Civil Obligations

CIVIL OBLIGATIONS
(2)
I. GENERAL
(3)
What is an obligation?
(4)
Art. 1156. An obligation is a juridical necessity to give, to do, or not to do.
(5)
JURIDICAL NECESSITY juridical tie; connotes that in case of noncompliance, there

will be legal sanctions.
Art. 1158. Obligations from law are not presumed. Only those (1) expressly
determined in this code or (2) in special laws are demandable, and shall be
regulated by the precepts of the law which establishes them; and as to what has
not been foreseen, by the provisions of this code.
An obligation is nothing more than the duty of a person (obligor) to satisfy a specific
demandable claim of another person (obligee) which, if breached, is enforceable in
court.
A contract necessarily gives rise to an obligation but an obligation does not always
need to have a contract.
Unless such obligations are EXPRESSLY provided by law, they are not demandable
and enforceable, and cannot be presumed to exist.
The Civil Code can be applicable supplementary to obligations arising from laws other
than the Civil Code itself.
Special laws refer to all other laws not contained in the Civil Code.
KINDS OF OBLIGATION
A. From the viewpoint of sanction (a) CIVIL OBLIGATION that defined in Article 1156; an obligation, if not fulfilled
when it becomes due and demandable, may be enforced in court through action;
based on law; the sanction is judicial due process
(b) NATURAL OBLIGATION defined in Article 1423; a special kind of obligation
which cannot be enforced in court but which authorizes the retention of the voluntary
payment or performance made by the debtor; based on equity and natural law. (i.e.
when there is prescription of duty to pay, still, the obligor paid his dues to the obligee
the obligor cannot recover his payment even there is prescription) the sanction is
the law, but only conscience had originally motivated the payment.
(c) MORAL OBLIGATION the sanction is conscience or morality, or the law of the
church.
Art. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.
B. From the viewpoint of subject matter -
POSITIVE OR AFFIRMATIVE OBLIGATION the obligation to give or to do

NEGATIVE OBLIGATION the obligation not to do (which naturally includes not to
give)
D. From the viewpoint of persons obliged - sanction a)
b)
UNILATERAL where only one of the parties is bound

BILATERAL where both parties are bound
may be:
(b.1) reciprocal
(b.2) non-reciprocal where performance by one is non-dependent upon
performance by the other
ELEMENTS OF AN OBLIGATION
1.
2.
3.
ACTIVE SUBJECT (Creditor / Obligee) the person who is demanding the

performance of the obligation;
PASSIVE SUBJECT (Debtor / Obligor) the one bound to perform the prestation
or to fulfill the obligation or duty;
PRESTATION (to give, to do, or not to do) object; subject matter of the
obligation; conduct required to be observed by the debtor;
a.
b.
c.
d.
4.
Requisites of Prestation / Object:

licit (if illicit, it is void)
possible (if impossible, it is void)
determinate or determinable (or else, void)
pecuniary value
INJURY wrongful act or omission which causes loss or harm to another
DAMAGE result of injury (loss, hurt, harm)
EFFICIENT CAUSE the JURIDICAL TIE which binds the parties to the
obligation; source of the obligation.
Art. 1423. Obligations are civil or natural. Civil obligations give a right of action to
compel their performance. Natural obligations, not being based on positive law but
on equity and natural law, do not grant a right of action to enforce their
performance, but after voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by reason thereof. Some natural
obligations are set forth in the following articles.
What are the sources of obligations?
Art. 1157. Obligation arises from
(1) law;
(2) contracts;
(3) quasi-contracts;
(4) acts or omissions punished by law;
(5) quasi-delicts.
(1)
LAW (Obligation ex lege) imposed by law itself; must be expressly or impliedly

set forth and cannot be presumed
CONTRACT meeting of minds between two persons whereby one binds himself, with
respect to the other, to give, to do something or to render some service; governed
primarily by the agreement of the contracting parties.
VALID CONTRACT it should not be against the law, contrary to morals, good
customs, public order, and public policy. In the eyes of law, a void contract does not
exist and no obligation will arise from it.
OBLIGATIONS ARISING FROM CONTRACTS primarily governed by the
stipulations, clauses, terms and conditions of their agreements.
If a contracts prestation is unconscionable (unfair) or unreasonable, even if it does
not violate morals, law, etc., it may not be enforced totally. Interpretation of contract
involves a question of law.
REAL OBLIGATION the obligation to give

PERSONAL OBLIGATION the obligation to do or not to do (e.g. the duty to paint a
house or to refrain from committing a nuisance)
C. From the affirmativeness and negativeness of the obligation -
CONTRACTS (Obligation ex contractu) arise from stipulations of the parties:

meeting of the minds / formal agreement
QUASI-CONTRACTS (Obligation ex quasi-contractu) arise from lawful,
voluntary and unilateral acts and which are enforceable to the end that no one
shall be unjustly enriched or benefited at the expense of another
DELICTS (Obligation ex maleficio or ex delicto) arise from civil liability which is
the consequence of a criminal offense
QUASI-DELICTS / TORTS (Obligation ex quasi-delicto or ex quasi-maleficio)
arise from damage caused to another through an act or omission, there being no
fault or negligence, but no contractual relation exists between the parties
COMPLIANCE IN GOOD FAITH compliance or performance in accordance with the

stipulations or terms of the contract or agreement.
FALSIFICATION OF A VALID CONTRACT only the unauthorized insertions will be
disregarded; the original terms and stipulations should be considered valid and
subsisting for the parties to fulfill.
Art. 1160. Obligations derived from quasi-contracts shall be subject to the
provisions of chapter 1, title 17 of this book.
QUASI-CONTRACT juridical relation resulting from lawful, voluntary and unilateral
acts by virtue of which, both parties become bound to each other, to the end that no
one will be unjustly enriched or benefited at the expense of the other. (See Article 2142)
NEGOTIORUM GESTIO juridical relation which takes place when somebody
voluntarily manages the property affairs of another without the knowledge or consent of
the latter; owner shall reimburse the gestor for necessary and useful expenses incurred
by the latter for the performance of his function as gestor.
SOLUTIO INDEBITI something is received when there is no right to demand it and it
was unduly delivered through mistake; obligation to return the thing arises on the part
of the recipient. (ex. storekeeper gives excess change, you have the obligation to return
the excess)
Art. 1161. Civil obligations arising from criminal offenses shall be governed by the
penal laws, subject to the provisions of Article 2177, and of the pertinent provisions
of Chapter 2, Preliminary in Human Relations, and of Title 18 of this book,
regulating damages.
Governing rules:
(1)
Pertinent provisions of the RPC and other penal laws subject to Art 2177 Civil
Code
[Art 100, RPC Every person criminally liable for a felony is also civilly liable]
(2)
Chapter 2, Preliminary title, on Human Relations (Civil Code)
(3)
Title 18 of Book IV of the Civil Code on damages
Every person criminally liable for a felony is also criminally liable (art. 100, RPC)
CRIMINAL LIABILITY INCLUDES:
(1)
RESTITUTION restoration of property previously taken away; the thing itself
shall be restored, even though it be found in the possession of a third person who
has acquired it by lawful means, saving to the latter his action against the proper
person who may be liable to him.
(2)
REPARATION OF THE DAMAGE CAUSED court determines the amount of
damage: price of a thing, sentimental value, etc.
(3)
INDEMNIFICATION FOR CONSEQUENTIAL DAMAGES includes damages
suffered by the family of the injured party or by a third person by reason of the
crime.
Effect of acquittal in criminal case:
when acquittal is due to reasonable doubt no civil liability
when acquittal is due to exempting circumstances there is civil liability
when there is preponderance of evidence there is civil liability

Art. 1162. Obligations derived from quasi-delicts shall be governed by the
provisions of chapter 2, title 17 of this book, and by special laws.
1
Art. 2176. Whoever by act or omission causes damage to another, there being fault
or negligence, is obliged to pay for the damage done. Such fault or negligence, if
there is no pre-existing contractual relation between the parties, is called a quasidelict and is governed by the provisions of this Chapter.
2.
Reliance interest - the interest of a party to a breached contract in being

compensated for detriments suffered (as expenses incurred) in reliance on the
agreement
Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's
own acts or omissions, but also for those of persons for whom one is responsible.
Reliance damages protect a party's reliance interest. Neal spent $100 in reliance
on the contract, which constituted Neal's reliance interest.
QUASI-DELICT (culpa aquiliana) an act or omission by a person which causes

damage to another giving rise to an obligation to pay for the damage done, there being
fault or negligence but there is no pre-existing contractual relation between parties.
Requisites:
(1)
omission
(2)
negligence
(3)
damage caused to the plaintiff
(4)
direct relation of omission, being the cause, and the damage, being the
effect
(5)
no pre-existing contractual relations between parties
Since reliance damages equal to the value of the reliance interest of the injured
party, Matt owes Neal $100. This puts Neal in the same economic position as if the
contract never happened.
Fault or Negligence consists in the omission of that diligence which is required by

the nature of the obligation and corresponds with the circumstances of the person,
time, and of the place.
another example would also be buying mags for a car which was not delivered
3.
Restitution interest - interest in having restored to him any benefit that he has
conferred on the other party....
Example: A, a social worker, promises B to render personal services to C in return
for B's promise to educate A's children. B repudiates the contract after A has
rendered part of the services. A can get restitution from B for the services, even
though they were not rendered to B, because they conferred a benefit on B.
Obligations derived from quasi delicts are also applicable for persons for whom one
is responsible such as:
father / in case unavailable, mother for their minor children
guardians
employers for their employees
owners / managers of establishments for their employees
the state through its special agent
teachers / heads of establishments of arts and trades for students in their custody
COCA COLA v. CA
J. Davide Jr.
Requisites of liability
there exists a wrongful act or omission imputable to the defendant by reason of his fault
or negligence
there exists a damage or injury which must be proved by the person claiming recovery
there must be a direct causal connection or a relation of cause and effect between the
fault or negligence and the damage or injury, or that the fault or negligence be the
cause of the damage or injury.
LRTA v NAVIDAD
J. Vitug
RULE 111 - Prosecution of Civil Action

Section 1. Institution of criminal and civil actions.
a)
When a criminal action is instituted, the civil action for the recovery of
civil liability arising from the offense charged shall be deemed instituted
with the criminal action unless
offended party waives the civil action
reserves the right to institute it separately
institutes the civil action prior to the criminal action.
SAGRADA ORDEN v NACOCO

J. Labrador
FACTS: Alien Property Administration had the control and administration of the property
by express provision of the law. Theres no agreement b/w the APA and NACOCO to
pay rentals on the property. Previous occupant also did not pay rentals.
HELD: No crime since NACOCO entered the premises since it occupied the property
with the permission of the APA. Also, no contract or obligation between APA and Taiwan
Tekkosho. Therefore, APA occupied the property IN GOOD FAITH.
FGU INSURANCE v SARMIENTO
J. Vitug
FACTS: Insured company got into an accident. FGU Insurance had to pay for the
damages as a result of the accident. They now seek to recover from the trucking
company, the other party in the accident.
HELD: A private hauler is not a common carrier and it was not proven that the driver
was negligent.
FGU is the subrogee of the rights and interests of Concepcion industries so it had a
right to seek reimbursement for the amount it had paid to the latter from the trucking
corporation. However, the liability arose from a contract. A breach upon the contract
confers upon the injured party a valid cause for recovering that which had been lost or
suffered.
FACTS: Proprietress of a school canteen found foreign substances in the softdrinks

she sells at her canteen.
HELD: Liability for quasi delicts may exist even with a contract if the nature that breaks
the contract may also be a tort. Existence of a contract does not preclude the action for
quasi delicts
FACTS: Man and guard had an altercation. Man fell on the railway tracks of LRT just as
the train was approaching. He died.
HELD: Agency can never be liable if guard is not liable. Agency may be liable if guard is
liable except if it establishes that it exercised extraordinary diligence in choosing
employees. Obligation is based on quasi delict.
LRTA is a common carrier so carrier is presumed to be at fault upon proof of the injury.
Burden shifts on the carrier to prove that the injury is due to an unforeseen event or
force majeure.
LRTAs liability is the contract of carriage and its obligation to indemnify the victim arises
from the breach of that contract by reason of its failure to exercise the high diligence
required of the common carrier.
LG FOODS v AGRAVIADOR
J. Garcia
FACTS: Boy died after being hit by the van of the petitioners. The driver who was
driving the van and an employee of the petitioners killed himself.
HELD: Civil liability arising from the criminal act. Judgement is required. Since driver
killed himself, Art 2180 was used (for persons for whom one was responsible). LG
foods is principally liable. It was sufficiently alleged that the death of the son was
caused by the drivers negligence. LG foods impliedly admitted the action for quasi
delicts by using the defense that they exercised extraordinary diligence to choose its
employees.
What are the duties of the obligor in obligations to give? To take care of the thing
with the diligence of a good father of a family
Art. 1163. Every person obliged to give something is also obliged to take care 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.
Speaks of an obligation to care of a DETERMINATE thing (that is one which is specific;
a thing identified by its individuality) which an obligor is supposed to deliver to another.
Reason: the obligor cannot take care of the whole class/genus
DUTIES OF DEBTOR: Preserve or take care of the things due.
Failure in the compliance of an obligation, in this case the delivery of goods, gives rise
to a presumption of lack of care and corresponding liability on the part of the
contractual obligor.
DILIGENCE OF A GOOD FATHER a good father does not abandon his family, he is
always ready to provide and protect his family; ordinary care which an average and
reasonably prudent man would do.
Defined in the negative in Article 1173
Driver may not be held liable since he was not a party to the contract of carriage
between petitioners principal and defendant. But, civil action may be filed against him
based on culpa aquiliana. Negligence must be proved first.
ANOTHER STANDARD OF CARE extraordinary diligence provided in the stipulation

of parties.
KINDS OF INTEREST
FACTORS TO BE CONSIDERED diligence depends on the nature of obligation and

corresponds with the circumstances of the person, time, and place.
1.
Expectation interest - the interest of a party to a breached contract in receiving

the benefit of the bargain by being put in a position as good as that which would
have resulted had the contract been performed. It is based on the actual value the
contract would have had to the injured party if the contract had been performed.
you pay 1 peso for a car that that should have been delivered. Person did not
deliver car. He owes you 1 peso for the car not delivered.
Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds 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, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the
2
PERSONAL RIGHT (jus ad rem) a right pertaining to a person to demand from

another, as a definite passive subject, the fulfillment of a prestation to give, to do or not
to do.
performance, that which is expected of a good father of a family shall be required.

(1104a)
FRAUD
There is deliberate intention to cause
damage.
Liability cannot be mitigated.
Waiver for future fraud is void.
NEGLIGENCE
There is no deliberate intention to
cause damage.
Liability may be mitigated.
Waiver for future negligence may be
allowed in certain cases
- This provision provides for a negative definition of proper diligence of a good father of
a family
DILIGENCE the attention and care required of a person in a given situation and is
opposite of negligence.
NEGLIGENCE consists in the omission of that diligence which is required by the
nature of the particular obligation and corresponds with the circumstances of the
persons, of the time, and of the place.
KINDS of DILIGENCE:
1.
DILIGENCE OF A GOOD FATHER a good father does not abandon his family,
he is always ready to provide and protect his family; ordinary care which an
average and reasonably prudent man would do.
2.
Diligence required by the law governing the particular obligation
3.
Diligence stipulated by the parties
To deliver the thing
a right enforceable only against a definite person or group of persons.

Before the delivery, the creditor, in obligations to give, has merely a personal right
against the debtor a right to ask for delivery of the thing and the fruits thereof.
Once the thing and the fruits are delivered, then he acquires a real right over them.
Ownership is transferred by delivery which could be either actual or constructive. (Art.
1477)
The remedy of the buyer when there is no delivery despite demand is to file a complaint
for SPECIFIC PERFORMANCE AND DELIVERY because he is not yet the owner
of the property before the delivery.
ACTUAL DELIVERY actual delivery of a thing from the hand of the grantor to the
hand of the grantee (personally), or manifested by certain possessory acts executed by
the grantee with the consent of the grantor (realty).
FRUITS:
1.
NATURAL spontaneous products of the soil, the young and other products of
animals;
2.
INDUSTRIAL produced by lands of any cultivation or labor;
3.
CIVIL those derived by virtue of juridical relation.
Art. 725. Donation is an act of liberality whereby a person disposes gratuitously of
a thing or right in favor of another, who accepts it.
Art. 1165. When what is to be delivered is a determinate thing, the creditor may
compel the debtor to make delivery.
Art. 1169. Those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
If the thing is indeterminate or generic, he may ask that the obligation be complied
with at the expense of the debtor. 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 fortuitous event until he has effected the delivery.
However, the demand by the creditor shall not be necessary in order that delay may
exists:
*This provision applies to an obligation to give.
-When the law or obligation so expressly declares;

-When from the nature of the contract, time us the essence and motivating factor
for its establishment;
-When demand would be useless (prestation is impossible);
-In reciprocal obligations, from the moment one of the parties fulfills his obligation;
-When the debtor admits he is in default
ORDINARY DELAY mere failure to perform an obligation at the appointed time.
LEGAL DELAY (DEFAULT) tantamount to non-fulfillment of the obligation and arises
after an extrajudicial or judicial demand was made upon the debtor.
KINDS OF DEFAULT :
a)
MORA SOLVENDI delay on the part of the debtor to fulfill his obligation;
b)
1.
2.
3.
REQUISITES:
failure of the obligor to perform obligation on the DATE agreed upon;
demand (judicial/extrajudicial) by the creditor;
failure to comply with such demand
1.
2.
EFFECTS:
debtor liable for damages and interests
debtor liable for the loss of a thing due to a fortuitous event
1.
2.
KINDS:
mora solvendi ex re default in real obligations (to give)
mora solvendi ex persona default in personal obligations (to do)
MORA ACCIPIENDI delay on the part of the creditor to accept the
performance of the obligation;
EFFECTS:
1. creditor liable for damages
2. creditor bears the risk of loss of the thing
3. debtor not liable for interest from the time of creditors delay
4. debtor release himself from the obligation
c)
COMPENSATIO MORAE delay of the obligors in reciprocal obligation. Effect:

the default of one compensates the default of the other; their respective
liabilities shall be offset equitable. Default / Delay in negative obligation is not
possible. (In negative obligation, only fulfillment and violation are possible)
Art. 712. Ownership is acquired by occupation and by intellectual creation.

Ownership and other real rights over property are acquired and transmitted by law,
by donation, by estate and intestate succession, and in consequence of certain
contracts, by tradition.
DETERMINATE THING
- something which is susceptible of particular designation or specification;
- obligation is extinguished if the thing is lost due to fortuitous events.
- Article 1460: a thing is determinate when it is particularly designated and physically
segregated from all others of the same class.
INDETERMINATE THING
- something that has reference only to a class or genus;
- obligation to deliver is not so extinguished by fortuitous events.
REMEDIES FOR FAILURE OF DELIVERY (determinate thing)
1. Complaint for specific performance an action to compel the fulfillment of the
obligation.
2. Complaint for rescission of the obligation action to rescind
3. Complaint for damages action to claim for compensation of damages suffered
As a general rule, no person shall be responsible for those events which could not be
foreseen, or which, though foreseen, are inevitable, except:
1. in cases expressly specified by the law
2. when it is stipulated by the parties
3. when the nature of the obligation requires assumption of risk
An indeterminate thing cannot be object of destruction by a fortuitous event because
genus never perishes.
Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon
the actual or constructive delivery thereof. (n)
To deliver the fruits of the thing
Art. 1164. The creditor has a right to the fruits of the thing from the time the
obligation to deliver it arises. However, he shall acquire no real right over it until the
same has been delivered to him.
Art. 441. To the owner belongs:
The natural fruits;
The industrial fruits;
The civil fruits. (354)
Art. 442. Natural fruits are the spontaneous products of the soil, and the young and
other products of animals.
Industrial fruits are those produced by lands of any kind through cultivation or labor.
They may also be acquired by means of prescription.
Civil fruits are the rents of buildings, the price of leases of lands and other property
and the amount of perpetual or life annuities or other similar income. (355a)
Art. 1164. The creditor has a right to the fruits of the thing from the time the
obligation to deliver it arises. However, he shall acquire no real right over it until the
same has been delivered to him.
Art. 443. He who receives the fruits has the obligation to pay the expenses made
by a third person in their production, gathering, and preservation. (356)
REAL RIGHT (jus in re) right pertaining to person over a specific thing, without a
passive subject individually determined against whom such right may be personally
enforced.
- a right enforceable against the whole world
Art. 444. Only such as are manifest or born are considered as natural or industrial
fruits.
To deliver the accessions and accessories of the thing
Art. 1166. The obligation to give a determinate thing includes that of delivering all
3
its accessions and accessories, even though they may not have been mentioned.
Did the defendant, in doing the alleged negligent act, use the reasonable care and
caution which an ordinary prudent man would have used in the same situation?
ACCESSIONS
- fruits of the thing or additions to or improvements upon the principal
- those which are naturally or artificially attached to the thing
ACCESSORIES things included with the principal for the latters embellishment,
better use, or completion
When does right to fruits arise? from the time the obligation to deliver arises
- Conditional from the moment the condition happens
- With a term/period upon the expiration of the term/period
- Simple from the perfection of the contract
Basis
Art. 445. Whatever is built, planted or sown on the land of another and the
improvements or repairs made thereon, belong to the owner of the land, subject to
the provisions of the following articles.
Art. 447. The owner of the land who makes thereon, personally or through another,
plantings, constructions or works with the materials of another, shall pay their value;
and, if he acted in bad faith, he shall also be obliged to the reparation of damages.
The owner of the materials shall have the right to remove them only in case he can
do so without injury to the work constructed, or without the plantings, constructions
or works being destroyed. However, if the landowner acted in bad faith, the owner
of the materials may remove them in any event, with a right to be indemnified for
damages.
Art. 459. Whenever the current of a river, creek or torrent segregates from an
estate on its bank a known portion of land and transfers it to another estate, the
owner of the land to which the segregated portion belonged retains the ownership
of it, provided that he removes the same within two years.
To pay for damages in case of fraud, negligence, delay or contravention of tenor
obligation.
exist:
(1)
(2)
(3)
When the obligation or the law expressly so declare; or

When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or
When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or
is not ready to comply in a proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligation, delay by the other begins.
(1100a)
Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof,
are liable for damages. (1101)
FRAUD (dolo) deliberate intentional evasion of the faithful fulfillment of an obligation;
NEGLIGENCE (culpa or fault) voluntary act or omission of diligence, there being no
malice, which prevents the normal fulfillment of an obligation;
DELAY (mora) default or tardiness in the performance of an obligation after it has
been due and demandable;
CONTRAVENTION OF TERMS OF OBLIGATION (violation) violation of terms and
conditions stipulated in the obligation; this must not be due to a fortuitous event.
Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any
waiver of an action for future fraud is void. (1102a)
INCIDENTAL FRAUD (applicable provisions are Arts. 1170 & 1344) committed in the
performance of an obligation already existing because of a contract; incidental fraud
obliges the person employing it to pay damages.
CAUSAL FRAUD (Art. 1338) employed in the execution of contract in order to secure
consent; remedy is annulment because of vitiation of consent.
Art. 1172. Responsibility arising from negligence in the performance of every kind
of obligation is also demandable, but such liability may be regulated by the courts,
according to the circumstances. (1103)
Courts discretion because:
(a)
negligence depends upon the circumstances of a case good or bad faith of
the obligor may be considered as well as the conduct or misconduct of the
obligee;
(b)
it is not as serious as fraud.
Negligence lack of foresight or knowledge
Imprudence lack of skill or precaution
TEST OF NEGLIGENCE
Definition
Nature
of
Negligence
Good
Father
of
the
family
defense
Presumptio
n
of
negligence
TWO TYPES OF NEGLIGENCE

CULPA AQUILIANA
CULPA CONTRACTUAL
(QUASI- DELICT)
(BREACH OF CONTRACT)
Negligence between parties not
Negligence in the performance
so related by pre-existing
of contractual obligation
contract
Direct,
substantive
and
Incidental to the performance
independent
of the obligation
Complete and proper defense
Not complete and proper
(parents, guardians, employers)
defense in the selection of
employees
No presumption injured party
must prove negligence of the
defendant
There is presumption of
negligence by the fact that the
contract was breached. Must
show that they are not
negligent and breach was
caused by fortuitous events.
Example: Bus with passengers bumps a car. A was a passenger of the bus. B was the
driver of the car. There is culpa contractual with regards to A and the bus driver and
culpa aquiliana with regards to the car driver and bus driver.
Question: Does the employer still have to prove extraordinary diligence in choosing his
employees in an action for culpa aquiliana if it was proven that the driver was not
negligent? NO!
Art. 2199. Except as provided by law or by stipulation, one is entitled to an
adequate compensation only for such pecuniary loss suffered by him as he has
duly proved. Such compensation is referred to as actual or compensatory
damages.
Art. 2200. Indemnification for damages shall comprehend not only the value of the
loss suffered, but also that of the profits which the obligee failed to obtain. (1106)
Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who
acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have foreseen
or could have reasonably foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the nonperformance of the obligation. (1107a)
Art. 2202. In crimes and quasi-delicts, the defendant shall be liable for all damages
which are the natural and probable consequences of the act or omission
complained of. It is not necessary that such damages have been foreseen or could
have reasonably been foreseen by the defendant.
Art. 2216. No proof of pecuniary loss is necessary in order that moral, nominal,
temperate, liquidated or exemplary damages, may be adjudicated. The assessment
of such damages, except liquidated ones, is left to the discretion of the court,
according to the circumstances of each case.
Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation,
and similar injury. Though incapable of pecuniary computation, moral damages may
be recovered if they are the proximate result of the defendant's wrongful act for
omission.
Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered by him.
Art. 2224. Temperate or moderate damages, which are more than nominal but less
than compensatory damages, may be recovered when the court finds that some
pecuniary loss has been suffered but its amount can not, from the nature of the
case, be provided with certainty.
Art. 2226. Liquidated damages are those agreed upon by the parties to a contract,
to be paid in case of breach thereof.
Art. 2229. Exemplary or corrective damages are imposed, by way of example or
correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.
KINDS OF DAMAGES [MENTAL]
MORAL - Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury. Though incapable of pecuniary computation, moral damages may be
recovered if they are the proximate result of the defendant's wrongful act for omission.
Includes sentimental value of property
4
the mishap resulted in the death of a passenger. [Where in breaching the contract
of carriage the airline is not shown to have acted fraudulently or in bad faith,
liability for damages is limited to the natural and probable consequences of the
breach of the obligation which the parties had foreseen or could have reasonably
foreseen. In such a case the liability does not include moral and exemplary
damages. Nominal damages is applicable since it deals with the right of the
spouses.
EXEMPLARY - Exemplary or corrective damages are imposed, by way of example or

correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.
NOMINAL - Nominal damages are adjudicated in order that a right of the plaintiff, which
has been violated or invaded by the defendant, may be vindicated or recognized, and
not for the purpose of indemnifying the plaintiff for any loss suffered by him.
TEMPERATE - Temperate or moderate damages, which are more than nominal but
less than compensatory damages, may be recovered when the court finds that some
pecuniary loss has been suffered but its amount cannot, from the nature of the case, be
provided with certainty.
PLEASANTVILLE V CA
J. Panganiban
- Source of obligation: contract
- there was good faith in Kee building the properties in the disputed lot.
ACTUAL / COMPENSATORY - adequate compensation only for such pecuniary loss

suffered by him as he has duly proved
LIQUIDATED - Liquidated damages are those agreed upon by the parties to a contract,
to be paid in case of breach thereof.
ARRIETA V. NATIONAL RICE
J. Regala
- Good faith consists in the belief of the builder that the land he is building on is his and
his ignorance of any defect or flaw in his title. And as good faith is presumed,
petitioner has the burden of proving bad faith on the part of Kee. At the time he
built improvements on Lot 8, Kee believed that said lot was what he bought from
petitioner. He was not aware that the lot delivered to him was not Lot 8. Thus,
Kees good faith. Petitioner failed to prove otherwise.
- Kees contract violation -> only applicable in contractual breach

- failure of the opening of the letter of credit was the cause for the breach of contract
- it is clear that what singularly delayed the opening of the stipulated letter of credit
and which, in turn, caused the cancellation of the allocation in Burma, was the
inability of the appellant corporation to meet the condition importation by the Bank
for granting the same.
- liability and culpability arises from the willful and deliberate assumption of contractual
obligations even as it was well aware of its financial incapacity to undertake the
prestation
- provision on contract of sale regarding erosion is not applicable to the negligence of the
sellers agent.
- waiver to contract away rights to recover damages from negligence is contrary to public
policy and is not allowed.
- principal is responsible for the acts of the agent, done within the scope of his authority,
and should bear the damage caused to third persons. cause of the issue was the
agents negligence.
- Holding of the CA would unjustly enrich KEE:
- NARIC knew the bank requirements for opening a letter of credit and that it could not
meet its requirement. Despite that, it still continued with the bidding. Hence , it
must be similarly held to have bound itself to answer for all and every
consequences that would result from the representation. aptly observed by the trial
court.
- Those who in the performance of their obligation are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable in
damages.
- The NARIC would also have this Court hold that the subsequent offer to substitute
Thailand rice for the originally contracted Burmese rice amounted to a waiver by
the appellee of whatever rights she might have derived from the breach of the
contract. We disagree. Waivers are not presumed, but must be clearly and
convincingly shown, either by express stipulation or acts admitting no other
reasonable explanation.
- damages were based on estimates, cost studies, and evidence. Award should be in
Philippine peso. Exchange rate is to be when the obligation was incurred.
CATHAY PACIFIC V VAZQUEZ
J. Davide
- a. If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove

these structures, the third-party defendants shall answer for all demolition
expenses and the value of the improvements thus destroyed or rendered useless;
- b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer for
the amount representing the value of Lot 9 that Kee should pay to Jardinico.
- Kee and Jardincio has already amicably settled through their deed of sale their rights
and obligations with regards to Lot 9.
What are the duties of the obligor in obligations to do?
- To do it
- To shoulder the cost if someone else does it
- To undo what has been poorly done
Art. 1167. If a person obliged to do something fails to do it, the same shall be
executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore, it may be decreed that what has been poorly done be
undone. (1098)
- Source of obligation: contract of carriage
- breach of contract of carriage -> upgrading the seats from business class to first class
is a breach of contract
obligation.
- breach of contract - failure without legal reason to comply with the terms of a
contract.*5+ It is also defined as the *f+ailure, without legal excuse, to perform
any promise which forms the whole or part of the contract
- By insisting on the upgrade, Cathay breached its contract of carriage with the
- Vazquezes even when the Vasquezs waived their privilege in not taking the upgraded
seats
- the upgrading of the seats were not in bad faith. Bad faith is defined as a dishonest
purpose or some moral obliquity and conscious doing of a wrong, a breach of a
known duty through some motive or interest or ill will that partakes of the nature of
fraud
exist:
(1)
(2)
(3)

When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the establishment of
the contract; or
- there was no bad faith since the Vasquez spouses were not induced by deceit in
upgrading their seats and it was not for a devious or evil purpose.
(1100a)
- overbooking the business class section was not in bad faith since it is in accordance
with law (Section 3 of the Economic Regulation No. 7 of the Civil Aeronautics
Board)
- there are no moral damages since it requires the following:

(1) there must be an injury clearly sustained by the claimant, whether physical,
mental or psychological; (2) there must be a culpable act or omission factually
established; (3) the wrongful act or omission of the defendant is the proximate
cause of the injury sustained by the claimant; and (4) the award for damages is
predicated on any of the cases stated in Article 2219 of the Civil Code.
- Moral damages predicated upon a breach of contract of carriage may only be
recoverable in instances where the carrier is guilty of fraud or bad faith or where
5
(1104a)
(See annotations above)
What are the duties of the obligor in obligations not to do?
Not to do what should not be done
To shoulder the cost to undo what should not have been done
Art. 1168. When the obligation consists in not doing, and the obligor does what has
been forbidden him, it shall also be undone at his expense. (1099a)
A. Pure and Conditional Obligations

What is a pure obligation?
Art. 1179. Every obligation whose performance does not depend upon a future or
uncertain event, or upon a past event unknown to the parties, is demandable at
once.
Every obligation which contains a resolutory condition shall also be demandable,
without prejudice to the effects of the happening of the event.
What is a conditional obligation?
Art. 1181. In conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening
of the event which constitutes the condition.
* This provision applies to an obligation to do.

