OBLIGATIONS AND CONTRACTS

Professor: Atty. Alden C. Gonzales

Source: Tolentino, Arturo M. (1991). COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES (Vol. 4). Quezon City:
Central Lawbook Publishing Co., Inc.
Contents
Title I. - OBLIGATIONS ............................................................................ 1
Chapter 1. General Provisions ........................................................... 1
Chapter 2. Nature and Effect of Obligations ..................................... 5
Chapter 3. Different Kinds of Obligation ......................................... 13
SECTION 1. - Pure and Conditional Obligations ......................... 14
SECTION 2. - Obligations with a Period ...................................... 22
SECTION 3. - Alternative Obligations ......................................... 25
SECTION 4. - Joint and Solidary Obligations ............................... 28
SECTION 5. - Divisible and Indivisible Obligations ...................... 32
SECTION 6. - Obligations with a Penal Clause ............................ 33
Chapter 4. Extinguishment of Obligations - General Provisions ...... 35
Section 1. - Payment or Performance ........................................ 35
SUBSECTION 1. - Application of Payments................................. 41
SUBSECTION 2. - Payment by Cession ....................................... 42
SUBSECTION 3. - Tender of Payment and Consignation ............ 42
Section 2. - Loss of the Thing Due .............................................. 45
Section 3. Condonation or Remission of the Debt .................. 47
Section 4. Confusion or Merger of Rights ............................... 50
Section 5. Compensation ........................................................ 50
Section 6. Novation................................................................. 53
Title II. - CONTRACTS ............................................................................ 58
Chapter 1. General Provisions ......................................................... 58
Chapter 2. Essential Requisites of Contracts - General Provisions .. 64
Section 1. - Consent ................................................................... 64
Section 2. - Object of Contracts ................................................. 77
Section 3. - Cause of Contracts .................................................. 79
Chapter 3. Form of Contracts .......................................................... 81
Chapter 4. Reformation of Instruments (n) ..................................... 82
Chapter 5. Interpretation of Contracts ........................................... 84
Chapter 6. Rescissible Contracts ..................................................... 85
Chapter 7. Voidable Contracts ........................................................ 90
Chapter 8. Unenforceable Contracts (n) ......................................... 93
Chapter 9. Void and Inexistent Contracts ....................................... 95

BOOK IVOBLIGATIONS AND CONTRACTS

Title I. - OBLIGATIONS
Chapter 1. General Provisions
Art. 1156. An obligation is a juridical necessity to give, to do or
not to do
________
Obligation, Defined
-It is a tie or bond recognized by law by virtue of which one is
bound in favor of another to render something--and this may
consist in giving a thing, doing a certain act, or not doing a
1
certain act
Juridical necessity, Defined
-Obligation is a juridical necessity because 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
Essential Requisites of an Obligation:
1. A passive subject (called debtor or obligor) the person who
is bound to the fulfillment of the obligation; he who has a duty
2. An active subject (called creditor or obligee) the person
who is entitled to demand the fulfillment of the obligation; he
who has a right
3. Object or prestation (subject matter of the obligation) the
conduct required to be observed by the debtor; has an
economic value or susceptible of pecuniary substitution in case
of non-compliance
4. A juridical or legal tie (also called efficient cause) that which
binds or connects the parties to the obligation. The tie in an
obligation can easily be determined by knowing the source of
the obligation
Note: The prestation is not a thing but the particular conduct of
the debtor. It may consist in giving, doing, or not doing
something
1. Obligation to give - consists in the delivery of a movable or
immovable thing to the creditor
2. Obligation to do - covers all kinds of works or services
whether physical or mental
3. Obligation not to do - consists in refraining from doing some
acts
2

Form of Obligations
1. The law does not require any form of obligations arising from
contracts for their validity or binding force
The term obligation is derived from the Latin word obligatio which means
tying or binding
2 Refer to the manner in which an obligation is manifested or incurred. It may
be oral, or in writing, or partly oral and partly in writing
1

2. Obligations arising from other sources do not have any form

at all
Obligation, right, and wrong, Distinguished
OBLIGATION RIGHT
WRONG
The act or The power which a (Cause of action or
performance person has under the injury), an act or
which
the law, to demand from omission of one party
law
will another
any in violation of the legal
enforce
prestation
right or rights of
another.
Essential Elements of a legal wrong or injury:
1. A legal right in favor of a person (creditor/obligee/plaintiff)
2. A correlative legal obligation on the part of another
(debtor/obligor/defendant); to respect or not to violate said
right; and
3. An act or omission by the latter in violation of said right with
resulting injury or damage to the former
An obligation on the part of a person cannot exist without a
corresponding right in favor of another, and vice versa. A wrong
or cause of action only arises at the moment a right has been
transgressed or violated
Nature of obligations (De Leon)
CIVIL
Obligations which give to the
creditor or obligee a right
under the law to enforce their
performance in courts of
justice

CIVIL
An obligation,
which if not
fulfilled when it
becomes
due
and
demandable,
may be enforced
in court through
action

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 although in
case of voluntary fulfillment
by the debtor, the latter may
not recover what has been
delivered or rendered by
reason thereof

NATURAL
A special kind of
obligation which
cannot
be
enforced in court
but
which
authorizes
the
retention of the
voluntary payment
or
performance
made
by
the
debtor
________

MORAL
An obligation which
arises
not
from
positive law but from
moral law developed
by the church and
not enforceable in
court. It deals with
the
spiritual
obligation of a person
in relation to his God
or Church

Art. 1157. Obligations arise from:

(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts
________
Sources of Obligation
1. Ex-lege or Law when they are imposed by law itself (i.e.
Obligation to pay taxes)

2. Ex-contractu or Contracts when they arise from the

stipulation of the parties (i.e. payment of loan with interest as
agreed upon)
3. Quasi-contractu or Quasi-contracts when they arise from
lawful, voluntary and unilateral acts which are enforceable to
the end that no one shall be unjustly enriched or benefited at
the expense of another. In a sense, these obligations may be
considered as arising from law (i.e. solutio indebiti)
4. Ex-maleficio or Crimes (acts or omissions punished by law)
when they arise from civil liability which is the consequence of
a criminal offense (i.e. duty of the culprit to pay actual damages
for causing the death of a person)
5. Quasi-maleficio or Quasi-delicts (tort) when they arise from
damage caused to another through an act or omission, there
being fault or negligence, but no contractual relation exists
between the parties (i.e. duty of the tortfeasor to pay damages
for injuries or damages due to his fault, omission or negligence)
Sources classified
1. Those emanating from law; and
2. Those emanating from private acts which may be further
subdivided into: (a) those arising from licit acts, in the case of
contracts and quasi-contracts; and (b) those arising from illicit
acts, which may be either punishable in the case of delicts or
crimes, or not punishable in the case of quasi-delicts or torts
Actually, there are only two sources: LAW and CONTRACTS,
because obligations arising from quasi-contracts, delicts, and
3
quasi-delicts are really imposed by law
Note: The enumeration of the sources of obligations is
exclusive. No obligation exists if its source is not one of those
4
enumerated
________
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
________
Legal obligations or obligations arising from law are NOT
presumed because they are considered a burden upon the
obligor. To be demandable, they must be clearly set forth in the
law
In Dela Cruz v. Northern Theatrical Enterprises, 95 Phil. 739, it
was held that an employer has no obligation to furnish free
legal assistance to an employee (movie house security guard),
who was forced to engage a lawyer to defend him in court for
having shot and killed a gate crasher, because there is no law
requiring it
Under Article 1158, special laws refer to all other laws not
contained in the Civil Code (i.e. Corporation Code, Negotiable
Instruments Law, Insurance Code, NIRC, RPC, Labor Code, etc)
________
3
4

see Leung Ben v. OBrien, 38 Phil. 182

see Navales v. Rias, 8 Phil. 508

2|P

LATON

Art. 1159. Obligations arising from contracts have the force of

law between the contracting parties and should be complied
with in good faith
________
This article expresses the principle of autonomy of will
Contractual obligations or obligations arising from contracts or
voluntary agreements presupposes that the contracts entered
into are VALID and ENFORCEABLE
GR: Obligations arising from contracts are primarily governed
by the stipulations, clauses, terms and conditions of their
agreements.
XPN: They may not be enforced totally if their prestations are
unconscionable or unreasonable
Contract, Defined
-A meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to
render some service
1. Binding force obligations arising from contracts have the
force of law between the contracting parties. This does not
mean, however, that contract is superior to the law. As a source
of enforceable obligation, contract must be valid and it cannot
be valid if it is against the law
2. Requirement of a valid contract A contract is valid if it is not
contrary to law, morals, good customs, public order, and public
policy
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 keeping
with good faith, usage and law
The falsification of a contract by the unauthorized insertion of
additional stipulations does not void the whole contract, which
must still be enforced, disregarding only the additional
stipulations
Pre-contractual obligations: The offer must be CLEAR and
DEFINITE, thus leading the offeree in good faith to incur
expenses in the expectation of entering into the contract; and
withdrawal of the offer must be without legitimate cause
Compliance in good faith, Defined
-Compliance or performance in accordance with the
stipulations or terms of the contract or agreement. Sincerity
and honesty must be observed to prevent one party from
taking unfair advantage over the other
________
Art. 1160. Obligations derived from quasi-contracts shall be
subject to the provisions of Chapter 1, Title XVII, of this Book
________
Quasi-contract, Defined
-That juridical relation resulting from lawful, voluntary and
unilateral acts by virtue of which the parties become bound to
each other to the end that no one will be unjustly enriched or

benefited at the expense of another. It is a kind of contract

created without the consent of one party but whose missing
consent is given by the law
Obligations arising from quasi-contracts are IMPLIED in law
CONTRACT
There is a meeting of the
minds or consent; the parties
must
have
deliberately
entered into a formal
agreement

QUASI-CONTRACT
There is no consent but the
same is supplied by fiction of
law; to prevent injustice

Characteristics distinguished from other sources of obligation

QUASI-CONTRACT
Other sources
The act or acts executed must In a delict or crime, the act or
be lawful
acts are unlawful
The act or acts executed must In quasi-delict, the act or acts
be voluntary
involved constitute a fault,
negligence or lack of foresight
The act or acts executed must In an ordinary contract, there
be unilateral
is a meeting of the minds of
the two parties
Kinds of Quasi-contracts
1. Negotiorum gestio the voluntary management of the
property or affairs of another without the knowledge or
consent of the latter
2. Solutio indebiti the juridical relation which is created when
something is received when there is no such right to demand it
and it was unduly delivered through mistake
Note: Since a quasi-contract is unilateral contract created by
the sole act or acts of the gestor, there is no express consent
given by the other party. The consent needed in a contract is
provided by law through presumption
________
Art. 1161. Civil obligations arising from criminal offenses shall
be governed by the penal laws, subject to the provisions of
Article 2177, and of the pertinent provisions of Chapter 2,
Preliminary Title, on Human Relations, and of Title XVIII of this
Book, regulating damages
________
Oftentimes the commission of a crime causes not only moral
evil but also material damage. From this fact the rule has been
established that: Every person criminally liable for a felony is
5
also civilly liable
Civil liability includes:
1. Restitution;
2. Reparation for the damage caused; and
6
3. Indemnification for consequential damages
To hold employers subsidiarily liable for the crime of an
employee, it must be committed in the performance of the
functions or duties of the employee
GR: After a criminal action has been commenced, no civil action
arising from the same offense can be prosecuted
5
6

RPC, Art. 100

RPC, Art. 104

3|P

LATON

XPN:
1. When an independent civil action is allowed by law
Note: Upon the filing of a criminal action, there is impliedly filed
also a civil action, unless the offended party expressly reserves
his right to institute a separate civil action
2. Cases such as: (a) obligations not arising from the act or
7
omission claimed to be criminal , (b) violations of constitutional
8
rights and liberties of individuals , (c) defamation, fraud or
9
physical injuries , (d) refusal or failure of members of a local
10
police force to render protection to life or property , and (e)
11
quasi-delicts
The amount of proof or evidence that is required to recover on
civil liability arising from a crime:
1. If the claim is made in the criminal case, then the proof of
facts giving rise to the liability must be beyond reasonable
doubt
2. If the claim for indemnity is made in a civil case, a mere
preponderance of evidence is necessary
GR: Acquittal does not affect civil liability
XPN: Where the judgment of acquittal contained a declaration
that no negligence can be attributed to the accused and that
the fact from which the civil action might arise did not exist,
such acquittal in the criminal action carried with it extinction of
civil responsibility arising therefrom
________
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
________
Quasi-delict (culpa aquiliana), Defined
-An act or omission by a person (tortfeasor) which causes
damage to another in his person, property, or rights giving rise
to an obligation to pay for the damage done, there being fault
or negligence but there is no pre-existing contractual relation
between the parties
Requisites:
1. There must be an act or omission; and fault or negligence;
2. There must be damage or injury caused; and a direct relation
or connection of cause and effect between the act or omission
and the damage; and
3. There is no pre-existing contractual relation between the
parties
Note: The fault or negligence is the proximate cause of the
damage or injury
CRIME
There is criminal or malicious
Civil Code, Art. 31
Civil Code, Art. 32
9 Civil Code, Art. 33
10 Civil Code, Art. 34
11 Civil Code, Art. 2176

QUASI-DELICT
There is only negligence

intent or criminal negligence

The purpose is punishment
Affects public interest
There are generally two
liabilities: criminal and civil
Criminal liability cannot be
compromised or settled by
the parties themselves
The guilt of the accused must
be proved beyond reasonable
12
doubt

Indemnification
of
the
offended party
Concerns private citizens
There is only civil liability
Liability for quasi-delict can be
compromised as any other
civil liability
The fault or negligence of the
defendant need only be
13
proved by preponderance of
evidence

Liability for quasi-delict is founded upon an undisputable

principle of equity; namely, that fault or negligence cannot
prejudice anyone else besides its author, and in no case should
its consequences be borne by him who, without will or cause
on his part, becomes the victim of the results, or suffers the
harm produced by such fault or negligence
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
Negligence, Defined
-The failure to observe for the protection of the interests of
another person, that degree of care, precaution and vigilance
which the circumstances justly demand, whereby such other
person suffers injury
Test of negligence:
1. A duty on the party of the defendant to protect the plaintiff
from the injury of which the latter complains
2. A failure to perform that duty
3. An injury to the plaintiff through such failure
CULPA AQUILIANA
Negligence as a source of
obligation

CULPA CONTRACTUAL
Negligence
in
the
performance of a contract

Defense of good father of a

family, this is a complete and
proper defense insofar as
parents, guardians, employers
are concerned
There is no presumption of
negligence. The injured party
must prove the negligence of
the defendant. Otherwise, the
complaint of injured party will
be dismissed

This is not a complete and

proper defense in the
selection and supervision of
employees

DOLO
Fraud or dolo in an act
involves
willfulness
or

CULPA
Negligence or culpa is mere
want of care and diligence

There is presumption of
negligence as long as it can be
proved that there was a
breach of the contract. The
defendant must prove that
there was no negligence in
the carrying out of the terms
of the contract

7
8

The evidence must be very clear and convincing as will engender belief in
an unprejudiced mind that the accused is really guilty
13 i.e. superior or greater weight
12

4|P

LATON

deliberate intent to cause

damage or injury to another

class is considered in itself a determinate object (e.g. one of my

horses)

The test in determining whether a person is negligent in doing

an act whereby injury or damage results to the person or
property of another is this: Would a prudent man, in the
position of the person to whom negligence is attributed,
foresee harm to the person injured is a reasonable
consequence of the course about to be pursued? If so, the law
imposes a duty on the actor to refrain from that course or to
take precaution against its mischievous results, and that failure
to do so constitutes negligence

Specific thing, Defined

-One that is individualized and can be identified or
distinguished from others of its kind

Requisites of liability under quasi-delict:

1. That there exists a wrongful act or omission imputable to the
defendant by reason of his fault or negligence
2. That there exists a damage or injury, which must be proved
by the person claiming recovery
3. That there must be a direct causal connection or a 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
the damage or injury
Proximate cause, Defined
-The one which in natural sequence, undisturbed by any
independent cause, produces the result complained of

In an obligation to deliver a determinate thing, there are three

incidental or accessory obligations:
1. The obligation to preserve the thing with due care, provided
for in Article 1163
2. The obligation to deliver the fruits, provided for in Article
1164
3. The obligation to deliver the accessions and accessories,
provided for in Article 1166
________
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
________
A thing is said to be specific or determinate particularly
designated or physically segregated others of the same class
(i.e. the watch I am wearing, my dog named Terror, the
Toyota car with Plate No. AAV 316 (2008), or this cavan of rice)

When the plaintiffs own negligence was the immediate and

proximate cause of his own damage or injury, he cannot
recover damages. If his negligence was only contributory, the
plaintiff may recover, but the court shall mitigate the damages
14
to be awarded

A thing is generic or indeterminate when it refers only to a class

or genus to which it pertains and cannot be pointed out with
particularity (i.e. the sum of P1,000.00, a 1995 Toyota car, or a
cavan of rice)

Obligations emerging from quasi-delicts are demandable not

only for the tortfeasors own fault or negligence but also, in
certain cases, for the fault or negligence as parents, guardians,
teachers or employers. This kind of assumptive form of liability
is provided in Article 2180 and known as doctrine of vicarious
liability
________

SPECIFIC
Identified by its individuality.
The debtor cannot substitute
it with another although the
latter is of the same kind and
quality without the consent of
the creditor

Chapter 2. Nature and Effect of Obligations

Three kinds of prestations in obligations:
1. To give
2. To do
3. Not to do
Obligation to give may refer either to:
1. Specific or determinate object or thing
2. Generic or indeterminate thing

GENERIC
Identified only by its specie.
The debtor can give anything
of the same class as long as it
is of the same kind

Duties of debtor in obligation to give a DETERMINATE thing:

1. Preserve the thing in obligations to give (real obligations),
the obligor has the incidental duty to take care of the thing due
with the diligence of a good father of a family pending delivery
15

(a) Diligence of a good father of a family

(b) Another standard of care see Arts. 1163, 1306,
1755
(c) Factors to be considered see Arts. 1173 and
1174
(d) Reason for the debtors obligation

Generic thing, Defined

-One that is indicated only by its kinds, without being
designated and distinguished from others of the same kind (e.g.
a horse, house)
In the obligation to deliver a generic thing, the object due is
determinable; the moment it is delivered, it becomes
determinate. When the generic objects are, however, confined
to a particular class, we have a limited generic obligation. The
14

Art. 2179

16

2. Deliver the fruits of the thing see Article 1164

3. Deliver the accessions and accessories see Article 1166

The phrase has been equated with ordinary care or that diligence which an
average (a reasonably prudent) person exercises over his own property
16 The debtor must exercise diligence to insure that the thing to be delivered
would subsist in the same condition as it was when the obligation was
contracted
15

5|P

LATON

4. Deliver the thing itself see Articles 1163, 1233, 1244; as to

kinds of delivery, see Articles 1497 to 1501
5. Answer for the damages in case of non-fulfillment or breach
see Article 1170
Duties of debtor in obligation to deliver a GENERIC thing:
1. To deliver a thing which is of the quality intended by the
parties taking into consideration the purpose of the obligation
and other circumstances
2. To be liable for damages in case of fraud, negligence, or
contravention of the tenor thereof
Note: If the failure of the debtor to preserve the thing is due to
no fault or negligence of his, but to fortuitous events or force
majeure, he is exempted from responsibility
________
Art. 1164. The creditor has a right to the fruits of the thing from
the time the obligation to deliver it arises. However, he shall
acquire no real right over it until the same has been delivered
to him
________

Ownership and other real rights over property are acquired and
transmitted in consequence of certain contracts by tradition or
delivery
Non nudis pactis, sed traditione dominia rerum transferentur
(the ownership of things is transferred not by mere agreements
but by delivery)
The delivery or tradition of a thing constitutes a NECESSARY
and INDISPENSABLE requisite for the purpose of acquiring the
ownership of the same by virtue of a contract
Meaning of personal right and real right
PERSONAL RIGHT
REAL RIGHT
The right or power of a person The right or interest of a
(creditor) to demand from person over a specific thing
another (debtor), as a definite (i.e. ownership, possession,
passive subject, the fulfillment mortgagae),
without
a
of the latters obligation to definite subject against whom
give, to do, or not to do
the right may be personally
enforced

Kinds of fruits:
1. Natural fruits the spontaneous products of the soil, and the
young and other products of animals (i.e. grass, trees and
plants on lands produced without the intervention of human
labor)

Personal right and real right, Distinguished

PERSONAL RIGHT
REAL RIGHT
There is a definite active There is only a definite active
subject and a definite passive subject without any passive
subject
subject
Binding and enforceable only Directed against the whole
against a particular person
world
________

2. Industrial fruits those produced by lands of any kind

through cultivation or labor (i.e. vegetables, rice, and all
products of lands brought about by reason of human labor)

Art. 1165. When what is to be delivered is a determinate thing,

the creditor, in addition to the right granted him by Article
1170, may compel the debtor to make the delivery.

3. Civil fruits those derived by virtue of a juridical relation (i.e.

rents of building)

If the thing is indeterminate or generic, he may ask that the

obligation be complied with at the expense of the debtor.

The creditor is entitled to the fruits of the thing to be

delivered from the time the obligation to make delivery
arises. The intention of the law is to protect the interest of the
obligee should the obligor commit delay, purposely or
otherwise, in the fulfillment of his obligation

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
________

When obligation to deliver fruits arises:

1. Generally, the obligation to deliver the thing due and,
consequently, the fruits thereof, if any, arises from the time of
17
the perfection of the contract

Remedies of the Creditor:

1. In obligations to give (Art. 1165)
2. In obligations to do (Art. 1167)

2. If the obligation is subject to a suspensive condition or

period, it arises upon the fulfillment of the condition or arrival
of the term. However, the parties may make a stipulation to the
contrary as regards the right of the creditor to the fruits of the
thing
3. In a contract of sale, the 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
4. In obligations to give arising from law, quasi-contracts,
delicts, and quasi-delicts, the time of performance is
determined by the specific provisions of the law applicable

Remedies of creditor in real obligation:

1. In a specific real obligation (obligation to deliver a
determinate thing), the creditor may exercise the following
remedies or rights in case the debtor fails to comply with his
obligation:
(a) Demand specific performance or fulfillment (if it is still
possible) of the obligation with a right to recover damages;
(b) Demand rescission or cancellation (in certain cases) of the
obligation also with a right to recover damages; or
(c) Demand payment of damages only, where it is the only
feasible remedy

Perfection, in this case, refers to the birth of the contract or to the meeting
of the minds between the parties
17

6|P

LATON

In an obligation to deliver a determinate thing, the very thing

itself must be delivered. Consequently, only the debtor can
comply with the obligation

2. The debtor performs an obligation to do but contrary to the

terms thereof; or
3. The debtor performs an obligation to do but in poor manner

2. A generic real obligation (obligation to deliver a generic

thing), on the other hand, can be performed by a third person
since the object is expressed only according to its family or
genus. It is, thus, not necessary for the creditor to compel the
debtor to make the delivery, although he may ask for
performance of the obligation
Paragraph 3 gives two instances when a fortuitous event does
not exempt the debtor from responsibility. It likewise refers to
a determinate thing. An indeterminate thing cannot be the
object of destruction by a fortuitous event because genus
nunquam perit (genus never perishes)
________
Art. 1166. The obligation to give a determinate thing includes
that of delivering all its accessions and accessories, even though
they may not have been mentioned
________
Meaning of accessions and accessories
ACCESSIONS
ACCESSORIES
The fruits of a thing or Things joined to or included
additions to or improvements with the principal thing for
upon a thing (the principal), the latters embellishment,
naturally or artificially, i.e. better use, or completion, i.e.
House or trees on a land, key of a house, frame of a
rents of a building, air- picture, bracelet of a watch,
conditioner in a car, etc.
machinery in a factory, bow of
a violin, etc
This article refers to the accesion continua, including the
18
accesion natural, such as alluvion , and accesion industrial in
its three froms of building, planting and sowing
GR: All accessions and accessories are considered included in
the obligation to deliver a determinate thing although they may
19
not have been mentioned
XPN: Unless otherwise stipulated
Note: An obligation to deliver the accessions or accessories of a
thing does not include the latter, i.e. a sale of the improvement
(e.g. house) upon a land is not sufficient to convey title or any
right to the land, unless otherwise stipulated
________

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
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 may be undone if it is still possible to undo what was
done
A personal obligation to do, like a real obligation to deliver a
generic thing, can be performed by a third person. Where,
however, the personal qualifications of the debtor are the
determining motive for the obligation contracted (e.g. to sing in
a night club), the performance of the same by another would
be impossible or would result to be so different that the
obligation could not be considered performed. Hence, the only
feasible remedy of the creditor is indemnification for damages
Note: The law does not authorize the imposition of personal
force or coercion upon the debtor to comply with his obligation
There is no imprisonment for debt. The ultimate sanction of
civil obligations is indemnification of damages
________
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.
________
Remedies of creditor in NEGATIVE personal obligation:
-The remedy of the obligee is the undoing of the forbidden
thing plus damages. However, if it is not possible to undo what
was done, either physically or legally, or because of the rights
acquired by third persons who acted in good faith, or for some
reason, his remedy is an action for damages caused by the
debtors violation of his obligation
________

Art. 1167. If a person obliged to do something fails to do it, the

same shall be executed at his cost.

Art. 1169. Those obliged to deliver or to do something incur in

delay from the time the obligee judicially or extra-judicially
demands from them the fulfillment of their obligation.

This same rule shall be observed if he does it in contravention

of the tenor of the obligation. Furthermore, it may be decreed
that what has been poorly done be undone
________

However, the demand by the creditor shall not be necessary in

order that delay may exist:
(1) When the obligation or the law expressly so declare; or

Situations contemplated in Article 1167 (an obligation to do):

1. The debtor fails to perform an obligation to do;

The increasing of land area along a shore by deposited alluvium or by the

recession of water
19 This rule is based on the principle of law that the accessory follows the
principal

(2) When from the nature and the circumstances of the

obligation it appears that the designation of the time when the
thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or

18

(3) When demand would be useless, as when the obligor has

rendered it beyond his power to perform.
7|P

LATON

20

In reciprocal obligations, neither party incurs in delay if the

other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by the other
begins
________
Meaning of Delay
ORDINARY
Merely the failure to
perform an obligation on
time

LEGAL (default or mora)

The failure to perform an
obligation on time which failure
constitutes a breach of the
obligation

Note: There can be delay only in positive obligations (to do and

to give); but there can be no delay in negative obligations (not
to do and not to give)
Kinds of delay or default
Mora solvendi
Mora accipiendi
The delay on the The delay on the
part
of
the part
of
the
debtor to fulfill creditor to accept
his obligation ex the performance
re (to give) or ex of the obligation
persona (to do)

Compensatio morae
The delay of the
obligors in reciprocal
obligations, i.e. in sale;
the delay of the
obligor cancels the
delay of the obligee,
and vice versa

Mora Solvendi
-Mora on the part of the debtor is the delay, contrary to law, in
the fulfillment of the prestation by reason of a cause imputable
to the former
Note: It presupposes that the obligation is due or demandable
Requisites:
1. The obligation be demandable and already liquidated
2. That the debtor delays performance
3. That the creditor requires the performance judicially (when
complaint is filed in court) or extra-judicially (when made
outside of court or orally or in writing)
Note: A mere reminder cannot be considered a demand for
performance, because it must appear that the tolerance or
benevolence of the creditor must have ended

3. When time is of the essence - i.e. delivery on a particular

occasion, or the creditor was to pay on said date another
obligation
4. When demand would be useless
(a) When the impossibility is caused by some act or fault of the
debtor, such as when he is absent or in hiding, or has already
disposed of the thing which is to be delivered
(b) When the impossibility is caused by fortuitous event, but
the debtor has bound himself to be liable in cases of such
events
Note: In Nos. 1 and 2, it is not sufficient that the law or the
obligation fixes a date for performance; it must further state
expressly that after the period lapses, default will commence
In case of doubt, the doubt should be resolved in favor of the
debtor, because dispensing with demand is an exception to a
general rule; unless the exception is clearly proved, the general
rule must apply
Mora Accipiendi
-Mora of the creditor is the delay in the performance based on
the omission by the creditor of the necessary cooperation,
especially acceptance on his part
Requisites:
1. An offer of performance by the debtor who has the required
capacity
2. The offer must be to comply with the prestation as it should
be performed
3. The creditor refuses the performance without just cause
Compensatio Morae
-The parties in a bilateral contract can regulate the order in
which they shall comply with their reciprocal prestations
One party cannot demand performance by the other without
offering to comply with his own prestation
Neither party incurs default if the other does not comply is not
ready to comply in a proper manner with what is incumbent
upon him
GR: The fulfillment by the parties should be simultaneous

Default generally begins from the moment the creditor

demands the performance of the obligation, even if a period
has been fixed in the obligation

Delinquency commences when one of the contracting parties

fulfills his obligation and becomes invested with power to
determine the contract because of failure on the part of the
other to carry out the agreement

The demand must refer to the prestation that is due and not to
another

Effects of delay:
Mora solvendi

Mora accipiendi

When demand is not necessary to put debtor in delay:

1. When obligation so provides - without the need of any
demand
2. When the law so provides - e.g. tax payments

He is liable to the
creditor
for
interest (in case of
obligations to pay

Where the obligation

is to pay money, the
debtor is not liable for
interest from the time

Compensatio
morae
The delay of
the
obligor
cancels
the
delay of the

In Lorenzo Shipping Corp. v. BJ Marthel Intl, 443 SCRA 163: In determining

whether time is of the essence in a contract, the ultimate criterion is the actual
or apparent intention of the parties and before time may be so regarded by a
court, there must be a sufficient manifestation, either in the contract itself or the
surrounding circumstances of that intention
20

8|P

LATON

money)
or
damages
He is liable even
for a fortuitous
event when the
obligation is to
deliver
a
determinate thing
Damages

Specific
performance
Rescission

of creditors delay;
He bears the risk of
loss of the thing due

He is liable for
damages suffered, if
any, by the debtor
Debtors
liability
limited
to
gross
negligence or fault

obligee,
and
vice
versa.
Legally
speaking, there
is no default or
delay on the
part of both
parties
Damages

Specific
performance
Rescission

The benefits arising from default or delay may cease upon (1)
renunciation, expressly or impliedly (i.e. grant of extension), by
the creditor, and (2) prescription
Prescription of the action on the obligation may also extinguish
the effects of default
________
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
________
Grounds for liability:
1. Fraud (deceit or dolo) - 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.
[It is] the deliberate or intentional evasion of the normal
21
fulfillment of an obligation. As a ground for damages, it
implies some kind of malice or dishonesty and it cannot cover
cases of mistake and errors of judgment made in good faith. It
is synonymous to bad faith in that, it involves a design to
mislead or deceive another.
Article 1170 refers to incidental fraud (dolo incidente)
committed in the performance of an obligation already existing
because of contract. It is to be differentiated from causal fraud
(dolo causante) or fraud employed in the execution of a
contract under Article 1338, which vitiates consent
Evasion of legitimate obligation for benefits admittedly
received constitutes unjust enrichment
2. Negligence (fault or culpa) - any voluntary act or omission,
there being no malice, which prevents the normal fulfillment of
an obligation
This fault or negligence is known as culpa contractual, the fault
or negligence of the debtor as an incident in the fulfillment of
an existing obligation
3. Delay (mora)
4. Contravention of the terms of the obligation - the violation of
the terms and conditions stipulated in the obligation. It includes
any illicit act which impairs the strict and faithful fulfillment of
the obligation, or every kind of defective performance. The

21

contravention must not be due to a fortuitous event or force

majeure
It is enough that there be non-performance or delay to hold the
debtor liable for damages; such non-performance or delay must
be imputable to him
The delay or contravention of the obligation must either be
malicious or negligent to be actionable; if due to fortuitous
events, such delay or contravention cannot ordinarily give rise
to damages
FRAUD
There is deliberate intention
to cause damage or injury
Waiver of the liability for
future fraud is void
Must be clearly proved

NEGLIGENCE
There is no such intention

Such waiver may be allowed,

in a certain sense
Presumed from the violation
of a contractual obligation
Liability cannot be mitigated May be reduced according to
or reduced by the courts
the circumstances
Both are voluntary, that is, they are committed with volition
Damages include any and all damages that a human being may
suffer in any and all manifestations of his life: physical or
material, moral or psychological, mental or spiritual, financial,
economic, social, political and religious
________
Art. 1171. Responsibility arising from fraud is demandable in all
obligations. Any waiver of an action for future fraud is void
________
Responsibility arising from fraud can be demanded with respect
to all kinds of obligation and unlike in the case of responsibility
arising from negligence, the court is not given the power to
mitigate or reduce the damages to be awarded. This is so
because fraud is so serious and evil that its employment to
avoid the fulfillment of ones obligation should be discouraged
A waiver of an action for future fraud is void (no effect, as if
there is no waiver) as being against the law and public policy
A past fraud can be the subject of a valid waiver because the
waiver can be considered as an act of generosity and
magnanimity on the part of the victim of the fraud. Here, what
is renounced is the effect of the fraud, that is, the right to
indemnity of the party entitled thereto
________
Art. 1172. Responsibility arising from negligence in the
performance of every kind of obligation is also demandable,
but such liability may be regulated by the courts, according to
the circumstances
________
In the performance of every kind of obligation, the debtor is
liable for damages resulting from his negligence
An action for future negligence (not fraud) may be renounced
except where the nature of the obligation requires the exercise
of extraordinary diligence in the case of common carriers

8 Manresa 72

9|P

LATON

Where negligence show bad faith, it is considered equivalent to

fraud. Any waiver of an action for future negligence of this kind
is, therefore, void

In determining the issue of negligence, the following factors

must be considered:
1. Nature of obligation

Kinds of negligence according to source of obligation:

1. Contractual negligence (culpa contractual) or negligence in
contracts resulting in their breach is not a source of obligation
but merely makes the debtor liable for damages in view of his
negligence in the fulfillment of a pre-existing obligation

2. Circumstances of the person

2. Civil negligence (culpa aquiliana) or negligence which by

itself is the source of an obligation between the parties not so
related before by any pre-existing contract. It is also called tort
or quasi-delict

Kinds of diligence required:

1. That agreed upon by the parties, orally or in writing;

3. Criminal negligence (culpa criminal) or negligence resulting in

the commission of a crime
In negligence cases, the aggrieved party may choose between a
criminal action under Article 100 of the Revised Penal Code or a
civil action for damages under Article 2176 o the Civil Code
Note: What is prohibited under Article 2177 of the Civil Code is
to recover twice for the same negligent act
The exercise of due diligence to prevent the damage as a
defense is available on culpa acquiliana but not in culpa
contractual
Effect of negligence on the part of the injured party -Article 2179 of the new Civil Code provides:
When the plaintiffs own negligence was the immediate and
proximate cause of his injury, he cannot recover damages. But if
his negligence was only contributory, the immediate and
proximate cause of the injury being the defendants lack of due
care, the plaintiff may recover damages, but the courts shall
mitigate the damages to be awarded
________
Art. 1173. The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of
the obligation and corresponds with the circumstances of the
persons, of the time and of the place. When negligence shows
bad faith, the provisions of Articles 1171 and 2201, paragraph
2, shall apply.
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good
father of a family shall be required
________
According to the Supreme Court, negligence is the failure to
observe for the protection of the interests of another person,
that degree of care, precaution and vigilance which the
circumstances justly demand, whereby such other persons
22
suffer injury
Negligence is simply the absence of due care required by the
obligation
Negligence is a question of fact, its existence being dependent
upon the particular circumstances of each case

3. Circumstances of time
4. Circumstances of the place

2. In the absence of stipulation, that required by law in the

particular case; and
3. If both the contract and law are silent, then the diligence
expected of a good father of a family
________
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
________
Fortuitous event, Defined
-Any event which cannot be foreseen, or which, though
foreseen, is inevitable. Stated otherwise, it is an event which is
23
either impossible to foresee or impossible to avoid. E.g.
unexpected fire, shipwreck, violence of robbers, etc
Fortuitous event may be produced by two general causes: (1)
By nature, and (2) by the act of man. In order that acts of man
may constitute fortuitous event, it is necessary that the have
the force of an imposition which the debtor could not have
resisted
FORTUITOUS EVENT
Acts of man; strictly speaking,
an event independent of the
will of the obligor but not of
other human wills, i.e. war,
fire, robbery, murder, etc

FORCE MAJEURE
Acts of God; those event
which are totally independent
of the will of every human
being, i.e. earthquake, flood,
rain, shipwreck, etc

In our law, both are identical in so far as they exempt the

obligor from liability and are independent of the will of the
obligor
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
Kinds of fortuitous event:
1. Ordinary fortuitous events or those events which are
common and which the contracting parties could reasonably
foresee (e.g. rain); and
2. Extra-ordinary fortuitous events or those events which are
uncommon and which the contracting parties could not have
reasonably foreseen (e.g. earthquake, fire, was, pestilence,
unusual flood)
The essence of a fortuitous event consists of being a happening independent
of the will of the debtor and which happening, makes the normal fulfillment of
the obligation impossible
23

22

see United States v. Barrias, 23 Phil. 434

10 | P

LATON

Characteristics:
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 will
2. It must be impossible to foresee the event which constitute
the caso fortuito, or if it can be foreseen, it must be impossible
to avoid

When a person makes use of machinery, instruments,

apparatus or substances which are dangerous in themselves, by
reason of their speed, of their explosive or inflammable nature,
of the electric power they carry, or of other analogous cases, he
is bound to indemnify for the injuries they may cause, even if
he does not act unlawfully, unless the injury is caused by the
inexcusable fault or neglect of the victim

3. The occurrence must be of such as to render it impossible for

the debtor to fulfill his obligation in a normal manner

It is manifestly unjust to hold the owner of the dangerous

works or things for injuries which are imputable to the
inexcusable negligence of the victim himself

4. The obligor must be free from any participation in the

aggravation of the injury resulting to the creditor

4. Concurrent negligence or fault on the part of the obligor

________

Note: The absence of any of the above requisites would prevent

the obligor from being exempt from liability

Art. 1175. Usurious transactions shall be governed by special

laws
________

For the defense of force majeure to prosper, the accident must

be due to natural causes, and absolutely without human
intervention
Mere pecuniary inability or poverty is not an excuse for the
non-fulfillment of an obligation. Neither is mere difficulty to
foresee the happening of an event; it is different from the
impossibility to foresee the same. As stated earlier, the event
must be unforeseeable, or even if it could be foreseen, must be
impossible to avoid
In order that fortuitous event or force majeure may exempt a
person from liability, it is necessary that he be free from
negligence
GR: When a debtor is unable to fulfill his obligation because of
fortuitous event or force majeure, he cannot be held liable for
damages for non-performance
XPN:
1. When expressly specified by law
(a) The debtor is guilty of fraud, negligence, or delay, or
contravention of the tenor of the obligation
(b) The debtor has promised to deliver the same (specific) thing
to two or more persons who do not have the same interest

Simple loan or mutuum, Defined

-A contract whereby one of the parties delivers to another,
money or other consumable thing, upon the condition that the
same kind and quality shall be paid. It may be gratuitous or with
a stipulation to pay interest
Interest, Defined
- The income produced by money in relation to its amount and
24
to the time that it cannot be utilized be its owner. Interest
may either be moratory or compensatory
The moratory interests are 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
damages due to the delay in the fulfillment of the obligation.
Interests on obligations which have an extra-contractual or
delictual origin are compensatory
Usury, Defined
-Contracting for or receiving something in excess of the amount
allowed by law for the loan or forbearance of money, goods,
25
chattels or credits than the law allows
Requisites for recovery of interest:
1. The payment of interest must be expressly stipulated;
2. The agreement must be in writing; and

(c) The obligation to deliver a specific thing arises from a crime

3. The interest must be lawful
(d) The thing to be delivered is generic
2. When declared by express stipulation - The 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 of force majeure
3. When the nature of the obligation requires the assumption
of risk - The principle of assumption of risk is based on social
justice; it is based on an ethico-economic sensibility of modern
society, which has noted the injustices which industrial
civilization has created
If he benefits from the means that have produced the loss, it is
only equitable that he should bear the consequences of such
loss

Note: A stipulation for the payment of usurious interest is void,

that is, as if there is no stipulation as to interest
In Eastern Shipping v. CA, 234 SCRA 78: No interest, however,
shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be
24
25

For loan, forebearance, money: 12%; for damages, etc.: 6%

see Tolentino v. Gonzales, 50 Phil. 558

11 | P

LATON

deemed to have been reasonably ascertained). The actual base

for the computation of legal interest shall, in any case, be on
the amount finally adjudged.
When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a
forbearance of credit.
________
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.
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
________
Under Article 1253 of the Code, if a debt produces interest,
payment of the principal shall not be deemed to have been
made until the interests have been covered
Presumption, Defined
-The inference of a fact not actually known arising from its
usual connection with another which is known or proved

In case the debtor does not comply with his obligation, the
creditor may avail himself of the following remedies to satisfy
his claim:
1. Exact fulfillment (specific performance) with the right to
damages;
2. To levy by attachment and execution upon all properties of
the debtor, except such as are exempt by law from execution;
3. After having pursued the property in possession of the
debtor, exercise all the rights (i.e. the right to redeem) and
bring all the actions of the debtor (i.e. the right to collect from
the debtor of his debtor), except those inherent in or personal
to the person of the latter (i.e. the right to vote, to receive legal
support, etc); and
4. To ask for the rescission of the contracts made by the debtor
in fraud of their rights
Note: The debtor is liable with all his property, present and
future, for the fulfillment of his obligations, subject to the
exemptions provided by law. This liability of the property is the
legal guaranty in favor of creditors; hence, the debtor cannot
maliciously reduce such guaranty
Requisites:
1. The creditor has an interest in the right or action not only
because of his credit but because of the insolvency of the
debtor

Kinds of Presumption:
1. Conclusive presumption - one which cannot be contradicted,
like the presumption that everyone is conclusively presumed to
know the law; and

2. Malicious or negligent inaction of the debtor in the exercise if

his right or action of such seriousness as to endanger the claim
of the creditor

2. Disputable (or rebuttable) presumption - one which can be

contradicted or rebutted by presenting proof to the contrary

3. The creditor of the debtor against a third person is certain,

demandable and liquidated

When presumptions in Article 1176 do not apply:

1. With reservation as the interest

4. The debtors right against the third person must be

patrimonial, or susceptible of being transformed to patrimonial
value for the benefit of the creditor

2. Receipt without indication of particular installment paid

3. Receipt for a part of the principal
4. Payment of taxes - because the tax for one year is
independent of the taxes for other years. They do not
constitute installments of the same obligation

The 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, is known as
the accion subrogatoria or subrogatory action
In order to exercise the accion subrogatoria, a previous
approval of the court is not necessary

5. Non-payment proven
________
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
________
Remedies contemplated in this article:
1. To levy by attachment and execution upon all properties of
the debtor, except such as are exempt by law from execution
2. Accion subrogatoria
3. Accion pauliana

The following are rights of the debtor which cannot be

exercised by the creditor:
1. The right to existence, thereby exempting from the reach of
creditors whatever he may be receiving as support;
2. Rights or relations of a public character;
3. Rights of an honorary character;
4. Rights consisting of powers which have not been used,
including:
(a) The power to administer, such as when the debtor fails to
have some property leased the creditor cannot give it in lease
for him,
12 | P

LATON

Chapter 3. Different Kinds of Obligation

(b) The power to carry out an agency of deposit, which are
purely personal acts, and
(c) The power to accept an offer for a contract;
5. Non-patrimonial rights, such as the action to establish the
debtors status as a legitimate or an illegitimate child, the
action for legal separation or annulment of marriage, and other
rights arising from family relations;
6. Patrimonial rights not subject to execution, such as the right
to government gratuity or pension; and
7. Patrimonial rights inherent in the person of the debtor, such
as the right to revoke a donation by reason of ingratitude, and
the right to demand exclusion of an unworthy heir
As a last recourse, creditors have the right to set side or revoke
the acts which the debtor may have done to defraud them;
creditors may rescind fraudulent reductions of the properties of
the debtor which constitute the guaranty of his debts
The action to revoke or rescind such acts is known as the accion
pauliana
All acts of the debtor which reduces patrimony in fraud of his
creditors, whether by gratuitous or onerous title, can be
revoked by this action
But payments of pre-existing obligations already due, whether
natural or civil, cannot be impugned by an accion pauliana
New debts contracted by the insolvent debtor are not included
although they may make the position of existing creditors
worse, because only acts which impair the assets of the debtor
are covered by the provision and those which merely increase
his liabilities are not
________
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
________
GR: All rights acquired in virtue of an obligation are
transmissible
XPN:
1. Prohibited 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 profits among
themselves
(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
(c) By the contract of commodatum (or gratuitous), one of the
parties delivers to another something not consumable (e.g. car)
so that the latter may use the same for a certain time and
return it.
2. Prohibited by stipulation of the parties

Classification of Obligations:
A. By their juridical quality or efficaciousness:
NATURAL
CIVIL
A special kind of obligation An obligation, which if not
which cannot be enforced in fulfilled when it becomes
court but which authorizes the due and demandable, may
retention of the voluntary be enforced in court through
payment or performance made action
by the debtor
B. By their subject
UNILATERAL
Only ONE of the parties is
bound
to
fulfill
a
prestation

BILATERAL
BOTH parties are bound to
perform a part in the obligation,
i.e. in sale

Note: Reciprocal obligations are those which arise from the

same cause, wherein each party is a debtor and a creditor of
the other, such that performance of one is conditioned upon
the simultaneous fulfillment of the other--from the moment
one of the parties fulfills his obligation, delay by the other party
26
begins
SIMPLE (Individual)

MULTIPLE (Collective)

JOINT
Each debtor is liable only for a
part of the whole liability and
to each creditor shall belong
only a part of the correlative
rights

SOLIDARY
A debtor is answerable for the
whole of the obligation
without prejudice to his right
to collect from his co-debtors
the latters shares in the
obligation

C. By their object
SIMPLE
CONJUNCTIVE

COMPOUND (Multiple)
DISTRIBUTIVE

SPECIFIC

GENERIC

ALTERNATIVE
The obligor may choose to
completely perform one out
of several prestations

FACULTATIVE
Only one prestation has been
agreed upon, but the obligor
may
render
one
in
substitution of the first one

POSITIVE
When the debtor is obliged to
give or do something in favor
of the creditor

NEGATIVE
When the debtor is obliged
not to do something, that is,
he must refrain from doing
something

REAL
Obligation to give, that in
which the subject matter is a
thing which the obligor must
deliver to the obligee

PERSONAL
Obligation to do or not to do,
that in which the subject
matter is an act to be done or
not to be done

