LAW1101

LAW ON OBLIGATION AND CONTRACT

INTRODUCTION TO LAW

LAW IN ITS SPECIFIC SENSE

“A RULE OF CONDUCT, JUST, OBLIGATORY, PROMULGATED BY LEGITIMATE AUTHORITY, AND OF

COMMON OBSERVANCE AND BENEFIT” (I SANCHEZ ROMAN 3)

4 CHARACTERISTICS OF LAW – CAN BE FOUND IN THE SPECIFIC SENSE DEFINITION OF LAW

RULE OF CONDUCT – SYSTEM OF ACTION, HOW WE BEHAVE, HOW WE ACT, IT TELLS US WHAT SHALL BE
DONE AND WHAT SHALL NOT BE DONE.

JUST – FAIR.

OBLIGATORY – MANDATORY, IMPOSING A DUTY TO OBEY, OBEDIENCE, ORDER, NO CHAOS.

PROMULGATED BY LEGITIMATE AUTHORITY – PROMULGATED MEANS CREATED, LEGISLATIVE CREATED

THE LAW

3 MAIN BRANCHES OF THE GOVERNMENT

1. LEGISLATIVE/CONGRESS – CREATES THE LAW

a. LOWER HOUSE – HOUSE OF REPRESENTATIVES
b. UPPER HOUSE – SENATE OF THE PHILIPPINES
BICAMERAL – TWO CHAMBERS
2. EXECUTIVE/ADMINISTRATIVE – ENFORCE OR IMPLEMENTS THE LAW
a. HEADED BY THE PRESIDENT OF THE PHILIPPINES
3. JUDICIARY/JUDICIAL – DECIDE AND INTERPRETS LAW
SUPREME COURT – HIGHEST COURT OF THE LAND

METROPOLITANT TRIAL COURTS, MUNICIPAL TRIALS COURTS IN CITIES, MUNICIPAL TRIAL COURTS,
MUNICIPAL CIRCUIT TRIAL COURTS, SHARIA CIRCUIT COURTS NEXT REGIONAL TRIAL COURT, SHARIA
DISTRICT COURTS, NEXT, COURT OF APPEALS, SANDIGANBAYAN, COURT OF TAX APPEALS, SUPREME
COURT.

THE SUPREME COURT, COURT OF APPEALS, AND THE REGIONAL TRIAL COURTS – COURTS OF GENERAL
OR SUPERIOR JURISDICTION.

LAW IS COMPULSORY – EVERYONE HAS TO FOLLOW THE LAW

4. COMMON OBSERVANCE AND BENEFIT – EVERYBODY HAS TO COMPLY, REGULATES THE RELATION
OF MEN TO MAINTAIN HARMONY IN SOCIETY, MAKE ORDER AND CO-EXISTENCE POSSIBLE.
ORDER

LAW IN BROAD SENSE – RULE OF ACTION OR ANY SYSTEM OF UNIFORMITY

DIVIDED SENSES OF LAW

LEGAL SENSE – CREATED BY THE STATE, SYNONYMS POSITIVE LAW, IMPERATIVE LAW, MUNICIPAL LAW,
CIVIL LAW, - STATE LAW

NON-LEGAL SENSE – NOT CREATED BY THE STATE

A. DIVINE LAW – RELIGION

B. NATURAL LAW – METAPHYSICS
C. MORAL LAW – ETHICS
D. PHYSICAL LAW – PHYSICS

SOURCES OF LAW

1. CONSTITUTION – HIGHEST LAW OF THE LAND

MALOLOS – 1935 – 1973 – FREEDOM - 1987
2. LEGISLATION – ENACTED LAW OR STATUTE LAW
3. ADMINISTRATIVE OR EXECUTIVE ORDERS, REGULATIONS, AND RULINGS
4. JUDICIAL DECISIONS OR JURISPRUDENCE – DECISIONS OF SUPREME COURT – PRINCIPLE:
DOCTRINE OF PRECEDENT OR STARE DECISIS, EFFECT: LAWS OF THE LAND
HISTORY OF LAW: GREECE – ROME (LATIN) – SPAIN - PHILIPPINES
5. CUSTOM AND TRADITIONS
6. OTHER SOURCES – DECISIONS OF FOREIGN COURT, PRINCIPLE OF JUSTICE AND EQUITY,
RELIGION, OPINIONS OF TEXTWRITERS. MIRANDA RIGHTS – DUE PROCESS

INDEPENDENT CONSTITUTIONAL COMMISSIONS – NOT PART OF THE THREE BRANCHES OF THE

GOVERNMENT

1. CIVIL SERVICE COMMISSION – HUMAN RESOURCE DEPARTMENT

2. COMISSION ON ELECTION - ELECTION
3. COMMISSION ON AUDIT – AUDITING DEPARTMENT
ADMINISTRATIVE BODY

1. QUASI-LEGISLATIVE – CREATE AND IMPLEMENT LAW – EXAMPLE: LTO

2. QUASI-JUDICIARY – IMPLEMENT AND DECIDE LAW – NLRC – NATIONAL LABOR RELATIONS
COMMISSION

CIVIL CODE OF THE PHILIPPINES WAS PATTERNED UNDER CIVIL CODE OF SPAIN

CLASSIFICATION OF LAW:

AS TO ITS PURPOSE:

1. SUBSTANTIVE – CREATE, DEFINE, AND REGULATES THE RIGHTS OF THE PARTIES

2. ADJECTIVE/REMIDIAL/PROCEDURAL – CURE, REMEDY, PROCEDURE

AS TO ITS SUBJECT MATTER OR NATURE:

1. PUBLIC – STATE AND PEOPLE

2. PRIVATE – PURELY PRIVATE, RELATIONS OF INDIVIDUALS

OBLIGATION AND CONTRACT – SUBSTANTIVE AND PRIVATE

TITLE OF THE LAW – CIVIL CODE OF THE PHILIPPINES

CITATION – REPUBLIC ACT 386

DATE OF EFFECTIVITY – AUGUST 30, 1950

LATIN TERMS

IGNORANTIA LEGIS NEMINEM EXCUSAT (IGNORANCE OF THE LAW EXCUSES NO ONE FROM
COMPLIANCE THEREWITH) CONCLUSIVE PRESUMPTION

NEMO EST SUPREMA LEX (NO ONE IS ABOVE THE LAW)

DURA LEX SED LEX (LAW MAY BE HARSH BUT IT IS THE LAW)

Law applies to all or none at all.

TITLE 1 OBLIGATIONS (1156-1304)

CHAPTER 1 GENERAL PROVISIONS

ARTICLE 1156 – AN OBLIGATION IS A JURIDICAL NECESSITY (DEMANDABLE, FILE A CASE IN COURT) TO

GIVE (REAL OBLIGATION), TO DO (POSITIVE PERSONAL OBLIGATION) OR NOT TO DO (NEGATIVE
PERSONAL OBLIGATION).

LATIN WORD: “OBLIGATIO” MEANS TYING OR BINDING.

CIVIL OBLIGATION DURATION – DEMANDABLE, POSITIVE LAW

NATURAL OBLIGATION DURATION (BEYOND THE DUE DATE) – NOT DEMANDABLE, CANNOT ENFORCE
PERFORMANCE, ONLY VOLUNTARY FULFILLMENT, EQUITY AND NATURAL LAW.

ESSENTIAL ELEMENTS/REQUISITIES OF OBLIGATION

1. PASSIVE SUBJECT/DEBTOR/OBLIGOR – BOUND TO FULFILLMENT OF OBLIGATION, DUTY,

PERFORM
2. ACTIVE SUBJECT/CREDITOR/OBLIGEE – ENTITLED TO DEMAND THE FULFILLMENT OF
OBLIGATION, RIGHT
3. OBJECT/PRESTATION/SUBJECT MATTER – SUBJECT MATTER OF THE OBLIGATION
4. JURIDICAL OR LEGAL TIE/JURIDICAL VINCULUM – BINDS OR CONNECTS THE PARTIES, SOURCE
OF OBLIGATION

PRESCRIPTION/STATUTE OF LIMITATIONS

1. EXTINCTIVE – LOSE THE THING (DISCUSSION)

2. ACQUISITIVE – GAIN THE THING

FOUND IN ARTICLE 1218

10 YEARS:

1. WRITTEN CONTRACT
2. OBLIGATION CREATED BY LAW
3. JUDGMENT OF COURT

6 YEARS:

1. ORAL CONTRACT
2. QUASI-CONTRACT

4 YEARS:

1. INJURY TO THE RIGHTS OF THE PLAINTIFF

2. QUASI-DELICT

1 YEAR:

1. DEFAMATION
 2. EJECTMENT

OBLIGATION – ACT OR PERFORMANCE, LAW WILL ENFORCE

RIGHT – POWER, DEMAND, COLLECT

WRONG – ACT OR OMMISSION, VIOLATION, LEGAL RIGHTS OF ANOTHER, INJURY

PLAINTIFF – RIGHT TO DEMAND

DEFENDANT – DUTY

CAUSE OF ACTION – WRONG DONE

KINDS OF OBLIGATIONS:

REAL OBLIGATION – TO GIVE – TO DELIVER THE THING (SUBJECT MATTER)

PERSONAL OBLIGATION – TO DO OR NOT TO DO – ACT TO BE DONE OR NOT TO BE DONE (SUBJECT

MATTER)– SPECIFIC PERFROMANCE

PERSONAL POSITIVE OBLIGATION – TO DO – TO PERFORM – TO RENDER SERVICE

NEGATIVE PERSONAL OBLIGATION – NOT TO DO – NOT TO PERFORM – NOT

ARTICLE 1157 – OBLIGATIONS ARISE FROM: SOURCES OF OBLIGATIONS

LAW – IMPOSED BY LAW

CONTRACTS – STIPULATION

QUASI-CONTRACT – NOT A CONTRACT, LAWFUL, VOLUNTARY, UNILARTERAL ACTS, NO ONE SHALL BE

UNJUSTLY ENRICHED OR BENEFITED AT THE EXPENSE OF ANOTHER.

CRIMES OR ACTS OR OMISSIONS PUNISHED BY LAW – DELICT

QUASI-DELICTS/TORTS – NO CONTRACTUAL RELATION BUT THERE DAMAGES CAUSED DUE TO

NEGLIGENCE

ARTICLE 1158 – OBLIGATIONS DERIVED FROM LAW – (LEGAL OBLIGATIONS – EX LEGE) ARE NOT
PRESUMED (CONSIDERED BURDEN UPON THE OBLIGOR/DEBTOR). ONLY THOSE EXPRESSLY
DETERMINED IN THIS CODE OR IN SPECIAL LAWS ARE DEMANDABLE, AND SHALL BE REGULATED BY
THE PRECEPTS OF THE LAW WHICH ESTABLISHES THEM; AND AS TO WHAT HAS NOT BEEN FORESEEN,
BY THE PROVISIONS OF THIS BOOK.

ARTICLE 1159 – OBLIGATIONS ARISING FROM CONTRACTS – (CONTRACTUAL OBLIGATIONS – EX

CONTRACTU) HAVE THE FORCE OF LAW BETWEEN THE CONRACTING PARTIES AND SHOULD BE
COMPLIED WITH IN GOOD FAITH

CONTRACT – IS A MEETING OF MINDS BETWEEN TWO (OR MORE) PERSONS WHEREBY ONE BINDS
HIMSELF, WITH RESPECT TO THE OTHER, GIVE SOMETHING OR TO RENDER SOME SERVICE. (ARTICLE
1305)

LAW IS STILL SUPERIOR THAN CONTRACT; IT IS VALID IF IT COMPLIES WITH LAW.

FAILURE OR REFUSE TO COMPLY – BREACH OF CONTRACT

COMPLIANCE WITH GOOD FAITH – COMPLIANCE OR PERFORMANCE IN ACCORDANCE WITH THE

STIPULATION OR TERMS OF THE CONTRACT OR AGREEMENT OF THE PARTIES.

NON-COMPLIANCE = UNJUST ENRICHMENT

ARTICLE 1160 – OBLIGATIONS DERIVED FROM QUASI-CONTRACTS – (QUASI-CONTRACTUAL

OBLIGATIONS – EX QUASI CONTRACTU) SHALL BE SUBJECT TO THE PROVISIONS OF CHAPTER 1, TITLE
XVIII OF THIS BOOK

QUASI-CONTRACT – JURIDICAL RELATION, LAWFUL, VOLUNTARY AND UNILATERAL ACTS, (VIRTUE)

PARTIES BECOME BOUND TO EACH OTHER TO THE END THAT NO ONE WILL BE UNJUSTLY ENRICHED OR
BENEFITED AT THE EXPENSE OF THE OTHER.

KINDS OF QUASI-CONTRACTS

1. NEGOTIORUM GESTIO – VOLUNTARY MANAGEMENT, WITHOUT KNOWLEDGE OR CONSENT

2. SOLUTIO INDEBITI – PAYMENT OR DELIVERED BY MISTAKE, NO RIGHT TO DEMAND IT

ARTICLE 1161 – CIVIL OBLIGATIONS ARISING FROM CRIMINAL OFFENSES – (CIVILI LIABILITY ARISING
FROM CRIMES OR DELICTS/PENAL OBLIGATIONS – EX DELICTO/EX MALEFACTO) SHALL BE GOVERNED
BY THE PENAL LAWS, SUBJECT TO THE PROVISIONS OF ARTICLE 2177, AND OF THE PERTINENT
PROVISIONS OF CHAPTER 2, PRELIMINARY TITLE, ON HUMAN RELATIONS, AND OF TITLE XVIII OF THIS
BOOK, REGULATING DAMAGES

1. CIVIL LIABILITY IN ADDITION TO CRIMINAL LIABILITY – CRIMANALLY LIABLE AND CIVILLY LIABLE
2. CRIMINAL LIABLITY WITHOUT CIVIL LIABILITY – CRIMINALLY LIABLE WITHOUT CIVIL LIABILITY
3. CIVIL LIABILITY WITHOUT CRIMINAL LIABILITY – CIVILLY LIABLE WITHOUT CRIMINAL LIABILITY

- CRIMINAL LIABILITY – IMPRISONMENT

- CIVIL LIABILITY – PAYMENT OF DAMAGES

SCOPE OF CIVIL LIABILITY

1. RESTITUTION – RETURN
2. REPARATION – AMEND/COMPENSATE
3. INDEMNIFICATION – COMPENSATE

ARTICLE 1162 – OBLIGATIONS DERIVED FROM QUASI-DELICT – (QUASI-DELICT OBLIGATIONS – EX

QUASI DELICTO) SHALL BE GOVERNED BY THE PROVISIONS OF CHAPTER 2, TITLE XVII OF THIS BOOK,
AND BY SPECIAL LAWS

QUASI-DELICT – ACT OR OMISSION BY A PERSON (TORTFEASOR), CAUSES DAMAGES DUE TO

NEGLIGENCE, WITHOUT PRE-EXISTING CONTRACTUAL RELATION BETWEEN PARTIES.
CRIME DISTINGUISED FROM QUASI-DELICT

CRIME QUASI-DELICT
WRONGLY DONE MALICIOUS INTENT OR ONLY NEGLIGENCE
CRIMINAL NEGLIGENCE
PURPOSE PUNISHMENT INDEMNIFICATION
AFFECTED PUBLIC INTEREST PRIVATE INTEREST
LIABILITIES CRIMINAL AND CIVIL CIVIL
CANNOT BE COMPROMISED OR CAN BE COMPROMISED OR
SETTLED SETLLED
JUDGMENT/WEIGH OF PROVED BEYOND REASONABLE PREPONDERANCE OF EVIDENCE
EVIDENCE DOUBT

CHAPTER 2 NATURE AND EFFECT OF OBLIGATIONS

ARTICLE 1163 – EVERY PERSON OBLIGED TO GIVE SOMETHING IS ALSO OBLIGED TO TAKE CARE OF IT
WITH THE PROPER DILIGENCE OF A GOOD FATHER OF A FAMILY

SPECIFIC/DETERMINATE VS. GENERIC/INDETERMINATE

SPECIFIC/DETERMINATE – PARTICULARY DESIGNATED, PHYSICALLY SEGREGATED, IDENTIFIED BY ITS

INDIVIDUALITY, SURE, ONLY ONE IN THE WORLD, CANNOT SUBSTITUTE.

GENERIC/INDETERMINATE – CLASS OR GENUS, CANNOT BE POINTED OUT WITH PARTICULARITY,

MANY, IDENTIFIED ONLY BY ITS SPECIE

GENUS NUNQUAM PERIT (PERUIT) – GENUS NEVER PERISHES – DEBTOR CAN REPLACE/SUBSTITUTE

EXCEPTION: LIMITED GENERIC THING – CONFINED BY CLASS – WHEN THE GENERIC OBJECTS ARE
CONFINED TO A PARTICULAR CLASS, EXAMPLE TO DELIVER ONE OF MY HORSES, THE OBLIGATION CAN
BE EXTINGUISHED.

DILIGENCE REQUIRED:

1. BY PROVISIONS OF LAW
a. ANOTHER STANDARD OF CARE
2. BY STIPULATIONS OF PARTIES
a. ANOTHER STANDARD OF CARE
3. IN THE ABSENCE OF BOTH
a. DILIGENCE OF A GOOD FATHER OF THE FAMILY – BONUM PATERFAMILIA

LEVELS OF DILIGENCE :

1. SLIGHT/MEAGER
2. ORDINARY/DILIGENCE OF GOOD FATHER OF THE FAMILY
3. EXTRAORDINARY DILIGENCE
a. BANKING INDUSTRY
b. COMMON CARRIAGE
3 BASIC OBLIGATIONS IN DELIVERY OF A DETERMINATE THING:

1. TO PRESERVE AND TAKE GOOD CARE OF THE THING WITH THE DILIGENCE OF A GOOD FATHER
OF THE FAMILY
2. DELIVER THE THING ITSELF
3. DELIVER THE THING INCLUDING ALL ITS FRUITS
4. DELIVER THE ACCESSORIES AND ACCESSIONS
5. ANSWER FOR DAMAGES IN CASE OF NON-COMPLIANCE OR BREACH – GUILTY OF FRAUD,
NEGLIGENCE OR DELAY, (CONTRAVENE THE TENOR) LIABLE FOR DAMAGE.

DUTIES OF DEBTOR IN OBLIGATION TO DELIVER A GENERIC THING

1. TO DELIVER THE THING

- QUALITY INTENDED
- CONSIDERATION OF THE PURPOSE OF THE OBLIGATION AND OTHER CIRCUMSTANCES
2. LIABLE FOR DAMAGES
- GUILTY OF FRAUD, NEGLIGENCE, OR DELAY, IN THE PERFORMANCE OF HIS OBLIGATION, OR
CONTRAVENTION OF THE TENOR

GENERAL RULE (1163): THE DEBTOR IS NOT LIABLE IF HIS FAILURE TO PRESERVE THE THING IS NOT DUE
TO HIS FAULT OR NEGLIGENCE BUT TO FORTUITOUS EVENTS

ARTICLE 1164 – THE CREDITOR HAS A RIGHT TO THE FRUITS OF THE THING FROM THE TIME THE
OBLIGATION TO DELIVER IT ARISES. HOWEVER, HE SHALL ACQUIRE NO REAL RIGHT OVER IT UNTIL THE
SAME HAS BEEN DELIVERED TO HIM.

1ST SENTENCE – PERSONAL RIGHT

2ND SENTENCE – REAL RIGHT

DIFFERENT KINDS OF FRUITS:

1. NATURAL FRUITS – MADE BY NATURE, SPONTANEOUS PRODUCTS OF THE SOIL AND THE
YOUNG AND OTHER PRODUCTS OF ANIMALS
2. INDUSTRIAL FRUITS – MADE BY MAN, PRODUCED BY LANDS OF ANY KINDS THROUGH
CULTIVATION OR LABOR.
3. CIVIL FRUITS – VIRTUE OF JURIDICAL RELATION

RIGHT OF CREDITOR TO THE FRUITS – THE CREDITOR HAS THE RIGHT TO THE FRUITS OF THE THING
FROM THE TIME THE OBLIGATION TO DELIVER IT ARISES.

IN CONTRACTS, FROM THE TIME OF THE PERFECTION OF THE CONTRACT – REFERS TO THE BIRTH OF
THE CONTRACT OR TO THE MEETING OF THE MINDS BETWEEN THE PARTIES.

PERSONAL RIGHT (JUS INPERSONAM) – HAS DEFINITE PASSIVE SUBJECT, HAS DEFINITE ACTIVE SUBJECT

REAL RIGHT (JUS INREM) – HAS DEFINITE ACTIVE SUBJECT, HAS NO DEFINITE PASSIVE SUBJECT

BINDING OR ENFORCEABLE:

PERSONAL RIGHT – ONLY AGAINST A PARTICULAR PERSON

REAL RIGHT – DIRECTED AGAINST THE WORLD

WHAT TRANSFERS OWNERSHIP? DELIVERY OR TRADITION

WHAT CREATES THE REAL RIGHT OVER THE THING? REGISTRATION

ARTICLE 1165 – WHEN WHAT IS TO BE DELIVERED IS A DETERMINATE THING, THE CREDITOR, IN

ADDITION TO THE RIGHT GRANTED HIM BY ARTICLE 1170, MAY COMPEL THE DEBTOR TO MAKE
DELIVERY.

IF THE THING IS INDETERMINATE OR GENERIC, HE MAY ASK THAT THE OBLIGATION BE COMPLIED
WITH AT THE EXPENSE OF THE DEBTOR

IF THE OBLIGOR DELAYS, OR HAS PROMISED TO DELIVER THE SAME THING TO TWO OR MORE
PERSONS WHO DO NOT HAVE THE SAME INTEREST, HE SHALL BE RESPONSIBLE FOR FORTUITOUS
EVENT UNTIL HE HAS EFFECTED THE DELIVERY

REMEDIES OF CREDITOR IN REAL OBLIGATION

IN CASE THE OBLIGATION IS GENERIC

3 REMEDIES:

ASK THE DEBTOR

ASK THE THIRD PERSON
ASK FOR DAMAGES (1170)

CAN CREDITOR COMPEL THE DELIVERY OF THE THING? NO

CAN THE CREDITOR ASK A THIRD PERSON? YES

IN CASE THE OBLIGATION IS SPECIFIC

REMEDIES: COMPEL THE DEBTOR AND ASK FOR DAMAGES

CAN CREDITOR COMPEL THE DELIVERY OF THE THING? YES

CAN THE CREDITOR ASK A THIRD PERSON? NO

ARTICLE 1166 – THE OBLIGATION TO GIVE A DETERMINATE THING INCLUDES THAT OF DELIVERING ALL
ITS ACCESSIONS AND ACCESSORIES, EVEN THOUGH THEY MAY NOT HAVE BEEN MENTIONED.

ACCESSIONS – ARE THE FRUITS OF A THING OR ADDITIONS TO IMPROVEMENTS

ACCESSORIES – ARE THE THINGS JOINED TO OR INCLUDED WITH THE PRINCIPAL THING FOR THE
LATTER’S EMBELLISHMENTS, BETTER USE, OR COMPLETION
a. KNOW WHAT IS MOST EXPENSIVE
b. KNOW WHAT IS THE MOST IMPORTANT

GENERAL RULE (1166) – ACCESSIO CEDIT PRINCIPALI – ACCESSORY FOLLOWS THE PRINCIPAL
CAN THE PRINCIPAL EXIST WITHOUT THE ACCESSORY? YES, THE PRINCIPAL CAN STAND ALONE
CAN THE ACCESSORY EXIST WITHOUT THE PRINCIPAL? NO

ARTICLE 1167 – IF A PERSON OBLIGED TO DO (POSITIVE PERSONAL OBLIGATION) SOMETHING FAILS TO

DO IT, THE SAME SHALL BE EXECUTED AT HIS COST.

THIS SAME RULE SHALL BE OBSERVED IF HE DOES IT IN CONTRAVENTION OF THE TENOR OF THE
OBLIGATION, FURTHERMORE, IT MAY BE DECREED THAT WHAT HAS BEEN POORLY DONE BE UNDONE.