THREE SITUATIONS:
(a)
Debtors failure to perform an obligation creditor may do the obligation, or by
another, at the expense of the debtor; -recover damages
(b)
Performance was contrary to the terms agreed upon - order of the court to undo
the same at the expense of the debtor
(c)
Performance in a poor manner - order of the court to undo the same at the
expense of the debtor
To pay damages
Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who
acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have foreseen
or could have reasonably foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the nonperformance of the obligation. (1107a)
Art. 2202. In crimes and quasi-delicts, the defendant shall be liable for all damages
which are the natural and probable consequences of the act or omission
complained of. It is not necessary that such damages have been foreseen or could
have reasonably been foreseen by the defendant.
PURE OBLIGATION an obligation which does not contain any condition or term upon
which the fulfillment is made to depend; immediately demandable by the creditors and
the debtor cannot be excused from not complying with his prestation.
CONDITIONAL OBLIGATION
- an obligation which depends upon a future or uncertain event, or upon a past event
unknown to the contracting parties.
- an obligation subject to a condition.
- an event which is not uncertain but must necessarily happen cannot be a condition; the
obligation will be considered as one with a term
- past event cannot be called a condition but rather, a basis of the contract. Even when
unknown to the parties, a past event is not a condition.
- it is not the fact stated which serves as a condition but the proof of such fact; the
contract or obligation arises, not when the vent happened or the fact came into
existence , which would be in the past, but when the proof of such fact or event is
presented, which would be the future.
Resolutory Condition
- the happening of such extinguishes rights already existing; obligation is treated as if it
never came into existence
- cannot be enforced against a 3rd party as it is a personal right which he can enforce
only against his creditor who has become a debtor obliged to make restitution
- in case of loss of a thing, deteriorations or improvements, the party who has to make
the restitution being considered the debtor
- mutual restitution happens not just for the object and the price but also for the fruits and
the interests
Suspensive Condition happening of such gives rise to an obligation
What is a resolutory condition?
obligation.
Art. 1179. Every obligation whose performance does not depend upon a future or
uncertain event, or upon a past event unknown to the parties, is demandable at
once.
exist:
Every obligation which contains a resolutory condition shall also be demandable,

without prejudice to the effects of the happening of the event.
(1)
(2)
(3)

When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the establishment of
the contract; or
(1100a)
(1104a)
Art. 1190. When the conditions have for their purpose the extinguishment of an
obligation to give, the parties, upon the fulfillment of said conditions, shall return to
each other what they have received.
In case of the loss, deterioration or improvement of the thing, the provisions which,
with respect to the debtor, are laid down in the preceding article shall be applied to
the party who is bound to return.
As for the obligations to do and not to do, the provisions of the second paragraph of
Article 1187 shall be observed as regards the effect of the extinguishment of the
obligation.
- Refers to the fulfillment of a resolutory condition.
- When the resolutory condition happened, the obligation is considered as if it did not
exist.
- The parties are bound to return or restore whatever they have received from each other
reciprocal restitution
- Donation by reason of marriage if the marriage does not happen, such donation
should be returned to the donor.
- Loss, deterioration and improvement governed by 1189.
- In obligations to do and not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with.
What is a potestative condition?
Art. 1182. When the fulfillment of the condition depends upon the sole will of the
debtor, the conditional obligation shall be void. If it depends upon chance or upon
the will of a third person, the obligation shall take effect in conformity with the
provisions of this Code.
Art. 1308. The contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them. (1256a)
(see annotations above)
Art. 1309. The determination of the performance may be left to a third person,
whose decision shall not be binding until it has been made known to both
contracting parties. (n)
II. Kinds of Obligations
Art. 1310. The determination shall not be obligatory if it is evidently inequitable. In

such case, the courts shall decide what is equitable under the circumstances. (n)
6
Potestative condition one which depends upon the will of one of the contracting
parties
(a) That the term or period of this contract shall be as long as the party of the first part
(petitioner) has need for the electric light posts of the party of the second part (private
respondent) . . ..
Casual condition depends exclusively upon chance or other factors and not upon
the will of the contracting parties
is a potestative condition, is correct. However, it must have overlooked the other

conditions in the same provision, to wit:
Mixed condition one which depends upon the will of one of the contracting parties
and other circumstances, including the will of a third person
. . . it being understood that this contract shall terminate when for any reason
whatsoever, the party of the second part (private respondent) is forced to stop,
abandoned (sic) its operation as a public service and it becomes necessary to remove
the electric light post (sic);
Kinds of Potestative Condition

1.) Simple
presupposes not only a manifestation of will but also the realization of an
external act (if you sell your house)
does not prevent the formation of a valid obligation
it is subject in part to contingencies over which debtor has no control
2.) Purely Potestative
depends solely and exlusively upon the will ( if I like it or if I deem it proper)
destroys the efficacy of the legal tie;
it is only when the potestative condition depends exclusively upon the will
of the debtor that the conditional obligation is void. It is valid if it depends
partly on the will of the debtor and the 3rd person,
dependence on the debtor illusory obligations obligation is void but is
applicable only when the condition is suspensive and cannot apply to
resolutory conditions
potestative and resolutory = may be valid
mixed conditions = valid
if dependent on a 3rd person who cannot be compelled to carry it out, and
it is found by the court that the obligor has done all in his power to comply
with the obligation, the other party may be ordered to comply with his part
of the contract
NAGA TELEPHONE V CA
J. Nocon
- cause of action one sided contract, petitioners use of the telephone posts caused
damage
- cause of action no payment for usage of telephone posts despite demands or private
respondent
- cause of action poor service which caused damages
- Respondents answered:
- not sufficient COA , barred by prescription, estoppel, their usage could not have caused
the deterioration
- petitioners refused to comply with private respondents demands , it was probably
because what is due to them from private respondent is more than its claim
against them.
which are casual conditions since they depend on chance, hazard, or the will of a third
person. In sum, the contract is subject to mixed conditions, that is, they depend partly
on the will of the debtor and partly on chance, hazard or the will of a third person, which
do not invalidate the aforementioned provision.
POLOTAN V CA
J. Romero
- Source of obligation contract
- PAYMENT OF CHARGES . . . The Cardholder agrees to pay interest per annum at
3% plus the prime rate of Security Bank and Trust Company. . . . Provided that if
there occurs any change in the prevailing market rates the new interest rate shall
be the guiding rate of computing the interest due on the outstanding obligation
without need of serving notice to the Cardholder other than the required posting on
the monthly statement served to the Cardholder.
- The Cardholder hereby authorizes Security Diners to correspondingly increase the rate
of such interest in the event of changes in prevailing market rates and to charge
additional service fees as may be deemed necessary in order to maintain its
service to the Cardholder.
- claims that the terms rates are ambiguous and obscure, violated laws on Central Bank
Circulars, there was bad faith from diners club
- A contract of adhesion is one in which one of the contracting parties imposes a readymade form of contract which the other party may accept or reject, but cannot
modify. One party prepares the stipulation in the contract, while the other party
merely affixes his signature or his "adhesion" thereto, giving no room for
negotiation and depriving the latter of the opportunity to bargain on equal footing.
- Admittedly, the contract containing standard stipulations imposed upon those who seek
to avail of its credit services was prepared by Diners Club. There is no way a
prospective credit card holder can object to any onerous provision as it is offered
on a take-it-or-leave-it basis. Being a contract of adhesion, any ambiguity in its
provisions trust be construed against private respondent.
- these are considered ordinary binding contracts since the party to adheres to the
contract is free to reject it
- is the contract one sided? No . its parties agreed upon the stipulation and petitioner did
not specify what provision was in question
- telephone service had been categorized by the National Telecommunication

Corporation (NTC) as "very high" and of "superior quality.
- its not an escalation clause since it refers to the prevailing market rate. Does not state
all increase / decrease in rate
Issue of the applicability of Art 1267 of the NCC - we agree with respondent court
that the allegations in private respondent's complaint and the evidence it has presented
sufficiently made out a cause of action under Article 1267. We, therefore, release the
parties from their correlative obligations under the contract. However, our disposition of
the present controversy does not end here. We have to take into account the possible
consequences of merely releasing the parties therefrom: petitioners will remove the
telephone wires/cables in the posts of private respondent, resulting in disruption of their
service to the public; while private respondent, in consonance with the contract will
return all the telephone units to petitioners, causing prejudice to its business. We shall
not allow such eventuality. Rather, we require, as ordered by the trial court: 1)
petitioners to pay private respondent for the use of its posts in Naga City and in the
towns of Milaor, Canaman, Magarao and Pili, Camarines Sur and in other places where
petitioners use private respondent's posts, the sum of ten (P10.00) pesos per post, per
month, beginning January, 1989; and 2) private respondent to pay petitioner the
monthly dues of all its telephones at the same rate being paid by the public beginning
January, 1989. The peculiar circumstances of the present case, as distinguished further
from the Occea case, necessitates exercise of our equity jurisdiction.
- Escalation clauses are not basically wrong or legally objectionable as long as they are
not solely potestative but based on reasonable and valid grounds. It is beyond the
control of any of the parties.
Issue of prescription - Article 1144 of the New Civil Code provides, inter alia, that an
action upon a written contract must be brought within ten (10) years from the time the
right of action accrues. Clearly, the ten (10) year period is to be reckoned from the time
the right of action accrues which is not necessarily the date of execution of the contract.
This was when contract was studied since it was disadvantageous (1982) , 10 years
have not yet elapsed.
Issue of Potestation - petitioners allege that there is nothing purely potestative about
the prestations of either party because petitioner's permission for free use of
telephones is not made to depend purely on their will, neither is private respondent's
permission for free use of its posts dependent purely on its will.
Petitioners' allegations must be upheld in this regard. A potestative condition is a
condition, the fulfillment of which depends upon the sole will of the debtor, in which
case, the conditional obligation is void. 19 Based on this definition, respondent court's
finding that the provision in the contract, to wit:
What is the effect of impossible conditions? Illegal conditions?

Art. 1183. Impossible conditions, those contrary to good customs or public policy
and those prohibited by law shall annul the obligation which depends upon them. If
the obligation is divisible, that part thereof which is not affected by the impossible or
unlawful condition shall be valid.
The condition not to do an impossible thing shall be considered as not having been
agreed upon.
Question: A promised B to give his car if B can hold the sun. Can B demand the
fulfillment of the donation?
Art. 727. Illegal or impossible conditions in simple and remuneratory donations
shall be considered as not imposed.
- impossibility may be physical or juridical
- physical if contrary to the laws of nature. Juridical if contrary to law, morals, good
customs, public policy and order
- intention determines if the act is illicit
- impossibility must exist at the time of the creation of the obligation
- illogical conditions is the logical impossibility in an obligation although the condition
is not impossibility (I will deliver to you my house if it is destroyed)
- divisible obligations part not affected by the impossible or unlawful obligation shall
be valid
- negative impossible conditions considered to have been agreed upon. Does not
need to wait upon the conditions.
When are conditions deemed fulfilled?
7
Art. 1184. The condition that some event happen at a determinate time shall
extinguish the obligation as soon as the time expires or if it has become indubitable
that the event will not take place. (1117)
Art. 1188. The creditor may, before the fulfillment of the condition, bring the
appropriate actions for the preservation of his right.
The debtor may recover what during the same time he has paid by mistake in case
of a suspensive condition.
Positive condition refers to the fulfillment of an event or performance of an act

Negative condition refers to the non-fulfillment or non-performance of an act.
Actions available to the creditor:

to prevent the loss or deterioration of the things which are the objects of
the obligation by enjoining or restraining acts of alienation or destruction by
the debtor himself or by third persons
to prevent concealment of the debtors properties which constituted the
guaranty in case of non performance of the obligation
to demand security if the debtor becomes insolvent
to compel the acknowledgment of the debtors signature on a private
document or the execution of the proper public documents for registration
so as to affect 3rd persons
to register the deeds of sale or mortgages evidencing the contract
to set aside fraudulent alienations made by the debtor
to interrupt the period of prescription by actions against adverse
possessors of the things which are the objects of the obligations
POSITIVE SUSPENSIVE CONDITION

The obligation is extinguished:
1.
As soon as the TIME EXPIRES without the event taking place;
2.
As soon as it has become certain that the EVENT WILL NOT TAKE PLACE
although the time specified has not yet expired.
Where no period stated 2nd paragraph of 1185 is applicable
Art. 1185. The condition that some event will not happen at a determinate time
shall render the obligation effective from the moment the timeindicated has
elapsed, or if it has become evident that the event cannot occur.
If no time has been fixed, the condition shall be deemed fulfilled at such time as
may have probably been contemplated, bearing in mind the nature of the
obligation. (1118)
1184 (POSITIVE SUSPENSIVE)
A obliges himself to give B some
money if B recites on or before June 30
A liable if B recites on or before June
30
A is not liable if B recites after June 30
1185 (NEGATIVE SUSPENSIVE)

A obliges himself to give B some
money if B will not recite on June 30
A is not liable if B recites on June 30
A is liable if B did not recite on June 30
Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment. (1119)
This provision speaks of the DOCTRINE OF CONSTRUCTIVE FULFILLMENT
Requisites
intent of the obligor to prevent the fulfillment of the condition
actual prevention of compliance
- when the act (voluntary), did not have for its purpose the prevention of the condition,
this article is not applicable
- if in preventing the fulfillment of the condition, the debtor acts pursuant to a right, the
condition will not be deemed as fulfilled
- when the condition is resolutory but not dependent on the will of the debtor, and he
unjustifiably provokes or produces the condition, which would not have happened
without his doing so, uit will be considered as not having been fulfilled and there
will be no extinguishment of rights.
Does the fulfillment of a condition have retroactive effect?
Art. 1187. The effects of a conditional obligation to give, once the condition has
been fulfilled, shall retroact to the day of the constitution of the obligation.
Nevertheless, when the obligation imposes reciprocal prestations upon the parties,
the fruits and interests during the pendency of the condition shall be deemed to
have been mutually compensated. If the obligation is unilateral, the debtor shall
appropriate the fruits and interests received, unless from the nature and
circumstances of the obligation it should be inferred that the intention of the person
constituting the same was different.
In obligations to do and not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with.
- moment of the creation of the conditional obligation and the fulfillment of the
suspensive condition, the creditor enforce the obligation, right is a mere
expectancy
- cause of action for the enforcement of the obligation accrues, and the period of
prescription of the action has to be computed from that moment
- effects retroact to when the obligation was created
- increase in value which the thing may acquire before the happening of the suspensive
condition, inures to the benefit of the creditor
- right to the fruits of the thing is not within the principle of retroactivity of conditional
obligations
- in obligations to do or not to do, the courts shall determine the retroactive effect of the
fulfillment of the conditions
Common question: A promised to give B his house if B passes the bar. Before the
results of the bar came out, A sold his car to C. Is the sale valid? Can B obtain the
rentals for the house from the time they had an agreement to when the condition was
fulfilled?
Validity of sale: determine if the buyer was in good faith and if the house has already
been delivered. B may take action against A for damages.
Rentals and Fruits: B cannot obtain the rentals / fruits as the fruits will remain with the
owner before the condition was fulfilled. Fruits not within the principle of retroactive
effect of the fulfillment of the conditions.
Can rights be acquired prior to the fulfillment of a condition?
Art. 1181. In conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening
of the event which constitutes the condition. (1114)
Can payment prior to the fulfillment of a condition be recovered?
if payment was made with knowledge of the condition, there is an implied waiver of the
condition, cannot be recovered
Rights of the DEBTOR entitled to recover what has been paid by mistake prior to the
happening of the suspensive condition.
Who is liable if the thing that is the object of an obligation to give is lost prior to
the fulfillment of a suspensive condition?
Who is liable if the thing that is the object of an obligation to give is lost after the
fulfillment of a suspensive condition?
Art. 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules shall be
observed in case of the improvement, loss or deterioration of the thing during the
pendency of the condition:
(1)
If the thing is lost without the fault of the debtor, the obligation shall be
extinguished;
(2)
If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages; it is understood that the thing is lost when it perishes, or goes out
of commerce, or disappears in such a way that its existence is unknown or it
cannot be recovered;
(3)
When the thing deteriorates without the fault of the debtor, the impairment is
to be borne by the creditor;
(4)
If it deteriorates through the fault of the debtor, the creditor may choose
between the rescission of the obligation and its fulfillment, with indemnity for
damages in either case;
(5)
If the thing is improved by its nature, or by time, the improvement shall inure
to the benefit of the creditor;
(6)
If it is improved at the expense of the debtor, he shall have no other right
than that granted to the usufructuary (right to enjoy products he does not
own).
- applicable to a determinate thing only, not a generic thing
LOSS
(1)
debtor without fault obligation is extinguished
(2)
debtor with fault obligation to pay damages
DETERIORATION
(1)
debtor without fault impairment is to be borne by the creditor
(2)
debtor with fault creditor chooses: rescission of obligation, fulfillment,
indemnity
IMPROVEMENT
(1)
by nature or time improvement: inure to the benefit of the creditor
(2)
at the expense of the debtor granted to the usufructuary
B. Obligations with a Period
What is an obligation with a period?
Art. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes.
Obligations with a resolutory period take effect at once, but terminate upon arrival
of the day certain.
A day certain is understood to be that which must necessarily come, although it
may not be known when.
If the uncertainty consists in whether the day will come or not, the obligation is
conditional, and it shall be regulated by the rules of the preceding Section.
Term space of time which exerting an influence on the obligations as a consequence
of the juridical act, suspends their demandability or determines their extinguishment
Differences from condition
(1)
as to fulfillment condition is uncertain, period must necessarily come whther
on a date known before hand or at a time which cannot be predetermined
(2)
influence on the obligation condition gives rise / extinguishes an obligation,
period only has an effect on their demandability or performance
8
(3)
(4)
as to time period refers to the future while condition may refer to a past event
unknown to the parties
will of debtor condition which depends exclusively on the will of the debtor
annuls the obligation, period left to the debtors will merely empowers the court
to fix such period
Requisites of a period future, certain, possible

Kinds of terms
(1)
According to source legal, voluntary, judicial
(2)
Definite or indefinite
(3)
Express or tacit
Suspension of a period it only relieves the parties from the fulfillment of their
respective obligations during that time
that the buyer will build on the parcel of land the Sto Domingo church & convent; while
the seller for its part will construct streets on the NE & NW & SW sides of the land
herein sold so that the latter will be a block surrounded by streets on all 4 sides; & the
street on the NE side shall be named Sto. Domingo Ave.
PSEDC finished the construction of the church & convent, but GAI, w/c began
constructing the streets, is unable to finish the construction of the street in the NE side
because a certain third party who has been physically occupying a middle part thereof,
refused to vacate the same
Hence, PSEDC filed its complaint against J. M. Tuason & Co., Inc., & GAI in the CFI,
seeking to compel the latter to comply w/ their obligation &/or to pay damages in the
event they failed or refused to perform said obligation.
Who is liable if the thing is that is the object of an obligation to give is lost prior
to the arrival of the period?
Both defendants answered the complaint. GAIs principal defense was that the action
was premature since its obligation to construct the streets in question was w/o a
definite period w/c needs to be fixed 1st by the court in a proper suit for that purpose
before a complaint for specific performance will prosper.
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.
Issues having been joined in trial, CFI (May 31, 60) dismissed plaintiff's complaint,
upholding defenses interposed by GAI
LOSS
(1)
debtor without fault obligation is extinguished
(2)
debtor with fault obligation to pay damages
Plaintiff moved to reconsider & modify above decision, praying that court fix period w/in
w/c defendants will comply w/ their obligation
DETERIORATION
(1)
debtor without fault impairment is to be borne by the creditor
(2)
debtor with fault creditor chooses: rescission of obligation, fulfillment,
indemnity
IMPROVEMENT
(1)
by nature or time improvement: inure to the benefit of the creditor
(2)
at the expense of the debtor granted to the usufructuary
When is the court authorized to set a period?
Art. 1197. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may fix the
duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of
the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them.
Art. 1180. When the debtor binds himself to pay when his means permit him to do
so, the obligation shall be deemed to be one with a period, subject to the provisions
of Article 1197.
- only refers to the period, not the obligation itself
JUDICIAL PERIOD period designated by the court.
CONTRACTUAL PERIOD period fixed by the parties in their contract.
Court will fix a period:
(1)
When no period is mentioned, but it is inferable from the nature and
circumstances of the obligation that a period was intended by the parties.
(2)
When the period is dependent upon the will of the debtor.
-If the obligation does not state and intend a period, the court is not authorized to fix a
period.
-The court must fix the duration of the period to prevent the possibility that the
obligation may never be fulfilled or to cure a defect in a contract whereby it is made to
depend solely upon the will of one of the parties.
Court cannot fix the period:
(1)
If there is a period agreed upon by the parties and it has already lapsed or
expired.
(2)
From the very moment the parties give their acceptance and consent to the
period fixed by the court, it becomes a law governing their contract.
INDICATIONS OF A TERM OR PERIOD:
When the debtor binds himself to pay
- when his means permit him to do so
- little by little
- as soon as possible
- from time to time
- as soon as I have the money
- in partial payment
- when in the position to pay
GAI opposed said motion. But CFI granted plaintiff's MFR & amending the dispositive
portion of the decision of May 31, 60, to read as follows:
"WHEREFORE, judgment is hereby rendered giving defendant Gregorio Araneta, Inc.,
a period of Two (2) Years from notice hereof, within which to comply with its obligation
under the contract, Annex A"
GAI filed MFR but CFI denied. GAI appealed to the CA, contending that the relief
granted, i.e., fixing of a period, was not justified by the pleadings & not supported by the
facts submitted at the trial of the case in court below & that the relief granted in effect
allowed a change of theory after the submission of the case for decision
CA upheld the CFI decision. Hence this petition for review by certiorari to the SC
WON CFI may fix a period in the same pleading by PSEDC
NO. When GAI pleaded in its answer that the contract w/ PSEDC gave GAI
"reasonable time w/in w/c to comply with its obligation to construct & complete the
streets", what the answer put in issue was not whether the court should fix the time of
performance, but WON the parties agreed that the petitioner should have reasonable
time to perform its part of the bargain.
If the contract so provided, then there was a period fixed, a "reasonable time";
all that the court should have done was to determine if that reasonable time had
already elapsed when suit was filed. If it had passed, then the court should declare that
petitioner had breached the contract, as averred in the complaint,
fix the resulting damages. On the other hand, if the reasonable time had not yet
elapsed, the court perforce was bound to dismiss the action for being premature. But in
no case can it be logically held that under the plea above quoted, court intervention to
fix the period for performance was warranted, for Art. 1197 is precisely predicated on
the absence of any period fixed by the parties
Granting that the court shouldve found that no reasonable time/no period at all had
been fixed, still the complaint not having sought that the Court should set a period, the
court couldnt proceed to do so unless the complaint was first amended; for the orig.
decision is clear that the complaint proceeded on the theory that the period for
performance had elapsed already, that the contract had been breached & defendant
was already answerable in damages.
Granting further that it lay within the Court's power to fix the period of performance, still
the amended decision is defective in that no basis is stated to support the conclusion
that the period should be set at 2 yrs after finality of the judgment. Art. 1197 is clear that
the period cannot be set arbitrarily.
All that TC's amended decision says in this respect is that "the proven facts precisely
warrant the fixing of such a period", a statement manifestly insufficient to explain how
the 2 year period given to petitioner herein was arrived at.
Art. 1197, CC involves a 2-step process.
Court must 1st determine that "the obligation does not fix a period" (or that the period is
made to depend upon the will of the debtor), "but from the nature & the circumstances it
can be inferred that a period was intended" (Art. 1197, pars. 1&2)
Secondly, it must decide what period was "probably contemplated by the parties"
ARANETA V PHILIPPINE SUGAR ESTATE DEVELOPMENT

J. J.B.L. Reyes
Ultimately, the Court can not fix a period merely because in its opinion it is or should be
reasonable, but must set the time that the parties are shown to have intended.
J. M. Tuason & Co., Inc., owner of the Sta. Mesa Heights Subd., sold a portion thereof
through Gregorio Araneta, Inc. (GAI), for the sum of P430,514, to Phil. Sugar Estates
Devt Co., Ltd (PSEDC).
In this connection, contract shows that the parties were fully aware that the land
described therein was occupied by squatters, because the fact is expressly mentioned
therein. As the parties must have known that they could not take the law into their own
hands, but must resort to legal processes in evicting the squatters, they must have
realized that the duration of the suits to be brought would not be under their control nor
could the same be determined in advance. The parties must have thus intended to
Stipulated in their contract of purchase & sale w/ mortgage:
defer the performance of the obligations under the contract until the squatters were duly
evicted, as contended by the GAI
CA objected that it would render the date of performance indefinite. Yet, the
circumstances admit no other reasonable view; & this very indefiniteness is what
explains why the agreement did not specify any exact periods or dates of performance.
Holding: Reversed; Time for the performance is fixed at the date that all the squatters
on affected areas are finally evicted therefrom
CPU V CA
J. Bellosillo
Iloilo, in 1939, Don Ramon Lopez by a deed of donation donated Lot No. 3174-B-1 of
the subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer
Certificate of Title No. T-3910A to CPU.
He agrees its an onerous obligation, but he sees the contradiction when the ponente
called it a gratuitous donation in the end.
He makes a distinction between conditions on the laws of obligation and donation as
different(Tolentino). The conditions spoken does not refer to uncertain events on which
the birth or extinguishment of a juridical relation as with conditional obligations.
What we have in this case is modal condition, which requires a prestation. The
conditions Don Ramon made, are actually obligations. They are not resolutory because
the moment the obligations are fulfilled, the rights are not extinguished (in fact
strengthened).
The Parks (footnote in the original case) case do not apply here. Instead what applies
is the Barretto v City of Manila. Where the court said in cases where there is no fixed
period for the conditions, Art. 1197 applies. Don Ramon wouldnt have intended for his
land to be idle.
The deed of donation came with 3 annotations on the land:

1.should be used for a medical college with all its buildings as part of the curriculum;
2. shouldnt be sold, transferred, conveyed to any third party, or encumbered.
3. should be called "RAMON LOPEZ CAMPUS and it be written in a cornerstone. Any
net income from the land or its parks shall be in a fund to be known as the "RAMON
LOPEZ CAMPUS FUND" used for improvements of the campus and its building/s.
After 50 years(May 31,1989), the heirs of the donor, filed a suit, asking for annulment of
donation, reconveyance and damages against CPU alleging that since 1939 the donee
allegedly didnt comply with the conditions, and tried to exchange the land for another
land owned by the Natl Housing Authority.
CPU answered that it didnt try to use or exchange the land contrary to the conditions,
and any action after 50 years has already prescribed.
RTC held that CPU failed to comply with the conditions so the donation is declared null
and void. The land is ordered to be reconveyed.
CA affirmed that the conditions were resolutory (breach terminates rights making the
donations revocable) but declared that the conditions didnt have time limits so the case
is remanded for time determination.
SO, CPU petitioned the supreme court alleging that the CA erred the certificate title to
be onerous obligation, and resolutory condition, that prescription does not deserve
disquisition and remanding to the RTC the determination of time to fulfill the medical
college condition. Issues
WON the obligation was onerous.YES
Clearly, the annotations in the deed of donation from Don Ramon, proves that he
imposes these obligations. Therefore, these obligations are onerous considerations(one
executed for a valuable consideration which is considered to be en equivalent of the
donation itself).
Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as
well as the extinguishment or loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition.
Thus, when a person donates land to another on the condition that the latter would
build upon the land a school, the condition imposed was not a condition precedent or a
suspensive condition but a resolutory one. Only after the donee didnt fulfill the
conditions will the rights be revoked. which brings us to the prescription
WON there is prescription. NO
The time from which the cause of action accrued for the revocation of the donation and
recovery of the property donated cannot be specifically determined in the instant case.
There being no stipulations in the deed, the time for the fulfillment of the conditions lay
in the will of the donee and prevented the statute of limitations to affect in this case.
And to compute for the time from which the cause of action accrued, it begins with the
expiration of a reasonable period and opportunity for petitioner to fulfill what has been
charged upon it by the donor.
And in this case, no exact time can really be surely stipulated in the deed, considering
the laws on construction, educational institutions etc. beyond the control of the donee.
Thus, when the obligation does not fix a period but from its nature and circumstances it
can be inferred that a period was intended, the general rule provided in Art. 1197 of the
Civil Code applies, which provides that the courts may fix the duration thereof because
the fulfillment of the obligation itself cannot be demanded until after the court has fixed
the period for compliance therewith and such period has arrived.
He also points out that Osmena v Rama doesnt apply here because in that case it is
the debtor who made the promise to do, thats why time was in his will to comply. So
here applying Parks and De Luna v Abrigo, even actions for revocation of donations
prescribe too. And the Art.1144 applies that the prescription of an action upon a written
contract which is what a deed of an onerous donation is, is 10 years from the time the
cause of action accrues. And the time must be determined by the courts by virtue of Art.
1197.
Accion Pauliana (rescission) - Creditors have the right to set aside or revoke acts
which the debtor may have done to defraud them. All acts of the debtor which reduce
his patrimony in fraud of his creditors, whether by gratuitous or onerous title, can be
revoked by this action.
Accion Subrogata - Action which the creditor may exercise in place of the negligent
debtor in order to preserve or recover for the patrimony of the debtor the product of
such action, and then obtain therefrom the satisfaction of his own credit
When is the obligation immediately demandable prior to the arrival of the period?
Art. 1198. The debtor shall lose every right to make use of the period:
(1)
When after the obligation has been contracted, he becomes insolvent,
unless he gives a guaranty or security for the debt;
(2)
When he does not furnish to the creditor the guaranties or securities which
he has promised;
(3)
When by his own acts he has impaired said guaranties or securities after
their establishment, and when through a fortuitous event they disappear,
unless he immediately gives new ones equally satisfactory;
(4)
When the debtor violates any undertaking, in consideration of which the
creditor agreed to the period;
(5)
When the debtor attempts to abscond (depart in a sudden and secret
manner)
The period is disregarded and the obligation becomes pure and immediately
demandable: [IGIVA]
[I] When debtor becomes insolvent;
-The insolvency need not be judicially declared. It is sufficient that debtor could not pay
his debts due to lack of money or funds.
[G] When the debtor does not furnish guaranties or securities;
[I] When guaranties or securities given have been impaired or have disappeared;
If security was lost through debtors fault - impairment
If security was lost through fortuitous event disappearance
Ex. House was sold by A to B on an installment basis per month based on a period.
House became the mortgage (guaranty). A fire destroyed the house and it was
established that there was not negligence involved and it was a fortuitous event. In
the quiz, the accepted answer was that the obligation was extinguished due to
fortuitous events. However if we apply 1998, the period can no longer be used and A
can claim the whole amount (shall lose every right to use the period) unless debtor
gives a new guaranty equally satisfactory.
[V] When debtor violates an undertaking;
If such undertaking is the reason for the creditor to agree with such period.
[A] When debtor attempts to abscond (escape).
Mere attempt to abscond is sufficient. It is an indication of bad faith.
Can mistaken payment prior to the arrival of the period be recovered?
Art. 1195. Anything paid or delivered before the arrival of the period, the obligor
being unaware of the period or believing that the obligation has become due and
demandable, may be recovered, with the fruits and interests.
And yet, Art. 1197 cant be applied because the courts think that 50 years was enough
time for them to fulfill the conditions. CPU has slept on its obligations.
If he was not aware of the period or he believes that the obligation has become due
and demandable he can recover what he paid or delivered including fruits and
interests;
What applies is Art. 1191, when an obligor cant comply with what is expected of him,
the obligee may seek rescission unless the court fixes a period for a just cause. In this
case, there is no just cause, to fix a period would be mere technicality and would only
result to a multiplication of suits.
If he was aware and he paid voluntarily he cannot recover the delivery made; it is
deemed a waiver of the benefit of the term and the obligation is considered already
matured.
Then the court said that since this is a gratuitous donation(contradiction, see dissent)
the court affirms the decision of the RTC and modifies that of the CA, CPU is ordered to
reconvey the property to the heirs.
Davide, J. dissenting (Modal Conditions in donations Important)
The presumption is that the debtor knew that the debt was not yet due. He has the
burden of proving that he was unaware of the period.
In case of doubt, for whose benefit will a period be construed?
Art. 1196. Whenever in an obligation a period is designated, it is presumed to have
10
been established for the benefit of both the creditor and the debtor, unless from the
tenor of the same or other circumstances it should appear that the period has been
established in favor of one or of the other.
PRESUMPTION: Obligation with a period is for the benefit of both the creditor and
debtor.
EXCEPTION: when it appears that the period is for the benefit of one or the other
The benefit of the term may be the subject of stipulation of the parties.
1. Term is for the benefit of the debtor alone he cannot be compelled to pay
prematurely, but he can if he desires to do so.
Example: A obliges himself to pay B within 5 years. A cannot be compelled to pay
prematurely, but he can pay anytime within 5 years (A will benefit because he can
pay anytime he wants as long as it is within 5 years; B will not benefit from the
interests if A decides to pay early).
2. Term is for the benefit of the creditor He may demand fulfillment even before
the arrival of the term but the debtor cannot require him to accept payment before the
expiration of the stipulated period.
Example: A borrows money from B and is obliged to make the payment on
December 5. B may compel A to make the payment before December 5, but A may
not compel B to receive the payment before December 5 (B will benefit from the
interests that will accrue before December 5).
The creditor may have reasons other than the maturity of interest, thats why,
unless the creditor consents, the debtor has no right to accelerate the time of
payment even if the premature tender includes an offer to pay the principal and
interest in full.
C. Alternative Obligations
Kinds of obligations that has many possible prestations to fulfil in order to extinguish the
obligation.
- Obligations that require a debtor to perform completely one of the several prestations
provided as options in the stipulations of the contract.
o
The prestations must be lawful and possible. (CC1200)
- Fulfilment of one of the provided prestations extinguishes the obligation. Partial
fulfilment of any number of the provided prestations does not fulfil the obligation.
The creditor cannot be compelled to accept part of one and part of another
prestation. (CC1199)
- The prestation to be fulfilled is dependent on whom the right to choose is given. In
default, the right to choose is given to the debtor. (CC1200)
- The choice must be communicated before it becomes effective. The choice will only
produce effects upon communication. (CC1201)
o
Until the choice is communicated, the person with the right to choose can
change his mind.
- When an alternative obligation ceases? > What happens to the obligation?
o
When only one choice is practicable. (CC1202)
o
When the choice has been communicated. (CC1201) (CC1205)
- Right to choose vested on the debtor
o
If through the acts of the creditor, the debtor cannot make a choice according
to the terms of the obligation, the debtor may rescind with damages (CC1203)
o
Effect of Loss or Impossibility before the choice has been communicated:
Fortuitous event: One or some of the
prestations are lost or became
impossible
Fortuitous event: All except one of the
impossible
Fortuitous event: All prestations are lost
or became impossible
Debtors fault: One or some of the
impossible
Debtors fault: All except one of the
impossible
Debtors fault: All prestations are lost or
became impossible
Debtor may choose among