POSSIBLE
Capable of accomplishment or

IMPOSSIBLE
Not
capable

26

of

see ASJ Corporation v. Evangelista, 545 SCRA 300

13 | P

LATON

fulfillment in nature or in law

accomplishment of fulfillment
in nature or in law

Code, and, consequently, in the absence of other restrictions,

payment thereof is immediately demandable

DIVISIBLE
Susceptible
performance

INDIVISIBLE
Not susceptible of partial
performance

When the period originally given has been cancelled by mutual

agreement of the parties, or the non-fulfillment of a condition
resolves the period stipulated, the obligation must be
considered pure

of

PRINCIPAL
Main obligation
created
by
parties

partial

ACCESSORY
Secondary obligation created to guarantee
the fulfillment of the principal obligation

FIDE JUSORIAS

HIPOTECARIAS

PINORATICIAS

EJECUTIVAS

WITH A PENAL CLAUSE

Imposes a penalty for
violation of the terms thereof

SIMPLE
There is no penalty imposed
for violation of the terms
thereof

D. By their juridical perfection and extinguishment

PURE
CONDITIONAL WITH A TERM
Not
burdened Subject to a Subject to the happening
27
with
any condition
of an event which surely
condition
or
will happen, although the
term.
It
is
date may not be known
28
immediately
as of the moment
demandable
SUSPENSIVE
The happening of which
gives rise to an obligation

RESOLUTORY
The
happening
of
extinguishes
rights
existing

which
already

A conditional obligation is one which is subject to a condition

Condition, Defined
-Every future and uncertain event upon which an obligation or
provision is made to depend; it is a future and uncertain event
upon which the acquisition or resolution of rights is made to
depend by those who execute the juridical act
An event which is not uncertain but must necessarily happen
cannot be a condition; the obligation will be considered as one
with a term
The code considers a past event unknown to the parties as a
condition. The element of uncertainty, however, is wanting
when the event is past or present; hence, it cannot properly be
called a condition. It is more accurate to designate it as a basis
of the contract. It cannot have the quality of suspending the
effects of a juridical act
What can be a condition is the future knowledge or proof of a
past event unknown to the parties, but not the event itself.
Thus, the proof of an unknown past event may, by the will of
the parties, be established as a condition
Classification of conditions:
SUSPENSIVE
The happening of which
gives rise to an obligation

SECTION 1. - Pure and Conditional Obligations

Art. 1179. 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
Every obligation which contains a resolutory condition shall also
be demandable, without prejudice to the effects of the
happening of the event
________
When the obligation contains no term or condition whatever
upon which depends the fulfillment of the obligation
contracted by the debtor, the obligation is a pure obligation
It is immediately demandable and there is nothing to exempt
the debtor from compliance therewith
A demand note is subject to neither a suspensive condition nor
a suspensive period. The demand is not a condition precedent,
since the effectivity and binding effect of the note does not
depend upon the making of the demand: the note is binding
even before the demand is made. Thus, a demand note is
strictly a pure obligation as defined in this article of the Civil
The condition may be suspensive, the happening of which shall give rise to
the obligation; or the condition may be resolutory, the happening of which
terminates the obligation
28 The term may be suspensive (from a day certain) in which case, the
obligation becomes demandable only after expiration of the term; or if the
term is resolutory (to a day certain), the obligation terminates upon the
expiration of the term
27

POTESTATIVE
Depends upon the
will of the party to
the juridical relation

RESOLUTORY
The
happening
of
extinguishes
rights
existing

CASUAL
Depends
upon chance

which
already

MIXED
Depends partly upon
the will of the former
and partly upon chance
or the will of a third
person

DIVISIBLE
INDIVISIBLE
Whether by its nature, by agreement or under the law, it can be
performed in parts
CONJUCTIVE
ALTERNATIVE
When there are several, or all of them or only one must be
performed
POSITIVE
NEGATIVE
Whether it is an act or omission
EXPRESS
IMPLIED
Whether they are stated or merely inferred
POSSIBLE
IMPOSSIBLE
Whether they can be fulfilled or not, the impossibility in the
latter case being either physical or legal

14 | P

LATON

The fulfillment of conditions is indivisible even when the object

of the condition is a divisible thing; hence, partial fulfillment of
the condition does not give rise to the existence of part of the
obligation
However, by the very nature of the condition, by stipulation, or
by law, it may be divisible
If several conditions are imposed for the same obligation, the
necessity of complying with all or one only depends upon the
intention of the parties. If the conditions are imposed in the
alternative or disjunctively, the fulfillment of one of them is
sufficient. If they are imposed conjunctively, then all of them
must be complied with
An obligation is demandable at once-1. When it is pure
2. When it is subject to a resolutory condition
3. When it is subject to a resolutory 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 provisions of Article 1197.
________
In cases falling under the present article, the creditor should file
an action to fix a period for the payment of the obligation. An
immediate action to enforce the obligation, without a period
having been previously fixed by the court, would be premature
A period is a future and certain event upon the arrival of which
the demandability either arises or extinguished
1. 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. In this case, 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
2. Other cases--as when the debtor binds himself to pay: little
by little, as soon as possible, from time to time, etc
________
Art. 1181. In conditional obligations, the acquisition of rights, as
well as the extinguishment or loss of those already acquired,
shall depend upon the happening of the event which
constitutes the condition.
________
If the suspensive condition (condition precedent or antecedent)
happens, the obligation arises; in other words, if the condition
does not happen, the obligation does not come into existence
The resolutory condition (condition subsequent) extinguishes
rights and obligations already existing; in other words, the
obligations and rights already exists, but under the threat of
extinction upon the happening of the resolutory condition
If the time comes when it becomes certain that the condition
will not be fulfilled, and the condition is suspensive, the
conditional creditor loses all hope of becoming a real creditor,
and he likewise loses the power to exercise the actions granted

by Article 1188 for the preservation of his rights; and if the

condition is resolutory, the creditors rights become absolute
1. Acquisition of rights--In obligations subject to a suspensive
condition, the acquisition of rights by the creditor depends
upon the happening of the event which constitutes the
condition. E.g. the surrender of the sweepstakes ticket is a
condition precedent to the payment of the prize
2. Loss of rights already acquired--In obligation subject to a
resolutory condition, the happening of the event which
constitutes the condition produces the extinguishment or loss
of rights already acquired. E.g. X binds himself to support Y until
Y graduates from college
In Parks v. Province of Tarlac, 49 Phil. 142: The characteristic of
a condition precedent is that the acquisition of the right is not
effected while said condition is not complied with or is not
deemed complied with. Meanwhile nothing is acquired and
there is only an expectancy of right. Consequently, when a
condition is imposed, the compliance of which cannot be
effected except when the right is deemed acquired, such
condition cannot be a condition precedent.
________
Art. 1182. When the fulfillment of the condition depends upon
the sole will of the debtor, the conditional obligation shall be
void. If it depends upon chance or upon the will of a third
person, the obligation shall take effect in conformity with the
provisions of this Code.
________
A condition suspensive in nature and which depends upon the
sole will of one of the contracting parties is known as
potestative condition
POTESTATIVE
One
which
depends upon
the will of one
of
the
contracting
parties

CASUAL
One which depends
exclusively upon chance
or other factors, or a
third party, and not upon
the
will
of
the
contracting parties;

E.g. I will pay

you if I want,
I will pay you
after I recover
what X owes

E.g. I will give you my

land if war breaks out
next month, S binds
himself to sell his land to
B if he wins a case which
is pending before the
Supreme Court

MIXED
One
which
depends upon
the will of one of
the contracting
parties
and
other
circumstances
E.g. I will give
you a house, if
you
marry
Carolina

In Trillana v. Quezon College, Inc., 93 Phil. 383: A condition

obviously dependent upon her sole will and, therefore,
facultative in nature, render[s] the obligation void
It is only when the potestative condition depends exclusively
upon the will of the debtor that the conditional obligation is
void
When the fulfillment of the condition depends on the exclusive
will of the creditor, it is valid. E.g. I will lend you P100 if you
want it

15 | P

LATON

To allow conditions whose fulfillment depends exclusively on

the debtors will, is to sanction illusory obligations; this cannot
happen when the fulfillment depends on the will of the creditor
In Vda. De Mistica v. Naguiat, 418 SCRA 73: The Code prohibits
purely potestative, suspensive, conditional obligations that
depend on the whims of the debtor, because such obligations
are usually not meant to be fulfilled. Indeed, to allow the
fulfillment of conditions to depend exclusively on the debtors
will would be to sanction illusory obligations.
In cases falling under this article, it is not only the condition
that is void; the whole obligation is void. This provision,
however, is applicable only when the condition is suspensive,
and cannot apply to resolutory conditions the validity of which
is recognized in Article 1179 of the Code
In other words, a condition that is both potestative (or
facultative) and resolutory may be valid, even though the
condition is made to depend upon the will of the obligor. The
obligation in such case arises immediately, but the party who
has made the reservation may resolve it when he wishes to
When the condition depends, not only upon the will of the
debtor, but also upon chance or the will of the others, the
obligation is valid
When the fulfillment of the condition does not depend upon
the will of the obligor, but on that of a third person who can in
no way be compelled to carry it out, and it is found by the court
that the obligor has done all in his power to comply with the
obligation, the other party may be ordered to comply with his
part of the contract
In Romero v. CA, 250 SCRA 223: Where the so-called
"potestative condition" is imposed not on the birth of the
obligation but on its fulfillment, only the obligation is avoided,
leaving unaffected the obligation itself.
In Santos v. CA, 337 SCRA 67: As we earlier pointed, in a
contract to sell, title remains with the vendor and does not pass
on to the vendee until the purchase price is paid in full, Thus, in
contract to sell, the payment of the purchase price is a positive
suspensive condition. Failure to pay the price agreed upon is
not a mere breach, casual or serious, but a situation that
prevents the obligation of the vendor to convey title from
acquiring an obligatory force. This is entirely different from the
situation in a contract of sale, where non-payment of the price
is a negative resolutory condition. The effects in law are not
identical. In a contract of sale, the vendor has lost ownership of
the thing sold and cannot recover it, unless the contract of sale
21
is rescinded and set aside. In a contract to sell, however, the
vendor remains the owner for as long as the vendee has not
complied fully with the condition of paying the purchase. If the
vendor should eject the vendee for failure to meet the
condition precedent, he is enforcing the contract and not
rescinding it. When the petitioners in the instant case
repossessed the disputed house and lot for failure of private
respondents to pay the purchase price in full, they were merely
enforcing the contract and not rescinding it.
________
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.
________
The impossibility of a condition may either be physical or
juridical:
PHYSICAL
JURIDICAL (Legal)
When it is contrary to the When it is contrary to law,
law of nature
morals, good customs, public
order and public policy
E.g. I will pay you P10,000 E.g. X will give Y P1,000 if Y will
if it will not rain for one kill Z; or will be the common-law
year in the Philippines, I wife of X; or will slap his father;
will pay you P10,000 if you or will publicly advocate the
can carry twenty (20) overthrow of the government;
cavans of palay on your or will not appear as a witness
shoulder
against X in a criminal case
It is juridically impossible or illicit, not only when the act is
prohibited by law, but also when it restricts certain essential
rights which are necessary for the free development of human
activity, such as political rights, family rights, and constitutional
rights and liberties. E.g. the condition not to change domicile;
to change or not to change religion; and that a person shall not
contract marriage
In order that a condition may be considered as illicit or
juridically impossible, it is necessary that it consist of an act or
fact for one of the parties to the contract. The illicit character of
the act is not determined by the act or fact in itself, but by its
effects upon one of the parties. The intention of the party
imposing the condition must be considered. In other words, the
criterion is subjective
Reason: One who promises something under a condition that is
impossible or illicit knows that it cannot be fulfilled, and,
manifests that he does not intend to be bound; hence, the
effect is the nullity of the promise
Scope: Impossible or illicit conditions annul the obligations
dependent upon them only when the conditions are positive
and suspensive. If the impossible or illicit condition is negative,
it is simply considered as not written, and the obligation is
converted into a pure and simple one
Note: This principle of nullity of the obligation itself due to the
impossibility or illicit character of the condition, applies only to
contracts
In order that an impossible condition may annul the obligation,
the impossibility must exist at the time of the creation of the
obligation; a supervening impossibility does not affect the
existence of the obligation
On the same principle, if the condition was impossible when
the obligation was constituted the obligation remains void even
if such condition subsequently becomes possible, unless the
parties later agree again
The present article applies only to cases where the condition
was already impossible or illicit at the time when the contract
was made
16 | P

LATON

Similar to the effect of an impossible condition is the logical

impossibility in an obligation although the condition itself is not
impossible. E.g. I will deliver to you my house if it is totally
destroyed
When the obligation is divisible, that part which is not affected
by the impossible or unlawful condition shall be valid. E.g. X
promises to pay to Y the sum of P1,000 if Y furnishes X with
information as to the whereabouts of Z, and another sum of
P2,000 if Y kills Z
Although the second paragraph of this article provides that the
condition not to do an impossible thing shall be considered as
not having been agreed upon, this should be understood to
include all negative impossible conditions. In this case, the
condition is considered as not imposed, and the obligation
must be regarded as a pure and simple one. E.g. I will give you
P500 if you do not fly to the moon within a period of five years
The negative impossible conditions are considered as not
written
A negative unintelligible condition is the same as a negative
impossible condition; hence, it is considered as not imposed
________
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.
________
The above article refers to positive (suspensive) condition--the
happening of an event at a determinate time. The obligation is
extinguished:
1. As soon as the time expires without the event taking place;
or
2. As soon as it has become indubitable that the event will not
take place although the time specified has not expired
E.g. X obliges himself to give B P10,000 if B will marry C before
B reaches the age of 23.

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 the obligation.
________
The above provision speaks of a negative condition--that an
event will not happen at a determinate time. The obligation
shall become effective and binding:
1. From the moment the time indicated has elapsed without
the event taking place; or
2. From the moment it has become evident that the event
cannot occur, although the time indicated has not yet elapsed
If no time is fixed, the circumstances shall be considered to
arrive at the intention of the parties. This rule may also be
applied to a positive condition
E.g. an obligation to deliver a piece of land to X is subject to the
condition that he shall not marry within two years. This
obligation shall become effective and the land should be
delivered to X if (a) two years expire without X having married,
or (b) X enters priesthood before the two years expire
________
Art. 1186. The condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfillment.
________
This article covers constructive fulfillment of conditions, and
refers to a condition which, although not exclusively within the
will of the debtor, may in some way be prevented by the debtor
from happening
There will be constructive fulfillment when two requisites
concur:
1. Intent of the obligor to prevent fulfillment of the condition,
and
2. Actual prevention of compliance
The principle underlying constructive fulfillment of condition is
that a party to a contract may not be excused from performing
his promise by the non-occurrence of an event which he
himself prevented

a. X is liable if B marries C before he reaches the age of 23

b. X is not liable if B marries C at the age of 23 or after he
reaches the age of 23
c. If B dies at the age of 22 without having married C. the
obligation is extinguished because it has become indubitable
that the condition will not take place
Note: The 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
________
Art. 1185. The condition that some event will not happen at a
determinate time shall render the obligation effective from the
moment the time indicated has elapsed, or if it has become
evident that the event cannot occur.

Any act imputable to the debtor, whether done with or without

fraud or malice will suffice; in both cases the debtor is
responsible for his act
Where the act of the debtor, however, although voluntary, did
not have for its purpose the prevention of fulfillment of the
condition, it will not fall within the scope of this article (i.e.
criminal prosecution)
If in preventing the fulfillment of the condition the debtor acts
pursuant to a right, the condition will not be deemed as fulfilled
There is constructive fulfillment of the condition only if the act
of the debtor had in fact prevented compliance with the
condition
When the condition is resolutory but not dependent on the will
of the debtor, and he unjustifiably provokes or produces the
condition, which would not have happened without his doing
17 | P

LATON

so, it will be considered as not having been fulfilled, and there

will be no extinguishment of rights
Following the basic principle underlying the present article, the
debtor cannot be excused from compliance by the occurrence
of an event which he himself brought about, unless such
possibility is clearly permitted by the contract
________
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 and not to do, the courts shall determine, in
each case, the retroactive effect of the condition that has been
complied with.
________
This article refers to the effects of the happening of suspensive
conditions. Between the moment of the creation of the
conditional obligation and the fulfillment of the suspensive
condition, the creditor cannot enforce the obligation; his right
during that period is a mere expectancy. The moment the
suspensive condition happens, however, the obligation
becomes effective and enforceable. The debtor may legally be
compelled to perform from that moment. The cause of action
for the enforcement of the obligation accrues, and the period
of prescription of the action has to be computed from that
moment
The effect of the obligation, however, retroact to the moment
when such obligation was constituted or created
Reason: The condition is only accidental, and not an essential
element of the obligation. The obligation is constituted when
the essential elements which give rise thereto concur
Hence when the condition is fulfilled, resulting in the effectivity
of the obligation, it is only logical that the effects of the
obligation must be deemed to commence, not from the time
the accidental element or condition was fulfilled, but from the
time the obligation itself was constituted
By the principle of retroactivity, a fiction is created whereby the
binding tie of the conditional obligation is produced from the
time of its perfection, and not from the happening of the
condition
If the conditional obligation has its object the delivery of a
determinate thing, the debtor cannot, before the happening of
the suspensive condition, make contracts disposing of or
alienating or encumbering the thing, or otherwise creating a
real right over the thing incompatible with the right of the
creditor. If he does so, then all such contracts are abrogated
and cease to have any effect upon the happening of the
suspensive condition. Because of the retroactivity of the
obligation, the creditor retains superior right

The application of the principle of retroactivity of conditional

obligations is not absolute. It is subject to certain limitations
dictated by justice and required by practicability or
convenience. Thus, if a thing is lost by fortuitous event before
the happening of the condition, the debtor suffers the loss
because he is still the owner
Acts of administration, performed by the debtor before the
happening of the suspensive condition, are not affected by
retroactivity of the effects of the obligation, and can be
asserted against the creditor after the happening of the
condition. Nevertheless, acts in abuse of right, committed by
the debtor in the guise of administration, should not be allowed
to defeat the rights of the creditor. The will of the parties,
however, must also be taken into account
For reasons of practicability or convenience, the law does not
require the delivery or payment of the fruits or interests
accruing before the happening of the suspensive condition. The
right to the fruits of the thing, therefore, is not within the
principle of retroactivity of conditional obligations
These rules with respect to the retention of the fruits and
interests by the parties, however, must yield to the contrary
intent or agreement of the parties themselves
E.g.:
In obligations to give: On January 20, S agreed to sell his parcel
of land to B for P50,000 should B lose a case involving the
recovery of another parcel of land. On April 10, S sold his land
to C. B lost the case on December 4.
Before December 4, B had no right to demand the sale of the
land by S. When the condition, however, was fulfilled on
December 4, it is as if B was entitled to the land beginning
January 20. Hence, as between B and C, B will have a better
right over the land
In obligations to do or not to do: C obliged himself to condone
the debt of D, his lawyer, should the latter win Cs case in the
Supreme Court.
In this case, upon the fulfillment of the condition, shall not be
entitled, unless the contrary has been stipulated, to the earned
interests of the capital during the pendency of the condition as
the intention of C is to extinguish the debt. Here the fulfillment
of the condition has a retroactive effect
In reciprocal obligations (no retroactivity): In the first example,
when B lost the case in court on December 4, S must deliver the
land and B must pay P50,000
S does not have to give the fruits received from the land before
December 4 and B is not obliged to pay legal interests on the
price since the fruits and interests received are deemed to have
been mutually compensated
In unilateral obligation (usually no retroactivity): Suppose, in
the same example, the promise of S was to donate the parcel of
land to B
Upon the fulfillment of the condition, S has to deliver the land
but he has the right to keep himself all the fruits and interests
he may have received during the pendency of the condition,
18 | P

LATON

that is from January 20 to December 4, unless a contrary

intention by S may be inferred, as when it is stipulated that
once the condition is fulfilled, S shall render an accounting of
fruits received during its pendency
________
Art. 1188. The creditor may, before the fulfillment of the
condition, bring the appropriate actions for the preservation of
his right.
The debtor may recover what during the same time he has paid
by mistake in case of a suspensive condition.
________
The actions for the preservation of the creditors rights may
have for their objects:
1. To prevent the loss or deterioration of the things which are
objects of the obligation by enjoining or restraining acts of
alienation or destruction by the debtor himself or by third
persons;
2. To prevent concealment of the debtors properties which
constitute the guaranty in case of non-performance of the
obligation;

________
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) If the thing is lost without the fault of the debtor, the
obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be
obliged to pay damages; it is understood that the thing is lost
when it perishes, or goes out of commerce, or disappears in
such a way that its existence is unknown or it cannot be
recovered;
(3) When the thing deteriorates without the fault of the debtor,
the impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the
creditor may choose between the rescission of the obligation
and its fulfillment, with indemnity for damages in either case;

3. To demand security if the debtor becomes insolvent;

(5) If the thing is improved by its nature, or by time, the

improvement shall inure to the benefit of the creditor;

4. To compel acknowledgment of the debtors signature on a

private document or the execution of the proper public
documents for registration so as to affect third persons;

(6) If it is improved at the expense of the debtor, he shall have

no other right than that granted to the usufructuary.
________

5. To register the deeds of sale or mortgages evidencing the

contract;

Scope: the provisions of this article apply only to obligations to

deliver a determinate or specific thing. It can have no
application to generic objects. Furthermore, these provisions
apply only in case of the suspensive condition is fulfilled

6. To set aside fraudulent alienations made by the debtor; and

7. To interrupt the period of prescription, by actions against
adverse possessors of the things which are the object of the
obligation
The article does not grant any preference of credit but only
allows the bringing of the proper action for the preservation of
the creditors rights
29

Under Article 2159, whoever in bad faith accepts an undue

payment, shall pay legal interest if a sum of money is involved,
or shall be liable for the fruits received or which should have
been received if the thing produces fruits
Under Article 2160, he who in good faith accepts an undue
payment of a thing certain and determinate shall only be
responsible for . . . its accessories and accessions insofar as he
has thereby been benefited
Rights of the debtor: He is entitled to recover what he has paid
by mistake prior to the happening of the suspensive condition.
The right is granted to the debtor because the creditor may or
may not be able to fulfill the condition imposed and hence, it is
not certain that the obligation will arise. This is a case of solutio
indebiti
Note: If the payment was made with knowledge of the
condition, there is an implied waiver of the condition, and
whatever has been paid cannot be recovered

A thing is lost:
1. Physical loss or when it perishes. E.g. when an animal dies, a
house is destroyed completely by fire, a crop is washed away by
flood, or fruits rot
2. Legal loss or when it goes out of the commerce of man. E.g. a
private land is converted into a public plaza, or a thing is
declared by law as contraband
3. Civil loss or when it disappears in such a manner that its
existence is unknown or cannot be recovered. E.g. ship sinks in
the middle of the ocean, a thing is stolen by unknown persons
or is dropped somewhere in the forest and cannot be found
If the loss if due to the fault of the debtor, he becomes liable
for damages to the creditor upon the fulfillment of the
condition. But if the debtor is without fault, the obligation is
extinguished, unless there is a stipulation to the contrary
Deterioration is any reduction or impairment in the substance
or value of a thing which does not amount to a loss
If the deterioration is not imputable to the debtor, he is not
liable for any damages for such deterioration, and the creditor
must accept the thing in its impaired condition. But if the
deterioration is due to the fault of the debtor, then the creditor
may either demand the thing or ask rescission, with damages in
either case

For the purposes of these provisions, would mean that the creditor knows
that the debtor is paying before the suspensive condition has happened
29

19 | P

LATON

Anything added to, or incorporated in, or attached to the thing

that is due, is an improvement
Rules during pendency of suspensive condition:
(1) If the thing is lost without the fault of the debtor, E.g. X
obliged himself to give Y his car worth P100,000 if Y will sell Xs
property. The car was lost without the fault of X, the obligation
shall be extinguished
(2) If the thing is lost through the fault of the debtor, E.g. In the
same example, if the loss occurred because of the negligence of
X, Y will be entitled to demand damages
(3) When the thing deteriorates without the fault of the debtor,
E.g. If the car figured in an accident, as a result of which the
windshield was broken and some of its paints were scratched
away without the fault of X, thereby reducing its value to
P90,000, Y will have to suffer the deterioration or impairment
in the amount of P10,000
(4) If it deteriorates through the fault of the debtor, E.g. In this
case, Y may choose between the rescission of the obligation or
its fulfillment, with damages in either case
(5) If the thing is improved by its nature or by time, the
improvement shall inure to the benefit of Y. In as much as Y
would suffer in case of deterioration of the car through a
fortuitous event
(6) If it is improved at the expense of the debtor, E.g. During the
pendency of the condition, X had the car painted and its seat
cover changed at his expense. In this case, X will have the right
granted to a usufructuary with respect to improvements made
on the thing held in usufruct
Rules:
1. If caused by the nature of the thing or by time, the
improvement shall inure to the benefit of the creditor
2. If the improvement was at the expense of the debtor, the
30
law says he shall have the same rights as a usufructuary
Usufruct is the right to enjoy the use and fruits of a thing
31
belonging to another
________
Art. 1190. When the conditions have for their purpose the
extinguishment of an obligation to give, the parties, upon the
fulfillment of said conditions, shall return to each other what
they have received.
In case of 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.

Art. 579. The usufructuary may make on the property held in usufruct such
useful improvements or expenses for mere pleasure as he may deem proper,
provided he does not alter its form or substance; but he shall have no right to
be indemnified therefor. He may, however, remove such improvements,
should it be possible to do so without damage to the property.
Art. 580. The usufructuary may set off the improvements he may have made
on the property against any damage to the same.
31 CIVIL CODE, Art. 562
30

As for the obligations to do and not to do, the provisions of the

second paragraph of Article 1187 shall be observed as regards
the effect of the extinguishment of the obligation.
________
This article gives the effects of the happening of a resolutory
condition. In an obligation subject to such a condition, the
rights of the creditor are immediately vested; but such rights
are always in the danger of being extinguished by the
happening of the resolutory condition
If the condition does not happen, those rights are consolidated
and they become absolute in character
But if the condition happens, such rights are extinguished, and
the obligation is treated as if it did not exist
Hence, each party is bound to return to the other whatever he
has received, so that they may be returned to their original
condition before the creation of the obligation. Every vestige of
the obligation is wiped out as much as possible through the
process of mutual restitution
Before the resolutory condition happens, the party who has a
right, is practically in the same position as one who has an
obligation subject to a suspensive condition; there is the
possibility that he may have to return or deliver the thing to the
other party, and that possibility becomes a positive duty when
the resolutory condition is fulfilled. Therefore, in case of loss of
the thing, or deteriorations suffered by it, or improvements
made thereon, the provisions of Article 1189 shall be
applicable, the party who has to make restitution being
considered as the debtor
The juridical principle that by the happening of the resolutory
condition all vestiges of the obligation should be wiped out,
indicates that the duty of mutual restitution applies not only to
the object and the price, but also to the fruits and interests; this
is the only way by which the parties can be restored to the
status quo or their original condition before the obligation was
constituted
The party who would be entitled to restitution from the other,
in the event the resolutory condition is fulfilled, stands in the
same position as a creditor in an obligation with a suspensive
condition, in that he has an expectancy of recovery of the thing
E.g.: X allows Y to use the formers car until X returns from the
province. Upon the return of X from the province, Y must give
back the car. The effect of the happening of the condition is to
annul the obligation as if it had never been constituted at all. In
this case, the parties intend the return of the car
________
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.
20 | P

LATON

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.
________
Both relations must arise from the same cause, such that one
obligation is correlative to the other
Reciprocity arises from identity of cause, and necessarily the
two obligations are created at the same time
Reciprocal obligations are those which arise from the same
cause, and which each party is a debtor and a creditor of the
other, such that the obligation of one is dependent upon the
obligation of the other. They are to be performed
simultaneously, so that the performance of one is conditioned
upon the simultaneous fulfillment of the other
In reciprocal obligations, when one party has performed his
part of the contract, the other party incurs in delay; hence, the
party who has performed or is ready and willing to perform
may rescind the obligation if the other does not perform or is
not ready and willing to perform
In Areola v. CA, 236 SCRA 643: Under the law governing
reciprocal obligations, particularly the second paragraph of
Article 1191, the injured party is given a choice between
fulfillment or rescission of the obligation in case one of the
obligors fails to comply with what is incumbent upon him.
However, said article entitles the injured party to payment of
damages, regardless of whether he demands fulfillment or
rescission of the obligation.
The power to rescind is given to the injured party. Where the
plaintiff is the party who did not perform the undertaking
which he was bound by the terms of the agreement to perform,
he is not entitled to insist upon the performance of the contract
by the defendant or recover damages by reason of his own
breach. An action for specific performance of a contract is an
equitable proceeding, and he who seeks to enforce it must
himself be fair and reasonable, and do equity
In Gil v. CA, 411 SCRA 18: The right of rescission of a party to an
obligation under Article 1191 of the New Civil Code is
predicated on a breach of faith by the other party that violates
the reciprocity between them.
Where both parties have committed a breach of obligation and
it cannot be determined who was the first infractor, the
contract shall be deemed extinguished and each shall bear
his/its own damages
It has been held that the mere failure of one party to perform
his undertaking does not ipso jure produce the resolution of the
contract; the party entitled to resolve should apply to the court
for a decree of rescission or resolution
If the obligation has not yet been performed, extra-judicial
declaration of resolution or rescission by the party who is ready
and willing to perform would suffice; he can refuse to perform
if the other party is not ready and willing to perform. But where
the injured party has already performed such as when property
has already been delivered by him to the other party, he cannot
by his own declaration rescind the contract and reacquire title

to the property, if the other party opposes the rescission. In

such case, court action must be taken, and the function of the
court is to declare the rescission as properly made, or to give a
period to the debtor in which to perform
Hence, it has been held that the present provision regulates
rescission as a power conferred upon the injured party, who
may choose rescission or fulfillment, and this choice can be
exercised either judicially or by declaration of the creditor, but
shall be subject to judicial determination. But where the other
party does not oppose or impugn the extra-judicial declaration
of rescission, such declaration will produce legal effect
In Dijamco v. CA, 440 SCRA 190: A judicial action for the
rescission of a contract is not necessary where the contract
provides that it may be revoked and cancelled for violation of
any of its terms and conditions.
In Buenaventura Angeles v. Ursula Torres Calasanz, 135 SCRA
323: [T]here is nothing in the law that prohibits the parties from
entering into an agreement that violation of the terms of the
contract would cause its cancellation even without court
intervention
If the other party denies that rescission is justified, it is free to
resort to judicial action in its own behalf, and bring the matter
to court. Then, should the court, after due hearing, decide that
the resolution of the contract was not warranted, the
responsible party will be sentenced to damages; in the contrary
case, the resolution will be affirmed, and the consequent
indemnity awarded to the party prejudiced.
The right to resolve or rescind is not absolute, and will not be
granted where there has been substantial compliance by partial
payments
Rescission will not be permitted for a slight or casual breach of
the contract, but only for such breached as are so substantial
and fundamental as to defeat the object of the parties in
making the agreement
In Visayan Sawmill v. CA, 219 SCRA 378: Consequently, in a
contract of sale, after delivery of the object of the contract has
been made, the seller loses ownership and cannot recover the
same unless the contract is rescinded. But in the contract to
sell, the seller retains ownership and the buyer's failure to pay
cannot even be considered a breach, whether casual or
substantial, but an event that prevented the seller's duty to
transfer title to the object of the contract.
The right of an injured party to rescind is subordinate to the
rights of a third person to whom bad faith is not imputable
The exercise of the power to rescind extinguishes the
obligatory relation as if it had never been created, the
extinction having retroactive effect. The rescission is equivalent
to invalidating and unmaking the juridical tie, leaving things in
their status before the celebration of the contract
The party seeking rescission cannot have performance as to a
part and rescission as to the remainder
These two remedies are alternative; the injured party cannot
have both
21 | P

LATON

However, where the performance has become impossible or

there are insuperable and legal obstacles thereto, rescission
with damages to the injured party is proper although the latter
had sought specific performance. The prescriptive period for
the action for rescission in such case is four (4) years from the
final judgment on the action for specific performance which has
become impossible to execute
So long as there has been no judgment declaring rescission,
however, the creditor who has asked for it may change his
mind and demand specific performance instead, or vice-versa,
unless he has previously renounced one of these remedies
While the right to rescind reciprocal obligations is implied, that
is, that such right need not be expressly provided in the
contract, nevertheless the contracting parties may waive the
same
Acceptance by the creditor of delayed installment payment
beyond the grace period amounts to a waiver of the right of
rescission

grace period of at least sixty (60) days from the due date of the
installment, and, second, at the end of the grace period, the
seller shall furnish the buyer with a notice of cancellation or
demand for rescission through a notarial act, effective thirty
(30) days from the buyer's receipt thereof. It is worth
mentioning, of course, that a mere notice or letter, short of a
notarial act, would not suffice.
________
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.
________
Where both parties are in default, their respective liability for
damages shall be offset equitably
________

SECTION 2. - Obligations with a Period

Considering practical needs and demands of equity and good

faith, the disappearance of the basis of a contract gives rise to a
right of resolution in favor of the party prejudiced

Art. 1193. Obligations for whose fulfillment a day certain has

been fixed, shall be demandable only when that day comes.

Note these following cases on Notice of Cancellation:

Obligations with a resolutory period take effect at once, but

terminate upon arrival of the day certain.

In Jison v. CA, 164 SCRA 339: The indispensability of notice of

cancellation to the buyer was to be later underscored in
Republic Act No. 6552, entitled "An Act to Provide Protection to
Buyers of Real Estate on Installment Payments." which took
effect on September 14-15). when it specifically provided: Sec.
3 (b) ... the actual cataract, of the contract shall take place
thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value
to the buyer.
In Pagtalunan v. De la Cruz Vda. de Manzano, 533 SCRA 242:
R.A. No. 6552, otherwise known as the "Realty Installment
Buyer Protection Act," recognizes in conditional sales of all
kinds of real estate (industrial, commercial, residential) the
right of the seller to cancel the contract upon non-payment of
an installment by the buyer, which cancellation may be done
outside the court particularly when the buyer agrees to such
cancellation provided that such cancellation by the seller must
be in accordance with Sec. 3 (b) of R.A. No. 6552, which
requires a notarial act of rescission and the refund to the buyer
of the full payment of the cash surrender value of the payments
on the property. Actual cancellation of the contract takes place
after 30 days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value
to the buyer
A demand letter is not the same as the notice of cancellation or
demand for rescission by a notarial act required by R.A. No.
6552; An action for annulment of contract is a kindred concept
of rescission by notarial act while a case of unlawful detainer is
not
In Fabrigas v. San Francisco Del Monte, 476 SCRA 247: The
cancellation of the contract under Section 4 of R.A. No. 6552 is
a two-step process--first, the seller should extend the buyer a

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.
________
A term or period is a space of time which, exerting an influence
on obligations as a consequence of a juridical act, suspends
their demandability or determines their extinguishment
Term or period may be distinguished from condition In the
following ways:
CONDITION
PERIOD
As to fulfillment, an uncertain An
event
that
must
event
necessarily come, whether on
a date known before hand or
at a time which cannot be
predetermined
As to influence on the No effect upon the existence
obligation, gives rise to an of obligations, but only their
obligation or extinguishes one demandability
or
already existing
performance
As to time, may refer to a past Always refers to the future
event unknown to the parties
As to will of debtor, a A period left to the debtors
condition which depends will merely empowers the
exclusively on the will of the court to fix such period
debtor annuls the obligation
As to retroactivity of effect, Unless there is an agreement
the happening of a condition to the contrary, the arrival of
has retroactive effect
a period does not have any
retroactive effect
Requisites of Period: The period must be (1) future, (2) certain,
and (3) possible
22 | P

LATON

Kinds of Terms:
SUSPENSIVE (ex die)
From a day certain; one that
must lapse before the
performance of the obligation
can be demanded. E.g. I will
pay you 30 days from today, I
will support you from the
time your father dies, etc
LEGAL
A period fixed by
law

RESOLUTORY (in diem)

To a day certain; the period
after which the performance
must terminate. E.g. I will give
you P500 a month until the
end of the year, I will support
you until you die

VOLUNTARY
Stipulated by the
parties

EXPRESS
When specifically stated

JUDICIAL
Allowed by
court

Art. 1194. In case of loss, deterioration or improvement of the

thing before the arrival of the day certain, the rules in Article
1189 shall be observed.
________
Art. 1195. Anything paid or delivered before the arrival of the
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.
________
This article applies only to obligations to give. It has no
application to obligations to do and not to do

the

TACIT
When a person undertakes to
do some work which can be
done only during a particular
season

ORIGINAL
PERIOD OF GRACE
An extension fixed by the parties themselves or by the court
DEFINITE
Refers to a fixed known date
or time

INDEFINITE
Refers to an event which will
necessarily happen but the
date of its happening is
unknown
The uncertainty of the date of occurrence in the indefinite or
indeterminate period does not convert into a condition, so long
as there is no uncertainty as whether it will happen or not. E.g.
Death of a person, movable holidays, events of civil or political
life
Obligations with a term are demandable only when the day
fixed for their performance arrives
But once the date stipulated arrives, the obligation can be
enforced, and the obligor who alleges that the term has been
extended must show by satisfactory evidence that the
extension of payment was for a definite time
An action, however, may be brought immediately to enforce an
obligation originally with a term, if the contract in which the
terms is imposed has been cancelled by mutual agreement of
the parties, or when the non-fulfillment of the terms of the
contract resolves the period and authorizes the creditor to
immediately demand performance. The obligation in such
cases, is converted into a pure obligation
A moratorium is a postponement of the fulfillment of an
obligation; it is an extension of the period for performance of
the obligation, decreed by statute
The true test of the constitutionality of a moratorium statute
lies in the determination of the period of suspension of the
remedy. It is required that such suspension be definite and
reasonable, otherwise it would be violative of the constitution
________

The creditor cannot unjustly enriched himself by retaining the

thing or money received before the arrival of the period
This article allows the recovery of the thing or money itself,
plus the fruits or interests, which must be understood as those
accruing from the moment of payment to the date of recovery.
If the action to recover, however, is not brought by the debtor
before the date of maturity, then the right to recover the thing
or money will cease; but, it is submitted, the reason for the law
(ratione legis) will still justify the recovery of the fruits or
interests from the time of payment to the date of maturity
The right of the debtor to recover fruits and interests is not
affected by the good or bad faith of the creditor who accepts
the premature payment
Notwithstanding premature payment, fruits or interests cannot
be recovered in the following cases:
1. When the obligation is reciprocal, and there has been
premature performance on both sides
2. When the obligation is a loan on which the debtor is bound
to pay interest
3. When the period is exclusively for the benefit of the creditor,
because the debtor by paying in advance loses nothing
If the payment before the period was made voluntarily, with
knowledge of the period, the payment cannot be recovered
Article 1195 has no application to obligations to do or not to do
because as to the former, it is physically impossible to recover
the service rendered, and as to the latter, as the obligor
performs by not doing, he cannot, of course, recover what he
has not done
________
Art. 1196. Whenever in an obligation a period is designated, it
is presumed to have been established for the benefit of both
the creditor and the debtor, unless from the tenor of the same
or other circumstances it should appear that the period has
been established in favor of one or of the other.
________
If the term is for the benefit of both parties, as is the
presumption of this article in case of doubt, the creditor cannot
demand payment and the debtor cannot make an effective
tender or consignation of payment, before the period
stipulated. E.g. Contract of loan

23 | P

LATON

If it is for the benefit of the creditor only, he may demand

performance at any time, but the debtor cannot compel him to
accept payment before the period expires. E.g. D borrowed
from C P1000 payable on December 31 2010 with the
stipulation that D cannot make payment before the lapse of the
period but C may demand fulfillment even before said date

for the payment of the salary of the employee. Article 1197 of

the Code cannot be applied to such contracts

If the period is for the benefit of the debtor only, he may

oppose premature demand for payment, but may validly pay at
any time before the period expires. E.g. D borrowed from C
P1000 to be paid within one year without interest, or on or
before December 31, 2010

The only action that can be maintained on obligations falling

under this article, is an action to ask the court to fix a term
which the obligor must comply with his obligation. The
fulfillment of the obligation itself cannot be demanded until
after the court has fixed the period for the compliance
therewith, and such period has arrived

A stipulation that the payment is to be made within the

stipulated period, is obviously for the benefit of the debtor.
Hence, although the creditor cannot enforce or demand
payment before the period fixed, the debtor may waive the
period and pay in advance
________
Art. 1197. If the obligation does not fix a period, but from its
nature and the circumstances it can be inferred that a period
was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it
depends upon the will of the debtor.
In every case, the courts shall 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.
________
The period mentioned in the above provision refers to a judicial
period as distinguished from the period fixed by the parties in
their contract which is known as contractual period
GR: If the obligation does not state a period or no period is
intended, the court is not authorized to fix a period. The courts
have no right to make contracts for the parties
XPN:
(1) No period is fixed but a period was intended: E.g. D agreed
to construct the house of C; B bought lumber from the store of
S on credit (the period for payment in the invoice is left blank);
S sold a parcel of land to B with a right to repurchase (no term
is specified in the contract for the exercise of the right)
(2) Duration of the period depends upon the will of the debtor
This article is part of all obligations contemplated therein.
Hence, whenever a period is fixed pursuant to its provisions,
the court does not amend or modify the obligation concerned,
but merely enforces or carries out an implied stipulation in the
contract
The court may fix a period in the following cases: when the
term of a lease has been left to the will of the lessee; or when
the term of a donation imposing certain conditions do not fix
the time for the performance of the conditions; etc
The mere failure of the parties to fix a period, however, will not
always justify the court in fixing one; thus, it is not incumbent
upon courts to fix the period during which contracts of
employment or services shall last. Their duration is to be
implicitly fixed, in default of express stipulation, by the period

The court, however, to prevent unreasonable interpretations of

the immediate demandability of pure obligations, may fix a
reasonable time in which the debtor may pay

We believe that considering our rules of pleading and

procedure, the fixing of the period and the ordering of payment
cannot be made in the same action. This would imply two
causes of action in the same complaint: first for the purpose of
fixing a period, and the second for the purpose of specific
performance to compel payment
The period to be fixed by the court becomes part of the
contract, and until it has expired no action to enforce payment
can be maintained; hence the second cause of action in the
case contemplated cannot prosper
In fixing the period, the term probably contemplated by the
parties should be ascertained
Once the period has been fixed by the court it becomes part of
the contract, and it cannot be subsequently changed or
extended by the court without the consent of both of the
parties
The default of the debtor commences only after the expiration
of the period fixed by the court. Any demand made before that
would be futile, because legally the debt is not yet due
In Araneta v. Phil. Sugar Estate Development, Inc., 20 SCRA 330:
Article 1197 of the Civil Code involves a two-step process. The
Court must first determine that the obligation does not fix a
period (or that the period is made to depend upon the will of
the debtor), and that from the nature and the circumstances it
can be inferred that a period was intended. The second step is
to ascertain the period probably contemplated by the parties.
The Court cannot arbitrarily fix a period out of thin air.
________
Art. 1198. The debtor shall lose every right to make use of the
period:
(1) When after the obligation has been contracted, he becomes
insolvent, unless he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or
securities which he has promised;
(3) When by his own acts he has impaired said guaranties or
securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately gives
new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration
of which the creditor agreed to the period;
(5) When the debtor attempts to abscond.
24 | P

LATON

________
In the cases provided in this article, the obligation becomes
immediately due and demandable even if the period has not
yet expired. The obligation is thus converted into a pure
obligation
GR: The obligation is not demandable before the lapse of the
period
XPN:
(1) When the debtor becomes insolvent: E.g. D owes C P1000
due and payable on December. If D becomes insolvent, say on
September, C can demand immediate payment from D even
before maturity unless gives sufficient guaranty or security
Note: The insolvency of the debtor that would deprive him of
the benefit of the term need not be judicially declared in
insolvency proceeding
The degree of insolvency that would justify immediate
enforcement of the obligation is a matter that should be left to
the courts. Such insolvency must occur after the obligation was
constituted
(2) When debtor does not furnish guaranties or securities
promised: E.g. In the same example, D promised to mortgage
his house to secure the debt. If he fails to furnish said security
as promised, he shall lose his right to the period
(3) When guaranties or securities have been impaired or have
disappeared: E.g. If the debt is secured by a mortgage on the
house of D, but the house was burned through his fault, the
obligation also becomes demandable unless D gives a new
security equally satisfactory
Note: The term disappear is not used here in its grammatical
or ordinary meaning, but in the sense of loss as defined by
the law
(4) When debtor violates an undertaking: E.g. Now, suppose C
agreed to the period in consideration of the promise of D to
repair the piano of C. The violation of this undertaking by D
gives C the right to demand immediate payment of the loan
(5) When debtor attempts to abscond: E.g. Before the due date
of the obligation, D changed his address without informing C
and with the intention of escaping from his obligation. This act
of D is a sign of bad faith which results in the loss of his right to
the benefit of the period stipulated
The present article does not apply to the extension of the
period fixed by moratorium statutes. These laws are precisely
enacted because of the financial difficulties of debtors. Hence,
the insolvency of the debtor does not deprive him of the
benefit of the moratorium

SECTION 3. - Alternative Obligations

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.
________

Obligations with several objects: (1) conjunctive, (2) alternative;

and (3) facultative
A conjunctive obligation is one where the debtor has to
perform several prestations; it is extinguished only by
performance of all of them
ALTERNATIVE
Several objects being due, the
fulfillment of one is sufficient,
determined by the choice of
the debtor who generally has
the right of election
ALTERNATIVE
The loss of one of the things
due affects the obligation
The election may be granted
to the creditor
The loss of the things does
not extinguish the obligation

FACULTATIVE
Only one thing is due, but the
debtor has reserved the right
to substitute it with another

FACULTATIVE
The loss of that which may be
given substitute does not
affect the obligation
Never

The loss of that which is due

as the object of the
obligation, will extinguish
such obligation
________

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.
________
In alternative obligations, the debtor has the right to choose
the method of meeting the obligation, unless the creditor has
expressly reserved that right to himself
The right to choose may be granted to the creditor. The grant
must be expressed; it cannot be implied. The choice may also
be expressly entrusted by the parties to a third person
The right to choose is indivisible. The debtor cannot choose
part of one prestations and part of another
The debtor cannot choose unlawful or impossible undertakings.
The presence of such undertakings does not annul the
obligation, which subsists, even as an alternative one if there
are other lawful and possible objects. Neither can the debtor
select prestations which could not have been the object of the
obligation. This refers to prestations which turn out to be
different from what the parties supposed and which do not
serve the purpose for which the obligation was contracted,
such as when the things are future ones or when some accident
happens to the object which gives it a new aspect
When the debtor has the right to choose, the plaintiffs action
must be in alternative form, demanding either object X or
object Y, at the election of the debtor. If the creditor demands
only one of the objects, he asks more than what he is entitled
to demand. The judgment must also be on alternative form
________
Art. 1201. The choice shall produce no effect except from the
time it has been communicated.
________
25 | P