HIGHLIGHTED ARE THE 3 SITUATIONS OF PERSONAL POSITIVE OBLIGATION

REMEDIES OF THE CREDITOR IN POSITIVE PERSONAL OBLIGATIONS

a. ASK THE DEBTOR, IN CASE OF REFUSAL, ASK A THIRD PERSON
EXCEPTION (THIRD PERSON): PERSONAL CONSIDERATION IS INVOLVED
b. ASK FOR DAMAGES

CAN I COMPEL THE DEBTOR? NO, INVOLUNTARY SERVITUDE

ARTICLE 1168 – WHEN THE OBLIGATION CONSISTS IN NOT DOING (NEGATIVE PERSONAL OBLIGATION),
AND THE OBLIGOR DOES WHAT HAS BEEN FORBIDDEN HIM, IT SHALL ALSO BE UNDONE AT HIS
EXPENSE

REMEDIES OF THE CREDITOR IN NEGATIVE PERSONAL POSITIVE OBLIGATIONS

a. UNDOING OF THE FORBIDDEN THING + DAMAGES
b. IF NOT POSSIBLE, ASK FOR DAMAGES

ARTICLE 1169 – THOSE OBLIGED TO DELIVER OR TO DO SOMETHING INCUR IN DELAY FROM THE TIME
THE OBLIGEE JUDICIALLY OR EXTRAJUDICALLY DEMANDS FROM THEM THE FULFILLMENT OF THEIR
OBLIGATION. (EX RE – TO GIVE/DELIVER; EX PERSONA – TO DO)

HOWEVER, THE DEMAND BY THE CREDITOR SHALL NOT BE NECESSARY IN ORDER THAT DELAY MAY
EXIST:
(1) WHEN THE OBLIGATION OF THE LAW EXPRESSLY SO DECLARES; OR
(2) WHEN FROM THE NATURE AND THE CIRCUMSTANCES OF THE OBLIGATION IT APPEARS THAT
THE DESIGNATION OF THE TIME WHEN THE THING IS TO BE DELIVERED OR THE SERVICE IS TO
BE RENDERED WAS CONTROLLING MOTIVE FOR THE ESTABLISHMENT OF THE CONTRACT; OR
- TIME IS OF THE ESSENCE
(3) WHEN DEMAND WOULD BE USELESS, AS WHEN THE OBLIGOR HAS REDERED 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.
MEANING OF DELAY

ORDINARY DELAY – PAST DUE DATE

LEGAL DELAY/DEFAULT/MORA – FAILURE TO PERFORM ON TIME = BREACH OF THE OBLIGATION

GENERAL RULE (1169): NO DEMAND, NO DELAY

EXCEPTIONS: (1) LAW (2) STIPULATIONS (3) TIME IS OF THE ESSENCE (4) DEMAND IS USELESS (5)
RECIPROCAL OBLIGATIONS; EXCEPTION (5) PERIOD

KINDS OF DELAY:

(1) MORA SOLVENDI (DEBTOR’S DELAY)

(2) MORA ACCIPENDI (CREDITOR’S DELAY)
(3) COMPENSATIO MORAE (BOTH)

ARTICLE 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

INSTANCES WHEN DEBTOR IS LIABLE FOR DAMAGES

(1) FRAUD/DECEIT/DOLO
(2) NEGLIGENCE/FAULT/CULPA
(3) DELAY/MORA/DEFAULT
(4) VIOLATION OF THE TERMS OF THE OBLIGATIONS/CONTRAVENTION/BREACH

KINDS OF DAMAGES (MENTAL/MANTEL)

(1) MORAL – FEELINGS/REPUTATION

(2) EXEMPLARY/CORRECTIVE – EXAMPLE/CORRECT
(3) NOMINAL – SMALLEST
(4) TEMPERATE – MIDDLE
(5) ACTUAL/COMPENSATORY – PROVEN WITH CERTAINTY
(6) LIQUIDATED – AGRRED UPON

FRAUD – IS THE DELIBERATE OR INTENTIONAL EVASION OF THE NORMAL FULFILLMENT OF THE

OBLIGATION.

KINDS OF FRAUD

(1) DOLO INCIDENTE/INCIDENTAL FRAUD

(2) DOLO CAUSANTE/CAUSAL FRAUD

CAUSAL FRAUD

- BEFORE CREATION/COMMITTED AT THE START

 - ANNULMENT
- VOIDABLE
- CONSENT

VS.

INCIDENTAL FRAUD

- AFTER CREATION
- ASK FOR DAMAGES
- VALID
- VIOLATE THE BREACH THE OBLIGATION

HOW IS CAUSAL FRAUD COMMITTED?

(1) INSIDIOUS WORDS OR MACHINATIONS

(2) CONCEALMENT

NEGLIGENCE – IS ANY VOLUNTARY ACT OR OMMISSION, THERE BEING NO BAD FAITH OR MALICE,
WHICH PREVENTS THE NORMAL FULFILLMENT OF AN OBLIGATION

ARTICLE 1171 – RESPONSIBILITY ARISING FROM FRAUD IS DEMANDABLE IN ALL OBLIGATIONS. ANY
WAIVER OF AN ACTION FOR FUTURE FRAUD IS VOID

WAIVER FOR FUTURE FRAUD – VOID

WAIVER FOR PAST FRAUD – VALID (FORGIVENESS)
WAIVER FOR PAST AND FUTURE NEGLIGENCE – VALID

KINDS OF NEGLIGENCE:

(1) CONTRACTUAL (CULPA CONTRACTUAL)

a. NEGLIGENCE IS INCIDENTAL
b. PRE-EXISTING OBLIGATION
c. PREPONDERENCE OF OBLIGATION
d. DGFF IS NOT A DEFENSE
e. TO BE PROVED
i. CONTRACT
ii. BREACH
f. MASTER AND SERVANT RULE APPLIES
(2) CIVIL (CULPA AQUILIANA)
a. DIRECT AND SUBSTANTIVE
b. NONE
c. PREPONDERANCE OF EVIDENCE
d. YES
e. TO BE PROVED - NEGLIGENCE
f. NO
(3) CRIMINAL (CULPA CRIMINAL)
 a. DIRECT AND SUBSTANTIVE
b. NONE
c. PROOF BEYOND REASONABLE DOUBT
d. NO
e. PRESSUMED INNOCENT
f. NO

ARTICLE 1172 – RESPONSIBILITY ARISING FROM NEGLIGENCE IN THE PERFORMANCE OF EVERY KIND
OF OBLIGATION IS ALSO DEMANDABLE, BUT SUCH LIABILITY MAY BE REGULATED BY THE COURTS,
ACCORDING TO THE CIRCUMSTANCES.

RESPONSIBILITY ARISING FROM NEGLIGENCE DEMANDABLE – DEBTOR LIABLE FOR DAMAGES DUE TO
HIS NEGLIGENCE

(1) DISCRETION OF COURT TO FIX AMOUNT OF DAMAGES – DAMAGES RECOVERABLE

(2) DAMAGES WHERE BOTH PARTIES MUTUALLY NEGLIGENT – EQUITABLE PRINCIPLE, NO ONE
SHALLL ENRICH HIMSELF AT THE EXPENSE OF ANOTHER

ARTICLE 1173 – THE FAULT OR NEGLIGENCE OF THE OBLIGOR CONSISTS IN THE OMISSION OF THAT
DILIGENCE WHICH IS REQUIRED BY THE NATURE OF THE OBLIGATION AND CORRESPONDS WITH THE
CIRCUMSTANCES OF THE PERSON, OF THE TIME AND OF THE PLACE. WHEN NEGLIGENCE SHOWS BAD
FAITH, THE PROVISIONS OF ARTICLES 1171 AND 2201, PARAGRAPH 2, SHALL APPLY

IF THE LAW OR CONTRACT DOES NOT STATE THE DILIGENCE WHICH IS TO BE OBSERVED IN THE
PERFORMANCE, THAT WHICH IS EXPECTED OF A GOOD FATHER OF A FAMILY SHALL BE REQUIRED.

FACTORS TO BE CONSIDERED WHEN A PERSON IS NEGLIGENT

(1) NATURE OF OBLIGATION

(2) CIRCUMSTANCES OF THE PERSON
(3) CIRCUMSTANCES OF TIME
(4) CIRCUMSTANCES OF PLACE

MEASURE OF LIABILITY FOR DAMAGES

(1) GOOD FAITH – NATURAL AND PROBABLE CONSEQUENCES

(2) BAD FAITH, FRAUD, MALICE OR WANTON ATTITUTDE – ALL DAMAGES + NON-PERFORMANCE
OF OBLIGATION

KINDS OF DILIGENCE REQUIRED

(1) STIPULATION – ORAL OR WRITTEN

(2) LAW IN PARTICULAR CASE (EXTRAORDINARY IF COMMON CARRIAGE)
(3) ABSENCE OF BOTH, DGFF

ARTICLE 1174 – EXCEPT IN CASES EXPRESSLY SPECIFIED BY THE LAW, OR WHEN IT IS OTHERWISE
DECLARED BY STIPULATION, OR WHEN THE NATURE OF THE OBLIGATION REQUIRES ASSUMPTION OF
RISK, NO PERSON SHALL BE RESPONSIBLE FOR THOSE EVENTS WHICH COULD NOT BE FORESEEN, OR
WHICH THOUGH FORESEEN, WERE INEVITABLE.

FORTUITOUS EVENTS – ANY EVENT WHICH CANNOT BE FORESEEN, OR WHICH, THOUGH FORESEEN, IS
INEVITABLE

“DEBTOR MUST BE FREE FROM ANY PARTICIPATION”

FORCE MAJEURE/CASA FORTUITO/PUWERSA MAYOR

ACTS OF MAN – HUMAN WILL

ACTS OF GOD (FORCE MAJEURE) –

KINDS OF FORTUITOUS EVENTS

(1) ORDINARY FORTUITOUS EVENTS – COMMON, COULD REASONABLY FORESEEN

(2) EXTRA-ORDINARY FORTUITOUS EVENTS – UNCOMMON, COULD NOT HAVE REASONABLY
FORSEEN

GENERAL RULE (1174): DEBTOR IS NOT LIABLE

EXCEPTIONS – DEBTOR IS LIABLE

(1) LAW (1170, 1165 (3) FRAUD DELAY, 1268 SPECIFIC THING ARISES FROM CRIME, 1263 GENERIC)
(2) STIPULATION
(3) NATURE OF THE OBLIGATION REQUIRES THE ASSUMPTION OF RISK

DOCTRINE OF ASSUMED RISK, DOCTRINE OF ASSUMPTION OF RISK – VOLENTI NON FIT INJURIA

ARTICLE 1175. USURIOUS TRANSACTIONS SHALL BE GOVERNED BY SPEICAL LAWS.

- USURY LAW IS LEGALLY INEXISTENT (CENTRAL BANK CIRCULAR NO. 905)

REQUISITIES TO RECOVER OF INTEREST

(1) AGREEMENT
(2) WRITING
(3) LAWFUL

MUTUUM (SIMPLE LOAN) – BORROW A MONEY OR CONSUMABLE THING, SAME VALUE = SAME VALUE
(W/ INTEREST)

USURY – EXCESS INTEREST

COMMODATUM – BORROW OTHER THAN MONEY, NON-CONSUMABLE THING

UNCONSCIONABLE = VOID
ARTICLE 1176 – THE RECEIPT OF THE PRINCIPAL BY THE CREDITOR, WITHOUT RESERVATION WITH
RESPECT TO THE INTEREST, SHALL GIVE RISE TO THE PRESEUMPTION THAT THE INTEREST HAS BEEN
PAID.

THE RECEIPT OF A LATER INSTALLMENT OF A DEBT WITHOUT RESERVATION AS TO PRIOR

INSTALLMENTS, SHALL LIKEWISE RAISE THE PRESUMPTION THAT SUCH INTALLMENTS HAVE BEEN PAID.

PRESUMTION – INFERENCE, ARISNG FROM ITS USUAL CONNECTION, KNOWN OR PROVED

TWO KINDS OF PRESUMPTION:

CONCLUSIVE PRESUMPTION – CANNOT BE CONTRADICTED, FINAL

DISPUTABLE PRESEMTION – CAN BE CONTRADICTED, PRESENTING PROOF TO THE CONTRARY, CAN BE

CHANGED

RULE (1ST PARAGRAPH) – INTEREST IS PAID AHEAD OF THE PRINCIPAL

PRESUMPTION – INTEREST IS ALREADY PAID

RULE (2ND PARAGRAPH) – PRIOR INSTALLMENTS ARE FIRST LIQUIDATED

PRESUMPTION – PRIOR INSTALLMENTS ARE ALREADY PAID

EXCEPTIONS OF 1176

1. RESERVATION AS THE INTEREST – RESERVATION, NO PAYMENT OF PRIOR INSTALLMENTS OR

INTERESTS, WRITTEN OR ORAL
2. RECEIPT WITHOUT INDICATION OF PARTICULAR INSTALLMENT PAID – RECEIPT IS DATED BUT
THE MONTH PAID IS NOT STATED
3. RECEIPT FOR A PART OF THE PRINCIPAL – NO MENTION OF INTEREST, ASSUMPTION OF WAIVE
4. PAYMENT OF TAXES – NO PRESUMPTION THAT PREVIOUS TAXES HAVE BEEN PAID
5. NON-PAYMENT PROVEN

ARTICLE 1177 – THE CREDITORS, AFTER HAVING PURSUED THE PROPERTY IN POSSESSION OF THE
DEBTOR TO SATISFY THEIR CLAIMS, MAY EXERCISE AL THE RIGHTS AND BRING ALL THE ACTIONS OF
THE LATTER FOR THE SAME PURPOSE, SAVE THOSE WHICH ARE INHERENT IN HIS PERSON; THEY MAY
ALSO IMPUGN THE ACTS WHICH THE DEBTOR MAY HAVE DONE.

REMEDIES AVAILABLE TO CREDITORS FOR THE SATISFACTION OF THEIR MONETARY CLAIMS

PRINCIPAL/PRIMARY REMEDY – EXACT FULFILLMENT/SPECIFIC PERFORMANCE/COLLECTION OF SUM

OF MONEY

SECONDARY/SUBSIDIARY REMEDIES:

1. EXHAUST THE PROPERTIES OF DEBTOR – FIND

2. ACCION SUBROGATORIA – SUBROGATION/SUBSTITUTION
3. ACCION PAULINA – RESCIND/CANCEL
ARTICLE 1178 – SUBJECT TO THE LAWS, ALL RIGHTS ACQUIRED IN VIRTUE OF AN OBLIGATION ARE
TRANSMISSIBLE, IF THERE HAS BEEN NO STIPULATION TO THE CONTRARY.

OBLIGATIONS ARE TRANSMISSIBLE

GENERAL RULE (1178): RIGHTS ARE TRANSMISSBLE

EXCEPTIONS:

1. PROHIBITTED BY LAW
2. STIPULATION
3. NOT TRANSMISSIBLE BY NATURE

CHAPTER 3 – DIFFERENT KINDS OF OBLIGATIONS

UNILATERAL – ONE OBLIGATIONS VS. BILATERAL – TWO OBLIGATIONS (MULTILATERAL – MORE

OBLIGATIONS)

REAL (TO GIVE) VS. PERSONAL (TO DO OR NOT TO DO)

DETERMINATE (SPECIFIC, CANNOT BE REPLACED) VS. GENERIC (INDETERMINATE, CAN BE REPLACED)

CIVIL (DEMANDABLE IN COURT) VS. NATURAL (CANNOT BE DEMANDED)

LEGAL – ARISES FROM LAW VS. CONVENTIONAL – VOLUNTARY OR CONRACTUAL OBLIGATION VS.
PENAL – ARISES FROM CRIME

ARTICLE 1179 – EVERY OBLIGATION WHOSE PERFORMANCE DOES NOT DEPEND UPON A FUTURE ON
UNCERTAN EVENT, OR UPON A PAST EVENT UNKNOWN TO THE PARTIES, OS DEMANDABLE AT ONCE.

EVERY OBLIGATION WHICH CONTAIN A RESOLUTORY CONDITION SHALL ALSO BE DEMANDABLE,

WITHOUT PREJUDICE TO THE EFFECTS OF THE HAPPENING OF THE EVENT

PURE OBLIGATION – NO CONDITION, NO PERIOD

EFFECT: DEMANDABLE AT ONCE, IMMEDIATELY DEMANDED

CONDITION – FUTURE AND UNCERTAIN

PERIOD – FUTURE AND CERTAIN

INSTANCES WHEN OBLIGATION IS DEMANDABLE:

(1) PURE OBLIGATION
(2) RESOLUTORY CONDITION
(3) RESOLUTORY PERIOD

SUSPENSIVE CONDITION (CONDITION PRECEDENT OR CONDITION ANTECEDENT) – FINISH LINE

- IF CONDITION IS FULFILLED – OBLIGATION ARISES
- DEMANDABILITY – SUSPENDED
- WHEN CONDITION IS NOT FULFILLED – MERE HOPE OR EXPECTANCY
ACQUISITION OF RIGHTS
VS.

RESOLUTORY CONDITION (CONDITION SUBSEQUENT)

- IF CONDITION IS FULFILLED – OBLIGATION EXTINGUISH
- DEMANDABILITY – AT ONCE
- WHEN CONDITION IS NOT FULFILLED – ITS EFFECT FLOW, BUT THERE IS A POSSIBILITY OF
TERMINATION (RIGHTS)
- CONSOLIDATION OR RIGHTS

ARTCLE 1180 – WHEN THE DEBTOR BINDS HIMSELF TO PAY WHEN HIS MEANS PERMITS HIM TO DO SO,
THE OBLIGATION SHALL BE DEEMED TO BE ONE WITH A PERIOD, SUBJECT TO PROVISIONS OF ARTICLE
1197.

DURATION OF THE PERIOD DEPENDS ON THE DEBTOR - PERIOD

“LITTLE BY LITTLE”, “AS SOON AS POSSIBLE”, “FROM TIME TO TIME”, “IN PARTIAL PAYMENTS”, ”WHEN I
AM IN A POSITION TO PAY” – ALL OF THESE ARE PEIODS

ARTICLE 1181 – IN CONDITIONAL OBLIGATIONS, THE ACQUISITION OF RIGHTS, AS WELL AS THE

EXTINGUISHMENT OR LOSS OF THOSE ALREADY ACQUIRED, SHALL DEPEND UPON THE HAPPENING OF
THE EVENT WHICH CONSTITUTES THE CONDITION.

EFFECT OF HAPPENING OF CONDITION:

1. SUSPENSIVE CONDITION – ACQUISITION OF RIGHTS
2. RESOLUTORY CONDITION – TERMINATION/LOSS OF RIGHTS

ARTICLE 1182 – WHEN THE FULFILLMENT OF THE CONDITION DEPENDS UPON THE SOLE WILL OF THE
DEBTOR, THE CONDITION OBLIGATION SHALL BE VOID. IF IT DEPENDS UPON CHANCE OR UPON THE
WILL OF THE THIRD PERSON, THE OBLIGATION SHALL TAKE EFFECT IN CONFORMITY WITH THE
PROVISIONS OF THIS CODE.

CLASSIFICATION OF CONDITIONS

(1) AS TO EFFECT:
a. SUSPENSIVE – HAPPENING, GIVES RISE TO THE OBLIGATIONS
b. RESOLUTORY – HAPPENING, EXTINGUISH THE OBLIGATION
(2) AS TO FORM:
a. EXPRESS – CLEARLY STATED
b. IMPLIED – MERELY INFERRED
(3) AS TO POSSIBILITY
a. POSSIBLE – CAPABLE OF FULFILLMENT LEGALLY AND PHYSICALLY
b. IMPOSSIBLE – NOT CAPABLE OF FULFILLMENT, LEGALLY OR PHYSICALLY
 (4) AS TO CAUSE OR ORIGIN
a. POTESTATIVE – DPENDS ON DEBTOR OR CREDITOR
b. CASUAL – DEPENDS ON THIRD PERSON “OR” CHANCE
c. MIXED – DEPENDS ON THIRD PERSON “AND” CHANCE
(5) AS TO MODE
a. POSITIVE – PERFORMANCE OF AN ACT
b. NEGATIVE – OMISSION OF AN ACT
(6) AS TO NUMBERS
a. CONJUCTIVE – SEVERAL CONDITIONS, ALL MUST BE FULFILLED
b. DISJUNCTIVE – SEVERAL CONDITIONS, ONE OR SOME MUST BE FULFILLED
(7) AS TO DIVISIBILITY
a. DIVISIBLE – SUSCEPTIBLE OF PARTIAL PERFORMANCE
b. INDIVISIBLE – NOT SUSCEPTIBLE OF PARTIAL PERFORMANCE

IF PERIOD DEPENDS ON DEBTOR – VALID

IF CONDITION DEPENDS ON DEBTOR – VOID
IF CONDITION DEPENDS ON CREDITOR, WILL OF THRID PERSON, WILL OF THIRD PERSON AND/OR
CHANCE, CHANCE ONLY – VALID
IF CONDITION IS POTESTATIVE – “ONE”
IF CONDITION IS CASUAL – “OR”
IF CONDITION IS MIXED – “AND”

ARTICLE 1183 - IMPOSSIBLE CONDITIONS, THOSE CONTRARY TO GOOD CUSTOMS OR PUBLIC POLICY
AND THOSE PROHIBITED BY LAW SHALL ANNUL THE OBLIGATION WHICH DEPENDS UPON THEM. IF
THE OBLIGATION IS DIVISIBLE, THAT PART THEREOF WHICH IS NOT AFFECTED BY THE IMPOSSIBLE OR
UNLAWFUL CONDITION SHALL BE VALID

THE CONDITION NOT TO DO AN IMPOSSIBLE THING SHALL BE CONSIDERED AS NOT HAVING BEEN
AGREED UPON.

IMPOSSIBLE OBLIGATIONS (1183)

- BEGINNING
- ANNULED/VOID

VS.

IMPOSSIBILITY IN THE PERFORMANCE OF THE OBLIGATION (1266)

- AFTER THE CREATION
- DEBTOR IS RELEASED

2 KINDS OF IMPOSSIBLE CONDITIONS

- PHYSICALLY IMPOSSIBLE
- LEGALLY IMPOSSIBLE
EFFECT GENERAL RULE (1183) BOTH OBLIGATION AND CONDITION ARE VOID
IMPOSSIBLE CONDITION SHALL ANNUL THE OBLIGATION
EXCEPTION – ONLY THE CONDITION IS VOID (EFFECT: BECOMES PURE OBLIGATION)
1. PRE-EXISTING
2. DIVISIBLE
3. NEGATIVE
a. SIMPLE OR REMENATORY ONES
b. TESTAMENTORY DISPOSITIONS
c. NEGATIVE OBLIGATIONS

ARTICLE 1184 – THE CONDITION THAT SOME EVENT HAPPEN AT A DETRMINATE TIME SHALL
EXTINGUISH THE OBLIGATION AS SOON AS THE TIME EXPIRES OR IF IT HAS BECOME INDUBITABLE
THAT THE EVENT WILL NOT TAKE PLACE.

POSITIVE SUSPENSIVE CONDITION – SUPPOSED TO DO THE THING

1. TIME EXPIRES
2. CONDITION BECOMES INDUBITABLE
a. EFFECT: OBLIGATION IS EXTINGUISHED
b. DEBTOR IS NOT LIABLE

ARTICLE 1185 – THE CONDITION THAT SOME EVENT WILL NOT HAPPEN AT A DETERMINATE TIME
SHALL RENDER THE OBLIGATION EFFECTIVE FROM THE MOMENT THE TIME INDICATED HAS ELAPSED,
OR IF IT HAS BECOME EVIDENT THAT THE EVENT CANNOT OCCUR.

IF NO TIME HAS BEEN FIXED, THE CONDITION SHALL BE DEEMED FULFILLED AT SUCH TIEM AS MAY
HAVE PROBABLY BEEN CONTEMPLATED, BEARING IN MIND THE NATURE OF THE OBLIGATION.

NEGATIVE SUSPENSIVE CONDITION – NOT SUPPOSED TO DO THE THING

1. TIME ELAPSES
2. EVIDENT THAT EVENT CANNOT OCCUR
a. EFFECT: OBLIGATION BECOMES EFFECTIVE
b. DEBTOR IS LIABLE

ARTICLE 1186 – THE CONDITION SHALL BE DEEMED FULFILLED WHEN THE OBLIGOR VOLUNTARILY
PREVENTS ITS FULFILLMENT.

