This is an ObliCon Finals Reviewer, Is It Not?

Presented to you by:

Andales, Samantha
Atienza, Sarah
Libardo, Mark Xavier
Mabutin, Francis Eldon
Murata, Dominic Nikki
Perez, Reginald
Ramos, Mildredanne
Santos, Katrina Mae
Sy, Sophia
Timbancaya, Gabriela Victoria

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 OBLIGATIONS AND CONTRACTS

Obligations: General Provisions (activity) by another, and/if necessary

coerce such behavior, directly or
Concept indirectly
-! Debtor: A person who must behave (act
Definition or not act) in a determined way, for the
satisfaction of the creditor’s private
Art. 1156. An obligation is a juridical interest.
necessity to give, to do, or not to do. -! Object: The object of an obligation is
the prestation, that is, the conduct (to
give, to do, not to do) that the debtor
Criticisms: should observe. The obligation
-! One-sided as it views the obligation represents a restraint on the liberty of
only from the side of the debtor another person, but a restraint limited in
-! Imperfect in that the definition applies its extent. The prestation must
to all kinds of legal duty represent money value, although the
-! Only applies to perfect or civil creditor may or may not financially lose
obligations. It does not apply to so- by the debtor’s failure to behave as he
called natural obligations that being should. The prestation must be lawful,
imperfect are not coercible and this lack possible, determinate or determinable,
the character of necessity. useful, and assessable in money.
-! Alternative Definitions -! Sanction: The party who is prejudiced
o! An obligation is a juridical relation by the debtor’s refusal to observe the
whereby a person (called the requisite conduct may resort to the
creditor) may demand from another State authorities for a remedy.
(called the debtor) the observance
of a determinate conduct (or Natural vis-à-vis Civil Obligations
behavior) and in case of non- -! Natural obligations do not grant a right
observance, may obtain satisfaction of action to enforce their performance,
from the assets of the latter. (Arias but after voluntary fulfillment by the
Ramos) obligor, they authorize the retention of
o! An obligation is a juridical relation what has been delivered or rendered by
whereby a person should engage, or reason thereof. Civil obligations, on the
refrain from engaging, in a certain other hand, give a right of action to
activity for the satisfaction of the compel their performance.
private interest of another, who, in -! Natural obligations are not based on
case of non-fulfillment of such duty, positive law, but on equity and natural
may obtain from the patrimony of law, while civil obligations are based on
the former, through a proper judicial positive law, and may be valid,
proceeding, the very prestation due, voidable, or void.
or in default thereof, the economic
value it represents. (Diaz Pairó)

Elements

-! Creditor: a person endowed with

optional power to demand the
observance of a certain behavior
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 Sources of Obligation Kind of Quasi-Contract: Solutio Indebiti

Art. 1157. Obligations arise from: Art. 2154. If something is received when
(1) Law; there is no right to demand it, and it was
(2) Contracts unduly delivered through mistake, the
(3) Quasi-contracts; obligation to return it arises.
(4) Acts or omissions punished by law;
and
Kind of Quasi-Contract: Negotiorum Gestio
(5) Quasi-delicts

Art. 2144. Whoever voluntarily takes

Law
charge of the agency or management of
the business or property of another,
Art. 1158. Obligations derived from law without any power from the latter, is
are not presumed. Only those expressly obliged to continue the same until the
determined in this Code or in special termination of the affair and its incidents,
laws are demandable, and shall be or to require the person concerned to
regulated by the precepts of the law substitute him, if the owner is in
which establishes them; and as to what apposition to do so. This juridical
has not been foreseen, by the provisions relation does not arise in either of these
of this Book. instances:
(1) When the property or business is
Contracts not neglected or abandoned
(2) If in fact the manager has been
tacitly authorized by the owner.
Art. 1159. Obligations arising from
contracts have the force of law between
In that case, the provisions of Articles
the contracting parties and should be
1317, 1403, No. 1 and 1404 regarding
complied with in good faith.
unauthorized contracts shall govern.
Art. 1305. A contract is a meeting of
minds between two persons, whereby Other Kinds of Quasi-Contracts
one binds himself, with respect to the
other, to give something or to render Art. 2164. When, without the knowledge
some service. of the person obliged to give support, it
is given by a stranger, the latter shall
Quasi-Contract have a right to claim the same from the
former, unless it appears that he gave it
Art. 1160. Obligations derived from out of piety and without intention of
quasi-contracts shall be subject to the being repaid.
provisions of Chapter 1, Title XVII, of this
Book. Art. 2165. When funeral expenses are
borne by a third person, without the
Art. 2142. Certain lawful, voluntary, and knowledge of those relatives who were
unilateral acts give rise to the juridical obliged to give support to the deceased,
relation of quasi-contract to the end that said relatives shall reimburse the third
no one shall be unjustly enriched or person, should the latter claim
benefited at the expense of another. reimbursement.

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 Art. 2172. The right of every possessor
Art. 2166. When the person obliged to
in good faith to reimbursement for
support an orphan, or an insane or other
necessary and useful expenses is
indigent person unjustly refuses to give
governed by Article 546.
support to the latter, any third person
may furnish support to the needy
Art. 2173. When a third person, without
individual, with right of reimbursement
the knowledge of the debtor, pays the
from the person obliged to give support.
debt, the rights of the former are
The provisions of this article apply when
governed by articles 1236 and 1237.
the father or mother of a child under
eighteen years of age unjustly refuses to
Art. 2174. When in a small community a
support him.
majority of the inhabitants of age decide
upon a measure for protection against
Art. 2167. When through an accident or
lawlessness, fire, flood, storm or other
other cause a person is injured or
calamity, any one who objects to the
becomes seriously ill, and he is treated
plan and refuses to contribute to the
or helped while he is not in a condition
expenses but is benefited by the project
to give consent to a contract, he shall be
as executed shall be liable to pay his
liable to pay for the services of the
share of said expenses.
physician or other person aiding him,
unless the service has been rendered
Art. 2175. Any person who is
out of pure generosity.
constrained to pay the taxes of another
shall be entitled to reimbursement from
Art. 2168. When during a fire, flood,
the latter.
storm, or other calamity, property is
saved from destruction by another
person without the knowledge of the Delict
owner, the latter is bound to pay the
former just compensation. Art. 1161. Civil obligations arising from
criminal offenses shall be governed by
Art. 2169. When the government, upon the penal laws subject to the provisions
the failure of any person to comply with of Art. 2177, and of the pertinent
health or safety regulations concerning provisions of Chapter 2, Preliminary
property, undertakes to do the Title, on Human Relations, and of Title
necessary work, even over his objection, XVIII of this Book, regulating damages.
he shall be liable to pay the expenses.

Art. 2170. When by accident or other Quasi-Delict

fortuitous event, movables separately
pertaining to two or more persons are Art. 1162. Obligations derived from
commingled or confused, the rules on quasi-delicts shall be governed by the
co-ownership shall be applicable. provisions of Chapter 2, Title XVII of this
Book, and by special laws.
Art. 2171. The rights and obligations of
the finder of lost personal property shall
be governed by articles 719 and 720.

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 Art. 2176. Whoever by act or omission ruled that the employer had two liabilities: a
causes damage to another, there being subsidiary one that may arise from the
fault or negligence, is obliged to pay for Revised Penal Code, and his direct liability
the damage done. Such fault or as an employer which comes from the Civil
negligence, if there is no pre-existing Code. Since the petitioners chose the latter,
contractual relation between the parties, he now has an obligation to pay damages
is called a quasi-delict and is governed because of the quasi-delict. [Barredo v.
by the provisions of this Chapter. Garcia, 73 Phil. 607]

However, in the case of Mendoza v.

Q: What is the difference between quasi- Arrieta (91 SCRA 113), the Court ruled on
delicts and delicts? the liability for damages under a civil action,
based on the acquittal of the defendant in a
A: While both delicts and quasi-delicts both separate criminal proceeding. In this case
involve civil obligations, the civil obligation where a truck bumped a jeep, and as a
that arises from a delict are those that arise result, the jeep bumped a car, the car
from committing acts punishable by penal owner sued the jeepney driver for reckless
statutes which may involve negligent acts imprudence. The trial court found the
(as the RPC punishes crimes committed by jeepney driver not guilty, and based the
negligence as well and imprudence), same ruling, the Supreme Court held that
whereas quasi-delicts, involve civil since the jeepney driver was acquitted in
obligations that arise from damages made that criminal case, based on the grounds
because of negligence in general. Thus, for acquittal, he cannot be said to be
quasi-delicts are broader in scope. responsible for the damages to the private
party’s car, and as such, a civil action for
Q: Can the same negligent act give rise to damages based on quasi-delict also cannot
an action based on both delict and quasi- prosper.
delict?
A: Although the same negligent act may Q: Can one can be held liable for the fault
give rise to an action based on delict OR on of others? If so, what are these instances?
quasi-delict, the injured party must choose A: Under the Civil Code and the Family
only one and suing based on delict means Code, one can definitely be held liable for
that the injured party forgoes the the fault of others. Some of the salient
opportunity to sue the other party based on provisions are discussed below.
quasi-delict.
Art. 2180
Thus, when a taxi driver was prosecuted
and convicted under a penal statute for
Who is responsible: Responsible for
having crashed into a carretela which
whom:
resulted to the death of a 16-year old boy,
the family reserved the right to sue for The father and, in For the damages
damages through a separate civil action. In case of his death or caused by the
that separate civil action, they implicated incapacity, the minor children who
the taxi driver’s employer as respondent. mother live in their
The employer’s argument was that the only company.
civil liability that can come from him as an
employer is subsidiary and since he wasn’t
implicated in the criminal action, they can’t Guardians For damages
claim damages from him. The Court here

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 caused by the Heads of For the damages
minors or establishments of caused by their
incapacitated arts and trades apprentices, so
persons who are long as they remain
under their authority in their custody.
and live in their
company. The responsibility treated of in this article
shall cease when the persons herein
Owners and For the damages
mentioned prove that they observed all the
managers of an caused by their
diligence of a good father of a family to
establishment or employees in the
prevent damage.
enterprise. service of the
branches in which
It must be stressed that in the case of
the latter are
teachers and heads of establishments of
employed or on the
arts and trades, they may only be held
occasion of their
liable for the damages caused by their
functions.
pupils, students or apprentices. Thus in a
Employers For the damages case where a student was stabbed to death
caused by their inside the campus of his school by outside
employees and elements who were not students of that
household helpers school, the Court held that the school
acting within the cannot be held liable under Article 2180.
scope of their HOWEVER, the Court also ruled that the
assigned tasks, school may still be liable for negligently
even though the failing to provide a safe environment for its
former are not students, which the Court said is included
engaged in any in the implicit contract between a school
business or and its students [PSBA v. CA, 205 SCRA
industry. 729].

The State Responsible in like [Note: Prof. Disini has disagreed with this
manner when it acts ruling as it implies that such an obligation
through a special would then arise from both contract and
agent; but not quasi-delict. He was of the opinion that an
when the damage obligation may only arise from one source
has been caused by at any given time. Despite this opinion, this
the official to whom case is still part of Philippine jurisprudence.]
the task done
properly pertains. The Court has ruled in the case of Amadora
v. CA (150 SCRA 315) that a student is
Teachers For the damages considered to be within the custody of the
caused by their school as long as he’s under the control
pupils and and influence of the school and is within its
students, so long premises regardless of whether the
as they remain in semester has not yet begun or has already
their custody. ended. As long it can be shown that the
student was in school for a legitimate

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student objective, then the school has o! Alternative: where only one of
custody. several prestations due has to be
performed
Under Arts. 218-219 of the Family Code o! Facultative: where one prestation is
due but may be substituted with
The school, its administrators and teachers, another by the debtor at the latter’s
or the individual, entity or institution discretion
engaged in child care shall be principally
and solidarily liable for the damages caused Number of Parties: Single, Joint, and
by the acts or omissions of the Solidary (cf. Arts. 1207-1222)
unemancipated minor. -! Single: unipersonal or individual
-! Joint (mancomunada): when the
The parents, judicial guardians, or the obligation is prorated among the parties
persons exercising substitute parental -! Solidary (joint and several): when each
authority over said minor shall be party is entitled to or liable for the entire
subsidiarily liable. obligation, and for the default of his co-
parties.
Again, the liabilities shall not apply if it is
proved that they exercised the proper Qualities of the Object: Divisible and
diligence required under the circumstances. Indivisible (cf. Arts. 1223-1225)
-! Divisible: when it may be partially
Classes of Obligations performed
-! Indivisible: when it is not susceptible of
Primary Classification partial performance

Peculiarities of the Prestation: Pure, With a penal clause (cf. 1226-1230)

Conditional, and With a Period (cf. Arts.
1179-1198)
Art. 1226. In obligations with a penal
-! Pure: when it is not subject to a
clause, the penalty shall substitute the
condition or period, being demandable
indemnity for damages and the payment
at the creditor’s will
of interests in case of non-compliance, if
-! Conditional: when its demandability or
there is no stipulation to the contrary.
extinction depends upon a future and
Nevertheless, damages shall be paid if
uncertain event.
the obligor refuses to pay the penalty or
-! With a period: when some space of time
is guilty of fraud in the fulfillment of the
suspends the demandability or obligation.
produces the extinction of the
obligation.
The penalty may be enforced only when
it is demandable in accordance with the
Prestations to be rendered: Conjunctive, provisions of this Code.
Alternative, and Facultative (cf. Arts. 1199-
1206)
-! Individual: one prestation Secondary Classification
-! Multiple: several prestations
o! Conjunctive: where all the Sources: Legal, Conventional, and Penal
prestations are due and (cf. Arts. 1158-59, 1161)
demandable -! Legal: Obligations derived from law are
not presumed. Only those expressly
determined in this Code or in special

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 laws are demandable, and shall be Positive and Negative
regulated by the precepts of the law -! Positive: The object is to give or to do.
which establishes them; and as to what -! Negative: The object is not to do.
has not been foreseen, by the
provisions of this Book. Accessory and Principal
-! Conventional: Obligations arising from -! Accessory: when it depends upon some
contracts have the force of law between other obligation in order to exist.
the contracting parties and should be -! Principal: when it can stand alone.
complied with in good faith.
-! Penal: Civil obligations arising from Possible and Impossible
criminal offenses shall be governed by -! Possible: by law or nature
the penal laws subject to the provisions -! Impossible: by positive law or the laws
of Art. 2177, and of the pertinent of nature
provisions of Chapter 2, Preliminary
Title, on Human Relations, and of Title Prestations to be rendered: Conjunctive,
XVIII of this Book, regulating damages. Alternative, and Facultative (cf. Arts. 1199-
1206)
Unity or Diversity of Relations: Unilateral -! Individual: one prestation
and Bilateral -! Multiple: several prestations
-! Unilateral: Where the obligation involves o! Conjunctive: where all the
one debtor and one creditor prestations are due and
-! Bilateral: Where each party is the demandable
creditor of a prestation and promises o! Alternative: where only one of
another in return. several prestations due has to be
o! Both obligations arise from the performed
same source. o! Facultative: where one prestation is
o! Each is designed to be the due but may be substituted with
equivalent of the other another by the debtor at the latter’s
o! In the contemplation of the parties, discretion
performance of one is conditioned
upon the performance of the other.

Number of Parties: Single and Collective

(cf. Arts. 1207-1222)
-! Single: unipersonal or individual
-! Joint: pluripersonal or when the
obligation is prorated among the parties

Qualities of the Object:

Real and Personal

-! Real: The object is to give.
-! Personal: The object is an activity.

Determinate and Generic

-! Determinate: The object is
individualized.
-! Generic: The object is referred to by the
class or kind to which it belongs.

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 Obligations: Obligation to Do and Not to Do
Nature and Effects of Obligations
Art. 1244. x x x
Kinds of Prestation
In obligations to do or not to do, an act
Obligation to Give: A Specific Thing or forbearance cannot be substituted by
another act or forbearance against the
Art. 1244. The debtor of a thing cannot obligee's will.
compel the creditor to receive a different
one, although the latter may be of the Breach of Obligation
same value as, or more valuable than
that which is due. x x x Casual Breach
Art. 1163. Every person obliged to give
Song Fo v. Hawaiian Phils
something is also obliged to take care of
Song Fo & Co. and Hawaiian Phil. Co. had
it with the proper diligence of a good
a contract in which the latter would deliver
father of a family, unless the law or the
gallons of molasses to the former, for a
stipulation of the parties requires
certain price. When one of the payments of
another standard of care.
Song Fo for a delivery got delayed,
Art. 1166. The obligation to give a Hawaiian Phil Co. took this as a breach of
determinate thing includes that of their contract and as a result, stopped
delivering all its accessions and delivering molasses to them. This forced
accessories, even though they may not Song Fo to get their deliveries from other
have been mentioned. sources, which prompted them to the
matter to court for damages. Did Hawaiian
Art. 1164. The creditor has a right to the Phils have the right to rescind the contract
fruits of the thing from the time the of sale between them and Song Fo for the
obligation to deliver it arises. However, latter’s alleged breach? The Court ruled
he shall acquire no real right over it until here that a delay in payment for a small
the same has been delivered to him. quantity is not such a violation of an
essential condition of the contract as
warrants rescission for non-performance.
Obligation to Give: A Generic Thing The general rule is that rescission will not
be permitted for a slight or casual breach of
Art. 1246. When the obligation consists the contract, but only for such breaches as
in the delivery of an indeterminate or are so substantial and fundamental as to
generic thing, whose quality and defeat the object of the parties in making
circumstances have not been stated, the the agreement.
creditor cannot demand a thing of
superior quality. Neither can the debtor In another case,! Angeles v. Calasanz,
deliver a thing of inferior quality. The where one party terminated the contract of
purpose of the obligation and other sale between them and another party for
circumstances shall be taken into the latter’s delay in payment, the Court has
consideration. ruled that the breach of the contract
adverted to by the defendants is so slight
and casual considering that they paid the
initial down payment as well as the monthly
installments for a period of almost 9 years.

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Thus, the termination of the contract was fulfillment of the obligation on the part of
voided and the Court ordered for the deed petitioner necessitates resolution of the
of sale to be executed. contract as non-fulfillment of the obligation
constitutes substantial breach. (Vermen
In Delta Motor Corp. vs Genuino & CA, Realty vs. CA)
Delta had a contract with the Genuinos who
are iceplant owners, wherein Delta will sell In the case of Velarde, et al. v. CA,
pipes to the Genuinos. After having agreed Raymundo sold a parcel of land which was
upon a price and dates of payment, the mortgaged to BPI, to Velarde. In their
Genuinos made initial payments to Delta contract of sale, it is stipulated that
but stopped before completing their Raymundo is to transfer to Velarde
payments. Delta offered to make the complete ownership of the land, together
delivery but the Genuinos refused as the with the house and other improvements
building where the pipes would be installed thereon, and that Velarde will pay
has not finished being constructed. After 3 Raymundo a sum of money, and assume
years, the Genuinos asked for the delivery the payment of the land’s mortgage.
of the pipes but Delta already refused, Raymundo applied for the transfer of the
claiming that the price that they paid was mortgage in Velarde’s name, and until then,
from three years ago and business costs Velarde paid the mortgage under
have increased since. They asked for a Raymundo’s name. BPI eventually denied
higher price before delivery can be made, Raymundo’s application and upon being
effectively rescinding the contract. Can notified of such, Velarde stopped paying for
Delta rescind the contract based on the the mortgage. The Court held here that
Genuinos’ failure to pay in full? The Court Velarde’s non-payment of the remaining
here ruled that on the issue of Genuinos’ balance of the mortgage was indeed a
non-performance of its obligations, it was breach of contract, and that Raymundo had
not a substantial breach as would warrant a right to rescind, as Velarde has violated
rescission rescinded on their contract of the very essence of reciprocity in the
sale. contract of sale, thus being a substantial
breach of contract.
Substantial Breach
Modes of Breach
Vermen Realty and Seneca Hardware
entered into an Offsetting Agreement Art. 1170. Those who in the performance
wherein Vermen will purchase construction of their obligations are guilty of fraud,
materials from Seneca and give cash and 2 negligence, or delay, and those who in
condominium units as payment for the any manner contravene the tenor
materials. However, Vermen repossessed a thereof, are liable for damages.
condominium unit initially turned over to
Seneca, stopped issuing purchase orders
for materials from Seneca, and failed to 1.! Fraud
begin construction on phase 2 of their
condominium. Seneca brought the issue to Art. 1171. Responsibility arising from
the Court for a rescission of the contract. fraud is demandable in all obligations.
May the contract be rescinded? The Court Any waiver of an action for future fraud
held that since the construction on phase 2 is void.
of the condominium has ceased, it would
then be impossible for Vermen to fulfill his
obligation. Thus, the impossibility of

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Woodhouse v. Halili class hotels, and a visit to the UGC Leather
The two parties agreed to have a factory. However, the tour was not as
partnership for the bottling and distribution advertised. There was no European tour
of a brand of softdrinks: Mission Dry Corp. manager and all they got was a Filipino
They agreed that Woodhouse was to guide who had never been to Europe. The
secure the brand franchise for the hotels were also far from first-class and
partnership, among other things. Halili they failed to follow the itinerary and ended
thought that Woodhouse was the grantee up sight-seeing the outside of a closed
of such exclusive franchise. Pursuant to factory. Geraldez filed for damages against
this agreement, Woodhouse informed the Kenstar for an alleged fraud. The Court here
Mission Dry Corp. based in the US of his differentiated between dolo causante and
plan, and was given a thirty days’ option on dolo incidente, holding that the former is
exclusive bottling and distribution rights for those misrepresentations of a serious
the Philippines. When the bottling plant was character employed by one party, without
already in operation, Woodhouse which the other party would not have
demanded that the partnership papers be consented to the contract. Such fraud
executed by Halili, who gave several allows for an annulment of the contract.
excuses and refused to give Woodhouse
further allowances. No settlement could be Dolo Incidente are those not serious in
reached, and it reached the Supreme character and without which the other party
Court. Defendant argues that plaintiff would still have entered into the contract.
misrepresented himself as the owner of an This kind of fraud only allows for damages
exclusive bottling franchise, when in fact he to be recovered. The Court held that
did not secure it. Does this constitute fraud, regardless of the type of fraud, Kenstar is
and if it does, may it annul the contract still liable for damages. (Geraldez v. CA)
between Woodhouse and Halili?
Woodhouse v. Halili: In order for fraud to be
The Court here ruled that Woodhouse vitiative of consent, it must be the causal
indeed misrepresented himself of (dolo causante), not merely the incidental
possessing exclusive rights to the (dolo incidente), inducement to the making
franchise. However, this kind of fraud was of the contract.
only dolo incidente, or incidental fraud.
Woodhouse’s acts of pretending that he Geraldez v. CA: Causal fraud (dolo
had exclusive rights to the franchise and causante), referred to in Article 1338, are
the promise of transferring it to Halili those deceptions or misrepresentations of
caused the latter to give the former 30% a serious character employed by one party
share in the net profits. This is only and without which the other party would
incidental fraud as it only vitiated Halili’s not have entered into the contract. Dolo
consent to the 30% share of the profits, incidente, or incidental fraud, which is
and not the entirety of the agreement itself. referred to in Article 1344, are those which
Such being incidental fraud, Halili may only are not serious in character and without
be entitled to damages but not annulment which the other party would still have
(which is reserved for causal fraud). entered into the contract.

Geraldez v. CA Dolo causante determines or is the

Kenstar Travel Corp were advertising a essential cause of the consent, while dolo
European Tour which Geraldez saw, and incidente refers only to some particular or
availed of. The tour was advertised to accident of the obligation.
include a European tour manager, first-

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 Effect Contractual negligence (culpa contractual)
is negligence in the performance of a
The effects of dolo causante are the nullity preexisting contractual obligation resulting
of the contract and the indemnification of in breach of the obligation; breach of
damages, and dolo incidente also obliges contract for reasons that the debtor could
the person employing it to pay damages. and should have foreseen. Extra-
contractual negligence (culpa aquiliana), on
2.! Negligence the other hand, is failure to observe the
care required by law with respect to other
Art. 1172. Responsibility arising from persons who were not connected or bound
negligence in the performance of every by contract with the actor.
kind of obligation is also demandable,
but such liability may be regulated by Gutierrez v. Gutierrez
the courts, according to the A bus and a car collided while attempting
circumstances. to pass each other on a bridge. The
collision between the bus and the
automobile resulted in one of the
Art. 1173. The fault or negligence of the passengers suffering a fractured leg which
obligor consists in the omission of that required medical attendance for a
diligence which is required by the nature considerable period of time. Was the
of the obligation and corresponds with accident due to negligence? The Court
the circumstances of the persons, of the ruled that the car driver, 18 at the time, was
time and of the place. When negligence an incompetent driver for driving at an
shows bad faith, the provisions of excessive speed. Since the car he was
articles 1171 and 2201, paragraph 2, driving was owned by his parents, the
shall apply. father was made responsible for the acts of
his minor son. The Court held that this rule
If the law or contract does not state the came from US common-law where the
diligence which is to be observed in the head of a house, the owner of a car who
performance, that which is expected of a maintains it for the general use of the family
good father of a family shall be required. is liable for its negligent operation by one of
the children. The liability of the owner of the
Malice (dolo) is awareness that one’s bus on the other hand came from a
conduct is improper and violates the rights contract.
of others and persistence in such conduct.
Negligence (culpa) is failure to observe the Vasquez v. Borja
care/diligence that the law requires to be Vasquez as manager of NVSD Co. entered
observed in a given situation. In dolo, the into a contract to deliver cavans of palay to
part answers for all damages, whereas in Borja. They delivered some cavans of
culpa, the party only answers for damages palay, but eventually refused to deliver the
foreseeable when the obligation arose. rest despite repeated demands. As a result,
Liability for future fraud cannot be waived, Borja suffered losses, for which he sued
whereas future negligence may be, unless Vasquez for the payment of damages. Can
public policy prohibits. Dolo is never Vasquez be held guilty of negligence and
presumed, but culpa is presumed in breach be personally liable? The Court held that
of contract. Negligence may be so gross as Vasquez entered into the contract as
to show bad faith or malice. manager and president of the company and
as such, it is actually the company which
must be made liable. The company’s

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negligence in the non-fulfillment of the a failure to carry out his duty to satisfy
contract cannot make Vasquez liable. If himself that the track before his car was
independently of the contract, Vasquez by clear, something that he had no right to
his fault or negligence caused damage to assume. The incident occurred along a
the plaintiff, he would be liable to the latter public street in a densely populated section
under article 1902 of the Civil Code based of the city, at 6am when people begin to
on culpa aquiliana. move about. Under these conditions he
was bound to exercise a high degree of
Standard of Care Required diligence in the performance of his duties.
In fact, he would have seen the child by the
De Guia v. Manila Electric Co. exercise of ordinary diligence. The diligence
Manuel de Guia was involved in a train required of passenger carriers applies to
accident when the train he was riding in got street railway companies as well:
derailed because of a large rock lodged in extraordinary care and diligence (Art. 1756,
the switch where the train was supposed to NCC). The court held that this requirement
turn. Evidence showed that the motorman applies with equal force to the duty of
did not actually slow down as he was avoiding the infliction of injuries upon
supposed to whenever the train is to switch pedestrians and others who cross the
tracks. Is the company liable for the injuries streets upon which the cars of these
that de Guia sustained due to the companies run.
negligence of the motorman? The Court
said that the relation between de Guia and Sarmiento v. Sps. Cabrido
Manila Electric Co. was contractual in A goldsmith was asked to dismount a
nature, and the duty of the carrier is to be diamond from a setting, and upon using a
determined with reference to the principles pair of pliers, he broke the gem. The
of contract law. As per this contract, the customer asked the jewelry shop owners to
company is supposed to convey and replace the diamond that the goldsmith
deliver de Guia safely and securely with broke, or to pay for its replacement; but
reference to the degree of care under the they refused claiming that the goldsmith
circumstances, as required by law and was not their employee and they had no
custom. The contractual relation present transaction with the customer to begin with.
therefore makes the good father of a family It was later on established that the
diligence not applicable. goldsmith was in fact an employee. Is the
goldsmith guilty of negligence and what
US v. Barias standard of diligence should apply in this
A motorman of a streetcar stopped to take case? The Court ruled that the goldsmith
on some passengers. The motorman had 40 years of experience working in his
looked backward to check whether all the profession and should have known better
passengers were aboard, and then he than to use pliers in dismounting the
started his car. He failed to see a child diamond. The Court held that the fault or
walking across the tracks and he ran over negligence of the goldsmith consists in the
her as a result. He is convicted in the trial omission of that diligence which is required
court for homicide resulting from reckless by the nature of the obligation and
negligence, a sentence from which he corresponds with the circumstances of the
appeals. In an appeal to the Supreme persons, of the time and of the place.
Court, the Court ruled that wherever he was
looking, it was clear that he started his car Crisostomo v. CA
from a standstill without looking over the In the case of Crisostomo v. CA,
track immediately in front of the car. This is Crisostomo booked a flight with a travel

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agency. The travel agent told her that her Sarmiento v. Sps. Cabrido: Fault or
flight was on Saturday. Without checking negligence of the obligor consists in the
her travel documents, she went to the omission of that diligence which is required
airport on Saturday, June 15th. However, by the nature of the obligation and
her flight was actually on Friday, June 14th, corresponds with the circumstances of
NOT June 15th. The date of the actual flight persons, time, and place.
was clearly and legibly printed on the ticket.
Did the travel agency observe the proper Crisostomo v. CA: Did the obligor in doing
standard of care? The Court ruled that they the alleged negligent act use that
did. reasonable care and caution which an
ordinarily prudent person would have used
Since the contract between the parties is in the same situation?
an ordinary one for services, the standard
of care required of respondent is that of a Effect
good father of a family under Article 1173 of
the Civil Code. The evidence shows that General Rule: Negligence renders the
respondent exercised due diligence in obligor liable for damages foreseeable
performing its obligations under the when the obligation arose.
contract and followed standard procedure Exceptions to the Rule:
in rendering its services to petitioner. As 1.! Stipulation of Waiver for Future
correctly observed by the lower court, the Negligence
plane ticket issued to petitioner clearly 2.! Fortuitous Event
reflected the departure date and time, a.! Exception to the
contrary to petitioner's contention. The Exception:
travel documents, consisting of the tour •! Expressly specified by
itinerary, vouchers and instructions, were law
likewise delivered to petitioner two days •! Express stipulation of
prior to the trip. Respondent also properly Waiver of Fortuitous
booked petitioner for the tour, prepared the Event as a Defense
necessary documents and procured the •! Nature of obligation
plane tickets. It arranged petitioner’s hotel requires assumption of
accommodation as well as food, land risk
transfers and sightseeing excursions, in •! Guilty of fraud
accordance with its avowed undertaking. •! Already in delay
•! Guilty of concurrent
De Guia v. MERALCO: The bonus pater negligence
familia defense is only always available to •! Liability arises from a
extra-contractual negligence. If the contract criminal act, unless the
states the degree of diligence, the party debtor tenders the thing
cannot avail of the excuse. and the creditor refuses
to accept it without
US v. Barias: Negligence is the failure to justification
observe, for the protection of the interests
of another person, that degree of care, 3.! Delay
precaution and vigilance which the
circumstances justly demand, whereby
such other person suffers injury.

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 Art. 1169. Those obliged to deliver or to Corp. Eventually, the collector stopped
do something incur in delay from the coming to the premises which caused the
time the obligee judicially or lessees’ failure to pay their rent. Cetus then
extrajudicially demands from them the demanded the lessees to vacate the
fulfillment of their obligation. premises and to pay their balance. The
lessees paid their balance, which Cetus
accepted on the condition that the payment
Mora or delay is failure to perform the was without prejudice to the filing of an
obligation in due time (fixed by the parties ejectment suit. The lessees failed to vacate
impliedly or expressly or by the Courts), the premises as demanded and Cetus filed
because of dolo (malice) or culpa an ejectment suit against them. The Court
(negligence). Mora does not excuse ruled here that there could be no delay on
performance when the cause ceases unless the payment of the lessees. It was
in the meantime the obligation has lost its customary for them to pay their rentals
value. through a collector sent by the lessor,
evidenced by their arrangement with their
Mora of the Debtor (Mora Solvendi) previous lessor. When Cetus demanded
payment, they immediately complied. Art.
Requisites: 1169 of the Civil Code provides that those
1.! That the obligation requires a obliged to deliver or to do something incur
positive act or prestation of the in delay from the time the obligee judicially
debtor or extrajudicially demands from them the
2.! That the obligation should be fulfillment of their obligation.
demandable, due, and liquidated.
3.! That the debtor should delay Aerospace Chemical Industries v. CA
performance by fraud or negligence Aerospace Industries, Inc. purchased
4.! That the creditor should demand sulfuric acid from Philippine Phosphate
performance of the debtor, whether Fertilizer Corporation (PPFC for brevity).
the demand be judicial or extra- The shipment got delayed because the ship
judicial, but demand is not tilted from the weight of the cargo. PPFC
necessary: asked Aerospace to withdraw the sulfuric
a.! When the obligation or the acid purchased at the Negros Oriental
law so declares Storage tank because they were incurring a
b.! When from the nature and loss each day in delay in the shipment.
circumstance of the Aerospace then demanded the delivery of
obligation it can be inferred the remaining sulfuric acid. They filed a
that time is of the essence complaint for specific performance and/or
c.! When the demand would be damages. The Court held that where there
useless has been breach of contract by the buyer,
the seller has a right of action for damages.
In reciprocal obligations, delay begins only A cause of action of the seller for damages
from the moment the other party fulfills may arise where the buyer refuses to
his/her obligation in a proper manner. remove the goods such that they buyer has
to remove them. The demand to lift the said
Cetus Development Corp. v. CA goods from Basay was established
The lessees of a certain property paid their December 15, 1986. Due to the delay, the
rental fees to a collector of the lessor who private respondents had to extend their
went to the premises regularly. The lessors lease until August 31, 1987. Therefore,
sold the property to Cetus Development petitioners should reimburse private

15
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respondents rental expenses monthly from late. Should the option to purchase be
December 15, 1986 to August 31, 1987. cancelled for such delay? The Court held
that the option to purchase should be
Sps. Vasquez v. Ayala Corp cancelled because time was considered an
Spouses Vasquez and Ayala Corp. entered essential element of the contract since
into a MOA for the latter to acquire all of the Francisco has to pay his arrears due in Dec.
former’s shares in Conduit Development that year.
Inc, where in Ayala was to develop the area
within three years. The Vazquez spouses De la Cruz v. Legaspi
sent “reminder” letters of the approaching De la Cruz bought a parcel of land from
expiration of the 3-year period for Ayala to Legaspi and his wife for a certain price.
sell the lots but there was no demand from Legaspi failed to deliver the parcel of land
them after. Ayala finished the development which prompted de la Cruz to file a
in 1990 and offered the current (1990) complaint to compel its delivery. He
market price to the Vazquez spouses. They claimed that Legaspi and his wife refused
declined the offer and insisted on the 1984 to accept the payment of the purchase
price. The issue in this case was whether or price they agreed upon. Legaspi argued
not there was a default or delay in the that before the sale was made, de la Cruz
fulfillment of the obligation as set out in the agreed to pay right after the document is
MOA. The Court held that there was no executed but had not done so. As such,
delay in this case and gave 3 requisites lack of consideration and fraud are valid
in order for a debtor to be in default due grounds to annul the contract. The Court
to delay: 1. That the obligation may be held here that in the sale of real property,
demandable and already liquidated; 2. even though it may have been stipulated
That the debtor delays performance; 3. that in default of the price within the time
That the creditor demands the agreed upon, the resolution of the contract
performance judicially or extrajudicially. shall take place ipso facto, the vendee may
The spouses only sent “reminder” letters, pay even after the expiration of the
and not actually demands for the period, at any time before demand has
performance of the obligation. been made upon him either by suit or by
notarial act. After such demand has been
Exceptions made the judge cannot grant him further
time.
Abella v. Francisco
Francisco and Abella entered into an option Effects
to purchase, which as held by the lower
court is not a contract of sale, property In an obligation to give and to do, the
which Francisco owns. Francisco is still not debtor must indemnify the creditor for
fully paid and is actually in arrears. The damages due to delay. Further, in
initial contract provides that payment of the obligations to give, the debtor must answer
balance (with P500 downpayment) should for loss or deterioration of the thing due,
be on Dec. 15, extendable for 15 days even if due to fortuitous event, unless
(hence Dec. 30). On Dec. 27, Francisco he/she proves that the loss would have
authorized his agent to sign the happened anyway, even if no delay had
conveyance of the lots to Abella upon been incurred.
payment of the balance, but if he can’t pay,
then the option will be considered
cancelled. Abella was not able to pay on
time and tendered the payment a few days

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Mora of the Creditor (Mora Accipiendi) party to fulfill its commitment(s) at any time
gives rise to a failure of consideration for
Requisites: the obligations of the other party, and
A.! That the obligation should require an excuses the latter from correlative
act of cooperation of the creditor for its performance.
fulfillment
B.! The debtor has done all that is Effects
incumbent upon him and made tender
performance or payment It brings about compensatio morae, where
C.! The creditor refuses to accept payment it excludes mora of the debtor and destroys
or fails to carry out his part the effects of the latter. It transfers the risk
of accidental loss or deterioration to the
Art. 1268. When the debt of a thing creditor. The debtor’s obligation to perform
certain and determinate proceeds from a is not extinguished unless he/she makes
criminal offense, the debtor shall not be consignation. The creditor’s mora is not
exempted from the payment of its price, payment.
whatever may be the cause for the loss,
unless the thing having been offered by Central Bank v. CA
him to the person who should receive it, Tolentino contracted a loan from a bank,
the latter refused without justification to mortgaging 100 hectares of his land as
accept it. collateral. The bank released a portion of
the loan and Tolentino signed a promissory
note to pay that part of the loan in 3 years
Vda. de Villaruel v. Manila Motor Co. at 12% interest. Eventually, the bank
Villaruel leased a property in favor of Manila became insolvent and was prohibited by
Motor Co. The lessee was dispossessed of the monetary board of the central bank
the property however as the premises were from conducting business in the
occupied by Japanese military from 1942- Philippines. The bank filed an extrajudicial
1945. After the war, Villaruel demanded foreclosure of Tolentino’s land in view of his
payment from the lessee company for the inability to settle his loan. Tolentino on the
period the Japanese military occupied the other hand filed a petition with the court for
land. The lessee refused to pay. No tender specific performance or rescission and
was made until November 1946 and damages with preliminary injunction in view
subsequently, the property was destroyed of the bank’s inability to release the
by fire. The Court ruled here that the remaining funds from the original loan.
dispossession of lessee during Japanese Here, the Court held that Tolentino was not
occupation exempted it from obligation to able to pay the partial loan making him a
pay lease. Thus, by improperly refusing to party in default, not entitled to rescission as
accept the tenders of rentals, Villaruel per Art. 1191 of the Civil Code. Both parties
incurred default (mora) and must shoulder being unable to perform their reciprocal
the accidental loss of the premises. obligations, both are entitled to damages.
However, Article 1192 of the Civil Code
Vda de. Villaruel v. Manila Motor Co.: A provides that in case both parties have
lease being a contract that calls for committed a breach of their reciprocal
prestations that are both reciprocal and obligations, the liability of the first infractor
repetitive, the obligations of either party are shall be equitably tempered by the courts.
not discharged at any given moment, but The Court ruled that the liability of the bank
must be fulfilled all throughout the term of for damages is offset by the liability of
the contract. Any substantial failure by one

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Tolentino for damages, for not paying his company did not do its obligation despite
overdue partial loan debt. the fulfillment of the daughter’s obligation
to pay them for the fee agreed upon. The
D.! Contravention of the Tenor company is therefore guilty of contravening
the tenor of their obligation and is thus
Chavez v. Gonzales liable for damages.
Chave brought his typewriter to Gonzales
for repair. The latter did not do his job for a Victoriano Magat v. Medialdea
span of time and only kept on buying time. Guerrero wanted to secure a contract with
Chaves got impatient and asked to get the the US Navy to operate taxis in the area.
typewriter back. He received it in His agent, Aligada researched and made an
“shambles” with some pieces missing. He arrangement with Magat in importing the
got it repaired at the cost of P58.75. The required taximeter and radio receiver from
issue here is whether Gonzales should be the latter’s Japanese business contacts.
liable for damages. The Court held that Magat agreed with the offer and ordered
Chavez should be entitled to damages said equipment. Guerrero did not pay
because there was an obligation on the part Magat so the latter did not release the
of Gonzales to repair the typewriter. It was equipment. The US Navy reprimanded
clear that Gonzales contravened the tenor Guerrero for not having the required
of his obligation because he not only did fail equipment so he blamed Magat for the
repair the typewriter but he returned it “in delay in delivery of the equipment, in turn
shambles.” For such contravention, he is ruining Magat’s reputation. It turns out that
liable under Article 1167 of the Civil Code Guerrero only used Magat to get the deal
for the cost of executing the obligation in a with US Navy. Did Guerrero contravene the
proper manner. The cost of the execution tenor of his obligation? The Court held that
of the obligation in this case should be the he did in fact act in bad faith and is thus
cost of the labor or service expended in. entitled to damages. The phrase "in any
manner contravene the tenor" of the
Telefast v. Castro obligation includes any illicit act or omission
A daughter announced the death of her which impairs the strict and faithful
mother to her father who was living the US, fulfillment of the obligation and every kind
through telegram. The telegram was of defective performance.
accepted by telegram company after the
payment of fees but the father never Remedies of the Creditor in case of Breach
received the telegram. This caused him to
miss the funeral of the mother and the other A.! Action for Performance
children who were all residing in the US.
Upon returning to the US, the daughter 1.! Action for Specific Performance in
discovered that the telegram was never obligations to give a specific thing
received by her father. The telegram
company claims that it was impossible to Art. 1165. When what is to be delivered
send the telegram because of technical and is a determinate thing, the creditor, in
atmospheric factors beyond its control. Is addition to the right granted him by
the telegram company liable for damages? article 1170, may compel the debtor to
The Court ruled that they are liable for make the delivery. x x x
moral damages, for contravening the tenor
of their obligation. The daughter entered
into a contract with the company for a fee
to send the message by telegram. The

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 Rule 39 (Execution, Satisfaction, and (c) Delivery or restitution of real
Effect of Judgments) property.—The officer shall demand of
the person against whom the judgment
SEC. 10. Execution of judgments for for the delivery or restitution of real
specific act.— property is rendered and all persons
(a) Conveyance, delivery of deeds, or claiming rights under him to peaceably
other specific acts; vesting title.— If a vacate the property within three (3)
judgment directs a party to execute a working days, and restore possession
conveyance of land or personal thereof to the judgment obligee;
property, or to deliver deeds or other otherwise, the officer shall oust all such
documents, or to perform any other persons therefrom with the assistance, if
specific act in connection therewith, and necessary, of appropriate peace officers,
the party fails to comply within the time and employing such means as may be
specified, the court may direct the act to reasonably necessary to retake
be done at the cost of the disobedient possession, and place the judgment
party by some other person appointed obligee in possession of such property.
by the court and the act when so done Any costs, damages, rents or profits
shall have like effect as if done by the awarded by the judgment shall be
party. If real or personal property is satisfied in the same manner as a
situated within the Philippines, the court judgment for money.
in lieu of directing a conveyance thereof (d) Removal of improvements on
may by an order divest the title of any property subject of execution.—When
party and vest it in others, which shall the property subject of the execution
have the force and effect of a contains improvements constructed or
conveyance executed in due form of planted by the judgment obligor or his
law. agent, the officer shall not destroy,
(b) Sale of real or personal property.—If demolish or remove said improvements
the judgment be for the sale of real or except upon special order of the court,
personal property, to sell such property, issued upon motion of the judgment
describing it, and apply the proceeds in obligee after due hearing and after the
conformity with the judgment. former has failed to remove the same
within a reasonable time fixed by the
court.
(e) Delivery of personal property.—In
judgments for the delivery of personal
property, the officer shall take
possession of the same and forthwith
deliver it to the party entitled thereto and
satisfy any judgment for money as
therein provided.

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 2.! Action for Substituted Performance (fortuitous events) cannot be granted as
in obligations to give a generic thing there was no evidence that a typhoon
caused the collapse of the windmill. The
Art. 1165. x x x presumption that “things have happened
according to the ordinary course of nature”
If the thing is indeterminate or generic, should be rebutted in order to claim
he may ask that the obligation be fortuitous events.
complied with at the expense of the
debtor. x x x Chavez v. Gonzales: If a person did the job
poorly, the proper execution will be done at
his cost.
3.! Action for Substituted Performance
or Undoing of Poor Work in
Tanguilig v. CA: It is incumbent upon the
obligations to do
debtor to institute the proper repairs if the
defect in it could only be attributable to the
Art. 1167. If a person obliged to do appellee.
something fails to do it, the same shall
be executed at his cost. Exception: The personal qualities of the
debtor were the principal consideration for
This same rule shall be observed if he creating the obligation.
does it in contravention of the tenor of
the obligation. Furthermore, it may be 4.! Action for Undoing
decreed that what has been poorly done
be undone.
Art. 1168. When the obligation consists
in not doing, and the obligor does what
Tanguiling v. CA has been forbidden him, it shall also be
Tanguiling constructed a windmill system undone at his expense.
for private respondent which fell due to
strong winds. The private respondent did
not pay the full cost claiming that the Exception: Fortuitous event, forcing the
balance was used to pay a third party to debtor against his will to violate the terms
construct a deep well pump that he insisted B.! Action for Damages
was part of the windmill system agreed
upon. The Court held that it was not part of Art. 1170. Those who in the performance
that windmill system and ordered private of their obligations are guilty of fraud,
respondent to pay the balance and the negligence, or delay, and those who in
petitioner to reconstruct the windmill. The any manner contravene the tenor
perfected contract between the parties is thereof, are liable for damages.
the construction of a windmill by Tanguiling
for a fee to be paid by the private
respondent. C.! Action for Rescission

When the windmill failed to function

petitioner was under obligation to repair it
per his one-year guarantee. By operation of
Art 1167, a person obliged to do something
but fails to do it shall be liable for the costs
of its execution. Petitioner cannot claim
exemption from liability under Article 1174

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 Art. 1191. The power to rescind Subrogatory action is premised on the
obligations is implied in reciprocal ones, theory that the debtor of my debtor is my
in case one of the obligors should not debtor.
comply with what is incumbent upon
him. Requisites
1.! Creditor has a right of credit against
The injured party may choose between the debtor
the fulfillment and the rescission of the 2.! Credit is due and demandable
obligation, with the payment of damages 3.! Failure of debtor to collect his own
in either case. He may also seek credit from a third person either
rescission, even after he has chosen through malice or negligence.
fulfillment, if the latter should become 4.! Insufficiency of assets of the debtor
impossible. to satisfy the creditor’s credit
5.! Right is not intuitu personae
The court shall decree the rescission
claimed, unless there be just cause Exception to the Rule:
authorizing the fixing of a period.
Art. 772. Only those who at the time of
This is understood to be without the donor's death have a right to the
prejudice to the rights of third persons legitime and their heirs and successors
who have acquired the thing, in in interest may ask for the reduction or
accordance with articles 1385 and 1388 inofficious donations.
and the Mortgage Law.
Those referred to in the preceding
Article 1192. In case both parties have paragraph cannot renounce their right
committed a breach of the obligation, during the lifetime of the donor, either by
the liability of the first infractor shall be express declaration, or by consenting to
equitably tempered by the courts. If it the donation.
cannot be determined which of the
parties first violated the contract, the The donees, devisees and legatees, who
same shall be deemed extinguished, and are not entitled to the legitime and the
each shall bear his own damages. creditors of the deceased can neither
ask for the reduction nor avail
themselves thereof.
Subsidiary Remedies of the Creditor

A.! Accion Subrogatoria

Article 1177. The creditors, after having

pursued the property in possession of
the debtor to satisfy their claims, may
exercise all the rights and bring all the
actions of the latter for the same
purpose, save those which are inherent
in his person; they may also impugn the
acts which the debtor may have done to
defraud them.

