Oblicon Memaid

` Note: The active subject may be temporarily
O BLIGATIONS indefinite, as in the case of a negotiable

instrument payable to bearer.
Obligation 3. Juridical Tie or Vinculum Juris – the efficient

A juridical necessity to give, to do, or not to do cause which creates the relation between the
(CIVIL CODE, Art. 1156). obligor/debtor and obligee/creditor and is
established by:
A legal relation established between one party and a. Law;
another whereby the latter is bound to the fulfillment b. Bilateral Acts (Contracts giving rise to the
of a prestation which the former may demand of him obligations stipulated therein); and
th
(8 MANRESA, 5 Ed., Bk. 1, p.21). c. Unilateral Acts (Crimes & Quasi-Delicts).
Juridical Necessity 4. Prestation/Object – the particular conduct of

In case of noncompliance, there will be legal the debtor which may consist in giving, doing, or
sanctions (PINEDA, Obligations & Contracts (2000), not doing something which constitutes the object
p.1) [hereinafter PINEDA, Obligations and of the obligation (JURADO, Comments and
Contracts]. Jurisprudence on Obligations & Contracts
(2010), p.2) [hereinafter JURADO, Obligations
Prestation and Contracts].
Not the thing or object, but the particular conduct of
the debtor which may consist in giving, doing, or not Kinds:
giving, or not doing something (TOLENTINO, a. To give – obligation to deliver a movable or
Commentaries and Jurisprudence on the Civil Code an immovable thing in order to create a real
of the Philippines (1991) Vol. 4, p.57) [hereinafter 4 right, or for the use of the recipient or for its
TOLENTINO]. simple possession, or in order to return to its
owner (e.g. sale, deposit, pledge, donation);
Elements of Obligation: (PATO) b. To do – covers all kinds of works or
1. Passive Subject – one bound to perform the services whether physical or mental. It may
prestation. He is called the obligor/debtor. involve some work on the part of the debtor
such as in contracts of employment or
Note: Subjects pertain to both natural and professional services, but in other cases, it
juridical persons. They need not be determined may be merely the necessity of concluding a
in the act constituting the obligation, but they juridical operation, such as, when a person
must be determinable in some manner. When promises to give a bond; and
either subject cannot be determined, the c. Not to do – consists in abstaining from
obligatory tie can have no effect (4 doing some act. This obligation includes the
TOLENTINO, supra at 57). obligation “not to give” (4 TOLENTINO,
supra at 57- 58).
2. Active Subject – one who can demand the
fulfillment of the prestation; he who in his favor, Requisites of Prestation (PD-CoLE):
the obligation is constituted or created. He is a. Physically and juridically Possible;
called the obligee/creditor (supra). b. Determinate or at least determinable according
to pre-established elements or criteria;
EXECUTIVE COMMITTEE SUBJECT COMMITTEE MEMBERS ADVISERS

MARIA REGGIELEENE S. RICHARD ARMAND C. JULIENNE THERESE V. DEAN ED VINCENT
DIONISIO over-all ANGELES subject chair, SALVACION, MARC LESTER H. STA S. ALBANO, ATTY.
chairperson, LYAN DAVID M. REENO E. FEBRERO assistant ANA, JIRAH L. JARETA, RUSSEL NICASIO C.
JUANICO chairperson for subject chair, GILBERT S. LUBANGCO, VICSON A. CABANEIRO, ATTY.
academic operations, TYRONE GALVEZ edp, JUN MARR M. MABANGLO, JHOANNA STEFFANY JOSEPH
LEWIS D. ONG chairperson for DENILA persons and family G. NARAG, JULIA ANTOINETTE S. FERDINAND M.
hotel operations, DANIEL P. relations, NICA MARSHA V. UNARCE, JEEN LIM, DIANNE DECHAVEZ, ATTY.
ANG vice-chairperson for GASAPO wills and succession, FERRIOL, MA. REINA HABIJAN, EFREN VINCENT M.
operations, JEFFERSON B. JOHN EMIL F. RECUENCO ARIAN VINA L. SARMIENTO, DIZON, ATTY.
FERNANDEZ vice-chairperson sales and lease, REX MARK M. FEROZZA DELIA C. SIMBULAN, CHARLITO MARTIN
for secretariat, CLARISA G. CABANSAG credit ALEIZEL L. SANTOS, JENNY JOY R. MENDOZA, ATTY.
BELO vice-chairperson for transactions, MARISOL P. GERONIMO, ANN LAURICE BRUCE V. RIVERA,
finance, EROL STEPHEN B. RECUERDO land titles and SALONGA, CHRISTINE V. INTAL, ATTY. FRANCESCA
PISEC vice chairperson for deeds, RUEL NICO R. MARI JIHAN D. LLAMES, KRISTINE MAE LOURDES M. SEÑGA
electronic data processing, property, MARIA MIRELLA M. A. CEDIÑO, AUDRIS BULATAO,
PATRICK STEPHEN M. CUA ALVERO and DION CEAZAR CLARISSE NICOLE V. SOLIMAN,
vice-chairperson for logistics, M. PASCUA obligations and MYLEEN JOYCE R. FAVOREAL,
MAICAH MARIE A. PAMFILO contracts, LOUGENIA P. EILEEN CARLA Y. CARPIO
vice-chairperson for CARIÑO partnership, JESUS
membership CLARO JR. T. CEBRIAN torts
and damages, EVAN JR. C.
DUSABAN conflict of laws
c. Must be within the Commerce of man; b. Collective – involves several subjects (CIVIL
d. Must be Licit; and CODE, Art. 1207, 1223).
e. Possible Equivalent in money (Id. at 58). 8. Accessory & principal
a. Accessory – existence depends upon a
Note: Pecuniary interest need not be for the benefit principal obligation (e.g., pledge, mortgage).
of one of the parties, it maybe for the benefit of a b. Principal – exists without depending upon
third person. another obligation (CIVIL CODE, Arts. 1166,
1226).
Pecuniary Interest need NOT be of an Economic
Character Secondary Classifications Under the New Civil
It is a generally established principle that the Code:
prestation should be susceptible of pecuniary 1. Legal – arises from law (CIVIL CODE, Art.
appreciation. However, it need not be of an 1158);
economic character to have pecuniary value, 2. Conventional – arises from contracts (CIVIL
because all interests, even moral ones in view of the CODE, Art. 1159);
protection given to them by law, have some 3. Penal – arises from commission of crime (CIVIL
pecuniary value (4 TOLENTINO, supra at 58). CODE, Art. 1161);
4. Real and personal (CIVIL CODE, Arts. 1163-
Note: Form is sometimes added as a sixth requisite 1168);
of prestation but as a general rule however, it cannot 5. Determinate and generic (CIVIL CODE,
be considered as essential. An obligation arising Arts.1163-1166);
from law can be said to have no form at all (4 6. Positive and negative (CIVIL CODE, Arts. 1167-
TOLENTINO, supra at 56-57). 1168); and
7. Unilateral and bilateral (CIVIL CODE, Arts.
Primary Classifications Under the New Civil 1169-1191).
Code: a. Unilateral – only one party is bound to
1. Pure and Conditional perform an obligation (e.g., simple donation,
a. Pure – demandable at once. to give support).
b. Conditional – fulfillment or extinguishment b. Bilateral – also known as synallagmatic
depends upon a future and uncertain event contracts where two parties are reciprocally
(CIVIL CODE, Arts. 1179-1192). bound (e.g., purchase and sale).
2. With a Period or Term
Its fulfillment or extinguishment depends upon a Kinds of Obligations:
future and certain event (CIVIL CODE, Arts. It may also be classified as:
1193-1198). 1. Viewpoint of Sanction
3. Alternative and Facultative a. Civil Obligations – an obligation, which if not
a. Alternative – involves multiple prestations fulfilled when it becomes due and
but debtor will only perform one or some but demandable, may be enforced in court
not all, depending whose choice it is (CIVIL through an action (4 TOLENTINO, supra at
CODE, Art. 1199). 59);
b. Facultative – multiple prestations with a b. Natural Obligations – not based on positive
principal obligation and substitute law but on equity and natural law; do not
prestations, choice is generally given to the grant a right of action to enforce their
obligor (CIVIL CODE, Art. 1206). performance, but after voluntary fulfillment
4. Joint and Solidary by the obligor, they authorize retention of
a. Joint – each can be made to pay only his what has been delivered or rendered by
share in the obligation. reason thereof (CIVIL CODE, Art. 1423);
b. Solidary – one can be made to pay for the and
whole obligation subject to reimbursement
(CIVIL CODE, Arts. 1207-1222). Civil Obligation Natural Obligation
5. Divisible and Indivisible As to Governing Law
Performance of the prestation, not to thing, Article 1156 Article 1423
whether it can be fulfilled in parts or not (CIVIL Based on positive Based on equity and
CODE, Arts. 1223-1225). law natural law
6. With a Penal Clause As to Enforceability
Accessory undertaking to assume greater Enforceable by court
liability in case of a breach (CIVIL CODE, Arts. Not enforceable by
action or coercive
1226-1230). court action
power/authority
7. Individual & collective
a. Individual – involves only one subject; and
SAN BEDA COLLEGE OF LAW

234
2016 CENTRALIZED BAR OPERATIONS
c. Moral Obligations – those that cannot be 1158). In case of conflict between the Civil Code
enforced by action but which are binding on and a special law, the latter prevails unless the
the party who makes it in conscience and contrary has been stipulated.
natural law.
2. Viewpoint of Performance In obligations arising from law, the law creates
a. Positive Obligation – when the obligor is obligation and the act upon which it is based is
obliged to give or to do something; and nothing more than a mere factor for determining
b. Negative Obligation – when the obligor must the moment when it becomes demandable
refrain from giving or doing something (PINEDA, Obligations & Contracts, supra at 10);
(JURADO, Obligations and Contracts, supra however, when the law merely acknowledges
at 5). the existence of an obligation generated by an
3. Viewpoint of Subject Matter act which may constitute a contract, quasi-
a. Personal Obligation (obligation to do or not contract, criminal offense or quasi-delict and its
to do) – that in which the subject matter is only purpose is to regulate such obligation, then
an act to be done or not to be done; the act itself is the source of the obligation and
b. Real Obligation (obligation to give) – that in not the law (JURADO, Obligations and
which the subject matter is a thing which the Contracts, supra at 7-8).
obligor must deliver to the obligee (DE
LEON, Comments and Cases on Note: In the other sources of obligation, there is
Obligations and Contracts (2014), p. 9) always some individual act which gives rise to
[hereinafter, DE LEON, Obligations and the obligation; the law intervenes only to provide
Contracts]. a sanction or to prevent injustice.
i. Determinate or specific – one that is
individualized and can be identified or To say that the law is an independent source of
distinguished from others of its kind; its obligation, it does not mean that law and human
loss extinguishes the obligation; acts exclude each other completely. Once such
ii. Indeterminate or Generic – indicated human acts exist, the obligations arising
merely by its class or genus without therefrom by virtue of the express provisions of
being designated or distinguished from the law are entirely independent of the will of the
others of the same kind; its loss does parties.
not extinguish the obligation for genus
never perishes (genus nunquam perit); 2. Contracts (Ex-Contractu)
and Obligations arising from contracts have the force
iii. Limited generic thing – when the of law between the contracting parties and
generic objects are confined to a should be complied with in good faith (CIVIL
particular class, e.g., an obligation to CODE, Art. 1159).
deliver one of my horses (JURADO,
Obligations and Contracts, supra at 91). Generally, contracts are perfected by mere
4. Viewpoint of Person Obliged consent, and from that moment, the parties are
a. Unilateral – only one party is bound; and bound not only to the fulfillment of what has
b. Bilateral – both parties are bound. been expressly stipulated but also to all of the
consequences which according to their nature
Sources of Obligations: (LCQ-DQ) may be in keeping with good faith, usage, and
1. Law; law. Whether the contract is consensual or real,
2. Contracts; the rule is that from the moment it is perfected,
3. Quasi-contracts; obligations, which may either be reciprocal or
4. Delicts; and unilateral, arise (JURADO, Obligations and
5. Quasi-delicts (CIVIL CODE, Art. 1157). Contracts, supra at 8-9).
Note: The list of sources is exclusive (Sagrado Contract is the meeting of the minds between
Orden v. Nacoco, G.R. No. L-3756, June 30, 1952). two persons whereby one binds himself, with
However, it may be based on a unilateral promise (4 respect to the other, to give something or to
TOLENTINO, supra at 62). render some service (CIVIL CODE, Art. 1305).
1. Law (Ex-Lege) Note: Compliance in good faith is performance

Obligations derived from law are not presumed. in accordance with the stipulation, clauses,
Only those expressly determined in the New terms and conditions of the contract.
Civil Code or in Special Laws are demandable,
and shall be regulated by the precepts of the law Well-settled is the rule that in case of doubt, it is
which establishes them (CIVIL CODE, Art. the intention of the contracting parties that

235
prevails. If the terms of a contract are clear and 1404 regarding unauthorized contracts
leave no doubt upon the contracting parties’ shall govern); and
intention, such terms should be applied in their ii. If in fact the manager has been tacitly
literal meaning (Sps. Dumlao v. Marlon Realty (implied from actions or statements)
Corp., G.R. No. 131491, August 17, 2007). authorized by the owner (in such a case
rules on agency in Title X, Book IV, shall
Pre-Contractual Obligations apply) (Ibid.).
Damages suffered by a party during the period
of negotiations may be recovered even if the The essential requisites of negotiorum
contract is not finally perfected. Should the offer gestio are as follows (No-CAN-Vo):
be clear and definite, and leads the offeree in i. No meeting of the minds;
good faith to incur expenses in the expectation ii. Taking Charge of another’s business or
of entering into the contract; and the withdrawal property;
of the offer is without legitimate cause, the iii. Property or business must have been
liability of the offeror would be as follows: Abandoned or neglected;
a. If the offeror is guilty of fault or negligence, iv. The officious manager must Not have
the liability would be based on Quasi-Delict; been expressly or implicitly authorized;
or and
b. If the offeror is not guilty of fault or v. The officious manager (gestor) must
negligence but the withdrawal was based in have Voluntarily taken charge (there
abuse of right, the liability would be based must be no vitiated consent, such as
on Art. 19 of the Civil Code. error in thinking that he owned the
property or the business).
3. Quasi-contracts (Quasi Ex-Contractual) b. Solutio Indebiti (Payment Not Due)
Juridical relations arising from lawful, voluntary, If something is received when there is no
and unilateral acts by virtue of which the parties right to demand it, and it was unduly
become bound to each other, based on the delivered through mistake, the obligation to
principle that no one shall be unjustly enriched return it arises (CIVIL CODE, Art. 2154).
or benefited at the expense of another (CIVIL
CODE, Art. 2142). The essential requisites of solutio indebiti
are as follows:
Quasi-contracts are based on the principles that: i. Receipt (not mere acknowledgement of
a. No one must unjustly enrich himself at something;
another’s expense; ii. There was no right to demand it
b. If one benefits, he must reimburse; and (because the giver had no obligation);
c. Justice and equity (PARAS, Civil Code, and
supra at 1154). iii. The undue delivery was because of
mistake (either of fact, or of law, which
Enumeration of Quasi-Contracts in the Civil may be helpful or difficult) (PARAS, Civil
Code is NOT exclusive (CIVIL CODE, Art. Code, supra at 1161).
2143).
Other Quasi-Contracts (also known as
Kinds: support given by strangers) (Arts. 2144, 2154,
a. Negotiorum Gestio (Officious 2167, 2174, 2150, 2164, 2168, 2169, 2170,
Management) 2171, 2172, 2173, 2174, 2175)
Whoever voluntarily takes charge of the
agency or management of the business or Note: A quasi-contract is a unilateral contract
property of another, without any power from created by the sole act or acts of the gestor; no
the latter, is obliged to continue the same express consent given by the other party. The
until the termination of the affair and its consent needed is provided by law through
incidents, or to require the person presumption (PINEDA, Obligations & Contracts,
concerned to substitute him, if the owner is supra at 14).
in a position to do so (CIVIL CODE, Art.
2144). This consent is referred to as presumptive
consent. It gives rise to multiple juridical
Note: This juridical relation does not arise in relations which result in obligations for the
either of these instances: delivery of the thing or rendition of service
i. When the property or business is not (Perez v. Pomar, G.R. No. 1299, November 16,
neglected or abandoned (in such a case 1903).
provisions of Arts. 1317, 1403[1], and

236
4. Delict (Ex-Delictu, Culpa Criminal) Article 2176 of the Civil Code where it refers to
Civil obligations arising from criminal offence fault or negligence, covers not only acts not
shall be governed by the penal laws (CIVIL punished by law but also acts criminal in
CODE, Art. 1161). character, whether intentional or voluntary or
negligent (Elcano v. Hill, G.R. No. L-24303, May
General Rule: Civil liability is a necessary 26, 1977).
consequence of criminal liability. Every person
criminally liable for a felony is also civilly liable It is based on the undisputed principle of equity
(RPC, Art. 100). that fault or negligence cannot prejudice anyone
else besides its author and in no case should its
Civil liability may be in the form: consequences be borne by him who suffers the
a. Restitution; harm produced by such fault or negligence.
b. Reparation of damage caused; or
c. Indemnification for consequential damages Note: It has been ruled that tort liability can exist
(RPC, Art. 104). even if there are already contractual relations,
but this should be interpreted to mean that the
Reason: The commission of a crime causes not tort liability itself does not arise because of the
only moral evil but also material damage. contract, but because of some other fact
(PARAS, Civil Code, supra at 1102).
Exception: Treason, Rebellion, Gambling
The requisites of quasi-delict are as follows
Article 12 of the Revised Penal Code provides (AND-CR):
for exempting circumstances and as such the a. Act or omission by the defendant;
perpetrator does not incur criminal liability but is b. Fault or Negligence of the defendant;
not exempt from civil liability. These are: c. Damage or injury caused to the plaintiff;
a. Imbecile or insane person (unless acting in d. Direct relation or Connection of cause and
lucid interval); effect between the act or omission and the
b. Person below eighteen (18) years old; damage; and
c. Acting under compulsion of an irresistible e. There is no pre-existing contractual Relation
force; and between the parties (DE LEON, Comments
d. Acting under the impulse of an and Cases on Torts and Damages (2012),
uncontrollable fear of an equal or greater p. 185) [hereinafter DE LEON, Torts and
injury. Damages].
Note: The civil liability for crimes is extinguished Fault or Negligence

by the same causes provided by the Civil Code Negligence is the failure to observe for the
for the extinguishment of other obligations. Such protection of the interests of another person,
liability continues notwithstanding the fact that that degree of care, precaution, and vigilance
the offender has served his sentence or has not which the circumstances justly demand
been required to serve the same by reason of (Philippine National Railways v. CA, G.R. No.
amnesty, pardon, commutation of sentence, or 157658, October 15, 2007).
any other reason (TOLENTINO, Civil Code
supra at 75). Test of Negligence: Would a prudent man, in
the position of the person to whom negligence is
Rule 111 of the Criminal Procedure provides attributed, foresee harm to the person injured as
that: “When a criminal action is instituted, the a reasonable consequence of the course about
civil action for the recovery of civil liability arising to be pursued? If so, the law imposes a duty
from the offense charged shall be deemed upon him to refrain from that course or take
instituted with the criminal action unless the precautions, and failure to do so constitutes
offended party waives the civil action, reserves negligence (4 TOLENTINO, supra at 85).
the right to institute it separately or institutes the
civil action prior the criminal action”. Elements of Negligence:
a. The fault or negligence of the defendant;
5. Quasi-delict (Quasi Ex-Delicto) b. The damage suffered or incurred by the
Whoever by act or omission causes damage to plaintiff; and
another, there being fault or negligence, is c. The relation of cause and effect between
obliged to pay for the damage done. Such fault the fault or negligence of the defendant and
or negligence, if there is no pre-existing the damage incurred by the plaintiff (supra
contractual relation between the parties, is at 84-85).
called a quasi-delict (CIVIL CODE, Art. 2176).

237
Prohibition from Double Recovery already existing
Although a single act or omission may give rise because of a
to two different causes of action, the plaintiff contract.
cannot recover damages twice for the same act As to Pre-Existing Obligation
or omission of the defendant (CIVIL CODE, Art. No pre- There is a pre- No pre-existing
2177). existing existing obligation.
obligation. obligation (a
Doctrine of Imputed Negligence contract, either
Obligations arising from quasi-delict are express or
demandable not only from the person directly implied).
responsible for the damage incurred, but also As to the Weight of Evidence
against the persons mentioned in Article 2180 of Ordinarily, the As long as it is Accused is
the Civil Code. It provides that a person is not victim has to proved that presumed
only liable for torts committed by himself, but prove the there was a innocent until
also for torts committed by others with whom he negligence of contract and the contrary is
has certain relationships and for whom he is the defendant. that it was not proved, so
responsible (Tamargo v. CA, G.R. No. 85044, This is carried out, it is prosecution has
June 3, 1992). because his presumed that the burden of
action is based the debtor is at proving the
Necessity of Proving Negligence on alleged fault, and it is negligence of
Negligence must be proved in a suit on a quasi- negligence on his duty to the accused.
delict, so that the plaintiff may recover. the part of the prove that
However, since negligence may in some cases defendant. there was no
be hard to prove, the doctrine of res ipsa loquitor negligence in
may be applied. This means that in certain carrying out the
instances, the presence of facts or terms of the
circumstances surrounding the injury clearly contract.
indicate negligence on the part of the defendant,
however this presumption is rebuttable (PARAS,
Civil Code supra at 1180).
The requisites of res ipsa loquitor are as follows: As to How it is Proved
a. The occurrence of an injury; Preponderance Preponderance Proof of guilt
b. The thing which caused the injury was of evidence. of evidence. beyond
under the control and management of the reasonable
defendant; doubt.
c. The occurrence was such that in the (PARAS, Civil Code, supra at 1178-1180)
ordinary course of things, would not have
happened if those who had control or Delict v. Quasi-delict
management used proper care; and
d. The absence of explanation by the Delict Quasi-delict
defendant (Professional Services, Inc. v. As to Whom it is Committed
Agana, G.R. No. 126297, January 31,
2007). Public Right: wrong
Private Right: wrong
against the individual
against the individual
Kinds of Negligence: and the State
a. Culpa Aquiliana – quasi-delict; negligence As to the Criminal Intent
as a source of obligation;
b. Culpa Contractual – negligence in the Criminal intent is not
performance of a contract; and necessary for it is
Criminal intent is
c. Culpa Criminal – criminal negligence. possible that there is no
necessary for the
criminal charge but only
existence of liability
Culpa Aquiliana v. Culpa Contractual v. Culpa civil liability for
Criminal damages
Culpa Culpa As to its Scope
Culpa Criminal
Aquiliana Contractual
As to Negligence Not as broad as quasi- Actionable in any act or
Direct, Merely Direct, delict; can be punished omission wherein fault
substantive incidental to the substantive and only when there is a or negligence
and performance of independent of penal law clearly intervenes
independent. an obligation a contract. penalizing it

238
As to Form of Redress stipulated (either a Dation in Pago or
Objective Novation); and
Form of redress is b. Waiver of defect, the creditor with
Either by compensation
either fine or knowledge of defect accepts the thing
or indemnification
imprisonment or both without protest or disposes it.
As to Proof Required
2. Preserve the Thing with Due Care
Requires General Rule: Every person obliged to give
Must be proven beyond
preponderance of something is also obliged to take care of it
reasonable doubt
evidence with the proper diligence of a good father of
a family (CIVIL CODE, Art. 1163).
As to Compromise
Can be compromised Exceptions:
Can never be
as any other civil a. The law or the stipulation of the parties
compromised
liability requires another standard of care (CIVIL
CODE, Art. 1163);
As to Employer’s Liability
b. Common Carriers – In case of common
carriers, which from the nature of their
business and for reasons of public
Employer’s liability is policy, is bound to observe
subsidiary. The Employer’s liability is extraordinary diligence in the vigilance
employee must have primary; can be sued over the goods and for the safety of the
first been convicted directly by the injured passengers transported by them,
and sentenced to pay party and may recover according to all the circumstances of
civil indemnity and it from his employee. each case (CIVIL CODE, Art. 1733);
must be shown that he c. Banks – In case of banks, wherein the
is insolvent. degree of diligence required is more
than that of a good father of a family,
where the fiduciary nature of their
depositors is concerned. In other words,
banks are duty bound to treat the
As to Employer’s Engagement deposit accounts to their depositors with
Employer is liable only All employers whether the highest degree of care (Reyes v.
when he is engaged in they are engaged in CA, G.R. No. 118492, August 15, 2001).
some kind of business some enterprise or not
or industry are liable, this includes Basis: Absence of the duty of obligor to
house helpers. take care of the thing, the obligation to
deliver would be illusory.
Also, failure to preserve the specific thing

N ATURE A ND E F FECTS OF would give rise to liability for damages
O BLIGATION unless due to a fortuitous event/force
majeure.
I. OBLIGATION TO GIVE (Real) If the law or contract does not state the
diligence which is to be observed in the
Duties of the Obligor with Respect to performance, that which is expected of a
Determinate or Specific Thing good father of a family shall be required
1. Deliver the Thing Itself (CIVIL CODE, Art. 1173, par 2).
General Rule: The debtor of a thing cannot
compel the creditor to receive a different With respect to stipulation, it is lawful for the
one, although the latter may be of the same parties to agree upon the diligence more
value as, or more valuable than which is than that of a good father of a family, which
due (CIVIL CODE, Art. 1244, Par. 1). is high or extraordinary diligence and even
for liability for any fortuitous event, or for
Exceptions: less than the diligence of a good father of a
a. By agreement or consent, the debtor family (CIVIL CODE, Art. 1306), but not for
may deliver a different thing or perform absolute exemption from liability for
a different prestation in lieu of that negligence which is void for being contrary
to public policy.

239
Diligence
It is the attention and care required of a Note: The ownership of things is transferred
person in a given situation and is the not only by mere agreements but by delivery
opposite of negligence. (Non nudis pactis, sed traditione domina
rerum transferentur).
Kinds: When obligation to deliver arises:
a. Simple diligence; a. If obligation is based on law, quasi-
b. Extraordinary Diligence; and delict, quasi-contract or crime, the
c. Diligence of a good father of a family or specific provisions of applicable law
Bonus Pater Familia – measure of shall determine when the delivery shall
prudence or activity as is properly to be be effected; or
expected from, and ordinarily exercised b. If obligation is based on contracts:
by a reasonable and prudent man under General Rule: All the fruits shall pertain
particular circumstances (Black’s Law to the vendee from the constitution or
Dictionary, (1999), p.457). perfection of the obligation (CIVIL
CODE, Art. 1537).
3. Deliver the Accessions and Accessories Exceptions:
General Rule: Obligation to give a i. Subject to a suspensive condition, it
determinate thing includes that of delivering arises from the happening of the
all its accession and accessories, even condition (CIVIL CODE, Art. 1187);
though they may not have been mentioned ii. Subject to a suspensive term or
(CIVIL CODE, Art. 1166). period, it arises upon the lapse of
the term; and
Exceptions: By contrary intention of the iii. If there is a contrary stipulation of
parties the parties with respect to the time
when the thing or fruits shall be
Right by Accession – right corollary to delivered.
ownership of property which gives the
owner the right to everything produced by Principle of Balancing of Equities as
the property or which is incorporated or Applied in Actions for Specific
attached thereto, either naturally or Performance
artificially (CIVIL CODE, Art. 440). In specific performance, equity requires that
the contract be just and equitable in its
Accessions v. Accessories provisions, and that the consequences of
Accessions/ specific performance likewise be equitable
Accessories and just. The general rule is that this
Accession Continua
Includes everything Destined for equitable relief will not be granted if the
which is produced by a embellishment, use or result of the specific performance of the
thing, or which is preservation of another contract would be harsh, inequitable,
incorporated or thing or have for their oppressive or result in an unconscionable
attached thereto, either object the completion advantage to the plaintiff (Agcaoili v. GSIS,
naturally or artificially. of another thing G.R. No. 30056, August 30, 1988).
Includes:
Fault or negligence of Kinds of Fruits:
Accesion Natural – e.g.
the debtor as an a. Natural – spontaneous products of the
alluvion
incident in the soil, the young and other products of
fulfillment of an existing animals produced without intervention
Accesion Industrial –
obligation of human labor;
e.g. building, planting
b. Industrial – those produced by lands of
4. Deliver the Fruits any kind through cultivation brought by
General Rule: The creditor has a right to intervention of human labor; and
the fruits of the thing from the time the c. Civil – those derived by virtue of
obligation to deliver it arises. However, there juridical relation (e.g. rents of building)
is no real right until the same has been (CIVIL CODE, Art. 442).
delivered to him (CIVIL CODE, Art. 1164,
Par. 1). Correlative Rights of the Obligee
1. Right to specific performance (CIVIL
CODE, Art. 1165);
Exception: Obligations arising from
2. Right to rescission or resolution; and
contracts, a stipulation as regards the fruits
shall govern (CIVIL CODE, Art. 1306).

240
3. Right to damages due to the following: and circumstances have not been stated, the
(FN-DC) creditor cannot demand a thing of superior
a. Fraud; quality. Neither can the debtor deliver a thing of
b. Negligence in the performance of inferior quality. The purpose of the obligation
the obligation; and other circumstances shall be taken into
c. Delay or default; and consideration (Ibid.).
d. Any manner in Contravention of the Note: If the debtor can no longer perform the
tenor of the obligation (CIVIL CODE principal obligation, the creditor may ask for
Art. 1170). compliance by a third person at the debtor’s
expense (CIVIL CODE, Art. 1165).
General Rule: If due to fortuitous
event, the obligor is not liable for Duties of the Obligor:
failure to deliver. 1. To deliver the thing of the quality intended
by the parties, taking into account the
Exceptions: purpose of the obligation, intent of the
a. Law (e.g. Articles 1942, parties and other circumstances; and
2001,2147, 1993 of the Civil 2. To be liable for damages in case of breach
Code); due to delay, fraud, negligence or
b. Stipulation to the contrary; contravention of the tenor thereof (CIVIL
c. Nature of the obligation requires CODE, Art. 1170).
assumption of risk;
d. Fraud or malice (bad faith) – Correlative Rights of the Obligee:
such as when the obligor has 1. Right to ask for performance of the
promised to deliver the same obligation;
thing to two or more persons 2. Right to ask that the obligation be complied
who do not have the same with by a third person at the expense of the
interest (CIVIL CODE, Art. debtor (CIVIL CODE, Art. 1165);
1165, Par. 3); 3. Right to ask for rescission; and
e. Debtor was already in delay 4. Right to damages due to:
when the fortuitous event took a. Failure to deliver;
place (CIVIL CODE, Art. 1165, b. Fraud;
Par. 3); c. Negligence;
f. Obligation arises from a criminal d. Delay; and
offense (CIVIL CODE, Art. e. Any matter in contravention of the tenor
1263); and of the obligation (CIVIL CODE, Art.
g. When the object of the 1170).
obligation is lost and the loss is
partly the fault of the debtor II. OBLIGATION TO DO (Personal)
(JURADO, Obligation and
Contracts, supra at 100). General Rule: In obligations to do or not to do,
an act or forbearance cannot be substituted by
4. Right to the fruits and interests from the another act or forbearance against the obligee’s
time the obligation to deliver arises will (CIVIL CODE, Art. 1244, Par. 2).
(CIVIL CODE, Art. 1164)
Exception: In facultative obligations, where the
Duties of the Obligor with respect to debtor reserves the right to substitute another
Indeterminate or Generic Thing prestation (CIVIL CODE, Art. 1206).
General Rule: To deliver a thing which is Note: If a person is obliged to do something and
neither of superior nor inferior quality (CIVIL fails to do it, the same shall be executed at his
CODE, Art. 1246). cost. The same rule may be observed if he does
it in contravention of the tenor of the obligation.
Exception: When the purpose of the obligation Furthermore, it may be decreed that what has
and other circumstances shall have to be taken been poorly done be undone (CIVIL CODE, Art.
into consideration (Id.). 1167).
Purpose of the Obligation and Circumstance Duties of the Obligor:

Considered 1. To do it (CIVIL CODE, Art. 1167);
When the obligation consists in the delivery of 2. To shoulder the cost if someone else does it
an indeterminate or generic thing, whose quality (CIVIL CODE, Art. 1167);

241
3. To undo what has been poorly done (CIVIL Positive Personal Negative Personal
CODE, Art. 1167); and Obligations (CIVIL Obligations (CIVIL
4. To pay damages (CIVIL CODE, Arts. 1170- CODE, Art. 1167) CODE, Art. 1168)
1172, 2201-2202). thing prohibited be
undone.
Note: In negative obligations delay or mora is not
III. OBLIGATION NOT TO DO possible unlike in positive obligations (JURADO,
In obligations to do or not to do, an act or Obligations and Contracts, supra at 55).
forbearance cannot be substituted by another
act or forbearance against the obligee’s will Cases where the Remedy granted under
(CIVIL CODE, Art. 1244, Par. 2). Article 1168 of the Civil Code (to have it
undone at the expense of the debtor) is NOT
Note: Performance cannot be delegated or be Available:
performed by an agent. 1. Where the effects of the act which is
forbidden are definite in character – even if
No legal accessory obligations arise as it is possible for the obligee to ask that the
compared to obligation to give. act be undone at the expense of the obligor,
consequences permanent in character and
When the obligation consists in not doing, and contrary to the object of the obligation will
the obligor does what has been forbidden him, it be produced.
shall also be undone at his expense (CIVIL
CODE, Art. 1268). Illustration: For instance, should a TV star
be absolutely prohibited by his contract with
Duties of the Obligor: his home station to appear in programs of
1. Not to do what should not be done (CIVIL other TV stations, the effects of the breach
CODE, Art. 1168); thereof can no longer be undone.
2. To shoulder the cost to undo what should
not have been done (CIVIL CODE, Art. 2. Where it is physically or legally impossible
1168); and to undo what has been done because of the
3. To pay damages (CIVIL CODE, Art. 1170). very nature of the act itself or of a provision
of law, or because of conflicting rights of
Rights of a Creditor in Personal Obligations: “To third persons (JURADO, Obligations and
Do or Not to Do” Contracts, supra at 55).
Positive Personal Negative Personal
Obligations (CIVIL Obligations (CIVIL In either case, the only feasible remedy is
CODE, Art. 1167) CODE, Art. 1168) indemnification for damages.
The creditor can: If the debtor does what
1. Have the obligation has been forbidden Note: Specific performance is not a remedy in
performed or him, the creditor shall personal obligations. Otherwise, this may
executed at the have the following amount to involuntary servitude which is
expense of the remedies: prohibited by the Constitution.
obligor (except when 1. Have it undone at the
the prestation expense of the Breach of obligation may be:
consists of an act debtor; and 1. Voluntary – arises either by fraud,
where the personal or 2. To ask for damages, negligence, delay, and in any manner
special qualification of where it would be contravene to the tenor of the obligation
the obligor is the physically or legally (CIVIL CODE, Art. 1170); and
principal motive for impossible to undo 2. Involuntary – arises due to fortuitous events
the establishment of what has been 3. Substantial – amount to non-performance
the obligation. In such undone, because of: which is the basis for rescission and
case the remedy is an a. the very nature of payment of damages; and
action for damages. the act itself; 4. Casual – a part of the obligation has been
2. Ask that what has b. rights acquired by performed and gives rise to liability for
been poorly done be third persons who damages
undone; and acted in good faith;
3. Recover damages c. when the effects of Note: The general rule is that rescission will not
because of breach of the acts prohibited be permitted for a slight or casual breach of the
the obligation. are definite in contract, but only for such breaches as are
character and will not substantial and fundamental as to defeat the
cease even if the object of the parties in making the agreement. A