CONSTRUCTIVE FULFILLMENT OF SUSPENSIVE AND RESOLUTORY CONDITION

REQUISITIES:
1. CONDITION IS SUSPENSIVE
2. OBLIGOR OR DEBTOR PREVENTS THE FULFILLMENT OF THE CONDITION
3. ACTS VOLUNTARILY

DOCTRINE OF PRESUMED FULFILLMENT

DOCTRINE OF CONSTRUCTIVE FULFILLMENT

EFFECT: DEEMED FULFILLED

WHY? DEBTOR PREVENTED THE FULFILLMENT/HAPPENING OF CONDITION
ARTICLE 1187 – THE EFFECTS OF A CONDITIONAL OBLIGATION TO GIVE, ONCE THE CONDITION HAS
BEEN FULFILLED, SHALL RETROACT TO THE DAY OF THE CONSTITUTION OF THE OBLIGATION.
NEVERTHELESS, WHEN THE OBLIGATION IMPOSES RECIRPROCAL PRESTATIONS UPON THE PARTIES,
THE FRUITS AND INTERESTS DURING THE PENDENCY OF THE CONDITION SHALL BE DEEMED TO HAVE
BEEN MUTUALLY COMPENSATED. IF THE OBLIGATION IS UNILATERAL, THE DEBTOR SHALL
APPROPRIATE THE FRUITS AND INTERESTS RECEIVED, UNLESS FROM THE NATURE AND
CIRCUMSTANCES OF THE OBLIGATION IT SHOULD BE INFERRED THAT THE INTENTION OF THE PERSON
CONSTITUTING THE SAME WAS DIFFERENT.

IN OBLIGATIONS TO DO AND NOT TO DO, THE COURTS SHALL DETERMINE, IN EACH CASE, THE
RETROACTIVE EFFECT OF THE CONDITION THAT HAS BEEN COMPLIED WITH.

RETROACTIVE EFFECTS OF FULFILLMENT OF SUSPENSIVE CONDITION

(1) OBLIGATIONS TO GIVE – YES, IT HAS RETROACTIVE

(2) OBLIGATIONS TO OR NOT TO DO – NO RETROACTIVE EFFECT, THE COURT WILL DECIDE (NO
FIZED RULE IS PROVIDED)

RETROACTIVE EFFECTS AS TO FRUITS AND INTERESTS IN OBLIGATIONS TO GIVE

(1) NO RETROACTIVE EFFECT IN FRUITS AND INTEREST
(2) NO RETROACTIVE EFFECT IN RECIPROCAL OBLIGATIONS, MUTUALLY COMPENSATED
(3) NO RETROACTIVE EFFECT IN UNILATERAL OBLIGATIONS, GRATUITOUS – FREE

ARTICLE 1188 – THE CREDITOR MAY, BEFORE THE FULFILLMENT OF THE CONDITION, BRING THE
APPROPRIATE ACTIONS FOR THE PRESERVATION OF HIS RIGHT.

THE DEBTOR MAY RECOVER WHAT DURING THE SAME TIME HE HAS PAID BY MISTAKE IN CASE OF A
SUSPENSIVE CONDITION.

- RIGHTS PENDING THE FULFILLMENT OF SUSPENSIVE CONDITION

1ST PARAGRAPH – RIGHTS OF CREDITOR
- RIGHT TO BRING APPROPRIATE ACTIONS
- PRESERVATION OF RIGHT
- ANNOTATE

2ND PARAGRAPH – RIGHTS OF DEBTOR

- RIGHT TO RECOVER WHAT HE HAD PAID BY MISTAKE (SOLUTIO INDEBITI)

ARTICLE 1189 – WHEN THE CONDITIONS HAVE BEEN IMPOSED WITH THE INTENTION OF SUSPENDING
THE EFFICACY OF AN OBLIGATION TO GIVE, THE FOLLOWING RULES SHALL BE OBSERVED IN CASE OF
THE IMPROVEMENT, LOSS OR DETERIORATION OF THE THING DURING THE PENDENCY OF THE
CONDITION:

(1) IF THE THING IS LOST WITHOUT THE FAULT OF THE DEBTOR, THE OBLIGATION SHALL BE
EXTINGUISHED;
(2) IF THE THING IS LOST THROUGH THE FAULT OF THE DEBTOR, HE SHALL BE OBLIGED TO PAY
DAMAGES; IT IS UNDERSTOOD THAT THE THING IS LOST WHEN IT PERISHES, OR GOES OUT OF
COMMERCE, OR DISAPPEARS IN SUCH A WAY THAT ITS EXISTENCE IS UNKNOWN OR IT
CANNOT BE RECOVERED;
(3) WHEN THE THING DETERIORATES WITHOUT THE FAULT OF THE DEBTOR, THE IMPAIRMENT IS
TO BE BORNE BY THE CREDITOR;
(4) IF IT DETERIORATES THROUGH THE FAULT OF THE DEBTOR, THE CREDITOR MAY CHOOSE
BETWEEN THE RESCISSION OF THE OBLIGATION AND ITS FULFILLMENT, WITH INDEMNITY FOR
DAMAGES IN EITHER CASE;
(5) IF THE THING IS IMPROVED BY ITS NATURE, OR BY TIME, THE IMPROVEMENT SHALL INURE TO
THE BENEFIT OF THE CREDITOR;
(6) IF IT IS IMPROVED AT THE EXPENSE OF THE DEBTOR, HE SHALL HAVE NO OTHER RIGHT THAN
THAT GRANTED TO THE USUFRUCTUARY. (1122)

THIS APPLIES TO THE FOLLOWING:

- REAL OBLIGATION
- OBJECT IS A SPECIFIC OR DETRMINATE THING
- SUBJECT TO A SUSPENSIVE CONDITION
- CONDITION IF FULFILLED
- LOSS, DETERIORATION, OR IMPROVEMENT OF THE THING DURING THE PENDENCY OF
CONDITION

KINDS OF LOSS

(1) PHYSICAL LOSS – PERISHES

(2) LEGAL LOSS – GOES OUT OF COMMERCE
(3) CIVIL LOSS – DISAPPEARS IN SUCH A WAY THAT ITS EXISTENCE IS UNKNOWN

RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT OF THING DURING PENDENCY OF

SUSPENSIVE CONDITION:

(1) LOSS OF THING WITHOUT DEBTOR’S FAULT – FORTUITOUS EVENT – DEBTOR’S LIABLE? NO –
OBLIGATION IS EXTINGUISHED
(2) LOSS OF THING THROUGH DEBTOR’S FAULT – DEBTOR’S LIABLE? YES
(3) DETERIOTATION OF THING WITHOUT DEBTOR’S FAULT – DEBTOR’S LIABLE? NO – CREDITOR
WILL SUFFER THE LOSS
(4) DETERIOTATION OF THING THROUGH DEBTOR’S FAULT – DEBTOR’S LIABLE? YES
a. REMEDIES
i. SPECIFIC PERFORMANCE + DAMAGES
 ii. RESCISSION/CANCELLATION + DAMAGES
(5) IMPROVEMENT OF THING BY NATURE OR BY TIME - CREDITOR WILL GET THE INCREASE AND
WILL GET THE BENEFIT
(6) IMPROVEMENT OF THING AT EXPENSE OF DEBTOR – CREDITOR WILL GET THE DECREASE AND
WILL GET THE DRAWBACK
a. RIGHT OF USUFRUCTURY – THE RIGHT TO USE OR ENJOY
b. SET OFF (IN CASE THE ADDED IMPROVEMENT CANNOT BE REMOVED, COMPENSATE)

ARTICLE 1190 – WHEN THE CONDITIONS HAVE FOR THEIR PURPOSE THE EXTINGUISHMENT OF AN
OBLIGATION TO GIVE, THE PARTIES, UPON THE FULFILLMENT OF SAID CONDITIONS, SHALL RETURN TO
EACH OTHER WHAT THEY HAVE RECEIVED.

IN CASE OF LOSS, DETERIORATION OR IMPROVEMENT OF THE THING, THE PROVISIONS WHICH, WITH
RESPECT TO THE DEBTOR, ARE LAID DOWN IN THE PRECEDING ARTICLE SHALL BE APPLIED TO THE
PARTY WHO IS BOUND TO RETURN.

AS FOR OBLIGATIONS TO DO OR NOT TO DO, THE PROVISIONS OF THE SECOND PARAGRAPH OF

ARTICLE 1187 SHALL BE OBSERVED AS REGARDS THE EFFEECT OF THE EXTINGUISHMENT OF THE
OBLIGATION

- EFFECTS OF FULFILLMENT OF RESOLUTORY CONDITION

- IN OBLIGATIONS TO GIVE
o NO RETROACTIVE EFFECT, OBLIGATION HAS EXTINGUISHED
 RETURN TO THE STATUS QUO, FULFILLMENT OF THE CONDITION,
RETROACTIVE
 THING RETURNED LEGALLY, POSSESSION OF THIRD PERSON, ACT IN GOOD
FAITH, ENTITLED FOR RESTITUTION
 OBLIGATION OF MUTUAL RESTITUTION IS ABSOLUTE, APPLICABLE TO THE
THING AND THE FRUITS AND INTERESTS
 OBLIGATIONS TO GIVE SUBJECT TO SUSPENSIVE CONDITION,
RETROACTIVITY ADMITS EXCEPTIONS, BILATERAL OR UNILATERAL.
- IN OBLIGATION TO DO OR NOT TO DO
o NO RETROACTIVE EFFECT, COURT WILL DECIDE

- FULFILLMENT OF RESOLUTORY CONDITION CONVERTS THE DEBTOR INTO CREDITOR AND

VOCE-VERSA

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 OR THE RESCISSION OF THE
OBLIGATION, WITH THE PAYMENT OF DAMAGES IN EITHER CASE. HE MAY ALSO SEEK RESCISSION,
EVEN AFTER HE HAS CHOSEN FULFILLMENT, IF THE LATTER SHOULD BECOME IMPOSSIBLE.
THE COURT SHALL DECREE THE RESCISSION CLAIMED, UNLESS THERE BE JUST CAUSE AUTHORIZING
THE FIXING OF A PERIOD.

THIS IS UNDERSTOOD TO BE WITHOUT PREJUDICE TO RIGHTS OF THIRD PERSONS WHO HAVE

ACQUIRED THE THING, IN ACCORDANCE WITH ARTICLES 1385 AND 1388 QND THE MORTGAGE LAW.
- REMEDIES IN RECIPROCAL OBLIGATIONS
- APPLIED ONLY IF THE RECIPROCITY ARISES FROM THE SAME CAUSE
o SPECIFIC PERFORMANCE + DAMAGES
o RESCISSION + DAMAGES

ONLY ONE FAILED TO COMPLY

GENERAL RULE: ALTERNATIVE
EXCEPTION: IF IT BECOME IMPOSSIBLE

MUTUAL RESTITUTION

UNILATERAL
GENRAL RULE – JURIDICAL RESCISSION
EXCEPTIONS: EXTRAJUDICIAL RESCISSION
1. EXPRESSLY STIPULATED
2. CONTRACT IS STILL EXECUTORY

THERE CAN BE MULTILATERAL – SO MANY PARTIES INVOLVED/SO MANY OBLIGATION

BILATERAL – BOTH PARTIES ARE MUTUALLY BOUND

RECIPROCAL OBLIGATIONS – ARISES FROM THE SAME CAUSE, SAME CONTRACT

NON-RECIPROCAL OBLIGATIONS – ARISES FROM DIFFERENT CAUSES, DIFFERENT CONTRACTS

LIMITATIONS ON RIGHT TO DEMAND RESCISSION –

(1) RESORT TO THE COURTS - JUDICIAL
(2) POWER OF COURT TO FIX PERIOD
(3) RIGHT OF THIRD PERSON
(4) SUBSTANTIAL VIOLATION
(5) WAIVER OF RIGHT

ARTICLE 1192 – IN CASE OF BOTH PARTIES HAVE COMMITTED A BREACH OF THE OBLIGATION, THE
LIABILITY OF THE FIRST INFRACTOR SHALL BE EQUITABLY TEMPERED BY THE COURTS. IF CANNOT BE
DETERMINED WHICH OF THE PARTIES FIRST VIOLATED THE CONTRACT, THE SAME SHALL BE DEEMED
EXTINGUISHED, AND EACH SHALL BEAR HIS OWN DAMAGES.

WHERE BOTH PARTIES ARE GUILTY OF BREACH

(1) FIRST INFRACTOR KNOWN – LIABILITY OF THE FIRST INFRACTOR IS EQUITABLY
TEMPERED/REDUCED
 (2) FIRST INFRACTOR CANNOT BE DETERMINED – CONTRACT SHALL BE DEEMED EXTINGUISHED
AND SHALL BEAR HIS OWN DAMAGES

SECTION 2 – OBLIGATIONS WITH A PERIOD

ARTICLE 1193 – OBLIGATIONS FOR WHOSE FULFILLMENT A DAY CERTAIN HAS BEEN FIXED, SHALL BE
DEMANDABLE ONLY WHEN THAT DAY COMES.

OBLIGATIONS WITH A RESOLUTORY PERIOD TAKE EFFECT AT ONCE, BUT TERMINATE UPON ARIVAL OF
THE DAY CERTAIN

A DAY CERTAIN IS UNDERSTOOD TO BE THAT WHICH MUST NECESSARILY COME, ALTHOUGH IT MAY
NOT BE KNOWN WHEN.

IF THE UNCERTAINTY CONSISTS IN WHETHER THE DAY WILL COME OR NOT, THE OBLIGATION IS
CONDITIONAL, AND IT SHALL BE REGULATED BY THE RULES OF THE PRECEDING SECTION.

OBLIGATION WITH A PERIOD

SUSPENSIVE PERIOD (EX DIE)
RESOLUTORY PERIOD (IN DIEM)
SAME CONCEPT AS THE SUSPENSIVE CONDITION AND RESOLUTORY CONDITION
DAY CERTAIN (DEFINED)

KINDS OF PERIOD
1. LEGAL – FIXED BY LAW
CONVENTIONAL – AGREED/FIXED BY PARTIES
JUDICIAL – FIXED BY COURT
(ABOVE ARE SOURCES)
2. DEFINITE – FIXED/KNOWN
INDEFINTE – NOT FIXED/UNKNOWN
(ABOVE ARE DEFINITENESS)
3. SUSPENSIVE PERIOD (EX DIE) VS. RESOLUTORY PERIOD (IN DIEM)
(ABOVE ARE EFFECT)

ARTICLE 1194 – IN CASE OF LOSS, DETERIORATION OR IMPROVEMENT OF THE THING BEFORE THE
ARRIVAL OF THE DAY CERTAIN, THE RULES IN ARTICLE 1189 SHALL BE OBSERVED

ARTICLE 1195 – ANYTHING PAID OR DELIVERED BEFORE THE ARRIVAL OF THE PERIOD, THE OBLIGOR
BEING UNAWARE OF THE PERIOD OR BELIEVING THAT THE OBLUGATION HAS BECOME DUE AND
DEMANDABLE, MAY BE RECOVERED, WITH THE FRUITS, AND INTERESTS.

- PAYMENT BEFORE ARRIVAL OF THE PERIOD

(GIVE) GENERAL RULE: DEBTOR IS AWARE OF THE PERIOD

EXCEPTION: DEBTOR IS NOT AWARE, HE PAYS UP BY MISTAKE (BEFORE DUE DATE)

WHAT CAN BE RECOVERED?

- BEFORE DUE DATE? – PRINCIPAL + INTEREST
- AFTER DUE DATE? – NO PRINCIPAL, BUT WITH INTEREST (LEGAL INTEREST)

- APPLIES ONLY IN OBLIGATION TO GIVE (NOT IN PERSONAL OBLIGATION)

ARTICLE 1196 – WHENEVER IN AN OBLIGATION A PERIOD IS DESIGNATED, IT IS PRESUMED TO HAVE

BEEN ESTABLISHED FOR THE BENEFIT OF BOTH THE CREDITOR AND THE DEBTOR, UNLESS FROM THE
TENOR OF THE SAME OR OTHER CIRCUMSTANCES, IT SHOULD APPEAR THAT THE PERIOD HAS BEEN
ESTABLISHED IN FAVOR OF ONE OR OF THE OTHER.

- PRESUMPTION ON TO THE BENEFIT OF THE PERIOD

GENERAL RULE (1197) – PERIOD IS FOR BOTH PARTIES
EFFECT: NO ADVANCE DEMAND, NO ADVANCE PAYMENT

EXCEPTION: FOR THE BENEFIT OF ONLY ONE PARTY

1. BENEFIT OF THE DEBTOR “WITHIN” “NO INTEREST” “ON OR BEFORE” – NO ADVANCE DEMAND
2. BENEFIT OF THE CREDITOR “COLLECTIBLE/ON DEMAND” – NO ADVANCE PAYMENT
3. MIXED (COLLECTIBLE ON OR BEFORE) – CREDITOR

EXERCISES:
1. WITHIN 5 YEARS – DEBTOR
2. AFTER 5 YEARS – BOTH
3. 5 YEARS ON DEMAND – CREDITOR
4. 5 YEARS FROM DATE – BOTH
5. WITHIN 2 YEARS ON DEMAND – CREDITOR (SIMILAR TO COLLECTIBLE ON OR BEFORE (MIXED))

ARTICLE 1197 – IF THE CONDITION DOES NOT FIX A PERIOD, BUT FROM ITS NATURE AND THE
CIRCUMSTANCES IT CAN BE INFERRED THAT A PERIOD WAS INTENDED, THE COURTS MAY FIX THE
DURATION THEREOF.

THE COURTS SHALL ALSO FIX THE DURATION OF THE PERIOD WHEN IT DEPENDS UPON THE WILL OF
THE DEBTOR.

IN EVERY CASE, THE COURTS SHALL DETRMINE SUCH PERIOD AS MAY UNDER THE CIRCUMSTANCES
HAVE BEEN PROBABLY CONTEMPLATED BY THE PARTIES. ONCE FIXED BY THE COURTS, THE PERIOD
CANNOT BE CHANGED BY THEM.

- JUDICIAL PERIOD

GENERAL RULE – COURT CANNOT FIX THE PERIOD

WHY? PARTIES SHOULD FIX IT
EXCEPTION – COURT CAN FIX PERIOD
1. INTENDED BY THE PARTIES
2. DURATION OF THE PERIOD DEPENDS ON DEBTOR (1180)
3. WHENEVER HIS MEANS PERMIT HIM TO DO SO (1180)

PERIOD WAS FORGOT TO MENTION

1. 1180 – PERIOD
2. 1180 – “AS SOON I HAVE THE MONEY”
AFTER THE COURT HAS FIXED THE PERIOD
- THE PARTIES CAN MODIFY IT
- PRINCIPLE OF NOVATION

ARTICLE 1198 – THE DEBTOR SHALL LOSE EVERY RIGHT TO MAKE USE OF THE PERIOD
(1) WHEN AFTER THE OBLIGATION HAS BEEN CONTRACTED, HE BECOMES INSOLVENT, UNLESS HE
GIVES A GUARANTY OR SECURITY FOR THE DEBT - COLLATERAL
(2) WHEN HE DOES NOR FURNISH TO THE CREDITOR THE GUARANTIES OR SECURITIES WHICH HE
HAS PROMISED
(3) WHEN BY HIS OWN ACTS HE HAS IMPAIRED SAID GUARANTIES OR SECURITIES AFTER THEIR
ESTABLISHMENT, AND WHEN THROUGH A FORTUITOUS EVENT THEY DISAPPEAR, UNLESS HE
IMMEDIATELY GIVES NEW ONES EQUALLY SATISFACTORY - COLLATERAL
(4) WHEN THE DEBTOR VIOLATES ANY UNDERTAKING, IN CONSIDERATION OF WHICH THE
CREDITOR AGREED TO THE PERIOD;
(5) WHEN THE DEBTOR ATTEMPTS TO ABSCOND

GENERAL RULE (1198) – PARTIES SHOULD RESPECT THE PERIOD

EXCEPTION: DEBTOR LOSSES THE PERIOD
WHY? HE CANNOT PAY THE OBLIGATION
EFFECT – IT BECOMES PURE (DEMANDABLE AT ONCE)

I – INSOLVENT
F – DOES NOT FURNISH ITS GUARANTY
O – OWN ACTS HE HAS IMPAIRED OR FORTUITOUS EVENT
V – VIOLATES THE UNDERTAKING
A – ATTEMPTS TO ABSCOND (HIDE)

SECTION 3 – ALTERNATIVE OBLIGATIONS

ARTICLE 1199 – A PERSON ALTERNATIVELY BOUND BY DIFFERENT PRESTATIONS SHALL COMPLETELY

PERFORM ONE OF THEM.

THE CREDITOR CANNOT BE COMPELLED TO RECEIVE PART OF ONE AND PART OF THE OTHER
UNDERTAKING.

KIND OF OBLIGATION ACCORDING TO OBJECT:

SIMPLE OBLIGATION – ONE PRESTATION

COMPOUND OBLIGATION – TWO OR MORE PRESTATION

- CONJUNCTIVE OBLIGATION – SEVERAL PRESTATIONS, ALL OF THEM ARE DUE

- DISTRIBUTIVE OBLIGATION – ONE – TWO PRESTATIONS ARE DUE
o ALTERNATIVE OBLIGATION – SEVERAL PRESTATIONS, ONE IS SUFFICIENT
o FACULTATIVE OBLIGATION – ONE PRESTATION IS DUE, CAN BE SUBSTITUTE

ARTICLE 1200 – THE RIGHT OF CHOICE BELONGS TO THE DEBTOR, UNLESS IT HAS BEEN EXPRESSLY
GRANTED TO THE CREDITOR

THE DEBTOR SHALL HAVE NO RIGHT TO CHOOSE THOSE PRESTATIONS WHICH ARE IMPOSSIBLE,
UNLAWFULOR WHICH COULD NOT HAVE BEEN THE OBJECT OF THE OBLIGATION.

GENERAL RULE (1200) – DEBTOR’S CHOICE

EXEMPTION: CAN BE GIVEN TO THE CREDITOR OR THIRD PERSON

CAN THE CREDITOR CHANGE? NO

REMEDY: FILE A SPECIFIC PERFOMRANCE FOR THE DEBTOR TO CHOOSE

ARTICLE 1201 – THE CHOICE SHALL PRODUCE NO EFFECT EXCEPT FROM THE TIME IT HAS BEEN
COMMUNICATED.

- EFFECT OF COMMUNICATION OF CHOICE

- IT BECOMES SIMPLE OBLIGATION

ARTICLE 1202 – THE DEBTOR SHALL LOSE THE RIGHT OF CHOICE WHEN AMONG THE PRESTATIONS
WHEREBY HE IS ALTERNATIVELY BOUND, ONLY ONE IS PRACTICABLE.

- EFFECT WHEN ONLY ONE PRESTATION IS PRACTICABLE

- IT BECOMES SIMPLE OBLIGATION

ALL OBLIGATIONS IS GONE OR DESTROYED – OBLIGATION IS EXTINGUISHED

ARTICLE 1203 – IF THROUGH THE CREDITOR’S ACTS, THE DEBTOR CANNOT MAKE A CHOICE
ACCORDING TO THE TERMS OF THE OBLIGATION, THE LATER MAY RESCIND THE CONTRACT WITH
DAMAGAES.

- DEBTOR’S CHOICE/CREDITORS FAULT

- REMEDIES OF THE DEBTOR
 o CHOOSE THE REMAINING + DAMAGES
o RESCISSION + DAMAGES

ARTICLE 1204 – THE CREDITOR SHALL HAVE A RIGHT TO INDEMNITY FOR DAMAGES WHEN, THROUGH
THE FAULT OF THE DEBTOR, ALL THE THINGS WHICH ARE ALTERNATIVELY THE OBJECT OF THE
OBLIGATION HAVE BEEN LOST, OR THE COMPLIANCE OF THE OBLIGATION HAS BECOME IMPOSSIBLE.
THE INDEMNITY SHALL BE FIXED TAKING AS A BASIS THE VALUE OF THE LAST THING WHICH
DISAPPEARED, OR THAT OF THE SERVICE WHICH LAST BECAME POSSIBLE.

