the CC, which
provides that the power to rescind is implied in reciprocal
OBLICON REVIEWER
obligations, in cases where one party fails to comply with what is
incumbent upon him.
Universal Food v. CA
Facts: The formula of Mafran sauce was invented by Magdalo. Magdalo
secured the financial assistance of Reyes which lead to the execution of
the Bill of Assignment with Universal. The terms of the BoA state that
Magdalo will be chief chemist on a permanent status and Victoriano, the
auditor and superintendent in exchange of the “use” of the formula of
the Mafran sauce. It also stated that in the event of Magdalo’s death,
the shares or assigns shall be preferred to succeed them. Due to
scarcity of raw materials, President of Universal Food, Tirso Reyes
through a memo ordered to stop payment of salaries of Magdalo until it
resumes operation. However, from the day he was laid off, Magdalo was
not recalled back to work so he filed a case in court.
Issue: W/N resolution by Magdalo is proper. – YES.
Held: BOA can be rescinded. Universal Foods argue that there can be no
rescission because it can only be granted if the person suffering
economic damage has no other recourse for reparation. This is not the
case here. In this case, there is no controversy that the provisions of
the Bill of Assignment are reciprocal in nature. The corporation violated
¶5-(a) and (b) of the BOA by terminating the services of the Magdalo
without lawful and justifiable cause. Rescission of a contract will not
be permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very object
of the parties in making the agreement. The question of whether a
breach of a contract is substantial depends upon the attendant
circumstances. It is to be emphasized that the respondent patentee
would not have agreed to the other terms of the Bill of Assignment
were it not for the basic commitment of the petitioner corporation
to appoint him as its Second Vice-President and Chief Chemist on a
permanent basis; that in the manufacture of Mafran sauce and other
food products he would have "absolute control and supervision over the
laboratory assistants and personnel and in the purchase and
safeguarding of said products;" and that only by all these measures
could the respondent patentee preserve effectively the secrecy of the
formula, prevent its proliferation, enjoy its monopoly, and, in the
process afford and secure for himself a lifetime job and steady income.
The fact remains that the Franciscos had no alternative but to file the
present action for rescission and damages.
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 OBLICON REVIEWER
JBL, concurring: The rescission on account of breach of stipulations is
not predicated on injury to economic interests of the party plaintiff but
on the breach of faith by the defendant, that violates the reciprocity
between the parties. It is not a subsidiary action, and Article 1191 may
be scanned without disclosing anywhere that the action for rescission
thereunder is subordinated to anything other than the culpable breach of
his obligations by the defendant. This rescission is in principal action
retaliatory in character, it being unjust that a party be held bound to
fulfill his promises when the other violates his. Hence, the reparation
of damages for the breach is purely secondary. On the contrary, in the
rescission by reason of lesion or economic prejudice, the cause of action
is subordinated to the existence of that prejudice, because it is the raison
d'etre as well as the measure of the right to rescind. Hence, where the
defendant makes good the damages caused, the action cannot be
maintained or continued, as expressly provided in Art.1383 and 1384. But
the operation of these 2 articles is limited to the cases of rescission for
lesion in Art. 1381, and does not, apply to cases under Art. 1191.
What is the effect of resolution? Mutual Rescission
Magdalena v. Myrick
Facts: Magdalena Estate sold to Myrick lots providing that the price shall
be payable in 120 equal monthly installments. Myrick made several
monthly payments however made a default on payment. Magdalena
notified Myrick that agreement has been cancelled as of that date,
thereby relieving him of any further obligation and that all the amounts
already paid by him had been forfeited in favor of Magdalena.
Issue: W/N the effect of resolution makes the obligation void in its
inception which warrants Magdalena the right to forfeit the sums
received. – NO. Effect is mutual restitution or to go back to status quo
before inception of the contract.
Held: Myrick should recover sums he paid. The contract was rescinded.
Magdalena argues that the letter was just a notification and since
Myrick did not reply there was no rescission. Magdalena’s acts of taking
possession of the lots, not demanding the balance and reiterating the
intent to cancel show that it intended to cancel the contract. The fact
that the parties did not provide for resolution is now of no moment. The
obligations arising from the contract of sale being reciprocal, such
obligations are governed by art. 1191, which declares that the power to
resolve, in the event that one of the obligors should not perform his
part, is implied. The contract of sale contains no provision authorizing
the vendor, in the event of failure of the vendee to continue in the
payment of the stipulated monthly installments, to retain the amounts
OBLICON REVIEWER
paid to him on account of the purchase price. Magdalena’s claim that it
has the right to forfeit said sums is untenable. Magdalena may choose
between demanding the fulfillment of the contract or its resolution.
These remedies are alternative and not cumulative, and Magdalena,
having elected to cancel the contract cannot avail himself of the other
remedy of exacting performance.
Balane: Effect of resolution is to go back to status quo or the original state
of the parties before the inception of the obligation, NOT make the
obligation void from its inception.
CLASS NOTES
Q: (UP case) Does the offending party have to file judicial action upon
receipt of notice of rescission (resolution)?
A: Yes if he wants to challenge it because not filing a case would be an
admission of fault making the rescission proper.
Q: When will rescission be improper?
A: The Court will check facts–whether there is basis–if there was
substantial breach to justify the rescission.
Q: Is mutual restitution required in Art. 1191?
A: Yes, to return parties to their status quo.
Q: Can the FRUITS be returned upon resolution?
A: NO. Fruits are not included. Entitled to retain the fruits before
resolution.
Art 1192. In case both parties have committed a breach of the
obligation, the liability of the first infractor shall be equitably tempered
by the courts. If it cannot be determined which of the parties first
violated the contract, the same shall be deemed extinguished, and each
shall bear his own damages.
NOTE: this is different from in pari delicto
Effect on liability
Breach is bilateral First infractor’s liability is correspondingly
and independent reduced.
but not
simultaneous
Breach is bilateral No liability
and independent
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 OBLICON REVIEWER

and also Contract: deemed extinguished and shall bear the precise time of such
simultaneous own damages occurrence is not known
Failure to establish Raises presumption of simultaneity. Ex. Death
the sequence of Contract: deemed extinguished and shall bear “When Pres. Duterte steps
breaches own damages down from Presidency”
“When the bar exam
CLASS NOTES results will be released”
As to time Future Future
Failure to deliver money is not a breach of obligation because it is a
As to Merely fixes the time or Causes an obligation to
generic thing
influence on the effectivity of the arise or extinguish
the obligation (or when it can
obligation be demandable)
Section 2. Obligations with a Period
Art 1193. Obligations for whose fulfillment a day certain has been fixed, NOTE: Period may have a
shall be demandable only when that day comes. suspensive or resolutory
effect.
Obligations with a resolutory period take effect at once, but terminate In suspensive, it cannot
upon arrival of the day certain. prevent the birth of the
obligation in due time.
A day certain is understood to be that which must necessarily come, In resolutory, it does not
although it may not be known when. militate against its
existence.
If the uncertainty consists in whether the day will come or not, the Because of this difference,
obligation is conditional, and it shall be regulated by the rules of the a period does not carry
preceding Section. with it the same
retroactive consequences
PERIOD/TERM that follow a condition,
o A space of time which has an influence on obligation as a result of EXCEPT when there is an
a juridical act, and either suspends their demandableness or express stipulation.
produces their extinguishment As to effect Empowers the court to fix Annuls the obligation
when left to the duration
OBLIGATIONS WITH A PERIOD the will of
o Are those whose consequences are subjected in one way or the debtor
another to the expiration of said period/term As to Does not have any Has retroactive effect
retroactivity retroactive effect
Period Condition of effects
As to Certain as to time – date Uncertain
fulfillment can be definitely Classification of periods:
determined or computed Suspensive period Resolutory period
Ex. June 3, 2022 From a day certain give rise to the Arrival of a term certain
“two days from now” obligation terminates the obligation

Certain as to fact – when Ex. “I will support you beginning Ex. “I will support you until
its occurrence is sure but Jan 1, 2023.” January 1, 2023

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 OBLICON REVIEWER

Art 1195. Anything paid or delivered before the arrival of the period, the
CLASS NOTES obligor being unaware of the period or believing that the obligation has
Q: “When the person turns 18” – condition or period? become due and demandable, may be recovered, with the fruits and
A: Condition since the occurrence is not certain interests.

Q: When does period of prescription begins? o This provision refers to suspensive periods
A: It commences upon arrival of the term in the obligation, since that is
the date it is due and demandable. What can be recovered
Prepayment + Thing/payment, fruits/interest
Suspensive Condition Suspensive Period debtor is unaware
Happening gives birth to the There is an obligation already; that period has not
obligation and its demandability Happening gives birth to the arrived yet
demandability of the obligation Prepayment + Balane: provision is silent BUT commentaries say
debtor is aware that Art 6 applies wherein debtor waives the
Resolutory Condition Resolutory Period benefit of the term. Hence, no recovery.
It is demandable at once but the It is demandable at once and you
condition is uncertain to happen know it will end because a period Example: An obligation was entered on May 1, 2002 between A and B. The
so you don’t know when it will end is determined obligation is to be performed on October 1, 2002. A delivers on September
1, 2002 by mistake to B. A discovers his mistake and tells B to return the
Art 1194. In case of loss, deterioration or improvement of the thing object and the fruits delivered.
before the arrival of the day certain, the rules in Article 1189 shall be o A cannot recover when:
observed. o A realizes his mistake on Oct 30 (when term has come)
o A knows that it is due on Oct 1 but chooses to pay before
that time (he waives the benefit of the period)
o This provision refers to suspensive periods
Tolentino: applies only to obligations to give.

Who is entitled to the fruits that were produced during May 1, 2002 to
October 1, 2002?
Possible answers:
o Spanish Code: Debtor (A) can only recover fruits
o Tolentino: Debtor is entitled to the fruits during that period
Why?: because delivery is not yet required until October 1

Balane: Fruits belong to the debtor.

o Creditor is entitled to the fruits since obligation is

demandable only when the period arrives.
Why?: because the obligation is already existing although it is
not yet demandable

When Fruits CANNOT be recovered: (Tolentino)

o When obligation is reciprocal and there is premature
performance on both sides

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 OBLICON REVIEWER
o Compensation
o When the obligation is a loan and the debtor is bound to pay
interest
o Application of payment – instead of recovery, the
interest being burdensome on the debtor, the law
will apply it to the interest-bearing debt
o When the period is exclusively for the creditor’s benefit
o The creditor may compel you anyway to pay in
advance so you lose nothing if you don’t recover
o When the debtor is aware of the period and pays anyway
(WAIVER)
o Aka “advance payment”
Art 1196. Whenever in an obligation a period is designated, it is
presumed to have been established for the benefit of both the creditor
and the debtor, unless from the tenor of the same or other circumstances
it should appear that the period has been established in favor of one or
of the other.
Basis:
PRINCIPLE OF MUTUALITY OR BILATERALITY
GR: Term is for the benefit of the debtor or creditor
o Debtor cannot pay prematurely; Creditor cannot demand
prematurely
XPN:
o For the benefit of the debtor alone
o Debtor can oppose a premature demand for payment but
may validly pay at any time before the period expires
o Example: “I promise to pay within 6 months from date”,
“I promise to pay on or before June 1, 2016.”
o For the benefit of the creditor alone
o The creditor can demand performance at any time, but
the debtor cannot compel him to accept payment before
the period expires
o Example: D promised to pay on Dec 1, 2005 with the
creditor given the right to demand performance even
before said date
Q: “I will pay you…”
o “… on March 31” – benefit of both
o “… by/on or before March 31” – benefit of debtor
o “… on March 31 with the Cr given the right to demand
performance before March 31” – benefit of creditor
OBLICON REVIEWER
Art 1197. If the obligation does not fix a period, but from its nature and
the circumstances it can be inferred that a period was intended, the
courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon
the will of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once
fixed by the courts, the period cannot be changed by them.
1st par: if obligation has no period, and from its nature and circumstances,
it can be said that a period was intended, the courts may fix the period
2nd par: Courts will fix the period if the period depends on the will of the
debtor
3rd par: In every case, courts shall determine the period in circumstances
that may have been probably contemplated by the parties and once the
periods are fixed by the courts, the period can no longer be changed by
the parties
GR: Courts CANNOT fix the period (Basis: Araneta case)
XPN:
o Art 1197 (1): When a period is intended but period is not fixed
o To prevent the possibility that it may not be fulfilled
o Example: A contract to construct a house where the
period was not stated.
XPN to XPN: Even if a period was intended, the courts cannot
fix the period if
o Art 1682: If the period for a lease of a piece of
rural land has not been fixed, it is understood to be
the time necessary for the gathering of the fruits
which the land may yield in one year, or whatever
time necessary to produce fruits which it may yield
once.
o Art 1687: If the period for the lease has not been
fixed, it is understood to be from year to year, if the
rent agreed upon is annual; from month to month, if
it is monthly; from week to week, if the rent is
weekly; and from day to day, if the rent is to be paid
daily...”
o Art 1606/pacto de retro sales: “... In the absence
of an express agreement, shall last four years from
the date of the contract. Should there be an
agreement, the period cannot exceed ten years.”
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 OBLICON REVIEWER
o Contracts of services for an indefinite period (where
the fixing of a period would run afoul of the
constitutional provision against involuntary
servitude)
o Art 1197 (2): When it depends on the will of the debtor
o To cure the defect whereby it is made solely to depend
upon the will of the parties
o Example:
▪ “when my means permit me to do so”
▪ “I’ll pay you little by little”
▪ “as soon as possible”
▪ “as soon as I have money”
▪ “in partial payments”
o Art 1191 (3): “The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of a period.”
o Art 1180: "When the debtor binds himself to pay when his means
permit him to do so, the obligation shall be deemed to be one
with a period, subject to the provisions of Article 1197"
o Art 448: The courts may fix a period for the lease if the
landowner (who cannot exercise the option of selling the land to
the builder in good faith because the value of the land is greater
than that of the improvement) decides to lease the land to the
builder.
NOTE: The Court may fix the period but not according to what’s reasonable
or what’s fair but what’s been contemplated.
o The court should make an educated guess.
Araneta, Inc. v. Phil Sugar
Facts: Araneta sold land to Phil Sugar. Phil. Sugar was obliged to build
Sto. Domingo Church on a portion of the land, while Araneta was
supposed to construct the streets around it. Araneta failed to comply. It
argued that the action was premature since its obligation to construct
the streets in question was without a definite period which needs to be
fixed first by the court in a proper suit for that purpose before a
complaint for specific performance will prosper. The lower courts held
that there was no period fixed hence came up with a ruling that the
streets should be built within 2 years based on the facts of the case.
Issue: W/N the obligation to construct a street is without a period. –
NO. The obligation is with a period “until squatters are duly evicted”
Held: The Court ruled that the lower courts erred in fixing a period of 2
years since based on the facts and circumstances of the case, it is
OBLICON REVIEWER
revealed that there is indeed a period contemplated by the parties
which is “until the squatters are duly evicted” since the area is
occupied by squatters and that parties should know that there must be
due process in their eviction. The Court here said that the lower courts
did not justify the imposition of the 2-year period and is not supported
by facts.
The guide in fixing periods involve a 2-step process.
(1) The courts must determine that the obligation does not fix a
period but it can be inferred that a period is intended.
(2) Decide what period was probably contemplated by the parties.
Hence, the court here ruled that the trial courts erred in fixing a period
of 2 years since it is contemplated that the reasonable time referred to
is until the squatters are duly evicted.
NOTE: Fixing a period CANNOT be coupled with specific performance.
XPN: In instances where a separate action to demand performance would
be a mere formality and only dilatory
Art 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes
insolvent, unless he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the 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.
Applicable: to those that is for the benefit of the debtor
Q: What about beneficial to BOTH?
Sir Dake: think about it…
GR: Obligations are not demandable before the lapse of the period
XPT: (Here, obligation transforms to a pure obligation)
o Debtor becomes insolvent (AFTER obligation is contracted)
XPN to XPN: Debtor gives guaranty or security
o Debtor does not furnish guaranties or security promised
o When guaranties or securities given have been impaired or
disappeared
o “Impaired” – not totally destroyed
o “Disappeared” - lost
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 OBLICON REVIEWER
XPN to XPN: Debtor immediately give new ones
o Debtor violates an undertaking
o Debtor attempts to abscond (escape)
o Intent to do is sufficient
Section 3. Alternative & Facultative Obligations
Art 1199. A person alternatively bound by different prestation shall
completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the
other undertaking.
ALTERNATIVE OBLIGATIONS
o Obligation that specifies two or more prestation, only one or more
(but not all) of which should be performed
GR: Debtor in an alternative obligation cannot validly discharge the
obligation by making partial performance of each.
XPT: If the debtor is authorized to perform combinations of prestation.
Example: A has an obligation to deliver to B either 100kgs of rice or sugar.
A cannot deliver 50kgs of rice and 50kgs of sugar.
Why?: Requirement of integrity (completeness) of payment/performance.
Art 1200. The right of choice belongs to the debtor, unless it has been
expressly granted to the creditor.
The debtor shall have no right to choose those prestation which are
impossible, unlawful or which could not have been the object of the
obligation.
GR: Right of choice of prestation belongs to the debtor
o LIMITATION: he cannot choose those prestations which are
impossible, unlawful, or not the object of the obligation
XPT: It has been expressly granted to the creditor or a third person
CLASS NOTES
Q: what about a stipulation that both debtor and creditor has a choice?
A: Can be. Not prohibited by law but it’s impractical
OBLICON REVIEWER
Q: can the creditor question the choice of the debtor, absent any
agreement that creditor has no such right?
A: Generally, NO. It would negate the right of choice. BUT if it’s illegal
or impracticable, he can question it.
Example: A is obliged to give B this car, this ring, or this watch. Nothing is
said in the contract as to who was given the right of choice. Suppose B
selects the car, is A bound by the choice made?
A: NO, A is not bound by the choice. In an absence of any stipulation, the
right to choose is with A, the debtor.
Example: A is bound to give B a pack of shabu, or a bottle of milk taken
from a dragon, or a particular cigarette case, or a particular fountain pen.
A cannot choose the first, because this would be unlawful; nor the second,
because this is impossible. A can, therefore, choose only between the third
and the fourth.
Art 1201. The choice shall produce no effect except from the time it has
been communicated.
NOTE: Choice must be communicated to create an effect
Form: ANY – writing, expressly, or impliedly
Effect of communicating choice: Becomes a simple/specific obligation
Reason for communicating:
o Choice is to the creditor or 3rd party – need to communicate so
he’ll know the prestation to perform
o Choice to debtor – outright without communicating or still need?
o Balane: Consent of creditor is immaterial
o If improperly made, creditor can refuse to accept
o Principle of equity: creditor is notified in order to allow him
reasonable time to prepare for acceptance since there may be
cases where it may entail some preparation
Remedy of Cr if Dr fails to make a choice:
Tolentino: Creditor file a suit to set a period for the Debtor to choose. If
Debtor is in default, court will make a choice
Ong Guan Can v. Century Insurance
Facts: Plaintiff insured against fire its building and merchandise in
respondent Century Insurance for the sum of P45,000. Under the
conditions of the insurance, if ever the subject insured gets burned by
JADEL KAYE GINES | D 2025
 OBLICON REVIEWER
fire, the company may at its option replace the property
damaged/destroyed (not more than the sum insured by company) or pay
damages. The company opted to rebuild the building but failed to give
notice to the plaintiff. Plaintiff filed a case before the trial court to
recover damages from the company. Trial court ruled in favor of the
Plaintiff and ruled to grant the latter damages.
Issue: W/N the obligation of the company is an alternative one. – YES.
W/N the choice of the company was proper. – NO. Company must have
communicated its choice to the plaintiff so he may have the
opportunity to impugn the latter.
Held: It must be noted that in alternative obligations, the debtor, the
insurance company in this case, must notify the creditor of his election,
stating which of the two prestations he is disposed to fulfill, in
accordance with article 1133 (now Art 1201) of the Civil Code. The
object of this notice is to give the creditor, that is, the plaintiff in the
instant case, opportunity to express his consent, or to impugn the
election made by the debtor, and only after said notice shall the
election take legal effect when consented by the creditor, or if
impugned by the latter, when declared proper by a competent court.
In the instance case, the record shows that the appellant company did
not give a formal notice of its election to rebuild, and while the
witnesses, Cedrun and Cacho, speak of the proposed reconstruction of
the house destroyed, yet the plaintiff did not give his assent to the
proposition, for the reason that the new house would be smaller and of
materials of lower kind than those employed in the construction of the
house destroyed.
Art 1202. The debtor shall lose the right of choice when among the
prestation whereby he is alternatively bound, only one is practicable.
Example: X is obliged to give Y either object A or object B or object C. If
objects A and B are lost by a fortuitous event before choice can be made,
X can deliver only object C, because the obligation has become a simple
one. If later, object C is also destroyed by a fortuitous event, the
obligation is extinguished, and X would not be liable in any way
Art 1203. If through the creditor's acts the debtor cannot make a choice
according to the terms of the obligation, the latter may rescind the
contract with damages.
OBLICON REVIEWER
Art 1204. The creditor shall have a right to indemnity for damages when,
through the fault of the debtor, all the things which are alternatively the
object of the obligation have been lost, or the compliance of the
obligation has become impossible.
The indemnity shall be fixed taking as a basis the value of the last thing
which disappeared, or that of the service which last became impossible.
Damages other than the value of the last thing or service may also be
awarded.
o Applies when right of choice belongs to the debtor
o and the Loss/Impossibility happened before selection was made
Art 1205. When the choice has been expressly given to the creditor,
the obligation shall cease to be alternative from the day when the
selection has been communicated to the debtor.
Until then the responsibility of the debtor shall be governed by the
following rules:
(1) If one of the things is lost through a fortuitous event, he shall
perform the obligation by delivering that which the creditor should
choose from among the remainder, or that which remains if only one
subsists;
(2) If the loss of one of the things occurs through the fault of the
debtor, the creditor may claim any of those subsisting, or the price of
that which, through the fault of the former, has disappeared, with a
right to damages;
(3) If all the things are lost through the fault of the debtor, the choice
by the creditor shall fall upon the price of any one of them, also with
indemnity for damages.
The same rules shall be applied to obligations to do or not to do in case
one, some or all of the prestation should become impossible.
o Applies when right of choice belongs to the creditor
Q: does it apply when contract is silent as to right of choice?
A: NO. As a rule, right of choice belongs to Debtor
Example:
A (Dr) is obliged to give B (Cr) either: a car, a ring, or a phone
B chose the CAR
o Car – destroyed due to A’s fault
o Ring – lost due to fortuitous event
o Phone – retained, not damaged
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 OBLICON REVIEWER

Q: What are B’s rights? Number or Many but ONLY ONE should Only one thing (principal)
(1) B can demand the phone + damages; or prestations be performed to satisfy is due but the other thing
(2) B can demand the price of the car + damages (because B is the obligation (substitute) may be given
deprived of this right to choose) as payment
*BUT, B cannot ask for the value of the ring because it was lost in a Right of Either: Debtor ONLY
fortuitous event choice o Debtor
o Creditor
Prestations left Fault Choice belongs to DEBTOR Choice belongs to CREDITOR o 3rd person
NONE Fortuitous Obligation extinguished Obligation extinguished
Debtor Value of LAST thing lost + Value of ANY + Damages to Cr
Damages to Cr FORTUITOUS EVENT
Creditor Resolution + Damages to Dr Obligation extinguished
ONE left Fortuitous Loses right to choose; Loses right to choose;
What is lost Effect
becomes Pure Obligation becomes Pure Obligation BEFORE Principal Extinguished
Debtor Loses right to choose; Creditor may: substitution Substitute Not liable (Obligation to
Becomes Pure Obligation > Choose the remaining OR;
> Value of thing LOST deliver Principal still
+ subsisting)
Damages
Creditor Resolution + Damages to Dr Loses right to choose;
AFTER Principal Not extinguished
becomes Pure Obligation substitution (Obligation to deliver
SOME left Fortuitous Obligation subsists; Choose Obligation subsists; Choose substitute subsists)
from the remaining from the remaining
Debtor Obligation subsists; Choose Creditor may:
Substitute Extinguished
from the remaining > Choose the remaining OR;
> Value of thing LOST
+
FAULT OF DEBTOR
Damages What is lost Effect
Creditor Resolution + Damages to Dr Obligation subsists; Choose BEFORE Principal Liable
from the remaining
substitution Substitute Not liable (Obligation to
deliver Principal still
Section 3.1 Facultative Obligations subsisting)
Art 1206. When only one prestation has been agreed upon, but the AFTER Principal Not extinguished
obligor may render another in substitution, the obligation is called substitution (Obligation to deliver
facultative. substitute subsists)
Substitute Liable
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
Section 4. Joint & Solidary Obligations
substitute on account of his delay, negligence or fraud.
Art 1207. The concurrence of two or more creditors or of two or more
debtors in one and the same obligation does not imply that each one of
FACULTATIVE OBLIGATION
the former has a right to demand, or that each one of the latter is
o Obligation where only one prestation has been agreed upon but
bound to render, entire compliance with the prestation. There is a
the creditor may render another in substitution.
solidary liability only when the obligation expressly so states, or when
o Example: A promised to give B his ring but it was stipulated that A
the law or the nature of the obligation requires solidarity.
could give his phone as a substitute

Alternative Facultative GR: When the share of each debtor/creditor is not specified, the
presumption is that it is joint.
XPT:

