401 MBL Oblicon LecVid Recits Transcript

CIVIL LAW REVIEW | OBLICON TRANS | ATTY.
MBL | AY 2022-2023
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Joint Solidary
DIFFERENT KINDS OF OBLIGATION
There are as many The act of one is
debts as there are the act of all
A. Pure and Conditional Obligations debtors
B. Obligation with a Period
C. Alternative Obligations There are as many
credits as there are
D. Divisible and Indivisible Obligations
creditors
E. Obligation with a Penal Clause
F. Joint and Solidary Obligation
Joint Obligation and Solidary Obligation There are several There is only one
debts debt
Art. 1207 The concurrence of 2 or more
creditors or of 2 or more debtors in one The first part of 1207 refers to Joint
and the same obligation does not Obligation because you are not expected to
imply that each one of the former has comply with the entire prestation because
a right to demand, or that each one of there are as many debts as there are
the latter is bound to render, entire debtors.
compliance with the prestations. There
The 2nd part talks about solidary obligation.
is a solidary liability only when the
obligation expressly so states, or when GR: Joint obligation
the law or the nature of the obligation If there is nothing that implies solidarity
requires solidarity. then it is joint.
Reason: It is less burdensome.
It is the concurrence of 2 or more debtors or There is only solidary obligation when:

2 or more creditors. 1. only when the obligation expressly so
states; or
It could be 2 or more debtors and one 2. when the law; or
creditor. It could be the reverse with 1 debtor 3. the nature of the obligation requires
and 2 or more creditors. Or it could be the solidarity
concurrence of 2 or more debtors and 2 or
more creditors If it is not clear, choose the less burdensome
liability.
It could be a concurrence of 2 or more

debtors or of 2 or more creditors.
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CIVIL LAW REVIEW | OBLICON TRANS | ATTY. MBL | AY 2022-2023
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Illustration (2 or more creditors) Presumed as joint - the credit or debt shall

D is indebted to X & Y for P300,000. be presumed to be divided as many equal
shares as there are creditors or debtors. The
If joint - 2 obligations (D-X, D-Y) credits or debts are distinct from one
X can only demand 150,000 from D and Y another subject to the rules governing
can only demand 150,000 multiplicity of suits.
Illustration (2 or more debtors) What principles do you find there?

A is liable to B & C for P500,000 (Referring to the provision)
This is a joint obligation because there is no - First, it is presumed joint if it does

stipulation that this is solidary. not fall in any of the exceptions
expressly making it solidary, then
If joint – 2 obligations (A-B, A-C) the default is i.e., it is joint.
There are as many debts as there are debtors
and credits as there are creditors. Again, in joint obligations the creditor is
entitled only to the proportionate part of the
Since this is a joint obligation, B & C can only credit and the debtor is liable only to the
demand their proportionate share which is proportionate part of the debt.
P250,000 each.
Principle behind joint obligation: “To each
of his own.”
Art. 1208. If from the law, or the nature or
the wording of the obligations to which
Contrary to solidary obligation = “All for
the preceding article refers the contrary
one, one for all”.
does not appear, the credit or debt shall
be presumed to be divided into as many
Illustration
shares as there are creditors or debtors,
the credits or debts being considered
A B and C made themselves liable and
distinct from one another, subject to the
promised to pay 120k to W X Y and Z.
Rules of Court governing the multiplicity
of suits. (1138a)
Q: How many debts do you see?
A: 12. Since, there are as many obligations as
if it is not expressly agreed on, or when the there are creditors and debtors.
law or nature of the obligation does not
require solidarity, it is presumed as joint. Obligations: A to W; A to X; A to Y; A to Z. B to
W; B to X; B to Y; B to Z… and so on.
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Discussion: - The principle behind is “one for all and

all for one”, meaning it is considered
This is what it means when it says “each of as one obligation.
the debtor will be liable only for the
proportionate part of the debt; and the Q: If A promises to pay 100,000 to Y and Z.
creditor shall only claim of the proportionate How many obligations?
part of the credit”.
A: One.
There are as many debts as there are debtors
and creditors, because A’s liability is to W, to Q: If that is one obligation, how much can
X, to Y and Z and so on with B and C which Y demand from A?
gives you 12 obligations.
A: The entire 100,000. As opposed to joint
Cont. obligation where Y can only demand 50,000
from A.
Q: Based on that, earlier we said it was 120k,
how much then can W demand from A? Q: A, B and C promised to pay 100,000 to Y
and Z. How much can Y demand from A?
A: 10k.
A: The entire 100,000.
120k divided by 4 = 30K on this side (referring
to the debtors) Q: A, B and C (solidary debtors) obliged
themselves to pay 120,000 to Y and Z ( joint
So, A’s debt is 40k. 10k each to W, X, Y and Z. creditors). How much can Y demand from A?
(same process with B and C).
(lisod e put into words hehe) A: 60,000 from any of the debtors because of
their solidary relationship (In this example,
Q: So with that, what principle does that the only side where you have to divide is the
tell you? JOINT)
A: That the debts and credits are considered Q: A, B, C (joint debtors) obliged themselves
separate and distinct from the other. One to pay 120, 000 to Y and Z (solidary
debtor being liable to all four creditors. And creditors)? How much can Y demand from
subject to the multiplicity of suits. A?
SOLIDARY OBLIGATION A: Y can demand from A the amount of Php

40,000.00.
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Q: Why Php 40,000.00? to comply with the obligation is to deliver

the entire car.
A: In this case, it is because they are joint
debtors. Hence, you first have to divide the Q: How do you make that obligation be
entirety of the debt by the number of joint fulfilled by the joint debtors?
debtors - in this case, three (3). So, each of
them only owes Php 40,000.00 to either Y or A: You have to demand from all of them, as
Z. provided by Article 1209.
Discussion: Again, we divide on the side Q: What happens if A is insolvent?

where it’s joint. So, Y can demand only Php
40,000.00 from any of the debtors. A: Since the car cannot be delivered, it will
become a claim for damages - so X must
demand his share in monetary damages.
Article 1209. If the division is impossible,
the right of the creditors may be
prejudiced only by their collective acts, Discussion: If the car they had agreed on
and the debt can be enforced only by was worth Php 1,000,000.00 and A is
proceeding against all the debtors. If one insolvent - since this is joint, B should not be
of the latter should be insolvent, the others liable for the share of A.
shall not be liable for his share.
So, B is still liable for his share - which is now
Discussion: Article 1209 tells you that even if converted into a monetary one. This means
the prestation is indivisible, the obligation he is liable to deliver Php 500,000.00.
can still be joint.
Note: B cannot be demanded to pay the
Illustration: A and B obliged themselves to share of A since the obligation is joint.
deliver a car to X.
Article 1210. The indivisibility of an

Q: How will X collect from the obligation
obligation does not necessarily give rise to
when this is a joint indivisible obligation? solidarity. Nor does solidarity of itself imply
indivisibility.
A: Article 1209 says that X has to demand
from both debtors.
Discussion: When you talk about an
obligation being joint/solidary, it refers to the
Discussion: The only way to deliver a car is
relationship or nature of the obligation. On
for both A and B to deliver it - because you
the other hand, when you talk about
cannot deliver the car in halves. The only way
divisibility/indivisibility, it talks about the
prestation itself. That’s why we said that the
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prestation is indivisible (in the earlier solidary debtor. If one of the solidary debtors'
illustration). If it’s money = divisible, if it’s a share is already due and demandable, then
car = indivisible. any of them will have to pay even if their
share is not yet due and demandable.
While, when you talk about divisibility or
indivisibility, it talks about the prestation So when January 5, 2023 arrives and the
itself. results of the 2022 Bar exams has not been
released yet and the cat is still alive, even
It being divisible or indivisible, does not though both of their shares are not yet due
affect it being joint or solidary and vice versa. but since the obligation is solidary, X can
It being joint or solidary, does not affect the demand from either of them to pay the
nature of the prestation/object. share/obligation of the one that is already
due and demandable.
Article 1211. Solidarity may exist although
the creditors and the debtors may not be In our example, January 5, 2023 is the period
bound in the same manner and by the when A’s due becomes due and
same periods and conditions. demandable.
Illustration: A, B and C made themselves Passive Solidarity

solidarily liable to X for P90,000. In their - It means solidarity among co-debtors
agreement: while
1) A will pay on January 5, 2023 Active Solidarity

2) B will pay if B passes the 2022 Bar - It means solidarity among
Exams co-creditors.
3) C will pay if his only pet cat dies -
ATTY: For you to vividly remember the
Atty: How does this affect it being a solidary difference between the two, when you say
obligation upon the arrival of January 5, ACTIVE, this refers to the Creditor being
2023? How much can X demand from B? active in collecting the debt.
Student: X may demand A’s share from B Article 1212. Each one of the solidary
because it is a solidary liability. A’s liability creditors may do whatever may be useful
has already accrued on January 5, 2023. to the others but not anything which may
be prejudicial to the latter.
TN: Even if each of them are subject to
different terms and conditions, they can still Explanation:
be made liable to X for the share of another
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prejudicial to D and E. Even if D and E wants

Again, the act of one is the act of all. If it is to collect, they cannot collect anymore
beneficial, then it benefits all. If it is because it will bind them as against A and B.
prejudicial, the only one who will be affected But to be fair, you have this provision of law
is the solidary creditor who did the that protects other creditors from prejudicial
prejudicial act. acts of another solidary creditors.
Now, C will have to pay 100k to D and 100k to
Example: If one of the solidary creditors E.
condones the debt of the debtor. This is
prejudicial to the other solidary creditor.
Article 1213. A solidary creditor cannot
Although the debt is extinguished, the assign his rights without the consent of
creditor who condoned the debt will now be the others.
liable to the other creditor.
Another example: A and B are solidarily Q: Why is that? What’s the reason behind
liable to C, D and E who are likewise solidary that?
creditors, for 300K.
A: Because the relationship of solidary
If C will do anything which is beneficial to D creditors is similar to that of a mutual
and E, like demanding payment then it will agency. They cannot act to the prejudice of
also benefit D and E. But if C does anything others. They established their relationship
prejudicial like condoning the debt. based on trust and they cannot just
introduce another people to the relationship.
Remember, once he condones the debt of A
and B, that means they are no longer liable Atty: It is based on trust. “The act of one is
because the act of one is the act of all. On the act of all”. C cannot just simply assign it
the part of the solidary debtors, they no to X (stranger) without the consent of D and
longer have a debt. But since C condoned it E because D and E might not trust X.
without the consent of D and E, C will be the
one to pay what supposedly, D and E will Q: But what if C assigns his right to D
receive from A and B. (co-creditor). Does he need the consent of E
(another co-creditor)?
So, while the nature of the relationship or
A: Not needed.
relationship among themselves is solidary,
they have shares actually. So the 300,000 is
Atty: Because the reason behind the law is
supposedly shared by the three. But when C
not present. The reason is that you must
condoned the 300k, he condoned
trust the assignee. But since here, there is
everything because it is a solidary obligation,
already trust, no need. So, if the rights of C is
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assigned to D (existing solidary creditor)

then it need not get the consent of other If payment was made prior to the demand
solidary creditor. and it was accepted, this would be a
different scenario because payment was
made before any demand, so you could just
Article 1214. The debtor may pay any one of
the solidary creditors; but if any demand, pay anyone.
judicial or extrajudicial, has been made by
one of them, payment should be made to Illustration:
him. A is indebted to Y and Z, in the amount of
P100,000. A can pay the P100,000 to either if
there was no demand yet. But if there was
already demand, e.g. Y demanded payment,
Atty: The debtor may pay any one of the then A should pay Y.
solidary creditors. So in our example, A may
pay D or E. But if any demand, judicial or ARTICLE 1215. Novation, compensation,
extrajudicial, has been made by one of them, confusion or remission of the debt, made by
payment should be made to him. any of the solidary creditors or with any of
the solidary debtors, shall extinguish the
There is an author who says otherwise. This obligation, without prejudice to the
author said that anyone can pay even if provisions of article 1219.
another creditor has already demanded.
The creditor who may have executed any of
Atty: I don’t agree with that because the these acts, as well as he who collects the
creditor is already demanding the solidary debt, shall be liable to the others for the
debtor, judicial or extrajudicial, then it should share in the obligation corresponding to
be made to him. Unless, if payment is made them. (1143)
prior to the demand and it was accepted
because that would be a different scenario
Condonation - will extinguish obligation,
because payment was made before any
without prejudice to Art. 1219.
demand was made so you can just pay to
anyone. But if any demand, judicial or
Novation - change of terms and conditions
extrajudicial, the law is very clear, that
of a contract or change of debtors or change
payment must be made to that demanding
of creditors
solidary creditor.
● If prejudicial - solidary creditor who
effected the novation shall reimburse
If there is already a demanding solidary
the others for damages incurred by
creditor, whether judicial or extrajudicial,
them
then it (payment) should be made to him.
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● If beneficial - creditor effecting the Compensation takes place between A and Y.

novation who was able to secure the Here, since the obligation of A to Y and Z is
fulfillment of the new obligation shall extinguished. This gives Z the right to
be liable to the others for the share demand from Y 50,000 since the obligation
which corresponds to them, not only was extinguished by Y.
in the obligation but also in the
benefits Example No. 2:
Compensation - when the creditors owes A Y A

the debtor, and the debtor owes the creditor; and Z
amount owed is the same and both are due (solidary creditors)
and demandable
A obliges himself to pay P100,000 to Y and Z.
Confusion - the rights of a creditor and Y is also indebted to A so the former assigns
debtor are in one and the same person his credit to the latter.
Q: What is confusion?
Q: What happens to the obligation when Y
A: When the rights of a debtor and creditor assigned his credit A?
are found in one and the same person.
A: Confusion takes place and extinguishes
The next two (2) examples will show the the obligation of the solidary creditors. Z is
distinction between compensation and alkansi so he can collect from his fellow
confusion. creditor, Y, who caused the confusion.
Example No. 1: Q: How much can Z collect from Y?
A → Y → A A: He can collect P50,000, Atty.

and Z
(solidary creditors)
Art. 1216. The creditor may proceed
A obliges himself to pay P100,000 to Y and Z.
against anyone of the solidary debtors or
Y is also indebted to A so he also pays
some or all of them simultaneously. The
P100,000 to A.
demand made against one of them shall
not be an obstacle to those which may
Q: What happens to the obligation
subsequently be directed against the
between A and Y?
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others, so long as the debt has not been spouses, the creditor demanded the full
fully collected. payment of their debt from Palmares. But
here, Palmares was saying that she is not
liable as a solidary debtor because there
“The creditor may proceed against anyone was a confusion in the promissory note. In
of the solidary debtors or some or all of the second paragraph of the PN, it says
them simultaneously.” This is basically the that she was a surety, but in the third
crux of what solidary obligations are. You can paragraph it said that she was only liable
demand from only one, from some, or from as a guarantor.
all of them, depending on the creditor.
Issue: W/N Palmares is solidarily liable with
“The demand made against one of them the spouse Azarraga.
shall not be an obstacle to those which may
subsequently be directed against the Held: Yes. Under the law, if there are words
others, so long as the debt has not been or terms that specify that the obligation is
fully collected.” a solidary one, then that is the liability.
Example: Y and Z are indebted to A for

P100,000. A can demand payment from MBL: If there are words that have been used
either Y or Z. in the agreement implying solidarity, like
using the phrase “jointly and severally” or
Q: If A demands from Y, and Y only pays “solidary”, or using the pronoun “I” in
P70,000, can A still go after Z? referring to many of you instead of using
“we”.
A: Yes, as long as the debt has not been fully
collected. The demand made against one of Or using the pronoun “I” to refer to many of
them shall not be an obstacle to those which you instead of we. “I promise to pay” unya
may subsequently be directed against the daghan mo nipirma, referring yourself as
others. one. If there are words that clearly express
the nature of obligation as solidary, then you
Palmares v. CA have no choice. You cannot refuse to pay
because you bound yourself solitarily.
Facts: The creditor was M.B. Lending
In Palmares, the SC said that in suretyship,
Corporation who extended a P30,000 loan
there is but one contract and the surety is
to the spouses Azarraga, and the co-maker
bound by the same agreement which binds
of their promissory note was the petitioner
the principal. Demand to the sureties is not
Palmares. Because of the insolvency of the
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necessary or may not be pursued against

codebtors, in proportion to the debt of
them since the commencement of the suit
each.
is already sufficient demand. A surety is not
even entitled, as a matter of right, to be
given notice of the principal's default. MBL: to whom shall the solidary debtor pay?
To any of the Solidary Creditors. If thre was a
demand, then payment shall be made to the
Art. 1217 Payment made by one of the
demanding creditor.
solidary debtors extinguishes the
If there are two or more demands, then
obligation. If two or more solidary debtors
payment shall be made to the first who
offer to pay, the creditor may choose
demanded. Priority in time is priority in right.
which offer to accept. xx
If the demands were made at the same
MBL: it being solidary, take note that the act time, then the debtor may just choose who
of one is the act of all. to pay.
If one of the solidary debtors will fully pay,
Example: then the obligation is extinguished.
If A and B solidarily owes C, and both
solidary debtors offer to pay C, C may choose The paying debtor is entitled to
which payment between A and B he wants reimbursement from his co-solidary debtors.
to accept. The obligation will then be
extinguished once the creditor accepts If there is a solidary co-debtor is who is
payment from whoever he chooses to. insolvent, his share shall be shouldered by
the solvent solidary co-debtor
Art. 1217. xx
Example: A, B, C, and D are indebted to X,
He who made the payment may claim
P400,000.
from his co-debtors only the share which
corresponds to each, with the interest for
Since it’s solidary, any of the solidary debtor
the payment already made. If the payment
can pay. But if one of the solidary debtors
is made before the debt is due, no interest
will pay the P400,000, he’s entitled to
for the intervening period may be
reimbursement.
demanded.
So, if he paid P400,000, this obligation is

When one of the solidary debtors cannot,
already extinguished. But because of such
because of his insolvency, reimburse his
extinguishment, there are other obligations
share to the debtor paying the obligation,
that were created.
such share shall be borne by all his
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Q: What obligations were these? P100,000. It must be shared by all of them,

meaning, including A who paid.
A: Obligation of B to A, C to A and D to A.
So, P100,000 divided 3 is P33,333 each.
Q: Why?
Q: How much will C reimburse A?
A: Because he has to be reimbursed. Sila
man tanan ang nangutang. Only that, he P133,333. Na-shoulder na ang P100,000 ni B.
was the one who paid. And of course, A has to absorb also, even if
he was the one who paid.
So, the P400,000 will be divided into 4. They
are supposed to be liable for P100,000 each. In effect, the P400,000 will just be divided
into 3.
Remember that A is also indebted. His share
is P100,000. So the reimbursement to him Q: Does that mean that B will no longer
should only be P300,000. pay?
Q: Where did we get the P300,000? A: No. If his circumstances will improve, he
will have to pay. So mag abang nalang si A, C
A: P100,000 from B, C, D. and D kung kanus-a mupost si B na
nagbakasyon na sya.
Art. 1217. xxx When one of the solidary
debtors cannot, because of his insolvency, That is also a remedy for those who
reimburse his share to the debtor paying shouldered the share of the insolvent debtor.
the obligation, such share shall be borne Just because you’re insolvent or your share
by all his codebtors, in proportion to the will be shouldered by the rest, that does not
debt of each. mean that you are no longer liable.
Q: What happens if B is insolvent? You will still be liable. It is now up to the

absorbing debtors to look whether, “Okay
A: If B is insolvent and it is solidary, then his naba ni sya? Pwede naba ni nato sya
share will be borne by others. If these were mapaninglan?”
joint, bahala naka sa imong life. Wa koy labot
nimo. So, that is your Article 1217.
If it’s solidary, the share of the solidary debtor

Art. 1218. Payment by a solidary debtor
will have to be shared by all of them. That’s shall not entitle him to reimbursement
from his co-debtors if such payment is
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made after the obligation has prescribed reimbursement from his co-debtors.
or become illegal.
Example: The debt is 300,000. Just because
Q: Why? A successfully got the debt condoned, that
does not give him the right to collect from B
A: Because you’re not supposed to pay and C because the debt is already
anymore. In other words, the law is telling extinguished. Even if it was through his
you na as a solidary debtor, gi-danghag ka efforts that the debt has been extinguished.
(?), ayaw pangamong. You paid when you’re He cannot get the supposed shares of his
no longer supposed to pay. co-debtors because there is already an
extinguishment of obligation.
Supposedly, wala najud unta mo’y utang but
since you paid, you cannot collect Example: A, B, C obliged themselves to pay
reimbursement from the others because 300,000 to Z. A was able to convince Z to
that is your fault. condone the entire debt.
Art 1219. The remission made by the Q: Can A collect B and C’s shares?
creditor of the share which affects one of A: Not anymore.
the solidary debtors does not release the
latter from his responsibility towards the
co-debtors, in case the debt had been Art 1221(1). If the thing has been lost or if
totally paid by anyone of them before the the prestation has become impossible
remission was effected. without the fault of the solidary debtors,
the obligation shall be extinguished.
A, B and C are solidarily liable to Z for

Example: They obliged themselves to deliver
120,000. Z condones the share of B which is
a specific car and then the car got totally
40,000. However, such condonation came
wrecked due to a supertyphoon, not due to
after A paid the obligation.
their fault, obligation is totally extinguished.
The law says that B will still have to pay his

share of 40,000 to A because when the
remission happened, the debt was already Art 1221(2). If there was fault on the part of
extinguished. any one of them, all shall be responsible to
the creditor, for the price and the payment
of damages and interest, without
Art 1220. The remission of the whole prejudice to their action against the guilty
obligation, obtained by one of the solidary or negligent debtor.
debtors, does not entitle him to
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What does that mean?

the obligation shall be extinguished.
Example: A, B, and C oblige themselves to

If there was fault on the part of any one
deliver a particular car to X. A used the car to
of them, all shall be responsible to the
go drag-racing. If the car is lost due to A’s
creditor, for the price and the payment
fault or negligence, does that extinguish the
of damages and interest, without
obligation?
prejudice to their action against the
guilty or negligent debtor.
A: No, because it is not a fortuitous event. It
is now converted into a monetary obligation. If through a fortuitous event, the thing is
lost or the performance has become
If the value of the car was P1,200,000, the impossible after one of the solidary
total amount plus damages must be paid to debtors has incurred in delay through the
X. Who will pay, since the obligation is judicial or extrajudicial demand upon him
solidary? by the creditor, the provisions of the
preceding paragraph shall apply. (1147a)
A: A, B, or C.
The parties agreed that the damages

amounted to P300,000. So the total amount Based on the second paragraph of Article
payable to X is P1,500,000. If B pays, he is 1221, since A is the negligent debtor, he will
entitled to be reimbursed, pursuant to Art. be the only one responsible for the
1221. How much can he then collect from A damages. The P1,200,000.00 will be divided
and C? among A, B, and C. B can collect
P400,000.00 from A, plus the amount of
A: B can collect P400,000 from C, and damages which is P300,00.00 for a total of
another P400,000 from A. The damages P700,000.00. B can collect from C
amounting to P500,000 shall be collected P400,000.00 only.
from A, being the party at fault.
As against the creditor, they will have to pay
B - paid 1,500,000 to X regardless of whoever will pay. So even if B is
C - pay 400,000 to B not at fault he has to pay everything — the
A - pay 900,000 (400,000 + 500,000) to B value of the prestation plus damages. B can
collect reimbursement from A the amount
of his share of the prestation plus damages
ARTICLE 1221. If the thing has been lost or because he is at fault. That is why it is P1.2
if the prestation has become impossible Million shared by A, B, and C — P400,000.00
without the fault of the solidary debtors, each. Then there is damage amounting to
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P300,000.00 which will be paid by the because he is not supposed to be liable. That
negligent debtor who is A. So B can collect is what is meant by Article 1222.
P700,000.00 from A, and only P400,000.00
from C.
SESBRENO VS CA
G.R. No. 89252, May 24, 1993, 222 SCRA 466
ARTICLE 1222. A solidary debtor may, in
FACTS
actions filed by the creditor, avail himself
of all defenses which are derived from the Sesbreno made a money market
nature of the obligation and of those placement in the amount of P300,000
which are personal to him, or pertain to his with PhilFinance.
own share. With respect to those which
personally belong to the others, he may PhilFinance issued to Sesbreno the
avail himself thereof only as regards that Certificate of Securities Delivery Receipt
part of the debt for which the latter are indicating the sale of the Note with
responsible. notation that said security was in the
custody of Pilipinas Bank. Later,
Philfinance delivered to petitioner the DCR
Example: No. 10805 issued by private respondent
Pilipinas Bank.
A, B & C solidary debtors to X in the amount
Petitioner approached Ms. de Villa of
of P60,000. A is 17 years old.
private respondent Pilipinas, and handed
her a demand letter informing the bank
If X demands from A, if you are the lawyer of
that his placement with Philfinance in the
A, what will you tell A?
amount reflected in the DCR had
remained unpaid and that he in effect was
Answer: On the part of A, it is a complete
asking for the physical delivery of the
defense that he or she is still a minor. This is
underlying promissory note. But Pilipinas
a real defense as to the minor.
did not deliver the Note.
Now, if X makes a demand against B? Due to this, petitioner filed an action for
damages against private respondents and
Answer: B can interpose the minority of A so
claimed that Pilipinas Bank became
that he will not pay the share of A and pay
solidarily liable when it issued the DCR.
only P40,000.. He can also use defenses of A
but only to the extent of the proportion of ISSUE: Whether Pilipinas became
the share of A. 60,000 man divided by 3, solidarily liable with Philfinance and Delta
minor man siya (referring to A), B can say when Pilipinas issued the DCR.
“okay I will pay, but I will not pay A’s share
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not also shown any law that makes Pilipinas

RULING: solidarily liable. Remember the rule that
there is only solidary liability if:
NO. There is nothing in the DCR that
establishes an obligation on the part of a. The obligation so provides or
Pilipinas to pay petitioner the said
b. The law or the nature of the obligation
amount. There is nothing written on the
requires solidary liability.
DCR which could be read as converting
Pilipinas into an obligor under the terms of
the DMC assigned to petitioner, either
upon maturity thereof or at any other PNB v STA MARIA
time. G.R. No. L-24765, Aug. 29, 1969, 29 SCRA
303
Under Art. 1207, "there is a solidary liability
only when the obligation expressly so
FACTS
states, or when the law or the nature of
the obligation requires solidarity." PNB filed an action for the collection of
certain amounts representing unpaid
The record exhibits no express assumption balances on two agricultural sugar crop
of solidary liability vis-a-vis petitioner, on loans from defendants Maximo Sta. Maria
the part of Pilipinas. and his 6 brothers and sisters and the
Associated Insurance & Surety Co., Inc. The
MBL: Here the Supreme Court said that
sugar crop loans were obtained by
nothing in the document would tell you
Maximo from PNB under a special power
that Pilipinas had assumed solidary
of attorney, executed in his favor by his 6
liability. The SC also said that you have not
brothers and sisters to mortgage a 16- odd
shown a law that would say that there was
hectare parcel of land, jointly owned by all
solidary liability. What did we say? There is
of them, located in Bataan. In addition,
only solidary liability when the obligation
Valeriana Sta. Maria alone was also
expressly so states or when the law
executed in favor of her brother, Maximo, a
expressly so provides or by the nature of
special power of attorney to borrow money
the obligation requires solidarity.
and mortgage any real estate owned by
her.
As security for the two loans, Maximo

executed in his own name 2 chattel
There is nothing in the document that states mortgages on the standing crops,
that Pilipinas assumes solidary liability with guaranteed by surety bonds executed by
Philfinance and Delta Motors. Petitioner has
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the Associated Insurance & Surety Co., Inc. erroneously held by the trial court.
Trial court rendered judgment ordering However, valeriana stands liable not
the defendants, (the Sta Maria Siblings merely on the mortgage of her share in
and the Surety of Maximo). to jointly and the property, but also for the loans which
Maximo had obtained from PNB, since she
severally pay PNB. The 6 brothers and
had expressly granted Maximo the
sisters appealed saying that under the authority to incur such loans. Valeriana's
special power of attorney, they had not liability for the loans secured by Maximo is
given their brother, Maximo, the authority not joint and several or solidary as
to borrow money but only to mortgage adjudged by the trial court, but only joint,
the real estate jointly owned by them; pursuant to the provisions of Article 1207 of
the Civil Code that "the concurrence ... of
They further contended that they did not
two or more debtors in one and the same
benefit whatsoever from the loans, and
obligation does not imply that ... each one
that the plaintiff bank's only recourse of the (debtors) is bound to render entire
against them is to foreclose on the compliance with the prestation. There is a
property which they had authorized solidary liability only when the obligation
Maximo to mortgage. expressly states, or when the law or the
nature of the obligation requires
ISSUE: Whether the siblings are solidarily solidarity." It should be noted that in the
liable with Maximo? additional special power of attorney
executed by Valeriana, she did not grant
RULING: No, except for Valeriana Sta. Maximo the authority to bind her solidarily
Maria. with him on any loans he might secure
thereunder.
The authority granted by defendants
(except Valeriana) unto their brother, MBL: The SC said you do not assume
Maximo, was merely to mortgage the solidarity if you do not see that in any of
property jointly owned by them. They did the documents. In the documents
presented, you have there a SPA to borrow
not grant Maximo any authority to
but it was a joint obligation because it
contract for any loans in their names and
does not expressly state solidarity. Again, if
behalf. Maximo alone, with Valeriana who
it does not show whether it’s joint or
authorized him to borrow money, must solidary, you assume that it is joint
answer for said loans and the other because it is less burdensome.
defendants-appellants' only liability is that
the real estate authorized by them to be
mortgaged would be subject to
foreclosure and sale to respond for the Pacific Banking Corp. vs. IAC & Regala
obligations contracted by Maximo. But G.R. No. 72275, Nov. 13, 1991, 203 SCRA 496
they cannot be held personally liable for
the payment of such obligations, as FACTS:
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admitting his execution of the 'Guarantor's

Celia Regala applied for and obtained from Understanding, but with the
plaintiff a credit card, under the "Terms understanding that his liability would be
and Conditions governing the Issuance limited to P2,000.00 per month.' "
and Use of Pacificard, a copy of which was
issued to and received by Regala on the ISSUE: Whether Roberto is jointly and
date of the application and expressly severally liable to pay the principal
agreed that the use of the Pacificard is obligation together with Celia.
governed by said Terms and Conditions.
RULING: Yes, the undertaking signed by
Defendant Robert Regala Jr., spouse of Roberto although denominated
Celia, executed a “Guarantor’s “Guarantor’s Undertaking” was in
Undertaking” in favor of the Bank whereby substance a contract of surety.
he agreed 'jointly and severally of Celia
Regala, to pay the PBC upon demand, any In Guaranty, the guarantor binds himself
and all indebtedness, obligations, charges to the creditor to fulfill the obligation of
or liabilities due and incurred by said Celia the principal debtor only in case the latter
Regala with the use of the Pacificard, or should fail to do so. While in surety, the
renewals thereof, issued in her favor by the surety binds himself solidarily with the
PBC'. principal debtor.
The defendant Celia Regala had As a surety Roberto bound himself jointly
purchased goods and/or services on credit and severally with the debtor Celia Regala
(under her Pacificard, for which the "to pay the Pacific Banking Corporation
plaintiff advanced the cost amounting to upon demand, any and all indebtedness,
P92,803.98 at the time of the filing of the obligations, charges or liabilities due and
complaint. incurred by said Celia Syjuco Regala with
the use of Pacificard or renewals thereof
In view of defendant Celia Regala's failure issued in (her) favor by Pacific Banking
to settle her account for the purchases Corporation."
made thru the use of the Pacificard, a
written demand was sent to the latter and It is likewise not disputed by the parties
also to the defendant Roberto Regala, Jr. that the credit limit granted to Celia
under his 'Guarantor's Undertaking.' Regala was P2,000.00 per month and that
Celia Regala succeeded in using the card
PBC filed a complaint considering beyond the original period of its effectivity,
defendants’ repeated failure to settle their October 29, 1979.
obligation. Celia Regala was declared in
default for her failure to file her answer We do not agree however, that Roberto
within the reglementary period. Jr.'s liability should be limited to that
extent. Private respondent Roberto Regala,
Defendant-appellant Roberto Regala, Jr. Jr., as surety of his wife, expressly bound
filed his Answer with Counterclaim himself up to the extent of Celia’s
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indebtedness. 1979, and the balance of P55,000.00 to be

paid individually and jointly.
MBL: Here, SC said that the terms and
conditions clearly said that the obligation Respondent Antonio P. So filed a Motion
is solidary. The phrase used was “jointly for Execution on the failure of Ronquillo, et
and severally” which implies solidarity. As al. to make the initial payment of
opposed to a guarantor, where the P55,000.00 on or before December 24,
guarantor can only be made to pay after 1979, as provided in the Decision.
all of the assets of the debtor, that is not
the same if you are a surety. Because a Obligors Ronquillo and Pilar Tan tendered
surety can be made liable directly. P13,750.00 each but was refused by
Respondent Antonio P. So. Hence, the two
instead deposited the said amount with
the Clerk of Court. The other two obligors
Ronquillo vs. CA did not pay their shares. Respondent
G.R. No. L-55138, Sept. 28, 1984, 132 SCRA Antonio P. So again filed a motion which
274 resulted to the issuance of a writ of
execution for the satisfaction of the sum of
P82,500.00 as against the properties of
FACTS: Ronquillo, et.al, "singly or jointly liable.”
Respondent Antonio P. So filed an action However, Ronquillo raised the question of

for the collection of money against the validity of the order of execution when
Ronquillo, Offshore Catertrade Inc., Johnny the lower court's decision based on the
Tan and Pilar Tan. The amount of compromise agreement did not
P117,498.98 sought to be collected specifically state the liability of the four
represents the value of the checks issued obligors to be solidary.
by the latter in payment for foodstuffs
delivered to and received by them. The Issue: Whether or not Ronquillo and other
said checks were dishonored by the obligors are solidarily liable.
drawee bank.
Held:
The decision of the court was based on the
compromise agreement submitted by the Yes. Solidary.
parties. A compromise agreement has
been entered where Respondent Antonio Art. 1207. The concurrence of two or more
P. So agrees to reduce its total claim to debtors in one and the same obligation
only P110,000 .00.
does not imply that each one of the former
Ronquillo, et. al. agreed to bind themselves has a right to demand, or that each one of
to initially pay out of the total the latter is bound to render, entire
indebtedness of P110,000.00 the amount compliance with the prestation. Then is a
of P55,000.00 on or before December 24, solidary liability only when the obligation
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expressly so states, or when the law or the

nature of the obligation requires solidarity.
Quiombing v. CA
Art. 1208. If from the law, or the nature or G.R. No. 93010, 30 August 1990
the wording of the obligation to which the
preceding article refers the contrary does
Facts:
not appear, the credit or debt shall be
presumed to be divided into as many
On August 30, 1983, Nicencio Tan
equal shares as there are creditors and
Quiombing and Dante Biscocho, as the
debtors, the credits or debts being
First Party, jointly and severally bound
considered distinct from one another,
themselves in a “Construction and Service
subject to the Rules of Court governing
Agreement” to construct a house for
the multiplicity of quits.
private respondents Spouses Francisco
and Manuelita Saligo, as the Second Party,
Clearly then, by the express term of the
for the contract price of P137,940.00, which
compromise agreement and the decision
the latter agreed to pay. On October 10,
based upon it, the defendants obligated
1984, Quiombing and Manuelita Saligo
themselves to pay their obligation
entered into a second written agreement
"individually and jointly".
under which the latter acknowledged the
The term "individually" has the same completion of the house and undertook to
meaning as "collectively", "separately", pay the balance of the contract price in
"distinctively", respectively or "severally". An the manner prescribed in the said second
agreement to be "individually liable" agreement. On November 19, 1984,
undoubtedly creates a several obligation, Manuelita Saligo signed a promissory note
and a "several obligation is one by which for P125,363.50 representing the amount
one individual binds himself to perform still due from her and her husband,
the whole obligation. payable on or before December 31, 1984, to
Nicencio Tan Quiombing.
The obligation being described as
"individually and jointly", the same is On October 9, 1986, Quiombing filed a
therefore enforceable against one of the complaint for recovery of the said amount,
numerous obligors. plus charges and interests, which the
private respondents had acknowledged
MBL: and promised to pay but had not, despite
In here there’s another word that can be repeated demands. Instead of filing an
used to express solidarity and that is the
answer, the defendants moved to dismiss
use of the word “individually.” Again your
the complaint on February 4, 1987,
solidarity is the act of one is the act of all.
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contending that Biscocho was an The essence of active solidarity consists in

indispensable party and therefore should the authority of each creditor to claim and
have been included as a co-plaintiff. enforce the rights of all, with the resulting
obligation of paying every one what
Issue: Whether or not one of the two belongs to him; there is no merger, much
solidary creditors may sue by himself alone less a renunciation of rights, but only
for the recovery of amounts due to both of mutual representation.
them without joining the other creditor as
a co-plaintiff. The question of who should sue the
private respondents was a personal issue
Held: between Quiombing and Biscocho in
which the spouses Saligo had no right to
Article 1212 of the Civil Code provides:
interfere. It did not matter who as between
them filed the complaint because the
Each one of the solidary creditors may do
private respondents were liable to either of
whatever may be useful to the others, but
the two as a solidary creditor for the full
not anything which may be prejudice to
amount of the debt. Full satisfaction of a
the latter. Suing for the recovery of the
judgment obtained against them by
contract price is certainly a useful act that
Quiombing would discharge their
Quiombing could do by himself alone.
obligation to Biscocho, and vice versa;
hence, it was not necessary for both
A joint obligation is one in which each of
Quiombing and Biscocho to file the
the debtors is liable only for a
complaint. Inclusion of Biscocho as a
proportionate part of the debt, and each
co-plaintiff, when Quiombing was
creditor is entitled only to a proportionate
competent to sue by himself alone, would
part of the credit. A solidary obligation is
be a useless formality.
one in which each debtor is liable for the
entire obligation, and each creditor is
Parenthetically, it must be observed that
entitled to demand the whole obligation.
the complaint having been filed by the
Hence, in the former, each creditor can
petitioner, whatever amount is awarded
recover only his share of the obligation,
against the debtor must be paid
and each debtor can be made to pay only
exclusively to him, pursuant to Article 1214.
his part; whereas, in the latter, each
This provision states that “the debtor may
creditor may enforce the entire obligation,
pay any of the solidary creditors; but if any
and each debtor may be obliged to pay it
demand, judicial or extrajudicial, has been
in full.
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made by any one of them, payment why? Because again the act of one is the
should be made to him. act of all. While in a joint obligation, to
attain a complete resolution of the case, all
If Quiombing eventually collects the the debtors and creditors must be
amount due from the solidary debtors, impleaded, subject to the rules governing
Biscocho may later claim his share thereof, multiplicity of suits, in the final
but that decision is for him alone to make. determination of the obligation. That’s the
It will affect only the petitioner as the difference between the two.
other solidary creditor and not the private
respondents, who have absolutely nothing
to do with this matter. As far as they are Inciong, Jr vs. Court of Appeals
concerned, payment of the judgment G.R. No. 96405. June 26, 1996
debt to the complainant will be
Facts: Inciong, with two other debtors,
considered payment to the other solidary
executed a promissory note for P50, 000 in
creditor even if the latter was not a party to
favor of PBCom for chainsaws for their
the suit.
logging businesss. They failed to pay and
so PBCom filed a complaint against all
Although he signed the original
three debtors. The case against the second
Construction and Service Agreement,
debtor was dismissed and the other
Biscocho need not be included as a
debtor was in Saudi Arabia and so the
co-plaintiff in the complaint filed by the
court could not obtain jurisdiction over his
petitioner against the private respondents.
person. Thus, the proceeding against
Quiombing as solidary creditor can by
Inciong was the only one that continued.
himself alone enforce payment of the
Inciong argued that the dismissal of the
construction costs by the private
complaint against one of them (the
respondents and as a solidary debtor may
principal debtor) and against his co-maker,
by himself alone be held liable for any
constituted a release of his obligation,
possible breach of contract that may be
especially that the release of one of the
proved by the private respondents. In
solidary debtors, was upon the motion of
either case, the participation of Biscocho is
PBCom.
not at all necessary, much less
indispensable.
Issue: Whether or not Inciong is indeed
released from liability.
MBL: Here the Supreme Court said that in
a solidary obligation anyone of the Held: No. Under the Civil Code, it is up to
solidary creditors can file a suit, you don’t the choice of the creditor which debtor to
have to include all the solidary creditors, collect from in a solidary obligation such
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as this one. Here, the language of the

contract showed that Inciong is jointly and
severally liable and the first sentence of his
promissory note indicated that the three
of them jointly and severally promised to
pay PBCom.
MBL: In this case the Supreme Court said,

the choice is left to the solidary creditor to
determine against whom he will enforce
collection because as we said in a solidary
obligation, one of the solidary creditors
can file a suit or demand payment from
any of the solidary debtors because they
are considered as one—“one for all and all
for one”.
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A: An obligation that is dependent upon the
happening or non-happening of a future and
MODULE 3
DIFFERENT KINDS OF OBLIGATION uncertain event (condition).
Remember, that both must be present – that the

I. PURE AND CONDITIONAL event must be: (1) future and (2) uncertain or
OBLIGATIONS unknown.
Q: What is a pure obligation?

EXAMPLE:
ARTICLE 1179. Every obligation whose performance

“I will give you P 500,000 if your pet dog dies”
does not depend upon a future or uncertain event, or
upon a past even unknown to the parties, is demandable
Q: Is this a condition? Is this a future and
at once.
uncertain event?
A: An obligation whose fulfillment is not A: The answer is NO. Although it is set at a future
dependent upon a future and uncertain event event, death is certain to happen.
(condition) or a past event unknown to the parties.
Q: How then do you call an obligation that is
This means that the obligation is demandable at dependent on a FUTURE and CERTAIN event?
once.
A: It is called an obligation with a period.
EXAMPLE:
“I will pay you P 500,000.”

