Obligations and Contracts Notes

AEC 55 : LAW ON OBLIGATIONS AND CONTRACTS
ACC GROUP 5
INTRODUCTION TO LAW There are two (2) main concepts of state law:
1. General Sense – The mass of obligatory rules

Definition of Law
established for the purpose of governing the
relations of persons in society. (e.g., law of the
- In its widest and most comprehensive sense, the
land)
term law means any rule of action or any system of
2. Specific Sense – A rule of conduct, obligatory,
uniformity. It is not only the activities of men as
promulgated by legitimate authority, and of
rational beings but also the movements or motions
common observance and benefit. (e.g., the law on
of all objects of creation, whether animate or
obligations and contracts)
inanimate.
Characteristics of the Law

General Divisions of Law
The law, in its specific sense, has several characteristics.
Law is divided into two (2) general groups:
These are:
1. Law in Strict Legal Sense – Promulgated and
1. It is a rule of conduct – Law tells us what shall be
enforced by the state.
done and what shall not be done.
a. State Law – It is promulgated and 2. It is obligatory – It is considered as a positive
enforced by the state. Also called command imposing a duty to obey and involving a
municipal law, civil law, or imperative law. sanction which forces obedience.
This law concerns itself with the violations 3. It is promulgated by legitimate authority – In a
on its commands. democratic country, the legitimate authority is the
legislature. Laws are called statutes under the
2. Law in Non-legal Sense – Not promulgated and constitution which is then enacted by the congress
enforced by the state. – The legislative branch of the government. Local
government units have the power to enact the
a. Divine Law – It is the law of religion and ordinances which have the binding force of the
faith, concerns itself with the concept of law.
sin; promulgated by God; the sanction lies 4. It is of common observance and benefit – Law is
in the assurance of certain rewards and intended by man to serve man.
punishments in the present or in the life to
come. Sources of the Law
b. Natural Law – The divine inspiration in 1. Constitution – It is often referred to as the

man of the sense of justice, fairness, and fundamental, supreme, or the highest law of the
righteousness by internal dictates of land as it’s promulgated by the people. It is the
reason alone. Regarded as the reasonable written instrument by which the fundamental
basis of state law. powers of the government are established, limited,
and defined, and by which these powers are
c. Moral Law – Norms of good and right distributed among the several departments for
conduct growing out of the collective their safe and useful exercise for the benefit of the
sense of right and wrong of every people.
community. This influences or shapes 2. Legislation – It consists in the declaration of legal
state law. rules and by a competent authority. This includes
ordinances enacted by the local government units.
d. Physical Law – This law, addressed to 3. Administrative or executive orders, regulations,
objects which have no power to disobey, and rulings – Issued by the administrative officials
is nothing more than an order or regularity under legislative authority.
in nature by which certain results follow 4. Judicial decisional or jurisprudence – The decisions
certain causes. of the courts, particularly the supreme court, with
considerations on what are stipulated on the laws
❖ All stipulated laws, except physical law, are rules or and constitutions.
actions which are applied to men as rational beings 5. Custom – It consists of habits and practices which
only. Physical law operates in all things, including through long and uninterrupted usage have
men, without regard to the latter’s use of their will become acknowledged and improved by society as
power and intelligence. It is also referred to as a binding rules of conduct.
law only figuratively speaking.
| Balandra | Escolania | Jagunos | Manayaga | Padilla | Sumagang |

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6. Other Sources – Principles of justice and equity, Classifications of Law

decisions of foreign tribunals, opinions of text
writers, and religion. As to its purpose:
1. Substantive law
Organizations of Courts - portion of the body of law creating, defining, and
regulating rights and duties which may either be
- Under the Constitution, the judicial power (power public or private in character. (e.g., law on
to decide actual cases and controversies involving obligations and contracts – a substantive private
the interpretation and application of laws) is law)
“vested in one Supreme Court and in such lower 2. Adjective law
courts as may be established by laws.” (Art. VII, - Portion of the body of law prescribing as the
Sec. 1 thereof.) manner or procedure by which rights may be
- Judiciary (composed of courts) – is one of the main enforced or their violations redressed.
divisions of power in our system of government. - Sometimes called remedial law or procedural law.
(e.g., the provision of law which says that actions
3 Main divisions: for the recovery of real property shall be filed with
1. Regular Courts the Regional Trial Court of the region where the
- The Supreme Court, the Court of Appeals, and the property or any part thereof lies – example of
Regional Trial Courts: considered courts of general private adjective law)
or superior jurisdiction - In the Philippines, it is governed by the Rules of
Court promulgated by the Supreme Court and
special laws.
❖ Rights and duties are useless unless they can be

enforced.
❖ It is not enough that the states regulate the rights
and duties of all who are subject to the law; it must
also provide legal remedies which substantial law
may be administered. Hence, the need for
adjective law.
2. Special Courts
● Sandiganbayan - a special anti-graft court. It forms As to its subject matter:
part of the judicial hierarchy together with the 1. Public law
Court of Tax Appeals. - body of legal rules which regulates the rights and
● Court of Tax Appeals – a special tax court created duties arising from the relationship of the state to
by law, same level as the Court of Appeals. the people.
2. Private law
3. Quasi-judicial agencies - Body of rules which regulates the relations of
● Functions as quasi-judicial because they are individuals with one another for purely private
involved in the settlement or adjudication of ends.
controversies or disputes. 3. Civil law
● Administrative bodies under executive branch - Commercial or mercantile law
performing quasi-judicial functions ● Civil procedure – branch of private law which
a. National Labor Relations Commission provides for how private rights may be enforced.
b. Securities and Exchange Commission
c. Land Transportation Franchising and Regulatory Law on Obligations and Contracts Defined
Board
“The law of obligations and contracts is the body of rules
d. Insurance Commission
which deals with the nature and sources of obligations and
the rights and duties arising from agreement and the
● Independent Constitutional Commissions
particular contracts.” (See Art. 1307)
- do not form part of integrated judicial system
a. Civil Service Commission Civil Code of the Philippines.
b. Commission on Elections 1. Law on obligations and contracts – found in
c. Commission on Audit Republic Act. No. 386, otherwise known as the Civil
Code of the Philippines.
2. Civil law – refers to the law found primarily in our
Civil Code.

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3. The Civil Code of the Philippines – based mainly on CHAPTER 1

the Civil Code of Spain which took effect in the
Philippines on December 7, 1889.
Meaning of Obligations
● Approved as Republic Act No. 386 on June 18, 1949
and took effect on August 30, 1950. ● Obligatio – a Latin word which means tying or
● It is divided into four books. binding.
● An obligation is a juridical necessity to give, to do,
Civil Code provisions on obligations and contracts. or not to do.
● Book IV of the Civil Code – deals with obligations ● It is a tie of law or a juridical bond by virtue of
and contracts. which one is bound in favor of another to render
● General provisions on obligations: Title I, Articles something.
1156-1304 ● Is a Juridical necessity - in case of noncompliance,
● Contracts: Title II, Articles 1305-1422 the courts of justice may be called upon the
● General rules of law governing contracts are also aggrieved party to enforce fulfillment, or in default
applicable to the particular kinds of contracts (like thereof, the economic value that it represents.
sale, agency, partnership, bater, etc.) in addition to
the special provisions of law governing each type Nature of Obligations
of contract.
● New provision dealing with natural obligations: ● Civil obligations – are obligations which give to the
Title III, Articles 1423-1430 creditor or obligee a right of action in courts of
justice to enforce their performance.
Conclusive Presumption of Knowledge of Law
Essential Requisites of an Obligation
❖ Ignorance of law excuses no one from compliance
therewith. (Art. 3, Civil Code) ● Passive subject
❖ “Everyone, therefore, is conclusively presumed to - Debtor or obligor
know the law.” - A person who is bound to the fulfillment of the
Following reasons: obligation
1. If laws will not be binding until they are known, - He who has a duty
then social life will be impossible. Most laws ● Active subject
cannot be enforced due to their being unknown to - Creditor or obligee
many. - Entitled to demand the fulfillment of the obligation
2. It is almost impossible to prove the contrary when - He who has the right
a person claims ignorance of the law. ● Object or Prestation
3. It is illogical to forgive those who do not know the - The subject matter of the obligation
law increase the obligations of those who know it. - To give, to do, or not to do
4. In our conscience, we carry norms of right and - Conduct required to be observed by the debtor
wrong, and sense of duty, so that our reasons - Without the prestation, there is nothing to
indicate many times what we must do and in more perform
complicated juridical relations, there are lawyers ● Juridical or Legal tie
who should be consulted. - Also called the efficient cause
5. “Evasion of the law would be facilitated, and the - Binds or connects the parties to the obligation
administration of justice would be defeated if - Can easily be determined by knowing the source of
persons could not successfully plead ignorance of the obligation
the law to escape the legal consequences of their Forms of Obligation
acts, or to excuse non-performance of their legal
duties. The rule, therefore, is dictated not only by ● The way an obligation is manifested or incurred. It
expediency but also by necessity.” may be oral, writing or partly oral and writing.
● The law does not require any form of obligations
❖ Thus, ignorance of the provisions of law imposing a arising from contracts for their validity or binding
penalty for illegal possession of firearms, or force.
punishing the possession of prohibited drugs, does ● Obligation arising from other sources (Art. 1157).
not constitute a valid excuse for their violation. Do not have a form at all.

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TERMS DISTINGUISHED ● Non-compliance by a party with legitimate

1. Obligation – The act or performance which the law obligation after receiving the benefit of the
will enforce contract would constitute unjust enrichment.
2. Right – The power which a person has under the
law, to demand from another any prestation. Kinds of quasi-contracts:
3. Wrong/Injury - Illegal invasion of a legal right; it is 1. Negotiorum gestio – The voluntary management
the wrongful act or omission which causes loss or of the property or affairs of another without the
harm to another knowledge of the latter. (Art. 2144)
4. Damage - The loss, hurt, or harm which results 2. Solutio indebiti – Juridical relation which is created
from the injury when something is received when there is no right
5. Damages - Denote the sum of money recoverable to demand it and it was unduly delivered through
as amends for the wrongful act or omission mistake. (Art, 2154)
Kinds of Obligation According to Subject Matter Civil liability arising from crimes or delicts (Deals with Art.
1157, (4).
● Real Obligation – Obligation to give 1. Civil liability in addition to criminal liability
● Personal Obligation – An act to be done or not to - The commission of a crime causes not only moral
be done evil but material damage.
1. Positive personal obligation – to do - Person criminally liable for an act is civilly liable for
2. Negative personal obligation – not to do damages suffered by an aggrieved party.
Sources of Obligation 2. Criminal liability without civil liability

- Crime which causes no material damage (Ex.
1. Law – obligations enforced by law itself Gambling, violation of traffic regulation)
2. Contracts – obligations arise from the stipulation
of the parties 3. Civil liability without criminal liability
3. Quasi-contracts – obligation arise from Lawful, - Cause damage to another’s property without
Voluntary, and Unilateral act which enforceable to malicious intent or negligence.
the end that no one will be unjustly enriched or - Obligation that arises from quasi-delicts.
benefited at the expense of another, (Art. 2142).
4. Crimes or acts or omission punished by law – ● Scope if Civil Liability
obligation arise from civil liability which is a 1. Restitution – an obligation to return something or
consequence of a criminal offense, (Art. 1161). the monetary values it represents.
5. Quasi-delicts or torts – obligation arise from 2. Reparation for the damage caused –
damage caused to another through an act or compensation for the damage cots (Ex. Damage
omission, there being fault of negligence, but no caused to a stolen car)
contractual relation exist between the parties. 3. Indemnification for consequential damages –
(Art, 2176). Payment for other damages suffered as the
consequence of the act.
Contractual Obligations
Obligation arising from quasi-delicts
Articles 1159 presupposes that the entered contract is valid - An act by a person that causes damage to another
and enforceable. in his person, property, or rights that arise to an
obligation to pay for the damage done due to
1. Binding force – obligations arising from contract
negligence but no pre-existing contractual relation
has the force of law between the contracting
between parties. (Art. 2176)
parties.
2. Requirement of a valid contract – Not contrary to
● Requisite of quasi-delicts
law, morals, good customs, public order, and
1. There must be an act or omission
public policy.
2. There must be fault or negligence
3. Breach of contract – A party fails or refuses to
3. There must be damage caused
comply, without legal reason or justification, with
4. There must be a proximate cost between the act
his obligation under the contract promised.
or omission and the damages
5. No pre-existing contractual relation between
❖ Compliance in good faith
parties.
● Compliance or performance in accordance with the
stipulation or terms of the contract.

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2. Damages where both parties are mutually

Crime Vs. Quasi-delicts
negligent- when both parties to a contract are
Criminal or malicious intent Negligence mutually negligent in the performance of their
respective obligations. Parties may be determined
Purpose is punishment Indemnification of offended under the equitable principle that no one shall
party enrich himself at the expense of another.
Criminal and civil liabilities Civil liability

Validity of Waiver of Action Arising from Negligence
Cannot be settled by Can be settled - An action for future negligence (not fraud) may be
parties themselves renounced except where the nature of the
obligation requires the exercise of extraordinary
Guilty of the accused must Negligence of defendant diligence (e.g. carriers)
be proved beyond need only be proved by - Where negligence is gross or shows bad faith, it is
reasonable doubt greater weight of evidence
considered equivalent to fraud. Thus, any waiver
for future fraud is void.
CHAPTER 2
Kinds of Negligence According to Source of Obligation
Specific Circumstances Affecting Obligations
Contractual negligence (CULPA Source: Contracts
A. Fraud (Dolo) ART. 1171. CONTRACTUAL)
Example: Breach of Contracts of
Responsibility arising from fraud is demandable. Carriage (even with the
supervision, the employer may
- This provision refers to incidental fraud which is
mitigate the liability)
employed in the fulfillment of an obligation. (Art.
1170.) Performance of contract
- Responsibility arising from fraud can be demanded
Master-servant rule applies
with respect to all kinds of obligation
- The court is not given the power to mitigate or D is liable for the damages in view
reduce the damages to be awarded of his negligence in the fulfillment
of a pre-existing obligation.
Waiver of action for future fraud void Not a source of obligation

- According to the time of commission, fraud may be
Civil negligence (CULPA Source: Quasi-delicts or torts
past or future. A waiver of an action for future AQUILIANA)
fraud is void (no effect, as there is no waiver) Reckless driving of the driver
(with the supervision, the
employer may escape the liability)
Independence of contract &

without criminal intent
Waiver of action for past fraud valid
- A past fraud can be a subject to valid waiver The master-servant rule does not
because the waiver can be considered as an act of apply
generosity and magnanimity on the part of the

party who is the victim of the fraud. Criminal negligence (CULPA ● Source: Delicts
● Example: Physical injuries
through reckless
B. Negligence (Culpa) ARTICLE 1172 - 1173 imprudence (the
employee’s guilt is
Meaning of Negligence (Culpa) or Fault automatically the
employer’s guilt if the
- the failure to observe for the protection of the former is insolvent)
interests of another person, that the degree of ● Commission of a crime
care, precaution and vigilance which the
circumstances justly demand, whereby such other NOTE: The aggrieved party may choose between a criminal
person suffers injury. (Supreme Court; US vs Barrias, action under Article 100 of the Revised Penal code or Civil
23 Phil. 434.) action for damages under Article 2176 of the Civil Code.
Prohibited under Art. 2177 of the civil code is recovered twice
Responsibility Arising from Fraud is Demandable for the same negligent act.
1. Discretion of court to fix amount of damages-
courts are given wide discretion in fixing the
measure of damages. In short, the court may
increase or decrease the damages recoverable.

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EFFECT OF NEGLIGENCE ON THE PART OF THE INJURED 2. In the absence of stipulation, that required by law
suppose the creditor is also guilty of negligence, can he in the particular case (like the extraordinary
recover damages? diligence required of common carriers)
- Art. 2179 of the new Civil Code provides: “When 3. If both the contract and law are silent, then the
the plaintiff’s own negligence was the immediate diligence expected of a good father of a family.
and proximate cause of his injury, he cannot C. Delay (Mora) ARTICLE 1169.
recover damages. But if it was only a contribution,
the immediate and proximate cause of his injury MEANING OF DELAY (MORA)
being the defendant’s lack of due care, the plaintiff - Nonfulfillment of obligation with respect to time.
may recover damages to be awarded.” - Effects of Delay: Liable for payment of damages
- Note: There is no delay in “obligation to not do” as
FACTORS TO BE CONSIDERED one cannot be delay for not doing something
- Negligence is a question of fact, that is its - General Rule: “No demand, no delay.”
existence being dependent upon the particular
circumstances of each case. DIFFERENCES WITH ORDINARY OR LEGAL DELAY
ORDINARY DELAY. LEGAL DELAY OR DEFAULT
1. Nature of the obligation OR MORA.
- Ex: Smoking while carrying materials known to be
inflammable constitutes negligence. The failure to perform an The failure to perform an
2. Circumstances of the person obligation on time obligation on time which
- Ex: A guard, a man in the prime of life, robust and constitutes a breach of the
healthy, sleeping while on duty is guilty of obligation.
negligence.
3. Circumstances of time KINDS OF DELAY OR DEFAULT
- Ex: Driving a car without headlights at night is 1. Mora Solvendi
gross negligence but it does not by itself constitute - - delay on the part of the debtor
negligence when driving during the day. - Real obligation = to give
4. Circumstances of the place - Personal obligation = to do
- Ex: Driving at 100 kph on the superhighway is
permissible but driving at the same rate of speed in 2. Mora Accipiendi
Ayala Avenue is gross recklessness. - delay on the part of the creditor
- Refuses to accept
MEASURE OF LIABILITY FOR DAMAGES 3. Compensatio morae
● Damages - delay on both parties (reciprocal obligation)
- Signify the money compensation awarded to a
party for loss or injury resulting from breach of REQUISITES OF DELAY OR DEFAULT
contract or obligation by the other. ● (3) conditions before mora solvendi can exist or its
- To place the innocent party in the same (not effects may arise:
better) position he would have occupied if the - Failure of the debtor to perform on the date
contract or obligation had been performed agreed.
according to its terms. - Demand made by the creditor to the debtor to
- Art 2201 Obligors who acted in good faith are liable comply with his obligations
shall be those that are the natural and probable ○ Either judicial (complaint filed in
consequences of the breach of the obligation. court) or extrajudicial (outside court,
orally or in writing)
● Fraud, bad faith, malice or wanton attitude - Failure of the debtor to comply with such demand.
obligor shall be responsible for all damages which EFFECTS OF DELAY
can be reasonably attributed to the 1. Mora solvendi
non-performance of the obligation. - Debtor is guilty of breach or violation
- Liable to the creditor for interest (in line with
KINDS OF DILIGENCE REQUIRED payments) or damages (other obligations)
● Diligence is the attention and care required of a - Liable for a fortuitous event when the obligation is
person in a given situation. Whether or not the to deliver a determinate thing. However, if the
negligence of the obligor is excusable will depend debtor proves that the loss would be the same if he
on the degree of diligence required to them. Under had been in default, the court may equitably
Art. 1173, the following kinds of diligence is mitigate or reduce the damages.
required:
1. That agreed upon by the parties, orally or in writing

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Note: obligation to deliver a generic thing, D is not relieved 1. Acts of man - Strictly speaking, a fortuitous event is
from liability for loss due to a fortuitous event. Compelled to an event independent of the will of the obligor but
deliver a thing of the same kind or held liable for damages no of other human wills. E.g. war, fire, murder,
insurrection, etc.
2. Mora accipiendi 2. Acts of God - Refer to what is called majeure or
- Creditor is guilty of breach those events which are totally independent of the
- Liable of damages suffered, or any, by the debtor will of every human being. E.g. earthquake, flood,
- Bears the risk of the loss thing due rain, shipwreck, lightning, eruption of volcano, etc.
- Debtor is not liable of the interest (in line with
payments) from the time of the creditor’s delay - In our law, fortuitous events and force majeure are
- D can release himself from the obligation by the identical insofar as they exempt an obligor from
consignation or deposit in court or sum due liability. Both are independent of the will of the
3. Compensatio morae obligor.
- The delay of the obligor cancels the delay of the
obligee and vice-versa. Requisites of a fortuitous event
- No default or delay on the part of both parties 1. The event must be independent of the human will
or at least of the debtor’s will;
EXCEPTIONS TO NECESSITY OF DEMAND TO PUT DEBTOR 2. The event could not be foreseen, or if foreseen, is
IN DELAY inevitable;
3. The event must be of such a character as to render
1. When obligation so provides. it impossible for the debtor to comply with his
- Ex: Rachel must pay Hance P20,000 on Nov. 30 obligation in a normal manner; and
without the need of any demand. 4. The debtor must be free from any participation in,
2. When the law so provides. or the aggravation of, the injury to the creditor,
- Ex. Under the law, taxes must be paid on or before that is, there is no concurrent negligence on his
a specific date. part.
Note: the absence of any of the above requisites (all of
which must be proved) would prevent the obligor from
3. When time is of the essence. being exempt from liability.
- Ex. Delivery of balloons on Lyca and Karen’s
birthday party. ❖ NOT an excuse for non-fulfillment of an obligation
4. When demand would be useless. ➢ Pecuniary inability or poverty
- Ex. Specific horse to be delivered died. ➢ Difficulty to foresee the happening of an
5. When there is performance by a party in reciprocal event
obligations. In compensatio morae, from the
moment a party fulfills or is ready to fulfill his Rules as to liability in case of fortuitous event
obligation, delay by the other begins. 1. When expressly specified by law - in exceptions (a),
(b), and (c) below, the special strictness of the law
D. Any other manner of contravention (Violatio) is justified.
a. The debtor is guilty of fraud, negligence, or delay, or
Contravention of the terms of the obligation: contravention of the tenor of the obligation. (par. 3,
- Violation of the terms and conditions stipulated in Arts. 1170,1165.)
the obligation without justifiable excuse or reason. b. The debtor has promised to deliver the same
- Contravention must not be due to a fortuitous (specific) thing to two (2) or more persons who do
event or force majeure (Art. 1164.) not have the same interest.
c. The obligation to deliver a specific thing arises from
E. Fortuitous event (Caso fortuito) ART. 1174 a crime. (Art. 1268.)
d. The thing to be delivered is generic. (Art, 1263.)
Meaning of fortuitous events 2. When declared by stipulation - The basis for this
- Any event which cannot be foreseen, or which, exception rests upon the freedom of contract.
though foreseen, is inevitable. Stated otherwise, (Art. 1306.) Such stipulation is intended to better
it is an event which is either impossible to foresee protect the interests of the creditor and diligence
or impossible to avoid. of the debtor in the fulfillment of his obligation.
3. When the nature of the obligation requires the
Fortuitous event distinguished from force majeure. assumption of risk - Here, risk of loss or damage is
- A fortuitous event may either be an act of man or an essential element in the obligation.
an act of God.

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Nature and Effects of Obligations Kinds of Fruits (ART. 1164.)
Specific or determinate thing ● Natural Fruits

- It is particularly designated or physically - are the spontaneous products of the soil, and the
segregated from all others of the same class. young and other products of animals
- Identified by its individuality. ❖ Example: grass, all trees and plants on
- Cannot be substituted without the consent of the lands produced without the intervention
creditor. of human labor
❖ Example: The watch I am wearing, my dog ● Industrial Fruits
named “Terror.”, The Toyota car with - are those produced by lands of any kind through
Plate No. AAV 344 cultivation or labor
Generic or indeterminate thing ❖ Example: sugar cane, vegetables, rice and
- It refers only to a class or genus to which it all products of lands brought about by
pertains and cannot be pointed out with reason of human labor.
particularity. ● Civil Fruits
- Identified only by its specie. - are those derived by virtue of a juridical relation
- Can be substituted as long it is of the same class or ❖ Example: rents of buildings, price of leases
kind. of lands and other property and the
❖ Example: a police dog, a Bulova calendar amount of perpetual or life annuities or
watch, a 2006 model Japanese car other similar income.
Duties of debtor in obligation to give a determinate thing Right of creditor to the fruits
- To preserve or take care of the thing due ● By law - the creditor is entitled to the fruits of the
- To deliver the fruits of the thing (ART. 1164) thing to be delivered from the time the obligation
- To deliver its accessions and accessories (ART. to make delivery of the thing arises.
1166) ● In case of rescission - the parties are under
- To answer for damages in case of non-fulfillment or “obligation to return the things which were the
breach. object of the contract, together with their fruits
- To deliver the thing and the price with its interest.’’
Obligation to take care of the thing due Meaning of personal right and real right
● Diligence of a good father of a family ● Personal right
- the obligor has the incidental duty to take care of - is the right or power of a person (creditor) to
the thing due. demand from another (debtor)
● Another standard of care - there is a definite active subject and a definite
- slight or extraordinary diligence. passive subject
● Factors to be considered - binding or enforceable only against a particular
- the debtor is not liable if his failure to preserve the person
thing is not due to his fault or negligence but to ● Real right
fortuitous events or force majeure. - is the right or interest of a person over a specific
● Reason for debtor’s obligation thing (like ownership, possession, mortgage, lease
- The debtor must exercise diligence to insure that record)
the thing to be delivered would subsist in the same - there is only a definite active subject
condition as it was when the obligation was - directed against the whole world.
contracted. ● Ownership acquired by delivery
- the creditor does not become the owner until the
Duties of debtor in obligation to deliver a generic thing specific thing has been delivered to him.
- To deliver a thing which is of the quality intended
by the parties Obligations to do or not to do
- To be liable for damages in case of fraud,
negligence, or delay, in the performance of his This contemplates three (3) situations:
obligation 1. The debtor fails to perform an obligation to do;
2. The debtor performs an obligation to do but
contrary to the terms thereof; or
3. The debtor performs an obligation to do so but in a
poor manner.