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 OBLICON REVIEWER
o Stipulated by the parties
o Law provides
o Nature of the obligation so requires*
Why?: In conformity with the principle that the interpretation is preferred
which is less burdensome in its operation
Industrial Management v. NLRC
Facts: Private respondents (Sulit, Mahinay, Pegarido, Bacusmo, Niere,
Bacus, Nemenzo, D. Alegarbes, and R. Alegarnes) filed a complaint
against Filipinas Carbon Mining Corp, Sicat, Gonzales, Gin, Chin, and
petitioner INIMACO with the DOLE for payment of separation pay and
unpaid wages.
Labor Arbiter decision (LA decision): Filipinas Carbon Mining Corp, Sicat,
Gonzales, Gin, Chin, and petitioner INIMACO were ordered to pay the
complainants a total of P138,588.31.
No appeal was filed and the LA became final and executory. However,
the Writ of Execution was not complied with. Hence, the LA issued an
Alias Writ of Execution stating that INIMACO and/or Filipinas Carbon
and Mining Corp shall pay the whole amount to the complainants and
that failure to do so will cause the award to be executed against their
properties. Petitioner filed a motion to quash the alias writ of execution
since it altered the tenor of the LA decision by inserting the words
“and/or” thereby transforming the liability to a solidary one. NLRC
affirmed the decision of the LA. Petitioner filed a motion to compel the
sheriff to accept payment representing 1/6 pro rata share of INIMACO as
full satisfaction of the judgement. LA denied the motion and NLRC
subsequently dismissed the appeal. Petitioner contends that NLRC
committed GADALEJ in affirming the decision of the LA which declared
the liability of the petitioner to be solidary.
Issue: W/N the petitioner’s liability is solidary. – NO. It is joint, absent
any express declaration that it is solidary.
Held: The Court ruled the liability of INIMACO is not solidary but merely
joint since the dispositive portion of the LA decision did not contain the
word “solidary”. Art 1207 states that an obligation can only be solidary
when it is expressly stated, or when the law or the nature of the
obligation so requires. Since the dispositive portion of the LA decision
does not expressly state solidarity, the liability of the petitioner
(together with the 5 others) is merely joint. Assuming that the LA
committed a mistake in failing to indicate in the dispositive portion of
the decision the liability to be solidary, it can no longer be changed
because the judgment has already become final and executory. The
OBLICON REVIEWER
Court then ruled that the Alias Writ of Execution is null and void and
that the liability of petitioner and the others are merely joint.
Inciong v. CA
Facts: A loan was entered into by Naybe, Pantanosas, and Inciong for a
logging business. Respondent PBCOM granted the loan and a promissory
note was then signed by them. Petitioner Inciong signed the promissory
note, which was due May 5, 1983, amounting to P50,000 together with
Naybe and Pantanosas holding themselves jointly and severally liable
to respondent PBCOM. The due date expired without the promisors
paying their obligation and even after demand by respondent.
Respondent filed a case before the lower court and ruled in favor of
PBCOM. The case against Pantanosas was dismissed and the summons
were not served to Naybe as he was already abroad. Hence, only
petitioner Inciong’s summons was served leaving the latter liable for
the amount. CA affirmed the decision of the trial court ruling that
petitioner is liable for the P50,000 note. Petitioner argues that the
dismissal of the complaint against his co-makers, Naybe (which he
claimed to be the principal debtor) and Pantanosas warranted the
release of his obligation. His basis was Art 2080, CC which states that
guarantors, acting solidarily, are released from their obligation when by
the acts of the creditor, they cannot be subrogated to the rights,
mortgages, and preferences of the latter.
Issue: W/N petitioner is a guarantor. – NO. He is a solidary debtor
which makes him liable for the entire obligation in which the
creditor is entitled to demand from him.
Held: The Court ruled that petitioner signed the promissory as a solidary
co-maker and not as a guarantor as he claimed. The promissory note
expressly stated that the three of them are jointly and severally liable
for the amount. He cannot be a guarantor since Art 1207 of the CC is what
governs their transaction. A guarantor is a person who binds himself to
fulfill the obligation should the principal debtor fail to do so. Here,
petitioner bound himself solidarily with the 2 other co-makers. Since it
was expressly stated in the note, their obligation is solidary hence, the
creditor may go after one, some, or all of the co-makers of the note. The
choice is with the creditor to determine against whom he will enforce
collection. The dismissal of the case against his co-maker Pantosas does
not release him from his liability and since the summons was not served
to Naybe, the courts have not acquired jurisdiction over him leaving
petitioner the only co-maker left to fulfill the obligation.
Art 1208. If from the law, or the nature or the wording of the
obligations to which the preceding article refers the contrary does not
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 OBLICON REVIEWER

appear, the credit or debt shall be presumed to be divided into as many “Delay of one is his “Delay of one is delay of
shares as there are creditors or debtors, the credits or debts being delay only” all”
considered distinct from one another, subject to the Rules of Court Refusal to pay Will only affect the Refusal of one will affect
governing the multiplicity of suits. one debtor debtor who refuses to whole obligation
pay
o Provision refers to joint divisible obligation Insolvency of Will not be borne by Any of the remaining
one debtor other co-debtors debtors can still pay
JOINT SOLIDARY whole but the share of
Definition one in which each each of the creditors can the insolvent debtor will
creditors can only demand the whole or be borne by other co-
demand a proportionate anyone of the debtors debtors
part of the debt and each can be required to Effect of Extinguished in terms of Debt is extinguished in
of the debtor is liable perform all payment by his proportionate share whole or to the extent of
only for a proportionate one co-debtor only the payment with right
part of the debt of reimbursement
Phrase “We promise to pay” “I promise to pay”
“…individually liable” “jointly and severally” Art 1209. If the division is impossible, the right of the creditors may be
“individually and jointly” prejudiced only by their collective acts, and the debt can be enforced
“individually and only by proceeding against all the debtors. If one of the latter should be
severally” insolvent, the others shall not be liable for his share.
Kinds Passive Joint Passive Solidarity
o many debtors o many debtors o Provision refers to joint indivisible obligation
and one creditor and one creditor o Joint – proportionally liable
(mutual (mutual o Indivisible – when the prestation is not physically
guaranty) guaranty) divisible, its fulfillment requires the concurrence of all
debtors, while doing each one’s parts
Active Joint Active Solidarity o Example: A, B, and C are co-owners of a car and they
o many creditors o many creditors promised to deliver it to D
and one debtor and one debtor
(mutual agency) (mutual agency) How?
Performance Must be made by ALL debtors or in favor or all
Mixed Joint Mixed Solidarity creditors
o many debtors o many debtors Requires consent of all the debtors
and creditors and creditors Breach of one Liability for damages is apportioned among the
Who can be Creditor can sue Creditor can sue debtors (becomes divisible obligation) with
sued and how Extent: Only or the Extent: Entire obligation right to reimbursement
much can be proportionate share of from any of the debtor Refusal of one Refusal of one debtor converts it to a monetary
recovered their debt obligation for indemnity for damages
Failure/Refusal Failure of any co-debtor Failure of any co-debtor
of a debtor does not increase will increase the liability If the other debtors suffered damages because
liability of co-debtors of the others of the refusal of one, they have a right to
Effect of Will only effect the Demand by creditor on reimbursement/recovery
demand debtor on whom demand one co-debtor is a Insolvency of one Solvent debtors are NOT liable
was made demand on all

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 OBLICON REVIEWER

Creditor must wait until the insolvent debtor
can pay. He CANNOT ask for specific
performance/rescission because there is no
cause of action by the other debtors who are
willing to pay.
Art 1210. The indivisibility of an obligation does not necessarily give
rise to solidarity. Nor does solidarity of itself imply indivisibility.
(c) In December, E can recover from any of the solidary debtors, the share
corresponding to C in the amount of P5,000.00 plus such amounts from the
shares of A and B which have not yet been paid. The share of D will mature
only after E passes the Bar examinations.
(d) If E passes the Bar examinations, the obligation of D to pay P5,000.00
arises. This amount can be demanded from any of the solidary debtors.
Again, E is also entitled to recover all amounts which are already due and
demandable and unpaid pertaining to the shares of A, B, and C.

(e) If the agreement is that E may demand the entire obligation from B in
Indivisibility Solidarity
September, from C in December, or from D if E passes the Bar
Nature Refers to prestation Refers to parties in an
examinations, then B is liable for P20,000.00 in September less the
obligation
amount, if any, already paid by A and D; C is liable for P20,000.00 in
Breach Only guilty debtor is All debtors are liable for
December less the amount, if any, already paid by A, B, and D. D is liable
liable for damages breach
for P20,000.00 if E passes the Bar examinations less the amount, if any,
Parties Can exist although there There must be at least 2 Dr already paid by A, B, and C.
is one Dr and one Cr or 2 Cr
Insolvency Others not liable in case Others are
Art 1212. Each one of the solidary creditors may do whatever may be
of insolvency of one proportionately liable
useful to the others, but not anything which may be prejudicial to the
latter.
Art 1211. Solidarity may exist although the creditors and the debtors
may not be bound in the same manner and by the same periods and
It basically says that a solidary debtor may do anything as long as it’s
conditions.
beneficial to others, but is not allowed to do anything which may be
prejudicial to the others.
Example: A, B, C, and D obliged themselves solidarily to pay E P20,000.00,
as follows: o Provision refers to active solidarity (many creditors)
A, to pay by installment at the rate of P1,000.00 a month, to start in July; o If a solidary creditor performs an act and as a result the
- divisible obligation is extinguished, he shall be liable to the others for
B, to pay 5,000 (his share) in September; - period damages
C, to pay 5,000 (his share) in December; and - period o Why?: PRINCIPLE OF MUTUAL AGENCY
D, 5,000 if E passes the Bar examinations. – suspensive condition o No problem if the act of solidary debtor is BENEFICIAL to others
(a) In July, E can demand only P1,000.00 from A. E can also make a Q: What if the act is prejudicial to the other solidary debtors?
demand from B, C, and/or D the P1,000.00 share corresponding to A. But E A: See Art 1215.
cannot recover yet the shares of B, C, and D which are not yet due and “Novation, compensation, confusion or remission of the debt, made by any
demandable. of the solidary creditors or with any of the solidary debtors, shall
extinguish the obligation, without prejudice to the provisions of Article
(b) In September, E is entitled to collect from any of the solidary debtors 1219.
the share corresponding to B which is P5,000.00 and A, P1,000.00 or
P3,000.00, if A had not yet paid any installment. The shares of C and D are The creditor who may have executed any of these acts, as well as he who
not yet recoverable. collects the debt, shall be liable to the others for the share in the
obligation corresponding to them.”

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 OBLICON REVIEWER
NOTE: Art 1212 (other solidary creditors can still demand from debtor)
appears to contradict Art 1215 (obligation is already extinguished).
How do we reconcile the two articles?
o Solution based on Roman law: Act of solidary creditor
extinguishes the debt BUT he is liable for damages for any
prejudice the others may have suffered
o Contemporary solution: Mutual agency only extends to beneficial
acts, not prejudicial acts
Balane: The first interpretation is better. Reasons:
o Avoids head-on collision between Art 1212 and Art 1215
o In conformity of the maxim: “To interpret the law in a manner
that produces harmony is the best way of construction”
Art 1213. A solidary creditor cannot assign his rights without the
consent of the others.
GR: A solidary creditor’s right is NON-ASSIGNABLE.
XPT: Unless he gets consent from all the other solidary creditors
Why?: Most commentators say, “MUTUAL AGENCY” or the relationship is
built on TRUST & CONFIDENCE
o Manresa & JBL: This is unjust. A solidary creditor who assigns his
rights without the consent of his co-creditors shall instead answer
subsidiarily for any prejudice caused to the latter.
Effect of assignment:
o Without consent: VOID for being contrary to law or
UNENFORCEABLE because unauthorized?
o Balane: Merely unenforceable and curable by
ratification
o Assigning to co-creditor: VALID even without consent
Art 1214. The debtor may pay any one of the solidary creditors; but if
any demand, judicial or extrajudicial, has been made by one of them,
payment should be made to him.
o Applies to active solidarity (many creditors)
GR: Payment can be demanded by and made to any solidary creditor
XPT: Art 1214 – when there is a demand (judicial or extrajudicial),
payment should be made to him
OBLICON REVIEWER
o In case two or more demands made by the other creditors, the
first demand must be given priority; if both demands at the same
time, the debtor has the option who to pay.
Art 1215. Novation, compensation, confusion or remission of the debt,
made by any of the solidary creditors or with any of the solidary
debtors, shall extinguish the obligation, without prejudice to the
provisions of Article 1219.
The creditor who may have executed any of these acts, as well as he
who collects the debt, shall be liable to the others for the share in the
obligation corresponding to them.
Example:
A, B, C are solidary debtors of X, Y, Z
Z remitted the entire obligation due to his friendship with A
o Obligation → Extinguished
o Z may be liable to X, Y
o X, Y can no longer collect from the debtors but may go after Z for
indemnification pursuant to Art 1212
Novation – obligations are modified by:
o Changing object or principal conditions
o Substitute the debtor
o Subrogate a 3rd person in the rights of the creditor
Compensation – happens when 2 persons become creditors and debtors of
each other (the amount of one is covered by the amount of the other)
Confusion – happens when the characters of creditor and debtor are
merged in the same person (i.e. the Dr becomes the Cr)
Remission – abandonment by the creditor of his right; acceptance of the
obligor is necessary
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.
o Provision refers to passive solidarity (many debtors)
o Creditor has right to choose which debtor to sue. He may
proceed against:
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 OBLICON REVIEWER
o Any of the solidary debtors
o Some of the solidary debtors
o All of the solidary debtors, simultaneously
o In case of DEATH, the creditor may proceed against the
o estate of the deceased solidary debtor alone OR
o against any of the surviving solidary debtors whose
liability is independent of and separate from the
deceased debtor
Q: Is this inconsistent with Art 1214?
A: NO, it is the inverse of Art 1214
Art 1214 – many creditors demanding any of the debtors. Debtors have no
option to choose but if more than one demand, debtor will choose the one
who made the demand first
Art 1216 – many debtors and creditor demands from one of them; to
whomever the demand is made, the creditor is not bound to that option;
he will not be precluded from going to the others
PNB v. Planters
Facts: PNB is appealing the decision of the CFI in Manila wherein it
dismissed PNB’s complaint against several solidary debtors for the
collection of sum of money on the ground that one of its debtors
(Valencia) died during the pendency of the case. Hence, since this is
money claim based on contract, it should be instituted in the
testate/intestate proceeding for the settlement of the estate of the
deceased defendant pursuant to Sec 6 Rule 86 of the ROC.
Issue: W/N PNB is barred from going after the surviving solidary debtors
upon death of one solidary debtor. – NO. He may do so in pursuant to
Art 1216 of the Civil Code.
Held: The Court ruled that the death of one solidary debtor does not
deprive the creditor to go after the surviving solidary debtors since Art
1216 (a substantive law) grants the creditor to go after any, some or all
of the debtors as he may deem fit to protect his interests.
In this case where one of the debtors died, the courts retain jurisdiction
to continue the proceedings and decide the case in respect of the
surviving debtors.
Art 1216, being a substantive law, must prevail over Sec 6 Rule 86 of
the ROC which is a procedural law since the latter cannot amend a
substantive law.
OBLICON REVIEWER
Art 1217. Payment made by one of the solidary debtors extinguishes
the obligation. If two or more solidary debtors offer to pay, the creditor
may choose which offer to accept.
He who made the payment may claim from his co-debtors only the
share which corresponds to each, with the interest for the payment
already made. If the payment is made before the debt is due, no
interest for the intervening period may be demanded.
When one of the solidary debtors cannot, because of his insolvency,
reimburse his share to the debtor paying the obligation, such share shall
be borne by all his co-debtors, in proportion to the debt of each.
1st par example: A,B,C are solidary debtors of D. A and B offered to pay. Is
the creditor allowed to choose which offer to accept? YES.
But what if there is an offer to pay but D demanded from C, is D allowed to
do that? YES. But impractical and foolish since D is turning down an offer
to pay the debt.
2nd par example: A,B,C,D are solidary debtors of E to the amount of
1,200,000. A pays E the whole amount. Is A entitled to reimbursement
from B,C, and D? YES plus interest from date of payment. If paid before
due date, no interest.
PAYMENT
o “payment by one is payment by all”
o Obligation → Extinguished in whole/in part
o Why?: Principle of Mutual guaranty
RIGHT TO REIMBURSEMENT
o Extent: amount of money which he had paid and which exceeds
his own share in the obligation
o Debtor to debtor (internal): nature of obligation is joint
3rd par example:
Effect of insolvency:
o All solvent solidary debtors shall share proportionately in the
settlement of the corresponding share of the insolvent debtor
(Similar to partnership accounting)
Art 1218. Payment by a solidary debtor shall not entitle him to
reimbursement from his co-debtors if such payment is made after the
obligation has prescribed or become illegal.
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 OBLICON REVIEWER

B can collect 500 from A only. However, B may ask

GR: When a solidary debtor pays the debt, he is entitled to reimbursement
XPT:
o Obligation PRESCRIBES
o 10 years – prescription
o If prescription is partial, provision applies only to the
portion that has been extinguished
o Obligation becomes ILLEGAL
Q: Can the debtor who paid have the right to recover?
A: Depends w/n the rules on solution indebiti applies
Q: Debt prescribed and debtor paid. Can debtor recover from creditor?
A: NO. Because he knows the debt was prescribed already, it turned into a
natural obligation already
D to give back 500 which is the supposed-share of
C.
Example 3: A, B, C solidarily owe D 1,500 pesos. D remitted the share of A.
After paying D P1,500.00, the balance of the credit, B demands
reimbursement from C who became insolvent after the remission.
Effect
Remission + Share of insolvent co-debtor shall be borne by all
insolvency his solvent co-debtors (regardless if share is
remitted)
A is obliged to contribute to the share of C
(insolvent)

Art 1219. The remission made by the creditor of the share which Art 1220. The remission of the whole obligation, obtained by one of the
affects one of the solidary debtors does not release the latter from his solidary debtors, does not entitle him to reimbursement from his co-
responsibility towards the co-debtors, in case the debt had been totally debtors.
paid by anyone of them before the remission was effected.
Why?: there is nothing to be reimbursed because remission is gratuitous.
o If after full-payment of the debt by a co-debtor, the creditor “No payment made, no reimbursement”
remits the share of another co-debtor, the latter is still bound to
contributing his share in the debt Art 1221. If the thing has been lost or if the prestation has become
o Remission of share in the debt of a co-debtor has no effect in the impossible without the fault of the solidary debtors, the obligation shall
internal relationship of the co-debtors be extinguished.
Example 1: A, B, C solidarily owe D 1,500 pesos. B paid the obligation. If there was fault on the part of any one of them, all shall be
Then, D remitted the share of C. responsible to the creditor, for the price and the payment of damages
and interest, without prejudice to their action against the guilty or
Effect negligent debtor.
Payment before Reimbursement from all
remission If through a fortuitous event, the thing is lost or the performance has
B can collect 500 from A & C even if C’s share is become impossible after one of the solidary debtors has incurred in
remitted. delay through the judicial or extrajudicial demand upon him by the
creditor, the provisions of the preceding paragraph shall apply.
Example 2: A, B, C solidarily owe D 1,500 pesos. D remitted the share of C.
Then, B paid the obligation o Applies to passive solidarity (many debtors)
Effect Cause Effect
Remission before Reimbursement from co-debtor whose debt is not Impossibility Before delay Extinguished
payment remitted. Solutio indebiti arises

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After delay ALL are liable for the PRINCIPAL Personal to Partial defense Covers the co-
AMOUNT because of mutual other co- debtors share
agency debtors only

BUT, damages → guilty co-

debtor Section 5. Divisible & Indivisible Obligations
Loss Fortuitous event Extinguished Art 1223. The divisibility or indivisibility of the things that are the
Co-debtor’s fault ALL are liable for the PRINCIPAL object of obligations in which there is only one debtor and only one
AMOUNT because of mutual creditor does not alter or modify the provisions of Chapter 2 of this
agency Title.

BUT, damages → guilty co- Divisible Indivisible

debtor
one in which One in which
delivery/performance is capable delivery/performance is NOT
Art 1222. A solidary debtor may, in actions filed by the creditor, avail of partial fulfilment capable of partial fulfilment
himself of all defenses which are derived from the nature of the Example: Example:
obligation and of those which are personal to him, or pertain to his own
share. With respect to those which personally belong to the others, he D agreed to pay C 2,000 in four D agreed to pay C 2,000 in full on
may avail himself thereof only as regards that part of the debt for equal monthly installments a certain date
which the latter are responsible.
o Divisibility/indivisibility refers to the prestation itself and NOT
DEFENSES the object of the prestation.
Description Type of defense Extent of o Divisible object of the prestation =/= Divisible obligation
Liability of o BUT indivisible object of the prestation = indivisible obligations
Debtor
Real One arising from Total defense No liability GR: Obligations are indivisible.
Defense the nature of the XPN:
obligation (e.g. (1) When it is stipulated
Illegal object, (2) When the law provides
prescription (3) When the nature of the obligation entails the performance in
Personal to e.g. Vitiated Total defense – Whole parts
the consent i.e. he can say obligation is o Example: when the obligation has for its object the execution
defendant- that he was voidable of a certain number of days of work, accomplishment of work
debtor intimidated into by metrical units, etc.
himself agreeing with XPN to the XPN: Even if the object/service may be PHYSICALLY
the obligation divisible, the obligation is still indivisible ONLY IF:
e.g. Special Partial defense – Valid only on o Provided by law
terms/stipulation i.e. he can say the part of o Intended by parties
(i.e. debtors are that his debt is defendant-
bound by different not yet due debtor’s share Art 1224. A joint indivisible obligation gives rise to indemnity for
periods/conditions) damages from the time anyone of the debtors does not comply with his
undertaking. The debtors who may have been ready to fulfill their
promises shall not contribute to the indemnity beyond the

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corresponding portion of the price of the thing or of the value of the or analogous things which by their nature are susceptible of partial
service in which the obligation consists. performance, it shall be divisible.

o Provision refers to joint indivisible obligation However, even though the object or service may be physically divisible,
o Joint – proportionally liable an obligation is indivisible if so provided by law or intended by the
o Indivisible – when the prestation is not physically parties.
divisible, its fulfillment requires the concurrence of all
debtors, while doing each one’s parts In obligations not to do, divisibility or indivisibility shall be determined
o Example: A, B, and C are co-owners of a car and they by the character of the prestation in each particular case.
promised to deliver it to D. A refused to deliver. A will
pay damages because of his refusal but B & C cannot INDIVISIBLE
deliver the car already since it is an indivisible obligation Example Why
and partial fulfilment amounts to non-performance. Obligations to give determinate Because of the nature of the
Hence, B and C may only have a right to reimbursement things subject matter
from A.
Ex. Car with plate number ABC
How? 1234
Performance Must be made by ALL debtors or in favor or all Obligations not susceptible of Because its purpose required the
creditors partial performance performance of all the parts
Requires consent of all the debtors
Breach of one Liability for damages is apportioned among the Ex. To sing a song
debtors (becomes divisible obligation) with When the law provides Because the law so provides
right to reimbursement
Refusal of one Refusal of one debtor converts it to a monetary Ex. Taxes paid within a definite
obligation for indemnity for damages period. Although money is
physically divisible, the amount of
If the other debtors suffered damages because tax payable must be in full.
of the refusal of one, they have a right to When the parties intended Because parties intended it to be
reimbursement/recovery indivisible
Insolvency of one Solvent debtors are NOT liable Ex. Obligation to pay A 5,000 in full
at a certain date
Creditor must wait until the insolvent debtor
can pay. He CANNOT ask for specific DIVISIBLE
performance/rescission because there is no Example Why
cause of action by the other debtors who are Object of the obligation is Because of its nature
willing to pay. executed by a certain number of
days of work
Art 1225. For the purposes of the preceding articles, obligations to give
definite things and those which are not susceptible of partial Ex. Obligation to paint the house.
performance shall be deemed to be indivisible. The painting to be finished in 10
days.
When the obligation has for its object the execution of a certain Object of the obligation is Because of its nature
number of days of work, the accomplishment of work by metrical units, accomplished measured in units

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o Express stipulation of the contrary. Damages may be recovered

Ex. Obligation to build a 3 ft x 5 ft
table.
Obligations susceptible of partial
performance
Ex. Obligation of X to teach
Oblicon for 1 year in a university
Object of the obligation is such
that the debtor is required to pay
in installments
Ex. Obligation to pay 1,000 in 5
equal monthly installments
Divisible Partly illegal
Indivisible Partly illegal
NOTE:
Partial performance of invisible obligation = NON-PERFORMANCE
Subject to the following qualifications:
o Substantial performance in good faith (Art 1234)
o Waiver by creditor (Art 1235)
despite presence of penal clause.
o Debtor refuses to pay the penalty
Because of its nature o Debtor is guilty of fraud in the fulfilment of the obligation
Functions:
o To provide for liquidated damages
o Why? To spare parties from the difficult process of
Because of its nature proving the extent and amount of damages in case of
breach
o An advance determination of damages
o LIMITATION: it must not be iniquitous or unconscionable
o To strengthen coercive force of obligations
o Why? It has to be more burdensome to discourage breach
and encourage fulfilment
Illegal part → VOID o NOT a penal clause if lighter burden (e.g. interest rate
Others → VALID and ENFORCEABLE lower that legal rate)
Entire obligation → VOID
Are penal clauses (Art 1226) and liquidated damages (Art 2226) the
same?
Lambert v Fox: No difference between penalty and liquidated damages in
so far as legal results are concerned. They are treated the same legally
since both do not need the necessity to prove damages.
JBL Reyes: Since they are separate provisions in the CC, they are different.
Tolentino: same as Lambert v. Fox

GR: The parties may stipulate on any penal clause as they may deem fit.
Section 6. Obligations with a Penal Clause
XPN:
Art 1226. In obligations with a penal clause, the penalty shall 1. The Courts may mitigate the penalty when it is iniquitous or
substitute the indemnity for damages and the payment of interests in unconscionable.
case of noncompliance, if there is no stipulation to the contrary. Factors to consider:
o Type, extent and purpose of the penalty
Nevertheless, damages shall be paid if the obligor refuses to pay the o Nature of the obligation
penalty or is guilty of fraud in the fulfillment of the obligation. o Mode of breach and its consequences
o Supervening realities
The penalty may be enforced only when it is demandable in accordance o Standing and relationship of the parties
with the provisions of this Code. 2. When it is contrary to law, morals, good customs, public order or public
policy (Art 1306)
PENAL CLAUSE
o An accessory undertaking to assume greater liability on the part of Characteristics of Penal Clauses:
the obligor in case of breach of an obligation o GR: Subsidiary/Alternative: upon breach, only penalty is
demandable
GR: Penalty takes place of indemnity for damages and interest
XPN:

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o XPN: Joint/Cumulative: both principal and penalty are
demandable. BUT there must be a clear grant (need not
be explicit)
o GR: Exclusive/Reparative: penalty replaces damages
o XPN: Inclusive/Punitive: both damages and penalty may
be demandable
CLASS NOTES
Q: May the parties stipulate on a penal clause which is Alternative &
Inclusive?
A: YES. But caveat is difficulty in collecting since it is too skewed in
favor of the Creditor. Debtor might think “How come there is damages
when there is no performance?”
Q: May the parties stipulate on a penal clause which is Cumulative &
Exclusive?
A: YES. But caveat is no mechanism to enforce performance since it is
too skewed in favor of the Debtor.
All else considered, both of these are IMPRACTICAL to come into an
agreement. Possible defense is that it is too unconscionable/iniquitous.
Country Bankers v. CA
Facts: OVEC and Sy entered into a Lease Agreement for the lease of 3
theaters for 6 years. The Lease Agreement included a clause wherein
the deposit shall be forfeited in case of violation of the terms. After
more than 2 years of operation, OVEC demanded for repossession
because Sy didn’t pay the monthly rentals and the amusement taxes.
But they compromised and he was allowed to continue upon entering a
supplemental agreement. However, the amusement tax liability of the
theaters amounting to 84,000, which Sy had been deducting from the
monthly rentals with the obligation to remit to Cabanatuan Gov’t, was
not paid despite 2 demands. Therefore, OVEC repossessed the property,
padlocked the gates of the 3 theaters, and forfeited the deposit of Sy.
Sy filed for reformation of the Lease Agreement, damages, and
injunction. A WPI was issued and subsequently, the lower court ruled
that OVEC’s repossession and forfeiture of Sy’s deposit was in
accordance of their agreement and awarded damages amounting to
100,000 due to the loss on income from injunction. CA affirmed. Sy now
argues the forfeiture of the deposit will unjustly enrich OVEC and that
the CA erred in not setting of the 100,000 damages against the forfeited
remaining deposit amounting to 290,000.
3rd clause: If creditor decided to have the obligation fulfilled but it
became impossible without his fault, the penalty may be enforced.
Issue:
OBLICON REVIEWER
W/N the forfeiture will unjustly enrich OVEC. – NO.
W/N the CA erred in not setting off the 100K damages against the
forfeited deposit. – NO. The forfeiture clause is a penal clause
Held: The Court ruled that the forfeiture clause is a penal clause. Art
1226 provides that as a general rule, penalty shall substitute damages
and interests. Exception to this rule is when there is (1) stipulation (2)
refusal to pay penalty and (3) fraud in the fulfilment of the obligation.
In the case at bar, the penalty of forfeiture of deposit cannot substitute
the 100,000 damages due to the injunction. The forfeiture clause
intended to punish Sy in case of non-fulfilment or defective
performance of the obligation and that OVEC can recover damages on
top of the penalty. The 100K damages are not chargeable to the deposit
but against the injunction bond posted by Country Bankers since it was
specified that all damages OVEC has sustained by reason of injunction
shall be chargeable against the bond.
CLASS NOTES
Q: May the parties stipulate on the payment of penalty in case non-
fulfilment was caused by force majeure?
A: Connect to Art 1174 which states that if provided by law, stipulation,
or nature requires assumption of risk, then penal clause can (?) be
enforced as well.
Art 1227. The debtor cannot exempt himself from the performance of
the obligation by paying the penalty, save in the case where this right
has been expressly reserved for him. Neither can the creditor demand
the fulfillment of the obligation and the satisfaction of the penalty at
the same time, unless this right has been clearly granted him. However,
if after the creditor has decided to require the fulfillment of the
obligation, the performance thereof should become impossible without
his fault, the penalty may be enforced.
Debtor Creditor
GR: Debtor is not exempted from GR: Creditor does not have a right
performing the obligation by to demand fulfilment of the
payment of penalty. obligation and the payment of
XPT: The right is expressly served penalty at the same time
to him (Implied not allowed) XPT: The right is clearly granted
to him (Implied is allowed)
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Penal Clause
VALID
CLASS NOTES VALID
Q: If you can substitute it, what happens to the obligation? PRINCIPAL
Penal Clause
A: It becomes a facultative obligation. Penalty will substitute the INVALID
INVALID
principal obligation.
Facultative – chooses prior to the breach Principal
Penal clause – coercive, more burdensome; happens upon breach VALID
PENAL VALID
CLAUSE Principal
Art 1228. Proof of actual damages suffered by the creditor is not INVALID
necessary in order that the penalty may be demanded. VALID

o NO proof of actual damages is necessary for he penalty to be
demandable.
Why?: Because the nature of penal clauses makes proof of
damages irrelevant. Penal clauses are pre-determined damages
Art 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the
debtor. Even if there has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable.
When can court reduce penalty:
o Obligation is partly complied with (Partial performance)
o Reduced to the extent of the benefits received by the
party enforcing the penalty
o Obligation is irregularly complied with (Irregular performance)
o When the penalty is iniquitous and unconscionable despite no
performance at all.
GR: Accessory follows the principal
XPT:
o When the penalty is undertaken by a third person precisely for
an obligation which is unenforceable, voidable, or natural, in
which case it assumes the form of guaranty which is valid under
Art 2052
o When the nullity of the principal obligation itself gives rise to the
liability of the debtor for damages, such as when the vendor knew
that the thing was inexistent at the time of the contract; in this
case, the vendor becomes liable for damages although the
contract itself is voided and since the penalty is merely a
substitute for damages, it can be enforced.
Tan v. CA
Facts:
Tan obtained 2 loans amounting to 2M each which brings to a total of
4M, evidenced by 2 promissory notes.

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.
Tan defaulted a few partial payments so he had the loan restructured
by respondent CCP. The amount of the loan is now 3.4M. The
restructured loan was evidenced by a promissory note which contained
a penalty clause which states that he shall pay 2% per month on the
amount due, compounded monthly should he incur delay in paying.

Principal Penal Clause He again defaulted so CCP filed a complaint for a collection of sum of
Can stand by itself and does not Attached to the principal and money of 7.9M which the trial court granted. Tan proposed a payment
depend validity upon another cannot stand alone scheme but was rejected by the CCP.
obligation
On appeal to the CA, Tan asked for the reduction of the penalties on his
loan. However, only the attorney’s fees was reduced.

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Tan now argues before the SC that there is no legal basis on the
imposition of interest on the penalty charge and that the CA erred in
not reducing the penalty despite partial payments made by Tan.

Issue:
W/N there is basis for the interest on the penalty. – YES.
W/N the penalty should be reduced. – YES. Court reduced the penalty.

Held: The Court ruled that the basis on the imposition of an interest in
penalty is Art 1226 wherein the penalty clause shall substitute
indemnity for damages in case of non-compliance. Here, it is clearly
W,X,Y,Z: Zero
stipulated that a penalty of 2% per month, compounded monthly shall
be charged upon default of the debtor. The Court here said that the
compounding of interest on the penalty has basis since penalty clauses
can be in the form of penalty or compensatory interest.
However, the Court here deemed that the 2% penalty per month,
compounded monthly is unconscionable since Tan made partial
payments on the loan. Art 1229 provides that the courts can equitably
reduce the penalty if there has been partial compliance. Taking into
consideration the partial payments and the initiative of Tan in entering
into compromise agreements justified the reduction of the penalty to
merely 12% on the total amount due also considering that the debt has
been due for 21 years already. Yacht question: No liability for damages

QUIZ:

Cupcake question: No demand on the part of Via, no delay. No valid reason

not to accept.

Geoff question: Joint obligation

Blue Eagle Airlines: Yes, manager-QD, Airlines - BoC

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Chapter 4 informed of DBP’s approval, Saura opted for a modification. DBP

reexamined the loan. During this time, the loan and its corresponding
EXTINGUISHMENT OF OBLIGATIONS mortgage was executed. As for the request for modification, DBP
decided to reduce the loan from 500k to 300k. Thereafter, the loan was
GENERAL PROVISIONS restored back to 500k but with the following conditions, Saura must get
Art 1231. Obligations are extinguished: a certification from the DENR that: (1) raw materials must be
(1) By payment or performance: immediately available and (2) there must be an increase in production.
(2) By the loss of the thing due: These conditions are imposed because the intention of DBP in approval
(3) By the condonation or remission of the debt; of the loan is to develop the manufacture of sacks on the basis of
(4) By the confusion or merger of the rights of creditor and debtor; locally-available raw materials. However, Saura informed DBP that it
(5) By compensation; cannot meet the conditions as they will rely on imports due to shortage.
(6) By novation. Despite this, Saura still asked for the release of the proceeds of the
Other causes of extinguishment of obligations, such as annulment, loan. DBP informed Saura that it cannot comply to its request. Hence,
rescission, fulfillment of a resolutory condition, and prescription, are Saura cancelled the mortgage. After 9 years, Saura sued DBP for
governed elsewhere in this Code. damages for failure to release the proceeds of the loan which was duly
approved and executed.
Commentary:
o 6 are enumerated in 1231 – these have subsections because they Issue:
are the simple modes of extinguishments of obligation W/N the loan is deemed extinguished. – YES. Due to Mutual Desistance
o The 4 other modes that do not have subsections – Why? They are
scattered in the provisions of the CC because they are multi- Held: The Court ruled that when DBP imposed conditions on the loan
purpose/they have other nature and Saura expressed that it cannot meet the conditions which led to the
o Annulment cancellation of the mortgage, it was deemed as if both parties mutually
o Rescission desisted in performing the obligation. Here, the cancellation of the
o Resolutory condition mortgage was done without reservation of any rights of Saura. DBP
o Prescription thereafter accepted its request of cancelling the mortgage. As a result
Other causes: the contract of loan was deemed extinguished by virtue of mutual
o Death desistance on the initiative of Saura itself. The Court ruled therefore
o But only personal obligations that Saura is not entitled for the damages as the contract was already
o Ex. Contract of partnership, obligation to deliver a extinguished by mutual desistance.
determinate thing, Marital obligations, Obligation to
support NOTE: Action of Saura was of mutual desistance, “mutuo disenso”
o Renunciation of the creditor (Manresa) — which is a mode of extinguishing obligations. It is a concept
o Creditor waives the obligation that derives from the principle that since mutual agreement can create
Renunciation Refusal by creditor to enforce his a contract, mutual disagreement by the parties can cause its
claim with the intention of waiving extinguishment.
it
Remission Nature of a donation o Judicially declared insolvency
o Mutual desistance – when both parties agree to cancel or o Waiver by creditor (Art 6)
discontinue the contract o Compromise (Art 2028 to 2041)
o Arrival of resolutory term (Art 1193, par 2)
Saura Import v. DBP o Change of civil status
Facts: Saura applied for an industrial loan amounting to 500k in DBP to o Ex. Annulment of marriage – obligation to support is
finance a jute mill production. This loan was then approved. When extinguished

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o Withdrawal of one of the parties (Art 1830, par b)
o Disappearance or cessation of the creditor’s interest
Section 1
Payment or Performance
o Solidary obligations in with debtors are bound under different
terms/conditions
o In compensation, when a balance is left
o If work is delivered partially, the price of each having been fixed,
price also payable partially
o Several guarantors who demand division
o Impossibility or extreme difficulty of single performance

Section 1. Payment or Performance (2) The Parties (subject)

Art 1232. Payment means not only the delivery of money but also the a. PAYOR
performance, in any other manner, of an obligation. o Without need of creditor’s consent
o Debtor
o Normal and perfect mode of extinguishment o His heir/assignee
o Other modes are deemed to be abnormal modes o His agent
o Anyone interested in fulfillment of obligation (e.g.
Payment → to give guarantor)
Performance → to do/not to do o With creditor’s consent – ANYONE else/3rd persons
o Effect of payment by 3rd person
Requisites of a VALID PAYMENT (Summary): o With debtor’s consent – subrogation
(1) The Prestation (object) o Without debtor’s consent – reimbursement to the extent
a. IDENTITY: of the benefit
o Specific – the thing itself must be delivered b. PAYEE
o Generic – the prestation must not be of inferior nor superior in o Creditor/obligee himself
quality o His successor/transferee
Special Rules: o His agent
o Payment must be in the currency stipulated. If none or impossible o 3rd person
to acquire the currency, Philippine legal tender o Provided It redounded to creditor’s benefit and only to
o Payment must be in negotiable paper the extent of such benefit (Valid naman but the risk is
o Revaluation in case of extraordinary inflation/deflation the benefit must redound to the benefit of the creditor)
XPN: o If under Art 1241 par 2, benefit is deemed total
o Dacion en pago o Anyone in possession of the credit
o Novation
b. INTEGRITY (Completeness) – entire prestation must be performed (3) Time and Place
XPN: o Time – when due
o Substantial performance in good faith Art 1234) o Place
o Waiver by creditor (Art 1235) o Primary rule – stipulation
o In application of payments, if the several debts are equally o Secondary rule – place where the thing was at the time of
onerous. Rule of pro rata application constitution of the obligation if specific thing
c. INDIVISIBILITY – performance in a single act o Tertiary rule – debtor’s domicile
XPN:
o Express stipulation (4) Four Special Forms of Payment
o Prestations which necessarily entail partial performance o Dacion en pago
o Debt is liquidated in part and unliquidated in part o Application of payments
o Joint divisible obligations o Payment by cession

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 OBLICON REVIEWER
o Consignation
Art 1233. A debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been completely
delivered or rendered, as the case may be.
o An obligation is not paid unless the thing/service has been
COMPLETELY DELIVERED OR RENDERED
Valid Payment:
o IDENTITY: the very thing or service must be paid/performed
o INTEGRITY (Completeness): fulfillment must be complete
GR: Partial performance is no performance and tantamount to breach
XPN:
o Substantial performance in good faith
o Waiver by creditor
o Several debts of the same nature and burden and all are due, the
remittance of an amount less that the total of the debts will be
applied pro rata to them all under rules of application of payment
Example: D is obliged to pay C P10,000. D only gave 9,000. C can refuse to
accept 9,000 because it is not complete
Burden of Proof:
o Creditor has burden of showing that a valid debt exists
o Debtor has burden of proving that he paid the debt (Ex. If
promissory note is still in creditor’s possession, presumption is it
is not yet paid)
Art 1234. If the obligation has been substantially performed in good
faith, the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee.
o Substantial performance in good faith – debtor may recover as if
there was complete fulfillment, less damages suffered by the
creditor
o Substantial performance – Obligee is benefited. “Less damages”
affords a just compensation for the relative breach committed by
the obligor
o Basis: JUSTICE and EQUITY
Art 1234 (Substantial payment in Art 1191 (Resolution)
good faith)
OBLICON REVIEWER
There must be good faith There is breach but debtor made
substantial performance
Example: A obliged to deliver 100 sacks of rice to B. A was only able to
deliver 95 sacks because of rice shortage. Take note that the rice shortage
is beyond the control of A even if he wants to comply with the delivery.
Art 1234: A can recover as though there has been complete delivery LESS
than the price of the undelivered 5 sacks of rice. B cannot require A to
deliver the remaining as a condition to his liability for the price. B must
pay for the 95 sacks and enforce his right to damages for failure of A to
deliver the difference.
Art 1235. When the obligee accepts the performance, knowing its
incompleteness or irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with.
o When the creditors accepts performance, knowing that it is
incomplete or irregular without objection, the obligation is
deemed FULLY complied with
o Basis: Principle of Estoppel and Presence of Waiver
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.
GR: Creditor not bound to accept payment by a 3rd person who has no
interest in the obligation
XPN:
o Stipulation
o 3rd person has interest in the fulfillment (e.g. guarantor, surety-if
debtor in default, he will be liable)
o The 3rd person may demand from the debtor what he has
paid, but if he paid without the knowledge or against the
will of the debtor, he can recover only to extent that it
has been beneficial to the debtor.
History:
Old Civil Code: Creditor cannot refuse payment from anyone
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 OBLICON REVIEWER

Code Commission: or against 3rd persons, be they

o Creditor has a right to insist on the liability of the debtor guarantors or possessors of
o Creditor should not be compelled to accept payment from 3 rd mortgages
person whom he may dislike or distrust
o Creditor may not, for personal reasons, desire to have any Example: A borrowed 1M from B. The loan was secured by a mortgage of
business with a 3rd person A’s land in favor of B. Without knowledge of A, C paid B 1M for A’s debt. A
o Creditor may not have confidence in the honesty of the 3 rd person benefited the amount of 1M
JBL: o May C claim reimbursement from A? – YES.
o Departure from the Old Code is unreasonable o How much can C recover? – 1M
o Old Code is justified by: o If A cannot pay, may C foreclose the mortgage on A’s land? – NO.
o Existence of the quasi-contract of negotiorum gestio New debtor (C) is not subrogated in the rights of old debtor (A)
o Evolution of the concept of ordinary obligation from a because A had no knowledge/consent
person to person (Roman Law) perspective to a relation o If C had A’s consent - he may foreclose the mortgage on A’s land
of patrimony to patrimony in modern law
Tolentino: It nullifies negotiorum gestio Art 1238. Payment made by a third person who does not intend to be
reimbursed by the debtor is deemed to be a donation, which requires
Art 1237. Whoever pays on behalf of the debtor without the knowledge the debtor's consent. But the payment is in any case valid as to the
or against the will of the latter, cannot compel the creditor to creditor who has accepted it.
subrogate him in his rights, such as those arising from a mortgage,
guaranty, or penalty. o Payment by a 3rd person who does not intend to be reimbursed is
deemed as a donation which requires debtor’s consent. Payment
o A 3rd person who pays on behalf of the debtor without his is in any case (whether with consent or not) is valid as to the
knowledge or against his will cannot compel the creditor to creditor who has accepted it
subrogate him in his rights such as those from mortgage, guaranty
or penalty Why?: Debtor is not compelled to accept the generosity of another
o 3rd person is only entitled to subrogation if the payment is with
consent of the debtor Example: A owes B P1 million. C, in behalf of A, pays B P1 million without
the consent of A, although C had previously told A that he (C) did not
Q: May there be subrogation if the creditor willingly permits the 3 rd person intend to be reimbursed. Needless to say, B accepted the payment by C in
(payor) to be subrogated in his rights? behalf of A.
A: NO. Subrogation can only take place when it has the debtor’s consent. o Is A’s obligation towards B extinguished? – YES. Regardless
whether debtor consented or not
Subrogation Reimbursement o May C still recover from A since A did not consent? – YES. C may
Debt is extinguished in one sense, No real extinguishment of still recover from A even if he originally did not intend to be
but a new creditor, with exactly obligation, only a change of reimbursed because here, there has been no real donation.
the same rights as the old one, creditor However, C can only recover to the extent that A has been
appears on the scene and put into benefited.
the shoes of the creditor
3rd person acquires: 3rd person only acquires the mere Art 1239. In obligations to give, payment made by one who does not
Right to be reimbursed for what right to be refunded to the extent have the free disposal of the thing due and capacity to alienate it shall
he has paid that was beneficial to the debtor not be valid, without prejudice to the provisions of Article 1427 under
All other rights which the creditor without right to the guarantees the Title on "Natural Obligations."
could have exercised pertaining to and mortgages
the debt either against the debtor o Payment by incapacitated person

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 OBLICON REVIEWER

o In obligations to give, payment made by someone who does not
have free disposal of the thing or is incapacitated to alienate it is
not valid without prejudice on the provisions under the Title on
Natural Obligations
GR: If person paying has no capacity to give
o Payment is not valid – if creditor accepted
o Creditor CANNOT BE COMPELLED to accept it
o Remedy of consignation would NOT be proper
XPN:
o RA 6809 – minor (18-21 yo) entered into a contract without the
consent of the parents. Parents can only recover the amount not
spent. Parents cannot recover the amount spent 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 third person shall also be valid insofar as it has
redounded to the benefit of the creditor. Such benefit to the creditor
need not be proved in the following cases:
(1) If after the payment, the third person acquires the creditor's rights;
(2) If the creditor ratifies the payment to the third person;
(3) If by the creditor's conduct, the debtor has been led to believe that
the third person had authority to receive the payment.
o Payment to an incapacitated person

Effect Remedy Payment to Payment to

If creditor is Creditor accepts it at his Payment made may be Incapacitated Creditor Unauthorized Persons
aware of the own risk ratified or validated by (par 1) (par 2)
incapacity the incapacitated Rules GR: Invalid GR: Invalid
debtor once he regains XPN: Valid if: XPN: Valid if:
capacity o If creditor kept o Insofar as the
If creditor is The debtor may recover Same as above the thing; OR payment has
unaware of the the amount paid to the o Insofar as the redounded to
incapacity creditor payment has the benefit of
been beneficial the creditor
Art 1240. Payment shall be made to the person in whose favor the to creditor
obligation has been constituted, or his successor in interest, or any Burden of The one who made The one who made
person authorized to receive it. proof payment has the burden payment has the burden
of proving that it of proving that it
Payments made to Persons Other than Creditor: benefited the benefited the creditor
GR: Payment shall be made to the creditor or to the person whose in favor incapacitated creditor
the obligation has been constituted Proof that Proof that payment to o The payee (3rd
XPN: Creditor has the incapacitated payee person) was
o Successor-in-interest – Heirs/Transferees (e.g. donees, vendees, benefited/No has in some way or subrogated in
heirs, devisees, legatees, subrogees) need to prove another redounded to the creditor’s
o Authorized person by creditor benefit the benefit of the rights
o By agreement – e.g. agency creditor. o Creditor ratifies
o By law – e.g. guardian, administrator of estate the payment to
3rd person
NOTE: Read together with Art 1626: “The debtor who, before having o By creditor’s
knowledge of the assignment, pays his creditor shall be released from the conduct, debtor
obligation.” has been led to
o Creditor will be liable to assignee for whatever the debtor has paid believe that 3rd
person had
authority to

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 OBLICON REVIEWER

receive the
payment
(esptoppel)
Art 1242. Payment made in good faith to any person in possession of
the credit shall release the debtor.
o Payment made in good faith to any person who has possession of
the credit shall release the debtor
Requisites:
o Payment made in good faith
o Payee must be in possession of the credit itself, not merely the
document evidencing the credit - e.g. checks, negotiable
instruments payable to bearer,
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.
o Payment made to the creditor by the debtor is void if the debtor
has been judicially ordered to retain the debt
Garnishment
o Effect: freezes the credit
o Debtor of the debtor should hold the payment in abeyance and
wait further orders of the court
Dr2 → Dr1 → Cr
o If Dr2 pays Dr1 even after court order: Ineffective as to Cr and
may risk double payment
o If Dr2 ends up paying twice: He may recover from the Dr1
the amount he has paid (solutio indebiti)
o BUT if Dr1 has no capacity to return the payment (i.e.
insolvent): Dr2 may not be able to recover because court
cannot compel Dr1
Example:
A → owes 1M → B → owes 100K → C
C brings action against B. B claims insolvency but admits he has credit over
A.
Before A pays B, A is summoned to court and asked to retain the debt in
the meantime. (Here, the debt of A is garnished)
A should not pay B, and instead should pay C, should C be judicially
declared the creditor of B.
If A made payment to B while the debt is retained, it is invalid under the
law.
Art 1244. The debtor of a thing cannot compel the creditor to receive a
different one, although the latter may be of the same value as, or more
valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be
substituted by another act or forbearance against the obligee's will.
o Applies to specific obligations
o The debtor cannot compel the creditor to receive a thing
different from what was agreed upon, even if the thing is of the
same value or more valuable that the agreed upon thing.
o In obligations to do or not to do, an act cannot be substituted by
another act against the creditor’s will.
IDENTITY
GR: The very thing or service must be paid/performed. He cannot deliver a
thing of inferior or superior value.
XPN:
(1) In case of facultative
(2) In case there is another agreement resulting to:
o Dation in payment
o Novation
(3) In case of waiver of creditor (express or implied)
What happens when a thing of superior value was delivered?
Cathay Pacific v. Sps Vazquez
Facts: Sps Vazquez had a flight back to Manila from Hongkong. The
tickets they booked were Business Class. Since they are frequent fliers
of Cathay Pacific, they have the privilege to become a member of the
Marco Polo club and the privilege to upgrade their tickets to First Class
at no additional cost. When they were about to board the plane, the
stewardess informed them that the their ticket has been upgraded to
First Class. The spouses initially refused but eventually gave in since the
Business Class seats were fully booked already.
Issue:
W/N there was breach of contract despite upgrade of their tickets. –
YES.
Held: The Court ruled that the contract of carriage between Cathay and
the Sps to have a business class seat is perfected. By insisting the Sps to
have their tickets despite refusal, Cathay committed a breach of

