Art. 1159.

Obligations arising from contracts have the force of law

Title III. - NATURAL OBLIGATIONS between the contracting parties and should be complied with in good
TITLE 1 OBLIGATIONS faith.

CHAPTER 1 Example:
Tonix borrowed from Sky P1,000,000 and agreed that in case
General Provisions of non-payment on the date stipulated, Tonixs house and lot
would be sold to Sky for the amount of P1,000,000. Is the
Art. 1156. An obligation is a juridical necessity to give, to do or not to do. stipulation valid? Yes. If Tonix does not pay, he should sell the
house and lot for P1,000,000 to Sky. The agreement is not
OBLIGATIONS is a juridical relation whereby a creditor may demand from contrary to law.
the debtor the observance of a determinate conduct, and, in case of
breach, may obtain satisfaction from the assets of the debtor.

Essential requisites of an obligation Art. 1160. Obligations derived from quasi-contracts shall be subject to
the provisions of Chapter 1, Title XVII, of this Book.
a) An active subject, who has the power to demand the prestation,
known as the creditor or obligee; Quasi-contract is the juridical relation resulting from a lawful,
voluntary and unilateral act which has for its purpose the payment of
b) A passive subject, who is bound to perform the prestation, known as indemnity to the end that no one shall unjustly enrich or benefited at
debtor or obligor. the expense of another. (Art. 2142, NCC)

c) An object or the prestation which may consist in the act of giving, Solutio Indebiti (Payment by mistake)
doing or not doing something. It is the juridical relation which arises when a person is obliged to
return something received by him through error or mistake.
d) The vinculum juris or the juridical tie between the two subjects by
reason of which the debtor is bound in favor of the creditor to Example-
perform the prestation. It is the legal tie which constitutes the source Sky owed Tonix the sum of P1, 000.00. By mistake, Sky paid P2,
of obligationthe coercive force which makes the obligation 000.00. Tonix has the obligation to return the P1, 000.00 excess
demandable. It is the legal tie which constitutes the devise of because there was payment by mistake.
obligation the coercive force which makes the obligation
demandable. Negotiorum gestio (management of anothers property)
It is the voluntary management or administration by a person of the
Example: abandoned business or property of another without any authority or
power from the latter. (Art. 2144, NCC)
Thonyx enters into a contract of sale with Skaei who paid the purchase of a
Yamaha Mio. Thonyx did not deliver the Yamaha Mio. Thonyx is the passive Example-
subject or debtor and Skaei is the active subject or creditor. The object or Clint, a wealthy landowner suddenly left for abroad leaving his
prestation is the Yamaha Mio and the obligation to deliver is the legal tie or the livestock farm unattended. John, a neighbor of Clint managed the
vinculum juris which binds Thonyx and Skaei. farm thereby incurring expenses. When Clint returns, he has the
obligation to reimburse John for the expenses incurred by him and
to pay him for his services. It is bases on the principle that no one
shall enrich himself at the expense of another.
Art. 1157. Obligations arise from:

(1) Law;
Law: Example is the duty to pay taxes and to support ones family. Art. 1161. Civil obligations arising from criminal offenses shall be
Refer to Art. 1158. governed by the penal laws, subject to the provisions of Article 2177, and
of the pertinent provisions of Chapter 2, Preliminary Title, on Human
(2) Contracts; Relations, and of Title XVIII of this Book, regulating damages.
Contracts: Example is the duty to pay a loan by virtue of an
agreement. Refer to Art. 1159. While an act or omission is felonious because it is punished by law, the
criminal act gives rise to civil liability as it caused damage to another.
(3) Quasi-contracts;
Quasi-contracts: Example is the duty to refund an over charge of Civil liability arising from delicts:
money because of solutio indebiti or negtiorum gestio. Refer to Art. Restitution which is the restoration of or returning the object of the
1160. crime to the injured party.
Reparation which is the payment by the offender of the value of
(4) Acts or omissions punished by law; the object of the crime, when such object cannot be returned to the
Acts or omissions punished by law or Delict: Example is the duty to injured party.
return a stolen carabao. Refer to Art. 1161. Indemnification the consequential damages which includes the
payment of other damages that may have been caused to the
(5) Quasi-delicts injures party.
Quasi-delicts: Example is the duty to repair damages due to
negligence. Refer to Art. 1162. Example: Bowser was convicted and sentenced to imprisonment by the
Court for the crime of theft, the gold necklace, of Luigi. In addition to
whatever penalty that the Court may impose, Bowser may also be
Art. 1158. Obligations derived from law are not presumed. Only those ordered to return (restitution) the gold necklace to Luigi. If restitution is no
expressly determined in this Code or in special laws are demandable, longer possible, for Bowser to pay the value (reparation) of the gold wrist
and shall be regulated by the precepts of the law which establishes watch. In addition to either restitution or reparation, Bowser shall also pay
them; and as to what has not been foreseen, by the provisions of this for damages (indemnification) suffered by Luigi.
Book.

Example: It is the duty of the Spouses to support each other. Art. 1162. Obligations derived from quasi-delicts shall be governed by
(Art. 291, New Civil Code) the provisions of Chapter 2, Title XVII of this Book, and by special laws.

And under the National Internal Revenue Code, it is the duty of Quasi-delict is one where whoever by act or omission causes
every person having an income to pay taxes. damage to another, there being fault of negligence, is obliged to pay
for the damage done. Such fault of negligence, if there is no pre-
existing contractual relation between the parties. (Art. 2176)

Example:
University of Cebu 0
College of Law
 If Andrew drives his car negligently and because of his negligence way home, Andrew can ask Amy to comply with her obligation at her
hits Soriano, who is walking on the sidewalk of the street, inflicting own expense.
upon him physical injuries. Then Andrew becomes liable for
damages based on quasi-delict. Fortuitous Events those events which could not be foreseen or which
though foreseen were inevitable. (Art. 1174, NCC)

Art. 1166. The obligation to give a determinate thing includes that of

CHAPTER 2 delivering all its accessions and accessories, even though they may not
have been mentioned. (1097a)
NATURE AND EFFECT OF OBLIGATIONS
Accessories those joined to or included with the principal object for
Art. 1163. Every person obliged to give something is also obliged to take the latters better use, perfection, or enjoyment. (like the keys to a
care of it with the proper diligence of a good father of a family, unless the house and the dishes in the restaurant)
law or the stipulation of the parties requires another standard of care.
(1094a) Example:
Lleina promised to give Jack a particular pickup truck. Lleina should
To preserve or take care of the thing, with proper diligence of a good also deliver the tools and the spare tire of the said pickup truck.
father to a family. It means the ordinary diligence that a prudent man
would exercise in taking care of his own property taking into Accessions additions to or improvements upon a thing.
consideration the nature of the obligation, of the time and of the place.
Example:
Example: Jack obliged to give Lleina a certain piece of land. Jack should also
Richard obliged to give to Laila a wedding ring five days from now. When deliver including the accessions in the said piece of land, like the
the promise was due, Richard, for being too busy, lost the wedding ring building attached to it and all other infrastructure constructed.
he promised to Laila. Richard is liable to Laila for being negligent in
loosing the ring he promised. He should have properly taken care of it
with proper diligence of a good father of a family.

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

shall be executed at his cost.
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 This same rule shall be observed if he does it in contravention of the
over it until the same has been delivered to him. (1095) tenor of the obligation. Furthermore, it may be decreed that what has
been poorly done be undone. (1098)
Kinds of Rights:
Personal right is power demandable by one person of another. This provision mainly focuses on Positive Personal Obligation, or an
Real right is a power over a specific thing and is binding on the obligation to do.
whole world only when the thing is actually delivered to him.
Remedies if the debtor fails to do
Example: > To have the obligation performed at his expense and to demand
Leo obliged to give to Escorido a certain parcel of land on December damages.
25. Before December 25, Escorido do not have the right to the fruits
of the parcel of land Leo promised. After December 25, Escorido If a thing may be ordered undone
poseses the right to the fruits from the parcel of Land. Upon actual > If poorly made and if requires a negative obligation (not to do) for
delivery of the property to Escorido, only then he becomes the the debtor.
owner of said fruit and land on the day of delivery.
Example:
Antonio promised to construct a two-storey house for Comique. Few
hours after constructing the house of Comique, the roofing system of
Art. 1165. When what is to be delivered is a determinate thing, the the garage fell down. Comique can demand Antonio to undo the
creditor, in addition to the right granted him by Article 1170, may compel defect and reconstruct the garage roof at his expense since it was
the debtor to make the delivery. made poorly.

If the thing is indeterminate or generic, he may ask that the obligation be Art. 1168. When the obligation consists in not doing, and the obligor
complied with at the expense of the debtor. does what has been forbidden him, it shall also be undone at his
expense. (1099a)
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 This provision mainly focuses on Negative Personal Obligation or an
responsible for any fortuitous event until he has effected the delivery. obligation not to do.
(1096)
Remedies if the debtor fails to do
Determinate thing a thing is determinate when it is particularly > Is the undoing of the prohibited thing plus damages.
designated or physically segregated from all others from the same class.
(Art. 1460, NCC) Example:
Roniel promised to Inot not to use Inots money for gambling in
Example: Casinos but only for schooling, if in case Roniel does what he
Patrick promised to give to Ivy a Gucci Necklace Emperador model promised not to do, he will be liable to return the money he used in
five days from now. If after 6 days, Patrick has not yet delivered the gambling in the Casino and to pay Inot the same amount as penalty.
said necklace because he was robbed early in the morning on the If in case Roniel goes to the Casino and use Inots money in
6th day, even after consistent demand of Ivy for the necklace since gambling, he will be liable for the return of the money, the penalty
the day before, Ivy can compel Patrick to deliver the item since the and damages.
object was determinate or specific.

Indeterminate or generic thing A thing is generic when it refers to a

class or thing or genus and cannot be designated with particularity. (Art. Art. 1169. Those obliged to deliver or to do something incur in delay from
1460, NCC) the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
Example:
Amy promised to give to Andrew a gun, five days from now. If after However, the demand by the creditor shall not be necessary in order that
five days, Amy has not yet delivered the gun since she lost it on her delay may exist:
University of Cebu 1
College of Law
(1) When the obligation or the law expressly so declare; or tenant being leased by the latter because the landlord was not the owner
and the real owner wants to occupy the land, there is contravention of the
(2) When from the nature and the circumstances of the obligation it tenor of the obligation.
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
Art. 1171. Responsibility arising from fraud is demandable in all
(3) When demand would be useless, as when the obligor has rendered it obligations. Any waiver of an action for future fraud is void. (1102a)
beyond his power to perform.
Fraud may be either past or future. Meaning of fraud may be
In reciprocal obligations, neither party incurs in delay if the other does classified as
not comply or is not ready to comply in a proper manner with what is a. Fraud in obtaining consent
incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins. (1100a) Example:
Jack violently forced Jamero to sign a gratuitous contract in favor of
Mora means a legal delay or default and it consists of failure discharge a Jack which he also accepted. The means employed in order to
duty resulting to ones own disadvantaged. obtain consent was vitiated, thus the contract is considered void and
inexistent.
The debtor incurred delay if:
The debtor fails to perform his obligation when it falls due; and b. Fraud in performing the contract.
A demand has been made by the creditor judicially or extra judicially. Dolo causante (causal fraud)
Example Dolo incidental (incidental fraud)

Ria obliged herself to deliver a Siberian Husky Puppy to Lleina on Example:

June 20, this year. Ria failed to delivered on the agreed date, is Ria Lleina and Canoy entered into a contract of sale wherein Lleina will
already on delay on June 20? Only when Lleina makes a judicial or buy a certain scooter of Canoy and in turn deliver the scooter upon
extra-judicial demand and from such date of demand when Ria still payment of Lleina which is five days after the birth of the contract. It
fails to deliver the said puppy, she is on default or delay. is also stipulated in their contract that if ever Canoy cannot deliver
for any reason, she will not be responsible for it. Canoy sold and
Exceptions for the requirement of demand delivered the scooter to Jack, thus never delivered the scooter to
Lleina. Canoy is still liable for damages since the stipulation in the
When the obligation expressly so provides An agreement to the effect contract waiving any act of future fraud is deemed void, so Lleina
that fulfillment or performance is not made when the obligation becomes can still claim damages against Canoy.
due, default or delay by the debtor will automatically arise.

When the law so provides The express provision of law that a debtor is
in default. For instance, taxes must be paid on the date prescribed by Art. 1172. Responsibility arising from negligence in the performance of
law, and demand is not necessary in order that the taxpayer is liable every kind of obligation is also demandable, but such liability may be
for penalties. regulated by the courts, according to the circumstances. (1103)

When time is of the essence Because time is the essential factor in the Kinds of Culpa classified as to source of obligations
fulfillment of the obligation. Example, Vicky binds herself to sew the Culpa Contractual that which results in a breach of a
wedding gown of Laila to be used by the latter on her wedding date. Vicky contract.
did not deliver the wedding gown on the date agreed upon. Even without
demand, Vicky will be in delay because time of the essence. Example: Emi, proprietor of Emi Taxi Company, hired Parekoy
as one of her driver of her taxi units. Tonix was able to chance
upon Emis taxi, Parekoy being the driver. Parekoy drove
When demand would be useless When the debtor cannot comply his negligently fast on a barangay road and accidentally hit a lamp
obligation as when it is beyond his power to perform. Like when the post while turning a curb. The accident resulted to some
object of the obligation is lost or destroyed through the fault of the debtor, bruises on Tonix. However, Emi is liable for the negligence
demand is not necessary. acted by Parekoy, and is subject for damages for breach of
contract of carriage.
In a reciprocal obligation, from the moment one of the parties fulfills his
obligation, delay to the other begins For instance, in a contract of sale Culpa Aquiliana also referred to as civil negligence or tort or
between Jack and Jamero, if Jack, the seller, delivers the object to quasi-delict
Jamero, the buyer, and Jamero does not pay, then delay by Jamero
begins and vice versa, if Jamero pays and Jack did not deliver the object, Example: Referring to the same problem stated above. If
then Jack is on delay. Parekoy while driving Tonix to his place, drove negligently fast
and accidentally hit a lamp post while turning a curb, and at the
same time caused physical injuries to a Sky, a bystander in the
curb. Sky can file a case against Emi, the owner of Emi Taxi
Art. 1170. Those who in the performance of their obligations are guilty of Company and her driver parekoy.
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages. (1101) Culpa Criminal also called as criminal negligence, or that
which results in the
Fraud (dolo) is the intentional deception made by one person resulting commission of a crime or a delict.
in the injury of another. The fraud referred to is incidental fraud, that is,
fraud incident to the performance of a pre-existing obligation. Refer to Example: Referring to the same problem stated above. Sky can
Article 1171. also file an criminal action against Parekoy for reckless
imprudence resulting to physical injuries.
Negligence (culpa) consists in the omission by the obligor of that
diligence which is required by the nature of the obligation and
corresponds with the circumstances of the person, of the time and of the
place. Refer to Article 1173. 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
Delay (Mora) like when there has been judicial or extra-judicial demand corresponds with the circumstances of the persons, of the time and of
and the debtor does not comply his obligation, delay will occur. Also refer the place. When negligence shows bad faith, the provisions of Articles
to Article 1169. 1171 and 2201, paragraph 2, shall apply.

In contravention of the tenor of the obligation refers to the violation of

the terms and conditions or defects in the performance of the obligation,
like when a landlord fails to maintain a legal and peaceful possession of a
University of Cebu 2
College of Law
If the law or contract does not state the diligence which is to be observed Example: Dong Juan, creditor of P 1M, with 8% interest, received
in the performance, that which is expected of a good father of a family P1,000,000 in payment of the principal. Interest was not referred to in the
shall be required. (1104a) payment. It is presumed that the 8% interest had already been previously paid.
This is because under Article 1253 of this code, payment of the interest as a
Degrees of Culpa rule precedes payment of the principal.
Grave Negligence is required slight negligence will make the
debtor liable.

Ordinary Negligence is required ordinary negligence will Art. 1177. The creditors, after having pursued the property in possession
make the debtor liable. 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
Slight Negligence is required grave negligence will make the inherent in his person; they may also impugn the acts which the debtor
debtor liable may have done to defraud them. (1111)

Rights of Creditors In order to satisfy their claims against the debtor,

creditors have the following successive rights:
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 1. to levy by attachment and execution upon all the property of the
requires the assumption of risk, no person shall be responsible for those debtor, except such as are exempt by law from execution;
events which could not be foreseen, or which, though foreseen, were
inevitable. (1105a) 2. to exercise all the rights and actions of the debtor, except, such as
are inherently personal to him; and
Fortuitous even is an event which cannot be foreseen which though
foreseen is inevitable. 3. to ask for the rescission of the contracts made by the debtor in fraud
of their rights.
Fortuitous event proper are acts of God such as volcanic eruption,
earthquake, lightning, etc. is now similar with force majuere or acts of
man such as conflagration, war, robbery, etc.
Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation
Requisite necessary to constitute fortuitous event are transmissible, if there has been no stipulation to the contrary. (1112)

The failure of the debtor to comply with the obligation As a rule, all rights acquired in virtue of an obligation are transmissible,
must be independent from the human will; except in the following cases:

The occurrence makes it impossible for the debtor to fulfill When the law so provides.
the obligation on a normal manner, and the obligor did not
take part as to aggravate the injury of the creditor. When the parties stipulate otherwise by agreement of parties that the
(Vasquez v.C.A. G.R. 42926) rights acquired by them will not be transmitted to any other person.

As a general rule, no person shall be held responsible for fortuitous When the obligation is purely personal in nature.
events

Example Lyka obliged herself to deliver a determinate car to

Dockie on Dec. 30, 2012. Before the arrival of the period, the CHAPTER 3
car was struck by lightning and was totally destroyed. Lyka
cannot be held responsible for the destruction of the car, hence DIFFERENT KINDS OF OBLIGATIONS
her obligation to deliver is extinguished.
SECTION 1. - Pure and Conditional Obligations
Exceptions (when the person is responsible despite the fortuitous even).
Art. 1179. Every obligation whose performance does not depend upon a
a. When the law expressly so provides, such as: future or uncertain event, or upon a past event unknown to the parties, is
demandable at once.
The debtor is guilty of fraud, negligence or in
contravention of the tenor of the obligation. Refer to Article Every obligation which contains a resolutory condition shall also be
1170. demandable, without prejudice to the effects of the happening of the
The debtor has proved to deliver the same thing to two or event. (1113)
more persons who do not have the same interest. Refer to
Pure Obligation when the obligation contains no term or condition
Article 1165.
whatever upon which depends the fulfillment of the obligation contracted
The thing to be delivered is generic.
by the debtor. It is immediately demandable and there is nothing to
The debtor is guilty of default or delay. Refer to Article
exempt the debtor from compliance therewith.
1169.
The debtor is guilty of concurrent negligence. Example Ivy obliged herself to pay her loan of P1,000 to Sky on
demand.
b. When declared by stipulation;

c. When the nature of obligation requires the assumption of risk. An

example of this is a contract of insurance. 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. (n)
Art. 1175. Usurious transactions shall be governed by special laws. (n) Example: Tonix promised to pay Jack his P50,000.00 loan when his
means permit. This is an obligation with an indefinite period. Jacks
remedy to insure and schedule the payment of Tonix is to go to let
the court fix a period.
Art. 1176. The receipt of the principal by the creditor without reservation
with respect to the interest, shall give rise to the presumption that said
interest has been paid.
Art. 1181. In conditional obligations, the acquisition of rights, as well as
The receipt of a later installment of a debt without reservation as to prior the extinguishment or loss of those already acquired, shall depend upon
installments, shall likewise raise the presumption that such installments the happening of the event which constitutes the condition. (1114)
have been paid. (1110a)
University of Cebu 3
College of Law
 Suspensive condition the happening of the condition gives rise to an company if Guno will not join a labor
obligation. union.

Example: Lyka binds herself to deliver a determinate car to Tonix if Effects of Impossible conditions:
he marries Guno. The obligation is only demandable upon the happening If the
of the condition that is, if Tito marries Guno. The obligation is suspended condition is Positive and Impossible = the condition and obligation is
and not yet demandable. void

Resolutory condition the happening of the condition extinguishes the Example: Andrew obliged to pay Jack P1,000,000 if Jack
obligation already existing. kills Andrews business competitor.

Example: Sky binds himself to lend his only car to Ivy until the latter If the condition is Negative and Impossible = the condition
passes the Bar Exam. The obligation to lend is immediately demandable. is void but the obligation remains.
Ivys right over the car is extinguished upon his passing the Bar exam. Ivy
is now obliged to return the car. Example: Lleina obliged to give Jack a condominium unit
if he does not raise a dead man alive. In this case the obligation still
subsists.

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 Art. 1184. The condition that some event happen at a determinate time
effect in conformity with the provisions of this Code. (1115) shall extinguish the obligation as soon as the time expires or if it has
become indubitable that the event will not take place. (1117)
Potestative is one the fulfillment of which depends upon the sole
will of the debtor. This kind of condition is void. This article contemplates on a positive obligation, or an obligation to
do. Example: Ill give you my land if you marry Amy this year. If
Example: Andrew Promised to give his only parcel of land before the end of the year Amy died, and you have not yet married
to Amy if he decides to leave for the United States. her, the obligation is extinguished.

Art. 1185. The condition that some event will not happen at a determinate
time shall render the obligation effective from the moment the time
Casual is one the fulfillment of which depends upon chance. indicated has elapsed, or if it has become evident that the event cannot
occur.
Example: Marianne agrees to give Lila a determinate car if
Mariannes only racing horse will win the sweepstake If no time has been fixed, the condition shall be deemed fulfilled at such
race. time as may have probably been contemplated, bearing in mind the
nature of the obligation. (1118)
Mixed is one which depends partly upon the will of third person
and partly upon chance. This article contemplates on a negative obligation, or an obligation
to not to do. Example: Ill give you my land if you will not marry Amy
Example: Tonix promise to give Sky a new Toyota Car if this year. If before the end of the year Amy died, and you have not
Sky will be able to play with and beat Dominic in a game yet married her, the obligation is effective.
of chess. This is mixed condition, that is Dominics
willingness to play chess with Sky and the latters winning
over Dominic.
Art. 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment. (1119)

Art. 1183. Impossible conditions, those contrary to good customs or Requisites:

public policy and those prohibited by law shall annul the obligation Voluntary intent to prevent the fulfillment of the condition must be
which depends upon them. If the obligation is divisible, that part thereof present.
which is not affected by the impossible or unlawful condition shall be Actually Prevents the intention has been fully acted
valid.
Example: Lleina promised Jack that she will give him an 8-string
The condition not to do an impossible thing shall be considered as not guitar if he passes the bar exam. On the day of the bar exam, Lleina
having been agreed upon. (1116a) poisoned Jack. Jack missed some of the exams as a result and
flunked the bar exam. Lleina is still bound to give Jack an 8-string
Impossible condition is divided into 2: guitar.

a) Physical Impossibility the condition imposed is not

capable of being performed physically.
Art. 1187. The effects of a conditional obligation to give, once the
Example: Lleina will give Jack an Ipad if he can condition has been fulfilled, shall retroact to the day of the constitution
bring a dead man alive. of the obligation. Nevertheless, when the obligation imposes reciprocal
prestations upon the parties, the fruits and interests during the
b) Illegal Impossibility when the condition imposed is contrary pendency of the condition shall be deemed to have been mutually
to law, good custom or public policy. compensated. If the obligation is unilateral, the debtor shall appropriate
the fruits and interests received, unless from the nature and
Example: circumstances of the obligation it should be inferred that the intention of
the person constituting the same was different.
1. Contrary to law Pedro agrees to
give Paulino P100,000 if Paulino will In obligations to do and not to do, the courts shall determine, in each
kill Maria. case, the retroactive effect of the condition that has been complied with.
(1120)
2. Contrary to good custom Andrew
binds himself to give Marianne a gold Once the condition is fulfilled, the effects of the conditional obligations
bracelet if she will cohabit with Mr. shall retroact to the day of the constitution of the obligation and not on the
Abing without benefit of marriage. date when the condition was fulfilled.

3. Contrary to public policy Marianne Example: On Jan. 1, 2015 Jack agreed to give Lleina a parcel of
agrees to employ Guno in her land if she passes the May, 2015 bar exams. If Lleina passes the
bar exams in May, 2015, she is entitled to the land effective Jan. 1,
University of Cebu 4
College of Law
 2015 because Lleinas right over the land retroacts to the date when Art. 1189. When the conditions have been imposed with the intention of
the obligation was constituted. suspending the efficacy of an obligation to give, the following rules shall
be observed in case of the improvement, loss or deterioration of the
As to the fruits and interest The effect of conditional obligation to give, thing during the pendency of the condition:
as a rule, do not retroact to the date of the constitution of the obligation.
The following rules shall govern: (1) If the thing is lost without the fault of the debtor, the obligation shall
be extinguished;
In reciprocal obligation (like a contract of sale) the fruits and
(2) If the thing is lost through the fault of the debtor, he shall be obliged
interest during the pendency of the condition shall be deemed to
to pay damages; it is understood that the thing is lost when it perishes,
have been mutually compensated.
or goes out of commerce, or disappears in such a way that its existence
is unknown or it cannot be recovered;
Example: Abing agrees to sell and Baring agrees to buy
Abings parcel of land if Baring passes the May, 2013 Bar (3) When the thing deteriorates without the fault of the debtor, the
exams. If Baring passes the May, 2013 bar, the obligation impairment is to be borne by the creditor;
becomes demandable. Baring is entitled to all the
(4) If it deteriorates through the fault of the debtor, the creditor may
interests that his money (with which to pay Abing) may
choose between the rescission of the obligation and its fulfillment, with
earn while Abing is entitled to the fruits which the parcel of
indemnity for damages in either case;
land may have produced during the pendency of the
condition. (5) If the thing is improved by its nature, or by time, the improvement
shall inure to the benefit of the creditor;
In unilateral obligation the debtor shall appropriate the fruits and
(6) If it is improved at the expense of the debtor, he shall have no other
interests received during the pendency of the condition unless a
right than that granted to the usufructuary. (1122)
contrary intention appears.
These rules apply only to obligation to give a determinate or specific thing
Example: Xam agreed to give Yuri a parcel of land if Yuri subject to a suspensive condition in case of loss, deterioration or
passes the CPA Board in May, 2012 exams. Pending the improvement of the thing.
happening of the condition, Xam is entitled to the fruits
1. In case of loss of the thing without the fault of the debtor,
which the land may produce, Xam will deliver only the
the obligation shall be extinguished. If the thing is lost
parcel of land if the condition is fulfilled, unless a contrary
through the fault of the debtor, he shall be obliged to pay
intention appears.
damages. If in the example above, the specific car was
lost through the fault of Reyes, he shall be liable for
Art. 1188. The creditor may, before the fulfillment of the condition, bring damages upon the fulfillment of the condition.
the appropriate actions for the preservation of his right.
Example: Jack obliged himself to give Lleina a
The debtor may recover what during the same time he has paid by determinate car if he passes the CE Board Exams in Oct.
mistake in case of a suspensive condition. (1121a) the current year. If during the pendency of the condition
the car was lost through fortuitous event without the fault
Preservation of Creditors Right of Jack, the obligation to deliver the car is extinguished
The action for the preservation of the creditors right may have for their even if the condition is fulfilled later.
objectives:
To prevent the loss or deterioration of the things which are the
objects of the obligation by enjoining or restraining acts of It is understood that the thing is lost:
alienation or destruction by the debtor himself or by third When it perishes (as when a house is burnt to ashes)
person;
When it goes out of commerce (as when the object before is
Paragraph I of the above article authorizes the creditor to take any unprohibited becomes prohibited)
appropriate actions for the preservation of creditors right during the When disappears in such a way that its existence is unknown (as
pendency of the condition: when a particular car has been missing for some time)
Example: On Jan. 1, 2012, Paul obliged himself to sell a When it disappears in such a way that it cannot be recovered (as
parcel of land to Densyo if he passes the CE Board exams in when a particular diamond ring is dropped in the middle of the
December, 2012. From the time the obligation was constituted Atlantic Ocean).
and pending the happening of the condition (passing the CE
Board Exams) Densyo may cause the annotation of the
condition in the certificate of title in the Register of Deeds 2. When the thing deteriorates -
where the land is located, to preserve his right over the parcel
a) When the thing deteriorates during the
of land.
pendency of the condition, without the fault of
the debtor, the impairment is to be borne by the
Paragraph II in order that debtor may recover what he has paid by creditor.
mistake, during the pendency of the condition, the following
requisites may be present: Example: Jack obliged himself to give Tonix a
determinate Toyota car if Tonix passes the
1. The debtor paid the creditor before the fulfillment of the October CPA Exams. During the pendency of
condition; the condition, the car was partially damaged by
flood, without the fault on the part of Jack. If the
2. Payment made by debtor was through mistake and error; condition is fulfilled, Ian will bear the
impairment.
The action to recover what was paid by mistake should be made b) If the thing deteriorates, during the pendency of
before the fulfillment of the condition. the condition, through the fault of the debtor, the
creditor may choose, after the fulfillment of the
Example: Patrick obliged himself to pay Sky P20,000 if a condition, between the rescission of the
PAL plane crashes at Cebu before Dec. 30, 2012. After obligation or its fulfillment, with indemnity for
the obligation was constituted and before December 30, damages in either case.
2012, a plane crushed in Cebu. Patrick honestly and
believing that the condition was fulfilled paid the P20,000
to Santos. It turned out however that it was a Cebu airline 3. When the thing improved
that crushed. Thus, Pedro may recover the amount paid to
Santos by mistake for the reason that the condition has a) If the thing improved during the pendency of the
not yet been fulfilled. condition, by its nature, or by time, the
improvement shall inure to the benefit of the
creditor. The reason for this is to compensate
the creditor who would suffer in case, instead of
University of Cebu 5
College of Law
 improvement, there would be deterioration The right to rescind means the right to cancel or to resolve in case of
without the fault of the debtor. reciprocal obligation in case of non-fulfillment on the part of one.
b) If the thing is improved at the expense of the
Example: In a contract of sale, the buyer can rescind if the
debtor, he have no other right than that granted
seller does not deliver or the seller can rescind if the buyer
to the usufructuary. By us usufruct is meant the
does not pay.
right to enjoy the property of another which
includes the right to enjoy and use the fruits of
The power to rescind is given to the injured party and the injured
the property.
party has the following alternative remedies:
In summary:
1. Demand fulfillment of the obligation plus damages; or
Creditor's Not thru Debtor's
Debtor's Fault
Rights Fault 2. Demand rescission of the obligation plus damages.
Lost Pay Damages Extinguished

Recission or
Impairment to the
Deteriorate Fulfillment, both
Creditor Art. 1192. In case both parties have committed a breach of the obligation,
with damages
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
Improve Usufructuary - contract, the same shall be deemed extinguished, and each shall bear
his own damages. (n)

Rules if Both Parties Have Committed a Breach: The above rules

Art. 1190. When the conditions have for their purpose the extinguishment are deemed just. The first one is fair to both parties because the
of an obligation to give, the parties, upon the fulfillment of said second infract or, though they would derive some advantage by his
conditions, shall return to each other what they have received. own act or neglect. The second rule is likewise just, because it is
presumed that both parties at about the same time tried to reap
In case of the loss, deterioration or improvement of the thing, the some benefits. (Report of the Code Commission)
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. Example: Jack agreed with Richard that he will sell his brand new 8-
string guitar to Richard. Jack delivered to Richard the 8-string guitar,
As for the obligations to do and not to do, the provisions of the second not mentioning to Richard that it is defective. Richard also paid Jack
paragraph of Article 1187 shall be observed as regards the effect of the with half of the amount with fake money. In this case, the remedy is
extinguishment of the obligation. (1123) to let the courts temper each liability to the other.

