Oblicon Tolentino

OBLIGATIONS AND CONTRACTS • Not a thing but a particular conduct of the debtor.
• Giving, doing, or not doing something.

TITLE I: OBLIGATIONS o “to give” – delivery of movable or immovable thing.
o “to do” – all kinds of works and services.
o “not to do” – abstaining from some act.
CHAPTER 1: GENERAL PROVISIONS
Art. 1156. An obligation is a juridical necessity to give, to do or not to do. (n) REQUISITES OF A PRESTATION:
1. It must be possible, physically and juridically.
OBLIGATION 2. It must be determinate, or at least, determinable
3. It must have a possible equivalent in money.
➢ Definitions
• The juridical relation, created by virtue of certain facts, between two
or more persons, whereby one of them, known as the creditor or ➢ Efficient Cause
oblige, may demand of the other, known as the debtor or obligor, a • Juridical tie or vinculum which may be a relation established by:
definite prestation (De Diego and Ruggiero). 1. Law (husband and wife)
• An obligation is a juridical tie between two persons, by virtue of which 2. Bilateral Acts (contracts)
one of them, the creditor, has the right to demand of the other, the 3. Unilateral Acts (crimes and quasi-delicts)
debtor, a definite prestation (Brugi).
• It is the legal relation established between one party and another CIVIL OBLIGATIONS NATURAL OBLIGATIONS
whereby the latter is bound to the fulfillment of a prestation which the
Give right of action to compel their Cannot be enforced by court
former may demand of him (Manresa).
performance. action but which are binding on the
• A juridical relation whereby a person (called the creditor) may party who makes them, in
demand from another (called the debtor) the observance of a Can be enforced through court conscience and according to
determinate conduct, and, in case of breach, may obtain satisfaction action or coercive power of public equity and justice.
from the assets of the latter (Aries Ramos). authority.
➢ Correlative to the concept of right. Where there is right or power to
demand, there is a correlative obligation. Derive binding force from positive Derive their binding effect from
law. equity and natural justice.
ELEMENTS OF AN OBLIGATION: Art. 1157. Obligations arise from:

1. An active subject (obligee or creditor): has the power to demand the (1) Law;
prestation. (2) Contracts;
2. A passive subject (obligor or debtor): bound to perform the prestation. (3) Quasi-contracts;
3. An object or the prestation (4) Acts or omissions punished by law; and
4. The efficient cause or juridical tie (5) Quasi-delicts. (1089a)
Sources of Obligations
➢ Personal elements:
➢ Planiol: obligations arise wither from contract or from law.
• Active and Passive subjects ➢ Ruggiero: Will of parties and acts of a different nature producing juridical
• May be individual persons or juridical persons. tie.
• Must be determinable. ➢ More scientific classification: law and acts
➢ Object or prestation Unilateral promise can give rise to obligations
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OBLIGATIONS AND CONTRACTS | TOLENTINO SUMMARY | MADZ ONG
➢ Anyone who promises a reward for the realization of an act is obliged to ➢ If the offeror is guilty of fault or negligence – Art 2176 (quasi-delicts).
pay that reward, ➢ No fault or negligence but there was abuse of right – Art 19.
➢ Code contains no provision from which we can attribute any obligatory
force to a unilateral promise before acceptance. Art. 1160. Obligations derived from quasi-contracts shall be subject to the
➢ An offer without acceptance is not binding. provisions of Chapter 1, Title XVII, of this Book. (n)
Art. 1158. Obligations derived from law are not presumed. Only those Quasi-Contract
expressly determined in this Code or in special laws are demandable, and ➢ A juridical relation which arises from certain lawful, voluntary, and
shall be regulated by the precepts of the law which establishes them; and as unilateral acts, to the end that no one may be unjustly enriched or
to what has not been foreseen, by the provisions of this Book. (1090) benefited at the expense of another.
➢ Must be lawful
Agreement Unnecessary ➢ Must be unilateral
Law cannot exist as a source of obligations, unless the acts to which its
principles may be applied exist. But once those acts exist, the obligation Art. 1161. Civil obligations arising from criminal offenses shall be governed by
arising therefrom by virtue of express provisions of the law are entirely the penal laws, subject to the provisions of Article 2177, and of the pertinent
independent of the agreement of the parties. provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII
of this Book, regulating damages. (1092a)
Obligation Not Presumed
Obligations derived from law are not presumed. Only those expressly provided CIVIL LIABILITY FROM CRIMES
for in this Code or in special laws are enforceable.
➢ Every person criminally liable for a felony is also civilly liable (Art 100).
Art. 1159. Obligations arising from contracts have the force of law between the ➢ Oftentimes, commission of a crime causes not only moral evil but also
contracting parties and should be complied with in good faith. (1091a) material damage.
➢ NON-LIABILITY FOR CRIME
Validity of Contract • Article 12 of RPC – The ff. are exempt from criminal liability:
➢ Autonomy of will 1. Imbecile or insane, unless the latter acted during a lucid
➢ Terms should not be contrary to law, morals, good customs, public policy, interval.
or public order. 2. Under 9 years old
3. Over 9 and under 15, unless he acted with discernment
Falsification of Contract 4. Any person who acts under the compulsion of an irresistible
force.
➢ Unauthorized insertion of additional stipulations does not avoid the whole
5. Any person who acts under the impulse of an uncontrollable
contract.
fear of an equal or greater injury.
➢ Still enforceable *THEY ARE NOT EXEMPT FROM CIVIL LIABILITY
➢ Disregard only the additional stipulations. ➢ SUBSIDIARY LIABILITY FOR CRIME
• Inkeepers, tavernkeepers, and any other persons or corporations
Attorney’s Contracts shall be civilly liable for crimes committed in their establishment, in
➢ Different footing from contracts of any other services. all cases where a violation of municipal ordinances or some
➢ The court may ignore the contract and limit recovery to reasonable general or special police regulation have been committed by
compensation if the amount is found by court to be unreasonable. them or their employees.
• Inkeepers are also subsidiarily liable for the restitution of goods
Pre-Contractual Obligations taken by robbery or theft within their houses from guests lodging
➢ Pre-contractual obligations are possible. therein, or for payment of value thereof.
➢ The offeree may incur expenses for trips, testing, plans, and such would • Employers, teachers, persons, and corporations for felonies
be a total loss if the offeror suddenly withdraws his offer. committed by their servants, pupils, workmen, apprentices, or
employees in the discharge of their duties.
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EVIDENCE REQUIRED
EXTENT OF CIVIL LIABILITY ➢ Amount of proof or evidence that is required depends upon the nature of
➢ RPC (Art 104 – Art 111) the proceeding in which the claim is made.
➢ Civil Code (Art 2202, 2204-2206, 2211, 2219, 2220, 2230) • Criminal: proof beyond reasonable doubt
➢ EXTINGUISHMENT OF LIABILITY • Civil Case: preponderance of evidence
• Civil liability for crimes is extinguished by the same causes
provided by the Civil Code for the extinguishment of other EFFECT OF ACQUITTAL
obligations. ➢ It is only when the civil action is based on the very same facts on which
the criminal action which ended in acquittal was based, that the
ENFORCEMENT OF LIABILITY acquittal will bar the civil action.
➢ When a criminal action is instituted, the civil action for recovery of civil
liability arising from the offense charged is impliedly instituted with the Art. 1162. Obligations derived from quasi-delicts shall be governed by the
criminal action, unless offended party expressly reserves this right. provisions of Chapter 2, Title XVII of this Book, and by special laws. (1093a)
➢ SEPARATE CIVIL ACTION
• Criminal and Civil actions arising from the same offense may be CHAPTER 2: NATURE AND EFFECT OF OBLIGATIONS
instituted separately, but after the criminal action has been
commenced the civil action cannot be instituted until final CONCEPT OF QUASI-DELICT
judgment has been rendered in the criminal action, except when ➢ Whoever by act or omission causes damage to another, there being fault
allowed by law. or negligence, is obliged to pay for the damage done.
➢ WRIT OF ATTACHMENT ➢ DISTINCT FROM CRIME
• In earlier decisions, the SC held that a writ of preliminary • An injured party or his heirs has the choice between an action to
attachment cannot be obtained against the properties of the enforce civil liability arising from crime under Article 100 of the
accused by the offended party, because there is no rule in the RPC and an action for quasi-delict under Articles 2176-2194 of the
laws of criminal procedure which permits it, and the rules on Civil Code.
attachment in the Code of Civil Procedure were applicable only • No need to make a reservation to file a civil action in the criminal
to civil actions. case, as the civil action is based on culpa aquiliana (tort).
o No logical reason for this conclusion. ➢ BASIS OF LIABILITY
• Upon the filing of a criminal action, there is impliedly filed also a • Principle of equity: fault or negligence cannot prejudice anyone
civil action. else besides its author.
• Namit and Moreno cases granted a writ of preliminary ➢ FAULT OR NEGLIGENCE
attachment in an estafa case. • Negligence is merely the want of care required by the
➢ NO CRIMINAL PROCEEDINGS circumstances. It is relative or comparative, and not an absolute
• A civil action may be validly instituted, without the necessity of first term.
instituting the criminal action. ➢ TEST OF NEGLIGENCE
➢ INDEPENDENT CIVIL ACTION (Art 31-34) • ELEMENTS:
• Cases in which the civil action arising from a criminal act is entirely 1. A duty on the part of the defendant to protect the plaintiff
independent of the criminal action. Hence, the civil action may from the injury of which the latter complains
be filed separately without any reservation in the criminal action. 2. Failure to perform that duty
1. Obligations not arising from the act or omission claimed to 3. An injury to the plaintiff through such failure
be criminal
2. Violations of constitutional rights and liberties of individuals • Criterion for determining the existence of negligence:
3. Defamation, fraud, or physical injuries Would a prudent man, in the position of the person to whom
4. Refusal or failure of members of a local police force to negligence is attributed, foresee harm to the person injured as a
render protection to life or property reasonable consequence of the course about to be pursued?
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➢ CULPA AQUILIANA VS CULPA CONTRACTUAL • Such adequate and efficient cause as, in the natural order of
events, and under the particular circumstances surrounding the
CULPA AQUILIANA CULPA CONTRACTUAL case, could necessarily produce the event.
Negligence as a source of Negligence in the performance of a
obligation contract. LIABILITY FOR FAULT OF OTHERS
Governed by Art 2176-2194 Governed by Art 1179 et sequel ➢ The obligation arising from quasi-delict is demandable not only for one’s
and other provisions relative to own acts or omissions, but also those of persons for whom one is
contracts responsible.
Quasi-delict • Father and mother – minor
• Guardians – minor
➢ NEGLIGENCE VS DOLO • Owners and managers of an establishment – employees
• Employers – employees and household helpers
FRAUD/DOLO NEGLIGENCE/CULPA • State – special agent
Involves willfulness or deliberate Mere want of care or diligence • Teachers or heads of establishment or arts and trades – students
intent to cause damage or injury to ➢ DILIGENCE OF EMPLOYERS
another QUASI-DELICT CRIME
Liability of employer is primary Liability of employer is subsidiary
➢ NEGLIGENCE VS CRIME Employer can avoid liability by Liability is absolute and cannot be
proving that he exercised the avoided by proof of such
QUASI-DELICT CRIME diligence of a good father of a diligence
Nature of the Private right - wrong Public right – wrong against family to prevent damage
right violated against the individual the state All employers are liable Employer is only liable when he is
Condition of Criminal intent is not Criminal intent is necessary engaged in some kind of business
the mind necessary or industry.
Legal basis of Any act or omission An act can be punished as a
liability wherein fault or crime only when there is a CHAPTER 2: NATURE AND EFFECT OF OBLIGATIONS
negligence intervenes. penal law punishing it.
Liability for Every quasi-delict gives There are crimes from which PRESTATIONS IN OBLIGATIONS
damages rise to liability for no civil liability arises. 1. To give
damages. a. A specific or determinate object or thing
b. An indeterminate or generic thing
Form of redress Reparation; Fine or imprisonment;
2. To do
Compensation or Punishment
3. Not to do
indemnification
Compromise Can be compromised Can never be compromised
DELIVERY OF GENERIC OBJECTS
➢ A generic thing is one that is indicated only by its kinds.
REQUISITES OF LIABILITY
➢ In the obligation to deliver a generic thing, the object due is
1. That there exists a wrongful act or omission imputable to the defendant by
determinable; the moment it is delivered, it becomes determinate.
reason of his fault or negligence
2. There exists a damage or injury, which must be proven by the person
DELIVERT OF DETERMINATE THING
claiming recovery
➢ One that is individualized and can be identified or distinguished from
3. There must be a direct causal connection or a relation of cause and effect
others of its kind.
between the fault or negligence and the damage or injury, or that the
➢ 3 incidental or accessory obligations:
fault or negligence be the cause of the damage or injury.
1. The obligation to preserve the thing with due care
2. The obligation to deliver the fruits
➢ DOCTRINE OF PROXIMATE CAUSE
3. The obligation to deliver the accessions and accessories
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If the thing is indeterminate or generic, he may ask that the obligation be
Art. 1163. Every person obliged to give something is also obliged to take care complied with at the expense of the debtor.
of it with the proper diligence of a good father of a family, unless the law or the
stipulation of the parties requires another standard of care. (1094a) If the obligor delays, or has promised to deliver the same thing to two or more
persons who do not have the same interest, he shall be responsible for any
REASON FOR PROVISION fortuitous event until he has effected the delivery. (1096)
➢ The obligation to deliver a thing would be illusory if the debtor were not
also obliged to preserve it. REMEDIES OF CREDITOR
1. Specific Performance
DILIGENCE REQUIRED 2. Rescind or resolve the obligation
➢ Diligence of a good father of a family (1173) 3. Damages, exclusively or in addition to either of the first actions
EFFECT OF BREACH ➢ SPECIFIC PERFORMANCE

➢ Liability for damages • Whether the object of the obligation is determinate or generic,
➢ Exception: fortuitous events or force majeure the creditor has the right to ask that the same be performed.
Art. 1164. The creditor has a right to the fruits of the thing from the time the IMPRISONMENT FOR DEBT
obligation to deliver it arises. However, he shall acquire no real right over it ➢ Under the Constitution, no person shall be imprisoned for debt.
until the same has been delivered to him. (1095) ➢ This is without prejudice to subsidiary imprisonment for non-payment of
civil liability imposed in a criminal case or as punishment for contempt.
RIGHT TO FRUITS
➢ The creditor or obligee, in an obligation to deliver a determinate thing, is Art. 1166. The obligation to give a determinate thing includes that of delivering
entitled to the fruits from the time the obligation to delivery arises. all its accessions and accessories, even though they may not have been
• Law; Quasi-delicts; Quasi-contract; Crimes – Law mentioned. (1097a)
• Suspensive Condition – the moment the condition happens
• Suspensive term – expiration of term MEANING OF ACCESSORIES
• Neither term nor condition – perfection of contract ➢ Those things which, destined for the embellishment, use, or preservation of
another thing of more importance, have for their object the completion of
REAL AND PERSONAL RIGHTS the latter for which they are indispensable or convenient.
➢ Real Right: the power belonging to a person over a specific thing, without
a passive subject individually determined, against whom such right may MEANING OF ACCESSIONS
be personally exercised. ➢ Accessions include everything which is produced by a thing, or which is
➢ Personal Right: The power belonging to one person to demand of incorporated or attached thereto, either naturally or artificially.
another, as a definite passive subject, the fulfillment of a prestation to ➢ Do not include fruits.
give, to do, or not to do.
WHAT TO DELIVER
NEED FOR TRADITION OR DELIVERY ➢ Everything that is attached, naturally or artificially, to the principal thing, as
➢ From the time the obligation to deliver a determinate thing arises, the well as that which serves to complete it, even if not attached to it, must
creditor has only a personal right to the thing itself and to the fruits thereof. be delivered together with it.
➢ The delivery or tradition of a thing constitutes a necessary and
indispensable requisite for the purpose of acquiring the ownership of the CONTRARY INTENT
same by virtue of a contract. ➢ The parties may agree to exclude any accession or accessory of the
thing.
Art. 1165. When what is to be delivered is a determinate thing, the creditor, in
addition to the right granted him by Article 1170, may compel the debtor to Art. 1167. If a person obliged to do something fails to do it, the same shall be
make the delivery. executed at his cost.
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CONCEPT AND NATURE OF DELAY
This same rule shall be observed if he does it in contravention of the tenor of ➢ Delay in the fulfillment of the obligation – synonymous to mora.
the obligation. Furthermore, it may be decreed that what has been poorly ➢ Non-fulfillment with respect to time
done be undone. (1098) ➢ There can only be delay in positive obligations (to do and to give) and not
in negative obligations (not to do and not to give).
PERFORMANCE AT DEBTOR’S COST
➢ When the debtor does not comply with an obligation to do, the creditor is KINDS OF MORA
entitled to have the thing done in a proper manner, by himself or by a 1. Mora solvendi – default on the part of the debtor
third person at the expense of the debtor. 2. Mora accipiendi – default on the part of the creditor
3. Compensatio morae – default of both parties in reciprocal obligations
PERSONAL COMPULSION
➢ The law does not authorize the imposition of personal force or coercion ➢ MORA SOLVENDI
upon the debtor to comply with his obligation. • Mora on the part of the debtor is delay, contrary to law, in the
➢ Sanction: damages fulfillment of the prestation by reason of a cause imputable to the
former.
INDEMNIFICATION FOR DAMAGES • There is no mora in natural obligations.
➢ The application of this article presupposes that the act can be done by • REQUISITES:
persons other than the debtor. Where only the debtor can do the thing, 1. That the obligation be demandable and liquidated
the only remedy is to recover damages. 2. That the debtor delays performance
3. That the creditor requires performance judicially or
Art. 1168. When the obligation consists in not doing, and the obligor does what extrajudicially
has been forbidden him, it shall also be undone at his expense. (1099a) • NEED FOR DEMAND
o Default generally begins the moment the creditor
DOING PROHIBITED THING demands the performance of the obligation.
➢ Right granted under this article does not exclude the right to indemnity for o Demand may be in any form, provided that it can be
damages. proved.
o WHEN DEFAULT BEGINS
Art. 1169. Those obliged to deliver or to do something incur in delay from the ▪ Where there has been an extra-judicial demand
time the obligee judicially or extrajudicially demands from them the fulfillment before action for performance was filed, the
of their obligation. effects of default arise from the date of such
extra-judicial demand.
However, the demand by the creditor shall not be necessary in order that o NATURE OF DEMAND
delay may exist: ▪ The demand must refer to the prestation that is
(1) When the obligation or the law expressly so declare; or due and not to another.
(2) When from the nature and the circumstances of the obligation it appears • DEMAND NOT REQUIRED
that the designation of the time when the thing is to be delivered or the service o Four cases where demand is not necessary:
is to be rendered was a controlling motive for the establishment of the 1. Where there is an express stipulation to that effect
contract; or 2. Where the law so provides
(3) When demand would be useless, as when the obligor has rendered it 3. When the period is the controlling motive or the
beyond his power to perform. principal inducement for the creation of the
obligation
In reciprocal obligations, neither party incurs in delay if the other does not 4. Where demand would be useless
comply or is not ready to comply in a proper manner with what is incumbent o PERIOD FIXED
upon him. From the moment one of the parties fulfills his obligation, delay by ▪ Intent of parties to constitute the debtor in delay
the other begins. (1100a) upon maturity even without demand must clearly
appear in the agreement.
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• NATURE OF OBLIGATION • In reciprocal obligations, the general rule is that the fulfillment by
o From the nature and circumstances of the obligation, it the parties should be simultaneous. Where both are in default,
appears that the period was the determining motive for their respective liability for damages shall be offset equitably.
the creation of the obligation. CESSATION OF THE EFFECTS OF MORA – benefits of mora may cease
• DEMAND WOULD BE USELESS 1. Renunciation by the creditor – express or implied (grants extension)
o Where performance has become impossible, demand 2. Prescription
would be useless and will not be necessary to constitute
the debtor in delay: Art. 1170. Those who in the performance of their obligations are guilty of fraud,
1. Impossibility is caused by some act or fault of the negligence, or delay, and those who in any manner contravene the tenor
debtor. thereof, are liable for damages. (1101)
2. Impossibility is caused by fortuitous events, but the
debtor has bound himself to be liable in cases of such NON-PERFORMANCE BY FRAUD
events. ➢ Fraud: voluntary execution of a wrongful act, or a willful omission, knowing
• ACKNOWLEDGMENT OF DELAY and intending the effects which naturally and necessarily arise from such
o Debtor will be in default even without demand, when he act or omission.
acknowledges that he has incurred delay. ➢ Presence of deliberate intent
o There must be an express recognition and not merely ➢ BY FAULT OR NEGLIGENCE
requests for extension. • Culpa Contractual (Art 1173): fault or negligence of the debtor as
• EFFECTS OF MORA SOLVENDI an incident in the fulfillment of an existing obligation
1. When it has for its objects a determinate thing, the delay • Culpa Aquiliana: fault or negligence which constitutes an
places the risks of the thing on the debtor independent source of obligation between parties not previously
2. He becomes liable for damages for the delay bound.
➢ MORA ACCIPIENDI ➢ BY DELAY OR OTHER VIOLATIONS
• Delay in the performance based on the omission by the creditor • Every debtor who fails in the performance of his obligation is
of the necessary cooperation, especially acceptance on his part. bound to indemnify for the losses and damages caused thereby.
• REQUISITES:
1. An offer of performance by the debtor who has the required EXCUSE FOR NON-PERFORMANCE
capacity ➢ When the failure of the debtor to perform is due to fortuitous events or
2. The offer must be to comply with the prestation as it should be force majeure, he cannot be held liable for damages unless there is an
performed express agreement to the contrary or the law provides otherwise in
3. The creditor refuses the performance without just cause particular cases.
• EFFECTS OF MORA ACCIPENDI
1. The responsibility of the debtor for the thing is reduced and RECOVERABLE DAMAGES
limited to fraud and gross negligence ➢ Include all damages that a human being may suffer.
2. The debtor is exempted from the risk of loss of the thing which ➢ PAYMENT OF MONEY
automatically pass to the creditor • When obligation consists only in the payment of money, rule (Art
3. All expenses incurred by the debtor for the preservation of the 2209) is that “if the obligation consists only in the payment of a
thing after the mora shall be chargeable to the creditor sum of money, and the debtor incurs in delay, the indemnity for
4. If the obligation bears interest, the debtor does not have to damages, there being no stipulation to the contrary, shall be the
pay the same from the moment of the mora payment of interest agreed upon, and in the absence of
5. The creditor becomes liable for damages stipulation, the legal interest, which is six percent per annum.
6. The debtor may relieve himself of the obligation by • Legal interest is recoverable even if not expressly stated in writing.
consignation of the thing.
➢ COMPENSATIO MORAE Art. 1171. Responsibility arising from fraud is demandable in all obligations.
Any waiver of an action for future fraud is void. (1102a)
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PROHIBITED RENUNCIATION
➢ The renunciation prohibited is that which is made in advance of the fraud. NEGLIGENCE A QUESTION OF FACT
➢ No fixed standard of diligence applicable to each and every obligation. It
Art. 1172. Responsibility arising from negligence in the performance of every depends upon the circumstances of the particular obligation.
kind of obligation is also demandable, but such liability may be regulated by
the courts, according to the circumstances. (1103) Art. 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
KINDS OF CULPA requires the assumption of risk, no person shall be responsible for those events
➢ Culpa Contractual and Culpa Aquiliana which could not be foreseen, or which, though foreseen, were inevitable.
➢ DEFENSE OF EMPLOYER (1105a)
• Liability arising from culpa aquiliana, not involving a breach of an
existing obligation, an employer or master, may exculpate or FORTUITOUS EVENT; FORCE MAJEURE
exempt himself from liability by proving that he had exercised due ➢ An event which takes place by accident and could not have been
diligence. forseen.
• Defense of due diligence is not available in culpa contractual. ➢ 2 General Causes: (1) Nature, (2) Act of man
➢ LIABILITY OF EMPLOYER ➢ Characteristics:
• When the employer is sued jointly with the negligent employee, in 1. Cause of the unforeseen and unexpected occurrence or the failure
cases of culpa contractual, the employee may be held liable of the debtor to comply with his obligation must be independent of
solidarily with the employer. the human will
➢ MITIGATION OF DAMAGES 2. It must be impossible to foresee the event, or if it can be foreseen, it
• In culpa contractual, the court is given discretion to mitigate must be impossible to avoid
liability (Art 1172). 3. The occurrence must be such as to render it impossible for the debtor
to fulfill his obligation in a normal manner
STIPULATION ON LIABILITY FOR NEGLIGENCE 4. The obligor must be free from any participation in the aggravation of
➢ EXEMPTION FROM LIABILITY the injury resulting to the creditor
• 2 kinds: ➢ EFFECT IN GENERAL
1. Party is relieved from the effects of his fault or negligence by • He cannot be held liable for damages or non-performance
a third person ➢ EFFECT OF NEGLIGENCE
2. One party renounces in advance the right to enforce liability • It is necessary that he be free from negligence
arising from the fault or negligence of the other. ➢ EXPRESS STIPULATION
• Stipulations exempting from liability from gross negligence are • Parties may stipulate that the debtor shall be held liable even if
void because such negligence amounts to fraud. performance is rendered impossible by fortuitous event.
➢ ASSUMPTION OF RISK
Art. 1173. The fault or negligence of the obligor consists in the omission of that • One of the exceptions: when the nature of the obligation requires
diligence which is required by the nature of the obligation and corresponds assumption of risk.
with the circumstances of the persons, of the time and of the place. When
negligence shows bad faith, the provisions of Articles 1171 and 2201, ACTS OF CREDITOR
paragraph 2, shall apply. ➢ Debtor is released from liability not only when the non-performance of the
obligation is due to fortuitous event but also when it is due to the act of
If the law or contract does not state the diligence which is to be observed in the creditor himself.
the performance, that which is expected of a good father of a family shall be
required. (1104a) Art. 1175. Usurious transactions shall be governed by special laws. (n)
DEGREE OF DILIGENCE REQUIRED INTEREST: Income produced by money in relation to its amount and to the time
➢ Good father of a family that it cannot be utilized by its owner.
➢ Anyone who uses diligence below this standard is guilty of negligence
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USURY: Contracting for or receiving something in excess of the amount 4. The debtor’s right against the third person must be
allowed by law for the loan or forbearance of money, goods, or chattels. patrimonial, or susceptible of being transformed to
patrimonial value
Art. 1176. The receipt of the principal by the creditor without reservation with • ACCION SUBROGATORIA
respect to the interest, shall give rise to the presumption that said interest has o An action which the creditor may exercise in the place of his
been paid. negligent debtor in order to preserve or recover for the
patrimony of the debtor the product of such action, and then
The receipt of a later installment of a debt without reservation as to prior obtain therefrom the satisfaction of his own credit.
installments, shall likewise raise the presumption that such installments have ➢ PERSONAL RIGHTS OF DEBTOR
been paid. (1110a) • Rights of the debtor which cannot be exercised by the creditor
1. Right to existence
RECEIPT OF PRINCIPAL 2. Rights or relations of public character
➢ Payment of principal shall not be deemed to have been made until the 3. Rights of an honorary character
interests have been covered. 4. Rights consisting of powers which have not been used
5. Non-patrimonial rights
PAYMENT OF TAXES 6. Patrimonial rights not subject to execution
➢ This article is not applicable to payment of taxes because a tax for one 7. Patrimonial rights inherent in the person of the debtor.
year is independent of the taxes for other years. ➢ RESCISSION OF FRAUDULENT ACT
• ACCION PAULIANA
Art. 1177. The creditors, after having pursued the property in possession of the • Set aside or revoke the acts which the debtor may have done to
debtor to satisfy their claims, may exercise all the rights and bring all the defraud them.
actions of the latter for the same purpose, save those which are inherent in his o NEW DEBTS
person; they may also impugn the acts which the debtor may have done to ▪ New debts contracted by the insolvent debtor
defraud them. (1111) are not included because only acts which impair
the assets of the debtor are covered.
RIGHTS OF CREDITORS
1. To levy by attachment and execution upon all the property of the Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are
debtor, except such as are exempt by law from execution transmissible, if there has been no stipulation to the contrary. (1112)
2. To exercise all rights and actions of the debtor except such as are
inherently personal to him ARTICLE APPLIED
3. To ask for the rescission of the contracts made by the creditor in fraud ➢ When there is no stipulation with regard to the assignment of an
of their rights. obligation, all rights acquired by virtue of an obligation are transmissible in
accordance with law.
➢ LIABILITY OF DEBTOR’S PROPERTY
• Property of debtor is subject to liability for his obligations CHAPTER 3: DIFFERENT KINDS OF OBLIGATIONS
➢ EXERCISE OF DEBTOR’S RIGHTS
• REQUISITES: CLASSIFICATION OF OBLIGATIONS:
1. Creditor has an interest in the right or action not only because
of his credit but because of the insolvency of the debtor CIVIL CODE:
2. Malicious or negligent inaction of the debtor in the exercise of 1. Pure
his right or action of such seriousness as to endanger the 2. Conditional
claim of the creditor 3. With a term
3. The credit of the debtor against a third person is certain, 4. Alternative
demandable, and liquidated 5. Joint or mancommunada
6. Solidary or several or in solidum
7. Divisible
9
8. Indivisible ➢ A demand note is strictly a pure obligation.
9. With a penal clause ➢ When the period originally given has been cancelled or non-fulfillment of
a condition resolves the period stipulated, the obligation must be
OTHER CLASSES OF OBLIGATIONS: considered as pure.
1. Unilateral and bilateral
2. Determinate and generic CONDITIONAL OBLIGATIONS
3. Legal, conventional, and penal ➢ One which is subject to a condition.
➢ Condition:
• Every future and uncertain event upon which an obligation or
provision is made to depend.
• Natural • Futurity and uncertainty must concur as characteristics of the event.
• Civil ➢ Condition must be imposed by will of the parties and not be a necessary
• Mixed legal requisite (e.g. Donation propter nuptias upon marriage)
➢ PAST EVENTS
• Must be unknown to the parties.
• The uncertainty in such case exists only in the minds of the parties and
• Unilateral and Bilateral
not in reality.
• Simple or Individual
• What can be a condition is the future knowledge or proof of a past
SANCHEZ • Multiple or collective
event unknown to the parties, but not the event itself.
ROMAN’S • Proof of an unknown past event may, by the will of the parties, be
CLASSIFICATION established as a condition.
OF • Simple and compound or multiple
OBLIGATIONS • Positive and Negative
• Real and Personal CLASSIFICATION OF CONDITIONS:
• Possible and Impossible
• Divisible and Indivisible ACCORDING TO WHEN IT GIVES RISE TO AN OBLIGATION:
• Principal and Accessory 1. SUSPENSIVE: happening of which, gives rise to an obligation
2. RESOLUTORY: happening of which, extinguishes rights already existing.
ACCORDING TO WHAT GIVES RISE TO THE OBLIGATION:

• Pure
1. POTESTATIVE: depends upon the will of the party
• Conditional
2. CASUAL: upon chance
• With a term
3. MIXED: partly upon chance and partly upon the will
ACCORDING TO NATURE:
SECTION 1: PURE AND CONDITIONAL OBLIGATIONS 1. DIVISIBLE: Can be performed in parts
2. INDIVISIBLE: cannot be performed in parts
ARTICLE 1179. Every obligation whose performance does not depend upon a
future or uncertain event, or upon a past event unknown to the parties, is ACCORDING TO PLURALITY OF CONDITIONS:
demandable at once. Every obligation which contains a resolutory condition 1. CONJUNCTIVE: All
shall also be demandable, without prejudice to the effects of the happening of 2. ALTERNATIVE: only one
the event. (1113)
ACCORDING TO ACT OR OMMISSION:
PURE OBLIGATIONS 1. POSITIVE: act
➢ Contains no term or condition. 2. NEGATIVE: ommission
➢ It is immediately demandable and there is nothing to exempt the debtor
from compliance therewith. ACCORDING TO WHETHER STATED OR INFERRED:
10
1. EXPRESS
2. IMPLIED ARTICLE 1182. When the fulfillment of the condition depends upon the sole will
of the debtor, the conditional obligation shall be void. If it depends upon
ACCORDING TO WHETHER THEY CAN BE FULFILLED OR NOT: chance or upon the will of a third person, the obligation shall take effect in
1. POSSIBLE conformity with the provisions of this Code. (1115)
2. IMPOSSIBLE
DEFINITIONS:
INDIVISIBILITY OF CONDITIONS ➢ Potestative Condition: depends upon the will of one of the contractive
➢ Fulfillment of conditions is indivisible, even when the object of the parties.
condition is a divisible thing. Hence, partial fulfillment does not give rise to ➢ Casual Condition: depends exclusively by chance, and not upon the will
the existence of part of the obligation. of the contracting parties.
➢ By the very nature of the condition, by stipulation, or by law, it may be ➢ Mixed Condition: depends upon the will of one of the contracting parties
divisible. and other circumstances, including the will of a third person.
PLURALITY OF CONDITIONS KINDS OF POTESTATIVE CONDITION:

➢ If several conditions are imposed for the same obligation, the necessity of 1. Simple potestative:
complying with all or one depends upon the intention of the parties. • presupposes not only a manifestation of will but also the realization of
➢ Alternatively or disjunctively: one is sufficient. an external act.
➢ Conjunctively: all must be complied with. • On the part of the debtor, does not prevent formation of a valid
obligation.
ARTICLE 1180. When the debtor binds himself to pay when his means permit 2. Purely potestative:
him to do so, the obligation shall be deemed to be one with a period, subject • depends solely and exclusively upon the will.
to the provisions of article 1197. (n) • Destroys efficacy of the legal tie.
COURT TO FIX PERIOD EFFECT POTESTATIVE CONDITION:

➢ Creditor should file an action to fix a period for the payment of the ➢ When it depends on the exclusive will of the debtor, it is VOID (not only the
obligation. condition but the whole obligation).
➢ Immediate action to enforce without a period previously fixed by court ➢ When it depends on the exclusive will of the creditor, it is VALID.
would be premature. ➢ Applicable only when the condition is suspensive, and cannot apply to
resolutory conditions.
ARTICLE 1181. In conditional obligations, the acquisition of rights, as well as the ➢ A condition that is both potestative and resolutory may be valid even if it
extinguishment or loss of those already acquired, shall depend upon the depends upon the exclusive will of the obligor.
happening of the event which constitutes the condition. (1114)
MIXED CONDITIONS
SUSPENSIVE AND RESOLUTORY CONDITIONS ➢ depends not only upon the will of the debtor, but also upon chance or
➢ SUSPENSIVE: the will of others.
• obligation arises: if condition does not happen, obligations does not ➢ Valid
come into existence.
• Condition precedent or antecedent. ARTICLE 1183. Impossible conditions, those contrary to good customs or public
➢ RESOLUTORY: policy and those prohibited by law shall annul the obligation which depends
• extinguishes rights and obligations already existing. upon them. If the obligation is divisible, that part thereof which is not affected
• Subsequent by the impossible or unlawful condition shall be valid.
➢ CONDITION DOES NOT HAPPEN:
• Suspensive: conditional creditor loses all hope of becoming a real The condition not to do an impossible thing shall be considered as not having
creditor. been agreed upon. (1116a)
• Resolutory: creditor's rights become absolute.
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IMPOSSIBLE CONDITIONS ➢ 2nd paragraph of art 1185 is applicable.
➢ May be physical or juridical. ➢ Intention of parties is controlling.
➢ PHYSICAL: contrary to the law of nature
➢ JURIDICAL: contrary to law, morals, good customs, and public policy. ARTICLE 1185. The condition that some event will not happen at a determinate
When it restricts essential rights. time shall render the obligation effective from the moment the time indicated
➢ ILLICIT CONDITIONS has elapsed, or if it has become evident that the event cannot occur. If no
• For a condition to be considered illicit, it must consist of an act or a time has been fixed, the condition shall be deemed fulfilled at such time as
fact. may have probably been contemplated, bearing in mind the nature of the
• Illicit character is determined by its effects upon one of the parties. obligation. (1118)
Intention of the party imposing the condition must be considered.
ARTICLE 1186. The condition shall be deemed fulfilled when the obligor
REASON BEHIND THE LAW voluntarily prevents its fulfillment. (1119)
➢ One who promises something under a condition that is impossible or illicit
knows that it cannot be fulfilled, and, manifests that he does not intend to CONSTRUCTIVE FULFILLMENT
be bound. ➢ Debtor may in some way prevent the condition from happening.
➢ Intention without actually preventing fulfillment is not sufficient.
SCOPE OF THE LAW ➢ 2 REQUSITES:
➢ condition must be positive and suspensive. 1. Intent of obligor to prevent fulfillment of condition
➢ If the illicit condition is negative, it is considered as not written and the 2. Actual prevention of compliance
obligation is converted into a pure and simple one. ➢ INTENT TO PREVENT COMPLIANCE: intent of debtor to prevent fulfillment is
essential. Any act imputable to the debtor, whether done with or without
TIME OF IMPOSSIBILITY fraud or malice will suffice.
➢ must exist at the time of the creation of the obligation. • In Exercise of Right
➢ A supervening impossibility does not affect the existence of the obligation. o If in preventing the fulfillment of the condition the debtor acts
➢ If the condition was impossible when the obligation was constituted, the pursuant to a right, the condition will not be deemed as fulfilled.
obligation remains void even if such condition subsequently becomes ➢ ACTUAL PREVENTION OF COMPLIANCE: There is constructive fulfillment of
possible. the condition only if the act of the debtor had in fact prevented
compliance with the condition.
ILLOGICAL CONDITIONS
➢ Similar effect as to an impossible condition. PROVOKING RESOLUTORY CONDITION
➢ When a condition is resolutory but not dependent on the will of the
DIVISIBLE OBLIGATIONS debtor, and he unjustifiably provokes or produces the condition, which
➢ When an obligation is divisible, that part which is not affected by the would not have happened without his doing so, it will be considered as
impossible or unlawful condition shall be valid. not having been fulfilled, and there will be no extinguishment of rights.
➢ Debtor cannot be excused from compliance by the occurrence of an
NEGATIVE IMPOSSIBLE CONDITION event which he himself brought about, unless such possibility is permitted
➢ Condition not to do an impossible thing shall be considered as not having in the contract.
been agreed upon: should be understood to include all negative
impossible conditions. ARTICLE 1187. The effects of a conditional obligation to give, once the
➢ Obligation is a simple one. condition has been fulfilled, shall retroact to the day of the constitution of the
obligation. Nevertheless, when the obligation imposes reciprocal prestations
ARTICLE 1184. The condition that some event happen at a determinate time upon the parties, the fruits and interests during the pendency of the condition
shall extinguish the obligation as soon as the time expires or if it has become shall be deemed to have been mutually compensated. If the obligation is
indubitable that the event will not take place. (1117) unilateral, the debtor shall appropriate the fruits and interests received, unless
from the nature and circumstances of the obligation it should be inferred that
WHERE NO PERIOD STATED the intention of the person constituting the same was different.
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• Right to the fruits is not within the principle of retroactivity.
In obligations to do and not to do, the courts shall determine, in each case, • Obligation is reciprocal: fruits and interests pending happening of the
the retroactive effect of the condition that has been complied with. (1120) condition are deemed to mutually compensate each other.
• Obligation is unilateral: fruits received by debtor before the
RETROACTIVITY OF OBLIGATION happening of the condition, are kept by him.
➢ Between the moment of creation of the conditional obligation and the • These rues must yield to the contrary intent of the parties.
fulfillment of the suspensive condition: creditor cannot enforce obligation
as his right during that period is a mere expectancy. OBLIGATIONS TO DO, NOT TO DO
➢ The moment the suspensive condition happens, the obligation becomes ➢ Courts shall determine the retroactive effect of the fulfillment of the
effective and enforceable. The effects shall retroact to the moment when condition.
such obligation was constituted or created. • To what date retroactivity shall be allowed
➢ REASON: Condition is only an accidental, and not an essential element of • It may even refuse to permit retroactivity.
the obligation.
➢ CONTRACTS OF DEBTOR ARTICLE 1188. The creditor may, before the fulfillment of the condition, bring
• Delivery of a determinate thing: debtor cannot, before the the appropriate actions for the preservation of his right.
happening of the suspensive condition, make contracts disposing of
or alienation or encumbering the thing. Creditor retains a superior The debtor may recover what during the same time he has paid by mistake in
right. case of a suspensive condition. (1121a)
• NOTE: under our law tradition – delivery transfers ownership or real
rights over the thing. PRESERVATION OF CREDITOR’S RIGHTS:
o A 3rd person in good faith, who the debtor has made a contract ➢ Creditor only has an expectancy and cannot compel the debtor to
pendent conditione, and the thing has been delivered to him, perform. Acts or events may take place which might render his right
the happening of the suspensive condition will not defeat his illusory when the condition happens. Hence, the law allows him to take
right of ownership. appropriate steps or bring proper actions for the preservation of his right.
o 3rd person: in bad faith, cannot invoke protection. • Actions for the preservation of the creditor’s rights may have for their
➢ CONTRACTS OF CREDITOR objects:
• If a creditor, before the happening of the condition, has already 1. To prevent the loss or deterioration of the things which are the
disposed of his expected right (e.g. mortgage over property), the objects of the obligation by enjoining or restraining acts of
happening of the suspensive condition makes effective the act alienation or destruction by the debtor or third persons.
performed pendent conditione. 2. To prevent concealment of the debtor’s properties which
➢ INCREASE IN VALUE constitute the guaranty in case of non-performance of the
• Increase in value before the happening of the suspensive condition, obligation.
inured to the benefit of the creditor. 3. To demand security if the debtor becomes insolvent.
4. To compel the acknowledgement of the debtor’s signature on a
LIMITS ON RETROACTIVITY: Application of the principle of retroactivity of private document or the execution of the proper public
conditional obligations is not absolute. document for registration so as to affect third persons.
➢ ACTS OF ADMINISTRATION 5. To register the deeds of sale or mortgages evidencing the
• Acts of administration performed by the debtor before the happening contract.
of the suspensive condition, are not affected by the retroactivity of 6. To set aside fraudulent alienations made by the debtor.
the effects of the obligation. 7. To interrupt the period of prescription, by actions against adverse
• Acts in abuse of right, committed by the debtor in the guise of possessors of the thing which are the objects of the obligation.
administration, should not be allowed to defeat the rights of the ➢ NO PREFERENCE: Does not grant any preference of credit but only allows
creditor. bringing proper action for the preservation of the creditor’s rights.
➢ FRUITS AND INTERESTS
• The law does not require delivery or payment of the fruits or interests PAYMENT BEFORE CONDITION
accruing before the happening of the suspensive condition.
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➢ Second paragraph permits the debtor who paid before happening of the ➢ Applies only to obligations to deliver a determinate or specific thing. It can
condition to recover only when he paid by mistake. have no application to generic objects.
• Accion reivindicatoria: Payment was of a determinate thing and it still ➢ Applies only when the suspensive condition is fulfilled.
exists in the hands of the creditor. ➢ LOSS OF THE THING
• Solutio indebiti: Otherwise • A thing is lost:
➢ If payment was made with knowledge of the condition, there is an implied 1. When it perishes.
waiver of the condition, and whatever has been paid cannot be 2. When it goes out of the commerce of man.
recovered. 3. When it disappears in such a manner that its existence is unknown
➢ If there has been a mistake in payment, and the debtor was ignorant of or it cannot be recovered.
the suspensive condition, subsequent fulfillment of the condition will bar ➢ DETERIORATION OF THING
the recovery of payment. • Reduction or impairment in the substance or value.
➢ No mistake and later on obligation is not fulfilled, debtor will be allowed to • Not imputable to debtor: he is not liable and the creditor must accept
recover. the thing in its impaired condition.
➢ FRUITS FROM THING • If the deterioration is due to the fault of the debtor, then the creditor
• Does not provide for recovery of fruits or interest by the debtor who may demand the thing or ask for rescission, with damages.
has paid before the happening of the condition. ➢ IMPROVEMENT OF THING
• Silence of the law should not bar recovery of fruits or interest by the • Anything added to, incorporated in, or attached to the thing.
debtor. • If caused by nature of the thing: inure to the benefit of the
• Provisions on solution indebiti can be applied (Art 2159). creditor.
o “Whoever in bad faith accepts an undue payment, shall pay • If improvement was at the expense of the debtor: he shall have
legal interest or shall be liable for the fruits received. the same rights as a usufructuary (Art 579 and 580).
o Bad faith: creditor knows that the debtor is paying before the o Can be removed by the debtor without damage to the thing
suspensive condition has happened. due.
o If removal cannot be made without substantial injury to the
ARTICLE 1189. When the conditions have been imposed with the intention of thing due, improvement must be delivered together with the
suspending the efficacy of an obligation to give, the following rules shall be thing to the creditor without the latter paying indemnity.
observed in case of the improvement, loss or deterioration of the thing during o If debtor has caused deteriorations to the thing, which he has
the pendency of the condition: also improved at his expense, then the value of the
improvements maybe set off against the damages for
(1) If the thing is lost without the fault of the debtor, the obligation shall be deterioration.
extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay Art. 1190. When the conditions have for their purpose the extinguishment of an
damages; it is understood that the thing is lost when it perishes, or goes out obligation to give, the parties, upon the fulfillment of said conditions, shall
of commerce, or disappears in such a way that its existence is unknown or return to each other what they have received.
it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment In case of the loss, deterioration or improvement of the thing, the provisions
is to be borne by the creditor; which, with respect to the debtor, are laid down in the preceding article shall
(4) If it deteriorates through the fault of the debtor, the creditor may choose be applied to the party who is bound to return.
between the rescission of the obligation and its fulfillment, with indemnity
for damages in either case; As for the obligations to do and not to do, the provisions of the second
(5) If the thing is improved by its nature, or by time, the improvement shall paragraph of Article 1187 shall be observed as regards the effect of the
inure to the benefit of the creditor; extinguishment of the obligation. (1123)
(6) If it is improved at the expense of the debtor, he shall have no other right
than that granted to the usufructuary. (1122) RESOLUTORY CONDITION HAPPENING
SCOPE OF ARTICLE
14
➢ If the resolutory condition happens, rights are extinguished and the ➢ This article applies only to reciprocal obligations.
obligation is treated as if it did not exist; hence, each party is bound to ➢ RECIPROCAL OBLIGATIONS: those which arise from the same cause, and in
return to the other whatever he has received. which each party is a debtor and a creditor of the other, such that the
➢ RIGHTS OF THIRD PERSONS obligation of one is dependent upon the obligation of the other.
• When a thing has already been delivered, ownership has passed to ➢ TACIT RESOLUTORY CONDITION
the possessor, without prejudice to the effect of the happening of the • Imposed by law – no need for an agreement.
resolutory condition. • When one party performed his part of the contract, the other party
• If it is transferred to a third person, the party entitled to restitution incurs in delay; hence, the party who has performed or is ready and
cannot sue the third person directly because he would no longer be willing to perform may rescind the obligation if the other does not
the owner thereof. This is a personal right which he can enforce only perform or is not ready and willing to perform.
against his creditor. He has no real right that can be enforced against • Power to rescind is given to the injured party. Two options:
third persons in good faith. 1. Demand performance
➢ DETERIORATION, IMPROVEMENT 2. Ask for resolution
• Provisions of Art 1189 shall be applicable. • The party who did not perform is not entitled to insist upon the
➢ FRUITS AND INTERESTS performance of the contract by the defendant or recover damages
• Mutual restitution applies also to fruits and interests. by reason of his own breach.
• In reciprocal restitution, the fruits and interests may be compensated • DECLARATION OF RESCISSION
against each other. o Rescission may take place by the declaration of the injured
• He who receives the fruits has the obligation to pay the expense party.
made by a third person in their production, gathering, and o Rescission is power.
preservation. Expenses incurred shall be deducted from the gross o IF OBLIGATION HAS NOT YET BEEN PERFORMED: extra-judicial
value of the fruits to be returned. declaration of resolution or rescission would suffice.
o IF OBLIGATION HAS ALREADY BEEN PERFORMED BY THE INJURED
PROTECTION OF RIGHTS PARTY: he cannot by his own declaration rescind the contract.
➢ Party entitled to restitution stands in the same position as a creditor in an o If the debtor impugns the declaration of rescission, it shall be
obligation with a suspensive condition, in that he has an expectancy of subject to judicial determination. But if he does not object, such
recovery of the thing. declaration will produce legal effects.
➢ Pending fulfillment, he should be entitled to take the same steps and bring • NOT ABSOLUTE RIGHT
the same actions allowed to the creditor under the first paragraph of o Right to resolve or rescind is not absolute.
Article 1188. o Rescission will not be permitted for such a slight or casual breach
of contract, but only for such breaches as are so substantial and
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in fundamental as to defeat the object of the parties in making the
case one of the obligors should not comply with what is incumbent upon him. agreement.
The injured party may choose between the fulfillment and the rescission of the o Right of the injured party to rescind is subordinate to the rights of
obligation, with the payment of damages in either case. He may also seek a third person to whom bad faith is not imputable.
rescission, even after he has chosen fulfillment, if the latter should become • EFFECTS OF RESCISSION
impossible. o Extinguishes the obligatory relation as if it had never been
created, the extinction having retroactive effect.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period. ➢ ALTERNATIVE REMEDIES
This is understood to be without prejudice to the rights of third persons who TWO REMEDIES OF INJURED PARTY FOR NON-PERFORMANCE BY
have acquired the thing, in accordance with Articles 1385 and 1388 and the THE OTHER OF HIS OBLIGATION IN A RECIPROCAL OBLIGATION:
Mortgage Law. (1124) 1. SPECIFIC PERFORMANCE
2. RESCISSION OF THE CONTRACT
RECIPROCAL OBLIGATIONS
15
• These remedies are alternative; the injured party cannot have both. If the uncertainty consists in whether the day will come or not, the obligation is
• Where he asks for rescission, he cannot at the same time ask for conditional, and it shall be regulated by the rules of the preceding Section.
specific performance. (1125a)
• If the injured party elects to enforce obligation, he will be bound by his
election, and he cannot, after having the contract enforced, ask for CONCEPT OF TERM
its rescission. ➢ A term or period is a space of time which, exerting an influence on
• He cannot ask for partial rescission and partial fulfillment. obligations as a consequence of a juridical act, suspends their
o However, where performance has become impossible, rescission demandability or determines their exinguishment.
with damages is proper though he had sought specific ➢ DISTINGUISHED FROM CONDITION
performance. CONDITION PERIOD
• So long as there has been no judgment declaring rescission, the As to Uncertain event Event that must necessarily
creditor who has asked for it may change his mind and demand fulfillment come.
specific performance and vice versa, unless he has previously As to Gives rise to an obligation or Has no effect upon the
renounced one of these remedies. influence on extinguishes one already existence of obligations,
• DAMAGES RECOVERABLE the existing. but only their
o Those elements of damages which can be admitted are those obligation demandability or
which are compatible with the choice of remedy. performance.
• WAIVER
o Right to rescind reciprocal obligations may be waived by the Does not carry with it any
contracting parties. retroactive effect.
As to time May refer to past event Always refers to the future
EXPRESS RESOLUTORY CONDITION unknown to the parties.
➢ The parties to a bilateral agreement may stipulate that if one of them does As to will of A condition which depends A period left to the
not comply with his obligation, the contract shall be automatically debtor exclusively on the will of the debtor’s will merely
resolved. debtor annuls the empowers the court to fix
obligation. such period.
DISAPPEARANCE OF BASIS OF CONTRACT
➢ The disappearance of the basis of a contract gives rise to a right of ➢ REQUISITES OF PERIOD
resolution in favor of the party prejudiced. 1. Future
2. Certain
Art. 1192. In case both parties have committed a breach of the obligation, the 3. Possible
liability of the first infractor shall be equitably tempered by the courts. If it
cannot be determined which of the parties first violated the contract, the same KINDS OF TERMS
shall be deemed extinguished, and each shall bear his own damages. (n) ➢ Suspensive and Resolutory
• Suspensive: Must lapse before the performance of the obligation
SECTION 2. - Obligations with a Period can be demanded,
• Resolutory: Period after which the performance must be
Art. 1193. Obligations for whose fulfillment a day certain has been fixed, shall terminated.
be demandable only when that day comes. ➢ Legal, Voluntary, or Judicial
• Legal: Period fixed by law
Obligations with a resolutory period take effect at once, but terminate upon • Voluntary: Stipulated by the parties
arrival of the day certain. • Judicial: Allowed by the courts.
➢ Express or Implied
A day certain is understood to be that which must necessarily come, although • Express: Specifically stated
it may not be known when. • Implied/Tacit: As when a person undertakes to do some work
which can be done only during a particular season.
16
➢ An original period or a period of grace ➢ Creditor acted in good faith, he is liable for fruits only in so far as they
➢ Definite or indefinite benefited him.
• Definite: Fixed known date or time ➢ NO RECOVERY
• Indefinite: Event which will necessarily happen but the date of 1. When obligation is reciprocal, and there has been premature
happening is unknown. performance on both sides.
2. When obligation is a loan on which the debtor is bound to pay
EFFECT OF PERIOD interest.
➢ Obligations with a term are demandable only when the day fixed for their 3. When the period is exclusively for the benefit of the creditor, because
performance arrives. the debtor by paying in advance loses nothing.
➢ Period of prescription must also be counted only from such date or
maturity and not from the date of the obligation. BURDEN OF PROOF: Presumed that the debtor knows of the period. He will
➢ SUSPENSION OF PERIOD have the burden of proving ignorance.
• Relieves the parties from the fulfillment of their respective
obligations during that term. PAYMENT WITH KNOWLEDGE OF TERM
➢ If the payment before the period was made voluntarily, with knowledge
EFFECT OF MORATORIUM LAWS of the period, the payment cannot be recovered.
➢ MORATORIUM: Postponement of the fulfillment of an obligation; it is an ➢ Debtor can be considered as having tacitly waived the benefit of the
extension of the period for the performance of the obligation, decreed by term.
statute.
➢ True test of the constitutionality of a moratorium statute lies in the Art. 1196. Whenever in an obligation a period is designated, it is presumed to
determination of the period of suspension of the remedy. It is required that have been established for the benefit of both the creditor and the debtor,
such suspension be definite and reasonable. unless from the tenor of the same or other circumstances it should appear that
the period has been established in favor of one or of the other. (1127)
Art. 1194. In case of loss, deterioration or improvement of the thing before the
arrival of the day certain, the rules in Article 1189 shall be observed. (n) BENEFIT OF TERM
➢ If the term is for the benefit of both parties: creditor cannot demand
Art. 1195. Anything paid or delivered before the arrival of the period, the payment and the debtor cannot make an effective tender and
obligor being unaware of the period or believing that the obligation has consignation of payment
become due and demandable, may be recovered, with the fruits and ➢ If the term is for the benefit of the creditor only: creditor may demand
interests. (1126a) performance at any time, but the debtor cannot compel him to accept
payment before the period expires.
➢ If the term is for the benefit of the debtor only: he may oppose a
OBLIGATION COVERED: Applies only to obligations to give. premature demand for payment, but may validly pay at any time before
the period expires.
EFFECT OF ARRIVAL OF TERM ➢ WAIVER BY CREDITOR
➢ Allows recovery of the thing or money itself, plus the fruits or interests, • Acceptance of the partial payment in the mortgage contract
which must be understood as accruing from the moment of payment to where it was provided that the debtor cannot pay principal
the date of recovery. before the expiration is a waiver by creditor of term.
➢ IN FAVOR OF DEBTOR
RIGHT TO INTERESTS AND FRUITS • A stipulation that the payment is to be made “within” the
➢ This article allows the debtor to recover fruits and interests in all cases stipulated period is for the benefit of the debtor. Hence, although
where he paid under a mistake as to the period. the creditor cannot enforce or demand payment before the
➢ Creditor who accepts payment in bad faith, or with knowledge that the period fixed, the debtor may waive the period and pay in
period has not yet arrived, shall pay interest or shall be liable for fruits advance.
received.
17
Art. 1197. If the obligation does not fix a period, but from its nature and the (1) When after the obligation has been contracted, he becomes insolvent,
circumstances it can be inferred that a period was intended, the courts may unless he gives a guaranty or security for the debt;
fix the duration thereof. (2) When he does not furnish to the creditor the guaranties or securities which
he has promised;
The courts shall also fix the duration of the period when it depends upon the (3) When by his own acts he has impaired said guaranties or securities after
will of the debtor. their establishment, and when through a fortuitous event they disappear,
unless he immediately gives new ones equally satisfactory;
In every case, the courts shall determine such period as may under the (4) When the debtor violates any undertaking, in consideration of which the
circumstances have been probably contemplated by the parties. Once fixed creditor agreed to the period;
by the courts, the period cannot be changed by them. (1128a) (5) When the debtor attempts to abscond. (1129a)
COURT MAY FIX TERM LOSS OF TERM