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!
B.! Accion Pauliana pending, Cheng executed Deeds of
Donation of parcels of land in favor of his
Art. 1177. The creditors, after having children. Despite earnest efforts, the sheriff
pursued the property in possession of could not find any property under Butuan
the debtor to satisfy their claims, may Shipping Lines or Felix Khe to levy for the
exercise all the rights and bring all the satisfaction of the court’s decision. The
actions of the latter for the same contract perfected between the parties is
purpose, save those which are inherent the shipping of copra owned by PATC for a
in his person; they may also impugn the fee by Cheng’s company.
acts which the debtor may have done to
defraud them. Accion Pauliana is a subsidiary action
which means it cannot be instituted unless
Art. 1381. The following contracts are the party suffering damages has exhausted
rescissible: all legal means to obtain compensation.
Since Cheng failed to deliver his obligation
xxx and even executed deeds of donation to
defraud his creditor PATC, PATC can also
(3) Those undertaken in fraud of impugn the acts which the debtor Cheng
creditors when the latter cannot in any may have done to defraud them. This
other manner collect the claims due stems from Article 1177 which states:
them; x x x The creditors, after having pursued
the property in possession of the
debtor to satisfy their claims, may
The right of creditors to rescind alienations exercise all the rights and bring all the
by debtor which are prejudicial to them to actions of the latter for the same
the extent of the prejudice. purpose, save those which are
inherent in his person; they may also
Requisites impugn the acts which the debtor
1.! There is a credit in favor of the may have done to defraud them.
plaintiff
2.! Debtor has performed an act Siguan v. Lim
subsequent to the contract, giving Siguan filed a case of BP 22 against Lim
advantage to other persons and the trial court convicted her as
3.! The creditor is prejudiced by the charged. A year after, Lim executed a deed
debtors act which are in favor of of donation of parcels of land in favor of her
third parties and rescission will children. Around 2 years after, Siguan files
benefit the creditor an accion pauliana against Lim and her
4.! The creditor has no other legal children to rescind the deed of donation.
remedy Siguan claims that the donation was done
5.! The debtor’s acts are fraudulent. in fraud and left Lim with no sufficient
property to pay her debts. Lim’s
Khe Hong Cheng v. CA indebtedness was incurred in 1990. The
M/V Prince Eric owned by Cheng sank, court dismissed Siguan’s accion pauliana
together with its shipment of copra owned on the basis of: (1) questioned deed of
by Philippine Agricultural Trading Center donation was not proven to be antedated
(PATC) and insured by the marine insurance and (12) assuming it was antedated, said
policy issued by American Home Insurance action will still not prosper due to lack of
Company. American Home filed a civil case proof that Lim no longer has sufficient
against Cheng. While the case was property to cover her debts - evidence

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states that she still has a handful of Direct action by the creditor against his
properties. The perfected contract is debtor’s debtor, a remedy which give the
between Siguan and Lim, with Lim not creditor the prerogative to act in his own
being able to uphold her end of the bargain name. This is an exception to the relativity
and thus Siguan is trying to recover. of contracts.

Accion Pauliana shall not prosper when Extinguishment of Liability

there is still sufficient property for the in Case of Breach Due to Force Majeure
obligor to recover from. Rescission
requires the existence of creditors at the An act of God has been defined as an
time of the alleged fraudulent transaction accident, due directly and exclusively to
and must be proved as one of the bases of natural causes without human intervention,
judicial pronouncement setting aside a which by no amount of foresight, pains or
contract. care, reasonably to have been expected,
could have been prevented. (Nakpil & Sons)
C.! Accion Directa Requisites
1.! Event independent of the human will
Art. 1652. The sublessee is subsidiarily (or at the very least, of the will of the
liable to the lessor for any rent due from debtor)
the lessee. However, the sublessee shall 2.! Event must be unforeseeable, or, if
not be responsible beyond the amount foreseeable, is unavoidable.
of rent due from him, in accordance with 3.! The occurrence must render it
the terms of the sublease, at the time of impossible for the debtor to fulfill
the extra-judicial demand by the lessor. the obligation in a normal manner
4.! The debtor must be free of
Art. 1729. Those who put their labor participation in the aggravation of
upon or furnish materials for a piece of the injury to the creditor
work undertaken by the contractor have
an action against the owner up to the Effect of Concurrent Fault
amount owing from the latter to the
contractor at the time the claim is made. Juan Nakpil & Sons v. CA
The Philippine Bar Association (PBA)
Art. 1608. The vendor may bring his decided to construct an office building on
action against every possessor whose its property in Manlia. Said construction
right is derived from the vendee, even if was undertaken by United Construction
in the second contract no mention Inc. (UCI) with Juan Nakpil and Sons as the
should have been made of the right to architect. 2 years after the building was
repurchase, without prejudice to the completed, a 7.3 magnitude earthquake hit
provisions of the Mortgage Law and the and the building sustained major damage.
Land Registration Law with respect to PBA filed a suit against UCI for damages.
third persons. UCI claims force majeure to escape liability.
Based on the evidence, UCI was negligent
Article 1893. x x x [T]he principal may in creating the designs for the building
furthermore bring an action against the which led to its inevitable ruin (it was the
substitute with respect to the obligations only building with extensive damage in the
which the latter has contracted under area/ street). The Court held that force
the substitution. majeure does not exempt liability of parties
who are otherwise liable because of
negligence. The perfected contract

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between the parties is for UCI to construct of them and brought the same to Dioquino.
a building for PBA and be responsible for The boy’s father was called but no
any defect incurred during the warranty arrangements made about the damage.
period. Dioquino tried to convince Laureano to pay
for the damage but the latter refused.
Force majeure cannot be invoked by a Dioquino filed an action for damages
party who has committed negligence prior against Laureano, his wife and his father.
to damage done by an act of god. The Court ruled that the situation falls under
Article 1174. No one could have foreseen
Republic v. Luzon Stevedoring Co. what happened. Case is dismissed.
A barge owned by Luzon Stevedoring Co.
(LSC) being towed by its two tugboats It is not enough that the event should not
rammed against one of the wooden piles of have been foreseen or anticipated, as is
Nagtahan bridge, smashing the posts and commonly believed, but it must be one
causing the bridge to list. The river at that impossible to foresee or to avoid in order
time was swollen due to the heavy rains in that a party may be said to have assumed
the preceding days. LSC denied liability the risk resulting from the nature of the
claiming that it exercised due diligence in obligation itself.
supervising and selecting its employees
(Article 2180) and that the damage was Austria v. CA
caused by force majeure (fast currents etc.) Abad received from Austria a pendant with
The Court ruled that the cause of damage diamonds valued at Php 4,500.00 to be
was not force majeure but the negligence of sold on commission basis or returned upon
LSC - the company knew the rains in the demand. Abad was said to have been
previous days and had ample time to accosted by 2 men on her way home, one
prepare but failed to do so. This is a quasi- hit her on her face, the other snatched the
delict committed by Luzon Stevedoring Co. purse (with the pendant inside). Austria
brought an action against Abad for not
Events considered force majeure are being able to return the pendant. Austria
“events not foreseeable or avoidable”. The opines that the robbery should first be
mere difficulty to foresee the happening is proved by final judgement before Abad can
not impossibility to foresee the same. Thus, be relieved of liability. The Court ruled in
there is no force majeure when the party favor of Abad as it is not necessary that
makes preparations for any untoward there be criminal conviction to relieve the
incidents. Inadequate preparation for obligor from liability moreover, the robbery
untoward incidents does not entitle the happened in 1961 - when crime incidence
party to deny liability due to force majeure. was low - thus no negligence on Abad’s
part. The perfected contract is between
Dioquino v. Laureano Abad and Austria wherein Abad shall sell a
Atty. Dioquino went to an office to register diamond pendant on commission basis or
his car where he met Laureano, a patrol return it to Austria if unsuccessful.
officer, who was about to leave to go to the
Provincial Commander’s Office. Dioquino To avail of the exemption in Art. 1174, it is
asked Laureano for a favor and in return not necessary that the persons responsible
provided his car and a driver to bring for the occurrence should be found or
Laureano to the Provincial Commander’s punished; it would only be sufficient to
Office. On their way, the car was stoned by establish that the unforeseeable event
some boys and its windshield got (robbery) did take place w/o any concurrent
damaged. Laureano managed to catch one

24
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fault on the debtor’s part, and this can be aggravation of the injury resulting to the
done by preponderant evidence. creditor

NPC v. CA The exploding of the tire is not a fortuitous

Engineering Construction Inc. (ECI) being event as there are human factors involved.
the winning bidder, entered into a contract The fact of the brand name of the tire and
with NAWASA to excavate a tunnel which that It is new is not enough to conclude that
incidentally passed through Ipo Dam it could not explode within five days' use.
[controlled by the National Power Be that as it may, it is settled that an
Corporation (NPC)]. When Typhoon accident caused either by defects in the
“Welming” hit Central Luzon, Ipo Dam’s automobile or through the negligence of its
gates were opened to prevent an overflow driver is not a caso foruitio that would
of water from the dam. The perfected exempt the carrier from liability of
contract is between ECI and NAWASA damages.
wherein ECI shall furnish all the tools, labor,
equipment, and materials (not furnished by Bacolod-Marcia Milling v. CA
the owner) and construct the proposed Bacolod-Marcia Milling Co. (BMMC) is
tunnel and structures. owner and operator of the sugar central in
Bacolod. The company constructed tracks
If upon the happening of a fortuitous event, to transport through cane cars their canes.
or an act of God, there concurs a BMMC maintained right of way over the
corresponding fraud, negligence, delay or lands where the tracks pass through by
violation or contravention in any manner of way of miling contracts. The contract of the
the tenor of the obligation as provided for in owners of Hacienda Helvetia’s expired (and
Article 1170 of the CC, which results in thus the ROW too). BMMC won a case
loss or damage, the obligor cannot escape which allowed them to use the Helvetia
liability. portion to continue transporting canes but
only for a year. Gatuslao (some miller) filed
Yobido v. CA a case against BMMC because they failed
A Yobido Liner bus’ tire exploded and thus to maintain their end of the bargain of
fell into a ravine. The accident caused the providing transportation facilities to
death of one passenger and injured several. transport his canes to his loading stations.
The Court ruled that BMMC is in breach of
The perfected contract is between the its conditions of contract with Gatuslao,
passengers and the Yobido Liner (contract and cannot claim force majeure. The
of carriage). perfected contract is between BMMC and
Gatuslao, with BMMC failing to provide its
The cause of the unforeseen and end of the bargain. The contract involves
unexpected occurrence, or the failure of the reciprocal obligations.
debtor to comply with its obligations, must
be independent of human will. It must be BMMC claims that the ROW over the
impossible to foresee the even which Hacienda Helvetia is a fortuitous event
constitutes the caso fortuito, or if it can be which will exempt BMMC from fulfilling its
foreseen, it must be impossible to avoid. obligation. The Court says that this claim is
The occurrence must be such as to render wrong - BMMC took a calculated risk that
it impossible for the debtor to fulfill his all land owners renew their contracts. It is
obligation in a normal manner. The obligor unfortunate that Angela Estate (part of
must be free from any participation in the Helvetia’s land) did not renew and is at the
entrance of the mill paralyzing the whole

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system. Angela estate was not negligent in Extinguishment of Liability
notifying BMMC of its plan not to renew the
contract. Art. 1174. Except in cases expressly
specified by the law, or when it is
Events considered force majeure are otherwise declared by stipulation, or
“events not foreseeable or avoidable”. The when the nature of the obligation
mere difficulty to foresee the happening is requires the assumption of risk, no
not impossibility to foresee the same. person shall be responsible for those
events which could not be foreseen, or
Philcomsat v. Globe Telecom which, though foreseen, were inevitable.
Philcomsat and Globe entered into an
Agreement wherein Philcomsat shall
establish, operate and provide an earth General Exceptions:
station within Cubi point for exclusive use 1.! When the law so provides
of the US Defense Communications Agency 2.! When there is express stipulation
(USDCA). In turn, Globe promised to pay 3.! When the nature of the obligation
Philcomsat monthly rentals for each circuit. requires the assumption of risk
Both parties knew that the Military Bases 4.! When the debtor is guilty of malice or
Agreement (MBA) between the Philippines fraud
and the US was to expire. After the 5.! When the debtor is guilty of concurrent
termination of the MBA, Globe notified negligence or fault in producing the loss
Philcomsat that it will discontinue the use of or breach
the earth station. Philcomsat demanded 6.! When the liability arises from a criminal
that Globe pay first its rentals for the act; unless the debtor tenders the thing
remaining period of agreement. Globe and the creditor refuses to accept it
insists that it was constrained to end the without justification.
contract due to force majeure. The Court
ruled that the event was indeed force Art. 1165. x x x If the obligor delays, or
majeure - “or if foreseen, impossible to has promised to deliver the same thing
avoid.” The perfected contract is between to two or more persons who do not have
Philcomsat and Globe, with the latter the same interest, he shall be
providing the earth station and Globe responsible for any fortuitous event until
paying lease payments. he has effected the delivery.

Requisites that must concur in order for Art. 552. A possessor in good faith shall
Globe to be exempt from non-compliance: not be liable for the deterioration or loss
(1) the event must be independent of the of the thing possessed, except in cases
human will; (2) the occurrence must render in which it is proved that he has acted
it impossible for the debtor to fulfill the with fraudulent intent or negligence, after
obligation in a normal manner; and (3) the the judicial summons.
obligor must be free from participation in, A possessor in bad faith shall be liable
or aggravation of, the injury to the creditor. for deterioration or loss in every case,
The aforementioned requisites are present even if caused by a fortuitous event.
in the instant case.
Art. 2001. The act of a thief or robber,
who has entered the hotel is not deemed
force majeure, unless it is done with the
use of arms or through an irresistible
force.

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 Art. 1942. The bailee is liable for the loss Usurious Transactions
of the thing, even if it should be through
a fortuitous event: Art. 1175. Usurious transactions shall be
(1) If he devotes the thing to any purpose governed by special laws.
different from that for which it has been
loaned; Art. 1413. Interest paid in excess of the
(2) If he keeps it longer than the period interest allowed by the usury laws may
stipulated, or after the accomplishment be recovered by the debtor, with interest
of the use for which the commodatum thereon from the date of the payment.
has been constituted;
(3) If the thing loaned has been delivered Art. 1961. Usurious contracts shall be
with appraisal of its value, unless there is governed by the Usury Law and other
a stipulation exempting the bailee from special laws, so far as they are not
responsibility in case of a fortuitous inconsistent with this Code.
event;
(4) If he lends or leases the thing to a
A.! PD 858; PD 1685
third person, who is not a member of his
B.! Central Bank Circular 416
household;
C.! Monetary Board Circular # 905
(5) If, being able to save either the thing
borrowed or his own thing, he chose to
Eastern Shipping Lines v. CA
save the latter.
Eastern Shipping Lines shipped 2 drums of
riboflavin, and handed custody over to
Art. 1979. The depositary is liable for the
Metroport with 1 drum damaged. Metroport
loss of the thing through a fortuitous
handed custody over to Allied Brokerage
event:
Corp with 1 drum opened and the other
(1) If it is so stipulated;
w/o seal, and in turn, Allied delivered it to
(2) If he uses the thing without the
the consignee. Due to the drum’s bad
depositor's permission;
order, damages were paid by Mercantile
(3) If he delays its return;
Insurance whose rights were then
(4) If he allows others to use it, even
subrogated to the rights of the consignee.
though he himself may have been
Mercantile now claims damages against
authorized to use the same.
Eastern Shipping Lines. The contract is
between Eastern Shipping Lines and the
Art. 2147. The officious manager shall be
consignee.
liable for any fortuitous event:
(1) If he undertakes risky operations
The computation of legal interest is from
which the owner was not accustomed to
the time the complaint is filed until the
embark upon;
adjudged amount is fully paid. Sometimes
(2) If he has preferred his own interest to
computation is different because the factual
that of the owner;
circumstances for that case may be
(3) If he fails to return the property or
different and moreover, the courts are
business after demand by the owner;
vested with discretion depending on the
(4) If he assumed the management in
equities of each case. Interest shall be
bad faith.
computed in accordance with stipulation of
the parties. In absence of such stipulation,
Central Bank Circular No. 416 imposing a
12% per annum interest rate applies only to

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loans or forbearance of money, goods or no avail. Keng Hua’s excuse was that it
credits, as well as to judgments involving purchased a total of 50 tons and 40 was
such loan or forbearance of money, goods already delivered. What Sea-Land delivered
or credits. On the other hand, the 6% was 10 metric tons extra - accepting the
interest rate per annum (Article 2209, Civil same would be against the Central Bank
Code) governs when the transaction rules. The Court held that Keng Hua was
involves the payment of indemnities in the liable for the fees because they accepted
concept of damage arising from the breach the bill of lading (essentially the shipment
of contract or a delay in the performance of list/ contract of carriage - different from
obligations in general. contract of sale) without any dissent to its
terms. Only 6 months later did Keng Hua
Crismina Garments v. CA send a letter stating that it will not receive
Crismina Garments exports girls’ denim shipment. Keng Hua and Sea land Service
pants and contracted the services of have a contract of carriage with Keng Hua
D’Wilmar Garments for the sewing of girls’ paying Sea Land for the service.
denims for a fee. Pants were delivered in
good condition however Crismina Since obligation does not arise from loan or
Garments claimed that some were forbearance of money, the applicable
defective and D’Wilmar offered to redo interest is 6%. Moreover, since certainty
them but Crismina declined and instead did cannot be established at the time the
not pay the total amount upon demand to demand is made, interest shall begin to run
account for the defective jeans. The only from date of court’s final judgment.
perfected contract is between Crismina and Total amount demanded cannot be
D’Wilmar, with the latter providing services deemed to have been established with
for a fee (sewing). reasonable certainty until trial court
rendered its judgment. Thus, 6% legal
The interest of 12% per annum set forth by interest shall be computed from 28
the Court of Appeals is reduced by the September 1990 (date of trial court’s
Supreme Court to 6% computed from the decision). However, the rate of 12% per
time of the filing of the complaint until annum shall be charged on total
finality of judgement. However if still unpaid outstanding from time the judgment
thereafter, interest rate shall be 12% becomes final and executory until its
computed from the time judgement satisfaction. A bill of lading delivered and
becomes final and executory until fully accepted constitutes the contract of
satisfied. carriage even if not signed because
acceptance of paper containing terms of
Keng Hua Products v. CA contract generally constitutes acceptance
Sea Land Service Inc. forwarded to the of all its terms, which acceptor has actual
Manila International Container Port (MICP) or constructive notice. Two functions of bill
the shipment of unsorted waste paper for of lading: (a) a receipt for goods shipped;
Keng Hua Products Co. Keng Hua failed to (b) contract by which three parties: shipper,
discharge the shipment during the grace carrier, and consignee) undertake specific
period (no payment for storage of the responsibilities and assume stipulated
shipment in MICP) even after multiple obligations. Thus, acceptance of a bill of
notices sent by Sea land Service. The lading by shipper and consignee with full
shipment was in MICP for a total of 481 knowledge of its contents, gives rise to
days and incurred the corresponding presumption that same was perfected and
demurrage fees. Sea-Land sent demand binding contract.
letters to Keng Hua for it to pay the fees to

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Security Bank v. RTC Makati PNB unilaterally altered the terms of its
Magtanggol Eusebio executed 3 conditions which is against their agreement
promissory notes in favor of Security Bank that the interest be agreed upon. What has
and Trust Co. (SBTC) in 1983 with all been stipulated in writing is that the
promissory notes stipulating a 23% interest Almedas were bound merely to pay 21%,
rate per annum. Upon maturity, Eusebio subject to possible escalation or de-
failed and refused to pay the balance; thus escalation when the circumstances
SBTC filed a collection case in RTC Makati. warrant it is within the law, and upon
RTC Makati decided in favor of SBTC but agreement. This is in violation of the
ordered Eusebio to pay the balance w/ mutuality principle of contracts expressed
12% interest per annum. The Supreme in Art.1308 of the Code:
Court affirms the said decision of the RTC “The contract must bind both
with the modification that the interest rate contracting parties; its validity or
should be 23% per annum. The perfected compliance cannot be left to the will
contract is between Security Bank and of one of them.”
Eusebio.
Angel Warehousing v. Cheldea
CB Circular 9051 suspended the Usury Angel Warehousing filed a recovery suit
Law, thereby removing the ceiling on against Cheldea Enterprises. Defendants
interest rates for loans and forbearances. countered that plaintiff charged usurious
Lenders and borrowers agree and stipulate interests of 2% and 2.5% per month and
interest rate. Only in the absence of such consequently, plaintiffs should not be
stipulation in the contract of the parties is permitted to recover under law. The Court
the Court allowed to impose the 12% held that with the modification that the
interest rate. Since all the promissory notes award of attorney's fees in plaintiff's favor
were signed in 1983, then they’re all is deleted, and the correction of the clerical
covered by CB Circular 905 (1982). error as to the principal still recoverable, the
appealed judgment is affirmed. There is a
Almeda v. CA loan contract between Angel and Cheldea.
PNB granted to spouses Almeda several
loan/ credit accommodations. The credit A contract of loan with usurious interest
agreement between PNB and the Almeda’s consists of principal stipulation—to pay the
contained an escalation clause providing loan— and accessory stipulation—to pay
PNB the right to increase the interest rate the interest. These are divisible.
within limits allowed by law at any time,
depending whatever policy it may adopt in [Prof. Disini: if this is the case, then it is like
the future: “…provided, that the interest the law is giving an indirect benefit for
rate on this/these accommodations shall be charging a usurious interest; suggests that
correspondingly decreased in the event in charging usurious interest, even the
that the applicable maximum interest rate is principal should not be recoverable.]
reduced by law or by the Monetary Board.
In either case, the adjustment in the interest First Metro Investment v. Este. Del Sol
rate agreed upon shall take effect on the FMIC extended a loan to Este del Sol under
effectivity date of the increase or decrease several conditions which was later declared
of the maximum interest rate.” In the end, by the court to be usurious. In addition to
interest rate reached 68%. The contract this, FMIC entered into Underwriting and
(credit agreement) is between PNB and Consultancy Agreements which were
spouses Almeda. executed and delivered contemporaneously
with the Loan Agreement on January 31,

29
!
1978, were exacted by FMIC as essential B.! Presumption in Payment
conditions of the contract. The loan
contract is between FMIC and Este del Sol. Art. 1176. The receipt of the principal by
the creditor without reservation with
The Underwriting and Consultancy respect to the interest, shall give rise to
Agreements were executed to conceal a the presumption that said interest has
usurious loan. These agreements were been paid.
treated as a condition precedent for FMIC
to extend a loan to respondent and Estate The receipt of a later installment of a
del Sol was billed an additional Php 1.3 M debt without reservation as to prior
for consultancy fees on top of the per installments, shall likewise raise the
annum fee. An apparently lawful loan is presumption that such installments have
usurious when it is intended that additional been paid.
compensation for the loan be disguised by
an ostensibly unrelated contract providing
for payment by the borrower for the Transmissibility of Rights
lender's services which are of little value or
which are not in fact to be rendered such Art. 1178. Subject to the laws, all rights
as in the instant case. The nullity of the acquired in virtue of an obligation are
stipulation on the usurious interest does not transmissible, if there has been no
affect the lender's right to receive back the stipulation to the contrary.
principal amount of the loan. The
consultancy agreements were mere devices
to conceal an illegal scheme employed by
FMIC to conceal and collect excessive
usurious interest.

Fulfillment of Obligations

A.! Payment

Art. 1232. Payment means not only the

delivery of money but also the
performance, in any other manner, of an
obligation.

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.

Art. 1234. If the obligation has been

substantially performed in good faith, the
obligor may recover as though there had
been a strict and complete fulfillment,
less damages suffered by the obligee.

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 Obligations: Gaite put up provided that the liability
Different Kinds of Obligations of the surety company would have effect if
there had been actual sale of iron ore for an
Pure and Conditional Obligations amount not less than P65,000, and that his
liability will expire after one year. The bond
Pure Obligations expired and was not renewed, and none of
the 24,000 tons of iron ore had been sold,
Art. 1179. Every obligation whose thus Fonacier was unable to pay Gaite
performance does not depend upon a P65,000 upon demand. Fonacier said that
future or uncertain event, or upon a past payment was conditioned on sale of iron
event unknown to the parties, is ore by the company, which had not
demandable at once. happened, rendering their obligation to
pay not yet demandable.

Conditional Obligations The Court held that the obligation to pay

Gaite P65,000 is one with a period, and not
Art. 1181. In conditional obligations, the one with a suspensive condition. The term
acquisition of rights, as well as the expired. The words of the contract express
extinguishment or loss of those already no uncertainty in the existence of the
acquired, shall depend upon the obligation to pay. Only the maturity and
happening of the event which demandability are deferred, not the
constitutes the condition. existence. That defendant put up bonds is
admittance of the existence of the
1.! Condition v. Term obligation to pay.

A condition is a future and uncertain [Prof. Disini opines this not a period, but a
event upon the happening of which suspensive condition with the balance of
depends the demandability or P65,000 to be paid from the first letter of
extinguishment of an obligation. The credit covering the first shipment of iron
condition in a past event unknown tot ores and from the first amount derived from
the parties is knowledge by the parties the local sale or iron ore made by Larap
of the past event. Mines.

In conditional obligations, the He thinks that the court interpreted the

happening of the condition determines contract beyond what it stated and
its birth or death. In term, the happening assumed that the parties to the contract
of the term determines its would not intend leaving the payment at the
demandability. discretion of the defendant (as then
obligation would not arise if defendants did
A condition is a future and uncertain not make steps to sell the ore, thus
event, whereas a term is a future and allowing them to postpone payment
certain event. indefinitely).]

Gaite v. Fonacier Gonzales v. Heirs of Thomas

Fonacier agreed to pay P65,000 to Gaite Heirs of Thomas entered into a contract of
from the first letter of credit covering the lease/sale with Gonzales, but rescinded the
first shipment of iron ores and from the first same upon the alleged failure of the latter
amount derived from the local sale of to exercise his obligation to purchase. The
iron ore. Fonacier sought a bond, which contract stipulated that after a 1 year lease,

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!
Gonzales shall purchase the said land, Suspensive
payable within 2 years. However, paragraph
9 of the same contract stated that the Heirs The fulfillment of a suspensive condition
commit and undertake to obtain a separate results in the acquisition of rights arising
TCT over the released portion within 4 out of the obligation.
years. Court held that Heirs of Thomas may
not rescind the contract because the Coronel v. CA
suspensive condition has not yet been In the “Receipt of Down Payment”
fulfilled yet (getting the TCT of the land in (P50,000) executed by the Coronels and
favor of Gonzales). This is a contract to sell Alcaraz, it was stipulated that the Coronels
between Heirs of Thomas and Gonzales. will effect the transfer in their names of the
TCT from the name of their father. Upon
The transfer of the title to the names of the presentation of the new TCT, they will
respondents [Par. 9] was a condition execute a deed of absolute sale with
precedent/suspensive condition to the Alcaraz. The title was transferred to
petitioner’s obligation to purchase the land. names of petitioners, but they sold the
property to Mabanag and cancelled the
[Prof. Disini: I can sell something I do not contract with Alcaraz by depositing the
own yet, as long as when I transfer title, I P50,000 down payment. Alcaraz filed
own it.] complaint for specific performance. TC and
CA ruled in favor of Alcaraz. There is a
2.! Kinds of Conditions perfected contract of sale between the
Coronels and Alcaraz.
As to effect on obligation
Coronel did not merely promise to sell, but
Art. 1187. The effects of a conditional instead AGREED to a conditional contract
obligation to give, once the condition of sale, consummation of which is subject
has been fulfilled, shall retroact to the only to the successful transfer of the title to
day of the constitution of the obligation. the petitioners’ names (suspensive
Nevertheless, when the obligation condition). Therefore, as soon as the titles
imposes reciprocal prestations upon the were good to go, petitioners were
parties, the fruits and interests during committed to execute the sale.
the pendency of the condition shall be
deemed to have been mutually Receipt of Down Payment was a
compensated. If the obligation is conditional contract of sale, with the
unilateral, the debtor shall appropriate transfer of title as the suspensive condition.
the fruits and interests received, unless As soon as the transfer of title was effected,
from the nature and circumstances of the obligations of the parties became
the obligation it should be inferred that mutually demandable, and petitioners were
the intention of the person constituting committed to execute the sale. TC and CA
the same was different. decisions were affirmed.

[Prof. Disini: Discussed the difference

Art. 1188. The creditor may, before the between a double sale and a contract to
fulfillment of the condition, bring the sell. Stated that when conditions happen,
appropriate actions for the preservation reciprocal obligations arise. Asked the
of his right. The debtor may recover following: “Did I sell it to you already? I
what during the same time he has paid. have an obligation to sell, but only when
you pay. If you do not pay, I do not need to

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sell to you but I am liable for damages to donation saying that the conditions were
you because I cannot anymore transfer title not complied with.
to you.” Double sale: I sell, transfer title to
A. I sell, transfer title to B.] The donation had to be valid first before the
construction of the medical college, thus
Resolutory the condition is resolutory, non-compliance
of which will result to revocation of
The fulfillment of the resolutory condition donation. The period of time for the
results in the extinguishment of rights establishment of a medical college could
arising out of the obligation. not be quantified. Because the donor did
not fix a specific period by which the
Parks v. Province of Tarlac resolutory conditions shall have been
Hill donated a parcel of land perpetually to achieved, the fulfilment of which depended
the municipality of Tarlac with a condition upon the exclusive will of the petitioner. The
that a public school and public park shall Court held that the donation is already
be erected on it within 6 months. The ineffective and thus revoked.
donation was accepted. The donors sold
the land to George Parks, while the Alfonso Quijada v. CA
Municipality transferred the land to the Quijada and heirs assail the validity of a
province of Tarlac. Parks brought the sale made by their decedent of a property
present action. which the latter has donated to a
Municipality subject to a resolutory
Hill and Ciller are no longer the rightful condtion. Court held that the sale is valid
owners of the land. The condition could not per the decedent’s inchoate interest in the
be complied with except after giving effect property.
to the donation. Thus there is a resolutory
condition, non-compliance of which will Under Art. 1181 of the Code, conditional
revoke the donation. However, even if non- obligations, the acquisition of rights, as well
compliance is sufficient cause for as the extinguishment or loss of those
revocation of the donation, the period for already acquired, shall depend upon the
bringing action for revocation has already happening of the event which constitutes
prescribed. the condition. Thus, the condition imposed
in the donation (building of school) was not
[Prof. Disini: “You cannot build on a condition precedent or a suspensive
something you do not own” is an erroneous condition but a resolutory one.
statement. One does not need to own land
to build on it. The question that must be The donation had to be valid before the
asked is whether or not it is good or bad fulfilment of the condition. If there was no
faith? Land owner must pay you for fulfilment/compliance with the condition,
improvement. Suspensive condition. No such as in this case, the donation may now
time period. The Supreme Court turned it to be revoked and all rights which the done
a resolutory condition.] may have acquired under it shall be
deemed lost and extinguished.
Central Philippine University v. CA
In 1939, Don Ramon Lopez donated a land
in favor of CPU with the condition that the
land shall be utilized for the establishment
of a Medical College. In 1989, the heirs of
Lopez filed an action for annulment of

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As to cause of origin Casual conditions depends upon chance
or the will of a stranger.
Art. 1182. When the fulfillment of the
condition depends upon the sole will of NATELCO v. CA
the debtor, the conditional obligation Naga Telephone Co. (NATELCO) is a
shall be void. If it depends upon chance telephone company giving local/ long
or upon the will of a third person, the distance telephone calls. Casureco is a
obligation shall take effect in conformity private corporation operating an electric
with the provisions of this Code. power service. Both parties entered into a
contract wherein Casureco will make use of
NATELCO’s electric posts in Naga, free of
Art. 1180. When the debtor binds himself charge. 10 connections were used. The
to pay when his means permit him to do contract stated” Period of contract shall be
so, the obligation shall be deemed to be as long as NATELCO has need of the
one with a period, subject to the light posts, it being understood that the
provisions of Article 1197. contract shall terminate when for any
reason CASURECO is forced to stop and it
Potestative conditions depends on the becomes necessary to remove the light
sole act or decision of a party. posts. In 1989, Casureco filed for
reformation of contract with damages
because the contract is one-sided for
Francisco Lao Lim v. CA
NATELCO. Also, the cables strung by
Lim and Dy entered into a compromise
agreement whereby the term of lease shall them on electrical posts have become
heavier as subscribers increased. RTC and
be renewed every three (3) years for as long
CA ruled in favor of CASURECO. The
as Dy needed the premises. Then in 1985,
Lim told Dy that he would no longer renew Supreme Court affirmed the same.
the contract. Dy informed him that he still
Art. 1267 provides:
wanted to renew, but Lim rejected the
“When the service has become so
same. Lim filed an action to eject Dy and
difficult as to be manifestly beyond
the Court held that Lim has a right to eject
the contemplation of the parties, the
Dy.
obligor may also be released
therefrom, in whole or in part.”
The lease is not continuous. Contrary to the
ruling of the respondent court, “for as long This article speaks of services w/c have
as defendant needed the premises and can become so difficult. Service here should be
meet and pay the said increases” is a understood as referring to performance of
purely potestative stipulation and not the obligation. A bare reading of the article
resolutory because it leaves the effectivity reveals that it is not a requirement
and enjoyment of leasehold rights to the thereunder that the contract be for future
sole and exclusive will of the lessee. It is service w/ future unusual change. It states
likewise a suspensive condition because the doctrine of unforeseen events, based
the renewal of the lease, which gives rise to on the principle of bus sic stantibus. Under
a new lease, depends upon said condition. this theory, parties stipulate in light of
A purely potestative condition that is certain prevailing conditions, and once
likewise suspensive is void as it completely these conditions cease to exist, the
deprives the owner of any say on the contract also ceases to exist.
matter, thus violating mutuality between Disappearance of the basis of a contract
lessor and lessee.

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gives rise to relief in favor of the party i.e., regarding the price and conditions.
prejudiced.
Unilateral cancellation as a condition
Facts mentioned by Casureco have pointed In Taylor v. Uy Tieng Piao, an employment
out that Art. 1267 is indeed applicable in contract which may be cancelled by the
this case, resulting in releasing the parties employer “should the machinery to be
from their correlative obligations under the installed in the said factory fails, for any
contract. reason, to arrive in Manila” was deemed to
be valid because the word “any” is broad
The condition in the contract is not enough to cover any case of non-arrival for
potestative The 1st part is potestative, but whatever cause, not only delays caused by
it must be read with the 2nd part "xx it strikes or unfavourable weather conditions
being understood that this contract shall (chance) but as well as the employer’s own
terminate when for any reason whatsoever, act or volition. Furthermore, it does not
the party to the second part (Casureco) is matter if the failure is due to circumstances
forced to stop, abandoned its operation as within the control of the employer because
a public service and it becomes necessary the condition is resolutory. Note that the
to remove the electric light post." (Casual invalidity of potestative conditions applies
conditions since they depend on chance only to suspensive conditions. Thus, a
hazard, or the will of a third person) The resolutory condition dependent on the will of
contract is subject to mixed conditions, the debtor is valid.
depending partly on the will of the debtor
and partly on chance, hazard or will of a In Smith Bell v. Sotelo Matti, the contract
third person. to deliver steel tanks, expellers and electric
motors at a specified period which was
[Prof. Disini: The court overstepped their executed when there were rigid US
jurisdiction in “clearing” the contract to fix Government restrictions on exports were
the same.] construed by the court to be conditional. It is
deemed to be a mixed condition because it
Mixed conditions depend partly on the will is made to depend on third persons (US
of a party and partly on chance or will of a government’s prior approval) and the will of
stranger. the debtor (in following rules and
regulations). The Court also rules that when
Sale as a condition the delivery is subject to the fulfilment of a
In Osmena v. Rama, the Court held that an condition dependent upon the will of third
obligation to pay conditioned upon whether persons who cannot be compelled to fulfil
or not the debtor’s house is sold is a the condition, the debtor’s part is deemed to
potestative condition as it depends upon the be sufficiently performed if he has done all
exclusive will of the debtor to sell the house in his power even if the condition has not
and is thus, deemed void. However, in been fulfilled in reality.
Hermosa v. Longara, the condition in an
obligation to pay “as soon as the intestate In Rustan Pulp v. IAC, the condition that
receives funds derived from the sale of the the buyer shall have the right to stop
property” was not potestative because the deliveries of raw materials when its supply
intestate has already decided to sell the becomes sufficient is considered to be
house. Rather, the said condition is mixed potestative because the right of stoppage
because it depended partly upon chance, and resumption of delivery is dependent
i.e., the presence of a buyer, able and upon the will of the debtor. The Court rules
willing to purchase and upon the intestate, that the condition is void but the obligation

35
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remains valid insofar as it relates to the is a legal impossibility and is deemed to not
fulfilment of an existing obligation and not to have been imposed.
its inception. [Prof. Disini: The Court is
wrong because in applying Art. 1157, it As to Mode: Positive
should have voided the conditional
obligation, and not just the condition.] Art. 1184. The condition that some event
happen at a determinate time shall
Eviction of squatters as a condition extinguish the obligation as soon as the
In Romero v. CA, the condition that a seller time expires or if it has become
has to evict squatters within a period of time indubitable that the event will not take
is deemed a mixed condition because it is place.
not dependent on the will of seller but also
of third persons like squatters, government
agencies and personnel concerned. [Prof. As to Mode: Negative
Disini: In this case, when the seller did not
comply with the eviction because he did not Art. 1185. The condition that some event
want to sell the property anymore, the will not happen at a determinate time
condition was deemed fulfilled because the shall render the obligation effective from
obligor voluntarily prevented its fulfilment the moment the time indicated has
(Art. 1186)]. elapsed, or if it has become evident that
the event cannot occur.
As to possibility
If no time has been fixed, the condition
Art. 1183. Impossible conditions, those shall be deemed fulfilled at such time as
contrary to good customs or public may have probably been contemplated,
policy and those prohibited by law shall bearing in mind the nature of the
annul the obligation which depends obligation.
upon them. If the obligation is divisible,
that part thereof which is not affected by
the impossible or unlawful condition
shall be valid.

The condition not to do an impossible

thing shall be considered as not having
been agreed upon.

RCAM v. CA
Donors may impose conditions as long as
they are not contrary to law, morals, good
customs, public policy, and public order.
However, a condition not to alienate
property donated for 100 years constitutes
an undue restriction from ownership and is
contrary to public policy. Furthermore, Art.
494 provides that a donor or testator may
prohibit partition for a period which shall not
exceed twenty years. As such, the condition

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3.! Rules in case of loss, deterioration, or Art. 1190. When the conditions have for
improvement their purpose the extinguishment of an
obligation to give, the parties, upon the
Art. 1189. When the conditions have fulfillment of said conditions, shall return
been imposed with the intention of to each other what they have received.
suspending the efficacy of an obligation
to give, the following rules shall be In case of the loss, deterioration or
observed in case of the improvement, improvement of the thing, the provisions
loss or deterioration of the thing during which, with respect to the debtor, are
the pendency of the condition: laid down in the preceding article shall
be applied to the party who is bound to
(1) If the thing is lost without the fault of return.
the debtor, the obligation shall be
extinguished; As for the obligations to do and not to
do, the provisions of the second
(2) If the thing is lost through the fault of paragraph of article 1187 shall be
the debtor, he shall be obliged to pay observed as regards the effect of the
damages; it is understood that the thing extinguishment of the obligation.
is lost when it perishes, or goes out of
commerce, or disappears in such a
If land is expropriated for a particular
way that its existence is unknown or it purpose, there is a resolutory condition that
cannot be recovered; when the purpose has ended or is
abandoned, the property shall be returned
(3) When the thing deteriorates without to its former owner. In the case of Heirs of
the fault of the debtor, the impairment is Timoteo Moreno v. MCIAA, when the
to be borne by the creditor; airport for which the land was expropriated
ceased operations, the Court, applying Art.
(4) If it deteriorates through the fault of 1190 NCC, ordered the MCIAA to reconvey
the debtor, the creditor may choose
the property and improvements it built upon
between the rescission of the obligation
the property and the heirs to pay what they
and its fulfillment, with indemnity for
received as just compensation plus legal
damages in either case;
interest, and the necessary expenses that
MCIAA. Fruits and interests during the
(5) If the thing is improved by its nature,
pendency of the condition need not be
or by time, the improvement shall inure
returned as they are deemed the equivalent
to the benefit of the creditor;
of each other. The appreciation in the value
of the land also need not be paid as it is
(6) If it is improved at the expense of the
considered a natural consequence of nature
debtor, he shall have no other right than
and time. (Art. 1189 NCC).
that granted to the usufructuary.

Art. 1186. The condition shall be

deemed fulfilled when the obligor
voluntarily prevents its fulfillment.

In Taylor v. Uy Tieng Piao, it was held that

the above-mentioned provision supposes a
case where the obligor intentionally

37
!
impedes the fulfillment of a condition which Reciprocal Obligations
would entitle the obligee to exact
performance from the obligor; and an 1.! Concept
assumption underlying the provision is that
the obligor prevents the obligee from Art. 1191. The power to rescind
performing some act which the obligee is obligations is implied in reciprocal ones,
entitled to perform as a condition precedent in case one of the obligors should not
to the exaction of what is due to him. Such comply with what is incumbent upon
an act must be considered unwarranted and him.
unlawful, involving per se a breach of the The injured party may choose between
implied terms of the contract. The article the fulfillment and the rescission of the
can have no application to an external obligation, with the payment of damages
contingency which is lawfully within the in either case. He may also seek
control of the obligor. rescission, even after he has chosen
fulfillment, if the latter should become
In Herrera v. Leviste, Leviste loaned from impossible.
GSIS and mortgaged property in Buendia The court shall decree the rescission
and Paranaque. He subsequently sold the claimed, unless there be just cause
Buendia property to Herrera upon certain authorizing the fixing of a period.
conditions, including assumption of This is understood to be without
Leviste’s debt to GSIS. However, GSIS prejudice to the rights of third persons
required Herrera to submit the final deed of who have acquired the thing, in
sale in order for him to assume the debt, accordance with Articles 1385 and 1388
which Leviste refused to execute despite and the Mortgage Law.
receiving full payment. According to the
dissent of Justice Teehankee, there should
have been, therefore, a constructive Art. 1192. In case both parties have
fulfilment on Herrera’s part under Art. 1186 committed a breach of the obligation,
NCC, “The condition shall be deemed the liability of the first infractor shall be
fulfilled when the obligor voluntarily prevents equitably tempered by the courts. If it
its fulfillment.” cannot be determined which of the
parties first violated the contract, the
same shall be deemed extinguished, and
each shall bear his own damages.