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 OBLICON REVIEWER
contract. Art 1244 provides that the debtor cannot compel the creditor
to accept a thing of equal or even superior of value. The First Class
ticket is undeniably a thing of superior value and the Sps cannot be
compelled to accept it. However, there was no bad faith or fraud on
the part of Cathay. Hence, there can be no award of moral or
exemplary damages because of the absence of bad faith. Only entitled
to nominal damages of PhP5k because of the breach of contract.
NOTE: Breach of Contract – “failure without legal reason to comply with
the terms of a contract” or “failure without legal excuse to perform any
promise which forms the whole or part of the contract”
Art 1245. Dation in payment, whereby property is alienated to the
creditor in satisfaction of a debt in money, shall be governed by the law
of sales. (Finals)
o Dation in payment whereby property is alienated to the creditor
in payment of a debt in money shall be governed by the law on
sales
DACION EN PAGO
o Transmission of ownership of a thing by the debtor to the creditor
as an accepted equivalent of the performance of an obligation
o A special mode of payment wherein the debtor offers another
thing to the creditor who accepts it as the equivalent of payment
of an outstanding debt
o SPECIAL because departs from the requisite of IDENTITY
o Applies to money debts only
Requisites:
(1) Performance of another prestation in lieu of payment which may
consist in the delivery of a corporeal thing, real right, or a credit against a
third person
(2) There is a difference between the prestation due and what is given in
substitution
(3) There must be an agreement between the creditor and debtor that the
obligation is immediately extinguished by reason of the performance of a
prestation different that due (CONSENT of both is REQUIRED)
Nature:
o Sale – traditional view; by delivering a thing in lieu of payment of
money, the debtor assumes the role of a vendor and the creditor
becomes a buyer
OBLICON REVIEWER
o Novation – modern view; change of object (e.g. from delivery of
money to delivery of a car)
Criticisms:
o Not a sale – the contract is that of mutuum because there was
never an intention to enter into a sale
o Not a novation – because there is no replacement of one
obligation with another; the modified form of payment
immediately and directly extinguishes the obligation instead of
creating a new one
o Tolentino: it is novation with prior agreement of parties to deliver
a thing in lieu of the original prestation
o Padilla: It is novation because one obligation is substituted for
another
o Manresa: Both parties have a right to modify hence there was an
agreement to change it
o Third Theory (Balane prefers this):
o Not a sale nor a novation but a special form of payment.
It is a kind of payment implying an onerous transaction
similar but not necessarily a sale.
o Not novation because there is no new obligation
Lo v. KJS
Facts: Lo ordered materials from KJS amounting worth 540K with DP
paid 150K and the balance to be paid in 10 monthly installments. After
2 installments paid, Lo defaulted. He then executed a Deed of
Assignment in favor of KJS wherein Lo assigned receivables from
Jomero. KJS tried to collect from Jomera but the latter refused to
honor the Deed since Lo still had unpaid obligations to it. KJS then filed
for a collection of sum of money from Lo. Trial Court dismissed the
complaint while the CA reversed it. Lo argues that the obligation has
been extinguished due to the assignment of credit.
Issue: W/N the Deed of Assignment extinguished the obligation of Lo. –
NO.
Held: The Court ruled that the assignment of credit did not extinguish
the obligation of Lo. In an assignment of credit, it has the nature of a
sale of property and also produces the effects of a dacion en pago
which may extinguish an obligation. However, the vendor/assignor (Lo),
is bound by certain warranties. One of which is to ascertain the
existence and legality of the credit at the time the assignment took
place. Here, Jomero claimed that it is no longer indebted to Lo since Lo
also had an unpaid obligation to Jomero which has now been
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 OBLICON REVIEWER
extinguished by virtue of compensation. Hence, Lo having no credit to
assign, cannot validly make an assignment of credit. Lo’s obligation to
KJS has not been extinguished by the Deed of Assignment.
Extent of extinguishment:
o Depends on agreement of parties. Can either be total or partial
Art 1246. When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and circumstances have
not been stated, the creditor cannot demand a thing of superior
quality. Neither can the debtor deliver a thing of inferior quality. The
purpose of the obligation and other circumstances shall be taken into
consideration.
o Applies to obligation to give a generic thing and generic
obligations to do
o When the obligation consists of a delivery of a GENERIC thing
whose quality is not stated, the creditor cannot demand a thing of
superior quality. The debtor on the other hand cannot deliver a
thing of inferior quality. The purpose of the obligation and other
circumstances should be taken into consideration.
Rule: No inferior or superior quality
In case of dispute on the quality: the courts will decide
Art 1247. Unless it is otherwise stipulated, the extrajudicial expenses
required by the payment shall be for the account of the debtor. With
regard to judicial costs, the Rules of Court shall govern.
GR: Extrajudicial expenses incurred shall be shouldered by the debtor
XPN: Unless otherwise stipulated
o Judicial costs – governed by Rules of Court
Art 1248. Unless there is an express stipulation to that effect, the
creditor cannot be compelled partially to receive the prestation in
which the obligation consists. Neither may the debtor be required to
make partial payments.
However, when the debt is in part liquidated and in part unliquidated,
the creditor may demand and the debtor may effect the payment of the
former without waiting for the liquidation of the latter.
OBLICON REVIEWER
GR: The creditor cannot be compelled to accept partial payments or
performance of the obligation. Neither may the debtor be required to
make partial payments
XPN:
(1) there is express stipulation (par 1)
(2) Prestation which entails partial performance
(3) When different prestation are subject to different conditions or terms
(4) When the debt is partly liquidated and unliquidated, in which case
performance of the liquidated part may be insisted upon either by the
debtor or the creditor (par 2)
(5) When joint debtor pays his share on the debt
(6) when a solidary creditor pays only the part demandable when the rest
are not yet demandable being subject to different terms and conditions
(7) In compensation, when one debt is larger than the other, it follows that
a balance is left
(8) When work is done by parts
(9) Several guarantors who demand division
(10) Impossibility or extreme difficulty of single performance
BUT when debt is partly liquidated and unliquidated, the creditor may
demand from the debtor and the debtor may make payment without
waiting for the liquidation of the latter
Liquidated – amount is readily determined
Example: when you incur out-of-pocket expenses and you’re still in the
process of collecting all the receipts. Those with receipts are deemed to
be liquidated already
Effect: PARTIAL payments = BREACH
Art 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such currency,
then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange
or other mercantile documents shall produce the effect of payment only
when they have been cashed, or when through the fault of the creditor
they have been impaired.
In the meantime, the action derived from the original obligation shall
be held in the abeyance.
RULE ON IDENTITY OF DEBTS IN MONEY
o Shall be made in the currency stipulated
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 OBLICON REVIEWER

o If not possible to deliver such currency, the currency which is the Facts: Respondent Sabeniano has deposits—both peso and dollars—and
legal tender in the Philippines money market placements (short-term investments) in petitioner
o Promissory notes, bills of exchange, and other mercantile Citibank. Sabeniano alleged that Citibank refuses to release her
documents shall produce the effect of payment only if it is cashed deposits in the bank despite demands. Citibank on the other hand,
or when through the creditor’s fault, they have been impaired claims that she has outstanding loans which have become demandable
o In the meantime, action derived from original obligation with the bank so the latter exercised its right to setoff/compensation in
shall be held in abeyance (suspended) payment of the loan. Sabeniano filed a complaint before the lower
court and it ruled that the setoff was invalid and ordered Citibank to
Obligations in Foreign Currency: return the deposits and MMPs. CA affirmed the lower court’s decision.
o May be fulfilled in PHP based on prevailing rate at the time of Sabeniano argues that she had already paid her loans via checks as
payment evidenced by provisional receipts issued by Citibank. Citibank on the
other hand contends that the provisional receipts issued were merely to
What Form Should Money Debts be Paid: acknowledge delivery of the checks but not yet of payment since the
A. Currency stipulated bank will have to clear the checks first.
o Parties can agree on whatever currency
B. If no stipulation or impossible to acquire stipulated currency → Issue: W/N mere delivery of checks constituted payment on the loan. –
Philippine Legal Tender NO.
Legal Tender
o That which a creditor may compel a creditor to accept payment in Held: The Court ruled that mere delivery of checks does not constitute
payment of the debt; creditor may not validly refuse to accept payment. Here, the case of PAL v. CA was cited wherein the Court held
o Bills and coins that negotiable instruments such as checks are only a substitute for
o Before Martial Law: all notes and coins without limit money and that mere delivery does not extinguish the obligation since
o Under BSP 537-2008: checks are not legal tender which may be validly refused by the
▪ all bills without limit creditor and can only be considered payment when it has been
▪ 1-peso coins and up – up to P1,000 encashed.
▪ Centavo coins – P100
• BUT if creditor accepts even beyond, ADVANCED TOPIC ON COMPENSATION: The Court ruled that the
then it’s okay because it depends on compensation done by Citibank against the deposits and MMPs of
the agreement/stipulation Sabeniano was valid since all of the requisites of a valid compensation
were met (Both are creditors and debtors of one another, both debts
Payment in Negotiable Paper: are money debts, due and demandable, and not subject to any
Ex. Checks retention). Compensation takes place by operation of law so express
GR: Checks (i.e. Cashier, manager’s checks) are NOT legal tender and can authority/consent is not required.
be refused by the creditor
o Why?: Because the obligation of the debtor is to pay in legal CLASS NOTES
tender (par 1)
Q: Who has burden of proof that payment was made?
XPN:
A: The debtor
(1) When there is agreement/stipulation to pay the obligation by means of
bills of exchange
Q: Manager’s check v. Regular check
(2) Unless it has been encashed
A: Manager’s/Cashier’s check – issued by the bank itself then just give
(3) Through the fault of the creditor, the instrument has been impaired
the money to the bank teller, no need to open an account from the
(applies to checks issued by 3rd party who is not the debtor)
bank; risk of becoming a bouncing check is zero
Regular check – depends on the availability of funds of the issuer of the
Citibank, N.A. v. Sabeniano check; there is risk of the check being bounced

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 OBLICON REVIEWER
Effect of Payment in Negotiable Paper:
o If creditor ACCEPTS negotiable paper, such is only PROVISIONAL
and will only constitute payment only when:
o It is encashed (when honored by the bank)
o Negotiable paper is impaired through creditor’s fault
▪ When impaired?:
• Instrument is executed by 3rd persons
and delivered by debtor to creditor
(i.e. Manager’s check)
• Creditor allows it to go stale
• Q: if personal check then check became
stale?
• A: not payment. Creditor can still
compel debtor BUT expenses will
probably be borne by the creditor
▪ !!! NOTE: No impairment through creditor’s
fault if the check is personally issued by debtor
3rd par: “In the meantime, the action derived from the original obligation
shall be held in the abeyance.”
Example: A issued a promissory note payable 2 months later to B in
payment for his debt.
Q: During the 2 months, can B bring action to A to recover from him?
A: NO. Under the law, when the encashment of the promissory note is
pending for a period of time, the action shall be held in abeyance.
Art 1250. In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of
the establishment of the obligation shall be the basis of payment,
unless there is an agreement to the contrary.
o Applies to contractual obligations to pay in money
GR: In the event of extraordinary inflation/deflation, the value of the
currency at the establishment of the obligation shall be the basis of
payment of the obligation
XPN: When there is agreement of the contrary (extraordinary inflation or
deflation shall become the basis of payment)
When is Revaluation Needed:
o only in cases of extraordinary inflation/deflation
Extraordinary Inflation (Deflation)
OBLICON REVIEWER
o sharp increase (decrease) which is unusual or beyond common
fluctuation; not reasonably foreseen (caused by war, etc.)
Revaluation
o payment of the sum of money shall be the value of the currency
at the time the obligation was constituted
Telengtan Brothers & Sons v. US Lines
Facts: Petitioner Telengtan is a domestic corporation while respondent
US Lines is a foreign corporation doing overseas shipping. During this
time, Far East Conference Tariff No. 12 was in effect. This Tariff
provides that consignees who fail to take delivery of their containerized
cargo within the 10-day free period are liable to pay demurrage
charges. US Lines filed a case against Telangtan Bros & Sons, Inc.
seeking payment of demurrage charges amounting to 94K plus interest
and damages because of the failure of Telengtan to withdraw its goods
from the containers within the 10-day freedom period provided for in
Far East Conference Tariff No. 12. Both RTC and CA favored US Lines
and awarded the sum for the demurrage who shall bear interest and be
recomputed in accordance with Art. 1250 of the Civil Code. Respondent
US lines contend that judicial notice should be taken of succeeding
devaluations of the peso against the dollar since 1981, tantamount to
extraordinary inflation.
Issue:
W/N there was extraordinary inflation. – NO.
W/N the CA and RTC erred in stating in its decision that the judgement
award shall be recomputed in accordance with Art 1250 of the CC. –
YES.
Held: The Court here ruled that Telengtan is indeed liable for the
demurrage charges but the part of the decision of the RTC and CA which
states that the judgement award shall be recomputed in accordance
with Art 1250 of the CC is erroneous. Art 1250 applies in the event of
an extraordinary inflation. Extraordinary inflation or deflation exists
when there is an unusual increase or decrease in the purchasing
power of the Philippine peso which is beyond the common
fluctuation in the value of said currency, and such increase or
decrease could not have been reasonably foreseen or was manifestly
beyond the contemplation of the parties at the time of the
establishment of the obligation. Extraordinary inflation can never be
assumed; he who alleges the existence of such phenomenon must prove
the same. Here, the Court ruled that there is no extraordinary inflation
because it was not proved by the respondent. Such downward trend
that happened since the filing of complaint is a normal characteristic of
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 OBLICON REVIEWER

currencies which cannot be deemed as extraordinary. Furthermore, Where Payment is Made (PLACE):
there is no official pronouncement of the same by proper authorities Primary rule: Stipulated place
(e.g. BSP, DOF) of the existence of extraordinary inflation. And in times Secondary rule: If obligation to deliver specific thing → place where the
of extraordinary inflation, Art 1250 clearly provides that the value of thing might be at the time the obligation was constituted
the peso at the time of the establishment of the obligation shall control Tertiary rule: If other obligation (e.g. generic, money, personal) →
and be the basis of payment of the contractual obligation, unless there domicile of the debtor
is "agreement to the contrary." It is only when there is a contrary o If debtor changes domicile in bad faith/delay, the expenses shall
agreement that extraordinary inflation will make the value of the be borne by him
currency at the time of payment, not at the time of the
establishment of obligation, the basis for payment. Here, no such Review: Time of payment? See Art 1169
agreement was present in the agreement/bills of lading. Hence, the
computation provided for in Art 1250 cannot be applied because there
CLASS NOTES
is not extraordinary inflation in the first place.

IMPORTANT POINTS:
o Extraordinary inflation or deflation exists when there is an
unusual increase or decrease in the purchasing power of the
Philippine Peso which could not have been reasonably foreseen
by the parties
o Extraordinary inflation is never assumed; he who alleges must
prove
o Erosion in the value of peso in the past decades cannot be
considered the extraordinary phenomenon contemplated by
Article 1250 A: First, check the agreement. If none, proceed to the next rule. Since
o Absent an official declaration by competent authorities of it’s a specific thing, payment should be made in the place where the
existence of extraordinary inflation, 1250 cannot be applied. specific thing is. Since bad faith, travel expenses of buyer (obligee)
o Under Article 1250, the basis for payment is the value (the real from his place to Mandaluyong may be reimbursed by the seller
value or worth) at the time the obligation was constituted or (obligor).
incurred, unless there is an agreement to the contrary.
What if generic thing? Domicile of debtor. BUT if there is bad faith on
Art 1251. Payment shall be made in the place designated in the the part of the debtor, there must be notice so debtor won’t be liable.
obligation. But if no notice, debtor will be liable for the expenses.

There being no express stipulation and if the undertaking is to deliver a

determinate thing, the payment shall be made wherever the thing
might be at the moment the obligation was constituted.
In any other case the place of payment shall be the domicile of the
debtor.

If the debtor changes his domicile in bad faith or after he has incurred
in delay, the additional expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of
Court.

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Subsection 1.1 - Application of Payments
Art 1252. He who has various debts of the same kind in favor of one
and the same creditor, may declare at the time of making the payment,
to which of them the same must be applied. Unless the parties so
stipulate, or when the application of payment is made by the party for
whose benefit the term has been constituted, application shall not be
made as to debts which are not yet due.
If the debtor accepts from the creditor a receipt in which an application
of the payment is made, the former cannot complain of the same,
unless there is a cause for invalidating the contract.
APPLICATION OF PAYMENTS (Imputacion de pagos)
o Special Form of Payment
o Why?: Because it departs from the requisites of integrity and
indivisibility
o Definition: Designation or specification of the debt/debts to which
an amount paid by a debtor, who has several demandable
obligations in favor of the same creditor, should be applied
Requisites:
o Only one creditor and one debtor
o Existence of various obligations
o Obligations are of the same nature (i.e. all are money debts, delivery
of various quantities of rice of the same variety)
o All must be due
o Q: What if not all debts are due, can there still be application
of payments?
o A: YES. Only if:
▪ Parties stipulated or;
▪ When application of payment is made by the party
for whose benefit the term has been constituted
o Payment is not enough to extinguish all the debts
o If exact payment → no application
Rules on Application: Order of preference
(1) Agreement/stipulation
(2) Debtor’s option
(3) Creditor’s option
(4) Most onerous to least onerous
(5) All the debts pro rata
Limitations of Debtor’s Right to Application of Payments:
o Debtor cannot apply the payment to the principal if there is
outstanding interest due
o Debtor cannot apply to the amount in such a way that integrity or
indivisibility will be violated
Example: X owes Y three debts; P1000, P2000, and P3000.
X remitted P3000. X cannot:
(1) Apply 500 to the first
(2) 1000 to the second
(3) 1500 to the third
UNLESS, the creditor consents.
How:
o Debtor’s option
o Creditor’s option
o Neither made application or when application is void, application
is made by operation of law
When:
o At the time the payment by the debtor is made (not after)
NOTE: When right of application is exercised, it cannot be revoked unless
creditor consents to the change.
Art 1253. If the debt produces interest, payment of the principal shall
not be deemed to have been made until the interests have been
covered.
GR: If debt is interest-bearing, payment applies first to the interest
XPN: If creditor consents that it may be applied to the principal first
Art 1254. When the payment cannot be applied in accordance with the
preceding rules, or if application cannot be inferred from other
circumstances, the debt which is most onerous to the debtor, among
those due, shall be deemed to have been satisfied.
If the debts due are of the same nature and burden, the payment shall
be applied to all of them proportionately.
Rules if No Voluntary Application of Payments:
o Apply to the most onerous (4th)
o If same, pro rata (5th)
Guide in Onerous Debts:
o Secured debt > Unsecured
o Interest-bearing > Non-interest bearing
o Principally bound > Subsidiarily bound

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 OBLICON REVIEWER

o Debt with a penal clause > Without a penal clause o Abandonment of debtor’s property which are not exempt from
o Purely individual > Solidary execution in favor of creditors
o Liquidated > Unliquidated o XPT: when exemption is validly waived by debtor
o Acceptance or consent of the part of the creditors
Q: What if debts have countervailing characteristics? (e.g. one debt is o ESSENTIAL ELEMENT: Consent of the parties. The
secured and one is unsecured but with a penalty clause) creditors may refuse this mode of payment
A: Depends on the circumstances. E.g. what is the security? What is the
amount of the penal clause? What is the amount of the principal? Kinds:
➢ Contractual (Art 1255)
Q: What if debts are equally onerous? ➢ Judicial (governed by Insolvency Law)
A: Apply it pro rata
Extent:
Primary rule: Net proceeds of the sale shall be applied in accordance with
Subsection 1.2 - Payment by Cession the agreement of the parties.
Art 1255. The debtor may cede or assign his property to his creditors in Secondary rule: If no agreement, rules on preference of credits will apply.
payment of his debts. This cession, unless there is stipulation to the
contrary, shall only release the debtor from responsibility for the net NOTE: If LAND is the property, the cession/assignment must be in writing
proceeds of the thing assigned. The agreements which, on the effect of for it to be valid.
the cession, are made between the debtor and his creditors shall be
governed by special laws. Dacion en pago Payment by Cession
Ownership is transferred Merely possession is transferred
PAYMENT BY CESSION Creditor becomes owner of the Creditor becomes debtor’s agent
o Special form of payment property for the sale of property
o Why? Because it departs from the requisite of identity (and not Only specific creditor’s consent is ALL creditor’s consent is required
infrequently, integrity and indivisibility) required
o Definition: “the abandonment by the debtor the totality of his Debtor doesn’t have to be Debtor has to be totally or
property for the benefit of his creditors so that the latter may insolvent partially insolvent
apply to the satisfaction of their credits the proceeds of the sale Does not require plurality of Requires plurality of creditors
of such property” (Manresa) creditors
o SIMPLY STATED: Debtor hands over the possession of his property
to his creditors and authorizes them to sell the said property for
the purpose of dividing the net proceeds among them Subsection 1.3 – Tender of Payment and Consignation
o Manresa: ownership does NOT pass onto the creditors 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
Requisites: from responsibility by the consignation of the thing or sum due.
o More than 1 debt
o 2 or more creditors Consignation alone shall produce the same effect in the following cases:
o Q: What if only 1 creditor or 1 debt? (1) When the creditor is absent or unknown, or does not appear at the
o A: Payment by cession can still be used. Principle of place of payment;
Contractual Freedom applies since it is not contrary to (2) When he is incapacitated to receive the payment at the time it is
law, morals, good customs, public order or public policy. due;
o Total or partial insolvency of the debtor (3) When, without just cause, he refuses to give a receipt;
o Judicial declaration NOT required (4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost.

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 OBLICON REVIEWER
TENDER OF PAYMENT
o Positive and unconditional act of offering what is due him
together with a demand that the creditor accept the same
o Cannot be presumed
o There must be intent, ability, and capability which must be
absolute and must cover the amount due
GR: THERE MUST BE TENDER OF PAYMENT BEFORE CONSIGNATION
XPN: Par 2
(1) When creditor is absent or unknown or does not appear at the place of
payment
(2) When creditor is incapacitated to receive payment at the time it is due
- judicially ineffective so better to do consignation instead
(3) Creditor refuses to give receipt without just cause
(4) Two or more persons claim the same right
- tender of payment is risky
(5) When the title to the obligation has been lost
- consignation is better to avoid risk of double payment
CONSIGNATION
o Special form of payment
o Why? Because it departs from the rules regarding the person to
whom payment should be made, who, in this case, it not the
creditor by the COURT.
o Definition: the act of depositing the thing due with the court or
judicial authorities whenever the creditor cannot accept or
refuses to accept and it generally requires a prior tender of
payment
o Rationale:
▪ to avoid performance of an obligation become
more onerous to the debtor by reason of causes
not imputable to him;
▪ to free debtor from the obligation so he frees
himself from the duty of paying interest or
bearing the risk of loss
Basis:
o Mora accipiendi (delay on the part of the creditor)
o Actual mora – culpable; creditor refuses payment
without just cause; requires previous tender of
payment
o Constructive mora – no culpability but impossibility
or impracticality; does not require previous tender
of payment(Nos. 1,2,4,5 Art 1256)
OBLICON REVIEWER
Requisites: ALL ARE MANDATORY
o There must be a debt due
o That the consignation of the obligation had been made because of
some legal cause such as:
o Unjustified refusal of previous tender of payment
o Existence of circumstances making previous tender
unnecessary
▪ See exceptions above
o There must be previous notice of the consignation given to the
persons interested (i.e. guarantors, sureties, creditor of the
creditor, co-debtors, co-creditors) in the performance of the
obligation (1st notice-before consignation)
o Purpose: to give creditor the opportunity to reconsider
his unjust refusal and avoid litigation
o GR: No notice, consignation is void
o XPN: When notice would be useless as when creditor was
travelling from place to place and could not be located
▪ BUT if court sent out summons, sufficient notice
o The amount due, including interest, was placed at the disposal of
the court (Consignation proper)
o That after the consignation had been made, the person interested
was notified thereof (2nd notice-after consignation)
o Purpose: enables creditor to take necessary steps to take
possession of the property
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. (3rd req)
The consignation shall be ineffectual if it is not made strictly in
consonance with the provisions which regulate payment.
Art 1258. Consignation shall be made by depositing the things due at
the disposal of judicial authority, before whom the tender of payment
shall be proved, in a proper case, and the announcement of the
consignation in other cases. (4th req)
The consignation having been made, the interested parties shall also be
notified thereof. (5th req)
What can be consigned:
“Things due” – Generic; pecuniary or non-pecuniary movables (Balane:
even realty)
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 OBLICON REVIEWER

o The creditor is entitled to any appreciation or bears any

How is Consignation done: depreciation subsequently occurring
o Depositing the thing due
o With the court or proper judicial authorities (e.g. cashier, clerk of WITHDRAWAL BY DEBTOR BEFORE CONSIGNATION
court, sheriff) o Consignation is a right of the debtor
o There must be proof that: o Being a right, it can be waived or its exercise withdrawn
o Tender of payment was made unless excused o Collateral parties cannot prevent debtor from exercising his right
o First notice of the consignation had been sent BUT any expenses incurred by them shall be reimbursed by the
debtor
Second Notice:
o Purpose: enables creditor to take necessary steps to take Art 1261. If, the consignation having been made, the creditor should
possession of the property authorize the debtor to withdraw the same, he shall lose every
o To other interested parties: so they will be informed that the preference which he may have over the thing. The co-debtors,
consignation has been consummated guarantors and sureties shall be released.