LATON

The notice of selection or choice may be in any form provided it

is sufficient to make the other party know that the election has
been made. It is not subject to any form and may, therefore, be
made: (1) orally, (2) in writing, (3) tacitly, or (4) by any other
unequivocal means
When the debtor, to whom the right to choose pertains,
performs one of the prestations with the intent to discharge
the obligation, he is released, because the selection made may
be implied in the fact of performance
GR: The law does not require the other party to consent to the
choice made by the party entitled to choose. A mere
declaration of the choice, communicated to the other party, is
sufficient; it is a unilateral declaration of will. To require the
creditors consent would destroy the very essence of the right
to choose and the alternative character of the obligation itself
XPN: When the debtor has chosen a prestation which could not
have been the object of the obligation; the creditors consent
would bring about a novation of the obligation
When there are various debtors or creditors, and the obligation
is joint, the consent of all is necessary to make the selection
effective, because none of them can extinguish the entire
obligation
If the obligation is solidary, and there is no stipulation to the
contrary, the choice by one will be binding personally upon
him, but not as to the others
The selection made by one party cannot be subjected by him to
a condition or a term unless the other party consents thereto
The effect of the notice of choice is to limit the obligation to the
object or prestations selected, with all the consequences which
the law provides
Once the selection has been communicated, it becomes
irrevocable
When the debtor performs one of the prestations, believing
that he has a simple obligation (an ignorance of the alternatives
and the right to choose), there is no declaration of the
selection, nor a binding performance of the obligation. There is
a payment of what is not due, and the debtor can recover the
same, in accordance with the provision of the law on quasicontracts
The right to choose is not lost by the mere fact that the party
entitled to choose delays in making his selection
So long as the judgment has not been satisfied, the debtor may
still exercise his right to select by offering the prestations he
chooses; but once the judgment has been satisfied by
execution of any of the prestations, the debtor can no longer
choose
It is his duty to select at the time when performance should be
effected; if he does not do so, the choice can be made for him
by the creditor by applying the principle of Article 1167 on
obligations to do
________

Art. 1202. The debtor shall lose the right of choice when among
the prestations whereby he is alternatively bound, only one is
practicable.
________
If all the prestations, except one, are impossible or unlawful, it
follows that the debtor can choose and perform only that one.
The obligation ceases to be alternative, and is converted into a
simple obligation to perform the only feasible or practicable
prestations
The impossibility of the other prestations, however, must not
be due to the creditors acts, for in such case Article 1203 shall
apply
This article applies only when the debtor has the right to
choose. In cases where the creditor is granted the right to
choose, Article 1205 will apply when only one prestations
remains practicable, either due to fortuitous event or due to
the fault of the debtor
________
Art. 1203. If through the creditor's acts the debtor cannot make
a choice according to the terms of the obligation, the latter may
rescind the contract with damages.
________
This article is base on principles of justice. Since one of the
prestations had been rendered impossible by the act of the
creditor, and the debtor precisely may have wanted to choose
that particular prestations, the latter may elect to rescind the
contract and recover damages. Of course, he may also elect to
perform that which remains (if there be only one prestations
possible) or to elect from those still remaining (if several are
still possible), because the rescission does not take place
automatically but at his option
________
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.
________
This article applies to cases which the debtor has the right to
choose. If only some of the prestations are rendered
impossible, the fault of the debtor does not make him liable for
damages, because he can still comply with the obligation by
performing any of the prestations remaining (if there are still
several) or the one which remains (if only one is still possible).
He will become liable for damages under the terms of this
article only when all the prestations become impossible
through his fault
If all the prestations become impossible due to fortuitous
event, the obligation is extinguished; the debtor is not liable for
damages
26 | P

LATON

If one or more of the prestations due become impossible by

fortuitous event, leaving only one prestation, and then this last
one becomes impossible by fault of the debtor, the provisions
of the present article will apply; the debtor will be liable for
damages, with the value of the last prestations as the basis
The debtor should not be relieved from liability when his fault
or negligence concurred with the fortuitous event in making
performance impossible
________
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.
________
When the creditor has the right to choose, his selection takes
effect from the moment it is communicated to the debtor. The
selection of the creditor may be made expressly or tacitly.
There is tacit selection when the creditor accepts a prestation
offered by the debtor, or brings an action for the enforcement
of one of the prestations
When the creditor fails to make a selection in cases where he
has the right to choose, the debtor will not incur in delay in the
performance of the obligation, even if there is a definite period
fixed for performance. There will be default or delay on the
part of the debtor in the performance of the obligation only
when the obligation has become a simple one by the exercise
of the creditor of his right to choose. If the creditor does not
make his selection before the period fixed, the debtors duty to
perform does not arise because the particular prestation to be
performed has not been determined. The creditor in such case
must be considered by his own inaction to have waived the
period
Rules in case of loss before creditor has made choice:
1. When the thing is lost through a fortuitous event: E.g. S
obliged himself to deliver to B item one, or item two, or item
three, or item four. If item one is lost through a fortuitous
event, B can chooses from among the remainder or that which
remains if three of the items are lost

2. When a thing is lost through debtors fault: E.g. If the loss of

item one occurs through the fault of S, B may claim item two or
item three or item four with a right to damages or the price of
item one also with a right to damages
3. When all the things are lost through debtors fault: E.g. If all
the items are lost through the fault of S, the B can demand the
payment of the price of any one of them with a right to
indemnity for damages
4. When all the things are lost through a fortuitous event: E.g.
The obligation of S shall be extinguished if all the items which
are alternatively the object of the obligation are lost though a
fortuitous event. In this case, Article 1174 shall apply
________
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.
________
ALTERNATIVE
As to contents of the
obligation, there are various
prestations all of which
constitute parts of the
obligation
Before the debtor has made
his choice, the creditor must
demand all the prestations in
the alternative, leaving the
debtor to choose
As to nullity, The nullity of one
prestation does not invalidate
the obligation, which is still in
force with respect to those
which have no vice

As to choice, The right to

choose maybe given to the
creditor
As to effect of loss, only the
impossibility of all the
prestations due without fault
of the debtor extinguishes the
obligation

FACULTATIVE
Only the principal prestation
constitutes the obligation, the
accessory being only a means
to facilitate payment
The creditor can demand only
the principal prestation

The nullity of the principal

prestation, such as when the
object is unlawful or outside
the commerce of man,
invalidates the obligation, and
the creditor cannot demand
the substitute even when this
is valid
Only the debtor can choose
the substitute prestation
The impossibility of the
principal
prestation
is
sufficient to extinguish the
obligation, even if the
substitute is possible

Before the substitution is effected, the substitute is not the

prestation that is due; only the principal prestation is due and
enforceable by the creditor at that time. Therefore, if the
substitute prestation becomes impossible due to the fault or
negligence of the debtor, the obligation is not affected, and he
cannot be held liable for damages
The option to perform the substitute is exclusively dependent
upon the will of the debtor; he cannot be compelled to perform
it if the principal prestation becomes impossible
27 | P

LATON

The substitution is a matter of absolute choice in the debtors

part. Therefore, even if he acts with bad faith in rendering the
substitute prestation impossible, he cannot be held liable for
damages, because he could not have been compelled to
perform it even if it were possible. To hold the debtor liable in
this case would contravene the very essence of facultative
obligations
The substitution of the prestation becomes effective and
binding upon the debtor from the time the he communicates to
the creditor that he elects to perform the substitute prestation
From this moment, the substitute prestation becomes the only
prestation that is due. If the principal prestation thereafter
becomes impossible, even by fortuitous event, the debtor
would not be relieved but would still be obliged to perform the
substitute prestation that he has chosen. His obligation has
become a simple one to perform the substitute prestation, and
he will be liable for damages for his delay, neglect or bad faith
in its performance
________

SECTION 4. - Joint and Solidary Obligations

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
prestation. There is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the
obligation requires solidarity.
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 debt shall be presumed to be
divided into as many 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 obligation, Defined
-One in which each of the debtor is liable only for a
proportionate part of the debt, and each creditor is entitled
only to a proportionate part of the credit

When two persons are liable under a contract or under a

judgment, and no words appear in the contract or the
judgment to make each liable for the entire obligation, the
presumption is that their obligation is joint or mancomunada,
and each debtor is liable for a proportionate part of the
obligation
Effect of joint liability:
1. The 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 the others
2. The 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 creditor. On
the same principle, a partial payment or acknowledgment
made by one of several joint debtors does not stop the running
of the statute of limitations as to the others
3. The vices of each obligation arising from the personal defect
of a particular debtor or creditor does not affect the obligation
or rights if the others
4. The insolvency of a debtor does not increase the
responsibility of his co-debtors, nor does it authorize a creditor
to demand anything from his co-creditors
5. In the joint divisible obligation, the defense of res judicata is
not extended from one debtor to another
Solidary exists:
1. When there is an express stipulation in the contract
2. When a charge or condition is imposed upon heirs or
legatees, and the testament expressly makes the charge or
condition in solidum
3. When the law expressly provides for solidarity of the
obligation of several obligors, as in the case of the liability or
co-participants in a crime
4. When a solidary responsibility is imposed by a final judgment
upon several defendants
5. When the nature of the obligation requires solidarity

Solidary obligation, Defined

-One in which each debtor is liable for the entire obligation, and
each creditor is entitled to demand the whole obligation
JOINT
Each creditor can recover only
his share of the obligation,
and each debtor can be made
to pay only his part
Variously
termed
mancomunada
or
mancomunada simple or a pro
rata
We promise to pay

SOLIDARY
Each creditor may enforce the
entire obligation, and each
debtor may be obliged to pay
it in full
Mancomunada solidaria or
joint and several or in
solidum;
juntos
o
separadamente
I
promise
to
pay,
individually or collectively,
individually
liable
or
individually
and
jointly
liable

An obligation is presumed to be joint unless solidarity has been

expressly agreed upon. It is not necessary, however, that the
agreement should use precisely the word solidary for an
obligation to be so; it is sufficient that the obligation states, for
example, that each one of the debtors can be compelled to pay
the totality of the debt, or that each of them is obligated for the
entire value of the obligation
If two or more persons acting jointly become liable under these
32
provisions , their liability should be solidary, because of the
nature of the obligation
Our law recognizes solidary responsibility for wrongful acts,
whether they are crimes (Article 10. RPC) or quasi-delicts

32

Articles 19 to 22 of the Civil Code

28 | P

LATON

(Article 2194, CC); such solidarity is imposed even on joint

payees of things delivered by mistake (Article 2157, CC)
They have a common element--they are morally wrong. A
moral wrong cannot be divided into parts; hence, the liability
for it must be solidary
When there are two creditors designated disjunctively, the
application of the rules of alternative obligations would entitle
the debtor to choose the creditor whom he would pay; on the
other hand, the application of the rules on solidarity will entitle
either one of the creditors to demand full payment, and the
debtor cannot refuse to pay to the creditor who makes the
demand by alleging that he chooses to pay to the other creditor
The intention of the parties should prevail, in determining
whether the rules on solidarity or those on alternative
obligation should be applied. In case of doubt, solidarity should
be favored, as it is more conducive to the fulfillment of the
obligation, which is after all the ultimate purpose of the parties
The co-creditors or co-debtors may regulate their rights or
liabilities in their internal relations with each other. Thus, they
may exclude a division and provide for sole responsibility, or
they may provide for total reimbursement, or for a division into
unequal parts
The obligation may be joint on the side of the creditors, and
solidary on the side of the debtors, or vice versa. In such cases,
the rules applicable to each subject of the obligation should be
applied, the character of the creditors or the debtors
determining their respective rights and liabilities, thus, if the
obligation is joint on the side of the creditors, and solidary on
the side of the debtors, each creditor can demand only his
share in the obligation; but each debtor may be compelled to
pay the entire obligation to the creditors
________
Art. 1209. If the division is impossible, the right of the creditors
may be prejudiced only by their collective acts, and the debt
can be enforced only by proceeding against all the debtors. If
one of the latter should be insolvent, the others shall not be
liable for his share.
________
When there are several debtors or creditors, but the prestation
is indivisible (such as the delivery of a house or other
determinate thing), the obligation is joint, unless solidarity has
been stipulated
The joint indivisible obligation is in a sense midway between
the joint and the solidary, although it preserves two
characteristics of the joint obligation, in that no creditor can do
an act prejudicial to the others, and no debtor can be made to
answer for the others. The peculiarity of this obligation,
however, is that its fulfillment requires the concurrence of all
the debtors, although each for his part. On the side of the
creditors, collective action is expressly required for acts which
may be prejudicial
If there are several creditors and only one debtor, the
obligation can be performed only by delivering the object to all
the creditors jointly. A debtor who delivers the thing to one
creditor only, becomes liable for damages because of nonperformance to the other creditors, unless they have
authorized the former to receive payment for all of them. If

only one or some of the creditors demand the prestation, the

debtor may legally refuse to deliver the thing; he can insist that
all the creditors together receive the thing, and if any of them
refuses to join the others, the debtor may deposit the thing in
court by way of consignation
In case of non-performance by the debtor, however, the
obligation to pay damages arises. With respect to the damages,
the prestation becomes divisible, and each creditor can recover
separately his proportionate share
As long as the obligation is joint, the act of one creditor cannot
have any effect as to another creditor, because the credit of
each one is separate from the credits of the others. The
indivisibility requires collective action to be effective
Where the plurality of subjects is among the debtors, the
indivisible obligation can be performed by them only by acting
together. Hence all must be sued. If any of the debtors is not
willing to perform, the prestation is converted into an
indemnification for damages. Once so converted, the creditor
can sue the debtors separately for their respective shares in the
indemnity
The indivisibility of the obligation does not imply solidary
liability; the liability is joint, unless otherwise stipulated. The
obligation not to do, when there are several debtors, is a joint
indivisible obligation
________
Art. 1210. The indivisibility of an obligation does not necessarily
give rise to solidarity. Nor does solidarity of itself imply
indivisibility.
________
INDIVISIBLE JOINT OBLIGATION
Each creditor cannot demand
more than his share and each
debtor is not liable for more
than his share
Refers to the prestation which
is not capable of partial
performance

SOLIDARY OBLIGATION
Each may demand the full
prestation and each debtor
has likewise the duty to
comply with the entire
prestation
Refers to the legal tie or
vinculum defining the extent
of liability

Where there are various creditors or various debtors, the

obligation is joint even if performance is indivisible
________
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.
________
Kinds of solidarity:
ACTIVE
One that exists
among
the
creditors

PASSIVE
One that exists
among the debtors

MIXED
That on part of
both creditors
and debtors

The essence of active solidarity consists in the authority of each

creditor to claim and enforce the rights of all, with the resulting
obligation of paying every one what belongs to him; there is no
merger, much less a renunciation of rights, but only mutual
representation. It is thus essentially a mutual agency.
29 | P

LATON

In passive solidarity, the essence is that each debtor can be

made to answer for the others with the right on the part of the
debtor-payor to recover from the others their respective shares

Under this article each solidary creditor may interrupt

prescription, constitute the debtor in default, or bring suit so
that the obligation may produce interest

Juridical effects:
ACTIVE SOLIDARITY
1. Since it is a reciprocal
agency, the death of a
solidary creditor does not
transmit the solidarity to
each of his heirs but to all of
them taken together

This article provides that a solidary creditor cannot do anything

prejudicial to the others. Remission is particularly prejudicial to
the co-creditors, and, under the present article, literally
understood, one solidary creditor alone cannot make it; but
under Article 1215 it is authorized. The same is true as to
novation, compensation and merger or confusion. Article 1215
expressly authorizes the effectiveness of these acts of
extinguishment by a solidary creditor

2. Each creditor represents

the others in the act of
receiving payment, and in all
other acts which tend to
secure the credit of make it
more advantageous
3. One creditor, however,
does not represent the
others in such acts as
novation (even if the credit is
more
advantageous),
compensation and remission
4. The credit and its benefits
are divided equally among
the creditors, unless there is
an agreement among them
to divide differently
5. The debtor may pay to any
solidary creditor, but if a
judicial demand is made on
him, he must pay only to the
plaintiff

PASSIVE SOLIDARITY
1. Each debtor can be required
to pay the entire obligation; but
after payment, he can recover
from the co-debtors their
respective shares
2. The debtor who is required to
pay may set up by way of
compensation his own claim
against the creditor, in this case,
the effect is the same as that of
payment
3. The total remission of the
debt in favor of a debtor
releases all the debtors; when
this remission affects only the
share of one debtor, the other
debtors are still liable for the
balance of the obligation
4. All the debtors are liable for
the loss of the thing due, even if
such loss is caused by the fault
of one of them, or by fortuitous
event after one of the debtors
has incurred delay
5.
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

6. Each creditor may

renounce his right even
against the will of the 6. The interests due by reason
debtor, and the later need of the delay of one of the
not thereafter pay the debtors are borne by all of them
obligation to the former
The legal bonds in solidarity may be uniform, when the debtors
are bound by the same conditions and clauses, or varied, where
the obligors, although liable for the same prestation, are
nevertheless not subject to the same terms and conditions. In
the latter case, before the fulfillment of the condition or the
arrival of the term which affects a particular debtor, an action
may be brought against such debtor or any other solidary
debtor for the recovery of the entire obligation, minus the
portion corresponding to the debtor affected by the condition
or term; but this latter portion cannot be demanded from
anyone until the condition happens or the arrival of the term,
however, the creditor may claim this remaining portion from
any of the debtors
________
Art. 1212. Each one of the solidary creditors may do whatever
may be useful to the others, but not anything which may be
prejudicial to the latter.
________

The present provision can be understood to mean that the act

of extinguishment, which is prejudicial to the co-creditors, will
be valid so as to extinguish the claim against the debtors, but
not with respect to the co-creditors whose rights subsist and
can be enforced against the creditor who performed the act
alone
________
Art. 1213. A solidary creditor cannot assign his rights without
the consent of the others.
________
The solidary creditor is an agent of the others; hence, he cannot
assign that agency to a third person without the consent of the
other creditors. Mutual agency, which is the essence of active
solidarity implies mutual confidence which may take into
account the personal qualifications of each creditor, hence, it is
only just to require consent of the others when one transfers is
rights to another
The law seems to imply that since such assignment cannot be
made, it produces no effect whatsoever; the co-creditors and
the debtor or debtors are not bound thereby, and the assignee
cannot be regarded as a solidary creditor
The assignment would produce its effects if made to a cocreditor. The consent of the other creditor would not be
necessary, because the assignee is one as to whom the
confidence of the others already exist
________
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.
________
The solidary creditors are tacitly mutual representatives of each
other for demanding payment. The equality of the rights of the
solidary creditors by virtue of this mutual representation,
however, lasts only until one of them goes ahead of the others
and sues the debtor. When one creditor makes a judicial
demand for payment, the tacit representation by the other
creditors is considered revoked, and during the pendency of the
action, the creditors who did not sue lose their representation
of the others. Up to the moment suit filed, the debtor could
free himself from the debt by paying it to any creditor, but once
action is filed against him by one creditor, the relation with the
plaintiff as creditor is fixed definitely; he can pay only to the
plaintiff, in whom the representation of the other creditors is
thus concentrated, and he can no longer be cued by the others
30 | P

LATON

The present article, modifying the provisions of the old Civil

Code, has given to extra-judicial demand the same effect as
judicial demand in terminating the mutual representation
among the solidary creditors and concentrating the agency in
the creditor who made the demand
If all or several solidary creditors demand payment separately,
the debtor should pay to the one who first notified him. If they
demand at the same time or collectively, as when they join
together in a single action or written demand upon the debtor,
the latter preserves his right to choose and may pay anyone of
those demanding payment
The solidary creditor who makes the demand for payment
merely consolidates in himself the representation of all others,
but does not deprive the other creditors of the character of
principal as to their respective shares
If a debtor has already paid the share of a creditor who made
no demand upon him, his obligation to that extent should be
considered reduced
In mixed solidarity, when one creditor makes a demand upon
one of the debtors, the latter cannot pay to any other creditor
but the one who made the demand
________
Art. 1215. Novation, compensation, confusion or remission of
the debt, made by any of the solidary creditors or with any of
the solidary debtors, shall extinguish the obligation, without
prejudice to the provisions of Article 1219.
The creditor who may have executed any of these acts, as well
as he who collects the debt, shall be liable to the others for the
share in the obligation corresponding to them.
________
Each solidary debtor may release all the others by binding
himself alone, in their place, in favor of the creditor. The debtor
who effects the novation cannot, by himself, bind the others to
a new debt without their consent
GR: The mere extension of time for payment given by the
creditor to a solidary debtor, does not release the others from
the obligation
XPN: In cases of suretyship, where the sureties are bound in
solidum, a different rule applies. A material alteration of the
principal contract, effected by the creditor and the principal
debtor, without the consent of the sureties, completely
discharges the sureties from all liability on the contract of
suretyship
Dation in payment is the delivery of a specific object as a
substitute for the performance of the obligation. If the dation in
payment is not immediately effected, but is in the form of a
promise, it amounts to a novation. if it is made immediately,
Article 1245 provides that it shall be governed by the law on
sales. In so far as it concerns its effects upon the solidary
relation, however, it should be treated as a payment, for it is
essentially so
Merger and compensation:
PARTIAL
TOTAL
The
rules
on The obligation is extinguished and

application
payments
govern

of
should

there is left only the resulting liability

for reimbursement within each group
________

Art. 1216. The creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously. The
demand made against one of them shall not be an obstacle to
those which may subsequently be directed against the others,
so long as the debt has not been fully collected.
________
Each solidary creditor under Article 1212 may bring an action to
enforce the obligation and payment can be made only to the
plaintiff in such case by virtue of the provision of Article 1214.
Under the present article, the solidary debtors may be sued
simultaneously in one suit or successively in different actions.
The provisions of this article, however, are not of public
interest. The parties, therefore, may validly stipulate that the
solidary debtors can only be sued simultaneously, or they may
provide for the order in which the debtor may be sued
individually
If the judgment is favorable to the creditor, there seems to be
no doubt that, under Article 1212, this inures to the benefit of
the co-creditors. But if the judgment is adverse to the plaintiffs,
is it a bar to an action by the other co-creditors? Yes. Exception:
personal cause
________
Art. 1217. Payment made by one of the solidary debtors
extinguishes the obligation. If two or more solidary debtors
offer to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors only
the share which corresponds to each, with the interest for the
payment already made. If the payment is made before the debt
is due, no interest for the intervening period may be
demanded.
When one of the solidary debtors cannot, because of his
insolvency, reimburse his share to the debtor paying the
obligation, such share shall be borne by all his co-debtors, in
proportion to the debt of each.
________
In Republic Glass Corp. v. Qua, 435 SCRA 480: If a solidary
debtor pays the obligation in part, he can recover
reimbursement from the co-debtors only in so far as his
payment exceeded his share in the obligation.
In Diamond Builders v. Country Bankers, 540 SCRA 194: Article
1217 of the Civil Code recognizes the right of reimbursement
from a co-debtor (the principal co-debtor, in case of suretyship)
in favor of the one who paid (i.e., the surety). In contrast,
Article 1218 of the Civil Code is definitive on when
reimbursement is unavailing, such that only those payments
made after the obligation has prescribed or became
illegal shall not entitle a solidary debtor to reimbursement.
________
Art. 1218. Payment by a solidary debtor shall not entitle him to
reimbursement from his co-debtors if such payment is made
after the obligation has prescribed or become illegal.
________
31 | P

LATON

________
Art. 1219. The remission made by the creditor of the share
which affects one of the solidary debtors does not release the
latter from his responsibility towards the co-debtors, in case
the debt had been totally paid by anyone of them before the
remission was effected.
________
In every passive solidarity, there is a dual relationship: (1) the
relation between the creditor and the debtors, and (2) the
relation among the debtors themselves. When a creditor remits
the share of any debtor, he can affect only the first relation,
because he is totally a stranger to the second relation. This
relationship among the debtors is expressly governed by law in
the last paragraph of Article 1217, which imposes on every
other co-debtor the duty of contributing to the share of the
insolvent debtor. This is a provision which does not affect the
creditor, and no act of the creditor should affect the relation of
the debtors under it. The creditor cannot, therefore, by his act
exempt any debtor from the obligation imposed by it
________
Art. 1220. The remission of the whole obligation, obtained by
one of the solidary debtors, does not entitle him to
reimbursement from his co-debtors.
________
Art. 1221. If the thing has been lost or if the prestation has
become impossible without the fault of the solidary debtors,
the obligation shall be extinguished.
If there was fault on the part of any one of them, all shall be
responsible to the creditor, for the price and the payment of
damages and interest, without prejudice to their action against
the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the
performance has become impossible after one of the solidary
debtors has incurred in delay through the judicial or
extrajudicial demand upon him by the creditor, the provisions
of the preceding paragraph shall apply.
________
Art. 1222. A solidary debtor may, in actions filed by the
creditor, avail himself of all defenses which are derived from
the nature of the obligation and of those which are personal to
him, or pertain to his own share. With respect to those which
personally belong to the others, he may avail himself thereof
only as regards that part of the debt for which the latter are
responsible.
________
Defenses of solidary debtor:
1. Defenses derived from the nature of the obligation
2. Defenses personal to debtor-defendant (i.e. either total or
partial, minority, insanity, fraud, violence, or intimidation)
3. Defenses personal to the other solidary debtors (partial only)
________

SECTION 5. - Divisible and Indivisible Obligations

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.

INDIVISIBLE
If divided into parts,
its
value
is
diminished
disproportionately

DIVISIBLE
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

QUALITATIVE
When the thing is
not
entirely
homogenous, such
as inheritance

QUANTITATIVE
When the thing divided is homogenous;
the parts themselves may be separated,
as in movables, or the limits of each
part may be fixed, as in the case of
immovables

The division may also be ideal, when the parts are not
separated in a material way, but there are assigned to several
persons the undivided portions pertaining to them, as in coownership
DIVISIBLE OBLIGATION
One which is susceptible of
partial performance; that is,
the debtor can legally perform
the obligation by parts and
the creditor cannot demand a
single performance of the
entire obligation

INDIVISIBLE OBLIGATION
Whatever may be the nature
of the thing which is the
object thereof, when it cannot
be validly performed in parts

Divisibility or indivisibility of the obligation refers to the

performance of the prestation and not to the thing which is the
object thereof
Note: The thing may be divisible, yet the obligation may be
indivisible
________
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 in which the obligation
consists.
________
To enforce a joint indivisible obligation, Article 1209 has
established the necessity of collective fulfillment and the action
must be against all the debtors. In case of non-performance by
any of the debtors, the obligation is converted into a liability for
losses and damages, which is divisible. In this case, if one of the
debtors is insolvent or fails to pay his share, the others will not
be liable for his share; the debtors who are ready to perform
their part do not become liable for more than the portions
respectively corresponding to them in the price of the subject
matter of the obligation; the obligation is thus transformed, but
not increased. If this transaction causes damages to them, they
may recover such damages from the debtor who failed to
perform. The entire liability for other damages, of course, such
as those suffered by the creditor, is shouldered by the
defaulting debtor
SOLIDARITY
Refers to the vinculum and

INDIVISIBILITY
Refers to the prestation or the
32 | P

LATON

therefore principally to the

subjects of the obligation
Such solidarity remains even
when there has been nonperformance and the debtors
become liable for damages

Requires plurality of subjects

Death
of
the
debtor
terminates the solidarity,
which is not transmitted to
the heirs

object of the obligation

When converted into one to
pay damages, the reason for
the indivisibility ceases to
exist, and each debtor
becomes liable for his part of
the indemnity
Does not require such
Affects heirs of the debtor in
that they remain bound to
perform the same prestation

If the obligation is solidary and indivisible, every debtor is liable

for losses and damages, although those ready to perform can
later recover from the guilty one. The creditor may demand the
entire indemnity, including the price of the thing or prestation
and the damages, from any debtor, even if the latter was ready
and willing to perform. But a debtor who has paid the entire
indemnity may recover from the others their respective shares
in the price, and from the guilty debtor the entire amount of
damages
________
Art. 1225. For the purposes of the preceding articles,
obligations to give definite things and those which are not
susceptible of partial performance shall be deemed to be
indivisible.
When the obligation has for its object the execution of a certain
number of days of work, the accomplishment of work by
metrical units, or analogous things which by their nature are
susceptible of partial performance, it shall be divisible.
However, even though the object or service may be physically
divisible, an obligation is indivisible if so provided by law or
intended by the parties.
In obligations not to do, divisibility or indivisibility shall be
determined by the character of the prestation in each particular
case.
________
Note: The divisibility of the object does not necessarily
determine the divisibility of the obligation; while, the
indivisibility of the object carries with it the indivisibility of the
obligation
The obligation may be indivisible even when the object is
divisible, by reason of the provision of law, of the express will of
the parties, or of their presumed will, shown by the relation of
the distinct parts of the object, each of which may be necessary
complement of the others, or by the purpose of the obligation
which requires the realization of all the parts
TEST: Whether or not it is susceptible of partial performance,
not in the sense of whether the delivery of the things or the
execution of the acts in parts is absolutely impossible or not,
but in the sense of whether such separation into parts is
contrary or not to the end which the obligation seeks to attain
FACTORS which determine whether an obligation is divisible or
indivisible:
1. The will or intention of the parties (expressed or presumed)

2. The objective or purpose of the stipulated prestation

3. The nature of the thing
4. Provisions of law affecting the prestation
In obligations to give, those for the delivery of certain objects,
such as an animal or a chair, are indivisible. In obligations to do,
indivisibility is also presumed, and it is only when they are
under the exceptional cases mentioned in paragraph 2 of this
article that they are divisible
The purpose of the parties is controlling; and this applies not
only to obligations to give, but also to those of doing or not
doing
Where the contract is indivisible, in that it is not susceptible of
partial performance, even if the compensation is fixed by unit
of measure, the debtor who fails to duly perform the work
agreed upon, but abandons the same after performing a part,
cannot recover on quantum meruit for the work already
finished, because in indivisible obligations partial performance
is equivalent to non-performance
XPN: (See Articles 1234 & 1235)
1. Where the obligation has been substantially performed in
good faith, the debtor may recover as if there had been
complete performance, minus the damages suffered by the
creditor
2. When the creditor accepts performance, knowing its
incompleteness, and without protest, the obligation is deemed
fully performed
Divisible and indivisible obligations are not necessarily identical
to severable and entire obligations are not necessarily identical
to severable and entire contracts, respectively. Whether a
contract is entire or severable depends in general upon the
consideration to be paid, not upon its object.
*If the consideration is single, the contract is entire, but if the
consideration is expressly or by implication apportioned, the
contract is severable
*When the consideration is entire and single, the contract must
be held to be entire, although the subject matter may be
distinct and independent items. A contract may be entire in its
origin and yet looking to the performance of different things at
different times, as a contract of subscription to a publication to
be delivered in parts each part to be paid upon delivery
If the contract is severable, and one part is illegal, the part
which is illegal is void and cannot be enforced, but that part
which is legal is enforceable. If the contract is entire, and a part
is illegal, the whole contract is unenforceable
________

SECTION 6. - Obligations with a Penal Clause

Art. 1226. 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.

33 | P

LATON

The penalty may be enforced only when it is demandable in

accordance with the provisions of this Code.
________
A penal clause is an accessory undertaking to assume greater
liability in case of breach. It is attached to an obligation in order
to insure performance. The penalty is generally a sum of
money. But it can also be any other thing stipulated by the
parties, including an act or abstention
Double function:
1. To provide for liquidated damages
2. To strengthen the coercive force of the obligation by the
threat of greater responsibility in the event of breach
SUBSIDIARY/ ALTERNATIVE
Upon
non-performance,
only the penalty can be
asked

JOINT/ CUMMULATIVE
Both the principal undertaking
and the penalty may be
demanded

Its purpose may be either reparation, in which case it

substitutes the damages suffered by the creditor, or
punishment, in which case the right to damages, besides the
penalty subsists
REPARATION
The matter of damages is generally
resolved, and it represents the estimate of
the damages that a party might suffer
from non-performance of the obligation,
thereby avoiding the difficulties of proving
such damages

PUNISHMENT
The question of
indemnity
for
damages is not
resolved,
but
remains
subsisting

Whether the purpose of the penal clause is punishment or

reparation, the mere non-performance of the principal
obligation gives rise to the right to penalty. The penal clause
constitutes an exception to the general rules on the recovery of
losses and damages
The creditor cannot recover more than the penalty stipulated,
even of he proves that the damages suffered by him exceeded
in amount such penalty
When the penalty stipulated is not contrary to law, morals, or
public order, it must be enforced against the party liable
therefor
Obligations imposing penalties and forfeitures must be strictly
construed
Three cases when damages and interest may be recovered in
addition to the penalty:
1. When there is an express provision to that effect
2. When the debtor refuses to pay the penalty
3. When the debtor is guilty of fraud in the non-fulfillment of
the obligation
The enforcement of the penalty can be demanded by the
creditor only when the non-performance is due to the fault or
fraud of the debtor. But the creditor does not have to prove
that there was fault or fraud on the part of the debtor. The
non-performance gives rise to the presumption of fault; and in
order to avoid the payment of the penalty, the debtor has the
burden of proving an excuse--either that the failure of the

performance was due to force majeure, or to the acts of the

creditor himself
When there are several debtors in an obligation with a penal
clause, the divisibility of the principal obligation among the
debtors does not necessarily carry with it the divisibility of the
penalty among them
CONDITIONAL
OBLIGATION
There is no obligation before
the suspensive condition
happens; it is the fulfillment
of the condition that gives rise
to the obligation
The principal obligation itself
is dependent upon an
uncertain event

OBLIGATION WITH
A PENAL CLAUSE
There is already an existing
obligation (the principal) from
the very beginning

ALTERNATIVE
OBLIGATION
Two or more obligations are
due, but fulfillment of one of
them is sufficient

OBLIGATION WITH
A PENAL CLAUSE
There is only one prestation
and it is only when this is not
performed that the penal
clause is enforceable
The impossibility of the
principal
obligation
extinguishes also the penalty

The impossibility of one of

the obligations, without the
fault of the debtor, still
leaves the other subsisting
The debtor can choose
which prestation to fulfill

FACULTATIVE
OBLIGATION
The power of the debtor to
make
substitution
is
absolute
The creditor can never
demand both prestations

It is the accessory obligation

(penalty) which is dependent
upon non-performance of the
principal obligation

He cannot choose to pay the

penalty to relieve himself of
the principal obligation, unless
that right is expressly granted
to him
OBLIGATION WITH
A PENAL CLAUSE
The payment of the penalty in
lieu of the principal obligation
can be made only by express
stipulation
Such right may be granted to
him

Guaranty is a contract by virtue of which a third person, called

the guarantor, binds himself to fulfill the obligation of the
principal debtor in case the latter should fail to do so.
GUARANTY

OBLIGATION WITH
A PENAL CLAUSE
Both intended to insure performance of the principal
obligation; both accessory and subsidiary obligation
The object of the obligations The obligation to pay the
of the principal debtor and penalty is different from the
the guarantor is the same
principal obligation
The principal debtor cannot The principal obligation and
be guarantor of the same the penalty can be assumed
obligation
by the same person
The guaranty subsists even The penalty is extinguished by
when the principal obligation the nullity of the principal
is voidable or unenforceable obligation, except when the
or is a natural one
penal clause is assumed by a
third person (in which case
34 | P

LATON

the principle of a guarantor

applies)
________
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.
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.
________
GR: The debtor cannot avoid performance of the principal
obligation by offering to pay the penalty. Therefore, the
penalty, the object of which is to secure compliance with the
obligation, cannot as a general rule, serve as a defense for the
purpose of leaving the principal obligation unfulfilled.
XPN: This right to substitute the penalty for the principal
obligation may be expressly granted to the debtor
GR: The creditor cannot demand performance of the principal
obligation and the penalty at the same time.
XPN: (1) The creditor may enforce both the principal obligation
and the penalty when this right is clearly granted to him; and
(2) where the creditor demanded fulfillment of the principal
obligation but it cannot be performed; in this case, he may
demand the penalty
The law obviously means that performance becomes
impossible through the fault of the debtor; it is in this case that
the penalty may be enforced
________
Art. 1228. Proof of actual damages suffered by the creditor is
not necessary in order that the penalty may be demanded.
________
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.
________
Partial performance refers to the extent or quantity or
fulfillment; irregular, to the form. In any case where there has
been partial or irregular compliance with the provisions of a
contract with a penal clause, courts will rigidly apply the
doctrine of strict construction against the enforcement in its
entirety of the penalty
The power of the judge to reduce the penalty refers only to
penalties prescribed in contracts. It does not cover the
collection of the surcharge on taxes that are due, which is
mandatory on the collector
The amount of the penalty is not determined by the injury
suffered by the creditor, but by what has been agreed upon by
the parties who are free to determine such amount. The limits
of good customs, however, should not be infringed

The penalty is not enforceable when the principal obligation

becomes impossible due to fortuitous event, or when the
creditor prevents the debtor from performing the principal
obligation
________
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.
________
GR: The nullity of the principal obligation also nullifies the penal
clause, which is only an accessory to the principal obligation
XPN: The penal clause subsists even if the principal obligation
cannot be enforced:
1. When the penalty is undertaken by a third person precisely
for an obligation which is unenforceable, voidable, or natural,
in which case it assumes the form of a guaranty which is valid
under Article 2052
2. When the nullity of the principal obligation itself gives rise to
liability of the debtor for damages
The penal clause may be void because it is contrary to law,
moral, good customs, public order, or public policy. In such
case, the principal obligation subsists, if valid
________

Chapter 4. Extinguishment of Obligations - General

Provisions
Art. 1231. Obligations are extinguished:
(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and
debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory condition, and
prescription, are governed elsewhere in this Code.
________
As a general rule, death of either the creditor or the debtor
does not extinguish the obligation; obligations actively and
passively, are transmissible to the heirs, except when the law,
the stipulations of the parties, or nature of the obligation
prevents such transmission
XPN: In obligations to do or which are personal, identified with
the person himself; these are extinguished by death
________

Section 1. - Payment or Performance

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

35 | P

LATON

Payment is the fulfillment of the prestation due, a fulfillment

that extinguishes the obligation by the realization of the
purposes for which it was constituted
Requisites of payment:
1. The person who pays must be the debtor
2. The person to whom payment is made must be the creditor
3. The thing to be paid or to be delivered must be the precise
thing or the thing required to be delivered by the creditor
4. The manner (if expressly agreed upon), time and place of
payment, etc
Kinds of payment:
NORMAL
When the debtor
voluntarily performs
the
prestation
stipulated

ABNORMAL
When he is forced by means of a
judicial proceeding, either to comply
with the prestation or to pay
indemnity
________

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.
________
Requisites for payment:
1. Identity of the prestation; that the very thing or service due
must be delivered or released
2. Integrity; that the prestation must be fulfilled completely
The payment or performance must be on the date stipulated.
The failure to perform on the date stipulated is not excused by
the fact that such date falls on a Sunday and the next day is a
legal holiday, because payment may be made either on
Sundays or on any holiday. Under some statutes, however, like
the Negotiable Instruments Law, payment in such case may be
on the next succeeding business day
When the existence of a debt is fully established by the
evidence, the burden of proving that it has been extinguished
by payment devolves upon the debtor who offers such a
defense to the claim of the plaintiff creditor
________
Art. 1234. If the obligation has been substantially performed in
good faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by the
obligee.
________
In order that there may be substantial performance of an
obligation, there must have been an attempt in good faith to
perform, without any willful or intentional departure
therefrom. The deviation from the obligation must be slight,
and the omission or defect must be technical and unimportant,
and must not pervade the whole or be so material that the
object which the parties intended to accomplish in a particular
manner is not attained. The non-performance of a material part
of a contract will prevent the performance from amounting to a
substantial compliance
When one has received the benefits of substantial performance
by the other without the price agreed upon, and he cannot or
does not return these benefits, it is manifestly unjust to permit
him to retain them without paying, or doing as he promised
________

Art. 1235. When the obligee accepts the performance, knowing

its incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied
with.
________
To constitute a waiver, there must be an intentional
relinquishment of a known right. A waiver will not result from a
mere failure to assert a claim for defective performance when
the thing or work is received, or from mere payment in
accordance with the terms of the contract. There must have
been acceptance of the defective performance with actual
knowledge of the incompleteness or the defect, under
circumstances that would indicate an intention to consider the
performance as complete and renounce any claim arising from
the defect
The word accept used in this Article, means to take as
satisfactory or sufficient, or agree to an incomplete or irregular
performance
A creditor cannot object because of defects in performance
resulting from his own acts or directions. And where a party
makes particular objections to the sufficiency of performance,
he is estopped to later set up other objections
________
Art. 1236. The creditor is not bound to accept payment or
performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to the
contrary.
Whoever pays for another may demand from the debtor what
he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.
________
The creditor cannot be compelled to accept performance by a
third person who is not bound under the obligation, because
whenever a third person pays there is a modification of the
prestation that is due. It is believed that the creditor should
have a right to insist on the liability of the debtor. A creditor
should not be compelled to accept payment from a third
person whom he dislikes or distrust
A person who pays a debt for the account of another may
recover from the debtor the sum so paid out, at least to the
extent in which the payment may have been beneficial to the
debtor. Such a payment cannot be considered as a payment of
what is not due under Article 2154, and cannot be recovered
from the creditor by the person who paid; the right of the
payor in such case is against the debtor whose obligation he
has paid. The debtor who knows that another has paid his
obligation for him, and who does not object thereto or
repudiate the same at any time, must pay the amount
advanced by the third person
Generally, the third person who paid anothers debt is entitled
to recover the full amount he had paid. The law, however,
limits his recovery to the amount by which the debtor has been
benefited, if the debtor has no knowledge of, or has expressed
his opposition to such payment

36 | P

LATON

It is optional for the creditor to accept payment from a third

person. If the debtor opposes the payment by a third person,
the latter will be entitled to recover from the debtor only to the
extent that the payment has benefited him. But as between the
debtor and the creditor, the obligation is extinguished
________
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.
________
The right to recover from the debtor is based in the mere fact
of payment and on considerations of justice; but it gives to the
third person who paid only simple personal action for
reimbursement, without the securities, guaranties, and other
rights recognized in the creditor, which are extinguished by the
payment
From the language of this article, it would seem that there may
be subrogation if the creditor willingly and spontaneously
permits the third person who has paid to be subrogated in his
rights, even without the consent of the debtor. Such
interpretation, however, is not proper. There is no provision
giving such right to the creditor; the provisions of this article
are for the benefit of the debtor, and cannot be renounced by
the creditor; the third person is amply protected by his right to
reimbursement. It is clear, however, that the creditor may
assign his rights to a third person; but in such case, the resulting
rights and obligations of the creditor and the third person
would be different from those arising from payment
________
Art. 1238. Payment made by a third person who does not
intend to be reimbursed by the debtor is deemed to be a
donation, which requires the debtor's consent. But the
payment is in any case valid as to the creditor who has
accepted it.
________
Art. 1239. In obligations to give, payment made by one who
does not have the free disposal of the thing due and capacity to
alienate it shall not be valid, without prejudice to the provisions
of Article 1427 under the Title on "Natural Obligations."
________
Where the person paying has no capacity to make the payment,
the creditor cannot be compelled to accept it; consignation will
not be proper; in case he accepts it, the payment will not be
valid, except in the case provided in Article 1427
________
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.
________
The authority of a person to receive payment for the creditor
may be legal or conventional
LEGAL
When conferred by
law, such as the
authority of a guardian

CONVENTIONAL
When the authority has been given
by the creditor himself, as when an
agent is appointed to collect from the

of an incapacitated
creditor,
or
the
administrator of the
estate of a deceased
creditor

debtor. The debtor may be

authorized by the creditor to make
the payment to another, whether the
latter be his representative or not

The payment of a debt must be made to the person in whose

favor the obligation is constituted, or to another authorized to
receive the payment in his name
Payment made by the debtor to a wrong party does not
extinguish the obligation as to the creditor, if there is no fault
or negligence which can be imputed to the latter. Even when
the debtor acted in utmost good faith and by mistake as to the
person of his creditor, or through error induced by the fraud of
the third person, the payment to one who is not in fact his
creditor, or authorized to receive such payment, is void, except
as provided in Article 1241. Such wrong payment does not
prejudice the creditor, and accrual of interest is not suspended
by it
The deposit of the amount of the obligation by the debtor in a
bank, in the name and to the credit of the creditor, without the
authorization of the latter, does not constitute payment; but
when the creditor cannot be found in the place of payment,
such deposit may be a valid excuse for not holding the debtor in
default
Generally, consignation in court of the thing or amount due,
when properly made, will extinguish the obligation. But where
the creditor institutes an action for the collection of the
amount of the obligation, with the corresponding interest, and
the debtor deposits the amount in court, but in a different case
which is separate and distinct in nature from the case in which
payment is demanded, such deposit does not amount to
payment
________
Art. 1241. Payment to a person who is incapacitated to
administer his property shall be valid if he has kept the thing
delivered, or insofar as the payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it
has redounded to the benefit of the creditor. Such benefit to
the creditor need not be proved in the following cases:
(1) If after the payment, the third person acquires the creditor's
rights;
(2) If the creditor ratifies the payment to the third person;
(3) If by the creditor's conduct, the debtor has been led to
believe that the third person had authority to receive the
payment.
________
When the creditor is incapacitated to receive payment, this
must be made to his legal representative if there is one. If there
be none, then the debtor may relieve himself of responsibility
by delivering the thing to the court in consignation, by virtue of
Article 1256
If the payment is made to the creditor who is incapacitated, it
shall be valid only in so far as it accrued to his benefit. In the
absence of this benefit, the debtor may be made to pay again
37 | P

LATON

by the incapacitated himself when he attains capacity, or his

legal representative during such incapacity
The payment shall be considered as having benefited the
incapacitated person, if he made an intelligent and reasonable
use thereof, for purposes necessary or useful to him, such as
that which his legal representative would have or could have
done under similar circumstances, even at the time of the
complaint the effect of such use no longer exists. It is not
necessary, however, that there be actual investment or use of
the thing. The benefit is deemed to exist also when the thing
paid is preserved or kept to be applied to rational purposes for
the benefit of the incapacitated
The debtor is not released from liability by a payment to one
who is not the creditor nor one authorized to receive the
payment, even if the debtor believed in good faith that he is
the creditor, except to the extent that the payment inured to
the benefit of the creditor
In the following cases, in addition to those enumerated by this
article, payment to a third person releases the debtor:
(1) When, without notice of the assignment of the credit, he
pays to the original creditor (Article 1626)
(2)When in good faith he pays to one in possession of the credit
(Article 1242)
Even when the creditor receives no benefit from the payment
to a third person, he cannot demand payment anew, if the
mistake of the debtor was due to the fault of the creditor
________
Art. 1242. Payment made in good faith to any person in
possession of the credit shall release the debtor.
________
This article constitutes an exception to the rule that payment
must be made to the creditor or his authorized representative.
The person in possession of the credit is neither the creditor
nor one authorized by him to receive payment, but appears
under the circumstances of the case, to be the creditor. He
appears to be the owner of the creditor, although in reality he
may not be the owner
This article refers to possession of the credit, and not merely of
the document representing the credit
Payment to the possessor of the document or title does not
necessarily extinguish the credit (i.e. payable to bearer/ order)
The good faith of the debtor consists in the belief that the party
who presents the title of the obligation is the true creditor, or
that the person to whom the payment is made is the owner of
the credit
________

judgment in his favor. The debtor can therefore be made to pay

again to the party who secured the attachment or garnishment,
but he can recover to the same extent what he has paid to his
credit
The debtor upon whom a garnishment order is served, can
always deposit the money in court by way of consignation, and
thus relieve himself of further liability
If the debt is already due, he can even be compelled judicially
by the attaching creditor to make the consignation in court,
because he would have no more right to retain the debt
If the action of the attaching or garnishing creditor fails, then
the garnishment is of no effect, because it is only incidental or
accessory to the main action. The payment which the garnishee
has made to his creditor (defendant in the action) must be
considered as valid and extinguishes the formers liability to the
latter
________
Art. 1244. The debtor of a thing cannot compel the creditor to
receive a different one, although the latter may be of the same
value as, or more valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot
be substituted by another act or forbearance against the
obligee's will.
________
The debtor of a thing cannot compel the creditor to receive a
different one although the latter may be of the same value than
that which is due. Upon agreement or consent of the creditor,
the debtor may deliver a different thing or perform a different
prestation in lieu of that stipulated. In this case there may be
dation in payment (Article 1245) or novation (Article 1291)
The defects of the thing delivered may be waived by the
creditor, if he expressly so declares, or if, with knowledge
thereof, he accepts the thing without protest or disposes of it
or consumes it
________
Art. 1245. Dation in payment, whereby property is alienated to
the creditor in satisfaction of a debt in money, shall be
governed by the law of sales.
________
The dation in payment extinguishes the obligation to the extent
of the value of the thing delivered, either as agreed upon by the
parties or as may be proved, unless the parties by agreement,
express or implied, or by their silence, consider the thing as
equivalent to the obligation, in which case the obligation is
totally extinguished. (8 Manresa 324; 3 Valverde 174 fn.)

