2 Oblicon

ChanRobles Internet Bar Review : ChanRobles Professional Review, Inc.
OBLIGATIONS
AND
CONTRACTS
www.chanroblesbar.com : www.chanroblesbar.com.ph
OBLIGATIONS
ART. 1156. An obligation is a juridical necessity to give, to do,
or not to do.
ELEMENTS/REQUISITES:
1. active subject → creditor/obligee;
2. passive subject → debtor/obligor;
3. juridical or legal tie;
4. fact, prestation or service.
SOURCES OF OBLIGATIONS:
1. LAW → Art. 1158. Obligations derived from law are not
presumed.
2. CONTRACTS → Art. 1159. Obligations arising from
contracts have the force of law between the contracting
parties and should be complied with in good faith.
3. QUASI-CONTRACTS → Juridical relations arising from
lawful, voluntary and unilateral acts based on the principle
that no one shall be unjustly enriched at the expense of the
another.
4. DELICTS → Art. 100 RPC. Every person criminally liable is
also civilly liable.
5. QUASI-DELICTS →Art. 2176. Whoever by acts or omission
causes damage to another, there being fault or negligence,
is obliged to pay for the damage done.
DEGREE OF DILIGENCE: DOAGFOAF

ART. 1163. Every person obliged to give something is also
obliged to take care of it w/the proper diligence of a good
father of a family, unless the law or the stipulation of the
parties requires another standard of care.
GOOD FATHER OF A FAMILY → He is NOT and is NOT supposed

to be omniscient of the future. He is one who takes
precautions against any harm when there is something before
him to suggest or warn him of the danger or to foresee it.
(Picart vs. Smith, 36 Phil 813).
Solidbank Corp. vs. Sps. Tan, GR 167346,

April 2, 2007
Xxx the degree of diligence required of banks is
more than that of a good father of a family in
keeping with their responsibility to exercise the
necessary care and prudence in handling their
clients‘ money.
Xxx banking institutions

have the duty to exercise the highest degree
of diligence when transacting with the public.
By the nature of their business which is
imbued with public interest, they are required
to observe the highest standards of integrity
and performance, and utmost assiduousness
as well.
Rights of Creditor if the obligation is to deliver a:

DETERMINATE THING GENERIC THING
1. compel delivery; 1. ask that obligation be

complied with at the
expense of the debtor;
2. rescission of the 2. rescission of the
contract; contract;
3. recover damages for 3. recover damages for
breach of the obl. breach of the obl.
ART. 1169. Gen. Rule: NO DEMAND, NO DELAY

EXCEPTIONS: WHEN
1. the obligation or the law expressly so declare;
2. time is of the essence;
3. demand is useless as when the obligor has rendered it
beyond his power to perform;
In reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment one
of the parties fulfills his obligation, delay by the other begins.
General Milling Corp. vs. Sps. Ramos,

G.R. 193723, July 20, 2011
The foreclosure of a mortgage where there was NO

DEMAND for payment is VOID, because there was NO
DELAY. Demand made before the foreclosure is effected
is essential. If demand was made and duly received by
the respondents and they still did not pay, then they were
already in default and foreclosure was proper.
In this case, GMC did not make a demand on Sps.

Ramos but merely requested them to go to GMC’s
office to discuss the settlement of their account. This
meant that respondents had not defaulted in their
payments and foreclosure by petitioner was premature.
Barzaga vs. CA, et.al., GR 115129,

February 12, 1997
An assiduous scrutiny of the record convinces

us that respondent Angelito Alviar was negligent
and incurred in delay in the performance of his
contractual obligation. This sufficiently entitles
petitioner Ignacio Barzaga to be indemnified for
the damage he suffered as a consequence of delay
or a contractual breach. The law expressly
provides that those who in the performance
of their obligation are guilty of fraud,
negligence, or delay and those who in any
manner contravene the tenor thereof, are
liable for damages
Selegna Mgt. Development Corporation

vs. UCPB, GR 165662, May 3, 2006
The parties stipulated in their Credit

Agreement dated September 19, 1995, that
“failure to pay any availment of the
accommodation or interest, or any sum
due" shall constitute an event of default,
which shall consequently allow respondent
bank to "declare [as immediately due and
payable] all outstanding availments of the
accommodation together with accrued interest
and any other sum payable."
Art. 1170. Those who in the

performance of their
obligations are guilty of fraud,
negligence, or delay and
those who in any manner
contravene the tenor thereof,
are liable for damages.
RCPI vs. VERCHEZ G.R. 164349,

Jan. 31, 2006.
RCPI bound itself to deliver the telegram within the

shortest possible time. It took 25 days, however, for RCPI
to deliver it.
RCPI invokes force majeure, specifically, the

alleged radio noise and interferences which
adversely affected the transmission and/or
reception of the telegraphic message. Assuming that
fortuitous circumstances prevented RCPI from delivering
the telegram at the soonest possible time, it should have
at least informed Grace of the non-transmission and the
non-delivery so that she could have taken steps to
remedy the situation. But it did not. There lies NOT
ONLY DELAY but also NEGLIGENCE.
ART. 1174. GEN. RULE: No person shall be liable for a

fortuitous event.
REQUISITES OF A FORTUITOUS EVENT:
1. Cause of the breach of obligation must be independent of
the will of the debtor;
2. Event must be either unforeseen or unavoidable;
3. Event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner;
4. Debtor must be free from any participation in or
aggravation to the injury to the creditor.
NPC et. al. vs CA, GR 964410, July 3, 1992

Typhoon livestock & properties of
Kading residents near the Angat River
As a general rule, no one shall be liable for events which

could not be foreseen or w/c though foreseen were inevitable.
The principle embodied in the Act of God doctrine strictly requires
that the act must be occasioned solely by the violence of nature.
Human intervention is to be excluded from creating or entering
into the cause of the mischief. When the effect is found to be in
part the result of the participation of man, whether due to his
active intervention or neglect or failure to act, the whole
occurrence is then humanized and removed from the rules
applicable to the acts of God.
PHILCOMSA AT vs. GLOBE TELECOM, INC.,

GR Nos. 147324/147334, 5/2 25/2004
Sec. 8 of the Agreement entered into by
PhilComSat and Globe Telecom provides:
“Neither party shall be liable or deemed to be in default for
any failure to perform its obl. under this Agreement if such
failure results directly or indirectly from force majeuree or
fortuitous evvent. x x x force majeure shall mean ciircumstances
beyond the control of the party involved including but not
limited to any law, order, regulation, direction or request of the
Gov’t. of the Phil., strikes or other labor difficulties,
insurrection, riots, national emergencies, war, acts of public
enemies, fire, floods, typhoons or other catastrophies or acts of
God.”
Philcomsat and Globe had NO CONTROL over

the non-renewal of the term of the RP-US Military Bases
Agreement when the same expired in 1991 because the
prerogative to ratify the treaty extending the life thereof
belonged to the Senate. Neither did the parties have
control over the subsequent withdrawal of the US military
forces & personnel from Cubi Pt. in Dec. 1992.
FIL-ESTATE PROPERTIES, INC. et. al. vs.

SPS. RONQUILLO, GR 185798,
JAN. 13, 2014
Sps. Conrado &

Maria Ronquillo Fil-Estate Prop. Inc.
Fil Estate Network, Central Park
Palace
8/24/97 – bought 82 Inc. Tower
sq.m. condo unit for (Mand. City)
P5,174,000.00; paid Complaint
P200K reservation fee w/the HLURB Construction
& DP of P1,552,200.00; for full refund works stopped
had been paying and interests and failed to
monthly amortizations plus damages develop the
of P63,363.33 until condo project
September 1998 due to the Asian
Financial Crisis
Q: Is the Asian Financial Crisis a Fortuitous Event?
SC HELD: It is unfortunate that petitioner

apparently met with considerable difficulty,
e.g. increased cost of materials and labor, even
before the scheduled commencement of its
real estate project as early as 1995. However,
a real estate enterprise engaged in the pre-
selling of condominium units is concededly a
master in projections on commodities and
currency movements and business risks. The
fluctuating movement of the Philippine
peso in the foreign exchange market is an
everyday occurrence, and fluctuations in
currency exchange rates happen
everyday, thus, NOT an instance of caso
fortuito.
KINDS OF OBLIGATIONS
PURE and CONDITIONAL obligations:
where acquisition of right or

extinguishment or loss of
those already acquired shall
demandable at once; no depend upon the happening
condition imposed except if of an event which constitutes
resolutory. the condition.
ART. 1179. Every obl. whose performance does not depend

upon a future or uncertain event or upon a past event unknown to
the parties is demandable at once.
Every obl. which contains a resolutory condition
shall also be demandable, without prejudice to the effects of the
happening of the event.
CLASSIFICATION OF CONDITIONS:
1. suspensive → happening of w/c gives rise to the obligation;
2. resolutory → demandable at once but the happening of an
event would extinguish the obligation;
3. potestative → depends upon sole will of debtor →
conditional obl. is VOID;
4. casual → depends upon chance/will of 3rd person;
5. mixed → depends partly upon will of debtor/chance/or 3rd
person.
ART. 1189. Effect of loss , deterioration or improvement

(determinate thing) :
IF THE THING :
1. is lost w/o the fault of debtor → obl. is extinguished;
2. is lost thru the fault of debtor → debtor liable for damages;
3. deteriorates w/o the fault of debtor → impairment shall be
borne by the creditor;
4. deteriorates thru the fault of debtor → creditor may choose
between fulfillment or rescission of the obl., w/damages in
either case;
5. is improved by its nature/time→ improvement shall inure
to the benefit of the creditor;
6. is improved at the expense of debtor→ debtor has no other
right than that granted to a usufructuary.
Art. 1191 NCC. The power to rescind

obligations is implied in reciprocal ones, in
case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment

and the rescission of the obligation, with the
payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed,

unless there be just cause authorizing the
fixing of a period. XXX
NOLASCO, et.al. vs. CUERPO, et.al.,