Art 1259. The expenses of consignation, when properly made, shall be WITHDRAWAL BY DEBTOR AFTER CONSIGNATION
charged against the creditor. o After, it becomes irrevocable and can only be undone by MUTUAL
CONSENT of debtor and creditor
Rationale: because of the creditor’s fault; Principle of Law and Justice
Creditor – expenses + damages Before:
Right to withdraw – unilateral
Art 1260. Once the consignation has been duly made, the debtor may After:
ask the judge to order the cancellation of the obligation. Right to withdraw – bilateral

Before the creditor has accepted the consignation, or before a judicial Effect of Withdrawal Mutually Agreed Upon:
declaration that the consignation has been properly made, the debtor o Principal obligation is revived
may withdraw the thing or the sum deposited, allowing the obligation o Accessory obligations are NOT revived
to remain in force. o Creditor loses any preference over the thing, such as preference
over subsequent mortgages and other security
When is Consignation consummated? o If passive solidary, bond of solidary NOT revived
o Upon acceptance by creditor o BUT co-debtors are released only from solidarity, not
o Judicial declaration of the consignation from their own individual shares, since unlike guarantors
or sureties, the co-debtors are in themselves PRINCIPAL
Effects
of Consignation: debtors
o Obligation is extinguished and debtor is released
o Accessory obligations are also extinguished
o If no prior ToP was required, interest ceases to run
o BUT if prior ToP was required and had been made,
interest would have ceased running when ToP was made
o Risk of loss transfers to the creditor
o BUT if prior ToP was required and had been made, the
risk of loss would have transferred to the creditor upon
his unjustified refusal

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 OBLICON REVIEWER

b. Obligor in delay or has promised the same thing to 2 or

Section 2
Loss of the Thing Due
Section 2. Loss of the Thing Due
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.
Application of the Article:
o Obligations to give Specific Things
o Loss = Extinguishment of Obligation
o “Loss” – obligations to give
o “Impossibility” – obligations to do
If Conditional Obligation to give Specific Thing: Art 1189 supra
more persons who do not have the same interest (Art
1165)
c. Officious manager in certain cases (Art 2147)
i. He undertakes risky operations the owners is not
accustomed to embark upon
ii. He preferred his own interest to that of the
owner
iii. He fails to return the property/business despite
demand by its owners
iv. He assumed the management in bad faith
(2) Stipulation
(3) Nature of obligation requires assumption of risk
WHAT LOSS IT REFERS TO:
Supervening Loss - loss AFTER constitution of the obligation and BEFORE
delay
Prevenient/Antecedent Loss – cases where prestation involves the delivery
of a thing or performance of a service which is non-existent or impossible
from the time of the creation of the obligation. Here, obligation is not
extinguished because there is nothing to extinguish → VOID obligation

Effect of Loss/Impossibility in a RECIPROCAL obligation:

2 views:
(1) Germanic View (Sir Dake’s preference)
o “res perit domino”
o Effect of loss: EXTINGUISH juridical tie → EXTINGUISH
OBLIGATION
o Hence, debtor is ABSOLVED from the obligation BUT he cannot
demand the prestation which has been stipulated for his benefit
o Hence, debtor must return to creditor whatever he has delivered
o Tolentino: cited Art. 22 of the Civil Code to justify this view
o Art 22: when a person acquires something at the expense
of the other, he must return it

(2) Roman View

GR: No liability, excuses the obligor from liability in case of fortuitous o “res perit creditori”
events o Effect of loss: Obligation SUBSISTS
XPN: o Hence, debtor is still BOUND by the obligation
(1) Law expressly provides o Why? Because reciprocal obligations, although intertwined, are
a. Possessor in bad faith (Art 552) relatively DISTINCT, and the extinction of one does not cause the
extinction of the other
o JBL Reyes: cited Art. 1269 of the Civil Code to justify this view

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 OBLICON REVIEWER

o Art 1269: when there is loss, the creditor is subrogated of proof to the contrary, and without prejudice to the provisions of article
the debtor’s right to claim compensation and damages 1165. This presumption does not apply in case of earthquake, flood,
from 3rd persons who is responsible of the loss storm, or other natural calamity.
o Criticism: Why would there be subrogation when the
creditor is not bound to perform? Arts. 1504, 1655, and PRESUMPTION OF FAULT
1717 are the exceptions. GR: Loss due to debtor Rebuttable
when thing is in his
Art 1263. In an obligation to deliver a generic thing, the loss or possession
destruction of anything of the same kind does not extinguish the Loss due to acts of God No presumption
obligation.
In Relation to Art 1165:
GR: GENERIC THINGS – loss does not extinguish obligation GR: Debtor can overcome the presumption by proving fortuitous event
“Genus numguam perit” – genus never perishes XPT:
(1) When debtor is in delay
XPN: (2) Debtor promised to deliver the same thing to 2 or more
o Loss of the ENTIRE genus (e.g. genus became illegal) persons who do not have the same interest
o Delimited generic thing (Art 1262 applies. See discussion below)
o A generic thing has been set aside. Here, it becomes a specific Art 1266. The debtor in obligations to do shall also be released when
thing the prestation becomes legally or physically impossible without the
fault of the obligor.
Limited Generic Obligations
o If the prestation is to deliver a thing from among a specified mass
Application of the Article:
or group
o Obligations to do; personal obligations
o Ex. for instance the debtor binds himself to deliver to the creditor
o Art 1262, supra
“one of my cars”, if all cars are lost through fortuitous event
o Impossibility
before due date, Art 1262 applies
Kinds of Impossibility:
Art 1264. The courts shall determine whether, under the (1) Legal Impossibility
circumstances, the partial loss of the object of the obligation is so o When obligation becomes impossible because of a provision in the
important as to extinguish the obligation. law although its performance is physically possible
o E.g. Law prohibiting selling of pinball machines
PARTIAL LOSS
o In these cases, the COURTS will determine if the partial loss (2) Physical Impossibility
completely nullifies any possible benefit that the creditor may o In purely personal obligations, this happens when the:
derive from the performance or whether some applicable benefit o Obligor dies or;
is still possible o Becomes physically incapacitated to perform the
o Courts will resolve if the partial loss will cause the extinguishment obligation
or the subsistence of the obligation
o Courts will take into account RELEVANT CIRCUMSTANCES Art 1267. When the service has become so difficult as to be manifestly
o What extent the debtor shall be required to perform beyond the contemplation of the parties, the obligor may also be
released therefrom, in whole or in part.
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 DOCTRINE OF UNFORESEEN EVENTS

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 OBLICON REVIEWER
o “rebus sic stantibus”, frustration of the enterprise/commercial
object
o Impossibility of performance since the prestation becomes
extremely difficult
o Basis: Contracts involving successive performances or for
performances for a long period of time are to be understood in
the context of the conditions prevailing at the time of
constitution.
o Scope: Performance, though not impossible, has become so
manifestly and extremely difficult as to be beyond the
contemplation of the parties.
o So when conditions radically and unforeseeably change in the
future, the contract loses its basis due to a reason akin failure of
a cause
▪ NOTE!! This principle does not apply to a
performance that has become impossible
because in Art 1262, 1266 will apply
Requisites:
(1) The event or change in circumstances could not have been
foreseen at the time of the execution of the contract.
(2) It makes the performance of the contract extremely difficult but
not impossible
(3) The event must not be due to the act of any of the parties
(4) The contract is for a future prestation or for a long period of time
(see Naga Telephone case)
“EQUITY IS NOT AN ANTIDOTE TO A BAD BARGAIN”
Victorino Magat v. CA
Facts: Guerrero Transport Services, owned by Guerrero, won a bid for
the operation of a fleet of radio- controlled taxicabs within the Subic
Naval Base. LOI 1 was passed by Marcos seizing all privately owned
media facilities, including radio facilities. The Radio Control Office also
issued AC 4, suspending acceptance of application for permits to own
and/or possess radio transmitters and transceivers. Thereafter,
Guerrero and Victorino entered into a contract for the sale of
transceivers and Victorino placed an order with his Japanese supplier.
However, since the government refused to grant the permit to import
the transceivers, the order was cancelled by Guerrero. He then
commenced the operation of his taxi cabs within Subic Naval Base using
borrowed radio units from the US Government.
OBLICON REVIEWER
Issue: W/N Guerrero breached the contract by failure to secure a Letter
of Credit and a permit from the Radio Control Office. – NO. Art 1267
applies.
Held: No breach of contract and even if there was, such will not give
rise to damages.
The law provides that "when the service (required by the contract) has
become so manifestly beyond the contemplation of the parties, the
obligor may also be released therefrom, in whole or in part."
Here, Guerrero's inability to secure a letter of credit and to comply
with his obligation was a direct consequence of the denial of the
permit to import. For this, he cannot be faulted.
NOTE: Nowhere in the LOI and Admin. Circular is there an express ban
on the importation of transceivers. Possession and importation of the
radio transmitters and transceivers was legal provided one had the
necessary license for it. Transceivers were not prohibited but merely
regulated goods.
Occena v. Jabson
Facts: Tropical Homes, Inc. filed a complaint for modification of the
terms and conditions of its subdivision contract with petitioners,
alleging that due to the increase in price of oil and its derivatives and
the concomitant worldwide spiraling of prices, which are not within the
control of plaintiff, of all commodities including raw materials required
for such development work, the cost of development has risen to levels
which are not within the remotest contemplation of the parties at the
time said agreement was entered into. It further alleges that further
performance by the plaintiff under the contract, will result in situation
where defendants would be unjustly enriched at the expense of the
plaintiff. Tropical Homes prays for the modification of the terms and
conditions of the contract by fixing the proper shares that should
pertain to the herein parties out of the gross proceeds from the sales of
subdivided lots.
Issue: W/N Tropical Homes prayer for the modification of the contract
with Art 1267 as basis should be granted. – NO. Art 1267 only has the
power of relief but not revision of contracts.
Held: The complaint seeks not release from the subdivision contract but
that the court "render judgment in modifying the terms and Conditions
of the Contract. Art 1267 does not grant the courts this authority to
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 OBLICON REVIEWER
remake, modify or revise the contract or to fix the division of shares
between the parties as contractually stipulated with the force of law
between the parties, so as to substitute its own terms for those
covenanted by the parties themselves.
Naga Telephone Co. v. CA
Facts: NATELCO and CASURECO entered into a contract wherein
NATELCO shall use CASURECO’s electric light posts in Naga City. In
consideration, CASURECO agreed to install free of charge, 10 telephone
connections for NATELCO’s use. After the contract has been enforced
for 10 years, CASURECO filed a case for reformation of the contract on
the ground that it has become too one-sided in favor of NATELCO
because after 11 years of NATELCO’s use of the posts, the telephone
cables strung by them have become much heavier with the increase in
the volume of their subscribers, worsened by the fact that their
linemen bore holes through the posts at which points those posts were
broken during typhoons.
Issue: W/N the Agreement must be “reformed”. – NO. Art 1267 applies
and the parties are therefore released from their obligations.
Held: Art. 1267 is applicable.
The report of the Code Commission reveals that the rationale behind
the article is that when the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the court should be
authorized to release the obligor in whole or in part. This article is
based on the doctrine of rebus sic stantibus which recognizes that
the parties stipulate in the light of certain prevailing conditions, and
once these conditions cease to exist the contract also ceases to
exist. Considering practical needs and the demands of equity and
good faith, the disappearance of the basis of a contract gives rise to
a right to relief in favor of the party prejudiced.
Further, “service” under 1267 should be understood as referring to
“performance” of the obligation. In this case, the performance
contemplated is CASURECO’s obligation to allow NATELCO to use its
posts. Also, 1267 does not require that the contract be for future
service with future unusual change, contrary to NATELCO’s argument.
Finally, the Occeña ruling which provides that courts cannot modify the
contract is inapplicable in this case since the Court is NOT making a new
contract for the parties herein, but instead finds the compensation
necessary in order not to disrupt the basic and essential services being
rendered by both parties herein to the public and to avoid unjust
enrichment by appellant at the expense of plaintiff.
OBLICON REVIEWER
NOTE: Summary of the ruling in this case
1. Art 1267 is not restricted to obligations to do. The term
“service” pertains to “performance of the obligation”, hence, all
kinds of obligations apply.
2. Art 1267 is not restricted to future service. It also applies to
those performed over a long period of time.
Art 1268. When the debt of a thing certain and determinate proceeds
from a criminal offense, the debtor shall not be exempted from the
payment of its price, whatever may be the cause for the loss, unless the
thing having been offered by him to the person who should receive it,
the latter refused without justification to accept it.
Operation of the Article:
o Obligation to give specific thing is from a CRIMINAL OFFENSE
o The person obliged to return it becomes the INSURER of the thing
o GR: He is then LIABLE regardless of the circumstance (i.e.
fortuitous event or through his fault)
o XPN: Debtor’s liability for fortuitous event ceases when the
creditor unjustly refuses tender of the thing.
Debtor’s options in case Creditor unjustly refuses:
1. Consignation and release himself from liability
2. Retain the thing and take care of it with the diligence of a good
father of a family
Art 1269. The obligation having been extinguished by the loss of the
thing, the creditor shall have all the rights of action which the debtor
may have against third persons by reason of the loss.
o This Article grants the right of SUBROGATION to the creditor
o He may exercise the right of the debtor to demand damages from
any 3rd persons responsible for the loss of thing due
o Ex. Insurance cases
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 OBLICON REVIEWER
Section 3
Condonation or Remission of Debt
Section 3. Condonation or Remission of Debt
Art 1270. Condonation or remission is essentially gratuitous, and
requires the acceptance by the obligor. It may be made expressly or
impliedly.
One and the other kind shall be subject to the rules which govern
inofficious donations. Express condonation shall, furthermore, comply
with the forms of donation.
CONDONATION/REMISSION
o Act of liberality by virtue of which, without receiving any onerous
consideration or equivalent, the creditor renounces the
enforcement of the obligation, this extinguishing it in its entirety
or in the part or aspect of the same to which the condonation
refers
o Nature: GRATUITOUS. The law treats it as a donation and is
therefore subject to the rules of donation
Requisites:
▪ Debt must be existing (NOTE: it does not have to be due)
▪ It must be gratuitous
▪ Creditor is capacitated to contract and to dispose of his property
▪ Debtor is capacitated to accept donation
Kinds:
o Express
o Implied
Rules on Donation:
o Article 748
➢ Movable/Personal property – oral or in writing
➢ Oral donation – requires simultaneous delivery of the thing or
of the document representing the right donated
➢ Personal property
▪ More than 5,000 – donation and acceptance must
be in writing
▪ If not, VOID
o Article 749
➢ Immovable property – made in a public document
OBLICON REVIEWER
➢ Acceptance – may be in the same deed or in a separate
public document BUT must be done during the lifetime of the
donor to take effect
▪ If separate document – donor shall be
notified and this step shall be noted in both
instruments
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.
IMPLIED REMISSION
o Rebuttable presumption
o Why? By surrendering to the debtor the only evidence of
indebtedness, the creditor deprives himself of proof that debtor
owes him something and thus disarms himself of any means to
prove his claim.
Trans-Pacific Industrial Supplies v. CA
Facts: Trans-Pacific applied for and was granted loan accommodations
by Associated Bank. The loans were evidenced by 4 promissory notes
and secured by 4 mortgages. Unable to settle its obligation in full,
Trans-Pacific asked for a restructuring of the remained of the loan,
which Associated Bank accepted. The restructured loan was evidenced
by 3 new promissory notes. 3 new mortgages were fixed, and the 4
original mortgages were released. Trans-Pacific sold the parcels of land
making up the 4 original mortgages, and the proceeds were used to pay
off the restructured loans. Subsequently, Associated Bank returned the
duplicate original copies of the 3 new promissory notes to Trans-Pacific
with the word “PAID” stamped thereon. However, Associated Bank
demanded from Trans-Pacific the value of the interest accrued from the
loan. The Bank claimed that the promissory notes were erroneously
returned. Initially, Trans-Pacific wanted to settle the interest payment,
but had a change of heart and instead filed a case for specific
performance, demanding the Bank to release the mortgages, and to
have the loan be declared fully paid.
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 OBLICON REVIEWER

Issue: W/N Trans-Pacific is deemed “paid” due to “condonation” of

Associated Bank. – NO. Trans-Pacific has not yet paid in full.
Condonation/Remission raises a rebuttable presumption.
Held: Trans-Pacific did not pay its loan in full. The presumption
created by the Art. 1271 is not conclusive but merely prima facie.
Here, there’s sufficient justification to overthrow the presumption of
payment generated by the delivery of the documents evidencing
petitioners indebtedness. There is no document presented by Trans-
Pacific showing that the debt has been fully paid. The testimony an
employee of the Bank reiterated that the interest had not been paid,
though the principal obligation had already been “removed from [their]
books.” A letter from Trans-Pacific to the Bank showed that Trans-
Pacific proposed to have the interest payment be settled by dacion en
pago instead, and also they acknowledged the existence of the
obligation to pay the interest. The returned document was not an
original copy, but an original duplicate. Art. 1271 raises a presumption,
not of payment, but of the renunciation of the credit where more
convincing evidence would be required than what normally would be
called for to prove payment. The rationale for allowing the
presumption of renunciation in the delivery of a private instrument
is that, unlike that of a public instrument, there could be just one
copy of the evidence of credit. Where several originals are made out
of a private document, the intendment of the law would thus be to
refer to the delivery only of the original rather than to the original
duplicate of which the debtor would normally retain a copy. It would
thus be absurd if Art.1271 were to be applied differently.
Rebuttal of Presumption:
o By creditor
o Sufficient evidence that it was made in mistake, involuntary
means, without intent to remit
Debtor can make Counter-Rebuttal
o Criticism: immoral and absurd
Presumptions of Remission in Joint and Solidary Obligations:
o Joint Obligations
o Active Joint – only the share of delivering creditor is
deemed remitted
o Passive Joint – only the share of the debtor in possession
of the document is remitted
o Solidary Obligations
o Remission covers ENTIRE amount
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.
o Accessory follows the principal
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.
REMISSION OF A PLEDGE
o Rebuttable presumption (but in the Spanish Code commentaries,
it is conclusive)
o Why? There might be instances when the possession by the
pledger or owner of the thing pledged subsequent to the
constitution of the pledge may have come about by mistake,
fraud, or duress, etc.
Rationale of the Article
o Because it is a necessary consequence of the possessory nature of
the contract of pledge

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.

o Private document evidencing indebtedness is found in debtor’s

possession
o Presumption raised: Creditor voluntarily delivered the document
to the debtor with the intent to remit

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 OBLICON REVIEWER

Section 4 Art 1277. Confusion does not extinguish a joint obligation except as
regards the share corresponding to the creditor or debtor in whom the
Confusion or Merger of Rights two characters concur.
Section 4. Confusion or Merger of Rights
Rationale: because in joint obligations, there are as many distinct debts as
Art 1275. The obligation is extinguished from the time the characters the number of creditors multiplied by the number of debtors.
of creditor and debtor are merged in the same person.
o Active joint:
CONFUSION/MERGER A,B,C – creditors
o The fusion in one person the qualities of the creditor and the X – debtor (150k)
debtor with respect to the same obligation
o Rationale: Because it renders impossible the exercise of rights X acquires share of A. → A’s share is extinguished, B and
flowing from the plurality of subjects which is essential to an C may still demand 50K (total of 100K) each from X
obligation
o Passive joint:
Requisites: X,Y,Z – debtors (150K)
(1) There is an existing debt or obligation A – creditor
(2) Fusion of personalities of the creditor and debtor
(3) Such obligation refers to the one entered into by creditor and X acquires the credit. → X’s share is extinguished, X has
debtor the right to demand 50K each from Y and Z
(4) Debtor must be a principal, not merely subsidiary or solidary (e.g.
guarantors) o Mixed joint:
A,B,C – debtors (150K)
Example: X,Y,Z – creditors
Debtor acquires credit through testate/intestate succession which his
ascendant had against him. A acquires X’s share. → No confusion, A can demand
from B and C 25K each which is the amount X would have
Art 1276. Merger which takes place in the person of the principal collected.
debtor or creditor benefits the guarantors. Confusion which takes place
in the person of any of the latter does not extinguish the obligation.

Examples:
A – creditor
B – debtor
C – guarantor

1. B acquired the credit → There is confusion as to the principal

obligation. Both principal and guaranty will be extinguished

2. C acquired the credit → There is no confusion as to the principal

obligation. Principal subsists while guaranty will be extinguished
because of confusion.

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 OBLICON REVIEWER

Section 5 Nature of Indirect payment Impossibility of payment

payment
Compensation
Art 1279. In order that compensation may be proper, it is necessary:
Section 5. Compensation
Art 1278. Compensation shall take place when two persons, in their (1) That each one of the obligors be bound principally, and that he be
own right, are creditors and debtors of each other. 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
COMPENSATION consumable, they be of the same kind, and also of the same quality if
o Mode of extinguishing to the concurrent amount the obligations of the latter has been stated;
persons who in their own right and as principals are reciprocally (3) That the two debts be due;
debtors and creditors of each other (4) That they be liquidated and demandable;
o AKA set-off, abbreviated payment (5) That over neither of them there be any retention or controversy,
o Mutual payment, i.e. the parties pay each other what they owe commenced by third persons and communicated in due time to the
the other in obligations arising from different and independent debtor.
transactions
LEGAL COMPENSATION
Rationale
o To simplify and expedite the extinguishment of obligations Requisites:
o Purpose of parties is achieved more conveniently and in a less 1. Parties are mutually debtors and creditors of each other as
costly manner principals
o Personal and principal
Kinds
1. Legal 2. Both debts consist in sum of money OR if things due are
o Takes place automatically and by operation of law when consumable, they be of the same kind and also of the same
all requisites of Art 1279 are present quality
2. Conventional/Contractual o “consumable” – fungible things, since by intent or
o Takes place by agreement of parties even if not all agreement is capable of replacement or substitution with
requisites of Art 1279 are present another thing of the same kind
3. Facultative
o Takes place at the option of a party to whom the law 3. Both debts are due
grants the right to invoke (Art 1287, 1288)
4. Judicial 4. Both are liquidated and demandable
o Decreed by court where defendant sets up a
counterclaim of the same nature and both the plaintiff’s 5. Neither are subject to retention of controversy commenced by
claim and the defendant’s counterclaim are granted (Art 3rd persons and communicated in due time to the debtor
1283) o Ex. Order of garnishment in favor of a 3rd person

COMPENSATION MERGER Extra requisite: Compensation is not prohibited by law

Number of Two persons who are Only one person in whom is Ex. No offsetting of tax obligations with tax claims
persons mutually creditor and merged the qualities of
debtor to each other creditor and debtor Art 1280. Notwithstanding the provisions of the preceding article, the
Number of 2 1 guarantor may set up compensation as regards what the creditor may
obligations owe the principal debtor.

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 OBLICON REVIEWER
GR: Only principal debtor can set up against his creditor what the latter
owes to him
XPN: When the guarantor is subsidiarily liable, he is given the right to set
up compensation
Rationale
- Extinguishment of the principal obligation as a consequence of
compensation, carries with it the accessory obligations such as
guaranty.
Art 1281. Compensation may be total or partial. When the two debts
are of the same amount, there is a total compensation.
VOIDABLE AND RESCISSIBLE CONTRACTS
Total compensation – 2 debts have EQUAL amounts
Partial compensation – balance remains due and demandable
o Constitutes one of the exceptions of integrity/indivisibility of
payment
Art 1282. The parties may agree upon the compensation of debts which
are not yet due.
CONVENTIONAL/CONTRACTUAL COMPENSATION
- Based on agreement of parties
- Not legal compensation because either one debt is not due or
both are not due
- Principle of Contractual Freedom: parties may stipulate on
anything as long as it is not contrary to law, morals, good
customs, public order, and public policy
Requisites:
1. Parties may stipulate on anything as long as it is not contrary to
law, morals, good customs, public order, and public policy
2. Parties must be capacitated
3. Parties have the capacity to dispose inter vivos of their property
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.
Requisite:
JUDICIAL COMPENSATION
- Decreed by court where there is counterclaim
Example:
OBLICON REVIEWER
- Not legal compensation because liability for damages is not yet
liquidated
- Ex. X owes Y 1M and is already due and demandable. Y may file a
case to collect 1M before the court. If X has claims from Y (ex.
Services in favor of Y), X may file a counterclaim. The court will
decide if compensation is applicable.
- NOTE: subject to the ability of a client to have a legit
counterclaim
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.
- Rationale:
o Valid until judicially annulled or rescinded
- BEFORE rescission or annulment, can be compensated
- UPON rescission or annulment, the obligation is cancelled either
in whole or in part – and the obligation of mutual restitution
arises between the parties
Art 1285. The debtor who has consented to the assignment of rights
made by a creditor in favor of a third person, cannot set up against the
assignee the compensation which would pertain to him against the
assignor, unless the assignor was notified by the debtor at the time he
gave his consent, that he reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not
consent thereto, the latter may set up the compensation of debts
previous to the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may
set up the compensation of all credits prior to the same and also later
ones until he had knowledge of the assignment.
o Compensation by mere OPERATION OF LAW even if parties are not
aware
o This article applies to a situation in which creditor in one of the
obligations ASSIGNS or CEDES his credit to a third person
1. Both debts are due at the time assignee demands payment
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 OBLICON REVIEWER
X → Y 50,000 (Obligation 1)
Y→ X 50,000 (Obligation 2)
Then, X assigns A the amount owed to Y before debt is due.
Debts became subsequently due. (Important)
Scenario 1: Y has knowledge and consent of assignment to A
Ans: NO COMPENSATION. Knowledge and consent constitutes waiver of
right to compensation
Scenario 2: Y has knowledge but no consent
Ans: COMPENSATION. Any credit already existing at the time of
assignment.
Scenario 3: Y has no knowledge and consent.
Ans: COMPENSATION. Any credit arising before Y has knowledge of the
assignment
AFTER THE ASSIGNMENT
Q: Is it possible to set up compensation between new creditor (assignee)
and the debtor?
A: YES. In ALL cases. Bacause all the requisites for legal compensation are
present
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.
o Refers to legal compensation
o By operation of law
Art 1287. Compensation shall not be proper when one of the debts
arises from a depositum or from the obligations of a depositary or of a
bailee in commodatum.
Neither can compensation be set up against a creditor who has a claim
for support due by gratuitous title, without prejudice to the provisions
of paragraph 2 of Article 301.
FACULTATIVE COMPENSATION
- Happens when compensation can be claimed by only one of the
parties
- Must be communicated
OBLICON REVIEWER
When Legal Compensation cannot take place:
1. Contract of Deposit or Commodatum
o Deposit – when a person receives a thing belonging to
another with the obligation of safely keeping it and
returning the same
o Why? Because deposit and commodatum are fiduciary
relationships in which the depositor or the bailor has
reposed trust and confidence in the depositary or bailee
respectively
o To subject it to compensation is tantamount to betrayal
of trust and confidence of the fiduciary relationship
o The DEPOSITARY cannot claim compensation
o The DEPOSITOR can claim compensation
o Extent of prohibition: Both principal and incidental
obligations
o BUT you can’t compel the other to accept the thing
because the value of such thing is not certain yet.
o Can compel if the thing itself is the SAME thing. (e.g.
both are sum of money)
Facultative Compensation in Deposit or Commodatum
o DEPOSITOR/BAILOR, whose benefit the prohibition is
imposed, can at his choice set up compensation against
DEPOSITARY/BAILEE
2. Claim for support due to gratuitous title
o Why? Support is necessary for life. If compensation is
allowed, recipient would be deprived of the right to live
▪ XPN: Support in arrears may be compensated
(Art 301 (2))
▪ Why? Because the person who needed the
support no longer needs it
▪ Ex. When a mother owes her daughter 1M and is
also obligated to give support 10K/month. Here,
the mother is the debtor in both.
o What if not arising from gratuitous title/contractual
support? Article is silent.
▪ BUT see Art 208, FC → it says that the excess of
a contractual support can be subject to
levy/execution, it is subject to adjustment
when changes in circumstances is beyond
contemplation
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 OBLICON REVIEWER

▪ Here, it can be implied that EXCESS beyond

required for legal support CAN be subject to
compensation

Art 1288. Neither shall there be compensation if one of the debts

consists in civil liability arising from a penal offense

When Legal Compensation cannot take place (cont):

3. Debts arising from penal offenses
o Why? Because the satisfaction of each obligation is
imperative.
o BUT it could possibly be a Facultative Compensation
▪ OFFENDED PARTY has the option to set up
compensation
▪ NOT THE ACCUSED because he can just excuse
himself by use of compensation without serving
sentence

Art 1289. If a person should have against him several debts which are
susceptible of compensation, the rules on the application of payments
shall apply to the order of the compensation.