242
delay in payment for a small quantity of any voluntary act or omission, there being
molasses for some twenty days is not such a no malice, which prevents the normal
violation of an essential condition of the contract fulfillment of an obligation.
as warrants rescission for nonperformance
(Song Fo & Co. v. Hawaiian-Philippine Co., G.R. In case of fraud, bad faith, malice or wanton
No. 23769, September 16, 1925). attitude, the obligor shall be responsible for
all damages which may be reasonably
Different Modes of Breach attributed to the non-performance of the
Those who in the performance of their obligation (CIVIL CODE, Art. 2201, par 1).
obligations are guilty of fraud, negligence or
delay and those who in any manner contravene Test: Whether the defendant in doing the
the tenor thereof, are liable for damages (CIVIL alleged negligent act used the reasonable
CODE, Art. 1170). care and caution which an ordinary and
prudent person would have used in the
1. Fraud (Dolo) – is the voluntary execution of same situation (Mandarin Villa Inc. v. CA,
a wrongful act, or a willful omission which G.R. No. 119850, June 20, 1996).
prevents the normal realization of the
prestation, knowing, and intending the Effects of Negligence:
effects which naturally and necessarily arise a. Damages are demandable which the
from such act or omission. court may regulate according to
circumstances (CIVIL CODE, Art. 1172);
Implies some kind of malice or dishonesty and
and cannot cover cases of mistake and b. Invalidates defense of fortuitous event.
errors in judgment made in good faith. In
such case obligor can be held liable for Kinds of Negligence:
damages. a. Civil Negligence
i. Culpa contractual – fault or
Test: The element of intent and not the negligence of obligor by virtue of
harm done. which he is unable to perform his
Effect of Fraud: Liability for damages obligation arising from a pre-existing
(CIVIL CODE, Art. 1170). contract; and
ii. Culpa aquiliana/quasi-delict – fault
Waiver of Fraud or negligence of a person, whose
Responsibility arising from fraud is failure to observe the required
demandable in all obligations. Any waiver of diligence to the obligation causes
action for future fraud is void (CIVIL CODE, damage to another.
Art. 1171).
Note: The negligence of the
Note: The law prohibits the renunciation of defendant in both cases is
action for damages on the ground of future characterized by the omission of
fraud but it does not prohibit fraud already that diligence which is required by
committed. the nature of the obligation and
corresponds with the circumstances
Kinds of Fraud: of the persons, of the time and of
a. Fraud in the performance of the the place.
obligation (CIVIL CODE, Art.1171); and
b. Fraud in the execution/ creation/ birth of b. Culpa Criminal – fault or negligence
contract: which results in the commission of a
i. Dolo Causante (CIVIL CODE, Art. crime.
1344); and
ii. Dolo Incidente (CIVIL CODE, Art.
1338).
2. Negligence (Culpa)
The fault or negligence of the obligor
consists in the omission of the diligence
which is required by the nature of the
obligation and corresponds with the
circumstances of the persons, of the time
and place (CIVIL CODE, Art. 1173, par. 1);

243
Culpa Contractual v. Culpa Aquiliana v. Culpa Fraud (Dolo) v. Negligence (Culpa)
Criminal Fraud (Dolo) Negligence (Culpa)
Culpa Culpa Culpa As to Willfulness to Cause Damage
Contractual Aquiliana Criminal Mere want of care or
As to the Character of the Negligence of the Willfulness or deliberate
diligence and not the
Defendant intent to cause damage
voluntariness of act or
Negligence is or injury to another
omission
merely As to Mitigation of Liability
incidental to
Negligence is Negligence is Liability cannot be Liability may be mitigated
the
direct, direct, mitigated by courts by courts
performance of
substantive, substantive, As to Validity of Waiver
an obligation
and and Waiver for future fraud is Waiver for future
already
independent independent void negligence:
existing
because of a a. Valid if simple
contract b. Void if gross
As to the Relationship of the Parties As to How it is Proved
There is There may or Presumed from the
No pre-
always a pre- may not be a breach of a contractual Must be clearly proved
existing
existing pre-existing obligation
contractual
contractual contractual
relation
relation relation Standard of Diligence Required
As to the Source of Obligation If law or contract does not state the diligence
Breach or Defendant’s which is to be observed in the performance, that
Defendant’s
nonfulfillment negligent act which is expected of a good father of a family
criminal act
of contract or omission is required.
As to Proof Required
Requires proof Requires proof Requires proof Note: When the negligence is so gross that it
by by beyond amounts to wanton attitude on the part of the
preponderanc preponderanc reasonable obligor, the laws in case of fraud shall apply.
e of evidence e of evidence doubt
As to the Availability of Diligence as a Defense If the obligor acted in good faith, he shall be
Defense of a liable only for natural and probable
good father of consequences of the breach of obligation and
Defense of a a family in the which the parties have foreseen or could have
good father of selection and reasonably foreseen at the time the obligation
Defense of a
a family in the supervision of was constituted.
good father of
selection and employees is
a family in the
supervision of not proper. If the obligor acted in bad faith, the boundaries
selection and
employees is between negligence and fraud disappear
supervision of
not a proper or The altogether. Obligor can be held responsible for
employees is a
complete employee’s all damages which may be reasonably attributed
proper and
defense, guilt is to the nonperformance of the obligation. Any
complete
though it may automatically waiver or renunciation which is made in
defense
mitigate the employer’s anticipation of such liability is null and void.
damages guilt if the
former is If there was contributory negligence of the
insolvent. obligee, the effect is to reduce or mitigate the
As to the Presumption of Fault damages which he can recover.
Proof of
existence of a Accused is If the negligent act or omission of the obligee
Plaintiff has to
contract and presumed was the proximate cause of the event which led
prove
breach thereof innocent until to damage or injury complained of, he cannot
negligence of
gives rise to a the contrary is recover.
the defendant
presumption of proved
fault Robbery, per se, like carnapping, does not
foreclose the possibility of negligence. It is not a
fortuitous event (Sicam, et al. v. Jorge, GR No.
159617, August 8, 2007).

244
3. Delay (Mora) ready to comply in a proper manner with
It refers to the non-fulfillment of obligation what is incumbent upon him. From the
with respect to time. moment one of the parties fulfills his
obligation, delay by the other begins.
Those obliged to deliver or to do something
incur delay from the time the obligee Requisites in Order to Consider the
2
judicially or extra-judicially demands from Obligor in Default (D P):
them the fulfillment of their obligation (CIVIL a. Obligation is Demandable and already
CODE, Art. 1169). liquidated;
b. The obligor/debtor Delays performance;
Note: There is simple delay as one fails to and
perform the obligation and this delay is c. The creditor requires Performance
converted to a legal delay which arises judicially or extra-judicially (SSS v.
when the obligee judicially or extra-judicially Moonwalk Development and Housing
demands their fulfillment. The delay which Corporation, G.R. No. 73345, April 7,
the law speaks about is one that is legal. 1993).
Delay in the performance of the obligation, Grace Period

however, must be either malicious or A grace period is not an obligation of the
negligent. If delay is only due to debtor but a right. It must not be likened to
inadvertence without any malice or an obligation, the non-payment of which
negligence, the obligor cannot be liable under Art. 1169 of the Civil Code would
under Art. 1170 of the Civil Code (RCBC v. generally still require judicial or extrajudicial
CA, G.R. No. 133107, March 25, 1999). demand before default can arise. When
unconditionally conferred, it is effective
General Rule: Without demand, judicial or without need of demand, either for the
extra-judicial, the effect of default will not payment of the obligation or for the honoring
arise (4 TOLENTINO, supra at 102). of the right (Bricktown Dev’t. Corp. v. Amor
Tierra Dev’t. Corp., G.R. No. 112182,
Exceptions: December 12, 1994).
a. When the obligation or law expressly so
declares. Kinds of Delay:
b. When from the nature and a. Mora Solvendi – delay on the part of
circumstances of the obligation it the debtor by not performing his
appears that the designation of the time obligation after a demand/specified time
when the thing to be delivered or the and may either be:
service is to be rendered was a i. Ex Re – obligations to give; and
controlling motive for the establishment ii. Ex Persona – obligations to do.
of the contract.
2
c. When demand would be useless: Requisites (D P):
i. Caused by some act or fault of the 1. Prestation is Demandable and
debtor already liquidated;
ii. Impossibility caused by fortuitous
event (CIVIL CODE, Art.1169) Note: There is no delay in natural
obligations for the performance of
Purpose of the Demand: The presumption such is optional and voluntary
of good faith.
2. The debtor is in Delay of the
Note: There can only be delay in obligations performance due to causes
“to give and to do” (positive obligations) and imputable to him and not by acts
not in obligations “not to give or not to do” such as fortuitous events; and
(negative obligations) (TOLENTINO, Civil 3. The creditor requires or demands
Code supra at 101). the Performance judicially or extra-
judicially (Aerospace Chemical
Reason: One can never be late in not giving Industries, Inc., v. CA, G.R. No.
or doing something. 108129, September 23, 1999)
Delay in Reciprocal Obligations If extrajudicial, date of demand and if

In reciprocal obligations, neither party incurs judicial, date of filing of complaint
delay if the other does not comply or is not

245
(TOLENTINO, Obligations and Requisites:
Contracts, supra at 103). i. Offer of performance by the debtor
who has the required capacity;
Note: A mere reminder cannot be ii. Offer must be to comply with the
considered a demand for performance, prestation as it should be
because it must appear that the performed; and
tolerance or benevolence of the creditor iii. Creditor refuses the performance
must have ended (supra at 102). without just cause (TOLENTINO,
Civil Code supra at 108).
Commencement of a suit is sufficient
demand (Palmares v. CA, G.R. No. Effects of Mora Accipiendi:
126490, March 31, 1998). i. Responsibility of the debtor for the
thing is reduced and limited to fraud
But even without demand, debtor incurs and gross negligence;
delay if he acknowledges his delay such ii. Debtor is exempted from the risks of
as requesting for an extension of time loss of the thing, which
for payment. automatically passes to the creditor;
iii. All expenses incurred by the debtor
Effects of Mora Solvendi for the preservation of the thing
Debtor is liable for interest in after the delay shall be chargeable
obligations to pay money, or damages. to the creditor;
In the absence of extra-judicial demand, iv. The creditor becomes liable for
the interest shall commence from the damages;
filing of the complaint. v. The debtor may relieve himself of
the obligation by consignation of the
Interest to be paid as indemnity for thing; and
damages is based on what has been vi. If the obligation bears interest, the
agreed upon by the parties, in the debtor does not have to pay from
absence thereof, the legal interest the moment of the mora (4
(CIVIL CODE, Art. 2209). TOLENTINO, supra at 108).
Debtor is liable even for fortuitous event Remedy:

when the obligation is to deliver a 1. Consign it in court; and
specific thing. But court may equitably 2. Keep it to himself (he is not liable for
mitigate damages if debtor proves that damages).
the loss would have still resulted even if
he had not been in default. c. Compensation Morae – delay of the
For generic things, debtor may still be parties in a reciprocal obligation
compelled to deliver a thing of the same (JURADO, Obligations and Contracts,
kind or be held liable for damages. supra at 57).
The debtor’s liability may be mitigated General Rule: Parties in a bilateral

even if he is guilty of delay, if he can contract can regulate the order in which
prove that the loss would nevertheless they shall comply with their reciprocal
transpire even if he had not been in prestations. Otherwise, the fulfillment
default, the court may equitably mitigate must be simultaneous and reciprocal (4
his liability (CIVIL CODE, Art. 2215[4]; TOLENTINO, supra at 109).
PINEDA, Obligations and Contracts,
supra at 47). Exception: Contrary stipulation (e.g.
installment basis)
b. Mora Accipiendi – delay in the
performance based on the omission by Effects of Compensation Morae:
the creditor of the necessary i. Delay of the obligor cancels delay of
cooperation, especially acceptance on the obligee and vice versa;
his part (4 TOLENTINO, supra at 107). ii. No actionable default on the part of
both parties; and
Note: Read in relation to Art. 1256-1261 iii. If delay of one party is followed by
(Tender of Payment and Consignation) that of the other, the liability of the
first infractor shall be equitably
balanced by the courts. If it cannot

246
be determined which of the parties b. Action for Substituted Performance
is guilty of delay, the contract shall (in obligation to given indeterminate
be deemed extinguished and each thing)
shall bear his own damages (CIVIL If the thing is indeterminate or generic,
CODE, Art. 1192). he may ask the obligation be complied
with at the expense of the debtor (CIVIL
Cessation of the Effects of Delay CODE, Art. 1165, Par. 2).
(mora)
The benefits arising from default or Note: Debtor cannot avoid obligation by
delay may cease upon (1) renunciation paying damages if the creditor insists on
by the creditor, express or implied and the performance.
(2) prescription (TOLENTINO, Civil
Code supra at 110). c. Action for Substituted Performance
or Undoing of Poor Work (in
4. Contravention of Tenor obligation to do)
Under Article 1170 of the Civil Code, the If a person obliged to do something fails
phrase “in any manner contravene the to do it, the same shall be executed at
tenor” of the obligation includes not only any his cost. This same rule shall be
illicit act which impairs the strict and faithful observed if he does it in contravention
fulfillment of the obligation, but also every of the tenor of the obligation.
kind of defective performance, unless Furthermore, it may de decreed that
excused in proper cases by fortuitous event. what has been done poorly be undone
(CIVIL CODE, Art. 1167).
Note: The following do not excuse
fulfillment: d. Action for Undoing (in obligation not
a. Increase in cost of performance; to do)
b. Poverty; and
c. War between the subjects of a neutral General Rule: When the obligation
country. consists in not doing, and the obligor
does what has been forbidden him, it
Remedies of Creditor in case of Breach: shall be undone at his expense (CIVIL
I. Primary Remedies: CODE, Art. 1168).
1. Action for Performance (Specific
Performance or Substituted Performance); Exception: When the only feasible
2. Action for Damages (exclusively or in remedy is indemnification for the
addition to action for performance); and damages caused by reason that:
3. Action for Rescission. i. It has become impossible to undo
the thing physically or legally; or
II. Subsidiary Remedies: ii. If the act is definite and will not
1. Accion Subrogatoria; cease even if undone.
2. Accion Pauliana; and
3. Other specific remedies. 2. Action for Damages
Recoverable damages include any and all
I. Primary Remedies damages that a human being may suffer.
1. Action for Performance Responsibility for damages is indivisible.
a. Action for Specific Performance (in
obligation to give a determinate 3. Action for Rescission
thing) The power to rescind obligation is implied in
When what is to be delivered is a reciprocal obligations, in case one of the
determinate thing, the creditor, in obligors should not comply with what is
addition to his right for indemnification of incumbent upon him.
damages, may compel the debtor to
make the delivery (CIVIL CODE, Art. The injured party may choose between
1165, Par. 1). fulfillment and rescission of the obligation,
with the payment of damages in either case.
Note: This remedy implies that the
basis is a contractual relation between Should he choose fulfillment and the same
the creditor and debtor. should become impossible, the injured party
may still seek for rescission.

247
The court shall decree the rescission property, present and future, for the
claimed unless there be a just cause fulfillment of his obligations subject to
authorizing the fixing of the period (CIVIL exemptions provided by law (4
CODE, Art. 1191). TOLENTINO, supra at 136-137).
Note: The action for rescission is 2. Accion Subrogatoria (Subrogatory Action)

subsidiary; it cannot be instituted except Action which the creditor may exercise in
when the party suffering damage has no place of the negligent debtor in order to
other legal means to obtain reparation for preserve or recover for the patrimony of the
the same. debtor the product of such action, and then
obtain therefrom the satisfaction of his own
Breach by Both Parties: credit (4 TOLENTINO, supra at 138).
a. If the first infractor can be determined,
his liability shall be equitably tempered Right to be subrogated to all the rights and
by the courts (CIVIL CODE, Art. 1192). actions of the debtor save those which are
b. If the first infractor cannot be inherent in his person (CIVIL CODE, Art.
determined, the obligation shall be 1177).
extinguished and each shall bear his
own damages (CIVIL CODE, Art. 1192). Note: The creditor is entitled only to so
much as is needed to satisfy his credit and
Note: The remedy under Art. 1191 of any balance shall pertain to the debtor.
the Civil Code is alternative. Party
seeking rescission can only elect one Rights of the Creditor:
between fulfillment and rescission. a. Levy by attachment and execution upon
There can be no partial performance all the property of the debtor, except
and partial rescission (4 TOLENTINO, such as exempt by law from execution;
supra at 181). b. Exercise all the rights and action of the
debtor, except such as inherently
The remedy only applies to reciprocal personal to him; and
obligations as when there is reciprocity c. To ask for rescission of the contracts
between the parties. made by the debtor in fraud of their
rights (4 TOLENTINO, supra at 136).
Rescission requires judicial approval to
produce legal effect. Requisites:
a. Debtor to whom the right of action
Effects of Rescission: properly pertains must be indebted to
a. Extinguishes obligatory relation as if it the creditor
had never been created; extinction has b. Creditor must be prejudiced by the
a retroactive effect (CIVIL CODE, inaction or failure of the debtor to
Art.1231); and proceed against the third person
b. Mutual restitution – rescission creates c. Creditor must have first pursued or
the obligation to return the thing which exhausted all the properties of the
were the object of the contract, together debtor which are not exempted for
with their fruits, and the price with its execution.
interests; consequently (CIVIL CODE,
Art. 1385). There is no change of creditor in accion
subrogatoria. The creditor merely acts in the
II. Subsidiary Remedies name and for the account of the debtor after
The term “subsidiary remedy” has been defined exhausting all of the assets of the latter.
as “the exhaustion of all remedies by the
prejudiced creditor to collect claims due him In order to exercise the accion subrogatoria,
before rescission is resorted to” (Siguan v. Lim, a previous approval of the court is not
G.R. No. 134685, November 19, 1999). necessary (supra at 138).
1. To exhaust the property in possession of
the debtor generally by attachment, subject Exceptions to Accion Subrogatoria:
to exemptions provided by law (4 a. Inherent rights of the debtor
TOLENTINO, supra at 136). i. Right to existence;
ii. Rights or relations of a public
Note: Correlate with Article 2236 which character;
states that the debtor is liable with all his iii. Rights of an honorary character;

248
iv. Rights consisting of powers which Note: Under Article 1381 of the Civil Code,
have not been used (e.g., the power contracts entered into in fraud of creditors
to carry out an agency or deposit); may be rescinded only when the creditors
v. Non-patrimonial rights (e.g., the cannot in any manner collect the claims due
action for legal separation or them. Also, Article 1383 of the same Code
annulment of marriage); provides that the action for rescission is but
vi. Patrimonial rights not subject to a subsidiary remedy which cannot be
execution (e.g., right to a instituted except when the party suffering
government gratuity or pension); damage has no other legal means to obtain
and reparation for the same. It is, therefore,
vii. Patrimonial rights inherent in the essential that the party asking for rescission
person of the debtor (e.g., right to prove that he has exhausted all other legal
revoke a donation by reason of means to obtain satisfaction of his claim
ingratitude). (Siguan v. Lim, G.R. No. 134685, November
19, 1999).
b. Only those who at the time of the
donor’s death have a right to the Accion Subrogatoria v. Accion Pauliana
legitime and their and successors in Accion Subrogatoria Accion Pauliana
interest may ask for the reduction or As to the Existence of Credit
inofficious donations (CIVIL CODE, Art. Not essential that credit Credit must
772). is prior to the have existed
acquisition of debtor’s before debtor’s
3. Accion Pauliana right. fraudulent act.
Creditors have the right to impugn the acts As to the Creditor’s Intent to Defraud
which the debtor may have done to defraud Intent to defraud Intent to
them (CIVIL CODE, Art. 1177). creditor is not required. defraud creditor
is required.
Note: All acts of the debtor which reduce his As to Prescription
patrimony in fraud of his creditors, whether Action
by gratuitous or onerous title, can be prescribes
revoked by this action but payments of pre- No period of within four (4)
existing obligations which are already due, prescription. years from the
whether natural or civil, cannot be impugned discovery of the
by this action (4 TOLENTINO, supra at fraud.
140).
Note: New debts contracted by an insolvent
Requisites: debtor are not included within the scope of
a. Creditor has a credit prior to the accion pauliana because only acts which
alienation by the debtor, although impair the assets of the debtor are covered
demandable later; by the provision and those which merely
b. Debtor has made a subsequent increase his liabilities are not (TOLENTINO,
contract, giving advantage to a third Civil Code, supra at 140).
person;
c. Creditor has no other remedy but to nd rd
2 and 3 remedies are subsidiary to the
rescind the debtor’s contract to the third st
1 . It can only be availed of in the absence
person; of any other legal remedy to obtain
d. Third person who received the property reparation for the injury.
is an accomplice in the fraud; and
e. Act being impugned is fraudulent. 4. Accion Directa
A person may directly sue another even if
Note: The following are presumptions of there is no privity of contract between them
fraud provided under Article 1387 of the (CIVIL CODE, Art. 1652, 1608, 1729, 1893)
Civil Code:
i. Alienation of property by gratuitous title Transmissibility of Rights
without reserving sufficient property to
pay debts prior to donation; and Transmissibility of Rights Acquired by Virtue of
ii. Alienation by onerous title when there is an Obligation (CIVIL CODE, Art. 1178)
judgment or attachment.
General Rule: Rights acquired by virtue of an
obligation are transmissible in character.

249
Exceptions: Labor unrest is not a fortuitous event that excuses a
1. When prohibited by law which are purely corporation from complying with its obligations. It is
personal in character; similar to the failure of a DBP borrower to pay her
2. When prohibited by personal qualification or loan just because her plantation suffered losses due
circumstances of the transferor which is a to the Cadangdang Disease. It does not excuse
material ingredient attendant in the obligation; compliance with the obligation (DBP v. Vda. de Moll,
and G.R. No. L-25802, January 31, 1972).
3. When prohibited by stipulation of the parties.
Liability in case of Fortuitous Event
Fortuitous Event
General Rule: No liability in case of fortuitous event
Extinguishment of Liability in case of Breach (CIVIL CODE, Art. 1174).
due to Fortuitous Event
Except in cases expressly specified by law, or when Exceptions:
it is otherwise declared by stipulation, or when the a. When expressly declared by law (e.g. Arts.
nature of the obligation requires the assumption of 552[2], 1165[3], 1268, 1942, 2147, 2148, 2000,
risk, no person shall be responsible for those events 2001, 1198 and 2159 of the Civil Code);
which could not be foreseen or which, though b. When expressly declared by stipulation or
foreseen, were inevitable (CIVIL CODE, Art. 1174). contract;
c. When the nature of the obligation requires the
Fortuitous Event (Force Majeure/Caso Fortuito): assumption of risk (CIVIL CODE, Art. 1174); and
1. By Nature or Acts of God (e.g., earthquakes,
storms, floods etc.) – absolutely independent of Note: The principle is based on social justice.
human intervention.
2. By the Act of Man or Force Majeure (e.g., armed d. When the object of the prestation is generic.
invasion, attack by bandits, robbery etc.) – an
event which arises from legitimate or illegitimate Note: Fluctuation of currencies is not
acts of persons other than the obligor (JURADO, considered as a fortuitous event since the
Obligations and Contracts, supra at 75). fluctuation rate is foreseeable. If considered
fortuitous, it will set a precedent such that there
3
Requisites (I F): will be a shift of burden to banks.
a. Must be Independent of the human will;
b. It must be either unforeseeable or Inevitable; Effects of Fortuitous Event:
c. Must be of such a character as to render it a. On determinate obligation – the obligation is
Impossible for the obligor to fulfill his obligation extinguished; and
in a normal manner; and b. On generic obligation – the obligation is not
d. Obligor must be Free from any participation in extinguished (genus nun quam peruit – genus
the aggravation of the injury resulting to the never perishes).
obligee (4 TOLENTINO, supra at 127-128).
Effect of Fortuitous Event on Period Provided
Note: It must not only be the proximate cause but it Where the contract stipulated that in case of a
must be the only and sole cause. fortuitous event, the period provided in the contract
for delivery shall be suspended, the period of time
Note: Fortuitous event includes unavoidable when the contract was suspended cannot be
accidents, even if there has been an intervention of deducted from the term of the contract because to
human element, provided fault or negligence cannot add the said years upon the resumption of the
be imputed to the debtor. contract would in effect be an extension of the
contract (Victorias Planters Association Inc., v.
Contributory negligence of the debtor renders him Victorias Milling Co, G.R. No. L-6648, July 25,
liable despite the fortuitous event; courts may 1955).
equitably mitigate damages.
Principle of Assumed or Created Risk
If the negligence was the proximate cause, the Based on the doctrine of volenti non fit injuria – no
obligation is not extinguished. It is converted into a wrong is done to one who consents. As applied to
monetary obligation for damages. obligations, it refers to situations in which the
obligor, with full knowledge of the risk enters into
The mere difficulty to foresee the happening is not some relation with the obligee (JURADO,
impossibility to foresee the same (Republic v. Luzon Obligations and Contracts, supra at 98).
Stevedoring, G.R. No. L-21749, September 29,
1967).

250
The event which produces loss may be fortuitous making of the demand. It follows therefore, that a
event typical of a particular kind of business, such demand note is strictly a pure obligation, and
as derailment of a train; it is only just that those who payment therefore is immediately demandable in the
are injured thereby be indemnified by the absence of other restrictions (supra at 143).
transportation company. This liability, however,
cannot extend to dangers which are not typical of Conditional Obligations
the business such as lightning or earthquake (4 Obligations in which the acquisition of rights as well
TOLENTINO, supra at 134). as the extinguishment or loss of those already
acquired, shall depend upon the happening of the
Extinguishment of Interest and Prior event which constitutes the condition (CIVIL CODE,
Installments Art. 1181).
Receipt of the principal (or later installment) without
reservation as to the interest (or prior installment) Characteristics of Condition:
shall give rise to a disputable presumption that the 1. It is a future and uncertain event upon which an
interest (or prior installment) has been paid (CIVIL obligation or provision is made to depend;
CODE, Art. 1176). 2. Even though the event is uncertain, it should be
possible;
The presumption established in this article is prima 3. The condition must be imposed by the will of the
facie. The presumption that the interest has been party and not a necessary legal requisite; and
paid is based on the consideration that as payments 4. Past event but unknown to parties (the
are first applied to the interest (CIVIL CODE, Art. knowledge to be acquired in the future of a past
1253), the receipt of the principal must have taken event which at that moment is unknown to
place because the interest had already been paid. parties interested - it is only in that sense that
the event is be deemed uncertain) (4
Instances when presumptions in Art. 1176 of the TOLENTINO, supra at 144-145).
Civil Code do NOT apply:
1. When there is a reservation made orally or in Note: When the debtor binds himself to pay when
writing; his means permit him to do so, the obligation shall
2. If the receipt does not recite that it was issued be deemed to be one with a period (CIVIL CODE,
for a particular installment due as when the Article 1180). In this case, the creditor must first ask
receipt is only dated; the court to fix the period, otherwise the action to
3. To payment of taxes; and collect the debt would be premature (4 TOLENTINO,
4. Where non-payment of the prior obligations has supra at 147).
been proven.
Effects of Failure to Comply with Condition:
1. If condition is imposed on the perfection of a
D IFFERENT K IND S OF contract – results in the failure of the contract; or
2. If condition is imposed on the performance of
O BLIGATIONS the obligation – gives the other party an option
either to refuse to proceed with the compliance
Pure Obligations of the obligation or to waive the condition.
Obligations whose performances do not depend
upon a future or uncertain event or upon a past Classifications of Conditions:
event unknown to the parties are demandable at 1. As to the Effect of Obligation
once (CIVIL CODE, Art. 1179, Par 1). a. Suspensive – when the fulfillment of the
condition results in the acquisition of rights
Obligations which contain no terms or conditions arising out of the obligation.
whatever upon which depends the fulfillment of the b. Resolutory – when the fulfillment of the
obligation contracted by the obligor (4 TOLENTINO, condition results in extinguishment of rights
supra at 143). arising out of the obligation.
2. As to the Origin of Condition
Note: Though demandable at once, the debtor a. Potestative – one which depends upon the
should be given a reasonable period to perform the will of one of the contracting parties; it is in
obligation depending on the nature and complexity the power of one of the parties to realize or
of such. to prevent.
i. Simple Potestative – presupposes not
A demand note is subject to neither a suspensive only a manifestation of will but also the
rd
condition nor a suspensive period. The demand is realization of an external act of a 3
not a condition precedent, since the effectivity and party.
binding effect of the note does not depend upon the

251
Note: It does not prevent formation of a b. Negative – the condition that some event
valid obligation because in part it will not happen at a determinate time shall
depends on contingencies over which render the obligation effective from the
the debtor has no control (4 moment the time has elapsed of it has
TOLENTINO, supra at 151). become evident that the event cannot occur
ii. Purely Potestative – if it depends solely
and exclusively upon the will of the Note: If there is no period fixed in the foregoing,
debtor, it is void for the debtor cannot Civil Code, Art. 1185 par. 2 shall apply. Intention
fulfill an obligation arising from his own of the parties is controlling and the time shall be
choice. But it is valid if it depends on that which the parties may have probably
the will of the creditor. contemplated, taking into account the nature of
the obligation.
Note: Applicable only to suspensive
conditions and not to resolutory. Hence, 5. As to Divisibility
resolutory potestative conditions are a. Divisible – when the condition is susceptible
valid even if made to depend upon the of partial realization; and
debtor since the obligation is already in b. Indivisible – when the condition is not
force. susceptible of partial realization.
b. Casual – depends exclusively upon chance, Principle of Indivisibility of Conditions

will of a third person, or partially by chance The indivisibility of the condition passes to the
and partially by will of a third person, or heirs of the debtor: hence, some heirs cannot
other factors and not upon the will of the demand partial performance of the obligation by
contracting parties. offering to fulfill part of the condition
c. Mixed – depends upon the will of one of the corresponding to them.
contracting parties and other circumstances,
including the will of third persons or chance. Exceptions: The condition may de divisible:
3. As to Possibility a. By nature of the condition;
a. Possible – when the condition is capable of b. By stipulation; and
realization according to nature, law, public c. By law.
policy or good customs.
b. Impossible – when the condition is not 6. As to Plurality of Conditions
capable of realization according to nature a. Conjunctive – there are several conditions,
(physical) law, public policy, morals or good which must all be realized; and
customs (legal). b. Alternative – there are several, but only one
must be realized.
Note: The impossible condition must exist at the
time of the creation of the obligation otherwise Note: if several conditions are imposed for the
that would fall under Art. 1266 of the Civil Code same obligation, the necessity of complying with
(Subsequent Impossibility). all or one only depends upon the intention of the
parties.
General Rule: If the obligation is divisible the
impossible conditions shall annul the obligation 7. As to Form
which depends upon them (CIVIL CODE, Art. a. Express – condition is stated expressly
1183). b. Implied – condition is tacit
Exceptions: Effects of Suspensive, Resolutory, Potestative,

a. Pre-existing obligation; Mixed, Casual Condition (CIVIL CODE, Art. 1181-
b. Divisible obligation; 1182):
c. Negative Impossible things; and 1. Suspensive Condition – obligation shall only
d. Testamentary deposition. be effective upon the fulfillment of the condition;
upon constitution of obligation, and before
4. As to Mode fulfillment, obligee acquires a mere hope or
a. Positive – condition that some event happen expectancy, protected by law.
at a determinate time shall extinguish the a. Before fulfillment – Demandability and the
obligation as soon as the time expires or acquisition of the rights arising from the
become indubitable that the event will not obligation is suspended. Obligation of
take place (CIVIL CODE, Art. 1184). obligor to comply with the prestation is held
in suspense until fulfillment of condition.

