Karichi Amended B2017

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OBLIGATIONS!AND!CONTRACTS!|!Prof.!E.!A.!Labitag!|!A.Y.!2013?2014!!!
Karichi!Amended!|!B2017!
TITLE%I.%OBLIGATIONS%
CHAPTER(1:(((
GENERAL(PROVISIONS((
It! is! one! sided,! reflects! only! the! debtors! side! of! the!
agreement!!Sanchez!Roman!
Article!1156!gives!the!Civil!Code!definition!of!obligation!in!
its!passive!aspect.!!
Our!law!merely!stresses!the!duty!of!the!debtor!or!obligor!
when!it!speaks!of!an!obligation!as!a!juridical!necessity.!(De!
Leon)!
B. Elements((
!
1. ACTIVE!SUBJECT!!
I.
Concept*of*Obligations**
A. Definition((
!
Art.!1156.!!An!obligation!is!a!juridical!necessity!to!give!to!do!or!not!
to!do.!
!
OBLIGATION!
From! the! Latin! word! obligare,! which! means! tying,! or!

binding.!!
Tie! or! bond! recognized! by! law! by! virtue! of! which! one! is!
bound!in!favor!of!another!to!render!something!
This!may!consist!in!giving!a!thing,!doing!a!certain!act!or!not!
doing!a!certain!act.!!
!
JURIDICAL!NECESSITY!
In! case! of! noncompliance,! the! courts! of! justice! may! be!
called! upon! by! the! aggrieved! party! to! enforce! its!
fulfillment,!or!in!default!thereof,!the!economic!value!that!
it!represents.!
The! debtor! may! be! made! liable! for! damages! which!

represents!the!sum!of!money!given!as!a!compensation!for!
the!injury!or!harm!suffered!by!the!creditor!or!oblige!
The! debtor! must! comply! with! his! obligation! whether! he!

likes!it!or!not;!failure!will!have!harmful!consequences!!
!
NATURE!OF!OBLIGATIONS!UNDER!THE!CIVIL!CODE!
Civil!obligations!are!obligations!which!give!the!creditor!or!
oblige!a!right!under!the!law!to!enforce!their!performance!
in!courts!of!justice!
Natural! obligations! are! not! based! on! positive! law! but! on!
equity! and! natural! law,! do! not! grant! a! right! of! action! to!
enforce! their! performance! although! in! case! of! voluntary!
fulfillment!by!the!debtor,!the!latter!may!not!recover!what!
has!been!delivered!or!rendered!by!reason!thereof!(article!
1423)!
!
OBLIGATORY! RELATION! IN! ITS! TOTALITY:! The! juridical! relation,!
created! by! virtue! of! certain! facts,! between! two! or! more! persons,!
whereby! the! creditor! or! obligee,! may! demand! of! the! debtor! or!
obligor,!a!definite!prestation.!
!
PASSIVE!SIDE:!Where!there!is!a!right!or!power!to!demand,!there!is!a!
correlative! obligation! or! an! imposition! upon! a! person! of! a! definite!
conduct.!!!
!
!
CRITICISM!OF!DEFINITION!
Has!the!power!to!demand!the!prestation!!
Also!known!as!the!obligee!or!creditor!
2. PASSIVE!SUBJECT!!
Has!the!duty!to!perform!the!prestation!!
Also!known!as!the!obligor,or!debtor,!
!
PRESTATION!OR!OBJECT!!
May!consist!in!giving,!doing,!or!not!doing.!!
Must!be!(a)!possible,!(b)!determinable,!and!(c)!capable!of!
pecuniary!estimation!
3.
!
KINDS%OF%PRESTATION%
TO!GIVE!!consists!in!the!delivery!of!a!movable!or!an!
immovable!thing,!in!order!to!create!a!real!right!or!for!
the! use! of! the! recipient! or! for! its! simple! possession!
or!in!order!to!return!to!its!owner!
TO! DO! ! all! kinds! of! work! or! services,! whether!
mental!or!physical!
NOT! TO! DO! ! consists! in! abstaining! from! some! act,!
includes! not! to! give,! both! being! negative!
obligations!!
!
REQUISITES%OF%PRESTATION%
Is!physically!and!juridically!possible!
Is!determinate!or!at!least!determinable!according!to!
pre?established!elements!or!criteria!
Has!a!possible!equivalent!in!money!!
o Pecuniary! interest! need! not! be! for! one! of! the!
rd
parties,!it!maybe!for!the!benefit!of!3 !person/s!
distinct!from!the!parties!to!the!contract!
o Prestation! need! not! be! of! economic! character!
to! have! pecuniary! value,! if! it! does! not! have!
value! the! law! attributes! to! it! economic! value!
e.g.!moral!and!nominal!damages!
!
!
4. JURIDICAL!OR!LEGAL!TIE!!
That!which!binds!or!connects!the!parties!to!the!obligation!
Established!by!(a)!law,!(b)!bilateral!acts!(contracts),!and!(c)!
unilateral!acts!(crimes!and!quasi?delicts)!
Also!called!efficient,cause,or!vinculum!
Form! in! which! the! obligation! is! manifested! ! cannot! be!
considered!essential!!
!
NOTE:! The! form! in! which! an! obligation! is! manifested! cannot! be!
considered!essential.!
!
!
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C. Distinction(between(Natural(and(Civil(
Obligation(
AS!TO!
Enforceability!
and!How!
Enforced!
Source!and!Basis!
II.
NATURAL!
Cannot!be!enforced!by!
court!orders;!depends!
on!the!good!
conscience!of!the!
debtor!
Equity,!Natural!Justice!
and!Conscience!
CIVIL!
Can!be!compelled!by!
the!person!holding!the!
right!to!compel,!
through!the!courts!or!
public!authorities!
Positive!Law!
C. QUASIJCONTRACTS( or( DELICTS( [Quasi( ExJ

Contractu](
!
Art.! 1160.! Obligations! derived! from! quasi?contracts! shall! be!
subject!to!the!provisions!of!Chapter!1,!Title!XVII.!
!
Art.!2142.!Certain!lawful,!voluntary!and!unilateral!acts!give!rise!
to!the!juridical!relation!of!quasi?contract!to!the!end!that!no!one!
shall! be! unjustly! enriched! or! benefited! at! the! expense! of!
another.!!
Sources*of*Obligations**
A. LAW([ExJLege](
!
Art.! 1158.! Obligations! derived! from! law! are! NOT, PRESUMED.! Only!
those! expressly! determined, in, this, Code! or! in! special, laws! are!
demandable,! and! shall! be! regulated! by! the! precepts, of, the, law!
which! establishes! them;! and! as! to! what, has, not, been, foreseen,! by!
the!provisions!of!this!book.!!
!
Is!an!independent!sources!of!obligations!
Governed!by!the!law!itself!
Agreement! of! the! parties! is! not! necessary! (e.g.! tax!

collection,!Art!448!and!Art!488)!
Is! not! presumed;! only! those! expressly! provided! are!

enforceable!
To! be! demandable,! they! must! clearly! be! set! forth! in! the!
law!(i.e.,!Civil!Code!or!special!laws.)!
Special!laws!refer!to!all!other!laws!not!contained!in!the!
Civil!Code.!!
!
!
Juridical!relation!which!arises!from!certain!acts!that!are:!!
o LAWFUL!!against!crime!
o VOLUNTARY!!against!quasi?delict;!based!on!
negligence!or!mere!lack!of!foresight!!
o UNILATERAL!!against!contract!in!which!there!are!
two!parties!
o E.g.!!Art!2144,!Art!2150,!Art!2154,!Art!2164,!Art!2167,!
Art!2168,!Art!2174,!and!Art!2175!
!
KINDS!OF!QUASI[CONTRACTS!
1.
!
a. NEGOTIORUM%GESTIO%(OFFICIOUS%
MANAGEMENT)%%
!
Art.!2144.!Whoever!voluntarily!takes!charge!of!the!agency!or!
management!of!the!business!or!property!of!another,!without!
any! power! from! the! latter,! is! obliged! to! continue! the! same!
until! the! termination! of! the! affair! and! its! incidents,! or! to!
require!the!person!concerned!to!substitute!him,!if!the!owner!
is!in!a!position!to!do!so.!This!juridical!relation!does!not,arise!in!
either!of!these!instances:!
!
1)! When! the! property! or! business! is! not! neglected! or!
abandoned!
!
2)! If! in! fact! the! manager! has! been! tacitly! authorized! by! the!
owner!
B. CONTRACTS([ExJContractu,(Culpa(Contractual](
!
Art.!1159.!Obligations!arising!from!contracts!have!the!force!of!law!
between! the! contracting! parties! and! should! be! complied! with! in!
good!faith.!
!
Expresses!principle!of!autonomy!of!will,!presupposes!that!
contract!is!valid!and!enforceable!!
PRE?CONTRACTUAL! OBLIGATION:! Damages! can! be!

recovered!when!contract!is!not!perfected!if:!
o Offer!is!clear!and!definite,!leaving!offeree!in!good!
faith!to!incur!expenses!in!expectation!of!entering!
into!a!contract!!
o Withdrawal!of!the!offer!must!be!without!any!
illegitimate!cause.!If!offeror!is!!
! Guilty,of,fault,or,negligence,!liability!would!be!
based!on!Art!2176!
! Not,guilt,fault,nor,negligence,!withdrawal!was!in!
abuse!of!right,!liability!would!be!based!on!Art!19!
e.g.!breach!of!promise!to!marry,
!
Art.! 1305.! A! contract! is! a! meeting! of! minds! between! two! persons!
whereby! one! binds! himself,! with! respect! to! the! other,! to! give!
something!or!to!render!some!service.!!
!
Binding! force?obligations! arising! from! contracts! have! the!

force!of!law!between!the!contracting!parties!!
o Contracts!are!not!superior!to!law.!!
o Must!be!valid!and!cannot!be!valid!if!it!is!against!the!
law.!!
o Compliance!in!good!faith?in!accordance!with!the!
stipulations!or!terms!of!the!contract!or!agreement.!!
o There!is!sincerity!and!honesty!
!
!
b. SOLUTIO%INDEBITI%(PAYMENT%NOT%DUE)%
!
Art.! 2154.! If! something! is! received! when! there! is! no! right! to!
demand! it,! and! it! was! unduly! delivered! through! mistake,! the!
obligation!to!return!it!arises.!
!
The! juridical! relation! which! is! created! when! something! is!

received! when! there! is! no! right! to! demand! it! and! it! was!
unduly!delivered!by!mistake!(Article!2154)!
Requisites:!!
o No!right!to!receive!the!thing!delivered!
o The!thing!was!delivered!through!mistake.!!
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c. OTHER%QUASI=CONTRACTS%(SUPPORT%GIVEN%
BY%STRANGERS%AND%OTHER%GOOD%
SAMARITANS)%
%
Art.! 2164.! When,! without! the! knowledge! of! the! person! obliged! to!
give!support,!it!is!given!by!a!stranger,!the!latter!shall!have!a!right!to!
claim!the!same!from!the!former,!UNLESS!it!appears!that!he!gave!it!
out!of!piety!and!without!intention!of!being!repaid.!
!
Art.! 2165.! When! funeral! expenses! are! borne! by! a! third! person,!
without!the!knowledge!of!those!relatives!who!were!obliged!to!give!
support! to! the! deceased,! said! relatives! shall! reimburse, the, third,
person,!should!the!latter!claim!reimbursement.!
!
Art.! 2166.! When! the! person! obliged! to! support! an! orphan,! or! an!
insane!or!other!indigent!person!unjustly!refuses!to!give!support!to!
the! latter,! any! third! person! may! furnish! support! to! the! needy!
individual,! with! right! of! reimbursement! from! the! person! obliged! to!
give!support.!The!provisions!of!this!article!apply!when!the!father!or!
mother! of! a! child! under! eighteen! years! of! age! unjustly! refuses! to!
support!him.!
!
Art.! 2167.! When! through! an! accident! or! other! cause! a! person! is!
injured!or!becomes!seriously!ill,!and!he!is!treated!or!helped!while!he!
is!not!in!a!condition!to!give!consent!to!a!contract,!he!shall!be!liable!
to!pay!for!the!services!of!the!physician!or!other!person!aiding!him,!
unless!the!service!has!been!rendered!out!of!pure!generosity.!
!
Art.! 2168.! When! during! a! fire,! flood,! storm,! or! other! calamity,!
property! is! saved! from! destruction! by! another! person! without! the!
knowledge!of!the!owner,!the!latter!is!bound!to!pay!the!former!just!
compensation.!
!
Art.!2169.!When!the!government,!upon!the!failure!of!any!person!to!
comply! with! health! or! safety! regulations! concerning! property,!
undertakes! to! do! the! necessary! work,! even! over! his! objection,! he!
shall!be!liable!to!pay!the!expenses.!
!
Art.! 2171.! The! rights! and! obligations! of! the! finder! of! lost! personal!
property!shall!be!governed!by!Articles!719!and!720.!
!
Art.! 2172.! The! right! of! every! possessor, in, good, faith! to!
reimbursement! for! necessary! and! useful! expenses! is! governed! by!
Article!546.!
!
Art.! 2173.! When! a! third! person,! without! the! knowledge! of! the!
debtor,! pays! the! debt,! the! rights! of! the! former! are! governed! by!
Articles!1236!(recover!what!has!been!beneficial!to!debtor)!and!1237!
(cannot!compel!creditor!to!subrogate!payor!in!his!rights).!
!
Art.! 2174.! When! in! a! small! community! a! nationality! of! the!
inhabitants! of! age! decide! upon! a! measure! for! protection! against!
lawlessness,! fire,! flood,! storm! or! other! calamity,! any! one! who!
objects!to!the!plan!and!refuses!to!contribute!to!the!expenses!but!is!
benefited!by!the!project!as!executed!shall!be!liable!to!pay!his!share!
of!said!expenses.!
!
Art.! 2175.! Any! person! who! is! constrained! to! pay! the! taxes! of!
another!shall!be!entitled!to!reimbursement!from!the!latter.!
!
!
D. ACTS( or( OMISSIONS( PUNISHED( BY( LAW( [ExJ

Delictu,(ExJMaleficio,(Culpa(Criminal](
!
Art.!1611.!Civil!obligations!arising!from!criminal!offense!shall!be!
governed! by! the! penal! laws,! subject! to! the! provisions! of! Art!
2177,!and!of!the!pertinent!provisions!of!Chapter!2,!Preliminary!
Title! on! Human! Relations! and! of! Title! XVIII! of! this! Book,!
regulating!damages.!!
!
Art.!100,!RPC.!Every!person!criminally!liable!for!a!felony!is!also!
civilly!liable.!!
!
!
GENERAL!RULE!"Civil!liability!is!a!necessary!consequence!
of!criminal!liability!
o Reason!"!Commission!of!crime!causes!not!only!
moral!evil!but!also!material!damage.!!
o Art!12,!RPC!Exempting!circumstances;!do!not!incur!
liability!but!are!NOT!EXEMPT!from!civil!liability!
! Imbecile,or,insane,person,,unless,acting,in,a,lucid,
interval,
! Person,under,9,years,of,age,
! Person,over,9,years,of,age,and,under,15,,unless,
acting,with,discernment,
! Acting,under,compulsion,of,an,irresistible,force,
! Acting,under,impulse,of,an,uncontrollable,fear,of,
an,equal,or,greater,injury,
EXCEPTION!"!Certain!crimes!without!civil!liability!
o Criminal!contempt!
o Gambling!
o Traffic!violations!
!
SUBSIDIARY%LIABILITY%FOR%CRIME%
Innkeepers,! tavern! keepers! and! any! other! persons! or!
corporations!shall!be!civilly!liable!for!crimes!committed!in!
their! establishment,! in! all! cases! where! a! violation! of!
municipal! ordinances! or! some! general! or! special! police!
regulation! shall! have! been! committed! by! them! or! their!
employees.!!
Also! applicable! to! employers,! teachers,! persons! and!
corporations! engaged! in! any! kind! of! industry! for! felonies!
committed! by! their! servants,! pupils,! apprentices! or!
employees!in!discharge!of!their!duties.!
o To!hold!employers!subsidiarily!liable!for!CRIME!of!an!
employee:!committed!in!the!performance!of!the!
functions!or!duties!of!the!employee.!!
o But!if!action!is!based!on!CONTRACT,!and!not!upon!
previous!conviction!of!employee!for!a!crime:!
employers!liability!is!PRIMARY!and!INDEPENDENT,!
not!merely!subsidiary.!!
%
CIVIL%LIABILITY%ARISING%FROM%CRIME%
%
Rules!on!Criminal!Procedure!Rule!111.!When!a!criminal!action!
is! instituted,! the! civil! action! for! the! recovery! of! civil! liability!
arising! from! the! offense! charged! shall! be! deemed, instituted,
with,the,criminal,action!UNLESS!the!offended!party!waives!the,
civil, action,! reserves, the, right, to, institute, it, separately! or!
institutes!the!civil!action!prior!to!the!criminal!action.!!
!
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!
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EXTENT%OF%CIVIL%LIABILITY%
!
Art.! 104,! RPC! What, is, included, in, civil, liability, ! The! civil! liability!
establish!in!Articles!100,!101,!102!and!103!include:!
!
1)!Restitution!
2)!Reparation!of!the!damage!caused!
3)!Indemnification!for!consequential!damages!
!
RESTITUTION!"!thing!itself!is!restored!(Art!105,!RPC)!
REPARATION! OF! DAMAGE! CAUSED! "! court! determines!

amount!of!damage!(Art!106,!RPC)!
INDEMNIFICATION! FOR! CONSEQUENTIAL! DAMAGES! "! not!

only! caused! the! 3rd! party! but! also! those! suffered! by! his!
family! or! by! a! 3rd! person! by! reason! of! the! crime! (Art! 107,!
RPC)!
Civil!liability!for!crimes!is!extinguished!the!same!causes!
provided!in!the!CC!for!the!extinguishment!of!other!
obligations.!
GENERAL!RULE:!Criminal!action!bars!civil!action!for!the!same!
offense!!
o Civil!action!for!recovery!of!civil!liability!arising!from!the!
offense!is!impliedly!instituted!with!the!criminal!action!
EXCEPTIONS:!!
o Offended!party!reserves!the!right!to!institute!it!
separately!!
o The!law!provides!for!an!independent!civil!action!(i.e.!civil!
action!may!proceed!to!final!judgment!irrespective!of!
result!of!the!criminal!action!and!filing!of!the!criminal!
action!does!not!suspend!the!civil!action)!!
! Obligations!arising!from!the!act!or!omission!claimed!
to!be!criminal!(Art!31)!
! Violations!of!constitutional!rights!and!liberties!of!
individuals!(Art!32)!
! Defamation,!fraud!or!physical!injuries!(Art!33)!
! Refusal!or!failure!of!members!of!police!force!to!
render!protection!to!life!or!property!!(Art!34)!
E. QUASIJDELICTS( [Quasi( ExJDelicto,( Quasi( ExJ

Maleficio,( Culpa( Aquilana,( Tort( (common(
law)](
!
Art.! 1162.! Obligations! derived! from! quasi?delicts! shall! be!
governed!by!the!provisions!of!Chapter!2,!Title!XVII!of!this!Book!
and!by!special!laws.!
!
Art.! 2176.! Whoever! by! act! or! omission! causes! damage! to!
another,! there! being! fault! or! negligence,! is! obliged! to! pay! for!
the! damage! done.! Such! fault! or! negligence! when! there! is! no!
pre?existing! contractual! relation! between! the! parties,! is! called!
quasiMdelict!and!is!governed!by!the!provisions!of!this!Chapter.!
!
BASIS! "! Undisputable! principle! of! equity;! fault! or!

negligence!cannot!prejudice!anyone!else!besides!its!author!
and! in! no! case! should! its! consequences! be! borne! by! him!
who! suffers! the! harm! produced! by! such! fault! or!
negligence.!
o Man!is!responsible!not!only!for!his!voluntary!willful!
acts,!executed!consciously!and!intentionally!but!also!
for!those!acts!performed!with!lack!of!foresight,!care!
and!diligence,!which!cause!material!harm!to!society!
or!to!other!individuals.!
NEW! SOURCES! OF! OBLIGATION! "! generally! recognized!

by!law!although!not!included!in!the!code!
1. Unjust!enrichment!(CC!categorized!under!quasi?
contract)!
2. Unilateral!declaration!of!will!
3. Abuse!of!rights!(CC!categorized!under!quasi?delict)!
TEST! OF! NEGLIGENCE! "! Would! a! prudent! man,! in! the!

position! of! the! person! to! whom! negligence! is! attributed,!
foresee! harm! to! the! person! injured! as! a! reasonable!
consequence!of!the!course!about!to!be!pursued?!
!
ELEMENTS%OF%NEGLIGENCE%
Duty!on!the!part!of!the!defendant!to!protect!the!plaintiff!
from!injury!of!which!the!latter!complains!
Failure!to!perform!such!duty!
An!injury!to!the!plaintiff!through!such!failure!
!
KINDS%OF%NEGLIGENCE%
a. CULPA% AQUILANA% ! or! culpa! extra?contractual;!
negligence!as!a!source!of!obligation,!a!quasi?delict!
b. CULPA% CONTRACTUAL% ! negligence! in! the!
performance!of!a!contract%
c. CULPA%CRIMINAL!!criminal!negligence!
%
DISTINCTION% BETWEEN% CULPA% AQUILANA% AND% CULPA%
CONTRACTUAL%
!
CULPA!AQUILANA!
CULPA!CONTRACTUAL!
(culpa!extra[contractual!or!
quasi!delict)!
Governed!by!Art!2176!to!2194!
Governed!by!Art!1179!et,sequel,!
Negligence! as! a! source! of! Negligence!in!the!performance!of!
obligation!
a!contract!
?Parties! have! no! pre?existing! ?Parties!
have!
pre?existing!
contractual!relations!
contractual!relations!
?Fault! or! negligence! which! ?Fault!or!negligence!of!the!debtor!
constitutes! an! independent! as!an!incident!in!the!fulfillment!of!
source! of! obligation! between! an!existing!obligation!
parties!not!previously!bound!!
Negligence!of!defendant!should! ?Negligence! serves! to! increase!
be! the! proximate! cause! of! the! liability! arising! from! the!
damage!if!liability!is!to!attach!
contractual!obligation.!!
?Quasi! delict! may! arise! even! if!
!
there!is!pre?existing!contractual!
relation.!!
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!!!!!!!5!
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1. DISTINCTION!BETWEEN!QUASI[DELICTS!AND!CRIMES!
2. LIABILITY!FOR!FAULT!OF!OTHERS!!
!
AS!TO!
Nature!of!right!
violated!
Condition!of!
mind!
Legal!basis!of!
liability!
Liability!for!
damages!
Forms!of!redress!
Amount!
of!
evidence!
Compromise!
QUASI[DELICT!
Private!rights;!wrong!
against!the!individual!
Criminal!intent!is!not!
necessary.!Possible!
that!there!is!not!
criminal!charge!but!
only!civil!liability!for!
damages!arising!from!
quasi?delict!
Actionable!in!any!act!
or!omission!wherein!
fault!or!negligence!
intervenes!
CRIMES!
Public!right;!wrong!
against!the!state!
Criminal!intent!is!
necessary!for!the!
existence!of!liability,!
without!it,!there!can!
be!no!crime!
Not!as!broad!as!
quasi?delict,!can!be!
punished!only!when!
there!is!a!penal!law!
clearly!penalizing!it!
Liability! for! damages! Certain!crimes!do!not!
to!the!injured!party!
have!civil!liability!e.g.!
contempt,! gambling,!
violations!
of!
ordinances!
and!
traffic!
regulations!
when! nobody! is!
injured!
Reparation! of! the! Fine! (accruing! to! the!
injury! suffered! by! the! public!
treasury),!
injured! party! "! imprisonment!
or!
compensation,!
both!"!punishment!
indemnification!
Preponderance!
of! Beyond! reasonable!
evidence!
doubt!
Can! be! compromised! Can!
never!
be!
as! any! other! civil! compromised!
liability!!
!
REQUISITES%OF%LIABILITY%UNDER%QUASI=DELICTS%
There! exists! a! wrongful! act! or! omission! imputable! to! the!
defendant!by!reason!of!his!fault!or!negligence!
There!exists!a!damage!or!injury!
Direct!causal!connection!or!relation!of!cause!and!effect!between!
the! fault! or! negligence! and! the! damage! or! injury! OR! that! the!
fault!or!negligence!be!the!cause!of!damage!or!injury!!
o DOCTRINE! OF! PROXIMATE! CAUSE:! such! adequate! and!
efficient!cause!as,!in!the!natural!order!of!events,!and!under!
the! particular! circumstance! surrounding! the! cause,! would!
necessarily!produce!the!event!!
o NATURAL! AND! PROBABLE! CAUSE:! either! when! it! acts!
directly!producing!the!injury,!or!sets!in!motion!other!causes!
so! producing! it! and! forming! a! continuous! chain! in! natural!
sequence!down!to!the!injury!
o CONCURRENT! CAUSE:! if! two! causes! operate! at! the! same!
time!to!produce!a!result!which!might!be!produced!by!either!
independently! of! the! other,! each! of! them! is! a! proximate!
cause!
o When!the!plaintiffs!own!negligence!was!the!immediate!and!
proximate!cause!of!his!injury,!he!cannot!recover!damages.!!
o BUT! if! negligence! is! only! contributory,! the! immediate! and!
proximate! cause! of! the! injury! is! defendants! lack! of! due!
care,! the! plaintiff! may! recover! damages,! the! courts! shall!
mitigate!the!damages!to!be!awarded!(Art!2179)!
!
!
Obligation!arising!from!quasi?delict!is!demandable!not!only!
for! ones! own! acts! or! omissions,! but! also! for! those! of!
persons!for!whom!one!is!responsible.!!
!
Art.! 2180.! The! obligation! imposed! by! Article! 2176! is!
demandable!not!only!for!one's!own!acts!or!omissions,!but!also!
for!those!of!persons!for!whom!one!is!responsible.!!
!
The!father!and,!in!case!of!his!death!or!incapacity,!the!mother,!
are! responsible! for! the! damages! caused! by! the! minor! children!
who!live!in!their!company.!!
!
Guardians! are! liable! for! damages! caused! by! the! minors! or!
incapacitated!persons!who!are!under!their!authority!and!live!in!
their!company.!!
!
The! owners! and! managers! of! an! establishment! or! enterprise!
are! likewise! responsible! for! damages! caused! by! their!
employees!in!the!service!of!the!branches!in!which!the!latter!are!
employed!or!on!the!occasion!of!their!functions.!!
!
Employers! shall! be! liable! for! the! damages! caused! by! their!
employees! and! household! helpers! acting! within! the! scope! of!
their! assigned! tasks,! even! though! the! former! are! not! engaged!
in!any!business!or!industry.!!
!
The!State!is!responsible!in!like!manner!when!it!acts!through!a!
special! agent;! but! not! when! the! damage! has! been! caused! by!
the!official!to!whom!the!task!done!properly!pertains,!in!which!
case!what!is!provided!in!Article!2176!shall!be!applicable.!!
!
Lastly,! teachers! or! heads! of! establishments! of! arts! and! trades!
shall!be!liable!for!damages!caused!by!their!pupils!and!students!
or!apprentices,!so!long!as!they!remain!in!their!custody.!!
!
The!responsibility!treated!of!in!this!article!shall!cease!when!the!
persons! herein! mentioned! prove! that! they! observed! all! the!
diligence!of!a!good!father!of!a!family!to!prevent!damage.!!
!
Art.!218,!FC.!The!school,!its!administrators!and!teachers,!or!the!
individual,! entity! or! institution! engaged! in! child! are! shall! have!
special! parental! authority! and! responsibility! over! the! minor!
child!while!under!their!supervision,!instruction!or!custody.!!
!
Authority! and! responsibility! shall! apply! to! all! authorized!
activities!whether!inside!or!outside!the!premises!of!the!school,!
entity!or!institution.!!
!
Art.!219,!FC.!Those!given!the!authority!and!responsibility!under!
the!preceding!Article!shall!be!principally!and!solidarily!liable!for!
damages!caused!by!the!acts!or!omissions!of!the!unemancipated!
minor.!The!parents,!judicial!guardians!or!the!persons!exercising!
substitute! parental! authority! over! said! minor! shall! be!
subsidiarily!liable.!!
!
The! respective! liabilities! of! those! referred! to! in! the! preceding!
paragraph!shall!not!apply!if!it!is!proved!that!they!exercised!the!
proper!diligence!required!under!the!particular!circumstances.!!
!
All! other! cases! not! covered! by! this! and! the! preceding! articles!
shall!be!governed!by!the!provisions!of!the!Civil!Code!on!quasi?
delicts.!
!!!!!!!6!
!!!!
!
DILIGENCE%OF%EMPLOYERS%
!An!employer!may!be!held!civilly!liable!for!the!quasi?delict!
or!crime!of!his!employee.!!
!
LIABILITY!OF!EMPLOYERS!FOR!
LIABILITY!OF!EMPLOYERS!FOR!
EMPLOYEES!
EMPLOYEES!
QUASI[DELICT!(Art!2180,!CC)!
CRIME!(Art!103,!RPC)!
Primary,!can!be!sued!directly!by!
Subsidiary,!employee!must!
the!injured!party!and!after!he!has!
have!first!been!convicted!and!
paid!the!damages!to!such!injured!
sentenced!to!pay!civil!
party,!he!can!recover,from,his,
indemnity!and!it!must!be!
employee!amount!paid!by!him!
shown!that!he!is!insolvent!in!
order!that!employee!may!be!
liable!
Employer!can!avoid!liability!by!
Liability!is!absolute!and!cannot,
proving!that!he!exercised!the!
avail,of,the,defense!by!proof!of!
diligence,of,a,good,father,of!a!
such!diligence!
family!to!prevent!damage!
All!employers,!whether!they!are! Employer!is!liable!only!when!he!
engaged!in!some!enterprise!or!
is!engaged!in!some!kind!of!
not,!are!liable!for!the!acts!of!their!
business!or!industry!(during!
employees!including!house!
performance!of!duty)!
helpers!
III.
Classification*of*Obligations**
A. Primary(Classification(under(the(Civil(Code((
!
1. PURE!AND!CONDITIONAL!
!
PURE!"!not!subject!to!any!condition;!no!specific!date!is!
mentioned;!demandable!at!once!
!
! !
CONDITIONAL!"!fulfillment!or!extinguishment!depends!
upon!a!future!and!uncertain!event!!
!
Pure! and! Conditional! obligations! deal! with! when! the!

obligation!is!enforceable.!
CONDITION! "! future! AND! uncertain! event,! upon! the!

happening! of! which,! the! effectivity! or! extinguishment! of! an!
obligation!(or!right)!subject!to!it!depends!
!
Characteristics!of!a!condition!
o Future!and!uncertain!!the!word!or!should!be!
and.!!
o Past!but!unknown!!Both!future!and!past!events!
must!be!UNCERTAIN.!!
!
Two!principal!kinds!of!condition!
o Suspensive!(Condition!precedent!or!condition!
antecedent)?!gives!rise!to!an!obligation!or!right!
o Resolutory!(Condition!subsequent)!?!fulfillment!will!
extinguish!an!obligation!
!
Effects!of!Happening!of!Condition!
o Acquisition!of!Rights!!
o Loss!of!rights!already!acquired!
!
2. WITH!A!PERIOD!OR!TERM!
!
Obligations! with! a! Period! or! Term! deal! with! when! an!
obligation!is!demandable!
!
PERIOD!"!a!future!and!certain!event;!an!event!that!must!
necessarily!come!
!
AS!TO!
Fulfillment!
PERIOD!
Certain!event!
Time!
Future!event!
Influence!on!
the!obligation!
Effect!when!left!
to!the!debtors!will!
Retroactivity!of!
effects!
Fixes!the!time!for!
the!efficaciousness!of!
the!obligation!
Empowers!the!
court!to!fix!the!
duration!
Does!not!have!any!
retroactive!effect!
unless!there!is!an!
agreement!to!the!
contrary!
?Must!be!possible!
CONDITION!
Uncertain!
event!
Past!event!
unknown!to!parties!
Causes!an!
obligation!either!to!
arise!or!to!cease!
Invalidates!the!
obligation!
Has!retroactive!
effect!
3. ALTERNATIVE!AND!FACULTATIVE!
Alternative! and! Facultative! focus! on! classifiying!

obligations!with!multiple!objects.!
!
ALTERNATIVE%
# An!obligation!with!multiple!prestations!but!debtor!will!
perform!one,or,some,but,not,all,!depending!on!whose!
choice!it!is!
# Performance! of! one! of! them! is! sufficient! as!
determined!by!the!choice!of!the!DEBTOR,!but!may!be!
exercised! by! the! creditor! when! EXPRESSLY! granted! to!
him! (article! 1205),! or! by! a! third! person! when! a!
COMMON!AGREEMENT!gives!the!right!to!him.!!
!
FACULTATIVE%
# An!obligation!with!multiple!prestations!with!a!principal!
obligation!and!substitute!prestation.!
# The!choice!is!generally!given!to!the!DEBTOR!!
# Only! one! prestation! is! agreed! upon! but! the! obligor!
may!render!another!in!substitution.!
# Examples:!!
I!will!give!you!my!piano!but!I!may!give!my!
television!set!as!a!substitute.!!
I!will!mortgage!my!land!to!secure!my!debt!which!
shall!be!payable!within!90!days!upon!my!failure!to!
pay!my!debt!within!30!days.!!
!
!
!
!
!
!
!
!
!
!
!!!!!!!7!
!!!!
AS!TO!
Number!of!
Prestations!
Right!of!choice!
Loss!through!a!
fortuitous!event!
Loss!through!fault!
of!the!debtor!
ALTERNATIVE!
?Several! are! due,! but!
compliance! of! one! is!
sufficient!
!
?may! be! given! to! the!
creditor! or! third!
person!
?loss! of! one! or! more!
of! the! alternatives!
through! a! fortuitous!
event! does! not!
extinguish!
the!
obligation!
a.! does! not! render!
debtor!liable!
b.! Where! the! choice!
belongs!
to!
the!
creditor,! the! loss! of!
one!
alternative!
through! the! fault! of!
the! debtor! gives! rise!
to!liability!
FACULTATIVE!
?Only! one! althought!
the!
DEBTOR!
is!
allowed! to! substitute!
it.!
?Right! to! make! the!
substitution! is! given!
only!to!the!debtor!
?loss!of!the!thing!due!
extinguishes!
the!
obligation!
a.! loss! of! the! thing!

due! through! his! fault!
makes!him!liable.!
b.! the! loss! of! the!
substitute! before! the!
substitution! through!
the! fault! of! the!
debtor! does! not!
render!him!liable.!
4. JOINT!AND!SOLIDARY!
Classifies! obligation! according! to! the! subjects! of! the!

obligation,!their!number!and!the!ties!that!bind!them!
!
JOINT%%
# each! can! be! made! to! pay! only! his! share! in! the!
obligation!
# the! whole! obligation! is! to! be! paid! or! fulfilled!
proportionately! by! the! different! debtors! and/or! is! to!
be! demanded! proportionately! by! the! different!
creditors.!!
6. WITH!A!PENAL!CLAUSE!
Deals!with!obligations!containing!an!accessory!obligation!
to! assume! a! greater! liability! in! case! of! a! breach! of! the!
principal!obligation!
Purpose!of!a!Penal!Clause!
o To!insure!their!performance!by!creating!an!effective!
deterrent! against! breach,! making! the! consequences!
of! such! breach! as! onerous! as! it! may! possibly! be!
(general!purpose)!
o To! substitute! a! penalty! for! the! indemnity! for!
damages! and! the! payment! of! interests! in! case! of!
non?compliance! (Article! 1226);! or! to! punish! the!
debtor! for! the! non?fulfillment! or! violation! of! his!
obligation.!!
!
!
!
PENAL!CLAUSE!
CONDITION!
Constitutes!an!obligation!
Does!not!constitute!an!
although!accessory!
obligation!
May!become!demandable!in!
Never!demandable!
default!of!the!unperformed!
obligation!and!sometimes!jointly!
with!it!
!
B. Secondary(Classification(
!
1. LEGAL,!CONVENTIONAL!AND!PENAL!!
!
Legal!"!derived!from!law!and!is!not!presumed;!expressly!
determined!in!the!Civil!Code.!!
%
Conventional! "! from! contracts/stipulation! of! parties;!
should!be!complied!with!in!good!faith!!
%
Penal!"!from!commission!of!a!crime!
SOLIDARY%%
5.
# one! can! be! made! to! pay! for! the! whole! obligation!
subject!to!reimbursement!
# one!where!each!one!of!the!debtors!is!bound!to!render,!
and! /! or! each! one! of! the! creditors! has! a! right! to!
demand! from! any! of! the! debtors,! entire! compliance!
with!the!prestation!!
# Solidary!liability!only!when!(Article!1207):!!
The!obligation!expressly!so!states!!
Law!requires!solidarity!
The!nature!of!the!obligation!requires!solidarity!!
!
DIVISIBLE!AND!INDIVISIBLE!
Focuses! on! whether! the! performance! of! the! obligation!
must!be!done!as!whole!or!capable!of!being!done!in!parts!
2. REAL!AND!PERSONAL!
!
Real"!an!obligation!to!give!
%
Personal!"!an!obligation!to!do!or!not!to!do!
3.
%
Generic% "! an! obligation! to! give! a! generic! thing;! generally!
%
DIVISIBLE% "! one! the! object! of! which,! in! its! delivery! or!
performance,!is!capable!of!PARTIAL!FULFILLMENT.!
!
INDIVISIBLE!"!one!the!object!of!which,!in!its!delivery!or!
performance,!is!NOT!capable!of!partial!fulfillment.!!!
!
!
!
!
!
!
!
DETERMINATE!AND!GENERIC!
!
Determinate%"!an!obligation!to!give!a!unique,!specific!
thing;!capable!of!perishing!
4.
does!not!perish!
!
POSITIVE!AND!NEGATIVE!
!
Positive%"!an!obligation!requiring!a!positive!act!(to!give!or!
to!do)!
%
Negative! "! an! obligation! requiring! an! omission! (not! to!
give!or!not!to!do)!
!
!!!!!!!8!
!!!!
5. UNILATERAL!AND!BILATERAL!
!
Unilateral%"!an!obligation!with!a!prestation!incumbent!
only!on!one!of!the!parties!
%
Bilateral!"!an!obligation!with!reciprocal!prestations!
!
6. INDIVIDUAL!AND!COLLECTIVE!
!
Individual%"!Only!has!one!creditor!and!one!debtor!
%
Collective!"!May!have!multiple!creditors!and/or!debtors!
7.
!
PRINCIPAL!AND!ACCESSORY!
!
Principal%"!independent!and!capable!of!standing!on!its!
own!
%
Accessory! "! depends! on! another! obligation! for! its!
existence!
!
8. AS!TO!OBJECT!OR!PRESTATION!!
!
Simple%"!an!obligation!with!only!one!prestation!
%
Multiple!"!an!obligation!with!two!or!more!prestations!
!
Conjunctive!!all!must!be!performed!
Distributive!!one!or!some!must!be!performed!
o Alternative! ! more! than! one! prestation! but! one!
party! may! choose! which! one;! several! are! due! but!
only! one! must! be! fulfilled! at! the! election! of! the!
debtor!
o Facultative! ! main! prestation! and! a! substitute!
prestation!and!it!is!the!debtor!who!chooses;!only!one!
thing!is!due!but!the!debtor!has!reserved!the!right!to!
substitute!it!with!another!
!
POSSIBLE!AND!IMPOSSIBLE!
9.
!
Possible%"!an!obligation!capable!of!being!
performed/complied!with!
!
!
!
!
!
!
!
!
!
!
!
%
Impossible! "! an! obligation! incapable! of! being!
performed,!either!physically!or!legally!
CHAPTER(2:(NATURE(AND(
EFFECTS(OF(OBLIGATIONS(
I.
Kinds*of*Prestation*
A. Obligation(to(Give((Real(Obligation)(
(
1. A!SPECIFIC!THING!
!
REAL!OBLIGATION!!the!subject!matter!is!a!thing!which!the!obligor!
must!deliver!to!the!obligee!
!
SPECIFIC!
THING!
GENERIC!
THING!
(determinate)!
(indeterminate)!
One! that! is! individualized!
Indicated! only! by! its! kind! or!
and! can! be! identified! or! specie,!
without!
being!
distinguished!from!others!of!its! designated! and! distinguished!
kind!
from!others!of!the!same!kind!
!
!
Debtor!cannot!substitute!it!
Object!
due!
becomes!
with! another! although! the! determinable! from! moment! of!
latter! is! of! the! same! kind! and! delivery!!
quality! without! the! consent! of!
!
the!creditor!(Art.!1244)!
Debtor! can! give! anything! of!
the!same!class!as!long!as!it!is!of!
the!same!kind!
!
SPECIFIC%THING%(DETERMINATE)%%
!
a. DUTIES%OF%THE%OBLIGOR/DEBTOR%(Letters%B=D%
are%the%accessory/incidental%obligations)%%
!
i. To%deliver%thing%itself%
!
Art.!1244,!Par.!1.!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!which!is!due.!
!
He!shall!acquire!no!real!right!over!it!until!the!same!has!been!
delivered!to!him!!the!creditor!does!not!become!the!owner!
until!the!specific!thing!has!been!delivered!to!him!
Though! upon, agreement, or, consent, of, the, creditor,! the!

debtor! may! deliver! a! different! thing! or! perform! a! different!
prestation! in! lieu! of! that! stipulated! "! DATION! in! payment!
(Art!1245)!or!OBJECTIVE!NOVATION!(Art!1291)!
Generally,! arises! from! the! perfection! of! the! contract! (Art.!

1305,!1315,!1319)!
If!it!is!subject!to!a!suspensive!condition!or!period!(Art.!1179,!
1189,! 1193),! it! arises! upon! fulfillment! of! the! condition! or!
arrival!of!the!period;!OR!parties!make!stipulate!otherwise!
In!a!sale,!obligation!arises!from!the!perfection!of!the!contract!
even!if!the!obligation!is!subject!to!a!suspensive!condition!or!a!
suspensive!period!where!the!price!has!been!paid!
In! obligations! arising! from! law,! quasi?contracts,! delicts,! and!

quasi?delicts,! time! of! the! performance! is! determined! by! the!
provisions!of!law!applicable!
!
!!!!!!!9!
!!!!
Defects!of!the!thing!may!be!waived!by!the!creditor!IF!!
o
Expressly!declares!!
o
With!knowledge!thereof,!he!accepts!the!thing!without!
protest! or! disposes! or! consumes! it! "! waiver! of!
defect!
ii.
To%preserve%thing%
!
Art.!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,! UNLESS! the! law! or! the! stipulation! of! the! parties! requires!
another!standard!of!care.!
!
Why:! the! obligation! to! deliver! would! be! illusory,! so! the!
debtor! has! the! incidental! duty! to! take! care! of! the! thing!
due!!
What! kind! of! diligence:! DILIGENCE! OF! GOOD! FATHER! OF!

FAMILY;!elaborated!in!Art!1173!
It!is!the!ordinary,care!or!that!diligence!which!an!average!(a!
reasonably! prudent)! person! exercises! over! his! own!
property!
o Failure! to! preserve! the! thing! "! Liability! for!
damages!!
o BUT! if! due! to! FORTUITOUS! EVENTS! or! FORCE!
MAJEURE! "!Exempted!from!responsibility!!(Art.!
1174)!
Factors! to! consider:! Nature! of! the! obligation,! the!

circumstances!of!the!person,!of!the!time,!and!of!the!place!
(Art.!1173)!
Exception:! When! the! law! or! the! stipulation! provides! for!

another! standard! of! care! (slight! or! extraordinary!
diligence),! said! law! or! stipulation! must! prevail! (Art.! 1163!
UNLESS!clause)!
o Art.!1755!!a!common!carrier!should!use!utmost!
(extraordinary)! diligence! of! very! cautious!
persons,! with! a! due! regard! for! all! the!
circumstances!
o Reyes, v, CA! ! banks! are! duty! bound! to! treat!
deposit!accounts!with!the!highest!degree!of!care!
where! the! fiduciary! nature! of! relationship! is!
concerned!
o Exception:! It! is! contrary! to! public! policy! to!
stipulate! for! absolute! exemption! from! liability!
for!any!fault!or!negligence!(Art.!1173,!1174)!
!
iii. To%deliver%the%accessions%and%accessories%
!
Art.! 1166.! Obligation! to! give! a! determinate! thing! includes! that! of!
delivering%all%its%accessions%and%accessories,!even!though!they!may!
not!have!been!mentioned.!
!
General! rule:! all! accessions! and! accessories! are!
considered! included! in! the! obligation;! principal! of! law!
that!the!accessory!follows!the!principal!
May! be! qualified! by! contrary! intentions! of! the! parties,!
e.g.! exclude! delivery! of! accession! or! accessory! of! the!
thing.!!
!
!
!
!
!
ACCESSIONS%AND%ACCESSORIES%DISTINGUISHED:%
!
ACCESSIONS!
ACCESSORIES!
Can! exist! only! in! relation! to!
Can! exist! only! in! relation!
the!principal!
to!the!principal!
!
!
Fruits! of,! or! additions! to,! or!
Those! things! which,!
improvements! upon,! a! thing! (the! destined! for! embellishment,!
principal);! not! necessary! to! the! use! or! preservation! of!
principal!thing!
another! thing! or! more!
!
important,! have! for! their!
Includes! everything! which! is! object! the! completion! of! the!
produced! by! a! thing,! or! which! is! latter! for! which! they! are!
incorporated!or!attached!thereto,! indispensable!or!convenient.!!
either! naturally! or! artificially.!
!
Does! not! include! fruits! because!
The! things! joined! to,! or!
Art!1164!mentioned!it!already!
included! with,! the! principal!
Accesion! continua! which! thing! for! the! latters!
includes:!
embellishment,!
use,!
or!
1. Accesion,natural!
completion;! accessory! and!
e.g.!alluvion!
principal! thing! must! go!
2. Accesion,industrial!
together!
e.g.! building,! planting,!
!
sowing!
!
!
iv. To%deliver%the%fruits%
!
Art.!1164,!Par.!1.!The!creditor!has!a!right!to!the!fruits!of!the!thing!
from! the! time% the% obligation% to% deliver! it! arises.! However,! there! is!
no%real%right!until!the!same!has!been!delivered!to!him.!
!
Non, nudis, pactis,, sed, traditione, domina, rerum,

trasferentur,"!the!ownership!of!things!is!transferred!
not!only!by!mere!agreements!but!by!delivery%
By! law,! the! creditor! is! entitled! to! the! fruits! of! the!
thing!to!be!delivered!from!the!time!the!obligation!to!
make! delivery! of! the! thing! arises! ! the! intention! of!
the!law!is!to!protect!the!interest!of!the!oblige!should!
the! obligor! commit! delay,! purposely! or! otherwise,! in!
the!fulfillment!of!his!obligation%
,
REAL%RIGHT!!power!or!right!or!interest!belonging!to!a!person!over!
a! specific! thing,! without! a! definite! passive! subject! individually!
determined,!against!whom!such!right!may!be!personally!exercised!
Gives!to!a!person!a!direct!and!immediate!power!over!
a! thing,! which! is! susceptible! of! being! exercised,! not!
only! against! a! determinate! person! but! against! the!
whole!world!
E.g.!rights!of!ownership!and!possession!
,
PERSONAL% RIGHT, ! power! belonging! to! one! person! (creditor)! to!
demand! of! another! (debtor),! as! a! definite! passive! subject,! the!
fulfillment!of!a!prestation!to!give,!to!do!or!not!to!do!
!
,
,
,
,
,
,
,
,
!!!!!!!10!
!!!!
PERSONAL%RIGHT%AND%REAL%RIGHT%DISTINGUISHED:!
b.
c.
d.
e.
!
PERSONAL!RIGHT!(JUS!IN!
PERSONAM!OR!JUS!AD!REM)!
There! is! a! definite! active!
subject! and! a! definite! passive!
subject!
!
Binding! or! enforceable! only!
against!a!particular!person!
REAL!RIGHT!(JUS!IN!RE)!
There! is! only! a! definite! active!
subject! without! any! definite!
passive!subject!
!
Directed! against! the! whole!
world!
!
TYPES%OF%FRUITS%(Art.!442):!
1. Natural!Fruits!!spontaneous!products!of!the!soil,!and!the!
young! and! other! products! of! animals;! without! the!
intervention!of!human!labor!
2. Industrial! Fruits! ! those! produced! by! lands! of! any! kind!
through!cultivation!or!labor;!by!reason!of!human!labor!
3. Civil!Fruits!!those!derived!by!virtue!of!juridical!relation!
!
CORRELATIVE% RIGHTS% OF% THE% OBLIGEE/CREDITOR% (Sir! Labitags!
diagrammatical!outline)!!
1. Right!to!compel!delivery!!
a. Fruits!(both!industrial!and!natural!from!the!time!obligation!
to!deliver!arises),!accessions!and!accessories!
b. No! real! right! until! delivery! "! personal! action! against!
debtor,!no!right!against!the!world!
2. Right!to!rescission!or!resolution!!
3. Right!to!damages!
a. Failure!to!deliver!
Legal! excuse! for! breach! of! obligation! or! delay

FORTUITOUS!EVENT!unless!there!is!
o Law!e.g.!possession!in!bad!faith!(Art!552)!
o Stipulation!to!the!contrary!
o Nature!of!obligation!requires!assumption!of!
risk!
FE!APPLICABLE!TO:!!
o Nonperformance!!
o Delay!
o Loss/deterioration!of!specific!thing!!
!
Art! 1189! Before! happening! of!
suspensive!condition!
!
Art! 1190! Before! happening! of!
resolutory!condition!
Debtor!still!liable!despite!FE:!
o Expressly!specified!by!law!!
!
Art! 1942! Bailee! liable! for! loss!
(commodatum)!
!
Art!2001!Act!of!a!thief!
!
Art!2147!Negotiorum!gestio!!
!
Art!1993!Loss!of!deposit!!
o Stipulation!e.g.!debtor!becomes!insurer!of!
the!obligation!
o Assumption!of!risk!
o Fraud!or!malice!(bad!faith)!!
!
Art!1165!Par!3!Delivers!to!two!or!more!
persons!having!different!interest!
o Debtor!in!delay!already!when!FE!happened!!
!
(Art!1165!Par!3)!
o Debtor!guilty!of!concurrent!negligence!"!in!
this!case,!no!long!FE!
o Liability! arises! from! criminal! act! except! if!
debtor! tenders! thing! and! creditor!
unjustifiably!refuses!to!receive!(Art!1268)!
2.
Fraud!
Negligence!in!performance!
Delay!or!default!
Any!manner!in!contravention!of!the!tenor!of!obligation!!
!
A!GENERIC!THING!
,
GENERIC%THING%(INDETERMINATE)%
!
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.!
!
rd
Creditor! may! ask! for! compliance! by, 3 , person, at, debtors,

expense;!action!for!substituted!performance!(Art!1165)!
!
LIMITED% GENERIC% THING! ! generic! objects! confined! to! a! particular!
class,!the!class!is!considered!in!itself!a!determinate!object!
!
DUTIES%OF%THE%OBLIGOR/DEBTOR!
To! deliver! a! thing! which! is! of! the! quality! intended! by! the!
parties! taking! into! consideration! the! purpose! of! the!
obligation!and!other!circumstances!(see!Art.!1246)!
To! be! liable! for! damages! in! case! of! fraud,! negligence,! or!
delay,! in! the! performance! of! his! obligation,! or!
contravention!of!the!tenor!thereof!(see!Art.!1170)!
,
CORRELATIVE% RIGHTS% OF% THE% OBLIGEE/CREDITOR, (from! Sir!
Labitags!diagrammatical!outline)!!
1. Right!to!ask!for!rescission!or!damages!
2. Right!to!damages!
a. Failure!to!deliver!
b. Fraud!(malice!or!bad!faith)!
c. Negligence!
d. Delay!
e. Any!manner!contravene!the!tenor!of!obligation!
!
RIGHTS%OF%A%CREDITOR,(from!BarOps!Reviewer!2008)!
!
SPECIFIC!
GENERIC!
To!
compel!
specific!
To! ask! for! the! performance!
performance!
of!the!obligation!
To!recover!damages,!in!case!
To!ask!that!the!obligation!be!
of! breach! of! the! obligation,! complied!with!at!the!expense!of!
exclusive! or! in! addition! to! the!debtor!!
specific!performance!
Entitlement!
to!
fruits,!
To! recover! damages! in! case!
interests! from! the! time! of!breach!of!obligation!!
obligation!to!deliver!arises!
!
!
!
!
!
!
!
!
!!!!!!!11!
!!!!
B. Obligation( to(
Obligation)(
Do(
(Positive(
Personal(
!
POSITIVE! PERSONAL! OBLIGATION!!the!subject!matter!is!an!act!to!
do!or!to!render!service!
!
Art.! 1244,! Par.! 2.! In! obligations! to! do! or! not! to! do,! an! act! or!
forbearance! cannot% be% substituted! by! another! act! or! forbearance!
against,the,obligees,will.!
!
If! the! prestation! is! a! personal! one,! and! specific! to! the!
debtor,!only!he!can!do!it;!no!substitution!of!the!debtor!can!
be!done!
Exception:! FACULTATIVE! OBLIGATION! wherein! the! debtor,

reserves,the,right,to,substitute!another!prestation!!
!
Art.! 1167.! If! a! person! is! obliged! to! do! something! fails! to! do! it,! the!
same!shall!be!executed,at,his,cost.!!
!
The!same!rule!may!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.!
!
DUTIES%OF%OBLIGOR,(from!BarOps!Reviewer!2008)!
1. To!do!it!(Art!1167)!!!
2. To!shoulder!the!cost!if!someone!else!does!it!(Art!1167)!
3. To!undo!what!has!been!poorly!done!(Art!1167)!
4. To!pay!damages!(Art!1170?1172,!2201?2202)!
!
No! action! for! compliance! because! that! would! be!

involuntary! servitude! which! is! prohibited! by! the!
constitution.!!
C. Obligation( Not( to( Do( (Negative( Personal(

Obligation)(
!
NEGATIVE%PERSONAL%OBLIGATION!!the!subject!matter!is!an!act!not!
to!do!(which!naturally!includes!obligations!not!to!give!
!
forbearance! cannot% be% substituted! by! another! act! or! forbearance!
against,the,obligees,will.!
!
Performance!cannot!be!by!a!delegate!or!an!agent!
No! legal! accessory! obligations! arise! (as! compared! to!

obligation!to!give)!!
This!is!the!MOST!STRICT!type!of!obligation,!no!substitution!
of!the!prestation!
!
Art!1268!When!the!obligation!consists!in!not!doing,!and!the!obligor!
does! what! has! been! forbidden! him,! it! shall! also! be! undone, at, his,
expense.!!
!
DUTIES%OF%OBLIGOR%(from!BarOps!Reviewer!2008)!
1. Not!to!do!what!should!not!be!done!!
2. To! should! the! cost! to! undo! what! should! not! have! been!
done!(Art!1168)!
3. To!pay!damages!(Art!1170,!2201?2202)!
II.
Breach*of*Obligation*
A. Concept(
!
VOLUNTARY!breach!of!obligation!arises!from!the!modes!provided!in!
Art.!1170!
!
INVOLUNTARY! breach! of! obligation! arises! because! of! fortuitous%
events%provided!in!Art.!1174%
!!
SUBSTANTIAL%AND%CASUAL/SLIGHT%BREACH%DISTINGUISHED:%
!
SUBSTANTIAL!
CASUAL!
Total!!
Partial!
Amounts! to! non?
A!part!is!performed!
performance!
Basis! for! rescission! and!
Gives! rise! to! liability! for!
payment!of!damages!
damages!
!
GENERAL! RULE:! Rescission! will! not! be! permitted! for! a! slight! or!
casual! breach! of! the! contract,! but! only! for! such! breaches! as! are!so%
substantial%and%fundamental!as!to!defeat!the!object!of!the!parties!
in!making!the!agreement.!!
!
Cases:!
!
SONG!FO!v.!HAWAIIAN!PHIL!CO!
Facts:!Hawaiian!Phil!agreed!to!deliver!300k!gallons!of!molasses!but!!
Song!Fo!requested!for!another!100k!gallons!to!which!Hawaiian!said!
that,!we!believe!that!this!is!possible!and!we!will!do!our!best!to!let!
you! have! these! extra! 100k! gallons.! Song! Fo! defaulted! in! the!
payment!for!the!molasses!the!defendant!delivered!to!it!so!the!latter!
was!compelled!to!cancel!and!rescind!the!said!contract.!
!
Held:! The! court! ruled! that! the! agreement! was! for! 300k! gallons! of!
molasses! only,! and! that! there! is! only! slight! breach! and! therefore!
Hawaiian! had! no! right! to! rescind! the! sale.! General! rule! is! that!
rescission! will! not! be! permitted! for! a! slight! or! casual! breach! of! the!
contract! and! will! only! be! allowed! when! such! breaches! are! so!
substantial!and!fundamental!as!to!defeat!the!object!of!the!parties!in!
making!the!agreement.!!A!delay!in!payment!for!a!small!quantity!of!
molasses! for! about! 20! days! isnt! such! a! grave! violation! of! an!
essential!condition!of!the!contract!that!would!warrant!rescission!for!
non?performance.!
!
VELARDE!v.!CA!
Facts:!Raymundo!sold!a!parcel!of!land!to!Velarde!with!the!condition!
of! assuming! the! mortgage! amounting! to! P1.8M.! Assumption! of!
mortgage!was!not!approved!and!Valerde!stopped!paying!to!BPI.!
!
Held:! Court! held! that! Raymundos! act! of! rescinding! the! contract,! is!
justified,!but!ordered!the!restitution!to!Velarde!of!P874,150,!which!
the! latter! paid! as! a! consequence! of! the! contract! until! it! was!
rescinded.!In!a!contract!of!sale,!the!seller!obligates!itself!to!transfer!
the!ownership!of!and!deliver!a!determinate!thing,!and!the!buyer!to!
pay! therefor! a! price! certain! in! money! or! its! equivalent.! Petitioners!
did! not! perform! their! correlative! obligation! of! paying! the! contract!
price!in!the!manner!agreed!upon.!
!
!
!
!
!
!!!!!!!12!
!!!!
B. Modes(of(Breach(
1. FRAUD!(Dolo)!
!
RESULTS!
IN!
Art.! 1170.! Those! who! in% the% performance! of! their! obligations! are!
guilty! of! FRAUD,! NEGLIGENCE,! or! DELAY! and! those! who! in! any!
manner!CONTRAVENE,THE,TENOR,thereof,!are!liable!for!damages.!!!
GIVES!
RISE!TO!
%
a. Concept%of%Fraud%
Fraud! is! the! voluntary% execution% of% a% wrongful% act,! or! a!

willful! omission,! knowing! and! intending! the! effects! which!
naturally!and!necessarily!arise!from!such!act!or!omission.!
Deliberate! and! intentional! evasion! of! the! normal!
fulfillment!of!obligations!!
Any! voluntary! and! willful! act! or! omission! which! prevents!
the! normal! realization! of! the! prestation,! knowing! and!
intending!the!effects!which!naturally!and!necessarily!arise!
from!such!act!
Fraud!contemplated!in!this!article!is!in!the!performance!of!!
a!pre=existing%obligation!!
Here,! the! breach! of! the! obligation! is! voluntary;! in! Article!
1174,!it!is!involuntary.!
Cannot! cover! mistake! and! errors! of! judgment! made! in!
good! faith,! ergo! synonymous! to! bad! faith! (dishonest!
purpose! or! some! moral! obliquity! and! conscious! doing! of!
wrong)!!
The!element!of!INTENT!and!NOT!the!harm!done!is!the!test!
(there!must!be!malice/bad!faith)!
Moral! damages! may! be! recovered! in! addition! to! other!
damages.!
The! fraud! is! employed! for! the! purpose! of! evading! the!
normal!fulfillment!of!an!obligation!and!its!existence!merely!
results! in! breach! thereof! giving! rise! to! a! right! by! the!
innocent!party!to!recover!damages.!
!
KINDS%OF%FRAUD%
1. Fraud!in!the!performance!(Art!1171)!
2. Fraud!in!the!execution/creation/birth!of!the!contract!
a. Dolo,causante!(Art!1344)!
b. Dolo,incidente,(Art!1338)!
!
FRAUD,%DOLO%CAUSANTE,%AND%DOLO%INCIDENTE%DISTINGUISHED:%
%
!
DOLO!
DOLO!
FRAUD!!
CAUSANTE!
INCIDENTE!
(Art!1171)!
(Art!1338)!
(Art!1344)!
WHEN!
During! the!
During! the!
During! the!
PRESENT! performance! of! perfection! of! a! perfection! of! a!
a!
pre?existing! contract!
contract!
obligation!
PURPOSE!
Evade! the!
Secure! the!
Secure! the!
normal!
consent!
of! consent!
of!
fulfillment!
of! another!
to! another!
to!
obligation!
enter!
into! enter!
into!
contract!
contract! BUT!
fraud! was! not!
the!
principal!
inducement! in!
making!
the!
contract!
!
!
Breach!
of!
Vitiation! of!
the!obligation!
consent;!!
Voidable!
contract!
Right!
in!
Right!of!the!
favor! of! creditor! innocent! party!
to!
recover! to! annul! the!
damages!
contract!
Does! not!
result! in! the!
vitiation!
of!
consent!
Gives!rise!to!
a! right! of! the!
innocent! party!
to! claim! for!
damages!!
!
Case:!
!
WOODHOUSE!v.!HALILI!
Facts:! Woodhouse! and! Halili! had! an! agreement! to! organize! a!
partnership! for! the! bottling! and! distribution! of! Mission! soft! drinks!
(Woodhouse! to! act! as! industrial! partner/manager! and! Halili! as!
capitalist).!Woodhouse!secured!an!option!for!exclusive!franchise!but!
it!expired!without!him!availing!of!such!franchise.!Upon!signing!of!the!
contract,!Woodhouse!got!a!30%!cut!on!the!profits.!Halili!only!knew!
that! Woodhouse! all! along! was! not! able! to! secure! the! exclusive!
franchise!when!they!went!to!US!for!signing!of!contract!with!Mision.!
!
Held:!There!is!false!misrepresentation!by!Woodhouse!but!it!does!not!
annul!the!agreement!to!form!a!partnership.!In!order!that!fraud!may!
vitiate!consent,!and!thus!annul!a!contract,!it!must!be!the!causal!and!
not!merely!the!incidental!inducement!to!the!making!of!the!contract.!
In! Woodhouses! acts! of! pretending! that! he! had! the! exclusive!
franchise! and! promising! to! transfer! it! to! Halili,! he! obtained! the!
consent! of! the! latter! to! give! him! (Woodhouse)! a! 30%! share! in! the!
net! profits.! This! is! the! dolo! incidente! defined! in! Art! 1270! of! the!
Spanish! Civil! Code,! because! it! was! used! to! get! the! other! party's!
consent!to!a!big!share!in!the!profits,!a!matter!that!is!only!incidental!
to!the!main!agreement!to!form!a!partnership.!
!
b. %Non=waiver%of%Future%Fraud%%
!
Art.! 1171.! Responsibility! arising! from! fraud! is! demandable! in! ALL!
OBLIGATIONS.!Any!waiver!of!action!for!future!fraud!is!VOID.!
!
To! permit! such! advance! renunciations! would! practically!

leave!the!obligation!without!effect.!!
The! law! does! not! prohibit! the! renunciation! of! the! action!
for!damages!on!the!ground!of!fraud!already!committed.!!
!
c. Effects%of%Fraud%
Liability! for! damages,! a! crime! or! a! quasi?delict! (Art!

1170)!
2. NEGLIGENCE!(CULPA!CONTRACTUAL)!!
!
a. Concept%of%Negligence%
!
Art.!1172.!Responsibility!arising!from!negligence!in!the!performance!
of!EVERY!KIND!OF!OBLIGATION!is!also!demandable,!but!such!liability!
may!be!REGULATED,BY,COURTS,!according!to!the!circumstances.!
!
Negligence!or!Culpa!is!any!voluntary!act!or!omission,!there!
being!no!malice,!which!prevents!the!normal!fulfillment!of!
an!obligation.!
It!is!the!!absence!of!due!diligence!required!
!
!!!!!!!13!
!!!!
Art.! 1173,! Par.! 1.! The! fault! or! negligence! of! the! obligor! consists! in!
the! omission% of% that% diligence! which! is! required! by! the! nature! of!
obligation! and! corresponds! with! the! circumstances! of! the! persons,!
of!the!time!and!the!place.!When!negligence!shows!BAD%FAITH,!the!
provisions!of!Art!1171!!and!Art!2201!Par!2!shall!apply.!
!
Art!2201!Par!2!In!case!of!fraud,!bad!faith,!malice!or!wanton!
attitude,! the! obligor! shall! be! responsible% for% all% damages!
which! may! be! REASONABLY! ATTRIBUTED! to! the! non?
performance!of!obligation.!!
%
%
CULPA%AND%DOLO%DISTINGUISHED:!
!
CULPA!(Negligence)!
DOLO!(Fraud)!
Mere! want! of! care! or! diligence,!
not! the! voluntariness! of! act! or!
omission!!
Liability! may! be! mitigated! by!
courts!
Willfulness! or! deliberate! intent!

to! cause! damage! or! injury! to!
another!
Liability! cannot! be! mitigated! by!
courts!
Waiver!for!future!negligence!!
valid!if!simple!!
void!if!gross!
Waiver!for!future!fraud!is!void!
%
%
CULPA%AQUILANA%AND%CULPA%CONTRACTUAL%DISTINGUISHED:%
Different!provisions!that!apply!to!the!two!concepts,!hence!
different!legal!effects!
!
CULPA!AQUILANA!
CULPA!CONTRACTUAL!
(Culpa!Extra[contractual)!
Governed! by! Art! 2176! to!
Governed! by! Art! 1179! et,
2194!
sequel,!
Negligence! as! a! source! of!
Negligence!
in!
the!
obligation!
performance!of!a!contract!
Fault! or! negligence! which!
Fault! or! negligence! of! the!
constitutes! an! independent! debtor! as! an! incident! in! the!
source! of! obligation! between! fulfillment! of! an! existing!
parties!not!previously!bound!!
obligation!
An!employer!of!master!may!
Due! diligence! defense! of! the!
exculpate! or! exempt! himself! employer! or! master! is! not!
from! liability! by! proving! due! available!
diligence! to! prevent! damage!
(Art!2180)!
Negligence!of!defendant!should!be!the!proximate!cause!of!
damage!if!liability!is!to!attach.!
!
Cases:!
!
GUTIERREZ!v.!!GUTIERREZ!
Facts:! Private! car! (driven! by! a! minor),! a! truck,! and! a! bus! collided!
which! resulted! to! a! fractured! leg! of! the! bus! passenger,! Narciso!
Gutierrez.! Narciso! seeks! to! recover! damages! from! both! the! drivers!
and!owners!of!the!private!car!and!the!truck.!
!
Held:! Father! is! liable! for! the! act! of! his! minor! son,! whose! civil! law!
liability! for! obligations! which! arise! from! fault! or! negligence.! The!
truck!driver!and!owner!are!also!liable,!but!on!the!basis!of!contract.!
!
!
!
VASQUEZ!v!BORJA!
Facts:!Vasquez!and!Busuego!obligated!themselves!to!sell!to!De!Borja!
4,000! cavans! of! palay! at! P2.10! per! cavan,! but! upon! receiving! P8,!
400,!they!delivered!only!2,488!cavans!of!palay!and!refused!to!deliver!
the!balance!of!1,512!cavans.!
!
Held:! The! party! liable! on! the! contract! is! Natividad?Vazquez! Sabani!
Development! Co.,! Inc.,! and! not! Vazquez! himselfbecause! a!
corporation!is!an!artificial!being!invested!by!law!with!a!personality!of!
its!own,!separate!and!distinct!from!that!of!its!stockholders!and!from!
that!of!its!officers!who!manage!and!run!its!affairs.!Since!it!was!the!
corporations!contract,!its!nonfulfillment,!whether!due!to!negligence!
or! fault! or! to! any! other! cause,! made! the! corporation! and! not! its!
agent!liable.!Since!the!corporation!was!not!a!party!in!the!case,!the!
complaint!should!be!dismissed.!
!
!
b. %Standard%of%care%required%%
.!!
Art.!1173.!Par!2.!If!law!or!contract!does!not!state!diligence!which!is!
to! be! observed! in! the! performance,! that! which! is! expected! of! a!
GOOD!FATHER!OF!FAMILY!is!required!
!
DILIGENCE, ?! the! attention! and! care! required! of! a! person! in! a! given!
situation!and!is!the!opposite!of!negligence!
!
DILIGENCE%REQUIRED:%
1. that!agreed!upon!by!the!parties,!orally!or!in!writing!
2. in! the! absence! of! stipulation,! that! required! by! law! in! the!
particular!case!
3. if!both!the!contract!and!law!are!silent,!then!the!diligence!
expected!of!a!good!father!of!a!family!or!ordinary!diligence.!
!
EXTRA=ORDINARY%DILIGENCE%REQUIRED%IN:%
Art!1733!Common!carriers!!
Art!1744!Lesser!than!extraordinary!!
Art!1998?2002!Inn!keepers,!hotel!keepers!
,
TEST%FOR%DETERMINING%WHETHER%A%PERSON%IS%NEGLIGENT%
Would, a, prudent, man,, in, the, position, of, the, person, to,
whom,negligence,is,attributed,,foresee,harm,to,the,person,
injured, as, a, reasonable, consequence, of, the, course, about,
to,the,pursued?,
Negligence! is! a! question! of! fact,! its! existence! being!

dependent! upon! the! particular! circumstances! of! each!
case.!,
It!is!never!presumed!but!must!be!proven!by!the!party!who!
alleges!it.,
!
FACTORS%TO%CONSIDER%IN%DETERMINING%NEGLIGENCE:%
1. Nature!of!obligation!
2. Circumstance!of!the!person!
3. Circumstance!of!time!
4. Circumstance!of!the!place!
,
,
,
,
,
,
,
,
,
!!!!!!!14!
!!!!
EXEMPTION%FROM%LIABILITY%FOR%NEGLIGENCE:%
1. INSURANCE:! A! party! to! a! contract! is! relieved! from! the!
rd
effects!of!his!fault!or!negligence!by!a!3 !person!
2. Party! to! a! contract! renounces! in! advance! the! right! to!
enforce!liability!arising!from!the!fault!or!negligence!of!the!
other!
a. VOID! if! gross! negligence! "! Stipulations! exempting!
from!liability!for!that!amount!to!a!fraud!
b. VALID!if!simple!negligence!only!
!
Cases:!
!
DE!GUIA!v.!MANILA!ELECTRIC!CO!
Facts:!Train!where!De!Guia!boarded!was!derailed.!De!Guia!received!
bruises! and! possibly! certain! internal! injuries.! Trial! court! found! the!
motorman! of! the! derailed! car! negligent! for! having! maintained! too!
rapid! speed,! but! defendant! company! claimed! the! derailment! was!
due!to!a!goose?egg?sized!stone,!thus!the!derailment!of!the!car!was!
due!to!a!fortuitous!event.!
!
Held:!If!the!law!or!contract!does!not!state!the!diligence!which!is!to!
be! observed! in! the! performance! of! an! obligation,! that! which! is!
expected! of! a! good! father! of! a! family! shall! be! required.! When! De!
Guia! boarded! the! train,! the! company! undertook! to! convey! him! to!
Manila.! The! relation! between! plaintiff! and! defendant! was! a! of! a!
contractual! nature! with! the! defendant! bound! to! carry! the! plaintiff!
safely!to!destination!with!a!degree!of!care.!Failure!to!carry!out!this!
obligation!incurs!liability.!
!
SARMIENTO!v.!SPS!CABRIDO!
FACTS:! Sarmiento! had! her! pair! of! diamond! earrings! reset! into! two!
gold!rings!through!Dingdings!Jewelry!Shop,!owned!by!Cabrido.!The!
goldsmith! used! pliers! to! remove! the! diamond! by! twisting! the!
setting,!breaking!the!gem!in!the!process.!
!
HELD:! Goldsmith! acted! negligently! in! dismounting! the! diamond.!
Being! a! goldsmith! of! 40! years,! he! should! have! been! aware! of! the!
practice!to!use!a!miniature!wire!saw!in!dismounting!gems!from!their!
settings.!
!
CRISOSTOMO!v.!CA!!
Facts:! Crisostomo! bought! Jewels! of! Europe! tour! package! offered!
by! Caravan! Travel! and! Tours.! Crisostomo! claimed! that! when! the!
documents! were! delivered,! she! when! he! flight! will! be.! She! did! not!
check! her! travel! documents! and! on! the! day! of! the! supposed! flight,!
she! found! out! that! the! flight! had! already! left! the! day! before.! She!
was!advised!by!the!travel!agency!to!avail!of!a!different!tour!which!is!
cheaper! than! the! Jewels! of! Europe.! Upon! arrival,! she! asked! for!
reimbursement!of!the!difference!between!the!sum!she!paid.!
!
Held:! The! petitioner! is! not! entitled! to! a! refund! because! she! was!
negligent.! Common! carriers! are! required! to! observe! extraordinary!
diligence.!However,!in!accordance!to!Art.!1732,!respondent!is!not!a!
common! carrier! since! it! is! only! engaged! in! making! the! travel!
arrangements! for! customers,! acting! merely! as! an! agent! for! the!
airlines.!
!
c. %Effects%of%Negligence%
1.
!
!
2.
Damages! are! demandable,! which! the! courts! may!

regulate!according!to!circumstances!
Invalidates!defense!of!fortuitous!event!
3. DELAY!(MORA)!
a. %Concept%of%Delay%
Art.! 1169.! Those! obliged! to! DELIVER! or! to! DO! something! incur% in%
delay! from! the! time! the! OBLIGEE, JUDICIALLY, OR, EXTRAJUDICIALLY,
DEMANDS!from!them!the!fulfillment!of!their!obligations!
!
DELAY/MORA/DEFAULT%!non?fulfillment!of!obligation!with!respect!
to!time!
!
ORDINARY%DELAY%AND%MORA%DISTINGUISHED:%
Ordinary!delay!
Mora!
merely! the! failure! to!
failure! to! perform! an!
perform!an!obligation!on!time!
obligation!on!time!which!failure,!
constitutes! a! breach! of! the!
obligation.!
!
WHEN%DEMAND%NOT%NECESSARY%TO%INCUR%DELAY%
1. When!there!is!EXPRESS!STIPULATION!
2. When!the!LAW!so!provides!
3. When! from! the! nature, and! the! circumstances! of! the!
obligation!it!appears!that!the!DESIGNATION!OF!THE!TIME!
when! the! thing! to! be! delivered! or! the! service! is! to! be!
rendered!was!a!controlling,motive!for!the!establishment!of!
the!contract!
4. When!demand!would!be!USELESS,!as!when!the!obligor!has!
rendered,it,beyond,his,power,to,perform,
,
In! reciprocal! obligations,! neither! party! incurs! in! delay! if! the! other!
DOES!NOT!COMPLY!or!is!NOT!READY!to!comply!in!a!proper!manner!
with! what! is! incumbent! upon! him.! From! the! moment! ONE% of% the%
parties%fulfills%his%obligation,!delay!by!the!other!begins.!!
!
There!can!only!be!delay!in!positive%obligations!(to!give!and!
to!do)!and!not!in!negative!obligations!(not!to!give!and!not!
to!do).!!
There!is!no!mora!in!natural!obligations!
!
!!
b.%%%%Kinds%of%Mora%%
!
i. %Mora%solvendi,!default!on!the!part!of!the!debtor!
!
# EX!RE!referring!to!obligations!to!give!
# EX!PERSONA!referring!to!obligations!to!do!!
!
REQUISITES%OF%MORA%SOLVENDI:%
1. PRESTATION!is!demandable!and!already!liquidated!
There! can! be! no! delay! if! the! obligation! is! not! yet!
due.! There! is! no! mora! in! natural! obligations!
because!performance!is!optional!and!voluntary!
2. That!the!debtor!delays!performance!
Effects!of!mora!only!arise!when!the!delay!is!due!to!
the!causes,imputable,to,the,debtor;!hence!there!is!
legally! no! delay! if! this! is! caused! by! factors! not!
imputable!to!the!debtor!(e.g.!fortuitous!events)!
3. That! the! creditor! requires! or! demands! the! performance!
extrajudicially!or!judicially!!
Mere! reminder! is! not! a! demand! because! it! must!

appear! that! the! benevolence! and! tolerance! of! the!
creditor!has!ended.!
!
!!!!!!!15!
!!!!
GENERAL!RULE:!Creditor!should!make!demand!before!debtor!incurs!
delay!!
Default! begins! from! the! moment! creditor! demands!

the!performance!of!obligation.!
o If!extrajudicial:!date!of!demand!
o If! uncertain:! date! of! filing! of! complaint! (for!
purposes! of! computing! payment! of! interests! or!
damages)!!
Demand! may! be! in! any! form,! provided! it! can! be!
proved.!It!is!also!generally!necessary!even!if!a!period!
has! been! fixed! in! the! obligation.! Burden! of! proof! of!
demand!on!the!creditor.!!
Demand!must!refer!to!the!prestation!that!is!due!and!
not!another.!!
But!even!if!without!demand,!debtor!incurs!in!delay!if!
he! acknowledges, his, delay.! Request! for! extension! of!
time! for! payment! is! not! sufficient! though,! the!
acknowledgement!must!be!express.!!
Cases:!
!
CETUS!DEVELOPMENT!CORP!v.!CA!!
Facts:! Respondents! were! lessees! of! land! owned! by! Susana! Realty,!
which!the!latter!sold!to!the!plaintiff.!Lessees!pay!to!the!collector!but!
when!none!arrived,!they!werent!able!to!pay.!Thus,!Cetus!wanted!to!
evict! them.! However,! immediately! upon! the! receipt! of! the! said!
demand,!the!private!respondents!paid!their!respective!arrearages!in!
rent! which! were! accepted! by! Cetus! subject! to! the! unilateral!
condition!that!the!acceptance!was!without!prejudice!to!the!filing!of!
an!ejectment!suit.!!!
!
Held:!Default!only!accrues!after!demand.!Paying!to!the!collector!was!
the! common! practice! and! upon! demand! the! lessees! complied!
immediately.!
!
SANTOS!VENTURA!HOCORMA!FOUNDATION!v.!SANTOS!
Facts:! A! Compromise! Agreement! stipulated! that! SVHFI! should! pay!
Santos:!P1.5mill!upon!execution!of!the!agreement;!and!P13mill,!in!1!
lump! sum! or! in! installments,! within! 2! years! from! execution.! SVHFI!
did! not! pay.! Sheriff! levied! SVHFI's! real! properties.! Santos! further!
asked!for!legal!interest!on!the!obligation!because!of!the!delay.!SVHFI!
claimed!that!there!is!no!cause!of!action!because!it!had!already!fully!
paid!its!obligation.!
!
Held:!SVHFI!is!liable!for!legal!interest!for!damages!in!the!delay!of!the!
performance! of! its! obligation,! pursuant! to! Art! 1170.! 3! requisites! of!
default! are! present.! The! obligation! was! already! demandable!
because! the! 2?year! period! had! already.! The! obligation! is! already!
liquidated!because!the!debtor!knows!precisely!how!much!he!should!
pay!and!when!he!should!pay!it.!SVHFI!also!delayed!the!performance!
of! the! obligation! because! it! only! settled! its! obligation! on! Feb.! 8,!
1995.! Santos! required! the! extrajudicial! performance! of! the!
obligation!by!sending!the!letter!on!Oct.!28,!1992.!
!
VASQUEZ!v.!AYALA!CORP!!
Facts:! Ayala! bought! Vasquez! share! in! Conduit! in! exchange! for! an!
option!to!buy!a!property!in!the!subdivision!they!are!developing.!The!
construction!was!extended!and!the!value!of!the!property!fluctuated.!
Vasquez! sent! letter! of! reminder! that! the! due! date! is! approaching.!
The! whole! project! was! completed! in! 1990,! when! Ayala! offered! the!
lots! to! the! spouses! but! the! latter! wanted! the! lots! to! be! priced! at!
1984!market!prices.!
!
Held:!Not!all!requisites!of!Mora!Solvendi!are!not!present!in!the!case.!
There!was!no!day!certain!fixed!in!the!agreement!in!the!development!
of! the! subject! lots.! Therefore,! the! petitioners! cannot! demand! the!
performance!of!the!same!without!having!asked!the!courts!to!fix!the!
period! in! accordance! with! Art.! 1197.! The! letters! that! the! spouses!
and! their! heirs! sent! to! Ayala! did! not! constitute! a! demand! as! these!
did! not! categorically! demand! the! specific! performance! but! only!
articulated!their!desire!to!exercise!their!option.!
!
EXCEPTION:%When%demand%is%not%required%
1. Express! stipulation! ! Insertion! of! the! clause! without,
further,notice/demand!
2. Law! so! provides! ?! Not! enough! to! merely! fix! date! for!
performance,! but! also! that! default! will! commence! after!
the!period!lapses!
3. Period! is! the! controlling! motive! or! the! principal!
inducement! for! the! creation! of! the! obligation! ! in! cases!
where!it!appears!that!the!obligation!would!not!have!been!
created! for! a! date! other! than! that! fixed! (Abella, v.,
Francisco)!
4. Demand! would! be! useless! ! performance! has! become!
impossible!
a. Caused! by! some! act! or! fault! of! the! debtor,! e.g.!
hiding!or!disposed!of!the!thing!to!be!delivered!
b. Impossibility! caused! by! fortuitous! event! but!
debtor! bound! himself! liable! in! cases! of! such!
events!!!
,
PRESUMPTION% OF% TIME% BEING% OF% THE% ESSENCE% (EVEN% WITHOUT%
EXPRESS%STIPULATION):%
1. In!agreements!which!are!executed!in!the!form!of!options,!
time! is! always! held! to! be! of! the! essence! of! the! contract,!
and!it!is!well!recognized!that!in!such!contracts,!acceptance!
of! the! option! and! payment! of! the! purchase! price!
constitute!conditions!precedent!to!specific!performance.!!
2. The!same!is!true!generally!of!all!unilateral,contracts.!,
3. In! mercantile! contracts! for! the! manufacture, and, sale, of,
goods,! time! is! also! held! to! be! of! the! essence! of! the!
agreement.!
4. Where!the!subject!matter!of!a!contract!is!of!speculative,or,
fluctuating,value,
5. Most! conspicuous! among! all! the! situations! where! time! is!
presumed!to!be!of!the!essence!of!a!contract!from!the!very!
nature! of! the! subject?matter! is! that! where! the! contract!
relates!to!mining,property.,
,
Case:!
!
ABELLA!v.!FRANCISCO!
Facts:!Francisco!purchased!lots!from!the!government!on!installment!
but! was! in! arrears! on! payments! (due! on! Dec! 1928).! So! he! sold! a!
parcel! of! land! to! Abella,! payment! of! which! is! due! on! Dec! 15! 1928!
extendible! by! 15! days.! Abella! was! only! able! to! Pay! P915.34! out! of!
the!P21,600!total!amount!due.!It!was!only!on!Jan.!9!1929!did!Abella!
offered!to!pay!the!balance.!
!
Held:!There!is!no!need!for!demand!because!time!is!of!the!essence.!It!
should! be! noted! that! Francisco! had! obligations! due! on! December!
1928!for!which!he!expected!to!use!the!payment!on!the!said!lots.!!
!
!
!
!
!
!!!!!!!16!
!!!!
ii. %Mora% accipiendi! ! default! on! the! part! of!
the!creditor!
!
Delay! in! the! performance! based! on! the!

omission! by! the! creditor! of! the! necessary!
cooperation,! especially! acceptance! on! his!
part.!!
Generally,! debtor! can! perform! at, any, time!

after!the!obligation!has!been!created,!even!
before!the!date!of!maturity.!!
It!is!necessary!however!that!it!be!lawful!for!
the! debtor! to! perform,! and! that! he! can!
perform! (e.g.! when! the! period! is!
established!for!the!benefit!of!the!creditor!or!
both!of!the!parties).!!
!
REQUISITES%OF%MORA%ACCIPIENDI:%
1. Offer! of! performance! by! the! debtor! who! has! the! required!
capacity!
2. Offer! must! be! to! comply! with! the! prestation! as! it! should! be!
performed!
3. Creditor!refuses!the!performance!without,just,cause!
See, also! 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.!!
!
Cases:!
!
VDA.!DE!VILLARUEL!v.!MANILA!MOTOR!CO.,!INC.!!
Facts:!Manila!Motor!Co.!leased!a!building!from!Villaruel!(contract!is!
if!for!5!years!and!the!amount!of!P350!is!to!e!paid!monthly)!in!1940.!
Manila! Motor! enjoyed! the! premises! until! the! Japanese! invasion! in!
1941.! The! quarters! were! occupied! by! the! enemy! forces! from! June!
1942!until!March!1945;!no!rentals!were!paid!during!this!period.!The!
American! subsequently! occupied! the! same! building.! When! the!
American!Forces!gave!up!their!occupancy,!Manila!Motor!decided!to!
renew!the!contract.!Villaruel!wanted!the!contract!rescinded!and!for!
Manila! Motor! to! pay! rentals! for! the! duration! of! the! Japanese!
occupation!of!the!said!building.!
!
Held:! Manila! Motor! is! not! in! default! for! refusal! to! comply! with! the!
demand!to!pay!rents!for!the!duration!of!the!Japanese!occupation!of!
building! in! question.! The! lessors! accepted! payment! of! rentals! from!
October! 1945! to! June! 1946.! It! was! only! in! July! 1946! that! they!
insisted!upon!collecting!the!1942?1945!rents,!and!refused!to!accept!
further!payments!tendered!by!the!lessee!unless!their!right!to!collect!
the!occupation!rental!was!recognized!or!reserved.!The!dispossession!
during! the! Japanese! occupation! exempted! Manila! Motor! from! its!
obligation!to!pay!rent!for!that!period.!Also,!even!if!Manila!Motor!is!
liable,!the!collection!of!rents!in!1946!was!barred!by!the!moratorium!
order! (EO! 32).! The! lessors! refusal! to! accept! the! current! rentals!
without! qualification! placed! them! in! default! (mora, accipiendi)! with!
the! result! that! thereafter,! they! had! to! bear! all! supervening! risks! of!
accidental!injury!or!destruction!of!the!leased!premises.!
!
TENGCO!v.!CA!!
Facts:! Lutgarda! Cifra! leased! a! property! to! Emilia! Tengco;! contract!
was!not!in!writing.!While!the!contract!was!still!subsisting,!Lutgarda!
transferred!the!ownership!of!the!property!to!Benjamin!Cifra.!Despite!
Tengcos! knowledge! of! said! transfer,! she! attempted! to! pay! her!
rentals!to!the!person!whom!she!used!to!pay!her!dues.!Said!person!
refused!to!accept!payment!as!she!no!longer!had!the!authority!to!do!
so.!
!
Held:! The! lessor! is! not! guilty! of! mora, accipiendi.! The! refusal! to!
accept!payment!was!not!without!justification.!The!ownership!of!the!
property!was!already!transferred!to!Benjamin,!and!the!payment!was!
offered! to! a! person! who! no! longer! had! authority! to! accept! such.! It!
should!be!noted!that!the!contract!was!not!recorded.!The!Court!held!
that! in! the! absence! of! contrary! agreement,! a! contract! of! lease!
executed! by! the! vendor,! unless! recorded,! ceases! to! have! effect!
when!the!property!is!sold.!
!
iii. Compensatio% morae, ! parties! in! a! bilateral!
contract! can! regulate! the! order! in! which! they! shall!
comply! with! their! reciprocal! prestations.! Otherwise,!
the! fulfillment! must! be! SIMULTANEOUS! and!
RECIPROCAL.! If! there! is! mutual! default,! the! parties!
cannot!ask!for!damages!
!
GENERAL!RULE:!Fulfillment!of!parties!should!be!simultaneous!!
EXCEPTION:!Contrary!stipulation!(e.g.!installment!plans)!
!
Cases:!
!
CENTRAL!BANK!v.!CA!
Facts:!Sulpicio!Tolentino!obtained!an!P80K!loan!from!Island!Savings!
Bank! (ISB),! and! a! mere! P17K! partial! release! was! made,! with!
Tolentino! signing! a! promissory! note! therefor.! An! advance! interest!
was! deducted! from! this! partial! release! but! was! refunded! to! him!
after!being!informed!there!was!no!money!yet!for!the!P63K!balance.!
The! Monetary! Board! of! the! Central! Bank! found! out! that! ISB! going!
bankrupt! and! after! failing! to! restore! its! solvency,! it! was! prohibited!
from! doing! business! in! the! Philippines.! For! the! nonpayment! of! the!
P17K,! ISB! filed! an! application! for! the! foreclosure! of! a! real! estate!
mortgage,!which!Tolentino!opposed.!
!
Held:!The!loan!implied!reciprocal!obligations,!and!when!one!party!is!
willing! and! ready! to! perform,! the! other! does! not! occur! in! delay;!
insolvency,! however,! is! not! an! excuse! but! is! a! breach! of! contract.!
When! Tolentino! executed! the! real! estate! mortgage,! he! signified!
willingness!to!pay,!but!ISB!was!insolvent!and!Central!Bank!prohibited!
it!from!doing!further!business.!Since!ISB!was!in!default,!Tolentinos!
only! choice! was! to! rescind! the! obligation! (specific! performance! is!
impossible! due! to! the! prohibition! by! Central! Bank),! but! the!
rescission!should!only!be!for!the!P63K!balance.!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!!!!!!!17!
!!!!
c. Effects%of%Mora%%
!
MORA!SOLVENDI:!
1. When!it!has!for!its!object!a!determinate!thing,!the!delay!places!
the!risk!of!the!thing!on!the!debtor!
2. Debtor!becomes!liable!for!damages!of!the!delay!
3. Debtor!is!liable!even!for!a!fortuitous!event!when!the!obligation!
is!to!deliver!a!determinate,thing.!
!
MORA!ACCIPIENDI:!
1. Responsibility!of!the!debtor!for!the!thing!is!reduced!and!limited!
to!fraud!and!gross!negligence!
2. Debtor! is! exempted! from! the! risks! of! loss! of! thing,! which!
automatically!pass!to!the!creditor!
3. All!expenses!incurred!by!the!debtor!for!the!preservation!of!the!
thing!after!the!mora!shall!be!chargeable!to!the!creditor!
4. If!the!obligation!bears!interest,!the!debtor!does!not!have!to!pay!
it!from!the!moment!of!the!mora!
5. The!creditor!becomes!liable!for!damages!
6. The! debtor! may! relieve! himself! of! the! obligation! by! the!
consignation!of!the!thing!
!
COMPENSATION!MORAE:!
Exceptio,non,adempleti,contractus,,one!is!not!compelled!
to!perform!his!prestation!when!the!other!contracting!party!
is! not! yet! prepared! to! perform! his! prestation;! default! of!
one!compensates!the!default!of!the!other!
!
CESSATION%OF%EFFECTS%OF%MORA:%%
1. Renunciation!by!the!creditor!
a. Express!!
b. Implied:! when! after! delay! has! been! incurred,! the!
creditor! grants, an, extension, of, time! to! the! debtor! or!
agrees!to!a!novation!of!the!obligation!!
2. Prescription!!
!
4.!!!!CONTRAVENTION!OF!TENOR!!
!
Contravention! of! the! terms! of! the! obligation, M! any! illicit! act! which!
impairs! the! strict! and! faithful! fulfillment! of! the! obligation! or! every!
kind!of!defective!performance!
Malicious! or! negligent! violation, of, the, terms, and,

conditions,stipulated!in!the!obligation!!
Must! not! be! due! to! fortuitous! even! or! force! majeure,!
otherwise!there!would!be!no!liability!
Immaterial! whether! or! not! the! actor! is! in! bad, faith, or,
negligent,!what!is!required!is!that!it!is!his!fault!or!the!act!
done!contravenes!their!agreement!
Sir!Labitag:!It!is!a!catch!all!phrase!for!any!kind!of!breach!
!
Cases:!
!
CHAVEZ!v.!GONZALES!
Facts:! Chavez! brought! his! typewriter! to! Gonzales! for! cleaning! and!
service!and,!despite!repeated!reminders!from!Chavez,!Gonzales!was!
unable! to! finish! the! job.! Gonzales! asked! for! P6.00! for! spare! parts,!
which! Chavez! gave,! but! after! still! failing! to! finish! the! job,! he!
demanded! the! typewriter! be! returned! to! him.! He! realized! the!
typewriter! was! returned! dismantled! and! parts! were! missing,! such!
parts! returned! to! him! by! Gonzales! along! with! the! P6.00! (after! he!
demanded).!Another!person!fixed!the!typewriter,!which!cost!Chavez!
P89.95! (materials! and! labor)! and! he! is! praying! for! damages! against!
Gonzales.!
!
Held:!Chavez!and!Gonzales!had!a!perfected!contract!for!service!and!
cleaning,! which! Gonzales! was! unable! to! do.! He! is! liable! for! P31.10!
under!Art.!1165!(for!the!proper!execution!of!the!obligation!and!the!
missing!parts)!because!of!the!non?performance!of!his!obligation.!He!
contravened!the!tenor!of!the!obligation!because!not!only!did!he!not!
fulfill! the! obligation! (repair! the! typewriter),! but! he! returned! in!
shambles!and!missing!some!parts.!Contravention!of!the!tenor!is!an!
illicit! act! which! impairs! the! strict! and! faithful! fulfillment! of! the!
obligation.!
!
TELEFAST!v.!CASTRO!
Facts:! Consolacion! Bravo?Castro,! wife! and! mother! of! the! plaintiffs,!
passed! away! in! Lingayen,! Pangasinan.! Her! daughter,! Sofia! Crouch,!
addressed! a! telegram! to! the! relatives! abroad! announcing!
Consolacions!death,!which!telegram!was!accepted!by!Telefast!in!its!
Dagupan! office! for! transmission,! after! payment! of! the! fees.!
Consolacion! was! interred! with! just! Sofia,! and! Sofia! later! found! out!
that!the!telegram!never!reached!the!relatives!abroad.!The!family!is!
claiming!for!damages.!
!
Held:!Telefast!and!Sofia!Crouch!entered!into!a!contract!where!Sofia!
pays! a! fee,! and! Telefast! sends! the! message! overseas! by! telegram.!
Telefast! failed! to! comply! despite! Sofia! complying! with! her!
obligation,!making!Telefast!guilty!of!contravening!its!obligation!and!
liable! for! damages.! Telefasts! act! or! omission! amounted! to! gross!
negligence,!which!was!the!cause!of!the!suffering!of!the!family!!they!
cant!just!be!liable!for!the!fees,!but!must!be!liable!for!damages.!
!
ARRIETA!v.!NARIC!
Facts:! Arrieta! won! a! bid! called! by! NARIC! for! the! supply! of! 20,000!
metric! tons! of! Burmese! rice! because! was! the! lowest! cost.! They!
entered!into!a!contract,!making!NARIC!liable!for!a!letter!of!credit!in!
favor! of! Arrieta,! and! Arietta! being! obligated! to! deliver! the! rice! at!
$203!per!metric!ton.!Arrieta!told!NARIC!of!the!urgency!to!open!the!
letter! of! credit! because! it! would! be! necessary! to! keep! an! allocated!
space! on! the! ship! for! the! rice! (after! her! paying! 5%! downpayment).!
Despite!Arrieta!informing!NARIC!that!the!supplier!in!Rangoon!would!
keep!the!space!open!until!Aug.!4,!1952,!NARIC!still!failed!to!supply!
the! letter! of! credit,! and! the! space! was! forfeited! (costing! Arrieta!
approx..! P200,000).! Arrieta! offered! to! substitute! it! with! Thailand!
rice,!but!it!declined,!and!now!Arrieta!is!asking!for!compensation.!
!
Held:! Arrieta! is! entitled! to! compensation! because! it! was! NARICs!
fault! that! the! space! was! closed! and! the! 5%! cost! of! it! forfeited! in!
favor! of! the! supplier.! Its! liability! stems! not! only! from! its! failure! to!
satisfy! the! requirements! of! the! bank! (which! was! why! they! didnt!
issue!the!letter!of!credit)!but!its!culpability!arises!from!its!deliberate!
assumption! of! contractual! obligations! despite! knowledge! of! its!
financial!incapacity!(through!its!letter).!It!is!liable!because!of!in!any!
manner! contravene! the! tenor! which! impairs! the! strict! and! faithful!
fulfillment!of!the!obligation.!
!
!
!
!
!
!
!
!
!
!
!
!
!!!!!!!18!
!!!!
5. ABSOLUTE!NON[PERFORMANCE!
Not!liable!if!non?performance!was!due!to!fortuitous!event,!
unless! there! is! an! express! stipulation! to! the! contrary,! or!
the!law!otherwise!provides!in!particular!cases!
Not! liable! for! non?performance! if! the! impossibility! arises!
from! a! cause! which! neither! party! could! reasonably! have!
foreseen.!
Mere!pecuniary!inability!to!fulfill!an!engagement!does!not!
discharge! an! obligation! nor! constitute! a! defnse! to! an!
action!for!specific!performance!
III.
Remedies* Of* Creditor* in* Case* Of*

Breach*
!
REMEDIES%IN%GENERAL:%
1. Action! for! performance! (specific! performance! or! obtain!
compliance)!
2. Action!for!rescission!!
3. Action!for!damages!(exclusively!OR!in!addition!to!either!of!
the!first!actions)!!
!
REMEDIES%OF%CREDITOR%IN%REAL%OBLIGATION:!
1. In! a! specific, real, obligation! (obligation! to! deliver! a!
determinate!thing):!
a. Demand! specific! performance! or! fulfillment! of! the!
obligation!with!a!right!to!indemnity!for!damages;!or!
b. Demand! rescission! or! cancellation! (in! certain! cases)!
of!the!obligation!also!with!a!right!to!recover!damages!
(Art.!1170);!or!
c. Demand! the! payment! of! damages! only! (Art.! 1170)!
when!it!is!the!only!feasible!remedy!
2. In!a!generic,real,obligation!(obligation!to!deliver!a!generic!
thing)!
a. Can!be!performed!by!a!third!person!or!the!debtor!but!
the! creditor! may! ask! for! performance! of! the!
obligation!
b. Whether! by! a! third! person! or! by! a! debtor,! the!
creditor!can!recover!damages!
!
REMEDIES%OF%CREDITOR%IN%POSITIVE%PERSONAL%OBLIGATION:!
1. If!the!debtor!fails!to!comply!with!his!obligation!to!do,!the!
creditor!has!the!right:!
a. To! have! the! obligation! performed! by! himself,! or! by!
another! unless! personal! considerations! are! involved,!
at!the!debtors!expense;!and!
b. To!recover!damages!(Art.!1170)!
2. In! case! the! obligation! is! done! in! contravention! of! the!
terms!of!the!same!or!is!poorly!done,!it!may!be!ordered!(by!
the! court)! that! it! be! undone! if! it! is! still! possible! to! undo!
what!was!done.!
!
REMEDIES%OF%CREDITOR%IN%NEGATIVE%PERSONAL%OBLIGATION:!
Since! the! duty! is! to! obtain! from! an! act,! there! is! no!
specific!performance!
In!this!kind!of!obligation,!the!debtor!cannot!be!guilty!
of!delay!
1. The! remedy! is! the! undoing! of! the! forbidden! thing! plus!
damages!
2. If!it!is!not!possible!to!undo!what!was!done,!the!remedy!is!
an!action!for!damages.!
!
!
REMEDIES%FOR%THE%SATISFACTION%OF%CLAIMS:!
1. Exact! fulfillment! (specific! performance)! with! the! right! to!
damages;!
2. Pursue! the! leviable! (not! exempt! from! attachment! under!
the!law)!property!of!the!debtor;!
a. The!debtor!is!liable!with!all!his!property,!present!and!
future,!for!the!fulfillment!of!his!obligations,!subject!to!
the!exemptions!provided!by!law!(see!Art.!2236)!
b. Art.! 1708! CC! ! laborers! wages! not! subject! to!
execution! or! attachment,! except! for! debts! incurred!
for!food,!shelter,!clothing!and!medical!attendance!
c. Art.! 155! FC! ! family! home! shall! be! exempt! from!
execution,!forced!sale!or!attachment,!except!for!non?
payment!of!taxes,!debts!incurred!prior!to!constitution!
of! family! home,! debts! secured! by! mortgages! before!
or! after! constitution,! debts! due! to! those! who!
rendered! service! or! furnished! material! for! the!
building.!
d. Sec.!13,!Rule!39,!Rules!of!Court!
3. After! having! pursued! the! property! in! possession! of! the!
debtor,! exercise! all! the! rights! (like! the! right! to! redeem)!
and! bring! all! the! actions! of! the! debtor! (like! the! right! to!
collect! from! the! debtor! of! his! debtor)! except! those!
inherent!in!or!personal!to!the!person!of!the!latter!(such!as!
the!right!to!vote,!to!hold!office,!to!receive!legal!support,!to!
revoke!a!donation!on!the!ground!of!ingratitude,!etc.);!and!
4. Ask!the!court!to!rescind!or!impugn!acts!or!contracts!which!
the!debtor!may!have!done!to!defraud!him!when!he!cannot!
in!any!other!manner!recover!his!claim.!
!
SITUATIONS%WHICH%MAY%GIVE%RISE%TO%THE%NEED%FOR%REMEDIES:!
1. The!debtor!fails!to!perform!an!obligation!to!do;!or!
2. The! debtor! performs! an! obligation! to! do! but! contrary! to!
the!terms!thereof;!or!
3. The! debtor! performs! an! obligation! to! but! in! a! poor!
manner.!
,
A. Action(for(Performance(
1. ACTION! FOR! SPECIFIC! PERFORMANCE! OR! FULFILLMENT! OF!
THE!OBLIGATION!(IN!OBLIGATION!TO!GIVE!SPECIFIC!THING)!
!
!
Art.! 1165,! Par.! 1.! When! what! is! to! be! delivered! is! a! determinate!
thing,!the!creditor,!in!addition!to!the!right!granted!him!by!Art!1170!
(indemnification!for!damages),!may!compel!the!debtor!to!make%the%
delivery.!
!
ROC!39,!Sec!10!Execution,!satisfaction!and!effect!of!judgment.!!
!
Implies! that! the! basis! is! a! contractual! relation! between!

plaintiff!and!defendants.!!!
!
2. ACTION! FOR! SUBSTITUTED! PERFORMANCE! (IN! OBLIGATION!
TO!GIVE!GENERIC!THING)!
!
Art.!1165,!Par.!2.!If!the!thing!is!indeterminate!or!generic,!he!may!ask!
that!the!obligation!be!complied%with!at!the!expense!of!the!debtor!
!
Delivery! of! anything! belonging! to! the! species! stipulated!

will!be!sufficient.!!
Debtor! cannot! avoid! obligation! by! paying! damages! if! the!

creditor!insists!on!the!performance.!!
!!!!!!!19!
!!!!
!
3. ACTION! FOR! SUBSTITUTED! PERFORMANCE! OR! UNDOING! OF!