Effects when resolutory condition is fulfilled:

1. The obligation is extinguished. (Art. 1181, NCC) SECTION 2. - Obligations with a Period

2. Because the obligation is extinguished and considered to have had Art. 1193. Obligations for whose fulfillment a day certain has been fixed,
no effect, the parties should restore to each other what they have shall be demandable only when that day comes.
received.
Obligations with a resolutory period take effect at once, but terminate
3. The fruits and interests thereon should also be returned after upon arrival of the day certain.
deducting of course the expenses made for the production,
gathering and preservation, if any. A day certain is understood to be that which must necessarily come,
although it may not be known when.
4. The rules given in Art. 1189, N CC will apply to whoever has the duty
to return in case of loss, deterioration or improvement of the thing. 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
5. The courts are given power to determine the retroactivity of the preceding Section. (1125a)
fulfillment of a resolutory conditions.
A period is a future and certain length of time which determines the
Example : Abing gave Ivy a parcel of land on condition that Ivy will effectivity or the extinguishment of obligation. Obligation with a period is
pass the Bar Exams on May, this year. Ivy did not pass the Bar one whose consequences are subject in one way or another to the
Exams. The obligation is extinguished and therefore, it is as if there expiration of said period or term. A day certain is understood to be that
was never an obligation at all. Ivy will therefore have to return both which must necessarily come, although it may not be known when.
the land and the fruits he had received there from the moment
Abing has given him the land. Period and Condition Distinguished:
As to fulfillment - A period is a certain event which must happen sooner
or later while a condition is an uncertain event.

Art. 1191. The power to rescind obligations is implied in reciprocal ones, As to time a period refers only to the future while a condition may refer
in case one of the obligors should not comply with what is incumbent to a past unknown event.
upon him.
As to influence or effect on the obligation the period fixes the time of the
The injured party may choose between the fulfillment and the rescission effectivity of the obligation while a condition may cause the demandability
of the obligation, with the payment of damages in either case. He may of the obligation to arise or to terminate.
also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible. Example: Lleina promised to Jack that she will buy and give him an
Ibanez 8-string guitar on June 1, 2012. When June 1, 2012 come,
The court shall decree the rescission claimed, unless there be just cause Lleinas obligation to give will be demandable.
authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons

who have acquired the thing, in accordance with Articles 1385 and 1388 Art. 1194. In case of loss, deterioration or improvement of the thing
and the Mortgage Law. (1124) before the arrival of the day certain, the rules in Article 1189 shall be
observed. (n)

University of Cebu 6
College of Law
 Effect of loss, deterioration, or improvement before the arrival of If an obligation does not state a judicial period and no period is
period. intended, the court is not authorized to fix a period. The courts have
no right to make contracts for the parties.
Also refer to Article 1189, NCC.
Exceptions:
Example: If Andrew was suppose to deliver to Brian a
particular car on Dec. 19, 2011 but the car was destroyed by 1. If the obligation does not fix a period but it can be inferred from its
fortuitous event in July 1, 2011, the obligation is extinguished. nature and circumstances that a period is intended.

Example: Steff sold a parcel of land to Abing with a right of

repurchase. No term is specified in the contract for the exercise of
Art. 1195. Anything paid or delivered before the arrival of the period, the the right. Then, the court is authorized to fix the period to
obligor being unaware of the period or believing that the obligation has repurchase.
become due and demandable, may be recovered, with the fruits and
interests. (1126a) 2. If the duration of the period depends upon the sole will of the debtor

Effect Of Payment Before Arrival of Period Example: I will pay you as soon as possible. Here, the period is not
fixed, so the court may fix the same because if this is not so the
This article which is similar to Article 1188, NCC, in an obligation to obligation may never be complied with by the debtor.
give, allows the recovery of what has been paid by mistake before
the fulfillment of a suspensive condition.

Example: Erin owes Grant P20,000.00, which was supposed to be Art. 1198. The debtor shall lose every right to make use of the period:
paid on December 25 this year. By mistake, Erin paid his obligation
on December 25 last year. Assuming that today is only June 30, Erin (1) When after the obligation has been contracted, he becomes insolvent,
can recover the amount plus interest therein. But Erin cannot unless he gives a guaranty or security for the debt;
recover, except the interest, if the debt had already matured or if
Erin had knowledge of the period. (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
Art. 1196. Whenever in an obligation a period is designated, it is after their establishment, and when through a fortuitous event they
presumed to have been established for the benefit of both the creditor disappear, unless he immediately gives new ones equally satisfactory;
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 (4) When the debtor violates any undertaking, in consideration of which
of the other. (1127) the creditor agreed to the period;

Presumption as to benefit of a Period: The general rule is that when (5) When the debtor attempts to abscond. (1129a)
a period is fixed by the parties, the period is presumed to be for the
benefit of both creditor and debtor. Which means that before the The general rule is that the obligation is not demandable before the lapse
expiration of the period, the debtor may not fulfill the obligation and of the period. The exceptions are based on the fact that the debtor might
neither the creditor demands its fulfillment? not be able to comply with his obligation:

By way of exceptions, however, if the tenor of the obligation or other When debtor becomes insolvent:
circumstances may indicate that a period is have been established
for the benefit of either the creditor or debtor: The insolvency need not be judicially declared. It is sufficient that the
debtor has less assets than his liabilities or if debtor is unable to pay
1. For the benefit of both creditor and debtor his debts as they mature. It is noted that the insolvency of the debtor
Example: Jack obtained a loan of P10, 000 at 12% must occur after the obligation has been contracted.
interest per annum from Leo for one year. Jack has a
period of one year within which to use the money, When debtor does not furnish guaranties or securities promised:
while Leo will benefit from the interest which the
money will earn. Example: Green borrowed loan from Tonix which loan was
secured by a chattel mortgage of Greens car as a
2. For the benefit of the creditor guaranty. After obtaining the loan, Green fails or does not
Example: Jack executes a promissory note in favor execute a chattel mortgage, the loan becomes
of Leo which reads: I promise to pay Leo for order demandable or the debtor loses her right to make use of
the amount of P10,000 on demand. Thus, Leo can the period.
demand payment from Jack anytime.
When by his own acts he has impaired said guaranties or securities:
3. For the benefit of debtor
Example: Jack executes a promissory note which Example: Green borrowed P50, 000 from Tito which loan
reads: I promise to pay Leo for order the amount of was secured by a chattel mortgage on Greens car. Later,
P 10,000 or before December 31, 2001. Jack can Greens fault, the car was damaged or she causes the
pay her obligation on or before Dec. 31, 2001. impairment of the car, Green loses her right to make use
of the period, unless she gives another one equally
satisfactory.

When by fortuitous event, the guaranty or security was lost.

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 Example: Green borrowed P50,000 from Tonix which loan
courts may fix the duration thereof. was secured by a chattel mortgage on Greens car. After
obtaining the loan, the car was lost by fortuitous event.
The courts shall also fix the duration of the period when it depends upon Green loss his right to make use of the period unless he
the will of the debtor. gives another guaranty or security equally satisfactory.

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. (1128a) When debtor violates an undertaking

Court Generally is Without Power to Fix a Period

University of Cebu 7
College of Law
 Example: Arthur secured a loan from Arnel on condition Until the choice is made and communicated, the communicated, the
that Art will paint the house of Arnel. If after the proceeds obligation remains alternative. Once the notice to the effect that a
of the loan were given to Arthur, he did not pant the house choice is made, the obligation ceases to be alternative and becomes
of Arnel, Arthur loses his right to make use of the period. a simple obligation.

When the debtor attempts to abscond. Where the choice has been expressly given to the creditor, such
choice shall likewise produce legal effects upon being
Abscond means a depart or escape from creditors knowledge to communicated to the debtor. (Art. 1205, par. 1)
avoid payment of his debt. Mere attempt on the part of debtor will
entitle the creditor to demand payment of the obligation without Example: Lleina promised to give to Jack her Netbook, or her Ipad
waiting for the period to expire. or her mountain bike 5 days from now. Shes told some of Jacks
friend that she will give the netbook. When the obligation was due,
Lleina expressly communicated to Jack to give the mountain bike.
The choice of giving the mountain bike is binding to Lleina.
SECTION 3. - Alternative Obligations

Art. 1199. A person alternatively bound by different prestations shall

completely perform one of them. Art. 1202. The debtor shall lose the right of choice when among the
prestations whereby he is alternatively bound, only one is practicable.
The creditor cannot be compelled to receive part of one and part of the (1134)
other undertaking. (1131)
Example: Xander obliged to give Yuri either object A or object B or
Meaning of Alternative Obligation: It means an obligation where two or object C. If objects A and B are lost by fortuitous event before choice
more prestations are due but the delivery of one is sufficient to extinguish can be made, Xander can deliver only object C, because the
the obligation. obligation has become a simple one. If later, object C is also
destroyed by a fortuitous event, the obligation is extinguished, and
Example: Lleina binds herself to give Jack either a determinate Xander would not be liable in any way.
refrigerator or a TV set. If Lleina chooses and delivers the TV set,
the obligation is extinguished. Thus, Lleina cannot compel Jack to
accept part of one and the part of the other prestations.
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. (n)
Art. 1200. The right of choice belongs to the debtor, unless it has been
expressly granted to the creditor. When debtor may rescind contract: If through the creditors fault, the
debtor cannot made a choice according to the terms of the
The debtor shall have no right to choose those prestations which are obligation the debtor is given the right to rescind and recover
impossible, unlawful or which could not have been the object of the damages.
obligation. (1132)
Example: Guno borrowed from Tonix P5, 000.00. It was agreed that
Rule on who makes the choice: instead of P5, 000, Guno could deliver a TV set or a refrigerator or a
piano. If through the fault of Tonix, the TV set was destroyed, Guno
As a general rule, the right of choice or to select the prestation can rescind the contract if she wants. In case of rescission, the
belongs to the debtor, unless the right to choose is expressly amount of P 5, 000.00 must be returned by Guno with interest.
granted to the creditor. But the right of the debtor is subject to the Tonix, in turn, must pay Guno the value of the TV set plus damages.
following:

The debtor cannot choose those prestations which are:

Art. 1204. The creditor shall have a right to indemnity for damages when,
a) Impossible Example: Lleina promised to deliver to Jack through the fault of the debtor, all the things which are alternatively the
100 sacks of rice or a stone from Uranus. Lleina cannot object of the obligation have been lost, or the compliance of the
chose to deliver the stone coming from Uranus as it is obligation has become impossible.
physically impossible.
The indemnity shall be fixed taking as a basis the value of the last thing
b) Unlawful Example: Jack obliged herself to deliver to Lleina which disappeared, or that of the service which last became impossible.
a kilo of shabu or a parcel of land. Jack can choose only
the delivery of parcel of land. Damages other than the value of the last thing or service may also be
awarded. (1135a)
c) Could not have been the object of the obligation Example:
Lleina borrowed from Jack P50,000. It was agreed that When right of choice is with debtor and all prestations were lost
Lleina would give Jack her horse or her German Piano.
Now, Lleina has two horses, a race horse worth P50,000 This article entitles the creditor to indemnity for damages when all
and an ordinary horse which is worth for only P5,000. the alternative objects are lost through the fault of the debtor before
Gaya cannot choose the ordinary horse, since it is not the he has made his choice. The indemnity for which the creditor is
horse which Lleina promised. entitled shall be based on the value of the last thing which
disappeared or lost or the compliance of the obligation has become
d) Only one prestation is practicable (Art. 1202) Example: impossible.
Lleina will deliver to Jack her carabao, or her horse or her
refrigerator. Through no fault of Lleina, the horse and the Example: Xander obliged to give Yuri either object A or object B or
carabao were lost by fortuitous event. Lleina can only object C. If all objects were lost through the acts of the debtor event
delivery the refrigerator which is the only one practicable. before choice can be made, Xander is liable to pay Yuri an amount
equal to the last thing lost to be paid with damages.

Art. 1205. When the choice has been expressly given to the creditor, the
Art. 1201. The choice shall produce no effect except from the time it has obligation shall cease to be alternative from the day when the selection
been communicated. (1133) has been communicated to the debtor.

Right of Choice Must be communicated Until then the responsibility of the debtor shall be governed by the
following rules:

University of Cebu 8
College of Law
(1) If one of the things is lost through a fortuitous event, he shall perform distinct from one another, subject to the Rules of Court governing the
the obligation by delivering that which the creditor should choose from multiplicity of suits. (1138a)
among the remainder, or that which remains if only one subsists;
Joint Obligation It is an obligation where there is a concurrence of
(2) If the loss of one of the things occurs through the fault of the debtor, two or more debtors or two or more creditors or of several debtors
the creditor may claim any of those subsisting, or the price of that which, and creditors, by virtue of which each of the debtors is liable for a
through the fault of the former, has disappeared, with a right to damages; proportionate part of the credit.

(3) If all the things are lost through the fault of the debtor, the choice by Example of different instances
the creditor shall fall upon the price of any one of them, also with
indemnity for damages. 1.) Patrick, Leo, and Roniel borrowed P9,000 for Lyka.
The presumption is that Patrick, Leo, and Roniel are
The same rules shall be applied to obligations to do or not to do in case jointly liable. Lyka demand only P3,000 from each or a
one, some or all of the prestations should become impossible. (1136a) total of P9,000.

When Right of Choice is With Creditor and All Prestations Were Lost 2.) Abing borrowed from Leo, Roniel and Lyka P9,000.
There is one debtor and three creditors. Each creditor can
This article provides for the rules to be observed when the right of demand only P3,000 from A.
choice is expressly granted to the creditor, the rules are as follows:
3.) Abing and Leo are liable to Roniel and Lyka for P9,000.
1. When a thing is lost through a fortuitous event There are two debtors and two creditors. Each creditor
can demand only P4,500 from each debtor.
Example: Ivy obliged herself to deliver to Skai a TV set, or
a refrigerator, or a piano. If the TV set was lost through There are solidary liability when:
fortuitous event, Skai can choose from among
the remainder or that which remains if only one subsists. 1.) The obligation expressly so states, or

2. When a thing is lost through debtors fault 2.) The law requires solidarity or

Example: If the loss of the TV set occurs through the fault 3.) The nature of the obligation requires solidarity.
of Ivy, Skai may claim the refrigerator or the piano with a
right of damages or the price of the TV set with a right of Kinds of Solidary Obligation
damages.
1. Passive solidarity on the part of the debtors, where anyone of
3. When all the things were lost through debtors fault them can be made liable for the fulfillment of the entire obligation.

Example: If all the items are lost through the fault of Ivy, Example Tonix and Skai are solidary debtors of Jack in the
then Skai can demand the payment of the price of any amount of P 10,000
one of them with a right to indemnity for damages.
2. Active solidarity on the part of the creditors, where anyone of them
4. When all the thing are lost through a fortuitous event can demand the fulfillment of the entire obligation.

Example: The obligation of Ivy shall be extinguished if all Example Tonix is liable to Skai and Jack for the amount of
the items which are alternatively the object of the P10,000. Skai and Jack are solidary creditors.
obligation are lost through a fortuitous event (Art. 1174 will
apply). 3. Mixed Solidarity solidarity on the part of the debtors and creditors
where each one of the debtors is liable to render and each one of
the creditors has a right to demand, entire compliance with the
obligation.
Art. 1206. When only one prestation has been agreed upon, but the
obligor may render another in substitution, the obligation is called Example Tonix and Skai are solidarity debtors to Jack and
facultative. Dann, solidary creditors in the amount of P 10,000.

The loss or deterioration of the thing intended as a substitute, through Solidarity not presumed The presumption, where there are two or more
the negligence of the obligor, does not render him liable. But once the persons in the same obligation, is that it is joint. The reason is that
substitution has been made, the obligor is liable for the loss of the solidary obligations are very burdensome for they create unusual rights
substitute on account of his delay, negligence or fraud. (n) and liabilities. Solidarity between debtors increases their responsibility
while solidarity between creditors presuming that they are bound jointly
Meaning of Facultative Obligation and not solidarily.

A facultative obligation is one where only one prestation has

been agreed upon but the obligor may render another in
substitution. 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
Example: I will give you my piano but I may give my only by proceeding against all the debtors. If one of the latter should be
television set as a substitute. insolvent, the others shall not be liable for his share. (1139)

SECTION 4. - Joint and Solidary Obligations Indivisible Joint Obligation The object is indivisible and the T/E between
the parties are merely proportionately liable.
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 Example Lleina and Ria are jointly liable to give Emi a particular car.
the former has a right to demand, or that each one of the latter is bound The obligation is joint but since the object is indivisible, the creditor must
to render, entire compliance with the prestation. There is a solidary proceed against all the joint debtor. If any of the joint debtors be
liability only when the obligation expressly so states, or when the law or insolvent, the others shall not be liable for others.
the nature of the obligation requires solidarity. (1137a)

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 Art. 1210. The indivisibility of an obligation does not necessarily give rise
credit or debt shall be presumed to be divided into as many shares as to solidarity. Nor does solidarity of itself imply indivisibility. (n)
there are creditors or debtors, the credits or debts being considered

University of Cebu 9
College of Law
 Indivisibility as Distinguished from Solidarity Indivisibility refers to The creditor who may have executed any of these acts, as well as he who
the subject matter while solidarity refers to the Tie between the collects the debt, shall be liable to the others for the share in the
parties. obligation corresponding to them. (1143)

Examples: Liability of Solidary Creditor in case of Novation, Compensation,

Confusion or Remission
Joint divisible obligation Abing and Roniel are jointly liable to
Canoy for P10, 000. When a creditor who executed any of these acts, it is logical
that he is liable to the other solidary creditors for their
Joint indivisible obligation Lleina and Ria are jointly liable to give corresponding shares considering that such acts are prejudicial
Canoy their car. to them. (Art. 1212, NCC)

Solidary divisible obligation Emi and Lleina are solidarily liable to

give Ria P10, 000.
Art. 1216. The creditor may proceed against any one of the solidary
Solidary indivisible obligation Saj and Emi are solidarily liable to debtors or some or all of them simultaneously. The demand made
give Dean their car. 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. (1144a)

Art. 1211. Solidarity may exist although the creditors and the debtors Creditor May Proceed Against Any Solidary Debtor In a solidary
may not be bound in the same manner and by the same periods and obligation, the creditor may proceed against any, some or all of the
conditions. (1140) solitary creditors simultaneously so long as it has not been fully collected.

The solidary character of the obligation is not destroyed even if the Example: Apatrick, Batonix and Cajack solidarily owe Daleo the
creditors and debtors are bound by different terms and conditions. amount of P9,000. Daleo can collect from Apatrick or Batonix or
The solidarity is still preserved by recognizing in the creditor the Cajack alone or from any two of them or all of them simultaneously.
power of claiming from any or all debtors the payment of the entire If demand is made on Apatrick, the latter cannot require Daleo to
obligation. make a demand also on Batonix and Cajack or to include them as
party defendants as Daleo has the right to proceed against any one
Example: Jack and Lleina solidarily bound themselves to pay a of them.
total of P10,000 to Ria, and Emi and Saj to the following
conditions. Rias share will be due at the end of the year; Emi
will get her share only after she passes the CPA exams and Saj
will get his share only after he painted the house of Ria. 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.

Art. 1212. Each one of the solidary creditors may do whatever may be He who made the payment may claim from his co-debtors only the share
useful to the others, but not anything which may be prejudicial to the which corresponds to each, with the interest for the payment already
latter. (1141a) made. If the payment is made before the debt is due, no interest for the
intervening period may be demanded.
Art. 1213. A solidary creditor cannot assign his rights without the
consent of the others. (n) When one of the solidary debtors cannot, because of his insolvency,
reimburse his share to the debtor paying the obligation, such share shall
Solidary Creditors May Do Useful Act; Not Prejudicial Acts A be borne by all his co-debtors, in proportion to the debt of each. (1145a)
solidary creditor may do any act beneficial or useful to the others but
he cannot act prejudicial to them. Effects of Payment by a Solidary Debtor Payment is one of the ways by
which an obligation is extinguished and consist in the delivery of the thing
Example of Beneficial Acts To interrupt the running of or the rendition of the service which is the object of the obligation.
prescription, the act of one solidary creditor in making a judicial
demand upon any of the solidary debtors is sufficient. (Art. Example Alleina, Baria and Calila are solidarily liable to Dann
1155, NCC) and Etonix in the amount of P9,000 due on Dec. 31. If both
Alleina and Baria offer to pay Dann on Dec. 31, the latter may
Example of Prejudicial Acts Should not be performed, choose which offer to accept. If Alleina pays the entire amount
otherwise, there will be liability for damages. However, in the of P9,000 on Dec. 31, the obligation is extinguished.
case of remission or condonation, the solidary creditor is
allowed to so remit, and the obligation is extinguished. The payment of A gives him the right of reimbursement from B and
C P3, 000 each with interest from the date of payment. However, if
C is insolvent, both A and B shall bear the insolvency in proportion to
their shares.
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. (1142a)
Art. 1218. Payment by a solidary debtor shall not entitle him to
Payment to Any of the Solidary Creditors: The rule is that the debtor reimbursement from his co-debtors if such payment is made after the
may pay any one of the creditors. But when a demand is made by obligation has prescribed or become illegal. (n)
any of the creditors, payment should be made to him who made the
demand, judicially or extra-judicially. Effect of Payment After Obligation Has Prescribed or Become Illegal

Example: A is liable to B and C P5, 000. A may pay either
B or C But if B made a demand then payment should only Prescription is one where one acquires ownership and other
be made to him. If A paid C, B is still entitled to his share rights through the lapse of time in the manner and under the
from A in case C does not turn over to B his share. conditions laid down by law.

Example Ajack and Batonix are solidarily indebted to

Calliena in the amount of P 10,000. The debt prescribed.
Art. 1215. Novation, compensation, confusion or remission of the debt, If Ajack paid the debt, he cannot collect form Batonix his
made by any of the solidary creditors or with any of the solidary debtors, share of the debt. Neither can Ajack can recover from
shall extinguish the obligation, without prejudice to the provisions of Calleina.
Article 1219.

University of Cebu 10
College of Law
 Becomes Illegal Ajack and Batonix are solidarily bound to Defenses available to a Solidary Debtor The defenses available to the
deliver medical drugs to Calliena. the transaction of such solidary debtors if the creditor proceeds against him alone for the payment
medical drugs were later prohibited by law. Notwithstanding the of the entire obligation
prohibition, Batonix performed the obligation by delivering the
prohibited drugs. Batonix is not anymore entitled to 1. The defenses derived from the nature of the obligation,
reimbursement from Ajack. such as fraud prescription, remission illegality or absence
of consideration, payment or performance.

Example: Jack and Lleina are solidarily liable to

Art. 1219. The remission made by the creditor of the share which affects Canoy in the among to P6,000. The entire debt was
one of the solidary debtors does not release the latter from his paid by Jamero. In an action by Canoy against Jack,
responsibility towards the co-debtors, in case the debt had been totally the latter can raise the defense of payment by virtue
paid by anyone of them before the remission was effected. (1146a) of which the obligation was extinguished.

Example: Jack and Lleina solidarily owe Ria P1,000,000. Jack paid 2. Defenses personal to him or pertaining to his own share,
Ria the whole amount. Later Ria remitted Lleinas share. Can Jack such as minority, insanity and vitiated consent.
still recover reimbursement of P500,000 from Lleina? Yes.
3. Defenses which are personal to others, such as minority,
Art. 1220. The remission of the whole obligation, obtained by one of the insanity and vitiated consent.
solidary debtors, does not entitle him to reimbursement from his co-
debtors. (n)

Remission by Creditor SECTION 5. - Divisible and Indivisible Obligations

1.) If payment if made first, the remission is of no effect. There is no Art. 1223. The divisibility or indivisibility of the things that are the object
more to remit. 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. (1149)
2.) If remission is made prior to the payment and payment is made,
then there is payment by mistake. 1. A divisible obligation is one the object of which in its delivery or
performance is capable of partial fulfillment.
3.) If one of the solidary debtors obtained remission on the whole
obligation, he is not entitled to reimbursement from his co-debtors Example: Antonio agreed to pay Sky P10,000 in five
because remission is essentially gratuitous. monthly installments. The obligation of Antonio is divisible
because it is payable in partial payments.

2. An indivisible obligation is one the object which in its delivery or

Art. 1221. If the thing has been lost or if the prestation has become performance is not capable of partial fulfillment.
impossible without the fault of the solidary debtors, the obligation shall
be extinguished. Example: Antonio agreed to deliver a determinate car to
Sky on Dec. 31. This is an indivisible obligation because it is
If there was fault on the part of any one of them, all shall be responsible not subject to partial performance.
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 Art. 1224. A joint indivisible obligation gives rise to indemnity for
become impossible after one of the solidary debtors has incurred in damages from the time anyone of the debtors does not comply with his
delay through the judicial or extrajudicial demand upon him by the undertaking. The debtors who may have been ready to fulfill their
creditor, the provisions of the preceding paragraph shall apply. (1147a) promises shall not contribute to the indemnity beyond the
corresponding portion of the price of the thing or of the value of the
Rules in Case thing has Been Lost or Prestation Has Become Impossible service in which the obligation consists. (1150)

Art. 1225. For the purposes of the preceding articles, obligations to give
If the thing is lost or has become impossible to perform through a definite things and those which are not susceptible of partial
fortuitous event without the fault of the debtor, the obligation is performance shall be deemed to be indivisible.
extinguished.
When the obligation has for its object the execution of a certain number
Example: A, B and C are solidarily bound to deliver a of days of work, the accomplishment of work by metrical units, or
determinate car to D. Without any fault on the part of any one analogous things which by their nature are susceptible of partial
of the debtors, the car was lost through the fortuitous event. performance, it shall be divisible.
The obligation is extinguished.
However, even though the object or service may be physically divisible,
If in the preceding paragraph, the car was lost through the fault of an obligation is indivisible if so provided by law or intended by the
anyone of the solidary debtors, anyone of them may be held liable parties.
by D for the price of the car plus damages. The debtors who did not
any fault on the lost of the car have the right to recover from the co- In obligations not to do, divisibility or indivisibility shall be determined
debtor who is at fault. by the character of the prestation in each particular case. (1151a)

The solidary debtors are likewise liable even if the thing is lost Obligations Deemed Indivisible The general rule of determining the
through fortuitous event if the loss occurs after anyone of the divisibility or indivisibility of an obligation depend on the purpose of the
solidary debtors has been in delay. The debtors, however who were obligation.
not in delay have the right to recover from their co-debtors who was
responsible due to his delay. 1. Obligation to give definite things

Example: To give a particular house. Here the obligation is

indivisible because of the nature of the subject matter.
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 2. Obligations which are not susceptible of partial performance
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 Example: Saj is obliged to sing a song. Here the
may avail himself thereof only as regards that part of the debt for which obligation is indivisible by reason its purpose which requires
the latter are responsible. (1148a) the performance of all the parts.