DAMAGES OTHER THAN THE VALUE OF THE LAST THING OR SERVICE MAY ALSO BE AWARDED.

- DEBTOR’S CHOICE/DEBTOR’S FAULT

- BASIS OF INDEMNITY – VALUE OF LAST THING WITHOUT DISAPPEARED + DAMAGES

ARTICLE 1205 – WHEN THE CHOICE HAS BEEN EXPRESSLY GIVEN TO THE CREDITOR, THE OBLIGATION
SHALL CEASE TO BE ALTERNATIVE FROM THE DAY WHEN THE SELECTION HAS BEEN COMMUNICATED
TO THE DEBTOR.

UNTIL THEN THE RESPONSIBILITY OF THE DEBTOR SHALL BE GOVERNED BY THE FOLLOWING RULES:

(1) IF ONE OF THE THINGS IS LOST THROUGH A FORTUITOUS EVENT, HE SHALL PERFORM THE
OBLIGATION BY DELIVERING THAT WHICH THE CREDITOR SHOULD CHOOSE FROM AMONG THE
REMAINDER, OR THAT WHICH REMAINS IF ONLY ONE SUBSISTS.
(2) IF THE LOSS OF ONE OF THE THINGS OCCURS THROUGH THE FAULT OF THE DEBTOR, THE
CREDITOR MAY CLAIM ANY OF THOSE SUBSISTING, OR THE PRICE OF THAT WHICH, THROUGH
THE FAULT OF THE FORMER, HAS DISAPPEARED, WITH A RIGHT TO DAMAGES
(3) IF ALL THE THINGS ARE LOST THROUGH THE FAULT OF THE DEBTOR, THE CHOICE BY THE
CREDITOR SHALL FALL UPON THE PRICE OF ANY ONE OF THE, ALSO WITH INDEMNITY FOR
DAMAGES

THE SAME RULES SHALL BE APPLIED TO OBLIGATIONS TO DO OR NOT TO DO IN CASE ONE, SOME OR
ALL OF THE PRESTATIONS SHOULD BECOME IMPOSSIBLE

- CREDITOR’S CHOICE/DEBTOR’S FAULT (EXCEPTION)

- REMEDIES:
o CHOOSE THE REMAINING, OR
o PRICE OF THAT OBJECT THAT DISAPPPEARED + DAMAGES
BASIS OF INDEMNITY – PRICE OF ANY ONE OF THEM + DAMAGES

ARTICLE 1206 – WHEN ONLY ONE PRESTATION HAS BEEN AGREED UPON, BUT THE OBLIGOR MAY
RENDER ANOTHER IN SUBSTITUTION, THE OBLIGATION IS CALLED FACULTATIVE.

THE LOSS OR DETERIORATION OF THE THING INTENDED AS A SUBSTITUTE, THROUGH THE NEGLIGENCE
OF THE OBLIGOR, DOES NOT RENDER HIM LIABLE. BUT ONCE THE SUBSTITUTION HAS BEEN MADE,
THE OBLIGOR IS LIABLE FOR THE LOSS OF THE SUBSTITUTE ON ACCOUNT OF HIS DELAY, NEGLIGENCE
OR FRAUD.

- FACULTATIVE OBLIGATION
- WHAT WAS LOST, PRINCIPAL OR SUBSTITUTE.

- Only one prestation has been agreed upon but the debtor may render another in (Article
1156) substitution.

- What is due and demandable

IMPORTANCE:
(1) BEFORE SUBSTITION
a) PRINCIPAL
(2) AFTER SUBSTITUTION
a) SUBSTITUTE

LIABILITY:
(1) BEFORE SUBSTITION
a. DEBTOR DESTROYED
i. PRINCIPAL – LIABLE? YES (DUE)
ii. SUBSTITUTION – LIABLE? NO (NOT DUE)
(2) AFTER SUBSTITUTION
a. DEBTOR DESTROYED
i. PRINCIPAL – LIABLE? NO (NOT DUE)
ii. SUBSTITUTION – LIABLE? YES (DUE)

No. of prestation
Right of choice
Lost through Fortuitous Event
Lost through Debtor’ fault
Alternative Facultative
Several prestation, one is 1 prestation is allowed to
sufficient substitute
Debtor (Exception: Creditor or Debtor only
Third Person if
given/authorized)
Debtor’s not liable, obligation Obligation is extinguised
not extinguished
Debtor not liable Debtor is liable – whether it is
Creditor’s choice, debtor’s before or after substitution.
liable
Whether it is before or after
substitution scenario.

JOINT AND SOLIDARY OBLIGATIONS

ARTICLE 1207 – THE CONCURRENCE OF TWO OR MORE CREDITORS OR OF TWO OR MORE DEBTORS IN
ONE AND THE SAME OBLIGHATION DOES NOT IMPLY THAT EACH ONE OR THE FORMER HAS A RIGHT
TO DEMAND, OR THAT EACH ONE OF THE LATTER IS BOUND TO RENDER, ENTIRE COMPLIANCE WITH
THE PRESTATION. THERE IS A SOLIDARY LIABILITY ONLY WHEN THE OBLIGATION EXPRESSLY SO STATES,
OR WHEN THE LAW OR THE NATURE OF THE OBLIGATION REQUIRES SOLIDARITY.

ARTICLE 1208 – IF FROM THE LAW, OR THE NATURE OR THE WORDING OF THE OBLIGATIONS TO
WHICH THE PRECEEDING OF THE OBLIGATIONS TO WHICH THE PRECEDING ARTICLE REFERS, THE
CONTRARY DOES NOT APPEAR, THE CREDIT OR DEBT SHALL BE PRESSUMED TO BE DEIVIDED INTO AS
MANY EQUAL SHARES AS THERE ARE CREDITORS OR DEBTORS, THE CREDITS OR DEBTS BEING
CONSIDERED DISTINCT FROM ONE ANOTHER, SUBJECT TO THE RULES OF COURT GOVERNING THE
MULTIPLICITY OF SUITS.

KINDS OF OBLIGATIONS ACCORDING TO NUMBER OF PARTIES

(1) INIDVIDUAL – 1 CREDITOR – 1 DEBTOR

(2) COLLECTIVE – 2 OR MORE CREDITORS – 2 OR MORE DEBTORS, 1 CREDITOR – 2 OR MORE
DEBTORS, 1 DEBTOR – 2 OR MORE CRDITORS

JONIT AND SOLIDARY NEED NUMEROUS PARTIES.

ONLY IN THE COLLECTIVE OBLIGATION WHERE WE CAN APPLY THE PRINCIPLE OF JOINT AND SOLIDARY

1207 – SOLIDARY
- ENTIRE COMPLIANE/WHOLE
- “ONE FOR ALL, ALL FOR ONE”

1208 – JOINT
- PROPORTIONATELY LIABLE
- DIVIDE AS MANY EQAUL SHARES
- “TO EACH ON HIS OWN”

SYNONYMS (IF PROBLEM IS SILENT – ASSUME JOINT)

JOINT SOLIDARY
MANCOMUNADA JOINTLY AND/OR SEVERALLY
MANCOMUNDAMENTE SOLIDARIA
PRO RATA IN SOLIDUM
PROPORTIONATELY TOGETHER AND/OR SEPARATELY
CONJOINT INDIVIDUALLY AND/OR COLLECTIVELY
PRONOUN: WE PROMISE TO PAY JUNTOS O SEPARADAMENTE
PRONOUN: I PROMISE TO PAY

Divide Obligation:
JOINT – YES
SOLIDARY – NO
WE - JOINT
1 – SOLIDARY – WHOLE

KINDS OF SOLIDARY according to PARTIES

(1) Active Solidarity – creditor (2 or more)

(2) Passive Solidarity – debtor (2 or more)
(3) Mixed Solidarity – both parties (2 or more)

According to sources:
(1) CONCENTIONAL – agreement
(2) LEGAL – imposed by law
(3) REAL – “Kabit System”
Franchise – No Franchise
Solidary liable – both for damages – nature of the obligation.

MUTUAL AGENCY (AGENDA) creditor

- Can D demand the entire 9,000 to A (Group)? Yes
- Representation of the part of creditor.

MUTUAL GUARANTY (GUARANTY TO PAY) debtor

- Can A (Group) pay the entire 9,000 to D? Yes
- Representation on the part of debtor.
o APPLICATION ONLY TO SOLIDARY – APPLICATION OF MUTUAL AGENCY AND
MUTUAL GUARANTY.

IF THE OBLIGATIONS ARE ALREADY PERFORMED

DEBTOR – REIMBURSEMENT
CREDITOR – SHARE

D ALLOWS DEMAND TO A? AB? ABC? YES, MUTUAL AGENCY

A PAY THE WHOLE? B? C? YES, MUTUAL GUARANTY
FROM SOLIDARY TO JOINT AFTER PERFORMED.

GENERAL RULE: JOINT (PRESUMPTION)

EXCEPTION: SOLIDARY
(1) NATURAL
(2) LAW
(3) STIPULATION

ARTICLE 1209 – IF THE DIVISION IS IMPOSSIBLE, THE RIGHT OF THE CREDITORS MAY BE PREJUDICED
ONLY BY THEIR COLLECTIVE ACTS, AND THE DEBT CAN BE ENFORCED ONLY BY PROCEEDING AGAINST
ALL THE DEBTORS. IF ONE OF THE LATTER SHOULD BE INSOLVENT, THE OTHERS SHALL NOT BE LIABLE
FOR HIS SHARE.
JOINT INDIVISIBLE OBLIGATION
JOINT – PARTIES; INDIVISIBLE – PRESTATION
DEBTOR - A,B,C – OWNERS AND DELIVER; CREDITOR – D (SPECIFIC CAR = 30,000)
C refuses to deliver
What happens to obligation? A and B? Remedy: 1224 – divided by value
Converted for action for damages: A 10k; B 10k; C 10k + damages – D
INDIVISIBILITY – PRESTATION
SOLIDARY – PARTIES

Joint as to liabilities of the debtors, but indivisible in compliance.

Indivisible – divided it loses its essences.

ARTICLE 1210 – THE INDIVISIBLE OF AN OBLIGATION DOES NOT NECESSARILY GIVE RISE TO SOLIDARY.
NOR DOES SOLIDARY OF ITSELF IMPLY INDIVISIBLITY.

INDIVISIBILITY - PRESTATION SOLIDARITY (1210) – PARTIES

Only the debtor guilty of breach is liable to pay ALL the debtors are liable and guilty (collective
damages. obligation)
Can exist although 1 debtor and 1 creditor There must be at least 2 debtor or 2 creditor
Plurality of object is not required Plurality of object is required

1st Sentence – Liability – Indivisible Obligation may be either joint or solidary.

2nd Sentence – Solidary Obligation (subject matter) may be either indivisible or solidary.

ARTICLE 1211 – SOLIDARITY MAY EXIST ALTHOUGH THE CREDITORS AND THE DEBOTRS MAY NOT BE
BOUND I THE SAME MANNER AN DBY SAME PERIODS AND CONDITIONS.

SOLIDARITY CAN EXIST ALTHOUGH THE PARTIES ARE BOUND BY DIFFERENT PERIOD, CONDITION, AND
MANNER.

UNFORM OBLIGATION – PARTIES ARE BOUND BY THE SAME STIPULATION.

NON-UNIFORM OBLIGATION – PARTIES ARE BOUND BY THE DIFFERENT PERIODS, CONDITION,
MANNER.

ARTICLE 1212 – EACH ONE OF THE SOLIDARY CREDITORS MAY DO WHATEVER MAY BE USEFUL TO THE
OTHERS, NUT NOT ANYTHING WHICH MAY BE PREJUDICIAL TO THE LATTER.

ACTS PREJUDICIAL AND BENEFICIAL

IF PREJUDICIAL – NOT ALLOWED
IF BENEFICIAL – ALLOWED
ARTICLE 1213 – A SOLIDARITY CRDITOR CANNOT ASSIGN HIS RIGHTS WITHOUT THE CONSENT OF THE
OTHERS.

ASSIGNMENT BY SOLIDARY CREDITOR

IF ASSIGNMENT IS TO CO-CREDITOR – ALLOWED

IF ASSIGNMENT IS TO THIRD PERSON – NOT ALLOWED
EXCEPTION: IF CO-CREDITORS AGREES

ARTICLE 1214 – THE DEBTOR MAY PAY ONE OF THE SOLIDARY CRDITORS, BUT IF ANY DEMAND,
JUDICIAL OR EXTRAJUDICIAL, HAS BEEN MADE BY ONE OF THEM, PAYMENT SHOULD E MADE TO HIM.

EXTRAJUDICIAL DEMAND
GENERAL RULE: Payment to ANY SOLIDARY CREDITORS
Exception: Extrajudicial Demand made by of one the creditors.
Exception: 1214 Mixed Solidary

ARTILCE 1215 – NOVATION, COMPENSATION, CONFUSION OR REMISSION OF THE DEBT, MADE BY ANY
OF THE SOLIDARY CREDITORS OR WITH ANY OF THE SOLIDARY DEBTORS, SHALL EXTINGUISH THE
OBLIGATION, WITHOUT PREJUDICE TO THE PROVISIONS OF ARTICLE 1219.

THE CREDITOR WHO MAY HAVE EXECUTED ANY OF THESE ACTS, AS WELL AS HE WHO COLLECTS THE
DEBT, SHALL BE LIABLE TO THE OTHERS FOR THE SHARE IN THE OBLIGATION.

ARTICLE 1216 – THE CREDITOR MAY PROCEED AGAINST ANY ONE OF THE SOLIDARY DEBTORS OR
SOME OR ALL OF THEM SIMULTANEOUSLY. THE DEMAND MADE AGAINST ONE OF THEM SHALL NOT BE
AN OBSTACLE TO WHOSE WHICH MAY SUBSEQUENTLY BE DIRECTED AGAINST THE OTHERS, SO LONG
AS THE DEBT HAS NOT BEEN FULLY COLLECTED.

Right of creditor to proceed against ANY solidary debtor.

Passive Solidary – many debtor

Creditor can demand until fully collected.

Fully Paid – Obligation Extinguished.

ARTICLE 1217 – Payment made by one of the solidary debtors extinguishes the obligation. If two or
more solidary debtors offer to pay, the creditor may choose which offer to accept.

He who made the payment may claim from his co-creditors only the share which corresponds to each,
with the interest for the payment already made. If the payment is made before the debt is due, no
interest for the intervening period may be demanded.
When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor
paying the obligation, such share shall be borne by all his co-debtors, in proportionto the debt of each.

Effect of payment by solidary debtor

1st Paragraph
1st Sentence – Full Payment extinguishes the obligation. – Obligation Extinguishes
2nd Sentence – Right of creditor to choose – A, D, C wants to pay, D can ONLY choose.

2nd Paragraph – Right to demand Reimbursement – when paid in period – reimbursement applicable,
paid earlier than due – reimbursement cannot applicable and can be waited.

3rd Paragraph – Insolvency of Debtor

9,000 Solidary – A, B, C (INSOLVENT) – D

A = 3,000 + 1,500
B = 3,000 + 1,500
A can demand B = 4,500

ARTICLE 1218 – PAYMENT BY A SOLIDARY DEBTOR SHALL NOT ENTITLE HIM TO REIMBURSEMENT
FROM HIS CO-DEBTORS IF SUCH PAYMENT IS MADE AFTER THE OBLIGATION HAS PRESCRIBED OR
BECOME ILLEGAL.

General Rule: Reimbursement After Payment

Exception: No Reimbursement (Why?)
(1) Prescription – Due Passed
(2) Illegal Payment
Demand Reimbursement - No

10 YEARS:

4. WRITTEN CONTRACT
5. OBLIGATION CREATED BY LAW
6. JUDGMENT OF COURT

6 YEARS:

3. ORAL CONTRACT
4. QUASI-CONTRACT

4 YEARS:

3. INJURY TO THE RIGHTS OF THE PLAINTIFF

4. QUASI-DELICT
1 YEAR:

3. DEFAMATION
4. EJECTMENT

ARTICLE 1219 – THE REMISSION MADE BY THE CREDITOR OF THE SHARE WHICH AFFECTS ONE OF THE
SOLIDARY DEBTORS DOES NOT RELEASE THE LATTER FROM HIS RESPONSIBILITY TOWARDS THE CO-
CREDITORS, IN CASE THE DEBT HAD BEEN TOTALLY PAID BY ANYONE OF THEM BEFORE THE REMISSION
WAS EFFECTED.

REMISSION/WAIVER /CONDONATION/REANNOUNCE
REMISSION
- Do not do the obligation
- Not to pay
- Either entire or partial obligation

Effects of Remission

Payment then remission – Ask for reimbursement: Solidary Debtor

Remission then payment – Ask for reimbursement: Creditor

ARTICLE 1220 – THE REMISSIONOF THE WHOLE OBLIGATION OBTAINED BY ONE OF THE SOLIDARY
DEBTORS, DOES NOT ENTITLE HIM TO REIMBURSEMENT FROM HIS CO-DEBTORS.

No right to reimbursement in case of remission: – Gratuitous – Free

Total Obligation: Can A reimburse to B and C? No
Partial Obligation: Partially remitted, the remaining is still liable.

ARTICLE 1221 – IF THE THING HAS BEEN LOST OR IF THE PRESTATION HAS BECOME IMPOSSIBLE
WITHOUT THE FAULT OF THE SOLIDARY DEBTORS, THE OBLIGATION SHALL BE EXTINGUSIHED.

IF THERE WAS FAULT ON THE PART OF ANY ONE OF THEM, ALL SHALL BE RESPONSIBLE TO THE
CREDITOR, FOR THE PRICE AND THE PAYMENT OF DAMAGES AND INTEREST, WITHOUT PREJUDICE TO
THEIR ACTION AGAINST GUILTY OR NEGLIGENT DEBTOR.

IF THROUGH A FORTUITOUS EVENT, THE THING IS LOST OR THE PERFORMANCE HAS BECOME
IMPOSSIBLE AFTER ONE OF THE SOLIDARY DEBTORS HAS INCURRED IN DELAY THROUGH THE JUDICIAL
OR EXTRAJUDICIAL DEMAND UPON HIM BY THE CREDITOR, THE PROVISIONS OF THE PRECEDING
PARAGRAPH SHALL APPLY.
Rules in case thing is lost or prestation becomes impossible

(1) Loss is without fault and before delay – (1174) Obligation extinguish.
(2) Loss is due to fault on the part of solidary debtor – Fault of one is fault of all, The one who
cause damage will suffer LOSS + DAMAGE.
(3) Loss is without fault but after delay – delay of one is delay /fault of all.

ARTICLE 1222 – A solidary debtor may, in actions filed by the creditor, avail himself of all defenses
which are derived from the nature of the obligation and of whose which are personal to him, or
pertain to hs own share. With respect to those which personally belong to the others, he may avail
himself thereof only as regards that part of the debt for which the latter are responsible.

Defenses available to solidary debtor

(1) Complete (Full)

(2) Partial (Balance)

(1) Defenses derived from nature of obligation

- Complete Payment – Full Defense
- Complete Remission – Full Defense
- Partial Payment – Partial Defense
(2) Defenses personal to or which pertain to share of debtor sued.
- Extension, minor – complete defense
- Portion by suspensive condition – partial defense
(3) Defenses personal to other solidary debtors

DIVISIBLE AND INDIVISIBLE OBLIGATIONS

Article 1223 – The divisibility or indivisibility of the things that are the object of obligations in which
there is only one debtor an donly one creditor does not alter or modify the provisions of Chapter 2 of
this Title.

DIVISIBLE AND INDIVISIBLE

DIVISIBLE OBLIGATION – CAPABLE OF PARTAIL PERFORMANCE

INDIVISIBLE OBLIGATION - NOT SUSCEPTIBLE OF PARTIAL PERFORMANCE

Test: intention of the parties; purpose of obligation

GENERAL RULE:
Divisible – Exception: Stipulation – Indivisible
Indivisible – Exception: Stipulation – Divisible
Kinds of Division:
(1) Qualitative – Quality
(2) Quantitative – Number/quantity
(3) Ideal or intellectual

Kinds of Indivisibility:
(1) Legal – Law
(2) Conventional – Agreement
(3) Natural – nature

Principle of Quantum Merit – Applies only to Divisible

- As much as the person deserves.

1224 – A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the
debtors does not comply with hus undertaking. The debtors who may have been ready to fulfill their
promises shall not contribute to the indemnity beyond the corresponding portion of the price of the
thing or of the value of the service in which the obligation consists.

SEE 1209
JOINT INDIVISIBLE OBLIGATION
SPECIFIC CAR VALU OF 30,000 – Divisibility by value

1225 – For the purposes of the preceding articles, obligations to give definite things and those which
are not susceptible of partial performance shall be deemed indivisible.

When the obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are susceptible
of partial performance, it shall be divisible.

However, even though the object or service may be physically divisible, an obligation is indivisible iof
so provided by law or intended by the parties.

In obligations not to do, divisibility or indivisibility shall be determined by the character of the
prestation in each particular case.

1 debtor – 1 creditor – Indivisible

(1) Obligation to give definite thing – indivisible

(2) Obligation not susceptible of partial performance – Indivisible; Exception: Joint Divisible
(3) Obligation intended by the parties to be indivisible even if the thing or service is physically
divisible (1199/1233/1248); Exception: Joint Indivisible
(4) Obligation provided by LAW to be indivisible: Example: Tax

2nd Paragraph – Obligations deemed divisible.

 (1) Execution of certain number of days.
(2) According to work by metrical units.
(3) Obligation which by their nature are susceptible of partial performance.

Obligations with a Penal Clause

Article 1226 – In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of non-compliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty of ir guilty of
fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this
Code.

OBLIGATIONS WITH A PENAL CLAUSE (OPC)

PRINCIPAL OBLIGATION – stand by itself.

ACCESSORY OBLIGATION – cannot stand alone.

Principal (Check) – Accessory (X)

Principal (X) - Accessory (X)

Accessory undertaking attached to a principal obligation.

Classification of Penal Clause

As to origin:
(1) Legal – Law
(2) Conventional – Stipulation
As to its purpose/penalty
(1) Compensatory – place of damages
(2) Punitive – punishment
As to its demandability or effect
(1) Subsidiary or Alternative – only penalty
(2) Joint or Cumulative – both principal obligation and penal clause.

Purpose of Penal Clause

(1) Ensure Performance
(2) Punish the debtor
 (3) Liquidate the damages

1170 1226
Damage Court Check
Stipulation X Check
Proof of Damages Check X
Reemdies 1165, 1168, 1191, 1167, 1177 Ensure the PC, Specific
Perfomance

General Rule: Its only alternative.

ARTICLE 1227 – the debtor cannot exempt himself from the performance of the obligation by paying
the penalty, save in the case where this right has been expressly reserved for him. Neither can the
creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time,
unless this right has been clearly granted him. However, if after the creditor has decided to require
the fulfillment of the obligation, the performance thereof should become impossible without his fault,
the penalty may be enforced

GENERAL RULE: DEBTOR CANNOT SUBSTITUTE THE PENALTY FOR THE PRINCIPAL OBLIGATION.
WHY? ENSURE PERFORMANCE OF PRINCIPAL OBLIGATION
EXCEPTION: STIPULATION.

GENERAL RULE: CREDITOR CANNOT DEMAND BOTH THE PRINSCIPAL BLIGATION AND THE PENALTY AT
THE SAME TIME.
WHY? IT IS SUBSIDIARY/ALTERNATIVE
EXCEPTION: STIPULATION

GENERAL RULE: ONLY THE STIPULATED PENALTY IS RECOVERABLE IN CASE OF BREACH.

WHY? It is already liquidated.
EXCEPTION: Stipulation, Obligor’s fraud, Obligor’s refusal to pay – additional damage for Penal Clause.

ARTICLE 1228 – PROOF OF ACTUAL DAMAGES SUFFERED BY THE CREDITOR IS NOT NECESSARY IN
ORDER THAT THE PENALTY MAY BE DEMANDED.

Penalty demandable without proof of actaual damages.