2.! Alternative Remedies of injured party in

case of breach

The party injured may choose between two

remedies, which are alternative:

a.! Fulfillment with payment of damages for

delay
o! If fulfillment becomes impossible,
the party may also seek rescission.

b.! Rescission of the obligation with

damages

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!
 o! Requisites recovery. If the defaulting party
!! Resolution for breach of contract refuses to return it, the
must be asked from and aggrieved party must go to court
decreed by the Court. in order to recover.
!! Mere notice of rescission is o! Effects
insufficient, except (1) in case !! It abrogate the contract in all its
of resale of rescission by an parts.
unpaid seller; (2) in case that the !! If the breach is committed by
party injured by the breach may both parties, the liability of the
refuse to perform what is first infractor is equitably
incumbent upon him, taking the mitigated.
risk of what the Courts may !! Resolution does not affect third
ultimately decide; and (3) persons in good faith
without prejudice to other !! The lessor who chooses to
special rules established by law rescind, and obtains possession,
(e.g. Art. 1593). cannot recover from the
!! The resolution shall not be surrendering lessee any rents
granted for slight our casual due under the contract, despite
breach, or if there has been express reservation of the right
substantial performance. to such rents
!! Breach must be by fault or o! When is resolution not granted?
fraud of the defendant, thereby !! Slight or casual
creating liability for damages, breach/substantial performance
and entitling the other party to !! Just cause authorizing the fixing
ask for rescission. One breach is of a period for performing the
sufficient to demand resolution. obligation
o! How made !! Non-performance of some
obligors warrants resolution of
!! The right of resolution can be
the whole obligation
exercised extrajudicially and will
!! Mere delay with fulfillment still
take effect upon communication
possible does not warrant
to the defaulting party. This
resolution of the obligation,
notice of resolution is necessary.
unless time is of the essence.
!! The exercise of this right can be
!! Contracts of Life Annuity, even
the subject of judicial review.
in case of breach
!! Upon resolution, there must be
mutual restitution of the object
Substantial Breach
and its fruits. The parties are
In Song Fo v. Hawaiian Philippines, Co.,
returned to their original
the general rule is that rescission will not be
situation – status quo ante.
permitted for slight and casual breach, but
!! If the aggrieved party has not
only for such breaches as are so substantial
performed the prestation and
and fundamental as to defeat the object of
resolves extrajudicially, then all
the parties in making the agreement. In this
the aggrieved party has to do is
case, the delay in payment for 21 days of a
to refuse to perform his
small quantity of molasses was not
prestation. 

considered to be substantial to amount to a
!! If the aggrieved party has
violation of the condition of the contract and
performed the prestation, the
warrants a rescission. Furthermore, such
aggrieved party can demand
condition was waived by accepting payment

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of overdue accounts and continuing the rescinded. The Court held that it was valid
contract. stipulation because there was no prohibition
in the law from stipulating such. However,
Similarly, in Angeles v. Calasanz, the this is only provisional and is still subject to
Court held that rescission may be valid in scrutiny and review of the court. Only a final
light of non-payment in a contract of sale judgment would conclusively and finally
only when the breach is settle whether action taken was correct.
substantial/fundamental as to defeat the
object of the contract. In this case, the In Iringan v. CA, on the question of whether
breach was not considered to be substantial or not a judicial decree is necessary for a
because the buyer already paid a total of valid rescission of the contract, the Court
P4,500, an amount exceeding the principal rules that considering that the contract was
of P3,920 and when the seller accepted a sale of immovable property, Art. 1592 is
delayed payments beyond the grace period, applied, which requires a judicial/notarial act
the right of rescission was deemed waived. for a valid rescission to take place.
However, even if Art. 1191 is applicable, it
Reciprocal Obligation would still not entitle the party to an
In Boysaw v. Interphil Promotions, automatic rescission. Under paragraph 3 of
Solomon Boysaw signed a contract with the said provision, while right to rescind is
Interphil to fight Flash Elorde. However, implied in reciprocal obligations, it must be
Boysaw violated some of the conditions in invoked judicially. The operative act which
the contract so Interphil filed a claim for produces the resolution is the judicial
rescission. The Court ruled that the contract decree, and not the mere act of the vendor.
may be rescinded because the contract in However, the Court also noted that when
question gave rise to reciprocal obligations, the rescinding party filed for an action for
which are obligations that arise from the judicial confirmation of the rescission, he
same cause and in which each party is the has complied with the requirement of
debtor and creditor of the other, such that judicial decree of rescission.
the obligation of one is dependent upon the
obligation of the other. Also, the power to Difference between Rescission (Art. 1380)
rescind is given to the injured party; thus, and Resolution (Art. 1191)
the violations of the terms of the original
contract by Boysaw vested Interphil with the In De Erquiaga v. CA, De Erquiaga sold
right to rescind and repudiate the contract. shares to Reynoso; however, Reynoso
failed to pay so De Erquiaga filed an action
[Prof. Disini: This is not a reciprocal for rescission which was granted by the CFI.
obligation so rescission does not apply.] Applying Art. 1385, the Court ruled that
pursuant to the rescission, there should be
Court Action simultaneous mutual restitution of object of
In UP v. De Los Angeles, UP entered into the sale (shares sold) and consideration
a contract with ALUMCO granting the latter paid. [Disini: The Court is wrong in applying
exclusive authority to cut, collect and Art. 1385 because the rescission referred to
remove timber in exchange for royalties. in that provision is that under Art. 1380
However, ALUMCO failed to pay despite (action based on lesion/fraud of creditors)
demands. They executed a second contract and not resolution under Art. 1911 (action
with a provision granting UP the power to based on breach of contract).]
rescind the contract without necessity of any
judicial suit. Subsequently, UP informed In Ong v. CA, spouses Robles filed an
ALUMCO that it considered their contract as action for rescission due to Ong’s failure to

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pay purchase price for the property sold. machinery within 70 days to Dimaporo while
RTC and CA granted the rescission noting Dimaporo guaranteed to supply labor,
that the failure to completely pay was a materials, food and water system. Dimaporo
substantial breach which would allow for the failed to comply so Grace Park provided
resolution of the contract under Art. 1191 these. Also, it took Grace Park 1 year and 3
and ordered mutual restitution of the months to install the machinery so
property and the portion of the purchase Dimaporo refused to pay. Grace Park
price already paid. On appeal, Ong brought an action for rescission. The Court
contends that Art. 1191 was not applicable granted the rescission and ordered the
since he already paid a substantial amount. mutual restitution based on Art. 1385.
Instead, Art. 1383 should be applied but
says that spouses should file first for [Disini: This is incorrect because Art. 1385
specific performance because the action for only applies to rescission under Art. 1380.]
rescission is subsidiary.
Furthermore, both parties committed a
In Deiparine, Jr. v. CA, the Court also breach of obligation but it could not be
makes a distinction between rescission determined who was the first infractor so the
under Art. 1380 and Art. 1191 in holding Court applied Art. 1192 in holding that each
that, Art. 1191, unlike Art. 1380, is not should bear his own damages so the Court
predicated on economic prejudice but on refused to grant any interest on the
breach of faith by one of them that violates purchase price.
the reciprocity. In this case, the violation of
reciprocity between Deiparine and spouses Roque v. Lapuz
Carungay, to wit, the breach caused by Roque sold to Lapuz 3 lots, which Lapuz
Deiparine’s failure to follow the stipulated subsequently occupied. However, Lapuz
plans and specifications has given the failed to make payments so Roque
spouses the right to rescind or cancel the demanded him to vacate the lot and pay
contract. rentals, but to no avail, so he filed an action
for rescission. While it was initially
Special case for Sale of Goods rescinded, the CA reversed saying that
In Visayan Sawmill v. CA, where the sale assuming the cause of action exists, Lapuz
of scrap iron was dependent on a condition should be entitled to fixing a period within
to open a letter of credit, and there was which to comply. However, the Court held
failure to do so, an action for rescission that there exists no just cause authorising
under Art. 1191 is not valid because it was the fixing of the period because Lapuz has
not a breach but rather a non-fulfillment of a not acted in good faith and with malice and
condition (similar to Ong v. CA). However, a deliberate intent, he has delayed fulfilment
rescission may still be valid under Art. 1597 of the obligation for the last 26 years, more
which provides that “Where the goods have than twice the period of 10 years that he
not been delivered to the buyer, and the obligated himself to pay.
buyer has repudiated the contract of sale, or
has manifested his inability to perform his Suria v. IAC
obligations, thereunder, or has committed a Spouses Crispin entered into a contract of
breach thereof, the seller may totally rescind sale secured with a mortgage with Suria but
the contract of sale by giving notice of his Suria failed to pay installments so spouses
election so to do to the buyer.” filed for rescission. However, the Court held
that rescission under Art. 1191 cannot be
Grace Park v. Dimaporo relied upon because the obligations under
Grace Park agreed to sell & install the contract of sale had already been

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!
fulfilled (execution of transfer of title and Installment Sale of Personal Property
payment in the form of promise to pay on (Recto Law)
installment, secured by a mortgage) and the
only subsisting obligation is that of the Art. 1484. In a contract of sale of
mortgage. Art. 1191 only applies to personal property the price of which is
reciprocal obligations and not that of payable in installments, the vendor may
unilateral ones, such as mortgage. Hence, exercise any of the following remedies:
what applies is Art. 1383 which states that (1) Exact fulfillment of the obligation,
the remedy of rescission is not principal but should the vendee fail to pay;
subsidiary in the absence of any other legal (2) Cancel the sale, should the vendee's
remedy. In this case, the legal remedy is failure to pay cover two or more
foreclosure as provided by law and of the installments;
contract. (3) Foreclose the chattel mortgage on
the thing sold, if one has been
Other Provisions constituted, should the vendee's failure
to pay cover two or more installments. In
Art. 1786. Every partner is a debtor of this case, he shall have no further action
the partnership for whatever he may against the purchaser to recover any
have promised to contribute thereto. unpaid balance of the price. Any
He shall also be bound for warranty in agreement to the contrary shall be void.
case of eviction with regard to specific
and determinate things which he may Art. 1485. The preceding article shall be
have contributed to the partnership, in applied to contracts purporting to be
the same cases and in the same manner leases of personal property with option to
as the vendor is bound with respect to buy, when the lessor has deprived the
the vendee. He shall also be liable for lessee of the possession or enjoyment of
the fruits thereof from the time they the thing.
should have been delivered, without the
need of any demand. Art. 1486. In the case referred to in two
preceding articles, a stipulation that the
Art. 1788. A partner who has undertaken installments or rents paid shall not be
to contribute a sum of money and fails to returned to the vendee or lessee shall be
do so becomes a debtor for the interest valid insofar as the same may not be
and damages from the time he should unconscionable under the
have complied with his obligation. circumstances.
The same rule applies to any amount he
may have taken from the partnership
coffers, and his liability shall begin from
the time he converted the amount to his
own use.

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Installment Sale of Real Estate (RA 6552) events. A period is not retroactive in effect,
but a condition generally is retroactive.
Section 4. In case where less than two
years of installments were paid, the Kinds of Period: Effect
seller shall give the buyer a grace period
of not less than sixty days from the date Suspensive: Obligations for whose
the installment became due. fulfillment a day certain has been fixed,
shall be demandable only when that day
If the buyer fails to pay the installments comes. (Art. 1193, par. 1)
due at the expiration of the grace period,
the seller may cancel the contract after Resolutory: Obligations with a resolutory
thirty days from receipt by the buyer of period take effect at once, but terminate
the notice of cancellation or the demand upon arrival of the day certain. (Art. 1193,
for rescission of the contract by a notarial par. 2)
act.
Kinds of Period: Expression

Obligations with a Period Express: When the period is specified in the

obligation or by law.
Art. 1193. Obligations for whose Implied: When from the nature and the
fulfillment a day certain has been fixed, circumstances of the obligation it can be
shall be demandable only when that day inferred that a period was intended.
comes. Obligations with a resolutory
period take effect at once, but terminate Kinds of Period: Definiteness
upon arrival of the day certain.
Definite: When the period is fixed.
A day certain is understood to be that Indefinite: When the duration is not fixed as
which must necessarily come, although in an obligation to pay when one’s means
it may not be known when. permit. Usually the court will fix (render
definite) the period.
If the uncertainty consists in whether the
day will come or not, the obligation is Kinds of Period: Source
conditional, and it shall be regulated by
the rules of the preceding Section. Voluntary: Fixed by will of the parties.
Legal: Fixed by law.
Art. 1180. When the debtor binds himself Judicial: Fixed by the Court.
to pay when his means permit him to do
so, the obligation shall be deemed to be Rules in case of loss, deterioration, or
one with a period, subject to the improvement before arrival of period
provisions of article 1197.
Art. 1194. In case of loss, deterioration
A period is a span of time which has an or improvement of the thing before the
influence on obligation as a result of a arrival of the day certain, the rules in
juridical act and either suspends their Article 1189 shall be observed.
demandability or produces their extinction.

Periods are future and certain events,

whereas conditions are future and uncertain

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 Art. 1189. When the conditions have Art. 1197. x x x
been imposed with the intention of
suspending the efficacy of an obligation In every case, the courts shall determine
to give, the following rules shall be such period as may under the
observed in case of the improvement, circumstances have been probably
loss or deterioration of the thing during contemplated by the parties. Once fixed
the pendency of the condition: by the courts, the period cannot be
(1) If the thing is lost without the fault of changed by them.
the debtor, the obligation shall be
extinguished;
Benefit of Period
(2) If the thing is lost through the fault of
the debtor, he shall be obliged to pay
damages; it is understood that the thing Art. 1196. Whenever in an obligation a
is lost when it perishes, or goes out of period is designated, it is presumed to
commerce, or disappears in such a way have been established for the benefit
that its existence is unknown or it cannot of both the creditor and the debtor,
be recovered; unless from the tenor of the same or
(3) When the thing deteriorates without other circumstances it should appear
the fault of the debtor, the impairment is that the period has been established in
to be borne by the creditor; favor of one or of the other.
(4) If it deteriorates through the fault of
the debtor, the creditor may choose Effects
between the rescission of the obligation
and its fulfillment, with indemnity for The creditor cannot compel the debtor to
damages in either case; pay in advance of the date fixed except
(5) If the thing is improved by its nature, where the debtor loses the benefit of the
or by time, the improvement shall inure period. Nor can the debtor compel the
to the benefit of the creditor; creditor to receive payment in advance,
(6) If it is improved at the expense of the even if the debtor tenders interest for the
debtor, he shall have no other right than whole period of the obligation, except when
that granted to the usufructuary. a contrary intent appears (“within”, “on or
before”), or by provision of law (cf. Arts.
1989 and par. 2 of Art. 2136)
Effect of payment in advance
In Lachica v. Araneta, the Court held that
Article 1195. Anything paid or delivered the presumption of period is for the mutual
before the arrival of the period, the benefit of both parties (creditor and debtor)
obligor being unaware of the period or and this was also expressly stated in the
believing that the obligation has become contract. The benefit of the debtor consists
due and demandable, may be of the time granted to the debtor to find
recovered, with the fruits and interests. means to comply with the obligation while
the benefit of the creditor is the
interest/fruits accruing to him. In this case, it
was held that the creditor may be compelled
to accept the payment because there was
no prohibition for payment in advance.
Otherwise, it would compel the debtor to
assume an obligation when he could

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discharge it. The law should not be Art. 1198. The debtor shall lose every
interpreted as to compel the debtor to right to make use of the period:
remain so when he is in a position to 
(1) When after the obligation has been
release himself. contracted, he becomes insolvent,
unless he gives a guaranty or security for
However, the Court ruled in Ponce v. de the debt;
Leon that a creditor may not be compelled 
(2) When he does not furnish to the
to accept advance payment. Interests are creditor the guaranties or securities
not the only reason why creditor cannot be which he has promised;
forced to accept payment. He may want to (3) When by his own acts he has
keep money safely invested instead of impaired said guaranties or securities
having it on hand and that the creditor, by after their establishment, and when
fixing a period protects himself against a through a fortuitous event they
sudden decline in the purchasing power. disappear, unless he immediately gives
new ones equally satisfactory;
In Buce v. CA, Buce leased land for 15 (4) When the debtor violates any
years “subject to the renewal for another 10 undertaking, in consideration of which
years under the same terms and the creditor agreed to the period;
conditions”. On the issue of whether or not (5) When the debtor attempts to
the renewal is automatic or optional, the abscond.
Court rules that it is optional because
nothing in the stipulation shows an intent to
When Court May Fix Period
automatically renew. In Fernandez v. CA, it
was held that a period must be deemed for
the benefit of both parties. As such, the Art. 1197. If the obligation does not fix a
renewal must also be upon mutual period, but from its nature and the
agreement. Since the lessors are not circumstances it can be inferred that a
amenable to renewing the contract, they period was intended, the courts may fix
cannot be compelled to execute a new the duration thereof.
contract.
The courts shall also fix the duration of
[Prof. Disini: This is wrong; the renewal the period when it depends upon the will
clause would serve no purpose if the parties of the debtor.
would still have to decide whether to renew
or not.] In every case, the courts shall determine
such period as may under the
When debtor loses the right to make use of circumstances have been probably
period contemplated by the parties. Once fixed
by the courts, the period cannot be
Aside from stated in Art. 1198, the debtor changed by them.
also loses the right to make use of the
period when there is an acceleration clause
In Araneta v. PSEDCO, JM Tuason sold
or stipulation expressly declaring such
land to PSEDCO on the condition that the
policy.
latter would construct a church and convent
and that JM Tuason would construct streets
“within a reasonable time”. The church and
convent were constructed but the streets
were not because there were squatters. JM

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Tuason’s defense was that the action for this case, the parties failed to indicate a
specific performance is premature because period in their compromise agreement, but it
the obligation to construct a street was is clearly intended because JM Tuason
without a definite period. The lower courts would not have paid if it did not expect the
set the period of 2 years for JM Tuason to latter to deliver without delay.
comply but the SC reversed this, stating that
the court may only fix a period in the
absence thereof in the contract. However,
the contract has a period fixed - “within a
reasonable time”. What the Court may only
do is to determine whether or not such
reasonable time elapsed (if yes, there is
breach; if not, action is premature) based on
the circumstances and what was probably
contemplated by the parties. Here,
“reasonable time” was held to refer to when
all squatters are evicted, as both parties
were fully aware that the duration of the
eviction suits were not under their control
and that the obligation may only be
complied with when the squatters are duly
evicted.

In Central Philippine University v. CA, a

land was donated to CPU under the
condition that it would be used for the
establishment of a medical college.
However, more than 50 years has passed
but the medical college was still not
constructed.Thus, the heirs of the donor
filed an action for annulment of donation.
The CA ruled that since the donor has not
fixed a period within which to perform the
condition, he cannot demand fulfilment until
after the court has fixed a period. However,
the SC disagreed saying that considering
the facts and circumstances of the case, the
rule does not apply. More than a reasonable
time of 50 years has already been allowed
for the donee to comply, but it failed. There
is no need to fix the period when it is a mere
technicality and would serve no purpose but
delay and multiplicity of suits.

In Deudor v. JM Tuason, it was held that

the Court had authority to fix the period and
merely enforces or carries out the implied
period in the contract. It ascertains the will
of the parties and gives effect thereto. In

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 Alternative Obligations Article 1205. When the choice has been
expressly given to the creditor, the
Art. 1199. A person alternatively bound obligation shall cease to be alternative
by different prestations shall completely from the day when the selection has
perform one of them. been communicated to the debtor.
The creditor cannot be compelled to
receive part of one and part of the other Until then the responsibility of the debtor
undertaking. shall be governed by the following rules:

Art. 1200. The right of choice belongs to (1) If one of the things is lost through a
the debtor, unless it has been expressly fortuitous event, he shall perform the
granted to the creditor. obligation by delivering that which the
The debtor shall have no right to choose creditor should choose from among the
those prestations which are impossible, remainder, or that which remains if only
unlawful or which could not have been one subsists;
the object of the obligation.
(2) If the loss of one of the things occurs
Art. 1201. The choice shall produce no through the fault of the debtor, the
effect except from the time it has been creditor may claim any of those
communicated. subsisting, or the price of that which,
through the fault of the former, has
Art. 1202. The debtor shall lose the right disappeared, with a right to damages;
of choice when among the prestations
whereby he is alternatively bound, only (3) If all the things are lost through the
one is practicable. fault of the debtor, the choice by the
creditor shall fall upon the price of any
Art. 1203. If through the creditor's acts one of them, also with indemnity for
the debtor cannot make a choice damages.
according to the terms of the obligation,
the latter may rescind the contract with The same rules shall be applied to
damages. obligations to do or not to do in case
one, some or all of the prestations
Art. 1204. The creditor shall have a right should become impossible.
to indemnity for damages when, through
the fault of the debtor, all the things Article 1206. When only one prestation
which are alternatively the object of the has been agreed upon, but the obligor
obligation have been lost, or the may render another in substitution, the
compliance of the obligation has become obligation is called facultative.
impossible.
The loss or deterioration of the thing
The indemnity shall be fixed taking as a intended as a substitute, through the
basis the value of the last thing which negligence of the obligor, does not
disappeared, or that of the service which render him liable. But once the
last became impossible. substitution has been made, the obligor
is liable for the loss of the substitute on
Damages other than the value of the last account of his delay, negligence or
thing or service may also be awarded. fraud.

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Facultative v. Alternative Obligations Art. 1208. If from the law, or the nature
or the wording of the obligations to
Alternative obligations have several which the preceding article refers the
prestations due, but in facultative contrary does not appear, the credit or
obligations, there is only one prestation debt shall be presumed to be divided
due. In alternative obligations, loss of one into as many shares as there are
due to debtor’s fault renders him liable if creditors or debtors, the credits or debts
the choice is by the creditor, whereas in being considered distinct from one
facultative obligations, loss of the substitute another, subject to the Rules of Court
due to debtor’s fault does not render him governing the multiplicity of suits.
liable for damages. In alternative
obligations, the choice may be granted to
any party or a third person, while in Solidary Obligations
facultative obligations, substitution is
always at the discretion of the debtor. Solidary (mancomunada solidaria)
obligations are those in which there being
Joint and Solidary Obligations concurrence of several debtors or severeal
creditors, each creditor is given the right to
Joint Obligations demand, and each debtor is bound to
perform, in its entirety, the prestation
Joint (mancomunada simple, pro rata) constituting the object of the obligation.
obligations are those existing between
several persons, among whom the benefit Art. 1210. The indivisibility of an
or the burden of the obligation is divided. obligation does not necessarily give rise
to solidarity. Nor does solidarity of itself
Requisites imply indivisibility.
1.! Plurality of subjects: creditors, debtors, Art. 1211. Solidarity may exist although
or both. the creditors and the debtors may not be
2.! Determination of shares in the bound in the same manner and by the
demandability or the fulfillment of same periods and conditions.
obligation.
Art. 1212. Each one of the solidary
Presumption & Effects creditors may do whatever may be
useful to the others, but not anything
Art. 1207. The concurrence of two or which may be prejudicial to the latter.
more creditors or of two or more debtors
in one and the same obligation does not
Requisites
imply that each one of the former has a
right to demand, or that each one of the
Plurality of Subjects
latter is bound to render, entire
Unity of Prestation, without definite shares.
compliance with the prestation. There is
•! Mutual Agency of Creditors: Each
a solidary liability only when the
solidary creditor can collect the
obligation expressly so states, or when
entire obligation.
the law or the nature of the obligation
•! Mutual Guaranty of Debtors: Each
requires solidarity.
solidary debtor can be compelled to
perform the entire obligation.

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Distribution among Solidary Parties date was also applicable to him. The Court
•! Accounting between creditors for found that the debtors obligated
the share of each themselves in solidum, and thus the
•! Contribution between debtors for creditor can bring its action in toto against
the share of each any one of them. The obligation being
solidary, the remission of any part of the
Kinds: As to Source debt made by the creditor in favor of one or
more of the solidary debtors necessarily
Legal: derived from law, such as co- benefited the others. Gregorio could only
principals to common agent (cf. Art. 1915), avail himself of defenses which were
of bailees (cf. Art. 1945), of tortfeasors (cf. derived from the nature of the obligation
Art. 2194), and of co-principals, co- and of those which are personal to him and
accomplices, and co-accessories for civil pertain to his own share. The adjustment of
indemnity (Art. 119, RPC). the date when the debt is due would then
Conventional: by stipulation only be a valid defense to those who
Real: from the nature of the obligation, such obtained it.
as mortgage of one object by its co-
owners, return of what was unduly paid to Inciong v. CA
several payees in one single payment. Inciong signed a promissory note in the
amount of P50,000 with Naybe and
Kinds: As to Parties Bound Pantosas holding themselves as jointly and
severally liable to Philippine Bank of
Active: Solidarity of Creditors Communications, said prom note was due
Passive: Solidarity of Debtors May 5, 1983. The prom note became due,
Mixed: Simultaneously active and passive promissors did not pay the amount due.The
bank now sued filed a complaint for
Kinds: As to uniformity collection of some of money. Inciong
alleges that he signed the note only to
Uniform: with the same terms and secure the amount of P5,000 as
conditions for all represented to him and a 'mere' co-maker.
Varied: With different periods/conditions for The Bank moved that the case be be
each. In this case, only the portion due at dismissed against Pantosas. Inciong now
the time is collectible from any one of the claims that since the case was dismissed
debtors by anyone of the creditors. as to Pantosas, his is released as his
liability was only that of a guarantor basing
Inchausti v. Yulo his release on Art. 2080 of the Civil Code.
The nine Yulo siblings owed P271,863.12 to
Inchausti & Co. The amount was later The Court found that Inciong signed the
reduced to P253,445.42. On a subsequent promissory note as a solidary co-maker
date, three of the Yulo siblings Francisco, and not as a guarantor. While a guarantor
Manuel and Carmen,executed a notarial may bind himself solidarily with the
document reducing their debt to P225,000 principal debtor, the liability of a guarantor
and securing for them another deadline to is different from that of a solidary debtor.
pay the debt. The debt became due, The guarantor under the second paragraph
Inchausti & Co filed a claim against of Art. 2047 is called a surety and retains all
Gregorio Yulo. Gregorio, not one of the other rights, actions and benefits which
three siblings who secured the second pertain to him by reason of the fiansa while
agreement, claimed that the reduction of a solidary co-debtor has no other rights
the debt and the adjustment of the due than those granted in Section 4, Chapter 3,

49
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Title 1 Book IV of the Civil Code on Joint The Court ruled that CCC may validly move
and Solidary obligations. Also, when there for the dismissal of the case against his co-
are two or more debtors in one obligation, respondents because obligations arising
the presumption is that the obligation is from tort are, by their nature, always
joint so that each of the debtors is liable solidary. Citing Worcester vs Ocampo the
only for the proportionate part of the debt, Court said: ".. Joint tort feasors are jointly
however, here the note explicitly stated that and severally liable for the tort they commit.
the liabilities of the signatories were joint ..Joint tort feasors are not liable pro rata...
and solidary. The damages can not be apportioned
among them, except among themselves. "
RCBC v. CA In cases filed by the creditor, a solidary
Alfredo Ching signed a 'Comprehensive debtor may invoke defenses arising from
Surety Agreement"' with RCBC binding the nature of the obligation, from
himself jointly and severally guarantee the circumstances personal to it, or even those
prompt payment of PBM of all its personal to its co-debtors only as regards
obligations to RCBC in the amount of the part of that debt for which the latter are
P40million. The SEC ordered suspension of responsible.
payment of all claims against PBM during
the pendency of its rehabilitation. RCBC Effects
filed a claim against PBM and Ching. In his
defense, Ching claims that the signed Solidarity Creditor in relation to Common
agreement was corporate in character and Debtor
that he signed the same as a corporate
officer of PBM, therefore he cannot be Art. 1214. The debtor may pay any one
liable therefore and that in any case the of the solidary creditors; but if any
suspension order of SEC must benefit the demand, judicial or extrajudicial, has
surety. The Court ruled that the agreement been made by one of them, payment
was clear that he signed it himself as surety should be made to him.
and in his personal capacity. The extent of Art. 1215. Novation, compensation,
the surety's liability is determined only by confusion or remission of the debt,
the clause of the contract of suretyship. made by any of the solidary creditors or
The claim that he signed it in another with any of the solidary debtors, shall
capacity as he claims is not supported by extinguish the obligation, without
evidence. The SEC suspension order has prejudice to the provisions of Article
no effect on Ching's liability. 1219.
The creditor who may have executed
Lafarge v. Continental Cement Corp any of these acts, as well as he who
collects the debt, shall be liable to the
CCC filed a 'Complaint with Application for others for the share in the obligation
Preliminary Attachment' against Lafarge. corresponding to them.
Lafarge filed an 'Answer and Compulsory Art. 1216. The creditor may proceed
Counterclaims Ad Cautelam' against CCC, against any one of the solidary debtors
its majority stockholder and president or some or all of them simultaneously.
Gregory T. Lim and its corporate secretary The demand made against one of them
Anthony Mariano praying that the three be shall not be an obstacle to those which
held jointly and severally liable. CCC moved may subsequently be directed against
to dismiss Lafarge's compulsory the others, so long as the debt has not
counterclaims in behalf of Lim and Mariano. been fully collected.

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 Art. 1217. Payment made by one of the Art. 1215. Novation, compensation,
solidary debtors extinguishes the confusion or remission of the debt,
obligation. If two or more solidary made by any of the solidary creditors or
debtors offer to pay, the creditor may with any of the solidary debtors, shall
choose which offer to accept. extinguish the obligation, without
prejudice to the provisions of article
Solidary Creditor in relation to Solidary Co- 1219. x x x
Creditors
Solidary Debtor in relation to Solidary Co-
Art. 1212. Each one of the solidary Debtors
creditors may do whatever may be
useful to the others, but not anything Art. 1217. Payment made by one of the
which may be prejudicial to the latter. solidary debtors extinguishes the
Art. 1213. A solidary creditor cannot obligation. If two or more solidary
assign his rights without the consent of debtors offer to pay, the creditor may
the others. choose which offer to accept.

He who made the payment may claim

Art. 1215. x x x from his co-debtors only the share which
corresponds to each, with the interest
The creditor who may have executed for the payment already made. If the
any of these acts, as well as he who payment is made before the debt is due,
collects the debt, shall be liable to the no interest for the intervening period
others for the share in the obligation may be demanded.
corresponding to them.
When one of the solidary debtors
Solidary Debtor in relation to Common cannot, because of his insolvency,
Creditor reimburse his share to the debtor paying
the obligation, such share shall be borne
Art. 1207. The concurrence of two or by all his co-debtors, in proportion to the
more creditors or of two or more debtors debt of each.
in one and the same obligation does not
imply that each one of the former has a Art. 1218. Payment by a solidary debtor
right to demand, or that each one of the shall not entitle him to reimbursement
latter is bound to render, entire from his co-debtors if such payment is
compliance with the prestation. There is made after the obligation has prescribed
a solidary liability only when the or become illegal.
obligation expressly so states, or when
the law or the nature of the obligation Art. 1219. The remission made by the
requires solidarity. creditor of the share which affects one of
the solidary debtors does not release the
latter from his responsibility towards the
co-debtors, in case the debt had been
totally paid by anyone of them before
the remission was effected.

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 Art. 1220. The remission of the whole necessary documents for the transfer of
obligation, obtained by one of the title of the vendee be executed so that the
solidary debtors, does not entitle him to same could be registered with the
reimbursement from his co-debtors. mortgage with the assurance that as soon
as title to the lot had been issued and
mortgage registered RFC would pay the
Art. 1221. If the thing has been lost or if former the balance of the purchase price.
the prestation has become impossible RFC defaulted in its undertaking with Realty
without the fault of the solidary debtors, Investments. The latter commenced an
the obligation shall be extinguished. action for recovery of the balance from
either Dominguez or RFC. The Court ruled
If there was fault on the part of any one that RFC assumed the responsibility of
of them, all shall be responsible to the Dominguez and is therefore the one who
creditor, for the price and the payment should pay the balance.
of damages and interest, without
prejudice to their action against the Quiombing v. CA
guilty or negligent debtor. Quiombing and Biscocho jointly and
severally bound themselves to construct a
If through a fortuitous event, the thing is house for Spouses Aligo in consideration of
lost or the performance has become P137,940. Spouses failed to pay the
impossible after one of the solidary balance upon being due. Quiombing, alone,
debtors has incurred in delay through filed a complaint for recovery of the
the judicial or extrajudicial demand upon remaining amount. Spouses Aligo moved to
him by the creditor, the provisions of the dismiss on the ground that Biscocho was
preceding paragraph shall apply. and indispensable party and therefore
should've been included as co-plaintiff.
Jaucian v. Querol
L. Dayandante and H. Rogero executed a The Court ruled that Quiombing could
private writing in which they acknowledged recover amount from spouses without co-
themselves jointly and severally indebted to creditor Biscocho as co-plaintiff because
Jaucian. H. Rogero alleges that her the obligation at bar is solidary. The Court
signature was obtained by means of fraud. cited Tolentino:
She died leaving her estate to be "The essence active solidarity
administered by Querol. As found by the consists in the authority of each
Court, she signed the writing as a surety for creditor to claim and enforce the
Dayandante, that as such she cannot be rights of all, with the resulting
obligation of paying every one what
compelled to pay the creditor until
belongs to him; there is no merger,
application has been previously made of all
much less a renunciation of rights, but
the property of the debtor an exception as
only mutual representation."
in this case is when he jointly bound himself
to the debtor. It did not matter who as between
Quiombing and Biscocho filed the
RFC v. CA complaint because the Spouses Saligo
Dominguez bought land from Realty were liable to either of the two as solidary
Investments Inc. For the improvements on creditor for the full amount of the debt. Full
the land Dominguez loaned P10,000 from satisfaction of a judgement obtained
RFC and secured said loan with the the against them by Quiombing would
house and lot. Also, RFC wrote Realty discharge their obligation to Biscocho, and
Investments to the requesting that the

52
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vice versa; it was not necessary for both Alipio v. CA
Quiombing and Biscocho to file the Romeo Jaring is a lessee of a fishpond
complaint. Also, the debtor may pay any of located at Bataan. He subleased it to
the solidary creditors, but if any demand, Spouses Alipio and Spouses Manuel. The
judicial or extra-judicial, has be made by sublessee failed to pay the second of their
any one of them, payment should be made two stipulated installments despite due
to him. demand. Jaring filed for collection against
Spouses Alipio and Manuel. Placido Alipio
Defenses available to a solidary debtor husband of Purita Alipio died before the
against the creditor case was filed. The Court held that the
creditor cannot sue the surviving spouse of
Art. 1222. A solidary debtor may, in a decedent in an ordinary proceeding for
actions filed by the creditor, avail himself the collection of sum of money chargeable
of all defenses which are derived from against the conjugal partnership. The
the nature of the obligation and of those proper remedy is for him to file a claim in
which are personal to him, or pertain to the settlement of the estate of the
his own share. With respect to those decedent. If none has been instituted, he
which personally belong to the others, can file a petition either for the issuance of
he may avail himself thereof only as letters of administration or for the allowance
regards that part of the debt for which of will, depending on whether the husband
the latter are responsible. died testate or intestate. Jaring cannot
shortcut his claim my lumping his claims
against the Alipios with that of the Manuels.
1.! Those derived from the nature of the
obligation, such as prescription, The court also held that the Alipios and the
illegality, nullity, suspensive condition or Manuels were only jointly liable. If from the
term, former payment, compensation, law or the nature or the wording of the
release, compromise, etc. that destroy obligation the contrary does not appear, an
or weaken the legal tie. obligation is presumed to be joint, i.e., the
2.! Personal defenses, such as incapacity debt is divided into as many equal shares
or vitiation of consent. as there are debtors, each debt being
3.! Defenses that pertain to his share, same considered distinct from one another. They
as 1. would only be solidarily liable if they are
4.! Those defenses that personally belong alleged and proven to be joint tort feasors-
to the other co-debtors, but he may that they refused to vacate the leased
avail himself thereof only as regards property after the expiration of the lease
that part of the debt for which the latter period and despite due demands by the
are responsible. The debtor may utilize lessor. There was no proof establishing
the defenses of his co-debtors even if solidary liability.
the latter are not joined as defendants.

Effects

1.! If derived from the nature: all the

solidary co-debtors are benefited
2.! If personal one: only him benefited
3.! If personally to the co-debtor: partial
defense

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Joint Indivisible Obligations Divisible and Indivisible Obligations

Art. 1224. A joint indivisible obligation Divisible Obligations

gives rise to indemnity for damages from
the time anyone of the debtors does not An obligation is divisible when it is
comply with his undertaking. The susceptible to partial performance.
debtors who may have been ready to
fulfill their promises shall not contribute Art. 1223. The divisibility or indivisibility
to the indemnity beyond the of the things that are the object of
corresponding portion of the price of the obligations in which there is only one
thing or of the value of the service in debtor and only one creditor does not
which the obligation consists. alter or modify the provisions of Chapter
2 of this Title.
1.! The creditor must proceed against Art. 1233. A debt shall not be
all debtors understood to have been paid unless the
2.! Breach converts the original thing or service in which the obligation
obligation into an obligation to pay consists has been completely delivered
the value or rendered, as the case may be.
3.! Indemnity for damages is
recoverable only from the guilty Indivisible Obligations
debtor
4.! No mutual agency of co-debtors An obligation is indivisible when it cannot
exists be validly performed in parts.

Indivisibility vs. Solidarity Indivisibility v. Solidarity

Art. 1210. The indivisibility of an Indivisibility arises from the nature of the
obligation does not necessarily give rise thing or prestation due; solidarity from the
to solidarity. Nor does solidarity of itself tie that binds the parties, debtors or
imply indivisibility. creditors.

Indivisibility can exist between one creditor

Effects and one debtor; solidarity requires at least
two creditors and/or debtors.
Art. 1209. If the division is impossible,
the right of the creditors may be Breach by one indivisible debtor does not
prejudiced only by their collective acts, make the co-debtor liable for such breach;
and the debt can be enforced only by but the solidary debtor answers to the
proceeding against all the debtors. If one creditor for the breach of his creditor.
of the latter should be insolvent, the
others shall not be liable for his share.

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Kinds (In)Divisibility in Obligations not to Do

Art. 1225. For the purposes of the Art. 1225. x x x

preceding articles, obligations to give
definite things and those which are not In obligations not to do, divisibility or
susceptible of partial performance shall indivisibility shall be determined by the
be deemed to be indivisible. (Natural) character of the prestation in each
particular case.
When the obligation has for its object
the execution of a certain number of
Effects
days of work, the accomplishment of
work by metrical units, or analogous
things which by their nature are Art. 1223. The divisibility or indivisibility
susceptible of partial performance, it of the things that are the object of
shall be divisible. obligations in which there is only one
debtor and only one creditor does not
However, even though the object or alter or modify the provisions of Chapter
service may be physically divisible, an 2 of this Title.
obligation is indivisible if so provided by
Art. 1233. A debt shall not be
law (legal) or intended (conventional) by
understood to have been paid unless the
the parties.
thing or service in which the obligation
consists has been completely delivered
In obligations not to do, divisibility or
or rendered, as the case may be.
indivisibility shall be determined by the
character of the prestation in each
particular case.
Art. 1224. A joint indivisible obligation
gives rise to indemnity for damages from
Presumptions the time anyone of the debtors does not
comply with his undertaking. The
Art. 1225. For the purposes of the debtors who may have been ready to
preceding articles, obligations to give fulfill their promises shall not contribute
definite things and those which are not to the indemnity beyond the
susceptible of partial performance shall corresponding portion of the price of the
be deemed to be indivisible. thing or of the value of the service in
which the obligation consists.
When the obligation has for its object
the execution of a certain number of Cessation of Indivisibility
days of work, the accomplishment of
work by metrical units, or analogous Natural Indivisibility: By conversion of the
things which by their nature are obligation into an obligation to pay
susceptible of partial performance, it damages.
shall be divisible. x x x
Conventional/Legal Indivisibility: By
novation of the obligation, or by death of
the creditor or the debtor (division among
heirs of deceased)

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 Obligations with a Penal Clause possible only when
expressly stipulated
PRINCIPAL ACCESSORY Creditor may demand Creditor can never
OBLIGATION OBLIGATION both the principal demand both
Can stand alone, Attached to the obligation and the prestations.
independent of other principal in order to penalty if such a right
obligations. complete it or take is granted to him
their place in case of (complementary
breach penalty)

OBLIGATIONS WITH A CONDITIONAL OBLIGATIONS WITH A GUARANTY

PENAL CLAUSE OBLIGATION PENAL CLAUSE
There is an existing No obligation until the Definition: Contract by
principal obligation occurrence of a virtue of which a
suspensive condition. person, called the
It is the fulfillment of guarantor, binds
the condition that himself to fulfill the
gives rise to the obligation of the
obligation principal debtor in
Accessory obligation Obligation is dependent case the latter should
(penal clause) is upon a future and fail to do so.
dependent upon non- uncertain event. SIMILARITIES
performance of the 1. They are both intended to ensure the
principal obligation performance of the principal obligation.
2. They are both accessory and subsidiary
OBLIGATIONS WITH A ALTERNATIVE obligations.
PENAL CLAUSE OBLIGATION 3. Both can be assumed by a third person.
Only one prestation, More than one Object of penal clause Object of the
non-performance of prestation, but the is different from object obligations of the
which makes penal fulfillment of one or of principal obligation principal debtor and
clause enforceable some of them is guarantor is the same.
sufficient. Principal obligation and The same person
Impossibility of Impossibility of one penalty can be cannot, at the same
principal obligation prestation, without the assumed by the same time, be the principal
extinguishes both fault of the debtor, person debtor and the
principal obligation leaves the others guarantor for the same
and penalty. subsisting. obligation
Generally, the debtor The debtor, or in some Nullity of the principal Guaranty subsists even
cannot choose to cases the creditor, has obligation extinguishes if the principal
perform the penal the choice of which the penal clause. obligation is voidable,
clause instead of the prestation to fulfill. unenforceable, or
principal obligation, natural
unless such a choice If 3rd person assumes responsibility for penal
is expressly granted clause, and the principal obligation is voidable,
him. unenforceable, or natural, then it assumes the
form of guaranty.
OBLIGATIONS WITH A FACULTATIVE
PENAL CLAUSE OBLIGATION Kinds of Penal Clause: Effect

Performance of the Debtor has the Subsidiary: When only the penalty may be
penalty instead of absolute power to enforced
fulfillment of the substitute the Complementary: When both the principal
principal obligation is subsidiary obligation obligation and the penalty may be enforced

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Kinds of Penal Clause: Source 1960 he sold it to Juan Carlos who also did
not build a house thereon. April 3, 1961
Conventional: Provided by the agreement Makati Dev. Corp. demanded payment of
Legal: Provided by law cash bond from Empire. Said demand was
unheeded, he filed a complaint for recovery
Kinds of Penal Clause: Purpose of the amount of the bond against Empire,
who subsequently filed a counterclaim
Punitive: Where damages may be collected against Andal. Andal moved for the
in addition to the penalty dismissal of the counterclaim on the ground
Reparatory: Where the penalty substitutes that the 'special condition' was contrary to
indemnification for damages law morals and public policy. The Court of
First Instance ruled in favor of Makati Dev.
Demandability of Penalty Corp. and held that Empire was liable but
reduced the amount from P12,000 to
Art. 1226. x x x P1,500.

The penalty may be enforced only when The Court ruled that MDC was not entitled
it is demandable in accordance with the to recover the full amount of the cash bond
provisions of this Code. and thus held that the reduction of amount
claimed made by the CFI was proper. The
lower court considered that the
Effects of Penal Clause performance of the special condition was
the reason for the penal clause inserted.
Substitute for indemnity for damages and While it is true that in obligations with a
payment of interest; Creditor cannot collect penal sanction the penalty takes the place
other damages in addition to penalty of "damages and the payment of interest
for non-compliance" the obligee is entitled
Art. 1226. In obligations with a penal to recover upon the breach of the obligation
clause, the penalty shall substitute the without the need of proving damages, it is
indemnity for damages and the payment nonetheless true that certain instances a
of interests in case of noncompliance, if mitigation of the obligor's liability is
there is no stipulation to the contrary. allowed. The judge shall equitably reduce
Nevertheless, damages shall be paid if the penalty when the principal obligation
the obligor refuses to pay the penalty has been partly or irregularly complied with
or is guilty of fraud in the fulfillment of by the debtor. Even if there has been no
the obligation. performance, the penalty may also be
reduced by the courts if it is iniquitous or
unconscionable. In the case at bar, it
MDC v. Empire Insurance Co.
appears that the construction of the house
was merely delayed and that materials were
On March 31, 1959 Makati Dev. Corp. sold
already seen around the land.
a parcel of land to Rodolfo Andal for
P55,615 with the special condition that "the
vendee shall start construction and Tan v. CA
Tan obtained two P 2 million peso loans
complete at least 50% of residence within
two years" else a cash bond executed by from Cultural Center of the Philippines
Andal as principal and Empire as surety in evidenced by 2 promissory notes. He
the amount of P12,000 will be forfeited. defaulted but after a few partial payments
Andal did not build the house. On Jan 18, he had the loan restructured. Then he failed
to pay said restructured loan. He proposed

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to CCP new modes for payment of his loan. still owing by the lessee to the lessor, the
He was asking for a moratorium because of penalty cannot substitute for the P100,0000
the substantial deduction in the volume of supposed damage resulting from the
his business on account of the Peso issuance of the injunction against the
devaluation. CCP filed a case against Tan, P290,000 remaining cash deposit.
the lower court ruled in favor of CCP. It
adjudged him liable for the amount loaned, Not exempt debtor from performance;
its interest and a 2% per month penalty as Creditor cannot demand both performance
stipulated in the promissory notes. The and penalty at the same time
Court ruled that Tan was entitled to the
reduction of the amount of penalty Art. 1227. The debtor cannot exempt
stipulated between him and CCP because, himself from the performance of the
while the stipulated 14% per annum obligation by paying the penalty, save in
interest charge until full payment of the loan the case where this right has been
constitutes the monetary interest on the expressly reserved for him. Neither can
note and is allowed under Art. 1956, the the creditor demand the fulfillment of the
2% per month penalty charge which is obligation and the satisfaction of the
separate and distinct from the monetary penalty at the same time, unless this
interest on the principal should be reduced. right has been clearly granted him.
The Court found it necessary to reduce the However, if after the creditor has
penalty to a straight 12% per annum decided to require the fulfillment of the
because it is simply unconscionable and obligation, the performance thereof
considered Tan's several partial payments should become impossible without his
and the fact that the penalty compounded fault, the penalty may be enforced.
monthly from his default for 21 years from
his default in 1980.
When penalty shall be equitably reduced
Country Bankers Insurance Corp v. CA
OVEC as lessor and Enrique Sy as lessee Art. 1229. The judge shall equitably
entered into a lease agreement of theaters reduce the penalty when the principal
with a penal clause for repossession of obligation has been partly or irregularly
leased property and forfeiture of deposits complied with by the debtor. Even if
made by Sy. While as a general rule the there has been no performance, the
penalty shall substitute the indemnity for penalty may also be reduced by the
damages and payment of interests in case courts if it is iniquitous or
of noncompliance, this rule has exceptions unconscionable.
such as when there is a stipulation to the
contrary, when the obligor is sued for Nullity of Principal Obligation or Penal
refusal to pay the agreed penalty or when Clause
the obligor is guilty of fraud. In all these
cases, the purpose of the penalty is to Art. 1230. The nullity of the penal clause
punish the obligor. Therefore, the obligee does not carry with it that of the principal
can recover not only the penalty but also obligation. The nullity of the principal
the damages resulting from the non- obligation carries with it that of the penal
fulfillment or defective performance of the clause.
principal obligation. In the case at bar,
inasmuch s the forfeiture clause provides
Rationale for the latter is because the penal
that the deposits shall be deemed forfeited,
clause is merely an accessory obligation.
without prejudice to any other obligation

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 Obligations: Art. 1302. It is presumed that there is
Extinguishment of Obligations legal subrogation:
xxx
Modes of Extinguishment (3) When, even without the knowledge of
the debtor, a person interested in the
Art. 1231. Obligations are extinguished: fulfillment of the obligation pays, without
(1) By payment or performance; prejudice to the effects of confusion as
(2) By the loss of the thing due; to the latter's share.
(3) By the condonation or remission of
the debt; Third Person who is not an interested party
(4) By the confusion or merger of the but with consent of debtor
rights of creditor and debtor;
(5) By compensation;
(6) By novation. Art. 1302. It is presumed that there is
legal subrogation:
Other causes of extinguishment of xxx
obligations, such as annulment, (2) When a third person, not interested in
rescission, fulfillment of a resolutory the obligation, pays with the express or
condition, and prescription, are tacit approval of the debtor; x x x
governed elsewhere in this Code.
Third Person who is not an interested party
Payment or Performance and without knowledge or against the will of
the debtor
Concept
Art. 1236. The creditor is not bound to
accept payment or performance by a
Art. 1232. Payment means not only the
third person who has no interest in the
delivery of money but also the
fulfillment of the obligation, unless there
performance, in any other manner, of an
is a stipulation to the contrary.
obligation.
Whoever pays for another may demand
Requisites from the debtor what he has paid,
except that if he paid without the
1.! Who can pay knowledge or against the will of the
debtor, he can recover only insofar as
In General the payment has been beneficial to the
debtor.
The debtor or his/her duly authorized agent,
or his/her successor-in-interest can pay.
Any third person as well may make the Art. 1237. Whoever pays on behalf of the
payment. debtor without the knowledge or against
the will of the latter, cannot compel the
Third Person who is an interested party creditor to subrogate him in his rights,
such as those arising from a mortgage,
An interested party is any person interested guaranty, or penalty.
in the fulfillment of the obligation, such as a
co-debtor, guarantor, or junior creditor.

