Rabuya - ObliCon

CIVIL LAW (Cluster) | OBLIGATIONS AND CONTRACTS | Based on the 2021 CIvil Law lectures of UP BRI (Prof.
Rabuya)
b. Solutio Indebiti – It is a juridical relation

OBLIGATIONS which arises when something is received
when there is no right to demand it, and it
CIVIL LAW
Based on the 2021 Civil Law lectures of UP BRI (Prof. Rabuya) was unduly delivered through mistake.
4. Delict – Generally, the hasis of civil liability arising

GENERAL PROVISIONS from crime is the fundamental postulate of our law
that “every person criminally liable for a felony is
also civilly liable. [Art. 100, RPC]
Definition
Obligation is the juridical necessity to give to do or not to 5. Quasi-delict – Obligations arise from damages
do. [Art. 1156, CC] It is also defined as a juridical relation caused to another through an act or omission,
whereby a person (creditor) may demand from another there being fault or negligence but no contractual
(debtor) the observance of a determinate conduct, and in relations exist between the parties. [Art. 2176,
case of breach, may obtain satisfaction from the assets of CC]
the latter.’ [Makati Stock Exchange v. CA (1994)]
Note: Prohibition against double recovery. – The
Elements of an Obligation Civil Code expressly prohibits the plaintiff from
1. Juridical tie or vinculum juris — the efficient recovering damages twice under delict and
cause established by the various sources of quasi-delict “for the same act or omission” of the
obligations (law, contracts, quasi-contracts, defendant.
delicts and quasi-delicts);
2. Object — the prestation or the particular conduct
required to be observed by the debtor (to give, to NATURE AND EFFECT OF OBLIGATIONS
do or not to do);
3. Active subject (called the obligee or creditor) — 1. Obligation to give
the person who can demand the fulfillment of the
obligation; and a. Type of Things
4. Passive subject (called the obligor or debtor) —
the person from whom the obligation is juridically Specific /
Limited Generic
demandable. [Ang Yu Asuncion v. CA (1994)] Determinate Generic Thing
Thing
Thing
Sources of Obligation Particularly Object is When the
designated or designated only generic objects
1. Law – Obligations arise when imposed by the law
physically by its class/ are confined to
itself and cannot be presumed. [Art. 1158, CC]
segregated from genus/ species. a particular
all others of the class.
2. Contract – Obligations arise from the stipulation
same class
of the parties; it has the force of law and should
[Art.1460, CC];
be complied with in good faith. [Art. 1159, CC]
Identified by
individuality.
3. Quasi-Contract – It is a juridical relation arising
from certain lawful, voluntary and unilateral acts Cannot be Can be Can be
with the objective of preventing unjust enrichment substituted substituted by substituted by
or benefit at the expense of another. [Art. 2142, against the any of the same any of the same
CC] obligee’s will. class and same particular class.
kind.
Forms of Quasi-Contract: There are various forms
of quasi-contracts but the two well-known forms b. Rights and Duties of Parties
are that of negotiorum gestio and solutio indebiti.
Duties of Debtor Rights of Creditor
a. Negotiorum Gestio – It is a juridical To Give a Specific Thing
relation which arises when a person 1. To preserve or 1. To compel
voluntarily takes charge of the agency or take care of the delivery [Art.
management of another’s abandoned or thing due with the 1165, CC]
neglected business or property without proper diligence of 2. To the fruits from
the owner's authority.” a good father of a the time the
1
UP Law Center – Bar Review Institute
CIVIL LAW (Cluster) | OBLIGATIONS AND CONTRACTS | Based on the 2021 CIvil Law lectures of UP BRI (Prof. Rabuya)
family [Art. 1163, obligation to 4. To pay damages in than that which

CC] deliver arises case of breach is due [Art. 1244,
2. To deliver the thing [Art. 1164, CC] [Art. 1170, CC] CC]
itself [Art. 1165, 3. To the
CC] accessions and
3. To deliver the 3. accessories,
fruits of the thing even if not 2. Obligation to do or not to do
[Art. 1164, CC] mentioned [Art.
4. To deliver its 1166, CC] a. Rights and Duties of Parties
accessions and 4. Not to be
accessories [Art. compelled to Duties of Debtor Rights of Creditor
1166, CC] receive a Obligation To Do
● Accessions – different one,
6. To do it [Art. 6. To have the
everything although of the
1167, CC] obligation
which is same value as,
7. To shoulder the executed at the
produced by a or more valuable
cost of execution cost of the debtor
thing, or which than that which
should he fail to [Art. 1167, CC]
is incorporated is due [Art. 1244,
do it [Art. 1167,
or attached CC]
CC] 7. To recover
thereto, 5. T o recover
8. 3.Toundo what damages in case
excluding damages in case
has been poorly of breach [Art.
fruits of breach,
done [Art. 1167, 1170, CC]
● Accessories – exclusive or in
CC]
things addition to
9. To pay damages Note: The debtor be
designed for specific
in case of breach compelled to perform his
the performance
[Art. 1170, CC] obligation. The ultimate
embellishment [Arts. 1165,
sanction of civil
, use or 1170 CC]
obligations is
preservation of
indemnification of
another thing
damages. This would be
of more
tantamount to involuntary
importance
servitude.
5. To pay damages in
Obligation Not To Do
case of breach
5. Not to do what 5. To ask to undo
[Art. 1170, CC]
should not be what should not
To Give a Generic Thing
done be done, at the
1. To take care of the 1. To ask that the
6. To shoulder cost debtor’s expense.
thing [Art. 1163, obligation be
of undoing what [Art. 1168, CC]
CC] complied with
should not have 6. To recover
2. To deliver a thing [Art. 1165, CC]
been done [Art. damages, where
of the quality 2. To ask that the
1168, CC] it would be
intended by the obligation be
7. To pay damages physically or
parties taking into complied with by
in case of breach legally impossible
consideration the a third person at
[Art. 1170, CC] to undo what
purpose of the the expense of
should not have
obligation and the debtor
been done,
other 3. To recover
because of:
circumstances damages in case
● the very
[Art. 1246, CC] of breach [Art.
nature of the
3. Creditor cannot 1165, CC]
act itself;
demand a thing of 4. Not to be
● rights
superior quality; compelled to
acquired by
neither can the receive a
third persons
debtor deliver a different one,
who acted in
thing of inferior although of the
good faith;
quality. same value as,
● when the
or more valuable
effects of the
2
acts ● Exception: when expressly stipulated.

prohibited are [Art. 1248, par. 1, CC]
definite in
character and 4. Partial Liquidation – The debt is partly liquidated
will not cease and partly unliquidated.
even if the ● Effect: The creditor may demand and the
thing debtor may effect the payment of the
prohibited be liquidated debt without waiting for the
undone. liquidation of the unliquidated debt.
5. Breaches of obligations
3. Transmissibility of obligations
Causes:
General Rule: All rights acquired by virtue of an obligation 1. Involuntary — Those causes which are
are transmissible. [Art. 1178, CC]. Contracts take effect independent of the will of the parties, such as
only between the parties, their assigns and heirs. [Art. fortuitous event and force majeure; or
1311, CC] 2. Voluntary — Those causes which arise from the
will of the parties, such as:-(1) mora or delay; (2)
Exception: Nature of obligation, law or stipulation to the dolo or fraud, (3) culpa or negligence; and (4)
contrary provides otherwise [Art. 1178]. contravention of the tenor of the obligation.
Note: Only personal obligations, or those identified with 5.a. Mora or Delay
the persons themselves are extinguished by death.
[Stronghold Insurance Co. v. Republic-Asahi Glass Corp Kinds of Delay:
(2006)] 1. Mora solvendi — (or debtor's default), is defined
as a delay in the fulfillment of an obligation, by
reason of a cause imputable to the debtor.
4. Performance of obligations
Requisites:
Definition: Payment means not only (1) the delivery of a. That the obligation be demandable and
money, but also (2) the performance, in any other manner, already liquidated;
of an obligation. [Art. 1232, CC] b. That the debtor delays performance; and
c. That the creditor requires the
General Rule: The thing or service in which the obligation performance judicially or extrajudicially.“
consists [must be] completely delivered or rendered, as
the case may be. [Art. 1233, CC] Note: Mere expiration of the period is not delay.
● The demand may be in any form,
Exceptions: provided that it can be proved, and the
1. Substantial Performance – The obligation has proof of the demand will be incumbent
been substantially performed in good faith. upon the creditor.
● Effect: The obligor may recover as though
there had been a strict and complete Exceptions to requirement of demand:
fulfillment, less damages suffered by the a. When the obligation expressly so
obligee. [Art. 1234, CC] declares;
b. When the law expressly so declares;
2. Incomplete/Irregular Performance – Obligee c. When from the nature and the
accepts performance despite knowledge of its circumstances of the obligation it appears
incompleteness or irregularity. that the designation of the time when the
● Effect: The obligation is deemed fully thing is to be delivered or the service is to
complied with. [Art. 1235, CC] be rendered was a controlling motive for
the establishment of the contract; or
3. Partial Prestation d. When demand would be useless, as
● General Rules: when the obligor has rendered it beyond
a. The creditor CANNOT be compelled his power to perform.
to receive partial payments.
b. The debtor CANNOT be required to Effects of mora solvendi:
make partial payments.
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a. The debtor violates the obligation in point Note: Mora may occur only in obligations to give and
of time if there is mora or delay. Now, obligations to do but not in obligations not to do, for the
there is no more or delay unless there is a debtor fulfills by not doing what is forbidden him.
demand. Consequently, as long as the
obligor is not guilty of some omission 5.b. Dolo or Fraud
violative of the obligee’s rights, the latter
has no cause of action against the
former. Concept: Fraud or dolo, under Articles 1170 and 1171 of
b. The debtor becomes liable for damages. the NCC, is the deliberate and intentional evasion of the
c. The debtor remains liable if the thing was normal fulfillment of obligations. It is distinguished from
lost. after he has incurred in delay even if negligence by the presence of deliberate intent, which is
the loss was without his fault or by lacking in the latter.
reason of fortuitous event
Kinds of Fraud:
2. Mora accipiendi – (or creditor’s default), it relates 1. During the birth or perfection of the contract –
to delay on the part of the obligee in accepting the may either be dolo causante or dolo incidente
performance of the obligation by the obligor. (voidable contracts).
2. During the performance of an already existing
Requisites: obligation – referred to in Articles 1170 and 1171,
a. An offer of performance by the debtor which renders the debtor liable for the payment of
who has the required capacity; damages.
b. The offer must be to comply with the
prestation as it should be performed; and Prohibited Waiver: Any waiver of an action for future fraud
c. The creditor refuses the performance is void.
without just cause.
5.c. Culpa or Negligence
3. Compensation morae – default on the part ofboth
parties because neither has completed their part Definition: Culpa or negligence is the omission of that
in their reciprocal obligation. diligence which is required by the nature of the obligation
and corresponds with the circumstances of the persons,
Simultaneous performance: Reciprocal obligations of the time and of the place. It is the failure to observe for
are those which arise from the same cause, and the protection of the interests of another person that
which each party is a debtor and a creditor of the degree of care, precaution, and vigilance which the
other, such that the obligation of one is circumstances justly demand, by reason of which such
dependent upon the obligation of the other. other person suffers injury.
Hence, mutual inaction of the parties gives rise to
compensation morae. Test in Determining Negligence: Did the defendant in the
performance of the alleged negligent act use reasonable
Requirement of demand: In reciprocal obligations, care and caution which an ordinary person would have
as in a contract of sale, the general rule is that the used in the same situation? If not, then he is guilty of
fulfillment of the parties’ respective obligations negligence.
should be simultaneous. Hence, no demand is ● General Standard of Care: Standard of care
generally necessary because, once a party fulfills required is diligence of a good father of family.
his obligation and the other party does not fulfill ● Exceptions:
his, the latter automatically incurs in delay. a. Common Carriers – They are bound to
● But when different dates for performance observe extraordinary diligence in the
of the obligations are fixed, the default for vigilance over the goods and for the safety of
each obligation must be determined by the passengers transported by them [Art.
the rules given in the first paragraph of 1733, CC]
Article 1169 of the New Civil Code, that b. Hotel and inn-keepers – The keepers of
is, the other party would incur in delay hotels or inns shall be responsible for the
only from the moment the other party deposit of effects, made by travellers, as
demands fulfillment of the former's depositaries, provided that notice was given
obligation. to them, or their employees of such effects
and that they take precautions relative to the
care and vigilance of their effects [Art. 1998,
CC]
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a.This responsibility shall include the Examples in jurisprudence:

loss of, or injury to the personal a. Carnapping –Carnapping per se may not be
property of the guests caused by the considered as a fortuitous event. The fact that a
servants or employees of the keepers thing was unlawfully and forcefully taken from
of hotels or inns as well as strangers; another’s rightful possession, as in cases of
but not that which may proceed from carnapping, does not automatically give rise to a
any force majeure. [Art. 2000, CC] fortuitous event. To be considered as such,
c. Banks -- Banks have the obligation to treat carnapping entails more than the mere forceful
the accounts of its clients ‘meticulously and taking of another’s property. It must be proved
with the highest degree of care’. [Poole- and established that the event was an act of God
Blunden v. UnionBank (2017)] or was done solely by third parties and that
d. Pharmacists –As active players in the field of neither the claimant nor the person alleged to be
dispensing medicines to the public, the negligent has any participation. Carnapping does
highest degree of care and diligence is not foreclose the possibility of fault or negligence
expected [Mercury Drug Corporation v. de on the part of the obligor.
Leon (2008)] b. Robbery – Robbery per se, just like carnapping, is
not a fortuitous event, It does not foreclose the
Kinds of Culpa: possibility of negligence on the part of the obligor.
1. Culpa Aquiliana – the wrongful or negligent act or The unforeseen event, the robbery, must take
omission which creates a vinculum juris and gives place without any concurrent fault on the debtor’s
rise to an obligation between two persons not part in order to be appreciated as a fortuitous
formally bound by any other obligation; and event under Article 1174 of the NCC.
2. Culpa Contractual – fault or negligence incident 1. Hernandez v. Chairman,
in the performance of an obligation which already COA: The Court held
existed, and which increases the liability from that the robbery here
such already existing obligation. was a fortuitous event
because the same could
When culpa becomes dolo: When negligence shows bad not be said to be the
faith, it is tantamount to fraud, hence, the provisions on result of the victim’s
fraud also apply. Consequently, any waiver of an action for imprudence and
future negligence showing bad faith is also void. negligence. Here, there
was no concurring
5.d. Caso Fortuito or Fortuitous Event negligence on the part of
the disbursing officer.
Definition: It is an event which could not be foreseen, or 2. Sicam v. Jorge: The
which, though foreseen, is inevitable. robbery in a pawnshop
● It may either be an act of God, or natural was not considered a
occurrences such as floods or typhoons, or an fortuitous event because
act of man (force majeure) such as riots, strikes, petitioners had the
or wars. means to screen the
persons who were
Effect and Requisites: The rule is that no person shall be allowed entrance to the
responsible for a fortuitous event. Hence, the obligor, as a premises and to protect
rule, is not liable for any loss or deterioration caused by a itself from unlawful
fortuitous event. However, to exempt the obligor from intrusion
liability for a breach of an obligation by reason of a c. Tire blow out – The explosion of the new tire may
fortuitous event, the following requisites must concur: not be considered a fortuitous event. There are
1. The cause of the breach of the obligation must be human factors involved in the situation.
independent of the will of the debtor; d. Mechanical defect – In a vehicular accident, a
2. The event must be either unforeseeable or un- mechanical defect will not release the defendant
avoidable; from liability if it is shown that the accident could
3. The event must be such as to render it impossible have been prevented had he properly maintained
for the debtor to fulfill his obligation in a normal and taken good care of the vehicle.
manner; and e. Financial crisis –The 1997 financial crisis that
4. The debtor must be free from any participation in, ensued in Asia did not constitute a valid
or aggravation of, the injury to the creditor. justification to renege on obligations.
5
Exceptions to the general rule of non-liability in case of Definition: Rescission is the unmaking of a contract, or its
fortuitous events: undoing from the beginning, and not merely its termination
1. When the law expressly so specifies (ex: delay); [Pryce Corp v. Pagcor (2005)]
2. When it is otherwise declared by the parties; and
3. When the the nature of the obligation requires the Right to Rescind: The rescission on account of breach of
assumption of risks. stipulations is not predicated on injury to economic
interests of the party plaintiff but on the breach of faith by
6. Remedies available to creditor in cases of the defendant, that violates the reciprocity between the
breach parties. [Universal Food Corporation v. CA (1970)]
6.a. Principal remedies of creditors Effect of Rescission under Art. 1191, CC:
● Extinguishes the obligatory relation as if it had
never been created, the extinction having a
Obligation to Give a Obligation to Give a
retroactive effect. Both parties must surrender
Specific Thing Generic Thing and
what they have respectively received and return
Obligation to Do
each other as far as practicable to their original
Alternative Remedies
situation. [Tolentino]
Compel the debtor to Ask the obligation be
● Rescission may take place extrajudicially, by
make delivery (specific complied with at the
declaration of the injured party. The party who
performance) [par. 1, Art. expense of the debtor.
deems the contract violated may consider it
1165, CC] [par. 2, Art. 1165, CC]
resolved or rescinded, and act accordingly,
Rescission [Art. 1191] If a person obliged to do without previous court action, but it proceeds at
something fails to do it, its own risk. For it is only the final judgment of the
the same shall be corresponding court that will conclusively and
executed at his cost [Art. finally settle whether the action taken was or was
1167, CC ] not correct in law. But the law definitely does not
What has been poorly require that the contracting party who believes
done [may] be undone. itself injured must first file suit and wait for a
[Art. 1167] judgment before taking extrajudicial steps to
Rescission [Art. 1191] protect its interest. [UP v. Delos Angeles, G.R. No.
Damages in any event L- 28602 (1970)]
Those who in the performance of their obligations are ● Under Art 1191, the right to rescind an obligation
guilty of fraud, negligence, or delay, and those who in is predicated on the violation of the reciprocity
any manner contravene the tenor thereof, are liable for between parties, brought about by a breach of
damages. [Art. 1170, CC] faith by one of them. Rescission, however, is
allowed only where the breach is substantial and
RESCISSION fundamental to the fulfillment of the obligation.
Article 1191, Civil Code. The power to rescind [Del Castillo Vda de Mistica v. Naguiat,G.R. No.
obligations is implied in reciprocal ones, in case one of 137909 (2003); Cannu v. Galang, G.R. No.
the obligors should not comply with what is incumbent 139523 (2005)].
upon him. ● It will not be permitted in casual or slight breach.
[Song Fo v. Hawaiian Philippines, G.R. No. 23769,
The injured party may choose between the fulfillment (1925)]
and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, Distinguished from Rescission under Article 1380, CC:
even after he has chosen fulfilment, if the fulfillment of Rescission / Resolution Rescission [Art. 1380,
the obligation should become impossible. [Art. 1191, CC] CC]
The court shall decree the rescission claimed, unless Based on non- Based on lesion or fraud
performance or upon creditors.
there be just cause authorizing the fixing of a period.
non-fulfillment of
obligation.
This is understood to be without prejudice to the rights
Action is instituted only by Action is instituted by
of third persons who have acquired the thing, in
the injured party. either party or by a third
accordance with articles 1385 and 1388 and the
person.
Mortgage Law.
Principal action, retaliatory Subsidiary action, in the
in character. absence of any other legal
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means to obtain Concept: Creditors may also impugn the acts which the
reparation. debtor may have done to defraud them. [Art. 1177, CC]
Applies only to reciprocal Applies to either unilateral
obligations where one or reciprocal obligations Requisites:
party is guilty of even when the contract 1. There is a credit in favor of the plaintiff prior to the
non-fulfillment. has been fully fulfilled. alienation by the debtor
In some cases, court may Court cannot grant a 2. The debtor has performed a subsequent contract
grant a term for period or term within conveying patrimonial benefit to third person/s
performance. which one must comply. 3. The debtor’s acts are fraudulent to the prejudice
Non-performance by the Non-performance by the of the creditor.
other party is important. other party is immaterial. 4. The creditor has no other legal remedy to satisfy
his claim
5. The third person who received the property is an
6.b. Subsidiary remedies of creditors accomplice to the fraud.
ACCION SUBROGATORIA Note: An accion pauliana thus presupposes the following:

1. A judgment;
Article 1177, Civil Code. The creditors, after having
2. the issuance by the trial court of a writ of
pursued the property in possession of the debtor to
execution for the satisfaction of the judgment,
satisfy their claims, may exercise all the rights and bring
and;
all actions of the latter for the same purpose, save
3. the failure of the sheriff to enforce and satisfy the
those which are inherent in his person; they may also
judgment of the court.
impugn the acts which the debtor may have done to
defraud them.
Accion Subrogatoria vs. Acction Pauliana
Accion Subrogatoria Accion Pauliana
Successive Rights of Creditors:
Not necessary that Credit must exist before
1. To levy by attachment and execution upon all the
creditor’s claim is prior to the fraudulent act
property of the debtor, except those exempt from
the acquisition of the right [Tolentino]
execution;
by the debtor
2. To exercise all the rights and actions of the
Note: Commentators have
debtor, except such as are inherently personal to
conflicting views on WoN
him; and
new debts contracted by
3. To ask for rescission of the contracts made by
the debtor fall under the
the debtor in fraud of their rights.
scope of accion pauliana.
No need for fraudulent Fraudulent intent is
Requisites:
intent required if the contract
1. The person to whom the right of action pertains
rescinded is onerous
must be indebted to the creditor
2. The debt is due and demandable No period for prescription Prescribes in 4 years from
3. The creditor must be prejudiced by the failure of the discovery of the fraud
the debtor to collect his debts due him from third
persons, either through malice or negligence
4. The debtors assets are insufficient (debtor is KINDS OF OBLIGATIONS
insolvent)
5. The right of action is not purely personal to the 1. Pure
debtor
Definition: pure obligation is that which no condition is
Note: Previous approval of the court is not necessary to placed, nor a day fixed for its compliance.
exercise the accion subrogatoria.
Effect: If the obligation is pure, it is immediately
ACCION PAULIANA demandable.
Article 1391, par. 3, Civil Code. The following
contracts are rescissible: Note: Other obligations which are also demandable at
(3) Those undertaken in fraud of creditors when the once—(1) obligations with a resolutory condition; and (2)
latter cannot in any other manner collect the claims due obligations with a resolutory term or period.
them.
2. Conditional
7
Right of Choice: The rule is that the right of choice

Condition, defined: It is an uncertain event which wields an pertains to the debtor. The creditor may exercise the right
influence on a legal relation. It is also defined as every only when the same has been expressly granted to him.
future and uncertain event upon which an obligation or ● However, the debtor may not choose those
provision is made to depend. The essential thing about prestations: (1) which are impossible; (2) which
condition is uncertainty. Thus, although the death of a are unlawful; or (3) which could not have been the
person may be in the future and there is uncertainty as to object of the obligation.*
the date of its arrival, the certainty of its happening makes
it a term and not a condition. Effect of Loss of Prestation:
Kinds: Reason for Loss

Right of Choice Right of Choice
1. Suspensive Condition – When the acquisition of (Debtor) (Creditor)
All prestations are Obligation is Obligation is
rights or the existence of obligations is made to lost by reason of extinguished extinguished
depend upon the fulfillment of the condition, the fortuitous event
condition is suspensive (or condition precedent). If Only one remains; Obligation becomes Obligation becomes
the suspensive condition is fulfilled, the obligation while others were a simple one of a simple one of
arises. If the suspensive condition does not take lost by reason of performing that performing that
fortuitous event which subsists which subsists
place, the parties would stand as if the conditional One or some were Obligation is still Obligation is still
obligation had never existed. lost by reason of subsisting and alternative. Hence,
fortuitous event; debtor may choose the creditor may still
2. Resolutory Condition – When the extinguishment while several others from those choose from those
remained remaining remaining.
of rights and obligations is made to depend upon
If one or some but Debtor may still Creditor may either:
the fulfillment of the condition, the condition is not all were lost by choose from the (1) claim any one of
resolutory (or condition subsequent). An obligation reason of debtor’s remaining those subsisting
subject to a resolutory condition is immediately fault (without damages);
demandable but it is extinguished upon the or (2) the price of
that which
happening of the condition. If the condition does disappeared, with
not take place, the legal relation is consolidated. indemnity for
damages.
3. Obligation with a period or a term If all were lost by The creditor is The choice of the
reason of debtor’s entitled to recover creditor shall fall
fault the value of the last upon the price
Concept: A term or period consists in a space of time thing which of any one of
which, having an influence on obligations as a result of a disappeared, or that the prestations
juridical act, and either suspends their demandableness or of the service which which was lost, with
last become indemnity for
produces their extinguishment. impossible, with damages.
indemnity for dam-
Kinds: ages
1. Suspensive Term – (or ex die) is one that must If one or some, but The debtor may No effect. The
lapse before the performance of the obligation not all, were lost by choose either to: (1) creditor may still
reason of creditor’s perform that which choose from the
can be demanded. The obligation begins from a fault remains or choose remaining
day certain, i.e., upon the arrival of the period. from among those prestations or, if only
2. Resolutory Term – (or in diem) is the period after remaining (without one is remaining, the
which the obligation is terminated, that is, the damages); or (2) obligation becomes
rescind the contract a simple one of
obligation is valid up to a certain date. Upon the with damages, performing that
arrival of said date the obligation is terminated. because he cannot which subsists.
make a choice
4. Alternative or facultative according to the
terms of the
obligation by reason
4.a. Alternative Obligations of the creditor’s act.
Concept: In an alternative obligation, there are various 4.b. Facultative Obligations

prestations which are due and the obligation is fulfilled by
performance of one of them. In an alternative obligation, Concept: In a facultative obligation, only one prestation is
the obligor must completely perform one of the prestations due, that to which the obligation refers; but the debtor has
due and he cannot compel the creditor to receive part of the power to fulfill the obligation by giving or rendering
one and part of the other undertaking. something else
8
Effect of Loss of Substitute: Note that the substitution e. Insolvency of a debtor – The insolvency of a
becomes effective only from the time that the same has debtor does not increase the liability of his
been communicated to the creditor. co-debtors, nor does it authorize a creditor to
● Lost prior to substitution – the debtor is not liable demand anything from his co-creditors.
even if the loss or deterioration of the thing be by f. Defense of res judicata – In divisible obligation, the
reason of his fault. defense of res judicata is not extended from one
● Lost after substitution – But once the substitution debtor to another, the reason being that no debtor
has been made, the obligation of the debtor is has more obligation than his own, nor may each
limited to the performance of the substitute creditor claim more right than what respectively
prestation. Hence, the loss of the substitute on pertains to him.
account of the debtor’s delay, negligence or
fraud shall render him liable for damages.
However, if the prestation is lost by reason of 5.b. Solidary Obligations
fortuitous event, without any fault on the part of
the debtor and prior to him incurring delay, the Definition: One in which each of the debtors is liable for the
obligation is extinguished. entire obligation, and each of the creditors is entitled to
demand the satisfaction of the whole obligation from any
5. Joint and solidary obligations or all the debtors.
5.a. Joint Obligations Kinds and Effects of Solidary Obligation:

1. Active Solidarity – One that exists among the
Definition: One in which each debtors is liable only for a creditors. This is the tie among several creditors of
proportionate part of the debt, and the creditor is entitled the same obligation, by virtue of which, each of
to demand only a proportionate part of the credit from them, as regards his co- creditors, is creditor only
each debtor. as to his share in the obligation and, in regard to
the common debtor, he represents all of them.
Presumption in favor of joint obligation: In case of plurality The essential feature of active solidarity is the
of subjects or in case of concurrence of two or more existence of mutual agency or mutual
creditors or of two or more debtors in one and the same representation among the various creditors.
obligation, and in the absence of express and indubitable a. Death of solidary creditor does not
terms characterizing the obligation as solidary, the transmit solidarity to his heirs but rather to
presumption is that the obligation is only joint. all of them taken together (joint)
● The well-entrenched rule is that solidary b. Each represents the other in receiving
obligations cannot be inferred lightly. They must payment and all other advantageous acts
be positively and clearly expressed. (i.e. interrupt prescription and render the
debtor in default for the benefit of all
Effects of Joint Obligations: creditors)
a. Extinction – The extinction of the debt of one of c. Each one of the solidary creditors may do
the various debtors does not necessarily affect the whatever may be useful to the others, but
debts of the others. not anything which may be prejudicial to
b. Delay – The delay on the part of only one of the the latter. [Art. 1212, CC]
joint debtors does not produce effects with d. One creditor does NOT represent all
respect to the others, and if the delay is produced others in acts such as novation (even if
through the acts of only one of the joint creditors, advantageous), compensation and
the others cannot take advantage thereof. remission. In this case, even if the debtor
c. Interruption of prescription – The interruption of is released, the other creditors can still
prescription by the judicial demand of one creditor enforce their rights against the creditor
upon a debtor does not benefit the other creditors who made the novation, compensation or
nor interrupt the prescription as to other debtors. remission [par. 2, Art. 1215, CC]
In the same way, a partial payment or e. The creditor who collects the debt, shall
acknowledgment made by one of several joint be liable to the others for the share in the
debtors does not stop the running of the statute obligation corresponding to them. [par. 2,
of limitations as to the others. Art. 1215, CC]
d. Vices of each obligation – The vices of each f. The credit and its benefits are divided
obligation arising from a personal defect of a equally among them, unless agreement
particular debtor or creditor, do not affect the to the contrary.
validity of the other credits or debts.
9
g. Debtor may pay any one of the solidary fault, or after incurring delay it is lost by
creditors; but if any demand, judicial or fortuitous event
extrajudicial, has been made by one of j. Interruption of prescription as to one
them, payment should be made to him debtor affects all others, but renunciation
who demanded [Art. 1214, CC] of prescription already had does not
prejudice the others. (Reason:
2. Passive Solidarity – One that exists among the prescription extinguishes the mutual
debtors. This is the tie among several debtors, by representation among solidary debtors)
virtue of which they are bound to the payment of k. Interests due by delay of one is borne by
the whole credit. The essential feature of passive all of them
solidarity is the existence of mutual guaranty
among the various debtors. 3. Mixed Solidarity – This is the solidarity that exists
a. The creditor may proceed against any on the part of both creditors and debtors.°
one of the solidary debtors or some or all
of them simultaneously...so long as the Defenses Available to a Solidary Debtor:
debt has not been fully collected [Art. 1. Defenses which arise from the nature of the
1216, CC] obligation.
b. Payment made by one of the solidary a. That the contract is void or inexistent;
debtors extinguishes the obligation. If two b. That the contract is unenforceable
or more solidary debtors offer to pay, the because it infringes the Statute of Frauds;
creditor may choose which offer to c. That the entire contract is voidable due to
accept. [Art. 1217, CC] defect in capacity or consent of ALL the
c. A solidary debtor may, in actions filed by debtors, such as minority, insanity,
the creditor, avail himself of all defenses mistake, violence, undue influence or
which are derived from the nature of the fraud.
obligation and of those which are d. That the obligation is already
personal to him, or pertain to his own extinguished, such as by reason of
share. For defenses which personally payment, remission, novation, etc.
belong to the others, such debtor may e. Non-fulfillment of suspensive condition or
avail himself thereof only as regards that non-arrival of the period affecting the
part of the debt for which the latter are entire obligation.
responsible. [Art. 1222, CC] f. Any other defense which may invalidate
d. Each debtor can be required to pay the the original contract from which the right
entire obligation, but after payment he or the action of the creditor against the
can recover from the co-debtors their debtors arises, such as res judicata,
respective shares prescription and others of the same
e. Each debtor may set up his own claims class.
against the creditor as payment of the
obligation 2. Defenses personal to the debtor being sued or
f. Remission of the entire debt affects all pertaining only to his share.
debtors, but when remission is limited to a. Total defense – minority, insanity, fraud,
the share of one debtor, the other violence, or intimidation;
debtors are still liable for the balance of b. Partial defense – If the personal defense
the obligation takes the form of special terms or
g. The remission of the whole obligation, conditions affecting only his part of the
obtained by one of the solidary debtors, obligation, he may invoke the same only
does not entitle him to reimbursement with respect to his part, but he can still be
from his co-debtors. [Art. 1220, CC] sued for the portions not subject to terms
h. The remission made by the creditor of the or conditions, because he is solidarily
share which affects one of the solidary liable.
debtors does not release the latter from
his responsibility towards the co-debtors, 3. Defenses which belong to another debtor.
in case the debt had been totally paid by
any one of them before the remission was 6. Obligations with a Penal Clause
effected. [Art. 1219, CC]
i. All debtors are liable for the loss of the
thing due, even if only one of them is at
10
Definition: It is one with an accessory undertaking by virtue When penalty may be reduced by court:
of which the obligor assumes a greater liability in case of 1. When the principal obligation has been partly or
breach of the obligation. irregularly complied with by the debtor, or
2. Even if there has been no performance, if the
Penal as substitute or damages and interest: penalty is iniquitous or unconscionable.
● General Rule: The penalty takes the place of the
indemnity for damages and the payment of Effect of nullity:
interest. ● Of penal clause – It does not carry with it that of
● Exceptions: Indemnity for damages, in addition the principal obligation,“ because the principal can
to and apart from the penalty stipulated, may be exist without the accessory.
recovered in three cases: ● Of principal obligation – It carries with it the nullity
a. When there is an express stipulation to of the penal clause, because the accessory may
that effect; not exist without the principal.
b. When the obligor having failed to comply
with the principal obligation also refuses
to pay the penalty, in which case the EXTINGUISHMENT OF OBLIGATIONS
creditor is entitled to interest in the
amount of the penalty, in accordance
MODES OF EXTINGUISHMENT OF OBLIGATIONS:
with Article 2209 of the NCC; or
A. Principal Causes of Extinction
c. When the obligor is guilty of fraud in the
1. Payment or performance
fulfillment of the obligation.
2. Loss of the thing due
3. Condonation or remission of the debt
Penalty may not replace principal obligation:
4. Merger or confusion of rights
● General Rule: The penalty is not a substitute for
5. Compensation
the performance of the obligation. Hence, as a
6. Novation
rule, the debtor cannot exempt himself from the
B. Other Causes (expressly mentioned)
performance of the obligation by paying the
1. Annulment
penalty.
2. Rescission
● Exception: When the foregoing right is expressly
3. Fulfillment of a resolutory condition
reserved for the debtor.
4. Prescription
C. Other Causes (not expressly mentioned)
Creditor may not demand both the principal obligation and
1. Death, in obligations which are of a purely
penalty:
personal character
● General Rule: The creditor cannot demand the
2. Arrival of a resolutory period
fulfillment of the obligation and the satisfaction of
3. Mutual dissent
the penalty at the same time.
4. Change of civil status, in some contracts
● Exception: The creditor may only be entitled to
5. Happening of unforeseen events.
both rights if the same has been clearly granted to
him.
● If principal obligation becomes impossible: If 1. Payment or Performance
after the creditor has decided to require the
fulfillment of the obligation the performance Concept: Payment means not only the delivery of money
thereof should become impossible without his but also the performance, in any other manner, of an
fault, the penalty may be enforced. obligation.
No need for proof of actual damages: The creditor need Requisites:

not present proof of actual damages suffered by him in 1. Payment must be complete and regular.
order that the penalty may be demanded. In this
jurisdiction, there is no difference between a penalty and GR: A debt shall only be considered as paid when
liquidated damages, so far as legal results are concerned. the thing or service in which the obligation
● A stipulation on liquidated damages is a penalty consists has been completely delivered or
clause where the obligor assumes a greater rendered. Further, the creditor cannot be
liability in case of breach of an obligation. The compelled partially to receive the presentations in
obligor is bound to pay the stipulated amount which the obligation consists and neither may the
without need for proof on the existence and on debtor be required to make partial payments,
the measure of damages caused by the breach. unless there is an express stipulation to that effect.
11
XPN: An incomplete or irregular payment may o (b) he can be subrogated to the