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Remedies in case of non-performance ❖ Characteristics of a condition

1. Future and uncertain
● POSITIVE PERSONAL OBLIGATION. 2. Past but unknown
1. If the debtor fails to comply with his obligation, the
creditor has the right to: Two principal kinds of condition
- Have the obligation performed by himself or 1. Suspensive condition
another, unless personal considerations are - Condition precedent or condition antecedent
involved, at the debtor’s expense. - The fulfillment of a condition will give rise to an
- Recover for damages (ART. 1170) obligation (or right).
2. In case the obligation is done in contravention of - Demandability of the obligation is suspended until
the terms or is poorly done, it may be ordered (by the happening of a future and uncertain event
the court upon complaint) to have it undone if it 2. Resolutory condition
can be undone. - Condition subsequent
- The fulfillment of a condition will extinguish an
● NEGATIVE PERSONAL OBLIGATION obligation (or right) already existing.
1. The obligee has the right to undo what was - The obligation demandable at once since it is
forbidden to be done at the expense of the debtor. already existing.
2. If what was done cannot be undone physically, ❖ An obligation is demandable at once:
1. Pure
legally, or because of the right acquired by the
2. Resolutory condition
third person who acted in good faith, the obligee 3. Resolutory period
has the right to take an action for damages caused ART. 1180
by the debtor’s violation of his obligation.
Where duration of period depends upon the will of debtor.
Damages
● Period – is a future and certain event upon the
Damages may be: arrival of which the obligation subject to it either
1. Moral arises or is extinguished.
- For mental and physical anguish.
1. The debtor promises to pay when his resources
- It cannot be recovered unless proved
2. Exemplary or corrective permit him to do so.
- Corrective or to set an example 2. Other cases. — As when the debtor binds himself
3. Nominal to pay:
- To vindicate a right, when no other damages
may be recovered. ➢ “Little by little”
4. Temperate or moderate ➢ “as soon as possible”
- When the exact amount of damages cannot be ➢ “from time to time;”
determined ➢ “as soon as I have the money”
5. Actual or compensatory ➢ “at any time I have the money”
- Actual losses as well as unrealized profit ➢ “in partial payments”
6. Liquidated ➢ “when I am in a position to pay.”
- Predetermined beforehand, by agreement.
ART. 1181
CHAPTER 3
SUSPENSIVE RESOLUTORY
Section 1. — Pure and Conditional Obligations Fulfilled = arise Fulfilled = extinguish
ART. 1179 Not fulfilled = no tie of law Not fulfilled = tie of law is
consolidated
● Pure Obligations
- Is not subject to any condition and no specific date Until not fulfilled = no Until not fulfilled =
is mentioned. existence of obligation possibility of termination
- Immediately demandable.
- May rely on the wording “upon demand.”
● Conditional Obligation
- Whose consequences are subject in one way or
another to the fulfillment of a condition.
Condition - is a future and uncertain event. The

effectivity or extinguishment of an obligation (or
rights) subject to it depends. (condition must not
be impossible. ART. 1183)

ACC GROUP 5
ART. 1182
conditions. It Legally Impossible Conditions -
applies only to contrary to law, morals, good customs,
● Classifications of conditions
cases where public order, or public policy.
the
as to EFFECT impossibility Effects:
already existed 1. Conditional Obligation is void
SUSPENSIVE Happening = rise of obligation at the time the - Annul the obligation which
obligation was depends upon them.
Depends upon the sole will of DEBTOR constituted. If - Obligation cannot be fulfilled.
- Conditional obligation is void the
2. Conditional obligation valid
- Only the condition is void there impossibility
arises after the - If the condition is negative
is still an obligation
creation of the 3. Only the affected obligation is
obligation, void
Depends upon the sole will of
Article 1266 - If the obligation is divisible, the
CREDITOR
governs. part thereof not affected by
- Obligation is valid
the impossible condition shall
Constructive fulfillment of suspensive be valid.
condition.
ART. 1186
● Requisites: as to CAUSE OR ORIGIN
1. Suspensive
2. obligor actually prevents the POTESTATIVE Condition depends upon the will of one
of the contracting parties
fulfillment
3. He acts voluntarily.
-Suspensive in nature
CASUAL The condition depends upon chance or

RESOLUTORY Happening = extinguishment of upon the will of a third person
obligation
-obligation is valid
Depends upon the sole will of DEBTOR
- The obligation is valid
- The debtor is naturally MIXED The condition depends partly upon
interested in its fulfillment. chance and partly upon the will of a
ART. 1186 third person.
Constructive fulfillment of resolutory -Obligation is valid

condition.
as to MODE
- The debtor is bound to return
what he has received upon the POSITIVE To do
fulfillment of the condition.
ART. 1184 ● The obligation is extinguished:
1. As soon as the time expires
The above without the event taking place
as to FORM article refers to 2. As soon as it has become
a positive
EXPRESS Clearly stated indubitable that the event will
(suspensive)
condition — not take place although the
IMPLIED Merely inferred time specified has not yet
the happening
of an event at a expired
determinate
as to POSSIBILITY
time.
POSSIBLE Capable of fulfillment, legally and
NEGATIVE Not to do
physically
ART. 1185 ● The obligation shall become
IMPOSSIBLE Is not capable of fulfillment, legally or
physically. effective and binding:
The above
ART 1183
provision 1. From the moment the time
Physically impossible conditions -
speaks of a indicated has elapsed without
Refers to cannot exist or cannot be done
negative
suspensive the event taking place
condition that

ACC GROUP 5
ART. 1189 (CONDITION) & ART. 1194 (PERIOD)

an event will 2. From the moment it has
not happen at become evident that the event Requisites:
a determinate cannot occur 1. Real obligation (to give)
time. (see Art.
2. Specific or determinate thing
879.)
3. Suspensive condition
4. Condition is fulfilled
5. There is loss, deterioration, or improvement of the
as to NUMBER
thing during the pendency of the happening on
CONJUNCTIVE Several conditions and all must be one condition.
fulfilled
Kinds of loss
DISJUNCTIVE Several conditions and only one or 1. Physical loss - when a thing perishes
some of them must be fulfilled. 2. Legal loss - goes out of commerce or becomes
illegal
as to DIVISIBILITY 3. Civil loss - disappears in such a way that its
existence is unknown. It cannot be recovered.
DIVISIBLE Is susceptible of partial performance
Rules in case of loss, deterioration, or improvement of
INDIVISIBLE Is not susceptible of partial thing during pendency of suspensive condition.
performance.
1. Loss of thing without debtor’s fault. — obligation is
ART. 1187 extinguished; (general rule: no person is liable for a
fortuitous event).
Retroactive effects of fulfillment of suspensive condition. 2. Loss of thing through debtor’s fault. — C is entitled
to demand damages
1. In obligation to give 3. Deterioration of thing without debtor’s fault. — A
- Demandable only upon the fulfillment of the thing deteriorates when its value is reduced or
condition. impaired with or without the fault of the debtor.
- Once the condition is fulfilled, its effects shall
4. Deterioration of thing through debtor’s fault. — B
retroact to the day when the obligation was
constituted. may choose between: (a) Rescission (or
2. In obligation to do or not to do cancellation) of the obligation with damages; or
- No fixed rule is provided. (b) Fulfillment of the obligation also with damages
- The courts are empowered by the use of sound (see Art. 1191.).
discretion and bearing in mind the intent of the 5. Improvement of thing by nature or by time. — A
parties, to determine, in each case, the retroactive thing is improved when its value is increased or
effect of the suspensive condition that has been enhanced by nature or by time or at the expense of
complied with.
the debtor or creditor. (see Art. 1187.)
6. Improvement of thing at the expense of debtor.
Retroactive effects as to fruits and interests in obligations
— D will have the right granted to a usufructuary
to give.
with respect to improvements made on the thing
1. In reciprocal obligations
held in usufruct.
- No retroactivity because the fruits and interests
❖ Usufruct: right to enjoy the use and fruits of a thing
received during the pendency of the condition are
deemed to have been mutually compensated. belonging to another.
2. In unilateral obligations
- No retroactive effect because they are gratuitous. ART. 1190
ART. 1188 Effects of fulfillment of resolutory condition

1. In obligation to give
Rights pending fulfillment of suspensive condition. - Obliged to return to each other what they have
1. Rights of creditor received under the obligation.
- He may take or bring appropriate actions for the - It applies not only to the things received but also
preservation of his right. to the fruits and interests.
2. Rights of debtor 2. In obligation to do or not to do
- He is entitled to recover what he has paid “by - the courts shall determine the retroactive effect of
mistake” (Solutio indebiti) the fulfillment of the resolutory condition.
- He cannot recover what he has prematurely paid - The courts in the exercise of discretion may even
once the suspensive condition is fulfilled disallow retroactivity taking into account the
- But if the condition was not fulfilled, the debtor circumstances of each case.
should be allowed to recover any payment made
even if the debtor has paid not by mistake

ACC GROUP 5
ART. 1191 - The other party must be given an opportunity to

be heard.
Kinds of obligation according to the person obliged - Proof of violation
1. Unilateral - The law itself requires that injured party should
- Only one party is obliged to comply with a exercise due diligence to minimize his own
prestation damages
2. Bilateral
- both parties are mutually bound 2. Power of the court to fix period
- both parties are debtors and creditors of each - The court has discretionary power to allow a
other. period within which a person in default may be
❖ Reciprocal obligations permitted to perform his obligation if there is a just
- Are those which arise from the same cause cause for giving time to the debtor
- Each party is a debtor and creditor of the other
- Dependent of each other’s performance 3. Compliance by aggrieved party with his
❖ Non-reciprocal obligations obligation.
- Do not impose simultaneous and correlative - A party to a contract cannot demand performance
performance on both parties of the other party’s obligation unless he is in a
- Is not dependent upon the performance of each position to comply with his own obligations.
other.
4. Right of third persons
Choice of remedy by injured party - The injured party (third person) may recover
1. Action for specific performance (fulfillment) of the damages from the person responsible for the
obligation with damages transfer.
2. Action for rescission of the obligation also with
damages 5. Slight or substantial violation
- Will not be granted
Breach of obligation on part of plaintiff - The violation should be substantial and
- Breach of an obligation: there is a failure or refusal, fundamental as to defeat the object of the parties
by a party without legal reason or excuse to in making the agreement.
perform
- exceptio non adimpleti contractus: the party who 6. Waiver of right
has not performed his part of the agreement is not - His remedy is to recover the balance.
entitled to sue
7. Contract to sell
Effect of rescission - The remedy of the unpaid seller is to seek either
- To rescind a contract is not merely to terminate it, specific performance or rescission
but to abrogate and undo it from the beginning as
if no such contract had ever been made. 8. Sales of real property and of personal property in
- Mutual restitution is required to bring back the installments
parties, as far as practicable, to their original - Art. 1592. In the sale of immovable property, the
situation prior to the inception of the contract. vendee may pay, even after the expiration of the
period, as long as no demand for rescission of the
Court may grant guilty party term for performance contract has been made upon him either judicially
- The court shall decree the rescission claimed or by a notarial act.
- This exception applies only where the guilty party
is willing to comply with his obligation but needs 9. Judicial compromise
time to do so and not where he refuses to - Article 1191 applies only to reciprocal obligations in
perform. general and not to obligations arising from a
judicial compromise.
Damages recoverable
- Only those kinds of damages can be awarded that 10. Arbitration clause in a contract
are compatible or consistent with the idea of - Neither of the parties can unilaterally treat the
rescission contract as rescinded where an arbitration clause
in a contract is availing in order to determine
Limitations on right to demand rescission whether or not rescission was proper.
- The right to rescind by the injured party is not
absolute. It is always provisional, (i.e., contestable
● Procedure where extrajudicial rescission
and subject to scrutiny and review by the courts.)
contested
- In contracts providing for automatic revocation,
1. Resort to the courts judicial intervention is necessary
- Judicial rescission
- No person can take justice in his own hands and
decide by himself what are his rights in the matter

ACC GROUP 5
● Action for rescission not required upon breach of ● Condition – causes an obligation to arise or to
compromise agreement cease. Because of this difference, a period does not
- Compromise: agreement between two or more carry with it, except when there is a stipulation
persons who, for preventing or putting an end to a expressly made by the parties, the same
lawsuit, adjust their respective positions by mutual
retroactive consequences that follow a condition.
consent in the way they feel they can live with.
- Reciprocal concessions: are the very heart and life
of every compromise agreement where each party 4. As to effect, when left to debtor’s will.
approximates and concedes in the hope of gaining ● Period – depends upon the will of the debtor
balance by the danger of losing. empowers the court to fix the duration thereof
(Art. 1197, par. 2.)
ART. 1192 ● Condition - depends upon the sole will of the
debtor invalidates the obligation (Art. 1182.)
Where both parties guilty of breach 5. As to retroactivity of effects.
1. First infractor known ● Unless there is an agreement to the contrary, the
- The liability of the first infractor should be arrival of a period does not have any retroactive
equitably reduced. effect
- Liability for damages shall be offset equitably ● The happening of a condition has retroactive
2. First infractor cannot be determined effect.
- The contract shall be deemed extinguished and
each shall bear his own damages. Like a condition (see Art. 1183.), a period must be possible.
- It has been held that when both parties to a If the period is impossible (e.g., February 30, because it will
transaction are mutually negligent in the never come; within 24 hours to deliver a ship in foreign
performance of their obligations, the fault of one
country because it is too short), the obligation is void.
cancels the negligence of the other.
Kinds of period or term
Section 2. — Obligations with a Period
ART. 1193 according to EFFECT
Meaning of obligation with a period Suspensive The obligation begins only from a
- One whose consequences are subjected in one period day certain upon the arrival of the
way or another to the expiration of said period or period
term
Ex die “from”
Meaning of period or term
- Future and certain event
Resolutory The obligation is valid up to a day
- A day certain which must necessarily come
period certain and terminates upon the
although it may not be known when
arrival of the period.
- The arrival of a period does not have any
retroactive effect
In diem “until”
- Must be possible (ART.1183)
Period and condition distinguished. according to SOURCE

The differences are as follows:
1. As to fulfillment Legal period Provided for by law
● Period – a certain event which must happen
sooner or later at a date known beforehand, or at a
time which cannot be determined. Conventional Agreed to by the parties
● Condition – an uncertain event. or voluntary
period
2. As to time.
● Period – refers only to the future. Judicial Fixed by the court
● Condition – may refer also to a past event period
unknown to the parties.
3. As to influence on the obligation. according to DEFINITENESS

● Period – merely fixes the time for the
efficaciousness of the obligation. Definite Fixed or it is known when it will come
- Suspensive: it cannot prevent the birth of period
the obligation in due time
- Resolutory: it does not annul, even in Indefinite Is not fixed or it is not known when it
fiction, the fact of its existence. period will come.
ART. 1195

ACC GROUP 5
- If the obligation does not fix a period but it can be

Payment before arrival of period inferred from its nature and the circumstances that
- Applies only to obligations to give a period was intended by the parties, the court
- Similar to Article 1188, paragraph 2, which allows may fix the period.
the recovery of what has been paid by mistake
before the fulfillment of a suspensive condition. Duration of period depends upon the will of the debtor
Debtor presumed aware of period - the court must fix the duration of the period to
- The obligor may no longer recover the thing or forestall the possibility that the obligation may
money once the period has arrived but he can never be fulfilled
recover the fruits or interests thereof from the
date of premature performance to the date of Ultimate facts to be alleged in complaint
maturity of the obligation. 1. A contract was entered into, obligations is in favor
of another.
No recovery in personal obligations 2. A period for performance was intended by the
- Article 1195 has no application to obligations to do parties
or not to do because it is physically impossible to 3. If the complaint does not ask, the court cannot fix
recover the service rendered. a period
ART. 1196 ART. 1198
Presumption as to benefit of period When obligation can be demanded before lapse of period
- The period is presumed to have been established 1. When debtor becomes insolvent
for the benefit of both the creditor and the debtor. 2. When debtor does not furnish guaranties or
securities promised
Exceptions to the general rule 3. When guaranties or securities given have been
- It was the intention of the parties to constitute the impaired or have disappeared
period for the benefit of either the debtor or the 4. When debtor violates an undertaking
creditor. 5. When debtor attempts to abscond
1. Term is for the benefit of the debtor Section 3. — Alternative and Facultative Obligations
- He cannot be compelled to pay prematurely, but
he can, if he desires, do so. ART. 1199
2. Term is for the benefit of the creditor
- He may demand fulfillment even before the arrival Art. 1199. A person alternatively bound by different
of the term prestations shall completely perform one of them.
- The debtor cannot require him to accept payment
The creditor cannot be compelled to receive part
before the expiration of the stipulated period.
of one and part of the other undertaking. (1131)
Computation of term or period Kinds of Obligations According to Object
1. The Civil Code provides 1. Simple obligation - one where there is only one
- Specific months are stated: shall be computed by
prestation.
the number of days which they respectively have.
- In computing a period: the first day shall be 2. Compound obligation - one where there are two or
excluded, and the last day included. more prestations.
- Year: 365 days even if there is a leap year It may be:
2. The Administrative Code of 1987 a. Conjunctive obligation - one where there are
- Legal period (year): 12 calendar months several prestations and all of them are due.
- Month: 30 days unless there is a specific month b. Distributive obligation - one where two (2) or more
stated of the prestations are due. It may be:
- Day: 24hrs
● Alternative obligation - one where several
- Night: sunset to sunrise
3. Calendar month prestations are due but the performance of one is
- Period of time running from the beginning of a sufficient (Art. 1199)
certain numbered day up to the corresponding ● Facultative obligation - one where only one
numbered day of the next month. prestation is due but the debtor may substitute
another. (Art. 1206)
ART. 1197
ART. 1200
Court generally without power to fix a period
- If the obligation does not state a period and no Right of choice, as a rule, given to debtor
period is intended, the court is not authorized to - By way of exception, it may be exercised by the
fix a period. creditor but only when expressly granted to him
(Art. 1205.), or by a third person when the right is
No period is fixed but a period was intended given to him by common agreement. (Art. 1306.)

ACC GROUP 5
1. Lost through a fortuitous event

Right of choice of debtor not absolute - the creditor should choose from among the
1. debtor cannot choose those prestations which are: remainder
- Impossible 2. If the loss of one of the things occurs through the
- Unlawful fault of the debtor
- Which could not have been the object of the - the creditor may claim any of those subsisting, or
obligation. the price of the thing that disappeared, with a right
2. The debtor has no more right of choice, only one is to damages
practicable. 3. If all the things are lost through the fault of the
3. The debtor cannot choose part of one prestation debtor
and part of another prestation. (ART.1199) - the choice by the creditor shall fall upon the price
of any one of them, also with indemnity for
ART. 1201 damages.
Communication of notice that choice has been made. ❖ The same rules shall be applied to obligations to do
1. Effect of notice - until the choice is made and or not to do in case one, some or all of the
prestations should become impossible. (1136a)
communicated, the obligation remains.
2. Proof and form of notice - The burden of proving
ART. 1206
that such communication has been made is upon
him who made the choice.
Facultative obligation
- Only one prestation has been agreed upon but the
ART. 1202 obligor may render another in substitution.
Effect when only one presentation is practicable Effect of loss

- If more than one is practicable, it is Article 1200 1. Before substitution
that will apply. - Does not render him liable.
2. After substitution
ART. 1203 - If the substitute is lost, the liability of the debtor
depends upon whether or not the loss is due
through his fault.
When debtor may rescind contract.
- Rescission (see Art. 1191.) creates the obligation to
return things which were the object of the ALTERNATIVE FACULTATIVE
contract together with their fruits, and the price
with its interest. (par. 1, Art. 1358.) Several prestations are Only one prestation is due
due with a substitution
ART. 1204
The right of choice The right of choice is given
Basis of indemnity. belongs to the debtor but only to the debtor
- The indemnity shall be fixed taking as a basis the may be given to the
value of the last thing which disappeared (referring creditor or third person
to obligations to give) or that of the service which
last became impossible (referring to obligations to
A fortuitous event does A fortuitous event does
do). In case of disagreement, it is incumbent upon
not extinguish the extinguish the obligation
the creditor to prove such value or which thing last obligation
disappeared or which service last became
impossible.
the loss of one of the the loss of the thing due
❖ Other damages may also be awarded. (pars. 2 and alternatives through the through his fault makes
3, Art.1204.) fault of the debtor does him liable
not render him liable
ART. 1205
the loss of the substitute
where the choice belongs before the substitution
Rules in case of loss before creditor has made choice
to the creditor, the loss of through the fault of the
- When the choice has been expressly given to the
one alternative through debtor does not render
creditor, the obligation shall cease to be
the fault of the debtor him liable.
alternative from the day when the selection has
gives rise to liability
been communicated to the debtor.
- Until then the responsibility of the debtor shall be
governed by the following rules:

ACC GROUP 5
nullity of a prestation does the nullity of the prestation according to the PARTIES BOUND
not invalidate the others agreed upon invalidates
the obligation Passive Solidarity on the part of the debtors.
solidarity
Anyone of them can be made liable for the
fulfillment of the entire obligation.
Section 4. — Joint and Solidary Obligations
ART. 1207 Characteristics: plurality of debtors and
unity of prestation
The concurrence of two or more creditors or of two or more
debtors in one and the same obligation does not imply that
Active Solidarity on the part of the creditors
each one of the former has a right to demand, or that each
solidarity
one of the latter is bound to render, entire compliance with
Anyone of them can demand the fulfillment
the prestation. There is a solidary liability only when the of the entire obligation.
obligation expressly so states, or when the law or the nature
of the obligation requires solidarity, (1137a) Mixed Solidarity on the part of the debtors and
solidarity creditors,
ART. 1208 each one of the debtors is liable to render,
and each one of the creditors has a right to
Kinds of obligation according to the number of parties demand, entire compliance with the
1. Individual obligations - only one obligor and one obligation
obligee
2. Collective obligations - two or more debtors
and/or two or more creditors according to SOURCE
Conventional Is agreed upon by the parties.

● Joint obligation
solidarity
- The whole obligation is to be paid or fulfilled
proportionately by the different debtors or
Legal Is imposed by the law
demanded by different creditors.
solidarity
- Each debtor is liable only for a proportionate part
of the debt. Real Is imposed by the nature of the obligation.
- Debts are distinct and separate from each other, solidarity
the insolvency of one of the debtors shall not make
the others liable.
- Each creditor is entitled only to a proportionate
PASSIVE SOLIDARITY SOLIDARY GUARANTY (SURETY)
part of the credit.
- mancum, mancomunada; mancomunadamente; pro
SIMILARITIES
rata; conjoint; “we promise to pay”
Answers for a debt Answers for a debt which is not
● Solidary obligation which is not properly properly his own
- Each one of the debtors is bound to render, and/or his own
each one of the creditors has a right to demand After paying, he may demand
entire compliance with the prestation. After paying, he may reimbursement from the debtor
- Is really a form of joint obligation. demand personally bound in the obligation
- solidaria; in solidum; solidarily; together and/or reimbursement from paid.
separately; individually and/or collectively; juntos o the debtor personally
suparadamente. “I promise to pay” signed by two or bound in the obligation
more persons, “individually and jointly”, severally paid.
o Characteristics: unity of object and plurality of

ties. DIFFERENCES
o Essence: each and every one of the solidary
creditors can demand and each of the debtors Is liable, not only for Does not incur liability unless the
must satisfy the same prestation the debt of another but principal debtor is held liable.
o Basis: has something of a legal fiction, i.e., that also for one properly
it is a mutual agency his own. An extension granted to the
The debtor who made principal debtor without the
❖ Under Article 1207, there is solidary liability only payment may claim consent of the surety would have
when: reimbursement from the effect of extinguishing the
1. the obligation expressly so states his co-debtors for the suretyship.
2. the law requires solidarity share which
3. the nature of the obligation requires solidarity corresponds to each
❖ Kinds of solidarity

ACC GROUP 5
ART. 1209
Payment to any of the solidary creditors
Joint indivisible Obligation - The debtor may pay any one of the solidary
- It is joint as to liabilities of the debtors or rights of creditors.
the creditors but indivisible as to compliance. - But when a demand, judicial or extra-judicial, has
been made by one of them, payment should be
ART. 1210 made to him.
Indivisibility Solidarity ART. 1215
Prestation Juridical or Legal tie Novation, compensation, confusion or remission of the debt,
made by any of the solidary creditors or with any of the
only the debtor guilty of all of the debtors are liable solidary debtors, shall extinguish the obligation, without
breach of obligation is for the breach of the prejudice to the provisions of Article 1219.
liable for damages obligation committed by a The creditor who may have executed any of these
debtor acts, as well as he who collects the debt, shall be liable to the
others for the share in the obligation corresponding to them.
there is only one (1) there must be at least two (1143)
debtor and one (1) (2) debtors or two (2)
creditor creditors ART. 1216
the others are not liable in the other debtors are Right of creditor to proceed against any solidary debtor
case of insolvency of one proportionately liable - The above provision is not applicable to a joint
(1) debtor obligation.
1. Solidary debtors are not indispensable parties in a
suit filed by the creditor
2. A solidary debtor is also a surety
ART. 1211
3. In case of death of one of the solidary debtors, the
creditor may proceed against the estate of the
Kinds of solidary obligation according to the legal tie deceased solidary debtor alone or against any or all
1. Uniform - The parties are bound by the same of the surviving solidary debtors.
stipulations or clauses 4. The choice is left to the solidary creditor to
2. Non-uniform or varied - The parties are not subject determine against whom he will enforce collection.
to the same stipulations or clauses.
ART. 1217
Solidarity not affected by diverse stipulations.
1. Essence of solidarity - Rights of each creditor to
Effects of payment by a solidary debtor.
enforce rights of all
1. Between the solidary debtors and
2. Action against any of the solidary debtors - The
creditor - Payment made by one of the
creditor may bring his action in toto
solidary debtors extinguishes the
obligation.
3. Liability of any debtor for entire obligation - Any
2. Among the solidary debtors - After
solidary debtor already bound may be made liable
payment of the debt, the paying solidary
for the entire obligation
debtor can demand reimbursement
ART. 1212 3. Among the solidary creditors - The
receiving creditor is jointly liable to others
Act of solidary creditor useful/prejudicial to others
- A solidary creditor may do any act beneficial or ART. 1217
useful to the others but he cannot perform any act
prejudicial to them Effect of payment after obligation has prescribed
- A joint creditor cannot act in representation of the or become illegal.
others.
- When a solidary debtor pays the
obligation; he is entitled, as a rule, to
ART. 1213
reimbursement from his co-debtors.
Assignment by solidary creditor of his rights
- In the absence of consent given by the others, a
solidary creditor cannot assign his rights to a third
person.
- If the assignment is made to a co-creditor, the ART. 1219
consent of the other creditors is not necessary.
Effect of remission of share after payment.
ART. 1214

ACC GROUP 5
- If payment is made first, the remission - The breach by a co-debtor makes all debtors liable
(see Art. 1270.) or waiver is of no effect. for damages.
There is no more obligation to remit.
● Joint indivisible obligation
ART. 1220 - Non-compliance by a debtor is to make all the
debtors liable for damages but the innocent
No right to reimbursement in case of remission debtors shall not contribute beyond their
- The debtor who obtains remission pays nothing to respective shares of the obligation.
the creditor.
- Article applies only when the whole obligation is ART. 1225
remitted.
Obligations deemed indivisible
ART. 1221 1. Obligations to give definite things
2. Obligations which are not susceptible of partial
performance
Rules in case thing has been lost or prestation
3. Obligations provided by law to be indivisible even if
has become impossible. thing or service is physically divisible
- If the thing is lost or the prestation 4. Obligations intended by the parties to be
becomes impossible, the liability of the indivisible even if thing or service is physically
solidary debtors depends upon whether divisible
or not there is fault or delay.
1. Loss without fault and before delay Obligations deemed divisible
2. Loss due to fault on the part of solidary 1. Obligations which have for their object the
debtor execution of a certain number of days of work
2. Obligations which have for their object the
3. Loss is without fault but after delay
accomplishment of work by metrical units
ART. 1222 3. Obligations which by their nature are susceptible
of partial performance
Defenses available to a solidary debtor
1. Defenses derived from the nature of the
Divisibility or indivisibility in obligations not to do
obligation.
1. Negative obligations
2. Defenses personal to, or which pertain to
- Indivisible obligation: should be fulfilled
share of, debtor sued
continuously
3. Defenses personal to other solidary debtors.
- Divisible obligation: is not done continuously
Section 5. — Divisible and Indivisible Obligations

Section 6. —Obligations with a Penal Clause
ART. 1223
ART. 1226
● Divisible obligation
● Principal obligation
- Is capable of partial fulfillment.
- Can stand by itself
- Does not depend for its validity and existence
● Indivisible obligation
upon another obligation.
- Is not capable of partial fulfillment.
● Accessory obligation
Kinds of division
- Attached to a principal obligation
1. Qualitative division - based on quality
- Cannot stand alone
2. Quantitative division – based on quantity
3. Ideal or intellectual division - exists only in the
minds of the parties. ● Obligation with a penal
- Which contains an accessory undertaking to pay a
Kinds of indivisibility previously stipulated indemnity in case of breach
1. Legal indivisibility - a specific provision of law of the principal prestation
declares.
2. Conventional indivisibility - will of the parties ● Penal clause
3. Natural indivisibility – nature of the object or - An accessory undertaking attached to an
prestation obligation to assume greater liability on the part of
the obligor in case of breach of the obligation
ART. 1224 Purpose of penal clause

1. To insure their performance by creating an
● Solidary obligation effective deterrent against breach

ACC GROUP 5
2. To substitute a penalty for the indemnity for 1. When there is partial or irregular performance
damages 2. When the penalty agreed upon is iniquitous or
3. To punish the debtor for the non-fulfillment or unconscionable
violation of his obligation.
Construction of penal clause where performance partial or
● Kinds of penal clause irregular
as to its ORIGIN
1. Where penalty is punitive
- In a case wherein there has been a partial or
Legal penal clause Provided for by law
irregular compliance with the provisions of a
Conventional Provided for by stipulation of the contract with a penal clause, the courts will rigidly
penal clause parties apply the doctrine of strict construction against
the enforcement in its entirety of the penalty
as to its PURPOSE 2. Where penalty is compensatory
- In fixing the indemnity the parties had in mind a
Compensatory Penalty takes the place of damages fair and reasonable compensation for actual
penal clause damages anticipated
Punitive penal When the penalty is imposed merely ART. 1230

clause as punishment for breach.
● The nullity of the penal clause does not carry with it
as to its DEPENDABILITY/EFFECT that of the principal obligation.
- If only the penal clause is void, the principal
Subsidiary or Only the penalty can be enforced obligation remains valid and demandable.
alternative penal
clause ● The nullity of the principal obligation carries with it
that of the penal clause. (1155)
Joint or cumulative When both the principal obligation - If the principal obligation is void, the penal clause is
penal clause and the penal clause can be likewise void.
enforced. - t if the nullity of the principal obligation is due to
the fault of the debtor who acted in bad faith, the
The creditor, in addition to the penalty, may recover penalty may be enforced
damages and interests:
1. Stipulated by the parties CHAPTER 4
2. The obligor refuses to pay the penalty
3. The obligor is guilty of fraud
Section 1. — Payment or Performance
ART. 1227 ART. 1232
● The debtor cannot just pay the penalty instead of Meaning of payment
performing the obligation. Penalty does not - In ordinary parlance: payment refers only to the
substitute for performance. delivery of money
● The creditor cannot demand the fulfillment of the - In law: payment and performance are synonymous.
obligation and the satisfaction of the penalty at the - may consist not only in the delivery of money but
same time. also the giving of a thing (other than money), the
● The creditor can demand both the principal doing of an act, or not doing of an act.
obligation and the penalty with legal interest on
the amount of the penalty from the date of Elements of payment
demand where the debtor refuses to pay the 1. Persons, who may pay and to whom payment may
penalty. be made
2. The thing or object in which payment must consist
ART. 1228 3. The cause
4. The mode or form
● Applies only where the penalty is fixed by the 5. The place and the time in which it must be made
parties to substitute the indemnity for damages. 6. The imputation of expenses occasioned by it; and
● All that the creditor has to prove, to enforce the 7. The special parts which may modify the same and
penalty, is the violation of the obligation by the the effects they generally produce
debtor.
● But he cannot recover more than the stipulated
penalty even if he proves that the amount of his Burden of proving payment
damages exceeds the penalty. - Is the duty of a party to present evidence of the
ART. 1229 facts in issue necessary to prove the truth of his
claim or defense by the amount of evidence
When penalty may be reduced by the courts required by law.