➢ Whenever a period is fixed, the court does not amend or modify the ➢ In cases provided in this article, the obligation becomes immediately due
obligation concerned, but merely enforces or carries out an implied and demandable even if the period has not yet expired.
stipulation in the contract. ➢ Converted into a pure obligation.
➢ When a decision is rendered conformably with compromise agreement ➢ INSOLVENCY OF DEBTOR
but no time is specified within which the parties should comply with their • It is enough that he is in such state of financial difficulty that he is
commitments, either party may move the court to have a period fixed for unable to pay his debts.
the compliance of their respective commitments. • Insolvency must occur after the obligation is constituted.
➢ e.g. When the debtor promises to pay “little by little,” “when his means • MORATORIUM LAW
permit him to do so,” or “in partial payments.” o Present article does not apply to the extension of the
➢ The court may not fix a term when the obligation expressly states that it is period fixed by moratorium statutes.
payable on demand. o Insolvency of the debtor does not deprive him of the
benefit of the moratorium.
ACTION TO FIX TERM ➢ LOSS OF SECURITIES GIVEN
➢ The only action that can be maintained n obligations falling under this • The disappearance or impairment of the securities given need
article, is an action to ask the court to fix a term within which the obligor not be total when caused by the acts of the debtor.
must comply with his obligation. • If the cause is fortuitous event, there must be total disappearance
➢ Where a term of lease has been left to the will of the lessee, the lessor in order to deprive the debtor of the benefit of the term.
should first bring and action to ask the court to fix the period of the lease, • Disappear=loss
and an action for eviction under such contract of lease is premature.
➢ Fixing of period and ordering of payment cannot be made in the same SECTION 3. - Alternative Obligations
action.
➢ EFFECT OF TERM Art. 1199. A person alternatively bound by different prestations shall
• In fixing the period, the term probably contemplated by the completely perform one of them.
parties should be ascertained. The court cannot arbitrarily fix a
period out of thin air. The creditor cannot be compelled to receive part of one and part of the other
• Once fixed by the court, it becomes part of the contract, and it undertaking. (1131)
cannot be subsequently changed or extended without the
consent of both of the parties. OBLIGATIONS WITH SEVERAL OBJECTS
➢ PRESCRIPTION 1. Conjunctive: Debtor has to perform several prestations; it is extinguished
• The action to fix a term is different from the action to enforce the only by the performance of all of them.
obligation but both are subject to the rules of prescription. 2. Alternative: Several objects being due, the fulfillment of one is sufficient,
determined by the choice of the debtor who generally has the right of
Art. 1198. The debtor shall lose every right to make use of the period: election.
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3. Facultative: Only one thing is due, but the debtor has reserved the right ➢ May be in any form provided that it is sufficient to make the other party
to substitute it with another. know that election has been made.
1. Orally
ALTERNATIVE FACULTATIVE 2. In writing
Loss of one of the things affects the Loss of that which may be given as 3. Tacitly – performance or acceptance
obligation. a substitute does not affect the 4. Other unequivocal means
obligation. ➢ When the debtor, to whom right to choose pertains, performs one of the
The election may be granted to the The election may NEVER be granted prestations with the intent to discharge the obligation, he is released,
creditor. to the creditor. because selection made may be implied in the fact of performance.
The loss of one thing does not The loss of that which is due as the ➢ There is tacit selection by the creditor when he sues for the performance
extinguish the obligation. object of the obligation, will of one of the prestations.
extinguish such obligation. ➢ CREDITOR’S CONSENT: The law does not require the other party to consent
to the choice made by the party entitled to choose. A mere declaration
Art. 1200. The right of choice belongs to the debtor, unless it has been of the choice, communicated to the other party, is sufficient.
expressly granted to the creditor. ➢ PLURALITY OF SUBJECTS
• Various debtors and creditors
The debtor shall have no right to choose those prestations which are o Obligation is joint: consent of all is necessary to make the
impossible, unlawful or which could not have been the object of the selection effective, because none of them can extinguish
obligation. (1132) the entire obligation.
o Obligation is solidary: the choice of one will be binding
ELECTION BY THE DEBTOR personally upon him, but not as to the others.
➢ In alternative obligations, the debtor has the right to choose the method ➢ CONDITION OR TERM: Selection cannot be subjected by a party to a
of meeting the obligation, unless the creditor has expressly reserved that condition or term unless the other party consents thereto.
right to himself.
➢ ELECTION BY OTHERS: Grant to creditor must be EXPRESSED, it cannot be EFFECT OF CHOICE
implied. The choice may also be granted to a third person. ➢ The effect of the notice is to limit the obligation to the object or prestation
selected.
LIMITS ON ELECTION ➢ Obligation is converted into a simple obligation to perform the prestation
➢ Right to choose is INDIVISIBLE. The debtor cannot choose part of one chosen.
prestation and part of another. ➢ Once selection has been communicated, it becomes irrevocable.
➢ Debtor cannot choose UNLAWFUL or IMPOSSIBLE undertakings. ➢ To allow a change after it has been communicated is to expose the latter
• Presence of such does not annul the obligation if there are other to damages arising from the preparations he may make on the
lawful and possible objects. assumption that the prestation selected is the one to be performed.
➢ The debtor cannot select prestations which could not have been the ➢ ERROR AS TO OBLIGATION: When the debtor performs one of the
object of the obligation. prestations, believing that he has a simple obligation (ignorance of the
alternatives and the right to choose), there is no declaration of the
FORM OF ACTION selection nor a binding performance of the obligation. Debtor can
➢ When the debtor has the right to choose, the plaintiff’s action must be in recover.
alternative form: “either object X or Y, at the election of the debtor.”
➢ The judgment must also be in alternative form. DELAY IN MAKING CHOICE
➢ The right to choose is not lost by the mere fact that the party entitled to
Art. 1201. The choice shall produce no effect except from the time it has been choose delays in making his selection.
communicated. (1133) ➢ 2 theories:
• French
NOTICE OF SELECTION o Court shall give the party, entitled to choose, a period in
which to make a choice.
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oIf he does not, the court will make a choice or will give LOSS BY FAULT OF DEBTOR
the right to choose to the other party. ➢ This article applies when the debtor has the right to choose.
• German ➢ If only some of the prestations are rendered impossible, the fault of the
o Right to choose passes automatically to the other party. debtor does not make him liable for damages, because he can still
o This is acceptable under our law. comply with the obligation by performing any of the prestations
o Debtor cannot paralyze the remedy of the creditor by remaining.
refusing to make a selection. He is deemed to have ➢ He will become liable for damages only when ALL the prestations
waived his right to choose. become impossible through his fault.
Art. 1202. The debtor shall lose the right of choice when among the prestations EFFECT OF FORTUITOUS EVENT
whereby he is alternatively bound, only one is practicable. (1134) ➢ If all the prestations become impossible due to fortuitous event, the
obligation is extinguished; the debtor is not liable for damages.
OBLIGATION BECOMES SIMPLE ➢ If one or more of the prestations due become impossible by fortuitous
➢ If all the prestations, except one, are impossible or unlawful, it follows that event, and the last prestation becomes impossible by the fault of the
the debtor can choose and perform only that one. debtor, he will be liable for damages, with the value of the last prestation
➢ The obligation ceases to be alternative and is converted into a simple as the basis.
obligation. ➢ If some of the prestations become impossible by fault of the debtor, and
➢ Impossibility must not be due to the creditor’s acts – Article 1203 shall the remaining prestation became impossible by fortuitous event, there are
apply. two views:
• The obligation is extinguished. Impossibility of the first prestation
WHEN CREDITOR MAY CHOOSE even by fault of debtor, converted the obligation into a simple
➢ This article applies only when the debtor has the right to choose. obligation to perform the remaining prestation. If this in turn
➢ When the creditor is granted the right to choose, article 1205 will apply. becomes impossible by fortuitous event, the obligation is
extinguished. NOTE: This is the better view according to SJP.
Art. 1203. If through the creditor's acts the debtor cannot make a choice • Debtor is liable but the basis of the damages will be the value of
according to the terms of the obligation, the latter may rescind the contract the last prestation which became impossible through his fault. This
with damages. (n) is the more acceptable view.
IMPOSSIBLITY DUE TO CREDITOR Art. 1205. When the choice has been expressly given to the creditor, the
➢ Based on principles of justice. obligation shall cease to be alternative from the day when the selection has
➢ Since one of the prestations had been rendered impossible by the acts of been communicated to the debtor.
the creditor, and the debtor precisely may have wanted to choose that Until then the responsibility of the debtor shall be governed by the following
particular prestation, the latter may: rules:
• Rescind the contract and recover damages (1) If one of the things is lost through a fortuitous event, he shall perform the
• Elect to perform that which remains. obligation by delivering that which the creditor should choose from among
the remainder, or that which remains if only one subsists;
Art. 1204. The creditor shall have a right to indemnity for damages when, (2) If the loss of one of the things occurs through the fault of the debtor, the
through the fault of the debtor, all the things which are alternatively the object creditor may claim any of those subsisting, or the price of that which, through
of the obligation have been lost, or the compliance of the obligation has the fault o f the former, has disappeared, with a right to damages;
become impossible. (3) If all the things are lost through the fault of the debtor, the choice by the
creditor shall fall upon the price of any one of them, also with indemnity for
The indemnity shall be fixed taking as a basis the value of the last thing which damages.
disappeared, or that of the service which last became impossible.
Damages other than the value of the last thing or service may also be The same rules shall be applied to obligations to do or not to do in case one,
awarded. (1135a) some or all of the prestations should become impossible. (1136a)
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SELECTION BY CREDITOR ➢ If the substitute prestation becomes impossible due to the fault or
➢ When creditor has the right to choose, his selection takes effect from the negligence of the debtor, the obligation is not affected, and he cannot
moment it is communicated to the debtor. be held liable for damages.
➢ Selection may be made expressly or tacitly. ➢ What if debtor acted in bad faith? Code Commission thought it better to
leave the courts to decide.
EFFECT OF CREDITOR’S DELAY ➢ Whatever may be the cause of the impossibility of the substitute prestation
➢ When the creditor fails to make a selection in cases where he has the right is immaterial. The option to perform is exclusively dependent upon the will
to choose, the debtor will not incur delay even if there is a definite period. of the debtor, he cannot be compelled to perform it if the principal
➢ There will be default or delay only when the obligation has become a prestation becomes impossible.
simple one. ➢ Therefore, even if he acts with bad faith, he cannot be held liable for
damages, because he could not have been compelled to perform it
Art. 1206. When only one prestation has been agreed upon, but the obligor even it were possible.
may render another in substitution, the obligation is called facultative.
WHEN SUBSTITUTION EFFECTIVE
The loss or deterioration of the thing intended as a substitute, through the ➢ Law does not expressly provide when the substitution of the prestation
negligence of the obligor, does not render him liable. But once the substitution becomes effective and binding upon the debtor.
has been made, the obligor is liable for the loss of the substitute on account of ➢ We believe that the rule with respect to alternative obligations can be
his delay, negligence or fraud. (n) applied by analogy – from the time the debtor communicates to the
creditor that he elects to perform the substitute prestation.
DISTINGUISHED FROM ALTERNATIVE • If the principal prestation thereafter becomes impossible, debtor is
ALTERNATIVE FACULTATIVE not relieved and should still perform the substitute prestation he
As to contents of There are various Only the principal has chosen.
the obligation prestations all of which prestation constitutes the • He will be liable for damages for his delay, neglect or bad faith in
constitute parts of the obligation, the accessory its performance.
obligation. being only a means to
facilitate payment. SECTION 4. - Joint and Solidary Obligations
Creditor must demand
all prestations Creditor can demand only Art. 1207. The concurrence of two or more creditors or of two or more debtors
the principal prestation. in one and the same obligation does not imply that each one of the former
As to nullity Nullity of one prestation Nullity of the principal has a right to demand, or that each one of the latter is bound to render, entire
does not invalidate the invalidates the obligation, compliance with the prestation. There is a solidary liability only when the
obligation. and the creditor cannot obligation expressly so states, or when the law or the nature of the obligation
demand the substitute requires solidarity. (1137a)
even when this is valid.
As to choice The right to choose Only the debtor can Art. 1208. If from the law, or the nature or the wording of the obligations to
may be given to the choose the substitute which the preceding article refers the contrary does not appear, the credit or
creditor. prestation. debt shall be presumed to be divided into as many shares as there are
As to effects of loss Only the impossibility of The impossibility of the creditors or debtors, the credits or debts being considered distinct from one
all the prestations due principal prestation is another, subject to the Rules of Court governing the multiplicity of suits.
without fault of the sufficient to extinguish the (1138a)
debtor extinguishes the obligation, even if the
obligation. substitute is possible. JOINT AND SOLIDARY OBLIGATIONS
JOINT SOLIDARY
LOSS OF SUBSTITUTE • Mancommunada • Mancommunada solidaria
• joint and several
• in solidum
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• juntos o separadamente 5. When the nature of the obligation requires solidarity. (Art 19-22 of the
• joint and several Civil Code)
Each of the debtors is liable only for Each debtor is liable for the entire
a proportionate part of the debt, obligation. DYSJUNCTIVE OBLIGATIONS (A binds himself to pay P100 either to X or to Y)
and each creditor is entitled only to ➢ There are two or more creditors or to or more debtors, but they are named
a proportionate part of the credit. disjunctively. That is, they are named as debtors or creditors in the
Each creditor can recover only his Each creditor may enforce the alternative.
share of the obligation, and each entire obligation, and each debtor ➢ The intention of the parties should prevail, in determining whether the rules
debtor can be made to pay only his may be obliged to pay it in full. on solidarity or those on alternative obligations shall apply.
part. ➢ In case of doubt, solidarity is favored as it is more conducive to the
fulfillment of the obligation.
JOINT CHARACTER PRESUMED
➢ When two persons are liable under a contract or under a judgment and RELATION OF CO-PARTIES
no words appear in a contract or the judgment to make each liable for ➢ Co-creditors or co-debtors may regulate their rights or liabilities in their
the entire obligation, the presumption is that their obligation is joint. internal relations with each other. Thus, they may exclude a division and
➢ Final judgment against several defendants does not specify that they shall provide for sole responsibility, or they may provide for total reimbursement,
pay the amount thereof solidarily, the liability is joint. or for a division into unequal parts.
➢ After judgment has become final, the court has no power to amend it to
convert a defendant’s liability into a solidary obligation. DUAL CHARACTER OF OBLIGATION
➢ EFFECT OF JOINT LIABILITY ➢ The obligation may be joint on the side of the creditors, and solidary on
1. The demand by one creditor upon one debtor, produces the effects the side of the debtors, or vice versa.
of default only with respect to the creditor who demanded and the
debtor on whom the demand was made, but not with respect to Art. 1209. If the division is impossible, the right of the creditors may be
the others. prejudiced only by their collective acts, and the debt can be enforced only
2. The interruption of prescription by the judicial demand of one by proceeding against all the debtors. If one of the latter should be insolvent,
creditor upon a debtor, does not benefit the other creditors nor the others shall not be liable for his share. (1139)
interrupt the prescription as to other debtors.
3. The vices of each obligation arising from the personal defect of a JOINT INDIVISIBLE OBLIGATIONS
particular debtor or creditor does not affect the obligation or rights ➢ Where there are several debtors or creditors, but the prestation is
of others, indivisible, the obligation is joint, unless solidarity has been stipulated.
4. The insolvency of the debtor does not increase the responsibility of ➢ A midway between joint and solidary.
his co-debtors, nor does it authorize a creditor to demand anything ➢ Fulfillment requires the concurrence of all the debtors, although each for
from his co-creditors. his part.
5. The defense of res judicata is not extended from one debtor to ➢ On the side of the creditors, collective action is expressly required for acts
another. which may be prejudicial.
➢ PLURALITY OF CREDITORS
WHEN SOLIDARITY EXISTS • Several creditors and only one debtor: obligation can be
1. When there is an express stipulation in the contract that the performed by delivering the object to all the creditors jointly.
obligation is solidary. • A debtor who delivers the thing to one creditor only, becomes
2. When a charge or condition is imposed upon the heirs or legatees, liable for damages because of non-performance to other
and the testament expressly makes the charge or condition in creditors, unless they have authorized the former to receive the
solidum. payment for all of them.
3. When the law expressly provides for solidarity. • If only one or some of the creditors demand the prestation, the
4. When a solidary responsibility is imposed by final judgment upon debtor may legally refuse to deliver them; he can insist that all the
several defendants. creditors together receive the thing, and if any of them refuses to
22
join the others the debtor may deposit the thing in court by way performance. defining the extent of liability.
of consignation.
• In case of non-performance by the debtor, the obligation to to Art. 1211. Solidarity may exist although the creditors and the debtors may not
pay damages arises. With respect to damages, the prestation be bound in the same manner and by the same periods and conditions.
becomes divisible, each creditor can recover separately his (1140)
proportionate share.
• INTERRUPTION OF PRESCRIPTION KINDS OF SOLIDARITY
o An act which would ordinarily interrupt prescription, ➢ ACTIVE SOLIDARITY
effected by one creditor or against one of the debtors, is • Exists among the creditors.
not valid and has no effect. • Essence consists in the authority of each creditor to claim and
o As long as the obligation is joint, the act of one creditor enforce rights of all, with the resulting obligation of paying every
cannot have any effect as to another creditor. one what belongs to him.
o If a written demand is made by one creditor only, the • There is mutual representation.
debtor cannot pay to him alone; payment must be • Juridical effects:
made to all. 1. Death of a solidary creditor does not transmit the solidarity to
• PLURALITY OF DEBTORS each of his heirs but to all of them taken together.
o Where the plurality of subjects is among the debtors, the 2. Each creditor represents the others in the act of receiving
indivisible obligation can be performed by them only by payment, and in all other acts which tend to secure the credit
acting together. Hence, all must be sued. or make it more advantageous. Hence, if he receives only a
o If any of the debtors is not willing to perform, the partial payment, he must divide it.
prestation is converted into an indemnification for 3. One creditor, does not represent others in such acts as
damages. Creditor can sue the debtors separately for novation, compensation, and remission.
their respective shares. 4. The credit and its benefits are divided equally unless there is
o OBLIGATIONS NOT TO DO an agreement to the contrary.
▪ The indivisibility of the obligation does not imply 5. The debtor may pay to any solidary creditor, but if a judicial
solidary liability; the liability is joint unless otherwise demand is made on him, he must pay only to the plaintiff.
stipulated. 6. Each creditor may renounce his right even against the will of
▪ The obligation not to do, when there are several the debtor.
debtors, is a joint indivisible obligation.
▪ The moment there is partial violation, the ➢ PASSIVE SOLIDARITY
obligation is converted to one for the payment of • Exists among the debtors.
indemnity for damages, and each will be liable • Each debtor can be made to answer for others, with the right on
for his share. the part of the debtor-payor to recover from the others their
respective shares.
Art. 1210. The indivisibility of an obligation does not necessarily give rise to • TERMS AND CONDITIONS
solidarity. Nor does solidarity of itself imply indivisibility. (n) o Legal bonds may be uniform: when the debtors are
bound by the same conditions and clauses.
INDIVISIBILITY AND SOLIDARITY o Varied: where the obligors, although liable for the same
➢ Where there are various creditors or various debtors, the obligation is joint prestation, are nevertheless not subject to the same terms
even if the performance is indivisible. and conditions.
INDIVISIBILE JOINT SOLIDARITY ▪ Before the fulfillment of the condition or arrival of
Each creditor cannot demand Each creditor may demand the the term, an action may be brought against such
more than his share and each full prestation and each debtor debtor or any other solidary debtor for the
debtor is not liable for more than has likewise the duty to comply recovery of the entire obligation minus the
his share. with the entire prestation. portion corresponding to the debtor affected by
Prestation is not capable of partial Refers to the legal tie or vinculm the condition of the term.
23
▪ Upon happening of the condition, creditor may ➢ The law has omitted to provide for the effects.
claim the remaining portion from any of the ➢ The law seems to imply that since such assignment cannot be made, it
debtors. produces no effect and the debtor or debtors are not bound thereby.
• Effects: ➢ Assignment would produce its effects if made to a co-creditor, because
1. Each debtor can be required to pay the entire obligation; but the assignee is one as to whom the confidence of the others already exist.
after payment, he can recover.
2. The debtor who is required to pay may set up by way of Art. 1214. The debtor may pay any one of the solidary creditors; but if any
compensation his own claim against the creditor, the effect is demand, judicial or extrajudicial, has been made by one of them, payment
the same as payment. should be made to him. (1142a)
3. The total remission of the debt in favor of a debtor releases all
the debtors; but when remission affects only the share of one JUDICIAL DEMAND
debtor, the other debtors are still liable. ➢ Creditors are tacitly mutual representatives of each other for demanding
4. All the debtors are liable for the loss of the thing due even if payment.
such loss is caused by the fault of only one of them, or by ➢ The equality of rights of solidary creditors by virtue of this mutual
fortuitous event after incurring delay. representation, lasts only until one of them goes ahead of the others and
5. The interruption of prescription as to one debtor affects all sues the debtor.
others; but the renunciation by one debtor of prescription ➢ When a creditor makes a judicial demand for payment, the tacit
already had does not prejudice the others. representation by the other creditors is considered revoked, and during
6. The interests due by reason of the delay of one are borne by the pendency of the action, the creditors who did not sue lose their
all of them. representation of the others.
➢ A payment made to any of the creditors who did not sue would be a
➢ MIXED SOLIDARITY payment to a third person. If the payee does not turn over to the others
• On the part of both creditors and debtors. their shares in the payment, the debtor can still be required to pay the
plaintiff the full amount.
Art. 1212. Each one of the solidary creditors may do whatever may be useful
to the others, but not anything which may be prejudicial to the latter. (1141a) EXTRA-JUDICIAL DEMAND
➢ The present article has given to extra-judicial demand the same effect as
ACTS BENEFICIAL judicial demand in terminating the mutual representation among the
➢ Each solidary creditor may interrupt prescription, constitute the debtor in solidary creditors and concentrating the agency in the creditor who
default, or bring suit. made the demand.
ACTS PREJUDICIAL DEMAND BY SEVERAL CREDITORS

➢ Solidary creditors cannot do anything prejudicial to the others. ➢ If all or several solidary creditors demand payment separately, the debtor
➢ e.g. remission, novation, compensation, and merger or confusion. should pay to the one who first notified him.
➢ If they demand at the same time or collectively, the debtor preserves his
Art. 1213. A solidary creditor cannot assign his rights without the consent of the right to choose and may pay anyone of those demanding payment.
others. (n)
PARTIAL PAYMENT
REASON FOR ARTICLE ➢ If debtor has already paid the share of a creditor who made no demand
➢ Solidary creditor is an agent of the others; hence he cannot assign that upon him, his obligation to that extent should be considered reduced.
agency to a third person without the consent of the other creditors. ➢ He can be required to pay to the creditor who made the demand the full
➢ Mutual agency, which is the essence of active solidarity, implies mutual amount of the debt minus the share of the creditor who had been paid.
confidence which may take into account the personal qualifications of
each creditor. IN MIXED SOLIDARITY
EFFECT OF UNAUTHORIZED TRANSFER
24
➢ In mixed solidarity, when one creditor makes a demand upon one of the EFFECTS OF ACTS
debtors, the latter cannot pay to any other creditor but the one who ➢ The relation between creditors and debtors
made the demand. • Any of these acts will extinguish the obligation, so that no creditor
• Does not apply to other debtors upon whom no demand has may thereafter sue any debtor, except in case of novation,
been made. They may pay to any creditor who may not be the where there may be no change or only partial change of parties.
one who made the demand. • The co-debtor as to whom the obligation was extinguished
cannot recover from his other co-debtors more than their
Art. 1215. Novation, compensation, confusion or remission of the debt, made respective shares in whatever he may have given up or lost as the
by any of the solidary creditors or with any of the solidary debtors, shall consideration for the extinguishment of the obligation.
extinguish the obligation, without prejudice to the provisions of Article 1219. ➢ The relations among creditors
• The act of any of them extinguishing the obligation with respect
The creditor who may have executed any of these acts, as well as he who to the debtor or debtors does not prejudice the rights of the other
collects the debt, shall be liable to the others for the share in the obligation creditors to recover their respective shares.
corresponding to them. (1143)
Art. 1216. The creditor may proceed against any one of the solidary debtors or
NOVATION some or all of them simultaneously. The demand made against one of them
➢ Each solidary debtor may release all the others by binding himself alone, shall not be an obstacle to those which may subsequently be directed against
in their place, in favor of the creditor. the others, so long as the debt has not been fully collected. (1144a)
➢ The debtor who effects the novation cannot, by himself, bind the others to
a new debt without their consent. PASSIVE SOLIDARITY AND SURETYSHIP
➢ Mere extension of time of payment given to a solidary debtor does not Passive Solidarity Suretyship
release the others from the obligation. A solidary debtor, like a surety, stands for some other person.
➢ Suretyship: A material alteration of the principal contract, effected by the Both debtor and surety after payment, may require that they be
creditor and the principal debtor, without the knowledge and consent of reimbursed.
the sureties, completely discharges the sureties from all liability. Liable not only for his co-debtor’s Liable only for his co-debtor’s
➢ DATION IN PAYMENT obligation but also for his own.
• Dation in payment is the delivery of a specific thing as a substitute Primary responsibility Subsidiary responsibility
for the performance of the obligation. Extension of time given by the Extension of time would release a
• If not immediately effected, but is in the form of a promise, it creditor would not release debtor. guarantor or surety.
amounts to a novation.
• If it is immediately effected, Article 1245 provides that it shall be LIABILITY OF SOLIDARY DEBTORS
governed by the law on sales. ➢ Creditor may bring an action against anyone of them, either alone or
together with the principal debtor.
MERGER AND COMPENSATION ➢ Solidary debtor is not released by the mere fact that the creditor brought
➢ When partial, rules on application of payments shall govern. an action against a co-debtor first.
➢ When total, the obligation is extinguished.
ACTIONS BASED ON SOLIDARITY
REMISSION ➢ Each solidary creditor may bring an action to enforce the obligation and
➢ When one creditor makes a remission, it extinguishes the obligation in the payment can be made only to the plaintiff in such case.
amount and to the extent in which it is made. ➢ Solidary debtors may be sued simultaneously, in one suit or successively in
➢ Creditor who made the remission becomes liable to co-creditors for their different suits.
shares. ➢ The parties may validly stipulate that the solidary debtors can only be
➢ The debtor in whose favor the remission has been made, even it be of the sued simultaneously, or they may provide for the order in which the
whole obligation, cannot recover anything from his co-debtors, because debtors may be sued individually.
remission is a gratuitous act. ➢ JUDGMENT AS REGARDS CREDITORS
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• If the judgment is favorable to the creditor, there seems to be no REIMBURSEMENT
doubt that, under article 1212, this inures to the benefit of the co- ➢ When a solidary debtor pays the entire obligation, the resulting obligation
creditors. of the co-debtors to reimburse him becomes joint. If one, by insolvency,
• If the judgment is adverse to the creditor, can be set-up against cannot pay his share in the reimbursement, the others (including the one
the other co-creditors in subsequent actions, unless it is founded who paid) shall bear such share proportionately.
on a cause personal to the plaintiff.
➢ JUDGMENT AS REGARDS DEBTORS Art. 1218. Payment by a solidary debtor shall not entitle him to reimbursement
• If judgment is favorable to the plaintiff, but the defendant solidary from his co-debtors if such payment is made after the obligation has
debtor is insolvent, the other debtors can still be sued until the prescribed or become illegal. (n)
debt is fully paid. A new action must be filed.
• If the first action results in a judgment favorable to the solidary EFFECT OF PAYMENT
debtor, the other debtors can invoke the favorable judgment, ➢ If one debtor actually pays an obligation no longer due, he does not
provided that it is not based on a defense personal to the plaintiff. thereby revive the obligation as to the co-debtors. They cannot be made
• The judgment in favor of one solidary debtor amounts to an to pay anything to the debtor who has paid.
extinguishment of the obligation with respect to him. ➢ But in other cases where the obligation no longer exists, he can recover
➢ IDENTITY OF PARTIES from the creditor the amount paid, under the rules on quasi-contracts.
• Because of the unity of the legal tie in solidarity, although the
solidary debtors may be individually distinct from each other, they Art. 1219. The remission made by the creditor of the share which affects one of
constitute legally one and the same party with the same interest. the solidary debtors does not release the latter from his responsibility towards
the co-debtors, in case the debt had been totally paid by anyone of them
Art. 1217. Payment made by one of the solidary debtors extinguishes the before the remission was effected. (1146a)
obligation. If two or more solidary debtors offer to pay, the creditor may
choose which offer to accept. APPLICATION OF ARTICLE
➢ Co-debtor has already paid the obligation in full when the remission of the
He who made the payment may claim from his co-debtors only the share part affecting another co-debtor is made.
which corresponds to each, with the interest for the payment already made. If ➢ To exempt such co-debtor will give way to fraud.
the payment is made before the debt is due, no interest for the intervening ➢ After one solidary debtor has paid the entire obligation, it is extinguished,
period may be demanded. and there is nothing more to remit.
When one of the solidary debtors cannot, because of his insolvency, INSOLVENCY AFTER PARTIAL REMISSION
reimburse his share to the debtor paying the obligation, such share shall be ➢ After the creditor has made a remission of the share of one solidary
borne by all his co-debtors, in proportion to the debt of each. (1145a) debtor, the credit will be limited to the balance.
➢ Remission of the share of one of the debtors does not affect his obligation
PAYMENT BY SOLIDARY DEBTOR to contribute to the share of an insolvent debtor.
➢ Payment by one of the solidary debtors and his subsequent release from • In every passive solidarity, there is a dual relationship:
liability results in release from liability of the other debtors to the creditor. 1. The relation between the creditor and the debtors – when
➢ The extinction or discharge of the solidary obligation by the payment creditor remits the share of any debtor, he can affect only this
made by the co-debtor gives birth to a right in favor of the paying co- relation.
debtor, and imposes on the other co-debtors the duty to pay him their 2. The relation among debtors
shares.
Art. 1220. The remission of the whole obligation, obtained by one of the
PARTIAL PAYMENT solidary debtors, does not entitle him to reimbursement from his co-debtors.
➢ If a solidary debtor pays the obligation in part, he can recover (n)
reimbursement from the co-debtors only in so far as his payment
exceeded his share of the obligation.
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Art. 1221. If the thing has been lost or if the prestation has become impossible 1. The non-existence of the obligation because of illicit cause or
without the fault of the solidary debtors, the obligation shall be extinguished. object, or absolute simulation.
2. Nullity due to defect in capacity or consent of all debtors (minority,
If there was fault on the part of any one of them, all shall be responsible to the mistake, fraud, violence).
creditor, for the price and the payment of damages and interest, without 3. Unenforceability because of lack of proper proof under the
prejudice to their action against the guilty or negligent debtor. Statute of Frauds.
4. Non-performance of suspensive condition or non-arrival of period
If through a fortuitous event, the thing is lost or the performance has become affecting entire obligation.
impossible after one of the solidary debtors has incurred in delay through the 5. Extinguishment of the obligation, such as payment by remission.
judicial or extrajudicial demand upon him by the creditor, the provisions of the 6. All other means of defense which may invalidate the original
preceding paragraph shall apply. (1147a) contract (prescription, res judicata).
LIMITED TO LOSS OF THING DEFENSES PERSONAL TO DEFENDANT

➢ This article is limited to the case of non-performance because of loss of ➢ May be total or partial defense.
the thing or impossibility of the prestation that is due. ➢ Minority, insanity, fraud, violence, or intimidation.
➢ Loss is through fortuitous event: obligation is extinguished.
➢ Loss is due to fault of any solidary debtor or FE after debtor has incurred DEFENSES PERSONAL TO OTHER DEBTORS
delay: the obligation is converted to an obligation to pay indemnity. ➢ To the debtor-defendant all these are only a partial defense, exempting
• The entire indemnity may be recovered by the creditor from the hid from payment of the obligation corresponding to the other debtors
other debtors who were free from fault or delay. But if any of who have such personal defenses.
these debtors should pay the creditor, they can recover from the
guilty debtor the full amount of the indemnity. SECTION 5. - Divisible and Indivisible Obligations
• If the creditor recovers the indemnity from the guilty debtor, the
latter cannot get any contribution from his co-debtors. Art. 1223. The divisibility or indivisibility of the things that are the object of
obligations in which there is only one debtor and only one creditor does not
NON-PERFORMANCE WITHOUT LOSS alter or modify the provisions of Chapter 2 of this Title. (1149)
➢ If the thing is not lost or the prestation has not become impossible, but
there is delay, fraud, fault, or negligence, or some other breach of the DIVISIBILITY OF THINGS
obligation, the creditor may also recover indemnity from any solidary ➢ A thing is indivisible, when, if divided into parts, its value is diminished
debtor. disproportionately.
➢ The guilty debtor cannot be made to shoulder, as part of the indemnity, ➢ A thing is divisible when each one of the parts into which it is divided forms
the shares of the co-debtors in the original obligation. a homogenous and analogous object to the other parts as well as to the
thing itself.
Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself ➢ Qualitative division: thing is not entirely homogenous (e.g. inheritance).
of all defenses which are derived from the nature of the obligation and of ➢ Quantitative division: thing divided is homogenous (e.g. immovable).
those which are personal to him, or pertain to his own share. With respect to ➢ Ideal division: parts are not separated in a material way, but there are
those which personally belong to the others, he may avail himself thereof only assigned to several persons the undivided portions pertaining to the, as in
as regards that part of the debt for which the latter are responsible. (1148a) co-ownership.
DEFENSES OF SOLIDARY DEBTOR DIVISIBLE AND INDIVISIBLE OBLIGATIONS