252
Anything paid by mistake during such time condition is imposed not on the birth of the
may be recovered. obligation but on its fulfillment (valid obligation).
b. After the fulfillment – The obligation arises If the condition is declared void but the
or becomes effective; obligor can be obligation is still valid, in converting the
compelled to comply with what is incumbent obligation into a pure and demandable one, an
upon him. arrangement may be enforced which is not
within the contemplation of the parties. The best
Note: If it becomes certain that the condition will solution is to consider the parties as having
not be fulfilled, the conditional creditor loses all intended a period within which the valid
hope of becoming a real creditor, and likewise obligation is to be complied with such that the
loses the power to exercise the actions granted creditor should ask the court to fix a period for
by Civil Code, Art. 1188 for the preservation of compliance (Patente v. Omega, G.R. No. L-
his rights. 4433, May 29, 1953). c
2. Resolutory Condition – obligation becomes
demandable immediately after its constitution 4. Casual Condition – the obligation and condition
and rights are immediately vested in the obligee, shall take effect.
but such rights are always subject to the threat 5. Mixed Condition – the obligation and condition
or danger of extinction. Principle of retroactivity shall take effect.
applies (CIVIL CODE, Art. 1190, par. 1).
a. Before fulfillment – right recognized in Art. Effects of Impossible Conditions:
1188, Par. 1 of the Civil Code in case of a 1. Conditional obligation is void – both obligation
suspensive condition should likewise be and condition are void.
available in obligations with a resolutory 2. Conditional obligation is valid – if condition is
condition. negative, it is disregarded and obligation is
b. After fulfillment – Whatever may have been rendered pure and valid.
paid or delivered by one or both of the 3. Only the affected obligation is void – if the
parties upon the constitution of the obligation is divisible, the part not affected by
obligation shall have to be returned upon the impossible condition shall be valid (Luneta
the fulfillment of the condition. There is a Motor Co. v. Abad, G.R. No. L-45273, April 10,
return to the status quo. 1939).
4. Only the condition is void – if obligation is pre-
Note: Aside from the actual things received, the existing, not depending on fulfillment of the
fruits or the interests thereon should also be condition which is impossible for its existence,
returned after deducting the expenses made for only the condition is void (JURADO, Obligations
their production, gathering and preservation. and Contracts, supra at 123).
5. Condition considered not imposed – if
When condition is not fulfilled, rights are impossible/unlawful condition is attached to a
consolidated and they become absolute. simple or remuneratory donation as well as to a
3. Potestative Condition testamentary disposition, condition is considered
a. When it depends exclusively upon the will of not imposed while the obligation is valid (CIVIL
creditor, the condition and obligation is valid. CODE, Art. 1183).
b. When it depends exclusively upon the will of
debtor in case of a suspensive condition, Note: The impossibility of the condition must exist at
the condition and obligation are void. To the time of the creation of the obligation; a
allow such condition would be to sanction supervening impossibility does not affect the
illusory obligation, in direct contravention of existence of the obligation.
the principle announced in Art. 1308 of the
Civil Code. Effects of Positive and Negative Condition
c. When it depends exclusively upon the will of In positive condition, obligation is extinguished as
debtor in case of a resolutory condition, the soon as the time expires or if it becomes indubitable
condition and obligation is valid. The that the event will not take place (CIVIL CODE, Art.
position of the debtor is exactly the same as 1184).
the creditor in a suspensive condition and
does not render the obligation illusory. In negative condition, the obligation is effective from
the moment the time indicated has lapsed, or if it
Note: If the obligation is a pre-existing one, and has become evident that the event cannot occur,
does not depend for its existence upon the although the time indicated has not yet lapsed
fulfillment by the debtor of the potestative (CIVIL CODE, Art. 1185).
condition, only the condition is void leaving
unaffected the obligation itself. Here, the

253
The intention of the parties, taking into consideration life annuity) (JURADO, Obligations and
the nature of the obligation, shall govern if no time Contracts, supra at 129)
has been fixed for the fulfillment of the condition
(CIVIL CODE, Art. 1185). Retroactive Effect as to the Fruits and Interests
in Obligations To Give:
Doctrine of Constructive Fulfillment of 1. In Reciprocal Obligations: no retroactivity –
Suspensive Condition mutually compensated (fruits may be natural,
1. Condition is deemed fulfilled when the obligor industrial or civil) (CIVIL CODE, Arts. 441-442).
actually prevented the obligee from complying 2. In Unilateral Obligations: no retroactivity - debtor
with the condition (CIVIL CODE, Art. 1186); appropriates the fruits and interests received
prevention must have been voluntary or willful in unless intention was otherwise, as inferred from
character. nature and circumstances (JURADO,
Reason: One must not profit by his own fault. Obligations and Contracts, supra at 129-130).
In obligations to do or not to do (personal
2. Doctrine applies only to suspensive condition. It obligations): No fixed rule; Courts are empowered to
can have no application to an external determine the retroactive effect of the suspensive
contingency which is lawfully within the control condition (supra at 130).
of the obligor (Taylor v. Uy Tieng Pao, G.R. No.
L-16109, October 2, 1922). Note: This rule also applies to an obligation with a
3. The mere intention of the debtor to prevent its resolutory condition (CIVIL CODE, Art. 1190, par. 3).
happening or the mere placing of ineffective
obstacles to its compliance, without actually Rights of the Creditor Before the Fulfillment of
preventing fulfillment is not sufficient (Manresa). the Condition
The creditor, may, before the fulfillment of the
Note: When the voluntary act of the debtor did obligation, bring the appropriate action for the
not have for its purpose the prevention of the preservation of his right (CIVIL CODE, Art. 1188).
fulfillment of the condition, it will not fall under
constructive fulfillment. The same is true when Note: No preference of credit is granted to the
the debtor acts pursuant to a right creditor.
(TOLENTINO, Civil Code supra at 161).
Right of the Debtor Before the Fulfillment of the
Requisites of Constructive Fulfillment: (SuPr- Condition:
Vol) 1. The debtor may recover what he paid by
1. Condition is Suspensive; mistake before the happening of the suspensive
2. Debtor actually Prevents the fulfillment of the condition;
condition; and 2. If the payment was for a determinate thing,
3. He acts Voluntarily. debtor may file an accion reivindicatoria;
3. If the payment was for an indeterminate thing,
Principle of Retroactivity in Suspensive there is solutio indebiti;
Condition 4. If payment was made with knowledge of the
The principle of retroactivity, under Civil Code, condition, debtor impliedly waives the condition
Article 1187, is limited to the effects of the and cannot recover;
obligation. The cause of action for the enforcement 5. If payment was with knowledge but the condition
of the obligation accrues and the prescription of the did not happen, the debtor can recover lest the
action must still be computed from the moment of creditor will be unjustly enriched; and
the happening of the suspensive condition. 6. If payment is not by mistake, debtor is deemed
to have impliedly waived the condition; he
In Obligations To Give cannot recover what he has prematurely paid
Reason: The condition is only an accidental once the suspensive condition is fulfilled.
element of a contract. An obligation can exist even
without being subject to a condition Note: Art. 1188 of the Civil Code does not provide
for recovery of the fruits or interest by the debtor
Rule on Retroactivity has NO Application To: who has paid before the happening of the condition.
1. Real contracts because they are perfected only However, the silence of the law should not bar the
by delivery of the object of the obligation. The recovery of fruits or interest by the debtor.
principle only applies to consensual contracts.
2. Contracts in which the obligation arising
therefrom can only be realized within successive
periods or intervals (e.g. lease, hire of service,

254
Loss, Deterioration or Improvement Pending the obligation with a resolutory condition (CIVIL
Happening of the Condition CODE, Art. 1190, Par. 2).
Loss (Dis-PG) The happening of a resolutory condition does not

A thing is lost when it: ipso jure revert ownership in the original debtor; he
1. Disappears in such a way that its existence is merely becomes entitled to the delivery which would
unknown or it cannot be recovered (i.e., a thing give him ownership anew.
is stolen by unknown persons);
2. Perishes (i.e., a house is destroyed completely The original debtor merely has a personal right
by fire); and which is enforceable only against his creditor who
3. Goes out of the commerce of men (i.e. a thing is has become a debtor obliged to make restitution.
declared by law as contraband) (4 TOLENTINO,
supra at 170). Expenses incurred by the person obliged to make
restitution relating to the production, gathering, and
Deterioration preservation of the fruits should be deducted from
Any reduction or impairment in the substance or the gross value of the fruits to be returned.
value of a thing which does not amount to loss; the
thing is less than when the obligation was In Obligations To Do or Not To Do: The provision
constituted (e.g., a house partly damaged) (4 of Article 1187, Par. 2 of the Civil Code in which the
TOLENTINO, supra at 170 -171). courts shall determine, shall be observed as regards
the effect of the extinguishment of the obligation.
Improvement
Anything added to, incorporated in, or attached to Rescission of Reciprocal Obligations in General
the thing that is due.
Reciprocal Obligations
In Obligations To Give (Real Obligations): The Those which are created or established at the same
thing, pending the happening of the condition, in time, out of the same cause, and which result in
case of improvement, loss or deterioration, the mutual relationships of creditor and debtor between
following rules shall be observed: the parties.
1. If loss is without the fault of the debtor,
obligation is extinguished. General Rule: If one of the parties fails to comply
2. If loss is through the fault of the debtor, obliged with what is incumbent upon him, there is a right on
to pay damages. the part of the other to rescind (or resolve) the
3. If the thing deteriorates without fault of the obligation (tacit resolutory condition) (CIVIL CODE,
debtor, impairment to be borne by the Art. 1191).
creditor.
4. If the thing deteriorates through the fault of the Implied in reciprocal obligations and is more
debtor, creditor may choose between appropriately referred to as resolution.
fulfillment or rescission with damages in
either case. It is based on breach of faith, violative of reciprocity
5. If the improvement is through nature or time, between the parties, committed by the person who
inures to the benefit of creditor. is supposed to comply with the obligation as
6. If the improvement is at the expense of the compared to the rescission referred to in Art. 1380
debtor, rights similar to that granted to the of the Civil Code which involves damage or lesion,
usufructuary (CIVIL CODE, Art. 579 and 580). or injury to the economic interest of a person.
Note: Consequently, the debtor cannot ask It is permitted only for such breaches as are
reimbursement for the expenses incurred for useful substantial and fundamental as to defeat the object
improvements of or improvements for mere pleasure of the parties in making the agreement (Universal
(CIVIL CODE, Art. 579). He can only ask Food Corp., v. CA, G.R. No. L-29155, May 13,
reimbursement for necessary expenses (CIVIL 1970).
CODE, Art. 546).
It can be demanded only if the plaintiff is ready,
The above rules apply to the following: willing, and able to comply with his own obligation
1. Determinate things only because the genus of a and the other is not (Seva v. Berwin, G.R. No. L-
thing never perishes (genus nun quam perit); 24321, January 11. 1926), and the party who has
2. Obligation with a period; or not performed his part of the agreement is not
3. Those who have a duty to return in case of loss, entitled to sue or rescind; the right belongs to the
deterioration or improvement of the thing in an injured party.

255
It is a right which belongs to the injured party alone express grant, any court decision adjudging the
(Mateos v. Lopez, G.R. No. 2391, April 28, 1906). propriety of the rescission extra-judicially made
is not the revocatory act of rescission but merely
It must be invoked judicially unless contract contains declaratory or an affirmation of the revocation
a facultative resolutory provision, in which case, (De Luna v. Abrigo, G.R. No. 57455, January
judicial permission to cancel or rescind the contract 18, 1990).
is no longer necessary – act of rescission must be 2. The decree of rescission shall be without
communicated to other party (Jison v. CA, G.R. No. prejudice to the rights of third persons who have
L-45349, August 15, 1988). acquired the thing in accordance with Art. 1385
and 1388 and Mortgage Law (CIVIL CODE, Art.
Mere failure of a party to comply with what is 1191, par. 4).
incumbent upon him does not ipso jure produce the
rescission or resolution of the obligation (JURADO, Art. 1191 of the Civil Code does NOT apply to the
Obligations and Contracts, supra at 137). following:
1. Contracts of partnership where a partner fails to
It requires restitution or bringing parties back to pay the whole amount which he has bound to
original status prior to the contract (Unlad contribute to the common fund (see CIVIL
Resources Dev. Corp., v. Renato Dragon, G.R. No. CODE, Art. 1786 and 1788).
149338, July 28, 2008). 2. Sales of real or personal property by
installments. The first being governed by Recto
Requisites of Rescission: Law while the latter is governed by Maceda Law
1. One of the parties failed to comply with what is (CIVIL CODE, Art. 1191).
incumbent upon him; 3. Action for rescission is not required upon breach
2. The injured party chose rescission over of compromise agreement; Article 2041 confers
fulfillment or performance is no longer possible; upon the party concerned the authority to regard
and it as rescinded and to insist upon the original
3. The breach is substantial so as to defeat the demand.
object of the parties in making the agreement.
Alternative Remedies of Injured Party (CIVIL
Right to Rescind Not Absolute CODE, Art. 1191, Par. 2):
The court is given discretionary power to fix a period 1. Fulfillment of the obligation with damages
within which the obligor in default may be permitted
to comply with what is incumbent upon him (CIVIL Note: Even after the injured party has chosen
CODE, Art. 1191, Par. 3). But the discretionary fulfillment and such fulfillment should become
power of the court cannot be applied to reciprocal impossible, he can still seek the rescission of
obligations arising from a contract of lease because the obligation.
they are governed by Article 1659 of the Civil Code.
2. Rescission of the obligation with damages
Reason: Under Art. 1191, courts have the
discretionary power to refuse the rescission of Note: An alternative prayer for fulfillment or
contracts in in their judgment the circumstances of rescission in the complaint is not incompatible.
the case warrant the fixing of a term within which the The presumption is that he is leaving the matter
obligor or debtor may fulfill his obligation while under to the sound discretion of the court.
Art. 1659, there is no such discretionary power
granted to courts (JURADO, Obligations and Effects of Rescission:
Contracts, supra at 142). 1. Duty upon the court to require the parties to
surrender whatever they may have received
The termination of a contract must not be contrary to from the other (without prejudice to the
law, morals, good customs, public order or public obligation of the party who was not able to
policy. comply with what is incumbent upon him); or
2. Can no longer be demanded when he who
Waiver of Right demands is no longer in the position to return
The right to rescind may be waived expressly or whatever he may be obliged to restore; neither
impliedly (Sps. Francisco v. DEAC Construction, can it be demanded when the thing which is the
Inc., G.R. No. 171312, February 4, 2008). object of the contract is already in the
possession of a third person who obtained it in
Effects: good faith (JURADO, Obligations and Contracts,
1. If there is a stipulation granting the right of supra at 142-143).
rescission on the part of the aggrieved party and
he validly rescinds the contract pursuant to such

256
Remedy: proceed against the party responsible When Period of Prescription Begins
for the transfer or conveyance for damages. It commences from the time the term in the
obligation arrives, for it is only from that date that it
If the thing is acquired in bad faith, the injured is due and demandable (Ullman v. Hernaez, G.R.
party can still go after the property. No. L-9816, March 10, 1915).
If the thing can no longer be recovered, the only Term/Period and Condition Distinguished
remedy is to proceed against the third person Term/Period Condition
who acted in bad faith for damages.
Interval of time which is Fact or event which is
Note: There can be partial rescission or future and certain future and uncertain
fulfillment under Art. 1191 of the Civil Code Must necessarily come,
(Central Bank v. CA, G.R. No. L-45710, October although it may not be May or may not happen
3, 1985). known when
Exerts an influence upon
Effects of Breach by Both Parties: Exerts an influence upon
the time of demandability
1. The liability of the first infractor shall be the very existence of the
or extinguishment of an
equitably tempered by the courts; obligation itself
obligation
2. If it cannot be determined which of the parties
first violated the contract, the same shall be No retroactive effect
deemed extinguished, and each shall bear his unless there is an
Has retroactive effect
own damages (CIVIL CODE, Art. 1192). agreement to the
contrary
Obligations with a Period When it is left exclusively
Obligations whose fulfillment a day certain has been to the will of the debtor,
When it is left exclusively
fixed, shall be demandable only when that day the existence of the
to the will of the debtor,
comes. Obligations with a resolutory period take obligation is not affected;
the very existence of the
effect at once but terminate upon the arrival of the empowers the court to fix
obligation is affected
day certain (CIVIL CODE, Art. 1193). the duration of the
obligation
Note: A day certain is understood to be that which Must be possible, Must be possible,
must necessarily come, although it may not be otherwise, obligation is otherwise, obligation is
known when. If the uncertainty consists in whether void void
the day will come or not, the obligation is a
conditional one (CIVIL CODE, Art. 1193).
Kinds of Period/Term: (EfEx-DeSo)
When the debtor binds himself to pay when his 1. As to Effect
means permit him, the obligation shall be deemed to a. Suspensive (Ex Die) – Obligations whose
be one with a period (CIVIL CODE, Art. 1180). fulfillment a day certain has been fixed, shall
be demandable only when that day comes
Term/Period (CIVIL CODE, Art. 1193, Par. 1).
Interval of time, which, exerting an influence on an
obligation as a consequence of a juridical act, either Thus, the period must lapse before the
suspends its demandability or produces its performance of the obligation can be
extinguishment. demanded.
Requisites: Note: If a fortuitous event supervenes, the

1. Future; obligor is merely relieved of the obligation to
2. Certain; and fulfill at that time and does not stop the
3. Possible, legally and physically. running of the period because in effect that
would be an extension of the term of the
When the period is too short for the prestation, as contract (Victorias Planters Association,
when Atoy is to build a ten-story building in twenty- Inc., v. Victorias Milling Co., G.R. No. L-
four (24) hours, the obligation is void (4 6648, July 25, 1955).
TOLENTINO, supra at 188).
Fortuitous event does not interrupt the
Note: What is suspended by the term is not the running of the period.
acquisition of the right or the effectivity of the
obligation but its demandability. b. Resolutory (In Diem) – Obligations with a
resolutory period take effect at once but

257
terminate upon arrival of the day certain Period for the Benefit of the Debtor
(CIVIL CODE, Art. 1193, par 2). Debtor cannot be compelled to perform obligation
prematurely, but he can do so if he desires.
Thus, the arrival of the period terminates the
obligation. Judicial Term/Period
2. As to Expression When fixed by a competent court in accordance with
a. Express – when specifically stated. the causes expressly recognized by law. Once fixed,
b. Implied – when it can be deduced that the the period can no longer be judicially changed.
parties intended a period such as in the
case of Art. 1180 of the Civil Code when When Court May Fix Period (CIVIL CODE, Art.
one promises to pay when able. 1197)
3. As to Definiteness General Rule: Courts are without power to fix
a. Definite – refers to a fixed known date or period.
time
b. Indefinite – even which will necessarily Exceptions:
happen but the date of its happening is 1. If the obligation does not fix a period, but from
unknown its nature and circumstances it can be inferred
that a period was intended (CIVIL CODE, Art.
Note: The uncertainty of the date of occurrence 1197);
does not convert into a condition so long as 2. If the duration of the period depends upon the
there is no uncertainty whether the event will will of the debtor (CIVIL CODE, Art. 1197, par.
happen or not. 2);
3. If under the circumstances the parties have
4. As to Source contemplated a period (CIVIL CODE, Art. 1197,
a. Conventional – made by agreement of the Par. 3); and
parties. 4. If the debtor binds himself when his means
b. Legal – period fixed by law such Articles permit him to do so (CIVIL CODE, Art. 1180).
1682 and 1687.
c. Judicial – set by courts in case of implied Note: The remedy cannot be applied to contract of
and indefinite period. services and pure obligations. The period of
employment is understood to be implicitly fixed, in
Note: In case of loss, deterioration or default of express stipulation, by the period for the
improvement the same rules as discussed under payment of the salary of the employee in
conditional obligations apply. accordance with customs (JURADO, Civil Code,
supra at 155-156).
Effect of Advance Payment or Delivery
In obligations to give, the obligor can recover what Applies to a lease agreement where a contract of
he has paid or delivered with fruits and interests lease clearly exists.
The fulfillment of the obligation cannot be demanded
Note: There can be no right of recovery if the obligor until after the court has fixed the period and such
delivers the thing voluntarily or with the knowledge period has arrived. Such technicality need not be
of the period or term or the fact that the obligation adhered to when a prior and separate action would
has not yet become due and demandable (4 be a mere formality and would serve no other
TOLENTINO, supra at 193). purpose than to delay (Borromeo v. CA, G.R. No. L-
22962, September 28, 1972).
Respective Periods There can be no possibility of any breach of contract
General Rule: For the benefit of both parties in the or failure to perform the obligation unless the period
absence of stipulation or in case of doubt (CIVIL is fixed by courts.
CODE, Art. 1196).
It is not necessary that the creditor, in his complaint,
Exception: If it can be shown that the period has must expressly ask the court to fix the duration of
been established in favor of the creditor or of the the term or period, such may be granted although
debtor. the complaint does not ask for such relief where the
essential allegations of the pleadings describe an
Period for the Benefit of the Creditor obligation with an indefinite period.
Creditor may demand the fulfillment of the obligation
at any time but the obligor cannot compel him to Once fixed by court, the period can no longer be
accept payment before the expiration of period. judicially changed. However, Article 1197, par. 3 of

258
the Civil Code does not prohibit parties to set a Limitations upon the Right of Choice
different period than that fixed by court. The debtor shall have no right to choose those
prestations which are (IU-Not-ADU):
When Debtor Loses Right to Make Use of Period: 1. Impossible;
(IF-IVA-Dis) 2. Unlawful;
1. He becomes Insolvent, unless he gives a 3. Which could Not have been the object of the
guaranty or security for the debt, the insolvency obligation (CIVIL CODE, Art. 1200, par. 2);
need not be judicially declared. 4. Those by reason of Accident or some other
2. He does not Furnish to the creditor the cause, have acquired a new character distinct or
guaranties or securities which he has promised.
different from that contemplated by the parties
3. If, after their establishment, the guaranty or
when the obligation was constituted;
security is impaired through the fault of the
debtor, he shall lose his right to the benefit of 5. Those which are not yet Due or demandable at
the period; however, if it is impaired without his the time the selection is made; or
fault, he shall retain his right. 6. Undertakings that are not included among
others from those which the obligor may select.
Note: Impairment need not be total. If
impairment is without the fault of the debtor, he When notice produces effect
shall retain the right. The choice shall produce effect only upon
communication of the choice to the other party
4. He Violates any undertaking, in consideration of (CIVIL CODE, Art. 1201).
which the creditor agreed to the period (i.e. if an
employee commits a substantial breach of his Notice of selection may be in any form provided that
employment contract, the employer may it is sufficient to make the other party know that the
terminate the employment). election has been made. It may be:
5. He attempts to Abscond. 1. Orally;
It is not essential that there be actual 2. In Writing; or
absconding (CIVIL CODE, Art. 1197). 3. Tacitly
6. If the guaranty or security Disappears through a. Performance by the debtor who has the
any cause, even without the fault of the debtor right to choose or in the acceptance of a
(JURADO, Obligations and Contracts, supra at prestation by the creditor when he has a
165). right of selection.
b. When the creditor sues the debtor for the
When obligations comprehend several objects it performance of one of the prestation.
may be:
1. Conjunctive – when all the objects or A person alternatively bound by different prestations
prestations are demandable at the same time; or shall completely perform one of them (CIVIL CODE,
2. Distributive – when only one is demandable. It Art 1199, Par. 1).
may either be alternative or facultative.
Limitation: The creditor cannot be compelled to
Alternative Obligation receive part of one and part of the other undertaking
It is one where out of two or more prestations which (CIVIL CODE, Art. 1199, Par. 2).
may be given, only one is due.
Effect of Notice of Choice:
A person alternatively bound by different prestations 1. Limits the obligation to the object or prestation
shall completely perform one of them (CIVIL CODE, selected with all the consequences which the
Art 1199, Par. 1). law provided;
Limitation: The creditor cannot be compelled to 2. The obligation is converted to a simple
receive part of one and part of the other undertaking obligation to perform the prestation chosen;
(CIVIL CODE, Art. 1199, Par. 2). 3. Once the selection has been communicated, it
becomes irrevocable.
Right of Choice in Alternative Obligations (CIVIL
CODE, Art. 1200) Note: The law does not require the other party to
General Rule: Right of choice belongs to the consent to the choice made by the party entitled to
debtor. choose unless the debtor has chosen a prestation
which could not have been the object of the
Exceptions: obligation and the creditor consents thereto which
1. Expressly granted to the creditor amount to a novation.
2. Expressly granted to third person.

259
The right to choose is not lost by the mere fact that 2. Debtor’s fault
the party entitled to choose delays in making his a. All are lost – creditor shall have a right to
selection. indemnity for damages based on the value
of the last thing which disappeared or
In case the person entitled to choose, does not service which become impossible
make his selection, the other party can ask the court b. Some but not all are lost – deliver that which
rd
for a 3 party to choose. he shall choose from among the remainder
without damages
Effect of Loss or Impossibility of One or All c. Only one – deliver that which remains
Prestations
The debtor shall lose the right of choice, when When Choice Belongs to Creditor:
among the prestations whereby he is alternatively 1. Due to Fortuitous Event
bound, only one is practicable (CIVIL CODE, Art. a. All are lost – debtor is released from the
1202). obligation
b. Some but not all are lost – deliver that which
Note: The obligation then is converted to a simple he shall choose from among the remainder
and pure obligation. c. Only one remains – deliver that which
remains
If the debtor cannot make a choice according to the 2. Debtor’s fault
terms of the obligation through the creditor’s act, the a. All are lost – creditor may claim the
former may rescind the contract with damages price/value of any of them with indemnity for
(CIVIL CODE, Art. 1203). damages
b. Some but not all are lost – creditor may
When creditor is entitled to indemnity for claim any of those subsisting without a right
damages to damages OR price/value of the thing lost
When through the fault of the debtor: with right to damages
1. All the things which are alternatively the object
of the obligation have been lost; or Facultative Obligation
2. Compliance of the obligation has become An obligation wherein only one object or prestation
impossible unless due to fortuitous event (CIVIL has been agreed upon by the parties to the
CODE, Art. 1204). obligation, but which may be complied with by the
delivery of another or the performance of another
Note: The indemnity shall be fixed based on the prestation in substitution (CIVIL CODE, Art. 1206).
value of the last thing which disappeared or that of
the service which last became impossible (CIVIL Article 1201 of the Civil Code can be applied by
CODE, Art. 1204, Par. 2). analogy with respect to the time/moment when the
substitution will take effect.
Damages other than the above-mentioned may also
be awarded (CIVIL CODE, Art. 1204, Par. 3). Communication is necessary to make substitution
effective.
When Alternative Obligation Ceases to be Such
When the choice has been expressly given to the Effect of Loss of Substitute in Facultative
creditor, the obligation shall cease to be alternative Obligation (CIVIL CODE, Art. 1206)
from the day when the selection has been
communicated to the debtor (CIVIL CODE, Art. Loss of the Thing Intended as Substitute
1205, Par. 1). Before substitution is made:
1. If due to bad faith or fraud of obligor – obligor is
Effects of Loss of Objects of Alternative liable
Obligation (CIVIL CODE, Art. 1204-1205) 2. If due to the negligence of the obligor – obligor is
not liable (JURADO, Obligations and Contracts,
When Choice Belongs to Debtor: supra at 175).
1. Due to Fortuitous Event
a. All are lost – debtor is released from the Note: It is submitted that whatever may be the
obligation cause of the loss or deterioration of the thing
b. Some but not all are lost – deliver that which intended as a substitute, such loss or
he shall choose from among the remainder deterioration shall not render the debtor liable
c. Only one remains – deliver that which (supra).
remains

260
After substitution is made: 2. The Law requires solidarity i.e., tort, quasi-
1. The loss or deterioration of the substitute on contracts, liability of principals, accomplices and
account of the obligor’s delay, negligence or accessories of a felony, obligations of devisees
fraud – obligor is liable because once and legatees, bailees in commodatum;
substitution is made, the obligation is converted
into a simple one with the substituted thing as Note: Our law recognizes solidary responsibility
the object of the obligation. for wrongful acts whether they are crimes or
quasi-delicts. A moral wrong cannot be divided
Note: Creditor cannot be compelled to receive into parts; hence the liability for it must be
part of one and part of another undertaking. solidary.
Alternative v. Facultative Obligations 3. Nature of the obligation requires solidarity;

Alternative Facultative 4. When a solidary responsibility is imputed by a
As to the Effect of Fortuitous Loss Final judgment upon several defendants; and
Impossibility of the 5. When a charge or condition is imposed upon
Only the impossibility of heirs or legatees, and the Testament expressly
principal prestation is
all the prestations due makes the charge or condition in solidum.
sufficient to extinguish
without the fault of the
the obligation, even if
debtor extinguished the Principal Effects of Joint Liability:
the substitute is
obligation. 1. Vices of each obligation arising from the
possible.
As to Choice personal defect of a particular debtor or creditor
Right to choose may be Only the debtor can does not affect the obligation or right of the
given to the creditor. choose the substitute. others;
As to Nature 2. Insolvency of one debtor does not make others
Various prestations all Only the principal responsible for his share;
of which constitute prestation constitutes 3. Demand by the creditor on one joint debtor puts
parts of the obligation. the obligation, the him in default, but not the others since the debts
accessory being only a are distinct;
means to facilitate 4. When the creditor interrupts the running of the
payment. prescriptive period by demanding judicially from
As to the Effect of the Nullity of Prestations one, the others are not affected;
Nullity of one of the Nullity of the principal 5. Defenses of one debtor are not necessarily
prestation does not prestation invalidates available to the others.
invalidate the obligation the obligation
which is still in force Note: Even if the parties stipulated in their contract
with respect to those that the obligation of the debtor is solidary, but such
which have no vice. contract was superseded by a judicial decision
declaring the obligation to be merely joint, the said
Joint and Solidary Obligations decision must be enforced in a joint manner
(Oriental Philippines Company v. Abeto, G.R. No. L-
Joint Obligation (Obligación Mancomunada)
4239, October 10, 1934).
The whole obligation is to be paid or fulfilled
proportionately by different debtors or demanded
proportionately by different creditors. Solidary liability is determined by the tenor of the
contract, not by judicial admission by the party.
Solidary Obligation (Obligación Solidaria)
Joint Divisible Obligation
Each one of the debtors is bound to render, and/or
Each creditor can demand only for the payment of
each one of the creditors has a right to demand
entire compliance with the prestation. his proportionate share of the credit; each debtor
can be held liable only for the payment of his
Nature of a Joint/Collective Obligation proportionate share of the debt.
General Rule: Obligation is presumed joint if there
Credit or debt shall be presumed to be divided into
is concurrence of several creditors or of several
as many equal shares as there are creditors or
debtors or of several creditors and debtors in one
and the same obligation (CIVIL CODE, Art. 1207). debtors, the credits or debts considered distinct from
one another subject to the Rules of Court governing
multiplicity of suits (CIVIL CODE, Art. 1208).
Exceptions: (OL-Na-Final-Test)
1. The Obligation expressly states that there is
solidarity (i.e. “jointly and severally”, “individually In case of breach of obligation by one of the debtors,
damages due must be borne by him alone; if there is
and collectively”, “I promise to pay” followed by
the signatures of two or more persons);

261
any defense purely personal to one of the debtors, Interruption of Period of Prescription
he alone can avail himself of such defense. Two Views:
1. The act of one joint creditor beneficial to others,
Note: The co-creditors or co-debtors may regulate as for instance the interruption of period of
their rights or liabilities in their internal relations with prescription, is sufficient since Art. 1209 of the
each other. Civil Code merely provides that the right of
creditors may be prejudiced only by their
Joint Indivisible Obligation collective acts.
Midway between joint and solidary obligations, 2. The act of a joint creditor which would ordinarily
preserving the two characteristics of the joint interrupt the period of prescription would not be
obligation, in that no creditor can do an act valid because the indivisible character of the
prejudicial to others, and no debtor can be made to obligation requires collective action of the
answer for others (CIVIL CODE, Art. 1209). creditors.
Note: Both Justice Jurado and Dr. Tolentino are

Characteristics: inclined with the second view.
1. No creditor can act in representation of the
other; Indivisibility v. Solidarity (NaP-RiB-LI)
Indivisibility Solidarity
Note: If not all of the creditors demand the As to Nature
prestation, the debtor may legally refuse to Refers to the legal tie
deliver to them or he can insist that all the Refers to the prestation or vinculum juris, and
creditors together receive the thing, and if any of that is not capable of consequently to the
them refuses to join the others, the debtor may partial performance. subjects or parties of
deposit the thing by way of consignation. the obligation.
As to Plurality of Subjects
2. No debtor can be compelled to answer for the Exists only if there is
liability of others; Exists even if there is
more than one creditor
only one creditor and
or more than one
Note: If there are two or more debtors, the one debtor.
debtor.
fulfillment of or compliance with the obligation As to the Rights of the Creditor
requires the concurrence of all the debtors, Each creditor cannot Each creditor may
although each for his own share demand more than his demand the entire
share and each debtor prestation and each
In case of insolvency of one of the debtors, the is not bound to pay debtor is bound to pay
others shall not be liable for his shares. To hold more than his share. the entire prestation.
otherwise would destroy the joint character of As to the Effect of Breach
the obligation. Obligation is converted
into indemnity for
Breach of Joint Indivisible Obligation (CIVIL Solidarity remains
damages; indivisibility
CODE, Art. 1224) is terminated
Obligation can be enforced only by proceeding As to the Liability of Debtors
against all of the debtors.
All the debtors are
Only the debtors guilty
liable for the breach of
If anyone of the debtors should fail or refuse to of breach of obligation
the obligations
comply with the obligation, it is converted into one of is liable for damages.
committed by a debtor.
indemnity for damages.
As to the Effect of the Insolvency of the
Debtors who may have been ready to comply with
Debtors
what is incumbent upon them shall not contribute to
the indemnity beyond the corresponding portion of All debtors are
Other debtors are not
proportionately liable
the price of the thing or the value of the service in liable if one debtor is
for the insolvency of
which the obligation consists. insolvent.
one debtor.
The debtor who failed or refused to comply with the (CIVIL CODE, Art. 1210)
prestation shall bear the burden of paying all of the
damages to the creditor/s and shall indemnify the In case of non-performance by the debtors, the
other debtors for damages suffered as a result of the obligation to pay the damages arises. With respect
transformation of the obligation into one of to the damages, the prestation becomes divisible
indemnity. and each creditor can recover separately.