Art. 1243. Payment made to the creditor by the debtor after

the latter has been judicially ordered to retain the debt shall
not be valid.
________

In Caltex (Phil.), Inc., v. IAC, 215 SCRA 580: It is clear that a

dation in payment does not necessarily mean total
extinguishment of the obligation. The obligation is totally
extinguished only when the parties, by agreement, express or
implied, or by their silence, consider the thing as equivalent to
the obligation.

The payment to the creditor after the credit has been attached
or garnished, is void as to the party who obtained the
attachment or garnishment, to the extent of the amount of the

Dation in payment is an onerous contract of alienation because

the object is given in exchange of the credit. The provisions on
sales, regarding warranty against eviction and hidden defects of
38 | P

LATON

the thing, are therefore applicable, the debtor being considered

as the vendor
________
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.
________
In cases falling under this article, if there is disagreement
between the debtor and the creditor as to the quality of the
thing delivered, the court should decide whether it complies
with the obligation, taking into consideration the purpose and
other circumstances of the obligation
The creditor or debtor may waive the benefit of this article.
Thus, the creditor may require a thing of inferior quality, and
the debtor may deliver an object of superior quality, unless the
price to be paid in the latter case is dependent upon the quality
________
Art. 1247. Unless it is otherwise stipulated, the extrajudicial
expenses required by the payment shall be for the account of
the debtor. With regard to judicial costs, the Rules of Court
shall govern.
________
Extra-judicial expenses required by the payment is borne by the
debtor, in the absence of stipulation, because the payment is
his duty and it inures to his benefit in that he is discharged from
the burden of the obligation
________
Art. 1248. Unless there is an express stipulation to that effect,
the creditor cannot be compelled partially to receive the
prestations in which the obligation consists. Neither may the
debtor be required to make partial payments.
However, when the debt is in part liquidated and in part
unliquidated, the creditor may demand and the debtor may
effect the payment of the former without waiting for the
liquidation of the latter.
________
Art. 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in the abeyance.
________
In Tibajia v. CA, 223 SCRA 163; A check, whether a manager's
check or ordinary check, is not legal tender, and an offer of a
check in payment of a debt is not a valid tender of payment and
may be refused receipt by the obligee or creditor.

Section 63 of Republic Act No. 265, as amended (Central Bank

Act) which provides:
Sec. 63. Legal character Checks representing deposit money
do not have legal tender power and their acceptance in the
payment of debts, both public and private, is at the option of
the creditor: Provided, however, that a check which has been
cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor of cash in an amount
equal to the amount credited to his account.
In Papa v. Valencia & Co., Inc., 284 SCRA 643: After more than
ten (10) years from the payment in party by cash and in part by
check, the presumption is that the check had been encashed.
Granting that petitioner had never encashed the check, his
failure to do so for more than ten (10) years undoubtedly
resulted in the impairment of the check through his
unreasonable and unexplained delay.
While it is true that the delivery of a check produces the effect
of payment only when it is cashed, pursuant to Art. 1249 of the
Civil Code, the rule is otherwise if the debtor is prejudiced by
the creditor's unreasonable delay in presentment. The
acceptance of a check implies an undertaking of due diligence
in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate
as actual payment of the debt or obligation for which it was
given. It has, likewise, been held that if no presentment is made
at all, the drawer cannot be held liable irrespective of loss or
injury unless presentment is otherwise excused. This is in
harmony with Article 1249 of the Civil Code under which
payment by way of check or other negotiable instrument is
conditioned on its being cashed, except when through the fault
of the creditor, the instrument is impaired. The payee of a
check would be a creditor under this provision and if its nopayment is caused by his negligence, payment will be deemed
effected and the obligation for which the check was given as
conditional payment will be discharged.
In Hydro Resources v. NIA, 441 SCRA 614: As a contract funded
by an international organization, particularly one recognized by
the Philippines, the contract is exempt from the provisions of
R.A. No. 529. R.A. No. 4100 amended the provisions of R.A. 529
thus:
SECTION 1. Section one of Republic Act Numbered Five
hundred and twenty-nine, entitled "An Act to Assure Uniform
Value of Philippine Coin and Currency," is hereby amended to
read as follows:
Sec. 1. Every provision contained in, or made with respect to,
any domestic obligation to wit, any obligation contracted in the
Philippines which provisions purports to give the obligee the
right to require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of
money of the Philippines measured thereby, be as it is hereby
declared against public policy, and null, void, and of no effect,
and no such provision shall be contained in, or made with
respect to, any obligation hereafter incurred. The above
prohibition shall not apply to (a) transactions where the funds
involved are the proceeds of loans or investments made
directly or indirectly, through bona fide intermediaries or
agents, by foreign governments, their agencies and
instrumentalities, and international financial and banking
39 | P

LATON

institutions so long as the funds are identifiable, as having

emanated from the sources enumerated above; (b)
transactions affecting high-priority economic projects for
agricultural, industrial and power development as may be
determined by the National Economic Council which are
financed by or through foreign funds; (c) forward exchange
transaction entered into between banks or between banks and
individuals or juridical persons; (d) import-export and other
international banking, financial investment and industrial
transactions. With the exception of the cases enumerated in
items (a), (b), (c) and (d) in the foregoing provisions, in which
bases the terms of the parties' agreement shall apply, every
other domestic obligation heretofore or hereafter incurred,
whether or not any such provision as to payment is contained
therein or made with respect thereto, shall be discharged upon
payment in any coin or currency which at the time of payment
is legal tender for public and private debts: Provided, That if the
obligation was incurred prior to the enactment of this Act and
required payment in a particular kind of coin or currency other
than Philippine currency, it shall be discharged in Philippine
currency measured at the prevailing rates of exchange at the
time the obligation was incurred, except in case of a loan made
in a foreign currency stipulated to be payable in the same
currency in which case the rate of exchange prevailing at the
time of the stipulated date of payment shall prevail. All coin
and currency, including Central Bank notes, heretofore and
hereafter issued and declared by the Government of the
Philippines shall be legal tender for all debts, public and private.
Section 1 of R.A. No. 529 states that only the stipulation
requiring payment in foreign currency is void, but not the
obligation to make payment.
________
Art. 1250. In case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of the currency
at the time of the establishment of the obligation shall be the
basis of payment, unless there is an agreement to the contrary.
________
This article applies only where a contract or agreement is
involved. It does not apply where the obligation to pay arises
from law, independent of contracts, like the taking of private
property by the Government in the exercise of its power of
eminent domain
This article applies to cases where extraordinary inflation or
deflation of the stipulated currency takes place. The Code does
not expressly define what is extraordinary inflation or
deflation. Considering the intent of the law, however,
extraordinary inflation or deflation may be said to be that
which is unusual or beyond the common fluctuations in the
value of the currency, which the parties could not have
reasonably foreseen or which was manifestly beyond their
contemplation at the time when the obligation was constituted
In Almeda v. Bathala Marketing, 542 SCRA 470: Inflation has
been defined as the sharp increase of money or credit, or both,
without a corresponding increase in business transaction. There
is inflation when there is an increase in the volume of money
and credit relative to available goods, resulting in a substantial
and continuing rise in the general price level.
In Filipino Pipe and Foundry Corp. v. NAWASA, 161 SCRA 339:
Extraordinary inflation exists "when there is a decrease or

increase in the purchasing power of the Philippine currency

which is unusual or beyond the common fluctuation in the
value said currency, and such decrease or increase could not
have reasonably foreseen or was manifestly beyond
contemplation the the parties at the time of the establishment
of the obligation. (Tolentino Commentaries and Jurisprudence
on the Civil Code Vol. IV, p. 284.)
To determine payment when there has been great fluctuation
in the value of currency, we can resort, considering the
circumstances of each particular case, to the principle of good
faith expressed in Article 1315, under which parties to contracts
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
When the currency is devaluated in terms beyond what could
have been reasonably foreseen by the parties, the doctrine of
unforeseen risks can be applied, and the effects of the
devaluation should not be borne by the creditor alone. The
revaluation of the credit in such cases must be made, according
to the principles of good faith and in vie of the circumstances of
each particular case, recognizing the real value of the credit as
in consonance with the intent of the parties
________
Art. 1251. Payment shall be made in the place designated in the
obligation.
There being no express stipulation and if the undertaking is to
deliver a determinate thing, the payment shall be made
wherever the thing might be at the moment the obligation was
constituted.
In any other case the place of payment shall be the domicile of
the debtor.
If the debtor changes his domicile in bad faith or after he has
incurred in delay, the additional expenses shall be borne by
him.
These provisions are without prejudice to venue under the
Rules of Court.
________
In the absence of stipulation in an obligation to deliver a
determinate thing, performance must be made at the place
where the thing was located at the time the obligation was
constituted. This rule applies to obligations to do, where the
service or act refers to some determinate thing, such as the
painting or repair of a house or building
Even when the thing is determinate but its existence at the
place where it was when the obligation was constituted was
temporary, the performance must be at the domicile of the
debtor, unless otherwise provided
Since the law fixes the place of payment at the domicile of the
debtor, it is the duty of the creditor to go there to receive
payment; he should bear the expenses in this case, because the
debtor cannot be made to shoulder the expenses which the
creditor incurs in performing a duty imposed by law and which
is for his benefit
________
40 | P

LATON

SUBSECTION 1. - Application of Payments

Concept-Application of payment is the designation of the debt
which is being paid by a debtor who has several obligations of
the same kind in favor of the creditor to whom payment is
made
The rules contained in Articles 1252 to 1254 apply to a person
owing several debts of the same kind of a single creditor. They
cannot be made applicable to a person whose obligation as a
mere surety is both contingent and singular; his liability is
confined to such obligation, and he is entitled to have all
payments made applied exclusively to said obligation and to no
other
Art. 1252. He who has various debts of the same kind in favor
of one and the same creditor, may declare at the time of
making the payment, to which of them the same must be
applied. Unless the parties so stipulate, or when the application
of payment is made by the party for whose benefit the term
has been constituted, application shall not be made as to debts
which are not yet due.
If the debtor accepts from the creditor a receipt in which an
application of the payment is made, the former cannot
complain of the same, unless there is a cause for invalidating
the contract. (1172a)
________
In order that the rules for application of payment may be
applied, it is necessary that the obligations must all be due. It is
only in case of mutual agreement of the parties, or upon the
consent of the party in whose favor the term was established,
that payments may be applied to obligations which have not
yet matured
It is also necessary that all the debts be for the same kind,
generally of a monetary character. This includes obligations
which were not originally of a monetary character, but, at the
time of application of payment, had been converted into an
obligation to pay damages by reason of breach or nonperformance
The law grants to the debtor a preferential right to choose the
debt to which this payment is to be applied, because under
equal circumstances the law favors the debtor. But the right of
the debtor is not absolute; he cannot impair the rights granted
33
by law to the creditor
The right to select the obligation to which a payment is to be
applied must be exercised at the time when the debt is paid,
and after the debtor has exercised it by indicating the debt to
which his payment should be applied, he cannot later claim
that it should be understood as applied to another debt
If the debtor makes a proper application of payment, but the
creditor refuses to accept it because he wants to apply it to
another debt, such creditor will incur delay
If at the time of payment, the debtor does not exercise the
right to apply it to any of his debts, the application shall be
understood as provided by law, unless the creditor makes the
33

See page 310

application and his decision is accepted by the debtor. This

application of payment can be made by the creditor only in the
receipt issued at the time of payment. Once the debtor has
accepted the application made by the creditor, the former
cannot contest such application, which is validated by his
acquiescence. It can be changed only by mutual agreement. But
an application made by the creditor, without the knowledge
and consent of the debtor, is not binding upon the latter
The real intent of the law is that the application made by the
creditor can be contested by the debtor if the latters assent to
such application was vitiated by such causes as mistake,
violence, intimidation, fraud, etc., which can invalidate not only
contracts but also other judicial acts
When neither the debtor nor the creditor has made a valid
application of payment, then the application shall take place by
operation of law under articles 1253 and 1254. The same is true
if the application made by the creditor is annulled by the
debtor whose consent thereto is vitiated
The debtor and the creditor, by agreement, can validly change
the application of payment already made, without prejudice to
the rights of third persons acquired before such agreement
________
Art. 1253. If the debt produces interest, payment of the
principal shall not be deemed to have been made until the
interests have been covered. (1173)
________
Once it is admitted that an obligation bears interest, partial
payments are to be applied first on account of the interest and
then to reduce the principal. This principle is not merely
suppletory; it has an obligatory character, and cannot be
dispensed with except by mutual agreement. The creditor may
oppose an application of payment made by the debtor contrary
to this rule
________
Art. 1254. When the payment cannot be applied in accordance
with the preceding rules, or if application can not be inferred
from other circumstances, the debt which is most onerous to
the debtor, among those due, shall be deemed to have been
satisfied.
If the debts due are of the same nature and burden, the
payment shall be applied to all of them proportionately.
(1174a)
________
In making the application of payments, the law considers
particularly the interest of the debtor, as if the debtor himself
were making the application. It is assumed that of the debtor
had chosen the debt to be paid, he would relieved himself first
of the more burdensome debt. As to which of two debts is
more onerous is fundamentally a question of fact, which courts
must determine on the basis of the circumstances of each case.
The condition of being more burdensome is relative, and
34
cannot be determined with precision by general rules
Where the debts are of the same nature and burden, there
must always be a pro rata application of the payment, even if
34

See page 314

41 | P

LATON

the sum paid is exactly the amount of one of the obligations.

The mere equality of the amounts does not imply a tacit
application of the payment to the debt to which it is equal in
amount
________

SUBSECTION 2. - Payment by Cession

Art. 1255. The debtor may cede or assign his property to his
creditors in payment of his debts. This cession, unless there is
stipulation to the contrary, shall only release the debtor from
responsibility for the net proceeds of the thing assigned. The
agreements which, on the effect of the cession, are made
between the debtor and his creditors shall be governed by
special laws. (1175a)
________
The assignment or cession contemplated by this article is the
abandonment of the universality of the property of the debtor
for the benefit of his creditors, in order that such property may
be applied to the payment of the credits. The initiative comes
from the debtor, but it must be accepted by the creditors in
order to become effective; a voluntary assignment cannot be
imposed upon a creditor who is not willing to accept it. If the
offer of the debtor is not accepted by the creditors, the same
end may be attained by a proceeding in insolvency instituted in
accordance with the provisions of the Insolvency Law. Thus, the
assignment by the debtor has two forms; the voluntary and the
legal, the latter being the judicial in nature under the
Insolvency Law
The present article deals with the voluntary assignment. Such
assignment does not have the effect of making the creditors
the owners of the property of the debtor unless there is an
agreement to that effect. The assignment gives to the creditors
the right to proceed to the sale of the property, and to pay
themselves in the amount which the proceeds of the sale
permit and in the manner agreed upon
In the absence of agreement as to the order of preference
among the creditors, they shall be paid in the order established
by law, and if the proceeds of the property should not cover all
the obligations, the unpaid amount remains due and
demandable
In assignment of property to creditors, the debtor must serve
the amount needed to support that he is required to reserve in
case of donations. The assignment cannot include the family
home, which is reserved for certain beneficiaries, but can
include other properties exempt from execution, if the debtor
waives the exemption
Distinguished from Dation in Payment
________

35

SUBSECTION 3. - Tender of Payment and Consignation

Concept-Tender of payment is the manifestation made by the
debtor to the creditor of his desire to comply with his
obligation, with the offer of immediate performance.
Consignation is the deposit of the object of the obligation in a
competent court in accordance with rules prescribed by law,
after the tender of payment has been refused or because of
35

circumstances which render direct payment to the creditor

impossible or inadvisable
The tender of payment, therefore, is a preparatory act which
precedes consignation. The tender of payment by itself does
not cause the extinguishment of the obligation, unless
completed by consignation. It is the consignation which
constitutes a form of payment, and must follow, supplement or
complete to the tender of payment in order to discharge the
obligation
In instances where no debt is owing, consignation is not proper
Art. 1256. If the creditor to whom tender of payment has been
made refuses without just cause to accept it, the debtor shall
be released from responsibility by the consignation of the thing
or sum due.
Consignation alone shall produce the same effect in the
following cases:
(1) When the creditor is absent or unknown, or does not appear
at the place of payment;
(2) When he is incapacitated to receive the payment at the time
it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1176a)
________
In Roman Catholic Archbishop of Malolos v. IAC, 191 SCRA 411:
Tender of payment involves a positive and unconditional act by
the obligor of offering legal tender currency as payment to the
obligee for the formers obligation and demanding that the
latter accept the same. Thus, tender of payment cannot be
presumed by a mere inference from surrounding
circumstances.
Tender of payment presupposes not only that the obligor is
able, ready, and willing, but more so, in the act of performing
his obligation. Ab posse ad actu non vale illatio. A proof that
an act could have been done is no proof that it was actually
done.
Tender of payment before consignation is required by the
present article only in case where the creditor refuses without
just cause to accept it. The tender is not required in the cases
enumerated in the five numbered paragraphs of this article, in
which the debtor may make the consignation immediately
without previous tender of payment. For reason of equity, a
consignation may be held valid even where there was no prior
tender of payment
When a tender of payment is made in such a form that the
creditor could have immediately realized payment of he had
accepted the tender, followed by a prompt attempt of the
debtor to deposit the means of payment in court by was of
consignation, the accrual of interest on the obligation will be
suspended from the date of such tender. But when the tender
of payment is not accompanied by the means of payment, and
the debtor did not take any immediate step to make a

See page 317

42 | P

LATON

consignation, then interest is not suspended from the time of

such tender
Requisites of an effective consignation:
1. That there was a debt due
2. That the consignation of the obligation was made because of
some legal cause provided in the present article
3. That the previous notice of the consignation had been given
to the person interested in the performance of the obligation
4. That the amount or thing due was placed at the disposal of
the court
5. That after the consignation had been made the persons
interested were notified thereof
Since consignation is merely a form of payment of obligations,
there must be a debt to be paid. The provisions on consignation
are not applicable when there is no obligation to pay
For a valid consignation, it is necessary that the creditor must
have refused without just cause to accept payment, or that
there be some other legal cause, such as those enumerated in
this article. Mere consignation without one of these causes
does not produce the effect of releasing the debtor
If the reason for consignation is the unjust refusal of the
creditor to accept payment, it must be shown:
1. That there was a previous tender of payment, without which
the consignation is ineffective
2. That the tender of payment was of the very thing due, or in
case of money obligations, that legal tender currency was
offered
3. That the tender of payment was unconditional
4. That the creditor refused to accept payment without just
cause
At the time the deposit is made, it is not necessary for the
debtor to show the want of cause for the refusal of the
creditor; this fact may be established during the hearing of the
case
The absence or incapacity of the creditor, to justify
consignation, need not be legally declared. But it is not enough
that the creditor be absent or incapacitated; he must,
furthermore, have no legal representative, or if he has one, the
debtor, without his fault, does not know such legal
representative
As a cause for consignation, it is not enough that various
persons capriciously claim the right to collect from the debtor.
They must have the appearance of a right to collect such that
the debtor would have a reasonable doubt not based in
negligence, as to who is entitled to the payment
The enumeration in this article of the cases in which
consignation is proper, must not be interpreted in a restrictive
sense, but in the light of the purpose of the institution of
consignation, which is to avoid the performance of an
obligation becoming more onerous to the debtor by reason of
causes not imputable to him. This standard insures the correct
interpretation of the causes enumerated, and allows the
possibility of consignation in other cases not expressly
mentioned
Before consignation is made, it should be made known or
announced to the creditor and to other persons interested in

the obligation (Article 1257). This would give a chance to the

creditor to accept the payment. The lack of this notice does not
invalidate the consignation, but simply makes the debtor liable
for the expenses occasioned thereby
Although technically the notice is subsequent to the tender of
payment, the two can be made at the same time or in the same
act with respect to the creditor, the tender of payment can be
made with the warning that if it is not accepted, the thing due
will be deposited in court. But in addition to this a separate
notice must be given to other parties interested in the
obligation, such as co-debtors, sureties, guarantors, and
solidary co-creditors
The thing or amount due must be placed at the disposal of the
judicial authority (Article 1258)
The requirement that the thing be deposited at the disposal of
judicial authority does not convert the consignation into a real
contract of deposit, but merely require that the thing be at the
disposal of the court. Even immovable property can be placed
at the disposal of the court; this happens in attachment,
administration of estates of deceased persons, and insolvency
proceedings
After the consignation has been made, the interested parties
must be notified thereof (Article 1258). This requirement may
be complied with by the service of summons upon the
defendant creditor together with a copy of the complaint
After this notice, the creditor may:
1. Accept the thing or amount deposited, in which case the
matter or payment is terminated
2. Refuse to accept the thing or amount, in which case a trial
must be held to determine the validity of the consignation
3. The creditor may neither accept nor refuse, in which case the
debtor may ask the court to cancel the obligation after showing
that the requisites of consignation have been complied with
(Article 1260)
________
Art. 1257. In order that the consignation of the thing due may
release the obligor, it must first be announced to the persons
interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in
consonance with the provisions which regulate payment.
(1177)
________
The notice of consignation must be given to all persons
interested in the fulfillment of the obligation, whether they be
passive subjects, such as co-debtors, guarantors or sureties, or
active subjects, such as solidary co-creditors, or possible
litigants, such as all those who claim to be entitled to the
payment
The tender of payment and the notice of consignation sent to
the creditor may be made in the same act. In case of absent or
unknown creditors, the notice may be made by publication
The lack of notice does not invalidate the consignation, but
simply makes the debtor liable for the expenses
________
43 | P

LATON

Art. 1258. Consignation shall be made by depositing the things

due at the disposal of judicial authority, before whom the
tender of payment shall be proved, in a proper case, and the
announcement of the consignation in other cases.

The consignation, however, has a retroactive effect, and the

payment is deemed to have been made at the time of the
deposit of the thing in court or when it was placed at the
disposal of the judicial authority

The consignation having been made, the interested parties shall

also be notified thereof. (1178)
________

Once consignation has been accepted by the creditor, or the

court has declared that it has been validly made, the following
effects arise as of the time when the thing was placed at the
disposal of the court:
1. The debtor is released in the same manner as if he had
performed the obligation at the time of the consignation,
because this produces the same effect as a valid payment
2. The accrual of interest on the obligation is suspended from
the moment of consignation
3. The deterioration or loss of the thing are transferred to the
creditor, because the risks of the thing are transferred to the
creditor from the moment of deposit
4. Any increment or increase in value of the thing after the
consignation inures to the benefit of the creditor

The very thing due must be placed at the disposal of the judicial
authority
In the procedure now in force, judicial authority includes the
sheriff in cases of consignation of the amount for the
redemption of property sold in execution by said sheriff
A seller who institutes an action to compel the buyer to accept
the merchandise sold, thereby places such merchandise at the
disposal of the court and admits that he is himself holding the
property for his adversary. By renouncing his own right in the
property, and asking the court to compel the adverse party to
accept it, the plaintiff may be said to constitute himself, for the
time being, the agent or receiver of the court. As a
consequence, it would undoubtedly be competent and proper
for the court upon the application of either party, to order that
the property be taken into the custody o an officer of the court
or of a receiver to be specially appointed by it
This requirement is fulfilled by the service of the summons
upon the defendant together with a copy of the complaint
________
Art. 1259. The expenses of consignation, when properly made,
shall be charged against the creditor. (1178)
________
The consignation is properly made:
1. When after the thing has been deposited in court, the
creditor accepts the consignation without objection and
without any reservation of his right to contest it because of
failure to comply with any of the requisites for consignation
2. When the creditor objects to the consignation but the court,
after proper hearing, declares that the consignation has been
validly made. In these cases, the creditor bears the expenses of
the consignation
The expenses incurred by a seller in the warehousing of the
goods pending his action to compel the buyer to comply with
the contract of purchase and sale are properly chargeable
against the buyer
________
Art. 1260. Once the consignation has been duly made, the
debtor may ask the judge to order the cancellation of the
obligation.
Before the creditor has accepted the consignation, or before a
judicial declaration that the consignation has been properly
made, the debtor may withdraw the thing or the sum
deposited, allowing the obligation to remain in force. (1180)
________
Consignation is completed at the time the creditor accepts the
same without objections, or, if he objects, at the time the court
declares that it has been validly made in accordance with law.

When the debtor is bound to perform simultaneously with the

performance of a counter-prestation by the creditor, he can ask
the court that the thing be delivered to the creditor only upon
compliance by the latter with the counter-prestation. The
debtors right to ask this is not barred by the fact that the
tender of payment, which preceded the consignation, is
unconditional
The right of the debtor to withdraw the thing or amount
deposited in court, depends upon whether or not the
consignation has already been accepted or judicially declared
proper. Before that time, the debtor is still the owner, and he
may withdraw it; in this case, the obligation will remain in full
force as before the deposit
Before the consignation has been judicially declared proper, the
creditor may prevent the withdrawal by the debtor, by
accepting the consignation, even with reservations
The consignation in itself does not create a lien over the thing
in favor of the creditor. Before the consignation has been
accepted by the creditor or judicially declared to have been
properly made, the debtor is still the owner thereof; therefore,
during that time, other creditors of the debtor may still attach
the thing consigned as property belonging to the debtor
When money is deposited in court under the provisions of the
law on consignation, it is in custodia legis, and, therefore,
exempt from attachment and execution
If the case in which the consignation is made, is dismissed, the
consignation will become ineffectual
________
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 codebtors, guarantors and sureties shall be released. (1181a)
________
There is a revival of the obligation, but third persons, solidary
co-debtors, guarantors and sureties who were benefited by the
consignation, are not prejudiced by such revival

44 | P

LATON

Guarantors and sureties, whose obligation is only subsidiary,

are completely released from the obligation upon the
consignation
But the liability of such co-debtor for his corresponding share of
the obligation subsists, so that if later on the debtor who
withdrew the consignation cannot discharge the entire
obligation, such co-debtor can be made to pay his share of the
debt to the creditor; and if the debt is paid in full by the debtor
who withdrew the consignation, he can in turn recover from
the co-debtor the latters share. The withdrawal of the
consignation releases the solidary co-debtor only from his
solidary liability for the share of others, but not from his liability
for his own share
________

Section 2. - Loss of the Thing Due

Concept-Loss of the thing in this part of the Code means, not
the strict legal meaning of loss and is not limited to
obligations to give, but extends to those which are personal,
embracing therefore all causes which may render impossible
the performance of the prestation. In some codes, this is
designated as impossibility of performance
The impossibility of performance must be subsequent to the
execution of the contract in order to extinguish the obligation;
if the impossibility already existed when the contract was
made, the result is not extinguishment, but inefficacy of the
obligation under Article 1348 and 1493
Art. 1262. An obligation which consists in the delivery of a
determinate thing shall be extinguished if it should be lost or
destroyed without the fault of the debtor, and before he has
incurred in delay.
When by law or stipulation, the obligor is liable even for
fortuitous events, the loss of the thing does not extinguish the
obligation, and he shall be responsible for damages. The same
rule applies when the nature of the obligation requires the
assumption of risk. (1182a)
________
It is understood that the thing is lost when it perishes, or goes
out of commerce, or disappears in such a way that its existence
is unknown or it can not be recovered. Thus, aside from the
destruction of the thing due, loss would mean its
disappearance by loss, theft or robbery; that is to say, its nonexistence in the hands of the obligor when, through any cause,
the fulfillment of the obligation becomes impossible
In an obligation to deliver a determinate object, where there is
no physical or legal loss, but the thing belongs to another, the
performance by the debtor of the obligation undoubtedly
becomes impossible. This would not have happened if the thing
had belonged to the debtor at the time the obligation was
constituted. Therefore, this is a case of an original subjective
impossibility on the part of the debtor, and the failure of
performance is imputable to himself. The debtor, in cases like
this, must indemnify the creditor for damages suffered. If the
creditor acquired the thing by gratuitous title, such as by
inheritance or donation, he is entitled to the value thereof. But
if he acquired it by onerous title, he is entitled to the price he
paid for it

The happening of a fortuitous event in itself does not

necessarily extinguish an obligation to deliver a determinate
thing. An obligation consisting in the delivery of a specified
thing, shall be extinguished when the said thing shall be lost or
destroyed without the fault of the obligor and before he is in
default. In the absence of law or stipulation to the contrary,
impossibility of performance, without the negligence of the
parties, prevents the enforcement of an obligation
If the thing has been lost through robbery with violence, the
debtor must show that he could not resist the violence. If the
loss is through theft, the debtor is considered negligent in
having placed the thing within reach of thieves and not in a
secure or safe place; hence, the debtor will be liable for
damages
The extinguishment of the obligation due to loss of the thing or
impossibility of performance affects both debtor and creditor;
the entire juridical relation is extinguished, so that if the
creditor has himself an obligation, this is likewise extinguished.
The debtor must return to the creditor whatever the latter may
have already delivered by reason of the obligation. This is a
logical consequence of the principle of res perit domino
recognized in the code
Under the Argentine Code (Article 895), the extinguishment of
the obligation because of impossibility of performance applies
not only to the debtor but also to the creditor
The following cases constitute exceptions to the rule that loss
of the determinate object by fortuitous event extinguishes the
obligation; hence, in these cases, the debtor who is unable to
perform becomes liable for damages:
1. When the law expressly provides that the debtor shall be
liable even if the loss is due to fortuitous events (Art. 1174)
See articles 1942, 1979, 2147 & 2159
2. When by express stipulation, the obligor is made liable even
if loss occurs through fortuitous events (Art. 1174)
3. When the nature of the obligation requires the assumption
of risk (Art. 1174)
4. When the fault or negligence of the debtors concurs with the
fortuitous event in causing the loss
5. When the loss occurs after the debtor has incurred in delay
(Art. 1165)
6. When the debtor has promised to deliver the same thing to
two or more different parties (Art. 1165)
7. When the obligation to deliver a determinate object arises
from a criminal act (Art. 1268)
________
Art. 1263. In an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish
the obligation. (n)
________
A determinate thing is a concrete particularized object,
indicated by its own individuality, while a generic thing is one
45 | P

LATON

whose determination is confined to that of its nature, to the

genus (genero) to which it pertains, such as a horse or a chair.
The loss of the determinate object without fault of the debtor
extinguishes the obligation to give; but the obligation is not
extinguished if the object is indeterminate or generic
Genus nunquam perit (the genus never perishes); But when all
the things of the kind stipulated disappear or perishes, the
obligation to deliver a generic object is extinguished. Thus,
when the manufacture of a particular kind of merchandise is
discontinued, there may be impossibility of performance
This rule has an exception in what is known in German law as
delimited generic obligations. Under this exception, when there
is a limitation of the generic object to a particular existing mass
or a particular 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
________
Art. 1264. The courts shall determine whether, under the
circumstances, the partial loss of the object of the obligation is
so important as to extinguish the obligation. (n)
________
The rule given in this article is based in the assumption that the
partial loss is not imputable to the fault or negligence of the
debtor, but to fortuitous events or circumstances beyond his
control. Ordinarily, such partial loss does not extinguish the
obligation; the thing should be delivered to the creditor in its
impaired condition, without any liability for damages on the
part of the debtor. But if 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
The intention of the parties is the controlling factor in the
solution of each case of partial loss
________
Art. 1265. Whenever the thing is lost in the possession of the
debtor, it shall be presumed that the loss was due to his fault,
unless there is proof to the contrary, and without prejudice to
the provisions of article 1165. This presumption does not apply
in case of earthquake, flood, storm, or other natural calamity.
(1183a)
________
Under this article, the burden of explaining the loss of a thing in
the possession of the debtor rests upon the latter
________
Art. 1266. The debtor in obligations to do shall also be released
when the prestation becomes legally or physically impossible
without the fault of the obligor. (1184a)
________
There us a distinction between impossibility existing at the time
the obligation is constituted (Art. 1348), which brings about the
nullity of the contract, and impossibility which supervenes at
the time of performance (Art. 1266), which brings about a
modification or extinguishment of the obligation, depending on
whether or not it is imputable to the debtor. This article refers
to an impossibility which arises after the obligation has been
constituted

LEGAL
When the act, by reason of a
subsequent law, is prohibited

PHYSICAL
When the act by reason of its
nature
cannot
be
accomplished

In both cases, the obligation is extinguished

The objective impossibility and subjective impossibility produce
the same effect. Thus, when the debtor dies, or when by some
accident or act of a third person he is disabled and
incapacitated for the work to be done, the obligation should be
extinguished, as long as there was no fault or negligence on his
part contributing to his death or disability
OBJECTIVE
When the act or service in
itself, without considering
the person of the obligor,
becomes impossible; i.e.
when the prestation is
subsequently prohibited
by law so that nobody can
do it

SUBJECTIVE
When the act or service cannot
be done by the debtor himself,
but it can be accomplished by
others; i.e. when the debtor
becomes so seriously ill that he
cannot perform the stipulated act
or service, although it can be
done by anybody else

The impossibility of performance releases the debtor from his

obligation. Because the obligation is legitimate in its origin, the
supervening impossibility of the prestation, independent of the
will of the obligor, cannot render the latter liable beyond the
restitution of what he may have received in advance from the
creditor; it cannot make him liable for damages
Where it is not the prestation that has become impossible, but
an act to be performed after the fulfillment of the prestation,
the obligation is not extinguished
The effects of partial impossibility cannot be subjected to
inflexible rules, but attention must be directed to the
importance and consequence of the partial impossibility and
the purpose of the obligation in each case. These circumstances
may indicate that the partial impossibility be considered
equivalent to total impossibility. The rule in Article 1264 may be
applied
If at the time performance becomes impossible the debtor has
already fulfilled part of the obligation, the creditor must pay
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
Temporary obstacles to the performance of the prestation,
which may be expected to disappear in the near future, do not
extinguish the obligation but merely delay its fulfillment, unless
by its nature or by the will of the parties it has to be performed
at a determinate time. But if the obstacles are of an unknown
and unforeseen duration, the obligations may be considered
juridically impossible of performance; it is extinguished, and is
not revived by the fact that it becomes possible later when
circumstances change
In reciprocal obligations, the release of the debtor due to
impossibility of performance, also releases the creditor from
46 | P

LATON

the counter-prestation, because each obligation depends upon

the other
________
Art. 1267. When the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the obligor
may also be released therefrom, in whole or in part. (n)
________
The general rule is that impossibility of performance releases
the obligor. However, when the service has become so difficult
as to be manifestly beyond the contemplation of the parties,
the court should be authorized to release the obligor in whole
or in part. The intention of the parties should govern, and if it
appears that the service turns out to be so difficult as to have
been beyond their contemplation, it would be doing violence to
that intention to hold the obligor still responsible
Difficulty of service authorizes the release of the obligor but
does not authorize the courts to remake, modify or revise the
contract stipulated with the force of law, so as to substitute its
own terms for those covenanted by the parties themselves
This article states in our law the doctrine of unforeseen events.
This is said to be based on the discredited theory of rebus sic
stantibus in public international law; under this theory, the
parties stipulate in the light of certain prevailing conditions, and
once these conditions cease to exist the contract also ceases to
exist. Considering practical needs and the demands of equity
and good faith, the disappearance of the basis of a contract
gives rise to a right to relief in favor of the party prejudiced
The parties to the contract must be presumed to have assumed
the risk of unfavorable developments. It is therefore only in
absolutely exceptional changes of circumstances that equity
demands assistance for the debtor
Equity demands a certain economic equilibrium between the
prestation and the counter-prestation, and does not permit the
unlimited impoverishment of one party for the benefit of the
other by the excessive rigidity of the principle of the obligatory
force of contracts. This is mainly a question of fact left to the
discretion of the court
This rule does not apply to obligations for the payment of a sum
of money when there is a change in the value of the stipulated
currency. In such case Article 1250 will apply
Requisites for the application of this article:
1. The event or change in circumstances could not have been
foreseen at the time of the execution of the contract
2. It makes the performance of the contract extremely difficult
but not impossible
3. The event must not be due to the act of any of the parties
4. The contract is for a future prestation
If the contract is of immediate fulfillment, the gross inequality
of the reciprocal prestations may involve lesion or want of
cause. Excluded from the scope of this article, however, are the
aleatory contracts and those which are purely speculative

It is necessary that the change in the circumstances should be

greatly beyond what could have been reasonably foreseen by
diligent persons at the time of the celebration of the contract.
The contract must be respected as long as the injustice is not
intolerable
With respect to the difficulty of performance, this should be
such as to mean a manifest disequilibrium in the prestations,
such that one party would be placed at a disadvantage by the
unforeseen event. The case would not come within the purview
of this article if the debtor merely suffers those small losses
which constitute the normal risks of the contract
The disappearance of the creditors interest which is sought to
be protected by the obligation, will extinguish the obligation. If
an obligation is based upon an interest of the creditor worthy
of protection, the juridical protection cannot extend beyond
that interest
________
Art. 1268. When the debt of a thing certain and determinate
proceeds from a criminal offense, the debtor shall not be
exempted from the payment of its price, whatever may be the
cause for the loss, unless the thing having been offered by him
to the person who should receive it, the latter refused without
justification to accept it. (1185)
________
When the debtor tenders or offers payment, and the creditor
refuses to receive it without reason, there are two alternatives
open to the debtor; either (1) to consign the thing and thereby
relieve himself from any further responsibility for such thing, or
(2) 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 to the special liability imposed by this article
________
Art. 1269. The obligation having been extinguished by the loss
of the thing, the creditor shall have all the rights of action
which the debtor may have against third persons by reason of
the loss. (1186)
________
This article 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
________

Section 3. Condonation or Remission of the Debt

Art. 1270. Condonation or remission is essentially gratuitous,
and requires the acceptance by the obligor. It may be made
expressly or impliedly.
One and the other kind shall be subject to the rules which
govern inofficious donations. Express condonation shall,
furthermore, comply with the forms of donation. (1187)
________
Remission 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
remission refers. It is an essential characteristic of remission
that it be gratuitous, that there is no equivalent received for
47 | P

LATON

the benefit given; once such equivalent exists, the nature of the
act changes. It may become dation in payment when the
creditor receives a thing different from that stipulated; or
novation, when the object or principal conditions of the
obligation should be changed; or compromise, when the matter
renounced is in litigation or dispute and in exchange of some
concession which the creditor receives

The acceptance may be made in the same deed of donation or

in a separate public document, but it shall not take effect
unless it is done during the lifetime of the donor.

Kinds of remission:

On its amount:

TOTAL

Art. 750. The donations may comprehend all the present

property of the donor, or part thereof, provided he reserves, in
full ownership or in usufruct, sufficient means for the support
of himself, and of all relatives who, at the time of the
acceptance of the donation, are by law entitled to be supported
by the donor. Without such reservation, the donation shall be
reduced in petition of any person affected. (634a)

PARTIAL
May refer to the amount of the indebtedness, or to
an accessory obligation only (such as pledge or
interest), or to some other aspect of the obligation
(such as solidary)

INTER VIVOS
Effective during the
lifetime
of
the
creditor

MORTIS CAUSA
Effective upon the death of the
creditor; contained in a will or
testament

EXPRESS
When it is made formally, and it
should be in accordance with the
forms of ordinary donations (see
rules below)

IMPLIED
When it can be inferred
from the acts of the
parties

Condonation or remission is essentially a donation of the credit

to the debtor. It is a bilateral act, which requires acceptance by
the debtor. It is, therefore, subject to the rule on donations
with respect to acceptance, amount, and revocation. In relation
to remission, the rules on donation should be read so that
donor refers to the creditor, donee to the debtor, and
donation to the remission or Condonation
Express Remission
On its acceptance:
Art. 745. The donee must accept the donation personally, or
through an authorized person with a special power for the
purpose, or with a general and sufficient power; otherwise, the
donation shall be void. (630)
Art. 746. Acceptance must be made during the lifetime of the
donor and of the donee. (n)
On its forms:
Art. 748. The donation of a movable may be made orally or in
writing.
An oral donation requires the simultaneous delivery of the
thing or of the document representing the right donated.
If the value of the personal property donated exceeds five
thousand pesos, the donation and the acceptance shall be
made in writing, otherwise, the donation shall be void. (632a)
Art. 749. In order that the donation of an immovable may be
valid, it must be made in a public document, specifying therein
the property donated and the value of the charges which the
donee must satisfy.