remaining prestations what to fulfil
the
Debtor must fulfil the remaining

prestation ~ obligation becomes simple
Obligation is extinguished (See:
Fortuitous Event)
Debtor may choose among the
remaining prestations what to fulfil
Debtor must
prestation
fulfil
the
remaining
Debtor must pay creditor the price of

the last prestation that was lost or
became impossible, without prejudice
to the creditors right to damages
- Right to choose vested on the creditor

o
(CC1204) (CC1205)
Fortuitous event: One or some of the
impossible
Fortuitous event: All except one of the
impossible
Fortuitous event: All prestations are lost
or became impossible
Creditor may choose among the

remaining prestations what the debtor
will fulfil
Debtor must fulfil the remaining
prestation
Obligation is extinguished
Fortuitous Event)
(See:
Debtors fault: One or some of the

impossible
Debtors fault: All except one of the
impossible
Debtors fault: All prestations are lost or
became impossible
Creditor may choose among the

remaining prestations what the debtor
fulfil OR the price of one of the
prestation/s lost due to the debtors
fault plus creditors rights to damages
Creditor may choose that the debtor
fulfil the remaining prestation OR the
price of one of the prestations lost due
to the debtors fault plus creditors
rights to damages
Creditor may choose the price of one of
the prestations lost due to the debtors
fault plus creditors rights to damages
- Right to choose vested on Third Person

o
The choice shall not be binding until it has been made known to both
contracting parties (CC1309)
o
Same rules as when the choice is by the creditor.
- Generic Obligations v Alternative Obligations:
o
Generic Obligations: prestations must fall on things of the same kind.
o
Alternative Obligations: prestations may be of different quality, kind and
quantity.
Alternative Obligations v Facultative Obligations:
o
Alternative Obligations:
(1)
Obligations that require a debtor to perform completely one of the
several prestations provided as options in the stipulations of the
contract.
(2)
The right to choose the alternative prestation may be granted to the
creditor or a third person.
o
Facultative Obligations:
(1)
Obligations when only one prestation has been provided in the
stipulations of the contract but the debtor may render another in
substitution. (CC1206)
(2)
The substitution is always at the discretion of the debtor.
D. Joint and Solidary Obligations
Kinds of obligations that differ in the proportion in which the debtor is liable and/or the
creditor may rightfully claim. These are the kinds of obligation with many subjects,
either active or passive.
Joint Obligation v Solidary Obligation:

o
Joint Obligation: Obligations that exist between several persons, whether
creditors or debtors, among whom the benefit or the burden of the
obligation is divided.
o
Solidary Obligation: Obligations that are those in which there being
concurrence of several debtors or several creditors, each creditor is given
the right to demand, and each debtor is bound to perform the obligation in
its entirety.
A mere concurrence of two or more creditors or two or more debtors in one

obligation does not imply solidarity or the obligation. There is a presumption
against solidarity of obligations. (CC1207)
o
Solidary obligation exists only when:
It is expressly stated in the stipulation of the contract.
The law or the nature of the obligation requires solidarity.

Joint Obligations
Requisites of a Joint Obligation:

o
Subject:
Must be more than one (either creditors, debtors or both)

o
Shares in the demandability or the liability in the obligation:
Presumed equal in share unless the law, nature or wording of the

obligation shows the contrary (CC1208)
Shares are considered distinct from one another, subject to the rules
on multiplicity of suits. (CC1208)
Effects of a Joint Obligation:

o
Divisible prestation:
Creditors may individually and independently demand and compel

performance of his share of the credit.
o
Indivisible prestation: (CC1209)
A creditors right may only be prejudiced by the collective acts of all

the creditors.
The debt may be enforced only by proceeding against all debtors.
But consequential damages are charged exclusively to the joint

debtor who was responsible for the breach.
Multiplicity of Subjects
o
Each joint creditor can only demand his share of the credit.
o
Each joint debtor can only be required to pay his share of the debt.
Solidary Obligations
Requisites of a Solidary Obligation:

o
Subject:
Must be more than one (either creditors, debtors or both)

o
Unity of prestation:
Each solidary creditor can collect the entire obligation. (Mutual Agency
of creditors)
Each solidary debtor can be compelled to pay or perform the entire

obligation. (Mutual Guaranty among debtors)
11
Distribution among solidary parties:

Accounting between creditors for the share of each.
Contribution between debtors for the share of each.
Each creditor may only collect and each debtor may only be held
liable until the extent that the liability is still not paid.
o
Kinds of Solidarity based on subjects
Active: Solidarity of Creditors
Passive: Solidarity of Debtors

o
Kinds of Solidarity based on uniformity of conditions
Uniform: Same terms and conditions for all.
Varied: With different periods and/or conditions for each. (CC1211)

o
Effects of a Solidary Obligation:
Active: On debtors
Each creditor can collect the entire debt or extinguish it.
(CC1215)
Debtors may pay any one of the solidary creditors but if
applicable, payment must be given to the creditor making
demand. (CC1214)
Novation: any compensation, confusion or remission made by
any of the solidary creditors shall extinguish the obligation.
(CC1215)
Active: On co-creditors
The creditors who may have executed any of the acts that will
extinguish the obligation shall be liable to the other co-creditors
for the share in the obligation corresponding to them. (CC1215)
Each of the solidary creditors may do whatever is useful to the
other co-creditors but not anything that may prejudice the latter.
(CC1212)
A solidary creditor may not assign his rights without the consent
of the others (CC1213)
Passive: On creditors
Each debtor is bound to perform the whole obligation. (CC1207)
Demand against one or some of the debtors shall not bar
subsequent demands to other debtors to the extent that the debt
has not been fully collected. The creditor may pursue charges
against one, some or all of the solidary debtors simultaneously.
(CC1216)
If two or more solidary debtors offer to pay, the creditor may
choose which offer to accept. (CC1217)
Payment by one of the solidary debtors extinguishes the
obligation to the extent of the payment. (CC1217)
If the thing was lost or if the prestation has become impossible
without fault of the solidary debtors before demand of the
creditor, the obligation shall be extinguished. (CC1221)
If there was fault on the part of any one of the debtors, all shall
be responsible to the creditor. This is without prejudice to the
other debtors action against the negligent debtor. (CC1221)
Passive: On co-debtors
The solidary debtor who made the payment may claim from his
co-debtors their share of the obligation. (CC1217)
But no share can be collected if the payment made by one of the
solidary debtor was made after the obligation has prescribed or
became illegal. (CC1218)
If a solidary debtor paid the obligation before the remission of the
debt of one debtor was done, the latter is still liable to the former
who made the payment to the extent of payment made to the
latters behalf. (CC1219)
Insolvency of one of the solidary debtors passes the liability to
the others in proportion to the debt of each. (CC1217)
Defenses that the debtors may raise:
o
Nature of the obligation:
Prescription
Illegality
Nullity ab initio
Suspensive condition or period
Former payment
Compensation
Release
Compromise
o
Personal defenses:
Incapacity
Vice of consent
o Personal to other co-debtors:
The debtor may avail of such defense to the extent of the other
debtors (the one with excuse) liability. (CC1222)
o
RONQUILLO V COURT OF APPEALS (G.R. L-55138; SEPTEMBER 28, 1984)

FACTS: Ernesto Ronquillo was one of the 4 people who has a debt of P117,498.98
from Antonio So. The debtors, including Ronquillo entered a compromise agreement
with So and the other creditors that the debt will be reduced to P110,000 and that the
debtors promised to pay P55,000 first then P55,000 again after 6 months and each
debtors bind themselves to pay individually and jointly. Ronquillo offered to pay So
P13,750 as his share in the P55,000 but So did not want to accept such payment
because So is demanding for the whole P55,000 debt. When the whole P110,000 was
due, Ronquillo was offering to pay P27,500 but So filed a case and it was held that
Ronquillos furniture would be sold to fulfil the remaining P82,500 of the obligation.
Ronquillo filed the current action to prevent the sale of his properties.
ISSUE: WoN Ronquillo can be held liable for the whole P110,000 debt to So?
HELD: Yes, according to Justice Cuevas, the phrase individually and jointly liable
means solidarily liable. It is because the word individually is synonymous to
collectively, separately, and/or distinctively. A person who is individually liable is
liable for a several obligation which binds oneself to the whole obligation which is
equivalent to being solidarily liable.
PHILIPPINE NATIONAL BANK V INDEPENDENT PLANTERS ASSOCIATION (G.R.
L-28046; MAY 16, 1983)
FACTS: During the pendency of a case of PNB against solidary debtors, one of the
debtors Valencia died and the lower court dismissed the case due to Valencias death.
ISSUE: WoN the court loses jurisdiction to proceed with the case against surviving
defendants if one of the solidary debtors died?
HELD: No, Justice Plana stated that as provided in CC1216, the creditor may pursue
charges against any one, some or all of the debtors simultaneously as long as the
liability still exists. The choice of who to file charges against is given on the creditor
according to the protection of his rights and his convenience. Therefore, death of one
solidary debtor does not bar the creditor from pursuing charges against surviving
debtors.
E. Divisible and Indivisible Obligation
The kinds of obligations which, by reason of their purpose are susceptible of being
executed by parts or fractions.
Indivisible Obligation
Obligation which are not susceptible of being executed by parts or fractions.
Divisible Obligation
Obligations which are susceptible of being executed by parts or fractions.
By the
Sourc
e
By the
Parties
By the
Effects
SOLIDARY
Arises from the tie binds the
parties, debtors or creditors
INDIVISIBLE
Arises from the nature of the nature
of the thing or prestation due
Requires at least two creditors

and debtors
Solidary debtor answers to the
creditor for the breach of his codebtor
Can exist between one creditor and

one debtor
Breach by one indivisible debtor
does not make the codebtor liable
for such breach
The liability is not understood to have been paid unless the thing or service in which the
obligation consists has been completely delivered or rendered. (CC1233)
Unless otherwise stipulated (or provided by law), the creditor cannot be compelled to
accept partial performance, nor the debtor required to make partial payments.
(CC1248)
o
Exceptions:
Obligations partly liquidated (CC1248)
Instalment contracts (CC1720)
In case of partial illegality, and the obligation is divisible, legal
stipulations are enforceable (CC1420)
There may be no recovery quantum meruit (in proportion) unless there is substantial
performance. (CC1234)
Effect of two or more debtors or creditors in an indivisible obligation:
o
Joint Indivisible
The creditor must proceed must proceed against all debtors.
Breach converts the original obligation into an obligation to pay the
value.
Indemnity for damages is recoverable only from the guilty debtor.
(CC1224)
No mutual agency of co-debtors exists.
o
Solidary Indivisible
Each debtor may be required to pay the whole. (CC1207)
Breach of one is breach of all. (CC1221)
F. Obligations with a Penal Clause
Penal Clause is an example of accessory stipulation that is placed in the contract order
to compel the complete performance of the obligation. Penal clauses does not take into
consideration the actual damages that the creditor will suffer and is usually in excess of
the standard damages.
Liquidated Damages v Penal Clauses:

o
Liquidated Damages:
Stipulated to fix the amount of recoverables in case of breach.
Bears relation to the damages resulting from the breach.

o
Penal Clauses:
Stipulated to stimulate or induce performance by the debtor.
May bear no relation to the damages resulting from the breach.
Penal Clauses are strictly construed against the creditor due to the nature of the
stipulation.
Kinds of Penal Clauses:

o
By its effect:
Subsidiary when only penalty may be enforced.
Complementary when both the principal obligation and the

penalty may be enforced.
o
By the source:
12
Conventional provided by agreement.

Legal provided by law.
o
By the purpose:
Punitive where damages may be collected in addition to the

penalty.
Reparatory where the penalty substitutes indemnification for

damages.
Characteristic of a penal clause:
o
Accessory Obligation:
Nullity of the principal obligation carries with it that of the penal

clause. (CC1230)
Nullity of the penal clause does not involve the nullity of the
principal obligation. (CC1230)
Requisites for the enforcement of a penal clause
o
Breach of the principal obligation must be chargeable to the debtor.
(CC1226)
In case of fortuitous event, penalty is not collectible. Unless it was

expressly stated otherwise.
In case that the breach was due to creditors acts, penalty is also
not collectible.
Penalty may not be enforced if it is contrary to law.
Penalty may not be enforced if both parties commit culpable breach

of reciprocal obligations.
o
Principal obligation must be due and demandable.
The debtor cannot be exempted from performing or paying the obligation by
satisfying the penalty, unless expressly stipulated. (CC1227)
o
Penalty is not a substitute for performance.
The penalty shall be reduced equitably by a court:
o
When there is partial performance. (CC1229)
o
When the penalty is iniquitous or unconscionable. (CC1229)
o
When allowed by CC2215:
Where the plaintiff himself has contravened the terms of the

contract
Where the plaintiff has derived some resulting benefit
Where exemplary damages are to be awarded, that the defendant

acted upon the advice of counsel
Where the loss would have resulted in any event
Where the defendant has tried his best to minimize the loss or injury
(CC2215)(CC2203)
The creditor cannot collect other damages in addition to the penalty, except:
o
If the obligor refuses to pay the penalty. (CC2209)
o
If the obligor is guilty of fraud in the fulfilment of the obligation. (CC1171)
(CC1226)
o
If it is expressly stipulated.
COUNTRY BANKERS INSURANCE CORPORATION V COURT OF APPEALS (G.R.

85161; SEPTEMBER 9, 1991)
FACTS: Oscar Ventanilla Enterprises Corporation (OVEC), as lessor and Enrique Sy as
lessee, entered into a lease agreement of 3 theaters in Cabanatuan City for 6 years.
After 2 years, OVEC made demands for repossession due to Sys arrears in the
monthly payments as well as the non-payment of tax. Sy and OVEC agreed to a penal
clause that the remaining deposit will be forfeited, without prejudice to any other
obligation still owing, in the event of termination or cancellation of the agreement by
reason of lessees violation of the terms and conditions of the agreement. Now, Sy still
owes P100,000 to OVEC and Sy is claiming that the P100,000 should be taken from
the remaining deposit of P290,000.
ISSUE: WoN the damage of P100,000 to OVEC by Sy should be taken from the
remaining deposit of P290,000 of Sy to OVEC?
HELD: No, Justice Medialdea stated that the stipulation that the remaining deposit will
be forfeited in case of termination of the agreement by reason of the lessees acts is a
penal clause that is validly entered into by the parties. Also, OVEC was able to prove
that the damage was reasonable and was really incurred by OVEC therefore, aside
from the penal clause, such P100,000 damages may also be recovered by OVEC from
Sy. The obligee may recover from the obligor not only the penalty but also the damages
resulting from the non-fulfillment or defective performance of the principal obligation.
enforcement of compliance with the contract. Due to the substantial fulfilment of the
obligation, it is only correct for the courts to reduce the penalty.
III. EXTINGUISHMENT OF OBLIGATIONS
A. Payment or Performance
When is an obligation paid?
Payment means: (a) Delivery of money, (b) Performance in any other manner of
an obligation [A1232]
Payment should be completely delivered or rendered [A1233]

o But if substantially performed in good faith, debtor may recover as though
there had been a strict and complete fulfillment [A1234]
o When creditor accepts incomplete or irregular performance knowingly,
without protest or objection, obligation is deemed fully complied with.
[A1235]
Payment to creditor after debtor has been judicially ordered to retain the debt
(garnishment) shall NOT be valid [A1243]
Debtor cannot compel creditor to receive a different thing, although the thing
may be of the same value as, or more valuable than that which is due. [A1244]
When obligation is to deliver a determinate or generic thing, whose quality and

circumstances have not been stated
o
Creditor cannot demand a thing of superior quality
o
Debtor cannot deliver a thing of inferior quality
o
Purpose of obligation and other circumstances shall be taken into
consideration. [A1246]
Payment shall be made: (a) in the currency stipulated, or (b) that which is the
legal tender in the Philippines (Philippine Peso)
o
Mercantile documents (e.g., promissory notes payable to order, bills of
exchange) produce the effect of payment only when they have been
cashed. [A1249]
Extraordinary inflation or deflation Value of the currency at the time of the

establishment of the obligation shall be the basis for payment
TELENGTAN V US LINES
J. Garcia
FACTS: Telengtan is a domestic corporation doing business under the name and style
La Suerte Cigar & Cigarette Factory. Respondent US Lines is a foreign corporation
engaged in the business of overseas shipping.
On December 15, 1978, the provisions of Far East Conference Tariff No. 12 were made
applicable to Philippine containerized cargo. After that date, consignees who fail to take
delivery of their containerized cargo within the 10-day free period are liable to pay
demurrage charges.
US Lines filed suit against petitioner alleging that between the years 1979 and 1980,
goods belonging to petitioner loaded on containers aboard respondents vessels arrived
in Manila from US ports. After the 10-day free period, petitioner still failed to withdraw its
goods.
Telengtan said that it has never entered into a contract nor signed an agreement to be
bound by any rule on demurrage. It likewise maintains that absent an obligation to pay
respondent who made no proper or legal demands in the first place, there is justifiable
reason to refuse payment. It also said that upon arrival of the vessels, it presented the
Bills of Lading and demanded the delivery of all goods, only to be informed that
respondent already unloaded the goods. It contends that respondent violated its
contractual obligation to deliver when, instead of delivering the goods to the petitioner
as consignee, it deposited the same in bonded warehouse/s.
ISSUE: WON Telengtan is liable for the demurrage charges
HELD:
MAKATI DEVELOPMENT CORPORATION V EMPIRE INSURANCE COMPANY (G.R.

L-21780; JUNE 30, 1967)
FACTS: Makati Development Corporation sold to Rodolfo Andal a lot with a special
condition that Andal shall commence and complete at least 50% of the construction of
his residence in the property within 2 years after the sale or else, the bond of P12,000
made by Andal with Empire Insurance Company as surety would be forfeited. Andal did
not build a house but instead sold the house to Juan Carlos but until the deadline in
March 31, 1961, no house was built. But by the end of April 1961, more than the
required construction was already finished. The lower court in hearing the case lowered
the P12,000 to P1,500 because on March 31, 1961, the property was already fenced
and walls were already standing which indicates partial fulfilment of the condition.
ISSUES: WoN the lower court erred in lowering the penalty from P12,000 to P1,500?
HELD: No, Justice Castro held that partial fulfilment of the obligation is a reasonable
ground for the courts to mitigate the penalties stipulated by the parties. It was also held
that such penal stipulations shall be strictly construed against the enforcement in its
entirety of the indemnification, where it is clear from the contract that the amount or
character of the indemnity is fixed without regard to the probable damages which might
be anticipated as a result of a breach of the terms of the contract, or, in other words,
where the indemnity provided for is essentially a mere penalty having for its object the
Petitioner is at fault when it did not take delivery of the goods prompting the
respondent to store it in bonded warehouses.
The withdrawal of goods from the ship was with authority of the Bureau
of Customs
Bill of Lading indicates that if the consignee does not take possession or
delivery of the goods as soon as the goods are at the disposal of the
consignee for removal, the goods shall be at their own risk and expense,
delivery shall be considered complete
Extraordinary inflation or deflation exists when there is an unusual increase or
decrease in the purchasing power of the Philippine peso which is beyond the
common fluctuation in the value of said currency, and such increase or
decrease could not have been reasonably foreseen or was manifestly beyond
the contemplation of the parties at the time of the establishment of the
obligation.
There should be an official pronouncement or declaration by competent

authorities of the existence of extraordinary inflation or deflation during a
given period.
Article 1250, as couched

o
General Rule: The value of the peso at the time of the
establishment of the obligation shall control and be the basis of
payment of the contractual obligation
o
Exception: Agreement to the contrary
o
It is only when there is a contrary agreement that extraordinary
inflation will make the value of the currency at the time of payment,
not at the time of the establishment of the obligation.
NOTES:
13
There was allegedly an extraordinary devaluation of the peso when Ninoy

Aquino was assassinated
Should be computed as to the time when obligation is constituted
But in this case, evidence was not sufficiently established that inflation was
extraordinary
Example of evidence that may be used: NEDAs pronouncements of
extraordinary inflation
Is payment by an incapacitated person valid? NO. Payment by an incapacitated

person shall not be valid because the payor should have FREE DISPOSAL OF THE
THING DUE AND CAPACITY TO ALIENATE IT. [A1239]
Is partial payment allowed? NO. The creditor cannot be compelled to receive partial
prestations and the debtor is not required to make partial payments.
Exception: Express stipulation to the contrary.
Note: Article 2226 (liquidated damages). I think what he is trying to tell us is that when
there is partial payment, it is already considered a breach of the contract, and thus
liquidated damages can now be demanded from the violator.
ii.
(b)
If debtor accepts a receipt from creditor, he cannot complain of

the creditors choice as to the application of payment [A1252]
iii.
If debt produces interest, payment of the principal shall not be
deemed to have been made until the interests have been
covered. [A1253]
When application cannot be inferred or payment cannot be applied,
the debt which is most onerous to the debtor, among those due, shall
be deemed to have been satisfied. [A1254]
Distinguish cession from dacion en pago.

DATION EN PAGO
Property is alienated to the creditor in
satisfaction of a debt in money
Transfers the ownership over the thing
alienated to the creditor
PAYMENT BY CESSION
Ceding or assigning the property of the
debtor to his creditors in payment of his
debts
Only the possession and administration
(not the ownership) are transferred to
the creditors BUT with the authorization
to convert the property into cash
Only extinguishes the credits to the
extent of the amount realized from the
properties assigned
Involves all the property of the debtor
Transfer is in favor of various creditors
Where should payment be made?

Payment shall be made:
(1)
In the place designated in the obligation
(2)
If no express stipulation and the thing to be delivered is a determinate
thing, payment shall be made wherever the thing might be at the
moment the obligation was constituted
(3)
Domicile of the debtor [A1251]
May totally extinguish the obligation

and release the debtor
If the debtor changes his domicile in bad faith or after he has incurred in delay,
additional expenses shall be borne by him. [A1251]
LO V KJS ECO-FORMWORK SYSTEM PHIL. INC.

J. Ynares-Santiago
Rule 4 Sections 1-3

(1)
Venue of real actions
Court which has jurisdiction over the area of real property involved
(2)
Venue of personal actions
Where the plaintiff or any of the principal plaintiffs reside
Where the defendant or any of the principal defendants reside
Where non-resident defendant can be found

(3)
Venue of actions against non-residents
Where plaintiff resides
Where property is situated
To whom should the obligation be paid?

Payment shall be made to:
(1)
The person in whose favor the obligation has been constituted
(2)
His successor in interest
(3)
Any person authorized to receive it. [A1240]
Payment to an incapacitated person shall be valid if:
He has kept the thing delivered
Insofar as the payment has been beneficial to him
Payment to a third person is valid if it has redounded to the benefit of the creditor.
There is no need to prove benefit if:
After the payment, the third person acquires the creditors rights
If the creditor ratifies the payment to the third person
If by the creditors conduct, the debtor has been led to believe that the third
person had authority to receive the payment. [A1241]
Payment made in good faith to any person in possession of the credit (e.g., holder of a
promissory note payable to bearer) shall release the debtor. [A1242]
Payment to creditor by debtor after debtor is judicially ordered to retain the debt
(garnishment) shall NOT be valid. [A1243]
Does a third person have the right to pay for another? NO. The creditor is not
bound to accept payment or performance by a third person who has no interest in the
fulfillment of the obligation. Exception: stipulation to the contrary
Cession of only some specific thing

Transfer is in favor of one creditor to
satisfy a debt
FACTS: Lo ordered equipments from respondents worth 540,225. He paid 150,000 as

down payment. The balance was payable in ten monthly installments. Lo was able to
pay the first two monthly installments but not anymore in succeeding installments.
Petitioner and respondents executed a Deed of Assignment where petitioner assigned
to respondent his receivables in the amount of 335,462 (which I think, was his loan
balance from respondent) from JRC.
When respondent tried to collect the credit from JRC, it refused claiming that Lo was
also indebted to him (thus, there was compensation).
Petitioner argues that his obligation was extinguished with the execution of Deed of
Assignment of credit. Respondent presented the testimony of its employee that JRC
refused to honor the assignment of credit because it claimed that petitioner had an
outstanding indebtedness to it.
ISSUE: WON the obligation was extinguished by the assignment of credit
HELD: An assignment of credit is an agreement by virtue of which the owner of a credit,
known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or
donation, and without the consent of the debtor, transfers his credit and accessory
rights to another, known as the assignee, who acquires the power to enforce it to the
same extent as the assignor could enforce it against the debtor
In dacion en pago, as a special mode of payment, the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an outstanding debt.
The undertaking really partakes in one sense of the nature of sale, that is, the
creditor is really buying the thing or property of the debtor, payment for which is
to be charged against the debtors debt.
As such, THE VENDOR IN GOOD FAITH SHALL BE RESPONSIBLE,

FOR THE EXISTENCE AND LEGALITY OF THE CREDIT AT THE TIME OF
THE SALE BUT NOT FOR THESOLVENCY OF THE DEBTOR.
What are the rights of a third person who is able to pay for another?
(a)
Beneficial Reimbursement/ Right to reimbursement
If he has paid without the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been beneficial to the
debtor [A1236]
He cannot compel creditor to subrogate him in his rights [A1237]

Exception:
Article 1302 Legal Subrogation
Assignment of credit
(b) Subrogation
If he had paid with the consent of the debtor, he may demand from the
debtor what he has paid [A1236]
Payment made by a third person who does not intend to be reimbursed by the debtor is
deemed to be a donation, which requires the debtors consent. BUT payment is
valid as to the creditor who accepted it. [A1238]
Done emus accept the donation personally [A745]
When there are several debts, to which should payment be applied?
(a)
Declaration of debtor at the time of making the payment
General Rules:
i.
Application shall not be made as to debts which are not yet due
Exception: Stipulation to the contrary and when the obligation is
for the benefit of one of the parties
It may be said that assignment of credit, which is in the nature of a sale of

personal property, produced the effects of a dation in payment which may
extinguish the obligation.
Because of its nature as a sale, the vendor is bound by certain warranties. (see
above all caps)
Because the obligation was already extinguished by compensation, the credit
does no longer exist, thus causing a breach in the obligation. By warranting the
existence of the credit, petitioner is deemed to have ensured the performance
thereof.
If the creditor refuses to accept payment, is there payment? YES. According to

Article 1256, if creditor refuses without just cause to accept the payment, the debtor
shall be released from responsibility by the consignation of the thing or sum due.
Can the debtor consign a thing prior to refusal of the creditor to accept payment?
NO. Before a debtor can consign the thing or sum due, tender of payment to the
creditor must be made. HOWEVER, in these cases, tender of payment is not required:
a)
When creditor is absent or unknown, or does not appear at the place of
payment
b)
When he is incapacitated to receive payment at the time it is due
c)
When, without just case, he refuses to give a receipt
d)
When two or more persons claim the same right to collect
e)
When the title of the obligation has been lost.
What is the procedure for consignation?
1. Tender of payment to the creditor
2. Unjust refusal of creditor
3. Debtor should announce the notice of consignation to the persons interested in the
fulfillment of the obligation
14
4.
5.
6.
7.
NOTE: Lack of notice does not invalidate the consignation it simply

makes the debtor liable for the expenses
Deposit of the thing due at the disposal of judicial authority
Prove the tender of payment to the judicial authority
NOTE: at this stage, consignation has been duly made
Debtor may now ask the judge to order the cancellation of the obligation
Notice of acceptance of consignation
Legitimate Parents
Surviving Spouse
Legitimate Parents
Illegitimate Children
Surviving Spouse
Surviving Spouse alone
Surviving Spouse
Illegitimate Child
Surviving Spouse
Illegitimate Parents
Illegitimate children alone
Illegitimate parents alone
Before the creditor has accepted the consignation OR

Before a judicial declaration that he consignation has been properly made, Debtor may
withdraw the thing or sum deposited In other words, obligation is still in force.
If, the consignation having been made, the creditor should authorize the debtor to
withdraw the same, he shall lose every preference which he may have over the thing.
The co-debtors, guarantors and sureties shall be released.
Consignation is always judicial.
RELEVANT PROVISIONS
ARTICLE 745 The done must accept the donation personally, or through an
authorized person with a special power for the purpose, or with a general and
sufficient power; otherwise, the donation shall be void.
B. Loss of the Thing Due

What are the requisites in order for loss of the thing to extinguish the obligation?
1. Obligation consists in the delivery of a determinate thing
2. The determinate thing is lost or destroyed without the fault of the debtor, and before he
has incurred in delay
3. When the thing is lost in the possession of the debtor, it shall be presumed that the loss
was due to his fault
ARTICLE 748 The donation of a movable may be made orally or in writing.