ARTICLE 1181. In conditional obligations, the
Your payment of the P500,000 is not dependent acquisition of rights, as well as the extinguishment or
upon a condition. It does not depend on something loss of those already acquired, shall depend upon the
else happening for me to pay you P500,000. happening of the event which constitutes the condition.
A pure obligation is characterized by its immediate

A: This provision basically provides that the
demandability. In other words, the person whom
acquisition of right by virtue of the obligation or
you have promised to pay the P500,000 (in the
the extinguishment of the rights already acquired,
example) can immediately demand from you the
also by virtue of the obligation is dependent upon
payment. He can immediately compel you to pay
the happening of a future and uncertain event
without waiting for the arrival of a period.
(condition).
Q: What is a conditional obligation?
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I will give two (2) examples of when the
happening of a condition will either give rise to or Q: What is a resolutory condition?
cause the extinguishment of an obligation.
A: A condition, the happening of which, will
EXAMPLE NO. 1: EXTINGUISH the obligation. As opposed to a
suspensive condition, the happening of which will
“I will give you P 500,000 if you pass the bar
GIVE RISE to the obligation
examinations”
In EXAMPLE NO. 1, passing the 2022 Bar
This is an example of a condition, the happening of
Examinations is a future and uncertain event, the
which, will give rise to an obligation.
happening of which will give rise to my obligation
to give you P5,000. Vis-à-vis EXAMPLE NO. 2,
Q: What do we call this kind of condition?
where the passing of the 2022 Bar Examinations
will extinguish my obligation to give you a P20,000
A: This is called a suspensive condition. It will
monthly allowance.
hold in suspense the obligation until the
happening of the condition.
So in EXAMPLE NO. 2, the happening of the event
does not give rise to the obligation, because it is
In this example, I make that promise to give you
already there, instead it terminates or extinguishes
P5,000 if you pass the bar examinations today, but
the obligation.
my obligation has not arisen yet. Because the
future event (passing of the Bar examinations) has
RECAP: What is the difference between
not come yet.
conditional and pure obligations?
It is a condition because it is a future and an ● In Conditional, the effectivity or
uncertain event. And it is a suspensive condition extinguishment of the obligation is
because it holds in suspense, up until the dependent upon the happening of a future
happening of the condition, my obligation to give. and uncertain event.
● In Pure, the obligation is demandable at
EXAMPLE NO. 2: once and it is not dependent upon any
“I will give you a P20,000 monthly allowance until condition.
you pass the 2022 Bar Examinations.”
II. OBLIGATION WITH A PERIOD (PART

In this example, the condition (passing the 2022
1)
Bar Examinations) is still a future and uncertain
event. However, the happening of the event will “PERIOD” is a FUTURE AND CERTAIN event.
EXTINGUISH my obligation.
As opposed to CONDITION, a condition is a
Here, the condition is a resolutory condition. FUTURE AND UNCERTAIN EVENT. Period
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however is a future and CERTAIN event. In can demand from the obligor the fulfillment of the
obligations with a period, it is the arrival of this obligation.
future and certain event that would bring about
the demandability of an obligation or its RESOLUTORY PERIOD
extinguishment.
Article 1193 Par. (2) "obligations with a
Note that a condition is future and uncertain, IOW, resolutory period take effect at once but
that event may or may not happen while a period terminate at the arrival of the day certain."
is certain to happen. That is why we say that a
period is future and certain.
Obligations with a period may be”

This time, it says that the arrival of the period will
now extinguish the obligation. IOW, the obligation
● Suspensive
is already there and the arrival of the period will
● Resolutory
terminate or extinguish the obligation.
SUSPENSIVE PERIOD
Example: “I will give you 10,000 monthly
allowance until December 31, 2024.”
Article 1193 Par. 1 "obligations for whose
fulfillment a day certain has been fixed shall be In this example, the obligation is demandable at
demandable only when that day comes." once. It takes effect at once. That obligation will
end upon the arrival of the period and in that
The period in an obligation with a period example, the period was set at Dec. 31, 2024.
determines whether the obligation becomes
demandable or when it is extinguished or Remember the 2 examples given.
terminated.
● Example (1) obligation to give 20k on Dec.
That first paragraph of article 1193 gives you an 25, 2023 - the period will affect the
example where the period determines the demandability of the obligation. It triggers
demandability of the obligation. its demandability. This is called a
SUSPENSIVE PERIOD as the arrival of
Example: “I will give you 20,000 on December 25, such period will make the obligation
2023” demandable.
● Example (2) obligation to give 10k monthly
This is a day that is certain to come in the future. allowance until Dec. 31, 2024 - the period is
FUTURE and CERTAIN as it will necessarily come. a RESOLUTORY PERIOD because the
This is now an example of a period the arrival of arrival of the period will extinguish the
which will determine the demandability of the obligation. IOW, in this example, the
obligation. When the said date arrives, the obligee obligation became demandable at once
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(2nd par. of 1193) when the period arrives, you realized that your debt was, in fact, not yet
the obligation to give a 10k monthly due?
allowance will cease, it will now be
extinguished. A: The answer is yes. You can actually get back the
money that you paid.
The discussion above discusses the 2 ways of
classifying the period. There are other ways of Q: Why?
classifying a period such as whether the period is
DEFINITE or INDEFINITE. A: Because the period has not arrived yet. In that
example, the period was set two years from today
● Definite - day certain, exact date or period
and yet you paid one year early.
(Ex. 1 year from today)
● Indefinite - in the future, unknown as to
That is basically your Article 1195 which says:
when but is certain to happen (Ex. When
my pet dies, because death is certain)
ARTICLE 1195. Anything paid or delivered before the
Another way of classifying the period is arrival of the period, the obligor being unaware of the
ACCORDING TO ITS SOURCE: period or believing that the obligation has become due
and demandable, may be recovered with the fruits and
● Conventional - as agreed by the parties interests.
● Legal - provided for by law
● Judicial - it is the court who has decided
Remember, however, that recovery can be done if
upon the period.
the obligor or the person who paid.
THE CONSEQUENCES OF HAVING AN
OBLIGATION WITH A PERIOD: In our example, you paid the P50,000 believing
that it was already due because if you were aware
Example: you borrowed 50k from a friend. Both of that you were paying your debt in advance, then,
you agreed that you will pay 2 years from today. A Article 1195 cannot be applied. You can no longer
year from now, you paid him the 50k thinking that get the money that you paid because you were
2 years had already lapsed. However, the debt was aware that you were paying in advance.
not yet due and demandable based on the
agreement but you insisted on paying anyway. Remember, that the recovery of the amount that
you paid, if you were truly unaware or if you truly
Because both of you agreed that it will be paid two believed that it was actually already due and
(2) years from today. But you paid one (1) year demandable, and then, two months after the
from today. payment you realized, “Oh! I paid early. I want to
get the money back.”
Q: What are the consequences of such? Can you
still get back the money you paid in advance once
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Yes, you can get the money back. In fact, you can
also get the interest from the advance payment. A: From the time that you wrongfully paid in
advance up to the time that the debt was due.
Q: But when do you start and stop computing the (Interest will start from the time of wrongful payment
interest? until the due date.)
A: You start counting the interest from the time Let’s also look into Article 1196.
you wrongly paid up to the time that you will get
back the advance payment. (You start counting the ARTICLE 1196. Whenever in an obligation a
interest from the time of premature payment up to the period is designated, it is presumed to have been
time that you recover the premature payment.) established for the benefit of both the creditor
and the debtor, unless from the tenor of the same
Q: Now, supposing you realized that you made or other circumstances it should appear that the
an advance payment on the day that is due and period has been established in favor of one or of
demandable? (What if you realized that you the other.
prematurely paid only on the day that the
obligation become due and demandable?) In other
words, as I have mentioned, you paid 1 year in Q: What does this mean?
advance. But then you realized that such advance
payment 2 years from the time that you promised. A: This mean that when there is a period, that
It’s already due and demandable. Can you still period is supposed to benefit both the debtor and
recover the money? the creditor.
A: Not anymore.
Illustration:
Q: Why?
Let me give you an example.
A: Because the debt is already due and
demandable. You can no longer get it back. (You A (debtor) and B (creditor) agreed that A will pay
can no longer recover the money paid because it has back his loan or debt of P100,000 to B on August 5,
already become due and demandable, but you can still 2025. The period is August 5, 2025.
recover the interest.)
Article 1195 tells you that that period is supposed
Q: But how about the fruits and interests? to benefit both A and B.
A: Yes, you may recover. Q: What does that mean?
Q: Now, when do you start counting the interest? A: This means that A (debtor) cannot compel B
(creditor) to accept payment before August 5, 2025.
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In the same manner, B (creditor) cannot compel A
ARTICLE 1196. xxx when from the tenor of the
(debtor) to make payment before or after the
obligation, it is clear that the period was created
arrival of the period.
for the benefit of just one party.
Q: Why do we say that is for the benefit of both?

Illustration:
A: Because if we were to allow the debtor to
compel the creditor to accept payment prior to the Let me give you an example.
arrival of the period, then you will be depriving
the creditor of interest. If you cut short the period A (debtor) and B (creditor) agreed that A will pay
of the payment, then it will deprive the creditor of his debt of P50,000 to B on or before August 5,
interest. So that period is supposed to benefit both 2025.
the debtor and the creditor.
Q: With that agreement, the period of on or
In the same way, your creditor cannot compel the before August 5, 2025, who do you think is the
debtor to pay before the period. period for? Who do you think will benefit from
that period?
Q: Why?
A: That period actually benefits the debtor.
A: Because the debtor may not be ready to pay yet
before the period. Nor can the creditor compel the Q: Why the debtor?
debtor to pay after the period because it may be
burdensome on the part of the debtor as it will also A: Because this time, the debtor has an option to
accumulate interest. pay when the period arrives (August 5, 2025) or to
pay prior to that period. (The debtor has an option to
So that is what is meant by a period. The either pay when the period arrives or to pay before the
presumption of such is for the benefit of both the period arrives.)
debtor and the creditor.
The debtor can compel the creditor to accept the
Exception to the General Rule (Article 1196, last advance payment. The debtor can compel the
sentence) creditor to accept payment before August 5, 2025.
Just like any general rule, there is an exception. However, the creditor cannot compel the debtor to
Article 1196 tells you of that exception: make payment before August 5, 2025. The creditor
has to wait for the period to arrive to be able to
compel payment.
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In other words, if the obligation is on or before a XPN: NCC provides for enumeration where the
certain period, that obligation with a period, that debtor can lose the benefit.
period is actually beneficial to the debtor. (If an
obligation is due on or before a certain period, then the Meaning: Debtor can be compelled by the creditor
period is for the benefit of the DEBTOR.) to pay his debt even prior to the arrival of the
period.
This is an exception to the general rule.
Example: X is the debtor. Y is the creditor. X and Y
III. OBLIGATION WITH A PERIOD (PART agreed that X will pay his debt on January 5, 2024.
2)
In applying the GR under Art. 1196, X cannot be
INSTANCES WHERE THE DEBTOR LOSES compelled by y to pay before January 5, 2024.
THE BENEFIT OF THE PERIOD
That is the benefit of debtor that he cannot be
GR: When an obligation is with a period, the compelled to pay before the arrival of the period
period is supposed to benefit both the debtor and
the creditor; that is in fact Article 1196, NCC. Q. When then will he lose the benefit of the
period?
XPN: There are instances under NCC when the
debtor loses the benefit of the period.
ART 1198, NCC. The debtor shall lose every right
to make use of the period:
Q. What do we mean then when we say that the
1. When after the obligation has been
debtor will lose the benefit of the period?
contracted, he becomes insolvent, unless
he gives a guaranty or security for the
GR: When you say that you have the benefit of the
debt;
period as the debtor, you cannot be compelled to
2. When he does not furnish to the creditor
pay before the arrival of the period.
the guaranties or securities which he has
promised;
Example: If the agreement was for the debtor to
3. When by his own acts he has impaired
pay the debt two years from today then that debtor
said guaranties or securities after their
cannot be compelled to pay before the arrival of
establishment, and when through a
that date which is two years from today. That is the
fortuitous event they disappear, unless he
benefit. In the same way, the
immediately gives new ones equally
the creditor cannot be compelled by the debtor to
satisfactory;
accept payment before the arrival of that period
4. When the debtor violates any
that they agreed.
undertaking, in consideration of which
the creditor agreed to the period;
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disappear, unless he immediately gives new ones
5. When the debtor attempts to abscond
equally satisfactory.
XPNs: Par. 3 of Art. 1198 will tell you that it does not
matter whether the guaranty or security promised
(1) When after the obligation has been was lost through a fortuitous event or through
contracted, he becomes insolvent, unless he gives fault of the debtor.
a guaranty or security for the debt.
In our example, if X promised to Y to execute a
After he became indebted to the creditor, if it is mortgage over his house to secure his debt and,
found that he is now insolvent, meaning he has through negligence of X, the house was razed by
more debts than he has assets, the creditor can now fire, or even if by typhoon without fault of X, Y can
demand the debtor to pay his debt even before the now demand the payment of the debt even before
arrival of the period. the arrival of the period.
XPN to XPN: Unless the debtor can give a security The law is clear; it does not matter whether the
or a guarantee. guaranty or security that he has promised is lost
either by the fault of the debtor or by a fortuitous
If he cannot give a guarantee or security then the event. The creditor can demand the payment prior
creditor can now go after the debtor even before to the arrival of the period. If the debtor does not
the arrival of the period. want to pay, then he must furnish another
guaranty or security equally satisfactory.
The creditor need not wait for the arrival of the
period to demand the debtor to pay. So if X originally executed a mortgage over his
house which is destroyed by a typhoon, Y can
(2) When he does not furnish to the creditor the demand payment prior to the arrival of the period,
guaranties or securities that he has promised. even though the loss of the security was due to a
fortuitous event. So, X should furnish another
In our example, if X did in fact make a promise to security equal to the house if he does not want to
Y to give a guaranty or security, like a real estate pay.
mortgage to secure his debt with Y, Y can demand
the payment of the debt even before the arrival of (4) When the debtor violates any undertaking in
the period, January 5, 2024. consideration of which the creditor agreed to the
period.
(3) When by his own acts he has impaired said
guaranties or securities after their establishment, This is par. 4 of Art. 1198. In our example, if there
and when through a fortuitous event, they was an agreement that there will be payment of
interest every month, and X fails to pay the
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8
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interest, that is a violation of the undertaking and However, the delivery of either of those objects
Y can now demand the full payment of the would be enough to comply with the obligation.
obligation even before the arrival of the period, Where there are several objects that are due, but it
January 5, 2024. is enough that only one is being delivered to fulfill
the obligation.
(5) When the debtor attempts to abscond.
In that example, can Betty choose to deliver
This is another instance when the creditor can 150,000 pesos cash and also a second-hand car
demand payment even before the arrival of the worth 150,000 equaling still the value of 300,000
period. pesos?
The creditor should not be made to wait until the The answer is no. And we find the legal basis for
debtor is successful in evading payment. If the that under Article 1199 of your civil code.
creditor receives information that the debtor is
attempting to abscond, then he can compel the
Art. 1199. A person alternatively bound by
debtor to pay even before arrival of the date agreed different prestations shall completely perform
upon, January 4, 2024. one of them.
IV. ALTERNATIVE OBLIGATIONS The creditor cannot be compelled to receive part

of one and part of the other undertaking. (1131)
Alternative obligation is an obligation where there
are several objects or presentations that are due,
but such obligation may be complied with by the
fulfillment of one of the objects or prestation. General Rule:
Example: So in our example, Betty cannot compel the

creditor to receive 150,000 cash and the 150,000 car
Betty obliged herself to deliver either a particular because the law says that it should be the delivery
car worth 300,000 or cash 300,000 or a diamond of either one of the prestations or objects that are
ring worth 300, 000. Here you have an obligation due. It cannot be part of one and a part of another
where several prestation or objects which are due. that is article 1199.
Either she may be deliver the car worth 300,000 or
cash 300,000 or a diamond ring worth 300, 000. So
three objects are due. Exception:
Effects: Of course, if the creditor would agree or would

accept to receiving a part of one undertaking and a
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9
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part of another then that there would be no Now let's talk about that second Paragraph of
problem with respect to that Article 1200 where the law says that yes the debtor
has the right of choice but he cannot choose those
However what the law tells you is that the debtor prestations which are impossible or which are
in our example, Betty, cannot compel the creditor unlawful or which could not have been the object
to receive a part of one and a part of the other of the obligation.
because the obligation of Betty is that she should
deliver either of the three that she has promised. Example:
Betty obliged herself to deliver a particular car or a
That is basically what an alternative obligation is particular diamond ring or one kilo of dangerous
all about. trunks or of shabu
Who has the right to choose which prestation will Here you have three prestations or three objects
be fulfilled or which object will be delivered by that are due
the debtor?
While Betty may have the right to choose which of
The law tells you that the right of choice belongs to the three I mentioned that she will deliver the law
the debtor does not allow her to choose the last presentation
or the last object that is due and that is the one kilo
of shabu.
Art. 1200 The right of choice belongs to the
debtor unless it has been expressly granted
to the creditor Why?
Because that is unlawful.
The debtor shall have no right to choose
those prestations which are impossible Again, The debtor has the right of choice
unlawful or which could not have been the but the debtor cannot choose those prestations that
object of the obligation are:
1. Impossible
2. Unlawful; or
In our previous example, Betty has now the right 3. which could not have been the object of the
to choose which of the prestations she will fulfill. obligation
Either she will deliver that particular car worth When does that choice have any effect?
300,000 or she will deliver the 300,000 cash or if she
will deliver the 300,000 peso worth diamond ring It is only when the debtor has communicated such
choice to the creditor.
Remember:
GR:
The debtor has the right of choice Art. 1201 The choice shall produce no effect
EXPN: Unless if they have agreed that the creditor except from the time it has been
will have the right to choose from which communicated
prestations he will be asking the debtor to deliver.
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Is there a particular form of communication of
given to the creditor, the obligation shall cease to
the choice?
be alternative from the day when the selection
there is no particular form.
has been communicated to the debtor.
It could be:
1. in writing; or
Until then the responsibility of the debtor shall
2. verbally
be governed by the following rules:
So long as the debtor has communicated or has
(1) If one of the things is lost through a
informed the creditor of his choice as to what
fortuitous event, he shall perform the obligation
prestation or object he has chosen to deliver his
by delivering that which the creditor should
obligation.
choose from among the remainder, or that which
remains if only one subsists;
Articles 1202-1205 talk about scenarios where there
are several prestations that are due but one or 2 or (2) If the loss of one of the things occurs through
more of the prestations are no longer practicable to the fault of the debtor, the creditor may claim
be delivered. any of those subsisting, or the price of that
which, through the fault of the former, has
disappeared, with a right to damages;
Art. 1202. The debtor shall lose the right of
choice when among the prestations whereby he (3) If all the things are lost through the fault of
is alternatively bound, only one is practicable. the debtor, the choice by the creditor shall fall
(1134) upon the price of any one of them, also with
indemnity for damages.
Art. 1203. If through the creditor's acts the
debtor cannot make a choice according to the The same rules shall be applied to obligations to
terms of the obligation, the latter may rescind do or not to do in case one, some or all of the
the contract with damages. (n) prestations should become impossible. (1136a)
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 GR: right of choice belongs to debtor
been lost, or the compliance of the obligation has XPN: they agree otherwise
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. (1135a)
Art. 1205. When the choice has been expressly
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11
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How about if the loss of the one of the objects, or
Loss of some or one of the objects or all in an of some of the objects, or of all of the objects was
alternative obligation can be caused either by FE or caused by the fault or negligence of the debtor?
fault of the debtor. (right of the choice belonging to the debtor)
Fortuitous event
● If all objects are lost, and it caused by a FE,
the obligation of the debtor is extinguished.
Illustration
A promised to deliver a particular car/motorcycle,
if all is lost due to typhoon which is a FE and
destroyed beyond repair, then the obligation of A
is extinguished.
Q: What are the consequences if the all of the
objects are lost due to the negligence or fault of
● If only one/some/is are lost, due to a FE
the debtor?
the debtor may choose from the remainder
or remaining objects.
A: Obligation is not extinguished, unlike when the
loss is due to fortuitous event. The obligation,
Illustration
however, is converted to monetary liability.
If Betty has promised to deliver a particular car or
a particular motorcycle or a particular yacht, and
How do you put a value to the liabilities since it is
the yacht was destroyed by a supertyphoon and
now a monetary liability?
you still have the car and motorcycle, since the loss
- It should be the value of the object
of the yacht was due to a FE, then Betty can still
which last disappeared.
choose from what remains.
Why? Since the right of choice belongs to the
Supposing, in the same example, what was
debtor, even if the debtor has destroyed one of the
destroyed by the typhoon would be the yacht and
objects that are due, he will always have the
the car, hence, there is only the motorcycle. This
remainder to choose from.
now is converted into a simple obligation. Then,
Betty will have no choice but to deliver what is left
Going back to the example… the choice between a
i.e., motorcycle. – those are the consequences if
particular car, particular motorcycle and particular
there is loss of one of the objects or of some of the
yacht, even if the car was lost due to the
objects or of all of the objects and the loss is caused
recklessness of the debtor, since the right of choice
by a fortuitous events.
belongs to him, hence, he always have the other
two to choose from i.e., particular yacht and
particular motorcycle.
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12
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the rules under Article 1205 - If there is loss, and
Even if the motorcycle would be lost due to his the right of choice belongs to the debtor.
fault or negligence, he will always have the yacht
to deliver. RIGHT OF CHOICE BELONGS TO CREDITOR
If the yacht was lost due to his fault or negligence Q: Now, how about if there is loss, but the right
when he could have delivered that, so, the value of choice belongs to the creditor because they
the monetary liability should depend at the value agreed that it shall belong to the creditor, would
of the object which last disappeared. the consequences be the same?
TN: Since the lost of all the objects are due to the A: No, some consequences are not all the same but
fault or negligence of the debtor, creditor can claim there are some that are similar.
damages.
If only one or some of the objects that are due were

lost due to the negligence or fault of the debtor, the
debtor can choose what remains.
RIGHT OF CHOICE BELONGS TO DEBTOR
So again, the loss can be caused by a fortuitous

event, or by the fault or negligence of the debtor.
So let's take a look at when losses are caused by a

fortuitous event. If all of the objects are lost rather
due to a fortuitous event, then the obligation is
If the particular car is lost due to his recklessness,
extinguished because again, as we said, loss that is
he can always choose from the particular
caused by a fortuitous event will extinguish an
motorcycle or the particular yacht. He can choose
obligation because it is not the debtor’s fault that
either of the two to deliver. If there's only one that
the prestations are lost. Now, if one or some of the
remains because all the others were lost due to his
objects are lost, due to a fortuitous event, what
negligence, then that one that has remained will
happens now, the creditor can still choose from the
now be the object that will be delivered. These are
remainder or the creditor can choose from what
remains because he has the right of choice.
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So again, we go back to our examples, if the Example: There is a particular car, a particular
presentations are: (1) that particular car; (2) the motorcycle, and a particular yacht. The creditor
particular motorcycle and (3) particular yacht. If can choose from any of the objects - and whatever
the particle yacht gets lost or gets wrecked due to a object that he has chosen, the debtor will have to
typhoon then the creditor can choose from either pay him the value of such object.
the motorcycle or the car.
Q: What if not all of the objects are lost due to the
So the difference now is just the one who is fault or negligence of the debtor?
choosing which prescription is to be delivered.
This time it's your creditor who will choose A: Since the right of choice belongs to the creditor,
because they have agreed that the creditor will then he can still choose any of the objects.
have the right of choice.
If, however, the object chosen was already lost due
If some of the prescriptions are lost and only one to the fault or negligence of the debtor - the
remains then of course it will be converted into a creditor will be paid the value of such object +
simple obligation and therefore that will be the one damages.
which will be delivered by the debtor to the
creditor. So going back to our example, if the However, if the creditor chooses the object that is
particular car and the particular motorcycle are still there (not lost - still exists), then the debtor will
lost, perhaps due to an earthquake, then you have deliver such object.
the particular yacht that can be delivered. So it is
converted into a simple obligation. Q: In this case, will the debtor still be liable for
damages?
Q: Now, if the loss is due to the fault or
negligence of the debtor what will happen now? A: No, because the creditor has chosen the object
What would be the consequences if all of the that still exists and that is not lost.
options are lost due to the fault or negligence of
the debtor?
A: The creditor can choose any of the objects and

have the debtor pay for the value of the object that
he has chosen.
If all of the objects are lost due to the fault or

negligence of the debtor, then the creditor can
choose any of the objects and have the debtor pay
for the value of the object that he has chosen.
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So, that’s basically what Article 1202 to Article
Article 1223. The divisibility or indivisibility of
1205 is telling you.
the things that are the object of obligations in
which there is only one debtor and only one
Note: Remember that these rules on laws apply
creditor does not alter or modify the provisions
only to particular/specific things because generic
of Chapter 2 of this Title. (1149)
things are never lost.
So, if there are prestations that are generic and When you look at your Civil Code, Chapter 2
there are prestations that are specific - then the actually covers joint and solidary obligations. What
specific things may be lost, but there will always be Article 1223 is telling you is that when you classify
a generic thing that will remain. your obligation as divisible or indivisible, it does
not change that such obligation may be joint or
Example: If the prestations that are due are a solidary.
particular diamong ring, a particular car, and Php
1,000,000.00 - even if the particular prestations are It basically means that when we classify an
lost due to a fortuitous event (diamond ring and obligation as joint or solidary, it actually refers to
car), obligation is not extinguished because you the tie between the parties. When we talk about
have a generic thing that is due. the obligation being divisible or indivisible, that
does not refer to the tie that binds the parties but it
If it caused by the fault/negligence of the debtor, refers to the nature of the obligation.
there is still one prestation that is left to be chosen
from - either it be the choice of the debtor or the
creditor. Article 1225. For the purposes of the preceding
articles, obligations to give definite things and
those which are not susceptible of partial
V. DIVISIBLE AND INDIVISIBLE performance shall be deemed to be indivisible.
OBLIGATIONS
When the obligation has for its object the
execution of a certain number of days of work,
When we talk about divisible and indivisible
the accomplishment of work by metrical units, or
obligations, we should be careful not to confuse
analogous things which by their nature are
this with solidary obligations. Your divisible and
susceptible of partial performance, it shall be
indivisible obligations are covered by Articles
divisible.
1223-1225 of your Civil Code, while your joint and
solidary obligations are covered by Articles However, even though the object or service may
1207-1222 of your Civil Code. be physically divisible, an obligation is
indivisible if so provided by law or intended by
the parties.
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15
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accomplished by a number of days of work or it
In obligations not to do, divisibility or
can be measured by metrical units, because if it
indivisibility shall be determined by the
can, then it is divisible. If it can’t, then it is
character of the prestation in each particular case.
indivisible.
(1151a)
The third paragraph of Article 1225 gives an

exception. Here, we have the (1) parties treating a
Article 1225 actually gives you a definition or a
divisible object as an indivisible one. So they are
guide as to how to determine whether your
bound by that treatment or agreement, or if (2) the
obligation is divisible or indivisible.
law treats it as indivisible. An example of an
object or a thing that can be treated by the parties
The first paragraph of Article 1225 tells you that if
as indivisible is MONEY. Money is clearly divisible
the obligation is to give definite things, and such
— it can be divided. But if the parties agree to treat
things cannot be physically divided, then the
it as indivisible, then so be it. Contracts or
obligation is indivisible. Another principle that
agreements between the parties have the force of
your Article 1225, paragraph 1 is also telling you is
law between them, and they are bound by that
that for obligations to do or in rendering a service
agreement. These are the two exceptions for when
or performance of a service, it also can be classified
divisible obligations which by nature are actually
as either divisible or indivisible. And if it is not
divisible, are treated as indivisible by the parties
capable of partial performance, then it is
either by their agreement or because the law treats
considered as an indivisible obligation.
it as indivisible.
The second paragraph of Article 1225 tells you that

if the obligation is to do something or it is Article 1224. A joint indivisible obligation gives
rendering of a service, then it will be considered rise to indemnity for damages from the time
divisible if it can be accomplished by days of work anyone of the debtors does not comply with his
or there is the accomplishment in metrical units, undertaking. The debtors who may have been
because then there is a measure of how you can ready to fulfill their promises shall not contribute
divide the work. So you treat it as a divisible to the indemnity beyond the corresponding
obligation. portion of the price of the thing or of the value of
the service in which the obligation consists.
Basically, when you look at the first two (1150)
paragraphs of Article 1225, it tells you that to
determine whether the obligation is divisible or This now brings a situation where the obligation is
indivisible, you look at the OBJECT of the an indivisible one, but the tie between the parties is
obligation. If it is the giving of a definite thing, a joint one. When we talk about it being joint or
then you consider it as indivisible. If the obligation solidary, that refers to the tie between the parties
is to perform or render a service or an obligation to while when we talk about it being divisible or
do, then it would depend on whether it can be
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indivisible, we actually look into the object of the
obligation. Article 1224 brings about an obligation Why is this example indivisible?
that is joint but indivisible — a joint indivisible
obligation. Because when you look at the object of the
obligation, it is the giving of a definite thing that
Your Article 1224 is actually very much related to by nature cannot be divided and that is the
Article 1209 of the Civil Code that talks about joint measure being given by article 1225. So, A and B
and solidary obligations. being bound or being liable to deliver a particular
car to X, that is a joint indivisible obligation.
Again, when we talk about it being joint or
solidary, it talks about the tie between the parties, Supposing the debt is now due and demandable,
and very basic is the principle in a joint obligation and X now demands the delivery of that particular
where we say that the debtors are on its own. car. A is willing and ready to comply with his
obligation but B refuses to comply. Because there is
In other words, if one of the debtors becomes already a demand that was made by X, it is now in
insolvent, the other debtors will not be liable for incumbent upon A and B to deliver but then again
his share. That's why we have that principle to as I’ve mentioned A is willing to comply but B
each his own in joint obligations, such that if one of refuses to comply.
the debtors would be in delay then the other
debtors will not be liable for damages as opposed As I have already explained, if there is already a
to a solidary liability where the principle behind it demand and you do not comply, then there is
is the act of one is the act of all. So if one is already delay. If you are in delay, then you are
negligent or if one incurs delay, then all the other liable for damages.
solidarity debtors shall be liable for damages.
Question: If they cannot deliver the particular car
In article 1224, it speaks of an obligation being because B refuses to comply with this obligation
joint. The principle behind the tie between the can A be made liable rather for damages?
debtors would now be to each his own but the
obligation is indivisible, meaning the nature of Article 1224 says the debtors who may have been
the object of the obligation is indivisible. ready to fulfill their promises shall not contribute
to the indemnity beyond the corresponding
Example: A and B bound themselves jointly to portion of the price of the thing or of the value of
deliver a particular car to X. So A and B now the service in which the obligation consists.
agreed that their liability is joined.
In other words, the principle behind it is to each It tells you that A cannot be made liable for
his own, if B becomes insolvent then A will not be damages because he was willing to comply with
burdened by his share. If B incurs delay, then A the obligation. It shall only be B who shall be liable
will not also be liable. for damages. Because it is an indivisible obligation
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17
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and because one of the joint debtors is not willing the corresponding portion of the liability and that
to comply, then the delivery of that particular car is your share without paying damages.
cannot be done anymore.
Another important thing to remember when we
Question: What happens now to the obligation? talk about divisible and indivisible obligations is
that it is not required that if it's an indivisible
The obligation becomes a monetary liability obligation that there must only be one debtor or
because they can no longer deliver that particular one creditor nor does it require two or more
car since one of the debtors is unwilling. Article debtors in a divisible obligation. When we talk
1224 says that the debtor who was willing shall about the number of debtors or creditors that
only be liable to contribute to the corresponding would pertain to it being joint or solidary but that
portion of the price of the thing that they have does not affect the divisibility or the indivisibility
promised. of the obligation.
Let's say the car is worth two million, then he is

only liable to pay 1 million pesos, his share in the VI. OBLIGATION WITH A PENAL CLAUSE
joint obligation. But B on the other hand, the one
Obligation with a penal clause is covered by just
who refused to comply, shall be liable to pay his
five provisions of your civil code– that's articles
corresponding portion which is also 1 million
1226- 1230.
plus damages. That is what is meant by Article
1224.
An obligation with a penal clause is an obligation
The reason behind the law for not letting A
that has with it an accessory undertaking that tells
shoulder any part of the indemnity is because the
the debtor that if he fails to comply with the
obligation is joint. Again, the principle behind a
obligation or what is incumbent upon him or he
joint obligation is to each his own. So there are as
fails to comply with his promise then he shall be
many debts as there are debtors. The debts of A
liable for the penalty.
are his, while the debts of B are his. If B defaults
What do you think is the purpose of a penalty?
in his obligation, then A should not be punished
Why do parties to an obligation agree to have a
for it.
penalty? There are actually three reasons behind
having a penalty.
That is the reason why A cannot be made liable for
a. First is to ensure the performance of the
damages for the default that was committed by B,
obligation
it shall only be B who will be liable for damages.
How can a penalty ensure the performance
But of course since A obliged himself to deliver a
of an obligation? A penalty can ensure the
particular car, which now cannot be delivered
performance of an obligation because it
because of B, Article 1224 says it's okay just deliver
discourages the debtor from not fulfilling
his obligation. Why does it discourage the
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debtor? It discourages him because his expressly reserved for him. What does that mean.?
obligation now becomes more burdensome. This means that as a general rule, he cannot opt to
There is now another undertaking that he just pay the penalty so that he will not fulfill his
must comply with because he failed to obligation.
fulfill his obligation. XPN: If both the debtor and the creditor have
agreed that he can opt to just pay the penalty
b. Second is to liquidate the damages that is without paying for or without fulfilling his
suffered by your injured party due to the obligation.
non-fulfillment of the debtor of his
obligation Q: How about the creditor? Can he demand for
the fulfillment of the obligation plus the payment
c. Third is to punish the debtor for failing to of the penalty? The answer to that is still in article
comply with his obligation 1227
Q: Can the debtor exempt himself from the A: “Neither can the creditor demand the
payment or from the fulfillment of his obligation fulfillment of the obligation and the satisfaction
by telling the creditor that he will not pay because rather of the penalty at the same time unless this
he will just pay the penalty? The answer is in right has been clearly granted him.” IOW, the
article 1227 of your civil code. general rule is that no he cannot demand for the
fulfillment of the obligation plus the penalty.
XPN: When the parties have agreed that he may do
so.
Article 1227. The debtor cannot exempt himself
from the performance of the obligation by paying
The last statement of article 1227 says, “however if
the penalty, save in the case where this right has
after the creditor has decided to require the
been expressly reserved for him. Neither can the
fulfillment of the obligation, the performance
creditor demand the fulfillment of the obligation
thereof should become impossible without his
and the satisfaction of the penalty at the same
fault, the penalty may be enforced.” Here, this tells
time, unless this right has been clearly granted
you that if it is without the fault of the creditor and
him. However, if after the creditor has decided to
the obligation cannot anymore be fulfilled, then it
require the fulfillment of the obligation, the
is his right to enforce the penalty.
performance thereof should become impossible
without his fault, the penalty may be enforced
Q: Now supposing the debtor fails to fulfill his

obligation and now the creditor is not enforcing
A: The debtor cannot exempt himself from the the penalty as is his right to enforce it, can the
performance of the obligation by paying the debtor refuse to pay the penalty because the
penalty– saving the case where this right has been creditor could not show proof that he suffered
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damage from the failure to comply with the
obligation by the debtor? Illustration
A: No. This is under Art 1228. Obligation to pay P50,000 but you were only able
to pay P30,000.
Art 1228. . Proof of actual damages suffered by
If there is a penalty the courts may reduce it
the creditor is not necessary in order that the
because there was already partial compliance.
penalty may be demanded.
Illustration
This means that what the creditor just needs to Agreement to paint your house cream but the
prove to enforce the penalty is that the obliger or painter painted it green.
the debtor failed to comply with his obligation. He
need not offer proof that he in fact suffered There was compliance but it was irregularly
damages from the non-fulfillment of the debtor. In complied with. The penalty may also be reduced
fact, one of the purposes or reasons why there is a by the court.
penalty is to liquidate the damages that the
creditor may have suffered. And that liquidation of 2. Penalty is iniquitous, unconscionable,
damages will already take the place of proof of or shocking to the conscience of
actual damages that may be suffered by the men.
creditor. So he need not prove damages to enforce
the penalty. Is there a standard yardstick to determine if the
penalty is unconscionable? No.
Now let's move on to article 1229. Your article 1229 When you revisit cases on obligations with a penal
gives you circumstances or instances where the clause you will see that there is no common
courts may reduce the penalty standard measure.
When are those circumstances? Why? Because it depends on the circumstances of

Art 1129. Civil Code. The judge shall equitably each case. Each case is unique when you talk about
reduce the penalty when the principal obligation penalties.
has been partly or irregularly complied with by
the debtor. Even if there has been no In one case the SC would decide that a 5% monthly
performance, the penalty may also be reduced by interest is unconscionable but in another case, it
the courts if it is iniquitous or unconscionable. would say that it is not. It really depends on the
circumstances of each case.
Even if the penalty is agreed upon, the courts may

reduce it when:
1. Irregular or incomplete fulfillment.
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It will now have to be exercised with reasonable
discretion by the court, looking into the Will it affect the principal obligation? No.
circumstance of the case.
Illustration
● Principal obligation - sell prohibited drugs
Art. 1230. Civil Code. The nullity of the penal
● Penalty - P100,000
clause does not carry with it that of the principal
obligation.
Here the principal obligation is void - selling
prohibited drugs.
The nullity of the principal obligation carries
with it that of the penal clause.
The penalty, in itself, is valid because it is just a
payment of money. But Art. 1230 says if the
The accessory follows the principal. principal obligation is void, then the accessory
penalty is also void.
If the principal obligation is void, then the
accessory obligation is void.
VII. JOINT OBLIGATION AND SOLIDARY
In the reverse, If the accessory obligation is void, it OBLIGATION
will not affect the principal obligation.
Why is this principle important in the discussion of

Art. 1230? Art. 1207 The concurrence of 2 or more
creditors or of 2 or more debtors in one and
Answer: Because a penal clause is an accessory the same obligation does not imply that
undertaking, it is an accessory obligation. Such each one of the former has a right to
that if the principal obligation is void, then the demand, or that each one of the latter is
accessory penal clause/penalty is void. However if bound to render, entire compliance with the
it is the reverse and it is the penal clause that is prestations. There is a solidary liability only
void, it does not affect the principal obligation, it when the obligation expressly so states, or
subsists. when the law or the nature of the obligation
requires solidarity.
Illustration
● Principal Obligation- P100,000 debt
● Penalty - sell prohibited drugs It is the concurrence of 2 or more debtors or 2 or
more creditors.
The principal obligation, which is P100,000, is a
valid obligation. But the penalty (selling of It could be 2 or more debtors and one creditor. It
could be the reverse with 1 debtor and 2 or more
prohibited drugs) is VOID.
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creditors. Or it could be the concurrence of 2 or If it is not clear, choose the less burdensome
more debtors and 2 or more creditors liability.
It could be a concurrence of 2 or more debtors or

of 2 or more creditors.
Illustration (2 or more creditors)

Joint Solidary D is indebted to X & Y for P300,000.
There are as many The act of one is the
debts as there are act of all If joint - 2 obligations (D-X, D-Y)
debtors X can only demand 150,000 from D and Y can only
demand 150,000
There are as many
credits as there are Illustration (2 or more debtors)
creditors
A is liable to B & C for P500,000
This is a joint obligation because there is no

There are several There is only one debt stipulation that this is solidary.
debts
If joint – 2 obligations (A-B, A-C)
There are as many debts as there are debtors and
The first part of 1207 refers to Joint Obligation
because you are not expected to comply with the credits as there are creditors.
entire prestation because there are as many debts
as there are debtors. Since this is a joint obligation, B & C can only
demand their proportionate share which is
The 2nd part talks about solidary obligation. P250,000 each.
GR: Joint obligation

If there is nothing that implies solidarity then it is Art. 1208. If from the law, or the nature or the
joint. wording of the obligations to which the preceding
article refers the contrary does not appear, the credit
Reason: It is less burdensome.
or debt shall be presumed to be divided into as many
There is only solidary obligation when: shares as there are creditors or debtors, the credits or
1. only when the obligation expressly so debts being considered distinct from one another,
states; or subject to the Rules of Court governing the
2. when the law; or multiplicity of suits. (1138a)
3. the nature of the obligation requires
solidarity
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if it is not expressly agreed on, or when the law or Obligations: A to W; A to X; A to Y; A to Z. B to W;
nature of the obligation does not require solidarity, B to X; B to Y; B to Z… and so on.
it is presumed as joint.
Discussion:
Presumed as joint - the credit or debt shall be
presumed to be divided as many equal shares as This is what it means when it says “each of the
there are creditors or debtors. The credits or debts debtor will be liable only for the proportionate part
are distinct from one another subject to the rules of the debt; and the creditor shall only claim of the
governing multiplicity of suits. proportionate part of the credit”.
What principles do you find there? (Referring to There are as many debts as there are debtors and
the provision) creditors, because A’s liability is to W, to X, to Y
and Z and so on with B and C which gives you 12
- First, it is presumed joint if it does not obligations.
fall in any of the exceptions expressly
making it solidary, then the default is Cont.
i.e., it is joint.
Q: Based on that, earlier we said it was 120k, how
Again, in joint obligations the creditor is entitled much then can W demand from A?
only to the proportionate part of the credit and the
debtor is liable only to the proportionate part of the A: 10k.
debt.
120k divided by 4 = 30K on this side (referring to
Principle behind joint obligation: “To each of his the debtors)
own.”
So, A’s debt is 40k. 10k each to W, X, Y and Z.
Contrary to solidary obligation = “All for one, one (same process with B and C).
for all”. (lisod e put into words hehe)
Illustration Q: So with that, what principle does that tell you?
A B and C made themselves liable and promised to A: That the debts and credits are considered
pay 120k to W X Y and Z. separate and distinct from the other. One debtor
being liable to all four creditors. And subject to the
Q: How many debts do you see? multiplicity of suits.
A: 12. Since, there are as many obligations as there
are creditors and debtors. SOLIDARY OBLIGATION
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- The principle behind is “one for all and all A: In this case, it is because they are joint debtors.
for one”, meaning it is considered as one Hence, you first have to divide the entirety of the
obligation. debt by the number of joint debtors - in this case,
three (3). So, each of them only owes Php 40,000.00
Q: If A promises to pay 100,000 to Y and Z. How to either Y or Z.
many obligations?
Discussion: Again, we divide on the side where
A: One. it’s joint. So, Y can demand only Php 40,000.00
from any of the debtors.
Q: If that is one obligation, how much can Y
demand from A?
Article 1209. If the division is impossible, the
right of the creditors may be prejudiced only by
A: The entire 100,000. As opposed to joint their collective acts, and the debt can be enforced
obligation where Y can only demand 50,000 from only by proceeding against all the debtors. If one
A. of the latter should be insolvent, the others shall
not be liable for his share.
Q: A, B and C promised to pay 100,000 to Y and Z.
How much can Y demand from A? Discussion: Article 1209 tells you that even if the
prestation is indivisible, the obligation can still be
A: The entire 100,000. joint.
Q: A, B and C (solidary debtors) obliged Illustration: A and B obliged themselves to deliver

themselves to pay 120,000 to Y and Z ( joint a car to X.
creditors). How much can Y demand from A?
Q: How will X collect from the obligation when
A: 60,000 from any of the debtors because of their this is a joint indivisible obligation?
solidary relationship (In this example, the only side
where you have to divide is the JOINT) A: Article 1209 says that X has to demand from
both debtors.
Q: A, B, C (joint debtors) obliged themselves to pay
120, 000 to Y and Z (solidary creditors)? How Discussion: The only way to deliver a car is for
much can Y demand from A? both A and B to deliver it - because you cannot
deliver the car in halves. The only way to comply
A: Y can demand from A the amount of Php with the obligation is to deliver the entire car.
40,000.00.
Q: How do you make that obligation be fulfilled by
Q: Why Php 40,000.00? the joint debtors?
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A: You have to demand from all of them, as It being divisible or indivisible, does not affect it
provided by Article 1209. being joint or solidary and vice versa. It being joint
or solidary, does not affect the nature of the
Q: What happens if A is insolvent? prestation/object.
A: Since the car cannot be delivered, it will become