University of Cebu 11
College of Law
 3. Obligation provided by law to be indivisible even if thing or service of the obligation will be considered an alternative one. The word
physically divisible. expressly means that any implied reservation is not allowed.

Example: Taxes should be paid within a definite period.

Although money is physically divisible, the amount of tax
payable must be delivered in Toto, not partially. Art. 1228. Proof of actual damages suffered by the creditor is not
necessary in order that the penalty may be demanded. (n)
4. Obligations intended by the parties to be indivisible even if thing or
service is physically divisible. Example: Arthur was obliged under a contract with Brad, not to sell
shares of stock for one year. A penal clause was provided. But Arthur sold
Example: The obligation of Lleina to give P10,000 to Jack on a shares of stock within the period specified but damages were not proved by
certain date. Money is physically divisible by the clear intention Brad to have been suffered by him. May Brad recover the penalty? Yes, Brad
here for Lleina to deliver the amount at on time and as a whole. may lawfully recover the penalty.

Obligations Deemed divisible

1. Obligations which have for their object the execution of a certain Art. 1229. The judge shall equitably reduce the penalty when the
number of days of work. principal obligation has been partly or irregularly complied with by the
debtor. Even if there has been no performance, the penalty may also be
Example Jack obliged himself to paint the house of Lleina to reduced by the courts if it is iniquitous or unconscionable. (1154a)
be finished in 10 days. The obligation is divisible because it will
not be finished in one time. When Penalty May be Reduced by the Court

2. Obligations which have for their object the accomplishment of work by 1) When the obligation has been partly complied with by the
metrical units. debtor;

Example Jack obliged himself to deliver 25 cubic meter of 2) When the obligation has been irregularly complied with by
sand. the debtor

3. Obligations which by their nature are susceptible of partial 3) When the penalty is iniquitous or unconscionable, even if
performance there has been no performance at all.

Example The obligation of Jack to pay a debt of P10,000 to

Lleina in ten (10) monthly installments.
Art. 1230. The nullity of the penal clause does not carry with it that of the
principal obligation.

SECTION 6. - Obligations with a Penal Clause The nullity of the principal obligation carries with it that of the penal
clause. (1155)
Art. 1226. In obligations with a penal clause, the penalty shall substitute
the indemnity for damages and the payment of interests in case of Effect of Nullity of Penal Clause The general principle that the
noncompliance, if there is no stipulation to the contrary. Nevertheless, accessory follows the principal. If only the penal clause is void, the
damages shall be paid if the obligor refuses to pay the penalty or is principal obligation remains valid and demandable. The penal clause may
guilty of fraud in the fulfillment of the obligation. be disregarded.

The penalty may be enforced only when it is demandable in accordance Example: Arthur agreed to sell merchandise to Brad. It is provided in
with the provisions of this Code. (1152a) their agreement that in case of default, Arthur will deliver a
prohibited drug as penalty. Here, the obligation to sell merchandise
is valid by the penalty to deliver the prohibited drug is void. For
failure of Arthur to comply with the obligation, Brad may recover
Meaning of Penal Clause An obligation with a penal clause is one damages.
which contains an accessory undertaking to pay a previously
stipulated indemnity incase of breach. It is attached to obligations in
order to insure their performance.

Purpose of the penal clause:

CHAPTER 4
1.) To insure the performance of the obligation. EXTINGUISHMENT OF OBLIGATIONS
2.) To substitute for indemnity for damages and the payment of GENERAL PROVISIONS
interest in case of non- compliance of the principal obligation.
Art. 1231. Obligations are extinguished:
3.) To penalize the obligor in case of breach of the principal
obligation. (1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
Art. 1227. The debtor cannot exempt himself from the performance of the (4) By the confusion or merger of the rights of creditor and debtor;
obligation by paying the penalty, save in the case where this right has (5) By compensation;
been expressly reserved for him. Neither can the creditor demand the
fulfillment of the obligation and the satisfaction of the penalty at the (6) By novation.
same time, unless this right has been clearly granted him. However, if Other causes of extinguishment of obligations, such as annulment,
after the creditor has decided to require the fulfillment of the obligation, rescission, fulfillment of a resolutory condition, and prescription, are
the performance thereof should become impossible without his fault, the governed elsewhere in this Code. (1156a)
penalty may be enforced. (1153a)

Debtor Cannot Substitute Penalty For the Principal Obligation The SECTION 1. - Payment or Performance
general rule is that the debtor is not allowed to just pay the penalty
instead of fulfilling the obligation. He can do so if the right has been Art. 1232. Payment means not only the delivery of money but also the
expressly reserved. The reason is that if he can just pay, fulfillment performance, in any other manner, of an obligation. (n)

University of Cebu 12
College of Law
 Payment- it should be the delivery of money and the performance in Full reimbursement-full amount down to the single centavo the
any other manner of an obligation. third person has paid.
Ex. Ria is indebted to Emi P1,000.00. Her obligation is to deliver to Subrogation- the right to step on the shoes of the creditor.
Emi the amount and to perform his obligation which is to pay Emi Ex. In the above case, if the payment of Richard was made
the said amount. with the knowledge or consent of Laila, Richard can recover
from Laila the full reimbursement of P1,000.00 and the rights of
subrogation.

Art. 1233. A debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been completely
delivered or rendered, as the case may be. (1157) Art. 1237. Whoever pays on behalf of the debtor without the knowledge
The general rule is that, to be considered a valid payment, the thing or against the will of the latter, cannot compel the creditor to subrogate
or service contemplated must be paid and fulfillment must be him in his rights, such as those arising from a mortgage, guaranty, or
complete. penalty. (1159a)
Subrogation- the act of putting somebody into the shoes of the
creditor, hence, enables the former to exercise all the rights and
actions that could have been exercised by the latter.
Art. 1234. If the obligation has been substantially performed in good
Rights arising from:
faith, the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee. (n) 1. A mortgage
This is the exception to the general rule in Art. 1233, that if there is 2. A guaranty
substantial performance in good faith by the debtor, the obligation is 3. A penalty or penal clause
deemed to be fulfilled.

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
Art. 1235. When the obligee accepts the performance, knowing its debtor's consent. But the payment is in any case valid as to the creditor
incompleteness or irregularity, and without expressing any protest or who has accepted it. (n)
objection, the obligation is deemed fully complied with. (n) Donation, in order to be valid it must be accepted. Since, no one
Another exception to the general rule in Art. 1233, that when the should be compelled to accept the generosity of another. (Report of
creditor accepts the performance knowing its incompleteness and the Code of Commission, p. 132). However, if the creditor accepts
irregularities and without expressing any protest, the obligation is the payment, it shall be valid as to him and the payor although the
deemed complete. debtor did not give his consent to the donation.
Ex. Karl agreed to paint the house of Jack. According to Ex. Jack owes Tonix P1,000.00. without the intention of
their stipulation, Karl would use a particular brand of paint. being reimbursed, Sky, a third person paid Jacks
If Jack accepted the performance of Karl, knowing that the obligation. Jack had previously accepted Skys generosity.
paint used was another brand and without expressing any In this case, Jack is not liable to Sky and his obligation is
protest or objection, the obligation is deemed fully extinguished. But if Jack did not consent to the donation,
complied with. Sky may recover from Jack since there has been no
donation, although originally Sky did not tend to be
reimbursed. Nevertheless, the obligation of Jack to Tonix
is extinguished because the payment is valid and he
Art. 1236. The creditor is not bound to accept payment or performance accepted it.
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 Art. 1239. In obligations to give, payment made by one who does not
the debtor, he can recover only insofar as the payment has been have the free disposal of the thing due and capacity to alienate it shall
beneficial to the debtor. (1158a) not be valid, without prejudice to the provisions of Article 1427 under the
The general rule is that, you cannot compel the creditor to accept Title on "Natural Obligations." (1160a)
payment by a third person whom he may dislike or distrust. Free disposal of the thing due- means that the thing to be delivered
However, if it is paid by the guarantor and mortgagors, creditor can must not be subject to any claim or lein or encumbrance of a third
accept it if is stipulated in their contract. person.
Persons from whom creditor must accept payment: Capacity to alienate- that the person is not incapacitated to enter
into contracts.
1. Debtor
General rule in obligations to give, payment by one who does not
2. Any person who has an interest in the obligation (like
have the free disposition and capacity to alienate is not valid.
guarantor).
EXC. Is provided in ART. 1427. The creditor cannot be compelled to
3. A third person who has no interest in the obligation when there
accept payment where the person paying it has no capacity to make
is stipulation that he can make payment.
it.
Effect of payment by a third person:
Ex. Ria agreed to sell to Lleina a refrigerator. If the
1. If made without the knowledge or against the will of the debtor, refrigerator to be delivered to Lleina belongs to Emi, the
the person who paid can recover only insofar as the payment same can be recovered by Emi because the payment is
beneficial to him. not valid. Ria does not have free disposal of the
Ex. Laila is indebted to Andrew P1,000.00. Richard, a third refrigerator. The same right of recovery exist although the
person paid the whole amount without the knowledge and refrigerator belongs to Ria if she is a minor and therefore,
consent of Laila, and did not know that Laila already paid has no capacity to alienate it.
P400.00, Richard is entitled to be reimbursed only on the
amount of P600.00 from Laila since it is the only amount Laila
benefited. Richard can recover P400.00 from Andrew who
should not have accepted it. If Andrew acted in bad faith, he is Art. 1240. Payment shall be made to the person in whose favor the
liable also for interest in lieu of damages. obligation has been constituted, or his successor in interest, or any
2. If made with the knowledge of the debtor, the third person shall person authorized to receive it. (1162a)
have the rights of reimbursement and subrogation, that is to Person to whom payment shall be made:
recover what he has paid.

University of Cebu 13
College of Law
 1. The creditor or oblige (person in whose favor obligation has Garnishment- the proceeding by which a debtors creditor is
been constituted). subjected to the payment of his own debt to another.
2. His successor in interest (like an heir or assignee).
3. Any person authorized to receive it.
Ex. Ria owes Emi P1,000.00. Ria must pay Emi or any person Art. 1244. The debtor of a thing cannot compel the creditor to receive a
authorized by Emi or in case of his death, his heirs or any person different one, although the latter may be of the same value as, or more
authorized by law. Payment to any other person is not valid except valuable than that which is due.
as provided in Art. 1241, par. 2. If Ria acted in good faith in paying to In obligations to do or not to do, an act or forbearance cannot be
the wrong party is not an excuse. substituted by another act or forbearance against the obligee's will.
(1166a)
The debtor cannot compel creditor to accept a different object.
Art. 1241. Payment to a person who is incapacitated to administer his Ex. Richard is obliged to give to Laila a Toyota car. Not having a
property shall be valid if he has kept the thing delivered, or insofar as the Toyota car, Richard wants to deliver a Honda car, more expensive.
payment has been beneficial to him. Richard cannot compel Laila to receive the Honda car even though it
commands a higher price. Because, the subject matter of the
Payment made to a third person shall also be valid insofar as it has
contracting parties which is stipulated in their contract, cannot be
redounded to the benefit of the creditor. Such benefit to the creditor need
changed without the consent of Laila.
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 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
third person had authority to receive the payment. (1163a)
of sales. (n)
If the creditor is incapacitated to accept the payment, in order to be valid :
This is one of the special forms of payment.
1. If the incapacitated person kept the thing delivered.
Dation in payment (dacion en pago) - it is the mode of extinguishing
2. And if it is beneficial to the incapacitated person. an obligation whereby the debtor alienates in favor of the creditor,
Ex. Laila delivers P1,000.00 to Richard, a minor. Richard property for the satisfaction of monetary debt.
loses the P700.00 of the money in gambling, or due to Ex. Sky owes Ivy P50,000.00. to fulfill his obligation, Sky with the
negligence or ignorance. In this case, the payment should consent of Ivy, delivers a piano. If the piano, however, is worth less
be considered as made only to the extent of P300.00. On than P50,000.00, the conveyance must be deemed to extinguish the
the other hand, if Richard kept the money paid or spent it obligation to the extent only of the value agreed upon unless it is
for purposes useful to him, the payment shall be valid; stipulated in their contract that the piano is considered full payment.
otherwise, and Richard would unduly enrich himself at the
expense of Laila.
The debtor is relieved from proving benefit to the creditor in case of:
Art. 1246. When the obligation consists in the delivery of an
1. Subrogation of the payer in the creditors right.
indeterminate or generic thing, whose quality and circumstances have
2. Ratification by the creditor. not been stated, the creditor cannot demand a thing of superior quality.
3. Estoppel on the part of the creditor. Neither can the debtor deliver a thing of inferior quality. The purpose of
the obligation and other circumstances shall be taken into consideration.
(1167a)
It is a principle of equity in that it supplies justice in cases where
Art. 1242. Payment made in good faith to any person in possession of there is lack of precise declaration in the obligation. It is always hard
the credit shall release the debtor. (1164) to find one thing that is exactly similar to another. If there is
disagreement between the parties, the law steps in and determines
This is another instance of a valid payment. whether the contract has been complied with or not according to the
Requisites: circumstances. (8 Manresa 280-281).
1. Payment by payor must be made in good faith (this is The benefit is that it may be waived by the creditor or by accepting a
presumed)(but payee may be good or bad faith). thing of inferior quality, and by the debtor by delivering a thing of
superior quality.
2. The payee must be in possession of the credit itself (not merely
the document evidencing the credit) Ex. If Tonix promised to deliver to Lance a horse. Lance
cannot compel Tonix to deliver a price-winning race horse.
Ex. Jack is indebted to Lleina the amount of P1,000.00
Neither can Tonix require Lance to accept an old sickly
which is evidenced by a promissory note signed by Jack
horse.
in favor of Lleina. Lleina lost the promissory note which
was later found by Ria who demanded payment from
Jack. Payment to Ria is not valid because Ria is the
possessor merely of the document evidencing the credit
and not of the credit itself. Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses
required by the payment shall be for the account of the debtor. With
regard to judicial costs, the Rules of Court shall govern. (1168a)
General rules the debtor has to pay for the extrajudicial expenses
Art. 1243. Payment made to the creditor by the debtor after the latter has incurred during the payment.
been judicially ordered to retain the debt shall not be valid. (1165) Exception: When there is a stipulation to the contrary.
When payment to creditor not valid:
In an action against the debtor who is the creditor of another, the
latter (the debtor-stranger), during the pendency of the case, may be
ordered by the court (or by any competent authority though it be Art. 1248. Unless there is an express stipulation to that effect, the
administrative) to retain the debt until the right of the plaintiff, the creditor cannot be compelled partially to receive the prestations in which
creditor in the main litigation is resolved. the obligation consists. Neither may the debtor be required to make
partial payments.
Ex. Nico owes Ria P1,000.00. Emi, in turn owes Nico P1,000.00. In
action by Ria against Nico, Emi, upon petition of Ria, may be However, when the debt is in part liquidated and in part unliquidated, the
ordered by the court not to pay Nico and to retain the debt in the creditor may demand and the debtor may effect the payment of the
meantime. In this case, the debt of Emi is said to be garnished or is former without waiting for the liquidation of the latter. (1169a)
subjected to payment to Ria.

University of Cebu 14
College of Law
 General rule: the performance should be generally complete, delivered or
rendered, as the case may be. Art. 1251. Payment shall be made in the place designated in the
Exceptions: obligation.
1. When there is an express stipulation to that effect. There being no express stipulation and if the undertaking is to deliver a
determinate thing, the payment shall be made wherever the thing might
2. When the debt is in part liquidated (definitely and determined or
be at the moment the obligation was constituted.
computed) and in part unliquidated.
In any other case the place of payment shall be the domicile of the
3. When the different prestations in which the obligation consists are
debtor.
subject to different terms or conditions which affect some of them.
If the debtor changes his domicile in bad faith or after he has incurred in
4. When a joint debtor pays his share or the creditor demands the
delay, the additional expenses shall be borne by him.
same.
5. When a solidary debtor pays only the part demandable because the These provisions are without prejudice to venue under the Rules of
Court. (1171a)
rest are not yet demandable on account of their being subject to
different terms and conditions. Places where obligation shall be paid:
6. In case of compensation, when one debt is larger than the other, it 1. If there is stipulation, the payment shall be made in the palce
follows that a balance is left. designated. (par. 1, Art 1306)
7. When work is to be done by parts. 2. If there is a stipulation and the thing to be delivered is specific, the
payment shall be made at the place where the thing was, at the
perfection of the contract. (par. 2)
3. If there is no stipulation and the thing to be delivered is generic, the
Art. 1249. The payment of debts in money shall be made in the currency place of payment shall be the domicile of the debtor.
stipulated, and if it is not possible to deliver such currency, then in the
Venue- is the place where a court suit or action must be filed or instituted.
currency which is legal tender in the Philippines.
(Secs. 1-4, Rule 4, rules of Court)
The delivery of promissory notes payable to order, or bills of exchange
Domicile- is the palce of a persons habitual residence (Art. 50), the place
or other mercantile documents shall produce the effect of payment only
where he has his true fixed permanent home and to which place he,
when they have been cashed, or when through the fault of the creditor
whenever he is absent, has the intention of returning. (17 Am. Jur. 588).
they have been impaired.
Residence- is only an element of domicile. It simply requires bodily
In the meantime, the action derived from the original obligation shall be
presence as an inhabitant in a given place.
held in the abeyance. (1170)
Ex. Lleina is obliged himself to deliver to Karl a specific car. It was
Legal Tender- is that currency which a debtor can legally compel a
agreed that the car should be delivered at Karls house. The house
creditor to accept in payment of a debt in money when tendered by
of Karl shall be the place of delivery.
the debtor in the right amount. (Black Law Dictionary)
In the Philippines, all coins and notes issued by the Bangko Sentral
Ng Pilipinas (BSP) constitute legal tender for all debts, both public or
private. SUBSECTION 1. - Application of Payments
Unless otherwise fixed by Monetary Board of the BSP, coins are
legal tender for amounts not exceeding P50.00 for denomination of Art. 1252. He who has various debts of the same kind in favor of one and
P0.25 and above, and those of amounts not exceeding P20.00 for the same creditor, may declare at the time of making the payment, to
denominations of P0.10 or less. which of them the same must be applied. Unless the parties so stipulate,
All coins and bills above P1.00 are, therefore, valid, legal tenders for or when the application of payment is made by the party for whose
any amount. benefit the term has been constituted, application shall not be made as
Ex. Richard owes Laila P1,000.00 which is due today. to debts which are not yet due.
Laila can refuse to accept check from Richard. If Laila If the debtor accepts from the creditor a receipt in which an application
accepts, there is no payment yet until the check has been of the payment is made, the former cannot complain of the same, unless
cashed or when through his fault, it has been impaired as there is a cause for invalidating the contract. (1172a)
when he has delayed in presenting the check for payment Application of payments- is the designation of the debt to which should be
for an unreasonable length of time and the check has lost applied a payment made by a debtor who owes several debts in favor of
its value by reason of the insolvency of the bank. the same creditor. (Art. 1252,par. 1)
It is important to know the rules on application of payments because
otherwise, we may not know which one, of two or more debts, has been
extinguished.
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 Requisites of Application of Payments:
establishment of the obligation shall be the basis of payment, unless 1. One debtor and one creditor
there is an agreement to the contrary. (n)
2. Two or more debts
Inflation- it is a sharp sudden increase of money or credit or both
without a corresponding increase in business transactions. 3. Debts must be of the same kind
(Websters Dictionary). It causes a drop in the value of money, 4. Debts to which payment made by the debtor has been applied must
resulting in the rise of the general price level. be due
Deflation- is the reduction in volume and circulation of the available 5. Payment made must not be sufficient to cover all debts
money or credit, resulting in a decline of the general price level; it is
the opposite of inflation. The application of payments as to debts not yet due cannot be made
unless:
Ex. Ria borrowed from Emi P5,000.00 payable after five
years. On the maturity of the obligation, the value of 1. There is a stipulation that the debtor may so apply.
P5,000.00 dropped to P2,500.00 because of inflation (or 2. It is made by the debtor or creditor, as the case may be, for whose
increased to P10,000.00 because of deflation). benefit the period has been constituted. (Art. 1196, also Art. 1792)
In this case (assuming there is extraordinary inflation or Rules on application of payments:
deflation), the basis of payment shall be equivalent value
of the currency today to that five years ago. Hence, Ria is 1. The debtor makes the designation.
liable to pay Emi P5,000.00 (or P2,500.00) unless there is 2. If not, the creditor makes it, by so stating in the receipt that he
an agreement to the contrary. issuesunless there is cause for invalidating the contract. (Art.
1251, Par. 2)

University of Cebu 15
College of Law
 3. If neither the debtor nor the creditor has made the application, or if
the application is not valid, then application is made by operation of SUBSECTION 3. - Tender of Payment and Consignation
law. (Arts. 1253 and 1254, Civil Code)
Tender of payment- the act of offering the creditor what is due him
4. If the debts due are of the same nature and burden, the payment together with a demand that the creditor accept the same.
shall be applied to all of them proportionately.
Consignation- the act of depositing the thing due with the court or
judicial authorities whenever the creditor cannot accept or refuses to
accept payment. It generally requires a prior tender of payment.
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) Art. 1256. If the creditor to whom tender of payment has been made
This rule is mandatory. Hence, the debtor cannot insist that his refuses without just cause to accept it, the debtor shall be released from
payment be credited to the principal instead of the interest. responsibility by the consignation of the thing or sum due.
However, if the creditor agrees, this is all right. (8 Manresa 317) Consignation alone shall produce the same effect in the following cases:
Ex. Richard owes Laila P1,000.00 with P100.00 as (1) When the creditor is absent or unknown, or does not appear at the
accrued interest. Richard pays P1,000.00. The P1,000.00 place of payment;
will first applied to the interest earned by debt. Then the
balance of P900.00 will be credited to the amount. (2) When he is incapacitated to receive the payment at the time it is due;
Therefore, Richard will still owe Laila P100.00 of the (3) When, without just cause, he refuses to give a receipt;
principal.
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1176a)
Consignation is sufficient even without a prior tender:
Art. 1254. When the payment cannot be applied in accordance with the
preceding rules, or if application can not be inferred from other 1. When the creditor is Absent or Unknown or Does Not Appear at the
circumstances, the debt which is most onerous to the debtor, among place of payment. (the creditor need not be judicially declared
those due, shall be deemed to have been satisfied. absent).
If the debts due are of the same nature and burden, the payment shall be 2. When the creditor is Incapacitated to receive payment at the time it
applied to all of them proportionately.(1174a) is due. (The rule does not apply if the creditor has a legal
representative and this fact is known to the debtor).
In case no application is made, the following rules shall be observed:
3. When, without just cause, the creditor Refuses to give a receipt.
1. Apply it to the most onerous (in case the due and demandable debts
are of different natures). 4. When two or more persons claim the same right to collect. (An
action in Interpleader would be proper here).
2. If the debts are of the same nature and burden, application shall be
made proportionately. 5. When the title (written document) of the obligation has been Lost.
6. When the debtor had previously been notified by the creditor that the
latter would not accept any payment.
Ex. Sky owes Ivy a sum of money. On the due date, Sky offers to
SUBSECTION 2. - Payment by Cession pay but Ivy refuses to accept the payment without any justifiable
reason. In this case, Skys obligation will not be extinguished until he
has made a valid consignation.
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 Requirements for a valid tender of payment:
contrary, shall only release the debtor from responsibility for the net 1. Tender of payment must comply with the rules on payment. (Arts.
proceeds of the thing assigned. The agreements which, on the effect of 1256-1258). The tender, even if valid, does not by itself produce
the cession, are made between the debtor and his creditors shall e legal payment, unless it is completed by consignation. (PNB vs
governed by special laws. (1175a) Relativo, 92, Phil. 203).
Payment by cession- is another special form of payment. It is the 2. It must be unconditional and for the whole amount. (Joes Radio
assignment or abandonment of all the properties of the debtor for the Electrical Supply vs. Alto Electronics Corp. 104 Phil 333).
benefit of his creditors in order that the latter may sell the same and apply
the proceeds thereof to satisfaction of their credits. 3. It must be actually made. The manifestation of a desire or intention
to pay enough. (Catangcatng vs. Legayada, 84 SCRA 51)
Requisites:
Art. 1257. In order that the consignation of the thing due may release the
1. Must be two or more creditors obligor, it must first be announced to the persons interested in the
2. Debtor must be (partially) insolvent fulfillment of the obligation.
3. Cession must be accepted by the creditors
The consignation shall be ineffectual if it is not made strictly in
DACION EN PAGO CESSION consonance with the provisions which regulate payment. (1177)
Does not affect all the properties In general, affects all the properties of Requisites of a valid consignation:
the debtor
1. Existence of a valid debt which is due (Art. 1256, par. 1).
Does not require plurality of creditors Requires more than one creditor
2. Tender of payment by the debtor and refusal without justifiable
Only the specific or concerned Requires the consent of all the reason by the creditor to accept. (Ibid)
creditors consent is required creditors
3. Previous notice of consignation to persons interested in the
May take place during the solvency of Requires full or partial insolvency fulfillment of the obligation. (Art. 1257, par 1).
the debtor
4. Consignation of the thing or sum due. (Art. 1258, par. 1).
Transfers ownership upon delivery Does not transfer ownership 5. Subsequent notice of consignation made to the interested persons.
This is really an act of novation Not an act of novation (Ibid, par. 2)
Ex. Jack is indebted to several creditors in the total amount of P2
million. His assets are not sufficient to pay all his debts. With the
consent of his creditors, Jack may assign his property to them to be
sold to satisfy their credits. If the net proceeds of the sale amount Art. 1258. Consignation shall be made by depositing the things due at
only to P1.5 million, Jack is still liable for the balance of P500,000.00 the disposal of judicial authority, before whom the tender of payment
unless there is stipulation that the assignment shall be in full shall be proved, in a proper case, and the announcement of the
satisfaction of all his debts. consignation in other cases.
The consignation having been made, the interested parties shall also be
notified thereof. (1178)

University of Cebu 16
College of Law
 Consignation, by depositing the thing or sum due with the proper judicial 3. The co-debtors, guarantors, and sureties are released (unless they
authority, is necessary to effect payment. consented).
How consignation is actually made: Ex. Richard is indebted to Laila the sum of P10,000.00 with Sky as
the guarantor. On the due date, Richard offered payment but Laila
1. The things must be deposited with the proper judicial authorities
refused to accept the same. So, Richard made a consignation.
(while ordinarily cashier or the cash officer should be the person to
Subsequently, Richard withdrew the deposit after securing the
issue the receipt for the money consigned, a temporary receipt
consent of Laila.
issued by the clerk of court said deposit would suffice). (Yap vs
Tingin, L-18943, May 31, 1963). Under this article, Laila loses whatever preference she may have
over the amount and Sky, the guarantor, shall be released.
2. There must be proof that:
a.) Tender has previously been made. (General rule)
b.) That the creditor has previously notified the debtor that
consignation will be made (in case tender is not required.) SECTION 2. - Loss of the Thing Due
Loss includes impossibility of performance. There is a loss when:
1. When the object perishes (physically, it is destroyed).
Art. 1259. The expenses of consignation, when properly made, shall be 2. When it goes out of commerce
charged against the creditor. (1178) 3. When it disappears in such way that the existence is unknown or it
The consignation is made necessary because of the fault or unjust cannot be recovered. (Art. 1189, No. 2, Civil Code).
refusal of the creditor to accept payment. That being the case, it is but Impossibility of performance includes:
just that the expenses should be charged against him. Charge to the
debtor if the consignation is not properly made. 1. Physical
When consignation deemed properly made: 2. Legal, which is either directly caused as when prohibited by law or
indirectly caused as when the debtor is required to enter a military
1. When the creditor accepts the thing or sum deposited, without draft
objection, as payment of the obligation (Art. 1260, par. 2).
3. Moral (impracticability) (Art. 1267)
2. When the creditor questions the validity of the consignation, and the
court, after hearing, declares that it has been properly made. (Ibid)
3. When the creditor neither accepts nor questions the validity of the
consignation, and the court after hearing, orders the cancellation of Art. 1262. An obligation which consists in the delivery of a determinate
the obligation. (Art. 1260, par.1, Salaria vs Buenviaje, 81 SCRA thing shall be extinguished if it should be lost or destroyed without the
722). 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
Art. 1260. Once the consignation has been duly made, the debtor may of the obligation requires the assumption of risk. (1182a)
ask the judge to order the cancellation of the obligation. In order that an obligation may be extinguished by the loss of the thing,
Before the creditor has accepted the consignation, or before a judicial requisites:
declaration that the consignation has been properly made, the debtor 1. Obligation is to deliver a specific or determinate thing.
may withdraw the thing or the sum deposited, allowing the obligation to
remain in force. (1180) 2. Loss of the thing occurs without the fault of the debtor.
3. Debtor is not guilty of delay.
Effects if consignation is properly made: Will not extinguished liability due to fortuitous event:
1. The debtor may ask the judge to order the cancellation of the 1. The law so provides
obligation. 2. The stipulation provides
2. The running of interest is suspended. 3. The nature of the obligation requires the assumption of risk
3. However, it should be observed that before the creditor accepts, or 4. Obligation to deliver arises from a crime
before the judge declares that consignation has been properly
made, the obligation remains. (Padua vs Rizal Surety, 47 O.G.
Supp. No 12 p. 308).
Art. 1263. In an obligation to deliver a generic thing, the loss or
The debtor however, may withdraw as a matter of right the thing or sum destruction of anything of the same kind does not extinguish the
deposited: obligation. (n)
1. Before the creditor accepted the consignation. The obligation continues to exist because a generic thing does not really
perish.
2. Before a judicial declaration that the consignation has been properly
made, as he still the owner of the same. However, exceptions are:
3. When after the consignation had been properly made (the creditor 1. if the generic thing is delimited (like 20 kilos of sugar from mu 1999
having accepted or the court having declared it proper), the creditor harvest, when such harvest is completely destroyed).
authorizes the debtor to withdraw the thing. (Art. 1261) 2. If the generic thing has already been segregated or set aside, in
which case, it has become specific.
Ex. Karl promised to deliver 100 cavans of rice to Vladimir. The 100
cavans of rice which Karl intended to deliver were lost in a flood.
Art. 1261. If, the consignation having been made, the creditor should Karl is liable to Vladimir because his obligation is to deliver a generic
authorize the debtor to withdraw the same, he shall lose every thing, and it can still be paid from other sources.
preference which he may have over the thing. The co-debtors,
guarantors and sureties shall be released. (1181a)
The consignation has been already made (that is, the creditor has
accepted; or the court has approved the consignation.) The withdrawal by Art. 1264. The courts shall determine whether, under the circumstances,
the debtor is a matter of privilege. the partial loss of the object of the obligation is so important as to
Effects: extinguish the obligation. (n)
1. The obligation remains. Partial loss may indeed be equivalent to a complete loss, such as
the loss of specific car. In other cases, the loss may be insignificant.
2. The creditor loses any preference (priority) over the thing. Hence, judicial determination of the effect is needed.