extinguish the debtor’s obligation in two instances rights of the creditor, such as
a. Substantial performance in good faith: If those arising from a mortgage,
the obligation has been substantially guaranty, or penalty.”
performed in good faith: (a) the debtor ● If the payor does not intend to be
may recover ag though there had been a reimbursed, the payment is deemed to be
strict and complete fulfillment; (b) but the a donation if done with the consent of the
creditor may deduct the damages debtor." If done without the debtor's
suffered by him.’ consent, it is not deemed a donation but
b. Waiver: If the creditor waives, either the payment is valid as to the creditor
expressly or impliedly, his right to insist on who has accepted it." Hence, such
a complete and regular performance, as payment shall extinguish the debtor’s
when he accepts the performance, obligation but the payor may, should he
knowing its incompleteness or_irregularity change his mind, demand reimbursement
and without expressing any protest or from the debtor but only insofar as such
objection, the obligation is deemed fully payment has been beneficial to the latter.
complied with.
3. Person paying must have the capacity to make
2. Payment must be tendered by the proper payment.
person.
Effect of Payment from Incapacitated Person: here
Proper person: the person paying has no capacity to make the
a. From the debtor himself or from his duly payment, the creditor cannot be compelled to
authorized representative; accept it; consignation will not be proper; in case
b. From a third person who has been authorized he accepts it, the payment will not be valid.
by the parties to make the payment;
c. From a third person who has an interest in the Note: In obligations to give, payment to be valid
fulfillment of the obligation. must be made by a person having the free
disposal of the thing due and capacity to alienate
Effect of payment from person not mentioned it.
above:
● The creditor is not bound to accept the
payment. Hence, his refusal to accept the 4. Payment should be made to the proper person.
payment is justified and shall not
authorize the debtor to resort to To whom payment should be made:
consignation. a. Person in whose favor the obligation has been
● But if the creditor accepts the payment, constituted (or the original creditor);
the payment is valid and shall extinguish b. Successor-in-interest of the original creditor;
the debtor’s obligation even if the or
payment was made without the c. Persons authorized to receive the payment,”
knowledge or against the will of the whether authorized by the creditor or any
debtor. person authorized by law to do so, such as
● If the payment was made without the guardian, executor or administrator of estate
knowledge or against the will of the of a deceased and assignee or liquidator of a
debtor: partnership or corporation.
o (a) the payor can recover from
the debtor only insofar as such Effect of payment to wrong person: Payment
payment has been beneficial to made by the debtor to the wrong party does not
the latter; and extinguish the obligation as to the creditor who is
o (b) the payor is not entitled to be without fault or negligence, even if the debtor
subrogated to the rights of the acted in utmost good faith and by mistake as to
creditor. the person of the creditor, or through error
● But if the payment was made with the induced by fraud of a third person.
consent of the debtor: ● If it becomes impossible to recover what
o (a) the payor may demand from was unduly paid, any loss resulting
the debtor what he has paid: and therefrom shall be borne by the deceived
debtor, who is the only one responsible
12
for his own acts unless there is a creditor from accepting a check as
stipulation to the contrary unless the payment. In other words, the creditor has
creditor himself is responsible for the the option and the discretion of refusing
wrongful payment. or accepting it.
Exceptions: Payment to wrong person shall When delivery of checks is payment: The
nonetheless be valid in the following situations— delivery of checks (or promissory note
1. If the payment has redounded to the benefit payable to order or other mercantile
of the creditor; documents) shall produce the effect of
2. If the payment is made in good faith to any payment only when: (1) they have been
person in possession of the credit; encashed; or (2) they have been impaired
3. If the debtor pays the creditor prior to through the fault of the creditor.
acquiring knowledge of the assignment of
credit made by the latter.
Extraordinary Inflation or Deflation: In case an
5. Person to whom payment is made must have extraordinary inflation or deflation of
the capacity to receive it. the currency stipulated should supervene, the
value of the currency at the time of the
Effect of payment to incapacitated person: establishment of the obligation shall be the basis
Payment is not valid. of payment, unless there is an agreement to the
contrary.
Exceptions: ● Requisites for application:
1. If he has kept the thing delivered; or 1. That there was an official declaration
2. Insofar as the payment has been of extraordinary inflation or deflation
beneficial to him. from the BSP;
2. That the obligation was contractual in
6. The identity of prestation must be preserved. nature;
3. That the parties expressly agreed to
Determinate Thing: The debtor cannot compel the consider the effects of the
creditor to receive a different one, although the extraordinary inflation or deflation.
latter may be of the same value as, or more
valuable than that which is due. 7. Payment must be tendered in the proper place.
Indeterminate Thing: The creditor cannot demand General Rule: Payment must be made at the
a thing of superior quality and the debtor may not domicile of the debtor.
deliver a thing of inferior quality.
Exceptions:
To pay debts in money: The following rules— 1. If there is another place of payment
a. The payment should be made in the currency designated in the obligation; or
stipulated; otherwise, the creditor may validly 2. In the absence of agreement and when the
refuse the tender of payment. obligation is to deliver a determinate thing, the
b. In the absence of such stipulation, or if it is payment shall be made wherever the thing
not possible to deliver the currency stipulated, might be at the moment the obligation was
then the payment should be in the currency constituted.
which is legal tender in the Philippines.
SPECIAL FORMS OF PAYMENT:
Legal Tender: That currency which has been 1. Dation in payment (or dacion en pago) – It is the
made suitable by law for the purpose of a tender alienation of property to the creditor in satisfaction
in the payment of debts. of a debt in money.“ It requires delivery and
● A check is not legal tender, and an offer transmission of ownership of a thing owned by
of a check in payment of a debt is not a the debtor to the creditor as an accepted
valid tender of payment and may be equivalent of the performance of the obligation.
refused receipt by the creditor, whether it
be a manager's, cashier's or personal Requisites:
check. a. There must be the performance of the
● It must be emphasized, however, that the prestation in lieu of payment (animo solvendi)
foregoing dictum does not prevent a which may consist in the delivery of a
13
corporeal thing or a real right or a credit 7. When the TITLE OF THE OBLIGATION HAS
against the third person; BEEN LOST.
b. There must be some difference between the
prestation due and that which is given in Requisites of effective consignation:
substitution (aliud pro alio); and 1. There was a debt due.
c. There must be an agreement between the 2. The consignation of the obligation had been
creditor and debtor that the obligation is made because the creditor to whom tender of
immediately extinguished by reason of the payment was made refused to accept it
performance of a prestation different from that without justifiable cause, or because he or
due. she was absent or incapacitated, or because
several persons claimed to be entitled to
Note: Dation in payment is governed by the law of receive the amount due or because the title to
sales. the obligation had been lost.
3. Previous notice of the consignation had been
2. Cession – Cession or assignment consists in the given to the person interested in the
abandonment of the totality of the property of the performance of the obligation.
debtor in favor of the creditors in order that the 4. The amount due was placed at the disposal
same may be applied for the satisfaction of their of the court.
credits. 5. After the consignation had been made, the
person interested was notified of the action.
3. Tender of payment and consignation – Tender of
payment is the definitive act of offering the When debt considered extinguished:
creditor what is due him or her, together with the Consignation is completed at the time the creditor
demand that the creditor accept the same. accepts the same without objections, or, ifhe
objects, at the time the court declares that it has
● The effect of a valid tender of payment is been validly made in accordance with law.
merely to exempt the debtor from APPLICATION OF PAYMENT: It is the process of
payment of interest and/or damages designating the debt to which the payment made is
applied, when the debtor has different obligations in favor
Note: Tender of payment even if valid, does not by of the same creditor. Its requisites are:
itself produce legal payment, unless it is 1. There exist only one debtor and one creditor;
completed by consignation. 2. Between them, there be several obligations;
3. The various debts be of the same kind;
Note: Under the Civil Code, a tender of payment, 4. The debts are all due, except when: (a) the parties
to be valid, must be unconditional. so stipulate; or (b) the application is made by the
● The mere sending of a letter expressing party for whose benefit the term has been
the intention to pay, without the constituted; and
accompanying payment, is not 5. The payment made is not sufficient to cover all
considered a valid tender of payment. obligations.
● In several cases decided by the Court
where the right to repurchase was held to Who has the right to make application of payment:
have been properly exercised, there was ● Primarily belongs to debtor: To the debtor
an unequivocal tender of payment for the corresponds iiifirst instance the right to determine
full amount of the repurchase price. to which debt his payment should be applied.
o But such right must be exercised by the
When consignation alone is sufficient: debtor at the time of payment, and not
1. When creditor is ABSENT; afterwards. And once the right is
2. When creditor is UNKNOWN; exercised, such application is irrevocable
3. When creditor DOES NOT APPEAR at the and the debtor has no more right to
place of payment; change his application of payment.
4. When creditor is INCAPACITATED to receive ● If debtor fails to exercise such right: If at the time
the payment at the time it is due; of payment the debtor has not exercised such
5. hen, without just cause, creditor REFUSES right, it is extinguished, and the application is
TO GIVE A RECEIPT; thereafter governed by law, unless the creditor
6. When TWO OR MORE PERSONS CLAIM determines the application, and his decision is
THE SAME RIGHT to collect; and accepted by the obligor.
14
o However, in order for the application to be the latter, as when the same embraces the
made by the creditor to be valid and genus, limiting the object of the obligation to a
lawful, the following requisites must be specified group determined by special qualities,
present: (1) the creditor expresses such within which the obligation concerned finds its
application in the corresponding receipt object among various things comprised by that
that he issued; and (2) the debtor must group but without specifying individually which it
have assented to such application, as has to be.
shown by his acceptance of the receipt
without protest. Requisites for Loss of Obligation:
● When neither the debtor nor the creditor has 1. The obligation consists in the delivery of a
specified to which of the several debts the determinate thing;'”
payment should be applied or if application 2. The loss must be posterior to the constitution of
cannot be inferred from other circumstances, the the obligation;
following rules should be applied: 3. The loss or destruction of the thing must have
o (1) the payment should be applied first to occurred without the fault of the debtor,” for if fault
the debt which is most onerous to the on the part of the debtor intervenes, the obligation
debtor; or is not extinguished but converted into payment of
o (2) if the debts due are of the same nature indemnity for damages;
and burden, the payment should be 4. The loss or destruction occurs before the debtor
applied to all of them proportionately. has incurred in delay;’” otherwise, the obligation is
not extinguished but converted into payment of
Limitation upon debtor’s right to make application of indemnity for damages; and
payment: 5. The debtor must not have obligated himself to de-
1. If the debt produces interest, payment of the liver the same thing to two or more persons who
principal shall not be deemed to have been made do not have the same interest; otherwise, he shall
until the interests have been covered; and be responsible for the loss of the thing by reason
2. If a partner authorized to manage collects a of fortuitous event until he has effected the
demandable sum, which was owed to him in his delivery.
own name, from a person who owed the
partnership another sum also demandable, the Presumption of Fault of Debtor: Unless there is proof to
sum thus collected shall be applied to the two the contrary, it is presumed that the loss was due to the
credits in proportion to their amounts, even fault of the debtor whenever the thing is lost in his
though he may have given a receipt for his own possession.
credit only, but should he have given it for the ● Not applicable: Whenever the thing igs
account of the partnership credit, the amount lost in his possession does not apply in case
shall be fully applied to the latter. of earthquake, flood, storm, or other natural
calamity.
2. Loss of determinate thing due or When debtor liable for loss of thing caused by fortuitous
impossibility or difficulty of performance event:
1. When the law expressly provides;
2.a. IN OBLIGATIONS TO GIVE 2. 2When the parties stipulate the contrary, hence, it
is lawful for the parties to stipulate that the debtor
Concept of Loss: It is understood that the thing is lost shall still be responsible even for fortuitous event;
when: (1) it perishes, or (2) goes out of commerce, or (3) and
disappears in such a way that its existence is unknown or 3. When the nature of the obligation requires the
it cannot be recovered. assumption of risk.
Not applicable to generic obligations: Only a determinate When obligation to return determinate thing arises from
or specific obligation may be extinguished through loss of crime:
the thing due but not an indeterminate, or generic ● General Rule: The loss of the thing--due for any
obligation. cause, including fortuitous event, does not
● Note: The rule does not apply to delimited extinguish the obligation.'’” The obligor in such
generic obligations. Between the specific case remains liable to pay for the value of the
obligations and generic ones there exist a class of thing lost.
obligations which partakes in a certain manner of ● Exception: When prior to the loss of the thing, the
the character of the former, while appearing more debtor has offered to return the thing to the
15
person who should receive it but the latter refused If it is made expressly, it must comply with the
to accept it without any justification, in which forms of donation.
case, the obligation is extinguished upon the loss
of the thing. Forms of condonation:
1. Express – It must comply with the forms of
donation. Hence,
2.b. In OBLIGATIONS TO DO a. If the obligation remitted involves the
delivery of real property, the remission
Concept of Loss: In obligations to do, the debtor may be and its acceptance must be made in a
released from responsibility by reason of the loss of the public instrument; otherwise, the
object of the obligation in the following cases: remission is void.
1. When the prestation becomes legally or physically b. If the obligation remitted involves the
impossible without the fault of the debtor; or delivery of personal property, the value of
2. When the service has become so difficult as to be which exceed P5,000, both the remission
manifestly beyond the contemplation of the and its acceptance must be in writing;
parties. otherwise, the remission is void. If the
● In the latter case, the court may release value does not exceed P5,000, the
the obligor from his obligation, either remission and the acceptance may be
wholly or partially depending on the made orally.
circumstances and the intention of the 2. Implied – Does not require any form, but the
parties. acceptance by the debtor must be shown.
Rebus sic stantibus – The principle of rebus sic stantibus Presumption of remission: The possession by the debtor
states that the parties stipulate in the light of certain of a private document proving a debt creates the
prevailing conditions, and once these conditions cease to presumption that the creditor delivered it voluntarily, unless
exist the contract also ceases to exist. Article 1267 of the the contrary is proven.
Civil Code, which enunciates the doctrine of unforeseen ● Effect of voluntary delivery – Such voluntary
events, is not, however, an absolute application of the delivery by the creditor of a private document of
principle of rebus sic stantibus, which would endanger credit to the debtor implies the renunciation of the
the security of contractual relations. action which the creditor had for the recovery of
his credit.
● Nature of document – In order for the foregoing
2.c. Remedy of Creditor if Thing is Lost by Fault of presumption of remission to apply, it is necessary
Third Persons that: (1) the document is a private one; and (2) it is
an evidence of credit.
Rule: So long as the loss of the object of the obligation
was without the fault of the debtor and prior to him Presumption of remission of pledge: When, therefore, the
incurring in delay, the obligation of the debtor is thing pledged, after its delivery to the creditor-pledgee, is
extinguished. The creditor, however, acquires all the rights found in the possession of the debtor, or of a third person
of action which the debtor may have against third person who owns the thing, it creates a presumption that the
by reason of the loss. accessory obligation of — pledge has been remitted.
● If the thing pledged is returned by the pledgee to
the pledgor or owner, the pledge is extinguished,
3. Condonation or remission of debt and any stipulation to the contrary is void.
Concept: It is an act of liberality by which the obligee, who Remission of accessory obligation: The remission of the
receives no price or equivalent thereof, renounces the principal debt extinguishes the accessory obligation; but
enforcement of the obligation, which is extinguished in its the remission of the accessory obligation does not affect
entirety or in part or aspect of the same to which the the principal debt.
remission refers.
Requisites: 4. Confusion or Merger of Rights

1. It must be gratuitous.
2. The obligation must be demandable at the time of Concept: Confusion or merger is the meeting in one
the remission. person of the qualities of creditor and debtor with respect
3. It must be accepted by the obligor. to the same obligation. It exists when the characters of
4. It must not amount to an inofficious donation. creditor and debtor are merged in the same person. It
16
renders impossible the enforcement of the obligation since third persons and communicated in due
it is absurd that a person should enforce an obligation time to the debtor
against himself.
Effect: When all the requisites are present,
Requisites: compensation takes effect by operation of law,
1. It must take place in the person of the principal and extinguishes both debts to the concurrent
creditor and principal debtor. amount, even though the creditors and debtors
● Note: Any merger involving the persons of are not aware of the compensation.
the principal creditor and debtor will also
result in the release of the guarantors since 2. Conventional or Voluntary – that which occurs
the accessory obligation cannot exist without when the parties agree to the mutual
the principal obligation. extinguishment of their credits or to compensate
2. It must be complete and definite because if not their mutual obligations even in the absence of
complete the obligation still subsists. some of the legal requisites; and
In joint obligations: Since the credits and debts in joint 3. Judicial – that which takes place when the court
obligation are considered distinct from one another, allows the set off or counterclaim of the defendant
confusion does not extinguish a joint obligation except as against the claim of the plaintiff.
regards the share corresponding to the creditor or debtor
in whom the two characters concur.
Example of Debts not subject of compensation:
In solidary obligations: With respect to solidary obligations, 1. When one of the debts arises from a depositum,
Article 1215 of the Civil Code expressly provides that 2. When one of the debts arises from the obligations
confusion has the effect of extinguishing the obligation. of a depositary or of a bailee in commodatum;
3. When one of the debts arises from a claim for
5. Compensation support due by gratuitous title;
4. When one of the debts consists in civil liability
Concept: It is a mode of extinguishing to the concurrent arising from a penal offense; and
amounts the obligations of persons who, in their own right 5. When one of the debts consists in the claim of
and as principals, are reciprocally creditors and debtors of Government for payment of taxes.
each other.
Effect of Assignment of Credit upon Legal Compensation:
Kinds: 1. Assignment after Legal Compensation: Any
1. Legal — that which takes place ipso jure when all assignment of the credit that will be made
the requisites of law are present; thereafter will no longer affect the debtor since his
obligation to the assignor had already been
Requisites: extinguished prior to the assignment. The remedy
a. The parties must be creditors and of assignee is not against debtor but the assignor.
debtors of each other in their own right. 2. Assignment prior to Legal Compensation:
b. The parties must be bound principally. a. With debtor’s consent: Debtor can no
▪ Note: By way of exception, longer set up against the assignee the
however, the guarantor may set compensation which would pertain to him
wp compensation as what the against the assignor, unless the debtor
creditor may owe the principal has notified the assignor at the time that
debtor, Thus, a guarantor may he gave his consent that he was
set up credits which personally reserving his right to the compensation.
belong to him and also credits b. With debtor’s knowledge but not
which belong to his principal, consent: Debtor may set up the
c. Both debts consist in a sum of money, or compensation of- debts_existing previous
if the things due are consumable, they be to the assignment, but not of subsequent
of the same kind, and also of the same ones.
quality if the latter has been stated. c. Without debtor’s knowledge: Debtor
d. Both debts must be due, liquidated and may set-up the compensation of all
demandable. credits existing prior or after the
e. Over neither of them there be any assignment until he had knowledge.
retention or controversy, commenced by
6. Novation
17
the payment has been beneficial to the

Definition and Concept: Novation is the extinguishment of debtor. But he will not be entitled to the
an obligation by the substitution or change of the right of subrogation
obligation by a subsequent one which extinguishes or
modifies the first; either by changing the object or principal 2. Delegacion – Here, the debtor offers, and the
conditions, or by substituting another in place of the creditor accepts, a third person who consents to
debtor, or by subrogating a third person in the rights of the the substitution and assumes the obligation,
creditor. thereby releasing the original debtor from the
obligation, so that the intervention and the
Requisites: consent of these three persons are necessary.
1. There must be a previous valid obligation;
Note: The consent of the creditor to the change of
Exceptions: debtors, whether in expromision or delegacion, is an
a. When the annulment may be claimed only by indispensable requirement.
the debtor and he consented to the novation; ● But, his consent need not be given expressly.
or
b. When ratification validates acts which are SUBROGATION
voidable.” ● It is the transfer of all the rights of the creditor to a
third person, who substitutes him in all his right.
2. The parties concerned must agree to a new con-
tract; Kinds of Subrogation:
3. The old contract must be extinguished; 1. Legal – Takes place by operation of law because
4. There must be a valid new contract. of certain acts:
a. When a creditor pays another creditor
Note: Original obligation may be pure while new who is preferred, even without the
obligation may be conditional and vice versa. debtor’s knowledge;
b. When a third person, not interested in the
Novation is NOT presumed. There must be an express obligation, pays with the express or tacit
intention to novate; in cases where it is implied, the acts of approval of the debtor;
the parties must clearly demonstrate their intent to c. When, even without the knowledge of the
dissolve the old obligation as the moving consideration for debtor, a person interested in the
the emergence of the new one. fulfillment of the obligation pays, without
● Implied novation necessitates that the prejudice to the effects of confusion as to
incompatibility between the old and new the latter’s share.
obligation be total on every point such that the old
obligation is completely superseded by the new 2. Conventional – Takes place by agreement of the
one. parties. This requires the consent of all.
● Differs with assignment of credit in that
NOVATION BY SUBSTITUTION OF DEBTOR agreement of debtor is not required therein.
● To effect a subjective novation by a change in the Also, the nullity of an old obligation may be
person of the debtor it is necessary that the old cured by subrogation, such that a new
debtor be released expressly from the obligation, obligation will be perfectly valid; but the
and the third person or new debtor assumes his nullity of an obligation is not remedied by
place in the relation. the assignment of the creditor's right to
another.
Two Forms:
1. Expromision – Here, the initiative for the change Licaros v. Gatmaitan (2001)
does not come from the debtor and may even be Intention of the parties govern. – In this case, the intention
made without his knowledge or against his will, of the parties was to treat the Memorandum of Agreement
since it consists in a third person assuming the as embodying a conventional subrogation and not an
obligation. As such, it logically requires the assignment of credit, as such intention was shown not
consent of the third person and the creditor. only by the “whereas clause” but also by the signature
space captioned “WITH OUR CONFORME.” The Court
● Effect if without will of debtor: The third explained that had the intention been merely to confer on
person who assumed the debtor's a third person the status of a mere “assignee” of creditor’s
obligation is entitled to demand credit, there is simply no sense for them to have stipulated
reimbursement only up to the extent that in their agreement that the same is conditioned on the
18
“express conformity” thereto of the debtor. The fact that

they did so, the Court adds, only accentuates the parties’
intention to treat the agreement as one of conventional
subrogation.
Effects of Subrogation:
1. Legal – Subrogation transfers to the person
subrogated (or new creditor) ‘the credit, together
with all the rights thereto appertaining (such as the
right to the exercise of the accessory rights, i.e..,
mortgage or pledge), whether those rights-be
against the debtor or against third persons.
2. Conventional – The effects may be modified by
the express agreement of the parties.
3. Partial subrogation – Where the creditor receives
partial payment only, the latter is entitled to
exercise his right for the remainder.
EFFECTS OF EXTINCTIVE NOVATION ON ACCESSORY