GR 210215, Dec. 9, 2015
Contract To Sell of a 165,755 sq. m. lot, payable w/an
earnest money, downpayment and balance payable in 36 monthly
instalments by post-dated checks, provides:
“7. Petitioners shall, w/n 90 days from the signing of

the subject contract, cause the completion of the
transfer of registration of title of the property subject of
the contract, from Edilberta N. Santos to their names, at
petitioners’ own expense. Failure on the part of
petitioners to undertake the foregoing w/n the
prescribed period shall automatically authorize
respondents to undertake the same in behalf of
petitioners and charge the costs incidental to the
monthly amortizations upon due date.”
Petitioners failed to comply, hence it was contended that

rescission due to substantial breach is the proper remedy.
The RTC and CA ruled for respondents.
For a contracting party to be entitled

to rescission based on Art. 1191 NCC, the other
contracting party must be in substantial breach
of the terms and conditions of their contract. A
substantial breach of a contract, unlike slight and
casual breaches thereof, is a fundamental breach
that defeats the object of the parties in entering
into an agreement. Here, it cannot be said that
petitioners' failure to undertake their obligation under
par. 7 defeats the object of the parties in entering into
the contract, considering that the same paragraph
provides respondents’ contractual recourse in the event
of petitioners' non-performance of the aforesaid
obligation, i.e., to cause such transfer themselves
in behalf and at the expense of petitioners.
Golden Valley Exploration, Inc. vs. Pinkian

Mining Co., 726 SCRA 259
As a general rule, the power to rescind an

obligation must be invoked judicially and cannot be
exercised solely on a party’s own judgment that the
other has committed a breach of the obligation. This is
so because rescission of a contract will not be permitted
for a slight or casual breach, but only for such substantial
and fundamental violations a s would defeat the very
object of the parties in making the agreement. As a well-
established exception, an injured party need not
resort to court action to rescind a contract when the
contract itself provides that it may be revoked or
cancelled upon violation of its terms and conditions.
WHERE PARTIES AGREE TO A STIPULATION

ALLOWING EXTRA-JUDICIAL RESCISSION, NO
JUDICIAL DECREE IS NECESSARY FOR
RESCISSION TO TAKE PLACE; the extra-judicial
rescission immediately releases the party from its
obligation under the contract, subject only to court
reversal if found improper. On the other hand,
WITHOUT A STIPULATION ALLOWING EXTRA-
JUDICIAL RESCISSION, IT IS THE JUDICIAL
DECREE THAT RESCINDS, AND NOT THE WILL OF
THE RESCINDING PARTY.
ASB REALTY CORP. vs. ORTIGAS & CO.LTD. PARTNERSHIP,

GR 202947, Dec. 9, 2015 complaint for
specific
performance
on 7/7/00
Ortigas Ameth
hyst ASB Realty Corp.
DOS of 1,012 sq.m. lot in lot was transferred to

failed to
Pasig City; TCT issued to ASB free from liens &
construct
Amethyst w/ annotation encumbrances; TCT
“Amethyst shall finish the bldg.
issued to ASB w/ same
construction of its bldg. annotations but W/O
w/n 4 yrs. from Dec. 31, express or implied
1991” assumption of the obl.
to construct the bldg.
Q: Is ASB liable to Ortigas considering its knowledge

of the annotations on Amethyst’s TCT and on its
own TCT?
By acquiring the parcel of land with notice of the

covenants contained in the Deed of Sale between the
vendor (Ortigas) and the vendee (Amethyst), the
petitioner (ASB Realty Corp.) bound itself to
acknowledge and respect the encumbrance. Even so,
ASBRC did not step into the shoes of Amethyst
as a party in the Deed of Sale. Thus, the
annotation of the covenants contained in the Deed of
Sale did not give rise to a liability on the part of
ASBRC as the purchaser/successor-in-interest without
its express assumption of the duties or obligations
subject of the annotation. As stated, the annotation
was only the notice to the purchaser/successor-
in-interest of the burden, claim or lien subject
of the annotation.
In Garcia vs.Villar, GR 158891, June 27,

2012, the SC ruled that the sale or transfer of the
mortgaged property cannot affect or release the
mortgage; thus the purchaser or transferee is
necessarily bound to acknowledge and respect the
encumbrance. x x x However, Villar, in buying the
subject property with notice that it was
mortgaged, only undertook to pay such
mortgage or allow the subject property to be
sold upon failure of the mortgage creditor to
obtain payment from the principal debtor once
the debt matures. Villar did not obligate
herself to replace the debtor in the principal
obligation, and could not do so in law without
the creditor’s consent.
Ortigas' complaint was predicated on Article 1191 NCC:
Article 1191. The power to rescind obligations is

implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
Rescission under Article 1191 of the Civil Code is

proper if one of the parties to the contract commits a
substantial breach of its provisions. It abrogates the
contract from its inception and requires the mutual restitution
of the benefits received; hence, it can be carried out only
when the party who demands rescission can return
whatever he may be obliged to restore.
ASBRC was not privy to the Deed of Sale

because it was not the party obliged thereon. Not
having come under the duty not to violate any covenant
in the Deed of Sale when it purchased the subject
property despite the annotation on the title, its failure to
comply with the covenants in the Deed of Sale did not
constitute a breach of contract that gave rise to Ortigas'
right of rescission. It was Amethyst that defaulted on
the covenants under the Deed of Sale; hence, the action
to enforce the provisions of the contract or to rescind
the contract should be against Amethyst. In other words,
rescission could not anymore take place against
the petitioner ASBRC once the subject property
legally came into the juridical possession of
ASBRC, who was a third party to the Deed of Sale.
ART. 1193. Obligations with a period → demandable only

when that day comes;
Obligations w/ a resolutory period → take effect
at once, but terminate upon arrival of the day certain.
ART. 1180. Debtor binds himself to pay when his means permit
him to do so → deemed to be an obligation with a period.
Art. 1197. Obligation does NOT fix a period but from its nature
and circumstances, it can be inferred a period was
intended → courts may fix the duration of the period.
ART. 1198. RIGHT TO A PERIOD is LOST

when DEBTOR:
1. becomes insolvent, after the obligation has been
contracted, unless he gives a guaranty/security for the
debt;
2. does not furnish to the creditor the guaranties or securities
he has promised;
3. by his own acts, he has impaired said guaranties or
securities after their establishment, and when through a
fortuitous event, they disappear, unless he immediately
gives new ones equally satisfactory;
4. violates any undertaking, in consideration of which the
creditor agreed to the period;
5. attempts to abscond.
RADIOWEALTH FINANCE CO. vs. SPS.

DEL ROSARIO, G.R. 138739, July 6, 2000
"FOR VALUE RECEIVED, on or before the date listed below,

I/We promise to pay jointly and severally Radiowealth Finance
Co. or order the sum of ONE HUNDRED THIRTY EIGHT
THOUSAND NINE HUNDRED FORTY EIGHT Pesos
(P138,948.00) without need of notice or demand, in installments
as follows:
P11,579.00 payable for 12 consecutive months starting on

________ 19__ until the amount of P11,579.00 is fully paid.
Each installment shall be due every ____ day of each month. A
late payment penalty charge of two and a half (2.5%) percent per
month shall be added to each unpaid installment from due date
thereof until fully paid.
The act of leaving blank the due date of the

first installment did not necessarily mean that the
debtors were allowed to pay as and when they
could. The Note expressly stipulated that the
debt should be amortized monthly in installments
of P11,579 for twelve consecutive months. While
the specific date on which each installment
would be due was left blank, the Note clearly
provided that each installment should be
payable EACH MONTH. It also provided for
an acceleration clause and a late payment
penalty, both of which showed the intention
of the parties that the installments should
be paid at a DEFINITE DATE. Hence, it is an
OBLIGATION WITH A PERIOD.
ALTERNATIVE vs. FACULTATIVE OBLIGATIONS
ART. 1199. Debtor alternatively

bound by diff. prestations shall ART. 1206. Only one
completely perform one of them. prestation has been
agreed upon but the
obligor may render another
has right of choice, unless in substitution.
EXPRESSLY granted to
CREDITOR
has to be communicated to
ART. 1207. Gen. Rule: JOINT OBLIGATION
EXCEPTION: SOLIDARY, when

1. Obligation expressly states so;
2. Law requires solidarity;
3. Nature of the obligation requires solidarity.
Solidary: one is liable for the whole amount of the loan.

Suit vs. solidary debtor: full amount of the debt.
Joint: obligation is divided into as many debtors.
Suit vs. joint debtor: only the proportionate share of the
specific debtor.
In SOLIDARY OBLIGATIONS:
1. defense of one is defense of all except if the

defense is personal to him interposing the defense;
2. payment by one is payment by all but the one who
paid is entitled to reimbursement by the other co-
debtors;
3. fault of one is fault of all but the others have a right
of recourse against the one at fault;
4. remission secured by one is remission of the whole
debt but the one who procured remission is not
entitled to reimbursement from the others.
ART. 1222. Available to a solidary debtor are DEFENSES:

1. Personal to him or pertain to his share;
2. Derived from the nature of the obligation;
3. Personally belong to the others but only with regard to

that part of the debt which belong to
the others.
MANLAR RICE MILL, INC. vs. DEYTO,

GR 19189, JAN. 29, 2014
Lourdes Deyto
(JD. Grains Center)
Manlar Rice Mill,
Inc. Janet D. Ang
(Janet Commercial Store)
Rice Supply Contract of
P3,843,220.00 covered Checks
by post-dated checks bounced;
issued by Janet absconded
& cannot
be located
Q: Are Deyto & Ang solidarily liable to Manlar?