University of Cebu 17
College of Law
 Ex. Lleina obliged to deliver to Ria a specific race horse. The horse thing having been offered by him to the person who should receive it, the
met an accident as a result of which it suffered a broken leg. The latter refused without justification to accept it. (1185)
injury is permanent. Here, the partial loss is so important as to This article gives one instance where a fortuitous event does not
extinguish the obligation. If the loss is due to the fault of Lleina, she extinguished the obligation. However, it is exempted if the creditor is
shall be obliged to pay the value of the horse with indemnity for in mora accipiende.
damages.
Ex. A stole the jeep of B. here, A has the obligation to return to B.
The obligation of A arises from an act punishable by law. (Art.
1157). Even if the jeep is destroyed without the fault of A, he shall be
liable for the payment of its price. The exception to the rule is when
Art. 1265. Whenever the thing is lost in the possession of the debtor, it
B is in mora accipiende. (Art. 1169). In either case, A is liable if the
shall be presumed that the loss was due to his fault, unless there is
loss is due to his fault.
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)
Presumption that loss was due to debtors fault, is that the debtor is Art. 1269. The obligation having been extinguished by the loss of the
presumed to be at fault. thing, the creditor shall have all the rights of action which the debtor may
Ex. If a person is entrusted with several heads of cattle and he have against third persons by reason of the loss. (1186)
cannot account for some missing ones, he is presumed to be at The creditor is given the right to proceed against the third person
fault. (Palacio vs Sudario, 7 Phil. 275). responsible for the loss. There is no need for an assignment by the
Presumption of fault does not does not apply in the case of a natural debtor. The rights of action of the debtor are transferred to the
calamity. creditor from the moment the obligation is extinguished, by operation
of law to protect the interest of the latter because of the loss.
Ex. Although the fire is not a natural calamity, if a tenant is able to
prove that the fire caused in his apartment is purely accidental, he is Ex. Sky is obliged to deliver to Ivy a specific car. The car is lost
not liable. (Lizares vs Hernaez & Alunan, 40 Phil. 981). through the fault of Tonix. The obligation of Sky is extinguished and
he is not liable to Ivy. Such being the case, Sky would not be
interested in going after Tonix. The law, however, protects Ivy by
giving him the right to bring an action against Tonix to recover the
Art. 1266. The debtor in obligations to do shall also be released when the price of the specific car with damages.
prestation becomes legally or physically impossible without the fault of
the obligor. (1184a)
Without the debtors fault, the obligation becomes legally or physically
impossible. The impossibility of performance will result in the extinction of SECTION 3. - Condonation or Remission of the Debt
the obligation. The impossibility must take place after the constitution of
the obligation. Art. 1270. Condonation or remission is essentially gratuitous, and
requires the acceptance by the obligor. It may be made expressly or
Kinds of Impossibility:
impliedly.
1. Physical- takes place when, for example the obligor dies or
One and the other kind shall be subject to the rules which govern
becomes physically incapacitated to perform the obligation.
inofficious donations. Express condonation shall, furthermore, comply
Ex. Richard obliged to paint a picture for Laila to be finished within a with the forms of donation. (1187)
month. One week after the obligation was constituted, Richard met
Remission- is an act of liberality by which the obligee, without receiving
an accident, as a result of which, his arms were amputated. The
any price or equivalent, renounces the enforcement of the obligation, as a
obligation of Richard has become physically impossible. Richard is
result his right against the debtor. (4 Sanchez Roman 422)
released from the obligation.
Requisites of Condonations OR Remissions:
1. it must be gratuitous;
2. Legal- occurs when the obligation cannot be performed because it is
rendered impossible by provision of law, although physically it may 2. it must be accepted by the debtor;
be possible of performance. 3. the parties must have capacity;
Ex. Karl agreed to construct a commercial building for Vladz. The 4. must not be inofficious; and
government refused to issue a building permit because the area has
been declared by law as a residential zone. The obligation of Karl is 5. if made expressly, it must comply with the forms
extinguished because it has become legally impossible. The Effect of inofficious Remission
performance of the prestation is directly prohibited by law.
While a person may make donations, no one can give more than that
which he can give by a testamentary will, otherwise, the excess shall be
inofficious and shall be reduced by the Court accordingly.
Art. 1267. When the service has become so difficult as to be manifestly Like for example, a part of the testators property called legitimate cannot
beyond the contemplation of the parties, the obligor may also be be disposed of because the law has reserved it from certain heirs called
released therefrom, in whole or in part. (n) the compulsory heirs.
General rule is that impossibility of performance releases the obligor. Ex. Richard owes Laila P1,000.00. When the debt matured Laila told
However, it is submitted that when the service has become so Richard that he not pay the debt since he was condoning it. Richard, in
difficult as to be manifestly beyond the contemplation of the parties, turn, expressed his gratitude. Here, the debt has been extinguished by
the court should be authorized to release the obligor in whole or in remission.
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. (Report of the Code Of Commission, p. 133) Art. 1271. The delivery of a private document evidencing a credit, made
Ex. Laila agreed to construct a road near a mountain. A very strong voluntarily by the creditor to the debtor, implies the renunciation of the
typhoon caused an avalanche making the construction of the road action which the former had against the latter.
dangerous to human lives, which was not foreseen or contemplated If in order to nullify this waiver it should be claimed to be inofficious, the
by the parties. Laila may release, in whole or in part, from his debtor and his heirs may uphold it by proving that the delivery of the
obligation to continue with the construction. document was made in virtue of payment of the debt. (1188)
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)
Art. 1268. When the debt of a thing certain and determinate proceeds
from a criminal offense, the debtor shall not be exempted from the Presumption In Case Document Found In the Possession Of Debtor:
payment of its price, whatever may be the cause for the loss, unless the
University of Cebu 18
College of Law
 If the document is found in the hands of the debtor and it is not
known how he came into possession of the same, the presumption
is that there was payment by virtue of the payment of the debt. Or it
was voluntarily delivered to the debtor, which gives rise to the Art. 1276. Merger which takes place in the person of the principal debtor
remission of the obligation. or creditor benefits the guarantors. Confusion which takes place in the
person of any of the latter does not extinguish the obligation. (1193)
Ex. Richard owes Laila P10, 000 evidenced by a promissory note.
The note as signed by Richard was given to Laila. If the promissory Effect of Merger
note is voluntarily delivered to Richard, the presumption is that the This article reiterates the principles established in Articles 1176,
debt must have been paid by Richard. 1274, NCC, that accessory follows the principal.
It is known that Richard has not yet paid Laila, it must be presumed The extinguishment of the principal obligation extinguishes the
that the obligation has been remitted. Suppose it is not known how accessory obligation; but the extinguishment of the accessory does
Richard came into possession of the promissory note, the not extinguish the principal obligation
presumption is that it was voluntarily delivered by Laila unless Laila
proves to the contrary. Ex. Richard obtains P10, 000 loan from Laila which loan
was guaranteed by Rhorie. Later, Laila assigned the
credit to Tonix, who in turn assigned it to Richard. The
principal debt is extinguished and Rhorie is released from
his obligation as guarantor.
Art. 1273. The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former If, in this same example, the credit was assigned by Laila
in force. (1190) to Tonix and Tonix to Rhorie. The contract of guaranty is
extinguished but the principal obligations remains. Richard
Of Effect Renunciation Of the Principal Debt: has now the obligation to pay Rhorie.
The above provision follows the rule that the accessory follows the
principal. The accessory cannot exist without the principal
obligation.
Ex. Jack owes Sky P10, 000 with Tonix as guarantor. The Art. 1277. Confusion does not extinguish a joint obligation except as
principal debt here is the P10, 000 while the accessory regards the share corresponding to the creditor or debtor in whom the
obligation is the guaranty of Tonix. The remission of the two characters concur. (1194)
debt of Jack by Sky extinguishes the guaranty of Tonix. Effect of Merger in Joint Obligation
But if only the guaranty of Tonix is condoned, the
obligation of Jack shall remain in force. In a joint obligation, the debts are distinct and separate from each
other. In case there is merger in a joint obligation, it affects only the
share corresponding to the creditor or debtor in whom the two
characters concur. The co-debtor will not owe his corresponding
share to this former joint co-debtor.
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 Ex. Jack, Sky and Tonix are jointly indebted to Lance in the amount
found in the possession of the debtor, or of a third person who owns the of P15, 000. Lance assigns his credit to Tony who in turn assigned it
thing. (1191a) to Jack. There is here a merger between Jack and Lance but Sky
and Tonix would now owe Jack P5, 000 each.
Pledged- is a contract by virtue of which the debtor delivers to the
creditor or to a third person a movable or instrument evidencing
incorporeal rights for the purpose of securing the fulfillment of a
principal obligation with the understanding that when the obligation
is fulfilled, the thing delivered shall be returned with all its fruits and SECTION 5. - Compensation
accessions.
If the thing pledged is found in the hands of debtor or the third Art. 1278. Compensation shall take place when two persons, in their own
person, only the accessory obligation of pledge is presumed right, are creditors and debtors of each other. (1195)
remitted, not the obligation itself. Compensation- shall take place when two persons, in their own
Ex. Sky delivers to Ivy his diamond ring in pledge to guarantee the rights are creditors and debtors of each other.
payment of loan. If later on the ring is found in the possession of Compensation Confusion
Sky, the presumption is that Ivy has agreed to the loan without the
pledge. Ivy may prove that she returned the ring to Sky upon the As to number of there must be two there is only one
latters request to be delivered back to him. persons persons person in whom the
quality of creditor and
debtor is merged
As to number of there must be two there is only one
SECTION 4. - Confusion or Merger of Rights obligation obligations obligation

Art. 1275. The obligation is extinguished from the time the characters of Kinds of Compensation:
creditor and debtor are merged in the same person. (1192a)
1. As to cause
Confusion is the meeting in one person of the qualities of creditor
and debtor with respect to the same obligation. (4Sanchez Roman a. Legal takes effect by operation of law provided all the
421) requisites prescribed by law are present.
Requisites of A Valid Confusion b. Voluntarily takes place by virtue of the agreement of the
parties.
1. The merger of the qualities of creditor and debtor must be in the
same person; c. Judicial takes place only through court orders.
2. It must take place in the person of either the principal debtor and 2. As to effect
principal creditor; and a. Total when both debts are completely extinguished because
3. It must be complete, clear and definite; and the debt are the same amount
4. The very obligation must be the same. b. Partial the debts are not the same amount hence after
compensation, a balance remains outstanding.
Ex. Lleina issued a promissory note for P10, 000 in favor of Emi
payable 30 days after sight. Before the maturity of the note, Emi Ex. Richard owes Laila the amount of P10,000. Laila owes Richard
indorsed it to Ria; Ria indorsed it to Jack; Jack indorsed it to Lleina. the amount of P7,000.00. Both debts are due and demandable
The obligation of Lleina to Emi is extinguished because there is here today. Here, the compensation takes place partially, that is, to the
a merger of the qualities of the debtor and creditor in one and the concurrent amount of P7,000.00. So, Richard is liable to Laila for
same person with respect to one and the same obligation cannot only P3,000.00.
demand and collect payment from himself.
University of Cebu 19
College of Law
 Ex. Karl owes Vladz P10, 000 due on Dec. 19, 2010. On the other
hand, Vladz owes Karl P6,000 due also on Dec. 19, 2010 and when
the due date arrives, there is a balance of P4, 000 that will remain
Art. 1279. In order that compensation may be proper, it is necessary: after compensation takes place.
(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 Art. 1282. The parties may agree upon the compensation of debts which
are not yet due. (n)
latter has been stated;
Compensation by Agreement Of the Parties
(3) That the two debts be due;
This is a voluntary compensation as an execution to the general rule
(4) That they be liquidated and demandable;
that only debts which are due and demandable can be
(5) That over neither of them there be any retention or controversy, compensated.(Art.1279)
commenced by third persons and communicated in due time to the
Ex. Jack owes Lleina P10, 000 due on Nov. 30, 2001. On the other
debtor. (1196)
hand, Lleina owes Jack P10, 000 due on Dec. 30, 2011. There can
Requisites of a Proper Compensation or Legal Compensation: be no compensation since the debt of Lleina is not yet due, however
1. The parties are principal creditor and principal debtor of each other; by voluntary agreement that there will be compensation between the
two of them, then compensation will take place.
Ex. Lleina owes Jack P10, 000 payable on Dec. 20, 2000. Jack on
the other hand owes Lleina P10, 000 also due and payable on Dec.
30, 2000. These two obligation become due on Dec. 30, 2000
compensation takes place because both Lleina and Jack are
Art. 1283. If one of the parties to a suit over an obligation has a claim for
principal creditor and principal debtor of each other.
damages against the other, the former may set it off by proving his right
2. Both debts consists in a sum of money or of consumable things of to said damages and the amount thereof. (n)
the same kind and quality;
Judicial Compensation
Ex. Sky obliged himself to deliver to Ivy 100 sacks of rice on October
A judicial compensation- is one whereby a money debt of a person
30, 2000. Ivy, on the other hand, has an obligation to deliver 100
may be allowed by the court to be compensated with a claim of
sacks of rice to Sky on October 20, 2000. There is compensation
damages by another.
because they are consisting of consumable things.
Ex. Richard owes Ronniel P1, 000. When Richard demanded
3. The two debts are due and demandable;
payment, Ronniel failed to pay. In anger, Richard damaged the
Ex.Richard owes Laila P10, 000 payable on October 30, 2000. Laila property of Ronniel to the extent of P800. Ronniel can set off the
owes richard P10, 000 payable also on October 30, 2000. There is obligation of Richard to pay him damages in the amount of P800
compensation when the obligation becomes due on October 30, against his debt of P1, 000.
2000.
4. The two debts liquidated; and the liquidated means that the amount
of debt has already been fixed and determined, while the word
demandable means when it is due; Art. 1284. When one or both debts are rescissible or voidable, they may
5. There be no retention or controversy means a third person who is be compensated against each other before they are judicially rescinded
or avoided. (n)
claiming to be a creditor.
Compensation Of Rescissible or Voidable Debts
Ex. Jack woes Sky P10, 000 and Sky owes Jack P10, 000 but
Jacks credit of P10, 000 has been garnished by Tonix who claims to Rescissible and voidable obligations are valid until they are judicially
be an unpaid creditor of Jack. Sky has been duly notified of the rescinded or avoided and prior rescission or annulment, the debts
controversy. Any possible compensation is in the meantime may be compensated.
suspended. If Tonix wins her claim, there can be no compensation. Ex. Lleina owes Ria P 10, 000. Subsequently, Lleina, through fraud
If he loses, the controversy is resolved, and then compensation can was able to make Ria sign a promissory note that Ria is indebted to
take place. Lleina for the same amount. The debt of Lleina is valid, but that of
Ria is voidable. Before the debt of Ria is nullified, both debts may
be compensated against each other if all the requisites for legal
compensation are present.
Art. 1280. Notwithstanding the provisions of the preceding article, the
If suppose the debt of Ria is later annulled by the court, Lleina is still
guarantor may set up compensation as regards what the creditor may
liable considering compensation had already taken place because
owe the principal debtor. (1197)
the effect of annulment is retroactive, it is as if there was no
Guarantor May Set Up Compensation compensation.
This is an exception to Article 1279, part. 1 because the article
allows setting up compensation as regard what the creditor may owe
to the principal debtor.
Ex. Lance owes Tony P10, 000. Inot is the guarantor of lance. tony Art. 1285. The debtor who has consented to the assignment of rights
owes Lance P10, 000. When Lance sues Tony for P 4,000 and Tony made by a creditor in favor of a third person, cannot set up against the
cannot pay, Inot will be liable for only P6, 000 because he can set assignee the compensation which would pertain to him against the
assignor, unless the assignor was notified by the debtor at the time he
the P4, 000 credit of Toni as the basis of partial compensation.
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
Art. 1281. Compensation may be total or partial. When the two debts are previous to the cession, but not of subsequent ones.
of the same amount, there is a total compensation. (n) If the assignment is made without the knowledge of the debtor, he may
Total compensation- is when the amount due are equal or of the set up the compensation of all credits prior to the same and also later
same amount, hence both obligations are extinguished. ones until he had knowledge of the assignment. (1198a)

Ex. Karl is indebted to Vladz the amount of P10, 000 due on Dec.
19, 2000. Vladz is likewise indebted to Karl in the amount of P10, When Compensation has taken place before assignment:
000 due on Dec. 19, 2000. There is here a total compensation;
If an extinguished obligation has been assigned by the creditor to third
hence, both debts will be extinguished.
person, the debtor can raise the defense of compensation with respect to
Partial compensation- is when the amount are not the same after the debt. The remedy of the assignee is against the assignor.
compensation took place, there is a balance remains.
Ex. Sky owes Ivy P5, 000 due yesterday. Ivy owes Sky P3, 000 due also
yesterday. Both debts are extinguished up to amount of P3, 000. Hence,

University of Cebu 20
College of Law
 Sky still owes Ivy P2, 000 today. If Ivy assigns his right to Tonix, latter Ex. Richard owes Laila P1,000. Laila in turn owes Richard P1,000
can collect only P2, 000 from Sky. However, if Sky gave his consent to representing the value of a diamond ring deposited by Richard with
the assignment before it was made on he will be liable to Tonix for P5, Laila which failed to return.
000 but he can still collect the P2, 000 owed by Ivy. It is as if no In this case, Laila, who is the depository, cannot claim legal
compensation took place. compensation even if Richard fails to pay his obligation. The remedy
Where Compensation has taken place after assignment: of Laila is to file an action against Richard for the recovery of the
amount of P1,000.
There are three cases of compensation which take place after an
assignment of rights made by the creditor. They are: 2. Where one of the debts arises from a commodatum Commodatum
is a gratuitous contract whereby one of the parties delivers to
1. Assignment with consent of debtor
another something not consumable so that the latter may use the
Ex. Sky owes Ivy P5, 000 due Dec. 19. Ivy owes Sky P3, 000 due same for a certain time and return it. (Art. 1993)
Dec. 19. Ivy assigned his right to Tonix, the assignee, the
Ex. In the preceding case, if Laila borrowed the ring of Richard, Laila
compensation which would pertain to him against Ivy, the assignor.
cannot refuse to return the ring on the ground for compensation
Sky is still liable to Tonix for P5, 000 but he can still collect the P2,
because no compensation can take place when one of the debts
000 debt from Ivy. However, if Sky while consenting to the
arises from a commodatum.
assignment, reserved his right to the compensation, he would be
liable only P2, 000 to Tonix. 3. Where one of the debts arises from a claim for support by gratuitous
title- Support compromises everything that is indispensable for
2. Assignment with the knowledge but without the consent of debtor
sustenance, dwelling, clothing, medical attendance, education and
Ex. Sky owes Ivy P1, 000 due Dec. 1. Ivy owes Sky P2, 000 Dec. transportation, in keeping with the financial capacity of the family.
10. Sky owes Ivy P1, 000 due Dec. 15. Ivy assigned his right to (Art. 194, FC)
Tonix on Dec. 12. Sky notified Ivy but the latter did not give his
Ex. Sky donates to Ivy an allowance of P2,000 a month for five
consent to the assignment, how much can Tonix collect from Sky?
years for the latters support. However, previous to the donation, Ivy
Ivy can set up the compensation of debts on Dec. 10 which was
already owed Sky P10,000 which was due and unpaid.
before the cession on Dec. 12. There being partial compensation,
the assignment is valid only up to the amount of P1, 000 but Ivy In this case, Sky cannot say that Ivy In as much as you owe me
cannot raise the defense of compensation with respect to the debt of P10,000, I will not pay your allowance from ten months.
Sky due on Dec. 15 which has not yet matured. So, on Dec. 12, Ivy (Memorandum Of the Code of Commision, March 8, 1951, pp 13-
is liable to Tonix for P1, 000. Come Dec. 15, Sky will liable for his 14).
debt of P1, 000 to Ivy. 4. Where one of the debts consists in civil liability arising from a penal
3. Assignment without the knowledge of the debtor clause. If one of the debts consists in civil liability arising from a
criminal offense, compensation would be improper and inadvisable
Ex. In the preceding example, let us suppose that the assignment
because the satisfaction of such obligation is imperative. (Report of
was made without the knowledge of Ivy who learned of the
the Code Commision, p. 134)
assignment only on Nov. 16. In this case, Ivy can set up the
compensation of credits before and after the assignment. The Ex. Tonix owes Sky P1,000. Sky stole the ring of Tonix worth
crucial time is when Ivy acquired knowledge of the assignment and P1,000. Here, compensation by Sky is not proper.
not the date of the assignment. If Ivy learned of the assignment But Tonix, the offended party, can claim the right of compensation.
after the debts had already matured, he can raise the defense of The prohibition in Art. 1288 pertains only the accused but not to the
compensation, otherwise, he cannot. victim of the crime.

Art. 1286. Compensation takes place by operation of law, even though Art. 1289. If a person should have against him several debts which are
the debts may be payable at different places, but there shall be an susceptible of compensation, the rules on the application of payments
indemnity for expenses of exchange or transportation to the place of shall apply to the order of the compensation. (1201)
payment. (1199a)
Rules on application of payments apply to order of compensation
Compensation is similar to payment. If a debtor has various debts which
Compensation where debts payable at different places are susceptible of compensation, he must inform the creditor which of
This legal compensation does not refer to the difference in the value them shall be the object of compensation. In case he fails to do so, then
of the things in their respective places but to the expenses of the compensation shall be applied to the most onerous obligation. (Arts.
monetary exchange and expenses of monetary exchange and 1252, 1254)
expenses in transportation. Once these expenses are liquidated, the Ex. Jack is indebted to Lleina in the amount of:
debts also become compensated. The indemnity shall be paid by
the person who raises the defense of compensation. a. P1, 000 without interest due today;
Ex. Ricahrd owes Laila $1, 000 payable in Manila. Laila owes b. P1,000 with interest of 18% due also today;
Richarcd P38, 000(equivalent amount) payable in Manila. If Sky c. P1,000 with interest of 16% due yesterday.
claim compensation, he must pay for the expenses of exchange.
Lleina owes Jack P1,000 due today.
For purposes of the application of payment, Jack is the debtor. He must
specify to Lleina which of the three debts should be compensated. If he
Art. 1287. Compensation shall not be proper when one of the debts fails to inform Lleina, then Lleina should apply the compensation to the
arises from a depositum or from the obligations of a depositary or of a second obligation of Jack which the obligation bearing the 18% interest
bailee in commodatum. because it is the most onerous obligation.
Neither can compensation be set up against a creditor who has a claim
for support due by gratuitous title, without prejudice to the provisions of
paragraph 2 of Article 301. (1200a)
Art. 1290. When all the requisites mentioned in Article 1279 are present,
compensation takes effect by operation of law, and extinguishes both
Art. 1288. Neither shall there be compensation if one of the debts debts to the concurrent amount, even though the creditors and debtors
consists in civil liability arising from a penal offense. (n) are not aware of the compensation. (1202)
Instances when legal compensation is not allowed by law: Consent of parties not required in legal compensation:
1. Where one of the debts arises from a depositum- a deposit 1. Compensation takes place automatically by mere operation of law-
constituted from the moment a person receives a thing belonging to from the moment all the requisites mentioned in Art. 1279 concur,
another with the obligation of safely keeping it and of returning it the compensation takes place automatically even in the absence of
same. (Art. 1962) agreement between the parties, and extinguishes reciprocally both
debts to the amount of their respective sums. It takes place by
operation of law from the day all the necessary requisites concur,

University of Cebu 21
College of Law
 without need of consent on the part of the parties, and even without There is novation in this case even in the absence of an express
their knowledge. agreement to that effect because the two obligations are absolutely
incompatible with each other.
2. Full legal capacity of parties not required- As it takes place by
operation of law and without any act of the parties, it is not required
that the parties have full legal capacity (see Art. 37) to give or to
receive, as the case may be.
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
SECTION 6. - Novation
1236 and 1237. (1205a)
Kinds of personal novation:
Art. 1291. Obligations may be modified by:
1. Substitution- when the person of the debtor is substituted. (Art.
(1) Changing their object or principal conditions;
1291, par. 2)
(2) Substituting the person of the debtor;
2. Subrogation- when a third person is subrogated in the rights of the
(3) Subrogating a third person in the rights of the creditor. (1203) creditor. (Ibid, {3}; Art. 1300.)
Novation- is the extinction of an obligation through the creation of a new Substitution of Debtor:
one which substitutes it.
1. Expromision (where the initiative comes from a third person)(Art.
Dual function of novation: 1294)
Is a contract containing two stipulations; one to extinguish or modify 2. Delegacion (where the initative comes from the debtor, for it is he
existing obligation, the other to substitute a new one in its place. who delegates another to pay the debt, and thus, he excuses
Kinds of novation: himself. Here the 3 parties concerned- the old debtor, the new
debtor,and the creditor- must agree).(Art. 1295)
A. According to its object or purpose
Ex. Jack tells Sky that Tonix will pay Jacks debt. Sky agrees. It does not
1. Real or objective- (changing the object or the principal necessarily mean that there is delegacion here. But if Jack tells Sky that
conditions of the obligation). (Art. 1291, par. 1) Tonix will pay his debt and he asks Sky to release him from his obligation,
2. Personal or Subjective- (change of persons) to which Sky agrees, delgacion results.
a. Substituting the person of the debtor (Expromision or
Delegacion)
b. Subrogating a third person in the rights of the creditor (change Art. 1294. If the substitution is without the knowledge or against the will
of creditor may be by agreement- conventional subrogation, of the debtor, the new debtor's insolvency or non-fulfillment of the
or by operation of law- legal subrogation). obligations shall not give rise to any liability on the part of the original
3. Mixed (Change of object and parties) debtor. (n)
B. According to the form of its constitution In expromision, the new debtors insolvency or non-fulfillment of the
obligation will not revive the action of the creditor against the old
1. Express debtor whose obligation whose obligation is extinguished by the
2. Implied (when the two obligations are essentially incompatible assumption of the debt by the new debtor. In expromision, the
with each other) replacement of the old debtor is not made to his own initiative.
C. According to its extent or effect
1. Total or extinctive novation ( when the old obligation is
completely extinguished) Art. 1295. The insolvency of the new debtor, who has been proposed by
2. Partial or modificatory- (this is also termed imperfect or the original debtor and accepted by the creditor, shall not revive the
improper novation) action of the latter against the original obligor, except when said
insolvency was already existing and of public knowledge, or known to
Ex. Richard agreed to deliver to Laila a car. Later, they entered into
the debtor, when the delegated his debt. (1206a)
anther contract whereby, instead of Richard delivering a car, he
would deliver ten air conditioners. The obligation to deliver the car is General rule: Is that old debtor is not liable to the creditor in case of the
extinguished by the obligation to deliver the ten air conditioners. The insolvency of the new debtor.
change may involve the principal terms of the obligation. Exceptions:
1. The said insolvency was already existing and of public knowledge
(although it was not known to the old debtor) at the time of the
delegacion.
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 2. The insolvency was already existing and known to the debtor
unequivocal terms, or that the old and the new obligations be on every (although it was not of public knowledge) at the time of the
point incompatible with each other. (1204) delegacion.
Requisites of novation: The exceptions are intended to prevent fraud on the part of the old
debtor.
1. A previous valid obligation
Ex. Richard owes Laila P1,000. Richard proposed to Laila that Jack
2. Capacity and intention of the parties to modify or extinguish the
would substitute him as debtor. Laila agreed to the proposal. If ,at the
obligation
time of the delegacion, jack was already insolvent but his insolvency was
3. The modification or extinguishment of the obligation neither of public knowledge nor known to Richard, then Richard is not
4. The creation of a new valid obligation liable. Neither is Richard liable if the insolvency of Jack took place after
he delegated his debt.
Novation is not presumed. It must be clearly and unmistakably
established either by the express agreement of the parties or acts of It is believed that Richard is also not liable if Laila had knowledge that
equivalent import (Aboitiz vs De Silva, 45 Phil. 883) or by the Jack was insolvent at the time the debt was delegated to him.
incompatibility of the two obligations with each other in every material
aspect.
Ex. Suppose the obligation of Sky is to construct a house on a certain
Art. 1296. When the principal obligation is extinguished in consequence
parcel of land. Subsequently, Sky agreed t construct an apartment on the
of a novation, accessory obligations may subsist only insofar as they
same parcel of land. The area of the land is such both the house and the
may benefit third persons who did not give their consent. (1207)
apartment as per the building plans cannot be constructed on the same
site.