POOR!WORK!(IN!OBLIGATION!TO!DO)!
!
Art.!1167.!If!a!person!obliged!to!do!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%done%poorly%be%undone!
!
The! court! has! no! discretion! to! merely! award! damages! to!
the! creditor! when! the! act! can! be! done! in! spite! of! the!
refusal!or!failure!of!debtor!to!do!so.!!
EXCEPTION:!Imposition!of!personal!force!or!coercion!upon!
the!debtor!to!comply!with!his!obligation!"!tantamount!to!
involuntary!servitude!and!imprisonment!for!debt!
!
Cases:!
!
CHAVEZ!v.!GONZALES!(see!Contravention!of!the!Tenor!digest)!
FACTS:! Chavez! asked! Gonzales! to! repair! a! typewriter,! but!Gonzales!
failed! to! repair! it.! In! fact,! when! Chavez! finally! asked! for! the!
typewriter!back!(after!failing!to!fix!it!despite!repeated!demands),!it!
was!returned!to!him!in!shambles!and!with!missing!parts.!
!
HELD:! Chavez! and! Gonzales! had! a! perfected! contract! where!
Gonzales! would! repair! the! typewriter! for! a! cost.! Instead,! Gonzales!
returned! it! in! a! condition! worse! than! when! it! was! brought! in,! and!
now! he! must! be! liable! for! the! cost! of! the! service! and! the! missing!
parts.! Since! he! failed! in! his! obligation,! he! must! be! liable! for! he!
correction! of! what! he! did! poorly! and! for! the! contravention! of! the!
tenor!of!his!obligation.!
!
TANGUILIG!v.!CA!
FACTS:! Jacinto! Tanguilig! (under! JMT! Engineering)! proposed! to!
Vicente! Herce! Jr.! to! construct! a! windmill! system! for! him! for! P60K!
(w/1?year! guarantee! after! completion).! Herce! paid! P30K!
downpayment! and! an! installment! of! P15K.! Tanguilig! filed! a!
complaint! to! collect! the! balance! because! of! Herces! refusal! and!
failure!to!pay!it.!Herce!said!that!he!paid!P15K!to!SPGMI!for!a!deep!
well,! and! it! should! be! credited! to! his! account.! Also,! the! windmill!
system! created! collapsed! after! a! strong! wind! hit! their! place,! and! it!
should!offset!the!P15K!debt!to!JMT.!Tanguilig!said!the!deep!well!was!
not!part!of!the!agreement!for!the!windmill!system.!
!
HELD:!The!terms!of!the!instruments!were!clear!!although!the!words!
deep! well! were! used,! they! were! only! meant! to! convey! the! idea!
that!the!windmill!would!be!appropriate!for!a!deep!well!pump!with!a!
certain! size.! Herce! is! not! in! default! yet! for! not! paying! the! P15K!
because! JMT! hasnt! complied! with! its! obligation! to! repair! the!
windmill!(guarantee).!When!the!windmill!failed!to!function!properly,!
it! became! incumbent! upon! JMT! to! institute! the! repairs! in!
accordance!with!the!guaranty!(Art.!1167!!if!a!person!obliged!to!do!
something!fails!to!do!it,!the!same!shall!be!executed!at!his!cost).!
!
4. ACTION!FOR!UNDOING!(IN!OBLIGATION!NOT!TO!DO)!!
!
Art! 1168! When! the! obligation! consists! in! not! doing,! and!
the!obligor!does!what!has!been!forbidden!him,!it!shall!also!
be!undone%at%his%expense.!!
EXCEPTION:! When! the! only! feasible! remedy! is!

indemnification,for,the,damages!caused:!!
If!has!become!impossible!to!undo!the!thing!physically!
or!legally!
If!the!act!is!definite!and!will!not!cease!even!if!undone!
B. Action(for(Damages(
Art!1170!"!Recoverable!damages!include!any,and,all,
damages!that!a!human!being!may!suffer.!Responsibility!for!
damages!is!indivisible.!
(
C. Action(for(Rescission(
*
Art.! 1191.! The! power! to! rescind! obligation! 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! FULFILLMENT! and! the!
RESCISSION! of! the! obligation,! with! the! payment! of! damages! in!
either! case.! He! may! also! seek! rescission,! even, after, he, has, chosen,
fulfillment,!if!the!latter!should!become!IMPOSSIBLE.!!
The!court!shall!decree!the!rescission!claimed!UNLESS!there!be!a!just,
cause,authorizing,the,fixing%of%a%period.!!
This! is! understood! to! be! without, prejudice, to, the, rights, of, third,
persons! who! have! acquired! the! thing,! in! accordance! with! Articles!
1385!and!1388!and!the!Mortgage!Law.!
!
Art.! 1192.! In! case! both! parties! have! committed! breach! of!
obligation,! the! liability! of! the! first! infractor! shall! be! equitably,
tempered! by! the! courts.! If! it! cannot! be! determined! which! of! the!
parties! first! violated! the! contract,! the! same! shall! be! extinguished!
and!each,shall,bear,his,own,damages%
!
The! remedy! is! alternative.! Party! seeking! rescission! can! only!

elect! one! between! fulfillment! and! rescission.! There! can! be! no!
partial!performance!and!partial!rescission.!!
Only! applies! to! reciprocal! obligations,! where! there! is!
reciprocity! between! the! parties! i.e.! creditor! debtor! relations!
arise!from!the!same!cause!or!identity!of!cause!
Reciprocal!obligations!have!a!TACIT,RESOLUTORY,CONDITION.!!
Power%to%rescind:!!
o Pertains! to! the! injured! party,! party! who! did! not! perform!
not!entitled!to!insist!upon!the!performance!of!the!contract!
by!the!defendant!or!recover!damages!by!reason!of!his!own!
breach!
!
Rights!of!injured!party!subordinated!to!the!rights!of!a!
rd
3 !person!to!whom!bad!faith!is!not!imputable!!
o Not! absolute,! not! permitted! in! casual/slight! breach,! may!
only! be! claimed! in! substantial! breach! , (Song, Fo, v.,
Hawaiian,Philippines)!
o Rescission!requires!judicial,approval,to,produce,legal,effect!
!
EXCEPTION:! object! is! not! yet! delivered! AND!
obligation!has!not!yet!been!performed!!
!
If! the! obligation! has! not! yet! been! performed:!
extrajudicial! declaration! of! party! willing! to! perform!
would!suffice;!can!refuse!to!perform!if!the!other!party!
is!not!yet!ready!to!comply!
!
If! the! injured! party! has! already! performed:! cannot!
extrajudicially!rescind!IF!the!other!party!opposes!the!
rescission! (otherwise,! rescission! produces! legal!
effect).! In! the! case! the! other! party! impugns!
rescission,!the!court!comes!in!either!to:!!
a.!Declare!the!rescission!as!properly!made!
b.!Give!a!period!to!the!debtor!in!which!to!perform!
!!!!!!!20!
!!!!
EFFECTS%OF%RESCISSION:%
1. Extinguishes! obligatory! relation! as! if! it! had! never! been!
created,! extinction! has! a! retroactive! effect.! Equivalent! to!
invalidate! the! juridical! tie,! leaving! things! in! their! status!
before!the!celebration!of!the!contract!!
2. Mutual!restitution!
EXPRESS% RESOLUTORY% CONDITION:! automatic!

resolution!if!one!of!the!parties!does!not!comply!with!
his!obligation.!Often!found!in!insurance!contracts.!Its!
nature!is!a!facultative!resolutory!condition!(Taylor,v,
Uy,Tieng)!
IV.
2. REQUISITES!
1.
2.
3.
4.
!
Subsidiary*Remedies*of*Creditor**
Art.! 1177.! The! creditors,! after! having! pursued! the! property! in!
possession!of!the!debtor!to!satisfy!their!claims,!may!exercise!all!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!to!defraud!them.!
1. CONCEPT:! ! action! which! the! creditor! may! exercise! in! the!

place!of!his!negligent!debtor!in!order!to!preserve!or!recover!for!
the! patrimony! of! the! debtor! the! product! of! such! action,! and!
then!obtain!therefrom!the!satisfaction!of!his!own!credit!
Double!function:!!
1. conserve!patrimony!of!debtor!and!!
2. make! execution! on! such! property! effective!
thereafter!
Rights!of!creditors:!
1. To! levy! by! attachment! and! execution! upon! all!
the! property! of! the! debtor,! except! such! as! are!
exempt!by!law!from!execution!
2. To! exercise! all! the! rights! and! actions! of! the!
debtor,!except!such!as!are!inherently!personal!to!
him!
3. To! ask! for! the! rescission! of! the! contracts! made!
by!the!debtor!in!defraud!of!their!rights!
Property! of! the! debtor! is! subject! to! liability! for! his!
obligations! (Art! 2236);! the! liability! of! the! property! is!
the! legal! guaranty! in! favor! of! creditors! and,! hence,!
debtors! cannot! maliciously! reduce! such! guaranty!
(NOTE:!there!are!properties!exempt!from!execution)!
Previous! approval! of! court! is! not! necessary! in!
exercising!the!accion,subrogatoria!
Defenses:!debtor!sued!may!set!up!against!the!plaintiff!
the! same! defenses! he! could! set! up! against! his! own!
creditor!
Extent:! plaintiff! is! entitled! only! to! so! much! as! is!
needed!to!satisfy!his!credit;!any!balance!shall!pertain!
to!the!debtor!
Remedies! available! to! the! debtor! for! the! satisfaction!
of!their!claims!(de!Leon):!
1. Specific!performance!with!the!right!to!damages!
2. Pursue!the!leviable!property!of!the!debtor!
3. Accion,subrogatoria,
4. Accion,pauliana,
!
!
Not!essential!that!the!creditors!claim!be!prior!to!
the!acquisition!of!the!right!by!the!debtor!
!
A. Accion*Subrogatoria*(action(for(collection)*
*
The!creditor!has!an!interest!in!the!right!or!action!not!
only! because! of! his! credit! but! because! of! the!
insolvency!of!the!debtor!
Malicious! or! negligent! inaction! of! the! debtor! in! the!
exercise! of! his! right! or! action! of! such! seriousness! as!
to!endanger!the!claim!of!the!creditor!
The! credit! of! the! debtor! against! a! third! person! is!
certain,!demandable!and!liquidated!
The! debtors! right! against! the! third! person! must! be!
patrimonial,! or! susceptible! of! being! transformed! to!
patrimonial!value!for!the!benefit!of!the!creditor!
3. EXCEPTIONS!!INHERENT!RIGHTS!OF!A!DEBTOR!
Rights! of! the! debtor! which! cannot! be! exercised! by! the!
creditor:!
1. Right! to! existence! (exempts! from! the! reach! of!
creditors!whatever!he!may!be!receiving!as!support)!
2. Right!or!relation!of!a!public!character!
3. Rights!of!an!honorary!character!
4. Rights! consisting! of! powers! which! have! not! been!
used!
a. Power!to!administer!
b. Power!to!carry!out!an!agency!or!deposit!
c. Power!to!accept!an!order!for!a!contract!
5. Non?patrimonial! rights! (e.g.,! rights! arising! from!
family!relations)!
6. Patrimonial! rights! not! subject! to! execution! (e.g.,!
right!to!a!government!gratuity!or!pension)!
7. Patrimonial! rights! inherent! in! the! person! of! the!
debtor! (e.g.,! right! to! revoke! a! donation! by! reason!
of! ingratitude,! and! the! right! to! demand! the!
exclusion!of!an!unworthy!heir)!
!
!
Art.! 772.! Only! those! who! at! the! time! of! the! donor's! death! have! a!
right!to!the!legitime!and!their!heirs!and!successors!in!interest!may!
ask!for!the!reduction!or!inofficious!donations.!
Those!referred!to!in!the!preceding!paragraph!cannot!renounce!
their! right! during! the! lifetime! of! the! donor,! either! by! express!
declaration,!or!by!consenting!to!the!donation.!
The!donees,!devisees!and!legatees,!who!are!not!entitled!to!the!
legitime! and! the! creditors! of! the! deceased! can! neither! ask! for! the!
reduction!nor!avail!themselves!thereof.!!
!
Sec!13,!Rule!39,!Rules!of!Court!Property!exempt!from!execution.
Except! as! otherwise! expressly! provided! by! law,! the! following!
property,!and!no!other,!shall!be!exempt!from!execution:!
a) The!judgment!obligors!family!home!as!provided!by!law,!or!the!
homestead! in! which! he! resides,! and! land! necessarily! used! in!
connection!therewith;!
b) Ordinary! tools! and! implements! personally! used! by! him! in! his!
trade,!employment,!or!livelihood;!
c) Three! horses,! or! three! cows,! or! three! carabaos,! or! other!
beasts! of! burden,! such! as! the! judgment! obligor! may! select!
necessarily!used!by!him!in!his!ordinary!occupation;!
d) His! necessary! clothing! and! articles! for! ordinary! personal! use,!
excluding!jewelry;!
!!!!!!!21!
!!!!
e)
Household!furniture!and!utensils!necessary!for!house?keeping,!
and! used! for! that! purpose! by! the! judgment! obligor! and! his!
family,!such!as!the!judgment!obligor!may!select,!of!a!value!not!
exceeding!one!hundred!thousand!pesos;!
f) Provisions! for! individual! or! family! use! sufficient! for! four!
months;!
h) The! professional! libraries! and! equipment! of! judges,! lawyers,!
physicians,! pharmacists,! dentists,! engineers,! surveyors,!
clergymen,! teachers,! and! other! professionals,! not! exceeding!
three!hundred!!thousand!pesos!in!value;!One!fishing!boat!and!
accessories! not! exceeding! the! total! value! of! one! hundred!
thousand!pesos!owned!by!a!fisherman!and!by!the!lawful!use!of!
which!he!earns!his!livelihood;!
i) So! much! of! the! salaries,! wages,! or! earnings! of! the! judgment!
obligor! for! his! personal! services! within! the! four! months!
preceding! the! levy! as! are! necessary! for! the! support! of! his!
family;!
j) Lettered!gravestones;!
k) Monies,! benefits,! privileges,! or! annuities! accruing! or! in! any!
manner!growing!out!of!any!life!insurance;!
l) The! right! to! receive! legal! support,! or! money! or! property!
obtained!as!such!support,!or!any!pension!or!gratuity!from!the!
Government;!
m) Properties!specially!exempted!by!law.!!
But!no!article!or!species!of!property!mentioned!in!this!section!shall!
be! exempt! from! execution! issued! upon! a! judgment! recovered! for!
its!price!or!upon!a!judgment!of!foreclosure!of!a!mortgage!thereon.!
(12a)!
!
1.
2.
3.
4.
5.
Plaintiff! asking! for! rescission! has! a! credit! prior! to! the!

alienation,!although!demandable!later!
Debtor! has! made! a! subsequent! contract! conveying! a!
patrimonial!benefit!to!a!third!person!
Creditor!has!no!clear!legal!remedy!to!satisfy!his!claim,!but!
would! benefit! by! the! rescission! of! the! conveyance! to! the!
third!person!
Act!being!impugned!is!fraudulent!
Presumption! of! fraud! may! be! found! in! Art! 1387!

(gratuitous! transfer! without! leaving! sufficient! funds!
for!obligations!OR!gratuitous!transfers!by!a!judgment!
debtor)!
Third! person! who! received! the! property! conveyed,! if! it! is!
by!onerous!title,!has!been!an!accomplice!in!the!fraud!
!
ACCION%PAULIANA%AND%SIMULATION%DISTINGUISHED:%
%
!
Accion,Pauliana,
Simulation!
Real!alienation!
Present,!
but! None;! mere! pretense!
fraudulent!
that! one! has! been!
made!
When!can!it!be!alleged! Only! prior! to! the! Before! or! after! the!
by!creditors?!
act!
simulation!
Impossibility!of!
Required!
Not!required!
satisfying!plaintiffs!
claim!
Sets!aside!a!valid!
Yes!
No;! merely! declares!
contract?!
its!inexistence!
B. Accion*Pauliana*
%
Art.!1177.![]!they!may!also!impugn!the!acts!which!the!debtor!may!
have!done!to!defraud!them.!
Art.!1381,!Par.!3.!The!following!contracts!are!rescissible:!
(3)! Those! undertaken! in! fraud! of! creditors! when! the! latter!
cannot!in!any!other!manner!collect!the!claims!due!them!
1. CONCEPT:! action!to!revoke!or!rescind!acts!which!the!debtor!
may!have!done!to!defraud!the!creditor!
Regulated!by!Arts!1380!to!1389!
Can! revoke! all! acts! of! the! debtor! which! reduces! his!
patrimony!in!fraud!of!his!creditors,!whether!by!gratuitous!
or! onerous! title! (e.g.,! alienations! of! property,! payment! of!
debts! which! are! not! due,! renunciation! of! rights;!
assignments!of!credit,!remission!of!debts)!
Payments!of!pre?existing!obligations!already!due,!whether!
natural!or!civil,!cannot!be!impugned!by!an!accion,pauliana!
a. Distinction% between% accion% pauliana% and%

accion%subrogatoria%
!
ACCION%SUBROGATORIA%
Not!essential!that!credit!is!prior!
to! the! acquisition! of! debtors!
right!
Intent! to! defraud! creditors! is!
not!required!
No!period!of!prescription!!
2. REQUISITES!
ACCION%PAULIANA%
Credit! must! exist! before! fraudulent!
act!
If! contracts! rescinded! is! onerous,!
there!must!be!fraudulent!intent!
Action! prescribes! within! 4! years! of!
the!discovery!of!the!fraud!
Cases:!
!
KHE!HONG!CHENG!v.!CA!!
Facts:!M/V!Prince!Eric!(owned!by!Khe!Hong!Cheng)!sank,!resulting!in!
the! total! loss! of! copra! shipment! (owned! by! the! Philippine!
Agricultural! Trading! Center).! The! said! copra! shipment! was! covered!
by! a! marine! insurance! policy! issued! by! American! Home! Insurance!
Company.! American! Home! instituted! a! civil! case! against! Khe! Hong!
Cheng.! While! the! case! was! pending,! Khe! Hong! Cheng! executed!
Deeds! of! Donation! of! parcels! of! land! in! favor! of! his! children.! TC!
rendered!judgment!against!Khe!Hong!Cheng!4!years!after!donations!
were!made;!sheriff!found!no!property!to!levy!for!the!satisfaction!of!
TCs!decision.!
!
Held:!Action!for!rescission!still!hasnt!prescribed.!Art!1389!is!silent!as!
to!when!the!prescriptive!period!will!commence.!General!rule!is!that!
prescriptive! period! will! commence! from! the! moment! the! cause! of!
action! accrues.! Accion, pauliana! must! be! of! last! resort! and! all! the!
requisites! must! concur! (see! above).! It! presupposes:! 1)! a! judgment,!
2)!the!issuance!by!TC!of!a!writ!of!execution!for!the!satisfaction!of!the!
judgment,!and!3)!the!failure!of!the!sheriff!to!enforce!and!satisfy!the!
judgment!of!the!court.!It!doesnt!matter!that!the!Deeds!of!Donation!
were!executed!in!1989.!It!was!only!in!1997!that!all!legal!means!were!
exhausted! by! creditor! and! the! action! for! rescission! was! filed! in! the!
same!year.!
!
!
!
!
!
!
!
!
!!!!!!!22!
!!!!
SIGUAN!v.!LIM!
!
Facts:! In! 1990,! Lim! issued! 2! Metrobank! checks! (P300,000! and!
P241,668),! payable! to! cash.! The! checks! were! dishonored! for! the!
reason! that! the! account! was! already! closed.! Demands! to! make!
good!the!checks!were!futile!and!a!criminal!case!for!violation!of!BP!22!
was!filed!against!Lim!in!1992.!Lim!was!acquitted!but!was!held!civilly!
liable!for!P169,000.!However,!in!1991,!a!Deed!of!Donation!conveying!
parcels! of! land! (purportedly! executed! in! 1989! in! favor! of! her!
children)! was! registered! with! the! Register! of! Deeds.! An! action! for!
rescission!was!filed.!
!
Held:!Deed!of!Donation!executed!by!Lim!in!favor!of!her!children!was!
made!in!fraud!and,!therefore,!not!rescissible.!Contracts!entered!into!
in! fraud! may! be! rescinded! only! when! the! creditors! cannot! in! any!
manner! collect! the! claims! due! them! ! not! proven! by! petitioner.!
Also,!fourth!requisite!for!accion,pauliana!is!not!present.!Donation!is!
always!presumed!to!be!in!fraud!of!creditors!when!the!donor!did!not!
reserve! sufficient! property! to! pay! his! debts! prior! to! the! donation!
(Art!759,!CC).!First,!petitioners!alleged!credited!existed!only!a!year!
after! the! deed! of! donation! was! executed.! Second,! when! the! Deed!
was! executed,! Lim! had! other! properties! sufficient! to! cover! the!
debts.!
V.*******Extinguishment*of*Liability*In*Case*
Of*Breach*Due*To*Fortuitous*Event*
(
Art.!1174.!Except!in!cases!expressly!specified!by!the!law,!or!when!it!
is! otherwise! declared! by! stipulation,! or! when! the! nature! of! the!
obligation! requires! the! assumption! of! risk,! no! person! shall! be!
responsible!for!those!events!which!could!not!be!foreseen,!or!which,!
though!foreseen,!were!inevitable.!
A. Exceptions:( law,( stipulation,( or( when( nature(

of(obligation(requires(the(assumption(of(risk(
(
1. CASES!SPECIFIED!BY!LAW!
C. Other(Specific(Remedies((accion*directa(
(
Art.! 1652.! The! sublessee! is! subsidiarily! liable! to! the! lessor! for! any!
rent! due! from! the! lessee.! However,! the! sublessee! shall! not! be!
responsible!beyond!the!amount!of!rent!due!from!him,!in!accordance!
with! the! terms! of! the! sublease,! at! the! time! of! the! extra?judicial!
demand!by!the!lessor.!!
Payments!of!rent!in!advance!by!the!sublessee!shall!be!deemed!
not! to! have! been! made,! so! far! as! the! lessor's! claim! is! concerned,!
unless! said! payments! were! effected! in! virtue! of! the! custom! of! the!
place.!
Art.!1729.!Those!who!put!their!labor!upon!or!furnish!materials!for!a!
piece! of! work! undertaken! by! the! contractor! have! an! action! against!
the!owner!up!to!the!amount!owing!from!the!latter!to!the!contractor!
at! the! time! the! claim! is! made.! However,! the! following! shall! not!
prejudice!the!laborers,!employees!and!furnishers!of!materials:!!
1) Payments! made! by! the! owner! to! the! contractor! before!
they!are!due;!
2) Renunciation! by! the! contractor! of! any! amount! due! him!
from!the!owner.!!
This!article!is!subject!to!the!provisions!of!special!laws.!
!
Art.!1608.!The!vendor!may!bring!his!action!against!every!possessor!
whose! right! is! derived! from! the! vendee,! even! if! in! the! second!
contract! no! mention! should! have! been! made! of! the! Mortgage! Law!
and!the!Land!Registration!Law!with!respect!to!third!persons.!
!
Art.!1893.!In!the!cases!mentioned!in!Nos.!1!and!2!of!the!preceding!
article,! the! principal! may! furthermore! bring! an! action! against! the!
substitute! with! respect! to! the! obligations! which! the! latter! has!
contracted!under!the!substitution.!
!
!
!
!
Art!552!Par!2!Possessor!in!bad!faith!
Art!1165!Debtors!delay!
Art!1942!Obligation!of!bailee!in!commodatum!
Art!1268!Proceeds!in!a!criminal!offense!
Art!1979!and!Art!1993!Depositary!
Art!2001!Act!of!a!thief!
Art!2147!Officious!management!
Art!2148!Negotiorum!gestio!!
Art!2159!Accepts!undue!payment!in!bad!faith!
Art!1198!Loss!of!benefit!to!make!use!period!
2. EXPRESS!STIPULATION!BY!THE!PARTIES!
Parties! may! expressly! stipulate! in! their! contract! that!

the! debtor! shall! be! liable! to! the! creditor! even! if!
performance! is! rendered! impossible! by! fortuitous!
event;! provision! in! a! contract! imposing! liability! even!
in! case! of! fortuitous! event! should! be! clearly!
expressed!
3. ASSUMPTION!OF!RISK!
The! principle! is! based! on! social! justice,! an! ethico?

economic! sensibility! of! modern! society! which! has!
noted! the! injustices! which! industrial! civilization! has!
created!
Applies! to! all! kinds! of! public! services! but! limited! to!
risks! and! events! that! are! typical! of! the! business!
concerned!
B. Law(requires(liability(even(if(fortuitous(event(
occurs:(
(
1. ART!552!(2)!!POSSESSOR!IN!BAD!FAITH!
!
Art.! 552,! Par.! 2.! A! possessor! in! bad! faith! shall! be! liable! for!
deterioration! or! loss! in! every! case,! even! if! caused! by! a! fortuitous!
event.!
!
!
!
!
!
!
!!!!!!!23!
!!!!
C. Concept( of( Fortuitous( Event(
majeure/fuerza*mayor/caso*fortuito)!
!
FOIRTUITIOUS% EVENT% ! an! unexpected! event! or! act! of! God! which!
could!neither!be!foreseen!nor!resisted!(Escriche).!
Essential! element:! some! extraordinary! circumstance!

independent!of!the!will!of!the!obligor,!or!of!his!employees!
!
1. ACT! OF! GOD! ! by! nature,! e.g.! earthquakes,! storms,! floods,!
epidemics,!fires!
2. ACT! OF! MAN! ! by! acts! of! man,! e.g.! armed! invasion,! attack!
by!bandits,!governmental!prohibitions,!robbery!
In! order! that! acts! of! man! may! constitute! fortuitous!

event,! it! is! necessary! that! they! have! the! force! of! an!
imposition!which!the!debtor!could!not!have!resisted!
%
FORTUITOUS%EVENT:%
Includes!unavoidable!accidents,!even!if!there!has!been!an!
intervention! of! human! element,! provided! fault! or!
negligence!cannot!be!imputed!to!the!debtor.!
Force,majeure!and!fortuitous!event!are!not!identical.!Force,
majeure! refers! to! acts! of! god! while! fortuitous! event!
refers! to! acts! of! man.! However,! for! purposes! of!
exempting!an!obligor!from!liability,!they!are!similar!in!our!
jurisdiction.!(de!Leon)!
Two! kinds! of! fortuitous! event! in! contract! of! lease! as!
distinguished!in!CC!(de!Leon):!
1. Ordinary! fortuitous! events! ! those! which! are!
common! and! which! the! contracting! parties! can!
reasonably!foresee!(e.g.,!rain)!
2. Extraordinary! fortuitous! events! ! those! which! are!
uncommon! and! which! the! parties! could! not! have!
reasonably!foreseen!(e.g.,!earthquake,!fire,!war)!
!
D. Requisites(
!
Characteristics!of!fortuitous!events:!
1. The! cause! of! the! unforeseen! and! unexpected! occurrence,! or!
the!failure!of!the!debtor!to!comply!with!his!obligations,!must!be!
independent!of!the!human!ill!
2. It!must!be!impossible!to!foresee!the!event!which!constitute!the!
caso, fortuito! (ordinary),! or! if! it! can! be! foreseen,! it! must! be!
impossible!to!avoid!(extraordinary)!
3. The!occurrence!must!be!such!as!to!render!it!impossible!for!the!
debtor!to!fulfill!his!obligation!in!a!normal!manner!
4. The! obligor! must! be! free! from! any! participation! in! the!
aggravation! of! the! injury! resulting! to! the! creditor! (no!
concurrent!negligence)!
1. EFFECT!OF!CONCURRENT!FAULT!
intervention! or! neglect! or! failure! to! act,! the! whole!

occurrence!is!then!humanized!and!removed!from!the!rules!
applicable! to! the! acts! of! God! (NPC! v.! CA! ! the! case! of!
Welming!and!the!exploding!dam)!
!
(force*
When! the! negligence! of! a! person! concurs! with! an! act! of!
God! in! producing! a! loss,! such! person! is! not! exempt! from!
liability! by! showing! that! the! immediate! cause! of! the!
damage!was!the!act!of!god.!
If!he!creates!a!dangerous!condition!or!negligence!although!
the!act!of!god!was!the!immediate!cause,!he!cannot!escape!
liability!for!the!natural!and!probable!consequence!thereof.!
There! must! be! no! fraud,! negligence,! delay! or!
violation/contravention!in!any!manner!of!the!tenor!of!the!
obligation.!!
When! the! effect! is! found! to! be! partly! resulting! from! the!
participation! of! man,! whether! due! to! his! active!
Cases:!
!
JUAN!NAKPIL!&!SONS!v.!CA!!
Facts:! Philippine! Bar! Association! decided! to! construct! an! office!
building! in! Manila.! The! constructor! was! United! Construction,! Inc.!
and!the!architect!was!Juan!Nakpil!&!Sons.!A!little!more!than!2!years!
after! the! building! was! completed,! a! 7.3! magnitude! earthquake! hit!
Manila!and!the!building!sustained!major!damage.!Commissioner!(to!
whom!the!technical!issues!were!referred)!reported!that!the!damage!
sustained! by! the! PBA! building! was! directly! caused! by! the!
earthquake.! However,! there! were! defects! in! the! plans! and!
specifications! prepared! by! the! architects,! and! deviations! from! said!
plans!by!the!constructor.!
!
Held:!Art!1723!of!NCC!(which!holds!the!architects!liable!for!damages!
on! the! building! due! to! defects! in! the! design,! and! contractors! for!
damages! due! to! defects! in! construction)! must! concur)! applies.! To!
exempt! the! obligor! from! liability! under! Art! 1174! of! NCC! for! breach!
of! obligation! due! to! fortuitous! events,! all! four! requisites! must!
concur! (see! Subheading! D.! Requisites).! If! upon! happening! of! a!
fortuitous! event,! there! concurs! a! corresponding! fraud,! negligence,!
delay!or!violation!or!contravention!in!any!manner!of!the!tenor!of!the!
obligation!which!results!in!loss!or!damage,!the!obligor!cannot!escape!
liability.!
!
REPUBLIC!v.!LUZON!STEVEDORING!CO.!!
Facts:! A! barged! owned! by! Luzon! Stevedoring! Co.! was! being! towed!
down!the!Pasig!river!by!tugboats!of!the!same!company.!At!that!time,!
the!river!was!swollen!and!the!current!was!swift.!The!barge!rammed!
against! one! of! the! wooden! piles! of! Nagtahan! Bridge,! smashing! the!
posts!and!causing!the!bridge!to!list.!RP!sued!for!damages.!
!
Held:!Luzon!Stevedoring!is!liable!for!damages.!The!mere!difficulty!to!
foresee!the!happening!is!not!tantamount!to!impossibility!to!foresee!
the! same.! Luzon! Stevedoring,! knowing! and! appreciating! the! perils!
posed! by! the! swollen! stream! and! its! swift! current,! voluntarily!
entered!into!a!situation!involving!obvious!danger.!Also,!since!Luzon!
Stevedoring! Company! has! barges! and! tugboats! travelling! up! and!
down!the!river!everyday,!it!could!not!safely!ignore!the!danger!posed!
by!allegedly!improper!construction!that!had!been!in!place!for!years.!
!
E. Extinguishment(of(Liability;(Exceptions(
Art!1174!
General!rule:!debtor!cannot!be!held!liable!for!damages!for!
non?performance! if! he! is! unable! to! fulfill! his! obligation!
because!of!fortuitous!event!
Specific!application:!
o Non!performance!
o Delay!
o Loss!and!deterioration!of!a!specific,thing!
o Art! 1189! Loss! without! the! fault! of! debtor! in!
suspensive!condition!!
o Art!1190!Loss!without!the!fault!of!debtor!in!resolutory!
condition!!
o Art! 1194! Loss! without! the! fault! of! the! debtor! in!
suspensive!period!!
o Art!1204!Loss!of!all!alternative!prestations!!
o Art! 1205! In! alternative! obligations,! in! case! of! loss! of!
one!alternative,!creditor!chooses!from!remainder!
!!!!!!!24!
!!!!
EXCEPTIONS:%
%
Art.!1165,!Par.!3.!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!any!fortuitous!event!until!he!has!
effected!the!delivery.!
!
Art! 552.! A! possessor! in! good! faith! shall! not! be! liable! for! the!
deterioration!or!loss!of!the!thing!possessed,!except!in!cases!in!which!
it! is! proved! that! he! has! acted! with! fraudulent! intent! or! negligence,!
after!the!judicial!summons.!!
A!possessor!in!bad!faith!shall!be!liable!for!deterioration!or!loss!
in!every!case,!even!if!caused!by!a!fortuitous!event.!
!
Art! 1942.! The! bailee! is! liable! for! the! loss! of! the! thing,! even! if! it!
should!be!through!a!fortuitous!event:!
1) If!he!devotes!the!thing!to!any!purpose!different!from!that!
for!which!it!has!been!loaned;!
2) If!he!keeps!it!longer!than!the!period!stipulated,!or!after!the!
accomplishment! of! the! use! for! which! the! commodatum!
has!been!constituted;!
3) If!the!thing!loaned!has!been!delivered!with!appraisal!of!its!
value,! unless! there! is! a! stipulation! exempting! the! bailee!
from!responsibility!in!case!of!a!fortuitous!event;!
4) If!he!lends!or!leases!the!thing!to!a!third!person,!who!is!not!
a!member!of!his!household;!
5) If,!being!able!to!save!either!the!thing!borrowed!or!his!own!
thing,!he!chose!to!save!the!latter.!
!
Art.!1979.!The!depositary!is!liable!for!the!loss!of!the!thing!through!a!
fortuitous!event:!!
1) If!it!is!so!stipulated;!
2) If!he!uses!the!thing!without!the!depositor's!permission;!
3) If!he!delays!its!return;!
4) If!he!allows!others!to!use!it,!even!though!he!himself!may!
have!been!authorized!to!use!the!same.!
!
Art!2001.!The!act!of!a!thief!or!robber,!who!has!entered!the!hotel!is!
not!deemed!force!majeure,!unless!it!is!done!with!the!use!of!arms!or!
through!an!irresistible!force.!
!
!
Art! 2147.! The! officious! manager! shall! be! liable! for! any! fortuitous!
event:!
1) If!he!undertakes!risky!operations!which!the!owner!was!not!
accustomed!to!embark!upon;!
2) If!he!has!preferred!his!own!interest!to!that!of!the!owner;!
3) If!he!fails!to!return!the!property!or!business!after!demand!
by!the!owner;!
4) If!he!assumed!the!management!in!bad!faith.!
!
!
VI.
(
Usurious*Transactions*
Art.!1175.!Usurious!transactions!shall!be!governed!by!special!laws.!
Interest! ! income! produced! by! money! in! relation! to! its!

amount! and! to! the! time! that! it! cannot! be! utilized! by! its!
owner;!may!either!be!moratory!or!compensatory!
o Moratory! ! those! paid! in! contractual! obligations! to!
pay!a!sum!of!money,!either!as!the!price!for!the!use!of!
the! money,! or! as! the! stipulated! advanced!
determination! of! the! damages! due! to! the! delay! in!

fulfillment!of!the!obligation.!
o Compensatory! ! those! which! have! an! extra?
contractual!or!delictual!origin!
Kinds!of!interest!(de!Leon):!
1. Simple! interest! ! when! the! rate! is! stipulated! by! the!
parties!(Art!2209)!
2. Compound! interest! ! when! the! earned! is! upon!
interest!due!(Arts!2212,!1959)!
3. Legal!interest!!when!the!rate!of!interest!intended!by!
the! parties! is! presumed! by! law,! as! when! the! loan!
mentions! interest! but! does! not! specify! the! rate!
thereof!(Art!2209)!
4. Lawful! interest! ! when! the! rate! of! interest! is! within!
the!maximum!allowed!by!Usury!Law!
5. Unlawful! interest! ! when! the! rate! of! interest! is!
beyond!the!maximum!fixed!by!law!
Usury!!contracting!or!receiving!something!in!excess!of!the!
amount! allowed! by! law! for! the! loan! or! forbearance! of!
money,!goods!or!chattels.!
!
Art.! 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.!
!
Art.! 1961.! Usurious! contracts! shall! be! governed! by! the! Usury! Law!
and!other!special!laws,!so!far!as!they!are!not!inconsistent!with!this!
Code.!
A. PD(858;(PD(1685(
(
PD! 858! (1975)! ! Amending! Further! Act! Numbered! 2655,! As!
Amended,!Otherwise!Known!as!the!Usury!Law!
Sec!1!(amending!Sec!1[a!of!Act!2655)!!The!Monetary!Board!is!
hereby! authorized! to! prescribe! the! maximum! rate! or! rates! of!
interest! for! the! loan! or! renewal! thereof! or! the! forbearance! of! any!
money,!goods!or!credits,!and!to!change!such!rate!of!rates!whenever!
warranted!by!prevailing!economic!and!social!conditions.!
In! the! exercise! of! the! authority! herein! granted,! the! Monetary!
Board!may!prescribe!higher!maximum!rates!for!loans!of!low!priority,!
such! as! consumer! loans! or! renewals! thereof! as! well! as! such! loans!
made! by! pawnshops,! finance! companies! and! other! similar! credit!
institutions!although!the!rates!prescribed!for!these!institutions!need!
not! necessarily! be! uniform.! The! Monetary! Board! is! also! authorized!
to! prescribe! different! maximum! rate! or! rates! for! different! types! of!
borrowings,! including! deposits! and! deposit! substitutes,! or! loans! of!
financial!intermediaries.!
Sec! ! 2! (amending! Sec! 4[a! of! Act! 2655)! ! The! Monetary! Board!
may! eliminate,! exempt! from,! or! suspend! the! effectivity! of,! interest!
rate! ceilings! on! certain! types! of! loans! or! renewals! thereof! or!
forbearances! of! money,! goods,! or! credit,! whenever! warranted! by!
prevailing!economic!and!social!conditions.!
!
PD!1685!(1980)!!Amending!PD!1309!Authorizing!the!Central!Bank!
of! the! Philippines! to! Engage! in! Special! Borrowing! and! Lending!
Operations!
Sec! 4! ! The! Monetary! Board! shall!establish! safeguards! as! it! may!
deem! proper! to!prevent! undue! inflationary! effect! of! the!
lending!operations!of!the!Central!Bank!and!shall!issue!such!rules!and!
regulations! as! may! be! necessary! to! implement! this! Decree! and! to!
insure! a! rational! and! coordinated!! approach! to! the! international!
capital!markets.!
!!!!!!!25!
!!!!
6)
B. Central(Bank(Circular(416(
Amends! the! provisions! of! the! Manual! of! Regulation! for!

Banks!
!
1.
Subsection!X116.2!is!amended!to!reflect!(1)!the!reduction!in!the!
risk!weight!of!multilateral!development!banks!from!20%!to!0%;!
and!(2)!to!remove!loans!to!exporters!to!the!extent!guaranteed!
by! the! Guarantee! Fund! for! Small! and! Medium! Enterprises!
(GFSME)!from!the!list!of!0%!risk!weighted!assets,!as!follows:!
!
,x!x!x!!
0%,risk,weight,!!
1) Cash!on!hand;!
2) Claims! on! or! portions! of! claims! guaranteed! by! or!
collateralized!by!securities!issued!by!!
i.
Philippine!national!government!and!BSP;!and!
ii.
Central! governments! and! central! banks! of! foreign!
countries!with!the!highest!credit!quality!as!defined!in!
Subsec.!X116.3;!!
collateralized! by! securities! issued! by! multilateral!
development!banks;!
4) Loans!to!the!extent!covered!by!hold?out!on,!or!assignment!
of! deposits/deposit! substitutes! maintained! with! the!
lending!bank;!
5) Loans!or!acceptances!under!letters!of!credit!to!the!extent!
covered!by!margin!deposits;!
6) Portions!of!special!time!deposit!loans!covered!by!Industrial!
Guarantee!and!Loan!Fund!(IGLF)!guarantee;!
7) Real! estate! mortgage! loans! to! the! extent! guaranteed! by!
the!Home!Guaranty!Corporation!(HGC);!
8) Loans! to! the! extent! guaranteed! by! the! Trade! and!
Investment! Development! Corporation! of! the! Philippines!
(TIDCORP);!
9) Foreign! currency! notes! and! coins! on! hand! acceptable! as!
international!reserves;!and!
10) Gold! bullion! held! either! in! own! vaults,! or! in! anothers!
vaults! on! an! allocated! basis,! to! the! extent! it! is! offset! by!
gold!bullion!liabilities;!!
!
20%,risk,weight,!
1) Checks!and!other!cash!items;!
collateralized! by! securities! issued! by! non?central!
government!public!sector!entities!of!foreign!countries!with!
the!highest!credit!quality!as!defined!in!Subsec.!X116.3;!
3) Claims! on! or! portions! of! claims! guaranteed! by! Philippine!
incorporated! banks/quasi?banks! with! the! highest! credit!
quality!as!defined!in!Subsec.!X116.3;!
4) Claims! on! or! portions! of! claims! guaranteed! by! foreign!
incorporated! banks! with! the! highest! credit! quality! as!
defined!in!Subsec.!X116.3;!
5) Loans! to! exporters! to! the! extent! guaranteed! by! Small!
Business! Guarantee! and! Finance! Corporation! (SBGFC):!
Provided,! That! loans! to! exporters! to! the! extent!
guaranteed! by! the! Guarantee! Fund! for! Small! and!
Medium! Enterprises! (GFSME)! outstanding! as! of! the! date!
of! the! effectivity! of! the! merger! of! the! SBGFC! and! the!
GFSME!shall!continue!to!have!a!zero!percent!risk!weight:!
Provided,%further,!That!the!zero!percent!risk!weight!shall!
not! apply! to! loans! renewed! after! the! merger! of! the!
SBGFC!and!the!GFSME.!
Foreign! currency! checks! and! other! cash! items!

denominated! in! currencies! acceptable! as! international!
reserves;!and!
7) Claims! on! Philippine! incorporated! banks,! which! claims!
obtain!and!maintain!credit!ratings!of!at!least!equal!to!that!
of! the! Philippine! national! government! from! a! BSP!
recognized!international!credit!rating!agency;!
x,,x,,x.!!
!
2.!!!Subsection!X116.3!is!amended!to!expand!the!list!of!multilateral!
development! banks! assigned! a! zero! percent! risk! weight,! as!
follows:!!
x,,x,,x!!
u.,, Multilateral,development,banks.!These!refer!to!the!World!
Bank! Group! comprised! of! the! International! Bank! for!
Reconstruction! and! Development! (IBRD)! and! the!
International! Finance! Corporation! (IFC),! the! Asian!
Development! Bank! (ADB),! the! African! Development! Bank!
(AfDB),! the! European! Bank! for! Reconstruction! and!
Development! (EBRD),! the! Inter?American! Development!
Bank! (IADB),! the! European! Investment! Bank! (EIB);! the!
Nordic! Investment! Bank! (NIB);! the! Caribbean!
Development! Bank! (CDB),! the! Council! of! Europe!
Development! Bank! (CEDB)! and! such! others! as! may! be!
recognized!by!the!BSP.!x!x!x!!
!
C. Monetary( Board( Circular( #905( lifting( the(

interest(rate(ceiling(
(
MB! 905! Interest! can! now! be! charged! as! lender! and! borrower! may!
agree!upon.!It!shall!not!be!subject!to!any!ceiling!prescribed!under!or!
pursuant!to!the!Usury!Law!as!amended.!!
!
Art! 2209! If! the! obligation! consists! in! the! payment! of! a! sum! of!
money,!and!the!debtor!incurs!in!delay,!the!indemnity!for!damages,!
there! being! no! stipulation! to! the! contrary,! shall! be! the! payment! of!
the!interest!agreed!upon,!and!in!the!absence!of!stipulation,!the!legal!
interest,!which!is!six!per!cent!per!annum.!!
!
1. TWO! CONCEPTS! ON! PAYMENT! OF! INTEREST% (from!
Sir!Labitags!handout)!
!
a. Interest% for% the% use% or% loan% or% forbearance% of%

money,%goods%or!credit!!
!
No! interest! for! use! or!
forbearance!!
If! no! stipulation! re:! payment!
No!interest!shall!be!due!
of!interest:!!
unless! it! has! been!
expressly! stipulated! in!
writing!(Art!1956)!
If! there! is! express! stipulation!
Interest! shall! be! 12%! per!
(which! must! be! in! writing! to!
annum! (Sec.! 2,! Monetary!
be! valid)! for! payment! of!
Board! Circular! 905,! 10! Dec!
interests,! but! no, rate,
1982)!
mentioned!
If!there!is!stipulation!in!writing! Such! interest! shall! not! be!
and! rate, of, interest, is, agreed, subject! to! ceiling! prescribed!
upon! (including! commissions,! under! the! Usury! Law! (Sec.! 1,!
premiums,! fees! and! other! Monetary!Board!Circular!905,!
charges)!
10!Dec!1982))!
!!
!!!!!!!26!
!!!!
b. Interest% as% damages% for% breach% or% default% in%
payment% of% loan% or% forbearance% of% money,%
goods,%credit!
!
In! case! of! default,! loan! or!
forbearance! shall! earn! legal!
No! stipulation! as! to! interest,! at! rate! of! 12%! per!
interest!for!use!of!money!
annum!from!date!of!judicial!or!
extrajudicial! demand,! subject!
to!Art!1169!(delay/mora)!
Loan! +! stipulated! interest,!
shall! earn! 12%! per! annum!
from!date!of!judicial!demand!
If! rate! of! interest!
*! Interest! due! shall! earn!
stipulated,! e.g.! 24%! per! legal! interest! from! the! time! it!
annum!
is!
judicially!
demanded,!
although!the!obligation!may!be!
silent! upon! this! point! (Art!
2212)!
c. If% obligation% not% consisting% of% a% loan% or%

forbearance% of% money,% goods% or% credit% is%
breached,%e.g.%obligation%to%give,%to%do,%not%to%
do%
Interest!may!be!imposed!at!the!discretion!of!court!at!
the!rate!of!6%!per!annum.!
No! interest! adjudged! on! unliquidated! claims! or!
damages,! until! demand! can! be! established! with!
reasonable!certainty.!!
After! thus! established! with! reasonable! certainty,!
interest!of!6%!per!annum!shall!begin!to!run!from!the!
date!of!judicial!or!extrajudicial!demand.!
But! if! obligation! cannot! be! established! with!
reasonable! certainty! at! time! of! demand,! 6%! per!
annum! interest! shall! begin! to! run! only! from! date! of!
judgment!!on!amount!finally!adjudged!by!court.!!
d. When% judgment% of% court% awarding% money%

becomes% final% and% executory,% money% judgment% is%
A,%B%and%C%(above)%shall%earn%12%%per%annum%from%
finality% of% judgment% until% full% payment% % money%
judgment% shall% be% considered% as% forbearance% of%
credit%(Eastern%Shipping%Lines%vs.%CA,%1994)%
,
Cases:!
!
EASTERN!SHIPPING!LINES!v.!CA!!
Facts:! Two! fiber! drums! of! riboflavin! were! shipped! from! Japan! via!
Eastern!Shipping!Lines.!Upon!arrival!of!shipment,!it!was!discharged!
to! Metro! Port! Service,! Inc! which,! in! turn,! delivered! it! to! Allied!
Brokerage! Corporation.! Allied! Brokerage! delivered! the! shipment! to!
the!consignee.!Said!shipment!had!spillages!and!was!adulterated.!
!
Held:!The!payment!of!legal!interest!shall!be!computed!from!the!date!
of! the! decision! of! the! court! a, quo,! as! explicitly! stated! in! the!
Disposition:!The!legal!interest!to!be!paid!is!6%!on!the!amount!due!
computed!from!the!decision,!dated!03!February!1988,!of!the!court!a,
quo.!A!12%!interest,!in!lieu!of!6%,!shall!be!imposed!on!such!amount!
upon!finality!of!this!decision!until!the!payment!thereof.!!
With! regard! to! ward! of! interest! for! actual! and! compensatory!
damages,!the!rate!of!interest!imposed!is!as!follows:!
i.
Obligation!is!breached!and!it!consists!in!the!payment!of!a!
sum! of! money! ! interest! should! be! that! stipulated! in!
writing;! legal! interest! from! the! time! it! is! judicially!
demanded.! In! the! absence! of! stipulation,! rate! of! interest!
shall!be!12%!per!annum,!computed!from!default.!
ii. Obligation,! not! constituting! a! loan! or! forbearance! of!
money,!is!breached!!6%!per!annum.!Demand!must!first!
be! established! with! reasonable! certainty.! When!
established! with! reasonable! certainty,! interest! shall! begin!
to! run! from! the! time! that! the! claim! is! made! judicially! or!
extrajudicially.! When! demand! cannot! be! established! with!
certainty,!the!interest!shall!begin!to!run!from!the!date!that!
a!judgment!in!court!is!made.!
iii. Judgment!of!court!awarding!sum!of!money!becomes!final!
and!executor!!12%!per!annum!from!such!finality!until!its!
satisfaction.!
!
Case:!
!
ALMEDA!V.!CA!
Facts:! PNB! granted! to! spouses! Almeda! several! loan/credit!
accommodations!(P18M!payable!in!6!years!at!21%!per!annum).!The!
credit! agreement! between! PNB! and! the! Almedas! contained! an!
escalation! clause,! providing! PNB! reserves! the! right! to! increase! the!
interest!rate!within!limits!allowed!by!law!at!any!time!depending!on!
whatever! policy! it! may! adopt! in! the! future.! Interest! rate! reached! a!
high!of!68%.!
!
Held:! Art! 1956,! CC! expressly! says! that! no! interest! shall! be! due!
unless! it! has! been! expressly! stipulated! in! writing.! PNB! unilaterally!
altered! the! terms! of! its! conditions.! What! has! been! stipulated! in!
writing!is!that!the!Almedas!were!bound!merely!to!pay!21%,!subject!
to! possible! escalation! or! de?escalation! when! the! circumstances!
warrant!it!is!within!the!law,!and!upon!agreement.!
!
VII.
Fulfillment*of*Obligations***
See*Chapter*4:*Payment*
!
PRESUMPTIONS%IN%PAYMENT%OF%INTERESTS%AND%INSTALLMENTS%%
!
Art.! 1176.! The! receipt! of! the! principal! by! the! creditor,! without!
reservation! with! respect! to! the! interest,! shall! give! rise! to! the!
presumption!that!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!installments%have%been%paid.!
!
GENERAL!RULE:!If!the!debt!produces!interests,!payment!of!
the!principal!shall!not!be!deemed!to!have!been!made!
unless!the!interests!have!been!covered.!
!
2%KINDS%OF%PRESUMPTION:!
1. Conclusive!Presumption!!one!which!cannot!be!
contradicted,!like!the!presumption!that!everyone!is!
presumed!to!know!the!law!
2. Disputable!(or!rebuttable)!Presumption!!one!which!can!
be!contradicted!or!rebutted!by!presenting!proof!to!the!
contrary!like!the!presumption!in!Art.!1176!(see!Sec.!69[i],!
Rule!123,!Rules!of!Court)!
!
!
!!!!!!!27!
!!!!
WHEN%PRESUMPTIONS%DO%NOT%APPLY:!
1. With!reservation!as!to!interest!
Does!not!arise!where!there!is!a!reservation!as!to!
interest!or!prior!installments!
Reservation!can!be!made!in!writing!or!verbally!
2. Receipt!for!a!part!of!principal!
A!receipt!for!a!part!of!the!principal,!without!
mentioning!the!interest,!merely!implies!that!the!
creditor!waives!his!right!to!apply!the!payment!first!to!
the!interest!and!then!to!the!principal,!as!permitted!by!
Art.!1253!
3. Receipt!without!indication!of!particular!installment!paid!
The!presumption!in!par.!2!is!not!applicable!if!the!
receipt!does!not!recite!that!it!was!issued!for!a!
particular!installment!due!as!when!the!receipt!is!only!
dated!
4. Payment!of!taxes!
Taxes!payable!by!the!year!are!not!installments!of!the!
same!obligation!!separate!obligations!every!year!
5. Non[payment!proven!
Not!applicable!where!the!non?payment!of!the!prior!
obligations!has!been!proven!
Between!a!proven!fact!and!a!presumption!pro,tanto,!
the!former!stands!and!the!latter!falls!
*
VIII. Transmissibility*of*Rights*
!
Art.! 1178.! Subject! to! the! laws,! all! rights! acquired! in! virtue! of! an!
obligation!are!transmissible,!if!there!has!been!no!stipulation!to!the!
contrary.!
!
EXCEPTIONS:%%
1. Not!transmissible!by!their!very!nature!e.g.!purely!personal!
rights!
2. There! is! a! stipulation! of! the! parties! that! they! are! not!
transmissible!!
The! stipulation! against! transmission! must! not! be!

contrary!to!public!policy.!(Art!1306)!
Not!be!easily!implied!but!clearly!established!or!at!the!
very!least,!clearly!inferable!
3. Not!transmissible!by!law!
a. By! the! contract, of, partnership,, two! or! more! persons!
bind! themselves! to! contribute! money,! property! or!
industry! to! a! common! fund,! with! the! intention! of!
dividing!the!profi!ts!among!themselves.!!(Art.!1767.)!
b. By! the! contract, of, agency,, a! person! binds! himself! to!
render! some! service! or! to! do! something! in!
representation! or! on! behalf! of! another,! with! the!
consent!or!authority!of!the!latter.!(Art.!1868.)!
c. By! the! contract, of, commodatum,, one! of! the! parties!
delivers! to! another! something! not! consumable! so!
that! the! latter! may! use! the! same! for! a! certain! time!
and! return! it.! Commodatum, is! essentially! gratuitous.!
(Art.!1933.)!
!
(
!
CHAPTER(3:((DIFFERENT(
KINDS(OF(OBLIGATIONS(
I.
Pure*and*Conditional*Obligations*
A. Pure(Obligations(
!
Art.! 1179,! Par.! 1.! Every! obligation! whose! performance! DOES!
NOT% depend! upon! a! future, or, uncertain, event, OR! upon! a! past,
event,unknown!to!the!parties!is!demandable%at%once!
.!
PURE! OBLIGATIONS! contain! no! term! or! condition! whatever! upon!
which! depends! the! fulfillment! of! the! obligation! contracted! by! the!
debtor.! Immediately! demandable! and! nothing! would! exempt! that!
debtor!from!compliance!therewith.!
B. Conditional(Obligations!
!
Art.!1181.!In!conditional!obligations,!the!acquisition,of!rights,!as!
well! as! extinguishment, or, loss! of! those! already! acquired,! shall!
depend%upon%the%happening,of!the!event!which!constitutes!the!
condition.!!
One! whose! consequences! are! subject! in! one! or! another! to! the!
fulfillment!of!a!condition!
!
1. CONDITION!!
a. Concept%
every!future!and!uncertain!event!upon!which!an!obligation!
or!provision!is!made!to!depend!
characteristics!of!a!condition:!
o Future! and! uncertain! [! The! first! paragraph! of! Art.!
1179! uses! the! disjunctive! or, between! future! and!
uncertain! to! distinguish! pure! obligation! from! both!
the!conditional!obligation!and!one!with!a!period.!!
o Past! but! unknown! ! a! condition! may! refer! to! a! past!
event! unknown! to! the! parties.! If! it! refers! to! a! future!
event,! both! its! occurrence! and! the! time! of! such!
occurrence! must! be! uncertain.! A! condition! must! not!
be!impossible.!
must! be! imposed! by! the! will! of! a! party! and! NOT! a!
necessary! legal! requisite! of! the! act! e.g.! promise! to! give!
donation! propter, nuptias! if! a! person! gets! married! is! not!
conditional!(DPN!presupposes!marriage)!
past! event! cannot! be! a! condition! because! it! is! not! a!
future! and! uncertain! event,! more! properly! called! as!
basis;!although!proof!of!a!past!event!may!be!a!condition!!
TERM! ! a! future! AND! certain! event! upon! the! arrival! of!
which! the! obligation! subject! to! it! either! arises! or! is!
extinguished.!!!
%
%
%
%
b. Condition%v.%Period/Term%
!!!!!!!28!
!!!!
%
CONDITION!
Determines!existence!of!an!
obligation!
PERIOD/TERM!
Determines!demandability!of!an!
obligation!
!
Case:!
!
GAITE!V.!FONACIER!
Facts:!Fonacier!agreed!to!pay!P65,000!to!Gaite!from!the!first!letter!
of!credit!covering!the!first!shipment!of!iron!ores!and!from!the!first!
amount! derived! from! the! local! sale! of! iron! ore.! Fonacier! sought! a!
bond,! which! Gaite! put! up! provided! that! the! liability! of! the! surety!
company!would!have!effect!if!there!had!been!actual!sale!of!iron!ore!
for!an!amount!not!less!than!P65,000,!and!that!his!liability!will!expire!
after!one!year.!The!bond!expired!and!was!not!renewed,!and!none!of!
the!24,000!tons!of!iron!ore!had!been!sold,!thus!Fonacier!was!unable!
to!pay!Gaite!P65,000!upon!demand.!Fonacier!said!that!payment!was!
conditioned! on! sale! of! iron! ore! by! the! company,! which! had! not!
happened,! rendering! their! obligation! to! pay! not! yet! demandable.!
Lower!court!ruled!for!the!plaintiff.!!
!
Held:!The!obligation!to!pay!Gaite!P65,000!is!one!with!a!period,!and!
not!one!with!a!suspensive!condition.!The!term!expired.!The!words!of!
the! contract! express! no! uncertainty! in! the! existence! of! the!
obligation!to!pay.!Only!the!maturity!and!demandability!are!deferred,!
not!the!existence.!That!defendant!put!up!bonds!is!admittance!of!the!
existence!of!the!obligation!to!pay.!!
!
2. KINDS!OF!CONDITIONS!
a. As%to%effect%on%obligation%%
!
Art!1181!Conditional!obligations,!the!acquisition!of!rights,!
as! well! as! the! extinguishment! of! or! loss! of! those! already!
acquired,! shall! depend! upon! the! happening! of! the! event!
which!constitutes!the!condition.!!
!
!
When!
condition!
fulfilled!
When!
condition!
not!fulfilled!
Until!it!
takes!place!
Effect!
Also!known!
as!
SUSPENSIVE!
Obligation!arises!
RESOLUTORY!
Obligation!
extinguished!
The!juridical!or!legal!tie!
does!not!appear!
Tie!
of!
law!
is!
consolidated,! becomes!
absolute!
The! effect! flow,! but!
over!
it!
hovers!
possibility!
of!
termination! like! Sword!
of!Damocles!
Extinguishment! or! loss!
of!
those!
already!
acquired!
Condition!subsequent!
Obligation!is!a!mere!
hope!
Acquisition!of!rights!
Condition!precedent!or!
condition!antecedent!
is!
!
Case:!
!
GONZALES!V.!HEIRS!OF!THOMAS!
Facts:! Par.! 9! of! Contract! of! Lease/Purchase! entered! into! by! the!
respondents! and! petitioner! states! that! the! lessors! shall! obtain! a!
separate! Certificate! of! Title! over! the! leased! portion! of! the! lessee!
within! a! reasonable! period! of! time! which! shall! not! exceed! four!
years,! after! which! a! new! contract! shall! be! executed! by! the! parties!
which! shall! be! the! same! with! this! contract! of! lease/purchase.!
Gonzales! did! not! exercise! the! purchase! option,! remained! in!
possession! of! the! property! without! paying! purchase! price! and!
without!paying!rentals.!Respondents!filed!complaint!for!recovery!of!
property!alleging!breach!of!paragraph!9.!RTC!ruled!for!Gonzales.!CA!
ruled!for!the!Heirs,!saying!that!paragraph!9!is!a!condition!precedent!
to!the!payment!of!purchase!price.!!
!
Held:!Paragraph!9!is!a!condition!precedent.!The!clear!intent!of!it!is!
that!Heirs!must!obtain!a!separate!certificate!of!title!in!their!names!to!
show!ownership!of!the!portion!of!land!and!their!right!to!dispose!it.!
The! obligation! of! Gonzales! to! buy! the! land! cannot! be! enforced!
unless!respondents!comply!with!the!suspensive!condition!that!they!
acquire!first!a!separate!title.!RTC!decision!is!reinstated.!
!
i.
SUSPENSIVE%(condition%precedent/antecedent)%%
!
The!obligation!arises,!but!if!the!condition!does!not!happen,!
obligation!does!not!come!into!existence!
The!demandability!of!the!obligation!is!suspended!until!the!
happening!of!a!future!and!uncertain!event.!!
It! must! appear! that! the! performance! of! an! act! or! the!
happening! of! an! event! was! intended! by! the! parties! as! a!
suspensive! condition,! otherwise,! its! non?fulfillment! will!
not!prevent!the!perfection!of!a!contract.!!
!
Retroactive! effect! when! suspensive! condition! is! fulfilled! [! The!
binding! tie! of! conditional! obligation! is! produced! from! the! time! of!
perfection,!not!happening!of!condition.!!
Can! also! be! seen! as! Rights! of! creditor! and! debtor! after!
fulfillment!of!the!condition!
!
Art.! 1187.! The! effects! of! a! conditional! obligation! to! give,! once!
the!condition!has!been!fulfilled!shall!retroact%to%the%day%of%the%
constitution!of!the!obligation.!Nevertheless,!when!the!obligation!
imposes! reciprocal% 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!or!not!to!do,!the!courts%shall%determine,!in!
each! case,! the! retroactive! effect! of! condition! that! has! been!
complied!with.!
!
OBLIGATION!TO!GIVE!
OBLIGATION!TO!DO!or!NOT!TO!
DO!
Bilateral!(reciprocal!obligation)!
Courts! shall! determine! the!
1. Deemed! to! have! been! retroactive! effect! of! the!
mutually!compensated!
condition!
!
Unilateral,
2. There!
is!
usually!
no!
retroactive! effect! because! they!
are! deemed! gratuitous.! But!
debtor! shall! appropriate! fruits!
and! interests! received,! UNLESS!
there!was!a!different!intention!
!
!!!!!!!29!
!!!!
Until! the! fulfillment! of! suspensive! condition,! creditor! cannot!

enforce! the! obligation! as! his! right! then! was! merely, an,
expectancy.! However,! upon! happening,! the! debtor! can! be!
compelled!to!perform.!!
REASON!FOR!RETROACTIVITY:!Condition!is!only!accidental!and!
not! an! essential! element! of! the! obligation.! The! obligation! is!
constituted! when! the! essential! elements! which! give! rise! there!
to!concur.!!
Rule! on! retroactivity! has! no! application! in! real! contracts!

because!they!are!perfected!only!by!delivery!of!the!object!
of!the!obligation.!!
Contracts! entered! into! PENDENTE, CONDITIONE! (before!

happening!of!suspensive!condition)!!
a. CREDITOR! transfers! his! rights! prior! to! happening! of!
condition!e.g.!mortgage!over!the!property!to!be!delivered!
to! him! "! Effect:! consolidate! or! makes! effective! the! act!
performed.!
b. DEBTOR:! cannot! alienate! or! dispose! the! thing,! if! he! does!
so,!all!such!contracts!are!abrogated!and!cease!to!have!any!
effect! upon! happening! of! the! suspensive! condition.! But!
because!delivery!transfers!real!right!over!the!thing:!
rd
1. 3 !person!in!good!faith!"!retains!ownership;!debtor!
becomes!liable!to!creditor!for!damages.!
rd
2. 3 !person!is!in!bad!faith!"!he!may!be!compelled!to!
deliver!the!thing!to!the!creditor.!!
LIMITATIONS! ON! RETROACTIVITY! (as! dictated! by! justice! and!

required!by!practicability!or!convenience):!!
a. Loss! of! the! thing! by! fortuitous! event,! debtor! suffers! the!
loss!because!he!is!still!the!owner!
b. Acts, of, administration! before! fulfillment! not! affected! by!
retroactivity;! however! abuse! of! rights! in! guise! of!
administration!are!not!allowed!to!defeat!rights!of!creditor!
c. Usufructuary,rights!not!within!the!principle!of!retroactivity!
of!conditional!obligations!!
In!obligations!to!do!or!not!to!do,!there!is!no!fixed!rule!as!to!
the! retroactive! effect! of! the! fulfillment! of! a! suspensive!
condition.!This!does!not!mean!that!retroactivity!principle!is!
not! applicable.! Courts! have! the! discretion! to! determine!
the!retroactive!effect!of!the!suspensive!condition!that!has!
been!complied!with.!!
!
RIGHTS% OF% CREDITOR% AND% DEBTOR% BEFORE% FULFILLMENT% OF%
CONDITION:%%
Art.! 1188.! The! creditor,! may! before, the, fulfillment, of, the,
obligation,! bring! the! appropriate! action! 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.!!
The!debtor!may!recover!what!during!the!same!time!he!has!paid!
by!mistake!in!case!of!a!suspensive!condition.!!
!
!
No! preference! of! credit! is! granted! to! the! creditor! but! only!
allows!him!to!bring!proper!action!for!the!preservation!of!his!
rights.!!
!
PAYMENT% BEFORE% HAPPENING% OF% CONDITION:! Debtor! may! only!
recover! what! he! paid! by! mistake! before, happening! of! suspensive!
condition,! hence! if! condition! has! been! fulfilled,! he! can! no! longer!
claim!because!of!retroactivity!of!the!condition.!!
If! the! payment! was! for! a! determinate! thing:! accion,

reivindicatoria!(for!inexistent!contracts)!
Otherwise!(not!a!determinate!thing):!solutio,indebiti!
If! the! payment! was! with! knowledge! of! condition:! implied!
waiver!of!condition!and!cannot!recover!
If!the!payment!was!with!knowledge!but!the!condition!did!not!
happen:!debtor!can!recover!lest!the!creditor!will!be!unjustly!
enriched.!!
The!law!is!silent!as!to!whether!fruits!may!be!recovered!like!in!
Art!1195,!but!Tolentino!says!we!can!apply!principle!of!solutio!
indebiti,! especially! if! creditor! is! in! bad! faith! (knew! that! the!
debtor! is! paying! before! the! suspensive! condition! has!
happened).!!Sir,Labitag,says,yes,,though.!It,follows,the,same,
rules.,!
!
Case:!!
!
CORONEL!V.!CA!
Facts:!In!the!Receipt!of!Down!Payment!(P50,000)!executed!by!the!
Coronels!and!Alcaraz,!it!was!stipulated!that!the!Coronels!will!effect!
the!transfer!in!their!names!of!the!TCT!from!the!name!of!their!father.!
Upon! presentation! of! the! new! TCT,! they! will! execute! a! deed! of!
absolute! sale! with! Alcaraz.! The! title! was! transferred! to! names! of!
petitioners,! but! they! sold! the! property! to! Mabanag! and! cancelled!
the!contract!with!Alcaraz!by!depositing!the!P50,000!down!payment.!
Alcaraz!filed!complaint!for!specific!performance.!TC!and!CA!ruled!in!
favor!of!Alcaraz.!!
!!
Held:!Receipt!of!Down!Payment!was!a!conditional!contract!of!sale,!
with!the!transfer!of!title!as!the!suspensive!condition.!As!soon!as!the!
transfer! of! title! was! effected,! the! obligations! of! theparties! became!
mutually! demandable,! and! petitioners! were! committed! to! execute!
the!sale.!TC!and!CA!decisions!were!affirmed.!!
!
ii.
RESOLUTORY%(condition%subsequent)%
Extinguishes!rights!and!obligations!already!existing!!
!
Cases:!
!
PARKS!V.!PROVINCE!OF!TARLAC!
Facts:!Hill!donated!a!parcel!of!land!perpetually!to!the!municipality!of!
Tarlac!with!a!condition!that!a!public!school!and!public!park!shall!be!
erected! on! it! within! 6! months.! The! donation! was! accepted.! The!
donors! sold! the! land! to! George! Parks,! while! the! Municipality!
transferred! the! land! to! the! province! of! Tarlac.! Parks! brought! the!
present!action.!!
!
Held:! The! condition! could! not! be! complied! with! except! after! giving!
effect! to! the! donation.! Thus! there! is! a! resolutory! condition,! non?
compliance!of!which!will!revoke!the!donation.!However,!even!if!non?
compliance! is! sufficient! cause! for! revocation! of! the! donation,! the!
period!for!bringing!action!for!revocation!has!already!prescribed.!!!
!
CENTRAL!PHILIPPINE!UNIVERSITY!V.!CA!
Facts:! In! 1939,! Don! Ramon! Lopez! donated! a! land! in! favor! of! CPU!
with!the!condition,!among!others,!that!the!land!shall!be!utilized!for!
the!establishment!of!a!medical!college.!In!1989,!heirs!of!Lopez!filed!
action! for! annulment! of! donation! saying! that! the! conditions! were!
not!complied!with.!!
!
Held:! Donation! had! to! be! valid! first! before! construction! of! medical!
college.! Thus! the! condition! is! resolutory,! non?compliance! of! which!
will! result! to! revocation! of! donation.! The! period! of! time! for!
establishment! of! medical! college! could! not! be! quantified.! Court!
declared!donation!already!ineffective!and!revoked.!!
!!!!!!!30!
!!!!
b. As%to%cause%or%origin%%
!
Art.!1182.!When!the!fulfillment!of!the!condition!depends!upon!
the! sole, will, of, the, debtor! the! conditional! obligation! shall! be!
rd
VOID.!If!it!depends!upon!chance!or!upon!the!will,of,a,3 ,person,!
the! obligation! shall! TAKE! EFFECT! in! conformity! with! the!
provisions!of!this!Code.!
!
i.
%POTESTATIVE% ! One! which! depends! upon! the! will! of!

one!of!the!contracting!parties;!in!the!power!of!one!of!the!
parties!to!realize!or!prevent;!suspensive!in!nature.!!
!
KINDS%OF%POTESTATIVE%CONDITION:%
1. Simple! potestative! ! presupposes! not! only! a!
manifestation! of! will! but! also! the! realization! of! an!
external!act!!
On! the! part! of! the! debtor:! Does! not! prevent!

formation! of! valid! obligation! because! in! part!
depends! on! contingencies! over! which! he! has!
no!control!
2. Purely! potestative! ! depends! solely! and! exclusively!
upon!the!will!!
Destroys!the!efficacy!of!the!legal!tie!
Effect! if! fulfillment! of! condition! depends!

solely! on! the! will! of! the! debtor! "! VOID!
because! it! is! a! direct! contravention! of! Art!
1308!on!mutuality!of!contracts!and!to!do!so!is!
to!sanction!illusory!conditions!!!
If! depends! exclusively! on! the! will! of! creditor!

"!VALID!!
Applicable! only! to! SUSPENSIVE! and! NOT! to!

RESOLUTORY!!
Hence,! resolutory! potestative! (facultative)!

conditions!are!perfectly!valid,!even!if!made!to!
depend! upon! the! obligor/debtor,! since! the!
obligation!is!already!in!force!
!
Debtors! promise! to! pay! when! he! can! is! not! a! conditional!
obligation.!"!Obligation!with!a!period.!!
Art.! 1180.! When! the! debtor! binds! himself! to! pay! WHEN! his!
means!permit!him!to!do!so,!the!obligation!shall!be!deemed!to!be!
one!with!a!period!subject!to!the!conditions!of!Art!1197!(period!
was!intended).!!
!
# Creditor!will!have!to!ask!the!court!to!fix!a!period!because!
an! immediate! action! to! enforce! the! obligation! would! be!
premature.!!
# What! depends! upon! the! debtors! will! is! not! whether! he!
should! pay! or! not,! for! indeed! he! binds! himself! to! pay.!
What!is!left!only!to!his!will!is!the!duration!of!the!period.!!
!
Case:!!
!
LIM!V.!CA!
Facts:! Lim! and! Dy! entered! into! a! compromise! agreement! whereby!
the!term!of!lease!shall!be!renewed!every!3!years!for!as!long!as!the!
Dy! needed! the! premises! and! can! meet! and! pay! the! increases.! In!
1985,! Lim! advised! Dy! that! he! would! no! longer! renew! the! contract.!
Dy! informed! Lim! of! his! intention! to! renew! the! contract! but! Lim!
disagreed.!Lim!filed!action!for!ejectment.!!
!
Held:! There! is! a! purely! potestative! condition! because! it! leaves! the!
effectivity! and! enjoyment! of! the! leasehold! rights! to! the! sole! and!
exclusive! will! of! the! lessee.! Renewal! of! lease! depends! on! such!
condition.! However,! continuance! of! a! contract! of! lease! cannot! be!
made!to!depend!upon!the!choice!of!the!lessee.!!Dy!was!ordered!to!
vacate!and!return!the!possession!of!the!leased!premises!and!to!pay!
the!monthly!rentals!due.!!
!
ii. CASUAL!!depends!exclusively!upon!chance,!will!of!a!
third!person!or!other!factors,!and!not!upon!the!will!
of!the!contracting!parties!
!
Case:!!
!
NATELCO!v.!CA!
Facts:! NATELCO! entered! into! a! contract! with! CASURECO.! NATELCO!
will! use! CASURECOs! light! posts! and! shall! install! 10! telephone!
connections!for!the!use!of!CASURECO.!Period!of!contract!shall!be!as!
long! as! NATELCO! has! need! of! the! light! posts,! it! being! understood!
that!the!contract!shall!terminate!when!for!any!reason!CASURECO!is!
forced!to!stop!and!it!becomes!necessary!to!remove!the!light!posts.!
In! 1989,! Casureco! filed! for! reformation! of! contract! with! damages!
because! the! contract! is! one?sided! for! NATELCO.! Also,! the! cables!
strung! by! them! on! electrical! posts! have! become! heavier! as!
subscribers!increased.!RTC!and!CA!ruled!in!favor!of!CASURECO.!!
!
Held:! Rebus, sic, stantibus! (doctrine! of! unforeseen! events)! applies.!
Parties! stipulate! in! the! light! of! certain! prevailing! conditions,! and!
once! these! conditions! cease! to! exist,! the! contract! also! ceases! to!
exist.! Art.! 1267! (When! 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.)!also!applies.!!!
!
iii.
MIXED% ! depends! upon! the! will! of! one! of! the!
contracting! parties! and! other! circumstances,! including!
the!will!of!third!persons!!
!
Cases:!
!
OSMENA!V.!RAMA!
Facts:! Rama! acknowledged! her! indebtedness! to! Osmena! by! an!
indorsement! which! said! that! if! her! house! in! Pagina! is! sold,! she! will!
pay!her!indebtedness!to!Osmena.!
!
Held:!The!condition!imposed!by!debtor!depends!upon!her!exclusive!
will!and!thus!void.!!
!
HERMOSA!V.!LONGORA!
Facts:! Longora! had! claims! against! the! estate! of! Hermosa.! He! said!
that! the! estate! asked! for! credit! advances! to! Longora! on! condition!
that! their! payment! should! be! made! as! soon! as! funds! derived! from!
the! sale! of! a! property! in! Spain! are! received.! CA! said! that! the!
payment! did! not! become! due! until! the! administratrix! received! the!
payment! from! the! buyer! of! the! property.! The! property! was! sold! in!
November!1947!and!the!claim!was!filed!on!Oct.!1948.!
!
Held:! The! condition! is! not! potestative! since! it! also! depends! upon!
circumstances! beyond! the! debtors! control.! It! is! a! mixed! one.! The!
will!to!sell!was!present,!but!there!are!other!factors!like!buyers!that!
are!able!and!willing!to!purchase!the!property.!
!
!
!!!!!!!31!
!!!!
TAYLOR!V.!UY!TIENG!PIAO!
Facts:!A!contract!was!entered!into!whereby!it!was!understood!that!
should!the!machinery!to!be!installed!fail!for!any!reason!to!arrive!in!
Manila!within!6!months,!the!contract!may!be!cancelled.!Machinery!
did! not! arrive! within! 6! months.! Evidence! showed! also! that! the!
defendants!either!cancelled!the!order!or!were!unable!to!supply!the!
capital!needed.!Taylor!instituted!action!to!recover!damages.!!
!
Held:!There!is!no!breach!of!contract.!The!language!in!the!stipulation!
is!broad!enough!to!cover!the!circumstances!of!the!case.!SC!held!that!
the!word!any!should!be!construed!in!the!ordinary!sense.!There!is!
nothing!in!Art.!1256!which!warrants!a!warping!of!for!any!reason!to!
mean! for! any! reason! not! having! its! origin! in! the! will! or! acts! of!
defendants.! Also,! a! condition! once! facultative! and! resolutory! may!
be!valid!even!though!the!condition!is!made!to!dependent!on!the!will!
of! the! obligor.! Plaintiffs! claim! for! damages! for! the! period!
subsequent! to! the! expiration! of! the! first! six! months! was! rejected,!
but!he!is!entitled!to!P360!house!rent!yet!unpaid.!!
!
SMITH!BELL!V.!SOTELO!MATTI!
Facts:! Petitioners! obliged! itself! to! sell! to! respondents! steel! tanks,!
expellers! and! electric! motors! from! abroad.! Deliveries! were! to! be!
made! within! specified! periods.! The! orders! did! not! arrive! within!
these!periods.!Petitioners!notified!respondents!of!the!arrival!of!the!
orders!but!respondents!refused!to!accept.!!
!
Held:! There! was! no! delay! or! liability.! The! contract! was! executed!
during! World! War! II! when! there! were! rigid! restrictions! on! exports!
from! US.! When! delivery! is! subject! to! the! fulfillment! of! a! condition!
rd
dependent! upon! the! will! of! 3 ! persons! who! could! in! no! way! be!
compelled! to! fulfill! the! condition,! the! obligor! is! deemed! to! have!
sufficiently!performed!his!part.!!
!!
ROMERO!V.!CA!
Facts:! Romero! executed! Deed! of! Conditional! Sale! with! respondent.!
Among!the!conditions!was!that!the!balance!will!be!paid!45!days!after!
the!removal!of!squatters!from!the!property.!If!respondent!is!unable!
to! remove! squatters! 60! days! after! the! signing! of! contract,! down!
payment! will! be! returned.! Respondent! was! not! able! to! evict!
squatters,! and! sought! to! return! the! down! payment,! but! petitioner!
refused,! offering! to! take! it! upon! himself! to! have! squatters! evicted.!
RTC!dismissed!petition!for!rescission.!CA!reversed.!!
!
Held:! Respondent! could! not! validly! rescind! the! contract.! It! was! a!
contact!of!sale!which,!once!perfected,!would!have!the!seller!transfer!
the! ownership! to! the! buyer! for! an! agreed! price.! Both! parties! are!
bound! to! fulfill! what! was! stipulated! in! the! contract.! Since!
respondent! failed! to! evict! squatters,! the! right! to! refuse! to! proceed!
with! the! agreement! or! waive! that! condition! belonged! to! the!
petitioner.!
!
c. As%to%possibility%
i. Possible%Condition%
ii. Impossible%Condition%
!
Art.! 1183.! IMPOSSIBLE! CONDITIONS,! those! contrary! to! good!
customs!or!public!policy!and!those!prohibited!by!law!shall!annul%
the% obligation! which! depends! upon! them.! If! the! obligation! is!
DIVISIBLE,! that! part! thereof! which! is! not, affected, by, the,
impossible,or,unlawful,condition%shall!be%valid.!!
!
The!condition!not!to!do!an!impossible!thing!shall!be!considered!
as!not,having,been,agreed,upon.!!
TWO%KINDS%OF%IMPOSSIBILITY:,
Physical!impossibility!!cannot!exist!or!cannot!be!done!in!
the!nature!of!things.!
Legal! impossibility! [! contrary! to! law,! morals,! good!

customs,! and! public! policy! AND! restricts! certain! rights!
which! are! necessary! for! the! free! development! of! human!
activity!i.e.!!political!rights,!family!rights!and!constitutional!
rights!and!liberties!e.g.!condition!not!to!change!domicile,!
religion!or!contract!marriage.!
!
ILLICIT%CHARACTER!!determined!not!by!the!facts!but!by!the!effect!
upon!one!of!the!parties.!Thus,!the!criterion!is!subjective.!Not!the!act!
but!the!intention!and!its!effect!that!determine!the!illicit!character!of!
the!condition.!!
Why?! Impossibility! of! fulfillment! implies! he! does, not,

intend,to,be,bound,!thus!the!nullity!of!the!promise!
!
EFFECT%OF%IMPOSSIBLE%CONDITIONS:%
Impossible!conditions!annul!the!obligation!which!depends!
upon! them.! Both! obligation! and! condition! are! void.! The!
reason! is! that! the! obligor! knows! his! obligation! cannot! be!
fulfilled.!He!has!no!intention!to!comply!with!his!obligation.!!
If!the!condition!is!negative,!that!is,!not!to!do!an!impossible!
thing,!it!is!disregarded!and!the!obligation!is!rendered!pure!
and!valid.!The!condition!is!always!fulfilled!when!it!is!not!to!
do! an! impossible! thing! so! that! it! is! the! same! as! if! there!
were!not!condition.!The!negative!condition!may!be!not!to!
give!an!impossible!thing.!!
Applies! only! to! contracts! and! not! to! simple! and!

testamentary!donations!and!to!testamentary!dispositions!
Impossibility! of! condition! must! exist! at! the! time! of! the!
creation! of! the! obligation! (not! existence! of! a! valid!
obligation! subsequently! rendered! impossible! under! Art!
1266!on!subsequent!impossibility)!
DIVISIBLE!OBLIGATION:!part!not!affected!by!the!impossible!
condition!shall!remain!valid!
!
GENERAL! RULE:! Impossible! condition! annuls! the! obligation!
dependent!upon!them!
EXCEPTIONS:!pre?existing!obligation!
Divisible!obligation!
Simple!or!remuneratory!obligation!!
Testamentary!disposition!
Negative!impossible!things!
!
Case:!!
!
ROMAN!CATHOLIC!ARCHDIOCESE!OF!MANILA!V.!CA!
Facts:!In!1930,!!a!land!was!donated!to!RCAM!with!a!condition!that!a!
done!shall!not!dispose/sell!such!property!within!100!years!from!the!
execution!of!the!Deed!of!Donation,!otherwise!such!donation!shall!be!
void.!In!1980,!the!Bishop!of!Imus!sold!the!property.!The!heirs!of!the!
donors! filed! complaint! for! nullification! of! deed! of! donation,! which!
was!denied!by!the!lower!court.!CA!reversed.!!
!
Held:! The! condition! imposes! undue! restriction! on! the! rights! of! the!
owners! and! is! contrary! to! public! policy.! Donors! may! impose!
conditions! but! such! must! not! be! contrary! to! law,! morals,! good!
customs,!etc.!The!condition!here!is!unreasonable.!The!judgemen!of!
CA!was!set!aside.!!
!
!
!
!!!!!!!32!
!!!!
d. As%to%mode%
i. POSITIVE%(suspensive)%
Art.! 1184.! The! condition! that! some! event! happen! at! a!
determinate! time! shall! EXTINGUISH! the! obligation! as! soon! as!
the! time, expires! OR! if! it! has! become, indubitable, that, the, event,
will,not,take,place.!!
!
!
!
3. LOSS,! DETERIORATION! OR! IMPROVEMENT! PENDING!