➢ 3 kinds of defenses: ➢ DIVISIBLE OBLIGATION: one which is susceptible of partial performance.
1. defenses derived from the nature of the obligation ➢ INDIVISIBLE OBLIGATION: it cannot be validly performed in parts.
2. defenses personal to the debtor-defendant ➢ Refers to the performance of the obligation and not to the thing which is
3. defenses personal to the other solidary debtors the object thereof.
➢ DEFENSES INHERENT IN OBLIGATION
• Derived from its nature; constitute a total defense:
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Art. 1224. A joint indivisible obligation gives rise to indemnity for damages from However, even though the object or service may be physically divisible, an
the time anyone of the debtors does not comply with his undertaking. The obligation is indivisible if so provided by law or intended by the parties.
debtors who may have been ready to fulfill their promises shall not contribute
to the indemnity beyond the corresponding portion of the price of the thing or In obligations not to do, divisibility or indivisibility shall be determined by the
of the value of the service in which the obligation consists. (1150) character of the prestation in each particular case. (1151a)
INDIVISIBLE JOINT OBLIGATION DETERMINATION OF DIVISIBILITY

➢ Collective fulfillment ➢ The divisibility of the object does not necessarily determine the divisibility
➢ In case of non-performance by any of the debtors, the obligation is of the obligation.
converted into a liability for losses and damages, which is divisible. ➢ Test of divisibility: whether or not it is susceptible of partial performance.
• If one of the debtors is insolvent, or fails to pay, the others will not ➢ While the indivisibility of the object carries with it the indivisibility of the
be liable for his share. obligation.
• If the transformation causes damage to other debtors, they may ➢ The divisibility of the object does not always mean that the obligation is
recover such damages from the debtor who failed to perform. also divisible.
• Entire liability for other damages is shouldered by defaulting ➢ FACTORS WHICH DETERMINE WHETHER AN OBJECT IS DIVISIBLE OR
debtor. INDIVISIBLE:
1. The will or intention of the parties.
SOLIDARITY AND INDIVISIBILITY 2. The object or purpose of the stipulated prestation.
3. The nature of the thing.
SOLIDARITY INDIVISIBILITY 4. The provisions of law affecting the prestation.
Refers to vinculum and therefore to Refers to the prestation or the ➢ In obligations to give: indivisible
the subjects of the obligation object of the obligation ➢ In obligations to do: indivisibility is also presumed and it is only under
Solidarity remains even when there When converted into one to pay exceptional cases mentioned in paragraph 2 of Art. 1225 that they are
has been non-performance and the damages, the reason for the divisible.
debtors become liable for indivisibility ceases to exist and the
damages. debtor becomes liable for his part EFFECT OF PARTIAL PERFORMANCE
of the indemnity. ➢ Indivisible: debtor who fails to fully perform the work agreed upon cannot
Death of debtor terminates solidarity Affects the heirs of the debtor in recover quantum meruit because in indivisible obligations, partial
which is not transmitted to the heirs. that they remain bound to perform performance is equivalent to non-performance.
the prestation. ➢ 2 exceptions:
1. Where the obligation has been substantially performed in good faith,
INDIVISIBLE SOLIDARY OBLIGATIONS the debtor may recover as if there had been complete performance,
➢ Every debtor is liable for losses and damages, although those ready to minus the damages suffered by the creditor.
perform can later recover from the guilty one. 2. When the creditor accepts performance, knowing its incompleteness,
➢ The creditor may demand the entire indemnity from any debtor. and without protest, the obligation is deemed fully performed.
ENTIRE AND SEVERABLE CONTRACTS

Art. 1225. For the purposes of the preceding articles, obligations to give ➢ If the consideration is single, the contract is ENTIRE.
definite things and those which are not susceptible of partial performance ➢ If the consideration is expressly or by implication apportioned, the
shall be deemed to be indivisible. contract is SEVERABLE.
➢ When the consideration is entire and singe, the contract must be held to
When the obligation has for its object the execution of a certain number of be entire.
days of work, the accomplishment of work by metrical units, or analogous ➢ If the part to be performed by one party consists in several distinct and
things which by their nature are susceptible of partial performance, it shall be separate items, and the price is apportioned to each of them, the
divisible. contract will generally be held to be severable.
➢ EFFECT OF ILLEGALITY
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• If a contract is severable and one part is illegal, the part which is • The creditor cannot recover more than the penalty stipulated,
illegal is void but that part which is legal is enforceable. even if he proves that the damages suffered by him exceed in
• If the contract is entire, and a part is illegal, the whole contract is amount such penalty.
unenforceable. ➢ LEGALITY OF CLAUSE
➢ EFFECT OF NULLITY • When the penalty stipulated is not contrary to law, morals, or
• If one of the undertakings is void but not illegal, valid covenants public order, it must be enforced against the party liable therefor.
may be enforced whether the contract is severable or not. ➢ HOW CONSTRUED
➢ STATUTE OF FRAUDS • Strictly
• The enforceability of a contract for the sale of chattels when
affected by the statute of fraud depends on whether it is DAMAGES BESIDES PENALTY
severable or entire. ➢ 3 cases when damages and interest may be recovered in addition to
• Separate: each sale for a price below the statutory limit is not penalty:
affected by the statute. 1. when there is an express provision to that effect
• Entire: The contract is affected. 2. when the debtor refuses to pay the penalty
3. when the debtor is guilty of fraud in the non-fulfillment of the
SECTION 6. - Obligations with a Penal Clause obligation
➢ EXPRESS STIPULATION
Art. 1226. In obligations with a penal clause, the penalty shall substitute the • When the contract expressly stipulates that the obligation shall
indemnity for damages and the payment of interests in case of bear interest at a given rate from its date until paid, and in
noncompliance, if there is no stipulation to the contrary. Nevertheless, addition there is an agreement for the payment of penalty in
damages shall be paid if the obligor refuses to pay the penalty or is guilty of case of failure to pay the obligation, both the penalty ad the
fraud in the fulfillment of the obligation. interest can be collected in case of breach.
The penalty may be enforced only when it is demandable in accordance with ENFORCEMENT OF PENALTY
the provisions of this Code. (1152a) ➢ The enforcement of the penalty can be demanded by the creditor only
when the non-performance is due to fault or fraud of the debtor.
CONCEPT AND NATURE OF PENALTY ➢ The non-performance gives rise to the presumption of fault.
➢ A penal clause is an accessory undertaking to assume greater liability iin ➢ PLURALITY OF DEBTORS
case of breach. • When there are several debtors, the divisibility of the principal
➢ Double function: obligation among the debtors does not necessarily carry with it
1. provide for liquidated damages the divisibility of the penalty among them.
2. strengthen the coercive force of the obligation • Joint: each debtor responds only for his own failure to perform
➢ It may be subsidiary or alternative: upon non-performance, only penalty • Solidary: penalty may be enforced against any debtor for the
can be asked. non-performance of another debtor.
➢ joint or cumulative: both the principal undertaking and the penalty may
be demanded. DISTINGUISHED FROM CONDITIONAL OBLIGATIONS
➢ Purpose may be reparation: substitutes for damages; or CONDITIONAL OBLIGATION OBLIGATION WITH A PENAL CLAUSE
➢ Punishment: right to damage, besides penalty, subsists. There is no obligation before the There is already an existing
suspensive condition happens; it is obligation from the very beginning.
PENALTY AND DAMAGES the fulfillment of the condition that
➢ Mere non-performance of the principal obligation gives rise to the right to gives rise to the obligation.
the penalty. The principal obligation itself is It is the accessory obligation
➢ LIQUIDATED DAMAGES depended upon an uncertain (penalty) which is dependent upon
• No difference between a penalty and liquidated damages. event. non-performance of the principal
• The party to whom payment is to be made is entitled to recover obligation.
the sum stipulated without the necessity of proving damages.
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DISTINGUISHED FROM ALTERNATIVE OBLIGATIONS RIGHT OF DEBTOR
ALTERNATIVE OBLIGATION OBLIGATION WITH A PENAL CLAUSE ➢ The debtor cannot avoid performance of the principal obligation by
Two or more obligations are due, There is only one prestation and it is offering to pay the penalty.
but fulfillment of one of them is only when this is not performed that ➢ EXCEPTION: The right to substitute the penalty for the principal obligation
sufficient. the penal clause is enforceable. may be expressly granted to the debtor.
The impossibility of one of the The impossibility of the principal
obligations, without the fault of the obligation extinguishes also the RIGHT OF CREDITOR
debtor, still leaves the other penalty. ➢ Creditor cannot demand performance of the principal obligation and the
subsisting. penalty at the same time.
The debtor can choose which He cannot choose to pay the ➢ EXCEPTIONS:
prestation to fulfill. penalty to relieve himself of the • the creditor may enforce both the principal and the penalty
principal obligation, unless that right when this right is clearly granted to him.
is expressly granted to him. o Must be expressly given to him
• Creditor has demanded fulfillment of the principal obligation but
DISTINGUISHED FROM FACULTATIVE OBLIGATION it cannot be performed. In this case, he may demand the
FACULTATIVE OBLIGATION OBLIGATION WITH A PENAL CLAUSE penalty.
The power of the debtor to make The payment of the penalty in lieu ➢ “Performance thereof should become impossible without his (creditor’s)
the substitution is absolute. of the principal obligation can be fault”
made only by express stipulation. • Could refer to FE which will extinguish the obligation. The law
The creditor can never demand Such right may be granted to him. obviously means that the performance becomes impossible
both prestations. through the fault of the debtor.
COMPARED WITH GUARANTY Art. 1228. Proof of actual damages suffered by the creditor is not necessary in
order that the penalty may be demanded. (n)
GUARANTY OBLIGATION WITH A PENAL CLAUSE
They are both intended to insure performance of the principal obligation.
Art. 1229. The judge shall equitably reduce the penalty when the principal
They are both accessory and subsidiary obligations.
obligation has been partly or irregularly complied with by the debtor. Even if
The object of the obligations of the The obligation to pay the penalty is
there has been no performance, the penalty may also be reduced by the
principal debtor and the guarantor different from the principal
courts if it is iniquitous or unconscionable. (1154a)
is the same. obligation.
The principal debtor cannot be the Principal obligation and the penalty PARTIAL OR IRREGULAR PERFORMANCE
guarantor of the same obligation. can be assumed by the same ➢ Partial performance refers to the extent or quantity or fulfillment; irregular,
person. to the form.
The guaranty subsists even when the The penalty is extinguished by the ➢ Courts will rigidly apply the doctrine of strict construction.
principal obligation is voidable or nullity of the principal obligation, ➢ Courts will be slow in exercising the authority conferred by this article
unenforceable or is a natural one. except when the penal clause is where it appears that in fixing the penalty the parties had in mind a fair
assumed by a third person. and reasonable compensation for actual damages.
Art. 1227. The debtor cannot exempt himself from the performance of the INIQUITOUS OR UNCONSCIONABLE
obligation by paying the penalty, save in the case where this right has been ➢ The amount or the penalty is not determined by the injury suffered by the
expressly reserved for him. Neither can the creditor demand the fulfillment of creditor, but by what has been agreed upon.
the obligation and the satisfaction of the penalty at the same time, unless this ➢ A penalty may also become iniquitous by a supervening change of
right has been clearly granted him. However, if after the creditor has decided circumstances, which makes the amount grossly disproportionate to the
to require the fulfillment of the obligation, the performance thereof should damage suffered by the creditor.
become impossible without his fault, the penalty may be enforced. (1153a) ➢ When the penalty is contrary to morals or good customs, it may even be
entirely voided.
30
➢ The courts should also consider the gravity of the violation of the Art. 1231. Obligations are extinguished:
obligation and the benefits which the debtor may have derived from it. (1) By payment or performance:
➢ INTEREST OF CREDITOR (2) By the loss of the thing due:
• The penalty is excessive when, taking into account the interest of (3) By the condonation or remission of the debt;
the creditor, it is in open contradiction to the demands of justice (4) By the confusion or merger of the rights of creditor and debtor;
and equity. (5) By compensation;
➢ NO DAMAGE SUFFERED (6) By novation.
• The penalty my be reduced in instances where it is out of Other causes of extinguishment of obligations, such as annulment, rescission,
proportion to the actual damage caused by the non- fulfillment of a resolutory condition, and prescription, are governed elsewhere
performance or improper performance of the contract. in this Code. (1156a)
• This does not authorize the court under this article to rescind the
penalty altogether, if the plaintiff suffers no damage. MISCELLANEOUS CAUSES
➢ Prescription, death, renunciation by the creditor, compromise, fulfillment
ATTORNEY’S FEES of resolutory condition, rescission and nullity, will of one of the parties,
➢ The court has jurisdiction to determine the reasonableness of the sum change in civil status, unforeseen events, etc.
stipulated, and to reduce the same if excessive. ➢ DEATH
➢ It is not necessary to show that it is contrary to law, morals, or public order. • Death of ether the creditor or debtor does not extinguish the
It is sufficient that it is unreasonable or unconscionable. obligation. Obligations actively and passively are transmissible to
the heirs.
PENALTY NOT ENFORCEABLE • EXCEPTION: When the law, the stipulation of the parties, or the
➢ The penalty is not enforceable when the principal obligation becomes nature of the obligation prevents such transmission.
impossible due to fortuitous event, or when the creditor prevents the ➢ WANT OF INTEREST
debtor from performing the principal obligation. • Want of interest of the creditor in the fulfillment of the obligation
does not extinguish it.
Art. 1230. The nullity of the penal clause does not carry with it that of the • There are cases, however, when the enforcement of the
principal obligation. obligation, if the creditor has no more interest to serve, may
The nullity of the principal obligation carries with it that of the penal clause. amount to an abuse of right and the debtor should be relieved.
(1155) ➢ ABANDONMENT
• There are special cases of extinguishment of obligations by
NULLITY OF PRINCIPAL OBLIGATION abandonment of the thing charged with the obligation.
➢ The nullity of the principal obligation also nullifies the penal clause. ➢ MUTUAL, UNILATERAL DISSENT
➢ EXCEPTIONS • Contracts can be terminated by mutual agreement of the
1. When the penalty is undertaken by a third person precisely for an parties, express or implied.
obligation which is unenforceable, voidable, or natural, in which case • Mutual agreement can create a contract, mutual disagreement
it assumes the form of a guaranty which is valid. can cause its extinguishment.
2. When the nullity of the principal obligation itself gives rise to liability of ➢ INSOLVENCY
the debtor for damages, such as when the vendor knew that the • An obligation is not extinguished by the insolvency of the debtor,
thing was inexistent at the time of the contract. unless it has been judicially declared and a discharge has been
given to him.
NULLITY OF PENAL CLAUSE
➢ The penal clause may be void because it is contrary to law, morals, good SECTION 1. - Payment or Performance
customs, public order, or public policy. In such case, the principal
obligation subsists, if valid. Art. 1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation. (n)
CHAPTER 4 EXTINGUISHMENT OF OBLIGATIONS
GENERAL PROVISIONS CONCEPT OF PAYMENT
31
➢ Payment is the fulfillment of the prestation due, a fulfillment that SUBSTANTIAL PERFORMANCE
extinguishes the obligation by realization of the purposes for which it was ➢ There must be an attempt of good faith to perform, without any willful or
constituted. intentional departure therefrom.
➢ Payment and fulfillment are thus identical. ➢ The deviation must be slight, and the omission or defect must be technical
and unimportant, and must not be material.
REQUISITES OF PAYMENT ➢ The non-performance of a material part of a contract will prevent the
1. The person who pays (must have capacity) performance from amounting to a substantial compliance.
2. The person to whom payment is made ➢ The party claiming substantial compliance must show that he has
3. The thing due to be paid attempted in good faith to perform his contract, but has through
4. The manner, time and place of payment (must be in accordance with the oversight, misunderstanding or any excusable neglect failed to
obligation) completely perform in certain negligible respects.
➢ A party who knowingly and willfully fails to perform his contract in any
KINDS OF PAYMENT respect, or omits to perform a material part of it, cannot be permitted,
➢ NORMAL: debtor voluntarily performs the prestation stipulated under the protection of this rule, to compel the other party to perform.
➢ ABNORMAL: when he is forced by means of a judicial proceeding ➢ EFFECT
• When one has received the benefits of substantial performance
Art. 1233. A debt shall not be understood to have been paid unless the thing or by the other without paying the price agreed upon, and he
service in which the obligation consists has been completely delivered or cannot or does not return these benefits, it is manifestly unjust to
rendered, as the case may be. (1157) permit him to retain them without paying, or doing as he
promised.
IDENTITY AND INTEGRITY • The party who has received the benefits of substantial
➢ 2 REQUISITES OF PAYMENT performance, therefore, cannot require the performance of the
1. The identity of the prestation: that the very thing or service due must residue as a condition precedent to his liability. He must perform
be delivered or released. his part of the contract and rely on his claim for damages in
2. Its integrity: prestation must be fulfilled completely. respect to the defect or omission in the performance.
➢ TIME OF PAYMENT
• The payment or performance must be on the date stipulated. Art. 1235. When the obligee accepts the performance, knowing its
• Failure to perform on the date stipulated is not excused by the incompleteness or irregularity, and without expressing any protest or
fact that such date falls on a Sunday and the next day is a legal objection, the obligation is deemed fully complied with. (n)
holiday.
➢ PROOF OF PAYMENT WAIVER OF DEFECT IN PERFORMANCE
• When the existence of a debt is fully established by the evidence, ➢ A person entering into a contract has a right to insist on its performance in
the burden of proving that it has been extinguished by payment all particulars. But if he chooses to waive any of the terms introduced for
devolved upon the debtor. his own benefit, he may do so.
• ISSUANCE OF RECEIPT ➢ There must be an intentional relinquishment of a known right.
o Code does not require the creditor to issue a receipt for ➢ There must have been acceptance of the defective performance with
the payment. actual knowledge of the incompleteness or defect.
o Issuance of a receipt is a consequence of usage and
good faith which must be observed. ESTOPPEL OF CREDITOR
o Refusal of the creditor to issue a receipt, without just ➢ A creditor cannot object because of defects in performance resulting
cause, is a ground for consignation. from his own acts or directions.
➢ Where a party makes particular objections to the sufficiency of
Art. 1234. If the obligation has been substantially performed in good faith, the performance he is estopped to later set up other objections.
obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee. (n)
32
Art. 1236. The creditor is not bound to accept payment or performance by a REIMBURSEMENT AND SUBROGATION
third person who has no interest in the fulfillment of the obligation, unless there ➢ The right to recover from the debtor is based on the mere fact of payment
is a stipulation to the contrary. and on consideration of justice.
➢ When subrogation takes place, the payor actually steps into the shoes of
Whoever pays for another may demand from the debtor what he has paid, the creditor and becomes entitled, not only to recover what he has paid
except that if he paid without the knowledge or against the will of the debtor, but also to exercise all the rights.
he can recover only insofar as the payment has been beneficial to the debtor. ➢ There is a change in the active subject.
(1158a)
SUBROGATION OF CREDITOR
REASON FOR ARTICLE ➢ From the language of this article, it would seem that there may be
➢ Whenever a third person pays there is a modification of the prestation subrogation if the creditor willingly and spontaneously permits the third
that is due. person who has paid to be subrogated in his rights, even without the
➢ A creditor should not be compelled to accept payment from a third consent of the debtor.
person whom he may dislike or distrust. • Not proper
➢ Creditor may assign his rights
RIGHT OF THIRD PERSON
➢ A person who pays a debt for the account of another may recover from Art. 1238. Payment made by a third person who does not intend to be
the debtor the sum so paid out, at lease to the extent in which the reimbursed by the debtor is deemed to be a donation, which requires the
payment may have been beneficial to the debtor. debtor's consent. But the payment is in any case valid as to the creditor who
➢ The debtor who knows that another has paid his obligation for him, and has accepted it. (n)
who does not object thereto or repudiate the same at any time, must pay
the amount advanced by the third person. Art. 1239. In obligations to give, payment made by one who does not have the
➢ AMOUNT OF RECOVERT free disposal of the thing due and capacity to alienate it shall not be valid,
• Generally: entitled to recover full amount without prejudice to the provisions of Article 1427 under the Title on "Natural
• If the debtor has no knowledge or has expressed his opposition: Obligations." (1160a)
limits recovery to the amount by which the debtor has been
benefited. EFFECT OF INCAPACITY
➢ PRESCRIPTION ➢ Where the person paying has no capacity to make payment, creditor
• A partial payment made by a stranger of the obligation without cannot be compelled to accept it.
the authorization of the debtor, will not stay the running of the ➢ Consignation will not be proper
period of prescription with respect to the remainder of the debt. ➢ In case creditor accepts, it will not be valid
➢ REPURCHASE PRICE ➢ EXCEPTION: Article 1427
• When a person has right to repurchase certain property does the
payment by a third person, does it constitute payment by a third Art. 1240. Payment shall be made to the person in whose favor the obligation
person? The SC has conflicting decisions. has been constituted, or his successor in interest, or any person authorized to
receive it. (1162a)
PAYMENT AGAINST THE DEBTOR’S WILL
➢ It is optional for the creditor to accept payment from a third person. TO WHOM PAYMENT TO BE MADE
➢ If the debtor opposes: 3rd person can only recover the extent that the ➢ The person in whose favor the obligation is constituted, or to another
payment has benefited him. authorized to receive payment.
➢ But as between the debtor and the creditor, the obligation is ➢ AUTHORIZED PERSON
extinguished. • Legal or conventional
• Legal: conferred by law
Art. 1237. Whoever pays on behalf of the debtor without the knowledge or • Conventional: authority has been given by the creditor himself.
against the will of the latter, cannot compel the creditor to subrogate him in his
rights, such as those arising from a mortgage, guaranty, or penalty. (1159a) PAYMENT TO WRONG PARTY
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➢ Does not extinguish the obligation as to the creditor, if there is no fault or 1. When without notice of the assignment of the credit, he pays to
negligence which can be imputed to the latter. the original creditor (Art 1626).
➢ DEPOSIT IN BANK 2. When in good faith he pays to one in possession of the credit (Art
• The deposit of the amount of the obligation by the debtor in a 1242).
bank, in the name and to the credit of the creditor, without ➢ FAULT OF CREDITOR
authorization of the latter, does not constitute payment. • If the mistake of the debtor was due to the fault of the creditor,
• But when creditor cannot be found in the place of payment, such he cannot demand payment anew even when he receives no
deposit may be a valid excuse for not holding the debtor in benefit.
default.
➢ DEPOSIT IN COURT Art. 1242. Payment made in good faith to any person in possession of the
• Consignation in court will extinguish the obligation. credit shall release the debtor. (1164)
Art. 1241. Payment to a person who is incapacitated to administer his property POSSESSION OF CREDIT
shall be valid if he has kept the thing delivered, or insofar as the payment has ➢ EXCEPTION to the rule that payment must be made to the creditor or his
been beneficial to him. authorized representative.
➢ Possession of the credit should be distinguished from possession of the title
Payment made to a third person shall also be valid insofar as it has redounded or evidence of the credit.
to the benefit of the creditor. Such benefit to the creditor need not be proved ➢ The mere holding of the document will not generally be sufficient, but is
in the following cases: necessary to consider the nature of the credit.
(1) If after the payment, the third person acquires the creditor's rights; ➢ Payment to the possessor of the document or title does not necessarily
(2) If the creditor ratifies the payment to the third person; extinguish the credit.
(3) If by the creditor's conduct, the debtor has been led to believe that the ➢ PAYMENT IN GOOD FAITH
third person had authority to receive the payment. (1163a) • Payment must also be made in good faith.
• Good faith consists in the belief that the party who presents the
PAYMENT TO INCAPACITATED title of the obligation is the true creditor, or that person to whom
➢ When the creditor is incapacitated to receive payment, this must be payment is made is the owner of the credit.
made to his legal representative if there is one. If none: consignation in • Only good faith on the part of the debtor is required.
court.
➢ If payment is made to the creditor who is incapacitated, it shall be valid in Art. 1243. Payment made to the creditor by the debtor after the latter has been
so far as it accrued to his benefit. In the absence of this benefit, the judicially ordered to retain the debt shall not be valid. (1165)
debtor may be made to pay again.
➢ BENEFIT TO CREDITOR EFFECT OF GARNISHMENT
• Payment shall be considered as having benefited the ➢ The payment to the creditor after the credit has been attached or
incapacitated person, if he made an intelligent and responsible garnished, is void as to the party who obtained the attachment or
use thereof, for purposes necessary or useful to him, such as that garnishment, to the extent of the amount of the judgment in his favor.
which his legal representative would have or could have done ➢ Debtor can be made to pay again, but he can recover to the same
under similar circumstances. extent what he has paid to his creditor.
➢ CONSIGNATION
PAYMENT TO THIRD PERSON • The debtor upon whom a garnishment order is served, can always
➢ The same principles governing payment to an incapacitated creditor, are deposit the money in court by way of consignation.
applicable to payments made to a third person. ➢ IF ACTION FAILS
➢ The debtor is not released from liability by payment to one who is not the • If the action of the attaching or garnishing creditor fails, then the
creditor nor one authorized to receive the payment. garnishment is of no effect.
• EXCEPT: to the extent the payment inured to the benefit of the • The payment which the garnishee has made to his creditor must
creditor. be considered valid.
• Payment to a third person releases the debtor:
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Art. 1244. The debtor of a thing cannot compel the creditor to receive a ERROR IN PAYMENT
different one, although the latter may be of the same value as, or more ➢ In dation in payment, the obligor who delivers the thing does so for the
valuable than that which is due. purpose of releasing himself from the obligation, and not as a vendor.
➢ If the debtor proves he paid by mistake, he can recover, not the price but
In obligations to do or not to do, an act or forbearance cannot be substituted thing itself which was conveyed.
by another act or forbearance against the obligee's will. (1166a)
Art. 1246. When the obligation consists in the delivery of an indeterminate or
SUBSTITUTION OF PRESTATION generic thing, whose quality and circumstances have not been stated, the
➢ The debtor of a thing cannot compel the creditor to receive a different creditor cannot demand a thing of superior quality. Neither can the debtor
one although the latter may be of the same value than that which is due. deliver a thing of inferior quality. The purpose of the obligation and other
circumstances shall be taken into consideration. (1167a)
WAIVER OF DEFECTS
➢ The defects of the thing delivered may be waived by the creditor, if he so DETERMINATION OF QUALITY
expressly declares or if, with knowledge thereof, he accepts the thing ➢ If there is disagreement, the court should decide whether it complies with
without protest or disposes of it or consumes it. the obligation, taking into consideration the purpose and other
circumstances of the obligation.
Art. 1245. Dation in payment, whereby property is alienated to the creditor in
satisfaction of a debt in money, shall be governed by the law of sales. (n) WAIVER OF BENEFIT
➢ The creditor or debtor may waive the benefit of this article.
CONCEPT OF DATION IN PAYMENT ➢ The creditor may require a thing of inferior quality, and the debtor may
➢ Dation in payment is the delivery and transmission of ownership of a thing deliver an object of superior quality.
by the debtor to the creditor as an accepted equivalent of the
performance of the obligation. Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required
➢ The modern concept of dation in payment considers it as a novation by by the payment shall be for the account of the debtor. With regard to judicial
change of the object. costs, the Rules of Court shall govern. (1168a)
➢ EFFECT ON OBLIGATION
• Dation in payment extinguishes the obligation to the extent of the REASON
value of the thing delivered, either as agreed upon by the parties ➢ Payment is his duty and it inures to his benefit.
or as may be proved.
• EXCEPTION: unless the parties by agreement, express or implied, Art. 1248. Unless there is an express stipulation to that effect, the creditor
or by their silence, consider the thing as equivalent to the cannot be compelled partially to receive the prestations in which the
obligation, in which case the obligation is totally extinguished. obligation consists. Neither may the debtor be required to make partial
➢ DISTINGUISHED FROM ASSIGNMENT payments.
• Assignment of property by the debtor to his creditors, provided for
in article 1255, is similar to dation in payment in that both are However, when the debt is in part liquidated and in part unliquidated, the
substitute forms of performance of an obligation. creditor may demand and the debtor may effect the payment of the former
• Dation in payment does not involve pluarilty of creditors. without waiting for the liquidation of the latter. (1169a)
➢ PLEDGE
• In case where personal property is delivered to the creditor, the PARTIAL PRESTATIONS
transaction is a pledge, not dation in payment. In case of doubt, ➢ The creditor who refuses to accept partial prestations does not incur in
presumption is in favor of pledge. delay or mora accipiendi.
➢ EXCEPT: when there is an abuse of right or if good faith requires
WARRANTIES OF DEBTOR acceptance.
➢ The provision on sales, regarding warranty against eviction and hidden • Amount or quantity is so big that performance can reasonable be
defects of the thing, are therefore applicable, the debtor being expected to be made in various deliveries.
considered as the vendor. ➢ PLURALITY OF SUBJECTS AND TIES
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• The article does not apply to obligations where there are several executed by third persons and delivered by the debtor to the
subjects or where the various parties are bound under different creditor.
terms and conditions.
Art. 1250. In case an extraordinary inflation or deflation of the currency
Art. 1249. The payment of debts in money shall be made in the currency stipulated should supervene, the value of the currency at the time of the
stipulated, and if it is not possible to deliver such currency, then in the establishment of the obligation shall be the basis of payment, unless there is
currency which is legal tender in the Philippines. an agreement to the contrary. (n)