ACC GROUP 5
- The payer can recover from the debtor only in so

ART. 1233 far as the payment has been beneficial to the
latter.
When debt considered paid (REQUISITES) - The recovery is only up to the extent or amount of
the debt at the time of payment
1. Integrity of the prestation - is not subrogated to the rights of the creditor
- This requisite means that the prestation be fulfilled 2. If made with the knowledge of the debtor
completely. - payer shall have the rights of reimbursement and
- Partial or irregular performance will not produce subrogation
the extinguishment of an obligation as a general - recover what he has paid (not necessarily the
rule. amount of the debt) and to acquire all the rights of
2. Identity of the prestation the creditor
- The very prestation due must be delivered or
performed. ART. 1237
ART. 1234 Right of third person to subrogation

- Whoever pays on behalf of the debtor is entitled to
Recovery allowed in case of substantial performance in subrogation if the payment is with the consent of
good faith the latter
- First exemption in the rules according to Art 1233 - Is for the benefit of the debtor, the subrogation
- In case of substantial performance, the obligee is can only take place with his consent.
benefited. So the obligor should be allowed to - Do not apply where no debtor-creditor relationship
recover as if there had been a strict and complete exists
fulfillment less damages suffered by the obligee.
SUBROGATION REIMBURSEMENT
Requisites
1. There must be substantial performance.
Who pays for the debtor is Merely the bare right to be
2. The obligor must be in good faith.
put into the shoes of the refunded
creditor
ART. 1235.
Acquires not only the right
Recovery allowed when incomplete or irregular to be reimbursed for what
performance waived. he has paid but also all
- In case of acceptance, the law considers that the other rights which the
creditor waives his right. The whole obligation is creditor could have
extinguished exercised pertaining to the
credit
Requisites
1. The obligee knows that the performance is There is no real extinction
incomplete or irregular of the obligation, but only
2. He accepts the performance without expressing a change of creditor
any protest or objection.
❖ “Accept” - his acceptance must be made under ART. 1238.

circumstances that indicate his intention to
consider the performance complete and to Payment by a third person who does not intend to be
renounce his claim arising from the defect. reimbursed.
- Payment is deemed a donation (requires the
ART. 1236 debtor’s consent to be valid.)
- If the creditor accepts the payment, it shall be valid
Persons from whom the creditor must accept payment as to him and the payor although the debtor did
1. The debtor not give his consent to the donation.
2. Any person who has an interest in the obligation
(guarantor) ART. 1239
3. A third person who has no interest in the
obligation when there is stipulation that he can 1. Free disposal of the thing due
make payment - the thing to be delivered must not be subject to
any claim or lien or encumbrance of a third person.
2. Capacity to alienate
- the person is not incapacitated to enter into
Effect of payment by a third person contracts (Arts. 1327, 1329.) and for that matter, to
1. If made without the knowledge or against the will make a disposition of the thing due.
of debtor ART. 1240
Person to whom payment shall be made

ACC GROUP 5
1. Creditor or obligee Dation in payment (adjudication or dacion en pago)

2. His successor in interest (like an heir or assignee) - Conveyance of ownership of a thing by the debtor
3. Any person authorized to creditor
- A debt in money is satisfied, not by payment of
❖ Payment in good faith to any person in possession money
of the credit, is valid although such person may not
be authorized to receive the payment. Requisites
1. There must be performance of the prestation in
ART. 1241 lieu of payment (animo solvendi)
2. There must be some difference between the
Effect of payment to an incapacitated person prestation due (aliud pro alio)
- Payment is not valid unless such incapacitated 3. There must be an agreement between the creditor
person kept the thing paid or delivered or was and debtor that the obligation is immediately
benefited by the payment. extinguished
- Payment should be made to his legal
representative, if this is not possible, the debtor ❖ The amount of the money debt becomes the price
may relieve himself from responsibility by the of the thing alienated.
consignation in court of the thing or sum due
SALE DATION IN PAYMENT
The debtor is relieved from proving benefit to the creditor
in case of:
no pre-existing credit pre-existing credit
1. subrogation of the payer in the creditor’s rights
2. Ratification by the creditor obligations are created obligations are
3. Estoppel on the part of the creditor extinguished
❖ Under the law, the debtor who, before having Benefits: Benefits:
knowledge of the assignment of a credit to a third SELLER – price paid DEBTOR – extinguishment
person, pays the original creditor, shall be released BUYER - acquisition of the CREDITOR - acquisition of
from the obligation. thing sold the object in lieu of the
credit
ART. 1242
Payment to third person in possession of credit
- possession of the credit itself and not merely of more freedom in fixing the Lesser freedom in fixing
the document or instrument evidencing the credit price the price
- payer must act in good faith
- payment is valid
ART. 1246
ART. 1243
Rule of the medium quality
● Garnishment - The creditor cannot demand a thing of superior
- Retain the debt until the right of the plaintiff, the quality. Neither can the debtor deliver a thing of
creditor in the main litigation, is resolved. inferior quality
- The proceeding for the purpose of subjecting a - Benefit of this article may be waived if the
debtor’s credit to the payment of his debt to creditor/debtor accepts the thing of
another inferior/superior quality.
- Is in the nature of an involuntary novation by the
substitution of one creditor for another ART. 1247
ART. 1244 Debtor pays for extrajudicial expenses

- Extrajudicial expenses of payment are for the
Very prestation due must be complied with account of the debtor.
1. Real obligation (specific thing) - If the parties have made a stipulation as to who
- Cannot be offered or demanded against the will of will bear the expenses, then their stipulation shall
the creditor or debtor be followed.
2. Personal obligation Losing part generally pays judicial costs
- Cannot be substituted against the obligee’s will - Judicial costs are statutory amounts allowed to a
ART. 1245. party to an action for his expenses incurred in the
action.
Special forms of payment - No costs are allowed against the Government,
1. Dation in payment (Art. 1245.) unless otherwise provided by law.
2. Application of payments (Art. 1253.)
3. Payment by cession (Art. 1255.)
4. Tender of payment and consignation. (Arts. ART. 1248
1256-1261.)
Performance of obligations should be complete

ACC GROUP 5
- In order that payment may extinguish an ➢ Venue is a place where a court suit or action must
obligation, it is necessary that there be complete be filed or instited.
performance of the prestation. ➢ Domicile is a place of a person’s habitual residence.
When partial performance allowed Subsection 1. - Application of Payments

1. When there is an express stipulation to that effect
2. When the debt is in part liquidated and in part ART. 1252
unliquidated
3. When the different prestations in which the Meaning of application of payments
obligation consists are subject to different terms or - Application of payments is the designation of the
conditions which affect some of them. debt to which should be applied to the payment
made by a debtor.
ART. 1249
Requisites of application of payments
Meaning of legal tender 1. There must be one (1) debtor and one (1) creditor
- is that currency which if offered by the debtor in 2. There must be two (2) or more debts
the right amount, the creditor must accept in 3. The debt must be of the same kind
payment of a debt in money. 4. The debts to which payment made by the debtor
has been applied and must be due
Legal tender in the Philippines 5. The payment made must not be sufficient to cover
- Debts in money shall be paid in the currency all the debts
stipulated.
- All coins and notes issued by the BSP constitute Application as to debts not yet due
legal tender for all debts, both public or private. 1. There is a stipulation that the debtor may so apply.
- All coins and bills above P1.00 are valid legal 2. It is made by the debtor or creditor, as the case
tenders for any amount. may be, for whose benefit the period has been
constituted.
Payment by means of instruments of credits
1. Right of creditor to refuse or accept Rules on application of payments
2. effect on obligation 1. The debtor has the first choice
a. until they have been cashed 2. The right to make the application once exercised is
b. unless they have been impaired through irrevocable unless the creditor consents to the
the fault of the creditor. change
3. If the debtor does not apply payment, the creditor
ART. 1250 may make the designation
4. if the debts due are of the same nature and
burden, the payment shall be applied to all of them
Meaning of inflation and deflation proportionately.
1. Inflation is a sharp sudden increase of money or
credit or both without a corresponding increase in ART. 1253
business transactions.
2. Deflation is the reduction in volume and circulation Interest earned paid ahead of principal
of the available money or credit; it is the opposite 1. Rule in Article 1253 mandatory - The rule laid down
of inflation. in the article is mandatory.
2. Rule subject to agreement or waiver - the rule is
Basis of payment in case of extraordinary inflation or subject, however, to any agreement between the
deflation parties, or to waiver by the creditor.
- The purchasing value of the currency at the time of
the establishment of the obligation shall be the ART. 1254
basis of payment.
When a debt is more onerous than another
ART. 1251 - A debt is more onerous than another when it is
more burdensome to the debtor.
Place where the obligation shall be paid
1. If there is a stipulation, the payment shall be made Rules to determine where one is more burdensome than
in the place designated. another:
2. If there is a stipulation and the thing is to be 1. An interest-bearing debt is more onerous than a
delivered is specific, the place of payment shall be non-interest bearing debt even if the latter is an
made at the place of the perfection of the older one.
contract. 2. A debt as a sole debtor is more onerous than as a
3. If there is no stipulation and the thing to be solidary debtor.
delivered is generic, the place of payment shall be 3. Debts secured by a mortgage or by pledge are
the domicile of the debtor. more onerous than unsecured debts.
Note: 4. Of two interest bearing debts, the one with a
higher rate is more onerous.

ACC GROUP 5
5. An obligation with a penalty clause is more 2. Valid prior payment by the debtor and refusal
burdensome than one without a penalty clause. without justifiable reason by the creditor to accept
it
Where debts subject to different burdens 3. Previous notice of consignation to persons
- To what debt should the payment be applied? To all interested in the fulfillment of the obligation
of them proportionately. 4. Consignation of the thing or sum due
5. Subsequent notice of consignation made to the
Subsection 2. - Payment by Cession interested parties.
ART. 1255 When tender of payment not required

- Tender of payment is not necessary before the
Meaning of payment by cession debtor can consign the thing due with the court.
- Payment by cession is another special form of
payment. It is the assignment of all the properties Requirements for valid tender
of the debtor for the benefit of his creditors 1. Tender of payment must comply with the rules on
payment
Requisites of payment by cession 2. It must be unconditional and for the whole amount
1. There must be two (2) or more creditors due and in legal tender
2. The debtor must be partially insolvent 3. It must be actually made
3. The assignment must involve all the properties of
the debtor ART. 1257
4. The cession must be accepted by the creditors
Prior notice to persons interested required
Effect of payment by cession - In the absence of prior notice to the persons
- Unless there is stipulation to the contrary, the interested in the fulfillment of the obligation, the
assignment does not make the creditors the consignation, as payment, shall be void.
owners of the property of the debtor
Consignation must comply with provisions on payment
Dation in payment and cession distinguished - Consignation, to amount to a valid payment, must
also comply with the provisions which regulate
payment.
Dation Cession
ART. 1258
Only one (1) creditor There are several creditors
Consignation must be with proper judicial authority
Does not presuppose the The debtor is insolvent at
- Consignation, by depositing the thing or sum due
insolvency of the debtor the time of the assignment
with the proper judicial authority, is necessary to
effect payment.
Does not involve all the Extends to all the property
property of the debtor of the debtor
Notice to be given to interested parties of the
The creditor becomes Only rights to sell and consignation made
owner of the thing given proportionate proceeds to - After the consignation has been made, the
by the debtor their credit interested parties must also be notified thereof.
Act of novation Not an act of novation ART. 1259
Creditor bears expenses of consignation

Subsection 3. - Tender of Payment and Consignation - The consignation is made necessary because of the
fault or unjust refusal of the creditor to accept
ART. 1256 payment.
Meaning of “tender of payment” and “consignation” When consignation deemed properly made
1. Tender of payment is the act , on the part of the 1. When the creditor accepts the thing or sum
debtor, of offering to the creditor the thing or deposited without objection, as payment of the
amount due. obligation
2. Consignation is an act of depositioning the thing or 2. When the creditor questions the validity of the
amount due with the proper court when the consignation, and the court, after hearing, declares
creditor does not desire or cannot receive it. the it has been properly made
3. When the creditor neither accepts nor questions
the validity of the consignation, and the court after
hearing, orders the cancellation of the obligation.
Requisites of a valid consignation
1. Existence of a valid debt which is due
ART. 1260

ACC GROUP 5
Withdrawal by debtor of thing or sum deposited - The creditor has no duty to show that it was
- the observance of all the requisites of consignation indeed the debtor’s fault.
operates as a valid payment; hence, the debtor can - This presumption, however, is not applicable when
move for the cancellation of the obligation by the force majeure (e.g., earthquake, flood, and/or
court.
other natural calamities.)
ART. 1261
ART. 1266
Effect of withdrawal with authority of creditor
1. As far as the debtor and the creditor are Effect of impossibility of performance
concerned, their relations will remain as they were - If the impossibility happened without the fault of
before acceptance or cancellation. the debtor he is not liable and the obligation is
2. The solidary debtors are released only from their extinguished.
solidary liability, but not from their shares of the - The impossibility of the obligation must take place
obligation. after constituting the obligation. Otherwise, the
obligation is void.
Sec. 2 – Loss of the thing
- The knowledge about the impossibility of the
obligation to be performed is immaterial.
ART. 1262.
Kinds of Impossibility
When thing is lost
1. Physical Impossibility
- When it perishes or goes out of commerce or
- In personal obligation, it becomes impossible when
disappears (par.2, Art. 1189).
the obligor becomes physically incapable.
- Loss of a determinate thing constitutes an
2. Legal Impossibility
impossible performance in obligation to do
- When the obligation cannot be performed because
outlined in Art. 1266, but loss of the thing due
of the provisions of the law, and this condition is
which extends to both real and personal
implied in every contract.
obligations.
ART. 1267
When the loss extinguishes the obligation to give
(requisites of determinate thing):
Effect of difficulty of performance
- The loss occurs w/o the fault of the debtor.
- The court is authorized to release the obligor in
- The debtor is not guilty of delay.
whole or in part if the obligation has become so
When loss (of specific thing) does not extinguish the liability. difficult. It would be doing violence to the intention
- When the law provides. of the parties to hold the obligor still responsible.
- When stipulation provides. - This is applicable to both personal and real
- When the obligation requires the assumption of obligations.
risk. - The court is only allowed to either release or not
- When the obligation to deliver arises from crime. release the party but they cannot modify the terms
stipulated by the party.
ART. 1263
ART. 1268
Effect of loss of a generic thing
- Genus Nunquam Perit (A generic thing never perishes). The When the debt of a thing certain and determinate proceeds
debtor can still be compelled to deliver a thing of the same from a criminal offense, the debtor shall not be exempted
kind however, the creditor cannot demand anything of from the payment of its price, whatever may be the cause for
superior quality and neither can the debtor deliver a thing the loss, unless the thing having been offered by him to the
of inferior quality person who should receive it, the latter refused without
ART. 1264 justification to accept it.
Effect of partial loss of a specific thing ART. 1269

- The court decides whether the partial loss is equivalent
to a complete or total loss. The obligation having been extinguished by the loss of the
thing; the creditor shall have all the rights of action which the
ART. 1265 debtor may have against third persons by reason of the loss.
Presumption of fault in case of loss of thing in possession - This rule finds frequent application in insurance.
of the debtor
This article establishes a disputable presumption of fault
Section 3. – Condonation or Remission of the Debt
when what is lost is in the possession of the debtor. The
debtor can easily explain the circumstance for the loss. ART. 1270

ACC GROUP 5
Meaning of condonation or remission. 4. Presumption applicable only to private document

- Gratuitous abandonment by the creditor of his - Article 1271 it speaks of a private document.
right against the debtor - Legal presumption of remission does not apply in a
- Thus, a form of donation. public document because it is easy to obtain a copy
Requisites. of the same.
1. Must be gratuitous
2. Must be accepted by the obligor Payment, not remission of debt.
3. Parties must have capacity - The renunciation of the action the creditor had
4. It must not be inofficious against the debtor may be nullified by a showing
5. If made expressly, it must comply with the forms that the waiver is inofficious (Art. 1271, 2nd par.)
of donation. - The remission becomes null and void upon proof
that it is inofficious.
- The debtor or his heirs may prove that the delivery
KINDS OF REMISSION
of the document was really made in virtue of
payment of the debt and not of remission.
Extent Form Effectivity
ART. 1272
Complete. — Express. — made Inter vivos. — take
covers the either verbally or effect during the Presumption in case document found in possession of
entire in writing. lifetime of the debtor.
obligation. donor
Implied. — only be Document evidencing debt Presumption
Partial. — inferred from Mortis causa. —
does not conduct. become effective Ordinarily possession of the creditor.
cover the upon the death of
entire the donor.
obligation. • must
comply with the Legal presumption In favor of C, that his credit
formalities of a will. is as yet uncollected,
unless the debtor proves
satisfactorily, by one of the
Effect of inofficious remission. rules recognized in law,
- While a person may make donations, no one can that he has already paid
give more than that which he can give by will, the claim.
excess shall be inofficious and reduced by the court
accordingly. Found in the hands of the voluntarily delivered by the
- Rule: testamentary dispositions which impair the debtor: creditor.
legitime shall be reduced on petition of the heirs not known how he came
insofar as they are inofficious or excessive. into possession ● gives rise to the
- Legitime – part of the testator’s property which he presumption of
cannot dispose of because the law has reserved it remission.
for certain heirs who are called compulsory heirs.
ART. 1271
ART. 1273
Presumption in case document of indebtedness voluntarily
Presumption in case thing pledged found in possession of
delivered by creditor.
debtor.
● Rule follows: accessory follows the principal.
1. Presumption of implied remission
● Accessory obligation - cannot exist without
- Gives an example of implied or tacit remission.
principal obligation
- If the debt is not yet paid, the creditor would need
● Principal obligation - can exist without accessory
the document to enforce payment.
- In case he voluntarily delivers it to the debtor,
logical inference: he is renouncing his right.
2. Contrary evidence
- Presumption: prima facie or rebuttable by contrary
evidence.
- Evidence is admissible to show otherwise, as when
a receipt signed by C delivered only for
examination by the D client (lawyer)
3. Extent of remission
- Joint obligation: the presumption of remission,
ART. 1274
when applicable, pertains only to the share of the
debtor who is in possession of the document.
Presumption in case document found in possession of
- Solidary Obligation: to the total obligation.
debtor.

ACC GROUP 5
● Contract of pledge - As many debts as there are debtors and as many as

credits there are creditors and/or credits being
The thing pledged Presumption
considered distinct and separate from one another
(Art. 1208).
necessarily the possession of the
- Confusion taking place in the person of any debtor
creditor, or third person by
or creditor does not affect the others.
common agreement.
- The confusion applies only to the part/share
corresponding to the one creditor or the one
Third person who is not a
debtor whom the two characters merged. This
party of the principal
does not affect the other prestation and hence
obligation secure by the C
does not extinguish the joint obligation.
by pledging his own
property.
Confusion in a solidarity obligation
Hands in debtor or third only the accessory - Merger of one of the solidary debtors shall
person obligation of pledge is extinguish the entire obligation because it is also a
presumed remitted, not merger in the other solidary debtors (Art. 1215).
obligation. - There is only one obligation and every debtor is
individually responsible for the payment of the
whole obligation.
Section 4. – Confusion or Merger of Rights
There is confusion in a solidary obligation if:
ART. 1275 1. One of the solidary debtors also becomes the sole
creditor; he may then claim reimbursements from
Meaning of confusion or merger his co-debtors.
- meeting in one (1) person of the characters of 2. One of the solidary creditors also becomes the sole
creditors and debtor with respect to the same debtor; he may then do whatever may be useful to
obligation. the other creditors, but not anything which may be
Reason or basis prejudicial
1. A mode of extinguishment of obligation – as the
debtor also becomes the creditor, the obligation is Section. 5 – Compensation
extinguished since one cannot claim against
himself. ART. 1278
2. When there is confusion or merger of rights, the
obligation is deemed fulfilled. Meaning of Compensation
Requisites of confusion Compensation – extinguishment to the concurrent amount
1. Take place between the principal debt and of the debts of two persons who are debtors and creditors
creditor. of each other (Art. 1278, 1290).
2. It must be complete and definite (partial merger is - balancing two obligations to extinguish them to
allowed). the extent that the amount of one is covered by
that of the other. (8 Manresa 401)
ART. 1276
Object of Compensation
- Prevention of unnecessary litigations and
EFFECT OF MERGER
payments, accomplished through mutual
extinguishment by operation of law of concurring
Obligation Accessory debts of two (2) persons.
- Simplified Payments (compensation) are more
The person of Extinguish Extinguish convenient and less expensive between (2)
principal debtor persons who are reciprocally debtors and
or creditor creditors.
The person of Does not extinguish Extinguish

guarantor principal
Extinguishes the
guaranty but leaves
the principal
obligation in force
ART. 1277
ART. 1277 Difference between Compensation and Confusion
Confusion in a Joint Obligation Person Obligation Payment

ACC GROUP 5
- Applies to all the different kinds of compensation

Compensation (2) Two Two Indirect
- Total compensation = when two debts are the
persons
same amount.
each, who
- If diff. amount, compensation is total as regards
is a debtor
the smaller debt and partial only with respect to
and a
the larger debt.
creditor of
ART. 1282
the other.
Voluntary/Conventional compensation
Confusion (1) One One Impossib - This is an exception to the general rule that only
person is ility debts which are due and demandable can be
both compensated.
Creditor - Includes any compensation which takes place by a
and Debtor stipulation even if all requisites for legal
of himself. compensation are not present. This kind of
compensation has no special requisites.
Kinds of Compensations - The contract of the parties validates the
1. By its effect or extent: declaration of compensation.
a) Total – both obligations are of the same amount - The only requisites are: They have the right to
and are entirely extinguished. dispose and they mutually agree to extinguish their
b) Partial – two obligations are different amounts, debts and credits.
and a balance remains. The effect will be partial
only as regards the larger debt. ART. 1283
2. By its cause or origin:
a) legal - by operation of law with all the requisites Judicial compensation
are present. - Compensation takes place by the declaration of
b) voluntary - by mutual agreement and consent of the final judgment of a court in a suit.
the parties even if the debts are not yet due. - A party may set off his claims for damages by
c) judicial - by an order from a court as pleaded by proving his right and the amount thereof.
one party.
d) facultative - by unilateral choice of one party to ART. 1284
claim or oppose compensation; no mutual
agreement needed. Compensation of rescissible or voidable debts
ART. 1279 - A compensation is applicable to rescindable and
voidable debts before they are juridically rescinded
Requisites of Compensation (Art. 1381) or declared null and void (Art. 1390).
A legal compensation requires: - However, the nullification of such debts has
1. The parties are principal creditors and principal retroactive effect, which deems the compensation
debtors of each other to have never taken effect. There is also still a
2. That both debts must consist in sum of money or if liability on the one who caused the breach of
consumable, of the same kind or quality. obligation.
3. Both debts are due and demandable
4. Both debts are liquidated ART. 1285
5. Neither debt is held by any retention or
controversy commenced by third persons and Effects in the Assignment of Rights in Compensation
communicated in due time to the debtor. A legal compensation can still take effect before or after
6. That the debts are allowed by law. the creditor (assignor) assigned his right (debt) to a third
person (assignee).
A compensation shall take effect by operation of law when
all the aforementioned requisites are present, even though The right to the compensation in case of an assignment of
the creditors and debtors are not aware. rights:
● With the consent of the debtor - the right to the
ART. 1280 compensation is waived unless the debtor
reserved his right to the compensation.
Compensation benefits guarantor ● With the knowledge but without the consent of
- This is an exception to the general rule that only the debtor - the right to the compensation may be
the principal debtor can set up against his creditor set to the debts due prior to the assignment, but
what the latter owes him. not to subsequent/later ones.
- He is given the right to set up compensation. As ● Without the knowledge of the debtor - the right to
the extinguishment of the principal obligation as a the compensation may be set before or after the
consequence of compensation carries with it the assignment, until the debtor had knowledge of
accessory obligations such as guaranty. such assignment.
ART. 1281
ART. 1286
Total and partial compensations

ACC GROUP 5
Compensation where debts payable at different places

A legal compensation can still take effect even if the debts ART. 1291
are payable at different places. This is possible if the party
who raises his right to the compensation shall pay Obligation may be modified by:
indemnity: 1. Changing their object or principal conditions
● For expenses of monetary exchange in case of 2. Substituting the person of the debtor
payment of money. 3. Subrogating a third person in the rights of the
● For expenses of transportation in case of delivery creditor. (1203)
of things.
Novation – The extinction of obligation through the
ART. 1287 - 1288 creation of a new one which substitute it.
A compensation is not allowed by the law: Dual Function