An oral donation requires the simultaneous delivery of the thing or of the document
representing the right donated.
If the value of the personal property donated exceeds Five thousand pesos, the
donation and the acceptance shall be made in writing. Otherwise, the donation
shall be void.
EXCEPT: (a) when there is proof to the contrary, or (b) earthquake, flood, storm or
other natural calamities.
ARTICLE 749 In order that the donation of an immovable may be valid, it must be
made in a public document
When loss of a thing does not extinguish an obligation

Law
Stipulation
When the nature of the obligation requires the assumption of risk (insurance policies)
Obligation to deliver a generic thing
When the debt arose from a criminal offense
When there was delay, fraud, negligence or the obligation was done in contravention of
the tenor thereof
7. When the substitute prestation is lost in facultative obligations
NOTE: not exclusive
1.
2.
3.
4.
5.
6.
ARTICLE 752 No person may give or receive, by way of donation, more than he
may give or receive by will.
The donation shall be inofficious in all that it may exceed this limitation.
ARTICLE 771 Donations which are inofficious, bearing in mind the estimated net
value of the donors property at the time of his death, shall be reduced with regard
to the excess
Will partial loss extinguish the obligation? The courts shall determine whether the
partial loss of the object of the obligation is so important as to extinguish the obligation.
ARTICLE 773 If, there being two or more donations, the disposable portion is not
sufficient to cover all of them, those of the more recent dates shall be suppressed
or reduced with regard to the excess.
Can the creditor run after the third person who caused the loss of the thing?
YES. According to Article 1269, The creditor shall have all the rights of action which the
debtor may have against the third person by reason of the loss.
Can a thief (be) exempted from paying for the thing stolen if it is subsequently
lost? No, the thief shall not be exempted from the payment of its price, whatever may
be the cause for the loss. Exception: when he offered the thing, and the person who
should receive it refused without justification to accept it, in which case he may opt to
consign it in the courts.
Art. 1268. When the debt of a thing certain and determinate proceeds from a
criminal offense, the debtor shall not be exempted from the payment of its price,
whatever may be the cause for the loss, unless the thing having been offered by
him to the person who should receive it, the latter refused without justification to
accept it.
C. Condonation or Remission
ARTICLE 908 To the net value of the hereditary estate, shall be added the value
of all donations by the testator that are subject to collation, at the time he made
them.
When is condonation implied?
1. The delivery of a private document evidencing a credit, made voluntarily by the creditor
to debtor
When the private document in which the debt appears is found in the
possession of the debtor, it shall be presumed that the creditor delivered it
voluntarily
2. The renunciation of the principal debt shall extinguish the accessory obligations
BUT the waiver of the accessory obligations shall leave the principal debt
in force
Pledge: presumed to have been remitted when the thing pledged is found
in the possession of the debtor, or of a third person who owns the thing.
What is the nature of a condonation? Condonation or remission is essentially

gratuitous, and requires the acceptance by the obligor. It shall be subject to the rules
which govern inofficious donations. Express condonation shall comply with the forms of
donation. [A1270]
TRANS-PACIFIC INDUSTRIAL SUPPLIES, INC. V CA

J. Bidin
FACTS: Petitioner and respondent Bank entered into a loan agreement evinced by four
promissory notes, a real estate mortgage over three parcels of land and a chattel
mortgage over petitioners stock and inventories.
When petitioner failed to pay, they restructured the loan, and three new promissory
notes were executed by Trans-Pacific.
Discussion on succession
General Rule There is a basic amount of one-half () that is given to one heir or
one group of heirs.
Exception
1.
Surviving spouse and illegitimate children
2.
Article 900: surviving spouse in a marriage in articulo mortis
3.
Surviving spouse and illegitimate parents
Legitimate children alone
Legitimate Children
Surviving Spouse
One Legitimate Child
Surviving Spouse
Legitimate Children
Legitimate Children
Surviving Spouse
One Legitimate Child
Illegitimate Child
Surviving Spouse
Legitimate Parents Alone
Legitimate Parents
RATES
of estate, divided equally
Share equal to that of one child (1LC)
Each will get of share of 1LC ( LC)
LC
1LC
LC
1/8
1/3
1/3
The mortgaged parcels of land were sold and the proceeds were given to the bank to
be applied against Trans-Pacifics restructured loan.
Respondent bank returned the duplicate original copies of the three promissory notes
with the word PAID stamped thereon. However, respondent bank still demanded from
Trans-Pacific the payment of 492,100 representing accrued interest. Respondent bank
said that the promissory notes were erroneously released.
ISSUE: WON petitioner has indeed paid in full its obligation to respondent bank.
HELD:
Article 1271: The delivery of a private document evidencing a credit, made voluntarily
by the creditor to the debtor, implies the renunciation of the action which the former
had against the latter
This is a presumption, not of payment, but of the renunciation of the credit.
The presumption is not conclusive but merely prima facie. If there be no

evidence to the contrary, the presumption stands. Conversely, the presumption
loses its legal efficacy in the face of proof or evidence to the contrary.
There was no proof that the amounts paid by petitioner were inclusive of
interest.
In this case, the court finds sufficient justification to overthrow the presumption
of payment by the delivery of the documents evidencing petitioners
indebtedness, the letters of admission and counsel-induced recalcitrance.
Presumption that interest is paid before principal obligation is rebuttable.

15
Since Bs obligation appear to be payable on demand, in the absence of demand

made by A, the obligation of B is not yet due. Without compensation having taken
place, B remains indebted to A for P10,000. This obligation of B may be garnished
in favor of C to satisfy As judgment debt.
D. Confusion or Merger of Rights

What is confusion or merger? It is the meeting in one person of the characters of the
creditor and debtor. [A1275]
b)
Requisites:
Must take place between the creditor and the principal debtor
Same obligation must be involved
Must be total
Merger benefits the guarantors.
Merger of characters of creditor and guarantor DOES NOT extinguish the obligation
[A1276]
Does not extinguish a joint obligation except as regards the share corresponding to the
creditor or debtor in whom the two characters concur. [A1277]
E. Compensation
What are the requisites of compensation?
Art. 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other.
De Leon: Compensation is the extinguishment to the concurrent amount of the debts of
two persons who, in their own right, are reciprocally principal debtors and creditors of
each other.
The object of compensation is the prevention of unnecessary suits and payments thru
the mutual extinction by operation of law of concurring debts.
Art. 1279. In order that compensation may be proper, it is necessary:
(1)
That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2)
That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
(3)
That the two debts be due;
(4)
That they be liquidated and demandable;
(5)
That over neither of them there be any retention or controversy, commenced
by third persons and communicated in due time to the debtor.
A owes B P10,000 due today. B owes A P10,000 due next month.

Compensation cannot take place as the debts are not due on the same date.
However, if A has not yet paid B on the date that the obligation of B becomes due,
there will be compensation on that date. If the debt of B is subject to a suspensive
condition which has not yet happened, there can also be no compensation.
(4) The two debts are liquidated.

A debt is liquidated if the amount thereof is known or can be determined by a simple
computation.
Examples:
a)
A owes B P10,000. B owes A the share of the latter in a business the amount of
which is still to be ascertained.
Compensation will not take place as the debt of B is not liquidated. If part of the
debt of B has been liquidated, compensation takes place with respect to that part
without waiting for the liquidation of the rest.
b)
D has a savings account with Bank B, which bank extended to D a loan. Ds loan
has become demandable. His savings account is also demandable anytime. B has
the right to compensate or off-set Ds outstanding loan with his deposit account.
(5) No retention or controversy has been commenced by a third person. There is said to
be retention when the credit of one of the parties is subject to the satisfaction of the
claim of third person, while a controversy exists when a third person claims he is the
creditor of one of the parties.
The retention or controversy commenced by a third person must be communicated in
due time to the debtor. By in due time means the period before legal compensation is
supposed to take place, considering that legal compensation operates so long as the
requisites concur even without any conscious intent on the part of the parties. A
controversy that is communicated to the parties after that time may no loner undo the
compensation that had taken place by force of law.
Requisites of Legal Compensation:

(1) That each one of the obligors be bound principally, and that he be at the same time
a principal creditor of the other;
Example:
Examples:
a)
A owes B P10,000, with C as guarantor. B owes C P10,000. There will be no
compensation between B and C because while B is principally liable to C, C is
merely subsidiarily liable to B. Hence, C can demand payment from B.
b)
A owes B P10,000. B owes A P10,000, the latter as guardian or administrator.
There will be no compensation. In this case, A is personally liable to B, while B
is not principally liable to A. The real creditor of B is the ward under
guardianship or the estate under administration. A is creditor of B in a
representative capacity.
c)
A owes B and C P10,000. B and C are partners in Partnership P. Partnership P
owes A P10,000.
A cannot set up compensation because B and C are not principally liable to A.
C causes the garnishment of the credit of B against A and notifies A not to pay B
P10,000 as C has a better right to the said amount.
(2) Both debts consist in a sum of money, or of consumable things of the same kind and
quality
Examples:
a)
A owes B P10,000. B owes A an electric range worth P10,000.
No compensation will take place.
b)
A owes B 10 sacks of wagwag rice. B owes A any 10 sacks of rice.

There can be no legal compensation in this case because of lack of identity of
the kind and quality of the rice due.
However, compensation can be claimed by B since he can deliver any kind of rice.
It would be the same as if B received 10 sacks of wagwag rice from A and then
returned the same to A in payment of his debt. But A cannot set up compensation if
opposed by B. This is an example of facultative compensation.
c)
A owes B P10,000. B owes A P10,000. B also owes C P10,000.
B may not owe C but the latter claims that he and not B is the creditor of A.
In this case, compensation cannot take place between A and in view of a controversy
commenced by C, a third person. In the meantime, the compensation is suspended.
If C loses the case, compensation shall be deemed to have taken place as of the date
the requisites for legal compensation concurrent.
Art. 1282. The parties may agree upon the compensation of debts which are not
yet due.
This is the exception to requisite no. 3 under Art. 1279, viz., that only debts which are
due and demandable can be compensated.
Voluntary or conventional compensation includes any compensation which takes
place by agreement of the parties even if all the requisites for legal compensation are
not present. The absence of mutual creditor-debtor relation cannot negate the
conventional compensation.
The only requisites are:
(1)
Each of the parties has the right to disposed of the credit he seeks to
compensate
(2)
They agree to the mutual extinguishment of their credits
A owes B P10,000. B owes A P10,000 or a cow.
What are the kinds of compensation?
There can be no legal compensation because B may prefer to deliver a cow.
Art. 1281. Compensation may be total or partial. When the two debts are of the
same amount, there is total compensation.
But if the right of choice belongs to A, compensation will take place.

(3) The two debts are due or demandable
Notes:
a)
When the obligation is payable on demand, the obligation is not yet due where no
demand has not been made.
b)
A debt that has prescribed is no longer demandable and consequently, cannot be
compensated, unless the compensation has taken place before the lapse of the
period of prescription.
c)
Natural obligations are not legally demandable.
Examples:
a)
A owes B P10,000 due today. B owes A P10,000 payable upon receipt from A of
notice to pay. A owes C a judgment debt of P10,000.
Total compensation results when the two debts are of the same amount. If they are
of different amounts, compensation is total as regards the smaller debt, and partial
only with respect to the larger debt.
Kinds of Compensation:
(1)
By its effect or extent:
a)
Total
b)
Partial
(2)
By its cause or origin:
a)
Legal when it takes place by operation of law when all the
requisites are present even without the knowledge of the parties.
b)
Conventional or voluntary when it takes place by agreement of
the parties.
16
c)
d)
Judicial when it takes place by order from a court in a litigation.

(This is actually a form of legal or voluntary compensation, when
declared by courts by virtue of an action by on of the parties.)
Facultative when it can be set up only by one of the parties.
(3) Assignment without knowledge of the debtor

In the preceding example, let us suppose that the assignment was made without the
knowledge of B who learned of the assignment only on November 16.
When will compensation not take place?

Art. 1286. Compensation takes place by operation of law, even though the debts
may be payable at different places, but there shall be an indemnity for expenses of
exchange or transportation to the place of payment.
Example: A owes B $1,000 payable in New York. B owes A P45,000 (equivalent
amount) payable in Manila.
If A claims compensation, he must pay for the expenses of exchange.
Art. 1290. When all the requisites mentioned in Article 1279 are present,
compensation takes effect by operation of law, and extinguishes both debts to the
concurrent amount, even though the creditors and debtors are not aware of the
compensation.
(1)
(2)
Compensation occurs automatically by mere operation of law: From the

moment all the requisites mentioned in Article 1279 concur, legal compensation
takes place automatically even in the absence of agreement between the parties
and even against their will, and extinguishes reciprocally both debts as soon as
they exist simultaneously, to the amount of their respective sums.
Full legal capacity of parties not required: As it takes place by mere operation
of law, and without any act of the parties, it is not required that the parties have full
legal capacity to give or to receive, as the case may be.
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
compensation which would pertain to him against the assignor, unless the assignor
was notified by the debtor at the time he gave his consent, that he reserved his
right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent
thereto, the latter may set up the compensation of debts previous to the cession,
but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up the
compensation of all credits prior to the same and also later ones until he had
knowledge of the assignment.
In this case, B can set up the compensation of credits before and after the assignment.
The crucial time is when B acquired knowledge of the assignment and not the date of
the assignment. If B learned of the assignment after the debts had already matured, he
can raise the defense of compensation; otherwise, he cannot.
Discussion: In other words, the debtor can always set up compensation to extinguish
his obligation prior to the debtors knowledge of the assignment, unless the debtor
consents to the assignment.
Art. 1287. Compensation shall not be proper when one of the debts arises from a
depositum or from the obligation of a depositary or of a bailee in commodatum.
Neither can compensation be set up against a creditor who has a claim for support
due by gratuitous title, without prejudice to the provisions of paragraph 2 of Article
301.
Art. 1288. Neither shall there be compensation if one of the debts consists in civil
liability arising from a penal offense.
(1) Where one of the debts arises from a depositum
A deposit is constituted from the moment a person receives a thing belonging to
another with the obligation of safely keeping it and of returning the same. Note: A bank
deposit is not a depositum as defined in the Civil Code. It is really a loan which creates
the relationship of debtor and creditor.
*Article 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning the same.
If the safekeeping of the thing delivered is not the principal purpose of the contract,
there is no deposit but some other contract.
Example:
A owes B P10,000. B, in turn owes A the amount of P10,000 representing the value of a
ring deposited by A with B, which B failed to return.
Where compensation has taken place before assignment
In this case, B, who is the depositary, cannot claim legal compensation even if A fails to
pay his obligation. The remedy of B is to file an action against A for the recovery of the
amount of P10,000.
When compensation takes effect by operation of law or automatically, the debts are
extinguished to the concurrent amount. If subsequently, the extinguished debt is
assigned by the creditor to a third person, the debtor can raise the defense of
compensation with respect to the debt. It is well-settled that the rights of the assignee
are not any greater than the rights of the assignor since the assignee is merely
substituted in the place of the assignor.
The relation of the depositary to the depositor is fiduciary in character since it is based
on trust and confidence. Bs claim for compensation against A would involve a breach of
that confidence.
Example:
A owes B P3,000 due yesterday. B owes A P1,000 due also yesterday.
A can set up his deposit by way of compensation against Bs credit.

This is an example of facultative compensation. The benefit granted by law is
available only to A, as depositor, and can be waived by him.
(2) Where one of the debts arises from a commodatum.
Both debts are extinguished up to the amount of P1,000. Hence, A still owes B P2,000
today.
Now, if B assigns his right to C, the latter can collect only P2,000 from A. However, if A
gave his consent to the assignment before it was made or subsequently (par. 1), A
loses the right to set up the defense of compensation.
So A will be liable to C for P3,000 but he can still collect the P1,000 owed by B. In other
words, the compensation shall be deemed not to have taken place.
Where compensation has taken place after assignment
(1) Assignment with the consent of debtor
A owes B P3,000 due November 15. B owes A P1,000 due November 15. B assigned
his right to C on November 1 with the consent of A. On November 15, A cannot set up
against C, the assignee, the compensation which would pertain to him against B, the
assignor. In other words, A is liable to C for P3,000 but he can still collect the P1,000
debt of B.
However, if A, while consenting to the assignment, reserved his right to the
compensation, he would be liable only for P2,000 to C.
(2) Assignment with the knowledge but without the consent of debtor A owes B P1,000
due November 1. B owes A P2,000 due November
A owes B P1,000 due November 15. A assigned his right to C on November 12. A
notified B but the latter did not give his consent to the assignment. How much can C
collect from B?
B can set up the compensation of debts on November 10 which was before the cession
on November 12. (par. 2) There being partial compensation, the assignment is valid
only up to the amount of P1,000.
But B cannot raise the defense of compensation with respect to the debt of A due on
November 15 which has not yet matured. So, on November 12, B is liable to C for
P1,000. Come November 15, A will be liable for his debt of P1,000 to B.
Commodatum is a gratuitous contract whereby one of the parties delivers to another

something not consumable so that the latter may use the same for a certain time and
return it.
*Article 1935. The bailee in commodatum acquires the use of the thing loaned but not
its fruits; if any compensation is to be paid by him who acquires the use, the contract
ceases to be a commodatum.
Example:
In the preceding example, if B borrowed the ring of A, B cannot refuse to return the ring
on the ground of compensation because no compensation can take place when one of
the debts arises from a commodatum.
The purpose of the law is to prevent a breach of trust and confidence on the part of the
borrower (or depositary in a depositum).
A, however, can assert compensation of the value of the ring against the credit of B.
(3) Where one of the debts arises from a claim for support due by gratuitous title
Support comprises everything that is indispensable for sustenance, dwelling, clothing,
medical attendance, education and transportation, in keeping with the financial capacity
of the family.
Examples:
(a) A donates to B an allowance of P1,000 a month for five years for the latters support.
However, previous to the donations, B already owed A P10,000 which was due and
unpaid.
In this case, A cannot say to B, Inasmuch as you owe me P10,000, I will not pay your
allowance for ten months.
(b) Similarly, if A is the father of B, a minor, who under the law is entitled to be
supported by A, and B owes A P10,000, A cannot compensate his obligation to support
17
B by what B owes him because the right to receive support cannot be compensated
with
what the recipient (B) owes the obligor (A). However, if A failed to support B for some
months, the support in arrears may be compensated with the debt of B. Compensation
can take place because B no longer needs the support in arrears as he was able to
exist even without the support of A during those months.
(4) Where one of the debts consists in civil liability arising from a penal offence
Example:
A owes B P1,000. B stole the ring of A worth P1,000. Here, compensation by B is not
proper.
But A, the offended party, can claim the right of compensation. The prohibition in Article
1288 pertains only to the accused by not to the victim of the crime.
Art. 1283. If one of the parties to a suit over an obligation has a claim for damages
against the other, the former may set it off by proving his right to said damages and
the amount thereof.
Compensation may also take place when so declared by a final judgment of a court in a
suit (judicial compensation). A party may set off his claim for damages against his
obligation to the other party by proving his right to said damages and the amount
thereof.
Both parties must prove their respective claims. In the absence from both parties on
their claims, offsetting is improper. The right to offset may exist but the question of how
much is to be offset is factual in nature.
Art. 1284. When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded or avoided.
Example:
A owes B P10,000. Subsequently, A, through fraud, was able to make B sign a
promissory note that B is indebted to A for the same amount.
The debt of A is valid but that of B is voidable. Before the debt of B is nullified, both
debts may be compensated against each other if all the requisites for legal
compensation are present.
Novation Novation is the total or partial extinction of an obligation through the

creation of a new one which substitutes it. It is the substitution or change of an
obligation by another, which extinguishes or modifies the first.
Art. 1292. In order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point incompatible with each other.
Requisites of novation: Four essential requisites, namely:
(1)
The existence of a previous valid obligation;
(2)
The intention or agreement and capacity of the parties to extinguish or modify
the obligation;
(3)
The extinguishment or modification of the obligation; and
(4)
The creation or birth of a valid new obligation.
Novation with respect to criminal liability: Novation is not a mode of extinguishing
criminal liability. It may prevent the rise of criminal liability as long as it occurs prior to
the filing of the criminal information in court. In other words, novation does not
extinguish criminal liability but may only prevent its rise.
Novation not presumed: While as a general rule, no form of words or writing is
necessary to give effect to a novation, it must be clearly and unmistakably established
by express agreement or by the acts of the parties, as novation is never presumed.
Ways of effecting conventional novation: There are only two (2) ways which indicate
the presence of novation and thereby produce the effect of extinguishing an obligation
by another which substitutes the same.
(1)
By the express agreement of the parties or acts of equal or equivalent
import
(2)
By the irreconcilable incompatibility of the two obligations with each other
in every material respect. This can take place even in the absence of an
express agreement.
Effect of modification of original obligation
(1)
Slight modifications and variations when made with the consent of the
parties, they do not abrogate the entire contract and the rights and
obligations of the parties thereto, but the original contract continues in
force except as the altered terms and conditions of the obligation are
considered to be the essence of the obligation itself. This is especially true
where the original contract expressly provides that such modifications and
alterations may be made.
The following are not changes which involve principal conditions:
a)
A promise by the debtor to pay an extra rate of interest
b)
Mere extension of the term (period) for payment or performance is
not a novation
c)
Addition of a new obligation (guaranty) not inconsistent with the old
one
d)
Where surety subsequently made an agreement with the creditor to
be bound also as principal
e)
Mere reduction of the amount due
f)
Acceptance of partial payment
Suppose Bs debt is later on annulled by the court, is A still liable considering that
compensation had already taken place? Yes. The effect of annulment is retroactive. It is
the same as if there had been no compensation.
Can third parties set up compensation?
Art. 1280. Notwithstanding the provisions of the preceding article, the guarantor
may set up compensation as regards what the creditor may owe the principal
debtor.
This is an exception to the general rule that only the principal debtor can set up against
his creditor what the latter owes him.
Although the guarantor is only subsidiarily, not principally, bound, he is given the right to
set up compensation. The reason is that the extinguishment of the principal obligation
as a consequence of compensation carries with it the accessory obligation such as
guaranty.
Note: Here, what are compensated against each other are the principal debts of the
principal debtor and principal creditor to each other. No debt of the guarantor to the
creditor is involved.
If there are several debts, which shall be compensated?
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.
Follow rules of application in Articles 1252 to 1254. Example:
A is indebted to B in the amount of:
(1)
P1,000 without interest due today
(2)
P1,000 with interest of 12% due also today
(3)
P1,000 with interest of 10% due yesterday
B owes A P1,000 due today.
(2)
Material deviations or changes where the original contract is deviated

from in material respects so that the object or principal condition cannot
reasonably be recognized as that originally contracted for, the original
contract should be treated as abandoned.
MATUTE V HERNANDEZ (1938) 66 PHIL 68

The increase in the price of meat allowed the petitioner by the Acting Purchasing Agent
undoubtedly constitutes a novation of the contract of December 24, 1936 entered into
between the Government and petitioner after a public bidding had been held [for that
December 24, 1936 contract].
The price of the supply of meat to the Government was one of the principal conditions
of the contract. Therefore, in order that the renewal [novation of the contract] thereof
may be valid it was necessary to comply with Executive Order No. 16.
In this case, no public bidding, as required by the Executive Order for contracts of
public service, occurred to increase the price of the meat. The other requirements in the
Executive Order, i.e. consultation and approval by the Auditor-General and the
Secretary of Justice aside from the Secretary of the Department concerned, were also
lacking.
Novation did not take place.
BROADWAY CENTRUM V TROPICAL (1993) 224 SCRA 302
For purposes of the application of payment, A is the debtor. He must specify to B which
of the three debts should be compensated. If he fails to inform B, then the latter should
apply the compensation to the second obligation of A, namely, the obligation bearing
the 12% interest because it is the most onerous obligation.
The sole issue confronting [the Court] is whether or not the letter-agreement dated 20
April 1982 had novated the Contract of Lease of 28 November 1980. Broadway
Centrum is the lessor, while Tropical is the lessee. Tropical insists that the letteragreement novated the contract, while Broadway believes otherwise.
F. Novation
The 20 April 1982 letter-agreement provided for the provisional and temporary
agreement to a reduction of monthly rentals. It further contained that this provisional
agreement should not be interpreted as amendment to the lease contract entered into
between the parties.
What is novation?
Art. 1291. Obligations may be modified by:
(1)
Changing their object or principal conditions;
(2)
Substituting the person of the debtor;
(3)
Subrogating a third person in the rights of the creditor.
If objective novation is to take place, it is essential that the new obligation expressly
declare that the old obligation is to be extinguished, or that new obligation be on every
point incompatible with the old one. The will to novate, whether totally or partially, must
18
appear by express agreement of the parties, by their acts which are too clear and
unequivocal to be mistaken.
It is entirely clear to the court that the letter-agreement of 20 April 1982 did not
extinguish or alter the obligations of respondent Tropical and the rights of petitioner
Broadway under their lease contract dated 28 November 1980. Clearly, the reduction of
the monthly rentals was only provisional and temporary, as agreed to by both parties.
This was not to persist for the rest of the life of the Contract of Lease.
Novation did not take place.
What is expromision?
Art. 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the
latter, but not without the consent of the creditor. Payment by the new debtor gives
him the rights mentioned in Articles 1236 and 1237.
New obligation is voidable (not void): If the new obligation is only voidable, novation
can take place. But the moment it is annulled, the novation must be considered as not
having taken place, and the original one can be enforced, unless the intention of the
parties is otherwise.
What is the effect of the old obligation is void?
Art. 1298. The novation is void if the original obligation was void, except when
annulment may be claimed only by the debtor, or when ratification validates acts which
are voidable.
A void obligation cannot be novated because there is nothing to novate. However, if the
original obligation is only voidable or if the voidable obligation is validated by ratification,
the novation is valid.
What stipulations in the old obligation are presumptively carried over in the new
obligation?
Expromision: This takes place when a third person of his own initiative and without the
knowledge or against the will of the original debtor assumes the latters obligation with
the consent of the creditor. It is essential that the old debtor be released from his
obligation; otherwise, there is no expromision. Novation is never presumed; thus, the
mere fact that the creditor receives a guaranty or accepts payment from a third person
who has agreed to assume the obligation, when there is not agreement that the first
debtor shall be released from responsibility, does not constitute a novation, and the
creditor can still enforce the obligation against the original debtor.
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 otherwise stipulated.
Art. 1294. If the substitution is without the knowledge or against the will of the
debtor, the new debtors insolvency or non-fulfillment of the obligation shall not give
rise to any liability on the part of the original debtor.
Art. 1300. Subrogation of a third person in the rights of the creditor is either 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 may take effect.
In expromision, the new debtors insolvency or non-fulfillment of the obligation will not
revive the action of the creditor against the old debtor whose obligation is extinguished
by the assumption of the debt by the new debtor. Remember that in expromision, the
replacement of the old debtor is not made at his own initiative.
Subrogation
The reason for the rule contained in this Article is that the efficacy of the new obligation
depends upon whether the condition which affects the old obligation is complied with or
not.
What is conventional subrogation?
It is the substitution of one person in the place of another with reference to a lawful
claim or right, so that he who is substituted succeeds to the right of the
What is delegacion?
Art. 1295. The insolvency of the new debtor, who has been proposed by the
original debtor and accepted by the creditor, shall not revive the action of the latter
against the original obligor, except when said insolvency was already existing and
of public knowledge, or known to the debtor, when he delegated his debt.
Delegacion: This takes place when the creditor accepts a third person to take the
place of the debtor at the instance of the latter. The creditor may withhold approval. The
new debtor is entitled to reimbursement and subrogation under Article 1297.
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other in relation to a debt or claim, including its remedies and securities. It contemplates
full substitution such that it places the party subrogated in the shoes of the creditor, and
he may use all means which the creditor could employ to enforce payment.
Conventional Subrogation
Article 1295 only speaks of insolvency. Hence, in delegacion, if the non-fulfillment of the
obligation is due to other causes, the old debtor is not liable. The general rule is that the
old debtor is not liable to the creditor in case of the insolvency of the new debtor.
It takes place by express agreement of the original parties (the debtor and the original
creditor) and the third person (the new creditor). Conventional subrogation must be
clearly established in order that it may take place.
The exceptions are:

(1)
The said insolvency was already existing and of public knowledge (although it
was not known to the old debtor) at the time of the delegacion.
(2)
The insolvency was already existing and known to the debtor (although it was
not of public knowledge) at the time of the delegacion.
Art. 1301. Conventional subrogation of a third person requires the consent of the
original parties and of the third person.
The consent of all the parties is an essential requirement.
Article 1302. It is presumed that there is legal subrogation:
Art. 1303. Subrogation transfers to the person subrogated the credit will all the rights
thereto appertaining, either against the debtor or against third persons, be they
guarantors or possessors of mortgages, subject to stipulation in a conventional
subrogation.
(2) When a third person, not interested in the obligation, pays with the express or tacit
approval of the debtor.
The effects of conventional subrogation are subject to the stipulation of the parties, as
contrasted to the effects of legal subrogation as provided in Article 1303, which may not
be modified by agreement.
Example: A owes B P1,000. C pays B with the express or implied consent of A. In this
case, C will be subrogated in the rights of B.
What is legal subrogation?
What is the effect of novation on accessory obligations?

Art. 1296. When the principal obligation is extinguished in consequence of a
novation, accessory obligations may subsist only insofar as they may benefit third
persons who did not give their consent.
The above article follows the general rule that the extinguishment of the principal
obligation carries with it that of the accessory obligations.
It provides, however, an exception in the case of an accessory obligation created in
favor of a third person which remains in force unless said third person gives his consent
to the novation. This is so because a person should not be prejudiced by the act of
another without his consent.
What is the effect if the new obligation is void?
Art. 1297. If the new obligation is void, the original one shall subsist, unless the
parties intended that the former relation should be extinguished in any event.
The general rule is that there is no novation if the new obligation is void, and therefore,
the original one shall subsist from the reason that the second obligation being
inexistent, it cannot extinguish or modify the first.
The exception is where the parties intended that the old obligation should be
extinguished in any event, the old obligation shall be extinguished.
Art. 1302. It is presumed that there is legal subrogation:

When a creditor pays another creditor who is preferred, even without the
debtors knowledge;
When a third person, not interested in the obligation, pays with the express
or tacit approval of the debtor;
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 latters share.
Legal Subrogation
It takes place without agreement but by operation of law. Legal subrogation is not
presumed except in the cases expressly provided by law (Art. 1302).
Art. 1303. Subrogation transfers to the person subrogated the credit will all the rights
thereto appertaining, either against the debtor or against third persons, be they
guarantors or possessors of mortgages, subject to stipulation in a conventional
subrogation.
The effect of legal subrogation is to transfer to the new creditor the credit and all the
rights and actions that could have been exercised by the former creditor either against
the debtor or against third persons, be they guarantors or mortgagors. Simply stated,
except only for the change in the person of the creditor, the obligation subsists in all
respects as before the novation.
19
transmitted
The effect of legal subrogation as provided in Article 1303 may not be modified by
agreement.
What is partial subrogation?
Art. 1304. A creditor, to whom partial payment has been made, may exercise his right
for the remainder, and he shall be preferred to the person who has been subrogated in
his place in virtue of the partial payment of the same credit.
The creditor to whom partial payment has been made by the new creditor remains a
creditor to the extent of the balance of the debt. In case of insolvency of the debtor, he
is given a preferential right under the above article to recover the remainder as against
the new creditor.
Example:
D is indebted to C for P10,000. X pays C P6,000 with the consent of D. There is here
partial subrogation as to the amount of P6,000. C remains the creditor with respect to
the balance of P4,000. Thus, two credits subsist. In case of insolvency of D, C is
preferred to X, that is, he shall be paid from the assets of D ahead of X.
Distinguish subrogation from assignment of credit.
Art. 1624. An assignment of credits and other incorporeal rights shall be perfected in
accordance with the provisions of Article 1475.
*Article 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.
Art. 1626. The debtor who, before having knowledge of the assignment, pays his
creditor shall be released from the obligation.
Art. 1627. The assignment of a credit includes all the accessory rights, such as a
guaranty, mortgage, pledge or preference.
Art. 1628. The vendor in good faith shall be responsible for the existence and legality of
the credit at the time of sale, unless it should have been sold as doubtful; but not for the
solvency of the debtor, unless it has been so expressly stipulated or unless the
insolvency was prior to the sale and of common knowledge.
Even in these cases he shall only be liable for the price received and for the expenses
specified in No. 1 of Article 1616.

The vendor in bad faith shall always be answerable for the payment of all expenses,
and for damages.
*Article 1616. The vendor cannot avail himself of the right of repurchase without
returning to the vendee the price of the sale, and in addition:
(1) The expenses of the contract, and any other legitimate payments made by reason of
the sale;
Art. 1629. In case the assignor in good faith should have made himself responsible for
the solvency of the debtor, and the contracting parties should not have agreed upon the
duration of the liability, it shall last for one year only, from the time of the assignment if
the period had already expired.
Class discussion
Article 1301 does not require payment for conventional subrogation to take place. What
is required is the consent of all parties. On the other hand, in Article 1302 (2), payment
is necessary for legal subrogation to take place.
Licaros v Gatmaitan (2001) 362 SCRA 548
The threshold issue for the determination of [the] Court is whether the Memorandum of
Agreement between petitioner and respondent is one of assignment of credit or one of
conventional subrogation. This matter is determinative of whether or not respondent
became liable to petitioner under the promissory note considering that its efficacy is
dependent on the Memorandum of Agreement, the note being merely an annex to the
same memorandum.
Petitioner Licaros invested his funds with the Anglo-Asean Bank, an offshore bank, but
had difficulty retrieving not only the interests or profits, but even the very investments
he had put. Respondent Gatmaitan, a reputable banker and investment manager,
voluntarily offered to assume the payment of Anglo-Aseans indebtedness to Licaros
subject to certain terms and conditions. A Memorandum of Agreement was executed
and notarized to this effect. A promissory note was appended to the Memorandum of
Agreement representing the amount.
Contained in the Memorandum is the stipulation:
WHEREAS, the parties herein have come to an agreement on the nature, form and
extent of their mutual prestations which they now record herein with the express
conformity of the third parties concerned.
Hence, included in the signatories of the Memorandum of Agreement is Anglo-Asean,
as Conforme. The document, however, remained unsigned by the bank. Gatmaitan was
unable to collect from Anglo-Asean, resulting in the nonfulfillment of his promise to pay
Licaros the amount stated in his promissory note.
Licaros contends that he has a right to collect from Gatmaitan regardless of the
outcome of Gatmaitans efforts.
[The Court] agrees with the finding of the Court of Appeals that the Memorandum of
Agreement was in the nature of a conventional subrogation which requires the consent
of the debtor, Anglo-Asean Bank, for its validity.
The Memorandum stipulated that there should be express conformity of the third
parties concerned, this third party admittedly being Anglo-Asean Bank. The consent of
the third party being required by the Memorandum, the agreement therefore is one of
conventional subrogation, and not of assignment of credit.