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Third Person who does not intend to be In General
reimbursed
Art. 1240. Payment shall be made to the
Art. 1238. Payment made by a third person in whose favor the obligation has
person who does not intend to be been constituted, or his successor in
reimbursed by the debtor is deemed to interest, or any person authorized to
be a donation, which requires the receive it.
debtor's consent. But the payment is in
any case valid as to the creditor who has Incapacitated Person
accepted it.
Art. 1241. Payment to a person who is
In Obligation to Give incapacitated to administer his property
shall be valid if he has kept the thing
Art. 1239. In obligations to give, delivered, or insofar as the payment has
payment made by one who does not been beneficial to him.
have the free disposal of the thing due
and capacity to alienate it shall not be Third Person
valid, without prejudice to the provisions
of Article 1427 under the Title on
Article 1241. x x x
"Natural Obligations."
Payment made to a third person shall
Art. 1427. When a minor between also be valid insofar as it has redounded
eighteen and twenty-one years of age, to the benefit of the creditor. x x x
who has entered into a contract without
the consent of the parent or guardian, Requisites
voluntarily pays a sum of money or
delivers a fungible thing in fulfillment of Any third person may be the payee
the obligation, there shall be no right to provided that it payment redounded to the
recover the same from the obligee who creditor’s benefit and only to the extent of
has spent or consumed it in good faith. such benefit.

In Case of Active Solidarity When Proof of Benefit Not Required

Art. 1214. The debtor may pay any one Article 1241. x x x
of the solidary creditors; but if any
demand, judicial or extrajudicial, has x x x Such benefit to the creditor need
been made by one of them, payment not be proved in the following cases:
should be made to him.
(1) If after the payment, the third person
acquires the creditor's rights;
2.! To whom payment may be made (2) If the creditor ratifies the payment to
the third person;
(3) If by the creditor's conduct, the
debtor has been led to believe that the
third person had authority to receive the
payment.

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In Case of Active Solidarity In Obligations to Pay Money

Art. 1214. The debtor may pay any one Art. 1249. The payment of debts in
of the solidary creditors; but if any money shall be made in the currency
demand, judicial or extrajudicial, has stipulated, and if it is not possible to
been made by one of them, payment deliver such currency, then in the
should be made to him. currency which is legal tender in the
Philippines.
3.! What is to be paid
The delivery of promissory notes
In General payable to order, or bills of exchange or
other mercantile documents shall
What is to be paid is the very thing or produce the effect of payment only
service or abstention due. The debtor of a when they have been cashed, or when
thing cannot compel the creditor to receive through the fault of the creditor they
a different one, although the latter may be have been impaired.
of the same value or more valuable, than
that what is due, unless the obligation is In the meantime, the action derived from
facultative or the creditor agrees. the original obligation shall be held in the
abeyance.
In Obligations to Give a Specific Thing
Art. 1250. In case an extraordinary
Art. 1244. The debtor of a thing cannot inflation or deflation of the currency
compel the creditor to receive a different stipulated should supervene, the value
one, although the latter may be of the of the currency at the time of the
same value as, or more valuable than establishment of the obligation shall be
that which is due. the basis of payment, unless there is an
agreement to the contrary.
In obligations to do or not to do, an act
or forbearance cannot be substituted by
R.A. No. 529, which expressly declared
another act or forbearance against the
stipulations for payment of an obligation in
obligee's will.
gold or in another currency is contrary to
public policy, has been repealed by R.A.
In Obligations to Give a Generic Thing No. 8183 which allows payment in different
currency. However, in the absence of an
Art. 1246. When the obligation consists agreement, payment shall be made in
in the delivery of an indeterminate or pesos.
generic thing, whose quality and
circumstances have not been stated, the St. Paul v. Macondray
creditor cannot demand a thing of
superior quality. Neither can the debtor St. Paul as insurer paid the consignee
deliver a thing of inferior quality. The S1,134.46 representing the value of the
purpose of the obligation and other damaged drum, cartons of medicine and
circumstances shall be taken into other expenses. As the subrogee of the
consideration. rights of the consignee, St. Paul filed an
action for recovery against the shipping
company. Not satisfied with the amount

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adjudged St. Paul interposed an appeal if no presentment is made at all, the drawer
contending that it should recover cannot be held liable irrespective of loss or
P1,134.46, or its equivalent in pesos at the injury unless presentment is otherwise
rate of P3.90 instead of P2 as ruled by the excused. This is in harmony with Article
trial court. The Supreme Court ruled that 1249 of the Civil Code under which
the rate that should be followed is that payment by way of check or other
which was prevailing at the the time the negotiable instrument is conditioned on its
obligation was incurred. being cashed, except when through the
fault of the creditor, the instrument is
Papa v. AU Valencia impaired. The payee of a check would be a
Papa as attorney-in-fact of Butte, sold the creditor under this provision and if its non-
Butte's lot to Penarroyo. Penarroyo paid payment is caused by his negligence,
the amount in P5,000 in cash and P40,000 payment will be deemed effected and the
in check. Penarroyo now claims the release obligation for which the check was given as
of the property to him. However, Papa conditional payment will be discharged.
insists that he never cashed said check;
and such being the case, its delivery never PAL v. CA
produced the effect of payment. He argues Amelia Tan file a case for damages against
that the check was given to him ten years PAL. PAL was ordered to pay her P25,000
ago that he could not remember what as damages and P5,000 for attorney's fee.
happened to it. The Court held that it was Tan filed a moved for the issuance of a writ
an undisputed fact that the cash and check of execution of the judgment.
was paid and received. The contention that Subsequently, Tan moved for the issuance
he did not encash is unsubstantiated and is of an alias writ of execution stating that the
inconsistent with the claim that he does not judgment rendered remained unsatisfied.
remember what happened ten years ago. PAL opposed stating that it had already
After more than 10 years from the payment fully paid its obligation through the deputy
in part by cash and in part by check, the sheriff, Emilio Z. Reyes, as evidenced by
presumption is that the check had been cash vouchers properly signed and
encashed. Granting that petitioner had receipted by him. PAL issued the checks in
never encashed the check, his failure to do Reyes's name.
so for more than (10) years undoubtedly
resulted in the impairment of the check The Court ruled that payment made to the
through his unreasonable and unexplained absconding sheriff by check in his name
delay. did not operate to satisfy the judgment
debt. Payment shall be made to the person
While it is true that the delivery of a check in whose favor the obligation has been
produces the effect of payment only when constituted, or his successor in interest, or
it is cashed, pursuant to Art. 1249 of the any person authorized to receive it. Since a
Civil Code, the rule is otherwise if the negotiable instrument is only a substitute
debtor is prejudiced by the creditors for money and not money, the delivery of
unreasonable delay in presentment. The such an instrument does not, by itself,
acceptance of a check implies an operate as payment. A check, is not legal
undertaking of due diligence in presenting it tender. Mere delivery of checks does not
for payment, and if he from whom it is discharge the obligation under a judgment
received sustains loss by want of such which remains suspended until the
diligence, it will be held to operate as actual payment is actually realized. Although
payment of the debt or obligation for which payment in checks is precisely intended to
it was given. It has, likewise, been held that avoid the possibility of the money going to

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the wrong party. PAL should have issued 2.! Obligations which necessarily entail
the checks in the Tan's name or in escrow. partial performance
As between two innocent persons, one of 3.! When the debt is in part unliquidated
whom must suffer the consequence of a and in part liquidated
breach of trust, the one who made it 4.! Joint Divisible Obligations
possible by his act of confidence must bear 5.! Solidary Obligations with different terms
the loss. (Blondeau, et al. v. Nano) Having and conditions
failed to employ the proper safeguards to 6.! Compensation with balance left
protect itself, PAL whose act made 7.! If work Is to be delivered partially, the
possible the loss had but itself to blame. price or compensation for each part
having been fixed
[Prof Disini: It is common practice to issue 8.! Several guarantors who demand the
checks in the sheriff's name. He also right of division
reminds us that the safety of carrying a 9.! Impossibility/Extreme Difficulty of Single
check was the prime consideration in Performance
satisfying judgment debts through checks.
He asks what difference has the case-at- Substantial Performance in Good Faith
bar to a situation where the judgment debt
was paid in cash to the sheriff, in which Art. 1234. If the obligation has been
case even if he absconds payment has substantially performed in good faith, the
already been affected.] obligor may recover as though there had
been a strict and complete fulfillment,
Payment of Interest less damages suffered by the obligee.

Art. 1956. No interest shall be due Estoppel

unless it has been expressly stipulated in
writing.

Art. 1235. When the obligee accepts the
performance, knowing its
4.! How is payment to be made incompleteness or irregularity, and
without expressing any protest or
In General objection, the obligation is deemed fully
complied with.
Art. 1233. A debt shall not be
understood to have been paid unless the
Presumptions in Payment
thing or service in which the obligation
consists has been completely delivered
or rendered, as the case may be. Art. 1176. The receipt of the principal by
the creditor without reservation with
respect to the interest, shall give rise to
Art. 1248. x x x the creditor cannot be the presumption that said interest has
compelled partially to receive the been paid.
prestations in which the obligation
consists. Neither may the debtor be The receipt of a later installment of a
required to make partial payments. debt without reservation as to prior
installments, shall likewise raise the
Exceptions presumption that such installments have
been paid.
1.! Express Stipulation

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!
5.! When payment is to be made 6.! Where payment is to be made

Art. 1169. Those obliged to deliver or to Art. 1251. Payment shall be made in the
do something incur in delay from the place designated in the obligation.

time the obligee judicially or
extrajudicially demands from them the There being no express stipulation and if
fulfillment of their obligation. the undertaking is to deliver a
determinate thing, the payment shall be
However, the demand by the creditor made wherever the thing might be at the
shall not be necessary in order that moment the obligation was constituted.

delay may exist:
In any other case the place of payment
(1) When the obligation or the law shall be the domicile of the debtor.
expressly so declare; or
(2) When from the nature and the 
If the debtor changes his domicile in bad
circumstances of the obligation it faith or after he has incurred in delay, the
appears that the designation of the time additional expenses shall be borne by
when the thing is to be delivered or the him.
service is to be rendered was a
controlling motive for the establishment
7.! Expenses of making payment
of the contract; or
(3) When demand would be useless, as
when the obligor has rendered it beyond Art. 1247. Unless it is otherwise
his power to perform. stipulated, the extrajudicial expenses
required by the payment shall be for the
In reciprocal obligations, neither party account of the debtor. With regard to
incurs in delay if the other does not judicial costs, the Rules of Court shall
comply or is not ready to comply in a govern.
proper manner with what is incumbent
upon him. From the moment one of the Application of Payments
parties fulfills his obligation, delay by the
other begins. Art. 1252. He who has various debts of
the same kind in favor of one and the
same creditor, may declare at the time
of making the payment, to which of them
the same must be applied. Unless the
parties so stipulate, or when the
application of payment is made by the
party for whose benefit the term has
been constituted, application shall not
be made as to debts which are not yet
due.
If the debtor accepts from the creditor a
receipt in which an application of the
payment is made, the former cannot
complain of the same, unless there is a
cause for invalidating the contract.

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Requisites Paculdo v. Regalado
Paculdo entered into a contract of lease
1.! Several debts are owed with Regalado over the latter's wet market
2.! They are owed by the same debtor to along Fairview. He also purchased from
the same creditor Regalado 8 units of heavy equipment and
3.! The debts are of the same kind leased another 11 of Regalado's properties.
4.! The debts are due (or that the term was Paculdo failed to pay his rentals. Regalado
for the benefit of the party making the filed an ejectment case which he won.
application, unless otherwise stipulated Paculdo claims that he had paid the
5.! That they payment made is not amount of P11,478,121.85 for security
sufficient to cover all debts deposit and rentals on the wet market
building but Regalado without his consent
Rules applied portions of the payment to his other
obligations.
Art. 1252. He who has various debts of
the same kind in favor of one and the The Court found that Paculdo did not give
same creditor, may declare at the time his consent to the letter of Regalado
of making the payment, to which of them proposing that the amount be deducted as
the same must be applied. Unless the payment for the heavy equipments he
parties so stipulate, or when the bought. The right to specify which among
application of payment is made by the his various obligations to the same is to be
party for whose benefit the term has satisfied first rests with the debtor. Art.
been constituted, application shall not 1252. At the time Paculdo made his
be made as to debts which are not yet payments, he made it clear to Regalado
due. that they were to be applied to his rental
obligations to wet market property. If the
If the debtor accepts from the creditor a debtor did not declare at the time the he
receipt in which an application of the made the payment to which of his debts it
payment is made, the former cannot is to be applied, no payment shall be made
complain of the same, unless there is a to a debt that is not yet due and the
cause for invalidating the contract. payment has to be applied first to the debt
most onerous to the debtor.

Art. 1253. If the debt produces interest, Payment by Cession

payment of the principal shall not be
deemed to have been made until the 1.! Concept
interests have been covered.
Art. 1255. The debtor may cede or
Reparations Commission v. UDSF assign his property to his creditors in
payment of his debts. This cession,
The rules contained in Arts. 1252 to 1254 unless there is stipulation to the
apply to a person owing several debts of contrary, shall only release the debtor
the same kind to a single creditor. They from responsibility for the net proceeds
cannot be made applicable to person of the thing assigned. The agreements
whose obligation as a mere surety is both which, on the effect of the cession, are
contingent and singular. made between the debtor and his
creditors shall be governed by special
laws.

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!
2.! Requisites payment as it was merely a security and not
the satisfaction of indebtedness. In this
-! Plurality of debts case, DBP exceeded its authority when it
-! Plurality of creditors did not undergo the proper foreclosure
-! Partial or relative insolvency of the proceedings.
debtor
-! Abandonment of the totality of the 2.! Requisites
debtor’s properties for the benefit of the
creditors -! Not in prejudice of other creditors
-! Acceptance by creditors -! Not a pactum comissorium

3.! Effects 3.! Effects

Assignment liberates the debtor up to the The obligation is extinguished. Dation is

amount of the net proceeds of the sale of governed by the law on sales (e.g. the
his assets, unless the contrary is stipulated. debtor is bound by the warranties provided
Assignment does not vest title to the in Arts. 1548, 1561).
property in the creditors, who are only
authorized to to sell it. FCC v. Philippine Acetylene
Philippine Acetylene purchased from
Dation in Payment Alexander Lim a 1969 Chevrolet for
P55,247.80, with a down payment of
1.! Concept P20,000.00 and the balance of P35,247.80
payable under a promissory note. As
Art. 1245. Dation in payment, whereby security for the payment of the promissory
property is alienated to the creditor in note, Philippine Acetylene executed a
satisfaction of a debt in money, shall be chattel mortgage over the same car in favor
governed by the law of sales. of Lim. Lim transferred to Filinvest all his
rights, title, and interests in the promissory
note and chattel mortgage via a Deed of
DBP v. CA Assignment. Philippine Acetylene failed to
Lydia Cuba obtained loans from DBP under comply with the terms of the promissory
the terms of the promissory notes and as note and chattel mortgage, having
security for said loans she executed two defaulted in payment of 9 consecutive
Deeds of Assignment of her Leasehold installments. Filinvest sent a demand letter
Rights. She failed to pay her loans on demanding that PA return the mortgaged
scheduled dates. Without any foreclosure car to it. PA returned said car with a
proceedings DBP appropriated her document entitled “Voluntary Surrender
Leasehold rights over the fishpond. The with Special Power of Attorney to Sell”.
creditor cannot appropriate the things given
by way of pledge or mortgage, or dispose The Court said that the return of the
of them. Any stipulation to the contrary is mortgaged car to Filinvest by voluntary
null and void. However, the assignment surrender did not totally extinguish PA’s
here is not a pactum commissorium. An obligation to it because the mere return of
assignment to guarantee a contract is in the mortgaged car to Filinvest doesn’t
effect a mortgage. The assignment in the constitute dacion en pago in the absence,
case at bar did not amount to cession express or implied, of the true intention of
under Art. 1255 as there was only one the parties.
creditor nor did it constitute dation in

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As a special mode of payment, dation in whenever the creditor refuses or cannot
payment allows the debtor to offer the accept payment.
creditor another thing to accept as
equivalent of payment of the outstanding Requisites
debt. In a sense, the creditor is really
“buying” the other thing offered by the 1.! Tender of Payment and Unjustified
debtor, the payment for which is to be Refusal
charged against the debtor’s debt. As such, 2.! First Notice to Interested Parties,
it has the nature of a sale. Being similar in containing the fact and date of tender
nature to a sale, the essential elements of a and undue refusal, the intention to
contract of sale must be present: consent, make consignation, the date and hour
object certain, and cause or consideration. when consignation will be made, and
the Court where the deposit will be
In its modern concept, what actually takes made.
place in dacion en pago is an objective 3.! Filing a Complaint against the Creditor
novation of the obligation where the thing to accept payment and prayer for the
offered as an accepted equivalent of the court to cancel the obligation
performance of an obligation is considered 4.! Judicial Deposit of the thing due with
as the object of the contract of sale, while proof of tender and notice
the debt is considered as the purchase 5.! Second notice to interested parties,
price. In any case, common consent is an notifying of the consignation made
essential prerequisite, be it sale or 6.! Trial hearing and judgment
innovation to have the effect of totally
extinguishing the debt or obligation. Art. 1256. x x x

Tender of Payment and Consignation Consignation alone shall produce the

same effect in the following cases:
1.! Tender of Payment
(1) When the creditor is absent or
Concept unknown, or does not appear at the
place of payment;
The tender of payment is the declaration of (2) When he is incapacitated to receive
intention by the debtor manifesting his firm the payment at the time it is due;

decision to pay, coupled with a demand (3) When, without just cause, he refuses
upon a creditor to accept immediate to give a receipt;

performance; and its unjustified refusal (4) When two or more persons claim the
must be followed by consignation. same right to collect;
(5) When the title of the obligation has
Requisites been lost.

Art. 1257. In order that the consignation

2.! Consignation of the thing due may release the obligor,
it must first be announced to the
Concept persons interested in the fulfillment of
the obligation. x x x
Consignation is the deposit of the thing due
made by the debtor in lawful form

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 Art. 1258. x x x Expenses of Consignation

The consignation having been made, the Art. 1259. The expenses of consignation,
interested parties shall also be notified when properly made, shall be charged
thereof. against the creditor.

Effect of Non-compliance De Guzman v. CA

Leonida Singh as the buyer and De
Absence of the first notice invalidates Guzman as the seller, already parties to a
consignation as payment. Notice of intent civil case entered into a compromise
to take the case to Court in case of agreement setting the date of the payment
rejection of tender may serve as first notice. for the sale of a parcel of land and that
failure to abide by the terms would entitle
Failure to give the second notice invalidates the the sellers to a writ of execution on its
consignation. right of possession over the premises. In
Effects the designated date De Guzman failed to
appear to receive the payment.
Art. 1260. Once the consignation has Notwithstanding, he filed a motion for the
been duly made, the debtor may ask the issuance of a writ of execution.
judge to order the cancellation of the
obligation. x x x The Court ruled that Singh, the buyer had
substantially complied with the terms and
conditions of the compromise agreement.
Withdrawal by debtor before acceptance by Her failure to deliver to the petitioners the
creditor or approval by court full amount at the time designated was not
her fault. It was the petitioners who were
Art. 1260. x x x absent. When the petitioners' counsel came
later in the day he merely informed Singh
Before the creditor has accepted the that he had no authority to receive the
consignation, or before a judicial payment. He invited the buyer to the house
declaration that the consignation has of the buyers but they were not there either.
been properly made, the debtor may Singh was also informed that one of the
withdraw the thing or the sum petitioners will arrive at around 4pm. In her
deposited, allowing the obligation to eagerness to settle the obligation,
remain in force. consented and waited for the call which did
not come and unwittingly the period lapse.
Withdrawal by debtor after proper Since the deposit of the balance of the
consignation purchase price was made in good faith and
that the failure of the private respondent to
Art. 1261. If, the consignation having deposit the purchase price on the date
been made, the creditor should specified was due to the petitioners who
authorize the debtor to withdraw the also make no claim that they had sustained
same, he shall lose every preference damages because of the two days delay,
which he may have over the thing. The there was substantial compliance with the
co-debtors, guarantors and sureties terms and conditions of the compromise
shall be released. agreement.

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TLG v. Flores and strictly in accordance with the law,
In Beacon Trading Co. vs Juan Fabella et al Arts. 1256 to 1261. That these Articles
a case then pending at the CFI Rizal, TLG must be accorded a mandatory
intervened as sub-lessee of Beacon in construction is clearly evident and plain
order to protect its rights as sub-lessee and from the very language of the codal
to enable it, during the pendency of the provisions themselves which require
case, to make a consignation of the absolute compliance with the essential
monthly rentals as it was at a loss as to requisites provided therein. Substantial
who is lawfully and rightfully entitled to compliance is not enough for that would
receive payments of the monthly rentals. render only a directory construction to the
TLG deposited a total of P3,750. The law. The use of the words "shall" and
defendant in said case moved to dismiss "must" which are imperative, operating to
which the court granted. TLG filed a impose duty which may be enforced,
petition to withdraw the sums it deposited. positively indicate that all essential
The trial court denied said motion. requisites for a valid consignation must be
complied with.
The Court held that the respondent judge
should have authorized the withdrawal of Sotto v. Mijares
the money deposited. TLG is allowed to Consignation is a facultative remedy which
withdraw the money they deposited for a debtor may or may not avail himself of. f
consignment. Art 1260 of the Civil Code made by the debtor, the creditor merely
says: accepts it, if he wishes; or the court
"Once the consignation has been duly declares that it has been properly made, in
made, the debtor may ask the judge either of which events the obligation is
to order the cancellation of the ordered cancelled. Indeed, the law says
obligation. Before the creditor has that "before the creditor has accepted the
accepted the consignation, or before consignation or before a judicial declaration
a judicial declaration that the that the consignation has been properly
consignation has been properly made, made, the debtor may withdraw the thing or
the debtor may withdraw the thing or the sum deposited, allowing the obligation
the sum deposited, allowing the to remain in force." If the debtor has such
obligation to remain in force."
right of withdrawal, he surely has the right
to refuse to make the deposit in the first
In the case at bar, the case was dismissed
place.
before the amount deposited was either
accepted by the creditor or a declaration by
Reisenbeck v. CA
the Court approving such consignation. The
Acceptance of the money cosigned,
dismissal of the case rendered the
unconditionally without reservation is a
consignation ineffectual.
waiver of other claims under the contract.
When the creditor's acceptance of the
McLaughlin v. CA
money consigned is conditional and with
The check is a valid tender of payment. In
reservations, he is not deemed to have
this case, however, when the check was
waived the claims he reserved against the
replaced with cash the private respondent
debtor. Consignation is completed at the
failed to deposit it with the court.
time the creditor accepts the same without
objections or if he objects, at the time the
Soco v. Militante
court declares that it has been validly made
The essential requisites for a valid
in accordance with the law.
consignation must be complied with fully

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In this case, the lower court already should be accorded mandatory
declared the consignation was valid, the construction. Art. 1258 provides:
debtor cannot withdraw the same. "Consignation shall be made by the
depositing the things due at the
Rural Bank of Caloocan v. CA disposal of the judicial authority,
Castro with the aid of the Valencia spouses before whom tender of payment must
procured two loans on separate days be proved, in a proper case and the
(6,000) from the Rural Bank of Caloocan. announcement of the consignation in
These loans were secured by a mortgage other cases."
on Castro’s house and lot. She was notified Here, the AFP office surely was not a
of that her properties were up for auction. judicial authority to which the deposit must
She tried in vain to postpone it but be made.
eventually they were sold. Castro alleged
that thru mistake on her part or fraud on the Chan v. CA
part of Valencias she was induced to sign The first paragraph of Art. 1256 mentions:
as co-maker of one of the promissory "If the creditor to whom payment has
notes. She prayed to the court to annul the been made refuses without just cause
to accept it, the debtor shall be
promissory note and foreclosure sale as
released from responsibility by the
well as to the discharge her of her personal
consignation of the thing or sum due."
obligation with the bank by reason of a
In this case, Chan was justified in refusing
deposit of P3,383.00 with the trial court
to accept tender of rentals by the lessee
upon the filing of her complaint.
because their contract of lease had lapsed
and the lessee's right to the premises has
Under more liberal considerations of equity
likewise ended. The lease cannot be
despite the fact that there was no prior
automatically released in view only of the
notice or tender of payment, the Court
lessee's capacity to pay rent.
upheld the validity of the consignation.
Properties were already foreclosed and
Meat Packing Corp v. Sandiganbayan
although the bank already knew of the
Consignation is the act of depositing the
consignment, it failed to claim such
thing due with the court or judicial
deposit, leading Castro to thinking it would
authorities whenever the creditor cannot
be futile to make previous offer and tender
accept or refuses to accept payment, and it
of payment to the bank.
generally requires a prior tender of
payment. It should be distinguished from
Licuanan v. Diaz
tender of payment. Tender is the
The deposit here made by the lessee of the
antecedent of consignation, that is, an act
property is invalid. Here the money was
preparatory of consignation, which is the
deposited with the Civil Relations Service,
principal, and from which are derived the
now Office for Civil Relations, AFP. The
immediate consequences which the debtor
Court cited Landicho vs Tensuan: "The law
desires or seeks to obtain. Tender of
prescribes that such consignation or
payment may be extrajudicial, while
deposit of rentals should be made with the
consignation is necessarily judicial and the
the Court and/or under Batas Pambansa
priority of the first is the attempt to make a
Blg 25 in the bank and not elsewhere."
private settlement before proceeding to the
solemnities of consignation. Tender and
Finding support in Soco v. Militante, the
consignation, where validly made,
Court ruled that the codal provisions
produces the effect of payment and
dealing with consignation Arts 1252-1261
extinguishes the obligation.

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 Loss or Impossibility Art. 1265. Whenever the thing is lost in
the possession of the debtor, it shall be
Loss of Thing Due presumed that the loss was due to his
fault, unless there is proof to the
1.! Concept contrary, and without prejudice to the
provisions of Article 1165. This
Art. 1189. x x x presumption does not apply in case of
earthquake, flood, storm, or other
(2) x x x it is understood that the thing is natural calamity.
lost when it perishes, or goes out of
commerce, or disappears in such a way
that its existence is unknown or it cannot Art. 1165. When what is to be delivered
be recovered x x x is a determinate thing, the creditor, in
addition to the right granted him by
Article 1170, may compel the debtor to
2.! Kinds make the delivery.

-! Perishing If the thing is indeterminate or generic,

-! Going out of commerce he may ask that the obligation be
-! Disappearing in such a way that its complied with at the expense of the
existence is unknown debtor.
-! Incapability of recovery
If the obligor delays, or has promised to
3.! Requisites deliver the same thing to two or more
persons who do not have the same
Art. 1262. An obligation which consists interest, he shall be responsible for any
in the delivery of a determinate thing fortuitous event until he has effected the
shall be extinguished if it should be lost delivery.
or destroyed without the fault of the
debtor, and before he has incurred in 5.! Effects
delay.
In Obligation to Give a Specific Thing
When by law or stipulation, the obligor is
liable even for fortuitous events, the loss
of the thing does not extinguish the Art. 1262. An obligation which consists
obligation, and he shall be responsible in the delivery of a determinate thing
shall be extinguished if it should be lost
for damages. The same rule applies
when the nature of the obligation or destroyed without the fault of the
requires the assumption of risk. debtor, and before he has incurred in
delay.

4.! Presumption When by law or stipulation, the obligor is

liable even for fortuitous events, the loss
of the thing does not extinguish the
obligation, and he shall be responsible
for damages. The same rule applies
when the nature of the obligation
requires the assumption of risk.

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 Art. 1268. When the debt of a thing Art. 1267. When the service has become
certain and determinate proceeds from a so difficult as to be manifestly beyond
criminal offense, the debtor shall not be the contemplation of the parties, the
exempted from the payment of its price, obligor may also be released therefrom,
whatever may be the cause for the loss, in whole or in part.
unless the thing having been offered by
him to the person who should receive it,
2.! Kinds
the latter refused without justification to
accept it.
Physical Impossibility, as well as
Impracticability of Performance.
In Obligation to Give a Generic Thing
Legal Impossibility: may either be
Art. 1263. In an obligation to deliver a prohibited by law (direct), or indirectly, if
generic thing, the loss or destruction of prevented by supervening legal duty.
anything of the same kind does not
extinguish the obligation. Original Impossibility: If the impossibility
had already existed when the contract was
made, then the result is not extinguishment
In Case of Partial Loss but inefficacy of the obligation under Arts.
1348 and 1493. The contract is void.
Art. 1264. The courts shall determine
whether, under the circumstances, the Supervening Impossibility: The impossibility
partial loss of the object of the obligation of performance must be subsequent to the
is so important as to extinguish the execution of the contract in order to
obligation. extinguish the obligation.

Against Third Persons 3.! Requisites

-! Without the fault of the debtor

Art. 1269. The obligation having been
-! Before the debtor incurs delay
extinguished by the loss of the thing, the
-! After the obligation is constituted
creditor shall have all the rights of action
which the debtor may have against third
4.! Effects
persons by reason of the loss.
In Obligations to Do
Impossibility of Performance
Art. 1266. The debtor in obligations to
1.! Concept do shall also be released when the
prestation becomes legally or physically
Art. 1266. The debtor in obligations to impossible without the fault of the
do shall also be released when the obligor.
prestation becomes legally or physically
impossible without the fault of the
obligor.

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 Art. 1267. When the service has become conditions cease to exist, the contract also
so difficult as to be manifestly beyond ceases to exist. But to prevent the
the contemplation of the parties, the disruption of services to the public, the SC
obligor may also be released therefrom, ordered NATELCO to pay for the use of the
in whole or in part. posts and ordered Casureco to pay for their
telephone bills.

Art. 1262. x x x [Prof. Disini: The Court should have just

released Casureco from its obligations and
When by law or stipulation, the obligor is let the parties figure out a compromise.]
liable even for fortuitous events, the loss
of the thing does not extinguish the PNCC v. CA
obligation, and he shall be responsible PNCC leased a parcel of land from the
for damages. The same rule applies private respondent for a rock crushing
when the nature of the obligation project. However, the rock crushing project
requires the assumption of risk. never materialized due to the changes in
the political climate. PNCC refused to pay
the lease, citing Art 1266/1267. However,
Occena v. CA
Art. 1266 expressly states that it is
Petitioner and Tropical Homes have a
applicable to obligations to do. The
contract to develop a piece of land.
obligation in the lease to pay rentals is an
Tropical wanted to modify the contract due
obligation to give. The Court hed that the
to the increase in costs.
doctrine of unforeseen events is not
absolute. The parties to the contract are
According to Art. 1266 of the New Civil
presumed to have assumed the risks of
Code, impossibility of performance releases
unfavorable developments; therefore, only
the obligor from the obligation. Art. 1267 as
absolutely exceptional changes of
well says that when the service has
circumstance are considered under this
become so difficult as to be manifestly
article.
beyond the contemplation of the parties,
the court may release the obligor in whole
In Case of Partial Impossibility
or in part.

However, Art 1267 did not apply in this Art. 1264. The courts shall determine
case as what Tropical wanted was a whether, under the circumstances, the
novation of the contract. partial loss of the object of the obligation
is so important as to extinguish the
NATELCO v. CA obligation.
NATELCO and Casureco had an agreement
that NATELCO may use Casureco’s light Condonation or Remission
posts in exchange for telephone
connections for Casureco. Casureco filed a Concept
petition for reformation of contract because
the contract was too one-sided. The Court Condonation or remission is the gratuitous
ruled that Art 1267 applied in the case. It abandonment by a creditor of his right.
said that the doctrine of unforeseen events
(rebus sic stantibus) was appropriate, that Kinds
what the parties stipulate in light of certain
prevailing conditions, and once these 1.! As to extent

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-! Total: remission of the entire obligation Art 1270(2) provides that express
-! Partial: remission of only a portion condonation must comply with the forms of
donation. Art 748(3) provides that the
2.! As to effectivity donation and acceptance of a movable, the
-! Inter vivos value of which exceeds P5,000, must be
-! Mortis causa made in writing, otherwise the same shall
be void. Thus, without any written
3.! As to form document evincing the condonation of the
-! Express debt, there was no extinguishment of the
-! Implied (by conduct) obligation.

Art. 1270. Condonation or remission is Presumptions

essentially gratuitous, and requires the
acceptance by the obligor. It may be Art. 1271. The delivery of a private
made expressly or impliedly. document evidencing a credit, made
voluntarily by the creditor to the debtor,
implies the renunciation of the action
Requisites
which the former had against the latter.
1.! Capacity and consent of the parties,
If in order to nullify this waiver it should
since remission requires acceptance of
be claimed to be inofficious, the debtor
the obligor
and his heirs may uphold it by proving
2.! Object, which is the obligation remitted
that the delivery of the document was
3.! Liberality as consideration
made in virtue of payment of the debt.
4.! Formalities required by law

Art. 1270. x x x Art. 1272. Whenever the private

document in which the debt appears is
One and the other kind shall be subject found in the possession of the debtor, it
to the rules which govern inofficious shall be presumed that the creditor
donations. Express condonation shall, delivered it voluntarily, unless the
furthermore, comply with the forms of contrary is proved.
donation.
Art. 1274. It is presumed that the
Yam v. CA accessory obligation of pledge has been
Petitioner obtained a loan from respondent. remitted when the thing pledged, after
Petitioner and respondent negotiated on its delivery to the creditor, is found in the
the payment of penalties. Respondent possession of the debtor, or of a third
agreed to waive the penalties on the person who owns the thing.
condition that the petitioner pay on a
certain date. The petitioner paid on the day
Effects
after the agreed date, but noted on the
check that the payment was for the entire
1.! In General
loan. Respondent filed a case for the
collection of the remaining amount.
It extinguishes the obligation, either partially
Petitioner contended that the respondent
or totally.
already condoned the other charges.
2.! In Case of Joint or Solidary Obligations

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-! Joint obligation: only the share of the Art. 1275. The obligation is extinguished
obligation corresponding to the debtor from the time the characters of creditor
who procured the remission is and debtor are merged in the same
extinguished person.
-! Solidary obligation: if one debtor
procures the remission of the entire
debt, than such remission is for the Art. 1277. Confusion does not extinguish
benefit of all. a joint obligation except as regards the
o! However, the solidary creditor share corresponding to the creditor or
who remits the debt is liable to debtor in whom the two characters
the other co-debtors, if one of concur.
them had already paid the whole
obligation before the remission. Confusion in Principal or Accessory
Obligations
Governing Rules
Art. 1276. Merger which takes place in
Art. 1270. Condonation or remission is the person of the principal debtor or
essentially gratuitous, and requires the creditor benefits the guarantors.
acceptance by the obligor. It may be Confusion which takes place in the
made expressly or impliedly. person of any of the latter does not
extinguish the obligation.
Renunciation of Principal or Accessory
Obligations Compensation

Art. 1273. The renunciation of the Concept

principal debt shall extinguish the
accessory obligations; but the waiver of Art. 1278. Compensation shall take
the latter shall leave the former in force. place when two persons, in their own
right, are creditors and debtors of each
Confusion or Merger of Rights other.

Concept Kinds

Confusion is the meeting in one person of 1.! As to Extent

the qualities of creditor and debtor of the o! Total: If the debts are of the same
same obligation. amount
o! Partial: In the larger of two debts
Requisites that vary in amount

-! It should take place between principal 2.! As to Origin

debtor and creditor -! Legal: Produced by operation of law
-! It must be complete and definite -! Conventional: by agreement
-! Judicial: also, called set off, which must
Effects be pleaded and is effective by decision
of the Court

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!
-! Facultative: when one of the parties has grandmother. His grandmother’s pension
the option to claim compensation or checks were deposited into the joint
object to it account with his grandmother. After the
grandmother died, she still received a
Legal Compensation treasury check which was deposited into
the joint account.
1.! Requisites
The treasury check was dishonored as it
Art. 1279. In order that compensation was discovered that Fernandez died prior
may be proper, it is necessary: to its issuance. The U.S. Department of
Treasury requested petitioner bank for a
(1) That each one of the obligors be refund. Respondent verbally authorized the
bound principally, and that he be at the bank to debit from his other joint account
same time a principal creditor of the the amount stated in the dishonored U.S.
other; Treasury Warrant. But when respondent
(2) That both debts consist in a sum of visited the bank, he demanded from
money, or if the things due are petitioner bank restitution of the debited
consumable, they be of the same kind, amount.
and also of the same quality if the latter Article 1290 of the Civil Code provides that:
has been stated; "When all the requisites mentioned in
(3) That the two debts be due; Article 1279 are present,
compensation takes effect by

(4) That they be liquidated and
operation of law, and extinguishes
demandable;
both debts to the concurrent amount,
(5) That over neither of them there be
even though the creditors and debtors
any retention or controversy,
are not aware of the compensation."
commenced by third persons and Legal compensation operates even against
communicated in due time to the debtor. the will of the interested parties and even
without the consent of them. Since this
Art. 1280. Notwithstanding the compensation takes place ipso jure, its
provisions of the preceding article, the effects arise on the very day on which all its
guarantor may set up compensation as requisites concur.
regards what the creditor may owe the
principal debtor. PNB v. Sapphire Shipping
PNB made an erroneous double credit into
Sapphire’s bank account. PNB the
Gan Tion v. CA
intercepted a deposit telexed from a foreign
Petitioner filed an ejectment case against
bank to compensate for the double credit.
respondent for alleged non-payment of
rentals. The case was dismissed by the
Q: May PNB intercept money telexed from
CFI. Petitioner was ordered to pay
a foreign bank in Jeddah to Sapphire’s
attorney’s fees to respondent. Petitioner
Citibank, Greenhills account to off- set a
claimed that there is legal compensation as
separate debt Sapphire Shipping has with
respondent still owed him rent. The Court
PNB resulting from an erroneous double
held that attorney’s fees may be the subject
credit?
of legal compensation.
A: For compensation to take place, one
essential requisite is that the parties must
BPI v. Reyes
be bound principally to one another as
Respondent opened a joint savings
obligor and obligee.
account with his wife and with his

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Sapphire Shipping, as depositor, and PNB are present. Without the confluence of the
as depository, are creditor and debtor characters of mutual debtors and creditors,
respectively. Sapphire Shipping incurred a contracting parties cannot stipulate to the
debt with PNB due to an amount compensation of their obligations, for then
erroneously double-credited to Sapphire’s the legal tie that binds contracting parties
PNB account. When Sapphire’s principal in to their obligations would be absent. At
Jedda telexed money to Sapphire’s least one party would be binding himself
Citibank, Greenhills account and coursed under an authority he does not possess.
said amount through PNB’s head office,
PNB intercepted the money to compensate Mirasol v. CA
for Sapphire’s debt with PNB. PNB financed petitioner’s sugar production
venture for crop years under a crop loan
The Court ruled that with regard to said financing scheme, in which the petitioner
amount telexed from the foreign bank in spouses signed Credit Agreements, a
Jedda to Sapphire’s account with Citibank, Chattel Mortgage on Standing Crops, and a
PNB is merely a trustee, with Sapphire Real Estate Mortgage in favor of PNB. The
Shipping as creditor and the bank in Jedda Chattel Mortgage empowered PNB to
as debtor. The relationship between PNB negotiate and sell the latter's sugar, and to
and Sapphire Shipping with regard to the apply the proceeds of which as payment for
telexed amount from Jedda not being one their obligations. Meanwhile, President
of principality, PNB cannot use the said Marcos issued PD 579 in November, 1974,
amount as compensation for Sapphire authorizing PHILEX to purchase sugar
Shipping’s debt, because being principals allocated for export to the US and other
with respect to the obligation is one of the foreign markets. This decree also
essential requisites for compensation be authorized PNB to finance PHILEX's
valid. purchases, with a mandate that whatever
profit PHILEX might realize was to be
CHK Industrial Development v. CA remitted to the government and used for
Petitioner executed a Deed of Absolute public purposes. PNB continued to finance
Sale in favor of Century-Well for two the sugar production venture of the
parcels of land worth 800,000. Petitioner petitioner spouses through 1977. Believing
claims that respondents maliciously misled that the proceeds of their sugar sales to
her to believe that they would pay the PNB, if properly accounted for, were more
P800,000 as consideration when in fact than enough to pay their obligations, they
they had no intention to pay. Respondents asked PNB for an accounting of the
assert that the sale was compensation for proceeds of the sale of their export sugar,
promissory notes of petitioner to his sons. which request was ignored by PNB.
Petitioner spouses failed to settle their
Q: Was there a valid compensation of the accounts. Thus, PNB proceeded to
obligations of Cheng Kim Heng to his sons extrajudicially foreclose the mortgaged
with the purchase price of the sale? properties. Petitioners insisted that PNB
A: There was none. Art. 1279 requirement account for the proceeds of the sale of their
that parties are creditors and debtors of export sugar for crop years 1973-1974 and
each other was not met. Compensation 1974-1975, claiming that said proceeds, if
may be voluntary or conventional, that is, properly liquidated, could offset their
when the parties, who are mutually outstanding obligations with the bank.
creditors and debtors agree to compensate
their respective obligations, even though Petitioners asked for the court to declare
not all the requisites for legal compensation that the dacion en pago they executed in

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favor of PNB, as well as the latter’s act of Unless admitted by a debtor himself, the
foreclosing their properties, void for want of conclusion that he is in truth indebted to
consideration. The Court ruled that the Government cannot be definitely and
compensation cannot take place where one finally pronounced by a Government
claim is still the subject of litigation, as the auditor, no matter how convinced he may
same cannot be deemed liquidated. be from his examination of the pertinent
records of the validity of that conclusion.
Associated Bank v. Tan Such a declaration, that a government
Tan was a regular depositor-creditor of the employee or officer is indeed indebted to
Bank. Tan deposited a check. He was the Government, if it is to have binding
advised by the bank that the check had authority, may only be made by a court.
cleared, so he made a withdrawal. He
issued other checks, believing that he had Perez v. CA
sufficient balance. However, the check he CONGENERIC borrowed money from
issued bounced because the check he Mojica. Mever Films borrowed money from
deposited was dishonored. CONGENERIC. CONGENERIC sold Mever
Films’ debt to petitioner Perez. Mojica
A bank generally has a right of setoff over transferred CONGENERIC’s debt from him,
the deposits therein for the payment of any to Mever Films (CONGENERIC now owes
withdrawals on the part of a depositor. The Mever the debt they originally borrowed
right to debit a client’s account for a from Mojica). Perez is now collecting Mever
dishonored check has also been fairly films’ debt to her but Mever says that the
established in past cases. debt has been legally compensated by
Mojica’s earlier transfer.
Villanueva v. Tantuico
Villanueva authorized the disbursement of For legal compensation to take place, both
sums of money for a seminar. This was debts must be due and demandable.
subsequently disallowed.
Silahis Marketing Corp v. IAC
While Section 624 of the Revised Gregorio de Leon delivered various goods
Administrative Code does indeed authorize to Silahis worth P22,213.75. For failure to
the set-off of a person's indebtedness to pay its account despite repeated demand,
the Government against "any money due Silahis was sued by de Leon to collect on
him or his estate to be applied in the sum. Silahis countered that De Leon
satisfaction of such indebtedness," that owed Silahis P22,200 as commission for
indebtedness must be one that is admitted the sale of sprockets to Dole Philippines in
by the alleged debtor or pronounced by the amountt of P111,000, without coursing
final judgment of a competent court. the sale thru Silahis in violation of their
usual practice, thus Silahis should be
In such a case, the person and the entitled to return a defective stainless steel
Government are in their own right both screen and to have its value deducted from
debtors and creditors of each other, and the amount it owed.
compensation takes place by operation of
law in accordance with Art. 1278. Absent Nothing in the debit memo that showed
any such categorical admission by an that de Leon obligated himself to set-off or
obligor or final adjudication, no legal compensate Silahis’ outstanding accounts
compensation can take place. with the unrealized commission from the
assailed sale. Compensation occurs when
two persons, in their own right, are

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creditors and debtors to each other. Article When Compensation is Not Allowed
1279 provides for the requisites when
compensation is proper. When all the Art. 1287. Compensation shall not be
requisites are present, it will take effect by proper when one of the debts arises
operation of law, even without the from a depositum or from the obligations
knowledge of the creditors and debtors. of a depositary or of a bailee in
commodatum.
Article 1279 requires that the two debts are
due and they may be liquidated and Neither can compensation be set up
demandable. Compensation can’t extend against a creditor who has a claim for
unliquidated, disputed claim, arising from support due by gratuitous title, without
breach of contract. There is no evidence prejudice to the provisions of paragraph
showing that any agreement between both 2 of Article 301.
parties were made with regard to de Leon
not allowed to sell directly to Dole and that
Silahis should be given commission. The Art. 1288. Neither shall there be
debit memo was not binding because de compensation if one of the debts
Leon didn’t even sign it nor was there any consists in civil liability arising from a
mention of any agreement/commitment to penal offense.
pay Silahis for commission. Said memo is
considered self-serving.
Compensation of Debts Payable in Different
2.! Effects Places

Art. 1289. If a person should have Art. 1286. Compensation takes place by
against him several debts which are operation of law, even though the debts
susceptible of compensation, the rules may be payable at different places, but
on the application of payments shall there shall be an indemnity for expenses
apply to the order of the compensation. of exchange or transportation to the
place of payment.