Rule:
o If debtor has several compensable debts
o Rules on Application of Payments will apply

Art 1290. When all the requisites mentioned in Article 1279 are
present, compensation takes effect by operation of law, and
extinguishes both debts to the concurrent amount, even though the
creditors and debtors are not aware of the compensation.

LEGAL COMPENSATION
- Operates automatically
- If all elements in Art 1279 is met
- Knowledge and consent of parties are immaterial

NOTE: Compensation can be renounced. It may be express or implied

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FOUNDATION SPECIALIST V. BENTOVAL Indications of MODIFICATORY novation are as follows:

1.When it expressly recognizes the old obligation
FSI and Betonval executed 3 contracts for the delivery of ready mixed concrete 2. Changes the terms of payment (i.e. interest rate, credit period)
by Betonval to FSI. 3. Adds obligations which are not incompatible with the old ones
Terms of the contract are as follows: 4. New contract merely supplements the old one.
FSI shall pay Betonval within 7 days after presentation of the invoices plus 30%
interest in case of overdue payments.

Betonval delivered the ready mixed concrete but FSI failed to pay its
outstanding balances starting Jan 1992.

To give FSI grace period, Betonval extended the 7 day credit period to 45 days.

Thereafter, FSI sent Betonval a proposed schedule of payments and by reducing

the interest from 30% to 24%.

Bentoval agreed and FSI was able to pay Betonval according to the new terms.
However, despite this, FSI still failed to settle the obligation in full.

Issue: W/N the change in the terms of payment schedule constituted a

novation. – NO.

Ruling: There was no novation in this case.

The court here differentiated EXTINCTIVE and MODIFICATORY novation

Extinctive novation is not presumed and it must be intended by the parties

- This is the kind of novation contemplated in the Civil Code as a mode
of extinguishing obligations
- Here, there is clear incompatibility between the old and the new
hence, effectively extinguished the old obligation.

Modificatory novation on the other hand are changes agreed upon by parties
which are merely incidental to the main obligation.
- This is kind of a misnomer since there is no actual novation as
contemplated in the civil code since its effect does not extinguish the
obligation.
- Here, the case at bar is an example of modificatory novation since
there was only a change in interest rate and an extension of credit
period.
- There was no incompatibility in this case since the intention was to
merely modify the terms of the original contract and not to extinguish
it.

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2. Location – conductio (lease)

TITLE II – CONTRACTS 3. Societas (partnership)
4. Mandatum (agency)
Chapter 1
GENERAL PROVISIONS CONTRACTS
- A meeting of minds
- Between 2 persons
Art 1305. A contract is a meeting of minds between two persons whereby
- Whereby one binds himself with respect to the other
one binds himself, with respect to the other, to give something or to
- To give something or to render some service
render some service.
Characteristics
BRIEF HISTORY 1. Autonomy of will (Art 1306)
2. Mutuality
A. The Twelve Tables 3. Relativity
o 450 BC 4. Consensual/Obligatory force
o 2 forms of Contracts:
▪ Nexum Elements:
- Religious origin 1. Essential Elements – absence of one invalidates the contract
- Highly ritualistic process a. Consent – who, parties
- Pair of scales, a libripens/official weigher, at least 5 b. Object – what, prestation
witnesses c. Cause – why, consideration
▪ Mancipium
- Transfer of ownership 2. Natural Elements – written by the law into the contract and exist
- More refined, more judicial even if not explicitly stipulated by the parties
- Evolved from a seizure of property by violent means a. Warranties in sales
b. Right of resolution in reciprocal obligations
B. The Post-Twelve Tables Period
o Mutuum 3. Accidental Elements – what parties voluntarily agree upon
o Stipulatio: requires specific words for its creation and validity a. Terms of payment
o Verbis: absence of specific terms, no contract arises b. Suspensive/resolutory conditions or terms
o Scriptis/Litteris: requires a document or written instrument c. Time and place of delivery
o Expensilatio, Syngraphae, Chirographa: contracts where
writing creating and constituting the contract depends on the Classification of Contracts:
nature of the agreement and the citizenship of the parties 1. According to obligation created
a. Bilateral – parties have reciprocal obligations
C. The Institutes of Justinian b. Unilateral – only one party has an obligation
o Codified in the 6th century 2. According to risk involved
o 3 classes of contracts: a. Commutative – obligation of each party is definite
▪ Contracts re: those that require delivery (e.g. mutuum, b. Aleatory – one or both of the obligations is subject to risk
commodatum, depositum, and pignus (pledge)) 3. According to cause
▪ Contracts verbis: those that can be complied with verbally a. Onerous – there is a consideration or material cause
▪ Contracts consensut: those that require no particular form b. Gratuitous – the caus is liberality
as long as there is consent 4. According to name
Examples: a. Nominate – has a particular name
1. Emptio – vendition (contract to sell)

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b. Innominate – does not have a specific name
5. According to the manner of perfection
a. Consensual – by mere consent
b. Real – by delivery
c. Formal – requires a special form for validity
6. According to dependence
a. Preparatory – intended to bring about another contract
b. Principal – can stand alone and produce effect
c. Accessory – cannot exist without a principal
Autonomy of Will
Art 1306. The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order, or
public policy.
PRINCIPLE OF AUTONOMY
- Contractual Freedom
- Very essence of contracts and an attribute of human freedom
- Parties are free to contract on whatever they want provided that
it is not contrary to law, morals, good customs, public order or
public policy
- The law will not afford the parties any relief just because their
bad judgement or the prestation is difficult/burdensome
Aspects of Autonomy
1. The freedom to contract or not to contract
o A person cannot be coerced to enter into a contract or to
refrain from contracting
XPN: Art 448
a. In case the improvement introduced is something sown or is a
building or a planting but the value of the land is
considerable greater than such improvement
o In these cases, parties are compelled to enter into a
contract of lease
b. Exercise of the State of the power of eminent domain
o There is a mandatory lease contract by property owner
and the State
2. The freedom to stipulate on specific terms
o Limitation: provided that it is not contrary to law,
morals, good customs, public order or public policy
OBLICON REVIEWER
Daisy Tiu v. Platinum Plans
Facts: Platinum Plans is a domestic corporation engaged in the pre-need
industry. In 1993, Daisy Tiu was appointed as senior AVP and territorial
operations head in charge of its Hong Kong and Asean operations. They
executed a contract for 5 years with a NON-INVOLVEMENT CLAUSE:
“8. NON INVOLVEMENT PROVISION – The EMPLOYEE further undertakes
that during his/her engagement with EMPLOYER and in case of
separation from the Company, whether voluntary or for cause, he/she
shall not, for the next TWO (2) years thereafter, engage in or be
involved with any corporation, association or entity, whether directly or
indirectly, engaged in the same business or belonging to the same pre-
need industry as the EMPLOYER. Any breach of the foregoing provision
shall render the EMPLOYEE liable to the EMPLOYER in the amount of
One Hundred Thousand Pesos for and as liquidated damages.”
In 1995, Tiu stopped reporting for work, and after a couple of months,
she suddenly entered into another pre-need company as its VP for sales.
Platinum sued Tiu for damages for violation of the “non-involvement”
clause in her employment contract which states that during her
employment with Platinum and for the next 2 years thereafter, she
cannot engage herself with the work of another pre-need company. Tiu
argues it was void since it was contrary to public policy as it was an
accepted practice in the pre-need industry, respondent did not invest
on petitioner, and it is a deprivation of petitioner’s right to engage in
an occupation.
Issue: W/N the non-involvement clause is valid. – YES.
Held: Non-involvement clause is valid. A non- involvement clause is not
necessarily void for restraining trade so long as the limitations as to
time, trade, and place are reasonable. The non-involvement clause
here was reasonable as it only prohibited Tiu for only 2 years and only
for the same business (pre-need company). This was only to protect the
company since Tiu’s position with them allowed her to be privy to
highly-confidential and sensitive marketing strategies.
Courts cannot stipulate for the parties nor amend their agreement
where the same does not contravene law, morals, good customs, public
order or public policy, for to do so would be to alter the real intent of
the parties, and would run contrary to the function of the courts to give
force and effect thereto.
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NOTE on previous Jurisprudence:
1. Ferrazzini – VOID. Not to engage in any business in the PH for 5
years. Although limited as to time and place, it was not limited as
to trade
2. G. Martini – VOID. Not to engage in any similar business for 1 year.
Restraint is too broad since it prevented employee form working in
any business similar to employer although limited only to one of
its multifarious business activities
3. Del Castillo – VALID. Not to open a drugstore within a radius of 4
miles. Reasonable limitation as to place and the restraint is not
greater than the protection the other party requires
4. Consulta – VALID. (Agent not employee) Not to engage directly or
indirectly for 1 year in activities of other companies that compete
with the business of the principal. Reasonable limitation as to
time (1 year) and it did not restrict agent from engaging in any
other business as long as it did not compete with principal’s
business.
Limitation: provided that it is not contrary to law, morals, good customs,
public order or public policy
- For the State to protect: environment, health, employment,
social security, public safety, economic law, business and trade
1. Law
2. Good customs
3. Morals
o Generally accepted principles of morality and have
received some kind of social and practical confirmation
o E.g. excessive interest
4. Public order
5. Public policy
a. Has a tendency to injure the public
b. Against the public good
c. Contravenes established interests of society
d. Inconsistent with sound policy and good morals
e. Tends clearly to undermine the security of individual
rights
Saura v. Sindico (Public Policy)
Facts: 2 candidates contending for nomination as the official candidate
of the Nacionalista party for the congressional elections entered into a
contract. They agreed that each will respect the result of the
convention and no one will run as an independent candidate after
OBLICON REVIEWER
losing. Saura was elected and proclaimed the official congressional
candidate of the Nacionalista party. Nonetheless, Sindico filed her
certificate of candidacy.
Issue: W/N the agreement between Saura and Indico is valid. –
NO. It is against public policy.
Held: The contract is void. Among those that may not be the subject
matter (object) of contracts are certain rights of individuals, which the
law and public policy have deemed wise to exclude from the commerce
of man. Among them are the political rights conferred upon citizens,
including, but not limited to, one's right to vote, the right to present
one's candidacy to the people and to be voted to public office,
provided, however, that all the qualifications prescribed by law obtain.
Such rights may not, therefore, be bargained away curtailed with
impunity, for they are conferred not for individual or private benefit or
advantage but for the public good and interest.
NOTE: Balane— Void contract because it is not within the commerce of
man. You can’t bargain away your right to run.
Cui v. Arellano University (Public Policy)
Facts: Emetrio Cui enrolled in Arellano University’s College of Law from
1st year until 1st semester of his 4th year. He was awarded scholarship
grants of the said university amounting to a total of P1,033.87. He then
transferred and took his last semester at Abad Santos University. To
take the bar, he needed his transcript of records from Arellano
University. The defendant refused to issue the TOR until he had paid
back the P1,033.87 scholarship grant, which Emetrio refunded as he
could not take the bar without Arellano’s issuance of his TOR.
Terms of scholarship were: "In consideration of the scholarship granted
to me by the University, I hereby waive my right to transfer to another
school without having refunded to the University the equivalent of my
scholarship cash.
Issue: W/N the terms of the scholarship containing a waiver of right to
transfer to another university is valid. – NO. It is contrary to public
policy.
Held: The provision of the contract whereby Cui waived his right to
transfer to another school without refunding to the latter the
equivalent of his scholarships in cash is void. The stipulation in
question, asking previous students to pay back the scholarship grant if
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they transfer before graduation, is contrary to public policy, sound
policy and good morals or tends clearly to undermine the security of
individual rights and hence, null and void.
NOTES:
Public policy: ‘In determining a public policy of the state, courts are
limited to a consideration of the Constitution, the judicial decisions,
the statutes, and the practice of government officers.’
Manresa’s definition of morals: “It is good customs; those generally
accepted principles of morality which have received some kind of social
and practical confirmation”
Ex of void stipulations:
When creditor imposes interest whenever he wants
Art 1182 - prohibits when debtor is left to the freedom to comply with the
obligation when he wants (e.g. purely potestative on the side of the
debtor)
Art 1308 – prohibits the imposition of additional terms (validity of the
contract) that affect the compliance of the contract is left in the will of
one of the parties
Q: When a debt is payable on demand, does it violate 1308?
A: NO. Because the creditor is merely enforcing the obligation.

Operation of Principle of Mutuality:

Art 1307. Innominate contracts shall be regulated by the stipulations of
A. Bilateral contracts
the parties, by the provisions of Titles I and II of this Book, by the rules
o Each parties are bound to perform his own prestation
governing the most analogous nominate contracts, and by the customs of
o Neither can validly refuse at his option to perform what
the place.
is incumbent upon him
INNOMINATE CONTRACTS
B. Unilateral contracts
- Contracts that do not have a formal codal designation or name o Mutuality binds the parties in the sense that they are
- They fall under the general categories: brought together in one legal transaction which produces
o do ut des consequences for both of them
o do ut facias
o facio ut des and C. In cases where validity/compliance depends on the will of one of
o facio ut facias the parties (See Encarnacion v. Baldomar)
o Suspensive + Will of debtor = VOID
Governing Rules o Resolutory + Will of debtor = VALID
Primarily: Stipulation of the parties
Suppletorily: in order D. Escalation clauses
1. Provisions of Title I and II of Book IV o A stipulation allowing the creditor to adjust upward the
2. Rules governing the most closely analogous nominate contract rate of interest
3. Customs of the place o An aspect of Letter C
o Not necessarily VOID provided not solely potestative and
Mutuality also based on valid grounds (i.e. fluctuation in market
Art 1308. The contract must bind both contracting parties; its validity or rate)
compliance cannot be left to the will of one of them.
Mutuality and the Right of Waiver and Resolution:
PRINCIPLE OF MUTUALITY What is being avoided by Mutuality
- Essence: juridical tie - Grant to one of the parties the sole power to determine his own
- It must bind both or all parties for the contract to exist obligation (of that of the debtor)
- Bases: - Grant to the debtor the sole power to release himself from the
o Obligatory force of contracts obligation
o Essential equality of contracting parties

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When Mutuality NOT Violated:

1. Waiver of Right
o Waiver – makes a party’s obligation less burdensome by
renouncing the right to demand performance
o Does not nullify juridical tie
2. Resolution
o Resolution is NOT purely potestative but it is a result of a
BREACH by the other party
o Does not negate juridical tie; it rather proves the
existence of such
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.
POWER OF A THIRD PERSON
- Parties may agree that a 3rd person determine performance
- This does not violate mutuality because neither of the parties are
given unilateral power over the contract
- PROVIDED, 3rd person gives notice or communicates it to the
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.
Limitation of the power granted to a 3rd person:
- Subject to principles of justice, equity, and good faith
- Abuse by 3rd person is subject to judicial review
PRINCIPLE OF RELATIVITY
- Contracts take effect only between parties
- Only parties of the contract may sue to enforce it or to set it
aside
- Res inter alios acta alteri nocere non potest =This transacted
between other persons cannot affect 3rd persons
Extent of Effectivity of Contracts
- To heirs and assigns
- XPN: if contract is purely personal. Death will extinguish the
contract (e.g. those that require skill/aptitude)
XPN to the GR of Relativity:
1. Accion Pauliana
o Third person may institute in order to set aside or rescind
a contract entered into by his debtor which has the
effect of prejudicing or defrauding him
2. Accion Directa
o 3rd person is allowed to sue to enforce a contract
o Only those provided by law:
a. Art 1652 – Lessor may sue sublessee for unpaid amounts
of lessee
▪ Here, sublessee is subsidiarily liable only to the
extent of the amount of his rent
b. Art 1729 – Laborer may sue owner (e.g. of building) for
unpaid amount owed by contractor
3. In some cases creating real rights (e.g. mortgage)
o Art 1312 – 3rd person may sue under a contract to enforce
a real right

Relativity 4. Stipulations pour autrui

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 third person,
he may demand its fulfillment provided he communicated his acceptance
to the obligor before its revocation. A mere incidental benefit or interest
of a person is not sufficient. The contracting parties must have clearly
and deliberately conferred a favor upon a third person.
o One in favor of a 3rd person conferring a clear and
deliberate benefit upon him by parties
Requisites:
a. Parties must have clearly and deliberately conferred a favor
on a 3rd person
b. The stipulation in favor of the 3rd person should be a part,
and not whole, of the contract
o If it was whole, Art 1317 (principal-agent) would apply
c. The favorable stipulation should not be conditioned or
compensated by any kind of obligation whatsoever

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 OBLICON REVIEWER
o If 3rd person is bound to perform a prestation, he
becomes a party to the contract
d. There must be no relation of agency between either of the
parties and the 3rd person
o The 3rd party would become a contracting party and the
rules on Agency will apply
e. The 3rd person communicated his acceptance to the obligor
before its revocation by the original parties
o To make it binding, acceptance must be communicated
to obligor (i.e. express or implied)
o Before communication, contracting parties may revoke
the stipulation
5. Tortious interference – 3rd person may be sued for damages by
offended party is he induced guilty party to violate the contract
(Art 1314)
Baluyot, et al. v. CA (Clear and deliberate benefit)
Facts: UP was going to donate 15.8379 hectares to the Association.
Association proposed to accept and the defendant UP manifested in
writing consent to the intended donation directly to the plaintiff
Association. UP backed-out from the arrangement to Donate
directly to the plaintiff Association for the benefit of the qualified
residents and high-handedly resumed to negotiate the donation thru the
defendant Quezon City Government. UP executed that Deed of
Donation, in favor of the defendant QC for the benefit of the qualified
residents of Cruz-na-Ligas. UP had continuously despite requests to
comply with their reciprocal duty, to deliver the certificate of title to
enable the Donee, QC, to register the ownership so that the QC can
legally and fully comply with their obligations under the said deed of
donation. For alleged non- compliance of QC, UP issued AO 21 declaring
the deed of donation revoked and the Donated property be reverted to
defendant UP.
Issue: W/N petitioners have cause of action despite not being a party to
the Deed of Donation. – YES.
Held: Complaint states a cause of action. While, admittedly, petitioners
were not parties to the deed of donation, they anchor their right to
seek its enforcement upon their allegation that they are intended
beneficiaries of the donation to the Quezon City government.
OBLICON REVIEWER
Under Art. 1311, the following requisites must be present in order to
have a stipulation pour autrui:
(1) there must be a stipulation in favor of a third person;
(2) the stipulation must be a part, not the whole of the contract;
(3) the contracting parties must have clearly and deliberately conferred
a favor upon a third person, not a mere incidental benefit or interest;
(4) the third person must have communicated his acceptance to the
obliger before its revocation; and
(5) neither of the contracting parties bears the legal representation or
authorization of the third party.
Respondent UP has an obligation to transfer the subject parcel of land
to the city government so that the latter can in turn comply with its
obligations to make improvements on the land and thereafter transfer
the same to Baluyot, et al. For the purpose of determining the
sufficiency of petitioners' cause of action, these allegations of the
amended complaint must be deemed to be hypothetically true. So
assuming the truth of the allegations, we hold that petitioners have a
cause of action against UP.
Uy v. CA (Incidental benefit)
Facts: Uy and Roxas were agents authorized to sell eight parcels of land
by their owners. They sold the lands located in Benguet to NHA, and
Deeds of Absolute Sale were concluded. However, only 5 were paid for
by the NHA since a study showed that the other three lots were prone
to landslides and were not suitable for housing. The NHA thus cancelled
the sale over the three parcels, and offered the landowners the amount
of 1.225M as daños perjucios.
Issue: W/N petitioners are real parties-in-interest. – NO. Mere
incidental benefit is not considered “interest” as contemplated
under the law.
Held: CA did not err in dismissing the complaint. Based on Art. 1311, as
petitioners are not parties, heirs, assignees, or beneficiaries of a
stipulation pour autrui under the contracts of sale, they do not, under
substantive law, possess the right they seek to enforce. There is no
stipulation in the Deeds of Absolute Sale “clearly and deliberately”
conferring a favor to any third person. An agent entitled to receive a
commission from his principal upon the performance of a contract
which he has made on his principal’s account does not, from this fact
alone, have any claim against the other party for breach of the
contract, either in an action on the contract or otherwise.
Kauffman v. PNB (Communication of third party)
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 OBLICON REVIEWER
Facts: Wicks, treasurer of the Company, requested that a telegraphic
transfer of $45,000 be made to Kauffman in NYC. Wicks drew and
delivered a check for P90,355.50, total cost of said transfer, including
exchange and cost of message which was accepted by the officer selling
the exchange in payment of the transfer in question. As evidence of this
transaction a document was made out and delivered to Wicks, which is
referred to by the bank’s assistant cashier as its official receipt. On the
same day PNB dispatched to its New York agency a cablegram: Pay
George A. Kauffman, New York, account Philippine Fiber Produce Co.,
$45,000. However, the bank’s representative in New York replied
suggesting the advisability of withholding this money from Kauffman.
The PNB dispatched to its New York agency another message to
withhold the Kauffman payment as suggested. Meanwhile, upon advice
of Wicks that the money has been placed to his credit, Kauffman
presented himself at the office of the PNB in New York and demanded
the money. Payment was refused.
Issue: W/N petitioner has a cause of action. – YES.
Held: Kauffman has a cause of action because of PNB’s promise to pay a
sum of money to the petitioner in New York City is a stipulation in his
favor.
As for the requisite of communication of acceptance, petitioner did so
by demanding payment from the bank. PNB cannot just revoke or
withhold payment when the demand was made since revocation must
be done mutually by the contracting parties. Hence, Kauffman has a
cause of action.
Remedies in case of breach:
- 3rd person may institute an action of specific performance or
resolution, with damages
Mandarin Villa v. CA (Credit card holder is considered a 3rd party)
Facts: De Jesus went to a restaurant and offered to pay with his credit
card. It was rejected for being expired
Issue: W/N a credit card holder is considered a 3 rd party. – YES.
Held: An “Agreement” between Mandarin Villa and BANKARD provides:
OBLICON REVIEWER
“The MERCHANT shall honor validly issued PCCCI credit cards...provided
that the card expiration date has not elapsed...”
While De Jesus may not be a party to the said agreement, the
stipulation conferred a favor upon him, a holder of credit card validly
issued by BANKARD. This stipulation is a stipulation pour autri and
under Art. 1311, De Jesus may demand its fulfillment provided he
communicated his acceptance to the Mandarin Villa before its
revocation.
De Jesus’ offer to pay by means of his BANKARD credit card constitutes
not only an acceptance of the said stipulation but also an explicit
communication of his acceptance to the obligor. Also, Mandarin posted
a logo inside the restaurant stating that “Bankard is accepted here.”
NOTES:
There is a certain condition imposed but it is not burdensome in the
contest of the third requisite
If you are requiring the beneficiary to pay something, then maybe that
one will be covered by stipulation pour autrui
- Neither of the contracting parties bears the legal
representation of the third party
o Co-related with second requisite
- The third person communicated his acceptance to the obligor
(promissory) before its revocation by the original parties
o The revocation contemplated has to be by the original
parties
Art 1312. In contracts creating real rights, third persons who come into
possession of the object of the contract are bound thereby, subject to
the provisions of the Mortgage Law and the Land Registration Laws.
• XPN to the Principle of Relativity
• Rationale: A real right binds the property over which it is
exercised, not just the creditor and the debtor
Example:
A took a loan from B amounting to 10M and is secured by A’s house.
If the mortgage is annotated in the house, it binds the 3rd person.
If A sells the house to C, C is bound by the mortgage.
Art 1313. Creditors are protected in cases of contracts intended to
defraud them.
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 OBLICON REVIEWER

GF/BF of transferee is material GF/BF of donee is immaterial

ACCION PAULIANA o Good faith: conveyance ▪ donee will not suffer
o Rescissory act; rescission of an allegedly fraudulent sale to cannot be assailed (AP damage in returning the
prevent appropriation of debtor’s property in fulfillment of the will not prosper) property since he did not
obligation o Bad faith: transferee will pay for it
o Allows creditor to set aside transfers of property by their debtors be liable with his own
which defraud them by preventing them from obtaining full property (AP will prosper)
satisfaction for their credits
Extent of recovery: only to the amount of the debt and damages, if any.
Requisites:
o Plaintiff is asking for rescission has a credit prior to the CLASS NOTES
alienation, although demandable later Q: if Art 1387 and badges of fraud not applicable, will AP still prosper?
o The debtor has made a subsequent contract conveying a A: Yes. Because courts can still see if there is indeed fraud which is why
patrimonial benefit to a third person fraud is not defined in the provision.
o The creditor has no other legal remedy to satisfy his claim
o The act being impugned is fraudulent
Art 1314. Any third person who induces another to violate his contract
Fraud, presumed Fraud, need to prove (Badges of shall be liable for damages to the other contracting party.
Fraud)
Gratuitous: when donor did not o Consideration of the Rationale:
reserve sufficient property to pay conveyance is fictitious or - “The interference is penalized because it violates the property
all debts contracted before inadequate rights of a party in a contract to reap the benefits that should
donation (Art 1387) – regardless if o Transfer made during a result therefrom” Lagon v. CA
there is writ or not. pending suit
o Sale upon credit by an Nature and Source of Remedy:
*Donee – shall be responsible when insolvent creditor - Quasi-delict
the donation has been made in o Evidence of large - Why? Because 3rd person and aggrieved party has no contractual
fraud of the creditors indebtedness or complete relations
insolvency
Onerous: at the time of the o Transfer of all or nearly Requisites:
alienation, judgment or writ of all properties, especially 1. Existence of a valid contract
attachment has been issued (writ when insolvent 2. Knowledge on the part of the 3rd person of the existence of the
does not have to be on the subject o Transfer between father contract
property itself) and son - Essential element in order to state a cause of action
o Failure of vendee to take - Actual knowledge is NOT required BUT 3rd person must be
exclusive possession of all aware of the facts which (through reasonable inquiry)
the property lead to a complete disclosure of the contractual relations
and rights of the parties in a contract
o The third person who received the property conveyed, if it is by
onerous title, has been an accomplice in the fraud 3. Interference of the 3rd person is without legal justification or
o Rescission does NOT apply to purchasers in GOOD excuse
FAITH. - 3rd party must have acted with malice
- Driven by the motivation to injure the plaintiff
Onerous transfer Gratuitous transfer

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 OBLICON REVIEWER

- NOTE: NO tortious interference if impelled by purely
economic motives (driven by the motivation that the 3rd
person will be benefited from such tortious act and not
to injure the plaintiff)
Extent of 3rd Person’s Liability:
GR: liability cannot go beyond that of the defaulting party.
XPN: In cases where the 3rd party is guilty of malice NOT imputable to the
defaulting party. Here, liability may be greater.
Nature of Liability
1. The parties are bound to fulfill of what has been expressly
stipulated and compliance must be done in good faith
2. The parties are also bound to all consequences which, according
to their nature, may be in keeping with good faith, usage, and
law.
Art 1316. Real contracts, such as deposit, pledge and commodatum, are
not perfected until the delivery of the object of the obligation.
REAL CONTRACTS
- In addition to mutual consent, they require delivery for the
perfection of the obligation

Basis of suit Nature of liability Examples:

BOTH: quasi-delict Solidary 1. Deposit
Defaulting party: quasi-delict although Joint 2. Pledge
there is a pre-existing contract 3. Commodatum

3rd party: quasi-delict Unauthorized Contracts

Defaulting party: culpa contractual Separate 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.
3rd party: quasi-delict
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,
Consensual/Obligatory Force shall be unenforceable, unless it is ratified, expressly or impliedly, by the
Art 1315. Contracts are perfected by mere consent, and from that person on whose behalf it has been executed, before it is revoked by the
moment the parties are bound not only to the fulfillment of what has other contracting party.
been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and Circumstance Status of Contract
law. Representative is duly authorized VALID contract of agency
Contract binds the Principal
PRINCIPLE OF CONSENSUALITY No authority or beyond authority UNENFORCEABLE
unless RATIFIED
GR: Contracts are perfected by mere consent on the object and cause
XPN:
1. Real contracts – perfected by delivery
2. Formal contracts – special form is required for perfection (e.g.
must be made in a public instrument, etc.)