1. if one of the debts arises from a depositum or ● To EXTINGUISH or MODIFY an existing obligation
deposit, wherein one receives a thing belonging to ● To SUBSTITUTE a new one in its place
another, with the obligation of safely keeping it
and of returning the same. (Not to be confused
with a “deposit in a bank”) KINDS OF NOVATION
2. if one of the debts arises from a bailee (agent) in
commodatum, wherein one gratuitously delivers According to origin
something to the other to be used for a certain
time and then returns. Legal By operation of law
3. if one of the debts arises from a claim for support
due to gratuitous title, which are deemed “vital to Conventional By agreement of the parties.
the life of the recipient". This only applies to
support in arrears (behind schedule), but not to According to how it is constituted
future support.
4. if one of the debts consists in civil liability arising Express Declared in unequivocal terms
from a criminal/penal offense; the fulfillment of
such obligation is imperative or necessary. This
Implied Old and new obligations are
only applies to the accused, but not to the victim
essentially incompatible
of a crime.
According to extent or effect
Such prohibitions only apply to the party that has such
debts. This is to prevent breach of trust and confidence.
Total Old obligation is completely
Although one party cannot use compensation, the other extinguished
party has the option to claim or not to claim compensation.
This is a facultative compensation. Partial Old obligation is merely modified
ART. 1289 According to the subject

Rules on application of payments apply to order of compensation
Real When principal conditions of the
- Compensation is like a payment. If a debtor has
obligation are changed
many debts which are prone to compensation, he
must inform the creditor which shall be the object
of compensation. Personal Debtor is substituted and/or when a
- Failure to do so, the compensation shall be applied third person is subrogated in the
to the most onerous obligation. rights of the creditor
ART. 1290
Mixed Combination of real and personal
Consent of parties not required in legal compensation novation.
1. Compensation takes place automatically by mere
operation of law – all requisites in Art. 1279 concur,
compensation takes effect automatically even in
the absence of the stipulation between parties and
extinguishes reciprocally, both debts to the
amount of their respective sums without the need
of consent on the part of the parties, and without
their knowledge.
2. Full legal capacity of parties not required – not ART. 1292
required that the parties have full legal capacity to
give or to receive. Requisite of Novation
Existence of a previous valid obligation;
Section 6 - Novation

ACC GROUP 5
● Intention or agreement and capacity of the parties obligation being inexistent, it cannot extinguish or modify
to extinguish or modify the obligation; the first unless intended by parties.
● Extinguishment or modification of the obligation
● The creation or birth of a valid new obligation. Effect where the new obligation only voidable, novation
NOVATION IS NOT PRESUMED. The burden of showing lies can take place. But the moment it is annulled, the novation
on the party that claims it. must be considered as not having taken place, and the
original one can be enforced, unless intended by parties.
ART. 1293
ART. 1298
Kinds of Personal Novation
A void obligation cannot be novated, unless if voidable or if
1. Substitution – person of the debtor voidable obligation is validated by ratification.
● Expromision - when a third person of his own
initiative and without the knowledge or against the ART. 1299
will of the original debtor assumes the latter’s
obligation with the consent of the creditor Presumption where original obligation subject to a
● Delegation - when the creditor accepts a third condition
person to take the place of the debtor at the - If the first obligation is subject to a suspensive or
instance of the latter. With consent of creditor. All resolutory condition, the second obligation is
parties must agree. deemed subject to the same condition unless the
contrary is stipulated by the parties in their
Rights Of the Debtor Who Pays contract.
● Expromision – Right to beneficial reimbursement
● Delegacion – Entitled to reimbursement and ART. 1300
subrogation (payment with consent of original debtor)
Subrogation
2. Subrogation – third party - Substitution of one person in the place of another.
Places the party in the shoes of the creditor,
acquiring the right creditor could employ to
EFFECTS OF NEW DEBTOR’S INSOLVENCY OR enforce payment.
NON-FULFILLMENT OF OBLIGATION
Kind of Subrogation
● Conventional – Express agreement of original
Will not revive the action of the parties, must be clearly established
creditor against the old debtor ● Legal – Takes place by operation of law, not
Expromision · Replacement of the old presumed.
(Art. 1294) debtor is not made at his own
initiative ART. 1301
Old debtor is not liable CONSENT OF ALL PARTIES REQUIRED IN CONVENTIONAL

Exceptions: (intended to prevent fraud) SUBROGATION
Delegacion · Insolvency already existing
(Art. 1295) and of public knowledge or
known to the debtor at the time
Because he becomes liable
of delegacion
Debtor under the new obligation to a
new creditor.
Extinguishment of the principal obligation carries with it
Because his right against the
that of the accessory obligations.
Old Creditor debtor is extinguished
Exception: In the case of an accessory obligation
created in favor of a third person which remains in Because he may dislike or
force unless said third person gives his consent to the New Creditor distrust the debtor
novation.
ART. 1297 ART. 1302
General Rule: No novation if the new obligation is void. It is presumed that there is legal subrogation:
Therefore, the original one shall subsist because the second

ACC GROUP 5
1. When a creditor pays another creditor who is element is required for an agreement (ART 1318)
preferred, even without the debtor’s knowledge; that may create legally enforceable obligations.
2. When a third person, not interested in the
obligation, pays with the express or tacit approval
CLASSIFICATIONS OF CONTRACT
of the debtor;
3. When, even without the knowledge of the debtor,
Name and a) Nominate; and
a person interested in the fulfillment of the
Designation b) Innominate (ART 1307)
obligation pays, without prejudice to the effects of
confusion as to the latter’s share.
Perfection a) Consensual; and
b) Real (ART 1315, 1316)
ART. 1303
Cause a) Onerous;
Effect of legal subrogation
b) Remuneratory
- Subrogation transfers to the person subrogated
(remunerative); and
the credit with all the rights thereto appertaining,
c) Gratuitous (ART 1350
either against the debtor or against third persons,
be they guarantors or possessors of mortgages, Form a) Informal, common or
subject to stipulation in a conventional simple; and
subrogation. b) Formal or solemn (ART
1356)
EXCEPT only for the change in the person of the creditor,
the obligation subsists in all respects as before the Obligatory Force a) Valid (ART 1306);
novation. b) Rescissible (Chap. 6);
c) Voidable (Chap 7);
ART. 1304 d) Unenforceable (Chap
8); and
Effects of partial subrogation e) Void or inexistent (Chap
- A creditor, to whom partial payment has been 9)
made, may exercise his right for the remainder,
and he shall be preferred to the person who has Person Obliged a) Unilateral; and
been subrogated in his place in virtue of the partial b) Bilateral (ART 1191)
payment of the same credit.
Risks a) Commutative; and
TITLE II: CONTRACTS b) Aleatory
CHAPTER 1
Liability a) Unilateral; and
b) Bilateral
ART. 1305
No. of parties in a contract Status a) Executory; and

● At least 2 persons or parties. b) Executed
● When a single person creates a contract with
himself where he represents distinct interest (e.g., Dependence to a) Preparatory;
he is the agent of the person he’s truly obligated another contract b) Accessory; and
from) c) Principal
Contract and Obligation Extinguished Dependence of part a) Indivisible; and

● Contract is one of the sources of obligations. (ART of the contract to b) Divisible
1157) other parts
● Obligation is the legal tie or relation itself that
exists after a contract has been made. There is no ART. 1306
contract if there is no obligation. But an obligation
may exist without a contract such as the obligation Meaning of valid contracts
imposed by law. Valid Contracts – meet all the legal requisites for the type
Contract and agreement distinguished of agreement involved (art. 1318) and the limitations on
● Contracts are enforceable through legal contractual stipulation and are, therefore, legally binding
proceedings. For it to be valid and enforceable, a and enforceable.
contract must be lawful (ART 1306) and the
requisites for its validity must be present (ART
1318)
● Those agreements which cannot be enforced in Freedom to contract guaranteed
the court of justice are not contracts but merely The freedom to contract is both a constitutional and
moral and social agreements. An agreement is statutory right.
broader than the contract since no specific

ACC GROUP 5
1. Right to enter into contracts - one of the liberties part of it as binding rules of conduct. It has the force of law
guaranteed to the individual by the Constitution or when recognized and enforced by law.
the right to choose with whom one desires to
contract. Ex. A notarized legal separation agreement between husband
and wife is contrary to good customs.
● It also signiﬁes or implies the right to choose with
whom one desires to contract. The Constitution Contract must not be contrary to public order
prohibits the passage of any law impairing the
obligation contracts. (Art. III, Sec. 10 thereof.) Public order refers principally to public safety although it
However, the constitutional prohibition against the has been considered to mean also the public welfare
impairment of contractual obligations refers only (well-being).
to legally valid contracts. In appropriate cases, it
cannot be invoked as against the right of the state Ex. A contract legalizing adultery or concubinage.
to exercise its police power.
Contract must not be contrary to public policy
● In other words, an individual does not have an
absolute right to enter into any kind of contract. Public policy is broader than public order, as the former
However, because the autonomy or freedom of may refer not only to public safety but also to
contract is both a constitutional and statutory considerations which are moved by the common good.
right, to uphold the right, courts are enjoined to
move with the necessary caution and prudence in Ex. A contract entered into by a prosecutor not to prosecute
holding contracts void. The binding force of a a carnapper in consideration for P1,000.00 is against the
public policy to punish crimes.
contract must be recognized as far as it is legally
possible to do so. The legal presumption is always ART. 1307
on the validity of contracts.
Classification of Contract According to Its Name or
Limitations on contractual stipulations. Designation
1. Law — must be in accordance with, and not ● Nominate contract – has specific name
repugnant to, any applicable statute. Its terms are ● Innominate contract – No specific name
embodied in every contract. The law thus sets
limits. Kinds of Innominate Contract
2. Police power — Public welfare is superior to ● Do ut des (I give that you may give)
private rights. When there is no law in existence or ● Do ut facias (I give that you may do)
when the law is silent, the will of the parties ● Facto ut des (I do that you may give)
prevails unless their contract contravenes the ● Facto ut facias (I do that you may do)
limitation of morals, good customs, public order, ➢ Reason for innominate contracts is the
or public policy. The policy of protecting contracts impossibility of anticipating all forms of
against impairment presupposes the maintenance agreement.
of a government by virtue of which contractual
relations are worthwhile — a government which Rules Governing Innominate Contracts
retains adequate authority to secure the peace and
● Agreement of the parties
good order of society.
● Provision of the Civil Code on Oblicon
Contract must not be contrary to law ● Rules governing most analogous contracts
● Custom of the place
A contract intended to circumvent and violate the law is
void ab initio. ART. 1308
Contract must not be contrary to morals Contracts give rise to an obligation. It must bind both
parties for it to be enforced against either. Can only be
Morals deal with norms of good and right conduct evolved renounced with consent of the other.
in a community. These norms may differ at different times
and places and with each group of people.
Ex. A contract to live together without the beneﬁt of

marriage in consideration for a sum of money is immoral.
Contract must not be contrary to good customs

ART. 1309
Customs consist of habits and practices which through long
usage have been followed and enforced by society or some Determination of performance by a third person

ACC GROUP 5
- Compliance with a contract cannot be left to the 5. Neither of the contracting parties bears the legal
will of one of the contracting parties. representation or authorization of the third party
- The determination of its performance may be left
to a third person. ART. 1312
ART. 1310 Third person are bound by contracts; creating real rights
● Exception to GR: contract binds only the parties
Effect where determination inequitable ● Real right – right binding against the world
(everybody)
- A contracting party is not bound by the
determination if it is evidently inequitable or unjust If real rights are not registered, a third person who acts in
as when the third person acted in bad faith or by good faith is protected under the provision of Property
mistake. Registration Decree.
- The courts shall decide what is equitable under the
circumstances. ART. 1313
ART. 1311 Right of creditor to impugn contracts intended to defraud

them.
Person affected by contract - Although the creditor is not a party to the contract,
he can sue to prevent the debtor from committing
1. General rule - A party’s right and obligations fraud against him.
derived from a contract are transmissible to the ART. 1314
successors.
2. Exceptions - The cases when a contract is effective Liability of third person responsible for breach of contract.
only between the parties are when the rights and ● Rule of American law.
obligations arising from the contract are not ● a stranger to a contract can be sued for damages
transmissible. for his unwarranted interference with the contract.
a. By their nature
b. By stipulation ART. 1315
c. By provision of law
Contracts are perfected by mere consent, and from that
Cases when strangers or third persons affected by a moment the parties are bound not only to the fulfillment of
contract what has been expressly stipulated but also to all the
- A third person is one who has not taken part in the consequences which, according to their nature, may be in
contract and is, therefore, a stranger to the keeping with good faith, usage and law. (1258)
contract.
ART. 1316
There are cases, however, when third persons may be
affected by a contract: Classification of contracts according to perfection
1. In contracts containing a stipulation in favor of a 1. Consensual contact
third person - Perfected by a mere consent even if the parties
2. In contracts creating real rights have not affixed their signatures to its written form
3. In contracts entered into to defraud creditors - They are obligatory in whatever form they may
4. In contracts which have been violated at the have been entered into as long as it is valid
inducement of a third person. ❖ Ex: sale, lease, agency
Classes of stipulation pour autrui 2.Real contract

1. Those where the stipulation is intended for the - Perfected not merely by consent but by the
sole benefit of such third person. delivery, actual or constructive, of the object of the
2. Those where an obligation is due from the obligation
promisee to the third person which the former - Is an addition to consensual contract.
seeks to discharge by means of such stipulation. - These contracts have for their purpose restitution,
because they contemplate the return by a party of
Requisites of stipulation pour autrui what has been received from another or its
1. The contracting parties by their stipulation must equivalent.
have clearly and deliberately conferred a favor ❖ Ex: depositum, pledge, commodatum
upon a third person
2. The third person must have communicated his 3.Solemn contract
acceptance to the obligor before its revocation - Requires compliance with certain formalities
3. The stipulation in favor of the third person should prescribed by law.
be a part, not the whole, of the contract ❖ Ex: donation of real property
4. The favorable stipulation should not be
conditioned or compensated by any kind of Stages in the life of a contract
obligation 1. Preparation or negotiation

ACC GROUP 5
- From the time they manifest interest in entering b. Special - present only in or peculiar to certain
into a contract, leading to the perfection of the specified contracts
contract. 2. Natural elements - presumed to exist in certain
- The parties have not yet arrived at any definite contracts unless the contrary is expressly
agreement. stipulated
2. Perfection or birth 3. Accidental elements - the particular stipulations,
- When the parties have come to a definite clauses, terms, or conditions established by the
agreement or meeting of the minds regarding the parties in their contract
terms
3. Consummation or termination Section 1. - Consent
- When the parties have fulfilled or performed their
respective obligations ART. 1319
ART. 1317 Meaning of consent

- Conformity of wills
Requisites for a Person to Contract in the Name of Another - The agreement of the will of one contracting party
a. He must be duly authorized (expressly or with that of another or others, upon the object and
impliedly); or terms of the contract.
b. He must have by law a right to represent him
(guardian or administrator); or
c. The contract must be subsequently RATIFIED Meaning of Offer
(expressly or impliedly). - A proposal made by one party
- Must be certain or definite and clear, and not
Example of Unauthorized (a Form of Unenforceable) Contract vague or speculative
In Marga’s name, but without her authorization, Cassie sold Meaning of Acceptance
Marga’s car to Hector. The sale of the car is unauthorized. - The manifestation by the offeree of his assent to
the terms of the offer
Note: In the example given, mere lapse of time cannot cure - Without acceptance, there can be no meeting of
the defect; this is not the ratification required by law (Tipton the minds between the parties.
versus Velasco, 6 Phil. 67). - Must be absolute, unconditional or unqualified
❖ Qualified acceptance - constitutes a
counter-offer or a new proposal. when
EFFECT Contract is unenforceable when it is any of the elements of the contract is
represented by a person who is not modified upon acceptance.
authorized or has no legal
representation. Acceptance made by letter or telegram
1. Knowledge of acceptance - the contract is
REMEDY Ratification either express or implied by perfected from the time of the offerer’s
the person on whose behalf it has been knowledge, actual or constructive, of the
executed. acceptance
2. Revocation of offer - before the acceptance is
known, the offer can be revoked.
EFFECT OF Ratification cleanses the contract from 3. Revocation of acceptance - the offeree may revoke
RATIFICATION all its defects from the moment the the acceptance he has already sent, provided, the
contract was entered into. revocation reaches the offeror before the latter
learns of the acceptance.
Note: There can be no more ratification if the contract has ART. 1320
previously been REVOKED by the other contracting party.
Form of acceptance of offer
CHAPTER 2 1. Acceptance by promise - giving promise to pay or
act according to the conditions of the offer. May
ART. 1318 be made expressly or impliedly.
2. Acceptance by act - the performance is the only
Requisites of Contracts thing needful to complete the agreement and
1. Consent of the contracting parties create a binding promise.
2. Object certain which is the subject matter of the 3. Acceptance by silence or inaction
contract - As a general rule: it is not sil considered valid.
3. Cause of the obligation which is established. - Exceptions: agreed by the parties, provisions of the
law, constitutes estoppel.
Classes of Elements of a Contracts ART. 1321
1. Essential elements - those without which no
contract can validly exist. Also known as requisites The person making the offer may fix the time, place, and
a. Common - present in all contracts manner of acceptance, all of which must be complied with.

ACC GROUP 5
ART. 1322 ART. 1327

● For a contract to arise, the acceptance must be
made known to the offeror. Capacity to give consent presumed
● An agent is considered an extension of the - The civil code defines who has no capacity to give
principal and if duly authorized, the act of the consent to a contract.
agent is, in law, the act of the principal.
Persons who cannot give consent
ART. 1323 1. Unemancipated minors - They refer to those
persons who have not yet reached the age of
Offer becomes ineffective majority (18 years) and are still subject to parental
1. When one of the parties before acceptance: authority.
● Withdraw the offer 2. Insane or demented persons - the insanity must
● Death exist at the time of contracting. Unless proved
● Civil interdiction otherwise, a person is presumed insane
● Insanity or insolvency 3. Deaf-mutes - They are persons who are deaf and
2. Failure to comply with the condition of the offer dumb.
3. Expiration of the period fixed in the offer
4. Rejection of the offer ART. 1328
ART. 1324
Contracts entered into during a lucid interval
Option contract - Lucid interval is a temporary period of sanity. A
- A preparatory contract giving a person a certain contract entered into by an insane or demented
period and under specified conditions within which person during a lucid interval is valid
to accept the offer of the offerer.
- Separate and distinct from the projected main Effect of drunkenness and hypnotic spell
agreement or principal contract itself - Drunkenness and hypnotic spell impair the capacity
Option period of a person to give intelligent consent.
- The period given within which the offeree must
decide whether or not to enter into the principal ART. 1329
contract.
Option money Incapacity declared in Article 1327 subject to modifications.
- The money paid or promised to be paid as a - The contracts entered into by the persons
distinct consideration for an option contract enumerated in Article 1237 are voidable.
❖ Earnest money - is actually a partial - In certain cases, their capacity may be modified by
payment of the purchase price and is law, that is, they can also give valid consent.
considered as proof of the perfection of
the contract. Other special disqualification may be provided by law
- In addition to the incapacity declared in Article
ART. 1325 1327, other special disqualifications may be
provided by law.
Business advertisements generally not definite offers - A contract entered is valid except where it is
- Business advertisements of things for sale are not voidable by reason of incapacity under Articles 1327
definite offers acceptance of which will perfect a and 1328 or causes which vitiate consent, or the
contract but are merely invitations to the reader to incompetent has been place under guardianship.
make an offer. - A prodigal is presumed to have capacity to enter
- However, if it is complete, it may amount to a into a contract.
definite offer which will produce a perfected
contract. ART. 1330
ART. 1326 Characteristics of consent

1. It is intelligent.
Advertisements for bidders generally not definite offers 2. It is free and voluntary
- In an advertisement for bidders, the advertiser is 3. It is conscious or spontaneous
not the one making the offer. Vices of consent
- The bidder is the one making the offer which the 1. Error or mistake (Art. 1331)
advertiser is free to accept or reject. 2. Violence or force (Art. 1335)
- Acceptance by the advertiser is necessary for a 3. Intimidation or threat or duress (Ibid)
contract to exist. 4. Undue influence (Art. 1337)
- The advertiser is not bound to accept the highest 5. Fraud or deceit (Art 1338)
or the lowest bidder unless the contrary appears.
ART. 1331

ACC GROUP 5
Mistake or error is the false notion of a thing or a fact

material to the contract. BURDEN OF PROOF IN CASE OF MISTAKE OR FRAUD:
NATURE OF MISTAKE: ● General Rule – When a person signs a document, it

is presumed that he understands the contents. He
1. Fact or Law. This article refers to the mistake of is bound in all terms. Should he later on allege
fact which may arise from ignorance or lack of fraud or mistake, it is incumbent upon him to prove
knowledge. his allegation. A presumption is a fact until proven
2. The mistake contemplated by law must be a otherwise.
substantial mistake of fact – the party should not ● Exception – When a party is unable to read or if the
have given their consent when they know the contact is in a language not understood by him, the
mistake. Hence, not all mistakes will vitiate consent party who enforced the contract must prove that
and make a contract voidable. there has been no mistake or fraud and that terms
3. Unilateral (When only one party is mistaken about were explained to the former in a manner
a material fact) or Bilateral or mutual (when both). understood by him.
Generally, a person who makes a mistake is liable ● Reason for the exception – This rule is especially
unless he shows proof that he was free of fault and necessary in the Philippines where unfortunately
negligence. there is still a fairly large number of illiterates, and
where documents are usually drawn up in English
MISTAKE OF FACT WHICH LAW REFERS: or Spanish. It is in accord with the policy in the
constitution: promoting social justice and
1. The substance of the object of the contract. This protecting the rights of those who are
includes the nature of the contract. disadvantaged in life.
2. Conditions that principally moved parties to enter
into contract. ART. 1333
3. Identity or qualification of either or both parties
are the same to what brought them to contract. There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting or risk affecting the object of the
MISTAKE OF FACT WHICH DOES NOT VIOLATE CONSENT: contract.
1. Errors regarding incidents of a thing or accidental ART. 1334

qualities thereof not taken as the principal
consideration of the contract. Unless it’s caused by ● Mistake of law – Arises from an ignorance of some
fraud of the other party. provision of law; erroneous interpretation of its
2. Mistake as to quantity or amount. Unless it goes to meaning; erroneous conclusion as to the legal
the essence of the contract. effect of an agreement on the part of the parties.
3. Error regarding the motives of the contract. Unless ● Effect of the mistake of law – As a rule, this does
motives constitute a condition or cause of the not invalidate consent as “ignorance of the law
contract. excuses no one from compliance therewith”.
4. Mistake as to the identity or qualifications of a
party. The contracts are more involved with the When it vitiates consent – When there is a mistake on a
things or services which form their subject rather doubtful question of law, or on the construction or
than of persons. Unless such identity or application of law, ignorantia legis neminem excusat should
qualifications have been the principal cause of the have no proper application.
contract. Exceptions pertain to obligation to do,
partnership, agency, commodatum, guaranty, REQUISITES FOR ART 1334:
deposit, etc. 1. Error must be mutual.
5. Errors which could have been avoided by the party 2. Legal effect to an agreement.
alleging, or a fact known to him, or he should have 3. Frustrate the real purpose of the parties.
known by the exercise of ordinary diligence, or
which is so patent and obvious that nobody could ART. 1335
have made it.
NATURE OF VIOLENCE OR FORCE
EFFECT OF MISTAKE OF ACCOUNT (MISTAKE IN - Violence requires the employment of physical
COMPUTATION): force. To make consent defective, the force
employed must either be serious or irresistible. In
1. Mistake is simple – Does not void the contract. either case, consent is not free.
2. Mistake is gross – The party who made the mistake is
liable. NATURE OF INTIMIDATION OR THREAT:
1. It must produce a reasonable and well-grounded
fear of evil.
2. Evil must be imminent and grave.
3. Evil must be upon his person or property, or that of
ART. 1332 his spouse, descendants, or ascendants.