The allegations that Deyto guaranteed Ang’s

checks and that she consented to be held
solidarily liable with Ang under the latter’s rice
supply contract with Manlar are hardly
credible. Pua in fact admitted that this was not
in writing, just a verbal assurance. But this will
not suffice. "Well-entrenched is the rule
that solidary obligation cannot lightly be
inferred. There is a solidary liability only
when the obligation expressly so states,
when the law so provides or when the
nature of the obligation
so requires."
Calang vs. People of the Phil., G.R. 190696,

August 3, 2010
Philtranco bus has been held solidarily liable

with its bus driver, Calang, when Calang accidentally
collided with a jeepney killing a bystander and 2
jeepney passengers while other passengers were
seriously injured. Since the cause of action
against Calang was based on delict, Philtranco
CANNOT be held jointly and severally liable
with Calang, based on quasi-delict under Articles
2176 and 2180 of the Civil Code which pertain to the
vicarious liability of an employer for quasi-delicts that
an employee has committed.
ART. 1226. Obligations with a PENAL CLAUSE

Gen. Rule: Penalty shall substitute for damages and the
payment of interest.
penalty shall be on top of the payment of interedt or damages
EXCEPTIONS:
1. stipulation to the contrary;
2. obligor refuses to pay the penalty;
3. obligor is guilty of fraud in the fulfillment of the obligation.
ART. 1228. proof of actual

ensures performance damages suffered by the
of the obligation. creditor is NOT necessary
in order that penalty may be
demanded.
ART. 1229. Judge can equitably reduce the penalty when:

1. Principal obligation was partly/irregularly complied
with by the debtor;
2. Even if NO performance by the debtor, if penalty is
iniquitous/unconscionable.
ART. 1230. Nullity of penal clause → does NOT carry with

it the nullity of the principal obligation.
Nullity of the principal obligation → carries
with it the nullity of the penal clause.
EXTINGUISHMENT OF OBLIG
GATIIONS
PA LO CON MER COM NO
Payment Novation
Compensation
Loss of the
thing due Merger or
Condonation
Confusion
PAYMENT: NOT only the delivery of money but also the

performance, in any manner, of an obl.; must be regular,
complete, and if in money → legal tender.
Q. Can the creditor be compelled to accept payment or
performance by a 3rd person?
A. Gen. Rule: NO. → There is NO privity of contract
between the 3rd person and a party to a contact.
EXCEPTIONS: WHEN
1. there is a stipulation allowing it;
2. the 3rd person has an interest in the fulfillment of the
obligation (co-debtor or guarantor).
ART. 1236 - 1238 NCC . IF A 3RD PERSON PAID
1. W/O knowledge or against the will of the debtor →

3rd person has the right of reimbursement to the
extent beneficial to the debtor;
2. W/ knowledge of the debtor → 3rd person has the
right of reimbursement and subrogation;
3. W/O intention to be reimbursed → DONATION →
needs acceptance of the debtor and compliance w/
the formalities required by law.
Q. To whom shall payment be made?

A. ART. 1240 NCC. TO
1. the creditor; OR
2. his successor-in-interest; OR
3. any person authorized to receive it.
ART. 1244. DEBTOR of a thing CANNOT COMPEL the

CREDITOR to RECEIVE a different one, although the latter may be
of the same value as, or more valuable than that which is due.
EXCEPTIONS:
1. obligation is facultative ;
2. dacion en pago ;
3. novation ;
4. waiver by creditor/estoppel .
Sps. Dela Cruz vs. Concepcion,

G.R. 172825, October 11, 2012
Respondent’s obligation consists of payment of

a sum of money and as a general rule, to be
effective to discharge an obligation, payment
must be made to the obligee himself or to an
agent having authority, express or implied, to
receive the particular payment. Payment made to
one having apparent authority to receive the money
will, as a rule, be treated as though actual authority
had been given for its receipt. If payment is made
to one, who by law is authorized to act for the
creditor, it will work as a discharge.
Aranas vs. Tutaan, 127 SCRA 828

All dividends accruing to the said shares after
the rendition of judgment belonged to Aranas but
UTEX paid the co-defendants despite the
knowledge and understanding of the final
judgment. It is elementary that payment
made by a judgment debtor to a wrong
party CANNOT extinguish the obligation of
such debtor to its creditor.
REQUISITES:
DACION EN PAGO CESSION
1. consent of creditor; 1. consent of creditors;

2. debtor not insolvent; 2. debtor insolvent, either
partially or totally;
3. one debt. 3. plurality of debts.
Dacion en Pago Cession

1. 1 debtor, 1 creditor 1. 1 debtor, several creditors
2. debtor is not insolvent 2. Debtor is insolvent, either
partially or totally
3. transfer of ownership to 3. no transfer of ownership
creditor upon delivery of thing to creditors
4. debtor delivers 1 or some of 4. debtor delivers ALL his
his properties to creditor properties to the creditors
5. obligation is extinguished 5. obligation is extinguished
to the extent of the value to the extent of the
of the thing delivered proceeds of the public sale
6. act of novation 6. not an act of novation
PNB vs. Dee, GR 182128, Feb.19, 2014
Dacion en pago or dation in payment is the

delivery and transmission of ownership of a thing
by the debtor to the creditor as an accepted
equivalent of the performance of the obligation. It
extinguishes the obligation to the extent of the value
of the thing delivered, either as agreed upon by the
parties or as may be proved, unless the parties by
agreement – express or implied, or by their silence-
consider the thing as equivalent to the obligation, in
which case the obligation is totally extinguished.
ART. 1249. Payment of debts in money → must be

legal tender in the Philippines.
Delivery of PNs, bills of exchange → considered

payment WHEN:
1. encashed
2. check is impaired through creditor’s fault
PCI BANK vs. FRANCO, GR 180069,

MAR. 5, 2014
Jurisprudence abounds that, in civil

cases, one who pleads payment has the
burden of proving it. When the creditor
is in possession of the document of
credit, he need not prove non-payment
for it is presumed. The creditor's
possession of the evidence of debt is
proof that the debt has not been
discharged by payment.
Subic Bay Legend Resorts & Casinos, Inc.

vs. Bernard Fernandez, G.R. 193426,
Sept. 29, 2014
Subic Bay Legenda’s

Legend Resorts security
& Casinos, Inc. Ludwin &
Deoven officers
played at the
casino and
operates the had their interrogated the
Legenda Hotel chips brothers; turned
& Casino encashed by them over to the
the cashier IIOSBMA; ordered
the return of the
chips and the
cash
Though casino chips do not constitute

legal tender, there is no law which prohibits
their use or trade outside of the casino which
issues them. In any case, it is not unusual – nor
is it unlikely – that respondent could be paid by
his Chinese client at the former’s car shop
with the casino chips in question; said
transaction, if not common, is nonetheless
not unlawful. These chips are paid for
anyway; petitioner would not have parted with
the same if their corresponding representative
equivalent – in legal tender, goodwill, or otherwise
– was not received by it in return or exchange.
ART. 1251. Payment shall be made IN THE

PLACE:
1. designated in the obligation;
2. in the absence of stipulation → where the thing
was at the moment the obligation was constituted;
3. domicile of the debtor.
debtor creditor
ART. 1252 NCC. APPLICATION OF PAYMENT
REQUISITES:
1. 1 debtor, 1 creditor;
2. 2 or more debts of the same kind;
3. All debts due and demandable;
4. Amt. paid by debtor insufficient to cover all debts.
GEN. RULE: DEBTOR → time of payment in default

thereof
EXCEPTION: CREDITOR → gives a receipt
most onerous debt to debtor

Sps. TAN, et.al. vs. CHINA BANKING CORPORATION,

GR 200299, August 17, 2016
Lorenze Realty & Dev. Crop..

China Banking
Represented by Sps. Tan (+)
Corp.
Joel & Eric Tan Extrajudicially foreclosed
(heirs of Sps. Tan) REM; highest bidder for
P85,000,000.00; demanded
Total amt. of loan payment of the deficiency
P114,258,179.81 w/ of P29,258,179.81 from
REM over 11 lots. Sps. Tan.
Promissory Note
“Lorenze Realty agrees to pay 1/10 of 1% per day of the
total amt. of the obligation due as penalty computed from
day of default until fully paid and 10% of the total amount
due including interests, surcharges and penalties as
Atty.’s fees.”
Issue: Was the bank correct when it made

application of payment, by applying the
proceeds of the foreclosure sale to the
interests first and then to the principal?
Obligations are extinguished by payment or

performance, the mode most relevant to the factual
situation in the present case. Under Article 1232 of
the Civil Code, payment means not only the
delivery of money but also the performance, in any
other manner, of an obligation.
Article 1233 of the NCC states that a debt

shall not be understood to have been paid
unless the thing or service in which the
obligation consists has been completely
delivered or rendered, as the case may be. In
contracts of loan, the debtor is expected to
deliver the sum of money due the creditor.
These provisions must be read in relation with
the other rules on payment under the Civil
Code, such as the application of payment
under Article 1252 NCC.
Art. 1252. He who has various debts of the same

kind in favor of one and the same creditor, may
declare at the time of making the payment, to which
of them the same must be applied. Unless the parties
so stipulate, or when the application of payment is made
by the party for whose benefit the term has been
constituted, application shall not be made as to debts
which are not yet due.
If the debtor accepts from the creditor a receipt in

which an application of the payment is made, the
former cannot complain of the same, unless there is a
cause for invalidating the contract.
In Premiere Development Bank v. Central Surety

& insurance Company Inc., 598 Phil. 827 (2009), the
SC held that the right of the debtor to apply payment
is merely directory in nature and must be promptly
exercised, lest, such right passes to the creditor.
In the case at bar, after the sale of the foreclosed

properties at the public auction, Lorenze Realty failed to
manifest its preference as to which among the obligations
that were all due the proceeds of the sale should be applied.
Its silence can be construed as acquiescence to China Bank's
application of the payment first to the interest and penalties
and the remainder to the principal which is sanctioned by
Article 1253 NCC which provides that “if the debt
produces interest, payment of the principal shall not
be deemed to have been made until the interests
have been covered.”
ART. 1256-1259. TENDER OF PAYMENT & CONSIGNATION
REQUISITES:
1. debt is due and demandable;
2. prior valid tender of payment refused WITHOUT
JUST CAUSE by creditor;
3. 1st notice to creditor;
4. actual deposit with judicial authorities;
5. 2nd notice to creditor.
GEN. RULE: Prior valid tender of payment before

consignation.
EXCEPTIONS: WHEN
1. creditor is absent or unknown or does not appear
at the place of payment;
2. he is incapacitated to receive the payment at the
time it is due;
3. w/o just cause, he refuses to give a receipt;
4. 2 or more persons claim the same right to collect;
5. title of the obligation has been lost.
SPS. CACAYORIN vs. Armed Forces & Police