What is necessary? Proof of violation
What is actual damages is more than the penalty, can creditor recover the difference?
Actual Damage: 10,000
Penal Clause: 2,000
Recover 8,000? No

= Penal Clause agreed upon

= Enforce Penal Clause
ARTICLE 1229 – The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or unconscionable.

GENERAL RULE: COURT CANNOT REDUCE THE PENAL CLAUSE

WHY? STIPULATION OF PARTIES
EXCEPTION:
(1) Partial/Irregular Performance
(2) Iniquitous/Unconscionable – excessive, too much

ARTICLE 1230 – THE NULLITY OF THE PENAL CLAUSE DOES NOT CARRY WITH IT THAT OF THE PRINCIPAL
OBLIGATION.

THE NULLITY OF THE PRINCIPAL OBLIGATIONCARRIES WITH IT THAT OF THE PENAL CLAUSE.

Effect of Nullity of the Penal Clause

If Penal Clause is VOID, Principal remains.

If the Principal is VOID, then Penal Clause is also VOID.

EXTINGUISHMENT OF OBLIGATIONS

Art. 1231. Obligations are extinguished:

(1) By payment or performance:

(2) By the loss of the thing due:

(3) By the condonation or remission of the debt;

(4) By the confusion or merger of the rights of creditor and debtor;

(5) By compensation;

(6) By novation.

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory

condition, and prescription, are governed elsewhere in this Code. (1156a)

OBLIGATION ARE EXTINGUISHED

(1) PAYMENT/PERFORMANCE
(2) LOSS
(3) REMISSION/CONDONATION
 (4) MERGER
(5) COMPENSATION
(6) NOVATION
(7) ANNULMENT
(8) RECISSION
(9) RESOLUTORY PERIOD/CONDITION
(10)PRESCRIPTION (EXTINCTIVE)

ORAL – 6 YEARS

WRITING – 10 YEARS

QUASI-DELICT – 4 YEARS

PALOREMECONOANRESRESRESPRES

Other causes of extinguishment

(1) Death of party in a personal obligation

(2) Mutual resistance or Withdrawal
(3) Arrival of resolutory period/condition
(4) Compromise
(5) Impossibility of Fulfillment
(6) Happening of a Fortuitous Event.
Payment/Performance (1232-1261)

Basic Characteristics/Principle

Rule of Indivisibility

Rule of Integrity (1233/1248/1199) – complete performance/complete payment

Rule of identity (1244) – Specific – it cannot be replaced

Rule of Medium Quality (1248) – generic – what are we supposed to give: neither inferior or superior
quality, AVERAGE

SECTION 1. - Payment or Performance

Art. 1232. Payment means not only the delivery of money but also the performance, in any other manner,
of an obligation. (n)

Payment or Performance can be used interchangeably. They are synonyms and the same.

Art. 1233. A debt shall not be understood to have been paid unless the thing or service in which the
obligation consists has been completely delivered or rendered, as the case may be. (1157)
Rule of Integrity

General Rule- Complete performance/payment, Regular payment/performance

Exception: Incomplete payment is allowed (PASS)

(1) Partially Liquidated (1248)

(2) Acceptance/Waiver (1235)
(3) Substantial Performance in Good Faith (1234)
(4) Stipulation (1248)

Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment, less damages suffered by the obligee. (n)

Substantial Performance in Good Faith

- Allowed accepted.
- Minimal damage.

Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and
without expressing any protest or objection, the obligation is deemed fully complied with. (n)

Waiver/Acceptance/Estoppel

Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid without
the knowledge or against the will of the debtor, he can recover only insofar as the payment has been
beneficial to the debtor. (1158a)

Persons from whom CREDITOR MUST ACCEPT PAYMENT

(1) Debtor/s
(2) Person who has interest in the obligation (guarantor/mortgagor)
(3) Third person who has no interest in the obligation when there is a STIPULATION THAT HE CAN
MAKE PAYMENT. – authorized.

2nd Paragraph – The person pays without consent – can demand only BENEFICIAL REIMBURSEMENT –
where debtor was benefited.

EFFECT OF MAPYMENT BY A THIRD PERSON

- Without consent and against the will of the debtor – 1236 2nd paragraph
Only BENEFICIAL REIMBURSMENT – PAYMENT HAS BEEN BENEFICIAL TO THE LATTER

- With consent or knowledge of debtor (1237)

- Rights of Pedro: Reimbursement and Subrogation
Subrogation – the rights are transferred to the Third Peron by Creditor

Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter,
cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty,
or penalty. (1159a)

Third Person Pays with consent – reimbursement + subrogation

Art. 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed
to be a donation, which requires the debtor's consent. But the payment is in any case valid as to the
creditor who has accepted it. (n)

PAYMENT BY A THIRD PERSON who does not intend to be reimbursed – deemed a donation

- Acceptance is required to extinguish the obligation

- Suppose the debtor did not give his consent
o If creditor accepts the payment
o It is still VALID (Creditor; payor – third person)

Art. 1239. In obligations to give, payment made by one who does not have the free disposal of the thing
due and capacity to alienate it shall not be valid, without prejudice to the provisions of Article 1427 under
the Title on "Natural Obligations." (1160a)

“Free disposal of the thing” – thing to be delivered must NOT subject to any claim, or lien, or encumbrance
(e. g. mortgage, pledge) of a third person.

“Capacity to Alienate” – capacity to enter into a contract.

CAPACITATED VS. INCAPACITATED

General Rule: Payment by an Incapacitated Person is NOT VALID

Effect – if payment made – thing can be recovered

Exception: Thing cannot be recovered

(1) 1427 – Natural Obligation

(2) Not Owned by the debtor

1239/1241 – Payment by and to the incapacitated person/payment to person not authorized = NOT VALID

INCAPACIATED – NO VALID – PAID RECOVERABLE

Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it. (1162a)

Payment to WHOM shall it be made

 (1) Creditor
(2) Successor-in-interest (heirs/assigns)
(3) Third Person if authorized to receive - agent

Art. 1241. Payment to a person who is incapacitated to administer his property shall be valid if he has kept
the thing delivered, or insofar as the payment has been beneficial to him.

Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the
creditor. Such benefit to the creditor need not be proved in the following cases:

(1) If after the payment, the third person acquires the creditor's rights;

(2) If the creditor ratifies the payment to the third person;

(3) If by the creditor's conduct, the debtor has been led to believe that the third person had
authority to receive the payment. (1163a)

General Rule (1st Paragraph)

Payment to incapacitated person is NOT VALID – This article pertains to creditor

Effect – payment can be demanded again by the incapacitated person

Exception – it cannot be demanded if

(1) Kept the thing.

(2) Benefited by the payment.

GENERAL RULE (1241):

- Payment to a third person or wrong party is NOT VALID, EXCEPT INSOFAR AS IT HAS
REDOUNDED TO THE BENEFITED OF THE CREDITOR.
- REDOUNDED – it s given to the party who has right/deserves it.

Proof that us redounded must be given:

(1) Subrogation of Third Person in Creditor’s rights

(2) Ratification by creditor – after the payment
(3) Estoppel on the part of creditor
- Waived his right
- Virtue of own acts

Redounded – beneficial top the creditor.

General Rule: PAYMENT TO Third Person is not valid (2nd Paragraph)

Exception: Payment to Third Person is Valid

(1240) – Third Person is authorized to receive it. (Agent)

(1241) – Payment to Incapacitated Person redounded to the benefit of the creditor.

(142) – Third person in possession of credit in Good Faith

Art. 1242. Payment made in good faith to any person in possession of the credit shall release the debtor.
(1164)

Art. 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain
the debt shall not be valid. (1165)

When payment to creditor is NOT VALID

ACCION SUBRAGATORIA

Court will tell X not to pay A, instead will pay B – garnishment

- Must know/knowledgeable

Art. 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter
may be of the same value as, or more valuable than that which is due.

Rule of Identity – applies only to the obligation to give

- Cannot replace although of some value or more valuable

- B can refuse

When substitution is allowed:

(1) Stipulation
(2) Facultative Obligation
(3) Waiver

Rule of Identity (Specific) – parties cannot replace the thing

In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance
against the obligee's will. (1166a)

Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law of sales. (n)

4 Special Payment Forms

Dation in Payment/Dacion En Pago/Adjunction

- Is the conveyance of ownership of a thing as an accepted equivalent of performance in the

obligation.
 - Obligation is money, Payment is Property

General Rule: Value Agreed Upon

EXCEPTION: Stipulation of FULL PAYMENT

Art. 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality
and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither
can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances
shall be taken into consideration. (1167a)

Rule of Medium Quality – applies only to GENERIC obligation

- Neither inferior nor superior quality

- What creditor can demand? AVERAGE QUALITY
- What debtor can give? AVERAGE QUALITY

Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for
the account of the debtor. With regard to judicial costs, the Rules of Court shall govern. (1168a)

Expenses

Extrajudicial – debtor

Judicial – losing party (Gneral Rule)

Consignation, if property – creditor

Exception: STIPULATION – creditor’s expense in going to the debtor’s domicile to collect

EXCEPTION: Unless the court says otherwise.

- The court says each will bear there own cost.

- Either party shall pay the costs
- That the same cost be divided as may be equitable.

Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to
receive the prestations in which the obligation consists. Neither may the debtor be required to make
partial payments.

However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the
debtor may effect the payment of the former without waiting for the liquidation of the latter. (1169a)

Apply Rule of Integrity

Exception: Instances when partial payment is valid (PASS)

- Stipulation
 - Partly liquidated and partly unliquidated
- Different prestations subject to different terms and conditions

Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible
to deliver such currency, then in the currency which is legal tender in the Philippines. – removed/not
applicable

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall
produce the effect of payment only when they have been cashed, or when through the fault of the creditor
they have been impaired.

In the meantime, the action derived from the original obligation shall be held in the abeyance. (1170)

LEGAL TENDER – coins and bills issued by Bangko Snetral ng Pilipinas – current currency (Philippine Peso)

- Promissory note, check, bills of exchange – not legal tender

CAN CREDITOR REFUSE TO ACCEPT IT? YES

CAN CREDITOR ACCEPT IT? YES, WAIVER

IF IT IS ACCEPTED, WHAT ARE THE EFFECTS?

(1) DOES NOR PRODUCE PAYMENT

(2) DEMANDABILITY OF ORIGINAL OBLIGATION IS SUSPENDED

WHEN IS THERE PAYMENT?

(1) IF IT IS ENCASHED
(2) FAULT OF CREDITOR IF IT IS IMPAIRED. – STALE CHECK – LIFESPAN OF CHECK – 180 DAYS GIVEN, IT
WILL BE CALLED STALE (EXPIRE)
(3) WHEN CREDITOR IS EQUITELY OF ESTOPPEL/WAIVER/OR ASSENTED THERETO

WHEN THERE IS A VIOALTION IF ACCEPTED? – IF THE CHECK BOUNCES (BP 22)

1 PESO/ 5 PESO/ 10 PESO/20 PESO – coins – not exceeding 2,000

1 CENT/ 5 CENT/ 10 CENT/ 25 CENT – coins – not exceeding 200

RA 386 – RA 529 – RA 4100 - RA 8183

History of 1st Paragraph of 1249 – entirely removed

RA 8183 – ALL MONETARY OBLIGATIONS SHOULD BE SETTLED IN PHILIPPINE CURRENCY WHICH IS THE
LEGAL TENDER IN THE PHILIPPINES

HOWEVER, THE PARTIES MAY ARGUE THAT THE OBLIGATION SHALL BE SETTLED IN ANY OTHER CURRENCY
AT THE TIME OF PAYMENT
Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the
value of the currency at the time of the establishment of the obligation shall be the basis of payment,
unless there is an agreement to the contrary. (n)

Basis of Payment in case of EXTRAORDINARY inflation or deflation – value of currency at the time of
establishment of the obligation.

Art. 1251. Payment shall be made in the place designated in the obligation.

There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment
shall be made wherever the thing might be at the moment the obligation was constituted.

In any other case the place of payment shall be the domicile of the debtor.

If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses
shall be borne by him.

These provisions are without prejudice to venue under the Rules of Court. (1171a)

Place where obligation shall be paid.

GENERAL RULE: STIPULATION – agreement

EXCEPTION: IF NO STIPULATION

(1) If GENERIC – DOMICILE OF THE DEBTOR

(2) If SPECIFIC – WHERE THE THING WAS AT THE TIME OF PERFECTION OF CONTENT

DOMICILE – PERSON’S HABITUAL RESIDENCE/PERMANENT HOME

SUBSECTION 1. - Application of Payments

Art. 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare at
the time of making the payment, to which of them the same must be applied. Unless the parties so
stipulate, or when the application of payment is made by the party for whose benefit the term has been
constituted, application shall not be made as to debts which are not yet due.

If the debtor accepts from the creditor a receipt in which an application of the payment is made, the
former cannot complain of the same, unless there is a cause for invalidating the contract. (1172a)

APPLICATION OF PAYMENT – IMPUTATION OF PAYMENT

APPLY – TO CHOOSE

KEYWORD: DESIGNATION

REQUISITIES:
 (1) 1 Debtor and 1 Creditor
(2) 2 or more debts
(3) Debts must be of the same kind
(4) All debts are due (respect period – 1198)
(5) Payment must not be sufficient – complete payment/performance – 1255

Summary of Rules:

(1) Debtor chooses.

(2) If debtor does not, Creditor chooses.
(3) If both DID NOT, Law chooses
- Legal Application of Payment
o MOST ONEROUS DEBT
o IF SAME BURDEN, APPLY IT PROPORTIONATELY
- Onerous – most difficult, most burdensome

APPLICATION OF PAYMENT – designation of the debt to which should be applied the payment made by a
debtor who has various debts of same kind in favor of one (1) and the creditor (due).

Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made
until the interests have been covered. (1173)

Application of 1176, Interest is paid ahead of the principal

Art. 1254. When the payment cannot be applied in accordance with the preceding rules, or if application
can not be inferred from other circumstances, the debt which is most onerous to the debtor, among those
due, shall be deemed to have been satisfied.

If the debts due are of the same nature and burden, the payment shall be applied to all of them
proportionately. (1174a)

LEGAL APPLICATION OF PAYMENT

MOST ONEROUS

IF BOTH OF THEM HAVE SOME INTEREST, SECURITY, GUARANTY, COLLATERAL,IT WILL APPLIED
PROPORTIONATELY

SOLIDARY IS THE MOST ONEROUS

WHEN A DEBT MORE ONEROUS THAN ANOTHER

(1) INTEREST > NOT-INTEREST

(2) SOLE DEBTOR > SOLIDARY DEBTOR
(3) SECURED (MORTGAGE/PLEDGE) > UNSECURED
(4) HIGHER RATE INTEREST > LOWER RATE INTEREST
(5) WITH PENALTY CLAUSE > WITHOUT PENALTY CLAUSE
SUBSECTION 2. - Payment by Cession

Art. 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This cession,
unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net
proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between the
debtor and his creditors shall be governed by special laws. (1175a)

PAYEMNT OF CESSION – assignment of all the properties of the debtor for the benefit of his creditors.

1255 (defined) – CEDE – assign

- Assignment or abandonment

1245 DATION 1255 CESSION

1 CREDITOR 2 OR MORE CREDITOR
INSOLVENCY NOT REQURED INSOLVENCY REQURED
PROPERTIES NOT INVOLVED PROPERTIES INVOLVED
BECOME OWNER ACQUIRE RIGHT TO SELL PROCEEDS TO CREDIT
PROPORTIONATELY
ACT OF NOVATION NOT AN ACT OF NOVATION

REQUISITES:

(1) 2 OR MORE CREDITORS

(2) PARETIALLY INSOLVENCY ON DEBTOR
(3) MORE THAN 1 DEBT
(4) CESSION MUST BE ACCEPTED
(5) ABANDONMENT

Summary of Rules:

- Creditors are only assignees

- Debtor is related only up to the extent of the net proceeds
- Debtor is still liable for the balance

SUBSECTION 3. - Tender of Payment and Consignation

Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept
it, the debtor shall be released from responsibility by the consignation of the thing or sum due.

Consignation alone shall produce the same effect in the following cases:

(1) When the creditor is absent or unknown, or does not appear at the place of payment;

(2) When he is incapacitated to receive the payment at the time it is due;

(3) When, without just cause, he refuses to give a receipt;

 (4) When two or more persons claim the same right to collect;

(5) When the title of the obligation has been lost. (1176a)

Tender of payment – act of paying, and Consignation – act of depositing the thing in court

GENERAL RULE: Both Tender of Payment and Consignation

Exception: CONSIGNATION ALONE EXTINGUISHES

These are creditors fault:

(1) Creditor is absent or unknown or does not appear at the place of payment.
(2) Without just cause, he refuses to give a receipt.
(3) Incapacitated to receive the payment at the time is due.
(4) When two or more persons claim the same right to collect.
(5) Title of the obligation is lost

Requisites:

(1) Existence of a valid debt is due valid prior.

(2) Valid prior payment by the debtor and refusal without justifiable reason by the creditor to accept
it.
(3) Previous notice of consignation to persons interest in the fulfillment of the obligation
(4) Consignation of the thing or sum due
(5) Subsequent notice of consignation made to the interested parties.

If the 5 requisites are present and complete? Is the obligation extinguish? No, but the creditor will pay the
expenses – EFFECT

We need/require judicial declaration/court order – the court will be the one to declare the obligation is
extinguish.

Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be
announced to the persons interested in the fulfillment of the obligation.

The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which
regulate payment. (1177)

- Prior notice to persons interested in obligations.

Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority,
before whom the tender of payment shall be proved, in a proper case, and the announcement of the
consignation in other cases.

The consignation having been made, the interested parties shall also be notified thereof. (1178)

- Consignation must be made with proper authority – second notice of consignation.

Art. 1259. The expenses of consignation, when properly made, shall be charged against the creditor. (1178)

- Creditor pays expenses, if properly made.

Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the
cancellation of the obligation.

Before the creditor has accepted the consignation, or before a judicial declaration that the consignation
has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation
to remain in force. (1180)

- Withdrawal of the thing/sum deposited

The debtor may withdraw as a matter of right the thing or sum deposited.

(1) Before creditor has accepted consignation

(2) Before judicial declaration of proper consignation

Effect:

(1) Obliogation shall continue to remain in force

(2) All expenses are paid by the debtor

Art. 1261. If, the consignation having been made, the creditor should authorize the debtor to withdraw the
same, he shall lose every preference which he may have over the thing. The co-debtors, guarantors and
sureties shall be released. (1181a)

- Effect of withdrawal with consent of creditor

Effect:

(1) Creditor loses the preferences over the thing.

(2) Co-debtors, guarantors, and sureties are released.

MORAL STORY 1256-1261 – CREDITOR MUST NOT AGREE TO THE WITHDRAWAL

SECTION 2. - Loss of the Thing Due

Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it
should be lost or destroyed without the fault of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not
extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature
of the obligation requires the assumption of risk. (1182a)

WHEN IS A THING CONSIDERED LOSS? Physical/Legal/Civil (1189)

REQUISITIES TO EXTINGUISH THE OBLIGATION:

(1) Obligation to deliver a specific/determinate thing.

(2) No fault of the debtor
(3) No delay on debtor

GENERAL RULE: Loss extinguishes the obligation

EXCEPTION: Debtor is still liable:

(1) LAW (1170, 1165, 1263)

(2) STIPULATION/AGREEMENT
(3) NATURE OF THE OBLIGATION – REQUIRES THE ASSUMPTION OF RISK
(4) OBLIGATION TO DELIVER THE THING ARISES TO DELIVER THE THING ARISES FROM CRIME (1268)
(5) GENERIC (1263)

Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind
does not extinguish the obligation. (n)

APPLY “GENUS NUNQUAM PERIT” – RULE OF MEDIUM QUALITY

See 1262 Exception: Debtor is LIABLE, Obligation not extinguish.

Art. 1264. The courts shall determine whether, under the circumstances, the partial loss of the object of
the obligation is so important as to extinguish the obligation. (n)

TOTAL LOSS VS. PARTIAL LOSS

GENERAL RULE: THEY ARE NOT THE SAME

EXCEPTION: COURT WILL DECIDE WHETHER THE PARTIAL LOSS IS EQUIVALENT TO COMPLETE LOSS

MATERIAL/SUBSTANTIAL THING

COURT CAN NOW DECIDE

BOTH SCENARIOS CAN APPLY THE EXCEPTION TO THE RULE

Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was
due to his fault, unless there is proof to the contrary, and without prejudice to the provisions of article
1165. This presumption does not apply in case of earthquake, flood, storm, or other natural calamity.
(1183a)

General Rule: Debtor is presumed at fault

Why? Diligence of Good Father of Family 1165 – 3RD Paragraph too,

Guilty of delay or has promised to deliver the same thing to two or more persons who don not have the
same interest – Fortuitous Event Not Excuse

Exception: if loss was cause by natural disaster/Fortuitous Event

Art. 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or
physically impossible without the fault of the obligor. (1184a)

Impossibility of Fulfillment of obligation

1183 1266
When? Start After the creation
Effect? Annulled Debtor is released

Art. 1267. When 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. (n)

Difficulty of Performance

Effect: Debtor is released

CASE: Doctrine of Unforeseen Events (Others called it Doctrine of Frustrated Enterprise)

Debtor is released by court in whole or in part

- This is applicable to:

(1) Personal Obligation (to do)
(2) REAL Obligation (to give/deliver)

Art. 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor
shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the
thing having been offered by him to the person who should receive it, the latter refused without
justification to accept it. (1185)

Effect of Fortuitous Event where obligation proceeds from a criminal offense – Fortuitous Event s not
excused.

General Rule: Debtor’s liable

Exception: Not liable (Mora Accipendi)

Apply Scope of Civil Liability:

(1) Restitution
(2) Reparation
(3) Indemnification

Art. 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have all the
rights of action which the debtor may have against third persons by reason of the loss. (1186)

Right of creditor to p[proceed against third persons – responsible for loss

Example; Insurance

To whom will I get the necessary payment? Insurance

To whom the insurance will get the reimbursement? Third Person

Third Person negligent/fault of the accident

SECTION 3. - Condonation or Remission of the Debt

Art. 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It
may be made expressly or impliedly.

One and the other kind shall be subject to the rules which govern inofficious donations. Express
condonation shall, furthermore, comply with the forms of donation. (1187)

CONDONATION/REMISSION/WAIVER/RENOUNCIATION

- Is gratuitous abandonment by the creditor of his right to collect against the debtor.
- Form of donation

Requisites:

(1) Gratuitous
(2) It must be accepted by the debtor
(3) The parties must have capacity
(4) It must not be inofficious
(5) If made expressly, it must comply with the forms of donation.

(1) As to its extent: a. Total/Complete, b. Partial

(2) Form: a. Express: oral, writing, b. Implied – act of party
(3) Date of effectivity: a. Inter Vivos – lifetime of the donor, Mortis Causa – upon death.
Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the
debtor, implies the renunciation of the action which the former had against the latter.

If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may uphold
it by proving that the delivery of the document was made in virtue of payment of the debt. (1188)

Presumption in case of voluntary delivery of private document of indebtedness

A created the Promissory Note, while B holds it. B returned the Promissory Note

THIS IS IMPLIED

Art. 1272. Whenever the private document in which the debt appears is found in the possession of the
debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved. (1189)

Presumption in case document FOUND in possession of debtor – Effect; Presumed the creditor delivered it
voluntarily, unless the contrary is proved.

Art. 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver
of the latter shall leave the former in force. (1190)

Effect of Renunciation

If the Principal is renounced, the accessory extinguish.

If the particular accessory is renounced, the particular accessory is renounced the particular accessory is
only extinguish.

Art. 1274. It is presumed that the accessory obligation of pledge has been remitted when the thing
pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who
owns the thing. (1191a)

Presumption in case thing PLEDGED found in possession of debtor.

A owes the ring while B holds it.

B returned the pledge.

The plegde is extinguished.

The principal remains.