HAPPENING!OF!THE!CONDITION!
!
a. Meaning% of% loss,% deterioration% or%
improvement% pending% the% happening% of% the%
condition%
Art.! 1189.! When! the! conditions! have! been! imposed! with! the!
intention! of! SUSPENDING! the! efficacy! of! an! obligation! to! give,!
the! following! rules! shall! be! observed! in! case! of! the!
improvement,! loss! or! deterioration! of! the! thing! during! the!
pendency!of!the!condition:!!
1. Loss!without!fault!of!debtor:!obligation!extinguished!!
2. Loss! through! the! fault! of! debtor:! obliged! to! pay!
damages.!A!thing!is!lost!when!it:!!
1. Perishes!
2. Goes!out!the!commerce!of!man!
3. Disappears!in!such!a!way!that!its!existence!is!
unknown!or!it!cannot!be!recovered!
3. Deteriorates! without! fault! of! the! debtor:! impairment!
to!be!borne!by!the!creditor!
4. Deteriorates!through!the!fault!of!debtor:!creditor!may!
choose!between!the!rescission!of!the!obligation!and!its!
fulfillment!with!indemnity!for!damages!in!either!case!
5. Improved!by!its!nature,!time:!inure!to!the!creditor!
6. Improved!at!the!expense!of!the!debtor:!no!other!right!
than!that!granted!to!the!usufructuary!
If! there! is! no! period! fixed,! the! rule! in! Par! 2! of! Art! 1185! is!
applicable.!Intention!of!the!parties!is!controlling,!and!the!time!
shall! be! that! which! the! parties! may! have! probably!
contemplated,!taking!into!account!the!nature!of!the!obligation.!
%
ii. NEGATIVE%(suspensive)%
!
Art.! 1189.! When! the! conditions! have! been! imposed! with! the!
intention!of!SUSPENDING!the!efficacy!of!an!obligation!to!give,!the!
following!rules!shall!be!observed!in!case!of!the!improvement,!loss!
or!deterioration!of!the!thing!during!the!pendency!of!the!condition:!!
1. Loss!without!fault!of!debtor:!obligation!extinguished!!
2. Loss!through!the!fault!of!debtor:!obliged!to!pay!damages.!
A!thing!is!lost!when!it:!!
a. Perishes!
b. Goes!out!the!commerce!of!man!
c. Disappears! in! such! a! way! that! its! existence! is!
unknown!or!it!cannot!be!recovered!
3. Deteriorates! without! fault! of! the! debtor:! impairment! to!
be!borne!by!the!creditor!
4. Deteriorates! through! the! fault! of! debtor:! creditor! may!
choose! between! the! rescission! of! the! obligation! and! its!
fulfillment!with!indemnity!for!damages!in!either!case!
5. Improved!by!its!nature,!time:!inure!to!the!creditor!
6. Improved! at! the! expense! of! the! debtor:! no! other! right!
than!that!granted!to!the!usufructuary!
!
!
Art.! 1185.! The! conditions! 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! time! as! may! have! probably! been! contemplated,! bearing! in!
mind!the!nature!of!obligation.!!
!
!
%
!
!
!
!
!
!
!
!
!
!
ART.%1189%APPLIES%ONLY%IF:!
1. The!obligation!is!a!real!obligation;!
2. The!object!is!a!specific!or!determinate!thing;!
3. The!obligation!is!subject!to!a!suspensive!condition;!
4. The!condition!is!fulfilled;!and!
5. There! is! loss,! deterioration,! or! improvement! of! the! thing!
during!the!pendency!of!the!happening!on!one!condition.!!
!
KINDS%OF%LOSS:,
6. PHYSICAL!LOSS!!when!a!thing!perishes.!
7. LEGAL! LOSS! ! when! the! thing! goes! out! of! commerce,! or!
when!a!thing!heretofore!legal!becomes!illegal!
8. CIVIL!LOSS!!when!a!thing!disappears!in!such!a!way!that!its!
existence! is! unknown,! or! even! if! known,! it! cannot! be!
recovered,!whether!as!a!matter!of!fact!or!of!law.!!
!
!
Art.! 1190.! When! the! conditions! have! for! their! purpose! the!
EXTINGUISHMENT! of! an! obligation! to! give,! the! parties,! upon!
the!fulfillment!of!the!said!conditions,!shall!return!to!each!other!
what!they!have!received.!!
!
In! case! of! the! loss,! deterioration,! or! improvement! of! the!
thing,! the! provisions! which! with! respect! to! the! debtor,! are! laid!
down!in!the!preceding!article!shall!be!applied!to!the!party!who!
is!bound!to!return.!!
!
nd
As! for! obligations! to! do! or! not! to! do,! the! provisions! of! 2 !
par! of! Art! 1187! (courts, shall, determine)! shall! be! observed! as!
regards!the!effect!of!the!extinguishment!of!obligation.!!
!
LOSS,%DETERIORATION,%AND%IMPROVEMENT%DISTINGUISHED:%
!!!!!!!33!
!!!!
LOSS!
DETERIORATION!
IMPROVEMENT!
1. Perishes!
2. Goes!out!of!the!commerce!of!man!
3. Disappears!in!such!a!way!that!its!existence!
is!unknown!or!it!cannot!be!recovered!
Any! reduction! or! impairment! in! the!
substance!or!value!of!a!thing!which!does!not!
amount!to!a!loss.!The!thing!still!exists!at!the!
time! the! condition! is! fulfilled,! but! it! is! no!
longer! intact,! OR! is! less! than! what! it! was!
when!the!obligation!was!constituted.!!
Anything! added! to,! incorporated! in,! or!
attached!to!the!thing!that!is!due.!
!
b. Effect%of%loss%or%deterioration%
%
!
Without!
debtors!
fault!
With!
debtors!
fault!
LOSS!
Extinguished,!unless!
there!is!a!stipulation!to!
the!contrary.!Mode!of!
extinguishment!Art!
1262!Par!1!
Liable!to!damages!upon!
fulfillment!of!condition!!
DETERIORATION!
Not!liable!for!damage,!
creditor!must!accept!the!
thing!in!impaired!
condition!!
May!demand!the!thing!
OR!ask!for!rescission,!in!
either!case,!creditor!may!
recover!damages!
!
TAYLOR!V.!UY!TIENG!PIAO!
Facts:!A!contract!was!entered!into!whereby!it!was!understood!that!
should!the!machinery!to!be!installed!fail!for!any!reason!to!arrive!in!
Manila!within!6!months,!the!contract!may!be!cancelled.!Machinery!
did! not! arrive! within! 6! months.! Evidence! showed! also! that! the!
defendants!either!cancelled!the!order!or!were!unable!to!supply!the!
capital!needed.!Taylor!instituted!action!to!recover!damages.!!
!
Held:!There!is!no!breach!of!contract.!The!language!in!the!stipulation!
is!broad!enough!to!cover!the!circumstances!of!the!case.!SC!held!that!
the!word!any!should!be!construed!in!the!ordinary!sense.!There!is!
nothing!in!Art.!1256!which!warrants!a!warping!of!for!any!reason!to!
mean! for! any! reason! not! having! its! origin! in! the! will! or! acts! of!
defendants.!Art!1119!of!the!Civil!Code!supposes!a!case!where!the!
obligor! intentionally! impedes! the! fulfilment! of! a! condition! which!
would!entitle!the!obligee!to!exact!performance!from!the!obligor.!An!
assumption!underlying!the!provision!is!that!the!obligor!prevents!the!
oblige! from! performing! some! act! which! the! oblige! is! entitled! to!
perform!as!a!condition!precedent!to!the!exaction!of!what!Is!due!him.%
This! article! can! have! no! application! to! an! external! contingency!
which,! like! in! this! case! is! lawfully! within! the! control! of! the!
obligor.Plaintiffs! claim! for! damages! for! the! period! subsequent! to!
the!expiration!of!the!first!six!months!was!rejected,!but!he!is!entitled!
to!P360!house!rent!yet!unpaid.!!
%
c. Effect%of%improvement%
i. By%nature%
ii. At%the%debtors%expense%
%
4. EFFECT! OF! PREVENTION! OF! THE! FULFILLMENT! OF! THE!
CONDITION!BY!THE!OBLIGOR!!
!
Art.! 1186.! The! condition! shall! be! deemed% fulfilled! when! the!
obligor!voluntarily!prevents!fulfillment.!!
,
CONSTRUCTIVE% FULFILLMENT! ! a! condition! which! although! not!
exclusively! within! the! will! of! the! debtor,! may! in! some! way! be!
prevented!by!the!debtor!from!happening.!!
!
REQUISITES:%
a. Intent! of! the! obligor! to! prevent! the! fulfillment! of! the!
condition!"!ESSENTIAL!!
b. Actual!prevention!of!the!compliance!!
The! law! does! not! require! that! the! obligor! acts! with!
malice! or! fraud! as! long! as! his! purpose! is! to! prevent!
the!fulfillment!of!the!condition.!!
Why?! Party! to! a! contract! may! not! be! excused! from!

performing!his!promise!by!the!non?occurrence!of!the!
event!which!he!himself!prevented.!!
Also! applicable! to! provocation, of, resolutory,

conditions!
!
!
!
!
!
!
!
CASE:!!
c. Reciprocal(Obligations(
!
Art.! 1192.! In! case! both! parties! have! committed! a! breach! of! the!
obligation,! the! liability! of! the! first! infractor! shall! be! equitably!
tempered! by! the! courts.! If! it! cannot! be! determined! which! of! the!
parties! first! violated! the! contract,! the! same! shall! be! deemed!
extinguished,!and!each!shall!bear!his!own!damages.!
!
1. CONCEPT!!
%
RECIPROCITY! arises! from! identity! of! cause! and! necessarily,! two!
obligations!are!created!at!the!same!time.!Each!party!is!a!creditor!and!
debtor!of!the!other!and!they!are!to!perform!simultaneously.!!
Recognized! implied! or! tacit! resolutory! condition!

imposed! exclusively! by! law,! even! if! there! is! no!
corresponding! agreement! between! parties! "! its! also!
called!RESOLUTION!
Power!to!rescind!is!given!to!the!injured!party!
!
2. ALTERNATIVE! REMEDIES! OF! INJURED! PARTY! IN! CASE! OF!
BREACH!
!
Alternative! remedies! of! injured! party! in! case! of! breach! "! injured!
party! should! choose! only! one,! cannot! ask! for! partial! rescission! and!
partial!fulfillment!
!
a. Action%for%Fulfillment!
i. When%fulfillment%no%longer%possible;%effect!
!
When! fulfillment! no! longer! possible,! rescission!

takes!place!
!
!
!
!
b. %Action%for%Rescission%
!!!!!!!34!
!!!!
i.
Requisites%for%rescission%%
1.
One!of!the!creditors!failed!to!comply!with!what!
is!incumbent!upon!him!
2. Obligor! who! performed! chose! rescission! over!
fulfillment!or!performance!is!impossible!
3. The! breach! is! substantial! so! as! to! defeat! the!
object!of!the!parties!in!making!the!agreement!!
it!will!not!be!granted!in!slight!or!casual!breach!
!
ii. How% made! ! Rescission! requires! judicial! approval!
to!produce!legal!effect!
EXCEPTION:! object! is! not! yet! delivered! AND!

obligation!has!not!yet!been!performed!!
If! the! obligation! has! not! yet! been! performed:!

extrajudicial! declaration! of! party! willing! to!
perform!would!suffice;!can!refuse!to!perform!if!
the!other!party!is!not!yet!ready!to!comply!
If! the! injured! party! has! already! performed:!

cannot!extrajudicially!rescind!IF!the!other!party!
opposes! the! rescission! (otherwise,! rescission!
produces! legal! effect).! In! the! case! the! other!
party! impugns! rescission,! the! court! comes! in!
either!to:!!
o Declare!the!rescission!as!properly!made!
o Give! a! period! to! the! debtor! in! which! to!
perform!
!
EFFECTS%OF%RESCISSION:%
1. Extinguishes! obligatory! relation! as! if! it! had! never! been!
created!"!Equivalent!to!invalidate!the!juridical!tie,!leaving!
things!in!their!status!before!the!celebration!of!the!contract!!
2. Mutual!restitution!
!
RESCISSION% ART% 1380% DISTINGUISHED% FROM% RESOLUTION% ART%
1191:%
!
!
Art!1191!Resolution!
Art!1380!Rescission!
Similarities! Presuppose! contracts! validly! entered! into! and!
existing!!
Rescission!v.!Annulment:!the!latter!there!is!
a! defect! which! vitiates/invalidates! the!
contract!!
Mutual!restitution!when!declared!proper!
Who!may!
Only! by! a! party! to! Party! to! the! contract!
demand!
the!contract!
suffering!lesion!
Third! parties! prejudiced! by!
the!contract!
Grounds!
Non?performance!
Various! reasons! of! equity!
(implied!
tacit! provided! by! the! grounds,!
condition!
in! mainly! economic! injury! or!
reciprocal!obligation)!! lesions!
Scope!of!
Court! determines! Sufficiency! of! reason! does!
judicial!
sufficiency! of! reason! not! affect! right! to! ask! for!
control!
to! justify! extension! rescission!(cannot!be!refused!
of! time! to! perform! if! all! the! requisites! are!
obligation! (whether! satisfied)!
slight! or! casual!
breach)!!
Kind!of!
Only!to!reciprocal!
Unilateral,!reciprocal!!
obligation!
Even! when! contract! is! fully!
applicable!to!
fulfilled!
Character!
Principal!Remedy!
Secondary/Subsidiary!
Cases:!
!
SONG!FO!V.!HAWAIIAN!PHILIPPINES!
Facts:! Song! Fo! filed! causes! of! action! against! Hawaiian! for! alleged!
breach!of!contract.!Hawaiian!set!up!a!defense!that!since!plaintiff!had!
defaulted! in! the! payment! for! the! molasses! delivered! to! it! by! the!
defendant,! the! latter! was! compelled! to! cancel! and! rescind! said!
contract.!
!
Held:!Hawaiian!cannot!rescind!the!contract!of!sale.!The!general!rule!
is!that!rescission!will!not!be!permitted!for!a!slight!or!casual!breach!of!
the! contract,! but! only! for! such! breaches! as! are! so! substantial! and!
fundamental! as! to! defeat! the! object! of! the! parties! in! making! the!
agreement.!!!
!
UP!V.!DE!LOS!ANGELES!
Facts:! UP! rescinded! the! contract! regarding! its! logging! agreement!
with!ALUMCO!because!of!the!latters!failure!to!pay!its!debts.!!
!
Held:! The! party! who! deems! the! contract! violated! may! consider! it!
resolved! or! rescinded,! and! act! accordingly! without! previous! court!
action,!but!it!proceeds!at!its!own!risk.!It!is!only!the!final!judgment!of!
court! that! will! finally! settle! whether! action! taken! was! or! was! not!
correct!in!law.!
II.
Obligation*with*a*Period**
Art.! 1193.! Obligations! 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!arrival!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.!
!
Art.!1180.!When!the!debtor!binds!himself!to!pay!WHEN!his!means!
permit!him!to!do!so,!the!obligation!shall!be!deemed%to%be%one%with%
a%period,!subject!to!the!provisions!of!Art!1197.!!
A. Period(or(Term(
1. CONCEPT!!
!
A! space! of! time! which,! exerting! an! influence! on! obligations! as! a!
consequence! of! a! juridical! act,! suspends, their, demandability! or!
determines,their,extinguishment.!!
%
REQUISITES%OF%PERIOD:%
Future!
Certain!
Possible!
!
!
!
2. PERIOD/TERM!VS.!CONDITION!!
!!!!!!!35!
!!!!
!
A!period!is!a!future!AND!certain!event!upon!the!arrival!of!
which!the!obligation!(or!right)!subject!to!it!either!arises!or!
is! terminated.! It! is! a! day! certain! which! must! necessarily!
come,!although!it!may!not!be!known!when,!like!the!death!
of!a!person.!!
!
AS!TO!
TERM/PERIOD!
CONDITION!
Fulfillment!
Event! must! necessarily! Event!is!uncertain!!
come,! whether! known!
before! hand! OR! at! a!
time! which! cannot! be!
predetermined!
Influence!on! No! effect! on! the! Gives! rise! to! an!
the!obligation! existence,! but! only! on! obligation!
or!
their! demandability! or! extinguishes!
one!
performance,! HENCE,! already!existing!!
does, not! carry! with! it!
any!retroactive!effect!
Time!
Always!to!the!future!
May! refer! to! past!
event!not!know!to!the!
parties!
!
!
Will!of!the!
If! dependent! on! will! of! If!dependent!on!will!of!
debtor!
debtor,!
merely! debtor,!ANNUL!
empowers! court! to! fix!
such!period!
Retroactivity! Unless! there! is! an! Happening!
of!
of!effects!
agreement! to! the! condition!
has!
contrary,! the! arrival! retroactive!effect.!!
does! not! have! any!
retroactive!effect.!
!
b. RESOLUTORY%(In%diem)!!
!
Art! .1193,! Par.! 2.! Obligations! with! a! resolutory! period, take!

effect!at!once!but%terminate!upon!arrival!of!the!day!certain.!
2. AS!TO!EXPRESSION!
,
a. EXPRESS%!when!specifically!stated!
,
b. IMPLIED%!when!parties!intended!a!period!!
!
E.g.! Art! 1197! Par! 3! (period! has! been! contemplated! by! the!
parties),! Art! 1180! (promise! to! pay! when! able),! or! when! a!
person! undertakes! to! do! some! work! which! can! be! done! only!
during!a!particular!season!!
3.
B. Kinds(of(Period/Term(
!
1. AS!TO!EFFECT!
%
a. SUSPENSIVE%(Ex%die)!
Art.!1193,!Par.!1.!Obligations!whose!fulfillment,a,day,certain,has,
been,fixed,!shall!be!demandable%only!when!that!day!comes.!!
!
!
Must! lapse! before! the! performance! of! the! obligation! can!
be!demanded!
Think:!incubating!period!
The!obligor!has!the!burden!of!proving!any!extension!of!the!
period!by!satisfactory!evidence!
SUSPENSION!OF!PERIOD:!If!a!fortuitous!event!supervenes,!
the!obligor!is!merely!relieved!of!the!obligation!to!fulfill!at!
that! time,! and! does! not! stop! the! running! of! the! period!
because!in!effect!that!would!be!an!extension!of!the!term!
of! the! contract.! Force! majeure! cannot! be! deducted! from!
the!period!stipulated.!
MORATORIUM! LAWS:! postponement! of! the! fulfillment! of!
an! obligation,! an! extension! of! the! period! for! the!
performance! of! the! obligation,! decreed! by! the! statute.!
However,! to! meet! constitutional! requirements:! The!
suspension!should!be!definite!and!reasonable.!!
Period!after!which!the!performance!must!terminate!
Think:!expiry!date!
4.
!
AS!TO!DEFINITENESS!
,
a. DEFINITE%!refers!to!a!fixed!known!date!or!time!
,
b. INDEFINITE% ! event! which! will! necessarily! happen! but!
the!date!of!its!happening!is!unknown!
The! uncertainty! of! the! date! of! occurrence! in!

indeterminate! period! DOES! NOT! convert! it! into! a!
condition,! so! long! as! there! is! no, uncertainty, as,
whether,it,will,happen,or,not.!
E.g.! death! of! a! person,! movable! religious! holidays!

(Holy! Week),! events! in! civil! or! political! life! (age! of!
majority!or!becoming!a!qualified!voter)!
Debtor! promises! to! pay! when! able! or! little! by!

little!or!as!soon!as!possible!
Two!steps!in!dealing!with!an!indefinite!period!(from!
Sir!Labitags!lecture)!
1. Make!the!indefinite!period!definite!by!asking!for!
payment!or!making!an!extrajudicial!demand!
2. Make!judicial!demand,!then!ask!the!courts!to!fix!!
the!period!
No!need!to!file!to!actions,!just!ask!for!two!prayers!to!
avoid! multiplicity! of! suits:! (1)! fix! period! and! (2)!
require! the! debtor! to! comply! on! the! fixed! period!
(action!for!specific!performance)!
The! 2?in?1! action! discussed! by! Sir! Labitag! is! actually!

contradictory!with!Tolentinos!commentary.!!!
!
AS!TO!SOURCE!
,
a. CONVENTIONAL/VOLUNTARY! ! stipulated! by! the!
parties!
,
b. LEGAL! ! period! fixed! by! law;! spread! in! the! CC! e.g.! Art!
1682!lease!of!rural!land!and!Art!1687!lease!of!urban!land;!
Franchise!agreement!in!the!Constitution!(for!25!years)!
,
c. JUDICIAL% ! set! by! the! courts! in! case! of! implied! and!
indefinite!periods!(See:,When,courts,may,fix,period)!
!!!!!!!36!
!!!!
C. Rules( in( case( of( loss,( deterioration( or(
improvement(before(arrival(of(period((
!
o
o
Art.! 1194.! In! case! of! loss,! deterioration! or! improvement! of! the!
thing!before!the!arrival!of!the!day!certain,!the!rules!in!Art!1189!
shall!be!observed.!!
With!
debtors!
fault!
DETERIORATION!
Not! liable! for! damage,!
creditor!must!accept!the!
thing!
in!
impaired!
condition!!
!
!
!
Liable!to!damages!upon! May! demand! the! thing!
fulfillment!of!condition!! OR! ask! for! rescission,! in!
either!case,!creditor!may!
recover!damages!
!
!
EFFECT%OF%IMPROVEMENT:%
!
MODE!
!
By!nature!or!
Inures!to!the!benefit!of!the!creditor!by!virtue!of!
time!
principle! of! retroactivity! of! conditional!
obligations!
At!debtors!
Only! usufructuary! rights;! Governed! by! Art! 579!
expense!
(useful! improvements! or! for! mere! pleasure,!
remove!if!possible!to!remove!without!damage!to!
property)!and!Art!580!(set!off!the!improvements!
he!may!have!made!against!any!damage)!
!
D. Effect(of(payment(in(advance(
!
Art.! 1195.! Anything! paid! or! delivered! before! the! arrival! period,!
the! obligor! being! unaware! of! the! period! OR, believing! that! the!
obligation! has! become! due! and! demandable,! may! be!
RECOVERED,!with,the,fruits,and,interests.,!
Same,as,Art,1189,
%
EFFECT%OF%LOSS%OR%DETERIORATION:%
!
!
LOSS!
Without!
Extinguished,!
unless!
debtors!
there!is!a!stipulation!to!
fault!
the! contrary.! Mode! of!
extinguishment!
Art!
1262!Par!1!
Only!applies!to!obligations!to!give.!
The!action!only!lies!before!the!arrival!of!the!day!certain,!when!
the!day!certain!comes!cannot!recover!
The! debtor! is! presumed! to! be! aware! of! the! period.! It! is!
presumed!that!he!knew!that!the!debt!was!not!yet!due,!Thus,!he!
has!the!burden!of!proving!that!he!was!unaware!of!the!period.!
If!the!creditor!refuses,!debtor!will!have!to!go!to!the!court,!but!
when! judgment! comes,! the! day! certain! has! already! arrived.!
Poor!him.!(Sir!Labitag)!
Manresa:! good! faith/bad! faith! of! the! creditor! in! accepting! the!
premature!payment!is!immaterial!
Tolentino:! In! accordance! with! solutio, indebiti,! good! faith! of!
creditor! makes! him! liable! to! restore! the! fruits! and! interests!
insofar!as!it!benefited!him.,
The! same! principle! as! regards! fruits! and! interest! is! true! for!
payment!before!happening!of!suspensive!condition!in!Art!1188!
Par!2!!
Fruits!and!interests!not!recoverable!in!these!cases:,
Reciprocal! obligation! and! there! has! been! a! premature!

performance!on!both!sides,
When! the! obligation! is! a! loan! on! which! the! debtor! is!
bound!to!pay!interest,
When! the! period! is! exclusively! for! the! benefit! of! the!
creditor,! because! the! debtor! who! pays! in! advance! loses!
nothing!,
If!payment!was!with!knowledge!of!the!term,!it!cannot!be!
recovered! because! it! is! considered! as! tacit! waiver! of! the!
benefit! of! the! term! (not! only! fruits! and! interest,! but! also!
principal),
,
Note! Art! 1197! Par! 3! In! every! case,! the! court! shall!
determine% such% period! as! may! under! the! circumstances!
have! been! probably! contemplated! by! the! parties.! Once,
fixed,by,the,courts,!the!period,cannot,be,changed,by,them.!!
E. Benefit(of(Period(
!
1. FOR!WHOSE!BENEFIT!AND!ITS!EFFECTS!
!
Creditor!
Debtor!
Both!
May! demand! performance! anytime,! but! not!

compelled!to!accept!before!period!expires!
E.g.! payment! of! interest,! wants! to! keep! his! money!
safely! invested! instead! of! having! it! in! his! hands,!
protects!himself!from!sudden!decline!in!purchasing!
power!of!the!currency!loaned!!
May! oppose! a! premature! demand,! but! may! validly!
pay!any!time!before!period!expires!
E.g.!time!to!raise!money!!
Presumption!in!absence!of!stipulation!or!in!case!of!
doubt!
Creditor!must!give!consent!first!before!debtor!may!
pay! in! advance! especially! when! creditor! receives!
other!benefits!by!reason!of!the!term!!
!
2. EFFECTS!
!
3. PRESUMPTION! "! for! the! benefit! of! BOTH! the! creditor! and!
debtor!!
Art.!1196.!Whenever!in!an!obligation!a!period!is!designated,!it!is!
presumed! to! have! been! established! for! the! benefit! of! BOTH!
creditor!and!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!the!other.!!
!
Thus,! before! the! expiration! of! the! period,! the! debtor! may! not!
fulfill! the! obligation! and! neither! may! the! creditor! demand! its!
fulfillment!without!the!consent!off!the!other!especially!if!the!later!
would!be!prejudiced!or!inconvenienced!thereby.!!
Acceleration! by! debtor! of! time! of! payment.! The! payment! of!
interest! may! not! be! the! only! reason! why! creditor! may! not! be!
bound!to!accept!payment!before!maturity.!Other!reasons!include:!
that!the!creditor!wants!to!keep!his!money!invested!safely!instead!
of!having!it!in!his!hands,!and!that!the!creditor!by!fixing!a!period,!
protects! himself! against! sudden! decline! in! the! purchasing! power!
of!the!currency!loaned!especially!at!a!time!when!there!are!many!
factors!that!may!influence!the!fluctuation!of!the!currency.!!!
!
!
!
!
!!!!!!!37!
!!!!
Case:!
!
PONCE!DE!LEON!V.!SYJUCO!
Facts:!It!was!stated!in!the!promissory!note!that!Ponce!de!Leon!could!
not!pay,!and!Syjuco!cannot!demand!the!payment!of!Ponce!de!Leons!
loan!EXCEPT!within!one!year!from!May!1948.!!On!several!occasions!
in!October!1948,!Ponce!de!Leon!tendered!to!Syjuco!the!full!payment!
of! his! previous! loans,! including! the! interest! for! his! loan! payable!
within! one! year! from! May! 1948.! Syjuco! refused! to! accept! these!
tenders.! Lower! court! absolved! Syjuco! from! Ponce! de! Leons!
complaint!and!condemned!Ponce!de!Leon!to!pay!Syjuco!the!amount!
of!P23,!130.!
!
Held:! The! consignation! made! by! the! plaintiff! is! invalid! and! did! not!
relieve! him! from! his! obligation.! The! plaintiff,! before! making! the!
consignation,! did! not! give! previous! notice! to! Syjuco! regarding! the!
performance!of!the!obligation,!and!the!obligation!is!also!not!yet!due!
and!demandable.!!
!
4. WHEN!DEBTOR!LOSES!RIGHT!TO!MAKE!USE!OF!PERIOD!
!
Par!1:!insolvency!need!not!be!declared!in!an!insolvency!
proceeding,! enough! that! he! is! in! a! state! of! financial!
difficulty!that!he!is!unable!to!pay!his!debts!!
Par! 3:! impaired! need! not! be! total;! disappear! through!

fortuitous!event!total,!used!in!the!sense!of!loss!!
Obligation! becomes! immediately! due! and! demandable!

even! if! period! has! not! yet! expired;! converted! to! a! pure!
obligation!
Does!not!apply!to!extension!of!period!fixed!by!moratorium!
statutes!!
!
Held:!Reasonable!time!refers!to!when!all!the!squatters!are!evicted,!
which! can! be! deduced! from! the! fact! that! the! parties! were! fully!
aware! the! there! were! squatters! when! they! entered! the! contract.!
Trial!court!and!CA!need!not!fix!the!period!because!the!real!issue!is!
whether!the!reasonable!time!stipulated!has!already!elapsed.!!
III.
Alternative*Obligations*
A. Concept(
Art.!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.!
!
!
KINDS%OF%COMPUND%OBLIGATIONS:%
1. CONJUNCTIVE! "! all! prestations! must! be! performed! to!
extinguish!obligation!
!
2. DISJUNCTIVE! "! one! or! some! prestations! must! be!
performed!to!extinguish!obligation!
!
a. ALTERNATIVE% "!Debtor!must!perform!one!of!several!
alternatives;! choice! belongs! to! debtor! UNLESS!
expressly!given!to!creditor!
b.
F. When(court(may(fix(period(
!
Refers!to!a!judicial!period!as!distinguished!from!the!period!
fixed! by! the! parties! in! their! contract! which! is! known! as!
contractual!period.!!
If! the! obligation! does! not! state! a! period! and! no! period! is!
intended,! the! court! is! not! authorized! to! fi! a! period.! The!
courts!have!no!right!to!make!contracts!for!the!parties.!!!
Period! is! implied! "! a! period! was! intended;! also!
INDEFINITE,PERIOD!
Period!depends!solely!on!will!of!debtor!!
o If!it!were!condition:!void!
When!the!court!fixes!the!term!of!an!obligation,!it!does!not!
amend! or! modify! the! same.! It! merely! enforces! or! carries!
out!the!intention!of!the!parties.!
!
CASE:!
!
ARANETA!V.!PHILIPPINE!SUGAR!ESTATE!DEVELOPMENT!CO.!!
Facts:!JM!Tuason!and!Co.!(owned!by!Araneta)!sold!a!track!of!land!to!
the! respondent! on! a! condition! that! the! latter! will! build! the! Sto.!
Domingo! Church! and! Convent,! and! that! JM! Tuason! will! construct!
streets!on!the!NE,!NW!and!SW!sides!within!a!reasonable!time.!The!
church! and! convent! were! constructed! but! the! streets! were! not!
because! there! were! squatters.! Respondent! sued! JMT! for! specific!
performance! and! damages.! JM! Tuasons! defense:! action! is!
premature! since! obligation! to! construct! the! street! was! without! a!
definite!period.!!!
!
One! wherein! various! prestations! are! due! but! the!

performance!of!one!of!them!is!sufficiently!
%
FACULTATIVE% "!One!principal!prestation!but!one!
or!more!substitutes,!choice!belongs!to!DEBTOR!ONLY!
!
A! disjunctive! obligation! is! presumed! to! be! ALTERNATIVE,!
unless!it!is!expressly!indicated!that!it!is!FACULTATIVE.%
The! reason! for! such! a! presumption! is! that! the! creditor! is!
more! disadvantaged! if! it! is! a! FACULTATIVE! rather! than!
ALTERNATIVE.%
B. Right(of(Choice(
Art.!1200.!The!right!of!choice!belongs!to!the!debtor,!unless!it!
has!been!expressly!granted!to!the!creditor.!
The!debtor!shall!have!no!right!to!choose!those!prestations!
which!are!impossible,!unlawful!or!which!could!not!have!been!
the!object!of!the!obligation.!
General!rule:!The!choice!belongs!to!the!debtor!
o Exception:! If! expressly! granted,! it! may! be! the! creditors!
choice! OR! entrusted! to! a! third! person! (with! the! agreement!
of!the!parties)!
An!implied,grant!of!choice!to!the!creditor!will!not!be!recognized.!
The!right!of!choice!is!limited!by!the!following!rules:!
o The!right!to!choose!is!indivisible;!the!one!making!the!choice!
cannot!choose!part!of!one!and!then!part!of!another.!
o Prestations!that!are!impossible,,unlawful,,or!those,that,could,
not,have,been,the,object,of,the,obligation!cannot!be!chosen.!
!!!!!!!38!
!!!!
C. Effect(of(Notice(of(Choice(
!
When! notice! of! choice! has! been! expressed,! it! shall! limit! the!
obligation!to!the!object!or!prestation!selected.!
The!obligation,!from!an!alternative!one,!shall!be!converted!into!
a!simple!obligation.!
Once! a! prestation! has! been! chosen! and! the! other! party!
notified,!the!choice!is!irrevocable!
The! other! partys! consent! is! not! required.! A! contrary! rule!
would!destroy!the!essence!of!the!right!to!choose.!
o Exception:! If! the! debtor! has! chosen! a! prestation! which!
could! not! have! been! the! object! of! the! obligation,! the!
creditors!consent!to!such!would!be!a!novation!
When! a! debtor! performs! one! of! the! alternative! prestations,!
believing! he! has! a! simple! obligation! (when! he! actually! had! an!
alternative! obligation! with! different! prestations),! it! is!
considered!that!
o There! is! no! exercise! of! the! right! to! choose! and! the!
performance!shall!not!be!binding.!
o It!shall!only!be!considered!as!a!payment!of!what!is!not!due!
and!therefore,!may!be!recovered.!
On!Plurality!of!Subjects!(JOINT!and!SOLIDARY!Obligations)!
a. Joint! "! the! choice! made! must! have! the! consent! of! all!
debtors!(or!all!creditors)!to!be!valid!
b. Solidary! "! the! choice! made! by! one! will! be! personally!
binding!to!him!but!not!to!the!others.!
o Ex.!A!and!B,!solidary!debtors!of!C,!may!choose!to!(a)!
pay! to! C! the! amount! P10,000! or! (b)! give! 10! sacks! of!
rice.! If! A! has! properly! given! a! notice! to! C! that! he!
chose! to! perform! prestation! (b),! A! must! perform! (b)!
to! extinguish! the! obligation.! However,! B! can! choose!
to! perform! either! (a)! or! (b)! to! extinguish! the!
obligation;!As!choice!is!not!binding!to!him.!!
D. When(Notice(Produces(Effect(
!
The!notice!of!choice!may!come!in!any!form!provided!that!it!is!
sufficient! to! let! the! other! party! know! that! a! choice! has! been!
made.!
They!may!be!conveyed:!
o Orally!
o Written!
o Tacitly!
o Debtor!having!the!right!to!choose!(and!with!knowledge!
of!such!right),!performs!one!of!the!prestations;!
o Creditor,! having! the! right! to! choose,! accepts! the!
performance!of!one!of!the!prestations;!
o Creditor,!having!the!right!to!choose,!files!an!action!for!
specific! performance! of! one! of! the! alternative!
prestations!
Duly! authorized! representatives! can! give! and! accept! a! notice!
of!choice.!
!
!
!
!
!
!
!
E. Effect( of( Loss( or( Impossibility( of( One( or( All(

Prestations(
!
Art.! 1202.! The! debtor! shall! lose! the! right! of! choice,! when! among!
the! prestations! whereby! he! is! alternatively! bound,! only! one! is!
practicable.!
!
The! situation! (impossibility! of! all! the! other! prestations! except!
for! only! one)! contemplated! in! Article! 1202! should! NOT! have!
been!due!to!the!creditors!act(s).!
Article!1203!applies!if!said!situation!is!due!to!the!creditors!acts!
The! article! is! applicable! only! to! obligations! where! debtor! has!
the!right!to!choose.!
o Article!1205!is!the!one!applicable!when!the!creditor!has!the!
right.!
The!creditor!cannot!claim!damages!for!the!loss!of!some!of!the!
other! prestations/choices,! for! the! right! to! choose! is! the!
debtors.!
!
Art.! 1203.! If! through! the! creditors! act,! the! debtor! cannot! make! a!
choice! according! to! the! terms! of! the! obligation,! the! latter! may!
rescind!the!contract!with!damages.!
!
The! right! to! rescind! provided! by! Article! 1203! is! only!
optional;!the!debtor!may!still!choose!to!perform!the!only!
practicable! prestation! (if! only! one! remains)! OR! choose!
among!the!other!remaining!options!(if!there!are!more!than!
one!left).!
!
Art.!1204.!The!creditor!shall!have!a!right!to!indemnity!for!damages!
when,! through! the! fault! of! the! debtor,! all! the! things! which! are!
alternatively! the! object! of! the! obligation! have! been! lost,! or! the!
compliance!of!the!obligation!has!become!impossible.!!
!
The!indemnity!shall!be!fixed! taking! as! a! basis! the! value! of! the! last!
thing! which! disappeared,! or! that! of! the! service! which! last! became!
impossible.!
!
Damages!other!than!the!value!of!the!last!thing!or!service!may!also!
be!awarded.!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!!!!!!!39!
!!!!
Art.!1205.!When!the!choice!has!been!expressly!given!to!the!creditor,!
the! obligation! shall! cease! to! be! alternative! from! the! day! when! the!
selection!has!been!communicated!to!the!debtor.!
!
Until!then!the!responsibility!of!the!debtor!shall!be!governed!by!the!
following!rules:!
!
(1)! If! one! of! the! things! is! lost! through! a! fortuitous! event,! he! shall!
perform!the!obligation!by!delivering!that!which!the!creditor!should!
choose! from! among! the! remainder,! or! that! which! remains! if! only!
one!subsists;!
!
(2)! If! the! loss! of! one! of! the! things! occurs! through! the! fault! of! the!
debtor,!the!creditor!may!claim!any!of!those!subsisting,!or!the!price!
of! that! which,! through! the! fault! of! the! former,! has! disappeared,!
with!a!right!to!damages;!
!
(3)! If! all! the! things! are! lost! through! the! fault! of! the! debtor,! the!
choice!by!the!creditor!shall!fall!upon!the!price!of!any!one!of!them,!
also!with!indemnity!for!damages.!
!
The!same!rules!shall!be!applied!to!obligations!to!do!or!not!to!do!in!
case!one,!some!or!all!of!the!prestations!should!become!impossible.!
!
EFFECTS%OF%LOSS:%
If!the!principal!obligation!is!lost!before!the!substitution!due!to!
a! fortuitous! event,! the! obligation! is! extinguished;! otherwise,!
the!debtor!becomes!liable!for!damages!
o Loss! of! the! substitution! during! this! period! will! not! affect!
obligation! nor! give! rise! to! any! liability,! even! if! the!
substitution! was! made! impossible! through! debtors! bad!
faith.!
If! principal! obligation! is! lost! after! the! substitution,! it! will! not!
extinguish! the! obligation! nor! give! rise! to! liability;! it! is! not! the!
thing!due!anymore.!
o Upon! substitution,! the! substitute! will! now! become! the!
only! prestation! that! the! debtor! can! perform;! the!
obligation!is!now!a!simple!one.!
!
2. FACULTATIVE!
AND!
ALTERNATIVE!
OBLIGATIONS!
DISTINGHUISHED!
%
!
Article! 1204! is! applicable! when! the! debtor! has! the! right! to!
choose.!
The!debtor!will!only!become!liable!if!ALL!the!choices/prestation!
become! lost! (in! obligations! to! give)! or! the! compliance! of! the!
obligation! becomes! impossible! (in! obligations! to! do).! There! is!
no! liability! for! the! debtor! when! only! some! of! the! prestations!
are!lost.!
The! article! above! sets! the! value! of! last! prestation! that!
disappeared!as!the!basis!for!indemnity!for!damages.!
Other! damages! (i.e.,! moral,! exemplary,! etc.)! may! also! be!
awarded.!
Article!1205!is!applicable!to!obligations!where!the!creditor!has!
the!right!to!choose!
If!the!creditor!is!delayed!in!making!a!choice!or!has!not!made!a!
choice!at!all,!the!debtor!CANNOT!incur!in!delay;!there!can!be!
no!mora,solvendi.!This!is!true!even!if!there!is!a!definite!period!
fixed!for!the!performance!of!the!obligation.!
AS!TO!
Prestations!
Right!to!
choose!
Loss!and!
Nullity!
F. Facultative(Obligations(
!
Art.!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!
!
1. CONCEPT!
!
It!is!an!obligation!where!only!ONE!prestation!has!been!agreed!upon!
but!the!debtor!may!render!another!in!substitute.!
!
There! is! only! one! prestation;! the! thing! intended! as! a!

substitute!is!not!the!one!due!but,!if!the!debtor!so!chooses,!
it!may!be!delivered!as!a!substitute.!
If! the! debtor! chooses! the! substitute,! the! obligation! is!
converted!to!a!simple!one,!from!a!facultative!one.!
%
%
%
%
%
%
%
%
%
%
%
%
FACULTATIVE!
ALTERNATIVE!
Only! one! but! debtor! Two!or!more!
may! opt! to! perform! a!
substitute!
Debtor!only!!
Generally,! it! belongs! to!
the! debtor! but! may!
also! be! given! to! the!
creditor!or!a!third!party!
Loss! of! the! principal! Loss! of! one! will! not!
prestation!
will! nullify! the! obligation;!
invalidate!
the! all!the!prestations!must!
obligation! AND! make! be! lost! or! become!
debtor!liable,!while!loss! impossible!to!invalidate!
of! the! substitute! will! the!obligation!
not! invalidate! the! !
obligation! nor! give! rise! The! creditor! may!
to!liability.!
choose! the! remaining!
!
prestation(s)! if! one! of!
If!
the!
principal! them!is!lost.!
prestation! is! lost,! the!
debtor! cannot! choose!
to!
perform!
the!
substitute! even! if! it! is!
possible!to!perform.!
!!!!!!!40!
!!!!
3. EFFECT!OF!SUBSTITUTION!
!
TIME!
Before!
Substitution!
After!
substitution!
PRINCIPAL!
OBLIGATION!
Due!and!can!be!
demanded!
Considered!discarded;!
will!not!affect!the!
obligation!anymore!!
SUBSTITUTE!
OBLIGATION!
Not!due!and!cannot!be!
demanded!but!debtor!
may!choose!to!submit!
this!
Will!become!the!only!
prestation!that!debtor!
can!perform!
3. EFFECTS!
!
a. Extent%of%liability%of%debtor%
The! rules! on! when! the! right! to! choose! takes! effect! (in!
alternative!obligations)!are!applied!here,!by!analogy.!
o Ex.! Substitution! takes! effect! after! notice! by! the! debtor!
to!the!creditor.!
b. Extent%of%right%of%creditor%
a.
IV. Joint*and*Solidary*Obligations*
A. Joint(Obligations(
!
1. CONCEPT!
!
Each! of! the! debtors! is! liable! only! for! a! proportionate! part! of! the!
debt,! and! each! creditor! is! entitled! only! to! a! proportionate! part! of!
the!credit.!Each!creditor!can!recover!only!his!share!of!the!obligation!
and!each!debtor!can!be!made!to!pay!only!his!part.!!
!
a. Requisites%of%Joint%Obligations%%
1.
2.
Only!with!respect!to!his!particular!share!in!the!debt!
Vices! of! each! obligation! arising! from! the! personal!
defect! of! a! particular! debtor! or! creditor! does! not!
affect!the!obligation!or!rights!of!the!others!
The! insolvency! of! a! debtor! does! not! increase! the!
responsibility! of! his! co?debtors! nor! does! it!
authorize!a!creditor!demand!anything!from!his!co?
creditors!
JOINT! DIVISIBLE! OBLIGATION:! defense! of! res!
judicata! is! not! extended! from! one! debtor! to!
another!
Plurality!of!subjects!
Determination! of! the! shares! in! the! demandability! of! the!
fulfillment!of!the!obligation!!
b.
c. In%case%of%Novation,%Compensation,%Confusion,%
Remission%
b. Words%used%to%indicate%joint%obligations%%
1.
2.
3.
4.
Mancomunada!
Mancomunada!Simple!
Pro!rata!
We!promise!to!pay!used!by!two!or!more!signers!
!
Sir!Labitags!magic!shortcut!formula!(applicable!only!to!joint!liability!
on!both!sides)!!
#! of! debtors! x! #! of! creditors! =! divisor! of! the! total! amount! of!
obligation!
!
2. PRESUMPTIONS!
!
Art.! 1207.! The! concurrence! of! two! or! more! creditors! or! of! two! or!
more! debtors! in! one! and! the! same! obligation! does! not! imply! that!
each!one!of!the!former!has!a!right!to!demand,!OR!that!each!one!of!
the!latter!is!bound!to!render!entire!compliance!with!the!prestations.!
There!is!a!SOLIDARY!LIABILITY!only!when!the!obligation!expressly!so!
states! OR! when! the! law! OR! the! nature! of! the! obligation! requires!
solidarity.!
!
Art.! 1208.! If! from! the! law,! or! the! nature! or! the! wording! of! the!
obligations! to! which! the! preceding! article! refers! the! contrary! does!
not! appear,! the! credit! or! debit! shall! be! presumed! to! be! divided! 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.!
Joint!character!of!liability!and!equal!shares!is!presumed!
Demand! by! one! creditor! upon! one! debtor!

produces!the!effects!of!default!only!with!respect!
to! the! creditor! who! demanded! and! the! debtor!
on! whom! the! demand! was! made,! but! not! with!
respect!to!others!!
Interruption! of! prescription! by! the! judicial!
demand!of!one!creditor!upon!a!debtor!does!not!
benefit! the! other! creditors! nor! interrupt! the!
prescription!as!to!other!debtors!!
Novation:! Affects! only! the! share! of! the! joint! co?

debtor!in!whom!the!novation!is!created!
Compensation:!Affects!only!the!share!of!the!joint!co?
debtor!in!whom!the!compensation!takes!place!
Confusion:!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.!!!
Remission:! Benefits! only! the! joint! co?debtor! in!
whom! the! remission! is! granted,! obligation!
extinguished!
B. Solidary(Obligations(
1. CONCEPT!
Each! of! the! debtors! is! liable! for! the! entire! obligation,! and! each!
creditor! is! entitled! to! demand! the! whole! obligation.! Each! creditor!
may! enforce! the! entire! obligation! and! each! debtor! may! be! obliged!
to!pay!it!in!full.!
!
Solidary!obligations!exist!only!by:!!
1.
Stipulation!of!the!parties!
2.
Law!
3.
Nature!of!obligation!
4.
Charge!of!condition!is!imposed!upon!legatees!or!heirs!
5.
Imputed!by!final!judgment!upon!several!defendants!
!
a. Requisites%of%Joint%Obligations%
1.!!Plurality!of!subjects!
2.!!Determination!of!the!shares!in!the!demandability!of!the!
fulfillment! of! the! obligation! ! ??! this! is! in! relation! to! the!
debtor!with!regard!to!his!co?debtors!and!the!creditor!with!
regard! to! his! co?creditors! (presupposes! a! situation! after!
payment)!
!!!!!!!41!
!!!!
!
b. Words%used%to%indicate%joint%obligations%%
1.!!Mancomunada!solidaria!
2.!!Joint!and!several!
3.!!In!solidum!
4.!!I!promise!to!pay!followed!by!the!signature!of!two!or!
more!persons!
5.!!Individual!and!collectively!!
2. KINDS!
!
a. As%to%source%
,
i. Legal%
%
Art.!1915.!Two!or!more!principals!appointed!an!agent!for!common!
transaction,!solidarily!liable!to!agent!
!
Art.! 1945.! Two! or! more! bailees! to! whom! a! thing! is! loaned! in! the!
same!contracts!(commodatum)!
!
Art.!2194.!Joint!tort!feasors!
!
Art.!2146.!Joint!officious!management,!two!or!more!managers!
!
Art.!2157.!Joint!payees!in!solutio!indebiti!(payment!when!obligation!
not!yet!due)!!
!
Art.!2047(2).!A!surety!is!solidarily!liable!with!the!principal!
!
Art.!109!of!RPC.!If!there!are!two!or!more!persons!civilly!liable!for!a!
felony,!the!courts!shall!determine!the!amount!for!which!each!must!
respond.!
,
ii. Conventional:,by!stipulation!of!parties!
!
iii. Real:!the!nature!of!the!obligation!so!requires!
!
b. As%to%parties%bound%
,
i. Active% %solidarity!of!creditors;!each!has!right!to!collect!
the!whole!of!the!prestation!from!the!common!debtor!!
%
ii. Passive%%solidarity!of!debtors;!each!is!liable!to!pay!the!
whole!to!the!common!creditor!,
,
iii. Mixed%%simultaneously!active!and!passive!!
!
From!Sir!Labitags!Reviewer:!
!
Active!Solidarity!
Mutual!Agency!
Each! creditor! represents! the!
others! in! the! act! of! receiving!
payment,! and! all! other! acts!
which!tend!to!secure!the!credit!!
Passive!Solidarity!
Mutual!Guaranty!
Each! debtor! can! be! required! to!
pay! the! entire! obligation;! but!
after! the! payment,! he! can!
recover! from! the! co?debtors!
their!respective!shares!
The! death! of! a! solidary! creditor! The! debtor! who! is! required! to!
does! not! transmit! the! solidarity! pay! may! set! up! by! way! of!
to! each! of! his! heirs! but! to! all! of! compensation! his! own! claim!
them!taken!together!
against!the!creditor!
One!creditor!does!not!represent!
the!others!in!acts!prejudicial.!But!
a! solidary! creditor! who! makes! a!
novation,! compensation! and!
remission! extinguishes! the!
obligation!but!he!is!liable!to!the!
others! for! the! share! in! the!
obligation! corresponding! to!
them!
The! credit! and! its! benefits! are!
divided! equally! among! the!
creditors! unless! there! is! an!
agreement! among! them! to!
divide!differently!
Each! creditor! may! renounce! his!
right! and! the! latter! need! not!
thereafter! pay! the! obligation! to!
the!former!
The! total! remission! of! the! debt!

in! favor! of! a! debtor! releases! all!
the! debtors;! but! when! this!
remission! affects! only! the! share!
of!one!debtor,!the!other!debtors!
are!still!liable!for!the!balance!
All!the!debtors!are!liable!for!the!
loss! of! the! thing! due,! even! if!
such! loss! is! caused! by! the! fault!
of!only!one!of!them!
The! interruption! of! prescription!
as! to! one! debtor! affects! all! the!
others,! but! the! renunciation! by!
one! debtor! of! prescription!
already! had! does! not! prejudice!
the!others!
The! interests! due! by! reason! of!
delay! of! one! of! the! debtors! are!
borne!by!all!of!them!
c. As%to%uniformity%
,
i. Uniform%%same!terms!and!condition!for!all%
,
ii. Varied/non=uniform%
%
Art.! 1211.! Solidarity! may! exist! although! the! creditors! and! the!
debtors! may! not! be! bound! in! the! same! manner! and! by! the! same!
periods!and!conditions.!!
%
Effects! of! non[uniform!solidary!liability! only! the! portion! due!

at! the! time! of! the! demand! is! collectible! from! any! of! the!
debtors!or!by!anyone!of!the!creditors!
!
Case:!
!
INCHAUSTI!v.!YULO!
Facts:!Gregorio!Yulo!and!his!8!siblings!are!indebted!to!Inchausti!and!
Co.,! of! which! Gregorio,! representing! the! other! siblings!
acknowledged! debt! (solidarily! liable)! with! a! stipulation! that! the!
whole!debt!will!be!due!and!demandable!if!any!of!the!installments!is!
not! paid.! The! first! installment! was! not! paid! and! Inchausti! brought!
action! against! Gregorio.! Afterwards! 3! of! the! siblings! executed! a!
notarial!document!which!says!that!the!debt!is!reduced.!
!
Held:!New!instruments!signed!by!the!parties!of!the!old!contract!do!
not! destroy! solidary! nature! of! the! old! contract,! and! solidarity! may!
still!exist!if!the!debtors!are!not!bound!in!the!same!manner.!
!
LAFARGE!CEMENT!PHIL.!v.!CONTINENTAL!CEMENT!
Facts:! Lafarge! entered! into! a! contract! to! buy! cement! from!
Continental! Cement,! the! latter! having! a! pending! case! against! APT.!
The!contract!had!a!stipulation!that!if!Continental!Cement!loses,!part!
of! the! payment! to! be! given! to! Continental! Cement! will! be! given! to!
APT.! Continental! Cement! filed! a! case! of! preliminary! attachment!
against! Lafarge,! the! latter! filing! a! compulsory! counterclaim! ad!
cautelam!against!Continental!Cement,!Gregory!Lim!(president),!and!
Anthony!Mariano!(secretary)!
!
!!!!!!!42!
!!!!
Held:!The!obligation!of!Continental!Cement,!Mariano!and!Lim!arose!
from!a!tort!and!joint!tort!feasors!are!solidarily!liable.!
3. EFFECTS!
!
a. SOLIDARY%CREDITOR%in%relation%to:%
o
o
i. Common%debtor%
,
RIGHT%TO%DEMAND%
Debtor! may! pay! to! any! solidary! creditor,! but! if! a! judicial!
demand!is!made!against!him,!he!must!pay!only!to!the!plaintiff.!
(Art!1214)!
o Judicial!demand!revokes!the!tacit!mutual!representation!
of! co?creditors,! though! not! perpetually:! only! until! such!
time!the!action!exists.!!
rd
o Payment!to!creditor!who!did!not!sue!is!a!payment!to!3 !
person.!
o Same!effect!granted!to!extrajudicial!demand.!
o DEMAND! BY! SEVERAL! CREDITORS:! Pay! the! one! who!
notified! him! first.! If! simultaneous,! debtor! reserves! the!
right!to!choose.!!
o Does!not!apply!to!MIXED!SOLIDARITY:!solidary!co?debtor!
may!pay!in!behalf!of!the!one!to!whom!demand!has!been!
made!AND!to!any!of!the!solidary!creditors!
The! demand! made, against, one! of! them! shall! not, be, an,
obstacle! to! those! which! may! be! subsequently, be, directed,
against, others,! so! long! as! the! debt! has! not! been! fully!
collected.!(Art!1216)!
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!to!accept.!(Art!1217(1))!
Each!creditor!may!renounce!his!right!even!against!the!will!of!
the! debtor,! and! the! latter! need! not! thereafter! pay! the!
obligation!to!the!former.!!
!
%
IN%CASE%OF%NOVATION,%COMPENSATION,%CONFUSION,%REMISSION%
BY%A%CREDITOR%%
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! Art! 1219! i.e.!
responsibility! of! a! solidary! co?debtor! with! respect! to!
reimbursement!prior!to!his!remission!(Art!1215(1))!
%
ii. Solidary%co=creditor/s!
!
The! creditor! who! may! have! executed! any! of! these! acts,! as!
well!as!he!who!collects!the!debt,!shall!be!liable%to%others%for%
the%share!in!the!obligation!corresponding!to!them!(Art!1215!
Par!2)!
o Remission!done!by!several!but!not!all!of!the!creditors:!
those! who! made! it! do! not! have! action! against! each!
other,! but! all! of! them! liable! for! the! share! of! one! who!
does!not!remit!
!
PREJUDICIAL%ACTS%PROHIBITED%
Each!one!of!the!solidary!creditors!may!do!whatever!is!useful!
to!the!others,!but!not!anything!which!may!be!prejudicial!to!
the!latter.!(Art!1212)!
E.g.! remission,! novation,! compensation! and!

merger/confusion!!
Take!note!that!the!same!act!is!permitted!by!Art!1215,!
wherefore! Tolentino! concludes! that! the! provision! is!
unhappily!inaccurate.!
To! harmonize! with! Art! 1215:! The! prejudicial! acts! are!
valid!as!to!the!debtor,!but!not!with!respect!to!the!co?
creditors! whose! rights! subsists! and! can! be! enforced!
against!the!creditor!who!performed!prejudicial!acts!
!
ASSIGNMENT%OF%RIGHTS%NOT%ALLOWED%
Solidary! creditor! cannot! assign! his! rights! without! the!

consent!of!others!(Art!1213)!
o Why?! As! a! solidary! creditor,! he! is! an! agent! of! others,!
cannot! assign! that! agency! without! the! consent! of! his!
principals.! Implies! mutual! confidence! may! take! into!
account!the!personal!qualification!of!each!creditor.!!
o Assignment!of!rights!allowed!as!to!co?creditor!
!
!
b. SOLIDARY%DEBTOR%in%relation%to:%%
!
i. Common%creditor%
!
OBLIGATION%TO%PERFORM%
Each!one!of!the!solidary!co?debtor!is!bound!to!render!entire!
compliance!with!the!prestations!(Art!1207)!
!
,
BY%A%CREDITOR%
Extinguishes! the! obligation! without! prejudice! to! the!

responsibility! of! a! solidary! co?debtor! with! respect! to!
reimbursement!prior!to!his!remission!(Art!1215(1))!
!
ii. Solidary%co=debtor%
!
IN%CASE%OF%PAYMENT%BY%A%CO=DEBTOR%
Payment!by!one!of!the!solidary!co?debtors!extinguishes!the!
obligation.!(Art!1217(1))!
Solidary! co?debtor! who! paid! may! reimburse! from! his! co?

debtors!only!the!share!which!corresponds!to!each,!with!the!
interest!for!the!payment!already!made,!but!if!the!payment!
is!made!before!debt!is!due,!no!interest!for!the!intervening!
period!may!be!demanded.!(Art!1217(3))!
o Converted!into!a!Joint!Obligation!as!to!co?debtors,!but!
no! real! case! of! subrogation! because! the! old! one! is!
extinguished!and!the!new!one!is!created!
o Partial! payment:! may! recover! only! insofar! as! the!
payment!exceeded!his!share!of!the!obligation!!
When! one! of! the! solidary! debtors! is! insolvent! and! cannot!
reimburse,! his! share! will! be! borne! by! all! his! co?debtors! in!
proportion!to!the!debt!of!each.!(Art!1217(3))!
Payment! by! co?debtor! does! not! entitle! him! to! reimburse!

from! co?debtors! if! such! payment! is! made! after! the!
obligation!has!prescribed!or!become!illegal.!(Art!1218)!
o Also! applies! to! prior! total! remission! in! favor! of! one!
debtor!!
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?debtors,!in!case!
debt! had! been! totally! paid! by! anyone! of! them! before!
remission!was!effected.!(Art!1219)!
!!!!!!!43!
!!!!
Applies!when!one!of!the!debtors!has!already!paid!the!
obligation! in! full! (in! such! a! case,! the! obligation! as! to!
the!creditor!is!already!extinguished!and!nothing!more!
to!remit!even!partially)!
o Relationship! of! the! creditor! with! the! solidary! debtor!
does! not! extend! to! the! relationship! among! solidary!
co?debtors!
The! remission! of! the! whole! obligation,! obtained! by! one! of!
the!solidary!debtors,!does!not!entitle!him!to!reimbursement!
from!his!co?debtors.!(Art!1220)!
!
IN%CASE%OF%FORTUITOUS%EVENT%
If! the! thing! has! been! lost! of! if! the! prestation! has! become!
impossible! without% the% fault! of! the! solidary! debtors,! the!
obligation!shall!be!extinguished!(Art!1221(1))!
If!there!was!fault!on!the!part!of!any!one!of!them,!all!shall!be!
responsible! to! the! creditor,! for! the! price! and! payment! of!
damages! and! interests,! without! prejudice! to! their! action!
against!the!guilty!or!negligent!debtor.!(Art!1221(2))!
o Guilty! creditor! who! pays! indemnity! cannot! recover!
from!his!co?debtors.!!
o Other!co?debtors!who!pay!the!indemnity!can!recover!
the!full,amount!from!the!guilty!co?debtor.!
If! through! a! fortuitous% event,! the! thing! is! lost! or! the!
performance!of!the!prestation!has!become!impossible!after!
one! of! the! solidary! debtors! has! incurred% in% delay! through!
the!judicial!or!extra?judicial!demand!!upon!him!by!creditor,!
the! provisions! of! the! preceding! paragraph! shall! apply.! (Art!
1221(3))!
!
LIABILITY%IN%CASE%OF%LOSS%
!
LOST! or! IMPOSSIBLE! without!
Obligation!is!extinguished!
fault!/!fortuitous!event!
All! liable! for! damages! and!
LOST!or!IMPOSSIBLE!with!fault!
interest,! but! co?debtors! have!
of!any!one!
right!against!guilty!debtor!!
LOST! or! IMPOSSIBLE! without!
All! liable! for! damages! and!
fault! /! fortuitous! event! but! after! interest,! but! co?debtors! have!
any!one!incurred%in%delay!
right!against!guilty!debtor!
!
Note:! An! extension! of! time! granted! by! the! creditor! to! a!
solidary! debtor! does! not! amount! to! a! novation! that! will!
discharge! the! other! solidary! debtors.! The! latter! shall! be!
liable! for! the! whole! debt! less! the! share! of! the! debtor!
granted! the! extension.! Upon! the! expiration! of! the! term,!
the! creditor! can! demand! payment! of! the! unpaid! share!
from!any!of!the!solidary!debtors.!(De!Leon)!
!
Cases:!
!
JAUCIAN!v.!QUEROL!
Facts:!Hermenegilda!Rogero!signed!for!herself!and!as!surety!for!Lino!
Dayandante! a! document! acknowledging! themselves! as! jointly! and!
severally! indebted! to! Roman! Jaucian.! Jaucian! prayed! for! order!
ordering! Rogeros! estate! to! pay! for! the! debt! and! TC! dismissed!
petition! on! the! ground! that! Dayandantes! properties! should! be!
exhausted!first!as!he!is!the!principal.!
!
Held:! Jointly! and! severally! liable! means! solidarily! liable.! Jointly!
really!means!solidarily!in!Art.!1831!which!says!that!exhaustion!to!the!
properties!of!principal!need!not!be!resorted!to!first!if!principal!and!
surety!are!jointly!liable.!
o
RFC!v.!CA!
Facts:! Jesus! Anduiza! and! Quintana! Cano! borrowed! money! with!
mortgage! on! the! house! and! lot! from! RFC! but! failed! to! pay!
amortizations.!Estelito!Madrid,!who!was!staying!at!Anduizas!house!
offered!to!pay!the!balance.!Madrid!then!filed!an!action!to!consider!
the!balance!paid,!for!RFC!to!cancel!the!mortgage!and!for!Anduiza!to!
repay!him.!!
!
Held:! Anduiza! had! impliedly! accepted! the! payments! by! Madrid! by!
joining!him!in!appealing!the!decision!of!the!TC.!RFC!issued!receipts!
acknowledging!the!payment!without!qualification.!
!
QUIOMBING!v.!CA!
Facts:! Nicencio! Quiombing! and! Dante! Biscocho! solidarily! bound!
themselves! to! build! a! house! for! the! Saligo! spouses.! The! spouses!
failed!to!pay!the!fee!agreed!upon,!hence!Quiombing!filed!to!collect!
the! balance.! The! spouses! filed! a! motion! to! dismiss! saying! that!
Biscocho! is! an! indispensible! party! and! hence! should! have! been!
impleaded.!
!
Held:!The!concept!of!solidarity!in!terms!of!the!debtors!is!the!same!as!
in!the!terms!of!the!creditors;!hence!one!may!sue!by!himself!for!the!
whole!amount!due.!!
!
INCIONG!v.!CA!
Facts:! Rene! Naybe,! Gregorio! Pantanosas! and! Baldomero! Inciong!
became! solidarily! liable! to! a! debt! to! Philippine! Bank! of!
Communications.!They!failed!to!pay!so!Phil.!Bank!filed!for!collection!
against! the! 3! of! them.! The! case! was! dismissed! against! Pantanosas!
and!Naybe!was!in!Saudi!so!the!summons!was!only!served!to!Inciong.!
!
Held:! Dismissal! of! case! against! Pantanosas! and! Naybe! not! being!
impleaded!would!not!release!Inciong!from!the!obligation!so!he!could!
be! ordered! to! pay! the! whole! amount.! The! recourse! of! Inciong! is!
against!his!creditors.!
4. DEFENSES!AVAILABLE!TO!A!SOLIDARY!DEBTOR!
!
Art.1222.!A!solidary!debtor!may,!in!actions!filed!by!the!creditor,!avail!
himself!of!all!defense!which!are!of!four!types!
!
a. Types%
i. Those% derived% from% the% nature% of% the%

obligation%
%
!
!
!
!
!
Connected!with!the!obligation!and!derived!from!its!nature!
Constitutes!a!total!defense!
E.g.! non?existence! of! the! obligation! because! of! illicit! cause,!
object!or!absolute!simulation,!nullity!due!to!defect!in!capacity!
or! consent! of! all! the! debtors! (minority,! fraud! or! violence),!
unenforceability! because! of! lack! of! proper! proof! under! the!
Statute!of!Fraud,!non?performance!of!suspensive!condition!or!
non?arrival! of! period! affecting! the! entire! obligation,!
extinguishment! of! the! obligation! such! as! by! payment! and!
remission,! all! other! means! of! defense! which! may! invalidate!
the!original!contract!
!!!!!!!44!
!!!!
Sir! Labitag:! Look! for! these! things! because! it! will! give! you! a!
total!defense:!!
!
1. Vices!of!consent!
2. Cause!of!action!has!prescribed!
3. Entire!obligation!is!void!
4. Voidable! at! the! instance! of! all! of! them,! BUT! if! just!
one,!you!can!use!the!defense!as!well!
!
ii. Personal%defenses%
%
Total! defense! e.g.! minority,! insanity,! fraud,! violence,!

intimidation!(sufficient!causes!to!annul!consent)!!
Partial! defense! e.g.! special! terms! or! conditions! affecting! his!
part!of!the!obligation!!
!
iii. Defenses%pertaining%to%his%share%
%
Partial!defense!!
E.g.! may! share! is! not! yet! due,! so! you! can! only! compel! me! to!
give!the!share!of!the!co?debtors!
iv. Those% personally% belonging% to% the% other%

co=debtors! "! avail! himself! thereof! only! as!
regards!that!part!of!the!debt!for!which!the!latter!are!
responsible!!
!
Partial!defense!only!for!the!debtor?defendant!
E.g.! the! co?debtors! share! is! not! yet! due,! so! you! can! only!
compel!me!to!give!my!share!
5.!!!!!In!suretyship,!the!effect!of!extension!given!to!the!principal!
debtor! without! the! consent! of! the! surety! is! to! extinguish! the!
contract!of!suretyship!(De!Leon)!
!
b. Effects%of%the%defenses%
1.
2.
3.
If! derived! from! the! nature:! all! the! solidary! co?

debtors!are!benefited!!
If!personal!one:!only!him!benefited!(exclusively)!
If!personally!to!the!co?debtor:!partial!defense!
!
Case:!
!
INCHAUSTI!v.!YULO!
Facts:!supra!
!
Held:!Remission!of!any!part!of!the!debt!made!by!creditors!in!favor!of!
one! or! more! solidary! debtors! inures! to! the! benefit! of! the! other!
solidary!debtors.!!Gregorio!cannot!set!up!defense!of!prematurity!as!
it!was!personal!to!the!3!siblings!who!signed!the!new!document,!but!
since!the!shares!of!the!3!are!not!yet!mature,!only!the!mature!part!of!
the!obligation!(1st!installment)!should!be!paid!by!Gregorio.!
!
ALIPIO!v.!CA!
Facts:!Romero!Jaring,!a!lessee,!subleased!a!part!of!a!fishpond!to!the!
spouses! Alipio! and! spouses! Manuel! wherein! all! 4! signed! the!
contract.! There! was! a! failure! to! pay! the! second! installment! hence!
Jaring!filed!for!collection!against!the!4!sublessees!which!was!granted!
!
Held:!There!was!an!error!in!the!judgment!of!the!TC!as!it!did!not!even!
say! if! the! Alipios! and! the! Manuels! were! jointly! or! solidarily! liable.!
Since! it! is! silent,! joint! liability! will! be! presumed.! There! were! no!
allegations!that!the!sublessees!refused!to!vacate!the!fishpond!after!
expiration!of!sublease!so!they!could!not!be!held!as!joint!tort!feasors.!
C. Joint(Indivisible(Obligations(
1. CONCEPT!
!
Art.!1209.!Their!tie!is!joint,!but!the!performance!is!indivisible.!One!in!
which! the! object! of! the! object! or! prestation! is! indivisible,! not!
susceptible!of!division;!while!the!tie!between!the!parties!is!joint,!that!
is!liable!only!to!a!proportionate!share.!
!
# Several! creditors! or! debtors! but! the! prestation! is! indivisible,!
obligation!is!joint!unless!solidary!has!been!stipulated!
# Midway! between! joint! (no! creditor! can! do! prejudicial! acts! to!
others,!no!debtor!can!be!made!to!answer!for!the!others)!and!
solidarity! (fulfillment! requires! the! concurrence! of! all! the!
debtors,! collective! action! is! expressly! required! for! prejudicial!
acts)!
# Sir! Labitags! example:! obligation! to! assemble! a! jeepney!
between! three! different! specialist:! mechanic,! welder,!
upholsterer!or!car!painter.!!
2. INDIVISIBILITY!DISTINGUISHED!FROM!SOLIDARITY!
!
Art.!1210.!The!indivisibility!of!an!obligation!does!not!necessarily!give!
rise!to!solidarity.!Nor!does!solidarity!of!itself!imply!indivisibility.!
!
INDIVISIBILITY!
SOLIDARITY!
Each! creditor! cannot! demand! Each! creditor! may! demand! the!
more! than! his! share! and! each! full! prestation! and! each! debtor!
debtor! is! not! liable! for! more! has!the!duty!to!comply!with!the!
than!his!share!
entire!prestation!!
Indivisibility! refers! to! the! Solidarity! refers! to! the! legal, tie,
prestation! that! is! not! capable! or, vinculum! defining! the! extent!
of!partial,performance!
of!liability!!
Only! the! debtor! guilty! of! All! of! the! debtors! is! liable! for!
breach!of!obligation!is!liable!for! the! breach! of! obligation!
damages,! thereby! terminating! committed! by! any! one! of! the!
the!agency!!
debtors!
Can! exist! even! if! there! is! only! Can! only! exist! when! there! is! at!
one!debtor!or!only!one!creditor! least! creditor! or! debtors!!
(requires!plurality!of!subjects)!!
The!other!debtors!are!not!liable! The! other! debtors! are!
in! case! of! insolvency! of! one! proportionately!liable!in!case!of!
debtor!!
insolvency!of!one!debtor!
3. EFFECTS!
!
Art.!1209.!If!the!division!is!impossible,!the!right!of!the!creditors!may!
be!prejudiced!only!by!their!collective!acts!
!
1.
2.
3.
4.
5.
Creditors!prejudiced!only!by!their!collective!acts!
Co?debtors!not!liable!for!the!share!of!the!insolvent!debtor!
Creditor! must! proceed! against! all! the! joint! debtors,! because!
the!compliance!of!the!obligation!is!possible!only!if!all!the!joint!
debtors!would!act!together.!
If! one! of! the! debtors! cannot! comply,! the! obligation! is!
converted!into!monetary!consideration!(liability!for!losses!and!
damages).!One!who!is!ready!and!willing!to!comply!will!pay!his!
proportionate! share! plus! damages! when! his! financial!
condition!improves.!!
Debtor!must!deliver!to!all!the!creditors.!If!he!delivers!to!only!
one,! liable! for! non?performance! as! to! other! creditors.!
Damages! are! divisible! and! each! creditor! can! recover!
separately!his!proportionate!share.!
!!!!!!!45!
!!!!
4. LIABILITIES!IN!CASE!OF!BREACH!
!
B. Indivisible(Obligations(
Art.1224.! A! joint! indivisible! obligation! gives! rise! to! indemnity! for!

damages!from!the!time!anyone!of!the!debtors!does!not!comply!with!
his! undertaking.! The! debtors! who! may! have! been! ready! to! fulfill!
their! promises! shall! not! contribute! to! the! indemnity! beyond! the!
corresponding!portion!of!the!price!of!the!thing!or!of!the!value!of!the!
service!which!the!obligation!consists.!
!
1. Gives!rise!to!indemnity!for!damages,!non?compliance!with!
undertaking!
2. Debtors!ready!to!fulfill!shall!not!be!liable!
V.
Divisible(
Obligations(
and(
Indivisible(
A. Divisible(Obligations(
1. CONCEPT!
!
One!which!is!susceptible!of!partial!performance;!debtor!can!legally!
perform! the! obligation! by! parts! and! the! creditor! cannot! demand! a!
single!performance!of!the!entire!obligation.!!
# DIVISIBILITY! OF! THINGS! different! from! DIVISIBILITY! OF!
OBLIGATIONS!
o Divisible,Thing:!When!each!one!of!the!parts!into!
which! it! is! divided! forms! a! homogenous! and!
analogous!object!to!the!other!parts!as!well!as!to!
the!thing!itself!
o Indivisible, Thing:! When! if! divided! into! parts,! its!
value!is!diminished!disproportionately!!
# Test,of,Divisibility%
1. Will!or!intention!of!the!parties!!
2. Objective!or!purpose!of!the!stipulated!prestation!!
3. Nature!of!the!thing!
4. Provisions!of!law!affecting!the!prestation
2. EFFECTS!
!
Art.! 1223.! The! divisibility! or! indivisibility! of! the! things! that! are! the!
object!of!obligations!in!which!there!is!only!one!debtor!and!only!one!
creditor!does!not!alter!or!modify!the!provisions!of!Chapter!2!of!this!
Title!(Nature!and!Effect!of!Obligations).!!
!
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.!
3. KINDS!(DE!LEON)!
a.
b.
c.
Qualitative! Division! ! based! on! quality! and! not! the!

number!of!objects!
Eg.! A! and! B! are! heirs! and! agreed! to! divide! the!
inheritance!with!A!receiving!the!house!and!lot!and!B!
receiving!the!car!and!rice!fields!
Quantitative!Division!!based!on!number!of!things!
Eg.!Divide!equally!between!two!creditors!300!cavans!
of!rice!
Ideal!of!Intellectual!Division!!exists!only!in!the!minds!of!
the!parties!
Eg.! The! shares! of! two! co?owners! of! a! car! are! not!
materially!separable!but!only!mentally!
1. CONCEPT!
Whatever! may! be! the! nature! of! the! thing! which! is! the! object!
thereof,!when!it!cannot!be!validly!performed!in!parts.!!
2. KINDS!
%
a. Natural%
!
Art.!1225(1).!For!the!purposes!of!the!preceding!articles,!obligations!
to! give! definite! things! and! those! which! are! not! susceptible! of!
partial!performance!shall!be!deemed!to!be!indivisible.!!!
1. Obligation!to!give!definite!things!
2. Not!susceptible!of!partial!performance!
%
b. Legal%%
!
Art.! 1225(3).! However,! even! though! the! object! or! service! may! be!
physically!divisible,!an!obligation!is!indivisible!if!so%provided%by%law!
or!intended!by!parties.!!
,
c. Conventional% %
!
Art.! 1225(3).! However,! even! though! the! object! or! service! may! be!
physically! divisible,! an! obligation! is! indivisible! if! so! provided! by! law!
or!intended%by%parties.!!
4. PRESUMPTIONS!
!
a. Of%indivisibility%
!
Art.!1225(1).!For!the!purposes!of!the!preceding!articles,!obligations!
to!give!definite!things!and!those!which!are!not!susceptible!of!partial!
performance,shall!be!deemed!to!be!indivisible.!!
# Presumption! of! indivisibility! also! applies! in! obligations! to!
do!!
!
b. Of%divisibility%%
!
Art.!1225(2.)!When!the!obligation!has!for!its!object!the!execution!of!
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,!shall!be!divisible.!!!
!
5. DIVISIBILITY!AND!INDIVISIBILITY!IN!OBLIGATIONS!NOT!TO!DO!
!
Art.!1225(4).!In!obligations!not!to!do,!divisibility!or!indivisibility!shall!
be!determined!by!the!character!of!the!prestation!in!each!particular!
case.!!
6. EFFECTS!
!
1.
2.
Art.!1223.!The!divisibility!or!indivisibility!of!the!things!that!
are! the! object! of! obligations! in! which! there! is! only, one,
debtor,and,only,one,creditor!does!not%alter%or%modify!the!
provisions! of! Chapter! 2! of! this! Title! (Nature! and! Effect! of!
Obligations).!!
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.!
!!!!!!!46!
!!!!
3.
4.
i. EXCEPTIONS:!!
a. Obligation! has! been! substantially! performed!
in!good!faith!(Art.!1234.)!
b. When! the! creditor! accepts! performance,!
knowing! its! completeness,! and! without!
protest,! the! obligation! is! deemed! fully!
performed!(Art.!1235.)!
Art.! 1224.! A! joint! indivisible! obligation! gives! rise! to!
indemnity, for, damages! from! the! time! anyone! of! the!
debtors! does! not! comply! with! his! undertaking.! The!
debtors!who!may!have!been!ready!to!fulfill!their!promises!
shall! not% contribute% to% the% indemnity! beyond! the!
corresponding! portion! of! the! price! of! the! thing! or! of! the!
value!of!the!service!which!the!obligation!consists.!
See,Joint,Indivisible,Obligations!
7. CESSATION!OF!INDIVISIBILITY!
a)
b)
Natural, Indivisibility:! conversion! of! the! obligation! to! pay!

damages!
Conventional/Legal, Indivisibility:! novation,! death! of!
creditor!(division!among!heirs)!
!
Entire,and,Severable,Contracts!!depends!upon!the!consideration!to!
be!paid,!not!upon!its!object!
Not! in! the! syllabus! but! Sir! mentioned! in! passing! during!
lecture!
ENTIRE!!consideration!is!entire!and!single;!e.g.!Sir!Labitag:!
yearly!subscription!to!Herald!Tribune!
SEVERABLE! ! consideration! is! expressly! or! by! implication!

apportioned;! e.g.! part! to! be! performed! by! one! party!
consists! in! several! distinct! and! separate! items,! and! the!
price!is!apportioned!to!each!of!them!!!
1.
DISTINGUISHED!
%
AS!TO!
Existence!of!
Obligation!
Dependence!
AS!TO!
Prestations!
Impossibility!
The!penal!clause!is!
dependent!(accessory!
obligation)!on!the!non?
performance!of!the!
CONDITIONAL!
OBLIGATION!
Uncertain;!no!
obligation!exists!prior!
to!fulfillment!of!
suspensive!condition!
The!principal!obligation!
itself!is!dependent!
upon!the!happening!of!
an!uncertain!event!
3. DISTINGUISHED!FROM!ALTERNATIVE!OBLIGATIONS!
!
Art.!1226,!Par.!1.!In!obligations!with!a!penal!clause,!the!penalty!
shall!substitute!the!indemnity!for!damages!and!the!payment!of!
interests!in!case!of!noncompliance,!if!there!is!no!stipulation!to!
the!contrary.!Nevertheless,!damages!shall!be!paid!if!the!obligor!
refuses!to!pay!the!penalty!or!is!guilty!of!fraud!in!the!fulfillment!
of!the!obligation.!
OBLIGATIONS!WITH!A!
PENAL!CLAUSE!
Certain;!one!already!
exists!(principal!
obligation)!
A. Concept(
It!is!an!obligation!that!contains!an!accessory!undertaking!to!
pay! a! previously! stipulated! indemnity! in! case! of! breach! of!
the! principal! obligation,! intended! primarily! to! induce! its!
fulfillment.!
The!object!of!the!penal!clause!is!generally!a!sum!of!money!
but!it!can!be!any!other!thing!stipulated!by!the!parties,!such!
as!an!act!or!abstention.!
The!penal!clause!may!have!reparation%OR!punishment!as!its!
purpose.!The!purpose!is!material!in!determining!the!question!
of!damages.!
o Reparation! ! the! penal! clause! replaces! the! claim! for!
damages;!the!object!of!the!penal!clause!now!represents!
the! estimate! of! the! damages! that! a! party! might! suffer!
from! non?performance! of! the! obligation.! The! penal!
clause! may! be! enforced! without! the! proof! of! damages!
from! the! prejudiced! party! and! even! if! the! value! of! the!
object! of! the! penal! clause! be! greater! than! that! of! the!
value!of!the!actual!damages.!
PRINCIPAL% OBLIGATION% "! an! obligation! that! can! stand! by!

itself! and! does! NOT! depend! on! another! obligation! for! its!
validity!and!existence.!!
!
ACCESSORY% OBLIGATION%"!an!obligation!which!is!attached!
to!a!principal!obligation!and!cannot!stand!alone.!
2. DISTINGUISHED!FROM!CONDITIONAL!OBLIGATIONS!
!
VI. Obligations*with*a*Penal*Clause*
Punishment! ! the! injured! partys! right! to! claim! for!

damages! remains! and! is! demandable! along! with! the!
penal!clause.!
The!penal!clause!is!to!be!construed!strictly.!
!
PRINCIPAL! OBLIGATIONS! AND! ACCESSORY! OBLIGATIONS!
o
Choice!
!
!
!
!
!
!
!
!
!
OBLIGATIONS!WITH!A!
PENAL!CLAUSE!
Only!one!exists!and!
must!be!performed!
(principal);!otherwise,!
the!penalty!clause!
becomes!enforceable!
The!impossibility!of!the!
principal!obligation!will!
also!extinguish!the!
penal!clause!
The!debtor!may!not!
choose!to!perform!the!
obligation!imposed!by!
the!penal!clause!to!
relieve!himself!of!the!
principal!(unless!such!
right!is!expressly!
granted)!
ALTERNATIVE!
OBLIGATION!
There!are!two!or!more!
prestations!but!
performing!one!of!
them!is!sufficient!
Impossibility!of!one!of!
the!prestations!will!not!
invalidate!the!
obligation!for!the!
others!subsist!
The!debtor!may!choose!
which!prestation!to!
comply!with!!
!!!!!!!47!
!!!!
4. DISTINGUISHED!FROM!FACULTATIVE!OBLIGATIONS!
!
AS!TO!
Availability!of!
Right!to!
Choose!
Demandability!
of!Both!
Prestations!
OBLIGATIONS!WITH!A!
PENAL!CLAUSE!
The!debtor!will!only!
acquire!the!right!when!
it!is!expressly!granted!
If!the!penalty!is!
complementary!in!
nature,!it!can!be!
demanded!WITH!the!
3. AS!TO!PURPOSE!
%
a. PUNITIVE% "! the! penal! clause! is! imposed! as! a!
FACULTATIVE!
OBLIGATION!
The!right!of!the!debtor!
to!choose!is!absolute!
Creditor!cannot!
demand!both!nor!the!
substitute;!only!the!
principal!prestation!
may!be!demanded.!
punishment!for!breach!of!the!principal!obligation!
!
b. REPARATORY% "! the! penal! clause! is! imposed! as! a!

replacement!for!damages!%
C. Demandability(of(Penalty(
!
Art.!1226,!Par.!2.!The!penalty!may!be!enforced!only!when!it!is!
demandable!in!accordance!with!the!provisions!of!this!Code.!
!
!
5. DISTINGUISHED!FROM!GUARANTY!
!
AS!TO!
OBLIGATIONS!WITH!
A!PENAL!CLAUSE!
Object/Prestation! The!object/prestation!
of!the!principal!
differs!from!that!of!
the!penal!clause!
Assumption!of!
Obligation(s)!
Defects!
The!principal!
obligation!and!the!
penal!clause!can!be!
assumed!by!the!
SAME!person!
The!nullity!of!the!
extinguishes!the!
penal!clause!
!
Exception:!if!the!
penal!clause!is!to!be!
assumed!by!a!third!
person,!it!will!not!be!
extinguished!
The!penal!clause!becomes!demandable!only!when!the!non?
a. SUBSIDIARY%"!only!the!penalty!clause!can!be!enforced.!
!
b. COMPLEMENTARY/CUMULATIVE% "! both! the!

principal!obligation!and!the!penal!clause!can!be!enforced!
%
2. AS!TO!SOURCE!
!
a. CONVENTIONAL% "!it!is!provided!for!by!the!stipulation!
b. LEGAL%"!it!is!provided!for!by!law!
%
%
%
of! the! debtor! is! presumed.! The! debtor! has! the! burden! of!
proof! to! show! that! he! was! not! the! cause! of! the! non?
performance! (i.e.,! fortuitous! event! or! fault! of! the! creditor!
himself)!
In!an!obligation!with!two!or!more!debtors,!the!divisibility!of!
the!principal!obligation!will!not!equate!to!the!divisibility!of!
the! penalty;! the! principal! obligation! may! be! joint! but! the!
penalty! can! be! joint! (each! co?debtor! must! pay! his! share! in!
the!penalty)!or!solidary!(the!whole!penalty!can!be!enforced!
against!any!of!the!solidary!debtors).!
o However,! if! the! debtors! are! solidary! co?debtors! of! each!
other,!the!penalty!must!be!enforced!in!its!entirety.!
!
Art.!1228.!Proof!of!actual!damages!suffered!by!the!creditor!is!not!
necessary!in!order!that!the!penalty!may!be!demanded!
The!obligation!as!a!
guarantor!will!subsist!
even!if!the!obligation!
is!voidable,!
unenforceable!or!is!a!
natural!obligation.!
B. Kinds(of(Penal(Clauses(
!
1. AS!TO!EFFECT!
of!the!parties!
In!the!non?performance!of!the!principal!obligation,!the!fault!
The!obligation!of!
principal!debtor!and!
the!obligation!of!a!
third!person!as!
guarantor!deal!with!
the!same!
object/prestation!
Cannot!be!assumed!
by!the!same!person;!
a!debtor!cannot!be!
his!own!guarantor!
performance!of!the!principal!obligation!is!due!to!the!fault!or!
fraud!of!the!debtor!
GUARANTY!
The!article!only!applies!when!the!penal!clause!is!reparatory,
(the! penalty! replaces! the! indemnity! for! damages).! Should!
the!penal!clause!be!punitive,(indemnity!for!damages!can!still!
be!claimed!along!with!the!penalty),!the!creditor!must!prove!
the!amount!of!damages!he!is!asking!for.!
D. Effects(of(Penal(Clause(
!
1. BECOMES!A!SUBSTITUTE!FOR!INDEMNITY!FOR!DAMAGES!AND!
PAYMENT!OF!INTEREST!IN!CASE!OF!NON[COMPLIANCE!
!
a. EXCEPTION! (Art! 1226! Par.! 1):! unless! there! is! a!

stipulation!to!the!contrary.!
!
Cases:!
MAKATI!DEVT!CORP!v.!EMPIRE!INSURANCE!CO.!
Facts:! Makati! Devt! Corp! (MDC)! sold! a! piece! of! land! to! a! certain!
Andal!and!part!of!the!provisions!of!the!deed!of!sale!was!that!Andal!
should! build! a! house! within! two! years! from! the! stipulated! date.! In!
compliance,! Andal! gave! a! surety! bond! worth! P12,000! to! MDC!
wherein! he! (as! the! principal)! was! jointly! and! severally! liable! with!
Empire!Insurance!(as!a!surety).!Andal!however!sold!the!land!and!no!
house! was! built! within! the! two?year! period,! though! construction!
was! began! after! the! lapse! of! the! period.! The! trial! court! found! for!
MDC! but! lessened! the! penalty! from! P12,000! to! P1,500.! MDC!
appealed!the!amount.!
!
!!!!!!!48!
!!!!
Held:! The! provision! providing! for! the! P12,000! penalty! is! a! penal!
obligation! which! takes! place! of! payment! of! damages! and! interest!
when! there! is! non?compliance.! MDC! is! entitled! to! such! penalty!
without! proving! the! damages! incurred.! However,! the! court! was!
correct!in!reducing!the!amount!of!the!damages!in!view!of!the!partial!
performance! (that! the! construction! was! started! after! the! lapse);! it!
correctly!applied!Article!1229.!Decision!affirmed.!
!
TAN!v.!CA!
Facts:! Tan! obtained! two! loans! (evidenced! by! their! respective!
promissory!notes)!from!the!CCP,!to!the!total!amount!of!P4!million.!
Tan! defaulted! but! the! debt! was! later! on! restructured! (new!
promissory!note!with!a!balance!of!P3.4!million!which!is!payable!in!5!
installments!with!14%!interest;!an!added!provision!was!that!2%!per!
month!rate!of!surcharge!will!apply!upon!default!of!Tan!in!paying!and!
that! such! surcharge! will! be! compounded! to! the! stipulated! interest!
rate).!Tan!again!defaulted!and!twice!tried!to!propose!the!restructure!
of!the!debt!again!but!were!unanswered!and,!later!on,!rejected.!CCP!
filed! suit.! The! trial! court! and! the! CA! both! found! for! CCP;! as! to! the!
computation,!the!court!applied!the!penalty!(2%!monthly!surcharge)!
on! the! principal! amount! (P3.4! million)! and! the! interest! therefrom!
(14%).! Tan! appealed,! inter! alia,! such! computation,! arguing! there! is!
no!legal!basis.!
!
Held:! Decision! affirmed! with! modification.! Firstly,! the! court! noted!
that! the! promissory! notes! clear! provisions! allowed! the!
compounding! of! such! interests.! The! 14%! stipulated! interest! is! the!
monetary! interest! and! is! allowed! by! Article! 1956,! while! the! 2%!
monthly! surcharge! has! the! nature! of! a! penalty! and! is! governed! by!
the! articles! on! obligations! with! a! penal! clause.! Such! penalty! is!
distinct! from! the! monetary! interest.! And! an! obligation! with! such! a!
penalty,!apart!from!that!of!a!stipulated!monetary!interest!is!allowed!
under! Article! 2209.! However,! given! that! the! 2%! interest! which! is!
monthly! compounded! is! unconscionable,! it! is! reduced! by! the! court!
to! the! legal! rate! of! interest:! 12%! per! annum.! Such! legal! interest! is!
still! applicable! to! the! 14%! monetary! interest,! as! such! was! agreed!
upon!by!the!parties.!
!
COUNTRY!BANKERS!INSURANCE!v.!CA!
Facts:! Sy! and! OVEC! (a! corporation)! entered! into! a! lease! contract!
involving! OVEC! leasing! 3! of! its! theaters! to! Sy;! Sy! deposited! the!
amount! of! P290,000! in! compliance! with! ! forfeiture! clause! in! the!
lease! agreement.! However,! Sy! eventually! fell! into! arrears! with!
respect!to!his!rent,!payment!of!amusement!taxes!and!the!payment!
of! the! increase! in! rent.! OVEC! ended! up! padlocking! the! leased!
premises! but! Sy! was! able! to! secure! (by! posting! a! bond)! a! writ! of!
preliminary!injunction.!In!the!case!in!the!trial!court,!it!was!decided!in!
favor!of!OVEC,!ordering!Sy!to!pay!damages!along!with!his!arrears!in!
rent! and! amusement! taxes.! The! deposit! was! forfeited! in! exchange!
for!the!total!value!of!the!increase!in!rent!that!Sy!was!unable!to!pay.!!
Sy!appealed,!inter!alia,!the!validity!of!the!forfeiture!clause!given!that!
damages!were!already!awarded!while!OVEC!appealed!the!ruling!that!
the! forfeited! deposit! would! serve! as! the! payment! for! the! unpaid!
increase! in! rent! (whose! value! was! greater! than! the! forfeited!
deposit).!!
!
Held:! The! forfeiture! clause! (a! penal! clause! by! nature)! was!
considered!valid.!Generally,!the!penalty!substitutes!for!the!payment!
of! damages! and! interest! in! case! of! non?compliance.! There! are!
exceptions! however:! (a)! contrary! is! expressly! stipulated,! (b)! debtor!
refuses!to!pay/comply!with!the!penalty!and!(c)!the!debtor!is!guilty!of!
fraud.! The! forfeiture! clause! falls! under! the! said! exception! as! it!was!
expressly! stipulated! therein! that! it! may! be! forfeited! without!
prejudice!to!any!other!obligation!still!owing.!Decision!affirmed.!
2. WILL! NOT! EXEMPT! DEBTOR! FROM! PERFORMANCE! OF! THE!

PRINCIPAL!OBLIGATION!
!
Art!.1227.!The!debtor!cannot!exempt!himself!from!the!performance!
of!the!obligation!by!paying!the!penalty,!save!in!the!case!where!this!
right!has!been!expressly!reserved!for!him!
!
Performing! the! penalty! will! not! absolve! the! debtor! of! his!
duty!to!perform!the!principal!obligation!because!the!penal!
clause!is!not!the!one!due.!
EXCEPTION:! save! in! the! case! where! the! right! has! been!
expressly!reserved!for!him.!
!
CREDITOR! CANNOT! DEMAND! BOTH!THE! PERFORMANCE!AND!
3.
PENALTY!AT!THE!SAME!TIME!
!
Art.!1227.!!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.!
!
Where!the!creditor!has!been!given!the!choice!of!enforcing!
the! principal! obligation! or! the! penalty,! he! cannot! have!
both!at!the!same!time.!
a. Where!there!is!performance! "!if!the!obligation!has!
been!fulfilled,!there!will!be!no!need!for!the!penalty!
to! be! enforced! or! even! demanded.! The! exception!
arises! when! the! right! is! clearly! granted! him.! In!
effect,! the! article! connotes! that! as! a! general! rule,!
the! penal! clause! is! subsidiary! and! not! joint! in!
nature.!
Note:! the! phrase! clearly! granted! does! not!

require! an! express! grant;! inferences! and!
presumptions! may! be! made,! provided! that!
they!have!their!basis!in!evidence.!
b. Where! there! is! no! performance! "! In! case! of! non?
compliance,! the! creditor! may! require! specific!
performance!OR!ask!for!the!penalty.!These!remedies!
are!neither!cumulative!nor!successive.!
EXCEPTION:! If! the! creditor! has! chosen! the!

performance! of! the! principal! obligation! and!
such!performance!becomes!impossible!without!
his!fault,!he!may!enforce!the!penalty.!
!
4. CREDITOR! CANNOT! COLLECT! OTHER! DAMAGES! IN!
ADDITION!TO!THE!PENALTY!
Art.!1226,!Par.!1.!In!obligations!with!a!penal!clause,!the!penalty!
shall!substitute!the!indemnity!for!damages!and!the!payment!of!
interests!in!case!of!noncompliance,!if!there!is!no!stipulation!to!
the!contrary.!Nevertheless,!damages!shall!be!paid!if!the!obligor!
refuses!to!pay!the!penalty!or!is!guilty!of!fraud!in!the!fulfillment!
of!the!obligation.!
!
!
!
!
!!!!!!!49!
!!!!
CHAPTER(4:((
a. EXCEPTIONS%(Art%1226):%
1.
2.
3.
There!is!an!express!provision!to!that!effect!
The! debtor! refuses! to! pay/comply! with! the!
penalty!
Debtor! is! guilty! of! fraud! in! the! performance! of!
the!obligation.!
EXTINGUISHMENT(OF(
OBLIGATIONS(
E. When(Penalty(Will(Be(Equitably(Reduced(
!
Art.!1229.!The!judge!shall!equitably!reduce!the!penalty!when!the!
principal!obligation!has!been!partly!or!irregularly!complied!with!by!
the!debtor.!Even!if!there!has!been!no!performance,!the!penalty!may!
also!be!reduced!by!the!courts!if!it!is!iniquitous!or!unconscionable.!
!
Partiality, of! the! performance! refers! to! the! extent! of! the!
fulfillment!of!the!obligation!while!irregularity,refers!to!the!
manner!in!which!the!obligation!is!fulfilled.!
The!courts!also!have!the!discretion!to!reduce!the!penalty!
when!it!is!iniquitous,or,unconscionable.!
It! has! been! held! that! while! stipulated! rates! of! interest! in!
obligations! to! pay! a! sum! of! money! are! not! penal! clauses! by!
nature,! they! may! also! be! reduced! if! they! are! iniquitous! or!
unconscionable!
EXCEPTION:! The! article! will! not! apply! to! surcharges! on! taxes!
that! are! due! for! they! are! of! mandatory! character! against! the!
taxpayer.!
a.
b.
F. Nullity(of(Principal(Obligation(or(Penal(Clause(
!
Art.!1230.!The!nullity!of!the!penal!clause!does!not!carry!with!it!that!
of!the!principal!obligation.!
!
The!nullity!of!the!principal!obligation!carries!with!it!that!of!the!
penal!clause.!
!
An!obligation!and!its!penal!clause!shares!the!relationship!of!
a!principal!obligation!and!an!accessory!obligation!
o
The!existence!of!the!accessory!obligation!depends!upon!
the!principal!while!the!principal!obligation!can!stand!on!
its!own.!
Nullity!of!the!principal!obligation,!as!a!general!rule,!also!
nullifies! the! penal! clause.! There! are! however,!
exceptions:!
! The! penalty! is! undertaken! by! a! third! person!
precisely! for! an! obligation! that! is! unenforceable,!
voidable,!or!natural;!this!is!a!form!of!guaranty!
! If!the!nullity!of!the!principal!obligation!gives!rise!to!
a! liability! of! the! debtor! for! damages,! the! penalty!
may!be!enforced!as!a!substitute!for!damages.!
A!penal!clause!may!be!void!because!it!is!contrary!to!law,!
morals,! public! order! or! public! policy.! In! such! a! case,!
nullity! of! the! penal! clause! will! not! invalidate! the!
principal! obligation.! Should! there! be! non?performance,!
damages! will! be! determined! as! if! no! penal! clause! had!
existed.!
I. Modes*of*Extinguishment*
(
Art.!1231.!Obligations!are!extinguished:!
1. By! payment! or! performance! ! most! natural! way! of!
extinguishing!obligation!!
2. By!loss!of!the!thing!due!or!Impossibility!of!performance!!
3. By!condonation!or!Remission!of!the!debt!
4. By! confusion! or! Merger! of! the! rights! of! the! creditor! and!
debtor!!
5. By!compensation!
6. Novation!!
Other! causes! of! extinguishment! of! obligations,! such! as! annulment,!
rescission!,! fulfillment! of! resolutory! condition,! and! prescription,! are!
governed!elsewhere!in!this!Code.!
!
Additional! miscellaneous! causes! from! Sir! Labitag,! Tolentino,!

and!De!Leon!
o Arrival!of!resolutory!period!
o Compromise!
o Mutual,dissent!(opposite!of!mutual!agreement)!
o Death! ! extinguishes! obligations! which! are! of! a! purely!
personal!character,!apart!from!its!extinctive!effect!in!some!
contracts!such!as!partnership!and!agency!!
o Renunciation!by!the!creditor!
o Abandonment! e.g.! Art! 662! (abandonment! of! interest! in! a!
party!wall)!and!abandonment!of!a!vessel!under!the!code!of!
commerce!!
o Insolvency! ! does! not! extinguish! obligation! unless!
judicially!declared!and!a!discharge!was!given!him.!!
o Impossibility!of!fulfillment!
o Happening!of!a!fortuitous!event!
II. Payment*or*Performance*
A. Concept!
!
Fulfillment!of!the!prestation!due,!a!fulfillment!that!extinguishes!the!
obligation! by! the! realization! of! the! purposes! for! which! it! was!
constituted.!In!law,!payment!and!performance!are!synonymous!
Juridical! act! which! is! VOLUNTARY,! LICIT,! and! MADE! WITH!