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4. It is the reason why he entered into the contract. ART. 1339
FACTORS TO DETERMINE DEGREE OF INTIMIDATION: Fraud by Concealment
Contract signed merely out of reverential fear is valid. Concealment = misrepresentation

Unless the fear so deprives one of reasonable interference
that undue influence has been exercised. ● Failure to disclose when there is duty to reveal
them constitutes concealment or fraud.
THREAT TO ENFORCE JUST OR LEGAL CLAIM: ● Injured party is entitled to annul the contract
whether failure is intentional or not if there is a
The threat of a court action as a means to enforce a just or duty to disclose.
legal claim is justified and does not vitiate consent. As long
as the threat is within the realm of the law and a means to ART. 1340
enforce collection. Such a threat cannot constitute duress
even if the claim proves unfounded so long as the creditor ● Exaggeration in trade when the other party has an
believes that it was his right to do so. opportunity to know the facts is not fraudulent,
even known as false by the party making them.
ART. 1336 ● Customers are expected to take care of their
concern and rely on their on independent
It is necessary that the violence or intimidation must be of judgement
the character required in Article 1335 to make the contract
voidable or annullable. ART. 1341
ART. 1337 ● Mere expression of opinion does not signify fraud.
Undue Influence – A person takes advantage to overpower Expression of Opinion Imply Fraud Requisite:
the mind of the party, depriving him his freedom of choice.
● Must be made by an expert
Nature of Undue influence ● Other contracting party relied on the expert’s
opinion
● Influence must be undue or improper to void a ● Opinion is false or erroneous
contract
● Effect, a person expressing the will of another ART. 1342
● Mere general or reasonable influence is not
enough to void a contract
FRAUD BY A THIRD PERSON
Circumstances to be considered
● Confidential, family, spiritual and other relations

General Rule Exception
between parties
● Mental Weakness
● Ignorance Misinterpretation by a Misinterpretation created
● Financial distress of person unduly influenced third person does not substantial mistakes and
vitiate consent the same is mutual.
ART. 1338
➢ Contact may be
Causal Fraud – committed before or at the perfection of annulled by
contract to secure consent. It induced the other to enter a grounds of
contract which voids consent. mistake.
How Causal Fraud Committed?
● Insidious words or machination ART. 1343
● Concealment
Effect of misrepresentation made in good faith
Requisite of Causal Fraud Misrepresentation is not intentional but made in good faith
● Misinterpretation or concealment of material fact is considered a mere mistake or error.
with knowledge of its falsity
● Must be serious Example: Ginang Alahera sold Gino a diamond ring which she
● Must be employed by only one of the contracting believed to be a true diamond ring. It turned out that it was
parties not. Ginang Alahera cannot be held liable for fraud but will be
● Must be made in bad faith or intent to deceive required to return Gino’s payment.
● Induced the consent of other party
● Alleged and proved by clear and convincing ART. 1344
evidence

ACC GROUP 5
Two kinds of fraud in the making of contract ART. 1347 - 1348
1. Incidental fraud - when there is already a Concept of object of a contract

pre-existing contract entered into by the parties The object of a contract is its subject matter - obligation
and it is a valid one. created.
● and while one party is performing his obligation, ● The thing, service, or right which is the object of
another commits the fraud the obligation is also the object of the contract.
● the fraud is NOT the principal inducement that led
the other party to enter into the contract Kinds of object of a contract
➔ for without the fraud, he would still have Object certain - second essential element of a valid
freely entered into the contract contract. The object may be things (as in sale), rights (as in
➔ he was deceived ONLY as to the terms of assignment of credit), or services (as in agency).
the contract
● ONLY obliges the guilty party to pay damages to Requisites of things as object of a contract
the defrauded party 1. Things may be the object of a contract:
2. Causal fraud – a ground for the annulment of a 2. The things must be within the commerce of men,
contract, although it may also give rise to an action that is, it can legally be the subject of commercial
for damages. transaction.
3. It must be not impossible, legally/ physically
Requisites in order that fraud may annul a contract (Causal
Fraud) 4. It must be in existence/ capable of coming into
existence
1. It must be serious 5. It must be determinate or determinable without
2. NOT employed by both parties otherwise, both the need of a new contract between the parties
parties are in pari delicto
3. It should not have been known by the other Requisites of service as object of a contract
contracting party. Service may be the object of a contract:
1. The service must be within the commerce of me
ART. 1345 - 1346 2. It must not be impossible, physically/ legally
3. It must be determinate or capable of being made
Meaning of simulation of a contract
determinate
Simulation of a contract is the act of deliberately deceiving
others, by feigning or pretending by agreement, the
appearance of a contract which is either non-existent or Requisites as object of contract
concealed. GR: all rights may be the object of a contract.
XPN: when they are intransmissible by their nature or by
Kinds of Simulation stipulation or by provision of the law.
1. Absolute simulation - one where the parties do not
intend to be bound by the contract. It is not really 1. Outside the commerce of men - clings of public
intended to produce any legal effect, nor does it ownership such as sidewalks, public places, etc.
alter the juridical situation of the parties. 2. Impossible, physically/legally - prohibit drugs and
2. Relative simulation - or when the contract entered all illicit objects
into by the parties is different from their true 3. Determinate things - all the cavans of rice in a
agreement or the parties state a false cause in the bodega, all the eggs in the basket
contract to conceal their real agreement. The 4. Future things or right - things to be manufactured,
parties are bound by their real agreement,
raised, or acquired after the perfection of the
provided, it does not prejudice a third person and
is not intended for a purpose contrary to law, contract
morals, good customs, public order, or public 5. Intransmissible rights - political rights such as the
policy. right to vote, family, marital, and parental rights
Effects of Simulation to third persons Definition of future inheritance

Any property or right, not in existence/capable of
● If he is prejudiced, he may invoke the nullity of the determination at the time of the contract, that a person
simulated contracts. may inherit in the future such person having only an
● If he acted in good faith, nullity cannot be invoked expectancy of a purely hereditary right.
against them.
Validity of contracts upon future inheritance
GR: except in cases expressly authorized by law, a contract
concerning future inheritance is void.
XPN: The law permits contracts on future inheritance
● In the case of donations by reason of

Section 2. – Objects of Contracts marriage between future spouses with

ACC GROUP 5
respect to their future property to take

Onerous the prestation or promise of
effect, only in the event of death, to the a thing or service by the other
extend laid down by law in testamentary Gratuitous – cause: the parties are reciprocally
succession mere liberality of the obligated to each other
● In the case of partition of property by act benefactor or giver. ● (Sale; lease of thing;
inter vivos by a person to take effect upon his (commodatum; pure partnership)
death donation)
Remuneratory or the service or benefit which

Kind of impossibility
remunerative is remunerated.
1. Physical - when the thing/service cannot exist or be
● purpose of contract:
performed. With particular reference to services,
reward the service
the impossibility may be:
that had been
➔ Absolute - when the act cannot be done in
previously rendered
any case
by the party
➔ Relative - when it arises from the special remunerated.
circumstances of the case or special
condition/qualification of the obligor, It Gratuitous mere liberality of the
does nullify the contract if temporary benefactor or giver.
2. Legal - when the thing/service is contrary to law, ● (commodatum; pure
morals, good customs, public order, or public donation)
policy.
ART. 1349 ART. 1351
Determination of Quantity Meaning of motive.

- Once the object is determinate or a specific thing ● Motive – purely personal or private reason which a
there is no need for a new or further agreement
party has in entering into a contract different from
between the parties, but when the obligation
consists in the delivery of a generic or the cause of the contract.
indeterminate thing, whose quality and
circumstances have not been stated, there is a
need of a new or further agreement between the CAUSED DISTINGUISHED FROM MOTIVE
parties.
Section 3. - Cause of Contracts Cause Motive
ART. 1350 immediate or direct remote or indirect

reason. reason.
Meaning of cause.
● Cause (causa) – the essential reason/purpose
which the contracting parties have in view at the always known to the may be unknown
time of entering the contract other contracting party
● Something bargained for or given by a party in
exchange for a legally enforceable promise of
essential element of a Not essential element
another
contract
Cause distinguished from object.
● In bilateral or reciprocal contracts (purchase and illegality affects the illegality does not render
sale), the cause for one is the subject matter or validity of a contract. the contract void.
object for the other, and vice versa.
● Hence, the distinction is only a matter of viewpoint
● The Motive may be regarded as the cause in a
contract if it is founded upon a fraudulent purpose
to prejudice a third person.
ART. 1352 & ART. 1353

CLASSIFICATION OF CONTRACTS ACCORDING TO
CAUSE
Requisites of cause.
1. must exist at the time the contract is entered into
Classification Cause:
2. must be lawful

ACC GROUP 5
3. must be true or real. ● Cause necessarily be expressly stated in the

contract.
Effect of absence of cause. ● Presumption: cause exists and is lawful unless the
● Absence or want of cause – there is a total lack of debtor proves the contrary.
any valid consideration for the contract.
Contracts without cause confer no right and produce no ART. 1355
legal effect whatever. Thus:
1. a contract absolutely simulated or fictitious - Meaning of lesion.
inexistent and void. ● Lesion – any damage caused by the fact that the
2. When there is no consideration – the statement of price is unjust or inadequate.
the contract will not suffice to bring it under the ● the injury suffered in consequence of inequality of
rule of Art. 1353; stating as false consideration. situation, by one party who does not receive the
3. Promises to make a gift, or to render some full equivalent for what he gives in a commutative
gratuitous service in the future – not enforceable contract, like a sale.
as contracts; they contain no consideration.
4. Promises made in gratuitous for the good deeds of Effect of lesion or inadequacy of cause.
others – cannot be enforced. They only contain ● General rule. — Lesion or inadequacy of cause
moral, not legal consideration. (e.g., price of thing sold) does not of itself
invalidate a contract.
Effect of failure of cause. ● Exceptions. — Lesion will invalidate a contract —
● distinguished from inadequacy of cause & failure of a. when there has been fraud, mistake, or
cause undue influence.
a. inadequacy of cause – GR: not a ground b. in cases specified by law.
for relief.
b. failure of cause – does not render a CHAPTER 3
contract void.
● failure to pay the stipulated price after the ART. 1356
execution of a contract of sale does not convert
the contract into one without cause or Form of contracts
consideration, it not being essential to the - refers to the manner in which a contract is
existence of cause that payment or full payment executed or manifested.
be made at the time of the contract. 1. Parol or Oral
● Contract of sale is void without cause where the 2. Writing (public or private instrument)
purchase price, which appears as paid, has never 3. Party oral and partly writing (considered as an oral
been paid by the buyer to the seller. contract)
Effect of illegality of cause. Two aspects of contracts

● Illegality of cause –there is a cause but is unlawful 1. Intent or will - is internal and as long as a contract
or illegal. exists merely as a psychological fact, it produces
● Contracts with unlawful cause are also null and no legal effect.
void. 2. Expression of such uintent or will - It is necessary,
example: A promise of marriage based upon carnal in order that the will may produce legal effect, that
connection is founded on an unlawful cause. it be expressed. This expression or declaration of
the will is its form.
Effect of falsity of cause.
● falsity of cause – the contract states a valid Classification of contracts according to form
consideration, but such statement is not true. 1. Informal or common (Consensual) contract - may
● A false cause may be erroneous or simulated. be entered into in whatever form, provided, all the
● The first always renders a contract void. If the essential requisites for their validity are present.
cause is false – contract is rendered void because 2. Formal or solemn contract - which is required by
the same does not exist. law for its efficacy to be in a certain specified form.
● The second does not always produce this effect,
because it may happen that the hidden but true ART. 1357
cause is sufficient to support the contract.
Form for the convenience of the parties
ART. 1354 - Form for the convenience of the parties. In certain
cases, a certain form (e.g., public instrument) is
Cause presumed to exist and lawful.

ACC GROUP 5
required for the convenience of the parties in 1. An intrinsic ambiguity, mistake or imperfection in
order that the contract may be registered in the the written agreement
proper registry to make effective. 2. The failure of the written agreement to express
the true intent and agreement of the parties
ART. 1358 thereto
3. The validity of the written agreement
Public Documents 4. The existence of other terms agreed to by the
- is required only for the convenience and greater parties or their successors in interest after the
protection of the parties and registration is needed execution of the written agreement.
only to make the contract effective as against third
persons. ❖ In case of conflict between the provisions of the
- is acknowledged before a notary public or any new Civil Code and the principles of the general
official authorized law on reformation, the former prevail. The latter
Private Document will have only suppletory effect. (ART 1360)
- Acquires the character of a public document.
- The notarization of a private document is to
REFORMATION ANNULMENT
convert the said document into a public one and
render it admissible in evidence in court. meeting of the minds no meeting of the minds
CHAPTER 4 a contract exists but the consent of one of the

written instrument parties being vitiated by
mistake, etc.
ART. 1359 does not express the true
intention involves a complete
Reformation nullification of the
- is a remedy by means of which a written reason of mistake, fraud, contract.
instrument is amended or rectified so as to express inequitable conduct, or
or conform to the real agreement or intention of accident.
the parties.
cannot be enforced until it
is reformed.
Requisites of reformation
1. There is a meeting of the minds gives life to a contract
2. The written instrument does not express the true upon certain conditions
agreement or intention of the parties
3. The failure to express the true intention is due to
ART. 1361
mistake, fraud, inequitable conduct, or accident
4. The facts upon which relief by way of reformation
Requisites of mutual mistake as basis for reformation
of the instrument is sought are put in issue by the
1. The mistake must be of fact
pleadings
2. Mistake must be proved by clear and convincing
5. There is clear and convincing evidence (which is
evidence
more than mere preponderance of evidence) of
3. Mistake must be mutual
the mistake, fraud, inequitable conduct, or
4. Mistake must cause the failure of the instrument to
accident.
express their true intention
Admissibility of parol evidence to show true intent

ART. 1362
● Parol evidence rule - forbids any addition to or
contradiction of the terms of a written instrument. Unilateral mistake as basis for reformation
any oral evidence of an agreement should be - a unilateral mistake in the making of an agreement,
excluded when after all, the existing agreement is of which the other party is entirely ignorant and to
already in writing. which he in no way contributes, will not affect the
GR: the court may not allow the introduction of parol agreement or afford ground for its reformation.
evidence to show the real agreement of the parties.
Whatever is not found in the text of the agreement should Mistake on one side, fraud or inequitable conduct on the
thus be construed as excluded, waived, or abandoned. other
- The right to ask for reformation is granted only to
XPN: may present evidence to modify, explain or add to the party who was mistaken in good faith. Here,
the terms of the written agreement if he puts in issue in his the mistake is not mutual.
pleading:

ACC GROUP 5
ART. 1363 ART. 1369
Concealment of mistake by other party The procedure for the reformation of instruments shall be
- When one party was mistaken and the other knew governed by rules of court to be promulgated by the
or believed that the instrument did not state their Supreme Court.
real agreement, but concealed that fact from the
former, the instrument may be reformed. CHAPTER 5
- The remedy of reformation may be availed of only
by the party who acted in good faith. The ART. 1370
concealment of the mistake by the other party
constitutes fraud. Interpretation of a contract – the determination of the
meaning of the terms or words used by the parties in their
ART. 1364 contract.
Literal meaning controls when language clear.

Ignorance, etc. on the part of third person
- When through the ignorance, lack of skill, ● Contracts (private laws of the contracting parties)
negligence or bad faith on the part of the person should be fulfilled according to the literal sense of
drafting the instrument or of the clerk or typist, their stipulations if terms are clear and equivocal.
the instrument does not express the true intention
Evident intention of parties prevails over terms of
of the parties, the courts may order that the
contract.
instrument be reformed.
- Neither party is responsible for the mistake. Hence, ● when words and clauses of a written contract
either party may ask for reformation. appear to conflict or contravene with the manifest
intention of the parties, the latter shall prevail over
ART. 1365 the former.
● Cardinal rule: intention of the contracting parties
If two parties agree upon the mortgage or pledge of real or should always prevail. Their will has the force of
personal property, but the instrument states that the law between them.
property is sold absolutely or with a right of repurchase, ART. 1371
reformation of the instrument is proper.
Contemporaneous and subsequent acts to be principally
ART. 1366 & 1367 considered.
Cases when reformation not allowed ● While intentions involve a state of mind which may
sometimes be difficult to decipher, the acts of the
1. Simple donations inter vivos where no condition is parties as well as the evidentiary facts as proved
and admitted can be reflective of one’s intention.
imposed
- In donation, the act is essentially gratuitous and ART. 1372
the donee has, therefore, no just cause for Special intent prevails over a general intent.
complaint.
● Rule: where in a contract there are general and
2. WIlls
special provisions covering the same subject
- The making of a will is a strictly personal and a free
matter, the latter control over the former when
act. Upon the death of the testator, the right to
the two cannot stand together.
reformation is lost
3. Where the real agreement is void
- There is nothing to reform
4. Where one party has brought an action to enforce
the instrument
- Where one party has brought an action to enforce
the instrument ART. 1373
ART. 1368 Interpretation of stipulation with several meanings.
Persons who can bring an action to reform an instrument ● Agreement is susceptible of several meanings: one
1. Either of the parties (mutual mistake) of which would render it effectual, it should be
2. Injured party (in all other cases) given that interpretation.
● Thus, if one interpretation is valid or effective and
3. The heirs or successors in interest
the other illegal or meaningless, the former

ACC GROUP 5
interpretation is one which is warranted by the rule — such interpretation

stated in Article 1373. should be made which
would result in the least
ART. 1374 transmission of rights
and interests.
Interpretation of various stipulations/ separate writings of
2. Onerous contract. — doubts should be settled
a contract.
in favor of the greatest reciprocity of interests.
● A contract must be interpreted as a whole Contract of sale is essentially onerous.
● The intention of the parties is to be gathered from 3. Principal object of contract. — If the doubt
the entire instrument and not from particular refers to the principal object of the contract
words, phrases, or clauses. which cannot be resolved, leaving the
● All provisions should, if possible, be so interpreted intention of the parties unknown, the contract
as to harmonize with each other. shall be null and void.
ART. 1375 ART. 1379
Interpretations of words with different significations. Principles of interpretation in the Rules of Court
applicable.
● If susceptible with two or more meanings, the
most in keeping with the nature and objrct of the ● The rules in the Rules of Court on the
contract in line with the cardinal rule that the interpretation of documents are now contained in
intention of the parties must prevail. Rule 130, Sections 8 to 17 thereof.
ART. 1376 Introduction To Chapter 6, 7, 8 and 9
Kinds of Defective Contracts

Resort to usage or custom as aid in interpretation.
● Usage or custom of the place where contract was

entered into may be received to explain what is Rescissible Valid but may be rescinded by
doubtful/ambiguous in a contract. Contracts reason of economic injury
● Necessary to prove the existence of usage or
custom.
Voidable Valid until annulled unless ratified.
ART. 1377 Contracts Caused by vice of consent
Interpretation of obscure words.

Unenforceable Can’t be enforce until ratified
● In case of doubt, A written agreement should be Contracts
interpreted against the party who has drawn it or
be given an interpretation which will be favorable
to the other who, upon the faith of which, has Void or Inexistent Absolutely null or void. No effect
incurred an obligation. Contracts and cannot be ratified
● Reason for the rule in Article 1377: party who
drafted the contract could have prevented
mistakes in meaning by careful choice of words;
and generally, the party who causes the obscurity
acts with ulterior motives.
● Rule is applied to contracts of adhesion – contracts
CHAPTER 6
which do not result from mutual negotiation
between parties. Rescissible Contracts – Validly agreed upon for all essential
elements are present. Thus, legally effective but in cases
ART. 1378 established by law, the remedy of rescission is granted in
the interest of equity.
Rules in case doubts are impossible to settle.
Binding Force of Rescissible Contracts
● doubts shall be resolved in accordance with the
supplementary rules stated ● Contract subject to rescission by court due to
1. Gratuitous contract. — doubts refer to prejudice to an individual.
incidental circumstances of a gratuitous
contract

ACC GROUP 5
● No defect but its enforcement would cause ● Law aims to preserve the contract not to
injustice. extinguish it, thus partial rescission.
Rescission – remedy granted by law to secure reparation of ART. 1385

damages caused by a valid contract by restoration.
● Recession creates an obligation of mutual
Requisites of Rescission restitution – When a contract is rescinded the
parties must return to each other the object of the
● Contract must be validly agreed upon contract with its fruits and price with legal interest.
● There must be lesion to one of the parties or third ● Obligation to third person – If the third person has
person nothing to restore, the article doesn’t apply.
● Reason based upon a case especially provided by ● When rescission is not allowed – If a party who
law demands rescission can’t return what he is obliged
● No other legal remedy to obtain reparation for to restore and if the property is legally owned by a
damages third person who acted in good faith.
● Party asking for rescission must be able to return
what he is obliged to return ART. 1386
● Object of contract must not legally be in the
Contracts approved by courts on behalf of absentee or
possession of third party who acted in good faith
ward cannot be rescinded because it is valid whether there
● Period for filing must not have prescribed
is lesion or not.
ART. 1381 ART. 1387

Cases of Rescissible Contracts Alienation Presumed in Fraud of Creditors:
● Contracts entered on behalf of wards ● Alienation by gratuitous title –donation when

● Contracts agreed upon in representation of remaining property is not enough to pay all his
absentees debt
● Contracts undertaken by fraud ● Alienation by Onerous Title – Writ of attachment
● Contracts which refer to the thing under litigation has been issued
● Other instances – Partition on account of lesion,
non-compliance of lessor or lessee in response to Circumstance denominated as badges of fraud:
art. 1657 and 1656, and vendee may ask for remedy
of rescission in cases under art. 1539. ● Consideration of conveyance is inadequate
● Transfer made by debtor after suit has begun or
ART. 1382 pending against him
● Sale upon credit by an insolvent debtor
Payment Made in a State of Insolvency Rescissible ● Transfer of all property by debtor when he is
insolvent or financially embarrassed
● Debtor is insolvent if he doesn’t have enough
● Transfer between father and son when above
properties to meet his obligation
circumstance is present
● Insolvency not necessary be judicially declared
● Failure of vendee to take exclusive possession of
● Article also refers to natural obligations and those all the property and was known to the vendee that
that have prescribed the vendor had no properties other than sold to
him
ART. 1383
Recession is subsidiary and can only be availed when the ART. 1388
injured party proves that there is no other legal means
aside from rescission. Liability of Purchase in Bad Faith
● Whoever acquires in bad faith the things alienated
ART. 1384 I fraud of creditors, must return the same if sale
rescinded and if impossible, he must indemnify the
● Rescission shall only be to the extent necessary to former.
cover damages caused. ● First acquirer shall be liable first
ART. 1389

ACC GROUP 5
Period for Filing Action for Rescission ART. 1394

General rule: Commenced within four years from date the
contract is entered. Except: Ratification may be effected by the guardian of the
● Person under guardianship, period begin from incapacitated person. (n)
termination of incapacity
● Absentees, from time domicile is known ART. 1395
Person Entitled to Bring Action
● Injured party or defrauded creditor Ratification does not require the conformity of the
● His heirs, assigns, or successors in interest contracting party who has no right to bring the action for
● Creditors of the above entitled to subrogation annulment. (1312)
CHAPTER 7 ART. 1396
ART. 1390 Ratification cleanses the contract from all its defects from
the moment it was constituted. (1313)
The following contracts are voidable or annullable, even
though there may have been no damage to the contracting ART. 1397
parties:
1. Those where one of the parties is incapable of giving The action for the annulment of contracts may be instituted
consent to a contract; by all who are thereby obliged principally or subsidiarily.
2. Those where the consent is vitiated by mistake, violence, However, persons who are capable cannot allege the
intimidation, undue influence, or fraud. incapacity of those with whom they contracted; nor can
These contracts are binding, unless they are annulled by a
those who exerted intimidation, violence, or undue
proper action in court. They are susceptible of ratification.
(n) influence, or employed fraud, or caused mistake base their
action upon these flaws of the contract. (1302a)
Meaning of voidable contracts - are those which possess all
the essential requisites of a valid contract but one of the ART. 1398
parties is incapable of giving consent, or consent is vitiated
by mistake, violence, intimidation, undue influence, or An obligation having been annulled, the contracting parties
fraud. shall restore to each other the things which have been the
ART. 1391 subject matter of the contract, with their fruits, and the
price with its interest, except in cases provided by law.
The action for annulment shall be brought within four
years. In obligations to render service, the value thereof shall be
This period shall begin:
the basis for damages. (1303a)
In cases of intimidation, violence, or undue influence, from
the time the defect of the consent ceases.
In case of mistake or fraud, from the time of the discovery ART. 1399
of the same.
When the defect of the contract consists in the incapacity
And when the action refers to contracts entered into by of one of the parties, the incapacitated person is not
minors or other incapacitated persons, from the time the obliged to make any restitution except insofar as he has
guardianship ceases. (1301a) been benefited by the thing or price received by him. (1304)
ART. 1392 ART. 1400
Ratification extinguishes the action to annul a voidable Whenever the person obliged by the decree of annulment
contract. (1309a) to return the thing can not do so because it has been lost
through his fault, he shall return the fruits received and the
value of the thing at the time of the loss, with interest from
the same date. (1307a)
ART. 1393 ART. 1401
With knowledge of the reason which renders the contract The action for annulment of contracts shall be extinguished
voidable and such reason having ceased,ratification may be when the thing which is the object thereof is lost through
effected expressly or tacitly. It is understood that there is a the fraud or fault of the person who has a right to institute
tacit ratification if, the person who has a right to invoke it the proceedings.
should execute an act which necessarily implies an
intention to waive his right. (1311a) If the right of action is based upon the incapacity of any one
of the contracting parties, the loss of the thing shall not be

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an obstacle to the success of the action, unless said loss 2. Promise to answer for the doubt, the default, or
took place through the fraud or fault of the plaintiff. (1314a) miscarriage of another.
3. Agreement in consideration of marriage other than
ART. 1402 mutual promise to marry.
4. Agreement for sale of goods, etc. at price not less than
As long as one of the contracting parties does not restore P500.
what in virtue of the decree of annulment he is bound to 5. Agreement for leasing for a longer period than 1 year.
return, the other cannot be compelled to comply with what 6. Agreement for the sale of real property or of an interest
is incumbent upon him. (1308) therein.
7. Representation as to the credit of a third person.
CHAPTER 8
ART. 1404
ART. 1403
Unauthorized contracts are governed by Article 1317 and
Unenforceable contracts – Cannot be enforced. the principles of agency in Title X of this Book.
KINDS OF UNENFORCEABLE CONTRACTS: ART. 1405
Contracts infringing the Statute of Frauds, referred to in

1. Entered into the name of another without consent.
No. 2, Article 1403, are ratified by the failure to object to the
2. Do not comply with the Statute of Frauds.
presentation of oral evidence to prove the same, or by the
3. Where both parties are incapable of giving.
acceptance of benefits under them.
Unauthorized contracts – Entered into the name of another
ART. 1406
person by someone given with no authority.
When a contract is enforceable under the Statute of
STATUTE OF FRAUDS: Frauds, and a public document is necessary for its
1. History – Started in 1677, the English Parliament enacted a registration in the Registry of Deeds, the parties may avail
statute to counter the evil practice of giving false testimony themselves of the right under Article 1357.
in actions founded on certain kinds of contracts.
2. Purpose – Prevent fraud and guard against the mistakes ART. 1407
of honest men.
3. “Writing” under the Statute – it does not require that the In a contract where both parties are incapable of giving
writing must be in a formal document. consent, express or implied ratification by the parent, or
4. Application: Fundamental Principles relative to the guardian, as the case may be, of one of the contracting
statute of frauds are given hereunder. parties shall give the contract the same effect as if only one
a. It is not applicable in actions which are neither for of them were incapacitated.
damages because of a violation of a contract nor
for the specific performance thereof. If the ratification is made by the parents or guardians, as
b. Only Applicable to completely executory contracts; the case may be, of both contracting parties, the contract
not totally executed nor partially executory. shall be validated from the inception.
c. Not applicable when the contract is admitted
expressly or impliedly by the failure to deny
specifically its existence, no further evidence
required.
d. Only applicable to the agreements enumerated.
e. Not applicable where a writing does not express
the true agreement of the parties.
f. Does not declare a contract void, but merely
unenforceable.
g. Defense of Statute of Fraud may be waived.
h. Statute of Frauds personal to the parties cannot be
CHAPTER 9
interposed by strangers to the contract.
ART. 1409
AGREEMENTS WITHIN THE SCOPE OF THE STATUTE OF
FRAUDS:
1. Agreement not to be performed within 1 year from the Inexistent contracts Void Contracts
making thereof.
agreements which lack one those which, because of

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unlike voidable contracts if not assailed within the specific

or some or all of the certain defects, generally
elements (i.e., consent, produce no effect at all. period provided by law shall remain valid.
object, and cause) or do Considered as inexistent A valid contract remains void even if no court has declared
not comply with the from its inception or from its in-existence or illegality. However, there are certain
formalities which are the very beginning. Its contracts the nullity of which is not apparent on their faces.
essential for the existence expression of “void (e.g.) Declaration for Nullity of marriage. It must be
of a contract. contracts” is often declared by the court as null and void otherwise if you
mistaken in its term and contract a subsequent marriage you will be liable for
loosely used to refer to an
bigamy.
agreement tainted with
illegality.
ART. 1411
CHARACTERISTICS Pari Delicto-in equal fault; a universal doctrine which holds

(1) Generally, it produces no effect whatsoever, being void that no action arises, in equity or at law, from an illegal
or inexistent from the beginning; contract. The rule that parties to an illegal contract will not
(2) It cannot be cured or validated either by time or be aided by law.
ratification;
This rule adopts the principle of “One who seeks equity and
(3) The right to set up the defense of illegality, inexistence,
justice must come to court with clean hands”.
or absolute nullity cannot be waived;
(4) The action or defense for the declaration of its illegality, Example: if the two parties complain to a judge of the
inexistence, or absolute nullity does not prescribe; non-performance of a contract by the other, the judge
(5) The defense of illegality, inexistence, or absolute nullity could refuse to provide remedy to either of them because
is not available to third persons whose interests are not of in pari delicto: a finding that they were equally at fault in
directly affected; causing the contract’s breach. This rule adopts the principle
(6) It cannot give rise to a valid contract; and of “One who seeks equity and justice must come to court
(7) Its invalidity can be questioned by anyone affected by it. with clean hands”.
Void vs Voidable Contracts