262
The debtors who may have been ready to fulfill or Solidarity v. Surety (fiador in solidum) (LEx-REx)
perform what was incumbent upon them shall not Passive Solidary Surety (Solidary
contribute to the indemnity beyond the Debtor Guarantor)
corresponding portion of the price of the thing or the As to Liability
value of the service in which the obligation consists Both are solidarily liable to the creditor for the
(CIVIL CODE, Art. 1224). payment of the entire obligation
As to the Extent of the Liability
Solidarity Liable not only for the
Solidarity may exist although creditors and debtors payment of the debt of
may not be bound in the same manner and by the another, but also for Liable only for the debt
same periods and conditions (CIVIL CODE, Art. the payment of a debt of another
1211). which is properly his
own
Kinds of Solidarity: (PUS) As to the Right of Reimbursement
1. As to Parties bound Has a right to demand Acquires a right of
a. Active – solidarity on the part of the reimbursement from reimbursement from
creditors, where any one of them can his co-debtors of their the principal debtor of
demand the fulfillment of the entire shares, if he pays the the entire amount he
obligation. entire amount of the has paid.
obligation .
Effect: Mutual representation among the As to the Effect of the Extension of Time
solidary creditors with powers to exercise An extension of time
the rights of others in the same manner as granted by the creditor
their rights. An extension of time
to one of the solidary
granted by the creditor
debtors without the
b. Passive – solidarity on the part of the knowledge of the other
to the principal debtor
debtors, where any one of them can be would release the
solidary debtors would
made liable for the fulfillment of the entire surety from the
not have the effect of
obligation. obligation
releasing the latter
from obligation.
Effect: Mutual guaranty relationship is
created Effects of Prejudicial and Beneficial Acts:
1. Each one of the solidary creditors may do
c. Mixed – solidarity on the part of the debtors
whatever may be useful or beneficial to the
and creditors, where each one of the
others, but not anything which may be
debtors is liable to render, and each one of
prejudicial to the latter.
the creditors has a right to demand, entire 2. As far as the debtor/s is/are concerned, a
compliance with the obligation. prejudicial act performed by a solidary creditor is
2. As to Uniformity
valid and binding; as between the solidary
a. Uniform – parties are bound by the same
creditors, the creditor who performed such act
stipulations.
shall incur the obligation of indemnifying the
b. Non-uniform or Varied – parties are not others for damages (CIVIL CODE, Art. 1212).
subject to the same stipulations.
3. As to Source
Reason: Art. 1212 of the Civil Code must be
a. Legal – imposed by law
harmonized with Art. 1215 of the Civil Code
b. Conventional – agreed upon by the
expressly recognizes the effectiveness of acts of
parties
extinguishment by a solidary creditor.
c. Real – imposed by the nature of the
obligation Effects of Assignment of Rights in Solidary
Obligations
Effect: Creditor can commence an action
General Rule: A solidary creditor cannot assign his
against anyone of the debtors for compliance right as it is predicated upon mutual confidence, i.e.,
with the entire obligation minus the portion or
personal qualification of each creditor had been
share which corresponds to the debtor affected taken into consideration (CIVIL CODE, Art. 1213).
by the condition or period.
Exceptions:
1. Assignment to a co-creditor
2. Assignment is with consent of co-creditor

263
To Whom Payment Made in Solidary Obligation liable to the other creditors for the share which
General Rule: Payment may be made to any of the corresponds to them in the obligation (JURADO,
solidary creditors (CIVIL CODE, Art. 1214). Obligations and Contracts, supra at 198).
Exception: If demand, judicial or extra-judicial, has Compensation and Confusion

been made by one of them, payment should be 1. If partial, rules on application of payment shall
made to him (CIVIL CODE, Art. 1214). apply, without prejudice to the right of other
creditors who have not caused the confusion or
Reason: When one creditor makes an extrajudicial compensation to be reimbursed to the extent
or judicial demand for payment, the tacit that their rights are diminished or affected;
representation by the other creditors is considered 2. If total, obligation extinguished, what is left is
revoked and during the pendency of the action, the the ensuing liability for reimbursement within
creditors who did not sue lose their representation of each group – the creditor causing the confusion
the others. or compensation is obliged to reimburse the
other creditors; the debtors benefited by the
As to the Effect of Res Judicata to the Other extinguishment of the obligation are obliged to
Creditors reimburse the debtor who made the confusion or
Under Article 1214 of the Civil Code, once an action compensation possible (JURADO, Obligations
is filed by a solidary creditor he represents all the and Contracts, supra at 199).
others and payment can be made only to him. If the
filing of the action consolidates in the plaintiff Remission
creditor all the rights of the other co-creditors, the 1. If entire obligation, obligation is totally
latter must benefit from the favorable results and extinguished but the solidary debtor who
suffer from the adverse consequences of such obtained it does not entitle him to
action. reimbursement from his co-debtors;
However the other creditors will not be adversely Reason: Said debtor gives or loses nothing
affected, if the judgment is based on a cause
personal to the plaintiff in the first action (4 2. If for the benefit of one of the debtors covering
TOLENTINO, supra at 242). his entire share, he is completely released from
the creditor/s;
Effect of Novation, Compensation, Confusion, 3. If for the benefit of one of the debtors and it
and Remission in Solidary Obligations covers only part of his share, his character as a
solidary debtor is not affected.
Novation 4. If there is total or partial remission, creditor/s
1. If prejudicial, the solidary creditor who effected responsible for the remission are liable to
the novation shall reimburse the others for reimburse others for the share in the obligation
damages incurred by them; corresponding to them.
2. If beneficial and the creditor who effected the 5. If there is total or partial remission and if the
novation is able to secure performance of the creditor/s proceed against any one of the
obligation, such creditor shall be liable to the solidary debtors for the payment of the entire
others for the share which corresponds to them, obligation, such debtor can always avail himself
not only in the obligation, but also in the of the defense of partial remission (supra at 199-
benefits; 200).
3. If effected by substituting another person in
place of the debtor, the solidary creditor who The above rules cannot be applied in case the debt
effected the novation is liable for the acts of the has been totally paid by anyone of the solidary
new debtor in case there is deficiency in debtors before the remission was effected (CIVIL
performance or in case damages are incurred CODE, Art. 1219).
by the other solidary creditors as a result of the
substitution; Effect of Death of Principal Debtor
4. If effected by subrogating a third person in the Under the law and jurisprudence, the creditor may
rights of the solidary creditor responsible for the sue, separately or together, the principal debtor and
novation, the obligation of the debtor or creditors the surety, in view of the solidary nature of their
is not in reality extinguished; the relation liability. The death of the principal debtor will not
between the other creditors not substituted and work to convert, decrease or nullify the substantive
the debtor/s is maintained; right of the solidary creditor. Evidently, despite the
5. If the novation is effected by subrogating a third death of the principal debtor, the creditor may still
person in the rights of all the solidary creditors, sue the surety alone in accordance with the solidary
the creditor responsible for such novation is nature of the latter’s liability under the performance

264
bond (Stronghold Insurance Co. v. Republic – Asahi Reason: The right of the paying co-debtor to be
Glass Corp., G.R. No. 147561, June 22, 2006). reimbursed is not based on the original obligation
but upon the payment made by him.
Effect of Payment to a Creditor
If one of the solidary creditors is able to collect the No reimbursement if payment is made after the
entire amount of the debt from one or some or all of obligation has prescribed or has become illegal
the solidary debtors, the obligation is totally (CIVIL CODE, Art. 1218).
extinguished, although there arises a consequent
obligation on his part to render an account to his co- The share of the insolvent solidary debtor shall be
creditors (CIVIL CODE, Art.1215, Par. 2). borne by all his co-debtors, in proportion to the debt
of each (CIVIL CODE, Art. 1217).
Effect of Demand upon a Solidary Debtor
The demand made against one of them shall not be Computation of Interest
an obstacle to those which may subsequently be Two Views:
directed against the others so long as the debt has 1. From the time payment was made; or
not been fully collected (CIVIL CODE, Art. 1216). 2. From the time the debt became due.
The creditor may proceed against any one of the Effect of Loss or Impossibility of Performance in
solidary debtors or against all of them Solidary Obligation:
simultaneously (CIVIL CODE, Art. 1216). 1. If it is not due to the fault and before delay of the
solidary debtors, the obligation is extinguished
A creditor’s right to proceed against the surety exists (CIVIL CODE, 1221 par. 1).
independently of his right to proceed against the 2. If the loss or impossibility is due to the fault of
principal (Palmares v. CA, G.R. No. 126490, March one of the solidary debtors (CIVIL CODE, 1221,
31, 1998). par. 2) or due to a fortuitous event after one of
the solidary debtors had already incurred in
Because of the unity of the legal tie in solidarity, delay, the obligation is converted into an
although the solidary debtors may be individually obligation of indemnity for damages but the
distinct from each other, they constitute legally one solidary character of the obligation remains
and the same party (4 TOLENTINO, supra at 243). (CIVIL CODE, 1221, par. 3).
Note: If a claim from one of the solidary debtors has Defenses Available to a Solidary Debtor: (NP-
been dismissed by a court on grounds other than ShOt)
the extinguishment of the whole obligation or that 1. Defenses derived from the Nature of the
the claim has prescribed, it does not necessarily obligation – total defense; all the solidary co-
mean that the solidary indebtedness cannot be debtors are benefited.
claimed against the other solidary debtors who were
not impleaded in the case or against those who Illustration: Payment or performance, res
were impleaded but whose liability was found by the judicata, prescription, those that causes defects
court as proper (Inciong v. CA, G.R. No. 96405, in the contracts and others of similar nature
June 26, 1996).
2. Defenses Personal to him – constitutes total
Effect of Payment by a Debtor defense and partial defense.
Payment made by one of the solidary debtors either
totally or partially extinguishes the obligation Illustration of Total Defense: Minority, insanity,
depending upon whether the entire amount of debt and other defenses that causes the annulment
is paid or only a part thereof (CIVIL CODE, Art. of consent
1217, Par. 1)
Illustration of Partial Defense: Special terms
If two or more solidary debtors offer to pay, the or conditions affecting his part of the obligation
creditor may choose which offer to accept (CIVIL
CODE, Art. 1217, Par. 1) 3. Defenses pertaining to his own Share –
constitutes a partial defense; only the debtor is
Solidary debtor who made the payment merely benefited.
entitles him to claim from his co-debtors the share
which corresponds to them with interest from the Illustration: Share of debtor is not yet due, the
time of payment; does not create a real case of creditor can only compel the share of other co-
subrogation; if payment was made before the debt is debtors
due, no interest for the intervening period may be
demanded (CIVIL CODE, Art. 1217, Par. 2).

265
4. Defenses personal to the Others, but only as In obligations not to do, it depends upon the
regards that part of the debt for which the latter character of the prestation in each particular case
are responsible – constitutes partial defense (CIVIL CODE, Art. 1225, Par. 4).
only for the debtor-defendant (CIVIL CODE, Art.
1222) Effect of Divisible or Indivisible Obligation
Divisibility/indivisibility is of little significance as
Illustration: The co-debtor’s share is not yet implied under Article 1223 of the Civil Code.
due, so the creditor can only compel the debtor
to give his share. General Rule: Creditor cannot be compelled
partially to receive the prestation in which the
Divisible Obligations obligation consists; neither may the debtor be
Those which have as their object a prestation which required to make partial payments.
is susceptible of partial performance without the
essence of obligation changed. Exceptions:
1. When the obligation expressly stipulates the
Indivisible Obligations contrary;
Those which have as their object a prestation which 2. When the different prestations constituting the
is not susceptible of partial performance, otherwise, objects of the obligation are subject to different
the essence of the obligation will be changed. terms and conditions; and
3. When the obligation is in part liquidated and in
Three Kinds of Division: part unliquidated (JURADO, Obligations and
1. Quantitative – the thing can be materially Contracts, supra at 214).
divided into parts and such parts are
homogenous to each other. Whether a contract is entire or severable depends in
a. Movable – parts are actually separated general upon the consideration to be paid, not upon
from each other. its object. If the consideration is single, the contract
b. Immovable – the limits of the parts are fixed is entire, but if the consideration is expressly or by
by metes and bounds. implication apportioned, as when the part to be
2. Qualitative – the thing can be materially divided performed by one party consists in several and
but the parts are not exactly homogenous (e.g., distinct items, and the price is apportioned to each
inheritance) of them, the contract is severable.
3. Ideal/Intellectual – the thing cannot be
separated into material parts (e.g., co- Note: When there is plurality of debtors and
ownership) creditors, the effect of divisible /indivisible character
of the obligation depends on whether the obligation
Test of Divisibility: Whether the prestation is is joint or solidary:
susceptible of partial performance or not (CIVIL 1. If solidary – Civil Code, Art. 1211 to Art. 1222
CODE, CIVIL CODE, Art. 1225, Par. 1). apply;
2. If joint divisible – Civil Code, Art. 1208 is
The susceptibility of partial compliance should be applicable; and
understood in the sense of the possibility of realizing 3. If joint indivisible – Civil Code, Art. 1209 and
the end or purpose which the obligation seeks to 1224 apply
attain (Sanchez Roman).
Breach of Joint Indivisible Obligation (CIVIL
In obligations to give, even though the object may CODE, Art. 1224)
be physically divisible, the obligation is still
indivisible if it is provided by law or it is so intended See previous discussion on joint indivisible
by the parties (CIVIL CODE, Art. 1225, Par. 3). obligation.
In obligations to do, the obligation shall be Obligation With a Penal Clause

considered divisible when it has for its object (CIVIL An obligation to which an accessory undertaking
CODE, Art. 1225, Par. 3): (penal clause/ penalty) is attached for the purpose of
1. The execution of a certain number of days of insuring its performance by virtue of which the
work obligor is bound to pay a stipulated indemnity or
2. The accomplishment of work by metrical units perform a stipulated prestation in case of breach.
3. The accomplishment of analogous things which
by their nature are susceptible of partial
performance.

266
Penal Clause v. Condition As against an Alternative Obligation
Penal Clause Condition Obligation with a
Alternative Obligation
As to Whether it Constitutes an Obligation Penal Clause
Constitutes an Does not constitute an As to Number of Prestations
obligation obligation There is only one Two or more
As to Demandability prestation. obligations are due.
May become As to Effect of Impossibility
demandable upon The impossibility of
default of the Impossibility of the one, without the fault of
Never demandable
unperformed obligation principal extinguishes the debtor, leaves the
and sometimes jointly also the penalty. other subsisting.
with it
As to Choice of the Debtor
Purpose of Penalty: in Fulfilling Obligation
1. Función coercitiva o de garantia – to insure the The obligor cannot
performance of the obligation; choose to pay the
2. Función liquidatoria – to liquidate the amount of penalty to relieve Debtor can choose
damages to be awarded in case of breach of the himself of the principal, which prestation to
principal obligation (compensatory); and unless this right is fulfill.
3. Función estrictamente penal – in certain expressly granted to
exceptional cases, to punish the obligor in case him.
of breach of the principal obligation (punitive).
Does not resolve the question of damages As against a Facultative Obligation
Obligation with a
A penal clause is attached to an obligation in order Facultative Obligation
Penal Clause
to insure performance and has a double function: (1) As to Substitution
to provide for liquidated damages, and (2) to Payment of the penalty
strengthen the coercive force of the obligation by the in lieu of the principal Power of the debtor to
threat of greater responsibility in the event of breach obligation can be made make the substitution is
(Filinvest Land, Inc., v. CA, G.R. No. 138980, only by express absolute.
September 20, 2005). stipulation.
As to Demand
Kinds of Penalty:
The creditor can The creditor can never
1. As to Origin demand both demand both
a. Legal – constituted by law prestations. prestations .
b. Conventional – constituted by parties
2. As to Purpose
As against a Guaranty
a. Compensatory or Reparatory – indemnity
Obligation with a
for damages Guaranty
Penal Clause
b. Punitive – punishment for breach
As to Similarity in Obligations
3. As to Effect
a. Subsidiary – only penalty may be demanded Object of the
Obligation to pay the
b. Joint or Complementary – both penalty and obligations of the
penalty is different from
principal obligation may be demanded principal debtor and the
the principal obligation
guarantor is the same
Obligations With a Penal Clause Distinguished As to Assumption
from Other Obligations of the Principal Obligation
Principal obligation and
Principal debtor cannot
As against a Conditional Obligation the penalty can be
be the guarantor of the
Obligation with a Conditional assumed by the same
same obligation
Penal Clause Obligation person
As to Existence of Obligation As to Extinguishment
There is already an No obligation before the Guaranty subsists even
As a rule, penalty is
existing obligation from suspensive condition when the principal
extinguished by the
the very beginning. happens. obligation is voidable,
nullity of the principal
As to Dependency on Principal Obligation unenforceable or a
obligation
natural one
Penalty is dependent
Principal obligation
upon the non-
itself is dependent upon
performance of the
the uncertain event.
principal obligation.

267
Effect of Penalty (CIVIL CODE, Art. 1226, Par. 1) stated in Article 1226 of the Civil Code and not to
General Rule: The penalty shall substitute the the exceptions.
indemnity for damages and payment of interest in
case of noncompliance Penalty is exactly identical with what is known as
“liquidated damages” under Civil Code, Art. 2226.
Exceptions:
1. When there is a stipulation to the contrary; When Penalty May be Reduced (CIVIL CODE, Art.
2. When the obligor refuses to pay the penalty; and 1229):
3. When the obligor is guilty of fraud 1. If the principal obligation has been partly
complied with;
Note: See CIVIL CODE, Art. 1170 2. If the principal obligation has been irregularly
complied with; and
Enforceability of Penalty (CIVIL CODE, Art. 1226, 3. If the penalty is iniquitous or unconscionable
Par. 2) even if there has been no performance.
Penalty, as a stipulation in a contract, is
demandable only if there is a breach of the The power of a judge to reduce the penalty refers
obligation, and it is not contrary to law, morals, good only to penalties prescribed in contracts.
customs, public order or public policy (CIVIL CODE,
Art. 1306). Effect of Nullity of Obligation or Penalty (CIVIL
CODE, Art. 1230)
Where both of the contracting parties are unable to If principal obligation is void, penal clause shall also
comply with their respective obligations, although be void because the penalty is merely an accessory
the breach is not willful or culpable, the penal clause obligation. But if penal clause is void, principal
cannot be invoked by anyone of them to the obligation is not affected.
prejudice of the other (JURADO, Obligations and
Contracts, supra at 224).
E XTINGUISHMENT OF
Limitation upon the Right of the Debtor in
Obligations with a Penal Clause (CIVIL CODE,
O BLIGATIONS
Art. 1227)
General Rule: Debtor cannot exempt himself from Extinguishment of Obligations (CIVIL CODE, Art.
the performance of the principal obligation by paying 1231): (NoCoMeRe-PaLo-PreRe-FulAn)
the stipulated penalty 1. Novation
2. Compensation
Exception: Unless this right has been clearly and 3. Confusion or Merger
expressly granted to him. 4. Rescission
5. Payment or Performance
Limitations on the Right of the Creditor in 6. Loss of the thing due
Obligations with a Penal Clause (CIVIL CODE, 7. Prescription
Art. 1227) 8. Remission or Condonation
General Rule: Creditor cannot demand the 9. Fulfillment of a resolutory condition
fulfillment of the principal obligation and demand the 10. Annulment
satisfaction of the penalty at the same time.
Note: Enumeration under Art. 1231 is NOT
Exception: Unless the right has been clearly exclusive.
granted to him
Other Forms of Extinguishment Not Under Art.
If creditor has chosen fulfillment of the principal 1231: (FC-MAID)
obligation and performance thereof became 1. Fortuitous event
impossible without his fault, he may still demand 2. Compromise
satisfaction of the penalty. 3. Mutual desistance or withdrawal
4. Arrival of resolutory period
If there was fault on the part of debtor, creditor may 5. Impossibility of fulfillment of condition
demand not only satisfaction of penalty but also the 6. Death (for personal or intransmissible obligation)
payment of damages. (JURADO, Obligations and Contracts, supra at
230).
Proof of Actual Damages (CIVIL CODE, Art. 1228)
The rule that proof of actual damages is not
necessary; it is applicable only to the general rule

268
Payment or Performance Exceptions:
Not only the delivery of money but also the 1. When the obligation has been substantially
performance, in any other manner, of an obligation performed in good faith, the obligor may recover
(CIVIL CODE, Art. 1232). as though there had been a strict and complete
fulfillment, less damages suffered by the
Fulfillment of the prestation due. A fulfillment that obligee (CIVIL CODE, Art. 1234); and
extinguishes the obligation by the realization of the 2. When the obligee accepts performance,
purposes for which it was constituted. knowing its incompleteness or irregularity and
without expressing any protest or objection;
Juridical act which is voluntary, licit and made with based on the principle of estoppel (CIVIL CODE,
the intent to extinguish the obligation (JURADO, Art. 1235).
Obligations and Contracts, supra at 231).
Who Must Pay
Burden of Proving Payment In general:
When the existence of a debt is fully established by 1. Debtor;
the evidence, the settled rule is that the burden of 2. Anyone acting on the debtor’s behalf;
proving extinguishment by payment devolves upon a. Duly authorized agent or legal
the debtor who pleads payment or offers such a representative;
defense to the claim of the creditor rather than on b. He’s (provided that the debtor is already
the latter to prove non-payment. The debtor has the dead for otherwise they are considered as
burden of showing with legal certainty that the third persons interested in the obligation);
obligation has been discharged by payment. Only and
when the debtor introduces evidence that the c. Successors-in-interest and
obligation has been extinguished does the burden assignees(JURADO, Obligations and
shift to the creditor (Cham v. Paita-Moya, A.C. No. Contracts, supra at 239)
7494, June 27, 2008).
Third Person Who is an Interested Party
Requisites of Payment: Interested Party
1. Payor or the person who pays; One who has an interest in the extinguishment of
2. Payee or the person to whom payment is made; the obligation such as:
3. Thing to be paid; and 1. Co-debtors;
4. Manner, time, and place of payment (4 2. Sureties;
TOLENTINO, supra at 274). 3. Guarantors; and
4. Owners of mortgages property or pledge
Kinds of Payment:
1. Normal – when the debtor voluntarily performs Note: Even without the knowledge of the debtor, a
the prestation as agreed upon. person interested in the fulfillment of the obligation
2. Abnormal – when debtor is forced by means of a can pay (CIVIL CODE, Art. 1302, Par. 3).
judicial proceeding either to comply with the
prestation or pay indemnity. Note: The creditor cannot refuse valid tender of
payment from the abovementioned individuals
Characteristic of a Valid Payment (ICI): (Monte de Piedad v. Rodrigo, G.R. No. L-42928,
1. Identity – only the prestation agreed upon and August 18, 1936).
no other must be complied with
2. Completeness – the thing or service must be Effects of Payment:
completely delivered or rendered 1. The obligation is extinguished;
3. Indivisibility – payment or performance must be 2. The debtor is to fully reimburse the third person
indivisible. who is an interested party; and
3. The third person interested is subrogated to the
Note: As a general rule, the above characteristics rights of the creditor.
must concur.
Third Person who is NOT an Interested Party but
Principle of Integrity (CIVIL CODE, Art. 1233) with Debtor’s Consent
General Rule: A debt shall not be understood to General Rule: The creditor is not bound to accept
have been paid unless the thing or service in which payment or performance by a third person who has
the obligation consists has been completely no interest in the fulfillment of the obligation (CIVIL
delivered or rendered, as the case may be. CODE, Art. 1236, Par. 1).
Exception: Unless there is a stipulation to the

contrary.

269
Effects of Payment: Effect of Payment to Unauthorized Persons in
1. Third person is entitled to full reimbursement. Obligation to Give:
2. There is legal subrogation as the third person, General Rule: It shall not be valid, even though
i.e. steps into the shoes of the creditor. made in good faith.
Note: The creditor may refuse to accept payment. Exceptions:

1. Payment made to a third person, provided that it
Third Person who is NOT an Interested Party has redounded to the benefit of the creditor.
AND Without Knowledge or Against the Will of
the Debtor Benefit to the creditor is presumed in the
General Rule: Whoever pays for another may following cases (CIVIL CODE, Art. 1241): (RES)
demand from the debtor what he has paid (CIVIL a. If the creditor ratifies the payment to the
CODE, Art. 1236, Par. 2). third person (Ratification);
b. If by the creditor’s conduct, the debtor has
Exception: If payment was made without the been led to believe that the third person had
knowledge or against the will of the debtor. authority to receive the payment (Estoppel);
c. If after the payment, the third person
In such case, he can only recover insofar as the acquires the creditor’s rights (Subrogation);
payment has been beneficial to the debtor. 2. Payment to the possessor of the credit, made in
good faith (CIVIL CODE , Art. 1242)
Effect of Payment:
Third person can only be reimbursed insofar as This refers to the possession of credit not the
payment has been beneficial to the debtor. document evidencing it.
Benefit to the creditor is presumed in the following Note: In obligations to give, payment to
cases (CIVIL CODE, Art. 1241, Par. 2): (RES) incapacitated person is valid when:
a. If the creditor ratifies the payment to the third a. The incapacitated has kept the amount or
person (Ratification); thing paid or delivered; or
b. If by the creditor’s conduct, the debtor has been b. Payment has been beneficial to the
led to believe that the third person had authority incapacitated person (CIVIL CODE, Art.
to receive the payment (Estoppel); 1241, Par. 1).
c. If after the payment, the third person acquires
the creditor’s rights (Subrogation). Payment made to the creditor by the debtor after
the latter has been judicially ordered to retain
Art. 1237 states that whoever pays on behalf of the debt shall not be valid (CIVIL CODE, Art.
the debtor without the knowledge or against the 1243); unless otherwise stipulated, extrajudicial
will of the latter, cannot compel the creditor to expenses required by the payment shall be for
subrogate him in his rights. the account of the debtor (CIVIL CODE, Art.
1247).
Payment Made by a Third Person Who Does Not
Intend to be Reimbursed by the Debtor Thing to be Paid
Rule in Monetary Obligations (CIVIL CODE, Art.
Effects of Payment: 1249)
1. Presumed to be a donation. Therefore, the 1. Must be made in the currency stipulated; if it is
consent of the debtor is necessary, as in the not possible to deliver such currency, then in the
case of a donee in ordinary donations; currency which is legal tender in the Philippines.
2. Once the consent is secured, the rules on 2. Delivery of promissory notes payable to order or
ordinary donations will apply; and bills of exchange or other mercantile documents
3. If the consent is not secured, Art. 1236 and shall not produce the effect of payment except:
1237 will apply (JURADO, Obligations and a. When they have been cashed or credited; or
Contracts supra at 238). b. When through the fault of the creditor they
have been impaired.
To Whom Payment Must be Made (CIVIL CODE,
Art. 1240) Note: The impairment of the negotiable instrument
1. The person in whose favor the obligation has through the fault of the creditor contemplated by
been constituted; Article 1249 is applicable only to a document
2. His successor in interest; or executed by a third person and delivered by the
3. Any person authorized to receive it. debtor to the creditor and does not apply to
instruments executed by debtor himself and

270
delivered to the creditor (JURADO, Obligations and 79552, November 29, 1988), this increase,
Contracts, supra at 261). without more, cannot be considered as resulting
in “extraordinary inflation” as to justify the
Pending the cashing of the mercantile document, application of Article 1250 (Telengtan & Sons,
the creditor cannot bring an action against the Inc. v. United States Lines, Inc., G.R. No.
debtor during the intervening period as “the action 132284, February 28, 2006).
derived from the original obligation shall be held in
abeyance” (supra at 253). There must be a declaration of such
extraordinary inflation or deflation by the Bangko
Legal Tender Sentral. Without such declaration, the creditors
Such currency which may be used for the payment cannot demand an increase, and debtors a
of all debts, whether private or public. Its decrease, of what is due to or from them
significance is manifested by the fact that it is such (Ramos v. CA, G.R. No. 119872, July 7, 1997
which the debtor may compel a creditor to accept in and Mobil Oil Phils. v. CA, G.R. No. 103072,
payment of the debt (supra at 251). August 20, 1993).
Legal tender in the Philippines would be all notes Rule when the Obligation Consists in the
and coins issued by the Bangko Sentral (Circular Delivery of a Determinate or Specific Thing
No. 537, series of 2006): Debtor cannot fulfill his obligation by delivering a
1. P1, P5, P10 coins: in amounts not exceeding thing which is a different one, although the latter
P1,000.00 maybe of the same value as, or more valuable than
2. 25 centavo (P0.25) coin or less: in amounts not that which is due (CIVIL CODE, Art. 1244, Par. 1).
exceeding P100.00
Rule when the Obligation is to Do or Not to Do
Take note that bills, regardless of denomination, are and the Object is an Act or Forbearance which is
legal tender up to whatever amount. Specific or Determinate
Obligor cannot fulfill his obligation by substituting
R.A. 8183 provides that all monetary obligations another act or forbearance against the obligee’s will
shall be settled in the Philippine currency which is (CIVIL CODE, Art. 1244, par.2).
legal tender in the Philippines. However, the parties
may agree that the obligation or transaction shall be Rules when the Obligation Consists in the
settled in any other currency at the time of payment Delivery of Indeterminate or Generic Things
(R.A. 8183, Sec. 1). If contract does not specify the quality and
circumstances:
Extraordinary Inflation or Deflation (CIVIL CODE, 1. Creditor cannot demand a thing of superior
Art. 1250) quality (but he may demand and accept one of
inferior quality)
Requisites: 2. Debtor cannot deliver a thing of inferior quality,
1. There must be a decrease or increase in the but if he so desires, he may deliver one of
purchasing power of the currency which is superior quality (provided it is not of a different
unusual or beyond the common fluctuation in kind) (CIVIL CODE, Art. 1246).
the value of the currency; and
2. Such decrease or increase could not have been Note: The creditor cannot be compelled partially to
reasonably foreseen or which was manifestly receive the prestations in which the obligation
beyond the contemplation of the parties at the consists. Neither may the debtor be required to
time the obligation was established. make partial payments (CIVIL CODE, Art. 1248,
Par. 1).
Note: Art. 1250 mentions “in the currency
stipulated.” Thus, it applies only to contractual Exceptions:
obligations. 1. When the obligation expressly stipulates the
contrary;
The value of currency at the time of the 2. When the different prestations which constitute
establishment of the obligation shall be the basis the objects of the obligation are subject to
of payment. The law does not say it should be different terms and conditions; or
the amount paid (JURADO, Obligations and 3. When the debt is in part liquidated and in part
Contracts, supra at 263). unliquidated, the creditor may demand and the
debtor may effect the payment of the former
Note: Even if the price index of the goods and without waiting for the liquidation of the latter
services may have risen during the intervening (CIVIL CODE, Art. 1248, Par. 2).
period (Sangrador v. Valderrama, G.R. No.

271
Art. 1248 only applies when there is only one nonfulfillment (JURADO, Obligations and
creditor and one debtor. Contracts, supra at 270).
Place of Payment 3. All the debts must be due; and

1. Place stipulated by the parties;
2. If there is no stipulation and the obligation is to Exceptions:
deliver a determinate thing, payment shall be a. When there is a stipulation to the contrary
made at the place where the thing might be at b. The application of payment is made by the
the time the obligation was constituted; or party for whose benefit the term or period
3. In any other case, the payment shall be made at has been constituted (CIVIL CODE, Art.
the domicile of the debtor (CIVIL CODE, Art. 1196)
1251).
4. Amount paid by the debtor is insufficient to
Note: If the debtor changes his domicile in bad faith cover the total amount of all the debts
or after he has incurred in delay, the additional (JURADO, Obligations and Contracts, supra at
expenses shall be borne by him (CIVIL CODE, Art. 268).
1251).
Rules on Application of Payment
Art. 1251 governs unilateral obligations. Reciprocal General Rule: The right to designate the debt to
obligations are governed by special rules. which the payment shall be applied belongs
primarily to the debtor (JURADO, Obligations and
SPECIAL FORMS OF PAYMENT Contracts, supra at 270).
Application of Payment (CIVIL CODE, Art. 1252)
Designation of the debt to which the payment must The right is only available to the debtor at the time
be applied when the debtor has several obligations when payment is made (supra).
of the same kind in favor of the same creditor.
Exception: If the debtor does not apply, the creditor
Requisites: may designate which debt is paid by specifying in
1. There must be only one (1) debtor and only one the receipt. Thus, the creditor has the right to
(1) creditor; propose subject to the express or tacit approval of
the debtor (JURADO, Obligations and Contracts,
Under Article 1792, application of payment may supra at 271).
be had even if there are two creditors – the
partnership and the managing partner Legal Application of Payment (CIVIL CODE, Art.
(JURADO, Obligations and Contracts, supra at 1254)
265), but the law allows such application in favor The debt which is more onerous to the debtor,
of the managing partner only if the personal among those due, shall be deemed to have been
credit of the partner should be more onerous to satisfied.
him.
The rule applies:
Neither the requirement that there must be only 1. When the payment cannot be applied in
one debtor militates against the possibility of accordance with the preceding rules; or
extending the rules on application of payment to 2. If the application cannot be inferred from the
solidary obligations. The solidary debtor who circumstances (JURADO, Obligations and
paid may have other obligations in favor of the Contracts, supra at 272-273).
creditor.
Reason for rule on the most onerous debt in
2. There must be two (2) or more debts of the application of payments
same kind; In making the application of payments, the law
considers particularly the interest of the debtor. It is
It is also essential that each of the debt must be assumed that if the debtor had chosen the debt to
identical or homogenous specie (JURADO, be paid, he would have relieved himself first of the
Obligations and Contracts, supra at 270). most burdensome debt.
Exception: When some of the obligations are Which is More Onerous:

not identical specie at the time of their 1. Oldest debts are more onerous than more
constitution, and at the time of designation or recent ones;
application is made, such obligations had 2. Interest bearing debts are more onerous than
already been converted into obligations to those which do not, even if the latter were
indemnify with damages by reason of breach or incurred at an earlier date;

272
3. Between interest bearing debts, the debt with a original obligation, and the delivery is a mere
higher rate of interest is more onerous; performance of the obligation (4 TOLENTINO,
4. A secured debt is more onerous than that which supra at 294).
is not;
5. A debt in which the debtor is principally bound is Thus, if the creditor is evicted from the thing
more onerous than that which he is merely a given in dation in payment, the original
guarantor or surety; obligation is not revived.
6. A debt in which he is solidarily bound is more
onerous than that which he is only a sole debtor; It is submitted that the question of whether the
7. Within a solidary obligation, the share which pre-existing obligation in dation in payment is in
corresponds to a solidary debtor would be most money has significance only in determining
onerous; whether the resulting contract is that of sale and
8. An obligation for indemnity is more onerous than not whether the original obligation has been
that which is by way of penalty; or extinguished.
9. Liquidated debts are more onerous than
unliquidated ones (JURADO, Obligations and 2. Alienation to the creditor of a property by the
Contracts, supra at 273-274). debtor with the consent of the former; and
3. Satisfaction of the money obligation of the
Note: No hard and fast rule, however, can be put debtor.
up.
Payment by Cession (CIVIL CODE, Art. 1255)
When it is fairly impossible to determine which of the A special form of payment whereby the debtor
debts due is the most onerous or burdensome to the assigns or abandons all of his property for the
debtor, or when the debts due are of the same benefit of his creditors in order that from the
nature and burden, payment shall be applied proceeds thereof, the latter may obtain payment of
proportionately (supra at 274). their credits.
Must conform to the general rules on payment found Requisites (PIA):

under Article 1232-1251 of the Civil Code. 1. Plurality of debts;
2. Partial or relative Insolvency of the debtor; and
Illustration: Applying both rules, should a debtor 3. Acceptance of the cession by the creditors
have two debts of the same nature and burden (JURADO, Obligations and Contracts, supra at
amounting to P100 and P200 and he pays only 275).
P100, the same shall not be applied proportionately
as the creditor cannot be compelled to accept partial Kinds of Payment by Cession:
payment. Consequently, his payment shall be fully 1. Contractual (CIVIL CODE, Art. 1255);
applied to the debt amounting to P100. 2. Judicial (governed by Insolvency Law)
a. Voluntary
Note: If the debt produces interests, payment of the b. Involuntary
principal shall not be deemed to have been made
until the interests have been covered (CIVIL CODE, Dation in Payment v. Payment by Cession
Art. 1253); applies only in the absence of an Dation in Payment Payment By Cession
agreement to the contrary and is merely directory As to Number of Parties
and not mandatory. It means that the benefits of Art. One creditor Plurality of creditors
1253 may be waived by way of stipulation. As to Financial Condition of Parties
Debtor is not necessarily
Dation in Payment (Dacion en pago) Debtor must be partially
in state of financial
Delivery and transmission of ownership of a thing by or relatively insolvent
difficulty
the debtor to the creditor as an accepted equivalent As to Object
of the performance of the obligation. Thing delivered is Universality of property
considered as equivalent of debtor is what is
Requisites: of performance ceded
1. Existence of a money obligation; As to Effect
Take note, however, that it is precisely in Extinguishes obligation
obligations which are not money debts, in which to the extent of the value Merely releases debtor
the true juridical nature of dation in payment of the thing delivered as for net proceeds of
becomes manifest. The fact that there must be a agreed upon, proved or things ceded or
prior agreement of the parties on the delivery of implied from the conduct assigned, unless there is
the thing in lieu of the original prestation shows of the creditor contrary intention
that there is a novation which extinguishes the