THE!INTENT!TO!EXTINGUISH!THE!OBLIGATION!!
B. Requisites(of(a(Valid(Payment((
1.
2.
3.
4.
!
!
!
!
!
WHO!CAN!PAY!
TO!WHOM!PAYMENT!MAY!BE!MADE!
WHAT!IS!TO!BE!PAID!(IDENTITY)!
HOW!IS!PAYMENT!TO!BE!MADE!(INTEGRITY)!
!!!!!!!50!
!!!!
KINDS!OF!PAYMENT:!
Normal! ! debtor! voluntarily! performs! the! prestation!

stipulated!!
Abnormal! ! debtor! is! forced! by! means! of! judicial!

proceeding,! either! to! comply! with! the! prestation! or! pay!
indemnity!
!
Why!do!you!pay?!Biggerconsequences!if!you!dont!pay,!the!creditor!
will! file! action! for! collection! then! the! sheriff! will! levy! upon! your!
other!properties!!
!
What!are!the!elements/characteristics!of!a!valid!payment?!
1) Identity!!what!is!to!be!paid,!payment!should!be!the!
very! same! obligation/prestation! promised! to! be!
performed/not! performed.! The! burden! of! proving!
extinguishment! by! payment! devolves! upon! the!
debtor!who!claims!payment!
2) Integrity! ! how! payment! should! be! made,! it! should!
be! complete! (not! only! specific! thing! but! all! of! its!
accessions! and! accessories)! Partial! or! irregular!
performance! will! not! extinguish! an! obligation! as! a!
general!rule!
!
Can! anybody! pay?! YES,! as! long! as! his! payment! has! integrity! and!
identity!and!the!creditor!accepts!it!as!a!valid!tender!of!payment!
%
1. WHO!CAN!PAY!
!
a. In% general% (creditor! cannot! refuse! valid! tender! of!
payment)%
a) Debtor!
b) Anyone!acting!on!his!behalf!
1. Duly!authorized!agent!or!representatives!
2. Heirs! (means! that! debtor! is! dead,! if! alive,!
they! would! be! third! persons! interested! in!
obligation)!!
3. Successors!in!interest!and!assignees!
!
b. Third% person% who% is% an% INTERESTED% PARTY%

(creditor!cannot!refuse!valid!tender!of!payment)%
i.
%Meaning%of%INTERESTED%PARTY%!interested!
in!the!extinguishment!of!the!obligations!such!as%
a)
b)
c)
d)
ii.
Co?debtors!
Sureties!
Guarantors!
Owners!of!mortgaged!property!or!pledge!
Effects% of% Payment% by% 3rd% Person% %

Interested%
!
Art.! 1302! (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!latters!share.!
rd
Effects!of!payment!by!3 !person:!
1. Valid!payment;!obligation!extinguished!
rd
2. Debtor!to!reimburse!fully!3 !person!interested!
rd
3. 3 !person!subrogated!to!the!rights!of!the!creditor!!
!
c. Third% person% who% is% NOT% AN% INTERESTED%

PARTY%but%WITH%CONSENT%of%debtor%
,
Art.! 1302,! Par.! 2.! When! a! third! person,! not! interested! in! the!
obligations,!pays!with!the!express!or!tacit!approval!of!the!creditor.!!
,
Art.! 1236.! Par.! 1.! 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.!!
%
i.
Effects% of% Payment% by% 3rd% Person% % Not%

Interested%%With%Debtors%Consent%
1.
2.
3.
rd
3 !person!is!entitled!to!full!reimbursement!!
!
Demand!from!the!debtor!what!he!has!paid!!
rd
Legal! subrogation! (novation)! ! 3 ! person! is!
subrogated/steps!into!the!shoes!of!creditor!
!
Payor! can! exercise! all! the! rights! of! the!
creditor! arising! from! the! very! obligation!
itself,! whether! against! the! debtor! or! third!
person!
Creditor!may!refuse!to!accept!payment!
!
d. Third% person% who% is% NOT% AN% INTERESTED%

PARTY% and% WITHOUT% THE% KNOWLEDGE% OR%
AGAINST%THE%WILL%OF%THEDEBTOR%
%
Art.! 1236,! Par.! 1.! 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.!!
!
Art.!1236,!Par.!2.!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.!!
!
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.!!
!
,
i.
Effects% of% Payment% by% 3rd% Person% % Not%

Interested%%Without%Knowledge%or%Against%
the%Will%
1.
rd
3 ! person! can! only! be! reimbursed! insofar! as!

payment!has!been!beneficial!to!debtor!!
rd
!
Burden! of! proof! of! payment! on! the! 3 !
person!!
!
Benefit! to! the! creditor% need% not% be%
proved!in!the!following!cases:!
o If! after! the! payment,! the! third!
person!acquires!the!creditors!right!
o If! the! creditor! ratifies! the! payment!
to!the!third!person!
o If! by! the! creditors! conduct,! the!
debtor! has! been! led! to! believe! that!
the! third! person! had! authority! to!
receive!the!payment!!
o Assignment! of! credit! without! notice!
to!debtor!(Art!1626)!
!!!!!!!51!
!!!!
2.
3.
rd
3 ! person! cannot! compel! creditor! to!

subrogate!him!in!the!latters!rights!
But! the! obligation! between! the! debtor! and!
creditor!is!extinguished!
%
e. Third% person% who% does% NOT% INTEND% TO% BE%
REIMBURSED%! %DEBTOR%MUST%GIVE%CONSENT%
!
Art.! 1238.! Payment! by! third! person! who! does! not! intend! to! be!
reimbursed! by! the! debtor! is! deemed% to% be% a% donation,! which!
requires, the, debtors, consent.! But! the! payment! is! in! any! case! valid%
as%to%the%creditor!who!has!accepted!it.!
!
Effects% of% Payment% by% 3rd% person% % Interested% or% not% % Does% not%
intend%to%be%reimbursed:%
Payment!is!deemed!as!a!donation/offer!of!donation!
Donation!must!be!in!proper!form!(i.e.!if!above!P5K!it!must!
be!in!writing)!!
!
f.
In%obligation%to%give%
,
Art.!1239.!In!obligation!to!give,!payment!made!by!one!who!does!not!
have!free!disposal!of!the!thing!due!and!capacity!to!alienate!it!shall!
not%be%valid,!without!prejudice!to!the!provisions!of!Art!1427!under!
Title!on!Natural!Obligations.,
,
Art.!1427.!When!a!minor!18?21!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!an!obligation,!there!shall!
be! no% right% to% recover! the! same! from! the! oblige! who! has! spent, or,
consumed,it,in,good,faith.,
,
i.
Effects%of%Incapacity%of%the%payor%
No!free!disposal!and!no!capacity!to!alienate!
Payment! is! invalid,! but! without! prejudice! to!
natural!obligations!
Minor!who!entered!contract!without!consent!of!
parent/guardian!!
No! right! to! recover! fungible! thing! delivered! to!
the! creditor! who! spent! or! consumed! it! in! good!
faith!
o
o
!
PAYMENT%TO%A%WRONG%THIRD%PARTY:%%
o GENERAL! RULE:! Not! valid,! obligation! is! not!
extinguished,!even!if!in!good!faith!of!the!debtor!
o EXCEPTION:!!
Extinguished! if! the! mistake! is! imputable! to! the! fault! or!
negligence!of!the!creditor!(PAL,v,CA),
Payment! in! good! faith! to! person! in! possession! of! credit!
(Art!1242),
,
Incapacitated%person%%
%
Art.! 1241,! Par.! 1.! Payment! to! a! third! person! 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.!!
!
GENERAL!RULE:!Payment!not!valid!!
EXCEPTION:!When!payment!to!an!incapacitated!person!is!
valid:!
If!creditor!has!kept!the!thing!delivered!
Insofar!as!payment!benefited!creditor!
Benefit%to%the%creditor%need%not%be%proved!in!the!following!
cases:!
a. If! after! the! payment,! the! third! person! acquires! the!
creditors!right!
b. If! the! creditor! ratifies! the! payment! to! the! third!
person!
c. If!by!the!creditors!conduct,!the!debtor!has!been!led!
to! believe! that! the! third! person! had! authority! to!
receive!the!payment!!
d. Assignment! of! credit! without! notice! to! debtor! (Art!
!
1626)!
!
b. Third%person%
,
Art.! 1241,! Par.! 2.! Payment! to! a! third! person! shall! also! be! valid!
insofar!as!it!has!redounded!to!the!benefit!of!the!creditor.!!
g. In%case%of%active%solidarity%
,
Art.!1214.!The!debtor!may!pay!any!one!of!the!solidary!creditors,!but!
if! any! demand,! judicial! or! extrajudicial! has! been! made! by! one! of!
them,!payment!should!be!made!to!him.!!!
,
2. TO!WHOM!PAYMENT!CAN!BE!MADE!
!
a. In%general%
,
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.!!
!
1. Creditor/person!in!whose!favor!obligation!was!constituted!!
2. His!successor!in!interest!
3. Any!person!authorized!to!receive!it!!
Legal! ! conferred! by! law! (i.e.! administrator! of! a!

deceased!creditor)!
Conventional! ! authority! has! been! given! by! the!
creditor!himself!
GENERAL! RULE:! VALID! if! third! person! proves! that! it!

redounded!to!creditors!benefit;!otherwise!VOID!
EXCEPTION:! When% proof% of% benefit% not% required" also!
applicable!to!INCAPACITATED!PERSONS!
!
Art.!1241,!Par.!3.!Such!benefit!to!the!creditor!need!not!be!proved!in!
the!following!cases:!
1. If! after! the! payment,! the! third! person! acquires! the!
creditors!right!
2. If!the!creditor!ratifies!the!payment!to!the!third!person!
3. If! by! the! creditors! conduct,! the! debtor! has! been! led! to!
believe!that!the!third!person!had!authority!to!receive!the!
payment!!
4. Assignment!of!credit!without!notice!to!debtor!(Art!1626)!
5. Payment!in!good!faith!to!any!person!in!possession%of%the%
credit! shall! release! the! debtor! (Art! 1242)! "! EFFECT:!
Debtor!is!released!
!
Possession!of!the!credit!should!be!distinguished!from!
possession! of! the! title! or! evidence! of! the! credit.!
!!!!!!!52!
!!!!
When! the! document! is! payable! to! the! bearer,!

payment!to!holder!is!valid.!But!if!document!is!payable!
to! assignment,! mere! possession! of! the! document! is!
not! possession! of! credit! itself! but! only! of! title,! and!
payment!to!him!is!not!valid.!
!
Art.! 1243.! Debtor! pays! creditor! after! being! judicially! ordered! to!
retain!debt!
!
EFFECT:!Payment!not!valid!if!the!property!is!attached!
or!garnished!!
!
c. In%case%of%active%solidarity%
,
Art.!1214.!The!debtor!may!pay!any!one!of!the!solidary!creditors,!but!
if! any! demand,! judicial! or! extrajudicial! has! been! made! by! one! of!
them,!payment!should!be!made!to!him.!!!
,
If!no!demand!is!made,!debtor!may!pay!to!any!of!the!
solidary!creditors!
If!any!judicial/extrajudicial!demand!is!made!by!any!of!
the!creditors!who!made!the!demand!
3. WHAT!IS!TO!BE!PAID!(IDENTITY)!
!
a. In%general%
The!very!prestation!(thing!or!service)!due!
!
b. In%obligations%to:%
i. GIVE%a%specific%thing%
,
Art.!1244,!Par.!1.!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!which!is!due.!!
,
Give!specific!things!itself!
Accessions!and!accessories!
If! with! loss,! improvements,! deterioration! "! Apply! Art!
1189!
!
ii.
GIVE%a%generic%thing%
,
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!obligation!and!other!circumstances!shall!be!
taken!into!consideration.!!
!
!
!
!
GENERAL! RULE:! Creditor! cannot! demand! a! superior!

quality;!Debtor!cannot!deliver!a!thing!of!inferior!quality!!
EXCEPTION:! Unless! quality! and! circumstances! have! been!
stated,! purpose! and! other! circumstances! of! obligation!
considered.!!
iii. Pay%money%
,
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!the!legal!tender!in!the!Philippines.!!
The! delivery! of! promissory! notes! payable! to! order,! or! bills! of!
exchange! or! other! mercantile! documents! shall! produce! 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!abeyance.!!
!!
Legal,Tender,is!that!currency!which!a!debtor!can!legally!compel!
a! creditor! to! accept! in! payment! of! a! debt! in! money! when!
tendered! by! the! debtor! in! the! right! amount.! (Blacks! Law!
dictionary)!
EXCEPTION;!RA!4100,!RA!8183:!Foreign!currency!if!agreed!to!by!
parties!!
!
Art.! 1250.! In! case! of! 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!
the!payment,!unless!there!is!an!agreement!to!the!contrary.!
!
RA!529!
Under! this! Act,! payments! of! all! monetary! obligations! should! be!
made! in! currency! which! is! legal! tender! in! the! Philippines.! A!
stipulation!providing!payment!in!a!foreign!currency!is!null!and!void,!
but!it!does!not!invalidate!the!entire!contract.!
!
RA!4100!
Payment!by!means!of!instruments!of!credits!
Promissory! notes,! checks,! bills! of! exchange! and! other!

commercial! documents! are! not! legal! tender! and,!
therefore,! the! creditor! cannot! be! compelled! to! accept!
them.!
o The!creditor,!however,!if!he!chooses,!may!accept!
them,! without! the! acceptance! producing! the!
effect! of! payment.! In! the! meantime,! the!
demandability! of! the! original! obligation! is!
suspended.!
o The!creditor!must!cash!the!instruments,!and!it!is!
only!when!it!is!dishonored!that!he!can!bring!an!
action!for!non?payment!of!the!debt!
Payment! by! means! of! mercantile! documents! does! not!

extinguish! the! obligation! until! they! have! been! cashed,! or!
unless! they! have! been! impaired! through! the! fault! of! the!
creditor.!
!
!
Cases:!
!
!
ARRIETA!v.!NARIC,!supra,(Breach)!
Facts:!RTC!awarded!to!plaintiffs!the!amount!of!$286,000!as!damages!
for! breach! of! contract.! However,! in! view! of! RA! 529,! dispositive!
portion!of!the!decision!appeal!insofar!as!it!expresses!the!amount!of!
damages!in!U.S.!currency!and!not!in!Philippine!Peso.!Only!question!
left!is!what!rate!of!exchange!should!apply!in!the!conversion.!Should!
it! be! at! the! time! of! the! breach,! at! the! time! the! obligation! was!
incurred! or! at! the! rate! of! exchange! prevailing! on! the! promulgation!
of!this!decision?!
!
!!!!!!!53!
!!!!
Held:! Citing! Eastboard, Navigation,, Ltd., V., Juan, Ysmael, &, Co.,, Inc.,,
any! agreement! to! pay! an! obligation! in! a! currency! other! than!
Philippine! legal! tender! I! null! and! void! as! contrary! to! public! policy,!
and! the! most! that! could! be! demanded! is! to! pay! said! obligation! in!
Philippine! currency! to! be! measured! in! the! prevailing! rate! of!
exchange!at!the!time!the!obligation!was!incurred.!
!
KALALO!v.!LUZ!
Facts:! Respondent! contracted! plaintiff! to! render! engineer! design!
services.! Contract! stipulated! that! respondents! fees! would! be! a! cut!
from! the! fees! which! would! be! paid! to! plaintiff.! Pursuant! to! such!
stipulation,! respondent! argues! that! he! should! be! paid! $28,000,!
which!is!20%!of!the!$140,000!contract!which!plaintiff!secured.!!
!
Held:! Payment! in! currency! other! than! Philippine! currency! is!
prohibited! by! RA! 529.! Said! law! states! that! obligations! incurred!
before! its! enactment! should! be! exchanged! at! the! rate! at! the! time!
the! obligation! was! incurred.! However,! it! is! silent! as! to! obligations!
incurred! after! its! enactment,! which! is! the! situation! in! the! case! at!
bar.!Logical!conclusion!is!that!rate!of!exchange!should!be!at!the!time!
of! payment! of! this! judgment,! rather! than! that! at! the! time! of! the!
breach.!
!
ST.!PAUL!FIRE!AND!MARINE!INSURANCE!v.!MACONDRAY!
Facts:!Consignee!Winthrop!Steams,!Inc.!filed!claims!against!insurer?
plaintiff!after!a!drum!containing!drugs!and!medicine!reached!manila!
in! bad! condition,! to! which! the! latter! paid! a! total! of! $1,134.46.! In!
turn,! plaintiff! filed! claims! against! the! carrier! and! the! Manila! Port!
Service! for! the! recovery! of! said! amount,! which! included! other!
expenses!such!as!duties!and!cost!of!survey!of!shipment.!In!addition,!
they!argued!that!exchange!rate!that!should!be!used!should!be!that!
prevailing! on! the! date! of! judgment! and! not! on! date! of! loss! or!
damage.!
!
Held:!The!bill!of!lading,!which!stipulates!the!liability!of!carrier,!clearly!
shows!that!it!is!limited!to!the!C.I.F.!value!of!the!goods!which!appear!
in!the!contract.!As!such,!it!is!limited!only!to!$550.70.!The!contention!
of!plaintiff!that!rate!of!exchange!at!the!time!of!judgment!should!be!
used! due! to! extraordinary! inflation! is! untenable! because! the!
obligation!of!the!carrier!to!pay!arose!on!the!date!it!failed!to!deliver!
the! shipment! in! good! condition! and! should! be! converted! at! the!
exchange!rate!existing!at!that!time.!
!
PAPA!v.!A.V.!VALENCIA!
Facts:! Respondents! filed! an! action! for! specific! performance! to!
compel! plaintiff! to! deliver! land! title! to! them! after! tendering!
payment!in!check.!Plaintiff!argued!that!he!could!not!recall!in!detail!
such! transaction! between! them,! and! while! he! admits! to! issuing!
receipts!for!the!checks,!he!claims!that!they!were!never!cashed,!and!
pursuant! to! Art! 1249,! payment! never! produced! the! effect! of!
perfecting!a!sale.!
!
Held:! Since! there! was! no! denial! from! petitioner! that! there! was! a!
payment! by! check,! it! is! presumed! that! it! was! encashed,! especially!
considering! that! 10! years! have! elapsed.! Acceptance! of! a! check!
implies!an!undertaking!of!due!diligence!in!presenting!it!for!payment.!
Granting! that! it! was! never! encashed,! it! is! through! the! own! fault! of!
the!petitioner.!
!
PAL!v.!CA!
Facts:! CFI! Manila! rendered! judgment! against! PAL! and! ordered! it! to!
indemnify!Amelia!Tan.!It!ordered!a!Writ!of!Execution!in!favor!of!Tan!
and! duly! referred! it! to! Deputy! Sheriff! Reyes.! PAL! filed! a! motion! to!
quash!said!Writ!on!the!bases!that!it!had!already!paid!the!obligation!
through! a! check! payable! to! Reyes,! as! evidenced! by! the! voucher!
signed!by!him.!Said!sheriff!absconded!with!the!check!and!could!not!
be!found.!
!
Held:! Acceptance! by! the! sheriff! of! petitioners! check! does! not,! per!
se,!operate!as!a!discharge!of!a!judgment!debt.!Checks!are!not!legal!
tender! and! is! not! a! valid! payment! until! encashed.! In! this! case,! PAL!
made!the!checks!payable!to!the!Sheriff!instead!of!Tan!and!provided!
the! opportunity! for! Reyes! to! misappropriate! it! for! himself.! The!
current! and! prudent! thing! to! do! for! PAL! was! to! have! issued! the!
checks!in!the!intended!payees!name.!
!
DO!or!NOT!TO!DO!
!
forbearance! cannot! be! substituted! by! another! act! or! forbearance!
against!the!obligees!will.!
!
Substitution!cannot!be!done!against!the!will!of!creditor!
!
c. Payment%of%interest%
!
Art.! 1956.! No! interest! shall! be! due! unless! it!

has!been!expressly!stipulated!in!writing.!!
Art!1253!Interest!must!be!satisfied!first!before!
capital!
4. HOW!IS!PAYMENT!TO!BE!MADE!(INTEGRITY)!
a. In%general%
,
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.!!
!
GENERAL! RULE:! Partial! payment! is! not! allowed! "!

Creditor! cannot! be! compelled! to! receive! partial!
prestations;! Debtor! cannot! be! compelled! to! give! partial!
payments!!
EXCEPTIONS:!!
!
CONTRARY%STIPULATION%
!
Art.! 1248,! Par.! 1.! 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.!!
!
DEBT%IS%PARTLY%LIQUIDATED%AND%PARTLY%UNLIQUIDATED%
!
Art.!1248,!Par.!2.!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.!!!
!
When! the! different! prestations! in! which! the! obligation!

consists! are! subject! to! different! terms! or! conditions! which!
affect!some!of!them!
When! by! the! nature! of! the! obligation,! it! can! reasonably! be!
expected!to!be!made!in!various!deliveries.!
When! there! are! several! subjects/parties! are! bound! under!

different!terms!and!conditions!
Compensation!!
!!!!!!!54!
!!!!
b. Substantial%performance%in%good%faith%
,
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!oblige.!!
,
REQUISITES%OF%SUBSTANTIAL%PERFORMANCE:%%
1. Attempt! in! good! faith! to! perform,! without! any! willful! or!
intentional!departure!
2. Deviation!from!the!obligation!must!be!slight!
3. Omission!or!defect!is!unimportant!and!technical!
4. Must!not!be!so!material!that!intention!of!the!parties!is!not!
attained!!
!
c. Estoppel%
,
Art.! 1235.! When! oblige! accepts, the, performance,! knowing! its!
incompleteness! or! irregularity,! and! without, expressing, any, protest,
or,objection,!the!obligation!is!deemed!fully%complied%with.!!
,
Constitutes!a!waiver!of!defect!in!performance! "!there!
must! however! be! an! intentional! relinquishment! of! a!
known! right.! Waiver! will! not! result! from! mere! failure! to!
assert!a!claim!for!defective!performance!when!the!thing!or!
work!is!received!
Applies! only! when! he! knows! the! incompleteness! or!

irregularity! of! the! payment,! and! he! accepts! the!
performance!without!expressing!any!protest!or!objection,!
obligation! is! deemed! extinguished.! Estopped! from!
complaining!
!
d. Presumptions% in% payment% of% interests% and%

installments%
INTEREST%
%
Art! 1176.! The! receipt! of! the! principal! by! the! creditor,! without!
reservation! with! respect! to! the! interest,! shall! give! rise! to! the!
presumption!that!said!interest!has!been!paid.!
!
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.%
%
This! provision! has! an! obligatory! character,! not! merely!

suppletory,!and!cannot!be!dispensed!with!except!by!mutual!
agreement.%
o If!principal!amount!is!received!without!reservation!as!to!
interest!%
"!interest!is!presumed!to!have!been!paid%
!
INSTALLMENTS%
%
Art.!1176,!Par.!2.!The!receipt!of!a!later!installment!of!debt,!without!
reservation! as! to! prior! installments! shall! likewise! raise! the!
presumption!that!such!installments!have!been!paid.!!
%
If!a!latter!installment!is!received!without!reservation!to!prior!
installments%
"!prior!installments!are!presumed!to!have!been!paid!%
5. WHEN!IS!PAYMENT!TO!BE!MADE!!
!
When!obligation!is!due!and!demandable!but!debtor!may!pay!before!
due! date! if! period! is! for! the! benefit! of! debtor.! If! for! the! benefit! of!
both!the!debtor!and!creditor,!debtor!may!only!prior!to!the!due!date!
if!creditor!consents!thereto.!!
!
a. In%general%
,
Art.!1169.Debtor!incurs!in!delay!from!the!time!creditor!judicially%or%
extrajudicially%demands!fulfillment!of!the!obligation!!
,
b. See%Chapter%2:%Delay%
!
6. WHERE!PAYMENT!IS!TO!BE!MADE!!
!
Art.!1251,!Par.!1.!Payment!shall!be!made!in!the!place!designated!in!
the!obligation.!!
!
a. If%no%place%is%expressly%designated%
,
Art.! 1251,! Par.! 2.! 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.%
%
Art.! 1251,! Par.! 3.! In! any! other! case! (not! to! deliver! a! determinate!
thing),!the!place!of!payment!shall!be!at!the!domicile!of!the!debtor.%
%
Art.!1251,!Par.!4.!If!the!debtor!changes!his!domicile!in!bad!faith,!or!
after! he! has! incurred! in! delay,! the! additional! expenses! shall! be!
borne! by! him.! (Absent! such! circumstances,! it! will! be! borne! by! the!
creditor),
,
7. EXPENSES!OF!MAKING!PAYMENT!!
!
Art.! 1247.! Unless! it! is! otherwise! stipulated,! the! extraMjudicial,
expenses, required, by, the, payment! shall! be! for! the! account! of! the!
debtor! with! regard! to! the! judicial! costs,! the! Rules! of! Court! shall!
govern.!!
!
This!does!not!apply!to!expenses!incurred!by!creditor!in!going!to!
the!debtors!domicile!to!collect.!
C. Application(of(Payments(
(
Art.!1252.!He!who!has!various!debts!of!thesame!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!that!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!consent.!!
!
!
!!!!!!!55!
!!!!
1. CONCEPT!
o
o
o
Designation! of! the! debt! which! is! being! paid! by! a! debtor! who!
has! SEVERAL, OBLIGATIONS, OF, THE, SAME, KIND,! in! favor! of!
onecreditor!to!whom!payment!is!being!made!
!
Cases:!
!
REPARATIONS!COMMISSION!v.!UNIVERSAL!DEEP!SEA!FISHING!
Facts:! Respondent! obtained! 6! trawl! boats! from! petitioner! under! 3!
contracts! of! conditional! purchase! and! sale! of! reparations! goods.!
Manila!Surety!&!Fidelity!Co.!Inc.!acted!as!a!security!for!respondent,!
st
which!guaranteed!all!1 !installment!payments.!Defendant!defaulted!
in!payments,!and!petitioner!filed!action!to!recover.!Surety!company!
argues!that!the!P10,!000!downpayment!paid!by!respondent!should!
st
be!applied!to!the!1 !installment.!
!
Held:!Liability!of!Surety!Company!could!not!be!reduced.!Its!reliance!
on! Art! 1254! is! misplaced! since! it! applies! only! to! persons! owing!
several! debts! to! one! creditor,! not! to! sureties! whose! obligation! is!
both! contingent! and! singular.! The! debt! of! respondent! is! not! just!
st
the! 1 ! installment! but! 10! equal! yearly! installments.! Thus,! said!
downpayment!could!not!be!applied!to!only!one!of!them.!
!
PACULDO!v.!REGALADO!
Facts:!Plaintiff!and!defendant!entered!into!a!contract!of!lease!over!a!
parcel! of! land! with! a! Wet! Market! building,! and! 11! other! leased!
properties,!and!8!units!of!heavy!equipment.!When!Paculdo!failed!to!
pay!monthly!rental!fees,!Regalado!sent!a!demand!letter!demanding!
payment! of! back! rentals,! including! a! notice! that! failure! to! comply!
would!cause!cancellation!of!lease!contract.!Plaintiff!contends!that!he!
was! not! in! arrears! for! the! monthly! rentals! of! the! subject! property!
since!he!has!in!fact!paid!more!than!what!is!due!him,!but!respondent!
applied!portions!of!such!payment!to!his!other!obligations.!
!
Held:!As!of!July!1992,!Paculdo!had!already!paid!P10,949,447,!which!
if!applied!solely!to!rentals!for!the!Wet!Market!property!would!be!in!
excess! of! P1M! already.! Respondent! erringly! applied! portions! of!
rental!fees!to!his!other!obligations!even!if!the!vouchers!and!receipts!
show! that! payments! made! were! for! the! rentals.! Such! were! proof!
that! petitioner! had! declared! as! to! which! obligations! must! the!
payment!be!applied.!In!any!case,!application!to!the!other!debts!was!
contrary!to!law!since!respondent!applied!it!to!a!debt!not!yet!due!and!
demandable,! and! should! have! automatically! applied! it! to! the! lease!
of!subject!property,!it!being!the!most!onerous!obligation.!
!
2. REQUISITES!FOR!APPLICATION!OF!PAYMENT!
a. Same!debtor!
b. Same!creditor!!
c. Various! debts! are! of! same! kind,! generally! monetary!
character!
Must!be!liquidated!
Cannot!apply!to!prestation!to!give!specific!thing!
Can!apply!to!prestation!to!give!generic!thing!
d. All!obligations!must!be!due!
EXCEPTIONS:!!
o Mutual!agreement!of!parties!!
o Upon! consent! of! the! party! in! whose! favor! the!
term!was!established!
e. Payment!is!not!enough!to!extinguish!all!debts!
f. Debtor!has!preferential!right!to!choose!the!debt!to!which!
his!payment!is!to!be!applied!!
Not!absolute;!LIMITATIONS:!
!
o
!
Cannot!make!partial!payments!
Cannot!apply!to!unliquidated!debts!
Cannot! choose! a! debt! whose! period! is! for! the!
benefit! of! the! creditor,! and! period! has! not! yet!
arrived!
Right! to! apply! debts! must! be! exercised! at! the!
time!when!debt!is!paid!
3. RULES!IN!APPLICATION!OF!PAYMENT!
a)
Right! to! apply! must! be! exercised! at! the! time! of! the!
payment!(Art!1252)!
b) Creditor! may! undertake! application,! subject! to! the!
debtors! approval.! Once! the! latter! accepts! receipt! of!
application,! he! cannot! complain! UNLESS! there! is! a! cause!
for!invalidating!the!contract.!(Art!1252)!
c) Apply!to!interest!first.!BOTH!(1)!interest!stipulated!and!(2)!
interest!due!because!of!debtors!delay!
!
Art.! 1253.! If! debt! produces! interest,! payment! of! the! principal! shall!
not!be!deemed!to!have!been!made!until,the,interest,are,covered.!!
!
a. If%rules%are%inapplicable%and%application%cannot%
be%inferred%
,
Art.! 1254.! When! payment! cannot! be! applied! in! accordance! with!
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! are! of! the! same! nature! and! burden,! the! payment!
shall!be!applied!to!all!of!them!proportionately.!!
!
i. Meaning%of%MOST%ONEROUS%TO%DEBTOR%%
Fundamentally! a! question! of! act,! which! courts!

must!determine!on!the!basis!of!circumstances!of!
each!case!e.g.!!
o Co?debtor! (especially! if! solidary)! vs.! sole!
debtor!
o Same!amount,!younger!vs.!older!
o Secured!vs.!unsecured!
It! is! for! the! court! to! determine! which! is! most!
onerous!
D. 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!law.!!
!
1. CONCEPT:!!
Assignment! or! abandonment! of! the! universality! of! all! the!

properties!of!the!debtor!for!the!benefit!of!his!creditors!in!
order! that! the! latter! may! sell! the! same! and! apply! the!
proceeds!thereof!to!the!satisfaction!of!their!credits.!!
Debtor!transfers!all!the!properties!not!subject!to!execution!
in!favor!of!creditors!that!the!latter!may!sell!them!and!thus!
apply!the!proceeds!to!their!credits!
Initiative!comes!from!the!debtor!but!must!be!accepted!by!
the!creditors!in!order!to!become!effective!
Usually!done!by!debtors!in!state!of!insolvency!!
!!!!!!!56!
!!!!
2. REQUISITES!FOR!PAYMENT!BY!CESSION!!
e.
f.
g.
h.
i.
!
Plurality!of!debts!
Plurality!of!creditors!
Complete!or!partial!insolvency!of!the!debtor!
Abandonment! of! ALL! of! debtors! property! not!
subject!to!execution!!
Acceptance! or! consent! on! the! part! of! the!
creditors!
3. EFFECTS!OF!PAYMENT!BY!CESSION!!
1)
2)
3)
Creditors! do! not! become! the! owner;! they! are! merely!

assignees!with!authority!to!sell!
Debtor! is! released! up! to! the! amount! of! the! net! proceeds!
of!the!sale,!unless!there!is!a!stipulation!to!the!contrary! "!
not!total!extinguishment!!
Creditor! will! collect! credits! in! the! order! of! preference!
agreed! upon,! or! in! default! of! agreement,! in! order!
ordinarily!established!by!law.!!
E. Dation(in(Payment((Dacion(en(Pago)(
!
Art.!1245.!Dation!in!payment,!whereby!property!is!alienated!to!the!
creditor!in!satisfaction!of!a!debt!in!money,!shall!be!governed!by!law!
of!sales.!!
!
1. CONCEPT:!Delivery!and!transmission!of!ownership!of!a!thing!by!
the!debtor!and!to!the!creditor!as!an!accepted%equivalent%of%the%
performance%of%the%obligation.!!
Considered!to!be!a!novation!by!change!of!the!object!
An! onerous! contract! of! alienation! because! object! is!

given!in!exchange!of!credit!
Original!obligation!is!extinguished!ipso,jure!
Special! form! of! payment! because! one! element! of!

payment!is!missing:!identity!
!
a. Distinguished%from%payment%by%cession%%
!
DATION!IN!PAYMENT!
PAYMENT!BY!CESSION!
Transfers! the! ownership! over! Only! the! possession! and!
the! thing! alienated! to! the! administration!
(not!
the!
creditor!
ownership)! are! transferred! to!
the!
creditors,!
with!
an!
authorization! to! convert% the%
property% into% cash! with! which!
the!debts!shall!be!paid!
May! totally! extinguish! the! Only! extinguishes! the! credits! to!
obligation! and! release! the! the! extent! of! the! amount!
debtor!!
realized! from! the! properties!
assigned,! unless! otherwise!
agreed!upon!
Cession! of! only! some! specific! Involves! ALL! the! property! of! the!
thing!
debtor!!
Transfer! is! only! in! favor! of! one! There! are! various,! plurality! of!
creditor!to!satisfy!a!debt!
creditors!
Usually!only!one!creditor!
Several!creditors!
Does!not!presuppose!insolvency! Debtor!is!insolvent!at!the!time!of!
of!the!debtor!
the!assignment!
An!act!of!novation!
Not!an!act!of!novation!
Both!
are!
substituted!
!
performances!of!obligations!!
!
Case:!
!
DBP!v.!CA!
Facts:! Respondent! CUBA! loaned! P300,! 000! from! DBP! thru!
promissory! notes,! in! which! she! assigned! her! leasehold! rights! to! a!
fishpond! as! security.! She! defaulted! in! her! payments,! DPB!
appropriated! said! rights! without! any! foreclosure! proceedings,! and!
sold!it!to!a!third!party.!CUBA!filed!an!action!and!RTC!found!that!such!
agreement! violated! Art! 2088,! NCC! because! it! was! essentially! a!
mortgage,! and! for! being! a! pactum, commissorium.! DPB! appealed,!
saying!it!was!a!novation,!since!promissory!notes!were!substituted!by!
subsequent!assignment!of!rights.!CA!reversed!RTC!
!
Held:!The!stipulations!of!the!deed!of!assignments!clearly!show!that!
the!assignment!was!by!way!of!security!for!the!payment!of!the!loans.!
It! did! not! constitute! NOVATION,! since! obligation! to! pay! the!
promissory! notes! still! subsists,! it! being! not! incompatible! with! the!
assignment! of! rights.! It! was! not! CESSION! since! there! was! only! one!
creditor!while!Art!1255!needs!2!or!more!creditors!and!assignment!of!
all!of!debtors!property.!It!was!also!not!DATION!since!assignment!of!
rights!was!a!mere!security,!and!could!not!satisfy!indebtedness.!CUBA!
was!still!obligated!to!pay!aside!from!the!forfeiture!of!her!rights!
!
2. REQUISITES!FOR!DATION!IN!PAYMENT!
1. Consent! of! creditor! "! sale! presupposes! the! consent! of!
both!parties!
2. Dacion!will!not!prejudice!of!other!creditors!
3. Debtor!is!not!declared!judicially!insolvent!!
4. Not! a! pactum, commissorium! (a! stipulation! entitling! the!
creditor! to! appropriate! automatically! the! thing! given! as!
security!in!case!debtor!fails!to!pay)!
!
3. EFFECTS!OF!DATION!IN!PAYMENT!
Extinguishes! payment! to! the! extent! of! the! value! at! the!
thing!to!be!delivered,!either!as!agreed!upon!by!the!parties,!
or! as! may! be! proved,! unless! the! parties! by! agreement!
expressly! or! impliedly! or! by! their! silence,! consider! the!
thing! as! equivalent! to! the! obligation! in! which! case! the!
obligation!is!totally!extinguished.!!
If!property!delivered!to!the!creditor!assumption!that!it!is!a!
PLEDGE,!as!it!involves!less!transmission!of!rights!unless!it!is!
clearly!the!intention!of!parties!
!
Case:!!
!
FILINVEST!CREDIT!CORPORATIONS!v.!PHILIPPINE!ACETYLEENE!CO.!
Facts:! Respondent! PAC! purchased! from! Alexander! Lim! a! motor!
vehicle! thru! promissory! notes! and! executed! a! chattel! mortgage! as!
security.!Subsequently,!Lim!assigned!all!his!rights!in!the!promissory!
notes! and! mortgage! in! favor! of! plaintiff! FCC.! PAC! defaulted! in!
payments!so!FCC!demanded!said!amount.!PAC!expressed!its!decision!
to!return!the!mortgaged!vehicle!as!full!satisfaction!of!debt!but!FCC!
refused.!
!
Held:!Dation!en!pago!is!the!transmission!of!ownership!of!a!thing!by!a!
debtor!to!the!creditor!as!an!accepted!equivalent!of!its!performance!
of!an!obligation.!Since!it!partakes!in!the!nature!of!being!a!contract!of!
sale,!the!essential!elements!of!consent,!object!certain,!and!cause!or!
consideration! must! be! present.! Evidence! fails! to! show! that! FCC!
consented! that! mere! delivery! of! mortgaged! vehicle! could! be!
construed! as! actual! payment.! Mere! return! does! not! constitute!
dation! in! payment! in! the! absence! of! the! true! intention! of! the!
parties.!
!!!!!!!57!
!!!!
F. Tender(
of(
Consignation((
Payment(
and(
i.
Purpose%%
1. TENDER!OF!PAYMENT!
a. Concept:%%
1)
2)
The! act! of! offering! the! creditor! what! is! due! him!
together!with!a!demand!that!the!creditor!accept!the!
same!!
When! creditor! refuses! without! just! cause! to!

accept! payment,! he! is! in! mora, accipiendi! and!
debtor! is! released! from! responsibility! if! he!
consigns!the!thing!due!
Manifestation! made! by! debtor! to! creditor! of!

desire!to!comply!with!obligation!
Preparatory! act! to! consignation;! does! not! cause!

extinguishment! of! obligation! unless! completed!
by!consignation!
Required! ONLY! when! the! creditor% refuses%

without%just%cause%to%accept%payment!
What! are! the! examples! of! unjust! cause! for!

refusal!
o There! was! ! a! previous! tender! of! payment,!
without! which! the! consignation! is!
ineffective!
o Tender! of! payment! was! of! the! very! thing!
due,! or! in! case! of! money! obligations,! that!
the!legal!tender!currency!was!offered!
o !Tender!of!payment!was!unconditional!
o Creditor!refused!to!accept!payment!without!
just!cause!
What!are!the!examples!of!just!cause!for!refusal!!
o Debt!is!not!yet!due!and!the!period!is!for!the!
benefit!of!the!creditor!
o Payment!by!third!persons!not!interested!in!
the!fulfillment!of!the!obligation! "!because!
to! begin! with,! tender! presupposes! capacity!
of!the!payor!
Accrual!of!interest!will!be!suspended!from!the!date!of!
such!tenderif!immediately!deposited!with!the!court!
,
b. Requisites%of%a%Valid%Tender%of%Payment%%
Made!in!lawful!currency!
Should!include!interest!due!
Must! be! unconditional;! but! the! creditor! cannot! vary!
the!terms!of!a!tender!accepted!by!him!
Unaccepted! offer! in! writing! to! pay! is! equivalent! to!
actual!production!and!tender!of!money!or!property!
!
2. CONSIGNATION!
,
a. Concept%
!
!
!
The!act!of!depositing!the!thing!due!with!the!court!or!
judicial! authorities! whenever! the! creditor! cannot!
accept!or!refuses!to!accept!payment.!!
Generally!requires!prior!tender!of!payment!
Made!by!depositing!the!things!due!at!the!disposal!of!
judicial!authority!(includes!sheriff)!
Avoid! performance! of! an! obligation! becoming!

more! onerous! to! the! debtor! by! reasons! not!
imputable!to!him!!
Duty!of!attending!indefinitely!to!its!preservation,!
without!remedy!to!be!relieved!from!the!debt!
b. Requisites%of%Consignation%%
1.
2.
3.
4.
5.
i.
There!is!a!debt!due!
The!consignation!of!the!obligation!was!made!because!
of!some!legal!cause!
Previous!valid!tender!was!unjustly!refused!
Other! circumstances! making! previous! tender!

exempt!!!
Prior! notice! of! consignation! had! been! given! to! the!
st
person!interested!in!the!obligation!(1 !notice)!
Actual! deposit/consignation! with! proper! judicial!
authority!
nd
Subsequent!notice!of!consignation!(2 !notice)!
May! be! complied! with! by! the! service! of!

summons!upon!the!defendant!creditor!together!
with!a!copy!of!the!complaint!!
Should! be! given! to! all! interested! in! the!

performance!of!obligations:!passive!(co?debtors,!
guarantors,! sureties)! or! active! (solidary! co?
creditors,!possible!litigants)!
When%tender%and%refusal%not%required%
,
Art!.1256!Par!2!Consignation!alone!shall!produce!the!same!effect!in!
the!following!cases:!
1. Creditor!is!absent!or!unknown!or!does!not!appear!at!place!
of!payment!
2. Incapacitated!to!receive!payment!at!the!time!it!is!due! "!
need!not!be!legally!declared!
3. Without!just!case,!he!refuses!to!give!a!receipt!
4. Two!or!more!persons!claim!the!same!right!to!collect!
5. Title!of!the!obligation!has!been!lost!
ii.
%
Two%notice%requirement%%
FIRST%NOTICE:%
!
Art.! 1257,! Par.! 1.! 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.!!
,
Purpose!of!this!notice!is!to!give!the!creditor!the!chance!to!
reflect! on! his! previous! refusal! to! accept! payment!
considering! that! the! expenses! of! consignation! shall! be!
charged! against! him,! and! that! in! case! of! loss! of! the! thing!
consigned,!he!shall!bear!the!risk!thereof.,
Lack!of!notice!does!not!invalidate!consignation,!but!simply!
makes! the! debtor! liable! for! the! expenses! occasioned!
thereby.,
!
!
!
!
!
!
!
!!!!!!!58!
!!!!
SECOND%NOTICE:%
!
Art.! 1258,! Par.! 2.! The! consignation% having% been% made,! the!
interested!parties!shall!also!be!notified!thereof.!!
!
Purpose! of! this! notice! is! to! enable! the! creditor! to!
withdraw! the! thing! or! sum! deposited! in! case! he! accepts!
the!consignation!
!
Effects!of!non[compliance:!
!
Art.! 1257,! Par.! 2.! The! consignation! shall! be! ineffectual! if! it! is! not%
made% strictly% in% consonance! with! the! provisions! which! regulate!
payment.!(Soco,v,Militante),
!
c. Effects%of%Consignation%%
When!properly!made,!charge!against!the!creditor%
Art.! 1260,! Par.! 1.! Once! the! consignation! has! been! duly! made,! the!
debtor!may!ask!the!judge!to!order!the!cancellation!of!the!obligation.!!
!
The! debtor! is! released! in! the! same! manner! as! if! he! had!
performed! the! obligation! at! the! time! of! consignation,!
because!this!produces!the!effect!of!a!valid!payment.!!
The! accrual! of! interest! on! the! obligation! is! suspended!

from!the!moment!of!the!consignation.!!
The!deteriorations!or!loss!of!a!thing!or!amount!consigned!
occurring!without!fault!of!the!debtor!must!be!borne!by!the!
creditor,! because! the! risks! of! the! thing! are! transferred! to!
the!creditor!from!the!moment!of!deposit.!!
Any! increment! or! increase! in! value! of! the! thing! after! the!
consignation!inures!to!the!benefit!of!the!creditor.!!
!
d. Withdrawal% by% debtor% BEFORE% acceptance% by%

creditor%OR%approval%by%the%Court%
Before!the!consignation!is!effected,!the!debtor!is!still!
the!owner!and!he!may!withdraw!it.!(TLG,v,Flores)!
!
Art.!1260,!Par.!2.!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% sum%
deposited!allowing!the!obligation!to!remain!in!force.!!
!
EFFECTS%OF%WITHDRAWAL%BEFORE%CONSIGNATION%IS%FINAL:%,
1) Obligation!remains!in!force!
2) Debtor! bears! all! the! expenses! incurred! because! of! the!
consignation!!
!
e. Withdrawal% by%
consignation%
,
debtor%
AFTER%
proper%
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.!!
,
%
%
%
%
i.
With%creditors%approval%%
!
EFFECTS:!
1. Revival!of!the!obligation!and!relationship!between!creditor!and!
debtor! is! restored! to! the! condition! in! which! it! was! before! the!
consignation!!
2. Guarantors! and! sureties! are! completely! releases! from! the!
obligation! upon! the! consignation,! and! their! liability! cannot! be!
revived!without!their!consent.!
3. Solidary!debtors!are!released!from!their!solidary!liability!to!the!
creditor! but! his! liability! to! co?debtor! for! his! corresponding!
share!subsists!
,
ii. Without%creditors%approval%%
%
EFFECTS:!!
Cannot!be!done.!Once!the!consignation!is!accepted!by!the!creditor!
or! approved! by! the! Court,! obligation! is! extinguished.! Thus! debtor!
can!no!longer!withdraw.!
!
f.
Expenses%of%consignation%%
,
Art!.1259.!The!expenses!of!consignation,!when!properly!made,!shall!
be!charged!against%the%creditor,
!
The!consignation!is!deemed!properly!made:!
!
When!the!creditor!accepts!the!thing!or!sum!deposited,!
without!objection,!as!payment!of!the!obligation!
When! the! creditor! questions! the! validity! of! the!

consignation,!and!the!court,!after!hearing,!declares!that!
it!has!been!properly!made!
When! the! creditors! neither! accepts! nor! questions! the!

validity!of!the!consignation,!and!the!court!after!hearing,!
orders!the!cancellation!of!the!obligation!
!
Cases:!
!
DE!GUZMAN!v.!CA!
Facts:!De!Guzman!sold!2!parcels!of!land!to!Singh,!the!full!amount!of!
which!is!to!be!paid!on!Feb.!17,!1975.!2!days!before!such!date.!Singh!
requested!De!Guzman!to!furnish!her!copies!of!necessary!documents,!
which! the! latter! refused.! To! avoid! litigation,! they! executed! a!
Compromise! Agreement! which! stipulated! that! delivery! of! payment!
was! to! be! made! before! the! judge.! Petitioner! filed! for! issuance! of!
Writ! of! Execution! for! respondents! failure! to! comply! with! said!
stipulation!
!
Held:!Failure!to!deliver!the!payment!to!petitioners!was!not!the!fault!
of! respondents.! Records! show! that! respondent! went! to! the! sala! of!
the! judge! on! the! appointed! day! of! payment! but! petitioner! wasnt!
there! to! receive! it.! It! was! only! later! that! his! counsel! appeared! and!
invited! them! to! petitioners! house! but! he! was! also! not! there.!
Counsel! then! promised! to! call! them! as! soon! as! De! Guzman! arrived!
home!but!there!was!no!call.!So!on!the!next!working!day,!respondent!
deposited! the! remaining! balance! with! the! Clerk! of! Court.! Since!
deposit! was! made! in! good! faith! and! delay! is! the! fault! of! the!
petitioner,! there! has! been! substantial! compliance! with! the!
Compromise!Agreement!
!
!
!
!!!!!!!59!
!!!!
TLG!INTERNATIONAL!CONTINENTAL!ENTERPRISING,!INC.!v.!FLORES!
Facts:! Petitioner! here! intervened! in! a! case! as! a! sub?lessee! in! an!
action! of! declaratory! relief.! To! protect! his! rights,! it! voluntarily!
deposited!the!sum!of!P3,!750!by!way!of!consignation.!Its!motion!to!
withdraw! the! same,! however,! was! denied! on! that! CFI! hadno!
authority! to! authorize! withdrawal! since! it! has! not! ordered! the!
intervenor!to!make!any!deposit!
!
Held:!Pursuant!to!Art!1260!NCC,!the!debtor!is!entitled!to!withdraw!
the! deposit! either! before! the! consignation! is! accepted! by! the!
creditor!or!prior!to!the!judicial!approval!of!such!consignation.!In!the!
case! at! bar,! case! was! dismissed! before! either! of! them! was! done.!
Thus,!withdrawal!should!have!been!allowed.!Also,!as!the!contention!
of! the! CFI,! per! Art! 1258,! deposited! money! is! at! the! disposal! of!
judicial!authority!and!thus!could!have!authorized!its!withdrawal.!
!
McLAUGLIN!v.!CA!
Facts:! Petitioner! and! private! respondent! entered! into! a! contract! of!
conditional! sale! but! respondent! failed! to! pay! the! balance.! In! a!
Compromise! Agreement,! respondent! acknowledged! his!
indebtedness!and!agreed!to!pay!P1000!per!month!until!obligation!is!
fully! paid! with! the! stipulation! that! failure! to! comply! would! rescind!
the! deed! of! conditional! sale.! On! Nov! 1980,! respondent! tendered!
payment! but! petitioner! refused! to! accept! it.! RTC! granted! Writ! of!
Execution! for! rescission! of! deed.! Respondent! filed! a! Motion! for!
Reconsideration,! tendering! at! the! same! time! a! certified! managers!
check! of! P76,! 059.71! payable! to! petitioner! and! covering! the! entire!
obligation.!CA!reversed!
!
Held:! While! the! Compromise! Agreement! states! that! failure! to! pay!
would!entitle!petitioner!to!rescind!deed,!RA!6552!provides!a!30!day!
grace! period! for! debtors! to! pay! balance.! Flores! tender! of! a! check!
deposited!in!court!was!a!valid!payment!well!within!the!grace!period.!
However,! records! show! that! the! check! was! subsequently! withdraw!
and! replaced! by! cash,! but! the! cash! was! not! deposited! with! the!
Court.! As! such,! while! he! had! preserved! his! rights! as! a! vendee! by! a!
timely! valid! tender,! he! remains! liable! for! payment! of! his! obligation!
because!of!his!failure!to!deposit!the!amount!due!in!Court.!
!
MEAT!PACKING!CORP.!v.!SANDIGANBAYAN!
Facts:!MPCP!entered!into!a!lease?purchase!agreement!with!PIMECO,!
which!stipulates!that!the!contract!is!automatically!deemed!cancelled!
and!forfeited!upon!default!in!payments!of!rentals!equivalent!to!the!
cumulative! sum! total! of! 3! annual! payments.! In! 1986,! PCGG!
sequestered! all! assets! of! PIMECO! including! the! leased! property.!
MPCP! sent! PIMECO! a! notice! of! rescission! for! non?payment! of!
rentals.! PCGG! tendered! to! MPCP! checks! amounting! to! P5,! 000,000!
which!the!former!refused,!arguing!that!agreement!already!rescinded!
since! outstanding! debt! of! more! than! P12,! 000,000! is! already! more!
than!3!years!worth!of!installments.!
!
Held:! MPCPs! ground! for! refusal! of! tender! of! payment! is! the!
rescission!clause.!However,!since!PCGGs!tender!and!consignation!of!
P5M! was! approved! by! Sandiganbayan,! and! is! therefore! a! valid!
tender,!the!accumulated!back!rental!were!reduced!to!around!P7M,!
which!is!less!than!3!years!worth!of!installments.!As!such,!rescission!
cannot!lie!
!
PABUGAIS!v.!SAHIJWANI!
Facts:!Petitioner!sold!a!parcel!of!land!to!respondent!for!P15M,!P600,!
000! of! which! the! latter! aid! as! option/reservation! fee! and! the!
remaining! balance! to! be! paid! within! 60! days,! simultaneous! with!
petitioners! delivery! of! necessary! documents.! Agreement! also!
included! a! penal! clause! which! states! that! failure! of! respondent! to!
pay! balance! would! forfeit! the! reservation! fee! in! favor! of! petitioner!
and! non?delivery! of! documents! would! obligate! petitioner! to! return!
P600,! 000! +! 18%! annual! interest.! Petitioner! failed! to! deliver! so! he!
twice! tried! to! tender! his! payment! to! respondent! but! latter! refused!
to! accept,! arguing! that! it! did! not! include! the! monthly! interest! and!
attorneys! fees! that! they! orally! agreed! upon.! Because! of! refusals,!
petitioner!sent!notice!that!he!is!consigning!amount!with!Makati!RTC!
Held:! All! essential! requisites! of! a! valid! consignation! were!
present.!Amount!tendered!is!sufficient!since!it!is!only!the!option!fee!
plus!interest!which!are!stated!in!the!default!clause.!Also,!managers!
check!was!deemed!to!be!valid!since!respondent!did!not!object!to!the!
form.!
III. Loss*or*Impossibility*
A. Loss(of(the(Thing(Due(
1. CONCEPT!
It!is!not!limited!to!obligations!to!give,!but!extends!to!those!
which! are! personal,! embracing! therefore! all! causes! which!
may!render!impossible!performance!of!the!prestation.!
Generally!applies!to!determinate!things!
Must! be! subsequent! to! the! execution! of! the! contract! in!
order!to!extinguish!the!obligation!!
If! impossibility! already! existed! when! the! contract! was!
made,!the!result!is!not!extinguishment!but!inefficacy!of!the!
obligation! under! Art! 1348! (impossible! things! or! services!
cannot! be! object! of! contracts)! and! Art! 1493! (Sales;! loss!
object!of!contract,!contract!without!any!effect).!
!
Art.! 1189,! Par.! 2.! If! the! 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! loss! when! it! perishes,! or! goes! out! of! commerce,! or!
disappears!in!such!a!way!that!its!existence!is!unknown!or!it!cannot!
be!recovered.!
!
2. KINDS!
a. As%to%extent%
i. Total%
ii. Partial%
!
3. REQUISITES!
1.
It!must!be!lost!or!destroyed:!
without!the!fault!of!the!debtor!
before!the!debtor!incurs!in!delay!
after!the!obligation!has!been!constituted!
4. PRESUMPTION!
!
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.!
!
The!burden!of!explaining!the!loss!of!a!thing!in!the!possession!of!
the!debtor!belongs!to!him.!The!debtor!must!show!that!he!is!free!
from!negligence,!for!negligence!is!presumed!from!the!mere!fact!
of!loss.!(Tolentino)!
o Except! in! case! of! natural! calamity! (eg! earthquake,! flood,!
storm),!where!lack!of!fault!of!the!debtor!is!likely!and!it!is!
unjust!to!presume!negligence!on!his!part.!(Tolentino)!
!!!!!!!60!
!!!!
2. EFFECTS!
a. In%obligation%to%give%a%specific%thing%%
!
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.!
!
In! the! absence! of! law! or! stipulation! to! the! contrary,!
impossibility!of!performance,!without!the!negligence!of!the!
parties,!prevents!enforcement!of!an!obligation.!(Tolentino)!
The! extinguishment! of! the! obligation! due! to! loss! of! the!
thing! or! impossibility! or! performance! affects! both! debtor!

and! creditor;! the! entire! juridical! relationship! is!
extinguished,! so! that! if! the! creditor! has! himself! an!
obligation,!this!is!likewise!extinguished.!(Tolentino)!
The!debtor!is!released!from!liability;!but!he!cannot!demand!
the! prestation! which! has! been! stipulated! for! his! benefit.!

(Tolentino)!
Exceptions!to!the!law:!
o The! law! expressly! provides! that! the! debtor! shall! be!

liable!even!if!the!loss!is!due!to!fortuitous!events.!(Art.!
1174)!
o Express!stipulation!of!the!parties.!
o The! nature! of! the! obligation! requires! the! assumption!
of!risk.!
o Concurrent!fault!or!negligence!of!the!debtor.!
o Loss!occurs!after!the!debtor!has!incurred!in!delay.!
o Promise! to! deliver! the! same! thing! to! two! or! more!
different!parties.!
o Art.!1268!below.!
!
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.!
!
Two! alternatives! open! to! the! debtor! in! case! of! unjust!
refusal!to!receive:!
o to! consign! the! thing! and! thereby! relieve! himself! from!
any!responsibility!for!such!thing,!or!
o to! just! keep! the! thing! in! his! possession,! with! the!
obligation!to!use!due!diligence,!subject!to!the!general!
rules! of! obligations,! but! no! longer! the! special! liability!
imposed!by!this!article.!(Tolentino)!
b. In%obligation%to%give%a%generic%thing%%
!
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.!
!
!
As!long!as!there!are!things!of!the!kind!stipulated,!whether!
or! not! they! are! possessed! by! the! obligor,! the! obligation!
subsists,! because! generic! things! are! not! considered! lost.!
(Tolentino)!
Food!for!thought:!The!maxim! genus!never!perishes is!not!
actually! true.! (Labitag,! 2014)! [When]! all! the! things! of! the!
kind!disappear!or!perish,!the!obligation!to!deliver!a!generic!
object!is!extinguished.!(Tolentino)!
Delimited!generic!obligations!?!When!there!is!a!limitation!of!
the!generic!object!to!a!particular!existing!mass!or!group!of!
things,! the! obligation! is! extinguished! by! the! loss! of! the!
particular!mass!or!group!or!limited!quantity!from!which!the!
prestation!has!to!be!taken,!or!by!the!impossibility!of!getting!
from!it!the!things!for!the!prestation.!(Tolentino)!
c. In%case%of%partial%loss%%
!
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.!
!
!
!
This! article! is! based! on! the! presumption! that! the! partial! loss! is!
not! imputable! to! the! fault! or! negligence! of! the! debtor.!
(Tolentino)!
General!rule:!the!obligation!subsists!and!the!debtor!must!deliver!
the! impaired! object! to! the! creditor;! the! debtor! is! not! liable! for!
damages.!(Tolentino)!
Except,! when! the! portion! that! is! lost! is! of! such! an! extent! or!
nature! that! the! obligation! would! not! have! been! constituted!
without!it,!then!the!obligation!is!extinguished.!(Tolentino)!
In!any!case,!the!intention!of!the!parties!is!the!controlling!factor!
in!the!solution!of!each!case!of!partial!loss.!(Tolentino)!
d. Action%against%third%person%%
!
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.!
!
This! refers! not! only! to! the! rights! and! actions! which! the! debtor!
may!have!against!third!persons,!but!also!to!any!indemnity!which!
the!debtor!may!have!already!received.!(Tolentino)!
This! article! is! applicable! to! the! money! obtained! from! the!
insurance!of!the!thing!lost!or!destroyed.!(Tolentino)!
B. Impossibility(of(Performance(
1. CONCEPT!!
!
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.!
!
This! article! refers! to! an! impossibility! which! arises! after! the!
obligation!has!been!constituted.!
!!!!!!!61!
!!!!
In! reciprocal! obligations,! the! release! of! the! debtor! due! to!
impossibility!of!performance!also!releases!the!creditor!from!the!
counter?prestation.!
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.!
!
This! articles! states! in! our! law! the! doctrine! of! unforeseen!
events,! rebus! sic! stantibus! (theory! in! public! international!
law).! The! parties! stipulate! in! the! light! of! certain! prevailing!
conditions,! and! once! these! conditions! cease! to! exist! the!
contract!also!ceases!to!exist.!
Requisites!for!application!of!Art!1267!
a. Event!or!change!in!circumstances!could!not!have!been!
foreseen!at!the!time!of!the!execution!of!the!contract!
b. Makes! the! performance! of! the! contract! extremely!
difficult!but!not!impossible!
c. Event!must!not!be!due!to!the!act!of!any!of!the!parties!
d. Contract!is!for!a!future!prestation!!
It!is!only!in!absolutely!exceptional!changes!of!circumstances!
that!equity!demands!assistance!for!the!debtor.!!
2. KINDS!
a. As%to%extent%
i.
Total%
ii.
Partial%
The!rule!in!Art.!1264!may!be!applied.!
Temporary!obstacles!to!the!performance!do!not!
extinguish! the! obligation,! but! merely! delays! its!
fulfillment,!unless!by!its!nature!or!the!will!of!the!
parties! it! has! to! be! performed! at! a! determinate!
time.! Unless,! the! obstacles! are! of! an! unknown!
and!unforeseen!duration.!
!
b. As%to%source%
i. Legal%
ii.
Direct! ?! when! the! act,! by! reason! of! subsequent!

law!is!prohibited!
Indirect!?!when!the!debtor!is!prevented!by!some!
supervening!legal!duty!(eg.!military!service)!
Physical:%
the! act! by! reason! of! its! nature! cannot! be!

accomplished!
3. REQUISITES!?!Art!1266!
obligation!was!possible!at!the!time!it!was!constituted!!
subsequent!impossibility!
without!the!fault!of!the!debtor!
4. EFFECTS!
a. In%obligations%to%do%
Art! 1266! releases! debtor! from! obligation! if!

prestations! has! become! legally! or! physically!
impossible!!
Art!1267!releases!debtor!if!performance!has!become!
so! difficult! to! be! so! manifestly! beyond! the!
contemplation!of!the!parties!
Art! 1262! Par! 2! (by! analogy)! Impossibility! due! to!

fortuitous!events!does!not!extinguish!obligation!if:!
o By!law!!
o By!stipulation!!
o Nature! of! the! obligation! requires!
assumption!of!risk!
If! at! the! time! performance! becomes! impossible! the!
debtor!has!already!fulfilled!part!of!the!obligation,!the!
creditor!must!pay!the!part!done!so!long!as!he!benefits!
from! such! partial! compliance.! On! the! other! hand,! if!
the! debtor! has! already! received! something! from! the!
creditor,! he! must! return! anything! in! excess! of! what!
corresponds!to!the!part!already!performed!when!the!
impossibility!supervened.!
i.
impossibility distinguished from difficulty
DIFFICULTY!
IMPOSSIBILITY!
Manifest! disequilibrium! in! the! See! discussion! on! physical! and!

prestations,! such! that! one! party! legal!impossibility.!
would! be! placed! at! a!
disadvantage! by! the! unforeseen!
event.!
the! event! or! change! in! 1. obligation! was! possible! at!
the!time!it!was!constituted!!
circumstance!could!not!have!
been!foreseen!at!the!time!of! 2. subsequent!impossibility!
execution!of!the!contract!
3. without! the! fault! of! the!
debtor!
it! makes! the! performance!
extremely! difficult! but! not!
impossible!
the! event! is! not! imputable!
to!wither!party!
the! contract! is! for! a! future!
prestation!
!
Cases:!
!
OCCENA!v.!CA!
Facts:! Petitioners! who! are! landowners! had! a! subdivision! contract!
with!Tropical!Homes!Inc,for!the!development!of!their!land.!Tropical!
filed! a! complaint! for! modification! of! the! terms! and! conditions! of!
their!contract,!alleging!that!due!to!the!increase!in!the!price!of!oil!and!
its!derivatives!and!the!concomitant!worldwide!spiralling!of!prices!of!
all! commodities! including! basic! raw! materials! for! the! development!
work,! the! cost! of! development! has! risen! to! levels! which! are!
unanticipated,! unimagined,! and! not! within! the! remotest!
contemplation!of!the!parties!at!the!time!the!agreement!was!made,!
such!that!the!conditions!and!factors!which!formed!the!original!basis!
of! the! contract! have! been! totally! changed.! THI! wanted! to! modify!
their guarantee! to! petitioners! of! a! fixed! and! sole! share! equivalent!
to!40%!of!all!cash!receipts!from!the!sale!of!the!subdivision!lots .!They!
wanted!to!change!it!to:! fixing!the!proper!shares!that!should!pertain!
to! the! herein! parties! out! of! the! gross! proceeds! from! the! sales! of!
subdivided!lots .!
!
Held:!If!THI s!complaint!were!to!be!released!from!having!to!comply!
with! the! subdivision! contract,! assuming! it! could! show! at! the! trial!
that! the! service! undertaken! contractually! by! it! had! become! so!
difficult!as!to!be!manifestly!beyond!the!contemplation!of!the!parties,!
then!CA!will!be!correct!in!upholding!THI s!complaint.!Without!Article!
1267,!THI!would!remain!bound!by!its!contract!under!the!theretofore!
prevailing! doctrine! that! performance! therewith! is! not! excused! by!
!!!!!!!62!
!!!!
the! fact! that! the! contract! turns! out! to! be! hard! and! improvident,!
unprofitable! or! impracticable,! ill! advised! or! even! foolish,! or! less!
profitable,!or!unexpectedly!burdensome,!since!in!case!a!part!desires!
to!be!excused!from!performance!in!the!event!of!such!contingencies!
arising,! it! is! his! duty! to! provide! therefore! in! the! contract.! THI s!
complaint! seeks! not! release! from! the! contract! but! modification,!
which! is! not! granted! to! the! courts! by! the! cited! article.! Tropical s!
complaint!for!modification!of!contract!manifestly!has!no!basis!in!law!
and!therefore!states!no!cause!of!action.!
!
NAGA!TELEPHONE!CO.!v.!CA!
Facts:!The!parties!entered!into!a!contract!for!the!use!by!Natelco!of!
Casureco's! electric! light! posts! in! Naga! City.! In! consideration,!
petitioners! agreed! to! install,! free! of! charge,! 10! telephone!
connections!for!the!use!by!Casureco.!"That!the!term!or!period!of!this!
contract! shall! be! as! long! as! the! party! of! the! 1st! part! (Natelco)! has!
need! for! the! electric! light! posts! of! the! party! of! the! 2nd! part!
(Casureco)!it!being!understood!that!this!
contract!shall!terminate!when!for!any!reason!whatsoever,!the!party!
of! the! second! part! is! forced! to! stop,! abandoned! its! operation! as! a!
public! service! and! it! becomes! necessary! to! remove! the! electric!
lightpost. Casureco! filed! on! Jan.! 1989! against! petitioners! for!
reformation! of! contract! with! damages,! on! the! ground! that! said!
contract!unduly!favours!Natelco.!
!
Held:!A!bare!reading!of!Art.!1267!reveals!that!it!is!not!a!requirement!
thereunder!that!the!contract!be!for!future!service!w/!future!unusual!
change.! It! states! the! doctrine! of! unforeseen! events,! based! on! the!
principle! of! rebus! sic! stantibus.! Under! this! theory,! parties! stipulate!
in! light! of! certain! prevailing! conditions,! and! once! these! conditions!
cease! to! exist,! the! contract! also! ceases! to! exist.! Disappearance! of!
the! basis! of! a! contract! gives! rise! to! relief! in! favor! of! the! party!
prejudiced.!However,!the!possible!consequences!of!merely!releasing!
the!parties!from!the!contract!could!lead!to:!1)!disruption!in!Natelco s!
essential! service! to! the! public;! and! 2)! causing! prejudice! to!
Casureco's!business!if!it!returns!the!telephone!units.!
!
PNCC!v.!CA!
Facts:! Private! respondents! leased! a! parcel! of! land! to! PNCC,! to! be!
used!as!premises!for!a!rock!crushing!plant!and!field!office.!The!lease!
was!to!run!for!five!years,!with!rent!at!a!monthly!rate!of!P20k,!paid!
yearly!in!advance.!To!begin!the!rock!crushing!project,!PNCC!required!
industrial! clearance! from! the! Ministry! of! Human! Settlement,! but! it!
was!only!able!to!obtain!a!Temporary!Use!Permit,!valid!for!two!years!
unless!revoked!sooner!by!the!Ministry.!Respondents!then!requested!
the!first!annual!rental!of!P240k.!PNCC!refused!to!pay,!reasoning!that!
the!payment!of!rental!would!begin!from!the!date!of!issuance!of!the!
industrial! clearance,! and! not! from! the! date! of! the! signing! of! the!
contract.! It! also! expressed! the! intention! to! terminate! the! contract,!
because! financial! and! technical! difficulties! had! forced! it! to!
discontinue!the!rock!crushing!project.!
Held:!Art.!1266!expressly!states!that!it!is!applicable!to!obligations!to!
do.!The!obligation!in!the!lease!to!pay!rentals!is!an!obligation!to!give.!
PNCC! only! stated! the! alleged! uncertainties! in! government! policies!
on! infrastructure! projects,! and! failed! to! identify! specifically! the!
circumstances!brought!about!by!the!change!in!political!climate.!The!
unforeseen! event! and! causes! mentioned! by! PNCC! are! not! the!
legal/physical! impossibilities! contemplated! by! Art.! 1266.! The!
principle!of!rebus!sic!stantibus!is!said!to!be!the!basis!for!Art.!1267,!
which!enunciates!the!doctrine!of!unforeseen!events.!However,!this!
is! not! an! absolute! application.! The! parties! to! the! contract! are!
presumed!to!have!assumed!the!risks!of!unfavorable!developments;!
therefore,! only! absolutely! exceptional! changes! of! circumstance! are!
considered! under! this! article.! Mere! pecuniary! inability! to! fulfill! an!
engagement!does!not!discharge!a!contractual!obligation;!neither!is!it!
a!defense!to!an!action!for!specific!performance.!Regarding!the!fact!
that!PNCC s!purpose!for!the!lease!contract the!use!of!the!premises!
as!a!site!for!a!rock!crushing!plant not!materializing,!this!also!does!
not!invalidate!the!contract.!The!cause!or!essential!purpose!in!a!lease!
contract! is! the! use! or! enjoyment! of! the! thing.! Thus,! the! party s!
purpose!for!contracting!does!not!affect!the!validity!of!the!contract,!
or! its! existence.! The! fact! that! its! purpose! did! not! arise! does! not!
mean!PNCC!is!entitled!to!a!release!from!its!obligation.!
!
b. In%case%of%partial%impossibility%=%Art.%1264%
The!courts!shall!determine!whether!it!is!so!important!
as!to!extinguish!the!entire!obligation!
IV. Condonation*or*Remission*
A. Concept(
Condonation! is! an! act! of! liberality,! by! virtue! of! which,!
without! receiving! any! equivalent,! the! creditor! renounces!
the!enforcement!of!the!obligation!which!is!extinguished!in!
its!entirety!or!in!that!part!or!aspect!of!the!same!to!which!
the!condonation!refers.!
It! is! an! essential! characteristic! of! remission! that! it! be!
gratuitous! ,! that! there! is! no! equivalent! received! for! the!
benefit! given;! once! such! equivalent! exists,! the! nature! of!
the!act!changes!!
1.
Dation! in! payment! ! receive! a! thing! different! from!
that!stipulated!
2.
Novation! ! object! or! principal! conditions! of! the!
obligation!should!be!changed!
3.
Compromise! ! when! the! matter! renounced! is! in!
litigation! or! dispute! and! in! exchange! of! some!
concession!which!the!creditor!receives!
An! offer! of! a! donation! which! must! be! accepted! in! the!
proper!form!depending!on!the!law.!
Failure! to! demand! payment! is! not! a! condonation,! there!
must! be! intention! to! donate,! unless! you! can! prove!
intentional! failure! to! demand! and! prescriptive! period! has!
ended!
B. Kinds(
(
1. AS!TO!EXTENT!
a. Total%
b. Partial% ?!!refers!to!the!amount!of!indebtedness,!or!to!an!
!
accessory! obligation! (such! as! pledge! or! interest)! or! to!

some!other!aspect!of!the!obligation!(such!as!solidarity)!%
2. AS!TO!FORM!!
Art.!1270,!Par.!1.!Condonation!or!remission!is!essentially!gratuitous,!
and! requires! the! acceptance! by! the! obligor.! It! may! be! made!
expressly!or!impliedly.!
a. Express% - Made! formally! and! in! accordance! with! the!

forms!of!ordinary!donations%
!!!!!!!63!
!!!!
b. Implied% - Inferred! from! the! acts! of! the! parties;! by! the!
acts! of! the! creditor! he! had! every! intention! to! forgive! the!
creditor!(Labitag)%
C. Requisites(
(
1.
The!debt!must!be!existing!and!demandable!at!the!time!the!
remission!is!made;!
The!renunciation!of!the!debt!must!be!gratuitous,!without!
any!equivalent!or!consideration;!
The!debtor!must!accept!the!remission.!
2.
3.
!
a. When%formalities%required%
Art.!1270!par.!2!One!and!the!other!kind!shall!be!subject!to!the!rules!
which! govern! in! officious! donations.! Express! condonation! shall,!
furthermore,!comply!with!the!forms!of!donation.!
!
It!is!a!bilateral!act!which!requires!acceptance!by!the!debtor!!
Subject!to!the!rules!on!donations!with!respect!to!acceptance,!
amount!and!revocation!
Formalities! of! a! donation! are! required! in! the! case! of! an!
express!remission!
Revocable!?!subject!to!the!rule!on!inofficious!donations!(The!
heirs!will!have!to!prove!that!the!condonation!was!excessive!
such! that! their! legitime! is! impaired);! The! rules! and! laws!
governing! acts! of! ingratitude! and! conditional! donations! do!
not!apply.!
!
Case:!
!
YAM!v.!CA!
Facts:! Petitioners! entered! into! a! Loan! Agreement! with! Assumption!
of! Solidary! Liability! whereby! they! were! given! P500,000! by! private!
respondent.! Denominated! the! first! Industrial! Guarantee! and! Loan!
Fund! (IGLF),! the! loan! was! secured! by! a! chattel! mortgage! on! the!
printing! machinery! in! petitioners! establishment.! Petitioners!
subsequently!obtained!a!second!IGLF!loan!of!P300,000.They!made!a!
partial! payment! of! P50,000! on! their! second! loan.! They! wrote! to!
private! respondent! on! their! proposal! to! settle! their! obligation,! to!
which! it! replied! with! a! counter?offer,! namely,! that! it! would! reduce!
the! penalty! charges! up! to! P1.4M! provided! that! petitioners! can! pay!
their! obligation! on! or! before! July! 30,! 1986.! On! July! 31,! 1986,!
petitioners!paid!P410,854.47,!receipt!of!which!was!acknowledged!by!
Destajo.! There! was! still! a! balance! of! P266,146.88! left,! respondent!
filed! a! case! for! the! collection.! Petitioners! contended! that! after!
receiving! respondents! letter! of! conditional! offer! to! reduce! their!
penalty!charges,!they!met!with!Sobrepenas,!president!of!respondent!
corporation.! The! latter! agreed! to! waive! the! penalties! and! service!
charges,! provided! that! petitioners! paid! the! principal! and! interest,!
less! the! earlier! payment! of! P50,000.! This! is! why! they! only! paid!
P410,854.47,!with!the!voucher!having!the!notation!full!payment!of!
IGLF!loan.!
!
Held:!Express!condonation!must!comply!with!the!forms!of!donation.!
Art.! 748,! par.! 3! provides! that! the! donation! and! acceptance! of! a!
movable,! the! value! of! which! exceeds! P5,000,! must! be! made! in!
writing,! otherwise! the! same! shall! be! void.! Additionally,! under! Art.!
417,!par.!1,!obligations,!actually!referring!to!credits,!are!considered!
movable! property.! In! this! case,! its! undisputed! that! the! alleged!
agreement! to! condone! P266,146.88! of! the! second! IGLF! loan! was!
never!made!in!writing.!
The! notation! full! payment! of! IGLF! loan! also! doesnt! bind! private!
respondent.! It! merely! states! petitioners! intention! in! making! the!
payment.! If! private! respondent! really! condoned! the! amount! in!
question,! petitioners! shouldve! asked! for! a! certificate! of! full!
payment!from!respondent!corporation,!just!like!what!they!did!when!
they! paid! off! their! first! loan.! The! countersigning! of! the! voucher! by!
Destajo! did! no! more! than! acknowledge! the! receipt! of! payment! as!
she! had! no! authority! to! condone! any! indebtedness! as! her! duties!
were! limited! to! issuing! official! receipts,! preparing! check! vouchers!
and!documentation.!
D. Presumptions(
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! in!
officious,!the!debtors!and!his!heirs!may!uphold!it!by!proving!that!the!
delivery!of!the!document!was!made!in!payment!of!the!debt.!
!
Not!applicable!to!public!documents!because!there!is!always!a!
copy!in!the!archives!which!can!be!used!to!prove!the!credit.!!
Surrender!of!weapon!of!enforcement!of!his!rights!
!
!
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.!
!
Only!prima!facie!and!may!be!overcome!by!contrary!evidence!
to! show! that! notwithstanding! the! possession! by! the! debtor!

of!the!private!document!of!credit,!it!has!not!been!paid.!
!
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.!
E. Effects(
(
1. IN!GENERAL!!it!extinguishes!the!obligation!
!
2. IN!CASE!OF!JOINT!OR!SOLIDARY!OBLIGATIONS!
!
Joint!Co[Debtors!
Joint!Creditors!
Solidary!Creditors!
Solidary!Debtors!
!
!
!
!
Only!applies!to!the!share!of!the!
joint!co?debtor!to!whom!the!
benefit!of!remission!was!given!
Only!applies!to!the!amount!due!
to!the!creditor!condoning!the!
obligation!
Applies! to! the! entire!
obligation!
!!!!!!!64!
!!!!
F. Governing(Rules(
C. Effects(
One!and!the!other!kind!shall!be!subject!to!the!rules!which!
govern! inofficious! donations.! Express! condonation! shall,!
furthermore,! comply! with! the! forms! of! donation.!
Condonation! is! an! offer! of! a! donation! which! must! be!
accepted!in!the!proper!form!depending!on!the!law!
(
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.(
G. Renunciation( of( Principal(

Accessory(Obligations(
or(
(
1. EFFECTS!
1. IN!GENERAL!
!
Art.! 1275.! The! obligation! is! extinguished! from! the! time! the!
characters!of!creditor!and!debtor!are!merged!in!the!same!person.!
!
Obligation!is!extinguished.!
!
Extinction!of!Real!Rights!by!Confusion!
Real! rights! like! usufruct,! mortgage,! pledge,! right! of!

repurchase,! lease! record,! etc.,! may! be! extinguished! by!
merger! when! any! such! rights! is! merged! with! ownership!
which!is!the!most!comprehensive!real!right!
!
2. IN!CASE!OF!JOINT!OR!SOLIDARY!OBLIGATIONS!
!
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.!!
!
1.
Art.!1273!The!renunciation!of!the!principal!debt!shall!extinguish!the!
principal! obligations;! but! the! waiver! of! the! latter! shall! leave! the!
former!in!force.!
2. RATIONALE:!The!accessory!follows!the!principal,!not!the!other!
way!around.!
2.
V. Confusion*or*Merger*of*Rights*
A. Concept(
!
MERGER! OR! CONFUSION! is! the! meeting! in! one! person! of! the!
qualities! of! the! creditor! and! the! debtor! with! respect! to! the! same!
obligation.!!
Erases!the!plurality!of!subjects!of!the!obligation!!
Reason! or! basis! for! confusion:! a! mode! of! extinguishing!

obligations!because!it!is!absurd!that!a!person!should!enforce!
an! obligation! against! himself;! where! there! is! a! confusion! of!
rights,!the!purposes!for!which!the!obligation!may!have!been!
created!are!deemed!realized!
May! be! revoked,! as! a! result! of! which! the! obligation! is!
recreated! in! the! same! condition! that! it! had! when! merger!
took!place!
CAUSE!OF!MERGER:!Anything!that!brings!about!succession!to!
the! credit! e.g.! debtor! inherits! credit! from! the! creditor.!
However,! cannot! be! the! other! way! around! because! under!
the! present! law,! heirs! do! not! inherit! the! debts! of! their!
predecessors.!
B. Requisites(for(Confusion(
1.
2.
3.
!
Must!take!place!between!the!creditor!and!the!principal!
debtor!(Art!1276)!
The! very! same! obligation! must! be! involved,! for! if! the!
debtor! acquires! rights! from! the! creditor,! but! not! the!
particular!obligation!in!question,!there!will!be!no!merger!
Confusion! must! be! total! or! as! regards! the! entire!
obligation;!must!be!complete!and!definite!!
JOINT!OBLIGATIONS!!
Each!debtor!has!his!own!creditor!to!whom!he!is!liable!and!
confusion! taking! place! in! the! person! of! any! debtor! or!
creditor!does!not!affect!the!others!
Confusion! will! extinguish! only! the! share! corresponding! to!

the!creditor!or!debtor!in!whom!the!two!characters!concur!
SOLIDARY!OBLIGATIONS!
Merger! in! the! person! of! one! of! the! solidary! debtors! shall!
extinguish!the!entire!obligation!because!it!is!also!a!merger!
in!the!other!solidary!debtors.!(Art!1215)!
Person!in!whom!two!characters!concur!in!effect,!paid!the!
entire! debt,! and! may! claim! reimbursement! from! his! co?
debtors!for!the!shares!which!correspond!to!them!
This,!however,!is!without!prejudice!to!the!provisions!of!Art!
1219! "!Solidary!co?debtor!who!has!been!remitted!is!still!
liable!to!co?debtors!if!one!of!the!had!paid!the!obligation!in!
full!prior!the!remission!
D. Confusion( in( Principal( or( Accessory(

Obligation(
!
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.!
!
Merger! releases! the! guarantor! because! their! obligation! is!

merely!accessory!!
When! guarantor! acquires! the! credit,! his! obligation! as!

guarantor! is! extinguished,! but! the! principal! obligation!
subsists! which! he! can! enforce! against! the! debtor! and! other!
co?guarantors.!!
When! mortgaged! property! belongs! to! a! third! person,! and!

mortgagee! acquires! a! part! of! the! property,! the! same! is!
released! from! the! encumbrance.! Credit! is! not! extinguished,!
even!in!part.!
When!mortgage!acquires!ownership!of!the!entire!mortgaged!
property,! mortgage! is! extinguished;! but! obligation! secured!
thereby! is! not! necessarily! extinguished;! may! become! an!
unsecured!obligation.!
!!!!!!!65!
!!!!
VI. Compensation*
A. Concept(
!
Art.!1278.!Compensation!shall!take!place!when!two!persons,!in!their!
own!right,!are!creditors!and!debtors!of!each!other.!
!
Compensation! is! a! mode! of! extinguishing! the! obligation! to! the!
concurrent! amount! of! the! debts! of! two! persons! who,! in! their! own!
right,!are!reciprocally!debtors!and!creditors!of!each!other.!!
Abbreviated!payment!!
Offsetting! of! two! obligations! which! are! reciprocally!

extinguished!if!they!are!of!equal,value!or!extinguished!to!the!
concurrent!amount!if!of!different,values.!!
Balancing! between! two! obligations,! involves! a! figurative!

operation! of! weighing! two! obligations! simultaneously! in!
order!to!extinguish!them!to!the!extent!in!which!the!amount!
of!one!is!covered!by!the!other.!!
Payment!is!simplified!and!assured!between!persons!who!are!
indebted!to!each!other.!!
Although! it! takes! place! by! operation! of! law,! it! must! be!
alleged! and! proved! by! the! debtor! who! claims! its! benefits.!
Once! proved,! its! effect! retroacts! to! the! moment! when! the!
requisites!provided!by!law!concur.!!
!
DISTINGUISHED%FROM%COUNTERCLAIM:%%
!
COUNTERCLAIM!
COMPENSATION!
Must!be!pleaded!to!be!effectual! Takes!place!by!operation!of!law,!
and!extinguishes!reciprocally!the!
two! debts! as! soon! as! they! exist!
simultaneously!
No!such!requirement!
Requires!that!both!debts!consist!
in! money,! or! if! the! things! due!
are! consumable,! they! be! of! the!
same!kind!and!quality!
!
DISTINGUISHED%FROM%PAYMENTS:%
!
PAYMENT!
COMPENSATION!
Takes! effect! by! act! of!
Takes!effect!by!operation!of!law!
the!parties!
Capacity! to! dispose! of!
Such! capacity! is! not! necessary,!
the! thing! paid! and! capacity! because! it! takes! place! by! operation!
to! receive! are! required! for! of!law!and!not!by!the!acts!of!parties!
debtor!and!creditor!
Performance! must! be!
There!
may!
be!
partial!
complete!and!indivisible!
extinguishment!of!an!obligation!!
!
!
Advantage!of!Compensation!over!Payment!
Simple,! taking! effect! without! action! by! either! party! to!

extinguish!their!respective!obligations!
More!guaranty!in!making!the!credit!effective,!because!there!is!
less!risk!of!loss!by!the!creditor!due!to!insolvency!or!fraud!of!the!
creditor!
!
!
!
!
!
1. DISTINGUISHED!FROM!CONFUSION!
!
CONFUSION!
Involves!only!one!obligation!
COMPENSATION!
There! must! always! be! two!
obligations!
There! is! only! one! person! in! Two! persons! who! are! mutually!
whom! the! characters! of! debtors! and! creditors! of! each!
creditor!and!debtor!meet!
other!in!two!separate!obligations,!
each! arising! from! a! different!
cause!
Impossibility!of!payment!
Indirect!payment!
B. Kinds(
1. AS!TO!EXTENT!
a. Total%=%when!two!obligations!are!of!the!same!amount%
b. Partial%=%when!the!amounts!are!not!equal;!compensation!
as!to!the!concurrent!amount,!balance!to!be!paid%
%
2. AS!TO!ORIGIN!
a. Legal% =% takes! place! by! operation! of! law! when! all!
b.
requisites!are!present!even!without!the!knowledge!of!the!
parties!
Conventional/Voluntary%=% when!the!parties!agree!to!
compensate! their! mutual! obligations! even! if! some!
requisite! provided! in! Art.! 1279! is! lacking,! such! as! those!
provided!in!Art.!1282,!which!is!an!exception!to!the!general!
rule!that!only!debts!which!are!due!and!demandable!can!be!
compensated%
Art.! 1282.! The! parties! may! agree! upon! the! compensation! of! debts!
which!are!not!yet!due.%
!
Requisites!of!Voluntary!Compensation!
Each! of! the! parties! can! dispose! of! the! credit! he! seeks! to!
compensate!
They!agree!to!the!mutual!extinguishment!of!their!credits!
!
c. Judicial%%takes!place!by!order!from!a!court!in!a!litigation!
i.e.,!when!the!defendant,!who!is!creditor!of!the!plaintiff!for!
an! unliquidated! amount,! sets! up! his! credit! as! a!
counterclaim! against! the! plaintiff,! and! his! credit! is!
liquidated!by!the!judgment,!thereby!compensating!it!with!
the!credit!of!the!plaintiff.!
!
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.!
%
%
%
%
%
%
%
%
%
%
!!!!!!!66!
!!!!
d. Facultative%=% when! it! can! be! set! up! only! by! one! of! the!
parties! ! who,! however,! has! the! right! to! object! to! it,! such!
as!when!one!of!the!obligations!has!a!period!for!the!benefit!
of!one!party!alone!and!who!renounces!that!period!so!as!to!
make!the!obligation!due!
When!legal!compensation!cannot!take!place!for!want!
of!some!legal!requisites!
As! compared! with! conventional:! facultative! is!

unilateral,! while! conventional! depends! upon!
agreement!of!both!parties!
Example:!!
o A!is!obliged!to!deliver!to!B!an!Arabian!horse;!B!is!
obliged!to!deliver!to!A!any!horse!!B!can!set!up!
compensation! by! waiving! his! right! and! simply!
accept!any!horse!
o Compensation! between! depositor! and!
depository,! upon! waiver! by! the! former! of! the!
benefit! given! by! law! (no! compensation! in!
depositum);! depositor! can! assert! compensation!
if!depository!sues!him!for!his!debt!under!another!
obligation!
C. Legal(Compensation(
!
1. REQUISITES!
!
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.!
!
!
REQUISITES%FOR%LEGAL%COMPENSATION:%
Mutual! debtors! and! creditors! in! their! own! right,! and! as!
principals!
There!can!be!no!compensation!when!one!party!is!occupying!a!
representative! capacity! i.e.! guardian,! administrator;! no!
compensation!if!one!owes!a!debt!personally!to!the!other,!and!
has!a!claim!in!a!representative!capacity!against!the!latter!
A!guarantor!or!surety!is!not!a!principal;!principal!debtor!cannot!
set! up! by! way! of! compensation! what! his! creditor! owes! to! his!
surety!
Exception:! A! guarantor! may! set! up! compensation! as! regards!

what!the!creditor!may!owe!the!principal!debtor!(Art.!1280)!
o If! the! principal! debtor! has! a! credit! against! the! creditor,!
which! can! be! compensated,! it! would! mean! the!
extinguishment! of! the! guaranteed! debt;! either! totally! or!
partially!
Solidary! debtor! cannot! set! up! the! obligation! of! the! creditor! in!
favor!of!a!co?debtor,!except!as!regards!the!share!of!the!latter!!
!
!
!
That! both! debts! consists! 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!
o Thing! must! be! fungible,! that! is,! things! of! the! same! kind!
which!in!payment!can!be!substituted!for!each!other!
!
Whether! prestations! refer! to! fungibles! will! depend!
largely! on! the! will! of! the! parties! "! there! can! be!
compensation! between! two! obligations! to! deliver! a!
cow!and!a!carabao,!if!willed!by!parties!
!
When! obligations! refer! to! determinate! or! specific!
things,!there!can!be!no!compensation!
!
That!the!two!debts!are!due!
o Debt!has!already!matured!
!
That!they!be!liquidated!and!demandable!
Liquidated! debts! ! when! its! existence! and! amount! are!
determined!or!determinable!
o Compensation! cannot! extend! to! unliquidated,! disputed!
claim!existing!from!breach!of!contract!
Demandable!!enforceable!in!court!
What!are!not!subject!to!compensation!
o Period!which!has!not!yet!arrived,!including!the!case!when!
one!party!is!in!a!state!of!suspension!of!payments!
!
Facultative!compensation:!There!can!be!a!case!where!
in!the!party,!to!whom!the!benefit!of!a!period!is!given,!
waives! such! period,! thereby! converting! obligation! to!
a! pure! one,! making! it! due! and! demandable! "! can!
now!set!up!compensation!
o Suspensive!condition!has!not!yet!happened!
o Obligation!cannot!be!sued!upon!i.e.!natural!obligation!
o One!of!the!debts!has!already!prescribed!"!Moment!when!
two!debts!co?existed,!and!not!when!compensation!was!set!
up,! is! material;! if! at! the! time! the! two! debts! co?exist,!
neither!has!prescribed,!prescription!of!one!afterwards!will!
not!prevent!compensation!
o Natural!obligations!are!not!legally!demandable!
No! retention! or! controversy! has! been! commenced! by! a! third!
party!
o Retention! ! credit! of! one! of! the! parties! is! subject! to! the!
satisfaction!of!the!claim!of!a!third!person!
o Controversy!!third!person!claims!he!is!the!creditor!of!one!
of!the!parties!
o Retention! or! controversy! must! be! communicated! in! due!
time!"!before!legal!compensation!takes!place!
o When! one! obligation! is! simple,! and! the! other! is!
alternative,! or! facultative,! there! can! be! no! legal!
compensation!
o When!one!obligation!has!a!penal!clause,!and!the!other!has!
none,!legal!compensation!is!not!prevented!
!
a. Due%distinguished%from%Demandable%
!
!
!
!
!
An!obligation!that!is!due!is!demandable!
However,!not!all!debts!that!are!demandable,!are!due!
o When! obligation! is! payable! on! demand,! the!
obligation! is! not! yet! due! where! no! demand! has!
been!made!
!!!!!!!67!
!!!!
Cases:!
!
GAN!TION!v.!CA!
Facts:! Lessee! owes! Lessor! P4,000! as! rents! in! arrears.! Lessor! filed!
ejectment!case;!obtained!favorable!judgment!in!municipal!court,!but!
was! later! reversed! by! CFI,! entitling! the! Lessee! to! an! award! of! the!
sum!of!P500!as!attorneys!fees.!Lessee!demands!for!payment!of!said!
attorneys! fees;! lessor! claims! there! has! been! legal! compensation.!
Lessee! claims! that! no! compensation! can! be! had,! as! he! is! not! the!
creditor! in! that! obligation;! P500! was! a! trust! fund! for! his! lawyer!
which!he!would!turn!over!to!the!latter.!!
!
Held:! There! is! compensation.! Award! of! attorneys! fees! is! made! in!
favor!of!the!litigant,!not!of!his!counsel.!The!litigant!is!the!judgment!
creditor!and!who!may!enforce!the!judgment!by!execution.!It!would!
be!unjust!to!compel!lessor!to!pay!his!debt!for!P500!when!admittedly!
his!creditor!owes!him!P4,000.!
!
SILAHIS!MARKETING!CORP.!v.!IAC!
Facts:! De! Leon! sold! various! items! of! merchandise! to! Silahis! for! P!
22,913.75;!latter!failed!to!pay.!De!Leon!filed!complaint!for!collection.!
Silahis!filed!counter?claim,!presenting!a!Debit!Memo!for!P22,200!as!
unrealized! profit! for! supposed! commission! that! he! should! have!
received! from! De! Leon! for! the! sale! of! sprockets! made! directly! to!
Dole!Philippines.!!
!
Held:! No! compensation.! Compensation! takes! place! when! two!
persons,!in!their!own!right,!are!creditors!and!debtors!to!each!other.!
Compensation!is!likewise!not!proper!where!the!claim!of!the!person!
asserting!the!set?off!against!the!other!is!neither!clear!nor!liquidated;!
compensation! cannot! extend! to! unliquidated,! disputed! claim!
existing! from! breach! of! contract.! Whether! De! Leon! is! liable! to! pay!
Silahis!a!commission!on!the!subject!sale!to!Dole!is!strongly!disputed.!
Debit! Memo! was! not! signed! by! De! Leon;! also! no! mention! of!
commitment!to!pay!commission.!
!
BPI!v.!REYES!
Facts:! Reyes! opened! two! joint! accounts! at! BPI;! one! with! his! wife,!
and!one!with!his!grandmother.!Grandmother!died,!but!was!still!sent!
US! pension! which! Reyes! deposited! in! his! joint! account! with! the!
former.!He!later!closed!said!account!and!transferred!its!funds!to!his!
joint!account!with!his!wife.!US!Dept.!of!Treasury!learned!about!the!
prior!death,!and!requested!BPI!for!a!refund;!BPI!refunded.!BPI!claims!
Reyes! verbally! authorized! it! to! debit! his! joint! account! with! his! wife!
for!said!amount.!Reyes!disclaims.!
!
Held:! There! is! legal! compensation.! All! requisites! of! compensation!
present;! debts! are! extinguished! to! the! concurrent! amount,! even!
though!creditors!and!debtors!are!not!aware!of!or!did!not!consent!to!
the!compensation.!BPI!is!a!debtor!of!Reyes,!a!depositor.!BPI!is!also!a!
creditor! of! Reyes! with! respect! to! the! dishonored! US! Treasury!
Warrant! illegally! transferred! to! his! joint! account.! As! to! the! wifes!
interest!on!the!joint!account,!element!of!mutuality!is!not!negated,!as!
she!never!asserted!her!right.!Rule!as!to!mutuality!is!strictly!applied!
at! law,! but! not! in! equity,! where! to! allow! the! same! would! lead! to!
unjust!enrichment.!
!
PNB!v.!SAPPHIRE!SHIPPING!
Facts:!PNB!intercepted!funds!coursed!through!it,!to!be!delivered!to!
Citibank,!in!favor!of!Sapphire!Shipping,!and!applied!the!same!against!
sums! erroneously! credited! by! it! to! the! latters! account.! Sapphire!
Shipping! demanded! for! the! remittances,! but! PNB! claims!
compensation,!as!they!are!mutually!indebted!to!each!other.!!
Held:! Parties! are! not! both! principally! bound! with! respect! to! the!
remittances;!neither!are!they!at!the!same!time!principal!creditor!of!
the!other.!Only!Sapphire!Shipping!is!principally!bound!as!a!debtor!of!
PNB! to! the! extent! of! the! double! credits.! PNB,! on! the! other! hand,!
was! an! implied! trustee,! who! was! obliged! to! deliver! to! Citibank! the!
remittances!for!the!benefit!of!Sapphire!Shipping.!
MIRASOL!v.!CA!
Facts:! PNB! financed! Mirasols! sugar! production! under! a! crop! loan!
financing! scheme.! Mirasols! executed! mortgages,! empowering! PNB!
to! sell! their! crops! and! to! apply! proceeds! as! payment! of! their!
obligation.! PD! 579! was! issued! by! Marcos,! which! authorized! PNB! to!
finance!Philexs!purchases,!and!directed!that!whatever!profit!Philex!
made! from! foreign! sales! was! to! be! remitted! to! a! special! fund! of!
national! government.! PNB! demanded! Mirasols! to! settle! their! due!
obligations.!Mirasols!failed!to!pay;!mortgaged!properties!foreclosed!
but! leaving! a! deficiency! of! P12M.! Mirasols! claim! that! loans! have!
been! fully! paid! by! virtue! of! legal! compensationoutstanding! debt!
offset!by!unliquidated!amounts!owed!to!them!by!PNB.!
!
Held:! There! is! no! legal! compensation.! They! are! not! mutually!
creditors!and!debtors!of!each!other.!PNB!retained!nothing!from!the!
proceeds!of!the!sale!of!crops,!as!it!was!remitted!to!the!Government.!
Furthermore,! compensation! cannot! take! place! where! one! claim,! as!
in! the! instant! case,! is! still! the! subject! of! litigation,! as! the! same!
cannot!be!deemed!liquidated.!
!
2. EFFECTS!!
!
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.!!
!
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!
!
EFFECTS%OF%LEGAL%COMPENSATION:%
1. Both! debts! are! extinguished! to! the! concurrent! amount! (Art!
1290)!
2. Interests! stop! accruing! on! the! extinguished! obligations! or! the!
part!extinguished!
3. Period! of! prescription! stops! with! respect! to! the! obligation! or!
part!extinguished!
4. All! accessory! obligations! of! the! principal! which! has! been!
extinguished!are!also!extinguished!
5. If! a! person! should! have! against! him! several, debts, which, are,
susceptible, of, compensation,! the! rules! on! application! of!
payments! shall! apply! to! the! order, of, the, compensation.! (Art!
1289)!!
If! debtor! has! various! debts! which! are! susceptible! of!