University of Cebu 22
College of Law
 It follows the general rule that the extinguished of the principal Subrogation is the transfer to a third person of all the rights appertaining
obligation carries with it that of the accessory obligations. (Arts. to the creditor, including the right to proceed against guarantors,
1230,1273,1280). possessors of mortgages, subject to any legal provision.
It provides, however, an exception in the case of an accessory
obligation created in favor of a third person which remains in force Kinds of subrogation:
unless said third person gives his consent to the novation. (Art.
1311, par.2 ). This is so because a person should not be prejudiced From the viewpoint of cause or origin:
by the act of another without his consent.
Conventional or voluntary subrogation this requires an
Ex. Sky owes Ivy P2,000 with interest at 14 %. Ivy owes Tonix agreement and the consent of the original parties and of
P280.00. It was agreed among the parties that Sky would pay the the creditor.
interest of P280 to Tonix. In this case, besides the principal
obligation of Sky, there is a stipulation in favor of Tonix, a third Legal subrogation takes place by operation of law
person. (see Art. 1311, par. 2). Later on, Sky and Ivy executed
another contract whereby they agreed that Sky would deliver to Ivy a
From the viewpoint of extent:
television set in payment of the loan.
Inspite of yhr novation, the accessory obligation to pay the interest Total subrogation
of P280 to Tonix will subsist unless Tonix gives his consent to the
novation. Partial subrogation

Art. 1297. If the new obligation is void, the original one shall subsist, Art. 1301. Conventional subrogation of a third person requires the
unless the parties intended that the former relation should be consent of the original parties and of the third person. (n)
extinguished in any event. (n)
One of the essential requisites of a valid novation, namely, the new For conventional or legal subrogation, the consent of all the parties is
obligation must be valid and effective. Thus, if the new obligation is required:
void, there is no novation, and the old obligation generally will
subsist. The debtor because he becomes liable under the new obligation
and because his old obligation ends
If the new obligation is only voidable, novation can be take place.
But the moment it is annulled, the novation must be considered as The old creditor because his credit affected
not having taken place, and the original one can be enforced, unless
the intention of the parties is otherwise. The new creditor because he becomes a party to the obligation

Art. 1298. The novation is void if the original obligation was void, except Art. 1302. It is presumed that there is legal subrogation:
when annulment may be claimed only by the debtor or when ratification
validates acts which are voidable. (1208a) (1) When a creditor pays another creditor who is preferred, even without
If the obligation is void- there is no valid novation. the debtor's knowledge;
If the old obligation was voidable and has already been annulled, (2) When a third person, not interested in the obligation, pays with the
there is no more obligation. Therefore, the novation is also void. express or tacit approval of the debtor;
Ex. Sky agreed to deliver prohibited drugs to Ivy. Later on, it was
agreed that Sky would pay Ivy P100,000 instead of delivering the (3) When, even without the knowledge of the debtor, a person interested
drugs. The obligation is void because the original obligation is void. in the fulfillment of the obligation pays, without prejudice to the effects
of confusion as to the latter's share. (1210a)

In the three cases enumerated, subrogation takes place by

Art. 1299. If the original obligation was subject to a suspensive or operation of law even without the consent of the parties.
resolutory condition, the new obligation shall be under the same
condition, unless it is otherwise stipulated. (n) When a creditor pays another creditor who is preferred.
Example: Arthur owes Brad P1,000 secured by a first
General rule: The conditions attached to the old obligation are also mortgage on the land of Arthur. Arthur also owes Carl
attached to the new obligation. P2,000. This debt is unsecured. Under the law, Brad is a
Exceptions: If there is a contrary stipulation. preferred creditor, has preference to payment with respect
to the land as against Carl who is merely an ordinary
Reason for the general rule: If, for example, the suspensive
creditor. If Carl pays the debt of Arthur to Brad, Carl will be
condition attached to the obligation is not fulfilled, the old obligation
subrogated in Brads right so that he can have the
never arose. Therefore, there would be nothing to novate, since
mortgage foreclosed in case Arthur fails to pay the P1,000
novation requires the existence of a previous valid and effective
debt.
obligation.
Ex. Richard to give Laila a car if Laila should pass the bar exams. When a third person without interest in the obligation pays with the
Later, both agreed that what should be given would be a diamond approval of the debtor.
ring. Nothing was mentioned in the second contract regarding the Example: Arthur owes Brad P1,000. Carl pays Brad with
condition. Is the new obligation also subject to a suspensive the express or implied consent of Arthur. Carl will be
condition? subrogated in all the rights of Brad.
Yes, unless it was otherwise stipulated in the new contract. The
delivery of the diamond ring would, therefore, be due only after Laila When a third person with interest in the obligation pays even without
has passed the bar exams. the knowledge of the debtor.
Example: Arthur and Brad are joint debtors of Carl for the
amount of P1,000. Without the knowledge of Arthur, Brad
pays the debt of P1,000. In this case, Brad becomes a
creditor of Arthur for P500, the latters share of the debt
Art. 1300. Subrogation of a third person in the rights of the creditor is but not for the remaining P500, the portion of the debt
either legal or conventional. The former is not presumed, except in cases which corresponds to Brad, which is extinguished by
expressly mentioned in this Code; the latter must be clearly established confusion or merger of rights.
in order that it may take effect. (1209a)

University of Cebu 23
College of Law
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)

Credit and all the appurtenant rights, either against the debtor, or
against third persons are transferred.

Example: Jamero owes Canoy P1,000,000. Gene is the

guarantor. A stranger Steve paid Canoy the P1,000,000
with the consent of Jamero and Canoy. Steve is now
subrogated in the place of Canoy. If Jamero cannot pay
the P1,000,000, Steve can proceed against the guarantor
Gene.

It is understood that if the transferred credit is subject to a

suspensive condition, the new creditor cannot collect until after said
condition is fulfilled.

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

Partial Subrogation

1.) The old creditor, who still remains a creditor as to balance

2.) The new creditor who is a creditor to the extent of what he

had paid the creditor.

Example: Andrew owes Bobby P500,000. With the consent of both,

Carl pays Bobby P250,000. Now Bobby and Carl are the creditor of
Andrew to the amount of P250,000. Suppose Andrew has only
P250,000 who should be preferred? Bobby, the original creditor,
should be preferred inasmuch as he is granted by the law
preferential right to recover the remainder, over the person
subrogated in his place by virtue of the partial payment of the same
credit.

University of Cebu 24
College of Law
 a. Principal one which can stand alone. Ex. A contract of sale,
lease.

b. Accessory those which are dependent upon another contract.

Ex. Contract of mortgage, pledge of guaranty.

c. Preparatory those which is created in order that a future

transaction or contract may be entered into by te parties. Ex.
Contract of partnership or agency.

3. According to name or designation

a. Nominate one which has particular name or designation such as

sale, agency, etc.
Title II. - CONTRACTS
b. Innominate those without particular name.
CHAPTER 1
4. According to the nature of obligation
GENERAL PROVISIONS
a. Unilateral where only one has an obligation to perform. Ex.
Art. 1305. A contract is a meeting of minds between two persons Contract of donation, commodation.
whereby one binds himself, with respect to the other, to give something
or to render some service. (1254a) b. Bilateral where both parties have reciprocal obligation to
perform. Ex. Sale.
The above article defines the term Contract. In a contract, one or more
persons bind themselves with respect to another or reciprocally, to the 5. According to risk involved
fulfillment of a presentation to give, to do or not to do.
a. Commutative - where there is an exchange of values, such as
Elements of a contract: lease.

1. Essential elements those elements without which there can be no b. Aleatory - one which the fulfillment of the obligation depends
valid contract. This element are consent, object or subject matter and upon chance. Ex. Contract of insurance.
cause or consideration
6. According to cause
2. Natural elements those elements which are found in a contract by its
nature and presumed by law to exist, such as Warranty of hidden a. Onerous one which imposes valuable consideration such as
defects or eviction in contract of sale. sale, mortgage.

3. Accidental elements - those which exist by virtue of an agreement for b. Gratuitous one which one of the parties does not receive any
the purpose of expanding, limiting, or modifying a contract. Such valuable consideration, such as commodatum.
accidental elements are condition, clauses, terms, modes of payment, or
penalties. 7. According to form

Stages of a contract: a. Oral by word of mouth of the parties

1. Preparatory or conception process of formation such as b. Written the agreement which is reduced in writing which may be
bargaining, negotiation to arrive at a define contract. public or private or private document

2. Perfection or birth there is now a meeting of minds to arrive at a

definite agreement as to the subject matter, cause or consideration, terms
and conditions of contract. Art. 1306. The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided
3. Consumption or death which is the fulfillment or performance of they are not contrary to law, morals, good customs, public order, or
the terms and conditions agreed upon in the contract may be said to have public policy. (1255a)
been fully accomplished or executed.
Limitations on the Nature of Stipulations:
Characteristics of a contract:
a.) the law
1. Freedom to contract they may establish terms and conditions as b.) morals
they may deem convenient. c.) good customs
d.) public order
2. Relativity it is binding only upon the parties and their successors. e.) public policy

3. Obligatory force it constitutes the law as between the Example: Dan lost in gambling and as payment, executed a
parties. promissory note in favor of the winner Carl. Carl then assigned the
note to Art. May Art successfully recover from Dan? No, because the
4. Mutuality its validity and performance cannot be left to the wil of promissory note is void. Just as the winner cannot recover, so also
only one of the parties. cannot the assignee.

Classifications of a contract:

1. As to perfection 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
a. Consensual one which is perfected by mere consent (Art. 1315 governing the most analogous nominate contracts, and by the customs
of the place. (n)
b. Real Contract perfected by mere consent and by the delivery of
the object or subject matter. Ex. Deposit, pledge, or Governing rules for innominate contracts
commodatum.
a.) stipulations
2. As to dependence to other contract. b.) Titles I & II of Book IV Obligations & Contracts
c.) Rules on the most ANALOGOUS nominate contracts

University of Cebu 25
College of Law
 d.) Customs of the place 1. In determining the performance of both parties (Art. 1309).

2. In contracts containing a stipulation in favor of a third person (Art.

4 Kinds of Innominate Contracts 1311).

a.) do ut des ( I give that you may give) 3. In contracts creating real rights (Art. 1312).
b.) do ut facias (I give that you may do)
c.) Facio ut des (I do that you may give) 4. In contracts entered into to defraud creditor (Art. 1313).
d.) Facio ut facias (I do that you may do)
5. In contracts which have been violated at the inducement of the third
Example: In a contract, the provisions of which were very similar to person (Art. 314).
a lease contract, both parties agreed that the same should not be
regarded as a lease. I the stipulation valid? Yes because, there is no Example: Ria mortgaged her parcel of land in favor of Lleina as collateral
legal provision prohibiting such a stipulation. Generally, whatever is for her debt. The mortgage is duly registered. Later on, Ria sold the
agreed upon is binding, particularly in a consensual contract such as same land to Tonix. In this case, Tonix bought the land subject to the
lease.) mortgage constituted thereon. Tonix, although a stranger in the
mortgage, being a real right follows the property on the right of Lleina to
the mortgage.

Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. (1256a)
Art. 1312. In contracts creating real rights, third persons who come into
Contracts entered by and between the parties mush bind both parties in possession of the object of the contract are bound thereby, subject to
order that it can be enforced against each other. This is also known as the provisions of the Mortgage Law and the Land Registration Laws. (n)
mutuality of contract. Hence, its validity or compliance cannot be left to
the will of one of them. This principle is based on the essential equality of This article constitutes one of the exceptions to the general rule that
the parties. It is elementary rule that no party can renounce or violate the a contract binds only the parties.
law of the contract without the consent of the other. (11 Manresa 380)
Example: If Art should purchase an apartment house from the owner
Example: Lleina and Ria entered into a contract to sell whereby Lleina but there is a lease thereon, Art must respect the lease, if the same
binds herself to sell her only parcel of land to Ria if Lleina decides to is registered in the Registry of Property, or if Art has actual
leave for States. The contract is void because the fulfillment of the knowledge of the existence and duration of the lease. Similarly, the
condition depends on the will of Lleina. purchaser of land must respect a mortgage constituted thereon,
under the same circumstances given hereinabove.

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 Art. 1313. Creditors are protected in cases of contracts intended to
known to both contracting parties. (n) defraud them. (n)

Example: In a contract of sale, the fixing of the price and the delivery This Article represents another instance when an outsider can in a
date can be left to a third person. The decision binds the parties only sense interfere with anothers contract.
after it is made known to both.
Example: If Lleina gratuitously gives Jack a parcel of land, and
Lleina has no other property or cash left to satisfy his creditors, sad
creditors may ask for the recission of the contract, to the extent that
Art. 1310. The determination shall not be obligatory if it is evidently they have been prejudiced
inequitable. In such case, the courts shall decide what is equitable under
the circumstances. (n)

As a rule, compliance with a contract cannot be left to the will of one of Art. 1314. Any third person who induces another to violate his contract
the contracting parties. However, the determination of its performance shall be liable for damages to the other contracting party. (n)
may be left to a third person after it has been made known to both
contracting parties. Provided, further, the parties are not bound by the Example: Steff, a move actress, has a one-year contract with XY
determination if it is evidently inequitable or unjust when the third person studio. If Franco, a friend of Steff induces her, without any justifiable
acted in bad faith or by mistake, the courts shall decide what is equitable cause, to break the contract, then XY can sue Franco for damages.
under the circumstances.

Example, Ria sold her parcel of land to Lleina. It was agreed that May, a
real estate appraiser would be the one to determine the reasonable price Art. 1315. Contracts are perfected by mere consent, and from that
of the land. May, then, fixed the price after considering the factors moment the parties are bound not only to the fulfillment of what has
affecting the value of the land, and informing both contracting party that been expressly stipulated but also to all the consequences which,
the decision is just and suitable. If the decision made by May is according to their nature, may be in keeping with good faith, usage and
manifestly inequitable, the court may be called upon to decide what is law. (1258)
equitable.
This article stresses the consensuality of contracts (perfection of
contract by mere consent).

Art. 1311. Contracts take effect only between the parties, their assigns Salvador P. Malbarosa v. CA and S.E.A Development Corp, GR #
and heirs, except in case where the rights and obligations arising from 125761
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 Fact: From March 16, 1990 to April 3, 1990, petitioner had more
he received from the decedent. than two weeks to accept the offer of respondent. Although
petitioner avers that he had accepted the offer of respondent on
If a contract should contain some stipulation in favor of a third person, March 28, 1990, however, he failed to transmit to respondent the
he may demand its fulfillment provided he communicated his acceptance copy of the March 14, 1990 letter-offer bearing his conformity
to the obligor before its revocation. A mere incidental benefit or interest thereto.
of a person is not sufficient. The contracting parties must have clearly
and deliberately conferred a favor upon a third person. (1257a) Held: Unless and until the respondent received said copy of the
letter-offer, it cannot be argued that a contract had already been
Cases Where Third person May Be Affected By a Contract perfected between petitioner and respondent.

University of Cebu 26
College of Law
 is different from LACK OF CONSIDERATION where the contract states
that the price has been paid when in fact, it has never been paid.
Article 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.
CONSENT
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, Article 1319. Consent is manifested by the meeting of the offer and the
shall be unenforceable, unless it is ratified, expressly or impliedly, by the acceptance upon the thing and the cause which are to constitute the
person on whose behalf it has been executed, before it is revoked by the contract. (CONSENT) The offer must be certain and the acceptance
other contracting party. absolute. A qualified acceptance constitutes a COUNTER-OFFER.

REQUISITE for a Person to Contract in the Name of Another ACCEPTANCE MADE BY LETTER OR TELEGRAM does not bind the
If a person wants to contract in the name of another: offerer except from the time it came to his knowledge. The contract, in
1. He must be duly authorized (expressly or impliedly); OR such a case, is presumed to have been entered into in the place where
2. He must have by law a right to represent him (like the guardian, or the offer was made. (ACCEPTANCE THRU CORRESPONDENCE)
the administrator); OR
3. The contract must be subsequently RATIFIED (expressly or CONSENT as an ESSENTIAL REQUISITE
impliedly, by word or by deed). This Article emphasizes CONSNET, which is the first essential
requisite of every contract. CONSENT is the meeting of the minds
RATIFICATION means that one under no disability voluntarily adopts and between the parties on the subject matter, and the cause of the
gives sanction to some unauthorized act or defective proceeding, which contract, even if neither one has been delivered.
without his sanction would not be binding on him.
It is the manifestation of the meeting of the offer and the acceptance
Effect of RATIFICATION: upon the thing and the cause which are to constitute the contract.
Ratification cleanses the contract from all its defects from the moment the (Article 1319, 1st Paragraph)
contract was entered into. Hence there is retroactive effect.
REQUISITES OF CONSENT (5)
NOTE: There can be no more ratification if the contract has previously 1. There must be two or more parties.
been revoked by the 2. One person may represent two or more parties, UNLESS there are
other contracting party. uncontradictory or prejudicial interests involved.
3. The parties must be capable or capacitated.
NOTE: An UNAUTHORIZED CONTRACT is a form of an 4. There must be NO vitiation of consent.
UNENFORCEABLE CONTRACT. 5. There must be NO CONFLICT between what was expressly
declared and what was really intended.
6. Otherwise the remedy may be reformation, as when the parties
ESSENTIAL REQUISITES OF CONTRACTS really intended to be bound, or else the contract is void, as when the
contract is fictitious or absolutely simulated.
Article 1318. There is no contract unless the following requisites concur: 7. The INTENT must de declared properly (that is, whatever legal
(1) Consent of the contracting parties; formalities are required must be complied with).
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. REQUISITES OF THE MEETING OF THE MINDS (2)
1. An OFFER must be CERTAIN.
ESSENTIAL REQUISITES OF CONSENSUAL CONTRACTS In order than on offer may be considered certain, it must not be
The THREE essential requisites for consensual contracts are enumerated vague, misleading, or made as a joke.
in this Article.
If the offer is withdrawn before it is accepted, there is no meeting of
NOTE: Under the OLD Civil Code, consideration was the word used the minds
instead of cause of the obligation.
NOTE: If two contracts are offered, but they are independent of each
REAL CONTRACTS other, acceptance of one does not imply acceptance of the other.
Real contracts require a FOURTH REQUISITE DELIVERY. BUT if one contract depends upon another, like a contract of loan
provided it is secured by a contract of mortgage, it is essential that
SOLEMN OR FORMAL CONTRACTS there be an agreement on both transactions. Otherwise, there can
This requires a FOURTH REQUISITE - Compliance with the formalities be as yet no meeting of the minds.
required by law.
2. And an ACCPETANCE that must be UNQUALIFIED and
Example: A simple donation inter vivos of land requires a public ABSOLUTE.
instrument for its perfection. NOTE: If the acceptance is qualified, let us say by a condition, this
merely constitutes a COUNTER-OFFER.
What CONSENT Presupposes
CONSENT presupposes LEGAL CAPACITY and the FULFILMENT of If there is COMPLETELY NO ACCEPTANCE, or if the OFFER IS
CONDITIONS, should any be attached. EXPRESSLY REJECTED, there is NO MEETING OF THE MINDS.

EFFECT OF NON-CONSENT If the acceptance is QUALIFIED or not absolute, there is no

If there is ABSOLUTELY NO CONSENT, there is NO CONTRACT. The concurrence of minds. This merely constitutes a COUNTER-
agreement may be considered inexistent or non-existent or void. The OFFER.
same rule applies as in the case of
A COUNTER-OFFER as a matter of fact extinguishes the offer.
ABSOLUTELY SIMULATED CONTRACT, one where the parties never Moreover, it may or may not be accepted by the original offeror.
intended to be bound.
QUERY:
If there is a VICE OF CONSENT (vitiated consent), such as error, fraud, A offered 20 fountain pens to B for P1,000 each. B answered by
or undue influence, the contract is not void; it merely VOIDABLE. letter that he was willing to purchase 30 fountain pens at said price
at P1,000 each. Is the contract perfected?
Lack of Consent VERSUS Lack of Consideration
One of the three essential requisites of a valid contract is consent of the ANSWER:
parties on the object and cause of the contract. In a contract of sale, the It depends.
parties must agree not only on the price, but also on the manner of
payment of the price. An agreement on the price but a disagreement on If B wanted 30 pens and would not be satisfied with less, the
the manner of its payment will not result in consent, thus, preventing the acceptance can be considered as qualified, so there has been no
existence of a valid contract for LACK of CONSENT. This lack of consent perfection yet.

University of Cebu 27
College of Law
 If B was contented with 20 pens, but desired, if possible to get 10
more, there is perfected sale regarding the original 20, and an offer THINGS THAT MAY BE FIXED BY THE OFFEROR
with respect to the extra ten. Unless accepted in turn, there would 1. The time
be no contract yet with respect to the additional 10 fountain pens. 2. The place
3. The manner of acceptance.
NOTE: If an offeror offers several distinct and separate items, and
the offeree accepts one of them, the contract is perfected as to the NOTE: Any act contrary to the prescribed terms really constitutes a
item accepted. counter-offer or counterproposal.

ACCEPTANCE THRU CORRESPONDENCE

RULE: Acceptance made by letter or telegram DOES NOT BIND the
offeror, EXCEPT from the time it came to his knowledge. Article 1322. An offer made through an agent is accepted from the time
acceptance is communicated to him.
The knowledge may be actual or constructive (as when the letter of
acceptance has been received in the house of the offeror by a ACCEPTANCE OF AN OFFER THRU AN AGENT
person possessed of reasonable discernment). If actual knowledge This Article applies when BOTH the offer and the acceptance are made thru
be required, proof of this would almost impossible, for even when an agent (who is an extension of the principal).
the letter containing the answer has been opened and read, the
offeror can always claim, in some cases truthfully, that while he was Any other intermediary (who is not an agent, with power to bind) is merely a
reading the same, his mind was elsewhere, and he did not actually sort of messenger, who must communicate to the person who sends him;
know the contents of the letter. otherwise, there is as yet no meeting of the minds.

The contract in such a case is presumed to have been offered into in QUERY:
the place where the offer was made. Suppose the principal himself made the offer, and acceptance is
communicated to his agent, would the Article apply? In other words, would
CASE: there already be a meeting of the minds?
On February 5, 1919, Arias wrote Laudico a letter, offering a lease
contract. On March 6, 1919, Laudico wrote a letter of complete ANSWER:
acceptance, which was received by Arias that same afternoon. It is submitted that as a GENERAL RULE, there would as yet be no meeting of
the minds, for the agent may be an ordinary one, not authorized to receive the
But that same morning Arias had already written Laudico a letter acceptance for the particular transaction. HOWEVER, if the agent was
withdrawing the offer. expressly authorized to receive the acceptance, or if the offeree had been told
that acceptance could be made direct with the agent, who would then be given
ISSUE: Was there a contract here? freedom to act or proceed, there can be a meeting of the minds and a
perfection of the contract.
ANSWER: No, because prior to receipt of the letter of acceptance,
the offer had already been withdrawn. In other words, it does not Article 1323. An offer becomes ineffective upon the death, civil
matter that the letter of withdrawal may have been received later by interdiction, insanity, or insolvency of either party before acceptance is
the offeree than receipt of the letter of acceptance by the offeror. conveyed.

What is important is that the letter of withdrawal was made prior to WHEN OFFER BECOMES INEFFECTIVE 4 Instances
the knowledge of acceptance. When either party:
1. Died;
RULE IF LETTER OF ACCEPTANCE IS WITHDRAWN OR 2. Suffers civil interdiction;
REVOKED 3. Insanity
A letter of acceptance may in turn be withdrawn or revoked. 4. Insolvency

Example: Ajohn offered on January 1. Bobby accepted on January Before the acceptance is conveyed.
8. The letter of acceptance was received by Ajohn on January 15.
But on January 12, B had already written a letter revoking the Other Instances:
acceptance. Was there a meeting of the minds? If the letter revoking 1. When the offeree expressly or impliedly rejects the offer;
the acceptance was received by Ajohn before January 15 (receipt of 2. When the offer is accepted with a qualification or condition (for here,
the letter of acceptance), there is no question that there was no there would be merely a counter-offer)
meeting of the minds. BUT if the letter revoking the acceptance, 3. When before acceptance is communicated, the subject matter has
although made previously, was nevertheless received by Ajohn only become illegal or impossible;
after January 15 (receipt of the letter of acceptance), Reyes, Puno, 4. When the period of time given to the offeree within which he must
and Tolentino believe that there was already a meeting of the minds. signify his acceptance has already lapsed.
According to them, the REVOCATION OF THE ACCEPTANCE must 5. When the offer is revoked in due time (that is, before the offeror has
reach and be learned by the offeror ahead of the acceptance. learned of its acceptance by the offeree).

Article 1320. An acceptance may be express or implied. Article 1324. When the offerer has allowed the offeree a certain period to
accept, the offer may be withdrawn at any time before acceptance by
FORMS OF ACCEPTANCE communicating such withdrawal, except when the option is founded
1. EXPRESS upon a consideration, as something paid or promised. (OPTIONS)
2. IMPLIED from conduct, or acceptance of unsolicited services.
3. PRESUMED BY LAW as when there is a failure to repudiate GENERAL RULE ON OPTIONS
hereditary rights within the period fixed by law; or when there is If the offeror has allowed the offeree a certain period to accept, the
silence in certain specific cases as would tend to mislead the other offer may be withdrawn at any time before acceptance (or the thing
party and thus place the silent person in estoppel. being offered) by communicating such withdrawal.

IMPLIED REJECTION To be binding on the person who made a unilateral promise, the
Upon the other hand, REFUSAL or REJECTION of an offer may promise must be supported by a cause or consideration distinct from
also be inferred from acts and circumstances like the failure to act the price.
on offer of compromise before the court enters a final judgment on a
case. EXCEPTION
When the option is founded upon a consideration as something paid
or promised, the offeror cannot withdraw the offer to sell until after
the expiration of the period given.
Article 1321. The person making the offer may fix the time, place, and
manner of acceptance, all of which must be complied with. OPTION DEFINED

University of Cebu 28
College of Law
 It is a contract granting a person the privilege to buy or not to buy 1. Unemancipated Minors;
certain objects at any time within the agreed period at a fixed price. 2. Insane or Demented Persons (unless they acted during a lucid
The Contract of Option is a SEPARATE and DISTINCT CONTRACT interval), drunks and those hypnotized (Article 1328 of the Civil
from the contract which the parties may enter into upon the Code);
consummation of the contract. 3. Deaf-Mute, who do not know to write (and read).

Therefore, an option must have its own cause or consideration, a NOTE: If they know how to read, but do not know how to write, it is
cause distinct from the selling price itself. Of course, the submitted that the contract is valid for then they are capable of
consideration may be pure liberality. understanding, and therefore capaciated to give consent.

PERFECTION of an OPTION Unemancipated Minors

Since an option is by itself a contract, it is not perfected unless there These are the minors who have not been emancipated by
is a MEETING OF THE MINDS on the option. Thus, the offer to attainment of the legal age of majority.
grant an option, even if founded on a distinct cause or consideration, In GENERAL, the contracts which they enter into are VOIDABLE,
may itself be withdrawn before the acceptance of the offer of an UNLESS:
option. a. Upon reaching the age majority, they ratify the same;
b. They were entered into thru a guardian, and the court having
NOTE: There is therefore a difference between acceptance of the jurisdiction had approved the same;
offer of option (which results in the contract of option) and c. They were contracts of life insurance in favor of their parents,
acceptance of the object being offered for sale or acceptance of the spouse, children, brothers, sisters, and provided furthermore, that
offer of sale (which results in the contract of sale. minor is 18 years old or above.
d. They were in the form of savings account provided furthermore
that the minor was at least seven years old.
e. They were contracts for necessities such as food, but here the
Article 1325. Unless it appears otherwise, business advertisements of people who are legally bound to give them support should pay
things for sale are not definite offers, but mere invitations to make an therefor.
offer. f. They were contracts where the minor misrepresented his age,
and pretended to be one of major age and is, thus in ESTOPPEL. It
BUSINESS ADVERTISEMENTS is however, essential here that the other party have been misled.
Are business advertisements of things for sale definite offers?
NOTE: If both parties to a contract are minors, the contract is
ANSWER: It depends. UNENFORCEABLE. (Article 1403, No. 3 of the Code where both
a. If it appears to be a definite offer containing all the specific parties are incapable of giving consent to a contract)
particulars needed in a contract, it really is a definite offer.
b. If important details are left out, the advertisement is not a Insane or Demented Persons
definite offer, but a mere invitation to make an offer. UNLESS, they acted during a lucid interval.