The delivery of promissory notes payable to order, or bills of exchange or other APPLICATION OF LAW
mercantile documents shall produce the effect of payment only when they ➢ Applies only where a contract or agreement is involved. It does not apply
have been cashed, or when through the fault of the creditor they have been where the obligation to pay arises from law.
impaired.
In the meantime, the action derived from the original obligation shall be held EXTRAORDINARY INFLATION OR DEFLATION
in the abeyance. (1170) ➢ That which is unusual or beyond the common fluctuations in the value of
the currency which the parties could not have reasonable foreseen.
LEGAL TENDER ➢ REVALUATION OF CURRENCY
➢ Legal tender means such currency which in a given jurisdiction can be • To determine payment when there has been great fluctuations in
used for the payment of debts, public and private, and which cannot be the value of currency, we can resort, considering the
refused by the creditor. circumstances of each particular case, to the principle of good
➢ JAPANESE OCCUPATION faith in Article 1315.
• Payments made during said period with Japanese military notes o Parties to contracts are bound not only to the fulfillment
were valid. of what has been expressly stipulated, but also to all the
o LOSS OF VALUE consequences which according to their nature may be in
▪ Those who accepted Japanese military war keeping with good faith, usage and law.
notes during the occupation and held them as • Effect of devaluation should not be borne by the creditor alone.
owners, suffered the consequences when such Revaluation should be made.
notes depreciated in value or became worthless.
Art. 1251. Payment shall be made in the place designated in the obligation.
CURRENCY IN PAYMENT There being no express stipulation and if the undertaking is to deliver a
➢ This article sanctions payment of debts in currency other than that which is determinate thing, the payment shall be made wherever the thing might be at
legal tender in the Philippines, if there is a stipulation to that effect. the moment the obligation was constituted.
DELIVERY OF INSTRUMENTS In any other case the place of payment shall be the domicile of the debtor.
➢ The provision of the law that the delivery of notes or other commercial If the debtor changes his domicile in bad faith or after he has incurred in
instruments shall produce the effects of payment only when they are delay, the additional expenses shall be borne by him.
collected, is applicable, not only to those instruments executed by third
persons and delivered by the debtor to the creditor, but also to a note These provisions are without prejudice to venue under the Rules of Court.
executed by the debtor himself and delivered to the creditor. (1171a)
➢ PAYMENT BY CHECK
• Payment by check may be validly refused by the creditor. DETERMINATE THINGS
• A check, whether a manager’s check or an ordinary check, is not ➢ Absence of stipulation, performance must be made at the place where
legal tender. the thing was located at the time the obligation was constituted.
➢ LOSS OF VALUE
• The clause relating to the prejudice caused to the instrument by PAYMENT AT DEBTOR’S DOMICILE
the fault of the creditor, is applicable only to instruments
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➢ Even when the thing is determinate but its existence at the place where it 1. If the debtor owes two debts – 50 and 200, and he makes a
was when the obligation was constituted was temporary, the payment of 50, he cannot choose to apply it to the 200 debt
performance must be at the domicile of the debtor. because the creditor cannot be compelled to accept partial
➢ Obligations for a sum of money, it is the duty of the creditor to go to the payment.
domicile of the debtor to collect. 2. If there is only one obligation bearing interest, the debtor cannot
➢ CREDITOR’S EXPENSES apply the payment to the capital because the law requires its
• If the creditor, in going to the debtor’s domicile to collect, incurs application to interest first.
expenses, the creditor must bear the expenses. 3. The debtor cannot apply the payment to a debt that is not yet
• But if the debtor changes his domicile in bad faith or after he has liquidated.
incurred in delay, then the additional expenses shall be borne by 4. He cannot choose a debt with a period for the benefit of the
him. creditor, when the period has not yet arrived.
5. When there is an agreement as to the debts which are to be paid
RISK OF TRANSMISSION first, the debtor cannot vary the agreement.
➢ When the debtor has been required to remit money to the creditor, the ➢ EFFECT OF CREDITOR’S REFUSAL
latter bears the risks and the expenses of the transmission. • If the debtor makes a proper application of payment, but the
creditor refuses to accept it because he wants to apply it to
SUBSECTION 1. - Application of Payments another debt, such creditor may incur delay.
CONCEPT: Application of payment is the designation of the debt which is APPLICATION BY CREDITOR
being paid by a debtor who has several obligations of the same kind in favor ➢ If at the time of payment, the debtor does not exercise his right to apply,
of the creditor to whom payment is made. the application shall be understood as provided by law.
➢ EXCEPT: the creditor makes the application and his decision is accepted
Art. 1252. He who has various debts of the same kind in favor of one and the by the debtor.
same creditor, may declare at the time of making the payment, to which of ➢ Once the debtor has accepted, the former cannot contest such
them the same must be applied. Unless the parties so stipulate, or when the application.
application of payment is made by the party for whose benefit the term has ➢ An application made by the creditor without the knowledge and consent
been constituted, application shall not be made as to debts which are not yet of the debtor, is not binding upon the latter.
due. ➢ CONTESTED BY THE DEBTOR
• The application made by the creditor, stated in the receipt issued
If the debtor accepts from the creditor a receipt in which an application of the to the debtor, may be contested by the latter if there is a cause
payment is made, the former cannot complain of the same, unless there is a for invalidating the contract.
cause for invalidating the contract. (1172a) • Real intent of the law is that the application made by the creditor
can be contested by the debtor.
DEBTS TO BE PAID
➢ Obligations must all be due. APPLICATION BY LAW
➢ It is only in cases of mutual agreement of upon the consent of the party in ➢ When neither the debtor nor the creditor has made a valid application of
whose favor the term was established, that payments may be applies to payment, then the application shall take place by operation of law.
obligations which have not yet matured.
➢ It is also necessary that all the debts be for the same kind, generally of CHANGE OF APPLICATION
monetary character. ➢ The debtor and the creditor, by agreement, can validly change the
application of payment already made, without prejudice to the rights of
RIGHT OF DEBTOR third persons acquired before such agreement.
➢ The law grants to the debtor a preferential right to choose the debt to
which his payment is to be applied. Art. 1253. If the debt produces interest, payment of the principal shall not be
➢ Limitations on the right of the debtor: deemed to have been made until the interests have been covered. (1173)
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PAYMENT OF INTEREST ➢ A voluntary assignment cannot be imposed upon a creditor who is not
➢ Partial payments are to applied first on account of the interest and then willing to accept it.
to reduce the principal. ➢ Assignment by the debtor has two forms: voluntary and legal.
➢ WHAT INTEREST COVERED ➢ The present article deals with voluntary assignment.
• No distinction should be made because the law makes no such ➢ The assignment gives to the creditors the right to proceed to the sale of
distinction (on compensatory interest and interest due to delay). the property, and to pay themselves in the amount which the proceeds of
• Delay should worsen, not improve, the position of a debtor. the sale permit and in the manner agreed upon.
➢ If the proceeds of the property should not cover all the obligations, the
Art. 1254. When the payment cannot be applied in accordance with the unpaid amount remains due and demandable.
preceding rules, or if application can not be inferred from other ➢ PROPERTY EXEMPT
circumstances, the debt which is most onerous to the debtor, among those • Support
due, shall be deemed to have been satisfied. • Family home
➢ DISTINGUISHED FROM DATION IN PAYMENT
If the debts due are of the same nature and burden, the payment shall be
applied to all of them proportionately. (1174a) CESSION DATION IN PAYMENT
Only the possession and Transfers the ownership over the
MOST ONEROUS DEBT administration are transferred. thing alienated to the creditor.
➢ It is assumed that if the debtor had chosen the debt to be paid, he would Only extinguishes the credits to the May totally extinguish the obligation
have relieved himself first of the more burdensome debt. extent of the amount realized from
➢ Basis: the properties unless otherwise
1. Principal and surety: Principal is more onerous agreed upon
2. Sole and solidary debtor: Sole Involves all the properties of the Specific thing
3. Oldest debt debtor
4. Higher interest rate Various creditors Transfer is only in favor of one
5. Debt with guaranty creditor
6. Damages and one with penal clause: damages
7. Liquidated debt
8. Debtor is in default SUBSECTION 3. - Tender of Payment and Consignation
➢ NATURE AND BURDEN
• Where the debts are of the same nature and burden, there must TENDER OF PAYMENT: The manifestation made by the debtor to the creditor of
always be a pro rata application of the payment. his desire to comply with his obligation, with the offer of immediate
performance.
SUBSECTION 2. - Payment by Cession
CONSIGNATION: The deposit of the object of the obligation in a competent
Art. 1255. The debtor may cede or assign his property to his creditors in court in accordance with rules prescribed by law, after the tender of payment
payment of his debts. This cession, unless there is stipulation to the contrary, has been refused or because of circumstances which render direct payment
shall only release the debtor from responsibility for the net proceeds of the to the creditor impossible or inadvisable.
thing assigned. The agreements which, on the effect of the cession, are made
between the debtor and his creditors shall be governed by special laws. Art. 1256. If the creditor to whom tender of payment has been made refuses
(1175a) without just cause to accept it, the debtor shall be released from responsibility
by the consignation of the thing or sum due.
CONCEPT OF ASSIGNMENT Consignation alone shall produce the same effect in the following cases:
➢ The assignment of the universality of the property of the debtor for the (1) When the creditor is absent or unknown, or does not appear at the place of
benefit of his creditors, in order that such property may be applied to the payment;
payment of the credits. (2) When he is incapacitated to receive the payment at the time it is due;
➢ Initiative comes from the debtor but it must be accepted by the creditors. (3) When, without just cause, he refuses to give a receipt;
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(4) When two or more persons claim the same right to collect; • ABSENCE OR INCAPACITY OF CREDITOR
(5) When the title of the obligation has been lost. (1176a) o Absence or incapacity need not be legally declared.
o It is not enough that the creditor be absent or
TENDER OF PAYMENT incapacitated, he must have no legal representative. Or
➢ Tender of payment is required before consignation. if he has, the debtor, without his fault, does not know such
➢ Tender is not required in the cases enumerated in the five numbered legal representative.
paragraphs of this article. • VARIOUS CLAIMANTS
➢ Mere sending of letters by the debtor expressing intent to pay, without o They must have the appearance of a right to collect such
payment, is not a valid tender. that the debtor would have a reasonable doubt.
➢ Tender of payment of only part of the obligation, when the contract calls • CAUSES NOT ENUMERATED
for full payment of the balance due upon default of an installment, may o The enumeration must not be interpreted in the restrictive
be validly refused. sense, but in light of the purpose of the institution of
➢ EFFECT ON INTEREST consignation, which is to avoid the performance of an
• When a tender of payment is made in such a form that the obligation becoming more onerous to the debtor by
creditor could have immediately realized payment if he had reason of causes not imputable to him.
accepted the tender, followed by a prompt attempt of debtor to ➢ PREVIOUS NOTICE
deposit the means of payment in court by way of consignation, • Consignation should be made known or announced to the
the accrual of interest will be suspended. creditor and to other persons interested in the obligation.
• Lack of notice does not invalidate the consignation (it invalidates
REQUISITES OF CONSIGNATION consignation according to JSP)
1. That there was a debt due. • Notices can be made at the same time or in the same act
2. That the consignation of the obligation was made because of some legal ➢ DEPOSIT IN COURT
cause provided in the present article. • The thing or amount due must be placed at the disposal of the
3. That previous notice of the consignation has been given to the persons judicial authority.
interested in the performance of the obligation. • OBJECT OF CONSIGNATIONS
4. That the amount or thing due was placed at the disposal of the court. o Even immovable property can be placed at the disposal
5. That after the consignation has been made the persons interested were of the court.
notified thereof. ➢ SECOND NOTICE
• After consignation has been made, the interested parties must be
➢ EXISTENCE OF DEBT notified thereof.
• There must be a debt to be paid. • After notice, the creditor may
➢ CAUSE FOR CONSIGNATION 1. Accept the thing or amount deposited, in which case the
• For a valid consignation, it is necessary that the creditor must matter or payment is terminated
have refused without just cause to accept payment, or that there 2. Refuse to accept the thing or amount, in which case a trial
be some other legal cause. must be held to determine the validity of the consignation.
• Mere consignation without one of these causes does not produce 3. The creditor may neither accept nor refuse, in which case the
the effect of releasing the debtor. debtor may ask the court to cancel the obligation after
• UNJUST REFUSAL BY CREDITOR showing that the requisites of consignation has been
1. That there was previous tender of payment, without complied with.
which the consignation is ineffective.
2. That the tender of payment was of the very thing due, or Art. 1257. In order that the consignation of the thing due may release the
in case of money obligations, that legal tender currency, obligor, it must first be announced to the persons interested in the fulfillment of
was offered. the obligation.
3. That the tender of payment was unconditional.
4. That the creditor refused to accept payment without just The consignation shall be ineffectual if it is not made strictly in consonance
cause. with the provisions which regulate payment. (1177)
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PERSONS TO BE NOTIFIED Before the creditor has accepted the consignation, or before a judicial
➢ The notice of consignation must be given to all persons interested in the declaration that the consignation has been properly made, the debtor may
fulfillment of the obligation, whether they be passive subjects or possible withdraw the thing or the sum deposited, allowing the obligation to remain in
litigants. force. (1180)
HOW NOTICE IS GIVEN WHEN CONSIGNATION TAKES EFFECT

➢ Tender of payment and notice may be made in the same act. ➢ Consignation is completed at the time the creditor accepts the same
without objections, or, if he objects, at the time the court declares that it
Art. 1258. Consignation shall be made by depositing the things due at the has been validly made in accordance with law.
disposal of judicial authority, before whom the tender of payment shall be ➢ Consignation has a retroactive effect.
proved, in a proper case, and the announcement of the consignation in other
cases. EFFECTS OF CONSIGNATION
1. Debtor is released
The consignation having been made, the interested parties shall also be 2. Accrual of interest is suspended
notified thereof. (1178) 3. Deteriorations or loss of the thing without the fault of the debtor must be
borne by the creditor.
DEPOSIT IN COURT 4. Any increment or increase inures to the benefit of the creditor.
➢ The very thing due must be placed at the disposal of the judicial authority.
➢ RECIPROCAL OBLIGATIONS
JUDICIAL AUTHORITY • When the debtor is bound simultaneously to perform with the
➢ Includes the sheriff creditor, he can ask the court that the thing be delivered to the
➢ POWER OF COURT creditor only upon compliance by the latter with the counter
• Order that the property be taken into custody of an officer of the prestation.
court or of a receiver to be specially appointed by it.
• The court would likewise have authority in such case to make an WITHDRAWAL BY DEBTOR
order for the sale of the property. ➢ The right of the debtor to withdraw the thing or amount deposited in
court, depends upon whether or not the consignation has already been
NOTICE AFTER CONSIGNATION accepted or judicially declared proper.
➢ This requirement is fulfilled by the service of the summons upon the ➢ Before that time, the debtor is still the owner, and he may withdraw.
defendant together with a copy of the complaint. ➢ Once consignation has been accepted by the creditor or judicially
declared proper, the debtor loses his right and cannot withdraw without
Art. 1259. The expenses of consignation, when properly made, shall be the consent of the creditor. If the creditor consents, the obligation is
charged against the creditor. (1178) revived as against the debtor, but all rights of preference of the creditor
over the thing and all his actions against co-debtors, guarantors and
EXPENSES BORNE BY THE CREDITOR sureties are extinguished.
1. When after the thing has been deposited in court, the creditor accepts the ➢ When the debtor withdraws the thing, he must bear all the expenses.
consignation without objection and without any reservation of his right to ➢ OBJECTION BY OTHER DEBTORS
contest it because of failure to comply with any of the requisites for • Other parties liable for the obligation have no right to oppose his
consignation. withdrawal of such thing or amount.
2. When the creditor objects to the consignation but the court, after proper ➢ OBJECTION BY CREDITOR
hearing, declares that the consignation has been validly made. • Before consignation has been judicially declared proper, the
creditor may prevent the withdrawal by the debtor, by accepting
Art. 1260. Once the consignation has been duly made, the debtor may ask the the consignation even with reservations.
judge to order the cancellation of the obligation. • If no reservations are made, acceptance is a waiver of further
claims.
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ATTACHMENT BY THIRD PERSONS • No physical or legal loss, but the thing belongs to another, the
➢ Before consignation has been accepted, other creditors of the debtor performance by the debtor of the obligation undoubtedly
may still attach the thing consigned as property belonging to the debtor. becomes impossible.
• Debtor must indemnify creditor
DISMISSAL OF ACTION
➢ If the case in which the consignation is made, is dismissed, the EFFECT OF FORTUITOUS EVENT
consignation will become ineffectual. ➢ An obligation consisting in the delivery of a specified thing, shall be
extinguished when the said thing shall be lost or destroyed without the
Art. 1261. If, the consignation having been made, the creditor should authorize fault of the obligor and before he is in default.
the debtor to withdraw the same, he shall lose every preference which he may ➢ ROBBERY AND THEFT
have over the thing. The co-debtors, guarantors and sureties shall be released. • If the thing has been lost through robbery with violence, the
(1181a) debtor must show that he could not resist the violence.
• If the lost is through theft, the debtor is considered negligent.
WITHDRAWAL WITH CREDITOR’S CONSENT ➢ EFFECT ON RECIPROCAL OBLIGATIONS
➢ There is a revival of the obligation. • The entire juridical relation is extinguished, so that if the creditor
➢ Third persons who were benefited by the consignation, are not prejudiced has himself an obligation, this is likewise extinguished.
by the revival of the obligation between debtor and creditor. ➢ EXCEPTION
➢ Withdrawal of the consignation releases the solidary co-debtor only from • The debtor who is unable to perform becomes liable for damages
his solidary liability for the share of others, but not from his liability for his when the thing is lost through a fortuitous event:
own share. 1. When the law expressly provides that the debtor shall be
liable even if the loss is due to fortuitous events.
SECTION 2. - Loss of the Thing Due 2. When by express stipulation, the obligor is made liable even of
loss occurs through fortuitous events.
CONCEPT OF LOSS OF THE THING 3. When the nature of the obligation requires the assumption of
➢ Not limited to obligations to give risk
➢ Extends to those which are personal, embracing therefore all causes 4. When the fault or negligence of the debtor concurs with the
which may render impossible the performance of the prestation. fortuitous event.
➢ Impossibility of performance. 5. When the loss occurs after the debtor has incurred in delay.
➢ If impossibility already existed when the contract was made: inefficacy of 6. When the debtor has promised to deliver the same though to
the obligation two or more different parties.
7. When the obligation to deliver a determinate object arises
Art. 1262. An obligation which consists in the delivery of a determinate thing from a criminal act.
shall be extinguished if it should be lost or destroyed without the fault of the
debtor, and before he has incurred in delay. Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish the obligation. (n)
When by law or stipulation, the obligor is liable even for fortuitous events, the
loss of the thing does not extinguish the obligation, and he shall be responsible LOSS OF GENERIC THINGS
for damages. The same rule applies when the nature of the obligation requires ➢ A determinate thing is a concrete particularized object, indicated by its
the assumption of risk. (1182a) own individuality.
➢ A generic thing is one whose determination is confined to that of its
LOSS OF DETERMINATE OBJECT nature, to the genus to which it pertains.
➢ Perishes ➢ The loss of the determinate object without fault of the debtor extinguishes
➢ Goes out of commerce the obligation to give; but the obligation is not extinguished if the object is
➢ Disappears in such a way that its existence is unknown or it cannot be indeterminate or generic.
recovered. ➢ When all the things of the kind stipulated disappear or perish, the
➢ SUBJECTIVE IMPOSSIBILITY obligation is extinguished.
41
➢ DELIMITED GENERIC THINGS • Legal impossibility: the act, by reason of a subsequent law, is
• When there is a limitation of the generic object to a particular prohibited.
existing mass or a particular existing mass or a particular group or • Objective impossibility: the act or service in itself, without
of things, the obligation is extinguished by the loss of the particular considering the person of the obligor, becomes impossible.
mass or group or limited quantity from which the prestation has to • Subjective impossibility: the act or service cannot be dome by
be taken. the debtor himself.
• Objective and subjective impossibility produce the same effect.
Art. 1264. The courts shall determine whether, under the circumstances, the
partial loss of the object of the obligation is so important as to extinguish the EFFECT OF IMPOSSIBILITY
obligation. (n) ➢ Releases the debtor from his obligation.
➢ However, where it is not the prestation that has become impossible, but
EFFECT OF PARTIAL LOSS an act to be performed after the fulfillment of the prestation, the
➢ Based on the assumption that partial loss is not imputable to the fault or obligation is extinguished.
negligence of the debtor.
➢ If the portion that is lost is of such extent or nature that the obligation PARTIAL IMPOSSIBILITY
would not have been constituted without it, then the obligation is ➢ If at the time performance becomes impossible the debtor has already
extinguished. fulfilled part of the obligation, the creditor must pay the part done so long
as he benefits from such partial compliance.
Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be ➢ If the debtor has already received something from the creditor, he must
presumed that the loss was due to his fault, unless there is proof to the return anything in excess of what corresponds to the part already
contrary, and without prejudice to the provisions of article 1165. This performed when the impossibility supervened.
presumption does not apply in case of earthquake, flood, storm, or other
natural calamity. (1183a) TEMPORARY IMPOSSIBILITY
➢ Do not extinguish the obligation, but merely delay its fulfillment, unless by
APPLICATION OF ARTICLE its nature or by the will of the parties it has to be performed at a
➢ The burden of explaining the loss of a thing in the possession of the debtor, determinate time.
rests upon the latter.
➢ The debtor must show that he is free from negligence, for negligence is RECIPROCAL OBLIGATIONS
presumed from the mere fact of loss. ➢ Release of the debtor due to impossibility of performance, also releases
➢ EXCEPTION: In case of natural calamity, where lack of fault on part of the creditor from the counter-prestation.
debtor is likely and it is unjust to presume negligence on his part.
Art. 1267. When the service has become so difficult as to be manifestly beyond
Art. 1266. The debtor in obligations to do shall also be released when the the contemplation of the parties, the obligor may also be released therefrom,
prestation becomes legally or physically impossible without the fault of the in whole or in part. (n)
obligor. (1184a)
CHANGE OF CIRCUMSTANCES
SUBSEQUENT IMPOSSIBILITY ➢ Intention of the parties should govern,
➢ Impossible at the time the obligation is constituted: Nullity of the contract ➢ Based on rebus sic stantibus in public international law. Under this theory,
➢ Impossible at the time of performance: modification or extinguishment of the parties stipulate in the light of certain prevailing conditions, and once
obligation depending on whether it is imputable to debtor. these conditions cease to exist the contract also cease to exist.
➢ This article refers to an impossibility which arises after the obligation has ➢ The parties to a contract must be presumed to have assumed the risk of
been constituted. unfavorable developments. It is therefore only in abosolutely exceptional
➢ NATURE OF IMPOSSIBILITY changes of circumstances that equity demands assistance for the debtor.
• Physical impossibility: the act, by reason of its nature, cannot be ➢ REQUISITES
accomplished. 1. the event or change in circumstance could not have been
foreseen at the time of the execution of the contract.
42
2. It makes the performance of the contract extremely difficult but One and the other kind shall be subject to the rules which govern inofficious
not impossible. donations. Express condonation shall, furthermore, comply with the forms of
3. The event must not be due to the act of any of the parties. donation. (1187)
4. The contract is for a future prestation.
CONCEPT OF REMISSION
• UNFORSEEN EVENTS ➢ Remission is an act of liberality.
o Any change of circumstances, going beyond these limits ➢ The creditor renounces the enforcement of the obligation, which is
would be manifestly going beyond the contemplation of extinguished in its entirety or in that part or aspect of the same to which
the parties. the remission refers.
• DIFFICULTY OF PERFORMANCE ➢ Gratuitous
o A manifest disequilibrium in the prestation, such that one ➢ KINDS OF REMISSION
party would be placed at a disadvantage by the • FORM
unforeseen event. o Express: made formally, and should be in accordance
with the forms of ordinary donations.
LOSS OF PROTECTED INTEREST o Implied: it can be inferred from the acts of the parties.
➢ The disappearance of the creditor’s interest which is sought to be • EXTENT
protected by the obligation, will extinguish the obligation. o Total
o Partial
Art. 1268. When the debt of a thing certain and determinate proceeds from a • MANNER
criminal offense, the debtor shall not be exempted from the payment of its o Inter vivos (effective during the lifetime of the creditor)
price, whatever may be the cause for the loss, unless the thing having been o Mortis causa (effective upon the death of the creditor);
offered by him to the person who should receive it, the latter refused without must be contained in a will or testament
justification to accept it. (1185) ➢ APPLICABLE RULES
• Condonation or remission is essentially a donation.
OFFER OF PAYMENT • It is a bilateral act which requires acceptance by the debtor.
➢ When the debtor tenders payment and the creditor refuses to receive it • It is subject to the rules on donations.
without reason, there are 2 alternatives: ➢ REQUISITES OF REMISSION
1. to consign the thing and relieve himself from any further responsibility 1. the debt must be existing and demandable at the time the
2. to just keep the thing, with the obligation to use due diligence remission is made
2. the renunciation of the debt must be gratuitous, or without any
Art. 1269. The obligation having been extinguished by the loss of the thing, the equivalent or consideration
creditor shall have all the rights of action which the debtor may have against 3. debtor must accept the remission
third persons by reason of the loss. (1186) • EXPRESS REMISSION
o The law subjects remission to the same formalities as
EXTENT OF CREDITOR’S RIGHTS donations.
➢ Refers to right against third persons and indemnity which the debtor may ➢ ACT OF CREDITOR
have already received. • To condone is to forgive or remit a debt.
➢ Applicable to the money obtained from the insurance of the thing lost or • There is no law which condones payment or interest.
destroyed. • Party who can condone is the creditor and not the courts of
justice.
SECTION 3. - Condonation or Remission of the Debt ➢ EVIDENCE REQUIRED
• Should be proven by clear and more convincing evidence.
Art. 1270. Condonation or remission is essentially gratuitous, and requires the
acceptance by the obligor. It may be made expressly or impliedly. UNILATERAL RENUNCIATION
43
➢ Remission requires acceptance, but there is nothing that can prevent a ➢ When the obligation is joint, and the private document evidencing a debt
creditor from making a unilateral renunciation of his right, abandoning his is found in the possession of one of the debtors, the presumption of
credit, and thereby extinguishing it. remission can refer only to the portion of the debtor who is in possession of
the instrument. Only the share pertaining to him shall be deemed
Art. 1271. The delivery of a private document evidencing a credit, made remitted.
voluntarily by the creditor to the debtor, implies the renunciation of the action ➢ If the obligation is solidary, remission must be considered total.
which the former had against the latter.
Art. 1273. The renunciation of the principal debt shall extinguish the accessory
If in order to nullify this waiver it should be claimed to be inofficious, the debtor obligations; but the waiver of the latter shall leave the former in force. (1190)
and his heirs may uphold it by proving that the delivery of the document was
made in virtue of payment of the debt. (1188) Art. 1274. It is presumed that the accessory obligation of pledge has been
remitted when the thing pledged, after its delivery to the creditor, is found in
IMPLIED REMISSION the possession of the debtor, or of a third person who owns the thing. (1191a)
➢ Creditor voluntarily destroys or cancels the evidence of the credit, with
the intent to renounce his right. NATURE OF PRESUMPTION
➢ LIMITED TO PRIVATE DOCUMENT ➢ Prima facie
• The code presupposes that when the creditor delivers a private
document evidencing a debt to his debtor, he surrenders the EFFECT OF REMISSION OF PLEDGE
weapon for the enforcement of his right. ➢ Extinguishes only the security; it does not affect the principal obligation.
• This is not true in the case of a public document because there is
always a copy in the archives. SECTION 4. - Confusion or Merger of Rights
• The voluntary delivery to the debtor of the first original copy of a
public instrument does not imply remission. Art. 1275. The obligation is extinguished from the time the characters of
➢ RELEASE THROUGH ERROR creditor and debtor are merged in the same person. (1192a)
• The creditor may grant a release by mistake, the debtor may
accept it also in error. CONCEPT OF MERGER
• There is no extinguishment of the obligation. ➢ Merger or confusion is the meeting in one person of the qualities of the
➢ WHEN INOFFICIOUS creditor and debtor with respect to the same obligation.
• Second paragraph implies that the voluntary return of the title of ➢ It erases plurality.
credit is presumed to be by reason of remission, unless the ➢ REQUISITES
contrary is proven. 1. It must take place between the creditor and the principal debtor.
• De Diego: this provision is absurd and immoral in that it authorizes 2. The very same obligation must be involved.
the debtor and his heirs to prove that they paid the debt, when 3. The confusion must be total or as regards the entire obligation.
the provision itself assumes that there has been a remission, which ➢ CAUSES OF MERGER
is gratuitous. • Succession to credit
• Testate or intestate succession
Art. 1272. Whenever the private document in which the debt appears is found ➢ REAL RIGHTS
in the possession of the debtor, it shall be presumed that the creditor delivered • Real rights, which do not involved the relation of the debtor and
it voluntarily, unless the contrary is proved. (1189) the creditor, may be extinguished by the merger of the real right
with the right of ownership.
NATURE OF PRESUMPTION
➢ Implies the remission of the debt evidenced by such private document. REVOCATION OF MERGER
➢ This presumption is only prima facie. ➢ When the act which occasions the merger is susceptible of termination or
revocation, the merger that has taken place is also terminated or
PLURALITY OF SUBJECTS revoked, and the obligation is recreated.
44
EFFECT OF MERGER making the credit effective.
➢ Extinguish the obligation
➢ DISTINGUISHED FROM MERGER
Art. 1276. Merger which takes place in the person of the principal debtor or MERGER COMPENSATION
creditor benefits the guarantors. Confusion which takes place in the person of Involves only one obligation There must always be two
any of the latter does not extinguish the obligation. (1193) obligations
There is only one person in whom the There are two persons who are
RELEASE OF GUARANTOR character of the debtor and mutually debtors and creditors.
➢ Extinguishment through confusion releases the guarantors, because their creditor meet
obligation is merely accessory.
➢ DISTINGUISHED FROM COUNTERCLAIM
MERGER IN GUARANTOR SET-OFF OR COUNTERCLAIM COMPENSATION
➢ Obligation is not extinguished. His obligation as a guarantor is Must be pleaded Takes place by operation of law.
extinguished, but the principal obligation subsists.
KINDS OF COMPENSATION
MORTGAGED PROPERTY
➢ EFFECTS
➢ Mortgagee acquires a part of such property, that part is released from the
• Total: when two obligations are of the same amount
encumbrance but the credit is not extinguished even in part.
• Partial: when the amounts are not equal
➢ Mortgagee acquires ownership of the entire mortgaged property, the
➢ ORIGIN
mortgage is extinguished.
• Legal: takes place by operation of law because all the requisites
are present
Art. 1277. Confusion does not extinguish a joint obligation except as regards
• Facultative: it can be claimed by one of the parties who,
the share corresponding to the creditor or debtor in whom the two characters however, has the right to object to it – when period is for the
concur. (1194) benefit of one party alone and who renounces the period to
make the obligation due.
SECTION 5. – Compensation • Conventional: Parties agree to compensate
• Judicial: decreed by court.
Art. 1278. Compensation shall take place when two persons, in their own right, ➢ CONVENTIONAL COMPENSATION
are creditors and debtors of each other. (1195) • By agreement of the parties
• It is intended to eliminate or overcome obstacles which prevent
DEFINITION OF COMPENSATION ipso jure extinguishment of the obligations.
➢ Mode of extinguishing to the concurrent amount, the obligation of those • Requisites:
persons who in their own right are reciprocally debtors and creditors of 1. that each of the parties can dispose of the credit he seeks to
each other.
compensate.
➢ Offsetting
2. that they agree to the mutual extinguishment of their credi
➢ DISTINGUISHED FROM PAYMENT
➢ FACULTATIVE COMPENSATION
PAYMENT COMPENSATION • Can be set up only at the option of a creditor.
Capacity to dispose of the thing Such capacity is not necessary, • Unilateral
paid and capacity to receive are because compensation operates ➢ JUDICIAL COMPENSATION
required for debtor and creditor by law and not by the act of the • Takes place when the defendant, who is a creditor of the plaintiff
respectively. parties. for an unliquidated amount, sets up his credit as a counterclaim
Performance must be complete. There may be partial against the plaintiff, and his credit is liquidated by the judgment,
extinguishment of an obligation. thereby compensating it with the credit of the plaintiff.
2 advantages:
1. simple Art. 1279. In order that compensation may be proper, it is necessary:
2. there is more guaranty in
45
(1) That each one of the obligors be bound principally, and that he be at the • Compensation can only take place between certain and
same time a principal creditor of the other; liquidated debts.
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the CLAIMS OF THIRD PERSONS
latter has been stated; ➢ When one of the obligations sought to be compensated is subject to a
(3) That the two debts be due; suit between a third party and the party interested in the compensation,
(4) That they be liquidated and demandable; each claiming to be the creditor in said obligation, there is a provisional
(5) That over neither of them there be any retention or controversy, suspension of the possible compensation.
commenced by third persons and communicated in due time to the debtor. ➢ If third party is adjudged the creditor, there will be no compensation.
(1196)
PLURALITY OF PRESTATIONS
MUTUAL DEBTORS AND CREDITORS ➢ When one obligation is simple, and the other is alternative, there can be
➢ The parties must be mutually debtors and creditors in their own right and no legal compensation.
as principals. ➢ Neither can compensation take place is one of the obligations is
➢ No compensation when one party is occupying a representative facultative.
capacity.
Art. 1280. Notwithstanding the provisions of the preceding article, the
FUNGIBLE THINGS DUE guarantor may set up compensation as regards what the creditor may owe
➢ Things of the same kind. the principal debtor. (1197)
➢ Fungible not consumable.
➢ Fungible: things which can be substituted for each other. REASON
➢ When the obligation refers to determinate or specific things, there can be ➢ If the principal debtor has a credit against the creditor which can be
no compensation. compensated, it would mean the extinguishment of the guaranteed debt
either totally or partially.
MATURITY OF DEBTS
➢ Both debts must be due to permit compensation. Art. 1281. Compensation may be total or partial. When the two debts are of the
same amount, there is a total compensation. (n)
DEBTS BOTH DEMANDABLE
➢ Debts are enforceable in court. Art. 1282. The parties may agree upon the compensation of debts which are
➢ Must be civil obligations not yet due. (n)
➢ An obligation is not demandable when:
1. There is a period which has not yet arrived VOLUNTARY COMPENSATION
2. When there is a suspensive condition that has not yet happened. ➢ Not limited to obligations which are not yet due.
3. When the obligation cannot be sued upon, as in natural obligations. ➢ Parties may compensate by agreement.
➢ PRESCRIPTION ➢ Requisites for legal compensation are not necessary.
• If at the time when the two debts co-exist, neither has prescribed, ➢ The parties should have the capacity to dispose of the credits which they
the prescription of one afterwards will not prevent compensation. compensate.
• If the requisites for compensation have co-existed, even if it be
only for one day, there will be mutual extinguishment. Art. 1283. If one of the parties to a suit over an obligation has a claim for
➢ RESCISSIBLE OR VOIDABLE DEBTS damages against the other, the former may set it off by proving his right to said
• The moment it is rescinded or annulled, the decree is retroactive, damages and the amount thereof. (n)
and compensation can no longer take place.
➢ LIQUIDATED DEBTS Art. 1284. When one or both debts are rescissible or voidable, they may be
• A debt is liquidated when its existence and amount are compensated against each other before they are judicially rescinded or
determined. avoided. (n)
46
EFFECT OF JUDGMENT Art. 1286. Compensation takes place by operation of law, even though the
➢ The moment it is rescinded or annulled, the decree of rescission or debts may be payable at different places, but there shall be an indemnity for
annulment is retroactive, and the compensation must be considered as expenses of exchange or transportation to the place of payment. (1199a)
cancelled.
➢ Rescission or annulment requires mutual restitution. APPLICATION
➢ Applies to legal compensation and not to voluntary compenstation.
Art. 1285. The debtor who has consented to the assignment of rights made by
a creditor in favor of a third person, cannot set up against the assignee the Art. 1287. Compensation shall not be proper when one of the debts arises from
compensation which would pertain to him against the assignor, unless the a depositum or from the obligations of a depositary or of a bailee in
assignor was notified by the debtor at the time he gave his consent, that he commodatum.
reserved his right to the compensation.
Neither can compensation be set up against a creditor who has a claim for
If the creditor communicated the cession to him but the debtor did not support due by gratuitous title, without prejudice to the provisions of
consent thereto, the latter may set up the compensation of debts previous to paragraph 2 of Article 301. (1200a)
the cession, but not of subsequent ones.
REASON FOR PROHIBITION
If the assignment is made without the knowledge of the debtor, he may set up ➢ Depositum or commodatum is based on justice.
the compensation of all credits prior to the same and also later ones until he ➢ A deposit made or a commodatum is given on the basis of confidence.
had knowledge of the assignment. (1198a)
DEPOSIT AND COMMODATUM
ASSIGNMENT AFTER COMPENSATION ➢ Only the depositary and the borrower cannot set up compensation.
➢ There has already been an extinguishment of one or the other of the
obligations. SUPPORT
➢ A subsequent assignment of an extinguished obligation cannot produce ➢ Not only legal support, but also including all other rights.
any effect against the debtor.
➢ EXCEPTION: when debtor consents to the assignment. This constitutes a OBLIGATION IN FAVOR OF THE GOVERNMENT
waiver, unless he reserved his right to compensation. ➢ Debts in favor of the government cannot be extinguished by
compensation.
ASSIGNMENT BEFORE COMPENSATION ➢ But when debt in favor of the government is purely contractual, there is no
➢ Debtor: assignment does not take effect except from the time he is reason why compensation cannot take place.
notified thereof. If the notice is simultaneous to the transfer, he can set up
compensation of debts due prior to the assignment. Art. 1288. Neither shall there be compensation if one of the debts consists in
➢ If notice was given before the assignment, this takes effect at the time of civil liability arising from a penal offense. (n)
the assignment. Same rule applies if he consents to the assignment.
➢ If debtor was notified and he did not consent, and the credit assigned REASON FOR ARTICLE
matures, the debtor may set up compensation when the assignee ➢ Compensation would be improper
attempts to enforce the assigned credit, provided that the credit of the
debtor became due before the assignment. OFFENDER BARRED
➢ If the assigned credit matures earlier than that of the debtor, the assignee ➢ The person who has a civil liability arising from crime is the only party who
may immediately enforce it, and the debtor cannot set up compensation cannot set up the compensation.
because his credit is not yet due. ➢ The offended party entitled to indemnity can set up his claim in
➢ If debtor did not have knowledge of the assignment, he may set up by compensation of his debt. This is a case of facultative compensation.
way of compensation all credits maturing before he is notified thereof.
Art. 1289. If a person should have against him several debts which are
susceptible of compensation, the rules on the application of payments shall
apply to the order of the compensation. (1201)
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SECTION 6. – Novation
Art. 1290. When all the requisites mentioned in Article 1279 are present,
compensation takes effect by operation of law, and extinguishes both debts Art. 1291. Obligations may be modified by:
to the concurrent amount, even though the creditors and debtors are not (1) Changing their object or principal conditions;
aware of the compensation. (1202a) (2) Substituting the person of the debtor;
3) Subrogating a third person in the rights of the creditor. (1203)
EFFECTCTIVITY OF COMPENSATION
➢ Legal compensation takes effect from the moment that the requisites of CONCEPT OF NOVATION
articles 1278 and 1279 co-exist. ➢ Novation is the extinguishment of an obligation by the substitution or
➢ Voluntary or conventional compensation takes effect upon the change of the obligation by a subsequent one which extinguishes or
agreement of the parties. modifies the first either by:
➢ Facultative compensation takes place when the creditor declares his 1. Changing the object or principal conditions
option to set it up. 2. Substituting the person of the debtor
➢ Judicial compensation takes place upon final judgment. 3. Subrogating a third person in the rights of the creditor.
EFFECTS OF COMPENSATION CLASSIFICATION OF NOVATION