OBLIGATIONS
1. Novation changing the object or principal
conditions and novation by substitution of the
debtor. – Accessory obligations are also
extinguished.
a. However, if there is a stipulation in favor
of third persons, accessory obligations
subsist insofar as they may benefit such
third persons who have not given their
consent to the novation.
2. Novation by subrogation. – The new creditor, as
a rule, is also entitled to the exercise of the
accessory rights, such as the right to the
mortgage or pledge. Hence, such accessory
obligations are not extinguished upon the
extinguishment of the principal obligation in
consequence of subrogation.
a. However, as discussed the parties may,
by express agreement, modify the effects
in the case of conventional subrogation.
19
thereto cannot be left to the will of one of the

contracting parties, the determination of
CONTRACTS performance, however, may be left to a third
person.” [Art. 1308-1309, CC]
CIVIL LAW
Based on the 2021 Civil Law Lectures of UP BRI (Prof. Rabuya)
Contract of Adhesion: It is one in which one of
the parties imposes a ready-made form of
GENERAL PROVISIONS contract, which the other party may accept or
reject, but which the latter cannot modify. One
party prepares the stipulation in the contracts
Definition: A contract is a meeting of minds between two while the other party merely affixes his signature
persons whereby one binds himself, with respect to the or his “adhesion” thereto, giving no room for
other, to give something or to render some service. [Art. negotiation and depriving the latter of the
1305, CC] opportunity to bargain on equal footing. [Geraldez
● It may also be defined as “a juridical convention v. CA]
manifested in legal form, by virtue of which one or ● GR: Valid, the reason being that the party
more persons bind themselves in favor of another who adheres to the contract is free to
or others, or reciprocally, to the fulfillment of a reject it entirely.
prestation to give, to do, or not to do.” [Jardine o Note: While it is true that an
Davies, Inc. v. CA] adhesion contract is not
necessarily void, it must
CHARACTERISTICS OF CONTRACTS: nevertheless be construed strictly
Every contract has four fundamental characteristics— against the one who drafted the
same. [Geraldez v. CA]
1. The obligatory force or character of contracts; ● XPN: It has been declared that a contract
● It is a fundamental principle in contract law of adhesion may be struck down as void
that “obligations arising from contracts have and unenforceable, for being subversive
the force of law between the contracting to public policy, only when the weaker
parties and should be complied with in good party is imposed upon in dealing with the
faith.” [Art. 1159, CC] dominant bargaining party and is reduced
● From the moment the contract is perfected, to the alternative of taking it or leaving it,
the parties are bound not only to the completely deprived of the opportunity to
fulfillment of what has been expressly bargain on equal footing.
stipulated but also to all consequences o Note: unilateral increase of
which, according to their nature, may be in interest rate is invalid. [PNB v.
keeping with good faith, usage and law. CA]
4. The relativity of contracts.

2. The autonomy of contracts; ● The principle of relativity of contracts
● The contracting parties are accorded the provides that contracts can only bind the
liberality and freedom to establish such parties who entered into it, and it cannot
stipulations, clauses, terms and conditions as favor or prejudice a third person, even if he is
they may deem convenient, provided the aware of such contract and has acted with
same are not contrary to law, morals, good knowledge thereof. [Integrated Packaging
customs, public order or public policy. [Art. Corp. v. CA]
1306, CC]
Contracts generally binding upon heirs: The
3. The mutuality of contracts; and general rule is that heirs are bound by contracts
● Article 1308 of the Civil Code expresses what entered into by their predecessors-in-interest
is known in law as the principle of mutuality except when the rights and obligations arising
of contracts. It provides that the “contract therefrom are not transmissible by (1) their nature,
must bind both the contracting parties; its (2) stipulation or (3) provision of law. [Art. 1311,
validity or compliance cannot be left to the par. 1, CC]
will of one of them.” [Art. 1308, CC] ● A contract of lease is, therefore, generally
transmissible to the heirs of the lessor or
Determination of performance by third person. – les- see. It involves a property right and,
While he validity of a contract or compliance as such, the death of a party does not
20
excuse non- performance of the contract. rights and bring all the actions of
The rights and obligations pass to the the debtor, except those purely
heirs of the deceased and the heir of the personal to such debtor; and (3)
deceased lessor is bound to respect the impugn the acts which the
period of the lease. [Estate of Llenado v. debtor may have done to defraud
Llenado] them.” [Art. 1117, CC]
● Monetary Debts: The heirs of the
deceased are not liable for the debts he d. Accion directa is allowed by law in certain
may leave at the time of his death. Such cases. [See Art. 1729, CC]
debts are chargeable against the property
or assets left by the deceased. e. Any third person who induces another to
o Thus, Article 1311 of the Civil violate his contract can be made liable for
Code provides that “the heir is damages to the other contracting party).
not liable beyond the value of the [Art. 1314, CC]
property he received from the ● Elements of Tort Interference
decedent.” 1. The existence of a valid con-
tract;
Exceptions to Principle of Relativity: 2. Knowledge on the part of the
a. Exceptionally, a contract may confer third person of the existence of
benefits to a third person or what are contract; and
otherwise known as “stipulation pour 3. Interference of the third per-
autrui.” [Art. 1311, par. 2, CC] son is without legal justification
● A stipulation pour atrui is a or excuse.
stipulation in favor of a third
person conferring a clear and STAGES OF CONTRACTS:
deliberate favor upon him, and A contract undergoes three distinct stages—
which stipulation is merely a part
of a contract entered into by the 1. Negotiation – it begins from the time the
parties, neither of whom acted as prospective contracting parties manifest their
agent of the third person, and interest in the contract and ends at the moment of
such third person may demand agreement of the parties;
its fulfillment provided that he
communicates his acceptance to 2. Perfection – or birth of the contract takes place
the obligor before it is revoked. when the parties agree upon the essential
elements of the contract;
b. In contracts creating real right, third Manner of Perfection of Contracts

persons who come into possession of the a. Consensual Contract – A contract which is
object of the contract may be bound consensual as to perfection is so
thereby under the provisions of established upon a mere meeting of minds,
mortgage laws and land registration laws. i.e., the concurrence of offer and acceptance,
[Art. 1312, CC] on the object and on the cause thereof. [Art.
● For example, a recorded lease is 1315, CC]
binding upon the purchaser who b. Real Contract – It is perfected not by mere
did not take any part in the consent, but by the delivery of the object of
execution of the lease contract. the contract.
Similarly, a contract of mortgage ● Commodatum and mutuum. – An
duly registered is binding upon accepted promise to deliver
third persons. something by way of commodatum
or simple loan (mutuum) is binding
c. Creditors are protected in cases of upon the parties, but the
contracts intended to defraud them." [Art. commodatum or simple loan itself
1313, CC] shall not be perfected until the
● Creditors, in order to satisfy their delivery of the object of the contract.
claims, may: (1) pursue [Art. 1934, CC]
properties in the possession of ● Deposit. – An agreement to
the debtor; (2) exercise all the constitute a deposit is binding, but
21
the deposit itself is not perfected a. Advertisement of things for sale: As

until the delivery of the thing. [Art. a rule, business advertisements of
1936, CC] things for sale are not offers but mere
● Pledge. – It is necessary, in order to invitations to make an offer. However,
constitute the contract of pledge, such advertisement may become an
that the thing pledged be placed in offer if it is expressly and clearly
the possession of the creditor, or of provided therein. [Art. 1325, CC]
a third person by common b. Advertisement for bidders: Are not
agreement. also considered as offers but simply
invitations to make proposals. Hence,
3. Consummation – which is the last stage, wherein as a rule, the advertiser is not bound
the parties fulfill or perform the terms agreed upon to accept any bid, whether it may be
in the contract, culminating in the extinguishment the highest or lowest, unless the
thereof. advertisement contains language
subject to the interpretation that the
ESSENTIAL REQUISITES OF CONTRACTS intention is to let the contract to the
1. Consent – Consent is manifested by the meeting highest or lowest bidder. [Art. 1325,
of the offer and acceptance upon the thing and CC]
the cause which are to constitute the contract. c. Auction sale: In an auction, the
[Art. 1319, CC] Thus, an offer that is not accepted auctioneer’s call for bids is not
does not give rise to consent, and the contract considered as an offer but simply an
does not come into existence. invitation to make proposals.
Ordinarily, the sale is considered
Elements of Consent: perfected only when the auctioneer
a. plurality of subjects; announces its perfection by the fall of
b. capacity; the hammer, or in other customary
c. intelligent and free will; manner. [Art. 1476(2), CC]
d. express or tacit manifestation of the
will; and ● Acceptance of Offer – To produce a
e. conformity of the internal will and its contract, there must be acceptance,
manifestation. which may be express or implied, but
must not qualify the terms of the offer.
Form of Consent: Express or implied. Acceptance [Jardine Davies Inc. v. CA]
may also be express or implied. [Art. 1320, CC] o To be effective, an acceptance
must be absolute. In other
Concept of Offer: In contract law, an offer is words, there must be no
defined condition or qualification. [Art.
as an expression of willingness to contract on 1319, CC]
certain terms, made with the intention that it shall o A qualified acceptance, or one
become binding as soon as it is accepted by the that involves a new proposal,
person to whom it is addressed. constitutes a counter-offer and is
a rejection of the original offer.
● Requisites: [Ibid.]
a. Seriousness – The offeror must have
a serious intention to become bound ● Cognition Theory: The acceptance of an
by his offer. offer must be made known to the offeror.
b. Certainty – The terms of the offer Unless the offeror knows of the
must be reasonably certain, definite acceptance, there is no meeting of the
and complete, so that the parties and minds of the parties, no real concurrence
the court can ascertain the terms of of offer and acceptance. [Malbarosa v.
the offer. CA]
c. Communication – The offer must be
communicated by the the offerror Option Contract: A preparatory contract in which
resulting in the offeree’s knowledge of one party grants to the other, for a fixed period,
the offer. the option to decide whether or not to enter into a
principal contract. [Art. 1324, CC]
● Cases NOT considered as offers:
22
With consideration Without ● Note: As a rule, no contract may be