273
As to the Extent of Properties Involved applicable (Adelfa Properties, Inc., v. CA, G.R. No.
Does not involve all Involves all the 111238, January 25, 1995).
properties of debtor properties of the debtor
As to the Effect to the Creditor Consignation
Creditor does not Note: Consignation, being a form of payment,
Creditor becomes owner become the owner. presupposes that there must be a debt that must be
of property of debtor Possession is only paid. Tender of payment alone would be sufficient
transmitted. to preserve the right of the redemptioner or the
vendee a retro.
Tender of Payment v. Consignation
Tender of Payment Consignation General Requisites of Consignation (see previous
As to Description discussion in connection with payment in general,
Manifestation of the Deposit of the object of CIVIL CODE, Art.1232-1251)
debtor to the creditor of the obligation in a
his decision to comply competent court in Special Requisites of Consignation (CIVIL CODE,
immediately with his accordance with the Art. 1256-1258):
obligation rules prescribed by law, 1. Existence of a valid debt which is due;
after refusal or inability 2. Tender of payment by the debtor;
of the creditor to accept 3. Creditor’s refusal to accept payment is without
the tender of payment just cause or any of the cases provided in Article
As to the Act Involved 1256, par. 2 exists.
a. Tender must precede consignation;
Preparatory act Principal act
b. It must have been unconditional; and
As to Character
c. Refusal must be without just cause
Extrajudicial in
Judicial in character
character
At the time of deposit, however it is not
necessary for the debtor to show want of cause
for the refusal of the creditor; this fact may be
Tender of Payment
established during the hearing of the case.
Definition: Consists in the manifestation made by
4. Previous notice of consignation to person
the debtor to the creditor of his decision to comply
interested in the fulfillment of the obligation, in
immediately with his obligation (JURADO,
order to give the creditor the opportunity to
reconsider his unjustified refusal and to accept
payment to avoid consignation and the
Tender of payment, even if valid, does not by itself
subsequent litigation.
produce legal payment, unless it is completed by
consignation (Phil. National Bank v. Relativo, G.R.
Lack of previous notice does not invalidate the
No. L-5298, October 29, 1952).
consignation, but simply makes the debtor liable
for the expenses occasioned thereby (4
Effect on Interest: TOLENTINO, supra at 324).
1. When a tender of payment is made in such a
5. Consignation – amount or thing due placed at
form that the creditor could have immediately
the disposal of the court
realized payment if he had accepted the tender,
followed by a prompt attempt of the debtor to This requirement is complied with if the debtor
deposit the means of payment in court by way of deposits the thing or amount with the Clerk of
consignation, the accrual of interest on the
Court. Normally, this requirement is
obligation will be suspended from the date of
accompanied by the filing of the complaint itself
such tender; or (JURADO, Obligations and Contracts, supra at
2. When the tender of payment is not accompanied 283).
by the means of payment, and the debtor did not 6. Subsequent notice of consignation to enable the
take any immediate step to make a creditor to withdraw the goods or money
consignation, then interest is not suspended
deposited.
from the time of such tender (4 TOLENTINO,
supra at 321).
It would be unjust to make the creditor suffer the
risk of deterioration, depreciation or loss of such
Exercise of Right of Repurchase
goods or money by reason of lack of knowledge
In case of exercise of right of repurchase by tender of the consignation (JURADO, Obligations and
of check, such tender is valid because it is an Contracts, supra at 284).
exercise of a right and not made as a mode of
payment of an obligation. Article 1249 is not

274
Note: Since consignation is a special form of A: No. Property deposited with court is exempt
payment, it must conform not only with the from attachment and not subject to execution; it
special requirements prescribed by law, but also is said to be in custodia legis and cannot be
with all the requisites of a valid payment (Id. at withdrawn without an express order from the
279). court.
Instances Where Consignation Shall Produce 2. With consent of the creditor (CIVIL CODE, Art.
the Effects of Payment Without Prior Tender of 1261):
Payment (CIVIL CODE, Art. 1256, Par. 2): a. Creditor loses every preference which he
1. Creditor is absent or unknown, or does not may have over the thing;
appear at the place of payment. b. Solidary co-debtors, guarantors and sureties
Note: Absence need not be judicially declared. are released;
He must however, have no legal representative c. Solidary debtors are released only from their
to accept the payment. solidary liability but not from their shares of
their obligation; and
2. Creditor is incapacitated to receive the payment d. The obligation is revived, but without
at the time it is due. prejudice to other interested parties.
3. When without just cause, the creditor refuses to
give a receipt. Withdrawal by the debtor at this stage is a
matter of privilege (PARAS, Civil Code, supra at
Note: It appears in this case that the refusal to 434).
issue a receipt preceded the tender of payment.
Note: To have the effect of payment, the law
4. When two or more persons claim the same right requires the twin acts of tender of payment and
to collect (as in the case of interpleader). consignation. Tender of payment without
5. When the title of the obligation has been lost. consignation only frees the debtor from the
obligation to pay interest on the outstanding
The list is NOT exclusive. The rule also applies if the amount from the time the unjustified refusal
creditor, prior to the tender of payment, intimated takes place (Go Sinco v. CA, G.R. No. 151903,
that he will not accept the debtor’s payment. October 9, 2009).
Effects of Consignation: Creditor can be held liable for damages under

1. If the creditor accepts the thing or amount Article 19 for unjustified refusal to accept
deposited without contesting the validity or payment (Go Sinco v. CA, G.R. No. 151903,
efficacy of the consignation, the obligation is October 9, 2009).
cancelled/extinguished (CIVIL CODE, Art.
1261). The expenses of consignation, when properly
2. If the creditor contests the validity of the made, shall be charged against the creditor
consignation or if the creditor is not interested or (CIVIL CODE, Art. 1259).
unknown or is absent, the result is litigation. If
during the trial, the plaintiff-debtor is able to Loss of the Thing Due
establish that all the requisites of consignation Effect of Loss in Determinate Obligation to Give
have been complied with, the obligation is Obligation is extinguished (CIVIL CODE, Art. 1262)
extinguished (JURADO, Obligations and
Contracts, supra at 287). Requisites:
1. The thing which is lost must be determinate;
Effects of Withdrawal of the Object/Amount 2. The thing is lost without any fault of the debtor;
Deposited: and
1. Before creditor has accepted consignation or 3. The thing is lost before the debtor has incurred
before a judicial declaration of consignation in delay (JURADO, Obligations and Contracts,
(CIVIL CODE, Article 1260, Par. 2): supra at 288).
a. Obligation remains in force.
b. Withdrawal by the debtor at this stage is a General Rule: Loss of a determinate thing through
matter of right because he still owns the fortuitous event shall extinguish the obligation.
thing.
Exceptions:
Q: Should the debtor opt not to withdraw the thing 1. When the law so provides (CIVIL CODE, Art.
at this stage, can another creditor attach the same 1262);
property since the debtor still owns the thing? 2. When the stipulation so provides (Ibid.);

275
3. When the nature of the obligation requires an released from the obligation (CIVIL CODE, Art.
assumption of risk (Ibid.); 1266). Take note that the provision mentions that
4. Loss of the thing occurs after the debtor incurred the prestation becomes impossible and thus, would
in delay (Ibid.); contemplate subsequent impossibility.
5. Loss of the thing is partly due to the fault of the
debtor (Limpong V. Yangco Steamship, G.R. The legal and physical impossibility must have
No. L-10283, July 25, 1916); occurred after the constitution of the obligation.
6. When the debtor promised to deliver the same
thing to two persons who do not have the same Note: Does NOT apply to obligations to give.
interest (CIVIL CODE, Art. 1165, Par. 3);
7. When the obligation to deliver arises from a Natural Impossibility v. Impossibility In Fact
criminal offense(CIVIL CODE, Art. 1268); and Natural Impossibility Impossibility In Fact
8. When the obligation is generic (CIVIL CODE, As to the Thing
Art. 1263). Must consist in the In the absence of
nature of the thing to be inherent impossibility in
If the loss is through theft, the debtor is considered done and not the the nature of the thing
negligent having placed the thing within the reach of inability of the party to stipulated to be
thieves and not in a secure and safe place. In theft, do so performed, which is
taking is accomplished without the use of violence or only improbable or out
force (4 TOLENTINO, supra at 337). of the power of the
obligor
Loss of Generic Things (CIVIL CODE, Art. 1263) As to the Effect
General Rule: Loss of generic thing does not Renders the contract Does not render the
extinguish obligation. void contract void
Reason: The genus never perishes (Genus Natural impossibility is reckoned from the time of
nunquam peruit). constitution of the obligation. Thus, the obligation
remains void even if the prestation subsequently
Exception: Delimited Generic Thing – When there becomes possible.
is a limitation of the generic object to a particular
existing mass or a particular group of things, the In case of subsequent partial impossibility, the rule
obligation is extinguished by the loss of the in Article 1264 may be applied (4 TOLENTINO,
particular mass or group or limited quantity from supra at 345).
which the prestation has to be taken (4
TOLENTINO, supra at 340). Temporary impossibility does not extinguish the
obligation but merely delays its fulfillment. This
Effect of Partial Loss (CIVIL CODE, Art. 1264) presupposes that the duration of impossibility has
General Rule: Partial loss does not extinguish the been contemplated by the parties; otherwise, the
obligation. same may extinguish the obligation under Art. 1267.
In the latter case, the fact that the prestation later
Exception: When the partial loss or destruction of becomes possible does not revive the obligation (Id.
the thing is of such importance that would be at 346).
tantamount to a complete loss or destruction
(JURADO, Obligations and Contracts, supra at 291). Effect of Relative Impossibility
Doctrine of Unforeseen Events (CIVIL CODE, Art.
Rule if the Thing is in Debtor’s Possession 1267)
(CIVIL CODE, Art. 1265) When the service has become so difficult as to be
General Rule: If the thing is lost while in the manifestly beyond the contemplation of the parties,
possession of the debtor, it shall be presumed that the court should be authorized to release the obligor
the loss was due to his fault, unless there is proof to in whole or in part (This is also referred to as the
the contrary and without prejudice to the provisions Doctrine of Frustration of Enterprise) (JURADO,
of Art. 1165. Obligations and Contracts, supra at 295-296).
Exception: No such presumption in case of The intention of the parties should govern and if it
earthquake, flood, storm or other natural calamity. appears that the service turns out to be so difficult
as to have been beyond their contemplation, it
Effect of Impossibility of Performance in would be doing violence to the intention to hold the
Obligation to Do obligor still responsible (Ibid).
When the obligation becomes legally or physically
impossible without the fault of the debtor, obligor is

276
Doctrine of Rebus Sic Stantibus Note: The offer referred in Article 1268 should not
The parties stipulate in the light of certain prevailing be confused with consignation; the latter refers only
conditions and once these conditions cease to exist, to the payment of the obligation, the former refers to
the contract also ceases to exist (Naga Telephone the extinguishment of the obligation through loss by
Co., et al. v. CA, G.R. No. 107112, February 24, fortuitous event (JURADO, Obligations and
1994) Contracts, supra at 296-297).
Note: Article1267 speaks of a “service,”- a personal Condonation or Remission of the Debt

obligation. Thus, real obligations are not within its An act of liberality by virtue of which the obligee,
scope (PARAS, Civil Code, supra at 439). Justice without receiving any price or equivalent, renounces
Jurado however is of the opinion that the word the enforcement of the obligation, as a result of
“service” should be understood as referring to the which it is extinguished in its entirety or in that part
“performance” of the obligation (JURADO, or aspect of the same to which the remission refers
Obligations and Contracts, supra at 296). (Id. at 298).
It is not a requirement under Article 1267 that the It is the gratuitous abandonment by the creditor of
contract be for future service with future unusual his right; a form of donation (Sanchez Roman).
change (Naga Telephone Co., v. CA, G.R. No.
107112, February 24, 1994). Requisites of Remission (GAD-CIF):
1. It must be Gratuitous(CIVIL CODE, Art. 1270);
The impossibility is relative because the difficulty of 2. It must be Accepted by the obligor (bilateral
performance triggers a manifest disequilibrium in the act)(Ibid.);
prestations, such that one party would be placed at 3. The obligation must be Demandable;
a disadvantage by the unforeseen event. 4. Parties must have the Capacity;
5. Not Inofficious; and
Principle of Subjective Impossibility 6. Must comply with the Forms of donation should
When there is no physical or legal loss but the it be express (CIVIL CODE, Art. 748 and 749).
object of the obligation belongs to another, the
performance by the debtor of the obligation Note: Whether express or implied, the extent of
undoubtedly becomes impossible. Failure of remission or condonation shall be governed by the
performance is imputable to the debtor. Thus, the rules regarding inofficious donation.
debtor must indemnify the creditor for the damages
suffered by the latter (4 TOLENTINO, supra at 336). Kinds of Remission or Condonation
1. As to Form
Effect of Loss on Reciprocal Obligations a. Express – when it is made in accordance
First view: If an obligation is extinguished by the with the formalities prescribed by law for
loss of the thing or impossibility of performance donations.
through fortuitous events, the counter-prestation is b. Implied – when, although it is not made in
also extinguished. The debtor is released from accordance with the formalities prescribed
liability but he cannot demand the prestation which by law for donations, it can be deduced from
has been stipulated for his benefit. He who gives the acts of the oblige or creditor.
nothing has no reason to demand (Id. at 337-338). 2. As to Extent
a. Total – when the entire obligation is
Second view: The loss or impossibility of extinguished.
performance must be due to the fault of the debtor. b. Partial – when it refers only to the principal
In this case, the injured party may ask for rescission or to the accessory obligation or to an
under Article 1191 plus damages. If the loss or aspect thereof which affects the debtor (as
impossibility was due to a fortuitous event, the other for instance solidarity).
party is still obliged to give the prestation due to the 3. As to Constitution
other (J.B.L. Reyes). a. Inter Vivos – when it is constituted by
agreement of the obligee and the obligor.
Rule if Obligation Arises from Criminal Offense b. Mortis Causa – when it is constituted by
(CIVIL CODE, Art. 1268) last will and testament (JURADO,
General Rule: Debtor shall not be exempted from Obligations and Contracts, supra at 298-
the payment of the price whatever may be the cause 299).
for the loss.
When Renunciation of Action Against the Debtor
Exception: When the thing having been offered by is Presumed
the debtor to the person who should receive it, the If the creditor voluntarily delivers the private
latter refused without justification. document evidencing the credit to the debtor, there

277
is a presumption that he renounces his right of Requisites of Merger:
action against the latter for the collection of the said 1. Merger of the characters of the creditor and
credit (CIVIL CODE, Art. 1271). When such private debtor must be in the same person (CIVIL
document is found in possession of the debtor, it CODE, Art. 1278);
shall be presumed that the creditor delivered it 2. Must take place in the person of either the
voluntarily, unless the contrary is proved (CIVIL principal creditor or the principal debtor (CIVIL
CODE, Art. 1272). CODE, Art.1276); and
3. Whether the merger refers to the entire
When the obligation is joint, and the private obligation or only part thereof, there must be
document evidencing a debt is found in the complete and definite meeting of all qualities of
possession of one of the debtors, the presumption of creditor and debtor in the obligation or in the
remission can refer only to the portion of the debtor part thereof affected by the merger (Testate
who is in the possession of the instrument. If the Estate of Mora v. Serra, G.R. No. L-34581,
obligation is solidary, Articles 1215, 1219 and 1220 March 31, 1932).
shall apply.
Effects of Confusion/Merger (CIVIL CODE, Art.
Rules when Accessory Obligations are Involved 1276-1277):
If the remission refers to the principal obligation, all 1. If confusion takes place in the person of either
the accessory obligations are extinguished. the principal creditor or principal debtor –
However, if remission refers only to the accessory extinguishment of entire obligation; or
obligation, the principal obligation continues to 2. If confusion takes place in the person of a
subsist (CIVIL CODE, Art. 1273). subsidiary creditor or subsidiary debtor (e.g.
guarantor) – no extinguishment of principal
It is presumed that the accessory obligation of obligation; only substitution of creditor or debtor;
pledge has been remitted when the thing pledged, or
after its delivery to the creditor, is found in the 3. If confusion takes place in one of the joint
possession of the debtor, or of a third person who debtors – principal obligation is extinguished up
owns the thing (CIVIL CODE, Art.1274). The to the share which corresponds to him; or
provision presupposes that the accessory contract 4. If confusion takes place in one of the solidary
of pledge has been perfected. debtors – entire obligation is extinguished.
However, the debtor in whom confusion took
Application of the Rules on Donation place may claim reimbursement from co-debtors
Condonation or remission is essentially a donation for the shares which correspond to them
of credit to the debtor. It must be subject to the rule (JURADO, Obligations and Contracts, supra at
on donations with respect to acceptance (CIVIL 308-309).
CODE, Art. 745 and 746), amount (CIVIL CODE,
Art. 750 and 752) and revocation (CIVIL CODE, Art. Compensation
760, 761, 764 and 765) (4 TOLENTINO, supra at Mode of extinguishing in the concurrent amount of
364). the obligation of those persons who are reciprocally
debtors and creditors of each other (JURADO, Civil
Confusion Code, supra at 309 citing Castan).
It is the merger of the characters of the creditor and
the debtor in one and the same person by virtue of Effect: It extinguishes both debts to the extent that
which the obligation is extinguished (CIVIL CODE, the amount covered by the amount of the other.
Art. 1275).
Compensation v. Confusion
Illustration: Atoy makes a check payable to bearer, Compensation Confusion
and hands it to Joey, who hands it to Kaye who As to the Number of Persons
finally hands it to Atoy. Here Atoy owes himself and Two persons who, in Only one person in
thus, his obligation is extinguished. their own right, are whom the qualities of
creditors and debtors of debtor and creditor are
If however, the reason for the confusion ceases, the each other merged
obligation is revived. Thus, should Kaye deliver the As to the Number of Obligations
note to Atoy in the performance of a void obligation, There must be at least There is only one
Atoy’s obligation is recreated. But the time two obligations obligation
intervening between the merger and its revocation is
not to be computed in the determination of the
period for prescription.

278
Compensation v. Payment 2. Both debts must consist in sum of money, or if
Compensation Payment the things due are fungibles (consumables),
As to Requisites they must be of the same kind and quality
(Ibid.);
The requisites prescribed by law for compensation
are different from those prescribed by law for General Rule: Compensation is not possible in
payment. obligations to do because of the difference in the
As to How it Takes Effect respective capacities of the obligors (JURADO,
Takes effect by Takes effect by act of Obligations and Contracts, supra at 317).
operation of law the parties
As to Necessity of Capacity to Give 3. Both debts must be due (Ibid.);
Capacity to give and to
Capacity to give and to
acquire is essential Exception: Voluntary compensation or the
acquire is not
parties may nevertheless agree upon the
necessary
compensation of the obligations (CIVIL CODE,
As to Divisibility Art. 1282).
As a rule, law permits
As a rule, complete and 4. Both debts must be liquidated and demandable
partial extinguishment
indivisible (Ibid.);
of obligation
Compensation v. Counterclaim Liquidated Debts – those amount of which may

Compensation Counterclaim be determined by a simple arithmetical
As to the Kind of Debt operation (JURADO, Obligations and Contracts,
Requires that two debts supra at 317).
must consist in money
Not necessary 5. There must be no retention or controversy
or if fungibles, same
kind and quality commenced by third persons over either of the
As to Liquidity debts and communicated in due time to the
As a rule, both debts Does not require that debtor (Ibid.); and
must be liquidated debts be liquidated
As to Requirement to be Effectual Note: Retention consists in the application of
Need not be pleaded; the credit of one of the parties to the satisfaction
Must be pleaded to be of the claims of third persons while controversy
takes effect by
effectual refers to a case in which a third person claims to
operation of law
be the creditor (JURADO, Obligations and
Contract, supra at 318).
Kinds of Compensation:
1. As to Cause
6. The compensation must not be prohibited by law
a. Legal – takes effect by operation of law from
(Ibid.).
the moment all of the requisites are present.
b. Voluntary – when parties who are mutually
Right of Guarantor to Set-up Compensation
creditors and debtors agree to compensate
The guarantor, in case the payment of the debt is
their respective obligations, even though all
demanded from him, may set up compensation, not
of the requisites for compensation may not
only for what the creditor owes him, but also for
be present.
what the creditor owes the principal debtor (CIVIL
c. Judicial – takes effect by judicial decree.
CODE, Art. 1280).
d. Facultative
Rule in case of Rescissible or Voidable Debts
2. As to Effect
Rescissible or voidable obligations may be
a. Total – debts to be compensated are equal
compensated against each other before they are
in amount.
judicially rescinded or avoided (CIVIL CODE, Art.
b. Partial – debts to be compensated are not
1284).
equal in amount (JURADO, Obligations and
Contracts, supra at 311-312).
Effects of Assignment of Rights:
1. If with consent of debtor – debtor cannot set-up
Requisites of Compensation
compensation unless he reserved his right to
1. There must be two parties, who, in their own
compensation;
right, are principal creditors and principal
2. If with knowledge but without consent of debtor
debtors of each other except in case of a
– debtor may set-up compensation prior to the
guarantor (CIVIL CODE, Art. 1279);
assignment but not subsequent ones; or

279
3. If without knowledge of the debtor – may set-up Note: A new contract, recognizing and
compensation of all credits which he may have assuming a prescribed debt, would be valid and
against the assignor and which may have enforceable. The prescription, being available to
become demandable, before he was notified of the debtor, can be waived by him. The novation
the assignment (CIVIL CODE, Art. 1285). of a prescribed debt is thus valid.
Debts Which Cannot be Compensated (CIVIL 2. Capacity of the contracting parties (to the new
CODE, Art. 1286-1287): contract);
1. Debts arising from contracts of depositum; 3. Animus novandi or intent to novate (especially
2. Debts arising from contracts of commodatum; for implied novation and substitution of debtors);
3. Claims for support due by gratuitous title; 4. Substantial difference between the old obligation
and the new obligation (especially for implied
Note: The law did not limit itself to legal support novation), consequently, extinguishment of the
and thus would include other rights which have obligation; and
for their purpose the subsistence of the debtor, 5. Validity of the new obligation (JURADO,
such as pensions. Obligations and Contracts, supra at 326).
4. Obligations arising from criminal offenses (CIVIL Two-fold Purpose of Novation:

CODE, Art. 1288); and 1. Original obligation is extinguished; and
5. Certain obligations in favor of government (e.g., 2. A new obligation is created
taxes, fees, duties, and others of a similar
nature). Kinds of Novation:
1. As to its Essence
Note: But when the debts are purely contractual a. Objective/Real
and are not of public interest, compensation can b. Subjective/Personal – substitution of
take place. debtor or by subrogation.
c. Mixed – change in the object or principal
When Compensation Takes Effect: condition and change in the persons of
1. Legal Compensation – from the moment all the either creditor and debtor of an existing
essential requisites prescribed by law are obligation.
present (CIVIL CODE, Art. 1290); 2. As to its Form/Constitution
2. Voluntary Compensation – from the moment a. Express – when it is declared in
agreed upon by the parties (CIVIL CODE, Art. unequivocal terms that the old obligation is
1282); or extinguished by a new one which
3. Judicial Compensation – from the moment the substitutes the same.
judgment becomes final and executor (CIVIL b. Implied – when the old and new are
CODE, Art. 1283). incompatible with each other on every point.
Facultative Compensation Test of Incompatibility

Compensation which can be set up only at the Whether or not the old and new obligations can
option of the creditor when legal compensation stand together, each having its own independent
cannot take place because of want of some legal existence. If they can stand together, there is no
requisites for the benefit of the creditor. The latter incompatibility hence, no novation. If they
can renounce his right to oppose the compensation cannot stand together, there is incompatibility;
and he himself can set it up. It differs from consequently, there is novation (JURADO,
conventional compensation because it is unilateral Obligations and Contracts, supra at 333).
while the latter depends upon the agreement of both Changes that breed incompatibility must be
parties (4 TOLENTINO, supra at 367). essential in nature and not merely incidental (Id.
at 329).
Novation
It is the substitution or change of an obligation by Note: The incompatibility must affect any of the
another, resulting in its extinguishment or essential elements of the obligation, such as its
modification, either by changing its object or object, cause or principal conditions thereof;
principal conditions, or by substituting another in otherwise, the change is merely modificatory in
place of the debtor, or by subrogating a third person nature and insufficient to extinguish the original
in the rights of the creditor (CIVIL CODE, Art. 1291). obligation (Heirs of Servando Franco v. Sps.
Gonzales, G.R. No. 159709, June 27, 2012).
Requisites of Novation:
1. Previous valid and existing obligation;

280
3. As to Extent/Effect Novation by Substitution of Debtors (CIVIL CODE,
a. Total Art. 1293)
b. Partial A subjective/personal novation consists in the
substitution of a new debtor in place of the original
Note: Novation is never presumed. Unless it is debtor.
clearly shown either by express agreement of
the parties or by acts of equivalent import, this Forms of Novation by Substitution of Debtors:
defense will never be allowed (Ong v. 1. Expromisión – effected with the consent of the
Bogñalbal, G.R. No. 149140, September 12, creditor at the instance of the new debtor even
2006). without the consent or even against the will of
the old debtor (beneficial reimbursement).
Objective Novation (CIVIL CODE, Art. 1291,
Par.1) Requisites:
According to Castan, objective novation is a. Initiative for substitution must emanate from
effected by: the new debtor;
1. Changing the cause of the obligation; b. Consent of the creditor to the substitution;
2. Changing the object of the obligation; or and
3. Changing the principal or essential c. Old debtor must be released from obligation
conditions of the obligation. (JURADO, Obligations and Contracts, supra
at 339).
Requisites:
1. New obligation expressly declares that the old is Illustration: Atoy owes Eugene P1,000. Joey, a
extinguished; or friend of Atoy approaches Eugene and tells him:
2. New obligation is on every point incompatible “I will pay you what Atoy owes you. From now
with the old one (Ajax Marketing & Development on, consider me your debtor. Atoy is to be
Corp. v. CA, G.R. No. 118585, September 14, excused.” Take note that in this example, there
1995). is an agreement that Atoy will be released from
the obligation. Sans such agreement, there is no
Note: A change in the rate of interest is merely a novation and the creditor (Eugene) can still
collateral agreement between the creditor and enforce the obligation against the original debtor
principal debtor that did not affect the surety. The (Atoy).
agreement to pay the additional interest was an
additional burden upon the debtor only. It did not in Kinds of Substitution by Expromisión:
any way affect the original contract. Thus, despite a. Substitution with the knowledge and
the compounding of the interest, the liability of the consent of the old debtor; and
surety remains only up to the original b. Substitution without the knowledge or
uncompounded interest (Garcia, Jr. v. CA, G.R. No. against the will of the old debtor.
L-80201, November 20, 1990).
2. Delegación – effected with the consent of the
The grant of a 45-day credit extension does not creditor at the instance of the old debtor
novate the contract as it merely modifies the (delegante), with the concurrence of the new
contract by extending the time for payment debtor (delegado) (reimbursement and
(Foundation Specialists, Inc., v. Betonval Ready subrogation).
Concrete, Inc., G.R. No. 170674, August 24, 2009).
Requisites:
The obligation to pay a sum of money is not novated a. Initiative for substitution must emanate from
by an instrument that expressly recognizes the old, the old debtor;
changes only the terms of the payment, adds other b. Consent of the new debtor;
obligations not incompatible with the old ones or the c. Acceptance by the creditor; and
new contract merely supplements the old contract d. Old debtor must be released from his
(Sps. Reyes v. BPI Family Savings Bank, GR No. obligation (JURADO, Obligations and
149841-41, March 31, 2006). Contracts, supra at 339).
If a subsequent contract is designed to novate a Illustration: Atoy owes Eugene P1,000. Atoy
previous contract and not all parties to the original texted Eugene that his friend Joey will pay the
contract consented to or are made parties in the debt, and he wishes to be released from the
subsequent contract, there can be no novation. obligation. Both Joey and Eugene agreed to
such terms. Take note again that the
substitution must be made with the intention to
release the original debtor.

281
Parties in delegacion: If the substitution was effected with the
a. Delegante – original debtor (Atoy); knowledge and consent of the original debtor, it
b. Delegatorio – the creditor (Eugene); and shall revive the original debtor’s liability to the
c. Delegado – the new debtor (Joey) creditor (Ibid.).
Note: In either of the two modes of substitution, 2. Delegación – The right of the creditor can no
the consent of the creditor is an indispensible longer be revived except in the following cases:
requirement (Quinto v. People, G.R. No. a. Insolvency already existing and of public
126712, April 14, 1999). knowledge at the time when the original
debtor delegated his debt
Rights of New Debtor: b. Insolvency was already existing and known
1. Expromisión to the original debtor when he delegated his
a. Substitution with knowledge and consent of debt (Ibid.).
original debtor and payment made by new
debtor with or without knowledge and It is submitted that actual knowledge of the
consent of original debtor: creditor that new debtor was insolvent at the
i. Reimbursement from the original debtor time of delegation, will bar him from
of the entire amount paid recovering from the old debtor. He must
ii. Subrogation in all the rights of the bear the consequences of his acts
creditor knowingly done.
b. Substitution without the knowledge and
consent of the original debtor, and payment Note: A change in the incidental elements of, or an
is made by the new debtor without the addition of such elements to an obligation, unless
knowledge and consent of the original otherwise expressed by the parties, will not result in
debtor: its extinguishment.
i. Reimbursement from the original debtor
only insofar as the payment has been Effects of Novation upon Accessory Obligations
beneficial to such debtor General Rule: When the principal obligation is
ii. No subrogation extinguished in consequence of a novation,
2. Delegación – Since substitution was effected accessory obligation may subsist only insofar as
with the consent of all the parties, the new they may benefit third persons who did not give
debtor can demand reimbursement from the consent (CIVIL CODE, Art. 1296).
original debtor of the entire amount which he
has paid as well as compel the creditor to Exception: Article 1296 has no application to
subrogate him to all of his rights (JURADO, novation effected by subrogating a third person to
Obligations and Contracts, supra at 343-344). the rights of the creditor. Such novation is regulated
by Articles 1303-1304.
Note: The mere fact that the creditor receives a
guaranty or accepts payment from a third The exception refers to a case in which there is a
person who agrees to assume the obligation, stipulation constituted in favor of a third person,
when there is no agreement that the first debtor which may be demanded separately from the
shall be released from responsibility, does not principal obligation, although subordinated to the
constitute novation, and the creditor can still latter (e.g. stipulation pour autrui) (JURADO,
enforce the obligation against the original Obligations and Contracts, supra at 346).
debtor. If the older debtor is not released, there
is no novation; the third person becomes merely Effects of Condition in Novation:
a co-debtor, surety or co-surety (Mercantile 1. If the original obligation was subject to
Insurance Co., Inc. v. CA, GR No. 85647, April suspensive or resolutory condition, the new
22, 1991). obligation shall be under the same condition,
unless otherwise stipulated (CIVIL CODE, Art.
Effect of Insolvency or Non-fulfillment by the 1299).
New Debtor (CIVIL CODE, Art. 1294-1295) 2. If the new obligation and the old obligation are
1. Expromisión – If the substitution was effected subject to different conditions:
without the knowledge and against the will of the a. If the conditions can stand together:
original debtor, the new debtor’s insolvency or i. If both are fulfilled – the new obligation
nonfulfillment shall not revive the original becomes demandable
debtor’s liability to the creditor (JURADO, ii. If only the condition affecting the old
Obligations and Contracts, supra at 345). obligation is fulfilled – old obligation is
revived while the new obligation loses
its force.

282
iii. If only the condition affecting the new Illustration: Atoy has two creditors, Mhik who is
obligation is fulfilled – there is no a mortgage creditor for P15,000 and Jerome
novation since the requisite of a who is an ordinary creditor for P6,000. Jerome
previous valid and effective obligation paid Atoy’s debt of P15,000 to Mhik. Jerome will
would be lacking. be subrogated to the rights of Mhik. This means
b. If the conditions are incompatible – the that Jerome will now be a mortgage creditor for
effect is to extinguish the old obligation so P15,000 and an ordinary creditor for P6,000.
that only the new obligation remains and
whose demandability/effectivity depend 2. When a third person, not interested in the
upon the fulfillment/non-fulfillment of the obligation, pays with the express or tacit
condition affecting it (JURADO, Obligations approval of the debtor; or
and Contracts, supra at 348-349).
Illustration: Atoy owes Joey P10,000 secured
Novation by Subrogation (CIVIL CODE, Art. 1300) by mortgage. Eugene, a classmate of Atoy, and
A personal novation effected by subrogating a third having no connection with the contract paid
person in the rights of the creditor. Joey with Atoy’s approval. Subrogation takes
place and Eugene becomes a mortgage
Forms of Novation by Subrogation: creditor.
1. Conventional – takes place by agreement of the
original creditor, the third person substituting the If Eugene pays without the knowledge or against
original creditor, and the debtor (CIVIL CODE, the will of Atoy, he is only entitled to demand
Art. 1301). reimbursement as to the extent that Atoy has
2. Legal – takes place by operation of law. been benefited by the payment. There is no
subrogation in this case.
Conventional Subrogation v.
Assignment of Rights 3. When, even without knowledge of the debtor, a
Conventional Assignment of Rights person interested in the fulfillment of the
Subrogation obligation pays, without prejudice to the effects
As to Rules which shall Govern of confusion as to the latter’s share.
Governed by Art. 1300- Governed by Art.
1304 1624-1627 Illustration: Joey owes Cath P10,000 secured
As to Necessity of Debtor’s Consent by a mortgage and by a guaranty of Atoy. If Atoy
Debtor’s consent is Debtor’s consent is not even without Joey’s knowledge pays Cath, Atoy
required required will be subrogated in Cath’s place. By reason of
As to Effect upon Obligation confusion, or by reason of the fact that Atoy
Has the effect of became a guarantor and a creditor at the same
transmitting the rights time, the guaranty is extinguished.
Has the effect of
of the creditor to
extinguishing the Strictly speaking, there is no legal subrogation
another person without
obligation and giving when a solidary debtor pays the entire
modifying/
rise to a new one obligation. Solidarity terminates upon the
extinguishing the
obligation payment of the whole obligation. Thus, the
As to Effect upon Vices paying debtor does not completely step into the
Defects/ vices in the old Defects/ vices in the old shoes of the creditor, as he cannot demand from
obligation are cured obligation are not cured any of his co-debtors the compliance of the
As to Time of Effectivity entire obligation but only the proportion which
pertains to each (Id. at 352).
As far as the debtor is
The effects arises from
concerned, arises from
the moment of Effects of Subrogation (CIVIL CODE, Art. 1303-
the moment of
novation/ subrogation 1304)
notification
1. Total subrogation – Transfers to the person
(JURADO, Obligations and Contracts, supra at 350).
subrogated the credit with all the rights the
original creditor had against the debtor or third
Legal Subrogation (CIVIL CODE, Art. 1302)
persons.
General Rule: Legal subrogation is not presumed.
Accessory obligations are not extinguished; the
Exceptions:
person subrogated acquires all the rights the
1. When a creditor pays another creditor who is
original creditor had against third persons and
preferred, without debtor’s knowledge;
the rule is absolute with respect to legal
subrogation. In conventional subrogation,

283
accessory obligations may be increased or Effects of Compromise
reduced upon agreement of the parties A compromise has upon the parties the effect and
(JURADO, Obligations and Contracts, supra at authority of res judicata; but there shall be no
353). execution except in compliance with a judicial
compromise (CIVIL CODE, Art. 2037).
2. Partial subrogation – A creditor, to whom partial
payment has been made, may exercise his right A judgment based on compromise agreement is a
for the remainder, and he shall be preferred to judgment on the merits of the case. In this case,
the person who has been subrogated in his there was no issue as to the fact that the parties
place. freely entered into the compromise agreement.
There was also no dispute about the clarity of its
Illustration: Atoy owes Eugene P4,000. With terms. Some of the parties simply do not wish to
the consent of both, Joey pays Eugene P2,000. abide by the compromise agreement’s terms. The
Now Eugene and Joey are the creditors of Atoy Supreme Court does not see how substantial justice
to the amount of P2K. By reason of the will be served by disturbing a final judgment on
preferential right to the remainder, Eugene is to compromise when failure of its execution was
be preferred in case Atoy has only P2,000. The caused by the parties themselves (Gadrinab v.
preference, however, enjoyed by Eugene is only Salamanca, G.R. No. 194560, June 11, 2014).
in the assets remaining with the debtor (Atoy)
and not those already transferred to others. If one of the parties fails or refuses to abide by the
compromise, the other party may either enforce the
compromise or regard it as rescinded and insist
C OMP ROMIS E upon his original demand (CIVIL CODE, Art. 2041).
A compromise extinguishes the rights and actions
which gave rise to it and new obligations are created
A compromise is a contract whereby the parties, by in substitution of those extinguished (4 TOLENTINO,
making reciprocal concessions, avoid litigation or supra at 492).
put an end to one already commenced (CIVIL
CODE, Art. 2028). If a writ of execution is issued to enforce a judgment
based on compromise, the writ cannot be enforced
Requisites: against a person who although a party to the case,
1. Uncertainty of juridical relation; and was not a party to the compromise agreement, and
2. An agreement to eliminate the uncertainty who in fact was absolved from liability (PARAS, Civil
through reciprocal concessions. Code, supra at 994).
Kinds: See discussions in Remedial Law.