Article 1211. Solidarity may exist although the
a claim for damages - so X must demand his share creditors and the debtors may not be bound in
in monetary damages. the same manner and by the same periods and
conditions.
Discussion: If the car they had agreed on was
worth Php 1,000,000.00 and A is insolvent - since Illustration: A, B and C made themselves
this is joint, B should not be liable for the share of solidarily liable to X for P90,000. In their
A. agreement:
So, B is still liable for his share - which is now 1) A will pay on January 5, 2023
converted into a monetary one. This means he is 2) B will pay if B passes the 2022 Bar
liable to deliver Php 500,000.00. Exams
3) C will pay if his only pet cat dies
Note: B cannot be demanded to pay the share of A
since the obligation is joint. Atty: How does this affect it being a solidary
obligation upon the arrival of January 5, 2023?
Article 1210. The indivisibility of an obligation How much can X demand from B?
does not necessarily give rise to solidarity. Nor
does solidarity of itself imply indivisibility. Student: X may demand A’s share from B because
it is a solidary liability. A’s liability has already
Discussion: When you talk about an obligation accrued on January 5, 2023.
being joint/solidary, it refers to the relationship or
nature of the obligation. On the other hand, when TN: Even if each of them are subject to different
you talk about divisibility/indivisibility, it talks terms and conditions, they can still be made liable
about the prestation itself. That’s why we said that to X for the share of another solidary debtor. If one
the prestation is indivisible (in the earlier of the solidary debtors' share is already due and
illustration). If it’s money = divisible, if it’s a car = demandable, then any of them will have to pay
indivisible. even if their share is not yet due and demandable.
While, when you talk about divisibility or So when January 5, 2023 arrives and the results of
indivisibility, it talks about the prestation itself. the 2022 Bar exams has not been released yet and
the cat is still alive, even though both of their
shares are not yet due but since the obligation is
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solidary, X can demand from either of them to pay Another example: A and B are solidarily liable to
the share/obligation of the one that is already due C, D and E who are likewise solidary creditors, for
and demandable. 300K.
In our example, January 5, 2023 is the period when If C will do anything which is beneficial to D and
A’s due becomes due and demandable. E, like demanding payment then it will also benefit
D and E. But if C does anything prejudicial like
Passive Solidarity condoning the debt.
- It means solidarity among co-debtors
while Remember, once he condones the debt of A and B,
that means they are no longer liable because the act
Active Solidarity of one is the act of all. On the part of the solidary
- It means solidarity among co-creditors. debtors, they no longer have a debt. But since C
- condoned it without the consent of D and E, C will
ATTY: For you to vividly remember the difference be the one to pay what supposedly, D and E will
between the two, when you say ACTIVE, this receive from A and B.
refers to the Creditor being active in collecting the
debt. So, while the nature of the relationship or
relationship among themselves is solidary, they
have shares actually. So the 300,000 is supposedly
Article 1212. Each one of the solidary creditors
may do whatever may be useful to the others shared by the three. But when C condoned the
but not anything which may be prejudicial to the 300k, he condoned everything because it is a
latter. solidary obligation, prejudicial to D and E. Even if
D and E wants to collect, they cannot collect
Explanation: anymore because it will bind them as against A
and B. But to be fair, you have this provision of law
that protects other creditors from prejudicial acts of
Again, the act of one is the act of all. If it is another solidary creditors.
beneficial, then it benefits all. If it is prejudicial, the Now, C will have to pay 100k to D and 100k to E.
only one who will be affected is the solidary
creditor who did the prejudicial act. Article 1213. A solidary creditor cannot assign
his rights without the consent of the others.
Example: If one of the solidary creditors condones
the debt of the debtor. This is prejudicial to the
other solidary creditor. Although the debt is Q: Why is that? What’s the reason behind that?
extinguished, the creditor who condoned the debt
will now be liable to the other creditor. A: Because the relationship of solidary creditors is
similar to that of a mutual agency. They cannot act
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to the prejudice of others. They established their Atty: I don’t agree with that because the creditor is
relationship based on trust and they cannot just already demanding the solidary debtor, judicial or
introduce another people to the relationship. extrajudicial, then it should be made to him.
Unless, if payment is made prior to the demand
Atty: It is based on trust. “The act of one is the act and it was accepted because that would be a
of all”. C cannot just simply assign it to X different scenario because payment was made
(stranger) without the consent of D and E because before any demand was made so you can just pay
D and E might not trust X. to anyone. But if any demand, judicial or
extrajudicial, the law is very clear, that payment
Q: But what if C assigns his right to D (co-creditor). must be made to that demanding solidary creditor.
Does he need the consent of E (another
co-creditor)? If there is already a demanding solidary creditor,
whether judicial or extrajudicial, then it (payment)
A: Not needed.
should be made to him.
Atty: Because the reason behind the law is not
If payment was made prior to the demand and it
present. The reason is that you must trust the
was accepted, this would be a different scenario
assignee. But since here, there is already trust, no
because payment was made before any demand, so
need. So, if the rights of C is assigned to D (existing
you could just pay anyone.
solidary creditor) then it need not get the consent
of other solidary creditor.
Illustration:
A is indebted to Y and Z, in the amount of
Article 1214. The debtor may pay any one of the P100,000. A can pay the P100,000 to either if there
solidary creditors; but if any demand, judicial or
was no demand yet. But if there was already
extrajudicial, has been made by one of them,
demand, e.g. Y demanded payment, then A should
payment should be made to him.
pay Y.
ARTICLE 1215. Novation, compensation,

Atty: The debtor may pay any one of the solidary confusion or remission of the debt, made by any of
creditors. So in our example, A may pay D or E. the solidary creditors or with any of the solidary
But if any demand, judicial or extrajudicial, has debtors, shall extinguish the obligation, without
been made by one of them, payment should be prejudice to the provisions of article 1219.
made to him.
The creditor who may have executed any of these
There is an author who says otherwise. This author acts, as well as he who collects the debt, shall be
said that anyone can pay even if another creditor liable to the others for the share in the obligation
has already demanded. corresponding to them. (1143)
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Condonation - will extinguish obligation, without A obliges himself to pay P100,000 to Y and Z. Y is
prejudice to Art. 1219. also indebted to A so he also pays P100,000 to A.
Novation - change of terms and conditions of a Q: What happens to the obligation between A
contract or change of debtors or change of creditors and Y?
● If prejudicial - solidary creditor who
effected the novation shall reimburse the Compensation takes place between A and Y. Here,
others for damages incurred by them since the obligation of A to Y and Z is
● If beneficial - creditor effecting the novation extinguished. This gives Z the right to demand
who was able to secure the fulfillment of from Y 50,000 since the obligation was
the new obligation shall be liable to the extinguished by Y.
others for the share which corresponds to
them, not only in the obligation but also in Example No. 2:
the benefits
A Y A
Compensation - when the creditors owes the and Z
debtor, and the debtor owes the creditor; amount (solidary creditors)
owed is the same and both are due and
demandable A obliges himself to pay P100,000 to Y and Z. Y is
also indebted to A so the former assigns his credit
Confusion - the rights of a creditor and debtor are to the latter.
in one and the same person
Q: What is confusion? Q: What happens to the obligation when Y

assigned his credit A?
A: When the rights of a debtor and creditor are
found in one and the same person. A: Confusion takes place and extinguishes the
obligation of the solidary creditors. Z is alkansi so
The next two (2) examples will show the he can collect from his fellow creditor, Y, who
distinction between compensation and confusion. caused the confusion.
Example No. 1: Q: How much can Z collect from Y?
A → Y → A A: He can collect P50,000, Atty.

and Z
(solidary creditors)
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Art. 1216. The creditor may proceed against promissory note was the petitioner Palmares.
anyone of the solidary debtors or some or all of Because of the insolvency of the spouses, the
them simultaneously. The demand made against creditor demanded the full payment of their
one of them shall not be an obstacle to those debt from Palmares. But here, Palmares was
which may subsequently be directed against the saying that she is not liable as a solidary debtor
others, so long as the debt has not been fully because there was a confusion in the promissory
collected. note. In the second paragraph of the PN, it says
that she was a surety, but in the third paragraph
it said that she was only liable as a guarantor.
“The creditor may proceed against anyone of the
solidary debtors or some or all of them simultaneously.” Issue: W/N Palmares is solidarily liable with the
This is basically the crux of what solidary spouse Azarraga.
obligations are. You can demand from only one,
from some, or from all of them, depending on the Held: Yes. Under the law, if there are words or
creditor. terms that specify that the obligation is a
solidary one, then that is the liability.
“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 MBL: If there are words that have been used in the
collected.” agreement implying solidarity, like using the
phrase “jointly and severally” or “solidary”, or
Example: Y and Z are indebted to A for P100,000. using the pronoun “I” in referring to many of you
A can demand payment from either Y or Z. instead of using “we”.
Q: If A demands from Y, and Y only pays P70,000, Or using the pronoun “I” to refer to many of you
can A still go after Z? instead of we. “I promise to pay” unya daghan mo
nipirma, referring yourself as one. If there are
A: Yes, as long as the debt has not been fully words that clearly express the nature of obligation
collected. The demand made against one of them as solidary, then you have no choice. You cannot
shall not be an obstacle to those which may refuse to pay because you bound yourself
subsequently be directed against the others. solitarily.
Palmares v. CA In Palmares, the SC said that in suretyship, there is

but one contract and the surety is bound by the
same agreement which binds the principal.
Facts: The creditor was M.B. Lending
Demand to the sureties is not necessary or may not
Corporation who extended a P30,000 loan to the
be pursued against them since the commencement
spouses Azarraga, and the co-maker of their
of the suit is already sufficient demand. A surety is
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not even entitled, as a matter of right, to be given If there are two or more demands, then payment
notice of the principal's default. shall be made to the first who demanded. Priority
in time is priority in right.
Art. 1217 Payment made by one of the solidary
If the demands were made at the same time, then
debtors extinguishes the obligation. If two or
the debtor may just choose who to pay.
more solidary debtors offer to pay, the creditor
If one of the solidary debtors will fully pay, then
may choose which offer to accept. xx
the obligation is extinguished.
MBL: it being solidary, take note that the act of one The paying debtor is entitled to reimbursement
is the act of all. from his co-solidary debtors.
Example: If there is a solidary co-debtor is who is insolvent,

If A and B solidarily owes C, and both solidary his share shall be shouldered by the solvent
debtors offer to pay C, C may choose which solidary co-debtor
payment between A and B he wants to accept. The
obligation will then be extinguished once the Example: A, B, C, and D are indebted to X,
creditor accepts payment from whoever he chooses P400,000.
to.
Since it’s solidary, any of the solidary debtor can
Art. 1217. xx pay. But if one of the solidary debtors will pay the
He who made the payment may claim from his P400,000, he’s entitled to reimbursement.
co-debtors only the share which corresponds to
each, with the interest for the payment already So, if he paid P400,000, this obligation is already
made. If the payment is made before the debt is extinguished. But because of such extinguishment,
due, no interest for the intervening period may there are other obligations that were created.
be demanded.
Q: What obligations were these?
When one of the solidary debtors cannot,
because of his insolvency, reimburse his share to A: Obligation of B to A, C to A and D to A.
the debtor paying the obligation, such share
shall be borne by all his codebtors, in proportion Q: Why?
to the debt of each.
A: Because he has to be reimbursed. Sila man tanan
ang nangutang. Only that, he was the one who
MBL: to whom shall the solidary debtor pay? To
paid.
any of the Solidary Creditors. If thre was a
demand, then payment shall be made to the
demanding creditor.
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So, the P400,000 will be divided into 4. They are Q: Does that mean that B will no longer pay?
supposed to be liable for P100,000 each.
A: No. If his circumstances will improve, he will
Remember that A is also indebted. His share is have to pay. So mag abang nalang si A, C and D
P100,000. So the reimbursement to him should kung kanus-a mupost si B na nagbakasyon na sya.
only be P300,000.
That is also a remedy for those who shouldered the
Q: Where did we get the P300,000? share of the insolvent debtor. Just because you’re
insolvent or your share will be shouldered by the
A: P100,000 from B, C, D. rest, that does not mean that you are no longer
liable.
Art. 1217. xxx When one of the solidary debtors
cannot, because of his insolvency, reimburse his You will still be liable. It is now up to the absorbing
share to the debtor paying the obligation, such debtors to look whether, “Okay naba ni sya?
share shall be borne by all his codebtors, in Pwede naba ni nato sya mapaninglan?”
proportion to the debt of each.
So, that is your Article 1217.
Q: What happens if B is insolvent?
Art. 1218. Payment by a solidary debtor shall not
A: If B is insolvent and it is solidary, then his share entitle him to reimbursement from his
will be borne by others. If these were joint, bahala co-debtors if such payment is made after the
naka sa imong life. Wa koy labot nimo. obligation has prescribed or become illegal.
If it’s solidary, the share of the solidary debtor will Q: Why?

have to be shared by all of them. That’s P100,000. It
must be shared by all of them, meaning, including A: Because you’re not supposed to pay anymore.
A who paid. In other words, the law is telling you na as a
solidary debtor, gi-danghag ka (?), ayaw
So, P100,000 divided 3 is P33,333 each. pangamong. You paid when you’re no longer
supposed to pay.
Q: How much will C reimburse A?
Supposedly, wala najud unta mo’y utang but since
P133,333. Na-shoulder na ang P100,000 ni B. And you paid, you cannot collect reimbursement from
of course, A has to absorb also, even if he was the the others because that is your fault.
one who paid.
Art 1219. The remission made by the creditor of

In effect, the P400,000 will just be divided into 3.
the share which affects one of the solidary
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31
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debtors does not release the latter from his be extinguished.

responsibility towards the co-debtors, in case the
debt had been totally paid by anyone of them
before the remission was effected. Example: They obliged themselves to deliver a
specific car and then the car got totally wrecked
due to a supertyphoon, not due to their fault,
A, B and C are solidarily liable to Z for 120,000. Z
obligation is totally extinguished.
condones the share of B which is 40,000. However,
such condonation came after A paid the obligation.
The law says that B will still have to pay his share Art 1221(2). If there was fault on the part of any
of 40,000 to A because when the remission one of them, all shall be responsible to the
creditor, for the price and the payment of
happened, the debt was already extinguished.
damages and interest, without prejudice to their
action against the guilty or negligent debtor.
Art 1220. The remission of the whole obligation,
obtained by one of the solidary debtors, does not What does that mean?
entitle him to reimbursement from his
co-debtors.
Example: A, B, and C oblige themselves to deliver
a particular car to X. A used the car to go
Example: The debt is 300,000. Just because A drag-racing. If the car is lost due to A’s fault or
successfully got the debt condoned, that does not negligence, does that extinguish the obligation?
give him the right to collect from B and C because
the debt is already extinguished. Even if it was A: No, because it is not a fortuitous event. It is now
through his efforts that the debt has been converted into a monetary obligation.
extinguished. He cannot get the supposed shares
of his co-debtors because there is already an If the value of the car was P1,200,000, the total
extinguishment of obligation. amount plus damages must be paid to X. Who will
pay, since the obligation is solidary?
Example: A, B, C obliged themselves to pay
300,000 to Z. A was able to convince Z to condone A: A, B, or C.
the entire debt.
The parties agreed that the damages amounted to
Q: Can A collect B and C’s shares? P300,000. So the total amount payable to X is
A: Not anymore. P1,500,000. If B pays, he is entitled to be
reimbursed, pursuant to Art. 1221. How much can
Art 1221(1). If the thing has been lost or if the he then collect from A and C?
prestation has become impossible without the
fault of the solidary debtors, the obligation shall
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A: B can collect P400,000 from C, and another As against the creditor, they will have to pay
P400,000 from A. The damages amounting to regardless of whoever will pay. So even if B is not
P500,000 shall be collected from A, being the party at fault he has to pay everything — the value of the
at fault. prestation plus damages. B can collect
reimbursement from A the amount of his share of
B - paid 1,500,000 to X the prestation plus damages because he is at fault.
C - pay 400,000 to B That is why it is P1.2 Million shared by A, B, and C
A - pay 900,000 (400,000 + 500,000) to B — P400,000.00 each. Then there is damage
amounting to P300,000.00 which will be paid by
the negligent debtor who is A. So B can collect
ARTICLE 1221. If the thing has been lost or if
P700,000.00 from A, and only P400,000.00 from C.
the prestation has become impossible without
the fault of the solidary debtors, the obligation
shall be extinguished. ARTICLE 1222. A solidary debtor may, in
actions filed by the creditor, avail himself of all
If there was fault on the part of any one of defenses which are derived from the nature of
them, all shall be responsible to the creditor, the obligation and of those which are personal to
for the price and the payment of damages and him, or pertain to his own share. With respect to
interest, without prejudice to their action those which personally belong to the others, he
against the guilty or negligent debtor. may avail himself thereof only as regards that
part of the debt for which the latter are
If through a fortuitous event, the thing is lost or responsible.
the performance has become impossible after
one of the solidary debtors has incurred in delay
through the judicial or extrajudicial demand
Example:
upon him by the creditor, the provisions of the
preceding paragraph shall apply. (1147a)
A, B & C solidary debtors to X in the amount of
P60,000. A is 17 years old.
Based on the second paragraph of Article 1221, If X demands from A, if you are the lawyer of A,
since A is the negligent debtor, he will be the only what will you tell A?
one responsible for the damages. The P1,200,000.00
will be divided among A, B, and C. B can collect Answer: On the part of A, it is a complete defense
P400,000.00 from A, plus the amount of damages that he or she is still a minor. This is a real defense
which is P300,00.00 for a total of P700,000.00. B can as to the minor.
collect from C P400,000.00 only.
Now, if X makes a demand against B?
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33
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Answer: B can interpose the minority of A so that
liable with Philfinance and Delta when Pilipinas
he will not pay the share of A and pay only
issued the DCR.
P40,000.. He can also use defenses of A but only to
the extent of the proportion of the share of A. RULING:
60,000 man divided by 3, minor man siya (referring
to A), B can say “okay I will pay, but I will not pay NO. There is nothing in the DCR that establishes
A’s share because he is not supposed to be liable. an obligation on the part of Pilipinas to pay
That is what is meant by Article 1222. petitioner the said amount. There is nothing
written on the DCR which could be read as
converting Pilipinas into an obligor under the
SESBRENO VS CA
G.R. No. 89252, May 24, 1993, 222 SCRA 466 terms of the DMC assigned to petitioner, either
upon maturity thereof or at any other time.
FACTS
Under Art. 1207, "there is a solidary liability only
Sesbreno made a money market placement in when the obligation expressly so states, or when
the amount of P300,000 with PhilFinance. the law or the nature of the obligation requires
solidarity."
PhilFinance issued to Sesbreno the Certificate of
Securities Delivery Receipt indicating the sale of The record exhibits no express assumption of
the Note with notation that said security was in solidary liability vis-a-vis petitioner, on the part
the custody of Pilipinas Bank. Later, Philfinance of Pilipinas.
delivered to petitioner the DCR No. 10805 issued
by private respondent Pilipinas Bank. MBL: Here the Supreme Court said that nothing
in the document would tell you that Pilipinas
Petitioner approached Ms. de Villa of private had assumed solidary liability. The SC also said
respondent Pilipinas, and handed her a demand that you have not shown a law that would say
letter informing the bank that his placement that there was solidary liability. What did we
with Philfinance in the amount reflected in the say? There is only solidary liability when the
DCR had remained unpaid and that he in effect obligation expressly so states or when the law
was asking for the physical delivery of the expressly so provides or by the nature of the
underlying promissory note. But Pilipinas did obligation requires solidarity.
not deliver the Note.
Due to this, petitioner filed an action for

damages against private respondents and
claimed that Pilipinas Bank became solidarily There is nothing in the document that states that
liable when it issued the DCR. Pilipinas assumes solidary liability with
Philfinance and Delta Motors. Petitioner has not
ISSUE: Whether Pilipinas became solidarily
also shown any law that makes Pilipinas solidarily
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34
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liable. Remember the rule that there is only
PNB. The 6 brothers and sisters appealed saying
solidary liability if:
that under the special power of attorney, they
had not given their brother, Maximo, the
a. The obligation so provides or
authority to borrow money but only to mortgage
b. The law or the nature of the obligation requires the real estate jointly owned by them; They
solidary liability. further contended that they did not benefit
whatsoever from the loans, and that the plaintiff
bank's only recourse against them is to foreclose
on the property which they had authorized
PNB v STA MARIA
Maximo to mortgage.
G.R. No. L-24765, Aug. 29, 1969, 29 SCRA 303
ISSUE: Whether the siblings are solidarily liable
FACTS with Maximo?
PNB filed an action for the collection of certain RULING: No, except for Valeriana Sta. Maria.
amounts representing unpaid balances on two
The authority granted by defendants (except
agricultural sugar crop loans from defendants
Valeriana) unto their brother, Maximo, was
Maximo Sta. Maria and his 6 brothers and sisters
merely to mortgage the property jointly owned
and the Associated Insurance & Surety Co., Inc.
by them. They did not grant Maximo any
The sugar crop loans were obtained by Maximo authority to contract for any loans in their names
from PNB under a special power of attorney, and behalf. Maximo alone, with Valeriana who
executed in his favor by his 6 brothers and authorized him to borrow money, must answer
sisters to mortgage a 16- odd hectare parcel of for said loans and the other
land, jointly owned by all of them, located in defendants-appellants' only liability is that the
Bataan. In addition, Valeriana Sta. Maria alone real estate authorized by them to be mortgaged
was also executed in favor of her brother, would be subject to foreclosure and sale to
Maximo, a special power of attorney to borrow respond for the obligations contracted by
money and mortgage any real estate owned by her. Maximo. But they cannot be held personally
liable for the payment of such obligations, as
As security for the two loans, Maximo executed erroneously held by the trial court.
in his own name 2 chattel mortgages on the
However, valeriana stands liable not merely on
standing crops, guaranteed by surety bonds
the mortgage of her share in the property, but
executed by the Associated Insurance & Surety also for the loans which Maximo had obtained
Co., Inc. from PNB, since she had expressly granted
Maximo the authority to incur such loans.
Trial court rendered judgment ordering the Valeriana's liability for the loans secured by
defendants, (the Sta Maria Siblings and the Maximo is not joint and several or solidary as
Surety of Maximo). to jointly and severally pay adjudged by the trial court, but only joint,
pursuant to the provisions of Article 1207 of the
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35
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Civil Code that "the concurrence ... of two or charges or liabilities due and incurred by said
more debtors in one and the same obligation Celia Regala with the use of the Pacificard, or
does not imply that ... each one of the (debtors) renewals thereof, issued in her favor by the
is bound to render entire compliance with the PBC'.
prestation. There is a solidary liability only when
the obligation expressly states, or when the law The defendant Celia Regala had purchased
or the nature of the obligation requires goods and/or services on credit (under her
solidarity." It should be noted that in the Pacificard, for which the plaintiff advanced the
additional special power of attorney executed by cost amounting to P92,803.98 at the time of the
Valeriana, she did not grant Maximo the filing of the complaint.
authority to bind her solidarily with him on any
loans he might secure thereunder. In view of defendant Celia Regala's failure to
settle her account for the purchases made thru
MBL: The SC said you do not assume solidarity the use of the Pacificard, a written demand was
if you do not see that in any of the documents. In sent to the latter and also to the defendant
the documents presented, you have there a SPA Roberto Regala, Jr. under his 'Guarantor's
to borrow but it was a joint obligation because it Undertaking.'
does not expressly state solidarity. Again, if it
does not show whether it’s joint or solidary, you PBC filed a complaint considering defendants’
assume that it is joint because it is less repeated failure to settle their obligation. Celia
burdensome. Regala was declared in default for her failure to
file her answer within the reglementary period.
Defendant-appellant Roberto Regala, Jr. filed his

Pacific Banking Corp. vs. IAC & Regala Answer with Counterclaim admitting his
G.R. No. 72275, Nov. 13, 1991, 203 SCRA 496 execution of the 'Guarantor's Understanding, but
with the understanding that his liability would
FACTS: be limited to P2,000.00 per month.' "
Celia Regala applied for and obtained from ISSUE: Whether Roberto is jointly and severally
plaintiff a credit card, under the "Terms and liable to pay the principal obligation together
Conditions governing the Issuance and Use of with Celia.
Pacificard, a copy of which was issued to and
received by Regala on the date of the application RULING: Yes, the undertaking signed by
and expressly agreed that the use of the Roberto although denominated “Guarantor’s
Pacificard is governed by said Terms and Undertaking” was in substance a contract of
Conditions. surety.
Defendant Robert Regala Jr., spouse of Celia, In Guaranty, the guarantor binds himself to the
executed a “Guarantor’s Undertaking” in favor creditor to fulfill the obligation of the principal
of the Bank whereby he agreed 'jointly and debtor only in case the latter should fail to do so.
severally of Celia Regala, to pay the PBC upon While in surety, the surety binds himself
demand, any and all indebtedness, obligations, solidarily with the principal debtor.
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36
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latter in payment for foodstuffs delivered to and

As a surety Roberto bound himself jointly and received by them. The said checks were
severally with the debtor Celia Regala "to pay the dishonored by the drawee bank.
Pacific Banking Corporation upon demand, any and
all indebtedness, obligations, charges or liabilities due The decision of the court was based on the
and incurred by said Celia Syjuco Regala with the use compromise agreement submitted by the parties.
of Pacificard or renewals thereof issued in (her) favor A compromise agreement has been entered
by Pacific Banking Corporation." where Respondent Antonio P. So agrees to
reduce its total claim to only P110,000 .00.
It is likewise not disputed by the parties that the
credit limit granted to Celia Regala was Ronquillo, et. al. agreed to bind themselves to
P2,000.00 per month and that Celia Regala initially pay out of the total indebtedness of
succeeded in using the card beyond the original P110,000.00 the amount of P55,000.00 on or
period of its effectivity, October 29, 1979. before December 24, 1979, and the balance of
P55,000.00 to be paid individually and jointly.
We do not agree however, that Roberto Jr.'s
liability should be limited to that extent. Private Respondent Antonio P. So filed a Motion for
respondent Roberto Regala, Jr., as surety of his Execution on the failure of Ronquillo, et al. to
wife, expressly bound himself up to the extent of make the initial payment of P55,000.00 on or
Celia’s indebtedness. before December 24, 1979, as provided in the
Decision.
MBL: Here, SC said that the terms and
conditions clearly said that the obligation is Obligors Ronquillo and Pilar Tan tendered
solidary. The phrase used was “jointly and P13,750.00 each but was refused by Respondent
severally” which implies solidarity. As opposed Antonio P. So. Hence, the two instead deposited
to a guarantor, where the guarantor can only be the said amount with the Clerk of Court. The
made to pay after all of the assets of the debtor, other two obligors did not pay their shares.
that is not the same if you are a surety. Because a Respondent Antonio P. So again filed a motion
surety can be made liable directly. which resulted to the issuance of a writ of
execution for the satisfaction of the sum of
P82,500.00 as against the properties of Ronquillo,
et.al, "singly or jointly liable.”
Ronquillo vs. CA
However, Ronquillo raised the question of the
G.R. No. L-55138, Sept. 28, 1984, 132 SCRA 274
validity of the order of execution when the lower
court's decision based on the compromise
agreement did not specifically state the liability
FACTS:
of the four obligors to be solidary.
Respondent Antonio P. So filed an action for the
Issue: Whether or not Ronquillo and other
collection of money against Ronquillo, Offshore
Catertrade Inc., Johnny Tan and Pilar Tan. The obligors are solidarily liable.
amount of P117,498.98 sought to be collected
represents the value of the checks issued by the
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37
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Held: The obligation being described as "individually

and jointly", the same is therefore enforceable
Yes. Solidary. against one of the numerous obligors.
Art. 1207. The concurrence of two or more MBL:

debtors in one and the same obligation does not In here there’s another word that can be used to
imply that each one of the former has a right to express solidarity and that is the use of the word
demand, or that each one of the latter is bound “individually.” Again your solidarity is the act of
to render, entire compliance with the prestation. one is the act of all.
Then is a solidary liability only when the
obligation expressly so states, or when the law
or the nature of the obligation requires solidarity.
Quiombing v. CA
G.R. No. 93010, 30 August 1990
Art. 1208. If from the law, or the nature or the
wording of the obligation to which the
preceding article refers the contrary does not Facts:
appear, the credit or debt shall be presumed to
be divided into as many equal shares as there are On August 30, 1983, Nicencio Tan Quiombing
creditors and debtors, the credits or debts being and Dante Biscocho, as the First Party, jointly
considered distinct from one another, subject to and severally bound themselves in a
the Rules of Court governing the multiplicity of “Construction and Service Agreement” to
quits. construct a house for private respondents
Spouses Francisco and Manuelita Saligo, as the
Clearly then, by the express term of the Second Party, for the contract price of
compromise agreement and the decision based P137,940.00, which the latter agreed to pay. On
upon it, the defendants obligated themselves to October 10, 1984, Quiombing and Manuelita
pay their obligation "individually and jointly". Saligo entered into a second written agreement
under which the latter acknowledged the
The term "individually" has the same meaning completion of the house and undertook to pay
as "collectively", "separately", "distinctively", the balance of the contract price in the manner
respectively or "severally". An agreement to be prescribed in the said second agreement. On
"individually liable" undoubtedly creates a November 19, 1984, Manuelita Saligo signed a
several obligation, and a "several obligation is promissory note for P125,363.50 representing the
one by which one individual binds himself to amount still due from her and her husband,
perform the whole obligation. payable on or before December 31, 1984, to
Nicencio Tan Quiombing.
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38
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On October 9, 1986, Quiombing filed a each creditor may enforce the entire obligation,
complaint for recovery of the said amount, plus and each debtor may be obliged to pay it in full.
charges and interests, which the private
respondents had acknowledged and promised to The essence of active solidarity consists in the
pay but had not, despite repeated demands. authority of each creditor to claim and enforce
Instead of filing an answer, the defendants the rights of all, with the resulting obligation of
moved to dismiss the complaint on February 4, paying every one what belongs to him; there is
1987, contending that Biscocho was an no merger, much less a renunciation of rights,
indispensable party and therefore should have but only mutual representation.
been included as a co-plaintiff.
The question of who should sue the private
Issue: Whether or not one of the two solidary respondents was a personal issue between
creditors may sue by himself alone for the Quiombing and Biscocho in which the spouses
recovery of amounts due to both of them Saligo had no right to interfere. It did not matter
without joining the other creditor as a who as between them filed the complaint
co-plaintiff. because the private respondents were liable to
either of the two as a solidary creditor for the
Held: full amount of the debt. Full satisfaction of a
judgment obtained against them by Quiombing
Article 1212 of the Civil Code provides:
would discharge their obligation to Biscocho,
and vice versa; hence, it was not necessary for
Each one of the solidary creditors may do
both Quiombing and Biscocho to file the
whatever may be useful to the others, but not
complaint. Inclusion of Biscocho as a co-plaintiff,
anything which may be prejudice to the latter.
when Quiombing was competent to sue by
Suing for the recovery of the contract price is
himself alone, would be a useless formality.
certainly a useful act that Quiombing could do
by himself alone.
Parenthetically, it must be observed that the
complaint having been filed by the petitioner,
A joint obligation is one in which each of the
whatever amount is awarded against the debtor
debtors is liable only for a proportionate part of
must be paid exclusively to him, pursuant to
the debt, and each creditor is entitled only to a
Article 1214. This provision states that “the
proportionate part of the credit. A solidary
debtor may pay any of the solidary creditors; but
obligation is one in which each debtor is liable
if any demand, judicial or extrajudicial, has been
for the entire obligation, and each creditor is
made by any one of them, payment should be
entitled to demand the whole obligation. Hence,
made to him.
in the former, each creditor can recover only his
share of the obligation, and each debtor can be
made to pay only his part; whereas, in the latter,
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39
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If Quiombing eventually collects the amount Inciong, Jr vs. Court of Appeals

due from the solidary debtors, Biscocho may G.R. No. 96405. June 26, 1996
later claim his share thereof, but that decision is
for him alone to make. It will affect only the Facts: Inciong, with two other debtors, executed
petitioner as the other solidary creditor and not a promissory note for P50, 000 in favor of
the private respondents, who have absolutely PBCom for chainsaws for their logging
nothing to do with this matter. As far as they are businesss. They failed to pay and so PBCom
concerned, payment of the judgment debt to the filed a complaint against all three debtors. The
complainant will be considered payment to the case against the second debtor was dismissed
other solidary creditor even if the latter was not and the other debtor was in Saudi Arabia and so
a party to the suit. the court could not obtain jurisdiction over his
person. Thus, the proceeding against Inciong
Although he signed the original Construction was the only one that continued. Inciong argued
and Service Agreement, Biscocho need not be that the dismissal of the complaint against one of
included as a co-plaintiff in the complaint filed them (the principal debtor) and against his
by the petitioner against the private co-maker, constituted a release of his obligation,
respondents. Quiombing as solidary creditor can especially that the release of one of the solidary
by himself alone enforce payment of the debtors, was upon the motion of PBCom.
construction costs by the private respondents
Issue: Whether or not Inciong is indeed released
and as a solidary debtor may by himself alone be
from liability.
held liable for any possible breach of contract
that may be proved by the private respondents.
Held: No. Under the Civil Code, it is up to the
In either case, the participation of Biscocho is not
choice of the creditor which debtor to collect
at all necessary, much less indispensable.
from in a solidary obligation such as this one.
Here, the language of the contract showed that
MBL: Here the Supreme Court said that in a
Inciong is jointly and severally liable and the
solidary obligation anyone of the solidary
first sentence of his promissory note indicated
creditors can file a suit, you don’t have to
that the three of them jointly and severally
include all the solidary creditors, why? Because
promised to pay PBCom.
again the act of one is the act of all. While in a
joint obligation, to attain a complete resolution MBL: In this case the Supreme Court said, the
of the case, all the debtors and creditors must be choice is left to the solidary creditor to determine
impleaded, subject to the rules governing against whom he will enforce collection because
multiplicity of suits, in the final determination of as we said in a solidary obligation, one of the
the obligation. That’s the difference between the solidary creditors can file a suit or demand
two. payment from any of the solidary debtors
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40
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because they are considered as one—“one for all

and all for one”.
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41
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Q: Do you consider it as payment if the
obligation is to give 500,000 and the debtor
MODULE 4
pays 300,000. Is that already payment?
EXTINGUISHMENT OF OBLIGATIONS
A: No because for there to be payment, there

Payment or Performance must be the delivery of the thing or there
must be a complete performance of the
obligation. When you say payment that will
Art. 1231. Obligations are extinguished: extinguish the obligation, it must be
(1) By payment or performance:
complete.
(2) By the loss of the thing due:
Completeness of payment
(3) By the condonation or remission of the
debt; Art. 1233. A debt shall not be understood to
have been paid unless the thing or service
(4) By the confusion or merger of the rights in which the obligation consists has been
of creditor and debtor; completely delivered or rendered, as the
case may be. (1157)
(5) By compensation;
(6) By novation.
Debt shall not be understood to have been
Other causes of extinguishment of paid unless the thing or service in which the
obligations, such as annulment, rescission, obligation consists has been completely
fulfillment of a resolutory condition, and
delivered or rendered as the case may be.
prescription, are governed elsewhere in this
Code. (1156a)
Partial Fulfillment is not considered
performance that would extinguish an
obligation
Art. 1232. Payment means not only the
delivery of money but also the performance, 1234. Substantial Performance.
in any other manner, of an obligation. (n)
Art. 1234. If the obligation has been
substantially performed in good faith, the
When you say payment: obligor may recover as though there had
1. Delivery of money been a strict and complete fulfillment, less
2. Performance in any other manner of an damages suffered by the obligee. (n)
obligation
Covers both personal and real obligation Q: The obligation is to deliver 100 sacks of
rice of a certain type. The supplier despite
all diligent efforts, there was a problem to
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1
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the supply chain. Instead of delivering 500 upon was that it should be painted cream. He
sacks, he was only able to deliver 400 still accepted it without protest or objection.
sacks. Will that extinguish the obligation? The obligation of the painter is deemed full
complied with.
A: Yes. Falls under EXPN. There is substantial
performance. In this case, he was not able to What does your 1233, 1234 and 1235 tell you?
deliver the sacks of rice due to circumstances
which are out of his control. GR: payment must be complete to extinguish
the obligations
TN: While it may extinguish his obligation, the
other party who will be paying will also not be EXPN: 1234 & 1235
obliged to pay for the full amount because he 1. Substantial compliance in good faith
only gets 400 sacks of rice. He can also be 2. Creditor knowingly accepts irregularity or
paid but less damages that will be suffered by incompleteness without objection
the obligee. The damages referred
corresponds to that portion that was not Requisites for irregular or incomplete
delivered not damages due to delay or bad performance
faith. 1. Obligee accepts incomplete payment
2. Obligee knows its incompleteness
1235. Waiver and estoppel. 3. Obligee did not register his objection
Art. 1235. When the obligee accepts the
performance, knowing its incompleteness 1236. Right to refuse payment or
or irregularity, and without expressing any performance by 3rd party.
protest or objection, the obligation is
Art. 1236. The creditor is not bound to accept
deemed fully complied with. (n)
payment or performance by a third person
who has no interest in the fulfillment of the
Example: There was someone who was hired obligation, unless there is a stipulation to
to paint the house white. After it was painted, the contrary.
what came out was cream (not white). Owner
Whoever pays for another may demand
of the house still paid and accepted the house from the debtor what he has paid, except
as it is. Will it extinguish the obligation of the that if he paid without the knowledge or
painter of the house. against the will of the debtor, he can
TN: If obligee accepted it but was unaware of recover only insofar as the payment has
its incompleteness or irregularity, he can still been beneficial to the debtor. (1158a)
go the obligor and ask him to rectify the
irregularity or the incompleteness. Q: Debtor has debt of 500,000 but he only
has 300,000.
In our example, the owner of the house knew
of it’s irregularity because what was agreed
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GR: He cannot compel the creditor to accept Example: D (Debtor) and C (Creditor) and
payment because it’s not complete Third Person T.
Is there anything stopping the creditor from
accepting partial payment? None. If D is indebted to C for 500,000 and then T
1236 talks about payment made by a third who is not interested in the obligation pays
person. the 500,000 to C. He does so with the consent
of the debtor.
Who are we referring to when we say 3rd
persons without interest in the obligation? Rights of T (Third Person): Full
They would not be benefited from the reimbursement and subrogation. This means
extinguishment of an obligation. that if the debt of the debtor to the creditor
was secured by a mortgage then if the debtor
Complete strangers cannot pay the 3rd person who has paid his
● Not part of the principal contract debt, 3rd person can foreclose the mortgage.
● Not part of subsidiary contract whose
existence will depend on the principal Example: T paid 500k to C with consent D
contract If D is indebted to C 500,000 but previously D
already paid C 100,000. T paid with consent of
What would happen if your 3rd person who D, paid 500,000.
is not interested in the fulfillment of the
obligation will pay the creditor and the Rights of T (against D): T can ask for the full
creditor would accept? reimbursement of the 500,000 even if the
payment benefited D only up to the extent of
Ask: What will be the 3rd person’s rights 400,000. This is because the payment was
against the debtor? It will depend if the 3rd made with the consent of D (Debtor) T has
person paid: the right of subrogation.
1. without knowledge or against the will of
debtor Where will the debtor get the 100,000
2. With the consent of debtor over-payment?
D can get it from C.

With knowledge & Without knowledge
consent of debtor or consent
3rd person entitled Beneficial Illustration

to full reimbursement
reimbursement
Now, supposing - same amount of debt:
Subrogation to the
rights of the creditor D is indebted to C for Php 500,000.00 and D
also previously paid Php 100,000.00 to C. T,
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the third person, pays the creditor Php (2) WITHOUT THE KNOWLEDGE & CONSENT
500,000.00 without the knowledge of the OF THE DEBTOR: beneficial
debtor. reimbursement
Q: What are the rights of T, the third person?