Art. 1290. When all the requisites

mentioned in Article 1279 are present, Effect of Nullity of Debts to be
compensation takes effect by operation Compensated
of law, and extinguishes both debts to
the concurrent amount, even though the Art. 1284. When one or both debts are
creditors and debtors are not aware of rescissible or voidable, they may be
the compensation. compensated against each other before
they are judicially rescinded or avoided.

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Effects of Assignment of Credit By its constitution
-! Express
Art. 1285. The debtor who has -! Implied
consented to the assignment of rights
made by a creditor in favor of a third By its Origin
person, cannot set up against the -! Conventional
assignee the compensation which would -! Legal
pertain to him against the assignor,
unless the assignor was notified by the By its Object
debtor at the time he gave his consent, -! Objective, where the change is in the
that he reserved his right to the obligation itself, as to cause, object, or
compensation. principal conditions
-! Personal or Subjective, where the
If the creditor communicated the cession change is in the parties
to him but the debtor did not consent o! Change of debtor, which may be
thereto, the latter may set up the either Expromision or delegacion
compensation of debts previous to the o! Change of creditor, which may
cession, but not of subsequent ones. be either conventional or legal
-! Mixed
If the assignment is made without the
knowledge of the debtor, he may set up Requisites
the compensation of all credits prior to
the same and also later ones until he Art. 1292. In order that an obligation may
had knowledge of the assignment. be extinguished by another which
substitute the same, it is imperative that
it be so declared in unequivocal terms,
Novation
or that the old and the new obligations
be on every point incompatible with
Concept
each other.

Art. 1291. Obligations may be modified

by: Millar v. CA
(1) Changing their object or principal There were two obligations: (a) judgment
conditions; obligation and (b) chattel mortgage. The
(2) Substituting the person of the debtor; Court declared that there was no novation,
(3) Subrogating a third person in the whether express or implied, because it was
rights of the creditor. not declared in explicit terms nor was there
substantial incompatibility between the two
obligations
Kinds
The defense of implied novation requires
By the Extent clear and convincing proof of complete
-! Extinctive (Total) incompatibility between the two
-! Modificatory (Partial) obligations. The law requires no specific
form for an effective novation by
In case of doubt, novation is only deemed implication. The test is whether the two
modificatory, not extinctive. obligations can stand together. If they
cannot, incompatibility arises, and the
second obligation novates the first. If they

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can stand together, no incompatibility ratifies the original agreement. The new
results and novation does not take place. instrument may change the terms of the
payment or add other obligations not
Dormitorio v. Fernandez incompatible with the old one, or it may
A judge set aside a writ of execution merely supplement the old contract,
because the parties made another without affecting the original obligation.
agreement.
Reyes v. Secretary of Justice
Novation after final judgment is possible if: Petitioner is seeking the nullification of
1) A party motions for modification; and 2) either of the two resolutions. Reyes alleges
Due to facts/circumstances after said that Eurotrust and BERMIC entered into a
finality, execution becomes impossible or loan agreement where Eurotrust extended
unjust to Bermic P216,053,126.80 to finance the
construction of the latter’s Ritz
Magdalena Estate v. Rodriguez Condominium and Gold Business Park.
Rodriguez bought from Magdalena Estates Bermic issued 21 post-dated checks but
a parcel of land, and executed a promissory when they were presented for payment,
note for P5000, which represented the they were dishonored by the bank due to
unpaid balance of P5000 of the purchase stop payment order made by Graciela
price. In the promissory note, the Eleazar, Bermic’s president. This prompted
Rodriguezes stated they would pay said Reyes to file criminal complaints against
amount with interest at the rate of 9% per Eleazar for violation of B.P. 22 and estafa.
annum. They also executed a bond with the AFP-MBAI conducted its own investigation
Luzon Surety Co, Inc. in favor of Magdalena since they also invested their funds with
Estates, in which Luzon Surety obligated Eurotrust. They found out that after
itself to paying only the P5000 principal. Eurotrust delivered to AFP-MBAI the
The obligation became due and securities they purchased, the former
demandable, and Luzon Surety paid to borrowed the same securities but failed to
Magdalena the P5000. The latter then return it to them; and that the amounts paid
demanded from the Rodriguezes P655.89, by AFP-MBAI to Eurotrust for those
which represented the accumulated securities were lent by Elsa to Bermic and
interests. Appellants refused and reasoned others.
that Magdalena Estates’ acceptance of the
surety agreement novated their earlier At the time of the pendency of the first
contract, and its acceptance of the case, AFP-MBAI lodged a separate
principal without exercising its right to complaint for estafa and violation of B.P. 22
apply the accrued interest was a against Elsa Reyes. Apparently, Eurotrust
condonation of the interests due. delivered treasury notes amounting to
P73M which they also fraudulently
Novation is never presumed, and must be borrowed for verification purposes with the
established by showing either: Central Bank. Despite their demands,
1. That the old and new contracts are Eurotrust failed to return the said treasury
incompatible in all points, or notes and instead delivered 21 postdated
2. That the will to novate appears by checks which wore dishonored by the bank
express agreement of the parties or in acts upon presentment.
of similar import.
Reyes interposed the defense of novation
An obligation to pay a sum of money is not and insisted that AFP-MBAI’s claim of
novated in a new instrument, which only unreturned P73M of government securities

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has been satisfied upon her payment of If objective novation is to take place, it is
P30M, with the remaining P43M also paid imperative that the new obligation
when Eurotrust assigned its Participation expressly declare that the old obligation is
Certificates to AFP-MBAI. thereby extinguished, or that the new
obligation be on every point incompatible
The absence of a new contract with the old one. If subjective novation is to
extinguishing the old one destroys any occur, it is essential that the old debtor be
possibility of novation by conventional released from the obligation, and the new
subrogation. The two letters merely gave debtor take his place in the new relation. If
respondent Eleazar an authority to directly not released, there is no novation, new
settle the obligation of petitioner to AFP- debtor becomes merely co-debtor or
MBAI. It’s an agreement between petitioner surety.
and respondent only. There was no
mention of AFP-MBAI’s consent to the new Broadway Centrum v. Tropical Hut
agreement, much less an indication of its Tropical Hut and Broadway Centrum
intention to be the substitute creditor in the agreed to a provisional reduction in monthly
loan contract. rentals due to low sales. When Broadway
demanded to return to the previous rates
The rule of novation by substitution requires despite the persistence of low sales,
an agreement among the three parties Tropical filed a complaint to enjoin
concerned – the original creditor, the Broadway from increasing rentals as long
debtor, and the new creditor. There is no as low sales persist. The Court held that the
novation if there is no mutual agreement provisional agreement to lower rentals did
and no new contract executed by the not novate the previous agreement.
parties.
Molino v. Security Diners International
Conchingyan v. RB Surety and Insurance The credit card company issued a credit
PAGRICO submitted a Surety Bond (which card to Alto with Molino as surety. Alto
was issued by R&B) to PNB. Conchingyan subsequently requested for an upgrade of
and Villanueva entered into identical the credit card. Molino approved his
indemnity agreements with R&B. Two years request for an upgrade as signified by a
after, Conchingyan entered into a Trust note that she duly executed and signed.
Agreement (TA) with PNB as its beneficiary. Alto defaulted, and the credit card
PAGRICO did not comply with its obligation company went after Molino.
to PNB. Thus, R&B (as part of the Surety
Bond) paid PNB. R&B in turn sent formal While the Court admitted that the upgrade
demand letters to Conchingyan and of the credit card constituted novation
Villanueva for reimbursement of the because it effectively cancelled the object
payments made by it to PNB as well as the of the first contract (the initial credit card),
discharge of its liability from PNB under they also took cognizance of the fact that
surety bond. R&B brought suit against Molino expressly waived discharge in case
those who signed the Indemnity of change or novation in the agreement
Agreements. CFI Manila rendered decision regarding the use of the first credit card.
for R&B, ordering Conchingyan to pay.
Petitioners here argue that the TA resulted Garcia v. Llamas
to the novation of their indemnity Romeo Garcia and Eduardo de Jesus
agreements. borrowed from respondent Dionisio Llamas
Php 400,000 and executed a promissory
note wherein they bound themselves jointly

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and severally to pay the loan on or before Chester Babst vs.CA
Jan 23, 1997 with interests. The loan being ELISCON transferred all its assets to DBP,
long overdue and no payment had been and DBP took over its liabilities. ELISCON
made despite repeated demands; Llamas called all its creditors to a meeting to
filed a complaint for sum of money and announce the take-over by DBP of its
damages. assets. BPI contended it did not consent to
the change in debtors despite raising no
Garcia resisted the complaint, alleging that objection during the creditor meeting. There
the payment made by de Jesus of a check can be implied consent of the creditor to
constituted novation of the obligation the substitution of debtors.
thereby releasing him from liability to pay
the loan. Furthermore, he argued that he Effects
assumed no liability under the promissory
note because he merely signed it as an Art. 1296. When the principal obligation
accommodation party. Llamas on the other is extinguished in consequence of a
hand, answered that the check issued by novation, accessory obligations may
de Jesus was a bum check. De Jesus subsist only insofar as they may benefit
asserted that he had paid by way of third persons who did not give their
interests and that Llamas exhibited bad consent.
faith in filing the case since he requested an
extension of time. Novation is never
presumed, a purported change must be Effect of the Status of the Obligations
clear and express.
Nullity or Voidability of Original Obligation
California Bus Line v. SIHI
CBLI bought buses from Delta, executing Article 1298. The novation is void if the
16 promissory notes with the buses as original obligation was void, except
mortgage. Upon default, CBLI and Delta when annulment may be claimed only by
entered into a restructuring agreement. the debtor or when ratification validates
Delta (indebted) assigned to SIHI 5 of the acts which are voidable.
promissory notes. CBLI and Delta made a
compromise agreement foreclosing the
mortgages. SIHI demanded from CBLI the Nullity or Voidability of New Obligation
payment of the promissory notes. CBLI
refused alleging the obligation to have been Article 1297. If the new obligation is
fulfilled by the compromise agreement void, the original one shall subsist,
unless the parties intended that the
An agreement providing for a different former relation should be extinguished in
schedule and manner of payment, to any event.
restructure the mode of payments by the
buyer so that it could settle its outstanding
obligation in spite of its delinquency in Suspensive or Resolutory Condition of
payment is not novation. Absent an Original Obligation
unequivocal declaration of extinguishment
of the preexisting obligation, only a
showing of complete incompatibility
between the old and the new obligation
would sustain a finding of novation by
implication.

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 Article 1299. If the original obligation Effects
was subject to a suspensive or
resolutory condition, the new obligation Art. 1294. If the substitution is without
shall be under the same condition, the knowledge or against the will of the
unless it is otherwise stipulated. debtor, the new debtor's insolvency or
non- fulfillment of the obligations shall
not give rise to any liability on the part of
Objective Novation the original debtor.

Principal Conditions are conditions or terms

of the obligations that are substantially By Change of Debtor: Delegacion
altered in succeeding transactions in the
obligations (definition mine). Requisites
o! Mere extension of the term of
payment is not extinctive novation 1.! Consent of the old debtor, the new
because the term affects only the debtor, and of the creditor
performance, not the creation of the 2.! Insolvency of the new debtor revives
obligation. the old tenor if it was anterior and
o! Extension of time, coupled with public/known to the old debtor
payment of interest on the amount
due is extinctive novation. Effects
o! Reduction of period originally
stipulated is extinctive novation. Art. 1295. The insolvency of the new
o! Slight modifications and alterations debtor, who has been proposed by the
do not constitute extinctive original debtor and accepted by the
novation. creditor, shall not revive the action of the
latter against the original obligor, except
Subjective Novation when said insolvency was already
existing and of public knowledge, or
By Change of Debtor: Expromision known to the debtor, when the
delegated his debt.
Requisites
Quinto vs People
Art. 1293. Novation which consists in Petitioner Quinto was charged for the crime
substituting a new debtor in the place of of estafa. She received in trust from a
the original one, may be made even certain Cariaga three pieces of jewelry
without the knowledge or against the will valued at P17.5k, P16k, and P2.5k
of the latter, but not without the consent respectively (total of P36k) for the purpose
of the creditor. Payment by the new of selling on commission basis and the
debtor gives him the rights mentioned in express obligation that she should return
Articles 1236 and 1237. them if she can’t sell them in five days.
However, six months elapsed and nothing
was returned hence this case for estafa.

Defense says that Quinto cannot be liable

for estafa because there occurred a
novation in their contract. They contend
that for two sales, one to Mrs. Camacho
and one to Mrs. Ramos, the terms of the

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contract changed because they agreed to a Conventional Subrogation
different manner of payment. Both Mrs. Requisites
Camacho and Mrs. Ramos couldn’t fully
pay for certain rings so both of them agreed Article 1301. Conventional subrogation
to pay Cariaga directly by installment. of a third person requires the consent of
the original parties and of the third
There are two forms of novation by person.
substituting the person of the debtor. In
Expromision, the initiative for the change
As Distinguished from Assignment of Credit
does not come from the debtor and may
even be made without his knowledge.
No consent of debtor is required in
Since a third person would substitute for
Assignment, whereas in novation it is
the original debtor and assume the
required. No advantage exists over
obligation, his consent and that of the
Assignment and the effect of this novation
creditor would be required. In delegacion.
is subject to the rules of assignment.
The debtor offers, and the creditor accepts,
a third person who consents to the
Effects
substitution and assumes the obligation,
thereby releasing the original debtor from
the obligation, here, the intervention and Art. 1303. Subrogation transfers to the
the consent of all parties thereto would persons subrogated the credit with all
perforce be necessary. the rights thereto appertaining, either
against the debtor or against third
In both forms, consent of the creditor is person, be they guarantors or
necessary. Novation is not one of the possessors of mortgages, subject to
means recognized by the Penal Code stipulation in a conventional
whereby criminal liability can be subrogation.
extinguished; hence, the role of novation
may only be either to prevent the rise of
criminal liability or to cast doubt on the true Art. 1304. A creditor, to whom partial
nature of the original basic transaction, payment has been made, may exercise
whether or not it was such that its breach his right for the remainder, and he shall
would not give rise to penal responsibility be preferred to the person who has been
subrogated in his place in virtue of the
By Change of Creditor partial payment of the same credit.

Art. 1300. Subrogation of a third person Licaros v. Gatmaitan

in the rights of the creditor is either legal Licaros made a fund placement with Anglo-
or conventional. The former is not Asean Bank and Trust Limited. The said
presumed, except in cases expressly bank made money by investing such
mentioned in this Code; the latter must deposits in money market placements and
be clearly established in order that it potentially profitable capital ventures in
may take effect. several countries. However, Licaros
encountered difficulties in retrieving not
only the interest or profits but even the very
investments ($150,000) he put in Anglo-
Asean. He sought the help of Gatmaitan
who voluntarily offered to assume the
payment of Anglo-Asean’s indebtedness to

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Licaros subject to certain terms and Effects
conditions. Gatmaitan presented the
Memorandum of Agreement to Anglo- Art. 1303. Subrogation transfers to the
Asean but there was no formal response persons subrogated the credit with all
made by said bank to Licaros or Gatmaitan. the rights thereto appertaining, either
Because of this, Gatmaitan didn’t bother to against the debtor or against third
make good on his promise to Licaros, person, be they guarantors or
which prompted the latter to file suit on the possessors of mortgages, subject to
basis of the promissory note. stipulation in a conventional
subrogation.
An assignment of credit is the process of
transferring the right of the assignor to the
assignee who would then have the right to Art. 1304. A creditor, to whom partial
proceed against the debtor. It may be done payment has been made, may exercise
gratuitously or onerously; in which case, the his right for the remainder, and he shall
assignment has an effect similar to that of a be preferred to the person who has been
sale. While, in subrogation, there is a subrogated in his place in virtue of the
transfer of all rights of the creditor to a third partial payment of the same credit.
person, who substitutes him in all his rights.
An assignment of credit doesn't require the Astro Electronics Corp v. PEFLGC
debtor’s consent, while a conventional Astro was granted 3 promissory notes by
subrogation does.
Philtrust wherein Astro’s president Roxas
signed twice, first for Astro and another in
Legal Subrogation his personal capacity. He also signed a
Requisites continuing suretyship agreement in favor of
Philtrust as President and in his personal
1.! Takes place without agreement but capacity. Philguarantee with the consent of
by operation of law because of Astro guaranteed 70% of the loan on the
certain acts
condition that it be subrogated to the rights
2.! Legal subrogor (original creditor) of Philtrust against Astro. Upon failure of
3.! Legal subrogee (3rd person) Astro to pay the loan, Philguarantee paid
70% as agreed, and filed against Astro &
When Presumed Roxas complaint for sum of money. Roxas
alleged that the phrases ‘in his personal
Art. 1302. It is presumed that there is capacity’ and ‘in his official capacity’ were
legal subrogation: inserted without his knowledge. RTC and
(1) When a creditor pays another creditor CA held in favor of Philguarantee.
who is preferred, even without the
debtor's knowledge; Roxas’ acquiescence is not necessary for
(2) When a third person, not interested in subrogation to take place because the
the obligation, pays with the express or instant case is one of legal subrogation that
tacit approval of the debtor; occurs by operation of law and without
(3) When, even without the knowledge of need of debtor’s knowledge. Philguarantee
the debtor, a person interested in the is a guarantor and thus is an interested
fulfillment of the obligation pays, without person in the fulfillment of the obligation.
prejudice to the effects of confusion as By operation of law, Philguarantee
to the latter's share. automatically is subrogated to the extent of
what it has paid.

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 Contracts: General Provisions Art. 1310. The determination shall not be
obligatory if it is evidently inequitable. In
Definition such case, the courts shall decide what
is equitable under the circumstances.
Art. 1305. A contract is a meeting of
minds between two persons whereby GSIS v. CA
one binds himself, with respect to the Leuterio won in a GSIS lottery. The contract
other, to give something or to render they entered into was a Deed of Conditional
some service. Sale entered with marginal notation:
“subject to adjustment pending approval by
Elements Board of Trustees”. The Leuterios said this
was not in the deed they signed. GSIS
1.! Essential Elements: without which there increased the purchase price after the lot
is no contract development. The trial court found that
a.! Consent notation was inserted without knowledge of
b.! Object Leuterio spouses.
c.! Cause The Court ruled that GSIS cannot change
2.! Natural Elements: which are presumed the agreed purchase price without the
to exist unless the contrary is stipulated consent of the Leuterios, basing from Art.
3.! Accidental Elements: which exist only if 1308 and 1473: fixing of price cannot be
stipulated left to one party’s discretion.

Characteristics PAPI v. Crisostomo

The contract was a 10% franchise
1.! Obligatory Force commission for Crisostomo (Manager of
PAPI) with respect to PAPI’s Academic Asst
Art. 1308. The contract must bind both Program contract with AFPSLAI. The
contracting parties; its validity or franchise commission was reduced by PAPI
compliance cannot be left to the will of to 5, 4, 3.75, 2% until upon a MOA,
one of them. commission of C was not given to her
because the MOA apparently cancelled the
old one containing the provision on her
2.! Mutuality commission. Is she entitled to the franchise
commission?
Art. 1308. The contract must bind both
contracting parties; its validity or The letter of Col. Punzalan to PAPI
compliance cannot be left to the will of indicates only a suspension of acceptance
one of them. of new applications until further study and
until new agreement is entered into. Art
1308 says that one party cannot unilaterally
Art. 1309. The determination of the
renounce a contract without consent of
performance may be left to a third
another. The fact that the respondent had
person, whose decision shall not be
not participated in the making of the
binding until it has been made known to
contract is of no moment, as there were
both contracting parties.
only 2 conditions that were agreed upon for
her to receive commission:
1) that she remain connected with
the company; and

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 2) that the right to the commission Atlantic to be codefendant and that liability
was not transferrable. should be fixed upon them.

The petitioners are estopped to question Atlantic who has no contractual relationship
her entitlement to the franchise commission with Manila R can’t be liable for damaging
under the old MOA since she had been Manila’s boiler, but liable to LCT who
receiving prior to the suspension of contracted their services. If there was no
remittances from AFPSLAI. contractual relationship between Atlantic
company and Steamship Company, the
Q: Is mutuality violated if one party agrees Atlantic Company can be directly liable to
to give the other party the authority to fix the Manila Railroad Co for quasi-contract.
prices or cancel the contract? But since there is a contract between
A: No, mutuality is not violated. A contract Atlantic company and Steamship
may expressly confer upon one party the Company, Atlantic Company’s liability is
right to cancel the contract because the contractual with Steamship Company.
exercise of that right a fulfillment of the Since the Manila Railroad Co is not a party
provisions of the contract itself. But the to that contract, it cannot involve itself
release must operate on both parties. there.
Mutuality would be violated if the stipulation
would release one party but hold the other Q: Can Manila Railroad argue on the basis
bound. of stipulation pour autrui?
A: No. In a stipulation pour autrui, the
3.! Relativity contracting parties must have clearly and
deliberately conferred a favor upon the third
Contracts take effect only between the person.
parties, their assigns and heirs
DKC Holdings Corp. v. CA
Art. 1311. Contracts take effect only Contract: Contract of lease with option to
between the parties, their assigns and buy between Encarnacion (lessor) to DKC
heirs, except in case where the rights (lessee)
and obligations arising from the contract DKC paid regularly 3k a month to reserve
are not transmissible by their nature, or its option until Encarnacion died, then
by stipulation or by provision of law. The recoursed payment to Victor (son) who
heir is not liable beyond the value of the refused. Victor executed Affidavit of Self-
property he received from the decedent. adjudication over all properties of
Encarnacion. DKC opened an account in
favor of Victor and deposited rentals. DKC
MERALCO v. La Compañia Trasatlantica filed a complaint against Victor.
Contract 1: Manila Railroad—Steamship
Company (LCT) for delivery of 2 locomotive General rule under 1311: Contract entered
boilers: by deceased (Encarnacion Bartolome) is
Contract 2: Steamship–Atlantic Company: binding to her heir (Victor Bartolome, her
Atlantic’s crane to be used to lift the boilers son).
from the ship
Exception is if obligation is not
The Crane used to lift boilers, but an transmissible by nature, stipulation or law.
accident caused the boiler to fall into ship Nothing in the contract says that obligation
and become damaged. MERALCO is intransmissible.
demanded damages from LCT. LCT caused

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No one may contract in the name of executed by the Hermanos Orense. After
another redemption period, they refused to vacate
Orense saying he did not give power of
Art. 1317. No one may contract in the attorney to Duran or authorization. Is sale
name of another without being valid?
authorized by the latter, or unless he has .
by law a right to represent him. At the trial for estafa filed by Hermanos
against Duran, Orense, called as witness,
A contract entered into in the name of answered in the affirmative when asked by
another by one who has no authority or the fiscal whether he consented to Duran’s
legal representation, or who has acted selling of the property to Gutierrez
beyond his powers, shall be Hermanos. Orense conferred verbal, or at
unenforceable, unless it is ratified, least implied, power of agency upon Duran.
expressly or impliedly, by the person on Orense’s statements made under oath
whose behalf it has been executed, meet the requirements of the law, ratified
before it is revoked by the other the sale, and legally excuse the lack of
contracting party. written authority.

Q: If a person enters a contract through an

Exceptions to Relativity agent, what is the nature of the obligation
1.! Accion Pauliana of the agent?
2.! Accion Directa
A: The agent is not a party to the contract.
3.! Article 1312
But if he acts beyond instruction, he shall
4.! Stipulation pour autrui be liable.
a.! Stipulation in favor of 3rd
person
Parties
b.! Part of a contract, not the
whole 1.! Auto-Contracts
c.! Clear and deliberate intent to
2.! Freedom to Contract
confer a benefit on 3rd
person
d.! Favorable stipulation not Art. 1306. The contracting parties may
condition or compensated establish such stipulations, clauses,
by any kind of obligation terms and conditions as they may deem
e.! Neither of the contracting convenient, provided they are not
parties bear the legal contrary to law, morals, good customs,
authorization of the 3rd party public order, or public policy.
f.! 3rd person must have
communicated his/her Gabriel v. Monte de Piedad
acceptance before the Contract: Chattel Mortgage executed by
revocation Gabriel (appraiser of jewels) to secure his
deficiencies to employer Monte (resulting
Gutierrez v. Hermanos Orense from erroneous appraisals)
Contract: Sale of land by Duran (nephew of
owner) to Hermanos Gabriel promised to pay 300/month until it’s
fully paid. Action filed by Monte de Piedad
Duran sold Orense’s land to Hermanos against G to recover remaining payment
reserving his right to repurchase. They and execute Mortgage in case of default. G
continued to occupy land under lease alleges that he was induced to sign CM and

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that it was based upon non existing subject Special Disqualifications
matter and consideration.?
Art. 87, Family Code. Every donation or
The contract in this case does not in any grant of gratuitous advantage, direct or
way militate against the public good. indirect, between the spouse during the
Neither does it contravene the policy of the marriage shall be void, except moderate
law nor the established interests of society. gifts which the spouses may give each
There is substantial compliance with the other on the occasion of any family
requirements of the Chattel Mortgage Law. rejoicing. The prohibition shall also apply
The wording of the affidavit under to persons living together as husband
discussion, as it appears from the record, is and wife without a valid marriage.
almost in the same language of the statute.

Pakistan International Airlines v. Ople Art. 1490. The husband and the wife
Contract: Employment Contract by PIA to cannot sell property to each other,
Farrales and Mamasig (stewardess). 3 yrs, except:
with right to (6) terminate employee (1) When a separation of property was
anytime, (10) governed by laws of Pakistan, agreed upon in the marriage
under jurisdiction of Pakistan courts. settlements; or
(2) When there has been a judicial
After one year and eight months of separation of property under Article 191.
employment, the premature termination
clause was used against respondents. They
sought help from the Ministry of Labor and
Employment which ordered their
reinstatement as well as the payment of
backwages and benefits.

Art. 278 of the Labor Code, forbade the

termination of the services of employees
with at least 1 year of service without prior
clearance from DOLE. The principle of party
autonomy in contracts is not an absolute
principle. Provisions of applicable law,
especially those relating to public policy,
are deemed written into the contract.
Parties may not contract away applicable
provisions of law especially peremptory
provisions dealing with matters heavily
impressed with public interest. Also,
petitioner cannot invoke the 2nd clause
(Pakistani court) since all the contracts
point to Philippine courts and
administrative agents as the proper forum
(contract was executed in the Philippines,
performed in the Philippines (at least
partially, private respondents are Filipinos
and PIA is licensed to do business here).

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 Art. 1491. The following persons cannot 3.! What parties may not stipulate
acquire by purchase, even at a public or
judicial auction, either in person or Art. 1306. The contracting parties may
through the mediation of another: establish such stipulations, clauses,
(1) The guardian, the property of the terms and conditions as they may deem
person or persons who may be under his convenient, provided they are not
guardianship; contrary to law, morals, good customs,
(2) Agents, the property whose public order, or public policy.
administration or sale may have been
entrusted to them, unless the consent of
a.! Contrary to Law: which refer to
the principal has been given;
mandatory and prohibitive laws,
(3) Executors and administrators, the
not to suppletory laws merely
property of the estate under
designed to supply omissions of
administration;
the parties.
(4) Public officers and employees, the
property of the State or of any
Pactum Commissorium
subdivision thereof, or of any
government-owned
or controlled corporation, or institution, Art. 2088. The creditor cannot
the administration of which has been appropriate the things given by way of
entrusted to them; this provision shall pledge or mortgage, or dispose of them.
apply to judges and government experts Any stipulation to the contrary is null and
who, in any manner whatsoever, take void.
part in the sale;
(5) Justices, judges, prosecuting Pactum Leonina
attorneys, clerks of superior and inferior
courts, and other officers and employees Art. 1799. A stipulation which excludes
connected with the administration of one or more partners from any share in
justice, the property and rights in the profits or losses is void.
litigation or levied upon an execution
before the court within whose
jurisdiction or territory they exercise their Pactum de non alienado
respective functions; this prohibition
includes the act of acquiring by Art. 2130. A stipulation forbidding the
assignment and shall apply to lawyers, owner from alienating the immovable
with respect to the property and rights mortgaged shall be void.
which may be the object of any litigation
in which they may take part by virtue of
b.! Contrary to morals: particular
their profession;
reference to standards of justice
(6) Any others specially disqualified by
and decency acknowledged by
law.
society
c.! Contrary to good customs: same
Art. 1782. Persons who are prohibited as morals
from giving each other any donation or d.! Contrary to public order:
advantage cannot enter into universal considers the public weal,
partnership. peace, safety, and health of the
community

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 e.! Contrary to public policy: an No. An agreement which stifles prosecution
idea of variable content, of a crime for a pecuniary or valuable
depending on the stage of social consideration is contrary to public policy.
culture in the community; a To permit an offender to purchase immunity
tendency to injure the public, is is a perversion of justice.
against the public good, or [Prof. Disini: The stipulation of dropping the
contravenes some established criminal charges is not binding upon the
interest of society, or is prosecutor and does not prevent him from
inconsistent with sound policy filing charges. Thus, the stipulation is not
and good morals, or tends really contrary to public policy.]
clearly to undermine the security
of individual rights. Filipinas Compañia de Seguros v.
Mandanas
Cui v. Arellano The Philippine Rating Bureau, a formation
Cui studied law at Arellano University where of non-life insurance companies had a
his uncle was dean. Cui executed a provision in their constitution that members
document stating that he would refund in shall not represent to effect reinsurance
full the amount received by him in with companies not a member of good
scholarships should he transfer to another standing of the bureau. Mandanas argues
school. He transferred to Abad Santos that this is an illegal restraint on trade. Is
University and AU did not release his the stipulation valid?
transcript since he did not refund the
scholarship. Dir of Private Schools issued Yes, the provision is valid. The test as to
Memo 38 saying such stipulations nullify whether a given agreement constitute an
the principle of merit. Is the contract valid? unlawful machination or a combination in
restraint of trade is whether the contract is,
No. The stipulation is contrary to public or is not, unreasonable. There is nothing
policy and hence null and void. Policy unlawful or contrary to public policy in the
under Memo 38 is sound policy. objective sought which is to promote
Scholarships are awarded in recognition of ethical practices, not to prevent or eliminate
merit not to keep outstanding students in competition.
school to bolster its prestige. The practice
of awarding scholarships to attract Bustamante v. Rosel
students and keep them in school is not Bustamante entered into a loan agreement
good customs nor has it received some with Rosal, w/ a piece of land as collateral.
kind of social and practical confirmation. They agreed that should he fail to pay upon
maturity, Rosel would have the option to
[Prof. Disini: It isn’t really contrary to public purchase the collateral. Is the contract
policy and it is only fair for schools granting valid?
scholarships to keep the student.]
No. The agreed upon stipulation is contrary
Arroyo v. Berwin to law for being a pactum commisorium.
Juanesa, charged with theft, agreed with Elements: (1) A property is mortgaged by
plaintiff Arroyo to drop the case and in way of security for payment of the principal
exchange, Juanesa would recognize Berwin obligation; (2) There exists a stipulation for
as owner of the land. Is the stipulation automatic appropriation by the creditor of
valid? the thing mortgaged in case of non-
payment of the principal obligation within
the stipulated period.

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 during the period of redemption---w/c are
Classification the only rights that Dizon could legally
transfer, unto Gaborro under the DSWAM.
1.! According to the subject matter Such cannot be absolute sale because no
a.! Things money consideration and D had no more
b.! Services full rights to dispose lands. Likewise G
2.! According to name cannot grant D more than said rights i.e.
a.! Nominate: where the law gives the option to purchase. The agreement is an
contract a special designation or innominate contract “to give and to do”.
particular name Instrument must be reformed based on true
b.! Innominate: where the contract has intention of parties. D has right to reacquire
no special name land upon reimbursing G.
i.! Do ut des: I give so that you may
give Corpus v. CA
ii.! Do ut facias: I give so that you Corpus was dismissed in his position in
may do Central Bank, his father asked Atty. David
iii.! Facio ut facias: I do so that you to be new counsel. At first they secured a
may do decision of remanding the case and Corpus
iv.! Facio ut des: I do so that you may sent letter asking David to accept 2k. David
give declined in the meantime since there was
no favorable ruling yet Corpus was
Dizon v. Gaborro eventually reinstated. David demanded for
Dizon is the owner of 3 parcels of land. attorney’s fees but Corpus claimed there
Dizon mortgaged land to DBP, which was was no contract, and it was gratuitous.
foreclosed. He entered into 2 contracts with
Gaborro: While there was no express contract
(1) Deed of sale w/ assumption of between the parties for the payment of
mortgage"D conveys to G attorney’s fees, the fact remains that
property, G assumes the debt. respondent David rendered legal services
(2) Option to purchase real estate" to petitioner Corpus and therefore as
in favor of D upon payment of sum aforestated, is entitled to compensation
representing the debts. under the innominate contract facio ut des-
- (I do and you give) which is based on the
DBP and Gaborro executed a principle that “no one shall unjustly enrich
CONDITIONAL SALE of the properties. himself at the expense of another. And
Then Dizon assigned his right of such being the case, respondent David is
redemption to Gaborro. D offered to entitled to a reasonable compensation of
reimburse G who refused, D files complaint, 20k.
insist contracts’ true intention was not
absolute sale but equitable mortgae or 3.! According to perfection
conveyance by way of security for
reimbursement by Dizon of any and all a.! By mere consent
sums which may have been paid to the
DBP and the PNB by Gaborro.

After the extrajudicial foreclosure and sale

of his properties, petitioner Dizon retained
the right to redeem the lands, the
possession, use and enjoyment of the same

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 Art. 1315. Contracts are perfected by a.! Commutative: fulfillment is
mere consent, and from that moment predetermined in advance
the parties are bound not only to the b.! Aleatory: fulfillment is dependent
fulfillment of what has been expressly upon chance
stipulated but also to all the
consequences which, according to their Stages
nature, may be in keeping with good
faith, usage and law. 1.! Preparation: when negotiations are in
progress
2.! Perfection: when the parties come to an
b.! By delivery of the object agreement
3.! Consummation or death: when the
Art. 1316. Real contracts, such as contract is fully executed
deposit, pledge and commodatum, are
not perfected until the delivery of the As distinguished from a perfected promise
object of the obligation. and an imperfect promise

CONTRACT PERFECTED IMPERFECT

4.! According to its relation to other
PROMISE PROMISE
contracts
Establishes Tends only to A mere
a.! Preparatory: where the contract and assure and unaccepted
looks forward to other future determines pave the way offer.
transactions the obligations for the
b.! Principal: where the contract may arising celebration of a
exist alone therefrom contract in the
c.! Accessory: where the contract future; until the
depends upon some other contract contract is
for its existence actually made,
5.! According to form the rights and
a.! Common or informal obligations are
b.! Special or formal not yet
6.! According to purpose determined.
a.! Transfer of ownership
b.! Conveyance of use With respect to third persons
c.! Rendition of services
7.! According to the nature of the vinculum 1.! Stipulations in favor of third persons
produced
a.! Unilateral: where only one of the Art 1311. x x x
parties is bound to a prestation
b.! Bilateral: where both parties are If a contract should contain some
bound to reciprocal prestations stipulation in favor of a third person, he
c.! Reciprocal: may demand its fulfillment provided he
8.! According to cause communicated his acceptance to the
a.! Onerous: where there is an obligor before its revocation. A mere
exchange of correlative values incidental benefit or interest of a person
b.! Gratuitous: where no correlative is not sufficient. The contracting parties
prestation is received by one party must have clearly and deliberately
9.! According to risk conferred a favor upon a third person.

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Florentino v. Encarnacion Coquia v. Fieldmen’s Insurance Co.
Miguel Florentino et al and Salvador Fieldmen’s issued a common carrier
Encarnacion et al filed for the registration of accident insurance policy in favor of Manila
the land inherited from deceased Yellow taxicab. Policy provides company
Encarnacion Florentino. A stipulation under will indemnify Insured:
a deed of extrajudicial partition provided “…against all sums which Insured will
that the fruits of the land should be become legally liable to pay in respect
defrayed to the Church’s expenses for the of: death or bodily injury to any fare-
Holy Week. F asked this to be included as paying passenger including the
encumbrance while E opposed. CFI ruled Driver.”
that only that expenses will be Coquia, driver of taxi, dies due to accident.
encumbrances to petitioners only and not Yellow wanted to claim 5k, F offered 2k, Y
to resps who refused. claimed 4k, F refused. Is there cause of
action despite Coquia and F not having
The Court ruled that it is a valid stipulation contractual relation?
pour autrui, or a stipulation in favor of a 3rd Yes, because there is a stipulation pour
person conferring a clear and deliberate autrui. The stipulation is:
favor upon him and w/c stipulation is “Company will indemnify authorized
merely part of a contract entered into by driver, personal reps in the event of
parties, neither of whom acts as agent of death; Company may make at its
the 3rd person. In determining whether a option to indemnity payable directly to
stipulation is merely incidental, the intent of the claimants or heirs of claimants…it
being the true intention of this Policy
the parties must be looked into. The
to protect,,,the liabilities of the Insured
records show that the parties intended to
towards passengers” (third parties).
give material benefit to the Church.
Also, deceased driver paid 50% of the
The clause fulfilled the requisites of a
corresponding premiums of the insurance
stipulation pour autrui, namely:
by such being deducted in his weekly
1) that the stipulation in favor of a third
commissions.
person should be a part, not the whole, of
the contract;
Constantino v. Espiritu
2) that the favorable stipulation should not
Constantino entered into a fictitious deed of
be conditioned or compensated by any
absolute sale for 8k (express contract) with
kind of obligation whatever; and
appellee Espiritu with understanding that E
3) neither of the contracting parties bears
would hold properties in trust for their
the legal represented or authorization of
illegitimate unborn son. Espiritu mortgaged
third person.
the properties and attempted to sell. C filed
injunction to stop the sale, prayed
While stipulation in favor of 3rd persons has
execution of DoAS in favor of son. E argues
no binding effect before acceptance by
son is not included as party-plaintiff. Statue
party favored, law is silent as to when the
of Frauds must apply. C says contract was
acceptance is to be communicated, and if it
implied trust. The contract was had a
is to be made expressly. That since time
stipulation pour autrui. One of the parties to
immemorial, the Church has been enjoying
a contract is entitled to bring an action for
the benefits of the stipulation was an
its enforcement or to prevent its breach.
implied acceptance before revocation. Also
That there was agreement to hold property
it must bind all parties and cannot be
in trust is a question of fact, must be
revoked at the will of one party. The
remanded to lower court.
encumbrance must remain in force.

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Young v. CA Mandarin Villa v. CA
Phil Holding holds several units, wants to Clodualdo De Jesus hosted a dinner for
demolish building. Tenants filed complaint friends. His credit card was rejected by
and reached a compromise agreement. cashier since it stated it was expired
Compromise Agreement provided that although the date embossed–Sept 1990
should owner decide to sell units, tenants clearly stated it wasn’t. De Jesus filed for
have right of first refusal. Properties were damages against Mandarin and Bankard
sold to other people. Agreement also (issuer of the card).
indicated that Rebecca Young shall be
impleaded as party plaintiff, with written The Court held that Madnrain was liable for
conformity. Court dismissed case due to the refusal. The agreement between
Young not being a party. Mandarin and Bankard has a stipulation
pour autrui in favor of card holder. De Jesus
The Court said that there is no stipulation may demand fulfillment upon acceptance—
pour autrui. Compromise agreements can’t offer to pay by means of credit card. Also
bind persons not parties therein. Young mandarin is negligent for not folowing POS
was not impleaded as party nor was there a guidelines that when “card expired”
signature of her (she says it wasn’t handed flashes, date embossed should be
to her). Assuming it was a pour autrui, she checked.
should have manifested acceptance, before
revocation (selling of properties). 2.! Possession of the object of contract by
third persons
Marmont Resort v. Guiang
1st MOA: between Maris Trading and Art. 1312. In contracts creating real
Marmont, Maris drills for water and installs rights, third persons who come into
water pump on land occupied by Guiang possession of the object of the contract
spouse. are bound thereby, subject to the
2nd MOA: Spouses transfer all possessory provisions of the Mortgage Law and the
rights of portion of lot where water source Land Registration Laws.
is to Maris.
3.! Creditors of the contracting parties
Marmont asked spouses to let them
inspect the pump facility, spouses refused.
Marmont filed complaint. Spouses allege Art. 1313. Creditors are protected in
not knowing about 1st MOA and 2nd MOA cases of contracts intended to defraud
not valid, not executed in accordance with them.
law. Spouses allege that Marmont was not
privy to 2nd MOA so dismissal of complaint 4.! Interference by third persons
is proper.
Art. 1314. Any third person who induces
Marmont has a valid cause of action. It is
another to violate his contract shall be
clear in second MOA that intent of the
liable for damages to the other
parties was to benefit third person marmont
contracting party.
(it having explicitly recognized the first
MOA). Maris in taking possessory rights
over the lot was to supply the water The elements of tortuous interference
requirements of Marmont, and the benefit are:
not merely incidental.
(1) existence of a valid contract;

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(2) knowledge on the part of the third liable though for breach, resulting to
person of the existence of contract; nullification of lease contracts.
(3) interference of the third person is
without legal justification or excuse. Jose Lagon v. CA and Lapuz
Lagon purchased from the intestate estate
Daywalt v. La Corp. of Bai Tonina Sepi two parcels of land in
Endencia conveyed land to Daywalt, upon SK. Lapuz filed a complaint for tortuous
receiving torrens title she found that lot was interference and damages against
bigger than she thought and stopped the petitioner. Lapuz alleges lands were leased
conveyance. Daywalt filed complaint. Also, to him, which were renewed and Lagon
La Corporacion – religious org who induced the heirs to sell to him the land.
previously owned the land, said to have Lagon said he unearthed no lease
advised Endencia, also used the land for contracts, only unsigned copies.
pasture while it is still with E’s possession.
Q: Is Lagon guilty of tortuous interference?
Q: Is La Corp, a non-party to the contract, A: No. (See requisites) Though lease
liable for damages? contract existed and was renewed, Lagon
A: Yes. But not more than what E is liable did not know of them, also there was no
for. Stranger to the contract cannot proof of inducement nor malice since
become more extensively liable in damages Lagon was only advancing economic
for the non-performance of the contract interest.
that the party in whose behalf he
intermeddles. Damages awarded for breach
for period when land was unlawfully
withheld. But damages as to unlawful
interference cannot be recovered from E or
Corporation since it is a special damage
(beyond contemplation of parties and too
remote a subject to recover).

So Ping Bun v. CA
Tek Hua Trading through So Pek Giok
leased premises from DCCI, subject to 1-
year term—contract expired, no renewal
but continued occupation. Tek Hua was
dissolved, and the original members,
especially Tiong established a new Tek Hua
Enterprising. So Ping Bun grandson of SPG
occupied warehouse for his own business.
Tiong asked him to vacate as he would be
using the warehouse, SPB refused asked
DCCI for lease contracts.

Q: Is SPB liable for damages?

A: No, because although elements of tort
interference was fulfilled, there was no
malice. SPB in occupying premises
intended it to further his economic interest
not harm the contracting party. He is still

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 Contracts: Essential Requisites of Malbarosa v. CA
Contracts Malbarosa was President of Philtectic Corp.
He resigned and demanded for his
Consent incentive compensation. A Letter-offer of
March 14 was addressed to Malbarosa
1.! Requisites entitling him to 280K (car and memberships
to be transferred). The company required
that if M agreed to the offer, he should affix
Art. 1319. Consent is manifested by the
conformity. 2 weeks lapsed and Company
meeting of the offer and the acceptance
did not receive letter so they withdrew the
upon the thing and the cause which are
offer, demanded return of car. M refused,
to constitute the contract. The offer must
alleges he already accepted when he
be certain and the acceptance absolute.
affixed signature on March 28.
A qualified acceptance constitutes a
counter-offer.
Q: Was there valid acceptance?
Acceptance made by letter or telegram A: There was no acceptance. To produce a
does not bind the offerer except from contract, acceptance must be made known
the time it came to his knowledge. The to offerer. When the letter-offer was
contract, in such a case, is presumed to delivered to pet, he did not accept nor
have been entered into in the place reject the same. Hence, there was no
where the offer was made. contract perfected between them. Although
the pet affixed his signature, he failed to
transmit it to resp. When the offeror has not
a.! Must be manifested by the fixed a period for the offeree to accept,
concurrence of the offer and acceptance must be made immediately.
acceptance Petitioner had more than two weeks to
decide which was reasonable enough.
Rosenstock v. Burke
Burke owned yacht, offered to sell to Elser. SLDC vs. CA
Elser paid for repairs for the voyage. Babasanta paid down payment plus partial
Expressed in letter “I am in the position and payments to Spouses Lu for parcels of
willing to entertain the purchase of the land. He demanded execution of sale so he
yacht” under certain conditions. Burke can effect full payment. Lu refused,
demanded specific performance. Elser acknowledging having agreed to sell
demanded payment for repairs. property, but reminded him that when the
balance of the purchase became due, he
Q: Was there a valid contract of sale? asked for reduction and upon owner’s
A: None. Words of Elser cant be interpreted refusal, he backed out of the sale. B filed
as a definite offer to purchase the yacht, complaint, SLDC intervened as buyer in
but simply a position to deliberate whether good faith.
or not he would purchase the yacht. It was
but a mere invitation to a proposal being Q: Who has right to the land?
made to him, which might be accepted by A: LDC has right over land. The agreement
him or not. That E wrote the letter to B for between Spouses Lu and Babasanta was
purpose of indicating to B that he wanted merely a contract to sell and NOT a
the latter to make a proposal which E might contract of sale. While there is no
accept or reject is not anomalous. stipulation that the seller reserves the
ownership of the property until full payment
of the price (a distinguishing feature of a

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contract to sell), the subsequent acts of the What may be fixed by the offeror
parties imply that Spouses Lu never
intended to transfer ownership to Art. 1321. The person making the offer
Babasanta except upon full payment of the may fix the time, place, and manner of
purchase price. The receipt signed by acceptance, all of which must be
Pacita Lu should legally be considered as a complied with.
perfected contract to sell, which imposed
upon Babasanta the obligation to pay the
balance of the purchase price. Babasanta When made through an agent
did not fulfill this obligation, thus the
obligation on the part of the sellers to Art. 1322. An offer made through an
convey the title never acquired obligatory agent is accepted from the time
force. acceptance is communicated to him.