1. Judicial – end a pending litigation; and
2. Extra-judicial – to prevent a litigation from
arising. C ONTRACTS
Characteristics:
1. Consensual; Contract
2. Reciprocal; A contract is a meeting of minds between two
3. Onerous; persons whereby one binds himself, with respect to
4. Nominate; the other, to give something or to render some
5. Accessory (in the sense that a prior conflict is service (CIVIL CODE, Art. 1305).
presupposed);
6. Once accepted, binding upon the parties except Elements of Contracts:
if consent is vitiated; and 1. Essential – those without which there can be no
7. Principally, settlement of controversy; contract (JURADO, Obligations and Contracts,
Incidentally, settlement of claim. supra at 357)
a. Common elements – present in all contracts
Questions on which there can be no valid i. Consent
compromise: ii. Object or Subject Matter
1. The civil status of persons; iii. Cause or Consideration (Ibid.)
2. The validity of a marriage or a legal separation; b. Special elements – present only in certain
3. Any ground for legal separation; contracts (e.g., delivery in real contracts or
4. Future support; form in solemn ones) (Ibid.).
5. The jurisdiction of courts; and
6. Future legitime (CIVIL CODE, Art. 2035).

284
c. Extraordinary elements – peculiar to specific Kinds of Innominate Contracts:
contracts (e.g., price in a contract of sale) i. Do ut des - I give that you give
(Ibid.) ii. Do ut facias - I give that you do
2. Natural – those which are derived from the nature iii. Facio ut des - I do that you give
of the contract and ordinarily accompany the iv. Facio ut facias - I do that you do
same; they are presumed by law, although they
can be excluded by the contracting parties if they According to some authorities, do ut des is
so desire (e.g., warranty against eviction in a no longer an innominate contract. It has
contract of sale) (Ibid.). already been given a name of its own, i.e.,
3. Accidental – those which exist only when the barter or exchange (CIVIL CODE, Art.
parties expressly provide for them for the purpose 1638).
of limiting or modifying the normal effects of the
contract (e.g. conditions, terms or modes) (Ibid.). Note: Innominate contracts shall be
regulated by:
Contract and Obligation Distinguished i. The stipulations of the parties,
While a contract is one of the sources of obligations, ii. The general provisions of the Civil Code
an obligation is the legal tie or relation itself that on obligations and contracts,
exists after a contract has been entered into. Hence, iii. The rules governing the most analogous
there can be no contract if there is no obligation. But nominate contracts and
an obligation may exist without a contract (DE iv. The customs of the place (CIVIL CODE,
LEON, Obligations and Contracts, supra at Art. 1307).
283-284). 7. According to their Form
a. Common or informal – requires no particular
2 2 2
Classification of Contracts (R P N -FCS) form
1. According to their Relation to other contracts b. Special or formal – requires some particular
a. Preparatory – preliminary step towards the form (Id. at 360)
celebration of another subsequent contract 8. According to their Cause
b. Principal – can subsist independently from a. Onerous – e.g., sale
other contracts b. Gratuitous – e.g., commodatum (Ibid.).
c. Accessory – can exist only as a 9. According to their Subject matter
consequence of, or in relation with, another a. Things – e.g., sale, deposit, pledge
prior contract (JURADO, Obligations and b. Services – e.g., agency, lease of services
Contracts, supra at 359). (Ibid.).
2. According to the Risk involved
a. Commutative – e.g., lease Auto-Contract
b. Aleatory – e.g., insurance (Id. at 361). A contract wherein apparently, there is only one
3. According to their Perfection party involved, but in reality, said party merely acts
a. Consensual – perfected by mere agreement in the name and for the account of two distinct
of the parties contracting parties (JURADO, Obligations and
b. Real – requires consent of the parties and Contracts, supra at 357).
delivery of the object for their perfection (Id.
at 360). Note: This is an exception to the rule that a person
4. According to their Purpose cannot enter into a contract with himself, where
a. Transfer of ownership – e.g., sale there is only one party involved, but in reality, said
b. Conveyance of use – e.g., commodatum party merely acts in the name and for the account of
c. Rendition of service – e.g., agency (Ibid.) two distinct contracting parties (Id.).
5. According to the Nature of the vinculum which
they produce The existence of a contract is not determined by the
a. Unilateral – e.g., commodatum, gratuitous number of persons who intervene in it but by the
deposit number of the parties thereto; not by the number of
b. Bilateral – e.g., sale, lease (Ibid.). individual wills, but by the number of declarations of
6. According to their Names or norms regulating wills (4 TOLENTINO, supra at 408).
them
a. Nominate – have their own individuality; Collective Contracts
regulated by special provisions of law Those where the law authorizes the will of the
b. Innominate – contracts which do not have a majority to bind a minority to an agreement
specific name; not regulated by special notwithstanding the opposition of the latter when all
provisions of law (Id. at 361). have a common interest in the juridical act (i.e.,
collective bargaining by labor organizations)
(4 TOLENTINO, supra at 437).

285
Reason: Co-ownership is legally presumed among keeping with good faith, usage and law
the persons having a common interest; rule of the (CIVIL CODE, Art. 1315).
required majority is imposed upon the minority (Ibid.)
2. Mutuality
Contracts of Adhesion The contract must bind both contracting parties;
Contracts in which one of the parties imposes a its validity or compliance cannot be left to the
ready-made form of contract, which the other party will of one of them (CIVIL CODE, Art. 1308).
may accept or reject, but which the latter cannot
modify (PCIB v. CA, G.R. No. 97785, March 29, Exception: Validity or fulfillment may be left to
1996). (1) the will of a third person, whose decision
shall not be binding until made known to both
A contract of adhesion is so-called because its the contracting parties (CIVIL CODE, Art. 1309)
terms are prepared by only one party while the other or (2) chance.
party merely affixes his signature signifying his
adhesion thereto (Development Bank of the The determination shall not be obligatory if it is
Philippines v. Perez, G.R. No. 148541, November evidently inequitable. In such case, the courts
11, 2004). shall decide what is equitable under the
circumstances (CIVIL CODE, Art. 1310).
Note: Such contracts are construed strictly against
the party who drew the same (CIVIL CODE, Art. The fact that a party may not have fully
1377). understood the legal effect of the contract is no
ground for setting it aside. Nor will the mere fact
Contract Implied In Fact/ Implied-in-fact Contract that one has made a poor bargain be a ground
It is a contract, the existence and terms of which are for setting aside the agreement. The unilateral
manifested by conduct and not by direct or explicit act of one party in terminating the contract
words between parties but is to be deduced from without legal justification, makes it liable for
conduct of the parties, language used, or things damages (4 TOLENTINO, supra at 425).
done by them, or other pertinent circumstances
attending the transaction (U.P. v. Philab, G.R. No. Similarly, contract changes must be made with
152411, September 29, 2004). the consent of the contracting parties. The
minds of all the parties must meet as to the
Stages of Contracts: (GPC) proposed modification, especially when it affects
1. Generation – comprehends the preparation or an important aspect of the agreement. Thus,
conception. It is the period of negotiation and any change must be mutually agreed upon;
bargaining, ending at the moment of agreement otherwise, it produces no binding effect
of the parties. (Philippine Savings Bank v. Sps. Castillo, G. R.
2. Perfection – the moment when the parties come No. 193178, May 30, 2011).
to agree on the terms of the contract
3. Consummation – it is the fulfillment or An agreement whereby a company obliged itself
performance of the terms agreed upon in the to give a certain amount of bonus that is to be
contract (ABS-CBN Broadcasting Corporation v. determined by the Board of Directors is valid
CA, G.R. No. 128690, January 21, 1999). (Liebenow v. Phil. Vegetable Oil Company, G.R.
No. L-13463, November 9, 1918).
Characteristics of Contracts: (MARCO)
1. Mutuality; 3. Autonomy (Freedom to Contract)
2. Autonomy; The contracting parties may establish such
3. Relativity; stipulations, clauses, terms and conditions as
4. Consensuality; and they may deem convenient (CIVIL CODE, Art.
5. Obligatory force of contracts (JURADO, 1306).
Obligations and Contracts, supra at 358-359).
Limitation to the Principle of Autonomy:
1. Obligatory Force of Contracts Stipulations should not be contrary to law,
Obligations arising from contracts have the force morals, good customs, public order, or public
of law between the contracting parties and policy
should be complied with in good faith (CIVIL (CIVIL CODE, Art. 1306).
CODE, Art. 1159). From the moment a contract
is perfected, the parties are bound not only to Contrary to Law
the fulfillment of what has been expressly It is a fundamental postulate that however broad
stipulated but also to all the consequences the freedom of the contracting parties may be, it
which, according to their nature, may be in does not go so far as to countenance disrespect

286
for or failure to observe a legal prescription d. The favorable stipulation should not be
(Lakas ng Manggagawang Makabayan v. Hon. conditioned or compensated by any kind
Carlos Abiera, G. R. No. L-29474, December of obligation whatsoever;
19, 1970). e. The third person must have
communicated his acceptance to the
Contrary to Public Policy obligor before its revocation;
In order to declare a contract void as against
public policy, a court must find that the contract Note: Before such acceptance, there is
as to the consideration or the thing to be done, legally no obligor (4 TOLENTINO, supra
contravenes some established interest of at 434-435).
society, or is inconsistent with sound policy and
good morals, or tends clearly to undermine the f. Neither of the contracting parties bears
security of individual rights (Gabriel v. Monte de the legal representation or authorization
Piedad, G. R. No. L-47806, April 14, 1941). of the third party (JURADO, Obligations
and Contracts, supra at 383).
Note: There is an implied reservation of the
exercise of the State of its police power, so that Note: A stipulation pour autrui can be
mere contractual provisions cannot prevent the revoked by both parties, or at least by the
State from exercising its police power (Ortigas & party at whose instance the stipulation was
Co. v. Feati Bank, G.R. No. L-24670, December included in the contract (Kauffman v. PNB,
14, 1979). G.R. No. 16454, September 29, 1921).
4. Relativity Two Classes:

General Rule: Contracts take effect only a. Those where the stipulation is intended
between the parties, their assigns and heirs for the sole benefit of such third person;
(CIVIL CODE, Art. 1311). and
b. Those where an obligation is due from
They cannot produce any effect upon third the promise to the third person and the
persons, in conformity with the principle of res former seeks to discharge it by means
inter alios acta aliis negue nocet prodest of such stipulation (Uy Tam v. Leonard,
(JURADO, Obligations and Contracts, supra at G.R. No. 8312, March 29, 1915).
359).
However, with respect to assignees or heirs, the Test of Beneficial Stipulation: It must be
general rule is not applicable if the rights and the purpose and intent of the parties to
obligations arising from the contract are not benefit the third person. The test is whether
transmissible by their nature, or by stipulation or or not the parties deliberately inserted terms
by provision of law, or when the obligations are in their agreement with the avowed purpose
purely personal (See CIVIL CODE, Art. 1311). of conferring a favor upon such third person
(Ibid.).
Note: A lease contract is not essentially
personal in character. Thus, the rights and 2. When the third person comes into
obligations therein are transmissible to the heirs possession of the object of a contract
(Inocencio v. Hospicio de San Jose, G.R. No. creating real rights (CIVIL CODE, Art.
201787, September 25, 2013). 1312).
Exceptions: 3. Where the contract is entered into in order

1. Beneficial Stipulation/Stipulation pour autrui to defraud a creditor (CIVIL CODE, Art.
– A stipulation in favor of a third person. 1313);
Requisites: Here, the creditor may ask for its rescission

a. There must be a stipulation in favor of a (JURADO, Obligations and Contracts, supra
third person; at 389).
b. The stipulation must be a part, not the
whole of the contract; 4. Tortious Interference - Where the third
c. The contracting parties must have person induces a contracting party to violate
clearly and deliberately conferred a his contract (CIVIL CODE, Art. 1314). Such
favor upon a third person, not a mere third person can be held liable for damages.
incidental benefit or interest;

287
Requisites:
a. The existence of a valid contract; E SSENTIAL R EQU ISITES OF A
b. Knowledge on the part of the third person of
the existence of the contract; and C ONTRACT
c. Interference by third person without legal
justification or excuse (JURADO, There is no contract unless the following
Obligations and Contracts, supra at 359 requisites concur: (COC)
citing 30 Am. Jur. Sec.19, pp. 71-72). I. Consent of the contracting parties;
II. Object certain which is the subject matter of the
As a general rule, justification for interfering with contract;
the business relations of another exists where III. Cause of the obligation which is established
the actor’s motive is to benefit himself. Such (CIVIL CODE, Art. 1318).
justification does not exist where the actor’s
motive is to cause harm to the other (Lagon v. I. CONSENT
CA, G. R. No. 119107, March 18, 2005). In its derivative sense, it means agreement of
wills. As applied to contracts, consent refers to
5. Consensuality the concurrence of wills of contracting parties
General Rule: Contracts are perfected by mere with respect to the object and the cause which
consent and from that moment, the parties are shall constitute the contract (JURADO,
bound to the fulfillment of what has been Obligations and Contracts, supra at 397).
expressly stipulated and to all consequences
which, according to their nature may be in Requisites:
keeping with good faith, usage and law (CIVIL 1. Must be manifested by the concurrence of
CODE, Art. 1315). the offer and acceptance (CIVIL CODE, Art.
1319-1326);
Exception: Real contracts (e.g., deposit, pledge 2. Parties must possess the necessary legal
and commodatum) are not perfected until the capacity (CIVIL CODE, Art. 1327-1329); and
delivery of the object of the obligation. 3. Must be intelligent, free, spontaneous, and
real (CIVIL CODE, Art. 1330-1346).
Breach of Contract
It is the failure, without legal reason, to comply The fact that the signatures of the witnesses and
with the terms of the contract. It is also the the notary public were forged does not negate
failure, without legal excuse, to perform any the existence of the contract for as long as the
promise which forms the whole or part of the parties consented to it. The signatures of the
contract (Sps. Omengan v. Philippine National witnesses and the notary public are necessary
Bank, G.R. No. 161319, January 23, 2007). simply to make the contract binding on the third
person (Soriano v. Soriano, G.R. No. 130348,
September 3, 2007).
Note: There must be at least two parties. The

number of parties, however, should not be
confused with the number of persons. A single
person can represent two parties, and one party
can be composed of two or more persons (4
Offer
A unilateral proposition which one party makes
to the other for the celebration of a contract. It
exists only if the contract can come into
existence by the mere acceptance by the
offeree, without any further act on the offeror (4
Note: An offer becomes ineffective upon the

death, civil interdiction, insanity or insolvency of
either party before acceptance is conveyed

288
Requisites: (DICD) must be held liable for damages which the
1. It must be Definite; offeree may suffer (Id. at 465).
2. It must be Intentional;
3. It must be Complete; and Exception: Option Contract if it is founded upon
4. It must be Directed to a person or persons a consideration, as something paid or promised
with whom the offeror intends to enter into a (CIVIL CODE, Art. 1324).
contract except definite offers which are not
directed to a particular person but to the Lapse of Time
public in general (i.e., public auction). An offer without a period must be considered as
becoming ineffective after the lapse of time
Definite necessary for its acceptance, taking into
The offer must be definite, so that upon consideration the circumstances and social
acceptance an agreement can be reached on conditions (4 TOLENTINO, supra at 458).
the whole contract (4 TOLENTINO, supra at
448). Counter-offer
This refers to qualified acceptance; involves a
Exception: The offer may be indeterminate in new proposal; a rejection of the original offer
certain respects which the offeror leaves to the (JURADO, Obligations and Contracts, supra at
determination of the other party. This is the 401).
same type of offer which exists in cases of slot
machines where the buyer determines the Complex Offers
quantity of goods he will get (Id. at 449). When a single offer involves two or more
contracts, the perfection, where there is only
Complete partial acceptance, will depend upon the relation
The offer must be complete, indicating with of the contracts between themselves, whether
sufficient clearness the kind of contract intended due to their nature or due to the intent of the
and definitely stating the essential conditions of offeror (4 TOLENTINO, supra at 452).
the proposed contract, as well as the non-
essential ones desired by the offeror (Id. at 449). Rule on Complex Offers:
1. Offers are interrelated – contract is
Intentional perfected if all the offers are accepted.
An offer without seriousness, made in such 2. Offers are not interrelated – single
manner that the other party would not fail to acceptance of each offer results in a
notice such lack of seriousness, is absolutely perfected contract unless the offeror has
without juridical effects and cannot give rise to a made it clear that one is dependent upon
contract (Id. at 449). the other and acceptance of both is
necessary (JURADO, Obligations and
th
Mental Reservation Contracts, supra at 401 citing Manresa, 5
It exists when the manifestation of the will is Ed., Bk. 2, pp.372-373).
made by one party for the purpose of inducing
the other to believe that the former intends to be Acceptance
bound, when in fact he does not. The mental Must be certain or definite and absolute in
reservation of the offeror, unknown to the other, character. A qualified acceptance constitutes a
cannot affect the validity of the offer (Id. at 450). counter-offer (CIVIL CODE, Art. 1319).
Withdrawal of Offer It is necessary that the acceptance be

Offer or proposal may be withdrawn so long as unequivocal and unconditional, and the
the offeror has no knowledge of acceptance by acceptance and the proposition shall be without
offeree (Manresa, 5th Ed., Bk. 2, p. 373). any variation whatsoever; and any modification
or variation from the terms of the offer annuls
Pending the acceptance of an offer, the offeror the latter and frees the offeror (Beaumont v.
can perfect a contract over the same thing with Prieto, G.R. No. L-8988, March 30, 1916).
another person (4 TOLENTINO, supra at 458).
It may be express or implied (CIVIL CODE, Art.
An offer implies an obligation on the part of the 1320).
offeror to maintain it for such a length of time as
to permit the offeree to decide whether to accept Note: The stipulation of the parties governs the
or not. If the offeror disregards this right of the manner and moment of acceptance as when
offeree, and arbitrarily revokes the offer, he they stipulate that it be expressly accepted. (See
CIVIL CODE, Art. 1321).

289
Requisites of Acceptance: (ADI-PC) Right of the Offeror
1. Absolute (no vitiation); The offeror may fix the time, place, and manner
2. Directed to the offeror; of acceptance, all of which must be complied
3. Made with the Intention to be bound with (CIVIL CODE, Art. 1321).
(animus contrahendi);
4. Made within the Proper time; and Note: An acceptance which is not made in the
5. Communicated to the offeror and learned by manner prescribed by the offeror is not effective,
him unless the offeror knows of the but constitutes a counter-offer which the offeror
acceptance. may accept (4 TOLENTINO, supra at 462).
Amplified Acceptance Offer Through an Agent

Under certain circumstances, a mere An offer made through an agent (not mere
amplification on the offer must be understood as messenger) is accepted from the time
an acceptance of the original offer, plus a new acceptance is communicated to him (CIVIL
offer which is contained in the amplification. The CODE, Article 1322).
intent of the offeree, however, controls (4
TOLENTINO, supra at 452). Note: Art. 1322 is not applicable when an
intermediary has no power to bind either the
Successive Agreements offeror or the offeree. Thus, the communication
If the intention of one or both parties is that there of the acceptance to him does not perfect the
be concurrence on all points, the contract is not contract (4 TOLENTINO, supra at 462).
perfected if there is a point of disagreement,
even if there is already agreement on the Note: Both the offer and acceptance are made
essential elements of the contract (e.g., either or through an agent (DE LEON, Obligations and
both parties have declared that there must be Contracts, supra at 575).
agreement on who should bear the expenses of
transportation of the thing upon delivery, the Note: If acceptance is through an agent, offer
contract is not yet perfected) (Id. at 453). must be authorized. (Ibid.)
Withdrawal of Acceptance
Crossing of Revocation and Acceptance
First View (Manresa): “Although the offeror is
General Rule: The expression of the will of a
not bound until he learns of the acceptance, the
person, addressed to another, does not become
same thing cannot be said of the offeree who,
effective except from the time it is received by
from the moment he accepts, loses the power to
the latter (4 TOLENTINO, supra at 465).
retract such acceptance since the right to
withdraw between the time of the acceptance
Exceptions
and its communication is a right which is
1. If the intention of the parties is not to
expressly limited by law to the offeror. Since the
demand an express acceptance, the tacit
offeree is the first person who knows of the
acceptance perfects the contract, and the
concurrence of wills of the parties, as a
subsequent receipt of letter of revocation is
consequence, the obligation, as far as he is
ineffective;
concerned, must also commence earlier.”
2. If the parties intended that there should be
an express acceptance, the contract will be
Second View (Dr. Tolentino): Acceptance may
perfected if the acceptance is the first to
be revoked before it comes to the knowledge of
reach the offeror; and it will not be
the offeror because in such case there is still no
perfected, if the revocation is the first to
meeting of the minds, since the revocation has
reach the offeree (Id. at 465-466).
cancelled or nullified the acceptance which
thereby ceased to have any legal effect
Theories that Determine the Exact Moment of
(JURADO, Obligations and Contracts, supra at
Perfection when Acceptance is Made by
407-408).
Letter or Telegram: (MERC)
1. Manifestation Theory – perfected from the
Implied Acceptance
moment the acceptance is declared or
Implied acceptance may arise from acts or facts
made.
which reveal the intent to accept, such as the
This is adhered to by the Code of
consumption of the things sent to the offeree, or
Commerce.
the fact of immediately carrying out the contract
2. Expedition Theory – perfected from the
offered (4 TOLENTINO, supra at 460, citing 1
moment the offeree transmits the
Von Tuhr, Obligaciones, p.139).
notification of acceptance to the offeror.

290
3. Reception Theory – perfected from the rewards (De La Rosa v. BPI, G.R. No. L-22359,
moment that the notification is in the hands November 28, 1924).
of the offeror in such a manner that he can,
under ordinary conditions, procure the Advertisements for Bidders
knowledge of its contents, even if he is not They are simply invitations to make proposals.
able to actually acquire such knowledge. The advertiser is not bound to accept the
4. Cognition Theory – perfected from the highest or lowest bidder, unless the contrary
moment the acceptance comes to the appears
knowledge of the offeror. This is adhered to (CIVIL CODE, Art. 1326).
by the Civil Code (JURADO, Obligations
and Contracts, supra at 402). Note: It is not applicable to judicial sales
because the highest bid must necessarily be
Silence Construed as Consent accepted
Requisites: (4 TOLENTINO, supra at 469).
1. There is a duty or possibility to express
oneself; Persons Incapacitated to Give Consent
2. The manifestation of the will cannot be The capacity of the contracting parties is an
interpreted in any other way; and indispensable requisite of consent (JURADO,
3. There is a clear identity in the effect of the Obligations and Contracts, supra at 417).
silence and the undisclosed will (4
TOLENTINO, supra at 455). 1. Minors
Exceptions:
Option Contract a. When the contract is entered into by a
A preparatory contract in which one party grants minor who actively misrepresents his
to the other, for a fixed period and under age not merely constructive
specified conditions, to decide whether or not to representation) (Mercado v. Espiritu,
enter into a principal contract (4 TOLENTINO, G.R. No. L-11872, December 1, 1917);
supra at 466).
Note: This exception is based on
It binds the party who has given the option not to estoppel.
enter into the principal contract with any other
person during the period designated, and within Estoppel presupposes capacity to
that period, to enter into such contract to whom misrepresent. The circumstances of the
the option was granted if the latter should decide minor (i.e. he appears to be of legal
to use the option (Id. at 466-467). age) must be of such nature that it could
have been relied upon by the other
Requisites: party. Otherwise, the contract remains
1. It is supported by an independent voidable (Mercado v. Espiritu, supra).
consideration;
b. When it involves the sale and delivery of
Note: If the option is without a necessaries to minors (CIVIL CODE,
consideration, it is a mere offer to sell which Art. 1489, par. 2);
is not binding until accepted. If, however, c. When it involves a natural obligation
acceptance is made before a withdrawal, it and such obligation is fulfilled voluntarily
constitutes a binding contract (Sanchez v. by the minor (CIVIL CODE, Arts. 1425-
Rigos, G.R. No. L-25494, June 14 1972). 27);
d. Contracts by guardians or legal
2. It is exclusive (4 TOLENTINO, supra at representatives (JURADO, Obligations
466). and Contracts, supra at 418);
e. When upon reaching the age of
Business Advertisements majority, they ratify the same (Ibañez v.
General Rule: They are mere invitations to Rodriguez, G.R. No. 23153, March 7,
make an offer, and not definite offers, unless it 1925); and
appears otherwise (CIVIL CODE, Art. 1325). f. When a minor opens a savings account
without the assistance of his parents,
Exception: Where a party publishes an offer to provided that the minor is at least 7
the world, and before it is withdrawn another years old and can read and write (PD
acts upon it, the party making the offer is bound 1734).
to perform his promise. This principle is
frequently applied in cases of the offer of

291
2. Insane or Demented Persons, unless the b. If deaf-mute knows how to read, but not
contract was entered into during a lucid interval write: Contract is VALID because reading
(CIVIL CODE, Art. 1328). means that the person is capable of
understanding (Ibid.).
An insane or demented person includes any
person, who, at the time of the celebration of the Note: If both of the parties are incapable of
contract, cannot understand the nature and giving consent, the contract is unenforceable
consequences of the act or transaction by (CIVIL CODE, Art. 1403).
reason of any cause affecting his intellectual or
sensitive faculties whether permanent or Incompetence
temporary (JURADO, Obligations and Incompetence under the Rules of Court is not
Contracts, supra at 421). necessarily a disqualification to give consent to
contracts (RULES OF COURT, Rule 93, Sec 2).
It is not necessary that there be a previous
declaration of mental incapacity in order that a Disqualification to Contract
contract entered into by a mentally defective Refers to those who are prohibited from entering
person may be annulled; it is enough that the into a contract with certain persons with regard
insanity existed at the time the contract was to certain property under certain circumstances
made (4 TOLENTINO, supra at 471). and not to those who are incapacitated to give
their consent to a contract (See CIVIL CODE,
State of Drunkenness or Hypnotic Spell Arts. 1490-91).
Contracts agreed to in a state of drunkenness or
during a hypnotic spell are voidable (CIVIL Incapacity to Give Consent v. Disqualification to
CODE, Art. 1328). But the same must be of a Contract
degree that obscures completely the faculties Incapacity to Give Disqualification to
and almost extinguishes the consciousness of Consent (CIVIL CODE, Contract (CIVIL CODE,
acts (JURADO, Obligations and Contracts, Art. 1327) Art. 1329)
supra at 422).
As to Restrictions
It is the result of the use of alcohol or drugs Restrains the exercise of Restrains the very right
upon the condition of the mind which determines the right to contract. itself.
whether the user has capacity to contract at any As to Basis
given moment; the mere use in itself does not
incapacitate him (4 TOLENTINO, supra at 472). Based upon subjective
Based upon public policy
circumstances of certain
and morality.
Lucid Interval persons.
A person under guardianship for insanity may As to Validity
still enter into a valid contract and even convey Voidable Void
property, provided it is proven that at the time of
entering into said contract, he was not insane or (JURADO, Obligations and Contracts, supra at 428).
that his mental defect, if mentally deranged, did
not interfere with or affect his capacity to Vices of Consent
appreciate the meaning and significance of the 1. Vices of the will (vicios de la formacion de la
transaction entered into by him (Ibid.). voluntad) (VIMFU)
a. Violence;
Presumption of Capacity b. Intimidation;
There is a prima facie presumption that every c. Mistake;
person of legal age possesses the necessary d. Fraud; and
capacity to execute a contract (JURADO, e. Undue influence (CIVIL CODE, Art. 1330)
Obligations and Contracts, supra at 423). 2. Vices of declaration (vicios de la declaracion)
Simulation of contracts (CIVIL CODE, Art. 1345-
3. Deaf-mutes who do not know how to write 1346).
Being a deaf-mute is not by itself alone a
disqualification for giving consent. The law Note: According to Manresa, Art. 1330 is a
refers to the deaf-mute who does not know how negative enumeration of the requisites of
to write (4 TOLENTINO, supra at 471). consent (JURADO, Obligations and Contracts,
a. If deaf-mute, but knows how to write: supra at 428).
Contract is VALID (DE LEON, Obligations
and Contracts, supra at 601). Requisites of Consent (CLIFSR)
1. Concurrence of the offer and acceptance;
2. Legal capacity; and

292
3. Intelligent, Free, Spontaneous, and contract foreign to the determination of the
4. Real (Ibid.) object
(4 TOLENTINO, supra at 480).
Note: In the absence of the first three requisites,
the contract is voidable. In the absence of the Two General Kinds of Mistake
fourth requisite, the contract may be either void Mistake of Fact Mistake of Law
ab initio or valid as far as the real agreement is
concerned, depending upon whether the As to Existence
simulation is absolute or relative (Ibid.). One or both parties
arrive at an erroneous
One or both contracting
Mistake conclusion regarding the
parties believe that a fact
Requisites: interpretation of a
exists when in reality it
1. The error must be substantial regarding: question of law or legal
does not or vice versa.
a. The object of the contract (error in re) effects of a certain act or
which may be: transaction.
i. Mistake as to the identity of the As to Vitiation of Consent
thing (error in corpore);
ii. Mistake as to the substance of the Does not vitiate consent
thing (error in substantia); except when it involves
iii. Mistake as to the conditions of the mutual error as to the
Vitiates consent
thing provided; or effect of an agreement
iv. Mistake as to the quantity of the when the real purpose is
thing (error in quantitate) (Id. at 430- frustrated.
431); (JURADO, Obligations and Contracts, supra at 429)
b. The conditions which primarily moved or
induced one or both of the parties to Requisites for Vitiation of Consent due to
enter into the contract (CIVIL CODE, Mutual Error (Mistake of Law):
Art. 1331); 1. Mistake must be of a past or present fact;
2. It must be with respect to the legal effect of
Note: The principal condition of the an agreement;
thing is its essential or substantial 3. It must be mutual; and
character, without which the thing 4. Parties’ real purpose must have been
ceases to be what it is (4 TOLENTINO, frustrated (Id. at 434) (See CIVIL CODE,
supra at 479). Art. 1334).
c. Identity or qualifications of one of the Note: Remedy is Annulment.

parties (error in persona), but only if
such was the principal cause of the Note: The obligation to show that the terms of
contract (CIVIL CODE, Art. 1331, Par. the contract had been fully explained to the
2). party who is unable to read or understand the
2. The error must be excusable. language of the contract, when fraud or mistake
3. The error must be a mistake of fact, and is alleged, devolves on the party seeking to
not of law (JURADO, Obligations and enforce it (CIVIL CODE, Art. 1332).
Contracts, supra at 430-432).
Note: Not only wrong conception of the For Article 1332 to apply, it must first be
thing but also the lack of knowledge with convincingly established that the illiterate or
th
respect to it (Manresa, 5 ed. Bk2, p. 395). disadvantaged party could not read or
understand the language in which the contract
Mistakes which do NOT in Any Manner Affect was written, or that the contract was left
the Validity of the Contract unexplained to said party (Dela Cruz v. Dela
1. Error with respect to accidental qualities of Cruz, G.R. No. 146222, January 15, 2004).
the object of the contract (e.g. the quality of
the paper of a book, the adjoining owners of Note: There is no mistake if the party alleging it
a piece of land); knew the doubt, contingency or risk affecting the
2. Error in the value of the thing (e.g. when a object of the contract (CIVIL CODE, Art. 1333).
person, having forgotten the cost price of
merchandise, erroneously sells it for less); Violence
and When in order to wrest consent, serious or
3. Error which refers, not to the conditions of irresistible force is employed (CIVIL CODE, Art.
the thing, but to accessory matters in the 1335).

293
Requisites: Note: Consent given through intimidation must
1. Must be serious or irresistible (JURADO, not be confused with consent given reluctantly
Obligations and Contracts, supra at 436); and even against good sense and judgment. It is
2. Must be the determining cause for the party clear that one acts as voluntarily and
upon whom it is employed in entering into independently in the eyes of the law when he
the contract (Ibid.); acts reluctantly and with hesitation as when he
3. It is not justified; and acts spontaneously and joyously (Vales v. Villa,
4. It is sufficient. G. R. No. 10028, December 16, 1916).
Intimidation Undue Influence

Requisites: When a person takes improper advantage of his
1. One party is compelled to give his consent power over the will of another, depriving the
by a reasonable and well-grounded fear of latter of a reasonable freedom of choice (CIVIL
an evil; CODE, Art. 1337).
2. The evil must be imminent and grave;
3. The evil must be upon his person or Requisites:
property, spouse, descendants or 1. Improper advantage;
ascendants; 2. Power over the will of another; and
4. It is the reason why he enters the contract; 3. Deprivation of the latter’s will of a
and reasonable freedom of choice (JURADO,
5. The evil must be unjust (JURADO, Obligations and Contracts, supra at 443).
Undue influence must be distinguished from
Note: To determine the degree of intimidation, in that in intimidation there must be
intimidation, the age, sex and condition of an unlawful or unjust act which threatens and
the person shall be borne in mind (CIVIL which causes consent to be given, while
CODE, Art. 1335, Par.3). in undue influence, there need not be an unjust
or unlawful act (4 TOLENTINO, supra at 501).
The intimidation that will annul a contract
has to do with evil or harm arising from an Test of Undue Influence: Whether or not the
unlawful act. The fear in itself does not influence exerted has so overpowered or
justify the annulment of the contract, unless subjugated the mind of a contracting party as to
such fear was induced by a threatened destroy his free agency, making him express the
wrong (4 TOLENTINO, supra at 491-492). will of another rather than his own (Coso v.
Fernandez Deza, G.R. No. L-16763, December
Reverential Fear 22, 1921).
If a contract is signed merely because of “fear of
displeasing persons to whom obedience and Circumstances Considered in Determining
respect are due,” the contract is still valid, for by whether the Influence Exerted is
itself, reverential fear is not wrong (PARAS, Civil Unreasonable: (FOCS-IMF)
Code, supra at 639). 1. Confidential relations;
2. Family relations;
Exception: If in addition to such fear of causing 3. Spiritual relations;
displeasure, there is an imposition upon the will, 4. Other relations between the parties; or
then the consent will be vitiated (4 TOLENTINO, 5. The person alleged to be unduly influenced
supra at 498). was suffering from Mental weakness, or was
Ignorant or in Financial distress (CIVIL
Violence v. Intimidation CODE, Art. 1337).
Violence Intimidation
Refers to physical Refers to moral Note: The circumstances are merely illustrative
compulsion compulsion and should not be taken as exclusive of other
External or prevents the Internal or induces the circumstances of similar nature or effect
will to manifest itself performance of an act (4 TOLENTINO, supra at 502).
(JURADO, Obligations and Contracts, supra at 435)
Note: By analogy, undue influence employed by
Note: Violence or intimidation shall annul the a third person may annul the contract (Id. at
obligation, although it may have been employed 503, citing Commission Memorandum to Joint
by a third person who did not take part in the Congressional Committee on Codification,
contract (CIVIL CODE, Art. 1336). March 8, 1951).