Article 1237. Whoever pays on behalf of the
debtor without the knowledge or against
A: T can ask for the reimbursement of Php the will of the latter, cannot compel the
400,000.00 from D - because that is only the creditor to subrogate him in his rights, such
extent that D was benefitted. as those arising from a mortgage, guaranty,
or penalty.
The Php 100,000.00 balance may then be
asked by T from C based on undue payment Discussion: Article 1237 is on subrogation - if
because C had already received Php payment is made without the knowledge or
500,000.00 in payment. against the will of the debtor, then there can
be no subrogation.
Discussion: This time, the third person can
only have beneficial reimbursement.
Article 1238. Payment made by a third
person who does not intend to be
Since the payment only benefitted the debtor reimbursed by the debtor is deemed to be a
up to Php 400,000.00, that is only what he donation, which requires the debtor’s
can collect from the debtor. consent. But the payment is in any case
valid as to the creditor who has accepted it.
Thus, while there is overpayment, you do not
bother the debtor anymore because the third Illustration
person paid it without his knowledge or
consent. So, the third person has to collect the Supposing this third person who pays the
overpayment from the creditor. creditor does not actually intend to be
reimbursed. In other words, he wants to
Of course, there is no subrogation. donate.
Summary of Payment by a Third Person & Q: When can it be considered as a valid

His Rights: If there is payment by a third donation?
person who is not interested in the fulfillment
of the obligation, and such is paid: A: It will be considered a valid donation only
when the debtor consents to the donation.
(1) WITH THE KNOWLEDGE & CONSENT OF
THE DEBTOR: full reimbursement + Note: This is the same principle as the one in
subrogation Property where the donation is only valid
when accepted by the donee.
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Illustration:
Q: What is the implication of “but the A is indebted to B for 500,000. C a 3rd person
payment is in any case valid as to the creditor not interested in the fulfillment of the
who has accepted it”? obligation pays B 500,000. A previously paid B
250,000. What are the rights of C if he paid
A: The implication is that if the third person with the knowledge of A?
pays the creditor, and the debtor has not
given his consent - even if, initially, the third A: Full reimbursement, plus subrogation
person meant it as a donation or intended not
to be reimbursed, he can actually claim Q: There is an overpayment of 250,000?
beneficial reimbursement (since the debtor Who will collect from whom?
did not consent = not considered a valid A (debtor) will collect it from B(creditor)
donation).
What if C has paid against the will of A?
Even if at the start he may have intended not What are the rights of C?
to be reimbursed, but because the debtor did A: C will only get beneficial reimbursement so,
not give his consent, third person can actually he may only get 250,000 from A. C (third
ask for beneficial reimbursement because person) will have to go after B(creditor) for the
there was no valid donation. other 250,000.
Who may pay the obligation? Payment by an incapacitated person

1. Debtor himself
1239. In obligations to give, payment made
2. Legal representative
by one who does not have the free disposal
3. Any third party
of the thing due and capacity to alienate it
● A creditor cannot be compelled to
shall not be valid, without prejudice to the
accept from 3rd person
provisions of Article 1427 under the Title on
"Natural Obligations."
GR: Cannot be compelled to accept payment
from 3rd person
EXPN:
1. If the third person has an interest in the GR: Payment is invalid.
fulfillment of the obligation.
● A guarantor or a surety can compel Meaning:
creditor to accept payment ● If the person paying has no capacity to
2. If stipulated by parties that creditor must pay (unemancipated minor or an
accept payment from a third person even if insane person) or you do not have to
third person is not interested in the fulfillment have free disposal of thing due (you do
of the obligation not yet own the thing) payment is
invalid.
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● The creditor cannot be compelled to
(1) If after the payment, the third person
accept the payment
acquires the creditor's rights;
(2) If the creditor ratifies the payment to the
Example:
third person;
Obligation is to deliver a specific car but you
(3) If by the creditor's conduct, the debtor
do not own the car yet. Any payment
has been led to believe that the third
therefore is not valid because you do not have
person had authority to receive the
the capacity to alienate the car.
payment. (1163a)
Payment; to whom made.

If you pay to unauthorized persons, how
1240. Payment shall be made to the person will the payment be treated?
in whose favor the obligation has been
constituted, or his successor in interest, or GR: Invalid
any person authorized to receive it EXPN: Valid if:
A. Redounded to benefit of creditor
B. Payment was made to the possessor of
To whom must payment be made? the credit provided that it was made in
1. It must be made to the person in whose good faith
favor the obligation has been constituted C. Also valid if unauthorized person:
(creditor at the time of payment, not the D. Kept the thing delivered
original creditor) E. Insofar as payment was beneficial to
2. Successor-in-interest him
3. Person authorized to receive it (by
agreement/ by law) EXAMPLE:
1. 1M paid to minor who deposited it or kept it
in a safe, that is considered VALID.
2. 500,000 was spent on basic necessities. But
1241. Payment to a person who is
he squandered the other 500,000. It is valid
incapacitated to administer his property
only to the extend as to the 500,000 which
shall be valid if he has kept the thing
was beneficial to him.
delivered, or insofar as the payment has
been beneficial to him.
2nd par. EXPN to GR
Payment made to a third person shall also
be valid insofar as it has redounded to the Payment made to a third person shall also
benefit of the creditor. Such benefit to the be valid insofar as it has redounded to the
creditor need not be proved in the following benefit of the creditor. Such benefit to the
cases: creditor need not be proved in the following
cases:
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Debtor is indebted to creditor. But there
(1) If after the payment, the third person
was already insolvency proceedings against
acquires the creditor's rights;
debtor; the debtor having several debts,
(2) If the creditor ratifies the payment to the
one among which is in favor of C. The court
third person;
has already ordered the debtor not to make
(3) If by the creditor's conduct, the debtor
any payments. Despite order, debtor still
has been led to believe that the third
paid C. What happens to the payment?
person had authority to receive the
● Invalid
payment.
● Creditor who received payment may be
asked by the court to return the
You have to prove that it has redounded to payment to the debtor
the benefit of the creditor. ●
Reason why court may ask debtor not to
Instances debtor need not prove that it make any payments:
redounded to the benefit of the creditor: ● So court can determine who else is the
creditor of this insolvent debtor and
(1) If after the payment, the third person may able to fairly distribute whatever
acquires the creditor's rights; assets that are left with the debtor.
● you may have paid to unauthorized
person but then after he received the It cannot be allowed that the debtor would
payment, creditor assigned the credit prioritize C in our example because there may
to him. be other creditors whose debts were due
(2) If the creditor ratifies the payment to the prior to C.
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. Article 1244. The debtor of a thing
● Estoppel cannot compel the creditor to
receive a different one, although the
latter may be of the same value as, or
Art. 1242. Payment made in good faith to more valuable than that which is
any person in possession of the credit shall due. (Applies to specific things)
release the debtor.
In obligations to do or not to do, an
act or forbearance cannot be
Art. 1243. Payment made to the creditor by
substituted by another act or
the debtor after the latter has been
forbearance against the obligee's
judicially ordered to retain the debt shall
will.
not be valid.
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Q: Supposing debtor obliged himself to
1245. Dation in payment. Dation in
deliver a specific necklace worth 50,000. The
payment, whereby property is
creditor has already seen the necklace to be
alienated to the creditor in
delivered. The debtor on due date and upon
satisfaction of a debt in money, shall
demand of the creditor is now telling creditor
be governed by the law of sales.
that he will deliver another one but not to
worry because the necklace is worth the
same price of 50,000. Can the debtor compel Dation in Payment
the debtor to receive of this other necklace? Mode of extinguishing an obligation whereby
the debtor alienates in favor of the creditor
A: NO. If what was agreed is a specific thing, property for the satisfaction of monetary debt
even if the other necklace is of the same value · Governed by Law of Sales
or even of more value, the creditor cannot be
compelled to accept it because it was not TN: ONLY DEBTS IN MONEY
what was not agreed upon.
Requisites:
Q: If you were hired to sing at a party, you 1. Creditor consents
cannot go to the party and say I will not sing, I 2. Will not prejudice other creditors
will just dance for the same price. Is this 3. Debtor is not judicially declared insolvent
allowed?
Atty: The transfer of the ownership of a thing
A: No, this is not allowed under the 2nd by debtor as an accepted equivalent of the
paragraph of Article 1244. This was not what performance of the obligation
was agreed upon by the parties.
Example:
TN: For real obligations, for 1244 to apply, it The debtor is indebted in the amount of 1.5M.
has to be specific. The debtor, without the Instead of paying 1.5M, debtor delivers a brand
creditor’s consent cannot simply change it. new car worth 1.5M.
GR: A debtor cannot fulfill his obligation by Why will the law on sales govern?
delivering a thing different from that which is It is like a sale. It’s like the creditor paid for the
due, even if that other thing is of the same or car.
greater value.
EXPN: Dation in payment. Dation in Payment Sale

This is when the creditor accepts the delivery
or substitution. It shall give the same effect as Pre-existing debt No pre-existing debt
fulfillment or performance of the obligation.
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Extinguishes Give rise to other circumstances shall be taken into
obligations obligations consideration.
Remember: If generic, not segregated from a
Cause or Cause or
consideration is consideration is class.
extinguishment of price and obtaining
debt and acquisition of object Example:
of the object offered The obligation of A to B is to deliver a car.
in credit
Less freedom in Greater freedom in Rules: (1246) When quality and

determining the determination of circumstances not stated:
price (because price GR: creditor cannot demand a thing of
pre-existing) superior quality
EXPN: creditor may demand and accept one
Giving of object in Giving the price
of inferior quality.
lieu of credit may generally ends the
extinguish obligation of the
completely or only buyer GR: Debtor cannot deliver a thing of inferior
partially the credit quality
EXPN: Debtor may deliver one of superior
For there to be dation, does the debtor quality as longs as not different kind.
need to be insolvent? No need. It only needs
an agreement between debtor and creditor. If Example:
creditor accepts the payment in a different Debtor delivers one of inferior quality,
prestation, that’s fine. accepted by creditor, no problem.
Creditor demanded superior quality; debtor
Recap: When the obligation is to deliver a delivered. No problem
specific thing, the debtor cannot compel the
creditor to accept anything else. VOID if:
Kind and quantity cannot be determined
What if the obligation is to give a generic without need of a new agreement
thing? ● Object of contract must be
determinate as to its kind
1246. When the obligation consists in the ● Fact that quantity is not determined
delivery of an indeterminate or generic shall not be an obstacle provided it is
thing, whose quality and circumstances possible to determine the same
have not been stated, the creditor cannot without a new obligation
demand a thing of superior quality. Neither
can the debtor deliver a thing of inferior Who shall bear Extrajudicial Expenses?
quality. The purpose of the obligation and
1247. Unless it is otherwise stipulated, the
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1. Stipulation to the contrary (they agree that
extrajudicial expenses required by the
payment shall be for the account of the they can make or accept partial payments)
debtor. With regard to judicial costs, the 2. When the debt is in part liquidated and in
Rules of Court shall govern. part unliquidated, the creditor may demand
and the debtor may effect the payment of the
liquidated part without waiting for the
GR: Debtor pays for extrajudicial expenses liquidation of the latter.
incurred during payment. a. Example: Debtor promised to pay
creditor 15,000 rental payment plus
EXPN: Stipulation to the contrary 20% of his sales for the month
Reason: debtor is the one who primarily b. In practice, rent, for example the
benefits as his obligation is extinguished agreement must be made every 5th of
the month. If the monthly rental is
Judicial costs: 15,000 + 20% of the sales of the month,
GR: Winning party come Sep.5, the debtor/lessee will have
to pay the 15000. Your creditor can
EXPN: courts shall have the power for special demand partial payment of 15,000
reasons to adjudge that either party shall pay because the 20% of sales is still
the costs or that the same may be divided as unliquidated. Why? Because
may be equitable. September is not yet over.
3. Obligation has different prestations subject
to different conditions (installments)
1248. Unless there is an express stipulation
a. Solidary obligation
to that effect, the creditor cannot be
compelled partially to receive the i. A B C solidary debtors to X for 120k. In
prestations in which the obligation consists. their agreement:
Neither may the debtor be required to 1. A will pay on Jan. 05, 2023
make partial payments. 2. B will pay if he passes the 2022 bar
exam
However, when the debt is in part
3. C will pay if his only dog dies
liquidated and in part unliquidated, the
creditor may demand and the debtor may
effect the payment of the former without Legal Tender.
waiting for the liquidation of the latter Art 1249. The payment of debts in money
shall be made in the currency stipulated,
and if it is not possible to deliver such
GR: Creditor cannot be compelled to accept currency, then in the currency which is legal
tender in the Philippines
partial payment nor can the debtor be
.
required to make partial payments. The delivery of promissory notes payable to
order, or bills of exchange or other
EXPN:
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During the time being, while the delivery of
mercantile documents shall produce the
effect of payment only when they have the check is made up to the time it is
been cashed, or when through the fault of encashed, the action derived from the original
the creditor they have been impaired. obligation shall be held in abeyance.
In the meantime, the action derived from
the original obligation shall be held in the IOW, during that period, the obligation will
abeyance
subsist; extinguished only upon
encashment/clearing upon deposit.
Payment of debts in money shall be made Effect:

in the currency stipulated.
From the time the Obligation subsists
EXPN: If it is not possible to deliver such check is delivered to
currency, pay with currency that is legal the time that it is
tender in the Philippines encashed
Once it is encashed Obligation is

If you agreed on payment in US dollars then
or if deposited, when extinguished
you have to pay in US dollars.
it clears (the amount
If not stipulated as to what currency
is added to your
- Use Philippine peso because that is the legal
account)
tender here in the PH
Q: Supposing you pay in check the total Extraordinary inflation or deflation.

amount of the debt, is that already Article 1250. In case an extraordinary
considered as payment that will extinguish inflation or deflation of the currency
the obligation? stipulated should supervene, the value of
the currency at the time of the
establishment of the obligation shall be the
A: Not yet. It shall only produce the effect of
basis of payment, unless there is an
payment when:
agreement to the contrary.
1. Cashed/cleared upon deposit; or
2. When impaired through creditor’s
Extraordinary inflation or deflation of
fault
stipulated currency
Even if you pay in check or promissory
GR: Value of the currency at the time of the
notes, these are just negotiable
establishment of the obligation.
instruments; delivery of such is not
payment that will extinguish the obligation.
XPN: Unless there is an agreement to the
contrary.
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Reason: That was the value of the money
faith or after he has incurred in delay, the
when it was transacted on. additional expenses shall be borne by him.
Illustration: A borrowed $100,000 from B and These provisions are without prejudice to
at the time it was borrowed, $1 was equal to venue under the Rules of Court.
PHP45. There was extraordinary inflation and
now the dollar is at PHP54. GR: Payment shall be made at the place
agreed upon
If there is no agreement, then the equivalent
A must pay is PHP45 per $1 which was the If no express stipulation & undertaking is to
equivalent when they entered into the deliver a determinate thing
obligation. ● Payment made where the thing was
located at the moment the obligation
However, if A and B stipulated otherwise, then was made
A must pay PHP54 per $1.
Any other case (generic thing):
TN: Art 1250 applies when there is no ● Domicile of the debtor
stipulation. ● If debtor changes domicile in bad faith
or after incurring delay:
Applicability o Additional expenses borne by
him
Contractual Applicable
obligations Without prejudice to venue under ROC
Obligations arising Not applicable Application of payment

from torts
1252. He who has various debts of the same

Where payment is to be made kind in favor of one and the same creditor,
Article 1251. Payment shall be made in the may declare at the time of making the
place designated in the obligation. payment, to which of them the same must
be applied. Unless the parties so stipulate,
There being no express stipulation and if or when the application of payment is
the undertaking is to deliver a determinate made by the party for whose benefit the
thing, the payment shall be made wherever term has been constituted, application shall
the thing might be at the moment the not be made as to debts which are not yet
obligation was constituted. due.
In any other case the place of payment shall If the debtor accepts from the creditor a
be the domicile of the debtor. receipt in which an application of the
payment is made, the former cannot
If the debtor changes his domicile in bad complain of the same, unless there is a
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cause for invalidating the contract.
1254. When the payment cannot be applied
in accordance with the preceding rules, or if
What is application of payment?
application can not be inferred from other
A: Not a mode of extinguishment of circumstances, the debt which is most
obligation. It just tells you which debt is paid onerous to the debtor, among those due,
first if there are multiple debts. It is the shall be deemed to have been satisfied.
designation of the debts to which the
payment should be applied when the If the debts due are of the same nature and
debtor has several obligations of the same burden, the payment shall be applied to all
of them proportionately.
kind in favor of the same creditor.
Requisites for the application of payment

1. One debtor & one creditor Successive
2. Severalty of debts (2 or more debts) 1. Apply to that designated by debtor
3. Same kind a. In our example earlier, the debtor can
a. If debt in money, all the debts designate by saying “I am fully paying
must be in money the 45,000 and partially paying the
4. All debts must be due 500,000. If the creditor accepts the
a. There being no date, due and partial payment, it’s fine.
demandable at once
5. Payment shall not be enough to extinguish 2. If debtor does not make designation,
all debts creditor makes designation by stating in a
receipt which debt is being paid.
EXAMPLE:
A is indebted to B, 500,000. 3. If neither the debtor nor creditor makes
A is also indebted to B for 45,000. the designation, apply payment by operation
No date so demandable at once. of law.
If the facts will tell you that he only paid a. Pay more onerous obligation
400,000 to B. That is the last requisite for b. If equally burdensome/onerous: apply
application of payment where the payment proportionately (pro rata)
that he (debtor) made was not sufficient to
cover all the debts. Example:
- 45,000 is with a pledge
Recap: Application of payment is designation - 500,000 is unsecured
of which payment must be paid - Neither Debtor nor creditor designates
- How do you apply the 400,000?
ORDER OF PAYMENT
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A: apply first to 45,000 with a pledge because
1253. If the debt produces interest, payment
it the more burdensome. (because it is
of the principal shall not be deemed to have
secured)
been made until the interests have been
covered.
Question: 45,000 is with a pledge. 500,000
is unsecured. Neither Debtor nor creditor
designates. How do you apply the 400,000?
Order of Payment.
A: Apply first to 45,000 with a pledge because 1254. When the payment cannot be applied
it is more burdensome. (because it is secured) in accordance with the preceding rules, or if
application can not be inferred from other
Q: If both the 45,000 and 500,000 are both circumstances, the debt which is most
secured by mortgages, how do you apply the onerous to the debtor, among those due,
400,000? shall be deemed to have been satisfied.
A: Apply proportionately because they are If the debts due are of the same nature and
equally burdensome. burden, the payment shall be applied to all
of them proportionately.
TN:
● Pay more onerous obligation
● If equally burdensome/onerous: apply Example:
proportionately (pro rata) - A is indebted to B for 500,000.
● The amount will matter if it has - Another debt of 45,000 (interest-bearing)
interest. If the debts have the same - Both due and demandable
amount of interest but the other debt - A pays only 40,000
has a larger amount then the larger
amount is more burdensome because If A did not designate and B did not specify in
the interest is based on a larger receipt, Apply first to 2nd debt because more
amount. onerous
Q: Debt has interest, the debtor does not Example:

designate which he is paying first, the - A indebted to B for 500,000
principal or interest. - Another debt for 45,000
- Both debts due and demandable
Interest must be paid first. - A only paid B 40,000
- A did not designate
- B did not specify in the receipt
Proportionate because equally burdensome

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Apply pro rata: Requisites:
1. More than one debt
Total: 545,000 2. More than one creditor
3. Complete or partial insolvency
1st debt: 500,000 / 545,000=91.74% a. Assets not enough to cover his debts
91.74 % × 40,000=36,697.24 4. Abandonment of all debtor’s
property not exempt
2nd debt: 40,000−36,697.24 = 3,302.75 5. Creditor accepts the cession made by
debtor
Long method: 45,000 / 545,000 × 40,0000 = 3
,302.75 Cession v. Dation in Payment
IOW: 1st debt divided by total debt multiplied

Cession Dation in
by payment
Payment
2nd debt: payment minus proportion for first

debt Properties Generally all Not all
affected
Q: What is cession?
Plurality Requires Can be one

1255. The debtor may cede or assign his more than creditor
property to his creditors in payment of his on creditor
debts. This cession, unless there is
stipulation to the contrary, shall only release
the debtor from responsibility for the net consent All must Specific or
proceeds of the thing assigned. The consent concerned
agreements which, on the effect of the creditor
cession, are made between the debtor and must
his creditors shall be governed by special consent
laws
Insolvency Requires full Even if
insolvency solvent
A: A special form of payment where debtor (essentially a
abandons all of his properties for the benefit novation)
of his creditors in order that from the
proceeds thereof, the creditors may obtain Ownership Merely Ownership
payment of their credits. assigns; transferred
abandons
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EXPN: You may directly proceed with
right to upon
consignation even without tender of
dispose delivery payment.
Art. 1256. If the creditor to whom tender
Novation No Yes of payment has been made refuses
without just cause to accept it, the debtor
shall be released from responsibility by
the consignation of the thing or sum due.
Consignation alone shall produce the
same effect in the following cases:
TENDER OF PAYMENT AND CONSIGNATION
(1) When the creditor is absent or
unknown, or does not appear at the place
Tender of payment - act of offering the
of payment;
creditor what is due to him w/ a demand that
the creditor accept it (2) When he is incapacitated to receive
the payment at the time it is due;
Consignation – act of depositing thing due w/
the court when creditor cannot/refuses (3) When, without just cause, he refuses to
acceptance of payment give a receipt;
(4) When two or more persons claim the

MBL: Tender of payment is when the debtor same right to collect;
offers the payment to the creditor. So that the
debtor may deposit the thing which is the (5) When the title of the obligation has
object of the obligation. And you consign it in been lost.
court, but you have to follow the
requisites/rules before a valid consignation
take place.
EXCEPTIONS:
Requisites of a Valid Consignation
1. When the creditor is absent or unknown,
or does not appear at the place of payment;
1. Valid Obligation
You cannot make a tender of payment when
2. Tender of payment that was
you do not know where the creditor is.
unjustifiably refused
3. Previous notice of consignation to all
2. When he is incapacitated to receive the
parties who are interested in the fulfillment of
payment at the time it is due
the obligation
4. Actual consignation Ex. at the time the obligation was due the
5. Subsequent notice of consignation creditor was in a coma, so he could not accept
payment. If the debtor wants to extinguish his
GR: Before you consign, tender payment first. obligation may consign the thing in court.
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16
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3. When, without just cause, he refuses to
released from responsibility by the
give a receipt
consignation of the thing or sum due.
This actually tells you that there was a tender
of payment. It was accepted initially but the Consignation alone shall produce the same
creditor will not give you proof that you have effect in the following cases:
paid. It is the debtor’s right to have proof of (1) When the creditor is absent or unknown,
payment. ·To be safe, your debtor can consign
or does not appear at the place of payment;
the thing in court.
(2) When he is incapacitated to receive the
4. When two or more persons claim the payment at the time it is due;
same right to collect (3) When, without just cause, he refuses to
give a receipt;
If you are a lessee and 2 people are collecting
(4) When two or more persons claim the
from you. You do not know who the actual
same right to collect;
lessor is because both persons are claiming
that they are owners. You want your rents to (5) When the title of the obligation has been
be paid, you don’t want to be incurring lost. (1176a)
penalties. You can consign rent in court.
Art. 1257. In order that the consignation of
OR you can file an interpleader so the 2 can
the thing due may release the obligor, it
litigate between themselves. For you to
must first be announced to the persons
extinguish your obligation, even if you already
have an interpleader, you still have to consign interested in the fulfillment of the
the thing in court. obligation.
The consignation shall be ineffectual if it is

5. When the title of the obligation has been not made strictly in consonance with the
lost. provisions which regulate payment. (1177)
Illustration: Art. 1258. Consignation shall be made by

depositing the things due at the disposal of
Creditor has already assigned his credit to judicial authority, before whom the tender
some other person but at the moment you of payment shall be proved, in a proper
don’t know who. The title of that creditor has case, and the announcement of the
been lost yet you don’t know who to tender it consignation in other cases.
to. Art. 1256 to extinguish obligation, you have
to consign the thing in court. The consignation having been made, the
interested parties shall also be notified
Art. 1256. If the creditor to whom tender of thereof. (1178)
payment has been made refuses without
just cause to accept it, the debtor shall be
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17
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1. Requisites of a Valid Consignation 1. Payment was made by a third
Requisites of a Valid Consignation person who is not authorized and
the creditor wishes not to accept
1. Valid obligation that is due – prove
the tender of payment; or
that there is a debtor/creditor
2. Payment of a different prestation
relationship
other than that which is promised;
or
2. Tender of payment – not just the offer
3. Partial payment – since you cannot
to pay, you will also have to be bringing
compel the creditor to accept
the thing object of the obligation and
partial payment; or
really offering it. Not enough that there
4. When it is not a legal tender; or
was intent without bringing the
5. When payment is premature.
prestation.
The tender of payment here, if refused, based
3. Previous notice of consignation – to
on the above grounds, it is justifiable.
give creditor the chance to change his
Meaning, you cannot consign the thing in
mind because in the end, he is the one
court.
who will shoulder all the expenses if
the consignation was proper. If no
If you do, it will be found that it was not made
previous notice, consignation is not
validly or it was not a proper consignation.
valid.
OTOH, the rejection of the offer could be
4. Subsequent notice of consignation.
UNJUSTIFIABLE. REMEDY OF THE DEBTOR:
- Consignation is the remedy of the
TN: inform the parties that you already
debtor.
deposited the thing in court.
(Recall requisites of a valid consignation)
Remember, there must be tender of

payment, as a general rule. ART. 1259. The expenses of consignation,
when properly made, shall be charged
Your tender of payment, as the debtor, could against the creditor. (1178)
either be accepted, then no problem; or it
could be rejected. ART. 1259, if it is found that the consignation
was proper then it shall be charged against
BUT, there may be reasons for rejecting the the creditor. Why?
tender of payment, it could be based on - Had the creditor accepted the
justifiable reasons: tender of payment and he did not
unjustifiably refused it, then there
would have been no need to
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18
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consign in court and spend for - The obligation is not extinguished.
consignation. So, it will be charged The obligation will remain and
to the creditor. continue to subsist.
ART. 1260. Once the consignation has been ART. 1261. If, the consignation having been
duly made, the debtor may ask the judge to made, the creditor should authorize the
order the cancellation of the obligation. debtor to withdraw the same, he shall lose
every preference which he may have over
Before the creditor has accepted the the thing. The co-debtors, guarantors and
consignation, or before a judicial declaration sureties shall be released. (1181a)
that the consignation has been properly
made, the debtor may withdraw the thing
1261 is different from 1260, in the latter, the
or the sum deposited, allowing the
debtor voluntarily withdrew the thing
obligation to remain in force. (1180)
deposited. However, here, it is the creditor
authorizing the debtor to withdraw.
Once the consignment has been made that
the prayer now of the debtor to the court Consequence is the same
would be to declare the obligation to be
extinguished, to cancel the obligation. This is different from Article 1260. because in
Article 1260, the debtor voluntarily withdrew
Illustration the thing deposited. But here, it's the creditor
authorizing that debtor to withdraw.
If you make a pleading in court, you file a
complaint for consignation then the prayer Yes, the consequence is the same which is
would be that you want the obligation to be one the obligation will continue.
extinguished.
Q: But there is another consequence on the
nd
2 par. Of Art. 1260 part of the creditor and what is that?
Before the creditor has accepted the
consignation, or before a judicial declaration A: The creditor will now lose every
that the consignation has been properly preference over that particular thing because
made x x x it would have been paid to him had he
accepted it, but he did not. And so if the
During pendency of the proceedings, the debtor has other creditors, the other creditors
debtor MAY withdraw the thing deposited. can now make an attachment on that
particular property. So that's another
Consequence: consequence.
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19
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Another consequence also, is that the
would extinguish his obligation to Reynes.
co-debtor, guarantors, and sureties are
And because Reynes was not a party nor a
released from liability.
privy to the contract of Cebu Ice Storage
which was the mortgage debt paid by
Montecillo.
Montecillo v. Reynes
For the payment to be valid it must be paid to
Facts: Reynes signed a Deed of Sale with
the person in whose favor the obligation was
Montecillo with an agreement that the
constituted (the creditor), or to his authorized
purchase price be paid within a month.
representative, or to his successor-in-interest.
However, Montecillo failed to pay. Reynes
unilaterally revoked the same. Reynes then
Here, payment to Cebu Ice Storage - who was
sold the entire lot to spouses Abucay.
not the creditor and who had no authority
whatsoever granting authority to Cebu Ice
Both Reynes and Spouses Abucay argued
Storage the acceptance of any payment.
that the Deed of Sale was void since there
was no meeting of minds for lack of
The Supreme Court said that there was no
consideration. However, Montecillo argued
proof saying that Cebu Ice Storage had any
that he made his payments to Cebu Ice
authority (audio got choppy here), and so the
Storage to release the chattel mortgage
payment was NOT considered as valid.
which was then constituted as lien to the
Lot.
BPI v. Court of Appeals
Issue: Whether or not there was a valid (G.R. No. 104612, May 10, 1994)
payment to Cebu Ice Storage?
Facts: Respondents (Eastern and Lim) held
Ruling: one joint bank account with CBTC which
No. In Article 1240 of NCC, payment shall be was opened by Velasco.
made to the person in whose favor the
obligation was constituted, When Velasco died, an Indemnity
successors-in-interest, or any person Undertaking was executed by Lim wherein
authorized to receive it. 1/2 of the outstanding balance was
provisionally released and transferred to one
In this case, Montecillo failed to show any of the bank accounts of Eastern with CBTC.
evidence that Reynes agreed, either verbally
or in writing, to pay the P50K to Cebu Ice Eastern obtained a loan from CBTC as
Storage. The SC ruled that the payment is “Additional Working Capital” and was
not considered a proper payment that payable on demand with 14% per annum
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20
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interest. For this loan, respondent issued a promissory note. It cannot be compelled to
negotiable promissory note (P73,000.00 retain and apply the deposit in Lim and
payable on demand). No reference to any Velasco's joint account to the payment of
security for the loan appears on the note. the note. What the agreement conferred
on CBTC was a power, not a duty. To apply
A case for the settlement of Velasco's estate the deposit to the payment of a loan is a
was filed in which the whole balance in the privilege, a right of set-off which the bank
joint account of Velasco and Lim was being has the option to exercise. CBTC was not
claimed as part of Velasco's estate. The in any way precluded from demanding
intestate court granted the motion of the payment from Eastern and from instituting
heirs of Velasco to withdraw the deposit. an action to recover payment of the loan.
What it provides is an alternative, not an
When CBTC was merged with BPI, BPI filed exclusive, method of enforcing its claim on
a complaint against Lim and Eastern the note.
demanding payment of the promissory
note. (2) BPI is still liable to the private
respondents.
Respondents filed a counterclaim against
BPI for the return of the balance in the As held in Serrano v. Central Bank of the
disputed account and the interest thereon. Philippines, bank deposits are really loans
because they earn interest. The relationship
Issues: then between a depositor and a bank is one
of creditor and debtor.
(1) W/N BPI can demand payment of the
loan of P73,000.00. (yes) The account was proved and established to
belong to Eastern even if it was deposited in
(2) W/N BPI is still liable to the private the names of Lim and Velasco. As the real
respondents after its withdrawal by the creditor of the bank, Eastern has the right to
heirs of Velasco. (yes) withdraw it or to demand payment thereof.
BPI cannot be relieved of its duty to pay
Ruling: Eastern simply because it already allowed
the heirs of Velasco to withdraw the whole
(1) BPI can demand payment of the loan of balance of the account.
P73,000.00.
Moreover, the order of the court in the
CBTC, or BPI - as its successor-in-interest, settlement case of Velasco's estate merely
had every right to demand that Eastern authorized the heirs of Velasco to withdraw
and Lim settle their liability under the the account. BPI was not specifically
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21
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been made by the owner of the account,
ordered to release the account to the said
which was Eastern.
heirs; hence, it was under no judicial
compulsion to do so. BPI, as the debtor, had
So, the Supreme Court said that BPI allowing
no right to pay to persons other than those
the withdrawal by the Velasco heirs, is not
in whose favor the obligation was
valid payment. It was already proven and BPI
constituted or whose right or authority to
knew that the account belonged to Eastern.
receive payment is indisputable.
Payment made by the debtor to the

wrong party does not extinguish the RAYOS vs. REYES
obligation as to the creditor who is
without fault or negligence, even if the FACTS:
debtor acted in utmost good faith and by
The three (3) parcels were formerly owned
mistake as to the person of the creditor, by the spouses Francisco and Asuncion
or through error induced by fraud of a Tazal who on 1 September 1957 sold them
third person. The payment then by BPI to for P724.00 to respondents'
the heirs of Velasco, even if done in good predecessor-in-interest, one Mamerto
faith, did not extinguish its obligation to the Reyes, with right to repurchase within two
true depositor, Eastern. (2) years from date thereof by paying to the
vendee (Reyes) the purchase price and all
expenses incident to their reconveyance.
Atty: Here, the account even if it was in the After the sale the vendee a retro took
name of Lim and Velasco there was already physical possession of the properties and
an agreement and it was proven that the paid the taxes thereon.
account actually belonged to Eastern. The
The otherwise inconsequential sale became
Supreme court said, just because the controversial when two (2) of the three (3)
withdrawal was allowed by the heirs of parcels were again sold on 24 December
Velasco it does not equate to valid payment. 1958 by Francisco Tazal for P420.00 in favor
of petitioners' predecessor-in-interest Blas
Question: Why do we say payment, when Rayos without first availing of his right to
repurchase the properties.
there’s a bank account and there is a
withdrawal? After the expiration of the redemption
period, Francisco Tazal attempted to
Answer: Remember, when you deposit repurchase the properties from Mamerto
money to the bank, it creates a Reyes by asserting that the 1 September
debtor-creditor relationship. The bank being 1957 deed of sale with right of repurchase
the debtor and the depositor as the creditor. was actually an equitable mortgage and
offering the amount of P724.00 to pay for
So, in other words, should there have been a
the alleged debt. But Mamerto Reyes
withdrawal, then that withdrawal should have refused the tender of payment and
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22
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vigorously claimed that their agreement COURT OF APPEALS DECISION:
was not an equitable mortgage.
Mamerto Reyes appealed the Decision to
9 May 1960 Francisco Tazal filed a complaint the Court of Appeals, which in turn elevated
with the Court of First Instance of the appeal to this Court since only
Pangasinan against Mamerto Reyes, questions of law were involved. When
docketed as Civil Case No. A-245, for the Mamerto Reyes died in 1986,
declaration of the 1 September 1957 petitioner-spouses Teofilo and Simeona
transaction as a contract of equitable Rayos wrested physical possession of the
mortgage. He also prayed for an order disputed properties from Reyes's heirs.
requiring defendant Mamerto Reyes to
accept the amount of P724.00 which he SUPREME COURT DECISION:
had deposited on 31 May 1960 with the trial On 16 May 1990 this Court considered the
court as full payment for his debt, and case closed and terminated for failure of the
canceling the supposed mortgage on the parties therein to manifest their interest to
three (3) parcels of land with the execution further prosecute the case. On 20 June 1990
of the corresponding documents of the judgment in Civil Case No. A-245
reconveyance in his favor. became final and executory.
Subsequent to the finality of judgment in
On 22 June 1961 Francisco Tazal again sold Civil Case No. A-245 petitioner-spouses did
the third parcel of land previously nothing to repurchase the three (3) parcels
purchased by Mamerto Reyes to of land within the thirty (30)-day grace
petitioner-spouses Tefilo and Simeona period from finality of judgment since,
Rayos for P400.00. On 1 July 1961 petitioner according to them, they believed that the
spouses bought from Blas Rayos for consignation of P724.00 in the civil case had
P400.00 the two (2) lots that Tazal had sold perfected the repurchase of the disputed
at the fIrst instance to Mamerto Reyes and properties.
thereafter to Blas Rayos.
On 6 July 1992 respondents as heirs of
TRIAL COURT DECISION: Mamerto Reyes executed an affidavit
On 5 January 1963 the trial court in Civil adjudicating to themselves the ownership
Case No. A-245 rejected the contention of of the parcels of land and declared the
Francisco Tazal that the deed of sale properties in their names for assessment
executed on 1 September 1957 was an and collection of real estate taxes. On 19
equitable mortgage but held that Tazal January 1993 respondents registered the 1
could nonetheless redeem the three (3) September 1957 deed of sale with right of
parcels of land within thirty (30) days from repurchase with the register of deeds.
finality of judgment by paying to Mamerto
Reyes the purchase price of P724.00 and all On 8 July 1993 respondents filed a
expenses to execute the reconveyance, i.e., complaint for damages and recovery of
the expenses of the contract and the ownership and possession of the three (3)
necessary and useful expenses made on the parcels of land in dispute against herein
properties as required by Art. 1616 of the petitioner-spouses Teofilo and Simeona
Civil Code. Rayos and petitioner George Rayos as
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23
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administrator thereof before the Regional
Trial Court of Alaminos, Pangasinan. It was
respondents' theory that neither petitioners RULING: No. In order that consignation may
nor their predecessors-in-interest Francisco be effective the debtor must show that
Tazal and Blas Rayos repurchased the (a) there was a debt due;
properties before buying them in 1958 and (b) the consignation of the obligation had
1961 or when the judgment in Civil Case No. been made because the creditor to whom a
A-245 became final and executory in 1990, valid tender of payment was made refused
hence the sale of the three (3) parcels of to accept it;
land to petitioner-spouses did not transfer (c) previous notice of the consignation had
ownership thereof to them. been given to the person interested in the
performance of the obligation; (d) the
amount due was placed at the disposal of
TRIAL COURT DECISION: the court; and, (e) after the consignation
The court declared void the separate deeds had been made the person interested was
of absolute sale thereof executed by notified thereof.
Francisco Tazal in favor of Blas Rayos and to
spouses Teofilo and Simeona Rayos and by In the instant case, petitioners failed, first to
Blas Rayos to the same spouses, and offer a valid and unconditional tender of
ordered herein petitioners and Francisco Payment; second, to notify respondents of
Tazal to vacate and reconvey the lands to the intention to deposit the amount with
respondents as heirs of Mamerto Reyes and the court; and third, to show the acceptance
to pay actual damages for litigation by the creditor of the amount deposited as
expenses in the sum of P20,000.00, full settlement of the obligation, or in the
attorney's fees of P10,000.00, and exemplary alternative, a declaration by the court of the
damages of P50,000.00 plus costs. The validity of the consignation. The failure of
court a quo rationalized that petitioners did petitioners to comply with any of these
not present evidence to prove that they and requirements rendered the consignation
their predecessor-in-interest were able to ineffective.
repurchase the property within the period
of redemption set forth by the Court of First Consignation and tender of payment must
Instance in Civil Case No. A-245. Petitioners not be encumbered by conditions if they
appealed the Decision to the Court of are to produce the intended result of
Appeals. fulfilling the obligation. In the instant case,
the tender of payment of P724.00 was
conditional and void as it was predicated
COURT OF APPEALS DECISION: upon the argument of Francisco Tazal that
On 31 May 2001 the appellate court he was paying a debt which he could do at
promulgated its Decision affirming in toto any time allegedly because the 1 September
the judgment appealed from. 1957 transaction was a contract of equitable
mortgage and not a deed of sale with right
ISSUE: Whether or not the consignation is to repurchase.
valid.
Mamerto Reyes was therefore within his
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24
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right to refuse the tender of payment
offered by petitioners because it was ATTY: For payment to be valid, not only
conditional upon his waiver of the two should the tender of payment for the full
(2)-year redemption period stipulated in the amount, it must also be UNCONDITIONAL.
deed of sale with right to repurchase. Here, there was NO UNCONDITIONAL tender
of payment because there was a condition
Petition is denied.
that there be a waiver of the redemption
period. Also, there was no prior notice of
consignation and no proof of acceptance.
RULING: No, the Spouses failed to offer a valid For a valid consignation, one must be able to
and unconditional tender of payment. show all the requisites:
Consignation and tender of payment must ● That there is a valid debt that was due;
not be encumbered by a condition in order to ● That there is a valid tender of payment;
produce the results of fulfilling the obligation. ● That such was unjustifiably refused
Although there is a tender of payment of ● Previous notice of consignation;
724K, such was conditional, thus, not a valid ● Actual consignation;
tender of payment. This is predicated on the ● Subsequent notice of consignation
argument that he was paying the debt which
he could do at anytime because the
transaction was a contract of equitable
mortgage and not a deed of sale. Badayos v. CA
The purpose of offering the amount was to FACTS: There was a sale of property with
evade the stipulated redemption period in right of repurchase between Badayos and
the DOS. Reyes, therefore, was within his Sps Lizondra over a parcel of land which is
rights to refuse the tender of payment which undivided. The Deed stipulated that
was offered by Tazal because it was Badayos has the right of repurchase after 2
conditional upon the condition that he waives years. Sps. Lizondra, after 2 years, filed an
the 2-year redemption period stipulated in action to consolidate ownership on the
the DOS. premise that Badayos did not exercise the
right to repurchase. But such action was
Sps. Tazal also failed to notify Reyes of the opposed by Badayos because he contended
intention to deposit the amount with the that on the period stated that after 2 years,
Court. With Tazal’s failure to give such notice, he still can exercise his right to repurchase.
the requirement of notice is not fulfilled. Tazal He questioned the the actioned filed
also failed to show that the creditor Reyes
accepted the amount. There was no valid
tender of payment and consignation.
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after 2 years that means the repurchase can
ISSUE: WON Badayos exercised his right to
be had.
repurchase when there is a consignation of
the amount with the clerk of court?
RULING: Yes. There is proper consignation in LOSS OF THE THING DUE

the part of Badayos. Thereby, there is a valid
tender of payment. It is clear in the deed
ARTICLE 1262. An obligation which consists in
that the 2 year period should be interpreted
the delivery of a determinate thing shall be
to commence 2 yrs after the execution of
extinguished if it should be lost or destroyed
the contract. So, the consignation operated
without the fault of the debtor, and before he
as a valid offer or tender of the redemption
has incurred in delay.
price
When by law or stipulation, the obligor is

liable even for fortuitous events, the loss of
the thing does not extinguish the obligation,
ATTY: The first requisite is very important that and he shall be responsible for damages. The
there must be a valid obligation because if it’s same rule applies when the nature of the
not an obligation then you don’t even need to obligation requires the assumption of risk.
consign it and you don’t even need to follow (1182a)
all the other requisites. You only need a prior
tender of payment. Here, there is no
This principle is a repeated principle under
creditor-debtor relationship. It was just a mere
the nature and effect of obligations because
exercise of a right to repurchase. Meaning,
we said that the obligation is extinguished if
“right of repurchase”, you can forego of that
the object of the obligation is a determinate
right. You don’t; need to pay it because when
or specific thing is lost due to a fortuitous
you talk of an obligation, you need to pay it. It
event. IOW, not the fault of the debtor. But
is an obligation and you have to abide by it.
there must be no delay.
But if it is a mere exercise of a right, then prior
tender of payment would be sufficient to a
ARTICLE 1262. An obligation which consists in
right of repurchase. In fact, SC said there is no
the delivery of a determinate thing shall be
need to consign. Even granting arguendo
extinguished if it should be lost or destroyed
WON there was a valid consignation, SC said
without the fault of the debtor, and before he
yes. There in fact was because in the
has incurred in delay.
agreement, it was after 2 years that the right
to repurchase can be exercised. The
When by law or stipulation, the obligor is
argument of the other party is that there is
liable even for fortuitous events, the loss of
already a lapse of 2 years. SC said you read
the thing does not extinguish the obligation,
your agreement because it’s not 2 years. So,
and he shall be responsible for damages. The
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26
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same rule applies when the nature of the 4. When the object of the obligation is
obligation requires the assumption of risk. lost and the loss is due partly to the
(1182a) fault of the debtor
5. When the loss of the thing occurs after
1262, par (2) discussion the debtor has incurred in delay
6. When the debtor promised to deliver
GR the same thing to two or more persons
Loss of determinate or specific thing will who do not have the same interest
extinguish the obligation if the loss is (1) due 7. When the obligation to deliver arises
to fortuitous event and there is (2) no delay from a criminal offense
8. When the obligation is generic
Thus, if the thing is lost due to the fault of the
debtor, debt is not extinguished. Instead, it is Article 1263. In an obligation to deliver a
converted to a monetary liability for generic thing, the loss or destruction of
indemnification of damages. anything of the same kind does not
extinguish the obligation.
Illustration:
Obligation to deliver a specific car is due GR: The obligation continues to exist because
today but not delivered today, even after a a generic thing does not perish
demand has been made. The next day, the
car floated in the flood. EXC:
Here, flood is a fortuitous event. But the 1. If the generic thing is delimited
debtor is still liable for damages because 2. If the generic thing has already been
there was already delay. segregated or set aside, in which case it
has become specific
Illustration (cont’d):
If in the previous illustration no demand was Q: What if the money you set aside to pay
made, and on the next day, the car floated in your obligation was robbed, will it extinguish
the flood, the obligation is extinguished your obligation?
because there was no demand yet. No
demand, no delay. There may had been A: No, because money is considered a
ordinary delay but there is no legal delay yet. generic thing and as a general rule, it will not
perish and thus your obligation continues to
XPNs (FE does not extinguish obligation) exist.
1. When expressed by law
2. When stipulated by the parties
Article 1264. The courts shall determine
3. When nature of the obligation requires whether, under the circumstances, the
assumption of risk
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27
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partial loss of the object is so important as
to extinguish the obligation. Q: Does the disputable presumption still
apply in cases of earthquake, flood, storm, or
other natural calamity.
Q: Will partial loss extinguish the obligation?
A: It no longer applies because they are