Conventional subrogation requires the agreement among the three parties concerned.
On the other hand, in assignment of credit, a creditor may validly assign his credit and
its accessories without the debtors consent.
The intention of the parties to treat the Memorandum of Agreement as embodying a
conventional subrogation is shown not only by the whereas clause but also by the
signature space reserved for the signature of a representative of Anglo-Asean Bank as
conforme.
The Memorandum of Agreement embodies a contract for conventional subrogation and
in such a case, the consent of the original parties and the third person is required. The
absence of such conformity by Anglo-Asean Bank prevented the Memorandum of
Agreement from becoming valid and effective. No conventional subrogation took place.
If the credit should be payable within a term or period which has not yet expired, the
liability shall cease one year after the maturity.
G.
Art. 1213. A solidary creditor cannot assign his rights without the consent of the others.
Prescription the acquisition or loss of a right by the lapse of time based on negligence
or presumed abandonment
Conventional Subrogation and Assignment of Credit Distinguished

Conventional Subrogation
Assignment of Credit
A credit is extinguished and another There is a transfer of same credit
appears, which the new creditor
which belonged to another and
claims as his own
which, upon being transferred, is not
extinguished
The consent of the debtor is required The consent of the debtor is not
so that it may fully produce legal
required, his knowledge thereof
effects
affecting only the validity of the
payment he might make. What the
law requires is merely notice to the
debtor as the assignment takes effect
only from the time he has knowledge
thereof.
Its effects begin from the time of
The effects with respect to the debtor
novation itself, that is, from the
begin from the date of notification
moment all the parties have given
their consent
The nullity or defects of the previous The nullity or defects of the obligation
obligation may be cured by the
are not remedied, because only the
novation
correlative right of the obligation is
Prescription
Art. 1106. By prescription, one acquires ownership and other real rights through the
lapse of time in the manner and under the conditions laid down by law.
In the same way, rights and conditions are lost by prescription. (1930a)
Distinguish between acquisitive and extinctive prescription.
Acquisitive - the acquisition of a right by the lapse of time through adverse possession/
usurpation
Rationale: based on the assertion by a usurper of an adverse right for such a long time
as to give rise to the presumption that the owner has given up such right
Extinctive the loss of a right of action by the lapse of time
Rationale based on the probability that the alleged right never existed or has been
extinguished. To protect vigilant and not one who sleeps on his rights
When will prescription not run?
20
Art. 1109. Prescription does not run between husband and wife, even though there be a
separation of property agreed upon in the marriage settlements or by judicial decree.
Neither does prescription run between parents and children, during the minority or
insanity of the latter, and between guardian and ward during the continuance of the
guardianship. (n)
Rationale: influence or affection may often prevent one bringing an action against the
other anyway.
If the possessor of a movable lost or which the owner has been unlawfully deprived,
has acquired it in good faith at a public sale, the owner cannot obtain its return without
reimbursing the price paid therefor. (464a)
Art. 1505. Subject to the provisions of this Title, where goods are sold by a person who
is not the owner thereof, and who does not sell them under authority or with the
consent of the owner, the buyer acquires no better title to the goods than the seller had,
unless the owner of the goods is by his conduct precluded from denying the seller's
authority to sell.
Exception: prescription runs between husband and wife who are legally separated
Nothing in this Title, however, shall affect:
Art. 1113. All things which are within the commerce of men are susceptible of
prescription, unless otherwise provided. Property of the State or any of its subdivisions
not patrimonial in character shall not be the object of prescription. (1936a)
That which is not subject to appropriation cannot be acquired by prescription
The provisions of any factors' act, recording laws, or any other provision of
law enabling the apparent owner of goods to dispose of them as if he were the true
owner thereof;
Art. 1136. Possession in wartime, when the civil courts are not open, shall not be
counted in favor of the adverse claimant.
Art. 1154. The period during which the obligee was prevented by a fortuitous event from
enforcing his right is not reckoned against him. (n)
Can prescription be waived? Yes
Art. 1112. Persons with capacity to alienate property may renounce prescription already
obtained, but not the right to prescribe in the future. Prescription is deemed to have
been tacitly renounced when the renunciation results from acts which imply the
abandonment of the right acquired. (1935)
The validity of any contract of sale under statutory power of sale or under
the order of a court of competent jurisdiction;
Purchases made in a merchant's store, or in fairs, or markets, in
accordance with the Code of Commerce and special laws. (n)
Art. 719. Whoever finds a movable, which is not treasure, must return it to its previous
possessor. If the latter is unknown, the finder shall immediately
deposit it with the mayor of the city or municipality where the finding has taken place.
The finding shall be publicly announced by the mayor for two consecutive weeks in the
way he deems best.
Renunciation is unilateral, it does not require the acceptance of the person benefitting
However, renunciation in advance is void; an agreement based on waiving future
prescription is nonbinding. Waiving of prescription by those without capacity or by ones
representatives is nonbinding.
Distinguish between ordinary and extraordinary prescription.
Art. 1117. Acquisitive prescription of dominion and other real rights may be ordinary or
extraordinary.
Ordinary acquisitive prescription requires possession of things in good faith and with
just title for the time fixed by law. (1940a)
Requisites of prescription:
Capacity to acquire by prescription
If the movable cannot be kept without deterioration, or without expenses which

considerably diminish its value, it shall be sold at public auction eight days after the
publication.
Six months from the publication having elapsed without the owner having appeared, the
thing found, or its value, shall be awarded to the finder. The finder and the owner shall
be obliged, as the case may be, to reimburse the expenses. (615a)
Art. 720. If the owner should appear in time, he shall be obliged to pay, as a reward to
the finder, one-tenth of the sum or of the price of the thing found. (616a)
Art. 526. He is deemed a possessor in good faith who is not aware that there exists in
his title or mode of acquisition any flaw which invalidates it.
He is deemed a possessor in bad faith who possesses in any case contrary to the
foregoing.
The thing is capable of acquisition by prescription

Possession of the thing under certain conditions
Lapse of time provided by law
While the first two are common of all prescriptions the latter two vary as to WON the
prescription is ordinary or extraordinary.
Ordinary prescription requires
Good faith possession
Just title
Possession for a period of time fixed by law
Mistake upon a doubtful or difficult question of law may be the basis of good faith.
(433a)
Art. 1127. The good faith of the possessor consists in the reasonable belief that the
person from whom he received the thing was the owner thereof, and could transmit his
ownership. (1950a)
Art. 1128. The conditions of good faith required for possession in Articles 526, 527, 528,
and 529 of this Code are likewise necessary for the determination of good faith in the
prescription of ownership and other real rights. (1951)
Good faith
MOVABLES

The well founded belief that the grantor is the owner.It is the belief in the
validity, and not merely ignorance of a defect.
The belief must be continuous
Any other defect will invalidate the title, and when there is no just title there
can be no prescription
Art. 1132. The ownership of movables prescribes through uninterrupted possession for
four years in good faith.
otherwise.
The ownership of personal property also prescribes through uninterrupted possession

for eight years, without need of any other condition.
There is a presumption that the possession continues to be enjoyed in the

same character in which it was acquired, until the contrary is
With regard to the right of the owner to recover personal property lost or of which he
has been illegally deprived, as well as with respect to movables acquired in a public
sale, fair, or market, or from a merchant's store the provisions of Articles 559 and 1505
of this Code shall be observed. (1955a)
proven.
Art. 1133. Movables possessed through a crime can never be acquired through
prescription by the offender. (1956a)
IMMOVABLES
Art. 1134. Ownership and other real rights over immovable property are acquired by
ordinary prescription through possession of ten years. (1957a) Art. 1137. Ownership
and other real rights over immovable also prescribe through uninterrupted adverse
possession thereof for thirty years, without need of title or of good faith. (1959a)
When the title is void (e.g. oral donation of real property) he may acquire ownership
under the provision of this article.
Art. 559. The possession of movable property acquired in good faith is equivalent to a
title. Nevertheless, one who has lost any movable or has been unlawfully deprived
thereof may recover it from the person in possession of the same.
Good faith is always presumed, the burden of proof rests on those claiming
Art. 308. Who are liable for theft. Theft is committed by any person who, with intent
to gain but without violence against or intimidation of persons

nor force upon things, shall take personal property of another without the latter's
consent.
Theft is likewise committed by:
Any person who, having found lost property, shall fail to deliver the same to
the local authorities or to its owner;
Any person who, after having maliciously damaged the property of another,
shall remove or make use of the fruits or object of the damage caused by him; and
21
Any person who shall enter an inclosed estate or a field where trespass is
forbidden or which belongs to another and without the consent of its owner, shall hunt
or fish upon the same or shall gather cereals, or other forest or farm products.
Art. 536. In no case may possession be acquired through force or intimidation as long
as there is a possessor who objects thereto. He who believes that he has an action or a
right to deprive another of the holding of a thing, must invoke the aid of the competent
court, if the holder should refuse to deliver the thing. (441a)
Art. 537. Acts merely tolerated, and those executed clandestinely and without the
knowledge of the possessor of a thing, or by violence, do not affect possession. (444)
In what concept must be the possession for prescription to run?
Art. 1118. Possession has to be in the concept of an owner, public, peaceful and
uninterrupted. (1941)
Art. 1119. Acts of possessory character executed in virtue of license or by mere
tolerance of the owner shall not be available for the purposes of possession. (1942)
Concept of owner
necessary for possession
vs license: a positive act of owner in favor of a holder
vs tolerance: passive acquiescence by owner of acts of another which are
contrary to former.
Public - manifest and visible to all, the opposite of clandestine, there is the presumption
that the public and the owner are aware of the possession. Peaceful acquired and
maintained without violence whether physical or moral. Except that force may be used
to repel an unlawful physical invasion. Uninterrupted continuous, there must be no act
of deprivation of enjoyment of the thing by a third person or other act which interrupts
prescription. Interruption is a positive act of a third person. Uninterruption is distinct
from

of a third person, except in virtue of another title also recorded; and the time shall begin
to run from the recording of the latter.
As to lands registered under the Land Registration Act, the provisions of that special
law shall govern. (1949a)
Recorded titles as to third persons
Third persons are those who acquire their rights subsequently, relying on the
registration of ownership in the registry. They cannot be prejudiced by a period of
possession prior to their acquisition. This will apply provided that the following
conditions are met:
acquisition is by onerous title
acquisition is from one who, accdg to the registry, can transmit the title
acquisition is registered
That the third person has no knowledge of the prescription. Registered
lands adverse possession may not be allowed to defeat the owners right to
possession of lands registered under the Torrens system, nor will it run against the
owners hereditary successors. But laches may be set up as to registered lands.
Art. 1127. The good faith of the possessor consists in the reasonable belief that the
person from whom he received the thing was the owner thereof, and could transmit his
ownership. (1950a)
Art. 1129. For the purposes of prescription, there is just title when the adverse claimant
came into possession of the property through one of the modes recognized by law for
the acquisition of ownership or other real rights, but the grantor was not the owner or
could not transmit any right. (n)
Art. 1130. The title for prescription must be true and valid. (1953)
discontinuity, since the former is a positive act of a third person while the latter is a
negative act of the possessor.
For prescription to run, the title must be just, true, valid, and proved.
Art. 541. A possessor in the concept of owner has in his favor the legal presumption
that he possesses with a just title and he cannot be obliged to show or prove it. (448a)
The purpose of just title is the transmission of ownership which would have transferred
ownership if the grantor had really been the owner. The defect is cured by prescription.
How is prescription interrupted?
e.g. sale, donation, and dation transfer ownership. But lease, loan, and deposit do not
transfer ownership and therefore do not give rise just title
Art. 1120. Possession is interrupted for the purposes of prescription, naturally or civilly.
(1943)
Effect of interruption all the benefits acquired so far from the possession cease, when
it resumes the time lapsed will start anew.
Interruption is the opposite of suspension where in the past period is included in the
computation of the total time lapsed.
Art. 1121. Possession is naturally interrupted when through any cause it should cease
for more than one year.
The old possession is not revived if a new possession should be exercised by the same
adverse claimant. (1944a)
Art. 1122. If the natural interruption is for only one year or less, the time elapsed shall
be counted in favor of the prescription. (n)
Art. 1123. Civil interruption is produced by judicial summons to the possessor. (1945a)
Art. 1124. Judicial summons shall be deemed not to have been issued and shall not
give rise to interruption:
If it should be void for lack of legal solemnities;
If the plaintiff should desist from the complaint or should allow the
proceedings to lapse;
If the possessor should be absolved from the complaint.
A true title is one that actually exists, as opposed to a simulated title which cannot be
the basis of prescription. A false title is one which does not exist but is believed to exist.
It will be sufficient of the mistake of fact is with regards to acts of a third person. If the
mistake refers to the act of the possessor himself, it will be considered insufficient.
e.g purchasing from an insane party with knowledge of the vendors incapacity will
render the title insufficient. But purchasing without such knowledge of the incapacity will
render the title sufficient.
Valid title the title should be sufficient to transfer right if the grantor had been the
owner. Void titles are insufficient and cannot give rise to prescription. Voidable titles are
sufficient so long as it has not been annulled. For titles with suspensive condition,
prescription only runs from the fulfillment of such a condition. For titles with resolutory
conditions, prescription begins at once without prejudice to the fulfillment of the
condition
Art. 1131. For the purposes of prescription, just title must be proved; it is never
presumed. (1954a)
Proof of title: required for purpose of prescription. It is an exception to 541 which refers
to an existing fact of possession. This article refers to the acquisition of right of
ownership. Since a new right is sought to be created, the law becomes more exacting
How is prescription computed?
Art. 1138. In the computation of time necessary for prescription the following rules shall
be observed:
In all these cases, the period of the interruption shall be counted for the prescription.
(1946a)
The present possessor may complete the period necessary for prescription
by tacking his possession to that of his grantor or predecessor in interest;
In civil interruption, the effect of the recovery of the possession is that the period of
interruption is included in the computation of the prescription. Technically then, it is as if
there was no interruption and that the possession was continuous.
It is presumed that the present possessor who was also the possessor at a
previous time, has continued to be in possession during the intervening time, unless
there is proof to the contrary;
The first day shall be excluded and the last day included. (1960a)
Art. 1125. Any express or tacit recognition which the possessor may make of the
owner's right also interrupts possession. (1948)
The recognition of the possessor of the owners rights will interrupt possession.
However, the declaration of a 3rd person that the holder is not the owner will not
interrupt possession.
Art. 1126. Against a title recorded in the Registry of Property, ordinary prescription of
ownership or real rights shall not take place to the prejudice
Tacking means adding the period of possession of the predecessor to that of the
successor. Tacking of possession requireds:
The present possessor must have obtained it from previous possessor
There must be privity between them
Tacking is only possible with succession, usurpers cannot tack
Different characteristics of possession: from good to bad faith and vice versa When the
possession of the predecessor is in good faith and that of the successor is in bad faith,
tacking is permitted. The period of possession in good faith is computed in the
22
proportion that the period of extraordinary prescription bears to that of ordinary

prescription.
concerned, private respondents cause of action was barred, not by laches but by
extinctive prescription.
When the possession of the predecessor is in bad faith and that of the successor is in
good faith then tacking does not apply for ordinary prescription. However, if the period
of the predecessor is so long as to be beneficial to the successor, he may claim tacking
for extraordinary prescription.
Anastacio Cutanda, ascendant of petitioners, was in possession of the land for a period
of 35 years, such possession appearing to be adverse, continuous and in the concept
of owner because Anastacio Cutanda cultivated the land, thereby, performing an act of
ownership over it. Indeed, ten years after his possession of the subject parcel of land
had begun, Anastacio Cutanda became owner of the land in question through
acquisitive prescription.
Art. 544. A possessor in good faith is entitled to the fruits received before the
possession is legally interrupted.
Seraspi v CA (2000) 331 SCRA 293

Natural and industrial fruits are considered received from the time they are gathered or
severed.

Civil fruits are deemed to accrue daily and belong to the possessor in good faith in that
proportion. (451)
What is the prescriptive period to recover movables and immovable? Movables 8
years
Immovables 30 years
Marcelino Recasa was the owner of two parcels of land. The heirs of his second
marriage sold the land to the the ascendants of petitioners, Quirico Seraspi and
Purificacion Seraspi. The Seraspis then mortgaged the land to secure a loan from
Kalibo Rural Bank, Inc. They defaulted and the mortgage was foreclosed. In 1958, the
land eventually was sold to Manuel Rata, brother-in-law of Quirico Seraspi. Rata
allowed Quirico to administer the property.
In 1974, Quirico, however, had been paralyzed duo to a storke. Private respondent
Simeon Recasa, Marcelinos child from a third marriage, took advantage of this and
forcibly entered the lands in question and took possession thereof.
In 1983, the Seraspis purchased the land from Manuel Rata and afterwards filed a
complaint against Simeon Recasa for recovery of possession of the lands. The
question is whether private respondent has acquired the ownership of the two lands by
prescription.
Art. 1140. Actions to recover movables shall prescribe eight years from the time the
possession thereof is lost, unless the possessor has acquired the ownership by
prescription for a less period, according to Articles 1132, and without prejudice to the
provisions of Articles 559, 1505, and 1133. (1962a)
Art. 1141. Real actions over immovables prescribe after thirty years.

This provision is without prejudice to what is established for the acquisition of

ownership and other real rights by prescription. (1963)
LOSS OF POSSESSION
Acquisitive prescription of dominion and other real rights may be ordinary or

extraordinary , depending on whether the property is possessed in good faith and with
just title or the time fixed by law.
Art. 555. A possessor may lose his possession:
Private respondent, however, had neither just title nor good faith. Article 1129 provides:
By the abandonment of the thing;

By an assignment made to another either by onerous or gratuitous title;
By the destruction or total loss of the thing, or because it goes out of
For purposes of prescription, there is just title when the adverse claimant came into
possession of the property through one of the modes recognized by law for the
acquisition of ownership or other real rights, by the grantor was not the owner or could
not transmit any right.
commerce;
By the possession of another, subject to the provisions of Article 537, if the
new possession has lasted longer than one year. But the real right of possession is not
lost till after the lapse of ten years. (460a)
When is prescription interrupted?
Art. 1155. The prescription of actions is interrupted when they are filed before the court,
when there is a written extrajudicial demand by the creditors, and when there is any
written acknowledgment of the debt by the debtor. (1973a)
Filing in court interruption of extinctive prescription commences upon the docketing
and continues during the pendency of the action. Upon dismissal, the prescription runs
anew. However, when an action is filed and the plaintiff desists in the prosecution, the
action is deemed never to have commenced.
Written extrajudicial demand must be in writing, verbal demand is insufficient.
Written acknowledgement of debt may be express or implied in writing. May be made
by an agent or legal representative. However, acknowledgement of a debt after the
prescription has expired does not amount to a renunciation of a prescription already
acquired. Partial payment does not interrupt prescription because although it can be
considered an acknowledgment of a debt, as long as it is not in writing, there will be no
interruption.
Other causes which do not interrupt prescription:
Death of the debtor
Transfer of creditors rights to another person
Institution of a criminal action
A stay of execution
Incarceration
Private respondent did not acquire possession of the property through any of the
modes recognized by the Civil Code in Art. 712.
Neither can private respondent claim good faith in his favor. Good faith consists in the
reasonable belief that the person from whom the possessor received the thing was its
owner but could not transmit the ownership thereof. Private respondent entered the
property without the consent of the previous owner. For all intents and purposes, he is a
mere usurper.
The basis of petitioners claim of ownership is the contract of sale they had with Rata,
but this by itself is insufficient to make them owners of the property. The ownership of
the thing sold is not transferred to the vendee until actual or constructive delivery of the
property. When they bought the property, the property was in the possession of private
respondent.
However, this does not give private respondent a right to remain in possession of the
property. Petitioners title to the property prevails over private respondents possession
in fact but without bassi in law.
Private respondent did not acquire the property through prescription.
United States v Cerna (1912) 21 Phil 144
In December 1902, Sabina Merenguel lost a 3-year old carabao which joined other
carabaos belonging to Julian Nayre and afterwards strayed away and was not found by
Sabino Merenguel until April 1909, in the possession of Policarpio Cerna.
Prescription is required to enable the finder or a third person to acquire title to the find;
and the former, as a general rule, must have possessed if for the extraordinary term of
six years, on account of the lack of good faith and because, for the same reason, his
possession is not equivalent to a title.
Here, Cerna had an uninterrupted possession of the carabao from January 1, 1903 to
April 1909. In April 1909, therefore, the defendants had already possessed the lost
animal for an uninterrupted period of six years, and the ownership of personal property
prescribes by uninterrupted possession for six years, without the necessity of any other
condition.
Extinction of debt of a joint debtor does not necessarily affect that of co

debtors
Cerna is the owner of the carabao.
Cutanda v Cutanda (2000) 335 SCRA 418
Pajunar v CA (1989) 175 SCRA 464
The petition is meritorious.
In 1980, petitioner Pajunar learned that the disputed female mestisa carabao was in the
possession of private respondent Eluna, the latter possessing the carabao after
bartering this male cow to a third person Enopio in 1969.
[The Court] held that prescription, not laches is the proper ground for holding private
respondents action to be barred.
Private respondents did not assert ownership over the lands until 55 years later, when
they filed their complaint for recovery of possession. Insofar as petitioners are
The prescription issue is whether or not the carabao belonged to private respondent,
him being in possession of the carabao for more than 10 years. The possession in good
faith for four (4) years is not applicable, neither can possession in bad faith of eight (8)
23
years benefit respondents, for when the owner of a movable has lost or has been
illegally deprived of his property he can recover the same without need to reimburse the
possessor, as provided in Art. 559 of the Civil Code.
Neither can Art. 716 of the Civil Code apply, for this article evidently refers to a
possessor in good faith.
From the records it is clear that although the animal was branded ART in her front and
hind legs at the time she was acquired by respondent Eluna, said respondent did not or
could not register the transfer to him in accordance with Section 529 of the Revised
Administrative Code (which says that registration is necessary to validity of transfer of
cattle.)
The records show that respondents did not comply with this requirement. Respondents
are not possessors in good faith, as a possessor in good faith is one not aware that
there exists in his title or more of acquisition any flaw which invalidates it.
same began to run only on February 25, 1986, when the Aquino government too power.
It is true that under Art. 1154:
Article 1154. The period during which the obligee was prevented by a fortuitous event
from enforcing his right is not reckoned against him. fortuitous events have the effect of
tolling the period of prescription.
However, it cannot be say, as a universal rule, that the period from September 21, 1972
to February 25, 1986, involves force majeure. This claim should be taken on a case-tocase basis.
*The Court+ is convinced, from petitioner Tans very behavior (of instituting actions in
court that did not involve the conveyance of shares), that his detention was not an
impediment to a judicial challenge, and the fact of the matter was that he was
successful in obtaining judicial assistance. Under these circumstances, [the Court]
cannot declare detention, or authoritarian rule for that matter, as a fortuitous event
insofar as he was concerned, that interrupted prescription.
Petitioners are the owners of the carabaos (the mestisa carabao and its offsprings) in
question.
Prescription was not interrupted. Tans action came too late.
Cajuigan v Natividad (1910) 14 Phil 734
H. Agreement
Plaintiff Cajuigan is the administrator of the estate of Capricho and Morales. It appears
that three carabaos are in the possession of defendant Natividad. Plaintiff commenced
the action to recover the carabaos from the defendant, the carabaos being part of the
estate of the decedents.
Saura vs. DBP
The decedents had debts to the defendant worth P486.94. Upon death of the
decedents intestate, Sotero Morales, the first administrator, delivered the disputed
carabaos to the defendant to satisfy his claim.
The new administrator, plaintiff Cajuigan, now wants to recover the said carabaos,
contending that the first administrator had no authority to pay the claim of Natividad
against the estate, without the express permission of the court. He also contends that it
was the duty of the defendant, if he had a claim

against the estate in question, to have presented it to the committee appointed for the
purpose of allowing claims.
Both contentions are valid.
It is not disputed, however, by the plaintiff, that the carabaos were turned over to
Natividad by the first administrator, Sotero Morales, and accepted by Natividad in good
faith, believing that the carabaoes had been turned over to him in part payment of his
claim against the said estate.
Can an administrator maintain an action to recover personal property belonging to an
estate, which has been in the possession of the defendant for a period of more than
four years, he possessing the same in good faith?
The court held in the negative. The Code of Procedure in Civil Actions provides that an
action for the recovery of personal property shall be limited to four years. The right of
the plaintiff to recover the carabaos in question, therefore, cannot be sustained.
*Article 1955 of the (Old) Civil Code provides that The ownership of personal property
in prescribes by uninterrupted possession in good faith, for a period of three years.
Tan v CA (1991) 195 SCRA 355
This petition stems from an action of petitioner Tan for the reconveyance of shares of
stock against the Central Bank.
During the Martial Law regime, Continental Bank was ordered to close by the Central
Bank Monetary Board, due to the insolvency of the bank. Thereafter, petitioner was
arrested and during detention in 1977, he executed certain agreements transferring and
assigning shares of stock in Continental Bank to three corporations. Petitioner alleged
that the transfer was due to fraud.
Facts:
Saura applied to Rehabilitation Finance Corporation (RFC), before its
conversion into DBP, for an industrial loan of P500,000 to be used as follows:
P250,000.00 for the construction of a factory building (for the manufacture
of jute sacks);
P240,900.00 to pay the balance of the purchase price of the jute mill
machinery and equipment; and - P9,100.00 as additional working capital.
The jute mill machinery had already been purchased by Saura on the
strength of a letter of credit extended by the Prudential Bank and Trust Co. and that to
secure its release without first paying the draft, Saura, Inc. executed a trust receipt in
favor of the said bank.
RFC passed Resolution No. 145 approving the loan application for
P500,000.00, to be secured by a first mortgage on the factory building to be
constructed, the land site thereof, and the machinery and equipment to be installed.
It appears, however, that despite the formal execution of the loan
agreement the reexamination contemplated in Resolution No. 736 proceeded. In a
meeting of the RFC Board of Governors on June 10,

1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to
reduce the loan from P500,000.00 to P300,000.00.
Saura, Inc. had written RFC requesting that the loan of P500,000.00 be
granted. The request was denied by RFC.
Saura, Inc. took exception to the cancellation of the loan and informed
RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of
the note if RFC releases to us the P500,000.00 originally approved by you.".
RFC passed Resolution No. 9083, restoring the loan to the original amount
of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the
promissory notes jointly with the borrower-corporation," but with the following proviso:
xx
That the raw materials (kenaf) needed by the borrower-corporation to carry out its
operation are available in the immediate vicinity;
In 1987, petitioners filed a case of reconveyance of shares of stock.
xx
The question is whether or not any action for reconveyance has nevertheless
prescribed, on the basis of provisions governing reconveyance.
However, Saura stated that according to a special study made by the

Bureau of Forestry "kenaf will not be available in sufficient quantity this year or probably
even next year;"
The rule anent prescription on recovery of movable (shares of stock in this case) is
expressed in Article 1140 of the Civil Code.
It is evident that the petitioners had at most eight years within which to pursue a
reconveyance, reckoned from the loss of the shares in 1977, when the petitioner Tan
executed the various agreements in which he conveyed the same in favor of three
corporations.
Since the complaint was filed in 1987, ten years more or less after the petitioners
transferred the shares in question, it is clear that the petitioners have come to court too
late.
Saura requested RFC to cancel the mortgage. RFC executed the deed of
cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc.
Almost 9 years after the mortgage in favor of RFC was cancelled at the
request of Saura, Inc., the latter commenced the present suit for damages, alleging
failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to
release the proceeds of the loan applied for and approved, thereby preventing the
plaintiff from completing or paying contractual commitments it had entered into, in
connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there
*The Court+ cannot accept the petitioners contention that the period during which
authoritarian rule was in force had interrupted prescription and that the
was a perfected contract between the parties and that the defendant was guilty of
breach.
24
Issue:
WON there was a perfected contract between Saura and DBP WON Saura
is entitled to damages
Held:
There was undoubtedly offer and acceptance in this case: the application
of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant,
and the corresponding mortgage was executed and registered. But this fact alone falls
short of resolving the
basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore
entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc.
on the assumption that the factory to be constructed would utilize locally grown raw
materials, principally kenaf. Evidently Saura, Inc. realized that it could not meet the
conditions required by RFC stated that local jute "will not be able in sufficient quantity
this year or probably next year," and asking that out of the loan agreed upon the sum of
P67,586.09 be released "for raw materials and labor." This was a deviation from the
terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying
as it did a diversion of part of the proceeds of the loan to purposes other than those
agreed upon.The action thus taken by both parties was in the nature cf mutual
desistance what Manresa terms "mutuo disenso" 1 which is a mode of
extinguishing obligations. It is a concept that derives from the principle that since
mutual agreement can create a contract, mutual disagreement by the parties can cause
its extinguishment.
Dispositive: Judgment appealed from is reversed and the complaint dismissed, with
costs against the plaintiff-appellee.
Naga Telephone vs. CA, supra

J. Impossibility
What is the effect of impossibility?
Art. 1266. The debtor in obligations to do shall also be released when the prestation
becomes legally or physically impossible without the fault of the obligor. (1184a)
IV. Other Performance Excuses
K. Violenti Non Fit Injuria
What is violenti non fit injuria?
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 requires the assumption of
risk, no person shall be responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable. (1105a)
Latin: "to a willing person, no injury is done" or "no injury is done to a
person who consents"
General Rule: No liability for fortuitous event.
Exceptions: The debtor is responsible for a fortuitous event in the ff. cases:
I. Difficulty
o When expressly declared by law (such as when the possessor is in
What is clausula rebus sic stantibus?
bad faith or is in default).

o When expressly declared by stipulation or contract.
Art. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in
part. (n)
Occena vs. Jabson
Facts:
Tropical Homes, Inc. filed a complaint for modification of the terms and
conditions of its subdivision contract with petitioners (landowners of a 55,330 square
meter parcel of land in Davao City) alleging that due to the increase in price of oil and
its derivatives and the concomitant worldwide spiraling of prices, further performance by
the plaintiff under the contract, will result in situation where defendants would be
unjustly enriched at the expense of the plaintiff; will cause an iniquitous distribution of
proceeds from the sales of subdivided lots in manifest actually result in the unjust and
intolerable exposure of

plaintiff to implacable losses, all such situations resulting in an unconscionable, unjust

and immoral situation contrary to and in violation of the primordial concepts of good
faith, fairness and equity which should pervade all human relations.
Petitioners moved to dismiss the complaint principally for lack of cause of
action, and upon denial thereof and of reconsideration by the lower court elevated the
matter on certiorari to respondent Court of Appeals.
CA set aside the preliminary injunction previously issued by it and
dismissed petition.
o When the nature of the oblig requires the assumption of risk (Doctrine of Created
Risk)
Essential characteristics of a fortuitous event
o The cause must be independent of the will of the debtor
o Impossibility of foreseeing or impossibility of avoiding it, even if
foreseen.
o The occurrence must be such as to render it impossible for the debtor to fulfil his
obligation in a normal manner.
Loss in a shipwreck
o As a general rule, the loss of the ship due to a fortuitous event should be borne by the
owner; the loss of the cargo, by their owners, unless the captain lacked skill or there
was malice or negligence.
Loss because of an act of government

In case there is a law, it shall be considered as an act of sovereign power and

therefore, whatever loss incurred can be attributed to a force majeure and certainly the
State cannot complain of a loss caused by itself.
Combination of fortuitous event and negligence
If the fortuitous event was the proximate cause, the oblig is extinguished.
Hence, the petition at bar wherein petitioners insist that the worldwide
increase in prices cited by respondent does not constitute a sufficient cause of action
for modification of the subdivision contract.
If the negligence was the proximate cause, the oblig is not extinguished
converted to a monetary oblig for damages.
Issue: WON the Court should grant the petition

Held:
L. Fortuitous Event
While respondent court correctly cited in its decision the Code

Commission's report giving the rationale for Article 1267 of the Civil Code, it misapplied
the same to respondent's complaint.
What are the acts of God?
Respondent's complaint seeks not release from the subdivision contract

but that the court render judgment modifying the terms and Conditions of the Contract.
Art. 1262. An obligation which consists in the delivery of a determinate thing shall be
extinguished if it should be lost or destroyed without the fault of the debtor, and before
he has incurred in delay.
The cited article does not grant the courts this authority to remake, modify
or revise the contract or to fix the division of shares between the parties as contractually
stipulated with the force of law between the parties, so as to substitute its own terms for
those covenanted by the parties themselves. Respondent's complaint for modification
of contract manifestly has no basis in law and therefore states no cause of action.
Under the particular allegations of respondent's complaint and the circumstances
therein averred, the courts cannot even in equity grant the relief sought.
Dispositive: The resolution of respondent appellate court is reversed and the petition for
certiorari is granted and private respondent's complaint in the lower court is ordered
dismissed for failure to state a sufficient cause of action.
Art. 1174- refer to 104
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the
thing does not extinguish the obligation, and he shall be responsible for damages. The
same rule applies when the nature of the obligation requires the assumption of risk.
(1182a)
Examples of instances when the law requires liability even in the case of a
fortuitous event:
o When the debtor is in default (mora)
25
o When the debtor has promised to deliver the same thing to two or
more persons (parties) who do not have the same interest o When the oblig arises from
a crime
o When a borrower (of an object) has lent the thing to another who is not a member if
his own household.
o When the thing loaned has been delivered with appraisal of the value, unless there is
a stipulation exempting the borrower from
responsibility in case of a fortuitous event.
o When the payee in solutio indebiti is in bad faith
An act of God has been defined as an accident, due directly and
exclusively to natural causes without human intervention, which by no amount of
foresight, pains or care, reasonably to have been expected, could have been
prevented. (1 Corpus Juris 1174). (Nakpil and Sons vs.
without prejudice to the provisions of article 1165. This presumption does not apply in
case of earthquake, flood, storm, or other natural calamity. (1183a)
The presumption of fault does not apply in the case if a natural calamity.
Although fire is not a natural calamity, if a tenant is able to prove that the fire caused in
his apartment was purely accidental, he is not liable.
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 make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied with
at the expense of the debtor.
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 fortuitous event until
he has effected the delivery. (1096)
Effect of fortuitous event
o Specific oblig- extinguished by a fortuitous event of act of God o Generic oblig- never
extinguished by fortuitous event
CA)
The principle embodied in the act of God doctrine strictly requires that the
act must be one occasioned exclusively by the violence of nature and all human
agencies are to be excluded from creating or entering into the cause of the mischief.
When the effect, the cause of which is to be considered, is found to be in part the result
of the participation of man, whether it be from active intervention or neglect, or failure to
act, the whole occurrence is thereby humanized, as it were, and removed from the
rules
applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).
Two instances where a fortuitous event does not exempt (3rd par) o If the
obligor delays
o If the obligor is guilty of bad faith
National Power Corporation vs. CA
Facts:
The negligence of the defendant and the third-party defendants petitioners

was established beyond dispute both in the lower court and in the Intermediate
Appellate Court. Defendant United Construction Co., Inc. was found to have made
substantial deviations from the plans and specifications. and to have failed to observe
the requisite workmanship in the construction as well as to exercise the requisite
degree of supervision; while the third-party defendants were found to have
inadequacies or defects in the plans and specifications prepared by them. As correctly
assessed by both courts, the defects in the construction and in the plans and
specifications were the proximate causes that rendered the PBA building unable to
withstand the earthquake of August 2, 1968. For this reason the defendant and thirdparty defendants
cannot claim exemption from liability. (Decision, Court of Appeals, pp. 30-31).
In any event, the relevant and logical observations of the trial court as
affirmed by the Court of Appeals that "while it is not possible to state with certainty that
the building would not have collapsed were those defects not present, the fact remains
that several buildings in the same area withstood the earthquake to which the building
of the plaintiff was similarly subjected," cannot be ignored.
Art. 1221. If the thing has been lost or if the prestation has become impossible without
the fault of the solidary debtors, the obligation shall be extinguished.
The private respondents, owners of different parcels of land in Angat and

Norzagaray, Bulacan, suffered extensive damage to and lose of their properties as a
result of the inundation.
Demands for the payment thereof having been rejected by the petitioners,
the private respondents filed with the RTC, an action for damages against the
petitioners.
Petitioners said that they took all the necessary precautions in anticipation
of the typhoon, exercised due care in the maintenance and operation of the Angat
Hydro-electric plant and sent out early written warnings. They further rely on the
defense of force majeure, and aver that there exists no causal relation between the
alleged damages and losses suffered by the plaintiffs.
RTC rendered its decision against the petitioners.
Appellate court affirmed the findings of the trial court on the negligence of
the petitioners.
Issue: WON the petitioners should be liable for damages
Held:
If there was fault on the part of any one of them, all shall be responsible to the creditor,
for the price and the payment of damages and interest, without prejudice to their action
against the guilty or negligent debtor.