1. Both debts are extinguished to the concurrent amount. ➢ NATURE
2. Interests stop accruing on the extinguished obligation or the part • Subjective or personal: Change of subject; passive – substitution
extinguished. of the debtor; active – third person is subrogated in the rights of
3. The period of prescription stops with respect to the obligation or part the creditor.
extinguished. • Objective or real: substituting the object or changing the principal
4. All accessory obligations are extinguished. conditions.
• Mixed: combination of the subjective and objective novation.
MUST BE SET UP ➢ FORM
➢ Must be alleged and proved by the debtor. • Express: parties declare
• Implied: there is such an incompatibility between the old and the
RENUNCIATION OF COMPENSATION new obligations that they cannot stand together.
➢ Compensation can be renounced either at the time the obligation is ➢ EFFECT
contracted or afterwards. Compensation rests upon a potestative right, • Partial: modification or change in some principal conditions of the
and a unilateral declaration of the debtor would be sufficient obligation
renunciation. • Total: when the old obligation is completely extinguished
➢ Compensation can be renounced expressly or impliedly.
➢ Implied renunciation: REQUISITES OF NOVATION
• Not setting it up in the litigation 1. Previous valid obligation
• By consenting to the assignment of a credit 2. Agreement of all the parties to the new contract
• By paying the debt voluntarily, with knowledge that it has been 3. The extinguishment of the old contract
extinguished by compensation. 4. Validity of the new one
NO COMPENSATION ➢ ORIGINAL EXISTING OBLIGATION

➢ Even when all the requisites are present, compensation may not take • Obligation must not only be valid, but also that it has not been
place in the ff. cases: extinguished.
1. When there is a renunciation of the effects of compensation by a ➢ CONSENT OF PARTIES
party. • There must be consent of ALL the parties.
2. When the law prohibits compensation. ➢ EXTINGUISHMENT OF OBLIGATION
• May take place by express or by implication.
➢ NEW VALID OBLIGATION
48
• New contract must be valid and effective. A mere draft cannot • Delegacion: the debtor offers and the creditor accepts a third
annul a prior valid and effective contract. person who consents to the substitution. The consent of these
three is necessary.
Art. 1292. In order that an obligation may be extinguished by another which ➢ RELEASE OF OLD DEBTOR
substitute the same, it is imperative that it be so declared in unequivocal • It is necessary that the old debtor be release from the obligation,
terms, or that the old and the new obligations be on every point incompatible and the third person or new debtor take his place in the relation.
with each other. (1204) • Without such release, there is no novation.
➢ CONSENT OF CREDITOR
NOVATION NOT PRESUMED • Consent of creditor to the change of debtors is an indispensable
➢ Novation is never presumed. requirement.
➢ It must be established that the old and new contracts are incompatible in • Consent may be express or implied.
all points or that the will to novate appear by express agreement or in • When the original contract authorizes the debtor to transfer his
acts of equivalent import. obligation to a third person, the novation by substitution of debtor
is effected when the creditor is notified that such transfer has
EXPRESS NOVATION been made.
➢ Novation takes place only when the parties expressly disclose their object • Consent of creditor cannot be presumed from his acceptance of
in making the new contract is to extinguish the old contract. payments by a third party.
➢ CONSENT OF DEBTORS
IMPLIED NOVATION • Expromision: consent of debtor is not necessary.
➢ No specific form is required. All that is required is incompatibility between • Delegacion: old debtor always consents because initiative comes
the original and the subsequent contracts. from him.
➢ Test of incompatibility: Whether they can stand together, each one • In both cases, consent of new debtor is necessary.
having an independent existence. ➢ EFFECT ON DEBTORS
➢ ESSENTIAL CHANGES • Releasing the original debtor and making the new debtor liable.
• Change must refer to the object, the cause, or the principal • As between the old and the new debtors
conditions. o Donation cannot be presumed and the old debtor must
• There must be essential change. reimburse to the new debtor whatever benefit he derives
➢ ACCIDENTAL CHANGES from the novation.
• Accidental modifications in an existing obligation do not o Expromision: new debtor pays, the matter is governed by
extinguish it by novation. the rules on payment by third person.
• Changes refer to secondary agreements = no novation o Delegacion: Rule applicable to payment by a third
➢ DETERMINATION OF CHANGE person with the consent of the debtor should apply.
• Depend upon the facts and circumstances of each case.
• Courts should consider not only the nature, but also the intention Art. 1294. If the substitution is without the knowledge or against the will of the
of the parties. debtor, the new debtor's insolvency or non-fulfillment of the obligations shall
not give rise to any liability on the part of the original debtor. (n)
Art. 1293. Novation which consists in substituting a new debtor in the place of
the original one, may be made even without the knowledge or against the will SUBSTITUTION BY EXPROMISION
of the latter, but not without the consent of the creditor. Payment by the new ➢ No liability for the new debtor’s insolvency can be enforced against the
debtor gives him the rights mentioned in Articles 1236 and 1237. (1205a) old debtor because the later did not have the initiative in making the
change.
SUBSTITUTION OF DEBTOR
➢ 2 forms: Art. 1295. The insolvency of the new debtor, who has been proposed by the
• Expromision: initiative for the change does not emanate from the original debtor and accepted by the creditor, shall not revive the action of the
debtor and may be made even without his knowledge. It requires latter against the original obligor, except when said insolvency was already
consent of this third person and the creditor.
49
existing and of public knowledge, or known to the debtor, when the ➢ If new obligation is extinguished by the loss of its object, the creditor
delegated his debt. (1206a) cannot demand the object of the original obligation.
SUBSTITUTION BY DELEGACION Art. 1298. The novation is void if the original obligation was void, except when
➢ Insolvency of the new debtor permits the creditor to sue the old debtor annulment may be claimed only by the debtor or when ratification validates
when the insolvency was prior to the delegation and publicly known, or acts which are voidable. (1208a)
when the old debtor knew of such insolvency.
➢ Some believe that there are other cases in which the old debtor will be ORIGINAL OBLIGATION VOID
liable: ➢ When the original obligation is void, there can be no novation, because
1. If the new debtor is only secondarily liable one of the requisites would be lacking.
2. If the third person is only an agent of the debtor. ➢ An obligation which has already been extinguished is also inexistent.
3. Where the new debtor is bound solidarily with the old debtor. Hence, it cannot be novated.
Art. 1296. When the principal obligation is extinguished in consequence of a OLD OBLIGATION VOIDABLE
novation, accessory obligations may subsist only insofar as they may benefit ➢ When the original obligation has been ratified before novation, the
third persons who did not give their consent. (1207) novation is effective.
➢ Even if there has been no previous ratification at the time of the novation,
ACCESSORY OBLIGATIONS if the nullity can only be claimed by the debtor, the consent of the debtor
➢ The extinguishment of the principal obligation by novation extinguishes to the novation will render the novation effective, because such consent
the obligation to pay interests, unless otherwise stipulated. is impliedly a waiver of the action for nullity.
➢ The exception provided has reference to a stipulation in favor of a third ➢ PRESCRIPTION
person which is subordinate to the principal obligation. • When debt is already barred by prescription, it cannot be
➢ It is in reality an distinct obligation in favor of a third person, and cannot enforced by the creditor, but a new contract, recognizing and
be extinguished without the consent of the latter. assuming the prescribed debt, would be valid and enforceable.
• The prescription being available only to the debtor can be
Art. 1297. If the new obligation is void, the original one shall subsist, unless the waived by him.
parties intended that the former relation should be extinguished in any event.
(n) Art. 1299. If the original obligation was subject to a suspensive or resolutory
condition, the new obligation shall be under the same condition, unless it is
NEW VALID OBLIGATION otherwise stipulated. (n)
➢ Indispensable that the new contract be valid and effective.
OLD OBLIGATION CONDITIONAL
NEW OBLIGATION VOIDABLE ➢ The original obligation may be conditional and the new obligation pure.
➢ If the new obligation is not entirely void, but only voidable, the novation ➢ If the intention is merely to suppress the condition, there will be no
becomes effective. novation, but if it is to extinguish the original obligation, the new obligation
➢ But if the action to annul is brought and the obligation was set aside, it will does not arise except from the fulfillment of the condition of the original
be deemed as if there had been no novation. obligation.
➢ The reason is, if the suspensive condition of the original obligation is not
CONDITIONAL NEW OBLIGATION performed, that obligation does not come into existence and the cause
➢ If the intention is merely to attach the condition to the original obligation, for the new obligation would then be wanting.
there is no novation. ➢ If the condition is resolutory, its happening would resolved the old
obligation and place it in the same category as a void obligation or one
EXTINGUISHMENT OF NEW OBLIGATION which has been extinguished.
➢ After novation has taken place, by the change of the object, the old
obligation can no longer be enforced. BOTH OBLIGATIONS CONDITIONAL
➢ Old and new obligations are both conditional.
50
➢ If the conditions in the two obligations are not incompatible, they must all ➢ If a third person pays the creditor without the consent of the debtor, he is
be fulfilled in order that the novation may be become effective. only entitled to reimbursement from the debtor for the amount paid by
➢ If the conditions are incompatible, there is an obvious intention to him.
substitute the new conditional obligation for the old conditional
obligation. PAYMENT BY INTERESTED PARTY
➢ Those who would be benefited by the extinguishment of the obligation.
Art. 1300. Subrogation of a third person in the rights of the creditor is either ➢ Co-debtors, guarantors, sureties, etc.
legal or conventional. The former is not presumed, except in cases expressly
mentioned in this Code; the latter must be clearly established in order that it Art. 1303. Subrogation transfers to the persons subrogated the credit with all
may take effect. (1209a) the rights thereto appertaining, either against the debtor or against third
person, be they guarantors or possessors of mortgages, subject to stipulation
KINDS OF SUBROGATION in a conventional subrogation. (1212a)
➢ Subrogation is the transfer of all the rights of the creditor to a third person,
who substitutes him in all his rights. EFFECTS OF SUBROGATION
➢ It may be legal or conventional. ➢ Subrogation transfers to the third person or new creditor the entire credit,
➢ Legal subrogation: takes place by operation of law. This is the subrogation with all the corresponding rights.
referred to in Art 1302. ➢ If a suspensive condition is attached to it, that condition must be fulfilled.
➢ Conventional subrogation: takes place by agreement of the parties. This
requires the intervention and consent of three persons – the original SUBROGATION IN INSURANCE
creditor, the new creditor, and the debtor. ➢ Upon payment of the loss, the insurer is entitled to be subrogated to any
right of action which the insured may have against the third person whose
CONSENT OF ALL PARTIES negligence or wrongful act caused the loss.
➢ In conventional subrogation, consent of all the parties is essential.
Art. 1304. A creditor, to whom partial payment has been made, may exercise
CONVENTIONAL SUBROGATION AND ASSIGNMENT OF CREDITS his right for the remainder, and he shall be preferred to the person who has
➢ Conventional subrogation is not identical to assignment of credit. been subrogated in his place in virtue of the partial payment of the same
➢ In conventional subrogation, the debtor’s consent is necessary. This is not credit. (1213)
required in assignment of credit.
➢ Subrogation extinguishes the obligation and gives rise to a new one.
➢ Assignment refers to the same right.
Art. 1301. Conventional subrogation of a third person requires the consent of