A: The effect of partial loss on the obligation
fortuitous events where lack of fault is more
will depend upon the sound discretion of the
likely.
court. It is therefore on a case-to-case basis.
Q: How does the law presume who is at

MBL Examples: (You can look into the
fault?
purpose for which the thing was given)
A: When the thing that was lost was in the

1. There is an obligation to deliver a specific
possession of the debtor at the time of loss,
car and the purpose was for the creditor to
there is a disputable presumption that it was
drive the car. If The engine was stolen, this
lost due to his fault. However, this
can be considered a partial loss which will
presumption shall not apply when the loss
extinguish the obligation, provided that
was caused by natural calamities such as
the debtor was not at fault or in delay.
earthquakes, flood, or storm. If there is an
occurrence of a natural calamity, the
2. There is an obligation to deliver a specific
presumption then would be that it was
car but it was only for exhibition purposes.
caused by a fortuitous event. (Art. 1265)
If the engine was stolen, this will not be
considered a partial loss that will
extinguish the obligation.
Article 1266. The debtor in obligations to do
shall also be released when the prestation
Article 1265. Whenever the thing is lost in becomes legally or physically impossible
the possession of the debtor, it shall be
without the fault of the obligor.
presumed that the loss was due to his fault,
unless there is proof to the contrary, and
without prejudice to the provisions of Article When you talk about loss, it could either refer
1165. This presumption does not apply in to physical impossibility or legal impossibility.
case of earthquake, flood, storm, or other
natural calamity.
Legal impossibility: if the prestation
becomes illegal – perhaps by the passing of a
Q: If the loss occurs while the thing was in the new law prohibiting a particular thing to be
possession of the debtor, what is the effect? sold, or a particular act to be done.
A: There is a disputable presumption that the

loss was due to the debtor’s fault.
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28
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Article 1267. When the service has become However, if the one who sold the car already
so difficult as to be manifestly beyond the tried to return it but the owner did not accept
contemplation of the parties, the obligor it without just cause and the car was totally
may also be released therefrom, in whole or wrecked due to an earthquake. That person is
in part. released from liability in terms of the return
of the car. His criminal liability for the theft
still subsists as this is a separate matter. This
Article 1267 talks about relative impossibility.
also excludes damages from the criminal
liability.
Relevant case: There is a railway, and
continuing it would be very dangerous to life
and limb. The Supreme Court said that that ARTICLE 1269. The obligation having been
was not what was contemplated by the extinguished by the loss of the thing, the
parties, for the railway track to be as creditor shall have all the rights of action
dangerous as it is. It was manifestly beyond which the debtor may have against third
the contemplation of the parties, so it was persons by reason of the loss.
held that the obligation is considered to be
extinguished.
When we talk about loss due to fortuitous
events, fortuitous events may also include the
Article 1268. When the debt of a thing acts of man or 3rd persons. The debtor’s
certain and determinate proceeds from a liability is extinguished because the loss was
criminal offense, the debtor shall not be not due to his fault and there must be
exempted from the payment of its price, negligence or bad faith on his part.
whatever maybe the cause for the loss,
unless the thing having been offered by The creditor can now proceed against those
him to the person who should receive it, who may have caused the loss.
the latter refused without justification to
accept it.
CONDONATION OR REMISSION
Illustration:
ARTICLE 1270. Condonation or remission
Somebody stole a car — so in other words is essentially gratuitous, and requires the
that proceeds from a criminal offense. What acceptance by the obligor. It may be
Article 1268 tells you is that even if the car is made expressly or impliedly.
now totally wrecked due to a typhoon (a
fortuitous event), the liability of the One and the other kind shall be subject to
perpetrator cannot be extinguished. the rules which govern inofficious
donations. Express condonation shall,
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2. Impliedly
furthermore, comply with the forms of
donation.
Article 1270, 2nd Paragraph
Condonation or Remission - an act of One and the other kind shall be subject to the
liberality by virtue of which the oblige or rules which govern inofficious donations.
creditor without receiving any price or Express condonation shall, furthermore,
equivalent renounces the enforcement of the comply with the forms of donation.
obligation, as a result of which, it is
extinguished in its entirety or in that part of Q: Why donation?
which the remission refers.
A: Because your creditor will no longer accept
REQUISITES OF REMISSION: any equivalent since he has basically given
that to the debtor, whatever the debtor may
First, It must be Gratuitous – creditor does not have received from him that created the
receive anything in return for canceling the obligation to give something back.
debt
There is now a donation. Thus, the law says
Second, it must be accepted by the obligor or there must be acceptance, whether express
debtor. or implied.
Third, obligation must already be due and

demandable.
Article 1271. The delivery of a private
document evidencing a credit, made
Article 1270. Condonation or remission is voluntarily by the creditor to the debtor,
essentially gratuitous, and requires the implies the renunciation of the action
acceptance by the obligor. It may be made which the former had against the latter.
expressly or impliedly.
If in order to nullify this waiver it should be
One and the other kind shall be subject to claimed to be inofficious, the debtor and his
the rules which govern inofficious heirs may uphold it by proving that the
donations. Express condonation shall, delivery of the document was made in
furthermore, comply with the forms of virtue of payment of the debt.
donation.
Article 1271, 1st Paragraph
Article 1270, 1st Paragraph
Q: Why should it be a private document
Acceptance by the obligor may be made: evidencing a credit? If it is a notarized
1. Expressly document evidencing a credit that is being
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returned by the creditor to the debtor Article 1271(2). If in order to nullify this
voluntarily, why isn’t that act considered waiver it should be claimed to be
implied remission? inofficious, the debtor and his heirs may
uphold it by proving that the delivery of the
A: This rule on implied remission – when document was made in virtue of payment
there’s delivery of a private document of the debt.
evidencing credit – will only apply to private
documents. Because if it were public or
Article 1271, 2nd Paragraph
notarized documents, it’s very easy to get a
Meaning: The 1st paragraph is just a
copy of that. If you have documents notarized,
disputable presumption.
you will submit a copy to your notary public.
The notary public will submit it to the clerk of
Reason: The creditor himself, or his heirs, if he
court. The clerk of court will have copies of
is already dead, can offer proof that he
that. So, it’s very easy, in theory, to get copies
delivered the document only for purposes of
of that.
collection or that it may have been
inadvertence.
It would be dangerous for the law to allow
that if there is a public document evidencing
the credit and then the creditor delivered it to Article 1272. Whenever the private
the debtor, that should not be implied document in which the debt appears is
found in the possession of the debtor, it
remission. Because your debtor may abuse
shall be presumed that the creditor
such. He could just get a copy and say that it delivered it voluntarily, unless the contrary is
was delivered to him. proved.
The implied remission must be coming from

Art. 1272 and 1272 go together.
the private document because it’s just
between them. And then gi-uli sa creditor to
Disputable presumptions if the private
the debtor. That’s implied remission.
document evidencing credit is in the hands
of the debtor
Because usually, it should be the creditor who
● This was delivered by the creditor
should be holding that as evidence that he
voluntarily
has collectible from the debtor.
● This was delivered to the debtor to forgive
the debt
That’s the reason behind the law. That the law
considers implied remission if the private
TN: Disputable because the creditor can offer
document evidencing the credit is now in the
proof to prove otherwise.
hands of the debtor.
Illustration: A owes B 100,000. A gave to B a
PN evidencing such debt.
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If A is indebted to B and C is the guarantor
Q. If the PN, is found in the possession of A, (accessory obligation of guaranty), if B
what are the presumptions? renounces the debt of A, C’s obligation is also
● B voluntarily delivered it to A. extinguished.
● It was voluntarily delivered to A to forgive
A’s debt. Now, A borrowed P100K from B, and B
required a deposit of a diamond ring as
security for the loan. A few months later, the
Art. 1273. The renunciation of the principal
debt shall extinguish the accessory ring is found in the possession of A. What are
obligations; but the waiver of the latter shall the presumptions under the law?
leave the former in force.
A:
Q. if there is a contract of loan for 1M Art. 1274. It is presumed that the accessory
secured by a mortgaged over a parcel of obligation of pledge has been remitted when
land. If the creditor remits the contract of the thing pledged, after its delivery to the
loan, what happens to the mortgage? creditor, is found in the possession of the
debtor, or of a third person who owns the
Since the principal obligation is extinguished, thing.
then the accessory is also extinguished.
So this law says that since the ring is now in
Q. What if it was the mortgage that was the possession of the debtor A, the disputable
remitted by the creditor? What happens to presumption is that the pledge has been
the contract of loan? remitted or condoned by the creditor B. The
principal obligation will remain.
Only the mortgage is extinguished. The
principal obligation subsists.
CONFUSION OR MERGER OF RIGHTS
Principle: Accessory follows the principal.

Art. 1275. The obligation is extinguished
If there is no principal debt, the accessory from the time the characters of creditor and
obligation no longer has a principal that it debtor are merged in the same person.
depends on for its existence. But if it’s the
accessory being remitted, the principal Requisites:
contract of loan will remain because 1. The character of the principal debtor
extinguishment of the accessory will not and the principal creditor must concur
affect the principal. in the same person;
Example:
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2. The merger must take place in the
person of principal debtor or principal A: The contract of guaranty would also be
creditor; extinguished because the principal obligation
3. The merger must be complete and to which the existence of the accessory
definite. obligation depends on is also already
extinguished by merger.
Article 1276. Merger which takes place in Q: A is indebted to B in the amount of

the person of the principal debtor or P100,000. C is the guarantor. If B assigns the
creditor benefits the guarantors. Confusion credit to C, what happens to the obligation?
which takes place in the person of any of
the latter does not extinguish the A: The obligation would subsist. There is no
obligation. (1193) valid merger because it must take place in
the principal debtor and creditor who is A and
B, respectively. So the merger should either
● Merger which takes place in the person happen in A or B, but B assigned the credit to
of the principal debtor or creditor C. The obligation will remain. However, the
benefits the guarantors. The obligation guaranty is extinguished because C is now
will be extinguished – if the principal the creditor. He cannot be the creditor and at
obligation will be extinguished, the the same the guarantor of A, because if he
accessory shall also be extinguished. collects from A and A does not pay, he would
● Confusion which takes place in the collect from himself.
person of any of the guarantors will not
extinguish the obligation. But of
course, the contract of guaranty will be Article 1277. Confusion does not extinguish
extinguished by merger. a joint obligation except as regards the
share corresponding to the creditor or
Q: A is indebted to B in the amount of
debtor in whom the two characters concur.
P100,000. C is the guarantor of A. If B assigns
(1194)
the credit of P100,000 to A. What happens to
the obligation?
A and B, joint debtors, indebted to C in the

A: The obligation would be extinguished
amount of P100,000. C assigns his credit to B.
because B assigned it back to A. So A is the
debtor and also the creditor at the same time.
Q: What happens to the obligation?
It is complete and definite. It is for the entire
amount of P100,00.
Ans: The obligation of B will be extinguished
but the obligation of A will remain. In our
Q: What happens to the contract of guaranty?
example, 100,000 supposedly if joint, A shares
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33
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50,000 and B shares 50,000. But then C, the
exercised with respect to his wife.
credit of which was 100,000 was assigned to
Meanwhile, Masa presented witnesses who
B, so B now for his share nahimog merger but
testified that the evidence of indebtedness
it should not extinguish the obligation of A
was returned to him by Velasco, through his
because it is a joint obligation. The obligation
wife, as remission of the debt.
of B is extinguished because he now became
the debtor and creditor, but for A, he still has
ISSUE: Whether remission of the debt
to pay his share of 50,000, but this time he
occurred.
pays to B.
RULING: YES. Under the Civil Code, the
It would have been different if the obligation
possession by the debtor of a private
is solidary, then A and B are considered as one
document proving a debt supposes and
so C will assign it to B, then the entire
creates the presumption that the creditor
obligation is extinguished because there is
delivered it voluntarily, unless the contrary is
now merger in one of the solidary debtors but
proven, and no such proof has been offered
another obligation is created between and
by Velasco upon whom the burden rests to
among solidary debtors. At the end of the day,
destroy the said presumption.
the effect is the same. That is Art. 1277.
Therefore, since no proof appears in the
Veloso vs Masa record that the delivery of the document
10 Phil. 279 was not voluntarily made, it appears from
the whole of the foregoing that the debt
FACTS: Felix Velasco filed a case for robbery now claimed was remitted for reasons of
against Martin Masa. Velasco alleged that gratitude, and that Velasco has implicitly
by means of threats, Masa was able to waived its recovery.
obtain a private document against the
former’s wife, which was evidence of the MBL: Here as we said disputable
loan obtained by Masa from him. However, presumption, they were not able to dispute
the latter was acquitted because it was the presumption. They could not offer proof
proven that the private document had been that there was no voluntary delivery of the
delivered for reasons of gratitude private document so the SC applied the
Unsatisfied, Velasco instituted this present general rule and applied the presumption
civil case for the collection of the loan he that since the private document is with the
allegedly granted to Masa. debtor, it was remitted. There were other
pieces of evidence shown by the debtor
Velasco avers that the private document that it was an act of gratitude.
which evidenced the debt was obtained by
Masa through coercion and trickeries
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Lopez vs. Tambunting correctly held that there was sufficient
33 Phil. 236 evidence to show that the obligation had
not yet been paid.
Facts:
In order that such a presumption may be
Lopez is a doctor who allegedly rendered
taken into account, it is important that the
professional medical services to the
evidence of the obligation be delivered up
daughter of Tambunting. In consideration to the debtor and that the delivery of the
thereof, Lopez demanded payment from instrument proving the credit be made
Tambunting for the amount of P700. He voluntarily by the creditor to the debtor. In
allegedly sent a receipt to Tambunting as this case, Lopez merely delivered the receipt
part of the former’s demand for the latter to as part of his demand for the latter to pay. It
pay. Since his demands were not heeded, cannot be said that it was his intention that
he filed a case against Tambunting in the the document should remain in possession
Court of First Instance for the collection of of Tambunting if the latter did not pay the
P2000 said amount.
Tambunting denied the allegations stating

that the obligation has already been MBL: Here, the presumption of voluntary
extinguished as evidenced by his delivery and of implied remission was
possession of the receipt rebutted with sufficient evidence. SC said that
here, the creditor/obligee had proved that the
Issue: Was the obligation extinguished? reason why he sent it was for collection.
Ruling:
Sochayseng vs. Trujillo
No. Tambunting claims that he already paid 31 Phil. 153
for the obligation as evidenced by his
possession of the receipt. He operates under Facts: Paulina Sochayseng (plaintiff) is the
the presumption in the Civil Code that mother of Marcela Sochayseng, the wife of
states that an obligation delivered up to the the defendant who died without leaving
debtor has been paid, and whenever the any legitimate heir other than the plaintiff.
private instrument which evidences the
debt is in possession of the debtor, it will be Months before her death, Marcela left her
presumed that the creditor delivered it of husband with his knowledge and consent
his own free will, unless the contrary is and went to her mother. Paulina took care
of Marcela while she was sick which cost her
proven.
the sum of P410 and the burial expenses of
P320.
In this case however, the legal presumption
established cannot stand if sufficient proof
Plaintiff prayed that the defendant be
is adduced against it. The trial court sentenced to pay her the sum of P730 and
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be ordered to proceed with the settlement person, the obligation is extinguished."
and partition of the conjugal partnership
estate. However, the P320 expenses for the funeral
must be paid not by the husband, but by
Defendant filed a cross complaint by the heir. Therefore the P320 expenses for
alleging that his wife left him without his funeral services shouldered by the plaintiff
knowledge and consent. Moreover, he sent must be extinguished because she
Marcela P12 a month for her support. becomes the debtor in such case.
Defendant demanded the plaintiff to deliver
to him certain articles belonging to the Defendant is liable only to pay P410 as debt
conjugal partnership, valued at P615. owed by him as the legal administrator of
Defendant also prayed for the dismissal of the community property for the cost of
payment of P730 for it should have been subsistence to which Marcela was entitled.
made to the commissioners of appraisal. Plaintiff will collect the P410 under her
personal right as a creditor of the
In settling the payment, the court ordered defendant, like any third person who might
that the conjugal property which amounted have furnished that subsistence, and the
to P1615 must first be paid the value of the remaining P1,534 as the legitimate heir of
property brought into the partnership by the deceased Marcela Yatco.
Marcela at her marriage which amounts to
P1490. The remaining balance of P125 shall MBL: You have here the mother of the
be used to pay the debts, charges, and deceased daughter suing the husband for
obligations of the conjugal partnership. refund for 410php subsistence and 320php
funeral expenses. For the 410, SC said it
Issue: W/n plaintiff can collect P320 should be shouldered by the conjugal
(amount of funeral expenses) from property. The conjugal property will have to
defendant? refund the mother. But with respect to the
320 funeral expenses, the law provides that
Ruling: NO. The trial court held that there for funeral expenses (at that time), it should
was an amount payable for subsistence have been the property of the deceased
furnished by plaintiff to defendant’s daughter that should be used.
deceased wife (P730). This credit must be
paid by the defendant. So if paraphernal, the mother also became
an heir. She gets ½ of the share of the
In these special proceedings there should daughter. If she gets the share of the
be presented, if proper, the claim of P320 for daughter it means that that share that
the funeral expenses of the deceased, to should have been used to pay, that she gets,
which preference should be given as the merger of the qualities of the creditor
prescribed by section 735 of the Code of and debtor are now found in the mother.
Civil Procedure: "1. The necessary funeral Because she inherits but at the same time
expenses." But of course we must not lose she is liable to refund others including
sight of the provision of article 1192 of the herself for such expenses. That was
Civil Code: "Whenever the characters of extinguished by virtue of merger or
creditor and debtor are merged in the same confusion.
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claim demanding said ship, alleging that it
had been mortgaged to him long before
the issuance of said writ and, therefore, he
was entitled to the possession thereof. Thus,
Yek Tong Lin Fire & Marine Insurance Co. he instituted this case and asked for the
vs Yusingco issuance of a writ of preliminary injunction
addressed to the defendants to restrain
46 Phil. 473
them from selling the steamship at public
auction.
FACTS:
Pelagio Yusingco was the owner of the However, the writ of preliminary injunction
steamship Yusingco. In November 1927, he was later
executed a power of attorney in favor of Yu dissolved and said ship was sold at public
to administer, lease, mortgage and sell his auction. The
properties, including his vessels or same was purchased by Plaintiff.
steamship.
ISSUE: Whether there is confusion or
Yu then mortgaged to the plaintiff Yek Tong merger in so far as the personality of the
Lin Fire & insurance company is concerned.
Marine Insurance the steamship to answer
for any amount that it might pay in the RULING: SC Held in affirmative.
name of defendant Yusingco on account of
the defendant's loan from China Banking The SC said that there is confusion or
Corporation. merger in this case when the steamship
was sold at a public auction, the only right
Later, the steamship needed some repairs left to the plaintiff or the petitioner in this
which were case, was to collect its mortgage credit;
made by Earnshaw upon the petition of however, since it was the insurance
Hermanos who was co-owner of Pelagio company which successfully bought the
Yusingco. The repairs were made upon the involved ship in this case at a public auction,
guarantee of Vicente Madrigal. then it would be absurd for it to collect the
mortgage credit because what happens
When neither Yusingco nor Hermanos now is that the purchaser becomes the
could pay, Madrigal had to pay the owner of the steamship.
obligation plus interest. Earnshaw thus
assigned its credit against Hermanos to In addition (from 2021 404 digest):
Madrigal. When Madrigal discovered that Article 1922, paragraph 1, of the Civil Code,
he was not to be reimbursed, he brought an Earnshaw was entitled to recover the cost of
action against his Yusingco and Hermanos said repairs, inasmuch as the steamship,
to compel them to reimburse which before as well as at the time of its sale at
resulted in a favorable judgment. public auction by virtue of a judicial writ,
Madrigal later sought and obtained a writ of was in the possession of the owners,
execution. However, before the sale of the debtors of the plaintiff.
steamship, herein plaintiff filed a third party
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If Earnshaw had such right, naturally the a creditor for the repairs. So Yusengco was
defendant and appellant Madrigal later had unable to pay for the repairs. Yusingco was
such right, to the same extent as the former, not able to pay for the repairs so Madrigal
by virtue of the assignment made to him sued Yusingco for the payment but
after he, as guarantor, paid the obligation Yusingco was unable to pay so Madrigal
contracted by the Yusingcos with the attached the boat. That means that you are
Earnshaw Docks & Honolulu Iron Works for asking the court to sell it at public auction
the repair of said vessel. This is necessarily so that the proceeds will be used to pay off
so because the assignee is entitled to the debt. So it was sold at public auction.
exercise the right and prosecute all actions Perhaps nagtuo si Yek Tong Lin Fire that it
belonging to the assignor (Articles 1212 and would protect itself if they bought the
1528, Civil Code; Section 114, Act No. 190). property. They bought the boat. So what
happens? You bought the property that was
When the plaintiff attempted to foreclose supposedly mortgaged in your favor as
the mortgage constituted in its favor, its security. So you're a creditor and then you
only right with respect to said vessel was to bought the property that was supposedly
sell it judicially or extrajudicially in mortgaged to you.
accordance with law, upon default in the
performance of the conditions of the So what happens? There's a merger on the
mortgage contract, in order to apply the mortgage. So nawagtang ang mortgage in
proceeds of the sale to its mortgage credit
your favor. BUT of course, the principal loan
against said owners, or at least against
Pelagio Yusingco, if such proceeds are will have to remain. Don't be misled
sufficient; and if sufficient, to collect the because the SC said that the
balance thereof on other property mortgage-credit is extinguished. No, it's just
belonging to said defendants. The the mortgage. Perhaps the SC actually
steamship Yusingco was then in custodia meant just the mortgage, not the principal
legis and, under the circumstances, it could loan because then it would be unfair on the
neither take possession thereof nor sell it
part of Yek Tong Lin Fire if the principal loan
pursuant to the conditions of its mortgage
contract. will be extinguished. It's just the mortgage.
Meaning, wala na'y security ang loan. Yek
MBL: I wanted to explain this case because Tong Lin FIre, if it goes after Yusingco and
somehow there’s something wrong with Yusingco cannot pay, wala na siya’y
the case because it says there that the mortgage na ma-foreclose. Why? Because
mortgage credit is extinguished. It’s it already owns the property.
actually wrong to say that the credit is
extinguished because what was
extinguished by merger or confusion is
actually just the mortgage. What
happened here was Yusengco had two
creditors – you have Yek Tong Lin Fire and COMPENSATION
also Madrigal. Yek Tong Ling was a
mortgagee-creditor, and Madrigal was also
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ARTICLE 1278. Compensation shall take 4. The debts must be liquidated and
place when two persons, in their own right, demandable;
are creditors and debtors of each other. 5. That over neither of them there be any
retention or controversy, commenced by
third persons and communicated in due
Concept of Compensation time to the debtor.
A mode of extinguishing in their concurrent
amount those obligations of persons who are
What are the requisites for compensation
reciprocally debtors and creditors of each
to take place?
other.
Art. 1279
Confusion v Compensation
1. That each one of the obligors be bound
principally, and that he be at the same time a
Confusion - Extinguishment happens in one
principal creditor of the other;
person there is a merger of the qualities of
2. The debts must consist in a sum of money
the debtor-creditor to one person.
or if the things due are consumables, they be
of the same kind and quality, if the latter has
Compensation - two people, one is debtor to
been stated;
another but that person is also a creditor of
3. Both debts must be due;
another.
4. The debts must be liquidated and
demandable;
Illustration for Compensation:
5. That over neither of them there be any
retention or controversy, commenced by third
A (debtor) is indebted to B (creditor). B is also
persons and communicated in due time to
(debtor) indebted to A (creditor).
the debtor.
Illustration for Confusion:
First Requisite - They are principal creditors
and debtors of each other
A is the debtor and creditor.
Second Requisite - debts must consist in a

ARTICLE 1279. In order that compensation sum of money or if the things due are
may be proper, it is necessary: consumables, they be of the same kind and
1. That each one of the obligors be bound
quality
principally, and that he be at the same time
a principal creditor of the other;
2. The debts must consist in a sum of Example:
money or if the things due are
consumables, they be of the same kind and A is indebted to B for 500k. B is indebted for
quality, if the latter has been stated; 500k. Both are in money.
3. Both debts must be due;
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39
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Consumables must be of the same kind ● A is obliged to give to B rentals, 20000
plus 5% of gross sales for the month of
A is indebted to B to deliver 10 sacks of Jasmin August due every 5th of the month
● B is indebted to A 10,000 due August
Rice. B is also indebted to A to deliver 10 sacks
25, 2022
of Jasmin. ● How much may be legally
compensated today, Aug. 25, 2022?
It cannot be extinguished by compensation, ● Compensation may only take place
if: between the 20,000 and 10,000
because the 5% of gross sales in the
A is indebted to B for 10k. B is indebted for 10 month is not yet liquidated
sacks of Granador rice. Because they are not
Over neither of them, there should be no
of the same kind.
controversy or retention from third persons
and communicated in due time to the debtor.
BUT, if they agree even if they are not of the
same kind then that is - Voluntary
Q. A is indebted to B in the amount of 100k,
Compensation
guaranteed by C. B is indebted to C in the
amount of 100K.
HOWEVER, in Legal Compensation or by
operation of law - it has to be of the same
There is no compensation but the guarantee
kind.
remains. The debt of B to C is separate and
Third Requisite, 2 debts be due distinct from the obligation of A to B as well
as the subsidiary liability of C as guarantor.
● If A is indebted to B for 500,000 due on The first requisite is not present because the
August 13, 2022 creditors and debtors in their own right owe
● B is indebted to A for 500,000 due on each other. Here, A owes B but B does not
August 26, 2022
owe A.
● Today, Aug. 25; no compensation yet
● Tomorrow Aug. 26, there is already
compensation Q. A is indebted to B in the amount of 100K, B
indebted to A for a specific car. Can there be
Fourth Requisite, Debts are liquidated and legal compensation?
demandable
No. It is not of the same kind. But, if they do
Demandable
agree to compensate even if they are not of
o Neither of the debts has prescribed; or
o Obligation is not invalid or illegal the same kind, it’s permissible since it’s
voluntary compensation.
Liquidated
o Amount known Q. A is indebted to B for 100k due on January
5, 2020. B indebted to A for 100k due on
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40
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December 31, 2021. Is there compensation on TN: for legal compensation to take place, both
November 5, 2021? obligation must be in sum of money, or if
consumable, it must be of the same kind or
There’s no compensation since one debt is quality.
not yet due and demandable.
XPN: if they agreed to compensate, even if
Fifth Requisite, Over neither of them there not in the same kind, it is allowed because it is
be any retention or controversy voluntary compensation.
commenced by any third persons and
communicated in due time to the debtor Example #3
A is indebted to B 100,000 due on Jan 5, 2020
● IOW, it is not subject of court B is indebted to A 100,000 due on December
litigation 21, 2021
● If subject to court litigation,
controversy must first be Q:Is there compensation on November 5,
resolved 2021?
No compensation yet because not both of
Example #1: debt is due and demandable. Assuming there
● A is indebted to B in the amount of was no payment made yet, legal
100,000 compensation may take place in December
● Guaranteed by C 21, 2021.
● B is indebted to C for 100,000
● Guaranty remains Example #4
● The debt of B to C is totally separate A is indebted to B 100,00; 25,000 of which is
from the obligation of A to B as well being garnished by the BIR
as the subsidiary liability of C B is indebted to A 100,000
st
● 1 requisite is missing
Q: can there be compensation?
Example #2 No compensation, there is already a claim by
A is indebted to B in the amount of 100,000 a 3rd person or a controversy.
B is indebted to A to deliver a specific car
Recall Example #1.
Q: can there be legal compensation? Q: what are the rights of C, should B go
after C if A could not pay him the 100k?
No legal compensation; not of the same kind. Since guaranty is not yet extinguished.
The other one pertains to a sum of money
and the other one pertains to a car. Is there any right or remedy granted by law
to the guarantor in this situation?
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A: ART. 1280. Voluntary Compensation
The parties may agree upon the
compensation of debts which are not yet due,
Art. 1280 Guarantor sets up compensation.
and even not of the same kind. So the five
Notwithstanding the provisions of the
requirements we mentioned talk about Legal
preceding article, the guarantor may set up
Compensation where compensation takes
compensation as regards what the creditor
effect by operation of law. In other words, the
may owe the principal debtor.
parties will not do anything else as their
obligation is now extinguished.
If there is a guarantor, the guarantor can set
up compensation. So if B will collect from A, Judicial Compensation
the guarantor can say to B that I will not pay Found in Article 1283. Here, there is obligation
you because you also owe my principal, and damages so this article tells us that one
because he is the guarantor. That is Article party may offset or compensate his
1280. obligations with the damages he may be
entitled to at the end of the proceedings.
Q: When we talk about compensation, is it
Article 1283. If one of the parties to a suit
always total compensation?
over an obligation has a claim for damages
against the other, the former may set it off
A: There may be partial compensation with by proving his right to said damages and
the concurrent amount or up to the extent the amount thereof.
only.
Article 1283 tells you that damages can be
So your compensation need not be total all used to set off an obligation that is due to
the time. There can still be legal another.
compensation up to the concurrent amount
or what we call your partial compensation. Example: A has sued B for collection of a sum
of money in the amount of Php 1,000,000.00.
Illustration: If A is indebted to B 100,000 due However, B countersued for damages -
on August 27, 2022. B is indebted to A claiming that A has abused his rights in the
P60,000 due on August 29, 2022. On August collection (shamed him, posted about his
29, both debts are already due and debt on Facebook, called him a scammer, etc.
demandable, up to what amount is there = abuse of rights under Article 19).
compensation?
If B is asking for Php 500,000.00 in damages
A: Up to P60,000 only therefore A is still liable and he is able to prove it and the court grants
to B to pay P40,000 on August 29. So B can it, then there is compensation up to Php
still make a demand. 500,000.00.
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Article 1284. When one or both debts are
rescissible or voidable, they may be
compensated against each other before If the creditor communicated the cession to
him but the debtor did not consent thereto,
they are judicially rescinded or avoided.
the latter may set up the compensation of
debts previous to the cession, but not of
Example: A is indebted to B in the amount of subsequent ones.
Php 500,000.00 and B is indebted to A in the
amount of Php 80,000.00 (no periods - due
and demandable). However, A was forced to If the assignment is made without the
promise to pay Php 500,000.00 to B because knowledge of the debtor, he may set up the
B’s husband threatened A. compensation of all credits prior to the
same and also later ones until he had
knowledge of the assignment.
Can there still be compensation?
A: Yes, because the force/intimidation is only

grounds for a voidable contract or obligation. Assignment WITH
Being voidable, it is valid until annulled. consent GR: Compensation
cannot be set up
Hence, there will be compensation unless
because consent
the obligation of A to B is subsequently operates as a waiver.
annulled at the instance of A.
Decree of rescission retroacts

EXPN: right to
To avoid unfairness if rescission/annulment is compensation (that
later on decreed by the court; as if no has already taken
compensation ever took place. place) is reserved
GR: Compensation
Assignment WITH can be set up
knowledge, regarding debts
Art. 1285. Effect of Assignment. The debtor previous to the
who has consented to the assignment of cession or
rights made by a creditor in favor of a third assignment/debts
person, cannot set up against the assignee WITHOUT Consent maturing before
the compensation which would pertain to assignment (before
him against the assignor, unless the notice)
assignor was notified by the debtor at the
time he gave his consent, that he reserved Assignment without
his right to the compensation. knowledge GR: debtor can set
up compensation as
defense for all debts
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43
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WITH THE KNOWLEDGE BUT AGAINST THE
maturing prior to
his knowledge WILL OF THE DEBTOR
(whether the debts
matured before or A is indebted to B 100K which is due on
after the August 31, 2022. B is also indebted to A 80K
assignments due on August 15, 2022; 20K due on
September 13 2022. B assigns his credit to X.
Crucial time: time of
knowledge (not The assignment was done on September 3,
assignment) 2022. A knew about it, but did not consent to
the assignment. If X collects from A, how
Reason: prevention much can X collect on September 5. 2022?
of fraudulent
deprivation of the
Student: X, can collect 20,000 from A since
benefits of total &
partial against the will of the debtor. There can only
compensation. be compensation previous to the date pf
assignment, date of knowledge which is
80,000 which is due Aug. 15, 2022.
Assignment WITH consent
Atty: The reason for that is actually because of
legal compensation or operation of law they
A is indebted to B 100, 000. B is indebted to A
have set-off.
100, 000. A assigns his credit to X. X now
becomes the creditor. If X collects from B, can
The assignment was made September 3,2022.
B refuse to pay and say “I will not pay you X
There are 2 debts owed by B to A: 80,000 and
because A is also indebted to me for 100k.” If
20,000. When the 100,000 of A became due
such assignment was made with his consent.
on August 31, they set of by operation of law.
So assuming, nothing was paid by A to B,
Answer: B cannot refuse because the
that’s why B assigned the entire credit of
assignment was done with B’s consent.
100,000 to X on September, 2022. There was
Therefore, on the day it will be due and
already legal compensation up to the
demandable, B has to pay X the 100k. Unless,
concurrent amount. THe debts that was
there is a reservation of his right to collect.
already due and demandable was the 80,000.
So, X can still collect 20,000. A can already set
ATTY: Article 1285 tells you that if the debtor
up with the debts maturing prior because
consents to the assignment, then he can no
there was already compensation by operation
longer set up compensation. Unless, even
of law. That is assignment with the
though you consented to the assignment but
knowledge but against the will of the debtor.
you told A that you are reserving your right to
set up compensation even as against X.
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44
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How about assignment without the credit which was assigned - the debtor can
knowledge of the debtor? A is indebted to B set up compensation as a defense for all the
and B indebted C due on Aug. 15,2022. 20,000 debts maturing prior to his knowledge of the
due on Sept. 10,2022. B assigned his credit to assignment.
X on Sept 3, 2022. A came to know of the
assignment only on September 4, 2022. If X Illustration: A is indebted to B for P100k due
collects from A, how much can X collect on on August 31, 2022. B is also indebted to A for
Sept 4, 2022 2 debts: 1) P80k which is due on August 15,
2022 and 2) P20k which is due on September
Student: X can collect nothing because the 13, 2022. B assigned the credit to X meaning
assignment was done without his knowledge. the P100k that B owes him, he assigned it to X
The obligation is totally extinguished. on September 3, 2022. A had knowledge of
the assignment only on September 4, 2022.
Atty: The reckoning point for legal How much can X collect against A?
compensation are debts maturing prior to the
knowledge of the assignment. A came to Answer: X can still collect P20k from A
know of the assignment only on Sept. 4, 2022. because what is compensated are those
The law says that the debtor can set up debts maturing previous to the knowledge,
compensation only with debts maturing the knowledge came on September 4, 2022.
prior to the knowledge of the assignment.
And what were the debts maturing prior to
So, A is the debtor of B for 100,000. B owes A Septemer 4, 2022? It was the P80k debt
80,000 and 20,000. B assigns the 100,000 to X. maturing on August 15, 2022 which means
X wants to collect the 100,000 from A. On that it was only compensated to the extent of
Sept. 4, 2022, X can actually still collect 20,000 P80k, leaving a balance of P20k.
from A.
Illustration: A is indebted to B for P100k due
What is compensated are those debts on August 31, 2022. B is also indebted to A for
maturing previous to the knowledge. 2 debts: 1) P80k which is due on August 15,
Compensation was only to the extent of 2022 and 2) P20k which is due on September
80,000. There is still a balance from A of 13, 2022. B assigned the credit to X meaning
20,000. the P100k that B owes him, he assigned it to X
on September 3, 2022. A had knowledge of
WITHOUT THE KNOWLEDGE OF THE the assignment only on September 13,
DEBTOR 2022.. How much can X collect against A?
If the assignment is made without the Answer: X can no longer collect anything
knowledge of the debtor and subsequently from A. The reckoning period under Art. 1285
the assignee demands the payment of the is the date of the knowledge of the
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assignment. Here, the debtor knew of the
ARTICLE 1287. Compensation shall not be
assignment only on the date of collection by
proper when one of the debts arises from a
the assignee on September 4, 2022. And
depositum or from the obligations of a
boths have already matured so that legal
depositary or of a bailee in commodatum.
compensation took effect by operation of law
and X can no longer collect anything from A.
Why? Because these debts (depositary,
ASSIGNMENT WHEN COMPENSATION HAS commodatum) are not of the same kind.
NOT TAKEN PLACE
ARTICLE 1287. (cont.) Neither can
With the With the Without the compensation be set up against a creditor
consent of knowledge knowledge who has a claim for support due by
the debtor but without of the gratuitous title, without prejudice to the
the consent debtor provisions of paragraph 2 of Article 301.
of the
debtor
Illustration:
GR: Debtor may Debtor can A is indebted to the amount of 25,000 to B.
Compensati set up the set up B is entitled to give support to A, of 100,000.
on can no defense of compensatio
longer be setcompensatio n as a
up n of debts defense for If A collects from B 100,000 in support, B
prior to the all debts cannot say to A that he will only give 75,000.
UNLESS the assignment maturing
debtor prior to his Why? Because support cannot be set off or
reserves his knowledge compensated against another obligation.
right to set of the
up assignment
compensatio ARTICLE 1288. Neither shall there be
n compensation if one of the debts consists in
civil liability arising from a penal offense.
Without the Knowledge of the Debtor, the
reckoning point of what debts you may set Art. 1288 gives the general rule.
up compensation against: date when you
come to know of the assignment. Q: What is the exception, wherein a debt
consisting of a civil liability arising from a
TN: When the facts are silent as to the date penal offense may still be compensated?
when the person came to know of the
assignment, it is assumed to be the date of Exception to compensation with regard Civil
collection. liability arising from a penal offense:
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- When it is the victim who sets-up the Q: What is the order?
compensation
A: First, the debtor will choose. If the debtor is
TN: ONLY the VICTIM can set-up unable to choose, then the creditor will
compensation. specify in the receipt. If the creditor fails to
specify in the receipt, then the obligation
Example: which is more burdensome. If they are equally
burdensome, then pro-rata.
Victim is indebted to the perpetrator, only the
victim can set-up compensation.
ARTICLE 1290. When all the requisites
5. Obligations to the Government such as mentioned in Article 1279 are present,
taxes, fees, duties, and others of similar compensation takes effect by operation of
features. law, and extinguishes both debts to the
concurrent amount, even though the
Example: You are a contractor for government creditors and debtors are not aware of the
construction projects amounting to 20M compensation.
which remains unpaid and you also have
unpaid tax liabilities amounting to 15M. You don’t do anything, it just happens. The
obligation is extinguished - both debts to the
You cannot tell the BIR that you no longer will
concurrent amount, even though the
pay because the government owes you 20M.
creditors and debtors are not aware of the
You are indebted to the government for taxes
compensation.
not in a civil liability but in its sovereign
capacity.
ARTICLE 1291. Obligations may be modified
Q: If there several debts, both parties are by:
indebted to each other and all are due and (1) Changing their object or principal
demandable but there can only be partial conditions;
compensation, which debt will be (2) Substituting the person of the
compensated first? debtor;
(3) Subrogating a third person in the
A: The rules on application of payment will rights of the creditor.
be applied.
ARTICLE 1289. If a person should have

against him several debts which are NOVATION
susceptible of compensation, the rules on
the application of payments shall apply to Q: What is Novation?
the order of the compensation.
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A: Novation is a mode of extinguishment of
extinguished by another which substitute
obligation where it is either the: the same, it is imperative that it be so
declared in unequivocal terms, or that the
1. Changing of their object or principal old and the new obligations be on every
conditions point incompatible with each other.
2. Substituting the person of the debtor
(Change of Debtor) Two Types of Novation
3. Subrogating a third person in the 1. Express - declared in unequivocal terms.
rights of the creditor (Change of 2. Implied - no clear expression of such
Creditor) novation but the old and the new
obligation are incompatible with each
Q: What are the requisites for novation to
other.
take place?
1. Previous valid obligation – Because if Novation is never presumed

the obligation is void, then there is If it is not expressly stated that there is
nothing to novate. So, the previous novation, you cannot just assume even if
obligation must be valid. there is a new contract. You cannot just
2. The parties must agree to the new assume that there was novation. It has to be
obligation; proven that the old and the new obligations
3. Extinguishment of old obligation; and are completely incompatible.
4. New obligation should be valid
Steps in Construing New Contracts
1. Reconcile the old and the new obligations
1. Real or objective - change in the 2. If it can be enforced together, then no
conditions. novation.
2. Personal or subjective - change of the 3. If there is incompatibility, then there is
debtor or creditor. implied novation.
a. Expromission - change of the old Test of incompatibility:

debtor was initiated by a third person,
the new debtor. In implied novation, the test of
b. Delegation - change of the old debtor incompatibility between the old obligation
was initiated by himself. and the new obligation is whether or not the
two of them can stand together, each having
3. Mixed - change in the conditions or its own independent existence.
change of the parties.
The case of Cruz v. CA illustrates this test.
Art 1292. In order that an obligation may be
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agreement (MOA) and the first agreement
CRUZ V COURT OF APPEALS
(DPP). Novation is never presumed, so you
In this case, the wife and children of have to prove that in all points, the two
deceased Cruz executed a Deed of Partial agreements are incompatible.
Partition, dividing among themselves
parcels of land left behind in the estate. Another case involving mortgage also
They later executed a MOA agreeing that if
illustrates this.
one of them were to sell their designated
land, the proceeds would be shared with
everyone. PEOPLE’S BANK AND TRUST CO V SYVEL’S
INC.
The spouses Malolos sued one of the
children Nerissa, and lands belonging to her In this case, Syvel was granted a credit line
from the inheritance were levied for the with PBTC with a guaranty of merchandise
enforcement of the judgment debt. The covered by a chattel mortgage. The
lands were sold at public auction and the outstanding balance of Syvel amounted to
spouses bought it. P601K, so when it failed to make payment,
PBTC foreclosed the chattel mortgage.
The other Cruz heirs opposed, saying that
by the execution of the MOA, the DPP was Mr. Syyap, owner of Syvel, requested that
novated to make them all co-owners of all PBTC dismiss the case in consideration of a
the lands of the estate. real estate mortgage he would execute as
security for the payment of the outstanding
The issue in this case is whether or not the obligation, which PBTC allowed. However,
DPP was indeed novated by the MOA. when PBTC moved to dismiss, Syvel
contested because of their counterclaim, so
The Supreme Court said NO, because it trial proceeded.
was not the intention of the parties. There
was neither express novation nor complete The trial court ordered Syvel to pay, and if
incompatibility between the DPP and the they failed to do so, the chattel mortgage
MOA that would amount to novation. must be sold and the proceeds applied to
the debts. On appeal, Syvel argued that the
The DPP granted title to the lots inherited, original agreement with the chattel
and designating them to each of the heirs, mortgage was novated with execution of
while the MOA merely added an agreement the new agreement with the real estate
that any sale would redound to their mortgage, so PBTC’s cause of action was
collective benefit. There is no extinguished.
incompatibility, and since both
documents can exist together, there is no The issue in this case is whether or not
novation. there was novation when the real estate
mortgage was instituted.
In this case, the Supreme Court found no
The Supreme Court said NO. Novation can
incompatibility between the second
only take place when the object or principal
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two obligations, but there is also a change or
condition of an obligation is changed, and
that there must be an explicit statement or alteration of the principal condition of the old
that there must be manifest obligation.
incompatibility between the two
agreements to amount to novation. If there is an extension — NO NOVATION
If there is reduction of the term — THERE IS
In this case, the contracts do not show
NOVATION. There is now incompatibility
existence of an explicit statement of
novation, nor are any of the stipulations because the new obligation will shorten the
incompatible with each other. In fact, the period. Unlike when there is an extension,
second contract merely shows that the there is no incompatibility because the old
real estate mortgage was merely obligation which is due earlier is still being
intended as additional security to the enforced with the new obligation.
chattel mortgage. Novation was not
intended here, so the chattel mortgage
subsists. Art. 1293. Novation which consists in
substituting a new debtor in the place of
The Supreme Court said you can execute as the original one, may be made even without
many mortgage contracts. They are not the knowledge or against the will of the
incompatible with each other. The intent latter, but not without the consent of the
really was to have more properties secure the creditor. Payment by the new debtor gives
debt. Novation is never presumed. him the rights mentioned in Articles 1236
and 1237. (1205a)
The Supreme Court also had the occasion to
say that if there is an increase of the term or Novation which consists in substituting a new
period, such as when there is a debtor in the place of the original one, may be
postponement of the date of payment or an made even without the knowledge or against
extension of the period of payment, there is the will of the latter – this speaks of
certainly NO novation. Because in such cases, EXPROMISION because the initiative of the
there is no clear case of incompatibility change of the debtor is not coming from the
between the two obligations. Neither is there original debtor. Because it could either be
a change in the obligatory relation between with his knowledge or against his will. But it
the parties which will alter the essence of the should not be without the consent of the
obligation. If there is an extension, that is not creditor.
changing the obligation.
Even if the change of the debtor is not
But when there is a reduction or decrease of initiated by the debtor himself, in fact it could
the duration of the term or period, there is be against his will or without his knowledge
certainly a NOVATION not only because there — it is necessary that the creditor gives his
is a clear case of incompatibility between the consent.
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Note: Payment by the new debtor gives him now happens to the obligation? Can the
the rights mentioned in Articles 1236 and 1237. creditor go after the old debtor?
To wit: A is indebted to B in the amount of 100,000, C

is the third person, he offers himself to pay
- Payment with the knowledge of the
and becomes the new debtor, and this is
debtor will entitle the payor to full
accepted by the creditor, but A, debtor, has no
reimbursement and subrogation
knowledge. If C does not fulfill the obligation
- But payment without the knowledge or
due to insolvency, can B, creditor, compel the
against the will of the debtor, there is only
old debtor to pay?
beneficial reimbursement.
A: Because the initiative does not come from

the old debtor and B, the creditor, has
Requisites of Expromision accepted the substitution, even if the new
debtor is not able to fulfill his obligation or
1. Initiative comes from the new debtor becomes insolvent, B cannot go after A.
2. Creditor consents to the substitution
Example: A is indebted to B in the amount ARTICLE 1294. If the substitution is without

the knowledge or against the will of the
of 100K. C a third person, a new debtor,
debtor, the new debtor’s insolvency or
pays B. Remember, this payment could be non-fulfillment of the obligations shall not
with or without the knowledge of A. What give rise to any liability on the part of the
is important is that B must give his original debtor.
consent.
Q: Now, what if it is A, debtor, who offered the
Requisites of Delegacion
new debtor, C, and C consented and B,
1. Initiative comes from the old debtor creditor, accepted. C is insolvent. Will B be
2. Consent of the new debtor able to go after A, the old debtor?
3. Acceptance by the creditor of the
substitution A: Still, no. That is Article 1295.
Example: A is indebted to B in the amount GR: Because nagkasinabot namong tanan

of 100K. A offered C, a third person, to be na magchange ug debtor, so the creditor
the new debtor. It must be with the should not go after the old debtor anymore.
consent of C and accepted by B.
EXP:
Q: Now supposing in expromission, if the 1. when said insolvency was already
debtor has no knowledge of the substitution existing and of public knowledge, or
and the new debtor becomes insolvent, what
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2. known to the debtor, when he
Art. 1297. If the new obligation is void, the
delegated his debt.
original one shall subsist, unless the parties
Why? Because there is fraud involved here. intended that the former relation should be
You offered someone whom you know cannot extinguished in any event.
pay because at the time you made a
delegation, he was already insolvent and you
knew of it. In these cases, your creditor can Because there was no valid novation unless it
still go after the old debtor. was really the intent of the parties that the old
obligation be extinguished.
Art. 1295. The insolvency of the new debtor,

who has been proposed by the original
debtor and accepted by the creditor, (this is Art. 1298. The novation is void if the original
your delegacion) shall not revive the action obligation was void, except when
of the latter against the original obligor,
annulment may be
except when said insolvency was already
existing and of public knowledge, or known claimed only by the debtor or when
to the debtor, when the delegated his debt. ratification validates acts which are
voidable.
Or the insolvency is already existing at the
time of the delegation Or the insolvency is There is nothing to novate.
already existing at the time of the delegation
and already of public knowledge. Exception: annulment may be claimed only
- The creditor can still go after the old by the debtor or when there is ratification.
debtor. Basically, it is not a previous void obligation
but a voidable one.
Art. 1296. When the principal obligation is
extinguished in consequence of a novation, Art. 1299. If the original obligation was
accessory obligations may subsist only subject to a suspensive or resolutory
insofar as they may benefit third persons condition, the new obligation shall be under
who did not give their consent. the same condition, unless it is otherwise
stipulated.
The accessory will also be extinguished.
Art. 1300. Subrogation of a third person in
Exception:
the rights of the creditor is either legal or
If there are 3rd persons who may benefit from
conventional. The former is not presumed,
it and they did not give their consent.
except in cases expressly mentioned in this
Code; the latter must be clearly established
in order that it may take effect.
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● A 3rd person not interested in the
Change of creditor may be: obligation pays with the express and
● Voluntary Subrogation - by tacit approval of the debtor
agreement between the parties.
● Legal Subrogation - takes effect by o CONSENTS: Full
operation of law. reimbursement +
subrogation
Art. 1301. Conventional subrogation of a ● A person interested in the fulfillment of

third person requires the consent of the the obligation pays even without the
original parties and of the third person knowledge of a debtor, without
prejudice to the effects of confusion as
Why is consent needed? Because it’s to the latter’s share (guaranty, surety)
voluntary. If there’s a new creditor, then the
ILLUSTRATION:
debtor and the old creditor must agree, that’s
conventional subrogation. ● A is indebted to B 100,000 secured by a
mortgage
● A is indebted to C 20,000 (so duha iya
Art. 1302. Legal Subrogation. It is creditors)
presumed that there is legal subrogation: ● C, a creditor, pays another creditor B
(preferred, why preferred? Secured by
(1) When a creditor pays another creditor
mortgage; more onerous)
who is preferred, even without the debtor's
knowledge;
What does 1302 tell you?
● C shall acquire the credit of B as well as
(2) When a third person, not interested in
the right to foreclose the mortgage
the obligation, pays with the express or
What does that mean?
tacit approval of the debtor;
Meaning si C duha na iya kolektahunon – 20k
(3) When, even without the knowledge of & 100k plus he steps into the shoes of B
the debtor, a person interested in the ● C is now subrogated into the rights of B
fulfillment of the obligation pays, without
prejudice to the effects of confusion as to Example #2
the latter's share. ● A is indebted to B 100,000
● C, not interested in the fulfillment of
Presumed when: the obligation, pays with express
approval of A
● A creditor pays another who is ● Full reimbursement + subrogation
preferred, even without the debtor’s
knowledge;
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If C is guarantor, full reimbursement + debtor or against 3rd persons subject to
subrogation stipulation in a conventional subrogation
A is indebted to B 100K. C, third person, pays. ● Obligation subsists as it has not yet
C, person, not interested in the fulfillment of been extinguished or paid
the obligation, if C pays the obligation of A to ● Suspensive condition: the new creditor
B, with the express or tacit approval of A, as cannot collect until after the condition
we said 1236 and 1237, full reimbursement is fulfilled
plus subrogation. If C is a guarantor even
without the consent of A, still full
reimbursement plus subrogation because he Art. 1304. A creditor, to whom partial
is a third person interested in the fulfillment payment has been made, may exercise his
of the obligation. That’s 1302, paragraph 3. right for the remainder, and he shall be
preferred to the person who has been
Subrogation is the transfer to the person subrogated in his place in virtue of the
subrogated to the credit of all the rights partial payment of the same credit.
thereto appertaining. Same atong when a
creditor pays another creditor who is
preferred, he steps into the shoes of the A indebted to B in the amount of 10, 000 plus
creditor. He can now also exercise all the secured by mortgage. A indebted also to C,
rights of the creditor. So all the rights thereto 20, 000. C Pays B, 6000. He pays the 6000 sa
appertaining either against the debtor or 10, 000 na utang ni A kay B. The remaining 4,
against the third persons, be they guarantors 000 should still be paid. Kinsa’y una ang
or possessors of mortgages, subject to bayaran? 1304 says it is still B. B is still
stipulation in a conventional subrogation. preferred because the preference continues.
Art. 1303. Effects of subrogation.

Subrogation transfers to the persons
subrogated the credit with all the rights
thereto appertaining, either against the
debtor or against third person, be they
guarantors or possessors of mortgages,
subject to stipulation in a conventional
subrogation.
Subrogation transfers to the person

subrogated the credit with all the rights
thereto appertaining either against the
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bank account. That check must be in the
name of a particular person and must be
MODULE 5
CONTRACTS deposited at this time, on this day at this
particular back with this particular account
number. So these are the things that you do
ARTICLE 1305. A contract is a meeting of not necessarily see in other contracts because
minds between two persons whereby one these are expressly provided for between the
binds himself, with respect to the other, to parties.
give something or to render some service.
Cardinal Principles of a contract:

Art 1305, defines a contract. So, when you look
at the last phrase - to give something or to ● Autonomy of contracts which is Art. 1306,
render some service - it's basically your ● Mutuality of contracts - Art. 1308,
obligation to give, to do or not to do but this ● Relativity of contracts - Art. 1311,
time, there is a meeting of the lines between ● Consensuality of contracts - Art. 1315 and
two persons where these two parties agree to ● Obligatory force and compliance in good
undertake an obligation faith - Art. 1129
Essential elements of the contract LIFE OF A CONTRACT

1. Starts at negotiation
1. Consent contracting parties 2. Performance
2. Object certain 3. Consummation
3. Cause of the obligation
CLASSIFICATION
Essential elements - these are elements Classification in relation to other contracts
without which the contract cannot exist. 1. Preparatory
Consent, object, and cause of a contract. 2. Principal
3. Accessory
Natural elements - are those derived from
the nature of the contract and are ordinarily According to Perfection:
accompanying the same. 1. Consensual Contracts
Example: warranties a. By mere consent
2. Real contracts
Accidental elements - those which exists a. By delivery
because the parties expressly provide for
them. According to Form:
Example: In a contract of sale, they agree that 1. Common
the payment must be deposited in a certain 2. Special (?)
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According to Purpose: Freedom to enter or stipulate in the contract.

1. Transfer Ownership This freedom is not absolute.
2. Convey Property
3. Render service or use Restrictions:
Must not be contrary to:
According to Subject matter: 1. law
1. For services 2. Public morals
2. For property or things 3. Good customs
4. Public order
According to Nature of the Vinculum: 5. Public policy
1. Unilateral TN: There is freedom as long as it is not illegal.
2. Bilateral/Reciprocal
3. Onerous
a. Party would have to give up
Case: Regala
something
The question on whether a contract is
4. Gratuitous
contrary to public policy depends upon its
purpose and tendency and not upon. The
According to Risks involved:
test is not whether there was actual harm
1. Cumutative
but rather on the policy itself. It depends on
a. Give up something that is the
the purpose and the tendency to commit
equivalent
harm, not the actual harm.
2. Aleatory
Actual injury need not be shown, it is
a. There are risks involved. You may
enough that the potentiality or the
or may not get the same thing that you
tendency to inflict harm is shown
have given up
According to Names:
1. Nominate
2. Innominate Case: Del Castillo v. Richmond
a. Law has not named it yet Restriction of Trade
SC: the rule became well established that if
Autonomy of Contracts the restraint was limited to a certain time or
Art. 1306. The contracting parties may to a certain place, that such contracts were
establish such stipulations, clauses, terms valid and not against the benefit of the
and conditions as they may deem State.
convenient, provided they are not contrary
to law, morals, good customs, public order,
or public policy. Later Jurisprudence
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Contract in restraint of trade is valid provided Mutuality of Contracts
there is a limitation upon either time or place.
Art. 1308. The contract must bind both
contracting parties; its validity or
Not restraint of trade: compliance cannot be left to the will of one
If in a contract of employment, it is written of them.
there that, should you terminate your - Always for the mutual benefit of both
employment that you cannot work in another - Must bind both contracting parties,
company that is competing with your former - The compliance cannot be left to the
employer within 10 kilometer radius or within will of one of them.
1 year since termination. Not in restraint of - One of the parties must not
trade because there is certain time and dictate the 3 essential elements
period Example:
A cannot simply agree that he will buy
whatever B shall sell to him.
Restraint of trade: If indefinite, perpetual - You are leaving to B the object/cause of
prohibition the contract
Ex. In all parts of the Philippines. Validity cannot be left to the will of one of
- You cannot force someone to work them
outside of the Philippines just because he has
terminated employment with you.
- It must show that it is very Art. 1309. The determination of the
performance may be left to a third person,
unreasonable
whose decision shall not be binding until it
has been made known to both contracting
Innominate contracts parties.
Art. 1307 Innominate contracts shall be
regulated by the stipulations of the parties, This also talks about mutuality. Determination
by the provisions of Titles I and II of this of the performance may be left to a third
Book, by the rules governing the most
person whose decision shall not be binding
analogous nominate contracts, and by the
customs of the place until it has been made known to the
contracting parties
These are contracts without a name. They

The law allows a 3rd person to determine the 3
encompass several different agreements:
elements to make it valid. However, it shall be
Du ut des – I give that you give
binding only if it has been made known by
Du ut facias – I give that you do
both contracting parties.
Facio ut des – I do that you give
Facio ut facias – I do that you may do
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Art. 1310. The determination shall not be Art. 1311. Contracts take effect only
obligatory if it is evidently inequitable. In between the parties, their assigns and heirs,
such case, the courts shall decide what is except in case where the rights and
equitable under the circumstances. obligations arising from the contract are not
transmissible by their nature, or by
stipulation or by provision of law. The heir is
The determination shall not be obligatory if it not liable beyond the value of the property
is evidently inequitable. In such case the court he received from the decedent.
shall decide what is equitable under the
circumstances. If a contract should contain some
stipulation in favor of a third person, he may
Those 3 articles talk about mutuality of demand its fulfillment provided he
communicated his acceptance to the
contracts.
obligor before its revocation. A mere
- It binds the contracting parties incidental benefit or interest of a person is
- The validity should not be left to the not sufficient. The contracting parties must
will to just one of the contracting parties. have clearly and deliberately conferred a
favor upon a third person.
TN: What is prohibited by law to be delegated
to one of the parties is the power to GR: It shall take effect only between the
determine for the contract to be valid parties. 3rd persons not included. It should
(elements of the contract) only be:
1. contracting parties,
It’s a given that, if there is consent, you both 2. Assigns; and
agree. The question now is how about the 3. heirs
object and your cause.
EXPN: In case when the rights and obligations
TN: Object and cause refer to the same thing. arising from the contract is transmissible by:
They only differ depending on whose 1. nature
viewpoint you are looking at. 2. By stipulation
3. By provision of law
Relativity of Contracts
TN: Heir is not liable beyond the value of the
property he received from the decedent.
Q: What do we call this stipulation in favor

of a 3rd person?
A: Stipulation pour autrui
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● X already accepted it and
If a contract should contain a stipulation in communicated it to parties.
favor of a third person, he may demand its
fulfillment, provided he communicated his GR: B would be the one to sue A for payment
acceptance to the obligor before its of 500k
revocation.
- This is an exception to the rule on EXPN: However, there is already a stipulation
relativity pour autrui. X can sue upon the contract
- A third person now can actually ask one because he is benefited.
of the parties to the contract to fulfill the
obligation.
However, it continues on to say that “A mere 2nd EXPN: Where the 3rd person comes into
incidental benefit or interest of a person is not possession of the object of the contract
sufficient. The contracting parties must have creating a real right (1312)
clearly and deliberately conferred a favor
upon a third person” 3rd EXPN: Where the contract is entered into
to defraud another person (1313; Rescission)
GR: Binding between 2 contracting parties. ● Creditor (?) can ask the court to rescind
a contract that he is not party to
Example: because it was entered into to defraud
If the contract is between A and B, X cannot him
sue A for the performance of the contract.
4th EXPN: Where the 3rd person induces a
The other people that may sue upon the contracting party to violate his contract (1314)
contract are the:
1. Assigns STIPULATION POUR AUTRUI
2. Heirs of either A or B Requisites:
Reason: The rights of A and B under the
contract are being transferred to them or if A 1. Stipulation in favor of a 3rd person
and B will die. 2. Stipulation only part, not the whole of
the contract
1st EXPN: Stipulation pour autrui 3. Contracting parties must have clearly
and deliberately conferred a favor upon a 3rd
Example: person (not a mere incidental benefit)
● A and B agree that A will pay 500k to 4. 3rd person must have communicated his
B. acceptance to the obligor before its
● They agree that 100k out of the 500k revocation
will be given to X.
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5. Neither of the contracting parties bears
the legal representation of the 3rd party
Art. 1313. Creditors are protected in cases of
contracts intended to defraud them.
INCIDENTAL BENEFIT
Example: Creditor can ask for recission
Ayala land entered into a contract with MR. X Example:

to buy his land. Mr Y got excited for his land The debtor donated all his properties to avoid
value to increase(neighbor). A reneged on the payment. Even if the creditor is not party to
contract, can Mr. Y sue Ayala Land? the donation, he can actually upon it by
asking the court to rescind because it was
No. IT’s just an incidental benefit. entered into to defraud him.
1314. Any third person who induces another

to violate his contract shall be liable for
Real Contracts
damages to the other contracting party.
Art 1312. In contracts creating real rights REQUISITES:
third person who come into possession of
1. Existence of a valid contract
the object of the contract are bound
thereby subject to the provisions of the 2. Knowledge on the part of a 3rd person
Mortgage Law and the Land Registration on the existence of the contract
Law. 3. Interference by the 3rd person without
legal justification or excuse
Example:
● Mr A borrowed money from mr B Remember:
● A Mortgaged his only property to B GR: Relativity
● Mr. B registered the mortgage with the EXPN: You have made one of the contracting
Registry of Deeds parties breach his contract, you shall be liable
● If Mr. A sells it to Mr X for damages.
1312 tells you that even if Mr. X is not a party to TN: The damages of the interferer shall not be
the contract, he is bound by it. If Mr. B tries to more than the damages that you make may
collect from A and A cannot pay. B forecloses the breacher liable for.
the mortgage X cannot do anything about it.
When he bought the property, he bought it Consensual Contracts
with a risk that it may be foreclosed if A will
not be able to pay his debt to B
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Art. 1315. Contracts are perfected by mere Article 1317. No one may contract in the
consent, and from that moment the parties name of another without being authorized
are bound not only to the fulfillment of by the latter, or unless he has by law a right
what has been expressly stipulated but also to represent him.
to all the consequences which, according to A contract entered into in the name of
their nature, may be in keeping with good another by one who has no authority or
faith, usage and law. legal representation, or who has acted
beyond his powers, shall be unenforceable,
unless it is ratified, expressly or impliedly, by
Once you have consented tot the contract, the person on whose behalf it has been
there is already a meeting of the minds. executed, before it is revoked by the other
contracting party.
EXPN: Art. 1316
GR: If you want to enter a contract, you should
Art. 1316. Real Contracts. Real contracts, be the one who enters into the contract.
such as deposit, pledge and commodatum,
are not perfected until the delivery of the EXPN: Another person may enter a contract
object of the obligation. in you r behalf if:
1. You have have authorized him to do so; or
Delivery is necessary for the contracts to be 2. If he is your legal representative
perfected.
Q: What happens if a contract is entered
GR: Contracts are perfected by mere consent. into without authority?
It does not need to be in writing. From the
moment there is meeting of the minds, there
Art. 1317 (2) A contract entered into in the
is already a contract. name of another by one who has no
EXPN: deposit, pledge, commodatum (there authority or legal representation, or who has
must be delivery) acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly
Entering into contracts in the name of or impliedly, by the person on whose behalf
another it has been executed, before it is revoked by
the other contracting party.
2 types of unauthorized contracts:

1. No authority at all to act for another
2. Exceeded authority given
Example:
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A sold B’s car without authority. Someone MBL: It is the meeting of the OFFER and the
bought it. B has no knowledge. ACCEPTANCE of the thing and of the cause
which are to constitute the contract.
UNENFORCEABLE. Buyer cannot legally Someone offered, the other accepted.
compel B to deliver the car because it was an
unauthorized contract Why the cause or the object of the
contract?
Another UNAUTHORIZED ACT– a - Because these are the two elements
representative acted beyond his powers. plus Consent.
Example #2 CONSENT
A was authorized by B to lease out a house of Article 1319. Consent is manifested by the
B. A sold the house instead. meeting of the offer and the acceptance
upon the thing and the cause which are to
ESSENTIAL REQUISITES constitute the contract. The offer must be
certain and the acceptance absolute. A
Art. 1318. There is no contract unless the qualified acceptance constitutes a
following requisites concur: counter-offer.
(1) Consent of the contracting parties;
Acceptance made by letter or telegram
(2) Object certain which is the subject does not bind the offerer except from the
matter of the contract; time it came to his knowledge. The
contract, in such a case, is presumed to
(3) Cause of the obligation which is have been entered into in the place where
established. the offer was made.
ESSENTIAL REQUISITES: REQUISITES OF CONSENT:

1. Manifested by the concurrence of the
1. Consent offer and acceptance
2. Object 2. The contracting parties must possess
3. Cause the necessary LEGAL CAPACITY
3. The consent must be intelligent, free,
Consent spontaneous and real
- Is manifested by the meeting of the
offer and the acceptance upon the Example:
thing and cause which are to ■ A offers B a pen for 1000
constitute the contract. ■ B said it was too expensive, offered he
will buy it for 800
■ A said “I’ll sell it to you for 900.”
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■ A few days later, the A told B, “I will sell IOTW: The offerer can actually revoke his offer
it for 800” so long as his revocation letter must reach the
Q.Is there already a meeting of the minds? offeree before acceptance was made
(received).
A. No. for there to be a meeting of the minds, ● B makes offer on Jan. 29, 2009
there must also be a meeting of the offer and ● Accepted by C
acceptance. ● Acceptance received on Feb. 15, 2009
Q. Can the seller not argue that the buyer is Q: Can B still withdraw the offer to C, before
already bound since he is just meeting the Feb. 15, 2009?
counter-offer of B in the amount of 800?
MBL: Can still withdraw. May withdraw at any
A. No because there was no acceptance of time before he receives the letter of
the offer of 800. acceptance.
GR: if there is no period provided, you have to Q: How about C? Can C still withdraw
either accept or reject it immediately. acceptance?
In our illustration, a few days have passed and MBL: He can. As long as withdrawal is
then there was another offer that was made. received first by B before the acceptance
letter. He must make sure that if he changes
When the counter-offer was made, it was a his mind, dapat mauna ug abot iyang
qualified acceptance which cannot be withdrawal. Otherwise, there is already
considered as meeting of the minds. meeting of the minds.
ACCEPTANCE BY LETTER or TELEGRAM Q: Is there a particular form required by law

for an acceptance to be made?
Example:
■ There was an offer for sale MBL: Acceptance may be express or implied.
■ Mailed on Ja. 29, 2009
■ Acceptance letter was received on Feb Form of Acceptance.
15, 2009 Art. 1320. An acceptance may be express or
■ When did they have a meeting of the implied.
minds?
■ Feb. 15, 2009 because it was the date
when the acceptance letter was ARTICLE 1321. The person making the offer
received. may fix the time, place, and manner of
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acceptance, all of which must be complied Art. 1323. An offer becomes ineffective upon
with. (n) the death, civil interdiction, insanity, or
insolvency of either parties before
acceptance is conveyed.
Let’s say an offeror says acceptance must be
in writing. Then, it must be in writing.
Conveyed – refers to the moment when the
Otherwise, there couldn’t be a meeting of the
offeror has knowledge of the acceptance by
minds.
the offeree.
Case of Malbarosa Example

Former president of a company was offered
to buy the car he was using during his Mr. Onion resides in Cebu, Mr. Garlic resides in
employment. He did not accept it Cagayan. Mr. Onion sent a letter to Mr. Garlic,
immediately. The company, in their offer selling his gold watch for 4k. Garlic received
letter, said that he must sign the letter and the letter Jan 31, 2009, communicated his
transmit it to the company. He did not do acceptance Feb 3 2009. Mr. Onion already
so. died on Feb 1, 2009.
When the company withdrew the offer, he Q: Was there a perfection of the contract?
argued that there was already implied
acceptance and that he signed the letter. A: No, there was no perfection of the contract.
The problem was that he did not transmit it. The law states that an offer becomes
ineffective upon the death of either party
SC: law is clear. Since the company made before the acceptance is conveyed or
such offer and gave a particular way by knowledge takes place. So in this case, the
which to accept the same. Otherwise, the offer dies with the offeror.
company can treat it as not accepted.
The offer is no longer effective because there
can no longer be a meeting of the minds.
Art. 1322. An offer made through an agent
While Mr. Garlic received the offer on Jan. 31,
is accepted from the time acceptance is
the acceptance was not conveyed to Mr.
communicated to him.
Onion. He already died before the acceptance
was conveyed.
Since the agent is the one who made the
offer then the reckoning point of the Since there was a supervening death before
perfection of the contract is also when the the acceptance was conveyed, then the offer
agent has knowledge of it. dies with the offeror. In other words, Mr. Garlic
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cannot try to enforce upon the heirs of Mr. In Article 1311, it also says there that the heirs
Onion to sell the watch to him for P4,000 are not liable beyond the value of the
because the offer has already become property he received from the decedent.
ineffective.
You do not only inherit assets but also debts,
Change of facts… but the debts that you inherit have a limit. It
will only be limited to whatever you may have
Acceptance was communicated on Feb. 3, received by virtue of the inheritance.
2009. Mr. Onion was still alive. But he died
immediately thereafter. Illustration
If the decedent died with 1M in debt. There is
Q: Is there a perfected contract? If so, what only 1 heir, but the assets of the decedent is
would be the legal consequences? 800k only. The heir inherited both the debts
and the assets.
A: The contract is perfected. The acceptance
happened when Mr. Onion was still alive. Even With regard to the debt of 1M, he doesn’t
if there was death that took place after, the inherit the entirety of such amount, as it will
obligation would be transmitted to the heirs be limited to the amount that he has
of Mr. onion. received. Thus, the debt he shall inherit will
only up to the extent of 800k. Meaning, that is
The heirs of Mr. Onion would now be bound what will be used by the heir to pay off the
by the sale. Since the sale has been perfected debt.
and Mr. Onion had knowledge but
immediately died thereafter, the legal
Art. 1324 When the offerer has allowed the
implication is that Mr. Garlic can compel the offeree a certain period to accept, the offer
heirs of Mr. Onion to sell to him the watch. may be withdrawn at any time before
acceptance by communicating such
Reversed… withdrawal, except when the option is
If it were Mr. Garlic who died, then it would founded upon a consideration, as
something paid or promised.
now also bind the heirs of Mr. Garlic. Mr.
Onion can legally compel the heirs of Mr.
Garlic to buy the watch from him. GIVING UP PERIOD FOR THE OFFEREE TO
ACCEPT THE OFFER
TN: Perfection of the contract does not only
bind the contracting parties but also their If there is no period:
assigns and heirs.
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GR: Once an offer is made to you, you must
founded upon a consideration, something
decide immediately, either to accept or reject paid or promised.
it.
OPTION CONTRACT.
Illustration
Option without Option with
A offers to B to sell his car for 400k. A tells B “I consideration consideration
am giving you 10 days” within which to
Withdrawal may be There can be no
decide. made even before withdrawal before
lapse of the period.the lapse of the
Should A wait for the 10 days to end period agreed
supposing there is another person who is TN: Offeror must upon.
willing right away the day after A offered to B, communicate to
X. Can A sell to X without being liable to B offeree withdrawal. Why? There is now
an option contract
with damages?
founded upon an
option money or
- Art.1324. When the offerer has allowed the consideration.
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 Example:
founded upon a consideration, as something
paid or promised. Q: A offers to sell B his car for 400,000 and A
is giving B 10 days to decide. Should A wait
Would your answer be the same if together for the 10 days to end? What if X is willing to
with that 10 day period to decide the offeree buy it immediately, can A sell to X without
B, gave 500pesos for that 10 day period? being liable to be for any damage?
- This would fall under the exception. The A: A can sell it to X because A is allowed to
offeror cannot withdraw since the offer is withdraw the offer anytime during the period
subjected to an option money. granted as long as B has not communicated
his acceptance yet.
ARTICLE 1324. When the offeror has Q: Would your answer be the same if B gave
allowed the offeree a certain period to
PHP500 for the 10-day period to let him
accept, the offer may be withdrawn at any
time before acceptance by communicating decide?
such withdrawal, except when the option is
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A: No, the A cannot withdraw the offer within General Rule: Business advertisements of the
the period because it was subject to a things for sale are not definite offers but mere
consideration or the option money of invitations to make an offer.
PHP500. B then has the whole 10 days to
decide.
Before you can withdraw: ADVERTISEMENT FOR BIDDERS

1. There must be no acceptance yet,
Art. 1326. Advertisements for bidders are
otherwise, there is meeting of the minds; simply invitations to make proposals, and
2. The offerer must communicate to the the advertiser is not bound to accept the
offeree the decision to withdraw the offer highest or lowest bidder, unless the
3. The option must not be founded upon a contrary appears.
consideration.
Who cannot give consent?
Once there is acceptance already and was
communicated to the offeror, the offer can no Art. 1327. The following cannot give consent
longer be withdrawn. to a contract:
OPTION MONEY vs EARNEST MONEY 1. Unemancipated minors;

Option money - not part of the purchase
2. Insane or demented persons, and
price, you are really paying for the time given
deaf-mutes who do not know how to write.
to you to decide. That is just proof of the
perfection of the option contract.
Earnest money - part of the purchase price. Why do you think they cannot give
That proof of the perfection of the principal consent?
contract; it could be contract of sale. - They lack the legal capacity. They
cannot give consent intelligently and freely
Business advertisements, considered as since they lack the legal capacity to do so.
offers
Supposing in a contract, one of the parties is a
1325. Unless it appears otherwise, business
minor or insane person, what is the status of
advertisements of things for sale are not
definite offers, but mere invitations to make the contract?
an offer. - If only one of the parties, contract is
voidable.
- If BOTH, unenforceable.
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Exceptions when a contract entered into by
Liable for fraud Not liable for fraud
a minor may have the effects of a valid
contract: Can be annulled on Can be annulled on
1. Minor who misrepresents his age; the ground of fraud the ground of
2. It involves the sale and deliveries of the minority
necessaries to the minor
3. It involves a natural obligation and such Contracts Entered into During Lucid
obligation is fulfilled voluntarily by the minor. Intervals
Another, marriage settlement or donation

Art 1328. Contracts entered into during a
propter nuptias but actually this is no longer lucid intervals are valid. Contracts agreed to
applicable. So long as you reach 18 then you during a state of drunkenness or during a
are already capacitated. hypnotic spells are voidable.
Misrepresentation vs. Mere silence Q. What is the status of a contract entered

Braganza vs. Villa Abrilles into during a lucid interval?
GR L-12471, April 13, 1959
The contract is valid.
Mere silence when making the contract as
to his age does not constitute a fraud which
Q. Why is it that if you are drunk and entered
can be made the basis of an action for
into a contract, the contract is voidable?
deceit.
There is consent but the same is defective
The fraud of which an infant may be held because there is no intelligent consent. Thus,
liable to one who contracts with him in the valid until annulled.
belief that he is of full age must be actual
not constructive, and mere failure of the Presumption of the law: The decision was not
infant to disclose his age is not sufficient.
done intelligently or freely because the
person is under the influence of alcohol or
What makes you liable even if you are a minor hypnotic spell.
if there was deceit.
If you are silent, you did not state your age,

1329. The incapacity declared in Art. 1327 is
you may ask the contract be annulled by
subject to modification determined by law
reason of your minority and is understood to be without prejudice
to special disqualifications established by
laws.
Misrepresentation Mere silence
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Art. 1330. A contract where consent is given A simple mistake of account shall give rise
through mistake, violence, intimidation, only to its correction.
undue influence, or fraud is voidable.
Example
There are several defects: mistake, violence, You hire someone to represent you in a case,
intimidation undue influence or fraud. if these believing that he is a lawyer who can practice
defects of consent are present then the in the Philippines, but then he cannot do so
contract becomes VOIDABLE. since he can practice only in USA.
Defects in the Consent If that is the sole reason you hire him, then
1. Mistake you can invalidate the contract with him.
2. Violence
3. Intimidation HOWEVER, if the qualification is not the sole
4. Undue influence reason, you hired him to represent you, not for
5. Fraud a case but just to represent you in dealing
with another person. It does not necessary
If these are present, the contract is voidable. require one to be able to litigate in PH. You
cannot say that you will nullify the contract…
Valid until annulled.
3 elements are present but only defective. TN: mistake of the qualification cannot be
used as a ground to annul the contract.
MISTAKE
Q: When will mistake invalidate consent? A simple mistake of account shall only give
A: 1331 rise to its correction.
1331. In order that mistake may invalidate Example:

consent, it should refer to the substance of
the thing which is the object of the contract A contract was entered into, one of the
or to those conditions which have parties, unable to read or does not
principally moved the parties to enter into
understand English, of legal age and not
the contract.
insane. Only that, he is not educated to
Mistake as to the identity or qualifications of understand English, can he still enter into
one of the parties will vitiate consent only contract?
when such identity or qualifications have
been the principal cause of the contract. Yes. But, Art. 1322.
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Art. 1332 When you are the other whatsoever, as her consent thereto was
contracting party, and you want to enforce obtained by means of fraud and deceit on
the contract, you must make sure that you the part of defendant.
can prove that it was well-explained to the
other contracting party. ISSUE: Whether the public instrument
conveying the properties of Dumasug is
void.
Dumasug v. Modelo, 34 Phil. 252 (1916)
RULING: YES. The document was not duly
FACTS: Dumasug was involved in two civil and faithfully explained to Dumasug in the
cases involving the recovery of a parcel of act of its execution. Accordingly, the
land that she owns. In both suits, she won consent said to have been given by
with the aid of Modelo. To compensate the Dumasug is null and void, as it was given by
services of Modelo, Dumasug agreed that mistake.
she will pay him P101. Consequently, Modelo
made Dumasug sign a document which This error invalidates the contract, because
according to him will serve as an evidence it goes to the very substance of the thing
of Dumasug’s promise to pay P101. which was the subject matter (value of
Modelo’s services in comparison to a sale of
Unknown to Dumasug, the document parcels of land and a carabao) of said
actually contains provisions which will contract, for, had the maker thereof truly
convey properties owned by her to Modelo, understood the contents of said document,
to wit: two parcels of land and a plow she would neither have accepted nor
carabao. Dumasug, who was illiterate, and authenticated it by her mark.
without adequately understanding the The consent given by Dumasug being null
content of the document, signed it by and void, the document is consequently
drawing a cross mark on her name. also null, void, and of no value or effect.
Subsequently, Modelo brought Dumasug to
a notary public who notarized the
document, also without explaining the Art. 1333. There is no mistake if the party
provisions of the document to Dumasug. alleging it knew the doubt, contingency or
risk affecting the object of the contract. (n)
Dumasug was taken aback when Modelo
started to take possession of the properties
contained in the document she signed. You cannot simply ask that it be annulled
Thus, this case of recovery of said properties when in the first place, you knew of the risk
by Dumasug. when you entered into the contract.
Modelo, of course, banks his argument on

the public instrument which purports a sale Art. 1334. Mutual error as to the legal effect
to him by Dumasug. Meanwhile, the latter of an agreement when the real purpose of
avers that the said instrument is of no value the parties is frustrated, may vitiate consent.
(n)
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Violence – there is physical force involved;
Requisites for the mistake to vitiate external force; physical compulsion; serious or
consent: irresistible fear
1. It must be with respect to the legal
effect of an agreement; Ex: Being beaten up to enter into a contract
2. The mistake must be mutual; and
3. The real purpose of the parties must Intimidation – forced being used is internal
have been frustrated. because then there is reasonable and
well-grounded fear of an imminent and grave
evil; moral compulsion.
Art. 1335. There is violence when in order to
wrest consent, serious or irresistible force is
employed. Ex: You are being held with a gun to sign a
contract or threatened that you will be killed
There is intimidation when one of the or threatened that one’s house will be burned
contracting parties is compelled by a down if you do not enter into a contract,
reasonable and well-grounded fear of an
imminent and grave evil upon his person or
property, or upon the person or property of Intimidation is considered a vice if there is a
his spouse, descendants or ascendants, to reasonable and well-grounded fear of an
give his consent. imminent and grave evil upon his person, the
contracting party, or his property or upon the
To determine the degree of intimidation, person or property of his spouse, descendants
the age, sex and condition of the person or ascendants, to give his consent.
shall be borne in mind.
A threat to enforce one's claim through Therefore, if gi-threaten ang life or property of
competent authority, if the claim is just or your spouse, parents, grandparents, children,
legal, does not vitiate consent. (1267a) grandchildren, then that is intimidation.
Collateral relatives are not included. So dili
Violence vs. Intimidation siya ma-use as a vice of consent if the person
or property of the nephew/niece is involved
● Violence is external. It is an external because the law does not include them.
force because you are talking about
serious or irresistible force. TN: Threat not considered intimidation if it is a
● Intimidation is internal. It is an internal threat to enforce one's claim through
force because there is reasonable and competent authority, if the claim is just or
well-grounded fear of an imminent and legal, does not vitiate consent.
grave evil. - Example: Threat to sue so long as the
claim is just or legal
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Q: Will violence employed by a third person 4. Evil must be the determining cause for
vitiate consent? the party in entering into a contract.
Example UNDUE INFLUENCE

A was forced to enter into a contract with B It is when a person takes improper advantage
because X beat him up so that he will enter of his power over the will of another, depriving
into a contract. It’s not B who punched him the latter of a reasonable freedom of choice.
but X, third person.
Art. 1337. There is undue influence when a
A: Article 1336 states that even if it was the person takes improper advantage of his
third person who executed the violence, it will power over the will of another, depriving the
still vitiate the consent. latter of a reasonable freedom of choice. The
following circumstances shall be
TN: consent was not freely given regardless of considered: the confidential, family, spiritual
and other relations between the parties, or
who employed the violence.
the fact that the person alleged to have
been unduly influenced was suffering from
Art. 1336. Violence or intimidation shall mental weakness, or was ignorant or in
annul the obligation, although it may have financial distress.
been employed by a third person who did
not take part in the contract. Circumstances to be considered?
REQUISITES FOR VIOLENCE TO ANNUL A A: Confidential, Family, Spiritual and other