If through a fortuitous event, the thing is lost or the performance has become
impossible after one of the solidary debtors has incurred in delay through the judicial or
extrajudicial demand upon him by the creditor, the provisions of the preceding
paragraph shall apply. (1147a)
Loss because of a fortuitous event after defaultthere will be liability
because of the default.
When will force majeure not extinguish an obligation?
Art. 1268. When the debt of a thing certain and determinate proceeds from a criminal
offense, the debtor shall not be exempted from the payment of its price, whatever may
be the cause for the loss, unless the thing having been offered by him to the person
who should receive it, the latter refused without justification to accept it. (1185)
Even for fortuitous event, the oblig is not extinguished.
Petition must be dismissed because the losses and damages sustained by

the private respondents had been proximately caused by the negligence of the
petitioners, although the typhoon which preceded the flooding could be considered as a
force majeure.
Petitioners cannot be heard to invoke the act of God or force majeure to
escape liability for the loss or damage sustained by the private respondents since they,
the petitioners, were guilty of negligence. This event then was not occasioned
exclusively by an act of God or force

Civil and natural obligs distinguished o Voluntary fulfilment defined

Voluntary fulfilment means that the debtor complied with the same even if he knew
that he could have been legally forced
To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of
an obligation due to an "act of God," the following must concur: (a) the cause of the
breach of the obligation must be independent of the will of the debtor; (b) the event
must be
majeure; a human factor - negligence or imprudence - had intervened. The effect then
of the force majeure in question may be deemed to have, even if only partly, resulted
from the participation of man. Thus, the whole occurrence was thereby humanized, as it
were, and removed from the rules applicable to acts of God.
Dispositive: The instant petition is hereby DENIED, with costs against the petitioners.
Exception: When the creditor (the offended party in the crime) is in mora
accipiendi.
Nakpil and Sons vs. CA

Facts:
Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be
presumed that the loss was due to his fault, unless there is proof to the contrary, and
26
The private respondent (Philippine Bar Association) hired the services of

the petitioner to make the plans and specifications for the construction of their office
building.
Duty to support natural or spurious children (even if not recognized voluntarily or by

judicial compulsion and even if there is a judgment denying recognition).
Giving material and financial assistance to children upon their marriage.
The building was completed by the contractor but subsequently, an

earthquake struck causing its partial collapse and damage.
After the protracted hearings, the Commissioner eventually submitted his
report with the findings that while the damage sustained by the PBA building was
caused directly by the earthquake whose magnitude was estimated at 7.3 they were
also caused by the defects in the plans and specifications prepared by the third-party
defendants' architects, deviations from said plans and specifications by the defendant
contractors and failure of the latter to observe the requisite workmanship in the
construction of the building and of the contractors, architects and even the owners to
exercise the requisite degree of supervision in the construction of subject building.
Plaintiff commenced this action for the recovery of damages arising from
the partial collapse of the building against United Construction, Inc. and its President
and General Manager Juan J. Carlos as defendants. Plaintiff alleges that the collapse
of the building was accused by defects in the construction, the failure of the contractors
to follow plans and specifications and violations by the defendants of
the terms of the contract.
Issue: WON the petitioner is liable for damages in this case
Held:
Conversion of moral obligs to civil obligs

Moral obligs may be converted into civil obligs. Ex. Acknowledgement of a prescribed
debt
Art. 1424. When a right to sue upon a civil obligation has lapsed by extinctive
prescription, the obligor who voluntarily performs the contract cannot recover what he
has delivered or the value of the service he has rendered.
Effect of extinctive prescription- By virtue of extinctive prescription, a right
to property has been lost. Hence, the existence of the Article.
Art. 1425. When without the knowledge or against the will of the debtor, a third person
pays a debt which the obligor is not legally bound to pay because the action thereon
has prescribed, but the debtor later voluntarily reimburses the third person, the obligor
cannot recover what he has paid.
Payment with debtors consent- If payment is made with the consent of the
debtor, a civil oblig arises.
Art. 1426. When a minor between eighteen and twenty-one years of age who has
entered into a contract without the consent of the parent or guardian,
either unforseeable or unavoidable; (c) the event must be such as to render it

impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor
must be free from any participation in, or aggravation of the injury to the creditor.
It has been held that when the negligence of a person concurs with an act
of God in producing a loss, such person is not exempt from liability by showing that the
immediate cause of the damage was the act of God. To be exempt from liability for loss
because of an act of God, he must be free from any previous negligence or misconduct
by which that loss or damage may have been occasioned.
The negligence of the defendant and the third-party defendants petitioners
was established beyond dispute both in the lower court and in the Intermediate
Appellate Court. Defendant United Construction Co., Inc. was found to have made
substantial deviations from the plans and specifications. and to have failed to observe
the requisite workmanship in the construction as well as to exercise the requisite
degree of supervision; while the third-party defendants were found to have
inadequacies or defects in the plans and specifications prepared by them.
The relevant and logical observations of the trial court as affirmed by the
Court of Appeals that "while it is not possible to state with certainty that the building
would not have collapsed were those defects not present, the fact remains that several
buildings in the same area withstood the earthquake to which the building of the plaintiff
was similarly subjected," cannot be ignored.
NATURAL OBLIGATIONS
Distinguish civil and natural obligations.
Art. 1423. Obligations are civil or natural. Civil obligations give a right of action to
compel their performance. Natural obligations, not being based on positive law but on
equity and natural law, do not grant a right of action to enforce their performance, but
after voluntary fulfillment by the obligor, they authorize the retention of what has been
delivered or rendered by reason thereof. Some natural obligations are set forth in the
following articles.
after the annulment of the contract voluntarily returns the whole thing or price received,
notwithstanding the fact the he has not been benefited thereby, there is no right to
demand the thing or price thus returned.
Art. 1427. When a minor between eighteen and twenty-one years of age, who has
entered into a contract without the consent of the parent or guardian, voluntarily pays a
sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be
no right to recover the same from the obligee who has spent or consumed it in good
faith. (1160A)
Contract by MinorsNo annulment yet
o Generally, annulment requires mutual restitution. Here, the oblige who has spent or
consumed the object in good faith is not
required to restore.
o Good faith of the oblige must be present at the time of the
spending or consuming.
o Note that the majority age today is 18. And fungible here really means consumable.
Art. 1428. When, after an action to enforce a civil obligation has failed the defendant
voluntarily performs the obligation, he cannot demand the return of what he has
delivered or the payment of the value of the service he has rendered.
Winner in an action to enforce a civil obligationHere the defendant may
have realized that he should have lost the case, instead of winning it, this the existence
of the Article.
Art. 1429. When a testate or intestate heir voluntarily pays a debt of the decedent
exceeding the value of the property which he received by will or by the law of intestacy
from the estate of the deceased, the payment is valid and cannot be rescinded by the
payer.
Rule in case of payment of debts beyond value of the decedents estate

o Heirs inherit obligs only to the extent of the value of the inheritance. This is the reason
for the Article, coupled with the basis for the natural oblig.
to do so. In case of partial voluntary fulfilment, there has not yet been created a legal
oblig.
Undue payment distinguished from natural oblig
If I pay a debt that has prescribed

Art. 1430. When a will is declared void because it has not been executed in accordance
with the formalities required by law, but one of the intestate heirs, after the settlement of
the debts of the deceased, pays a legacy in compliance with a clause in the defective
will, the payment is effective and irrevocable.
Not knowing it has prescribed, I can recover on the ground of undue payment.
Payment of legacies despite the fact that the will is void
Knowing that it has prescribed, I cannot recover for this would be a case of a natural
oblig.
No juridical tie in moral obligs
While there is a juridical tie in natural obligs, there is none in moral obligs.
Example of other natural obligs
o If the will is void, the legacy would also be void and the deceased is considered to
have died without a will. This is the reason for the existence of this Article.
Analogous cases
o By analogy, all alienations defective for lack of proper formalities may be included
under Art. 1430.
Obligation to pay interest for use of money, even if not agreed upon in writing.
27
CONTRACTS
V. General
name; ex. do ut des meaning I give that you may give

Acc to the risk of fulfilment
Commutative- parties contemplate a real fulfilment, therefore, equivalent values are
given; ex. Sale, lease
What is a contract?
Art. 1305. A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service. (1254a)
Contract, defined
A contract, from the Latin contractus and from the French contract, is a juridical
convention manifested in legal form, by virtue of which, one or more persons (or
parties) bind themselves in favour of another or others, or reciprocally, to the fulfilment
of a prestation to give, to do, or not to do.
Elements of a contract
Essential elements (without them a contract cannot exist)
Consent
Aleatory- fulfilment is dependent upon chance, thus the values may vary because of the
risk or chance
Acc to the time of performance of fulfilment
Executed- one contemplated at the time the contract is entered into, that is, the oblig
are complied with at this time; ex. Sale of property which has already been delivered,
and which has already been paid for
Executory- one where the prestations are to be complied with at some future time; ex. A
perfected sale, where the property has not yet been delivered and where the price has
not yet been given
Acc to subject matter
Contracts involving things (like sale)
Contracts involving rights or credits (provided these are transmissible, like a contract of
usufruct or assignment of credits)
Subject matter
Cause or consideration
Contracts involving services (like agency, lease of services, a contract of common

carriage, a contract of carriage <simple
Form (some contracts)
carriage>)
Acc to obligs imposed and regarded by the law
Delivery (some contracts)

Ordinary- like sale, the law considers this as an ordinary contract
Natural elements (those found in certain contracts and presumed to exist,
unless the contrary has been stipulated)
Warranty against eviction and against hidden defects in the contract of sale
Accidental elements (various particular stipulations that may be agreed upon by the
contracting parties in a contract. They are called accidental because they may be
present or absent, depending upon whether or not the parties have agreed upon them)
Institutional- like the contract of marriage; the law considers marriage as an inviolable
social institution
Acc to the evidence required for its proof
Those requiring merely oral or parol evidence
Those requiring written proof; ex. Contracts enumerated
under the Stature of Frauds
Stipulation to pay credit

Stipulation to pay interest
Designation of the particular place for delivery or payment
Classification of contracts
Acc to the number of persons actually and physically entering into the
contracts
Ordinary- where two parties are represented by different persons; ex. Sale
Auto-contracts- where only one person represents two opposite parties, but in different
capacities; ex. An agent
Acc to perfection or formation

Consensual (perfected by mere consent; ex. Sale)
representing his principal sells a specific car to himself, as a buyer
Real (perfected by delivery; ex. Depositum, pledge, commodatum)
Acc to the number of persons who participated in the drafting of the
Formal or solemn (where special formalities are essential before the contract may be
perfected; ex. A donation inter vivos of real property requires for its validity a public
instrument)
contract
()
Note: Donation is sometimes considered a contract even if Art. 712 states
that a donation is a mode of transferring
Contract of adhesion- (like one prepared by a real estate company for the sale of real
estate; or one prepared by an insurance company)
Acc to the nature of the contract
Personal
of real rights.
Acc to cause or equivalence of the value of prestations
Ordinary- (like a ordinary sale)
Impersonal
Onerous- where there is an interchange of equivalent valuable consideration
Stages of a contract
Gratuitous or lucrative- this is FREE, thus one party receives no equivalent prestation
except a feeling that one has been generous or liberal
Remunerative- (one where one prestation is given for a benefit or service that had been
rendered previously)
Acc to importance or dependence of one upon another
Principal- contract may stand alone by itself; ex. Sales, lease
Accessory- depends for its existence upon another contract; ex. Loan; here the
principal contract is one of loan.
Acc to the parties obligated
Unilateral- one of the parties has an oblig; ex. Commodatum (like the borrowing of a
bicycle)
Bilateral (or synalagmatic)- both parties are required to
render reciprocal prestatioons; ex. Sale
Acc to their name or designation
Nominate- contract is given a particular or special name; ex. Commodatum,
partnership, sale, agency, deposit

Innominate (contraltos innominados)- not given any special
Preparation (or conception or Generacion)Here the parties are progressing with their
negotiations; they have not yet arrived at
any definite agreement, although there may have been a preliminary offer and
bargaining.
o
Perfection (or birth)Here the parties have at long last came to a definite
agreement, the elements of definite subject matter and valid cause have been accepted
by mutual consent.
Consummation (or death or termination)Here the terms of the contract are performed,
and the contract may be said to have been fully executed.
Parties to a contract
The law speaks of a meeting of minds between two persons. The meeting of the
minds really refers to two parties. If at the time of supposed perfection, one of the
parties had already previously died, there can be no meeting of the minds; hence no
contract.
Basic principles or characteristics of a contract
Freedom (or liberty) to stipulate (provided not contrary to law, morals, good customs,
public order, or public policy)
o
Obligatory force and compliance in good faith
Perfection by mere consent (consensuality) as a rule
Both parties are mutually bound
Relatively (Generally, it is binding only between the parties, their assign and heirs)
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Perfection of consensual contracts

Co-existence of a contract with a quasi-delict (tort)
The existence of a contract between the parties does not constitute a bar to the
commission of a tort by one against the other and the consequent recovery of
damages.
Legal effects of a contract
o Consensual contracts are perfected from the moment there is agreement (consent)
on the subject matter and the cause or consideration
Consequences of perfection
o The parties are bound to the fulfilment of what has been expressly
stipulated and compliance thereof must be in good faith

The legal effects of a contract are determined by extracting the intention of
the parties from the language they used and from their contemporaneous and
subsequent acts. This principle gains more force when third parties are concerned. To
require such persons to go beyond what is clearly written in the document is unfair and
unjust. They cannot possibly delve into the contracting parties minds and suspect that
something is amiss when the language of the instrument appears clear and
unequivocal.
What is pacta sunt servanda?
o The parties are also bound to all the consequences which, acc to their nature may be
in keeping with good faith, usage and law.
Ang Yu vs. CA
Facts:
Plaintiffs (Ang Yu) are tenants or lessees of residential and commercial
spaces owned by defendants (Bobby Cu Unjieng) in Binondo, Manila.

Art. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. (1091a)
Latin: "agreements must be kept"
Obligations ex-contractu
o While obligs arising from a contract have the force of law between the parties, this
does not means that the law is inferior to contracts. This is so because before a
contract can be enforced, it must first be valid and it cannot be valid if it is against the
law. Moreover, the right of the parties to stipulate is limited. Hence,
Art. 1306, CC says: the contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to
law, morals, good customs, public order or public policy.
Meaning of the article
o The article means that neither party may unilaterally and upon his own exclusive
volition, escape his obligs under the contract, unless the other party assented thereto,
or unless for causes sufficient in
They have occupied said spaces since 1935 and have been religiously
paying the rental and complying with all the conditions of the lease contract.
Defendants informed plaintiffs that they are offering to sell the premises
and are giving them priority to acquire the same; that during the negotiations, Bobby Cu
Unjieng offered a price of P6-million while plaintiffs made a counter offer of P5-million;
that plaintiffs thereafter asked the defendants to put their offer in writing to which
request defendants acceded.
In reply to defendant's letter, plaintiffs wrote them asking that they specify
the terms and conditions of the offer to sell.
Since defendants failed to specify the terms and conditions of the offer to
sell and because of information received that defendants were about to sell the
property, plaintiffs were compelled to file the complaint to compel defendants to sell the
property to them.
Defendants filed their answer denying the material allegations of the
complaint and interposing a special defense of lack of cause of action.
law and pronounced adequate by a competent tribunal.

o Compliance in good faith means that we must not interpret not by the letter that
killeth but by the spirit that giveth life.
The right to enter into contracts
o The right to enter into lawful contracts constitute one of the liberties of the people of
the State. If that right be struck down or arbitrarily interfered with, a substantial
impairment of constitutional rights would result. Nevertheless, in contracts where public
interest is involved the government has a right to intervene for the protection of the
whole.
Differences between an obligation and a contract
o An oblig is the result of a contract. Hence, while a contract, if valid, always results in
obligs, not all obligs come from contracts. A
contract always presupposes a meeting of the minds, this is not necessarily true for all
kinds of oblig.
Be it not, however, from another viewpoint that a contract may itself be the result of an
oblig.
The court dismissed the complaint on the ground that the parties did not
agree upon the terms and conditions of the proposed sale, hence, there was no contact
of sale at all.
The Cu Unjieng spouses executed a Deed of Sale transferring the property
in question to Buen Realty and Development Corporation. Buen Realty, as the new
owner of the subject property, wrote to the
lessees demanding the latter to vacate the premises. In its reply, it stated that Buen
Realty and Development Corporation brought the property subject to the notice of lis
pendens.
Issue: WON there was a perfected contract between Ang Yu and Cu Unjieng
Held:
Until the contract is perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation. In sales, particularly, to which the topic
for discussion about the case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price certain, to deliver and to transfer
ownership of a thing or right to another, called the buyer, over which the latter agrees.
The so-called innominate contractsno express name

Do ut desI give that you may give
When the sale is not absolute but conditional, such as in a "Contract to

Sell" where invariably the ownership of the thing sold is retained until the fulfillment of a
positive suspensive condition (normally, the full payment of the purchase price), the
breach of the condition will
o Do ut faciasI give that you may do o Facio ut desI do that you may give o Facio
ut faciasI do that you may do
prevent the obligation to convey title from acquiring an obligatory force.
Art. 1315. Contracts are perfected by mere consent, and from that moment the parties
are bound not only to the fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, may be in keeping with good faith,
usage and law. (1258)
This article stresses the CONSENSUALITY OF CONTRACTS (or
perfection by mere consent)
How contracts are perfected
o Consensual contracts- by mere consent (this is the general rule);
ex. Contract of sale
o Real contracts- perfected by delivery; ex. Deposit and pledge o Formal or solemn
contracts- here a special form is required for
perfection; ex. A simple donation inter vivos of real property, to be valid and perfected
must be in a public instrument
An unconditional mutual promise to buy and sell, as long as the object is

made determinate and the price is fixed, can be obligatory on the parties, and
compliance therewith may accordingly be exacted.
An accepted unilateral promise which specifies the thing to be sold and the
price to be paid, when coupled with a valuable consideration distinct and separate from
the price, is what may properly be termed a perfected contract of option. This contract
is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of
the Civil Code.
Even on the premise that such right of first refusal has been decreed under
a final judgment, like here, its breach cannot justify correspondingly an issuance of a
writ of execution under a judgment that merely recognizes its existence, nor would it
sanction an action for specific performance without thereby negating the indispensable
element of consensuality in the perfection of contracts. 11 It is not to say, however, that
the right of first refusal would be inconsequential for, such as already intimated above,
an unjustified disregard thereof, given, for instance, the circumstances expressed in
Article 19 of the Civil Code, can warrant a recovery for damages.
29
The final judgment, it must be stressed, has merely accorded a "right of

first refusal" in favor of petitioners. The consequence of such a declaration entails no
more than what has heretofore been said. In fine, if, as it is here so conveyed to us,
petitioners are aggrieved by the failure of private respondents to honor the right of first
refusal, the remedy is not a writ of execution on the judgment, since there is none to
execute, but an action for damages in a proper forum for the purpose.
In Alcuaz, it was said that enrollment is a written contract for one semester
and contracts are respected as the law between the contracting parties. At the end of
each semester, the contract is deemed terminated.
Regino vs. Pangasinan
Permissible limitations on student exercise of constitutional rights within

the school. Constitutional freedom of free speech and assembly also are not absolute.
However, imposition of disciplinary sanctions requires observance of procedural due
process and penalty imposed must be proportionate to the offense committed.
(procedural due process: right to be informed in writing, right to answer the charges,
right to be informed of the charges against them, right to adduce evidence, and for this
evidence to be duly considered)
Facts:
Petitioner Khristine Rea M. Regino was a first year computer science
student at Respondent Pangasinan Colleges of Science and Technology (PCST).
Reared in a poor family, Regino went to college mainly through the financial support of
her relatives. During the second semester of school year 2001-2002, she enrolled in
logic and statistics subjects under Respondents Rachelle A. Gamurot and Elissa
Baladad, respectively, as teachers.
However, this case is not a simple case about a school refusing readmission. The refusal to readmit or to re-enroll petitioners was decided upon and
implemented by school authorities as a reaction to student mass actions
The nature of contract between a school and its students is not an ordinary
contract but is imbued with public interest. The Constitution


Financially strapped and prohibited by her religion from attending dance

parties and celebrations, Regino refused to pay for the tickets.She was then disallowed
to take the examinations.
allows the State supervisory and regulatory powers over all educational institutions.
According to par 107 and 137 of the respondent schools manual, a student is enrolled
not just for one semester but for the entire period necessary for the student to complete
his/her course. BP Blg. 232 gives the students the right to continue their course up to
graduation.
Petitioner filed a Complaint for damages against PCST, Gamurot and

Baladad.
RTC dismissed the Complaint for lack of cause of action.
Issue: WON she has a cause of action against PCST
Held:
In Alcuaz v. PSBA, the Court characterized the relationship between the
school and the student as a contract, in which "a student, once admitted by the school
is considered enrolled for one semester." Two years later, in Non v. Dames II, the Court
modified the "termination of contract theory" in Alcuaz by holding that the contractual
relationship between the school and the student is not only semestral in duration, but
for the entire period the latter are expected to complete it." Except for the variance in
the period during which the contractual relationship is considered to subsist, both
Alcuaz and Non were unanimous in characterizing the school-student relationship as
contractual in nature.
The terms of the school-student contract are defined at the moment of its
inception -- upon enrolment of the student. Standards of academic performance and
the code of behavior and discipline are usually set forth in manuals distributed to new
students at the start of every school year. Further, schools inform prospective enrollees
the amount of fees and the terms of payment.
In the present case, PCST imposed the assailed revenue-raising measure
belatedly, in the middle of the semester. It exacted the dance party fee as a condition
for the students' taking the final examinations, and ultimately for its recognition of their
ability to finish a course. The fee, however, was not part of the school-student contract
entered into at the start of the school year. Hence, it could not be unilaterally imposed
to the prejudice of the enrollees.
Such contract is by no means an ordinary one. In Non, we stressed that
the school-student contract "is imbued with public interest, considering the high priority
given by the Constitution to education and the grant to the State of supervisory and
regulatory powers over all educational institutions".
Non vs. Dames
Facts:
Petitioner students of Mabini Colleges were not allowed to re-enroll
because they participated in student mass actions against their school the preceding
semester.
Petitioners continued their rally picketing, even though without any renewal
permit, physically coercing students not to attend their classes, thereby disrupting the
scheduled classes and depriving a great majority of students of their right to be present
in their classes
The lower court considered that in signing their enrollment forms, they
waived the privilege to be re-enrolled. The Mabini College reserves the right to deny
admission of students xxx whose activities unduly disrupts or interfere with the efficient
operation of the college xxx.
School said most of them had failing grades anyway. In answer students
say they are graduating students and if there are any deficiencies these do not warrant
non-readmission. Also there are more students with sores deficiencies who are readmitted. And some of the petitioners had no failing marks.
The court held that the students were denied due process in that there was
no due investigation. In fact it would appear from the pleadings that the decision to
refuse them re-enrollment because of failing grades was a mere afterthought.
Discipline may be warranted but penalty should be commensurate to the
offense committed with due process.
Dispositive: Petition GRANTED. Orders of RTC ANNULED. Mabini College ordered to
readmit and allow reenrollment of petitioners, without prejudice to its taking the
appropriate action, if shown that they have failed to satisfy the school's prescribed
academic standards.
What is freedom of contract?
Art. 1306. The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy. (1255a)
Principle of Freedom
o The free entrance into contracts generally without restraint is one of the liberties
guaranteed to the people. However, the constitutional prohibition against impairment of
contractual obligs refers only to contracts which are not legal, not to void or inexistent
ones.
o
o
o
Limitations on the nature of the stipulations o The law

Moral
Good customs
Public order
Public policy
Limitations imposed by law
The contractual stipulations must not be contrary to mandatory
and prohibitive laws. Directory and suppletory laws need not be complied with, since
these are either discretionary or merely supply the omissions of the parties.
Contracts must respect the law, for the law forms part of the contract. Indeed the
provisions of all laws are understood to be incorporated in the contract.
Limitations imposed by morals
Morals deal with right and wrong and with human conscience.
Limitations imposed by good customs
Judge Dames decision considering these facts said that what the students
assert is a mere privileges not a legal right. Respondent Mabini College is free to admit
or not to admit the petitioners for re-enrollment in view of the academic freedom
enjoyed by the school.
Good customs are those that have received for a period time practical and social
confirmation. Acc to the Code Commission, good customs and morals overlap each
other; but sometimes they do not.
Issue: WON schools can deny admission to students on the ground of termination of
contract
Limitations imposed by public order

Public order deals with the public weal and includes public safety.
Held:
Limitations imposed by public policy

30
Public policy, which varies according to the culture of a particular

country, is the public social and legal interest in private law. It is said to be the manifest
will of a State.
A contract is contrary to public policy if it has a tendency to injure the public, is against
the public good or contravenes some established interest of society or is inconsistent
with sound policy and good morals or tends clearly to undermine the security of
individuals rights.
Designation of the name of a contract
The parties generally may agree on any contract but the name
that they give to it should not be controlling for a contract is what the parties intended it
to be not what they call it.
This is because a contract must be judged by its character, its nature and its legal
qualifications. The courts will therefore look not so much at the form of the transaction
as at its substance.
Section 10, Art. III, 1987 Constitution. No law impairing the obligation of
contracts shall be passed.

Republic vs. PLDT
of titled and possession. The beneficiary of the interconnecting service would be the
users of both telephone systems, so that the condemnation would be for public use.
Dispositive: Decision of CFI AFFIRMED except in so far as it dismisses the petition of
the Republic to compel the PLDT to continue servicing the Government telephone
system upon such terms, and for a compensation.
Ollendorf vs. Abrahamson
Facts:
Plaintiff Ollendorf and defendant Abrahamson made and entered into
Contract of Agreement. The first part hereby agrees to employ the defendant and the
party of the second obliges himself to work for the plaintiff within the period of two
years.
Defendant obligates and binds himself to devote his entire time, attention,
energies and industry on the promotion of the furtherance of the business and interest
of the party. Failure on the said duty shall entitle the plaintiff to discharge and dismiss
the defendant.
The second part of the contract further binds the party that he will not enter
whether directly or indirectly to engage in a similar or competitive business.
Under the term of this agreement, the plaintiff left the employment due to
illness and went to U.S.
Some months after his departure for the US, defendant returns to Manila
as the Manager of the Philippine Underwear Company. Defendant admits that both
firms turn out the same class of goods
Facts:
PLDT contracted an agreement with RCA Communications for connecting
calls to and from RCA to Philippines and vice versa. Later, the agreement extended to
radio and telephone messages to and from European and Asiatic countries.