Mutual Benefit Association, Inc. (AFPMBAI),
GR 171298, April 15, 2013
Oscar & Thelma filed complaint

demand for w/ RTC for
payment consignation.
AFPMBAI Rural Bank of San

Teodoro (RBST)
DOAS w/ TCT# 37017 Loan/Mortgage
in Sps. name & REM Agreement under
annotated on title; Pag-ibig w/c did
RBST loan papers not push thru;
& TCT found in its RBST closed w/
possession. PDIC as receiver.
Q: Is consignation proper?
Under Article 1256 of the

NCC, the debtor shall be released from
responsibility by the consignation of the thing
or sum due, without need of prior tender of
payment, when the creditor is absent or
unknown, or when he is incapacitated to
receive the payment at the time it is due,
or when two or more persons claim the
same right to collect, or when the title to
the obligation has been lost.
Soco vs. Militante, G.R. L-58961, 6/28/83

If the creditor to whom tender of payment has been made refuses,
without just cause to accept it, the debtor shall be released from
responsibility by consignation, which is the act of depositing the thing due
with the court or judicial authorities but it generally requires a prior
tender of payment.
Defendant contended that payments of rental thru checks were

made to Soco but the latter refused to accept them, hence
defendant authorized the bank to make consignation with the Clerk of
Court, but the bank did not send notice to Soco that the checks
shall be consignated with the court.
To be valid, tender of payment must be in lawful currency.

Notice is essential to the validity of consignation to give the
creditor the opportunity to reconsider his unjustified refusal to
accept payment thereby avoiding consignation and litigation.
Failure to give such notice renders the consignation VOID.
Dalton vs. FGR & Dev. Corp. et. al.,

G.R. 172577,1/19/2011
In withdrawing the amounts consignated, Dayrit and
FGR expressly reserved the right to question the validity
of the consignation. Consignation is completed at the
time the creditor accepts the same w/o objections,
or, if he objects, at the time the court declares that
it has been validly made in accordance with law.
Go Sinco vs. CA et al, G.R. 151903, 10/9/2009

A refusal without just cause is not equivalent to
payment; to have the effect of payment and the
consequent extinguishment of the obligation to
pay, the law requires the companion acts of
tender of payment AND consignation.
LOSS OF THE THING DUE

ART. 1262. Loss or destruction, w/o fault of debtor, & no delay
determinate thing generic thing
obligation is obligation is NOT

extinguished extinguished
EXCEPTIONS: by law, by stipulation or by the nature of the

obligation, obligor is liable even for a fortuitous
event.
obligor
ART. 1266. legally or physically impossible shall be
Obl. to do released
so difficult to be manifestly
beyond the contemplation of the from the
parties obligation
Tagaytay Realty Co. vs. Gacutan,

GR 160033, July 1, 2015
Contract To Sell
“We hereby undertake to complete the development of the
roads, curbs, gutters, drainage system, water and electrical
systems, as well as all the amenities to be introduced in FOGGY
HEIGHTS SUBDIVISION, such as, swimming pool, pelota court,
tennis and/or basketball court, bath house, children's playground
and a clubhouse within a period of 2 years from 15 July 1976.
XXX
TRC failed to construct the amenities and invoked Art.
1267 NCC contending that the depreciation of the Phil.
Peso since the time of the execution of the contract, the
increase in the cost of labor and construction materials,
and the increase in the value of the lot in question were
valid justifications for its release from the
obligation to construct the amenities.
Article 1267 NCC provides that “ (w)hen the

service has become so difficult as to be manifestly
beyond the contemplation of the parties, the
obligor may also be released therefrom in whole or
in part.” For Article 1267 NCC to apply, the
following conditions should concur: (1) the
event or change in circumstances could not
have been foreseen at the time of the execution
of the contract; (2) it makes the performance of
the contract extremely difficult but not
impossible; (3) it must not be due to the act of
any of the parties; and (4) the contract is for a
future prestation.
The requisites did not concur herein because the

difficulty of performance under Article 1267 NCC should
be such that one party would be placed at a
disadvantage by the unforeseen event [ there must be a
manifest disequilibrium in the prestations; there are
extraordinary obstacles which can be overcome only by
an absolutely disproportionate sacrifice]. Mere
inconvenience, or unexpected impediments, or
increased expenses do not suffice to relieve the
debtor from a bad bargain. In this case, the
petitioner suspended construction to save on
maintenance costs, not because of any difficult
situation. More, the worsening of the economy
occurred after petitioner should
have complied with its obligation.
CONDONATION/REMISSION OF THE DEBT

ART. 1260. essentially gratuitous; requires acceptance
by the debtor
private document in the possession condonation by

evidencing the debt of the debtor the CREDITOR
presumed to have
delivered private
document
ART. 1273. Renunciation of principal obligation →
accessory obligation is extinguished; waiver of the
accessory shall leave the principal obligation in force.
CONFUSION OR MERGER OF RIGHTS

ART. 1275 NCC. The obligation is extinguished from the
time the characters of creditor and debtor are
merged in the same person.
NPN B
“I promise to pay A or
order P1M on or before
C
Dec. 31, 2018.”
“Sgd.________
D
x
COMPENSATION
ART. 1279 NCC. REQUISITES:
1. 2 parties who, in their own right, are principal
creditors and debtors of each other;
2. Both debts consist in money, or if consumables,
must be of the same kind and quality;
3. Both debts are due, demandable and liquidated;
4. No retention or controversy commenced by 3rd
persons over either of the debts and
communicated in due time to debtor;
5. Compensation is not prohibited by law.
BPI vs. CA & REYES, GR 116792, 3/29/96

Edvin F. Reyes AND/OR
BPI Sonia S. Reyes
Edvin F. Reyes AND/OR

Emeteria M. Fernandez
$377 = P10,556.00
The elements of legal compensation are all present

in the case at bar. The obligors bound principally are
at the same time creditors of each other. Petitioner
bank stands as a debtor of the private respondent, a
depositor. At the same time, said bank is the creditor of the
private respondent with respect to the dishonored U.S.
Treasury Warrant which the latter illegally transferred to his
joint account with his wife. The debts involved consist of a
sum of money. They are due, liquidated, and demandable.
They are not claimed by a third person.
The respondent court erred when it failed to rule

that legal compensation is proper. Compensation
shall take place when two persons, in their own
right, are creditors and debtors of each other.
Article 1290 of the Civil Code provides that "when all
the requisites mentioned in Article 1279 are
present, compensation takes effect by operation
of law, and extinguishes both debts to the
concurrent amount, even though the creditors
and debtors are not aware of the
compensation." Legal compensation operates
even against the will of the interested parties
and even without the consent of them. Since this
compensation takes place ipso jure, its effects arise
on the very day on which all its requisites concur.
When used as a defense, it retroacts to the date
when its requisites are fulfilled.
Mondragon vs. Sola Jr.,

G.R. 174882, January 21, 2013
Respondent reneged on his promise to pay

petitioner, hence, petitioner withheld the payment of
respondent’s service fees and applied the same as
partial payments of respondent’s debt by way of
compensation.
Compensation is a mode of extinguishing, to

the concurrent amount, the obligations of
persons, who in their own right and as
principals, are reciprocally debtors and creditors
of each other. Legal compensation takes place by
operation of law when all the requisites are present, as
opposed to conventional compensation which takes
place by agreement of the parties.
COMPENSATION NOT PROPER:

1. Debts arising from contracts of depositum &
commodatum;
2. Claims for support due by gratuitous title;
3. Obligation arising from criminal offenses;
4. Obligation in favor of the gov’t. such as taxes,
fees, duties & others of similar nature.
NOVATION
REQUISITES:
1. a previous valid obligation;
2. agreement of the parties to the new
obligation;
3. extinguishment of the old obligation;
4. validity of the new obligation.
new debtor proposed

DELEGACION → by old debtor CONSENT
new debtor proposed OF
EXPROMISSION→ by creditor/3rd person CREDITOR
ART. 1302. LEGAL SUBROGATION IS PRESUMED WHEN:

1. creditor pays another creditor who is
preferred, even w/o the debtor’s
knowledge;
2. a 3rd person, not interested in the obl., pays

w/ the express or tacit approval of the
debtor;
3. even w/ o the knowledge of the debtor, a

person interested in the fulfillment of the obl.
pays, w/o prejudice to the effects of
confusion as to the latter’s share.
Heirs of Franco vs. Spouses Gonzales,

G.R. 159709, June 27, 2012
There is novation when there is

irreconcilable incompatibility in the old and
new obligations. There is no novation in case
of only slight modifications; hence, the old
obligation prevails.
Novation is not presumed. The parties to

a contract should expressly agree to abrogate
the old contract in favor of a new one. In the
absence of express agreement, the old and
new obligations must be incompatible on every
point.
URACA, et. al. vs. CA et. al., GR 115158,

September 5, 1997
Carmen Velez- Ting Emilia Uraca &
Concordia Ching
Owners of lot w/ bldg;
written offer to sell the Lessees of the bldg; accepted the offer
lot for P1,050,000.00. to sell; Uraca went to Ting about the
offer to sell.
Was informed by Ting
that the price of the lot Uraca agreed to the P1.4M but counter-
was P1.4M proposed that P1M be down payment &
P400K be paid in 30 days; Ting did not
accept Uraca’s counter-offer
Q: Was there a novation of the first contract

between the parties?
A: NO. Novation is never presumed; it must
be sufficiently established that a valid new
agreement or obligation has extinguished
or changed an existing one.
The SC notes that Uraca accepted in writing and without

qualification the Velezes’ written offer to sell at P1,050,000.00.
From the moment of such acceptance, a contract of sale
was perfected since the contractual elements of consent,
object certain and cause concurred.
Extinctive novation requires: (1) the existence of a

previous valid obligation; (2) the agreement of all the parties
to the new contract; (3) the extinguishment of the old
obligation and (4) the validity of the new one. Novation is
effected only when a new contract has extinguished an
earlier contract between the same parties. Novation is
never presumed; it must be proven as a fact either by
express stipulation of the parties or by implication derived
from an irreconcilable incompatibility between old and new
obligations or contracts. After a thorough review of the
records, we find this element lacking in the case at bar.
Sps. Reyes vs. BPI Family Savings