If the acceptance is made in a separate instrument, the donor

shall be notified thereof in an authentic form, and this step
shall be noted in both instruments. (633)

Art. 752. The provisions of Article 750 notwithstanding, no

person may give or receive, by way of donation, more than he
may give or receive by will.
The donation shall be inofficious in all that it may exceed this
limitation. (636)
On its revocation:
Art. 760. Every donation inter vivos, made by a person having
no children or descendants, legitimate or legitimated by
subsequent marriage, or illegitimate, may be revoked or
reduced as provided in the next article, by the happening of any
of these events:
(1) If the donor, after the donation, should have legitimate or
legitimated or illegitimate children, even though they be
posthumous;
(2) If the child of the donor, whom the latter believed to be
dead when he made the donation, should turn out to be living;
(3) If the donor subsequently adopt a minor child. (644a)
Art. 761. In the cases referred to in the preceding article, the
donation shall be revoked or reduced insofar as it exceeds the
portion that may be freely disposed of by will, taking into
account the whole estate of the donor at the time of the birth,
appearance or adoption of a child. (n)
Art. 764. The donation shall be revoked at the instance of the
donor, when the donee fails to comply with any of the
conditions which the former imposed upon the latter.
In this case, the property donated shall be returned to the
donor, the alienations made by the donee and the mortgages
imposed thereon by him being void, with the limitations
established, with regard to third persons, by the Mortgage Law
and the Land Registration Laws.
This action shall prescribe after four years from the
noncompliance with the condition, may be transmitted to the
heirs of the donor, and may be exercised against the donee's
heirs. (647a)
Art. 765. The donation may also be revoked at the instance of
the donor, by reason of ingratitude in the following cases:
48 | P

LATON

(1) If the donee should commit some offense against the

person, the honor or the property of the donor, or of his wife or
children under his parental authority;
(2) If the donee imputes to the donor any criminal offense, or
any act involving moral turpitude, even though he should prove
it, unless the crime or the act has been committed against the
donee himself, his wife or children under his authority;
(3) If he unduly refuses him support when the donee is legally
or morally bound to give support to the donor. (648a)
Requisites of Remission or Condonation:
1. The debt must be existing and demandable at the time the
remission is made
2. The renunciation of the debt must be gratuitous, or without
any equivalent or consideration
3. The debtor must accept the remission
To condone is an act of liberality by virtue of which the creditor
renounces the right to enforce the obligation contracted in his
favor. To condone is to forgive or remit a debt
Remission, being an act of liberality, should be proved by
clearer and mere convincing evidence than what is required to
establish payment
Remission requires acceptance by the obligor. But there is
nothing that can prevent a creditor from making a unilateral
renunciation of his right, abandoning his credit, and thereby
extinguishing it. Such a unilateral declaration of renunciation by
the creditor is expressly allowed by article 6 of the Code
________
Art. 1271. The delivery of a private document evidencing a
credit, made voluntarily by the creditor to the debtor, implies
the renunciation of the action which the former had against the
latter.
If in order to nullify this waiver it should be claimed to be
inofficious, the debtor and his heirs may uphold it by proving
that the delivery of the document was made in virtue of
payment of the debt. (1188)
________
Implied Remission
This article refers to a case of implied or tacit remission. There
may also be tacit remission when the creditor voluntarily
destroys or cancels the evidence of the credit, with the intent
to renounce his right. The want of such intent, however, may
be proved, the burden of proof being upon the creditor who
alleges it. Thus, it may be shown that the destruction was due
to the mistake or want of care. When the destruction or
cancellation is shown to have been made without the intent to
remit, then the obligation subsists
The Code presupposes that when the creditor delivers a private
document evidencing a debt to his debtor, he surrenders the
weapon for the enforcement of his right. This is not true in the
case of a public document, because there is always a copy in
the archives which can be used to prove the credit. Therefore
the voluntary deliver to the debtor of the first original copy of a
public document does not imply remission

The second paragraph of this article implies that the voluntary

return of the title of the credit is presumed to be by reason of
remission, and not by reason of the payment of the debt (which
is somewhat anomalous), unless the contrary is proved. As De
Diego says, however, this provision is absurd and immoral in
that it authorizes the debtor and his heirs to prove that they
paid the debt, when the provision itself assumes that there has
been a remission, which is gratuitous
________
Art. 1272. Whenever the private document in which the debt
appears is found in the possession of the debtor, it shall be
presumed that the creditor delivered it voluntarily, unless the
contrary is proved. (1189)
________
Voluntary Remission
While the existence in the hands of the creditor of an
instrument of credit, is evidence that the debt is still unpaid,
until the contrary is proved, the possession of the same
instrument by the debtor, if it is a private document, gives rise
to the presumption that the creditor delivered it voluntarily to
the debtor, implying a remission of the debt evidenced by such
private document. This presumption, however, is 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 yet been paid
When the obligation is joint, and the private document
evidencing a debt is found in the possession of one of the
debtors, the presumption of remission can refer only to the
portion of the debtor who is in possession of the instrument;
and if the delivery was made by only one joint creditor, only the
share pertaining to him shall be deemed remitted. But if the
obligation is solidary, the remission must be considered as
total. In both cases, the presumption yields to contrary
evidence
________
Art. 1273. The renunciation of the principal debt shall
extinguish the accessory obligations; but the waiver of the
latter shall leave the former in force. (1190)
________
Art. 1274. It is presumed that the accessory obligation of pledge
has been remitted when the thing pledged, after its delivery to
the creditor, is found in the possession of the debtor, or of a
third person who owns the thing. (1191a)
________
The presumption in this article is based on the assumption that
the creditor voluntarily returned the thing pledged to the
debtor. It may, however, be shown that the debtor recovered
the thing pledged without the consent of the creditor, who may
have lost it, or from whom it may have been stolen, or that the
return to the debtor is for a limited time and a special purpose,
such as to make repairs thereon or to allow the owner to make
some particular use thereof. This is also provided by article
2110. If the presumption of return is prima facie, the
presumption of remission must likewise be prima facie

49 | P

LATON

The remission of the pledge extinguishes only the security; it

does not affect the principal obligation, which remains
subsisting
________

Art. 1277. Confusion does not extinguish a joint obligation

except as regards the share corresponding to the creditor or
debtor in whom the two characters concur. (1194)
________

Section 4. Confusion or Merger of Rights

Section 5. Compensation

Art. 1275. The obligation is extinguished from the time the

characters of creditor and debtor are merged in the same
person. (1192a)
________

Art. 1278. Compensation shall take place when two persons, in

their own right, are creditors and debtors of each other. (1195)
________

Merger or confusion is the meeting in one person of the

qualities of creditor and debtor with respect to the same
obligation. It erases the plurality of subjects of the obligation,
and extinguishes the obligation because it is absurd that a
person should enforce an obligation against himself.
Furthermore, the purpose for which the obligation may have
been created are considered as fully realized by the merger of
the qualities of debtor and creditor in the same person
Requisites:
1. It must take place between the creditor and the principal
debtor (Art. 1276)
2. 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
3. The confusion must be total or as regards the entire
obligation
Merger or confusion arises from any act which brings about a
succession to the credit, whether it be universal or particular,
inter vivos or mortis causa. The most frequent, however, is by
way of testate or intestate succession in which the debtor
inherits the credit from the creditor
When the act which occasions the merger is susceptible of
termination or revocation, the merger that has taken place is
also terminated or revoked, and the obligation is recreated in
the same condition that it had when the merger took place
The effect of merger is to extinguish the 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. (1193)
________
The extinguishment of the principal obligation through
confusion releases the guarantors, because the obligation of
the latter is merely accessory
When the merger takes place in the person of a guarantor, the
obligation is not extinguished. Thus, if the guarantor acquires
the credit, his obligation as a guarantor is extinguished, but the
principal obligation subsists and can be enforced by him against
the debtor and other co-guarantors
The same rule applies in cases of surety
________

It is a mode of extinguishment to the concurrent amount, the

obligation of those persons who in their own right are
reciprocally debtors and creditors of each other. It is the
offsetting of two obligations which are reciprocally
extinguished if they are of equal value, or extinguished to the
concurrent amount if of different values. As its name indicates,
compensation is a sort of balancing between two obligations; it
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. By this
means, payment is simplified and assured between persons
who are indebted to each other
PAYMENT
Capacity to dispose of the
thing paid and capacity to
receive payment are required
for debtor and creditor,
respectively
The performance must be
complete

COMPENSATION
Such
capacity
is
not
necessary,
because
the
compensation operates by
law and not by the act of the
parties
There
may
be
partial
extinguishment
of
an
obligation

Compensation has two advantages over payment. In the first

place, it is simple, taking effect without action by either party to
extinguish their respective obligations. In the second place,
there is more guaranty in making the credit effective, because
there is less risk of loss by the creditor due to insolvency or
fraud of the debtor

MERGER
Involves only one obligation
There is only one person in
whom the characters of
creditor and debtor meet,
with respect to the same
obligation
COUNTERCLAIM
Must be pleaded
to be effectual

COMPENSATION
There must always be two
There are two persons who
are mutually debtors and
creditors of each other in two
separate obligations, each
arising from a different cause

COMPENSATION
Takes place by operation of law, and
extinguishes reciprocally the two debts as
soon as they existed simultaneously, to
the amount of their concurrent sums

Kinds of Compensation:
TOTAL
When the two obligations are
o the same amount

PARTIAL
When the amounts are not
equal

LEGAL
When it

FACULTATIVE (unilateral)
When it can be claimed by

takes

place

by

50 | P

LATON

operation of law because all

the requisites are present.
True compensation

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 makes the
obligation due

CONVENTIONAL (bilateral)
JUDICIAL
When the parties agree to When decreed by the court in
compensate their mutual a case where there is a
obligations even if some counterclaim, such as that
requisite is lacking, such as provided in article 1283
that provided in article 1282
________
Art. 1279. In order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated
in due time to the debtor. (1196)
________
(1) That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other
For compensation to take place, the parties must be mutually
debtors and creditors (1) in their own right, and (2) as
principals. When there is no relationship of mutual creditors
and debtors , there can be no compensation
In Francia v. IAC, 162 SCRA 753: [T]here can be no off-setting of
taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground
that the government owes him an amount equal to or greater
than the tax being collected. The collection of a tax cannot
await the results of a lawsuit against the government.
This rule was reiterated in the case of Corders v. Gonda (18
SCRA 331) where we stated that: "... internal revenue taxes can
not be the subject of compensation: Reason: government and
taxpayer are not mutually creditors and debtors of each
other'and a "claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off."
(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
Under article 418, consumable things are those which cannot
be used in a manner appropriate to their nature without their
being consumed

The things due in both obligations must be fungible, or things

which can be substituted for each other. Whether prestations
refer to fungibles will depend largely on the will of the parties
(3) That the two debts be due
Both debts must be due to permit compensation. The fact that
there is an existing debt not yet matured will not prevent the
enforcement by action of that which is already due. However,
if before payment of that which matured first, the second debt
also matures, there will be compensation
(4) That they be liquidated and demandable
This means that the debts are enforceable in court, there being
no apparent defenses inherent in them. The obligations must
be civil obligations, excluding those that are purely natural.
Obligations which are subject to suspensive conditions cannot
be set up by way of compensation before the fulfillment of the
condition, although once fulfilled, the provisions of article1187
should be observed as to the retroactive effect of the
happening of the condition
A debt is liquidated when its existence and amount are
determined
(5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated in
due time to the debtor
When one of the obligations sought to be compensated is
subject to a suit between a third party and the party interested
in the compensation, each claiming to be the creditor in said
obligation, there is a provisional suspension of the possible
compensation. If the party is adjudged the creditor, there will
be no compensation; otherwise, compensation will take place
There can be no legal compensation if either of the obligations
is alternative or facultative. But the mere fact that one
obligation has a penal clause, while the other has none, will not
prevent legal compensation, because the penal clause is a mere
guaranty of fulfillment and does not affect the object of the
obligation
________
Art. 1280. Notwithstanding the provisions of the preceding
article, the guarantor may set up compensation as regards what
the creditor may owe the principal debtor. (1197)
________
The liability of the guarantor is only subsidiary; it is accessory to
the principal obligation of the debtor. 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. This extinguishment benefits the guarantor,
for he can be held liable only to the same extent as the debtor
________
Art. 1281. Compensation may be total or partial. When the two
debts are of the same amount, there is a total compensation.
(n)
________
Art. 1282. The parties may agree upon the compensation of
debts which are not yet due. (n)
________
51 | P

LATON

Conventional or voluntary compensation is not limited to

obligations which are not yet due. The parties may compensate
by agreement any obligations, in which the objective requisites
provided for legal compensation are not present. It is
necessary, however, that the parties should have the capacity
to dispose of the credits which they compensate, because the
extinguishment of the obligations in this case arises from their
wills and not from law
________
Art. 1283. If one of the parties to a suit over an obligation has a
claim for damages against the other, the former may set it off
by proving his right to said damages and the amount thereof.
(n)
________
Art. 1284. When one or both debts are rescissible or voidable,
they may be compensated against each other before they are
judicially rescinded or avoided. (n)
________
Although a rescissible or voidable debt can be compensated
before it is rescinded or annulled, the moment it is rescinded or
annulled, the decree of rescission or annulment is retroactive,
and the compensation must be considered as cancelled.
Rescission or annulment requires mutual restitution; the party
whose obligation is annulled or rescinded can thus recover to
the extent that his credit was extinguished by the
compensation, because to that extent he is deemed to have
made a payment
________
Art. 1285. The debtor who has consented to the assignment of
rights made by a creditor in favor of a third person, cannot set
up against the assignee the compensation which would pertain
to him against the assignor, unless the assignor was notified by
the debtor at the time he gave his consent, that he reserved his
right to the compensation.
If the creditor communicated the cession to him but the debtor
did not consent thereto, the latter may set up the
compensation of debts previous to the cession, but not of
subsequent ones.
If the assignment is made without the knowledge of the debtor,
he may set up the compensation of all credits prior to the same
and also later ones until he had knowledge of the assignment.
(1198a)
________
Art. 1286. Compensation takes place by operation of law, even
though the debts may be payable at different places, but there
shall be an indemnity for expenses of exchange or
transportation to the place of payment. (1199a)
________
This article applies to legal compensation, but does not apply to
voluntary compensation
________
Art. 1287. Compensation shall not be proper when one of the
debts arises from a depositum or from the obligations of a
depositary or of a bailee in commodatum.

Neither can compensation be set up against a creditor who has

a claim for support due by gratuitous title, without prejudice to
the provisions of paragraph 2 of Article 301. (1200a)
________
The prohibition of compensation when one of the debts arises
36
37
from a depositum or commodatum is based on justice. A
deposit is made or a commodatum is given on the basis of
confidence in the depositary or the borrower. It is, therefore, a
matter of morality, that the depositary or the borrower should
in fact perform his obligation; otherwise, the trust or
confidence 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 (article 205, Family Code), and may expose the
recipient to misery and starvation. Common humanity and
public policy forbid this consequence. Support in arrears,
however, can be compensated (article 301, paragraph 2)
Note: Only the depositary and the borrower (in commodatum)
cannot set up compensation. The depositor can set up his
deposit against the depositary, and the lender can set up his
loan against a credit of the borrower. This is in reality a case of
facultative compensation
________
Art. 1288. Neither shall there be compensation if one of the
debts consists in civil liability arising from a penal offense. (n)
________
It is believed that if one of the debts consists in civil liability
arising from a penal offense, compensation would be improper
and inadvisable because the satisfaction of such obligation is
imperative
Although no qualification is made in this article, the person who
has the civil liability arising from crime is the only party who
cannot set up the compensation; but the offended party
entitled to indemnity can set up his claim in compensation of
his debt. This is another case of facultative 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. (1201)
________
Art. 1290. When all the requisites mentioned in Article 1279 are
present, compensation takes effect by operation of law, and
extinguishes both debts to the concurrent amount, even
though the creditors and debtors are not aware of the
compensation. (1202a)
________
Legal compensation takes effect from the moment that the
requisites of articles 1278 and 1279 co-exist, since this
A depositum is a contract by virtue of which a person (depositary) receives
personal property belonging to another (depositor), with the obligation of
safely keeping it and returning the same. The deposit of money in a bank,
whether in a savings or in a current account, is not a depositum, but really a
loan, in which the bank is the borrower and the depositor is the lender
37 A commodatum is a gratuitous contract by virtue of which one of the parties
delivers to the other a non-consumable personal property so that the latter
may use it for a certain time and return it
36

52 | P

LATON

compensation takes place ipso jure, its effects arises on the

very day on which all its requisites concur, so that when it is
used as a defense or when a judgment declares it to exist, it
retroacts to the date when its requisites are fulfilled
Voluntary or conventional compensation takes place upon the
agreement of the parties
Facultative compensation takes place when the creditor
declares his option to set it up
Judicial compensation takes place upon final judgment
Effects of compensation:
1. Both debts are extinguished to the concurrent amount
2. Interests stop accruing on the extinguished obligation or the
part extinguished
3. The period of prescription stops with respect to the
obligation or part extinguished
4. All accessory obligations of the principal obligation which has
been extinguished are also extinguished
Although compensation takes place by operation of law, it must
be alleged and proved by the debtor who claims its benefits.
Once proved, however, its effects retroact to the moment
when the requisites provided by law concurred
Compensation can be renounced, either at the time an
obligation is contracted or afterwards. Compensation rests
upon a potestative right, and a unilateral declaration of the
debtor would be sufficient renunciation
Compensation can be renounced expressly or impliedly
Even when all the requisites for a compensation concur, the
compensation may not take place in the following cases:
1. When there is renunciation of the effects of compensation by
a party
2. When the law prohibits its compensation, such as in the
cases provided in articles 1287 and 1288
________

Section 6. Novation
Art. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.
(1203)
________
Novation 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 changing the
object or principal conditions, or by substituting the person of
the debtor, or by subrogating a third person in the rights of the
creditor
Classification of Novation:
As to its nature:
SUBJECTIVE (Personal)
The modification of the
obligation
by
the
change of subject; it is
passive if there is a

OBJECTIVE (Real)
The change of the
obligation
by
substituting
the
object
with

MIXED
When there is
a combination
of
the
subjective and

substitution of the
debtor, and it is active
when a third person is
subrogated in the rights
of the creditor

another
changing
principal
conditions

As to its form:
EXPRESS
When the parties declare that
the
old
obligation
is
extinguished and substituted
by the new obligation

As to effect:
PARTIAL
When there is only a
modification or change in some
principal conditions of the
obligation

or
the

objective
novation

IMPLIED
When there is such an
incompatibility between the
old and the new obligations
that they cannot stand
together

TOTAL
When the old obligation is
completely extinguished

In Iloilo Traders v. Heirs of Soriano, 404 SCRA 133, the Court

said:
Novation may either be extinctive or modificatory, much being
dependent on the nature of the change and the intention of the
parties. Extinctive novation is never presumed; there must be
an express intention to novate; in cases where it is implied, the
acts of the parties must clearly demonstrate their intent to
dissolve the old obligation as the moving consideration for the
emergence of the new one. Implied novation necessitates that
the incompatibility between the old and new obligation be total
on every point such that the old obligation is completely
superseded by the new one. The test of incompatibility is
whether they can stand together, each one having an
independent existence; if they cannot and are irreconcilable,
the subsequent obligation would also extinguish the first
An extinctive novation would thus have the twin effects
of, first, extinguishing an existing obligation and, second,
creating a new one in its stead.
Novation is merely modificatory where the change brought
about by any subsequent agreement is merely incidental to the
main obligation (e.g., a change in interest rates or an extension
of time to pay); in this instance, the new agreement will not
have the effect of extinguishing the first but would merely
supplement it or supplant some but not all of its provisions.
In California Bus Lines v. State Investment House, 418 SCRA 297,
the Court said:
Novation has been defined as the extinguishment of an
obligation by the substitution or change of the obligation by a
subsequent one which terminates the first, either by changing
the object or principal conditions, or by substituting the person
of the debtor, or subrogating a third person in the rights of the
creditor.
Novation, in its broad concept, may either be extinctive or
modificatory. It is extinctive when an old obligation is
terminated by the creation of a new obligation that takes the
place of the former; it is merely modificatory when the old
obligation subsists to the extent it remains compatible with the
amendatory agreement. An extinctive novation results either
53 | P

LATON

by changing the object or principal conditions (objective or

real), or by substituting the person of the debtor or subrogating
a third person in the rights of the creditor (subjective or
personal). Novation has two functions: one to extinguish an
existing obligation, the other to substitute a new one in its
place. For novation to take place, four essential requisites have
to be met, namely, (1) a previous valid obligation; (2) an
agreement of all parties concerned to a new contract; (3) the
extinguishment of the old obligation; and (4) the birth of a valid
new obligation.
Novation is never presumed, and the animus novandi,
whether totally or partially, must appear by express agreement
of the parties, or by their acts that are too clear and
unequivocal to be mistaken.
The extinguishment of the old obligation by the new one is a
necessary element of novation which may be effected either
expressly or impliedly. The term "expressly" means that the
contracting parties incontrovertibly disclose that their object in
executing the new contract is to extinguish the old one. Upon
the other hand, no specific form is required for an implied
novation, and all that is prescribed by law would be an
incompatibility between the two contracts. While there is really
no hard and fast rule to determine what might constitute to be
a sufficient change that can bring about novation, the
touchstone for contrariety, however, would be an
irreconcilable incompatibility between the old and the new
obligations.
There are two ways which could indicate, in fine, the presence
of novation and thereby produce the effect of extinguishing an
obligation by another which substitutes the same. The first is
when novation has been explicitly stated and declared in
unequivocal terms. The second is when the old and the new
obligations are incompatible on every point. The test of
incompatibility is whether the two obligations can stand
together, each one having its independent existence. If they
cannot, they are incompatible and the latter obligation novates
the first. Corollarily, changes that breed incompatibility must be
essential in nature and not merely accidental.
The
incompatibility must take place in any of the essential elements
of the obligation, such as its object, cause or principal
conditions thereof; otherwise, the change would be merely
modificatory in nature and insufficient to extinguish the original
obligation.
The necessity to prove the foregoing by clear and convincing
evidence is accentuated where the obligation of the debtor
invoking the defense of novation has already matured.
With respect to obligations to pay a sum of money, this Court
has consistently applied the well-settled rule that the obligation
is not novated by an instrument that expressly recognizes the
old, changes only the terms of payment, and adds other
obligations not incompatible with the old ones, or where the
new contract merely supplements the old one.
In Kabankalan Sugar Co. v. Pacheco, 55 Phil. 154, the Court
said:
[W]hen an easement of right way is one of the principal
conditions of a contract, and the duration of said easement is
specified, the reduction of said period in a subsequent contract,
wherein the same obligation is one of the principal conditions,

constitutes a novation and to that extent extinguishes the

former contractual obligation.
In Ajax Marketing & Development Corp. v. Court of Appeals, 248
SCRA 222, the Court said:
Novation will not be allowed unless it is clearly shown by
express agreement, or by acts of equal import. Thus, to effect
an objective novation it is imperative that the new obligation
expressly declare that the old obligation is thereby
extinguished, or that the new obligation be on every point
incompatible with the new one. In the same vein, to effect a
subjective novation by a change in the person of the debtor it is
necessary that the old debtor be released expressly from the
obligation, and the third person or new debtor assumes his
place in the relation. There is no novation without such release
as the third person who has assumed the debtor's obligation
becomes merely a co-debtor or surety.
Novation arising from a purported change in the person of the
debtor must be clear and express because, to repeat, it is never
presumed.
Requisites:
1. A previous existing valid obligation - There must be an
original existing obligation at the time of novation. This means
that the obligation must not only be valid, but also that it has
not been extinguished by any cause
2. The agreement of all the parties to the new obligation Novation requires the creation of a new contractual obligation,
as well as the extinguishment of the old. There must be consent
of all the parties to the substitution, resulting in the extinction
of the old obligation and the creation of a valid one
3. The extinguishment of the old contract - This extinguishment
may take place by express stipulation in the new agreement, or
by implication from the incompatibility between the old and
the new contracts
4. The validity of the new one
________
Art. 1292. In order that an obligation may be extinguished by
another which substitute the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
(1204)
________
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. The
novation must be clearly proved since its existence is not
presumed
Novation takes place only when the contracting parties
expressly disclose that their object in making the new contract
is to extinguish the old contract, otherwise the old contract
remains in force and the new contract is added to it, and each
gives rise to an obligation still in force

54 | P

LATON

No specific form is required for an implied novation. All that is

required is incompatibility between the original and the
subsequent contracts
The test of incompatibility between two obligations or
contracts is whether they can stand together, each one having
an independent existence. If they cannot, they are
incompatible, and the subsequent obligation novates the first.
Upon such novation, the former obligation loses all its force
and effect, and only the new obligation can be the basis of an
action
In order that there may be an implied novation arising from
incompatibility of the old and the new obligations, the change
must refer to the object, the cause, or the principal conditions
of the obligation. In other words, it must be an essential change
Accidental modifications in an existing obligation do not
extinguish it by novation. Mere modifications of the debt,
agreed upon between the parties, do not constitute novation.
When the changes refer to the secondary agreements, and not
to the object or principal conditions of the contract, there is no
novation; such changes will produce modifications of incidental
facts, but will not extinguish the original obligation
It is not proper to consider an obligation novated by
unimportant modifications which do not alter its essence
Ultimately, the determination of whether the changes in any
given contract or obligation are sufficient to bring about
novation, must depend upon the facts and circumstances of
each case. The distinction between a principal and an
accidental condition in the contract or obligation is relative. The
legal effect of any change made by the parties will depend
upon a sound appreciation of their importance. The court
should consider, in each particular case, not only the nature of
the clause that is modified, but also the intention of the parties
and the economic significance of the modification
________
Art. 1293. Novation which consists in substituting a new debtor
in the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him
the rights mentioned in Articles 1236 and 1237. (1205a)
________

Expromision
The initiative for the change
does not emanate from the
debtor and may be made
even without his knowledge,
since it consists in a third
person
assuming
the
obligation. It logically requires
the consent of this third
person and the creditor

Delegacion
The debtor offers and the
creditor accepts a third
person who consents to the
substitution, so that the
consent of these three is
necessary;
they
are
respectively
known
as
delegante, delegatario and
delegado

In this kind of novation, it is not enough to extend the juridical

relation to a third person; it is necessary that the old debtor be
released from the obligation, and the third person or new
debtor take his place in the relation. Without such release,
there is no novation; the third person who has assumed the
obligation of the debtor merely becomes a co-debtor or a

surety. If there is no agreement as to solidarity, the first and the

new debtors are considered obligated jointly
The consent of the creditor to the change of debtors, whether
in expromision or delegacion, is an indispensable requirement.
The reason for the requirement of the creditors consent to
such substitution is obvious. 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,
hence, the creditor should agree to accept the substitution in
order that it may be binding on him
The consent of the creditor to the substitution may be express
or implied. It need not be given simultaneously with that of the
debtor and of the third party; nor is it required to be in any
specific or particular form, but it must be given by the creditor
in one way or another. The creditors ratification of the
substitution may be tacit, and may be given at any time, as long
as the agreement between the old and new debtors still
subsists. Once given, in whatever form it may be, the novation
takes place
Upon a creditors acceptance of the promise of another person
to pay a part of a debt, which payment is secured by a real
estate mortgage, there is effected a substitution of debtors or a
partial novation of the contract
When the original contract authorizes the debtor to transfer his
obligation to a third person, the novation by substitution of
debtor is effected when the creditor is notified that such
transfer has been made
The consent of the creditor, however, cannot be presumed
from his acceptance of payments by a third party for the
benefit of the debtor, without further acts; there can be no
novation from such acceptance of payments, because there is
no consent to the transfer of the debt itself
Consent of debtors:
Expromision
The consent of the old debtor
is not necessary, and the
substitution may be made
even without his knowledge

Delegacion
The old debtor always
consents to the substitution,
because the initiative comes
from him

In both cases, the consent of the new debtor is necessary,

because he is to assume the obligation. This consent of the new
debtor is as essential as that of the creditor for the novation to
become effective
The novation has the effect of releasing the original debtor
from the obligation, and of making the new debtor liable
therefor
The second sentence of the present article provides that
Payment by the new debtor gives him the rights mentioned in
Articles 1236 and 1237. This would mean that if the novation
is by delegacion, and the new debtor pays the obligation, he
could demand from the old debtor what he has paid. But if the
novation is by expromision, and the new debtor pays the debt
without the knowledge of the old debtor, the former can
recover only in so far as the payment has been beneficial to the
old debtor. In this latter case, there can be no subrogation
because of the express provisions of Article 1237. But if the
novation is by delegacion, such subrogation may take place by
55 | P

LATON

virtue of the provisions of Article 1302, par. (2), because the

present article actually gives to the payment by the new debtor
the same legal effect as payment by a third person, as far as his
rights against the old debtor are concerned
________
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 obligations shall not give rise to any
liability on the part of the original debtor. (n)
________
If the novation was by expromision, no liability for the new
debtors insolvency can be enforced against the old debtor,
because the latter did not have the initiative in making the
change, which might have been made even without his
knowledge
This article, however, seems to imply that of the old debtor had
knowledge of the substitution, or had consented thereto, the
exemption from liability provided in this article does not apply
The obvious intent of the Code is to generally release the old
debtor from any further liability in passive subjective novation,
except in exceptional cases contemplated in Article 1295 which
are limited to delegacion
The literal wording of the law should yield to its obvious
intention, which is to exempt the old debtor from future
liability when he did not propose the new debtor
________
Art. 1295. The insolvency of the new debtor, who has been
proposed by the original debtor and accepted by the creditor,
shall not revive the action of the latter against the original
obligor, except when said insolvency was already existing and
of public knowledge, or known to the debtor, when the
delegated his debt. (1206a)
________
The terms of this article show that it is applicable only to
substitution by delegacion. In case of insolvency of the new
debtor, this article permits the creditor to sue the old debtor
only when insolvency was prior to the delegation and publicly
known, or when the old debtor knew of such insolvency at the
time he delegated the obligation
The knowledge of the creditor that the new debtor was
insolvent at the time of delegation, will bar him from
recovering from the old debtor. He must bear the consequence
of his acts knowingly done
Some believe that aside from the two exceptions mentioned in
this article, there are other cases in which the old debtor will be
liable: (1) If the new debtor is only secondarily liable; (2) If the
third person is only an agent of the debtor; and (3) Where the
new debtor is bound solidarily with the old debtor. It is obvious
that the old debtor is liable in these cases, because there is no
novation; the debtor has not been released from the obligation
in any of these cases
________
Art. 1296. When the principal obligation is extinguished in
consequence of a novation, accessory obligations may subsist

only insofar as they may benefit third persons who did not give
their consent. (1207)
________
The extinguishment of the principal obligation by novation
extinguishes the obligation to pay interests, unless otherwise
stipulated. It releases pledges and mortgages as well as
guarantors and sureties, unless the latter is bound under the
new obligation. The reason for this is clear: the mortgage,
pledge, or guaranty was given to answer for a particular
obligation, or for the solvency of a particular debtor; any
change in either of this destroys the basis of the consent of the
mortgagors, pledgor, surety, or guarantor. The rule in this
article is, thus, specially applicable to novation by substitution
of debtors
The exception provided has reference to a stipulation in favor
of a third person (Art. 1311, par. 2), which is subordinate to the
principal obligation. Although technically it is an accessory
obligation, it is in reality a distinct obligation in favor of a third
person, and cannot be extinguished by novation without the
consent of the latter
________
Art. 1297. If the new obligation is void, the original one shall
subsist, unless the parties intended that the former relation
should be extinguished in any event. (n)
________
In order that a contract may be considered as novated, it is
indispensable that the new contract which purports to annul
the previous one, be valid and effective
Where a new contract was to become effective only after the
signature of other parties thereto had been secured, a novation
does not take place when such other signatures are not
obtained, because then it is no more than a mere executory
agreement subject to a condition
If the new obligation is not entirely void, but only voidable, the
novation becomes effective. But if the action to annul is
brought, and the obligation is set aside, it will be deemed as if
there had been no novation, and the original obligation
subsists, unless the parties intended to definitely extinguish it
at all events
The original obligation may be pure, and the new obligation
subject to suspensive condition. If the intention is merely to
attach the condition to the original obligation, there is no
novation. But if the new conditional obligation is intended to
substitute the original pure obligation, the novation itself, and
the consequent extinguishment of the original obligation, is
subject to the condition. Therefore, pending the happening of
the condition, the old obligation cannot be considered as
extinguished, nor can its performance be enforced; it is as
much in a state of suspense as the new one. If the condition is
not fulfilled before one of the parties withdraws from the
proposed conditional contract, there is no novation at all
After novation has taken place, by the change of the object of
the obligation, the old obligation can no longer be enforced.
Hence, if the new obligation is extinguished by the loss of its
object, the creditor cannot demand the object of the original
obligation
________
56 | P

LATON

Art. 1298. The novation is void if the original obligation was

void, except when annulment may be claimed only by the
debtor or when ratification validates acts which are voidable.
(1208a)
________
When the original obligation is void, that is, wanting in some
essential requisite or otherwise inexistent, there can be no
novation, because one of the requisites for novation would be
lacking
The rule in this article applies to a voidable contract which has
already been set aside or annulled by decree of a competent
court. And an obligation which has already been extinguished is
also inexistent. Hence, it cannot be novated
When the original obligation has been ratified before novation,
the novation is effective. And even if there has been no
previous ratification at the time of novation, if the nullity can
be claimed only by the debtor, the consent of the debtor to the
novation will render the novation effective, because such
consent is impliedly a waiver of the action for nullity
To have a valid novation when the original obligation is
voidable at the instance of the debtor, it is necessary that such
obligation should have the essential requisites for its existence,
and that the debtor consent to the novation with knowledge of
the cause for nullity and after it has ceased
The defect, however, is not completely cured if the novation
takes place by expromission, where the old debtor has not
intervened or consented. In such case, the old debtor may avail
himself of the defense of the nullity of the original obligation, in
the event that an action for reimbursement is brought against
him by the new debtor. On the other hand, in his relation to the
creditor, the new debtor cannot set up the nullity as a defense
or as a ground for recovery, if he knew of the cause of nullity
When a debt is already barred by prescription, it cannot be
enforced by the creditor. But a new contract, recognizing and
assuming the prescribed debt, would be valid and enforceable.
The prescription, being available only to the debtor, can be
waived by him; and he does so by voluntarily promising to pay
the prescribed debt. The novation of a prescribed debt is thus
valid
________
Art. 1299. If the original obligation was subject to a suspensive
or resolutory condition, the new obligation shall be under the
same condition, unless it is otherwise stipulated. (n)
________
The original obligation may be conditional, and the new
obligation pure. If the intention is merely to suppress the
condition, there would be no novation; but if it is to extinguish
the original obligation itself by the creation of a new obligation,
the latter does not arise except from the fulfillment of the
condition of the original obligation. The reason is, 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 then be wanting. On
the other hand, if the condition of the old obligation is
resolutory, its happening would resolve the old obligation and
place it in the same category as a void obligation or one which

has been extinguished. In either case, therefore, one requisite

of every novation--a pre-existing valid obligation--would be
lacking. Therefore, where the original obligation is conditional,
the novation itself must be held conditional also, and its
efficacy depends upon whether the condition which affects the
former is complied with or not
But the parties may by their express will substitute a pure
obligation for a conditional one
It may happen that the old obligation and the new obligation
are both conditional. 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 the novation may
become effective and the new obligation be enforceable. If only
the conditions affecting the obligation are fulfilled, and those
affecting the new obligation are not, then there is no novation,
and the old obligation subsists, because the requisite of a new
valid obligation would be lacking. Likewise, if only the
conditions affecting the new obligation are fulfilled, but the
conditions of the old obligation are not, there will be no
novation, since the requisite of a previous existing obligation
would be wanting
If the conditions of the old and the new obligations are
incompatible with each other, there is an obvious intention to
substitute the new conditional obligation for the old obligation,
leaving only the new obligation, subject to its conditions. Only
the conditions of the new obligation, therefore, have to be
fulfilled, in order that such obligation may become enforceable
________
Art. 1300. Subrogation of a third person in the rights of the
creditor is either legal or conventional. The former is not
presumed, except in cases expressly mentioned in this Code;
the latter must be clearly established in order that it may take
effect. (1209a)
________
Subrogation is the transfer of all the rights of the creditor to a
third person, who substitutes him in all his rights. It may either
be legal or conventional
LEGAL
That which takes place
without agreement but by
operation of law because of
certain acts; this is the
subrogation referred to in
article 1302

CONVENTIONAL
That which takes place by
agreement of the parties; this
kind of subrogation requires
the intervention and consent
of three persons: the original
creditor, the new creditor,
and the debtor
________

Art. 1301. Conventional subrogation of a third person requires

the consent of the original parties and of the third person. (n)
________
In conventional subrogation, the consent of all the parties is
essential. The consent of the original creditor is necessary,
because his right is extinguished; that of the new creditor is
needed, because he becomes a party to a new relation; and the
consent of the debtor is necessary, because the old obligation is
extinguished, and he becomes liable under a new obligation

57 | P

LATON

Under our Code, conventional subrogation is not identical to

assignment of credit. In the former, the debtors consent is
necessary; in the latter, it is not required. Subrogation
extinguishes an obligation and gives rise to a new one;
assignment refers to the same right which passes from one
person to another. The nullity of an old obligation may be cured
by subrogation, such that the new obligation will be perfectly
valid; but the nullity of an obligation is not remedied by the
assignment of the creditors right to another
________

the co-debtors becomes joint, each being liable to the payor for
his respective share. This conclusion is made clearer by the
express provisions of article 1217
________
Art. 1303. Subrogation transfers to the persons subrogated the
credit with all the rights thereto appertaining, either against the
debtor or against third person, be they guarantors or
possessors of mortgages, subject to stipulation in a
conventional subrogation. (1212a)
________

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.
(1210a)
________

Subrogation transfers to the third person or new creditor the

entire credit, with all the corresponding rights, either against
the debtor or against third persons. If a suspensive condition is
attached to the credit so transferred, that condition must be
fulfilled in order that the new creditor may exercise his right;
but prestations which could not have been required of the
original creditor cannot be demanded of the new one
Upon payment of the loss, the insurer is entitled to be
subrogated pro tanto to any right of action which the insured
may have against the third person whose negligence or
wrongful act caused the loss
________

Illustration:
Juan has two obligations: a mortgage debt of P10,000 in favor
of Pedro, and a simple unsecured obligation for P5,000 in favor
of Jose. If Jose pays the mortgage obligation of P10,000 to
Pedro, even without the knowledge of Juan, then Jose will be
subrogated in the rights of Pedro; in other words, Jose will
become a mortgage creditor for P10,000, and an ordinary
creditor for P5,000. It is not material what amount Jose actually
pays to Pedro; so long as Pedro accepts such amount as full
payment of the mortgage credit, there will be subrogation.
However, the debtor in cases like this can still set up against the
new creditor the defenses which he could have used against
the original creditor, such as compensation, payments already
made, or vice or defect of the original obligation
If a third person pays the creditor without the consent of the
debtor, he is only entitled to reimbursement from the debtor
for the amount paid by him. If the amount he paid is less than
the credit, even if the creditor has accepted it as full payment,
the third person is entitled to reimbursement only for what he
actually paid. He cannot proceed against sureties, guarantors,
or mortgages and pledges. But if the debtor had consented,
expressly or tacitly, to such payment by the third person, there
will be subrogation, and the payor can exercise all the rights of
the creditor rising from the very obligation itself, whether
against the debtor or against third person
The person who have an interest in the fulfillment of the
obligation are those who would be benefited by the
extinguishment of the obligation. Examples: co-debtors,
sureties, guarantors, and owners of property mortgaged or
pledged to secure the obligation
When a solidary debtor pays the obligation, he is subrogated in
the rights of the creditor. The scope of this subrogation,
however, should not be misunderstood. The payor cannot take
advantage of the solidarity and recover the amount in excess of
his share of the obligation form any of his co-debtors; the
solidarity terminates by his payment, and the obligation among

Art. 1304. A creditor, to whom partial payment has been made,

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

Title II. - CONTRACTS

Chapter 1. General Provisions
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. (1254a)
________
Concept; A contract, broadly speaking, is an agreement on the
declaration of a common will. It has been defined in other
codes as a bilateral legal transaction to create, modify or
terminate a legal tie between the parties
Out Code, howeverseems to limit the definition to cases,
where one party binds himself to perform a prestation in favor
of another, excluding cases of reciprocal prestations
A better definition is given by Sanchez Roman, who defines it as
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
As a consensual relation, a contract must be shown to exist as a
fact, clearly and convincingly
Other conventions; Although a contract is a convention, or
agreement of wills, not every convention is a contract; a
contract is limited to agreements which produce patrimonial
liabilities. Contracts, therefore, are distinguished from other
acts based on the consent of two or more persons such as
58 | P

LATON

marriage, donation, adoption, and succession, in the following

ways
1. A contract creates obligations which are more particular,
concrete and transitory, because it establishes a relation which
is more limited by reason of persons, effects, and importance
2. In contract, the freedom to stipulate predominates over
necessity of the act; in other words, the intentions of the
parties is the determining factor in contracts, while the meeting
of the minds is merely secondary in the other acts
3. The law is the principal source of rights and obligations in the
other acts mentioned but in contracts the law has a suppletory
effect
Other terms;
CONTRACT

Perfect Promise

The
latter
establishes
and
determines
the
obligations
arising
therefrom

Tends only to assure and

pave the way for the
celebration of a contract
in the future; until the
contract
is
actually
made, the rights and
obligations are not yet
determined

Pact
A special part of the
contract, sometimes
merely
incidental
and separable from
the
principal
agreement

Imperfect
Promise
Also designated
as
policitacion,
constitutes
a
mere unaccepted
offer

Stipulation
Similar to a pact. When the contract is
in an instrument, stipulation refers to
the essential and dispositive part, as
distinguished from the exposition of the
facts and antecedents upon which it is
based

Number of parties; The Code requires two persons for the

existence of a contract; obviously, what is meant by the law is
two parties. For a contract to exist, therefore, there must be
two parties to it
Auto-contracts; The existence of a contract is not determined
by the number of parties thereto; not by the number of
individual wills, but by the number of declarations of will. A
contract requires, not two persons, but two parties; not two
wills, but two declarations of will. The effective element is not
the formation of the will but in its declaration. In the autocontract, there are two declarations, although made by the
same person
Contracts of adhesion; There are cases in which one party has
already a prepared form of a contract, containing the
stipulations he desires, and he simply asks the other party to
agree to them if he wants to enter into the contract
Characteristics of Contracts:
1. Obligatory force - it constitutes the law as between the
parties
2. Mutuality - its validity and performance cannot be left to the
will of only one of the parties

Elements of Contracts:
1. The essential elements or those without which there can be
no contract; these are consent, subject matter, and cause
2. The natural elements or those which exist as part of the
contract even if the parties do not provide for them, because
the law, as suppletory to the contract, creates them; the
warranty against eviction in contract of purchase and sale is an
example
3. The accidental elements or those which are agreed upon by
the parties and which cannot exist without being stipulated
Stages of Contract:
1. Preparation, conception, or generation, which is the period
of negotiation and bargaining, ending at the moment of
agreement of the parties
2. Perfection or birth of the contract, which is the moment
when the parties come to agree on the terms of the contract
3. Consummation or death, which is the fulfillment or
performance of the terms agreed upon in the contract
Classification of Contracts:
1. According to the degree of dependence, into: preparatory,
such as agency; principal, such as lease or sale; and accessory,
such as pledge, mortgage, or suretyship
2. According to perfection, into: consensual, such as purchase
and sale; and real such as commodatum
3. According to solemnity or form, into: common form, such as
a loan; and special form, such as donations and mortgages of
immovable property
4. According to purpose, into: transfer of ownership, such as
sale or barter; conveyance of use, such as commodatum; and
rendition of service, such as agency
5. According to subject-matter, into: things, such as sale,
pledge, mortgage; and services such as deposit, agency, and
lease of services
6. According to nature of obligation produced, into: bilateral, or
sinalagmatico, such as purchase and sale; and unilateral, such
as commodatum or gratuitous deposit
7. According to cause, into: onerous, such as purchase and sale;
and gratuitous or lucrative, such as commodatum
8. According to risk, into: commutative, such as lease; and
aleatory, such as insurance
9. According to name, into: nominate, or those with particular
names, such as purchase and sale, lease, agency, etc; and
innominate, or those without any particular name. In the
Roman Law, the innominate contracts were classified into four
groups: do ut des (I give and you give), do ut facias (I give and
you do), facio ut facias (I do and you do), and facio ut des (I do
and you give)
________

3. Relativity - it is binding only upon the parties and their

successors
59 | P

LATON

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. (1255a)
________

in private law, that which is permanent and essential in

institutions, that which, even if favoring an individual to whom
the right pertains, cannot be left to his own will. It is a notion
which is manifested with clearness and force in cases of waiver
of right

Freedom to contract; The right to enter into lawful contracts

constitutes one of the liberties of the people of the state. If that
right be struck down or arbitrarily interfered with, there is a
substantial impairment of the liberty of the people under the
constitution

It may be said, in general, that a contract which is neither

prohibited by law not condemned by judicial decision, nor
contrary to public legislation or constitutional prohibition, is not
against public policy. In order to declare a contract void as
against public policy, a court must 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
________

Validity of stipulations; The contract is the law between the

contracting parties. And where there is nothing in the contract
which is contrary to law, morals, good customs, public policy, or
public order, the validity of the contract must be sustained
Compromises; The whole essence of a compromise is that by
making reciprocal concessions, the parties avoid litigation or
put an end to one already commenced. Such agreements must
not be contrary to law, good morals, public policy or public
interest. The court may not impose upon the parties a
judgment different from their compromise agreement. Once
approved by the court, the parties are enjoined to comply
strictly and in good faith with the agreement

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. (n)
________

Qualification of Contract; The law, not the parties, determines

the juridical situation created by the parties through their
contract and the rights and obligations arising therefrom. A
contract is to be judged by its character, and courts will look to
the substance and not to the mere form of the transaction

Do ut des (I give and you give) is an agreement in which A will

give one thing to B, so that B will give another thing to A

Limitations on stipulation; An act or a contract that is illegal per

se is one that by universally recognized standards is inherently
or by its very nature, bad, improper, immoral or contrary to
good conscience

Facio ut des (I do and you give) is an agreement in which A

binds himself to do something for B, so that B will give
something to A

Public order, which is found in the (old) Code, is not as broad as

public policy, as the latter may refer not only to public safety
but also to considerations which are moved by the common
good
Contrary to law; Freedom to contract is restricted by law for the
good of the public
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
Contrary to morals; Morals may be considered as meaning
good customs; or those generally accepted principles of
morality which have received some kind of social and practical
confirmation. Any contract which has an immoral purpose is
contrary to good customs
Contrary to public order; Pacts, clauses and conditions of a
contract which are contrary to public order are null and void.
Public order signifies the public weal--public policy. Public
policy is the English equivalent of order public in this article.
There is no difference in principle between public policy in
the United States and in the Philippines as determined by the
constitution, the laws, and judicial decisions
Public order, which does not here signify the material keeping
of public order, represents the public, social and legal interests

Innominate contracts; These are contracts which do not have

specific name. They can be grouped into four classes:

Do ut facias (I give and you do) is a contract under which A will

give something to B, in order that B may do something for A

Facio ut facias (I do and you do) is a convention whereby A is to

do something for B, so that B will render some other service for
A
Analogous contracts; Innominate contracts are, in the absence
of stipulations and specific provisions of law on the matter, to
be governed by the rules applicable to the most analogous
contracts
________
Art. 1308. The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them.
(1256a)
________
Mutuality of contract; The binding effect of the contract on
both parties is based on the principles (1) that obligations
arising from contracts have the force of law between the
contracting parties; and (2) that 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. The ultimate purpose is to render
void contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the
contracting parties
Unilateral cancellation; Just as anybody can be forced to enter a
contract, in the same manner once a contract is entered into,
no party can renounce it unilaterally or without the consent of
60 | P

LATON

the other. It is a general principle of law that no one may be

permitted to change his mind or disavow and go back upon his
own acts, or to proceed contrary thereto, to the prejudice of
the other party
The unilateral act of one party in terminating the contract
without legal justification makes it liable for damages
When stipulated; An agreement of the parties that either one
of them may terminate the contract upon a reasonable period
of notice, is valid. Judicial action for the rescission of a contract
is not necessary where the contract provides that it may be
revoked and cancelled for the violation of any of its terms and
conditions. The right of rescission may be waived
Express agreement; Under this article, it is perfectly licit to
leave the fulfillment of the contract to the will of either of the
parties in the negative form of rescission, a case which is
frequent in certain contracts, for in such case, neither is the
article violated, nor is there any lack of equality between the
persons contracting, since they remain with the same faculties
in respect to fulfillment. Thus, this article creates no
impediment to the insertion in a contract for personal services
permitting the cancellation of the contract by one of the parties
________
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. (n)
________
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. (n)
________
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. (1257a)
________
Parties bound by contract; Contracts produce effect as between
the parties who execute them
Third persons not bound; The rights of a party cannot be
prejudiced by the act, declaration, or omission of another, and
proceedings against one cannot affect another, except as
expressly provided by law or the Rules of Court. A contract
cannot be binding upon and cannot be enforced against one
who is not party to it, even if he is aware of such contract and
has acted with knowledge thereof
Third persons affected; Although contracts do not bind third
persons, juridical situations may be created affecting them.
Examples: (1) A contract creating a real right affects third

persons who may have some right over the thing (Article 1312).
(2) A contract may reduce the properties of a debtor thus
diminish the available security for the claims of creditors
(Article 1313). (3) In some cases, as in composition in insolvency
and in suspension of payments, certain agreements are made
binding by law on creditors who may not have agreed thereto.
Thus, one who is not a party to a contract cannot sue or be
sued for the performance or cancellation thereof, unless he has
a real interest affected thereby
Enforcement of contract; Only a party to the contract can
maintain an action to enforce the obligations arising under said
contract
Annulment of contract; Since a contract is binding only upon
the parties thereto, a third person cannot ask for its annulment,
although, of course, he may ask for its rescission if it is in fraud
of his rights. One who is not a party to a contract has no rights
under such contract, and even if the contract may be voidable,
its nullity can be asserted only by one who is a party thereto; a
third person would have absolutely no personality to ask for
the annulment
It was, however, held that a person who is not a party obliged
principally or subsidiarily in 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 the
detriment which would positively result to him from the
contract in which he had no intervention
Contracts bind heirs; As a general rule, rights and obligations
under a contract are transmitted to the heirs of the parties. The
heirs cannot be considered as third parties, because there is
privity of interest between them and their predecessors
Intransmissible contracts; Among contracts which are
intransmissible are those which are purely personal, either by
the provision of law, such as in cases of partnership and agency,
or by the very nature of the obligation arising therefrom, such
as those requiring special personal qualifications of the obligor.
It may also be stated that contracts for the payment of money
debts are not transmitted to the heirs of a party, but constitute
a charge against his estate
Stipulation for third parties; The second paragraph of this
article creates an apparent exception to the first. Under the
first paragraph, the cardinal rule of contract is laid down that
only parties thereto and their privies acquire rights and assume
obligations thereunder; while the second paragraph permits a
third person to avail himself of a benefit extended to him by its
terms
So stipulations in favor of third persons may be divided into two
classes: those where the stipulation is intended for the sole
benefit of such third person, and those where an obligation is
due from the promise to the third person and the former seeks
to discharge it by means of such stipulation
Requisites of article; The following are necessary for the
application of the second paragraph of this article:
1. There must be a stipulation in favor of a third person
2. That the stipulation in favor of a third person should be a
part, not the whole, of the contract
61 | P