If PRINCIPAL AND PROMISSORY NOTE IS RETURNED

THE PRINCIPAL EXTINGUSIHED

THE ACCESSORIES IS EXTINGUISHED

IF THE PLEGE AND ACCESSORIES INVOLVED

THE PRINCIPAL REMAINS

THE ACCESSORIES/PLEDGE EXTINGUISH

SECTION 4. - Confusion or Merger of Rights

Art. 1275. The obligation is extinguished from the time the characters of creditor and debtor are merged in
the same person. (1192a)

CONFUSION/MERGER – OBLIGATION EXTNGUISH

ONE PERSON: DEBTOR AND CREDITOR AT THE SAME TIME

MERGE - COMBINE

Art. 1276. Merger which takes place in the person of the principal debtor or creditor benefits the
guarantors. Confusion which takes place in the person of any of the latter does not extinguish the
obligation. (1193)

Effect of merger in the person of principal debtor or creditor, obligation is extinguish, principal is
extinguish, so does the accessory.

Effect or merger in person or guarantor, principal remains, guarantor can demand reimbursement to A

Art. 1277. Confusion does not extinguish a joint obligation except as regards the share corresponding to
the creditor or debtor in whom the two characters concur. (1194)

Confusion in JOINT OBLIGATION

Does not affect other debtor

“to each on his own” Only A will be extinguished.

Confusion in SOLIDARY OBLIGATION

Entire obligation is extinguished

Reimbursement can be made in Confusion Merger

CONFUSION (ONE PERSON: DEBTOR AND CREDITOR)

COMPENSATION (BOTH PARTIES: DEBTOR AND CREDITOR)

SECTION 5. - Compensation
Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors
of each other. (1195)

Compensation – extinguishment to the concurrent amount of debts of two persons who, in their own right,
are debtors and creditors of each other.

Synonyms:

- Set Off
- Abbreviated Payment
- Simplified Payment

Kinds:

(1) Legal – declared by law

(2) Judicial – declared by COURT
(3) Voluntary – by both parties/agreement
(4) Facultative – only one party declares.

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor. (1196)

Requisities of Legal Compensation

(1) Both parties are principal debtors/creditors

(2) Same kind/Same quality
(3) Both debts are demandable
(4) Both debts are liquidated
(5) No retention or controversy commenced by Third Person

Art. 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up compensation
as regards what the creditor may owe the principal debtor. (1197)

Compensation benefits guarantors

Art. 1281. Compensation may be total or partial. When the two debts are of the same amount, there is a
total compensation. (n)

TOTAL (COMPLETE EXTINGUISHMENT) VVS. PARTIAL (PARTIAL EXTNGUISHEMNT: REMAINING LIABLE)

Art. 1282. The parties may agree upon the compensation of debts which are not yet due. (n)

Voluntary Compensation – by agreement of both parties – obligation extinguishes.

No Legal Compensation + Voluntary Compensation

Art. 1283. If one of the parties to a suit over an obligation has a claim for damages against the other, the
former may set it off by proving his right to said damages and the amount thereof. (n)

Judicial Compensation – by court declaration (1169)

Art. 1284. When one or both debts are rescissible or voidable, they may be compensated against each
other before they are judicially rescinded or avoided. (n)

Compensation of Voidable or Rescissible debts - ALLOWED

Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third
person, cannot set up against the assignee the compensation which would pertain to him against the
assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved
his right to the compensation.

If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set
up the compensation of debts previous to the cession, but not of subsequent ones.

If the assignment is made without the knowledge of the debtor, he may set up the compensation of all
credits prior to the same and also later ones until he had knowledge of the assignment. (1198a)

1st Paragraph

RULE: Do not give your consent to the assignment in order for legal compensation to operate
automatically.

C can collect compensation from A if A agreed. If A did not agreed, C cannot sollect compensation from A
due to Legal Compensation.

Art. 1286. Compensation takes place by operation of law, even though the debts may be payable at
different places, but there shall be an indemnity for expenses of exchange or transportation to the place of
payment. (1199a)

Compensation where debts payable at DIFFERENT PLACES

Expenses of Exchange? Who ever declared if A or B

Art. 1287. Compensation shall not be proper when one of the debts arises from a depositum or from the
obligations of a depositary or of a bailee in commodatum.

Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title,
without prejudice to the provisions of paragraph 2 of Article 301. (1200a)

Art. 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a
penal offense. (n)

Instances when LEGAL COMPENSATION NOT ALLOWED

(1) Where one of the debts arises from depositum (EXCEPTION: SAVINGS DEPOSIT)
(2) One of the debts arises from commodatum.
(3) Claim for support by Gratuitous Title: (EXCEPTION: SUPPORT IN ARREARS; ARREARS – SUPPORT
THAT WASN’T given the previous months. B (SOM) can declare Facultative Compensation)
(4) One of the debts consists in Civil Liability
(5) Arising from a penal offense/crime

Art. 1289. If a person should have against him several debts which are susceptible of compensation, the
rules on the application of payments shall apply to the order of the compensation. (1201)

Rules on application of payment apply to compensation

Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect by
operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and
debtors are not aware of the compensation. (1202a)

Consent of parties is NOT required in legal compensation. LAW

SECTION 6. - Novation

Art. 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;

(3) Subrogating a third person in the rights of the creditor. (1203)

Novation (Novate – To Change)

- Old Obligation is extinguish

- New obligation arises
o Required that both parties have agreed to change

Dual Purpose: Extinguish and Substitute

Kinds of Novation:
According to Origin:

(1) Legal – Law

(2) Conventional – Agreement

According to how it is constituted:

(1) Expressed – declared in clear terms, unequivocal terms

(2) Implied – essentially incompatible

According to extent or effect:

(1) Total/Extinctive – completely extinguished

(2) Partial/Modeficatory – merely modified

According to the subject:

(1) Real/Objective – object/prestation

(2) Personal/Subjective – person
(3) Mixed – both person and object

Art. 1292. In order that an obligation may be extinguished by another which substitute the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every
point incompatible with each other. (1204)

IMLIED/Tacid Novation

- Cannot stand together

- Both old and new eistenially incompatible

Novation never presumed

4 requisites of Novation

(1) A previous valid obligation

(2) Capacity and intention of the parties to modify or extinguish the obligation
(3) The modification or extinguishment of the obligation
(4) Creation of a new valid obligation

Period of payment is shortened – Novation

Period or payment postponed/extended – No Novation/None

Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be
made even without the knowledge or against the will of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. (1205a)

Substitution: Debtor is changed

Expromision – propose by NEW debtor: New Debtor + Creditor – agreed

Delegacion – initiated by OLD debtor: OD + ND + C – agreed.

Subrogation: Creditor is changed

Legal – by law

Conventional – by consent

Rights of the New Debtor

- OLD DEBTOR IS RELASED FROM OBLIGATION

EXPROMISION – BENIFICIAL REIMBURSEMENT (1236)

DELEGACION – REIMBURSEMENT AND SUBROGATION (1237)

Art. 1294. If the substitution is without the knowledge or against the will of the debtor, the new debtor's
insolvency or non-fulfillment of the obligations shall not give rise to any liability on the part of the original
debtor. (n)

Effect of New Debtor’s Insolvency or non-fulfillment of the obligation in EXPROMISSION

Rule: The old debtor is not liable, why? Because the old debtor did not give consent

Art. 1295. The insolvency of the new debtor, who has been proposed by the original debtor and accepted
by the creditor, shall not revive the action of the latter against the original obligor, except when said
insolvency was already existing and of public knowledge, or known to the debtor, when the delegated his
debt. (1206a)

Effect of New Debtor’s insolvency or nonfulfillmenty of the obligation in DELEGACION

GENERAL RULE: OLD DEBTOR IS NOT LIABLE

EXCEPTION:

(1) Public Knowledge of Insolvency

(2) Old debtor know the insolvency – old debtor will be guilty of fraud.

Art. 1296. When the principal obligation is extinguished in consequence of a novation, accessory
obligations may subsist only insofar as they may benefit third persons who did not give their consent.
(1207)

Effect of the Novation in Accessory Obligation (Exception)

A-B AGREED TO GVE THE 2% TO PEDROP (AGREED)

A-B ALSO GREED TO GIIVE THE PIANO

The reason why the accessory was not extinguishged

Art. 1297. If the new obligation is void, the original one shall subsist, unless the parties intended that the
former relation should be extinguished in any event. (n)

NOVATION REQUISITIES: BOTH OLD AND NEW OBLIGATION MUST BE VALID IN ORDER TO HAVE NOVATION

NEW OBLIGATION IS VOID

GENRAL RULE: NO NOVATION

EXCEPTION:

(1) INTENTION OF PARTIES THAT IT WILL BE EXTINGUISAHED

(2) IF ONLY VODABLE

Art. 1298. The novation is void if the original obligation was void, except when annulment may be claimed
only by the debtor or when ratification validates acts which are voidable. (1208a)

OLD OBLIGATION IS VOID OR VOIDABLE

GENERAL RULE: NO NOVATION

EXCEPTION:

(1) Old Obligation is VOIDABLE

(2) Old Obligation is ratified

Art. 1299. If the original obligation was subject to a suspensive or resolutory condition, the new obligation
shall be under the same condition, unless it is otherwise stipulated. (n)

presumption where original old obligation subject to condition

General Rule: The new obligation is subject to same condition

Exception: If the parties intended that the new obligation is not subject to same condition.

Art. 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The
former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly
established in order that it may take effect. (1209a)

KINDS OF SUBROGATION:

CONVENTIONAL – consent of all parties

LEGAL – declared by law

CONVENTIONAL – clearly established.

LEGAL SUBROGATION is not presumed

Art. 1301. Conventional subrogation of a third person requires the consent of the original parties and of
the third person. (n)

Conventional Subrogation requires CONSENT OF ALL PARTIES

Art. 1302. It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge;

(2) When a third person, not interested in the obligation, pays with the express or tacit approval of
the debtor;

(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the
obligation pays, without prejudice to the effects of confusion as to the latter's share. (1210a)

Cases of Legal Subrogation

(1) Creditor pays another creditor who is preferred.

(2) Third person without interest pays with the approval of the debtor – reimbursement +
subrogation, collateral if not paid
(3) Third Person with nterest – guarantor can choose mortgage , subrogation

Art. 1303. Subrogation transfers to the persons subrogated the credit with all the rights thereto
appertaining, either against the debtor or against third person, be they guarantors or possessors of
mortgages, subject to stipulation in a conventional subrogation. (1212a)

TOTAL SUBROGATION

Art. 1304. A creditor, to whom partial payment has been made, may exercise his right for the remainder,
and he shall be preferred to the person who has been subrogated in his place in virtue of the partial
payment of the same credit. (1213)

PARTIAL PAYMENT

If payment is insufficient, It is preferred to the old creditor than the new creditor.
CONTRACT

1305 – A CONTRACT is a MEETING OF MINDS between TWO PERSONS (OR MORE) whereby one binds
himself with respect to the other, to give something or to render some service.

There can be one party in contract? No, 2 or more is required. (Minimum of 2)

Exception: Auto Contract

B sells and buys the car for himself.

- It occurs on agency.

General Rule: Contract

2 or more parties.

2 – Bilateral Contract

More then 2 – Multilateral Contract

Parties have to comply without doing so = liabile to pay for damages

A cannot refuse to deliver; B cannot refuse to deliver.

Obligatory = Mandatory

Contract vs. Obligation

- They are not the same, in fact, obligation is more broader in scope than the contract, as
the contract is only part of the sources of obligation.
 - There are obligations in contract, but there is NOT only contract in the obligations (based
on its sources).
- All contracts have obligation, but not all obligations are contracts. (Going back to the
sources of obligation).

Contract vs. Agreement

- They are not the same.
- Broader: Agreement
- Agreement can be illegal and legal
- Contract must be always be legal

Contract vs. Stipulation

- Dispositive portion of the contract
- Part of the contract that you certainly agrees.
Contract vs. Pact
- Incidental part of the contract.

Contract is different than obligation, agreement, stipulation, and pact.

Contract is the Cause

Obligation is the Effect.

KINDS OF CONSENT

CONSENSUAL – contract created be mere consent.

Vs.

REAL (1316) – consent and delivery of thing is required in this contract.

COMMUTATIVE – equivalent consideration must be given.

Vs.

ALEATORY – contingency; consideration are not the same

EXECUTORY – the parties will be compling with the obligation.

o Oral agreement/contract – cannot be.

Vs.

EXECUTED – one or both parties have already complied with their obligations.
o Oral agreement/contract – can be.
Statute of Fraud – writing
Contract must be in writing which covers only EXECUTORY.

A hasn’t delivered; B hasn’t paid – Executory.

A has already delivered; B has already paid (or both) – Executed.

5 Basics Principles/Characteristics of Contract (MARCO)

M – Mutuality (1308)
A – Autonomy (1306)
R – Relativity (1311)
C – Consensual (1315)
O – Obligatory (1159) - Ex Contractu
1306 – The contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public order, or
public policy.

AUTONOMY/LIBERTY/FREEDOM TO CONTRACT
General Rule: Parties can agree on anything
Exception: If contrary to the following = VOID
(1) Law
(2) Morals
(3) Good Customs
(4) Public Order
(5) Public Policy

1307 – Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of
Titles 1 and 2 of the Book, by the rules governing the most analogous nominate contract and by
customs of the place.

Innominate Contracts – No Name

Nominate vs. Innominate
NOMINATE – it has specific name or designation in law. (e.g. contract of commodatum, -lease, -agency,
-sale, -etc.)
INOMINATE – it has no specific name or designation in law.

KINDS OF INNOMINATE CONTRACT

(1) DO UT DES – I give that you may give.
(2) DO UT FACIAS – I give that you may do.
(3) FACIO UT DES – I do that you may give.
(4) FACIO UT FACIAS - I do that you may do

FACIO – do
DO- give
DES – give
FACIAS – do

Rules of Governing Innominate Contract

A – Agreement of Parties
C – provisions of Civil Code
A – Analogous Contract
C – Customs of Place

1308 – The contract must bind both contracting parties, its validity or compliance cannot be left to the
will of one of them.

1308 – MUTUALITY – both parties must agree.

Case: PNB vs. Padilla
VIOLATED: Principle/Contract of Mutuality
Court Decision/Effect – Invalid

1309 – The determination of the performance may be left to a third person, whose decision shall not
be binding until it has been made known to both contracting parties.

1309 – Can the Third Person decide on contract? Big No

General Rule: Third Person cannot decide
Why? Both parties must agree (1308), not the Third Person.
Exception: The Third Person was authorized by both parties.
Effect: Valid to both parties.
Exception to the Exception (1310)
- If evidently INEQUITABLE (unfair) (acted by bad faith or by mistake) (NOT VALID) Effect:
Court Shall Decide

1310 – The determination shall not be obligatory if it is evidently inequitable. In such case, the courts
shall decide what is equitable under the circumstances.

1311 – Contracts take effect only between the parties, their assigns and heirs, except in case where the
rights and obligations arising from the contract are not transmissible by their nature, or by stipulation
or by provision of law. Their heir is not liable beyond the value of the property he received from the
decedent.

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person.

1311 – Relativity of Contract

Contract takes effect only between the parties, their heirs, and their assign
1178 – Obligations are NOT transmissible
Rights are transmissible.

General Rule: Third Persons are not bound, liable, or affected by the contract.
Exception: Third Person are liable/bound/affected
1) (1311) (par. 2) Stipulation pour autrui – stipulation in favor of a third person.
2) (1312) – Contracts creating Real Rights.
3) (1313) – Contracts to defraud creditors.
4) (1314) – Interference in contractual relations – contracts which have been violated at the
inducement of a third person.

1311 (par. 2) Stipulation Pour Autrui – Stipulation in favor of a third person.

5 requisites of Stipulation Pour Autrui

(1) – The contracting parties by their stipulation must have clearly and deliberately conferred a
favor upon a third person.
(2) - The third person must have communicated his acceptance to the obligor before its
revocation by the obligee or the original parties.
(3) The stipulation in favor of the Third Person should be part, not the whole, of the contract.
(4) The favorable stipulation should NOT BE CONDITIONED OR COMPENSATED BY ANY
OBLIGATION WHATEVER; AND,
(5) Neither of the contracting parties bears the legal representation or authorization of the third
party for otherwise, the rules of agency will apply.

1312 – In contracts creating real rights, third persons who come into possession of the object oif the
contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Regulations
Laws.

Contracts creating Real Rights

How? By Registration
Real Right - against /informs the WHOLE WORLD.

The land (1) and the mortgage (2) must be registered to create a real right.
If not registered, it will not bind to third persons.

1313 – Creditors are protected in cases of of contracts intended to defraud them.

Contracts to defraud creditors

- Right of creditors to impugn contract intended to defraud them.
- ACCION PAULIANA (1177)
1314 – Any Third Person who induces another to violate his contract shall be liable for damages to the
other contracting party.

Interference on contractual relation.

Example: Film Star, Contractor of a building.

Regal Films can held Viva Films liable for interference.

The repair man can held the Third Person liable for interference.

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 bature, may be keeping with good faith, usage of law.

Consensual – mere consent

General Rule – Contract are created by mere consent.
Exception: 1) Real Right (1316) – consent + delivery
2) Formal/Solemn (1356) – consent + special forms

Consensual – effect of perfection of contract – both parties must have to comply with their respective
obligations.

Example: Contract of Sale – The seller has to deliver while the buyer has to pay.

1316 – Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery
of the object of the obligation.

3 Kinds of Real Contract

1 ) Pledge (No delivery/No pledge) mere promise – consensual contract to create pledge (Law 3).

2 ) Depositum (Requires Delivery)

3 ) Loan (Mutuum – consumable; Commodatum – non – consumable)

Consent cannot create the pledge, depositum, loan, without physical delivery.

Stages of Contract

1 ) Preparation/Negotiation/Conception – bargaining
2 ) Perfection/Creation/Birth – contract was created; meeting of the minds; delivery (real contract)
3 ) Termination/Consummation/Death – performance of the obligatios of the parties in the contract;
Consensual – delivery.
Stage where ownership required? Termination
Delivery required stage?
Consensual – Termination (3rd Stage)
Real – Perfection (2nd Stage)

1317 – No one may contract in the name of another without being authorized by the latter, or unless
he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal representation,
or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or implied,
by the person on whose behalf it has been executed, before it is revoked by the other contracting
party.

Unauthorized Contract/Unenforceable Contract

General Rule – a person is not bound by the contract of another of which he has no knowledge or to
which he has not given his consent.
Exception: Authorization given to Third Person
2 requisites to be bound by the Third Person
1 ) He must be authorized
2 ) Act within the scope of authority
If 1 is missing – Unenforceable.
Higher Value – Valid
Lower Value – Unenforceable
Remedy: Ratification – after
Effect of Ratification: it cleanses the contract from all defects – from Valid but Unenforceable to only
Valid and removed the Unenforceable effect.

Example: A (Principal) told B (Agent) to sell his phone for 10,000

B sold it for 8,000 – Unenforceable
B sold it for 12,000 – Valid
Who owes the excess – Principal.

1318 – There is no contact 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.

Classes of element of contract

(1) Essential – If 1 is missing = Void

Common – Consent, Object, Cause
Special – form, delivery
 Extraordinary – prize: sale

(2) Natural – presumed to exist in certain contracts (automatc)

Example: warranty against eviction (1548)
Warranty against hidden defects in sale (1561)

(3) Accidental – specific terms, conditions, stipulations

1321 – Accidental Elements – It may or may not be present.

3 Essential Elements
C – Consent
O – Object
C – Cause
If 1 is missing = VOID.

1319 – Consent is manifested by the meeting of the other and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to have been entered into in the place where the
offer was made.

Consent = Offer + Acceptance

Offer – must be certain/definite.
Acceptance – must be absolute.

Exception: Counter-offer/Qualified Acceptance

Politicitacion – imperfect promise (no reply)

What if the contract was sent through e-mail?

In the e-commerce law, the contract can be sent through email or created through it.

LAW1 – Contract can be created implied, express, oral or in writing.

New Mode: E-commerce Law.

Can be a contract created electronically (by sending a text message or email)? Yes

Shoppe and Lazada are examples of electronic contracts.

1319 (2nd Paragraph) – Cognition Theory (Defined)

When is a contract perfected if sent by letter?

Where is the contract created?

Example: A – Manila; B - Cebu

Oct. 1 – A Sent a Letter of Offer to B for the Sale of His Specific Car for 100,000.
Oct. 5 – B received the letter.
Oct. 6 – B opened the letter.
Oct. 7 – B decided to buy.
Oct. 8 – B sent letter of acceptance to A
Oct. 14 – A received the letter of acceptance of A
Oct. 15 – A has knowledge that B accepted the offer (the contract was perfected)

When is the time for contract was perfected if sent by letter or telegram?
From the time of the knowledge of acceptance – Oct. 15 of Example

Where is the contract created? In case of the example, Manila, where the offer was set/made

When is the time the contract was perfected if sent by letter of telegram?
T2nd Paragraph, 1st Sentence (1319) – the time it came to his knowledge.
Where is the contract created?
2nd Paragraph, 2nd Sentence (1319) – is presumed to have been entered into in the place where the
offer was made.

B decided to buy (Oct 7) – Manifestation Theory

B sent his acceptance through letter (Oct 8) – Expedition Theory
A received the letter of acceptance from B (Oct. 14) – Reception Theory
A has knowledge that B accepted the offer (Oct 15) – Cognition Theory – Where the Philippines
follows.

1320 – An acceptance may be express or implied.

Form of acceptance
(1) Expressed – oral; writing; this also cover electronic means.
(2) Implied – act of parties

1321 – The person making the offer may fix the time, place, and the manner of acceptance, all of
which must be complied with.

Matters that may fixed by the offerer.

Accidental Elements (1318)
The parties did not stipulated on the questions: Where? When? How? The Offer + Acceptance =
Consent
ACCIDENTAL – The parties may or may not stipulate on those things.
When? Where? How?, Time, Place, Manner of Acceptance.
The Problem is they did not stipulate on things.
Can B pay partially? No (1233/1248/1199)
Can A deliver partially? No (1233/1248/1199)
Can B pay by promissory note? No 1249
Where can A supposed to deliver? 1251
Where is A supposed to deliver/ B supposed to pay?
No Period? Pure Obligation – Immediately Demandable
This is an alternative obligation.
No Stipulation? No Problem, the law will provide the details.

1322 – An offer made through an agent is accepted from the time acceptance is communicated to him.

Offer made by agent.

- Case of agency

1323 – An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either
party before acceptance is conveyed.

Ineffective Offer
General Rule: Both parties must be LIVING AND CAPACITATED at the time of the knowledge of
acceptance.
Instances of ineffective offer
(1) Death
(2) Insanity
(3) Civil Interdiction
(4) Insolvency

Compare to 1170/1330

Voidable: Insanity and Civil Interdiction

Oct 1 – Contact Created

Oct 15 – Knowledge of Acceptance
Both Parties must be living and capacitated before Oct. 15
Oct. 8 – A dies, do we have a contract on Oct. 15? No
Oct. 9 – B becomes insane, contract? No
Oct. 10 – A was imprisoned, contract? No
Oct. 12 – B becomes insolvent, contract? No

Other instances
(1) Failure to comply with the condition of the offer as to the time, place, and manner of pay
(1321).
(2) Expiration of the period fixed in the offer of acceptance (1324)
 (3) Destruction of the thing due before acceptance (1262)
(4) Rejection of offer.

1324 – When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the option
is founded upon consideration, as something paid or promised.

Option Money
- Distinct part
- Sale not yet created.
- Not required to buy.

Vs.

Earnest Money
- Part of price
- Perfected sale
- Required to pay

Before acceptance, the offer CAN be withdrawn.

After acceptance, the offer CANNOT be withdrawn.

Option Money Questions

If B decides to buy, can the option money deduct to the purchase price? No, because it is a DISTINCT
PART.
If B decides NOT TO BUY, can he get back the option money? No, it is a DISTINCT PART.

1325 – Unless it appears otherwise, business advertisements of things for sale are not definite offers,
but merely invitations to make an offer.

General Rule: Business Advertisement are NOT DEFINITE offers

Why? They were only mere imitations to make an offer.
Exception: If complete in ALL respects. - detailed

1326 – Advertisements for bidders are simply invitations to make proposals, and the advertiser is not
bound to accept the highest or lowest bidder, unless contrary appears.