ART. 1412
Voidable Void
Rules where contracts are illegal but the act does not
(a) may be ratified (a) cannot be ratified constitute a criminal offense.
(b) produces effects until (b) effects are not (1) When the parties are both in pari delicto and the
annulled produced at all cause of contract is unlawful or forbidden but no
(c) defect is due to (c) the defect here is that criminal offense.
incapacity or vitiated ordinarily, public policy
(2) When only one party is guilty,
consent is militates against
(d) valid until annulled (d) void from the
(e) may be cured by beginning - no action is Rules
prescription required to set it aside,
(f) defense may be unless the contract has The guilty party loses what he has given by reason of the
invoked only by the already been contract;
parties (those performed
principally or (e) cannot be cured The guilty party cannot ask for the fulfillment of the
subsidiarily liable) or prescription other’s undertaking;
their successors in (f) defense may be
The innocent party cannot be compelled to comply with
interest and privies availed of anybody,
his promise.
(g) referred to as relative whether he is a party
or conditional nullity to the contract or not,
The innocent party cannot be compelled to comply with
as long as his interest
his promise.
is directly affected.
(Art. 1421, CC).
(g) referred to as absolute
nullity
ART. 1413
Usury is the illegal act of charging for a loan at a higher rate
ART. 1410 of interest than that which is allowed by law. Recovery of
usurious interest Any rate of interest in excess of the
Action or defense is imprescriptible maximum allowed under the Usury Law is usurious and if
If a contract is null and void, the action to declare its paid, may be recovered together with interest thereon
existence is not prescribed. The action can be filed anytime.
The mere lapse of time does not validate a void contract

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from the date of payment in a proper action for the same. Basis of Minimum Wage Rates
(Art. 1413.)
The basis of the minimum wage rate is not more than eight
A stipulation for the payment of usurious interest is void. hours of daily labor in the case of employees working in
The person paying the usurious interest can recover in an non-agricultural enterprises, and not more than the
independent civil action not only the interest in excess of customary hours of work in the case of agricultural
that allowed by the usury laws, but the whole interest paid. workers. (Article 1, Section 3, Code of Rules and Regulations
to Implement the Minimum Wage Law, as Amended.
ART. 1414
Recovery where contract for an illegal purpose Example: Dina works in Toshiba Company in Canlubang,
Laguna. She works from Monday to Saturday from 8am to
5pm as the maximum working hours. However, she works
● The law allows recovery by one of the parties even
though both of them have acted contrary to laws. from Monday, Wednesday, and Friday from 8am to 7pm
● Requisites: exceeding two hours beyond the maximum working hours.
(1) A contract that is for an illegal purpose
(2) The contract is repudiated before the ART. 1419
purpose has been accomplished OR before If the laborer has agreed to receive a wage lower than the
any damage has caused to a third person minimum wage fixed by law he is not barred from
(3) The court considers that public interest will recovering the deficiency. Such contract or agreement is
be subserved by allowing recovery void under the minimum wage law.
ART. 1415
Recovery by an incapacitated person. Example “A” the owner of a candy factory in Manila
This article is another exception to the in pari delicto rule in executed a contract with “B” as a laborer. When the pay
Articles 1411-1412. Recovery can be allowed if one of the day comes “B” reacts for the sum of money that he
parties is incapacitated and the interest of justice so received because the amount that he received is only
demands. It is not necessary that the illegal purpose has P380.00/day instead of P481.00, therefore “B” can recover
not been accomplished or that no damage has been caused for the deficiency that he received from “A” which stated
to a third person. (see Art. 1414.) on this art. that “When the law sets, or authorizes the
setting of a minimum wage for laborers, and a contract is
EXAMPLE: Tony Stork, an insane but crazy rich person, paid agreed upon by which a laborer accepts a lower wage, he
Thanos $1 million dollars to hide Peter Porker, who is shall be entitled to recover the deficiency.”
currently accused of murder. Under Art. 1415, the court may
allow Tony Stork to recover the money paid by him if the
ART. 1420
interest of justice so demands.
This article applies if there are several stipulations in a
ART. 1416 contract and is not applicable if it is in the nature of the
An exception to the rule that where both parties are in pari
contract, the terms thereof are indivisible. Effect of
delicto, they will be left where they are without relief.
illegality where contract is indivisible or divisible: when the
Recovery is permitted provided:
consideration is entire and single, the contract is indivisible
(1) The agreement is not illegal per se but is merely
so that if the part of such consideration is illegal, the whole
prohibited;
contract is void and unenforceable. Where the contract is
(2) The prohibition is designed for the protection of
divisible or severable, that is, the consideration is made up
the plaintiff; and
of several parts, and the illegal ones can be separated from
(3) Public policy would be enhanced by allowing the
the legal portions, the latter may be enforced. This rule,
plaintiff to recover what he has paid or delivered.
however, is subject to the contrary intention of the parties.
ART. 1417
This article refers to the ceiling price. If a ceiling price for a

certain commodity has been determined by statute by law ART. 1421
or competent authority who pays any amount more than
Persons entitled to raise defense of illegality
what has been determined may recover such excess (1) Third persons are NOT allowed to bring an action
to annul or assail voidable and unenforceable
*This usually applies to basic needs and during an emergency contracts.
or crisis. Prices of canned goods, noodles etc. (2) HOWEVER, if the contract is illegal OR void, even a
third person may avail of the defense of illegality or
ART. 1418 set up its illegality

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(3) as long as his interest is directly affected by the

contract. Requisites Concerning objects
ART. 1422
This provision is based on the requisites of a valid novation. 1. Thing – aside from being a determinate, the law requires
An illegal contract is void and inexistent and cannot, that the subject matter must be licit. Ex. sale of shabu is
therefore, give rise to a valid contract. unlawful or illicit therefore void
2. Rights – all rights which are not intransmissible or

LAW ON SALES personal may also be the object of sale. Service and other
intransmissible rights by law can’t be the object of a
CHAPTER 1 contract of sale.
ART. 1458 ● Right to transfer ownership is not necessary at the

time of the perfection of the contract, but at the
A contract of sale is a contract whereby one of the time of delivery
contracting parties obliged himself to transfer ownership or ● Seller must be the owner because cannot sell what
to deliver a determinate thing, and the other to pay he doesn’t own.
therefore the price certain in money or its equivalent.
ART. 1460
Characteristics of a contract of sale:
1. Object should be determinate
● Consensual – perfected by mere consent ● A thing is determinate when it is particularly
● Bilateral and reciprocal – both are bound by designated or physically segregated from all others
obligation; it creates reciprocal rights and of the same class.
obligation to both seller and buyer 2. It is sufficient if subject matter is cable of being
● Commutative – the value exchanged is presumed made determinate
to be equivalent to price ● Contract is void if the determinate object cannot
● Principal - not depended upon the existence of be determine
other contracts
ART. 1461
● Onerous – has valuable consideration
● Nominate – has a name provided by civil code ● Things that have potential to exist may be the
object of the contract of sale (sale of rice to be
ELEMENTS OF A CONTRACT OF SALE
harvest)
1. Essential Elements – the requisites
● Sale of mere hope or expectancy is deemed
● Consent or meeting of the minds subject to the condition that the thing will exist
to transfer ownership in (sale of lotto ticket). The one you are buying is the
exchange of price hope
● Object - Determinate thing as ● Sale of vain hope is void. (Example if the ticket
subject matter bought is already drowned, there is no hope
● Cause or Consideration - Price anymore)
certain in money or its equivalent
ART. 1462
2. Natural Elements –
● Inherent in a contract, the ● A thing could be a goods owned or possessed by
integral art or built-in part of a the seller
contract of sales. Like warranty to ● Future goods –goods to be manufactured
hidden defects ● Sale of future goods is valid only as an executory
contract to be fulfilled by the acquisition and
delivery of the goods specified.
3. Accidental elements
ART. 1463
● Maybe present or absent in the ● The sole owner of a thing may sell an undivided
stipulation depending on the will interest therein
of the parties ● By sale owner - sole owner may sell the entire
thing or only the specific portion thereof. By
ART. 1459
co-owners, sale is limited to the portion allotted to

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him in the division of the thing upon the

termination of the co-ownership.
● By co-owners - co-owner can dispose his share ART. 1466
even without the consent of the co-owner/s.
Sale distinguished from agency to sell.
ART. 1464
● Contract of agency – a person binds himself to
Sale of an undivided share of a specific mass. render some service or to do something in
representation or on behalf of another, with the
1. Meaning of fungible goods. — goods of which any unit consent or authority of the latter.
is, from its nature or by mercantile usage, treated as ● Sale may be distinguished from an agency to sell,
the equivalent of any other unit (grain, oil, wine, as follows:
gasoline, etc.)
2. Effect of sale. — Owner of a mass of goods may sell Sale Agency to sell
only an undivided share thereof, provided the mass is
buyer receives the goods agent receives the goods
specific or capable of being determinate. as owner as the goods of the
principal who retains his
a. Sale: the buyer becomes a co-owner with the seller ownership over them
of the whole mass
b. Must follow that the aliquot share of each owner buyer has to pay the price agent has simply to
can be determined only by the measurement of account for the
the entire mass. proceeds of the sale
● If discovered that the mass of fungible
goods contains less than what was sold, the buyer, as a general agent can return the
rule, cannot return the object in case he is
- Buyer becomes the owner of the
object sold unable to sell the same
whole mass; and
to a third person
- seller shall supply whatever is
lacking from goods of the same seller warrants the thing agent makes no
kind and quality, subject to any sold warranty for which he
stipulation to the contrary assumes personal
liability as long as he
3. Risk of loss. — If the buyer becomes a co-owner, with
acts within his authority
the seller, or other owners of the remainder of the mass:
and in the name of the
seller
● whole mass is at the risk of all the parties
interested in it, in proportion to their various
buyer can deal with the agent in dealing with
holdings. thing sold as he pleases the thing received,
being the owner must act and is bound
4. Subject matter. — in the sale of an undivided share,
according to the
either of a thing or of mass of goods, the subject matter is
instructions of his
an incorporeal (intangible) right. Here, ownership passes to
principal
the buyer by the intention of the parties.
ART. 1465 ART. 1467
Sale of thing subject to a resolutory condition. Sale distinguished from contract for a piece of work.
● resolutory condition - uncertain event; the ● contract for a piece of work – contractor binds
happening of which the obligation (or right) himself to execute a piece of work for the
subject to it is extinguished. Hence, the right employer, in consideration of a certain price or
acquired in virtue of the obligation is also compensation. The contractor may either employ
extinguished. his labor or skill, or also furnish the material.
● If resolutory condition attaching to the object of
the contract, which object may include things as
CONTRACT OF WORK CONTRACT OF SALE
well as rights, should happen, then the vendor (LABOR OR MATERIALS
cannot transfer the ownership of what he sold OR PIECE OF WORK)
since there is no object.
thing transferred is not in thing existed and been the

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● price in a contract of sale ought to be

existence and never would subject of sale to some
have existed but for the other person, even if the settled for there can be no sale without a
order of the party desiring order had not been given. price.
to acquire - money - currency, and its
equivalent means promissory
risk of loss before delivery the risk of loss is borne notes, checks and other
is borne by the worker or by the buyer mercantile instruments generally
contractor
accepted as representing money.
the buyer, as a general agent can return the 2. Cases where price considered certain.
rule, cannot return the object in case he is a. parties have fixed or agreed upon a
object sold unable to sell the same definite amount
to a third person b. It be certain with reference to another
thing certain
not within the Statute of within the Statute of c. determination of the price is left to the
Frauds. Frauds judgment of a specified person
ART. 1468 NOTE: last two cases are applicable only when no specific
amount has been stipulated by the parties.
Sale distinguished from barter.
Effect where price fixed by third person designated.
CONTRACT OF BARTER OR CONTRACT OF SALE

GENERAL rule: the price fixed by a third person designated
EXCHANGE
by the parties is binding upon them. are, EXCEPTIONS:
one of the parties binds the vendor gives a thing in
himself to give one thing in consideration for a price in 1. When third person acts in bad faith or by mistake
consideration of the money. as when the third person fixed the price having in
other’s promise to give mind another analogous or similar thing:
another thing ● the court may fix the price.
● But mere error in judgment cannot serve
not present in barter: present in sale: “price
“price certain in money or as a basis for impugning the price fixed;
certain in money or its
its equivalent.” and
equivalent.”
2. When third person disregards specific instructions or

RULE IN THIS ARTICLE: the procedure marked out by the parties or the data
given him, fixing an arbitrary price.
a. manifest intention of the parties - paramount in
determining whether it is one of barter or of sale Effect where price not fixed by third person designated.
ascertained by considering the contemporaneous
and subsequent acts of the parties. 1. If the third person designated by the parties to fix the
b. intention cannot be ascertained: consider as price refuses or cannot fix it (without fault of the seller
contract of sale. and the buyer)
● · if intention is contract of sale – such
intention must be followed even though · the contract shall become ineffective,
the value of the thing given as a part as if no price had been agreed upon
consideration is more than the amount of unless, of course, the parties
the money given. subsequently agree upon the price.
2. third person is prevented from fixing the price by

the fault of the seller or the buyer
● the party not in fault may obtain redress
against the party in fault which consists of
ART. 1469 a choice between rescission or fulfillment,
with damages in either case. If the
When price considered certain.
innocent party chooses fulfillment, the
court shall fix the price.
1. no sale if price not certain or ascertainable.
ART. 1470

ACC GROUP 5
● If the sale of conjugal property is FICTITIOUS and

Effect of Gross Inadequacy of Price therefore non-existent, the widow who has an
interest in the property subject of the sale may be
a) In ordinary sale, the sale remains valid even if the allowed to contest the sale, even BEFORE the
price is very low. Of course, if there was vitiated liquidation of the conjugal partnership, making the
consent, the contract may be annulled but only executor a party-defendant if he refuses to do so.
due to such vitiated consent. (Borromeo v. Borromeo, 98 Phil. 432)
→ The fact that the bargain was a hard
one is not important, the sale having ART. 1472
been made freely and voluntarily
(Askay v Cosolan, 46 Phil. 79) Example: I can sell to you today my Mont Blanc fountain
→ The rule holds true even if the price pen at the price equivalent to the stock quotation 2 days
seems too inadequate as to shock the from today of 100 shares of PLDT
conscience of man. (Alarcon v.
Kasilag, 40 OG Sup. No. 16, p.203) ● If the stock quotation price 2 days later cannot
b) In execution of judicial sales – While mere really be ascertained at that time, the sale is
inadequacy of price will not set aside a judicial sale inefficacious. Note the last clause in the article –
of real property, still the price is so inadequate as “provided said amounts be certain.”
to shock the conscience of the Court, it will set
aside. ART. 1473
→ As a matter of fact, it may be that the
● Reason why price fixing cannot be left to the
extremely low price was the result not
discretion of one of them: the other could not have
of a sale but of a contract of loan, with
consented to the price for he did not know what it
the price paid as the principal and the
was
object, given merely as security. In
cases like this, the contract will be
ART. 1474
interpreted to be one of loans with an
equitable mortgage. The remedy ● If the price cannot really be determined, the sale is
would then be the reformation of the void for the buyer cannot fulfil his duty to pay
instrument.
→ A buyer at a judicial sale is allowed to ● Of course, if the buyer has made use of it, he should
resell to others what he has acquired. not be allowed to enrich himself unjustly at another’s
The mere fact that he demands a very expense. So he must pay a “reasonable price.” The
high price is of no consequence. seller’s price, however, must be the one paid if the
buyer knew how much the seller was charging and
● It is possible that a donation, not a sale, was really there was an acceptance of the goods delivered.
intended. In such a case, the parties may prove Here, there is an implied assent to the price fixed.
that the low price is sufficiently explained by the
consideration of liberality. (Art. 1470, last ART. 1475
paragraph)
● Sale is a consensual contract (perfected by mere
ART. 1471 consent). Therefore, delivery or payment is not
essential for perfection. (Warner, Barnes v. Inza, 43
● The price must not be fictitious. Therefore, if the Phil. 404)
price is merely simulated, the contract as a sale is
void. It may however, be valid as a donation or ● The contract of sale is consummated upon delivery
some other agreement provided the requirements and payment. (Naval v. Enriquez, 3 Phil. 669)
of donations or other agreements have been ● The sale of foreign exchange of foreign currency is
complied with. If these requirements do not exist, perfected from the moment the contract of such sale
then as a sale, the contract is absolutely void, not is EXECUTED, not from the moment of payment or
merely voidable. An action for annulment is delivery of the amount of foreign currency to the
therefore essential. (De Belen v. Collector of creditor. (Pacific Oxygen and Acetylene Co. v. Central
Customs, 46 Phil. 241) Bank, L-23391, Feb 27, 1971)
● A simulated price is fictitious. There being no price,
Requirements for Perfection
there is no cause or consideration; hence, the
contract is void as a sale. However it is enough that
(a) When parties are face to face, when a offer is
the price be agreed on at the time of perfection. A
accepted without conditions and without
rescission of the price will not invalidate the sale.
qualifications

ACC GROUP 5
- A conditional acceptance is a counter-offer ● Advertisements are mere invitations to make an

- If negotiated through a phone, it is as if the offer (Art. 1325, Civil Code) and, therefore, one
parties are face to face cannot compel the advertiser to sell.
(b) When contract is through correspondence or Transfer of ownership
through telegram, there is perfection when the a) Mere perfection of the contract does not transfer
offeror receives or has knowledge of the ownership. Ownership of the object sold is
acceptance by the offeree. transferred only after delivery (tradition), actual,
- If the buyer has already accepted, but the seller legal or constructive. The rule is, therefore this:
does not know yet of the acceptance, the After delivery of the object, ownership is
seller may still withdraw. transferred.
(c) When a sale is made subject to a suspensive b) A stipulation that even with delivery there will be
condition, perfection is had from the moment the no change or transfer of ownership till the
condition is fulfilled. purchase price has been fully paid is valid but the
stipulation is not binding on innocent third persons
Formalities for Perfection such as customers at a store. The customers must
not be prejudiced.
Under the Statute of Frauds, the sale of: EarnshawDocks and HI Works v. Coll. Of Int. Rev., 54 Phil.
a) Real property (regardless of amount) 696
b) Personal property – if P500 or more must be ● Even if the object sold has not yet been delivered,
in writing to be enforceable. (Art. 1403, No. 2, once there has been a meeting of the minds, the
Civil Code) sale is perfected and, therefore, the sales tax is
already due. It accrues on perfection, not on the
If orally made, it cannot be enforced by a judicial consummation of the sale.
action, except if it has been completely or ● Retail sales of flour to bakeries to be manufactured
partially executed, or except if the defense of the into bread are subject to tax; if wholesale, they are
Statute of Frauds is waived. (Art. 1405, Civil Code) not subject to tax. To determine if the sale is
wholesale or retail, we must not consider the
Also in writing should be sales which are to be quantity sold, but the character of the purchase. If
performed only after more than 1 year (from the the buyer buys the commodity for his own
time the agreement was entered into) – consumption, the sale is retail and is subject to tax;
regardless as to whether the property is real or if for resale, the sale is deemed wholesale,
personal, and regardless of the price involved. regardless of the quantity, and is not subject to the
particular tax referred to.
Article 1357 can be availed provided: ● After perfection the parties must now comply with
their mutual obligations. Thus, the buyer can now
1.) The contract is VALID; and
compel the seller to deliver to him the object
2.) The contract is ENFORCEABLE, that is, it does not
purchased. In the meantime, the buyer has only
violate the Statute of Frauds.
the personal, not a real right. Hence, if the seller
again sells a parcel of land to a stranger who is in
If the contract is oral but already executed
good faith, the proper remedy of the buyer would
completely or partially, Art. 1357 can be availed of, for in
be to sue for damages. He cannot successfully
this case the Statute of Frauds is not deemed violated.
bring an accion reivindicatoria against the stranger
If a parcel of land is given by way of donation inter
for he cannot recover ownership over something
vivos, to be valid it must be in public instrument. Now then,
he had never owned.
if land is donated orally, Art. 1357 cannot be used whether
or not the land has been delivered. This is because the
donation is VOID. Before Art. 1357 is availed of, the contract
must first of all be valid and perfected.
Exempted from the rule is the case of donation
propter nuptias of land, because here the law expressly
provides that as to formalities, such a donation must
ART. 1476
merely comply with the Statute of Frauds. (Art. 127, Civil
Code) Therefore, even if made orally, a donation propter Where goods are put up for sale by auction in lots, each lot is
nuptias of land, if already delivered, is enforceable and valid the subject of a separate contract of sale.
and Art. 1357 applies. Of course, if there has been no
delivery yet, the oral wedding gift of land is still Sale is perfected by the fall of the hammer – It follows that
unenforceable and Art. 1357 cannot apply. the bidder may retract his bid and the auctioneer may

ACC GROUP 5
withdraw the goods for sale any time before the hammer This rule shall apply to the sale of fungible things, made
falls, except when the sale is announced to be w/o reserve. independently and for a single price, without consideration
of their weight, number, or measure.
Right of seller to bid – A seller or their agent has the right to
as long as (a) such right was reserved; (b) notice was given Should fungible things be sold for a price fixed according to
that the sale is subject to a right to bid on behalf of the weight, number, or measure, the risk shall not be imputed
seller; and (c) It is not prohibited by the law nor by the to the vendee until they have been weighed, counted, or
stipulation in the contract. measured, and delivered, unless the latter has incurred in
delay.
ART. 1477
ART. 1481
The ownership of the thing sold shall be transferred to the
vendee upon the actual or constructive delivery thereof. Sale of goods by description and/or sample
ART. 1478 Sale by Description – If the bulk of the goods delivered do

not correspond with the description, the contract may be
The parties may stipulate that ownership in the thing shall rescinded.
not pass to the purchaser until he has fully paid the price.
Sale by sample – The vendor warrants that the thing sold
ART. 1479 and to be delivered by him shall conform with the sample in
kind, character, and quality.
A promise to buy and sell a determinate thing is
reciprocally demandable. Sale by description and sample – The goods must satisfy all
the warranties appropriate to the kind of sale.
3 kinds of promises governed by this provision
ART. 1482
(1) An accepted unilateral promise to sell in which the
acceptor elects to buy Whenever earnest money is given in a contract of sale, it
shall be considered as part of the price and as proof of the
(2) An accepted unilateral promise to buy in which the perfection of the contract.
acceptor elects to sell
ART. 1483
(3) A bilateral promise to buy and sell reciprocally accepted
in which either of the parties chooses to exact fulfillment. Form of contract of sale
1. General rule - the form of contract refers to the
An unaccepted offer or policitation does not create juridical manner in which it is executed or manifested. As a
effect or legal bond. general rule, a contract may be entered into in any
form provided all the essential requisites for its
An accepted unilateral promise is not immediately binding
validity are present.
and can be withdrawn anytime. It is only when the promise
2. Where contract covered by statute of frauds - the
is supported by a consideration distinct and separate from
law requires the it be in writing
the price.
3. Where form is required in order that a contract
may be valid - the required form must be observed
ART. 1480
in order for the contract to be valid and
Risk of loss or deterioration enforceable.
4. where form is required only for the convenience of
(1) If the thing is lost before perfection, the seller bears the the parties
loss.
Sale of real property or an interest therein
(2) If the thing is lost at the time of perfection, the contract A sale of a piece of land or interest therein when made
is void and inexistent. through an agent is void unless the against’s authority is in
writing.
(3) If the thing is lost after the perfection of the contract
but before the delivery, the loss id shifted to the buy (an Statute applicable only to executory contracts
exception to the rule of res perit domino) Statute of Frauds is applicable only to executory contracts
and not to contracts which are totally or partially
(4) If the thing is lost after delivery, the buyer bears the performed.
risk.
ART. 1484

ACC GROUP 5
Remedies of vendor in sale of personal property payable in Kinds of incapacity

installments 1. Absolute - persons who cannot bind themselves
2. Relative - it exists only with reference to certain
1. Elect fulfillment upon the vendee’s failure to pay. persons or a certain class of property
2. Cancel the sale, if the vendee shall have failed to
pay two or more installments ART. 1490
3. foreclose the chattel mortgage, if one has been
constituted if the vendee shall have failed to pay Relative incapacity of husband and wife
two or more installments 1. The husband and the wife are prohibited by the
Right of vendor to recover unpaid balance of purchase above article from selling property to each other.
price 2. They are also prohibited from making donations to
1. remedy of specific performance each other during the marriage except moderate
2. remedy of cancellation gifts on the occasion of any family rejoicing.
3. remedy of foreclosure
ART. 1491
ART. 1485
The following persons cannot acquire by purchase
Lease of personal property with option to buy
leases of personal property with option to buy on the part 1. Guardian
of the lessee who takes possession or enjoyment of the - The prohibition lasts until the property is still under
property leased are really sales of personalty payable in his control and until the accounts have been finally
installments. settled.
2. Agents
ART. 1486 - The agent’s incapacity to buy his principal’s
property rests on the fact that the agent and the
Stipulation authorizing forfeiture of installments or rents principal form one juridical person.
paid. - The incapacity of the agent is only against buying
In sales or personal property by installments or leases of the property he is required to sell during the
personal property with option to buy, the parties may existence of the relationship.
stipulate the installments or rents paid are not to be - An agent can buy for himself the property after the
returned. termination of the agency.
- May buy property placed in his hands for sale or
ART. 1487 administration if the principal gives his consent
thereto
Expenses for execution and registration 3. Executors and Administrators
The vendor has the duty to pay not only the expenses for - The prohibition refers only to properties under the
the execution of the sale but also for the registration. administration of the executor or administrator at
the time of the acquisition and does not extend,
ART. 1488 therefore, to property not falling within this class.
4. Public officials and employees
Expropriation of property for public use - The prohibition refers only to properties:
The procedure for the exercise of the power of eminent ➢ Belonging to the State, or any
domain is provided for in rule 67 of the rules of the court. government-owned or -controlled
corporation or institution
➢ The administration of which has been
entrusted to the public officials or
employees
5. Justices, judges, prosecuting attorneys, etc., and

lawyers
CHAPTER 2 - applies only to the sale or assignment of property
which is the subject of litigation to the persons
ART. 1489 disqualified therein.
- The prohibition does not include sale of the
Person who may enter into a contract of sale property of the client effected before it became
GR: all persons, whether natural or juridical, who can bind involved in the action , payment of professional
themselves have also legal capacity to buy and sell.