LATON

3. That the contracting parties must have clearly and

deliberately conferred a favor upon a third person, not a mere
incidental benefit or interest
4. That the favorable stipulation should not be conditioned or
compensated by any kind of obligation whatever
5. That the third person must have communicated his
acceptance to the obligor before its revocation
6. Neither of the contracting parties bears the legal
representation or authorization of the third party.

otherwise, there is no meeting of the minds, and one of the

essential elements of a valid contract would be wanting
Rights of parties; Before acceptance by the third person, the
contracting parties, by mutual agreement, may modify the
contract or revoke it
After acceptance of the stipulation by the third person, and
there is failure of performance, he can sue either for specific
performance or resolution, with indemnity for damages, as
authorized by article 1191

Beneficiaries; A stipulation may validly be made in favor of

indeterminate persons, provided that they can be determined
in some manner at the time when the prestation from the
stipulation has to be performed

Dependence on contract; Since the right of the third person is

based directly on the contract, it is also subject to all the
defenses available against the contract, such as those affecting
the validity of the contract. Thus, the right of the third person
does not exist if the contract is void; it disappears if the
contract is annulled or dissolved, either by the happening of a
resolutory condition or by the exercise of the right of rescission
granted by article 1191

Test of beneficial stipulation; A mere incidental interest of a

third person is not within the doctrine of stipulations pour
autrui. The third person acquires a right to the prestation only
when this is in accordance with the intention of the contracting
parties, such as a contract between a foreign bank and a local
bank asking the latter to pay an amount to a beneficiary

Who may revoke; The right to revoke does not pertain simply
to the promisor. As a general rule, it pertains to the other
contracting party, or promise, who may exercise it without the
consent of the promisor. But it may be agreed that the
revocation should be implied when the latter has an interest,
even if moral, in the fulfillment of the promise

It is not every promise made by one to another, from the

performance of which a benefit may ensue to a third person,
which gives a right of action to such third persons, he being
neither privy to the contract nor to the consideration. The
contract must be made for his benefit as an object, and he must
be the party intended to be benefited

Collective contracts; There are cases where the law authorizes

the will of the majority to bind a minority to an agreement
notwithstanding the opposition of the latter, when all have a
common interest in the juridical act; these are commonly
known as collective contracts. The application of the principle
of collective contracts is limited to specific cases provided by
law, such as in suspension of payments, or in composition in
insolvency proceedings, or in collective bargaining by labor
organizations. The basis of the rule on collective contracts is
that a co-ownership is legally presumed among the persons
having a common interest; hence, the rule of the required
majority is imposed on the minority
________

Note: If the third party is represented, then the principles of

agency apply

Hence, to constitute a valid stipulation pour autrui, it must be

for the purpose and intent of the stipulating parties to benefit
the third person, and it is not sufficient that the third person
may be incidentally benefitted by the stipulation. So, the fairest
test, to determine whether the interest of third person in a
contract is a stipulation pour autrui or merely an incidental
interest, is to rely upon the intention of the parties as disclosed
by their contract. In applying this test, it matters not whether
the stipulation is in the nature of a gift or whether there is an
obligation owing from the promise to the third person. That no
such obligation exists may in some degree assist in determining
whether the parties intended to benefit a third person
Acceptance by third party; A stipulation in favor of a third
person has no binding effect in itself before its acceptance by
the party favored. Before such acceptance, there is legally no
obligor. Neither party to the contract can sue the other for
non-performance unless there has been an acceptance
The acceptance is optional to the third person; he cannot be
obliged to accept a right against his will. Such acceptance,
however, does not necessarily determine the moment when
rights are acquired by the third person; this moment depends
upon the terms of the stipulation, and the acceptance retroacts
to the moment intended by the parties to the contract
The ordinary rules of offer and acceptance are applicable, and it
is a cardinal rule of the law of contracts that in order to create a
binding agreement, the acceptance must be absolute,
unconditional, and identical with the terms of the offer;

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. (n)
________
Real rights in property; A real right directly affects property
subject to it; hence, whoever comes into possession of such
property must respect the real right. For example: A mortgages
his land to B, and then sells it to C. The mortgage contract
creates a real right over the property, and if duly registered, is
binding upon C, although the latter is not party to such
mortgage contract; C has to respect the mortgage in favor of B
________
Art. 1313. Creditors are protected in cases of contracts
intended to defraud them. (n)
________
When a debtor enters into a contract in fraud of his creditors,
such as when he alienates property gratuitously without leaving

62 | P

LATON

38

enough for his creditors , the latter, although not parties to

39
such contract of alienation, may ask for its rescission
________
Art. 1314. Any third person who induces another to violate his
contract shall be liable for damages to the other contracting
party. (n)
________
Interference by third persons; Under this article, a third person
may be held liable for damages because he has induced a party
to the contract to violate the terms thereof. An injured party
may recover damages for unlawful interference with the
contract by a third party
Malice in some form is generally supposed to be an essential
ingredient in cases of interference with contract relations. But
upon the authorities it is enough if the wrongdoer, having
knowledge of the existence of the contract relation, in bad faith
sets about to break it up. Whether his motive is to benefit
himself or gratify his spite by working mischief to the other
party to the contract, is immaterial. Malice in the sense of illwill or spite is not essential
The requisites of the action under this article are:
1. The existence of a valid contract
2. Knowledge of the third person of the existence of the
contract
3. Interference by the third person in the contractual relation
without legal justification
Extent of liability; Whatever may be the character of the
liability which a stranger to a contract may incur by advising or
assisting one of the parties to evade performance, such
stranger cannot become more extensively liable in damages for
non-performance of the contract than the party in whose
behalf he intermeddles. To hold the stranger liable for the
damages in excess of those that could be recovered against the
immediate party to the contract would lead to results at once
grotesque and unjust
Their liability should be solidary, because in so far as the third
person is concerned, he commits a tortuous act or a quasidelict, for which solidary responsibility arises
________
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. (1258)
________
Perfection of consensual contracts; The perfection of a contract
is the moment from which it exists; the juridical tie between
the parties arises from that time. Consensual contracts, to
which the present article refers, are perfected by mere consent
which is the meeting of the minds of the parties upon the terms
of the contract. The consent need not be made expressly

38
39

Art. 1387, Civil Code

Arts. 1177 & 1381, Civil Code

Formal contracts, traditionally understood to mean those in

which compliance with special external formalities is necessary
for the validity of the contract, are no longer recognized under
our law, as distinct from the consensual contracts
Binding effect of contracts; 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 stipulations it contains, and
the object involved. This extension is not determined by the
name which the contracting parties may have given to the
contract, for the exact qualification of a contract is one of the
limitations which are imposed on the liberty of the parties.
Contracts are not what the parties choose to call them, but
what they really are as determined by the principles of laws.
The validity of the stipulations is one thing, and the juridical
qualification of the contract resulting therefrom is very
distinctly another
________
Art. 1316. Real contracts, such as deposit, pledge and
Commodatum, are not perfected until the delivery of the object
of the obligation. (n)
________
Perfection of real contract; A real contract is not perfected by
mere consent; delivery of the thing is also required. The
requirement of the delivery of the object, in addition to the
consent, is neither arbitrary not formalistic, but is demanded by
the very nature of real contracts and their purpose. It is the
delivery of the object which forms the basic obligations under
the contract
________
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. (1259a)
________
Ratification necessary; Where a contract is entered into in
behalf of another who has not authorized it, such contract is
not valid and binding as against him, unless he ratifies the
transaction and is estopped to question its legality. The nullity
of such contract is of a permanent nature and it will exist as
long as it is not duly ratified. The mere lapse of time cannot
give efficacy to such contract. The defect is sich that it cannot
be cured except by the subsequent ratification of the person in
whose name the contract was executed
Express or implied; The ratification of an unauthorized contract
may be either express of implied
Effect retroactive; The ratification of a contract by the person in
whose name it has been entered into without authority,
validates the act from the moment of its celebration, and not
merely from the time of its ratification, for the ratification
operates upon or applies to the act already performed
63 | P

LATON

Before ratification; The unauthorized contract produces a state

of suspense; its effectivity depends upon its ratification. But
before such ratification by the person in whose name it was
entered into, the other party, as in cases of suspensive
conditions, may not do anything which would frustrate the
rights of the former which may arise in the event of ratification.
However, he may resolve the contract before the ratification,
by means of revocation communicated to the principal or to
the agent
Liability of representative; If the contract is not ratified by the
person represented, the representative becomes liable in
damages to the other party, if he did not give notice of the
absence or deficiency of his power. This liability is based on the
fact that having represented himself as having authority to act
for another, he is responsible for the truth of such affirmation.
The third party, however, is not entitled to damages, if he knew
or should have known that the authority does not exist
Under article 1897, an agent who exceeds the limits of his
authority without giving the other party sufficient notice of his
powers, becomes personally liable to the latter. This is
applicable also to cases of total want of authority, because the
ratio legis is the same
________

Chapter 2. Essential Requisites of Contracts - General

Provisions
Art. 1318. There is no contract unless the following requisites
concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261)
________
Parties to contract; There must be at least two parties to every
contract, and their capacity and consent are essential to its
existence. The number of parties, however, should not be
confused with the number of persons. A single person can
represent two parties, and one party can be composed of two
or more persons
Capacity of parties; The legal capacity of the parties is an
essential element for the existence of the contract. More
accurately, it is an indispensable condition for the existence of
consent, because there is no effective consent in law without
the capacity to give such consent. Because of this connection of
cause and effect between capacity and consent, the law does
not expressly enumerate the former as a separate requisite for
the validity of contracts; legal consent presupposes capacity
Want of consent; Consent is essential for the existence of a
contract, and where it is wanting, the contract is non-existent.
________

Section 1. - Consent
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. (1262a)
________
Concept of Consent; The essence of consent is the conformity
of the parties on the terms of the contract, the acceptance by
one of the offer made by the other; it is the concurrence of the
minds of the parties on the object and the cause which shall
constitute the contract. The area of agreement must extend to
all points that the parties deem material or there is no consent.
Where there is merely an offer by one party without an
acceptance by the other, there is no consent
Elements; 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
Forms of Consent; The consent may either be express or
implied. Not only is there an express and an implied or tacit
consent which produce true contracts, but there is also a
presumptive consent which is the basis of quasi-contracts, thus
giving rise to the multiple juridical relations which results in
obligations for the delivery of a thing or the rendition of a
service
Manifestation of Consent; Consent is manifested by the
concurrence of offer and acceptance with respect to the object
and the cause of the contract
Offer by One Party; An offer is a unilateral proposition which
one party makes to the other for the celebration of a contract.
It exists only if the contract can come into existence by the
mere acceptance by the offeree, without any further act on the
part of the offeror. It must, therefore, be definite, (2)
complete, and (3) intentional
Definite; The offer must be definite, so that upon acceptance
an agreement can be reached on the whole contract. The offer
must be distinguished from mere communications indicating
that a party is disposed to enter into a certain contract, or
inviting the other to make an offer
Complete; The offer must be complete, indicating with
sufficient clearness the kind of contract intended and definitely
stating the essential conditions of the proposed contract, as
well as the non-essential ones desired by the offeror. Thus, in a
contract of sale, the offer must specify the object and the price
Intentional; An offer without seriousness, made in such a
manner that the other party would not fail to notice such lack
of seriousness, is absolutely without juridical effects and cannot
give rise to a contract
But if by reason of the form or the circumstances surrounding
it, or because of the fault of the offeror, the offeree is induced
to take it seriously, it becomes necessary to determine whether
the real intention or the manifested intention should prevail. In
other legislations, like the German (article 118), such
declaration of will is considered void. In our Code, there is no
provision on the matter; but applying general principles, the
rule is acceptable in our law, and the act must be held void,
although the other party who has been led to believe it to be
64 | P

LATON

serious and intentional should be indemnified for the damages

he may suffer thereby
Mental Reservations; There is mental reservation when a party
makes a declaration but secretly does not desire the effects of
such declaration. It exists when the manifestation of the will is
made by one party for the purpose of inducing the other to
believe that the former intends to be bound, when in fact he
does not
The mental reservation of the offeror, unknown to the other,
cannot affect the validity of the offer
Acceptance by Offeree; An offer that is not accepted does not
give rise to consent, and the contract does not come into
existence. Thus, where it appears that the offeree not only did
not accept, but rejected the offer, no contract was created
To produce a contract, the acceptance must not qualify the
terms of the offer
It is necessary that the acceptance be unequivocal and
unconditional, and the acceptance and the proposition shall be
without any variation whatsoever; and any modification or
variation from the terms of the offer annuls the latter and frees
the offeror
Amplified Acceptance; Under certain circumstances, a mere
amplification on the offer must not be understood as an
acceptance of the original offer, plus a new offer which is
contained in the amplification
The intent of the offeree, however, controls
Complex Offers; In cases where a single offer involves two or
more contracts, the perfection where there is only partial
acceptance will depend upon the relation of the contracts
between themselves, whether due to their nature, or due to
the intent of the offeror
Simultaneous Offers; As a rule, the offer and the acceptance
must be successive in order that a contact may arise. One of
the parties to the future contract should take the initiative in
40
making an offer. Although there is opinion to the contrary,
when there are crossed offers, no contract is formed unless one
of the parties accepts the offer received by him. The
acceptance may, however, be inferred from the failure of either
party to immediately reject the offer of the other. Before
acceptance, either party may still revoke his own offer
Successive Agreements; A contract may be so complicated that
the parties come to agreement on certain points at different
successive stages
It should be noted that the present article of the Code requires
the concurrence of offer and acceptance only as to the thing
and the cause which are to constitute the contract, and not as
to all matters. We believe that the intention of the parties
should control
If the intention of one or both parties is that there be
concurrence on all points, the contract is not perfected if there
is a point of disagreement, even if there is already agreement
40

on the essential elements of the contract. Thus, in a contract of

sale, the parties may have already agreed on the thing and the
price, but not on who should bear the expenses of
transportation of the thing upon delivery; if either or both
parties have declared that there must be agreement on this
point, the contract is not yet perfected
If there is no declaration that agreement on an accessory or
subordinate matter is necessary, the contract will be perfected
as soon as there is concurrence on the object and the cause.
The regulation of the accessory points will then be determined
by future agreement, and, if there is no agreement thereon, by
the general rules established by law for the particular case in
the absence of agreement, such as the place of performance,
expenses for the delivery of the thing etc
Knowledge of Offeror; Even if there has been an unconditional
acceptance of the offer by the offeree, no contract will arise
unless that acceptance is made known to the offeror. Unless
the offeror knows of the acceptance, there is no meeting of the
minds of the parties, no real concurrence of offer and
acceptance. This rule is expressly recognized in the second
paragraph of this article with respect to acceptance by letter.
The same rule should apply in case of acceptance by telegram,
cable or even by telephone, although in the last case, the
contract may generally be considered as between persons
present
Through Intermediaries; An intermediary who has no authority
to contract, but is limited to the transmittal of the offer, the
acceptance, or both, may be treated in the same light as the
mail service. If he carries the offer and the acceptance in
written form, the rule applicable to acceptance by letter will
apply. If he carries the offer verbally, and the acceptance is also
verbal, the perfection of the contract will be at the moment he
makes the acceptance known to the offeror
By Correspondence; When the offer to buy was written or
prepared in Tokyo, Japan, and the acceptance thereof in Manila
was sent by the offeree by airmail to and received by the
offeror in Tokyo, the contract is presumed to have been
entered into in Tokyo. Where the offeror delays in bad faith
taking cognizance of the acceptance, by not reading or opening
the letter of acceptance although he can do so, the contract
must be considered perfected. It cannot have been the
intention of the law to leave the perfection of the contract to
the caprice of the offeror; the perfection must take place as
soon as the will of the parties concur
By Telephone; A contract entered into by telephone is deemed
to have been made between persons present. It is considered
as entered into at the place where the offer was made
Effect of Silence; Whether or not silence can be considered as
an expression of the will, depends upon the circumstances
Modern jurists require the following in order that silence
produce the effect of tacit acceptance: (1) that there is a duty
or the possibility to express oneself; (2) That the manifestation
of the will cannot be interpreted in any other way; (3) that
there is a clear identity in the effect of the silence and the
undisclosed will

Each offer can be considered as an acceptance of the other

65 | P

LATON

Our Code does not have an express provision on the juridical

effect of silence; hence, its effect depends upon what has been
stipulated, or on specific legal provision, or on mercantile usage
In the Code, however, we can find express provisions on
consent deduced from silence. Thus, under article 1670 a
contract of lease may be renewed by the acquiescence of the
lessor to the continuation of the enjoyment of the thing leased
for fifteen days after the expiration of the original period of
lease. Under articles 1870 to 1873, acceptance of an agency
may be implied from the silence of the agent under certain
circumstances
Applicable Doctrines; The following principles have been
developed in French jurisprudence, and, with slight variations
by writers, have been recognized as acceptable doctrines:
1. As between persons present: If the silence is entirely
unconnected with any fact, there can be no contract
2. As between persons absent: If there has been no antecedent
relation between the parties, silence will not give rise to a
contract
Withdrawal of Offer; Both the offer and the acceptance can be
revoked before the contract is perfected. Since the contract is
perfected only from the time the acceptance is known to the
offeror, it is clear that said offeror may withdraw his offer at
any time before he learns of the acceptance, even if such
acceptance has already been made, but not made known to
him. At that time there is as yet no contract, and the
withdrawal of the offer cannot legally give rise to any injury or
damage which he would be bound to repair

criminal, the return of a lost object, the winning of a contest, or

the giving of information about a missing person
There are two theories as to the juridical nature of such
promise: (1) that of an obligatory unilateral promise sufficient
to create a valid legal tie, and (2) that of an offer which gives
rise to a contract upon acceptance. Under the first theory, the
reward can be recovered by one who performs the desired act,
even when he did not do it in consideration of the promise;
while under the second theory, a binding obligation arises only
when the act is done with the intention of accepting the
promise
In principle, there is no objection to giving obligatory force to
such a unilateral declaration of the will with intent to be bound.
The basis of the obligation is exclusively and directly the
declaration of the promissor
Our Code, however, gives only the five sources of obligations
enumerated in article 1157. A unilateral promise is not
recognized by our Code as having obligatory force. In order that
such promise can be enforced, there must be an acceptance
that will convert it into a contract. The performance of the act
for which a reward or prize is promised can be considered as an
acceptance. This is the rule in this jurisdiction, except as to
things for sale
A revocation must be made with the same publicity as the offer
itself, and expenses after such revocation are not recoverable
against the offeror. But when the act has already been
accomplished, a subsequent revocation is ineffective, because
the contract would already have been formed
In Serra v. Court of Appeals, 229 SCRA 60, the Court said:

If the revocation is made in abuse of right, the other party may

recover damages he may have suffered, in the belief that the
contract would be perfected
Lapse of Time; An offer without a period must be considered as
becoming ineffective after the lapse of more than the time
necessary for its acceptance, taking into account the
circumstances and social conditions
Revocation of Acceptance; The acceptance may be revoked
before it comes to the knowledge of the offeror. Thus, where
the offeree has sent his acceptance, but then sends a rejection
or a revocation of the acceptance, which reaches the offeror
before the acceptance, there is no meeting of the minds,
because the revocation has cancelled or nullified the
acceptance which thereby ceased to have any legal effect
New Contract before Acceptance; Pending the acceptance of an
offer, the offeror can perfect a new contract over the same
thing with another person. If the first offer is not revoked by
him before it is accepted, then he becomes liable for damages
to the first offeree for culpable impossibility of performance. As
between the two offerees, however, the one whose acceptance
perfected a contract first is given priority; the other party has
only an action for damages
Public Offers; A promise may be made publicly by advertising a
reward, compensation or prize for any person who performs or
executes a particular act or obtains a particular result, such as
the making of a scientific discovery, the perfection of an
invention, the discovery of a crime, the apprehension of a

Article 1324 of the Civil Code provides that when an offeror

has allowed the offeree a certain period to accept, the offer
maybe withdrawn at anytime before acceptance by
communicating such withdrawal, except when the option is
founded upon consideration, as something paid or promised.
On the other hand, Article 1479 of the Code provides that an
accepted unilateral promise to buy and sell a determinate thing
for a price certain is binding upon the promisor if the promise is
supported by a consideration distinct from the price.
In a unilateral promise to sell, where the debtor fails to
withdraw the promise before the acceptance by the creditor,
the transaction becomes a bilateral contract to sell and to buy,
because upon acceptance by the creditor of the offer to sell by
the debtor, there is already a meeting of the minds of the
parties as to the thing which is determinate and the price which
is certain. In which case, the parties may then reciprocally
demand performance.
Jurisprudence has taught us that an optional contract is a
privilege existing only in one party the buyer. For a separate
consideration paid, he is given the right to decide to purchase
or not, a certain merchandise or property, at any time within
the agreed period, at a fixed price. This being his prerogative,
he may not be compelled to exercise the option to buy before
the time expires.
In Ang Yu Asuncion v. Court of Appeals, 238 SCRA 602, the
Court said:
66 | P

LATON

Until the contract is perfected, it cannot, as an independent

source of obligation, serve as a binding juridical relation. In
sales, particularly, to which the topic for discussion about the
case at bench belongs, the contract is perfected when a person,
called the seller, obligates himself, for a price certain, to deliver
and to transfer ownership of a thing or right to another, called
the buyer, over which the latter agrees.
When the sale is not absolute but conditional, such as in a
"Contract to Sell" where invariably the ownership of the thing
sold is retained until the fulfillment of a positive suspensive
condition (normally, the full payment of the purchase price),
the breach of the condition will prevent the obligation to
convey title from acquiring an obligatory force. In Dignos vs.
Court of Appeals (158 SCRA 375), we have said that, although
denominated a "Deed of Conditional Sale," a sale is still
absolute where the contract is devoid of any proviso that title is
reserved or the right to unilaterally rescind is stipulated, e.g.,
until or unless the price is paid. Ownership will then be
transferred to the buyer upon actual or constructive delivery
(e.g., by the execution of a public document) of the property
sold. Where the condition is imposed upon the perfection of
the contract itself, the failure of the condition would prevent
such perfection. If the condition is imposed on the obligation of
a party which is not fulfilled, the other party may either waive
the condition or refuse to proceed with the sale (Art. 1545, Civil
Code).
An accepted unilateral promise which specifies the thing to be
sold and the price to be paid, when coupled with a valuable
consideration distinct and separate from the price, is what may
properly be termed a perfected contract of option.
Where a period is given to the offeree within which to accept
the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to
withdraw the offer before its acceptance, or, if an acceptance
has been made, before the offeror's coming to know of such
fact, by communicating that withdrawal to the offeree. The
right to withdraw, however, must not be exercised whimsically
or arbitrarily; otherwise, it could give rise to a damage claim
under Article 19 of the Civil Code;
(2) If the period has a separate consideration, a contract of
"option" is deemed perfected, and it would be a breach of that
contract to withdraw the offer during the agreed period. The
option, however, is an independent contract by itself, and it is
to be distinguished from the projected main agreement
(subject matter of the option) which is obviously yet to be
concluded. If, in fact, the optioner-offeror withdraws the offer
before its acceptance(exercise of the option) by the optioneeofferee, the latter may not sue for specific performance on the
proposed contract ("object" of the option) since it has failed to
reach its own stage of perfection. The optioner-offeror,
however, renders himself liable for damages for breach of the
option. In these cases, care should be taken of the real nature
of the consideration given, for if, in fact, it has been intended to
be part of the consideration for the main contract with a right
of withdrawal on the part of the optionee, the main contract
could be deemed perfected; a similar instance would be an
"earnest money" in a contract of sale that can evidence its
perfection (Art. 1482, Civil Code).

Even on the premise that such right of first refusal has been
decreed under a final judgment, like here, its breach cannot
justify correspondingly an issuance of a writ of execution under
a judgment that merely recognizes its existence, nor would it
sanction an action for specific performance without thereby
negating the indispensable element of consensuality in the
perfection of contracts. It is not to say, however, that the right
of first refusal would be inconsequential for, such as already
intimated above, an unjustified disregard thereof, given, for
instance, the circumstances expressed in Article 19 of the Civil
Code, can warrant a recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be
stressed, has merely accorded a "right of first refusal" in favor
of petitioners. The consequence of such a declaration entails no
more than what has heretofore been said. In fine, if, as it is
here so conveyed to us, petitioners are aggrieved by the failure
of private respondents to honor the right of first refusal, the
remedy is not a writ of execution on the judgment, since there
is none to execute, but an action for damages in a proper forum
for the purpose.
________
Art. 1320. An acceptance may be express or implied. (n)
________
Implied Acceptance; Implied acceptance 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 facts of
immediately carrying out the contract offered. If the offeror
asks for immediate performance of the contract and does not
ask for a previous answer of acceptance (the necessity of which
may sometimes be excluded by general commercial usage), the
contract is perfected as soon as the other party begins to carry
it out
Waiver of Acceptance; The German code (article 151) permits
the offeror to waive the declaration of acceptance, and in such
case, as well as when according to usage of commerce such
declaration need not be expected, the contract is perfected
from the moment the intention to accept can be inferred from
the conduct of the offeree and according to the usages of
commerce. This rule can be accepted under our Code
Effect of Silence; As a rule, silence is not equivalent to consent,
but there are specific legal provisions which make silence,
under certain circumstances, amount to consent. Silence of a
party may constitute a manifestation of the will. There is a
Spanish saying quien calla otorga. But this cannot be
accepted without qualification in law. Silence, because of its
ambiguity, lends itself to error, but there may be circumstances
where silence may be as eloquent as the express manifestation
of the will
________
Art. 1321. The person making the offer may fix the time, place,
and manner of acceptance, all of which must be complied with.
(n)
________
Right of Offeror; The owner of property offered for sale at
auction has the right to prescribe the manner, conditions and
terms of sale, and where these are reasonable and are made
known to the buyer, they are binding upon him, and he cannot
67 | P

LATON

acquire a title in opposition to them and against the consent of

the owner
Period of Acceptance; The offer with a period lapses upon the
termination of the period; hence, the acceptance, to become
effective, must be known to the offeror before the period
lapses. An acceptance made beyond the time fixed in the offer
is not legally an acceptance, but constitutes a new offer, and
may be accepted or rejected by the original offeror
Manner of Acceptance; The offeror may require that the
acceptance be communicated to him personally or to a
representative of his; or that a certain condition be first fulfilled
before the offeree can accept; or where two offers are made
simultaneously, that only one must be accepted (as the offer of
a thing for sale or for lease), or that not must be accepted. An
acceptance which is not made in the manner prescribed by the
offeror is not effective, but constitutes a counter-offer which
the offeror may accept
________

circumstances, how long will it take the letter of the offeror to

reach the offeree? (2) How long will a person of ordinary
prudence take to answer such an offer? (3) How long will the
answer normally reach the offeror? This period will, of couse,
vary according to the circumstance
Withdrawal of Offer; The law permits the offeror to withdraw
the offer at any time before acceptance, even before the period
for acceptance has expired. The fact, however, that the offeror
has the right to withdraw his offer before it is accepted, does
not mean that he can exercise this right absolutely without
regard to the rights of others. He cannot abuse this right
without incurring liability
An 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 or not. If the offeror disregards this
right of the offeree and arbitrarily revokes the offer, he must be
held liable for the damages which the offeree may suffer

Art. 1322. An offer made through an agent is accepted from the

time acceptance is communicated to him. (n)
________

This conclusion is strengthened in this jurisdiction by article 19

of the present Code, which provides: Every person must, in the
exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observed honesty and
good faith

Contract through Intermediary; An intermediary who has no

power to bind either the offeror or the offeree is not an agent;
his situation is similar to that of a letter carrier. The
communication of the acceptance to him does not perfect the
contract; this occurs only when he in turn communicates such
acceptance to the offeror
________

Although the offeror may be held liable for damages because of

abuse of right, however, the withdrawal of the offer will cause
it to cease in law. Hence, notwithstanding a subsequent
acceptance, there will be no contract, because there can be no
concurrence of wills

Art. 1323. An offer becomes ineffective upon the death, civil

interdiction, insanity, or insolvency of either party before
acceptance is conveyed. (n)
________
Reason for Article; It is fundamental in our law that the contract
is not perfected except by the concurrence of two wills which
exist and continue until the moment that they concur. The
contract is not yet perfected at any time before acceptance is
conveyed; hence, the disappearance of either party or his loss
of capacity before perfection prevents the contractual tie from
being formed
________
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, as something
paid or promised. (n)
________
Period of Acceptance; When the offeror has stated a fixed
period for acceptance, the offeree may accept 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. But when the offer is made to a person
absent, the acceptance may be made within such time that,
under normal circumstance, an answer can be received from
him. There is deemed to be a reasonable tacit period, which is
the time normally necessary to enable the offeree to know of
the proposal and to make known his reaction. To determine
this period, three points must be considered: (1) Under normal

Crossing Revocation and Acceptance; The general rule is that

the expression of the will of a person, addressed to another,
does not become effective except from the time it is received
by the latter. The following distinction, however, may be made:
1. If the intention of the parties is not to demand an express
acceptance, the tacit acceptance perfects the contract, and the
subsequent receipt of a letter of revocation is ineffective
2. If the parties intended that there should be an express
acceptance, the contract will be perfected if the acceptance is
the first to reach the offeror; and it will not be perfected, if the
revocation is the first and the acceptance cross, that which
arrives first as its destination is effective
Effect of Delay; It is not the moment of sending but the time of
receipt of the revocation or acceptance which is controlling
Contract of Option; This is 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. It must be supported by an independent
consideration, and the grant must be exclusive. It binds the
party who has given the option not to enter into the principal
contract with any other person designated, and, within that
period, to enter into such contract with the one to whom the
option was granted if the latter should decide to use the option
If the option is not supported by an independent
consideration, the offeror can withdraw the privilege at any
time by communicating the withdrawal to the other party, even
if the option had already been accepted. This is particularly so
in a promise to buy or to sell, for under article 1279. an
68 | P

LATON

accepted unilateral promise to buy or to sell a determinate

thing for a price is binding upon the promissor if the promise is
supported by a consideration distinct from the price. This
means that the option can still be withdrawn, even if accepted,
if the same is not supported by any consideration
________
Art. 1325. Unless it appears otherwise, business advertisements
of things for sale are not definite offers, but mere invitations to
make an offer. (n)
________
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
When the advertisement does not have the necessary
specification of essential elements of the future contract, it
cannot constitute an offer. Thus, an advertisement of things for
sale, specifying prices but without stating the quantity of things
to be sold, is not an offer but a mere invitation to make an
offer. The advertiser is free to reject any offer that may be
made
Definite Offers to Public; Generally, an offer must be made to
the person with whom a contract is desired. It is not necessary,
however, that the offeror should know the person who receives
his offer. A valid offer to the public can be made. One who
installs a slot machine makes an offer to the public, and the
offer becomes a contract with any person who puts in the
necessary coin. A merchant who places articles for sale in his
store, with a price tag on each, makes an offer to the public,
and anyone can accept the offer by paying the priced fixed
________
Art. 1326. Advertisements for bidders are simply invitations to
make proposals, and the advertiser is not bound to accept the
highest or lowest bidder, unless the contrary appears. (n)
________
Effect of Bidding; When in the advertisement it can be inferred
with certainty that the best bid (highest or lowest, as the case
may be) will be considered as giving rise to a binding contract,
each bid will imply the perfection of a contract, although
subject to the condition that no better bid is made. If this is not
especially provided in the advertisement, then each bid is
merely an offer, which the advertiser is free to reject
Thus, where the notice calling for bids a public auction
indicated that the party offering the property at an auction
expressly reserved the right to reject any and all bids, it was
held that any party taking part in the auction and offering a bid,
must be considered as having submitted to the terms of the
auction, and, if his bid is rejected, he cannot compel the party
who called for bids to accept his bid or execute a deed of sale in
his favor
Judicial Sales; This provision is not applicable to bids in judicial
sales, where the highest bid must necessarily be accepted
________
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. (1263a)
________
Effect of Incapacity; Article 1318 requires consent of the
contracting parties as an essential element for the validity of a
contract, and the present article says that the persons indicated
cannot give consent to a contract. The logical consequence is
that a contract entered into by one of these persons would be
wanting in consent, and hence inexistent or void. This logical
consequence, however, is not the legal effect. Legally, if both
parties are incapable of giving consent, the contract is
unenforceable, and if only one is incapable, it is annullable or
voidable
By way of exception, however, it is provided by the Code that
where necessaries are sold and delivered to a minor or other
person without capacity to act, he must pay a reasonable price
therefor. Necessaries include everything that is indispensable
for sustenance, dwelling, clothing and medical attendance
Unemancipated Minors; Unemancipated minors cannot enter
into valid contracts, and contracts entered into by them are not
binding upon them, unless upon reaching majority they ratify
the same, or the contract has been entered into through a
guardian and approved by the guardianship court. But the mere
fact that one of the parties to the contract was a minor does
not necessarily render it void ab initio, but merely voidable
Estoppel; The courts have laid down the rule that the sale of
real estate, effected by minors who have already passed the
age of puberty and adolescence and are near the adult age,
when they pretend to have already reached their majority,
while in fact they have not, is valid, and they cannot be
permitted afterwards to excuse themselves from compliance
with obligations assumed by them or seek their annulment.
This is in consonance with the rules of estoppel, and does not
violate the rules regarding the sale of property of minors
However, there is strong authority, with sound juridical
resoning, to the effect that the misrepresentation of an
incapacitated person does not estop him from denying that he
was of age, or from asserting that he was under age, at the
time he entered into the contract, for the breach of which an
action is brought. In Young v. Tecson, 39 O.G. 953, it was held:
Under the principle of estoppel, the liability resulting from
misrepresentation has its juridical source in the capacity of the
person making the misrepresentation to bind himself. If the
person making the misrepresentation cannot bind himself by
contract, he cannot also be bound by any misrepresentation he
may have made in connection therewith. A person entering
into a contract must see to it that the other party has sufficient
capacity to bind himself."
In his concurring and dissenting opinion in Sia Suan and Chiao v.
Alcantara, Mr. Justice Padilla lucidly points out:
The contract of sale involved in the case of Mercado vs.
Espiritu, supra, was executed by the minors on 17 May 1910.
The Law in force on this last-mentioned date was not Las Siete
Partidas, which was the in force at the time the cases decided
by the Supreme Court of Spain referred to, but the Civil Code
which took effect in the Philippines on 8 December 1889. As
already stated, the Civil Code requires the consent of both
69 | P

LATON

parties for the valid execution of a contract (art. 1261, Civil

Code). As a minor cannot give his consent, the contract made
or executed by him has no validity and legal effect. There is no
provision in the Civil Code similar to that of Law 6, Title 19, of
the 6th Partida which is equivalent to the common law
principle of estoppel. If there be an express provision in the
Civil Code similar law 6, Title 19, of the 6th Partida, I would
agree to the reasoning of the majority. The absence of such
provision in the Civil Code is fatal to the validity of the contract
executed by a minor. It would be illogical to uphold the validity
of a contract on the ground of estoppel, because if the contract
executed by a minor is null and void for lack of consent and
produces no legal effect, how could such a minor be bound by
misrepresentation about his age? If he could not be bound by a
direct act, such as the execution of a deed of sale, how could he
be bound by an indirect act, such as misrepresentation as to his
age? The rule laid down in Young vs. Tecson, 39 O. G. 953, in my
opinion, is the correct one.
Insane Persons; It is not necessary that there be a previous
judicial declaration of mental incapacity in order that a contract
entered into by a mentally defective person may be annulled; it
is enough that the insanity existed at the time the contract was
made. In case of lunatics, it is possible that there are lucid
intervals, and a contract executed during such interval will be
valid
Deaf-Mutes; Being a deaf-mute is not by itself alone a
disqualification for giving consent. The law refers to the deafmute who does not know how to write. The old doctrine that a
deaf-mute was presumed to be an idiot no longer prevails, and
such persons are now held capable of entering into contracts if
shown to have sufficient mental capacity
________
Art. 1328. Contracts entered into during a lucid interval are
valid. Contracts agreed to in a state of drunkenness or during a
hypnotic spell are voidable. (n)
________
Lucid Intervals; Even in the execution of contracts, in the
absence of a statute to the contrary, the presumption of
insanity and mental incapacity in a person under guardianship
for mental derangement is only prima facie and may be
rebutted by evidence
Liquor and Drugs; The use of intoxicants does not necessarily
mean a complete loss of understanding. The same may be said
regarding drugs
It is, therefore, the result of the use of alcohol or drugs upon
the condition of the mind which determines whether the user
has capacity to contract at a given moment; the mere use in
itself does not incapacitate him. It has been held that
drunkenness, if in such degree that obscures completely the
faculties and almost extinguishes the consciousness of acts,
may be a ground for annulment of a contract
Hypnotism and Somnambulism; Although the law mentions
only hypnotism as avoiding a contract, the same is true of
somnambulism. The utter want of understanding is a common
element of both
________

Art. 1329. The incapacity declared in Article 1327 is subject to

the modifications determined by law, and is understood to be
without prejudice to special disqualifications established in the
laws. (1264)
________
Special disqualification; Aside from lack of contractual capacity,
certain disqualifications may be specially provided by law to
invalidate contracts. Examples of these are: the incapacity of a
person declared insolvent or bankrupt, prohibition of aliens
from acquiring real property, and the incapacity of the husband
and the wife to sell property to each other
There is a distinction between the incapacity to give consent to
contracts, and the special disqualification to enter into
contracts. The incapacity is a restriction upon the very right
itself. The incapacity renders the contract merely voidable,
while the disqualification makes it void
________
Art. 1330. A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is voidable.
(1265a)
________
Requisites of Consent:
1. It should be intelligent, or with exact notion of the mater to
which it refers
2. It should be free
3. It should be spontaneous
Intelligence in consent is vitiated by error; freedom by violence,
intimidation, or undue influence; and spontaneous by fraud
Vitiated consent does not make a contract unenforceable but
merely voidable
Defects of the Will; The circumstances mentioned in this article
are generally known as defects of the will
Discretion of Courts; In determining whether consent is vitiated
by any of the circumstances mentioned in this article, courts
are given a wide latitude in weighing the facts or circumstances
in a given case and in deciding in favor of what they believe to
have actually occurred, considering the age, physical infirmity,
intelligence, relationship, and the conduct of the parties at the
time of making the contract and subsequent thereto,
irrespective of whether the contract is in a public or private
writing
Proof Necessary; Defect or lack of valid consent, in order to
make the contract voidable, must be established by full, clear,
and convincing evidence, and not merely by a preponderance
thereof
________
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.

70 | P

LATON

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.
(1266a)
________
Concept of Error; Ignorance and error are two different states
of mind. Ignorance means the complete absence of any notion
about a particular matter, while error or mistake means 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. Juridically, however, ignorance and mistake
produce the same effect
In the concept of error under this article must be included both
ignorance, which is the absence of knowledge with respect to a
thing, and mistake properly speaking, there is a lack of full and
correct knowledge about the thing. But error should not be
considered as established, when alleged error is
incomprehensible, absurd, and inexplainable in a person with
capacity to contract
Mistake of Fact or Law; It is generally believed that the error to
which this article refers, which vitiates consent in contracts, is
an error of fact, and not of law. The latter kind of error is not a
ground for annulment of contracts. An error of law is a mistake
as to the existence of a legal provision or as to its interpretation
or application. Under article 3 of the Code, ignorance of the
law excuses no one from compliance therewith
Our Supreme Court has accepted the doctrine that excusable
ignorance of law can be the basis of good faith in possession.
There is essentially to difference between good faith arising
from ignorance of law and consent based on mistake of law. In
both cases, the mind rests or relies upon an erroneous concept
of the state of the law
#1

As to Object; Annulment of contract on the ground of error is

limited to cases in which it may reasonably be said that without
such error the consent would not have been given. Hence, the
error must refer to the substance of the thing, by which is
meant not only the material of which it is made up, but also in
general its nature which distinguishes it, generically or
specifically, from others
Nature of Contract; The error may refer to the very nature of
the contract, in which case it is an essential mistake, because it
is one which has a determining influence upon the will of the
party
Where the error refers, not to the nature of the contract or the
object thereof, but to the rights of the parties thereto, the
contract is not invalidated
#2

Principal Conditions; The principal condition of the thing is its

essential or substantial character, without which the thing
ceases to be what it is. The substance of the thing refers to
those qualities which determine its particular kind,
distinguishing it, according to common concept, from other
things
However, where the real intention of the parties is the sale of a
piece of land but there is a mistake in designating the particular

lot to be sold in the document, the mistake does not vitiate the
consent of the parties, or affect the validity and binding effect
of the contract. The reason is that when one sells or buys real
property, he 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. The
remedy for such mistake in designating the object of the sale is
reformation of the instrument. This remedy is available when,
there being a meeting of the minds of the parties to a contract
Accidental, Accessory Conditions; In contrast to the essential or
principal conditions, are the accidental conditions or qualities,
which may exist in varying proportions, without the thing
ceasing to be what it is
Thus, the following mistakes do not in any manner affect the
validity of the contract: (1) error with respect to accidental
qualities of the object of the contract, such as the quality of
paper of a book(2) error in the value of the thing(3) error
which refers, not to the conditions of the thing, but to
accessory matters on the contract foreign to the determination
of the object
Effect of Intent; The effect of error must be determined largely
by its influence upon the party. If the party would have entered
into the contract even if he had knowledge of the true fact,
then the error does not vitiate consent. The importance and
effect of the error, therefore, depends to a great extent upon
the purposes to be attained by the contract. The law must be
interpreted broadly, bearing in mind that the intent of the
parties is what constitutes contractual obligations. Thus, there
are cases where the substance or condition of the thing would
be essential to the contract, and others where they are not
#3

Error As to Person; There may be error as to the name of the

person, or as to the qualifications of the person. An error in the
name, without error as to person, will not invalidate the
consent. An error as to person will invalidate consent when the
consideration of the person has been the principal cause of the
same. This is 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 principal cause of the contract. The proof of such mistake
is difficult, but if established it also produces effect
An error as to the person will generally invalidate consent in
gratuitous contracts, because affection, relationship, friendship
and gratitude are determining causes of the act of liberality. It
will also invalidate consent in onerous contracts where the
artistic or intellectual qualifications, moral character or
integrity, and other personal qualities of a party are the
determining cause f the consent of the other
But where the identity of the other party is not material to the
contract, an error as to person will not vitiate consent
No absolute rule, however, can be laid down, because the
effect of the error will always depend upon the extent to which
it has influenced the consent, considering the nature of the
contract in question
Solvency of the Party; An error as to the solvency of the other
party is not a cause of nullity
71 | P

LATON

Motive of Party; A mistake as to the motive of a party does not

affect the contract; to give it such effect, would destroy the
stability of contractual relations
#4

Error As to Accounts; An error of account is purely a mistake

in computation; it is a mathematical error. It does not vitiate
consent, but the intention of the parties is to accept the
amount or quantities involved as they should be and not as
what they were erroneously computed to be
Account and Quantity; There is a difference between mistake as
to account and mistake as to quantity
Correction of Accounts; Once there has been a liquidation of
accounts between two parties, and the accounts have been
approved by those affected thereby, no revision or correction
of said accounts may be made at the instance of only one party,
unless it is proved that there was fraud or error in the approval
of said accounts. The burden of proving such deceit or error lies
upon the party seeking the revision. But once the error has
been proved, the accounts cannot be enforced as approved,
but as it should have been without the mistake
Error As to Basis of Contract; A mistake as to the existence of
some circumstances or the occurrence of some event, which
exerted a determining influence in the creation of the contract,
so that the contract would not have been entered without it,
constitutes an error in the basis of the contract. This is an error
not expressly provided for by law. This mistake refers to
circumstances which must be considered as the basis of the
contract, circumstances which the parties take for granted as
existing, and which for both have an equal importance,
affecting some essential element of the contract. It would be
contrary to good faith for one party to enforce such a contract
against the other
As to Estimates; Mistakes in estimating the results of a contract
cannot vitiate consent, unless they were induced by fraud or
deceit. Error incurred by one party in estimating the benefits
from the contract, such as overestimating the income and
underestimating the expenses, is not a cause of nullity, because
it does not refer to any element of the contract itself
Error in Unilateral Decision; When the error of a party is not in
relation to the contract, but in the decision unilaterally
adopted, he cannot demand responsibility from the persons
who may have acted according to his decision. He who adopts a
decision by himself suffers the corresponding risks
Liability for Error; There is no provision in our Code making the
party in error liable for damages which the other party may
have suffered by relying on his declaration. However, such
liability can be base on the theory of fault or negligence
________
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.
(n)
________
Fraud or Mistake Alleged; The rule that a party is presumed to
know the import of a document to which he affixes his

signature and is bound thereby, has been altered by the

present article
Under this article it has been held that the obligation to show
that the terms of the contract had been fully explained to the
party who is unable to read or understand the language of the
contract, when fraud or mistake is alleged, devolves on the
party seeking to enforce it
________
Art. 1333. There is no mistake if the party alleging it knew the
doubt, contingency or risk affecting the object of the contract.
(n)
________
Inexcusable Error; To invalidate consent, the error must be
excusable. It must be real error, and not one that could have
been avoided by the party alleging it. The error must arise from
facts unknown to him. He cannot allege an error which refers to
a fact known to him, or which he should have known by
ordinary diligent examination of the facts. 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.
A mistake that is caused by manifest negligence cannot
invalidate a juridical act. In determining the effect of an alleged
error, therefore, the courts must consider, not only the
objective aspect of the case, but also the subjective, which is
the intellectual capacity of the person who committed the
mistake
________
Art. 1334. Mutual error as to the legal effect of an agreement
when the real purpose of the parties is frustrated, may vitiate
consent. (n)
________
Error of Law; Mistake of law is traditionally considered as
having a different effect from mistake of fact in relation to
consent in contracts. The modern tendency, is to give to
mistakes of law the same effects as mistakes of facts. It is
believed that in spite of the provisions of article 3 of the
Codeit is permissible to excuse errors of law, and an
excusable mistake of law may be invoked as vitiating consent
Legal Effects of Contract; The present article does not deal
generally with ignorance or mistake of law. The original draft of
this article as proposed by the Code Commission was: Mistake
on a doubtful question of law, or on the construction or
application thereof, may vitiate consent. That original
provision referred clearly to every excusable mistake of law.
But the Congress, when it enacted the Code, changed that
provision to the present one, which is limited to error on the
legal effect of an agreement
There are three requisites under this article:
1. The error must be as to the legal effect of an agreement
2. It must be mutual
3. The real purpose of the parties are frustrated
An error on the legal effects of an agreement necessarily
involves a mistake of law. The legal effects include the rights
and obligations of the parties, not as stipulated in the contract,
72 | P