Advertisements for bidders are NOT DEFINITE OFFERS

Why? Imitations to make proposals NOT bound to accept the highest/lowest, unless stated in the
advertisements = highest/lowest.

1327 – The following cannot give consent to a contract: (1) Unemancipated minor; (2) Insane or
demented persons, and deaf-mutes who do not know how to write.
Persons who cannot give consent.
Incapacitated vs. Prohibited.
If 1 is incapacitated – VOIDABLE.
If both are incapacitated – UNENFORCEABLE.
If 1 or both are prohibited – VOID – Example here is marriage of minor/s
Another example of prohibited:
Insolvent person enters a contract.
Husband and Wife:
- Selling properties to each other
- Donates properties to each other
- Enter into inversal partnership.

Person who are incapacitated

(1) Minor (below 18)
(2) Insane
(3) Deaf-muter who do not know how to write.
(4) Under civil interdiction
(5) Incompetence underguradianship.

1328 – Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of
drunkness or during a hypnotic spell are voidable.

LUCID INTERVAL – Valid

- Temporary period of sanity.

Hypnotic Spell; Effect of Drunkness – Voidable

Voidable – valid until annulled.

1329 – The Incapacity declared in Article 1327 is subject to the modifications determined by law, and is
understood to be without prejudice to special disqualifications established in the laws.

Other instances of Incapacity

(1) Mercado v. Espiritu
(2) Braganza v. Villa-Abrilli

(1) Mercado v. Espiritu

- Minor – reading article – “of legal age” – minor signed – minor liable? Court, Yes – Guilty of
Active Misrepresentation

(2) Braganza v. Villa-Abrilli

- A mother and her 2 children signed a contract, without mentioned “of legal age” – mother
liable? Yes, 2 children liable? No, guilty of passive misrepresentation.
1330 – A contract where consent is given through mistake, violence, intimidation, undue influence, or
fraud is voidable.

Characteristics of Consent

(1) Intelligent – capacity to act (1327 – 1329)

(2) Free and voluntary – no vitiation of consent by reason of violence or intimidation (1330) –
vices
(3) Conscious or spontaneous – no vitiation of consent by reason of mistake, undue influence, or
fraud (1330 – vices)

The contracting parties possess the necessary LEGAL CAPACITY TO GIVE CONSENT TO A CONTRACT
(1327 – 1329)

VICES OF CONSENT (MIVUF)

(1) Mistake or Error (1331)

(2) Intimidation or Threat or Duress
(3) Violence or force (1335)
(4) Undue Influence (1337)
(5) Fraud or Deceit

MIVUF – If 1 is present = VOIDABLE

VITIATED CONSENT – consent + (1 OF MIVUF)

No consent = VOID

1331 – In order that mistake may invalidate consent, it should refer to the substance of the thing
which is the object of the contract, or those conditions which have principally moved one or both
parties to enter into the contract.

Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such
identity or qualifications have been the principal cause of the contract.

A simple mistake of account shall give rise to its correction.

Mistake
2 Kinds – Effects
(1) Mistake of Fact – VOIDABLE
(2) Mistake of Law – VALID

Instances of Mistake of Fact

 (1) Substance of the thing which is the object of the contract.
(2) Conditions which have principally moved one or both parties to enter into a contract.
(3) Identity or qualifications of one of the parties provided the same was the principal cause of
the contract

1 – 3 = VOIDABLE

Simple Mistake of Account – VALID

I was selling coconuts, I thought there was 1,000, but the actual count is 998 – simple mistake of
account – VALID

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
therrof have been fully explained to the former.

Burden of proof in case of mistake

General Rule – party mistaken
Exception – other party if
(1) 1 party is unable to read – explain
(2) Language not understood by him - translate.

Can the illiterate person enter into a contract? Yes

1333 – There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the
object of the contract.

Effect of knowledge of Risk – VALID

He knew the risk/danger, he still entered into the contract – NO MISTAKE – VALID.

1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is
frustrated, may vitiate consent.

Mistake of Law
General Rule: VALID
Exception: Requisites to apply 1334
- VOIDABLE
(1) Error must be mutual.
(2) Legal Effect of an agreement
(3) Frustrate the real purpose of the parties
The 3 requisites must be present.

1335 – There is violence when in order to wrest consent, serious or irresistible force is employed.
There is intimidation when one of the contracting parties is compelled by a reasonable and well-
grounded fear of an imminent and grave evil upon his person or property, or upon the person or
property of his spouse, descendants or ascendants, to give his consent.

To determine the degree of the intimidation, the age, the sex and condition of the person shall be
borne in mind.

A threat to enforce one’s claim through competent authority, if the claim is just or legal, does not
vitiate consent.

Violence vs. Intimidation

Violence – In order to wrest consent, SERIOUS AND IRRESISTIBLE FORCE IS EMPLOYED

Intimidation – when one of the contracting parties is compelled by a reasonable and well-grounded
fear of an imminent and grave evil upon his person or property, or upon the person or property of his
spouse, descendants or ascendants, to give his consent.

Violence Intimidation
Voidable Voidable
Physical Moral
External Internal

Threat to enforce one’s claim through competent authority, if the claim is just or legal, does not vitiate
consent. – this is not a threat, it is valid and legal.

1336 – Violence or intimidation shall annul the obligation, although it may have been employed by a
third person who did not take part in the contract.

Violence or Intimidation by a Third Person – Yes, Valid.

1337 – There is undue influence when a person takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be
considered: the confidential, family spiritual and other relations between the parties, or the fact that
the person alleged to have been unduly influenced was suffering from mental weakness, or was
ignorant or in financial distress.

Undue Influence (Defined) – when a person takes IMPROPER ADVANTAGE OF HIS POWER over the
WILL OF ANOTHER, DEPRIVING THE LATTER OF A REASONABLE FREEDOM OF CHOICE.

Circumstances of be considered:
(1) Family relations/Spiritual relations/Confidential relations.
 (2) Mental weakness/Ignorance.
(3) Financial Distress.

1338 – There is fraud when, through insidious words or machinations of one of the contracting parties,
the other is induced to enter into a contract which, without them, he would not have agreed to.

2 Kinds of Fraud
Dolo Causante (1338) v. Dolo Incidente (1170)
How is causal fraud committed?
(1) Insidious words and machinations (1338)
(2) Concealment (1339)

1339 – Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by
confidential relations, constitutes fraud.

Fraud of concealment – whether intentional or not.

Example: partnership – fiduciary relationship – trust and confidence.

1340 – The usual exaggerations in trade, when the other party had an opportunity to know the facts,
are not in themselves fraudulent

Usual Exaggerations in Trade/Sales’ Talk/Buyers’ talk – VALID

CAVEAT EMPTOR – Buyer beware.
CAVEAT VENDITOR – Seller beware (LAW3)

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.

Expression of Opinion
GENERAL RULE: Mere expression of an opinion by an ordinary person does not signify fraud. – VALID
EXCEPTION: VOIDABLE - If made by an expert and other party relied on the expert’s special knowledge
– FRAUD - VOIDABLE.

1342 – Misrepresentation by a Third Person does not vitiate consent, unless such misrepresentation
has created substantial mistake and the same is mutual.

Fraud by a Third Person

General Rule – Does not vitiate consent. – Contract is VALID.
Exception: VOIDABLE if it –
(1) Created a substantial mistake.
(2) The same is mutual.

1343 – Misrepresentation made in good faith is not fraudulent but may constitute error.
Effect of misrepresentation in good faith – Error of Misrepresentation in Good Faith – Error or Mistake.

1344 – In order that fraud may make a contract voidable, it should be serious and should not have
been employed by both contracting parties.

Incidental fraud only obliges the person employing it to pay damages.

Causal Fraud (requisites to be substantial)

(1) It must be serious

(2) It must be unilateral (not employed by BOTH)
(3) Not known by the other contracting party.

1345 – Simulation of a contract may be absolute or relative. The former takes place when the parties
do not intend to be bound at all; the latter, when the parties conceal their true agreement.

Simulation of Contract (defined) Simulate – to pretend.

- The parties are PRETENDING TO AGREE WHEN THE FACT THERE IS NO CONTRACT AT ALL.
- Act of DELIBERATELY DECEIVING OTHERS, by feigning or pretending by agreement, the
appearance of contract which is either non-existence or concealed.

1346 – An absolute simulated or fictitious contract is void. A relative simulation, when it does not
prejudice a third person and is not intended to law, morals, good customs, public order and public
policy binds the parties to their real agreement.

2 Kinds
(1) Absolute/Fictitious – no intention to be bound (Fraud)
Effect – VOID

(2) Relative – parties conceal their true agreement.

General Rule – VALID
Exception (VOID):
(1) Does not prejudice a Third Person.
(2) Not contrary to 1306

1347 – All things which are not outside the commerce of men, including future things, may be the
object of a contract. All rights which are not intransmissible may also be the object of contracts.

No contract may be entered into upon future inheritance except in cases expressly authorized by law.

All services which are not contrary to law, morals, good customs, public order, or public policy may
likewise be the object of a contract.

Object (thing, right, subject) – subject matter of a contract.

Requisites:
(1) It must be within the commerce of men – it can be appropriated, transferred, assigned.
- LEGALLY be the SUBJECT OF COMMERCIAL TRANSACTION.
(2) Real or possible (not be impossible, legally or physically)
(3) Licit or Lawful
(4) Determinate or capable of being made determinate without the need of a new contract
between parties.
(5) Transmissible

General Rule: all rights may be an object.

Exception – if prohibited by – 1178
Prohibited by law.
Prohibited by stipulation of parties.
NOT transmissible by nature.

Future Inheritance – not possible

Vs.

Right to Inherit – possible

Can you sell future inheritance? No, it does not belong to you.
Can you sell Right to inherit? Yes, its possible because you are just selling a right.

1348 – Impossible things or services cannot be the object of contracts.

Impossible things – they cannot be the object of the contract.

1349 – The object of every contract must be determinate as to its kind. The fact that the quantity is
not determinate shall not be an obstacle to the existence of the contract, provided it is possible to
determine the same, without the need of a new contract between the parties.

Quantity of object need not be determinate (Future things)

Examples of future things:

Young of an animal.
Grapes in a vineyard.
Mangoes in a plantation.
Rice in a ricefield

Can the parties agree on quantity? No

If the thing (future things) did not exist or did not happen; the contract is VOID.
FUTURE THINGS can be an object of a contract, but it must COME INTO AN EXISTENCE LATER ON.

CAUSE OF CONTRACT (CAUSA/Consideration)

- Why of a contract

1350 – In onerous contracts the cause is understood to be, for each contracting party, the prestation or
promise of a thing or service by the other; in remuneratory ones, the service or benefit which is
remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor.

3 Kinds of Cause

(1) Onerous – prestation/promise/reciprocally obligated – payment/price

Example: Sale, partnership, agency, employment, lease of thing.

(2) Gratuitous/Pure Beneficence – mere liberality of the benefactor or giver.

FREE

(3) Remuneratory – service/benefit.

1351 – The particular motives of the parties in entering into a contract are different from the cause
thereof.

Motive – purely personal or private reason which a party has in entering into a contract

Cause
- Immediate/direct reason
- Known to other contracting party
- Essential element
- If Illegal – VOID

Vs.

Motive
- Remote/indirect reason
- Unknown to other contracting party
- Not an element
- If illegal – VALID

1352 – Contracts without cause, or with unlawful cause, produce no effect whatever. The cause in
unlawful if it is contrary to law, morals, good customs, public order, and public policy.

1353 – The statement of a false cause in contracts shall render void, if it should not be proved that
they were founded upon another cause, which is true and lawful.
1352/1353 – Requisites of Cause
(1) It must be IN EXISTENCE at the TIME THE CONTRACT IS ENTERED INTO.
(2) Licit/Lawful
(3) True or Real

Effects of Cause
Absence/Want of Cause (1345 – 1346) -VOID
Illegal – VOID
False – VOID
Failure – VALID (1191)
Insufficient/Inadequate – VALID

1354 – Although the cause is not stated in the contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary.

Cause is presumed to exist and is and is lawful.

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

LESION (defined) – any damage cause by the fact that the price is UNJUST or INADEQUATE
- Insufficient, inequality of situation.

General Rules:
- Lesion does not invalidate a contract.
- CONTRACT is valid.

EXCEPTION:
(1) MIVUF (Vices of Consent – 1330) – VOIDABLE
(2) 1381 – RESCISSIBLE
(3) No intention to be bound – VOID – 1345-1356 (Absolute/Fictitious)

Effect of GROSS inadequacy of cause in a contract – VALID.

FORM OF CONTRACT

1356 – Contracts shall be obligatory, in whatever form they may have been entered into, provided all
the essential requisites for their validity are present. However, when the law requires that a contract
be in some form in order in order that it may be valid to unenforceable, or that a contract be proved in
a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties
stated in the following article cannot be exercised

General Rule: No form is required.

 Why? Contract is consensual in character.
Exception: A FORM is required
(1) Form for VALIDITY
(2) Form for ENFORCEABILITY/ENFORCEMENT
(3) Form for BIND Third Persons/Convenience of Parties/Greater Efficacy of Contract.

CASE: Douden Hernaez vs. De Los Angeles

A movie star entered into a contract with a particular film company, they didn’t put it into a writing,
therefore the movie star was not pid, the movie star sued the film company. The company’s defense
was the contract was not in writing, hence, its not enforceable, the court decided that the contract is
VALID because the 3 esseential elements are present, and it does not fall under the exceptions,
therefore, the movie star was able to collect to professional fee.

Hierarchy of Contract

Registered Real Right

Public Document/Instrument Notarized
Writing Electronic Private Document/Instrument – E –
Commerce Law
Oral/Verbal

Effect Form Effect if not Complied

Validity Varies VOID
Enforceable Writing UNENFORCEABLE
Bind Third Person Public Instrument + Registered VALID ONLY TO THE PARTIES

1357 – If the law requires a document or other special form, as in the acts and contracts enumerated
in thr following article, the contracting parties may compel each other to observe that form, once the
contract has been perfected. This right may be exercised simultaneously with the action upon the
contract.

1358 – The following must appear in public document:

(1) Acts and contracts which have for their object, the creation, transmission, modification or
extinguishment of real rights over immovable property; sales of real property or of an interest
therein are governed by Article 1403, No. 2, and 1405.
(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal
partnership of gains.
(3) The power to administer property, or any other power which has for its object an act
appearing or which should prejudice a third person.
(4) The cession of actions or rights proceeding from an act appearing in a public document.
 All other contracts where the amount involved exceeds Five Hundred pesos must appear in
writing, even a private one. But sales of goods, chattels or things in action are governed by
Article 1403, No. 2 and 1405.

FORM OF VALIDITY

A ) In Writing – Private Document

(1) Interest: 9k Oral; 2% Interest Oral? VOID; Writing? VALID.

(2) Antichresis: 100k loan; Land – collateral with virtue of antichresis. Both 100k and the Land
must be in writing; If not, the antichresis = Land = VOID.
(3) Donation of personal property valued in excess of P5,000. Specific car – P4,000, oral? Valid;
P6,000 – oral? VOID, writing? VALID
(4) Sale of Land thru Agent: Sell his car – oral? VALID; sell his land – oral? VOID, writing? VALID

B ) Public Instrument
(1) Donation of Real Property, regardless of value, Oral? Void, Writing? Void, Public Instrument?
Valid.
(2) Contribution of Real Property in Partnership: 9k oral – valid, specific car – valid, land/building
– oral? VOID, writing? VOID, public instrument? VALID.
C ) Registered

(1) Chattel Mortgage

(2) Sale of Large Cattle

Oral? Void, Writing? Void, Public Instrument? Void, Registered? Valid

FORM FOR ENFORCEABILITY

Sale of Real Property

- Regardless of value

Oral - Unenforceable; Writing – valid to parties; C) Public Instrument + Registered = Valid to Third
Persons

Sale of Personal Property

- 500 or more

400 – oral? valid, 600 – Oral? Unenforceable, In writing – Valid to the Parties; C) Public Instrument +
Registered = Valid to Third Persons

1357 – Form for Convenience of Parties – Greater Efficacy of Contract

Remedy – compel public instrument. Purpose – Bind Third Persons
- The remedy is applicable only to Valid to the Parties.
DONATION – FORM FOR VALIDITY
SALE – FORM FOR ENFORCEABILITY (EXCEPTION; SALE OF LAND THRU AGENT)

SALE OF REAL PROPERTY AND SALE OF PERSONAL PROPERTY (EXECUTED BOTH), ORAL =
ALLOWED/VALID.

EXCEPTION: CONTRACT HAS BEEN EXECUTED, B CAN THEN COMPEL A TO PUT IT INTO PUBLIC
INSTRUMENT (OR REVERSE IN PARTIES) = VALID.

1358 – Contracts which must appear in PUBLIC INSTRUMENT for Convenience (P with 3 C’s)

4 INSTANCES
(1) Creation, etc., of Real Rights over immovable property – mortgage.
(2) Cession or renunciation of hereditary rights or those of conjugal partnership of gains.
(3) Power to administer property. General Power of Authority (GPA) Special Power of Authority
(SPA)
(4) Cession of Actions or Rights – Mortgage.

1 and 4 – mortgage appear in public instrument = Bind to Third Person.

Person not given SPA + SPA in a public instrument = Not Binding to Third Person
SPA in a public instrument = believed
SPA NOT in a public instrument – not believed

REFORMATION OF INSTRUMENT

1359 – When, there having been a meeting of the minds of the parties to a contract, their true
intention is not expressed in the instrument purporting to embody the agreement, by reason of
mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the
instrument to the end that such true intention may be expressed.

If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the
parties, the proper remedy is not reformation of the instrument but annulment of the contract.

Reformation of Instrument – correcting the instrument to express the true agreement of parties.

Meeting of Minds + Wrong on Instrument = Reformation

No Meeting of Minds = Annulment

Requisites (5)
Grounds – Mistake/Fraud/Inequitable Conduct/Accident = contract to be VOIDABLE

Instances of reformation is allowed (1360-1365)

1360 – Adapt principles of the general law of reformation.
1361 – Mutual Mistake
1362 – Mistake on one side, fraud or inequitable conduct on the other.
1363 – Concealment of mistake by the other party.
1364 – Ignorance, etc. on the part of Third Person – encoder, typist, clerk
1365 – Mortgage or pledge stated as a sale – they are not the same.

1360 – The principles of the general law on the reformation of instruments are hereby adopted insofar
as they are not in conflict with the provisions of this Code.

1361 – When a mutual mistake of the parties causes the failure of the instrument to disclose their real
agreement, said instrument may be reformed.

1362 – If one party was mistaken and the other acted fraudulently or inequitably in such a way that
the instrument does not show their true intention, the former may ask for the reformation of the
instrument.

1363 – When one party was mistaken and the other knew or believed that the instrument did not
state their real agreement, but concealed that the fact from the former, the instrument may be
reformed.

1364 – When through the ignorance, lack of skill, negligence or bad faith on the part of the person
drafting the instrument or of the clerk or typist, the instrument does not express the true intention of
the parties, the courts may order that the instrument be reformed.

1365 – If two parties agree upon the mortgage or pledge of real or personal property, but the
instrument states that the property is sold absolutely or with a right of repurchase, reformation of the
instrument is proper.

Instances when reformation is NOT allowed

1366 – There shall be no reformation in the following cases:

(1) Simple donations inter vivos wherein no condition is imposed;

(2) Wills;
(3) When the real agreement is VOID.

1367 – When one of the parties has brought an action to enforce the instrument, he cannot
subsequently ask for its reformation.

1366 (3 Instances)

(a) Simple donations inter vivos wherein no condition is imposed.

(b) Wills – you cannot ask the dead person (testator) for reformation
 (c) Real Agreement is VOID

1367 – When one part has brought an action to enforce the instrument. – Estoppel/Ratification
(Waiver/Estoppel)

1368 – Reformation may be ordered at the instance of either party or his successors in interest, if the
mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns.

Party entitled to reformation:

(1) Either of the parties, if the mistake is mutual under

1361 – mutual mistake
1364 – Ignorance, etc. of the Third Party
1365 – Mortgage or pledge stated as a sale.

(2) The Injured Party

1362 – mistake of one, fraud or inequitable conduct on the other.
1363 – concealment
1364 – Third Party mistake
1365 – Mortgage or pledge stated as a sale.

(3) The heirs or successors in interest, in lieu of the party entitled.

1369 – The procedure for the reformation of instruments shall be governed by rules of court to be
promulgated by the Supreme Court.

Procedure for reformation – Rules of Court governs procedure.

INTERPRETATION OF CONTRACTS

- Get the meaning out of ambiguity.

- Focusing on the contract

1370 – If the terms of a contract are clear and leave no doubt upon the intetention of the contracting
parties, the literal meaning of its stipulation

If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over
the former.

If language is clear (LETTER) – no interpretation (LITERALLY/STATED

If language is doubtful/vague/ambiguity – spirit/intention – need interpretation

TOOLS FOR INTERPRETATION 1371 - 1379

1371 -In order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered.

Contemporaneous and subsequent acts of the parties – relevant in the determination of intention.

The heirs had a doubt because the parties (A and B) did not specify what kind of contract they have
entered into. – solve by looking on what happened after the contract was made. – After the contract
was made, the other party who stayed on the land, build fix structures, pay taxes – CONTRACT OF
SALE (heirs of A).

1372 – However general the terms of a contract may be, they shall not be understood to comprehend
things that are distinct and cases that are different from those upon which the parties intended to
agree.

Special intent prevails over general intent.

All the properties are included except the precious table (not included)

All the properties – general intent

Precious table – special intent

Special Intent > General Intent

1373 – If some stipulation of any contract should admit of several meanings, it shall be understood as
bearing that import which is most adequate to render it effectual.

- Interpretation to be effectual.
- Interpretation of stipulation with several meaning .
- To give life to the contract

To choose between the interpretation to be VALID or VOID/ILLEGAL, choose VALID for the contract to
have life.

1374 – The various stipulations of a contract shall be interpreted together, attributing to the doubtful
ones that sense which may result from all of them taken jointly.

Interpretation as a whole – no
Interpretation of various stipulations of a contract.
Segregation principle

Whole – entire stipulations (Check) vs. Piece-meal – select certain stipulations (Wrong)

Contract – 20 stipulations.
Entire 1-20 – whole
Select certain best/good – piece-meal stipulation
BEST INTERPRETATION – WHOLE

1375 – Words which may have different significations shall be understood in that which is most in
keeping with the nature and object of the contract.

Intention of the parties prevails

- Interpretation of words with different signification.
- Going back to 1370 – If the language is doubtful, vague, ambiguity – spirit/intention
- We have to DECIPHER what is the real intention pf the parties when the contract was
entered.
1376 – The usage of 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.

Resort to usage or custom as aid in interpretation

- Custom/tradition.

1377 – The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity.

Interpretation of OBSCURE words – vague

- Contract of Adhesion principle
- To adhere/to agree (no contract made)

- It will be interpreted against the person who made the contract (not the one who signed
it), Why? The person who made the contract has made wrong on the contract.

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

If the doubts are cast upon the principal object of the contract in such a way that it cannot be known
what may have been the intention or will of the parties, the contract shall be null and void.

Rules in case doubts absolutely impossible to settle

(1) If ONEROUS – in favor of greatest reciprocity of interest.
- At the end of the day, the parties should be happy, have reciprocity.

Sale vs. Mortgage

Greatest reciprocity of interest (Better Interpretation): Mortgage (collateral)
A pay the loan to B, B return the mortage

9k 2%, 6 Months vs. 1 year

Greatest reciprocity of interest (Better Interpretation): 1 year

(2) If GRATUITOUS – in favor of least transmission of rights and interest

- As much as possible, the ownership must not be transferred.

Commodatum vs. Donation

Better Interpretation: Commodatum (B must return the thing) – least transmission of rights.

(3) If doubt is impossible to settle – VOID (Contract)

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

Principles of Interpretation in the Rules of Court applicable.