Later, PLDT made known the termination of the agreement, complying with
the 24-month notice agreement.
and those they are exported to the same market. The only difference between the two
companies is the method of doing the finishing work- the manufacture of the
embroidered material into finished garments.
Created in 1947, the Bureau of Telecommunication set up a Government

telephone system by renting trunk lines from PLDT. In doing so, the Bureau has agreed
to abide by the rules and regulations of PLDT, which includes the prohibition for public
use that which was furnished for private use. In 1948, the Bureau extended service to
the general public.
In 1958, after the termination of the contract of RCA and PLDT, the Bureau
entered into an agreement with RCA for a joint overseas telephone service. PLDT then
complained that the Bureau was violating their agreement as the latter was using
PLDT's trunk lines for public use and not just private. PLDT then gave notice that if
these actives continued they would be disconnecting the service. When no reply was
received, PLDT pulled the plug on the Bureau.
The Bureau proposed an interconnecting agreement but the negotiations
Ollendorf commenced the action to prevent, by injunction, any further

breach of that part of defendant's contract of employment by plaintiff.
Lower court granted a preliminary injunction.
Issue: WON the contract of employment is void
Held:
A contract by which an employee agrees to refrain for a given length of
time after the expiration of the term of his employment, from engaging in a business
competitive with that of his employer is not void as being restraint of trade, if the
restraint imposed is no greater in restraint imposed is no greater than that which is
necessary to afford a reasonable protection to the employer.
failed.
The Bureau prayed for a judgment commanding PLDT to execute an
agreement allowing it to use PLDT's facilities, as well as a writ of preliminary injunction
to restrain PLDT from severing existing as well as restoring those already severed.
Lower court directed PLDT to reconnect. PLDT filed its answer denying
any obligation it has to the Bureau, as well as assailing the jurisdiction of the CFI. PLDT
also claimed that the Bureau was engaged in commercial telephone operations which
was in excess of its authority.
Court then said that it could not compel the parties to enter into agreement;
that under EO 94, establishing the Bureau, said Bureau is not limited to government
services, nor was it guilty of fraud, abuse,
of misuse of PLDT's poles, as well as declared the injunction permanent. Complaint
was dismissed, hence this appeal.
The only limitation upon the freedom of contractual agreement is that the
pacts established shall not be contrary to law, morals, or public order. The industry of
counsel has failed to discover any direct expression of the legislative will which
prohibits such a contract as that before us. It certainly is not contrary to any moral
precept.
The validity of restraints upon trade or employment is to be determined by
the intrinsic reasonableness of the restrictions in each case, rather than by any fixed
rule, and that such restrictions may be upheld when not contrary to the public welfare
and not greater than is necessary to afford a fair and reasonable protection to the party
in whose favor it is imposed.
The restraint imposed upon defendant by his contract is not unreasonable.
The public policy which allows a person to obtain employment on certain terms
understood by and agreed to by him, and to repudiate his contract, conflicts with and
must, to avail the defendant, for some sufficient reason, prevail over, the manifest
public policy, which as a rule holds to his bond.
Issue: WON the parties could be compelled to enter into a contract

Held:
Star Paper vs. Simbol
The parties cannot be coerced to enter into a contract where no agreement
had between them as to the principal terms and conditions
Facts:
Respondents Simbol, Comia and Estrella were all regular employees of the
of the contract. Freedom to stipulate such terms and conditions is of the essence of our
contractual system, and by express provision of the statute, a contract may be annulled
if tainted by violence, intimidation or undue influence.
But the court has apparently overlooked that while the Republic may not
compel the PLDT to celebrate a contract with it, Republic may, in the exercise of the
sovereign power of eminent domain, require the telephone company to permit
interconnection of the government telephone system and that of the PLDT, as the
needs of the government service may require, subject to the payment of just
compensation to be determined by the court.
company.
Simbol met Alma, also an employee of the company. When they got
married, Simbol resigned pursuant to the company policy of the ban of spouses
working in the same company.
Comia also resigned after being advised of the policy.
Estrella got herself pregnant by Zuniga, a co-worker who was married. She
opted to resign from the company.
However, no cogent reason appears why the said power may not be
availed of to impose only a burden upon the owner of condemned property, without loss
31
The respondents each signed a Release and Confirmation Agreement.

They stated that they have no money and property accountabilities in the company and
that they release the latter of any claim or demand of whatever.
Respondents offer a different version of their dismissal. Simbol and Comia
allege that they did not resign voluntarily; they were compelled to resign in view of an
illegal company policy.
Estrella alleged that Zuniga misrepresented himself himself as a married
but separated man. After she got pregnant, she discovered that he was not separated.
She then severed her relationship with him to avoid dismissal. She met an accident
which required her to recuperate for 21 days. When she returned to work, she was
denied entry. She was directed to proceed to the personnel office where one of the staff
handed her a memorandum stating that she is dismissed for immoral conduct.
Respondents filed a complaint for unfair labor practice, constructive
dismissal, separation pay and attorney's fees.
The labor arbiter dismissed the complaint for lack of merit.
NLRC affirned the decision.
CA reversed decision of NLRC.
Issue: WON the policy of the employer banning spouses from working in the same
company violates the rights of the employee
time to time. Spouses Espiritu increased the amount demanded to P2.5M and gave
them until July, 1992 to pay said amount. However, they found out that on June 24,
1992, the spouses Espiritu had already executed an Affidavit of Consolidation of
Ownership and registered the mortgged property in their name and that the TCT was
already issued in the name of Spouses Espiritu.
Spouses Landrito, represented by their son Zoilo Landrito, filed an action
for annulment or reconveyance of title with damages against Spouses Espiritu.
Trial court dismissed the complaint and upheld the validity of the
foreclosure sale.
CA reversed the decision. Hence, this instant petition.
Issue: WON the interest rates imposed are unreasonable
Held:
The real Estate Mortgage executed between the parties specified that the
"principal indebtedness shall earn interest at a legal rate". The agreement contained no
other provision on interest or any fees or charges incident to the debt. The total interest
and charges amounting to P559,125 on the original principal of P350,000 was
accumulated two years and one month. The records fail to show any computation on
how much interest was charged and what other fees were imposed. Not only did lack of
transparency that characterized the agreements, the interest rates and the service
charged imposed, at an average 6.39% per month are excessive.
Held:
The policy of petitioners prohibiting close relatives from working in the
same company takes the nature of an anti-nepotism employment policy.
Unlike in our jurisdiction where there is no express prohibition on marital
discrimination, there are 20 statutes in the US prohibiting marital discrimination. In other
statutes, they rule that unless the employer can prove that the reasonable demands of
the business require a distinction based on marital status and there is no better
available or acceptable policy which would better accomplish the business purpose, an
employer may not discriminate against an

The omission of the Spouses Espiritu in specifying in the contract the

interest rate which was actually imposed, in contravention of the law, manifested bad
faith.
Stipulation authorizing iniquitous or unconscionable interests are contrary
to morals if not against the law. The debt due is to be considered without the stipulation
of the excessive interest. A legal interest of 12% per annum will be added in place of
the excessive interest formerly imposed.

employee based on the identity of the employer's spouse. This is known as the
bonafide qualification exception.
Since the Spouses Landrito, the debtors, were not given an opportunity to
settle their debt, at the correct amount and without the iniquitous interest imposed, no
foreclosure proceedings may be instituted. The foreclosure sale conducted upon their
failure to pay should be nullified since the amount demanded was overstated.
We do not find a reasonable business necessity in the case at bar.

Petitioners' sole contention that the company did not just want to have two or more of
its employee related between the third degree by affinity/consanguinity is lame. It is
significant to note that respondents were hired after they were found fit for the job, but
were asked to resign when they married a co-employee. Petitioners failed to establish
that the marriage of its employees could be detrimental to its business operations.
Macalinao vs. BPI

Facts:
The failure of petitioners to prove a legitimate business concern in

imposing the questioned policy cannot prejudice the employee's right to be free from
arbitrary discrimination based upon stereotypes of married persons working together in
one company.
The absence of a statute expressly prohibiting marital discrimination in our
jurisdiction cannot benefit the petitioners. The protection given to labor in our
jurisdiction is vast and extensive that we cannot prudently draw inferences from the
legislature's silence that married persons are not protected under our Constitution and
declare valid a policy based on a prejudice or stereotype.
Heirs of Espiritu vs. Landrito
Facts:
Spouses Landrito loan from Spouses Espiritu the amount of P350,000
payable in 3 month. To secure the loan, the spouses Landrito executed a mortgage
over a lot in favor Spouses Espiritu. From the P350,000 that the Landritos were
supposed to receive P17,500 was deducted as interest for the first month which was
equivalent to 5% of the principal debt and P7,500 was further deducted as service fee.
After three months, when the debt became due and demandable, the
Spouses Landritos were unable to pay the principal and had not been able to make any
interest payments other than the amount initially deducted from the proceeds of the
loan.
The loan agreement was extended and was restructured in such a way
that the unpaid interest became part of the principal, thus increasing the principal to
P385,000.
Due to the continued inability of the Spouses Landritos to settle their
obligations with the Spouses Espiritu, the loan was renewed, three more times until the
principal reached P874,125.
The debt remained unpaid and as a consequence the Spouses Espiritu

foreclosed the mortgaged property. During the auction sale, the property was sold to
the Spouses Espiritu as the lone bidder.
The Spouses Landrito failed to redeem the property although they alleged
that they negotiated for the redemption of the property. While the negotiated price for
the land started at P1,595,392, it was allegedly increased by the Spouses Espiritu from
Macalinao was an approved cardholder of BPI Mastercard. She made

some purchases through the use of the said credit card and defaulted in paying for said
purchases.
She subsequently received a demand letter from BPI.
Under the Terms and Conditions Governing the Issuance and Use of the
BPI Credit and BPI Mastercard, the charges or balance remaining unpaid after the
payment due date indicated on the monthly Statement of Accounts shall bear interest at
the rate of 3% per month and an additional penalty fee equivalent to another 3% per
month.
For failure of Macalinao to settle her obligations, BPI filed with the MeTC a
complaint for a sum of money against her and her husband. In said complaint, BPI
prayed for the payment of the amount of P154,608.78 plus 3.25% finance charges and
late payment charges equivalent to 6% of the amount due.
For failure to file their answer, MeTC ruled in favor of BPI.
Macalinao appealed in the RTC which affirmed the decision. CA also
affirmed, hence this petition.
Issue: WON the stipulated interest rate was unscionable, and iniquitous
Held:
In its complaint, BPI originally imposed the interest and penalty charges at
the rate of 9.25% per month or 111% per annum. This was declared unconscionable by
the lower courts for being clearly excessive and was thus reduced to 2% per month or
24% per annum. CA modified to 3% per month and 36% per annum.
The interest rate and penalty charge of 3% per month should be equitably
reduced to 2% per annum.
Even if the Terms and Conditions contain the stipulated 3% interest rate,
such stipulation is void for being contrary to morals, if not against the law. Since the
stipulation on the interest rate is void, it is as if there was no express contract. Hence,
the court may reduce the interest as reason and equity demand.
The records would reveal that Macalinao made partial payments to BPI, in
addition to the unconscionable interest rate. Under these circumstances, the Court
finds it equitable to reduce the interest rate in line with the prevailing jurisprudence and
in accordance with Art. 1229 of the Civil Code.
32
What are the kinds of contracts?
For enforceability- this is true for the agreements enumerated under the
Statute of Frauds, but of course this requirement may be waived by acceptance of
benefits (partial) or by failure to object to the presentation of oral (parol) evidence.
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 the most analogous
nominate contracts, and by the customs of the place. (n)
For convenience- this is true for the contracts enumerated for example
under Art. 1385, CC.
Example of formal contracts
Nominate
Innominateno express name
o Governing rules for innominate contracts
Stipulations
If the form is not complied with, Art. 1457 cannot be availed of.
Donations of real property- require a public instrument
Titles I and II of Book IV- Obligations and Contracts
Donations of personal property- require a written contract or document if the donation

exceeds P500
Rules on the most analogous nominate contracts
Stipulation to pay interest on loans, interest for the use of the money- must be in writing
Customs of the place

4 kinds of innominate contracts
Do ut des (I give that you may give)
Transfer of large cattle- requires the transfer of the certificate of registration
Do ut facias (I give that you may do)
Contracts of antichresis- principal loan and interest if any must be specified in writing
Facio ut des (I do that you may give)
Art. 1357. If the law requires a document or other special form, as in the acts and
contracts enumerated in the following article, the contracting parties may compel each
other to observe that form, once the contract has been perfected. This right may be
exercised simultaneously with the action upon the contract. (1279a)
Facio ut facias (I do that you may do)
Sale of land thru an agent- authority of the agent must be in writing
Consensual
Right of one party to compel the other to execute the necessary form
o
This article stresses the CONSENSUALITY OF CONTRACTS (or
perfection by mere consent)
The article applies only when form is needed only for convenience, not for validity or
enforceability
In other words, before the contracting parties may be compelled to execute the needed
form, it is essential that the contract be:
Perfected
How contracts are perfected

Enforceable under the State of Frauds
Consensual contracts- by mere consent (this is the general rule); ex. Contract of sale
Real contracts- perfected by delivery; ex. Deposit and pledge
Formal or solemn contracts- here a special form is required for perfection; ex. A simple
donation inter vivos of real

property, to be valid and perfected must be in a public instrument

Perfection of consensual contracts
Consensual contracts are perfected from the moment there is agreement (consent) on
the subject matter and the cause or
consideration
Consequences of perfection
The parties are bound to the fulfilment of what has been expressly stipulated and
compliance thereof must be in good faith
The parties are also bound to all the consequences which, acc to their nature may be in
keeping with good faith, usage and law.
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts. (1450a)
Solemn
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. However, when
the law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that requirement is absolute
and indispensable. In such cases, the right of the parties stated in the following article
cannot be exercised. (1278a)
Generally, form is not required- It is enough that there be consent, subject
matter, and cause. This rule applies however to consensual contracts.
Formal contracts (Solemn contracts) require a certain specified form, in addition to
consent, subject matter and cause. Ex. Donation must be in a public instrument
Real contracts require delivery to be valid as a real contract even as between the
parties, in addition to consent, subject matter and cause.
o
When form is important
Art. 1358. The following must appear in a public document:

Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein a governed by Articles 1403, No. 2, and 1405;
The cession, repudiation or renunciation of hereditary rights or of those of
the conjugal partnership of gains;
The power to administer property, or any other power which has for its
object an act appearing or which should appear in a public document, or should
prejudice a third person;
The cession of actions or rights proceeding from an act appearing in a
public document.
All other contracts where the amount involved exceeds five hundred pesos 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)
Form for convenience
The necessity for the public document in the contract enumerated here is only for
convenience, not for its validity or enforceability.
Formal requirements are for the benefit of 3rd parties. Non-compliance does not
adversely affect the validity of the contract not the contractual rights and obligs of the
parties.
Art. 712. Ownership is acquired by occupation and by intellectual creation. Ownership
and other real rights over property are acquired and transmitted by law, by donation, by
estate and intestate succession, and in consequence of certain contracts, by tradition.
They may also be acquired by means of prescription. (609a)
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases an agreement hereafter made shall be unenforceable by action,
unless the same, or some note or memorandum, thereof, be in writing, and subscribed
by the party charged, or by his agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a year from the making
thereof;
For validity- this is true in formal or solemn contracts

A special promise to answer for the debt, default, or miscarriage
33
of another;
An agreement made in consideration of marriage, other than a
mutual promise to
marry;
(d) An agreement for the sale of goods, chattels or things in action, at
a price not less than
five hundred
pesos, unless the
buyer accept and receive part of such goods and chattels,
or the evidences, or some of them, of such things in action or pay at the
time some part of the purchase money; but when a sale is
made by auction and
entry is made by the auctioneer in
his sales book, at the time of the sale, of the
amount
Thus, the memorandum may be written in pencil or in ink; it may be filled in or in printed
form. It does not have to be contained in a single instrument, nor, when contained in
two or more papers, need each paper be sufficient as to contents and signature to
satisfy the Statute. If there are two or more writings which are properly connected, they
may be considered together; omissions in one may be supplied or clarified by the other,
and their sufficiency will depend as to WON when construed together, they are able to
satisfy the requirement of the Statute of Frauds as to signature.
Rule on authority of the agent to sell land or any interest therein
Under the CC, when a sale of a piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing; otw, the sale shall be void (not
unenforceable).
and kind 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;
Oral promise to put in writing

An oral promise to put in writing an agreement that is covered by the Statute is itself
unenforceable.
(e) An agreement of the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
(f) A representation as to the credit of a third person.
The 3rd kind of unenforceable contract

The 3rd kind of unenforceable contract is one where both parties are incapacitated to
give consent.
The Statute of Frauds

Real
Purpose- to prevent fraud and not to encourage the same. Thus, certain agreements
are required to be in writing so that they may be enforced.
Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are not perfected
until the delivery of the object of the obligation. (n)
How the Statue of Frauds prevents fraud

Perfection of real contracts
Since memory is many times unreliable, oral agreements may sometimes result in
injustice. To aid human memory, to prevent the commission of injustices due to faulty
memory, to discourage intentional misrepresentations, are the principal aims of the
Statute of Frauds.
Some basic and fundamental principles concerning the Statue of Frauds (General
Rules of Application)
Real contracts require consent, subject matter, cause or consideration and DELIVERY.
Real contracts referred to are
Deposit
Pledge
Commodatum- a loan where the identical object must be
The Statute of Frauds applies only to executory contracts (contracts where no

performance has yet been made) and not partially or completely executed
(consummated contracts). If oral evidence will not be allowed to prove an agreement
where one party has performed his oblig, unfairness would result. Indeed, oral or parol
evidence may be introduced to prove partial performance. If documentary or written
evidence would still be required for the proof of partial performance, the precise evil
sought to be avoided by the Statute of Frauds would be

present, namely one who has received some benefits would be allowed to defraud the
grantor thereof.
The Statute of Frauds cannot apply if the action is neither for damages because of the
violation of an agreement nor for the specific performance of said agreement.
The Statute of Frauds is exclusive, that is, it applies only to the agreements or contracts
enumerated therein.
The defense of the Statute of Frauds may be waived.
The Statute of Frauds is a personal defense, that is, a contract infringing it cannot be
assailed by 3rd persons.
Contracts infringing the Statute of Frauds are not void; they are merely unenforceable.
The Statute of Frauds is a Rule of Exclusion, i.e., oral evidence might be relevant to the
agreements enumerated therein and might therefore be admissible were it not for the
fact that the law or the statute excludes said oral evidence.
The Statute of Frauds does not determine the credibility or weight of evidence. It merely
concerns itself with the admissibility thereof.
The Statute of Frauds does not apply if it is claimed that the contract does not express
the true agreement of the parties. As long as the rule or real agreement is not covered
by the Statute of Frauds, it is proved by oral evidence.
returned.
o
Future real contracts as consensual contracts

A contract to make a deposit, to make a pledge, or to make a
commodatum is a consensual contract. After delivery, the contract becomes a real
contract.
The contract of carriage
The contract to carry (at some future time) is consensual and is perfected by mere
consent.
The contract of carriage is a real contract, for not until the carrier is actually used can
we consider the contract perfected, that is, til the moment of actual use, the carrier
cannot be said to have already assumed the oblig of a carrier.
Art. 1962. A deposit is constituted from the moment a person receives a thing belonging
to another, with the obligation of safely keeping it and of returning the same. If the
safekeeping of the thing delivered is not the principal purpose of the contract, there is
no deposit but some other contract. (1758a)
Art. 1963. An agreement to constitute a deposit is binding, but the deposit itself is not
perfected until the delivery of the thing. (n)
Art. 2085. The following requisites are essential to the contracts of pledge and
mortgage:
That they be constituted to secure the fulfillment of a principal obligation;
That the pledgor or mortgagor be the absolute owner of the thing pledged
or mortgaged;
That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be legally authorized for
the purpose.
Express trust concerning real property

It will be observed that while the Statute of Frauds makes no mention of it, still under
Art. 1443, no express trusts concerning an immovable or any interest therein may be
proved by parol (oral) evidence. Hence, we can safely conclude that the Statute of
Frauds also applies to such express (conventional) trust.
Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property. (1857)
Art. 2087. It is also of the essence of these contracts that when the principal obligation
becomes due, the things in which the pledge or mortgage consists may be alienated for
the payment to the creditor. (1858)
Meaning of formal requirements of sufficient memorandum

Our SC has held that no particular form of language or instrument is necessary to
constitute a memorandum or note in writing under the Statute of Frauds; any document
or writing under the contract or for another purpose, which complies with all the
statutory requirements of the statute as to contents and signature, may be considered
as sufficient memorandum or note.
Art. 2088. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void. (1859a)
Art. 2093. In addition to the requisites prescribed in Article 2085, it is necessary, in
order to constitute the contract of pledge, that the thing
34
pledged be placed in the possession of the creditor, or of a third person by common

agreement. (1863)
Art. 1934. An accepted promise to deliver something by way of commodatum or simple
loan is binding upon parties, but the commodatum or simple loan itself shall not be
perfected until the delivery of the object of the contract. (n)
Art. 1308. The contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them. (1256a)
Mutuality of contracts
o Both parties are bound. The principle is based on the essential equality of the parties.
It is repugnant to bind one party and yet leave the other free.
Art. 1935. The bailee in commodatum acquires the used of the thing loaned but not its
fruits; if any compensation is to be paid by him who acquires the use, the contract
ceases to be a commodatum. (1941a)
Consequences of mutuality
o A party cannot revoke or renounce a contract without the consent of the other, nor
can it have it set aside on the ground that he had
Ang Yu, supra

made a bad bargain.
BPI Investment Corporation vs. CA
Facts:
Frank Roa obtained a loan from Ayala Investment and Development
Corporation (AIDC), predecessor of BPIIC for the construction of a house. Said house
and lot were mortgaged to AIDC to secure the loan.
Roa sold the house and lot to private respondents ALS and Litonjua for
P850,000. They paid P350,000 in cash and assumed the P500,000 balance of Roa's
indebtedness with AIDC. The latter, however was not willing to extend the old interest
rate to private respondents and proposed to grant them a new loan.
On March 1981, private respondents executed a mortgage deed containing
the AIDC stipulations.
ALS and Litonjua updated Roa's arrearages by paying BPIIC reducing
ROA's principal balance to P457,204 which, in turn, was liquidated when BPIIC applied
thereto the proceeds of private respondents' loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87,
purporting to be what was left of their loan after full payment of Roa's loan.
BPIIC instituted foreclosure proceedings against private respondents on
the ground that they failed to pay mortgages indebtedness.
ALS and Litonjua filed civil case against BPIIC maintaining that they should
not be made to pay the amortization before the actual release of the P500,000 loan in
August and September 1982.
Lower court rendered judgment in favor of ALS and Litonjua.

o When the fulfilment of the condition depends upon the sole will of the debtor, the
conditional oblig is void if the condition is suspensive. If resolutory, the oblig is valid.
Hence, it is all right for the contract to expressly give to one party the right to cancel the
same. This is because when the contract is thus cancelled, the agreement is really
being fulfilled.
Art. 1309. The determination of the performance may be left to a third person, whose
decision shall not be binding until it has been made known to both contracting parties.
(n)
Who can demand enforcement of contract?

Art. 1311. Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The heir is not
liable beyond the value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may demand
its fulfillment provided he communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a favor upon a third
person. (1257a)
Principle of relativity
o Contracts are generally effective only between the parties, their assigns and their
heirs.
Exceptions to the principle of relativity (refer to Paras p576-583)
o Where the oblig arising from the contract are not transmissible by
their nature, by stipulation or by provision of law.
o Where there is a stipulation pour autrui (a stipulation in favour of
a third party)
o Where a 3rd person induces another to violate his contract.
CA affirmed decision, hence this petition. Issue: WON a contract of loan is

a consensual contract
Held:
A loan contract is not a consensual contract but a real contract. It is
perfected only upon the delivery of the object of the contract.
A perfected consensual contract can give rise to an action for damages.
However, said contract does not constitute the real contract of loan which requires the
delivery of the object of the contract for its perfection and which gives rise to obligations
only on the part of the borrower.
In the case, the loan contract between BPI and ALS & Litonjua was
perfected only on Sept. 1982, the date of the second release of the loan. Following the
intentions of the parties on the commencement of the monthly amortization private
respondents' obligation to pay commenced only on Oct. 13, 1982, a month after the
perfection of the contract.
The decision binds the parties only after it is made known to both.
Effect of stipulation regarding arbitration
o If in a contract, there is a stipulation for arbitration and one party, in case of dispute,
refuses to submit the matter to arbitration, the aggrieved party whose goes to court to
request it to order the other party to submit the matter to arbitration, should not
anymore present to the court the merits of the disputed matters. The decision on said
merits will be up to the arbitrator. The only function of the Court in this case would be to
decide WON the parties should proceed to arbitration.
Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor,
the conditional obligation shall be void. If it depends upon chance or upon the will of a
third person, the obligation shall take effect in conformity with the provisions of this
Code. (1115)
What is the principle of mutuality?
Mandarin villa can be faulted for it's cashier's refusal to accept de Jesus' BANKARD
credit card. Mandarin Villa is affiliated with BANKARD as shown in the Agreement
entered into by petitioner and BANKARD.
o
Where, in some cases, 3rd persons may be adversely affected by a
contract where they did not participate.
Where the law authorizes the creditor to sue on a contract entered into by his debtor.
Discussion of the general rule
Contracts take effect only between the parties, their assigns and
heirs and therefore, generally, its terms cannot determine the rights of 3rd persons.
The revocation, for example of a deed of sale is not conclusive on those individuals
who are parties thereto. However, a person who takes advantage of a contract,
although he
is not a signatory thereto, can properly be bound by the terms thereof. He cannot take
advantage of a contract when it suits him to do so and reject its provision when he
thinks otw.
o
Reasons for the rule Res inter alios acta aliis neque nocet prodest. (The
act, declaration or omission of another, cannot affect another, except as otw provided
by law or agreement).
o
contract.
Strangers, thereof, cannot generally demand the enforcement of a
Heirs are bound to respect the contracts entered into by their predecessors
in interest in view of their privity of interest with such predecessor.
He must be a compulsory or forced heir for the simple reason that the deceased could
do with the property whatever he desired as long as he respects the rights of his
compulsory heirs.
Can 3rd parties have personality to assail a contract?
35
Art. 1313. Creditors are protected in cases of contracts intended to defraud them. (n)
This article represents another instance when an outsider can in a sense
interfere with anothers contract.
NHA Board passed Resolution No. 1632 approving acquisition of said

lands. The parties executed a series of Deeds of Absolute Sale. Of the 8 parcels of
lands, only 5 were paid for by the NHA because of a report by DENR that the remaining
area is not suitable for a housing project.
What is a stipulation pour autrui?
NHA issued another resolution cancelling the sale over the 3 parcels of
land.
Art. 1311. Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The heir is not
liable beyond the value of the property he received from the decedent.
Petitioners filed before RTC a Complaint for Damages against NHA and its
General Manager Balao.
RTC rendered a decision declaring the cancellation of the contract to be
justified.
If a contract should contain some stipulation in favor of a third person, he may demand
its fulfillment provided he communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a favor upon a third
person. (1257a)
CA reversed decision.
Issue: WON the agents are real parties-in-interest
Held:
Mandarin Villa vs. CA

Facts:
Clodualdo de Jesus, a practicing lawyer and businessman, hosted a dinner
for his friends at the petitioner's restaurant the Mandarin Villa Seafoods Village.
After dinner the waiter handed to him the bill in the amount of P2,658.50.
Private respondent offered to pay the bill through his credit card issued by
BANKARD. This card was accepted by the waiter who immediately proceeded to the
restaurant's cashier for card verification. Ten minutes later, however, the waiter returned
and audibly informed private respondent that his credit card had expired.
Private respondent remonstrated that said credit card had yet to expire on
September 1990, as embossed on its face.
Private respondent and two of his guests approached the restaurant's
cashier who again passed the credit card over the verification computer. The same
information was produced, i.e., CARD EXPIRED. Private respondent and his guests
returned to their table and at this juncture, Professor Lirag, another guest, uttered the
following remarks: "Clody, may problema ba? Baka kailangang maghugas na kami ng
pinggan?"
Private respondent left the restaurant and got his BPI Express Credit Card
from his car and offered it to pay their bill. This was accepted and honored by the
cashier after verification.
De Jesus filed a suit for damages.
Lower Court renderd decision directing Mandarin Villa and BANKARD to
pay jointly and severally.
Upon appeal, CA found Mandarin solely responsible for damages. Issue:
WON de Jesus is entitled for damages
Held:
of sale executed in behalf of the latter. Since a contract may be violated only by the
parties thereto as against each other, the real parties-in-interest, either as plaintiff or
defendant, in an action upon that contract must, generally, either be parties to said
contract.
Also, petitioners have not shown that they are assignees of their principals
to the subject contracts. While they alleged that they made advances and that they
suffered loss of commissions, they have not established any agreement granting them
the right to receive payment and out of the proceeds to reimburse for advances and
commissions before turning the balance over to the principals.
It does not appear that petitioners are beneficiaries of a stipulation pour
autrui under the second paragraph of Article 1311 of the Civil Code. Indeed, there is no
stipulation in any of the Deeds of Absolute Sale clearly and deliberately conferring a
favor to any third person.
The fact that an agent who makes a contract for his principal will gain or
suffer loss by the performance or nonperformance of the contract by the principal or by
the other party thereto does not entitle him to maintain an action on his own behalf
against the other party for its breach. An agent entitled to receive a commission from
his principal upon the performance of a contract which he has made on his principals
account does not, from this fact alone, have any claim against the other party for
breach of the contract, either in an action on the contract or otherwise. An agent who is
not a promisee cannot maintain an action at law against a purchaser merely because
he is entitled to have his compensation or advances paid out of the purchase price
before payment to the principal.
As petitioners are not parties, heirs, assignees, or beneficiaries of a
stipulation pour autrui under the contracts of sale, they do not, under substantive law,
possess the right they seek to enforce. Therefore, they are not the real parties-ininterest in this case. Petitioners not being the real parties-in-interest, any decision
rendered herein would be pointless since the same would not bind the real parties-ininterest.
Baluyot vs. CA
Facts:

Petitioners Timoteo Baluyot, Jaime Benito, Benigno Eugenio, Rolando

Gonzales, and Fortunato Fulgencio are residents of Barangay Cruz-na-Ligas and
members of The Cruz-na-Ligas Homesite Association, Inc.
Petitioners are not parties to the contract of sale between their principals and NHA.
They are mere agents of the owners of the land subject of the sale. As agents, they
only render some service or do something in representation or on behalf of their
principals. The rendering of such service did not make them parties to the contracts

While private respondent may not be a party to the agreement, a

stipulation in the said agreement conferred a favor upon the private respondent, a
holder of the credit card. This stipulation is a stipulation pour autrui. Respondent may
demand its fulfillment provided his acceptance to the petitioner before its revocation.
Private respondent's offer to pay by means of BANKARD credit card constitutes not
only an acceptance but also an explicit communication of his acceptance to the obligor.
On March 13, 1992, petitioners filed a complaint for specific performance

and damages against private respondent University of the Philippines before the RTC.
The complaint was later on amended to include private respondent Quezon City
government as defendant.
Also, the record shows that petitioner posted a logo inside Mandarin
Seafood Village stating that "Bankard is accepted". This representation is conclusive
upon the petitioner which it cannot deny or disprove as against the private respondent,
the party relying thereon. Petitioner, therefore, cannot disclaim its obligation to accept
private respondent's BANKARD credit card without violating the equitable principle of
estoppel.
Uy vs. CA
Plaintiffs and their ascendants have been in open, peaceful, adverse and
continuous possession in the concept of an owner since memory can no longer recall of
that parcel of riceland known as Sitio Libis, Barrio Cruz-na-Ligas.
In 1979, the UP Board of Regents approved the donation of about 9.2 ha
directly to the residents of Brgy. Krus na Ligas. Despite the willingness of UP to
proceed with the donation, execution of the legal instrument to formalize it failed
because of the unreasonbale demand of the residents for an area bigger than 15.8 ha.
UP backed-out from the arrangement to donate directly to the Association,
instead it resumed to negotiate the donation thru Quezon City Government.
Facts:
Petitioners William Uy and Rodel Roxas are agents authorized to sell 8
parcels of land by the owners. They offered to sell the lands to National Housing
Authority to be utilized and developed as a housing project.
QC Government immediately prepared the groundworks, however, UP

under President Abueva had failed to deliver the certificate of title covering the property
to the donated to enable QC Government to register the said Deed of Donation so that
corresponding of title be issued under its name.
36
UP continuously refused despite requests from the QC Government.