consideration entered into upon future inheritance.
Offeror cannot Offeror may withdraw [Ibid.] The law allows, however, a
unilaterally withdraw by communicating person to make a partition of his
his offer. withdrawal to the estate by an act inter vivos, provided
offeree before that the legitime of compulsory heirs
acceptance. is not prejudiced. [Art. 1080, CC]
b. The object must be real or possible, either
● When binding – Where a period is given physically or legally. [Art. 1348, CC]
to the offeree within which to accept the c. The object should be licit, or not contrary to
offer and the same is founded upon or law, morals, good customs, public order or
supported by a separate consideration, a public policy. [Art. 1347, CC]
contract of “option” is deemed perfected. d. The object should be determinate or
[Ang Yu Asuncion v. CA] determinable, as to its kind. [Art. 1349, CC]
● When not binding –If the period is not
itself founded upon or supported by a 3. Cause – The consideration is the why of the
consideration, the option does not contracts, the essential reason which moves the
become a contract. Thus, the offeror is contracting parties to enter into the contract.
still free and has the right to withdraw the [Gonzales v. Trinidad]
offer before its acceptance, or, if an
acceptance has been made, before the Requisites:
offeror’s coming to know of such fact, by a. It must exist – If a a contract has no cause, it
communicating that withdrawal to the does not produce any effect whatsoever and
offeree. [Ibid.] is inexistent or void from the beginning. [Art.
● Note: The right to withdraw, however, 1352, CC]
must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a b. It must be true – The statement of a false
damage claim under Article 19 of the Civil cause in contracts shall render them void,
Code which ordains that “every person unless it can be proven that they were
must, in the exercise of his rights and in founded upon another cause which is true
the performance of his duties, act with and lawful. [Art. 1353, CC]
Justice, give everyone his due, and ● If the price is simulated, the sale is
observe honesty and good faith. void, but the act may be shown to
● Note: While an option not supported by have been in reality a donation, or
a consideration is not binding upon the some other act or contract. [Art.
promisor and he may, therefore, withdraw 1471, CC]
his offer, pending the notice of
withdrawal, however, such option c. It must be licit – A contract where the cause
partakes of the nature of an offer to sell is contrary to law, morals, good customs,
which, if accepted, results in a perfected public order or public policy is void? and
contract of sale. [Sanchez v. Rigos] produces no effect whatever. [Art. 1409(1)
and 1352, CC]
2. Object – The subject matter; the thing, right or
service which is the subject matter of the Presumption of Cause. – Although the cause is
obligation arising from the contract. [Tolentino] not stated in the contract, it is presumed that it
exists and is lawful, unless the debtor proves the
What may be object of contracts: contrary. [Art. 1353, CC]
a. All things which are not outside the
commerce of men, including future things; Lesion or inadequacy of cause. – Does not
b. All rights which are not intransmissible; or invalidate a contract, unless there has been fraud,
c. All services which are not contrary to law, mistake or undue influence. [Art. 1355] But in the
morals, good customs, public order or public following cases, lesion is a ground for rescission
policy. [Art. 1347, CC] of the contract –
a. When the ward suffers lesion by more than
Requisites: one-fourth of the value of the property in
a. The object must be within the commerce of contracts entered into by guardians on behalf
men. [Art. 1347, CC] of wards; [Art. 1381(1), CC]
23
b. When the absentee suffers lesion by more such step is required to be noted in both
than one-fourth of the value of the property in instruments. (Art. 749, CC]
contracts entered into by legal representatives
on behalf of absentees; [Art. 1381(2), CC] 3. Donation propter nuptias – are also governed by
c. In partition among co-heirs, when any one of the rules on ordinary donations, insofar as these
them received things whose value is less than rules are not modified under the Family Code.
one-fourth than the share to which he is
entitled. [Art. 1098, CC] 4. Contract of partnership, when real property is
contributed as capital – As a rule, a contract of
partnership may be constituted in any form and
need not be formally reduced into writing since
FORMALITY the law allows the oral constitution of a
partnership. However, whenever immovable
General Rule: Contracts are obligatory, in whatever form property is contributed thereto, it is necessary that
they may have been entered into, provided all the essential there must be an inventory of said property,
requisites for their validity are present. [Art. 1356, CC] signed by the parties, and attached to the public
Thus, no form is required, as a rule, in order to make the instrument. If this formality is not followed, the
contract binding and effective between the parties thereto. contract of partnership is void. [Art. 1773 in rel. to
1771, CC]
Exceptions: The rule that contracts may be entered into in ● Note: The requirement of form in Article
any form is not absolute. There are two groups of 1773 of the Civil Code is intended
contracts where the requirement of form is absolute and primarily to protect third persons. Hence,
indispensable: when the case does not involve third
1. those which are required to be in some form in parties who may be prejudiced, as when
order that they may be valid; and the action is between the partners
2. those which are required to be in some form in themselves, they cannot deny the
order that they may be enforceable or in order existence of a partnership simply because
that they may be proved in a certain way. [Art. of violation of Article 1773.
1356, CC]
5. Sale of a parcel of land or any interest therein by
CONTRACTS WHICH REQUIRE FORM FOR VALIDITY: an agent – If the sale of a parcel of land or any
1. Donation of personal property where the value interest therein is made through an agent, it is
exceeds P5,000; necessary that the authority of the agent be in
writing. Otherwise, the sale of the land belonging
Donation below P5,000 – The donation and its to the principal is void. [Art. 1874, CC]
acceptance may be made orally or in writing. But
an oral donation requires the simultaneous 6. Stipulation limiting common carrier's liability for
delivery of the thing or of the document loss, destruction or deterioration of goods – In
representing the right donated. [Art. 748, par. 1-2 order for a stipulation between the common
CC] carrier and the shipper or owner limiting the
liability of the former for the loss, destruction or
Donation exceeds P5,000 – Both the donation deterioration of the goods to a degree less than
and the acceptance are required to be made in extraordinary diligence to be valid, the same must
writing. Otherwise, the donation is void. [Ibid., par. be in writing, signed by the shipper or owner. [Art.
3] 1744(1), CC]
2. Donation of real property – Regardless of the 7. Contract of antichresis – In order for the
value of the property, both the donation and the antichresis to be valid, it is necessary that the
acceptance are required to be embodied in a amount of the principal and of the interest of the
public document in order that the donation may principal obligation which it secures be specified
be valid. [Art. 749, CC] in writing. [Art. 2134]
a. The donation and the acceptance may be ● The law does not require, however, that
embodied in a single document or in such specification be made in the
separate documents but, in the case of contract of antichresis itself. Thus, the
the latter, the donor is required to be requirement is already satisfied if such
notified thereof in an authentic form and specification is made in the principal
contract of loan.
24
3. Under the Civil Code, unenforceable contracts,

8. Sale or transfer of large cattle – The sale or including those which infringe the Statute of
transfer is required to be registered with the city/ Frauds, cannot be assailed by third persons.
municipal treasurer and a certificate of transfer is [Art. 1408, CC]
required to be issued, otherwise, the sale or 4. The defense of the Statute of Frauds can be
transfer is not valid. [Act No. 1147] waived either by: (1) failing to object to the
a. It is implicitly required, of course, that the presentation of oral evidence to prove the
sale or transfer be made in a public contract; or (2) accepting benefits under the
document since only a public document contract. [Art. 1405, CC]
may be accepted for registration. 5. The statute of frauds refers to specific kinds of
transactions and cannot apply to any other
9. Chattel mortgage contract – Article 2140 of the transaction that is not enumerated in Article 1403,
Civil Code makes the recording of the contract of paragraph 2. [Art. 1405, CC]
chattel mortgage before the chattel mortgage
registry as an indispensable requirement for the Specific Contracts Covered by the Statute of Frauds:
existence of the contract itself. Hence, an 1. Agreements not to be performed within a year;
unrecorded chattel mortgage is not valid even as
between the contracting parties. It is implicitly Effect of Partial Performance – In order, however,
required, of course, that the contract he in a that a partial performance of the contract may
public document since only a public document take the case out of the operation of the statute, it
may be accepted for registration. must appear clearly that the full performance has
been made by one party within one year, as
CONTRACTS WHICH REQUIRE FORM FOR otherwise, the statute would apply. [Babao v.
ENFORCEABILITY: Perez]
Agreements covered by the Statute of Frauds shall be 2. Special promise to answer for debt of another;
unenforceable by action, unless the agreement itself, or 3. Agreements in consideration of marriage;
some note or memorandum thereof, be in writing, and 4. Sale of goods, chattels or things in action at price
subscribed by the party charged or his agent. [Art. 1403, not less than P500;
par. 2 CC] 5. Lease of real property for more than a year and
● The Statute does not require that the contract sale of real property or an interest therein;
itself be in writing. It is clear that a written note or 6. Representation as to credit of third persons.
memorandum, embodying the essentials of the
contract and signed by the party charged, or his Other contracts or agreements which require to be in
agent, suffices to make the verbal agreement some form to be enforceable (but not covered by the
enforceable, taking it out of the operation of the Statute of Frauds):
Statute. [Paredes v. Espino] 1. Express trust over immovable. – An express trust
o The note or memorandum need not be concerning an immovable or any interest therein
contained in a single document; nor, when may not be proved by parol evidence. [Art. 1443,
contained in two or more papers, need CC]
each paper to be sufficient as to contents ● Hence, it must be in writing to be
and signature to satisfy the statute. [Berg v. enforceable. An implied trust concerning
Magdalena Estate (1952)] real property, on the other hand, may be
o For a note or memorandum to satisfy the proved by oral evidence.
Statute, it must be complete in itself and 2. Agreement on payment of interest. – No interest
cannot rest partly in writing and partly in shall be due unless it has been expressly
parol. [Swedish Match v. CA] stipulated in writing. [Art. 1956]
● Hence, a verbal agreement on the payment
Principles on the Statute of Frauds of interest may not be enforced against the
1. The Statute of Frauds applies only to executory borrower against his will. However, if the
contracts and not to contracts which are either borrower pays the interest voluntarily when
partially or totally performed. [Averia v. Averia] there has been no stipulation therefore, the
2. The Statute of Frauds does not apply to actions payment is valid and the creditor is
which are neither for violation of a contract nor authorized to retain the payment. [Art. 1960
for the performance thereof. [Asia Productions in rel. to Art. 1423, CC]
Co, Inc. v. Paño]
25
CONTRACTS REQUIRED TO BE IN A PUBLIC Requisites:

DOCUMENT FOR CONVENIENCE: 1. There must be a meeting of the minds of the
parties to the contract;
Article 1358 of the Civil Code which requires the 2. The instrument does not express the true
embodiment of certain contracts in a public instrument, is intention of the parties; and
only for convenience, and registration of the instrument 3. The failure of the instrument to express the true
only adversely affects third parties. Formal requirements intention of the parties is due to mistake, fraud,
are, therefore, for the benefit. of third parties. inequitable conduct, or accident. [Ibid.]
Non-compliance therewith does not adversely affect the
validity of the contract nor the contractual rights and Note: When the mutual error of the parties relates to the
obligations of the parties thereunder. legal effect of their agreement which frustrates the real
1. Acts and contracts which have for their object the purpose of the contract, the consent is vitiated and the
creation, transmission, modification or remedy is not reformation of the instrument but the
extinguishment of real rights over immovable annulment of the contract. [Art. 1390(2), CC]
property; but sales of real property or of an
interest therein are governed by the Statute of Instances where instrument may be reformed:
Frauds; 1. When a mutual mistake of the parties causes a
2. The cession, repudiation or renunciation of failure of the instrument to disclose their real
hereditary rights or of those of the conjugal agreement [Art. 1361, CC]
partnership of gains; 2. If one party was mistaken and the other acted
3. The power to administer property, or any other fraudulently or inequitably in such a way that the
power which has for its object an act appearing or instrument does not show their true intention [Art.
which should appear in a public document, or 1362, CC]
should prejudice a third person; 3. When one party was mistaken and the other
4. The cession of actions or rights proceeding from knew or believed that the instrument did not state
an act appearing in a public document. [Art. their real agreement, but concealed that fact from
1358, CC] the former [Art. 1363, CC]
4. 4) When through the ignorance, lack of skill,
Remedy under Art. 1358: For contracts which are required negligence or bad faith on the part of the person
to be in a certain form, such as those enumerated in drafting the instrument or of the clerk or typist and
Article 1358 which are required to be in a public the instrument does not express the true intention
document, the contracting parties may compel each other of the parties [Art. 1364]
to observe that form and this right may be exercised 5. If two parties agree upon the mortgage or pledge
simultaneously with the action upon the contract. [Art. of real or personal property, but the instrument
1357, CC] states that the property is sold absolutely or with a
● But in order for this remedy to be exercised, it is right of repurchase. [Art. 1365, CC]
necessary that the following requisites must
concur: (1) the contract must have already been Instances where instrument may not be reformed:
perfected: (2) the contract must have been valid 1. If mistake, fraud, inequitable conduct, or accident
as to form; and (3) the contract must have been has prevented a meeting of the minds of the
enforceable under the Statute of Frauds. [Art. parties, Here, the remedy is annulment of the
1356, CC] contract and not reformation. [Art. 1359, par. 2,
CC]
2. In simple donations inter vivos wherein no
condition is imposed [Art. 1366, CC]
REFORMATION OF INSTRUMENTS
3. In wills [Id.]
4. When the real agreement is void [Id.]
Concept: Reformation is that remedy in equity by means
5. When one of the parties has brought an action to
of which a written instrument is made or construed so as
enforce the instrument, he cannot subsequently
to express or conform to the real intention of the parties.
ask for its reformation; [Art. 1367, CC]
[Huibonhoa v. CA]
6. When the contract is unenforceable because of
● The rationale of the doctrine of reformation is that
failure to comply with the Statute of Frauds.
it would be unjust and inequitable to allow the
enforcement of a written instrument which does
Who may demand reformation: If the mistake was mutual,
not reflect or disclose the real meeting of the
either party or his successor-in-interest may demand for
minds of the parties. [National Irrigation Admin v.
reformation. If the mistake was not mutual, only the injured
Gamit]
26
party or his heirs and assigns may demand for 4. Words having different significations. – Shall be
reformation. [Art. 1368, CC] understood in the sense which is most in keeping
● However, the party who has brought an action to with the nature and object of the contract. [Art.
enforce the instrument cannot subsequently ask 1375, CC]
for its reformation. [Art. 1367, CC] 5. Usage or custom of the place. – Shall be borne
in mind in the interpretation of the ambiguities of a
contract, and shall fill the omission of stipulations
which are ordinarily established. [Art. 1376, CC]
INTERPRETATION OF CONTRACTS
6. In case of doubt not resolved by other rules…
a. And contract is gratuitous. -- That
CARDINAL RULE: The cardinal rule in the interpretation of
interpretation which establishes a less
contracts is to the effect that the intention of the
onerous transmission of rights and
contracting parties should always prevail because their will
interest is to be adopted.
has the force of law between them. [Art. 1368, CC]
b. And contract is onerous. – That
● When terms are clear: the literal meaning of its
interpretation which permits greater
stipulations shall control. [Art. 1367, CC]
reciprocity of interests is to be adopted.
● When words and intention are in conflict: the
[Art. 1378, CC]
intention shall prevail over the wards. [Kasilag v.
Rodriguez]
o Note: In order to judge the intention of the
contracting parties their contemporaneous DEFECTIVE CONTRACTS
and subsequent acts shall be principally 1. Rescissible Contracts
considered. [Art. 1371, CC]
Concept: It is a remedy granted by law to the contracting
PRINCIPLE OF EFFECTIVENESS: Where two parties and even to third persons, to secure the reparation
interpretations of the same contract language are possible, of damages caused to them by a contract, even if this
one interpretation having the effect of rendering the should be valid, by restoration of things to their condition
contract meaningless while the other interpretation would at the moment prior to the celebration of the contract. [Art.
give effect to the contract as a whole, the latter 1378, CC] It implies a contract, which even if initially valid,
interpretation must be adopted. In other words, what will produces a lesion or a pecuniary damage to someone.
prevail is that interpretation which is most adequate to
render the contract effective. [Art. 1373] Characteristics of Rescissible Contracts:
1. The defect consists in injury or damage either to
VARIOUS STIPULATIONS CONSTRUED TOGETHER: To one of the contracting parties or to third persons;
ascertain the intent of the parties in a contractual 2. Before rescission, they are valid, and therefore,
relationship, it is imperative that the various stipulations legally effective;
provided for in the contracts be construed together, 3. They can only be attacked directly only and not
consistent with the parties’ contemporaneous and collaterally;
subsequent acts as regards the execution of the contract. 4. They can be attacked only by a contracting party
● Ambiguous stipulations should be so construed or a third person who is injured or defrauded;
as to conform to the sense that would result if all 5. They are susceptible of convalidation only by
the provisions are comprehended jointly. [Art. prescription and not ratification; and
1374, CC] 6. They must be rescinded within four years, the
prescription for actions to claim rescission.
OTHER RULES OF INTERPRETATION: [Art.1389, CC]
1. In contract of adhesion. – Should there be
ambiguities in a contract of adhesion, such RESCISSIBLE CONTRACTS AND THEIR REQUISITES
ambiguities are to be construed against the party
that prepared it.
2. Obscure words or stipulations. – To be
interpreted against the party who caused the
obscurity. [Art. 1377, CC]
3. General terms exclude things that are distinct. –
However general the terms of a contract may be,
they shall not be understood to include things that
are distinct and cases that are different from those
upon which the parties intended to agree. [Art.
1372, CC]
27
Article 1381, Civil Code. The following contracts are ● A definitive judicial determination with respect to
rescissible: the thing subject of litigation is not a condition
1. Those which are entered into by guardians sine qua non before the rescissory action
contemplated under Article 1381(4) of the Civil
whenever the wards whom they represent
Code may be instituted. The primordial purpose of
suffer lesion by more than one-fourth of the
Article 1381(4) of the Civil Code is to secure the
value of the things which are the object thereof;
possible effectivity of the impending judgment by
2. Those agreed upon in representation of a court with respect to the thing subject of
absentees, if the latter suffer the lesion stated in litigation. [Ada v. Baylon, G.R. No. 182435 (2012)]
the preceding number;
3. Those undertaken in fraud of creditors when Requisites for Rescission under Art. 1381 (3), CC
the latter cannot in any other manner collect 1. There is a credit existing prior to the celebration of
the claims due them; the contract, although not yet due or
4. Those which refer to things under litigation if demandable;
they have been entered into by the defendant 2. There is fraud, or at least, the intent to commit
without the knowledge and approval of the fraud to the prejudice of the creditor seeking
litigants or of competent judicial authority; rescission, which may be presumed or proved [Art
All other contracts specially declared by law to be 1387, CC];
subject to rescission. 3. Creditor cannot in any legal manner collect his
credit; insolvency of the debtor is not required;
Requisites for Rescission under Art. 1381 (1) (2), CC and
1. Contract was entered into by a guardian in behalf 4. The object of the contract must not be legally in
of his ward or by a legal representative in behalf of the possession of a third person who did not act
an absentee. [Arts. 1381 (1) and (2) CC] in bad faith.
● Note: A guardian is authorized only to
manage the estate of the ward; should he ACCION PAULIANA
dispose a portion thereof without authority The action to rescind contracts in fraud of creditors.
from the court by way of a contract, the Consequently, accion pauliana presupposes a judgment
same is unenforceable under Art. 1403(1), and unsatisfied execution which cannot exist when the
CC, irrespective of whether there is lesion debt is not yet demandable at the time the rescissory
or not. action is brought. [Tolentino]
2. It was entered into without judicial approval. [Art. ● Note: Even secured creditors are entitled to
1386, CC] accion pauliana.
3. Ward or absentee suffered lesion of more than ● Payments made in a state of insolvency for
one-fourth of the value of the property which is obligations to whose fulfillment the debtor could
the object of the contract. [Art. 1381 (1) and (2), not be compelled at the time they were effected,
CC] are also rescissible. [Art. 1382, CC]
4. There is no other legal means of obtaining
reparation for the lesion. [Art. 1383, CC] Requisites Before Payment Made by Insolvent can be
5. The person bringing the action must be able to Rescinded:
return whatever he may be obliged to restore. [Art. 1. It was made in a state of insolvency;
1385(1), CC] 2. Obligation must have been one which debtor
6. The object of the contract must not be legally in could not be compelled to pay at the time such
the possession of a third person who did not act payment was effected.
in bad faith [Art. 1385(2), CC] Note: A debtor can be compelled to pay by the creditor
even before the expiration of the period since by his
Rescission under Article 1381(4) insolvency he has already lost his right to the benefit of
● Any disposition of the thing subject of litigation or such period. [Art. 1198(1), CC]
any act which tends to render inutile the court’s
impending disposition in such case without the EFFECTS OF RESCISSION:
knowledge and approval of the litigants or of the ● It creates an obligation of mutual restitution or the
court, is unmistakably and irrefutably indicative of obligation to return the things which were the
bad faith. object of the contract, together with their fruits,
● However, even without knowledge or approval and the price with its interests.
from the court, the conveyance of a property ● However, if the object of the contract is in the
subject of litigation may still be valid but is possession of third persons in good faith,
susceptible for rescission under Art. 1381(4), CC. rescission cannot take place and indemnity for
28
damages may be demanded from the person Article 1390, Civil Code. The following contracts are
causing the loss [Art. 1385, CC] voidable or annullable, even though there may have
● Rescission prescribes in a period of four years. been no damage to the contracting parties:
For persons under guardianship and for 1. Those where one of the parties is incapable of giving
absentees, the period of four years shall not begin
consent to a contract;
until the termination of the former's incapacity, or
2. Those where the consent is vitiated by mistake,
until the domicile of the latter is known. [Art. 1389,
violence, intimidation, undue influence or fraud.
CC]
● Do all creditors benefit from the rescission? – As These contracts are binding, unless they are annulled
a rule, the rescission should benefit only the by a proper action in court. They are susceptible of
creditor who obtained the rescission, because the ratification.
rescission is to repair the injury caused to him by
the fraudulent alienation. If a balance is left after Concept: A contract is voidable when all of the essential
satisfying the claim of the creditor who brought requisites for the perfection of the contract are present but
the action, other creditors who are qualified to the element of consent is defective either because of want
bring an accion pauliana should be given the of capacity to contract with respect to one of the parties
benefit of rescission, instead of requiring them to thereto or because of vitiation of consent by reason of
bring other rescissory actions. However, creditors mistake, violence, intimidation, undue influence, or fraud.
who only became such after the fraudulent [Art. 1390, CC]
alienation, cannot benefit from the rescission.
Characteristics:
PRESUMPTION OF FRAUD: 1. It is valid and binding and produces all its civil
1. Alienation by gratuitous title if the debtor has not effects, until it is set aside by a final judgment of a
reserved sufficient property to pay all of his debts competent court in an action for annulment. [Art.
contracted before alienation [Art. 1387(1), CC] 1390, par. 1, CC]
2. Alienation by onerous title if made by a debtor 2. However, it suffers from a defect in the form of
against whom some judgment has been rendered vitiation of consent by reason of want of capacity,
in any instance or some writ of attachment has error, violence, intimidation, undue influence, or
been issued [Art. 1387(2), CC] deceit. [Art. 1390, CC]
3. It may be rendered perfectly valid by ratification,
BADGES OF FRAUD: which can be express or implied, such as by
1. Consideration is fictitious or inadequate; accepting and retaining the benefits of a contract.
2. Transfer was made while suit had begun or [Art. 1390, par. 2, CC]
3. pending; 4. It is also susceptible of convalidation by
4. Sale was upon credit by insolvent debtor; prescription since the action for annulment is
5. There was large indebtedness or complete subject to prescription or statute of limitations.
insolvency; [Art. 1391, CC]
6. Transfer consisted of all or nearly all property 5. It can be assailed only in a direct proceeding for
especially when insolvent or greatly; that purpose and not collaterally. [Niñal v.
7. The transfer was made between father and son Bayadog]
when other above circumstances present; and
8. There was failure of vendee to take exclusive ANNULMENT, explained. – To annul means to reduce to
possession of all property embarrassed financially. nothing; annihilate; obliterate; to make void or of no effect;
[China Banking v. CA (2000)] to nullify; to abolish; to do away with. Hence, a contract
that is annulled presupposes that it subsists but later
ceases to have legal effect when it is terminated through a
2. Voidable Contracts
court action. [Suntay v. Conjuangco-Suntay]
Personality to file action for annulment.