LATON

but as provided by the law. The mistake as to these effects,

therefore, means an error as to what the law provides should
spring as consequences from the contract in question. This
article is thus a recognition that, to the extent mentioned, a
mistake of law may vitiate consent

4. That it 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

Error As to Nature of Contract; An error as to the nature or

character of a contract is always essential, and makes the act
juridically inexistent
________

Enforcement of Claim; One who makes use of his right even if

this be unpleasant to another, juridically does not prejudice the
latter, and the law cannot consider as unjust the very thing it
protects. If in the exercise of a legal right or because of his legal
situation, a person obtains pecuniary benefit from another, he
cannot be said to have employed 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 intimidation, the age, sex and
condition of the person shall be borne in mind.
A threat to enforce one's claim through competent authority, if
the claim is just or legal, does not vitiate consent. (1267a)
________
VIOLENCE
Refers to physical
force
or
compulsion;
the
degree
of
constraint
or
danger
actually
inflicted
External; generally
serves to prevent
an act from being
done

---

INTIMIDATION
Refers to moral force or compulsion; the
degree of constraint or danger
threatened or impending, sufficient to
overcome the mind and will of a person
of ordinary firmness

Internal; operating upon the will, and

induces the performance of an act

Influences the mind to choose between

two evils, between the contract & the
imminent injury; it influences the
expression of the will, inhibiting the true
intent and making it manifest something
apparently as that of the person who
consent

Requisites of Violence:
1. That the physical force employed must be irresistible, or of
such a degree that the victim has no other course, under the
circumstances, but to submit

A threat to enforce ones right cannot annul a contract made by

the debtor in relation to the claim sought to be enforced
When Improper; One who uses illegal means to attain a legal
objective, by infusing fear, is guilty of intimidation. It is not
always easy to determine when intimidation exists, where a
legal right is sought to be enforced; but, generally, it can be said
that there is intimidation when a party goes beyond legal
channels, or takes the law into his own hands, or by abuse of
his right obtains a greater advantage that is due him. Thus, the
treat to exercise a right would be wrongful, and will cause the
annulment of a contract, if it is employed to exact an obligation
which is excessive, disproportionate to or beyond the normal
reparation due in favor of the creditor
The threat to enforce a right, should not be aimed at a result
which is contrary to law or morals, or which is unjust and
contrary to good faith. Although it is lawful to exercise rights, it
is not always lawful to use them for purposes different from
those for which they were created
Serious Evil or Wrong; The seriousness of the evil threatened is
also determined by the victims idea of the injury to be
suffered, and this idea may result, not only from threats, but
also from actual physical force. A purely subjective criterion,
however, is dangerous. The objective limitation contained in
the Brazilian Code (article 98) can with advantage be adopted:
the injury or evil threatened must at least equal to that which
would follow from the obligation incurred or the contract
entered into, such that there would be no intimidation if the
threatened evil is less than the injury arising from the act
demanded
Imminence of Evil; To be imminent, it is not necessary that the
evil should follow immediately upon the refusal to do the act
demanded. It is enough that there be a real danger, although
the realization of the threat may be suspended for a certain
time due to the very nature of the danger threatened

2. That such force is the determining cause in giving the

consent to the contract

Object of Evil; Our Code provides that the threatened evil must
fall upon the party himself, or upon his spouse, ascendants or
descendants

Requisites of Intimidation:
1. That the intimidation must be the determining cause of the
contract, or must have cause the consent to be given

The same moral coercion can be produced in the mind of a

party if the evil is directed to a brother, or to a lover or
sweetheart, or to a very close friend

2. That the threatened act must be unjust or unlawful

Nature of Injury; Our Code refers to injury to person or

property. The Argentine code expressly includes, injury to
liberty and honor. It must be accepted that a threatened evil
upon liberty or honor can have the same moral effects as that
upon person or property. Hence, the term person in this
article should not be limited to life and physical integrity, but

3. That the threat be real and serious, there being an evident

disproportion between the evil and the resistance which all
men can offer, leading to the choice of the contract as the
lesser evil

73 | P

LATON

should include liberty and honor, thereby covering all injuries

which are not patrimonial in nature
Reasonable Fear; The fear occasioned by the threat must be
reasonable and well-grounded; it must be commensurate with
the threat. This is a question of fact which must be determined
from the circumstances of the case. The law requires that the
age, sex and condition of the persons should be taken into
account
However, there is no intimidation from the mere knowledge of
such severe penalties, which was common to all, in the absence
of any direct acts showing the imminence or seriousness of the
infliction of such sanctions
Respect and Obedience; The old Civil Code provided that fear
of displeasing persons to whom obedience and respect are due
shall not annul a contract. This provision was suppressed in
the present Code
If the fear of a party is legitimate, and the other has not
employed any unjust act, there is no intimidation. There is
nothing wrongful against which the sanction of nullity may be
used. Reverence and respect in themselves may involve moral
influence, but as long as this is not wrongful, intimidation does
not exist. It must be assumed that the moral influence of
parents over their children, or of employers over their
employees, is free from wrong. Reverence and respect in
themselves, therefore, cannot be a ground for annulment of a
contract
The moment, however, that the persons to whom respect and
reverence are due, should wrongfully exert pressure upon their
dependents or subordinates, in order to exact from them their
consent to a contract or act, there is intimidation, even if the
gravity of the threat would not be sufficient to annul the
contract if it had been imposed on another person
Cause of Consent; It must be proved that the consent was
obtained through the intimidation; the fear must be the direct
and determining cause which compelled the consent to be
given. If such force or intimidation is not the cause of such
consent, the contract cannot be annulled
The intimidation must have been the determining factor in
giving the consent. If the party would have consented, even
without the intimidation, the mere presence of the intimidation
does not annul the contract
If the intimidation was only incidental, the contract is not
annullable
Moral Coercion; When a person is in grave danger, and he is
made to promise to pay a certain amount if he is saved by the
person to whom the promise is made, the contract is not
avoided, because there is no intimidation which causes consent
to be given, but modern law does not favor strict enforcement
of the agreement. If found excessive, the amount promised
may be reduced by the courts to a reasonable amount
________
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. (1268)
________

Duress by Third Person; Even if the intimidation or threat had

been employed by a third person who was not a party to the
contract, the agreement is still null and void
________
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. (n)
________
UNDUE INFLUENCE
There need not be an
unjust or unlawful act

INTIMIDATION
There must be an unlawful or unjust
act which is threatened and which
causes consent to be given
In both cases, there is moral coercion
The wish of the party subjected to undue influence is subdued
and displaced by some influence which he does not have the
power to resist, although it has not convinced his judgment.
The moral coercion may be effected through threats, expressed
or implied, or through harassing tactics
Undue Influence, therefore, is 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. It must be in some measure destroy the free
agency of a party and interfere with the exercise of that
independent discretion which is necessary for determining the
advantage or disadvantages of a proposed contract
Circumstances to Consider; The circumstances mentioned by
this article, which may be taken into account in determining
whether there is undue influence, are not the only ones that
may be considered
In connection with undue influence, it is proper to consider the
provisions of article 24: In all contractual, property or other
relations, when one of the parties is at a disadvantage on
account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the courts must be
vigilant for his protection
Employed by Third Person; Undue influence, although not
identical, is similar to intimidation. By analogy to article 1336,
undue influence employed by a third person may annul the
contract
Contracts of Adhesion

41

________
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. (1269)
________

41

See Pages 503-505

74 | P

LATON

Concept of Fraud; Fraud is 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. It
must have a determining influence on the consent of the
victim. Error of one party is produced by the bad faith of the
other contracting party; it presupposes an illicit act. Fraud
produces qualified error; it induces in the other party an
inexact notion of the facts. The will of another is maliciously
misled by means of a false appearance of reality. He who, in
order to profit, proceeds maliciously in order to make another
fall into error or remain in error, commits fraud
Insidious Words and Machinations; Insidious words or
machinations constituting deceit, includes false promises,
exaggeration of hopes or benefits, abuse of confidence,
fictitious names, qualifications or authority; in short, all the
thousand and one forms of deception which may influence the
consent of a contracting party, without necessarily constituting
estafa or some offense under the penal laws. The
misrepresentation need not be by means of words. It exists
where the party who obtains the consent does so by means of
concealing or omitting to state material facts, with intent to
deceive, by reason of which omission or concealment the other
party was induced to give a consent which he would not
otherwise have given
Kinds of Fraud:
Dolo causante
That which determines or is
the essential cause of the
consent

Can be a ground for

annulment of the contract

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
Cannot be a cause for
annulment

FRAUD UNDER 1171

The fraud occurs in
connection
with
the
fulfillment of the obligation

FRAUD UNDER 1338

The
fraud
is
prior
or
simultaneous to the consent or
the creation of the obligation

Compared with Error; The result of fraud is error on the part of

the victim. These two causes of nullity of consent, however,
should not be confused. Error will vitiate consent only when it
refers to the matters mentioned in article 1331; while a mistake
induced by fraud will always vitiate consent, when the fraud
had a decisive influence on such consent
Requisites of Fraud:
1. It must have been employed by one contracting party upon
the other (articles 1342 and 1344)
2. It must have induced the other party to enter into the
contract (article 1338)
3. It must have been serious (article 1344)
4. It must have resulted in damage or injury to the party
seeking annulment
Effects of Fraud; The effects of dolo causante are (1) nullity of
the contract, and (2) indemnification of damages. The party
who employs fraud commits an illicit act which invalidates the

juridical act obtained through it. The contract obtained through

fraud, however, is not void ab initio but merely voidable
Proof of Fraud; The misrepresentation constituting the dolo
causante must be alleged and proved, otherwise the contract
cannot be annulled on this ground. The fraud must be
established by full, clear, and convincing evidence, and not
merely by a preponderance thereof
The mere fact that the bargain was a hard one and that the
price is inadequate is not a sufficient ground for the annulment
of the contract, especially when the parties are dealing on
speculative transactions
________
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. (n)
________
Concealment as Fraud; The deceit which avoids the contract
need not be by means of misrepresentation in words. It exists
where the party who obtains the consent does so by means of
(deliberately) concealing or omitting to state material facts,
with intent to deceive, by reason of which omission or
concealment the other party was induced to give a consent
which he would not otherwise have given
Silence or concealment, by itself, however, 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
________
Art. 1340. The usual exaggerations in trade, when the other
party had an opportunity to know the facts, are not in
themselves fraudulent. (n)
________
Tolerated Fraud; This is lawful misrepresentation, known as
dolus bonus. This is lawful astuteness. Practice has come to
tolerate such false affirmations. They are tolerated, and do not
affect the validity of the contract, so long as they do not go to
the extent of malice or bad faith, such as changing the
appearance of the thing by false devices, and of preventing all
verification or discovery of the truth by the other party
Opportunity to Know; Where the means of knowledge are at
hand and equally available to both parties one will not be heard
to say that he has been deceived
________
Art. 1341. A mere expression of an opinion does not signify
fraud, unless made by an expert and the other party has relied
on the former's special knowledge. (n)
________
Expression of Opinion; The refusal of a seller to warrant his
estimate should admonish the purchaser that that estimate
was put forth as a mere opinion; and the courts will not hold
the seller to a liability equal to that which would have been
created by a warranty, if one had been given
Made by Expert; An opinion of an expert is like a statement of a
fact, and if false, may be considered a fraud giving rise to
75 | P

LATON

annulment. When the expert, however, was employed by the

party who was misled, he cannot ask for annulment, because
he is chargeable with the acts and declaration of his employee
________

Plurality of Subjects; If the fraud has caused substantial error,

the injured party can ask for annulment under the rules on
error

Art. 1342. Misrepresentation by a third person does not vitiate

consent, unless such misrepresentation has created substantial
mistake and the same is mutual. (n)
________

Dolo Incidente; When the fraud is not the determining cause of

the contract, it only gives rise to an action for damages, but not
for annulment of the contract
________

Fraud by Third Person; As a general rule, the fraud employed by

a third person upon one of the parties does not vitiate consent
and cause the nullity of a contract; it merely gives rise to an
action for damages by the party injured against such third
person. There is no reason for making one of the parties suffer
for the consequences of the act of a third person in whom the
other contracting party may have reposed an imprudent
confidence

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. (n)
________

Mutual Error; Deceit by a third person, even without

connivance or complicity with one of the contracting parties,
may lead to error on the part of the parties to the contract; in
this case, consent is vitiated, and the contract may be annulled

Definition of Simulation; It is a 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. Simulation of contract involves a defect in
declaration. The absolutely simulated contracts are known as
simulados; while those relatively simulated are disimulados

Two reasons advanced to justify the difference between fraud

and intimidation when employed by a third person, are: (1) that
the party has nothing to do with fraud by a third person and
cannot be blamed for it; (2) intimidation can be more easily
resisted than fraud
________

ABSOLUTE
There is color of a contract,
without
any
substance
thereof, the parties not
having any intention to be
bound

Art. 1343. Misrepresentation made in good faith is not

fraudulent but may constitute error. (n)
________

There are two juridical acts involved in relative simulation:

1. The ostensible act, also called apparent or fictitious, which is
the contract that the parties pretend to have executed

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.

2. The hidden act, also called real, which is the true agreement
between the parties

Incidental fraud only obliges the person employing it to pay

damages. (1270)
________

If the concealed or [h]idden act is lawful, it is enforceable if the

essential requisites are present, such as when the true
consideration was not stated
________

Magnitude of Fraud; The deceit must be serious. The fraud is

serious when it is sufficient to impress, or to lead an ordinarily
prudent person into error; that which cannot deceive a prudent
person cannot be a ground for nullity
Determining Cause; Besides being serious, the fraud must be
the determining cause of the contract. It is this causal
connection between the fraud and the contract which vitiates
the consent of the victim. In other words, the fraud must be
dolo causante
Fraud by One Party to Another; In order to be a ground for
annulment of a contract, the fraud must be exercised by one
party upon the other. When two persons constitute one party
of the contract with respect to another, the deceit exercised by
one of them upon his co-party, is not a cause for annulment of
the contract
Mutual Fraud; When both parties use fraud reciprocally,
neither one has an action against the other; the fraud of one
compensates that of the other, and neither party can ask for
the annulment of the contract

RELATIVE
The
parties
have
an
agreement
which
they
conceal under the guise of
another contract

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. (n)
________
Absolute Simulation; The nullity of the absolutely simulated
contract is based on the want of true consent; there is no intent
to be bound. The contract does not legally exist; it is illusory, a
mere phantom. It is generally fraudulent and for the purpose of
injuring third persons
Recovery Under Contract; If the absolute simulation 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. But if the simulated contract
has an illegal object, the provision of articles 1411 and 1412 will
apply
ABSOLUTE SIMULATION
Implies that there is no

FRAUDULENT ALIENATION
There is a true and existing
76 | P

LATON

existing contract, no real act

executed
Can be attacked by any
creditor,
including
one
subsequent to the contract
The insolvency of the debtor
making the simulated transfer
is not a prerequisite to the
nullity of the contract
The action to declare a
contract absolutely simulated
does not prescribe (article
1409 and 1410)

transfer or contract

1. The object must be within the commerce of man (Art. 1347)

Can be assailed only by the

creditors
before
the
alienation
The action to rescind, or
accion pauliana, requires that
the creditor cannot recover in
any other manner what is due
him
The accion pauliana to rescind
a
fraudulent
alienation
prescribes in four years
(article 1389)

2. It must be licit, or not contrary to law, morals, good customs,

public policy, or public order (Art. 1347)
3. It must be possible (Art. 1348)
4. It must be determinate as to its kind (Art. 1349)
OBJECT
Thing, service, or right one
party expects to deliver or
perform

CAUSE
That which the party expects
to receive or enjoy

Illustration:
Simulation Presumed; There are cases where relative
simulation is presumed by law. Article 1602, for instance,
presumes as equitable mortgage a contract of sale with right to
repurchase under the circumstances mentioned in said article
Relative Simulation; The relatively simulated contract is valid,
except when it prejudices third persons or has an illicit purpose.
Its validity is based on the freedom to contract. The intention of
the parties is upheld, whatever form or terminology they may
use in their contract
If the concealed contract is lawful, it is absolutely enforceable.
However, such concealed contract must have all the essential
requisites, such as consent, object, and cause. Its validity and
effects will be governed by the rules applicable to it, and not by
those applicable to the apparent contract
When the purpose of the simulation is illicit, or to prejudice a
third person, the true contract of the parties cannot be
enforced. It would be void and inexistent, under the provisions
of article 1409; and neither party can have an action against the
other because of the provisions of articles 1411 and 1412
Effect as to Third Persons; A third person may avail himself of
the conduct of the parties to the simulated contract which is
most favorable to himself. The simulated contract will therefore
be binding if it is favorable to him to consider it soBut a third
person, if he is prejudiced, may invoke the nullity of a simulated
contract
Acquisitions of Title; The declaration that a contract is
simulated destroys the title of a third person who has acquired
rights in bad faith to the property conveyed in the apparent
contract
If the third person, however, has acted in good faith, he is given
the protection of the law
________

Section 2. - Object of Contracts

Concept of Object - The object of a contract is its subjectmatter. It is the thing, right, or service which is the subjectmatter of the obligation arising from the contract. Hence, it is
said that under the Code, the object of the contract and the
object of the obligation created thereby are identical
Requisites of Object; In order that a thing, right , or service may
be an object of contracts, it is necessary that the following
requisites concur:

VENDOR
O: CAR
C: P1,000,000

SITUATION:
CAR for
P1,000,000

VENDEE
O: P1,000,000
C: CAR

Note: What the object/ cause of the contract depends on the

42
perspective of the party
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. (1271a)
________
Within Commerce of Man; The object of contracts must be
within the commerce of man. Modern writers include in the
category of things 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. It is believed, however, that it would be more accurate to
understand this phrase in the Roman law concept; that is,
including only those things which are not susceptible of
appropriation or of private ownership, and which are not
transmissible
Existence of Object; 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 tome. Thus, even future things can be object of
contracts
By future things are understood those which 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
The term future things includes not only material objects but
also future rights
When the contract involves future things, it may either be (1)
conditional, or subject to the coming into existence of the
42

Class discussion with Atty. A.F.C.G.

77 | P

LATON

thing, or (2) aleatory, or one of the parties bears the risk of the
thing never coming into existence
Future Inheritance; By way of exception to future things as
objects of contracts, the law generally does not allow contracts
on future inheritance

subsequently prohibited
by law so that nobody
can do it
When
nobody
can
perform it
Nullifies the contract

In order that a contract may fall within the prohibition of this

article, the following requisites are necessary: (1) that the
succession has not yet been opened, (2) that the object of the
contract forms part of the inheritance, and (3) that the
promissor has, with respect to the object, an expectancy of a
right is purely hereditary in nature
An agreement for the partition of the estate of a living person,
made between those who, in case of death, would be in a
position to inherit from him, is void. And a contract renouncing
the right to inherit from one who is still alive, is also void
After the death of a person, however, the properties and rights
left by him by way of inheritance can be the subject-matter of a
contract among or by his heirs, even before a partition thereof
has been made, because the rights of the heirs are transmitted
to them from the moment of death of the predecessor
Not Part of Inheritance; When the object of the contract is not
a part of the inheritance, the prohibition does not apply, even if
the delivery of such object is dependent upon the death of one
of the contracting parties. Thus, life insurance contracts, and
stipulations providing for reversion of property donated in
marriage settlements in the event of the death of the done, are
valid
Contrary to Law or Morals; The contract is void if at the time it
is entered into, the object is contrary to law or morals. The law
violated need not be penal in nature; it is enough that it be
mandatory or prohibitive
Prestation of Third Party; The prestation promised in a contract
must be personal to the party. A person can obligate only
himself; he cannot obligate a third person. Third does not mean
that a contract in which the prestation of a third person is
promised, is void; it is valid. The third person, however, is not
bound; only the promissor is bound by the contract to use all
means so that the third person may perform the prestation
________
Art. 1348. Impossible things or services cannot be the object of
contracts. (1272)
________
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. The impossibility must be actual and
contemporaneous with the making of the contract, and not
subsequent thereto
ABSOLUTE/ OBJECTIVE
When the act or service
in
itself,
without
considering the person of
the obligor, becomes
impossible; i.e. when the
prestation
is

RELATIVE/ SUBJECTIVE
When the act or service cannot be
done by the debtor himself, but it
can be accomplished by others; i.e.
when the debtor becomes so
seriously ill that he cannot perform
the stipulated act or service,

although it can be done by

anybody else
When due to the special conditions
or qualifications of the debtor it
cannot be performed
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; if
permanent,
it
nullifies
the
contract, such as blindness in
contracts which required the use
of eyesight

The impossibility, therefore, must be absolute, not relative, and

must be determined objectively, and not in relation to the
debtor personally, with rare exceptions
Liability for Damages; When the object is impossible, the
contract is void and inexistent; hence, it cannot give rise to any
juridical relation
If [the obligor] knew of the impossibility, or could have known
of it, his bad faith or negligence makes him liable for damages.
The amount of damages, however, will be limited in this case to
the losses the creditor may have suffered by having relied on
the contract; he cannot recover all the damages arising from
non-performance of the contract
But if the debtor is also ignorant of the impossibility, and his
ignorance thereof is justifiable, or unavoidable, the reason for
his responsibility ceases, and he cannot be held liable for the
damages suffered by the creditor
There is no liability for damages if both parties have knowledge
of the impossibility
Partly Impossible; If the thing is partly possible and partly
impossible, the effect will depend upon the divisibility of the
thing. If it is indivisible, by its nature or by the intention of the
parties, there is no contract; the consent would be wanting,
because it was either for the whole obligation or for none at all.
But if the thing is divisible, then the contract is valid to the
extent that it is possible
Difficulty of Performance; Impossibility of performance should
not be confused with mere difficulty. It is elemental that the
law requires parties to do what they agreed to do. If a party
charges himself with an obligation difficult of performance, he
must abide by it. A showing of mere inconvenience, unexpected
impediments, or increased expenses is not enough to relieve
him of the obligation. Equity cannot relieve from bad bargains
simply because they are such. The debtor who does not
perform in such cases must be held liable for damages
But if the obstacles to the performance of the prestation are so
great that they can only be overcome with sacrifices which are
absolutely disproportionate, the prestation must be considered
impossible, taking into account the rational, ethical, and
economic considerations in the light of the presumed intention
of the parties and of good faith

78 | P

LATON

Thus, one may not obligate himself to do something which,

when accomplished, will prove to be dangerous to life and
property. It is contrary to law and public policy to force the
performance of a contract that is undesirable and harmful
________
Art. 1349. The object of every contract must be determinate as
to its kind. The fact that the quantity is not determinate shall
not be an obstacle to the existence of the contract, provided it
is possible to determine the same, without the need of a new
contract between the parties. (1273)
________
Determination of Kind; The object of the contract need not be
individualized; but it must be determinate as to its kind or
species
But if the object is merely something or an animal, the
species is not determined, and the contract would be void

The concept of consideration is narrower than that of cause

Unlike the principle of consideration, the principle of cause
never rejects any cause as insufficient. Whatever inducement is
sufficient to satisfy the parties, is sufficient to satisfy the law,
even though it is nothing more than the causa liberalitatis of a
voluntary gift. In other words, while consideration requires a
legal detriment to the promisee which must be more than a
moral duty, cause need not be material at all, and may consist
in a moral satisfaction for the promissor
Distinguished from Motive; The cause of a contract is the
essential reason for the contract, while motive is the particular
reason for a contracting party, which does not affect the other,
and which does not impede the existence of a true distinct
43
cause. Motive predetermines the contract

The thing must have definite limits, not uncertain or arbitrary

Requisite of Cause; The cause of a contract must have the

following requisites: (1) it must exist, (2) it must be true, and (3)
it must be licit

Determination of Quantity; the quantity of the object may be

indeterminate, so long as the right of the creditor is not
rendered illusory. Its future determination must, however,
depend upon circumstances already provided in the contract
itself
________

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. (1274)
________

Section 3. - Cause of Contracts

Onerous Contracts; In onerous contracts, the cause need not be

adequate or an exact equivalent in point of actual value,
especially in dealing with objects which have a rapidly
fluctuating price. Thus, a consideration of one peso is just as
effectual and valuable consideration, if stipulated in good faith,
and in the absence of fraud, as a larger sum

Concept of Cause; The cause of a contract is the why of the

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
Cause is the essential reason which moves the parties to enter
into the contract. It is the immediate, direct and proximate
reason which justifies the creation of an obligation through the
will of the contracting parties
Distinguished from Object; There can be no confusion between
the object and the cause in remuneratory and gratuitous
contracts. But a confusion between the object and the cause
may arise in onerous contracts, or contracts giving rise to
reciprocal or bilateral obligations
The subject-matter or object in onerous contracts is the thing,
service or act, which forms the basis of the entire contract, the
starting point of agreement, without which the negotiations or
bargaining between the parties would never even have begun.
Thus, while the object of the onerous contract is the same as to
both parties and determined irrespective of them, the cause is
different with respect for it is the impelling or essential reason
for his entering into the contract
Distinguished from Consideration; Applied to contracts, cause
represents, as it signified in Rome, the why of contracts, the
essential reason which impels the contracting parties to
celebrate the contract. A consideration in its widest sense is the
reason, motive, or inducement, by which a man is moved to
bind himself by an agreement. It is not for nothing that he
consents to impose an obligation upon himself, or to abandon
or transfer a right

Where the cause is a natural obligation, or one of conscience,

there is a sufficient cause to sustain an onerous contract; and
the cause will not be one of mere liberality
But a moral obligation arising wholly from ethical
considerations not constituting a natural obligation, is not a
sufficient cause for onerous contracts
Mutual Promises; A promise made by one party, if made in
accordance with the forms required by law, may be a good
cause or consideration for a promise made by the other party.
In other words, the consideration or cause need not pass from
one to the other at the time the contract is entered into
Accessory Contracts; A person may secure the performance of
anothers contract, either by acting as surety on a bond or by
giving his property by way of mortgage to secure such persons
contract. It has been held that, as a mortgage is an accessory
contract, its cause or consideration is the very cause or
consideration of the principal contract, from which it receives
its life, and without which it cannot exist as an independent
contract, although it may secure an obligation incurred by
another. In the contract of bond, the cause or consideration,
generally, is no other, as in all contracts of pure beneficence,
than the liberality of the benefactor. In exceptional cases, a
bond may be given for some other consideration, according to
Class discussion with Atty. A.F.C.G.
Illustration: In purchasing a gun, the cause may be the acquisition, while the
motive may be to kill someone with such gun
43

79 | P

LATON

the agreement and free stipulation of the parties, which may

be, as in onerous contracts, something remunerative stipulated
as an equivalent given by the beneficiary of the bond of to the
bondsman or surety
Accommodation Parties; Where one of the signers of a joint
and several promissory note affixes his signature thereto for
the accommodation of a co-maker and a third person advances
the face value of the note to the accommodated party at the
time of the creation of the note, the consideration for the note,
as regards both makers, if the money so advanced to the
accommodated party; and it cannot be said that the note is
lacking in consideration as to the accommodating party
because he himself received none of the money. It is enough
that value was given for the note at the time of its creation
Remuneratory Contracts; A remuneratory contract is 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
Gratuitous Contracts; Gratuitous contracts are essentially
agreements to give donations. The generosity or liberality of
the benefactor is the cause in such contracts. For this reason, a
voluntary conveyance, without any valuable consideration
whatever, is good as between the parties and cannot be set
aside, unless made in fraud of existing creditors
________
Art. 1351. The particular motives of the parties in entering into
a contract are different from the cause thereof. (n)
________
Cause and Motive; The fundamental distinction between cause
and motive is that cause is the objective, intrinsic and juridical
reason for the existence of the contract itself, while motive is
the psychological, individual or personal purpose of a party to
the contract. The cause is the objective of a party in entering
into the contract, while the motive is a persons reason for
wanting to get such objective. The cause in each kind of
contract is always the same; the motive differs with each
person
Effect of Motive; As a general principle, the motives of a party
do not affect the validity or existence of a contract. The motives
of a contracting party cannot be the basis for the annulment of
the contract, unless the realization of such motives has been
made a condition upon which the contract is to depend. On the
other hand, the mere presence of motives cannot cure the
absence of consideration
There are exceptional cases, however, where the motives of a
party may affect the juridical act, such as: (1) When the motive
of a debtor in alienating property is to defraud his creditors, the
alienation is rescissible. (2) When the motive of a person in
giving his consent is to avoid a threatened injury, as 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. While the general rule is that the cause of a contract
should not be confused with the motives of the parties, the
motive may be regarded as cause when it predetermines the
purpose of the contract
________

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. (1275a)
________
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. (1276)
________
Statement of False Cause; Where the cause stated in the
contract is false, the latter may nevertheless be sustained by
proof of another licit cause
Where a contract is a simulated or fictitious contract of sale
with a false consideration, it is not null and void per se; it is not
a contrato inexistente, but merely a contrato nulo, or an
annullable contract, under the provisions of the present article
________
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. (1277)
________
Presumption of Lawful Cause; Unless the contrary is proved, a
contract is presumed to have a good and sufficient
consideration. Even when the contract falls under the Statute
of Frauds, it is not necessary that the consideration for the
agreement be stated in writing, because it is presumed. And
when it is alleged that the consideration or cause of a
promissory note is a debt incurred in a prohibited game or a
game of chance, and there is no proof of the nature of the
game, it cannot be assumed that such game was a prohibited
game, because the law presumes that the cause or
consideration is licit
This presumption applies when no cause is stated in the
contract. But if a cause is stated in the contract, and it is shown
to be false, the burden of proving the legality of the cause is
upon the party enforcing the contract. Hence, if the cause is
partly legal and partly unlawful, and there is no proof as to
what part is supported by the lawful cause, there can be no
recovery on the contract
Ex: Checks
________
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. (n)
________
Inadequacy of Cause; In case of lesion or inadequacy of cause,
the general rule is that the contract is not subject to
annulment; in cases provided by law, however, such as those
mentioned in article 1381, the lesion is a ground for rescission
of the contract
Gross inadequacy naturally suggests fraud and is evidence
thereof, so that it may be sufficient to show it when taken in
connection with other circumstances. But the fact that the
bargain was a hard one, coupled with mere inadequacy of
price, when both parties are in a portion to form an
80 | P

LATON

independent judgment concerning the transaction, is not

sufficient ground for the cancellation of a contract. Where also,
a compromise of doubtful rights is voluntary and there is no
fraud or imposition, it will be upheld, however,
disadvantageous
________

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. (1278a)
________
Intent over Form; Modern law recognizes the autonomy of the
will over strict formalism in the execution of contracts
The present article, however, provides for two cases where
form is absolute and indispensable. The first is when the form is
essential to the validity of the contract; and the second is when
the contract is unenforceable unless it is in a certain form, such
as those under the Statute of Frauds as formulated in Art. 1403
Contracts Valid in any Form; Our law upholds the spirit over the
form of contracts. Hence, it is a general principle that a
contract, having the essential requisites provided for in article
1318, will be valid as between the parties whatever the form it
may have been entered into
Formalities Required by Law; These formalities may be
classified into three groups: (1) those which are required for
the validity of the contract ad essential, ad solemnitatem, (2)
those required to make the contract effective as against third
parties, such as those mentioned in articles 1357 and 1358, and
(3) those required for the purpose of proving the existence of
the contract, or formalities ad probationem, such as those
provided in the Statutes of Frauds in article 1403
For Validity of Contract; There are some contracts which
require certain formalities for their validity, i.e. Negotiable
Instruments Law; Donations of personal property in excess of
44
P5,000 made and accepted in writing ; Interests in loans
45
expressly stipulated ; the principal and interests in antichresis
46
specified in writing ; sale or transfer of large cattle registered
and certified by the Cattle Registration Act; Registration is also
47
essential to a chattel mortgage ; etc
Execution of Instrument; Where the validity of a contract is
made to depend upon a particular formality, an action under
1357 cannot be brought to compel the other party to execute
such formality. Article 1357 presupposes the existence of a
valid contract and cannot possibly refer to the form required to
make it valid, but rather to that required simply to make it
effective

Arts. 748 and 749, Civil Code

Art. 1956, Civil Code
46 Art. 2134, Civil Code
47 Art. 2140, Civil Code
44
45

In Dauden-Hernaez v. De los Angeles, 27 SCRA 1276, the Court

said:
The contract sued upon by petitioner herein (compensation
for services) does not come under either exceptions in Article
1356 of the Civil Code. It is true that it appears included in
Article 1358, last clause, providing that "all other contracts
where the amount involved exceeds five hundred pesos must
appear in writing, even a private one." But Article 1358
nowhere provides that the absence of written form in this case
will make the agreement invalid or unenforceable. On the
contrary, Article 1357 clearly indicates that contracts covered
by Article 1358 are binding and enforceable by action or suit
despite the absence of writing.
________
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.
(1279a)
________
Compliance with Formality; This article grants to each
contracting party the power to compel the other to execute the
formalities required by the law, as soon as the requisites for the
validity of the contract are present. Far from making the
enforceability of the contract depend upon any special extrinsic
form, this article recognizes its enforceability by the mere fact
of granting to the contracting parties an adequate remedy
whereby to compel the execution of a public writing, or any
other special form, whenever such form is necessary in order
that the contract may produce the effect which is desired,
according to whatever may be its object. This, in substance, is
equivalent to establishing as an implied condition of every
contract, that these formal requisites shall be complied with,
notwithstanding the absence of any express agreement by the
contracting parties to that effect, but does not subordinate the
principal action to the secondary action concerning the form.
Such subordination would be unnecessary, as the cause of
action would be the same in both cases, i.e., the existence of a
valid contract
Cause of Action; This article does not impose an obligation, but
confers a privilege upon both parties, and the fact that the
plaintiff has not made use of the same does not bar his action
on the contract. Neither this article, the preceding one, nor the
following one, requires that the exercise of the action to
compel the execution of the deed must precede the bringing of
the action derived from the contract
Although the provision of this article, in connection with article
1358, do not operate against the validity of the contracts nor
the validity of the acts voluntarily performed by the parties for
the fulfillment thereof, even before the execution of the
corresponding public instrument, yet from the moment when
any of the contracting parties invokes said provisions it is
evident that under them the question involving the execution
of the public instrument must precede the determination of the
other obligations derived from the contract
Survival of Action; When a party to a contract dies and is
survived by his heirs, the latter may be compelled to execute
the proper documents. They are not third parties, and they
81 | P

LATON

succeed to whatever interest their predecessor may have in the

property covered by the contract. All of the heirs, however,
must be made parties to such an action
________
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 as 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. (1280a)
________

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.
________
Basis of Reformation; Once the minds of the contracting parties
meet, a valid contract exists, whether the agreement is reduced
to writing or not. There are instances, however, where in
reducing their agreements to writing, the true intentions of the
contracting parties are not correctly expressed in the
document, either by reason of mistake, fraud, inequitable
conduct or accident. It is in such cases that reformation of
instruments is proper. The action for such relief rests on the
theory that the parties came to an understanding, but in
reducing it to writing, through mutual mistake, fraud or some
other reason, some provision was omitted or mistakenly
inserted, and the action is to change the instrument so as to
make it conform to the contract agreed upon

Writing Not for Validity; This article enumerates the certain

contracts that must appear in public or private documents. this
provision does not require such form in order to validate the
act or contract but to insure its efficacy. It is limited to an
enumeration of the acts and contracts which should be reduced
to writing in a public or private instrument. The reduction to
writing in a public or private document, required by this article,
is not an essential requisite for an existence of the contract, but
is simply a coercive power granted to the contracting parties by
which they can reciprocally compel the observance of these
formal requisites. Contracts enumerated by this article are,
therefore, valid as between the contracting parties, even when
they have not been reduced to public or private writings.
Except in certain cases where public instruments and
registration are required for the validity of the contract itself,
the legalization of a contract by means of a public writing and
its entry in the register are not essential solemnities or
requisites for the validity of the contract as between the
contracting parties, but are required for the purpose of making
it effective as against third persons
________

Requisites of Reformation:
1. There must have been a meeting of the minds upon the
contract

Chapter 4. Reformation of Instruments (n)

Operation and Effect; Upon the reformation of an instrument,

the general rule is that it relates back to, and takes effect from
the time of its original execution, especially as between the
parties

Reason for Reformation; Equity dictates the reformation of an

instrument in order that the true intention of the contracting
parties may be expressed. The courts by the reformation do not
attempt to make a new contract for the parties, but to make
the instrument express their real agreement. The rationale of
the doctrine is that it would be unjust and inequitable to allow
the enforcement of a written instrument which does not reflect
or disclose the real meeting of the minds of the parties. The
rigor of the legalistic rule that a written instrument should be
the final and inflexible criterion and measure of the rights and
obligation of the contracting parties is thus tempered, to
forestall the effects of mistake, fraud, inequitable conduct, or
accident

2. The instrument or document evidencing the contract does

not express the true agreement between the parties
3. The failure of the instrument to express the agreement must
be due to mistake, fraud, inequitable conduct, or accident
REFORMATION
Presupposes that there is a
valid
existing
contract
between the parties, and only
the document or instrument
which was drawn up and
signed by them does not
correctly express the terms of
their agreement
Gives life to it upon certain
corrections

ANNULMENT
If the minds of the parties did
not meet, or if the consent of
either one was vitiated by
violence or intimidation or
mistake or fraud, so that no
real and valid contract was
made
Involves
a
complete
nullification of the contract

Effect on Statute of Frauds; According to the weight of

authority, the statute of frauds is no impediment to the
reformation of an instrument, whether by way of correcting a
description which by mistake includes property other than that
intended, or omits property from the description, or conveys
too much
________

82 | P

LATON

Art. 1360. The principles of the general law on the reformation

of instruments are hereby adopted insofar as they are not in
conflict with the provisions of this Code.
________
Observation on Article; Commenting on the adoption of the
general law on the reformation of instruments in this article,
Mr. Justice J.B.L. Reyes says: This is another of those vague
references that abound in the Code. Such indefiniteness
amounts to a delegation of power to the Court to determine
what the law is, since no standards are set to enable one to
determine which law is meant
________
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.
________
Requisites of Mistake:
1. That the mistake is one of fact
2. That it was common to both parties
3. The proof of mutual mistake must be clear and convincing
The amount of evidence necessary to sustain a prayer for relief
where it is sought to impugn a fact in a document is always
more than a mere preponderance of evidence
Mistake of Fact; There is a mistake of fact when the written
evidence of the agreement includes something which should be
there, or so expresses their agreement that it set forth
something different from what was intended
A mere mistake of law, without any other circumstance,
constitutes no ground for the reformation of an instrument
(annulment)
Must be Mutual; Where mistake alone is relied on as a ground
for reformation, the mistake must be a mutual mistake. It must
appear that by reason of the mistake something is to be done
which neither party intended; that is, the contract must be
written in terms which violate the understanding of both
parties, and the mistake must be in reference to the same
matter. The parties must have come to an oral agreement
before they attempted to reduce it to writing, which attempt
failed by reason of mistake, and reformation enforces the
original agreement. The rule that mistake in expression must be
mutual means, therefore, that to obtain reformation the
parties must show that there was a valid contract between
them, which contract is not correctly set forth in the writing to
be reformed
But where the contract is clear and unmistakable and the terms
employed therein have not been shown to belie or otherwise
fail to express the true intention of the parties, and the deed
has not been assailed on the ground of mutual mistake which
would require its reformation, the same should be given its full
force and effect. When a party sues on a written contract and
no attempt is made to show any vice therein, he cannot be
allowed to lay claim for more than what its clear stipulations
accord. His omission cannot be arbitrarily supplied by the
courts by what their own notions of justice or equity may
dictate

Effect of Negligence; Where the evidence of a mutual mistake is

clear and decisive, the refusal to rectify on the sole ground of
the negligence of the complaining party may well work the
gravest injustice and defeat the intention of both parties in
entering into the agreement. Where there has been a mutual
mistake, and one party has been as negligent as the other,
refusal to reform a contract made under such circumstances
would have the effect of penalizing one party for negligent
conduct, and at the same time permitting the other party not
merely to escape the consequences of his negligence, but in
most cases to profit thereby
________
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.
________
Mistake by One Party; A written instrument may be reformed
where there is a mistake on one side and fraud or inequitable
conduct on the other, as where one party to an instrument has
made a mistake and the other knows it and conceals the truth
from him. In this case, where the mistake is only on one side, in
order to be a ground for reformation the fraud or inequitable
conduct of the other party must be clearly shown, and must be
at the time of the execution of the instrument; it may be actual
or constructive. 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; as in
taking advantage of one partys illiteracy, in drafting or having
drafted an instrument contrary to the previous understanding
of the parties and making such party believe the instrument to
be other than what it actually is
The mistake of one party, under this article, must refer to the
contents of the instrument, and not the subject matter or
principal conditions of the agreement; in the latter case an
action for annulment of the contract is the proper remedy
________
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.
________
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.
________
Mistake of Draftsman; Whenever an instrument is drawn with
the intention of carrying an agreement previously made, but
which, due to mistake or inadvertence of the draftsman or
clerk, does not carry out the intention of the parties, but
violates it, there is ground to correct the mistake by reforming
the instrument
The clerk, in reducing to writing the agreements of the
contracting parties, acts upon the direction of the parties and,
as such, he stands as an agent of the parties to that extent;
83 | P

LATON

satisfactory proof of the agents mistake is proof of the mutual

mistake of the contracting parties. Furthermore, since the
written contract fails to express the agreement on which the
minds of the parties met, it is not theirs, and the true intention
has not been executed; hence, the necessity of reformation
________
Art. 1365. If two parties agree upon the mortgage or pledge of
real or personal property, but the instrument states that the
property is sold absolutely or with a right of repurchase,
reformation of the instrument is proper.
________
Deed Held to be Mortgage; When the intention of the
contracting parties was to enter into a contract of mortgage,
said intention shall prevail although the deed executed may
seem to be one of sale with the right to repurchase. The
intention of the parties may be inferred from their
simultaneous or subsequent acts, as well as from the
stipulations themselves in the contract
________
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.
________
Donations and Wills; Both donations and wills are gratuitous
dispositions of property. It is said that one reason why courts
will not interfere to reform these instruments is that an action
to reform a written instrument is in the nature of an action for
specific performance and requires valuable consideration--an
element lacking as between donor and donee, and between
testator and beneficiary
In providing that there shall be no reformation in cases of will,
this article seems to be inconsistent with article 789 which
provides:
When there is an imperfect description, or when no person or
property exactly answers the description, mistakes and
omissions must be corrected, if the error appears from the
context of the will or from extrinsic evidence, excluding the oral
declarations of the testator as to his intention; x x x
The two articles, however, can be reconciled by considering the
present article as stating the general rule, and article 789 as an
exception thereto. Not every mistake in a will can be corrected.
Only imperfect or erroneous descriptions of persons or
property can be corrected; but the manner in which the
testator disposes of his property cannot be changed by a
reformation of the instrument
Void Agreements; The power of a court to reform a written
instrument is not accomplishing a vain thing. Therefore, an
instrument which when corrected will be void or inoperative,
will not be reformed
________
Art. 1367. When one of the parties has brought an action to
enforce the instrument, he cannot subsequently ask for its
reformation.
________

Reason for Article; Courts deny relief of reformation when the

party seeking reformation has brought an action to enforce the
instrument, because there has been an election as between
inconsistent remedies, one in affirmance of the written
contract and the other in disaffirmance. The party suing under
the written contract may be said to have ratified the same
________
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. 1369. The procedure for the reformation of instrument
shall be governed by rules of court to be promulgated by the
Supreme Court.
________

Chapter 5. Interpretation of Contracts

Art. 1370. If the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control.
If the words appear to be contrary to the evident intention of
the parties, the latter shall prevail over the former. (1281)
________
Art. 1371. In order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be
principally considered. (1282)
________
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. (1283)
________
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. (1284)
________
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. (1285)
________
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. (1286)
________
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. (1287)
________
Art. 1377. The interpretation of obscure words or stipulations
in a contract shall not favor the party who caused the obscurity.
(1288)
84 | P

LATON

________
Art. 1378. When it is absolutely impossible to settle doubts by
the rules established in the preceding articles, and the doubts
refer to incidental circumstances of a gratuitous contract, the
least transmission of rights and interests shall prevail. If the
contract is onerous, the doubt shall be settled in favor of the
greatest reciprocity of interests.
If the doubts are cast upon the principal object of the contract
in such a way that it cannot be known what may have been the
intention or will of the parties, the contract shall be null and
void. (1289)
________
Art. 1379. The principles of interpretation stated in Rule 123 of
the Rules of Court shall likewise be observed in the
construction of contracts. (n)
________

Chapter 6. Rescissible Contracts

Concept of Rescission; 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 the restoration of things to
their condition at the moment prior to the celebration of said
contract. It is a relief for the protection of one of the
contracting parties and third persons from all injury and
damage the contract may cause, or to protect some
incompatible and preferent right created by the contract. It
implies a contract which, even if initially valid, produces a lesion
or pecuniary damage to someone. It sets aside the act or
contract for justifiable reasons of equity
Nature of Contract; The present article means that even if the
contract is valid, it can be rescinded, but does not limit
rescission to valid contracts. Rescission is perfectly compatible
with the validity of the contract, but it does not require such
validity as an essential condition. Hence, a voidable contract
may also [be] rescinded
Rescission in Reciprocal Obligations;

Defective Contracts; In designating defective contracts, the

present Code has departed from the terminology of the old
Code

ART. 1911
May be demanded only by a
party to the contract

Under the present Code, there are four defective contracts:

1. The rescissible contract, which is a 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 it is
valid

May be denied by the court

when there is sufficient
reason to justify extension of
time to the defendant in
which to perform
Non-performance is the only
ground for the right

2. The voidable or annullable contract, which is a contract in

which the consent of one party is defective, either because of
want of capacity or because it is vitiated, but which contract is
valid until set aside by a competent court
3. The unenforceable contract, which is a contract that for some
reason cannot be enforced, unless it is ratified in the manner
provided by law
4. The void or inexistent contract, which is an absolute nullity
and produces no effect, as if it had never been executed or
entered into
Relative Ineffectiveness; These are contracts which are
ineffective only with respect to certain parties, but are effective
as to other persons
A relatively ineffective contract is distinguished from the
voidable contract in that its ineffectiveness, with respect to the
party concerned, is produced ipso jure, while voidable contract
does not become inoperative unless an action to annul it is
instituted and allowed. It differs from the void or inexistent
contract, in that the ineffectiveness of the latter is absolute,
because it cannot be ratified, while the relatively ineffective
contract can be made completely effective by the consent of
the person as to whom it is ineffective, or by the cessation of
the impediment which prevents its complete ineffectiveness
Art. 1380. Contracts validly agreed upon may be rescinded in
the cases established by law. (1290)
________