MMDA vs. Jancom

Circumstances when offer becomes
MMDA entered into a contract of waste
ineffective
disposal with Jancom. Because of change
in administration to Estrada, the passage of
Clean Air Act, and closing down of San Art. 1323. An offer becomes ineffective
Mateo landfill, MMDA did not push thru upon the death, civil interdiction,
with project. Jancom complained. MMDA insanity, or insolvency of either party
argues there was no contract because: no before acceptance is conveyed.
notice of award, no signature by Pres,
conditions precedent specified in the Business advertisements of things for sale
contract were not complied with.

The Court held that there ass a valid Art 1325. Unless it appears otherwise,
contract. Notice of award, although a business advertisements of things for
requirement, was cured by subsequent sale are not definite offers, but mere
signing of the contract. The invitations to make an offer.
signature/approval of president is only
required for effectivity of contract but it was Advertisement for bidders
already perfected upon signing by
secretary. Conditions precedent must be
Art. 1326. Advertisements for bidders
complied with w/in 2 months of effectivity—
are simply invitations to make proposals,
which can’t run until signed by president.
and the advertiser is not bound to
accept the highest or lowest bidder,
Offer
unless the contrary appears.
Must be certain

Art. 1319. x x x The offer must be Acceptance

certain x x x
Must be absolute

Art. 1319. x x x and the acceptance

absolute x x x

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 Express or Implied Acceptance Sanchez v. Rigos
Rigos executed an option to purchase in
Art. 1320. An acceptance may be favor of Sanchez for a parcel of land, with
express or implied. 2-year period to exercise option. Sanchez
paid w/in period, but Rigos refused.
Sanchez deposited payment. Is Rigos
Qualified Acceptance
compelled to accept?
The Court ruled that there was a binding
Art. 1319. x x x A qualified acceptance contract. The Court sought to harmonize
constitutes a counter-offer. x x x the two provisions. It reiterated its ruling in
Atkins and abandoned its ruling in
If made by letter or telegram Southwestern Sugar & Molasses (where
1324 was deemed the general rule and
1479 specific for promises to buy/sell,
Art. 1319. x x x
hence applying the latter). A unilateral
promise to sell, although not binding as a
Acceptance made by letter or telegram
contract in itself for lack of a separate
does not bind the offerer except from
consideration, nevertheless generated a
the time it came to his knowledge. The
bilateral contract of purchase and sale
contract, in such a case, is presumed to
upon acceptance, pending notice of
have been entered into in the place
withdrawal.
where the offer was made.
[Note: In US Law, consideration is an
Four theories on when the contract is element of a valid contract. In civil law,
perfected cause is the element of a valid contract.
The conflict arises from the fact that the law
Manifestation theory: counter-offeree on sales is based on common law and that
manifests his acceptance of contracts is based on civil law. In this
case, Art. 1479 which is based on common
Expedition theory: sending of the letter law is forced into civil law tradition (based
on Art. 1324).]
Reception theory: receipt of the message of
acceptance Contract of option

Cognition theory: knowledge of offeror of Art. 1324. When the offerer has allowed
the acceptance the offeree a certain period to accept,
the offer may be withdrawn at any time
Period of acceptance before acceptance by communicating
such withdrawal, except when the
Art. 1324. When the offerer has allowed option is founded upon a
the offeree a certain period to accept, consideration, as something paid or
the offer may be withdrawn at any time promised.
before acceptance by communicating
such withdrawal, except when the
option is founded upon a consideration, An option contract limits the promisor’s
as something paid or promised. power to revoke an offer.

b.! Necessary legal capacity of the

parties

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1.! Who cannot give consent Asiain v. Jalandoni
Asiain and Jalandoni entered into an
Art. 1327. The following cannot give agreement wherein the former would sell
consent to a contract: the latter his land, containing 25 hectares
more or less. Upon taking possession of
(1) Unemancipated minors; the land, Jalandoni found out that the land
(2) Insane or demented persons, and was only 18 hectares. The matter was
deaf-mutes who do not know how to brought to the CFI which ruled that the
write. agreement was void, which the Court
affirmed.
2.! When offer and/or acceptance is made In a contract of sale wherein the units of
area is stipulated, any excess or deficiency
When insane or demented persons in the quantity stipulated is a ground for
contract, it is voidable, unless they contract annulment but if the sale was for a
during a lucid interval. Drunkenness and particular tract or designated parcel by
hypnotic spells (by drugs or otherwise) are name or description for a sum in gross, the
considered temporary insanity. transaction is bona fide and is not generally
a ground for rescission. But if the difference
c.! The consent must be intelligent, between the real and represented quantity
free, spontaneous, and real is very great, then both parties act
obviously under a mistake, which the court
1.! Effect has the duty to correct, and relief will be
granted when the mistake is so material
Art. 1330. A contract where consent is that if the truth had been known to the
given through mistake, violence, parties, then the sale would have been
intimidation, undue influence, or fraud is made.
voidable.
Mutual mistake is a ground for equitable
Vices of Consent: Mistake or Error relief. When there is a gross mistake in the
quantity, and there is not fraud or
Error or mistake is the inadvertent and negligence nor impairment of the equity
excusable disregard of a circumstance resulting from the mistake, then there can
material to the contract. be a relief from technical or legal defect of
the contract. The court will not interfere
1.! Kinds however if it is clear that the parties intend
a.! Mistake of fact a contract of hazard, though it may not
a.! As to the substance of the carry into effect the real intention of the
object parties, it is calculated to prevent litigation.
b.! As to principal conditions
c.! As to identity or qualificatios of Heirs of Sevilla v. Sevilla
one of the parties Felisa stated in her last will and testament
d.! As to quantity, as distinguished that she gives half of her share to Leopoldo
from a simple mistake of and his spouse. After a year, she executed
account (which give rise to a Deed of Donation Inter Vivos, ceding
correction only) Felisa’s undivided share to Leopoldo.
Petitioners challenged the validity of the
said Deed on the basis of alleged fraud. CA
affirmed RTC decision which declared the

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Deed of Donation Inter Vivos valid and Spouses Theis v. CA
binding on the parties; and the partition Spouses Theis bought a Parcel No. 4 from
unenforceable. Calsons Dev Corp. The spouses thought
they were buying the vacant lot adjacent to
Fraud and undue influence that vitiated a Parcel No. 3. Calsons thought they were
party’s consent must be established by full, selling Parcels No.1 and 2. The mistake
clear and convincing evidence, otherwise, was caused by the erroneous survey in
the latter’s presumed consent to the 1985. Spouses asserted that they wanted
contract prevails the then vacant parcel no. 4. Calsons
offered to return the an amount which was
The fact that the donation preceded the double the price paid to it. Spouses
partition does not constitute fraud. It is not remained adamant. Thus, an action for
necessary that partition should first be had annulment of the deed was filed with RTC.
because what was donated to Leopoldo
was the 1/2 undivided share of Felisa in Lot Private respondent obviously committed an
No. 653. Moreover, petitioners failed to honest mistake in selling parcel no. 4. Good
show proof why Felisa should be held faith was evident in the fact that when the
incapable of exercising sufficient judgment mistake was discovered, it immediately
in ceding her share to respondent offered two other vacant lots to the
Leopoldo. The notary public who notarized petitioners or to reimburse them with twice
the Deed of Donation testified that Felisa the amount paid. That petitioners refused
confirmed to him her intention to donate either option left the private respondent
her share in Lot No. 653 to Leopoldo, that with no other choice but to file an action for
though the donor was old, she was of the annulment of the deed of sale on the
sound mind and could talk sensibly. There ground of mistake. As per Tolentino:
was no attempt by petitioners to rebut said The concept of must include both
declaration of the notary public. ignorance, which is the absence of
knowledge with respect to a thing,
Andres v. Manufacturers Hanover and mistake which is a wrong
Petitioner transacted with the respondent conception about said thing or a
foreign company who bought items from belief in the existence of some
the former. Respondent coursed its circumstance, fact, or event, which in
payment (this time amounting to $10k) reality does not exist. In both cases,
through bank to bank during the process of there is a lack of full and correct
knowledge about the thing.
w/c there has been delay in transmitting the
The mistake committed by the private
payment to petitioner. Respondent, in its
respondent in selling parcel no. 4 to the
due diligence, (re)instructed the bank
petitioners falls within the second type.
concerned to pay petitioner, not knowing
Such mistake invalidated its consent and as
that petitioner already received the $10k.
such, annulment of the deed of sale is
proper.
The contract was with FACETS, hence,
respondent MHTC is not indebted to
b.! Error of law
petitioner. There being no contractual
a.! General rule: Ignorantia legis
relation between petitioner and respondent,
neminem excusat
the former has no right to apply the 2nd
b.! Exception:
$10k remittance delivered by mistake by
the latter to the outstanding account of
FACETS.

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 Art. 1334. Mutual error as to the legal Hemedes v. CA
effect of an agreement when the real In a dispute over to whom did Justa
purpose of the parties is frustrated, may Kausapin validly convey a plot of land, she
vitiate consent. tried invoke Article 1332 to invalidate a
deed of conveyance to Maxima Hemedes
because she could not read or write in
2.! When one of the parties is unable to
English. The Court said this defense was
read
not available to her without alleging how
her illiteracy vitiated her consent. Further, it
Art. 1332. When one of the parties is was inconsistent with her defense that she
unable to read, or if the contract is in a had never seen the document before—
language not understood by him, and obviously if you’ve never seen it, you can’t
mistake or fraud is alleged, the person claim you were tricked into signing it.
enforcing the contract must show that
the terms thereof have been fully Article 1332 contemplates a situation
explained to the former. when a party needs protection from their
own illiteracy, ignorance, mental
Dumasug v. Modelo weakness or other handicap, so their
Felix Modelo persuaded Andrea Damasug consent may not be vitiated by fraud. For
to sign a document by falsely and this article to be invoked, one should refer
maliciously making her believe that she was to the mistake or fraud which would
paying for the Modelo’s expenses on an invalidate consent. It does not cover a
ongoing trial wherein the respondent situation with the complete absence of
represented the petitioner. She didn’t know consent. 
 Here, Kausapin’s only defense is
how to write but still signed the document she did not know of any deed of
by placing a cross between her name and conveyance in Maxima’s favor whatsoever,
surname, thinking that respondent was asserting she only saw it for the first time
telling the truth. She signed it in the when the case was brought to trial, and by
presence of 2 witnesses. 3 months after the her own defense she is unable to invoke
document was executed, respondent took Article 1332.
possession of petitioner’s carabao and 2
parcels of land. He notified the petitioner Lustan v. CA
that she conveyed the carabao and lands to Petitioner Adoracion Lustan executed
him by absolute sale. Special Powers of Attorney to private
respondent Nicolas Parangan who used the
The document which allowed the sale and SPA to obtain loans used for his own
conveyance of the properties to respondent benefit. He also made the illiterate
was not the instrument of debt which petitioner sign a Deed of Definite Sale,
petitioner had signed. If document referred under the guise that the contract was only
to the sale, conveyance, and to evidence Lustan’s indebtedness to
acknowledgment of debt, it wasn’t properly Parangan for small loans extended to her.
explained to petitioner. The consent she The Court ruled that the Deed of Definite
gave was a mistake, therefore null and void Sale cannot be taken as it is, but as an
based on Art. 1331. This error invalidates equitable mortgage, as it was not shown
the contract because it goes to the very that the contents of the contract were
substance of the thing, which is the subject explained to Lustan; therefore, the sale
matter of said contract. If the petitioner cannot be taken as the intention of the
knew and understood its contents, she parties.
would never have accepted it by signing.

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Even when a document appears on its face contract voidable. Undue influence was
to be a sale, the owner may prove that the exerted by his brother Miguel, Inocencio
contract is really a loan with mortgage by Valdez and Atty Balguma. He could not
raising as an issue the fact that the possibly understand what was written in the
document does not express the true intent contract because it was written in English,
of the parties. If this is proven, the Court and he was diagnosed to have the mind of
will enforce the agreement in consonance a 6 year old and he only finished third
with the true intent of the parties. The grade.
evidence shows that petitioner had no
knowledge of the contract, as she is [Prof. Disini: Mental age/Schooling/IQ as
illiterate and the contract was not read nor determinative of incapability is problematic.
explained to her. When one of the Surely, if you can own a land, you can
contracting parties is unable to read, or if dispose of it also.]
the contract is in a language not
understood by him, and mistake or fraud is Leonardo v. CA
alleged, the person enforcing the contract Petitioner Restituta Leonardo is the only
must show that the terms have been legitimate child of the late spouses
explained to the former. In Parangan’s Tomasina Paul and Balbino Leonardo.
testimony, it was not sufficiently shown that Private respondents are the illegitimate
the contents of the contract were explained children of Tomasina with Jose Sebastian
to the petitioner. This was testified to by a after she separated from Balbino Leonardo.
witness, Celso Pamploma, who said that Petitioner alleged that the private
the document was not read nor explained respondents came to the petitioner’s house
to Lustan. to persuade her to sign a deed of
extrajudicial partition of the estate of
Katipunan v. Katipunan Tomasina Paul and Jose Sebastian.
Braulio Katipunan, Jr. is the owner of a 203 Petitioner insisted that they wait for her
sqm. lot and a 5 door apartment. He sold it husband so he could translate the
with the help of his brother Leopoldo document which was written in English.
Balguma Jr to Edgardo Balguma and Petitioner, however, proceeded to sign the
Leopoldo Balguma, Jr. for P187,000. document even without her husband and
Through insidious words and machinations, without reading the document, on the
they made him sign a document assurance of the private respondents.
purportedly a contract of employment, When petitioner’s husband arrived, the
which document turned out to be a Deed of private respondents left without leaving a
Absolute Sale. Respondent alleged that he copy of the document. It was only when
did not receive consideration stated in the petitioner hired a lawyer that they were able
contract. He also claimed that defendants, to secure a copy and read the contents
now petitioners with evident bad faith, thereof. The agreement was an extrajudicial
conspired with one another in taking settlement that claimed that the private
advantage of his ignorance, he being only a respondents were the legitimate children
third grader. and sole heirs of the deceased. The
settlement gave her 7,671.75 square
Contract voidable because consent was meters, which was much less than what
vitiated. Under Art 1330 of the CC, consent she was supposed to get (around 19k).
may be vitiated by any of the following a)
mistake, 2) violence, 3) intimidation, 4) With Art.1332 of the New Civil Code, the
undue influence, and 5) fraud. The person enforcing the contract must show
presence of any of these vices renders the that the terms thereof have been fully

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explained if there were any allegations of
fraud. One who alleges any defect or the Art. 1336. Violence or intimidation shall
lack of a valid consent to a contract must annul the obligation, although it may
establish the same by full, clear and have been employed by a third person
convincing evidence, not merely by who did not take part in the contract.
preponderance of evidence. In this case,
the presumption of mistake was not
Martinez v. HSBC
sufficiently rebutted by private
respondents. Private respondents failed to Alejandro Macleod (husband of appellant)
offer any evidence to prove that the was managing partner of Adelcoa&Co.
extrajudicial settlement of estate was Same withdrew management. Company
explained in a language known to the ceased active business and went into
petitioner. Clearly, petitioner, who only liquidation. HSBC as creditor of the said
finished Grade 3, was not in a position to firm extended several hundred thousands
of pesos and claimed to have creditor’s lien
give her free, voluntary and spontaneous
consent without having the document, in the nature of pledge over the properties
which was in English, explained to her in of the firm. Bank filed civil action against
Macleod, wife, the firm and another firm
the Pangasinan dialect.
Viuda e Hijos de Escano. While cases
3.! Inexcusable mistake pending the firm Aldecoa discovered many
frauds of Macleod against the company
during his management. Since it was
Art. 1333. There is no mistake if the apparent that criminal proceedings would
party alleging it knew the doubt, be instituted, Macleod fled to Macao (not
contingency or risk affecting the object covered by extradition treaty between US
of the contract. and Portuguese gov). Criminal charges filed
for falsification of commercial document
Vices of Consent: Violence and Intimidation and warrant of arrest issued by CFI.
Martinez executed a contract under which
Art. 1335. There is violence when in she agreed to a conveyance of several
order to wrest consent, serious or properties to Adelcoa & Co. and HSBC as
irresistible force is employed. settlement for their claims against her and
her husband – Mr. Macleod nephew of
There is intimidation when one of the plaintiff was persuaded on what was told
contracting parties is compelled by a that consequences of refusal to make the
reasonable and well-grounded fear of an settlement would be disastrous to
imminent and grave evil upon his person Alejandro Macleod and his family and
or property, or upon the person or would be an exhibition of very bad
property of his spouse, descendants or judgment in every way.
ascendants, to give his consent.
In order for the contract to be annulled, it
To determine the degree of intimidation, must be shown that the plaintiff never gave
the age, sex and condition of the person her consent to the execution thereof. It is
shall be borne in mind. necessary to distinguish real duress and
the motive which is present when one given
A threat to enforce one's claim through his consent reluctantly. A contract is valid
competent authority, if the claim is just even though one of the parties entered into
or legal, does not vitiate consent. it against his wishes and desires or even
against his better judgment. In this case, a

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contract whereby reparation is made by from Lee’s office to PRO Manager Cruz’s
one party for injuries which he has willfully office where her sister found her; security
inflicted upon another is one which, from its guards did not do any act to prevent her
nature, is entered into reluctantly by the from leaving despite the loud threats of
party making the reparation. Lee; the door to Lee’s office was kept
open. As per Art. 1335 of the NCC:
In legal effect, there is no difference There is intimidation when one of the
between contract wherein one of the contracting parties is compelled by a
contracting parties exchanges one reasonable and well-grounded fear of
condition for another because he looks for an imminent and grave evil upon his
greater gain or profit or lesser of two person or property, or upon the
disadvantages. In either case, he makes a person or property of his spouse,
choice free and untrammeled and must descendants or ascendants, to give
accordingly abide by it. These are his consent.
evidences of duress, facts where duress To determine the degree of the
intimidation, the age, sex and
may be inferred but not duress themselves.
condition of the person shall be borne
in mind.
Lee v. CA A threat to enforce one's claim
De Chin was then confronted by Lee about through competent authority, if the
a forged Midland National Bank cashier claim is just or legal, does not vitiate
check which she allegedly deposited in the consent.
account of Honorio Carpio, her uncle. Lee
said that upon examining bank records, he Vices of Consent: Undue Influence
found that de Chin was instrumental in
inducing the bank to accept the forged
Art. 1337. There is undue influence when
check and withdrew its proceeds through a
a person takes improper advantage of
withdrawal slip purportedly signed by
his power over the will of another,
Carpio. De Chin was asked to come to the
office and was merely informed about the depriving the latter of a reasonable
freedom of choice. The following
fake check that was deposited upon her
circumstances shall be considered: the
assurance that it was genuine. She was
confidential, family, spiritual and other
not compelled to signing the withdrawal
relations between the parties, or the fact
slip but she acted freely and voluntarily
that the person alleged to have been
in executing her affidavit and returning
unduly influenced was suffering from
the money.
mental weakness, or was ignorant or in
financial distress.
De Chin, despite her protests, voluntarily
and reluctantly consented to do all said
acts. Her lengthy stay in the bank was not Vices of Consent: Fraud
due to Lee’s threats but her desire to prove
her innocence. In her insistence to clear her Art. 1338. There is fraud when, through
name, she voluntarily and grudgingly insidious words or machinations of one
returned the money to show good faith. It of the contracting parties, the other is
was de Chin who informed Lee of the induced to enter into a contract which,
existence of the RCBC time deposit (TD) without them, he would not have agreed
and it was her sister who suggested to to.
encash this and not Lee. Furthermore, her
freedom of movement was not restrained;
she was able to move freely unguarded

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Hill v. Veloso the former is those misrepresentations of a
Veloso and Franco signed a promissory serious character employed by one party,
note to pay Michael & Co. S en C for P6, without which the other party would not
319.33, with a a monthly installmentof P500 have consented to the contract. Such fraud
every 15th of the month, and a penalty of allows for an annulment of the contract.
1.5% per month if payment is delayed. All This fraud or dolo which is present or
the unpaid principal shall become employed at the time of birth or perfection
immediately demandable at the option of of a contract may either be dolo causante
the owner of the promissory note. The or dolo incidente. Causal fraud are those
promissory note was indorsed to L. L. Hill a deceptions or misrepresentations of a
month later by Michael, S. en C., with serious character employed by one party
P2000.00 having been paid on the note and without which the other party would
With a remaining balance of P4319.00 with not have entered into the contract.
interest, Hill sued Veloso to recove the said Incidental fraud are those which are not
money. serious in character and without which the
other party would still have entered into the
In this case, no proof was presented of the contract. Dolo causante determines or is
mistake by which she says she signed the the essential cause of the consent, while
promissory note, nor of the fraud or deceit dolo incidente refers only to some particular
she chages her son-in-law, who is now or accident of the obligations.
deceased. The fraud, in order to annul
consent, must come from the other Sierra v. CA
contracting party. In this case, the alleged Petitioner testified that he had lent the
fraud came from Domingo Franco, who is private respondents the sum of P85,000.00
but a part of one single contracting party which they said they needed "to pay some
along with Veloso. The fraud must come cattle for fattening to be inspected by the
from Michael & Co., the other contracting inspector of the Land Bank that day" in
party, in order that consent may be connection with their application for a loan
annulled. of P400,000.00 from the said bank to
finance their logging and cattle business.
Geraldez v. CA The application was apparently not
Geraldez came to know about Kenstar approved. When the note fell due, he made
Travel Corp. and the tours they offer demands for their payment, which were
through their advertisements. Geraldez paid ignored. He thereupon filed is complaint.
for a European tour denominated as The private respondents declared that on
VOLARE 3 for her and her sister. VOLARE September 8, 1984, they were asked by the
3, as advertised, included a European tour petitioner to sign two promissory notes,
manager, first-class hotels, and a visit to one for P85,000.00 and another for
the UGC Leather factory. The tour was not P54,550.00, in consideration of Epifania
as advertised. There was no European tour Ebarle's outstanding debt of P20,000.00 to
manager. All they got was a lousy Filipino him. They said they initially objected
guide who had never been to Europe. because of the amounts indicated in the
Furthermore, the hotels were far from first- said notes. They eventually agreed,
class. They also failed to follow the itinerary however, on the petitioner's assurance that
and ended up sight-seeing the outside of a the documents were a mere formality that
closed factory. he had to show his business partner, who
was demanding immediate payment of the
The Court here differentiated between dolo said loan.
causante and dolo incidente, holding that

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The misrepresentation constituting the
fraud must be established by full, clear, and Art. 1344. x x x
convincing evidence, and not merely by a
preponderance thereof. The deceit must be Incidental fraud only obliges the person
serious. The fraud is serious when it is employing it to pay damages.
sufficient to impress, or to lead an ordinarily
prudent person into error; that which
cannot deceive a prudent person cannot be 2.! Failure to disclose facts; duty to reveal
a ground for nullity. The circumstances of them
each case should be considered, taking
into account the personal conditions of the Art. 1339. Failure to disclose facts, when
victim. The non-presentation at the trial of there is a duty to reveal them, as when
the notary public who attested the the parties are bound by confidential
promissory notes did not have the effect of relations, constitutes fraud.
invalidating them. It is well settled that the
evidentiary nature of public documents
Tuason v. Marquez
must be sustained in the absence of strong,
Marquez, who owned an electric light plant
complete, and conclusive proof of its
in Lucena, Tayabas (Sucesores del Lucena
nullity. A mere denial of the receipt of the
Electric), gave an option to Tuason to
loan, which is stated in a clear and
purchase his plant. Tuason bought the
unequivocal manner in a public instrument,
plant and operated it pursuant to a special
is not sufficient. To overthrow the recitals of
license which was to continue until they get
a mortgage deed, clear, convincing and
a new franchise. When Tuason finally
more than merely preponderant evidence is
obtained a new franchise, he conceived the
necessary. The mere assertion of the
idea of filing a case against Marquez for
private respondents that the notes were not
rescission of the contract on the basis that
notarized in their presence does not meet
Marquez never told him about the cancelled
this standard of proof. In any event, a
franchise when he was selling it to Tuason
promissory note does not have to be
before.
notarized to be binding. The private
respondents have admitted signing the two
The innocent non-disclosure of a fact does
notes and they have not succeeded in
not affect the formation of the contract or
proving that they did so "under duress, fear
operate to discharge the parties from their
and undue influence."
agreement. The franchise was not a
determining cause of the purchase. The
1.! Kinds
franchise was then in force and either party
could have easily ascertained its status by
Dolo Causante
applying at the office of the Public Utility
Commissioner.
Art. 1338. There is fraud when, through
insidious words or machinations of one Rural Bank of Sta. Maria v. CA
of the contracting parties, the other is Rural Bank deemed the substitution of
induced to enter into a contract which, Rayandayan and Arceo as mortgage
without them, he would not have agreed debtors as cancelled since they believed
to. that its consent was vitiated by the
concealment of the real consideration for
the purchase of the mortgaged property of
Dolo Incidente Behis.

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 she never refused to pay the justly reduced
In order for consent to be vitiated by fraud price, but Azarraga refused to receive it.
under Art. 1338 of the CC, the fraud must
have been the determining cause for the Gay went over Azarraga’s land and made
consent. The bank entered into said her calculations of the area of the two
agreement in order to effect payment on parcels in question before the execution of
the indebtedness of Manuel Behis. The the contract. Also, Azarraga delivered to
reason that “it was kept in the dark as to Gay the documents covering the land he
the financial capacity of private was trying to sell. She had this document in
respondent” would not prevent it from her possession so it is presumed that she
giving consent. Silence or concealment and her lawyer had read it. The defendant
(Art. 1339 of CC) by itself, does not had ample opportunity to appraise herself
constitute fraud, unless there is a special of the condition of the land which she
duty to disclose certain facts, or unless purchased, and Azarraga did nothing to
according to good faith and the usages of prevent her from making such investigation
commerce the communication should be as she deemed fit. When the purchaser
made. Verily, private respondents proceeds to make investigations by himself,
Rayandayan and Arceo had no duty, and and the vendor does nothing to prevent it,
therefore did not act in bad faith, in failing the purchaser cannot later allege that the
to disclose the real consideration of the vendor made false representations.
sale between them and Manuel Behis. The
bank had other means of verifying their Trinidad v. IAC
financial capacity. Also, the bank did not Trinidad bought a bungalow that keeps on
show they suffered damages from it. getting flooded. She later complains that
she entered into the contract of sale
3.! Usual exaggerations in trade; because of Francisco’s misrepresentations
opportunity to know the facts after she expressed concerns that
neighbors had told her that two previous
Art. 1340. The usual exaggerations in buyers had vacated the bungalow because
trade, when the other party had an of the flooding, he allegedly assured her
opportunity to know the facts, are not in that the matter had been fixed and that it
themselves fraudulent. would not be flooded again.

Fraud is not lightly inferred, and in this case

Azarraga v. Gay
Trinidad failed to prove it satisfactorily
Azarraga sold two parcels of land to Gay
enough to warrant annulment of the
payable in installments, (conditions above).
contract. She had full opportunity to
Gay was unable to pay the last two
inspect the premises, including the
installments thus, Azarraga filed for claims
drainage canals, through the vicinity map.
with legal interest. Gay admits to
She is a licensed real estate broker and
purchasing the two parcels of land but
appraised the property as such, and not
alleges that Azarraga led her to believe that
merely as an ordinary buyer. She knew that
the second parcel of land contained 98
the lot was depressed and still bought it
hectares, but it only contained 60, (binding
knowing it might be flooded. Assuming that
her to pay more than what she would have
misrepresentations were made, she is
had she known it was only 60 hectares);
deemed to have accepted them at her own
that she had paid other sums amounting to
risk, and she must therefore be responsible
P4,000; and that she is entitled to a
for the consequences of her credulousness.
reduction in the price to P38,000 and that

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 Vices of Consent: Misrepresentation
4.! Mere expression of an opinion
1.! By a third person
Art. 1341. A mere expression of an
opinion does not signify fraud, unless Art. 1342. Misrepresentation by a third
made by an expert and the other party person does not vitiate consent, unless
has relied on the former's special such misrepresentation has created
knowledge. substantial mistake and the same is
mutual.
Songco v. Sellner
Songco exaggerated the expected yields 2.! Made in good faith
that his cane would get. Sellner believed
him and bought the canes. Sellner got less Art. 1343. Misrepresentation made in
that what was said so he didn’t pay the good faith is not fraudulent but may
third promissory note on account of constitute error. 

Songco’s “fraud” and “misrepresentation”.
SC said that Sellner was stupid enough to
3.! Active/Passive
believe Songco because it was obviously
an exaggeration and that Songco’s
Active misrepresentation estops the party
statement was in fact an opinion only.
misrepresenting, while the passive kind
does not constitute fraud.
Songco’s representation did not constitute
fraud. The representation in question can
Mercado & Mercado v. Espiritu
only be considered matter of opinion as the
Petitioners allege that after their father’s
cane was still standing in the field, and the
death, they declared themselves to be of
quantity of sugar it would produce could
legal age and in possession of the required
not be known with certainty until it should
legal status to contract. However, they
be harvested and milled. Undoubtedly
maintain that the deed of sale should be
Songco had better experience and better
annulled on the ground that on the date of
information on which to form an opinion on
its execution they were minors without legal
this question than Sellner. Nevertheless the
capacity to contract and for the further
latte could judge with his own eyes as to
reason that the deceased purchaser availed
the character of the cane, and it is shown
himself of deceit and fraud in obtaining their
that he measured the fields and ascertained
consent for the execution of said deed.
that they contained 96 ½ hectares. A
misrepresentation upon a mere matter of
There is no evidence to prove that
opinion is not an actionable deceit, nor is it
petitioners were minors when they
a sufficient ground for avoiding a contract
executed the deed too. No certified copies
as fraudulent. The law allows considerable
of their baptismal certificates were
latitude to seller’s statements, and
presented. The court had laid down the
experiences teaches that it’s exceedingly
rule that the sale of real estate effected by
risky to accept it at face value. The refusal
minors who pretend to be of legalage is
of the seller to warrant his estimate should
valid and they cannot be permitted to
have admonished the purchaser that that
afterward to excuse themselves from
estimate was put forth as mere opinion.
compliance to the obligation assumed by
them or to seek their annulment. The
judgment holds that such a sale is valid and
absolves the purchase from the complaint

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filed against respondent doesn’t violate the 2, transferred these to her mother and
law relative to the sale of minors’ property stepfather by means of a document dated
nor the rules laid down in consonance January 27, 1934 (in effect, making the
therewith. properties conjugal). Both deeds were
notarized and were registered in the office
De Braganza v. De Villa Abrille of the Register of Deeds of Bulacan;
Petitioners, received from Villa Abrille, as a original titles were cancelled new ones
loan, on October 30, 1944 P70,000 in were issued in the names of the spouses.
Japanese war notes and in consideration Concepcion 1 leased from the Rodriguez
thereof, promised in writing to pay him children one of the fishponds. The
P10,000 "in legal currency of the P. I. two relationship between Concepcion 1 and her
years after the cessation of the present stepchildren worsened when she failed to
hostilities or as soon as International deliver to them the balance of the earnings
Exchange has been established in the of the fishponds, her stepchildren endorsed
Philippines", plus 2 % per annum. Because the matter to their lawyer who sent a letter
payment had not been made, Villa Abrille of demand to the widow for payment.
sued them in March 1949. In their answer Petitioner is asking that the deeds of
before the Manila Court of First Instance, transfer mentioned in the complaint be
defendants claimed to have received declared fictitious and simulated, that the
P40,000 only — instead of P70,000 as "Extrajudicial Settlement of Estate" be also
plaintiff asserted. They also averred that declared null and void and new TCT’s
Guillermo and Rodolfo were minors when should be issued in her favor.
they signed the promissory note.
The characteristic of simulation is the fact
From the minors' failure to disclose their that the apparent contract is not really
minority in the same promissory note they desired or intended to produce legal effects
signed, it does not follow as a legal or in way alter the juridical situation of the
proposition, that they will not be permitted parties. The intention of the parties to
thereafter to assert it. They had no juridical circumvent the law against donations
duty to disclose their inability. In order to between spouses does not make contracts
hold infant liable, however, the fraud must simulated. However appellant contends
be actual and not constructive. It has been that the sale by her to her daughter, and the
held that his mere silence when making a subsequent sale by the latter to appellant
contract as to age does not constitute a and her husband, the late Domingo
fraud which can be made the basis of an Rodriguez, were done for the purpose of
action of deceit. In the Mercado case, the converting the property from paraphernal to
minor was guilty of active conjugal, thereby vesting a half interest in
misrepresentation; whereas in this case, if Rodriguez, and evading the prohibition
the minors were guilty at all, it is of passive against donations from one spouse to
(or constructive) misrepresentation. These another during coverture. If this is true, then
minors may not be entirely absolved from the appellant and her daughter must have
monetary responsibility. intended the two conveyance to be real and
effective. The two contracts of sale then
Vices of Consent: Simulation of Contracts could not have been simulated, but were
real and intended to be fully operative,
Rodriguez v. Rodriguez being the means to achieve the result
In 1934, Concepcion 1 executed a deed of desired.
sale conveying ownership of the properties
to her daughter, Concepcion 2; Concepcion

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Suntay v. CA Especial No. 33" approving the said
Federico Suntay, owner of a valuable parcel document. The said transaction, the nature
of land, applied as rice dealer for NARIC of which the petitioners insist to be a
was denied because he was tied up with mortgage and not a sale as claimed by the
several unpaid loans. In order to secure private respondents, was merely oral and
license, he circumvented the law, allowing not evidenced by any writing. Petitioners
Rafael to make the application for him. dispute the said pronouncement by the
Federico sold the property to Rafael respondent court on the principal ground
Suntay, his lawyer and his nephew for a that the document "Ratificacion De Una
measly P20,000, grossly undervaluing said Venta" is inexistent and void and the action
property. He issued a deed of sale in favor for a declaration of its non-existence does
of Rafael, and less than 3 months after not prescribe pursuant to Art. 1410 of the
conveyance, a counter sale was prepared Civil Code.
and signed by Rafael for the same price,
however, it was not a deed of sale, but a There is absolute simulation "when the
real estate mortgage. Federico filed case parties do not intend to be bound at all." In
saying that it was only a simulation of case the parties merely conceal their true
contract. agreement, the simulation is relative, and
the contract with that defect is binding
In the aggregate, the evidence on record upon the parties unless it prejudices a third
demonstrate a combination of person and is intended for a purpose
circumstances from which may be contrary to law, morals, good customs,
reasonably inferred certain badges of public order or public policy. The document
simulation that attach themselves to the in question may not be deemed absolutely
deed of sale in question. Their close simulated or fictitious. By petitioners' own
relationship as uncle-nephew and the gross admission, they intended to be bound
undervaluing of the parcel of land led the thereby; they merely contend that they
SC to believe that said contract is an thought it was to ratify a contract of oral
absolutely simulated contract, since they mortgage, instead of an oral sale of land. In
didn’t intend to be bound at all, therefore short, it is not a contract wherein the
void. parties do not intend to be bound at all
which would thereby make it absolutely
Pangadil v. CA simulated and, therefore, void.
On February 10, 1947, Salandang Pangadil
executed the document "Ratificacion De Umali v. CA
Una Venta” where they acknowledged the Castillo’s parcels of land were given as a
sale made by their deceased father security for a loan in Development Bank of
Pangadil Maslamama over the parcel of the Philippines. Afterwards, subject land
land in favor of respondent Tandingan was to be foreclosed due to failure to pay
Kagui for the consideration of the sum of amortization. Rivera, the nephew, proposed
P750.00. Upon the approval of the said to the Castillos that the 4 parcels of land
document, the guardianship proceeding adjacent to mortgaged properties be
was declared closed in an order dated converted to a subdivision to raise the
August 10, 1948. needed money. Castillos agreed. MOA was
On January 7, 1969, the petitioners filed then executed between the Castillo Family
Civil Case No. 2187 seeking the annulment and the Slobec Realty and Development
of the aforementioned document and for a Inc, represented by Rivera. It went through
declaration of the nullity of the order of the other processes, such as guarantying
Court of First Instance in "Actuacion loans. The Castillos (through Umali who

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succeeded Mauricia when she died) filed The fact that the deed of sale between
an action for annulment of the title before respondents Corazon and Laurelia did not
the CFI Quezon on the Ground that all the accurately reflect the true consideration is
transactions are void and simulated hence not cause for declaration of its nullity; when
they were defrauded. it was intended in the contract but did not
reflect the actual price of the property,
The parties intended to be bound by the there is only a relative simulation of the
contract. The subsequent act of Rivera in contract which remains valid and
receiving and making use of the tractor enforceable and cannot be declared null
subject matter of the Sales Agreement and and void since it does not fall under the
Chattel Mortgage, and the simultaneous category of an absolutely simulated or
issuance of a surety bond in favor of fictitious contract.
Bormaheco, concomitant with the
execution of the Agreement of Counter- 2.! Effects
Guaranty with Chattel/Real Estate
Mortgage, conduce to the conclusion that Art. 1346. An absolutely simulated or
petitioners had every intention to be bound fictitious contract is void. A relative
by these contracts. The occurrence of simulation, when it does not prejudice a
these series of transactions between third person and is not intended for any
petitioners and private respondents is a purpose contrary to law, morals, good
strong indication that the parties actually customs, public order or public policy
intended, or at least expected, to exact binds the parties to their real agreement.
fulfillment of their respective obligations
from one another.
Object of Contracts
1.! Kinds
1.! What may be the objects of contracts
Art. 1345. Simulation of a contract may
be absolute or relative. The former takes Art. 1347. All things which are not
place when the parties do not intend to outside the commerce of men, including
be bound at all; the latter, when the future things, may be the object of a
parties conceal their true agreement. contract. All rights which are not
intransmissible may also be the object of
contracts.
Macapagal v. Remorin
Corazon owns 3 lots, which she inherited xxx
from his father, then entrusted to her
stepmom Purificacion when she got All services which are not contrary to
married abroad. While she was out of the law, morals, good customs, public order
country, Purificacion had titles of the lots or public policy may likewise be the
registered in her name, then sold the lots to object of a contract.
Catalina who then mortgaged 2 lots to
Laurelia. Corazon found out about it and a
settlement agreement was instituted after a 2.! Requisite
complaint was filed with the court, but
before implementing said agreement,
Purificacion died so another one was
instituted.

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 Art. 1349. The object of every contract obligation or promise made by the maker to
must be determinate as to its kind. The transmit one-half of her share in the
fact that the quantity is not determinate conjugal properties acquired with her
shall not be an obstacle to the existence husband, which properties are stated or
of the contract, provided it is possible to declared to be conjugal properties in the
determine the same, without the need of will of the husband. The conjugal properties
a new contract between the parties. were in existence at the time of the
execution of the promise on December 26,
1936. As a matter of fact, Maxima Santos
The prestations must be included these properties in her inventory of
-! Lawful her husband's estate of June 2, 1937. The
-! Actual or possible promise does not refer to any properties
-! Transmissible (or within the commerce that the maker would inherit upon the death
of man) of her husband, because it is her share in
-! Determinate or determinable without the conjugal assets.
necessity of a new contract between
the parties as to kind and quantity Future inheritance is any property or right
not in existence or capable of determination
3.! What may not be the objects of at the time of the contract, that a person
contracts may in the future acquire by succession.
The properties subject of the contract are
Art. 1347. x x x well defined properties, existing at the time
of the agreement, which Simeon Blas
No contract may be entered into upon declares in his statement as belonging to
future inheritance except in cases his wife as her share in the conjugal
expressly authorized by law. partnership. Certainly his wife's actual
share in the conjugal properties may not be
Blas v. Santos considered as future inheritance because
In 1899, after Marta’s death, Blas married they were actually in existence at the time
Maxima Santos and they had no children. the promise was executed.
Note that the properties he and his former
wife acquired during the first marriage were JLT Agro, Inc v. Balansag
not liquidated. In 1936, Simeon Blas Don Julian had his future legitime
executed a will disposing half of his determined, adjudicated, and reserved, and
properties in favor of Maxima the other half a parcel of land was reserved in favor of his
for payment of debts, Blas also named a second wife in a Compromise Agreement,
few devisees and legatees therein. Maxima even before his death. The second wife
executed a document where she stated took possession of the land, even while
that she ‘understands the will of her Don Julian was still alive, leased it and
husband’; When she dies, one-half of the eventually sold it to Balansag and
properties she’ll be acquiring to the heirs Cadayday (herein respondents). Before Don
and legatees named in the will of his Julian died however, he transferred
husband; that she can select or choose any ownership of that same land to JLT Agro.
of them depending upon the respect, So, upon Don Julian’s death, JLT Agro and
service, and treatment accorded to her by the buyers of the land from the second
said legatees/heirs/devisees. family (respondents) are in dispute over the
land.
The Court does not think that the promise
is a contract on future inheritance. It is an

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Q: Was the determination of the future Art. 1351. The particular motives of the
legitime in favor of the second wife valid? parties in entering into a contract are
A: The partition inter vivos of the properties different from the cause thereof.
of Don Julian is undoubtedly valid pursuant
to Article 1347. However, considering that it
would become legally operative only upon Causa as the legal reason for the obligation,
the death of Don Julian,the right of his heirs is always the same in each particular
from the second marriage to the properties contract; motives being psychological
adjudicated to him under the compromise inducements are variable from contract to
agreement was but amere expectancy. contract. The latter is necessarily known to
Evidently, at the time of the execution of both parties, while motive may not be so.
the supplemental deed in favor of JLT Agro, 3.! Defective causes and their effects
Don Julian remained the owner of the
property since ownership over the subject a.! Absence of cause and unlawful cause
lot would only pass to his heirs from the
second marriage at the time of his death. Art. 1352. Contracts without cause, or
This means that despite the Compromise with unlawful cause, produce no effect
Agreement being valid, it would only take whatever. The cause is unlawful if it is
effect after his death. contrary to law, morals, good customs,
public order or public policy.
Art. 1348. Impossible things or services
cannot be the object of contracts. Liguez v. CA
Salvador Lopez donated a conjugal parcel
Cause of Contracts of land to Conchita Liguez, a minor, in order
for her parents to allow them to cohabit.
1.! Meaning of cause Lopez was killed by guerillas a few months
later; Liguez now wants to recover the
parcel of land which went to the possession
Art. 1350. In onerous contracts the
of Lopez heirs. The heirs argues that the
cause is understood to be, for each
donation was void for having an illicit
contracting party, the prestation or
cause.
promise of a thing or service by the
other; in remuneratory ones, the service
The court held that there is no pure
or benefit which is remunerated; and in
benificence in the making of the donation;
contracts of pure beneficence, the mere
Lopez benefited from it. Also, it cannot be
liberality of the benefactor.
said that both parties had equal guilt.
Liguez was a minor and there was no
Causa is the impelling reason for which a finding that she was fully aware of the
party assumes an obligation under the terms of the donation. Her acceptance did
contract. Consideration requires a legal not necessarily imply knowledge of
detriment to the promisor which must be conditions and terms. She may recover the
more than a moral duty, usually capable of land, but only insofar as to the share of
pecuniary estimation. Causa need not be Salvador since the property is conjugal.
material at all, and may consist in a moral
satisfaction for the promisor. b.! Statement of a false cause in the
contract
2.! As distinguished from motive

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 Art. 1353. The statement of a false cause Maximino to be the exclusive owner of the
in contracts shall render them void, if it land.
should not be proved that they were
founded upon another cause which is Sps. Buenaventura v. CA
true and lawful. Sps. Joaquin executed Deeds of Sale of in
favor of some of their children, excluding
petitioners (the rest of ther children).
c.! Lesion or inadequacy of cause Petitioners assail the deeds saying that they
are null and void on the grounds of
Art. 1355. Except in cases specified by absence of consideration and being
law, lesion or inadequacy of cause shall simulated (property is three times valuable
not invalidate a contract, unless there than price sold) among others. Moreover,
has been fraud, mistake or undue petitioners state that the buyer-children
influence. didn't actually pay for properties sold.

Carantes v. CA The Court declared that the Deeds of Sale

Mateo Carantes was the original owner of a are not void because for gross inadequacy
lot in Baguio City. HIs wife and 6 children of price. Failure to pay consideration is
survived him. Part of the land was sold to different from lack of consideration. Also,
the government; the rest remained with the petitioners failed to show that the prices
family. Assignment of Right to Inheritance were absolutely simulated. Moreover, there
was executed by the children, selling the is no requirement that price be equal to the
land to Maximo (on of the sons and also the exact value of subject matter of sale.
appointed administrator of the land) for a
consideration of P1. The document also 4.! Presumption of the existence and
contained a recital, stating that lawfulness of a cause, though it is not
respondents have agreed to cede their stated in the contract
rights to inherit the remaining lots to
Maximino and that Mateo has expressed Art. 1354. Although the cause is not
verbally during his lifetime that they rightly stated in the contract, it is presumed
and exclusively belong to a particular heir, that it exists and is lawful, unless the
Maximino. Maximino sold parts of the land debtor proves the contrary.
to the government and the rest, he titled to
himself. The respondents now allege that
they were made to believe the agreement
only empowered Maximino to represent
them in conveying the lot. In the
proceedings, CA ruled against Maximino
stating that the P1 consideration is
shocking to the conscience and is therefore
void.