compensation,!he!must!inform!the!creditor!which!of!them!
shall!be!the!object!of!compensation.!In!case!he!fails!to!do!
so,! compensation! shall! be! applied! to! the! most! onerous!
obligation!
Must!be!alleged!and!proved!by!the!debtor!who!claims!its!
benefits;! once! proved,! its! effects! retroact! to! the! moment!
when!the!requisites!concurred!
!
!
!
!!!!!!!68!
!!!!
May! be! renounced,! upon! a! unilateral! declaration! of! the!
debtor!
o Expressly!or!impliedly!
o Implied! renunciation! ! (1)! by! not! setting! it! up! in! the!
litigation,! (2)! consenting! to! the! assignment! of! credit,!
(3)! by! paying! the! debt! voluntarily,! with! knowledge!
that! it! has! been! extinguished! by! compensation! "!
renunciation!cannot!be!made!to!the!prejudice!of!third!
persons!
E. Compensation( of( Debts( Payable( in(

Different(Places(
!
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.!!
D. When(Compensation(is(Not(Allowed(
1.
2.
When!there!is!renunciation!of!the!effects!of!compensation!
by!a!party!
When!the!law!prohibits!its!compensation!
a. Depositum!(Art!1287)!
b. Commodatum!(Art!1287)!
c. Support!due!by!gratuitous!title!(Art!1287)!
d. Civil!liability!arising!from!a!penal!offense!(Art!1288)!
!
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.!!
!
A! deposit! is! made! or! a! commodatum! is! given! on! the! basis! of!
confidence! of! the! owner.! It! is! therefore,! just! that! the!
depositary! or! borrower! should! in! fact! perform! his! obligation;!
otherwise! the! trust! of! the! depositor! or! lender! would! be!
violated.!!
With!respect!to!future!support,!to!allow!its!extinguishment!by!
compensation! would! defeat! its! exemption! from! attachment!
and! execution.! Support! in! arrears,! however,! can! be!
compensated!
Depositor! can! set! up! his! deposit! against! a! claim! of! the!
depositary,!and!the!lender!can!set!up!his!loan!against!a!credit!
of!the!borrower!"!facultative!compensation!
Support:! includes! legal! support,! and! all! other! rights! which!

have!for!their!purpose!the!subsistence!of!the!debtor,!such!as!
pensions! and! gratuities,! like! annuities! and! salaries! sufficient!
only!for!the!needs!of!the!debtor!
Debts! in! favor! of! the! Government! in! the! form! of! taxes,! fees,!
duties,! and! similar! forced! contributions,! cannot! be!
extinguished! by! compensation;! except! when! debt! is! purely!
contractual!
!
Art.! 1288.! Neither! shall! there! be! compensation! if! one! of! the! debts!
consists!in!civil!liability!arising!from!a!penal!offense.!
!
Satisfaction!of!such!obligation!is!imperative!
Offended!party!entitled!to!the!indemnity!can!set!up!his!claim!
in!compensation!of!is!debt!
!
NO%COMPENSATION%MAY%OCCUR%EVEN%WHEN%ALL%THE%REQUISITES%
CONCUR:,,
When!there!is!renunciation!of!the!effects!of!compensation!
by!a!party! "!rests!upon!a!potestative!right!and!unilateral!
declaration!of!renunciation!is!sufficient!!
When!the!law!prohibits!compensation!!
o Art.!1287!
o Art.!1288!
Applies! to! legal! compensation! but! not! to! voluntary!

compensation!
The! indemnity! contemplated! does! not! refer! to! the!
difference! in! the! value! of! the! things! in! their! respective!
places!but!to!the!expenses!of!monetary!exchange!(in!case!
of!money!debts)!and!expenses!of!transportation!(in!case!of!
things!to!be!delivered).!
Indemnity! shall! be! paid! by! the! person! who! raises! the!
defense!of!compensation!
F. Effect( of( Nullity( of( Debts( to( be(

Compensated(
!
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.!
When!rescissible!or!voidable!debt!is!rescinded!or!annulled,!
effect! is! retroactive,! and! compensation! must! be!
considered!cancelled!
Party! whose! obligation! is! annulled! or! rescinded! can!
recover! to! the! extent! that! his! credit! was! extinguished! by!
the!compensation,!because!to!that!extent!he!is!deemed!to!
have!made!payment!
G. Effects(of(Assignment(of(Credit(
!
MADE%AFTER%COMPENSATION%TOOK%PLACE:,,
No! effect;! compensation! already! perfected,! obligations!

extinguished;!nothing!to!assign!at!all!
Assignee!is!left!with!an!action!for!eviction!or!for!damages!
for!fraud!against!assignor!!
!
MADE%BEFORE%COMPENSATION%TOOK%PLACE:%
!
1. WITH!CONSENT!OF!DEBTOR!
!
Art.!1285,!par.!1!.!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.!!
Cannot! set! up! against! assignee! UNLESS! debtor! reserved! his!

right!to!compensation!when!he!gave!his!consent!!
Assignment!does!not!take!effect!except!from!the!time!debtor!is!
notified!thereof!
If! notice! of! assignment! is! simultaneous! to! the! transfer,! debtor!
can!set!up!compensation!of!debts!prior!to!the!assignment!
!!!!!!!69!
!!!!
2. WITH!KNOWLEDGE!BUT!WITHOUT!CONSENT!OF!DEBTOR!
!
Art.!1285,!par.!2!.!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.!!
!
Only!with!respect!to!debts!prior,to,assignment,!not!subsequent!!
Debtor!may!set!up!compensation!when!the!assignee!attempts!
to! enforce! the! assigned! credit,! provided! that! the! credit! of! the!
debtor! became! due! before! the! assignment;! if! assigned! credit!
matures! earlier! than! that! of! the! debtor,! assignee! may!
immediately! enforce! it,! and! debtor! cannot! set! up!
compensation,!because!his!credit!is!not!yet!due!
!
3. WITHOUT!KNOWLEDGE!OF!DEBTOR!
!
Art.!1285,!par.!3.!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.!
!
All!debts!maturing!prior,to,his,knowledge,,
Rationale:! As! far! as! the! debtor! is! concerned,! the! assignment!
does!not!take!effect!except!from!the!time!he!is!notified!thereof,
VII.
Novation*
A. Concept(
!
Novation!is!the!extinguishment!of!an!obligation!by!the!substitution!
or!change!of!the!obligation!by!a!subsequent!one!which!extinguishes!
or!modifies!the!first!either!by:!
1. Changing!the!object!or!principal!conditions!
2. Substituting!the!person!of!the!debtor!
3. Subrogating!a!third!person!in!the!rights!of!the!creditor!
!
Unlike! other! acts! of! extinguishing! obligation,! novation! is! a!

juridical! act! of! dual! function! in! that! at! the! time! it!
extinguishes,an,obligation,!it!creates,a,new,one,in,lieu,of,the,
old.!!
Does! not! operate! as! absolute! but! only! as! a! relative!

extinction.!!
!
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!
B. Kinds(
1. AS!TO!FORM!
a.% Express% =% parties! declare! that! the! old! obligation! is!
extinguished!and!substituted!by!the!new!obligation!
b.% % Implied% =% incompatibility! between! the! old! and! the! new!
obligations!that!they!cannot!stand!together%
!
!
!
2. AS!TO!ORIGIN!
a. Conventional%=%by!express!stipulation!of!the!parties
b. Legal%=%by!operation!of!law
3. AS!TO!OBJECT!
a. Objective% or% Real% =% change! in! the! cause,! object,! or!
principal!
b. Subjective%or%Personal% =%modification!of!obligation!by!
the!change!of!the!subject!%
Passive!?!substitution!of!debtor!%
Active!?!!subrogation!of!a!third!person!in!the!rights!of!
the!creditor%
c. Mixed%=%both!objective!and!subjective!novation%
%
4.!!!!AS!TO!EFFECT!
a. Partial% or% modificatory% = only! a! modification! or!
change!in!some!principal!conditions!of!the!obligation!,
b. Total% or% extinctive% =% obligation! is! completely!
extinguished,
C. Requisites(
!
Art.! 1292.! In! order! that! an! obligation! may! be! extinguished! by!
another!which!substitutes!the!same,!it!is!imperative!that!it!may!be!
so! declared! in! unequivocal! terms,! or! that! the! old! and! the! new!
obligations!be!on!every!point!incompatible!with!each!other.!
!
1. Previous! valid! obligation"! not! only! valid,! but! has! not! been!
extinguished!by!any!cause!
2. The!agreement!of!all!parties!to!the!new!contract"consent!of!
all!parties!to!the!substitution!
3. Extinguishment! of! the! old! contract"either! express! or!
implied!
4. Validity!of!the!new!one!!
5. Animus, novandi, or, intent, to, novate! (especially! for! implied,
novation!and!substitution,of,debtors)!
!
Novation! is! never! presumed.! There! is! no! novation! in! the!
absence!of!a!new!contract!executed!by!the!parties.!!
It! must! be! established! that! the! old! and! new! contracts! are!
incompatible!in!all!points,!or!that!the!will!to!novate!appear!by!
express!agreement!of!the!parties!or!in!acts!of!equivalent!import!
Novation!is!not!a!mode!of!extinguishing!criminal!liability.!It!may!
prevent!the!rise!of!criminal!liability!as!long!as!it!occurs!prior!to!
the!filing!of!the!criminal!information!in!court!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!!!!!!!70!
!!!!
Cases:!
!
MAGDALENA!ESTATE!v.!RODRIGUEZ!
Facts:! Appellants! Antonio! and! Hermina! Rodriguez! bought! from!
appellee! Magdalena! Estates,! Inc.! a! 2,191! sq.! m! parcel! of! land! in!
Quezon! City.! In! view! of! an! unpaid! balance! of! P5,000,! appellants!
executed!a!promisory!note,!whereby!they!promised!to!pay!appellee!
the! amount! with! a! 9%! interest.! On! the! same! day,! appellants! and!
Luzon!Surety!Co.!Inc!executed!a!bond!in!favor!of!appellees!whereby!
they! bound! themselves! to! comply! with! the! obligation! to! pay! the!
P5,000! within! a! period! of! 60! days.! When! it! became! due! and!
demandable,! Luzon! Surety! Co.! Inc! paid! the! P5,000.! Appellees!
demanded! from! Appellants! the! payment! of! P655.89! corresponding!
to! alleged! accumulated! interests! on! the! said! amount,! which! they!
refuse! to! pay.! They! claim! that! the! unqualified! acceptance! of!
payment! made! by! Luzon! without! exercising! its! right! to! apply! a!
portion!of!P655.89!to!the!payment!despite!its!presumed!knowledge!
constitutes!a!waiver!or!condonation!of!the!interest!due.!
!
Held:! No! condonation.! Appellee! did! not! protest! when! it! accepted!
the! payment! of! said! amount! because! he! knew! that! that! was! the!
complete!amount!undertaken!by!the!surety!in!the!contract.!Liability!
of! the! surety! is! not! extended,! by! implication,! beyond! the! terms! of!
his!contract.!
No!novation.!Novation!by!presumption!has!never!been!favored.!The!
obligation!to!pay!isnt!novated!in!a!new!instrument!wherein!the!old!
is!ratified!by!changing!only!the!terms!of!payment!and!adding!other!
obligations! not! incompatible! with! the! old! one.! The! mere! fact! that!
the! creditor! receives! a! guaranty! when! there! is! no! agreement! that!
the! first! debtor! shall! be! released! from! responsibility! does! not!
constitute!novation.!The!surety!bond!is!only!an!accessory!obligation!
of!the!promissory!note!and!is!not!a!new!and!separate!contract.!
!
!
REYES!v.!SECRETARY!OF!JUSTICE!
Facts:! Eurotrust! and! BERMIC! entered! into! a! loan! agreement.!
Eurotrust! extended! to! BERMIC! P216! Million! to! finance! its! Ritz!
Condominium!and!Gold!Business!Park.!BERMIC!issues!21!postdated!
checks! which! were! subsequently! dishonored! due! to! stop! order!
payment!made!by!Gracia!Eleazar!(President!of!BERMIC).!Elsa!Reyes!
(President!of!Eurotrust)!filed!complaint!for!violation!of!BP!22!and!Art!
315!of!the!RPC.!AFP!MBAI!conducted!investigation!and!Found!that:!
(a)!AFP!MBAI!invested!in!Eurotrust!by!buying!from!them!government!
securities;!(b)!Eurotrust!in!turn,!borrowed!from!AFP!MBAI!the!same!
government! securities! but! failed! to! return! it! to! the! latter;! (c)! The!
money! paid! by! AFP! MBAI! to! Eurotrust! was! the! money! lent! by!
Eurotrust!to!BERMIC!!and!others.!Eleazar!requested!a!meeting!with!
Eurotrust! ! reached! an! agreement! that:! (a)! BERMIC! will! directly!
settle!its!obligations!with!the!real!owners,!AFP!MBAI!and!DECS?IMC;!
(b)!BERMIC!started!making!negotiations!and!made!payments!to!the!
latter! (P31,711.11! and! P1M! check! paid! to! AFP! MBAI).! Office! of! the!
Provincial!Prosecutor!of!Rizal!dismissed!the!complaints!of!Reyes!on!
the! ground! that! the! assumption! of! Eleazar! of! Reyes! obligation! to!
AFP! MBAI! was! a! novation,! which! extinguished! Eleazars! criminal!
liability.!
!
Held:! No! novation.! The! last! three! requisites! of! novation! were! not!
complied! with.! No! new! agreement! for! the! substitution! of! creditor!
was!made!to!take!the!place!of!the!previous!contract.!
The! two! letters! made! to! formalize! the! agreement! does! not! show!
that!AFP!MBAI!agreed!to!the!substitution!of!creditor.!It!is!merely!an!
agreement! between! Eleazar! and! Reyes.! No! hard! evidence! was!

presented! demonstrating! the! intention! of! AFP! MBAI! to! release!
Reyes! from! her! obligation! to! pay! under! the! contract! of! sale! of!
securities.! Novation! by! substitution! of! debtor! must! always! be! with!
the! consent! of! the! creditor! (Art! 1293).! AFP! MBAIs! receipt! of!
payments!from!Eleazar!does!not!constitute!novation.!At!most,!it!only!
creates!the!juridical!relation!of!co?debtorship!or!suretyship.!!
!
CONCHINGYAN!v.!RB!SURETY!AND!INSURANCE!
Facts:! Pacific! Agricultural! Suppliers! (PAGRICO)! was! granted! a!
P400,000! increase! in! its! line! of! credit! with! PNB.! It! has! to! secure! a!
bond! worth! that! amount! which! was! issue! by! R&B! Surety! and!
Insurance! Co.! Inc,! who! bound! themselves! jointly! and! severally! to!
comply!with!the!terms!and!conditions!of!the!advance!line.!PNB!gad!
the! righ! under! the! surety! to! proceed! directly! against! Respondent!
without! exhausting! the! assets! of! PAGRICO.! Subsequently,! two!
identical! indemnity! agreements! were! entered! into! by! Respondent!
with! (1)Catholic! Church! Mart! (Cochingyan)! and! (2)PAGRICO!
(Villanueva)! and! PACOCO! (Liv).! The! Indemnitors! bound! themselves!
to! pay! Respondent! an! annual! premium! of! P5,000.! When! PAGRICO!
failed! to! comply,! PNB! demanded! from! Respondent! the! P400,000.!
Respondent!paid!a!total!of!P70,000.!Respondent!sent!a!formal!letter!
to!indemnitors!(Petitioners)!for!reimbursement!and!for!discharge!of!
its!liability!to!PNB.!!
Issue:!WON!the!trust!agreement!has!extinguished,!by!novation,!the!
obligation! of! Respondent! to! PNB! under! the! surety! bond! which! in!
turn!extinguished!the!obligations!of!Petitioners!under!the!indemnity!
agreements!
!
Held:!No.!Trustor!(petitioners!Cochingyan,!Villanueva,!and!Liv),!since!
PAGRICO!and!PACOCO!have!defaulted,!is!bound!to!comply!with!his!
obligation! under! the! indemnity! agreements.! Such! shall! not! in! any!
manner!release!respondent!from!its!liabilities.!The!surety!bond!has!
not! been! discharged! by! payment! of! the! principal! obligation.! The!
trust! agreement! does! not! expressly! terminate! the! obligation! of!
Respondent,!it!merely!brought!another!person!to!assume!the!same!
obligation! that! respondent! was! bound! to! perform.! For! subjective!
novation! to! take! place,! the! old! debtor! must! be! released! from! the!
obligation.!If!not,!the!third!person!merely!becomes!a!co?debtor.!!
!
BROADWAY!CENTRUM!CONDOMINIUM!CORP!v.!TROPICAL!HUT!
Facts:! Broadway! Centrum! and! Tropical! Hut! executed! a! contract! of!
lease!where!Petitioner!agreed!to!lease!3,042.19!sq!m!portion!of!the!
Broadway! Centrum! Commercial! Complex! for! 10! years! with! a!
monthly! rental! of! P120,000! (first! 3! years),! P140,000! (2! years),!
P165,000!(4!years).!In!1982,!P!agreed!to!reduce!the!rent!by!P20,000!
for! a! limited! period! due! to! low! sales! of! R,! on! the! condition! that! R!
would!implement!Ps!suggestions!of!strategies!to!increase!its!sales.!
Stipulation:! any! reduction! in! rentals! is! merely! a! temporary!
suspension!of!the!original!rate!stipulated.!
!
Held:! No! novation.! The! agreement! clearly! stated! that! it! is!
provisional! and! temporary.! P! retained! the! discretionary! right! to!
return! to! the! original! contractual! rates! whenever! it! deemed!
appropriate.! In! novation,! it! is! essential! that! the! new! obligation!
expressly!declare!that!the!old!one!is!to!be!extinguished,!or!that!it!be!
incompatible!on!every!point.!!
!
!
!
!
!
!
!
!!!!!!!71!
!!!!
CALIFORNIA!BUS!LINE!v.!STATE!INVESTMENT!
Facts:!Delta!applied!for!financial!assistance!from!SIHI!for!P25M.!CBLI!
purchased!35!buses!and!2!conversion!engines!from!Delta.!To!secure!
payment,! CBLIE! and! Mr.! Llama! executed! 16! promissory! notes! in!
favor! of! Delta! (P2.3M! each).! CBLI! also! executed! chattel! mortgages!
over!the!35!buses!in!Deltas!favor.!When!CBLI!defaulted,!it!entered!
into! a! restructuring! agreement! with! Delta:! provided! for! a! new!
schedule! of! payments! and! a! security! clause! that! in! case! of! default,!
Delta! would! have! the! authority! to! take! over! the! management! of!
CBLI.! Delta! executed! a! Deed! of! Continuing! Assignment! of!
Receivables!in!favor!of!SIHI!as!security.!CBLI!had!trouble!meeting!its!
obligations! to! Delta,! so! the! latter! filed! action! to! enforce! takeover!
clause.!Delta!executed!a!Deed!of!Sale,!assigning!to!SIHI!5!of!the!16!
promissory! notes! from! CBLI.! Delta! and! CBLI! entered! into! a!
compromise! agreement"CBLI! agreed! that! Delta! would! exercise! its!
right! to! extrajudicial! foreclosure! on! the! chattel! mortgages! over! the!
35!bus!units.!
Issue:! WON! the! restructuring! agreement! novated! the! promissory!
notes!
!
Held:! No.! The! restructuring! agreement! between! Delta! and! CBLI!
didnt! expressly! stipulate! that! such! would! novate! the! promissory!
notes,! hence,! only! a! showing! of! incompatibility! would! sustain!
novation.! Such! incompatibility! isnt! present! in! the! case.! The!
agreement! merely! provided! for! a! new! schedule! of! payment! and! a!
security! clause.! Where! the! parties! to! the! new! obligation! recognize!
the!continuing!existence!and!validity!of!the!old!one,!there!could!be!
no!novation.!!
E. Effect(of(the(Status(of(the(Original(or(
New(Obligation(
!
1. NULLITY!OR!VOIDABILITY!OF!ORIGINAL!OBLIGATION!
!
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.!
!
NULLITY! of! original! obligation! makes! the! new! obligation!
void!
o One! of! the! requisites! of! novation! is! a! previous, valid,
obligation!!
o Also! applies! to! voidable! obligations! that! are! already!
annulled/extinguished!
o One! of! the! requisites! of! novation! is! a! previous, valid,
obligation!!
o Also! applies! to! voidable! that! are! already!
annulled/extinguished!
!
VOIDABILITY!original!obligation!makes!the!new!obligation!
valid!if:!
1. It!is!ratified!before!novation!
2. even!if!not,ratified,!but!voidable!at,the,instance,
of,the,debtor!
o Consent! of! debtor! constitutes! implied! waiver! of! the!
action!for!nullity!!
o Defect! is! not! completely! cured! in! expromision!
wherein!debtor!has!not!intervened!or!consented!
!
NULLITY!OR!VOIDABILITY!OF!NEW!OBLIGATION!
D. Effects(
!
1. IN!GENERAL!
!
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!
!
The! general! effect! of! novation! is! the! extinguishment! of! the!
original!obligation!and!creation!of!a!new!one!
!
2. WHEN!ACCESSORY!OBLIGATION!MAY!SUBSIST!
!
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!
As! a! general! rule,! the! extinguishment! of! the! principal! also!

extinguishes!the!accessory!obligations.!
Art! 1296! provides! an! exception! that! accessory! obligations!
may! subsist! only! insofar! as! they! may! benefit! third! person!
who!did!not!give!the!consent!to!the!novation!!
a. Why?! The! mortgage,! pledge,! guaranty! was! given! to!
answer! for! a! particular! obligation! or! for! the!
insolvency!of!a!particular!debtor;!any!change!in!either!
of! this! destroys! the! basis! of! the! consent! of! the!
mortgagor,!pledgor,!surety!or!guaranty!
b. A! person! should! not! be! prejudiced! by! the! act! of!
another!without!his!consent!
!
2.
!
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.!
!
If! the! new! obligation! is! NULL,! the! original! obligation!

subsists! unless! the! parties! intend! the! extinguishment! of!
the!former!relation!in!any!event!
VOIDABILITY!of!the!new!obligation!makes!it!binding,!but!if!
it!is!annulled!and!set!aside,!the!original!obligation!subsists!!
!
3. SUSPENSIVE! OR! RESOLUTORY! CONDITION! OF! ORIGINAL!
OBLIGATION!
!
Art.!1299.!If!the!original!obligation!was!subjective!to!a!suspensive!or!
resolutory! condition,! the! new! obligations! shall! be! under! the! same!
condition,!unless!it!is!otherwise!stipulated.!
Old!Obligation!Conditional!and!New!Obligation!Pure!
o If! intention! is! merely! to! suppress! the! condition,! no%
novation!
o If! intention! is! to! extinguish! the! original! obligation!
itself! by! the! creation! of! a! new! obligation,! the!
novation%does%not%arise,except!from!fulfillment!of!the!
condition!from!original!obligation!
If!the!suspensive!condition!of!the!original!obligation!is!not!
performed,! that! obligation! does! not! come! into! existence,!
and!the!cause!for!the!new!obligation!would!be!wanting!
!!!!!!!72!
!!!!
If!the!condition!is!resolutory,!its!happening!would!resolve!
the!old!obligation!as!void!or!extinguished!
Where! the! original! obligation! is! conditional,! the! novation!
itself! must! be! held! to! be! conditional,! and! its! efficacy!
depends! upon! whether! the! condition! which! affects! the!
former!is!complied!with!or!not!
Both!Obligations!are!Conditional!
o If! the! conditions! in! the! two! obligations! are! not!
incompatible! with! each! other,! and! they! can! stand!
together,! they! must! all! be! fulfilled! in! order! that!
novation! may! become! effective.! If! either! of! the!
conditions! are! not! fulfilled,! no! novation! can! take!
place!
o If! the! two! conditions! are! incompatible! with! each!
other,!there!is!an!obvious!intention!to!substitute!the!
new! conditional! obligation! for! the! old! one"! results!
in! the! extinguishment! of! the! old! obligation,! leaving!
the!new!one!subject!to!its!conditions!
F. Objective(Novation(
!
Change!in!the!object!of!prestations!
Principal! Conditions?! principal! terms! (e.g.! making! the!
debt!absolute!instead!of!conditional!and!vice?versa)!
Sir!Labitag!lecture!notes!
o Dacion,en,pago!is!an!objective!novation!
o If! there! is! an! increase! in! amount! and! you! can! prove!
that!the!intention!to!novate,!then!it!will!be!an!implied!
novation,!but!usually,!its!not!a!novation!if!you!change!
the!amount.!!
o Extension!of!time!does!not!imply!novation.!But!if!the!
time! situation! is! reversed! (shortening! of! the! period),!
that!is!a!novation.!E.g.!Ynchausti,v,Yulo!!
o Convertion!of!an!obligation!to!some!other!obligation!
e.g.!obligation!for!contract!of!deposit!for!one!of!loan,!
or!a!contract!of!deposit!to!one!of!commodatum.!!
,
G. Subjective(Novation(
!
a. Expromision%
i.
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!made!by!the!new!debtor!gives!him!
the!rights!mentioned!in!Articles!1236!and!1237.!
!
Art.! 1236! par! 2.! 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.!!
!
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.!!
!
Consent!of!two!parties!(new!debtor!and!creditor)!
Knowledge!or!consent!of!the!old!debtor!is!not!required!
!
ii.
%Effects%
%
Art.!1294.!If!the!substitution!is!without!the!knowledge!or!against!the!
will!of!the!debtor,!the!new!debtors!insolvency!or!non?fulfillment!of!
the! obligation! shall! not! give! rise! to! any! liability! on! the! part! of! the!
original!debtor.!
Requisites%
Change!of!debtor!or!creditor!
In! all! kinds! of! subjective! novation,! the! consent! of! the!
creditor!is!required.!
CONSENT!OF!THE!THIRD!PARTY!ALWAYS!REQUIRED.!Why?!
Because!he!assumes!the!obligation!!
CONSENT! OF! THE! CREDITOR! IS! LIKEWISE! INDISPENSABLE.!
Why?!Substitution!of!one!debtor!for!another!may!delay!or!
prevent! the! fulfillment! of! the! obligation! by! reason! of! the!
inability!or!insolvency!of!the!new!debtor!
o Consent! may! be! implied! or! express! as! long! as! it! is!
given.!!
o However,!it!cannot!be!presumed!from!his!acceptance!
rd
of! payments! by! a! 3 ! party! for! the! benefit! of! the!
debtor!without!further!acts;!no!novation!because!no!
consent!to!the!transfer!of!the!debt!itself!
rd
It! is! not! enough! to! extend! the! juridical! relation! to! a! 3 !
person,! it! is! necessary! that! the! old! debtor! be! released!
rd
from! the! obligation! and! the! 3 ! person! or! new! debtor!
takes!his!place.!!
May! be! done! at! the! instance! of! the! creditor! or! the!
third!party!himself!
Consent! of! the! old! debtor! is! not! necessary,!
substitution!may!be!made!without!his!knowledge!
1. BY!CHANGE!OF!DEBTOR!
Without!the!release,!there!is!no!novation,!the!person!who!
assumed! the! obligation! of! the! debtor! merely! becomes! a!
co?debtor!or!a!surety!
No! agreement! to! solidarity,! the! first! and! the! new! debtor!
are!considered!obligated!jointly.!
%
%
%
%
The! debtor! is! released! from! obligation"without! such!

release,! there! is! no! novation.! The! third! person! who!
assumed! the! obligation! merely! becomes! a! co?debtor! or!
surety.!
Creditor! generally! cannot! recourse! from! the! old! debtor! if!
the!new!debtor!is!insolvent!!
If!substitution!is!without!his!knowledge!or!consent!
o Old!debtor!is!not!liable!for!the!insolvency!or!non?
fulfillment!of!the!new!debtor!(Art!1294)!
o The! new! debtor! can! only! compel! old! debtor! to!
reimburse! inasmuch! as! the! payment! has! been!
beneficial!to!him! "!No!subrogation!takes!place!
(Art!1237)!
If!substitution!is!with!knowledge!and!consent!!
o New! debtor! is! entitled! to! full! reimbursement! of!
the!amount!paid!and!subrogation!!
!!!!!!!73!
!!!!
b. Delegacion%
Debtor!offers!and!the!creditor!accepts!a!third!person!
who!consents!to!the!substitution!so!that!the!consent%
of%the%three,is!necessary!!
Delegante! (old! debtor),! delegatario! (creditor)! and!
delegado!(third!person!new!debtor)!
Consent!need!not!be!given!simultaneously!
!
!
i.
Requisites%(vs.%Art.%1293)%
!
1.
2.
3.
ii.
Initiative!for!substitution!must!emanate!from!the!
old!debtor!
Consent!of!the!new!debtor!
Acceptance!by!the!creditor!!
!
Effects%
%
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!he!delegated!his!debt.!
Original!debtor!is!released!from!the!obligation!
The!new!debtor!is!subrogated!in!the!rights!of!the!creditor.!He!
may!demand!from!the!old!debtor!the!entire!amount!of!what!he!
has!paid!for!the!obligation.!(Art!1302!Par!2)!
GENERAL! RULE:! Old! debtor! is! not! liable! for! the! insolvency! or!
non?fulfillment!of!the!new!debtor!(Art!1295)!
EXCEPTION:!!
o He!is!aware!of!the!insolvency!at!the!time!he!delegated!his!
debt!(Art!1295)!
o At!the!time!of!the!delegation,!the!new!debtors!insolvency!
is!already!existing!and!of!public!knowledge!(Art!1295)!
!
Cases:!
!
GARCIA!v.!LLAMAS!
Facts:!Romeo!Garcia!and!Eduardo!de!Jesus!borrowed!P400,000!from!
Dionisio!Llamas.!They!executed!a!promissory!note!where!they!bound!
themselves!jointly!and!severally!to!pay!the!loan!on!or!before!Jan!23,!
97! with! a! 5%! interest! per! month.! The! two! failed! to! pay! despite!
demands! from! Respondent.! Garcia! claims! that:! he! assumed! no!
liability!under!the!promissory!note!because!he!signed!it!merely!as!an!
accommodation!party!and!that!he!is!relieved!from!any!liability!since!
the!load!has!been!paid!by!de!Jesus!by!means!of!a!check.!He!claims!
that! the! acceptance! of! the! check! novated! the! loan.! However,! said!
check!bounced.!
!
Held:! No! novation.! The! check! couldnt! have! extinguished! the!
obligation! since! it! bounced.! There! was! no! express! declaration! of!
novation,!nor!incompatibility!between!the!promissory!note!and!the!
check.! Subjective! novation! must! release! the! old! debtor! and! a! third!
person! must! assume! it"! Garcia! didnt! show! that! he! was! released!
and!there!was!no!express!consent!from!the!creditor.!Also,!de!Jesus!
wasnt! a! third! party! to! the! obligation! since! they! were! solidary!
debtors! who! could! only! be! released! upon! extinguishment! of!
obligation.!
!
!
!
QUINTO!v.!PEOPLE!
Facts:!Leonida!Quinto!was!indicted!for!estafa.!She!received!pieces!of!
jewelry! from! Aurelia! Cariaga! worth! P36,000! for! the! purpose! of!
selling! them! for! commission,! but! she! failed! to! return! the! unsold!
jewelry.! As! a! defense,! she! claims! that! she! regularly! transacted!
business! with! Cariaga"she! sold! the! latters! jewelry! to! Mrs.!
Camacho! and! Mrs.! Ramos.! Quinto! has! a! transaction! with! Camacho!
where! the! latter! wasnt! able! to! pay! in! full! and! left! a! balance! of!
P13,000.! Quinto! bought! Camacho! to! Cariaga! who! agreed! to! allow!
Camacho!to!pay!in!installments.!Quinto!also!sold!Cariagas!jewelry!to!
Ramos! who! was! unable! to! pay! the! whole! amount,! but! Cariaga!
accepted!a!right!worth!P3k!and!P5k!in!cash!
Issue:WON! agreement! between! Quinto! and! Cariaga! was! novated!
when!the!latter!consented!to!receive!payment!on!installments!from!
Camacho!and!Ramos!
!
Held:!No.!Changes!alluded!by!Quinto!only!consists!in!the!manner!of!
payment.! No! substitution! of! debtors! occurred! since! Cariaga! merely!
agreed! to! the! payment! but! didnt! give! her! consent! to! enter! into! a!
new! contract.! Acceptance! of! payment! cannot! be! construed! as!
expromision! or! delegacion.! If! first! debtor! isnt! released! from! the!
obligation,! there! is! no! novation.! If! a! third! persona! ssumed!
responsibility,!it!only!added!a!number!of!debtors.!
!
2. BY! CHANGE! OF! CREDITOR:! SUBROGATION! OF! A! THIRD!
PERSON!IN!THE!RIGHTS!OF!THE!CREDITOR!
!
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.!
!
The!transfer!of!all!the!rights!of!the!creditor!to!a!third!person!
who!substitutes!him!in!all!his!rights.!
!
a. Conventional%Subrogation%
Takes!place!by!agreement!of!the!parties!
%
i.
Requisites%
%
Art.! 1301.! Conventional! subrogation! of! a! third! person! requires! the!
consent!of!the!original!parties!and!of!the!third!person.!
Consent!of!the!old!creditor!"!because!his!right!is!extinguished!!
Consent! of! the! debtor! "! old! is! extinguished! and! he! becomes!
liable!to!a!new!obligation!!
Consent!of!the!third!person!new!creditor!"!becomes!a!party!to!
the!new!relation!
%
%
ii.
Distinguished%from%Assignment%of%Credit%
CONVENTIONAL!SUBROGATION!
ASSIGNMENT!OF!CREDITS!
Debtors!consent!is!necessary!
Debtors!consent!not!required!
Extinguishes! the! old! obligation! Refers! to! the! same! right! which!
and!gives!rise!to!a!new!one!!
passes! from! one! person! to!
another!
The! nullity! of! an! old! obligation! Nullity! of! an! obligation! is! not!
may! be! cured! by! subrogation! remedied! by! the! assignment! of!
such! that! the! new! obligation! will! the!creditors!right!to!another!
be!perfectly!valid!
%
%
!!!!!!!74!
!!!!
iii.
%Effects%
%
Art.!1303.!Subrogation!transfers!to!the!person!subrogated!the!credit!
with!all!the!rights!thereto!appertaining,!either!against!the!debtor!or!
against! third! persons,! be! they! guarantors! or! possessors! of!
mortgages,!subject!to!stipulation!in!a!conventional!subrogation.!
If! suspensive! condition! is! attached,! that! condition! must! be!
fulfilled!first!in!order!the!new!creditor!may!exercise!his!rights.
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.!
!
Case:!
!
LICAROS!v.!GATMAITAN!
Facts:!Abelardo!Licaros!invested!in!the!Anglo?Asean!Bank!and!Trust!
Limited! which! was! organized! to! do! business! in! the! Republic! of!
Vanuatu! but! not! in! the! Philippines.! Petitioner! encountered!
difficulties!in!retrieving!his!profits!and!even!the!very!investments,!so!
he!consulted!Antonio!Gatmaitan!who!was!a!banker!and!investment!
manager.! Respondent! voluntarily! offered! to! assume! payment! of!
Anglo?Asean! subject! to! terms! and! conditions.! They! executed! a!
notarized!Memorandum!of!Agreement!whereby!R!would!pay!$150k!
to!P!(execute!a!promissory!note!in!favor!of!P);!while!P!undertook!to!
assign! his! credit! to! R! in! the! Anglo?Asean.! R! executed! the! PN! worth!
P3M,!but!wasnt!able!to!collect!from!Asean,!so!he!did!not!bother!to!
pay! P.! P! felt! he! had! the! right! to! colled! from! R! based! on! their!
agreement.!
!
Held:! The! agreement! between! them! is! a! conventional! subrogation!
and! not! a! transfer! of! credit.! ! Subrogation! is! the! transfer! of! all! the!
rd
rights! of! the! creditor! to! a! 3 ! person! who! substitutes! him! in! all! his!
rights.! The! debtors! consent! is! necessary! and! it! extinguished! the!
obligation!and!gives!rise!to!a!new!one.!Nullity!of!an!obligation!may!
be!cured,!such!that!the!new!obligation!will!be!perfectly!valid.!In!this!
case,! the! crucial! distinction! deals! with! the! necessity! of! the! consent!
of! the! debtor! in! the! original! transaction.! In! the! whereas! clause! of!
their!agreement,!they!stipulated!that!their!agreement!is!conditioned!
rd
on!the!express!conformity!of!the!3 !parties!concerned!(Asean).!Also,!
they! reserved! a! spot! for! Aseans! signature.! Absent! the! consent! of!
Asean,!the!Memorandum!did!not!become!valid!and!effective.!
!
b. Legal%Subrogation%
i.
ii.
Takes! place! without! agreement! but! by! operation! of!

law!because!of!certain!acts!
GENERAL!RULE:!Not!presumed,!EXCEPTION:!Art!1302!
The!third!person!is!called!legal,subrogee!
Requisites%(nothing,in,Tolentino)%
When%Presumed%
%
Art.!1302.!!It!is!presumed!that!there!is!legal!subrogation:!
1.When! a! creditor! pays! another! creditor! who! is! preferred,! even!
without!the!debtors!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!latters!share!
When!a!creditor!pays!another!creditor!who is!preferred,!even!
without!the!debtors!knowledge!
o Refers! to! hierarchy! of! credits! which! will! be! taught! next!
sem!hehe!
o Debtor!can!still!use!any!defenses!he!may!have!against!the!
original!creditor!such!as!compensation!
rd
When! a! 3 ! person,! not, interested, in, the, obligation,! pays! with!

the!express/tacit!approval!of!the!debtor!
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!latters!share!
o Solidary! co?debtor! may! reimburse! to! the! extent! of! the!
debtors!share!
o Guarantors,!mortgagors!and!sureties!!
%
iii.
%Effects%
%
Art.!1303.!Subrogation!transfers!to!the!person!subrogated!the!credit!
with!all!the!rights!thereto!appertaining,!either!against!the!debtor!or!
against! third! persons,! be! they! guarantors! or! possessors! of!
mortgages,!subject!to!stipulation!in!a!conventional!subrogation.!
!
If! suspensive! condition! is! attached,! that! condition! must! be!

fulfilled!first!in!order!the!new!creditor!may!exercise!his!rights.!!
!
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.!
!
Cases:!
ASTRO! ELECTRONICS! CORPORATION! v.! PHILIPPINE! EXPORT! AND!
FOREIGN!LOAN!GUARANTEE!CORPORATION!
Facts:!Astro!was!granted!several!loans!by!Philtrust!in!the!amount!of!
P3M!with!interest,!secured!by!3!promissory!notes.!Petitioner!Roxas!
signed! the! PNs! twice:! as! President! of! Astro! and! in! his! personal!
capacity.! He! also! signed! a! continuing! surety! agreement! in! favor! of!
Philtrust,!as!President!and!surety.!Phil!Guarantee!(respondent(,!with!
consent! of! Astro,! guaranteed! in! favor! of! Philtrust! the! payment! of!
70%!of!Astros!loan,!subject!to!the!condition!that!upon!payment!by!
R,! it! shall! be! proportionally! subrogated! to! the! rights! of! Philtrust!
against! Astro.! Since! Astro! failed! to! pay,! R! paid! 70%.! Afterwards,! R!
filed!a!complaint!against!Astro!and!Roxas!for!sum!of!money.!Roxas!
disclaims!any!liability!on!the!instrument!because!he!signed!them!in!
blank,! and! the! words! in! his! personal! capacity! were! fraudulently!
added.!
Issue:!WON!Roxas!should!be!solidarily!liable!with!Astro!
!
Held:! Yes.! The! PNs! signed! by! Roax! twice! are! valid! and! binding.!
Signatures!covered!portions!of!the!typewritten!words!show!that!the!
typewritten!words!were!already!existing!when!Roxas!signed!it.!R!has!
all!the!rights!to!proceed!against!Roxas!and!Astro.!It!is!subrogated!to!
the!rights!of!Philtrust.!Roxas!consent!isnt!necessary!for!subrogation!
to! take! place! because! the! case! is! one! of! legal! subrogation! which!
occurs! by! operation! of! law! and! without! the! need! of! debtors!
knowledge.! R! as! guarantor,! became! the! transferee! of! all! right! of!
Philtrust! against! P! because! the! guarantor! who! pays! is! subrogated!
by!virtue!thereof!to!all!the!rights!which!the!creditor!had!against!the!
debtor.!!
!
!!!!!!!75!
!!!!
TITLE%II:%%CONTRACTS%
C. Characteristics(
1. OBLIGATORY!FORCE!
!
CHAPTER(1:(((
GENERAL(PROVISIONS(
Art.! 1308.! The! contract! must! bind! both! contracting! parties;! its!
validity!or!compliance!cannot!be!left!to!the!will!of!one!of!them.!
A. Definition(
Art.! 1305! A! contract! is! a! meeting! of! minds! between! two! persons!
whereby! one! binds! himself,! with! respect! to! the! other,! to! give!
something!or!to!render!some!service.!
!
Sanchez! Roman:! a! juridical! convention! manifested! in! legal!

form,! by! virtue! of! which! one! or! more! persons! bind!
themselves! in! favor! of! another! or! others,! or! reciprocally,! to!
the!fulfillment!of!a!prestation!to!give,!to!do!or!not!to!do.!
Limited!to!that!which!produces!patrimonial!liabilities!
Binding!effect!of!contract!based!on!the!following!principles!
Obligations! arising! from! the! contract! have! the! force! of! law!
between! the! contracting! parties,! laws! then! are! merely!
suppletory!to!the!stipulation!of!the!parties!
There!must!be!mutuality!between!the!parties!based!on!their!
essential! equality,! to! which! is! repugnant! to! have! one! party!
bound!by!the!contract!leaving!the!other!free!therefrom!!
There!is!usually!an!offer!then!a!counter?offer,!followed!by!a!
counter?counter?offer,! ad! nauseam.! What! happens! is!
haggling/bargaining/negotiating.!(Labitag)!
Contracts! are! agreements! enforceable! through! legal!
proceedings.! An! agreement! is! broader! than! a! contract!
because! the! former! may! not! have! all! the! elements! of! a!
contract.!
!
B. Elements(
1. ESSENTIAL!ELEMENTS!(SEE!CHAPTER!II,!INFRA)!
a. Consent%
b. Object%
c. Cause%
2. NATURAL! ELEMENTS!!?!Exist!as!part!of!the!contract!even!if!the!
3.
parties!do!not!provide!for!them,!because!the!law,!as!suppletory!
to! the! contract,! creates! them.! (e.g.! warranty! against! hidden!
defects!or!eviction!in!the!contract!of!purchase!and!sale)!
ACCIDENTAL! ELEMENTS! ?! Agreed! upon! by! the! parties! and!
which! cannot! exist! without! being! stipulated! (e.g.! mortgage,!
guaranty,!bond)!
!
!
!
!
!
!
!
Just!as!nobody!can!be!forced!to!enter!into!a!contract,!in!the!
same! manner! once! a! contract! is! entered! into,! no! party! can!
renounce! it! unilaterally! without! the! consent! of! the! other,!
otherwise!he!is!liable!for!damages.!
A!contract!is!an!agreement!which!gives!rise!to!an!obligation.!
It! must! bind! both! parties! in! order! that! it! can! be! enforced!
against! either.! Without! this! equality! between! parties,! it!
cannot! be! said! that! the! contract! has! the! force! of! law!
between!them.!
!
2. MUTUALITY!
!
Art.!1309.!The!determination!of!the!performance!may!be!left!to!a!
third!person,!whose!decision!shall!not!be!binding!until!it!has!been!
made!known!to!both!contracting!parties.!
!
Both!contracting!parties!must!be!bound!by!the!stipulations!of!
the!contract,!even!if!in!disparate!proportions.!(Labitag)!
The! decision! of! the! third! party! may! only! bind! the! parties!
once!it!has!become!known!to!them.!
Art.! 1310.! The! determination! shall! not! be! obligatory! if! it! is!
evidently!inequitable.!In!such!case,!the!courts!shall!decide!what!is!
equitable!under!the!circumstances.!
!
This!article!is!a!disqualification!to!Art.!1309.!!
Art.! 1473.! The! fixing! of! the! price! can! never! be! left! to! the!
discretion!of!one!of!the!contracting!parties.!However,!if!the!price!
fixed! by! one! of! the! parties! is! accepted! by! the! other,! the! sale! is!
perfected.!
!
!
!
!
!
!
!
!
!
!
!
!
!
CONTRACT! OF! ADHESION:! A! contract! in! which! one! party!

has! already! prepared! a! form! of! a! contract! containing!
stipulations! desired! by! him! and! he! simply! asks! the! other!
party! to! agree! to! them! if! he! wants! to! enter! into! the!
contract.!
!!!!!!!76!
!!!!
Case:!
!
GSIS!v.!CA!
Facts:! GSIS! conducted! a! lottery! draw! for! the! allocation! of! lots! and!
housing! units.! Esperanza! Leuterio! won! and! was! issued! a! Certificate!
of! Acknowledgment! to! purchase! the! subject! house! and! lot.! The!
parties! entered! into! a! Deed! of! Conditional! Sale! evidencing! the!
conveyance! of! the! subject! property! and! all! improvements! thereon!
to!the!Leuterio!spouses!for!the!purchase!price!of!Php!19,740!payable!
over! a! fifteen?year! period.! GSISs! Board! of! Trustees! increased! the!
purchase! price! indicated! in! the! Deeds! of! Conditional! Sale! covering!
houses! and! lots! therein.! On! the! face! of! the! Leuterios! Conditional!
Deed! of! Sale! is! the! marginal! notation! subject! to! adjustment!
pending! approval! of! the! Board! of! Trustees.! The! Leuterio! spouses!
alleged! that! this! wasnt! in! the! Deed! when! they! signed! it.! The! trial!
court! found! that! the! appended! words! were! inserted! without! the!
knowledge!of!the!spouses.!!
!
Held:! Article! 1473! of! the! Civil! Code! provides! that! the! fixing! of! the!
price! can! never! be! left! to! the! discretion! of! one! of! the! contracting!
parties.! The! purchase! price! mutually! agreed! upon! is! Php! 19,740.!
The! spouses! Leuterio! didnt! give! their! consent! for! GSIS! to! make! a!
unilateral! upward! adjustment! of! the! price! depending! on! the! final!
cost!of!construction!of!the!subject!house!and!lot.!This!conclusion!is!
also! confirmed! by! the! petitioner! GSIS! in! the! instant! Petition! for!
Review! on! Certiorari! where! its! alleged! that! the! respondent?
spouses! Leuterio! were! not! required! to! sign! a! new! contract! as!
provided!in!Resolution!No.!996.!
!
3. RELATIVITY!
a. Contracts% take% effect% only% between% parties,%

their%assigns,%and%heirs%
!
Art.! 1311.! Contracts! take! effect! only! between! the! parties,! their!
assigns!and!heirs,!except!in!case!where!the!rights!and!obligations!
arising!from!the!contract!are!not!transmissible!by!their!nature,!or!
by!stipulation!or!by!provision!of!law.!The!heir!is!not!liable!beyond!
the!value!of!the!property!he!received!from!the!decedent.!
If! a! contract! should! contain! some! stipulation! in! favor! of! a! third!
person,! he! may! demand! its! fulfillment! provided! he!
communicated! his! acceptance! to! the! obligor! before! its!
revocation.! A! mere! incidental! benefit! or! interest! of! a! person! is!
not! sufficient.! The! contracting! parties! must! have! clearly! and!
deliberately!conferred!a!favor!upon!a!third!person.!
!
INTRANSMISSIBLE!CONTRACTS:!!
o Purely!personal!e.g.!partnership!and!agency!!
o The! very! nature! of! obligation! that! requires! special!
personal!qualifications!of!the!obligor!!
o The! payment! of! money! debts! is! not! transmitted! to! the!
heirs!but!to!the!estate!
!
Cases:!
!
MANILA!RAILROAD!CO.!v.!LA!COMPAIA!TRANSATLANTICA!
Facts:! SS/Alicante,! belonging! to! LCT! de! Barcelona! was! transporting!
two! locomotive! boilers! for! the! Manila! Railroad! Company.!! The!
equipment! of! the! ship! for! discharging! the! heavy! cargo! was! not!
strong! enough! to! handle! the! boilers.LCT! contracted! the! services! of!
Atlantic!gulf!and!Pacific!Co.,!which!had!the!best!equipment!to!lift!the!
boilers! out! of! the! ships! hold.! When! the! first! boiler! was! being!
hoisted! out! of! the! ships! hold,! the! boiler! could! not! be! brought! out!
because!the!sling!was!not!properly!placed!and!the!head!of!the!boiler!
was! caught! under! the! edge! of! the! hatch.!! The! cable! of! the! sling!
broke!and!the!boiler!fell!to!the!bottom!of!the!ships!hold.!!The!sling!
was! again! adjusted! and! the! boiler! was! again! lifted! but! as! it! was!
being! brought! up! the! bolt! at! the! end! of! the! derrick! broke! and! the!
boiler!fell!again.!!The!boiler!was!so!badly!damaged!that!it!had!to!be!
shipped! back! to! England! to! be! rebuilt.!! MRC! then! filed! an! action!
against! the! Streamship! Company! to! recover! said! damages.!! The!
Steamship!Company!caused!Atlantic!Company!to!be!brought!as!co?
defendant! arguing! that! Atlantic! Company! as! an! independent!
contractor,! who! had! undertaken! to! discharge! the! boilers! had!
become!responsible!for!the!damage.!
!
Held:!There!was!no!question!that!the!Steamship!Company!was!liable!
to!Manila!Railroad!as!it!had!the!obligation!to!transport!the!boiler!in!a!
proper!manner!safe!and!securely!under!the!circumstances!required!
by!law!and!customs.!!The!Steamship!Company!cannot!escape!liability!
simply!because!it!employed!a!competent!independent!contractor!to!
discharge! the! boiler.! Since! there! was! no! contract! between! the!
Railroad!Company!and!Atlantic!Company,!Railroad!Company!can!had!
no!right!of!action!to!recover!damages!from!Atlantic!Company!for!the!
wrongful! act! which! constituted! the! violation! of! the! contract.!! The!
rights! of! Manila! Railroad! can! only! be! made! effective! through! the!
Steamship! Company! with! whom! the! contract! of! affreightment! was!
made.!
!
DKC!HOLDINGS!CORP.!v.!CA!
Facts:!DKC!entered!into!a!Contract!of!Lease!with!Option!to!Buy!with!
Encarnacion!Bartolome,!whereby!DKC!was!given!the!option!to!lease!
or! lease! with! purchase! a! land! belonging! to! Encarnacion,! which!
option! must! be! exercised! within! 2! years! from! the! signing! of! the!
Contract.! DKC! undertook! to! pay! Php! 3,000! a! month! for! the!
reservation!of!its!option.!DKC!regularly!paid!the!monthly!Php!3,000!
until! Encarnacions! death.! Thereafter,! DKC! coursed! its! payment! to!
Victor,! the! son! and! sole! heir! of! Encarnacion.! However,! Victor!
refused! to! accept! these! payments.! Meanwhile,! Victor! executed! an!
Affidavit!of!Self?Adjudication!over!all!the!properties!of!Encarnacion,!
including!the!subject!lot.!Thus,!a!new!TCT!was!issued!in!the!name!of!
Victor.! Later,! DKC! gave! notice! to! Victor! that! it! was! exercising! its!
option!to!lease!the!property!tendering!the!amount!of!Php!15,000!as!
rent.!Again,!Victor!refused!to!accept!the!payment!and!to!surrender!
passion! of! the! property.! DKC! thus! opened! a! savings! account! in! the!
name!of!Victor!and!deposited!therein!the!rental!fee.!
!
Held:!The!SC!held!that!Victor!is!bound!by!the!Contract!of!Lease!with!
Option! to! Buy.! In! this! case,! there! is! neither! contractual! stipulation!
nor! legal! provision! making! the! rights! and! obligation! under! the!
contract!intransmissible.!More!importantly,!the!nature!of!the!rights!
and! obligations! therein! are,! by! their! nature,! transmissible.! Where!
the!service!or!act!is!of!such!a!character!that!it!may!be!performed!by!
another,!or!where!the!contract,!by!its!terms,!shows!the!performance!
by!others!was!contemplated,!death!does!not!terminate!the!contract!
or! excuse! nonperformance.! In! this! case,! there! is! no! personal! act!
required! from! the! late! Encarnacion.! Rather,! the! obligation! of!
Encarnacion!to!deliver!possession!of!the!property!may!very!well!be!
performed!by!Victor.!
!
!
!
!
!
!
!
!
!!!!!!!77!
!!!!
b. No%one%may%contract%in%the%name%of%another%
!
Art.!1317.!No!one!may!contract!in!the!name!of!another!without!
being!authorized!by!the!latter,!or!unless!he!has!by!law!a!right!to!
represent!him.!
!
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!
impliedly,! by! the! person! on! whose! behalf! it! has! been! executed,!
before!it!is!revoked!by!the!other!contracting!party.!
!
Where!a!contract!is!entered!into!in!behalf!of!another!who!
has!not!authorized!it,!such!contract!is!not!valid!and!binding!
against! him,! unless! he! ratifies! the! transaction! and! is!
estopped!to!question!its!legality.!
The! mere! lapse! of! time! cannot! give! efficacy! to! such! a!
contract.!
The!ratification!retroacts!to!the!moment!of!its!celebration.!
!
Case:!
!
GUTIERREZ!HMNOS.!v.!ORENSE!
Facts:! Orense! was! the! owner! of! a! land! and! its! improvements! in!
Guinobatan,!Albay.!!His!nephew,!Jose!Duran,!with!his!knowledge!and!
consent! executed! before! a! notary! a! public! instrument! selling! the!
land!to!petitioner!the!vendor!Duran!reserving!to!himself!the!right!to!
repurchase!it!for!the!same!price!within!a!period!of!four!years!from!
the! date! of! the! said! instrument.! The! plaintiff! company! had! not!
entered! into! possession! of! the! property,! because! of! the! occupancy!
by!O!and!JD!by!virtue!of!a!contract!of!lease!executed!by!the!plaintiff!
to!JD.!They!refused!to!pay!rentals!thereon!despite!demands.!Plaintiff!
filed! for! judgment! ordering! defendant! to! execute! an! instrument! to!
transfer! and! convey! the! property.! O! denied! having! knowledge! and!
giving!consent!to!the!deed!of!sale!executed!by!JD.!He!prayed!to!be!
absolved! from! the! complaint.! JD! was! charged! with! estafa! but! O!
testified!that!he!had!given!consent!to!the!sale.!
!
Held:!The!sale!of!the!said!property!made!by!JD!to!plaintiff!was!null!
and!void!in!the!beginning,!but!it!became!valid.!The!sworn!statement!
made!by!the!defendant,!O,!while!testifying!as!a!witness!at!the!trial!of!
JD!for!estafa,!virtually!confirms!and!ratifies!the!sale!of!his!property!
effected!by!his!nephew.!Consent!was!proven!in!a!criminal!action!by!
the!sworn!testimony!of!the!principal!and!presented!in!this!civil!suit!
by! other! sworn! testimony! of! the! same! principal! and! by! other!
evidence!to!which!the!defendant!made!no!objection.!The!repeated!
and!successive!statements!made!by!the!defendant!O!in!two!actions,!
affirming! that! he! had! given! his! consent! to! the! sale! of! his! property,!
meet! the! requirements! of! the! law! and! legally! excuse! the! lack! of!
written!authority.!They!are!a!full!ratification!of!the!acts!executed!by!
JD!they!produce!the!effects!of!an!express!power!of!agency.!
!
D. Parties(
1. AUTO[CONTRACTS!
!
!
!
!
It! is! necessary! for! the! existence! of! a! contract! that! two!
distinct!persons!enter!into!it.!
Special%disqualifications:%
!
Art.! 87! (FC).! Every! donation! or! grant! of! gratuitous! advantage,!
direct!or!indirect,!between!the!spouses!during!the!marriage!shall!
be!void,!except!moderate!gifts!which!the!spouses!may!give!each!
other! on! the! occasion! of! any! family! rejoicing.! The! prohibition!
shall! also! apply! to! persons! living! together! as! husband! and! wife!
without!a!valid!marriage.!
!
Art.!1490.!The!husband!and!the!wife!cannot!sell!property!to!each!
other,! except:! (1)! When! a! separation! of! property! was! agreed!
upon!in!the!marriage!settlements;!or!(2)!When!there!has!been!a!
judicial!separation!of!property!under!article!191.!
!
Art.! 1491.! The! following! persons! cannot! acquire! by! purchase,!
even! at! a! public! or! judicial! auction,! either! in! person! or! through!
the!mediation!of!another:!
(1)!The!guardian,!the!property!of!the!person!or!persons!who!
may!be!under!his!guardianship;!
(2)! Agents,! the! property! whose! administration! or! sale! may!
have!been!intrusted!to!them,!unless!the!consent!of!the!principal!
has!been!given;!
(3)! Executors! and! administrators,! the! property! of! the! estate!
under!
administration;!
(4)!Public!officers!and!employees,!the!property!of!the!State!or!of!
any!subdivision!thereof,!or!of!any!government?owned!
or!controlled!corporation,!or!institution,!the!administration!of!
which! has! been! intrusted! to! them;! this! provision! shall! apply! to!
judges!and!government!experts!who,!in!any!manner!whatsoever,!
take!part!in!the!sale;!
(5)! Justices,! judges,! prosecuting! attorneys,! clerks! of! superior!
and!inferior!courts,!and!other!officers!and!employees!connected!
with! the! administration! of! justice,! the! property! and! rights! in!
litigation! or! levied! upon! an! execution! before! the! court! within!
whose! jurisdiction! or! territory! they! exercise! their! respective!
functions;! this! prohibition! includes! the! act! of! acquiring! by!
assignment! and! shall! apply! to! lawyers,! with! respect! to! the!
property! and! rights! which! may! be! the! object! of! any! litigation! in!
which!they!may!take!part!by!virtue!of!their!profession;!
(6)!Any!others!specially!disqualified!by!law.!
!
Art.!1782.!Persons!who!are!prohibited!from!giving!each!other!any!
donation!or!advantage!cannot!enter!into!universal!partnership.!
!
!
!
!
!
!
!
!
The!existence!of!a!contract!is!not!determined!by!the!number!
of!persons!who!intervene!in!it,!but!by!the!number!of!parties.!
Not! by! the! number! of! individual! wills! but! by! the! number! of!
declarations!of!will.!!
As!long!as!there!are!two!distinct!patrimonies,!even!if!they!are!
represented!by!the!same!person!the!contract!will!be!valid.!
!!!!!!!78!
!!!!
2. FREEDOM!TO!CONTRACT!
!
Art.!1306.!The!contracting!parties!may!establish!such!stipulations,!
clauses,! terms! and! conditions! as! they! may! deem! convenient,!
provided! they! are! not! contrary! to! law,! morals,! good! customs,!
public!order,!or!public!policy.!
!
The! freedom! to! contract! is! a! constitutionally! guaranteed!

right.!Save!in!limited!and!exceptional!situations!provided!by!
law! itself,! courts! have! no! authority! to! prescribe! the! terms!
and!conditions!of!a!contract!for!the!parties.!
The!contract!is!the!law!between!contracting!parties.!
!
Cases:!
!
GABRIEL!v.!MONTE!DE!PIEDAD!
Facts:! Petitioner! was! employed! as! appraiser! of! jewels! in! the!
pawnshop!of!the!Monte!de!Piedad!from!1913!up!to!May,!1933.!!On!
December! 13,! 1932,! he! executed! a! chattel! mortgage! to! secure! the!
payment! of! the! deficiencies! which! resulted! from! his! erroneous!
appraisal! of! the! jewels! pawned! to! the! appellee,! amounting! to!
P14,679.07,! with! six! percent! (6%)! interest! from! said! date.! In! this!
chattel!mortgage,!the!appellant!promised!to!pay!to!the!appellee!the!
sum! of! P300! a! month! until! the! sum! of! P14,679.07,! with! interest! is!
fully! paid.! According! to! Petitioner,! the! provisions! of! the! chattel!
mortgage!are!contrary!to!law,!morals!and!public!policy,!and!hence,!
the!chattel!mortgage!!
!
Held:! In! order! to! declare! a! contract! void! as! against! public! policy,!
must! find! that! the! contract! as! to! the! consideration! or! thing! to! be!
done,!has!a!tendency!to!injure!the!public,!is!against!the!public!good,!
or! contravenes! some! established! interests! of! society,! or! is!
inconsistent!with!sound!policy!and!good!morals,!or!tends!clearly!to!
undermine! the! security! of! individual! rights,! whether! of! personal!
liability!or!of!private!property.!Examining!the!contract!at!bar,!we!are!
of!the!opinion!that!it!does!not!in!any!way!militate!against!the!public!
good.! Neither! does! it! contravene! the! policy! of! the! law! nor! the!
established!interests!of!society.!There!is!substantial!compliance!with!
the!requirements!of!the!Chattel!Mortgage!Law.!The!wording!of!the!
affidavit!under!discussion,!as!it!appears!from!the!record,!is!almost!in!
the!same!language!of!the!statute.!!
!
PAKISTAN!INTERNATIONAL!AIRLINES!v.!OPLE!
Facts:! On! 2! December! 1978,! petitioner! PIA,! a! foreign! corporation!
licensed!to!do!business!in!the!Philippines,!executed!in!Manila!two!(2)!
separate! contracts! of! employment,! with! private! respondents!
Ethelynne!B.!Farrales!and!Ma.!M.C.!Mamasig.!The!employment!was!
to! last! 3! years! subject! to! pre?mature! termination! by! PIA.! A!
stipulation!to!the!effect!that!the!applicable!law!would!be!the!laws!of!
Pakistan! and! the! competent! court! would! be! the! Court! of! Karachi,!
Pakistan! was! also! made.! After! one! year! and! eight! months! of!
employment,! the! premature! termination! clause! was! used! against!
respondents.! They! sought! help! from! the! Ministry! of! Labor! and!
Employment! which! ordered! their! reinstatement! as! well! as! the!
payment!of!backwages!and!benefits.!
!
Held:! Art.! 278! of! the! Labor! Code,! as! it! then! existed,! forbade! the!
termination!of!the!services!of!employees!with!at!least!one!(1)!year!
of!service!without!prior!clearance!from!the!Department!of!Labor!and!
Employment.!The!principle!of!party!autonomy!in!contracts!is!not!an!
absolute!principle.!The!rule!in!Article!1306,!of!our!Civil!Code!is!that!
the!contracting!parties!may!establish!such!stipulations!as!they!may!
deem! convenient,! "provided! they! are! not! contrary! to! law,! morals,!
good! customs,! public! order! or! public! policy."! Thus,! counter?!
balancing! the! principle! of! autonomy! of! contracting! parties! is! the!
equally! general! rule! that! provisions! of! applicable! law,! especially!
provisions! relating! to! matters! affected! with! public! policy,! are!
deemed! written! into! the! contract.! The! governing! principle! is! that!
parties!may!not!contract!away!applicable!provisions!of!law!especially!
peremptory!provisions!dealing!with!matters!heavily!impressed!with!
public!interest.!
!
3. WHAT!THEY!MAY!NOT!STIPULATE!
!
a. Contrary%to%law,%e.g.:%
i.
The! law! which! the! terms! of! a! contract! must! not!

contravene! are! those! which! expressly! declare! their!
obligatory! character,! or! which! are! prohibitive,! or!
which!express!fundamental!principles!of!justice!which!
cannot! be! overlooked! by! the! contracting! parties.,! or!
which! impose! essential! requisites! without! which! the!
contract!cannot!exist.!
Statutes!generally!have!no!retroactive!effect!and!only!
the! laws! existing! at! the! time! of! the! execution! of! the!
contract!are!applicable!to!the!transaction.!
pactum%commisorium%?!automatic!foreclosure%
!
Art.! 2088.! The! creditor! cannot! appropriate! the! things! given! by!
way!of!pledge!or!mortgage,!or!dispose!of!them.!Any!stipulation!to!
the!contrary!is!null!and!void.!
In! order! for! the! appropriation! or! disposition! to! be! validly!
exercised,!the!power!to!do!so!must!be!expressly!given!to!the!
mortgagee?creditor.!
ii.
!
pactum%leonina% ?!one!party!bears!the!lions!share!
of!the!risk%
Art.! 1799.! A! stipulation! which! excludes! one! or! more! partners!

from!any!share!in!the!profits!or!losses!is!void.!
!
iii.
!
pactum%de%non%alienando% ?!a!stipulation!not!to!
alienate%
Art.!2130.!A!stipulation!forbidding!the!owner!from!alienating!the!
immovable!mortgaged!shall!be!void.!
!
!
!
!
!
!
!
But!even!if!the!vendee!may!actually!sell!it,!he!cannot!sell!it!as!
unencumbered.!
!!!!!!!79!
!!!!
iv.
In%contracts%of%antichresis%(Labitag)%
!
Art.! 2137.! The! creditor! does! not! acquire! the! ownership! of! the!
real!estate!for!non?payment!of!the!debt!within!the!period!agreed!
upon.!
!
In!a!contract!of!antichresis,!the!creditor!has!a!right!to!receive!
the!fruits!from!an!immovable!of!his!debtor,!in!order!to!apply!
them!to!the!payment!of!interest!(if!owing)!and!thereafter!to!
the!principal!of!his!credit.!((Art.!2132)!
b. Contrary%to%morals%
Morals!may!be!considered!as!meaning!good!customs;!
or! those! generally! accepted! principles! of! morality!
which!have!received!some!kind!of!practical!and!social!
confirmation.!
c. Contrary%to%public%order%
Public!order!signifies!the!public!weal.!!
Public! order! here! does! not! signify! the! material!
keeping!of!order,!it!represents!the!public,!social,!and!
legal! interst! in! private! law,! that! which! is! permanent!
and! essential! in! institutions,! which,! even! if! favouring!
some! individuals! to! whom! the! right! pertains,! cannot!
be!left!to!his!own!will.!
d. Contrary%to%public%policy%
A!contract!is!void!for!being!contrary!to!public!order!if!
the! courts! find! that! the! contract! as! to! the!
consideration! or! the! thing! to! be! done,! contravenes!
some!established!interest!of!society,!or!is!inconsistent!
with!sound!policy!and!good!morals,!or!tends!clearly!to!
undermine!the!security!of!individual!rights.!
!
Cases:!
!
CUI!v.!ARELLANO!
Facts:! Plaintiff! was! a! law! student! at! Arellano! University! (AU).! His!
uncle! was! law! dean! and! Cui! received! many! scholarship! grants.! For!
these!grants,!Cui!executed!a!document!stating!that!he!would!refund!
in!full!the!amount!received!by!him!in!scholarships!should!he!transfer!
to! another! school.! Due! to! the! transfer! of! his! uncle! to! Abad! Santos!
University,! plaintiff! opted! to! complete! his! law! degree! there.! When!
he!was!applying!to!take!the!Bar!exams,!AU!refused!to!hand!over!his!
transcripts! because! he! had! not! yet! refunded! the! amount! of!
P1033.87.!Plaintiff!paid!in!order!to!be!able!to!take!the!bar!exam.!
!
Held:! AU! must! return! the! amount! to! Cui.! In! order! to! declare! a!
contract! void! as! against! public! policy,! a! court! must! find! that! the!
contract! as! to! consideration! or! the! thing! to! be! done,! contravenes!
some! established! interest! of! society,! or! is! inconsistent! with! sound!
policy!and!good!morals!or!tends!clearly!to!undermine!the!security!of!
individual! rights.! The! stipulation! in! question! is! contrary! to! public!
policy! and,! hence,! null! and! void.! Scholarships! are! awarded! in!
recognition! of! merit! not! to! keep! outstanding! students! in! school! to!
bolster!its!prestige.!!
!
ARROYO!v.!BERWIN!
Facts:! Berwin! was! the! attorney! of! a! person! charged! with! theft.!
According!to!Arroyo,!his!client!had!cut!cane!on!his!land!for!her!own!
personal!gain.!They!entered!into!an!agreement!that!the!case!would!
be! dropped! so! long! as! Juaneza! (client)! would! recognize! Arroyo! as!
the!owner!of!the!land!and!the!cane,!and!allow!Arroyo!to!apply!for!a!
Torrens!title!over!the!land!with!Juanezas!consent.!
!
Held:! An! agreement! which! stifles! prosecution! of! a! crime! for! a!
pecuniary! or! valuable! consideration! is! contrary! to! public! policy.! To!
permit!an!offender!to!purchase!immunity!is!a!perversion!of!justice.!!
!
FILIPINAS!COMPAA!DE!SEGUROS!v.!MANDANAS!
Facts:! The! Philippine! Rating! Bureau! is! a! formation! of! non?life!
insurance!companies!in!the!country.!It!was!created!as!a!mechanism!
for!members!to!jointly!fix!rates,!determine!risks,!gather!information,!
etc.! In! Art.! 22! of! their! constitution! states! that:! Members! of! the!
Bureau!agree!not!to!represent!nor!to!effect!reinsurance!with,!nor!to!
accept! reinsurance! from! any! company,! body,! or! underwriter,!
licensed! to! do! business! in! the! Philippines! not! a! member! in! good!
standing! of! the! Bureau.! Defendant! Mandanas! seeks! to! have! this!
stricken!down!as!an!illegal!restraint!on!trade.!
!
Held:! The! test! as! to! whether! a! given! agreement! constitute! an!
unlawful! machination! or! a! combination! in! restraint! of! trade! is!
whether,! under! the! particular! circumstances! of! the! case! and! the!
nature!of!the!particular!contract!involved!in!it,!the!contract!is,!or!is!
not,! unreasonable.! There! is! nothing! unlawful! or! contrary! to! public!
policy! either! in! the! objectives! thus! sought! to! be! attained! by! the!
Bureau,!or!the!means!to!their!ends.!It!is!very!clear!that!the!purpose!
of!the!assailed!article!is!to!promote!ethical!practices,!not!to!prevent!
or!eliminate!competition.!
!!
BUSTAMANTE!v.!ROSEL!
Facts:!Bustamante!entered!into!a!loan!agreement!with!Rosal.!He!put!
up! piece! of! land! as! collateral! and! agreed! that! should! he! fail! to! pay!
upon! maturity,! Rosel! would! have! the! option! to! purchase! the!
collateral.! Before! the! loan! matured,! respondent! attempted! to!
purchase!the!lot!at!the!agreed!upon!price!but!Bustamante!refused,!
offered!another!lot!and!asked!for!an!extension.!Respondent!refused!
to! grant! an! extension.! Petitioner! tendered! payment! but! Rosel!
refused!to!accept!and!so!the!former!filed!for!consignation!while!the!
latter!filed!for!specific!performance.!
!
Held:! The! agreed! upon! stipulation! is! contrary! to! law! for! being! a!
pactum!commisorium.!The!elements!are:!!
1.! A! property! is! mortgaged! by! way! of! security! for! payment! of! the!
principal!obligation.!!
2.! There! exists! a! stipulation! for! automatic! appropriation! by! the!
creditor! of! the! thing! mortgaged! in! case! of! non?payment! of! the!
principal!obligation!within!the!stipulated!period.!!
!
E. Classification(
1. ACCORDING!TO!SUBJECT[MATTER!
a. Things%
b. Services%
!
2. ACCORDING!TO!NAME!
a. Nominate%?!have!their!own!individuality!(names)!and!are!
b.
!
regulated! by! special! provisions! of! law! (e.g! deposit,!

mutuum,!commodatum,!pignus)%
Innominate% ?!that!which!has!no!name!or!designation!in!
law%
!!!!!!!80!
!!!!
Art.! 1307.! Innominate! contracts! shall! be! regulated! by! the!

stipulations! of! the! parties,! by! the! provisions! of! Titles! I! and! II! of!
this! Book,! by! the! rules! governing! the! most! analogous! nominate!
contracts,!and!by!the!customs!of!the!place.!
5. ACCORDING!TO!FORM!
a. Common%or%informal%
b. Special%or%formal%
!
1)%do%ut%des%
I!give,!you!give!
2)%do%ut%facias%
I!give,!you!do!
3)%facio%ut%facias%
I!do,!you!do!
4)%facio%ut%des%
I!do,!you!give!
!
3. ACCORDING!TO!PERFECTION!
a. By%mere%consent%(consensual)%
!
Art.! 1315.! Contracts! are! perfected! by! mere! consent,! and! from!
that!moment!the!parties!are!bound!not!only!to!the!fulfillment!of!
what! has! been! expressly! stipulated! but! also! to! all! the!
consequences! which,! according! to! their! nature,! may! be! in!
keeping!with!good!faith,!usage!and!law.!
!
The! perfection! of! a! contract! is! the! moment! from! which! it!
exists;! the! juridical! tie! between! the! parties! arises! from! that!
time.!
The! binding! force! of! a! contract! is! not! limited! to! what! is!
expressly! stipulated,! but! extends! to! all! consequences! which!
are! the! natural! effect! of! the! contract,! considering! its! true!
purpose,!the!stipulation!it!contains,!and!the!object!involved.!
Contracts! are! not! what! the! parties! choose! to! call! them,! but!
what!they!really!are!as!determined!by!the!principle!of!laws.!
b. By%delivery%of%the%object%(real)%
!
Art.! 1316.! Real! contracts,! such! as! deposit,! pledge! and!
commodatum,! are! not! perfected! until! the! delivery! of! the! object!
of!the!obligation.!
The!requirement!of!the!delivery!of!the!object,!in!addition!to!
the! consent! is! neither! arbitrary! nor! formalistic,! but! is!
demanded! by! the! very! nature! of! real! contracts! and! their!
purpose.!
4. ACCORDING!TO!ITS!RELATION!TO!OTHER!CONTRACTS!
a. Preparatory%
b. Principal%
c. Accessory%
!
!
!
!
!
!
!
There!is!a!required!formality!for!the!validity.!
o donations% inter% vivos! ?! once! accepted,! it!
normally! cannot! be! revoked;! can! be! in! writing!
not! necessarily! in! a! public! document! for!
donations! above! 5000! otherwise! they! may! be!
done! orally! but! it! needs! to! be! coupled! with!
simultaneous!delivery;!and!!
o mortis% causa! ?! most! formal;! subsumed! under!
testamentary! succession! i.e! you! need! the!
formalities! of! last! will! and! testament! [three!
attestation! witnesses! who! will! attest! to! being!
present!when!the!donor!signs!the!donation];!if!
the! donor! reserves! the! right! to! sell! the!
property,!it!is!not!inter!vivos!but!mortis!causa.!
6. ACCORDING!TO!PURPOSE!
a. Transfer%of%ownership,%e.g.%sale%
b. Conveyance%of%use,%e.g.%commodatum%
c. Rendition%of%services,%e.g.%agency%
!
7. ACCORDING!TO!THE!NATURE!OF!THE!VINCULUM!PRODUCED!
a. Unilateral%
b. Bilateral/Reciprocal%
!
8. ACCORDING!TO!THE!CAUSE!
a. Onerous%
b. Gratuitous%or%lucrative%
c. Remunerative%
!
9. ACCORDING!TO!THE!RISK!
a. Commutative%?!fair!exchange!of!values%
b. Aleatory%?!involves!risk!(example:!insurance!contracts)%
!
F. Stages(
1. PREPARATION! ?! period! of! negotiation! and! bargaining,! ending!
at!the!moment!of!agreement!of!the!parties!
2. PERFECTION! ?!moment!when!the!parties!come!to!agree!on!the!
terms!of!the!contract!
3. CONSUMMATION! OR! DEATH! ?! fulfillment! or! the! performance!
of!the!terms!agreed!upon!in!the!contract!
!
!
!
!
!
!
!
!
!
!!!!!!!81!
!!!!
G. As( distinguished( from( a( perfected(

promise( and( an( imperfect( promise(
(policitacion)(
!
CONTRACT!
PERFECTED!PROMISE!
IMPERFECT!
PROMISE!
Establishes! and! Tends! only! to! assure! and! Mere!

determines! the! pave! the! way! for! the! offer!
obligation!
celebration! of! a! contract!
arising!
in! the! future;! until! the!
therefrom!!
contract!is!actually!made,!
the!rights!and!obligations!
are!not!yet!determined!
unaccepted!
H. With(respect(to(third(persons(
!
1. STIPULATIONS!IN!FAVOUR!OF!THIRD!PERSONS!(STIPULATIONS!
POUR!ATRUI)!!
!
Art.!1311,!2nd!par:!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.!
!
When! there! is! a! stipulation! in! favor! of! a! third! person! and!
only!if!he!communicated!his!acceptance!and!the!contracting!
parties! clearly! and! deliberately! conferred! a! favor! upon! that!
third!person!(the!provision!does!not!contemplate!tangential!
benefit!to!another)!!
There!must!be!no!agency!relationship!and!one!of!the!parties!
and!the!third!person!because!then!the!third!person!ceases!to!
become!a!third!person.!(Labitag)!
Accion! pauliana,! suborgatoria,! directa! (no! relativity! of!
contract!in!these!three)!
Test!of!beneficial!stipulation!?!A!mere!incidental!interest!of!a!
third! person! is! not! within! the! doctrine;! it! must! be! the!
purpose! and! intent! of! the! stipulating! parties! to! benefit! the!
third!person!!
!
Requisites!of!stipulacion!pour!autrui!
1. Stipulation! in! favor! of! third! person! is! a! part,! not! the! whole! of!
the!contract!
2. Favorable! stipulation! not! conditioned! or! compensated! by! any!
kind!of!obligation!whatever!
3. Neither!of!the!contracting!parties!bear!the!legal!representation!
or!authorization!of!the!third!party!
4. Benefit! to! the! 3rd! person! was! clearly! and! deliberately!
conferred!to!by!parties!
5. Third! person! communicated! his! acceptance! to! the! obligor!
before!the!latter!revokes!the!same!
!
!
Cases:!
!
FLORENTINO!v.!ENCARNACION!
Facts:!The!petitioners?appellants!and!the!petitioners?appelleed!filed!
with!CFI!an!application!for!the!registration!under!Act!496!of!a!parcel!
of! agricultural! land! located! at! Cabugao,! Ilocos! Sur.! The! application!
alleged!among!other!things!that!the!applicants!are!the!common!and!
pro?indiviso! owners! in! fee! simple! of! the! said! land! with! the!
improvements! existing! thereon;! that! to! the! best! of! the! knowledge!
and! belief,! there! is! no! mortgage,! lien! or! encumbrance! of! any! kind!
whatsoever! affecting! said! land,! nor! any! other! person! having! any!
estate!or!interest!thereon,!legal!or!equitable,!remainder,!reservation!
at! in! expectancy;! that! said! applicants! had! acquired! the! aforesaid!
land! thru! and! by! inheritance! from! their! predecessors! in! interest,!
their! aunt,! Doa! Encarnacion! Florentino,! and! Angel! Encarnacion!
acquired!their!respective!shares!of!the!land!thru!purchase!from!the!
original! heirs,! Jesus,! Caridad,! Lourdes! and! Dolores,! all! surnamed!
Singson,! on! one! hand! and! from! Asuncion! Florentino! on! the! other.!!
Exhibit! O?1! embodied! in! the! deed! of! extrajudicial! partition! (Exhibit!
O),! which! states! that! with! respect! to! the! land! situated! in! Barrio!
Lubong,! Dacquel,! Cabugao,! Ilocos! Sur,! the! fruits! thereof! shall! serve!
to!defray!the!religious!expenses,!was!the!source!of!contention!in!this!
case.! Florentino! wanted! to! include! Exhibit! O?1! on! the! title! but! the!
Encarnacions!opposed!and!subsequently!withdrew!their!application!
on!their!shares,!which!was!opposed!by!the!former.!After!hearing!the!
motion! for! withdrawal! and! the! opposition! issued! an! order! and! for!
the! purpose! of! ascertaining! that! the! products! of! the! land! made!
subject! matter! of! this! land! registration! case! had! been! used! in!
answering! for! the! payment! of! expenses! for! the! religious! functions!
specified! in! the! Deed! of! Extrajudicial! Partition! which! was! no!
registered! in! the! office! of! the! Register! of! Deeds! from! time!
immemorial;!and!that!the!applicants!knew!of!this!arrangement!and!
the! Deed! of! Extrajudicial! Partition! of! August! 24,! 1947,! was! not!
signed!by!Angel!Encarnacion!or!Salvador!Encarnacion,!Jr.!
!
Held:! The! said! stipulation! is! a! stipulation! pour! autrui.! A! stipulation!
pour! autrui! is! a! stipulation! in! favor! of! a! third! person! conferring! a!
clear!and!deliberate!favor!upon!him,!and!which!stipulation!is!merely!
a! part! of! a! contract! entered! into! by! the! parties,! neither! of! whom!
acted! as! agent! of! the! third! person,! and! such! third! person! may!
demand! its! fulfillment! provided! that! he! communicates! his!
acceptance! to! the! obligor! before! it! is! revoked.! The! evidence! on!
record!shows!that!the!true!intent!of!the!parties!is!to!confer!a!direct!
and!material!benefit!upon!the!Church.!While!a!stipulation!in!favor!of!
a!third!person!has!no!binding!effect!in!itself!before!its!acceptance!by!
the!party!favored,!the!law!does!not!provide!when!the!third!person!
must! make! his! acceptance.! As! a! rule,! there! is! no! time! limit;! such!
third! person! has! all! the! time! until! the! stipulation! is! revoked.! Here,!
We! find! that! the! Church! accepted! (implicitly)! the! stipulation! in! its!
favor!before!it!is!sought!to!be!revoked!by!some!of!the!coowners.!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!!!!!!!82!
!!!!
COQUIA!v.!FIELDMANS!INSURANCE!CO.!
Facts:!Fieldmens!Insurance!co.!Issued!in!favor!of!the!Manila!Yellow!
Taxicab! a! common! carrier! insurance! policy! with! a! stipulation! that!
the! company! shall! indemnify! the! insured! of! the! sums! which! the!
latter!could!be!held!liable!for!with!respect!to!death!or!bodily!injury!
to! any! faire?paying! passenger! including! the! driver! and! conductor.!
The!policy!also!stated!that!in!the!event!of!the!death!of!the!driver,!
the!Company!shall!indemnify!his!personal!representatives!and!at!the!
Companys! option! may! make! indemnity! payable! directly! to! the!
claimants! or! heirs! of! the! claimants.! During! the! policys! lifetime,! a!
taxicab!of!the!insured!driven!by!Coquia!met!an!accident!and!Coquia!
died.!When!the!company!refused!to!pay!the!only!heirs!of!Coquia,!his!
parents,!they!institued!this!complaint.!!The!company!contends!that!
plaintiffs! have! no! cause! of! action! since! the! Coquias! have! no!
contractual!relationship!with!the!company.!
!
Held:! Athough,! in! general,! only! parties! to! a! contract! may! bring! an!
action!based!thereon,!this!rule!is!subject!to!exceptions,!one!of!which!
is!found!in!the!second!paragraph!of!Article!1311.!In!the!case!at!bar,!
the!policy!under!consideration!is!typical!of!contracts!pour!autrui!this!
character!being!made!more!manifest!by!the!fact!that!the!deceased!
driver! paid! fifty! percent! (50%)! of! the! corresponding! premiums,!
which! were! deducted! from! his! weekly! commissions.! Under! these!
conditions,!it!is!clear!that!the!Coquias!have!a!direct!cause!of!action!
against! the! Company,! and,! since! they! could! have! maintained! this!
action! by! themselves,! without! the! assistance! of! the! insured! it! goes!
without! saying! that! they! could! and! did! properly! join! the! latter! in!
filing!the!complaint!herein.!
!
CONSTANTINO!v.!ESPIRITU!
Facts:! Pastor! Constantino! sold! two! parcels! of! land! to! Herminia!
Espiritu,!on!the!condition!that!the!land!will!be!held!in!trust!for!their!
already! conceived! but! as! yet! unborn! illegitimate! son.! Espiritu! took!
two! mortgages! on! the! land! and! then! offered! them! for! sale.!
Constantino! asked! the! court! to:! one,! issue! a! temporary! restraining!
order! to! stop! the! sale! of! the! lands;! and! two:! compel! Espiritu! to!
execute!a!deed!of!absolute!sale!to!Pastor!Constantino!Jr.,!then!two!
years!
old.!
Espiritu! moved! to! dismiss! the! case! on! two! grounds:! Pastor! Jr.! was!
not! a! party! to! the! suit;! and! the! Statute! on! Frauds! (which! basically!
says! that! some! contracts,! including! those! involving! land,! should! be!
in! writing;! and! signed! by! all! parties! bound! by! the! contracts).!
Constantino! argued! that! what! was! involved! was! an! implied! trust!
under!Art.!1453.!
!
Held:! The! court! ruled! that! the! contract! appears! to! be! a! contract!
pour! autrui,! although! couched! in! the! form! of! a! deed! of! absolute!
sale,! and! appellants! action! was,! in! effect,! one! for! specific!
performance.!The!court!held!that!that!the!Statute!of!Frauds!was!not!
a! strong! defense! as! it! was! clear! upon! the! facts! alleged! in! the!
amended! complaint! that! the! contract! between! the! parties! had!
already! been! partially! performed! by! the! execution! of! the! deed! of!
sale,! the! action! brought! below! being! only! for! the! enforcement! of!
another!phase!thereof,!namely,!the!execution!by!appellee!of!a!deed!
of!conveyance!in!favor!of!beneficiary!thereunder.!
!
INTEGRATED!PACKAGING!CORP.!v.!CA!
Facts:! Petitioner! and! private! respondent! executed! an! order!
agreement! whereby! private! respondent! bound! itself! to! deliver! to!
petitioner!3,450!reams!of!printing!paper!worth!P1,040,060.00!under!
a! specific! schedule.! In! accordance! with! the! standard! operating!
practice! of! the! parties,! the! materials! were! to! be! paid! within! a!
minimum!of!thirty!days!and!maximum!of!ninety!days!from!delivery.!
Petitioner! entered! into! a! contract! with! Philippine! Appliance!
Corporation! (Philacor)! to! print! three! volumes! of! "Philacor! Cultural!