Bank, G.R. 149840-41,
March 31, 2006
The grant of a 45-day credit extension did not novate

the contract so as to extinguish the latter. There was no
incompatibility between them. There was no intention to
supersede the obligations under the contracts. The
intention of the 45-day credit extension was precisely to
revive the old obligation after the original period expired
with the obligation unfulfilled.
The obligation to pay a sum of money is not

novated by an instrument that expressly recognizes
the old, changes only the terms of payment, adds
other obligations not incompatible with the old ones
or the new contract merely supplements the old one.
LBP vs. Ong, G.R. 190755,

Nov. 24, 2010
Land Bank faults the CA for finding that

novation applies to the instant case. It reasons
that a substitution of debtors was made
without its consent, thus it was not bound to
recognize the substitution under the rules on
novation. Novation, which consists in
substituting a new debtor in the place of
the original one, may be made even
without the consent or against the will of
the latter, but not without the consent of
the creditor.
California Bus Lines, Inc. vs. State Investment

House, Inc., G.R. 147950, 12/11/03
There was no change in the object of the prior

obligations in the restructuring agreement since it merely
provided for a new schedule of payments and additional
security giving Delta authority to take over the
management & operations of CBLI in case CBLI fails to
pay installments equivalent to 60 days. With respect to
obligations to pay a sum of money, the well-settled
rule is that the obligation is not novated by an
instrument that expressly recognizes the old,
changes only the terms of the payment, and adds
other obligations not incompatible with the old
ones, or where the new contract merely
supplements the old one.
CONTRACTS
Art. 1305 NCC. A contract is a
meeting of minds between two
persons whereby one binds himself,
with respect to the other, to give
something or to render some service.
Art. 1306 NCC. Freedom/

Liberty/Autonomy of
Contracts
The contracting parties
may establish such stipulations,
clauses, terms, and conditions as
they may deem convenient,
provided they are not contrary to
law, morals, good customs,
public order or public policy.
Tiu vs. Platinum Plans Phil., Inc., G.R.

163512, Febr uar y 28, 2007
A non-involvement clause is not

necessarily VOID for being restraint of trade
as long as there are reasonable limitations as
to time, trade and place. In this case, the
non-involvement clause has a time limit:
2 years from the time petitioner’s
employment with respondent ends. It is
also limited as to trade, since it only
prohibits petitioner from engaging in any
pre-need business akin to respondent’s.
Art. 1308 NCC. Mutuality

of Contracts
The contract must bind

BOTH contracting parties; its
validity or compliance cannot
be left to the will of one of
them.
BPI Express Card Corporation vs. Armovit,

G.R. 163654, Oct. 8, 2014
Antonia BPI Express Credit

(BPI depositor) Antonia
1989 – issued BPI 3/19/92 – notified

Express Credit Card w/ Antonia to pay her
P20K credit limit 3-months’ arrears
expiring Mar. ’93
no payment → credit
11/21/92 ----- treated card was suspended
British friends to effective Mar’ 92;
lunch; credit card was obligation settled on
dishonored Apr. ‘92
BPI’s DEFENSE: Antonia’s credit card has not been reactivated

for her failure to submit the application form and other
documents for the lifting of the suspension of her credit
card.
The relationship between the

credit card issuer and the credit card
holder is a contractual one that is
governed by the terms and
conditions found in the card
membership agreement. Such terms
and conditions constitute the law
between the parties. In case of their
breach, moral damages may be
recovered where the defendant is shown
to have acted fraudulently or in bad
faith.
Sps. Cabahug vs. NAPOCOR,

G.R. 186069, 1/30/2013
It is settled that a contract

constitutes the law between the parties
who are bound by its stipulations which,
when couched in clear and plain
language, should be applied according to
their literal tenor and the courts cannot
supply material stipulations, which
contradict the intent of the parties.
PNB vs. Sps. Rocamora,

G.R.164549,9/18/09
Any increase in the rate of interest

made pursuant to an escalation clause must
not be left solely to the will of one of the
parties, but must be the result of a mutual
agreement between the parties, hence, a
de-escalation clause that would authorize a
reduction in the interest rates
corresponding to downward changes made
by law or by the Monetary Board must be
included, otherwise the change carries no
binding effect.
Limso vs. PNB, GR 158622,

Jan. 27, 2016
There is no mutuality of contracts when
the determination or imposition of interest
rates is at the sole discretion of a party to
the contract. Further, escalation clauses in
contracts are void when they allow the creditor
to unilaterally adjust the interest rates without
the consent of the debtor.
Art. 1311 NCC. Effectivity/

Relativity in Contracts
Contracts take effect only
between the PARTIES, their
ASSIGNS and HEIRS except in
case where the rights and obligations
arising from the contract are NOT
transmissible by (1) their nature, or
(2) by stipulation or (3) by provision
of law. The heir is NOT liable beyond
the value of the property he received
from the decedent.
Metropolitan Bank & Trust Co. vs. Reynado

et. al., G.R.164538, 8/9/10
Respondents are not parties to the agreement,

nor assigns or heirs of either of the parties but who
rely on the debt settlement agreement entered into
between petitioner and Universal to preclude prosecution
of the offense of estafa or prevent the incipience of any
liability that may arise from the criminal offense.
The civil law principle of relativity of contracts

provides that “contracts can only bind the parties
who entered into it, and it cannot favor or
prejudice a 3rd person, even if he is aware of such
contract and has acted with knowledge thereof”.
EXCEPTIONS:
1. Art. 1311. Stipulation Pour Autri
If a contract should contain some

stipulation in favor of a 3rd person, he
may demand its fulfillment provided
he communicated his acceptance to
the obligor before its revocation. A
mere incidental benefit or interest of
a person is NOT sufficient. The
contracting parties must have clearly
and deliberately conferred a favor
upon a 3rd person.
REQUISITES OF STIPULATION
POUR AUTRI:
1. Stipulation in favor of 3rd
person should be a part,
not the whole of the contract;
2. Contracting parties must have clearly
and deliberately conferred a favor
upon a 3rd person;
3. Neither of the contracting parties
bears the legal representation or
authorization of the 3rd party;
4. Acceptance of the benefit by the 3rd
person communicated to the obligor
before it could be revoked.
Mandarin Villa vs. CA, GR 119850,

June 20, 1996
Mandarin Villa Seafood Village is affiliated with

BANKARD. In fact, an "Agreement" entered into by petitioner
and BANKARD dated June 23, 1989, provides inter alia:
"The MERCHANT shall honor validly issued PCCCI

credit cards presented by their corresponding holders in the
purchase of goods and/or services supplied by it provided
that the card expiration date has not elapsed and the card
number does not appear on the latest cancellation bulletin of
lost, suspended and cancelled PCCCI credit cards and, no
signs of tampering, alterations or irregularities appear on
the face of the credit card."
While private respondent may not be a party to

the said agreement, the above-quoted stipulation
conferred a favor upon the private respondent, a
holder of credit card validly issued by BANKARD. This
stipulation is a stipulation pour autri and under
Article 1311 of the NCC, private respondent may
demand its fulfillment provided he communicated his
acceptance to the petitioner before its revocation. In
this case, private respondent's offer to pay by
means of his BANKARD credit card constitutes
not only an acceptance of the said stipulation
but also an explicit communication of his
acceptance to the obligor.
In addition, the record shows that petitioner

posted a logo inside Mandarin Villa Seafood Village
stating that "Bankard is accepted here."
Prudential Bank and Trust Company (now BPI)

vs. Abasolo, G.R. 186738, 9/27/10
Contracts take effect only between the parties,

their assigns and heirs, and if a contract should
contain some stipulation in favor of a 3rd person,
the contracting parties must have clearly and
deliberately conferred a favor upon the 3rd person.
In the absence of a lender-borrower relationship

between petitioner and Liwayway, there is no inherent
obligation of petitioner to release the proceeds of the loan
to her. For Liwayway to prove her claim against
petitioner, a clear and deliberate act of conferring
a favor upon her must be present.
2. Art. 1312. In contracts creating real

rights, third persons who come
into possession of the object of
the contract are bound thereby,
subject to the provisions of
the Mortgage Law and the
Land Registration laws.
3. Art. 1313. Creditors are protected
in cases of contracts intended
to defraud them.
4. Art. 1314. Any third person who
induces another to violate his
contract shall be liable for damages
to the other contracting party.
Q: How are contracts perfected?

A: Art. 1315. Contracts are perfected
by MERE CONSENT, and from that
moment the parties are bound not
only to the fulfillment of what has
been expressly stipulated but also
to all the consequences which,
according to their nature, may be
in keeping with good faith, usage
and law.
Art. 1316. REAL CONTRACTS, such
as deposit, pledge and
commodatum, are not perfected
until the delivery of the object of
the obligation.
Ong Yiu vs. CA, G.R. L-40597, 6/29/79
Petitioner contends that respondent Court

committed grave error when it limited PAL’s carriage
liability to the amount of P100.00 as stipulated at the
back of the ticket and argues that he had not actually
entered into a contract limiting the latter’s liability for loss
or delay of the baggage of its passengers. While it may
be true that petitioner had not signed the plane
ticket, he is nevertheless bound by the provisions
thereof, it being a contract of adhesion, wherein
one party imposes a ready-made contract on the
other and the one who adheres to the contract is
in reality free to reject it entirely, but if he
adheres, he gives his consent.
Asian Cathay Finance and Leasing Corp.

vs. Sps. Gravador, et al, G. R. 186550,
July 5, 2010
A contract of adhesion may be struck

down as VOID and unenforceable for being
subversive to public policy, when the
weaker party is completely deprived of
the opportunity to bargain on equal
footing.
Q: What are the essential

requisites of a contract?
A: Art 1318. There is NO
CONTRACT unless the following
requisites concur:
1. Consent of the contracting
parties;
2. Object certain which is the
subject matter of the
contract;
3. Cause of the obligation
which is established.
Q: How is consent manifested?