294
Fraud Dolo Causante v. Dolo Incidente
When, through insidious words or machinations Dolo Causante Dolo Incidente
of one of the contracting parties, the other is (CIVIL CODE, Art. 1338) (CIVIL CODE, Art. 1344)
induced to enter into a contract which, without
them, he would not have agreed to (CIVIL As to Extent of Misrepresentation
CODE, Art. 1338). Refers to those Refers to those
deceptions or deceptions or
Insidious Words and Machinations misrepresentations of a misrepresentations
Constitutes deceit, including false promises, serious character which are not serious in
exaggeration of hopes or benefits, abuse of employed by one party character and without
confidence, fictitious names, qualifications or and without which the which the other party
authority (4 TOLENTINO, supra at 505). other party would not would have still entered
have entered into the the contract
Note: The misrepresentations need not be by contract
means of words (Id. at 505-506). As to Extent of Fraud
Kinds of Fraud: Serious in character Not serious in character
1. Fraud in the perfection of the contract: As to Cause
a. Causal Fraud (Dolo Causante); and
It is the cause which It is not the cause that
b. Incidental Fraud (Dolo Incidente)
induces the party to induced the party to
2. Fraud in the performance of an obligation
enter into a contract enter into a contract
As to Effect
Note: Fraud in the performance of an obligation Renders the contract Renders the party liable
gives rise to a right of the creditor or obligee to voidable for damages
recover damages from the debtor or obligor,
while fraud in the perfection of the contract gives
rise to a right of the innocent party to ask for the
Note: Bad faith and fraud are allegations of fact
annulment of the contract if fraud is causal or to
that demand clear and convincing proof. They
recover damages if it is incidental (JURADO,
are serious accusations that can be so
conveniently and casually invoked, and that is
why they are never presumed (Cathay Pacific
Requisites of Fraud Under Article 1338:
Airways, Ltd., v. Sps. Vazquez, G.R. No.
(BED-SIN)
150843, March 14, 2003).
1. It must be made in Bad faith, i.e., with
knowledge of its falsity (Id. at 445-446).
Note: Failure to disclose facts, when there is a
2. One party must have Employed fraud or
duty to reveal them, constitutes fraud (CIVIL
insidious words or machinations
CODE, Art. 1339).
3. Damage or injury resulted to the other party;
4. It must have been Serious;
Principle of Tolerated Fraud (Dolus Bonus)
5. It Induced the other party to enter into a
The usual exaggerations in trade, when the
contract;
other party had an opportunity to know the facts,
6. It must have been employed by one
are not in themselves fraudulent (CIVIL CODE,
contracting party upon the other and Not
Art. 1340).
employed by both contracting parties or by
third persons;
This is known as “tolerated fraud” which
includes minimizing the defects of the thing,
Mutual Fraud
exaggerating its good qualities, and giving it
When both parties use fraud reciprocally, neither
qualities that it does not have. They do not affect
one has an action against the other, and neither
the validity of the contract, so long as they do
party can ask for the annulment of the contract
not go to the extent of malice or bad faith (4
(Valdez v. Sibal, G.R. No. L-26278, August 4,
1927).
Expression of an Opinion
A mere expression of an opinion does not
signify fraud unless made by an expert and the
other party relied on the former’s special
knowledge (CIVIL CODE, Art. 1341).

295
An opinion of an expert is like a statement of a does not prejudice a third person and is not
fact, and if false, may be considered a fraud intended for any purpose contrary to law,
giving rise to annulment (4 TOLENTINO, supra morals, good customs, public order or public
at 511). policy (CIVIL CODE, Art. 1346).
Fraud by Third Person Two juridical acts in relatively simulated

Fraud by a third person does not vitiate consent contracts:
and merely gives rise to an action for damages 1. Ostensible Act (apparent or fictitious) – the
by the party injured against such third person contract that the parties pretend to have
unless: executed;
1. It has created a substantial mistake and the 2. Hidden Act (real) – the true agreement
same is mutual (CIVIL CODE, Art. 1342). between the parties (Ibid.).
2. A third person makes the misrepresentation
with the complicity, or at least with the If the concealed or hidden act is lawful, it is
knowledge but without the objection, of the enforceable if the essential requisites are
contracting party who is favored (JURADO, present, such as when the true consideration
Obligations and Contracts, supra at 449). was not stated. Its validity and effects will be
governed by the rules applicable to it, and not by
Note: Misrepresentation made in good faith is those applicable to the apparent contract (4
not fraudulent but may constitute error (CIVIL TOLENTINO, supra at 518).
CODE, Art. 1343). With respect to a third person acting in good
faith, the apparent contract must be considered
When two persons constitute one party of the as the true contract. The declaration that the
contract with respect to another, the deceit contract is simulated does not prejudice him (Id.
exercised by one of them upon his co-party, is at 519).
not a cause for annulment of the contract.
Relative simulation is presumed by law in cases
Simulation of Contracts involving the badges of an equitable mortgage
It is the declaration of a fictitious will, under Art. 1602 (Id. at 518).
deliberately made by agreement of the parties,
in order to produce, for purposes of deception, II. OBJECT
the appearance of a juridical act which does not The thing, right or service which is the subject
exist or is different from that which was really matter of the obligation arising from the contract
executed (4 TOLENTINO, supra at 516). (JURADO, Obligations and Contracts, supra at
456).
Requisites: (DAP)
1. A Deliberate declaration contrary to the will Requisites:
of the parties; 1. Must be within the commerce of man (CIVIL
2. Agreement of the parties to the apparently CODE, Art. 1347);
valid act; and 2. Should be real or possible (CIVIL CODE,
3. The Purpose is to deceive or to hide from Art. 1348);
third persons although it is not necessary 3. Should be licit (CIVIL CODE, Art. 1347); and
that the purpose be illicit or for purposes of 4. Should be determinate, or at least possible
fraud (Loyola v. CA, G.R. No. 115734, of determination as to its kind (CIVIL CODE,
February 23, 2000). Art. 1349).
Kinds of Simulation of Contract: Note: The genus or kind of the object must be
1. Absolute (simulados) – parties do not intend expressed.
to be bound by the contract at all. It is void
(JURADO, Obligations and Contracts, supra Quantity should be Determinate as to its
at 454; there is color of contract, without any Kind or Species
substance thereof, the parties not having The fact that the quantity is not determinate
any intention to be bound shall not be an obstacle to the existence of the
(4 TOLENTINO, supra at 516;) and contract, provided it is possible to determine the
2. Relative (disimulados) – the parties have an same, without the need of a new contract
agreement which they conceal under the between the parties (CIVIL CODE, Art. 1349).
guise of another contract (Ibid.).
The object of a contract, in order to be
Note: A relatively simulated contract binds considered as “certain,” need not specify such
the parties to their real agreement, when it object with absolute certainty as long as it is

296
determinable (Domingo Realty v. CA, G.R. No. in existence at the moment of the
126326, January 26, 2007). celebration of the contract, or at least, it can
exist subsequently or in the future (4
Things which Cannot be the Object of TOLENTINO, supra at 521).
Contracts
General Rule: All things or services may be the Future Thing
object of contracts. This includes future things or A future thing may be the object of a contract.
rights which do not belong to the obligor when Such contract may be either be:
the contract was made (CIVIL CODE, Art. 1. Conditional – if its efficacy should depend
1347). upon the future existence of the thing (Ibid.)
2. Aleatory – if one of the contracting parties
Exceptions: (FISION) should bear the risk that the thing will never
1. Future inheritance, except in cases come into existence. (Id. at 522).
expressly authorized by law, i.e. Art. 1080 of
the Civil Code and Art. 84 of the Family Kinds of Impossibility
Code (CIVIL CODE, Art. 1347); 1. Absolute or objective – when nobody can
perform the service. It nullifies the contract;
Requisites of Future Inheritance: or
a. The succession has not yet been 2. Relative or subjective – when due to the
opened; special conditions or qualifications of the
b. The object of the contract forms part of debtor it cannot be performed. If temporary,
the inheritance; and it does not nullify the contract (Id. at 526).
c. The promissor has an expectancy of a
right which is purely hereditary in Partial Impossibility
nature. If the thing is partly possible and partly
impossible, the effect will depend upon the
Note: After the death of a person, the divisibility of the thing. If it is indivisible, by its
properties and rights left by him by way of nature or by the intention of the parties, there is
inheritance can be the subject matter of a no contract; the consent would be wanting. But if
contract among or by his heirs, even before the thing is divisible, then the contract is valid to
a partition thereof has been made, because the extent possible (Id. at 527, citing 5 Vera 36-
the rights of the heirs are transmitted to 37).
them from the moment of death of the
predecessor (4 TOLENTINO, supra at 524). Difficulty of Performance
A showing of mere inconvenience, unexpected
Exception to the exception: impediments, or increased expenses is not
In case of partition of properties inter vivos enough to relieve a party of the obligation (De
by the deceased under Art. 1080 of the Civil Castro v. Longa, G.R. No. L-2152-53, July 31,
Code (JURADO, Obligations and Contracts, 1951).
supra at 461).
III. CAUSE
2. Intransmissible rights (CIVIL CODE, Art It is the immediate, direct or most proximate
1347); reason which explains and justifies the creation
3. Services contrary to law, morals, good of an obligation through the will of the
customs, public order or public policy (CIVIL contracting parties (JURADO, Obligations and
CODE, Art. 1306); Contracts, supra at 464).
4. Impossible things or services; and
Essential Requisites of Cause: (ELT)
Note: It must be actual and 1. Existing at the time of the celebration of the
contemporaneous with the making of the contract;
contract, and not subsequent thereto (4 2. Licit or lawful; and
TOLENTINO, supra at 525). 3. True (JURADO, Obligations and Contracts,
supra at 472).
5. Things Outside the commerce of men
(CIVIL CODE, Art. 1347); Note: A promise made by one party, if made in
6. Objects Not possible of determination as to accordance with the forms required by law, may
their kind. be a good cause or consideration for a promise
made by the other party (4 TOLENTINO, supra
Note: In order that a thing, right or service at 532).
may be the object of a contract, it should be

297
Cause v. Object Moral Obligation as Cause
Cause Object Where the moral obligation arises wholly from
ethical considerations, unconnected with any
In Remuneratory Contracts civil obligations, it cannot constitute a sufficient
The service or benefit The thing which is given cause or consideration to support an onerous
which is remunerated in remuneration contract (Fisher v. Robb, G.R. No. 46274,
In Gratuitous Contracts November 2, 1939).
The liberality of the The thing which is given Where such moral obligation is based upon a
donor or benefactor or donated previous civil obligation which has already been
As to the Thing barred by the statute of limitations at the time
when the contract is entered into, it constitutes a
Prestation or promise of
sufficient cause or consideration to support a
a thing or service by the The thing or service itself
contract (Villaroel v. Estrada, G.R. No. 47362,
other
December 19, 1940), it is then already a natural
As to Contracting Parties obligation.
Different with respect of May be the same for
each party both the parties Effects of Lack, Illegality, Falsity or
Inadequacy of Cause
(Id. at 464-465)
1. Total lack or absence of cause – the
contract confers no right and produces no
Cause v. Motive
legal effect (CIVIL CODE, Art. 1352)
Cause Motive 2. Illegal/Unlawful cause – the contract is null
As to Proximity and void (CIVIL CODE, Art. 1409(1)
3. False cause – the contract is valid unless it
Direct and most
Indirect/particular or should be proved that it be founded upon
proximate/essential
remote reason another cause which is true and lawful (See
reason of a contract
CIVIL CODE, Art. 1346)
As to Characteristic of Reason 4. Inadequacy of cause/Lesion – the contract
Objective or juridical Psychological, individual is valid unless there has been fraud,
reason for the existence or purely personal mistake or undue influence and in those
of a contract reason cases provided in Article 1381.
As to Contracting Parties Note: Even if the consideration for the contract
Always the same for Differs for each is only P1.00, it will not render the contract void,
each contracting party contracting party because it is the absence of consideration, not
mere inadequacy which will result in a void
As to Effect in the Validity of Contract
contract (Carantes v. CA, G.R. No. L-33360,
Its legality affects the Its legality does not April 25, 1977).
existence or validity of affect the existence or
the contract validity of contract Presumption of Lawful Cause
(Id. at 466) When the cause is not stated, it shall be
presumed to be in existence and lawful unless
Note: Motive becomes causa when it predetermines proof to the contrary is shown (CIVIL CODE,
the purpose of the contract (Ibid). Art.1354).
Cause in Onerous Contracts: The prestation or

promise of a thing or service by the other (Id. at F ORM OF C ONTRACTS
468).
Cause in Remuneratory Contracts: Past service Form of Contracts

or benefit which by itself is a recoverable debt (Id. at Article 1356 retained the “Spiritual System” of the
471). Spanish Code by virtue of which the law looks more
at the spirit rather than the form of contracts
Cause in Gratuitous Contracts: Mere liberality of (JURADO, Obligations and Contracts, supra at 479).
the benefactor (Id. at 472).
General Rule: Contracts shall be obligatory, in
Cause in Accessory Contracts: Same as that of whatever form they may have been entered into,
the principal contract (Id. at 469). provided all the essential requisites for their validity
are present (CIVIL CODE, Art. 1356).

298
Exceptions: d. The cession of actions or rights proceeding
1. When the law requires that the contract be in a from an act appearing in a public document
certain form to be valid (CIVIL CODE, Art. (CIVIL CODE, Art. 1358, Par. 4).
1356);
2. When law requires that the contract be in a Contracts Which Must be Registered:
certain form to be enforceable (Statute of 1. Chattel mortgages (CIVIL CODE, Art. 2140);
Frauds and CIVIL CODE, Art. 1403); and and
3. When required to make the contract effective as 2. Sale/transfer of large cattle (Cattle Registration
against third parties (CIVIL CODE, Art.1357- Act).
1358).
Note: Art. 1357-1358 do not require the execution of
Note: Where the validity of a contract is made to the contract either in a public/private document in
depend upon a particular formality, an action under order to validate/enforce it but only to insure
Art. 1357 cannot be brought to compel the other efficacy, so that after its existence has been
party to execute such formality. Art.1357 admitted, the party bound may be compelled to
presupposes the existence of a valid contract and execute the necessary document (JURADO,
cannot possibly refer to the form to make it valid Obligations and Contracts, supra at 484).
(See CIVIL CODE, Art. 1356).
Note: The fact that the plaintiff has not made use of
Contracts which Must Appear in Writing: the privilege granted does not bar his action on the
(500-CALI) contract (4 TOLENTINO, supra at 545, citing
1. Donation of personal property whose value Sentencia, May 3, 1897).
exceeds five hundred (500) pesos (CIVIL
CODE, Art. 748); Proper Action
2. Stipulation limiting Common carrier’s duty of When one of the contracting parties invoke Articles
extraordinary diligence to ordinary diligence 1357-1358 by means of proper action, the effect is
(CIVIL CODE, Art. 1744); to place the existence of the contract in issue, which
3. Antichresis (CIVIL CODE, Art. 2134); must be resolved by the ordinary rules of evidence
4. Sale of a piece of Land or any interest therein (JURADO, Obligations and Contracts, supra at 484).
through an agent (CIVIL CODE, Art. 1874); and
5. Agreements regarding payment of Interest in Actions to compel the execution of the necessary
contracts of loan (CIVIL CODE, Art. 1956). document and action upon the contract may be
exercised simultaneously, unless it appears that the
Contracts which Must Appear in a Public former action must precede the latter (Ibid.)
Document:
1. Essential for Validity Although Article 1357, in connection with Article
a. Donation of immovable properties (CIVIL 1358, do not operate against the validity of the
CODE, Art. 749); contract nor the validity of the acts voluntarily
b. Partnership where immovable property or performed by the parties for the fulfillment thereof,
real rights are contributed to the common yet from the moment when any of the contracting
fund (CIVIL CODE, Arts. 1171 and 1773); parties invokes said provisions, it is evident that
2. For Efficacy and Convenience under them execution of the required document
a. Acts and contracts which have for their must precede the determination of the obligations
object creation, transmission, modification derived from the contract (Id. at 484-485).Id.
or extinguishment of real rights over
immovable property; sales of real property Signing of Instruments
or of an interest therein is governed by Art. A contract may be encompassed in several
1403, Par. 2 and 1405 (CIVIL CODE , Art. instruments even though every instrument is not
1358, Par. 1); signed by the parties since it is sufficient if the
b. The cession, repudiation or renunciation of unsigned instruments are clearly identified or
hereditary rights or of those of the conjugal referred to and made part of the signed instruments
partnership of gains (CIVIL CODE , Art. (BF Corporation v. CA, G.R. No. 120105, March 27,
1358, Par. 2); 1998).
c. The power to administer property, or any
other power which has for its object an act Electronic Contracts
appearing or which should appear in a The formal requirements to make contracts effective
public document, or should prejudice a third as against third persons and to establish the
person (CIVIL CODE , Art. 1358, Par. 3); existence of a contract are deemed complied with
and provided that the electronic document is unaltered

299
and can be authenticated as to be usable for future Causes/Grounds for Reformation:
reference (RA 8792). 1. Mutual – In case of mutual mistake of the parties
R EF ORMATION OF Requisites:
I NSTRUMENTS a. Mistake must be mutual;
b. Mistake must be of a fact;
c. Mistake must cause the failure of the
Reformation of Instruments instrument to express their true intention;
The remedy through which a written instrument is and
made or construed so as to express or conform to d. There must be clear and convincing proof of
the real intention of the parties when some error or the mutual mistake (DE LEON, Obligations
mistake has been committed (JURADO, Obligations and Contracts, supra at 720).
and Contracts, supra at 487).
In case of mutual mistakes, reformation may be
Reason: It would be unjust and inequitable to allow ordered at the instance of either parties or his
the enforcement of a written instrument which does successors in interest; otherwise, it may only be
not reflect or disclose the real meeting of the minds brought by the petition of the injured party or his
of the parties. It is to forestall the effects of mistake, heirs and assigns (CIVIL CODE, Art. 1368).
fraud, inequitable conduct or accident (Report of the 2. Unilateral – When one party was mistaken and
Code Commission, p.56). the other party acted fraudulently (CIVIL CODE,
Art. 1362).
The courts, by reformation, do not attempt to make a 3. Mistake by Third Person – When one party was
new contract for the parties, but to make the mistaken, the other knew or believed that the
instrument express their real agreement (Ibid.) instrument does not show their real intent but
concealed that fact to the former (CIVIL CODE,
Requisites: Art. 1363).
1. Meeting of the minds of the parties; 4. In case of ignorance, lack of skill, negligence or
2. Their true intention is not expressed in the bad faith on the part of the person drafting the
instrument; instrument or the clerk or typist (CIVIL CODE,
3. Failure to express true intention is due to Art. 1364); and
mistake, fraud, inequitable conduct or accident 5. Others Specified by Law – When parties agree
4. The facts upon which relief by way of upon the mortgage or pledge of a real or
reformation of the instrument is sought are put in personal property, but the instrument states that
issue by the pleadings (DE LEON, Obligations the property is sold absolutely or with a right of
and Contracts, supra at 648); and repurchase (CIVIL CODE, Art. 1365).
5. Clear and convincing proof of mistake, accident,
relative simulation, fraud, or inequitable conduct Instances When There Can Be NO Reformation
(JURADO, Obligations and Contracts, supra at 1. Simple donations inter vivos wherein no
488). condition is imposed (CIVIL CODE, Art. 1366);
Reformation Annulment Reason: An action to reform an instrument is in

the nature of specific performance and requires
As to Validity of Contract a valuable consideration – an element lacking
Presupposes that there as between donor and donee, and between
The contract was not
is a valid contract but the testator and beneficiary (4 TOLENTINO, supra
validly entered into as
document/instrument at 556).
when their minds did not
executed does not
meet or if the consent
express their true 2. Wills (CIVIL CODE, Art. 1366);
was vitiated
intention
As to Effect Note: Only imperfect or erroneous descriptions
of persons or property can be corrected; but the
Gives life to the contract manner in which the testator disposes of his
Involves a complete
by making the instrument property cannot be changed by a reformation of
nullification of the
conform to the true the instrument (Id. at 556).
contract
intention of the parties
(Id. at 488-489). 3. When the real agreement is void (CIVIL CODE,
Art.1366)

300
Note: Upon the reformation of an instrument, When the true intent and agreement of the
the general rule is that it relates back to and parties is established, it must be given effect
takes effect from the time of its original and prevail over the bare words of the written
execution as between the parties. contract
(4 TOLENTINO, supra at 559-560).
If mistake, fraud, inequitable conduct or accident
has prevented a meeting of the minds of the 3. The contemporaneous and subsequent acts of
parties, the proper remedy is not reformation of the parties shall be considered (CIVIL CODE,
the instrument but annulment of the contract Art. 1371).
(CIVIL CODE, Art. 1359, Par.2).
Note: Where the parties themselves have
Expediency and convenience are not grounds placed an interpretation to their contract or its
for the reformation of an instrument (Multi- terms, the court must follow such interpretation
Ventures Capital and Management Corp., v. as indicating the intention of the parties (4
Stalwart Management Services Corp., G.R. No. TOLENTINO, supra at 561-562).
157439, July 4, 2007).
4. If the terms in a contract are general, they shall
4. When one of the parties has brought an action not be understood to comprehend things that
to enforce the instrument, no subsequent are distinct and different from those which the
reformation can be asked (Principle of Estoppel) parties intended (CIVIL CODE, Art. 1372).
Note: A particular intent will control over a
In case of mutual mistakes, reformation may be general one that is inconsistent with it (4
ordered at the instance of either parties or his TOLENTINO, supra at 562).
successors in interest, otherwise it may only be
brought by the petition of the injure party or his 5. If some stipulations admit of several meanings,
heirs and assigns (CIVIL CODE, Art. 1365). it shall be understood as bearing that import
which is most adequate to render it effectual
Who May Ask for Reformation: (CIVIL CODE, Art. 1373).
1. Either party or his successors in interest, if the
mistake was mutual; otherwise Note: Where the instrument is susceptible of
2. Upon petition of the injured party, or his heirs two interpretations, one which will make it invalid
and assigns (CIVIL CODE, Art. 1368). and illegal and another which will make it valid
and legal, the latter interpretation should be
INTERPRETATION OF CONTRACTS adopted (4 TOLENTINO, supra at 563).
1. If the terms are clear and no doubt upon the
intention of the parties, the literal meaning of its 6. Various stipulations shall be interpreted together
stipulation shall control (CIVIL CODE, Art. 1370, (CIVIL CODE, Art. 1374).
Par. 1).
Note: A contract cannot be construed by parts,
The contract is the law between the parties and but its clauses should be interpreted in relation
when the words of the contract are clear and to one another. The whole contract must be
can easily be understood, there is no room for interpreted or read together in order to arrive at
construction (Olivares and Robles v. Sarmiento, its true meaning (4 TOLENTINO, supra at 563).
G.R. No. 158384, June 12, 2008).
7. Words with different significations shall be
Whatever is not found in writing must be understood in that which is most keeping with
understood as waived and abandoned (Del the nature and object of the contract (CIVIL
Rosario v. Santos, G.R. No. L-46892, CODE, Art. 1375).
September 30, 1981). 8. Usage or custom of the place shall be taken in
the interpretation of the ambiguities of a contract
Note: A contract is what the law defines it to be, and shall fill the omissions which are ordinarily
and not what it is called by the contracting established (CIVIL CODE, Art. 1376)
parties (Novesteras vs. CA, G.R. No. L-36654, 9. Interpretation of obscure words or stipulations
March 3, 1987). shall not favor those who caused the obscurity
2. If words are contrary to the intention, the latter
shall prevail over the former (CIVIL CODE, Art. Note: The party who draws up a contract in
1370, Par. 2). which obscure terms or clauses appear, is the
one responsible for the obscurity or ambiguity;

301
they must therefore be construed against him (4
10. Rule 123 of the Rules of Court shall likewise be

observed in the construction of contracts (CIVIL
CODE, Art. 1379).
Note: When an instrument consists partly of

written words and partly of a printed form, and
the two are inconsistent, the former controls the
latter (RULES OF COURT, Rule 130, Sec. 15).
Rules on Settling Doubts in Contracts

1. Gratuitous Contracts - when the doubts refer to
its incidental circumstances, the least
transmission of rights and interests shall prevail
(CIVIL CODE, Art. 1378);
2. Onerous Contracts – the doubt shall be settled
in favor of the greatest reciprocity of interests
3. Principal Object – if the doubts are cast upon
the principal object of the contract in such a way
that it cannot be known what may have been the
intention or will of the parties, the contract shall
be null and void (CIVIL CODE, Art. 1378).

302
C OMPARATIVE T ABLE OF D EFECTIVE C ONTRACTS
Void Inexistent Voidable Rescissible Unenforceable

As to Defect
Defect is caused by Defect is caused by Defect is caused by Defect is caused by Defect is caused by
lack of essential the absence of at vice of consent injury/ damage lack of form,
elements or illegality least one of the either to one of the authority, or capacity
essential requisites. parties or to a third of both parties not
person cured by prescription
As to Effect
Valid and Valid and
Cannot be enforced
Do not, as a general rule, produce any legal enforceable until enforceable until
by a proper action in
effect annulled by a rescinded by a
court
competent court competent court
As to Prescription of Action or Defense
Corresponding action
for recovery, if there
Action for annulment was total or partial
Action for the declaration or nullity or
or defense of Action for rescission performance of the
inexistence or defense of nullity or
annulability may may prescribe unenforceable
inexistence does not prescribe
prescribe contract under No. 1
or 3 of Article 1403
may prescribe
As to the Effect of Prescription
Not cured by
prescription except in
Not cured by prescription Cured by prescription Cured by prescription
case of Art. 1403
Nos. 1 or 3
As to Susceptibility of Ratification
Cannot be ratified Can be ratified Need not be ratified Can be ratified
As to Who May Assail Contracts
Assailed by a
contracting party and
Assailed by a contracting party and a third Assailed only by a a third person who is Assailed only by a
person whose interest is directly affected contracting party prejudiced or contracting party
damaged by the
contract
As to How Contracts May be Assailed
Assailed directly or Assailed directly or
Assailed directly or collaterally Assailed directly only
collaterally collaterally

303
Rescissible Contracts (JURADO, Obligations and Contracts, supra at 529-530).
How Cured By Whom Cured Period of Curing

1. Those entered by guardians
where the Ward suffers
Within four years from
lesion of more than ¼ of the By ward
gaining capacity
value of the things which are
objects thereof;
2. Those agreed upon in
representation of absentees, Within four years from
if the latter suffers lesion by knowledge of domicile
By absentee
more than ¼ of the value of or knowledge of
the things which are subject fraudulent contract
thereof;
3. Those undertaken in fraud of
creditors when the latter
By creditor knowledge of
cannot in any manner claim
fraudulent act
what are due them
4. Payments made in a state of
insolvency for obligations Within four years from
whose fulfillment the debtor By creditor knowledge of
could not be compelled at fraudulent contract
the time they were effected
5. Those which refer to the By ratification
things under litigation if they
have been entered into by
By party litigant knowledge of
the defendant without the
fraudulent contract
knowledge and approval of
the litigants and the court
Voidable Contracts (Id. at 546-549)
1. Those where one of the Within four years from
By party who is
parties is incapable of giving gaining or regaining
incapacitated
consent to the contract capacity to act
cessation of force,
By party whose consent intimidation or undue
2. Vitiation of consent
By ratification was vitiated influence; within four
years from discovery
of fraud or mistake
Unenforceable Contracts (Id. at 570-573)
1. Contract entered into in the
Person in whose name
name of the owner without
By ratification the contract is entered
authority or in excess of
into
authority
By
acknowledgement
or by performance
of oral contract or
2. Contract entered which does by failure to object By party against whom
not comply with the Statutes seasonably to the contract is being
of Fraud presentation of oral enforced
evidence, or by
acceptance of
benefits under the
contract
By parents of guardians
3. Both contracting parties do
of both parties, or both
not possess required legal By confirmation
parties after regaining
capacity
capacity to act

304
Resolution for Breach Rescission by Reason
R ESCISSIBLE C ONTRACTS of Stipulation (CIVIL of Lesión or Damage
CODE, Art. 1191)
As to Power of the Courts
These are contracts which are valid but are May be denied by court
defective because of injury or damage to either of Extension of time does
when there is sufficient
the contracting parties or to third persons, as a not affect the right to ask
reason to justify the
consequence of which it may be rescinded by for rescission
extension of time
means of a proper action for rescission (Id. at 502). As to Causes
Non-performance is the Various reasons of
Concept of Rescission only ground for the right equity are grounds for
Rescission is a remedy granted by law to the to rescission rescission
contracting parties and even to third persons, to As to Contracts Which May be Rescinded or
secure the reparation of damages caused to them Resolved
by a contract, even if this should be valid, by means Applies only to
of the restoration of things to their condition at the Applies to either
reciprocal obligations
moment prior to the celebration of the contract (4 reciprocal or unilateral
where one party has
TOLENTINO, supra at 576, citing 8 Manresa 748- obligations and whether
failed to comply with
749). the contract has been
what is incumbent upon
fully fulfilled or not
him
Resolution for Breach of Stipulation and (Congregation of the Religious of the Virgin Mary,
Rescission by Reason of Lesión or Damage et.al., v. Orola, G.R. No. 169790, April 30, 2008)
Distinguished
Resolution for Breach Rescission by Reason Characteristics of Rescissible Contracts:
of Stipulation (CIVIL of Lesión or Damage 1. The defect consists in injury or damage either to
CODE, Art. 1191) one of the contracting parties or to third persons
As to Nature of Action (CIVIL CODE, Art. 1381);
Principal action; Subsidiary action and 2. Before rescission, they are valid, and therefore,
retaliatory action involves partial legally effective;
against the other party resolution 3. They can be attacked directly only and not
As to Basis collaterally;
Based on lesion or 4. They can be attacked only by a contracting party
economic prejudice, or a third person who is injured or defrauded;
rendering the contract and
Based on breach of rescissible by law 5. They are susceptible of convalidation only by
trust prescription and not ratification (JURADO,
Note: Not all economic Obligations and Contracts, supra at 503).
prejudices are
2
recognized by law Requisites of Rescission: 4-PNR
As to the Requirement of Mutual Restitution 1. Action must be brought within four (4) years
Requires mutual Requires mutual (CIVIL CODE, Art. 1389);
restitution as governed restitution as governed 2. Things which are the object of the contract must
by Art. 1191 by Art. 1381 not have Passed legally to the possession of a
As to Effect third person acting in good faith (CIVIL CODE,
Termination of the Abrogation of the Art. 1385);
obligation and release contract from the 3. Party asking for rescission must have No other
of the parties from beginning and to restore legal means to obtain reparation for the
further obligations form the parties to their damages suffered by him (CIVIL CODE, Art.
each other relative positions as if no 1383);
contract has been made 4. Contract must be Rescissible under Articles
1381 and 1382; and
To declare the contract 5. Person demanding rescission must be able to
void at its inception and Return whatever he may be obliged to restore if
to put an end to it though rescission is granted (CIVIL CODE, Art. 1385).
it never was
2
As to Party Who May Institute Action Contracts that are Rescissible: GATUS
May be demanded only May be demanded by a 1. Due to Lesion
by a party to the third party prejudiced in a. Those entered into by Guardians where the
contract the contract ward suffers lesion of more than one-fourth

305
(¼) of the value of the things which are with Art. 1654 and 1657 (CIVIL CODE, Art.
objects thereof; 1659)
b. Those agreed upon in representation of
Absentees, if the latter suffer lesion by more Lesion
than one-fourth (¼) of the value of the The injury which one of the parties suffers by virtue
things which are subject thereof; of a contract which is disadvantageous for him. To
2. Due to Fraud give rise to rescission, the lesion must be known or
a. Those which refer to Things under litigation could have been known at the time of making of the
if they have been entered into by the contract (4 TOLENTINO, supra at 574).
defendant without the knowledge and
approval of the litigants and the court; and Requisites Before a Contract Entered Into in
b. Those Undertaken in fraud of creditors Behalf of Wards or Absentees May be Rescinded
when the latter cannot in any manner claim on the Ground of Lesion:
what are due them; 1. Contract was entered into by a guardian in
c. Payments made in a State of insolvency for behalf of his ward or by a legal representative in
obligations whose fulfillment the debtor behalf of an absentee (CIVIL CODE, Art. 1381,
could not be compelled at the time they Nos. 1 and 2);
were effected; 2. It was entered into without judicial approval
3. All other contracts Specially declared by law to (CIVIL CODE, Art. 1386);
be subject to rescission (CIVIL CODE, Art. 3. Ward or absentee suffered lesion of more than
1381-1382). one-fourth (¼) of the value of the property which
is the object of the contract (CIVIL CODE, Art.
Examples of Contracts Declared to be Subject to 1381, Nos. 1 and 2);
Rescission: 4. There is no other legal means of obtaining
1. Partition of inheritance where an heir suffers reparation for the lesion (CIVIL CODE, Art.
lesion of at least one-fourth (¼) of the share to 1383);
which he is entitled (CIVIL CODE, Art. 1098); 5. Person bringing the action must be able to
2. Deterioration of the thing through the fault of the return whatever he may be obliged to restore
debtor, if the creditor chooses to rescind (CIVIL (CIVIL CODE, Art. 1385, Par. 1); and
CODE, Art. 1189, Par. 4); 6. Object of the contract must not be legally in the
3. Right of unpaid seller to rescind (CIVIL CODE, possession of a third person who did not act in
Art. 1526[4]); bad faith (CIVIL CODE, Art. 1385, Par. 2).
4. Deterioration of the object of the sale (CIVIL
CODE, Art. 1538); Note: A guardian is authorized only to manage the
5. Sale of real estate with a statement of its area, estate of the ward; should he dispose a portion
at the rate of a certain price for a unit of thereof without authority from the court by way of a
measure or number and the vendor failed to contract, the same is unenforceable under Art.
deliver the area stated, the vendee may ask for 1403[1], irrespective of whether there is lesion or not
rescission of the contract if the lack of area is (JURADO, Obligations and Contracts, supra at 506).
not less than one-tenth (1/10) of that stated
(CIVIL CODE, Art.1539); Contracts in Fraud of Creditors
6. The vendee does not accede to the failure to These are contracts executed with the intention to
deliver what has been stipulated (CIVIL CODE, prejudice the rights of creditors, and should not be
Art. 1542); confused with those entered into without such
7. When through eviction, the vendee loses a part intention, even if, as a consequence thereof, some
of the thing sold of such importance, in relation particular damage may be caused to a creditor (4
to the whole, that he would not have bought it TOLENTINO, supra at 575).
without said part (CIVIL CODE, Art. 1556);
8. If immovable sold is encumbered with any non- Requisites before a Contract Entered into in
apparent burden or servitude of such nature that Fraud of Creditors May be Rescinded:
it cannot be presumed that the vendee could not 1. There is a credit existing prior to the celebration
have acquired it had he been aware thereof, the of the contract;
vendee may ask for rescission (CIVIL CODE, 2. There is fraud, or at least, the intent to commit
Art. 1560); fraud to the prejudice of the creditor seeking
9. Election of the vendee to withdraw from the rescission;
contract in the cases under Art. 1561, 1562, 3. Creditor cannot in any legal manner collect his
1564, 1565 and 1566 (CIVIL CODE, Art. 1567); credit; and
and 4. Object of the contract must not be legally in the
10. Rescission by the aggrieved party in a contract possession of a third person who did not act in
of lease when the other party does not comply bad faith (Id. at 508).