REASON: People who contract must know what they are entering
into.
Article 1326. Advertisements for bidders are simply invitations to make
proposals, and theadvertiser is not bound to accept the highest or NOTE: No proper declaration of insanity by the court is required, as
lowest bidder, unless the contrary appears. long as it is shown that at the time of contracting, the person was
really insane.
ADVERTISEMENT FOR BIDDERS
As a GENERAL RULE, the advertiser is not bound to accept the PRESUMPTION OF SANITY: If the contract was made before the
highest or lowest bidder, UNLESS the contrary appears. declaration of insanity, the presumption is that he was still sane at
the time of contracting. He who alleged the insanity of another at the
ACCEPTANCE OF A BID time of contracting is duty-bound to prove the same, otherwise, the
The mere determination of a public official or board to accept the latters capacity must be presumed.
proposal of a bidder does not constitute a contract; the decision must
be communicated to the bidder. Deaf-Mutes Who Do Not Know How to Write (and Read)
If a deaf-mute does not know how to write but he knows how to
Definition of Terms read, he should be considered capacitated.
1. LOWEST BIDDER - is he who offers the lowest price (as in the
case of purchase by the bidder, or a contract for work by the bidder. PERSONS SPECIALLY DISQUALIFIED
2. LOWEST RESPONSIBLE BIDDER includes not only financial There are people who are specially disqualified in certain things.
ability but also the skill and capacity necessary to complete the job for Here the transaction is VOID because the right itself is restricted,
which the bidder would become answerable. that is, the right is withheld.
3. LOWEST AND BEST BIDDER is even wider and includes not
only financial responsibility, skill, and capacity, but also the reputation In the case of mere legal incapacity, the transaction is voidable
of the bidders for dealing fairly and honestly with the government, because the right itself is not restricted, but merely its exercise, that
their mechanical facilities, and business organization tending to show is, it can still be exercised but under certain conditions.
dispatch in their work and harmonious relations with the government,
the magnitude and urgency of the job, the kind and quality of Article 1328. Contracts entered into during a lucid interval are valid.
materials to be used, and other factors, as to which a bidder may Contracts agreed to in a state of drunkenness or during a hypnotic spell
offer greater advantages than another. are voidable.

LUCID INTERVALS
Article 1327. The following cannot give consent to a contract: Even if a person has already been judicially declared insane, and is
(1) Unemancipated minors; actually now under guardianship, he may still enter into a valid
(2) Insane or demented persons, and deaf-mutes who do not know contract, provided that it can be shown that at the time of contracting,
how to write. he was in a lucid interval. Of course here, he is already presumed
insane, and therefore the sanity must be proved.
TWO CLASSES OF VOIDABLE CONTRACTS
1. Those were one party is incapacitated to give consent;
2. Those were the consent of one party has been vitiated (such Article 1329. The incapacity declared in article 1327 is subject to the
as by error, fraud, violence, intimidation and undue influence). modifications determined by law, and is understood to be without
prejudice to special disqualifications established in the laws.
NOTE: These contracts in general are valid until annulled; however
annulment cannot prosper when they have been ratified. INCOMPETENT PERSONS Under the Rules of Court
Under the Rules of Court, the following are considered
PERSONS INCAPACITATED TO GIVE CONSENT (3) incompetents, and may be placed under guardianship:

University of Cebu 29
College of Law
 1. Those under civil interdiction; cannot annul the contract because in many cases, this is merely
2. Hospitalized lepers; speculative.
3. Prodigals (spendthrifts);
4. Deaf and dumb who are unable to read and write; 3. The error must be a mistake of fact, and not of law.
5. Those of unsound mind This is because ignorance of the law excuses no one from
6. Those who by reason of age, disease, weak mind, and other compliance therewith. Error of law, however, on a doubtful or difficult
similar causes, cannot without outside aide, take care of themselves question can exist together with good faith.
and manage their property, becoming thereby an easy prey for
deceit and exploitation. NOTE: Mutual error as to the legal effect of an agreement when the
real purpose of the parties is frustrated, may vitiate consent. (Article
1334, NCC) Legal effect here refers to the rights of the parties as
stated in the legal provisions.
Article 1330. A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is voidable.

CAUSES of VITIATED CONSENT Article 1332. When one of the parties is unable to read, or if the contract
1. Mistake or Error is in a language not understood by him, and mistake or fraud is alleged,
2. Fraud the person enforcing the contract must show that the terms thereof have
3. Violence been fully explained to the former.
4. Intimidation
5. Undue Influence RULE IN CASE OF INABILITY TO READ OR UNDERSTAND
Reason for the Article:
Mistake and Fraud affect the intellect. They thus affect cognition. This rule is especially necessary in the Philippines where
Cognition must be intelligent. unfortunately there is still a fairly large number of illiterates, and
where documents are usually drawn up in English.
Violence, Intimidation, and Undue Influence affect the will. They thus
affect the volition. Volition must be free. Presumption
The natural presumption, of course, is that one always acts with due
Mistake and Fraud result in the defects of the intellect. care and signs with full knowledge of all the contents of a document.
And this is true even if the mind of the party signing was confused at
The others result in the defects of the will. the time of signing, as long as he still knew what he was doing. He,
thus, cannot repudiate the transaction.
NATURE OF VOIDABLE CONTRACTS
A voidable contract is binding and valid, unless annulled by a proper When Presumption Does Not Apply
action in court. It is however, susceptible of ratification before The presumption referred to cannot apply in the cases contemplated
annulment. Annulment may be had even if there be no damage to under this Article:
the contracting parties. 1. When one of the parties us unable to read (including a blind
person);
Clear and Convincing Evidence on the Vice of Consent 2. Or if the contract is in language not understood by one of the
There must be clear and convincing evidence of the presence of parties.
vitiated consent. Mere preponderance of evidence on this matter is
not sufficient. In both cases, the person enforcing the contract must show that the
terms thereof have been fully explained to the former.

Article 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 Article 1333. There is no mistake if the party alleging it knew the doubt,
those conditions which have principally moved one or both parties to contingency or risk affecting the object of the contract.
enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate Knowledge of Doubt or Risk Does Not Vitiate Consent
consent only when such identity or qualifications have been the principal It is to be assumed here that the party was willing to take the risk.
cause of the contract. A simple mistake of account shall give rise to its This is particularly true in contracts which are evidently aleatory in
correction. nature.

MISTAKE or ERROR Mistake Caused by Inexcusable Negligence

It is a false belief about something. If mistake is caused by inexcusable negligence, the contract cannot
be annulled.
REQUISITES FOR MISTAKE TO VITIATE CONSENT (3)
1. The error must be substantial regarding:
a. The object of the contract
b. The conditions which principally moved or induced one of the Article 1334. Mutual error as to the legal effect of an agreement when the
parties (error in quality or in quantity) real purpose of the parties is frustrated, may vitiate consent. (MUTUAL
c. Identity or qualifications (error in personae) but only if such was ERROR)
the principal cause of the contract.
The error is substantial if because of it, the party gave his consent. REQUISITES FOR MUTUAL ERROR TO VITIATE CONSENT (3)
Therefore, if a party would still have entered into the contract even if 1. There must be mutual error;
he had known of the error, the error is not substantial. 2. The error must refer to the legal effect of the agreement.
3. The real purpose of the parties is frustrated.
NOTE: Error as to personal motive does not vitiate consent.
NOTE: A simple mistake as to account, caused for example by wrong Example:
arithmetical computation, would ordinarily give rise merely to Antonio and Babing entered into a contract, which they intended
correction and not annulment of the contract. Note, however the should result in co-ownership between him, but which turned out
difference between error in quantity and error in account. He who later to be a mortgage, as a result of their mutual error as to the
alleges must prove the same. legal effect of the agreement. Here the contract is voidable.

2. The error must be excusable (not caused by negligence); REASON for the ARTICLE:
The error does not vitiate consent if the party in error was negligent, Mistake of law does not generally vitiate consent, BUT when there is
or if having had an opportunity to ascertain the truth, he did not do so. a mistake on a doubtful or difficult question of law, or on the
construction or application of law, this is analogous to a mistake of
There is no mistake if the party alleging it knew the doubt, fact.
contingency or risk affecting the object of the contract. Error as to
how much the profit a person can make because of the transaction DISTINGUISHED FROM THE REMEDY OF REFORMATION

University of Cebu 30
College of Law
 This Article must be distinguished from Article 1361 where the Article 1337. There is undue influence when a person takes improper
remedy is reformation, not annulment. advantage of his power over the will of another, depriving the latter of a
Thus, Article 1361 of the Civil Code reads: When a mutual mistake reasonable freedom of choice. (UNDUE INFLUENCE)
of the parties causes the failure of the instrument to disclose their
real agreement, said instrument may be reformed. The following circumstances shall be considered: the confidential,
family, spiritual and other relations between the parties, or the fact that
NOTE: Under Article 1361, the real agreement of the parties is not the person alleged to have been unduly influenced was suffering from
disclosed; in Article 1334, the error is as to legal effect of the mental weakness, or was ignorant or in financial distress.
agreement.

Article 1335. There is violence when in order to wrest consent, serious or

irresistible force I employed. (VIOLENCE) REQUISITES FOR UNDUE INFLUENCE TO VITIATE CONSENT (3)
1. Improper advantage
There is intimidation when one of the contracting parties is compelled by 2. Power over the will of another
a reasonable and wellgrounded fear of an imminent and grave evil upon 3. Deprivation of the latters will of a reasonable freedom of choice.
his person or property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent. (INTIMIDATION) The influence exerted must be of a kind that overpowers the mind as
to destroy the partys free agency.
To determine the degree of intimidation, the age, sex and condition of the
person shall be borne in mind. FACTORS TO BE CONSIDERED:
1. Confidential, family, spiritual and other relations between the
A threat to enforce one's claim through competent authority, if the claim parties;
is just or legal, does not vitiate consent. 2. Mental weakness;
3. Ignorance;
VIOLENCE and INTIMIDATION 4. Financial distress

VIOLENCE refers to physical coercion; INTIMIDATION to moral NOTE: To vitiate consent, the influence must be UNDUE. If the
coercion. influence is due or allowable, as when caused by solicitation,
importunity, argument, and persuasion, same is not prohibited by law,
Example: morals, or equity.
If a person signs a contract only because a gun is pointed at him, this
is intimidation because he is afraid he would be killed. But if he signs UNDUE INFLUENCE CAUSED BY THIRD PERSONS
because his left hand is being twisted painfully, this is violence or It also vitiates consent, just like in the case of violence and
force. intimidation.

REQUISITES for VIOLENCE TO VITIATE CONSENT (2) Contracts of Adhesion

1. Employment of serious or irresistible force; Contracts where one party merely signs carefully prepared contracts
2. It must have been the reason why the contract was entered into. by big companies (adhesions contracts or contract of adherence)
should be strictly interpreted against the company, and liberally in
REQUISITE for INTIMIDATION TO VITIATE CONSENT (5) favor of the individual, because the individual is usually helpless to
1. Reasonable and well-grounded fear. bargain for better terms.
Whether the fear is reasonable and well-grounded or not depends
upon many circumstances, including the age, condition, and sex of
the person concerned.
Article 1338. There is fraud when, through insidious words or
The fear is reasonable and well-grounded when those who threaten machinations of one of the contracting parties, the other is induced to
have power, and when maltreatment has accompanied the threat. enter into a contract which, without them, he would not have agreed.
(FRAUD)
2. Of an imminent and grave evil
This again depends on the circumstances, particularly, the age, sex, KINDS OF FRAUD
or condition of the person threatened. 1. Fraud in the Celebration of the Contract this is fraud proper
a. Dolo Causante (CAUSAL FRAUD) here, were it not for the
3. Upon his person, property, or upon the person or property of his fraud, the other party would not have consented. The contract is
spouse, descendants, or ascendants voidable.
It is believed that threat to honor, chastity, and dignity may be b. Dolo Incidente (INCIDENTAL FRAUD) here, even without the
classified under threat to person. fraud, the parties would have agreed just the same, hence the fraud
was only incidental in causing consent.
THREAT TO THE LIFE OF ONES FIANCEE: It is submitted that the
provision is to be liberally interpreted for indeed consent here is Effect of this kind of fraud: The contract is valid, but there can be
vitiated just the same. action for damages.

4. It must have been the reason why the contract was entered into 2. Fraud in the Performance of the Obligations Stipulated in the
5. The threat must be of unjust act; an actionable wrong. Contract
This kind of fraud presupposes the existence of an already perfected
NOTE: A threat to enforce ones claim thru competent authority, if the contract.
claim is just and legal, does not vitiate consent.
DOLO CAUSANTE (Causal Fraud)
A THREAT TO PROSECUTE is not considered as intimidation. But, of This is the use of insidious words and machinations by one of the
course, an agreement not to prosecute on account of crime is against contracting parties to induce the other party to enter into a contract,
public policy. without them, he would not have agreed to.

REVERENTIAL FEAR REQUISITES of DOLO CAUSANTE (4)

If a contract is signed merely because of fear of displeasing persons 1. The fraud must be material and serious, that is, it really induced
to whom obedience and respect are due, the contract is still valid for that consent.
by itself reverential fear is not wrong. 2. The fraud must have been employed by only one of the
contracting parties, because if both committed fraud, the contract
would remain valid.
3. There must be a deliberate intent to deceive or to induce;
Article 1336. Violence or intimidation shall annul the obligation, although therefore, misrepresentation in good faith is not fraud.
it may have been employed by a third person who did not take part in the 4. The other party must have relied on the untrue statement, and
contract. (VIOLATION OR INTIMIDATION CAUSED BY THIRD PERSON) must himself not be guilty of negligence in ascertaining the truth.

University of Cebu 31
College of Law
 Entrance into a Ridiculous Contract In this case, the contract can be annulled, not principally on the ground
Suppose a man enters into a ridiculous contract because of a wrong of fraud, but on the ground of error or mistake.
judgment although he is well in possession of his mental faculties, will
the court grant a relief by annulling the contract? Example: Amy and Andrew entered into a contract with Xavi. Amys
consent was obtained only because Andrew had deceived or
ANSWER: NO, for in this case, it was the mans own fault. The defrauded him. May Amy ask for annulment of the contract with Xavi?
Supreme Court said: All men are presumed to be sane and normal No, because X was not party to the fraud.
and subject to be moved by substantially the same motives. When of
age and sane, they must take care of themselves.

The fact that one may be worsted by another, of itself, furnishes no Article 1343. Misrepresentation made in good faith is not fraudulent but
cause of complaint. One man cannot complain because another is may constitute error.
more able, or better trained, or has a better sense of judgment than
he has; and when the two meet on FAIR FIELD, the inferior cannot MISREPRESENTATION MADE IN GOOD FAITH
murmur if the battle goes against him. Example:
A bought a certain article from B. The article was needed for As radio.
The law furnishes no protection to the inferior simply because he is B honestly but mistakenly assured A that the Article was the proper
inferior, anymore than it protects the strong because he is strong. The object. May the contract be annulled?
law furnished protection to both alike, to one no more or less than the
other. Answer:
Yes, not on the ground of fraud, for the misrepresentation was honest,
but on the ground of mistake or substantial error.

Article 1339. Failure to disclose facts, when there is a duty to reveal

them, as when the parties are bound by confidential relations,
constitutes fraud. (CONCEALMENT OF FACTS) FAILURE TO DISCLOSE Article 1344. In order that fraud may make a contract voidable, it should
FACTS (CONCEALMENT) be serious and should not have been employed by both contracting
parties. Incidental fraud only obliges the person employing it to pay
a. Failure to disclose facts (CONCEALMENT) constitutes fraud, when damages. (INCIDENTAL FRAUD)
there is a duty to reveal them.
b. There is a DUTY TO REVEAL, for example, when the parties are REQUISITES FOR FRAUD TO VITIATE CONSENT
bound by confidential relations as in the case of partners. 1. The fraud must be serious;
2. The parties must not be in pari delicto (mutual guilt); otherwise,
neither party may ask for annulment. The contract would, therefore, be
considered valid.
Article 1340. The usual exaggerations in trade, when the other party had
an opportunity to know the facts, are not in themselves fraudulent. INCIDENTAL FRAUD
This should not be confused with causal fraud. Incidental fraud is not a
USUAL EXAGGERATIONS IN TRADE cause for annulment.
This Article stresses the RULE of CAVEAT EMPTOR, let the buyer
beware. The maxim simply means that a buyer must be on his guard. It
is his duty to check the title of the seller; otherwise the buyer gets the
object at his own risk. Article 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
The USUAL EXAGGERATIONS IN TRADE (dealers talk) constitutes latter, when the parties conceal their true agreement.
tolerated fraud when the other party had an opportunity to know the
facts. SIMULATION OF CONTRACT
It is the process of intentionally deceiving others by producing the
appearance of a contract that really does not exist (absolute
simulation) or which is different from the true agreement (relative
Article 1341. A mere expression of an opinion does not signify fraud, simulation).
unless made by an expert and the other party has relied on the former's
special knowledge. REQUISITES FOR SIMULATION
1. An outward declaration of will different from the will of the parties;
MERE EXPRESSION OF AN OPINION 2. The false appearance must have been intended by mutual
RULE: The mere expression of an opinion is not fraudulent. agreement;
3. The purpose is to deceive third persons.
EXCEPTION: If the opinion was given by an expert, and other party
relied on his special knowledge, the contract is voidable on the
ground of fraud.
Article 1346. An absolutely simulated or fictitious contract is void. A
REASON for the EXCEPTION: relative simulation, when it does not prejudice a third person and is not
The opinion of an expert is almost in the same category as a fact, intended for any purpose contrary to law, morals, good customs, public
particularly when this experts knowledge is relied upon by the other order or public policy binds the parties to their real agreement.
party.
KINDS OF SIMULATED CONTRACT (2)
1. ABSOLUTELY Simulated Contracts (Fictitious Contract)
Here the parties do not intend to be bound;
Article 1342. Misrepresentation by a third person does not vitiate Effect: The contract is VOID.
consent, unless such misrepresentation has created substantial mistake 2. RELATIVELY Simulated Contracts (Disguised Contract)
and the same is mutual. Here the parties conceal their true agreement.
Effect: The parties are bound to the real or true
MISREPRESENTATION BY THIRD PERSON agreement, except:
How does the participation of a third person in force and in a. If the contract should prejudice a third person;
fraud/misrepresentation differ? b. Or if the purpose is contrary to law, morals, good customs,
a. FORCE and INTIMIDATION BY A THIRD PERSON makes the public order, or public policy.
contract voidable.
b. FRAUD BY A THIRD PERSON does not make the contract voidable, NOTE: Third persons should not be prejudiced; therefore as to them,
UNLESS: the apparent or ostensible contract is the one valid.
1. The representation has created substantial mistake; and
2. The mistake is mutual. Reason: The contracting parties are in estoppel, and they should be
penalized for their deception.

University of Cebu 32
College of Law
 The object must be DETERMINATE or DETERMINABLE (without need
ABSOLUTELY SIMULATED CONTRACT versus ILLEGAL of a new agreement); If the object is not determinate or determinable,
CONTRACT the contract is void for want of essential requisite the object of the
contract.
In SIMULATION, the contract is not really desired to produce an illegal
effect or in any way alter the juridical relation or situation of the parties.
CAUSE OF CONTRACTS
ILLEGAL CONTRACT is intended to be real and effective, and entered
in such form as to circumvent a prohibited act. Article 1350. In ONEROUS CONTRACT, 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
OBJECTS OF CONTRACTS liberality of the benefactor.

Article 1347. All things which are not outside the commerce of men, CAUSE Defined
including future things, may be the object of a contract. All rights which It is the essential and impelling reason why a party assumes obligation.
are not intransmissible may also be the object of contracts. Strictly speaking, there is no cause of contract, but there is a cause for
an obligation.
No contract may be entered into upon future inheritance except in cases
expressly authorized by law. CAUSE versus SUBJECT MATTER
The difference is only a matter of viewpoint in some way, because what
All services which are not contrary to law, morals, good customs, public may be the subject matter for one party will be the cause and
order or public policy may likewise be the object of a contract. consideration for the other party.
Example:
OBJECT (SUBJECT MATTER) OF A CONTRACT A is obliged to sing at a concert, in return for which she will receive a
The object of a contract is really to create or to end obligation, which car from B.
in turn, may involve things or services. Hence, elliptically, it may be
said that the object of a contract is a thing or service. Regarding A, the subject matter is the singing, and the cause is the
car.
REQUISITES (5) Regarding B, the subject matter is the car, and the cause is the
1. The thing or service must be within the commerce of man; singing.
2. It must be transmissible; Hence, we can form this GENERAL CONCLUSION: In reciprocal
3. IT must not be contrary to law, morals, good customs, public contracts, the subject matter for one is the cause for the other, and vice
policy, or public order; versa.
4. It must not be impossible;
5. It must be determinate as to its kind or determinable without the CLASSIFICATION OF CONTRACTS AS TO CAUSE
need of a new contract or agreement. 1. ONEROUS CONTRACT here, the cause is, for each contracting
party, the prestation or promise of a thing or service by the other.
Future Things as Object of a Contract Example: Contract of Sale
FUTURE THINGS may be the object of a contract; thus, the future 2. REMUNERATORY CONTRACT that past service or benefit
harvest of sugarcane in a specific field may be sold, BUT by express which by itself is a recoverable debt.
provision of law, said future property may not be donated. 3. GRATUITOUS (Contract of Pure Beneficence) here, the cause
is mere liberality or generosity.
FUTURE INHERITANCE (one where the source of property is still
alive) cannot be the subject of a contract, except: Example: Pure Donation
1. In the case of marriage settlement;
2. In the case of partitions or property inter vivos by the creased. CAUSE IN ACCESSORY CONTRACTS
Like in mortgage or pledge, the cause is the same cause for the
Future inheritance is any property or right not in existence or principal contract of loan.
capable of determination, at the time of the contract, that a person
may in the future acquire by succession. CAUSE IN ACCESSORY CONTRACTS OF PERSONAL GUARANTY
(like guaranty or suretyship), generally is gratuitous, unless there is
stipulation to the contrary.

Article 1348. Impossible things or services cannot be the object of Moral Obligation as a Valid Cause of a Civil Obligation
contracts. A moral obligation may be the cause of a civil obligation. Of course, if
the moral obligation really does not exist, there is no valid cause, as
IMPOSSIBILITY OF THINGS OR SERVICES when the promise was made on the erroneous belief that one was
Impossibility may be: morally responsible for the failure of a certain particular enterprise.
1. Because of the nature of the transaction or because of the law;
2. Absolute (objectively impossible) here, no one can do it
3. Relative (subjectively impossible) here, the particular debtor
cannot comply Article 1351. The particular motives of the parties in entering into a
contract are different from the cause thereof.
NOTE: Generally, the impossibility referred to by the law is absolute
impossibility. MOTIVES OF THE PARTIES for ENTERING INTO A CONTRACT
Motives do not enter at all in the validity or invalidity of cause or
Impossibility VERSUS Mere Difficulty consideration of a contract.
IMPOSSIBLITY must not be confused with difficulty. Hence, a showing
of mere inconvenience, unexpected impediments, or increased MOTIVE versus CAUSE
expenses is not enough. 1. The MOTIVE of a person may very although he enters into the same
kind of contract; the CAUSE is always the same.
2. The MOTIVE may be unknown to the other; the cause is always
known.
Article 1349. The object of every contract must be determinate as to its 3. The presence of MOTIVE cannot cure the absence of CAUSE.
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 NOTE: The motives which impel one to sale or purchase are not
determine the same, without the need of a new contract between the always the consideration (cause) of the contract as that term is
parties. understood in law. With ones motives the law cannot deal in civil
actions of this character, while with the consideration the law is always
DETERMINATE OR DETERMINABLE OBJECT OF A CONTRACT concerned. (Supreme Courts Statement)

University of Cebu 33
College of Law
 ILLEGAL CAUSE versus ILLEGAL MOTIVE GENERAL RULE: Lesion or inadequacy of price does not invalidate a
An ILLEGAL CAUSE makes a contract void; an ILLEGAL MOTIVE contract.
does not necessarily render the transaction void.
Article 1352. Contracts without cause, or with unlawful cause, produce EXCEPTIONS:
no effect whatever. The cause is unlawful if it is contrary to law, morals, 1. When together with lesion, there has been fraud, mistake, or undue
good customs, public order or public policy. influence.
2. In cases expressly provided by law (in the following, the contracts
REQUISITES FOR A VALID OF CAUSE (3) may be rescinded):
1. It must be PRESENT (at the time the contract was entered into); a. Those which are entered into by guardians whenever the
2. It must be TRUE (not false); wards they represent suffer lesion by more than one-fourth of
3. It must be LAWFUL (not contrary to law, morals, good customs, the value of the things which are the objects thereof.
public order, and public policy). b. Those agreed upon in representation of absentees, if the latter
suffer the lesion stated in the preceding paragraph;
Existing Cause c. Partition among co-heirs when anyone of them received things
If there is no cause whatsoever, the contract is void. with a value less by at least one-fourth than the share to which
he is entitled.
NOTE: The cause must exist at the time of the perfection of the
contract; it need not later exist. Just because the seller was not the NOTE: Mere inadequacy of a price when both parties are in a
owner of the thing sold, it does not mean that there was lack of cause, position to form an independent judgment concerning the
for after all, there is warranty; nor does a failure to pay the price, result transaction, is not a sufficient ground for the cancellation of a
in a lack of cause. contract. Lesion may be evidence of the presence of fraud, mistake,
or undue influence.
True Cause
If the cause is false, the contract is not valid UNLESS some other
cause which is lawful really exists. CHAPTER 3

Lawful Cause FORM OF CONTRACTS

If the cause is unlawful, the transaction is null and void. If a person
claims that some parts of a contract are illegal but the rest are valid, he Article 1356. Contracts shall be obligatory, in whatever form they may
has the burden of showing which parts are supported by a lawful have been entered into, provided all the essential requisites for their
cause; otherwise the whole contract shall be considered void. 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
While an absolutely simulated contract can have no effect, a contract be proved in a certain way, that requirement is absolute and
with an illegal cause may produce effect under certain circumstances indispensable. In such cases, the right of the parties stated in the
where the parties are not of equal guilt. following article cannot be exercised.

EFFECT IF THE CAUSE IS ILLEGAL GENERAL RULE: Form does not matter for the validity of a contract. It is
1. If one party is innocent, he cannot be compelled to perform his enough that there be consent, subject matter, and cause. This rule
obligation, and he may recover what he has already given; applies, however to CONSENSUAL CONTRACTS.
2. If both parties are guilty, in general, neither can sue the other, the
law leaving them as they are. But certain exceptions exist. NOTE: FORMAL CONTRACTS (Solemn Contracts) require a certain
specified form, in addition to consent, subject matter, and cause.
REAL CONTRACTS require delivery to be valid as a real contract even
as between the parties, in addition to consent, subject matter, and cause.
Article 1353. The statement of a false cause in contracts shall render Under Article 1356, all contracts are valid regardless of form.
them void, if it should not be proved that they were founded upon
another cause which is true and lawful. There are only TWO EXCEPTIONS:
1. When the contractual form is needed for validity as in the case of
STATEMENT OF FALSE CAUSE donation of a real property which needs a public instrument;
Just because the cause stated is false does not necessarily mean that 2. When form is needed for enforceability under the Statute of Frauds.
the contract is void.
NOTE: When a party admits the genuineness of the document, he also
REASON: The parties are given a chance to show that a cause really admits that the words and figures of the document are set out correctly,
exists, and that said cause is true and lawful. and that he waives all formal requisites required by law, such as the oath,
acknowledgement, or revenue stamps.
Thus, under this Article, it would seem that the contract with a
statement of a false cause is not void, but merely revocable or WHEN FORM IS IMPORTANT
voidable. 1. For VALIDITY: This is true in formal or solemn contracts
2. For ENFORCEABILITY: This is true for the agreements enumerated
under the Statute of Frauds, but of course this requirement may be
waived by acceptance of benefits (partial) or by failure to object to
Article 1354. Although the cause is not stated in the contract, it is the presentation of oral (parol) evidence.
presumed that it exists and is lawful, unless the debtor proves the 3. For CONVENIENCE: This is true for the contracts enumerated for
contrary. example under Article 1385, Civil Code.