A: Art 1319. By the MEETING of
the OFFER and the ACCEPTANCE
upon the THING and the CAUSE. The
offer must be CERTAIN and the
acceptance ABSOLUTE. A qualified
acceptance constitutes a COUNTER-
OFFER.
Yason vs. Arciaga, et. al., GR 145017,

1/28/05
Consent is manifested by the meeting of the

offer and the acceptance upon the thing and
the cause which are to constitute the
contract.To enter into a valid legal agreement, the
parties must have the capacity to do so.
The law presumes that every person is fully

competent to enter into a contract until satisfactory
proof to the contrary is presented. The burden of
proof is on the individual asserting a lack of capacity
to contract, and this burden has been characterized
as requiring for its satisfaction clear and
convincing evidence.
While it is true that Claudia was sick and

bedridden, respondents failed to prove that she
could no longer understand the terms of the
contract and that she did not affix her thumbmark
thereon. Unfortunately, they did not present the
doctor or the nurse who attended to her to confirm
that indeed she was mentally and physically
incapable of entering into a contract. Mere
weakness of mind alone, without imposition of
fraud, is not a ground for vacating a contract.
A person is not incapacitated to enter into a
contract merely because of advanced years or
by reason of physical infirmities, unless such
age and infirmities impair his mental faculties
that he is unable to properly, intelligently and
fairly understand the provisions of the
contract.
Palattao vs. CA, G.R. 131726,

May 7, 2002
Appellant made a qualified acceptance of

appellee’s letter-offer of a parcel of land but
appellee made a new proposal to pay the price
in staggered amounts within 2 years in
quarterly amortizations. To convert the offer
into a contract, the acceptance must be
absolute and must not qualify the terms
of the offer, for a qualified acceptance
constitutes a counter offer and is a
rejection of the original offer and such
acceptance is not sufficient to generate
consent.
Sps. GIRONELLA vs. PNB, GR 194515, 9/16/15
Oscar & Gina Gironella PNB

1/25/2000 – PNB wrote Sps.
11/11/91 & 1/16/92 – obtained 2 Gironella w/ a restructuring
loans in the total amt. of offer.
P9,500,000.00 w/ REM over their
lot; applied for 2nd loan of 3/8//2000 – PNB rejected Sps.
P5,800,000.00; defaulted in the Gironella’s counter-offer for
payment of the 1st 2 loans; loan restructuring.
2/7/2000 – gave a qualified acceptance
of PNB’s offer
A contract is perfected by mere consent. Consent is

manifested by the meeting of the offer and the acceptance upon
the thing & the cause which are to constitute the contract. The
offer must be certain & the acceptance absolute. If qualified,
the acceptance would merely constitute a counter-offer.
To reach that moment of perfection, the

parties must agree on the same thing in the same
sense, so that their minds meet as to all the terms.
They must have a distinct intention common to both
and without doubt or difference; until all understand
alike, there can be no assent, and therefore no contract.
The minds of parties must meet at every point; nothing
can be left open for further arrangement. So long as
there is any uncertainty or indefiniteness, or
future negotiations or considerations to be had
between the parties, there is no completed
contract, and in fact, there is no contract at all.
The Spouses Gironella's payments under its

original loan account cannot be considered as
partial execution of the proposed restructuring
loan agreement. They were clearly made during the
pendency of the negotiations on the restructuring.
Such pendency proves, absence, not presence
of an agreement ready for execution. At the time
of payments, only petitioners' obligation under the
original credit agreements were in existence. Indeed,
the payment scheme under the proposed
restructuring was outlined by PNB only in the letter of
25 January 2000.
Negotiation begins from the time the prospective

contracting parties manifest their interest in the contract
and ends at the moment of agreement of the parties. Once
there is concurrence of the offer and acceptance of
the object and cause, the stage of negotiation is
finished. This situation does not obtain in the case at bar.
The letter dated 25 January 2000 of PNB was qualifiedly
accepted by the Spouses Gironella as contained in their 7
February 2000 letter and constituted a counter-offer which
PNB ultimately rejected in its 8 March 2000 letter. The
surrounding circumstances clearly show that the parties
were not past the stage of negotiation for the terms and
conditions of the restructured loan agreements. There was
no meeting of the minds on the restructuring of the
loans. Thus, the Spouses Gironella's original Php
9,500,000.00 loan agreement subsists.
TALAMPAS, JR. vs. MOLDEX REALTY, INC.,

GR 170134, June 17, 2015
Moldex Realty, Inc.

Angel Talampas, Jr.
(AVTJ Construction)
12/16/92 – contract where P unilaterally terminated the
undertook to perform roadworks, contract in April 23, 1993
earthworks & sitegrading for the antedated letter received by
Metrogate Silang Estates in Cavite P on 6/16/93 due to the
for a total amt. of P10,500,000.00 redesign of the project w/c
to be paid on progress billing & was not contained in their
P500K as downpayment. contract.
8/18/93 – P demanded for payment

of P1,485,000.00 as equivalent
rentals during the contract
suspension & P2,100,000.00 or
20% of the contract price as cost
of opportunity lost due to R’s 8/18/93 – R received demand
early termination of the contract. letter but refused to pay.
11/5/93 – P filed a complaint R argues that P is no longer

for breach of contract for entitled to the amounts he
R’s unilaterally terminating demanded since he already
their agreement and fraud consented to the
for failing to disclose the termination of their
project’s lack of a DAR contract based on the
conversion clearance 5/21/93 mtg. w/ P’s son;
certificate w/c he claimed to there was also full payment
be the real reason for the of the contractor’s unpaid
termination of the contract. actual work & release of
all retention fees.
RTC ruled in favor of the P. CA reversed the

decision on appeal ruling that there was no
unilateral termination considering that the P
consented to such termination. It also ruled there
was NO Fraud.
Q: Was there consent on P’s part in the

termination of the contract?
Contracts have the force of law between the

parties and must be complied with in good faith.
A contracting party’s failure, without legal reason, to
comply with contract stipulations breaches their contract
and can be the basis for the award of damages to the
other contracting party.
The respondent failed to comply with its

contractual stipulations on the unilateral
termination when it terminated their contract
due to the redesign of the Metrogate Silang
Estates’ subdivision plan which is not one of the
grounds agreed upon.
Respondent contended that the petitioner’s request for

an official letter of termination was proof that the latter
consented to the termination of their contract. The request
for an official letter of termination does not
necessarily mean consent to the termination; by
itself, the request for an official letter of termination
does not really signify an agreement; it was nothing
more than a request for a final decision from the
respondent.
Respondent also contended that the petitioner ratified

the termination of their contract by accepting payments for
progress billings, costs of equipment mobilization/
demobilization, refund of insurance bond payments, and the
release of retention fees. Petitioner’s receipt of these
payments cannot be considered to be acts of
ratification or consent to the contract’s termination.
Consent is manifested by the meeting of the

offer and the acceptance upon the thing and the
cause which are to constitute the contract. The
offer must be certain, and the acceptance, whether
express or implied, must be absolute. An acceptance is
considered absolute and unqualified when it is
identical in all respects with that of the offer so as to
produce consent or a
meeting of the minds.
There was no such meeting of the minds

between the parties on the matter of
termination because the petitioner’s acceptance
of the respondent’s offer to terminate was not
absolute.
To terminate their contract, the respondent offered to pay

the petitioner billings for accomplished works, unrecouped
costs of equipment mobilization and demobilization,
unrecouped payment of insurance bond, and the release of
all retention fees - payments that the petitioner accepted or
received.
But despite receipt of payments, no absolute

acceptance of the respondent’s offer took place
because the petitioner still demanded the payment of
equipment rentals, cost of opportunity lost, among others. In
fact, the payments received were for finished or delivered
works and for expenses incurred for the respondent’s
account. By making the additional demands, the
petitioner effectively made a qualified acceptance or a
counter-offer, which the respondent did not accept.
Under these circumstances, there was no full consent.
Q: What is an option contract?
A: Art 1324. When the offerer has allowed the

offeree a certain period to accept, the offer
may be withdrawn at anytime before
acceptance by communicating such
withdrawal, except when the option is
founded upon a consideration,
as something paid or promised.
OPTION – contract granting a person the

privilege to buy or not to buy, certain objects at
any time within the agreed period at a fixed
price.
OPTION CONTRACT
An option is a preparatory contract in

which one party grants to another, for a
fixed period and at a determined price, the
privilege to buy or sell, or to decide whether
or not to enter into a principal contract. It is
a separate and distinct contract from that
which the parties may enter into upon the
consummation of the option. It must be
supported by consideration distinct from
the price.
Q: Who may NOT give consent to a

contract?
A: Art 1327. The following CANNOT
give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented

persons, and deaf-mutes
who do not know how to
write.
Art. 1328. Contracts entered into during a

lucid interval VALID; contracts
agreed to in a state of drunkenness or
during a hypnotic spell VOIDABLE.
Art. 1330. A contract where consent is given
through mistake, violence, intimidation,
undue influence, or
fraud VOIDABLE.
Art. 1331. MISTAKE should refer to
(1) the substance of the thing which is the
object of the contract OR (2) to those
conditions which have principally moved
one or both parties to enter into the
contract; must be substantial; serious and
important.
Art. 1332. When one of the parties is

unable to read, or if the contract is in a
language not understood by him, and
MISTAKE or FRAUD is alleged, the person
enforcing the contract must show that
the terms thereof have been fully
explained to the former.
Art. 1335. VIOLENCE
serious or irresistible force
is employed.
INTIMIDATION reasonable
and well-grounded fear of an imminent and
grave evil upon the person and property of
one of the contracting parties, his spouse,
descendants or ascendants.
Art. 1337. UNDUE INFLUENCE

when a person takes
improper advantage of his power
over the will of another, depriving
the latter of a reasonable freedom
of choice.
Factors to be considered: confidential,

family, spiritual and other relations
between the parties; mental
weakness, ignorance and financial
distress of the one alleged to be
influenced.
Art 1338/1344. FRAUD: Requisites

1. insidious words or machinations must
be employed by one of the contracting
parties;
2. must be serious;
3. must induce the other party to enter
into the contract;
4. must not have been employed by
BOTH contracting parties or by a
3rd person.
Art. 1339. Failure to disclose facts,
when there is a duty to reveal them,
as when the parties are bound by
confidential relations FRAUD
Art. 1340. The usual exaggerations in

trade, when the other party had an
opportunity to know the facts, are
NOT in themselves
FRAUDULENT.
Art. 1341. A mere expression of an

opinion does NOT signify fraud,
unless made by an EXPERT and the
other party has RELIED on the
former’ s special
knowledge.
ECE Realty and Development Inc. vs.