ACC GROUP 5
services in other cases , and as long as the Principal Obligations of the vendor:
property was not the subject of the litigation. 1. To transfer the ownership of the determinate thing sold.
2. To deliver the thing.
❖ In prohibitions 1 to 3, , the sale shall only be 3. To warrant against eviction and the hidden defects.
voidable because in such cases only private 4. To take care of the thing, pending delivery, with proper
interests are affected. They can also be ratified diligence.
❖ In prohibitions 4 to 6, the sale shall be null and 5. To pay for the expenses for the execution and
void, public interests being involved therein. They registration of the deed of sale unless there is a stipulation
cannot be ratified. to the contrary.
ART. 1492 - The vendor does not need to be the owner of the thing at
the time of the perfection of the contract. “A right to
The prohibitions in the two preceding articles are applicable transfer ownership thereof at the time it is delivered” is
to sales by virtue of legal redemption, compromises and sufficient.
renunciations. - One who sells something he does not yet own is bound by
the sale when he acquires the thing later.
CHAPTER 3
Obligation to take care of, and preserve, the thing:
ART. 1493
1. The person who is obliged to give something is obliged to
Effect of loss of thing at the time of sale take care of that thing with the proper diligence of a good
1. Thing entirely lost father of a family, unless there is a specific type of diligence
- The contract is inexistent and void required.
- No necessity to bring an action for annulment 2. The seller cannot transform, alter, or alienate the thing
because there is no object sold.
2. Thing only partially lost
- Vendee may elect between withdrawing from the ART. 1496
contract and demanding the remaining part,
paying its proportionate price. Transfer of ownership
ART. 1494 Transfer of ownership effect by delivery:
Effect of loss in case of specific goods 1. Ways of effecting delivery – ownership transfers thru
1. Sale is divisible delivery itself:
- To rescind or withdraw from the contract or to give
a. Actual delivery
it legal effect, paying the proportionate price of
b. By constructive delivery
the remaining object.
c. By delivery in any other manner signifying that the
2. Sale is indivisible
ownership has been transferred.
- The buyer should be made to pay only the
2. Intention to deliver essential – The act of delivery must
proportionate price of the remaining goods.
be w/ intention to deliver the thing sold.
3. Delivery to proper person – The delivery must be made to
the vendee himself or any person that the latter authorized
to receive such delivery.
CHAPTER 4 Ways of effecting constructive delivery
Section 1 - General Provision 1. Equivalent to actual delivery – Forms of constructive or

legal delivery:
ART. 1495
a. Execution of a public instrument
Obligations of the vendor. b. Symbolical tradition or tradition symbolica
c. Traditio longa manu

ACC GROUP 5
d. Traditio brevi manu Constructive delivery is symbolic when the parties make
e. Tradition constitutum possessorium use of a token symbol to represent the thing delivered. (i.e.,
f. Quasi-delivery or quasi-traditio the key of where the thing sold is stored.)
2. Contrary may be stipulated. ART. 1499
Section 2 - Delivery of the Thing Sold The delivery of the movable property may likewise be made
by the mere consent or agreement of the contracting
ART. 1497 parties, if the thing sold cannot be transferred to the
possession of the vendee at the time of the sale, or if the
The thing sold shall be understood as delivered when it is latter already had it in his possession for any other reason.
placed in the control and possession of the vendee.
Traditio longa manu – Takes place by the mere consent or
Tradition – a derivative more of acquiring ownership by agreement of the contracting parties. The thing sold shall
virtue of which one who has the right and intention to a thereafter be at the control and disposal of the vendee.
corporeal thing, transmits it by virtue of a just title to one
who accepts the same. Tradition brevi manu – When the vendee has already the
possession of the thing sold by virtue of another title as
- Delivery of the thing, along with the payment, marks the when the lessor sells the thing to the vendor so that the
consummation of the contract of sale. latter may, in turn, deliver it back to him, all these are
considered done by fiction of law.
Actual delivery of thing sold
ART. 1500
1. When deemed made – When the thing sold is in the
control and possession of the vendee. Traditio constitutum possessorium
2. Not always essential to passing of title – Parties may - This takes place when the vendor continues in possession
agree when and on what conditions the ownership in the of the property sold not as owner but in some other
subject of the contract shall pass to the buyer. capacity, as for example, when the vendor stays as a tenant
on the vendee.
3. Proof of delivery – Delivery receipts.
ART. 1501
ART. 1498 Quasi-traditio
Symbolic Tradition In the case of incorporeal things, delivery is effected:
Execution of a public instrument or document. 1. By the execution of a public instrument;

2. When the mode of delivery is not applicable, by the
1. Meaning of public instrument – Acknowledged before a placing of the titles of ownership in the possession
notary public or any official authorized to administer oath, of the vendee; or
by the person who executed the same. 3. By allowing the vendee to use his rights as new
owner w/ the consent of the vendor.
2. General rule – Applies to both movable and immovable
properties. - The delivery to a person of a negotiable document of title
in which it is stated that the goods referred to therein will
3. Exception – If it appears from the document or it can be be delivered to the bearer amounts to delivery of the goods
inferred therefrom that it was not the intention of the to such person.
parties to make delivery, no tradition can be deemed to
have taken place.
The thing is not subject to the control of the vendor. ART. 1502
- Symbolic delivery by the execution of a public instrument Contract of sale or return, and of sale on trial or approval or
is equivalent to actual delivery only when the thing is satisfaction.
subject to the control of the vendor.
1. Sale or return – Contract by which property is sold but the
- The seller cannot deliver constructively if he cannot deliver buyer has the option to return the same instead of paying
actually even if he wants to.

ACC GROUP 5
the price. To purchase or return rests entirely to the buyer 1. Form of bill of lading not conclusive – The circumstances
without consideration to the quality of the goods. may be such that were it not for the form of the bill of
lading, the ownership would have passed to the buyer on
2. Sale on trial or approval – A contract in the nature of an the shipment of the goods.
option to purchase if the goods prove satisfactory, the
approval of the goods. 2. Where the ownership would have passed but for the
form of the bill of lading – where the title to the goods is
held merely for the purpose of security, the buyer, not the
SALE OR RETURN SALE ON TRIAL
seller who merely holds it for security, bears the risk of loss
and deterioration.
Resolutory condition Suspensive condition
Where buyer or his agent is consignee, but the seller retains
the bill of lading.
Depends on the buyer Depends on the
character/quality 1. Right to possession of goods as against buyer – Where
the goods are shipped and by the bill of lading the goods
are deliverable to the order of the buyer or of his agent, but
Sale: Buyer acquires Ownership remains to
the possession of the bill of lading is retained by the seller
ownership upon delivery. the seller until the buyer or his agent, the seller thereby retains a right to the
decides to buy. possession of the goods as against the buyer.
Return: Reverts back the
ownership to the seller. 2. Effect of retention – Although the property in the goods
will ordinarily pass to the buyer on delivery, the latter is
unable to obtain the goods without the bill.
The risk of loss or injury The risk remains on the
rests upon the buyer seller. Where bill of lading is sent forward with draft attached.
1. Delivery conditional – Where the seller draws on the

ART. 1503 buyer for the price and transmits the bill of exchange and
the bill of lading together to the buyer to secure
Delivery of specific goods sold generally passes the title. acceptance or payment of the bill of exchange, the title is
regarded as retained in the seller until the bill of exchange
1. Delivery to carrier – Delivery to the carrier is is paid.
deemed to be a delivery to the buyer.
2. Redelivering by carrier to the seller – The intention 2. Duty of buyer if draft not honored – The buyer is bound
that the carrier shall be the bailee for the seller and to return the bill of lading if he does not honor the bill of
the ownership will remain to the seller. exchange. If he wrongfully retains the bill of lading, he
acquires no additional right thereby.
Reservation of right possession or ownership when specific
goods are shipped. 3. Right innocent third person – If the bill of lading provides
that the goods are deliverable to the buyer or to the order
1. If the contrary intention appears by the terms of of the buyer or is indorsed to the buyer by the consignee
the contract. named therein, a purchaser in good faith for value of the
2. In the cases provided in the 2nd, 3rd, and last bill of lading or goods from the buyer will obtain the
paragraph of Article 1503. ownership in the goods although the bill of exchange has
not been honored.
Where the seller or his agent is a consignee.
1. Carrier becomes bailee for seller – The seller reserves the

ownership in the goods and the carrier is a bailee for him
and not the buyer.
2. Rights of seller – The seller may retain the goods until the ART. 1504
buyer performs his obligation under the contract, but he
may, even in violation of the contract, dispose of them to Unless otherwise agreed, the goods remain at the seller’s
third persons. He will be liable for damages. risk until the ownership therein is transferred to the buyer,
but when the ownership therein is transferred to the buyer,
Where seller’s title only for purpose of security.

ACC GROUP 5
the goods are at the buyer’s risk whether actual delivery Requisites for acquisition of good title by buyer - If the seller
has been made or not, except that: has only a voidable title to the goods, the buyer acquires a
good title to the goods provided he buys them:
1. Where delivery of the goods has been made to the buyer
or to a bailee for the buyer. a. Before the title of the seller has been avoided.
b. In good faith for value
2. Where actual delivery has been delayed through the fault c. Without notice of the seller’s defect of title.
of either the buyer or seller the goods are at the risk of the
party in fault. Basis of rule – It is based on the principle that where loss
has happened which must fall on one of two innocent
ART. 1505 persons, it should be borne by him who is the occasion of
the loss.
Subject to the provisions of this title, where goods are sold
by a person who is not the owner thereof, and who does DEFINITION OF TERMS:
not sell them under authority or with the consent of the
owner, the buyer acquires no better title to the goods than Document of title to goods – Includes any bill of lading, dock
the seller had, unless the owner of the goods is by his warrant, “quedan,” or warehouse receipt or order for the
conduct precluded from denying the seller’s authority to delivery of goods. Any form of document proves the
sell. possession or control of the goods or authorizing or
purporting to authorize the possessor of the document to
Nothing in this Title, however, shall affect: transfer or receive, either by indorsement or by delivery,
goods represented by such document.
1. The provisions of any factor’s acts, recording laws,
or any other provision of law enabling the Goods – Includes all chattels personal but not things in
apparent owner of goods to dispose of them as if action or money of legal tender in the Philippines. Growing
he were the true owner thereof. fruits or crops.
2. The validity of any contract of sale under statutory
power of sale or under the order of a court of Order – Relating to documents of title, means an order by
competent jurisdiction. indorsement on the documents.
3. Purchases made in a merchant’s store, or in fairs,
or markets, in accordance with the Code of ART. 1507
Commerce and special laws.
A document of title in which it is stated that the goods
Sale by a person not the owner referred to therein will be delivered to the bearer, or to
the order of any person named in such a document is a
Sale is a derivative mode of acquiring ownership and the negotiable document of title.
buyer gets only such rights as the seller had. But these are
the exemptions: Nature and function of documents of title
1. Where the owner of goods is, by his conduct, 1. Receipts of, or order upon, a bailee of goods
precluded from denying the seller’s authority to represented.
sell. 2. Evidence of transfer of title and possession of
2. Where the law enables the apparent owner to goods and contract between parties.
dispose of the goods as if he were the true owner
thereof. Most common forms of documents
3. There the sale is sanctioned by statutory or 1. Bill of lading – it is a contract or receipt for the transport
juridical authority. of goods and their delivery to the person named therein, to
4. Where the sale is made at merchant’s stores, fairs, order, or to bearer.
or markets. 2. Dock warrant – It is an instrument given by dock owners
5. Where the seller has a voidable title which has not to an importer of goods warehoused on the dock
been avoided at the time of the sale. recognizing the importer’s title to the said goods.
3. Warehouse receipt – It is a contract or receipt for goods
6. Where the seller subsequently acquires a title. deposited with a warehouseman containing the latter’s
undertaking to hold and deliver the said goods to a
ART. 1506 specified person, to order, or to bearer.
Classes of documents of titles
Sale by one having a voidable title.
1. Negotiable documents of title

ACC GROUP 5
2. Non-negotiable documents of the title Even if the document is indorsed, the transferee acquires
no additional right.
ART. 1508
ART. 1512
A negotiable document of title may be negotiated by
delivery: Persons who may negotiate a document.
(1) Where by the terms of the document the carrier, it will be noticed that the provision does not give a power
warehouseman or other bailee issuing the same undertakes to negotiate documents of title equal to that allowed in the
to deliver the goods to the bearer: case of bills of exchange and promissory notes under the
Negotiable Instruments Law (Act No. 2031) inasmuch as
(2) Where by the terms of the document the carrier, neither a thief nor a finder is within the terms of the article.
warehouseman or other bailee issuing the same undertakes
to deliver the goods to the order of a specified person, and ART. 1513
such person or subsequent indorsee of the document has
indorsed it in blank or to the bearer. Rights of person to whom document has been negotiated.
Where by the terms of a negotiable document of title, the Such person acquires:
goods are deliverable to bearer or where a negotiable
document of title has been indorsed in black or to bearer, (1) the title of the person negotiating the document,
any holder may indorse the same to himself or to any over the goods covered by the document.
specified person, and in such case the document shall (2) the title of the person to whose order by the terms
thereafter be negotiated only by the indorsement of such of the document the goods were to be delivered,
indorsee. over such goods; and
(3) the direct obligation of the bailee to hold
ART. 1509 possession of the goods for him, as if the bailee
had contracted directly with him.
Negotiation of negotiable document by indorsement.
ART. 1514
A negotiable document of title by terms of which the goods
are deliverable to a person specified therein may be Rights of person to whom document has been transferred.
negotiated only by the indorsement of such person.
(1) Title to goods as against transferor - refers to the
(1) if indorsed in blank of bearer, the document rights of a person to whom a negotiable document
becomes negotiable by delivery. of title has been transferred or of the transferee of
(2) if indorsed to a specified person, it may be again a non-negotiable document.
negotiated by the indorsement of such person in (2) In addition. -
blank, to bearer or to another specified person. (a) The right to notify the bailee of the
delivery alone is not sufficient. transfer thereof.
(b) the right, thereafter, to acquire the
ART. 1510 obligation of the bailee to hold the goods
for him.
Negotiable document of title marked “non-negotiable.” (3) Right of the assignee - the right of the transferee is
not absolute as it is subject to the terms of any
Under Article 1510, the words “not negotiable,” agreement with the transferer.
“non-negotiable,” and the like when placed upon a
document of title in which the goods are to be delivered to Rights of third person to goods where the document has
“order” or to “bearer” have no effect and the document been transferred.
continues to be negotiable.
(1) the transfer of a non-negotiable document of title
ART. 1511 does not affect the delivery of the goods covered
by it.
Transfer of non-negotiable documents. (2) If the document is negotiable, the goods cannot be
attached or be levied under an execution unless
a non-negotiable document of title cannot be negotiated.
the document be first surrendered to the bailee or
Nevertheless, it can be transferred or assigned by delivery.
its negotiation enjoined.
In such a case, the transferee or assignee acquires only the
rights stated in Article 1514. ART. 1515

ACC GROUP 5
Transfer of order document without indorsement. Attachment or levy upon goods covered by a negotiable
document.
They are:
The bailee has the direct obligation to hold possession of
(1) the right to the goods as against the transferor the goods for the original owner or the person whom the
(2) the right to compel the transferor to indorse the negotiable document of title has been duly negotiated.
indorsement.
(1) while in the possession of such bailee, the goods
Subsequent indorsement of negotiable document cannot be attached or levied under an execution
transferred. (2) The bailee cannot be compelled to deliver the
possession of the goods until the document is
For the purpose of determining whether the transferee is a surrendered to him or impounded by the court.
purchaser for value in good faith without notice, the
negotiation shall take effect as of the time when the ART. 1520
indorsement is actually made, not at the time the
document is delivered. Creditor’s remedies to reach negotiable documents.
ART. 1516 Inasmuch as the goods themselves cannot readily be

attached or levied upon by ordinary legal process, as limited
Warranties on sale of documents. by the preceding article, this article expressly gives the
court full power to aid by injunction and otherwise a
This article treats of the warranties or liabilities of a person creditor seeking to get a negotiable document covering
negotiating or transferring a document. They are similar to such goods.
those of a person negotiating and instrument by delivery or
by a qualified endorsement under the Negotiable ART. 1521
Instruments Law.
Place of delivery of goods sold.
ART. 1517
1. Rules - the following are the rules:
Indorser not a guarantor.
(a) where there is an agreement, express or implied,
The indorsement of a negotiable instrument has a double the place of delivery is that agreed upon
effect. (b) where there is no agreement, the place of delivery
is that determined by usage of trade
(1) The indorser will pay the instrument if the party (c) where there is no agreement and there is also no
primarily liable fails to do so. prevalent usage, the place of delivery is the seller’s
(2) The indorsement of a document of title amounts place of business
merely to a conveyance by the indorser, not a (d) in case of other case, the place of delivery is the
contract of guaranty. seller’s residence
(e) in case of specific goods, which to knowledge of
ART. 1518 the parties at the time the contract was made
were in some other place, that place is the place of
When negotiation not impaired by fraud, mistake, duress,
delivery
etc.
2. Presumption - the buyer must take the goods from the
Under this article, a negotiable document may be
seller’s place of business or residence rather than the seller
negotiated by any person in possession of the same,
to deliver them to the buyer.
however such possession may have been acquired.
Time of delivery of goods sold
(1) if no time is fixed by the contract, the seller is

bound to send the goods to the buyer within a
reasonable time
(2) if the contract provides a fixed time for
ART. 1519 performance, the question is whether time is of
the essence

ACC GROUP 5
(3) Where the contract does not specify the time for ART. 1523
delivery so that delivery is to be made within a
reasonable time, time is not of the essence. Delivery to carrier on behalf of buyer.
Delivery of goods in possession of a third person. (1) general rule - when the seller is authorized or
required to send goods to the buyer, the general
It is important to observe a distinction between the rule is that the delivery of such goods to the carries
delivery which will satisfy the seller’s duty to the buyer and constitutes a delivery to the buyer, whether the
the delivery which is necessary to protect the buyer against carrier is named by the buyer or not.
thor persons. (2) Exceptions - they are those provided in paragraphs
1,2, and 3 of Article 1503 and when contrary intent
Hour of delivery of goods sold. appears.
The demand or tender of delivery to be effectual must be Seller’s duty after delivery to carrier.
made at a reasonable hour of the day.
(1) to enter on behalf of buyer into such contract
Duty of seller to put goods in deliverable condition. reasonable under the circumstances
(2) to give notice to buyer regarding necessity to
unless otherwise agreed, the seller bears the expenses to insure goods
place the thing in a deliverable state.
Definition of trade terms.
The buyer is not bound to make tender or offer of payment
until the seller has complied with his obligations. (1) C.O.D. - Collect on delivery
(2) F.O.B. - Free on board
ART. 1522 (3) C.I.F. - Cost insurance and freight
(4) F.A.S. - Free alongside vessel
Delivery of goods less than quantity contracted. (5) Ex factory, ex warehouse, etc. - the price quotes
applies only at the point of origin
Where the seller is under a contract to deliver a specific
(6) Ex dock - the seller quotes a price including the
quantity of goods and he delivers a smaller quantity, as full
cost of the goods on the dock at the named port of
performance of his obligation, the buyer may reject the
importation
goods so delivered.
ART. 1524
Delivery of goods more than quantity contracted.
Delivery simultaneous with payment of price
Where the seller delivers a quantity larger than that
contracted for, the buyer may accept the quantity As a general rule, the obligation to deliver the thing subject
contracted for and reject the excess. matter of a contract arises from the moment of its
perfection and from the time the obligation may be
Delivery of goods mixed with others. enforced.
Where the goods delivered are mixed with goods of When delivery must be made before payment price.
different description not included in the contract, the buyer
may accept those which are not in accordance with the The provisions of this article contain a rule and exception:
contract and reject the rest. the rule is that the thing shall not be delivered unless the
price be paid; the exception is that the thing must be
Effect of indivisibility of subject matter. delivered though the price be not first paid, if a time for
such payment has been fixed in the contract.
If the subject matter of the sale is indivisible, in case of
delivery of a larger quantity of goods or of mixed goods, ART. 1525
the buyer may reject the whole of the goods.
Meaning of unpaid seller.
Rules may be controlled by usage of trade, etc.
One who has not been paid for tendered the whole price or
The provision permitting evidence of usage of trade, special who has received a bill of exchange or other negotiable
agreement, or course of dealing between the parties is but instrument as conditional payment and the condition on
a special application of the general rules concerning which it was received has been broken by reason of the
contracts. dishonor of the instrument.

ACC GROUP 5
Where whole of the price has not been paid. ART. 1530
(1) Tender of payment of buyer RIGHT OF STOPPAGE IN TRANSITU

(2) Payment of par of price
(3) Payment by negotiable instrument An extension of the lien for the price; entitles unpaid seller
to resume possession of the goods while they are in transit
ART. 1526 before the goods come in possession of the vendee
RIGHTS OF AN UNPAID SELLER Available when:
1. Right to lien of goods or the rights to retain them 1. Seller must be unpaid
for the price while he is in possession of them 2. Buyer must be insolvent
2. Right of stoppage in transit 3. Goods must be in transit
3. Right of resale 4. Seller must take possession of the goods sold or
4. Right to rescind the sale give notice of his claim to the carrier or other
person in possession
ART. 1527 5. Seller must surrender the document of title, if any,
issued by the carrier or bailee.
RIGHT TO LIEN - Right to retain possession of goods until 6. Seller must bear the expenses of delivery after the
payment or tender of the whole price, or unless he agrees exercise of the right
to sell on credit
Note: The fundamental basis of this right is the principle
Available when: allowing rescission and restitution where there is actual
failure of consideration
1. Goods sold without stipulation as to credit
2. Goods are sold on credit, but credit term has ART. 1531
expired
3. Buyer becomes insolvent Good are considered in transit when:
ART. 1528 1. After delivery to the carrier or other bailee and

before the buyer or his agent takes delivery of
Lien not generally lost by partial delivery: When an unpaid them.
seller made partial delivery of the goods, he may exercise 2. Goods are rejected by buyer, and carrier or bailee
his lien on the remainder, unless such part delivery shows continues to be in possession of them, even if
an intent to waive the lien or right of retention. seller refused to receive them back
ART. 1529 Goods are no longer in transit when:

When unpaid seller losses possessory lien:
1. After delivery to the buyer or his agent on that
behalf.
1. Delivers the goods to a carrier or other bailee for
2. Buyer obtains delivery of the goods before arrival
the purpose of transmission to the buyer without
at the appointed destination
reserving the ownership in the goods or the right
3. Carrier or bailee acknowledges to hold the goods
of possession thereof.
on behalf of the buyer
2. Buyer or his agent lawfully obtains possession of
4. Carrier or other bailee wrongfully refuses to deliver
the goods. the goods to the buyer or his agent.
3. By waiver thereof
Delivery to a ship, etc., owned by buyer
Note: The mere judgement by court obtained by the
unpaid seller for the price of the goods is not a ground Charted by buyer – Whether delivery to a carrier chartered
to lose his right to lien. by the buyer means possession by the carrier as agent of
the buyer. This does not make a delivery to the same a
delivery to a buyer.
Owned by the buyer – Delivery to a vessel belonging to the

buyer is delivery to the buyer.

ACC GROUP 5
Effect of partial delivery ART. 1534
The mere fact that part of the goods has been delivered RIGHT TO RESCIND THE SALE
does not deprive the seller of the right to stop with respect
to the remainder. Return of the title over the undelivered goods to the seller,
and right to recover damages for breach of contract
ART. 1532
Available when:
Way of exercising the right to stop
1. Seller has the right to lien or stoppage in transitu
1. By obtaining actual possession of the goods. 2. Under either of the 2 situations:
2. By giving notice of his claim to the carrier or bailee. a. Right to rescind is expressly reserved
b. When the buyer delays in the payment of
Such notice may be given to the person in actual possession the price for an unreasonable time.
or to his principal. But if given to the principal, it must be
given at such time and under such circumstances to be Effects of rescission
effectual so the principal can prevent delivery.
1. Seller resumes ownership of the goods
Effects of exercise: 2. Seller shall not be liable to the buyer upon the
contract
1. Goods are no longer in transit 2 3. Buyer may be held liable to the seller for damages
2. Carrier shall be liable as depositary or other bailee. for any loss occasioned by the breach of contract
3. Carrier must redeliver the goods to, or according
to the instructions of the seller How a seller may rescind: by notice to the buyer or by
some overt act showing an intention to rescind.
Note: The right of the purchaser for value in good faith to
whom such document has been negotiated is superior to Note: Communication to buyer of rescission is not always
the seller’s lien or stoppage in transitu. necessary but giving/failure to give notice is relevant in
determining reasonableness of time given to the buyer to
ART. 1533 make good his obligation under contract.
RIGHT OF RESALE ART. 1535
Available when: EFFECTS OF SALE OF GOODS SUBJECT TO LIEN OR

STOPPAGE IN TRANSITU
1. Seller has the right to lien or stoppage in transitu.
2. Under the following cases: Goods not covered by negotiable documents – Generally, a
a. Goods are perishable by nature seller can give no larger right than he has. Thus, a purchaser
b. Right to resell is expressly reserved from the original buyer can acquire only such rights as that
c. Buyer delays in payment for an buyer then had.
unreasonable time
Goods covered by negotiable documents – Seller’s lien
Effects of resale cannot prevail against the right of a purchaser in good faith
to whom the document has been indorsed.
1. Seller is not liable to the buyer for any profit
2. If sells for less than the price, seller has right to sue ART. 1536
for the balance from buyer
3. New buyer acquires good title as against the Right of vendor to withhold delivery in sale on credit
original buyer
Accordingly, the vendor is not bound to make delivery if the
Note: The seller is not bound to give notice of his intention vendee has not paid him the price. However, if the period
to resell and the time and place where the resale will be has been fixed, the vendor shall deliver the thing sold even
held. However, it is prudent to give the buyer such notice as without full payment. But, if the vendee will lose his rights
the evidence in regard to the fairness of the sale. to make use of the period as provided in Article 1198, the
vendor may not be compelled to make delivery.

ACC GROUP 5
ART. 1537 ❖ But the vendee may not withdraw from the
contract. He must accept what was stipulated in
Upon the perfection of the contract, the vendor is obliged the contrat.
to deliver the thing sold with its accessories and accessories
in the condition in which they were upon perfection, thus ART. 1541
they are obliged to preserve the thing Pending delivery.
The rules stated in Articles 1539 and 1540 are applicable to
The vendee has the right to the fruit of the thing sold from both private (voluntary) sales and judicial sales when the
the time the obligation to deliver it arises. Thus, upon immovable sold is lacking in area or is of inferior quality or is
perfection of contract. greater in area than stated in the contract.
ART. 1538 ART. 1542

In case of loss, deterioration, or improvement of the thing
Sale of real estate made for a lump sum
before its delivery, article 1189 shall apply, where the
1. Mistakes in area stated in contract immaterial
vendor being considered the debtor.
- If the sale is made for a lump sum, and not so much
per unit of measure or number, the cause of the
ART. 1539
contract is the thing sold independent and
SALE OF REAL ESTATE irrespective of its number or measure.
- Its greater or lesser area cannot influence the
Unit Price Contract increase or decrease of the price agreed upon.
- The vendor is obligated to deliver all the land
Payment will be made only based on contractual items included within the boundaries, regardless of
performed. The amount agreed upon is merely an estimate. whether the real area should be greater or smaller
Price is depending upon the quantities performed than that recited in the deed.
multiplied by the unit prices previously agreed upon.
2. Where area or number stated together with
Sale of Real Estate by the Unit boundaries
- If the vendor cannot deliver to the vendee all that
● The vendor must deliver the entire property is included within the boundaries mentioned in the
agreed upon. The immovable property must be of contract, the latter has the option to reduce the
the quality specified in the contract. price in proportion to the deficiency or to set aside
● If the entire area could not be delivered, then the the contract.
object of the contract is not delivered. Hence the
vendee is entitled to rescind it. But he may, ❖ If boundaries are sufficiently certain then, what the
however, enforce the contract with the vendor is obligated to deliver is what's included in
corresponding decrease in price. the boundary and not the area alone.
❖ If boundaries are not sufficiently certain then the
When Vendee is Entitled to Rescind Sale of Real Property vendor will deliver the area that is stipulated in the
contract.
1. If the lack of area is at least 1/10th than that stated
or stipulated.
ART. 1543
2. If the deficiency in the quality specified in the
contract exceeds 1/10th of the price agreed upon Prescription of actions
3. If the vendee would not have bought the - The actions arising from articles 1539 and 1542 shall
immovable, had he known of its smaller area or prescribe in six months, counted from the day of
inferior quality. delivery.
ART. 1540
ART. 1544
Where immovable of a greater area or number
Rules as to preference of ownership in case of a double
The vendee may:
sale.
1. Accept the area stipulated in the contract
2. Reject the excess
1. If movable property
3. May accept the whole but should pay the price for
- The ownership shall be acquired by the vendee
the excess
who first takes possession in good faith.
2. If immovable property

ACC GROUP 5
a. Vendee who first registers the sale in

KINDS OF WARRANTY
good faith in the Registry of Property
(Registry of Deeds) has a preferred right. Express Warranty
b. In the absence of registration, the vendee
who first takes possession in good faith - Any affirmation of fact or any promise by the
c. In the absence of both registration and seller relating to the thing
possession, vendee who presents the ❖ A mere expression of opinion, no matter how
oldest title (who first bought the positively asserted, does not import a warranty
property) in good faith. unless the seller is an expert and his opinion was
❖ Governing principle: prius tempore, patior jure (first relied upon by the buyer.
in time, stronger in right)
❖ The requirement of the law then is two-fold: Implied Warranty
acquisition in good faith and registration in good
Is a natural, not an essential, element of a contract,
faith. because it is presumed to exist even though nothing has
❖ The second buyer must show that he acted in good been said in the contract. May, however, be waived or
faith all throughout the acquisition, transfer of modified by express stipulation. (Art. 1547)
title, registration, and delivery (i.e., ignorance of
the first sale and the first buyer’s right). As to seller's title The seller guarantees that
(Art. 1548) he has a right to sell the
Other ruling on application of rules thing sold and to transfer
1. Contract to sell/promise to sell ownership to the buyer
- The provision does not apply to a case where there who shall not be disturbed
was a sale to one party of the land itself while the in his legal and peaceful
other contract was a mere promise to sell the land possession thereof
2. Donation
- An unrecorded sale of a house of a prior date is
Against hidden defects or The seller guarantees that
preferred to a recorded mortgage of the same
unknown encumbrance the thing sold is free from
house of a later date for the reason that, if the (Art. 1561) any hidden faults or
original owner had parted with his ownership of
defects or any charge or
the thing sold
encumbrance not declared
3. Contract of sale fictitious or forged, or seller
or known to the buyer
without right to sell
- A forged deed of sale of registered land can legally
As to fitness or As to fitness
be the root of a valid title when an innocent merchantability - seller guarantees
purchaser for value intervenes (Art. 1562) that the thing sold
is reasonably fit
Section 3 - Conditions and Warranties for the known
particular purpose
ART. 1545
Condition As to merchantability
- An uncertain event or contingency - where it was
bought by
- The obligation of the contract does not attach until
description, that it
the condition is performed.
is of merchantable
quality
Effect of non-fulfillment of condition
1. Refuse to proceed with the contract
2. Proceed with the contract, waiving the Subsection 1. - Warranty in Case of Eviction
performance of the condition
ART. 1548
3. The non performance may be considered as breach
of warranty if the condition in nature is a promise.
Eviction
- The judicial process, whereby the vendee is
ART. 1546
deprived of the whole or part of the thing
purchased by virtue of a final judgment based on a
Warranty
right prior to the sale or an act imputable to the
- Statement or representation made by the seller of
vendor.
goods, by which he promises or undertakes to
insure that certain facts are or shall be as he then
represents them.