the original parties and of the third person. (n)
Art. 1302. It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without the
debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the express
or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion
as to the latter's share. (1210a)
PAYMENT WITH DEBTOR’S APPROVAL
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Title II. – CONTRACTS unaccepted offer.
PACT Special part of a
CHAPTER 1 GENERAL PROVISIONS contract, sometimes
merely incidental and
Art. 1305. A contract is a meeting of minds between two persons whereby one separable from the
binds himself, with respect to the other, to give something or to render some principal agreement.
service. (1254a) STIPULATION Similar to a pact. When
a contract is an
CONCEPT OF CONTRACT instrument, stipulation
➢ Agreement on the declaration of a common will. refers to the essential
➢ Our code seems to limit the definition to cases, where one party binds and dispositive part, as
himself to perform a prestation in favor of another, excluding cases of distinguished from the
reciprocal prestations. exposition of the fats
➢ Better definition (Sanchez Roman) and antecedents upon
• A juridical convention manifested in legal form, by virtue of which which it is based.
one or more persons bind themselves in favor of another or others,
or reciprocally, to the fulfillment of a prestation to give, to do, or NUMBER OF PARTIES
not to do. ➢ The code requires “two persons” for the existence of a contract; obviously
➢ OTHER CONVENTIONS what is meant by the law is “two parties.”
• A contract is limited to agreements which produce patrimonial • HUSBAND AND WIFE
liabilities. o Art 1490: husband and wife cannot sell property to each
• Distinguished from other acts based on consent of two or more other unless there is a separation of property between
persons (marriage, donation, adoption, and succession): them.
CONTRACT OTHER o Prohibition is to protect the conjugal partnership.
Creates a more particular, • AUTO-CONTRACTS
concrete, and transitory o Contract where one person contracts with himself.
obligation, because it o Same person, acting in another’s capacity, and his own.
establishes a relation which is o Validity of auto-contracts is generally acceptable except
more limited by reason of when there is conflict of interest or a possibility of injury,
persons, effects, and and except when the law expressly prohibits it in specific
importance. cases.
Freedom to stipulate Meeting of the minds is o So long as there are two distinct patrimonies, even if they
predominated over the merely secondary are represented by the same person, a juridical relation
necessity of the act. Intention of can be created between them.
the parties is the determining o (1) When a person, in his capacity as representative of
factor in contracts. another, contracts with himself; (2) When as a
Law only has suppletory effect Law is the principal source of representative of two different persons, he brings about a
rights and obligations contract between his principals
• CONTRACTS OF ADHESION
➢ OTHER TERMS o When one party has already a prepared form of a
CONTRACT contract, containing the stipulations he desires, and he
PERFECT PROMISE Tends only to assure Establishes and simply asks the other party to agree to them if he wants to
and pave the way for determines the enter into the contract.
the celebration of a obligation arising
contract in the future. therefrom CHARACTERISTICS OF CONTRACTS
IMPERFECT PROMISE Policitacion; A mere Obligatory Force Constitutes the law as between the parties
52
Mutuality Validity and performance cannot be left to the will Name 3. Nominate
of only one of the parties 4. Innominate
Relativity of Contracts It is binding only upon the parties and their
successors.
Art. 1306. The contracting parties may establish such stipulations, clauses,
ELEMENTS OF CONTRACT terms and conditions as they may deem convenient, provided they are not
➢ ESSENTIAL ELEMENTS contrary to law, morals, good customs, public order, or public policy. (1255a)
3. Consent
4. Subject matter FREEDOM TO CONTRACT
5. Cause ➢ Save in limited and exceptional situations provided by the law itself, courts
➢ NATURAL ELEMENTS have no authority to prescribe the terms and conditions of a contract for
• Those which exist as part of the contract even if the parties do not the parties.
provide for them, because the law, as suppletory to the contract,
creates them (e.g. warranty in sale). VALIDITY OF STIPULATIONS
➢ ACCIDENTAL ELEMENTS ➢ The contract is the law between the contracting parties.
• Agreed upon by the parties and which cannot exist without being ➢ TRUST RECEIPTS
stipulated. • Partake the nature of a conditional sale. The importer becomes
absolute owner of the imported merchandise as soon as he had
STAGES OF CONTRACT paid its price.
PREPARATION, Period of negotiation and bargaining, ending at the • Valid
CONCEPTION, moment of agreement of the parties. ➢ OTHER STIPULATIONS
OR GENERATION • Escalation clauses are valid.
PERFECTION The moment when the parties come to agree on the • COMPROMISES
terms of the contract o The whole essence of a compromise is that by making
CONSUMMATION Fulfillment or performance of the terms agreed upon in reciprocal concessions, the parties avoid litigation or put
the contract. an end to one already commenced.
➢ QUALIFICATION OF CONTRACT
CLASSIFICATION OF CONTRACTS • The validity of the agreements is one thing and the juridical
Dependence 4. Preparatory (agency) qualification of the contract resulting therefrom is very distinctly
5. Principal (lease or sale) another.
6. Accessory (pledge, mortgage) • The law, not the parties, determine the juridical situation created
Perfection 1. Consensual by the parties through their contract and the rights and the
2. Real obligations arising therefrom.
Solemnity/form 1. Common form • A contract is to be judged by its character, and courts will look to
2. Special form the substance and not to the mere form of the transaction.
Purpose 1. Transfer of ownership
2. Conveyance of use LIMITATIONS ON STIPULATIONS
➢ An act or contract that is illegal per se is one that by universally
Subject-matter 1. Things
recognized standards is inherently or by its very nature, bad, improper,
2. Services
immoral or contrary to good conscience.
Nature of obligation produced 1. Bilateral
➢ CONTRARY TO MORALS
2. Unilateral
• Morals may be considered as meaning good customs; or those
Cause 1. Onerous
generally accepted principles of morality which have received
2. Gratuitous
some kind of social and practical confirmation.
Risk 1.Commutative
2.Aleatory
53
• It is not contrary to morals or good customs to make and act • An agreement of the parties that either one of them may
dependent upon money or some pecuniary value, when it is of terminate the contract upon a reasonable period of notice, is
such nature that it should not depend thereon. valid.
➢ CONTRARY TO PUBLIC ORDER ➢ EXPRESS AGREEMENT
• Public order signifies public weal. • It is perfectly licit to leave the fulfillment of the contract to the will
➢ ATTORNEY’S FEES of either of the parties in the negative form of rescission.
• A client has a right to dismiss his lawyer at any time, even if there is
a contract for professional services with a stipulated Art. 1309. The determination of the performance may be left to a third person,
compensation. whose decision shall not be binding until it has been made known to both
contracting parties. (n)
Art. 1307. Innominate contracts shall be regulated by the stipulations of the
parties, by the provisions of Titles I and II of this Book, by the rules governing Art. 1310. The determination shall not be obligatory if it is evidently inequitable.
the most analogous nominate contracts, and by the customs of the place. (n) In such case, the courts shall decide what is equitable under the
circumstances. (n)
INNOMINATE CONTRACTS: Contracts which do not have specific name
➢ Do ut des (I give and you give) Art. 1311. Contracts take effect only between the parties, their assigns and
➢ Do ut facias (I give and you do) heirs, except in case where the rights and obligations arising from the contract
➢ Facio ut des (I do and you give) are not transmissible by their nature, or by stipulation or by provision of law.
➢ Facio ut facias (I do and you do) The heir is not liable beyond the value of the property he received from the
decedent.
ANALOGOUS CONTRACTS
➢ Innominate contracts are, in the absence of stipulations and specific If a contract should contain some stipulation in favor of a third person, he may
provisions of law on the matter, to be governed by rules applicable to the demand its fulfillment provided he communicated his acceptance to the
most analogous contracts. obligor before its revocation. A mere incidental benefit or interest of a person
➢ In contracts where one party renders services to another without express is not sufficient. The contracting parties must have clearly and deliberately
agreement as to the compensation or price, it has been held that such conferred a favor upon a third person. (1257a)
compensation or price can be determined wither in relation to a definite
thing, or under the usage and customs of the place, or by leaving it to the ➢ PARTIES BOUND BY CONTRACT
judgment of the courts in case of disagreement or dispute. • Contracts produce effect as between the parties who execute
them.
Art. 1308. The contract must bind both contracting parties; its validity or • THIRD PERSONS NOT BOUND
compliance cannot be left to the will of one of them. (1256a) o A contract cannot be binding upon and cannot be
enforced against one who is not a party to it, even if he is
MUTUALITY OF CONTRACTS aware of such contract and has acted with knowledge
1. That obligations arising from contracts have the force of law between the thereof.
contracting parties • THIRD PERSONS AFFECTED
2. That there must be mutuality between the parties based on their essential o Although contracts do not bind third persons, juridical
equality. situations may be created affecting them.
▪ A contract creating a real right affects third
UNILATERAL CANCELLATION persons who may have some right over the thing.
➢ Once a contract is entered into, no party can renounce it unilaterally or ▪ A contract may reduce the properties of a
without the consent of the other. debtor and thus diminish the available security
➢ The unilateral act of one party in terminating the contract without legal for the claims of creditors.
justification, makes it liable for damages. ▪ In some cases, as n composition in insolvency
➢ WHEN STIPULATED and suspension of payments, certain agreements
54
are made binding by law on creditors who may 6. Neither of the contracting parties bears the legal
not have agreed thereto. representation or authorization of the third party.
• ENFORCEMENT OF CONTRACTS ➢ BENEFICIARIES
o Only a party to the contract can maintain an action to • A stipulation may validly be made in favor of indeterminate
enforce the obligations arising under said contract. persons, provided that they can be determined in some manner
• ANNULMENT OF CONTRACT at the time when the prestation from the stipulation has to be
o Since a contract is binding only upon the parties thereto, performed.
a third person cannot ask for its annulment, although of ➢ TEST OF BENEFICIAL STIPULATION
course, he may ask for its rescission if it is in fraud of his • A mere incidental interest of a third person is not within the
rights. doctrine of stipulations pour autrui.
• CONTRACT BIND HEIRS • The third person acquires a right to the prestation only when this is
o As a general rule, rights and obligations under a contract in accordance with the intention of the contracting parties.
are transmitted to the heirs of the parties. • To constitute a valid stipulation pour autrui, it must be the purpose
o With the exception of money debts, obligations are also and intent of the stipulating parties to benefit the third person,
transmitted to the heirs of the parties, and they may be and it is not sufficient that the third person may be incidentally
compelled to fulfill the same. benefited by the stipulation.
• INTRANSMISSIBLE CONTRACTS • So, the fairest test is to rely upon the intention of the parties as
o Those which are purely personal – partnership and disclosed in their contract.
agency ➢ ACCEPTANCE BY THIRD PARTY
o Contracts for the payment of money debts are not • A stipulation in favor of a third person has no binding effect in
transmitted to the heirs of a party, but constitute a itself before its acceptance by the party favored. Before such
charge against his estate. acceptance, there is legally no “obligor.” Neither party can sue
➢ STIPULATIONS FOR THIRD PARTIES the other for non-performance.
• First paragraph: only parties thereto and their privies acquire rights • The acceptance is optional to the third person and the
and assume obligations thereunder. acceptance retroacts to the moment intended by the parties to
• Second paragraph: exception to the first; it permits a third person the contract.
to avail himself of a benefit extended to him by its terms. • Acceptance must be absolute, unconditional, and identical with
• Stipulations in favor of third persons may be divided into two the terms of the offer.
classes: • Acceptance does not have to be in any particular form.
1. The stipulation is intended for the sole benefit of such third • Acceptance may be implied form the performance by third
person. person of his obligation under the stipulation.
2. Those where an obligation is due from the promisee to the • The law does not provide when the third person must make his
third person and the former seeks to discharge it by means of acceptance. There is no time limit, he has all the time until the
stipulation. stipulation is revoked.
• REQUISITES: ➢ RIGHTS OF PARTIES
1. There must be a stipulation in favor of a third person; • Before acceptance by the third person, the contracting parties,
2. That the stipulation in favor of a third person should be a part, by mutual agreement, may modify the contract or revoke it.
not the whole of the contract; • After acceptance and there is a failure of performance, he can
3. That the contracting parties must have clearly and sue for specific performance or resolution with damages.
deliberately conferred a favor upon a third person, not a • Between the third person and the party who required the
mere incidental benefit or interest; stipulation, there certainly exists a juridical relation.
4. That the favorable stipulation should not be conditioned or • DEPENDENCE ON CONTRACT
compensated by any kind of obligation whatever; o The right of the third person does not exist if the contract
5. That the third person must have communicated his is void; it disappears if the contract is annulled or
acceptance to the obligor before its revocation; dissolved.
➢ WHO MAY REVOKE
55
• The right to revoke does not pertain simply to the promisor. As a 2. Knowledge by the third person of the existence of the contract;
general rule, it pertains to the other contracting party, or promise, 3. Interference by the third person in the contractual relation without
who may exercise it without the consent of the promisor. But it legal justification.
may be agreed that the revocation should have the consent of ➢ EXTENT OF LIABILITY
the promisor, and this agreement may be implied when the latter • Stranger cannot be more extensively liable in damages or non-
has an interest, even if moral, in the fulfillment of the promise. performance of the contract than the party in whole behalf he
• Right to revoke may not be exercised by the heirs or creditors of intermeddles.
promise. • Their liability should be solidary.
COLLECTIVE CONTRACTS Art. 1315. Contracts are perfected by mere consent, and from that moment
➢ Cases where the law authorizes the will of the majority to bind a minority the parties are bound not only to the fulfillment of what has been expressly
to an agreement notwithstanding the opposition of the latter, when all stipulated but also to all the consequences which, according to their nature,
have a common interest in the juridical act. may be in keeping with good faith, usage and law. (1258)
➢ Application of this is limited to specific cases provided by law.
• Suspension of payments, compositions in insolvency proceedings, PERFECTION OF CONSENSUAL CONTRACTS
collective bargaining etc. ➢ The perfection of a contract is the moment from which it exists; juridical tie
➢ Bases: co-ownership is legally presumed. arises from that time.
➢ CONSENSUAL CONTRACTS: Perfected by mere consent. The consent need
Art. 1312. In contracts creating real rights, third persons who come into not be made expressly.
possession of the object of the contract are bound thereby, subject to the ➢ FORMAL CONTRACTS: Those in which compliance with special external
provisions of the Mortgage Law and the Land Registration Laws. (n) formalities is necessary for the validity of the contract, are no longer
recognized under our law, as distinct from the consensual contracts.
REAL RIGHTS IN PROPERTY
➢ A real right directly affects property subject to it. BINDING EFFECT OF CONTRACTS
➢ E.g. mortgage ➢ The binding force of a contract is not limited to what is expressly
stipulated, but extends to all consequences which are the natural effect
Art. 1313. Creditors are protected in cases of contracts intended to defraud of the contract.
them. (n)
Art. 1316. Real contracts, such as deposit, pledge and commodatum, are not
CONTRACTS IN FRAUD OF CREDITORS perfected until the delivery of the object of the obligation. (n)
➢ Creditors may ask for rescission.
PERFECTION OF REAL CONTRACTS
Art. 1314. Any third person who induces another to violate his contract shall be ➢ REAL CONTRACT: Not perfected by mere consent; delivery of the thing is
liable for damages to the other contracting party. (n) also required.
➢ It is the delivery of the object which forms the basis of the obligations
INTEREFERENCE BY THIRD PERSONS under the contract.
➢ A third person may be held liable for damages because he has induced a
party to the contract to violate the terms thereof. Art. 1317. No one may contract in the name of another without being
➢ An injured party may recover damages. authorized by the latter, or unless he has by law a right to represent him.
➢ Malice in some form is generally supposed to be an essential ingredient.
But it is enough if the wrongdoer, having knowledge of the existence of A contract entered into in the name of another by one who has no authority or
the contract relation, in bad faith sets about to break it up. Whether his legal representation, or who has acted beyond his powers, shall be
motice is to benefit himself or gratify his spite is immaterial. unenforceable, unless it is ratified, expressly or impliedly, by the person on
➢ Malice in the sense of ill-will or spite is not essential. whose behalf it has been executed, before it is revoked by the other
➢ REQUISITES: contracting party. (1259a)
1. The existence of a valid contract;
56
RATIFICATION NECESSARY CAPACITY OF PARTIES
➢ Where a contract is entered into in behalf of another who has not • Legal capacity is an essential element.
authorized it, such contract is not valid and binding as against him, unless • It is n indispensible condition for the existence of consent.
he ratifies the transaction and is estopped to question its legality.
➢ Nullity is permanent and will exist until contract is not ratified. WANT OF CONSENT
➢ Party is a minor, it can be ratified by him upon reaching maturity or by his • No consent and consequently no contract when the agreement is
legal guardian. absolutely simulated or fictitious, or when it is entered into in behalf of
➢ EXPRESS OR IMPLIED another who has never given his authorization therefor, or when the
• The ratification of an unauthorized contract may be either express consent of a party is subject to a condition and the condition has not
or implied. been complied with.
➢ EFFECT RETROACTIVE
• The ratification of a contract validates the act from the moment SECTION 1. – Consent
of its celebration.
Art. 1319. Consent is manifested by the meeting of the offer and the
STATUS BEFORE RATIFICATION acceptance upon the thing and the cause which are to constitute the
➢ The unauthorized contract produces a state of suspense; its effectivity contract. The offer must be certain and the acceptance absolute. A qualified
depends upon its ratification. acceptance constitutes a counter-offer.
➢ Before ratification, the other party may not do anything which would
frustrate the rights of the former which may arise in the event of Acceptance made by letter or telegram does not bind the offerer except from
ratification. the time it came to his knowledge. The contract, in such a case, is presumed
to have been entered into in the place where the offer was made. (1262a)
LIABILITY OF REPRESENTATIVE
➢ If the contract is not ratified by the person represented, the representative CONCEPT OF CONSENT
becomes liable in damages to the other party, if he did not give notice of • The essence of consent is the conformity of the parties on the terms of
the absence or deficiency of his power. the contract, acceptance by one of the offer made by the other.
➢ The third party is not entitled to damages if he knew or should have known • It is the concurrence of the minds of the parties on the object and the
that the authority does not exist. cause which shall constitute the contract.
• ELEMENTS
CHAPTER 2 1. Plurality of subjects
2. Capacity
ESSENTIAL REQUISITES OF CONTRACTS 3. Intelligence and free will
4. Express or tacit manifestation of the will
GENERAL PROVISIONS 5. Conformity of the internal will and its manifestation
Art. 1318. There is no contract unless the following requisites concur: FORMS OF CONSENT
(1) Consent of the contracting parties; • Express or implied
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261) MANIFESTATION OF CONSENT
• Consent is manifested by the concurrence of offer and acceptance
PARTIES TO CONTRACT with respect to the object and the cause of the contract.
• There must be at least 2 parties. • OFFER BY ONE PARTY
• The number of parties should not be confused with the number of o An offer is a unilateral proposition which one party makes to
persons. the other fro the celebration of a contract.
• A single person can represent two parties and one party can be o Must be: Definite, complete, and intentional.
composed of two or more persons. o DEFINITE
57
▪ Offer must be definite, so that upon acceptance an • The present article of the Code requires the concurrence of offer
agreement can be reached on the whole contract. and acceptance only as to the thing and the cause which are to
o COMPLETE constitute the contract, and not as to all matters.
▪ Indicating with sufficient clearness the kind of • If the intentions of one or both parties is that there be
contract intended and definitely stating the essential concurrence on all points, the contract is not perfected if there is
conditions of the proposed contract, as well as the a point of disagreement, even if there is already agreement on th
non-essential ones. essential elements of the contract.
o INTENTIONAL ➢ KNOWLEDGE OF OFFEROR
▪ An offer without seriousness is absolutely without • Even if there has been an unconditional acceptance of the offer
juridical effects and cannot give rise to a contract. by the offeree, no contract will arise unless that acceptance is
▪ But if the offeree is induced to take it seriously, he made known to the offeror.
must be indemnified for damages. • THROUGH INTERMEDIARIES
o MENTAL RESERVATIONS o An intermediary who has no authority to contract, but is
▪ There is a mental reservation when a party makes a limited to the transmittal of the offer, the acceptance, or
declaration but secretly does not desire the effects of both, may be treated in the same light as the mail
such declaration. service.
▪ The mental reservation of the offeror, unknown to the ➢ BY CORRESPONDENCE
other, cannot affect the validity of the offer. • When the offer to buy was written or prepared in Tokyo, and the
➢ ACCEPTANCE BY OFFEREE acceptance thereof n Manila was sent by the offeree by airmail,
• An offer that is not accepted does not give rise to consent, and the contract is presumed to have been entered into in Tokyo.
the contract does not come into existence. ➢ BY TELEPHONE
• It is necessary that the acceptance be unequivocal and • Considered as entered into at the place whete the offer was
unconditional, and the acceptance and the proposition shall be made.
without any variation whatsoever, and any modification or ➢ EFFECT OF SILENCE
variation from the terms of the offer annuls the latter and frees the • When the circumstances imply a duty to speak on the part of the
offeror. person for whom an obligation is proposed, his silence can be
➢ AMPLIFIED ACCEPTANCE construed as consent.
• A mere amplification on the offer must be understood as an • REQUISITES FOR SILENCE TO PRODUCE TACIT ACCEPTANCE:
acceptance of the original offer, plus a new offer which is 1. that there is a duty or the possibility to express oneself
contained in the amplification. 2. that the manifestation of the will cannot be interpreted in any
➢ COMPLEX OFFERS other way
• In cases where a single offer involves two or more contracts, the 3. that there is a clear identity in the effect of the silence and
perfection where there is only partial acceptance will depend the undisclosed will
upon the relation of the contracts between themselves. • APPLICABLE DOCTRINE
• Where the contracts are inter-related, acceptance one will not o As between persons present: If silence is entirely
give rise to a perfected contract. unconnected with any fact, there can be no contract.
• Not inter-related, acceptance of one gives rise to a contract o As between persons absent: If there has been no
unless the offeror has made it clear that one is dependent upon antecedent relation between the parties, silence will not
the other and acceptance of both is necessary. give rise to a contract.
➢ SIMULTANEOUS OFFERS
• Offer and acceptance must be successive in order that a WITHDRAWAL OF OFFER
contract may arise. ➢ Both the offer and the acceptance can be revoked before the contract
• When there are cross offers, no contract is formed unless one of is perfected.
the parties accepts the offer received by him. ➢ Offeror may withdraw his offer at any time before he learns of the
➢ SUCCESSIVE AGREEMENTS acceptance.
➢ LAPSE OF TIME
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• An offer without a period must be considered as becoming ➢ Silence is not equivalent to consent, but there are specific legal provisions
ineffective after the lapse of more than the time necessary for its which make silence, under certain circumstances, amount to consent.
acceptance.
Art. 1321. The person making the offer may fix the time, place, and manner of
REVOCATION OF ACCEPTANCE acceptance, all of which must be complied with. (n)
➢ The acceptance may be revoked before it comes to the knowledge of
the offeror. RIGHT OF OFFEROR
➢ The owner of the property offered for sale at auction has the right to
NEW CONTRACT BEFORE ACCEPTANCE prescribe the manner, conditions, and terms of sale.
➢ Pending the acceptance of an offer, the offeror can perfect a contract ➢ PERIOD FOR ACCEPTANCE
over the same thing with another person. • Acceptance, to become effective, must be known to the offeror
➢ If the first offer is not revoked by him before it is accepted, then he before the period lapses.
becomes liable for damages. • Acceptance made beyond the time constitutes a new offer and
➢ The one whose acceptance perfected a contract first is given priority, the may be accepted or rejected by the original offeror.
other party only has an action for damages. ➢ MANNER OF ACCEPTANCE
• An acceptance which is not made in the manner prescribed by
PUBLIC OFFERS the offeror is not effective, but constitutes a counter-offer which
➢ A promise may be made publicly by advertising a reward, compensation the offeror may accept.
or prize for any person who performs or executes a particular act or
obtains a particular result. Art. 1322. An offer made through an agent is accepted from the time
➢ 2 theories: acceptance is communicated to him. (n)
• An obligatory unilateral promise sufficient to create a valid legal
tie: reward can be recovered by one who performs the desired CONTRACT THROUGH INTERMEDIARY
act, even when he did not do it in consideration of the promise. ➢ Contract is perfected when intermediary communicates such
• An offer which gives rise to a contract upon acceptance: a acceptance to the offeror.
binding obligation arises only when the act is done with the
intention of accepting the promise. Art. 1323. An offer becomes ineffective upon the death, civil interdiction,
➢ Equity dictates that nobody should make a fool of the public. insanity, or insolvency of either party before acceptance is conveyed. (n)
➢ If several persons who execute the act simultaneously: divide the
recompense equally. If division cannot be made, they shall determine REASON FOR ARTICLE
preference by lot. ➢ Contract is not perfected except by the concurrence of two wills.
➢ Our code however, gives only the 5 sources of obligations. A unilateral ➢ Disappearance of either party or his loss of capacity before perfection
promise is not recognized by our code as having obligatory force. There prevents the contractual tie from being formed.
must be an acceptance to convert it into a contract.
Art. 1324. When the offerer has allowed the offeree a certain period to accept,
Art. 1320. An acceptance may be express or implied. (n) the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon a
IMPLIED ACCEPTANCE consideration, as something paid or promised. (n)
➢ May arise from acts or facts which reveal the intent to accept.
PERIOD FOR ACCEPTANCE
WAIVER OF ACCEPTANCE ➢ The offeree may accept at any time until such period expires.
➢ Offeror can waive the declaration of acceptance. ➢ No period, and the offer is made to a person present, acceptance must
➢ Contract is perfected from the moment the intention to accept can be be made immediately.
inferred. ➢ Reasonable tacit period: time normally necessary to enable the offeree to
know the proposal and to make known his reaction.
EFFECT OF SILENCE ➢ 3 points must be considered:
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1. Under normal circumstances, how long will it take the letter to reach the ➢ A business advertisement of things for sale may or may not constitute a
offeree? definite offer. It is not a definite offer when the object is not determinate.
2. How long will a person of ordinary prudence take to answer such an ➢ When the advertisement does not have the necessary specification of
offer? essential elements of the future contract, it cannot constitute an offer.
3. How long will the offer reach the offeror.
DEFINITE OFFERS TO PUBLIC
➢ WITHDRAWAL OF OFFER ➢ It is not necessary that the offeror should know the person who receives his
• Law permits the offeror to withdraw the offer at any time before offer. A valid offer to the public can be made.
acceptance. Even before the period for acceptance has
expired. Art. 1326. Advertisements for bidders are simply invitations to make proposals,
• This does not mea that he can exercise this right absolutely and the advertiser is not bound to accept the highest or lowest bidder, unless
without regard to the rights of others. the contrary appears. (n)
• He must allow the offeree sufficient opportunity.
• If he disregards the right of the offeree and arbitrarily revokes the EFFECT OF BIDDING
offer, he must be held liable for the damages which the offeree ➢ When in the advertisement it can be inferred with certainty that the best
may suffer. bid will be considered as giving rise to a binding contract, each bid will
imply the perfection of a contract, although subject to the condition that
CROSSING OF REVOCATION AND ACCEPTANCE no better bid is made.
➢ GR: expression of the will of a person, does not become effective except ➢ If this is not especially provided in the advertisement, then each bid is
from the time it is received. merely an offer, which the advertiser is free to reject.
➢ Distinctions may be made:
1. Intention is not to demand an express acceptance: Tacit acceptance JUDICIAL SALES
perfects the contract and the subsequent receipt of a letter of ➢ This provision is not applicable to bids in judicial sales, where the highest
revocation is ineffective. bid must necessarily be accepted.
2. Intention is that there should be an express acceptance, contract will
be perfected if the acceptance is the first to reach the offeror and it Art. 1327. The following cannot give consent to a contract:
will not be perfected if the revocation is the first to reach the offeree. (1) Unemancipated minors;
➢ If revocation and acceptance cross, that which arrives firs at its (2) Insane or demented persons, and deaf-mutes who do not know how to
destination is effective. write. (1263a)
➢ EFFECT OF DELAY
• It is not the moment of sending but the time of receipt of the EFFECT OF INCAPACITY
revocation or acceptance which is controlling. ➢ If both parties are incapable of giving consent, the contract is
unenforceable.
CONTRACT OF OPTION ➢ If only one is incapable, it is annullable or voidable.
➢ This is a preparatory contract in which one party grants to the debtor, for ➢ EXCEPTION: Where necessaries (everything indispensable for sustenance)
a period and under specified conditions, the power to decide whether or are sold and delivered to a minor or other person without capacity to act,
not to enter into a principal contract. he must pay reasonable price therefor.
➢ If the option is not supported by an independent consideration, the
offeror can withdraw the privilege at any time by communicating UNEMANCIPATED MINORS
withdrawal to the other party, even if the “option” had already been ➢ Contracts entered into by them are not binding upon them UNLESS upon
accepted. reaching majority they ratify the same or the contract has been entered
into through a guardian and approved by the guardianship court.
Art. 1325. Unless it appears otherwise, business advertisements of things for ➢ ESTOPPEL
sale are not definite offers, but mere invitations to make an offer. (n) • There is strong authority, with sound juridical reasoning, to the
effect that the misrepresentation of an incapacitated person
SALES ADVERTISEMENTS does not estop him from denying that he was of age, or from
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asserting that he was under age, at the time he entered into the OTHER CAUSES OF INCAPACITY
contract. ➢ Rules of court provide for the guardianship of incompetents:
• Persons suffering from the penalty of civil interdiction
INSANE PERSONS • Hospitalized lepers
➢ It is not necessary that there be a previous judicial declaration of mental • Prodigals
incapacity in order that a contract entered into by a mentally defective • Deaf and dumb who are unable to read and write
person may be annulled. • Unsound mind
➢ It is enough that insanity existed at the time the contract was made. • By reason of age, disease, weak mind, cannot take care of
➢ In case of lunatics, it is possible that there are lucid intervals, and a themselves and manage their property.
contract executed during such interval will be valid. ➢ Incompetence under the Rules of Court is not necessarily a
➢ The burden of proving such incapacity at the time of the execution rests disqualification to give consent.
upon who alleges it. ➢ Art 1327: Persons of unsound mind and deaf and dumb who are unable to
write are incapacitated to contract.
DEAF-MUTES ➢ Art 34 of the RPC: Persons under civil interdiction cannot enter into
➢ Being a deaf-mute is not by itself alone a disqualification for giving contracts disposing or in relation to the management of their property.
consent. ➢ Other incompetents can enter into contracts only through their guardians.
➢ The law refers to the deaf-mute who does not know how to write. ➢ If they have not been placed under guardianship, there is a presumption
in favor of their capacity to contract.
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts ➢ If there is no guardianship but it can be shown that at the time of the
agreed to in a state of drunkenness or during a hypnotic spell are voidable. contract, they do not have the necessary understanding of the nature
(n) and consequences, then their contract is voidable.
LUCID INTERVALS SPECIAL DISQUALIFICATION

➢ The presumption of insanity and mental incapacity in a person under ➢ Certain disqualifications provided by law to invalidate contracts:
guardianship for mental derangement is only prima facie and may be • Incapacity of a person declared insolvent or bankrupt
rebutted by evidence. • Incapacity of the husband and wife to sell property to each other
➢ A person under guardianship for insanity may still enter into a valid
contract and even convey property, provided it is proven that at the time INCAPACITY DISQUALIFICATION
of entering into said contract, he was not insane or that his mental defect, There is a restriction upon the There is a restriction upon the very
if mentally deranged, did not interfere with or affect he capacity to exercise of a right. right itself.
appreciate the meaning and significance of the transaction. Contract is voidable Contract is void
LIQUOR AND DRUGS

➢ The use of intoxicants does not necessarily mean a complete loss of Art. 1330. A contract where consent is given through mistake, violence,
understanding. The same may be said regarding drugs. intimidation, undue influence, or fraud is voidable. (1265a)
➢ It has been held that drunkenness, if in such degree that obscures
completely the faculties and almost extinguishes the consciousness of REQUISITES OF CONSENT VITIATED BY
acts, may be a ground for annulment of a contract. Intelligence Error
Free Violence, Intimidation, or Undue
HYPNOTISM AND SOMNABULISM Influence
➢ Article also applies to somnambulism. Spontaneous Fraud
Art. 1329. The incapacity declared in Article 1327 is subject to the
DEFECTS OF THE WILL
modifications determined by law, and is understood to be without prejudice to
➢ A donation or a will, or a recognition of illegitimate children, could also be
special disqualifications established in the laws. (1264)
vitiated by these causes.
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DISCRETION OF COURTS • The following mistakes do not in any manner affect the validity of
➢ Courts are given a wide latitude in weighing the facts or circumstances in the contract:
a given case. 1. Error with respect to accidental qualities
➢ PROOF NECESSARY 2. Error in the value of the thing
• Defect or lack of valid consent must be established by full, clear, 3. Error which refers, not to the conditions of the thing, but to
and convincing evidence and not merely by preponderance accessory matters
thereof. ➢ EFFECT OF INTENT
• The fact of error must be determined largely by its
Art. 1331. In order that mistake may invalidate consent, it should refer to the influence upon the party. If the party would have entered
substance of the thing which is the object of the contract, or to those into the contract even if he had knowledge of the true
conditions which have principally moved one or both parties to enter into the fact, then the error does not vitiate consent.
contract.
ERROR AS TO PERSON
Mistake as to the identity or qualifications of one of the parties will vitiate ➢ An error in the name, without error as to person, will not invalidate the
consent only when such identity or qualifications have been the principal consent. An error as to the person will invalidate consent when the
cause of the contract. consideration of the person has been the principal cause of the same.
➢ Mistake as to qualifications, even when there is no error as to person, is a
A simple mistake of account shall give rise to its correction. (1266a) cause vitiating consent, if such qualifications have been the principal
cause of the contract.
CONCEPT OF ERROR ➢ An error as to the person will generally invalidate consent in gratuitous
➢ Ignorance: Complete absence of any notion about a particular matter. contracts, because affection, relationship, friendship and gratitude are
➢ Error or mistake: A wrong or false notion about such matter. determining causes of the act of liberality.
➢ Juridically, ignorance and mistake produce the same effect. ➢ It will also invalidate consent in onerous contracts where the artistic or
➢ The concept of error under this article must be included both ignorance intellectual qualifications, moral character or integrity, and other personal
and mistake. In both cases, there is a lack of full and correct knowledge qualities of a party are the determining cause of the consent of the other.
about the thing. ➢ Where the identity of the other party is not material to the contract, an
error as to person will not vitiate consent.
MISTAKE OF FACT OR LAW ➢ SOLVENCY OF THE PARTY
➢ Error referred to in this article is an error of fact, and not an error of law. • An error as to the solvency of the other party is not a cause of
➢ An error of law is not a ground for annulment of contracts. nullity.
➢ Supreme Court has held that excusable ignorance of law can be the ➢ MOTIVE OF PARTY
basis of good faith possession. • A mistake as to the motive of a party does not affect the
contract.
AS TO OBJECT • When motive has, however, been expressed and was a condition
➢ Error must refer to the substance of the thing. of the consent given, annulment is proper, because an
➢ NATURE OF CONTRACTS accidental element is, by the will of the parties, converted into a
• The error may refer to the very nature of the contract, in which substantial element.
case, it is an essential mistake.
• Where the error refers to the rights of the parties, the contract is ERROR AS TO ACCOUNT
not invalidated. ➢ An error of account is purely a mistake in computation; it is a
➢ PRINCIPAL CONDITIONS mathematical error.
• The principal condition of the thing is its essential or substantial ➢ It does not vitiate consent, but the intention of the parties is to accept the
character, without which the thing ceases to be what it is. amounts or quantities involved as they should be and not as what they
➢ ACCIDENTAL, ACCESSORY CONDITIONS were erroneously computed to be.
• May exist in varying proportions, without the thing ceasing to be ➢ ACCOUNT AND QUANTITY
what it is.
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• Mistake as to quantity: there is a real mistake with the principal
conditions and the contract is vitiated. INEXCUSABLE ERROR
• Mistake as to account: mistake can be corrected. ➢ To invalidate consent, the error must be excusable. It must be a real error,
➢ CORRECTION OF ACCOUNTS and not one that could have been avoided by the party alleging it.
• Once there has been a liquidation of accounts between two ➢ The error must arise from facts unknown to him. He cannot allege error
parties, and the accounts have been approved by those which refers to a fact known to him, or which he should have known by
affected, no revision or correction of said accounts may be ordinary diligent examination of the facts.
made at the instance of only one party.
• EXCEPTION: Unless it is proven that there was fraud or error in the Art. 1334. Mutual error as to the legal effect of an agreement when the real
approval of said accounts. purpose of the parties is frustrated, may vitiate consent. (n)
• The burden of proving such deceit or error lies upon the party
seeking the revision. ERROR OF LAW
➢ Mistake of law is traditionally considered as having a different effect from
ERROR AS TO BASIS OF CONTRACT mistake of fact in relation to consent in contracts.
➢ A mistake as to the existence of some circumstances or the occurrence of ➢ It is permissible to excuse errors of law, and an excusable mistake of law
some event, which exerted a determining influence in the creation of the may be invoked as vitiating consent.
contract, so that the contract would not have been entered without it ➢ LEGAL EFFECTS OF CONTRACT
constitutes an error in the basis of the contract. • Error is limited to error on the legal effect of an agreement.
• 3 REQUISITES:
ERROR AS TO ESTIMATES 1. The error must be as to the legal effect of an agreement.
➢ Mistakes in estimating the results of a contract cannot vitiate consent 2. It must be mutual
unless they were induced by fraud or deceit. 3. The real purpose of the parties is frustrated.
ERROR IN UNILATERAL DECISION ERROR AS TO NATURE OF CONTRACT