306
Accion Pauliana Note: The test as to whether or not a conveyance is
The action to rescind contracts in fraud of creditors fraudulent is if it prejudices the rights of the
is known as accion pauliana (Ibid.). Consequently, creditors. The fraud that justifies the accion pauliana
accion pauliana presupposes a judgment and is not characterized by the intention to injure the
unsatisfied execution which cannot exist when the creditor, but by the knowledge that damage would
debt is not yet demandable at the time the be inflicted (4 TOLENTINO, supra at 580).
rescissory action is brought (Id. at 576).
Requisites Before Payment made by Insolvent
Note: Even secured creditors are entitled to accion can be Rescinded:
pauliana (Id. at 579). 1. It was made in a state of insolvency; and
2. Obligation must have been one which the debtor
Do all creditors benefit from the rescission of could not be compelled to pay at the time such
the contract? payment was effected (JURADO, Obligations
As a rule, the rescission should benefit only the and Contracts, supra at 509).
creditor who obtained the rescission, because the
rescission is to repair the injury caused to him by the Apparent Conflict between Civil Code Article
fraudulent alienation. If a balance is left after 1382 and Article 1198[1] if the Obligation is
satisfying the claim of the creditor who brought the subject to Suspensive Period
action, other creditors who are qualified to bring an Under Article 1382 of the Civil Code, payment made
accion pauliana should be given the benefit of by an insolvent is rescissible. Under Article 1198[1]
rescission, instead of requiring them to bring other of the Civil Code, a debtor can be compelled to pay
rescissory actions. However, creditors who only by the creditor even before the expiration of the
became such after the fraudulent alienation, cannot period since by his insolvency he has already lost
benefit from the rescission (Id. at 583). his right to the benefit of such period.
Presumption of Fraud The conflict can easily be resolved by considering

When alienation of property is presumed in the priority of dates between the two debts. If the
fraud of creditors: obligation with a period became due before the
1. Alienation by gratuitous title if the debtor has not obligation to the creditor seeking the rescission
reserved sufficient property to pay all of his became due, then the latter cannot rescind the
debts contracted before alienation (CIVIL payment even if such payment was effected before
CODE, Art. 1387, Par. 1); the expiration of the period; but if the obligation with
2. Alienation by onerous title if made by a debtor a period became due after the obligation to the
against whom some judgment has been creditor seeking rescission became due, then the
rendered in any instance or some writ of latter can rescind the payment (Id. at 510, citing 8
th
attachment has been issued (CIVIL CODE, Art. Manresa, 5 Ed., Bk. 2, p. 536).
1387, Par. 2).
Parties Who May Institute Action:
Badges of Fraud: 1. The creditor who is defrauded in rescissory
1. The fact of inadequate or fictitious cause or actions on ground of fraud, and other person
consideration of the conveyance; authorized to exercise the same in other
2. Transfer by a debtor after suit has been begun rescissory actions;
and while it is pending against him; 2. Their representatives;
3. Sale on credit by an insolvent debtor; 3. Their heirs; and
4. Evidence of large indebtedness or complete 4. Their creditors by virtue of the subrogatory
insolvency action defined in Art. 1177 of the Civil Code
5. Transfer of all or nearly all of debtor’s property (JURADO, Obligations and Contracts, supra at
by him, especially when insolvent or greatly 511).
embarrassed financially;
6. Transfer between father and son, where others Note: The action for rescission is subsidiary; it
of the above circumstances are present; cannot be instituted except when the party suffering
7. Failure of the vendee to take exclusive damage has no other legal means to obtain
possession of all the property (Oria v. reparation for the same (CIVIL CODE, Art. 1383).
McMicking, G.R. No. L-7003, January 18, 1912); Rescission shall be only to the extent necessary to
and cover the damages caused (CIVIL CODE, Art.
8. Gross disparity between the price and the value 1384).
of the property (Asia Banking Corporation v.
Jose, G.R. No. L-28945, March 31, 1928).

307
Effect of Rescission
1. As to the parties – mutual restitution of the V OIDABLE C ONTRACTS
objects of the contract, together with their fruits
and the price with its interest (CIVIL CODE, Art.
1385). Voidable Contracts
Contracts where all of the essential elements for
Note: This is applicable only to rescissory validity are present, although, the element of
actions on the ground of lesion and not to consent is vitiated either by lack of legal capacity of
rescissory actions on the ground of fraud one of the contracting parties, or by mistake,
(JURADO, Obligations and Contracts, supra at violence, intimidation, undue influence, or fraud. It is
513). binding until it is annulled by a competent court
2. As to third persons
a. Bad faith or not legally in possession – Characteristics of Voidable Contracts:
obliged to return and the creditor prejudiced 1. The defect consists of the vitiation of consent of
can run after the third person in possession one of the contracting parties;
of the thing 2. They are binding until annulled;
3. They are susceptible of convalidation by
Note: It is not necessary that the transferee ratification or prescription; and
should have connived with the transferor to 4. The defect or voidable character cannot be
defraud the latter’s creditors. It is enough invoked by third persons (Id. at 532)
that the transferee knows of the intention of
the transferor to defraud creditors (4 Voidable or Annullable Contracts:
TOLENTINO, supra at 594). 1. Those where one of the parties is incapable of
giving consent to a contract; and
b. Legally in possession and in good faith – no
rescission; however, indemnity for damages Note: If the consent is absolutely lacking or
may be demanded from the person causing simulated, the contract is inexistent (Ibid.).
the loss (CIVIL CODE, Art. 1388).
2. Those where the consent is vitiated by mistake,
Note: The moment the property has legally violence, intimidation, undue influence, or fraud
passed to an innocent purchaser for value, (CIVIL CODE, Art. 1390).
rescission is not allowed anymore (Honrado
v. Marcayda, G.R. No. 83086, June 19, Note: Art. 1390 of the Civil Code refers to a “proper
1991). action in court.” The validity of a voidable contract
may only be attacked either by way of a direct action
Prescriptive Period for Action for Rescission: or by way of defense via a counterclaim, and not a
1. Under Art. 1381, No. 1 – within four (4) years special or affirmative defense (JURADO, Obligations
from the time of the termination of the incapacity and Contracts, supra at 531).
of the ward
2. Under Art. 1381, No. 2 – within four (4) years Damages Not Essential
from the time the domicile of the absentee is Even though there are no damages between the
known contracting parties, the contracts enumerated in Art.
3. Under Art. 1381 Nos. 3 and 4 as well as Art. 1390 are still voidable (Id. at 533).
1382 – within four (4) years from the time of the
discovery of fraud (CIVIL CODE, Art. 1389). Modes to Extinguish an Action for Annulment:
1. Prescription (CIVIL CODE, Art. 1391);
Note: In certain cases of contracts of sale which are 2. Ratification (CIVIL CODE, Art. 1392); or
specially declared by law to be rescissible, however, 3. Loss of the thing which is the object of the
the prescriptive period for the commencement of the contract through fraud or fault of the person who
action is six (6) months or even forty (40) days, is entitled to institute the action (CIVIL CODE,
counted from the day of delivery (CIVIL CODE, Arts. Art. 1401).
1543, 1571, and 1577).
Prescriptive Period for Action for Annulment:
1. Contracts entered into by incapacitated person –
within four (4) years from the time guardianship
ceases;
2. Where consent is vitiated by violence,
intimidation or undue influence – within four (4)

308
years from the time such violence, intimidation Who May Institute Action for Annulment (CIVIL
or undue influence ceases; CODE, Art. 1397)
3. Where consent is vitiated by mistake or fraud –
within four (4) years from the time of the General Rule: An action for annulment may be
discovery of such mistake or fraud (CIVIL instituted by all who are thereby obliged principally
CODE, Art. 1391). or subsidiarily. However, persons who are capable
cannot allege the incapacity of those with whom
Note: These periods apply only to the parties to they contracted nor can those who exerted
the contract and not to third persons (4 intimidation, violence, or undue influence, or
TOLENTINO, supra at 599). employed fraud, or caused mistake base their action
upon these flaws of the contract (JURADO,
Constructive Notice Obligations and Contracts, supra at 550-551).
Discovery of fraud must be reckoned from the time
the document was registered in the office of the Requisites:
register of deeds. Registration constitutes 1. Plaintiff must have interest in the contract; and
constructive notice to the whole world (Carantes v. 2. The victim and not the party responsible for the
CA, supra). vice or defect must assert the same (Id. at 550).
Ratification Exception: If a third person is prejudiced in his

The act or means by virtue of which efficacy is given rights with respect to one of the contracting parties,
to a contract which suffers from a vice of curable and can show detriment which would positively
nullity (4 TOLENTINO, supra at 600). result to him from the contract in which he has no
intervention (Teves v. People’s Homesite & Housing
Forms of Ratification: Corp., G.R. No. 21498, June 27, 1968).
1. Express ratification (CIVIL CODE, Art. 1393);
2. Implied ratification – there is a tacit ratification if, Effects of Annulment:
with knowledge of the reason which renders the 1. If contract has not yet been consummated –
contract voidable and such reason having parties shall be released from the obligations
ceased, the person who has a right to invoke it arising therefrom;
should execute an act which necessarily implies 2. If contract has already been consummated –
an intention to waive his right (CIVIL CODE, Art. rules provided in Art. 1398-1402 shall govern
1393). (JURADO, Obligations and Contracts, supra at
552).
Effects of Ratification:
1. Extinguishes the action for annulment of a Obligation of Mutual Restitution:
voidable contract (CIVIL CODE, Art. 1392); 1. Obligation to give – The parties shall restore to
2. Cleanses the contract of its defects from the each other things which have been the subject
moment it was constituted (CIVIL CODE, Art. matter of the contract with fruits and the price
1396). with interest, except in cases provided by law
Requisites of Ratification:
1. Contract is tainted with a vice susceptible of Exception: When the defect of the contract
being cured; consists in incapacity of one of the contracting
2. Confirmation is effected by the person who is parties, the incapacitated person is not obliged
entitled to do so under the law; to make restitution except insofar as he has
3. It is effected with knowledge of the vice or defect been benefited by the thing or price received by
of the contract; and him (CIVIL CODE, Art. 1399).
4. Cause of the nullity or defect have already
disappeared (JURADO, Obligations and Note: The profit or benefit received by the
Contracts, supra at 547). incapacitated person, which obliges him to make
restitution, is not necessarily a material and
Note: The right to ratify may be transmitted to the permanent increase in fortune, but any prudent
heirs of the party entitled to such right. It may and beneficial use by the incapacitated of the
likewise be exercised by the guardian of the thing he received for his necessities, social
incapacitated person having such right (CIVIL disposition or discharge of his duties to others (4
CODE, Art. 1394). Ratification does not require the TOLENTINO, supra at 611).
conformity of the contracting party who has no right
to bring an action for annulment (CIVIL CODE, Art.
1385).

309
It is presumed in the absence of proof that no Principles under Contracts Without or in Excess
such benefit has accrued to the incapacitated of Authority:
person (8 Manresa, 5th Ed., Bk. 2, p. 647). 1. No one may contract in the name of another
without being authorized by the latter or unless
Art. 1399 cannot be applied to those cases he has a right to represent him. If he is duly
where the incapacitated person can still return authorized, he must act within the scope of his
the thing which he has received (JURADO, powers (CIVIL CODE, Art. 1317 and 1881);
Obligations and Contracts, supra at 554). 2. A contract entered into in the name of another
by one who has no authority or legal
2. Obligation to do or not to do – There will be an representation, or who has acted beyond his
apportionment of damages based on the value powers, is unenforceable (CIVIL CODE, Art.
of such prestation with corresponding interests 1403, Par. 1 and 1317);
(Ibid.). 3. However, such contract may be ratified,
expressly or impliedly by the person in whose
Effects of Failure to Make Restitution behalf it has been executed, before it is revoked
Where the thing is lost: by the other contracting party (CIVIL CODE, Art.
1. Due to fault of defendant – he shall return the 1317)
fruits received and the value of the thing at the
time of loss, with interest from the same date Contracts Covered by the Statute of Frauds
(CIVIL CODE, Art. 1400); (CIVIL CODE, Art. 1403, Par. 2)
2. Due to fault or fraud of plaintiff – the action for In the following cases, an agreement hereafter
annulment shall be extinguished; made shall be unenforceable by action, unless the
3. Due to fault of the incapacitated – whether the same, or some note or memorandum thereof, be in
loss occurred during the plaintiff’s incapacity or writing, and subscribed by the party charged, or by
after he had acquired capacity, the action for his agent; evidence thereof, of the agreement
annulment would still be extinguished in cannot be received without the writing, or a
accordance with Art. 1401, par. 1; and secondary evidence of its contents: (1-DM-GL-RC):
4. Due to fortuitous event – contract can still be
annulled, but the defendant can be held liable 1. An agreement that by its terms is not to be
only for the value of the thing at the time of loss performed within one (1) year from the making
without interest thereon (JURADO, Obligations thereof;
and Contracts, supra at 555-557).
Note: Only full or complete performance by one
party within a year from the execution thereof
U NENFORCEABLE C ONTRACTS will take the case out of the Statute of Frauds
(JURADO, Obligations and Contracts, supra at
563).
Unenforceable Contract
Those which cannot be enforced by proper action in 2. A special promise to answer for the Debt,
court unless they are ratified, because, either: default or miscarriage of another;
1. They are entered into without or in excess of
authority (CIVIL CODE, Art. 1403, Par. 1 and Note: If the promise is an original one or
Art. 1317); independent one, that is, the promisor becomes
2. They do not comply with the statute of frauds thereby primarily liable for the payment of the
(CIVIL CODE, Art. 1403, Par. 2); or debt, the promise is not within the statute. But
3. Both contracting parties do not possess the on the other hand, if the promise is collateral to
required legal capacity (CIVIL CODE, Art. 1403, the agreement of another and the promisor, the
Par. 3). promise must be in writing (Reiss v. Memije,
G.R. No. 5447, March 1, 1910).
Characteristics of Unenforceable Contracts:
1. They cannot be enforced by a proper action in 3. An agreement made in consideration of
court (CIVIL CODE, Art. 1403); Marriage, other than a mutual promise to marry
2. They are susceptible of ratification (CIVIL (e.g. Pre-Nuptial Agreement, Marriage
CODE, Art. 1403, 1405, 1407, 1371); and Settlements, and Donation Propter Nuptias);
3. They cannot be assailed by third persons (CIVIL
CODE, Art. 1408). Note: When the marriage is a mere incident,
and the end to be attained by the agreement,
the contract is not in consideration of a
marriage, and oral evidence can prove the
agreement (4 TOLENTINO, supra at 622).

310
4. An agreement for the sale of Goods, chattels or Note or Memorandum must be Complete
things in action, at a price not less than five For a note or memorandum to satisfy the Statute, it
hundred (500) pesos, unless the buyer accepted must be complete in itself and cannot rest partly in
and received such goods and chattels or writing and partly in parol. The note or memorandum
evidences or some of them, of such things in must contain the names of the parties, the terms
action or pay at the time some part of the and conditions of the contract, and a description of
purchase money; but when a sale is made by the property sufficient to render it capable of
auction and entry is made by the auctioneer in identification. Such note or memorandum must
his sales book, at the time of sale, of the amount contain the essential elements of the contract
and kind of property sold, terms, price, names expressed with certainty that may be ascertained
of the purchasers and persons to whose from the note or memorandum itself, or some other
account the sale is made, it is a sufficient writing to which it refers or within which it is
memorandum; connected, without resorting to parol evidence
(Swedish Match, AB v. CA, G.R. No. 128120,
Note: Where there is a purchase of a number of October 20, 2004)
articles which separately do not have a price of
P500 each but has an aggregate sum exceeding Applicability of the Statute of Frauds to
P500, the statute is only applicable if the Executory Contracts
transaction is inseparable (Id. at 623). The statute of frauds applies only to executory
contracts, not to those that are partially or
5. An agreement for the Leasing for a longer completely fulfilled. Further, the statute does not
period than one (1) year; apply to actions which are neither for specific
6. An agreement for the sale of Real property or performance of the contract nor for the violation
interest (e.g. Usufruct, easement) therein; and thereof. Take note that the provision mentions
7. A representation as to the Credit of a third “unenforceable by action.” The prohibition, thus,
person. applies to actions which spring from the
This serves as the basis for an action for enforcement of the contract (JURADO, Obligations
damages against the party who made the and Contracts, supra at 569).
representation, if it turns out to be false or
incorrect. The application of Art. 1403 Par. 2(e) presupposes
the existence of a perfected, albeit unwritten,
Note: The Statute of Frauds is exclusive, that contract of sale. It is thus evident that the statutes of
is, it applies only to the agreements or contracts fraud does not contemplate cases involving a right
enumerated therein (PINEDA, Obligations and of first refusal, and need not to be written to be
Contracts, supra at 638). enforceable and may be proven by oral evidence
(Rosencor Development Corporation vs Inquing,
Reason for the Statute of Frauds: To prevent G.R. No. 140479. March 8, 2001).
fraud and perjury in the enforcement of obligations
(Phil. National Bank v. Phil. Vegetable Oil Co. Inc., Ratification of Contracts Infringing the Statute of
G.R. No. L-25400, January 14, 1927). Frauds (CIVIL CODE, Art. 1405)
Such contracts may be ratified by:
If a contract has been totally or partially performed, 1. Failure to object to the presentation of oral
the exclusion of parol evidence would promote fraud evidence to prove such contracts; or
or bad faith for it would enable the defendant to 2. Acceptance of benefits under these contracts.
keep the benefits already derived by him from the
transaction in litigation, and evade the obligations, Note: The unenforceability of a contract can only be
responsibilities or liabilities assumed or contracted assailed by parties thereto (CIVIL CODE, Art. 1408).
by him thereby (Carbonell v. Poncio, G.R. No. L- This defense is personal to the party to the
11231, May 12, 1958). agreement.
The Statute of Frauds, however, simply provide for Principles under Contracts where Both Parties
the manner in which contracts under it shall be are Incapacitated:
proved. It does not attempt to make such contracts 1. These contracts are also unenforceable (CIVIL
invalid if not executed in writing, but only makes CODE, Art. 1403, Par. 3); and
ineffective the action for specific performance 2. If only one of the parties is incapacitated, the
(JURADO, Obligations and Contracts, supra at 563). contract is voidable (CIVIL CODE Art. 1390,
Par. 1).
3. The contract may be ratified by the parents or
guardians of the contracting parties, or by the

311
parties themselves upon attaining or regaining effects effect
capacity.
Covers Art. 1409 Nos. Covers Art. 1409 Nos.
a. Ratification on the part of only one of the
1,3,4,5,6, and 7 2 and 3
parties – the contract becomes voidable;
b. Ratification on the part of both parties – the (JURADO, Obligations and Contracts, supra at 575,
contract shall be validated from its inception 577).
(JURADO, Obligations and Contracts, supra
at 572). Contracts which are Inexistent and Void Ab
Initio:
1. Those whose cause, object or purpose is
V OID OR I NEXISTENT contrary to law, morals, good customs, public
order or public policy;
C ONTRACTS 2. Those which are absolutely simulated or
fictitious;
Void or Inexistent Contracts 3. Those whose cause or object did not exist at the
In general, they are those which lack absolutely time of the transaction;
either in fact or in law one or some of the elements 4. Those whose object is outside the commerce of
essential for its validity. It has no force and effect men;
from the very beginning, as if it has never been 5. Those which contemplate an impossible service;
entered into, and which cannot be validated either 6. Those where the intention of the parties relative
by time or by ratification (JURADO, Obligations and to the principal object of the contract cannot be
Contracts, supra at 574). ascertained; and
7. Those expressly prohibited or declared void by
Characteristics of Void Contracts: law (CIVIL CODE, Art. 1409).
1. They do not produce any legal effect (quod
nullum est nullum producit effectum); Other Void and Inexistent Contracts:
2. They are not susceptible of ratification (CIVIL 1. Those which are the direct results of previous
CODE, Art. 1409); illegal contracts (CIVIL CODE, Art. 1422);
3. The right to set up the defense of inexistence or 2. Those where there is no concurrence between
absolute nullity cannot be waived or renounced offer and acceptance with regard to the object
(CIVIL CODE, Art. 1409); and the cause of the contract; and
4. The action or defense for the declaration of their 3. Those which do not comply with the required
inexistence or nullity is imprescriptible (CIVIL form where such form is essential for validity
CODE, Art. 1410); (JURADO, Obligations and Contracts supra at
5. The inexistence or absolute nullity of a contract 578).
cannot be invoked by a person whose interests
are not directly affected (Tongoy v. CA, G.R. No. The following stipulations are void:
L-45645, June 28, 1983); and 1. Pactum comissorium (CIVIL CODE, Art.2088) –
6. The defense of illegality of contract is not a stipulation that allows the creditor to
available to third persons whose interests are appropriate the things given by way of pledge or
not directly affected (CIVIL CODE, Art. 1421). mortgage or dispose of them.
2. Pactum de non alienado (CIVIL CODE, Art.
Void v. Inexistent Contracts 2130) – a stipulation forbidding the owner from
Void Contracts Inexistent Contracts alienating the immovable mortgaged.
3. Pactum leonina (CIVIL CODE, Art.1799) – a
Those where all of the stipulation which excludes one or more partners
requisites of a contract from any share of the profits or losses.
are present but the
cause, object or Those where one or Principle of In Pari Delicto
purpose is contrary to some or all of the When the defect of a void contract consists in the
law, morals, good requisites essential for illegality of the cause or object of the contract and
customs, public order the validity of a contract both of the parties are at fault or in pari delicto, the
or public policy, or the are absolutely lacking. law refuses them any remedy and leaves them
contract itself is where they are (CIVIL CODE, Art. 1411-1419)
prohibited or declared
void by law. Exceptions:
Principle of pari delicto Principle of pari delicto 1. Payment of usurious interest (CIVIL CODE, Art.
is applicable is not applicable 1413);
2. Payment of money or delivery of property for an
May produce legal Cannot produce any
illegal purpose, where the party who paid or

312
delivered repudiates the contract before the be bound to comply with his promise (CIVIL
purpose has been accomplished, or before any CODE, Art. 1411)
damage has been caused to a third person
(CIVIL CODE, Art. 1414); Note: Art. 1411, par. 1 of the Civil Code is not
3. Payment of money or delivery of property made applicable to Art. 1409(2)(3) (JURADO,
by an incapacitated person (CIVIL CODE, Art. Obligations and Contracts, supra at 575).
1415);
4. Agreement or contract not illegal per se but Effects when Both Parties are at Fault and the
merely prohibited by law, and the prohibition is Act does not Constitute A Criminal Offense:
designed for the plaintiff’s protection (CIVIL 1. Neither may recover what he has given by virtue
CODE, Art. 1416); of the contract; and
2. Neither can demand the performance of the
Note: The exception should not be applied if other’s undertaking (CIVIL CODE, Art. 1412,
public policy will not thereby be enhanced or par. 1).
subserved (Philippine Banking Corporation v.
Lui She, G.R. No. L-17587, September 12, Effects when Only One is at Fault and the Act
1967). does not Constitute A Criminal Offense:
1. Guilty party cannot recover what has been given
5. Payment of any amount in excess of the by reason of the contract, or ask the fulfillment
maximum price of any article or commodity fixed of what has been promised him;
by law (CIVIL CODE, Art. 1417); 2. Innocent party may demand the return of what
6. Contract whereby a laborer undertakes to work he has given without any obligation to comply
longer than the maximum number of hours fixed with his promise (CIVIL CODE, Art. 1412, par.
by law (CIVIL CODE, Art. 1418); 2).
Note: The laborer may still demand additional Note: In the principle of in pari delicto where only
compensation for service rendered beyond the one of the contracting parties is at fault, the non-
time limit even if the contract was signed availability of recovery of the thing given extends to
voluntarily by the laborer (Luzon Stevedoring his heirs. Thus, the heirs may not institute an action
Co. Inc. v. Luzon Marine Department Union, for nullity as the principle constitutes a bar for action
G.R. No. L-9265, April 29, 1957. (Liguez vs CA, G.R No. L-11240, Dec. 18, 1957).
7. Contract whereby a laborer accepts a wage

lower than the minimum wage fixed by law N ATURAL O BLIGATIONS
8. In case of divisible contracts, the legal terms
may be enforced separately from the illegal Natural Obligations
terms (CIVIL CODE, Art. 1420); and Those based on equity and natural law, which do
9. One who lost in gambling because of fraudulent not grant a right of action to enforce their
schemes practiced on him. He is allowed to performance, but after voluntary fulfillment by the
recover his losses (RPC, Art. 315[3][b]) even if obligor, authorize the retention of what has been
gambling is prohibited (JURADO, Obligations delivered or rendered by reason thereof (CIVIL
and Contracts, supra at 602-603). CODE, Art. 1423).
Effects when Both Parties are at Fault and the Note: The binding tie of these obligations is in the
Act Constitutes A Criminal Offense: conscience of man, for under the law, they do not
1. They shall have no action against each other; have the necessary efficacy to give rise to an action.
2. Both shall be prosecuted; and
3. The effects or instruments of the crime shall be Necessity of Juridical Tie
confiscated in favor of the government (See In order that there may be a natural obligation there
CIVIL CODE, Art. 1411). must exist a juridical tie which is not prohibited by
law and which in itself could give a cause of action
Effects when Only One is at Fault and the Act but because of some special circumstances is
Constitutes A Criminal Offense: actually without legal sanction or means of enforcing
1. The guilty party will be prosecuted; compliance by intervention of courts
2. The instrument of the crime will be confiscated; (4 TOLENTINO, supra at 646).
and
3. The innocent one may claim what he has given;
or if he has not given anything yet, he shall not

313
Two Conditions Necessary for Natural
Obligations: E STOPPEL
1. That there be a juridical tie between two
persons; and
2. That this tie is not given effect by law (JURADO, Estoppel
Obligations and Contracts, supra at 636). Estoppel is a condition or state by virtue of which an
admission or representation is rendered conclusive
Note: The first requirement distinguishes the natural upon the person making it and cannot be denied or
obligation from the moral, and the second disproved as against the person relying thereon
distinguishes it from the civil (4 TOLENTINO, supra (CIVIL CODE, Art. 1431).
at 646, citing 2 Llerena 428-429).
Note: Estoppel cannot be predicated on an illegal
Conversion into Civil Obligation act. As between the parties to a contract, validity
The promise to perform a natural obligation is as cannot be given to it by estoppel if it is prohibited by
effective as performance itself, and converts the law or is against public policy (4 TOLENTINO, supra
obligation into a civil obligation (4 TOLENTINO, at 657).
supra at 649).
Kinds of Estoppel:
Note: A natural obligation may also be converted 1. Estoppel in pais or by conduct – Applies to a
into a civil obligation by novation or by confirmation situation where, because of something which he
or ratification (Id. at 650). has done or omitted to do, a party is denied the
right to plead or prove an otherwise important
Effect of Partial Payment fact (Id. at 664).
As a general rule, partial payment of a natural a. Estoppel by silence – (e.g., CIVIL CODE,
obligation does not make it civil; the part paid cannot Art. 1437); and
be recovered but payment of the balance cannot be b. Estoppel by acceptance of benefits (e.g.,
enforced (5 Vera 52). CIVIL CODE, Art. 1438)
c. Promissory estoppel - a promise to do or not
Natural Obligation Moral Obligation to do results in estoppel, provided that the
promise was intended to be relied upon,
As to Juridical Tie
was relied upon and refusal to enforce it
There is a juridical tie No juridical tie would sanction fraud or injustice (4
between the parties whatsoever. TOLENTINO, supra at 658).
which is not enforceable Elements:
by court action a. Conduct amounting to false representation
Voluntary fulfillment of Voluntary fulfillment of or concealment of material facts, or at least
such produces legal such does not produce calculated to convey the impression that the
effects which the court any legal effect which facts are otherwise than, and inconsistent
will recognize and the court will recognize with, those which the party subsequently
protect. and protect. attempts to assert;
b. Intent, or at least expectation that this
As to Legal Effect of Voluntary Fulfillment conduct shall be acted upon by, or at least
Within the domain of influence, the other party; and
Within the domain of law
morals c. Knowledge, actual or constructive, of the
(4 TOLENTINO, supra at 647-648). real facts (Id. at 664).
2. Technical estoppels:
Examples of Natural Obligations: a. Estoppel by deed – a party to a deed is
1. Performance after the civil obligation has precluded from asserting as against the
prescribed (CIVIL CODE, Art. 1424); other party, any material fact asserted
2. Reimbursement of a third person for a debt that therein; and
has prescribed (CIVIL CODE, Art. 1425); b. Estoppel by record – a party is precluded
3. Performance after action to enforce civil from denying the truth of matters set forth in
obligation has failed (CIVIL CODE, Art. 1428); a record, whether judicial or legislative
4. Payment by heir of debt exceeding value of (JURADO, Obligations and Contracts, supra
property inherited (CIVIL CODE, Art. 1429); and at 640)
5. Payment of legacy after will have been declared 3. Estoppel by judgment – a party to a case is
void (CIVIL CODE, Art. 1430). precluded from denying the facts adjudicated by
a court of competent jurisdiction (Id. at 641);
4. Estoppel by laches (Ibid.)

314
Examples of Estoppel: 2. Delay in asserting the complainant’s rights, the
1. If a person, in representation of another sells or complainant having had knowledge or notice of
alienates a thing, the former cannot the defendant’s conduct and having been
subsequently set up his title as against the afforded an opportunity to institute a suit;
buyer or grantee (CIVIL CODE, Art. 1435). 3. Lack of knowledge or notice on the part of the
2. A lessee or bailee is estopped from asserting defendant that the complaint would assert the
title to the thing leased or received, as against right on which he bases his suit and
the lessor or bailor (CIVIL CODE, Art. 1436). 4. Injury or prejudice to the defendant in the event
3. When in a contract between third persons relief is accorded to the complainant, or the suit
concerning immovable property, one of them is is not held to be barred (Miguel v. Catalino, G.R.
misled by a person with respect to the No. L-23072, November 29, 1968).
ownership or real right over the real estate, the
latter is precluded from asserting his legal title or Prescription v. Laches
interest therein, provided all the following Prescription Laches
requisites are present: As to its Relation to Delay
a. There must be fraudulent representation or Concerned with the fact Concerned with the
wrongful concealment of facts known to the of delay effect of delay
party estopped; As to Nature
b. The party precluded must intend that the Question of inequity of
other should act upon the facts as Question or matter of
permitting the claim to
misrepresented; time
be enforced
c. The party misled must have been unaware As to Basis
of the true facts; and Statutory Not statutory
d. The party defrauded must have acted in As to Application
accordance with the misrepresentation. Applies in law Applies in equity
As to Availability as a Defense
Note: Estoppel is effective only as between the
Cannot be availed of
parties thereto or their successors-in-interest (CIVIL Being a defense in
unless it is specifically
CODE, Art. 1439). equity, it need not be
pleaded as an
specifically pleaded
affirmative allegation
Note: The government is not estopped by mistake
As to Basis in Respect of Fixed Time
or error on the part of its officials or agents
(4 TOLENTINO, supra at 668). Not based on a fixed
Based on a fixed time
time
Laches or “Stale Demands” (JURADO, Obligations and Contracts, supra at 648-
Failure or neglect, for an unreasonable and 649).
unexplained length of time, to do that which, by
exercising due diligence, could or should have been
done earlier; it is negligence or omission to assert a
right within a reasonable time, warranting a
presumption that the party entitled to assert it either
has abandoned it or declined to assert it (Tijam v.
Sibonghanoy, G.R. No. L-21450, April 15, 1968).
Note: While a person may not acquire title to the

registered property through continuous possession,
the heir of the latter may lose his right to recover
back the possession of the property and the title
thereto, by reason of laches. The petitioners' laches
extends to his heirs, since they stand in privity with
him (Heirs of Lacamen v. Heirs of Laruan, G.R No.
27088, July 31, 1975).
Elements of Laches:
1. Conduct on the part of the defendant, or of one
under whom he claims, giving rise to the
situation of which complaint is made and for
which the complaint seeks a remedy;

315

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What are the elements of an obligation?

What are the elements of an obligation?

What are the different kinds of prestations?

What are the different kinds of prestations?

` Note: The active subject may be temporarily

O BLIGATIONS indefinite, as in the case of a negotiable

Obligation 3. Juridical Tie or Vinculum Juris – the efficient

Juridical Necessity 4. Prestation/Object – the particular conduct of

EXECUTIVE COMMITTEE SUBJECT COMMITTEE MEMBERS ADVISERS

SAN BEDA COLLEGE OF LAW

1. Law (Ex-Lege) Note: Compliance in good faith is performance

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

Note: The civil liability for crimes is extinguished Fault or Negligence

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

Also, failure to preserve the specific thing

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

Purpose of the Obligation and Circumstance Duties of the Obligor:

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

Delay in the performance of the obligation, Grace Period

Delay in Reciprocal Obligations If extrajudicial, date of demand and if

SAN BEDA COLLEGE OF LAW

Debtor is liable even for fortuitous event Remedy:

The debtor’s liability may be mitigated General Rule: Parties in a bilateral

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

Note: The action for rescission is 2. Accion Subrogatoria (Subrogatory Action)

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

b. Casual – depends exclusively upon chance, Principle of Indivisibility of Conditions

Exceptions: Effects of Suspensive, Resolutory, Potestative,

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

Loss (Dis-PG) The happening of a resolutory condition does not

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

Requisites: Note: If a fortuitous event supervenes, the

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

Alternative v. Facultative Obligations 3. Nature of the obligation requires solidarity;

SAN BEDA COLLEGE OF LAW

Note: Both Justice Jurado and Dr. Tolentino are

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

Exception: If demand, judicial or extra-judicial, has Compensation and Confusion

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

In obligations to do, the obligation shall be Obligation With a Penal Clause

SAN BEDA COLLEGE OF LAW