Mandap, G.R. 196182, Se
ept. 1, 2014
Rachel ECE Realty
12/1995 – paid Central Park Condo

reservation fee, DP & Bldg. located in
monthly installments Pasay City but ads.
6/18/96 – CTS executed indicate said condo
stating that condo is shall be built in
located in Pasay City; Makati City
10/30/98 – demanded
return of all payments 11/30/98 – informed
made (P422,500.00) after Rachel her unit is
discovery condo project ready for inspection
is located in Pasay City & & occupancy
not in Makati City.
Can there be annulment of CTS, refund of payments

and damages in favour of Rachel due to FRAUD?
Evidence shows that respondent proceeded to

sign the Contract to Sell despite information
contained therein that the condominium is located
in Pasay City. This only means that she still agreed
to buy the subject property regardless of the fact
that it is located in a place different from what she
was originally informed. If she had a problem
with the property's location, she should not
have signed the Contract to Sell and, instead,
immediately raised this issue with petitioner.
But she did not. It took respondent more than
two years from the execution of the Contract to
Sell to demand the return of the amount she paid
on the ground that she was misled into believing
that the subject property is located in Makati City.
In the meantime, she continued to make
payments.
Art 1345. Simulation of a contract

may be
1. absolute – parties do not intend
to be bound at all VOID.
2. relative – when the parties
conceal their true agreement
when it does not
prejudice a 3rd person and is
NOT intended for any purpose
contrary to law, morals, good
customs, public order or policy
BINDS the parties to
their real agreement.
CLEMENTE vs. CA, et. al., GR 175483, 10/14/15

owner of 3 lots (w/ 4/25/89 – DOAS
improvements located of the 3 lots to
in Diliman, Q.C. P; SPA in favor
of P “to
Adela administer,
(+1/14/90; USA) take charge
7/9/90 – and manage
complaint for Annie my properties”
recovery of Carlos, Sr. azon
Cora 9/25/89 –
properties as (+10/3/97) Anselmo registered the
the DOAS were 7/00)
(+9/7 sale w/ RD;
simulated & w/o Valenttina TCTs issued in
consideration. Carlos, Jr. De
ennis her name.
There was NO valid contract of sale between Valentina and

Adela because their consent was absent. The contract of
sale was absolutely simulated. There was NO
consideration paid by Valentina to Adela.
Ureta vs. Ureta, G.R. 165748,

September 14, 2011
Lacking in an absolutely simulated contract is

consent which is essential to a valid and enforceable
contract. Thus, where a person, in order to place
his property beyond the reach of his creditors,
simulates a transfer of it to another, he does
NOT really intend to divest himself of his title
and control of the property, hence, the deed of
transfer is but a sham. Similarly, in this case,
Alfonso simulated a transfer to Policronio purely for
taxation purposes, without intending to transfer
ownership over the subject lands.
Spouses Santiago vs. CA,

GR103959, August 21, 1997
If petitioners really stood as legitimate owners
of the property, they would have collected rentals
from Paula Arcega for the use and occupation of the
master’s bedroom as she would then be a mere
lessee of the property in question. Not a single
piece of evidence was presented to show that this
was the case. All told, the failure of petitioners
to take exclusive possession of the property
allegedly sold to them, or in the alternative, to
collect rentals from the alleged vendee Paula
Arcega, is contrary to the principle of
ownership and a clear badge of simulation
that renders the whole transaction void and
without force and effect.
Art 1347. OBJECTS OF CONTRACTS

1. within the commerce of men
susceptible of appropriation and
transmissible from one
person to another;
2. real or possible should exist at
the moment of the celebration of the
contract or can exist subsequently or
in the future;
3. licit not contrary to law, morals,
good customs, public order or public
policy;
4. determinate or at least
possible of determination, as
to its kind.
Art. 1356. FORM OF CONTRACTS

General rule: OBLIGATORY, in whatever
form, provided all the essential requisites
for their validity are present.
EXCEPTIONS: When the LAW requires that
a contract be in some form in order to be
VALID or ENFORCEABLE, that requirement
is ABSOLUTE and INDISPENSABLE.
FORMALITIES WHICH ARE REQUIRED

FOR VALIDITY OF CONTRACTS:
In Writing:
1. Donation of personal property P5K;
2. Sale of real property by an agent;
3. Antichresis;
4. Interest of loan of money.
Art. 1359. REFORMATION OF

INSTRUMENT
REQUISITES:
1. there must have been a meeting of
the minds upon the contract;
2. instrument evidencing the contract
does NOT express the true agreement
between the parties;
3. the failure of the instrument to
express the agreement must be due
to mistake,, fraud, inequitable conduct
or accident.
REFORMATION IS PROPER:
Art. 1361. Mutual mistake of the parties.
Art. 1362. One acted with mistake; other acted
fraudulently.
Art. 1363. Mistake by one, concealment by
another.
Art. 1364. Ignorance, lack of skill, negligence, or
bad faith on the part of the one
drafting the instrument.
Art. 1365. Mortgage/pledge but instrument
states absolute sale or with right of
repurchase.
Art. 1366. NO REFORMATION:
(1) Simple donations intervivos when no
condition is imposed;
(2) Wills;
(3) Real agreement is VOID.
Art. 1370. INTERPRETATION OF

CONTRACTS
If the TERMS of a contract are CLEAR
and leave no doubt upon the INTENTION of
the contracting parties, the LITERAL
meaning of its stipulations shall control.
If the words appear to be contrary to
the EVIDENT INTENTION of the parties,
the latter shall prevail over the former.
Art. 1377.The interpretation of OBSCURE

words or stipulations in a
contract shall NOT FAVOR
the party who CAUSED
THE OBSCURITY.
VALID CONTRACTS
1. Strictly comply with all legal
requirements as to consent, object
and cause (A1318 NCC).
2. Entered into during a lucid
interval (A1328 NCC).
3. Relatively simulated contracts w/c do
not prejudice a 3rd person and not
intended for a purpose contrary to law,
morals, good customs, public order or
public policy (A1346 NCC).
4. In divisible contracts, legal terms may
be enforced if same can be separated
from illegal provisions (A1420 NCC).
RESCISSIBLE
1. Valid until rescinded (A1380 NCC);
2. Economic/financial injury or damage to
contracting par ty or 3rd person. (A1381 NCC )
a) lesion by more than 1/4 of the value of the
object against
(1). ward by guardian
(2). absentee by representative
b) in fraud of creditors;
c) entered into by defendant over objects
under litigation without knowledge/approval
of litigants or of competent judicial authority
d) other contracts specially declared by
law to be subject to rescission;
e) payments made in a state of insolvency
(A1382 NCC);
3. Not susceptible of ratification;
4. May be assailed not only by a contracting

party but also by a 3rd person injured/
defrauded (A1383 NCC);
5. Action for rescission is subsidiary (A1383 );
6. Only to the extent necessary to cover the
damages caused (A1384 NCC);
7. Mutual restitution of object and cause;
a) Not applicable if object is legally in the
possession of a 3rd person who did not
act in BF (A1385 NCC);
b) Indemnity for damages against person
who caused the loss (A1385 NCC);
c) Effects of rescission retroact to the date
the action for rescission was instituted;
8. period to file action for rescission – 4 years
from:
a) termination of guardianship
b) time domicile of absentee is known (A1389).
Guzman Bocaling & Co. vs. Bonnevie,

GR 90667, Nov. 5, 1991
The SC upheld the decision of the lower court ordering the
rescission of a deed of sale which violated a right of first
refusal granted to one of the parties therein. The Court held:
"xxx Contract of Sale was not voidable but rescissible.

Under Article 1380 to 1381 (3) of the Civil Code, a
contract otherwise valid may nonetheless be
subsequently rescinded by reason of injury to third
persons, like creditors. The status of creditors could be
validly accorded the Bonnevies for they had substantial
interests that were prejudiced by the sale of the subject
property to the petitioner without recognizing their right of
first priority under the Contract of Lease.
VOIDABLE CONTRACTS
1. Valid until annulled;
a) one party incapable of giving consent to
contract;
b) consent vitiated by mistake,
violence, intimidation, undue
influence or fraud. (A1390);
c) contracts entered in a state of drunkenness
ennesss
or during a hypnotic spell (A1328 NCC);
C);
2. Susceptible of ratification (A1390 NCC);
a) R cleanses contract from all defects (A1396);
b) R retroacts to constitution of contract (A1396)
c) R effected expressly or tacitly (A1393 NCC);
d) R may be effected by guardian (A1394 NCC);
e) R extinguishes action to annul contract (A1392);
f) R needs no conformity of other party who
has no right to bring action for annulment
(A1395 NCC);
3. May be assailed only by a contracting

party (obliged principally or subsidiarily);
Exceptions:
a) capacitated party as to the
incapacity of the other party;
b) those who exerted intimidation,
violence or undue influence or
employed fraud. (A1397).
4. Mutual restoration of object and cause;
5. Period to file annulment – 4 years from:
a). time defect of consent ceases;
b). time of discovery of mistake or fraud;
c). time guardianship ceases (A1391)
UNENFORCEABLE
1. Cannot be enforced by court action, unless
ratified (A1403 NCC);
a) entered into without authority or
without legal representation or beyond
authority granted;
b) did
d not comply with the Statute of Frauds:
(1) agreement not to be performed w/n a
year;
(2) special promise to answer for the
debt, default or miscarriage of
another;
(3) agreement made in consideration of
marriage, other than mutual promise
to marry;
(4) agreement for the sale of goods not

less than P500.00;
(5) lease for more than 1 year or sale of
real property;
(6) representation as to the credit of a
3rd person.
c) BOTH contracting parties incapable of

giving consent to a contract;
2. Su
usceptible of ratification (A1405 NCC)
a) failure to object to
presentation of oral evidence
b) acceptance of benefits
3. May be assailed ONLY by a contracting party