Books"! for! delivery! on! the! specific! dates.! Private! respondent! had!
delivered!to!petitioner!1,097!reams!of!printing!paper!out!of!the!total!
3,450! reams! stated! in! the! agreement.! Petitioner! alleged! it! wrote!
private! respondent! to! immediately! deliver! the! balance! because!
further!delay!would!greatly!prejudice!petitioner.!Private!respondent!
delivered! again! to! petitioner! various! quantities! of! printing! paper!
amounting! to.! However,! petitioner! encountered! difficulties! paying!
private! respondent! said! amount.! Accordingly,! private! respondent!
made! a! formal! demand! upon! petitioner! to! settle! the! outstanding!
account.! Petitioner! made! partial! payments.! Meanwhile,! petitioner!
entered! into! an! additional! printing! contract! with! Philacor.!
Unfortunately,!petitioner!failed!to!fully!comply!with!its!contract!with!
Philacor! for! the! printing! of! books! VIII,! IX,! X! and! XI.! Thus,! Philacor!
demanded!compensation!from!petitioner!for!the!delay!and!damage!
it! suffered! on! account! of! petitioners! failure.! On! August! 14,! 1981,!
private! respondent! filed! a! collection! suit! against! petitioner.!
Petitioner! cites! the! failure! of! private! respondent! to! deliver! all! the!
reams!of!paper.!
!
Held:! Petitioner! contends! that! private! respondent! should! be! held!
liable! for! petitioners! breach! of! contract! with! Philacor.! Private!
respondent! cannot! be! held! liable! under! the! contracts! entered! into!
by!petitioner!with!Philacor.!Private!respondent!is!not!a!party!to!said!
agreements.!It!is!also!not!a!contract!pour!autrui.!Aforesaid!contracts!
could!not!affect!third!persons!like!private!respondent!because!of!the!
basic!civil!law!principle!of!relativity!of!contracts!which!provides!that!
contracts!can!only!bind!the!parties!who!entered!into!it,!and!it!cannot!
favor! or! prejudice! a! third! person,! even! if! he! is! aware! of! such!
contract! and! has! acted! with! knowledge! thereof.! The! order!
agreement! entered! into! by! petitioner! and! private! respondent! has!
not! been! shown! as! having! a! direct! bearing! on! the! contracts! of!
petitioner!with!Philacor.!To!recapitulate,!private!respondent!did!not!
violate!the!order!agreement!it!had!with!petitioner.!Likewise,!private!
respondent! could! not! be! held! liable! for! petitioners! breach! of!
contract! with! Philacor.! It! follows! that! there! is! no! basis! to! hold!
private! respondent! liable! for! damages.! Accordingly,! the! appellate!
court!did!not!err!in!deleting!the!damages!awarded!by!the!trial!court!
to!petitioner.!
!
6. POSSESSION! OF! THE! OBJECT! OF! THE! CONTRACT! BY! THIRD!
PERSONS!
!
Art.! 1312.! In! contracts! creating! real! rights,! third! persons! who!
come! into! possession! of! the! object! of! the! contract! are! bound!
thereby,! subject! to! the! provisions! of! the! Mortgage! Law! and! the!
Land!Registration!Laws.!
!
7. CREDITORS!OF!THE!CONTRACTING!PARTIES!
!
Art.!1313.!Creditors!are!protected!in!cases!of!contracts!intended!
to!defraud!them.!
!
!
!
In!rescissible!contracts,!there!is!a!presumption!of!fraudulent!
alienation! when! the! debtor! does! not! leave! sufficient!
property!to!cover!his!obligations!(Art.!1387)!
The! creditor! may! ask! for! rescission! ! Art! 1177! (accion!
subrogatoria)!and!Art!1381!(accion!pauliana)!!
!!!!!!!83!
!!!!
8. INTERFERENCE!BY!THIRD!PERSONS!
!
Art.! 1314.! Any! third! person! who! induces! another! to! violate! his!
contract! shall! be! liable! for! damages! to! the! other! contracting!
party.!
!
Requisites! of! Interference! With! Contractual! Relation! by! Third!
Person:!
1. Existence!of!a!valid!contract!
2. Knowledge!by!a!third!person!of!the!existence!of!a!contract!
3. Interference! by! the! third! person! in! the! contractual! relation!
without!legal!justification!
!
Cases:!
!
DAYWALT! v.! LA! CORPORACION! DE! LOS! PADRES! AGUSTINOS!
RECOLETOS!!
Facts:!Teodorica!Endencia!obligated!herself!to!sell!a!parcel!of!land!to!
the! plaintiff.! It! was! agreed! that! the! final! deed! of! sale! will! be!
executed! when! the! land! was! registered! in! Endencias! name.! In! the!
course!of!the!proceedings!for!registration!it!was!found!that!the!land!
involved! in! the! sale! contained! a! greater! area! than! what! Endencia!
originally!thought!and!she!became!reluctant!to!consummate!the!sale!
of!the!land!to!the!plaintiff.!This!reluctance!was!due!to!the!advice!of!
the! defendant! who! exercised! a! great! moral! influence! over! her.!
However,! in! advising! Endencia! that! she! was! not! bound! by! her!
contract! with! the! plaintiff,! the! defendant! was! not! actuated! with!
improper!motives!but!did!so!in!good!faith!believing!that,!under!the!
circumstances,!Endencia!was!not!really!bound!by!her!contract!with!
the!plaintiff.!
!
Held:! The! stranger! who! interferes! in! a! contract! between! other!
parties! cannot! become! more! extensively! liable! in! damages! for! the!
non?performance!of!the!contract!than!the!party!in!whose!behalf!he!
intermediates.! Hence,! in! order! to! determine! the! liability! of! the!
Recoletos,!there!is!first!a!need!to!consider!the!liability!of!Endencia!to!
Daywalt.!The!damages!claimed!by!Daywalt!from!Endencia!cannot!be!
recovered!from!her,!first,!because!these!are!special!damages!which!
were!not!within!the!contemplation!of!the!parties!when!the!contract!
was! made,! and! secondly,! these! damages! are! too! remote! to! be! the!
subject! of! recovery.! Since! Endencia! is! not! liable! for! damages! to!
Daywalt,! neither! can! the! Recoletos! be! held! liable.! As! already!
suggested,! by! advising! Endencia! not! to! perform! the! contract,! the!
Recoletos! could! in! no! event! render! itself! more! extensively! liable!
than!the!principal!in!the!contract.!
!
SO!PING!BUN!v.!CA!
Facts:!Tek!Hua!Trading!(Trading)!entered!into!agreements!with!Dee!
C.!Chua!&!Sons!Inc.!(DCCSI)!for!the!lease!of!several!premises!which!
Trading!used!to!store!its!textiles.!The!successor!of!Trading,!Tek!Hua!
Enterprising!(Enterprising),!allowed!So!Ping!Bun,!the!grandson!of!the!
managing! partner! of! Trading,! to! use! the! premises! to! store! his! own!
textiles.!Later,!one!of!of!the!members!of!Enterprising,!asked!So!Ping!
Bun! via! a! letter! to! vacate! the! premises! since! he! needed! it! for! his!
textile!business.!So!Ping!Bun!refused!to!vacate.!Instead,!So!Ping!Bun!
entered! into! lease! contracts! with! DCCSI! over! the! same! premises.!
Enterprising!and!Manuel!Tiong!filed!an!action!to!nullify!the!contracts!
between! So! Ping! Bun! and! DCCSI! and! also! claimed! damages! against!
So!Ping!Bun!for!unlawful!interference!in!the!lease!contracts!between!
DCCSI!and!Enterprising.!
!
Held:! The! elements! of! tort! interference! are:! a)! existence! of! a! valid!
contract;! b)! knowledge! on! the! part! of! the! third! person! of! the!
existence!of!the!contract;!and!c)!interference!of!the!third!person!is!
without! legal! justification! or! excuse.! The! three! elements! of! tort!
interference!are!present!since!So!Ping!Bun!prevailed!upon!DCCSI!to!
lease!the!warehouse!to!his!enterprise!at!the!expense!of!Enterprising.!
However,! So! Ping! Bun! still! cannot! be! held! liable! for! damages.!
Though! he! took! interest! in! the! property! of! Enterprising! and!
benefited! from! it,! nothing! on! record! imputes! deliberate! wrongful!
motives!or!malice!on!him.!The!business!desire!is!there!to!make!some!
gain! to! the! detriment! of! the! contracting! parties.! Lack! of! malice,!
however,!precludes!damages.!But!it!does!not!relieve!So!Ping!Bun!of!
the! legal! liability! for! entering! into! contracts! and! causing! breach! of!
existing! ones.! Thus,! the! appellate! court! correctly! confirmed! the!
permanent! injunction! and! nullification! of! the! contracts! between!
DCCSI!and!Trendsetter,!without!awarding!damages.!
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CHAPTER(2:((
ESSENTIAL(REQUISITES(
OF(CONTRACTS(
A. Consent(
(
1. REQUISITES!
Art! 1319.! Consent! is! manifested! by! the! meeting! of! the! offer! and!
the! acceptance! upon! the! thing! and! the! cause! which! are! to!
constitute! the! contract.! The! offer! must! be! certain! and! the!
acceptance!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! presupposes! the! following! requisites:! 1)! plurality!

of! subjects,! 2)! capacity,! 3)! intelligent! and! free! will,! 4)!
express! or! tacit! manifestation! of! the! will,! and! 5)!
conformity!of!the!internal!will!and!its!manifestation.!
a. Must%be%manifested%by%the%concurrence%of%the%
offer% and% acceptance% "! with! respect! to! object! and!
cause%
Cases:!
!
ROSENSTOCK!v.!BURKE!
Facts:!Elser!began!negotiations!for!the!purchase!of!Burkes!yacht!in!
1922.!!Elsers!plan!was!to!organize!a!yacht!club!and!sell!the!yacht!for!
P120K,!with!P100K!to!be!given!to!Burke!and!P20K!to!be!kept!by!him!
as!commission.!To!be!able!to!sell!the!yacht,!Elser!wanted!to!make!a!
voyage! on! board! the! yacht! with! businessmen.! The! yacht,! however,!
needed!repairs;!paid!by!Elser.!It!had!been!stipulated!that!Elser!was!
not! to! pay! for! the! use! of! the! yacht.! Burke! subsequently! gave! Elser!
the! option! of! sale;! Elser! agreed! by! letter.! Burke! demanded!
performance.!
!
Held:! It! was! not! a! valid! contract! of! sale.! Words! uttered! by! Elser!
could! not! be! interpreted! as! a! definite! offer! to! purchase! the! yacht,!
but! simply! a! position! to! deliberate! whether! or! not! he! would!
purchase! it.! It! was! a! mere! invitation! to! a! proposal! being! made! to!
Elser!which!he!has!the!option!to!either!accept!or!not.!
!
MALBAROSA!v.!CA!
Facts:! Salvador! Malbarosa! was! the! president! and! general! manager!
of! Philtectic! Corporation! and! an! officer! of! other! corporations!
belonging!to!the!SEADC!group!of!companies.!SEADC!assigned!to!him!
a! Mitsubishi! Gallant! Super! Saloon! car! along! with! membership!
certificates! in! the! Architectural! Center,! Inc.! In! 1990,! Malbarosa!
tendered! his! resignation! and! reiterated! his! request! for! payment! of!
his!incentive!compensation!(P395K).!SEADC!accepted!his!resignation!
and! entitled! him! to! an! incentive! amounting! to! P251,057.67! (to! be!
satisfied!by!transferring!to!him!the!car!and!the!membership!share!of!
an! SEADC! subsidiary! in! the! Architectural! Center,! Inc).! On! March!
1996,! a! letter?offer! was! prepared! by! the! SEADC! for! Malbarosa! to!
sign.! He! didnt! sign! it! and,! instead,! said! that! he! will! review! it! first.!
After! 2! weeks! without! feedback! from! Malbarosa,! SEADC! withdrew!
its! offer! on! April! 1996.! Malbarosa! transmitted! signed! letter?offer! 4!
days!after!such!withdrawal.!
!
Held:! There! is! no! contract! since! Malbarosa! failed! to! meet! the!
requirements!of!a!valid!acceptance!which:!!1)!may!be!expressed!or!
implied,!2)!must!be!absolute,!unconditional!and!without!variance!of!
any!sort!from!the!offer,!3)!must!be!made!known!to!the!offeror,!and!
4)! must! be! made! in! the! manner! prescribed! by! the! offeror.!
Malbarosa! communicated! his! acceptance! only! after! the! knowledge!
of! the! withdrawal! of! the! offer.! He! should! have! transmitted! his!
acceptance!while!the!offer!was!subsisting.!
!
i.
Offer!!unilateral!proposition!which!one!party!makes!
to!the!other!for!the!celebration!of!the!contract.%
a. Must%be%certain!!Art!1319!
An!offer!exists!only!if!the!contract!can!come!
into! existence! by! the! mere! acceptance! of!
the!offeree,!without!any!further!act!on!the!
part!of!the!offeror.!It!must!therefore!be:!
o Definite! ! offer! must! be! distinguished!
from! mere! communication! indicating!
that!a!party!is!disposed!to!enter!into!a!
certain! contract,! or! inviting! the! other!
to!make!an!offer.!
o Complete, ! offer! must! indicate! with!
sufficient! clearness! the! kind! of!
contract! intended! and! definitely! state!
the! essential! conditions! of! the!
proposed!contract,!as!well!as!the!non?
essential!ones!desired!by!the!offeror.!
o Intentional, ! offer! should! be! serious!
and!not!made!for!fun!or!in!jest!
!
b. What%may%be%fixed%by%the%offeror!"!time,!place!
and!manner!of!acceptance!
,
Art.!1321.!The!person!making!the!offer!may!fix!the!time,!place!and!
manner,of!acceptance,!all!of!which!must!be!complied!with.!
!
The! offer! with! a! period! lapses! upon! the! termination! of! the!
period;!acceptance!must!thus!be!known!to!the!offeror!before!
the!period!lapses.!If!the!acceptance!is!made!beyond!the!time!
fixed!in!the!offer,!such!acceptance!already!constitutes!a!new!
offer!and!may!be!accepted!or!rejected!by!original!offeror.!
Acceptance!not!made!in!the!manner!provided!by!the!offeror!
is! not! effective,! but! constitutes! a! counter?offer! which! the!
offeror!may!accept.!
!
c. When%made%through%an%agent!"!accepted!from!
the!time!acceptance!communicated!to!the!agent!
,
Art.! 1322.! An! offer! made! through! an! agent! is! accepted! from! the!
time!acceptance!is!communicated!to!him.!!
!
!!!!!!!85!
!!!!
d.
Circumstances%when%offer%becomes%defective!"!
death,!civil!interdiction,!insanity!or!insolvency!!
Art.! 1323.! An! offer! becomes! ineffective! upon! the! death,! civil!
interdiction,!insanity!or!insolvency!of!either!party!before!acceptance!
is!conveyed.!!
b.
Kinds!
,
Art.!1320.!An!acceptance!may!be!expressed!or!implied.!
!
e.
Business%advertisements%of%things%for%sale!
i.
ii.
,
Art.! 1325.! Unless! it! appears! otherwise,! business! advertisements! of!
things!for!sale!are!not!definite!offers,!but!mere!invitation!to!make!an!
offer.!!
iii.
!
A! business! advertisement! of! things! for! sale! may! or! may! not!
constitute!a!definite!offer.!It!is!not!a!definite!offer!when!the!
object!is!not!determinate.!
An!offer!must!be!made!to!the!person!with!whom!a!contract!
is!desired!but!it!is!not!necessary!that!the!offeror!should!know!
the!person!who!receives!his!offer.!A!valid!offer!to!the!public!
can!be!made.!
!
f. Advertisement%for%bidders%!
c.
If%made%by%letter%or%telegram!!Art!1319,!Par!2!
!
Four!theories!on!when!the!contract!is!perfected!
(Sir! Labitag:! Back! in! the! days! when!
communication!was!slow):!
1. Manifestation, Theory, , counter?
offeree!manifests!his!acceptance!
2. Expedition%Theory,, sending!or!mailing!
of!the!letter!
3. Reception% Theory, , receipt! of! the!
message!of!acceptance!
4. Cognition% Theory, ! Art! 1319,! Par! 2;!
knowledge!of!the!offeror!of!the!acceptance!
Art.!1326.!Advertisements!for!bidders!are!simply!invitations!to!make!
proposals,!and!the!advertiser!is!not!bound!to!accept!the!highest!of!
lowest!bidder,!unless!the!contrary!appears.!!
!
!
d.
Not! applicable! to! judicial! sale! wherein! the! highest! bid! must!
necessarily!be!accepted!
!
Cases:!
!
JARDINE!DAVIES!v.!CA!
Facts:! Pure! Foods! Corp.! decided! to! install! 2! 1500! KW! generators;!
bidding! was! held.! Pure! Foods! confirmed! award! of! contract! to!
FEMSCO.! FEMSCO! submitted! the! required! performance! bond! and!
contractors! all?risk! insurance! policy.! Pure! Foods! unilaterally!
cancelled!the!award!to!FEMSCO!and!awarded!the!project!to!Jardine.!
!
Held:! Contracts! are! perfected! by! mere! consent! (acceptance! of! the!
offeree! of! the! offer! made! by! the! offeror).! Pure! Foods! letter! to!
FEMSCO! constituted! acceptance.! The! basic! terms! and! conditions!
enumerated!in!the!letter!were!imposed!on!the!performance!of!the!
contract!and!not!on!the!perfection!of!such.!Also,!granting!that!Pure!
Foods! letter! is! just! a! conditional! counter?offer,! FEMSCOs!
submission! of! bond! and! insurance! was! implied! acceptance.! Pure!
Foods! acknowledgement! of! the! bond! and! insurance! shows!
knowledge!of!FEMSCO!consent!to!the!offer.!
!
!
ii.
Acceptance%
!
a.
An! offer! that! is! not! accepted! does! not! give! rise!
to!consent,!and!the!contract!does!not!come!into!
existence.!
Contract!is!perfect!when!the!offeror!or!counter?
offeror!learns!about!the!acceptance!!!
!
Must%be%absolute!!Art!1319!
Express!!Art!1320!
Implied! ! Art! 1320;! may! arise! from! acts! or!
facts!which!reveal!the!intent!to!accept,!such!
as! the! consumption! of! the! things! sent! to!
the! offeree,! or! the! fact! of! immediately!
carrying!out!the!contract!offered.!
Qualified!!Art!1319;!not!an!acceptance!but!
constitutes!a!counter?offer!
Necessary! that! acceptance! be! unequivocal!

and!unconditional.!
Period%of%acceptance!
,
Art.!1324.!When!the!offerer!has!allowed!the!offeree!a!certain!period!
to! accept,! the! offer! may! be! withdrawn! at! any! time! before!
acceptance! by! communicating! such! withdrawal,! except! when! the!
option! is! founded! upon! a! consideration,! something! paid! or!
promised.!
,,
When! there! is! a! fixed! period! of! acceptance,! offeree! may!

accept! at! any! time! until! such! period! expires.! When! the!
offeror! has! not! fixed! a! period,! and! the! offer! is! made! to! a!
person!present,!the!acceptance!must!be!made!immediately.!
When!the!offer!is!made!to!a!person!absent,!the!acceptance!
may! be! made! within! such! time! that,! under! normal!
circumstances,!an!answer!can!be!received!from!him.!
Acceptance!not!made!in!the!manner!provided!by!the!offeror!
is!ineffective.!!
Offer! implies! an! obligation! on! the! part! of! the! offeror! to!
maintain!it!for!such!a!length!of!time!as!to!permit!the!offeree!
to!decide!whether!to!accept!it!or!not.!!
!
Extinguishment!or!annulment!of!offer!!
o Withdrawal!by!the!offeror!
o Lapse!of!the!time!for!option!period!
o Legally!incapacitated!to!act!!
o Offeree!makes!counter?offer!
o Contract!becomes!illegal!
!
!
!!!!!!!86!
!!!!
Case:!
!
SANCHEZ!v.!RIGOS!!
Facts:!Sanchez!and!Rigos!executed!an!Option!to!Purchase!a!parcel!
of! land.! If! within! 2! years! from! date! of! execution! of! the! said!
instrument!Sanchez!shall!not!exercise!his!right!to!buy!the!property,!
the! option! shall! be! terminated.! Within! the! said! period,! Sanchez!
made!several!attempts!to!pay!to!Rigos!but!the!latter!rejected!these!
payments.!Sanchez!deposited!the!amount!in!CFI?Nueva!Ecija.!
!
Held:!An!accepted!unilateral!promise!can!only!have!binding!effect!if!
supported!by!a!consideration,!which!means!that!the!option!can!still!
be!withdrawn!absent!a!consideration.!(See!Art!1324)!The!document!
drawn! between! Sanchez! and! Rigos! does! not! require! Sanchez! to!
purchase! the! property;! not! a! contract! to! buy! and! sell.! The!
aforementioned! document! does! not! state! that! the! promise! is!
supported!by!consideration!distinct!from!the!price!stipulated.!
!
e. Contract% of% option! ! Art! 1324;! a! preparatory!
contract!in!which!one!party!grants!to!the!other,!
for!a!fixed!period!and!under!specified!conditions,!
the!power!to!decide!whether!or!not!to!enter!into!
a!principal!contract.!
Must! be! supported! by! an! independent!

consideration! and! the! grant! must! be!
exclusive!
If! the! option! is! not! supported! by! an!

independent! consideration,! offeror! can!
withdraw! the! privilege! at! any! time! by!
communicating!the!withdrawal!to!the!other!
party,!even!if!the!option!had!already!been!
accepted.!!
!
Case:!
!
ADELFA!PROPERTIES!v.!CA!
Facts:! Rosario! Jimenez?Castaeda! and! Salud! Jimenez! and! their!
brothers! were! the! registered! co?owners! of! a! parcel! of! land.! Adelfa!
Properties! expressed! interest! in! buying! Rosario! and! Saluds! share.!
An!Exclusive!Option!to!Purchase!was!executed!(P50K!to!be!paid!by!
Adelfa! as! option! money! to! be! credited! as! partial! payment! upon!
consummation! of! sale;! balance! to! be! paid! on! or! before! Nov! 30,!
1989).! Before! Adelfa! could! start! payment,! it! received! a! copy! of!
complaint!filed!by!the!niece!and!nephews!of!the!Jimenezes!(for!the!
annulment! of! the! deed! of! sale! and! recovery! of! ownership! of!
property).! Adelfa! informed! the! Jimenezes! that! it! will! hold! payment!
of! the! full! purchase! price! until! settlement! of! the! complaint.! Salud!
attributed!the!suspension!of!payment!to!lack!of!word!of!honor.!
!
Held:! The! Agreement! between! the! parties! is! a! contract! to! sell!
(ownership!is!reserved!in!the!vendor!and!is!not!to!pass!until!the!full!
payment! of! the! price)! and! not! an! option! contract! or! a! contract! of!
sale! (title! passes! to! vendee! upon! delivery! of! the! thing! sold).! ! First,!
there!was!an!implied!agreement!that!ownership!shall!not!pass!to!the!
purchaser! until! full! payment.! Second,! there! was! no! showing! that!
there!was!delivery!of!the!property!(actual!or!constructive)!made!to!
petitioner.! The! alleged! P50K! option! money! (money! given! as! a!
distinct! consideration! for! an! option! contract)! was! actually! earnest!
money!which!was!intended!to!form!part!of!the!purchase!price.!
!
!
!
!
!
b. Necessary%legal%capacities%of%the%parties%
i.
Who%cannot%give%consent%
Art.!1327.!The!following!cannot!give!consent!to!a!contract:!
1. Unemancipated!minors;!
2. Insane!or!demented!persons,!and!deaf?mutes!who!do!not!
know!how!to!write.!
!
Logical! consequence:! a! contract! entered! into! by! one! of! the!
persons! enumerated! above! would! be! wanting! in! consent,!
and!hence!inexistent!or!void.!
Legal! consequence:! if! both! parties! are! incapable! of! giving!
consent,!the!contract!is!unenforceable.!If!only!one!is!capable,!
it!is!annullable!or!voidable.!
!
ii.
When%offer%and/or%acceptance%is%made%
a.
b.
During%a%lucid%interval!"!valid!
In% a% state% of% drunkenness! "! voidable;! utter!
want!of!understanding!
During% a% hypnotic% spell! "! voidable;! utter! want!
of!understanding!
!
c.
c. The% consent% must% be% intelligent,% free,%

spontaneous%and%real%
i. Effect%
%
Art.! 1330.! A! contract! where! consent! is! given! through! mistake,!
violence,!intimidation,!undue!influence,!or!fraud!is!voidable.!!
,
Requisites! of! consent:! 1)! it! should! be! intelligent,! or! with! an!
exact!notion!of!the!matter!to!which!it!refers,!2)!it!should!be!
free,!and!3)!it!should!be!spontaneous.!
ii.
,
Vices% of% consent! ! vitiated! consent! does! not!
make!a!contract!unenforceable!but!merely!voidable.!
Intelligence!in!consent!is!vitiated!by:!
!
a. Mistake%or%error!!a!wrong!or!false!notion!about!
such! matter,! a! belief! in! the! existence! of! some!
circumstance,! fact,! or! event,! which! in! reality!
does!not!exist.!
,
Art.! 1331.! In! order! that! mistake! may! invalidate! consent,! it! should!
refer! to! the! substance! of! the! thing! which! is! the! object! of! the!
contract,!or!to!those!conditions!which!have!principally!moved!one!or!
both!parties!to!enter!into!the!contract.!
!
Mistake!as!to!the!identity!or!qualifications!of!one!of!the!parties!will!
vitiate! consent! only! when! such! identity! or! qualifications! have! been!
the!principal!cause!of!the!contract.!
!
A!simple!mistake!of!account!shall!give!rise!to!its!correction.!
!
!
!
!
!!!!!!!87!
!!!!
i.
!
As!to!
substance!
of!object!
As!to!
principal!
conditions!
(essential!or!
substantial!
in!
character)!
As!to!
identity!or!
qualification
s!of!one!of!
the!parties!
Kinds,
1. Mistake, of, fact! ! generally! not! a!
ground!for!annulment!of!contracts!
Ground! of! mistake! based! on! error! is!

limited! to! cases! in! which! it! may!
reasonably! be! said! that! without! such!
error!the!consent!would!not!have!been!
given!
Effect! of! mistake! is! determined! by!

whether! the! parties! would! still! have!
entered! into! the! contract! despite!
knowledge! of! true! fact! "! influence!
upon!party!!
Error! invalidates! consent! if! it! refers! to! the!

substance!of!the!thing!
o Substance! of! the! thing! ! those!
qualities!which!determine!it!particular!
kind,! distinguishing! it! from! other!
things!
Invalidates!consent!
Error! in! the! name,! without! error! as! to!

person,!will!not!invalidate!the!consent!
Error! as! to! the! person! will! invalidate!
consent! when! the! consideration! of! the!
person!has!been!the!principal!cause!of!the!
same;! generally! the! case! in! obligations! to!
do! which! rest! on! confidence! or! demand!
special!qualifications!
Mistake! as! to! qualifications,! even! when!
there! is! no! error! as! to! person,! is! a! cause!
vitiating!consent!if!such!qualifications!have!
been!the!principal!cause!of!the!contract!!
Error! as! to! the! solvency! of! the! other! party!
is!not!a!cause!of!nullity.!
Error! of! account! "! purely! a! mistake! in!
computation;! does! not! vitiate! consent;!
make!proper!correction!
Error!as!to!quantity!!may!vitiate!consent!
if!the!primary!!consideration!is!the!quantity!
As!to!
quantity,!as!
distinguishe
d!from!
simple!
mistake!of!
account!
!
Mistakes!that!do!not!affect!the!validity!of!the!contract!
1. Error! with! respect! to! accidental! qualities! off! the!
object! of! the! contract! (quality! of! paper! of! a! book,!
adjoining!owners!of!a!piece!of!land),
2. Error! in! the! value! of! thing! (when! a! person,! having!
forgotten!the!cost!price!of!merchandise,!erroneously!
sells!it!for!less),
3. Error!which!refers!not!to!conditions!of!the!thing,!but!
to! accessory! matters! in! the! contract! foreign! to! the!
determination!of!the!object,
!
!
!
!
!
Cases:!
!
ASIAIN!v.!JALANDONI!
Facts:! Asiain! told! Jalandoni! that! he! was! willing! to! sell! part! of! his!
hacienda!(claimed!to!be!~25?30!ha!and!can!produce!not!less!than!2K!
piculs! of! sugar);! Jalandoni! doesnt! believe! him.! Asiain! Asiain! wrote!
Jalandoni! a! letter!making! the! same! manifestations! plus! a! claim!
that!if! the! sugar!doesnt! amount! to! 2k! piculs,! hell! pay! in! sugar! all!
such!amount!necessary!to!complete!2k.!In!the!event!that!there!is!an!
excess,! such! will! be! Asiains.! after! acquiring! possession! of! the! said!
land,! Jalandoni! found! that! 1)! it! only! produced! 800! piculs! and! 23!
cates! of! sugar,! and! 2)! the! land! was! only! 18! ha,! 54! ares! and! 22!
centiares.!He!had!already!paid!P30K!then.!Asiain!instituted!action!to!
recover!the!P25K!balance!from!Jalandoni.!Jalandoni!wanted!to!annul!
the!contract.!
!
Held:! Contract! is! rescindable! at! the!option! of! the! buyer! for!
agreement! would! not! have! been! made! without! such! mistake.!
Stipulating! that! the! land! is! more! or! less! (size)! will! not!prevent!
granting! of!relief! if! there! was! mutual! mistake! and! the! deficiency! is!
material.! Also,! specific! performance! cannot! be! allowed! at! the!
instance! of! the! vendor.! The! best! course! of! action! would! be! to! put!
the! parties! back! in! their! respective! positions! before! they! became!
involved! in! the! negotiations! and! before! they! entered! into! the!
agreement.!
!
THEIS!v.!CA!
Facts:!Calsons!Development!Corporation!is!the!owner!of!3!adjacent!
parcels! of! land.! Adjacent! to! parcel! 3! is! a! vacant! lot! (parcel! 4).! In!
1985,! Calsons! constructed! a! 2?storey! house! on! parcel! 3.! In! 1987,!
Calsons! sold! parcels! 1! and! 2! to! Theis.! However,! due! to! an! error! in!
the! survey! conducted! in! 1985! (unknown! to! Calsons),! what! was!
actually! sold! to! Theis! was! parcel! 4! (does! not! belong! to! Calsons).! In!
1990,!Theis!discovered!that!parcel!4!was!not!owned!by!Calsons,!and!
that! what! was! actually! sold! to! them! was! parcels! 2! and! 3.! Parcel! 3,!
however,! could! not! have! been! sold! by! Calsons! to! Theis! as! a! house!
(construction!cost!exceeds!the!price!paid!by!Theis)!had!already!been!
built! thereon! prior! to! the! execution! of! the! contract! between! the!
parties.!
!
Held:! The! contract! may! be! annulled! on! the! ground! of! mistake.!
Consent!of!the!parties!is!one!of!the!essential!elements!to!the!validity!
of!contracts,!and!where!consent!is!given!through!mistake!the!validity!
of!the!contractual!relations!between!the!parties!is!legally!impaired.!
The!mistake!or!error!on!the!subject!of!the!sale!in!question!appears!
to! be! substantial! as! the! object! of! the! same! transaction! is! different!
from!that!intended!by!the!parties.!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!!!!!!!88!
!!!!
HEIRS!OF!WILLIAM!SEVILL,!ET!AL.!v.!LEOPOLDO!SEVILLA!
Facts:! Filomena,! Felisa,! and! Honorata! were! sisters! and! co?owned! a!
parcel!of!land.!When!Honorata!died,!her!share!in!the!said!parcel!of!
land! was! divided! between! Filomena! and! Felisa.! Before! Felisa! died,!
she!executed!a!Deed!of!Donation!inter,vivos!of!her!share!in!favor!of!
Leopoldo! and! his! wife;! Leopoldo! accepted! the! donation.! Felisa! and!
Peter! Sevilla! then! executed! a! Deed! of! Extrajudicial! Partition! of! the!
share! of! the! deceased! Honorata! between! the! heirs! of! Filomena! (8!
children)! and! Felisa.! Leopoldo! and! Peter,! with! two! others,! then!
sought! to! register! the! said! partition.! The! requested! titles! were,!
however,! left! unsigned! by! the! Register! of! Deeds! pending! the!
submission!of!proof!by!Peter!that!he!has!the!authority!to!represent!
the!heirs!of!Filomena.!Meanwhile,!the!other!heirs!of!Filomena!assail!
the! validity! of! the! Deed! of! Donation! and! the! Deed! of! Extrajudicial!
Partition,!alleging!that!the!donation!was!obtained!through!fraud!as!
Felisa! was! already! 81! years! old! and! of! unsound! mind! during! its!
execution,!and!the!partition!was!executed!without!their!knowledge!
and!consent.!
!
Held:! The! donation! inter, vivos! is! valid! as! the! non?existence! of!
fraud! is! a! factual! finding.! The! circumstances! presented! by! the!
petitioner!are!not!enough!to!establish.!(Remember:!He!who!asserts!
has! the! burden! to! prove.)! Absent! convincing! proof! that! Felisa! was!
incapable! of! exercising! judgment! when! she! executed! the! donation,!
consent! must! be! presumed.! As! to! the! partition,! it! is! void! ab, initio.!
Felisa!did!not!possess!the!capacity!to!give!consent!to!or!execute!the!
deed! of! the! partition.! When! the! extra?judicial! partition! was!
executed,! Felisa! has! already! donated! her! portion! of! the! land! in!
question!to!Leopoldo.!
!
2. Error,of,law!!mistake!as!to!the!
existence!of!a!legal!provision!or!as!to!
its!interpretation!or!application!!
o General!rule:!Ignorantia,legis,
neminem,excusat!
,
,
,
Art.! 3.! Ignorance! of! the! law! excuses! no! one! from! compliance!
therewith.!
!
!
Exception:!Mutual!error!of!law!
Art.!1334.!Mutual!error!as!to!the!legal!effect!of!an!agreement!when!
the!real!purpose!of!the!parties!is!frustrated,!may!vitiate!consent.!
!
Requisites:!
1. Error!must!be!as!to!the!legal!
effect!of!an!agreement!
2. Must!be!mutual!
3. Real!purpose!of!the!parties!is!
frustrated!
!
ii.
When,one,of,the,parties,is,unable,to,read!!
burden!of!proof!is!on!the!party!enforcing!
the!contract!
,
Art.! 1332.! When! one! of! the! parties! is! unable! to! read,! or! if! the!
contract! is! in! a! language! not! understood! by! him,! and! mistake! or!
fraud! is! alleged,! the! person! enforcing! the! contract! must! show! that!
the!terms!thereof!have!been!fully!explained!to!the!former.!
Cases:!
!
DUMASUG!v.!MODELO!
Facts:! Dumasug! assails! the! validity! of! the! contract! of! sale! (of! the!
lands! and! carabaos)! which! she! executed! in! favor! of! Modelo.!
Dumasug!claims!that!Modelo!persuaded!her!to!sign!a!document!by!
falsely! and! maliciously! making! her! believe! that! it! contained! an!
engagement! on! Dumasugs! part! to! pay! Modelo! a! certain! sum! of!
money! as! expenses! incurred! by! Modelo! for! the! lawsuit! in! which!
Dumasug! was! a! party.! It! appeared! that! the! sale! was! authorized! by!
Dumasug!by!placing!a!cross!between!her!name!and!surname!in!the!
document!(she!didnt!know!how!to!write).!
!
Held:!The!consent!given!by!Dumasug!is!invalid,!thus!invalidating!the!
contract.!The!document!(by!which!Modelo!made!himself!the!owner!
of!the!properties)!is!not!the!instrument!which!Dumasug!signed.!Also,!
even! if! it! was,! the! contents! thereof! were! not! duly! and! faithfully!
explained! to! Dumasug.! Had! she! truly! understood,! she! would! not!
have! accepted.! Articles! 1265! and! 1266! of! the! Old! Civil! Code! state!
that!a!consent!given!by!mistake!is!null!and!void.
!
HEMEDES!v.!CA!
Facts:! Jose! Hemedes! executed! a! deed! of! donation! inter, vivos!
conveying!a!parcel!of!land!in!favor!of!his!third!wife,!Justa!Kausapin,!
subject! to! the! resolutory! condition! that! in! case! of! death! or!
remarriage,!the!land!would!have!to!revert!back!to!the!legal!heirs!of!
Jose!(Maxima!and!Enrique).!Justa,!however,!may!choose!who!would!
receive! the! land.! The! first! deed! of! reconveyance! was! executed! by!
Justa! in! favor! of! Maxima.! Maxima! then! executed! a! mortgage! over!
the!property!in!favor!of!R&B!Insurance.!When!Maxima!failed!to!pay,!
R&B! Insurance! executed! an! extrajudicial! deed! of! foreclosure.!
Meanwhile,!the!second!document!was!executed!by!Justa!in!favor!of!
Enrique.! Enrique! claimed! that! he! paid! the! taxes! of! the! real! estate!
property.! He! also! claimed! that! Justa! didnt! consent! to! the! deed!
executed! in! favor! of! Maxima.! The! RTC,! relying! on! Art.! 1322! and!
saying! that! 1)! no! one! explained! the! deed! executed! in! favor! of!
Maxima! and! 2)! the! deed! was! in! English! and! Justa! claimed! to! not!
understand!English,!ruled!in!favor!of!Enrique.!
!
Held:! The! deed! executed! in! favor! of! Maxima! is! valid! as! the! mere!
denial!of!Justa!cannot!invalidate!the!deed.!Otherwise,!it!would!leave!
the!validity!of!the!contract!to!the!will!of!one!of!the!parties.!Art.!1332!
is! not! applicable! in! this! case! as! the! said! article! applies! only! where!
the!consent!is!vitiated!through!fraud!or!mistake.!Consent!has!to!be!
given! for! this! article! to! apply! but! it! has! to! be! alleged! that! it! was!
vitiated! through! fraud! or! mistake.! In! the! present! case,! Justa! claims!
that!there!is!no!consent!and!not!that!it!is!vitiated!through!fraud!or!
mistake.!
!
KATIPUNAN!v.!KATIPUNAN!
Facts:!Braulio!Katipunan,!Jr.!is!the!owner!of!a!203?square!meter!lot!
and! a! 5?door! apartment.! Assisted! by! his! brother,! Braulio! entered!
into! a! Deed! of! Absolute! Sale! with! brothers! Edgardo! and! Leopoldo!
Balguma.!Two!years!later,!Braulio!filed!a!complaint!for!annulment!of!
the! Deed! of! Absolute! Sale,! averring! that! his! brother! Miguel,! Atty.!
Balguma! and! Inocencio! Valdez! convinced! him! to! work! abroad.!
Braulio!alleged!that!through!insidious!words!and!machinations,!they!
made! him! sign! a! document! purportedly! a! contract! of! employment!
(turned!out!to!be!the!Deed!of!Absolute!Sale).!He!further!alleged!that!
he!did!not!receive!the!consideration!stated!in!the!contract.!He!also!
alleged!that!Miguel!at!al.,!with!evident!bad!faith,!conspired!with!one!
another! in! taking! advantage! of! his! ignorance! as! he! only! finished!
third!grade.!
!
!!!!!!!89!
!!!!
Held:!The!Deed!of!Absolute!Sale!is!voidable!for!vitiated!consent!on!
the! part! of! Braulio.! Undue! influence! was! exerted! upon! him! by!
Miguel!et!al.!while!it!was!Miguel!who!negotiated!with!Atty.!Balguma,!
they! did! not! explain! to! him! the! nature! and! contents! of! the!
document.!His!lack!of!education,!coupled!with!his!mental!affliction,!
placed! him! not! only! at! a! hopelessly! disadvantageous! position! but!
also!virtually!rendered!him!incapable!of!giving!rational!consent.!
!
iii.
Inexcusable,mistake,
,
Art.!1333.!There!is!no!mistake!if!the!party!alleging!it!knew!the!doubt,!
contingency!or!risk!affecting!the!object!of!the!contract.!
An!error!so!patent!and!obvious!that!nobody!could!have!
made!it,!or!one!which!could!have!been!avoided!by!ordinary!
prudence,!cannot!be!invoked!by!the!one!who!made!it!in!
order!to!annul!his!contract.!
Mistake!caused!by!manifest!negligence!cannot!invalidate!a!
juridical!act.!
b.
Violence%and%Intimidation!
,
Art.!1335.!There!is!violence!when!in!order!to!wrest!consent,!serious!
or!irresistible!force!is!employed.!
!
There! is! intimidation! when! one! of! the! contracting! parties! is!
compelled! by! a! reasonable! and! well?grounded! fear! of! an! imminent!
and! grave! evil! upon! his! person! or! property,! or! upon! the! person! or!
property! of! his! spouse,! descendants! or! ascendants,! to! give! his!
consent.!
!
To! determine! the! degree! of! the! intimidation,! the! age,! sex! and!
condition!of!the!person!shall!be!borne!in!mind.!!
!
A!threat!to!enforce!ones!claim!through!competent!authority,!if!the!
claim!is!just!or!legal,!does!not!vitiate!consent.!
VIOLENCE!
Physical!force!or!compulsion!
External!
Serves! to! prevent! an! act! from!
being!done!
Requisites:!
1. Physical! force! must! be!
irresistible,! or! of! such!
degree! that! the! victim! has!
no! other! course,! under! the!
circumstances,! but! to!
submit!
2. Such!
force!
is!
the!
determining! cause! in! giving!
the!consent!to!the!contract!
Duress!!degree!of!constraint!or!danger!either!actually!
inflicted!(violence)!or!threatened!and!impending!
(intimidation),!sufficient!to!overcome!the!mind!and!will!of!a!
person!of!ordinary!firmness.!Violence!is!physical!force!or!
compulsion.!Intimidation!is!moral!force!or!compulsion.!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
Seriousness! of! the! evil! or! wrong! measured! both! objectively!

(degree!of!harm!that!the!evil!in!itself!is!likely!to!produce)!and!
subjectively! (determining! the! effect! of! the! threat! upon! the!
mind!of!the!victim!in!view!of!his!personal!circumstances!and!
his!relation!to!the!author!of!the!intimidation)!
Person!!not!limited!to!life!and!physical!integrity!but!also!
includes! liberty! and! honor;! covers! all! injuries! which! are! not!
patrimonial!in!nature!
,
i. Effect,
,
Art.! 1336.! Violence! or! intimidation! shall! annul! the! obligation,!
although!it!may!have!been!employed!by!a!third!person!who!did!not!
take!part!in!the!contract.!
INTIMIDATION!
Moral!force!or!compulsion!
Internal!
Induces! the! performance! of! an!
act!
Requisites:!
1. Intimidation! must! be! the!
determining! cause! of! the!
contract,! or! must! have!
caused! the! consent! to! be!
given!
2. Threatened! act! is! unjust! or!
unlawful!
3. Threat!is!real!and!serious!
4. Produces! a! reasonable! and!
well?grounded! fear! from!
the! fact! that! the! person!
from! whom! it! comes! has!
the! necessary! means! or!
ability! to! inflict! the!
threatened!injury.!
Agreement! is! still! null! and! void! even! if! the! intimidation! or!
threat!had!been!employed!by!a!third!person!who!was!not!a!
party!to!the!contract.!
!
Case:!
!
MARTINEZ!v.!HONGKONG!AND!SHANGHAI!BANK!
Facts:! Martinez! executed! a! contract! under! which! she! agreed! to! a!
conveyance! of! several! properties! to! Adelcoa! &Co.! and! HSBC! as!
settlement! of! their! claims! against! her! and! her! husband.! During! the!
trial,! it! was! established! that! during! the! period! of! negotiation,!
representations!were!made!to!her!by!the!defendants!and!concurred!
in! by! her! lawyers! that! if! she! assented! to! the! requirements! of! the!
defendants,! the! civil! suit! against! them! would! be! dismissed! and! the!
criminal! charges! against! her! husband! would! be! withdrawn.!
However,!if!she!refused,!her!husband!must!either!spend!the!rest!of!
his!life!in!Macao!or!be!criminally!prosecuted.!
!
Held:!In!order!for!the!contract!to!be!annulled,!it!must!be!shown!that!
the! plaintiff! never! gave! her! consent! to! the! execution! thereof.!
However,!it!is!necessary!to!distinguish!between!real!duress!and!the!
motive! which! is! present! when! one! gives! his! consent! reluctantly.! A!
contract!whereby!reparation!is!made!by!one!party!for!injuries!which!
he!has!willfully!inflicted!upon!another!is!one!which,!from!its!nature,!
is! entered! into! reluctantly! by! the! party! making! the! reparation.!
Nevertheless,!it!is!binding!and!enforceable.!
!!!!!!!90!
!!!!
!
c.
Undue%influence!!any!means!employed!upon!a!
party! which,! under! the! circumstances,! he! could!
not!well!resist,!and!which!controlled!his!volition!
and! induced! him! to! give! his! consent! to! the!
contract,! which! otherwise! he! would! not! have!
entered!into.!
,
Art.! 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.!
!
!
!
Unlawful! or! unjust!
act!
Moral!coercion!
UNDUE!INFLUENCE!
Not!necessary!
INTIMIDATION!
Necessary!!
Present!
Present!
!
Due!influence!does!not!vitiate!consent.!
o The!line!between!due!and!undue!influence!must!be!in!full!
recognition! of! the! liberty! due! every! true! owner! to! obey!
the! voice! of! justice,! the! dictates! of! friendship,! of!
gratitude! and! benevolence,! as! well! as! the! claims! of!
kindred,! and,! when! not! hindered! by! personal! incapacity!
or! particular! regulations,! to! dispose! of! his! own! property!
according!to!his!own!free!choice.!
Sir! Labitag:! sales! talk! is! allowed,! especially! if! there! is!
opportunity!to!investigate!the!facts.!(See!Art!1340)!
Circumstances!mentioned!!not!exclusive!
Undue! influence! employed! by! a! third! person! may! annul! the!
contract.!(See!Art!1336)!
!
d. Fraud% or% dolo, ! every! kind! of! deception,!
whether! in! the! form! of! insidious! machinations,!
manipulations,!
concealments!
or!
misrepresentations,! for! the! purpose! of! leading!
another! party! into! error! and! thus! execute! a!
particular!act.!
,
Art.! 1338.! There! is! fraud! when,! through! insidious! words! or!
machinations!of!one!of!the!contracting!parties,!the!other!is!induced!
to! enter! into! a! contract! which,! without! them,! he! would! not! have!
agreed!to.!
!
!
!
!
!
!
!
Must! have! a! determining! influence! on! the! consent! of! the!

victim!
Insidious! words! and! machinations! ! forms! of! deception!
which! may! influence! the! consent! of! a! contracting! party,!
without! necessarily! constituting! estafa! or! some! offense!
under!the!penal!laws.!
Requisites:!
1. It! must! have! been! employed! by! one! contacting! party!
upon!the!other!(Arts!1342!and!1344)!
o If! both! party! employs! fraud,! they! cannot! have! an!
action!against!each!other;!fraud!is!compensated!
2. It! must! have! induced! the! other! party! to! enter! into! the!
contract!(Art!1338)!
3. It!must!have!been!serious!(Art!1344)!
4. It! must! have! resulted! in! damage! or! injury! to! the! party!
seeking!annulment!
Contract! obtained! through! fraud! is! not! void! ab, initio! but!
merely!voidable!
!
!
FRAUD!IN!ART.!1171!
FRAUD!IN!ART.!1338!
When!
it! In! connection! with! the! Prior! or! simultaneous!
occurs!
fulfillment! of! the! to! the! consent! or!
obligation!
creation!
of!
the!
obligation!
!
!
!
ERROR!
FRAUD!
When!
it! Only! when! it! refers! to! Always,!when!the!fraud!
vitiates!
the! matters! mentioned! had!a!decisive!influence!
consent!
in!Art!1331!
on!such!consent!
!
Cases:!
!
HILL!v.!VELOSO!
Facts:! Veloso! executed! a! promissory! note! with! Franco! as! solidary!
debtor!(later!died)!in!favor!of!one!Michael!&!Co.!S!en!C,!allegedly!for!
goods! received! in! La, Cooperativa, Filipina.! A! suit! was! filed! against!
Veloso! because! payment! was! not! received! by! the! creditor! after! 4!
monthly! installments.! Veloso! tried! to! escape! payment! by! alleging!
the! following:! a)! that! Domingo! obtained! her! signature! in! the!
promissory! note! by! estafa,! b)! that! what! she! signed! was! a! blank!
document,! on! the! pretext! that! she! was! paying! 8K! in! favor! of! the!
guardian!of!the!minor!children!of!her!sister?in?law,!to!whom!she!was!
indebted!the!same!amount.!CFI,!RTC!and!CA!were!able!to!prove!the!
falsity!of!her!defenses.!
!
Held:!The!defense!of!error!and!deceit!is!not!admissible!in!this!case.!
Velosos! statement! is! not! much! proof! that! can! outweigh! the!
contents! of! the! promissory! note! that! is! the! basis! of! the! complaint.!
On! the! contrary,! it! is! conclusive! proof! of! the! falsity! of! the! other!
cause! of! debt! alleged! in! the! special! defense.! Also,! Art.! 1269! of! the!
Old! CC! states! that! There! is! deceit! when! by! words! or! insidious!
machinations! on! the! part! of!one,of! the! contracting! parties,!
the!other!is! induced! to! execute! a! contract! which! without! them! he!
would!not!have!made.!Franco!is!not!one,of!the!contracting!parties!
who! may! have! deceitfully! induced! the!other!contracting! party! to!
execute!the!contract.!Therefore,!Veloso!is!still!liable!to!pay.!
!
!
!
!
!
!
!
!
!
!
!
!
!!!!!!!91!
!!!!
WOODHOUSE!v.!HALILI,!supra!
Facts:!Plaintiff!and!defendant!entered!into!a!written!agreement!that!
they!shall!organize!a!partnership!for!the!bottling!and!distribution!of!
Mission! softdrinks.! When! bottling! plant! was! already! in! operation,!
plaintiff! demanded! that! the! partnership! papers! be! executed.! Halili!
promised!to!do!so!after!the!sales!of!the!products!had!been!increased!
to! 50K.! Defendant! refused! to! give! allowance! to! Woodhouse! and!
settlement! could! not! be! arrived! at! so! the! present! action! was!
instituted.!Defendant!counter?argued!that!his!consent!was!obtained!
through! false! representation! of! the! plaintiff! claiming! he! was! the!
owner! or! was! about! to! be! the! owner! of! an! exclusive! bottling!
franchise! when! in! fact! he! was! not.! The! franchise! was! given! to! the!
defendant!himself!during!their!transaction!with!Mission!Dry!Corp!in!
the! US.! Thus! the! plaintiff! failed! in! carrying! out! his! undertakings! by!
failing!to!contribute!the!franchise!into!the!partnership.!!
!
Held:! There! are! two! kinds! of! fraud:! 1)! causal! fraud! (principal!
inducement,!without!which!the!other!party!would!not!have!entered!
the!contract),!which!may!be!ground!for!the!annulment!of!a!contract,!
and!2)!incidental!deceit,!which!only!renders!the!party!who!employs!
it! liable! for! damages.! What! was! committed! in! this! case! is! an!
incidental! deceit! and! the! principal! obligation! that! Woodhouse!
assumed! was! to! secure! the! said! franchise.! However,! the! alleged!
possession! of! the! rights! to! the! franchise! induced! the! defendant! to!
give! 30%! of! the! net! profit! to! plaintiff! when! plaintiff! has! minimal!
knowledge! pertaining! to! bottling! (thus! incidental! fraud).! By!
pretending!that!he!had!exclusive!franchise!that!would!be!transfer!to!
the!partnership,!Woodhouse!obtained!30!%!shares!in!profit.!
!
GERALDEZ!v.!CA,!supra!
Facts:!The!petitioner!and!her!sister!bought!a!tour!package!(VOLARE!
3)! covering! a! 22?day! European! tour! for! $2,990.! Certain! elements!
of!the!tour!stated!in!the!brochure!were!missing.!
2.
Art.!1344,!Par!2:!Incidental!fraud!only!obliges!the!person!employing!
it!to!pay!damages.!
!
The! deceit! must! be! serious;! fraud! is! serious! when! it! is!
sufficient! to! impress,! or! to! lead! an! ordinarily! prudent! person!
into!error!
Seriousness! of! the! acts! is! not! the! same! as! the! determining!
cause!of!the!contract!
!
ii.
Failure,to,disclose,facts;,duty,to,reveal,them!
!FRAUD!
,
Art.! 1339.! Failure! to! disclose! facts,! when! there! is! a! duty! to! reveal!
them,! as! when! the! parties! are! bound! by! confidential! relations,!
constitutes!fraud.!
Held:! Kenstar! committed! fraudulent! misrepresentations! amounting!

to! bad! faith,! to! the! prejudice! of! Geraldez! and! the! members! of! the!
tour! group.! Kenstar! committed! grave! misrepresentation! when! it!
assured! in! its! package! that! the! hotels! would! provide! the! tourists!
complete! amenities! and! were! conveniently! located! along! the! way!
for! the! daily! itineraries.! The! fact! that! the! tourists! were! to! pay! a!
lower! amount! does! not! justify! a! substandard! form! of! service! in!
return.!Meanwhile,!the!issue!of!whether!the!private!respondent!has!
committed! dolo, causante! or! dolo, incidente! by! making!
misrepresentations! in! its! contracts! with! petitioner! and! other!
members!of!the!tour!group!is!irrelevant.!Either!way,!it!is!indubitably!
liable! for! damages! to! petitioner.! (See! discussion! of! dolo, causante!
and!dolo,incidente!below.)!
!
i.
Kinds,
1. Dolo,causante!!that!which!determines!
or!is!the!essential!cause!of!the!consent!
(Art!1338)!
Only, dolo, causante, can! be! a!

ground! for! annulment! of! the!
contract!
Effects:! 1)! nullity! of! the! contract!

and! 2)! indemnification! of!
damages!
Fraud!must!be!established!by!full,!
clear,! and! convincing! evidence,!
and! not! merely! a! preponderance!
thereof!
!
Dolo, incidente! ! that! which! does! not!

have! such! a! decisive! influence! and! by!
itself! cannot! cause! the! giving! of!
consent,! but! refers! only! to! some!
particular!or!accident!of!the!obligation!
!
Cases:!
!
GENERAL!RULE:!Silence!or!concealment!does!not!constitute!a!
fraud!!
EXCEPTIONS:!!
o There!is!a!special!duty!to!disclose!certain!facts!
o According!to!good!faith!and!usages!of!commerce!the!
communication!should!have!been!made!!
Innocent!non?disclosure!of!a!fact!does!not!affect!the!
formation!of!the!contract!or!operate!to!discharge!the!parties!
from!their!agreement;!caveat,emptor!
,
!
TUASON!v.!MARQUEZ!!
Facts:! Marquez! sold! an! electric! light! plant! to! Tuason! for! P14,400! (!
P2400!to!be!paid!w/in!60!days!and!the!remainder!w/in!a!year).!The!
first! installment! was! paid! subsequent! to! the! 60?day! period;! the!
second! installment! has! not! yet! been! paid.! However,! Marquez! has!
already! given! up! his! franchise! of! the! plant! prior! to! selling! it! to!
Tuason.!Tuason!thus!had!to!operate!under!a!special!license!until!he!
obtains! a! new! franchise.! The! franchise! was! granted,! but! with!
conditions! stipulating! renovation! of! the! plant.! Tuason! then! wanted!
to!rescind!the!contract,!saying!that!Marquez!did!not!disclose!that!he!
had!already!given!up!the!franchise.!
!
Held:! The! contract! may! not! be! rescinded! despite! the! allegations! of!
fraud! since! the! franchise! was! not! the! determining! cause! of! the!
purchase.! The! innocent! non?disclosure! of! the! said! fact! does! not!
affect! the! formation! of! the! contract! or! operate! to! discharge! the!
parties! from! their! agreement.! Also,! it! must! be! noted! that! 1)! either!
party! could! have! ascertained! the! status! of! the! franchise,! 2)! Tuason!
operated!the!plant!for!16!months!without!question,!3)!Tuason!made!
the! first! payment! without! protest,! and! 4)! Tuason! only! filed! a! case!
when!the!business!proved!disastrous.!
!
!
!
!
!
!!!!!!!92!
!!!!
RURAL!BANK!OF!STA.!MARIA!v.!CA!
Facts:! ! A! Deed! of! Absolute! Sale! w/! Assumption! of! Mortgage! was!
executed! between! Behis! (vendor/assignor)! and! Rayandayan! and!
Arceo!(vendees/assignees)!for!the!sum!of!P250K.!Rayandayan!and!
Arceo,! along! with! Behis,! then! executed! another! Agreement!
embodying!the!real!consideration!of!the!sale!of!the!land!in!the!sum!
of!P2.4M.!They!then!negotiated!with!the!principal!stockholder!of!the!
bank! for! the! assumption! of! the! indebtedness! of! Behis! and! the!
subsequent! release! of! the! mortgage! on! the! property! by! the! bank,!
without! showing! the! Agreement! with! Behis! providing! for! the! real!
consideration! of! P2.4M! for! the! sale! of! the! property! to! the! former;!
bank!consented!to!the!substitution!of!plaintiffs!as!mortgage!debtors!
in! place! of! Behis.! After! payment,! the! bank! agreed! to! release! the!
mortgage!of!Behis,!to!give!its!consent!to!the!transfer!of!title!to!the!
private! respondents;! and! to! the! payment! of! the! balance! of!
P200kunder!new!terms!with!a!new!mortgage!to!be!executed!by!the!
private!respondents!over!the!same!land.!Bank!could!not!comply!with!
MOA;!Rayandayan!and!Arceo!instituted!a!Civil!Case.!
!
Held:! The! MOA! is! not! voidable! on! the! ground! that! the! banks!
consent! to! enter! said! agreement! was! vitiated! by! fraud! because!
private! respondents! withheld! from! the! petitioner! bank! the!
information! pertaining! to! the! real! consideration! for! the! sale! with!
assumption!of!mortgage.!The!fraud!must!be!the!determining!cause!
of!the!contract,!or!must!have!caused!the!consent!to!be!given.!!The!
non?disclosure! to! the! bank! of! the! purchase! price! of! the! sale! of! the!
land! between! respondents! and! Behis! cannot! be! fraud! under! Art.!
1338.! For! all! intents! and! purposes,! the! bank! entered! into! the! said!
agreement!in!order!to!effect!payment!on!the!indebtedness!of!Behis.!!
Also,! pursuant! to! Art.! 1339,! silence! or! concealment! does! not!
constitute! fraud! unless! there! is! a! special! duty! to! disclose! certain!
facts,!or!unless!according!to!good!faith!and!the!usages!of!commerce!
the!communication!should!be!made.!!Respondents!had!no!such!duty!
and! therefore! did! not! act! in! bad! faith! in! failing! to! disclose! the! real!
consideration.!! Also,! it! must! be! noted! that! the! bank! had! other!
means!and!opportunity!of!verifying!the!financial!capacity!of!private!
respondents.!!
!
iii.
Usual,exaggerations,in,trade;,opportunity,
to,know,the,facts!!TOLERATED!FRAUD!
!
Art.! 1340.! The! usual! exaggeration! in! trade,! when! the! other! party!
had! an! opportunity! to! know! the! facts,! are! not! in! themselves!
fraudulent.!
Cases:!
!
Minimizing!the!defects!of!the!thing,!exaggeration!of!its!good!
qualities,! and! giving! it! qualities! that! it! does! not! have! !
lawful!misrepresentation!(dolus,bonus)!
Caveat,emptor;!do!not!give!rise!action!for!damages!because!
of!their!insignificance!OR,because!the!stupidity!of!the!victim!
is! the! real! cause! of! his! loss! "! import! of! opportunity! to!
know!facts!
!
!
AZARRAGA!v.!GAY!
Facts:!Azarraga!bound!himself!to!sell!to!Gay!two!parcels!of!land!for!a!
lump!sum!of!P47,!000!payable!in!installments.!Gay!already!paid!P25,!
000! but! failed! to! pay! last! two! installments! so! Azarraga! filed! action!
for! collection! for! balance.! Gay! contends! that! plaintiff! knowingly!
misrepresented!to!her!that!the!second!parcel!of!land!had!an!area!of!
98!hectares,!but!in!reality!only!had!60!hectares,!and!that!she!would!
have!not!bought!the!land!if!she!had!known!it!was!only!60!hectares.!
!
Held:! There! is! no! mistake! or! misrepresentation.! Citing! Songco, v.,
Sellner,! since! Gay! made! her! own! calculations! of! the! land! area,! she!
cannot! later! allege! that! the! vendor! made! false! representations! to!
her.! Furthermore,! even! if! there! were! misrepresentations! in! the!
outset,! documents! which! contained! the! real! size! of! the! land! was!
received! and! read! by! Gay! before! they! signed! the! contract.! If! ever!
there! were! misrepresentations,! she! accepted! them! in! her! own! risk!
and!had!only!her!credulousness!to!blame!
!
LAURETA!TRINIDAD!v.!IAC!
Facts:! Plaintiff! offered! to! buy! a! house! and! lot! from! private!
respondent.! However,! she! heard! from! her! new! neighbors! that! the!
previous! buyers! of! the! house! vacated! it! because! it! was! subject! to!
flooding.!When!she!talked!to!respondent!about!it,!the!latter!assured!
her! that! everything! had! been! fixed! and! the! house! would! never! be!
flooded!again,!and!they!entered!into!a!Contract!of!Conditional!Sale.!
However,!plaintiff!did!not!continue!paying!the!amortization!because!
the!house!was!flooded!again!up!to!5ft.!and!charged!respondent!with!
misrepresentation.!
!
Held:! Circumstances! surrounding! the! case! belie! the! contention! of!
fraud! and! misrepresentation.! It! was! petitioner! who! admittedly!
approached!the!respondent!about!buying!the!property,!as!the!latter!
never!registered!it.!She!had!full!opportunity!to!inspect!the!premises!
before! entering! into! a! contract! and! being! a! real! estate! broker,! it! is!
assumed! that! he! made! her! appraisal! of! the! property! not! with! an!
untrained!eye!but!with!experience!and!expertise.!Also,!seeing!the!lot!
was!depressed!and!there!was!a!drainage!lot!abutting!it,!she!cannot!
say! she! was! not! forewarned! of! the! possibility! that! the! place! might!
be! flooded.! There! is! also! no! evidence! presented! to! show! that! the!
two! previous! owners! vacated! the! property! because! of! flooding!
except!her!own!testimony.!
!
iv.
Mere,expression,of,an,opinion!!NOT!
FRAUD,!unless!made!by!an!expert!and!
relied!upon!by!the!plaintiff!
,
Art.! 1341.! A! mere! expression! of! an! opinion! does! not! signify! fraud,!
unless! made! by! an! expert! and! the! other! party! has! relied! on! the!
formers!special!knowledge.!
!
An!opinion!of!an!expert!is!like!a!statement!of!fact,!and!if!
false,!may!be!considered!a!fraud!giving!rise!to!annulment.!
However,!when!the!expert!was!employed!by!the!party!who!
was!misled,!he!cannot!ask!for!annulment!because!he!is!
chargeable!with!the!acts!and!declarations!of!his!employee.!
!
1. Effects,,Art,1344,
!
Art.! 1344.! In! order! that! fraud! may! make! a! contract! voidable,! it!
should! be! serious! and! should! not! have! been! employed! by! both!
contracting!parties.!
!
Incidental! fraud! only! obliges! the! person! employing! it! to! pay!
damages.!
!
!
!!!!!!!93!
!!!!
Effects!of!fraud:!
o Nullification!of!the!contract!
o Indemnification!for!damages!
!
Case:!
!
SONGCO!v.!SELLNER!
Facts:!Plaintiff!wanted!to!buy!respondents!sugarcane!for!the!sum!of!
P12,!000,!executed!in!three!equal!promissory!notes.!After!processing!
of! sugarcane,! Plaintiff! charged! respondent! with! misrepresentation!
for! saying! that! his! sugarcane! would! produce! 3,! 000! piculs! of! sugar!
but!it!only!produced!2,!017!piculs.!
!
Held:!The!amount!of!3,!000!piculs!of!sugar!was!a!mere!expression.!
The! law! allows! considerable! latitude! to! sellers! statements,! or!
dealers!talk.!Since!Songco!allowed!Sellner!to!examine!the!field!and!
the! sugarcane,! Songco! did! not! falsely! represent! the! product! to! the!
extent!that!it!is!actionable.!
!
e. Misrepresentation!
i.
By,a,third,person,
Art! 1342! Misrepresentation! by! a! third!
person!does!not!vitiate!consent,!unless!such!
misrepresentation! has! created! substantial!
mistake!and!the!same!is!mutual.!
!
GENERAL!RULE:!Fraud!by!third!person!
does!not!vitiate!consent!and!cause!the!
nullity!of!a!contract;!merely!gives!rise!
to!an!action!for!damages!by!the!party!
injured!against!such!third!person!
EXCEPTIONS:!
o If!one!of!the!parties!is!in!collusion!
with!the!third!person,!or!knows!of!
the!fraud!by!the!third!person,!and!
he!is!benefited!thereby,!he!may!
be!considered!as!an!accomplice!to!
the!fraud!!contract!becomes!
VOIDABLE!
o If!the!third!person!is!not!in!
connivance!with!any!of!the!parties!
but!leads!them!both!into!error!
(mutual!error),!the!consent!is!
vitiated!!contract!is!VOIDABLE!
!
!
VIOLENCE!OR!
MISREPRESENTATION!
INTIMIDATION!(ART!
1336)!
Effect! of! Annuls! contract! even! if! Does! not! annul! contract!
act! of! a! such!
violence!
or! unless!
it!
produces!
third!
intimidation! is! exercised! substantial!
mutual!
person!
by!a!third!person!
mistake! on! the! part! of!
both!contracting!parties!
!
Why!the!difference?!1)!The!party!has!nothing!to!o!with!fraud!
by!a!third!person!and!cannot!be!blamed!for!it!and!2)!
intimidation!can!be!more!easily!resisted!than!fraud.!
!
!
!
!
!
!
!
ii.
Made,in,good,faith,
,
Art.! 1343.! Misrepresentation! made! in! good! faith! is! not! fraudulent!
but!may!constitute!error.!
!
iii.
Active/passive,
Applicable!to!legal!capacity,!especially!
age!
!
Cases:!
!
MERCADO!v.!ESPIRITU!
Facts:!Petitioners,!who!were!minors!at!the!time!of!the!execution!of!
the! contract,! allege! that! respondent! induced! and! fraudulently!
succeeded! in! getting! petitioners! to! sign! a! deed! of! sale! of! the! land!
left! by! their! mother! for! the! sum! of! P400! notwithstanding! the! fact!
that! the! land! was! valued! at! P3795.! As! a! defense,! respondents!
argued! that! petitioners! represented! themselves! of! legal! age! and!
executed!a!notarial!document!ratifying!the!said!sale.!
!
Held:!It!is!a!rule!that!the!sale!of!a!real!estate!effected!by!minors!who!
have!already!passed!the!age!of!puberty!and!are!near!the!adult!age,!
when!they!pretend!to!have!already!reached!their!majority,!is!valid.!
Such! minors! cannot! be! permitted! afterwards! to! excuse! themselves!
from!compliance!with!the!obligation.!
!
BRAGANZA!v.!VILLA!ABRILLE!
Facts:! Petitioners,! who! were! minors! at! the! time,! received! from!
respondent!a!loan!of!70,!000!Japanese!war!notes,!with!a!promise!to!
pay!respondent!after!cessation!of!hostilities.!Payment!was!not!made!
and!respondent!and!action!for!collection.!
!
Held:! There! was! no! misrepresentation! of! both! minors! regarding!
their! minority.! Quoting! Corpuz, Juris, Secundum,, in! order! to! hold! a!
minor! liable,! the! fraud! must! be! actual! and! not! constructive.! Mere!
silence! when! making! a! contract! regarding! his! ages! does! not!
constitute!a!fraud.!However,!pursuant!to!Art!1340,!it!is!fair!to!hold!
them! liable! for! restitution! of! the! amount! to! the! extent! that!
benefited!them.!
!
f. Simulation%of%Contracts!!declaration!of!a!
fictitious!will,!deliberately!made!by!agreement!of!
the!parties,!in!order!to!produce,!for!the!purposes!
of!deception,!the!appearance!of!a!juridical!act!
which!does!not!exist!or!is!different!from!that!
which!was!really!executed;!involves!a!defect!in!
declaration!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!!!!!!!94!
!!!!
Cases:!
!
RODRIGUEZ!v.!RODRIGUEZ!
nd
Facts:! Concepcion! Felix,! who! owned! 2! fishponds,! contracted! a! 2 !
marriage! with! a! Domingo! Rodriguez.! She! executed! a! deed! of! sale!
conveying!said!properties!to!her!daughter!for!P2,!500,!who!in!turn,!
appeared!to!have!transferred!the!same!property!to!her!mother!and!
stepfather.! When! Domingo! died! intestate,! Felix! filed! action! to!
declare!deeds!fictitious!and!simulated.!
!
Held:! Petitioner! is! estopped! from! claiming! that! the! contracts! were!
simulated!because!she!herself!claimed!that!the!transfer!of!titles!was!
for! the! purpose! of! converting! the! property! from! paraphernal! to!
conjugal! property.! As! to! the! claim! that! there! was! lack! of!
consideration,! Court! found! that! there! was! consideration:! the! price!
of!P2,!500!for!first!transfer,!and!P3,!000!for!the!second,!as!stated!in!
the!deed!itself.!In!any!case,!action!is!barred!by!latches!since!28!years!
have!already!passed.!
!
SUNTAY!v.!CA!
Facts:! Frederico! Suntay! tried! to! apply! with! the! NRC! as! a! miller?
contractor!of!rice!but!was!denied!due!to!outstanding!debts.!He!then!
executed! a! deed! of! sale! in! favor! of! nephew! Rafael,! which! was!
subsequently!followed!by!another!deed!of!sale!from!Rafael!but!was!
not!notarized.!The!idea!was!to!transfer!the!ownership!of!the!lot!to!
Rafael!for!him!to!apply!to!be!a!miller?contractor,!and!return!the!lot!
back! to! Frederico.! However,! Rafael! refused! to! return! the! title! to!
Frederico.!
!
Held:! Deed! was! obviously! simulated.! The! fact! that! Rafael! never!
asserted!his!ownership,!as!well!as!his!non?disclosure!of!said!property!
in! his! SALN! shows! that! it! never! was! his! property! since! the! deed! is!
simulated.!
!
BLANCO!v.!QUASHA!
Facts:! Mary! Elizalde! entered! into! a! Deed! of! Sale! over! a! house?and?
lot!with!Parex!Realty!Corporation!for!P625,!000!payable!in!25!equal!
annual!installments.!Simultaneously!with!the!execution!of!the!Deed!
of! Sale,! Parex! executed! a! Contract! of! Lease! with! Elizalde! for! the!
same!parcel!of!land!for!25!years,!the!rental!payments!of!which!shall!
be!applied!in!reduction!of!the!agreed!yearly!installments.!Petitioner,!
as!administrator!of!the!estate!of!Elizalde,!sought!to!nullify!the!sale!as!
simulated!and!fictitious.!
!
Held:!Sale!is!valid.!Although!no!actual!exchange!of!money!was!made,!
yet! payment! was! effected! between! the! vendee! and! the! vendor! by!
mutual! agreement.! As! further! proof,! records! show! that! Elizalde!
never!contested!the!sale!of!the!property!nor!the!cancellation!of!the!
Certificate!of!Title!during!her!lifetime.!Court!is!not!ready!to!delve!on!
the!motive!of!Elizalde!in!entering!the!contract!since!that!is!a!factual!
issue!which!is!not!within!the!province!of!the!Court.!
!
i.
Kinds,
,
Art.!1345.!Simulation!of!a!contract!may!be!absolute!or!relative.!The!
former! takes! place! when! the! parties! do! not! intend! to! be! bound! at!
all;!the!latter,!when!the!parties!conceal!their!true!agreement.!
!
1.
Absolute,(simulados)!!there!is!a!color!
of!contract,!without!any!substance!
thereof,!the!parties!not!having!any!
intention!to!be!bound.!
ABSOLUTE!
SIMULATION!
of! No!existing!contract!
FRAUDULENT!
ALIENATION!
Existence!
There! is! a! true! and!
contract!
existing!contract!
Who!can!attack!
Any!creditor,!including! Only! by! creditors!
one! subsequent! to! before!the!alienation!
the!contract!
Prescription!
Does! not! prescribe! Accion! pauliana! to!
(Arts!1409!and!1410)!
rescind!prescribes!in!4!
years!(Art!1389)!
!
2. Relative,(disimulados)!!parties!have!
an!agreement!which!they!conceal!
under!the!guise!of!another!contract.!
Two!juridical!acts!involved!in!
relative!stimulation:!
o Ostensible!act!(apparent!or!
fictitious)!!the!contract!that!
the!parties!pretend!to!have!
executed!
o Hidden!act!(real)!!the!true!
agreement!between!parties!
If!the!concealed!act!is!lawful,!it!is!
enforceable!if!the!essential!
requisites!are!present!
!
ii.
Effects,
,
Art.! 1346.! An! absolutely! simulated! or! fictitious! contract! is! void.! A!
relative!simulation,!when!it!does!not!prejudice!a!third!person!and!is!
not!intended!for!any!purpose!contrary!to!law,!morals,!good!customs,!
public! order! or! public! policy! binds! the! parties! to! their! real!
agreement.!
,
!
Validity!
Recovery!
under!
contract!
ABSOLUTE!
VOID! ! does! not! legally!
exist;! illusory,! mere!
phantom;!
generally!
fraudulent! and! for! the!
purpose! of! injuring! third!
persons!
If!it!does!not!have!an!
illicit!purpose,!the!
parties!to!the!
contract!may!prove!
the!simulation!in!
order!to!recover!
whatever!may!have!
been!given!under!
such!simulated!act!
If!the!simulated!
contract!has!an!
illegal!object,!Arts!
1411!and!1412!apply!
RELATIVE!
VALID! except! when! it!
prejudices! third! persons!
or!has!an!illicit!purpose!!!
If!the!contract!is!
lawful,!it!is!
absolutely!
enforceable;!all!the!
essential!requisites!
(consent,!object,!
cause)!must!be!
present!
When!the!purpose!
of!the!simulation!is!
illicit,!or!to!prejudice!
a!third!person,!the!
true!contract!of!the!
parties!cannot!be!
enforced!(Art!1409);!
neither!party!can!
have!an!action!
against!the!other!
(Arts!1411!and!1412)!
!!!!!!!95!
!!!!
B. Object(of(Contracts(
1.
!
Meaning!of!OBJECT!
# Thing,! right! or! service! which! is! the! subject?matter! of! the!
obligation!arising!from!the!contract!
# Object!of!the!contract!and!object!of!the!obligation!created!
thereby!are!identical!
# In! reality,! the! object! of! every! contract! is! the! obligation!
created.!The!object!may!be!things,!rights,!or!services.!(de!
Leon)!
!
WHAT!MAY!BE!THE!OBJECTS!OF!CONTRACTS!
!
Art.! 1347.! All! things! which! are! not% outside% the% commerce% of% men,!
including! future! things,! may! be! the! object! of! a! contract.! All! rights!
which!are!not%intransmissible!may!also!be!the!object!of!contracts.!!
!
No!contract!may!be!entered!into!upon!future%inheritance!except!in!
cases!expressly!authorized!by!law.!!
!
All! services! which! are! not% contrary! to! law,! morals,! good! customs,!
public! order! or! public! policy! may! likewise! be! the! object! of! a!
contract.!
c.
d.
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.%
e. It% must% be% in% existence% or% capable% of% coming%

into% existence% (Art% 1461,% 1493,% 1495)% =% It! is!
essential!that!the!object!must!be!in!existence!at!the!time!
of! the! perfection! of! the! contract,! or! that! it! has! the!
possibility!or!potentiality!of!coming!into!existence!at!some!
future!time.!Thus,!even!future!things!can!be!the!object!of!
contracts.!
3. WHAT!MAY!NOT!BE!THE!OBJECTS!OF!CONTRACTS!
a. Contrary% to% law,% morals,% good% customs,% public%
policy%or%public%order%%
a.
All%things%not%outside%the%commerce%of%man%
b.
c.
Possible%(Art%1348)%
Determinate%as%to%its%kind%(Art%1349)%=% The!object!
Including!future!things!do!not!belong!to!the!obligor!
at!the!time!the!contract!is!made;!they!may!be!made,!
raised!or!acquired!by!the!obligor!after!the!perfection!
of!the!contract!
o Conditional! ! subject! to! the! coming! into!
existence!of!the!thing!
o Aleatory!!one!of!the!parties!bears!the!risk!of!the!
thing!never!coming!into!existence!
Outside!the!commerce!of!man!!all!kinds!of!things!
and! interests! whose! alienation! or! free! exchange! is!
restricted!by!law!or!stipulation,!which!parties!cannot!
modify!at!will!
o Services! which! imply! an! absolute! submission! by!
those! who! render! them,! sacrificing! their! liberty,!
independence! or! own! beliefs! or! disregarding! in!
any! manner! the! equality! and! dignity! of! persons!
e.g.!perpetual!servitude!or!slavery!
o Personal! rights! e.g.! patria! postestas,! marital!
authority,! status,! capacity! of! persons,! honorary!
titles!
o Public! offices,! inherent! attributes! of! the! public!
authority,!political!rights!of!individuals!e.g.!right!
of!suffrage!
o Property! while! they! pertain! to! the! public!
dominion!
o Sacred!things!e.g.!air!and!sea!!
All%rights%not%Intransmissible%
All% services% not% contrary% to% law,% morals,% good%
customs,%public,%or%public%policy%
!
2. REQUISITE!
a. Within%the%commerce%of%man%(Art%1347)%
b. Licit,% not% contrary% to% law,% morals,% good%
customs,% public% policy% or% public% order% (Art%
1347)%
When! entered! into,! object! is! contrary! to! law! or!

morals.!Law!need!not!be!penal!in!nature!as!long!as!it!
be!mandatory!or!prohibitive!
TEST:! WON! an! act! is! repugnant! to! our! sense! of!
decency!
Promise!to!change!citizenship,!profession,!religion,!or!
domicile!
b. Indeterminable%as%to%their%kind%
something!
an!animal!
c. Determinable%Things%
All!the!eggs!in!basket!
My!land!with!the!smallest!area!
d. Outside%the%commerce%of%man%%
Prohibited!drugs!
Clings! of! public! ownership! such! as! sidewalks,! public!
places,!bridges,!streets!
Things! common! to! everybody! such! as! air,! sunlight,!
rain,!etc.!
e. Intransmissible%rights%
f.
Political!rights!(right!to!vote,!right!to!public!office)!
Parental,!family,!and!marital!rights!
Future%inheritance%
Art.! 1347,! Par! 2:! No! contract! may! be! entered! into! upon! future!
inheritance!except!in!cases!expressly!authorized!by!law.!!
!
Inheritance% is! any! property! or! right,! not! in! existence! or! capable! of!
determination!at!the!time!of!the!contract,!that!a!person!may!inherit!
in! the! future,! such! person! having! only! an! expectancy! of! a! purely!
hereditary!right!(Blas!v.!Santos,!1!SCRA!899)!!
,
General, Rule:! Contract! concerning! future! inheritance! is! void.! Art!
1409!Par!7!
,
Exceptions:!Cases!expressly!authorized!by!law!Art!1347!Par!2!
,
,
,
,
,
!!!!!!!96!
!!!!
Kinds!of!Impossibility:!
1. Physical,!when!the!thing!or!service!in!the!very!nature!of!
things!cannot!exist!(a!monkey!that!talks)!or!be!performed.!
With!particular!reference!to!services,!impossibility!may!be:!
a. Absolute!!when!the!act!cannot!be!done!in!any!case!
so! that! nobody! can! perform! it,! such! as! flying! like! a!
bird.!In!such!a!case,!the!contract!is!null!and!void.!
b. Relative! ! when! it! arises! from! the! special!
circumstances!of!the!case!(to!drive!a!car!on!a!flooded!
highway)!or!the!special!conditions!or!qualifications!of!
the! obligor.! (To! paint! a! portrait! by! a! blind! person)! If!
PERMANENT,! it! nullifies! the! contract,! but! does! not!
nullify!if!TEMPORARY.!
c. Legal!!when!the!thing!or!service!is!service!is!contrary!
to! law,! morals,! good! customs,! ! ! ! ! ! ! ! public! order,! or!
public!policy!!
!
Liability!for!damages!
Since!contract!is!void!and!inexistence!due!to!impossibility,!
amount! of! damages! is! limited! only! to! the! losses! the!
creditor! may! have! suffered! by! having! relied! on! the!
contract,!and!cannot!recover!from!non?performance!of!the!
contract!
o Debtor!knew!of!impossibility!!liable!for!damages!!
o Debtor! is! ignorant! of! impossibility,! and! ignorance! is!
justifiable!!no!liability!for!damages!
o Both! parties! have! knowledge! of! impossibility! ! no!
liability!for!damages!!!
Art.!84!FC.!Donations!by!reason!of!marriage!between!future!spouses!
with!respect!to!their!future!property!to!take!effect,!only!in!the!event!
of!death,!to!the!extent!laid!down!by!law!in!testamentary!succession.!
!
Art!1080.!Partition!of!property!by!act!inter,vivos,by!a!person!to!take!
effect!upon!his!death.!
!
Requisites!of!a!Valid!Contract!for!Future!Inheritance!
a. The!succession!must!not!have!been!opened!at!the!time!of!the!
contract!
b. Object!of!the!contract!forms!part!of!the!inheritance!
c. The!promisor!has,!with!respect!to!the!object,!an!expectancy!of!
a!right!which!is!purely!hereditary!in!nature!
!
Cases:!
!
BLAS!v.!SANTOS!
Facts:!Petitioner!Blas!married!twice,!first!with!Marta!Cruz!and,!when!
nd
she! died,! with! Maxima! Santos.! Before! the! 2 ! marriage,! there! was!
st
no! liquidation! of! the! conjugal! property! of! the! 1 ! couple.! Blas!
executed!a!will!which!stated!that!half!of!the!conjugal!property!with!
Santos!is!the!share!of!his!first!wife.!This!was!supported!by!another!
document! (Exhibit! A)! executed! by! Santos! herself! which! states! that!
one?half!of!her!shares!of!the!properties!left!by!her!services!would!be!
given!to!the!heirs!named!in!the!will!of!the!husband.!
!
Held:! Exhibit! A! is! a! valid! contract,! and! not! a! contract! on! future!
inheritance! since! the! document! refers! to! existing! properties! which!
Santos!will!receive!by!operation!of!law!on!the!death!of!her!husband!
because!it!is!her!share!in!the!conjugal!assets.!
!
TANEDO!v.!CA!
Facts:!Lazardo!Tanedo!executed!a!notarized!deed!of!absolute!sale,!in!
favor! of! his! eldest! brother! and! his! wife,! covering! one! hectare! of!
whatever!share!I!shall!have!over!Lot.!No.!191,!the!subject!property!
being! his! future! inheritance! from! his! parents.! After! his! father! died,!
Lazaro! executed! an! Affidavit! of! Conformity! to! acknowledge! and!
validate!the!aforementioned!sale!
!
Held:! Sale! is! not! valid! since! object! is! future! inheritance.! Said! deed!
cannot!be!source!of!any!right!nor!create!any!obligation!between!the!
parties.! Also,! the! Affidavit! of! Conformity! does! not! validate! nor!
ratify!previous!sale!and!is!useless.!
!
C. Cause(of(Contracts(
(
1. MEANING!OF!CAUSE!
g. Impossible%things%or%services%
!
Art.! 1348.! Impossible! things! or! services! cannot! be! the! object! of!
contracts.!
!
Things! are! impossible! when! they! are! not! susceptible! of! existing,! or!
they!are!outside!the!commerce!of!man.!Personal!services!or!acts!are!
impossible!when!they!are!beyond!the!ordinary!strength!or!power!of!
man.! Impossibility! must! be! actual! and! contemporaneous! with! the!
making!of!the!contract,!and!not!subsequent!thereto.!
!
!
!
!
!
!
!
Why! of! a! contract;! the! immediate! and! most! proximate!

purpose!of!the!contract,!the!essential!reason!which!impels!
the!contracting!parties!to!enter!into!it!and!which!explains!
and! justifies! the! creation! of! the! obligation! through! such!
contract!!
Essential! reason! that! moves! the! parties! to! enter! into! a!
contract!
Requisites!of!Cause!
1. Existing!at!the!time!the!contract!is!entered!into!
2. True!
3. Licit!or!Lawful!
As!distinguished!from!object!
o Object! is! the! starting! point! of! agreement,! without!
which! the! negotiations! or! bargaining! between! the!
parties!would!never!have!begun!!
o Object!may!be!the!same!for!both!of!the!parties!
o Cause!is!different!with!respect!to!each!party!
o In! a! contract! of! sale! of! land,! object! is! the! land! itself,!
while!the!cause!of!the!vendor!is!the!price,to,be,paid,,
while!cause!of!the!vendee!is!the!delivery,of,the,land.!
As! distinguished! from! consideration! CONSIDERATION! <!
CAUSE!
!!!!!!!97!
!!!!
CONSIDERATION!
CAUSE!
Reason! or! motive! or! inducement! Why! of! contracts;! essential!
by! which! a! man! is! moved! into! reason!
that!
compels!
bind!himself!by!agreement!
contracting!
parties!
to!
celebrate!the!contract!
Requires! a! legal! detriment! to! the! Never! rejects! any! cause! as!
promisee!more!than!a!moral!duty!! insufficient;! need! not! be!
material!at!all!and!may!consist!
in! moral! satisfaction! for! the!
promissory!
!
Art.! 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.!
!
a. In%onerous%contracts%
Prestation!or!promise!of!a!thing!or!service!by!the!
other!
Parties!are!reciprocally!obligated!to!each!other!
Need!not!be!adequate!or!an!exact!equivalent!in!
point! of! actual! value! especially! in! dealing! with!
objects!which!have!rapidly!fluctuating!price!!
E.g.!Sale,!lease!
b. In%remuneratory%contracts%
One! where! a! party! gives! something! to! another!

because! of! some! service! or! benefit! given! or!
rendered!by!the!latter!to!the!former!where!such!
service! or! benefit! was! not! due! as! a! legal!
obligation!!
Purpose! is! to! reward! the! service! that! had! been!
previously!rendered!
E.g.!bonuses!
c. In%contracts%of%pure%beneficence%
Essentially!agreements!to!give!donations!
Contracts! where! the! cause! of! which! is! the!
liberality!of!the!benefactor!or!giver!
!
2. AS!DISTINGUISHED!FROM!MOTIVE!
!
Art.! 1351.! The! particular! motives! of! the! parties! in! entering! into! a!
contract!are!different!from!the!cause!thereof.!
!
Motive!is!the!purely!personal!or!private!reason!which!a!party!has!in!
entering!into!a!contract.!
!
!
!
!
!
!
!
!
!
!
!
CAUSE!
Objective,! intrinsic! and! juridical!
reason! for! the! existence! of! the!
contract!itself!
Essential!reason!for!the!contract!
MOTIVE!
Psychological,! individual! or!
personal! purpose! of! a! party! to!
the!contract!
Particular! reason! for! a!
contracting! party,! which! does!
not! affect! the! other! and! which!
does! not! impede! the! existence!
of!a!true!distinct!cause!
Objective! of! a! party! in! entering! Persons! reason! for! wanting! to!
into!the!contract!
get!such!objective!
Always! the! same! for! both! Differs!with!each!person!!
parties!
Must! always! be! known! to! the! May!be!unknown!
other!contracting!party!
If!illegal,!then!contract!is!void!
Illegality! does! not! render! the!
contract!void!
!
GENERAL!RULE:!Motive!does!not!affect!the!validity!of!the!contract.!
!
EXCEPTIONS:!
1. When! the! motive! of! a! debtor! in! alienating! property! is! to!
defraud!his!creditors,!alienation!is!rescissible!!
2. When!the!motive!of!a!person!in!giving!his!consent!is!to!avoid!a!
threatened! injury,! in! case! of! intimidation! the! contract! is!
voidable.!
3. When!the!motive!of!a!person!induced!him!to!act!on!the!basis!of!
fraud! or! misrepresentation! by! the! other! party,! the! contract! is!
likewise!voidable.!!
!
3. DEFECTIVE!CAUSES!AND!THEIR!EFFECTS!
a. Absence% of% cause% and% unlawful% cause% "!

produces!no!effect!whatever%
!
Art.!1352.!Contracts!without!cause,!or!with!unlawful!cause,!produce%
no% effect% whatever.! The! cause! is! unlawful! if! it! is! contrary! to! law,!
morals,!good!customs,!public!order!or!public!policy.!
!
Case:!
!
LIGUEZ!v.!CA!
Facts:! Salvador! Lopez! instituted! a! deed! of! donation! in! favor! of!
Liguez,! who! was! only! 16! at! that! time.! CA! found! that! donation! was!
made!in!view!of!the!desire!of!Lopez,!a!man!of!mature!years,!to!have!
sexual!relations!with!Liguez.!Parents!of!Liguez!would!not!allow!Lopez!
to!live!with!her!unless!he!first!donated!the!land!in!question.!CA!held!
that!donation!was!tainted!with!illegal!cause!or!consideration!and!as!
such,!was!inoperative,!null,!and!void.!
!
Held:! There! was! no! finding! that! Liguez,! who! was! only! 16! at! that!
time,!was!fully!aware!of!the!terms!of!the!bargain!entered!into!by!her!
parents!and!Lopez.!As!the!donation!was!regular!on!its!face,!illegality!
is!not!presumed!but!must!be!duly!and!adequately!proved.!However,!
Lopez! could! not! donate! the! entire! subject! property! because! it! is!
conjugal! in! nature.! He! can! only! donate! part! of! it! insofar! as! it! does!
not!prejudice!the!wife.!Case!remanded!
!
!
!
!
!!!!!!!98!
!!!!
b. Statement%of%false%cause%in%the%contract% "!VOID!
if!there!is!no!other!true!and!lawful!cause%
!
4. PRESUMPTION! OF! THE! EXISTENCE! AND!
LAWFULNESS! OF! A! CAUSE,! THOUGH! IT! IS! NOT!
STATED!IN!THE!CONTRACT!
Art.! 1353.The! statement! of! a! false% cause! in! contracts! shall! render!
them!VOID,!if!it!should!not!be!proved!that!they!were!founded!upon!
another!cause!which!is!true!and!lawful.!
!
Art.!1354.!Although!the!cause!is!not%stated%in%the%contract,!it!is!
presumed%that%it%exists%and%is%lawful,!unless!the!debtor!proves!
the!contrary.!
c. Lesion% or% inadequacy% of% cause% "! VALID! unless!

fraud,!mistake!or!undue!influence!is!present%
!
Art.!1355.!Except!in!cases!specified!by!law,!lesion!or!inadequacy!of!
cause!shall!not%invalidate%a%contract,!UNLESS!there!has!been!fraud,,
mistake,or,undue,influence.!
!
LESION! is! the! injury! suffered! in! consequence! of! inequality! of!
situation,!by!one!party!who!does!not!receive!the!full!equivalent!
for!what!he!gives!in!a!commutative!contract.!
Gross!inadequacy!suggest!fraud!and!is!evidence!thereof!!
!
Cases:!
!
CARANTES!v.!CA!
Facts:!Petitioner!and!private!respondents!inherited!a!land!from!their!
father,!a!part!of!which!the!government!needed!to!build!an!airport.!
Herein! respondents! executed! a! Deed! of! Right! to! Assignment! of!
Inheritance! in! favor! of! petitioner,! with! monetary! consideration! of!
P1.!Petitioner!instituted!a!Deed!of!Sale!in!favor!of!government,!and!
subsequently,! a! certificate! of! title! was! issued! in! favor! of! the!
government!for!a!part!of!the!subject!land,!and!the!rest!was!named!
in!favor!of!petitioner.!Respondents!argued!that!deed!seek!to!declare!
the! deed! null! and! void,! and! reasoned! that! said! assignment! merely!
authorized! the! petitioner! to! convey! portions! in! their! behalf! to!
minimize!expenses!and!facilitate!the!transaction!
!
Held:!Deed!is!a!valid!contract.!The!sum!of!P1,!a!valid!consideration,!
appears! in! the! document! as! one! of! the! consideration.! In! addition,!
the! agreement! states! that! their! father! expressed! to! the! private!
respondents! that! the! property! exclusively! belonged! to! the!
petitioner.! This! expression! constitutes! valuable! consideration! !
satisfying!their!fathers!will.!
!
SPS.!BUENAVENTURA!et.!al.!v.!CA!
Facts:! Defendant?parents! executed! deeds! of! sale! in! favor! of! their!
children.!Petitioners,!who!are!also!heirs,!claim!that!the!deeds!of!sale!
are! null! and! void! for! being! simulated! since! the! properties! are! 3x!
more! valuable! that! the! sums! they! were! sold! for.! In! addition,! said!
children! did! not! actually! pay! the! prices! stipulated! in! the! Deeds! of!
Sale.! They! argued! that! the! sales! were! result! of! a! deliberate!
conspiracy!to!deprive!them!of!their!legitimes.!
!
Held:! Failure! to! pay! the! consideration! is! different! from! lack! of!
consideration.! The! former! results! in! a! right! to! demand! the!
fulfillment! or! cancellation! of! the! obligation! under! an! existing! valid!
contract!while!the!latter!prevents!the!existence!of!a!valid!contract.!
Petitioners! failed! to! show! that! the! prices! in! the! Deed! of! Sale! were!
absolutely! simulated,! magnified! by! their! lack! of! knowledge! of! their!
respondent! siblings! capacity! to! pay.! On! the! other! hand,! the! real!
price!was!stated!in!the!Deeds!of!Sale.!There!is!no!requirement!that!
the!price!be!equal!to!the!exact!value!of!the!subject!matter!of!sale!as!
long!as!all!parties!believe!that!they!received!the!commutative!value!
of!what!they!gave.!
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CHAPTER(3:(
FORM(OF(CONTRACTS(
Art.!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!that!it!may!be!valid!or!enforceable,!or!that!
a!contract!be!proved!in!a!certain!way,!that!requirement!is!absolute!
and! indispensable.! In! such! cases,! the! right! of! the! parties! stated! in!
the!following!article!cannot!be!exercised.!
A. General(Rule(
!
Contracts!shall!be!obligatory,!in!whatever,form!they!may!have!been!
entered! into,! provided! all! essential! requisites! for! their! validity! are!
present.!(Spiritual!system!of!the!Spanish!Code)!
B. Exception(
!
When!the!law!requires!that!a!contract!be!in!some!form!in!
order!that!it!may!be!VALID!or!ENFORCEABLE!!
(Anglo?American! principle! in! Statutes! of! Fraud)! "!
indispensable!and!absolute;!parties!!
Reason!for!exceptions:!To!avoid!litigation!as!oral!contracts!
frequently! lead! to! fraud! in! fulfilment! of! obligation! or! to!
false!testimonies!
!
2!Cases!When!and!Where!Form!is!Absolute!and!Indispensable:!
1. Form!is!essential!to!the!VALIDITY!of!the!contract!
2. Contracts!is!UNENFORCCEABLE!unless!in!a!certain!form!
C. Kinds(of(Formalities(Required(by(Law(
!
1. AD! ESENTIA,! AD! SOLEMNITATEM! " ! THOSE! REQUIRED! FOR!

THE!VALIDITY!OF! CONTRACTS,!SUCH! AS! THOSE! REFERRED! TO!
IN!(SIR!REFERS!TO!THESE!AS!FORMAL!CONTRACTS)!
!
Art!748!
Art!749!
Donation!of!movable:!
!
Value! greater! than! P5000, ",
donation, AND, acceptance, must, be,
written!
Value! equal! to! or! less! than! P5000,
", can, be, made, orally, with,
SIMULATEOUS,
delivery!
or!
document! representing! the! right!
donated!
!
Testation, ClausesM, signed, by, four,
signatories, (i.e., donor,, donee,, at, two,
witnesses)., Also, includes, how, many,
pages, is, the, will, and, testament,,
including,the,testation,clause.,
Donation!of!immovable:!
!
Regardless, of, value, must, be, in, public,
document., Include:, specification, of,
property,AND,value,of,charges!
Art!1874!
Sale!of!piece!of!land!through!an!agent:!
!
Authority, of, agent, must, be, in, writing.,
In, practice:, by, way, of, SPA, which, need,
not,be,notarized,
Art!2134!
Contract! of! antichresis;! amount! of!
principal!and!of!the!interest!!
,
Antichresis, , , , contract, by, which, a,
creditor, acquires, the, right, of, reaping,
the, fruit, or, other, revenues, of, the,
immovable, given, to, him, in, pledge,, on,
condition, of, deducting, their, proceeds,
from, the, interest, and, principal, of, his,
debt,
Art!1771!
Partnership;!when!immovable!property!
or!real!rights!are!contributed!",public,
document,necessary!
Art!1773!
Partnership;! inventory! of! immovable!
property!contributed!!
,
Inventory,must,be,signed,and,attached,
to,the,public,document,,
Art!1956!
Charging!of!interest!for!using!someone!
elses!money!(loan)!
,
No, interest, shall, be, due, unless, it, has,
been,expressly,stipulated,in,writing,
Art!2140!
Chattel!mortgage:!
!
Accessory,contracts,must,be,written,to,
secure, a, principal, obligation., Personal,
property, must, be, recorded, in, the,
Registry,of,Property,
Negotiable! Instruments! Parties! cannot! by! their! agreement!
Law!
impart! negotiability! to! an! instrument!
which! is! not! by! its! form! a! negotiable!
instrument,
Cattle!Regulation!Law!
No! sale! or! transfer! of! large! cattle! is!
valid! unless! it! is! registered! and! a!
certificate!of!transfer!is!secured!
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Cases:!
!
HERNAEZ!v.!DE!LOS!ANGELES!
Facts:!Petitioner!and!movie!actress,!Marlene!Dauden!Hernaez,!filed!
a! complaint! against! Hollywood! Far! East! Productions,! Inc.! and! its!
President! and! General! Manager,! Ramon! Valenzuela,! to! recover!
P14,700!representing!a!balance!allegedly!due!her!for!her!services!as!
leading! actress! in! two! motion! pictures! produced! by! said! company.!
Claim!was!not!evidenced!by!any!written!document,!either!public!or!
private!
!
Held:!Contract!valid!and!enforceable.!In!general,!contracts!are!valid!
and! binding! from! their! perfection! regardless! of! form! (Articles! 1315!
and!1356!CC).!There!are!only!two!exceptions!set!forth!in!the!second!
portion! of! Article! 1356.! The! contract! sued! upon! by! petitioner!
(compensation!for!services)!does!not!come!under!either!exception.!
Though! Art.! 1358! provides! that! contracts! where! amount! involved!
exceeds!P500!must!appear!in!writing,!same!article!does!NOT!provide!
that! absence! of! written! form! in! this! case! will! make! the! agreement!
invalid!or!unenforceable.!In,contractual,system,it,is,not,enough,that,
the,law,should,require,that,the,contract,be,in,writing.,The,law,must,
further,prescribe,that,without,the,writing,the,contract,is,void,or,not,
enforceable,by,action.!
!
2. THOSE!REQUIRED,!NOT!FOR!THE!VALIDITY,!BUT!TO!MAKE!THE!
CONTRACT!EFFECTIVE!AS!AGAINST!THIRD!PERSONS,!SUCH!AS!
THOSE!COVERED!BY:!
!
Art.!1357.!If!the!law!requires!a!document!or!other!special!form,!as!in!
the! acts! and! contracts! enumerated! in! the! following! article,! the!
contracting! 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.!
!
This! article! merely! recognizes! a! contracts! enforceability! by!

the!mere!fact!of!granting!the!contracting!parties!an!adequate!
remedy!whereby!to!compel!the!execution!of!a!public!writing!
or! any! other! special! form! when! such! is! required! so! that!
contract!may!produce!the!effect!which!is!desired!
Equivalent!to!an!implied!condition!
Since! defect! would! be! merely! formal:! party! who! executed!

the!document!may!be!compelled!to:!
o reform!it!
o execute! another! document! sufficient! to! carry! out! the!
intent!of!the!agreement!
Article! does! NOT! impose! an! obligation! but! a! privilege! on!

both!parties!
Though! this! article! does! not! operate! against! validity! of!

contracts! nor! acts! performed! voluntarily! by! the! parties! for!
the! fulfilment! thereof,! ONCE! INVOKED:! it! is! evident! that!
under! them! the! question! involving! the! execution! of! public!
instrument! must! precede! the! determination! of! other!
obligations!derived!from!the!contract.!!
!
Art.!1358.!The!following!must!appear!in!a!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!a!governed!by!Articles!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!
appear! in! a! public! document,! or! 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!Articles,!1403,!No.!2!and!
1405.!
!
Does!not!require!form!to!VALIDATE!the!act!but!to!insure!its!
EFFICACY!
Reduction! to! writing! NOT! an! essential! requisite! for!