4 DEFECTIVE CONTRACTS

RESCISSIBLE (LEAST DEFECTIVE) – VOIDABLE – UNENFORCEABLE – VOID (MOST DEFECTIVE)

SAMPLE
RESCISSIBLE
VOIDABLE (ONE PARTY IS A MINOR)
UNENFORCEABLE (BOTH PARTIES ARE MINOR)
VOID (SALE OF PROHIBITED DRUGS BY BOTH MINOR PARTIES)

RECESSIBLE CONTRACT

Defect – damage or injury to one of the parties or to a Third Person

Damage – Finances; Pecuniary prejudice – contract is VALID (COC), the defect is external.
Status – Valid but Rescissible
Grounds – GACLOS (1381 – 1382)
Remedy – Rescission
Period – 4 years
Requisites (7)
(1) The contract must be validly agreed upon (1380) – COC.
(2) There must be lesion or pecuniary prejudice to one of the parties or to a third person (1381) –
monetary; finance; economic is involved.
(3) The recission must be based upon a case especially provided by law (1380, 1381, 1382) –
GACLOS.
(4) There must be no other legal remedy to obtain reparation for damages (1383) – this must be
the last remedy – SUBSIDIARY REMEDY (1383)
 (5) The party asking for rescission must be able to return what he is obliged to restore by reason
of the contract. – required Mutual Restitution – repair the damage caused.
(6) The object of the contract must not legally be in possession of third persons who did not act in
bad faith. – if the property was transferred to a person who acquired in good faith, you can
now no longer ask for return, you can only do is ask for damages.
(7) The period for filing the action for rescission must not have prescribed. – Period of 4 years.

1380 – Contracts validly agreed upon may be rescinded in the cases established by law.

Recission

1191 (Remedies in reciprocal obligations) 1380

Principal remedy/action Subsidiary remedy/action
Breach of trust Lesion or economic prejudice
One party did not comply Applies whether reciprocal or not

1381 – The following contracts are rescissible:

(1) Those which are entered into guardians whenever the wards whom they represent suffer
lesion by more than one-fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the
claims due them;
(4) Those which refer to things under litigation if they have been entered into by the defendant
without the knowledge and approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to recission.

Classes of Rescissible Contracts (GACLOS)

(1) G – Guardian sells the property of wards and suffers lesion by more than ¼ of value of
property.
Land 100,000
Lesion – more than 25,000.
90,000 – VALID
75,000 – VALID
70,000 – RESCISSIBLE
70,000 THIRD PARTY – UNENFORCEABLE
PARTY MINOR – UNENFORCEABLE
A (MINOR) – B VOIDABLE

(2) A – Absentee – person who is missing; representative – Administrator; Lesion by more than ¼
of value of property.
Land 100,000
 80,000 – VALID
60,000 – RESCISSIBLE

(3) C – Fraud of Creditors; ACCION PAULIANA

(4) L – Under LITIGATION

Litis Pendentia – pending litigation
Custodia Legis – in custody of court

(5) Other Instances (1654, 1657, 1539, 1659, 1526, 1098)

Example: Partition – less than ¼ for heir
1539 – Sale per unit.

(6) 1382 – Payments made in state of INSOLVENCY – payment in CESSION

1382 – Payments made in state of insolvency for obligations to whose fulfillment the debtor could not
be compelled at the time they were effected, are also rescissible.

1383 – The action for rescission is subsidiary; it cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same.

Rescission is NOT a PRINCIPAL REMEDY, only a SUBSIDIARY REMEDY.

- If damage is repaired – no rescission.
1384 – Rescission shall be only to the extent necessary to cover the damages caused.

Extent of Rescission – only to the extent necessary to cover the damage caused.
Purpose – repair the damage.

1385 – Rescission creates the obligation to return the things which were the object of the contract,
together with the fruits, and the price with its interest; consequently, it can be carried out only when
he who demands rescission can return whatever he may be obliged to restore.

Neither shall rescission take place when the things which are the object of the contract are legally in
the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.

Mutual Restitution

What must be returned?

(1) Object + Fruits.
(2) Price + Interest.

Why? Restore the parties to their original situation.

When is rescission not allowed?
(1) If the party demanding rescission cannot return.
(2) Property is in possession of Third Person who acted in Good Faith

REMEDY: Ask for damages.

1386 – Rescession referred to in Nos. 1 and 2 of Article 1381 shall not take place with respect to
contracts approved by courts.

No rescission in contracts approved by court

G – Guardian (1)
70,000 – approved by court – no longer rescissible/VALID

A – Absentee (Administrator) (2)

60,000 – approved by court – no longer rescissible/VALID

This is the exception of No. 1(G) and No. 2(A) of 1381 (GACLOS)

1387 – All contracts by virtue of which the debtor alienates property by gratuitous title are presumed
to have been entered into fraud of creditors, when the donor did not reserve sufficient property to pay
all debts contracted before the donation.
Alienation by onerous title are also presumed fraudulent when made by persons against whom some
judgment has been rendered in any instance or some writ of attachment has been issued. The decision
or attachment need not refer to the property alienated, and need not have been obtained by the party
seeking the rescission.

In addition to these presumptions, the design to defraud creditors may be proved in any other manner
recognized by law of evidence.

When alienation presumed in fraud of creditors – RESCISSIBLE

(1) Alienation by GRATUITOUS TITLE

- Transfer for free
- Donor did not reserve sufficient property to pay all the debts.

(2) Alienation by ONEROUS TITLE

- Transfer for certain sum. (a) if some judgment has rendered (b) writ of attachment issued

Badges of Fraud – indication that there is fraud committed against the creditor.
(1) Inadequate consideration
(2) Sale on credit by an insolvent person
The Third Kind of Fraud: Fraud committed against the creditor
Two: Dolo Causante and Dolo Incidente
Alienation – transfer, convey, or assign a thing owned to another person.

1388 – Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the
latter for damages suffered by them on account of the alienation, whenever, due to any cause, it
should be impossible for him to return.

If there are two or more alienations, the first acquirer shall be liable first, and so on successively.

Liability of Purchaser in Bad Faith

(1) Must RETURN the same if sale is rescinded.
(2) If not possible – action for damages.

A and B must have mutual restitution

B must return the land to A + Fruits
A must return the money To B + Interest.
C (Bad Faith) C must return the land to B, then B to A

C (Good Faith) – Can C return? No

Only Remedy for A: ASK ACTION FOR DAMAGES TO B

C (Bad Faith) – D (Good Faith)

B – C Action for Damages
A – B Action for Damages

1389 – The action to claim rescission must be commenced within four years.

For persons under guardianship and for absentees, the period of four years shall not begin until the
termination of the former’s incapacity, or until the domicile of the latter is known.

Period for filing action for Rescission.

General Rule: 4 years from the date the contract was entered into.
Example: October 1, 2019 (contract) – October 1, 2022

Exception:
(1) Under guardianship – termination of incapacity
(2) For absentee – time the domicile is known – he reappeared.

Persons entitled to bring action (3)

(1) The injured party.
(2) The heirs, assigns, or successors in interest.
(3) The creditor who was damages.
Exception Example:
Minor – when the person reached legal age of 18 – start of 4-year period.
Insane – LUCID INTERVAL – start of 4-year period.

VOIDABLE CONTRACT

Defect: Vitiated Consent – consent + MIVUF

Remedy: Annulment
Grounds – 1 is incapacitated, MIVUF.
Status – valid until annulled.
Period – 4 years

1390 – The following contracts are voidable and annullable, event though there may have been no
damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent of contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or
fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible
of ratification.

Ground for VOIDABLE Contract

1 is incapacitated.
MIVUF (1330)
Other grounds: (1) mistake of law, (2) hypnotic spell, (3) state of drunkness, etc.

1391 – The action for annulment shall be brought within four years.

This period shall begin:

In case of intimidation, violence or undue influence, from the time the defect of consent ceases.

In case of mistake or fraud, from the time of the discovery of the same.

And when the action refers to contracts entered into by minor or other incapacitated persons, from
the time the guardianship ceases.

Period for filing action

General Rule – Within 4 years
Exception:
Intimidation, Violence, Undue Influence – time the defect of consent ceases.
Mistake or Fraud – discovery (Exception: Registration)
Minor/Incapacitated – time guardianship ceases.

1392 – Ratification extinguishes the action to annul a voidable contract.

Effect of Ratification
(1) Cleanses the contract (From Valid until annulled to Valid, removing the annulment effect)
(2) Extinguishes the action to annul.

1393 – Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification
if, with knowledge of the reason which renders the contract voidable and such reason having ceased,
the person who has a right to invoke it should execute an act which necessarily implies an intention to
waive his right.

Kinds of Ratification:
(1) Express – writing; oral
(2) Implied – acts of parties.

Requisites of Ratification
(1) Knowledge of the reason which renders the contract voidable.
(2) The reason must have ceased.
(3) The injured party must have executed an act which necessarily implies an intention to waive
his right.

1394 – Ratification may be effected by the guardian of the incapacitated person.

Who may ratify?

(1) Guardian (Minor)
(2) Injured Party (Already capacitated)

(3) CONTRACT IS VOIDABLE – the party whose consent is vitiated – innocent part
A – Guilty Party; B – Good Party

1395 – Ratification does not require the conformity of the contracting party who has no right to bring
action for annulment.

Consent of guilty party is not required.

Conformity of guilty party to ratification is not required.

1396 – Ratification cleanses the contract from all its defects from the moment it was constituted.
Retroactive effect of ratification
From VALID UNTIL ANNULED to VALID
Monday – Committed Violence
Friday – Ratified
1397 – The action for annulment of contracts may be instituted by all who are thereby obliged
principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those
with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or
employed fraud, or caused mistake base their action upon thses flaws of the contract.

Party entitled to bring action to annul

(1) Plaintiff (must have an interest)
(2) Victim

Entitled? Consent? NOT – (1) Strangers/Third Persons (2) Guilty Party.

Ratification Annulment
Positive remedy Negative remedy
Creates contract to be valid Set aside the contract

NOTE: Persons capable cannot allege the incapacity to whom he contracted.

1398 – An obligation having been annulled, the contracting parties shall restore to each other the
things which have been the subject matter of the contract, with fruits, and the price with its interest,
except in cases provided by law. In obligations to render service, the value thereof shall be the basis
for damages.

Duty of Mutual Restitution upon annulment

(1) Obligation to Give (Real) – restoration (return)
(2) Personal Obligation – value thereof shall be the basis for damage. (+ interest)

1399 – When the defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution except insofar as he has been benefited by
the thing or price received by him.

Restitution by an Incapacitated Person – only insofar as it was beneficial to him.

1400 – Whenever the person obliged by the decree of annulment to return the thing cannot do so
because it has been lost through his fault, he shall return the fruits received and the value of the thing
at the time of the loss, with interest from the same date.

Effect of Loss of Thing to be retuned after decree of annulment to return.

(1) If without fault – no obligation to return (1174)
(2) If with fault – liable for damages + value + fruits received + interest.

1401 – The action for annulment of contracts shall be extinguished when the thing which is the object
thereof is lost through the fraud or fault of the person who has a right to institute the proceedings.
If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the
thing shall not be an obstacle to success of the action, unless said loss took place through the fraud or
fault of the plaintiff.

Extinguishment of action to annul.

- If lost thru fault or fraud of the person who has the right to file case, can the person still
file for annulment? NO

1402 – As long as one if the contracting parties does not restore what in virtue of the decree of
annulment, he is bound to return, the other cannot be compelled to comply with what is incumbent
upon him.

Effect where a party cannot restore what he is bound to return – no annulment.

Effect of minority:
(1) Contract: 1 person incapacitated – VOIDABLE, Both Persons are incapacitated –
UNENFORCEABLE
(2) Marriage – 1 or both are minor – VOID

(3) Cases of Supreme Court (1329)

Mercado V. Espiritu – minor guilty of ACTIVE MISREPRESENTATION.
Braganza V. Villa-Abril – minor guilty of PASSIVE MISREPRESENTATION.

UNENFORCEABLE Contract
Defect: 3
Grounds: 3
Remedy: None
Period: None
Status: Valid But Unenforceable – the parties cannot demand the performance of the obligations in
the contract. Cannot be demanded/cannot be executed.
1403 – The following contracts are unenforceable, unless they are ratified.
(1) Those entered into the name of another person by one who has been given no authority or
legal representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases, an agreement hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received without
the writing , or a secondary evidence of its content:
a. An agreement that by its terms is not to be performed within a year from the making
thereof;
b. A special promise to answer for the debt, default, or miscarriage of another;
 c. An agreement made in consideration of marriage, other than a mutual promise to
marry;
d. An agreement for the sale of goods, chattels, or things in action, at a price not less
than Five hundred pesos, unless the buyer accept and receive part of such goods and
chattels, or the evidences, or some them, of such things in action, or pay at the time
some part of the purchase money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of the amount and
kind of property sold, terms of sale, price, names of the purchasers and persons on
whose account the sale is made, it is sufficient memorandum;
e. An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
f. A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.

1403 – Grounds

(1) 1317 – No authority/In excess of authority.

(2) Both are incapacitated.
(3) Violation of Statute of Frauds.
a. Executory v. Executed
b. Effect of Admission - If 1 or both paties admitted is in existence even if it is oral –
outside the coverage of statute of fraud. – Admission will ratify the contract in this
case.
c. Exclusive (only 7 instances/grounds)
d. Waivable – party did not question the oral – ratify /Personal – third persons cannot
question
Rule: CONTRACT must be in WRITING
Effect if not – UNENFORCEABLE.

Example: Land (Oral) – demand payment? No, demand delivery? No, No parol, no ral evidence

- Executory
- Executed (oral contract – honored)

Instances/Grounds

(1) Agreement not to be performed within 1 year.

Oral – UNEFORCEABLE
More than 1 year – In Writing
Lees than 1 year – Oral Valid

(2) Promise to answer for the debt default or miscarriage of another person (promise of
Guarantor)
Surety Guarantor
 Principally Liable Subsidiary liable
Burdensome Covered by STATUTE OF FRAUD
Promise to pay

Guarantor’s promise – oral – UNENFORCEABLE

Can B demand from guarantor? NO

(3) Agreement in consideration of marriage, other than a mutual promise to marry.

Parents gift upon marriage – Oral – Unenforceable

Covered by STATUTE OF FRAUD:

(1) Donation propter nuptias.
(2) Marriage settlements/anti-nuptial agreement.

(4) Sale of Personal Property – P500 or more

P 400 – Oral – Valid
P10,000 – Oral – Unenforceable, In Writing – Valid to the parties, Registered + Public
Instrument – Valid to Third Persons

(5) Sale of Real Property (Usufruct) - regardless of value

Oral – Unenforceable
Writing – Valid to the Parties
Public Instrument + Registered – Valid to the Third Persons

1404 – Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of
this Book.

Unauthorized contracts are governed by 1317 and principles of agency.

1405 – Contracts infringing the Statute of Frauds, referred to in No. 2, Article 1403, are ratified by the
failure to object to the presentation of oral evidence to prove the same, or by acceptance of benefits
under them.

Modes of Ratification:
(1) Failure to object to the presentation of oral evidence.
(2) Implied – acts of parties.

1406 – When a contract is enforceable under Statute of Frauds, and a public document is necessary for
its registration in the registration in the Registry of Deeds, the parties may avail themselves of the
rights under Article 1357.

Requisites to apply 1406 – 1357 (compel public instrument)

(1) VALID CONTRACT – Compel Public Instrument – NO
 (2) NOT AGAINST STATUTE OF FRAUD - Compel Public Instrument – YES

Exception: Executed – Compel Public Instrument – YES

1407 – In a contract where both parties are incapable of giving consent, express or implied ratification
by the parent, or guardian, as the case may be, of one or the contracting parties shall give the contract
the same effect as if only one of them were incapacitated.

If ratification is made by parents or guardians, as the case may be, of both contracting parties, the
contract shall be validated from the inception.

Effect of Ratification – One or Both Guardians of Both Parties

One Guardian Ratified – VOIDABLE
Both Guardian Ratified – VALID

1408 – Unenforceable contracts cannot be assailed by third persons.

Third persons cannot question an unenforceable contract.

VOID OR INEXISTENT CONTRACT

VOID - (1) Contrary to 1306 (2) Prohibited by law (3) Declared by law to be void
INEXISTENT – (1) Lack of one, some or all (COC) (2) Form for validity – not complied, Interest is oral –
VOID, authority to sell the land by an agent is oral – VOID
Defect/Grounds: 7
Status: No Effect
Remedy: Declaration of Absolute Nullity

1409 – The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order
or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal onject of the contract cannot
be ascertained;
(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

1409 – Characteristics of VOID (6) – no effect = cannot be ratified.

 (1) It produces no force and effect whatsoever.
(2) It cannot be ratified.
(3) The right to set up defense of illegality cannot be waived.
(4) The action or defense for the declaration of it inexistence does not prescribe.
(5) The defense of illegality is not available to third person whose interest are not directly
affected.
(6) It cannot give rise to valid contract.

Instances of VOID Contract

(1) Contrary to 1306 and 1416

(2) Absolutely simulated or fictitious (1346)
(3) No COC
(4) Outside of commerce of men
(5) Impossible service (1347/1348)
(6) Intention of the parties relative to the object cannot be ascertained. (1378, par. 2)
(7) Prohibited or Declared Void by Law.
a. Future Inheritance
b. Sale of Property between Husband and Wife
c. Specially disqualified by law
d. Donation between spouses
e. Prohibited testamentary provision.
f. Foreigners buying land.
g. No compensation – household service.

1410 – The action or defense for the declaration of the inexistence of a contract does not prescribe.

Imprescriptible – dies bot prescribe

Exception: Guilty of Laches
1411 – When the nullity proceeds from the illegality of the cause or object of the contract, and the act
constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each
other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the
disposal of effects or instruments of a crime shall be applicable to the things or the price of the
contract.

This rule shall be applicable when only one of the partiesis guilty; but the innocent one may claim
what he has give, and shall not be bound to comply with his promise.

1412 – If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has
given by virtue of the contract, or demand the performance of the other’s undertaking.
 (2) When only one of the contracting parties is at fault, he cannot recover what he has given by
reason of the contract, or ask for the fulfillment of what has been promised him. The other,
who is not at fault, may demand the return of what he has given without any obligation to
comply with his promise.

1411/1412 – IN PARI DELICTO

- Equally at fault/both are guilty
- Law will not aid either party to avoid agreement, it leaves them where they are.
- Parties must come to court of clean hands.

1411 – IN PARI DELICTO - in criminal offense

(1) Both are guilty (3)
a. Both will be prosecuted.
b. Parties shall have no other action against each other.
c. The things or price, shall be confiscated in favor of the state.
(2) Only 1 is guilty (1)
a. The innocent party can demand recovery.

1412 – IN PARI DELICTO – NOT a criminal offense

(1) Both are guilty (2)
a. No prosecution – not a criminal offense
i. Can they demand? NO
ii. Can they recover? NO
(2) Only 1 is guilty (1)
a. The innocent party can demand recovery.

General Rule – No recovery if the contract is VOID – “IN PARI DELICTO”

Exception: Instances when recovery is allowed (1413 – 1419)

1413 – Recovery of Usurious interest.

1414 – Recovery where contract is for illegal purpose
1415 – Recovery by an incapacitated person
1416 – Recovery where contract is not illegal per se.
1417 – Recovery of amount paid in excess of ceiling price – department of Trade and Industry
1418 – Recovery of Overtime Pay
1419 – Recovery of Minimum Wage

1413 – Interest paid in excess of the interest allowed by the usury laws may be recovered by the
debtor, with interest thereon from the date of the payment.

1414 – When money is paid or property delivered for an illegal purpose, the contract may be
repudiated by one of the parties before the purpose has been caused to a third person. In such case,
the courts may, if the public interest will thus be subserved, allow the party repudiating the contract
to recover the money or property.
1415 -Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if
the interest of justice so demands, allow recovery of money or property delivered by the incapacitated
person.

1416 – When the agreement is not illegal per se but is merely prohibited, and the prohibition by the
law is designed for the protection of the plaintiff, he may if the public policy is thereby the plaintiff, he
may, if public policy is ythereby enhanced, recover what he has paid or delivered.

1417 – When the price of any article or commodity is determined by statute, or by authority of law,
any person paying any amount in excess of the maximum price allowed may recover such excess.

1418 – When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and the
contract ois entered into whereby a laborer undertakes to work longer than the maximum thus fixed,
he may demand additional compensation for service rendered beyond the time limit.

1419 – When the law sets, or authorizes the setting of a minimum wage for laborer, and a contract is
agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the deficiency.

1420 – In case of a divisible contract, if the illegal terms can be separated from the legal ones, the
latter may be enforced.

Effect of illegality where contract is divisible/indivisible

Divisible – separate the valid ones from the void ones.

Indivisible – the whole contract is divisible.

1421 – The defense of illegality of contracts is not available to thrd persons whose interests are not
directly affected.

Third Persons can question if directly affected.

1422 – A contract which is the direct result of a previous illegal contract, is also void and inexistent.

Void Contract cannot be novated. – They cannot be valid, ratified, novated.

NATURAL OBLIGATIONS

1423 – Obligations are civil or natural. Civil obligations give a right of action to compel their
performance. Natural obligations, not being based on positive law but on equity and natural law, do
not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor,
they authorize the retention of what has been delivered or rendered by reason thereof. Some natural
obligations are set forth in the following articles.
Can Be found on 1156.

Civil Obligations Natural Obligations

Based on positive law Equity and Natural Law
Right to compel/demand No action
Cannot demand
Enumeration is not exclusive.

1424 – When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor
who voluntarily performs the contract cannot recover what he has delivered or the value of the
service he has rendered.

Performance after civil obligation has prescribed. – No recovery.

1425 – When without the knowledge or against the will of the debtor, a third person pays a debt
which the obligor is not legally bound to pay because the action thereon has prescribed, but the
debtor later voluntarily reimburses the third person, the obligor cannot recover what he has paid.

Reimbursement of Third Person for debt that has prescribed

Peter paid the natural obligations. In the first place, should Pedro pay? No, Why?
- He is a Third Person
- It is already prescribed, already a natural obligation.

Debtor can recover what he reimbursed/paid to Peter? No

1426 – When a minor between eighteen and twenty-one years of age who has entered into a contract
without the consent of the parent or guardian, after the annulment of the contract voluntarily returns
the whole thing or price received, notwithstanding the fact that he has not been benefited thereby,
there is no right to demand the thing or price thus returned.

1427 - When a minor between eighteen and twenty-one years of age who has entered into a contract
without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible
thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who
has spent or consumed it in good faith.

1426/1427 - Restitution by minor after annulment of contract

A (Minor) has a loan contract with B worth 9,000, Guardian of A files a case of annulment and won. B
returned the 9,000 to A (1426) recovery. However, A paid the 9,000 back to B, in this time, there is no
recovery as A performed natural obligation (1427).

1428 – When, after an action to enforce a civil obligation has failed, the defendant voluntarily
performs obligation, he cannot demand the return of what he has delivered or the payment of the
value of the service he has rendered.
Performance after an action to enforce civil obligation has failed

A and B have a contract worth 9,000, as A didn’t perform the civil obligation within the period and B’s
demand, B filed a case in court but A won, A still paid the obligation, A cannot recover the paid 9,000
as he performed a natural obligation.

1429 – When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of
property which he received be will or by the law of intestacy from the estate of the deceased, the
payment is valid and cannot be rescinded be the payer.

Payment by heir of debt exceeding the value of property inherited.

1178 – Obligations are NOT transmissible, Rights are transmissible.

A and B are under a contract worth 100,000, A died and passed the properties to his heirs A1 and A2
worth 80,000, divided equally to them, but they paid the entire 80,000 worth of inheritance to B.

Recovery? No, as they performed Natural Obligations

80,000 = VALID
Excess of 20,000 = NOT VALID
Recovery of Excess 20,000? NO

1430 – When a will is declared void because it has not been executed in accordance with the
formalities required by law, but one of the intestate heirs, after the settlement of the debts of the
deceased, pays a legacy in compliance with the clause in the defective will, the payment is effective
and irrevocable.

Payment of legacy after will has been declared VOID.

Legacy – inheritance for Third Persons

Example: A died, the inheritance of property were given to his heirs A1 and A2, there is a car that was
declared a legacy to be given to a third person under the will, however the will is void, but the legacy
was already given to the third person by the heirs after they found out the defective will. Recovery will
be not possible as they have performed a natural obligations.