The Court held that the Deed of

Assignment is not void. Only the total
absence of cause or consideration renders
a contract absolutely void and inexistent. In
this case, P1 wasn't the only consideration.
Mateo had expressed that he willed

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 Contracts: Form of Contracts 2.! Those required not for validty but to
make the contract effective as against
General Rule third persons, such as those covered by
Arts. 1357 and 1358
Art. 1356. Contracts shall be obligatory, 3.! Those required for the purpose of
in whatever form they may have been proving the existence of the contract,
entered into, provided all the essential such as those under the Statute of
requisites for their validity are present. Frauds in Art. 1403
xxx
Resuena v. CA
Respondent Borromeo is the co-owner of
Exception 6/8 and overseer of parcels of land in Cebu.
Sps. Bascon own 2/8 thereof. Heirs of
Art. 1356. x x x However, when the law Nicolas and Maneja also own a lot in
requires that a contract be in some form common with Borromeo. Petitioners
in order that it may be valid or Resuena and Garay resided in one of the
enforceable, or that a contract be lots allegedly under the acquiescence of
proved in a certain way, that requirement the late Sps. Bascon. Petitioner Rosario
is absolute and indispensable. In such also resided in a portion of one of the lots
cases, the right of the parties stated in with the permission of Maenja. Both
the following article cannot be exercised. agreements were claimed to be oral. In the
process of expanding his resort situation on
Hernaez v. De los Angeles his property lots, Borromeo asked
Actress Marlene Dauden Harnaez filed a petitioners to vacate the properties.
complaint against the movie production Petitioners refused.
company and its president for failure to pay
the balance of her salary for two movies The Court maintained that Borromeo has a
she starred in. Respondents assert that the right to eject the petitioners. Co-ownership
contract upon which the complaint is based is a categorical and an unqualified authority
is invalid and unenforceable not being in in favor of respondent to evict them. The
writing, despite the amount involved Statue of Fraud also applies since Article
exceeding P500. 1358 provides that acts which have for their
object the creation, transmission,
The contract is valid and enforceable. In modification or extinguishment of real rights
general, contracts are binding upon their over immovable property must appear in a
perfection, except two cases set forth in the public instrument." Assuming that there
2nd portion of Art. 1356. The contract does was any verbal agreement between
not come under either. Moreover, the law petitioners and any of the owners of the
does not state that the non-written form of subject lots, Article 1358 grants a coercive
contracts involving amounts higher than power to the parties by which they can
P500 invalidates them. reciprocally compel the documentation of
the agreement. The absence of any
Kinds of Formalities required by law document served as a negation of
petitioners' claim that they were allowed to
1.! Those required for the validity of construct their houses thereon.
contracts such as those referred to in
Arts. 748, 749, 1874, 2134, 1771, 1773

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 Contracts: Reformation of Instruments Bentir v. Leanda
Bentir leased a parcel of land to Leyte Gulf
Requisites Traders Inc for a period of 20 years
(extened for 4 more years). Before contract
Art. 1359. When, there having been a expired, Bentir sold the property to Sps.
meeting of the minds of the parties to a Pormida. LGTI questioned the sale alleging
contract, their true intention is not that it had the right of first refusal but was
expressed in the instrument purporting subsequently The company later filed a
to embody the agreement, by reason of case for reformation of the contract on the
mistake, fraud, inequitable conduct or ground that its lawyer inadvertently omitted
accident, one of the parties may ask for to include in their contract the verbal
the reformation of the instrument to the agreement between the parties that in the
end that such true intention may be event that Bentir leases or sells the lot after
expressed. the expiration of the lease, LGTI has the
right to equal the first offer. On the other
hand, Bentir said that the inadvertence of
Garcia v. Bisaya
the lawyer who prepared the lease contract
Maria Bisaya executed a Deed of Sale for a
is not a ground for reformation.
supposed unregistered land in favor of
Furthermore, LGTI is guilty of laches for not
Paulino Garcia. However, Garcia found out
bringing the case within the prescriptive
that the land was just actually a part of
period of 10 years from the execution of the
another land registered to someone named
contract.
Sandoval. Both parties regard the present
action as an action for reformation. The
Reformation may not be availed of as a
object sought is the correction of the
remedy. Although an extraordinary remedy,
alleged mistake in a deed of sale covering a
it is still subject to limitations such as
piece of land.
laches. Prescriptive period for reformation
of written contracts is 10 years.
Garcia's complaint shows no cause of
Prescription is intended to suppress stale
action because it failed to allege that "the
and fraudulent claims arising from the lapse
instrument to be corrected did not express
of time or defective memory. In this case,
the real agreement or intention of the
the action has prescribed. LGTI had 10
parties." Such must be alleged because
years from 1968, the time when the
according to Art. 1359, an action for
contract was executed to file an action for
reformation seeks to make an instrument
reformation but only did so in May 1992, 24
conform to the true intention of the parties.
years after the cause of action accrued.
He didn’t allege what the real agreement or
intention was. The court has no basis to
Quiros v. Arjona
compare whether the correction will
Petitioners Quiros and Villegas wanted to
conform to the true intention of the parties.
recover their lawful share to parcel of land
Reformation doesn’t make a new
left by their grandmother from their uncle,
agreement, but to establish and perpetuate
Marcelo Arjona. An amicable settlement
the true and existing one. The proper
(Paknaan) was reached by the parties,
remedy is annulment of contract since it
stating that Arjona gave petitioners "some
appears that Garcia has been led to enter
land consisting of more or less 1 hectare."
into the sale through fraud or
Another Paknaan was executed by Jose
misrepresentation.
Banda (tiller of land) manifesting his
willingess to vacate the land. However, it
apears that the land referred to in the 2nd

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Paknaan is different from that of the first. Art. 1369. The procedure for the
The petitioners filed a complaint for the reformation of instrument shall be
execution of the compromise agreement governed by Rules of Court to be
but it was denied because the subject promulgated by the Supreme Court.
property cannot be determined with
certainty. The Paknaan is valid but is not
enforceable. The Court could not issue Atilano v. Atilano
execution of the amicable settlement Eulogio II bought a plot of land from
because the subject property cannot be Eulogio I. 39 years later, it was found that
determined with certainty. The inability of Eulogio II had been occupying the wrong
the Court to identify the exact location of plot and had accidentally switched with
the property did not negate the principal Eulogio I. Eulogio II’s heirs now want to
object of the contract. This is a mere error exchange lands with Eulogio I’s heirs to
to describe the subject property, and not an correct the mistake. Eulogio I’s heirs
indication of an absence of the principal refused stating that lot to be exchanged is
object. A failure to include a sufficient smaller, and that Eulogio I really intended to
description of the property is not an action sell them that lot. When one sells or buys
for nullification but that of reformation. real property, one sells or buys the property
as he sees it, in its actual setting and by its
Cases where no reformation is allowed physical metes and bounds, and not by the
mere lot number assigned to it in the
Art. 1366. There shall be no reformation certificate of title. Eulogio II had already
in the following cases: built his house on the smaller lot even
before Eulogio I executed the deed of sale,
(1) Simple donations inter vivos wherein showing that the intent really was to it to
no condition is imposed; him.
(2) Wills;
(3) When the real agreement is void. Sarming v. Dy
Valentina Flores had 2 lots (A and B). B was
solely under the name of Silveria and had
Implied Ratification been subdivided with Jose using 2 rowns of
coconut as markers. Heirs of Jose sold his
Art. 1367. When one of the parties has part to Alejandra Delfino. Although she took
brought an action to enforce the immediate possession of Lot B, it was the
instrument, he cannot subsequently ask title to Lot A that was given to her. 2 years
for its reformation. later. she found out about the mistake and
paid fees for its release so that she and
Who may ask for reformation Silveria could have it reformed. Silvera
didn't cooperate and Alejandra filed a
complaint for reformation.
Art. 1368. Reformation may be ordered
at the instance of either party or his
The totality of evidence proves that what
successors in interest, if the mistake was
was intended to be sold to Alejanda was
mutual; otherwise, upon petition of the
Lot B. This is bolstered by the fact that she
injured party, or his heirs and assigns.
actually has been in possession of it. If
SILVERIA was the sole owner of the lot, she
Procedure of reformation should’ve objected when ALEJANDRA took
possession of half of it immediately after
the sale.

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 Contracts: Interpretation of Contracts as homestead (Contract 1) with Marcial
Kasilag. In the document, it was stated that
Primacy of Intention in the event she should she fail to pay her
debt, she would execute an absolute deed
Art. 1370. If the terms of a contract are of sale of the land in favor of Kasilag for the
clear and leave no doubt upon the same amount of the loan and interests. A
intention of the contracting parties, the year later, Emiliana found herself unable to
literal meaning of its stipulations shall pay the debt so she entered into a
control. subsequent verbal contract (Contract 2)
with Kasilag, whereby she conveyed to the
If the words appear to be contrary to the latter the possession of the land on
evident intention of the parties, the latter condition that he will not collect interest
shall prevail over the former. on the loan and would attend to the
payment of the land, among others.
Kasilag took possession of the land.
Borromeo v. CA Ambrosio’s heirs filed a case for
Defendant Villamor borrowed money from recovery of possession of the land and
his friend, Borromeo, to pay his debt from its improvements. CA held against them
Mr. Miller, his boss in the lumber company. with the ruling that the contract was that of
He signed a promissory note stating that he absolute purchase and sale of the land and
would pay as soon as he has money even its improvements, and that the heirs of
after the lapse of ten years, effectively Ambrosio were the owners of the land and
waiving the prescription of the debt. its improvements.
Borromeo failed to collect the debt after he
tried verbally collecting from Villamor. The Contract 1 was not a deed of absolute
prescription period passes. Borromeo purchase and sale, but a mortgage
instituted an action for collection with the contract. The cardinal rule in the
CFI and was able to acquire a favorable interpretation of contracts is to the effect
ruling later overturned by CA in line with the that the intention of the contracting
principle that “a person cannot renounce parties should always prevail because
future prescription.” their will has the force of law between
them. The words used by the
Stipulation renouncing future prescription is contracting parties in the contract
valid. In interpretation of contracts, while clearly show that they intended to enter
ordinarily, the literal sense of the words into the principal contract of loan in the
employed should be followed, this is not amount of P1,000, with interest at 12 per
the case when they appear to be contrary cent per annum, and into the accessory
to the evident intention of the contracting contract of mortgage of the
parties. The intention shall prevail. Nothing improvements on the land acquired as
implausible in the debtor renouncing his homestead. On the other hand, Contract 2
rights to the prescription because in this was void for being a contract of antichresis.
case the creditor trusted the debtor to pay
even after the termination of the ten-year Santi v. CA
prescriptive period. Esperanza Jose owns a parcel of land,
portion of which, she leased to Vitan for a
Kasilag v. Rodriguez, period of 20 years "automatically extended
Emiliana Ambrosio, to secure a debt worth for another 20 years." Vitan however sold
P1000, entered into a contract of mortgage all their leasehold rights to Augusto Reyes.
of the improvements on the land acquired Subsequently, a new contract of lease was

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entered by Esperanza and Reyes being or subsequent conduct of the parties; and
"extendable" for another period of 20 years. (3) from usage or customs of the country.
In the interim, Esperanza sold all her rights
to the parcel of land to Vicente Santi. When Rapanut v. CA
the lease expired, Santi wrote Reyes Rapanut and Flunker entered into Deed of
informing him of the termination of the Conditional Sale with mortgage where
lease and demanding turnover of the Flunker agreed to sell a parcel of land
property. Reyes however refused payable in monthly instalments of P500
contending that the lease automatically “with an interest of 10% per annum on the
extended for another 20 years. remaining balance until the full amount is
paid”. A Supplemental Agreement was also
The second lease contract may not be enetered into stating that payments of the
extended for another 20 years. Unlike in the monthly installments shall be made without
first contract, the phrase “automatically need of demand and that failure to pay
extended” does not appear in the second them when due for 3 months shall be
lease contract. The stipulation “said period sufficient cause for rescission wherein all
of lease being extendable for another payments made shall be applied as
period of 20 years…” is clear that the corresponding rentals for the land.
lessor’s intention is not to automatically Petitioner continuously paid 500 for 4 years
extend the lease contract but to give her but respondent rescinded the contract
time to ponder and think whether to extend alleging default for not paying the 10%
the lease. If the intention of the parties were interest.
to provide for an automatic extension, then
they could have easily provided for a The contract may not be validly rescinded.
straight 40 years instead of 20. Flunker accepted Rapanut’s payments
religiously for four years. She was silent as
[Prof Disini: If there was no understanding to the 10% interest, but they stipulated
between the parties regarding the true predetermined dates to pay the monthly
intention, then there is no meeting of minds installments. The court interpreted that the
and therefore, no contract made.] 10% was to be added into whatever
remained in the principal and that the
Art. 1372. However general the terms of petitioner shall continue paying monthly
a contract may be, they shall not be until the full amount is paid. Also, the fact
understood to comprehend things that that respondent continuously accepted
are distinct and cases that are different petitioner’s payment constitutes as a
from those upon which the parties waiver of her right to rescind.
intended to agree.
How to Interpret Contracts when it contains
stipulations that admit several meanings
How to Determine Intention

Art. 1373. If some stipulation of any

Art. 1371. In order to judge the intention
contract should admit of several
of the contracting parties, their
meanings, it shall be understood as
contemporaneous and subsequent acts
bearing that import which is most
shall be principally considered.
adequate to render it effectual.

Intent is ascertained: (1) from the contract

as a whole; (2) from the contemporaneous

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ONGC v. CA How to Interpret Contracts when it contains
Petitioner Oil and Natural Gas Corporation various stipulations, some of which are
(ONGC), an Indian corporation, contracted doubtful
with private respondent Pacific Cement, a
private Philippine corporation, to supply Art. 1374. The various stipulations of a
4,300 metric tons of oil well cement for contract shall be interpreted together,
$477K. The cement was loaded in a ship on attributing to the doubtful ones that
Surigao City but due to a dispute between sense which may result from all of them
the shipowner and Pacific, the cargo did taken jointly.
not reach India. Since ONGC already paid
Pacific, it demanded delivery. Negotiations
ensued an ONGC eventually agreed that Sps. Rigor v. Consolidated Orix
Pacific shall deliver “Class G” cement for Sps. Rigor obtained a loan from
free instead. However, upon inspection, it Consolidated Orix and provided in the
was discovered that the cement delivered promissory note saying that default in
failed to conform to the specification. paying any installment renders the entire
ONGC then referred its claim to an arbiter unpaid amount due and payable and “all
(in India) pursuant to Clause 16 in their legal actions shall only be brought in or
contract. The arbiter recommended Pacific submitted to the proper court in Makati
to reimburse ONGC which was affirmed by City”. Petitioners also executed a deed of
an Indian court. When Pacific failed to pay chattel mortgage to secure payment of the
again, ONGC pursued their claim in a loan stipulating, on the other hand, that ,“in
Philippine RTC. case of litigation arising out of the
transaction that gave rise to this contract,
Pacific Cement must pay ONGC the complete jurisdiction is given the proper
amounts indicated in the foreign judgment. court of the city of Makati or any proper
The court resolved the issue by reconciling court within the province of Rizal, or any
Clause 15 (“All questions, disputes and court in the city, or province where the
differences...shall be subject to the holder/mortgagee has a branch office,
exclusive jurisdiction of the court, within the waiving for this purpose any proper venue."
local limits of whose jurisdiction and the
place from which this supply order The two documents must be construed
situated…”) and Clause 16 of the contract. together—the deed of chattel mortgage
modifying the rules on the promissory note.
Provisions of a contract should not be read The general rule is that all personal actions
in isolation from the rest of the instrument may be commenced and tried where any of
but, on the contrary, interpreted in the light the plaintiffs or any of the defendants
of the other related provisions. The resides, at the election of the plaintiff. An
harmony of a contract must be considered exception to his however is when there is a
in fixing meaning. The rule is that a written agreement by the parties. Although
construction that would render a provision the deed of chattel mortgage is only an
inoperative should be avoided; instead, accessory contract, it had been held before
apparently inconsistent provisions should that provisions of an accessory contract
be reconciled whenever possible as parts must be read in its entirety and together
of a coordinated and harmonious whole. with the principal contract between the
parties. In applying the doctrine, the Court
construed the documents together, and
held that the rules on venue on the deed of

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chattel mortgage clarified the one on the Valdes-Choy got angry and tore up the
promissory note. Deeds of Sale claiming that this was not
part of the agreement.
How to Interpret Contracts when it contains Chua confirmed his stop payment order for
words that have different significations the MC of Php480K, but MC was
nevertheless honoured because Chua
Art. 1375. Words which may have subsequently verbally advised the Bank to
different significations shall be lift the stop payment order. On deadline for
understood in that which is most in payment, Valdes-Choy suggested to Chua
keeping with the nature and object of the to deposit in an escrow account the
contract. balance of 10.215M. Upon such deposit,
the seller will be willing to cause the
issuance of a new TCT in the buyer’s name.
Art. 1372. However general the terms of This way, she shall be protected if the TCT
a contract may be, they shall not be is eventually transferred to the buyer before
understood to comprehend things that she is fully paid. Chua instead filed a
are distinct and cases that are different complaint for specific performance to
from those upon which the parties consummate the sale.
intended to agree.
There is no perfected contract of sale, but
How to Interpret Contracts when it contains only a contract to sell. In a contract to sell,
ambiguities and omission of stipulations the obligation of the seller to sell becomes
demandable only upon the happening of
the suspensive condition (the full payment
Art. 1376. The usage or custom of the
of the purchase price by Chua). Chua
place shall be borne in mind in the
refused to pay before the property is
interpretation of the ambiguities of a
registered in his name, therefore, no
contract, and shall fill the omission of
obligation to sell has arisen. Ownership
stipulations which are ordinarily
over the Property was retained by Valdes-
established.
Choy and was not to pass to Chua until full
payment of the purchase price. Valdes-
Chua v. CA Choy cannot be compelled to cause the
Valdes-Choy advertised for sale her issuance of a new TCT in Chua’s name
paraphernal house and lot; Chua even before payment of the full purchase
responded and they agreed on the price. As evident, there is a variance of
purchase price of Php10.8M. Chua interpretation on the phrase “all papers are
tendered Php100K and agreed that the in proper order” as written in the Receipt.
balance will be payable on/before July 15, Applying Art. 1376, which provides that the
1989, and that failure to pay the it will forfeit usage and custom shall be borne in mind in
the earnest money. Valdes-Choy and Chua the interpretation of the ambiguities of a
executed 2 Deeds of Sale 8M for the house contract, it appears that all papers were
and lot; 2.8M for movable properties). They indeed in proper order.
computed the Capital Gains Tax (CGT),
which Chua agreed to pay, deductible from Valdes-Choy was ready, able and willing to
the balance. Chua then showed Valdes- submit to Chua all the papers that
Choy a manager’s check (MC) of the customarily would complete the sale.
10.215M remaining balance but did not However, Chua’s condition (that a new TCT
give the sit to him saying that the property first be issued in his name) is not customary
must first be registered in his name. in a sale of real estate. Such a condition,

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not specified in the contract to sell as obscure or ambiguous. If the terms thereof
evidenced by the Receipt, cannot be are clear and leave no doubt upon the
considered part of the “omissions of intention of the contracting parties, the
stipulations which are ordinarily literal meaning of its stipulation shall
established” by usage or custom. control. The terms of Paragraph 11 leave no
room for construction. All that is required is
How to Interpret Contracts with respect to its application.
the party who caused the obscurity
How to Interpret Contracts when it is
Art. 1377. The interpretation of obscure absolutely impossible to settle doubts by
words or stipulations in a contract shall the rules above in gratuitous contracts
not favor the party who caused the
obscurity. Art. 1378. When it is absolutely
impossible to settle doubts by the rules
RCBC v. CA established in the preceding articles,
Lustre bough a car from Toyota Shaw using and the doubts refer to incidental
24 postdated checks. He executed a circumstances of a gratuitous contract,
promissory note and contract of chattel the least transmission of rights and
mortgage that provided for an acceleration interests shall prevail. x x x
clause: "should the mortgagor default in the
payment of any installment, the whole Gacos v. CA
amount remaining balance shall be paid; in Petrona Gacos, along with her 2 sisters,
addition, the mortgagor shall be liable for inherited a piece of unregistered land in
25% of the principal due as luquidated Sorsogon from their father, Eladio. Petrona
damages. Toyota Shaw assigned its rights sold part of her share to Olaybal, son-in-law
and interests to RCBC. The checks were of one of her sisters. When she got sick,
cashed by RCBC, however, one check was she instructed Lucia to sell a small part of
unsigned. Previously, a check was debited her property for funeral expenses. After she
but was later recalled and re-credited to died, Lucia sold the portion to Teodolfo
him. Because of the recall, the last two Mendones. Lucia then executed an
checks were no longer presented for “Agreement of Partition of Real Property”
payment. RCBC demanded the payment of formally recognizing the boundaries of their
the balance plus liquidated damages on the respective shares in Eladio’s land.
theory that Atty. Lustre defaulted in his Meanwhile, Olaybal sold his parcel of land
payments. He refused. to Rosario Gacos who consolidated this
land with other properties she had bought
Lustre wasn't in delay. In order for into one tax declaration. She later sold the
damages to be recovered in delay, such rest of Petrona’s land to Arnulfo Prieto, her
delay must be either malicious or negligent. nephew. However, the Brioneses, children
There was no imputation that Lustre acted of Petrona executed a document
with malice or negligence in failing to sign adjudicating unto themselves the entire
the check. The whole controversy could share of their mother in the land. contend
have been avoided if RCBC bothered to call that Petrona’s portion of land had been
Lustre and ask him to sign the check. While merely held for them and illegally by Lucia.
ambiguities in a contract of adhesion are to Against this, Rosario and Arnulfo both
be construed against the party that contend that Petrona had sold her entire
prepared the same, this rule applies only if share in the land to Marcial Olaybal, thus
the stipulations in such contract are

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there is no land remaining for the Brioneses How to Interpret Contracts when doubts
to assert ownership to. are cast upon the principal object so that
the intention cannot be known
Petrona didn't intent to sell the entire
property to Olaybal. The boundaries in the Art. 1378. x x x
deed executed by Petrona in Marcial’s
favor does not match the boundaries in the If the doubts are cast upon the principal
Deed of Absolute Sale executed by Marcial object of the contract in such a way that
when he sold the land to Rosario. It does it cannot be known what may have been
not even match the boundaries stated in the intention or will of the parties, the
the “Agreement of Partition of Real contract shall be null and void.
Property,” posthumously confirming
Petrona’s hereditary share. That only a
portion of Petrona’s hereditary share was Applicability of Rules 123, Rules of Court
sold to Olaybal is supported by the facts (now Secs. 10-19, Rule 130)
that 1) Olaybal himself declared in a tax
declaration and testified during trial that he The principles of interpretation in Rule 123
only had 866 sqm and 2) in the “Deed of are to be observed, especially:
Absolute Sale” between Marcial and a.! Particular provisions govern general
Rosario, one of the boundaries states that ones
the rest of the land is still Petrona’s. b.! Written words control printed ones
Applying Art. 1378, the contract should be c.! The general acceptation of terms is
interpreted as “to effect the least possible presumed as intended unless
transmission of rights or interests.” Such is shown to have been unless shown
the case at bar because Petrona was still to have been understood in a
living on the disputed land with her four peculiar or technical sense.
children and Lucia when the supposed
sales occurred, and thus, she could not
have sold her entire portion.

How to Interpret Contracts when it is

absolutely impossible to settle doubts by
the rules above in onerous contracts

Art. 1378. x x x If the contract is

onerous, the doubt shall be settled in
favor of the greatest reciprocity of
interests. x x x

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 Contracts: Rescissible Contracts Definition

Kinds Rescission is a process assigned to render

inefficacious a contract which validly
Art. 1381. The following contracts are entered into and normally binding, by
rescissible: reason of external conditions, causing an
(1) Those which are entered into by economic prejudice to a party or to his
guardians whenever the wards whom creditors. (Scaveola)
they represent suffer lesion by more than
one-fourth of the value of the things As distinguished from Art. 1191 (Resolution)
which are the object thereof;
(2) Those agreed upon in representation In 1380, action can be instituted by
of absentees, if the latter suffer the contracting parties and even by third
lesion stated in the preceding number; parties, while in 1191, it can be instituted
(3) Those undertaken in fraud of only by the injured party to the contract.
creditors when the latter cannot in any
other manner collect the claims due In 1380, it is based on lesion or fraud of
them; creditors, while under 1191 it is based on
(4) Those which refer to things under non-fulfillment of obligation.
litigation if they have been entered into
by the defendant without the knowledge In 1380, courts cannot grant a period for
and approval of the litigants or of compliance, while under 1911, courts may
competent judicial authority; grant a period.
(5) All other contracts specially declared
by law to be subject to rescission. Universal Food Corp. v. CA
Magdalo Francisco invented a food
seasoning sauce known as Mafran sauce.
Characteristics By virtue of a Bill of Assignment, the
use of the formula was given to UFC.
1.! Their defect consists in injury or Under said agreement, Francisco was to
damage either to one of the be appointed as Chief Chemist in UFC, to
contracting 
parties or to third persons. 
 preserve the secrecy of the sauce formula.
2.! They are valid before rescission. 
 Due to the alleged scarcity and high prices
3.! They can be attacked directly only, and of raw materials, UFC dismissed Francisco
not collaterally. 
 as Chief Chemist. Francisco sought for
4.! They can be attacked only either by a the rescission of the Bill of Assignment
contracting party or by a third for Breach of Contract. UFC contends
person 
who is injured or defrauded. 
 that rescission should be denied, as
5.! They can be convalidated only by under Art. 1383 which points to rescission
prescription, and not by ratification. 
 only as a subsidiary remedy which
cannot be constituted except when
Rescission party suffering the damage has no other
legal means to obtain reparation.
Art. 1380. Contracts validly agreed upon
may be rescinded in the cases Bill of Assignment may be rescinded
established by law. because according to Art. 1191, the power
to rescind obligations is implied in
reciprocal ones, in case one of the obligors
shouldn’t comply with what is incumbent

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upon him. The provisions of the Bill of its deposit and expenses for the
Assignment are reciprocal in nature, and improvement of the hotel parking lot.
the petitioner corporation violated this
contract when they terminated the services What happened was a termination, and not
of Francisco without lawful and justifiable a rescission. Therefore, PCC was entitled to
cause. Rescission will only be permitted in the full amount of rentals as stipulated in
case of a substantial and fundamental their contract. Actions of PPC show that it
breach that would defeat the very object of never intended to rescind lease contract,
the parties making the agreement. In this manifest in it seeking to collect the accrued
case, it is manifest that Francisco wouldn't rentals. To rescind is to declare a contract
have entered into agreement if it were not void from its inception. Termination, on the
to UFC's promise of permanent other hand, would entail enforcement of its
appointment. Thus, upon his unjustified terms prior to declaration of its
dismissal, a substantial breach has been cancellation. Parties in a case of
committed. termination are not restored to original
situation. Prior to termination, the parties
[Prof Disini had many rants in this section of are obliged to comply with their contractual
the syllabus. He said that having breach in obligations.
obligations does not automatically equate
to applying Art 1191. He mentioned that the Sps. Cannu v. Sps. Galang
article has become the “go-to” article the The Cannus bought mortgaged property
Court uses in cases similar with the above. from the Galangs, promising to pay and
He emphasized that there are other assume the mortgage. They failed to pay in
convenient and practical remedies full nor assume said mortgage. The
(substituted performance, action for Galangs paid off their own mortgage, but
specific performance etc.) aside from the Cannus demanded that the TCT be
rescinding the contract.] released to them instead. The Galangs
countered that they had the right to rescind
Pryce Corporation v. PAGCOR the deed of sale given to the Cannus for
PAGCOR entered into a contract with Pryce their failure to pay and assume mortgage.
Properties Corp. (PPC) to set up a casino in
the Pryce Plaza hotel in CDO. The The action for rescission in this case is not
Sangguniang Panlungsod subsequently subsidiary, as in Art. 1191. The reliance on
passed several resolutions disallowing Article 1383 of petitioners is misplaced. The
establishment of casinos. The resolutions subsidiary character of the action for
were later ruled to be unconstitutional. rescission applies to contracts enumerated
PAGCOR resumed its operations. However, in Articles 1381of the Civil Code. The
rallies and demonstrations forced PAGCOR contract involved in the case is not one of
to temporarily suspend operations, until it those mentioned therein. Rescission under
finally decided to stop them with finality in Article 1191 is a principal action based on
Sept. 1993. PPC appraised PAGCOR of its breach by the other party that violates the
outstanding accounts and asked for full reciprocity between the parties, unlike
rental in case of the pre-termination of the rescission under Article 1383 which is
lease. PAGCOR, however, was not predicated on injury to economic interests
amenable to payment and stated that it had or lesion. In the case at bar, the reciprocity
no other alternative but to pre-terminate the between the parties was violated when
lease agreement due to the opposition to petitioners in their failure to fully pay the
their casino operations. PAGCOR balance and to update their amortizations
furthermore asked for the reimbursement of with the NHMFC.

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 him. But that right must be invoked
Iringan v. CA judicially. Even if the right to rescind is
Respondent Palao sold to petitoner Irian an made available to the injured party, the
undivided portion of land in Tuguegarao; obligation is not erased by the failure of the
purchase price is payable in installments. other party to comply with what is
When the second payment was due, Iringan incumbent upon him. Rescission cannot be
only a portion of it. Months later, Palao sent exercised solely on a party’s own judgment
a letter to Iringan stating that he considered that the other committed a breach of the
the contract as rescinded for Iringan’s obligation.
failure to comply with his obligation, and
that Palao would no longer accept any Rivera v. Del Rosario
future payments. Iringan agreed to the The Del Rosarios owned a lot in Bulacan.
rescission but proposed that the previous The children executed an SPA in favor of
payment made be reimbursed or Palao Fidela (their old mother), authorizing her to
could sell an equivalent portion of the land. sell, lease, mortgage, transfer and convey
Palao refused and they failed to reach an their rights over the lot. Fidela borrowed
agreement. Palao wanted a Judicial P250,000 from Mariano Rivera. To secure
Confirmation of Rescission, but the Iringan the loan, they executed a Deed of Real
spouses argued that the contract of sale Estate Mortgage, Kasunduan and a Deed of
was a consummated contract, and hence, Absolute Sale stating that children of Rivera
the remedy of Palao was for collection of would purchase the lot for P2,141,622.50.
the balance of the purchase price and not Unknown to the other party, Mariano had
rescission. Moreover, they said that they already drafted the DoAS stipulating a
had always been ready and willing to different purchase price of only P601,160.
comply with their obligations in accordance Fidela, thinking that the Deed of Absolute
with the contract. Sale was only another copy of the
Kasunduan, she signed the same without
Contract was validly rescinded, but not by knowing what it was DoAS. Fidela
virtue of Palao's letter alone. Iringan entrusted the land title to Mariano to
contends that no rescission was effected guarantee compliance with the Kasunduan.
simply by virtue of the letter sent. Iringan After some time, he refused to return the
asserts that a judicial or notarial act is title and transferred it to himself.
necessary before one party can unilaterally Respondents sought rescission of the
effect a rescission. Court relied on Art. 1592 Kasunduan for failure of the Rivera’s to
stating that in the sale of immovable comply with its conditions, the annulment
property, even though it may have been of the Deed of Absolute Sale on the ground
stipulated that upon failure to pay the price of fraud, and reconveyance of the lot.
at the time agreed upon the rescission of
the contract shall of right take place, the The action for rescission had not
vendee may pay, even after the expiration prescribed due to laches. The contract was
of the period, as long as no demand for void in its entirety. The Riveras contended
rescission of the contract has been made that the action for rescission should only be
upon him either judicially or by notarial act. availed of when the party claiming has
Court stated that even if Art 1191 were proven that all legal means have been
applicable, petitioner would still not be exhausted. The SC reiterated that the
entitled to automatic rescission. The right to provision in question, Article 1383, only
resolve reciprocal obligations, is deemed applied to rescissible contracts under 1381.
implied in case of the obligations shall fail The case at bar is a resolution under 1191
to comply with what is incumbent upon as a principal action based on the breach of

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one party. The Court ruled that the action However, this doesn't mean that despite
for rescission had not prescribed. The the judgment rescinding the sale, the right
period for prescription runs four years from to the fruits belonged to ERDI. Applying Art.
the discovery of the fraud, not from the 1385, rescission creates the obligation to
reckoning of the contract under 1391. return the things which were the object of
the contract, together with their fruits, and
Equatorial v. Mayfair Theatre the price with its interest. Not only the land
An earlier case ordered Carmelo to return and building sold, but also the rental
to ERDI its payment and allow Mayfair to payments paid, if any, had to be returned
purchase his lots instead. However, by ERDI.
Carmelo could no longer be located.
Mayfair then deposited with the clerk of Requisites
court. The lower court issued a Deed of
Reconveyance to Carmelo, and a Deed of a.! The contract is rescissible
Sale to Mayfair. The Registry of Deeds b.! The party asking for rescission has no
cancelled ERDI’s titles and issued new other legal means to obtain reparation
ones in Mayfair’s name. Meanwhile, ERDI
filed an action for the collection of a sum of Art. 1383. The action for rescission is
money against Mayfair, claiming payment subsidiary; it cannot be instituted except
of rentals or compensation for Mayfair’s when the party suffering damage has no
use of the subject premises after its lease other legal means to obtain reparation
contracts had expired. However, the lower for the same.
court held that the rescission of the Deed of
Sale in the 1996 case did not confer on
ERDI any vested or residual proprietary UISC v. CA
rights; thus, ERDI was not entitled to back The UISC, through its agent, Ker & Co, was
rentals. It was said that the rescinded Deed the insurer subrogee of Litton Mills, Inc.
was void ab initio as though it didn’t Philippine Tugs, Inc (PTI) was contracted by
happen. LMI to deliver bales compressed cotton
from a ship to Magallanes Drive. However,
The Court held that ERDI is not entitled to upon delivery, shortage and damage was
back rentals. No ownership right was found among the bales. LMI sent formal
transferred from Carmelo to ERDI in view of claims to its insurer (Ker & Co) and
the former’s failure to deliver the property demands from PTI. Ker & Co paid LMI so
to the buyer. Rent is a civil fruit that as subrogee, so now, they seek
belongs to the owner of the property reimbursement from PTI. CFI and CA ruled
producing it by right of accession. Thus, the for Ker & Co; however, during the pendency
rentals due from the time the sale was of the action, PTI transferred several of its
perfected until its rescission by final vessels to P2.6M to Valenzuela Watercraft
judgment should belong to the owner of the Corporation which in turn sold the vessels
property during that period (Carmelo). This to Far East Chemco Leasing Corporation.
ownership is transferred, not by contract RTC later ruled that the sale was made
alone, but by tradition or delivery. In this fraudulently and thus invalid. They ruled
case, ERDI never took actual control and that the value of water vessels be returned
possession of the property sold. Point may to UISC since Far East was not a party to
be raised that under Art. 1164, ERDI as the case and said vessels could no longer
buyer acquired a right to the fruits of the be returned. CA reversed the RTC ruling.
thing sold from the time the obligation to Far East Chemco shouldn't return the
deliver the property to petitioner arose. vessels. It is error to make Far East pay

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petitioner the value of three vessels or to e.! The action for rescission is brought
order the return of the vessels to petitioner within the prescriptive period of four
without the sale with Valenzuela first being years
rescinded. Moreover, the vessels are no
longer owned by Far East. Vessels had Art. 1389. The action to claim rescission
already been sold to Peninsula Tourist must be commenced within four years.
Shipping Corp, a party not implead by
petitioners as Peninsula defendant. For persons under guardianship and for
Petitioner cannot be given justice at the absentees, the period of four years shall
expense of (Peninsula and) Far East, who not begin until the termination of the
should not be made to pay another’s former's incapacity, or until the domicile
indebtedness in the absence of showing of the latter is known.
that PTI has not paid petitioner nor has no
other property to answer for its liabilities.
Effect of Rescission
Petitioner had yet to show if it is entitled to
a rescission of the supposed fraudulent
transaction. Applying Art. 1380, those Art. 1385. Rescission creates the
asking for rescission must prove that he obligation to return the things which
has no other legal means to obtain were the object of the contract, together
reparation. Rescission here is subsidiary; it with their fruits, and the price with its
cannot be instituted except when the interest; consequently, it can be carried
damaged party has no other legal means to out only when he who demands
obtain reparation for the same. rescission can return whatever he may
be obliged to restore.
c.! He is able to return whatever he may be
obliged to restore if rescission is Neither shall rescission take place when
granted the things which are the object of the
contract are legally in the possession of
third persons who did not act in bad
Art. 1385. Rescission creates the
faith.
obligation to return the things which
were the object of the contract, together
In this case, indemnity for damages may
with their fruits, and the price with its
be demanded from the person causing
interest; consequently, it can be carried
the loss.
out only when he who demands
rescission can return whatever he may
be obliged to restore. x x x With respect to third persons who acquired
the thing in good faith
d.! The object of the contract has not
passed legally to the possession of a Art. 1385. x x x
third person acting in good faith Neither shall rescission take place when
the things which are the object of the
contract are legally in the possession of
Art. 1385. x x x
third persons who did not act in bad
faith.
Neither shall rescission take place when
the things which are the object of the
In this case, indemnity for damages may
contract are legally in the possession of
be demanded from the person causing
third persons who did not act in bad
the loss.
faith.

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 Extent of Rescission Presumptions of fraud

Art. 1384. Rescission shall be only to the Art. 1387. All contracts by virtue of
extent necessary to cover the damages which the debtor alienates property by
caused. gratuitous title are presumed to have
been entered into in fraud of creditors,
Siguan v. Lim when the donor did not reserve sufficient
Lim issued two checks as payment for property to pay all debts contracted
before the donation.
her debts to Siguan, but the checks were
dishonored. A complaint for violation of
BP 22 was filed. Lim was convicted on Alienations by onerous title are also
presumed fraudulent when made by
Dec. 1992, but had an earlier conviction in
persons against whom some judgment
June 1990 in view of an estafa complaint
filed by someone called Suarez. On July has been rendered in any instance or
1991, a Deed of Donation was purportedly some writ of attachment has been
issued. The decision or attachment need
executed by Lim, conveying parcels of land
to her children. Siguan filed an accion not refer to the property alienated, and
pauliana claiming that the Deed was need not have been obtained by the
party seeking the rescission.
antedated to the effect that the sale of
property would deprive her creditors from
In addition to these presumptions, the
any compensation. She also claimed that
design to defraud creditors may be
Lim committed Fraud of Creditors in view of
proved in any other manner recognized
Suarez, who was Lim’s earlier creditor.
by the law of evidence.
The fact that Lim actually had another
creditor prior to her execution of the deed Badges of fraud:
of donation cannot be invoked by the 1.! Fictitious or inadequate consideration
petitioner in her action for rescission of 2.! Transfer after suit is filed and while it is
contract because Art. 1384 of the Civil pending
Code provides that rescission shall only be 3.! Sale on credit by an insolvent debtor
to the extent necessary to cover the 4.! Proof of large indebtedness or
damages caused. The revocation is only to complete insolvency
the extent of the plaintiff creditors 5.! Transfer of all or nearly all of the
unsatisfied credit; as to the excess, the property, especially where the debtor is
alienation is maintained. Thus, petitioner financially embarrassed (See BSL)
cannot invoke the credit of Suarez to justify 6.! Transfer between father and son, where
rescission of the subject deed of donation. other circumstances are also present.
o! Relationship alone is not per se
[Note: While affirming that earlier creditor a badge of fraud
may not be used a justification for the 7.! Failure of the vendee in absolute sale to
action, Sir said that Lim probably antedated take exclusive possession of the
the deeds. He expressed distrust on notary property
public practitioners.] 8.! Gross disparity between the price and
the real value

Oria v. McMicking
The Court held that a sale made by Oria
Hermanos & Co (Oria) to Manuel Oria

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(Manuel) was made in fraud of the former’s MR Holdings Ltd. v. Carlos
creditor, Gutierrez Hermanos (Gutierrez), as MR Holdings had been made to assume
it had every one of the badges of fraud the debt of its sister subsidiary company
enumerated by the court as established by Marcopper to ADB. ADB assigned its rights
jurisprudence. The assets, without which under the principal loan, credit agreement,
there would be nothing left with which to and chattel mortgage to MR Holdings, and
pay the sum due to Gutierrez, were sold to Marcopper also assigned all its properties
a relative who was young (25 years old) and and assets to MR Holdings. Solidbank,
inexperienced without any assets or gainful which had earlier obtained a partial
occupation, and who was aware that two judgment against Marcopper, assailed the
suits had begun against Oria whose assets two deeds of assignment to MR Holdings
he was purchasing. The trial court was (by ADB and Marcopper) as having been
correct in finding the sale fraudulent and made in fraud of creditors. The Court held
void insofar as necessary to permit the that neither deed was fraudulent, both
collection of its judgment. having been made in good faith for valuable
consideration: payment of a debt. Further,
China Banking Corporation v. CA the assignments were made in connection
A judgment was obtained against Alfonso with transactions that happened before the
Roxas Chua (Alfonso), whose property was judgment in favour of Solidbaxnk, who
levied upon in favour of Metropolitan Bank could not then be prejudiced by the
and Trust Company (MBTC). A compromise assignments as it was an unsecured
agreement was made so that the levy was creditor unlike MR Holdings which stepped
enforceable only as to Alfonso’s 1/2 portion into the shoes of preferred creditor ADB.
pertaining to his conjugal share. In a
separate case, China Bank filed an action Liability of acquiring in bad faith things
for collection against him and judgment alienated in fraud of creditors
was rendered in its favour. Alfonso then
assigned his right to redeem the property to Art. 1388. Whoever acquires in bad faith
his son Paulino, who redeemed it the same the things alienated in fraud of creditors,
day from MBTC which had earlier acquired shall indemnify the latter for damages
it. Afterwards, a notice of levy on execution suffered by them on account of the
was issued in favour of China Bank. alienation, whenever, due to any cause,
it should be impossible for him to return
The Court held that the assignment of the them.
right of redemption made by Alfonso in
favour of Paulino was done to defraud his If there are two or more alienations, the
creditors and was therefore rescissible first acquirer shall be liable first, and so
under Article 1387 of the Civil Code. on successively.
Although the assignment was made for
value, Alfonso failed to overturn the
presumption of fraud by virtue of the
alienation having been made after judgment
was rendered in favour of China Bank and
the fact that Alfonso reserved no other
property to satisfy the judgment. Although
there was valuable consideration, the
transaction was not bona fide, so it was
presumed to be made in fraud of creditors
and therefore rescissible.

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 Contracts: Voidable Contracts [Note: The sale in this case was made in
1951, hence the categorization of the sale
Kinds as voidable. Under the Family Code, a sale
of conjugal property made without the
Art. 1390. The following contracts are consent of one spouse is now void.]
voidable or annullable, even though
there may have been no damage to the Annulment
contracting parties:
1.! As distinguished from rescission
(1) Those where one of the parties is
ANNULMENT RESCISSION
incapable of giving consent to a
Declares inefficiency Merely produces
contract;
which contract already inefficiency, which did
(2) Those where the consent is vitiated carries in itself not exist essentially
by mistake, violence, intimidation, undue (intrinsic defect) (external defect, i.e.
influence or fraud. pecuniary damages
or prejudice to one of
These contracts are binding, unless they the contracting
are annulled by a proper action in court. parties or 3rd persons)
They are susceptible of ratification.
Requires act of Needs no ratification
ratification to be cured to be effective
Characteristics
Based on a vice of the Compatible with the
contract which perfect validity of the
1.! Their defect consists in the vitiation of
invalidates it contract
consent of one of the contracting
Annulment is a Rescission is a
parties sanction based on law remedy based on
2.! They are binding until they are annulled equity
by a competent court. Demandable only by Demandable even by
3.! They are susceptible of convalidation by the parties to the 3rd parties affected by
ratification or by prescription. contract it
Public interest Private interest
Felipe v. Heirs of Aldon predominates predominates
Gimena Almosara sold conjugal property to
the spouses Felipe without the consent of 2.! Grounds
her husband Maximo Aldon. After the
latter’s death, Gimena and their children -! Incapacity of one party
Sofia and Salvador filed a complaint against -! Violence, intimidation, undue influence,
the spouses Felipe to recover the land. mistake, or fraud vitiating consent

The Court held that the sale was voidable, 3.! Who may and may not institute action
having been made by a party incapable of for annulment
giving consent thereto. As Gimena was
responsible for the defect, she could not
ask for the annulment of the sale. However,
the action was valid as to Sofia and
Salvador because they stood to suffer
deprivation of their hereditary rights.