EXISTENCE! of! the! contract! but! simply! a! COERCIVE! POWER!
granted! to! the! contracting! parties! by! which! they! can!
reciprocally! compel! the! observance! of! these! formal!
requisites!
Enumerated! contracts! are! therefore! VALID! even! when! not!

reduced!into!writing!
o There! are! contracts! which! requires! it! to! be! in! public!
instrument!or!registered!for!validity!
o There!are!those!which!needs!to!be!in!public!writing!and!
entered!in!the!registry!NOT!for!validity!but!for!making!it!
EFFECTIVE! against! third! persons! (e.g.! transfer! of!
ownership! of! immovable! property! to! third! person!
requires! contract! to! be! a! public! document.! Written!
memorandum! is! not! enough! as! that! only! indicates! sale!
of!property)!
!
Contracts!that!must!appear!in!a!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! a! governed! by! Art.! 1403,! No.! 2! (those! that! do!
not! comply! with! the! Statute! of! Frauds),! and! Art.! 1405! (when!
Art.!1403!No.!2!is!ratified);!!
Requirement! on! form! is! NOT! for! validity! of! the! contract!
but!for!transfer!
(2) The!cession,!repudiation!or!renunciation!of!hereditary!rights!or!
of!those!of!the!conjugal!partnership!of!gains;!!
a. Cession! ! an! assignment! (e.g.! of! hereditary! rights)! or!
selling!
b. Repudiation!!rejection!or!refusal!
c. Renunciation!!act!of!giving!up!a!right!
(3) The! power! to! administer! property,! or! any! other! power! which!
has!for!its!object!an!act!appearing!or!which!should!appear!in!a!
public!document,!or!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!Articles,!1403,!No.!2!and!1405.!
Origin,of,the,P500,amount,according,to,Prof.,Labitag:,The,
original, version, this, Statute, of, Fraud, with, a, long,
subparagraph, (which, you, are, bound, to, memorize), in, the,
English, law, states, 500, which, when, converted, to,
Philippine,peso,amounts,to,P500.!!
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3. AD! PROBATIONEM! " ! THOSE! REQUIRED! FOR! THE! PURPOSE!
OF! PROVING! THE! EXISTENCE! OF! THE! CONTRACT,! SUCH! AS!
THOSE!UNDER!THE!STATUTE!OF!FRAUDS!IN!ART!1403!
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CHAPTER(4:((
REFORMATION(OF(
INSTRUMENTS(
Q:!What!is!the!relation!of!the!statute!of!frauds!(Art.!1403)!
to!the!forms!of!contracts?!
A:!Sale!of!real!property!or!interest!in!real!property!requires!
it!to!be!in!writing!(via!the!statute!of!frauds;!Art.!1403,!Par.!
2![e]).!
Also,! to! make! the! contract,! it! must! comply! with! a! certain!
of!form!or!else!it!will!be!unenforceable.!
Art.! 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.!!
MEANING%
It! is! that! remedy! by! means! of! which! a! written! instrument! is!
amended! or! rectified! so! as! to! express! or! conform! to! the! real!
agreement! or! intention! of! the! parties! when! by! reason! of! mistake,!
fraud,! inequitable! conduct! or! accident,! the! instrument! fails! to!
express!such!agreement!or!intention.!
!
What! is! reformed! is! not! the! contract! itself,! but! the! instrument!
embodying!the!contract.,,!
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REASON%FOR%REFORMATION%OF%INSTRUMENTS%
Equity!dictates!the!reformation!of!instrument!in!order!that!the!
true!intention!of!the!contracting!parties!may!be!expressed.!!
It!is!unjust!and!unequitable!to!allow!the!enforcement!of!a!
written!instrument!which!does!not!re!
flect!or!disclose!the!real!meeting!of!the!minds!of!the!parties!
Court!do!not!attempt!to!make!a!new!contract!for!the!parties,!
but!only!to!make!the!instrument!express!their!real!agreement!
Statute!of!Frauds!is!no!impediment!to!the!reformation!of!an!
instrument!!
!
DISTINGUISHED%FROM%ANNULMENT%
!
REFORMATION!
ANNULMENT!
Action! presupposes! a! valid! No!meeting!of!the!minds!or!the!
existing! contract! between! the! consent! of! either! one! was!
parties!and!only!the!document!or! vitiated!by!mistake!or!fraud!!
instrument! which! was! drawn! up!
and! signed! by! them! does! not!
correctly! express! the! terms! of!
agreement!!
Gives! life! to! the! contract! upon! Involves!a!complete!nullification!
certain!corrections!
of!contracts!
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A. Requisites(
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1.
2.
3.
4.
5.
Meeting!of!the!minds!upon!the!contract!
The!true!intention!of!the!parties!is!not!expressed!in!the!
instrument!
The!failure!of!the!instrument!to!express!the!true!agreement!is!
due!to!mistake,!fraud,!inequitable!conduct!or!accident!
The!facts!upon!which!relief!by!way!of!reformation!of!the!
instrument!is!sought!are!put!in!issue!by!the!pleadings;!and!
There!is!clear!and!convincing!evidence!(which!is!more!than!
mere!preponderance!of!evidence)!of!the!mistake,!fraud,!
inequitable!conduct!or!accident.!!
!
Note:!Tolentinos!book!only!mentions!the!first!three!requisites.!
Paras!annotations!state!all!five.!!
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ADMISSIBILITY%OF%PAROL%EVIDENCE%TO%SHOW%TRUE%INTENT%
GENERAL! RULE:! The!Court!may!NOT!allow!the!introduction!of!parol!
evidence!to!show!the!real!agreement!of!the!parties.!Whatever!is!not!
found! in! the! text! of! the! agreement! should! thus! be! construed! as!
excluded,!waived!or!abandoned.%,
!
BUT,!a!party!may!present!evidence!to!modify,!explain!or!add!to!the!
terms!of!the!written!agreement!if!he!puts!in!issue!in!his!pleading:!
1. An! intrinsic! ambiguity,! mistake! or! imperfection! in! the!
written!agreement;!
2. The! failure! of! the! written! agreement! to! express! the! true!
intent!and!agreement!of!the!parties!thereto;!
3. The!validity!of!the!written!agreement;!or!
4. The! existence! of! other! terms! agreed! to! by! the! parties! or!
their! successors! in! interest! after! the! execution! of! the!
written!agreement!(agreement!includes!wills)!
*The! mistake! contemplated! as! an! exception! to! the! parol! evidence!
rule!is!one!which!is!a!mistake!mutual!to!the!parties.!!
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INEQUITABLE%CONDUCT%
Inequitable! conduct,! to! warrant! relief! by! way! of! reformation,! has!
been!held!to!consist!in!doing!acts,!or!omitting!to!do!acts,!which!the!
court!finds!to!be!unconscionable.!Examples:!
1. Taking!advantage!by!one!party!of!the!others!illiteracy.!
2. Abusing!confidence.!
3. Concealing!what!of!right!should!have!been!disclosed.!
!
CAUSES%FOR%REFORMATION%%
!
a. Mutual%!instrument!includes!something!which!should!not!be!
there!or!omit!what!should!be!there%
a. Mutual!!
b. Mistake!of!fact!
c. Clear!and!convincing!proof!
d. Causes!failure!of!instrument!to!express!true!intention!
b. Unilateral%%
a.
b.
c.
d.
One!party!was!mistaken!
Other!either!acted!fraudulently!or!inequitably!or!knew!but!
concealed!
c. Party!in!good!faith!may!ask!for!reformation!
Mistake%by%3rd%persons%!due!to!ignorance,!lack!of!skill,!
negligence,!bad!faith!of!drafter,!clerk!or!typist%
Others%specified%by%law%!to!avoid!frustration!of!true!
intent!%
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EXAMPLE%OF%CASES%WHERE%REFORMATION%IS%ALLOWED%
1. Art! 1361! When! a! mutual! mistake! of! the! parties! causes! the!
failure!of!the!instrument!to!disclose!their!real!agreement,!said!
instrument!may!be!reformed.!!
2. Art!1363!When!one!party!was!mistaken!and!the!other!knew!or!
believed! that! the! instrument! did! not! state! their! real!
agreement,! but! concealed! that! fact! from! the! former,! the!
instrument!may!be!reformed.!!!
3. Art!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.!
!
Mutual!mistake!as!basis!for!reformation:!requisites!
1. The!mistake!must!be!of!fact,!for!if!it!is!one!of!law,!the!remedy!is!
annulment.!
2. Such!mistake!must!be!proved!by!clear!and!convincing!evidence;!
3. The!mistake!must!be!mutual,!that!is,!common!to!both!parties!to!
the!instrument;!and!
4. The!mistake!must!cause!the!failure!of!the!instrument!to!express!
their!true!intention.!!
!
Cases:!!
!
GARCIA!v.!BISAYA!
Facts:! Bisaya! executed! a! deed! of! sale! covering! a! parcel! of! land! in!
favor! of! Garcia.! The! land! was! erroneously! designated! as! an!
unregistered!land!when!in!fact!it!is!a!portion!of!a!big!mass!of!land!
registered! under! Sandoval! (third! person! not! interested! in! the!
agreement).!Both!parties!regard!the!present!action!as!an!action!for!
reformation,! the! object! sought! being! the! correction! of! the! mistake!
in!the!Deed!covering!the!land.!!
!
Held:!The!complaint!has!no!cause!of!action!because!it!fails!to!allege!
that! the! instrument! to! be! reformed! does! not! express! the! real!
agreement! or! intention! of! the! parties.! The! proper! remedy! is!
annulment!of!contract!since!it!appears!that!Garcia!has!been!led!to!
enter!into!a!Deed!through!fraud!or!misrepresentation.!!
!
BENTIR!v.!LEANDE!
Respondent!entered!into!a!contract!of!lease!of!a!parcel!of!land!with!
Bentir! for! a! period! of! 20! years! starting! May,! 1968.! The! lease! was!
extended! for! another! 4! years! (until! May! 1992).! But! on! May! 1989,!
Bentir! sold! the! leased! premises! to! the! Spouses! Pormada.!
Respondent! questioned! the! sale! alleging! that! it! had! a! right! of! first!
refusal! since! its! lawyer! omitted! to! incorporate! in! the! contract! the!
verbal! agreement! between! the! parties! that! in! the! event! petitioner!
leases! or! sells! the! lot! after! the! expiration! of! the! lease,! respondent!
corporation!has!the!right!to!equal!the!highest!offer.!!
!
Held:!Reformation!is!barred!by!prescription.!Prescription!is!intended!
to!suppress!stale!and!fraudulent!claims!arising!from!transactions!like!
this!case!which!facts!had!become!so!obscure!from!the!lapse!of!time!
or!defective!memory.!!
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B. Cases(where(no(reformation(is(allowed(
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1.
2.
Oral!contracts!!theres!nothing!to!reform!at!all!!
Art!1366!
!
Art.!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.!
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SIMPLE%DONATIONS%INTER%VIVOS%WHEREIN%NO%CONDITION%IS!IMPOSED%
Donation! is! an! act! of! liberality! whereby! a! person! disposes!

gratuitously!of!a!thing!or!right!in!favor!of!another!who!accepts!
it.!
If! in! the! deed! of! donation,! a! mistake! or! defect! has! been!
committed,!it!is!a!mere!failure!in!a!bounty!which,!as!the!donor!
was!not!bound!to!make,!he!is!not!bound!to!correct.!The!donor!
may!ask!for!the!reformation!of!a!deed!of!donation.!!
If! donation! is! conditional! or! is! onerous,! the! deed! may! be!
reformed!so!that!the!true!conditions!imposed!by!the!donor!or!
the!real!intention!of!the!parties!might!be!expressed.!!
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WILLS%
An! act! whereby! a! person! is! permitted! with! the! formalities!

prescribed!by!law!to!control!to!a!certain!degree!the!disposition!
of!his!estate,!to!take!effect!after!his!death.!!
Strictly! personal;! a! free! act! which! cannot! be! left! to! the!
discretion!of!a!third!person.!!
May!be!revoked!by!the!testator!any!time!before!his!death!and!
this!right!is!not!subject!to!waiver!or!restriction.!
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WHEN%THE%REAL%AGREEMENT%IS%VOID%
IF! the! real! agreement! is! void,! there! is! nothing! to! reform.!
Reformation! would! be! useless! because! the! real! agreement!
being!void!is!unenforceable.!!
!
C. Implied(ratification(
!
Art!1367.!When!one!of!the!parties!has!brought!an!action!to!enforce!
the!instrument,!he!cannot!subsequently!ask!for!its!reformation.!
!
Based!on!estoppel!(Art.!1431)!or!ratification!(Arts.!1392,!
1396)!
When!a!party!brings!an!action!to!enforce!the!contract,!he!
admits!its!validity!and!that!it!expresses!the!true!intention!of!
the!parties.!
There!has!been!election!between!two!inconsistent!remedies,!
one!in!affirmance,!the!other!in!disaffirmance!
D. Who(may(ask(for(reformation((
!
MUTUAL!MISTAKE:!either!party!or!successor!in!interest!
MISTAKE!BY!ONE:!injured!party,!heirs!or!assigns!
!
!
Art.! 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.!
!
Art.! 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.!
E. Procedure(of(reformation((
!
Art.!1369.!The!procedure!for!the!reformation!of!instrument!shall!be!
governed!by!ROC!to!be!promulgated!by!the!Supreme!Court.!
!
GENERAL! RULE:! All! persons! interested! in! the! subject! matter! of!
litigation,! whether! it! is! a! legal! or! an! equitable! interest! should! be!
made! parties! in! suits! to! reform! written! instruments,! so! that! the!
court! may! settle! all! their! rights! at! once,! and! thus! prevent! the!
necessity!of!multiplicity!of!suits.!!
!
Cases:!
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ATILANO!v.!ATILANO!
Facts:! Eulogio! Atilano! I! subdivided! his! land! into! five! parcels! (Lots!
535?A! to! 535?E).! He! sold! one! parcel! (No.! 535?E),! to! his! brother!
Eulogio!Atilano!II.!Other!lots!were!sold!to!other!people,!while!Atilano!
I! kept! the! remaning! portion! of! land,! presumably! No.! 535?A! for!
himself.! He! passed! this! to! Ladislao! Atilano! after! Eulogio! I! passed!
away.! Later,! Atilano! II! wanted! to! partition! the! land.! The! land! was!
resurveyed! and! they! found! out! that! Atilano! IIs! land! was! actually!
535?E!and!not!535?A.!(The!titles!on!the!Deeds!were!mixed!up).!The!
issue!is!whether!Atilano!II!is!entitled!to!the!REAL!Lot!535?E!(as!stated!
in! the! Deed),! or! to! 535?A,! the! land! he! has! been! in! possession! the!
whole!time.!
!
Held:!Atilano!II!is!entitled!to!Lot!535?A!since!the!land!has!been!in!his!
possession! the! whole! time.! The! Court! used! the! real! intent! of! the!
parties!at!the!time!of!the!sale!as!basis.!When!one!sells!or!buys!real!
property,! one! sells! or! buys! the! property! as! he! sees! it,! in! its! actual!
setting!and!by!its!physical!metes!and!bounds,!and!not!by!the!mere!
lot!number!assigned!to!it!in!the!certificate!of!title.!
!
!
CARANTES!v.!CA!
Facts:!Lot!No.!44!was!owned!by!the!deceased!Mateo!Carantes.!The!
Government! instituted! proceedings! for! expropriations! since! a!
portion! of! it! was! needed! as! landing! field! of! the! Loakan! Airport.!
Petitioner!Maximino!Carantes!(son!of!Mateo)!was!appointed!judicial!
administrator.! He! filed! a! project! of! partition! and! the! government!
purchased! two! lots.! A! deed! entitled! Assignment! of! Right! to!
Inheritance! was! executed! by! four! of! Mateos! chidren.! It! assigned!
their! rights! to! their! inheritance! to! Maximino! for! P1.00! and! also!
contained!a!recital!that!private!respondents!have!ceded!their!rights!
to!inherit!the!remaining!lots!to!Maximino,!saying!that!is!with!respect!
to!Mateo!having!verbally!conveyed!the!lots!to!Maximino!alone.!
!
!
!!!!!!!104!
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Held:! There! was! proper! consideration,! and! the! agreement! was! not!
void! ab! initio.! Only! the! total! absence! of! cause! or! consideration!
renders! a! contract! void.! They! discovered! the! fraud! in! 1940,! but! it!
was! only! after! 18! years! that! they! filed! a! complaint! thus! the! action!
has!already!prescribed.!!!
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CHAPTER(5:((
INTERPRETATION(OF(
CONTRACTS(
A. Primacy(of(Intention(
Art.! 1370.! If! the! terms! of! a! contract! and! leave! no! doubt! upon!
the!intention!of!the!contracting!parties,!the!literal!meaning!of!its!
stipulations!shall!control.!
!!!!!If!the!words!appear!to!be!contrary!to!the!evident!intention!of!
the!parties,!the!latter!shall!prevail!over!the!former.!
Verba,intentione,non,e,contradebent,inservare!?!words!ought!
to!be!subservient!to!the!intent,!not!the!intent!to!the!word!
Look!for!the!contractual!intent!
A! contract! is! what! the! law! defines! it! to! be,! and! not! what! it! is!
called!by!the!contracting!parties.!!
Title!does!not!necessarily!determine!a!contracts!nature.!
GENERAL!V.!PARTICULAR!PROVISIONS!
!
Art.! 1372.! However! general! the! terms! of! a! contract! may! be,! they!
shall!not!be!understood!to!comprehend!things!that!are!distinct!and!
cases! that! are! different! from! those! upon! which! the! parties!
intended!to!agree.!!
!
Generalia,verba,suntgeneraliter,intelligencia!"!general!
things!are!to!understood!in!a!general!sense!
A!particular!intent!will!control!a!general!one!that!is!
inconsistent!with!it.!
!
Cases:!!
!
BORROMEO!v.!CA!!
Facts:! Defendant! Jose! A.! Villamor! was! a! distributor! of! lumber!
belonging! to! Mr.! Miller,! the! agent! of! the! Insular! Lumber! Company.!
Villlamor!owed!large!amount!of!money!to!Mr.!Miller!so!he!borrowed!
from!his!former!classmate,!and!petitioner,!Canuto!O.!Borromeo.!To!
pay!his!debt,!Villamor!signed!a!promissory!note!in!favor!of!Borromeo!
on!Nov.!29,!1933!w/!interest!at!the!rate!of!12%!per!annum,!agreeing!
to! pay! as! soon! as! I! have! money.! The! note! stipulates! that!
defendant!waives!his!rights!to!the!prescriptions!as!stipulated!in!the!
Code!of!Civil!Procedure!for!the!collection!or!recovery!of!the!money!
at! any! time,! even! after! the! lapse! of! ten! years! from! the! date! of!
execution!of!the!note.!
!
Held:! Stipulation! renouncing! future! prescription! is! valid.! In!
interpretation!of!contracts,!while!ordinarily,!the!literal!sense!of!the!
words!employed!should!be!followed,!this!is!not!the!case!when!they!
appear! to! be! contrary! to! the! evident! intention! of! the! contracting!
parties.!The!intention!shall!prevail.Nothing!implausible!in!the!debtor!
renouncing! his! rights! to! the! prescription! because! in! this! case! the!
creditor!trusted!the!debtor!to!pay!even!after!the!termination!of!the!
ten!year!prescriptive!period.!
!
!!!!!!!105!
!!!!
KASILAG!v.!RODRIGUEZ!
Facts:!Ambrosio!mortgaged!the!improvements!on!her!land!to!Kasilag!
for!P1000.!A!year!later,!Ambrosio!was!unable!to!pay!the!interest!and!
the! tax! on! the! land! and! its! improvements! thats! why! she! entered!
into!a!verbal!contract!with!Kasilag!where!she!conveyed!to!the!latter!
the! possession! of! the! land! on! condition! that! he! will! not! collect!
interest! on! the! loan! and! would! attend! to! the! payment! of! the! land,!
among! others.! Ambrosios! heirs! filed! a! case! for! recovery! of!
possession! of! the! land! and! its! improvements.! CA! held! that! the!
contract!was!that!of!absolute!purchase!and!sale!of!the!land!and!its!
improvements,! and! that! the! heirs! of! Ambrosio! were! the! owners! of!
the!land!and!its!improvements.!
!
Held:! It! was! not! a! contract! of! absolute! purchase! and! sale.! The!
cardinal! rule! in! the! interpretation! of! contracts! is! to! the! effect! that!
the! intention! of! the! contracting! parties! should! always! prevail!
because! their! will! has! the! force! of! law! between! them.! The! words!
used! by! the! contracting! parties! in! the! contract! clearly! show! that!
they! intended! to! enter! into! the! principal! contract! of! loan! in! the!
amount!of!P1,000,!with!interest!at!12!per!cent!per!annum,!and!into!
the! accessory! contract! of! mortgage! of! the! improvements! on! the!
land!acquired!as!homestead.!
3. WHEN!IT!CONTAINS!WORDS!THAT!HAVE!DIFFERENT!
SIGNIFICATIONS!
!
Art.! 1375.! Words! which! may! have! different! significations! shall! be!
understood! in! that! which! is! most% in% keeping% with% the% nature% and%
object%of%the%contract.!
!
!
4. WHEN!IT!CONTAINS!AMBIGUITIES!AND!OMISSION!OF!
STIPULATIONS!
!
Art.! 1376.! The! usage% or% custom% of% the% place! shall! be! borne! in!
mind!in!the!interpretation!of!the!ambiguities!of!a!contract,!and!
shall! fill! the! omission! of! stipulations! which! are! ordinarily!
established.!
!
Contemporaneous! interpretation! ! social! milieu! at! the! time!
the!contract!was!executed!
Contemporaneous!construction!!two!parties!interpret!based!
on!their!understanding!
!
5. WITH!RESPECT!TO!THE!PARTY!WHO!CAUSED!THE!
B. How(to(Determine(Intention(
Art.! 1371.! In! order! to! judge! the! intention! of! the! contracting!
parties,! their! contemporaneous! and! subsequent! acts! shall! be!
principally!considered.!
!
Also!take!note!of!the!usage!and!customs!of!the!place!
In!ascertaining!the!intention:!look!at!the!words!parties!used!
If!there!is!ambiguity!in!the!meaning,!take!into!consideration:!
o Relationship!existing!between!parties!
o Respective!situations!
o Surrounding!circumstances!
o Purpose!and!tenor!of!whole!contract!
OBSCURITY!!
Art.!1377.!The!interpretation!of!obscure!words!or!stipulations!in!
a!contract!shall%not%favor%the%party%who%caused%the%obscurity.!
!
C. How(to(Interpret(a(Contract(
!
1. WHEN!IT!CONTAINS!STIPULATIONS!THAT!ADMIT!OF!
SEVERAL!MEANINGS!!
Consider!purpose!of!the!contract!
Contracts,of,adhesion!
o Already! printed! form! containing! the! stipulations! of! the!
agreement! and! one! party! merely! takes! it! or! leave! it.!
Imposition! of! the! former! curtails! the! bargaining! power!
of!the!latter.,
o Resolved! against! the! party! who! prepared! the! contract!
and!in!favor!of!the!one!who!merely!adhered!to!it.!,
!
6. WHEN!IT!IS!ABSOLUTELY!IMPOSSIBLE!TO!SETTLE!DOUBTS!
BY!THE!RULES!ABOVE!!
Validity!favored!
!
Art.! 1373.! If! some! stipulation! of! any! contract! should! admit! of!
several!meanings,!it!shall!be!understood!as!bearing!that!import!
which!is!most!adequate!to!render%it%effectual.!
!
2.
!
WHEN!IT!CONTAINS!VARIOUS!STIPULATIONS,!SOME!OF!
WHICH!ARE!DOUBTFUL!
Contract!to!be!taken!as!a!whole!!
Art.!1378,!Par!1:!When!it!is!absolutely!impossible!to!settle!doubts!
by! the! rules! established! in! the! preceding! articles,! and! the! doubts!
refer!to!incidental!circumstancesof!a!gratuitous!contract,!the!least!
transmission! of! rights! and! interests! shall! prevail.! If! the! contract! is!
onerous,! the! doubt! shall! be! settled! in! favor! of! the! greatest!
reciprocity!of!interests.!
!
In! gratuitous! contracts,! incidental! circumstances! "! least!
transmission!of!rights!and!interests!
In!onerous!contracts!"!greatest!reciprocity!of!interests!
!
7. WHEN!THE!DOUBTS!ARE!CAST!UPON!THE!PRINCIPAL!
Art.!1374.!The!various!stipulations!of!a!contract!shall!be!interpreted!
together,!attributing!to!the!doubtful!ones!that!sense!which!may!
result,from,all,of,them,taken,jointly.!
OBJECTS!SO!THAT!THE!INTENTION!CANNOT!BE!KNOWN!!
Null!and!void!
!
Titles! in! contracts! are! mere! divisions.! Contract! is! to! be!
interpreted!as!a!whole!(holistic!interpretation)!"!harmonize.!
!!!!!!!106!
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Art.!1378,!Par.!2.!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.!
Exception! to! the! in, pari, delicto, rule! (see! Art.! 1411! ! Art.!
1412)!
!
Two!kinds!of!interpretation:!
1. Strict!!doubts!refer!to!essential!requisites.!Contract!will!be!
inexistent!if!one!or!some!essential!requisite!is!absent!either!in!
fact!and!in!law!
2. Liberal!!Art.!1378!(doubts!refer!to!incidental!circumstances)!
a. In!gratuitous!contracts!since!other!!party!did!not!part!
with!something!"!least!transmission!of!right!favored!
b. In!onerous!contacts!!greatest!reciprocity!of!interest!
favored!
NOTE:! All! ways! of! interpretation! stated! above! also! applies! to!
interpreting!LEGISLATIVE!INTENT!
Exception:!Numbers!5!and!6!
!
Art.!1379.!The!principles!of!interpretation!stated!in!Rule!123!of!the!
Rules! of! Court! shall! likewise! be! observed! in! the! construction! of!
contracts.!
D. Applicability(of(Rule(123,(Rules(of(Court((
!
Law!in!evidence;!interpretation!of!documents!
Partly! written! contract! ! In! case! of! inconsistencies,! the!
partly! written! form! will! prevails! over! the! partly! printed!
form!
Natural!right!!Interpretation!favoring!a!natural!right!(e.g.!
right!to!redeem)!prevails!over!one!against!it.!
!
In! between! VALID! and! DEFECTIVE! contracts! is! RELATIVELY!
INEFFECTIVE!!ineffectively!only!with!respect!to!certain!parties,!but!
are!effective!as!to!other!persons.!!
!
Against!voidable!contract:!ineffectiveness!is!produced!ipso!
jure!
Void! or! inexistent! contract:! can! be! made! completely!

effective! by! the! consent! of! the! person! as! to! whom! it! is!
effective! or! by! the! cessation! of! the! impediment! which!
prevents!its!complete!ineffectiveness!
!
(1)
Assignment! of! the! lease! by! the! lessee! without! the!
consent! of! the! lessor! is! ineffective! only! as! regards! the!
lessor!!
(2)
Transfer!of!a!debt!by!the!debtor!to!another,!without!the!
consent!of!the!creditor!is!ineffective!as!to!the!creditor,!!
(3)
The!payment!by!a!debtor!to!his!creditor!after!the!credit!
has! been! garnished! or! attached! by! a! third! person! is!
ineffective!to!the!latter!
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DEFECTIVE(CONTRACTS(
1.
2.
3.
4.
RESCISSIBLE! ! contract! that! has! caused! a! particular!

damage! to! one! of! the! parties! or! to! a! third! person! and!
which! for! EQUITABLE! REASONS! may! be! set! aside! even! if!
valid!
VOIDABLE! OR! ANNULLABLE! (contrato% nulo)! ! contract! in!
which! CONSENT! of! one! of! the! parties! is! defective,! either!
because!of!WANT!OF!CAPACITY!or!because!it!is!VITIATED!,!
but!which!contract!is!VALID!until!JUDICIALLY!set!aside!!
UNENFORCEABLE! ! contract! that! for! some! reason!
CANNOT! BE! ENFORCED,! UNLESS! RATIFIED! in! the! manner!
PROVIDED!BY!LAW!
VOID! AND! NON[EXISTENT! (contrato% inexistente)! !
contract!which!is!an!ABSOLUTE!NULLITY!and!produces!NO!
EFFECT,!as!if!it!had!never!been!executed!or!entered!into!
!
CHAPTER(6:((
RESCISSIBLE(CONTRACTS(
Rescissible! Contracts! are! those! validly! agreed! upon! because! all!
essential! elements! exist,! and,! therefore,! legally! effective! but! in! the!
cases!established!by!law,!the!remedy!of!rescission!is!granted!in!the!
interest!of!equity!
A. Kinds(
!
Art.!!1381.!The!following!contracts!are!rescissible:!!
(1)
Those! which! are! entered! into! by! 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!
rescission.!
!
KINDS!OF!RESCISSIBLE!CONTRACTS:!
1. Entered! into! by! guardians! whenever! the! wards! suffer! lesion!
by!more!than!!of!value!of!things!object!
Before!guardian!may!dispose!of!property!of!ward,!he!must!
first! secure! approval! of! guardianship! court! (in! cases! of!
sale,!mortgage,!or!other!encumbrance)!
If! there! is! no! approval,! contract! is! unenforceable,!

irrespective!of!whether!there!is!lesion!or!not.!They!are!not!
rescissible!
What! is! contemplated! in! this! article! are! contracts! which!

constitute! mere! acts! of! administration,! and! not! of!
ownership!
!!!!!!!107!
!!!!
If!there!is!approval,!contract!cannot!be!rescinded,!even!if!
there!is!lesion!
Sir!Labitag:!thin!band!of!contracts!
Contracts!with!Lesion!(Pars.!1!&2)!
o Lesion! ! injury! which! one! of! the! parties! suffers! by!
virtue!of!a!contract!which!is!disadvantageous!for!him!
o To! give! rise! to! rescission,! lesion! must! be! known! or!
could! have! been! known! at! the! time! of! making! the!
contract,! and! not! due! to! circumstances! subsequent!
thereto!or!unknown!to!the!parties!
o The! idea! is! to! establish! parity! between! the! value! of!
the!thing!and!its!price,!so!that!if!the!price!is!less!than!
the!true!value!of!the!thing!at!the!time!of!perfection!of!
the!contract,!there!is!lesion!
o Rescission! cannot! take! place! if! the! contracts! have!
been!approved!by!the!court!
o GENERAL! RULE:! lesion! does! not! invalidate! a! contract!
except! only! in! special! cases! provided! by! law! (Art.!
1355)!
!
2. Agreed! upon! in! representation! of! absentee,! suffer! lesion! by!
more!than!!of!the!value!of!things!object!!
Same!principle!in!relation!to!contracts!by!guardians!!
!
3. In!fraud%of%creditors!who!cannot!collect!claims!due!them!
Those! executed! with! intention! to! prejudice! rights! of!

creditors;!should!not!be!confused!with!those!entered!into!
without! such! intention,! even! if! some! particular! damage!
may!be!caused!to!a!creditor!!
Existence! of! intention! determined! either! by! presumption!

established!by!Art.!1387!or!by!proofs!presented!in!trial!
Fraud! that! justifies! AP! is! not! only! characterized! by! the!
intention!to!injure!the!creditor,!but!by!the!knowledge!that!
damage!would!be!inflicted;!knowledge!exists!when!debtor!
knows! that! his! property! cannot! be! alienated! without!
producing!evident!injury!to!his!creditors!
o Gratuitous! alienations! ! simple! knowledge! by! the!
debtor!that!his!act!would!cause!injury!to!his!creditors!
is!enough!
o Onerous!alienations!!necessary!that!he!be!motivated!
by!an!intention!to!prejudice!them!
Remedy!of!rescission!may!be!availed!of!by!a!third!person!
Accion!Pauliana!distinguished!from!Simulation:!
!
Accion!Pauliana!
Simulation!
There! is! a! real! alienation,! but! is! No! alienation! ,! but! a! mere!
fraudulent!
pretense!
Can!be!alleged!only!by!creditors! Can! be! alleged! by! all! creditors,!
prior!to!the!act!
before!or!after!simulation!
Impossibility!
of!
satisfying! Not!required!
plaintiffs!claim!is!required!
Action! to! set! aside! a! valid! Does! not! seek! to! set! aside! the!
contract!
simulated! contract,! but! merely!
to!declare!its!inexistence!
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REQUISITES!FOR!ACCION!PAULIANA:%
1. Plaintiff!asking!for!rescission!has!a!credit!prior!to!the!alienation,!
although!demandable!later.%
2. Debtor! has! made! a! subsequent! contract! conveying! a!
patrimonial!benefit!to!a!third!person%
3. Creditor! has! no! other! legal! remedy! to! satisfy! his! claim,! but!
would!benefit!by!the!rescission!of!the!conveyance!to!the!third!
person%
4. Act!being!impugned!is!fraudulent%
5. Third! person! who! received! the! property! conveyed,! if! by!
onerous!title,!has!been!an!accomplice!in!the!fraud%
Credit! must! be! existing! at! the! time, of, the, fraudulent,
alienation,!although!not!yet!due.!But!at!the!time!of!accion,
pauliana,! the! credit! must! already! be! due! because! it!
presupposes%a%judgment!and!unsatisfied%execution!which!
cannot! exist! when! the! debt! is! not! yet! demandable! at! the!
time!the!rescissory!action!is!brought.!!
GENERAL!RULE:!Credit!is!prior!to!the!alienation!!
EXCEPTION:!Credit!is!after!alienation!but!entitled!to!accion,
pauliana!!
o When! debtor! purposely! and! in! bad! faith! deprives!
himself! of! the! ability! to! meet! the! consequences! of!
obligations! he! intends! to! incur! in! the! future;!
alienation! made! precisely! in! view! of! such! future!
obligation!
o When! a! party! appears! to! have! become! a! creditor!
after! the! alienation,! but! who! may! be! considered! as!
having!a!prior!right!
!
Claims! were! acknowledged! by! the! debtor! after!
alienation,! but! origin! of! which! antedated! the!
alienation!!
!
Those! who! become! subrogated,! after! the!
alienation,! in! the! rights! of! a! creditor! whose!
credits!were!prior!to!the!alienation!!
Even!secured!creditors!are!entitled!to!AP,!so!long!as!their!
credit! existed! prior! to! alienation! and! they! are! prejudiced!
thereby!
TEST!OF!FRAUD:!Whether!the!conveyance!was!a!bona!fide!
transaction! or! a! trick! and! contrivance! to! defeat! creditors!
or! whether! it! conserves! to! the! debtor! a! special! right;!
founded!on!good!consideration!or!is!made!with!bona!fide!
intent.!"!Does!it!prejudice!the!right!of!creditors??!
It!is!not!sufficient!that!it!is!founded!on!good!consideration,!
or! is! made! with! bona! fide! intent;! it! must! have! both!
elements!
No!fraudulent!alienation!in!a!sale!made!by!a!debtor!to!one!
of! his! creditors,! for! the! purpose! of! cancelling! his!
indebtedness,! even! if! it! may! be! prejudicial! to! other!
creditors!
Badges!of!fraud!applicable!!
Date,of,judgment,and,unsatisfied,execution,is,immaterial;,
even, if, it, be, subsequent, to, alienation,, it, is, merely,
declaratory,,with,retroactive,effect,to,the,date,when,credit,
was,constituted.%
QuasiMdelict, , act, or, omission, giving, rise, to, liability, to,

indemnify,must,be,prior,to,the,alienation,,even,if,judgment,
declaring,it,be,rendered,afterwards%
!
Things! under% litigation,! without! knowledge! and! approval! of!
plaintiff!or!of!competent!judicial!authority!
To! secure! payment! of! an! existing! credit! of! a! third! person!
against!a!party!to!a!contract!sought!to!be!rescinded!
4.
!!!!!!!108!
!!!!
To! make! effective! the! claim! a! party! litigant! over! a! thing!

under! litigation! which! is! the! object! of! a! contract! entered!
into!by!the!other!party!with!another!person!
In!the!rescission!of!a!contract!on!things!in!litigation,!a!real!
right! is! rendered! effective! with! respect! to! particular!
property!
Plaintiff! may! protect! his! right! by! filing! a! notice! of! lis,
pendens,(real!property),!or!by!petitioning!to!the!court!for!
the! issuance! of! an! order! of! attachment! (personal!
property),! or! the! appointment! of! a! receiver! to! place! the!
property!in!custodia,legis,
Transferee! of! property! in! good! faith! who! acquires!

property!for!valuable!consideration,!without!knowledge!of!
the! litigation! or! claim! of! the! plaintiff,! cannot! be! deprived!
of!property.!!
Sale! of! thing! under! litigation! is! rescissible! at! the! instance!
of!plaintiff!in!case!he!wins!in!his!suit,!unless!the!transferee!
is!in!legal!possession!in!good!faith!
!
5. Specially%declared%by%law!to!be!subject!of!rescission!!
Examples:!
Art.! 1098.! A! partition,! judicial! or! extra?judicial,! may! also! be!
rescinded! on! account! of! lesion,! when! any! one! of! the! co?heirs!
received!things!whose!value!is!less,!by!at!least!one?fourth,!than!the!
share!to!which!he!is!entitled,!considering!the!value!of!the!things!!
C. Rescission(
!
Art.! 1470.! Gross! inadequacy! of! price! does! not! affect! a! contract! of!
sale,! except! as! it! may! indicate! a! defect! in! the! consent,! or! that! the!
parties!really!intended!a!donation!or!some!other!act!or!contract!at!
the!time!they!were!adjudicated.!
!
Art.! 1659.! If! the! lessor! or! the! lessee! should! not! comply! with! the!
obligations! set! forth! in! articles! 1654! and! 1657,! the! aggrieved! party!
may! ask! for! the! rescission! of! the! contract! and! indemnification! for!
damages,!or!only!the!latter,!allowing!the!contract!to!remain!in!force.!!
Art.! 1191.! The! power! to! rescind! obligations! is! implied! in! reciprocal!
ones,! in! case! one! of! the! obligors! should! not! comply! with! what! is!
incumbent!upon!him.!!
!
The! injured! party! may! choose! between! the! fulfillment! and! the!
rescission!of!the!obligation,!with!the!payment!of!damages!in!either!
case.! He! may! also! seek! rescission,! even! after! he! has! chosen!
fulfillment,!if!the!latter!should!become!impossible.!!
!
The! court! shall! decree! the! rescission! claimed,! unless! there! be! just!
cause!authorizing!the!fixing!of!a!period.!!
!
This! is! understood! to! be! without! prejudice! to! the! rights! of! third!
persons! who! have! acquired! the! thing,! in! accordance! with! articles!
1385!and!1388!and!the!Mortgage!Law.!
!
Rescission!(Art.!1380)!distinguished!from!Resolution!(Art.!1191):!
!
!
Art.!1191!Resolution!
Art.!1380!Rescission!
!
Similarities! 1. Presuppose!contracts!validly!entered!into!and!
existing!!
Rescission!v.!Annulment:!the!latter!there!is!
a!defect!which!vitiates/invalidates!the!
contract!!
2. Require!mutual!restitution!when!declared!
proper!
Who!may!
Only!by!a!party!to!the! Party! to! the! contract!
demand!
contract!
suffering!lesion!
Third! parties! prejudiced! by!
the!contract!
Grounds!
Non?performance! or! Various! reasons! of! equity!
breach! of! contract! provided!as!grounds,!mainly!
(implied!
tacit! economic!injury!or!lesions!
condition!
in!
reciprocal!obligation)!!
Scope!of!
May!be!denied!by!the! Sufficiency! of! reason! does!
B. Characteristics(
!
1. THEIR!DEFECT!CONSIST!IN!INJURY!OR!DAMAGE!EITHER!TO!
ONE!OF!THE!CONTRACTING!PARTIES!OR!TO!THIRD!PERSONS!
LESION:!injury!which!one!of!the!parties!suffers!by!virtue!of!
contract!that!is!disadvantageous!to!him;!must!be!known!or!
could! have! been! known! at! the! birth! of! contract! and! not!
due!to!subsequent!thereto!or!unknown!to!the!parties!
o The! idea! is! to! establish! parity! between! the! value! of!
the!thing!and!its!price,!so!that!if!the!price!is!less!than!
the!true!value!of!the!thing!at!the!time!of!perfection!of!
the!contract,!there!is!lesion!
Examples:!
o Art.!1098.!Partition,!judicial!and!extra?judicial!may!be!
rescinded!on!account!of!lesion!!
o Art.!1539.!Sale!of!real!estate!of!inferior!thing!
o Art.!1542.!Sale!of!real!estate!made!for!a!lump!sum!!
!
2. THEY!ARE!VALID!BEFORE!RESCISSION!!
3. THEY!CAN!BE!ATTACKED!DIRECTLY!ONLY,!NOT!COLLATERALLY!
4. THEY!CAN!BE!ATTACKED!ONLY!EITHER!BY!A!CONTRACTING!
PARTY,!OR!BY!A!THIRD!PERSON!WHO!IS!INJURED!OR!
DEFRAUDED!
5. THEY!CAN!BE!CONVALIDATED!ONLY!BY!PRESCRIPTION!AND!
NOT!BY!RATIFICATION!!
Art.! 1380.! Contracts! validly! agreed! upon! may! be! rescinded! in! the!
cases!established!by!law.!
!
1. DEFINITION!
!
Rescission!is!a!remedy!granted!by!law!to!the!contracting!parties!and!
even! to! third! persons,! to! secure! the! reparation! of! damages! caused!
to! them! by! a! contract,! even! if! this! should! be! valid,! by! means! of!
restoration! of! things! to! their! condition! at! the! moment! prior! to! the!
celebration!of!said!contract.!
It! implies! a! contract! which,! even! if! initially! valid,! produces!

lesion!or!pecuniary!damage!to!someone.!
NATURE! OF! CONTRACT! ! is! not! limited! to! valid! contracts! as!
such! validity! is! not! an! essential! condition! of! rescission;!
hence,!voidable!contract!may!also!be!rescinded!
Set!asides!the!act!or!contract!for!justifiable!reasons!of!equity!
Grounds!for!rescission!can!only!be!for!legal!cause!!
Sir!Labitag:!Rescissible!contracts!are!in!between!valid!and!
void!!
!
2. AS!DISTINGUISHED!FROM!RESCISSION!UNDER!ART.!1191!
!
!!!!!!!109!
!!!!
judicial!
control!
Court! when! there! is!

sufficient! reason! to!
justify! extension! of!
time!
to!
the!
defendant! in! which!
to! perform! (whether!
slight! or! casual!
breach)!!
Only! to! reciprocal!
obligations!
where!
one! party! does! not!
perform!
not! affect! right! to! ask! for!

rescission!
(cannot!
be!
refused! if! all! the! requisites!
are!satisfied)!
!
!
!
Kind!of!
Unilateral!or!reciprocal!!
obligations!
Even! when! contract! is! fully!
it!is!
fulfilled!
applicable!
to!
Character!
Principal!Remedy!
Secondary/Subsidiary!
!
MUTUAL!DISSENT!is!not!the!same!with!rescission,!because!
mutual! dissent! is! simply! an! agreement! of! the! parties! to!
cancel! their! contract! and! mutually! return! the! object! and!
the!cause!thereof.!It!is!tantamount!to!a!simple!creation!of!
new! contract! for! the! dissolution! of! the! previous! one.! In!
order!for!rescission!to!take!place,!the!requisites!must!first!
be!satisfied.!
Contract! of! sale! of! personal! property! expressly! providing!

that! owner! may! rescind! it! if! purchaser! fails! to! make!
payments!are!governed!by!Art.!1191!
!
Cases:!
!
UNIVERSAL!FOOD!CORP.!v.!CA!
Facts:!Magdalo!Francisco!invented!a!food!seasoning!sauce!known!as!
Mafran! sauce.! By! virtue! of! a! Bill! of! Assignment,! the! use! of! the!
formula!was!given!to!UFC.!Under!said!agreement,!Francisco!was!to!
be!appointed!as!Chief!Chemist!in!UFC,!to!preserve!the!secrecy!of!the!
sauce! formula.! Events! transpired,! and! UFC! dismissed! Francisco! as!
Chief! Chemist.! Francisco! sought! for! the! rescission! of! the! Bill! of!
Assignment! for! Breach! of! Contract.! UFC! contends! that! rescission!
should! be! denied,! as! under! Art.! 1383,! Rescission! is! a! subsidiary!
remedy! which! cannot! be! constituted! except! when! party! suffering!
the!damage!has!no!other!legal!means!to!obtain!reparation.!
!
Held:! Rescission! sought! is! that! under! Art.! 1191! which! gives! the!
injured! party! the! right! to! rescind! contract! for! causal! breach.! It! is! a!
principal!remedy!and!can!be!immediately!availed!of!at!the!instance!
of!non?performance.!!
!
3. REQUISITES!
b. The% party% asking% for% rescission% has% no% other%

legal%means%to%obtain%reparation%
!
Art.! 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.!
%
Plaintiff! must! prove! that! he! has! no! other! legal! means! to!
obtain!reparation%
If!damage!is!repaired,!as!in!the!case!of!lesion!suffered!by!the!
ward!or!absentee,!rescission!cannot!take!place!
Rescissible! contracts! may! be! assailed! directly! only! by! a!
proper! action! in! court,! and! not! indirectly! or! collaterally! by!
way!of!defense!
%
c. He% is% able% to% return% whatever% he% may% be%
obliged%to%restore%if%rescission%is%granted%
%
Art.! 1385,! par.! 1.! Rescission! creates! the! obligation! to! return! the!
things! which! were! the! object! of! the! contract,! together! with! their!
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.!!
!
Mutual!restitution!!party!seeking!for!rescission!must!offer!to!
restore!that!which!he!received!from!the!other!
There!is!no!obligation!to!restore!if!nothing!has!been!received!
When! court! declares! a! contract! rescinded,! parties! must!

return!to!each!other!
(a) The! object! of! the! contract! with! its! fruits! (include! not!
only! natural,! civil,! and! industrial! fruits! but! also! the!
accessions!and!accessories)!
(b) The!price!thereof!with!legal!interest!
When! it! is! no! longer! possible! to! return! the! object! of! the!
contract,!an!indemnity!for!damages!operates!as!restitution!
Obligation!to!restore!likewise!applies!to!third!persons!
!
d. The% object% of% the% contract% has% not% passed%

legally% to% the% possession% of% a% third% person%
acting%in%good%faith%
!
Third!person!!includes!not!only!one!who!is!not!a!party!
to! the! rescissible! contract,! but! also! one! who! is! a! party!
thereto!
Acquisition! by! a! third! person! is! an! obstacle! to! the!

efficaciousness! of! action! for! rescission,! where! the!
following!circumstances!are!present:!
o Third! person! is! in! lawful! possession! of! the! realty
registration!of!the!transfer!to!him!in!the!registry!
o He!did!not!act!in!bad!faith!
Third!person!in!bad!faith!!if!he!could!not!return!the!thing!upon!
the!rescission!of!the!contract,!he!will!be!liable!for!the!value!of!
the!property!!
a. The%contract%is%rescissible%
!
Art.!1380!Contract!must!be!validly!agreed!upon!
Art.!1381!Kinds!of!rescissible!contracts!
Art.!1382!Payments!made!in!a!state!of!insolvency:!
!
Art.!1382.!Payments!made!in!a!state!of!insolvency!for!obligations!to!
whose! fulfillment! the! debtor! could! not! be! compelled! at! the! time!
(has!not!yet!matured)!they!were!effected,!are!also!rescissible.!
Insolvency!referred!to!in!this!article!is!insolvency!in!fact,!not!
requiring!any!judicial!proceeding!on!insolvency!
Can! be! established! by! proving! that! the! debtor! did! not! have!
properties! with! which! to! satisfy! his! creditor! except! that!
which!was!given!in!payment!prematurely!
Also!includes!obligations!which!cannot!be!legally!demanded!
such!as!natural!obligations!and!those!that!have!prescribed!
!
!
!
!
!
!!!!!!!110!
!!!!
e. The% action% for% rescission% is% brought% within% the%
prescriptive%period%of%four%(4)%years%
!
a. With%respect%to%third%persons%who%acquired%the%
thing%in%good%faith%
%
%
Art.!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!
!
As! a! general! rule,! action! to! rescind! contracts! must! be!

commenced!within!four!(4)!years!from!the!date!contract!was!
entered!into!
o Law! is! silent! as! to! when! period! is! to! be! counted:!
whether! from! the! celebration! of! the! contract,! or! from!
the! time! the! creditor! acquires! knowledge! of! the!
existence!of!contract!
o SC:!since!the!law!is!silent,!general!rule!applies,!i.e.,!from!
the!moment!the!cause!of!action!accrues!
o Where!the!action!for!rescission!is!based!on!fraud,!period!
must!be!counted!from!the!time!of!the!celebration!of!the!
contract!
o In!a!case!decided!under!Art.!1191,!action!for!rescission!
by!the!buyer!must!be!commenced!within!four!(4)!years!
from! the! date! the! judgment! becomes! final! and!
executory!
o When!action!to!rescind!or!accion,pauliana,accrues!
!
After!all!other!legal!remedies!have!been!exhausted!
and! have! been! proven! futile! and! all! requisites! for!
accion,pauliana,are!present!
Exceptions:!
o For!persons!under!guardianship,!period!shall!begin!from!
the!termination!of!incapacity!
o For!absentees,!from!the!time!the!domicile!is!known!
o Period! commences! on! the! termination! of! the! wards!
incapacity!or!absentees!domicile!is!known!!
%
4. EFFECT!OF!RESCISSION!
%
Art.! 1385.! Rescission! creates! the! obligation! to! return! the! things!
which!were!the!object!of!the!contract,!together!with!their!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.!
!
When!rescission!not!allowed:!
When! party! who! demands! rescission! cannot! return! what!

he!is!obliged!to!restore!under!the!contract!
If! property! is! legally! in! the! possession! of! a! third! person!
who!acted!in!good!faith!
o Registered!property!in!the!Registry!of!Property!
o Unaware! of! the! flaw! in! his! title! or! mode! of!
acquisition!
!
!
Transferee! of! property! in! good! faith! who! acquires!

property!for!valuable!consideration,!without!knowledge!of!
the! litigation! or! claim! of! the! plaintiff,! cannot! be! deprived!
of!property.!!
Right!of!transferee!to!retain!alienation:!
o Nature!of!transfer!
ONEROUS!
!
Good!faith!!no!rescission!!
!
Bad! faith! ! rescissible! because! of! his!
complicity! in! the! fraud! "! not! entitled! for!
reimbursement! because! in, pari, delicto;! if!
not! possible! to! return,! indemnify! the!
plaintiff!!
GRATUITOUS!
!
Good!faith!!does!not!protect!him!because!
he!gave!nothing!and!so!he!is!not!prejudiced!
by! the! rescission;! rescissible,! though! not!
required!to!restore!the!fruits;!he!is!entitled!
to! reimbursement! for! necessary! and! useful!
expenses!incurred!on!the!thing!
!
Bad! faith! ! rescissible! because! of! his!
complicity! in! the! fraud;! if! not! possible! to!
return,!indemnify!the!plaintiff!
Right! to! damages:! When! contract! cannot! be! rescinded,!
because! the! thing! has! been! acquired! in! good! faith! by! a! third!
person,!party!who!caused!the!loss!shall!be!liable!for!damages,!
i.e.! guardians! of! minors,! representative! of! absentees,!
transferee!in!bad!faith,!or!defendant!who!transferred!the!thing!
in!litigation!
!
Who!may!bring!action!for!rescission!
1. Person! injured! by! rescissible! contract,! such! as! the! ward! or!
absentee! in! the! case! of! lesion,! creditors! prejudiced! by! a!
fraudulent!alienation,!and!the!plaintiff!in!a!case!where!a!thing!
in!litigation!is!alienated!by!the!defendant!
2. Heirs!of!these!persons!
3. Their!creditors!by!virtue!of!accion!subrogatoria!
%
5. EXTENT!OF!RESCISSION!
!
Art.!1384.!Rescission!shall!be!only!to!the!extent!necessary!to!cover!
the!damages!caused.!!
!
Entire! contract! need! not! be! set! aside! by! rescission! if! the!
damage!can!be!repaired!or!covered!by!partial!rescission!
Only!the!creditor!who!brought!the!action!can!benefit!from!
the! rescission,! and! only! to! the! extent! of! his! unsatisfied!
credit!
As! to! the! excess,! alienation! is! maintained! even! if!

transferee!is!in!bad!faith!!
Tolentino:! But! there! may! be! other! creditors! who! could!

also!bring!the!AP;!they!should!be!given!the!benefit!of!the!
rescission,! instead! of! requiring! them! to! bring! another!
action,!if!a!balance!is!left!
BUT!if!transferee!is!willing!to!pay,!no!rescission!
!
!
!
!!!!!!!111!
!!!!
6. PRESUMPTIONS!OF!FRAUD!
a. Badges%of%fraud%
!
Art.! 1387.! All! contracts! by! virtue! of! which! the! debtor! alienates!
property!by!gratuitous!title!are!presumed!to!have!been!entered!into!
in! fraud! of! creditors,! when! the! donor! did! not! reserve! sufficient!
property!to!pay!all!debts!contracted!before!the!donation.!!
Alienations!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!the!law!
of!evidence.!!
!
Not!exclusive;!fraud!may!be!proved!in!any!other!manner!
recognized!by!the!law!of!evidence!
Rebuttal!by!evidence!that!conveyance!was!made:!
o In!good!faith!
o For!a!good!and!valuable!consideration!or!sufficient!
cause!
Presumption!not!applicable!in!the!absence!of!transfer!
Effect!of!presumption!is!to!shift!the!burden!to!the!one!
who!alienated!to!prove!that!the!transfer!was!not!
fraudulently!made!
Only!actual!creditors!can!ask!for!rescission!in!case!of!fraud!
Effect!of!Fraud:!Does!not!necessarily!make!the!alienation!
rescissible.!It!is!only!one!of!the!requisites!for!accion,
pauliana.!Can!be!overruled!by!a!transferee!in!good!faith!
and!for!valuable!consideration!!
!
Badges! of! Fraud! (indicia! of! fraud)! ! rules! by! which! fraudulent!
character!of!transaction!may!be!determined!
1. Fictitious!or!insufficient!consideration!
2. Conveyance! made! ! after! suit! has! begun! and! while! it! is!
pending!
3. Sale!upon!credit!by!insolvent!debtor!
4. Evidence!of!insolvency!or!large!indebtedness!
5. Transfer!of!all!or!nearly!all!of!debtors!property!
6. Transfer!is!between!father!and!son!when!some!of!above!is!
present!
7. Failure! of! vendee! to! take! exclusive! possession! of! the!
property,!unless!such!failure!is!with!legal!basis!or!practical!
reason!
!
Additional!instances!(De!Leon)!
8. At!the!time!of!the!conveyance,!vendee!was!living!with!the!
vendor! and! the! former! knew! that! there! was! a! judgment!
against!the!latter!
9. It! was! known! to! the! vendee! that! the! vendor! had! no!
properties!other!than!that!sold!to!him!
10. Certificate!of!title!covering!the!lands!sold!remained!in!the!
name! of! the! vendor! who! declared! them! for! taxation!
purposes!and!paid!the!taxes,!a!duty!assumed!by!his!heirs!
after!his!death!
11. Gross!disparity!between!consideration!and!real!value!
Above,enumeration,not,exclusive.,,
,
,
,
Alienation!by!gratuitous!title!
o Under!the!first!paragraph,!donation!is!presumed!
fraudulent!unless!proved!otherwise!
Alienation!by!onerous!title!
o Under! the! second! paragraph,! in! the! absence! of!
some! judgment! rendered,! no! presumption! of!
fraud! can! arise;! creditors! must! show! that! the!
conveyance!will!prejudice!their!rights!
!
Cases:!
!
ORIA!v.!MCMICKING!
Facts:!Gutierrez!brought!actions!against!Oria!Hermanos!&!Co.!for!the!
recovery! of! sums! of! money.! Subsequent! to! the! beginning! of! said!
actions,! members! of! Oria! Hermano! &! Co.,! on! account! of! the!
expiration! of! their! co?partnership,! dissolved! relations! and! entered!
into! liquidation.! Balbas,! liquidator,! entered! into! a! contract! with!
Gonzales,! selling! all! properties! owned! by! the! company.! Among!
properties!sold!was!Steamship!Serantes,!which!was!under!litigation.!
Meanwhile,! judgment! rendered! in! favor! of! Gutierrez! in! the! actions!
for! recovery.! Balbas! claimed! that! there! were! no! funds! to! pay! the!
same.!Sheriff!levied!upon!Steamship!Serantes,!auctioned,!then!sold!
to! highest! bidder,! Gutierrez.! Gonzales! began! present! action! to!
restore!Steamship!Serantes,!claiming!to!be!the!owner!of!the!same.!
Gutierrez!averred!that!sale!was!fraudulent.!
!
Held:!Sale!was!fraudulent!and!prejudiced!Gutierrez.!Every!one!of!the!
badges!of!fraud!(all!7)!is!present!in!this!case.!Gonzales!was!the!son!
and!nephew!of!the!members!of!the!company.!Nothing!of!value!was!
delivered!by!him!in!consideration!of!the!sale.!He!was!a!young!man,!
25! years! of! age,! who! was! merely! a! student! without! assets! and!
gainful! occupation.! He! was! also! fully! aware! of! the! suits! filed! by!
Gutierrez!against!the!company.!The!sale!was!so!unusual,!so!devoid!
of!care!and!caution,!and!so!wholly!outside!of!the!well?defined!lines!
of! ordinary! business! transactions.! Conveyance! was! a! trick! and!
contrivance!to!defeat!creditors.!
!
Side! note:! Sale! was! not! attacked! in! a! direct! action.! Creditor! has! a!
right! to! make! the! levy! and! test! the! validity! of! the! sale! in! that! way,!
without!first!resorting!to!a!direct!action!to!annul!the!sale.!
!
SIGUAN!v.!LIM!
Facts:! Lim! issued! two! checks! as! payment! for! her! debts! to! Siguan.!
Checks!were!dishonored.!Complaint!for!violation!of!BP!22!was!filed.!
Lim! convicted! Dec.! 1992.! On! July! 1991,! a! Deed! of! Donation! was!
purportedly! executed! by! Lim,! conveying! parcels! of! land! to! her!
children.! Siguan! filed! an! accion, pauliana, and! claims! that! the! Deed!
was!antedated,!executed!in!fraud!of!creditors.!
!
Held:! Court! not! convinced! that! Deed! of! Donation,! a! public!
document,! was! antedated.! Donation! was! made! prior! the! existence!
of!Siguans!credit.!In!addition,!when!the!Deed!was!executed,!Lim!had!
properties! such! as! farming! lands,! a! house! and! lot,! residential! lots!
which! were! sufficient! to! cover! the! debts.! Moreover,! Contracts!
entered!in!fraud!may!be!rescinded!only!when!the!creditors!cannot!in!
any! manner! collect! the! claims! due! them.! Action! for! rescission! is! a!
subsidiary! remedy! only.! The! petitioner! was! not! able! to! prove! that!
she! had! exhausted! other! legal! means! to! obtain! reparation! for! the!
same.!
!
!
!
!
!!!!!!!112!
!!!!
7. LIABILITY! FOR! ACQUIRING! IN! BAD! FAITH! THE! THINGS!
ALIENATED!IN!FRAUD!OF!CREDITORS!
!
Art.! 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!them.!!
If! there! are! two! or! more! alienations,! the! first! acquirer! shall! be!
liable!first,!and!so!on!successively.!
!
Purchaser!in!bad!faith!must!return!the!same!if!the!sale!is!
rescinded;!if!return!is!impossible!due,to,any,cause,,with,or,
without,his,fault,!he!must!indemnify!the!former!
Bad!faith!!not!mere!bad!judgment!or!negligence;!imports!
a! dishonest! purpose! or! some! moral! obliquity! and!
conscious!doing!of!wrong!
Mere! refusal! of! a! party! that! a! defect! exists! or! his! willful!
closing! of! his! eyes! to! the! possibility! of! the! existence! of! a!
defect!in!his!title,!will!not!make!him!an!innocent!purchaser!
for!value!
Subsequent!transfers!
o Creditor! can! have! an! action! against! subsequent!
transferees! only! when! an! action! lies! against! the! first!
transferee!
!
The!subsequent!transferee,!even!if!he!knows!the!
first! transfer! was! fraudulent,! can! no! longer! be!
held!liable!UNLESS!it!be!shown!that!he!connived!
with!the!debtor!to!make!the!first!transferee!as!a!
mere!innocent!intermediary,!or!that!he!knows!of!
the! intention! of! the! transferor! to! defraud!
creditors!
o If! first! transferee! acted! in! bad! faith,! rescissible!
character! of! second! alienation! depends! upon! how!
subsequent!transferee!acquired!the!thing!
!
Good! faith! ! transfer! cannot! be! rescinded;! first!
transferee!liable!for!damages!
!
Bad!faith!!required!to!return!the!property;!first!
transferee!not!liable!for!damages!when!return!is!
possible;! if! property! cannot! be! returned,!
transferees! shall! be! successively! liable! for!
damages!
Same! rule! applies! where! subsequent!
transferee,! although! acted! in! good! faith,!
received!property!gratuitously!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
CHAPTER(7:(((
VOIDABLE(OR(
ANNULLABLE(CONTRACTS(
Voidable% or! annullable% contracts, are! those! which! possess! all! the!
essential! requisites! of! a! valid! contract! but! one! of! the! parties! is!
legally!incapable!of!giving!consent,!or!consent!is!vitiated!by!mistake,!
violence,!intimidation,!undue!influence,!or!fraud!
A. Kinds((
!
Art.! 1390.! The! following! contracts! are! voidable! or! annullable,! even!
though!there!may!have!been!no!damage!to!the!contracting!parties:!
!(1)!Those!where!one!of!the!parties!is!incapable!of!giving!consent!to!
a!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.!
!
Kinds!of!Voidable/Annullable!Contracts!
Art!.1390!Although!no!damage!to!contracting!parties:!
1. Want!of!capacity!
2. Vitiated!consent!
B. Characteristics(
!
1. THEIR!DEFECT!CONSISTS!IN!THE!VITIATION!OF!CONSENT!OF!
ONE!OF!THE!CONTRACTING!PARTIES!
2. THEY!ARE!BINDING!UNTIL!THEY!ARE!ANNULLED!BY!A!
COMPETENT!COURT!
They!are!existent,!valid!and!obligatory!unless!annulled!or!
set!aside!by!a!proper,action,in!court!
THEY!ARE!SUSCEPTIBLE!OF!CONVALIDATION!BY!RATIFICATION!
3.
OR!BY!PRESCRIPTION!!
Once!ratified,!they!become!absolutely!valid!and!can!no!
longer!be!annulled.!
C. Annulment(
!
ANNULMENT[!is!a!remedy!as!well!as!a!sanction!provided!by!law,!for!
reason! of! public! interest,! for! the! declaration! of! the! inefficacy! of! a!
contract! based! on! a! defect! or! vice! in! the! consent! of! one! of! the!
contracting!parties!in!order!to!restore!them!to!their!original!position!
in!which!they!were!before!the!contract!was!executed.!
!
!
!
!
!
!
!
!
!
!
!!!!!!!113!
!!!!
1. ANNULMENT!DISTINGUISHED!FROM!RESCISSION!!
!
NULLITY!(Voidable)!
RESCISSION!(Rescissible)!
Declares! inefficiency! which! Merely! produces! inefficiency,!
contract! already! carries! in! itself! which! did! not! exist! essentially! in!
(intrinsic!defect)!
the! contract! (external! defect! i.e.!
pecuniary! damages! or! prejudice!
to!one!of!the!contracting!parties!
rd
or!3 !persons)!
Principal!action!
Subsidiary!action!
Requires!act!of!ratification!to!be! Needs! no! ratification! to! be!
cured!
effective!
Based! on! a! vice! of! the! contract! Compatible! with! the! perfect!
which!invalidates!it!
validity!of!the!contract;!Based!on!
lesion!to!one!of!the!parties!or!to!
a!third!person!
Annulment! is! a! sanction! based! Rescission! is! a! remedy! based! on!
on!law!
equity!!
Demanded! only! by! the! parties! Demanded! even! by! third! parties!
to!the!contract!
affected!by!it!
Public!interest!predominates!!
Private!interest!predominates!
Allowed! even! if! already! Indemnification!bars!the!action!
indemnified!
!
2. GROUNDS!FOR!ANNULMENT!ART!1390!
1. Incapacity%to%consent%
Not!a!requisite!sine,qua,non!of!the!contract;!want!is!
only!a!ground!for!annulment!!
2. Vices%of%consent:%%
3.
Violence,!intimidation,!undue!influence,!mistake!or!
fraud!
!
Sir!Labitags!comparison!of!circumstances:!
CONSENT! of! ONE! party! is!
VOIDABLE!
vitiated!
BOTH!parties!are!incapable!of!
UNENFORCEABLE!
giving!constent!
One!party!is!guilty!of!FRAUD!
VOIDABLE!
BOTH! parties! are! guilty! of!
VOID!
fraud!(in!pari!delicto)!
!
!
WHO!MAY!AND!MAY!NOT!INSTITUTE!AN!ACTION!FOR%
ANNULMENT!ART!1397!
!
Art.! 1397.! The! action! for! the! 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!these!flaws!of!the!contract!
!
A.
MAY:!All!who!are!obliged!principally!or!subsidiarily!
!
Art.! 1395:! Action! does! not! require! conformity! of! the! other!
party!who!has!no!right!to!bring!action!for!annulment!!
!!
!
!
!
!
Requisites:!!
a. Interest!in!the!contract!!there!must!be!legal!capacity!by!being!
bound!to!the!contract!either!principally!or!subsidiarily!
b. Victim!and!not!the!party!responsible!for!the!defect!!he!who!
comes!to!the!court!must!come!with!clean!hands!(so!not!
applicable!to!the!successor!in!interest!of!one!who!has!
contracted!with!a!minor)!
!
B. MAY%NOT:!!
1. Capable!parties!cannot!allege!the!incapacity!of!those!with!
whom!they!contracted!
2. Parties!who!exerted!intimidation,!violence!or!undue!
influence!or!employed!fraud!or!caused!mistake!
3. Third!person!who!is!a!stranger!to!the!contract.!UNLESS,he!
can!prove!that!the!contract!prejudiced!his!rights!with!
respect!to!one!of!the!contracting!parties,!he!may!ask!for!
annulment!e.g.!guarantors!and!sureties!
,
Cases:!
!
SINGSONG!v.!ISABELA!SAWMILL!
Facts:! Garibay,! Saldejeno,! and!Tubungbanua! entered! into! a!
Contract!of!Partnership!under!the!firm!name!"Isabela!Sawmill".!Later!
on,! Saldejan! wanted! to! dissolve! the! partnership,! but! instead,! they!
assigned!their!rights!with!Chattel!Mortgage!in!favor!of!Saldejano.The!
chattel! mortgage! was! later! foreclosed! and! ! their! properties! were!
auctioned.! Saldejano! transferred! the! proceeds! to! Pan! Oriental!
Lumber!Company.!The!plaintiffs!in!this!case!are!the!creditors!of!the!
partnership.!
!
Held:!!This!Court!has!held!that!a!person,!who!is!not!a!party!obliged!
principally! or! subsidiarily! under! a! contract,! may! exercise! an! action!
for!nullity!of!the!contract!if!he!is!prejudiced!in!his!rights!with!respect!
to! one! of! the! contracting! parties,! and! can! show! detriment! which!
would!positively!result!to!him!from!the!contract!in!which!hehas!no!
intervention.!The!creditors!were!prejudiced!by!the!execution!of!the!
chattel! mortgage! over! the! properties! of! the! partnership! in! favor! of!
Saldajeno.! Hence,! they! have! a! right! to! file! an! action! to! nullify! the!
chattel!mortgage.!
!
PHILIPPINE!NATIONAL!BANK!v.!PHILIPPINE!VEGETABLE!OIL!CO.!
Facts:!PVOC!was!in!debt!up!to!P30M,!with!PNB!as!its!largest!creditor!
(for! P17M);! the! loans! to! PNB! were! secured! by! real! and! chattel!
mortgage.! Bankruptcy! was! imminent,! and! a! creditors! meeting! was!
held,!where!a!receiver!was!appointed!by!the!CFI.!While!the!receiver!
was! in! control! of! PVOC,! an! agreement! was! made! where! creditors!
transferred! to! GM! Whitaker! their! claims! against! PVOC,! which! PNB!
had!knowledge!of.!PNB!at!this!time!had!two!representatives!in!the!
Board! of! PVOC! to! have! a! closer! relationship! with! PVOC.! PNB! then!
obtained! a! new! mortgage! from! PVOC.! The! receivership! was! then!
terminated! and! the! PVOC! plant! was! closed.! PNB! filed! an! action! to!
foreclose! its! mortgage! (during! receivership)! on! PVOCs! property,!
which!PVOC!countered.!
!
Held:! PNB! could! not! secure! a! new! mortgage! while! the! property! of!
PVOC! was! in! custodia, legis,! as! it! was! in! the! middle! of! bankruptcy!
proceedings.! PVOC! at! this! time,! was! prohibited! from! giving! new!
mortgages! on! its! property.! The! receiver,! who! had! control! of! the!
company,!was!not!party!to!the!mortgage,!nor!was!it!given!authority!
by! the! Court! to! consent! to! the! execution! of! a! new! mortgage.! The!
Court!would!want!to!protect!the!rights!of!all!creditors,!not!just!one!
creditor! (PNB).! The! mortgage! was! also! accomplished! when! PVOC!
was!being!influenced!by!PNB!(by!proxy)!while!it!was!negotiating!with!
PNB!itself.!
!!!!!!!114!
!!!!
4. PRESCRIPTION!OF!ACTION!FOR!ANNULMENT!!
!
Art.! 1391.! The! action! for! annulment! shall! be! brought! within! four!
years.!This!period!shall!begin:!
!
In!cases!of!intimidation,!violence!or!undue!influence,!from!the!time!
the!defect!of!the!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! minors! or!
other!incapacitated!persons,!from!the!time!the!guardianship!ceases.!!
!
Prescription! ?! after! lapse! of! period,! contract! can! no! longer! be! set!
aside!
Extinctive! prescription! applies! not! only! to! action, for,

annulment,!but!also!to!the!defense,of,nullity,
Applies!to!the!parties!of!to!the!contract,!but!NOT!to!third!
persons!
!
Art.!1391!?!Within!4!years!
Period!shall!begin:!!
1. Intimidation,!violence!or!undue!influence:!from!the!time!
consensual!defect!ceases!!
2. Mistake!or!fraud:!from!the!time!of!discovery!of!the!same!
3. Incapacity:!from!the!time!guardianship,ceases!
!
5. EFFECTS!OF!ANNULMENT!
!
Art.!1396.!Ratification!cleanses!the!contract!from!all!its!defects!from!
the!moment!it!was!constituted.!
Cleanses!the!contract!from!all!its!defect!from!the!moment!
it!was!constituted!(retroactive!effect),!but!does!not!
rd
prejudice!rights!of!3 !persons!acquire!before!the!
ratification!Art!1396!
!
a. Mutual%Restitution%%
!
Art.! 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! their! 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.!!
Restore!to!each!other!things!which!have!been!the!subject!
matter! of! the! contract,! together! with! fruits! and! the! price!
with!interest,!!
EXCEPT,in!cases!provided!by!law!(principle!of!unjust!
enrichment):!compensation,!services!rendered!in!contracts!
of!service!
ELIMINATES,AWARD,FOR,DAMAGES.,But!when!there!is!
loss!or!suffered!damages,!injured!party!may!be!entitled!to!
recover!indemnity!for!damages.!!
!
!
!
!
!
!
!
!
Cases:!
!
CADWALTADER!&!CO!v.!SMITH,!BELL!&!CO!
Facts:! Cadwaller! &! Co.! as! assignees! of! the! Pacific! Export! Lumber!
Company! (PELC)! asks! for! the! amount! of! $3,486! which! is! the! sum!
differential! of! the! money! that! was! turned! over! to! them! and! the!
money!actually!received.!PELC!exported!cedar!piles!to!be!bought!by!
Peabody! &! Company! for! the! amount! of! $12! a! piece! however! later!
on! it! was! found! out! that! P&C! was! able! to! negotiate! with! the!
government!to!sell!the!piles!at!$20!a!piece,!and!that!213!out!of!581!
piles! were! already! sold! to! the! Government! for! $19! each.! Others!
were!sold!at!varying!price.!
!
Held:! There! is! a! breach! of! duty.! The! contract! of! sale! is! founded! on!
fraud! and! is! subject! to! the! annulment! of! the! aggrieved! party! (CC!
Arts.1265!and!1269).!The!defendants!are!not!entitled!to!retain!their!
commission! realized! upon! the! piles! included! under! the! annulled!
contract.!However!this!is!only!for!those!that!are!subsequently!sold!at!
the! time! of! the! negotiation! with! the! Government! and! its! selling! at!
the!amount!of!$19!apiece.!
!
VELARDE!v.!CA!
Facts:!Raymundo!sold!a!parcel!of!land!to!Velarde!with!the!condition!
of!assuming!the!mortgage!amounting!to!P1.8M.!Velarde!enacted!an!
Undertaking,!stating!that!they!paid!R!Raymundo!800k,!and!that!they!
agree!to!pay!the!mortgage!obligations.!Assumption!of!mortgage!was!
not!approved!and!Valerde!stopped!paying!to!BPI.!
!
Held:!!Court!held!that!Raymundos!act!of!rescinding!the!contract,!is!
justified,!but!ordered!the!restitution!to!Velarde!of!P874,150,!which!
the! latter! paid! as! a! consequence! of! the! contract! until! it! was!
rescinded.! Pursuant! to! Art.! 1191,! rescission! now! creates! the!
obligation! on! both! parties! to! return! to! each! other! the! objects! they!
originally!had!prior!to!the!enactment!of!the!contract.!To!rescind!is!to!
declare!a!contract!void,!as!if!it!never!happened.!
!
Art.!1402.!As!long!as!one!of!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.!!
!
LOSS!THROUGH!PLAINTIFFS!(party!entitled!to!bring!action)!
FAULT!or!FRAUD:!Action!is!extinguished,!even!if!at!the!
time!of!the!loss!the!plaintiff!is!still!a!minor!or!insane!(Art!
1401)!
!
Art.! 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!
the! success! of! the! action,! unless! said! loss! took! place! through! the!
fraud!or!fault!of!the!plaintiff.!
!
LOSS! THROUGH! FORTUITOUS! EVENT,! BUT! PLAINTIFF!
WILLING!TO!PAY:!Apply!Art!1400,!defendant!should!return!
but!not!including!the!interest!because!loss!not!due!to!his!
fault.!!!
LOSS! OF! FRUITS! AND! ACCESSIONS:! Apply! Art! 1400,! pay!
value!if!cannot!return!(both!plaintiff!and!defendant)!
!!!!!!!115!
!!!!
1. When%one%of%the%parties%is%incapacitated%
Art!1399!not!obliged!to!make!any!restitution!EXCEPT!
insofar! as! he! has! been! benefited! by! the! price/thing!
received!
!
Art.!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.!!
!
Benefit!not!necessarily!a!material!and!permanent!increase!
in!fortune!
Proof!of!benefit!incumbent!upon!the!defendant,!in!the!
absence!of!such!proof,!the!presumption!is!there!is!no!
benefit/profit!to!the!incapacitated!person!
If!still!in!the!patrimony!at!the!time!incapacity!ceases,!
deemed!to!have!been!benefited.!If!he!asks!for!annulment,!
he!must!return!it!to!the!other!party.!If!he!squanders,!it!is!
ratification.!!
!
2. When%the%thing%is%lost%through%the%fault%of%
the%party%obliged%to%return%the%same%(i.e.%
defendant)%
!
Art.!1400.!Whenever!the!person!obliged!by!the!decree!of!annulment!
to! return! the! thing! can! not! 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.!!
!
Return! the! fruits! received! AND! the! value! of! thing! at! the!
time!of!loss,!with!interest!from!same!date!
LOSS!THROUGH!FORTUITOUS!EVENT:!pay!the!value!of!the!
thing!lost!but!not!fruits!and!interests!
!
6. EXTINGUISHMENT!OF!THE!ACTION!!
a.
Confirmation/ratification:!cures!a!defect!of!nullity!
Acknowledgment:!remedies!deficiency!of!proof!!
When%the%thing%is%lost%through%the%fault%of%the%
person%who%has%the%right%to%file%the%action%%
!
!
!
!
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!
!
!
1. REQUISITES!OF!RATIFICATION!
a. Contract%is%voidable/annullable%(i.e.%consent%of%
one%party%is%defective)%
b. Ratification%is%made%with%the%knowledge%of%the%
cause%for%nullity%%
c. At%the%time%of%the%ratification,%the%cause%of%
nullity%has%already%ceased%to%exist!
!!
LOSS!NOT!THROUGH!THE!FAULT,!e.g.!fortuitous!
event:!not!extinguished!because!extinguishment!
limited!only!to!the!loss!by!fault!of!plaintiff.!Unjust!
enrichment!if!the!loss!is!returned!for!the!defendant!
to!bear.!Hence,!the!defendant!cannot!be!obliged!to!
make!restitution!to!the!plaintiff!because!of!Art!1402!
(cannot!compelled!to!return!if!the!other!party!does!
not!return)!
Cannot!extinguish!action!for!annulment!by!any!event!
not!imputable!to!the!fault!or!fraud!of!the!plaintiff!!
2. FORMS!OF!RATIFICATION!
a. Express%or%tacit:%execute!an!act!which!necessarily!
implies!an!intention!to!waive!his!rights%
!
Art.! 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.!!
!
EXPRESS:! any! oral! or! written! manifestation! of! the! person!

entitled!to!ask!for!annulment!that!he!agrees!to!be!bound!
by!the!contract!or!that!he!will!not!seek!its!annulment!!
IMPLIED:!!
o Silence!or!acquiescence!
o Acts!showing!approval!or!adoption!of!the!contract!!
o Acceptance! and! retention! of! benefits! flowing!
therefrom!
!
b. By%the%parties%themselves%or%by%the%guardian%in!
behalf%of%an%incapacitated%party%%
!
Art.! 1394.! Ratification! may! be! effected! by! the! guardian! of! the!
incapacitated!person.!!
By%ratification%%
b.
D. Ratification(
During!the!existence!of!incapacity!
Right!to!ratify!is!transmitted!to!the!heirs!of!the!party!
entitled!to!such!right.!
3. EFFECTS!OF!RATIFICATION!
a. Action%to%annul%is%extinguished%
!
Art.! 1392.! Ratification! extinguishes! the! action! to! annul! a! voidable!
contract.!
!
Case:!
!
UY!SOO!LIM!v.!TAN!UNCHUAN!
Facts:!legitimate!children,!and!first!and!second!wife!are!questioning!
the!fairness!and!legality!of!the!lions!share!received!Uy!Soo!Lim,!the!
illegitimate!child!of!the!deceased.!After!all!the!drama,!an!agreement!
was! reached! stipulating! that! Lim! will! accept! P82,500! in! full!
satisfaction! and! relinquishment! of! all! his! right,! title,! and! interest! in!
and! to! the! estate! of! the! deceased.! Lim,!three! (3)! years!
after!attaining!the!age!of!majority,!commenced!this!action!to!annul!
the!contract.!
!
Held:! Only! choose! one:! ratify! or! annul.! Plaintiff! tacitly! ratified! the!
contract! he! wished! to! annul! on! the! grounds! of! his! minority! upon!
entering! into! said! contract.! Such! ratification! was! evidenced! by! his!
disposing! of! the! greater! part! of! the! consideration! he! received! on!
!!!!!!!116!
!!!!
account!of!that!contract!after!he!came!of!age.!His!action!to!rescind!
and!annul!the!contract!cannot!prosper.!
!
CHAPTER(8:((
UNENFORCEABLE(
CONTRACTS(
b. The%contract%is%cleansed%retroactively%from%all%
its!defects%from%the%time%it%was%constituted%%
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EXCEPTION:!Right!of!3 !persons!prior!to!ratification!
Unenforceable! contracts! are! those! which! cannot! be! enforced! by! a!

proper!action!in!court,!unless!they!are!ratified,!because,!either!they!
are! entered! into! without! or! in! excess! of! authority! or! they! do! not!
comply!with!the!statute!of!frauds!or!both!of!the!contracting!parties!
do!not!possess!the!required!legal!capacity.1!As!regards!the!degree!of!
defectiveness,! they! occupy! an! intermediate! ground! between!
voidable!and!void!contracts.!(Jurado)!
A. Characteristics(
1. THEY!CANNOT!BE!ENFORCED!BY!A!PROPER!ACTION!IN!COURT!
2. THEY!ARE!SUSCEPTIBLE!OF!RATIFICATION!
3. THEY!CANNOT!BE!ASSAILED!BY!THIRD!PERSONS!(ART.!1408)!
!
Unenforceable!distinguished!from!Rescissible!and!Annullable!
UNENFORCEABLE!
RESCISSIBLE!AND!ANNULLABLE!
Produces! NO! legal! effect! unless! Produces!legal!effects!unless!set,
ratified!by!competent!court!
aside!by!competent!court!
B. Kinds(
!
Art.! 1403.! The! following! contracts! are! unenforceable,! unless! they!
are!ratified:!!
(1)! Those! entered! into! in! 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!contents:!
(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! of! 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!person!on!
whose!account!the!sale!is!made,!it!is!a!sufficient!memorandum;!!
(e)! An! agreement! of! 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.!
!!!!!!!117!
!!!!
Kinds!of!Unenforceable!Contracts!
1. Entered!into!in!the!name!of!another!person!by!one!who!has!no!
authority! or! no! legal! representation! OR! acted! beyond! his!
powers!
2. Do! not! comply! with! Statute! of! Frauds,! which! are! agreements!
unenforceable! unless! in! written! memorandum! and! subscribed!
by!the!party!charged!
a. Agreement! not! to! be! performed! within! 1! year! from! the!
making!
b. Special! promise! to! answer! for! the! debt,! default! or!
miscarriage!of!another!
c. Agreement!made!in!consideration!of!marriage!other!than!
mutual!promise!to!marry!
d. Sale! of! goods,! chattels! or! things! in! action,! priced! not! less!
than!P500!
e. Leasing! for! period! longer! than! one! year! OR! sale! of! real!
property!or!of!an!interest!therein!
f. Representation!to!the!credit!of!a!3rd!person!!
3. Both!parties!are!incapable!of!giving!consent!to!contract!
Note:!For!letter!a!and!e,!the!date!of!entering!into!the!contract!is!the!
reckoning!period!
!
1. UNAUTHORIZED!CONTRACTS!
!
Art.!1403,!par.!1.!Those!entered!into!in!the!name!of!another!person!
by!one!who!has!been!given!no!authority!or!legal!representation,!or!
who!has!acted!beyond!his!powers;!
!
GOVERNING%RULES%
!
Art.!1404.!Unauthorized!contracts!are!governed!by!Article!1317!and!
the!principles!of!agency!in!Title!X!of!this!Book.!
!
Governed!by!Art.!1317!(no!one!may!contract!in!the!name!
of!the!other!without!being!authorized,!or!unless!he!has!by!
law! a! right! to! represent! him;! representation! without!
authority! or! legal! representation! makes! the! contract!
unenforceable);!and!
Principles! of! Agency! in! Title! X! of! this! Book! (see! also! Art.!
1868,!1869,!1881,!1882,!1883,!1900!and!1901)!
Does! not! have! a! binding! effect! on! the! principal,! UNLESS!
principal!ratifies,it,!which!cures!the!unauthorized!contract!
Agent!who!binds!his!principal!without!authority!to!do!so!is!
rd
liable!to!3 !persons!
2. CONTRACTS!COVERED!BY!THE!STATUTE!OF!FRAUDS!
!
!
!
Statute! of! Frauds:! Descriptive! of! statutes! which! requires!

certain! classes! of! contracts! to! be! in! writing.! Merely! regulates!
the! formalities! of! the! contract! necessary! to! render! it!
enforceable!
Does! not! deprive! parties! of! the! right! to! contract,! but!
merely! regulates! the! formalities! to! make! it! enforceable! !
effect:!no!action!can!be!proved!unless!the!requirement!is!
complied!with!
NOT! APPLICABLE! TO:! (1)! Action! for! specific! performance,!