Roman Law: requirements of form was considered essential for the validity
of contract
Modern times: mutual consent is essential for the validity of contracts

OBLIGATORY FORCE

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 OBLICON REVIEWER

Chapter 2 2. Capacity of parties

3. Intelligent and free will
ESSENTIAL REQUISITES OF CONTRACTS 4. Express or tacit manifestation of the parties’ intent
5. Conformity of intent and its manifestation
Art 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties; Stages:
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
OFFER COUNTER-
ACCEPTANCE
ESSENTIAL ELEMENTS OFFER
1. CONSENT (Art 1319 to 1346) – (active and passive subject in Obli)
2. OBJECT (Art 1347 to 1349) – (prestation in Obli)
3. CAUSE (Art 1350 to 1355) OFFER
Requisites:
1. Definite or certain
Absence of: Effect
2. Complete
Object Void
3. Intentional
Cause Void
Consent Voidable, Unenforceable COUNTER-OFFER
- Variance between offer and acceptance

Section 1 ACCEPTANCE
Consent Requisites:
1. Unequivocal – clear, unambiguous
2. Unconditional or absolute
Section 1. Consent
Art 1319. Consent is manifested by the meeting of the offer and the When does Offer and Acceptance concur? COGNITION THEORY
acceptance upon the thing and the cause which are to constitute the - Communication of the exercise of the party’s will and not
contract. The offer must be certain and the acceptance absolute. A merely manifestation
qualified acceptance constitutes a counter-offer. - Offer is deemed legally made when it comes to the offeree’s
knowledge
Acceptance made by letter or telegram does not bind the offerer - Acceptance only produces legal effect when it comes to the
except from the time it came to his knowledge. The contract, in such a offeror’s knowledge
case, is presumed to have been entered into in the place where the - Better appreciated/Becomes material when negotiation of
offer was made. parties have a time lag

CONSENT o Revocation of Offer or Acceptance

- Concurrence of the offer and acceptance
- Concurrence is on the object and cause
- Bare minimum but parties may also agree on other matters
necessary for the contract such as terms of payment, mode of
delivery, governing law, etc.
Requisites:
1. Plurality of subjects
- Will also take effect when such revocation comes to the
other party’s knowledge
Q: What if notices of acceptance and revocation of offer are both in
transit?
A: Laudico v. Arias: Before acceptance is known, offer can be revoked
even if without knowledge of the offeree.

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Balane: Not in conformity with the Cognitive Theory. See Malbarosa case
Malbarosa v. CA
Facts: Petitioner Salvador Malborosa is the President and General
Manager of respondent Philtectic Corporation. Included in his benefits
are a Mitsubishi car and membership certificates. In January 1990, he
expressed his intent to resign from the company and requested that his
1989 incentive compensation be paid to him. He then sent his
resignation letter which was accepted by Sanen Valero, Vice-Chairman
of the BOD.
Effect of Silence
On March 14, 1990, a letter offer was sent to petitioner through Valero.
His request for his incentive compensation amounting to 251K was
accepted and that petitioner just had to sign the conformity to accept
the offer. Petitioner was dismayed with the amount so he took time to
review the letter-offer.
PUBLIC OFFERS
However, on April 4, 1990, the company demanded the return of the
vehicle as a sign of a revocation of its letter-offer which was received
by petitioner on the same day. On April 7, respondent was informed
that the petitioner had already accepted the offer on March 28, 1990
which was the date he signed the letter-offer.
Here, although the letter-offer was made on March 28, the petitioner
failed to transmit it to the company. It was only done on April 7, which
is after the notice of revocation was made known to the petitioner on
April 4. In this case, the knowledge of the revocation of the letter-offer
came first before the acceptance. Hence, there is no perfected
contract.
NOTE: When the offeror has not fixed a period for the offeree to accept
the offer, and the offer is made to a person present, the acceptance
must be made immediately.
- Depends on circumstances
- Under the law, silence is ambiguous
- “He who keeps silent is deemed to agree” only applies if there is a
duty or necessity to communicate rejection of the offer.
- Can bring about a contract when an individual who has knowledge
of the offer communicates his acceptance to the offeror
Art 1320. An acceptance may be express or implied.

Respondent filed a complaint against petitioner for his refusal to return Forms of Acceptance
the vehicle. o No specific form prescribed
o Either express or implied
Trial Court: ruled in favor of company. There was no perfected contract o Only effective when communicated to offeror
because petitioner failed to notify the company of his acceptance
before revocation of the letter-offer Art 1321. The person making the offer may fix the time, place, and
CA: Affirmed. manner of acceptance, all of which must be complied with.
Issue: W/N there was a perfected contract. – NO. The acceptance was
Things that may be fixed by Offeror:
not made known to company before it revoked its letter-offer.
1. Time
2. Place
Held: To perfect a contract, there must be acceptance of the offer
3. Manner of acceptance
which may be express or implied but must not qualify the terms of the
offer. The acceptance must be made known to the offeror.
ALL must be complied with.
The contract is not perfected if the offeror revokes or withdraws its
Q: does Art 1321 give the power to a party to prescribe the terms in the
offer and the revocation of the offeror is the first to reach the offeree.
contract?
If the acceptance by the offeree was made after being notified of the
A: NO. It’ll constitute as a counter-offer if that’s the case.
revocation of offer, the acceptance will produce no effect.

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 OBLICON REVIEWER
Art 1322. An offer made through an agent is accepted from the time
acceptance is communicated to him.
Offer/Acceptance through Agent:
o Deemed made by principal
o If no authority, no valid offer/acceptance
Art 1323. An offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before acceptance is
conveyed.
When Offer becomes Ineffective:
1. Death
2. Civil interdiction
3. Insanity
4. Insolvency
Rationale: The above will prevent the concurrence of offer and
acceptance form taking place because the party supposed to do so is either
physically or by law incapable of doing such.
Other Causes:
1. Rejection
2. Lapse of period stated in the offer
3. Qualified or conditional acceptance (aka COUNTER-OFFER)
4. Communication of offeror of the revocation
5. Loss of the thing before perfection of consent
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.
WITHDRAWAL OF OFFER
GR: Once communicated, the offer may be withdrawable by
communication by offeror to offeree.
XPN: Unless there is a consideration supporting the offer. (aka OPTION
CONTRACT)
Scenarios:
1. When offer is NOT supported by a distinct consideration.
- Offer is made within a considerable period of time but is
not supported by a distinct consideration
OBLICON REVIEWER
Rules:
f. The offeror has a right to withdraw the offer even before the
expiration of the period granted to the offeree.
g. The withdrawal of the offer takes effect upon its
communication to the offeree.
h. A perfected contract arises when the offeree communicated
his acceptance despite pending notice to the offeree of the
revocation of the offer.
i. The right of the offeror to withdraw the offer before the
lapse of the period should not be exercised whimsically or
arbitrarily. Otherwise, he will be liable for damages.
2. When offer is supported by a distinct consideration.
- The offeree gives a consideration distinct from the price
(i.e. he pays for the period granted to him)
OPTION CONTRACT
- One wherein the choice granted to another is for a
distinct consideration as to w/n to purchase/sell a
determinate thing at a predetermined price
- A preparatory contract in which one party grants to
another a fixed period and at a determined price the
privilege to buy or sell.
Distinct consideration
- NOT part of the purchase price
- If part → Earnest money (enough proof of perfection of
contract
Rules:
a. The offeror is bound to keep the offer open for the period
agreed upon
b. Withdrawal of the offer constitutes breach, for which the
offeror be liable for damages.
c. Withdrawal of offer – does it entitle offeree to demand
specific performance?
➢ Ang Yu case: Liable for damages only since the main
contract itself has not been perfected yet.
➢ Balane: May be liable for specific performance since he is
demanding performance of the option contract, not the
main contract. He is compelling the offeror to let him
exercise the option to purchase the thing at a
predetermined price.
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 OBLICON REVIEWER

3. RIGHT OF FIRST REFUSAL Facts: Nicolas Sanchez and Severina Rigos executed an instrument
- Ang Yu: it is a contractual grant, not of the sale of entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised
property, but of the first priority to buy in the event the and committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of
owner sells the same. land, within 2 years from said date with the understanding that said
option shall be deemed "terminated and elapsed," if "Sanchez shall fail
RIGHT OF FIRST OPTION CONTRACT to exercise his right to buy the property" within the stipulated period.
REFUSAL
In general Right to have first Limits the offeror’s Sanchez attempted to tender payment of the property to Rigos
opportunity to power to revoke an however, it was repeatedly rejected. Sanchez then opted to have the
purchase or the right offer payment consigned before the court and also filed an action for specific
to meet any other performance and damages.
offer
Governing law Laws of general Law governing The trail court ruled in favor of Sanchez.
application, scattered contracts/sales
provisions of the Civil Issue: W/N Rigos should sell the property to Sanchez . – YES.
Code on human
conduct Held: In this case, the supposed option contract is not valid because a
As to the terms Indefinite Definite distinct consideration for the option is lacking. The P1,150 was the
*Depends on the *Offeree gets all the price of the property. The Court here said that Art 1324 is still
owner’s intention to terms set in the applicable in such a way that, the option without consideration is
sell, decision on the contracts deemed to be a mere offer of a contract of sale, which is not binding
terms, and the price if not accepted. If acceptance was made before withdrawal, the
As to the offer Indefinite Definite contract becomes perfected.
As to the object Determinate Determinate
As to the cause Indeterminate Determinate Here, since there is an order by the trial court for Rigos to accept
(e.g. price) payment made by Sanchez, the contract of sale is deemed to be
perfected and Rigos must sell the property to Sanchez.
Enforceability Ang Yu v. CA (Right of first refusal)
Vendee – liable for specific performance
If vendee in GF – liable for damages only Facts: In the 1st case, Ang Yu and Keh Tiong, et al. are tenants or
lessees of residential and commercial spaces owned by Bobby Cu
If optionee (buyer) has failed to exercise his right → Owner may sell the Unjieng, Rose Cu Unjieng and Jose Tan. The owners decided to sell the
property to another under the same terms or more beneficial to him property and gave Ang Yu priority to buy it. However, despite
negotiations, the parties did not reach a final agreement.
Need for separate consideration: there must be a separate consideration
Ang Yu sued the owners then to compel them to sell the property. The
Statute of Frauds: no need to be in writing court held that the offer to sell was never accepted by the plaintiffs for
the reason that the parties did not agree upon the terms and conditions
Withdrawal: cannot be withdrawn also, constitutes breach of the proposed sale, hence, there was no contract of sale at all. Also,
Onerous → cannot be withdrawn the court ruled that should the defendants subsequently offer their
Gratuitous → revocable upon notice property for sale at a price of P11-million or below, plaintiffs will have
the right of first refusal.
Sanchez v. Rigos (Option contract)

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 OBLICON REVIEWER
Later on, the owners sold the property to Buen Realty for 15M. Ang Yu
then filed a motion for execution to compel the owners to sell them the
property (2nd case).
Issue: W/N the owners of the property can be compelled to sell the
property. – NO. There can be no writ of execution since there is no
perfected contract of sale. However, the petitioners were afforded
of the right of first refusal which the respondents failed to honor.
Held: Motion for Execution is without merit because the judgment of
the court only gave Ang Yu et al the right of first refusal (but it did not
decree a contract of sale). Its breach cannot justify correspondingly
an issuance of a writ of execution under a judgment that merely
recognizes its existence, nor would it sanction an action for specific
performance without thereby negating the indispensable element of
consensuality in the perfection of contracts.
It held that the option to buy, given to the buyer is not the contract of
sale itself. The optionee has the right, but not the obligation, to buy.
Once the option is exercised timely (i.e., the offer is accepted before a
breach of the option), a bilateral promise to sell and to buy ensues and
both parties are then reciprocally bound to comply with their respective
undertakings. At any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. The offer, at this stage,
may be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the
offeree learns of the withdrawal. If the period is not itself founded
upon or supported by a consideration, the offeror is still free and has
the right to withdraw the offer before its acceptance, or, if an
acceptance has been made, before the offeror's coming to know of such
fact, by communicating that withdrawal to the offeree.
Here, the first case only granted petitioners the right of first refusal
and it does not in any way result to a perfection of a contract of sale
due to the absence of a definite offer, object, and cause. However,
since the right of first refusal was violated by the owners by selling the
property outright, the proper remedy would be an action for damages.
Equitorial Equity v. Mayfair Theatre (Right of first refusal)
Facts: Carmelo owned a parcel of land, together with two 2-storey
buildings constructed thereon. He entered into two contract of leases
with Mayfair. Both leases contained a clause (Par 8) giving Mayfair a
right of first refusal to purchase the subject properties within a 30-day
period.
OBLICON REVIEWER
In August 1974, Carmelo signified its intention to sell the properties.
Mayfair replied through a letter that he would let Carmelo know of his
decision citing paragraph 8 of the Lease Contract. However, Carmelo
did not reply to the said letter.
After 4 years, Carmelo sold its entire land and building, which included
the leased premises housing the "Maxim" and "Miramar" theatres, to
Equatorial by virtue of a Deed of Absolute Sale, for the total sum of
P11,300,000. This was NOT offered first to Mayfair. Hence, Mayfair
instituted the action for specific performance and annulment of the
sale of the leased premises to Equatorial.
Issue: W/N the sale to Equitorial should be rescinded and the sale
should be made with Mayfair instead. – YES.
Held: Par 8 grants the right of first refusal to Mayfair and is not an
option contract. It is evident that the provision granting Mayfair "30-
days exclusive option to purchase" the leased premises is NOT AN
OPTION in the context of Arts. 1324 and 1479, second paragraph.
Although the provision is certain as to the object (the sale of the leased
premises), the price is indeterminate. Otherwise stated, the questioned
stipulation is not by itself, an "option" or the "offer to sell" because the
clause does not specify the price for the subject property.
In this case, the right of first refusal is integrated in the lease contract.
As compared to the Ang Yu case wherein the right of first refusal was
borne form a court judgment. Here, Carmelo did not honor this right of
Mayfair when it did not even bother to negotiate with Mayfair within
the 30-day period as stated in the contract. Carmelo instead, kept a low
profile and proceeded to sell the property to Equatorial.
Equatorial is a buyer in bad faith since it is aware that the property is
leased. This renders the sale to Equatorial rescissible. On another note,
the right to first refusal in this case is governed by contractual law (as
compared to the Ang Yu case, which was governed by the law on human
relations). That being said, the Court ruled in favor of Mayfair and
adjudged that the sale to Equatorial be rescinded and that the property
shall be sold to Mayfair at the amount of P11,300,000.
Art 1325. Unless it appears otherwise, business advertisements of
things for sale are not definite offers, but mere invitations to make an
offer.
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 OBLICON REVIEWER

BUSINESS ADVERTISEMENTS
- Public notices of things for sale (i.e. in print, visual, audio, etc.)
GR: Not definite offers. Merely an invitation to make an offer
Example: “FOR SALE: 900 sqm lots at Urdaneta Village at P5M to P10M.
Call 8888-8888”

XPN: When the ad contains data which are definite, it is deemed to be

an offer
Example: “FOR SALE: 900 sqm lot with brand new 1-storey house a ABC
St., Paco, Manila for P5 million cash”

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.

BID INVITATIONS
- An ad to submit bids

GR: Not definite offers. Merely an invitation to make an offer

Advertiser is not bound to accept either the highest or the lowest bidder.

XPN:
1. When the contrary appears, such as when the advertiser binds
himself to accept the highest (or lowest) bidder.
2. When the law requires

NOTE: this right must not be exercised arbitrarily or capriciously.

OBLICON REVIEWER JADEL KAYE GINES | D 2025

 OBLICON REVIEWER

Subsection 1 Art 1329. The incapacity declared in Article 1327 is subject to the
modifications determined by law, and is understood to be without
Vices of Consent prejudice to special disqualifications established in the laws.

EFFECTIVE CONSENT: i. Minority (Art 1327)

1. Intelligent o Under 18 yo
2. Free o If tender age → VOIDABLE rin although sana NO
CONSENT (commentary)
VICES OF CONSENT o Age of majority: 18 yo → Parental authority upon
Effect: majority is terminated
o If consent of one of the parties is vitiated → VOIDABLE o Q: Can a minor be estopped? (Jurisprudence)
o If consent of both of the parties is vitiated → UNENFORCEABLE o A: NO. Minor can claim that the contract is
voidable. He/she can raise his/her minority as
Types: an issue.
o Q: Minor buying candy from the sari-sari store.
I. Vitiation of Intelligence Parents say that the kid should give back the
a. Incapacity candy cos he was still a minor.
1. Minority o A: If you follow codal provision, it is VOIDABLE
2. Insanity but you’ll learn in sales that necessities bought
3. Deaf-mute with illiteracy by minors, it’s still VALID.
4. Intoxication/Hypnotic spell o Q: what if both parties are minors?
5. Special disqualifications o A: UNENFORCEABLE.
b. Mistake o GR: VOIDABLE
c. Fraud o XPN:
o Upon majority, it is ratified → VALID
II. Vitiation of Freedom (AKA duress) o If through a court-appointed guardian
a. Violence o By virtue of estoppel
b. Intimidation o Parties BOTH minors → UNENFORCEABLE
c. Undue Influence
ii. Insanity (Art 1327)
o Insane persons are deprived of the discretion and
VITIATION OF INTELLIGENCE understanding required for contractual consent
o Imbecility, idiocy, schizophrenic
A. INCAPACITY o GR: VOIDABLE
o XPN: During lucid interval, VALID. (Art 1328)
Incapacity ▪ Lucid interval – period when an insane person
Art 1327. The following cannot give consent to a contract: regains his sanity
(1) Unemancipated minors; ▪ Here, insanity is presumed. Hence, sanity must
(2) Insane or demented persons, and deaf-mutes who do not know how be proved.
to write. o Even if insane before and after the contract was
perfected, still valid.
Art 1328. Contracts entered into during a lucid interval are valid.
Contracts agreed to in a state of drunkenness or during a hypnotic spell
iii. Deaf-mutism with illiteracy (Art 1327)
are voidable.

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 OBLICON REVIEWER
o Deaf-mute with illiteracy are easy prey for exploitation
or deception
o May have a court-appointed guardian so he/she could
enter into contracts without problem
o “Illiteracy” = inability to write
o Deaf-mute but literate → VALID
o Q: Illiterate only but not deaf-mute? VOIDABLE because
consent is also vitiated.
o Q: deaf-mute, does not know how to read but can
write? This question is ILLOGICAL lol cos if you can read
how can you not know how to write lmao
o Q: deaf-mute who does not know how to read & write
but can do sign language? VOIDABLE.
iv. Intoxication/Hypnotic spell (Art 1328)
o Only considers incapacitated when it renders a
drunk/hypnotized/drugged person to make an
intelligent choice
o Effect: VOIDABLE
o Lucid interval: VALID
o Q: Somnambulism? Considered insanity so VOIDABLE.
Always go back to that question, did it affect
intelligence of the person? If yes, voidable. If not,
valid.
v. Special/Legal disqualifications (Art 1329)
o Not based on the physical aspect but on some policy
consideration which the law deprives capacitated
persons per se of the ability to contract
o Examples:
o Art 1490: Sale between husband and wife →
VOID
o Art 87 (Family Code): donations between
husband and wife → VOID
o Art 34 (RPC): inter vivos disposition of
properties to a person under a sentence of
civil interdiction
o Arts 1491 and 1492: purchase of property
under specified circumstances by persons
occupying positions of trust and confidence
o Effect: DEFECTIVE (i.e. rescissible, voidable,
unenforceable, void)
OBLICON REVIEWER
B. MISTAKE
Mistake
Art 1330. A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable.
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.
Art 1332. When one of the parties is unable to read, or if the contract
is in a language not understood by him, and mistake or fraud is alleged,
the person enforcing the contract must show that the terms thereof
have been fully explained to the former.
Art 1333. There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract.
Art 1334. Mutual error as to the legal effect of an agreement when the
real purpose of the parties is frustrated, may vitiate consent.
Art 1343. Misrepresentation made in good faith is not fraudulent but
may constitute error.
Rationale: Mistake vitiates consent because it deprives the contracting
party of proper understanding regarding either the object or the cause of
the contract
Definition
o No material difference between ignorance and error
o Failure or lack of knowledge regarding a thing
Requisites:
1. The error must be substantial regarding the OBJECT (Art 1331)
2. The error must be substantial regarding the PRINCIPAL
CONDITIONS of the contract (Art 1331)
o No mistake if merely incidental or non-essential
o Test or criterion: INTENT of the parties. Hence, depends on a
case-to-case basis whether a thing is considered a principal
condition in a contract
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 OBLICON REVIEWER
3. Mistake as to person (Art 1331)
o Mistake as to identity will vitiate ONLY IF it is the principal
cause or consideration for the contract
o Example: Contract for a piece of work, painting
o Test: INTENT of the parties and NATURE of the contract
4. Mistake of law (Art 1334)
GR: Does not vitiate consent because of Art. 3 of the Civil Code.
“Ignorance of the law excuses no one.”
XPN: Mistake of law may vitiate consent if:
a. The mistake must refer to the legal effect of the
agreement
b. It must be mutual
c. It must have the effect of frustrating the real purpose
of the parties
5. When party is illiterate or unfamiliar with language or agreement
Requisites:
a. One of the parties of the contract is illiterate or
unfamiliar with the language in which the contract is
written
b. Mistake is alleged by said property
NOTE: burden of proof is with the other party to show that the
handicapped party entered into the contract with adequate
understanding.
HOW PROVEN: That the terms and stipulations were duly
explained to the handicapped party
6. Misrepresentation bona fide (Art 1343)
o Refers to misrepresentation without intent to deceive
o Precludes fraud but could induce mistake on the part of
the other party
o See Art 1331
D. FRAUD
Fraud
Art 1330. A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable.
OBLICON REVIEWER
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.
Art 1339. Failure to disclose facts, when there is a duty to reveal them,
as when the parties are bound by confidential relations, constitutes
fraud.
Art 1340. The usual exaggerations in trade, when the other party had
an opportunity to know the facts, are not in themselves fraudulent.
Art 1341. A mere expression of an opinion does not signify fraud, unless
made by an expert and the other party has relied on the former's
special knowledge.
Art 1344. In order that fraud may make a contract voidable, it should
be serious and should not have been employed by both contracting
parties.
Incidental fraud only obliges the person employing it to pay damages.
Kinds of Fraud
1. Causal Fraud (Dolo causante) Art 1344, par 1
- Deceit; deprives the party of intelligent consent
- Were it not for the fraud, the other party would not have
consented (Art 1338)
- This type of fraud is what vitiates consent
Effect:
o By other party of the contract → VOIDABLE
o By 3rd person → VALID but 3rd person may be liable for
DAMAGES
o Because the party may take necessary steps to
avoid being defrauded by the 3rd person
o If BOTH parties are defrauded by 3rd party → VOIDABLE
due to MISTAKE
Elements:
a. Must have been employed by one party to the other
b. Must have induced the party to enter into the contract
c. Must have been serious
d. Should cause damage or injury
2. Incidental Fraud (Dolo incidente) Art 1344, par 2
- Even without the fraud, the party would have consented
anyway
- Fraud is in the performance of the obligation
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 OBLICON REVIEWER
- Makes the contract VALID but erring party becomes liable
for DAMAGES
3. Good Fraud (Dolus bonus) Art 1340
- Exaggerations in advertisements
- Principle: Caveat emptor or “Let the buyer beware.”
4. Non-disclosure/Fraud by silence (Art 1339)
- Refers to matters which requires disclosure
- Vitiates consent if:
Requisites:
a. Undisclosed fact/s are material to the contract
b. There is a duty to reveal the same
c. The non-disclosure is accompanied or motivated by deceit
Other indicators of Fraud:
o Expression of opinion (Art 1341)
- GR: does not constitute fraud
- XPN: if opinion made by an expert is accompanied by
deceit and induces consent and the other party relied on
that opinion
VITIATION OF FREEDOM
A. VIOLENCE OR FORCE
Violence or Force
Art 1330. A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable.
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.
OBLICON REVIEWER
Art 1336. Violence or intimidation shall annul the obligation, although
it may have been employed by a third person who did not take part in
the contract.
VIOLENCE
- Refers to physical coercion; external force
- Induces fear
Requisites:
a. The force must be irresistible
b. The force must be direct and determining cause in obtaining
consent
Effect:
o By other party of the contract → VOIDABLE
o By a third party (Art 1336) → VOIDABLE
B. INTIMIDATION
Intimidation
Art 1330. A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable.
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 third person who did not take part in
the contract.
INTIMIDATION
- Refers to moral or psychological force
- Induces fear
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 OBLICON REVIEWER