PRESEUMPTION THAT CAUSE EXISTS EXAMPLES OF FORMAL CONTRACTS:

It is necessary that the cause must exist. BUT it is not necessary to 1. Donations of real property these require a public instrument
state the cause in the contract. 2. Donations of personal property if donation exceed P5,000 requires a
written contract
REASON: It is presumed that the cause exists and is lawful, unless the 3. Stipulation to pay interest on loans, interest for the use of the money
debtor proves the contrary. which must be in writing
4. Sale of land thru agent here, the authority
5. Contracts of antichresis

Article 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. Article 1357. If the law requires a document or other special form, as in
the acts and contracts enumerated in the following article, the
LESION contracting parties may compel each other to observe that form, once
It is inadequacy of cause, like an insufficient price for a thing sold. the contract has been perfected. This right may be exercised
simultaneously with the action upon the contract.
RULES ON LESION

University of Cebu 34
College of Law
 RIGHT OF ONE PARTY TO COMPEL THE OTHER TO EXECUTE THE and inequitable to allow the enforcement of a written instrument which
NECESSARY FORM does not reflect or disclose the real meeting of the minds of the parties.
The Article applies only when form is need only FOR CONVENIENCE,
not for validity or enforceability. In other words, before the contracting The purpose of reformation is to forestall the effects of mistake, fraud,
may be compelled to execute the needed the form, it is ESSENTIAL that inequitable conduct or accident.
the contract be:
a. Perfected (valid)
b. Enforceable under Statute of Frauds
Article 1359. When, there having been a meeting of the minds of the
NOTE: Under Article 1356 says that when the law requires that a contract parties to a contract, their true intention is not expressed in the
be in some form in order that it may valid and enforceable, that instrument purporting to embody the agreement, by reason of mistake,
requirement is absolute and indispensable. In such cases, the right of the fraud, inequitable conduct or accident, one of the parties may ask for the
parties stated in the following Article (1357) the right to compel cannot reformation of the instrument to the end that such true intention may be
be exercised. expressed. (REFORMATION)

NOTE: A contract partly written and partly oral is, in legal effect, an ORAL If mistake, fraud, inequitable conduct, or accident has prevented a
CONTRACT. meeting of the minds of the parties, the proper remedy is not reformation
of the instrument but annulment of the contract. (ANNULMENT instead of
REFORMATION)

Article 1358. The following must appear in a public document: REFORMATION versus ANNULMENT
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights REFORMATION ANNULMENT
over immovable property; sales of real property or of an Where there has been a meeting of the When there has been no meeting
interest therein are governed by articles 1403, No. 2, and 1405; minds, but there is mistake or fraud, of the minds, because of vitiated
(2) The cession, repudiation or renunciation of hereditary rights or inequitable conduct or accident in the consent, the proper remedy is
of those of the conjugal partnership of gains; contract as written, the remedy is ANNULMENT.
(3) The power to administer property, or any other power which REFORMATION.
has for its object an act appearing or which should appear in a REFORMATION does not invalidate the ANNULMENT invalidates a
public document, or should prejudice a third person; contract. contract.
(4) The cession of actions or rights proceeding from an act
appearing in a public document.
Example: If the seller was selling for one million but the buyer though he was
All other contracts where the amount involved exceeds five hundred buying for P500,000 and the contract states one million, there has been no
pesos must appear in writing, even a private one. But sales of meeting of the minds and the remedy is ANNULMENT.
goods, chattels or things in action are governed by articles, 1403,
No. 2 and 1405. Example: But, if both agreed on P500,000 and the contract as written states
one million, the remedy is REFORMATION, because here, there has been a
FORM FOR CONVENIENCE meeting of the minds.
The necessity for the public document in the contracts enumerated here
is only for convenience, not for validity or enforceability. REQUISITES FOR THE ACTION OF REFORMATION (5)
1. There must be meeting of the minds;
Article 1358, which requires the embodiment of certain contracts in a 2. The true intention of the parties is not expressed in the instrument;
public instrument, is only for convenience, and registration of the 3. There must be a clear and convincing proof thereof.
instrument only adversely affects third parties. NOTE: Mere preponderance off evidence here would not
be sufficient.
Formal requirements are for the benefit of third parties. NON- 4. It must be brought within the proper prescriptive period.
COMPLIANCE therewith does not adversely affect the validity of the 5. The document must not refer to a simple unconditional donation
contract nor the contractual rights and obligations of the parties inter vivos or to wills or to a contract where the real agreement is
thereunder. void.

PROBLEM:
A loan was contracted orally. If the amount is P800, may the lender
recover the sum lent? Article 1360. The principles of the general law on the reformation of
instruments are hereby adopted insofar as they are not in conflict with
ANSWER: the provisions of this Code.
Yes, because although the law says that contracts involving more than
P500 must appear in writing, even a private one, still this requirement is Article 1361. When a mutual mistake of the parties causes the failure of
only for convenience, not for validity. the instrument to disclose their real agreement, said instrument may be
reformed.
NOTE: All the lender has to do here is to avail of himself of Article 1357,
the right to compel the execution of the needed instrument. Moreover,
this right may be exercised simultaneously with the action upon the WHEN REFORMATION MAY BE ASKED BECAUSE OF MUTUAL
contract. MISTAKE
Under this Article, the mistake must be mutual.
NOTE: A stipulation, however, to pay interest on loans must be in
writing. If not, Article 1357 cannot be availed of. If not in writing, the The mistake may be unilateral under conditions set forth in Articles 1362
stipulation as to interest is void, but the loan itself is valid. and 1363 of the Civil Code. The mistake must be of fact. Therefore,
generally, an error of law is not enough.
CHAPTER 4
Example: Lleina sold to Jack a house at 16 San Isidro, Malate. In the
REFORMATION OF INSTRUMENT written public document, both forgot the true number of the house and
instead wrote on the instrument No. 18 San Isidro, Malate. Here
REFORMATION is that remedy by means of which a written instrument reformation of the instrument is proper.
is made or construed so as to express or conform to the real intention of
the parties when some error or mistake has been committed. REQUISITES:
1. The mistake should be of fact;
Reason for Reformation: EQUITY orders the reformation of an 2. The mistake should be proved by clear and convincing evidence;
instrument in order that the true intention of the contracting parties may 3. The mistake should be common to both parties to the instrument
be expressed. The courts do not attempt to make another contract for (where mutual mistake is alleged).
the parties. The RATIONALE of the doctrine is that it would be unjust

University of Cebu 35
College of Law
 Article 1368. Reformation may be ordered at the instance of either party
Article 1362. If one party was mistaken and the other acted fraudulently or his successors in interest, if the mistake was mutual; otherwise, upon
or inequitably in such a way that the instrument does not show their true petition of the injured party, or his heirs and assigns.
intention, the former may ask for the reformation of the instrument.
PLAINTIFFS IN ACTION FOR REFORMATION
UNILATERAL MISTAKE 1. If the MISTAKE is MUTUAL either party or his successors-in-
In this Article, the mistake is unilateral but the other party acted interest
fraudulently or inequitably. The person who acted by mistake may 2. In all other cases the injured party; his heirs or assigns.
ask for the reformation of the instrument.
What Complaint Must Allege
Before reformation can be granted, the complaint must allege:
1. That the instrument to be reformed does not express the real
Article 1363. When one party was mistaken and the other knew or agreement or intention of the parties;
believed that the instrument did not state their real agreement, but 2. What real agreement or intention was.
concealed that fact from the former, the instrument may be reformed.
NOTE: Courts do not reform instruments merely for the sake of reforming
Here again, the mistake is UNILATERAL but the other party is guilty them, but only to enable some party to assert rights under them as
of concealment. Only the party in good faith can ask for reformation. reformed.

The period of prescription for the reformation of a contract is TEN (10)

YEARS.
Article 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. Article 1369. The procedure for the reformation of instrument shall be
governed by rules of court to be promulgated by the Supreme Court.
FAILURE TO CONVEY THE TRUE INTENT
The COURT may order the reformation of the instrument if the instrument
does not convey the true intention of the parties BECAUSE of the:
a. Ignorance CHAPTER 5
b. Lack of Skill
c. Negligence INTERPRETATION OF CONTRACTS
d. Bad faith of the DRAFTER of the instrument; or the CLERK; or the
TYPIST. Article 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.
Article 1365. If two parties agree upon the mortgage or pledge of real or RULE IN CASE OF CONFLICT
personal property, but the instrument states that the property is sold In case of conflict between the words of the contract and the evident
absolutely or with a right of repurchase, reformation of the instrument is intentions of the parties which one must prevail?
proper.
How to Judge the Parties Intent: The intention of the parties can be ANSWER:
judged from their contemporaneous and subsequent acts. The INTENTION of the parties must PREVAIL. Let us interpret not
by the letter that killeth but by the spirit that giveth life.
Article 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. Article 1371. In order to judge the intention of the contracting parties,
their contemporaneous and subsequent acts shall be principally
WHEN REFORMATION IS NOT ALLOWED (3) considered. (HOW TO JUDGE THE INTENT OF THE PARTIES)
1. In simple donations inter vivos wherein no condition is imposed.
Article 1372. However general the terms of a contract may be, they shall
REASON: Donations are generally acts of pure liberality. However, if the not be understood to comprehend things that are distinct and cases that
donation is conditional, reformation may be resorted to so that the real or are different from those upon which the parties intended to agree.
true conditions intended by the donor might be brought out. (EFFECT OF THE USE OF GENERLA TERMS)

2. In wills. NOTE: Special intent prevails over general intent.

REASON: The making of a will is strictly a personal one. Moreover, a will

may be revoked anytime. However, after the death of the testator, errors Article 1373. If some stipulation of any contract should admit of several
or imperfections in descriptions may be corrected under Article 789 of the meanings, it shall be understood as bearing that import which is most
Civil Code but not the manner of property disposal. adequate to render it effectual.

3. When the real agreement is void. EFFECT OF AN INTERPRETATION UPHOLDING THE VALIDITY
OF THE CONTRACT
REASON: Reformation would be useless. If one interpretation makes a contract valid and illegal, the former
interpretation must prevail.
4. When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation.
Article 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.
Article 1367. When one of the parties has brought an action to enforce
the instrument, he cannot subsequently ask for its reformation. Article 1375. Words which may have different significations shall be
understood in that which is most in keeping with the nature and object of
Effect of An Action To Enforce the Instrument: This Article presents the contract.
another instance when reformation cannot prosper.
BASIS: Estoppel, waiver, or ratification. If this cannot be determined, then the terms of a writing are
presumed to have been used in their primary and general
acceptation.

University of Cebu 36
College of Law
 NOTE: Evidence is admissible to show that WORDS have a local, Rescission- is a remedy granted by law to the contracting parties
technical, or otherwise peculiar signification and were so used and and sometimes even to third person in order to secure reparation of
understood in the particular instance, in which case the agreement damages caused them by a valid contract, by means of the
must be construed accordingly. restoration of things to their condition in which they were prior to the
celebration of said contract. (8Manresa 748)

Requisites of Rescission:
Article 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 1. The contract must be validly agreed upon;
omission of stipulations which are ordinarily established.
2 .There must be lesion on pecuniary prejudice to one of the parties
Pleading and Proof of Customs and Usages or to a third person;
a. If the customs and usages are GENERAL, they need not be
pleaded. Hence, even without previously being alleged, they may be 3. The rescission must be based upon a case especially provided
proved in court. by law;
b. If the customs and the usages are merely LOCAL, then they have to
be both alleged (pleaded and proved) 4. There must be no other legal remedy to obtain reparation for the
damage;

5. The party asking for rescission must be able to return what he is

Article 1377. The interpretation of obscure words or stipulations in a obliged to restore by reason of the contract.
contract shall not favour the party who caused the obscurity.
6. The object of the contract must not legally be in the possession
REASON for the Law: Since he caused the obscurity, the party who of third person who did not act in bad faith;
drew up the contract with ambiguous terms should be responsible
therefor; so the obscurity must be construed against him. The drafter 7. The period for filing the action for rescission must not have
of the terms of the contract should, therefore, be careful. prescribed

Article 1378. When it is absolutely impossible to settle doubts by the Art. 1381. The following contracts are rescissible:
rules established in the preceding articles, and the doubts refer to
incidental circumstances of a GRATUITOUS CONTRACT, the least
(1) Those which are entered into by guardians whenever the wards whom
transmission of rights and interests shall prevail.
they represent suffer lesion by more than one-fourth of the value of the
things which are the object thereof;
If the contract is ONEROUS, the doubt shall be settled in favor of the
greatest reciprocity of interests.
(2) Those agreed upon in representation of absentees, if the latter suffer
the lesion stated in the preceding number;
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. (RULE IN (3) Those undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them;
CASE OF DOUBTS AS TO THE PRINCIPAL OBJECT)

Article 1379. The principles of interpretation stated in Rule 123 of the (4) Those which refer to things under litigation if they have been entered
Rules of Court shall likewise be observed in the construction of into by the defendant without the knowledge and approval of the litigants
contracts. or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to

rescission. (1291a)

Cases of rescissible contracts:

CHAPTER 6
1. Contracts entered into in behalf of wards- A ward is a person
FOUR KINDS OF DEFECTIVE CONTRACTS under guardianship by reason of some incapacity.

1. RESCISSIBLE CONTRACT This is valid until rescinded; there is a Example: Grant is the guardian of Mark (minor). Grant sells the
sort of extrinsic defect consisting of economic damage or lesion. property of Mark worth P20,000 for only P15,000. The contract of
sale cannot be rescinded because the lesion. (Art. 1355) is not more
than 1/4. However, if the property is sold for less than P15,000, M
2. VOIDABLE CONTRACT This is valid until annulled; it cannot be
can rescind the sale by proper action in court upon reaching the age
annulled, however, if there has been ratification. The defect is more
of majority.
or less intrinsic, as in the case of vitiated consent.
2. Contracts agreed upon in the representation of absentees An
3. UNENFORCEABLE CONTRACT This contract cannot be sued
absentee is a person who disappears from his domicile his
upon or enforced unless it is ratified. In a way, it may be considered
whereabouts being unknown; and without leaving an agent
a voidable contract, that is, it has no effect now, but it may be
administer his property. (Art. 381) Likewise, the absentee must
effective upon ratification.
suffer lesion by more than of the value of the property object
of the contract to entitle him to the remedy of rescission.
4. VOID CONTRACT This is really inexistent or illegal. It has no
effect at all. It cannot be ratified or validated.
3. Contracts undertaken in fraud of creditors- In order that fraud of
creditors may be a valid ground for rescission, the following
requisites must also be present:
RESCISSIBLE CONTRACTS
A. There must be an existing credit prior to the contract be
rescinded, although it is not yet due or demandable;
Contracts are valid because all the essential requisites of a contract exist but
by reason of injury or damage to one of the parties or to third persons, such as
B. There must be fraud on the part of the debtor which
creditors, the contract may be rescinded.
maybe presumed or proved. (Art. 1387)

C. the creditor cannot recover his credit in any other

Art. 1380. Contracts validly agreed upon may be rescinded in the cases
manner, it not being required that the debtor be
established by law. (1290)
insolvent.

University of Cebu 37
College of Law
 4. Contracts which refer to things under litigation Necessity of mutual restitution: The obligation of restitution does not
obviously apply to creditors who seek to impugn fraudulent
Ex. Lleina sues Tonix for the recovery of a parcel of land. transactions of their debtors. The obligation of mutual restitution
In this case, the land is a thing under litigation. If, during applies to others so that the status quo may be restored.
the pendency of the case, Tonix sells the land to Jack
without the approval of Lleina or of the court, the sale is Requisites before the action for rescission can be brought:
rescissible at the instance of Lleina in a case he wins in
his suit for the recovery of said land unless Jack is in legal 1. Generally, the plaintiff must be able to return what has been
possession of the land in good faith. (Art. 1385, par. 2). received by virtue of the rescissible contract;
Lleina, however, may protect his right by filing a notice of
lis pendens. If the action involves personal property, Jack Exception: prejudiced-creditors
may petition the court for the issuance of an order of
attachment or the appointment of a receiver to place the The thing object of the contract is not in the legal possession of third
property in custodia legis. person in good faith.

5. Other instances- Some of the specific contracts subject to rescission In order that the property may not be taken away from a third person,
are examples of agreements referred to in Arts. 1098, (partition), said person must not only be in legal possession; he must also be in
1189 (result of deterioration),1526 and 1534 (right given ti an unpaid good faith. Good faith alone, however, without legal possession is not
seller), and 1539 (sale of real estate) of the Civil Code. sufficient.

1. There must be no other legal remedy.

2. The action must be brought within the proper prescriptive period.
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) Should be returned in rescing a contract:

Requisites: 1. The object of the contract, with its fruits must be returned.
2. The price, with its interest, must be returned.
1. The debtor-payor must have been insolvent (the insolvency need 3. If return of the things is not possible, indemnity for damages from
not be a judicially declared one) the person causing the loss must be given.

2. The debt was not yet due and demandable.

Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not
Both conditions are required; otherwise, Article 1382 cannot apply. take place with respect to contracts approved by the courts. (1296a)
Article 1382 does not speak of a contract; it refers to payment; thus,
it is not included in Article 1381. Contracts approved by the courts

If a contract entered into in behalf of a ward or absentee has been

approved by the court, rescission cannot take place because it is
Art. 1383. The action for rescission is subsidiary; it cannot be instituted valid whether there is lesion or not.
except when the party suffering damage has no other legal means to
obtain reparation for the same. (1294) The law presumes that the court is acting in the interests of the ward
or absentee when it approves the contract inspite of the lesion. (See
Nature of rescission as a remedy: Rescission is not a principal Sec. 1, Rule 95, Rules of Court)
remedy; it is only a subsidiary remedy and may only be availed of by
the injured party if it has no other legal means of seeking redress or
reparation for the damages caused.
Art. 1387. All contracts by virtue of which the debtor alienates property
When a creditor seeks to set aside a contract as fraudulent, he must by gratuitous title are presumed to have been entered into in fraud of
prove that he really is a creditor, and secondly, that he cannot collect creditors, when the donor did not reserve sufficient property to pay all
his debt in any way. 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
Art. 1384. Rescission shall be only to the extent necessary to cover the attachment need not refer to the property alienated, and need not have
damages caused. (n) been obtained by the party seeking the rescission.

Partial Rescission: The only purpose of rescission is to repair or In addition to these presumptions, the design to defraud creditors may
cover the damages caused. Complete rescission will not therefore be proved in any other manner recognized by the law of evidence.
be allowed, if it is not justified by the circumstances of the case. (1297a)
Insofar as it is not rescinded, the alienation is valid.
Presumptions of Fraud
Persons Benefited: Only the creditor who asked for rescission, not 1. Gratuitous alienations;
the other creditors, benefits from rescission. 2. Onerous alienations.
Gratuitous Alienations:

Presumed Fraudulent when the debtor did not reserve sufficient

Art. 1385. Rescission creates the obligation to return the things which property to pay all debts contracted before the donation. This
were the object of the contract, together with their fruits, and the price presumption may be rebutted by adequate proof.
with its interest; consequently, it can be carried out only when he who
demands rescission can return whatever he may be obliged to restore. Example: Anton made a donation to Bobby. Later Anton contracted
several debts. Anton has left as assets are much less than his
Neither shall rescission take place when the things which are the object present liabilities. May the donation be rescinded? No, because the
of the contract are legally in the possession of third persons who did not debts here of Anton were incurred after the donation had been
act in bad faith. made. As a matter of fact, the presumption of fraud does not even
arise in this case. However, under the DOCTRINE OF
In this case, indemnity for damages may be demanded from the person ANTICIPATORY FRAUD, rescission may still prosper if it can be
causing the loss. (1295) shown that the donation had been deliberately made beforehand to
avoid the payment of debts still to be contracted.

Onerous Alienations:

University of Cebu 38
College of Law
 Presumed Fraudulent when made by persons: REMEMBER that rescission is merely a secondary remedy available
only when Xam cannot pay.
a. Against whom some judgment has been rendered in any instance
(thus, even if not yet a final judgment); Subsequent Transfers:

b. Against whom some writ of attachment has been issued. RULE 1: If the first transferee is in good faith, the good or bad faith
of the next transferee is not important.

RULE 2: If the first transferee is in bad faith, the next transferee is

The decision or attachment need not refer to the property alienated, and liable only if he is also in bad faith.
need not have been obtained by the party seeking the rescission.
Example: Fred, in fraud of his creditors, sold his house to Ted, who
Example: After a judgment had been rendered against him, Anton sold is in bad faith. Ted in turn alienated it in favor of Candice, who later
his property to Bobby. Is the sale presumed fraudulent? Yes, the sale is sold it to Debbie. Both Candice and Debbie were also in bad faith.
presumed fraudulent because it was made after a judgment had been The contract is rescinded but the house is destroyed. Who are liable
issued against for damages? Ted is liable first. If he cannot pay, then Candice will
be liable. If Candice cannot, Debbie will be liable. The law says that
Upon the other hand, if the sale had been made before the judgment, the if there are two or more alienations, the first acquirer shall be liable
presumption of fraud does not apply. This is even if, unknown to the first, and so on successively.
buyer, the suit had already been brought, but still pending, as long as of
course no attachment had been issued.

Badges of Fraud: There are some circumstances indicating that certain Art. 1389. The action to claim rescission must be commenced within four
alienation has been made in fraud of creditors. These are called badges years.
of fraud.
For persons under guardianship and for absentees, the period of four
In determining whether or not a certain conveyance is fraudulent, the years shall not begin until the termination of the former's incapacity, or
question in every case is whether conveyance was bona fide transaction until the domicile of the latter is known. (1299)
or a trick and contrivance to defeat creditors, or whether it conserves to
the debtor a special right. Prescriptive period for prescription

Relationship alone does not by itself constitute a badge of fraud. General rule: FOUR years from the date the contract was entered
into.
If there is a great disparity between the price and the real value of the
property, this is an indication of badges of fraud. Exceptions:
1. Persons under guardianship 4 years from termination of
Rule in Case of Registered Lands incapacity;
2. Absentees 4 years from the time the domicile is known.
Rescission will not prosper for the presumption established under Article
1387 does not apply in this case for TWO REASONS: They can bring the action:
1.) The injured party (or the defrauded creditor);
a. The spouses Jongco had no complicity at all in the fraud imputed to 2.) His heir or successor-in-interest;
Enriquez; 3.) Creditors of (1) and (2) by virtue of Article 1177 of the Civil
Code (in case of accion subrogatoria)
b. The encumbrance of the judgment and the attachment, not having
been registered and annotated on the certificate (TCT), cannot
prejudice an innocent purchaser for value of registered land.

Presumption of Validity CHAPTER 7

A gratuitous conveyance or donation is, on its face (prima facie), VOIDABLE CONTRACTS
presumed valid and good as between the parties UNLESS it can be
shown that at the time of the execution of the conveyance, there was a Art. 1390. The following contracts are voidable or annullable, even
creditor or creditors whom said transaction was affected adversely. though there may have been no damage to the contracting parties:

Fraud Alone Not Sufficient for Rescission (1) Those where one of the parties is incapable of giving consent to a
contract;
For after all the transferee may have been in good faith and is now in
legal possession of the property. (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
Art. 1388. Whoever acquires in bad faith the things alienated in fraud of in court. They are susceptible of ratification. (n)
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) RESCISSIBLE CONTRACTS versus VOIDABLE CONTRACTS

Effect of bad faith: RESCISSION AN

1. The acquirer must return or indemnify. The BASIS here is LESION or damage. The BASIS here is incap

2.Due to any includes a fortuitous event. The DEFECT here is external or intrinsic. The DEFECT here is
minds).
Example: To defraud his creditors, Xam sold his to Yam, who knew
of Xams purpose. If the sale is rescinded, Yam must indemnify, The ACTION is SUBSIDIARY. The ACTION is PRINCIP
even if the house be destroyed by a fortuitous event, but only if Xam
himself cannot pay. This is a remedy. This is a sanction.

University of Cebu 39
College of Law
Private interest governs. Public interest governs.

Equity predominates. Law predominates.Art. 1393. Ratification may be effected expressly or tacitly. It is
understood that there is a tacit ratification if, with knowledge of the
Plaintiff may be a party or a third person. Plaintiff must be a reason
party towhich renders
the contract the contract
whether bound voidable and such reason having
ceased, the person who has a right to invoke it should execute an act
principally or subsidiarily.
which necessarily implies an intention to waive his right. (1311a)
There must be damage to plaintiff. Damage to the plaintiff is immaterial.
KINDS OF RATIFICATION:
If plaintiff is indemnified, rescission cannot prosper. Indemnity is not a barrier for the prosecution of the
action. 1. Express (Oral or Written) Ratification

Compatible with the perfect validity of the contract. Defect is pre-supposed. 2. Tacit (Implied) Ratification as from conduct implying a waiver.

Mere lapse of time does not legalize a voidable contract, BUT it was held
in case, that remaining silent for a certain period of time ratifies such
contract.
To prevent rescission, ratification is not required. To prevent annulment, ratification is required.

Art. 1394. Ratification may be effected by the guardian of the

VOIDABLE CONTRACT Not Void Ab Initio
incapacitated person. (n)
A contract were consent is vitiated is not void ab initio but ONLY VOIDABLE,
This Article refers to the ratification of a contract entered into by the
and is binding upon the parties unless annulled by proper action in court.
incapacitated person. Since the person entitled to ratify is still
incapacitated, his guardian acts in his behalf.
GROUNDS FOR ANNULMENT (Declaration of Nullity of a Voidable Contract)
1. Incapacity to consent;
Ratification can be made the injured party himself, provided he is
2. Vitiated Consent
capacitated, or has become capacitated.
Repentance at having entered into the transaction is NOT a ground for
Article 1394 does not refer to a rescissible contract entered into by
annulment. IT is not the function of the law to protect or relieve a man from the
the guardian in behalf of his ward.
consequences of his bad bargain.

The ACTION TO BRING

1. For POSITIVE REDRESS, an action must be filed, otherwise, the
Art. 1395. Ratification does not require the conformity of the contracting
contract remains binding.
party who has no right to bring the action for annulment. (1312)
2. For use AS A DEFENSE, ordinarily, no affirmative action is needed.
Art. 1396. Ratification cleanses the contract from all its defects from the
moment it was constituted. (1313)
Art. 1391. The action for annulment shall be brought within four years.
Once ratification has taken place, annulment based on the original
defects cannot prosper. Although there is a retroactive effect, the
This period shall begin:
right of innocent third persons must not be prejudiced.
In cases of intimidation, violence or undue influence, from the time the
Example: Andrew minor sold his land to Xam. When be became
defect of the consent ceases.
legally of age, he became indebted to Yam. To avoid paying Yam,
the former minor decided to ratify the sale of the land. He then had
In case of mistake or fraud, from the time of the discovery of the same. no other property. May Yam still rescind the sale although at the time
it was made he was not yet a creditor? Yes. Although ratification has
And when the action refers to contracts entered into by minors or other a retroactive effect, still his rights as an innocent third person must
incapacitated persons, from the time the guardianship ceases. (1301a) not be prejudiced.
If the action has prescribed, the contract can no longer be set aside.

Art. 1392. Ratification extinguishes the action to annul a voidable Art. 1397. The action for the annulment of contracts may be instituted by
contract. (1309a) all who are thereby obliged principally or subsidiarily. However, persons
who are capable cannot allege the incapacity of those with whom they
CONFIRMATION- is to cure a defect in a voidable contract. contracted; nor can those who exerted intimidation, violence, or undue
influence, or employed fraud, or caused mistake base their action upon
RATIFICATION- is to cure the defect for lack of authority in an these flaws of the contract. (1302a)
authorized contract.
The VICTIM (principal or subsidiary party) may ask for annulment,
ACKNOWLEDGMENT -is to remedy a deficiency of proof. not the guilty person or his successor.

Under the New Civil Code, all the three are now uniformly called Reason is the he who comes to equity must come with clean hands.
RATIFICATION.
General rule: Action for annulment of contracts can only be
EFFECTS OF RATIFICATION: maintained by those who are bound either principally or subsidiarily
1. The action to annul is extinguished. Thus, the contract becomes a by virtue thereof.=
completely valid one.
2. The contract is cleansed of its defect from the beginning. Exceptions: A person who is not obliged principally or subsidiarily in
a contract may exercise an action for nullity of the contract if he is
REQUISITES OF RATIFICATION PREJUDICED in his rights with respect to one of the contracting
1. The contract must be a voidable one. parties, and can show the detriment which could positively result to
2. The person ratifying must know the reason for the contract being hi from the contract in which he had no intervention.
voidable. That is, the cause must be known.
3. The cause must not exist or continue to exist anymore at the time of The creditors of the victim cannot ask for annulment for they are not
ratification. bound by contract.
4. The ratification must have been expressly or by an act implying a
waiver of the action to annul.
5. The person ratifying must be the injured party.
University of Cebu 40
College of Law
 Example: Anton was forced by Bobby to sign a contract. Cecil, a If the right of action is based upon the incapacity of any one of the
creditor of Anton, wants to annul the contract. Is Cecil allowed to do contracting parties, the loss of the thing shall not be an obstacle to the
so? No. C is not allowed to do so. If the contract prejudices him, and success of the action, unless said loss took place through the fraud or
A has no other property, then C may ask for the rescission of the fault of the plaintiff. (1314a)
contract, not its annulment. C cannot ask for annulment because he
is not obliged by the terms of said contract, either principally or EFFECT OF LOSS OF OBJECT THROUGH FRAUD OR FAULT OF
subsidiarily. THE VICTIM

Intimidation or fraud by a Minor Rule: If the plaintiff is at fault; he cannot annul the contract.