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 Art. 1397. The action for the annulment aggrieved parties. Such transaction was
of contracts may be instituted by all who held to be valid, having never been assailed
are thereby obliged principally or by any of the redeemers, all of whom had
subsidiarily. However, persons who are long since reached legal age.
capable cannot allege the incapacity of
those with whom they contracted; nor Malabanan v. Gaw Ching
can those who exerted intimidation, Gaw Ching, a lessee of a house and lot
violence, or undue influence, or owned by Malabanan, sought to annul the
employed fraud, or caused mistake base sale of said property to Senolos on the
their action upon these flaws of the ground of fraud, deceit, and bad faith which
contract. caused damage to Gaw Ching. Malabanan
had thrice offered to sell the property to
him, but he rejected the offer each time.
Singsong v. Isabela Sawmill
Isabela Sawmill partners Garibay and
The Court held that he could not bring the
Tubungbanua executed a chattel mortgage action for annulment, as he was a stranger
in favor of Saldajeno, a former partner, after
to assailed contract and did not fall under
they decided to dissolve their partnership.
any possible exception to the rule that only
Garibay and Tubungbanua, however,
parties to the contract may ask for
continued business as usual; no liquidation
annulment. Being a mere lessee, he had no
or winding up took place. The properties
preferred right to purchase such property,
subject of the mortgage were later
and even if he did by reason of long-time
foreclosed and sold to Saldajeno.
tenancy, he suffered no prejudice as he
consistently refused to buy it when it was
Singsong and other creditors of Isabela
offered to him. [Note: Further, a lessee
Sawmill assailed the chattel mortgage as
cannot attack the title of his lessor over the
having been made in fraud of creditors and
subject matter of the lease.]
without valuable consideration. The Court
held the creditors were indeed prejudiced in
Armenia v. Patriarca
their rights, having been misled into
In this case, petitioner Laurentino assailed
thinking that whatever credit lent to Garibay
the deed of sale which his sister Marta (who
and Tubungbanua could be enforced
died intestate and without forced heirs)
against the properties of Isabela Sawmill.
executed in favor of Erlinda Patriarca and
As such, they could bring an action for
Florencia Someciera. It was argued that the
nullity although they were not parties to the
sale was simulated and void as well as
assailed contract.
fraudulently executed, and if not so, it was
voidable because Patriarca and Someciera
Samahan ng Magsasaka v. Valisno
were minors (13 and 20 years old,
In relation to an application for retention respectively) at the time of the sale.
and award of land under RA 6657, the
Court upheld the validity of the redemption
The Court held that Laurentino could not
of mortgaged property made at a time institute an action for annulment for fraud
when three of the four Valisnos who
because he is not a forced heir of Marta
redeemed it were minors. Such redemption
and therefore has no cause of action to
was merely voidable and not void ab initio, annul the sale. Marta was free to dispose of
as it was a contract to which the three
her properties as she pleased, subject to
minors were incapable of giving consent.
the sole limitation that she could not
The action to annul could only be instituted dispose of such in fraud of creditors.
by the minors themselves, being the
Forced heirs and creditors have similar

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rights, which may be protected by an action Cadwallader v. Smith Bell
not of nullity, but of rescission. That the Pacific Export Lumber shipped 581 piles of
vendees were minors was immaterial as it lumber to Peabody & Co., for which the
would only make the sale annullable by consignees were to receive a commission
them. of 50% money obtained over $15 for each
pile before storage and 5% of the price of
4.! Prescription the piles sold after storage. After arrival,
Peabody wrote Pacific that the piles would
Art. 1391. The action for annulment shall have to be sold at less than $15 for lack of
be brought within four years. demand, and so they agreed upon $12
instead.
This period shall begin:
Apparently, Peabody had earlier entered
In cases of intimidation, violence or into negotiations with the government
undue influence, from the time the resulting in a sale of the piles at $19 apiece,
defect of the consent ceases. but they concealed this from Pacific and its
assignee Cadwallader. The Court ruled that
In case of mistake or fraud, from the the contract of sale to Peabody for $12
time of the discovery of the same. apiece was founded on fraud and subject
to annullment, and so ordered mutual
And when the action refers to contracts restitution. The commission upon the 213
entered into by minors or other piles sold under the original agency was
incapacitated persons, from the time the allowed, but that which was obtained under
guardianship ceases. the contract of $12 was ordered to be given
to Cadwallader with legal interest.
5.! Effect
Ines v. CA
The spouses Ines filed to annul a deed of
a.! Mutual restitution
sale over their conjugal house and lot in
favor of the spouses Geronimo. The sale
Art. 1398. An obligation having been was declared void in its entirely for lack of
annulled, the contracting parties shall the consent of David Ines, an indispensable
restore to each other the things which party. As a result, the spouses Geronimo
have been the subject matter of the were made to return the entire property
contract, with their fruits, and the price subject to the return to them of the
with its interest, except in cases P150,000 they had paid, with legal interest.
provided by law.
The RTC did not award interest, but the CA
In obligations to render service, the did upon appeal thereto. The lone error the
value thereof shall be the basis for spouses Ines assigned was that the award
damages. of legal interest should not have been
granted to the spouses Geronimo as they
did not appeal from the trial court’s
Art. 1402. As long as one of the decision and should not be given any
contracting parties does not restore further affirmative relief. The Court held that
what in virtue of the decree of annulment the seeking of affirmative relief was
he is bound to return, the other cannot irrelevant; the award of legal interest
be compelled to comply with what is (computed from the time of the rendition of
incumbent upon him. the decision of the RTC) is a necessary

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consequence of the finding that the ordered the restitution to him of the subject
contract of sale was void. property and its fruits, without any
obligation on his part to make restitution.
[Note: This case was decided in 1995, but
the sale was done before the Family Code, [Note: Although his consent was allegedly
hence the voidable status of the sale made vitiated, this should no longer be
without the consent of one of the spouses.] considered as it was established that by
virtue of his extremely low intelligence he
Arra Realty v. Guarantee Dev’t Corp. was incapacitated to give consent in the
The spouses Arguelles hired Peñaloza to first place.]
construct a building with an agreement that
the latter would occupy a portion of any When the thing is lost through the fault of
floor of her choice in consideration of a the party obliged to return the same
deferred payment plan. Without Peñaloza’s
knowledge, Arra Realty mortgaged the Art. 1400. Whenever the person obliged
property to China Banking which acquired by the decree of annulment to return the
it upon foreclosure. Arra then redeemed the thing can not do so because it has been
property and sold it to GDCIA. lost through his fault, he shall return the
fruits received and the value of the thing
Peñaloza asked for specific performance, at the time of the loss, with interest from
or, if not possible, restitution plus interest the same date.
and damages. The court implicitly held that
the agreement had been annulled for the
fraud on the part of Arra for mortgaging the 6.! Extinguishment of the action
property without Peñaloza’s knowledge.
But because the property had passed to a By ratification
buyer in good faith, the only remedy she
had was a refund of the amount paid to Art. 1392. Ratification extinguishes the
Arra. action to annul a voidable contract.

When one of the parties is incapacitated When the thing is lost through the fault of
the person who has the right to file the
Art. 1399. When the defect of the action
contract consists in the incapacity of
one of the parties, the incapacitated Art. 1401. The action for annulment of
person is not obliged to make any contracts shall be extinguished when the
restitution except insofar as he has been thing which is the object thereof is lost
benefited by the thing or price received through the fraud or fault of the person
by him. who has a right to institute the
proceedings.
Katipunan v. Katipunan
In this case, Braulio Katipunan, a man with If the right of action is based upon the
the mental age of a six-year-old and who incapacity of any one of the contracting
completed only the 3rd grade, sought to parties, the loss of the thing shall not be
annul a Deed of Absolute Sale his brother an obstacle to the success of the action,
made him sign, on the ground of vitiated unless said loss took place through the
consent by reason of undue influence and fraud or fault of the plaintiff.
incapacity to give consent. The Court

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 Ratification after so that there was no way he could
return the object of the contract.
1.! Requisites
-! The contract is voidable The contract is cleansed retroactively from
-! The ratification is made with knowledge all its defect
of the cause for nullity
-! At the time of the ratification, the cause Art. 1396. Ratification cleanses the
of nullity has already ceased to exist contract from all its defects from the
moment it was constituted.
2.! Forms

Express or tacit

Art. 1393. Ratification may be effected

expressly or tacitly. It is understood that
there is a tacit ratification if, with
knowledge of the reason which renders
the contract voidable and such reason
having ceased, the person who has a
right to invoke it should execute an act
which necessarily implies an intention to
waive his right.

By the parties themselves or by the

guardian in behalf of an incapacitated party

Art. 1394. Ratification may be effected

by the guardian of the incapacitated
person.

3.! Effects

Action to annul is extinguished

Art. 1392. Ratification extinguishes the

action to annul a voidable contract.

Uy Soo Lim v. Tan Unchuan

The Court held that the action to annul a

contract entered into by Uy Soo Lim in
which he waived his rights and interests in
the estate of his illegitimate father for the
sum of P85,000 was extinguished as he not
only failed to repudiate it properly upon
reaching the age of majority but tacitly
ratified it by spending almost all of it soon

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 Contracts: Unenforceable Contracts The Court held that the action was not
barred by the Statute of Frauds, as it did
Characteristics not seek to enforce the sale but only sought
to compel the refund of money paid as
1.! They cannot be enforced by a proper purchase price in a sale that did not
action by court materialize. Even if it were for specific
2.! They are susceptible of ratification performance, the Court still held that partial
3.! They cannot be assailed by third execution or payment barred the the parties
persons involved from invoking it.

Kinds Western Mindanao Co. v. Medalle

Plaintiff obtained a right of way from the
1.! Unauthorized contracts registered owner of a piece of land which
he passed often through in connection with
Article 1404. Unauthorized Contracts are his logging operations. Said road was
governed by Article 1317 and the improved at the expense of plaintiff and
principles of Agency in Title X of this used by the plaintiff and the public after the
Book. sale of the land to the defendants, who later
decided to close the road. Western
Mindanao Co. asked for an injunction to
Art. 1317. No one may contract in the prevent defendants from closing the road,
name of another without being and defendants filed a motion to dismiss.
authorized by the latter, or unless he has The ground was that the contract was
by law a right to represent him. unenforceable under the Statute of Frauds
and special laws, and that the agreement
A contract entered into in the name of was not dated nor notarized.
another by one who has no authority or
legal representation, or who has acted The Court took the side of the plaintiffs and
beyond his powers, shall be said that the right of way agreement is not a
unenforceable, unless it is ratified, contract covered by the Statute of Frauds
expressly or impliedly, by the person on as it is not a sale of real property or of an
whose behalf it has been executed, interest therein.
before it is revoked by the other
contracting party. Limketkai Sons v. CA
Limketkai Sons Milling and BPI entered into
2.! Contracts covered by the Statutes of negotiations for the sale of a parcel of land.
Frauds They agreed on the purchase price and the
terms under which it would be paid, only for
Asia Production Co. v. Paño payment to be later refused by BPI on the
A sale of a building did not push through ground that authority to sell the land had
because of bad faith on the part of the been withdrawn from the unit with which
sellers. The buyers then asked for the Limketkai negotiated.
refund of the partial payment, but the
sellers refused to accede to their request. The Court held that there was a perfected
The complaint filed was sought to be contract of sale between the parties, and
dismissed on the ground that the basis of it, that the evidence adduced by the petitioner
the sale of the building, was not in writing. Limketkai was admissible notwithstanding
the fact that the contract, as a sale of real
property, was under the Statute of Frauds,

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because counsel for BPI cross-examined The Court distinguished between an
Limketkai’s witnesses at length on the original or collateral promise: the former is
contract itself and thereby waived the not within the Statute of Frauds and the
defense of the Statute of Frauds. latter is within it. It was held that the credit
was extended not to the contractor but to
Babao v. Perez the defendant. It was an original promise
Babao alleged that he and his aunt-in-law not within the statute, and not a special
had a verbal agreement under which he promise to answer for the debt, default, or
was to improve her land and act as miscarriage of another.
administrator thereof, in return for which
she would convey to him or to his wife one- Villanueva v. CA
half of the land. Perez later sold the land, Plaintiff Irene Villanueva gave P10,000 to
consequently depriving Babao of it. defendant Jose Dela Cruz for the payment
of realty taxes over a parcel of land which
The question in the case was whether the the latter had offered to sell to the former. It
alleged agreement falls under the Statute of was argued by them that the P10,000
Frauds. The Court held that it did, in that it would form part of the sale price of
was: 1) not to be performed within one P550,000. Later, dela Cruz executed a
year, because Babao could not have deed of assignment over the land the
possibly accomplished his undertaking Villanuevas occupied in favor of defendants
within one year, and 2) sale of real property Pili for the satisfaction of a debt. Villanueva
or of an interest therein. The Court said that complained that they already had an
nothing less than full performance by one agreement, and that the Statute of Frauds
party will suffice [note: partial performance did not apply because the contract of sale
removes a contract from the scope of the had been partly executed. The Court
Statute of Frauds], and that the agreement agreed that the Statute of Frauds did not
was too vague and ambiguous for it to have apply, but for a different reason: there was
constituted a perfected contract in the first no perfected contract, as they did not reach
place. An agreement, for it to be an a definite agreement.
enforceable contract susceptible of partial
performance, must be certain, definite, a.! Purpose of Statute
clear, unambiguous, and unequivocal.
It is descriptive of statutes which requires
Reiss v. Memije certain classes of contracts to be in a
Memije hired Kabalsa to repair his house. written memorandum or note containing the
As Kabalsa had no money and no credit to minimum information (essential elements of
furnish the materials necessary for the the contract). No particular form of
repair, Memije accompanied Kabalsa to the language or instrument is necessary to
plaintiff’s lumber yard, satisfied them of his constitute a memorandum under Statute of
financial responsibility, and entered into an Frauds.
agreement for them to deliver lumber to
Kabalsa. This petition is with respect to the It merely regulates the formalities of the
unpaid balance of the purchase price of the contract necessary to render it enforceable.
lumber. Memije said that the alleged
promise merely guaranteed payment for the PNB v. Philippine Vegetable Oil
lumber and was not in writing; any other A stockholder of PVOC who pledged his
proof was not admissible in evidence, so he personal property to creditor bank PNB in
was not bound thereby under paragraph 2. order to satisfy the company’s debts tried
to claim damages from the PNB by arguing

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that the company shutdown was due to the establish and recount on the witness stand
failure of the bank to finance and support the partial payment she alleged.
the company as agreed upon.
Unfortunately for him, he was unable FPIB v. CA
present clear and definite language to FPIB and Janolo negotiated as to the
prove the existence of an agreement by the purchase price of 101 hectares of land, and
bank to finance the company. There was no the bank later tried to wriggle out of its
indication in any action taken by the Board contract by alleging that they were still in
of Directors (BOD) of PNB that it had ever the negotiation stage and had not agreed
consented to an agreement for practically on anything, and even if they did, it was
unlimited backing of PVOC or that it had unenforceable. The Court held that there
ratified any such promise made by its was, in fact, a perfected contract by virtue
General Manager, who needs the advice of a meeting of the minds upon the revival
and consent of the BOD for the validity of of the offer of sale. The letter
any contract entered into by him. Even correspondence between the FPIB and
taking into account oral testimony, there Janolo constituted in law a sufficient
was only a general intimation proffered by memorandum of an agreement. But even
the PNB General Manager in conference assuming arguendo that it did not, the bank
that his bank contemplated financing the
operations of PVOC. There was no definite c.! Rights of the parties when a
agreement binding on PNB, and therefore contract is enforceable but a public
there was nothing enforceable. document is necessary for its
registration
b.! How ratified
Art. 1406. When a contract is
Art. 1405. Contracts infringing the enforceable under the Statute of Frauds,
Statute of Frauds, referred to in No. 2 of and a public document is necessary for
article 1403, are ratified by the failure to its registration in the Registry of Deeds,
object to the presentation of oral the parties may avail themselves of the
evidence to prove the same, or by the right under Article 1357.
acceptance of benefit under them.
3.! Contracts executed by parties who are
Carbonell v. Poncio both incapable of giving consent to a
Carbonell bought land from Poncio in contract
accordance with which she paid part of the
price and assumed his obligation with RSB Art. 1407. In a contract where both
with the balance payable upon execution of parties are incapable of giving consent,
of the corresponding deed of conveyance. express or implied ratification by the
However, Poncio refused to convey the parent, or guardian, as the case may be,
property to her and instead conveyed it to of one of the contracting parties shall
the defendants Infante who knew of the first give the contract the same effect as if
sale to Carbonell. Carbonell then asked that only one of them were incapacitated.
the sale to the Infantes be annulled and that
the deed of conveyance be executed in her If ratification is made by the parents or
favor. The Court denied the motion to guardians, as the case may be, of both
dismiss and remanded the case to the trial contracting parties, the contract shall be
court to give Carbonell a chance to validated from the inception.

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 Contracts: Void Contracts The transaction is absolutely simulated and
thus void ab initio. According to Article
Characteristics 1409, right to declare a transaction void is
imprescriptible.
1.! Void from the beginning
2.! Produces no effect whatsoever Cui v. Arellano University
3.! Cannot be ratified Emeterio Cui appealed to the Supreme
Court to reverse the lower court’s decision
Art. 1409. The following contracts are which allowed Arellano University to
inexistent and void from the beginning: recover from Cui the amount given to him
by virtue of his scholarship. Cui had
xxx transferred to Abad Santos University
which prompted Arellano to revoke not only
These contracts cannot be ratified. his scholarship but also demand that he
Neither can the right to set up the return all that the scholarship with them had
defense of illegality be waived. given him. Arellano insists that Cui signed a
contract with them having the effect that he
waives his right to transfer to another
Tongoy v. CA school without refunding to the University
This was an action for reconveyance of two the equivalent of his scholarship grant. The
properties. Co-owners mortgaged Supreme court held in favor of Cui and held
Hacienda Pulo to the PNB as security for a that the contract was void for going against
loan. PNB instituted foreclosure public policy. The Court discussed
proceedings. Patricio and Luis Tongoy contracts that violate public policy as those
executed a document declaring themselves which contravenes established morals or
to be sole heirs of late Francisco Tongoy are clearly undermining the security of
and so are entitled to the latter’s share in individual rights.
Hacienda Pulo. Hacienda Pulo was placed
in the name of Luis Tongoy. Basilisa Chavez v. PCGG
Cuaycong sold her property adjacent to the The Marcoses filed a motion to intervene in
Hacienda to Luis Tongoy as well. Luis was a case about their property. They allege
able to pay off all mortgages on the that they are parties to the General and
Hacienda. Jesus T. Sonora demanded the Supplemental Agreements which the Court
return of the shares of the properties of the declared null for being contrary to law and
co-owners. Luis died leaving heirs (Maria the Constitution. The General and
Araneta and Francisco Tongoy). Sonora et Supplemental Agreements undeniably
al prayed that their interests be transferred contain terms and conditions contrary to
back to them as the transfer to Luis Tongoy the law, and thus, the void agreement will
was a simulated sale pursuant to a trust not be rendered operative. A contract that
arrangement where Luis would return the violates the Constitution and the law is null
property after mortgage obligations had and void ab initio and vests no rights and
been settled. creates no obligations.

The Court held that the transactions were Guiang v. CA

simulated to enable Luis to save Hacienda Sps Corpuz bought a lot from Manuel
Pulo from being foreclosed. Hacienda was Callego. The spouses subsequently sold
the only source of livelihood for the heirs; one half of this lot to the Sps Guiang. Gilda
they could not have intended to release all Corpuz (wife) then left for Manila to find
their interest. work away from her family. She found out

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from her daughter that Judie Corpuz Kinds
(husband) intended to sell the remaining
half of their lot without Gilda’s consent. Art. 1409. The following contracts are
Judie executed a Deed of Transfer of inexistent and void from the beginning:
Rights signed by the Corpuz children. Gilda
sought to annul the deed of sale. Sps. (1) Those whose cause, object or
Guiang and Sps. Corpuz executed an purpose is contrary to law, morals, good
amicable settlement but Gilda changed her customs, public order or public policy;
mind, feeling that she received the short (2) Those which are absolutely simulated
end of the stick in the deal and sought to or fictitious;
annul this too. (3) Those whose cause or object did not
exist at the time of the transaction;
The Court declared the Deed of Transfer a (4) Those whose object is outside the
VOID contract. Article 124 of the Family commerce of men;
Code holds that the administration and 
(5) Those which contemplate an
enjoyment of conjugal property shall belong impossible service;

to both spouses jointly. In the absence of (6) Those where the intention of the
consent of one of the spouses, the parties relative to the principal object of
disposition shall be void. Deed of Transfer the contract cannot be ascertained;
of Rights as well as the amicable settlement (7) Those expressly prohibited or
are null and void. declared void by law. x x x

Castillo v. Galvan
Paulino Galvan owned ½ of land. The other 1.! Contracts that are void
½ is owned by his two daughters by a first
marriage (Josefa and Natividad Galvan). a.! Those whose cause, object, or
Paulino Galvan died. Ma. Encarnacion purpose is contrary to law, morals,
Castillo (second wife) waited for Josefa and good customs, public order, or
Natividad to initiate the settling of Paulino’s public policy
estate. They found a deed of sale signed by
the late Paulino Galvan and the plaintiff Ma. When the act constitutes a criminal offense
Encarnacion Castillo where Paulino
purportedly sold their land for 500 Pesos. Art. 1411. When the nullity proceeds
Allegedly, Paulino and Castillo were made from the illegality of the cause or object
to sign a document by Josefa Galvan upon of the contract, and the act constitutes a
the fraudulent misrepresentationthat the criminal offense, both parties being in
document was only to separate tax pari delicto, they shall have no action
declarations. against each other, and both shall be
prosecuted. Moreover, the provisions of
The Court found that the deed of sale was the Penal Code relative to the disposal
obtained in fraud and with the absence of of effects or instruments of a crime shall
valid consideration. Thus, the contract is a be applicable to the things or the price
void one from the beginning. The plaintiffs of the contract.
are seeking a judicial declaration that the
deed of sale in question is void ab initio This rule shall be applicable when only
which action is imprescriptible. one of the parties is guilty; but the
innocent one may claim what he has
given, and shall not be bound to comply
with his promise.

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 When the act is unlawful but does not contracted with. Aledo sued Angel as they
constitute a criminal offense did not pay him for his services. Angel filed
a third party complaint against Modales for
Art. 1412. If the act in which the unlawful allegedly failing to comply with the
or forbidden cause consists does not construction agreements.
constitute a criminal offense, the
following rules shall be observed: The Angels and Modales entered into
contracts knowing that he Modales could
(1) When the fault is on the part of both not undertake construction projects by
contracting parties, neither may recover virtue of his office. Both parties therefore
what he has given by virtue of the were in pari delicto and cannot claim any
contract, or demand the performance of action against each other.
the other's undertaking;
When the purpose is illegal, and money us
(2) When only one of the contracting paid or property delivered therefor
parties is at fault, he cannot recover
what he has given by reason of the Art. 1414. When money is paid or
contract, or ask for the fulfillment of property delivered for an illegal purpose,
what has been promised him. The other, the contract may be repudiated by one
who is not at fault, may demand the of the parties before the purpose has
return of what he has given without any been accomplished, or before any
obligation to comply his promise. damage has been caused to a third
person. In such case, the courts may, if
the public interest will thus be
Menchavez v. Teves subserved, allow the party repudiating
Menchavez leased fishponds to Tevez. The the contract to recover the money or
sheriffs demolished the dikes constructed property.
by Tevez because of a case which
Menchavez had lost. Tevez then filed a
When the contract is illegal and one of the
complaint against Menchavez alleging that
Menchaez wrongfully concealed the fact parties is incapable of giving consent
that he had a court case against him and
that the land was the subject of the order of Art. 1415. Where one of the parties to an
the court. illegal contract is incapable of giving
consent, the courts may, if the interest of
Both parties were in pari delicto and so no justice so demands allow recovery of
one recovers anything from the other. money or property delivered by the
Menchavez had no transferable rights to incapacitated person.
lease to Tevez and Tevez should have
known this. Parties thus agreed to an Relloza v. Gaw Chee Hun
agreement contrary to law. Dionisio Rellosa sold Gaw Chee Hun a
house and lot in Manila. Rellosa agreed to
Angel v. Modales the sale despite Gaw Chee Hun’s status as
Sps. Angel engaged respondent Modales an alien on the condition that Hun secure
to construct a residential building. Modales permission from the Japanese Military
at the time was employed by the DPWH, Administration to enable him to acquire
however. In lieu of this, the parties made it land. Gaw never acquired the permission
appear that Modales’ father-in-law, necessary. Even if he did, the sale was in
Simplicio Aledo, was whom the sps Angel

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contravention of the constitution which Frenzel v. Catito
prohibits the transfer of land to aliens. Alfred Frenzel married a Filipina. He
separated from her without obtaining a
Rellosa cannot have the contract of sale divorce. He eventually fell in love with a
rescinded because he and Gaw executed Filipino masseuse named Ederlina Catito
the same in pari delicto. No action arises who herself was married to a German
from an illegal contract; no relief of any kind national. Alfred bought a number of
will be given to one against the other. This properties and named Ederlina as buyer of
contract is against the Constitutional the properties knowing that he himself
prohibition allowing aliens to acquire land. couldn’t buy them. When Ederlina and
To allow Rellosa to reclaim his land when Alfred’s relationship started to sour,
both he and Hun were at fault will violate Ederlina claimed ownership over the
the principle of in pari delicto. properties.

When the agreement is not illegal per se but The Court held that Alfred is not entitled to
is prohibited recover the properties. The said
transactions were in violation of the
Art. 1416. When the agreement is not constitution and thus void ab initio. The
illegal per se but is merely prohibited, petitioner is a party to an illegal contract.
and the prohibition by the law is He cannot thus come into a court of law
designed for the protection of the and ask to have his illegal objective carried
plaintiff, he may, if public policy is out.
thereby enhanced, recover what he has
paid or delivered. Acabal v. Acabal
Respondent Villaner Acabal executed a
deed conveying his land to Petitioner
Philippine Banking Corp. v. Lui She Leonardo Acabal. Villaner later claimed that
Justina Santos owned a piece of land. She what he thought was a Lease Contract was
lived in one of the houses on this plot of actually a Deed of Absolute Sale. Villaner
land while Wong Heng lived with his family thus filed a complaint against Leonardo to
in the restaurant. Wong had been a long annul the deeds of sale. The land is the
time lessee of the property. Justina Santos subject of controversy as to whether or not
(around 90 years old) executed a contract it falls under the Comprehensive Agrarian
of lease in favor of Wong Heng lasting for Reform Law.
50 years. Justina also executed an option
to buy for Wong Heng on the condition that The petition of Leonardo Acabal was
he obtains Philippine Citizenship. Justina granted. Both parties appear to be at fault.
eventually extended the lease to 99 years. The principle is that no court will lend its aid
to a man who founds his cause of action on
The Contracts are not valid. The contracts an illegal act. When the agreement is not
appear to be a scheme to circumvent the illegal per se but is merely prohibited,
constitutional prohibition against recovery for what has been paid or
transferring lands to aliens. The contract’s delievered pursuant to an inexistent
illegal causa and illicit purpose renders the contract is allowed only when the following
contract void. The lease was a virtual requisites are met: the contract is not illegal
transfer of ownership whereby the owner per se but merely prohibited, the prohibition
divests herself in stages not only of the is for the benefit of the plaintiff, public
right to enjoy the property but also the right policy is enhanced thereby.
to dispose it.

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 When the amount paid exceeds the Art. 1422. A contract which is the direct
maximum fixed by law result of a previous illegal contract, is
also void and inexistent.
Art. 1417. When the price of any article
or commodity is determined by statute, b.! Those whose object is outside the
or by authority of law, any person paying commerce of man
any amount in excess of the maximum c.! Those which contemplate an
price allowed may recover such excess. impossible service
d.! Those where the intention of the
When by virtue of a contract a laborer parties relative to the principal
undertakes to work longer than the object of the contract cannot be
maximum number of hours of work fixed by ascertained
law e.! Those expressly prohibited or
declared void by law
Art. 1418. When the law fixes, or 2.! Contracts are inexistent
authorizes the fixing of the maximum
a.! Those which are absolutely
number of hours of labor, and a contract
simulated or fictitious
is entered into whereby a laborer b.! Those who cause or object did not
undertakes to work longer than the
exist at the time of the transaction
maximum thus fixed, he may demand
additional compensation for service Right to set up defense of illegality cannot
rendered beyond the time limit. be waived

When a laborer agrees to accept a lower

Art. 1409. The following contracts are
wage than that set by law
inexistent and void from the beginning:
xxx
Art. 1419. When the law sets, or These contracts cannot be ratified.
authorizes the setting of a minimum Neither can the right to set up the
wage for laborers, and a contract is defense of illegality be waived.
agreed upon by which a laborer accepts
a lower wage, he shall be entitled to
The action or defense for the declaration of
recover the deficiency.
the existence of a contract

When the contract is divisible 1.! Does not prescribe

Art. 1420. In case of a divisible contract, Art. 1410. The action or defense for the
if the illegal terms can be separated from declaration of the inexistence of a
the legal ones, the latter may be contract does not prescribe.
enforced.
2.! is not available to third persons whose
When the contract is the direct result of a interest is not directly affected
previous illegal contract
Art. 1421. The defense of illegality of
contract is not available to third persons
whose interests are not directly affected.

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 Natural Obligations Villaroel v. Estrada
Alejandra Callao, mother of Juan Villaroel
Definition; As distinguished from civil obtained from Mariano Estrada a debt of
obligations 1,000. Alejandra passed away, however,
leaving Juan the sole heir. The Sps Estrada
Art. 1423. Obligations are civil or natural. also passed away leaving only Bernardino
Civil obligations give a right of action to Estrada as sole heir. Villaroel wrote a
compel their performance. Natural document to Estrada in which he declared
obligations, not being based on positive that he owed Estrada 1,000.
law but on equity and natural law, do not
grant a right of action to enforce their The present action is no longer based on
performance, but after voluntary the original obligation which had already
fulfillment by the obligor, they authorize but on that which Juan Villaroel assumed. A
the retention of what has been delivered new promise to pay a prescribed debt is
or rendered by reason thereof. Some based on equity and natural law.
natural obligations are set forth in the
following articles. Fisher v. Robb
John Robb was manager of a dog racing
club. He met A. O. Fisher in one of his
As distinguished from moral obligations business meetings. Fisher showed interest
in the greyhound club Robb was managing
NATURAL PURELY MORAL and inquired if he could have a part in it as
There is a juridical tie There is no juridical a stockholder. Fisher made installments to
Within domain of law, with a tie, only moral duty.
the Greyhound Club. The club eventually
legal tie but cannot be
enforced because of certain failed and shut down. Robb immediately
causes endeavored to save the club by acquiring
Produces some juridical shares from it. Robb then wrote a letter to
effects, such as the right to Fisher explaining the critical condition of
retain what has been
voluntarily paid the club and outlining his plans to save the
Performance by the debtor is Act is purely liberality property and stating that he felt morally
a legal fulfillment springing from blood, responsible to the stockholders who had
of the obligation affection, or paid their second installment.
benevolence
Rests entirely on
conscience In the present case, it does not appear that
A true obligation with a legal Matter is entirely Fisher himself had consented to the form of
tie between within the domain of reimbursement offered by Robb. The first
debtor and creditor morals essential requisite (consent) does not exist,
therefore. Consideration here is also
Produces certain civil effects:
missing. For the contract sought to be
1.! What has been paid
cannot be recovered enforced by Fisher against Robb to be
2.! Obligation can be valid, it is necessary that it should have a
novated consideration consisting in the lending or
3.! It can be guaranteed promise of a thing or service by such party.
4.! And in some cases it can The promise by Robb is purely moral and
even be ratified (as a as such is not demandable.
prescribed obligation)

Conversion to civil obligation

1.! By novation

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2.! By ratification Art. 1428. When, after an action to
enforce a civil obligation has failed the
Examples defendant voluntarily performs the
obligation, he cannot demand the return
Art. 1424. When a right to sue upon a of what he has delivered or the payment
civil obligation has lapsed by extinctive of the value of the service he has
prescription, the obligor who voluntarily rendered.
performs the contract cannot recover
what he has delivered or the value of the
service he has rendered. Art. 1429. When a testate or intestate
heir voluntarily pays a debt of the
decedent exceeding the value of the
Art. 1425. When without the knowledge property which he received by will or by
or against the will of the debtor, a third the law of intestacy from the estate of
person pays a debt which the obligor is the deceased, the payment is valid and
not legally bound to pay because the cannot be rescinded by the payer.
action thereon has prescribed, but the
debtor later voluntarily reimburses the
Art. 1430. When a will is declared void
third person, the obligor cannot recover
because it has not been executed in
what he has paid.
accordance with the formalities required
by law, but one of the intestate heirs,
Art. 1426. When a minor between after the settlement of the debts of the
eighteen and twenty-one years of age deceased, pays a legacy in compliance
who has entered into a contract without with a clause in the defective will, the
the consent of the parent or guardian, payment is effective and irrevocable.
after the annulment of the contract
voluntarily returns the whole thing or
price received, notwithstanding the fact
that he has not been benefited thereby,
there is no right to demand the thing or
price thus returned.

Art. 1427. When a minor between

eighteen and twenty-one years of age,
who has entered into a contract without
the consent of the parent or guardian,
voluntarily pays a sum of money or
delivers a fungible thing in fulfillment of
the obligation, there shall be no right to
recover the same from the obligee who
has spent or consumed it in good faith.

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 Estoppel between the same parties as
to matter directly adjudged
Definition b.! Estoppel by judgment bars
the parties fro raising any
Art. 1431. Through estoppel an question that might have
admission or representation is rendered been put in issue and
conclusive upon the person making it, decided in the previous
and cannot be denied or disproved as litigation.
against the person relying thereon. b.! By deed: It is a bar which precludes
one party to a deed (instrument) and
his privies from asserting against the
Kalalo v Luz other party and his privies, any right
Octavio Kalalo, a civil engineer, entered an or title in derogation of the deed or
agreement with Alfredo Luz. Kalalo was to from denying the truth of any
render services to the latter for fees. The material facts asserted in it
contracting parties eventually could not a.! A distinct and precise
agree on the proper settlement of account. admission or assertion of
Luz contested the fees due and claimed he fact is necessary
owed less than what Kalalo accounted for. b.! A conveyance null and void
Kalalo then asserted claims outside of the in contemplation of law
statement of account he had already because of inherent illegality
rendered to Luz (he claimed he was owed does not operate as
even more than what he had originally estoppel
demanded from Luz). Luz claimed that c.! The party sought to be
Kalalo was estopped from asserting claims estopped must be sui juris
outside of what he had already demanded. and competent to make the
deed effective as a contract
The Court ruled that Kalalo is not estopped. d.! On intervening not as party
Luz did not rely on Kalalo’s but as notary is not
pronouncements. In order that estoppel estopped by the deed.
may apply, the person to whom
representations have been made must have
Art. 1433. Estoppel may in pais or by
relied or acted upon such representations.
His act of questioning Kalalo’s first deed.
statement of accounts proves that he in no
way relied on alleged misrepresentations. 2.! Equitable estoppel or estoppel in pais
The statement of accounts sent by Kalalo
also have no quality of conclusiveness. In Art. 1433. Estoppel may in pais or by
this case, Kalalo explained that such deed.
statement of account was based on his
ignorance and innocent mistake and he is
This is a term applied to a situation where
not bound by it.
because of something which he has one or
omitted to do, a party is denied the right to
Kinds
plead or prove an otherwise important fact.
1.! Technical Estoppel
Kinds:
a.! By record
a.! Estoppel by Misrepresentation
a.! Res judicata makes a
b.! Estoppel by Silence
judgment conclusive
c.! Estoppel by Laches

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 d.! Estoppel by Acceptance of Benefits Art. 1435. If a person in representation of
another sells or alienates a thing, the
Persons Bound former cannot subsequently set up his
own title as against the buyer or grantee.
Art. 1439. Estoppel is effective only as
between the parties thereto or their
successors in interest. Art. 1436. A lessee or a bailee is
estopped from asserting title to the thing
leased or received, as against the lessor
Manila Lodge No 761 v. CA
or bailor.
The City of Manila was empowered by an
ordinance allowing them to reclaim a
portion of Manila Bay. Furthermore, the City Art. 1437. When in a contract between
of Manila was allowed to lease the same for third persons concerning immovable
a hotel suite. The City then sold the property, one of them is misled by a
reclaimed area to petitioners (BPOE). BPOE person with respect to the ownership or
eventually sold the land to Elks Club. BPOE real right over the real estate, the latter is
petitioner with the CFI for the cancellation precluded from asserting his legal title or
of the City of Manila’s right to repurchase interest therein, provided all these
the property. This petition was granted and requisites are present:
the property sold to Tarlac Development
Corp. City of Manila sought the (1) There must be fraudulent
reannotation of its right to repurchase. This representation or wrongful concealment
too was granted by the CFI. of facts known to the party estopped;

The City of Manila is not estopped from (2) The party precluded must intend that
questioning the validity of the sale it the other should act upon the facts as
executed. The government is never misrepresented;
estopped by mistakes or errors on the part
of its agents. Estoppel does not apply to (3) The party misled must have been
municipal corporations to validate a unaware of the true facts; and
contract that is prohibited by law. The sale
of the subject property is prohibited by law (4) The party defrauded must have acted
because it is public property. The sale to in accordance with the
BPOE was void and inexistent and suffered misrepresentation.
from an incurable defect and the City of
Manila is not estopped from asserting this
defect. Art. 1438. One who has allowed another
to assume apparent ownership of
Cases where estoppel applies personal property for the purpose of
making any transfer of it, cannot, if he
received the sum for which a pledge has
Article 1434. When a person who is not
been constituted, set up his own title to
the owner of a thing sells or alienates defeat the pledge of the property, made
and delivers it, and later the seller or by the other to a pledgee who received
grantor acquires title thereto, such title
the same in good faith and for value.
passes by operation of law to the buyer
or grantee.

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Miguel v. Catalino Mendoza v. Reyes
Appellants Simeon, Emilia, Marcelina Ponciano Reyes and Julia Reyes bought
Miguel brought a suit against Florendo land from JM Tuason and Co represented
Catalino for the recovery of the subject by Gregorio Araneta. The spouses were
property. They claim to be children and always in arrears in the payment of
heirs of the original owner. The land in installments due to lack of money. They
dispute was sold to the father of the eventually borrowed money from the
defendant Catalino. No deed was formally Rehabilitation Finance Corporation. Julia
executed even after payment. Since the Reyes sold the lots to the Mendozas
sale more than 30 years prior to the without the knowledge of Ponciano.
initiation of this suit, The Catalinos were in Ponciano then sought for the annulment of
possession of the land. the deed of sale. Petitioners Mendozas
insist that the properties in question is
The Court held that plaintiffs were now paraphernal and that they are buyers in
estopped from questioning the deed of good faith.
sale. The elements of laches are present in
this case. Laches is concerned with the In a case for ejectment from a leased hotel
effect of delat. It is principally a question of he was operationg, Ponciano interposed
inquity of permitting a claim to be enforced, the defense that he and his wife never had
this inequity being founded on some any kind of fund which could be called
change in the condition of the property or conjugal. Petitioners now invoked estoppel
the relation of the parties. The petitioner’s in Ponciano’s claim that they did not have
passivity and inaction for more than 34 conjugal property.
years justifies the defendant in setting up The petitioner cannot invoke estoppel here.
the defense of laches. There is no showing that Ponciano had
intentionally and deliberately led the
Mendozas to believe the pleading made in
a case against him in order to make the
Mendozas act on such pronouncement.
The Mendozas were not parties to the case
in which the pleading was filed. Further, it is
essential that it is shown that petitioners
relied on misrepresentation and had been
influenced and misled thereby.

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 Trusts: General Provisions plaintiff’s complaint. Purely parol evidence
was offered to prove the alleged trust.
Definition
The Court held that there was no trust.
A trust is a fiduciary relationship with Parol evidence cannot be used to prove an
respect to property, subjecting the person express trust concerning realty. The
holding the same to the obligation of plaintiff’s pleadings cannot be relied upon
dealing with the property for the benefit of to prove an implied trust either.
another person.
Trusts: Express Trusts
Governing Rules
Proof Required
Art. 1442. The principles of the general
law of trusts, insofar as they are not in Art. 1443. No express trusts concerning
conflict with this Code, the Code of an immovable or any interest therein
Commerce, the Rules of Court and may be proved by parol evidence.
special laws are hereby adopted.
Forms
Parties
Art. 1444. No particular words are
Art. 1440. A person who establishes a required for the creation of an express
trust is called the trustor; one in whom trust, it being sufficient that a trust is
confidence is reposed as regards clearly intended.
property for the benefit of another
person is known as the trustee; and the
person for whose benefit the trust has Want of trustee
been created is referred to as the
beneficiary. Art. 1445. No trust shall fail because the
trustee appointed declines the
Kinds designation, unless the contrary should
appear in the instrument constituting the
trust.
Art. 1441. Trusts are either express or
implied. Express trusts are created by
the intention of the trustor or of the Acceptance by the beneficiary
parties. Implied trusts come into being
by operation of law. Art. 1446. Acceptance by the beneficiary
is necessary. Nevertheless, if the trust
Salao v. Salao imposes no onerous condition upon the
A fishpond was bought by two siblings. The beneficiary, his acceptance shall be
petitioners, heirs, claim that they have a presumed, if there is no proof to the
share to the property as the fishpond was contrary.
bought using funds from properties they all
inherited from their grandparents. They
claim that their father entrusted his share
with the two siblings with the petitioners as
beneficiaries. However, the existence of a
trust was not definitely alleged in the

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 Trust: Implied Trusts Art. 1450. If the price of a sale of
property is loaned or paid by one person
How established for the benefit of another and the
conveyance is made to the lender or
Art. 1441. Trusts are either express or payor to secure the payment of the debt,
implied. Express trusts are created by a trust arises by operation of law in favor
the intention of the trustor or of the of the person to whom the money is
parties. Implied trusts come into being loaned or for whom its is paid. The latter
by operation of law. may redeem the property and compel a
conveyance thereof to him.
How proved
Art. 1451. When land passes by
Art. 1457. An implied trust may be succession to any person and he causes
proved by oral evidence. the legal title to be put in the name of
another, a trust is established by
implication of law for the benefit of the
Examples
true owner.

Art. 1448. There is an implied trust when

property is sold, and the legal estate is Art. 1452. If two or more persons agree
granted to one party but the price is paid to purchase property and by common
by another for the purpose of having the consent the legal title is taken in the
beneficial interest of the property. The name of one of them for the benefit of
former is the trustee, while the latter is all, a trust is created by force of law in
the beneficiary. However, if the person favor of the others in proportion to the
to whom the title is conveyed is a child, interest of each.
legitimate or illegitimate, of the one
paying the price of the sale, no trust is
Art. 1453. When property is conveyed to
implied by law, it being disputably a person in reliance upon his declared
presumed that there is a gift in favor of
intention to hold it for, or transfer it to
the child.
another or the grantor, there is an
implied trust in favor of the person
Art. 1449. There is also an implied trust whose benefit is contemplated.
when a donation is made to a person but
it appears that although the legal estate
Art. 1454. If an absolute conveyance of
is transmitted to the donee, he
property is made in order to secure the
nevertheless is either to have no
performance of an obligation of the
beneficial interest or only a part thereof.
grantor toward the grantee, a trust by
virtue of law is established. If the
fulfillment of the obligation is offered by
the grantor when it becomes due, he
may demand the reconveyance of the
property to him.

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 Art. 1455. When any trustee, guardian or There was an implied trust arising by
other person holding a fiduciary operation of law. If property is acquired
relationship uses trust funds for the through mistake or fraud, the person
purchase of property and causes the obtaining it is considered a trustee of an
conveyance to be made to him or to a implied trust for the benefit of the person
third person, a trust is established by from whom the property comes.
operation of law in favor of the person to
whom the funds belong. Tamayo v. Callejo
Spouses Tamayo owned land and sold part
of it to Fernando Domantay who took
Art. 1456. If property is acquired through possession thereof. Vicente Tamayo died,
mistake or fraud, the person obtaining it his widow waived her rights in favor of their
is, by force of law, considered a trustee children. These brothers applied for the
of an implied trust for the benefit of the registration in their names. Fernando
person from whom the property comes. Domantay sold his stake in the
abovementioned land to Aurelio Callejo.
Fabian v. Fabian When the brothers Tamayo had sold pieces
Pablo Fabian bought a portion of the Friar of the land, Callejo refused to let these
Lands Estate from the Philippine buyers into the property. Callejo then filed
Government. He died several years later. an action for reconvenyance and damages
One of his children and a niece of his to one of the Tamayo heirs.
executed an affidavit stating that Pablo has
no other heirs (he had 3 other children). Did the erroneous inclusion of the parcel of
Defendants took physical possession of the land owned by Callejo in Mariano’s
land and cultivated it. Plaintiffs (other certificate of title create an implied trust?
children) now file an action for No. Although an implied trust was initially
reconveyance against defendants. created, Mariano’s express recognition of
the sale to Domantay had the effect of
Laches is a bar to an action to enforce a imparting to the aforementioned trust the
constructive trust. The appellants are not nature of an express trust. Express trusts
only barred by laches because it took them are not subject to the statute of limitations
32 years to enforce the constructive trust, until repudiated, in which case the
there has also been a failure to prove that prescription period begins to run only from
there had been a fraud or that the the time of repudiation.
defendants had concealed facts.
Heirs of Sanjorjo v. Quijano
Bueno v. Reyes Patents were issued to Alan Quijano and
Francisco Reyes filed an answer in a Gwendolyn Quijano-Enriquez over parcels
Cadastral Case claiming that the Laoag of land in Antipolo. Heirs of Guillermo
Cadastre belonged to himself and to his Sanjorjo filed a protest to the DENR for the
two brothers Juan and Mateo. 23 years cancellation of the free patents claiming
later, the plaintifs filed the action for that they were originally acquired by their
reconveyance alleging that the lot originally predecessor from whom they inherited the
belonged to Jorge Bueno and that same. They subsequently withdrew their
Francisco Reyes was entrusted by the heirs complaint because they could no longer be
of Jorge Bueno to obtain the title in their disturbed at this point; complaints must be
behalf. filed within 1 year from their granting but it
had already been 3 years by then.

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Heirs of Maximo Sanjorjo (who was an heir run from the date of registration of the
of Guillermo Sanjorjo) then filed a complaint deed. Respondents testified that they never
for the cancellation of titles as well as for occupied or been in possession of the land
the reconveyance of the property against hence the prescriptive period applies. The
respondent heirs of Quijano. prescriptive period only beings to run from
the time respondents had actual notice of
The action for reconveyance has not the extrajudicial partition with absolute sale.
prescribed. An aggrieved party may file an
action for reconveyance based on implied The law in effect imposed the obligation
or constructive trust which prescribes 10 upon petitioner to act as trustee for the
years from the date of the issuance of the benefit of respondent heirs who having
title assailed. A person acquiring property been able to bring their action well within
through fraudulent means is considered a the prescriptive period are now entitled to
trustee of an implied trust for the benefit of the reconveyance of their property.
the rightful owner and actions concerning
obligations created by law (such as implied
trusts) prescribe within 10 years.

Aznar Brothers v. Aying

Crisanta Maloloy-on petitioned for the
issuance of a cadastral decree in her favor
over the disputed land. The Cadastral court
issued the issuance of a decree in the name
of Crisanta’s children after she died. This
certificate was lost during the war. The
heirs of the Aying siblings subsequently
executed documents conveying the
disputed land to petitioner. Since then,
petitioner has been paying for the land’s
real property taxes. Petitioners then filed a
complaint for ejectment which was granted.
Herein respondents sought to cancel the
documents conveying the land to the Aznar
brothers asserting that they had been in
open and continuous possession of the
land and their possession was disturbed
only upon Aznar’s notice to vacate.
Respondents assert that the absolute sale
conveying land to petitioners is null and
void but petitioners assert the defense of
prescription.

The facts on record show that the petitioner

acquired the land with the mistaken belief
that all heirs executed the document.
Implied trusts are those which without
being expressed, are deducible from the
nature of the transaction. The ten-year
prescriptive period in this case begins to

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