Requisites:
a. Must be direct and determinative cause of consent Q: What is the effect of a “due influence”?
b. The threatened act must be unjust/unlawful A: Does not vitiate consent. (e.g. advertisements)
- May also be a lawful act if it amounts to a wrong act,
abuse of right, and a contravention of morals, especially Effect:
when the act has no relation to the contract o By other party of the contract → VOIDABLE
- Example: X is aware of a crime committed by Y and o BY 3rd party → Code is silent but Sen Tolentino says VOIDABLE cos
threatened to incriminate Y if he does not enter into a it has the same effect of depriving the party to a contract the
contract with him. freedom to undertake a contract. Another reason, the provision
c. The threatened harm must be imminent and serious on Undue Intimidation is new and must be amended to include it
d. The threat must produce a well-grounded fear that the person with Violence and Intimidation committed by 3rd parties.
making it can and will carry it out
UNDUE INFLUENCE INTIMIDATION
Effect: Pre-existing power which the No such pre-existing power
o By other party of the contract → VOIDABLE perpetrator has over the will of
o By a third party (Art 1336) → VOIDABLE the passive subject
Does not necessarily involve Involves something unjust or
C. UNDUE INFLUENCE something wrongful unlawful
Involves the exercise of moral Involves the exercise of power or
Undue Influence authority or emotional ties or authority over the person
Art 1330. A contract where consent is given through mistake, violence, bonds of affection over the person
intimidation, undue influence, or fraud is voidable. Extent of restriction on the Radical restriction on the freedom
Art 1337. There is undue influence when a person takes improper freedom of will is not radical of will
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 SUMMARY
between the parties, or the fact that the person alleged to have been By contracting party By 3rd person
unduly influenced was suffering from mental weakness, or was ignorant Violence Voidable Voidable
or in financial distress. Intimidation Voidable Voidable
Undue influence Voidable Voidable
UNDUE INFLUENCE Fraud Voidable Valid*
- Presupposes a pre-existing power which the perpetrator has over
any of the parties UNLESS:
- Does not necessarily involve a wrongful act The misrepresentation
- Involves the exercise of moral authority or an appeal to emotion created a substantial
ties or bonds of affection mistake
- TEST: Must be strong enough to deprive the person of the basic
freedom of choice needed for a contract The misrepresentation
- RELATIVE; what may be influential to others may not be affected both parties
influential to some →Voidable BUT on
the ground of mistake
2 variables to determine Undue Influence:
a. Ascendancy of the active subject
b. Emotional or psychological vulnerability of the passive subject

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 OBLICON REVIEWER
Simulated Contracts
Art 1345. Simulation of a contract may be absolute or relative. The
former takes place when the parties do not intend to be bound at all;
the latter, when the parties conceal their true agreement.
Art 1346. An absolutely simulated or fictitious contract is void. A
relative simulation, when it does not prejudice a third person and is not
intended for any purpose contrary to law, morals, good customs, public
order or public policy binds the parties to their real agreement.
SIMULATION
- The process of intentionally deceiving others by producing the
appearance of a contract that really does not exist (absolute) or
is different from the true agreement (relative)
Kinds:
1. Absolute
- Parties don’t intend to be bound at all hence, produces
no legal effect
- Effect: VOID
- Example: X pretends to sell his car to avoid tax liability.
However. X has no intention to sell the car.
o No consent → no intention at all
o No object → car was not delivered
o No cause → no money paid
2. Relative
- One that is disguised under the appearance of another
contract
- Parties genuinely intent to enter into a contract but they
concealed the true nature of the intended contract by
making it appear like a different one
- Effect: VALID but parties are bound by the
REAL/INTENDED contract
o Must follow the requisites or form of the real
contract
o Must not prejudice 3rd persons
o Must not be contrary to law, morals, good
customs, public order, and public policy.
- Example: X intends to donate a parcel of land to Y but in
order to lessen tax burden, they disguised it as a contract
of sale.
OBLICON REVIEWER
Section 2
Object
Section 2. Object
Art 1347. All things which are not outside the commerce of men,
including future things, may be the object of a contract. All rights
which are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in
cases expressly authorized by law.
All services which are not contrary to law, morals, good customs, public
order or public policy may likewise be the object of a contract.
Art 1348. Impossible things or services cannot be the object of
contracts.
Art 1349. The object of every contract must be determinate as to its
kind. The fact that the quantity is not determinate shall not be an
obstacle to the existence of the contract, provided it is possible to
determine the same, without the need of a new contract between the
parties.
OBJECT
- Object of the Prestation
- The code draws a fine line between the prestation and the
object of the prestation
- WHAT?
Requisites of a VALID prestation:
1. Within the commerce of man
o It can legally be the subject of commercial transaction
o Example of objects outside the commerce of man: right to
vote, human rights, sunlight, rain
Saura v. Sindico (Public Policy)
Facts: 2 candidates contending for nomination as the official candidate
of the Nacionalista party for the congressional elections entered into a
contract. They agreed that each will respect the result of the
convention and no one will run as an independent candidate after
losing. Saura was elected and proclaimed the official congressional
candidate of the Nacionalista party. Nonetheless, Sindico filed her
certificate of candidacy.
Issue: W/N the agreement between Saura and Indico is valid. –
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 OBLICON REVIEWER
NO. It is against public policy and the object of the contract is
outside the commerce of man.
Held: The contract is void. Among those that may not be the subject
matter (object) of contracts are certain rights of individuals, which the
law and public policy have deemed wise to exclude from the commerce
of man. Among them are the political rights conferred upon citizens,
including, but not limited to, one's right to vote, the right to present
one's candidacy to the people and to be voted to public office,
provided, however, that all the qualifications prescribed by law obtain.
Such rights may not, therefore, be bargained away curtailed with
impunity, for they are conferred not for individual or private benefit or
advantage but for the public good and interest.
NOTE: Balane— Void contract because it is not within the commerce of
man. You can’t bargain away your right to run.
2. In existence or capable of coming into existence
o Can either be a present or future thing
o Future thing – one which did not exist at the time of the
creation of the contract or although existing, did not belong
to the debtor at such time
o GR: Valid object. Coming into existence is a
suspensive condition
o XPN:
▪ Donations
▪ Contracts over future inheritance – because
there is no object
EXAMPLES:
o B died in 2019. X, son of B, sold to C his
future inheritance from B in 2018. Estate
proceedings ended in 2020. → VOID
o B died in 2019. X, son of B, sold to C his
future inheritance from B in 2020. Estate
proceedings ended in 2020. → VALID.
Doesn’t matter if the estate proceedings
come after. What matters is the person died
first before the sale.
o B died in 2019. Prior to his death, B
partitioned his future estate to his children
in 2018. → VALID
OBLICON REVIEWER
o B died in 2019. Prior to his death, his
children partitioned B’s future estate in
2018. → VOID
3. Licit/legal/not contrary to law, morals, good customs, public
order, and public policy
o Doesn’t have to be a penal statute
o It is sufficient that the law be mandatory or prohibitory
4. Possible
o Impossible → VOID
o Original impossibility - should exist at the time
of the perfection of the contract → VOID
o Supervening impossibility - If at time of
performance → considered lost and will
extinguish the obligation
o 2 kinds:
o Absolute – VOID
o Relative – particular debtor cannot comply
(VALID) but if permanent (e.g. lost) (VOID)
Example: You’re the DepEd Secretary and you own a company
that furnishes books to private/public schools. You’re company
was contracted to supply the books. Is the contract valid? NO. It is
VOID because of qualification of contracting party or impossibility
of object? Sir will think about it muna.
5. Determinate
o As to kind
o If the contract does not specify what the object
is → VOID
o Example: X binds himself to deliver to Y 10 kilos
of something
o Example: Agreement where the rate per
quantity changes depending on quantity
purchased. → VALID agreement.
o As to quantity
o The quantity must be capable of determination
without need of a new agreement → VALID
o Example: X binds himself to deliver to Y half of
the next harvest from his mango plantation
6. Transmissible
o As long as it is within the commerce of man, it is
transmissible
o XPN: if by stipulation, nature, law, it is intransmissible
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 OBLICON REVIEWER

- Essential reason which impels the contracting parties to enter

into the contract and which justifies the creation of the
obligation through such contract
- WHY?

Requisites: (Art 1352)

1. Must be real and not fictitious or simulated
2. Must be licit

CAUSE OBJECT
In general Why What
Answer: VALID (See Carabeo v. Sps. Dingco) because it is possible to Remuneratory Service or benefit Thing given to the one who
determine the specifications. contracts - renumerated rendered the service or
service bestowed the benefit
Gratuitous Liberality The thing donated
contracts
Onerous Prestation Object of the prestation
contracts e.g. car, ring, house

CAUSE CONSIDERATION
Broader. Need not be material Must have value or capable of
pecuniary estimation

Art 1351
Section 3 CAUSE MOTIVE
Cause Proximate and immediate why Ultimate and final why
Objective – determined by law Subjective – differs person to
Section 3. Cause person
Art 1350. In onerous contracts the cause is understood to be, for each Absence → VOID Absence → GR: NO EFFECT
contracting party, the prestation or promise of a thing or service by the
other; in remuneratory ones, the service or benefit which is XPN:
remunerated; and in contracts of pure beneficence, the mere liberality o When the realization of
of the benefactor. the motive made a
Art 1351. The particular motives of the parties in entering into a condition precedent of
contract are different from the cause thereof. the contract and said
Art 1352. Contracts without cause, or with unlawful cause, produce no motive fails to
effect whatever. The cause is unlawful if it is contrary to law, morals, materialize
good customs, public order or public policy. o When the motive gives
rise to a mistake
CAUSE amounting to vitiation of
- Immediate and most proximate purpose of the contract consent

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 OBLICON REVIEWER
Answer: VALID at the time of perfection. The reckoning point is the time
of perfection.
Art 1353. The statement of a false cause in contracts shall render them
void, if it should not be proved that they were founded upon another
cause which is true and lawful.
FALSE CAUSE
o Not because there is a false cause stated, doesn’t mean it’s void
right away
o Creates a rebuttable presumption
o Burden of proof: on the parties to show that the cause
really exists and that the said cause is true and lawful
o Absence of proof → VOID
Art 1354. Although the cause is not stated in the contract, it is
presumed that it exists and is lawful, unless the debtor proves the
contrary.
PRESUMPTION OF EXISTENCE AND LICEITY OF CAUSE
GR: The cause need not be in writing or stated in the contract
XPN:
1. Art 1353 (Statement of False Cause) – existence and liceity need
to be proven
2. Option Contracts – consideration distinct from the price is
required
Q: For solemn contracts (need to be in writing to be valid), does the cause
need to be expressly stated?
OBLICON REVIEWER
A: NO. There is a presumption of lawfulness.
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.
LESION
o Inadequacy of cause
o Economic injury suffered as a consequence of inequality by one
who does not receive the full equivalent of what he gives in a
commutative contract
o Economic injury which one of the parties suffers by virtue of a
contract which is disadvantageous to him
GR: lesion or inadequacy of price does not invalidate a contract -> VALID
XPN:
1. When there is also fraud, mistake, or undue influence →
VOIDABLE
2. When provided by law → RESCISSIBLE
a. Art 1381, par 1 – “Those which are entered into by
guardians whenever the wards they represent suffer
lesion by more than 1/4th of the value of the things
which are the objects thereof."
b. Art 1381, par 2 - "Those agreed upon in representation of
absentees, if the latter suffer the lesion stated in the
preceding number."
c. Art 1088 - "Partition among co-heirs, when anyone of
them received things with a value less by at least 1/4th
than the share to which he is entitled.
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 OBLICON REVIEWER

Chapter 3 Those covered with by Statute of Frauds

FORM OF CONTRACTS 3. Required to be in a public document for effectivity against 3rd
persons or for registration
Art 1356. Contracts shall be obligatory, in whatever form they may have o Still VALID
been entered into, provided all the essential requisites for their validity
are present. However, when the law requires that a contract be in some NOTE: If the contract did not meet prescribed form, parties cannot compel
form in order that it may be valid or enforceable, or that a contract be its execution through a judicial process.
proved in a certain way, that requirement is absolute and indispensable. Rationale: It assumes that the contract is valid and unenforceable.
In such cases, the right of the parties stated in the following article
cannot be exercised. Art 1357. If the law requires a document or other special form, as in the
acts and contracts enumerated in the following article, the contracting
SUMMARY parties may compel each other to observe that form, once the contract
has been perfected. This right may be exercised simultaneously with the
GR: Contracts are perfected by mere CONSENT. action upon the contract.
XPN:
1. A specific form is essential for validity RIGHT OF ONE PARTY TO COMPEL THE OTHER TO EXECUTE THE
o If not met prescribed form → VOID and UNENFORCEABLE NECESSARY FORM
Example: o Applies when form is needed for convenience and NOT for
a. Donations – Art 748-749 validity/enforceability
▪ Immovable property – made in a public document; o Before parties may be compelled to execute the needed
Acceptance: form, it is essential that the contract be:
i. Same deed o VALID (perfected)
ii. Separate public document – must be o ENFORCEABLE under Statute of Frauds
done during the lifetime of the donor;
donor must be notified thereof in an Examples:
authentic form and this step shall be Example 1: A donated land to B in a private instrument. B accepted in the
noted in both instruments same private instrument. B then wanted to have the donation registered
▪ Movable property – oral or in writing but registration requires a public instrument. So B requested A to put down
➢ Oral donation – requires simultaneous delivery of the donation in a public instrument. But A refused. B then sued to compel
the thing or document A to observe the necessary form. Decide.
▪ Personal property: A: A cannot be compelled under Art. 1357 because the donation is VOID.
➢ P5,001 and up – donation and acceptance must
be in writing Example 2: Same as problem (1) except that the land has already been
actually delivered to B. May A be compelled to execute the needed public
b. Contracts of partnership wherein immovable property is instrument?
contributed – Art 1773 A: Again the answer is NO, donation is null and void.
c. Sales of land through an agent – Art 1874
d. Stipulations on interest – Art 1956 Example 3: A sold to B in a private instrument his land. Later B wanted to
e. Antichresis – Art 2134 have the sale registered, but registration requires a public instrument. May
B compel A to execute the needed public instrument?
1. A specific form is essential for enforceability A: Yes, because the contract is both valid and enforceable under the
o If not met prescribed form → VALID but UNENFORCEABLE Statute of Frauds.
Example:

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 OBLICON REVIEWER

Example 4: Same as (3) except that the sale was made orally. May B A: YES. Contract still valid even if the amount is more than P500. He may
compel A to execute the needed public instrument? avail himself of the remedy provided in Art 1357.
A: It depends
o If the contract is still executory – NO because the contract is not BUT: If the loan has interest, the interest on loans must be in writing. If
enforceable under the SoF, which requires sales of real property not in writing, Art 1357 cannot be availed of.
to be in writing to be enforceable by court action. Interest → VOID
o If the price has been paid, or the land has been delivered – YES Loan → VALID
because here the contract is both valid and enforceable. If there
is partial or full payment already, it is taken out from the SoF. SUMMARY OF RULES
Hence, enforceable. Can B compel A to execute the contract in a public instrument?
SCENARIO EFFECT
Art 1358. The following must appear in a public document: A donated land to B in a private B cannot use 1358 for this purpose
instrument. B accepted in the because donation is void.
(1) Acts and contracts which have for their object the creation, same private instrument. B then
transmission, modification or extinguishment of real rights over wanted to have the donation Covered by 1356 – Art. 749, must
immovable property; sales of real property or of an interest therein a registered but registration be public instrument
governed by Articles 1403, No. 2, and 1405; requires public instrument.
A donated land to B in a private No, void under Art 749, must be
(2) The cession, repudiation or renunciation of hereditary rights or of instrument. B accepted in the public instrument. Partial
those of the conjugal partnership of gains; same private instrument. Land has performance does not cure that
been delivered to B already. the contract is void for failing to
(3) The power to administer property, or any other power which has for comply with 749
its object an act appearing or which should appear in a public document, A sold to B in a private instrument Yes, valid and enforceable
or should prejudice a third person; his land. Later, B wanted to have already. Partial performance is not
the sale registered but registration material. The very agreement is
(4) The cession of actions or rights proceeding from an act appearing in requires public instrument. already in writing, and what is
a public document. required under the Statute of
Frauds is that the document
All other contracts where the amount involved exceeds five hundred should be in writing. The
pesos must appear in writing, even a private one. But sales of goods, document being in a public
chattels or things in action are governed by Articles, 1403, No. 2 and document is not material.
1405.
Since you have a valid agreement,
FORM FOR CONVENIENCE you can go to the court, present
o VALID AND ENFORCEABLE the written document and require
o Only required for: the other party during that action
o registration to have it executed in a public
o proof of contract document.
o binding 3rd persons
o Effect: Parties may compel each other through court action, to Partial performance is only
execute the contract material if it is covered by the
Statute of Frauds and you did the
Example: A loan was contracted ORALLY. If the amount is P800, may the agreement orally.
lender recover the sum lent?

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 OBLICON REVIEWER

A orally sold to B his land. Later, B It depends. If sale is done orally:

wanted to have the sale registered
but registration requires public
instrument.
Partial performance → can
compel
No partial performance →
covered by SoF and cannot use
1357 and 1358 to compel other
party to have it executed in a
public instrument

o 1 & 2 donation must be in a public instrument

o 3 is covered by 1357 and 1358 because it is merely a sale
o Donation of real property → public instrument to be
VALID
o Sale of real property → in writing to be VALID and
ENFORECEABLE
o 4. It depends.
o If sale is done orally:
▪ Partial performance → YES, can compel
▪ No partial performance → NO, covered by SoF
and cannot use 1357 and 1358 to compel other
party to have it executed in a public instrument

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 OBLICON REVIEWER

Chapter 4 Art 1360. The principles of the general law on the reformation of
instruments are hereby adopted insofar as they are not in conflict with
REFORMATION OF CONTRACTS the provisions of this Code.
Art 1359. When, there having been a meeting of the minds of the parties
o “General law” – As per Report of Code Commission → American
to a contract, their true intention is not expressed in the instrument
Law
purporting to embody the agreement, by reason of mistake, fraud,
o General law → suppletory effect
inequitable conduct or accident, one of the parties may ask for the
o In case of conflict between the Civil Code and the principles of
reformation of the instrument to the end that such true intention may be
general law → Civil Law prevails
expressed.

If mistake, fraud, inequitable conduct, or accident has prevented a When Reformation Applies
meeting of the minds of the parties, the proper remedy is not reformation Art 1361. When a mutual mistake of the parties causes the failure of the
of the instrument but annulment of the contract. instrument to disclose their real agreement, said instrument may be
reformed.
REFORMATION Art 1362. If one party was mistaken and the other acted fraudulently
o Remedy in equity or inequitably in such a way that the instrument does not show their true
o By means of a written instrument intention, the former may ask for the reformation of the instrument.
o To express or conform to the real intention of the parties Art 1363. When one party was mistaken and the other knew or believed
o When some error or mistake has been committed that the instrument did not state their real agreement, but concealed
that fact from the former, the instrument may be reformed.
Rationale Art 1364. When through the ignorance, lack of skill, negligence or bad
o It would be unjust to allow the enforcement of a contract which faith on the part of the person drafting the instrument or of the clerk or
does not reflect or disclose the real meeting of the minds of the typist, the instrument does not express the true intention of the parties,
parties the courts may order that the instrument be reformed.
Art 1365. If two parties agree upon the mortgage or pledge of real or
Requisites personal property, but the instrument states that the property is sold
a. There must be a valid contract. There is genuine meeting of the minds absolutely or with a right of repurchase, reformation of the instrument is
b. The contract is in writing. proper.
c. The failure was caused by mistake, fraud, inequitable conduct,
accident, or relative simulation. INSTANCES WHERE REFORMATION APPLIES
Degree of Proof: Clear and satisfactory proof (Gonzales-Mondragon v. 1. MUTUAL MISTAKE
Santos) - Must be mutual
- Must refer to the manner the true agreement is reflected
REFORMATION ANNULMENT - BOTH parties or successors and assigns can ask for
There is meeting of the minds but There is no meeting of the minds reformation
there is mistake, fraud, because of vitiated consent
inequitable conduct or accident in 2. FRAUD OR INEQUITABLE CONDUCT
the written contract - One party is mistaken and the other party acted
Does not invalidate a contract Makes a contract void fraudulently
- CO-EXISTENT, not a causative circumstance
- Must refer to the manner
- Party mistaken can only ask for reformation

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 OBLICON REVIEWER

Art 1367. When one of the parties has brought an action to enforce the
3. UNILATERAL MISTAKE instrument, he cannot subsequently ask for its reformation.
- Mere failure to disclose the true agreement
- Fraud of a passive nature BASIS: Principle of ESTOPPEL
- When a party sues (to enforce the document), he is
4. NON-CULPABLE ACTS admitting in effect the document’s accuracy and
- Failure to express true intention of the parties due to: faithfulness
o Ignorance
o Lack of skill Art 1368. Reformation may be ordered at the instance of either party
o Negligence or his successors in interest, if the mistake was mutual; otherwise, upon
o Bad faith on the part of the clerk/typist petition of the injured party, or his heirs and assigns.
- Courts may order the contract to be reformed at the
initiative of any party
GR: Right to reformation of contracts is TRANSMISSIBLE to successors in
interest and heirs
5. MORTGAGE OR PLEDGE
XPN: The contract is a personal contract. ALL rights of party will be
- Intent is to enter into a mortgage/pledge but the
extinguished upon his death.
contract states an absolute sale → REFORMATION
Art 1369. The procedure for the reformation of instrument shall be
When Reformation DOES NOT Apply
governed by rules of court to be promulgated by the Supreme Court.
Art 1366. There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is imposed;
RULE 63 OF THE RULES OF COURT
(2) Wills;
(3) When the real agreement is void.

INSTANCES WHERE REFORMATION DOES NOT APPLY

1. SIMPLE/GRATUITOUS DONATIONS
- Why? because donations are formal contracts
- Form is essential for its validity
- If not executed in its proper form → VOID. Hence,
nothing to reform
- XPN:
o Onerous donations
o Conditional donations

2. WILLS
- Why? because it is NOT a contract
- Form is also essential for its validity

3. VOID AGREEMENTS
- Why? because void contracts have no force of law
between parties

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 OBLICON REVIEWER
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.
If the words appear to be contrary to the evident intention of the parties,
the latter shall prevail over the former.
o CLEAR → Plain meaning rule
o In case of conflict → Intent must prevail
Art 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
Art 1372. However general the terms of a contract may be, they shall
not be understood to comprehend things that are distinct and cases that
are different from those upon which the parties intended to agree.
GR: General terms are understood in a general sense.
XPN: Intent of the parties say otherwise
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.
PRESUMPTION OF VALIDITY
o Public policy favors the validity of contracts and in case of doubt
presumes its validity
o Conforms with contractual freedom
STIPULATIONS WITH SEVERAL MEANINGS
o Where the instrument is susceptible of two interpretations, one
which will make it invalid and illegal, and another which will
make it valid and legal, the latter interpretation should be
adopted.
o BASIS: Ut res magis valeat quam pereat. That the thing may be
valid rather than be nullified.
OBLICON REVIEWER
STIPULATIONS MUST BE READ TOGETHER
o Contract should be interpreted integrally or holistically- that is all
parts of the contract should be, if possible, interpreted in a way
that all the parts fit together, without conflict.
o In the construction of an instrument where there are several
provisions or particulars, such a construction is, if possible, to be
adopted as will give effect to all.
Art 1375. Words which may have different significations shall be
understood in that which is most in keeping with the nature and object
of the contract.
INTERPRETATION WHEN THERE IS AMBIGUITY
o Must be interpreted and understood in that sense most
conformable to the nature and purpose of the contract
Art 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission
of stipulations which are ordinarily established.
USAGE OR CUSTOM OF THE PLACE
o In absence of any stipulation, the contract conforms to the
customs and usages.
o As long as not contrary to law
Art 1377. The interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity.
o Reason: Since he caused the obscurity, he should be responsible
for it.
o BASIS: Nemo commodum potest de inuria propria sua. No one
should be allowed to profit from his wrongful conduct.
Art 1378. When it is absolutely impossible to settle doubts by the rules
established in the preceding articles, and the doubts refer to incidental
circumstances of a gratuitous contract, the least transmission of rights
and interests shall prevail. If the contract is onerous, the doubt shall be
settled in favor of the greatest reciprocity of interests.
If the doubts are cast upon the principal object of the contract in such a
way that it cannot be known what may have been the intention or will of
the parties, the contract shall be null and void.
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 OBLICON REVIEWER

DOUBTS AS TO PRINCIPAL OBJECT OR INCIDENTAL CIRCUMSTANCES

o When will it apply: If there exists a doubt as to such intent even

after applying the preceding provisions, which proves incapable of
resolution, apply 1378.

a. If doubt refers to incidental circumstances—

o If contract is gratuitous: apply the rule of least
transmission of rights
▪ Since the grantor receives nothing in return for
his act
▪ Example: If A needs a fountain pen and B gives
it to him freely (gratuitously), is this a mere
donation or a commodatum
▪ ANS: A mere commodatum (loan) for this would
transmit lesser rights than a donation.
o If contract is onerous: apply the rule of the greatest
reciprocity of interests between the parties
o Example: I borrowed money from Martin, with 10% annual
interest but it was unclear whether it was for one or two
years
▪ One year? No.
▪ Two years? Yes. Reciprocal.

b. If doubt refers to principal conditions: VOID contract

o Example: X promised to give Y this (___________).
Since the object is unknown, it is clear that there
could not have been any meeting of the mind.

Art 1379. The principles of interpretation stated in Rule 123 of the Rules
of Court shall likewise be observed in the construction of contracts.

OBLICON REVIEWER JADEL KAYE GINES | D 2025