CONTRACT: relations between the parties; or person
1. Forced employed must be serious and alleged to have been unduly influenced was
irresistible; suffering from MENTAL WEAKNESS, or was
2. It must be the determining cause of IGNORANT or in FINANCIAL DISTRESS
the party upon whom it is employed in
entering the contract (Meaning if he was not Example: Priest told you to donate all of your
beaten up, he would not have entered into a possessions, otherwise, you will go to hell. As a
contract.) devout follower, even if that was your only
property, you donated it to the church. You
REQUISITES FOR INTIMIDATION: may ask the court to annul the contract due
1. One of the contracting parties is compelled to undue influence. Teacher and student
to give his consent by a reasonable and relationship.
well-grounded fear of an evil;
2. The evil must be unjust; Debtor – creditor
3. Evil must be imminent or grave
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You have no more money. You were forced to fake one. - DOLO INCIDENTE- it was only in
have an unreasonable amount as security for the performance of the contract where fraud
a debt. No one would let you borrow money was committed.
except for this creditor. This is now being used
by the creditor to let you execute mortgages Example 2:
over the property which are worth 2 times I showed you a diamond ring that is actually
more than the debt. fake, and I convinced you that it is real then
you bought it from me. I gave you the fake
REQUISITES FOR UNDUE INFLUENCE TO ring. - DOLO CAUSANTE - there was already
VITIATE CONSENT: fraud when consent was given, consent was
1. Improper Advantage vitiated by the fact that the seller fooled the
2. Power over the will of Another buyer that the diamond ring was real.
3. Deprivation of the latter’s will of a
reasonable freedom of choice 2nd Example is the fraud that vitiates consent.
Because the moment you entered into the
FRAUD contract there was already fraud. Had you
known that it was a fake then you would not
Art. 1338. There is fraud when, through
insidious words or machinations of one of have bought it because I showed you a fake
the contracting parties, the other is induced one and through the use of insidious words or
to enter into a contract which, without machinations, I convinced you that it is a real
them, he would not have agreed to. diamond ring.
In the 1st example, it was a real diamond ring

THERE ARE 2 KINDS OF FRAUD: but it was switched, meaning when you gave
your consent, it was the real thing, but when I
Dolo causante is when one induces the other performed my obligation, I employed fraud.
to enter into the contract; it was the reason for That is Dolo Incidente.
entering into the contract. This is the kind of
fraud that annuls or avoids a contract.
- This is what vitiates consent Q: Which of the 2 frauds will vitiate your
consent?
Dolo incidente, on the other hand, is a fraud Dolo causante is the fraud that vitiates
employed in the performance of the contract. consent, you can ask the contract be
annulled.
Example 1:
I will sell you a diamond ring, I showed you a How about Dolo incidente? What is the
real diamond ring. When you agreed to buy it, remedy?
I quickly, without you noticing, gave to you a
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Not to annul but to ask for damages. It will also not vitiate consent if both are guilty
Remember 1170. Those who in the of fraud. in pari delicto. Fraud of one cancels
performance of their obligations have the fraud of another.
employed fraud, negligence, delay, etc. are
liable for damages.
Art. 1339. Failure to disclose facts, when
there is a duty to reveal them, as when the
Dolo Causante Dolo Incidente parties are bound by confidential relations,
constitutes fraud.
Serious in character. Not serious because Here, you must have confidential relations.
it does not vitiate Otherwise, then failure to disclose facts do
the contract, it was not necessarily constitute fraud.
done during the
performance.
Induces the party to Not the cause. 1340. The usual exaggerations in trade,
enter into the when the other party had an opportunity to
contract. know the facts, are not in themselves
fraudulent.
Effect is to render Effect is to render
the contract the party liable for
voidable. damages. Example
Selling of a house, chika about nice locations

REQUISITES FOR FRAUD TO VITIATE
etc.,
CONSENT
SC: you had the opportunity to know the
1. Fraud, insidious word or machinations
facts, you could have asked around, you
must have been employed;
would have known that, that area could easily
2. It must be serious;
be flooded. It is normal for the seller to
3. It must have induced the other party to
exaggerate. So, there is caveat emptor - buyer
enter into the contract;
beware.
4. Fraud should not have been employed
by both of the parties or third persons
Art. 1341. A mere expression of an opinion
does not signify fraud, unless made by an
TN: For violence and intimidation even if expert and the other party has relied on the
former's special knowledge.
employed by 3rd person, it can vitiate consent.
BUT for fraud it must be employed by the
other party, dili pwede third person. When will an opinion which will turn out to
be wrong constitute fraud?
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- made by an expert or with special SIMULATION OF CONTRACTS
knowledge.
Simulation - is the process of INTENTIONALLY
GR: A mere expression of an opinion does not DECEIVING others by producing the or
signify fraud. appearing of a contract
XPN: unless made by an expert and the other What are the kinds of simulation?
party has relied on the former's special
Art. 1345. Simulation of a contract may be
knowledge. absolute or relative. The former takes place
when the parties do not intend to be bound
at all; the latter, when the parties conceal
Art. 1342. Misrepresentation by a third
their true agreement.
person does not vitiate consent, unless such
misrepresentation has created substantial
mistake and the same is mutual. ABSOLUTE – there was really no intention
thus the contract is void
This time, it is not the misrepresentation that
vitiated the consent, it was the mistake. RELATIVE –parties conceal their true
Because there is misrepresentation of a third agreement; you are bound to the real or true
person, ang duha naaay mistake… the vice of agreement except:
consent is not the misrepresentation but the - Prejudice a third person
mistake. - If the purpose is contrary to law, morals,
good customs, public policy, public order
Art. 1343. Misrepresentation made in good

Example
faith is not fraudulent but may constitute
error.
It was actually a donation but made it appear
as a contract of sale. There was really an
Art. 1344. In order that fraud may make a intention to be bound but by a different
contract voidable, it should be serious and contract,
should not have been employed by both
contracting parties.
Q: What is the status of an absolutely
Incidental fraud only obliges the person simulated contract?
employing it to pay damages.
- VOID and INEXISTENT so long as it does
not prejudice a third person. If it does, they
will be bound with that simulated contract
because a 3rd person is affected.
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Illustration
Art. 1346. An absolutely simulated or
fictitious contract is void. A relative
simulation, when it does not prejudice a Sale of a car. A sells a car to B, the car is worth
third person and is not intended for any 2M, for A what is his object and cause, and B’
purpose contrary to law, morals, good object and cause?
customs, public order or public policy binds
the parties to their real agreement. A the seller, object – car; cause-money
B the buyer, object – money; cause – car

What do we mean by real agreement is it
the intention or what appears on the Object – the thing you are giving up
contract?
- It is what appears on the contract. Cause – which you are expecting to receive by
Because they are both at fault hence the law virtue of the obligation created.
penalizes both of the parties for their deceit.
What may be the object of contracts?
TN:
Absolute – void; ARTICLE 1347. All things which are not

Relative – if no 3rd person is affected then they outside the commerce of men, including
will be bound in their intention. future things, may be the object of a
However, if it prejudices a 3rd person, they will contract. All rights which are not
now be bound by the contract as it appears. intransmissible may also be the object of
contracts.
No contract may be entered into upon

future inheritance except in cases expressly
authorized by law.
OBJECT
All services which are not contrary to law,
morals, good customs, public order or
public policy may likewise be the object of a
Object of a contact - the thing or service or a
contract.
right which is the subject matter of the
obligation that is created or established.
When we speak of object and cause, it may Future Inheritance

refer to the same thing. However, looking at
Why is it that future inheritance cannot be an
the different view point which party you are
object of a contract but as a general rule,
looking at.
future things can be an object of a contract?
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Because once that person dies who actually determinable, such that you do not need to
owns that thing, he may actually sell it. It enter into a new contract to define the
being an expectant right, inchoate, meaning, parameters and what the object is. because if
not an actual right, so you cannot … (choppy) you need to enter into a new contract just to
know what the object is, then the first
TN: object does not only limit to a thing, it supposed contract was actually void for
could refer to a service or right. having a “no object”.
Illustration
ARTICLE 1348. Impossible things or services Rental contract which says your rental
cannot be the object of contracts. payment will be 5% of your gross sales
monthly.
What are we referring to here? Physical or Does that contain a determinate object?
legal impossibility? ● Not yet determinate but it is possible to
determine.
● Physical impossibility – the object of
the contract as when the object is e.g., Is the contract valid for having a valid object?
flying, you cannot fly.
● Legal impossibility – e.g., dangerous ● While it may not be determinate yet,
drugs, these are contrary to law. e.g., but it can be easily determined where
smuggling you don’t need to enter into a new
● Moral impossibility – it could not have contract.
been what the parties could have
agreed upon. (railroad case) For an object of a contract to be valid, it
must be:
1. within the commerce of men
ARTICLE 1349. The object of every contract
2. real or possible
must be determinate as to its kind. The fact
3. legal or licit
that the quantity is not determinate shall
4. determinate or at least possible of
not be an obstacle to the existence of the
determination as to its kind
contract, provided it is possible to
determine the same, without the need of a
new contract between the parties.
CAUSE
At the moment of the perfection of the

contract, it’s determinate, easily defined, and
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Cause – that which you are expecting in beneficence, it’s merely the liberality of the
exchange of that which you are giving up in a benefactor.
contract
Illustration
Contract of employment. ER-EE relationship.
ARTICLE 1350. In onerous contracts the
What is the object and the cause of the ER
cause is understood to be, for each
and what is the object and cause of EE?
contracting party, the prestation or promise
of a thing or service by the other; in
ER – object: salary ; cause – service of the EE
remuneratory ones, the service or benefit
EE – object: service ; cause – salary
which is remunerated; and in contracts of
pure beneficence, the mere liberality of the
Illustration
benefactor.
A sells his only car to B, so that he will be able
to buy prohibited drugs. Is the contract of sale
The law defines it as something that you will valid? Or void?
get it from the other contracting party.
● Valid. So long the object and cause is
Remuneratory ones, e.g., contract of legal, the contract is valid. Motive is not
employment. The service or benefit which is an essential requisite of the contract.
remunerated, and in contracts of pure Object was car, cause was the price.
How about is A sells prohibited drugs to B, so

ARTICLE 1351. The particular motives of the
that he will have money to pay hospital
parties in entering into a contract are
expenses for his mother. Is the sale valid?
different from the cause thereof.
● Invalid. Void. Legally impossible. Motive
is a good motive but not a requisite. For
TN: motive and cause are not the same.
A the object was the drugs, for buyer,
Motive and object are not the same.
the object was price and cause was
drugs. In the viewpoint of A, object is Cause is the direct or most proximate reason
illegal, drugs. Viewpoint of B, cause is of a contract, while motive is the most indirect
illegal. reasons or remote reasons for you entering a
● If the object or the cause, that is part of contract.
the 3 essential requisites, then the law
deems it as if there is no object or The cause is the objective or juridical reason of
cause, hence, no contract. a contract, while motive is the psychological or
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purely personal reasons why you entered into Your statement of a false cause will only make
a contract. your contract void if in fact there was no cause
and then you just wrote there a cause that
Cause will always be the same. Meaning, actually did not exists.
cause is the same as the object of the other.
ARTICLE 1354. Although the cause is not
Motive would differ from each contracting
stated in the contract, it is presumed that it
party. Reasons behind entering the contract exists and is lawful, unless the debtor proves
would not dictate of the contracting parties. the contrary.
The illegality of the cause will affect the

Illustration
validity of the contract because it is an
essential requisite. BUT the illegality of motive Supposing, you do not see there a cause in the
will not affect the existence of the contract. contract. Will that render the contract void
because there is no cause written in the
contract?
ARTICLE 1352. Contracts without cause, or
with unlawful cause, produce no effect ● Even if you do not see that in the
whatever. The cause is unlawful if it is contract, the law would presume that
contrary to law, morals, good customs, there is actually a cause, because,
public order or public policy. normal circumstances would tell you
that you do not enter into a contract if
you do no get anything in return.
Illustration
Supposing, in a contract of sale, the price

written is 1M, but in truth it was only 800k, ● Unless the debtor proves that there is
how will that affect the validity of the no cause, then the contract is
contract? considered valid. You have to prove that
there was in fact no cause.
● it is valid because it is founded upon a
consideration which is just and lawful. How about if there is a contract of sale of a
parcel of land, 2M, but it was sold only 100k,
ARTICLE 1353. The statement of a false will that invalidate the contract for
cause in contracts shall render them void, if insufficiency of cause on the part of the seller?
it should not be proved that they were
founded upon another cause which is true ● It shall not invalidate the contract
and lawful. because there is still a cause.
● 1355.
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● Unless there is fraud, mistake or undue
2nd Children do not have the right to
influence, then the seller can ask the question the contracts entered into by the
court to annul the contract on the basis parents because they are still alive and their
of vitiation of consent. rights over the properties are merely
inchoate.
INADEQUACY OF THE PRICE
ARTICLE 1355. Except in cases specified by FORMS OF CONTRACT

law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been Q: Is there a particular form that we follow
fraud, mistake or undue influence.
when we enter into a contract to make it
enforceable?
A: No. 1356.
TN: for this article to apply:
1. the cause should be in existence at the GR: No

time of the celebration of the contract; XPN: when the law requires that the contract
be in some form. E.g. writing, public
2. the cause should be licit or lawful document to make it valid and enforceable
3. cause should be true.

ARTICLE 1356. Contracts shall be obligatory,
in whatever form they may have been
CARANTES vs CA
entered into, provided all the essential
It is the total absence of cause or requisites for their validity are present.
consideration that render the contract However, when the law requires that a
absolutely void and inexistent and not the contract be in some form in order that it
insufficiency of the cause. may be valid or enforceable, or that a
contract be proved in a certain way, that
requirement is absolute and indispensable.
In such cases, the right of the parties stated
SPS BUENAVENTURA vs CA in the following article cannot be exercised.
SC: first of all, it deos not matter if the value,

price or cause is not equal to the value of
General rule: In any form. Since contracts are
the land, because it is. the total absence of
cause or consideration that will invalidate consensual, by meeting of the minds, object
the contract. of the cause, meaning, all requisites are
present, there is already the perfection of a
contract.
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Q: If it falls under the contracts enumerated
XPN: where a contract must be in a particular under Art. 1358 and it is not in a notarized or
form to be valid or in a particular form to be not in a public document, does that make the
enforceable. contract invalid?
Contracts that must appear in writing: MBL: There is a valid and perfected contract
and Art. 1357 applies. Note that this right to
■ Donations of personal property whose compel the other party to observe a form is
value exceed P5,000. only for purposes of CONVENIENCE and not
■ Sale of a piece of land or any interest for enforceability and validity. This is because
therein through an agent 1357 says the contracting parties may
■ Agreement regarding payment of compel each other to observe that form,
interest in contract of loan once the contract has been perfected.
■ Antichresis Meaning, prior to you being able to compel,
dapat perfected na ang contract and valid.
Contracts which must appear in a public

document:
1. Donation of immovable property

2. Partnerships or immovable property or
real rights are contributed to the CONTRACTS THAT NEEDS TO APPEAR IN A
common fund PUBLIC DOCUMENT
Contracts which must be registered: Article 1358. The following must appear in a
1. Chattel mortgage public document:
2. Sale and transfer of large cattle
(1) Acts and contracts which have for
Article 1357. If the law requires a document or their object the creation, transmission,
other special form, as in the acts and contracts modification or extinguishment of real
enumerated in the following article, the rights over immovable property; sales
contracting parties may compel each other of real property or of an interest
to observe that form, once the contract has therein as governed by Articles 1403,
been perfected. This right may be exercised No. 2, and 1405;
simultaneously with the action upon the
contract. (1279a) (2) The cession, repudiation or
renunciation of hereditary rights or of
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Q: What is reformation?
those of the conjugal partnership of
gains;
A: It is a remedy granted by law to allow the
parties to change or amend the written
(3) The power to administer property, or
instrument for it to reflect the true intent of
any other power which has for its
the parties.
object an act appearing or which
should appear in a public document,
Reformation is the remedy provided for by
or should prejudice a third person;
law to correct the written agreement of the
parties so that it will reflect their true
(4) The cession of actions or rights
agreement. The law allows the parties to ask
proceeding from an act appearing in a
the court to correct the instrument, so that it
public document;
will reflect the true agreement.
All other contracts where the amount
involved exceeds five hundred pesos must ARTICLE 1359. When, there having been a
appear in writing, even a private one. But meeting of the minds of the parties to a
sales of goods, chattels or things in action contract, their true intention is not
are governed by Articles 1403, No. 2 and expressed in the instrument purporting to
1405. embody the agreement, by reason of
mistake, fraud, inequitable conduct or
accident, one of the parties may ask for the
This presupposes that the document is
reformation of the instrument to the end
already in writing (since you cannot notarize
that such true intention may be expressed.
a document unless it is first in writing).
If mistake, fraud, inequitable conduct, or

The documents should already be valid and
accident has prevented a meeting of the
perfected before you can compel the other
minds of the parties, the proper remedy is
contracting party to observe the form
not reformation of the instrument but
required by law for purposes of convenience.
annulment of the contract.
TN: The compulsion by the contracting parties
to observe the form required by law is not for
the purposes of validity nor enforceability. The above provision tells you that the contract
must have been perfected. Otherwise, if there
has been vitiation of consent, reformation
REFORMATION OF INSTRUMENT would not be the proper remedy — it would
be annulment.
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So reformation presupposes a situation where Instances where reformation can be used as
the parties have already agreed, there is a remedy:
meeting of the minds, but when the contract
is put into writing it no longer reflects the true 1. MISTAKE
intention of the parties.
ARTICLE 1361. When a mutual mistake of
Requisites, reformation: the parties causes the failure of the
instrument to disclose their real agreement,
1. Meeting of the minds of the contracting said instrument may be reformed.
parties
2. Their true intention is not expressed in Even if both parties and nasayup, they could
the instrument still ask for reformation, either of the party.
3. Such failure to express their intention is
2. ONE PARTY IS INNOCENT
due to mistake, fraud, inequitable
conduct or accident.
Q: What is the difference between ARTICLE 1362. If one party was mistaken
Reformation and Annulment? and the other acted fraudulently or
inequitably in such a way that the
A: Reformation presupposes that the contract instrument does not show their true
is valid. On the other hand, in annulment, the intention, the former may ask for the
consent was defective. reformation of the instrument.
When there is a contract of sale and you are

selling a house and lot. So if there are things Supposing only one party was task to be the
within the property that the vendor does not one to make the written agreement, but
own, then it is interpreted that all of those nasayup ang English. As between the 2
things that are not owned by the vendor shall parties, the one who made the written
not be included in the sale. contract and made a mistake and the one
who had not written the contract, who is given
by law the right to ask for reformation?
ARTICLE 1360. The principles of the general
law on the reformation of instruments are ● Innocent party. The one who did not
hereby adopted insofar as they are not in take part of the writing of the contract.
conflict with the provisions of this Code.
3. ONE PARTY KNEW OF THE DEFECT
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29
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REMEDY: Reformation is still available as the
ARTICLE 1363. When one party was remedy.
mistaken and the other knew or believed
WHEN IS REFORMATION NOT AVAILABLE
that the instrument did not state their real
OR NOT PROPER?
agreement, but concealed that fact from
the former, the instrument may be
reformed. ARTICLE 1366. There shall be no reformation
in the following cases:
1. Simple donations inter vivos wherein no

TN: One of the parties was mistaken, the other condition is imposed;
one knew of the mistake but decided not to 2. Wills;
tell the mistaken party. 3. When the real agreement is void.
4. DEFECT WAS DUE TO PERSON

DRAFTING THE WRITTEN AGREEMENT Q: why is it that you cannot ask for
OTHER THAN THE CONTRACTING PARTY reformation for simple donations inter-vivos
wherein no condition is imposed as well as
ARTICLE 1364. When through the in wills?
ignorance, lack of skill, negligence or bad
faith on the part of the person drafting the A: You cannot reform something that is made
instrument or of the clerk or typist, the by somebody else out of his graciousness.
instrument does not express the true
intention of the parties, the courts may For the donation, they have to be PURELY
order that the instrument be reformed. GRATUITOUS. Obviously for Simple Donations
and Wills, you cannot reform because the
intent of the party giving gratuitously should
5. AGREEMENT WAS MERELY A PLEDGE /
always be upheld. When the real agreement is
MORTGAGE, BUT THE INSTRUMENT STATES
void, there is nothing to reform at all.
SALE
ESTOPPEL
ARTICLE 1365. If two parties agree upon the Illustration

mortgage or pledge of real or personal
property, but the instrument states that the Supposing the real agreement was simply a
property is sold absolutely or with a right of mortage. A mortgaged his property to B, now,
repurchase, reformation of the instrument is what the secretary made was a deed of sale,
proper. instead of only A mortgaging his parcel of
land. to B it became a sale.
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30
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Now, A sues B for collection of the price of the Procedure for reformation, follow the rules of
sale. Can there still be reformation on the part court.
of A?
INTERPRETATION OF CONTRACTS
ARTICLE 1367. When one of the parties has
brought an action to enforce the
instrument, he cannot subsequently ask for When do you interpret contracts?
its reformation.
● Only resort in interpreting a contract
when there is ambiguity in the
So, in our example, it was a mortgaged but provisions of the contract.
what was written in the contract was a sale,
and then he sued to enforce the contract, he If you have done over, the principles in this
collected the price of what was written in the chapter is the same as that of statutory
contract. construction when you interpret laws.
Since he sued to enforce the written contract,

he cannot now ask for reformation due to ARTICLE 1370. If the terms of a contract are
estoppel because he already sued to enforce clear and leave no doubt upon the intention
the contract. BUT B, can still file a case for of the contracting parties, the literal
reformation in court because he is not the one meaning of its stipulations shall control.
who is estopped.
ARTICLE 1367. When one of the parties has

brought an action to enforce the instrument,
he cannot subsequently ask for its
reformation. If the words appear to be contrary to the
evident intention of the parties, the latter shall
prevail over the former.
If the mistake is mutual, then either of the TN: intent will prevail over the letter, if the
parties can ask for reformation and it may also letter or stipulations of the contract does
be ordered at the instance of his successors in not reveal its intention.
interest.
TN: mistake is mutual, otherwise, if not

mutual, the mistake was committed by one
party, then upon petition of the injured party
or his heirs or assigns.
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31
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How do we interpret general terms? Give an
ARTICLE 1371. In order to judge the example.
intention of the contracting parties, their
contemporaneous and subsequent acts
shall be principally considered. ARTICLE 1371. In order to judge the
intention of the contracting parties, their
contemporaneous and subsequent acts
Supposing there are ambiguities, if the shall be principally considered
contract is not clear, how then do you
interpret it, what factors would you consider?
Example
● To determine the intentions of the
parties, their contemporaneous and in the agreement, it was stipulated that what
subsequent acts shall be principally will be sold is the house that you owned. You
considered. have 2 houses, one exclusively owned by you
and the other co-owned by you and your
Cardinal rule in the interpretation of contracts sister. In interpreting the contract, the house
is to the effect that the intention of the must refer to the one exclusively owned as you
contracting parties should always prevail have the capacity to dispose it.
because their will has the force of law
between them.
Kasilag v. Rodriguez, 69 Phil. 217 (1939)
MANILA BANKING CORP. vs TEODORA JR FACTS: Respondents Rodriguez are the

heirs of Emiliana Ambrosio who
Sc: the character of the transactions
commenced this civil case to recover from
between the parties is not, however,
Kasilag the possession of the land and its
determined by the language used in the
improvements granted by way of
document but by their intention.
homestead to the deceased Ambrosio.
There are 2 contracts involved in this case: (1)

accessory contract of mortgage of the
The character of the transaction between the improvements of on the land; and (2) the
parties is to be determined with their verbal contract of antichresis
intention regardless of what language was
used or what form of transfer was. Kasilag and Emiliana Ambrosio (Ambrosio)
entered into a contract of loan to which has
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32
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an accompanying accessory contract of 2. Whether the petitioner should be

mortgage. The executed accessory contract deemed a possessor in good faith
involved the improvements on a piece of because he was unaware of any flaw
land, the land having been acquired by in his title or in the manner of its
means of homestead. The parties stipulated acquisition by which it is invalidated.
that Ambrosio was to pay the debt with
interest within 4 1⁄2 years, and in such a case, RULING:
the mortgage would not have any effect. 1. Only the accessory contract of
They also agreed that Ambrosio would mortgage of the improvements on
execute a deed of sale if the debt would not the land is valid while the verbal
be paid within 4 1⁄2 years and that she would contract of antichresis agreed upon is
pay the tax on the land. void.
After a year, it turned out that she was NOT Rule in interpretation of Contracts:
able to pay the tax. Hence, they entered a the terms, clauses and conditions
subsequent contract which is only a verbal contrary to law, morals and public
agreement. She conveyed to Kasilag the order should be separated from the
possession of the land on the condition that valid and legal contract when such
they would NOT collect the interest of the separation can be made because
loan, would attend to the payment of the they are independent of the valid
land tax, would benefit by the fruits of the contract which expresses the will of
land, & would introduce improvement the contracting parties.
thereof.
Thus, in applying this rule, the
Petitioner Kasilag for his part accepted the accessory contract of mortgage of the
contract of mortgage. Believing that there improvements on the land is VALID.
are no violations to the prohibitions in the However, the verbal contract of
alienation of lands, Kasilag, acting in good antichresis agreed upon is VOID.
faith took possession of the land, to wit, he
has no knowledge that the enjoyment of The 1st contract which is an accessory
the fruits of the land is an element of the contract of mortgage of the improvements
credit transaction of antichresis. on the land is VALID:
● It is NOT against the law. The
ISSUES: mortgage of the improvements, is
expressly authorized by section 116 of
1. Whether the two contracts are valid. Act No. 2874, as amended by section
23 of Act No. 3517.
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33
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● It will be recalled that in the contract, eliminated, thereby leaving the latter
the parties agreed that should in being because it is legal and valid.
Ambrosio fail to redeem the
mortgage within the stipulated 2. YES. Kasilag is in good faith.
period of four and a half years, by
paying the loan together with Gross and inexcusable ignorance of
interest, she would execute in favor of the law may not be the basis of good
the petitioner an absolute deed of faith but excusable ignorance may be
sale of the land for P1,000, including a basis (if it is based upon ignorance
the interest stipulated and owing. of a fact.)
The 2nd contract which is the verbal Here, Kasilag is NOT conversant with
contract of antichresis is VOID: the laws because he is not a lawyer. In
● The stipulation in the 1st contract was accepting the mortgage of the
verbally modified by the same parties improvements he proceeded on the
after the expiration of one year, in the well-grounded belief that he was NOT
sense that the petitioner would take violating the prohibition regarding
possession of the land and would the alienation of the land.
benefit by the fruits thereof on
condition that he would condone the In taking possession thereof and in
payment of interest upon the loan consenting to receive its fruits, he did
and he would attend to the payment NOT know, as clearly as a jurist does,
of the land tax. that the possession and enjoyment of
● This in effect altered the mortgage the fruits are attributes of the
contract and converted the latter into contract of antichresis and that the
a contract of antichresis (Article 1881 latter, as a lien, was prohibited by Sec.
of the Civil Code). 116.
● The contract of antichresis, being a
real encumbrance burdening the Thus, as to the petitioner, his
land, is illegal and void because it is ignorance of the provisions of Sec. 116
condemned by section 116 of Act No. is excusable and may be the basis of
2874, as amended. good faith.
● But the clauses regarding the
contract of antichresis being The petitioners being in good faith,
independent and separable from the the respondents may elect to have
contract of mortgage, can be the improvements introduced by the
petitioner by paying the latter the
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34
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What is most in keeping the agreement of the
value thereof, P3,000, or to compel
parties would be that of the community
the petitioner to buy and have the
property.
land where the improvements or
plants are found, by paying them its
market value to be fixed by the court
Art 1374. The various stipulations of a
of origin, upon hearing the parties.
contract shall be interpreted together,
attributing to the doubtful ones that sense
which may result from all of them taken
jointly.
ARTICLE 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 Same principle as that of statutory
effectual. construction. You do not interpret peacemeal
but rather as a whole. So in contracts, you do
not understand it provision by provision. You
Example interpret it as a whole.
A wife who would sell a house and in the

contract, she says, “ I am selling MY HOUSE, for
Art 1375. Words which may have different
2M to so and so…”.
significations shall be understood in that
But then, she has 2 houses, one she owned which is most in keeping with the nature
exclusively and another under community and object of the contract.
property.
In DOAS, you see the signature of the Example:

husband with consent of the husband.
A. there is authority to exact payment by
Q: which house would it refer to? Exclusive legal means— this authority includes
house or the house that she co-owned with the power to recover exact payment
her husband? through filing a case in court.
B. R leased to E a roof for the purpose of
A: community property. it should be under erecting an advertising sign. The
adequate to render it effectual. contract provides for the termination of
the lease by E if a “building” should be
If it were her exclusive property, then she constructed on an adjoining property of
would have not needed the signature of her such height as to obscure the view of
husband. E’s sign. There was erected on the roof
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35
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of an adjoining building a sign which TN: determining the intention has several
obstructed the view of E’s sign. In this factors incuding the usage and the place
case, the term “building” as the term is where they have entered into the the contract.
used in the contract may be interpreted
to include the obstructing sign having If there are ambiguous words, and you have to
in mind the nature and object of the interpret it, in whose favor should you
contract. interpret it?
- Interpret it in favor of the one who did

ARTICLE 1376. The usage or custom of the
not caused it.
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. ARTICLE 1377. The interpretation of obscure
words or stipulations in a contract shall not
favor the party who caused the obscurity.
Q: Why is it important to look into and make omission of stipulations which are ordinarily
it as a factor in interpreting as a contract established.
the usage or custom of a place?
A: it is presumed that the court do not know

the customs of the place where the contract
was borne.
Suppose you followed all the rules in
TN: in the PH, we have different customs… it is interpretation but still the intention of the
important to determine the intent of the parties cannot be determined, what
parties as well as it is important to look into happens to the contract?
their contemporaneous acts, that you also
look into the customs of the place to - Depends
determine the interpretation of whatever is
● Gratuitous – interpret it in favor of the
ambiguous of the contract.
least transmission of righ
The judge, if there is any case that would be ● Onerous – in favor of greatest
brought to court to determine such reciprocity of interest. (reason: for
ambiguity, the judge must remember that he equity and fairness)
will not interpret it by his own customs, but he
has to look into where was this entered into,
the usage or customs of the place. ARTICLE 1378. When it is absolutely
impossible to settle doubts by the rules
established in the preceding articles, and
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36
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the doubts refer to incidental circumstances

of a gratuitous contract, the least ARTICLE 1379. The principles of
transmission of rights and interests shall interpretation stated in Rule 123 of the Rules
prevail. If the contract is onerous, the doubt of Court shall likewise be observed in the
shall be settled in favor of the greatest construction of contracts.
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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37
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Summary of Requisites:
MODULE 7
DEFECTIVE CONTRACTS 1. In the beginning, it should have been valid
or at least voidable contract.
2. There's economic prejudice or Lesion
Rescissible Contracts 3. Mutual restitution.
Rescission under Art. 1191 or Resolution is

First and least defective contracts -
different from rescission under Art. 1380.
Rescissible contracts.
Article 1191. The power to rescind

Article 1380. Contracts validly agreed upon obligations is implied in reciprocal ones, in
may be rescinded in the cases established case one of the obligors should not comply
by law. with what is incumbent upon him.
The injured party may choose between the

Requisites (discussion): fulfillment and the rescission of the
obligation, with the payment of damages in
First Requisite either case. He may also seek rescission,
even after he has chosen fulfillment, if the
latter should become impossible.
Valid Contract - "Contracts validly agreed
upon"- IOW, it already gives you the first The court shall decree the rescission
requisite for rescission, that the contract claimed, unless there be just cause
must be at the very beginning, a valid authorizing the fixing of a period.
contract or at least a voidable, because a
voidable contract is valid until it is annulled. This is understood to be without prejudice
to the rights of third persons who have
acquired the thing, in accordance with
Second Requisite
articles 1385 and 1388 and the Mortgage
Law. (1124)
Economic prejudice or lesion - rescission is a
remedy given by law to persons who are
economically prejudiced by a contract or we
Art. 1380 v. Art. 1191
call it - lesion.
Third Requisite Art. 1380 Art. 1191

Requires mutual restitution- So, if you ask for
Grounds based on based on
rescission, then you must be able to return
Lesion or nonperformance
whatever you have received by virtue of such economic or nonfulfillment
contract.
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1
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can you rescind something that does not

prejudice
exist?
Instituti action is only by the
on of instituted injured party in Read: UFC v. CA. In this case the SC
Actions either by a the contract. discussed the difference between the
contracting rescission under 1381 and 1191
party or by
third persons
Universal Food Corporation v CA &
Rights The courts are the courts may Francisco
of the not granted grant a term or
Court the right to period (Rescission: yes || substantial and
give a term or fundamental breach)
a period for
which the Defendants instituted an action for
other party rescission of a contract entitled “Bill of
will comply Assignment” against petitioners; defendant
because invented a formula for the manufacture of a
again, it's not food seasoning derived from banana fruit
about popularly known as Mafran sauce;
nonperforanc petitioner registered the trademark but
e or due to a lack of sufficient capital to finance
nonfulfillment the expansion of his business he secured
nt financial assistance from Tirso Reyes who
formed with the others defendant
Universal Food Corporation eventually
TN: Based on that third difference, the leading to the execution of the subject Bill
nonperformance or nonfulfillment is not of Assignment; petitioner contends (1)
important or essential in Art. 1380, but it is respondent’s are not entitled to rescission
important or essential in Art. 1191. (2) trial court found that the respondents
not only have failed to show that the
Q: Supposing both parties mutually agree petitioner has been guilty of default in
to cancel the contract, is that properly performing its contractual obligations but
the record sufficiently reveals the fact that it
called recission?
was plaintiff who had been remiss in the
compliance of his contractual obligation to
A: Technically, no. that is just mutual
cede and transfer the formula (3) nothing in
backing out of the contract the successive memoranda issued from
which it can be implied that the
Q: Can you rescind a void contract? respondent patentee was being dismissed
from his position as chief chemist right to
A: No. It lacks the first requisite: that it must use only (1) one of the principal
be valid in the beginning. Furthermore, a void considerations of the Bill of Assignment is
contract is a contract that does not exist. How
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2
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the payment of a royalty and a royalty when respondent from the serve in flagrant
employed in connection with a license violation of the contract (9) the fact that a
under a patent means the compensation month after the institution of the action the
paid for the use of a patented invention (2) petitioner requested the patentee to report
in order to preserve the secrecy of the for duty is of no consequence as it was
Mafran formula and to prevent its merely a recall to place said plaintiff (10) no
unauthorized proliferation it is provided controversy that the Bill is reciprocal in
that defendant be appointed chief chemist nature and by termination
permanently and that in case of his death the services of respondent patentee
or disability then his heirs or assigns who without lawful and justifiable cause and
may have the necessary qualifications will without nay fault or negligence on his part
be preferred to succeed thus the intention the petitioner substantially and
of the respondent patentee at the time of fundamentally breached the Bill (11)
the execution was to part not with the respondents were left with no choice but to
formula but with the use to preserve the file the present action for rescission and
monopoly and to effectively prohibit damages (12) the provisions of the Bill are
anyone from availing of the invention (3) so interdependent that violation of one
the Bill stipulated that would result oil virtual nullification of the
should dissolution of the petitioner rest (12) one of the considerations for the
corporation eventually the place the transfer of the use was the undertaking by
property rights and interests over said petitioner to employ respondent in a
trademark and formula shall automatically permanent status this cannot escape
revert to the respondent patentee (4) in the liability fro pay the private respondent
respondents complaint it is alleged that (13) rescission creates the obligation to
what was ceded and transferred is the use return the things which were the object of
of the formula and this incontrovertible fact the contract thus petitioner has to return
is admitted without equivocation in the use and the right to such use (1) Bill of
petitioner’s answer (5) facts of the case Assignment rescinded (2) corporation to
compellingly demonstrate continued return and restore the right t the use of his
possession of the sauce formula by the Mafran sauce (3) corporation and all its
respondent patentee (6) conveyance assigns and successors are permanently
should be interpreted to effect the least enjoined from using in any manner the
transmission of rights thus what is allowed such trademark and formula (4) pay his
is only the use of the formula without the monthly salary and other costs.
transfer of ownership (7) as the Bill vested
in the petitioner corporation no title to the
formula the finding by the trial court that Types of Rescissible Contracts:
respondent had been remiss is without
basis (8) the prevailing milieu when the
rescission of the Bill was filed clearly prove
that the Art. 1381 Art. 1381. The following contracts
petitioner schemed and maneuvered to are rescissible:
ease out, separate, and dismiss the
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3
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age of majority, they can examine the

(1) Those which are entered into by contracts entered into by their guardians.
guardians whenever the wards whom they
If they see that they suffered lesion by virtue
represent suffer lesion by more than
of the contract entered into by their
one-fourth of the value of the things which
guardians, then they may ask for the
are the object thereof;
rescission of the contracts.
(2) Those agreed upon in representation of
Illustration:
absentees, if the latter suffer the lesion
stated in the preceding number;
A minor inherits several properties because
his parents died due to an unfortunate
(3) Those undertaken in fraud of creditors
accident. This minor inherited a house that
when the latter cannot in any other
was used by the parents to be rented out.
manner collect the claims due them;
Let’s say the guardian now assumes the
(4) Those which refer to things under renting out of the house. Guardian pegged
litigation if they have been entered into by the rent at P75,000 per month.
the defendant without the knowledge and
The rental was pegged at 75,000/month.
approval of the litigants or of competent
When you look at the market with the size,
judicial authority;
area of the house and its location, it should
(5) All other contracts specially declared by have been rented for 100K/month.
law to be subject to rescission
How do we compute lesion, if there is? It’s
For number 1 and 2, it talks about Lesion. more than ¼. What’s the basis? How much is
¼ of 100k? 25k.
1 & 2. Lesion
The law says that if the ward or absentee
Economic prejudice or the financial suffers lesion by more than ¼ or more than
disadvantage of one of the parties of a 25k in this case, when he comes of age, he
contract (wards or absentees). Wards and can ask that that contract be rescinded.
absentees cannot enter into contracts so a
guardian comes in to protect their affairs The economic prejudice in the example is
25k, which is exactly ¼. It’s not rescissible
To protect the wards and absentees, this is a because it must be more than ¼.
remedy given to them.
If it was rented for 60k, the economic
When the “absentee’s” whereabouts are now
prejudice is 40k. it’s more than ¼ and this
known or when the wards have attained the
time it can be rescinded.
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4
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6. payments made in a state of insolvency

3. those undertaken in fraud of creditors for obligations to whose fulfillment the
when the latter cannot in any manner debtor could not be compelled at the time
collect claims due them. they were affected are also rescissible
This is under the remedy of creditors—accion These are premature payments made in a
pauliana. state of insolvency.
Accion Pauliana Requisites:

Contracting parties/3rd person may file an 1. Debtor payor must have been
action to rescind if it causes them economic insolvent. Need not be judicially
prejudice just like creditors who are declared insolvent.
defrauded by the debtors. 2. Debt was not yet due and
demandable.
4. Things in litigation
Illustration
Illustration
A sues B for recovery of a specific car. A, the debtor, owes 50k each X and Y. Debt of
Pending litigation, B sells the car without A to X is due on August 12, 2020. Debt of A to
asking permission from the court or approval Y is due on March 20, 2020.
of A.
Supposing A is insolvent, (we said, he need
If A wins, A can rescind the contract of sale not be judicially declared as such), if A pays X,
entered into by B. the law tells you that, that payment may be
rescinded by Y.
5. All other contracts that are declared by
law as rescissible. Why? Because, it is a premature payment
and it will disadvantage Y because the debt
● 1098 – partition in his favor is already due and demandable
● 1189 – results of deterioration but A paid X his debt when such debt is not
● 1526, 1534 rights given to an unpaid yet due and demandable. At the same time,
seller A is insolvent. (this is what is meant by
● 1539 - sale of real estate Art. 1382. Premature payments in a state of
insolvency)
Apart from 5, there is also the 6th type which
is 1382. CHARACTERISTICS OF A RESCISSIBLE
CONTRACT
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5
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1. Their defect consists in injury or “The action for rescission is subsidiary” –

damage to one of the contracting means that it is not a principal remedy. You
parties or to third persons. use that remedy only if you have exhausted
all other remedies available to you.
e.g., when the defrauded creditors will file an
action for rescission for a contract entered Illustration
into by the debtor. When the creditor right away filed an action
to rescind of the donation of a parcel of land
2. A contract that is valid before it is but the court found out that there are other
rescinded. parcels of land that he could have attached. It
3. They can be attacked DIRECTLY was not necessary to ask for rescission,
only and NOT COLLATERALLY because it is a subsidiary remedy.
4. They can be attacked either by a
contracting party or by a third
ART. 1384. Rescission shall be only to the
person who is injured or defrauded.
extent necessary to cover the damages
5. They can be convalidated ONLY by
caused.
PRESCRIPTION, NOT by
RATIFICATION
ART. 1385. Rescission creates the obligation
to return the things which were the object
IOW, the parties affected by the economic
of the contract, together with their fruits,
prejudice cannot say that they are waiving
and the price with its interest;
their right to file an action to rescind because
consequently, it can be carried out only
they cannot ratify it. They can convalidate it
when he who demands rescission can
only by prescription.
return whatever he may be obliged to
restore.
IOW, if the prescriptive period will lapse
without them having availed of the remedy
Neither shall rescission take place when the
then that is the only time that it is validated.
things which are the object of the contract
It cannot be validated by ratification.
are legally in the possession of third
persons who did not act in bad faith.
ART. 1383. The action for rescission is
subsidiary; it cannot be instituted except In this case, indemnity for damages may be
when the party suffering damage has no demanded from the person causing the
other legal means to obtain reparation for loss. (1295)
the same.
It is required that if you ask for rescission,
then, you must be able to give back whatever
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6
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you may have received by virtue of the But of course, if the same cannot be
contract – MUTUAL RESTITUTION because returned, you may ask for indemnity for
you have to put things back to the way they damages for the person causing the loss.
were before the contract was entered into.
Now, we mentioned prescription because we
said that it cannot be ratified, it cannot be
Article 1385. (1) Rescission creates the
validated but it can be convalidated by
obligation to return the things which are
prescription.
the object of the contract together with
their fruits and the price with its interest;
Q: So what is the prescriptive period?
consequently, it can be carried out only
when he who demands rescission can
GR: Four (4) years from the time the contract
return whatever he may be obliged to
has been entered into.
restore.
E: But for persons under guardianship and for