(2)!Violation!of!the!contract!
APPLICABLE! TO:! Executory! and! not! to! complete! or!

executed! contracts! because! the! intention! of! the! parties!
become! apparent! by! their! execution.! However,! partial!
performance!must!also!be!proven.!
Exclusive!list!of!agreements/contracts!enumerated;!Rule!of!
exclusion!!
A! personal! defense! (hence! cannot! be! raised! by! 3rd!
persons)!and!the!same!may!be!waived!
Does!not!determine!credibility!or!weight!of!the!evidence,!
merely!concerned!with!the!admissibility!thereof!
!
Art.! 1403,! par.! 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!contents!
%
THE%STATUTE%OF%FRAUDS%
a. An! agreement! that! by! its! terms! is! not! to! be! performed!
within!a!year!from!the!making!thereof;!
In! order! for! the! provision! to! be! applicable,! it! must!
appear! that! the! parties! intended! the! contract! not! to!
be!performed!within!a!year;!that!a!contract!cannot!be!
performed! within! a! year! means! an! impossibility! by!
the!terms!of!the!contract!itself!or!the!understanding!
and!intention!of!the!parties!
If!no!time!is!fixed!and!nothing!to!show!that!it!cannot!
be! performed! within! a! year,! then! not! within! SoF;!
Partial!performance!also!takes!it!out!of!SOF!
!
b. A! special! promise! to! answer! for! the! debt,! default! or!
miscarriage!of!another;!
Default!or!Miscarriage!include!liability!for!tort!and!are!
not! to! be! restricted! to! defaults! and! miscarriages!
arising! out! of! contracts;! Must! be! collateral! only! and!
not!primarily!liable!for!the!debt!!
In! a! guaranty,! the! promise! is! merely! subsidiary! or!

collateral! to! the! promise! of! the! original! or! principal!
debtor;!if!it!is!an!original!or!independent!one!and!the!
promisor!becomes!primarily!liable,!the!promise!is!not!
within! the! Statute! and! may! be! proved! by! oral!
evidence!
Miscarriage!(as!used!in!the!Statute!of!Frauds):!has!a!
different! or! broader! meaning! than! either! debt! or!
default,!and!includes!the!failure!by!a!third!party!to!
succeed!in!a!proposed!business,!regardless!of!the!fact!
whether!its!failure!to!do!so!would!entitle!the!plaintiff!
to!an!action!at!law!or!not!
o Compared! to! debt! or! default,! an! actionable!
duty! is! not! a! requirement! because! the! reason!
does!not!exist!in!a!miscarriage!!the!act!of!a!third!
party!
!
c. An! agreement! made! in! consideration! of! marriage! other!
than!a!mutual!promise!to!marry;!
When! the! marriage! is! a! mere! incident,! and! not! the!

end! to! be! attained,! it! is! not! deemed! to! be! the!
consideration!
Where!there!is!some!other!consideration!sufficient!to!
support! the! oral! agreement,! in! addition! to! marriage,!
!!!!!!!118!
!!!!
d.
e.
f.
the! agreement! is! not! covered! by! the! SoF! and! may!
adduce!oral!evidence!as!proof!
Law!states!no!period!of!performance;!an!oral!mutual!
promise! to! marry! may! be! proved! by! parol! evidence!
although! the! marriage! is! to! be! celebrated! beyond! 1!
year!
Not! limited! to! marrying! parties! but! also! to! promises!

by!a!third!person!to!one!of!the!parties!contemplating!
the!marriage!
Examples! covered:! Marriage! settlements! (ante?

nuptial!contracts)!or!agreements!entered!into!by!the!
future!spouses!before!the!celebration!for!the!purpose!
of! fixing! the! property! relations! (Art.! 74?76! FC);!
donations! propter! nuptias! (donations! by! reason! of!
marriage)!are!donations!made!before!the!celebration,!
in! consideration! of! the! same! and! in! favor! of! one! or!
both!spouses!(Art.!82!FC)!
!
An!agreement!for!the!sale!of!goods,!chattels!or!things!in!
action,!at!a!price!not!less!than!five!hundred!pesos;!
Unless!buyer!accepts!and!receives!part!of!such!goods!
and!chattels!or!the!evidences!or!some!of!them!or!pay!
at!the!time!some!part!of!the!purchase!money.!!
EXCEPTION:! sale! is! by! auction! and! entry! is! made! by!
auctioneer! in! his! sales! book! (because! it! constitutes!
sufficient!memorandum)!
Things! in! action:! commonly! termed! a! chose! in!

action! and! is! a! personal! right! to! demand! money! or!
property!by!action!
o Right! to! recover! money! or! other! personal!
property!by!a!judicial!proceeding!
o A!term!in!contradistinction!to!a!chose!or!thing!in!
possession,!and!is!applicable!to!cases!where!the!
title! to! the! money! or! property! is! in! one! person!
and! the! possession! is! in! another,! which! by!
contract! he! is! bound! to! deliver! to! the! owner!
(Ayres,v,Western,R.,Corp)!
o Distinguished! from! a! thing! of! which! owner! has!
actual! or! constructive! possession! but! for! which!
action!may!be!brought!to!reduce!it!to!possession!
(Heavy,Lumber,Co.,v,Mutchison)!
!
An!agreement!of!the!leasing!for!a!longer!period!than!one!
year,! or! for! the! sale! of! real! property! or! of! an! interest!
therein;!
Must!be!in!writing!to!be!enforceable!
Alleged! verbal! assurance! of! a! renewal! of! lease! is!

inadmissible! to! qualify! the! terms! of! a! written! lease!
agreement!!unenforceable!under!SoF!
!
Representation!to!the!credit!of!a!3rd!person.!
!
a. Purpose%of%Statute%
To!prevent!(and!not!to!encourage)!fraud!and!perjury!
in!the!enforcement!of!obligations!depending!for!their!
evidence! on! the! unassisted! memory! of! witness! but!
also!to!guard!against!the!mistakes!of!honest!men!by!
requiring! that! certain! agreements! specified! must! be!
in! writing! signed! by! the! party! to! be! charged;!
otherwise,!they!are!unenforceable!by!action!in!court!
Provides! for! the! manner! which! contracts! under! it!
shall!be!proved!
!
!
!
Does! not! attempt! to! make! contracts! invalid! if! not!

executed!in!writing,!only!makes!ineffective!the!action!
for!specific!performance!
Principal! aims:! (1)! prevent! commission! of! injustice!
due! to! faulty! memory,! (2)! discouraging! intentional!
misrepresentations!
History:! (1677)! English! Parliament! enacted! a! statute!
to! counter! the! evil! practice! of! giving! false! testimony!
in!actions!founded!on!certain!kinds!of!contracts!!to!
deal! with! the! prevalence! of! successful! perjury! by!
making! specified! contracts! unenforceable! unless!
written! in! a! prescribed! manner! (in! general,! by! a!
written! memorandum! signed! by! the! third! party!
against!whom!liability!under!the!contract!was!sought!
to!be!enforced)!and!since!then,!it!was!called!Statute!
of!Frauds!
In! the! Philippines:! Originally! taken! from! the! Code! of!
Civil! Procedure! of! the! State! of! California! and! was!
introduced! by! Sec.! 335! of! Act! No.! 190! (Code! of! Civil!
Procedure)!and!subsequently!embodied!in!toto!in!the!
old! Rules! of! Court! under! Evidence! as! Sec.! 21,! Rule!
123.!Now,!it!is!embodied!with!slight!modifications!in!
Art.! 1403(2)! of! the! NCC! under! Unenforceable!
Contracts!
Application:!!
o Presupposes! the! existence! of! a! perfected!
contract! and! requires! only! a! note! or!
memorandum!to!be!executed!in!order!to!compel!
judicial!enforcement!
o Refers! to! specific! kinds! of! transactions! and!
cannot!apply!to!any!other!transaction!that!is!not!
enumerated! therein;! not! applicable! in! actions!
which! are! neither! for! damages! because! of! a!
violation! of! a! contract! nor! for! the! specific!
performance!thereof!
o Applicable!only!to!executor!contracts!(where!no!
performance! has! as! yet! been! made! by! both!
parties)! and! not! to! contracts! which! are! totally!
(consummated)!or!partially!performed!
!
Partial! performance! (like! writing)! furnishes!
reliable! evidence! of! the! intention! of! the!
parties!or!the!existence!of!the!contract!
o Not! applicable! where! the! contract! is! admitted,!
by! failure! to! deny! specifically! its! existence! ! no!
further!evidence!required!
o Not! applicable! where! the! writing! does! not!
express! the! true! agreement! of! the! parties!
because! the! Statute! cannot! be! used! as! a! shield!
for!fraud!or!means!for!perpetrating!it!
o Does! not! declare! that! contracts! infringing! it! are!
void!and!of!no!effect,!but!merely!unenforceable!
(Art.!1403!no.!2);!form!is!required!for!evidential!
purposes!only!(Art.!1405)!
o Does! not! determine! the! credibility! or! weight! of!
evidence! but! merely! regulates! the! admissibility!
thereof!
o Defense! of! the! Statute! of! Frauds! is! subject! to!
waiver!(Art.!1405)!
o Defense! of! the! Statute! of! Frauds! is! personal! to!
the! parties! and! cannot! be! interposed! by!
strangers!to!the!contract!(Art.!1408)!
!!!!!!!119!
!!!!
Modes!of!satisfaction!of!the!Statute:!
1. The!giving!of!a!note!or!memorandum;!
2. Acceptance!and!receipt!of!part!of!the!goods!(or!things!in!action)!
sold;!and!
3. Payment!at!the!time!of!some!part!of!the!purchase!price!
!
Written! Memorandum! or! Note:! Evidence! of! the! agreement! and! is!
used!to!show!the!intention!of!the!parties!
!
Minimum!requirement!for!written!memorandum:!
1. Names!of!the!parties!
2. Terms!and!conditions!of!the!agreement!
3. Description!of!the!subject!matter!sufficient!to!render!it!capable!
of!identification!
4. Date!and!place!of!the!making!of!the!agreement!(Par.!2,!a!and!e)!
5. Signature!of!the!party!assuming!the!obligation!
Note:!In!short,!just!the!essential!requisites!of!a!contract!+!signature!
!
Sufficiency!of!a!Note!or!Memorandum:!
1. No! particular! form! of! language! or! instrument! is! necessary! to!
constitute!a!note!or!memorandum!!any!document!or!writing,!
formal! or! informal,! which! states! all! the! essential! elements! of!
the!contract!with!reasonable!certainty,!and!which!is!signed!by!
the!party!to!be!charged!or!his!lawfully!authorized!agent!
2. It! need! not! state! the! consideration! for! the! contract! since! the!
existence!of!this!element!is!presumed!unless!the!debtor!proves!
the!contrary!(Art.!1354)!
3. When! a! sale! is! made! by! auction,! the! entry! made! by! the!
auctioneer!is!a!sufficient!memorandum!even!if!not!signed!
4. The! note! or! memorandum! required! need! not! be! contained! a!
single!document,!nor,!when!contained!in!two!or!more!papers,!
need!each!paper!to!be!sufficient!as!to!contents!and!signature!to!
satisfy! the! Statute! ! two! or! more! writings! properly! connected!
may! be! considered! together! and! their! sufficiency! will! depend!
on!whether!taken!together,!they!meet!the!requirements!of!the!
Statute!
!
Enforceability! of! electronic! transactions! (RA! 8792,! Electronic!
Commerce!Act!of!2000)!
o Legal,recognition,of,electronic,data,message!!information!shall!
not! be! denied! validity! or! enforceability! solely! on! the! ground!
that!it!is!in!the!form!of!an!electronic!data!message!(Sec.!6)!
o Legal, recognition, of, electronic, documents! ! electronic!
documents!shall!have!the!legal!effect,!validity!or!enforceability!
as! any! other! document! or! legal! writing! (Sec.! 7,! see! also! Art.!
1358)!
o Legal,recognition,of,electronic,signatures!!electronic!signature!
shall! be! equivalent! to! the! signature! of! a! person! on! a! written!
document!if!the!signature!is!electronic!and!proved!by!showing!
that! a! prescribed! procedure,! not! alterable! by! the! parties!
interested,!existed!under!which:!
a. A!method!is!used!to!identify!the!party!sought!to!be!bound!
and! to! indicate! said! partys! access! to! the! electronic!
document!necessary!for!his!consent!
b. Said! method! is! reliable! and! appropriate! for! the! purpose!
for! which! the! electronic! document! was! generated! or!
communicated!
c. It! is! necessary! for! the! party! sought! to! be! bound! to! have!
executed!or!provided!the!electronic!signature!
d. The! other! party! is! authorized! and! enabled! to! verify! the!
electronic!signature!and!proceed!with!the!transaction!(Sec.!
8)!
4.
5.
Admissibility,and,evidential,weight,of,electronic,data,messages,
or,electronic,documents!!nothing!in!the!rules!of!evidence!shall!
deny!the!admissibility!of!an!electronic!data!message:!
a. On!the!sole!ground!that!it!is!electronic!in!form!
b. On!the!ground!that!it!is!not!in!the!standard!written!form!
Recognition,by,parties,of,electronic,data,message,or,electronic,
document!!a!declaration!of!will!or!other!statement!shall!not!be!
denied! legal! effect,! validity! or! enforceability! solely! on! the!
ground!that!it!is!in!the!form!of!an!electronic!data!message!
!
Cases:!
!
PHILIPPINE!NATIONAL!BANK!v.!PHILIPPINE!VEGETABLE!OIL!CO.!
Facts:!PVOC!was!in!debt!up!to!P30M,!with!PNB!as!its!largest!creditor!
(for! P17M);! the! loans! to! PNB! were! secured! by! real! and! chattel!
mortgage.! Bankruptcy! was! imminent,! and! Whitaker! is! alleging! that!
the!PNB!made!a!contract!binding!it!(during!period!of!receivership)!to!
provide! the! necessary! operating! capital! to! PVOC! in! order! for! it! to!
continue! operating! its! factory,! and! that! PNB! failed! to! comply! with!
such! a! contract.! He! wants! to! enter! oral! evidence! to! support! the!
existence! of! such! a! contract,! PNBs! refusal! to! perform,! being! the!
ground! for! his! right! to! damages.! (Note:! see! Chapter! VII:! Voidable!
Contracts!for!other!facts)!
!
Held:! The! broad! view! is! that! the! Statute! of! Frauds! applies! only! to!
agreements! not! to! be! performed! on! either! side! within! a! year! from!
the!making;!if!they!are!to!be!performed!on!one!side!within!a!year,!
the! SoF! does! not! apply.! The! Statute! of! Frauds! was! enacted! for! the!
purpose! of! preventing! frauds;! it! should! not! be! an! instrument! to!
further! them.! Whitakers! theory! is! that! he! entirely! performed! his!
part!of!the!agreement!(contract!with!PNB),!and!equity!would!argue!
that!evidence!be!admitted!to!prove!the!agreement.!However,!based!
on! the! minutes! of! the! Board! of! Directors! (PNB),! the! GM! is!
authorized! to! finance! the! operation! of! the! PVOC! under! the!
receivership!to!the!extent!of!P500K,!secured!by!Whitaker,!which!said!
GM! is! to! report! to! the! Board! to! secure! their! approval.! No! contract!
entered! into! by! the! GM! would! be! valid! without! the! advice! and!
consent! of! the! Board.! What! the! Board! approved! was! to! finance! it!
under!receivership!to!the!extent!of!P500K.!There!is!no!evidence!that!
the! Board! consented! to! an! unlimited! backing! of! the! PVOC.! Even! if!
the! Court! gave! the! oral! testimonies! (Gibbs! and! Whitaker)! the!
broadest! effect,! there! is! still! no! definite! agreement! binding! the!
bank.! There! being! no! valid! contract,! Whitaker! cannot! recover! from!
the!Bank,!no!matter!how!selfless!his!efforts!were!to!save!PVOC;!he!
cannot! use! the! SoF! as! an! instrument! to! further! the! fraud! (alleging!
the!existence!of!said!contract).!
!
LIMKETKAI!SONS!MILLING!INC.!v.!CA!
Facts:!BPI!was!entrusted!by!PRCI!as!to!manage,!administer,!and!sell!
its!real!estate!property!(Barrio!Bagong!Ilog,!Pasig).!Revilla!Jr.,!a!real!
estate!broker!was!authorized!to!sell!the!lot!for!P1K/sq.m,!concurred!
in!by!PRCI.!Revilla!contacted!Alfonso!Lim!(of!Limketkai),!who!agreed!
to!buy!the!land!after!viewing!said!property.!Revilla!told!BPI!that!he!
had!found!a!buyer.!Negotiations!between!Lim!and!BPI!officials!were!
made,! agreed! lot! would! be! sold! at! P1K/sq.m.! Lim! asked! if! it! was!
possible! to! pay! on! terms! (initial! of! 10%! then! 90%! within! 90! days),!
and!if!it!is!disapproved,!price!will!be!paid!in!cash.!Later,!Lim!learned!
that! offer! to! pay! on! terms! was! frozen,! so! he! went! to! BPI! and! paid!
the!full!amount!of!P33M.!Payment!was!refused!and!Limketkai!filed!
an! action! for! specific! performance! and! damages,! and! BPI! issued! a!
deed!of!sale!to!NBS.!!
!
Held:! The! contract! between! Limketkai! and! BPI! was! perfected! upon!
the! concurrence! of! the! essential! elements! (agreement! of! the! price!
!!!!!!!120!
!!!!
to! be! P1K/sq.m).! Cross?examination! on! the! contract! made! initially!

inadmissible! parol! evidence! competent! and! admissible;! and! cross?
examination! is! deemed! a! waiver! of! the! defense! of! the! SoF.! Under!
Art!1403!of!the!CC,!an!exception!to!the!unenforceability!of!contracts!
pursuant!to!the!Statute!of!Frauds!is!the!existence!of!a!written!note!
or!memorandum!evidencing!a!contract.!The!memo!may!be!found!in!
several!writings,!not!necessarily!in!one!document.!The!memo!is/are!
written!evidence!that!such!a!contract!was!entered!into.!While!there!
is! no! contract! of! sale,! there! are! abundant! notes! and! memoranda!
evidencing!elements!of!a!perfected!contract.!
!
SWEDISH!MATCH!v.!CA!
Facts:!Swedish!Match,!AB!(SMAB)!owns!3!subsidiary!corporations!in!
the! Philippines:! Phimco,! PTFI! and! OTT/Louie,! Inc.! STORA,! parent!
company! of! SMAB! decided! to! sell! the! latter,! and! Enriquez! (VP! of!
management!company!of!SM!group)!was!commissioned!and!granted!
full! powers! to! negotiate! the! sale! of! Phimco! shares.! One! of! the!
interested!parties!was!ALS!Management!(president!and!GM!Antonio!
Litonjua).! Litonjua! offered! to! buy! all! SMAB! shares! in! the! 3!
companies! for! P750M.! SMAB! said! price! too! low! and! told! them! to!
undertake! a! comprehensive! review! and! analysis! of! the! value! and!
profit! potentials! of! the! shares,! with! the! assurance! that! they! would!
enjoy!priority,!then!an!exchange!of!correspondence!ensued.!Litonjua!
offered! to! buy! again! ($36M)! subject! availability! of! additional!
information!and!audit!verification.!Rossi!sent!a!letter*!and!said!that!
ALS!should!submit!its!final!offer!not!latter!than!June!30.!Litonjua!said!
it!cant!give!a!final!offer!before!June!30,!but!can!by!July!17.!Enriquez!
said!they!would!have!to!entertain!other!bidders!for!Litonjuas!failure!
to!make!a!firm!commitment;!later,!agreed!with!a!local!group,!but!if!
local! group! fails! to! comply,! open! again! to! negotiate! with! ALS.!
Agreement!with!local!group!failed,!Litonjua!invited!to!bid!again,!with!
new! conditions,! but! Litonjua! said! no,! he! wants! the! old! setup!
because!they!already!had!a!perfected!contract.!
!
Held:!The!SoF!does!not!deprive!parties!of!the!right!to!contract,!but!
merely!regulates!the!formalities!of!the!contract.!Non?compliance!
means!the!contract!is!unenforceable!until!the!requirement!is!
complied!with.!The!purpose!of!the!statute!is!to!prevent!fraud,!so!it!
requires!certain!transactions!to!be!evidenced!by!a!written!note!or!
memorandum.!Said!note!or!memorandum!must!be!complete!in!
itself,!and!cannot!be!partly!in!writing!and!partly!in!parol!evidence.!It!
must!contain!the!essential!requisites!of!a!contract.!The!exchange!of!
correspondence!between!the!two!parties!(negotiation)!hardly!
constitutes!the!note!contemplated.!Rossis!letter*!was!incomplete!
because!there!was!no!price!of!shares,!and!the!paragraph!stating!that!
ALS!should!submit!their!final!offer!at!a!certain!time!"!shows!an!
incomplete!transaction,!meaning!no!definite!agreement.!There!was!
no!contract!of!sale!because!one!of!the!essential!requisites!(price!
certain)!is!absent.!Litonjua!said!the!$36M!was!a!final!bid!(as!
defense),!but!his!letters!kept!saying!they!couldnt!release!the!final!
bid!by!June!30!(he!is!inconsistent).!The!$36M!was!an!offer!subject!to!
conducting!an!audit;!not!an!offer,!but!if!it!was,!there!was!no!
acceptance,!therefore!no!perfected!contract.!Audit!was!not!partial!
performance,!but!only!showed!the!sale!was!far!from!complete.!
!
!
!
!
!
!
!
!
!
!
b. How%ratified%
%
Art.! 1405.! Contracts! infringing! the! Statute! of! Frauds,! referred! to! in!
No.! 2! of! Article! 1403,! are! ratified! by! the! failure! to! object! to! the!
presentation! of! oral! evidence! to! prove! the! same,! or! by! the!
acceptance!of!benefit!under!them.!
!
How!to!ratify!contracts!under!the!Statute!of!Frauds:!
1. Failure!to!object!to!the!presentation!of!oral/parole!evidence!to!
prove! the! same! ! failure! amounts! to! a! waiver! and! makes! the!
contract!binding!as!if!it!had!been!reduced!to!writing!
2. Acceptance! of! benefits! under! them! ! SoF! cannot! be! invoked!
when!the!contract!has!been!partly!executed!
!
Case:!
!
CARBONNEL!V!PONCIO!
Facts:!Carbonnel!alleges!that!she!purchased!from!Poncio!a!parcel!of!
land! at! P9.50/sq.m! (San! Juan! del! Monte,! Rizal),! excluding! the!
improvements.! She! paid! P247.26! and! assumed! Poncios! obligation!
with! RSB,! understanding! that! the! balance! would! be! payable! upon!
execution! of! deed! of! conveyance,! and! that! one! of! the! conditions!
was! Poncio! would! remain! in! occupancy! for! one! year.! Poncio!
allegedly! refused! to! execute! the! deed! of! sale,! and! he! has! allegedly!
conveyed! the! property! to! the! Infantes.! Carbonnel! wants! to! be!
declared! the! owner,! but! defendants! countered,! saying! her! claim! is!
unenforceable!under!the!SoF!because!there!was!no!evidence!of!sale.!
!
Held:! The! SoF! is! applicable! only! to! executory! contracts,! not! to!
contracts!that!are!totally!or!partially!performed.!Partial!performance!
takes! such! contract! from! the! operation! of! the! SoF.! However,! if! a!
contract! has! been! totally! or! partially! performed,! the! exclusion, of,
parol,evidence,would,promote,fraud,or,bad,faith,!for!it!would!enable!
the!defendants!to!keep!the!benefits!already!derived!by!him!from!the!
transaction!in!litigation,!and!at!the!same!time,!evade!the!obligations,!
responsibilities! or! liabilities.! It! is! not! enough! for! a! party! to! allege!
partial! performance! to! declare! SoF! inapplicable,! but! neither! is! he!
required!to!establish!it!by!documentary!proof!before!oral!testimony.!
The! rejection! of! any! and! all! testimonial! evidence! on! partial!
performance! would! nullify! the! rule! that! the! SoF! is! inapplicable! to!
contracts!which!have!been!partly!executed!and!lead!to!the!very!evils!
that! the! statute! seeks! to! prevent.! Based! on! evidence! and! other!
facts,!Carbonnel!is!entitled!legally,!and!from!viewpoint!of!equity,!an!
opportunity!to!introduce!parol!evidence!in!support!of!her!view.!
!
c. Right% of% the% parties% when% a% contract% is%

enforceable%but%a%public%document%is%necessary%
for%its%registration%
!
Art.! 1406.! When! a! contract! is! enforceable! under! the! Statute! of!
Frauds,!and!a!public!document!is!necessary!for!its!registration!in!the!
Registry! of! Deeds,! the! parties! may! avail! themselves! of! the! right!
under!Article!1357.!
!
Art! 1406! ! may! avail! of! their! rights! under! Art! 1357!
(parties!may!compel!each!other!to!observe!the!necessary!
form!once!the!contract!has!been!perfected)!
For! the! application! of! Art.! 1406,! there! must! be! a! valid!
agreement! and! the! agreement! must! not! infringe! the!
Statue!of!Frauds!
!
!!!!!!!121!
!!!!
3. CONTRACTS! EXECUTED! BY! PARTIES! WHO! ARE! BOTH!
INCAPABLE!OF!GIVING!CONSENT!TO!A!CONTRACT!
!
Art.!1403,!par.!3.!Those!where!both!parties!are!incapable!of!giving!
consent!to!a!contract.!
!
a. Effect%of%ratification%by%the%parents%or%guardian%
of%one%of%the%parties%
%
Art.!1407,!par.!1.!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!of!the!contracting!parties!shall!
give! the! contract! the! same! effect! as! if! only! one! of! them! were!
incapacitated.!
!
When!the!unenforceable!becomes!VOIDABLE:!Ratification!
by!the!parent!or!guardian!of!one!of!the!parties!OR!by!one!
of!the!parties!after!attaining!or!regaining!capacity!(express!
or!implied)!
It! converts! the! contract! into! a! voidable! contract! at! the!

option!of!the!party!who!has!NOT!ratified!
The! non?ratifying! party! may:! enforce! the! conract! OR! ask!

for!the!annulment!
!
b. Effect%of%ratification%by%the%parents%or%guardian%
of%both%parties%
!
Art.!1407,!par.!2.!If!ratification!is!made!by!the!parents!or!guardians,!
as!the!case!may!be,!of!both!contracting!parties,!the!contract!shall!be!
validated!from!the!inception.!
When! the! unenforceable! becomes! VALID:! Ratification! by!

the! parents! or! guardians! of! both! parties! OR! by! both!
contracting!parties!after!attaining!or!regaining!capacity!
It! is! validated! and! its! validity! retroacts! to! the! time! it! was!
entered!into!(Art.!1396)!
C. Assailing(Unenforceable(Contracts(
!
Art.! 1408.! Unenforceable! contracts! cannot! be! assailed! by! third!
persons.!
!
Strangers!to!a!voidable!contract!cannot!bring!an!action!to!
annul!the!same,!neither!can!they!assail!a!contract!because!
of!its!unenforceability!(Art.!1397)!
The! benefit! of! the! Statute! can! only! be! claimed! or! waived!
by!one!who!is!a!party!or!privy!to!the!oral!contract,!not!by!a!
stranger!
Question:!Is!a!beneficiary!of!a!stipulation!pour,autri!a!third!
person!under!the!operation!of!this!provision?!
o I! think! yes,! he! can,! because! he! is! removed! from! the!
ambit! of! third! persons! because! of! his! interest! in! the!
contract! (by! being! a! beneficiary).! However,! why!
would!he!assail!said!contract!if!the!same!is!beneficial!
to!him?!
!
!
!
CHAPTER(9:(((
VOID(OR(INEXISTENT(
CONTRACTS(
A. Characteristics(
1. VOID!FROM!THE!BEGINNING!
2. PRODUCES!NO!EFFECT!WHATSOEVER! " !NULLITY!EXIST!IPSO!
JURE,!JUDGMENT!OF!NULLITY!IS!MERELY!DECLARATORY!
3. CANNOT! BE! CONFIRMED! OR! VALIDATED! (BY! PRESCRIPTION!
OR!RATIFICATION),!NEITHER!CAN!THE!RIGHT!TO!SET!UP!THE!
DEFENSE!OF!ILLEGALITY!BE!WAIVED!ART!1409!
4. NO!ACTION!FOR!ANNULMENT!IS!NECESSARY!
5. IF! IT! HAS! BEEN! PERFORMED,! THE! RESTORATION! OF! WHAT!
HAS!BEEN!GIVEN!IS!IN!ORDER!
6. THE! ACTION! OR! DEFENSE! FOR! THE! DECLARATION! OF! ITS!
ILLEGALITY!OR!ABSOLUTE!NULLITY!CANNOT!BE!WAIVED!
ILLEGALITY!OR!ABSOLUTE!NULLITY!DOES!NOT!PRESCRIBE!
ILLEGALITY! OR! ABSOLUTE! NULLITY! IS! NOT! AVAILABLE! TO!
THIRD! PERSONS! WHOSE! INTEREST! ARE! NOT! DIRECTLY!
AFFECTED!
9. ITS! INVALIDITY! CAN! BE! QUESTIONED! BY! ANYONE! AFFECTED!
BY!IT!
ACCION%REIVINDICATORIA,!any!person!may!invoke!the!inexistence!
of! the! contract! whenever! juridical! effects! founded! thereon! are!
asserted!against!him!
!
Action!to!Declare!Nullity!in!case!the!contract!has!been!fulfilled!
Necessary! because! nobody! can! take! the! law! into! his! own!
hands!
If! the! void! contract! is! still! executory,! no! party! need! to!
bring!an!action;!but!if!one!party!brings!action!to!enforce!it,!
nullity!can!be!set!up!as!defense!
The! judgment! will! retroact! to! the! very! day! when! the!
contract!was!entered!into!
Void/inexistent! contracts! distinguished! from! other! defective!
contracts!
VOID!
RESCISSIBLE!
Defect!is!inherent!in!the!
Defect!is!in!their!effects,!either!to!
rd
contract!itself!
one!of!the!parties!or!to!a!3 !party!
Matter!of!law!and!public!
Based!on!equity!and!more!a!
interest!
matter!of!private!interest!
No!legal!effects!even!if!no!
No!action,!remains!valid!and!
action!is!taken!to!set!it!aside!
produces!all!its!effects!
Action!to!declare!nullity!of!
Action!to!rescind!prescribes!in!4!
void!contracts!never!
years!
prescribes!
VOID!
UNENFORCEABLE!
Cannot!be!the!basis!of!actions!to!enforce!compliance!
Can!never!be!ratified!and!
Can!be!ratified!and!thereafter!
!!!!!!!122!
!!!!
become!enforceable!
There!is!no!contract!at!all!
VOID!
One!of!those!essential!
requisites!is!wanting,!either!in!
fact!or!in!law!or!is!declared!
void!by!statute!
No!contract,!but!only!
appearance!of!one,!produces!
no!effect!even!if!not!set!aside!
by!direct!action!(collateral!
attack!allowed)!
Not!susceptible!of!ratification!!
Action!to!declare!nullity!does!
not!prescribe,!permanent,!
even!if!the!cause!of!nullity!
ceased!to!exist!!
enforced!
There!is!a!contract!which,!
however,!cannot!be!enforced!
unless!properly!ratified!
VOIDABLE!
Essential!requisites!for!validity!is!
present,!BUT!consent!is!vitiated!
Valid!until!set!aside,!validity!may!
only!be!assailed!directly,!never!by!
rd
a!3 !person!
May!be!rendered!perfectly!valid!
by!ratification!!
Action!for!annulment!prescribes!in!
4!years!
B. Kinds(
1. CONTRACTS!THAT!ARE!VOID!
a. Those% whose% cause,% object,% or% purpose% is%
contrary% to% law,% morals,% good% customs,% public%
order%or%public%policy%
%
Art.!1409!par!1.!Those!whose!cause,!object!or!purpose!is!contrary!to!
law,!morals,!good!customs,!public!order!or!public!policy!
The!contract!of!the!parties!must!conform!with!the!law!in!
force!at!the!time!it!is!executed.!But!the!right!of!a!party!
under!such!a!contract!cannot!be!affected!by!a!subsequent!
law!removing!or!eliminating!such!right.!
!
i.
When% the% act% constitutes% a% criminal%

offense%
%
Art.!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!parties!is!
guilty;!but!the!innocent!one!may!claim!what!he!has!given,!and!shall!
not!be!bound!to!comply!with!his!promise.!
!
1. BOTH!are!in,pari,delicto!!
No!action!against!each!other!!
BOTH!will!be!prosecuted!
RPC!provision!relative!to!the!disposal!of!
effects/instruments!of!a!crime!shall!apply!!
2. ONLY!ONE!is!guilty!
INNOCENT!PARTY!may!claim!what!he!has!given!!
INNOCENT!PARTY!not!bound!to!comply!with!his!
promise!
!
!
!
!
Case:!
!
URADA!v.!MAPALAD!
Facts:!Atty.!Manuel!Ubarra,!on!behalf!of!his!client!Juanito!Claderon,!
filed!against!Judge!Luzviminda!Mapalad!for!knowingly!rendering!an!
unjust! judgment,! violating! the! Canons! of! Judicial! Ethics,! and! failure!
to! decide! within! the! 90! day! period.! It! was! found! out! that! in! a!
criminal! case! for! grave! threats,! the! accused! (Roberto! Cruda),! was!
her! brother?in?law.! Instead! of! inhibiting,! she! dismissed! the! case,!
acquitting! Cruda.! She! denies! having! knowingly! rendered! an! unjust!
judgment!in!favor!of!Cruda!because!she!was!persuaded!to!dismiss!
the! same! not! on! account! that! the! guilt! of! Cruda! was! not! proven!
beyond!reasonable!doubt!but!by!the!reason!that!both!complainant!
and! accused! therein! were! in! pari! delicto.! When! complainant! saw!
accused! picking! up! the! star! apple! fruits! which! were! theirs,! he!
harangued!the!accused!and!hurled!invectives!against!him.!If!accused!
pelted!complainant!with!stones!and!threatened!to!kill!him,!said!acts!
were!in!retaliation!to!the!unlawful!provocations!of!complainant.!
!
Held:!The!in!pari!delicto!doctrine!cannt!be!applied!to!criminal!cases.!
Under! such! doctrine,! where! parties! to! a! controversy! are! equally!
guilty,!they!shall!have!no!action!against!each!other,!and!it!shall!leave!
the! parties! where! it! finds! them.! Such! rule! is! a! rule! in! civil! law! (Art.!
1411! and! Art! 1412.! In! criminal! suits,! the! State! is! the! prosecutor
thus,! in! pari! delicto! rule! cannot! be! invoked! against! the! State.! The!
private! party! is! but! a! complaining! witness,! and! any! criminal! act!
perpetrated!by!such!cannot!be!imputed!to!the!State.!Although!R!is!
not! necessarily! guilty! for! rendering! an! unjust! judgment! since! no!
convincing!evidence!was!show!to!prove!that!she!rendered!it!with!a!
deliberate! intent! to! commit! injustice,! she! is! found! guilty! of! gross!
ignorance!of!the!law.!
%
ii.
When% the% act% is% unlawful% but% does% not%

constitute%a%criminal%offense%
%
Art.! 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!others!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!to!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.!
%
IN%PARI%DELICTO!RULE!!
1. BOTH!parties!at!fault!
Neither!party!may!recover!what!he!has!given!by!
virtue!of!the!contract!!
Neither!party!may!demand!the!performance!of!the!
others!undertaking!
2. ONLY!ONE!is!guilty!
INNOCENT!PARTY!may!demand!the!return!of!what!he!
has!given!without!obligation!to!comply!with!his!
promise!
PARTY!AT!FAULT!cannot!recover!what!he!has!given!by!
reason!of!the!contract!!
PARTY!AT!FAULT!cannot!ask!for!the!fulfillment!of!
what!has!been!promised!to!him!
!
!!!!!!!123!
!!!!
# Not!applicable!to!fictitious!contracts!because!they!refer!to!
contracts!with!an!illegal!cause!or!subject?matter!(criminal!
offense!OR!only!illegal),!OR!to!contracts!that!are!null!and!
void!ab!initio.!Fictitious!or!simulated!contracts!dont!have!
cause.!
!
EXCEPTIONS,TO,THE,IN,PARI,DELICTO,RULE,
,
General!Statement!of!the!Exception!!
Art.! 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! public! policy! is! thereby!
enhanced,!recover!what!he!has!paid!or!delivered.!
Note:!Agreement!is!not!illegal!per,se,!but!merely!prohibited!!
Prohibition!is!designed!for!the!protection!of!the!plaintiff!!
Plaintiff!may!recover!what!he!paid!or!delivered!if!public!policy!is!
enhanced!
ILLEGAL,PER,SE!!one!that!by!universally!recognized!standards!
is!inherently!or!by!its!very!nature!bad,!improper,!immoral!or!
contrary!to!good!conscience.!
!
Case:!
MODINA!v.!CA!
Facts:! Ramon! Chiang! stated! that! his! wife,! Merlinda,! sold! him! three!
parcels! of! land! as! evidenced! by! the! deed! of! absolute! sale.! These!
lands! were! subsequently! sold! to! the! petitioner! Serafin! Modina! by!
Ramon.!Merlina!executed!lease!contracts!with!private!Respondents!
Hontarciego,!Figueroa,!and!Hipalla.!Modina!brought!a!Complaint!for!
Recovery! of! Possession! with! Damages! against! private! Rs.! Upon!
learning!the!institution!of!the!case,!Merlinda!presented!a!Complaint?
in?intervention,!seeking!the!declaration!of!nullity!of!the!Deed!of!Sale!
between! her! husband! and! Modina! on! the! ground! that! the! titles! of!
the! parcels! of! land! in! dispute! were! never! legally! transferred! to! her!
husband.!!Fraudulent!acts!were!allegedly!employed!by!him!to!obtain!
a!Torrens!Title!in!his!favor.!!However,!she!confirmed!the!validity!of!
the!lease!contracts!with!the!other!private!respondents.!!
!
Held:!The!sale!of!the!subject!lots!should!be!nullified.!!
Art.! 1490.!! The! husband! and! the! wife! cannot! sell! property! to! each!
other,!except:!
(1)!!when!a!separation!of!property!was!agreed!upon!in!the!marriage!
settlements;!or!
(2)!!when!there!has!been!a!judicial!separation!of!property!under!Art.!
191.!
The! exception! to! the! rule! laid! down! in! Art.! 1490! of! the! New! Civil!
Code! not! having! existed! with! respect! to! the! property! relations! of!
Ramon! Chiang! and! Merlinda! Plana! Chiang,! the! sale! by! the! latter! in!
favor!of!the!former!of!the!properties!in!question!is!invalid!for!being!
prohibited! by! law.!! Not! being! the! owner! of! subject! properties,! sale!
by! Ramon! Chiang! in! favor! of! SerafinModina! is,! likewise,! void! and!
inexistent.! There! is! no! sufficient! evidence! establishing! fault! on! the!
part! of! Merlinda,! and! therefore,! the! principle! of! in, pari, delicto! is!
inapplicable! and! the! sale! was! void! for! want! of! consideration.!! In!
effect,! Merlinda! can! recover! the! lots! sold! by! her! husband! to!
petitioner!Modina.!!!
!
!
!
!
!
!
!
OTHER,SPECIFIC,EXCEPTIONS,
,
i.
When%the%purpose%is%illegal%and%money%is%
paid%or%property%delivered%therefor%
%
Art.! 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! accomplished,! or! before! any! damage!
has! been! caused! to! a! third! person.! In! such! case,! the! courts! may,! if!
public! interest! will! thus! be! subserved,! allow! the! party! repudiating!
the!contract!to!recover!the!money!or!property.!
!
When! the! PURPOSE! is! illegal, and! money! is! paid! or!
property! delivered! therefore! "! may! be! repudiated! by!
one! of! the! parties! before! the! purpose! has! been!
accomplished!OR!before!any!damage!has!been!caused!to!
rd
a!3 !person.!%
Courts! may! allow! the! party! repudiating! the! contract! to!

recover! the! money! or! property,! if! the! public! interest! will!
thus!be!subserved.%
%
ii.
When%the%contract%is%illegal%and%one%of%the%
parties%is%incapable%of%giving%consent%
%
Art.! 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.!
%
When!the!CONTRACT!is!illegal!and!one!of!the!parties!is!
INCAPABLE!of!giving!consent!"!courts!may!allow!
recovery!of!money/property!delivered!by!the!
incapacitated!person,!if!interest!of!justice!so!demands.!
%
Cases:!
!
LIGUEZ!v.!CA!(supra)!
Facts:!Conchita!Liguez!filed!a!complaint!against!the!widow!and!heirs!
of! the! late! Salvador! Lopez! to! recover! a! parcel! of! land! that! was!
donated!to!her!by!the!latter.!As!a!defense,!the!heirs!of!Lopez!claim!
that! the! donation! is! null! a! void! for! having! an! illicit! causathat! she!
would! have! sexual! relations! with! him.! At! the! time! of! the! donation,!
Liguez! was! only! 16! years! old.! Said! land! originally! belonged! to! the!
conjugal!partnership!of!Lopez!and!his!wife,!Maria!Ngo.!
!
Held:!The!CA!erred!in!applying!the!pari!delicto!rule.!It!cannot!be!said!
that!both!parties!had!equal!guilt,!considering!that!she!was!only!16!at!
the!time!of!the!donation.!Her!acceptance!doesnt!necessarily!imply!
knowledge! of! its! terms! and! conditions,! which! was! more! suggestive!
of! seduction! that! of! immoral! bargaining.! Also,! Lopez! could! not!
donate! the! entirety! of! the! property! to! the! prejudice! of! his! wife!
because!it!is!conjugal!in!character!(void!only!insofar!as!it!prejudices!
the!wife).!Liguez!is!only!entitled!to!so!much!of!the!donated!property!
as! may! be! found! not! to! prejudice! the! share! of! Maria! Ngo! and! the!
forced!heirs!of!Lopez.!
!
RELLOSA!v.!GAW!CHEEN!HUM!
Facts:! Dionisio! Rellosa! sold! to! Gaw! Chee! Hun! a! parcel! of! land,!
together!with!the!house!erected!thereon,!situated!in!Manila!for!the!
sum! of! P25,000.! A! contract! of! lease! was! entered! into! on! the! same!
day! between! Rellosa! and! Chee! Hun.! Thus,! Rellosa! (the! vendor)!
remained! in! possession! of! the! property.! The! vendor! instituted! the!
!!!!!!!124!
!!!!
present! action! in! CFI! Manila! seeking! the! annulment! of! the! sale! as!
well!as!the!lease!covering!the!land!and!the!house!alleging!that:!the!
sale!was!executed!subject!to!the!condition!that!the!vendee,!being!a!
Chinese!citizen,!would!obtain!the!approval!of!the!Japanese!Military!
Administration! in! accordance! with! (seirei)! No.! 6! issued! on! April! 2,!
1943,! by! the! Japanese! authorities,! and,! that! the! approval! has! not!
been! obtained! and! even! if! said! requirement! were! met,! the! sale!
would! at! all! events! be! void! under! article! XIII,! section! 5,! of! our!
Constitution.! Defendant! answered! the! complaint! setting! up! as!
special! defense! that! the! sale! referred! to! in! the! complaint! was!
absolute! and! unconditional! and! was! in! every! respect! valid! and!
binding!between!the!parties.!Defendant!claims!that!plaintiff!is!guilty!
of! estoppel! in! that,! by! having! executed! a! deed! of! lease! over! the!
property,! he! thereby! recognized! the! title! of! defendant! to! that!
property.!
!
Held:! The! sale! and! lease! contracts! are! not! valid.! The! Constitution!
adopted! in! September! 1943! (transaction! was! entered! into! on!
February! 2,! 1944),! in! its! article! VIII,! section! 5,! provides! that! "no!
private! agricultural! land! shall! be! transferred! or! assigned! except! to!
individuals,!corporations,!or!associations!qualified!to!acquire!or!hold!
lands!of!the!public!domain!in!the!Philippines",!which!provisions!are!
similar!to!those!contained!in!our!present!Constitution.!As!to!whether!
the!phrase!"private!agricultural!land"!employed!in!said!Constitution!
includes! residential! lands:! In! Krivenko! vs.! Register! of! Deeds,! the!
court! held! that! "under! the! Constitution! aliens! may! not! acquire!
private! or! public! agricultural! lands,! including! residential! lands.!
Plaintiffs! cannot! recover! said! land! even! if! they! can! still! invoke! the!
Constitution,! or! the! doctrine! in! the! Krivenko! Case,! to! set! aside! the!
sale! in! question,! they! are! now! prevented! from! doing! so! if! their!
purpose! is! to! recover! the! lands! that! they! have! voluntarily! parted!
with,! because! of! their! guilty! knowledge! that! what! they! were! doing!
was!in!violation!of!the!Constitution.!
!
iii.
When% the% agreement% is% not% illegal% per% se%

but%is%prohibited%
%
Art.! 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! public! policy! is! thereby!
enhanced,!recover!what!he!has!paid!or!delivered.!
%
Cases:!
PHILIPPINE!BAKING!CORP!v.!LUI!SHE!
Facts:!Justina!and!her!sister!Lorenza!were!the!owners!in!common!of!
a! piece! of! land! in! Manila.! They! lived! in! one! of! the! houses,! while!
Wong!Heng,!a!Chinese,!lived!with!his!family!in!the!restaurant.!Wong!
had! been! a! long?time! lessee! of! a! portion! of! the! property,! having! a!
monthly! rental! of! P2,620.! Justina! Santos! became! the! owner! of! the!
entire! property! as! her! sister! died! with! no! other! heir.! Then! already!
well! advanced! in! years,! being! at! the! time! 90! years! old,! blind,!
crippled! and! an! invalid,! she! was! left! with! no! other! relative! to! live!
with,! but! she! was! taken! cared! of! by! Wong.! "In! grateful!
acknowledgment! of! the! personal! services! of! the! Lessee! to! her,"!
Justina! executed! a! contract! of! lease! in! favor! of! Wong! covering! the!
entire! property.! On! December! 21! she! executed! contract! giving!
Wong!the!option!to!buy!the!leased!premises!for!P120,000.!!
On! November! 18,! 1958! she! executed! two! other! contracts,! one!
extending!the!term!of!the!lease!to!99!years,!and!another!fixing!the!
term!of!the!option!at!50!years.!In!a!codicil!of!a!later!date!(November!
4,! 1959)! she! appears! to! have! a! change! of! heart.! Claiming! that! the!
various! contracts! were! made! by! her! because! of! machinations! and!
inducements! practised! by! him,! she! now! directed! her! executor! to!
secure!the!annulment!of!the!contracts.!Both!parties!however,!died.!
Paragraph!5!of!the!lease!contract!states!that!"The!lessee!may!at!any!
time! withdraw! from! this! agreement."! It! is! claimed! that! this!
stipulation!offends!article!1308!of!the!Civil!Code!which!provides!that!
"the! contract! must! bind! both! contracting! parties;! its! validity! or!
compliance!cannot!be!left!to!the!will!of!one!of!them."!!
!
Held:!Contract!of!lease!cannot!be!sustained.!If!an!alien!was!given!not!
only!a!lease!of,!but!also!an!option!to!buy,!a!piece!of!land,!by!virtue!
of! which! the! Filipino! owner! cannot! sell! or! otherwise! dispose! of! his!
property,! this! to! last! for! 50! years,! then! it! became! clear! that! the!
arrangement!was!a!virtual!transfer!of!ownership!whereby!the!owner!
divested!himself!in!stages!not!only!of!the!right!to!enjoy!the!but!also!
of! the! right! to! dispose! of! rights! the! sum! total! of! which! make! up!
ownership.! It! was! just! as! if! today! the! possession! is! transferred,!
tomorrow,! the! use,! the! next! day,! the! disposition,! and! so! on,! until!
ultimately! all! the! rights! of! which! ownership! is! made! up! are!
consolidated! in! an! alien.! And! yet! this! was! just! exactly! what! the!
parties!in!this!case!did!within!this!pace!of!one!year,!with!the!result!
that! Justina! Santos'! ownership! of! her! property! was! reduced! to! a!
hollow! concept.! If! this! can! be! done,! then! the! Constitutional! ban!
against!alien!landholding!in!the!Philippines,!is!indeed!in!grave!peril!
!
FRENZEL!v.!CATITO!
Facts:! Petitioner! Alfred! Fritz! Frenzel! is! an! Australian! citizen! of!
German!descent.!He!arrived!in!the!Philippines!in!1974!and!married!
Teresita! Santos,! a! Filipino! citizen.! In! 1981,! Alfred! and! Teresita!
separated! from! bed! and! board! without! obtaining! a! divorce.! Alfred!
arrived! in! Sydney,! Australia! for! a! vacation.! He! met! Ederlina! Catito!
there,! who! was! a! native! of! Davao! City! ! and! was! married! to! Klaus!
Muller.!Alfred!proposed!marriage!to!Ederlina,!but!she!said!to!wait!a!
little!longer!pending!his!divorce.!Ederlina!!put!up!a!beauty!parlor!on!
the! property! under! the! business! name! Edorial! Beauty! Salon.! Alfred!
paid! Atty.! Hidalgo! ! P20,000.00! for! his! right! over! the! property! and!
gave! P300,000.00! to! Ederlina! for! the! purchase! of! equipment! and!
furniture! for! the! parlor.! ! As! Ederlina! executed! a! special! power! of!
attorney]!appointing!her!brother,!Aser!Catito,!as!her!attorney?in?fact!
in!managing!the!beauty!parlor!business.!!She!stated!in!the!said!deed!
that! she! was! married! to! Klaus! Muller.! ! Alfred! went! back! to! Papua!
New! Guinea! to! resume! his! work! as! a! pilot.! When! he! came! back! to!
the! Phil,! he! bought! her! a! new! house! for! $20k.! It! was! under! her!
name,!since!foreigners!arent!allowed!to!own!land!in!the!Phil.!!While!
Alfred! was! in! Papua! New! Guinea,! he! received! aletter! from! Klaus!
Muller,! telling! him! that! Klaus! and! Ederlina! were! still! marriedHe!
begged! Alfred! to! leave! Ederlina! alone! and! return! her! to! him.!
Eventually,!their!relationship!turned!sour,!when!Ederlinas!attempts!
to! divorce! Klaus! failed.! Alfred! wanted! his! money! back,! saying! she!
and!her!family!stole!all!of!it.!He!filed!with!the!RTC!for!recovery!of!
his!real!and!personal!properties!in!Quezon!and!Manila.!He!also!filed!
a! complaint! against! her! in! the! RTC! of! Davao,! for! specific!
performance,! declaration! of! ownership! of! real! and! personal!
properties,! sum! of! money,! and! damages! all! amounting! to! more! or!
less!P724k.!
Held:!The!transactions!are!void!ab!initio.!Lands!of!the!public!domain,!
which!include!private!lands,!may!be!transferred!or!conveyed!only!to!
individuals! or! entities! qualified! to! acquire! or! hold! private! lands! or!
lands! of! the! public! domain.! Aliens,! whether! individuals! or!
corporations,! have! ! been! disqualified! from! acquiring! lands! of! the!
!!!!!!!125!
!!!!
public! domain.! Hence,! they! have! also! been! disqualified! from!

acquiring! private! lands.! Said! transactions! are! in! violation! of! the!
Constitution;!hence,!are!null!and!void!ab!initiovests!no!rights!and!
creates! no! obligations.! It! produces! no! legal! effect! at! all.! The!
petitioner,! being! a! party! to! an! illegal! contract,! cannot! come! into! a!
court! of! law! and! ask! to! have! his! illegal! objective! carried! out.! ! One!
who! loses! his! money! or! property! by! knowingly! engaging! in! a!
contract!or!transaction!which!involves!his!own!moral!turpitude!!may!
not! maintain! an! action! for! his! losses.! Art.! 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! public! policy! is! thereby! enhanced,! recover! what! he! has!
paid!or!delivered.!$Plaintiff!cannot!use!this!provision.!The!provision!
applies!only!to!those!contracts!which!are!merely!prohibited,!in!order!
to! benefit! private! interests.! It! does! not! apply! to! contracts! void! ab!
initio.!
iv.
When% the% amount% paid% exceeds% the%

maximum%fixed%by%law%
%
Art.!1417.!When!the!price!of!any!article!or!commodity!is!determined!
by!statue,!or!by!authority!of!law,!any!person!paying!any!amount!in!
excess!of!the!maximum!price!allowed!may!recover!such!excess.!
When!the!amount!paid!exceeds,the,maximum,fixed,by,law!
"!any!person!paying!in!excess!of!the!maximum!price!may!
recover!such!excess%
%
v.
When% by% virtue% of% a% contract,% a% laborer%

undertakes% to% work% longer% that% the%
maximum% number% of% hours% of% work% fixed%
by%law%
%
Art.! 1418.! When! the! law! fixes,! or! authorizes! the! fixing! of! the!
maximum!number!of!hours!of!labor,!and!a!contract!is!entered!into!
whereby! a! laborer! undertakes! to! work! longer! than! the! maximum!
this! fixed,! he! may! demand! additional! compensation! for! service!
rendered!beyond!the!time!limit.!
When!by!virtue!of!contract!a!laborer!undertakes!to!work!
longer,than,the,maximum,number,of,hours!of!work!fixed!
by!law!"!worker!may!demand!additional!compensation!
for!service!rendered!beyond!the!limit!
vi.
When% a% laborer% agrees% to% accept% a% lower%

wage%than%that%set%by%law%
%
Art.! 1419.! When! the! law! sets,! or! authorizes! the! setting! of! a!
minimum!wage!for!laborers,!and!a!contract!is!agreed!upon!by!which!
a! laborer! accepts! a! lower! wage,! he! shall! be! entitled! to! recover! the!
deficiency.!
When!a!laborer!agrees!to!accept!a!lower,wage!than!that!
set!by!law!"!entitled!to!recover!deficiency!
vii.
%
When%the%contract%is%divisible%
Art.! 1420.! In! case! of! a! divisible! contract,! if! the! illegal! terms! can! be!
separated!from!the!legal!ones,!the!latter!may!be!enforced.!
When!the!contract!is!divisible!"!if!illegal!terms!can!be!
separated!from!legal!ones,!enforce!latter!
o In!case!of!doubt,!contract!is!considered!as!
divisible!or!separable.!
EXCEPTIONS:!!!
4. Nature!of!contract!requires!indivisibility!e.g.!contract!
of!compromise!!
5. Intention!of!the!parties!is!that!the!contract!be!entire!
e.g.!if!what!is!void!be!the!essential!part,!void!the!
entire!contract.!Divisibility!will!only!be!followed!when!
the!nullity!affects!only!the!secondary!or!accessory!
obligations.!!
viii.
When%the%contract%is%the%direct%result%of%a%
previous%illegal%contract%
%
Art.! 1422.! A! contract! which! is! the! direct! result! of! a! previous! illegal!
contract,!is!also!void!and!inexistent.!
When! the! contract! is! the! DIRECT! RESULT! of! a! previous,

illegal!contract!"!also!void!and!inexistent%
b. Those%whose%object%is%outside%the%commerce%of%
man%
%
Art.! 1409! par! 4.! Those! whose! object! is! outside! the! commerce! of!
man!
e.g!Things!of!public!ownership!such!as!sidewalks,!public!
places,!bridges,!streets,!etc.;!things!that!are!common!to!
everybody!such!as!air,!sunlight,!rain,!etc!
!
c. Those%which%contemplate%an%impossible%service%
%
Art.!1409!par!5.!Those!which!contemplate!an!impossible!service!
!
The!absolute!impossibility!nullifies!the!contract.!
The!relative!impossibility,!if!temporary,!does!not!nullify!
the!contract,!such!as!when!a!partner!agrees!to!contribute!
to!the!partnership!an!amount!more!than!is!permissible!by!
his!means!
!
d. Those% where% the% intention% of% the% parties%

relative% to% the% principal% object% of% the% contract%
cannot%be%ascertained%
%
Art.!1409!par!6.!Those!where!the!intention!of!the!parties!relative!to!
the!principal!object!of!the!contract!cannot!be!ascertained!
The!object!of!a!contract!must!be!determinate!as!to!its!kind!
or!at!least!determinable!without!the!necessity!of!a!new!or!
further!agreement!between!the!parties.!It!need!not!be!
specified!with!absolute!certainty.!
!
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!
!!!!!!!126!
!!!!
e. Those%expressly%prohibited%or%declared%void%by%
law%
%
Art.!1409!par!7.Those!expressly!prohibited!or!declared!void!by!law!
Where!the!illegality!of!the!contract!proceeds!from!an!
express!prohibition!or!declaration!by!law,!and!not!from!
any!intrinsic!illegality,!the!contract!is!not!illegal!per,se!
Examples:!
1. Contracts!upon!future!inheritance!except!in!cases!
expressly!authorized!by!law.!(Art.!1347.)!
2. Sale!of!property!between!husband!and!wife!except!
when!there!is!a!separation!of!property.!(Art.!1490.)!
3. Purchase!of!property!by!persons!who!are!specially!
disqualified!by!law!(like!guardians,!agents,!executors,!
administrators,!public!officers!and!employees,!judges,!
lawyers,!etc.)!because!of!their!position!or!relation!
with!the!person!or!property!under!their!care.!(Art.!
1491.)!
!
2. CONTRACTS!THAT!ARE!INEXISTENT!
a. Those% which% are% absolutely% simulated% or%

fictitious%
%
Art.!1409!par!2.!Those!which!are!absolutely!simulated!or!fictitious!
e.g.!A!contract!of!sale!is!void!where!the!price,!which!
appears!thereon!as!paid,!has!in!fact!never!been!paid.!
!
Art.!1345.!Simulation!of!a!contract!may!be!absolute!or!relative.!The!
former! takes! place! when! the! parties! do! not! intend! to! be! bound! at!
all;!the!latter!when!the!parties!conceal!their!true!agreement.!
!
Art.! 1346.! An! absolutely! simulated! or! fictitious! contract! is! void.! A!
relative!simulation,!when!it!does!not!prejudice!a!third!person!and!is!
not!intended!for!any!purpose!contrary!to!law,!morals,!good!customs,!
public! order! or! public! policy! binds! the! parties! to! their! real!
agreement.!
%
b. Those% whose% cause% or% object% did% not% exist% at%

the%time%of%the%transaction%
%
Art.! 1409! par! 3.! Those! whose! cause! or! object! did! not! exist! at! the!
time!of!the!transaction!
The!phrase!did!not!exist!at!the!time!of!the!transaction!
does!not!apply!to!a!future!thing!which!may!legally!be!the!
object!of!a!contract.!
C. Right( to( set( up( defense( of( illegality( cannot( be(

waived(
!
Art.!1409!last!paragraph.!These!contracts!cannot!be!ratified.!Neither!
can!the!right!to!set!up!the!defense!of!illegality!be!waived.!
(
!
!
!
D. The( action( or( defense( for( the( declaration( of(

the(inexistence(of(a(contract(
!
1.!DOES!NOT!PRESCRIBE!
!
Art.! 1410.! The! action! or! defense! for! the! declaration! of! the!
inexistence!of!a!contract!does!not!prescribe.!
!
Does!not!prescribe,!defect!is!permanent!and!incurable!
Validity!cannot!be!given!to!it!by!estoppel!if!it!is!prohibited!
by!law!or!is!against!public!policy!
There!is!no!need!of!an!action!to!set!aside!a!void!contract.!
However,!an!action!to!declare!its!non?existence!can!be!
maintained;!and!in!the!same!action,!the!plaintiff!may!
recover!what!he!has!given!by!virtue!of!the!contract!
The!power!to!ask!for!such!declaration!cannot!be!assigned!
!
2.!IS!NOT!AVAILABLE!TO!THIRD!PERSONS!WHOSE!INTEREST!IS!NOT!
DIRECTLY!AFFECTED!
!
Art.! 1421.! The! defense! of! illegality! of! contracts! is! not! available! to!
third!persons!whose!interests!are!not!directly!affected.!
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Ratification!may!take!the!form!of!a!new!contract,!in!which!
case! its! validity! shall! be! determined! only! by! the!
circumstances! at! the! time! of! the! execution! of! the! new!
contract.! However,! the! same! does! not! retroact! to! the!
constitution!of!the!first!contract.!
!!!!!!!127!
!!!!
TITLE%III:%%%
NATURAL%OBLIGATIONS%
A. Definition(
!
Art.! 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.!
!
Natural! obligations! are! not! cognizable! by! the! courts! unless!
there!has!been!voluntary!fulfillment!in!which!case,!the!court!
may! order! the! retention! of! what! has! been! paid! (Ansay! v.!
Board!of!Directors!of!the!National!Dev.!Co.)!
Midway! between! civil! and! the! purely! moral! obligation.!
Obligation! without! a! sanction,! susceptible! of! voluntary!
performance,!but!not!through!compulsion!by!legal!means.!!
Real! obligation! which! law! denies! action,! but! which! the!
debtor!may!perform!voluntarily.!!
Patrimonial!and!presupposes!a!prestation.!!!
B. Four(Types(of(Obligations(in(Juridical(Science(
!
1.
2.
3.
4.
Moral! obligations! ! duties! of! conscience! completely!

outside!the!field!of!law!
Natural!obligations!!duties!not!sanctioned!by!any!action!
but!have!a!relative!judicial!effect!
Civil! obligations! ! juridical! obligations! that! are! in!
conformity! with! positive! law! but! are! contrary! to! juridical!
principles! and! susceptible! of! being! annulled;! enforceable!
by!action!
Mixed! obligations! ! full! juridical! effect;! falls! under! civil!
obligations!
C. Requisites(
!
1.
2.
Juridical!tie!between!two!persons.!!
Tie!is!not!given!effect!by!law!but!instead!by!the!conscience,
of,man!
D. As(Distinguished(from(Civil(Obligations(
!
!
NATURAL!
As!to!enforceability!! Not! by! court! actions,!
but!
by!
good!
conscience!of!debtor!
As!to!basis!
Equity! and! natural!
justice!
CIVIL!
Court! action! or! the!
coercive! power! of!
public!authority!
Positive! law! (law,!
contracts,!
quasi?
contracts,!delicts,!and!
quasi?delicts)!
(
E. As(Distinguished(by(Moral(Obligations(
!
NATURAL!
PURELY!MORAL!
There!is!a!juridical!tie!
There!is!no!juridical!tie!
Performance! by! the! debtor! is! a! Act!is!purely!liberality!
legal!fulfillment!of!the!obligation!
A! true! obligation! with! a! legal! tie! Matter! is! entirely! within! the!
between!debtor!and!creditor!
domain!of!morals!
!
VILLAROEL!v.!ESTRADA!
Facts:! Alejandra! Callao! obtained! loan! payable! after! 7! years,! from!
Estrada!spouses!in!1912.!Jose!Villaroel!(son!of!Callao,!the!latter!now!
deceased)! executed! a! document! in! 1930! recognizing! the! previous!
debt.!Estrada!filed!for!collection!against!Villaroel!
!
Held:! The! present! action! is! not! based! on! the! original! obligation!
which!has!prescribed!but!on!the!new!one!wherein!Villaroel!assumed!
the!obligation.!The!rule!that!a!new!promise!to!pay!a!prescribed!debt!
may!only!be!done!by!the!same!person!or!another!legally!authorized!
by! her! only! applicable! when! the! new! would! be! debtor! did! not!
assume!the!debt!voluntarily.!
!
FISHER!v.!ROBB!
Facts:! AO! Fisher! filled! a! stock! subscription! to! the! Philippine!
Greyhound!Club!and!paid!2!installments.!Phil.!Greyhound!Club!failed!
and! John! Robb! established! the! Phil.! Racing! Club! and! acquired! the!
assets!of!the!Greyhound!Club!to!save!investments.!Robb!sent!letters!
to! Fisher! saying! that! he! felt! morally! responsible! for! the! loss! and!
would! see! to! it! that! the! 2nd! installment! will! be! repaid! even! if! it! is!
out! of! his! own! pocket.! Fisher! filed! for! collection! of! the! amount! of!
the!installment!
!
Held:! There! was! no! contract! formed! between! Robb! and! Fisher! as!
there!was!no!proof!that!Fisher!accepted!Robbs!offer.!There!was!no!
consideration!to!be!given!by!Fisher!as!well.!The!obligation!is!purely!
moral!and!thus!not!demandable.!
F. Conversion(to(Civil(Obligation(
!
GENERAL! RULE:! Partial! payment! of! a! natural! obligation! does! not!
make!it!civil;!the!part!paid!cannot!be!recovered!but!the!payment!of!
the! balance! cannot! be! enforced.! "! applicable! only! to! natural!
obligation!because!of!prescription!or!lack!of!formalities!(nullity!due!
to! form! e.g.! Art! 1430)! and! NOT! to! natural! obligation! subject! to!
ratification!or!confirmation.!!
Payment! by! mistake! is! not! voluntary! and! may! be!

recovered.! Payment! is! voluntary! when! the! debtor! knew!
that! the! obligation! is! a! natural! one.! One! who! pays! a!
natural!obligation,!believing!it!to!be!civil,!does!not!thereby!
recognize! the! natural! obligation;! and! there! being! no! civil!
obligation! either,! he! can! recover! what! he! has! paid.! The!
debtor!however!has!the!burden!of!proving!the!mistake.!!
!
1. By!novation!
2. By!confirmation!or!ratification!
!
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!!!!!!!128!
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G. Examples(
!
Art.!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.!
!
Art.! 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.!
!
Art.!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!
the!he!has!not!been!benefited!thereby,!there!is!no!right!to!demand!
the!thing!or!price!thus!returned.!
!
Art.!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.!
!
Art.! 1428.! When,! after! an! action! to! enforce! a! civil! obligation! has!
failed!the!defendant!voluntarily!performs!the!obligation,!he!cannot!
demand!the!return!of!what!he!has!delivered!or!the!payment!of!the!
value!of!the!service!he!has!rendered.!
!
Art.!1429.!When!a!testate!or!intestate!heir!voluntarily!pays!a!debt!of!
the!decedent!exceeding!the!value!of!the!property!which!he!received!
by! will! or! by! the! law! of! intestacy! from! the! estate! of! the! deceased,!
the!payment!is!valid!and!cannot!be!rescinded!by!the!payer.!
!
Art.! 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!a!clause!in!the!defective!
will,!the!payment!is!effective!and!irrevocable.!
!
Note:! In! Art.! 1427,! it! is! not! the! voluntary! payment! that! prevents!
recovery,!but!the!consumption!or!spending!of!the!thing!or!money!in!
good!faith.!!
This! article! creates! an! exception! to! the! rule! of! mutual!
restitution.! ! ?! ! ! Minor! would! have! been! required! to! return!
whatever!he!received!upon!annulment!of!contract.!!
Good!faith:!belief!that!debtor!has!capacity!to!deliver!the!object!
of!contract!
Fungible!thing:!consumable!!
Non?consummable:! debtor! cannot! recover! if! no! longer! in! the!

possession! of! the! creditor,! because! the! right! to! recover!
presupposes!existence!of!thing.!
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TITLE%IV:%%%
ESTOPPEL%
A. Definition(
!
Concept!
!
Art.! 1431.! Through! estoppel,! an! admission! or! representation! is!
rendered! conclusive! upon! the! person! making! it,! and! cannot! be!
denied!or!disproved!as!against!the!person!relying!thereon.!
ESTOPPEL!DISTINGUISHED!
!
EQUITABLE!ESTOPPEL!VS.!WAIVER!
!
AS!TO!
(EQUITABLE)!ESTOPPEL!
Voluntariness!of! May!arise!without!
Abandonment! intention!by!the!party!
of!Rights!
to!relinquish!any!
existing!right!
!
Being!misled! It!is!one!of!the!essential!
to!ones!
elements!of!an!
prejudice!
equitable!estoppel.!
Number!of!
parties!
It!is!a!bar which!precludes!a!person!from!denying!or!asserting!
anything! to! the! contrary! of! that! which! in! has,! in!
contemplation! of! law,! been! established! as! the! truth,! either!
by!the!acts!of!judicial!or!legislative!officers!or!by!his!own!deed!
or!representation,!either!express!or!implied.
Its!origin!is!in!equity!and!is!therefore!based!on!moral!right!and!
natural!justice!(principle!of!equity,!not!principle!of!law).!
It!is!only!of!suppletory!application;!it!cannot!supplant!positive!
law.!
Sir!Labitag:!It!is!not!a!cause!of!action.!It!can!never!be!used!as!a!
sword!or!a!spear,!it!can!only!be!used!as!a!shield.!Dyou!get!it?!
!
APPLICABILITY!OF!ESTOPPEL!
Estoppel!will!only!be!available!in!a!defense!of!a!legal!or!equitable!
right!or!claim,!made!in!good!faith!AND!can!never!be!asserted!to!
uphold! crime,! fraud,! injustice! or! wrong! of! any! character;! it! is!
applied! against! wrongdoers! and! not! against! the! victim! of! a!
wrong.!
Estoppel! will! not! lie! against! the! government,! acting! in! its!
capacity! as! a! sovereign! or! when! it! asserts! its! rights! as! the!
government;! it! is! not! estopped! by! the! mistakes,! errors,!
negligence!or!omission!on!the!part!of!its!officials!or!agents.!
It! is! based! on! equity! and! hence,! cannot! be! predicated! on! an!
illegal!act.!
o Labor! provides! a! more! common! example! "! For! example,!
employees!who!received!their!separation!pay!are!not!barred!
from!contesting!the!legality!of!their!dismissal!nor!would!it!be!
considered! as! a! waiver! of! their! right! to! apply! for!
reinstatement.!
There!is!estoppel!when!a!party!who!has!the!right!to!pursue!one!
of!the!several,!inconsistent!alternative!remedies!available!to!him!
(ex.! specific! performance! and! rescission),! chooses! one,! files! a!
suit! and! prosecutes! the! same! until! final! judgement;! he! cannot,!
later!on,!pursue!the!alternative!remedies!he!did!not!choose.!
Criminal!actions!for!public!offenses!cannot!be!waived!or!barred!
by!estoppel.!
One! who! claims! the! benefit! of! an! estoppel! on! the! ground! of!
being! misled! by! the! other! partys! misrepresentation! should! not!
have! misled! by! his! own! want! of! reasonable! care.! Good! faith!
requires!that!due!diligence!has!been!observed.!Estoppel!is!not!a!
shield!against!ones!own!negligence.!
!
!
!
!
Equitable!estoppel!
involves!the!conduct!of!
both!parties!
Implication!is!present!
frequently!
Implication!of!
Fraud!
!
EQUITABLE!ESTOPPEL!VS.!RATIFICATION!
WAIVER!
Is!a!voluntary!and!
intentional!
abandonment!of!a!
known!right!
There!is!no!implication!
that!the!party!who!is!
waiving!a!right!has!been!
misled!to!his!own!
prejudice.!
Waiver!only!involves!the!
conduct!of!the!party!
waiving!a!right.!
Never!
!
AS!TO!
Substance/Essence!
Reason!for!being!
bound!
Reliance!on!
Prejudice!
(EQUITABLE)!
ESTOPPEL!
Inducement!towards!
another!to!act!to!his!
prejudice!
Bound,!regardless!of!
intention,!because!
the!other!will!be!
prejudiced!unless!the!
law!treats!him!as!
legally!bound!
Is!applied!when!the!
other!party!will!be!
unjustly!prejudiced!
RATIFICATION!
Confirmation!after!
conduct!
Bound!because!he!
intended!to!be!
Does!not!rest!upon!
the!presence!of!
prejudice!
!
KALALO!v.!LUZ!
Facts:! Kalalo! was! a! civil! engineer! while! Luz! was! an! architect.! Their!
respective! firms! entered! into! an! agreement! where! Kalalos!
engineering!firm!was!contracted!by!Luzs!architectural!firm!to!render!
engineering!services.!Later!on,!Kalalo!sent!a!letter!stating!that!there!
was! still! a! balance! of! P59,565;! however,! in! a! separate! letter,! Luz!
disputes! this! and! claims! the! amount! is! only! at! P10,861,! which! he!
tried!to!pay!to!Kalalo!but!was!not!accepted.!Kalalo!then!filed!a!suit!in!
which! he! added! a! claim! for! a! separate! $28,000! on! top! of! the!
P59,565!due!him.!The!court!ruled!in!favor!of!Kalalo.!Luz!contended!
that! the! $28,000! should! not! have! been! granted! since! the! letter!
Kalalo! sent! (the! one! with! the! value! of! P59k)! estopped! him! from!
making!other!claims.!
!
Held:! Estoppel! did! not! arise.! The! court! identified! that! the! estoppel!
st
Luz! was! claiming! was! estoppel! in! pais.! Kalalo! did! not! meet! the! 1 !
nd
(counduct! amounting! to! false! representation)! and! 2 ! (intent! to!
induce!other!party)!requisites!and!so!estoppel!did!not!arise!because,!
as! the! court! notes,! the! letter! was! made! with! a! mistaken!
interpretation.!
!!!!!!!130!
!!!!
B. Kinds(
1. TECHNICAL!ESTOPPEL!
!
1. Estoppel%by%Record%
!
ESTOPPEL!BY!RECORD!is!the!preclusion!to!deny!the!truth!
of! matters! set! forth! in! a! record,! whether! judicial! or!
legislative,! and! also! a! preclusion! to! deny! the! facts!
adjudicated!by!a!court!of!competent!jurisdiction.!
An! example! would! be! the! conclusiveness! of!

judgement! (in! effect,! an! estoppel! by, judgement)! to!
the!parties!of!a!case.!
!
2. Estoppel%by%Deed%
!
ESTOPPEL!BY!DEED!is!a!bar!which!precludes!one!party!to!a!
deed! and! his! privies! from! asserting! as! against! the! other!
party!and!his!privies!any!right!or!title!in!derogation!of!the!
deed! or! from! denying! the! truth! of! any! material! facts!
asserted!in!it.!
A! void! deed,! however,! cannot! be! a! basis! of! this!

estoppel.!
This! concept! promotes! the! policy! of! making! formal!

documents!final!and!conclusive!of!their!contents.!
2. EQUITABLE!ESTOPPEL/ESTOPPEL!IN!PAIS!
!
CONCEPT!
!
EQUITABLE!ESTOPPEL!or!ESTOPPEL!IN%PAIS!is!a!bar!that!arises!when!
a! party,! by! his! acts,! representations,! or! admissions,! or! by! his!
silence!when!he!ought!to!speak!out,!or!by!his!acceptance!of!benefits!
derived!from!a!certain!transaction,!intentionally!or!through!culpable!
negligence,! induces! another! party! to! believe! certain! facts! to! exist!
and! such! other! party! rightfully! relies! and! acts! on! such! belief,! as! a!
consequence! of! which! the! latter! party! would! be! prejudiced! if! the!
former! party! is! permitted! to! deny! the! existence! of! the! facts! the!
latter!party!had!relied!and!acted!on.!
!
TECHNICAL!V.!EQUITABLE!ESTOPPEL!
!
AS!TO!
TECHNICAL!ESTOPPEL!
EQUITABLE!ESTOPPEL!
Source!
From!records!or!deeds!
From!the!conduct!of!
parties!
Existence!of!
Regulated!by!well?
No!universal!rules;!
Rules!!
settled!rules!and!admits!
depends!on!the!
certain!applications!
particular!
circumstances!of!the!
case!
!
ELEMENTS!
1. As%to%the%party%sought%to%be%estopped!
Conduct! amounting! to! false! representation! or!

concealment! of! material! facts,! or! at! least! calculated! to!
convey! the! impression! that! the! facts! are! otherwise! than!
and!inconsistent!with,!those!which!the!party!subsequently!
attempts!to!assert!
Intent,! or! at! least! expectation! that! this! conduct! shall! be!
acted!upon!by!or!at!least!influence,!the!other!party!
Knowledge,!actual!or!constructive,!of!the!real!facts!
!
2.
As%to%the%party%claiming%the%estoppel!
Lack! of! knowledge! or! of! the! means! of! knowledge! of! the!
truth!as!to!the!facts!in!question!
Reliance,!in!good!faith,!upon!the!conduct!or!statements!of!
the!party!to!be!estopped!
Action! or! inaction! based! thereon! of! such! character! as! to!
change! the! position! or! status! of! the! party! claiming! the!
estoppel,!to!his!injury,!detriment!or!prejudice!
!
KINDS!
1. Positive%Estoppel%in%pais!
!
a. Estoppel!by!Representation/Misrepresentation!!
!
Art.! 1437.! When! in! a! contract! between! third! persons! concerning!
immovable!property,!one!of!them!is!misled!by!a!person!with!respect!
to! the! ownership! or! real! right! over! the! real! estate,! the! latter! is!
precluded!from!asserting!his!legal!title!or!interest!therein,!provided!
all!these!requisites!are!present:!
!
(1)! There! must! be! fraudulent! representation! or! wrongful!
concealment!of!facts!known!to!the!party!estopped;!
!
(2)!The!party!precluded!must!intend!that!the!other!should!act!upon!
the!facts!as!misrepresented;!
!
(3)!The!party!misled!must!have!been!unaware!of!the!true!facts;!and!
!
(4)! The! party! defrauded! must! have! acted! in! accordance! with! the!
misrepresentation.
!
o Ex.! X,! owner,! of! a! parcel! of! land,! and! Y! made! it!
appear!in!a!document!that!Y!is!the!real!owner.!Y!or!
his! successors?in?interest! cannot! afterwards! assert!
ownership!over!the!land,!as!it!cannot!be!said!that!Y!
was!misled!by!the!false!representation!being!a!party!
to!the!same.!
!
X!would!have!been!estopped!from!claiming!any!right!
over! the! property! had! it! been! sold! by! Y! to! Z,! a!
purchaser!in!good!faith.!
!
Estoppel!by!Acceptance!of!Benefits!
b.
!
Art.! 1438.! One! who! has! allowed! another! to! assume! apparent!
ownership! of! personal! property! for! the! purpose! of! making! any!
transfer!of!it,!cannot,!if!he!received!the!sum!for!which!a!pledge!has!
been! constituted,! set! up! his! own! title! to! defeat! the! pledge! of! the!
property,!made!by!the!other!to!a!pledgee!who!received!the!same!in!
good!faith!and!for!value.!
!
o When! no! fraud,! either! actual! or! constructive,! is!
involved,! the! effects! produced! by! estoppel, by,
acceptance, of, benefits, are! similar! to! the! effects!
produced!by!ratification.!
!
!
!
!
!
!
!
!!!!!!!131!
!!!!
c.
2.
Promissory!Estoppel!
o A! party! is! not! allowed! to! repudiate! what! he! has!
promised!after!the!other!party!has!complied!with!the!
formers!conditions!in!relation!to!the!promise!made.!
o An! estoppel! arises! from! this! situation,! even! though!
the!promise!was!made!without!consideration,!if!the!
party! making! the! promise! was! intending! for! the!
party!to!rely,!and,!in!fact,!was!relied!on.!
o The! party! making! the! promise! in! such! a! case! is!
estopped! because! to! let! him! repudiate! the! promise!
he! made! to! other! party! is! to! sanction! fraud,! and!
injustice.!
o The!following!are!essential!requisites!that!gives!rise!
to!promissory!estoppel:!
! That! there! is! a! promise! that! is! reasonably!
expected!to!induce!action!or!forbearance!
! That! such! promise! did,! in! fact,! induce! action! or!
forbearance!
! That! the! party! who! executed! the! action! or!
forbearance!suffered!detriment!as!a!result!
!
Negative%Estoppel%in%pais!
a. Estoppel!by!Laches,
,
Embodied!in!the!maxim!that!if!one!maintains!silence!
when! in! conscience! he! ought! to! speak,! equity! will!
debar! him! from! speaking! when! in! conscience! he!
ought!to!remain!silent.!He!who!remains!silent!when!
he! ought! to! speak! cannot! be! heard! to! speak! when!
he!should!be!silent.!
Public! policy! requires! for! the! peace! of! society,!

discouragement! of! stale! claims! and! laches,! unlike!
statute!of!limitations,!is!not!a!mere!question!of!time!
but!principally!a!question!of!inequity!or!unfairness!of!
permitting!a!right!or!claim!to!be!enforced!or!asserted.!
Also!referred!to!as!estoppel!by!standing!by.!
Mere!silence!or!inaction!is!not!enough!for!laches,to!
attach;!there!must!be!some!element!of!turptitude!or!
negligence! connected! with! such! silence! or! inaction,!
by!which!the!other!party!is!misled!to!his!injury.!
Also,!for!laches!to!attach,!it!must!be!shown!that!there!
is!a!right,!that!there!was!an!opportunity!to!speak!and!
in!addition,!an!obligation!or!duty!to!do!so.!
Laches! extends! to! ones! heirs! since! they! stand! in!

privity!with!him.!
!
Elements:!
1. Conduct! on! the! part! of! the! defendant,! or! of! one!
under!whom!he!claims,!giving!rise!to!the!situation!of!
which!complaint!is!made!
2. Delay! in! asserting! the! complainants! right,! the!
complainant! having! had! knowledge! or! notice! of! the!
defendants! conduct! and! having! been! afforded! an!
opportunity! to! sue;! actual! knowledge! of! the!
commission! of! the! adverse! act! is! not! necessary,! it!
being! enough! that! such! knowledge! may! be! imputed!
to! the! complainant! because! of! circumstances! of!
which!he!was!cognizant!
3. Lack! of! knowledge! or! notice! on! the! part! of! the!
defendant! that! the! complainant! would! assert! the!
right!on!which!he!bases!his!suit!
4. Injury! or! prejudice! to! the! defendant! in! the! event!
relief! is! accorded! to! the! complainant,! or! the! suit! is!
not!held!to!be!barred.!
ESTOPPEL%BY%LACHES,%DISTINGUISHED%FROM%PRESCRIPTION%
AS!TO!
LACHES!
PRESCRIPTION!
Determining!factor! Not!merely!lapse!but!
Lapse!of!time!only!
the!effect!of!
unreasonable!delay!
Focus!
The!question!of!
Deals!with!the!matter!
inequity!in!
of!time!
permitting!the!a!
stale!right!or!claim!
to!be!enforced!
Source!
Is!not!statutory!and!
Prescription!is!
is!applied!based!on!
statutory!and!applies!
the!principal!of!
through!law!
equity!
Fixed!Time!
Laches!does!not!
Prescription!is!based!
require!fixed!time!to!
on!fixed!time!
attach;!there!is!no!
fixed!time!
!
C.
Persons(Bound(by(Estoppel*
!
Art!1439 Estoppel!is!effective!only!as!between!the!parties!thereto!or!
their!successors!in!interest!
!
An!estoppel!must!bind!both!parties!or!neither!is!bound.!
If! a! private! corporation! intentionally! or! negligently! clothes!
its! officers! or! agents! with! apparent! power! to! perform! acts!
for! it,! the! corporation! will! be! estopped! to! deny! that! such!
apparent!authority!is!real!as!to!third!persons!
!
Case:!
!
MANILA!LODGE!NO!761!BENEVOLENT!AND!PROTECTIVE!ORDER!OF!
ELKS!v.!CA!
Facts:!Manila!Lodge!had!acquired!from!the!City!of!Manila,!through!a!
sale,!a!piece!of!land.!The!City!of!Manila!later!on!is!now!questioning!
the!validity!of!the!sale,!contending!that!to!begin!with,!the!land!sold!
was!of!public!domain!and!could!not!have!been!sold.!Manila!Lodge!as!
a! defense! claims! that! the! City! of! Manila! should! be! estopped! from!
questioning!the!validity!of!the!sale.!
!
Held:! Government! cannot! be! estopped! by! its! own! actions! and!
estoppel!will!also!not!lie!to!validate!contracts!made!by!a!municipal!
corporation!when!it!is!against!law!or!public!policy.!
D.
Cases(Where(Estoppel(Applies*
!
Art! 1434! When! a! person! who! is! not! the! owner! of! a! thing! sells! or!
alienates!and!delivers!it,!and!later!the!seller!or!grantor!acquires!title!
thereto,! such! title! passes! by! operation! of! law! to! the! buyer! or!
grantee.!
!
The! seller! cannot! later! on! claim,! as! a! defense,! that! he! was!
not!the!proper!owner!during!the!time!the!sale!was!made.!He!
is!bound!by!estoppel.!
!
!
!
!
!
!
!!!!!!!132!
!!!!
Art!1435!If!a!person!in!representation!of!another!sells!or!alienates!a!
thing,!the!former!cannot!subsequently!set!up!his!own!title!as!against!
the!buyer!or!grantee.
!
The!phrase!person!in!representation!of!another!refers!to!a!
partys! agent! or! representative.! Such! agents! or!
representatives! cannot! question! the! validity! of! the! transfer!
and! claim! title! to! the! thing! sold! or! alienated! against! the!
buyer!or!grantee.!
!
Art!1436!A!lessee!or!a!bailee!is!estopped!from!asserting!title!to!the!
thing!leased!or!received,!as!against!the!lessor!or!bailor.!
!
An!example!of!the!application!of!this!article!is!that!a!tenant!
cannot!dispute!his!landlords!title.!
Note:! Read! Estoppel, by, Representation/Misrepresentation,
(Art!1437),and!Estoppel,by,Acceptance,(Art!1438),!discussed!
earlier,!for!other!cases!where!estoppel!applies.!
!
Cases:!
!
MIGUEL!v.!CATALINO!
Facts:! Appellants! were! contending! the! validity! of! a! sale! of! their!
deceased!fathers!piece!of!land,!pointing!out!that!there!was!no!deed!
of!sale.!However,!this!action!was!instituted!34!years!after!the!time!
of!the!sale.!
!
Held:!Laches!have!already!attached!since!the!court!noted!that!all!the!
requisites!are!present.!Appellants!knew!that!the!sale!was!invalid!in!
the!first!place!and!did!not!have!to!wait!34!years!to!institute!the!civil!
action.!
!
Annotation,!32!SCRA!542!
The! prescription! of! action! for! reconveyance! based! on! implied! or!
constructive! trust! is! now! a! settled! question! in! our! jurisdiction.!
Correspondingly,! where! implied! trust! is! present,! the! action! to!
recover!the!property!prescribes!after!the!lapse!of!10!years!unless!a!
fiduciary!relation!exists!and!the!trustee!recognizes!the!trust.!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!!!!!!!133!
!!!!
Title%V:%%TRUSTS%%
A. Defintion(
!
Trust! is! the! legal! relationship! between! one! person! having! an!
EQUITABLE! OWNERSHIP! in! property! and! another! person! OWNING!
THE! LEGAL! TITLE! to! such! property,! the! equitable! ownership! of! the!
former! entitling! him! to! the! performance! of! certain! duties! and! the!
exercise!of!certain!powers!by!the!latter.!!
!
Characteristic!of!Trust!!
1. It!is!a!relationship!!
2. A!relationship!of!fiduciary!character!
3. A!relationship!with!respect!to!property,!not!one!involving!
merely!personal!duties!
4. It!involves!the!existence!of!equitahble!duties!imposed!upon!the!
holder!of!the!title!to!the!property!to!deal!with!it!for!the!benefit!
of!another!
5. It!arises!as!a!result!of!a!manifestation!of!intention!to!create!the!
relationship!!
B. Governing(Rules(
!
Art.!1442.!Principles!of!the!general!law!of!trusts!are!transplanted!to!
the!Philippine!soil.!
!
General!Rule!of!Trusts:!
The!trusts!known!to!American!and!English!equity!jurisprudence!are!
derived! from! judei, commissa, of! the! Roman! law! and! are! based!
entirely!upon!Civil!Law!principles.!!
C. Parties((
!
Art.! 1440.! A! person! who! establishes! a! trust! is! called! the! trustor;!
one! in! whom! confidence! is! reposed! as! regards! property! for! the!
benefit!of!another!person!is!known!as!the!trustee;!and!the!person!
for! whose! benefit! the! trust! has! been! created! is! referred! to! as! the!
beneficiary.!
!
1. TRUSTOR!!Establishes!a!trust!
2. TRUSTEE!!One!in!whom!confidence!is!reposed!as!regards!
property!for!the!benefit!of!another!person!!
3. BENEFICIARY! OR! CESTUI! QUE! TRUST! ! Person! for!
whose!benefit!the!trust!has!been!created!!
!
,
,
Liability!of!trustee!who!violates!trust!is!personal.!The!
action!(nature!of!a!general!demand!for!damages)!can!be!
maintained!by!cestui,que,trust!or!persons!claiming!under!
him!or!by!creator!of!the!trust!only!against!the!trustee.!!
Cestui!que!trust:!Not!always!necessary!that!should!be!
named,!or!even!be!in!existence!at!the!time!the!trust!is!
created!in!his!favor.!,
D. Kinds((
!
Art! 1441.! Trusts! are! either! express! or! implied.! Express! trusts! are!
created! by! the! intention! of! the! trustor! or! of! the! parties.! Implied!
trusts!come!into!being!by!operation!of!law.!
Merger! releases! the! guarantor! because! they! are! merely!

accessory!obligations!
Guarantor! acquires! the! credit,! his! obligation! as! guarantor!
is!extinguished,!but!the!principal!obligation!subsists!which!
he! can! enforce! against! the! debtor! and! other! co?
guarantors.!!
When! mortgaged! property! belongs! to! a! third! person,!
mortgagee! acquires! a! part! of! the! property,! the! same! is!
released! from! the! encumbrance.! The! obligation! merely!
becomes!a!partly!(if!the!acquisition!is!not!total)!unsecured!
obligation.!
!
Case:!!
SALAO!v.!SALAO!
Facts:!The!plaintiffs,!all!relatives!of!the!defendants,!instituted!action!
for! a! piece! of! land! in! Bataan,! alleging! it! came! from! common! funds!
and!that!there!was!an!oral!partition!made!earlier.They!alleged!that!
the!defendants,!who!became!administrators!of!property!in!Malabon!
inherited! from! their! grandparents,! used! common! funds! to! buy!
property!elsewhere.!!
!
Held:!It!was!not!proven!that!a!trust!had!been!created!because!there!
was! no! documentary! evidence! was! presented! to! prove! an! express!
trust,!and!Art.!1443!says!parol!evidence!cannot!be!used!to!prove!an!
express!trust!concerning!realty.!The!evidence!also!did!not!prove!an!
implied! trust.! While! an! implied! trust! may! be! proven! by! oral!
evidence,!it!must!be!Trustworthy.!It!also!was!not!proven!that!there!
was!fraud!or!mistake!that!was!grave!enough!to!create!a!constructive!
trust.
!
1. EXPRESS! TRUSTS! [! created! by! the! direct! and! positive! acts! of!
the! parties,! by! some! writing! or! deed! or! will! or! by! words!
evidencing!an!intention!to!create!a!trust.!!
a. Proof%Required%%
!
Art.! 1443.! No! express! trusts! concerning! an! immovable! or! any!
interest!therein!may!be!proved!by!parol!evidence.!!
!
Requisites!of!Express!Trust.(If!any!are!missing,!it!is!fatal!to!the!trust)!
1. Competent!trustor!
2. Trustee!!
3. ascertainable!trust!res,
4. sufficiently!certain!beneficiaries!!
!
When! it! concerns! an! immovable! or! an! interest! therein?

writing!is!necessary!to!prove!it.!!
o Writing!not!required!for!validity!of!trust,!only!for!
purposes!of!proof.!!
When! the! property! subject! to! express! trust! is! not! real!
estate! or! an! interest! therein,! it! may! be! proved! by! any!
competent!evidence,!including!parol!evidence.!!
!
!
!!!!!!!134!
!!!!
b. Form%%
!
Art.! 1444.! No! particular! words! are! required! for! the! creation! of! an!
express!trust,!it!being!sufficient!that!!trust!is!clearly!intended.!!
!
No! particular! form! of! words! or! conduct! is! necessary! for! the!
manifestation!of!intention!to!create!a!trust.!!
c. Want%of%trustee%
%
Art.!1445.!No!trust!shall!fail!because!the!trustee!appointed!declines!
the! designation,! unless! the! contrary! should! appear! in! the!
instrument!constituting!the!trust.!!
%
The!reason!why!a!trust!does!not!fail!for!want!of!a!trustee!is!
that!to!permit!it!to!fail!for!this!reason!would!be!contrary!to!
the!intention!of!the!trustor!in!creating!the!trust.!!
d. Acceptance%by%the%beneficiary%
%
Art.! 1441.! Trusts! are! either! express! or! implied.! Express! trusts! are!
created!by!the!inention!of!the!trustor!or!the!parties.!Implied!trusts!
come!into!being!by!operation!of!law.!!
!
2. IMPLIED!TRUSTS!!
a. How%established%(Article%1441;%see%above)%
b. How%proved%
!
Art.!1457.!An!implied!trust!may!be!proved!by!oral!evidence.!!
!
c. Examples%%
!
Art.!1448.!There!is!an!implied!trust!when!property!is!sold,!and!the!
legal!estate!is!granted!to!one!party!but!the!price!is!paid!by!another!
for! the! purpose! of! having! the! beneficial! interest! of! the! property.!
The! former! is! the! trustee,! while! the! latter! is! the! beneficiary.!
However,! if! the! person! to! whom! the! title! is! conveyed! is! a! child,!
legitimate!or!illegitimate,!of!the!one!paying!the!price!of!the!sale,!no!
trust!is!implied!by!law,!it!being!disputably!presumed!that!there!is!a!
gift!in!favor!of!the!child.!!
!
Art.!1449.!There!is!also!an!implied!trust!when!a!donation!is!made!to!
a!person!but!it!appears!that!although!the!legal!estate!is!transmitted!
to!the!done,!he!nevertheless!is!either!to!have!no!beneficial!interest!
or!only!a!part!thereof.!!
!
Art.!1450.!If!the!price!of!a!sale!of!property!is!loaned!or!paid!by!one!
person! for! the! benefit! of! another! and! the! conveyance! is! made! to!
the! lender! or! payor! to! secure! the! payment! of! the! debt,! a! trust!
arises! by! operation! of! law! in! favor! of! the! person! to! whom! the!
money!is!loaned!or!for!whom!it!is!paid.!The!latter!may!redeem!the!
property!and!compel!a!conveyance!thereof!to!him.!!
!
!
Art.! 1451.! When! land! passes! by! succession! to! any! person! and! he!
causes! the! legal! title! to! be! put! in! the! name! of! another,! a! trust! is!
established!by!implication!of!law!for!the!benefit!of!the!true!owner.!!
!
Art.!1452.!If!two!or!more!persons!agree!to!purchase!property!and!
by! common! consent! the! legal! title! is! taken! in! the! name! of! one! of!
them!for!the!benefit!of!all,!a!trust!is!created!by!force!of!law!in!favor!
of!the!others!in!proportion!to!the!interest!of!each.!!
!
Art.!1453.!When!property!is!conveyed!to!a!person!in!reliance!upon!
his!declared!intention!to!hold!it!for,!or!transfer!it!to!another!or!the!
grantor,! there! is! an! implied! trust! in! favor! of! the! person! whose!
benefit!is!contemplated.!!
!
Art.! 1454.! If! an! absolute! conveyance! of! property! is! made! in! order!
to!secure!the!performance!of!an!obligation!of!the!grantor!towards!
the!grantee,!a!trust!by!virtue!of!law!is!established.!!
!
Art.! 1455.! When! any! trustee,! guardian! or! other! person! holding! a!
fiduciary!relationship!uses!trust!funds!for!the!purchase!of!property!
and!causes!the!conveyance!to!be!made!to!him!or!to!a!third!person,!
a!trust!is!established!by!operation!of!law!in!favor!of!the!person!to!
whom!the!funds!belong.!!
!
Art.! 1456.! If! property! is! acquired! through! mistake! or! fraud,! the!
person! obtaining! it! is,! by! force! of! law,! considered! a! trustee! of! an!
implied!trust!for!the!benefit!of!the!person!from!whom!the!property!
comes.!!
!
Cases:!
FABIAN!v.!FABIAN!
Facts:!January!1909:!Pablo!Fabian!bought!lot!164!of!the!Friar!Lands!
Estate! in! Muntinlupa! from! the! government.! He! died! on! August! 2,!
1928.! He! was! survived! by! 4! children:! Esperanza,! Benita! I,! Benita! II!
and!Silbina.!November!14,!1928:!Director!of!Lands!sold!lot!to!Silbina!
and! Teodora! (deceaseds! niece),! who! cultivated! the! land.! 1960:!
plaintifs! filed! action! of! reconveyance! against! SIlbina! and! Teodora!
who! allegedly! acquired! the! land! through! fraud.! Spanish! document!
was!wrongly!translated!into!saying!that!Silbina!was!he!only!daughter!
of!the!deceased.!Defendants!claimed!that!Pablo!Fabian!was!not!the!
owner!of!the!land.!!
!
Held:! Pablo! was! the! owner.! Sale! was! goverened! by! the! Friar! Lands!
Act.! In! constructive! trusts,! latches! constitute! a! bar! to! actions! to!
enforce! the! trust,! and! repudiation! is! not! required! unless! there! is! a!
concealment! of! the! facts! giving! rise! to! the! trust.! An! Action! for!
reconveyance!of!real!property!based!upon!a!constructive!or!implied!
trust,! resulting! from! fraud! may! be! barred! by! the! statute! of!
limitations,! and! the! action! may! be! filed! within! four! years! from! the!
discovery!of!fraud.!Complaint!dismissing!the!complaint!is!affirmed.!!
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BUENO!v.!REYES!
Facts:! Francisco! Reyes! claimed! Lot! No.! 2357! to! be! his! and! his! two!
brothers! Juan! and! Mateo! in! January! 1936.! 23! years! later,! plaintiffs!
filed!an!action!of!reconveyance!saying!the!lot!did!not!belong!to!the!
Reyes!brothers.!Land!originally!owned!by!Jorge!Bueno,!whose!three!
children! inherited! it! when! he! died.! The! plaintiffs! in! this! case! are!
Buenos! grandchildren! and! son! Rufino! who! claim! that! the! land! is!
theirs.!!
!
Held:! What! was! designed! to! be! an! express! trust! was! for! the! late!
Francisco!H.!Reyes!to!file!an!answer!in!the!cadastral!proceeding!and!
to! obtain! title! to! the! and! for! and! in! behalf! of! all! the! heirs! of! Jorge!
Bueno.! Such! express! trust! failed! to! materialize.! Upon! the! general!
proposition! that! an! act! for! reconveyance! such! as! the! present! is!
subject! to! prescription! in! ten! years! the! appellees! and! the! court! a!
quo! are! correct.! The! question! is! from! what! time! should! the!
prescriptive!period!be!counted,!in!the!light!of!the!allegations!in!the!
complaint?!Order!appealed!form!is!set!aside!and!case!remanded!for!
further!proceedings.!!
!
TAMAYO!v.!CALLEJO!
Facts:! Spouses! Vicente! Tamay! and! Cirila! Velasco! Tamayo! owned!!
parcel!of!land!in!the!barrio!of!Oalsic!or!Gualsic.!Prior!to!Feb!1,!1912,!
spouses!sold!the!northern!portion!to!Fernando!Domantay,!who!took!
possession!of!the!land.!Vicente!died!after!the!sale!but!prior!to!Feb!1.!
His! children! were! declared! sole! heirs! of! the! deceased! on! Feb! 1.!
Aurelio!Callejo!took!possession!of!said!land.!Domantoy!sold!the!land!
he! had! taken! possession! of! to! his! brother,! who! later! on! sold! it! to!
Proceso! Estacio! for! the! purpose! of! creating! a! subdivision! plan.!
Callejo! did! not! allow! the! latter! on! the! premises! and! diled! for!
reconveyance!and!damages.!!
!
Held:!Where!an!implied!trust!was!created!in!favor!of!Domantoy!by!
the!erroneous!inclusion!in!the!Tamayo!brothers!certificate!of!title!of!
the! parcel! of! land! formerly! sold! by! their! parents! to! DOmantoy,!
which! was! recognized! Tamayo! recognized! such! sale,! such! express!
recognition!had!the!effect!of!imparting!the!aforementioned!trust!the!
nature! of! an! express! trust! which! is! not! subject! to! the! statute! of!
limitations!until!repudiated.!Case!remanded!to!the!court!of!origin.!!
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!!!!!!!1!

From! the! Latin! word! obligare,! which! means! tying,! or!

The! debtor! may! be! made! liable! for! damages! which!

The! debtor! must! comply! with! his! obligation! whether! he!

C. QUASIJCONTRACTS( or( DELICTS( [Quasi( ExJ

Agreement! of! the! parties! is! not! necessary! (e.g.! tax!

Is! not! presumed;! only! those! expressly! provided! are!

PRE?CONTRACTUAL! OBLIGATION:! Damages! can! be!

Binding! force?obligations! arising! from! contracts! have! the!

The! juridical! relation! which! is! created! when! something! is!

D. ACTS( or( OMISSIONS( PUNISHED( BY( LAW( [ExJ

REPARATION! OF! DAMAGE! CAUSED! "! court! determines!

INDEMNIFICATION! FOR! CONSEQUENTIAL! DAMAGES! "! not!

E. QUASIJDELICTS( [Quasi( ExJDelicto,( Quasi( ExJ

BASIS! "! Undisputable! principle! of! equity;! fault! or!

NEW! SOURCES! OF! OBLIGATION! "! generally! recognized!

TEST! OF! NEGLIGENCE! "! Would! a! prudent! man,! in! the!

Pure! and! Conditional! obligations! deal! with! when! the!

CONDITION! "! future! AND! uncertain! event,! upon! the!

Alternative! and! Facultative! focus! on! classifiying!

a.! loss! of! the! thing!

Classifies! obligation! according! to! the! subjects! of! the!

Though! upon, agreement, or, consent, of, the, creditor,! the!

Generally,! arises! from! the! perfection! of! the! contract! (Art.!

In! obligations! arising! from! law,! quasi?contracts,! delicts,! and!

What! kind! of! diligence:! DILIGENCE! OF! GOOD! FATHER! OF!

Factors! to! consider:! Nature! of! the! obligation,! the!

Exception:! When! the! law! or! the! stipulation! provides! for!

Non, nudis, pactis,, sed, traditione, domina, rerum,

Legal! excuse! for! breach! of! obligation! or! delay

Creditor! may! ask! for! compliance! by, 3 , person, at, debtors,

Exception:! FACULTATIVE! OBLIGATION! wherein! the! debtor,

No! action! for! compliance! because! that! would! be!

C. Obligation( Not( to( Do( (Negative( Personal(

No! legal! accessory! obligations! arise! (as! compared! to!

Fraud! is! the! voluntary% execution% of% a% wrongful% act,! or! a!

To! permit! such! advance! renunciations! would! practically!

Liability! for! damages,! a! crime! or! a! quasi?delict! (Art!

Willfulness! or! deliberate! intent!

Negligence! is! a! question! of! fact,! its! existence! being!

Damages! are! demandable,! which! the! courts! may!

Mere! reminder! is! not! a! demand! because! it! must!

Default! begins! from! the! moment! creditor! demands!

Delay! in! the! performance! based! on! the!

Generally,! debtor! can! perform! at, any, time!

Malicious! or! negligent! violation, of, the, terms, and,

Remedies* Of* Creditor* in* Case* Of*

Implies! that! the! basis! is! a! contractual! relation! between!

Delivery! of! anything! belonging! to! the! species! stipulated!

Debtor! cannot! avoid! obligation! by! paying! damages! if! the!

3. ACTION! FOR! SUBSTITUTED! PERFORMANCE! OR! UNDOING! OF!

EXCEPTION:! When! the! only! feasible! remedy! is!

The! remedy! is! alternative.! Party! seeking! rescission! can! only!

EXPRESS% RESOLUTORY% CONDITION:! automatic!

1. CONCEPT:! ! action! which! the! creditor! may! exercise! in! the!

Plaintiff! asking! for! rescission! has! a! credit! prior! to! the!

Presumption! of! fraud! may! be! found! in! Art! 1387!

a. Distinction% between% accion% pauliana% and%

A. Exceptions:( law,( stipulation,( or( when( nature(

Parties! may! expressly! stipulate! in! their! contract! that!

The! principle! is! based! on! social! justice,! an! ethico?

Essential! element:! some! extraordinary! circumstance!

In! order! that! acts! of! man! may! constitute! fortuitous!

intervention! or! neglect! or! failure! to! act,! the! whole!