Example: Anton minor forces X to sign a contract. May the minor Example: Andrew was forced to sign a contract with Brad. In said
later on ask for annulment? No, because he himself is at fault. contract, Andrew was given a house. But Andrew destroyed the
house. May Andrew still bring the action for annulment? No more.
If a minor misrepresents his age and the other party is misled as to His act of destroying the house extinguished his right to bring the
his age, may the minor later on sue for annulment? No, because of action for annulment.
estoppels.
Rule: If the plaintiff was guilty of fraud for the loss of the object, he
can no longer annul the contract.

Art. 1398. An obligation having been annulled, the contracting parties Avast, a minor, was sold a house by Boer. The house was destroyed
shall restore to each other the things which have been the subject matter by a fortuitous event. May Avast still annul the contract to recover
of the contract, with their fruits, and the price with its interest, except in from the Boer the price (and interest) he had given? Yes. As a rule, if
cases provided by law. the right of action is based upon the incapacity of anyone of the
contracting parties, the loss of the thing shall not be an obstacle to
In obligations to render service, the value thereof shall be the basis for the success of the action. Here, the minor was not guilty of fraud or
damages. (1303a) fault.

EFFECTS OF ANNULMENT

1. If the contract has not yet been complied with, the parties are Art. 1402. As long as one of the contracting parties does not restore what
excused from the obligation. in virtue of the decree of annulment he is bound to return, the other
cannot be compelled to comply with what is incumbent upon him. (1308)
2. If the contract has already been performed, there must be
MUTUAL RESTITUTION (in general) of:

a. The thing, with fruits

b. The price, with interest
CHAPTER 8
Innocent third parties cannot be obliged to restore.
A guilty party, who for example, used force can be held liable for UNENFORCEABLE CONTRACTS (n)
damages.
EFFECT OF ANNULMENT IN PERSONAL OBLIGATIONS Unenforceable contracts are those that cannot be enforced in court or sued
Here, the value of the service shall be the basis for damages. upon by reason of defects provide by law until unless they are ratified
Art. 1399. When the defect of the contract consists in the incapacity of according to law.
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 They are contracts either entered into without or in excess of authority or do
received by him. (1304) not comply with the statue of frauds or both of the contracting parties do not
possess the required legal capacity.
Generally, No Restitution by Incapacitated Persons
a. This Article applies only if the defect is INCAPACITY.
b. This constitutes an exception to the obligation of mutual Art. 1403. The following contracts are unenforceable, unless they are
restitution. ratified:
c. Here, in Article 1399, restitution is only to the extent of
enrichment (pecuniary or otherwise). (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
No Presumption of Enrichment beyond his powers;

The law does not presume this enrichment or benefit; therefore, the (2) Those that do not comply with the Statute of Frauds as set forth in
capacitated person has the burden of showing such enrichment. Just this number. In the following cases an agreement hereafter made shall be
because the property had been delivered, it does not necessarily follow unenforceable by action, unless the same, or some note or
that there was enrichment. memorandum, thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot
Of course, if the incapacitated person still has the property, this by itself is be received without the writing, or a secondary evidence of its contents:
a benefit which he must return and not squander; otherwise, this will
amount to ratification. (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

Art. 1400. Whenever the person obliged by the decree of annulment to another;
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 (c) An agreement made in consideration of marriage, other than a mutual
the loss, with interest from the same date. (1307a) promise to marry;

In the duty of mutual restitution, the value of the thing with interest (d) An agreement for the sale of goods, chattels or things in action, at a
substitutes for the thing itself that was lost thru the partys fault. 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
Art. 1401. The action for annulment of contracts shall be extinguished by the auctioneer in his sales book, at the time of the sale, of the amount
when the thing which is the object thereof is lost through the fraud or and kind of property sold, terms of sale, price, names of the purchasers
fault of the person who has a right to institute the proceedings. and person on whose account the sale is made, it is a sufficient
memorandum;
University of Cebu 41
College of Law
(e) An agreement of the leasing for a longer period than one year, or for 7. Contracts infringing the Statute of Frauds are not void;
the sale of real property or of an interest therein; they are merely unenforceable.

(f) A representation as to the credit of a third person. 8. The Statute of Frauds is a Rule of Exclusion. Oral
evidence might be relevant to the agreement enumerated
(3) Those where both parties are incapable of giving consent to a therein and might therefore be admissible were it not for
contract. the fact that the law or the statute excludes said oral
evidence.
UNAUTHORIZED CONTRACTS
9. The Statute of Frauds does not determine the credibility or
These are those entered into in the name of another person by one weight of evidence. It merely concerns itself with the
who has been given no authority or legal representation, or who has admissibility thereof.
acted beyond his powers.
10. The Statute of Frauds does not apply if it is claimed that
Ex. Without my authority, my brother sold my car, in my name to X. contract does not express the true agreement of the
The contract is unauthorized and cannot affect me unless I ratify the parties. As long as the true or real agreement is not
same expressly or implicitly, as by accepting the proceeds of the covered by the Statute of Frauds, it is provable by oral
sale. evidence.

NOTE: Mere lapse of time, no matter how long, is not the ratification NOTE: Contracts infringing the Statute of
required by law of an unenforceable contract. Frauds are ratified by the acceptance of
benefits under them.
Without ratification, the agent assumes personal liability.
THE SPECIFIC AGREEMENTS UNDER THE STATUTE OF
THE STATUTE OF FRAUDS: FRAUDS

The PURPOSE is to prevent fraud, and not to encourage the same. 1. An agreement that by its terms is not to be performed within a
Thus, certain agreements are required to be in writing so that they year from the making thereof.
may be enforced.
The broad view is that the Statute of Frauds applies only to
NOTE: The Statute of Frauds applies only to executor contracts and agreement not to be performed on either side within a year
not to consummated sales where oral evidence may be admitted. from the making thereof. Agreements to be fully performed on
one side within a year are taken out of the operation of the
HOW THE STATUTE OF FRAUDS PREVENTS FRAUD Statute of Frauds.

Since memory is many times unreliable, oral agreements may NOTE: It would seem that while in general partially executed
sometimes result in injustices. To aid human memory, to prevent the contracts are not covered by the Statute of Frauds, still under
commission of injustices dues to faulty memory, to discourage No. 1 SPECIFIC AGREEMENT, only full or complete
intentional misrepresentations, are the principal aims of the Statute performance by one side will take the case out of the operation
of Frauds. of the Statute.

CHIEF CHARACTERISTIC 2. A special promise to answer for the debt, default, or

miscarriage of another.
Its chief characteristic is the provision that no suit or action shall be
maintained on certain classes of contracts or engagements unless
there is a note or memorandum thereof in writing signed by the party
to be charged or by his authorized agent. Example: Jack borrowed money from Sky, with Tonix as
guarantor. The contract of guaranty must be in writing to be
BASIC AND FUNDAMENTAL PRINCIPLES CONCERNING THE enforceable.
STATUTE OF FRAUDS
SPECIAL PROMISE refers to a subsidiary or collateral
1. The Statute of Frauds applies only EXECUTORY promise to pay, like a contract of guaranty.
CONTRACTS (contracts where no performance has yet
been made) and not to partially or completely executed 3. An agreement made in consideration of marriage, other than a
contracts. mutual promise to marry.

REASON: The possibility for fraud in executor Examples of Agreements Made in Consideration Marriage:
contracts is much greater.
a. Marriage Settlements
2. The Statute of Frauds cannot apply if the action is neither b. Donations Propter Nuptias
for damages because of the violation of an agreement nor
for the specific performance of said agreement. When the law says in consideration of marriage, it really
means by reason of marriage.
3. The Statute of Frauds is exclusive, that is, it applies only
to the agreements or contracts enumerated herein. Thus the cause of the donation propter nuptias is not the
marriage but the liberality or the generosity of the giver.
NOTE: Contract of loan is not one those
enumerated in the Statute. NOTE: The law says other than a mutual promise to marry.
Hence, a oral mutual promise to marry is not embraced by the
4. The defense of the Statute of Frauds may be waived. Statute of Frauds. The injured party may present oral evidence
of the promise in an action to obtain actual damages for breach
5. TWO WAYS to Waive the Defense of Statute of Fraud: thereof.

a. Timely failure to object to the presentation of Ex. A and B mutually promised to marry each other. The
oral evidence to prove the oral agreement; promise need not be in writing, UNLESS the marriage be
deferred till after the lapse of one year from the agreement.
b. Acceptance of benefits under them
4. An agreement for the sale of goods, chattels or things in action,
6. The Statute of Frauds is a personal defense, that is, a at a price not less than five hundred pesos.
contract infringing it cannot be assailed by third persons.

University of Cebu 42
College of Law
 THINGS IN ACTION means incorporated or intangible personal Frauds; any document or note in writing under the contract or for
property. another purpose, which complies will all the statutory requirements
of the statutes as to contents and signature may be considered as
NOTE: The law says SALES not other contracts. sufficient memorandum.

NOTE: If the price is exactly P500, the contract must be in RULE ON AUTHORITY OF THE AGENT TO SELL LAND OR ANY
writing to be enforceable. PARTIAL PAYMENT takes the INTEREST THEREIN
contract away from the Statute of Frauds except if said part
payment corresponds to the part delivered, in which case, the Under the Civil Code, when a sale of a piece of land or any interest
contract is divisible, the remaining is covered by the Statute. therein is thru an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void. (Article 1874) Note that the law
RULE IN CASE OF AUCTION SALE: says void, not merely unenforceable.

When a sale is made by auction and entry is made by the THE THIRD KIND OF UNEFORCEABLE CONTRACT where both
auctioneer in his sales book at the time of the sale, of: parties are incapacitated to give consent

a. The amount and kind of property sold; Example: A contract entered into by two unemancipated minors
b. The terms of the sale; without parental consent.
c. The price;
d. The names of the purchasers and persons on whose
amount the sale is made...
Art. 1404. Unauthorized contracts are governed by Article 1317 and the
The entry is considered a sufficient memorandum even if the principles of agency in Title X of this Book.
same is not signed by the party sought to be charged.
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2
5. An agreement for the leasing for a longer period than one year, of Article 1403, are ratified by the failure to object to the presentation of
or for the sale of real property or of an interest therein. oral evidence to prove the same, or by the acceptance of benefit under
them.
TWO KINDS OF AGREEMENT REFERRED TO:
a. Lease of real property for more than one year (not a Two ways of ratification of contracts infringing the Statute of Frauds:
personal property);
b. Sale of Real property (regardless of price) a. Failure to object the presentation of oral evidence this is deemed a
waiver.
NOTE: If lease of real property is exactly one year, and made
orally, lease is still enforceable, for the period here does not b. Acceptance of benefits under them thus the Statute does not apply
exceed one year. INTEREST in REAL PROPERTY may include to executed or partially executed or performed contracts.
easement or usufruct.

6. A representation as to the credit of a third person.

Art. 1406. When a contract is enforceable under the Statute of Frauds,
Example: Joel was borrowing money from George, and gave and a public document is necessary for its registration in the Registry of
Izzi as his reference. When Izzi was asked regarding Joels Deeds, the parties may avail themselves of the right under Article 1357.
credit, Izzi said: You can safely lend money to Joel because
Joel is the owner of a parcel of land and I have the title deeds It must be stressed here that the right of one party to have the other
in my possession. This was made orally. Incidentally, Joel was to execute the public document needed for convenience in
Izzis client, Izzi being a lawyer. This representation by Izzi is registration, is given only when the contract is both valid and
not enforceable against him it is not in writing. Joel enforceable.
representation as to the credit of a third person must be in
writing to be enforceable. Example: An oral sale of real property is not enforceable; hence, one
party cannot compel the other party to execute the public document.
DUTY OF ATTORNEY FOR THE DEFENDANT If an However, if said oral sales of real property has been ratified, then it
agreement violates the Statute of Frauds is now valid and enforceable, and a public document may be made
a. File a motion to dismiss; so that the sale can be registered.
b. Plead the Statute of Frauds as an affirmative
defense;
c. Make a timely objection in the course of the trial.
Art. 1407. In a contract where both parties are incapable of giving
DUTY OF THE ATTORNEY FOR THE PLAINTIFF who seeks to consent, express or implied ratification by the parent, or guardian, as the
enforce a contract embraced under the Statute of Frauds case may be, of one of the contracting parties shall give the contract the
a. Present the written agreement or contract; same effect as if only one of them were incapacitated.
b. If this cannot be done, as when the contract is lost,
present a MEMORANDUM or 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
NOTE IN WRITING where the important details of the inception.
contract are set forth but most important of all, the party
sought to be charged or his agent must have signed the Art. 1408. Unenforceable contracts cannot be assailed by third persons.
note or memorandum, UNLESS it is an auction sale
where entry need not be signed by the party being VOIDABLE CONTRACTS versus VOID CONTRACTS
charged.
VOIDABLE
c. If the written agreement has been lost and there is
no note or memorandum, there is still a remedy; This may be ratified. It cannot be ratified.
present SECONDARY EVIDENCE OF THE
WRITTEN CONTRACT in the form of oral testimony
It produces effects till annulled. Generally, effects are no
or parol evidence. But this does not mean that an
oral contract is being proved. The fact is, a written
contract now lost or destroyed, is being proved orally. Defect is due to incapacity or vitiated consent. The Defect here is t
militated against.
SUFFICIENT MEMORANDUM
Valid until annulled. Void from very beginn
No particular form or language or instrument is necessary to required to set it aside,
constitute a memorandum or note in writing under the Statute of
University of Cebu 43
College of Law
 been performed. 2. The action or defense for their declaration as inexistent does not
prescribe.
May be cured by prescription. Cannot be cured by prescription.
3. The defense of illegality of contracts is not available to third persons
Defense may be invoked only by the parties or their Defense may be availed of by whose interests
anybody, are not
whether he directly
is a affected.
successors-in-interest and privies. party to the contract or not, as long as his interest is
directly affected. 4. It cannot give rise to a contract; thus a contract which is the direct
result of a previous illegal contract is also void and inexistent;
Referred to a relative or conditional nullity. Referred to as absolute nullity.
5. It generally, produces no effect;
UNENFORCEABLE CONTRACTS versus VOID CONTRACTS
6. Generally, no action to declare them void is needed, since they are
UNENFORCEABLE inexistent from the very beginning;

This may be ratified. It cannot be ratified. 7. They cannot be ratified;

There is a contract but it cannot be enforced by a court No contract at all.

action.
Art. 1410. The action or defense for the declaration of the inexistence of
a contract does not prescribe.
It cannot be assailed by third parties. It can be assailed by anybody directly affected.
NOTE: While it is true that technically, the action to annul a void or
inexistent contract does not prescribe; it may nonetheless, be barred
by laches.

Example: If a void contract is void from the very beginning, what is

the use of its being declared inexistent? Strictly speaking, there is no
CHAPTER 9 use. BUT for purposes of convenience, or to avoid taking the law
into our own hands, there is nothing wring in having a void contract
VOID AND INEXISTENT CONTRACTS declared really void.

1. It cannot be ratified. (Art 1409)

2. The right to set up the defense of illegality cannot be waived. 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
3. The action or defense for the declaration of its inexistence does not parties being in pari delicto, they shall have no action against each other,
prescribed. (art. 1410) and both shall be prosecuted. Moreover, the provisions of the Penal
Code relative to the disposal of effects or instruments of a crime shall be
4. The defense of illegality is not available to third persons whose interests are applicable to the things or the price of the contract.
not directly affected; and
This rule shall be applicable when only one of the parties is guilty; but
5. it cannot give rise to a valid contract. (Art. 1422) the innocent one may claim what he has given, and shall not be bound to
comply with his promise. (1305)

Art. 1409. The following contracts are inexistent and void from the Pari Delicto- means both parties are equally at fault or are equally
beginning: guilty. The principle of pari delicto, means that when the defect of
avoid contracts consists in the illegality of the cause or object f the
(1) Those whose cause, object or purpose is contrary to law, morals, contract and both parties are at fault or in a pari delicto, the law
good customs, public order or public policy; refuse them every remedy, or the parties have no action against
each other.
(2) Those which are absolutely simulated or fictitious;
Illegal contract with Criminal Offense
(3) Those whose cause or object did not exist at the time of the
transaction; 1. When both parties are in pari delicto Rules

(4) Those whose object is outside the commerce of men; a. the parties shall have no action against each other;

(5) Those which contemplate an impossible service; b. both shall be prosecuted; and

(6) Those where the intention of the parties relative to the principal c. the things of the price of the contract, shall be
object of the contract cannot be ascertained; confiscated in favor of the government.

(7) Those expressly prohibited or declared void by law. 2. Where only one party is guilty.

These contracts cannot be ratified. Neither can the right to set up the The innocent one or less guilty may claim what he has
defense of illegality be waived. given and shall not be bound to comply with his promise

TWO KINDS OF VOID CONTRACTS

1. The INEXISTENT ones, like those where essential formalities are Art. 1412. If the act in which the unlawful or forbidden cause consists
not complied with. does not constitute a criminal offense, the following rules shall be
observed:
2. The ILLEGAL or ILLICIT ones, like a donation because of immoral
condition, such as illicit sexual intercourse. Here, in some way, the (1) When the fault is on the part of both contracting parties, neither may
donation produces some effect in that he who gave the donation recover what he has given by virtue of the contract, or demand the
cannot get back what he has given. performance of the other's undertaking;

Some Characteristics of a Void Contract (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
1. The right to set up the defense of illegality cannot be waived and what has been promised him. The other, who is not at fault, may demand
may be considered on appeal even if not raised in the trial court.

University of Cebu 44
College of Law
the return of what he has given without any obligation to comply his the purpose of the contract. The doctrine does not apply where a superior
promise. (1306) public policy intervenes.

TWO KINDS OF ILLEGAL CONTRACT RULES AS TO GAMBLING

a. Those where there is a criminal offense; No action can be maintained by the winner for the collection of what he
has won in a game of chance. But any loser in a game of chance may
b. Those where there is no criminal offense. recover his loss from the winner, with legal interest from the time he paid
the amount lost, and subsidiarily from the operator or manager of the
ILLEGAL AND CRIMINAL CONTRACTS gambling house.

Those contracts where there is a criminal offense may be of two kinds: If there was cheating or deceit committed by the winner, he and
subsidiarily the operator or manager of the gambling house shall pay by
a. Those were both parties are guilty (in pari delicto) way of exemplary damages, not less than the equivalent of the sums lost,
in addition to the latter amount.
b. Those were only one party is guilty and the other is innocent.
If both winner and the loser have perpetrated fraud, no action for
A. EFFECTS Where BOTH parties are GUILTY: recovery can be brought by either.

1. Since they are in pari delicto, they shall have no action against If the loser refuses or neglects to bring an action to recover what has
each other; been lost, his or her creditors,

2. Both shall prosecuted; spouse, descendants or other persons entitled to be supported by the
loser may institute the action
3. The effects or the instruments of the crime shall be confiscated
in favor of the government Gambling VERSUS Betting

B. EFFECTS Where ONLY ONE is GUILTY (or where, even if both are While generally, gambling on the results of a game of chance is
guilty, they are not equally guilty, therefore not in pari delicto) prohibited, betting which concerns itself with the games of skill, like
chess, is ordinarily allowed.
1. The guilty party will be prosecuted;
Thus the law says: the loser in any game which is not one of chance,
2. The instrument of the crime will be confiscated; when there is no local ordinance which prohibits betting therein, is under
obligation to pay his loss, unless the amount thereof is excessive under
3. The innocent arty may claim what he has given (like the price the circumstances.
he had paid for) or he has not yet given anything, he shall not
be bound to comply with his promise.

NOTE: Even if a contract involves a crime, still if a cause of action can be Art. 1413. Interest paid in excess of the interest allowed by the usury
established without referring to the illegal act or motive, relief can be laws may be recovered by the debtor, with interest thereon from the date
granted by the courts. of the payment.

ILLEGAL BUT NOT CRIMINAL CONTRACTS 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
Those contracts which are unlawful or forbidden but where there is no purpose has been accomplished, or before any damage has been caused
criminal offense may be of two kinds: 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
a. Those where both are guilty the money or property.

b. Those where only one party is guilty or at fault. This is one case where recovery can be had even if the parties be in pari
delicto. Note, however, that recovery can be has only:

a. If the purpose has not yet been accomplished;

A. EFFECT if BOTH parties are GUILTY:
b. Or if damage has not been caused to any third person.
Neither may recover what he has given by virtue of the contract or
demand the performance of the others undertaking. The law will leave NOTE: The Article also applies if the parties are not equally guilty, and
them as they are in pari delicto. where public policy would be advanced by allowing the suit for relief.

B. EFFECTS if only ONE party is GUILTY:

1. The guilty party cannot recover what he has given by reason of Art. 1415. Where one of the parties to an illegal contract is incapable of
the contract, or ask the fulfilment of what has been promised to giving consent, the courts may, if the interest of justice so demands
him. allow recovery of money or property delivered by the incapacitated
person.
2. The party not at fault may demand the return of what he has
given, without any obligation to comply with his promise. Example: An insane man gave money to another to kill Xavi. May
the insane man recover what he has paid? Yes, since the interest of
PARI DELICTO DOCTRINE justice demands.

If the two parties to a contract are in pari delicto, the doctrine applies
even to the spouse of one of them, who although not a signatory to the
contract, has sufficiently manifested by affirmative act her unequivocal Art. 1416. When the agreement is not illegal per se but is merely
concurrence to the contract in controversy. 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
The doctrine does not apply to fictitious or absolutely simulated contracts he has paid or delivered.
since these contracts are inexistent.
ILLEGAL PER SE CONTRACTS are those forbidden because of public
This principle does not apply with respect to inexistent and void contracts. interest.
In pari delicto, it denies all recovery to the guilty parties inter se. It applies
to cases where the nullity arises from the illegality of the consideration or

University of Cebu 45
College of Law
 MERELY PROHIBITED CONTRACTS are those forbidden because of own free will, with knowledge that the other party cannot compel him
private interests. Here recovery is permitted provided that: anymore, yet he executes the act willfully. Therefore, if payment or
delivery of money as payment is made thru a court process, natural
a. The contract is not illegal per se; obligation cannot be made to apply because this is not voluntary
fulfillment.
b. The prohibition is designed for the protection of the plaintiff;

c. And public policy would be enhanced by allowing the recovery.

Art. 1424. When a right to sue upon a civil obligation has lapsed by
extinctive prescription, the obligor who voluntarily performs the contract
cannot recover what he has delivered or the value of the service he has
Art. 1417. When the price of any article or commodity is determined by rendered.
statute, or by authority of law, any person paying any amount in excess
of the maximum price allowed may recover such excess. Example: Durk owes Cowell P10,000, evidenced by a promissory
note, due on June 10, 2011. On the date of maturity, Durk failed to
PURPOSE OF THE ARTICLE: To curb the evils of profiteering. pay. Cowell files an action for collection, but the same was
unsuccessful because the evidence of the obligation which is the
promissory not got lost. No appeal was made, and the judgment
becomes final. If later, Durk still paid Cowell voluntarily, can Durk still
Art. 1418. When the law fixes, or authorizes the fixing of the maximum recover what he paid?
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 No more, because the law says that when, after an action to enforce
demand additional compensation for service rendered beyond the time a civil obligation has failed, the defendant voluntarily performs the
limit. obligation, he cannot demand the return of what he has delivered or
the payment of the value of the service he has rendered.
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. 1425. When without the knowledge or against the will of the debtor, a
Art. 1420. In case of a divisible contract, if the illegal terms can be third person pays a debt which the obligor is not legally bound to pay
separated from the legal ones, the latter may be enforced. because the action thereon has prescribed, but the debtor later
voluntarily reimburses the third person, the obligor cannot recover what
ILLEGAL TERMS OF A CONTRACT he has paid.

RULE 1: If the contract is INDIVISIBLE, the whole contract is void, Here, a third person pays: without the knowledge of the debtor or
even if only some terms are illegal. against the will of the debtor.

RULE 2: If the contract is DIVISIBLE, the legal terms may be Example: Aira owes Ben P700,000. but the debt soon prescribes.
enforced is same can be separated from the illegal terms. Later Cooch, against the consent of Aira, pays the P700,000. Aira
here does not have to reimburse Cooch because he (Aira) has not
He who wants to enforce a contract must show how much of the at all been benefited by the transaction. However, Aira later
cause is legal; otherwise, if partly legal and partly illegal, it will result voluntarily reimburses Cooch. May Aira now recover what he has
in the contract being considered wholly void. given to Cooch? No more.

Art. 1421. The defense of illegality of contract is not available to third Art. 1426. When a minor between eighteen and twenty-one years of age
persons whose interests are not directly affected. who has entered into a contract without the consent of the parent or
guardian, after the annulment of the contract voluntarily returns the
Art. 1422. A contract which is the direct result of a previous illegal whole thing or price received, notwithstanding the fact the he has not
contract, is also void and inexistent. been benefited thereby, there is no right to demand the thing or price
thus returned.

Contracts by minors between 18 and 21 when there has been

annulment

a. This applies to minors within the age described, enter into

contract without parental consent
Title III. - NATURAL OBLIGATIONS
b. After annulment, there was a voluntary return.
Art. 1423. Obligations are civil or natural. Civil obligations give a right of
action to compel their performance. Natural obligations, not being based Example: Adonis, a minor, entered into a contract with a sui juris,
on positive law but on equity and natural law, do not grant a right of without the consent of his (Adonis) parents. In said contract, A
action to enforce their performance, but after voluntary fulfillment by the received a car. This car was afterwards destroyed by a fortuitous
obligor, they authorize the retention of what has been delivered or event. Later when the contract was annulled, Adonies returned
rendered by reason thereof. Some natural obligations are set forth in the voluntarily the value of the car although he had not profited or
following articles. benefited a single centavo from the car. Has he now have the right
to demand that price be returned? No more.
Kinds of obligations from the viewpoint of sanction.

a. Civil obligations Those obligations whereby the creditors are

given a right of action to compel their performance. Art. 1427. When a minor between eighteen and twenty-one years of age,
who has entered into a contract without the consent of the parent or
b. Natural obligations They are not based on positive law but on guardian, voluntarily pays a sum of money or delivers a fungible thing in
equity. They do not grant a right of action to enforce their fulfillment of the obligation, there shall be no right to recover the same
performance but after voluntary fulfillment by the obligor, they from the obligee who has spent or consumed it in good faith. (1160A)
authorize the retention of what has been delivered or rendered
by reason thereof. Contract by Minors No annulment yet

The term voluntary is understood to mean the execution of an act a. Generally, annulment requires mutual restitution. Here, the
free from coercion or compulsion. The act is voluntary or thru his obligee who has spent or consumed the object in good faith is
not required to restore.
University of Cebu 46
College of Law
 b. Good faith of the oblige must be present at the time of
spending or consuming.

c. Note that the majority age today is 18. And fungible means
consumable.

Example: If the object is non-consumable, does the Article apply?

Yes if there has been loss by fortuitous event or alienation in good
faith, if the proceeds thereof have already been spent in good faith.

Art. 1428. When, after an action to enforce a civil obligation has failed the
defendant voluntarily performs the obligation, he cannot demand the
return of what he has delivered or the payment of the value of the service
he has rendered.

Example: Lleina owes Jack P500,000. Jack brings a suit against

Lleina, but Jack loses the case for insufficient evidence. No appeal
was made from the decision, and the judgment becomes final. Later,
Lleina paid Jack voluntarily the debt. May Lleina now recover from
Jack what he has paid? NO.

Art. 1429. When a testate or intestate heir voluntarily pays a debt of the
decedent exceeding the value of the property which he received by will
or by the law of intestacy from the estate of the deceased, the payment is
valid and cannot be rescinded by the payer.

Heirs inherit obligations only to the extent of the value of the

inheritance. This is the for the Article, coupled with the basis for the
natural obligation.

Example: A dies, leaving an estate of P10,000,000 and debts

amounting to P15,000,000. His heir here is not expected to make up
for the difference, but if he does so voluntarily, then he cannot
recover said difference. After all, one does have a moral duty to see
to it that the dead relatives or friends obligation in life are all carried
out. Here, the heir is not really required by law to shoulder the
deficit, but since he does so voluntarily, he cannot now back out.

Art. 1430. When a will is declared void because it has not been executed
in accordance with the formalities required by law, but one of the
intestate heirs, after the settlement of the debts of the deceased, pays a
legacy in compliance with a clause in the defective will, the payment is
effective and irrevocable.

If the will is void, the legacy would also be void and the deceased is
considered to have died without a will. This is the reason for the
existence of the Article.

Example: In a will defective for lack of the needed legal formalities,

Xam a friend, was given a legacy. The legacy is void, and the whole
estate should go the intestate heirs. If however, the intestate heirs
give Xam the legacy, he cannot get it back now, provided that the
debts of the deceased have been settled.

University of Cebu 47
College of Law