So you cannot ask first rescission if you can absentees, the period of four years shall not
no longer restore or return what you have begin until the termination of the former’s
received by virtue of the contract. incapacity or until the domicile of the latter is
known.
Article 1385. (2) Neither shall rescission
take place when the things which are the Article 1384. Rescission shall be only to the
object of the contract are legally in the extent necessary to cover the damages
possession of third parties who did not act caused.
in my faith.
Ex. So if the damage cost is only to the extent

In this case, indemnity for damages may be
of 50,000 then you don't have to rescind the
demanded from the person causing the
entire value of 100,000. You rescind only to
loss.
that extent that will cover the damage that
was caused.
Why? Because third parties are also
protected so long as they are in good faith.
Article 1387. (1) All contracts by virtue of
They cannot be punished for the things that
which the debtor alienates property by
may have been done by the other
gratuitous title are presumed to have been
contracting party, again so long as they are in
entered into in fraud of creditors, when the
good faith.
donor did not reserve sufficient property to
pay all debts contracted before the
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7
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was A v. Y. This parcel of land is not in anyway

donation.
connected to the case. The parcel of land is
different. The case of A v. Y where A has lost
Article 1387 talks about presumptions of has nothing to do with the parcel of land that
fraud. It talks about when you presume that was sold. Is the sale of A to X fraudulent?
there is fraud that is committed, if there is an
onerous contract, or if it is a gratuitous A: YES. Because the law says that the
contract. decision/attachment need not even refer to
the property alienated and need not have
So if there was a donation that was made, been obtained by the parties seeking the
and you had debts prior to that donation, and rescission.
you did not reserve properties for those, then
the presumption is that the gratuitous Hence, the sale is already presumed
donation was fraudulent. fraudulent for onerous alienations (sales =
onerous).
But how about for onerous donations?
Note: There are just presumptions which are
Article 1387. (2) Alienations by onerous title disputable.
are also presumed fraudulent, when made
by persons against whom some judgment So, if A can prove that it was not done to
has been rendered. The decision or defraud Y, then the contract may not be
attachment did not refer to the property rescinded → these are just presumptions.
alienated, and need not have been
obtained by the party seeking the The case of Oria v. McMicking gives
rescission. examples of badges of fraud.
In addition to these presumptions, the Oria v. McMicking

design to defraud creditors may be proved (G.R. No. L-7003)
in any other manner recognized by the law
of evidence. Facts: Gutierrez Hermanos filed an action
for recovery of a sum of money against Oria
Hermanos & Co. and herein plaintiff filed an
action for recovery also for the same
So for onerous alienation, there is the
defendant.
presumption of fraud if there was already a
judgment against you.
Before the institution of the suits, members
of the Company dissolved their relations
Ex. There's already a judgment against A. A
and entered into a liquidation. Tomas Oria y
sells a parcel of land to X. But the case here
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8
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Balbas acting in behalf of his co-owners of the members of said company. The
entered into a contract with the herein plaintiff is a young man of 25 years old and
plaintiff for the purpose of transferring and has no property before the said selling.
selling all the property which the Oria
Hermanos & Co. owned and among the The court had laid down the rules in
goods stated on that instrument was the determining whether a there has been
steamship Serpantes and which the subject fraud prejudicing creditors: 1) consideration
of this litigation. of conveyance is fictitious; 2) transfer was
made while the suit against him (Tomas
When the Trail Court resolved the action for Oria y Balbas) was pending; 3) sale by
recovery filed by Gutierrez Hermanos and insolvent debtor; 4) evidence of insolvency;
jugdment was in his favor, The sheriff 5) transfer of all properties; 6) the sale was
demanded to Tomas Oria y Balbas to make made between father and son; 7) and the
payment but the latter said there were no failure of the vendee to take exclusive
funds to pay the same. The sheriff then possession of the property. The case at bar
levied on the steamer, took possession of shows every one of the badges of fraud.
the same and announced it for public
auction. Herein plaintiff claimed that he is
the owner of the steamer by virtue of the Article 1388. Whoever acquires in bad faith
selling of all the properties of the said the things alienated in fraud of creditors,
Company. shall indemnify the latter for damages
suffered by them on account of the
Issue(s): alienation, whenever, due to any cause, it
should be impossible for him to return
1. W/N there was a valid sale between Oria them.
Hermanos & Co. to Manuel Oria y Gonzales
as against the creditors of the company. If there are two or more alienations, the first
acquirer shall be liable first, and so on
2. W/N the sale was fraudulent. successively.
Held: At the time of said sale the value of If the thing that is object of the contract is
the assets of Oria Hermanos & Co., as stated already in the hands of a 3rd person, then you
by the partners themselves, was P274,000. can no longer ask that the thing be given
The vendee of said sale was a son of Tomas back to you – even though you suffered
Oria y Balbas and a nephew of the other economic prejudice.
two persons heretofore mentioned which
said three brothers together constituted all Q: What can you do?
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9
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A: You may ask for damages against the

person who caused the loss. However, this is A .The parties are incapable of giving
true only if the 3rd person acted in good faith. consent (Minors, Insane, under Civil
Interdiction) or suffer any disability that
If the 3rd person acted in good faith = cannot disables him to give consent as defined by
ask that the thing be returned. law.
Article 1388 tells you that your remedy, if you

are the person being prejudiced by the Illustration:
contract (suffered lesion or were defrauded)
and you want to ask for rescission and you A who is a minor, enters into a contract with
can prove that the 3rd person is in bad faith = B.
may ask for the return of the thing.
TN: If both are minors or incapable of giving
In case the it is impossible for the 3rd person consent, the contract is Unenforceable.
to return the thing = he is liable for damages.
If there are two or more alienations, the first B. There is vitiation of Consent (There is
acquirer shall be liable first, and so on Mistake, Violence, Undue Influence,
successively. Intimidation or Fraud)
Illustration:
Voidable Contracts
A entered into a contract with B. The latter

1390. - The following contracts are voidable employed intimidation against A and forced
or annullable, even though there may have him to sell the parcel of land to B threatening
been no damage to the contracting parties: the former to kill his wife. This makes the
(1) Those where one of the parties is contract of sale voidable.
incapable of giving consent to a contract;
(2) Those were the consent is vitiated by
TN: The contract was voidable because
mistake, violence, intimidation, undue
influence or fraud there still consent but it was not intelligent
or voluntary. It was vitiated.
It is only when there is total absence of

Voidable Contracts
consent that makes the contract void.
- These are contracts that are valid
until it is annulled.
Characteristic of Voidable contracts:
Two types of Voidable contracts under
Article 1390:
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10
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1. Consist in the vitiation of consent of

governs as it aims to governs as we are
one contracting parties or one of the protect an talking about
contracting parties be incapacitated to incapacitated financial or
give consent. person economic prejudice
Law dominates Equity dominates

2. It is valid and binding until annulled by
a competent court.
The plaintiff must be The plaintiff or a
3. Susceptible to validation by a party to the party may be a third
Ratification or Prescription. contract whether person, as this
principally or remedy is available
subsidiarily. A third to prejudiced
Action for against a voidable Contract:
person cannot file creditors
Annulment of Contract an action for
annulment
Annulment Rescission
The damage to the There must be
plaintiff is damage to the
Based on vitiation of Based on
immaterial plaintiff
consent or Lesion/damage/injur
incapacity of the y or economic
Indemnification will If the plaintiff is
contracting parties prejudice
not bar the indemnified then
prosecution of the rescission cannot
action. prosper
Defect is Intrinsic or Defect is external or
in one of the outside of the
essential elements contract
The defect is internal It is completely
of a Contract (
compatible with a
consent )
perfectly valid
contract because
the defect is external
The action is a Rescission is a
Principal remedy subsidiary remedy. It
Ratification is Ratification is not
can only be resorted
required required
to after the
exhaustion of all
legal remedies Who may institute an action for
available annulment:
Annulment is a Rescission is a
sanction remedy Art. 1397. The action for the annulment of
contracts may be instituted by all who are
thereby obliged principally or
Public interest Private interest
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11
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subsidiarily. However, persons who are

capable cannot allege the incapacity of Illustration:
those with whom they contracted; nor can A forced B to enter into a contract with him.
those who exerted intimidation, violence, or So B now has his consent vitiated. X, a
undue influence, or employed fraud, or creditor of B, cannot file an action to annul
caused mistake base their action upon the contract between A and B because he is a
these flaws of the contract.
3rd party.
Ex. if A is the minor, then B, who is of legal

Singsong v. Isabela Sawmill, 88 SCRA 623
age, cannot file an action to annul the
(1979)
contract and allege the incapacity of A. it
shall be A, upon attaining capacity, will he be
In this case, he is a 3rd party and yet the
able to file an action to annul or the guardian
Court allowed him to file an action to annul
of A.
the contract.
If B is the one who employed intimidation

Atty: I do not agree with this because the
and A’s consent was vitiated, B the guilty
law is very clear that 3rd parties cannot file
party cannot file an action to annul alleging
to annul. But that does not mean that he
the vitiated consent of A.
does not have a remedy. He should have
filed an action to rescind. But maybe the SC
IOW, it must be the INNOCENT party or the
allowed it in this case because the effect of
INCAPACITATED party who must file an
annulment and rescission are the same and
action to annul. Or in case of the
that is MUTUAL RESTITUTION.
incapacitated, once he ceases or the
guardian of the incapacitated person can
But as to the propriety of the action, if you
only file. The person of legal age cannot file
are a third person, you cannot file an action
an action to annul alleging that the other is a
to annul. You may look into another
minor and that the other party was just
remedy-ACTION FOR RESCISSION
forced due to vice of consent. That’s what is
meant by 1397.
Q: May creditors of innocent parties ask for Q: What is the prescriptive period for filing
annulment? an action to annul a contract.
A: NO. A creditor of an innocent party is not Article 1391. An action for annulment shall
within those persons allowed by law to file an be brought within four years. This period
action for annulment because the creditor is shall begin: In case of intimidation, violence
a third party. or undue influence, from the time the
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12
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the person attained majority. If insanity, then

defect of the consent ceases. In case of
from the time he became sane.
mistake or fraud, from the time of the
discovery of the same.
The effects will be the same as rescission,
there will be mutual restitution. The effect of
an annulment is that you return whatever
Q: When do we start counting the 4-year you have received by virtue of a contact.
period?
Article 1398. An obligation having been
A: In case of intimidation, violence or undue annulled, the contracting parties shall restore
influence, from the time the defect of the to each other the things which have been the
consent ceases”. Only when there is no more subject matter of the contract, with their
violence, or intimidation, can you count the 4 fruits, and the price with its interest, except in
year period. If you are still suffering from such cases provided by law.
vice, the period will not start to run because
you will be afraid to file an action to annul the In obligations to render service, the value
contract. thereof shall be the basis for damages. (1303a)
For mistake or fraud, the 4 year period will

Obligations to render services
be counted from the time of discovery. When
you commit a mistake, then you will not
- You clearly cannot return services.
know right away (inception of the contract)
Once done, you cannot undo it. The
that you committed a mistake. So, the 4 year
law says the value thereof should be
period will be counted from the time of
the basis for damages.
discovery. For fraud, at the start of the
contract, you are led to believe that you are
If the object of a contract is now in the
entering into a perfect valid contract and the
hands of a 3rd person, can you oblige him
discovery may come on a later period. So the
to restore?
discovery may only come on a later period
and so the the 4 year period will start only
- If the 3rd person is innocent - he is
from the time of discovery.
protected. He cannot be obliged to
restore.
Q: How about with respect on the first type
- If 3rd person is not innocent - he may
of voidable contacts-when one of the
be obliged to restore
persons is incapacitated to give consent.
When will the 4 year period start?
ARTICLE 1402. As long as one of the
A: It will start when the incapacity ceases. If a contracting parties does not restore what in
minor, then 4 years will start from the time virtue of the decree of annulment he is
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13
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bound to return, the other cannot be This presupposes that there is already a
compelled to comply with what is incumbent decree of annulment i.e. the case has been
upon him. (1308) done, the court already orders the parties to
return whatever they have received by virtue
This means that if there is decree of of the contract. What if you cannot return
annulment and you cannot return because due to your fault? You may have destroyed
you have already sold it, and the third person the thing. What will you return?
is innocent, you cannot ask him to give it
back to you. In the same manner, the other The law says you will have to return the fruits
party cannot also be obliged to return to you received and the value of the thing at the
what he has received by virtue of that time of the loss with interest from the same
voidable contract. date.
ARTICLE 1399. When the defect of the Article 1401. The action for annulment of
contract consists in the incapacity of one of contracts shall be extinguished when the
the parties, the incapacitated person is not thing for which is the object thereof is lost
through the fraud or fault of the person
obliged to make any restitution except
who has right to institute the proceedings.
insofar as he has been benefited by the thing
or price received by him. (1304) If the right of action is based upon the
incapacity of any one of the contracting
Incapacitated persons are not obliged to parties, the loss of the thing shall not be an
obstacle to the success of the action, unless
return whatever they have received, unless
said loss took place through the fraud or
they were benefited by it. You, being the
fault of the plaintff.
person capacitated, have to prove that there
was such a benefit. E.g. Prove that money
Q: What does the 1st paragraph mean? (MBL
given to minor, he used in buying groceries,
Comment: Pertains to vitiation of consent,
in paying tuition. Then, there is a benefit and
fraud, undue influence etc hence the reason
may be obliged to restore.
why there are guilty and innocent parties)
ARTICLE 1400. Whenever the person obliged

A: If the object to be returned by the guilty
by the decree of annulment to return the
party is lost due to the fault of the innocent
thing can not do so because it has been lost
party, then the latter’s remedy of annulment
through his fault, he shall return the fruits
cannot be had since he is the cause or reason
received and the value of the thing at the
for the loss.
time of the loss, with interest from the same
date. (1307a)
Q: What does the 2nd paragraph mean?
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14
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(MBL Comment: talks about the capacity or

lack thereof between the parties) 4) The ratification must have been made
expressly or by an act implying a
A: As a general rule, even if the thing is lost it waiver of the action to annul.
will not bar or stop the plaintiff from filing
suit.
Article 1393. Ratification may be effected
expressly or tacitly. It is understood that
UNLESS it was the plaintiff who caused the there is a tacit ratification if, with knowledge
loss of the thing or object. of the reason which renders the contract
voidable and such reason having ceased,
It was previously mentioned that you can the person who has a right to invoke it
should execute an act which necessarily
ratify a voidable contract.
implies an intention to waive his right.
Q: What are the five (5) requisites for

ratification? Uy Soo Lim vs Tan Unchuan
GR No. 12605, Sept 7, 1918
A:
1) The contract must be voidable Uy Soo Lim wanted to file an action to annul
the contract of sale saying he was only a
minor when it was executed
2) The ratification is made with the
knowledge for the cause of nullity The SC denied his action for annulment
since he had already used a substantial
MBL: You cannot cure the defect, if you amount of the purchase price or proceeds.
do not know what the defect is in the
first place. MBL Illustration: A pointed a gun B
forcing the latter to sell his parcel of
3) At the time of the ratification, the land to the former. In this situation,
cause for nullity ceases to exist. there clearly is vitiated consent.
MBL Example: Fraud or violence was But what if receiving the money, B
employed to entice you to enter into goes shopping or goes on a vacation
the contract (Dolo causante) using the money, this now constitutes
TACIT ratification and thus the remedy
You can ratify your contract if you knew of annulment is no longer available to
that there was fraud or violence was B.
committed against you and such had
ceased at the time you asked for the 5) The person ratifying must be the
ratification. injured party.
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15
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the voidable contract. This is according to Art.

1396.
Article 1394. Ratification may be effected
by the guardian of the incapacitated
person. (n) Article 1396. Ratification cleanses the
contract from all its defects from the
If a guardian of an incapacitated person can moment it was constituted.
file an action to annul, in the same manner
the guardian can also ratify the contract
Unenforceable Contracts
entered into by an incapacitated person.
Q: In ratification, do we need the conformity Unenforceable contracts are the third kind of
of the guilty party? defective contracts.
In our example earlier, A pointed a gun at B Characteristics:

and forced the latter to sell his land to A. If B
1. Cannot be enforced by proper court
ratifies it, does B need the consent of A?
action;
2. Susceptible of ratification — either
A: Of course not, according to Article 1395.
express or implied;
3. Cannot be assailed by third persons.
Article 1395. Ratification does not require
the conformity of the contracting party
who has no right to bring the action for Example:
annulment. You enter into a contract with A, and it is an
unenforceable contract. If A will not abide by
If you require the conformity of A, then you the terms you agreed upon, you cannot ask
are giving A the change to back out when in help from the courts. You cannot file a case in
fact he was the reason why there was this court to compel A to do his part in the
contract. So as a punishment, A has no choice agreement because it is unenforceable.
but to abide by it if B wants to make the
contract valid.
Article 1403. The following contracts are
unenforceable, unless they are ratified:
Q: What then would be the effect of
ratification? (1) Those entered into in the name of
another person by one who has been given
A: It extinguishes the action to annul a no authority or legal representation, or who
voidable contract, and cleanses the defect of has acted beyond his powers;
(2) Those that do not comply with the

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16
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Statute of Frauds as set forth in this

number. In the following cases an (3) Those where both parties are incapable
agreement hereafter made shall be of giving consent to a contract.
unenforceable by action, unless the same,
or some note or memorandum, thereof, be
in writing, and subscribed by the party
charged, or by his agent; evidence,
therefore, of the agreement cannot be Three types of unenforceable contracts
received without the writing, or a (Article 1403):
secondary evidence of its contents:
1. Unauthorized contracts — those
(a) An agreement that by its terms is not to entered into in the name of another
be performed within a year from the person by one who has been given no
making thereof; authority or legal representation, or
who has acted beyond his powers.
(b) A special promise to answer for the
debt, default, or miscarriage of another;
Another who is by one who has been given
(c) An agreement made in consideration of no authority or legal representation, or
marriage, other than a mutual promise to who has acted beyond his powers.
marry;
Example:
(d) An agreement for the sale of goods,
chattels or things in action, at a price not I have a car, and if my brother sells my car
less than five hundred pesos, unless the without any authority from me, then the sale
buyer accept and receive part of such
of that car to his friend would be
goods and chattels, or the evidences, or
some of them, of such things in action or unenforceable. Even if his friend has already
pay at the time some part of the purchase paid him the money for the car, that friend
money; but when a sale is made by auction cannot file and action against me to deliver
and entry is made by the auctioneer in his the car to him because that sale is
sales book, at the time of the sale, of the unenforceable, an unauthorized contract
amount and kind of property sold, terms of
sale, price, names of the purchasers and
Another is when a person who may have
person on whose account the sale is made,
it is a sufficient memorandum; been authorized but has gone beyond the
authority.
(e) An agreement for the leasing for a
longer period than one year, or for the sale Example:
of real property or of an interest therein;
I authorized my brother to borrow money on
( f ) A representation as to the credit of a
third person. my behalf and the car will be used as a
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17
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collateral, that is the authority I am giving a. Agreement by its terms is to be

him. Now, my brother exceeded his authority performed within a year from the
by selling the car. This then is an making thereof.
unenforceable contract, an unauthorized - If you have an agreement and it will
contract or the first class of unenforceable not take effect within a year from the
contracts time entered into contract, it must be
in writing
Another is those that do not comply with the - Example: you enter in to a contract of
statute of frauds. What does the statute of loan, but the loan will take effect only
frauds tell you to do? next year and not within the year you
executed the contract. The law says
It tells you that there are certain types of this must be put in writing. Otherwise,
contracts that must be in writing to be it is unenforceable. So, when that date
enforceable. These are those enumerated comes and it is beyond one year from
under Number 2, Article 1403 (A-E) entering such contract, you cannot
compel by court action the other
Why is it necessary to put these into person to abide by the terms of the
writing? contract. Reason: to prevent fraud or
mistake because man’s memory is
This is to prevent fraud. Because If these faulty. You might have forgotten the
contracts enumerated are not put into terms or the other party might use this
writing it might perpetrate fraud. to defraud the other.
WHY? Because man’s memory is faulty, we b. Special promise to answer for the
might forget the terms of the contract that debt/default/miscarriage of another
we entered into. This is to prevent mistakes - Example: surety/guarantor must be in
or fraud; thus the law gives us this statute of writing.
frauds.
TN: statute of frauds is only applicable to c. An agreement made in consideration of

contracts that are executory or are yet to be marriage, other than a mutual promise to
executed. If it is already partially executed, marry.
then that contract is already removed from
the statue of frauds. d. An agreement for the sale of goods,
chattels or things in action, at a price not
Let us enumerate contracts that must be in less than P500.
writing.
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18
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EXC: Unless the buyer accepts and receives in and the other delivers), then it’s already
part such goods and chattels or the evidence, removed from the Statute of Frauds.
or some of them, of such things in action or
paid at the time some part of the purchase. Q: Why?
BUT when a sale is made by auction and A: Because it is already executory, already
entry is made by the auctioneer in his sales done and executed. As mentioned earlier, it
book at the time of the sale of the amount refers only to executory contracts.
and kind of property sold, in terms of sale,
price, names of the purchasers and person in Also, if you read paragraph b which says:
whose account the sale is made, it is a Unless there is already partial delivery or
sufficient memorandum. partial payment.
1st half: An agreement of sale of goods ● Reason: Because the Statute of Frauds
where the price is not less than P500, it will only cover executory contracts. If
must be in writing. it’s already partially executed, you can
no longer use the SOF.
If it is less than P500, it may be orally made. ● Example: A sells a particular car to B
You may enforce it by an action in court if the for P300K and it was orally made. But
other will not abide by the terms of the B makes a downpayment of P100K to
agreement. A. And the agreement was, it will be
delivered only when full payment is
BUT if it is not less than P500 – meaning P500 made and there was no written
or more – and it involves a sale, it must be in contract. If you follow SOF, if B will now
writing. fully pay, A can use the SOF by saying,
“No. I’m not going to deliver the car
So, if you sell a particular car or mobile phone because this is unenforceable. You
which is P500 or more, the sale must be in cannot sue me in court.” But since it’s
writing in order to be enforceable. already partially executed, the law tells
you that SOF will no longer apply.
Q: What does that mean?
Q: Why?
A: It must be in writing so that if either one of
you breaches your agreement, then the other A: Because the purpose of the SOF is to
party can file a case in court. Of course, there prevent fraud. If we use the SOF in that
is no problem if it is orally made and you example, it will now aid in the fraud that will
abide by terms of the agreement (one pays be committed by A against B. So even if it
was just orally made – A sold the car to B for
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19
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P300K orally – since there was already partial

execution by B, then A can no longer use the Illustration: If A is to represent B to pay up a
SOF. A can no longer say that “No, this is loan, it must be in writing to be enforceable.
unenforceable because it is not written”. He
can no longer use that because it is already Summary of Unenforceable Contracts
partially executed. 1. Unauthorized contracts
2. Do not comply with SOF
TN: If there’s already partial execution, SOF 3. Both parties are incapacitated
will no longer apply.
A is a minor, B is a Unenforceable
It would have been different if it was a sale of minor (both
a car for P300K and there’s NO PAYMENT incapacitated)
YET. B cannot compel A by court action for A
to deliver because there is no partial A is a minor, B is Voidable
capacitated
execution yet.
e. An agreement for the leasing of real Statute of Frauds

property for a longer period than one year,
or for sale of real property or an interest Q. Can the statute of frauds be waived?
therein. Yes. It is waivable.
Lease for more than 1 year or Sale of Real Example: An oral sale of a particular car.
Property Seller sues buyer to pay. This should have
been covered by SOF. IOW, seller should not
have been able to successfully file a court
In writing Enforceable
action against the buyer.
Orally made Unenforceable
However, the buyer Answers the case and he
XPN: If it is already does not raise the defense of SOF.
fully executed,
Statute of Frauds is
Effect: Buyer is deemed to have waived such
inapplicable.
defense.
Reason: SOF will
apply only to Raise the defense of SOF
executory contracts. If the contract is unenforceable and you are
being sued, your lawyer should raise the
F. Representation as to the credit of a third defense of SOF and thus, you cannot be sued.
person.
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For acceptance of benefits; in the earlier

PNB vs. Philippine Vegetable Oil Co.
example, my brother sold my car without my
An agreement for backing of the vegetable authority. He gets the proceeds of the sale.
oil company where SC said that there was But then, I get the money, I put it in the bank,
no evidence to show that there was then withdrew and spent some of it. Here,
unlimited backing or that the president even if the sale is unauthorized, it has already
was authorized by the BOD. In a
been ratified by my acceptance of the
corporation, an action to be valid, it must be
duly authorized by the BOD. benefits. The defect has been cured.
Rosencor Development Co. vs. Inquiring Carbonnel v. Poncio
This case talks about whether or not the right Doctrine: The Statute of Frauds covers only
executory contracts or contracts still to be
of first refusal is covered by the Statute of
executed. If there has already been partial
Frauds. The SC said that the right of first performance, then the contract is already
refusal is not a sale of real property, so it is not removed from the operation of the SoF.
covered by the SoF. This means it is still
enforceable even if made orally.
Article 1407. When a contract is
However, in this case, the SC said that while enforceable under the Statute of Frauds,
and a public document is necessary for its
the right of first refusal exists, it cannot defeat
registration in the Registry of Deeds, the
the right of an innocent purchaser for value, parties may avail themselves of the right
or the one who bought the property in good under Article 1357.
faith.
Art. 1357 grants a contracting party the right
Article 1405. Contracts infringing the to compel the other to execute the contract
Statute of Frauds, referred to in No. 2 of in the form required by law.
article 1403, are ratified by the failure to
object to the presentation of oral evidence
Example: A sale of a parcel of land is covered
to prove the same, or by the acceptance of
benefits under them. under the Statute of Frauds, and it must be in
writing to be enforceable.
One of the characteristics of an

If the sale is only in a private instrument, you
unenforceable contract is ratification, which
can compel the other party to execute it in a
may be expressed or implied. If you fail to
public document. This is so because the
object in a case in court that the contract is
Registry of Deeds will require it to be in a
an unenforceable contract, then you have
public document to allow its registration.
waived the right to raise it.
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21
________________________________________________________________________________________________
What is the effect of ratification if both Kinds of Void/Inexistent Contracts

parties are incapable of giving consent?
Who may ratify?
ARTICLE 1409. The following contracts are
inexistent and void from the beginning:
Article 1407. In a contract where both
parties are incapable of giving consent, (1) Those whose cause, object or purpose is
express or implied ratification by the contrary to law, morals, good customs,
parent, or guardian, as the case may be, of
public order or public policy;
one of the contracting parties shall give the
contract the same effect as if only one of
them were incapacitated. (2) Those which are absolutely simulated or
fictitious;
If ratification is made by the parents or
guardians, as the case may be, of both (3) Those whose cause or object did not
contracting parties, the contract shall be exist at the time of the transaction;
validated from the inception.
(4) Those whose object is outside the

Example: A is a minor, B is also a minor. A’s commerce of men;
parent ratified the contract. What happens
now? It’s as if only one of the parties is (5) Those which contemplate an impossible
capacitated. The status of the contract thus service;
becomes voidable.
(6) Those where the intention of the parties
But, pursuant to 1407(2), if both the parents of relative to the principal object of the
the two minors ratified the contract, the contract cannot be ascertained;
defect is cured, and the contract becomes
valid. (7) Those expressly prohibited or declared
void by law.
Void Contracts
These contracts cannot be ratified. Neither
can the right to set up the defense of
Void/Inexistent Contracts
illegality be waived.
Characteristics:
1. Void/inexistent from the very (1) Those whose cause, object or purpose is
beginning contrary to law, morals, good customs,
2. It produces no effect whatsoever public order or public policy
3. It cannot be ratified
_________________________________________________________________________________________________
22
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- Object and cause are practically the contract does not exist, and is a void
same, only that you look at it in a contract.
different perspective. It is an object in
the perspective of the one giving that (3) Those whose cause or object did not
thing up, and the cause is the thing exist at the time of the transaction
you are expecting to receive in return.
If at the time of transaction, there was in fact
Example: I sell a particular ring for no object or no cause at the time it was
P100,000. In my perspective, the object perfected, then it is also void.
is what I am giving, and that is the
ring. My cause is that one I am
expecting in return, and that is the
Article. 1409. The following contracts are
price of P100,000. inexistent and void from the beginning:
In the perspective of my buyer, his xxx

object is the money that he is going to
pay me, while his cause is the object 4) Those whose object is outside the
commerce of men;
he is expecting to receive from me,
which is the ring.
So if the object is the sun, the moon, and the
- If the object or the cause is contrary to stars, clearly that cannot be an object of a
law, morals, public policy, or public contract and so the law deems it as if there is
order, then it is as if there is no object no object so again lacking essential elements,
or cause. There are 3 elements of a therefore, the contract is void.
contract: consent, object, and cause. If
the object or cause is illegal, the law Article. 1409. The following contracts are
deems it as if it does not exist. inexistent and void from the beginning:
Therefore, there is no object or cause.
The contract does not exist and is void xxx
from the very beginning because it
(5) Those which contemplate an
lacks an essential element.
impossible service;
(2) Those which are absolutely simulated or

fictitious When you say impossible, it does not only
- There is lack of consent. There is really mean physical impossibility but also legal
no intention to be bound at all. impossibility or even impracticability,
- There is a missing element of a meaning beyond the contemplation of the
contract which is consent. Thus, the parties.
_________________________________________________________________________________________________
23
________________________________________________________________________________________________
For void contracts specifically under the first

If it is an impossible service whether it is enumeration (Those whose cause, object or
physical impossibility, legal or moral purpose is contrary to law, morals, good
impossibility, then it also makes the contract customs, public order or public policy), this
void. can be further classified as either:
1. An act that constitute a criminal
offense
inexistent and void from the beginning: 2. An act that does not constitute a
criminal offense
xxx
While your object or your cause may be
(6) Those where the intention of the considered inexistent, it does not necessarily
parties relative to the principal object of
mean that the act is criminal.
the contract cannot be ascertained;
Why? Because you are not sure what the Article 1411. When the nullity proceeds
from the illegality of the cause or object of
object is and so, the law will consider that as
the contract, and the act constitutes a
if the parties did not have an object in the criminal offense, both parties being in pari
contract. No object meaning lacking an delicto, they shall have no action against
essential element, therefore, the contract is each other, and both shall be prosecuted.
void. Moreover, the provisions of the Penal Code
relative to the disposal of effects or
instruments of a crime shall be applicable
to the things or the price of the contract.
inexistent and void from the beginning: This rule shall be applicable when only one
of the parties is guilty; but the innocent one
xxx may claim what he has given, and shall not
be bound to comply with his promise.
(7) Those expressly prohibited or declared
void by law.
In Art. 1411 that covers those contracts
These contracts cannot be ratified. Neither entered into constituting a criminal offense. It
can the right to set up the defense of gives you the consequences of such a
illegality be waived. contract.
One of the characteristics of a void contract is Here you are introduced of the concept of “in
that it cannot be ratified. pari delicto,” meaning both are at fault and
because both are at fault, then you cannot
ask help from the courts, you will be left as
_________________________________________________________________________________________________
24
________________________________________________________________________________________________
you are but of course, in that same article it

has given without any obligation to comply
tells you that the proceeds of such contract his promise
will be confiscated in favor of the State and
also, such act constitutes a crime or a
criminal offense, then both parties will In par. 1, again, you cannot recover if both of
prosecuted but neither party can sue each you are at fault.
other.
In par 2, if one is at fault, he cannot recover.
If both parties are guilty, you cannot get But if one is innocent, he can recover and if
back whatever you may have given by virtue he has not given anything yet, then he
of this illegal contract constituting a criminal cannot be obliged to deliver what he had
offense. promised.
But if only one party is guilty, the other is

innocent, the innocent party may recover.
Article 1413. Interest paid in excess of the
But again, it will be up to the discretion of the interest allowed by the usury laws may be
court. recovered by the debtor, with interest
thereon from the date of the payment
Q: What if the contract is unlawful but does
not necessarily constitute a criminal
offense? Remember that Usury Law has already been
suspended. The limit on interest now is the
conscience of the lender. This does not mean
Article 1412. If the act in which the that if you will be victimized by an
unlawful or forbidden cause consists does unscrupulous lender that you do not have a
not constitute a criminal offense, the remedy. You can ask the court to lower the
following rules shall be observed: interest on the reason that the interest is
unconscionable or shocking to the
(1) When the fault is on the part of both conscience of men.
contracting parties, neither may recover
what he has given by virtue of the contract,
or demand the performance of the other's Article 1414. When money is paid or
undertaking; property delivered for an illegal purpose,
the contract may be repudiated by one of
(2) When only one of the contracting
the parties before the purpose has been
parties is at fault, he cannot recover what
accomplished, or before any damage has
he has given by reason of the contract, or
been caused to a third person. In such case,
ask for the fulfillment of what has been
the courts may, if the public interest will
promised to him. The other, who is not at
thus be subserved, allow the party
fault, may demand the return of what he
_________________________________________________________________________________________________
25
________________________________________________________________________________________________
repudiating the contract to recover the

money or property. It will depend upon the Court.
AGREEMENTS NOT ILLEGAL PER SE BUT

IOW, The recovery of the money or the PROHIBITED
property depends upon whether or not the
purpose has been accomplished or if damage Article 1416. When the agreement is not
has not yet been caused to a 3rd person illegal per se but is merely prohibited, and
the prohibition by the law is designed for
Eg. A hires B to kill X. A promises B a reward the protection of the plaintiff, he may, if
of P1M for killing X. But A advanced that public policy is thereby enhanced, recover
money to B, so B has not yet killed X. what he has paid or delivered.
This provision in 1414 tells you that A is

allowed to recover the money (if the court If you can observe, 1414-1416, recovery is
will allow it) so long as the purpose has not allowed, but the underlying reason for
yet been accomplished. Meaning B has not allowing it is public interest. The Courts will
yet killed X or no damage has been suffered determine whether to allow recovery if public
by 3rd person. But again it depends upon the interest will be subserved by such recovery.
court if it will allow recovery. And the basis
for allowing is if the court believes that public Example: A donating everything he owns to
interest will be served by allowing such X. If you can still remember under the Family
return.
Code, there is a discussion there that if you do
ONE PARTY IS INCAPACITATED donate something, you must make sure to
leave enough to support yourself and to
Q: What happens if one of the parties to an support those you are legally obliged to
illegal contract is incapacitated to give support. If you donate everything that you
consent? Can the incapacitated person have, it may not be illegal per se, but it is
recover whatever he has given by virtue of prohibited for your protection.
the illegal contract?
Q: Is A allowed to recover, supposing he has
Answer: no more money to feed himself?
A: The law allows it. Only to the extent that he
Article 1415. Where one of the parties to an may need to support himself and those who
illegal contract is incapable of giving he is legally obliged to give support.
consent, the courts may, if the interest of
justice so demands allow recovery of Read: PHIL. BANKING CORP V. LUI SHE
money or property delivered by the Atty: That talks about a lease of a certain
incapacitated person property but in the contract it was not merely
_________________________________________________________________________________________________
26
________________________________________________________________________________________________
a lease but the alien who was renting it was If you can remember this the love story
given an option to buy a piece of that between an Australian man and a Filipino
property. SC said this is a circumvention of woman, the Australian man bought a
the constitution , because the Constitution property but of course, knowing fully well
does not allow aliens own lands in the PH. that the property cannot be named after him.
There are only certain exceptions , but in this The deed cannot be in his name, rather, he
case, it did not fall under the exceptions. The put it under the name of the woman. So now
question now is, will the heirs of that person he wanted to get the property back saying
who entered into the contract with the alien - that it was really my money, that Filipina
contract of lease with the option to buy- can could not afford to buy that property. But the
the heir recover the property? Supreme Court said I'm sorry, but you are not
allowed to buy properties in the Philippines,
Because the contract said there's a lease and you know fully well that you cannot do so you
then there's an option to buy. And the entered into an illegal contract. And so you
Supreme Court said this is basically letting will be left as you are, you cannot ask aid from
the alien own the property. So the Supreme the courts. Because if we were to allow
Court said that, yes, although the original recovery, then it will not serve public
parties to the contract were both guilty for interests. Because even if that's your money,
entering into such an illegal contract, they're and if the courts will allow the property to be
in pari delicto. And the general rule is, if you given to you, then we are now running afoul
are in pari delicto, then you will be left as you the constitutional prohibition that aliens
are, the courts will not review. That's the cannot own lands in the Philippines.
general rule. The Supreme Court said, this is
an exception, because if they were to do that,
Article 1417 When the price of any article or
then they are now allowing aliens to own
commodity is determined by statute, or by
lands in the Philippines, and public interest
authority of law, any person paying any
will not be served by doing so. So just like
amount in excess of the maximum priced
what we mentioned earlier, recovery may be
allowed may recover such excess.
allowed if public interest is subserved. And
here it is to protect the Filipino owner. And so
in this case, the Supreme Court ordered the .
return of the property from the alien to the Now, why is this under void contracts?
heirs of the original lessor. Basically what this article is telling you that
the excess that you paid is void and that can
Another is the case of Frenzel vs Catito be returned. And this is very much relevant
now with the pandemic because we have the
Read: FRENZEL v. CATITO Bayanihan To Heal As One Act, which
prohibits overpricing and in fact, we already
_________________________________________________________________________________________________
27
________________________________________________________________________________________________
have this in the Consumer Act of the minimum wage in the NCR. There are
Philippines where overpricing is not allowed. different minimum wages.
So, if you bought surgical masks, if you
bought and 95 masks or thermometers, Q: But what if you are employed and your
infrared thermometers and they are employer gives you a contract of
overpriced, you can actually recover the employment and it says there that you will be
excess of course, you have to go through the receiving less than the minimum wage but
proper authorities. So, you have to inform the you because you badly needed the job, you
DTI about the incident so that DTI can start signed the employment contract. Can you
looking after these unscrupulous still file an action against your employer to
entrepreneurs who are taking advantage of recover the deficiency? (Deficiency = Amount
the pandemic. So this is what 1417 is all about. you should have gotten – Amount you are
getting)
Article 1418 When the law fixes, or A: Yes because you cannot bargain away
authorizes the fixing of the maximum what is given to you by law. The law entitles
number of hours of labor, and a contract is you to a minimum wage so even if you
entered into whereby a laborer undertakes entered into such contract, still you can
to work longer than the maximum thus recover the deficiency.
fixed, he may demand additional
compensation for service rendered beyond Article 1420. In case of a divisible contract,
the time limit. if the illegal terms can be separated from
the legal ones, the latter may be enforced.
In fact, you will cover this under your labor
law or your labor code of the Philippines. It If it’s divisible, then only that part which is
just tells you that he may demand additional illegal may be declared as void. The rest of
compensation. the contract can be enforced.
Article 1419. When the law sets, or Article 1421. The defense of illegality of
authorizes the setting of a minimum wage contract is not available to third persons
whose interests are not directly affected.
for laborers, and a contract is agreed upon
by which a laborer accepts a lower wage, he
shall be entitled to recover the deficiency. Third persons cannot file a case in court to
ask that the contract be declared null and
void. Why? Because such party is not party to
When you study your labor law, you will be
the contract. Only the parties can do that.
introduced by the fact that there are
This is not available to third persons whose
minimum wages for different types of cities.
interests arenot directly affected.
The minimum Cebu City is different from the
_________________________________________________________________________________________________
28
________________________________________________________________________________________________
Article 1422. A contract which is the direct

result of a previous illegal contract, is also
void and inexistent.
Because the spring cannot rise higher than

its source. If the source is illegal, then all the
other contracts springing from that illegal
contract will also be considered illegal or void.
Prescriptive period for filing an action to have

a contract declared null and void? 1410 says it
does not prescribe.
Article 1410. The action or defense for the

declaration of the inexistence of a contract
does not prescribe.
_________________________________________________________________________________________________
29

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CIVIL LAW REVIEW | OBLICON TRANS | ATTY.

Reason: It is less burdensome.

It is the concurrence of 2 or more debtors or There is only solidary obligation when:

It could be a concurrence of 2 or more

Illustration (2 or more creditors) Presumed as joint - the credit or debt shall

Illustration (2 or more debtors) What principles do you find there?

This is a joint obligation because there is no - First, it is presumed joint if it does

Discussion: - The principle behind is “one for all and

SOLIDARY OBLIGATION A: Y can demand from A the amount of Php

Q: Why Php 40,000.00? to comply with the obligation is to deliver

Discussion: Again, we divide on the side Q: What happens if A is insolvent?

Article 1210. The indivisibility of an

Illustration: A, B and C made themselves Passive Solidarity

1) A will pay on January 5, 2023 Active Solidarity

prejudicial to D and E. Even if D and E wants

assigned to D (existing solidary creditor)

● If beneficial - creditor effecting the Compensation takes place between A and Y.

Compensation - when the creditors owes A Y A

Example No. 1: Q: How much can Z collect from Y?

A → Y → A A: He can collect P50,000, Atty.

Example: Y and Z are indebted to A for

necessary or may not be pursued against

So, if he paid P400,000, this obligation is

Q: What obligations were these? P100,000. It must be shared by all of them,

Q: What happens if B is insolvent? You will still be liable. It is now up to the

If it’s solidary, the share of the solidary debtor

A, B and C are solidarily liable to Z for

The law says that B will still have to pay his

What does that mean?

Example: A, B, and C oblige themselves to

The parties agreed that the damages

not also shown any law that makes Pilipinas

As security for the two loans, Maximo

admitting his execution of the 'Guarantor's

indebtedness. 1979, and the balance of P55,000.00 to be

Respondent Antonio P. So filed an action However, Ronquillo raised the question of

expressly so states, or when the law or the

contending that Biscocho was an The essence of active solidarity consists in

as this one. Here, the language of the

MBL: In this case the Supreme Court said,

Remember, that both must be present – that the

Q: What is a pure obligation?

ARTICLE 1179. Every obligation whose performance

“I will pay you P 500,000.”

A pure obligation is characterized by its immediate

Q: What is a conditional obligation?

II. OBLIGATION WITH A PERIOD (PART

Obligations with a period may be”

A: Yes, you may recover. Q: What does that mean?

Q: Why do we say that is for the benefit of both?

IV. ALTERNATIVE OBLIGATIONS The creditor cannot be compelled to receive part

Example: So in our example, Betty cannot compel the

Effects: Of course, if the creditor would agree or would

Art. 1204. The creditor shall have a right to

The indemnity shall be fixed taking as a basis the

Damages other than the value of the last thing or

Art. 1205. When the choice has been expressly

If only one or some of the objects that are due were