1. The party obliged principally or subsidiarily in the
contract which he seeks to annul. [Art. 1397, CC]
● Exception: A person-who is not a party
obliged principally or subsidiarily under a
contract may exercise an action for
annulment of the said contract if: (i) he is
prejudiced in his rights with respect to
one of the contracting parties; and (ii) he
can show detriment which would
29
positively result to him from the contract 3. Deaf-mutes who do not know how to read AND
in which he has no intervention. [Teves v. write.
People’s Homesite & Housing Corp.]
2. The party suffering from incapacity to give con- Persons disqualified to contract:
sent or the victim of intimidation, viclence, undue 1. Those under civil interdiction for transactions inter
influence, fraud or mistake. Thus, persons who vivos [Art. 34, RPC]
are capable cannot allege the incapacity of those 2. Undischarged insolvents [Sec. 24, Insolvency
with whom they contracted; nor can those who Law]
exerted intimidation, violence or undue influence, 3. Husband and wife cannot donate to each other
or employed fraud, or caused mistake base their [Art. 123, FC], nor sell to each other if the
action upon these flaws of the contract. [Art. marriage is under the regime of Absolute
1397, CC] Community of Property [Art. 1490, CC]
4. The ff. cannot purchase, whether in public or
Prescriptive period: The prescriptive period is 4 years and private sale [Art. 1491, CC]:
the period commences to run a. Guardian - Property of the ward
a. In cases of intimidation, violence or undue b. Agent - Property of the Principal
influence — from the time the defect of the c. Executors and Administrators - Property
contract ceases. under administration
b. In cases of mistake or fraud — from the time of d. Public Officers - Property under their
the discovery of the same. __ administration
c. In cases of incapacity to give consent — from e. Justices, judges, prosecutors, clerks of
the time the guardianship ceases. [Art. 1391, CC] court, lawyers - property attached in
Note: Discovery or fraud must be reckoned from the litigation
time the document was registered in the office of the
Register of Deeds. Registration constitutes Incapacity to Give Disqualification to
constructive notice to the whole world. [Carantes v. Consent Contract
CA, G.R. No. L-33360 (1977)] Restrains the exercise of Restrains the very right
the right to contract itself
Grounds for annulment: Based upon subjective Based upon public policy
1. Those were one of the parties is incapable of circumstances of certain and morality
giving consent to a contract; and persons
2. Those were the consent is vitiated by mistake, Voidable Void
violence, intimidation, undue influence or fraud.
[Art. 1390, CC]
Re: Vices of Content:
a. Mistake – In order that mistake may invalidate
Re: Legal Capacity: consent, it should refer to the substance of the
Persons incapacitated to give consent [Art. 1327, CC] – thing which is the object of the contract, or to
1. Minors, EXCEPT: those conditions which have principally moved
a. Where necessaries are sold or delivered one or both parties to enter into the contract.
[Art. 1489, CC]; [Art.1331, CC] There is no mistake if the party
b. Where the minor actively misrepresents alleging it knew the doubt, contingency or risk
his age (estoppel; affecting the object of the contract. [Art. 1333,
c. When it involves a natural obligation and CC]
such obligation is fulfilled voluntarily by
the minor [Art. 1425-27, CC] Requisites of Mistake:
d. Contracts entered into by guardians or 1. The error must be substantial regarding: (a)
legal representatives the object of the contract; (2) condition which
e. When upon reaching the age of majority primarily moved or induced one or both
they ratify the same parties to enter the contract; or (3) Identity or
f. When a minor opens a savings account qualifications of one of the parties but only if
without the assistance of his parents, such was the principal cause of the contract.
provided that the minor is at least 7 years 2. The error must be excusable.
old and can read and write [PD 1734]. 3. The error must be a mistake of fact and not
2. Insane or demented persons, UNLESS they of law.
contract during a lucid interval. [Art. 1328, CC]
30
Note: The obligation to show that the terms of the 2. That the person unduly influenced was
contract had been fully explained to the party who suffering from mental weakness, ignorance or
is unable to read or understand the language of in financial distress [Art.1337, CC]
the contract, when fraud or mistake is alleged,
devolves on the party seeking to enforce it. [Art. e. Fraud – When, through machinations of one of
1332, CC] the contracting parties, the other is induced to
enter into a contract which, without them, he
b. Intimidation – One of the contracting parties is would not have agreed to. [Art. 1338, CC]
compelled by a reasonable and well-grounded
fear of an imminent and grave evil upon his In order that fraud may make a contract voidable,
person or property, or upon the person or it should be serious and should not have been
property of his spouse, descendants or employed by both contracting parties. [Art. 1344,
ascendants, to give his consent. [Art. 1335, CC] CC]
To determine the degree of intimidation, the age, Requisites:

sex and condition of the person shall be borne in 1. It must be made in bad faith
mind. [Art. 1335, CC] 2. One party must have employed fraud or
insidious words or machinations
Requisites: 3. Damage or injury resulted to the other party
1. One party is compelled to give his consent by 4. It must have been serious
a reasonable and well-grounded fear of an 5. It induced the other party to enter into a
evil; contract
2. The evil must be imminent and grave; 6. It must have been employed by one
3. The evil must be upon his person or property, contracting party upon the other and not
spouse, descendants or ascendants; employed by both contracting parties nor by
4. The evil must be unjust. third persons.
c. Violence – Serious or irresistible force used to Determining Existence of Fraud:

wrest consent [Art. 1335, CC] a. Not fraudulent
1. Usual exaggerations in trade, when the
Requisites: other party had an opportunity to know
1. Physical force employed must be irresistible, the facts [Art. 1340, CC]
or of such degree that victim has no other 2. A mere expression of an opinion UNLESS
recourse under the circumstances but to made by an expert and the other party
submit has relied on the former’s special
2. Such force is the determining cause in giving knowledge [Art. 1341, CC]
of consent 3. Misrepresentation made in good faith [Art.
1343, CC]
Note: Violence or intimidation shall annul the b. Fraudulent – Failure to disclose facts, when
obligation, although it may have been employed there is a duty to reveal them, as when the
by a third person who did not take part in the parties are bound by confidential relations
contract. [Art. 1336, CC] [Art. 1339, CC]
d. Undue Influence – When a person takes Dolo Causante Dolo Incidente

improper advantage of his power over the will of (Causal Fraud) (Incidental Fraud)
another, depriving the latter of a reasonable Refers to those Refers to those
freedom of choice. [Art. 1337, CC] deceptions or deceptions or
misrepresentations of misrepresentations
Requisites: a serious character which are not serious
1. Improper advantage employed by one in character and
2. Power over the will of another party and without without which the
3. Deprivation of the latter’s will of a reasonable which the other party other party would
freedom of choice would not have have still entered into
entered into the the contract [Art.
Circumstances to Consider: contract 1344, CC]
1. Relationship of the parties (family, spiritual,
confidential etc.)
31
Determines or is the Refers only to some

essential cause of the particular or accident Three Ways or Modes of Convalidating a Voidable
consent [Tankeh v. of the obligation [T Contract:
DBP (2013)] ankeh v. DBP, G.R. 1. By prescription of the action for annulment
No. 171428 (2013)] [Art.1391, CC]
Renders the contract Renders the party 2. By ratification or confirmation [Art. 1392-
voidable liable for damages 1396,CC]
3. By loss of the thing which is the object of the
Simulation of Contracts: Simulation is the contract through the fraud or fault of the person
declaration of a fictitious will, deliberately made by who is entitled to institute the action for the
agreement of the parties, in order to produce, for annulment [Art.1401, CC]
the purposes of deception, the appearances of a
judicial act which does not exist or is different with RATIFICATION; explained. – The act or means by virtue
that which was really executed [Nautica Canning of which efficacy is given to a contract which suffers from
Corporation v. Yumul (2005)]. There exists an a vice of curable nullity [Arts. 1392-1396, CC]. Ratification
instrument, but there is no contract. is either express or tacit.
Absolute Simulation Relative Simulation Requisites of Ratification:

The parties have no The parties conceal 1. Contract is tainted with a vice susceptible of being
intention to be bound their true agreement. cured;
at all. 2. Confirmation is effected by the person who is
Fictitious contract Disguised contract entitled to do so under the law;
3. It is effected with knowledge of the vice or defect
Void. (Because there Bound to their real
of the contract;
is an absolute lack of agreement, so long
4. Cause of the nullity or defect has already
cause) [Art. 1346, as it does not
disappeared.
CC] prejudice a third
person and is not
The right to ratify may be transmitted to the heirs of the
contrary to law,
party entitled to such right. It may likewise be exercised by
morals, good
the guardian of the incapacitated person having such
customs, public order
right. [Art. 1394, CC]
or public policy. [Art.
1346, CC]
Ratification does not require the conformity of the
contracting party who has no right to bring an action for
Effects of annulment:
annulment. [Art. 1395, CC]
Contract has been Contract has not been
Consummated Consummated
Effect of Ratification: It extinguishes the action for
The parties shall be Mutual Restitution - the annulment of a voidable contract. [Art. 1392, CC]
released from the contracting parties shall ● It cleanses the contract from all its defects from
obligations arising therein. restore to each other the the moment it was constituted. [Art. 1396, CC]
things which have been
the subject matter of the LOSS OF THE THING
contract, with their fruits, a. Loss of thing by Plaintiff – If the loss of the object
and the price with its in his possession is due to his fault or fraud, the
interest, except in cases action for annulment of contracts shall be
provided by law. [Art. extinguished. He cannot ask for annulment. [Art.
1398-1402] 1401, CC]
b. Loss of thing by Defendant – If it is lost through
Mutual Restitution the defendant’s fault, he is liable for fruits
● Vitiation of Consent – Parties shall restore to each received, value of the thing at the time it was lost,
other the subject matter of the contract with its with interest from the same date. [Art. 1400, CC]
fruits and the price thereof with legal interest. In
obligations to render service, the value thereof
3. Unenforceable Contracts
shall be the basis for damages. [Art. 1398, CC]
● Incapacity – Incapacitated person is not obliged
Nature: Unenforceable contracts cannot be sued upon or
to make any restitution except insofar as he has
enforced by a proper court action, unless they are ratified,
been benefited by the thing or price received by
as distinguished from rescissible and voidable contracts
him. [Art. 1399, CC]
32
which are binding unless rescinded or annulled by a When can be When a party asks the
proper action in court. [Art. 1403, CC; See also Arts. 1380 assailed? court to enforce the
and 1390, CC] contract
How to cure Ratification by party against
Three Kinds: defect? whom the contract is being
1. Unauthorized contracts – those entered into by enforced
one who has no authority or legal representation,
or who has acted beyond his powers [par. 1, Art. Failure to object to the
1403, CC] presentation of oral
evidence to prove the
Effect: No effect unless ratified. contract amounts to waiver
Cannot be enforced by a [Art. 1405, CC]; makes it as
proper action in court binding as if written
How to assail: Not by direct action.
3. Those where both parties are incapable of giving
As a defense, by motion to consent to a contract [par. 3, Art. 1403, CC]
dismiss the complaint on
the ground that the Effect: No effect unless ratified.
contract is unenforceable. Cannot be enforced by a
Who can By the person whose name proper action in court
assail? the contract was entered How to assail: Not by direct action.
into / by owner of property
Note: cannot be As a defense, by motion to
assailed by third dismiss the complaint on
persons [Art. the ground that the
1408, CC] contract is unenforceable.
When can be When a party asks the Who can By the party against whom
assailed? court to enforce the assail? the contract is being
contract enforced; or his privies; or
How to cure Ratification by person Note: cannot be parents or guardians, as it
defect? whose name the contract assailed by third is a personal defense
was entered into persons [Art.
1408, CC]
2. Those which did not comply with the Statute of When can be When a party asks the
Frauds [par. 2, Art. 1403, CC] assailed? court to enforce the
contract
Effect: No effect unless ratified. How to cure Ratification of party against
Cannot be enforced by a defect? whom the contract is being
proper action in court enforced; or his privies; or
How to assail: Not by direct action. parents or guardians
As a defense, by motion to The ratification by one party

dismiss the complaint on converts the contract into a
the ground that the voidable contract [Art.
contract is unenforceable. 1407, CC]
Objection to the 4. Void or Inexistent Contracts

presentation of oral
evidence to prove an oral
contract [see Art. 1405]
Who can By the party against whom
assail? the contract is being
enforced; or his privies
Note: cannot be
assailed by third
persons [Art.
1408, CC]
33
Article 1409, Civil Code. The following contracts are

inexistent and void from the beginning: Void vs. Inexistent Contracts:
1. Those whose cause, object or purpose is Void Inexistent
contrary to law, morals, good customs, public Those where all the Those where one or some
order or public policy; requisites of a contract are or all of the requisites
present but the cause, essential for the validity of
2. Those which are absolutely simulated or
object or purpose is a contract are absolutely
fictitious;
contrary to law, morals, lacking
3. Those whose cause or object did not exist at good customs, public
the time of the transaction; order or public policy, or
4. Those whose object is outside the commerce the contract itself is
of men; prohibited or declared
5. Those which contemplate an impossible void by law.
service; Principle of pari delicto is Principle of pari delicto is
6. Those where the intention of the parties relative applicable inapplicable
to the principal object of the contract cannot May produce legal effects Cannot produce any
be ascertained; effect
7. Those expressly prohibited or declared void by Covers Art. 1409 (1), (3), Covers Art. 1409 (2) and
law These contracts cannot be ratified. Neither (4), (5), (6) and (7) (3)
can the right to set up the defense of illegality
be waived. Divisibility of Contracts: If a contract has separate
provisions of which only one or more provisions is invalid
Concept: Those which, because of certain defects, and the the illegal terms can be separated from the legal
generally produce no effect at all. They are considered as ones, the latter may be enforced [Art. 1420, CC]
inexistent from its inception or from the very beginning [de
Leon]. Effect of Declaration of Absolute Nullity or Inexistence of
● Includes not only those contracts in which one of the Contract:
the essential requisites is totally wanting, but also ● General Rule: Since these contracts produce no
those which are declared void by positive effect whatsoever either against or in favor of
provision of law or statute. anyone, the parties are entitled to recover what
they may have been given by virtue of the
Characteristics: contract in an action to declare its absolute
1. It does not produce any legal effect; nullity or inexistence.
2. It is not susceptible of ratification; ● Exceptions: There is no right to recover: (1)
3. The right to set up the defense of inexistence or when the principle of pari delicto is applicable; or
absolute nullity cannot be waived or renounced; (2) when the action is declared to be barred by
4. The action or defense for the declaration of their laches.
inexistence or nullity is imprescriptible; [Art. 1410, ● Note: There is no need of an action to set aside
CC] a void or inexistent contract, as in fact such
● Note: This provision does not apply to action cannot logically exist, though an action to
wills. [Gallanosa v. Arcangel (1978)] declare the non-existence of the contract can be
5. The inexistence or absolute nullity of a contract maintained, and in that same action, the plaintiff
cannot be invoked by a person whose interests may recover what he has given by virtue of that
are not directly affected. [Art. 1421, CC] contract.
● Note: Article 1421 is subject to
exceptions. For instance, the creditors of IN PARI DELICTO PRINCIPLE: Parties to a void
a party to an illegal contract may, under agreement cannot expect the aid of the law; the courts
the conditions set forth in Article 1177 of leave them as they are, because they are deemed in pari
said Code, exercise the rights and actions delicto or "in equal fault." [Menchavez v. Tevez, (2005)].
of the latter, EXCEPT only those which
are inherent in his person, including General Rules:
therefore, his right to the annulment of Nullity proceeds from the illegality of the cause or object
said contract, even though such creditors of the contract, and the act constitutes a criminal
are not affected by the same, except offense [Art. 1411, CC]
indirectly, in the manner indicated in said 1. Parties shall have no cause of action against
legal provision. [Pascual v. Secretary of each other
Public Works (1960)] 2. Both parties shall be prosecuted.
34
3. Things or price of the contract which are 7. Contract whereby a laborer accepts a wage lower
considered as effects or instruments of a crime than the minimum wage fixed by law. He may
are forfeited in favor of the government. recover the deficiency with legal interest, and the
The act in which the unlawful or forbidden cause employer shall be criminally liable [Art. 1419, CC]
consists does not constitute a criminal offense 8. In case of divisible contracts, the legal
[Art. 1412, CC] portions/terms may be enforced separately from
When both When only one of the contracting the illegal portions/terms [Art. 1420, CC]; and
parties are at parties is at fault 9. One who lost in gambling because of fraudulent
fault Guilty party Innocent Party schemes practiced on him. He is allowed to
Neither may 1. He cannot 1. He may recover his losses [Art. 315(3)(b)] even if gambling
recover what he recover what he demand the is prohibited
has given by has given by return of what
virtue of the reason of the he has given Note: A void contract cannot be novated. A contact
contract, or contract, which is a direct result of a previous illegal contract is also
demand the 2.He is without void and inexistent. This is based on requisites of a valid
performanc e of 2. He cannot any obligation to novation [Art 1298, CC].
the other's ask for the comply with his
undertaking fulfillment of promise. 5. Distinguish: Resolution and Rescission of
what has been Contracts
promised him.
Article 1191 of the Civil Code refers to rescission
Exceptions: applicable to reciprocal obligations or those obligations
1. Payment of usurious interest paid in excess of the which arise from the same cause, and in which each party
interest may be recovered by the debtor. [Art. is a debtor and a creditor of the other, such that the
1413, CC] obligation of one is dependent upon the obligation of the
2. Payment of money or delivery of property for an other. The rescission under Article 1191 is more accurately
illegal purpose, where the party who paid or called “resolution.”
delivered repudiates the contract before the
purpose has been accomplished, or before any It differs from the rescission under Article 1381, as follows:
damage has been caused to a third person. May
allow the repudiating party to recover money or Resolution (Art. Rescission (Art.
property. [Art. 1414, CC] [See Hulst v. PR Builders 1191) 1381)
Inc. (2007)] Nature of a principal remedy a subsidiary
3. Payment of money or delivery of property made Remedy which is based on action limited to
by an incapacitated person. It is not necessary breach of faith by cases of
that the illegal purpose has not been the other party rescission for
accomplished, or no damage has yet been that violates the lesion enumerated
caused. [Art. 1415, CC] reciprocity under said article
4. Agreement or contract not illegal per se but
merely prohibited by law, and the prohibition is Note: cannot be
designed for the plaintiff’s protection. Plaintiff may instituted except
recover as allowing recovery enhances public when the party
policy. [Art. 1416, CC] suffering damage
● Note: When the assailed contracts are has no other legal
void ab initio, Art. 1416 cannot be means to obtain
applied, as in the case of aliens reparation for the
purchasing property despite knowing fully same.
well the constitutional prohibition against Basis or not predicated on the cause of
foreigners owning land in the Philippines Ground injury to economic action is
at the time of purchase. [Frenzel v. Catito interests of the subordinated to
(2003)] party plaintiff but the existence of
5. Payment of any amount in excess of the on the breach of that prejudice;
maximum price of any article or commodity fixed faith by the
by law [Art. 1417, CC] defendant, that
6. Contract whereby a laborer undertakes to work violates the
longer than the maximum number of hours fixed reciprocity
by law [Art. 1418, CC]
35
between the
parties.
Applicability applies exclusively applies to all kinds
to reciprocal of obligations
obligations arising from
contracts,
whether the same
are reciprocal in
character or not
Who may be can be availed of may be availed of
considered only by a party to even by a third
as “injured the party, as in the
party” contract case of accion
pauliana
Prescriptive either 10 years 4 years
period from accrual of
the right of action
for written
contracts, or six
years, for verbal
contracts.
Extent of court has the so long as any of
court’s discretionary the grounds
power power not to enumerated
grant the therein exists, the
rescission, if there court has no
be just cause for discretionary
the fixing of the power not to
period for the grant the
performance of rescission
the obligation
Nature of Contract is not Contract is
contract defective and is defective
perfectly valid
36

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CIVIL LAW (Cluster) | OBLIGATIONS AND CONTRACTS | Based on the 2021 CIvil Law lectures of UP BRI (Prof.

b. Solutio Indebiti – It is a juridical relation

4. Delict – Generally, the hasis of civil liability arising

family [Art. 1163, obligation to 4. To pay damages in than that which

acts ● Exception: when expressly stipulated.

a.This responsibility shall include the Examples in jurisprudence:

ACCION SUBROGATORIA Note: An accion pauliana thus presupposes the following:

Right of Choice: The rule is that the right of choice

Kinds: Reason for Loss

Concept: In an alternative obligation, there are various 4.b. Facultative Obligations

5.a. Joint Obligations Kinds and Effects of Solidary Obligation:

No need for proof of actual damages: The creditor need Requisites:

XPN: An incomplete or irregular payment may o (b) he can be subrogated to the

Requisites: 4. Confusion or Merger of Rights

the payment has been beneficial to the

“express conformity” thereto of the debtor. The fact that

EFFECTS OF EXTINCTIVE NOVATION ON ACCESSORY

thereto cannot be left to the will of one of the

4. The relativity of contracts.

b. In contracts creating real right, third Manner of Perfection of Contracts

the deposit itself is not perfected a. Advertisement of things for sale: As

With consideration Without ● Note: As a rule, no contract may be

3. Under the Civil Code, unenforceable contracts,

CONTRACTS REQUIRED TO BE IN A PUBLIC Requisites:

Personality to file action for annulment.

To determine the degree of intimidation, the age, Requisites:

c. Violence – Serious or irresistible force used to Determining Existence of Fraud:

d. Undue Influence – When a person takes Dolo Causante Dolo Incidente

Determines or is the Refers only to some

Absolute Simulation Relative Simulation Requisites of Ratification:

As a defense, by motion to The ratification by one party

Objection to the 4. Void or Inexistent Contracts

Article 1409, Civil Code. The following contracts are

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