(A1408 NCC).
Tua vs. Mangrobang, G.R. 170701, 1/27/14
Unenforceable contracts are those which cannot

be enforced by a proper action in court, unless they
are ratified, because they are entered into without
authority or in excess of authority or they do not
comply with the Statute of Frauds or both of the
contracting parties do not possess the required legal
capacity. Where a person signs a Deed of Extrajudicial
partition in behalf of co-heirs without the latter’s authority;
where a mother, as judicial guardian of her minor children,
executes a deed of judicial partition, wherein one child is
given more share of the estate to the prejudice of the other
children; or where one person holding an SPA, sells a
property of his principal which is not included in said SPA,
these are some analogous cases of unenforceable contracts.
VOID CONTRACTS
1. Do not produce any effect;
2. One or some of the essential requisites
of a valid contract are lacking in fact or
in law. (A1409 NCC)
a) cause, object or purpose is contrary
to law, public morals, public policy,
good customs, public order;
b) absolutely simulated/ fictitious
contract;
c) cause or object inexistent at the
time of the transaction;
d) object outside commerce of man;
e) contemplate impossible service;
f) intention of the parties as to

principal object cannot be
ascertained;
g) expressly declared by law as
void.
3. a) not susceptible of ratification;

b) right of action or defense cannot be
waived/does not prescribe (A1410 );
4. May be assailed not only by a

contracting party but even by a 3rd
person whose interest is directly
affected (A1421 NCC).
Fullido vs. Grilli, GR 215014, Feb. 29, 2016
The lease contract (for a period of fifty years,

automatically extended for another fifty years) and the
MOA (stating that ownership of the land and the
residential building resided with Grilli) in this case are
null and void as they virtually transfer the land to Grilli,
a foreigner.
Being null and void, it has no force and effect from the
very beginning, as if it had never been entered into; it
produces no effect whatsoever either against or in favor of
anyone. Article 1409 NCC explicitly states that void
contracts cannot be ratified; neither can the right to set-up the
defense of illegality be waived. Accordingly, the same cannot
be used by Grilli to eject his erstwhile live-in partner Fullido.
Heirs of Ureta Sr., et. al. vs. Heirs of Ureta, et.

al., G.R. 165748, September 14, 2011
While the Deed of Sale states that the purchase

price was paid to the seller for the subject properties,
it has been proven that there was no such payment as
there was no money involved, the Deed of Sale is void
for absence of consideration.
The right to set up the nullity of a void or

inexistent contract is not limited to the parties, as in
the case of voidable contracts; it is extended to 3rd
persons who are directly affected by the contract. In
this case, the parties are heirs and are not strangers to
the parties to the contract, hence they have a right to
question the same.
Gonzalo vs. Ternate, Jr., GR 160600,

January 15, 2014
The doctrine of in pari delicto is a universal
doctrine that holds that no action arises, in
equity or at law, from an illegal contract; no
suit can be maintained for its specific
performance, or to recover the property agreed
to be sold or delivered, or the money agreed to
be paid, or damages for its violation; and
where the parties are in pari delicto, no
affirmative relief of any kind will be given to
one against the other. Nonetheless, the
application of the doctrine is not always rigid.
An accepted exception arises when its

application contravenes well-established
public policy, such as the principle of unjust
enrichment found in Article 22 NCC.
Accordingly, while the law prohibits the
subcontracting of a DPWH contract without the
express consent of the Secretary, the fact that
the subcontractor provided the equipment, labor
and materials for the project while it was the
contractor who received the payment would result
in the unjust enrichment of the latter if the pari
delicto rule is strictly applied; hence, the
exception is applicable.
NATURAL OBLIGATIONS
- those based on equity and
natural law, which are not
enforceable by means of a court
action, but after voluntary
fulfillment by the obligor,
authorizes the retention by the
obligee of what has been
delivered or rendered by reason
thereof.
ESTOPPEL
- condition or state by
virtue of which an admission
or representation is rendered
conclusive upon the person
making it, and cannot be
denied or disproved as
against the person relying
thereon.
KINDS OF ESTOPPEL:
1. ESTOPPEL IN PAIS - arises when
one by his acts, representations or
admissions, or by his silence when
he ought to speak out, intentionally
or through culpable negligence,
induces another to believe certain
facts to exist and such other
rightfully relies and acts on such
belief, as a consequence of which he
would be prejudiced if the former is
permitted to deny the existence of
such facts;
2. ESTOPPEL BY DEED
- technical estoppel by virtue of
which a party to a deed and his
privies are precluded from
asserting as against the other and
his privies any right or title in
derogation of the deed, or from
denying any material fact asserted
therein;
TRUSTS
- legal relationship between

one person having equitable
ownership over a certain
property and another having
legal title thereto.
KINDS OF TRUSTS:
1. EXPRESS - those created by the
intention of the trustor and the trustee;
those created by the direct and positive
acts of the parties, by some writing, or
deed, or will, or by words evidencing an
intention to create a trust.
2. IMPLIED - created by operation of law;

those which, without being expressed,
are deducible from the nature of the
transaction by operation of law as
matters of equity, independently of the
particular intention of the parties.
a. RESULTING TRUST
- there is an intent to create a trust

but it is not effective as an express
tr ust; raised by implication of law and
presumed always to have been
contemplated by the parties, the
intention as to which is to be found in
the nature of their transaction, but not
expressed in the deed or instrument of
conveyance. Examples are found in
Arts. 1448 to 1455 NCC.
b. CONSTRUCTIVE TRUST
- created by law to prevent
unjust enrichment or oppression;
trust not created by words, either
expressly or impliedly evidencing a
direct intention to create a trust,
but by construction of equity in
order to satisfy the demands of
justice (Art. 1456 NCC).
EXPRESS TRUST IMPLIED TRUST

1. created by intention of 1. created by operation of
trustor or of the parties law.
2. created by direct and 2. deducible from the nature
positive acts of parties. of transaction by
operation of law as
matters of equity,
independent of intention
of the parties.
3. intent to establish the 3. intent to establish the
trust is clear. trust is taken from
circumstances or other
matters indicative of
such intent
4. no trust concerning an 4. may be proved by parol
immovable or any evidence.
interest therein may be
proved by parol evidence.
5. laches & prescription not 5. laches & prescription
a bar to enforce trust. may bar enforcement.
TRUST PURSUIT RULE

- equity will pursue property that
is wrongfully converted by the
fiduciary, or otherwise compel
restitution to the beneficiary. A trust
will follow the property through all
changes in its state and form,
provided its product or proceeds are
capable of identification.

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DEGREE OF DILIGENCE: DOAGFOAF

GOOD FATHER OF A FAMILY → He is NOT and is NOT supposed

Solidbank Corp. vs. Sps. Tan, GR 167346,

Xxx banking institutions

Rights of Creditor if the obligation is to deliver a:

1. compel delivery; 1. ask that obligation be

ART. 1169. Gen. Rule: NO DEMAND, NO DELAY

General Milling Corp. vs. Sps. Ramos,

The foreclosure of a mortgage where there was NO

In this case, GMC did not make a demand on Sps.

Barzaga vs. CA, et.al., GR 115129,

An assiduous scrutiny of the record convinces

Selegna Mgt. Development Corporation

The parties stipulated in their Credit

Art. 1170. Those who in the

RCPI vs. VERCHEZ G.R. 164349,

RCPI bound itself to deliver the telegram within the

RCPI invokes force majeure, specifically, the

ART. 1174. GEN. RULE: No person shall be liable for a

NPC et. al. vs CA, GR 964410, July 3, 1992

As a general rule, no one shall be liable for events which

PHILCOMSA AT vs. GLOBE TELECOM, INC.,

Philcomsat and Globe had NO CONTROL over

FIL-ESTATE PROPERTIES, INC. et. al. vs.

Sps. Conrado &

SC HELD: It is unfortunate that petitioner

where acquisition of right or

ART. 1179. Every obl. whose performance does not depend

ART. 1189. Effect of loss , deterioration or improvement

Art. 1191 NCC. The power to rescind

The injured party may choose between the fulfillment

The court shall decree the rescission claimed,

NOLASCO, et.al. vs. CUERPO, et.al.,

“7. Petitioners shall, w/n 90 days from the signing of

Petitioners failed to comply, hence it was contended that

For a contracting party to be entitled

Golden Valley Exploration, Inc. vs. Pinkian

As a general rule, the power to rescind an

WHERE PARTIES AGREE TO A STIPULATION

ASB REALTY CORP. vs. ORTIGAS & CO.LTD. PARTNERSHIP,

DOS of 1,012 sq.m. lot in lot was transferred to

Q: Is ASB liable to Ortigas considering its knowledge

By acquiring the parcel of land with notice of the

In Garcia vs.Villar, GR 158891, June 27,

Ortigas' complaint was predicated on Article 1191 NCC:

Article 1191. The power to rescind obligations is

Rescission under Article 1191 of the Civil Code is

ASBRC was not privy to the Deed of Sale

ART. 1193. Obligations with a period → demandable only

ART. 1198. RIGHT TO A PERIOD is LOST

RADIOWEALTH FINANCE CO. vs. SPS.

"FOR VALUE RECEIVED, on or before the date listed below,

P11,579.00 payable for 12 consecutive months starting on

The act of leaving blank the due date of the

ALTERNATIVE vs. FACULTATIVE OBLIGATIONS

ART. 1199. Debtor alternatively

ART. 1207. Gen. Rule: JOINT OBLIGATION

EXCEPTION: SOLIDARY, when

Solidary: one is liable for the whole amount of the loan.

1. defense of one is defense of all except if the

ART. 1222. Available to a solidary debtor are DEFENSES:

2. Derived from the nature of the obligation;