➢ When the error of a party is not in relation to the contract, but in a ➢ An error as to the nature or character of a contract is always essential,
decision unilaterally adopted, he cannot demand responsibility from and makes the act juridically inexistent.
persons whomay have acted according to his decision.
Art. 1335. There is violence when in order to wrest consent, serious or irresistible
LIABILITY FOR ERROR force is employed.
➢ There is no provision making the party in error liable for damages which
the other party may have suffered relying on his declaration. However, There is intimidation when one of the contracting parties is compelled by a
such liability can be based on the theory of fault or negligence. reasonable and well-grounded fear of an imminent and grave evil upon his
person or property, or upon the person or property of his spouse, descendants
Art. 1332. When one of the parties is unable to read, or if the contract is in a or ascendants, to give his consent.
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully To determine the degree of intimidation, the age, sex and condition of the
explained to the former. (n) person shall be borne in mind.
FRAUD OR MISTAKE ALLEGED A threat to enforce one's claim through competent authority, if the claim is just
➢ The obligations to show that the terms of the contract had been fully or legal, does not vitiate consent. (1267a)
explained to the party who is unable to read or understand the language
of the contract, when fraud or mistake is alleged, devolves on the party VIOLENCE AND INTIMIDATION DISTINGUISHED
seeking to enforce it.
DURESS: degree of constraint or danger actually inflicted (violence) or
Art. 1333. There is no mistake if the party alleging it knew the doubt, threatened and impending (intimidation), sufficient to overcome the mind
contingency or risk affecting the object of the contract. (n) and will of a person of ordinary firmness.
63
determining the degree of harm that the evil in itself is likely to
VIOLENCE INTIMIDATION produce, and subjectively by determining the effect of the threat
Physical force or compulsion Moral force or compulsion upon the mind of the victim in view of his personal circumstances
External Internal - Influences the mind to and his relation to the author of intimidation.
choose between to evils • IMMINENCE OF EVIL
o To be imminent, it is not necessary that the evil should
REQUISITES OF VIOLENCE follow immediately upon the refusal to do the act
1. That the physical force employed must be irresistible, or of such degree demanded. It is enough that there be real danger.
that the victim has no other course, under the circumstances, but to • OBJECT OF EVIL
submit. o The threatened evil must fall upon the party himself, or
2. That such force is the determining cause in giving the consent to the upon his spouse, ascendants or descendants. This is not
contract. restrictive. It can be directed to a brother, lover, or close
friend.
REQUISITES OF INTIMIDATION • NATURE OF INJURY
1. Intimidation must be the determining cause of the contract, or must have o A threatened evil upon liberty or honor can have the
caused the consent to be given. same moral effect as that upon person or property.
2. The threatened act must be unjust or unlawful Hence, the term “person” should not be limited to life and
3. The threat must be real and serious, there being an evident disproportion physical integrity, but should include liberty and honor.
between the evil and the resistance which all men can offer, leading to ➢ REASONABLE FEAR
the choice of the contract as the lesser evil. • The fear occasioned by the threat must be reasonable and well-
4. It produces a reasonable and well-grounded fear from the fact that the grounded; it must be commensurate with the threat.
person from whom it comes has the necessary means or ability to inflict the • RESPECT AND OBEDIENCE
threatened injury. o If in addition to fear of displeasing a person to whom
obedience and respect are due, there is an imposition
➢ UNJUST ACT upon the will, then the consent will be vitiated.
• The intimidation that will annul a contract has to do with evil or ➢ CAUSE OF CONSENT
hard arising from an unlawful act. • It must be proved that the consent was obtained through
• The threat must be unjust, contrary to law or morals. intimidation; the fear must be the direct and determining cause
• ENFORCEMENT OF CLAIM which compelled the consent to be given.
o One who makes use of his right even if this be unpleasant • If the intimidation was only incidental, the contract is not
to another, juridically does not prejudice the latter. annullable.
o A threat to enforce one’s right cannot annul a contract
made by the debtor in relation to the claim sought to be MORAL COERCION
enforced. ➢ When a person is in grave danger, and he is made to promise to pay a
o WHEN IMPROPER certain amount if he is saved the person to whom the promise is made,
▪ One who uses illegal means to attain a legal the contract is not avoided, because there is no intimidation which
objective, by infusing fear, is guilty of intimidation. causes consent to be given.
▪ There is intimidation when a party goes beyond
legal channels or takes the law into his own Art. 1336. Violence or intimidation shall annul the obligation, although it may
hands. have been employed by a third person who did not take part in the contract.
▪ The threat to enforce a right should not be aimed (1268)
at a result which is contrary to law or morals or
which is unjust and contrary to good faith. DURESS BY THIRD PERSON
➢ SERIOUS EVIL OR WRONG ➢ Even if the intimidation or threat had been employed by a third person
• The seriousness of the wrong or evil threatened must be who was not a party to the contract, the agreement is still null and void.
considered objectively and subjectively; objectively, by
64
Art. 1337. There is undue influence when a person takes improper advantage ➢ Error of one party is produced by the bad faith of the other contracting
of his power over the will of another, depriving the latter of a reasonable party; it presupposes an illicit act.
freedom of choice. The following circumstances shall be considered: the ➢ INSIDIOUS WORDS AND MACHINATIONS
confidential, family, spiritual and other relations between the parties, or the • Constitutes deceit, includes false promises, exaggeration of hopes
fact that the person alleged to have been unduly influenced was suffering or benefits, abuse of confidence, fictitious names, qualifications or
from mental weakness, or was ignorant or in financial distress. (n) authority.
• Forms of deception.
UNDUE INFLUENCE
➢ Any means employed upon a party which, under the circumstances, he KINDS OF FRAUD
could not well resist, and which controlled his colition and induced him to ➢ Article 1171: Fraud occurs in connection with the fulfillment of the
give his consent to the contract, which otherwise he would not have obligation.
entered into. ➢ Article 1338: Fraud is prior or simultaneous to the consent or the creation
➢ Influence obtained by persuasion or argument or by appeals to the of the obligation. It has two classes: Dolo Causante and Dolo Incidente.
affections is not prohibited.
DOLO CAUSANTE DOLO INCIDENTE
UNDUE INFULENCE INTIMIDATION That which determines or is the That which does not have such a
There need not be an unjust or There must be an unlawful or unjust essential cause of the consent. decisive influence but refers only to
unlawful act. act which is threatened and which some particular accident of the
causes consent to be given. obligation.
THERE IS MORAL COERCION Ground for annulment of contract Only gives rise to an action for
damages
➢ CIRCUMSTANCES TO CONSIDER
• It is essential to ascertain the power of coercion on the part of COMPARED WITH ERROR
one party, and the susceptibility to its influence on the part of the ➢ The result of fraud is error on the part of the victim.
other. ➢ Fraud and error causes nullity of consent.
➢ EMPLOYED BY THIRD PERSON ➢ Error will vitiate consent only when it refers to the matters mentioned in Art
• Undue influence employed by a third person may annul the 1331.
contract. ➢ Mistake induced by fraud will always vitiate consent.
CONTRACTS OF ADHESION REQUISITES OF FRAUD

➢ A contract of adhesion is one in which one of the parties imposes a ready- 1. It must have been employed by one contracting party upon the other;
made form of contract, which the other party may accept or reject, but 2. It must have induced the other party to enter into the contract;
which the latter cannot modify. 3. It must have been serious;
➢ There is such economic inequality between the parties to these contracts 4. It must have resulted in damage or injury to the party seeking annulment.
that the independence of one of them is entirely paralyzed.
➢ A contract of adhesion is construed strictly against the one who drew the EFFECTS OF FRAUD
same. ➢ Effects of Dolo Causante:
1. Nullity of the contract
Art. 1338. There is fraud when, through insidious words or machinations of one 2. Indemnification of damages
of the contracting parties, the other is induced to enter into a contract which,
without them, he would not have agreed to. (1269) PROOF OF FRAUD
➢ The misrepresentation constituting the dolo causante must be alleged
CONCEPT OF FRAUD and proved, otherwise, contracts cannot be annulled on this ground.
➢ Fraud is every kind of deception, for the purpose of leading another party
into error and thus execute a particular act. Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as
when the parties are bound by confidential relations, constitutes fraud. (n)
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CONCEALMENT AS FRAUD FRAUD BY THIRD PERSON
➢ The deceit which avoids the contract need not be by means of ➢ The fraud employed by a third person upon one of the parties does not
misrepresentation in words. It exists where the party who obtains consent vitiate consent. It merely gives rise to an action for damages by the party
does so my means of concealing or omitting to state material facts, with injured against such third person.
intent to deceive, by reason of which omission or concealment the other ➢ If one party is in collusion with the third person, or knows of the fraud by
party was induced to give a consent which he would not otherwise have the third person, and he is benefited, he maybe considered as an
given. accomplice and the contract becomes voidable. Complicity makes the
➢ There must be a special duty to disclose or according to good faith and third person and the party who knew of the fraud liable solidarily.
the usages of commerce the communication should be made. ➢ MUTUAL ERROR
➢ INNOCENT NON-DISCLOSURE • Deceit by a third person, even without connivance or complicity
• The innocent non-disclosure of a fact does not affect the with one of the contracting parties, may lead to error on the part
formation of the contract or operate to discharge the parties of the parties to the contract, in this case, the consent is vitiated,
from their agreement. and the contract may be annulled.
➢ COMPARED WITH VIOLENCE
Art. 1340. The usual exaggerations in trade, when the other party had an • Contract is annulled even if such violence or intimidation is
opportunity to know the facts, are not in themselves fraudulent. (n) exercised by a third person.
• In fraud, act of third person does not annul the contract, unless it
TOLERATED FRAUD produces substantial mutual mistake on the part of both
➢ Minimizing the defects of the thing, exaggeration of its good qualities, and contracting parties.
giving it qualities that it does not have. • 2 reasons to justify the difference:
➢ This is lawful misrepresentation known as dolus bonus. o That the party has nothing to do with fraud by a third
➢ Do not affect the validity of the contract, so long as they do not go to the person and cannot be blamed for it.
extent of malice or bad faith. o Intimidation can be more easily resisted than fraud.
➢ OPPORTUNITY TO KNOW
• Where the means of knowledge are at hand and equally Art. 1343. Misrepresentation made in good faith is not fraudulent but may
available to both parties one will not be heard to say that he has constitute error. (n)
been deceived.
Art. 1344. In order that fraud may make a contract voidable, it should be
Art. 1341. A mere expression of an opinion does not signify fraud, unless made serious and should not have been employed by both contracting parties.
by an expert and the other party has relied on the former's special knowledge. Incidental fraud only obliges the person employing it to pay damages. (1270)
(n)
MAGNITUDE OF FRAUD
EXPRESSION OF OPINION ➢ The deceit must be serious. The fraud is serious when it is sufficient to
➢ The refusal of a seller to warrant his estimate should admonish the impress, or to lead an ordinarily prudent person into error.
purchaser that that estimate was put forth as a mere opinion. ➢ If they are sufficiently effective to induce the other party to enter into the
➢ MADE BY EXPERT contract, they are serious; otherwise, they are not.
• An opinion of an expert is like a statement of a fact, and if false, ➢ In case of tolerated fraud, even if it is the determining cause of the
may be considered a fraud giving rise to annulment. consent, it cannot be a ground for annulment.
• When the expert however, was employed by the party who was ➢ DETERMINING CAUSE
misled, he cannot ask for annulment, because he is chargeable • Fraud must be the determining cause of the contract.
with the acts and declarations of his employee. • Fraud must be dolo causante.
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless FRAUD BY ONE PARTY TO ANOTHER
such misrepresentation has created substantial mistake and the same is ➢ In order to be a ground for annulment of a contract, the fraud must be
mutual. (n) exercised by one party upon the other.
66
MUTUAL FRAUD ➢ Nullity is based on want of true consent.
➢ When both parties use fraud reciprocally, neither one has an action ➢ It is generally fraudulent and for the purpose of injuring third persosn.
against the other and neither can ask for annulment. ➢ RECOVERY UNDER CONTRACT
• If the absolute simulation does not have an illicit purpose, the
PLURALTY OF SUBJECTS parties to the contract may prove the simulation in order to
➢ If one party contracts with several persons and one of the latter employs recover whatever may have been given under such simulated
fraud on the former and the fraud has caused substantial error, the injured act.
party can ask for annulment against all of them under the rules on error. • But if it has an illegal object, Art 1411 and 1412 will apply.
➢ DISTINGUISHED FROM FRAUDULENT ALIENATION
DOLO INCIDENTE
➢ When the fraud is not the determining cause of the contract, it only gives ABSOLUTE SIMULATION FRAUDULENT ALIENATION
rise to an action for damages, but not for annulment of the contract. There is no existing contract There is a true and existing transfer
or contract
Art. 1345. Simulation of a contract may be absolute or relative. The former Can be attacked by any creditor Can be assailed only by creditors
takes place when the parties do not intend to be bound at all; the latter, when before the alienation
the parties conceal their true agreement. (n) The insolvency of the debtor making The action to rescind, or acion
the simulated transfer is not a pauliana, requires that the creditor
DEFINITION OF SIMULATION prerequisite to the nullity of the cannot recover in any other
➢ It is the declaration of a fictitious will, deliberately made by agreement of contract manner what is due him
the parties, in order to produce, for the purposes of deception, the Does not prescribe Prescribes in 4 years
appearance of a juridical act which does not exist or is different from that
which was really executed. ➢ SIMULATION PRESUMED
➢ It involves a defect in declaration. • Article 1602 presumes as equitable mortgage a contract of sale
➢ Absolutely simulated contracts are known as simulados. with right to repurchase under the circumstances mentioned in
➢ Relatively simulated contracts are disimulados. said article.
ABSOLUTE SIMULATION RELATIVE SIMULATION

➢ There is a color of contract, without any substance thereof, the parties not ➢ It is valid EXCEPT when it prejudices third persons or has an illicit purpose.
having any intention to be bound. ➢ Its validity is based on the freedom of contract.
➢ If the concealed contract is lawful, it is absolutely enforceable as long as it
RELATIVE SIMULATION has all the essential requisites.
➢ The parties have an agreement which they conceal under the guise of ➢ When the purpose is illicit, or to prejudice a third person, the true contract
another contract. cannot be enforced. It would be void and inexistent.
➢ Two juridical acts involved here:
• OSTENSIBLE ACT: Apparent or fictitious; which is the contract that EFFECT AS TO THIRD PERSONS
the parties pretend to have executed. ➢ A third person may avail himself of the conduct of the parties to the
• HIDDEN ACT: Real; which is the true agreement between the simulated contract which is most favorable to himself.
parties. If the concealed or hidden act is lawful, it is enforceable ➢ The simulated contract will therefore be binding if it is favorable to him to
of the essential requisites are present. consider it so.
➢ ACQUISITIONS OF TITLE
Art. 1346. An absolutely simulated or fictitious contract is void. A relative • The declaration that a contract is simulated destroys the title of a
simulation, when it does not prejudice a third person and is not intended for third person who has acquired it in bad faith.
any purpose contrary to law, morals, good customs, public order or public • If the third person, however, has acted in good faith, he is given
policy binds the parties to their real agreement. (n) the protection of the law. The declaration that the contract is
simulated does not prejudice hime.
ABSOLUTE SIMULATION
67
SECTION 2. - Object of Contracts Art. 1356. Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity are present.
Art. 1347. All things which are not outside the commerce of men, including However, when the law requires that a contract be in some form in order that it
future things, may be the object of a contract. All rights which are not may be valid or enforceable, or that a contract be proved in a certain way,
intransmissible may also be the object of contracts. that requirement is absolute and indispensable. In such cases, the right of the
No contract may be entered into upon future inheritance except in cases parties stated in the following article cannot be exercised. (1278a)
expressly authorized by law.
All services which are not contrary to law, morals, good customs, public order Art. 1357. If the law requires a document or other special form, as in the acts
or public policy may likewise be the object of a contract. (1271a) and contracts enumerated in the following article, the contracting parties may
compel each other to observe that form, once the contract has been
Art. 1348. Impossible things or services cannot be the object of contracts. perfected. This right may be exercised simultaneously with the action upon the
(1272) contract. (1279a)
Art. 1349. The object of every contract must be determinate as to its kind. The Art. 1358. The following must appear in a public document:
fact that the quantity is not determinate shall not be an obstacle to the (1) Acts and contracts which have for their object the creation, transmission,
existence of the contract, provided it is possible to determine the same, modification or extinguishment of real rights over immovable property; sales of
without the need of a new contract between the parties. (1273) real property or of an interest therein a governed by Articles 1403, No. 2, and
1405;
SECTION 3. - Cause of Contracts (2) The cession, repudiation or renunciation of hereditary rights or of those of
the conjugal partnership of gains;
Art. 1350. In onerous contracts the cause is understood to be, for each (3) The power to administer property, or any other power which has for its
contracting party, the prestation or promise of a thing or service by the other; object an act appearing or which should appear in a public document, or
in remuneratory ones, the service or benefit which is remunerated; and in should prejudice a third person;
contracts of pure beneficence, the mere liberality of the benefactor. (1274) (4) The cession of actions or rights proceeding from an act appearing in a
public document.
Art. 1351. The particular motives of the parties in entering into a contract are All other contracts where the amount involved exceeds five hundred pesos
different from the cause thereof. (n) must appear in writing, even a private one. But sales of goods, chattels or
things in action are governed by Articles, 1403, No. 2 and 1405. (1280a)
Art. 1352. Contracts without cause, or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals, good customs, CHAPTER 4 REFORMATION OF INSTRUMENTS (n)
public order or public policy. (1275a)
Art. 1359. When, there having been a meeting of the minds of the parties to a
Art. 1353. The statement of a false cause in contracts shall render them void, if contract, their true intention is not expressed in the instrument purporting to
it should not be proved that they were founded upon another cause which is embody the agreement, by reason of mistake, fraud, inequitable conduct or
true and lawful. (1276) accident, one of the parties may ask for the reformation of the instrument to
the end that such true intention may be expressed.
Art. 1354. Although the cause is not stated in the contract, it is presumed that it If mistake, fraud, inequitable conduct, or accident has prevented a meeting of
exists and is lawful, unless the debtor proves the contrary. (1277) the minds of the parties, the proper remedy is not reformation of the instrument
but annulment of the contract.
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause
shall not invalidate a contract, unless there has been fraud, mistake or undue Art. 1360. The principles of the general law on the reformation of instruments
influence. (n) are hereby adopted insofar as they are not in conflict with the provisions of this
Code.
CHAPTER 3 FORM OF CONTRACTS
Art. 1361. When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be reformed.
68
Art. 1372. However general the terms of a contract may be, they shall not be
Art. 1362. If one party was mistaken and the other acted fraudulently or understood to comprehend things that are distinct and cases that are different
inequitably in such a way that the instrument does not show their true from those upon which the parties intended to agree. (1283)
intention, the former may ask for the reformation of the instrument.
Art. 1373. If some stipulation of any contract should admit of several meanings,
Art. 1363. When one party was mistaken and the other knew or believed that it shall be understood as bearing that import which is most adequate to render
the instrument did not state their real agreement, but concealed that fact from it effectual. (1284)
the former, the instrument may be reformed.
Art. 1374. The various stipulations of a contract shall be interpreted together,
Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on attributing to the doubtful ones that sense which may result from all of them
the part of the person drafting the instrument or of the clerk or typist, the taken jointly. (1285)
instrument does not express the true intention of the parties, the courts may
order that the instrument be reformed. Art. 1375. Words which may have different significations shall be understood in
that which is most in keeping with the nature and object of the contract. (1286)
Art. 1365. If two parties agree upon the mortgage or pledge of real or personal
property, but the instrument states that the property is sold absolutely or with a Art. 1376. The usage or custom of the place shall be borne in mind in the
right of repurchase, reformation of the instrument is proper. interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established. (1287)
Art. 1366. There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is imposed; (2) Wills; Art. 1377. The interpretation of obscure words or stipulations in a contract shall
(3) When the real agreement is void. not favor the party who caused the obscurity. (1288)
Art. 1367. When one of the parties has brought an action to enforce the Art. 1378. When it is absolutely impossible to settle doubts by the rules
instrument, he cannot subsequently ask for its reformation. established in the preceding articles, and the doubts refer to incidental
circumstances of a gratuitous contract, the least transmission of rights and
Art. 1368. Reformation may be ordered at the instance of either party or his interests shall prevail. If the contract is onerous, the doubt shall be settled in
successors in interest, if the mistake was mutual; otherwise, upon petition of favor of the greatest reciprocity of interests.
the injured party, or his heirs and assigns.
If the doubts are cast upon the principal object of the contract in such a way
Art. 1369. The procedure for the reformation of instrument shall be governed by that it cannot be known what may have been the intention or will of the
rules of court to be promulgated by the Supreme Court. parties, the contract shall be null and void. (1289)
CHAPTER 5 INTERPRETATION OF CONTRACTS Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court
shall likewise be observed in the construction of contracts. (n)
Art. 1370. If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall CHAPTER 6 RESCISSIBLE CONTRACTS
control.
Art. 1380. Contracts validly agreed upon may be rescinded in the cases
If the words appear to be contrary to the evident intention of the parties, the established by law. (1290)
latter shall prevail over the former. (1281)
Art. 1381. The following contracts are rescissible:
Art. 1371. In order to judge the intention of the contracting parties, their (1) Those which are entered into by guardians whenever the wards whom they
contemporaneous and subsequent acts shall be principally considered. represent suffer lesion by more than one-fourth of the value of the things which
(1282) are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
69
(3) Those undertaken in fraud of creditors when the latter cannot in any other Art. 1388. Whoever acquires in bad faith the things alienated in fraud of
manner collect the claims due them; creditors, shall indemnify the latter for damages suffered by them on account
(4) Those which refer to things under litigation if they have been entered into of the alienation, whenever, due to any cause, it should be impossible for him
by the defendant without the knowledge and approval of the litigants or of to return them.
competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission. If there are two or more alienations, the first acquirer shall be liable first, and so
(1291a) on successively. (1298a)
Art. 1382. Payments made in a state of insolvency for obligations to whose Art. 1389. The action to claim rescission must be commenced within four years.
fulfillment the debtor could not be compelled at the time they were effected, For persons under guardianship and for absentees, the period of four years
are also rescissible. (1292) shall not begin until the termination of the former's incapacity, or until the
domicile of the latter is known. (1299)
Art. 1383. The action for rescission is subsidiary; it cannot be instituted except
when the party suffering damage has no other legal means to obtain CHAPTER 7 VOIDABLE CONTRACTS
reparation for the same. (1294)
Art. 1390. The following contracts are voidable or annullable, even though
Art. 1384. Rescission shall be only to the extent necessary to cover the there may have been no damage to the contracting parties:
damages caused. (n) (1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation,
Art. 1385. Rescission creates the obligation to return the things which were the undue influence or fraud.
object of the contract, together with their fruits, and the price with its interest; These contracts are binding, unless they are annulled by a proper action in
consequently, it can be carried out only when he who demands rescission court. They are susceptible of ratification. (n)
can return whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the object of the Art. 1391. The action for annulment shall be brought within four years. This
contract are legally in the possession of third persons who did not act in bad period shall begin:
faith. In cases of intimidation, violence or undue influence, from the time the defect
In this case, indemnity for damages may be demanded from the person of the consent ceases.
causing the loss. (1295) In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other
Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take incapacitated persons, from the time the guardianship ceases. (1301a)
place with respect to contracts approved by the courts. (1296a)
Art. 1392. Ratification extinguishes the action to annul a voidable contract.
Art. 1387. All contracts by virtue of which the debtor alienates property by (1309a)
gratuitous title are presumed to have been entered into in fraud of creditors,
when the donor did not reserve sufficient property to pay all debts contracted Art. 1393. Ratification may be effected expressly or tacitly. It is understood that
before the donation. there is a tacit ratification if, with knowledge of the reason which renders the
contract voidable and such reason having ceased, the person who has a right
Alienations by onerous title are also presumed fraudulent when made by to invoke it should execute an act which necessarily implies an intention to
persons against whom some judgment has been issued. The decision or waive his right. (1311a)
attachment need not refer to the property alienated, and need not have been
obtained by the party seeking the rescission. Art. 1394. Ratification may be effected by the guardian of the incapacitated
person. (n)
In addition to these presumptions, the design to defraud creditors may be
proved in any other manner recognized by the law of evidence. (1297a) Art. 1395. Ratification does not require the conformity of the contracting party
who has no right to bring the action for annulment. (1312)
70
Art. 1396. Ratification cleanses the contract from all its defects from the (1) Those entered into in the name of another person by one who has been
moment it was constituted. (1313) given no authority or legal representation, or who has acted beyond his
powers;
Art. 1397. The action for the annulment of contracts may be instituted by all (2) Those that do not comply with the Statute of Frauds as set forth in this
who are thereby obliged principally or subsidiarily. However, persons who are number. In the following cases an agreement hereafter made shall be
capable cannot allege the incapacity of those with whom they contracted; unenforceable by action, unless the same, or some note or memorandum,
nor can those who exerted intimidation, violence, or undue influence, or thereof, be in writing, and subscribed by the party charged, or by his agent;
employed fraud, or caused mistake base their action upon these flaws of the evidence, therefore, of the agreement cannot be received without the writing,
contract. (1302a) or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a year
Art. 1398. An obligation having been annulled, the contracting parties shall from the making thereof;
restore to each other the things which have been the subject matter of the (b) A special promise to answer for the debt, default, or miscarriage of
contract, with their fruits, and the price with its interest, except in cases another;
provided by law. (c) An agreement made in consideration of marriage, other than a mutual
promise to marry;
In obligations to render service, the value thereof shall be the basis for (d) An agreement for the sale of goods, chattels or things in action, at a
damages. (1303a) price not less than five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of
Art. 1399. When the defect of the contract consists in the incapacity of one of them, of such things in action or pay at the time some part of the purchase
the parties, the incapacitated person is not obliged to make any restitution money; but when a sale is made by auction and entry is made by the
except insofar as he has been benefited by the thing or price received by auctioneer in his sales book, at the time of the sale, of the amount and kind
him. (1304) of property sold, terms of sale, price, names of the purchasers and person
on whose account the sale is made, it is a sufficient memorandum;
Art. 1400. Whenever the person obliged by the decree of annulment to return (e) An agreement of the leasing for a longer period than one year, or for
the thing can not do so because it has been lost through his fault, he shall the sale of real property or of an interest therein;
return the fruits received and the value of the thing at the time of the loss, with (f) A representation as to the credit of a third person.
interest from the same date. (1307a) (3) Those where both parties are incapable of giving consent to a contract.
Art. 1401. The action for annulment of contracts shall be extinguished when the Art. 1404. Unauthorized contracts are governed by Article 1317 and the
thing which is the object thereof is lost through the fraud or fault of the person principles of agency in Title X of this Book.
who has a right to institute the proceedings.
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of
If the right of action is based upon the incapacity of any one of the Article 1403, are ratified by the failure to object to the presentation of oral
contracting parties, the loss of the thing shall not be an obstacle to the evidence to prove the same, or by the acceptance of benefit under them.
success of the action, unless said loss took place through the fraud or fault of Art. 1406. When a contract is enforceable under the Statute of Frauds, and a
the plaintiff. (1314a) public document is necessary for its registration in the Registry of Deeds, the
parties may avail themselves of the right under Article 1357.
Art. 1402. As long as one of the contracting parties does not restore what in
virtue of the decree of annulment he is bound to return, the other cannot be Art. 1407. In a contract where both parties are incapable of giving consent,
compelled to comply with what is incumbent upon him. (1308) express or implied ratification by the parent, or guardian, as the case may be,
of one of the contracting parties shall give the contract the same effect as if
CHAPTER 8 UNENFORCEABLE CONTRACTS (n) only one of them were incapacitated.
Art. 1403. The following contracts are unenforceable, unless they are ratified: If ratification is made by the parents or guardians, as the case may be, of both
contracting parties, the contract shall be validated from the inception.
71
Art. 1408. Unenforceable contracts cannot be assailed by third persons. Art. 1414. When money is paid or property delivered for an illegal purpose, the
contract may be repudiated by one of the parties before the purpose has
CHAPTER 9 been accomplished, or before any damage has been caused to a third
VOID AND INEXISTENT CONTRACTS person. In such case, the courts may, if the public interest will thus be
subserved, allow the party repudiating the contract to recover the money or
Art. 1409. The following contracts are inexistent and void from the beginning: property.
(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy; Art. 1415. Where one of the parties to an illegal contract is incapable of giving
(2) Those which are absolutely simulated or fictitious; consent, the courts may, if the interest of justice so demands allow recovery of
(3) Those whose cause or object did not exist at the time of the transaction; money or property delivered by the incapacitated person.
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service; Art. 1416. When the agreement is not illegal per se but is merely prohibited,
(6) Those where the intention of the parties relative to the principal object of and the prohibition by the law is designated for the protection of the plaintiff,
the contract cannot be ascertained; he may, if public policy is thereby enhanced, recover what he has paid or
(7) Those expressly prohibited or declared void by law. delivered.
These contracts cannot be ratified. Neither can the right to set up the defense
of illegality be waived. Art. 1417. When the price of any article or commodity is determined by statute,
or by authority of law, any person paying any amount in excess of the
Art. 1410. The action or defense for the declaration of the inexistence of a maximum price allowed may recover such excess.
contract does not prescribe.
Art. 1418. When the law fixes, or authorizes the fixing of the maximum number
Art. 1411. When the nullity proceeds from the illegality of the cause or object of of hours of labor, and a contract is entered into whereby a laborer undertakes
the contract, and the act constitutes a criminal offense, both parties being in to work longer than the maximum thus fixed, he may demand additional
pari delicto, they shall have no action against each other, and both shall be compensation for service rendered beyond the time limit.
prosecuted. Moreover, the provisions of the Penal Code relative to the
disposal of effects or instruments of a crime shall be applicable to the things or Art. 1419. When the law sets, or authorizes the setting of a minimum wage for
the price of the contract. laborers, and a contract is agreed upon by which a laborer accepts a lower
This rule shall be applicable when only one of the parties is guilty; but the wage, he shall be entitled to recover the deficiency.
innocent one may claim what he has given, and shall not be bound to comply
with his promise. (1305) Art. 1420. In case of a divisible contract, if the illegal terms can be separated
from the legal ones, the latter may be enforced.
Art. 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed: Art. 1421. The defense of illegality of contract is not available to third persons
(1) When the fault is on the part of both contracting parties, neither may whose interests are not directly affected.
recover what he has given by virtue of the contract, or demand the Art. 1422. A contract which is the direct result of a previous illegal contract, is
performance of the other's undertaking; also void and inexistent.
(2) When only one of the contracting parties is at fault, he cannot recover
what he has given by reason of the contract, or ask for the fulfillment of what
has been promised him. The other, who is not at fault, may demand the return
of what he has given without any obligation to comply his promise. (1306)
Art. 1413. Interest paid in excess of the interest allowed by the usury laws may
be recovered by the debtor, with interest thereon from the date of the
payment.
72

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OBLIGATIONS AND CONTRACTS • Not a thing but a particular conduct of the debtor.

• Giving, doing, or not doing something.

ELEMENTS OF AN OBLIGATION: Art. 1157. Obligations arise from:

➢ Object or prestation Unilateral promise can give rise to obligations

EFFECT OF BREACH ➢ SPECIFIC PERFORMANCE

ACCORDING TO WHAT GIVES RISE TO THE OBLIGATION:

PLURALITY OF CONDITIONS KINDS OF POTESTATIVE CONDITION:

COURT TO FIX PERIOD EFFECT POTESTATIVE CONDITION:

COURT MAY FIX TERM LOSS OF TERM

ACTS PREJUDICIAL DEMAND BY SEVERAL CREDITORS

EFFECT OF UNAUTHORIZED TRANSFER

LIMITED TO LOSS OF THING DEFENSES PERSONAL TO DEFENDANT

DEFENSES OF SOLIDARY DEBTOR DIVISIBLE AND INDIVISIBLE OBLIGATIONS

INDIVISIBLE JOINT OBLIGATION DETERMINATION OF DIVISIBILITY

ENTIRE AND SEVERABLE CONTRACTS

HOW NOTICE IS GIVEN WHEN CONSIGNATION TAKES EFFECT

EFFECTS OF COMPENSATION CLASSIFICATION OF NOVATION

NO COMPENSATION ➢ ORIGINAL EXISTING OBLIGATION

Art. 1301. Conventional subrogation of a third person requires the consent of

Art. 1302. It is presumed that there is legal subrogation:

PAYMENT WITH DEBTOR’S APPROVAL

LUCID INTERVALS SPECIAL DISQUALIFICATION

LIQUOR AND DRUGS

ERROR IN UNILATERAL DECISION ERROR AS TO NATURE OF CONTRACT

CONTRACTS OF ADHESION REQUISITES OF FRAUD

ABSOLUTE SIMULATION RELATIVE SIMULATION

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