ART. 1380
May be demanded by a third
party prejudiced by the
contract
Such reason does not affect
the right to ask rescission

There are various reasons of

equity provided as grounds
for rescission
Applies only to reciprocal Applies whether the contract
obligations where one party produces
unilateral
or
has not performed
reciprocal obligations and
even when the contract has
been fully fulfilled
Both presuppose contracts validly entered into and existing
Both require mutual restitution when declared proper
Rescission and Mutual Dissent; Rescission should also be clearly
distinguished from an agreement of the parties to cancel their
contract and mutually return the object and the cause thereof.
Courts have sometimes loosely called this act of the parties as
rescission, although it is not properly so
Requisites of Rescission; In order that an action for rescission of
a contract may prosper, the following requisites must concur:
1. The contract must be a rescissible contract, such as those
mentioned in articles 1381 and 1382
2. The party asking for rescission must have no other legal
means to obtain reparation for the damages suffered by him
(article 1383)
3. The person demanding rescission must be able to return
whatever he may be obliged to restore if rescission is granted
(article 1385)
4. The things which are the object of the contract must not
have passed legally to the possession of a third person acting
in good faith (article 1385)
85 | P

LATON

5. The action for rescission must be brought within the

prescriptive period of four years (article 1389)
Direct proceedings to Rescind; Rescindible contracts are not
void, and until set aside in a rescissory action they are legally
effective, convey title, and cannot be attacked collaterally upon
the grounds for rescission in a land registration proceeding. In
justice to the party who would be entitled to ask for rescission,
however, the court may expressly reserve such right of
rescission so that such reservation may be noted upon the
certificate of title
________
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 onefourth 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. (1291a)
________
Rescission on Legal Grounds; A valid contract can be rescinded
only for legal cause
Contracts with Lesion; Under paragraphs 1 and 2 of this article,
contracts entered into by guardians for their wards, or by
trustees or administrators for the absentees represented by
them, are rescissible if the party represented suffers lesion by
more than one-fourth of the value of the things which are the
objects of the contracts
Lesion is the injury which one of the parties suffers by virtue
of a contract which is disadvantageous for him. To give rise to
rescission, the 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.
In view of the basis of lesion, great difficulties arise in its actual
determination and appreciation because of its eminently
subjective character. 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 a lesion. Modern legislation is hostile to the
principle of lesion, and our Code admits it only in special cases,
such as those provided in the present article, in article 1098 on
position of inheritance, and in articles 1539 and 1542 on sales
Contract of Guardians; As a rule, when a guardian enters into a
contract, involving the disposition of the wards property, he
must secure the approval of the guardianship court. A guardian
is authorized only to manage the estate of his ward; hence, he
has no power to dispose of any portion thereof without
approval of the court. He cannot without judicial approval,
enter into any contract which would be more than a mere act
of administration. In case of sale, mortgage, or other

encumbrance of real estate, the requisites, procedure, and

court approval, provided by the Rules of Court, are
indispensable
Contracts for Absentees; The powers and duties of a legal
representative of an absentee, appointed by the court, are the
same as those of guardians (article 382). Therefore, the
principles we have discussed in relation to contracts by
guardians apply also to contracts by representatives or trustees
for the estate of absentees
Contract in Fraud of Creditors; These are contracts executed
with the intention to prejudice the rights of creditors, and
should not be confused with those entered into without such
intention, even if, as a consequence thereof, some particular
damage may be caused to a creditor; the existence of the
intention to prejudice creditors should be determined, either
by the presumption established by article 1387 or by the proofs
presented in the trial of the case. And since the patrimony of
the debtor includes not only things but also rights, the
remission of credits should be considered as included within
the provision of the law
Accion Pauliana and Simulation; The rescissory action to set
aside contracts in fraud of creditors is known as accion
pauliana. It differs from an action to declare a contract
absolutely simulated or fictitious on the following points:
1. In the case of rescission, there is a real alienation, but it is
fraudulent; in the case of simulation, there is in fact no
alienation but a mere pretense that one has been made
2. The former can be alleged only by the creditors prior to the
act; the latter by all the creditors, before or after the simulation
3. Impossibility of satisfying the plaintiffs claim is required in
the first; it is not required in the latter
4. The accion pauliana is an action to set aside a valid contract;
while an action to declare simulation does not seek to set aside
the simulated contract, but merely declare its inexistence
Requisites for Rescission; The following requisites are necessary
in order that a contract may be rescinded as one made in fraud
of creditors: (1) That the plaintiff asking for rescission has a
credit prior to the alienation, although demandable later; (2)
that the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person; (3) that the creditor has
no other legal remedy to satisfy his claim, but would benefit by
the rescission of the conveyance to the third person; (4) that
the act being impugned is fraudulent; and (5) that the third
person who received the property conveyed, if it is by onerous
title, has been an accomplice in the fraud
Existence of Credit; Only creditors can ask for the rescission of
the contract, and the mere fact that a person filed a suit against
the debtor and secured an attachment is not sufficient
evidence that the latter owes him anything. But where an
estate, in the course of administration, appears to be insolvent,
any creditor who believes that a conveyance of property
executed by the decedent in his lifetime was made in fraud of
creditors may, upon leave of the court, bring an action in the
name of the executor or administrator to recover property thus
fraudulently conveyed away

86 | P

LATON

Priority of Credit; Rescission requires the existence of creditors

at the time of the fraudulent alienation, and this must be
proved as one of the basis of the judicial pronouncement
setting aside the contract; without prior existing debts, there
can be neither injury nor fraud. The credit must be existing at
the time of the fraudulent alienation, even if it is not yet due.
But at the time the accion pauliana is brought, the credit must
already be due. Therefore, credits with suspensive term or
condition are excluded, because the accion pauliana
presupposes a judgment and unsatisfied execution, which
cannot exist when the debt is not yet demandable at the time
the rescissory action is brought. Rescission is a subsidiary
action, which presupposes that the creditor has exhausted the
property of the debtor, which is impossible in credits which
cannot be enforced because of the term or condition
While it is necessary that the credit of the plaintiff in the accion
pauliana must be prior to the fraudulent alienation, the date of
the judgment enforcing it is immaterial. Even if the judgment
be subsequent to the alienation, it is merely declaratory, with
retroactive effect to the date when the credit was constituted.
In cases of quasi-delict, the act or omission giving rise to the
liability to indemnify must be prior to the alienation, even if the
judgment declaring it be rendered afterwards
Exception; Writers generally recognize the availability of the
accion pauliana, even when the alienation is prior to the credit,
when the debtor purposely and in bad faith deprives himself of
the ability to meet the consequences of obligations he intends
to incur in the future. The alienation can be rescinded if it is
made precisely in view of such future obligation and for the
purpose of depriving in advance the creditor of the guaranty on
which he could have relied
Furthermore, there are parties who may appear to have
become creditors after the alienation, but who may be
considered as having a prior right and entitled to the accion
pauliana
They are:
1. Those whose claims were acknowledged by the debtor after
the alienation, but the origin of which antedated the alienation;
the recognition does not give rise to the credit, but merely
confirms its existence. For instance, the claim for damages
arising before the alienation, but acknowledged by the debtor
only after the alienation
2. Those who become subrogated, after the alienation, in the
rights of creditors whose credits were prior to the alienation
Creditors Included; The remedy of rescission is available to all
creditors who were already such at the time of the fraudulent
alienation, when they cannot collect what is due them
Even secured creditors or lienholders are entitled to the accion
pauliana
Under the French code, which makes no distinction in the
quality of creditors, the traditional rule is that even secured
creditors can bring this action, so long as their credit existed
before the fraudulent alienation and they are prejudiced
thereby. It would be unjust to consider the secured creditor,
who has taken precautions to protect his interests by
stipulation a security, as having less rights than the unsecured
creditor who did nothing to guaranty himself against the

insolvency of the debtor. The French rule is applicable under

our Code which makes no distinction among creditors
Fraudulent Conveyance; It must be shown that the conveyance
was fraudulent or with intent to prejudice creditors of the party
making the conveyance. The fraud may be established by
presumption, under article 1387, or from the whole evidence,
independently of such presumption. If the case is not one for
which the law establishes a presumption of fraud, the creditor
seeking the rescission of the contract must prove by competent
evidence the existence of fraud. Even if there are circumstances
giving rise to the presumption of fraud, if such presumption is
overcome by sufficient evidence, the creditor must prove facts
showing actual fraudulent intent on the part of the debtor
Without such proof of fraudulent intent, the contract cannot be
rescinded
Test of Fraud; In determining whether or not a certain
conveyance is fraudulent, the question in every case is 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. It is not sufficient that it is founded on
good consideration or is made with bona fide intent; it must
have both elements. If defective in either of these particulars,
although good between the parties, it may be set aside as to
creditors. The rule is universal both at law and in equity that
whatever fraud creates justice will destroy. The test as to
whether or not a conveyance is fraudulent is, does it prejudice
the rights of creditors?
Others sustain that such intention is not necessary, that it is
enough that the debtor knows he would cause injury, that is, he
can foresee injury to creditors because he knows of his own
insolvency which would result from the alienation
The fraud that justifies the accion pauliana is not characterized
by the intention to injure the creditor, but by the knowledge
that damage would be inflicted. This knowledge exists when
the debtor knows that his property cannot be alienated without
producing the evident injury to his creditors with existing
claims, whether they be due or not yet due
It is sometimes held that in gratuitous alienation, the simple
knowledge by the debtor that his act would cause injury to his
creditors is enough; while in onerous alienations, it is necessary
that he must be motivated by an intention to prejudice them.
However, there is really no distinction, because the knowledge
of the injury which the act will cause, implies the acceptance of
the effect, and, therefore, the willfulness of such injury. The
knowledge of harm implies the intention to cause it
Signs of Fraud; In the consideration of whether or not certain
transfers were fraudulent, courts have laid down certain rules
by which the fraudulent character of the transaction may be
48
determined
As to transferee; As to the transferee, a distinction is made
between those who acquire by onerous title and those by
gratuitous title. When the alienation is gratuitous, the good
faith of the transferee does not protect him, because he gave
nothing and so he is not prejudiced by the rescission. But if the
alienation is by onerous title, the transferee must be a party to
48

See Page 581

87 | P

LATON

the fraud; if he acts in good faith, there can be no rescission,

because having given something, his position would be similar
to that of the creditor, and being already in possession his
acquisition will be respected
No other Remedy; In order that rescission of a contract made in
fraud of creditors can be decreed, it is necessary that the
complaining creditors must prove that they cannot recover in
any other manner what is due them. The action for rescission is
essentially subsidiary. The alienation must have been
prejudicial to the creditor, it must have had the effect of
making the debtor insolvent, having diminished his property to
such an extent that he cannot pay the debt
Creditors Benefitted; As a rule, the rescission should benefit
only the creditor who obtained the rescission, because the
rescission is to repair the injury caused to him by the fraudulent
alienation. This is justified by the provisions of article 1384. But
there may be other creditors who could also bring the accion
pauliana; they should be given the benefit of rescission, instead
of requiring them to bring the claim of the creditor who
brought the action. However, creditors who became such only
after the fraudulent alienation, and who themselves could not
have asked for rescission, cannot benefit from the rescission;
they cannot get indirectly what they cannot obtain directly
Contracts on Things in Litigation; The fourth paragraph of this
article refers to a contract executed by the defendant in a suit
involving the ownership or possession of a thing when such
contract is made without the knowledge and approval of the
plaintiff or of the court
As in the case of a contract in fraud of creditors, the remedy of
rescission in this case is given to a third person who is not a
party to the contract. Essentially, the purpose is the same in
both cases; it is to prevent injury to the plaintiff. But while in
the rescission of a contract in fraud of creditors a personal right
is protected by giving it the guaranty of the debtors property,
in the rescission of a contract in things in litigation a real right is
rendered effective with respect to particular property
Right of Transferee; Where the claim of the plaintiff in the
pending litigation has not been registered, and there is nothing
in the land registry or records showing any legal obstacles to
the transfer, the transferee of a property in litigation, who
acquires the same in good faith and for valuable consideration,
without knowledge or notice of the litigation or claim of the
plaintiff, cannot be deprived of such property by a rescissory
action. The good faith of the transferee protects him, and
rescission will not lie. But where the transferee knew of the
claim of the plaintiff, either actually or constructively through
the registry, he acts in bad faith, and the transfer can be
rescinded
If the transfer is gratuitous, the transferee loses nothing by the
rescission, and the contract may be rescinded even if he acted
in good faith. The right of the plaintiff being prior to his, the
former should prevail as it causes no injury to the transferee
________
Art. 1382. Payments made in a state of insolvency for
obligations to whose fulfillment the debtor could not be
compelled at the time they were effected, are also rescissible.
(1292)
________

Payment When Insolvent; The insolvency referred to in this

article is insolvency in fact, not requiring any judicial proceeding
on insolvency. It is a matter of evidence, and 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.
A creditor need not have a judgment or execution in order to
rescind the payment made during insolvency of what was not
then due
________
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. (1294)
________
No Other Remedy; The plaintiff asking for rescission must prove
that he has no other legal means to obtain reparation. Where
he does not show that he has no other legal course to obtain
satisfaction of his claim, he is not entitled to the rescission
asked. The action for rescission is but a subsidiary remedy,
available only when the aggrieved party has no other legal
means to obtain reparation for damages suffered. But where it
is shown that the property transferred by the debtor to another
was his only property, it is obvious that the creditor can have
no other recourse to satisfy his claim except by rescission
________
Art. 1384. Rescission shall be only to the extent necessary to
cover the damages caused. (n)
________
Extent of Rescission; The rescission is only in favor of the
plaintiff creditor, not of all the creditors. This is the almost
unanimous view of writers and jurisprudence. The extent of the
revocation is only to the amount of the prejudice suffered by
the creditor. As to the excess, the alienation is maintained
If the claim of the creditor is less than the value of the thing
fraudulently alienated, the excess remains with the transferee
even if he had acted in bad faith, because the alienation is valid.
Those who are strangers to the accion pauliana cannot benefit
from its effects
Who May Bring Action; The action for rescission may be
instituted by (1) the person who is injured by the rescissible
contract, such as the ward or absentee in the case of lesion, the
creditors prejudiced by a fraudulent alienation, and the plaintiff
in a case where a thing in litigation is alienated by the
defendant; (2) the heirs of these persons; and (3) their creditors
by virtue of the right granted by article 1177
________
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. (1295)
88 | P

LATON

________
Mutual Restitution; The only possible application of the rule
that the party seeking rescission must offer to restore that
which he has received from the other, is in contracts executed
by guardians or administrators under Nos. 1 and 2, article 1381.
Our Supreme Court, however, has applied the rule to cases of
mutual dissent and of rescission of reciprocal obligations under
article 1191
Transfer of Third Person; The third person under the present
article includes not only one who is not a party to the party to
the rescissible contract, but also one who is a party thereto
The acquisition by a third person is an obstacle to the
efficaciousness of the action for rescission, where the following
two circumstances are present: (1) that such third person is in
lawful possession of the realty, that is to say, [that] he is
protected by the law against said action by the registration of
the transfer to him in the registry; and (2) that he did not act in
bad faith
Right of Transferee; The right of the transferee to retain the
property fraudulently alienated by a debtor, depends upon the
nature of the transfer upon the complicity of the former in the
fraud.
If the transfer is gratuitous, the creditor will have a better right
than the transferee who has given nothing and who would
unjustly be enriched at the expense of the creditor if the
transfer were upheld. The rescission will, therefore, be allowed,
irrespective of the good or bad faith of the transferee.
But if the transfer was by onerous title, the transferee in good
faith is protected. As far as prejudice is concerned, the creditor
and the transferee would be in the same position; hence, the
transferee, who acquired ownership by tradition, must be
maintained in his rights.
To deprive the transferee of the thing in such case would cause
him injury to the extent of the consideration he has paid,
because he cannot recover this from the insolvent debtor.
Besides, as between two persons who both stand to suffer loss,
the possessor of the property should be preferred in that
possession, the ownership having been transferred by delivery.
To permit rescission when the alienation is by onerous title, the
transferee must be a party to the fraud; that is, he must have
knowledge that the transfer to him would prejudice existing
creditors of the transferor
Transferee in Good Faith; The transferee in good faith to whom
the thing has been alienated gratuitously, is obliged to restore
the thing, because nobody is allowed to enrich himself at the
expense of another. But being a possessor in good faith, he is
not obliged to pay the fruits received by him; on the other
hand, he is entitled to reimbursement for the necessary and
useful expenses incurred on the thing. He returns the thing in
the condition that it may be found; he is not liable for losses or
deteriorations, except in cases which it is proved that he has
acted with fraudulent intent or negligence after judicial
summons

Transferee in Bad Faith; The transferee in bad faith is not

entitled to indemnity for damages from the debtor, in the
event that rescission is decreed
If the price exists in the patrimony of the debtor, as
contemplated by the Roman rule, then the acion pauliana
would not lie, because then there would still be available
property in the possession of the debtor. But on the
assumption that the debtor is already insolvent, which is a
prerequisite for the action, it is clear that there can be no
reimbursement; on this point, the two opinions coincide. We
may conclude, therefore, that the transferee in bad faith is not
entitled to reimbursement. This conclusion is also strengthened
by the provision of article 1412, under which the parties to an
unlawful contract cannot recover from each other when they
are both guilty
Right to Damages; When the contract cannot be rescinded,
because the thing has been acquired in good faith by a third
person, the party who caused the loss shall be liable for
damages. This would include the guardian of minors, the
representative or administrator of absentees, the transferee in
bad faith of things fraudulently alienated by a debtor, or the
defendant who has transferred the thing in litigation, in the
proper cases
________
Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381
shall not take place with respect to contracts approved by the
courts. (1296a)
________
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
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. (1297a)
________
Fraud Presumed; This article presumes the existence of fraud
made by a debtor. Thus, in the absence of satisfactory evidence
to the contrary, the alienation was held fraudulent because it
was made after a judgment had been rendered against the
debtor making the alienation. This presumption, however, does
not apply where the alienation of property was made before
the judgment against the transferor was rendered
To raise the presumption of fraud in case of attachment, it is
enough that it be issued. Any alienation after such issuance of
an attachment, even if made before service or execution of
such attachment, will be presumed fraudulent
Rebuttable Presumption; The presumption of fraud established
by this article is not conclusive, and may be rebutted by
satisfactory and convincing evidence
89 | P

LATON

In order to overcome the presumption of fraud established by

this article, it is necessary to establish affirmatively that the
conveyance was made in good faith and for a sufficient and
valuable consideration. Proof of these two circumstances is
sufficient to negative the existence of fraud, and the
presumption created by this article will be considered as
overthrown
When the presumption of fraud has been satisfactorily
overthrown, it is incumbent upon the party asking for rescission
to prove by sufficient evidence that there was actual mala fides
in the alienation; otherwise, the contract will not be rescinded
Proof of fraud; In the consideration of whether or not certain
transfers were fraudulent, courts have laid down certain rules
by which the fraudulent character of the transaction may be
determined
Effect of Fraud; The existence of fraud, whether presumed or
proved, does not necessarily make the alienation rescissible.
Fraud is only one of the requisites for the accion pauliana. And
even if the debtor who made the alienation acted fraudulently,
if the transferee acquired the thing in good faith and for
valuable consideration, rescission will not be allowed
________
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. (1298a)
________

of the sale, and other circumstances, should awaken suspicion

on the part of the vendee, but he does not make an inquiry to
verify the fraud, then he will be charged with knowledge
thereof
________
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.
(1299)
________
Minority of Party; A minor is a party to a contract of sale must
bring the action for rescission within four years after attaining
the age of majority, because under the present article the claim
for rescission prescribes in four years from removal of ones
incapacity
________

Chapter 7. Voidable Contracts

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. (n)
________

Subsequent Transfers; The creditor can have an action against

subsequent transferees only when an action lies against the
first transferee. If the first transferee acquired the thing in good
faith, he is not liable; in such case, the thing is considered to
have definitely left the patrimony of the debtor and beyond the
reach of the creditor, under the second paragraph of article
1385

Concept of Voidable Contracts; Voidable or annullable

contracts are existent, valid, and binding, although they can be
annulled because of want of capacity or vitiated consent of one
of the parties; but before annulment, they are effective and
obligatory between the parties

If the first transferee, however, acted in bad faith, and then he

alienates the property to another, the rescissible character of
the second alienation depends upon how the subsequent
transferee acquired the thing. If the second transferee acted in
good faith, the transfer to him cannot be rescinded, and since
the property cannot be returned, the first transferee will have
to indemnify for damages. But if the subsequent transferee also
acts in bad faith, he can be required to return the property; the
first transferee cannot be held liable for damages where such
return is possible. But if the property cannot be returned, the
transferees shall be successively liable for damages, although
acting in good faith, received the property gratuitously

NULLITY
Declares the inefficacy which
the contract already carries in
itself
To be cured, requires an act
of ratification
The direct influence of the
public interest is noted
Based of a vice of the contract
which invalidates it
A sanction; by law
Can be demanded only by
parties to the contract

Bad Faith of Transferee; In order that there be bad faith on the

part of the transferee, it is not necessary that he should have
connived with the transferor to defraud the latters creditors. It
is enough that the transferee knows of the intention of the
transferor to defraud creditors. To determine this, the court
should consider the relations between the parties, the
conditions of the sale, and other circumstances from which
knowledge of the transferee may be inferred. If the conditions

RESCISSION
Merely
produces
that
inefficacy, which did not exist
essentially in the contract
To be ineffective, needs no
ratification
Private interest alone governs
Compatible with the perfect
validity of the contract
A remedy; on equity
May be demanded even by
third parties affected by it

Grounds for Annulment; The different grounds for the

annulment of contracts, mentioned in this article, are discussed
under the corresponding provisions elsewhere in this work
Repentance is not a ground for nullification of a contract
Incapacity to Consent; The capacity of a party is not a requisite
sine qua non of a contract; its want is only a ground for
90 | P

LATON

annulment. The failure to incorporate the idea in our Code is a

serious defect
How Annulment Obtained:
1. Directly by an action for that purpose
2. Indirectly by way of defense to an action to enforce the same
In this respect, the voidable contract differs from the void
contract
VOID
The court merely
declares the contract
as void and inexistent,
which is its condition
from
the
very
beginning,
and
therefore the attack
against its validity can
be made collaterally or
indirectly

VOIDABLE
The court has first to set aside and
render ineffective by its judgment the
contract which theretofore is valid
and producing legal effect, before the
defendant can be exempt from
compliance therewith; hence, the
attack against its validity must be
directly made in an action or in a
counterclaim for that purpose, with
the consequences flowing from the
declaration of nullity
________

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. (1301a)
________
The action for annulment shall be brought within four years: for
purposes of prescription only
In cases of intimidation, violence or undue influence, from the
time the defect of the consent ceases: may be annulled even
before intimidation, violence or undue influence 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: Must be brought within four years by the
minor (upon reaching the age of majority), insane (upon
regaining sanity), or other incapacitated person (when
incapacity ceases)
Q: Will the prescriptive period start to commence during the
lucid interval of insane persons?
A: No.

49

________

________
Ratification can be exercised by the party whose consent was
50
defective or vitiated
Requisites of Ratification:
1. That the contract is a voidable or annullable contract, or one
in which the consent of one party is defective, either because
of lack of capacity to contract or because of error, fraud,
violence, intimidation or undue influence
2. That the ratification is made with knowledge of the cause for
nullity
3. That at the time the ratification is made, the cause of nullity
has already ceased to exist
Transmission of Right; The right to ratify is transmitted to the
heirs of the party entitled to such right
________
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. (1311a)
________
Express Ratification; This article does not define the nature and
requisites of express ratification. As to the nature, it seems
clear that 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, would be
express ratification. As to the requisites, they are the same as
those for implied ratification; it is only in the form that these
two kinds of ratification differ
Implied Ratification; The ratification of an annullable contract
may be implied from the conduct or acts of the party entitled to
ask for annulment. Any act evincing an intent to abide by the
contract is evidence of the affirmance of the contract and a
waiver of the right to ask for annulment. It may take diverse
forms, such as by silence or acquiescence; by acts showing
approval or adoption of the contract; or by acceptance and
retention of benefits flowing therefrom
________
Art. 1394. Ratification may be effected by the guardian of the
incapacitated person. (n)
________
Ratification may be exercised by (1) the guardian of the
incapacitated person, (2) his heirs, or (3) his successors-in51
interest, i.e., assignees
________
Art. 1395. Ratification does not require the conformity of the
contracting party who has no right to bring the action for
annulment. (1312)
________

Art. 1392. Ratification extinguishes the action to annul a

voidable contract. (1309a)
50
49

Class discussion with Atty. A.F.C.G.

51

Class discussion with Atty. A.F.C.G.

Class discussion with Atty. A.F.C.G.

91 | P

LATON

Right to ratify is solely given to the person who can bring the
52
action for annulment
________

extent of the benefit derived by him from such service

rendered by the other party
________

Art. 1396. Ratification cleanses the contract from all its defects
from the moment it was constituted. (1313)
________

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. (1304)
________

Effect of Ratification; After a contract has been validly ratified,

no action to annul the same can be maintained based upon
defects relating to its original validity
Retroactivity of Ratification; Its effect retroact to the moment
when the contract was entered into
________
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. (1302a)
________
Personal Requisites; The two different requisites are necessary
to confer the capacity for the exercise of the action for
annulment of contracts. The first is that the plaintiff must have
an interest in the contract. The second is that the victim and
not the party responsible for the defect is the person who must
assert the same
________
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. (1303a)
________
Mutual Restitution; The effect of annulment of the contract is
wipe it out of existence, and to restore the parties, in so far as
legally and equitably possible, to their original situation before
the contract was entered into. If there has been no
performance by either party, the contract simply ceases to have
any force and effect. But if one or both of the parties have
already performed, each party must return to the other
whatever he may have received by reason of the contract,
unless there are fundamental reasons recognized by the law
which will prevent such restitution
Contracts Not Covered; The principle of mutual restitution,
contained in this article, cannot be applied to all contracts. The
principle against unjust enrichment must be taken into account
This principle of unjust enrichment is the basis of the second
paragraph of the present article. In contracts of services, where
the service has already been rendered, the party benefited by
the service must pay for its value in spite of the annulment of
the contract; otherwise, he would unjustly enriched to the

52

Class discussion with Atty. A.F.C.G.

Incapacitated Party; The provisions of this article refer

exclusively to nullity arising from incapacity of one of the
contracting parties; hence, if the nullity arises from some other
cause, the provisions of article 1398 shall apply, if an
incapacitated person is interested in the contract whose nullity
is declared for some other cause
A person entering into a contract must see to it that the other
party has sufficient capacity to bind himself. For while as a
general rule, if the contract is declared null, the parties are
bound to restore or return reciprocally the thing with its fruits
and the price with interest, if nullity is on account of incapacity
of one of the contracting parties, the party suffering from such
incapacity is only bound to return what he has profited by the
thing sold or by the price received
Profit by Incapacitated; The profit or benefit received by the
incapacitated person, which obliges him to make restitution, is
not necessarily a material and permanent increase in fortune,
but any prudent and beneficial use by the incapacitated of the
thing he received, for his necessities, social position, or
discharge of duties to others; thus, there is benefit or profit,
even without increase of fortune, if the thing received is used
for food, clothing, dwelling, health requirements, etc
However, where the thing received by the incapacitated party
is still existing in his patrimony at the time incapacity ceases, he
will be deemed to have benefited thereby. If he asks for
annulment, he must return it to the other party. If, instead of
asking annulment, he alienates or squanders it, he will be
deemed to have ratified the contract
________
53

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. (1307a)
________
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. (1314a)
________
Art. 1402. As long as one of the contracting parties does not
restore what in virtue of the decree of annulment he is bound
53

capacitated party whose consent was not vitiated

92 | P

LATON

to return, the other cannot be compelled to comply with what

is incumbent upon him. (1308)
________
Loss of Thing by Plaintiff; The person who is entitled to bring
the action for nullity may not be in a position to return the
thing which is the object of the contract, because of its loss,
either by his fault or fraud, or by fortuitous event and without
his fault

therefore, pay the value of the thing, but not the interest
thereon because the loss was not due to his fault
Loss of Fruits and Accessions; This rule in article 1400 is
applicable also to the fruits and accession of the thing. The
party obliged to restore them must pay for their value if they
cannot be returned
________

Chapter 8. Unenforceable Contracts (n)

If the loss of the object is due to his fault or fraud, he cannot
ask for annulment, because under article 1401, the action for
annulment is extinguished in such case. The provisions of article
1400 cannot be applied. The action is extinguished, even if at
the time of the loss the plaintiff was still a minor or was insane
Evidently, the action for annulment is not extinguished,
because article 1401 limits the extinguishment of the action to
the case where the loss is due to the fault or fraud of the
plaintiff. But the defendant cannot be obliged to make
restitution to the plaintiff. Until the annulment of the contract,
it is valid and produces legal effect; hence, the plaintiff, who
was in possession of the object at the time of its loss, must still
be considered the owner thereof and he must bear the loss by
fortuitous event; res perit domino. He would not really be
bearing such loss if he were to be given back the consideration
that he had paid to the defendant; this would constitute unjust
enrichment. In this case, article 1402 must apply; since the
plaintiff cannot be compelled to make restitution
But if the plaintiff in such case offers to pay the value of the
thing at the time of its loss, as a substitute for the thing itself,
the defendant should be obliged to make restitution, by
applying the rule contained in article 1400, except that the
plaintiff need not pay interest on the value of the thing at the
time of its loss by fortuitous event, in order to compel the
defendant to make restitution, then we will reach the absurd
result that the action for annulment would in effect be
extinguished by loss of the thing even by fortuitous event; this
certainly cannot be correct, because article 1401 limits such
extinguishment to loss by fault or fraud of the plaintiff. Besides,
it would be illogical to allow a party to replace by its value the
thing lost by his fault, and deny this right to one who was
without fault
Loss of Thing by Defendant; If it is the defendant who loses the
thing which is the object of the contract, by his fault, article
1400 applies; he will return the fruits received, the value of the
thing at the time of its loss, with interest from the same date
If the loss is without fault on the part of the defendant, but by
fortuitous event, can there be annulment of the contract? This
must be answered in the affirmative, because under article
1401 the action for annulment is extinguished by loss of the
thing only when such loss is due to the fault or fraud of the
plaintiff (person entitled to ask for annulment)
The action for annulment cannot be extinguished or defeated
by any event not imputable to the fault or fraud of the plaintiff
The most logical and equitable solution is to apply the principle
contained in article 1400, by requiring the defendant to pay the
value of the thing at the time of its loss by fortuitous event, but
without interest thereon. The defendant must suffer the loss,
because he is still the owner at the time of loss; he should,

Concept and Distinctions; An unenforceable contract is one

which cannot be enforced unless it is first ratified in the manner
provided by law. It is distinguished from the rescissible and the
annullable contracts in that the latter two contracts produce
legal effects unless they are set aside by a competent court,
while the unenforceable contract does not produce any effect
unless it is ratified
As regards the degree of defectiveness, voidable or annullable
contracts are farther away from absolute nullity than
unenforceable contracts. In other words, an unenforceable
contract occupies an intermediate ground between the
voidable and the void contract
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.

93 | P

LATON

(3) Those where both parties are incapable of giving consent to

a contract.
________

contracts involving leases for longer than one year, or for the
sale of real property or of an interest therein.
In Vda. De Espina v. Abaya, 196 SCRA 312, the Court said:

Unauthorized Contracts; When a person enters into a contract

for and in the name of another, without authority to do so, the
contract does not bind the latter, unless he ratifies the same.
The agent who has entered into the contract in the name of the
purported principal, but without authority from him, is liable to
third persons upon the contract; it must have been the
intention of the parties to bind someone, and, as the principal
was not bound, the agent should be
Statute of Frauds; The term statute of frauds is descriptive of
statutes which require certain classes of contracts to be in
writing. This statute does not deprive the parties of the right to
contract but merely regulates the formalities of the contract
necessary to render it enforceable
The statute does not apply to actions which are neither for
specific performance of the contract nor for the violation
thereof
Purpose of Statute; The purpose of the statute of frauds is to
prevent fraud and perjury in the enforcement of obligations
depending for their evidence upon the unassisted memory of
witnesses by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the party to
be charged
Action to Enforce; The statute of frauds has been uniformly
interpreted to be applicable to executory and not to completed
or executed contracts. Performance of the contract takes it out
of the operation of the statute
The statute of frauds is not applicable to contracts which are
either totally or partially performed, on the theory that there is
a wide field for the commission of frauds in executory contracts
which can only be prevented by requiring them to be in writing,
a fact which is reduced to a minimum in executed contracts
because the intention of the parties becomes apparent by their
execution, and execution concludes, in most cases, the rights of
parties
Performance Within One Year; Contracts that by their terms are
not to be performed within one year from the making thereof,
must be in writing. The making of an agreement, for the
purpose of determining whether or not the period for
performance brings the agreement within the statute of frauds,
means the day on which the agreement is made, and the time
begins to run from the day the contract is entered into, and not
from the time that performance of it is entered upon
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 thereof. Agreements to be fully performed on
one side within the year are taken out of the operation of the
statute
In Hernandez v. Court of Appeals, 160 SCRA 821, the Court said:
The Statute of Frauds finds no application to this case. Not
every agreement affecting land must be put in writing to
attain enforceability. Under the Statute of Frauds, Article
1403(2) (e) of the Civil Code, such formality is only required of

Anent the issue of oral partition, We sustain the validity of said

partition. "An agreement of partition may be made orally or in
writing. An oral agreement for the partition of the property
owned in common is valid and enforceable upon the parties.
The Statute of Frauds has no operation in this kind of
agreements, for partition is not a conveyance of property but
simply a segregation and designation of the part of the
property which belong to the co-owners." (Tolentino,
Commentaries and Jurisprudence on the Civil Code of the
Philippines, Vol. II, 1983 Edition, 182-183 citing Hernandez v.
Andal, et. al., G.R. No. L275, March 29, 1957)
Partial performance, however, removes the contract from the
operation of the statute
Guaranty of Anothers Debt; A promise to answer for the debt,
default, or miscarriage of another has been defined as an
undertaking by a person, not before liable, for the purpose of
securing or performing the same duty for which the original
debtor continues to be liable
To bring a promise within the operation of the statute, there
must be a debt or obligation of one other than the promisor for
whose default the latter undertakes to be responsible
The test as to whether a promise is within the statute has been
said to lie in the answer to the question whether the promise is
an original or a collateral one. If the promise is an original or an
independent one, that is, if the promisor becomes thereby
primarily liable for the payment of the debt, the promise is not
within the statute. But on the other hand, if the promise is
collateral to the agreement of another and the promisor
becomes thereby merely a surety, the promise must be in
writing
In Consideration of Marriage; It is well-settled that any verbal
executory promise or agreement other than mutual promise to
marry, made in consideration of marriage, is embraced within
the provisions of the statute of frauds requiring that
agreements made upon consideration of marriage should be in
writing, and signed by the party to be charged therewith
Representation as to Credit; A representation made by a
stranger to the contract with the intent that the person for
whom it is made should obtain credit thereby, must be in
writing in order to be a basis of an action for damages against
the party who made the representation, if this turns out to be
false or incorrect
Parties Incapacitated; Where both the contracting parties do
not have the capacity to consent, the contract is unenforceable.
Neither party or his representative can enforce the contract
unless it has been previously ratified. The ratification by one
party, however, converts the contract into a voidable
contractvoidable at the option of the party who has not
ratified; the latter, therefore, can enforce the contract against
the party who has already ratified. Or, instead of enforcing the
contract, the party who has not ratified it may ask for
annulment in the ground of his incapacity
________
94 | P

LATON

Art. 1404. Unauthorized contracts are governed by Article 1317

and the principles of agency in Title X of this Book.
________
Ratification Validates Contract; The sale of property made by a
person without authority of the owner is null and void in the
beginning, but afterwards it becomes perfectly valid and is
cured of the defects of nullity which it bore at its execution by
the ratification solemnly made by the said owner upon his
stating under oath in court that he himself consented to the
formers making the said sale
________
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.
________
Failure of Object; If the parties to the action, during the trial,
make no objection to the admissibility of oral evidence to
support a contract covered by the statute of frauds, and
thereby permit such contract to be proved orally, it will be just
as binding upon the parties as if it had been reduced to writing
Acceptance of Benefits; The statute of frauds cannot be
invoked when the contract has already been partly executed; it
applies only to executory contracts
________
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. 1407. In a contract where both parties are incapable of
giving consent, express or implied ratification by the parent, or
guardian, as the case may be, of one of the contracting parties
shall give the contract the same effect as if only one of them
were incapacitated.
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.
________
Art. 1408. Unenforceable contracts cannot be assailed by third
persons.
________
Defense is Personal; The defense of the statute of frauds is
personal to the party to the agreement. It is like minority,
fraud, mistake, and other similar defenses which may be
asserted or waived by the party affected. Hence, it can be relied
upon only by the parties to the contract or their
representatives, and cannot be set up by strangers to the
agreement
________

Chapter 9. Void and Inexistent Contracts

Art. 1409. The following contracts are inexistent and void from
the beginning:

(1) Those whose cause, object or purpose is contrary to law,

morals, good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the
transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set
up the defense of illegality be waived.
________
Void or Inexistent Contracts; A void or inexistent contract is one
which has no force and effect from the very beginning, as if it
had never been entered into, and which cannot be validated
either by time or by ratification. This definition includes not
only those contracts in which one of the essential requisites is
totally wanting, but also those which are declared void by
positive provision of law or statute. A void or inexistent
contract is equivalent to nothing; it is absolutely wanting in civil
effects
VOID
The defect is inherent in the
contract itself
The nullity of the inexistent
contract is a matter of law
and public interest
There are no legal effects
even if no action is taken to
set it aside
The action to declare the
nullity of void contracts
never prescribes

RESCISSIBLE
The defect is in their effects,
either to one of the parties or
to a third party
Based on equity and is more a
matter of private interest
If no action is taken to set
aside, it remains valid and
produces all its effects
The
action
to
rescind
prescribes

VOID
UNENFORCEABLE
They cannot be the basis of actions to enforce compliance
Can never be ratified and Can be ratified and thereafter
become enforceable
enforced
There is no contract at all
There is a contract, which,
however, cannot be enforced
unless properly ratified
VOID
One in which one of those
essential
requisites
is
wanting, either in fact or in
law, or is declared void by
statute
Implies that there is no
contract but only the
appearance of one, and it
produces no effect even if
not set aside by a direct
action
Can be set up against anyone
who asserts a right arising
from it; not only against the
first, but against all his

VOIDABLE
Those in which the essential
requisites for validity are
present, but consent is vitiated
by want of capacity, or by
error, violence, intimidation,
undue influence, or deceit
Valid until it is set aside and its
validity may be assailed only in
an action for that purpose by a
party to the contract, and
never by a third person
Can be set up only against a
party thereto

95 | P

LATON

successors who are not

protected by law
Not
susceptible
of
ratification
The action to declare the
nullity of a void contract
does not prescribe

May be rendered perfectly

valid by ratification
The action for annulment of a
voidable contract prescribes

Characteristics of Void Contracts:

1. The contract produces no effect whatsoever either against
or in favor of anyone; hence, it does not create, modify, or
extinguish the juridical relation to which it refers
2. No action for annulment is necessary, because the nullity
exists ipso jure; a judgment of nullity would be merely
declaratory
3. It cannot be confirmed or ratified
4. If it has been performed, the restoration of what has been
given is in order
Parties Affected; Any person may invoke the inexistence of the
contract whenever juridical effects founded thereon are
asserted against him
Action on Contract; Even when the contract is void or
inexistent, an action is necessary to declare its inexistence,
when it has already been fulfilled. Nobody can take the law into
his own hands; hence, the intervention of the competent court
is necessary to declare the absolute nullity of the contract and
to decree the restitution of what has been given under it. The
judgment, however, will retroact to the very day when the
contract was entered into
If the void contract is still fully executory, no party need bring
an action to declare its nullity; but if any party should bring an
action to enforce it, the other party can simply set up the nullity
as a defense
Ratification; The nullity of these contracts is definite and cannot
be cured by ratification. The nullity is permanent, even if the
cause thereof has ceased to exist, or even when the parties
have complied with the contract spontaneously. The
ratification, however, may take the form of a new contract, in
which case its validity shall be determined only by the
circumstances at the time of execution of such contract. The
causes of nullity which have ceased to exist cannot impair the
validity of the new contract
________

However, an action to declare the non-existence of the contract

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 the declaration of non-existence of the contract
cannot be assigned
________
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
54
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. (1305)
________
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 other's
undertaking;
(2) When only one of the contracting parties is at fault, he
cannot recover what he has given by reason of the contract, or
ask for the fulfillment of what has been promised him. The
other, who is not at fault, may demand the return of what he
has given without any obligation to comply his promise. (1306)
________
Application of Articles; Articles 1411 and 1412 are not
applicable to fictitious or simulated contracts, because they
refer to contracts with an illegal cause or subject-matter,
whether it constitutes an offense, or whether the cause is only
rendered illegal, or to contracts which are null and void ab
initio. These articles, therefore, presupposes, the existence of a
cause, although such cause may be vitiated and may render the
contract void. Hence, they cannot refer to fictitious or
simulated contracts which are in reality non-existent. As
between the annullable and inexistent contracts, however,
those contemplated by these articles must be considered
before the law as inexistent
Mere knowledge of the illegality of the object/ cause makes the
55
party guilty

Art. 1410. The action or defense for the declaration of the

inexistence of a contract does not prescribe.
________

Illegality Common to Parties; Each must bear the consequences

of his own acts.

Defect Incurable; The defect of inexistence of a contract is

permanent and incurable; hence, it cannot be cured either by
ratification or by prescription

The doctrine of in pari delicto is not applicable where the

contract is merely prohibited by law, not illegal per se, and the
prohibition is designed for the protection of the rights of the
party seeking to recover

As between the parties to a contract, validity cannot be given

to it by estoppel if it is prohibited by law or is against public
policy

Only One Party Guilty; Where the parties to an illegal contract

are not equally guilty, and where public policy is considered as

Nature of Action; There is no need of an action to set aside void

or inexistent contract; in fact, such action cannot logically exist.

54
55

Confiscated in favor of the State

Class discussion with Atty. A.F.C.G.

96 | P

LATON

advanced by allowing the more excusable of the two to sue for

relief against the transaction, relief is given to him
Cases of Usury; The Usury Law contains all the provisions
necessary for its application. With regard to the capital loaned,
the law did not intent to close the courts to the creditor for
relief in the recovery of his principal. Articles 1411 and 1412,
therefore, are not applicable to a usurious contract and will not
justify the recovery by the debtor of the amounts he has
already paid on account of the principal borrowed by him; the
Usury Law limits his right to a recovery of usurious interest paid
during the two years preceding the making of the claim. But
where the only consideration for a deed of sale is accumulated
usurious interest, the entire consideration is illicit, the contract
is null and void, and the borrower may recover the property
conveyed, together with its fruits
________
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.
________
Recovery of Usurious Interest; Section 6 of Act No. 2655, known
as the Usury Law, provides that in such case the person who
paid usurious interest may recover the whole interest,
commissions, premiums, penalties and surcharges paid or
delivered if the action to recover is brought within two years
after such payment or delivery; in other words, the whole
usurious interest paid within the last two years preceding the
action can be recovered under the Usury Law
________
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 the public interest will thus be subserved,
allow the party repudiating the contract to recover the money
or property.
________
Repudiation of Illegal Contract; Where the parties to an illegal
contract are not equally guilty, and where public policy is
considered as advanced by allowing the more excusable of the
two to sue for relief against the transaction, relief is given to
him
The provisions of this article may modify some rulings or
decision rendered under Articles 1305 and 1306 (now 1411 and
1412), of the old Civil Code
________
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.
________
Art. 1416. When the agreement is not illegal per se but is
merely prohibited, and the prohibition by the law is designated
for the protection of the plaintiff, he may, if public policy is
thereby enhanced, recover what he has paid or delivered.
________

Illegal Per Se; An act or contract that is illegal per se is one that
by universally recognized standards inherently or by its very
nature bad, improper, immoral or contrary to good conscience
________
Art. 1417. When the price of any article or commodity is
determined by statute, or by authority of law, any person
paying any amount in excess of the maximum price allowed
may recover such excess.
________
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 thus fixed, he may demand additional compensation
for service rendered beyond the time limit.
________
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.
________
Art. 1420. In case of a divisible contract, if the illegal terms can
be separated from the legal ones, the latter may be enforced.
________
Divisible or Separable Contracts; As a general rule, the
provisions of this article must be applied if there are several
stipulations in the contract, some of which are valid and some
void. If the stipulations can be separated from each other, then
those which are void will not have any effect, but those which
are valid will be enforced. In case of doubt, the contract must
be considered as divisible or separable
The rule of divisibility given in this article, however, has two
exceptions: (1) when the nature of the contract requires
indivisibility, and (2) when the intention of the parties is that
the contract be entire
Nature of Contract; The very nature of the contract in some
cases requires that the nullity be total. For instance, in the case
of the contract of compromise
Intention of Parties; The rule of divisibility and partial
enforceability stated in this article must yield to the contrary
intention of the parties. In spite of the divisibility or
separability, the entire contract will be void if it is clear that the
parties would not have entered into it without the void part. If
the illegality, for instance, affects an essential part of the
contract, without which the parties would not have entered
into the contract, the entire contract is void. Thus, if there are
principal and accessory clauses, the nullity of the former carries
that of the latter
If the illegality does not affect the principal part, or that which
the parties must have contemplated as the desired minimum in
relation to the whole contract, as projected, then only the
illegal parts are void. Generally, therefore, the divisibility will be
followed when the nullity affects only the secondary or
accessory obligations
________

97 | P

LATON

Art. 1421. The defense of illegality of contract is not available to

third persons whose interests are not directly affected.
________
Nullity as Defense; The right to set up the nullity of a void or
inexistent contract is not limited to the parties, as in the case of
annullable or voidable contracts; it is extended to third persons
who are directly affected by the contract. Thus, where a
contract is absolutely simulated, third persons who may be
prejudiced thereby may set up its existence
Third persons whose interests are served by the nullity of the
contract may attack it, especially creditors of those who
dispose of their property under a void contract. The creditor
may attach the property thus alienated, asserting the nullity of
the alienation
________
Art. 1422. A contract which is the direct result of a previous
illegal contract, is also void and inexistent.
________
Adjunct Contracts; All contracts emanating from a void contract
56
will also be void

56

Class discussion with Atty. A.F.C.G.

98 | P

LATON