ACC GROUP 5
Requisites of warranty against eviction ART. 1552

1. The vendee is deprived in whole or in part of the
thing purchased Liability of judgment debtor
2. He is so deprived by virtue of a final judgment (Art. - The judgment debtor is responsible for eviction
1557.) (Art. 1552.) and hidden defects (Art. 1570.) even in
3. The judgment is based on a right prior to the sale judicial sales, unless otherwise decreed in the
or an act imputable to the vendor judgment.
4. The vendor was summoned in the suit for eviction
at the instance of the vendee (Art. 1558.) ART. 1553
5. There is no waiver on the part of the vendee.
Stipulation waiving warranty
❖ Mere trespass in fact does not give rise to the - Any stipulation exempting the vendor from the
application of the doctrine of eviction obligation to answer for eviction shall be void, if he
❖ The disturbance referred to in the case of eviction acted in bad faith.
is a disturbance in law which requires that a - If however the vendee was the one who acted in
person go to the courts of justice bad faith, the vendee is then not entitled to the
❖ Warranty is not an essential element of a contract warranty against eviction, nor is he entitled to
of sale and may, therefore, be increased, recover damages.
diminished, or suppressed by agreement of the
parties. ART. 1554
ART. 1549 Kinds of waiver of eviction

1. Consciente
Vendee has no duty to appeal from judgment - waiver is voluntarily made by the endee without
- The vendee’s right against the vendor is not lost the knowledge and assumption of the risks of
because he, the vendee, did not appeal. With a eviction.
judgment becoming final whatever be the cause of - The vendor shall pay only the value which the thing
finality, the requirement of the law is deemed sold had at the time of eviction.
satisfied. 2. Intencionada
- The waiver is made by the vendee with knowledge
ART. 1550 of the risks of eviction and assumption of its
consequences.
Effect of prescription - The vendor is exempted from the obligation to
1. Completed before sale answer for eviction, provided he did not act in bad
- The vendee may lose the thing purchased to a third faith.
person who has acquired title thereto by
prescription. ART. 1555
- In this case, the deprivation is based on a right
prior to the sale and an act imputable to the In case eviction occurs, the vendee shall have the right to
vendor demand of the vendor:
2. Completed after sale
- Even if prescription has started before the sale but 1. The return of the value which the thing sold had at
has reached the limit prescribed by law after the the time of the eviction, be it greater or less than
sale, the vendor is not liable for eviction. the price of the sale
2. The income or fruits, if he has been ordered to
❖ Limit of prescription is 30 years deliver them to the party who won the suit against
❖ Under the Torrens system, ownership of land is not him
subject to prescription. 3. The costs of the suit which caused the eviction
and, in a proper case, those of the suit brought
ART. 1551 against the vendor for the warranty
4. The expenses of the contract, if the vendee has
Deprivation for nonpayment of taxes paid them
- If the property is sold for nonpayment of taxes due 5. The damages and interests and ornamental
and not made known to the vendee before the expenses, if the sale was made in bad faith.
sale, the vendor is liable for eviction.
❖ The second purchaser has a right of action against
the first vendor to make good the warranty against
eviction.

ACC GROUP 5
ART. 1556 immovable belonging to a different owner. (e.g.

non-apparent easement: party wall which has no
Alternative rights of vendee in case of partial eviction exterior sign)
- It states the rule that if there is partial eviction, the ● Lack of knowledge on the part of the vendor - NOT
vendee has the option either to enforce the a defense. Contract can still be invalidated on the
vendor’s liability for eviction (Art. 1555.) or to grounds of mistake.
demand rescission of the contract. This is
applicable when: When right cannot be exercised.
1. When the vendee is deprived of a part of the thing 1. If the burden or servitude is apparent, that is,
sold if such part is of such importance to the “made known and is continually kept in view by
whole that he would not have bought the thing external signs that reveal the use and enjoyment of
without said part the same’’
2. When two or more things are jointly sold whether 2. If the non-apparent burden or servitude is
for a lump sum or for a separate price for each, the registered; and
vendor would not have purchased one without 3. If the vendee had knowledge of the encumbrance,
the other. whether it is registered or not.
❖ Can either sue for damages for breach of warranty ❖ The registration of the non-apparent burden or
or demand rescission of the contract. servitude in the Registry of Property - operates as a
constructive notice to the vendee. Hence, the
ART. 1557 vendor is relieved from liability unless an express
warranty that the immovable is free from any such
Final judgment of eviction essential burden or encumbrance.
- The warranty cannot be enforced until a final ❖ If the burden is known to the vende - no warranty.
judgment has been rendered, whereby the vendee
loses the thing acquired or a part thereof. When action must be brought.
● Action for rescission or damages must be brought
ART. 1558 within one year from the execution of the deed of
sale.
Formal summons to vendor essential. ● If period already elapsed - the vendee may only
● Essential requisite before a vendor may be legally bring an action for damages within one year from
liable for eviction: he should be summoned in the the date of the discovery of the non-apparent
suit for eviction at the instance of the vendee. burden or servitude.
● object of law: give the vendor an opportunity to
show that action interposed against him is unjust Subsection 2. - Warranty Against Hidden Defects of, or
and defend the title that he has transferred. Encumbrances upon, the Thing Sold
ART. 1559 ART. 1561
Vendor to be made co-defendant. Requisites for warranty against hidden defects.

Case: the vendee is the defendant in a suit instituted to 1. The defect must be important or serious;
deprive him of the thing purchased. 2. It must be hidden;
● The defendant vendee threatened with eviction 3. It must exist at the time of the sale;
who wishes to preserve his right of warranty, 4. Vendee must give notice of the defect vendor
should call in the vendor to defend the action within a reasonable time;
which has been instituted against him. 5. Action for rescission or reduction of the price
must be brought within the proper period (6
ART. 1560 months) from the delivery of the thing sold or
within 40 days from the date of the delivery in case
Right of vendee where immovable sold encumbered with of animals; and
non-apparent burden. 6. There must be no waiver of warranty on the part
● Although the vendee is not deprived of the thing of the vendee.
sold, totally or partially, the vendee may still
rescind the contract or ask for indemnity, since When defect important.
vendee would not have acquired it had he been 1. it renders the thing sold unfit for the use for which
aware thereof. it is intended; or
● A servitude (or easement) - encumbrance imposed 2. If it diminishes its fitness to an extent that the
upon an immovable for the benefit of another vendee would not have acquired it had he been

ACC GROUP 5
aware thereof or would have given a lower price ART. 1564

for it.
Effect of usage of trade.
When defect hidden. ● A warranty as to quality or fitness for a particular
● it was not known and could not have been known purpose: may be attached by usage to a contract
to the vendee. containing no express provision in regard to
● No warranty if defect is hidden or patent. warranty
● Vendor’s liability for warranty cannot be enforced ● The usage is relied on for the purpose of showing
although the defect is hidden if the vendee is an the intention of the parties.
expert who, by reason of his trade or profession, ● No usage = parties would naturally express their
should have known it. intention.
ART. 1562 ART. 1565
Implied warranties of quality. Merchantability of goods sold by sample.

● Quality of goods includes their state or condition. 1. Where sample not merchantable.
● The purpose of holding the seller on his implied ● GR: all the buyer is entitled to, in case of a
warranties is to promote high standard in business sale or contract to sell by sample, is that
and to discourage unfair dealings. “honesty is the the goods be like the sample.
best policy.” ● so he has no right to have the goods
1. Implied warranty of fitness. — No implied merchantable if the sample which he has
warranty, except: inspected is not.
a. The buyer, expressly or by implication, 2. Where sample subject to latent defect.
manifests to the seller the particular ● Defect in the goods that inspection will
purpose for which goods are required, and not reveal it (sale by sample): if the sample
b. Buyer relies upon the seller’s skill or is subject to a latent defect, and the buyer
judgment — there is an implied warranty relies on the seller’s skill or judgment, the
that the goods are reasonably fit for such buyer is entitled to goods like those which
purpose. the sample seems to represent, that is,
2. Implied warranty of merchantability. —Goods are merchantable goods of that kind and
bought by description, the seller impliedly character.
warrants that the goods are of merchantable ART. 1566
quality.
Effect of ignorance of vendor.
Warranty of merchantability distinguished from warranty ● Does not relieve him from liability to the vendee
of fitness. for any hidden faults or defects in the thing sold.
● EXCEPTION: may provide otherwise in their
Warranty of Warranty of Fitness contract provided the vendor acted in good faith
Merchantability (he was unaware of the existence of the hidden
fault or defect).
Warranty that goods are Warranty that goods are
reasonably fit for the suitable for special Doctrines of “caveat venditor” and “caveat emptor.”
general purpose for which purpose of the buyer
they are sold. which will not be satisfied
by mere fitness for general caveat emptor (buyer caveat venditor
purposes. beware)
● this was the rule ● after rejection of

when the implied former: this was
ART. 1563
warranty of quality adopted
was not recognized ● meaning: “the
Case: of contract of sale of a specified article under its
● was rejected by old vendor is liable to
patent or other trade name: there is no warranty as to its
Civil Code (ff the vendee for any
fitness for any particular purpose, unless there is a
Roman Law) hidden faults or
stipulation to the contrary.
❖ third person: this defects in the thing
applies sold, even though
he was not aware
thereof.”

ACC GROUP 5
ART. 1567 ● GR: Redhibition will not affect the others without
it.
Alternative remedies of the buyer to enforce warranty. ● EXCEPTION: when it can be shown by the vendee
Options: that he would not have purchased the sound ones
1. accion redhibitoria (action for rescission) - to
without those which are defective.
withdraw from the contract, or
2. accion quanti minoris - demand a proportionate
reduction of the price, with a right to damages in ❖ NOTE: It is immaterial whether the price has been
either case. fixed for a lump sum for all the animals or for a
Note: The same right is given to the vendee in the sale of separate price for each.
animals with redhibitory defects.
ART. 1573
ART. 1568
Sale of two or more things together.
Effect of loss of thing sold on account of hidden defects.
Points considered in the preceding article apply also to sale
1. Vendor aware of hidden defects. — He shall bear
the loss because he acted in bad faith. of two or more things where only one or more of them but
Vendee's Right to recover: not all have hidden defects.
a. Price paid;
b. Expenses of the contract; and ART. 1574
c. Damages.
2. Vendor not aware of hidden defects. There is no warranty against hidden defects of animals sold
He obliged only to return: at fairs or at public auctions, or of livestock sold as
a. the price paid; condemned.
b. Interest thereon; and
● Assumption: Defects must have been clearly
c. Expenses of the contract if paid by the
vendee. He is not made liable for damages known to the buyer.
because he is not guilty of bad faith.
ART. 1575
ART. 1569
When sale of animals void.
Effect of loss of defective thing sold. 1. Animals suffering from contagious diseases
● the thing sold had no hidden defects, loss through 2. Found unfit to the use or service for which they are
a fortuitous event or fault of the vendee - borne by acquired.
the vendee.
● Not merely subject to rescission or reduction of the
● hidden defects existed - the vendor is obliged to
return the price paid less the value of the thing at price.
the time of its loss. The vendor is still made liable
on his warranty. ART. 1576
● If the vendor acted in bad faith, he shall also be
liable for damages. What constitutes redhibitory defect of animals.
● the defect must not only be hidden. It must be of
ART. 1570 such a nature that expert knowledge is not
sufficient to discover it.
Warranty in judicial sales.
● However, if the veterinarian failed to discover it
❖ In judicial sale, it is not really the sheriff who sells
but the judgment debtor through his ignorance, or failed to disclose it to the
● The provisions regarding warranty are also vendee through bad faith, he shall be liable for
applicable to judicial sales. damages.
● EXCEPTION: Since judgment debtor is forced to
sell, there can be no liability for damages. ➔ Redhibitory defect or vice - a defect in the article
sold against which defect the seller is bound to
ART. 1571 warrant.
Limitation of action.
● The action for rescission of the contract or
reduction of the purchase price prescribes six ART. 1577
months from the date of delivery of the thing sold.
Limitation of action in sale of animals.
ART. 1572 ● Redhibitory action based on the faults of animals
shall be barred unless brought within 40 days from
Sale of two or more animals together. the date of their delivery to the vendee.
When 2 or more animals sold at the same time and the ● According to the second paragraph:
redhibitory defect is in one, or some of them but not in all: ➢ Considered redhibitory defects: only those
determined by law or by local customs.

ACC GROUP 5
➢ If the defects are patent = no warranty CHAPTER 5

although there exists a redhibitory vice.
ART. 1582
ART. 1578
Principal obligations of vendee.
Responsibility of vendor where animal dies.
1. To accept delivery;
● If animals die within three days after its purchase -
2. To pay the price1 of the thing sold; and
vendor shall be liable if the disease which caused
3. To bear the expenses for the execution and
the death existed at time of the contract.
registration of the sale and putting the goods in a
● Death occurs after three days or the defect is
deliverable state, if such is the stipulation.
patent or visible - he is not liable.
● Loss is caused by a fortuitous event or by the fault
Pertinent rules.
of the vendee, and the animal has vices - Article
In connection with the above obligations, the following
1569 should be applied.
rules must be borne in mind:
1. In a contract of sale:
ART. 1579
● Vendor: not required to deliver the thing
sold until the price is paid.
Liability of buyer in case sale of animal is rescinded.
● vendee: not required to pay the price
● vendee must return the animal in the condition in
before the thing is delivered in the
which it was sold and delivered.
absence of an agreement to the contrary.
● Injury due to his negligence - the vendee shall be
2. If stipulated:
responsible but this would be no obstacle to the
● then vendee is bound to accept delivery
rescission of the contract due to the redhibitory
and to pay the price at the time and place
defect or fault of the animal.
designated;
3. No stipulation to the time and place of payment
ART. 1580
and delivery:
In the sale of animals with redhibitory defects: ● the vendee is bound to pay at the time
● the vendee shall also enjoy the right mentioned in and place of delivery;
article 1567 4. Absence also of stipulation to the place of delivery:
a. accion redhibitoria it shall be made wherever the thing might be at
b. accion quanti minoris the moment the contract was perfected; and
● Action must be brought within forty days from the 5. If only the time for delivery of the thing sold has
date of the delivery of the animals to the vendee. been fixed in the contract: the vendee is required
to pay even before the thing is delivered to him; if
ART. 1581 only the time for payment of the price has been
fixed, the vendee is entitled to delivery even
The form of sale of large cattle shall be governed by before the price is paid by him.
special laws.
● Special law: Act No. 4117, now found in Sections ART. 1583
511 to 536 of the Revised Administrative Code - Rules governing delivery in installments:
providing for the registration, branding, (1) GR: The buyer is not bound to receive delivery
conveyance, and slaughter of large cattle. of goods in installments. Similarly, a buyer has
● Under Pres. Decree No. 533 (or Anti-Cattle Rustling no right to pay the price in installments.
Law of 1974) - No person, partnership, association, Neither can he be required to make partial
corporation or entity shall engage in the business payments.
of buy and sell of large cattle without first securing
a permit for the said purpose from the Provincial Exceptions: By agreement, however, goods may
Commander of the province where it shall conduct be deliverable by installments or the price
such business and the city/municipal treasurer of payable in installments.
the place of residence. (2) Where separate price has been fixed for each
● Permit shall only be valid in such province. installment: it depends in each case on the terms
● Sale must appear in a public document. of the contract and the circumstances of the
case whether the breach thereof is severable or
not.
(3) Where breach effects whole contract: The injured
party may sue for damages for breach of the entire

ACC GROUP 5
contract if the breach is so material as to affect the any acceptance and there may be acceptance w/o
contract as a whole any receipt.
(4) Where breach divisible: Give rise to a claim for
compensation for the particular breach but not a ART. 1586
right to treat the whole contract broken.
● Acceptance of the goods by the buyer does not
ART. 1584 discharge the seller from liability in damages or
Acceptance: assent to become owner of the specific other legal remedy for breach of any promise or
goods when delivery of them is offered to the buyer. warranty in the contract of sale
● Requires buyer, in order to hold the seller for
1. Actual delivery contemplated breach of promise or warranty, to give notice to
- Ownership of the goods shall be transferred only the seller of any such breach within a reasonable
upon actual delivery subject to a reasonable
time
opportunity of examining them to determine if
they are in conformity with the contract ● Purpose is to protect the seller against belated
- Right of examination or inspection is thus a claims
condition precedent to the transfer of ownership
unless there is a stipulation to the contrary ART. 1587
2. Goods delivered C.O.D/ not C.O.D
- C.O.D, buyer has the right to examine the goods Where buyer’s refusal to accept justified
before paying. Right to examine the goods is a
condition precedent to paying price after ownership has 1) Duty of the buyer to take care of goods w/o
passed
- C.O.D sale, the buyer is allowed to examine the obligation to return – If the goods have been sent
goods before payment of the price should it have to the buyer and he rightfully refuses to accept
been so agreed upon or if it permitted by usage them, as in the case where the goods are not of
the kind and quality agreed upon, he is in the
NOTE position of a bailee who is in possession of the
goods thrust upon him w/o his assent.
● Buyer does not have absolute right of examination
since the seller is bound to afford the buyer a 2) Duty of seller to take delivery of goods: After
reasonable opportunity of examining the goods notice that goods have not and will not be
only “on request” accepted, the seller must have the burden of
● If seller refused to allow inspection, to ascertain taking delivery of the said goods.
whether they are in conformity with the contract, 3) Seller’s risk of loss: While the goods remain in the
the buyers may rescind the contract and recover
the price or any part of it that he has paid buyer’s possession under these circumstances,
● Right of inspection may be given up by the buyer they are, of course at seller’s risk. But the buyer is
by stipulation not deemed and is not liable as a depositary,
unless he voluntarily constitutes himself as such.
ART. 1585 4) Right of buyer to resell goods: Should the seller
Modes of manifesting acceptance when notified to take delivery of the goods, fail to
1. Express acceptance takes place when the buyer do so; the buyer may resell the goods.
after delivery of the goods intimates to the seller,
verbally or in writing, that he has accepted them. ART. 1588
2. Implied acceptance takes place:
a. When the buyer, after the delivery of goods, Under this article, the buyer’s refusal to accept the goods
does any act inconsistent with the seller’s is w/o a just cause while under Art 1587, the refusal is with
ownership, as when he sells or attempts to a right to do so.
sell the goods, or he uses or make alteration
ART. 1589
in them in a manner only for an owner;
b. When the buyer, after the lapse of a
NOTE
reasonable time without intimating his
rejection. ● This article presupposes that the delivery of the
thing sold and the payment of the price were not
Delivery and acceptance, separate acts made simultaneously but the thing sold was
a. Acceptance, not a condition to complete delivery delivered first followed by the payment of the price
– The seller must comply with his obligation to after the lapse of a certain period of time.
deliver although there is no acceptance yet by the ● Vendee is liable to pay interest from the delivery of
buyer the thing until payment of the price
● Fruits or income received by the vendee from thing
b. Acceptance and actual receipt do not imply the
sold, two conditions must exist:
other – Acceptance of the buyer may precede
actual delivery. There may be an actual receipt w/o

ACC GROUP 5
a) Thing sold has been delivered ● Once a demand for rescission by suit or notarial
b) It produces fruits or income. act is made however, under Art 1592, the court
may not grant a new term
If the vendee would not be bound to pay interest for the
use of the money, which he should have paid, the
principle of bilaterality which characterize a contact of Art 1592 does not apply on: a. To sales on installments of
sale would no longer exist
real property; b. A mere promise to sell (executory contract
● If the vendee incurs in delay in the payment of the to sell) where the title remains with the vendor until full
agreed price, the interest is due from the time of payment of the price. In other words, the vendee in such
judicial or extrajudicial demand by the vendor for cases may no longer pay the price after the expiration of
the payment of the price. the time agreed upon although no demand has yet been
made upon him by suit or notarial act.
ART. 1590
ART. 1593
When vendee can suspend payment of the price:
1) If he is disturbed in the possession or ownership
of the thing bought ● In the case of personal property (which has not yet
2) If he has a well-grounded fear that his possession been delivered to the vendee), the vendor can
or ownership would be disturbed by a vindicatory rescind the contract, as a matter of right, if the
action or foreclosure of mortgage vendee, without any valid cause, does not: a.
Note: Under Art 1590, the vendee has no cause of action accept delivery; or b. pay the price unless credit
for rescission before final judgment, the reason being period for its payment is stipulated.
that otherwise, the vendor might become the victim of ● The mere failure of the vendee to comply with the
collision (ie., secret agreement or cooperation for a terms of the contract, however, does not rescind
fraudulent purpose) between the vendee and the third the same. It is necessary that the vendor should take
person. But the remedy of the buyer is rescission, not some affirmative action indicating his intention to
suspension of payment, where the disturbance is caused rescind.
by the existence of non-payment servitude. ● Reason for the difference is that personal
properties are not capable of maintaining a stable
ART. 1591 price in the market. Their prices are so changeable
that any delay in their disposal cause the vendor
NOTE
great prejudice
● This article refers only to a sale of real property
● In the case of real property which has more or less
where vendor has good reasons to fear the loss of
stable price in the market and the delay that might
the property and its price.
result form the requirement imposed on the
● It contemplates a situation where there has been
vendor to demand rescission before being entitled
delivery of the immovable property but the vendee
to rescind the contract will not in any way prove
has not yet paid the price.
detrimental to the interest of the vendor.
● It is applicable to both cash sales and to sales in
installments
ART. 1592
● GR: the vendor may sue for rescission of the
contract should vendee fail to pay the agreed
price
● The sale of real property, however, is subject to
the stipulations agreed upon by the parties and to
the provisions of Art 1592.
● Before the demand of the rescission of the
contract (not payment of the price) has been
made by the vendor, the vendee may still pay the
price even after the expiration of the stipulated
period for payment and notwithstanding a
stipulation that failure to pay the price on the
stipulated date ipso facto resolves the sale
● Right to rescind is not absolute and the court may
extend the period for payment

Obligations and Contracts Notes

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AEC 55 : LAW ON OBLIGATIONS AND CONTRACTS

1. General Sense – The mass of obligatory rules

Characteristics of the Law

b. Natural Law – The divine inspiration in 1. Constitution – It is often referred to as the

| Balandra | Escolania | Jagunos | Manayaga | Padilla | Sumagang |

6. Other Sources – Principles of justice and equity, Classifications of Law

❖ Rights and duties are useless unless they can be

| Balandra | Escolania | Jagunos | Manayaga | Padilla | Sumagang |

3. The Civil Code of the Philippines – based mainly on CHAPTER 1

| Balandra | Escolania | Jagunos | Manayaga | Padilla | Sumagang |

TERMS DISTINGUISHED ● Non-compliance by a party with legitimate

Sources of Obligation 2. Criminal liability without civil liability

| Balandra | Escolania | Jagunos | Manayaga | Padilla | Sumagang |

2. Damages where both parties are mutually

Criminal and civil liabilities Civil liability

Waiver of action for future fraud void Not a source of obligation

Independence of contract &

generosity and magnanimity on the part of the

| Balandra | Escolania | Jagunos | Manayaga | Padilla | Sumagang |

| Balandra | Escolania | Jagunos | Manayaga | Padilla | Sumagang |

| Balandra | Escolania | Jagunos | Manayaga | Padilla | Sumagang |

Nature and Effects of Obligations Kinds of Fruits (ART. 1164.)

Specific or determinate thing ● Natural Fruits

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Remedies in case of non-performance ❖ Characteristics of a condition

Section 1. — Pure and Conditional Obligations Fulfilled = arise Fulfilled = extinguish

Condition - is a future and uncertain event. The

| Balandra | Escolania | Jagunos | Manayaga | Padilla | Sumagang |

CASUAL The condition depends upon chance or

Constructive fulfillment of resolutory -Obligation is valid

| Balandra | Escolania | Jagunos | Manayaga | Padilla | Sumagang |

ART. 1189 (CONDITION) & ART. 1194 (PERIOD)

ART. 1188 Effects of fulfillment of resolutory condition

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ART. 1191 - The other party must be given an opportunity to

| Balandra | Escolania | Jagunos | Manayaga | Padilla | Sumagang |

ART. 1193 according to EFFECT

Period and condition distinguished. according to SOURCE

3. As to influence on the obligation. according to DEFINITENESS

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- If the obligation does not fix a period but it can be

ART. 1196 ART. 1198

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1. Lost through a fortuitous event

Effect when only one presentation is practicable Effect of loss

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Conventional Is agreed upon by the parties.

o Characteristics: unity of object and plurality of

| Balandra | Escolania | Jagunos | Manayaga | Padilla | Sumagang |

Indivisibility Solidarity ART. 1215

| Balandra | Escolania | Jagunos | Manayaga | Padilla | Sumagang |

Section 5. — Divisible and Indivisible Obligations

ART. 1224 Purpose of penal clause

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Punitive penal When the penalty is imposed merely ART. 1230

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- The payer can recover from the debtor only in so

ART. 1234 Right of third person to subrogation