Upon expiration of the period of 18 months, UP through Pres. Abueva
issued Administrative Order No. 21 declaring the deed of donation revoked and the
donated property be reverted to UP.
Trial Court ruled that petitioners did not have a cause of action for specific
performance on the ground that the deed of donation had already been revoked.
Upon appeal, CA ordered the dismissal of the civil case.
Issue: WON the petitioners have a cause of action
Held:
While, admittedly, petitioners were not parties to the deed of donation, they
anchor their right to seek its enforcement upon their allegation that they are intended
beneficiaries of the donation to the Quezon City government. Art. 1311, second
paragraph, of the Civil Code.
If a contract should contain some stipulation in favor of a third person, he
may demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not sufficient.
The contracting parties
must have clearly and deliberately conferred a favor upon a third person. Specific
paragraphs of the complaint are sufficient to bring petitioners action based on Art. 1311.
The contention of the respondents, based on the finding of the trial court,
that the donation has already been revoked has no merit. The trial court's ruling on this
point was made in connection with petitioners' application for a writ of preliminary
injunction to stop respondent from ejecting petitioners. The trial court denied injunction
on the ground that the donation had already been revoked and therefore petitioners
had no clear right to be protected. It is evident that the trial court's ruling on this
question was only tentative, without prejudice to the final resolution of the question after
the presentation by the parties of their evidence.
Dispositive: Reviewed decision REVERSED and the case REMANDED to trial court for
trial on the merits.
Can a contract create a real right?
Art. 1312. In contracts creating real rights, third persons who come into possession of
the object of the contract are bound thereby, subject to the provisions of the Mortgage
Law and the Land Registration Laws. (n)
This article constitutes one of the exceptions to the general rule that a
contract binds only the parties.
Issue: WON Espejo and his partner were liable for interfering with the contract between
Gilchrist and Cuddy
Held:
It is said that the ground on which the liability of a third party for interfering
with a contract between others rests, is that the interference was malicious. The
contrary view, however, is taken by the Supreme court of the United States.In Angle vs.
Railway, the only motive for interference was the desire to make a profit to the injury of
one of the parties of the contract. There was no malice in the case beyond the desire to
make an unlawful gain to the detriment of one of the contracting parties.
In the case at bar, the only motive for the interference was a desire to
make a profit. There was no malice beyond this desire, but this fact does not relieve
them of the legal liability for interference with that contract and causing its breach.
The liability of the appellants arises from unlawful acts and not from
contractual obligations, as they were under no such obligations to induce Cuddy to
violate his contract with Gilchrist to violate his contract with Gilchrist. Art. 1902 of the
Civil Code provides that a person whi, by act or omission, causes damage to another
when there is fault or negligence, shall be obliged to repair the damage so done.
But the fact that the appellant's interference was actionable did not of itself
entitle Gilchrist to sue out an injunction against them. The allowance of the remedy
must be justified under Sec. 164 of the Code of Civil Procedure. There is nothing in
Sec. 164 that before an injunction may issue, the strangers must know the identity of
both parties. Courts usually grant an injunction where the profit of the injured person
are derived from his contractual relations with a large and indefinite number of
individuals. Injunction against further interference with the contract was properly issued.
Daywalt vs. La Corporacion
Facts:
Teodorica Endencia executed a contract where she obligated herself to
convey to Daywalt, a tract of land.
It was agreed that a deed should be executed as soon as the title is
perfected in the proceedings of the Court of Land Registration and a Torrens title
procured therefore in Endencia's name.
A decree recognizing the right of Endencia as owner was entered in said
court but the Torrens title certificate was not issued until later.
The parties made a new contract with a view to carrying their original
agreement into effect. The second was not immediately carried into effect for the
reason that the Torrens certificate was not yet obtainable.
A real right binds the property over which it is exercised.

The parties entered into another agreement, replacing the old.
Art. 712. Ownership is acquired by occupation and by intellectual creation. Ownership
and other real rights over property are acquired and transmitted by law, by donation, by
estate and intestate succession, and in consequence of certain contracts, by tradition.
The Torrens certificate was in time issued to Endencia but in the course of
the proceedings, it was found that the area of the tract in the contract was about 1,248
ha instead of 452 ha as stated in the contract.
They may also be acquired by means of prescription. (609a)

Art. 415. The following are immovable property:
(10) Contracts for public works, and servitudes and other real rights over immovable
property. (334a)
What is tortuous interference?
Art. 1314. Any third person who induces another to violate his contract shall be liable for
damages to the other contracting party. (n)

Rule if contract is violated thru inducement of 3rd person

o This article gives an instance when a stranger to a contract can be sued in view of his
unwarranted interference. Whoever is injured may properly sue for damages.
Gilchrist vs. Cuddy
Facts:
Cuddy was the owner of the film Zigomar. He rented it to Gilchrist for a
week for P125.
A few days prior to this, Cuddy sent the money back to Gilchrist saying that
he had made other arrangements with his film. The other arrangement was the rental to
Espejo and his partner for P350 for the week and the injunction was asked by Gilchrist
against these parties.
The Court issued mandatory injunction ordering Cuddy to deliver the film to
Gilchrist and an ex parte preliminary injunction restraining
La Corporacion de los Padres de Recoletos was at this time the owner of a

property immediately adjacent to the land which Endencia had sold to Daywalt.
Fr. Sanz, its representative whom Endencia is well acquainted with, was
aware of the 1st and 2nd contract. When the Torrens certificate was finally issued,
Endencia delivered it for safekeeping to the corporation where it was taken to Manila
where it remained in the custody of Labarga.
When La Corporacion sold the San Jose estate, some cattle were removed
to the estate of the corporation immediately adjacent to the property which the plaintiff
had purchased from Endencia.

Tek Hua Trading Co, through its managing partner, So Pek Giok, entered into lease
agreements with lessor DCCSI.
The contract each had a one-year term. They provided that should the lessee continue
to occupy the premises after the term, the lease shall be on a month-to-month basis.
As Endencia still retained possession of said property, Father Sanz
entered into an arrangement with her where large number of cattle belonging to the
corporation were pastured upon said land.
Daywalt sought to recover from corporation damages for the use and
occupation of the land by reason of pasturing the cattle.
Daywalt alleged that, by interfering in the performance of the contract in
question and obstructing him in his effort to secure the certificate of title to the land, the
corporation made itself a co-participant with Endencia in the breach of the contract.
Issue: WON the corporation will be liable for the damage through collusion with the
Endencia
Held:
Espejo and partner from receiving and exhibiting film until further orders from the court.
37
Fr. Labarga and his associate believed in good faith that the contract could
not be enforced and that Endencia would be wronged if it should be carried into effect.
rights and interests to Lacson, as tenants/lessees, over the landholding to the

respondents.
Whatever may be the character of the liability which a stranger to a

contract may incur by advising or assisting one of the parties to evade performance,
there is one proposition upon which all must agree. A stranger cannot become more
extensively liable in damages for the non-performance of the contract than the party in
whose behalf he intermeddles. To hold the stranger liable for damages in excess of
those that could be recovered against the immediately party to the contract would lead
to results at once grotesque and unjust.
The petitioner filed a complaint with the RTC against the defendantstenants, as well as the respondents, for the court to fix a period within which to pay the
agreed purchase price of P50.00 per square meter to the defendants, as provided for in
the Deeds of Assignment. The petitioner also prayed for a writ of preliminary injunction
against the defendants and the respondents therein.
If a party enters into contract to go for another upon a journey to a remote

and unhealthful climate, and a third person with a bona fide purpose of benefiting the
one who is under contract to go dissuades him from the step, no action will lie. But if
the advice is not disinterested and the persuasion is used for the indirect purpose of
benefiting the defendant at the expense of the plaintiff, the intermedler is liable if his
advice is taken and the contract broken.
The defendants-tenants Tiamson, et al., alleged in their answer with

counterclaim for damages, that the money each of them received from the petitioner
were in the form of loans, and that they were
deceived into signing the deeds of assignment.
Issue: WON the respondent is liable for tortuous interference for inducing the
defendants-tenants to violate the deeds of assignment
Held:
So Ping Bun vs. CA

For Art. 1314 to apply, the pleader is burdened to prove the following:
Facts:
When the contract expired, the parties did not renew the contracts, but Tek
hua continued to occupy the premises.
Tek Hua was dissolved. Later, the original members of Tek Hua formed Tek
Hua Enterprising Corp.
(1) the existence of a valid contract; (2) knowledge by the third person of the existence
of the contract; and (3) interference by the third person in the contractual relation
without legal justification.
Where there was no malice in the interference of a contract, and the
impulse behind ones conduct lies in a proper business interest rather than in wrongful
motives, a party cannot be a malicious interferer.
When So Pek Giok, managing partner of Tek Hua Trading died, his son So
Ping Bun, occupied the warehouse for his own textile business.
Where the alleged interferer is financially interested, and such interest motivates his
conduct, it cannot be said that he is an officious or malicious intermeddler.
Tiong, president of Tek Hua, sent a letter demanding So Ping Bum to

vacate the premises.
Even if the respondents received an offer from the defendants-tenants to

assign and transfer their rights and interests on the landholding, the respondents
cannot be enjoined from entertaining the said offer, or even negotiating with the
defendants-tenants. The respondents could not even be expected to warn the
defendants-tenants for executing the said deeds in violation of P.D. No. 27 and Rep. Act
No. 6657. Under Section 22 of the latter law, beneficiaries under P.D. No. 27 who have
culpably sold, disposed of, or abandoned their land, are disqualified from becoming
beneficiaries.
So Ping Bun refused and instead requested formal contracts. DCCSI

acceded to the request.
Private respondents filed a petition for injunction for the nullification of the
lease contracts between DCCSI and petitioner with damages.
Trial court ruled in favor of the respodents. Upon appeal, the Court of
Appeals affirmed. Hence, this petition.
Issue: WON So Ping Bun is liable for tortuous interference of contract
Held:
A duty which the law of torts is concerned with is respect for the property of
others, and a cause of action ex delicto may be predicated upon an unlawful
interference by one person of the enjoyment by the other of his private property. In the
present case, petitioner's Trendsetter Marketing asked DCCSI to execute lease
contracts in its favor, and as a result petitioner deprived respondent corporation of the
latter's property right. This was a clear case of tortuous interference.
Section 1314 of the Civil Code categorically provides that "Any third person
who induces another to violate his contract shall be liable for damages to the other
contracting party". While lack of malice precludes damages, it does not relieve the
interferer of the legal liability for entering into contracts and causing breach of existing
ones. The respondent appellate court correctly confirmed the permanent injunction and
nullification of the lease contracts between DCCSI and Trendsetter Marketing without
awarding damages. The injunction saved the respondents from further damage or injury
caused by petitioner's interference.
Tayag vs. Lacson
Facts:
Respondents Angelica Tiotuyco Vda. de Lacson, and her children
Amancia, Antonio, Juan, and Teodosia, all surnamed Lacson, were the
From the pleadings of the petitioner, it is quite evident that his purpose in
having the defendants-tenants execute the Deeds of Assignment in his favor was to
acquire the landholding without any tenants thereon, in the event that the respondents
agreed to sell the property to him. The petitioner knew that under Section 11 of Rep. Act
No. 3844, if the respondents agreed to sell the property, the defendants-tenants shall
have preferential right to buy the same under reasonable terms and conditions.
Under Section 12 of the law, if the property was sold to a third person
without the knowledge of the tenants thereon, the latter shall have the right to redeem
the same at a reasonable price and consideration. By assigning their rights and
interests on the landholding under the deeds of assignment in favor of the petitioner,
the defendants-tenants thereby waived, in favor of the petitioner, who is not a
beneficiary under Section 22 of Rep. Act No. 6657, their rights of preemption or
redemption under Rep. Act No. 3844. The defendants-tenants would then have to
vacate the property in favor of the petitioner upon full payment of the purchase price.
Instead of acquiring ownership of the portions of the landholding respectively tilled by
them, the defendants-tenants would again become landless for a measly sum of
P50.00 per square meter.
The petitioners scheme is subversive, not only of public policy, but also of
the letter and spirit of the agrarian laws. That the scheme of the petitioner had yet to
take effect in the future or ten years hence is not a justification. The respondents may
well argue that the agrarian laws had been violated by the defendants-tenants and the
petitioner by the mere execution of the deeds of assignment. In fact, the petitioner has
implemented the deeds by paying the defendants-

tenants amounts of money and even sought their immediate implementation by setting
a meeting with the defendants-tenants. In fine, the petitioner would not wait for ten
years to evict the defendants-tenants. For him, time is of the essence.
registered owners of three parcels of land. The properties, which were tenanted
agricultural lands, were administered by Renato Espinosa for the owner.
VI. Essential Requisites
A group of original farmers/tillers,individually executed in favor of the
petitioner separate Deeds of Assignment in which the assignees assigned to the
petitioner their respective rights as tenants/tillers of the landholdings possessed and
tilled by them for and in consideration of P50.00 per square meter. The petitioner was
also granted the exclusive right to buy the property if and when the respondents, with
the concurrence of the defendants-tenants, agreed to sell the property. In the interim,
the petitioner gave varied sums of money to the tenants as partial payments, and the
latter issued receipts for the said amounts.
The petitioner called a meeting of the defendants-tenants to work out the
implementation of the terms of their separate agreements. However, the defendantstenants, through Joven Mariano, wrote the petitioner stating that they were not
attending the meeting and instead gave notice of their collective decision to sell all their
A.
Consent
When is there consent? When there is a meeting of the offer and the acceptance upon
the thing and the cause
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must be certain
and the acceptance absolute. A qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from 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)
38
Consent concurrence of the minds of the parties on the OBJECT and the CAUSE
which are to constitute the contract
Facts: Petitioner Malbarosa was the president and general manager of Philtectic Corp.,
a company belonging to respondent SEADC.
Note: Where there is merely an offer by one party without an acceptance by the other,
there is no consent. As Sir Lumba says, a contract is a promise to a promise.
Ex. I will deliver the car if I want to. No Contract
Sometime in January 1990, petitioner expressed through a letter addressed to Senen

Valero, Vice-Chairman of respondent company, his desire to leave the company and
requesting that his 1989 incentive compensation be paid to him. On March 14, 1990,
respondent through Valero signed a letter-offer stating that petitioner was entitled to a
compensation of P251,057.67 and that the amount be satisfied as consisting of: the car
valued at P220,000 and the membership in the Architectural center valued at around
P60,000. Respondent required that if the petitioner agreed to the offer, he should affix
his signature at the bottom of the page.
I will sell you the car if I am able to purchase it. No Contract Elements of Consent:
Plurality of subjects
Capacity
Intelligence and Free will
Express or tacit manifestation of the will
Conformity of the internal will and its manifestation
On March 16, 1990, Da Costa met with petitioner and handed him the original copy of
the March 14 Letter-offer. Petitioner was dismayed when he read what he was about to
get. Petitioner refused to sign the letter-offer and said that he would review it. Despite
the lapse of more than two weeks, respondent had not received the original letter with
petitioners signature. Respondent decided to withdraw its offer.
Forms of Consent:
Express
Implied
Note: In quasi-contracts, there is what is called presumptive consent.
OFFER unilateral proposition which one party makes to the other for the celebration
of a contract. It must be
Definite distinguished from mere communications indicating that a party
is disposed to enter into a certain contract, or inviting the other to make an offer
On April 4, 1990, Philtectic wrote the petitioner withdrawing the March 14 Letter-offer
and demanding petitioner return the car and his membership certificate. Petitioner
wrote Philtectic informing them that he cant comply with the demand as he already
accepted the offer when he affixed on March 28, 1990 his signature on the original.
Respondent filed a complaint in court to recover the property but petitioner was able to
recover the possession through the filing of the counter-bond. He
adduced evidence that he had called Da Costas office on March 29 in order to

communicate his acceptance but it was the telephone receptionist who answered. She
testified in court that she relayed the message to Da Costa and he merely nodded.
Ex. I will give you my watch if you buy it for P1, 500 as opposed to
I am in position and willing to entertain the purchase of this watch under the following
conditions
Complete Sufficient clearness of the kind of contract intended and
definitely stating the conditions of the contract
Trial Court: No perfected contract over the March 14 Letter-offer due to failure to notify
acceptance on petitioners part
Court of Appeals: Affirmed with modification by allowing the payment of the rental of the
car at the rate of P1000.00 per day
Issues:
Intentional Must be made with seriousness, not for fun or in jest, or out of
courtesy, or as an example in teaching
Whether or not a contract exists between parties by virtue of petitioners

acceptance of the Letter-offer.
Note: ACCEPTANCE must be unequivocal and unconditional, and shall be without any
variation whatsoever.
Mere amplification of the offer must be understood as an acceptance of the
original offer, plus a new offer which is contained in the amplification. However, it is the
consent of the original offeror that controls.
Ex. X offers to sell 5 kilos of mandarin oranges for P20 per kilo. Y answers that he is
buying and adds 3 kilos more to be bought at the same price. The first offer for 5 kilos
is already accepted and the other 3 is subject to the acceptance of X.
Unless the offeror knows of the acceptance, there is no meeting of the
minds between the parties, no real concurrence of the offer and acceptance.
Ex. Letter, Telegram, Telephone
Art. 1320. An acceptance may be express or implied. (n)
Art. 1321. The person making the offer may fix the time, place, and manner of
acceptance, all of which must be complied with. (n)
The offeror has the right to prescribe the conditions of the acceptance
(time, place and manner), and when reasonable must ALL be complied with.
An offer with a period lapses upon the termination of the period.
An acceptance which is not made in the manner prescribed by the offeror
is not effective, but constitutes a counter-offer which the offeror may accept.

What is the cognition theory?
entered into in the place where the offer was made. (1262a) Art. 1322. An offer made
through an agent is accepted from the time acceptance is communicated to him. (n)
When the intermediary has no power to bind either the offeror or the
offeree, then he is not an agent. In this case, acceptance only occurs when he in turn
communicates acceptance to the offeror.
Malbarosa v. CA [April 30, 2003] Ponente: Justice Callejo Sr.
Whether or not there was an effective withdrawal by respondent of said

letter-order.
Held: There is no contract between the parties. Withdrawal of respondent is valid.
Petition is dismissed and CA decision affirmed.
Ratio:
Under Article 1318 of the CC, the essential requisites of a contract are: 1) consent of
contracting parties; 2) Object certain which is the subject matter of the contract; and 3)
Cause of the obligation which is established.
Under Article 1319 of the NCC, the consent by a party is manifested by the meeting of
the offer and the acceptance upon the thing and the cause which are to constitute the
contract. The acceptance must be absolute, unconditional, and without variance of any
sort from the offer.
The acceptance of an offer must be made known to the offeror. Unless the offeror
knows of the acceptance, there is no meeting of minds of the parties. The contract is
perfected only from the time an acceptance of an offer is made known to the offeror. An
acceptance which is not made in the manner prescribed by the offeror is not effective
but constitutes a counter-offer which the offeror may accept or reject. The contract is
not perfected if the offeror revokes or withdraws its offer and the revocation or
withdrawal is the first to reach the offeree.
In the present case, respondent required petitioner to affix his signature at the bottom of
the page to show acceptance, thus foreclosing other forms of acceptance. Upon
receipt, petitioner refused to act on it saying he needed time to decide. No contract was
perfected.

Despite petitioners claim that he signed the documents on March 28, way before
respondents withdrawal of the offer on April 4, still the letter of the petitioner accepting
the offer was received on April 7. By then, respondent had already withdrawn its offer.
Indubitably, there was no contract perfected by the parties.
It must also be underscored that there was no time frame fixed by respondent for
petitioner to accept or reject its offer. When the offeror had not fixed a period for offeror
to accept the offer, and the offer is made to a person present, the acceptance must be
made immediately. The respondent had the option to withdraw or revoke the offer.
As regards the effectiveness of the withdrawal, the Court held that implicit in the
authority given to Philtectic Corporation to demand for and recover from the petitioner
the subject car and to institute the appropriate action against him to recover possession
of the car is the authority to withdraw the respondent's March 14, 1990 Letter-offer. It
cannot be argued that respondent authorized Philtectic Corporation to demand and sue
39
for the recovery of the car and yet did not authorize it to withdraw its March 14, 1990
Letter-offer to the petitioner. Besides, when he testified, Senen Valero stated that the
April 4, 1990 letter of Philtectic Corporation to the petitioner was upon his instruction
and conformably with the resolution of the Board of Directors of the respondent.
When is there an offer? An offer is a unilateral proposition which one party makes to the
other for the celebration of a contract.
terminated if Sanchez fails to exercise his right to buy the property within 2 years.
Within the same period, Sanchez attempted to make several tenders of payment of P1,
510 to no avail because Rigos rejected the same. Because of this, the former deposited
said amount with the CFI of Nueva Ecija and commenced an action for specific
performance and damages against the latter. The CFI rendered judgment for Sanchez.
Issue: Whether or not the offer can still be withdrawn after Sanchez notified Rigos of his
acceptance of the option within the period agreed upon
It must be:
Held: No.
Definite distinguished from mere communications indicating that a party
is disposed to enter into a certain contract, or inviting the other to make an offer
Ex. I will give you my watch if you buy it for P1, 500 as opposed to
I am in position and willing to entertain the purchase of this watch under the following
conditions
Complete Sufficient clearness of the kind of contract intended and
definitely stating the conditions of the contract
Ratio: If the option is given without a consideration, it is a mere offer of a contract of

sale which is not binding until accepted. If, however, acceptance is made before a
withdrawal, it constitutes a binding contract of sale even though the option was not
supported by sufficient consideration.
The option did not impose upon Sanchez the obligation to purchase her property. The
instrument is not a contract to buy and sell; it is a mere option as evinced by the title of
the document itself.
Art. 1325. Unless it appears otherwise, business advertisements of things for sale are
not definite offers, but mere invitations to make an offer. (n)
Moreover, Art. 1324, CC provides the general rule regarding offer and acceptance that,
when the offerrer gives to the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance except when the option is founded upon
consideration. In other words, if the option is given without a consideration, it is a mere
offer of a contract of sale which is not binding until accepted. If, however, acceptance is
made before a withdrawal, it constitutes a binding contract of sale even though the
option was not supported by a sufficient consideration. The concurrence of both
General Rule: Business advertisements of things for sale are not definite offers.
Exception: When the offer is stated with the necessary specification of essential
elements leading to the future contract
actsthe offer and the acceptancegenerates a contract if there was none existing
before.
Intentional Must be made with seriousness, not for fun or in jest, or out of
courtesy, or as an example in teaching
Ex. For immediate sale: 500 sq. m. lot at No. 859 Espana Street,
Manila for P25,000 cash
Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the
advertiser is not bound to accept the highest or lowest bidder, unless the contrary
appears. (n)
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to
know the facts, are not in themselves fraudulent. (n)
Antonio, J., concurring: While the law permits the offeror to withdraw the offer at any
time before acceptance even before the period has expired, the offeror cannot exercise
this right in an arbitrary or capricious manner for the reason that a contrary view would
remove the stability and security of business transactions. Since Sanchez had offered
P1, 510 before any withdrawal from the contract has been made by Rigos, a bilateral
reciprocal contract to sell and to buy was generated.
Ang Yu v. CA [Supra]
P.U.P. v. CA [November 14, 2001] Ponente: J. Bellosillo
Tolerated Fraud (Dolus Bonus) practice has come to tolerate such false affirmations
as advertisements or testimonies minimizing the defects of the thing, exaggerating its
good qualities, and giving it qualities that it does not have
These do NOT give rise to an action for damages, either because of their
insignificance or because the stupidity of the victim is the real cause of his loss.
Can an offer be withdrawn? YES
Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer
may be withdrawn at any time before acceptance by communicating such withdrawal,
except when the option is founded upon a consideration, as something paid or
promised. (n)
General Rule: When the offeror has stated a fixed period for acceptance, the offeree
may accept at any time until such period expires.
However, the law permits the offeror to withdraw the offer at any time before
acceptance, even before the period of acceptance has expired so long as he has
allowed the offeree sufficient opportunity, depending upon the circumstances and the
nature of the proposed contract, to decide upon his course of action and communicate
his reaction. Otherwise, the offeror shall be held liable for damages.
Option Contract a preparatory contract in which one party grants to the other, for a
fixed period and under specified conditions, the power to decide whether or not to enter
into a principal contract. The grant must be exclusive and must be supported by an
independent consideration.

Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from
the price. (1451a)
This article is NOT inconsistent with Art. 1324. If the option is not
supported by any independent consideration distinct from the price certain, the offer
can still be withdrawn even if the offer is already accepted.
Sanchez v. Rigos [June 14, 1972]
Ponente: C.J. Concepcion
Facts: On April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos
executed an instrument entitled Option to Purchase where the latter agreed,
promised and committedto sell to the former a parcel of land situated in San Jose,
Nueva Ecija for P1, 510. It was further stipulated that the option shall be deemed
Facts: In 1965, Firestone leased 2.9 hectares of National Development

Corporations land in Manila for a period of 10 years, renewable for another 10 years
under the same terms and conditions. Firestone constructed several buildings on the
lot. 3 years later, Firestone entered into another contract for the use of the
prefabricated warehouses and was agreed to be co-extensive with the earlier contract.
Firestone entered into a similar contract with NDC in 1974. The contracts were to expire
on 1978.
Firestone requested for an extension of the lease and the parties adopted a resolution
for its extension. One of the conditions added was that in the event
NDC "with the approval of higher authorities, decide to dispose and sell these
properties including the lot, priority should be given to the LESSEE"
On 22 December 1978, in pursuance of the resolution, the parties entered into a new
agreement for a ten-year lease of the property, renewable for another ten (10) years,
expressly granting FIRESTONE the first option to purchase the leased premises in the
event that it decided "to dispose and sell these properties including the lot.
In 1988, FIRESTONE informed NDC latter through several letters and telephone calls
that it was renewing its lease over the property. NDC did not take any action. Rumors
circulated that NDC will sell the land to PUP.
FIRESTONE instituted an action for specific performance to compel NDC to sell the
leased property in its favor and likewise prayed for the issuance of a writ of preliminary
injunction to enjoin NDC from disposing of the property pending the settlement of the
controversy.

Memorandum Order 24 conveyed that property from NDC to PUP which cancelled
NDCs obligation of P57 M. PUP then increased the rentals and demanded that the
occupants of the property vacate it immediately.
Lower court decision ordered PUP to sell to FIRESTONE the "2.6 hectare leased
premises or as may be determined by actual verification and survey of the actual size of
the leased properties where plaintiff's fire brick factory is located" at P1,500.00 per
square meter considering that, as admitted by FIRESTONE, such was the prevailing
market price thereof. FIRESTONE could exercise its option to purchase the property
until 2 June 1999 inasmuch as the 22 December 1978 contract embodied a covenant to
renew the lease for another ten (10) years at the option of the lessee as well as an
agreement giving the lessee the right of first refusal. CA affirmed the decision.
Issues:
Whether or not the transfer of the land from NDC to PUP was one for a
sale or was a mere paper transfer
40
Whether or not FIRESTONE can rightfully invoke its right of first refusal
Held: The transfer of land from NDC to PUP was one for sale. FIRESTONE has availed
and existing right of first refusal as lessee of the premises. The preponderance of
evidence shows that NDC sold to PUP the whole NDC compound, including the leased
premises, without the knowledge much less consent of private respondent FIRESTONE
which had a valid and existing right of first refusal. All three (3) essential elements of a
valid sale, without which there can be no sale, were attendant in the disposition and
transfer of the property from NDC to PUP consent of the parties, determinate
subject matter, and consideration therefor.
Consent to the sale is obvious from the prefatory clauses of Memorandum Order No.
214 which explicitly states the acquiescence of the parties to the sale of the property.
Furthermore, the cancellation of NDC's liabilities in favor of the National Government in
the amount of P57,193,201.64 constituted the "consideration" for the sale. The conduct
of petitioner PUP immediately after the transaction is in itself an admission that there
was a sale of the NDC compound in its favor which are the acts of ownership in
ordering the land to be vacated.
In the instant case, the right of first refusal is an integral and indivisible part of the
contract of lease and is inseparable from the whole contract. The consideration for the
right is built into the reciprocal obligations of the
parties. The stipulation is part and parcel of the contract of lease making the
consideration for the lease the same as that for the option.
It is a settled principle in civil law that when a lease contract contains a right of first
refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price
until after he has made an offer to sell to the latter at a certain price and the lessee has
failed to accept it.39 The lessee has a right that the lessor's first offer shall be in his
favor.
The option in this case was incorporated in the contracts of lease by NDC for the
benefit of FIRESTONE which, in view of the total amount of its investments in the
property, wanted to be assured that it would be given the first opportunity to buy the
property at a price for which it would be offered. Consistent with their agreement, it was
then implicit for NDC to have first offered the leased premises of 2.60 hectares to
FIRESTONE prior to the sale in favor of PUP. Only if FIRESTONE failed to exercise its
right of first priority could NDC lawfully sell the property to petitioner PUP.
When does an offer become ineffective?
Incapacity of either party before acceptance (Death, Civil Interdiction,
Insanity, or Insolvency)
Lack of authority of offeror
Absence of any of the essential requisites
No acceptance/ Rejection of the offer
Time, manner and place of acceptance not complied with
Withdrawal of offer before acceptance
Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or
insolvency of either party before acceptance is conveyed. (n)
The contract is not yet perfected at any time before acceptance is
conveyed. The disappearance or loss of capacity of either party before acceptance
before perfection prevents the contractual tie from being formed.
Art. 1320. An acceptance may be express or implied. (n)

Art. 1321. The person making the offer may fix the time, place, and manner of
acceptance, all of which must be complied with. (n)
Art. 1322. An offer made through an agent is accepted from the time acceptance is
communicated to him. (n)
Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer
may be withdrawn at any time before acceptance by communicating such withdrawal,
except when the option is founded upon a consideration, as something paid or
promised. (n)
Art. 1325. Unless it appears otherwise, business advertisements of things for sale are
not definite offers, but mere invitations to make an offer. (n)
Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the
advertiser is not bound to accept the highest or lowest bidder, unless the contrary
appears. (n)
Mindanao Terminal v. Confesor [May 5, 1997]
Ponente: J. Mendoza
Facts: Mindanao Terminal and Brokerage Service, Inc., and respondent Associated
Labor Unions, entered into a collective bargaining agreement for a period of five (5)
years, starting on August 1, 1989, and ending July 31, 1994. On the 3rd year, the
parties met for a renegotiation which eventually resulted in a deadlock.
On December 18, 1992, as a result of a conference called by the NCMB, the Union and
the Company went back to the bargaining table and agreed on wage increase, VL / SL,
hospitalization benefits, 13th month pay, signing bonus and seniority. Thus, as the MedArbiter noted in the record of the January 14, 1993 conference, "the issues raised by
the notice of strike had been settled and said notice is thus terminated."
But no sooner had he stated this than the Company claimed that the wage increases
which it had agreed to give to the employees should be creditable as compliance with
future mandated wage increases. In addition, it maintained that such increases should
not be retroactive. Mediation proved to be futile. The Secretary of Labor assumed
jurisdiction over the issue and ordered that the wage increases for the fourth and fifth
years of the CBA were not to be credited as compliance with future mandated
increases. In addition, the fourth year wage increase was to be retroactive to August
1992 and was to be implemented until July 31, 1993, while the fifth year wage increase
was to take effect on August 1, 1993 until the expiration of the CBA.
The company sought reconsideration but was denied hence this petition for certiorari,
alleging grave abuse of discretion on the part of respondent Secretary of Labor.
Issue: Whether or not the parties have reached an agreement or a contract on the CBA
Held: Yes. Even without any written evidence of the CBA made by the parties, a valid
agreement existed from the moment the minds of the parties met on all matters they set
out to discuss.
Ratio:
The two terms, "agreement" and "contract," are indeed similar, although the former is
broader than the latter because an agreement may not have all the elements of a
contract. As in the case of contracts, however, agreements may
Art. 1317. No one may contract in the name of another without being authorized by the
latter, or unless he has by law a right to represent him.


be oral or written. Hence, even without any written evidence of the Collective
Bargaining Agreement made by the parties, a valid agreement existed in this case from
the moment the minds of the parties met on all matters they set out to discuss.
A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it
is ratified, expressly or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party. (1259a)
If the contract is entered into in behalf of another who has not authorized it,
such contract is not valid and binding upon him unless he ratifies the transaction.
Art. 1318. There is no contract unless the following requisites concur:
Consent of the contracting parties;
Object certain which is the subject matter of the contract;
Cause of the obligation which is established. (1261)
entered into in the place where the offer was made. (1262a)
Art. 1315 of the Civil Code states that contracts are perfected by mere consent, and
from that moment, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law. The Secretary of Labor found that
"as early as January 14, 1993, well within the six (6) month period provided by law, the
Company and the Union have perfected their agreement." 7 The claim of petitioner to
the contrary notwithstanding, this is a finding of an administrative agency which, in the
absence of evidence to the contrary, must be affirmed.
What is the effect of simulated consent? Void if absolute simulation, Can be valid if it is
relatively simulated
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place
when the parties do not intend to be bound at all; the latter, when the parties conceal
their true agreement. (n)
Simulation defect in declaration. It is a declaration of a fictitious will, deliberately made
by agreement of the parties, in order to produce, for purposes of deception, the
appearance of a juridical act which does not exist or is different from that which was
really executed.
Absolute Simulation (Simulados) the parties do not have any intention of being bound
by any contract
41
Ex. A deed of absolute sale of land, stating that possession has been transferred and
the price paid, when in reality there has been no agreement of sale between the
parties.
Relative Simulation (Disimulados) the parties have an agreement which they conceal
under the guise of another contract. There are two juridical acts involved:
Ostensible act contract that the parties pretend to have executed
Art. 1349. The object of every contract must be determinate as to its kind. The fact that
the quantity is not determinate shall not be an obstacle to the existence of the contract,
provided it is possible to determine the same, without the need of a new contract
between the parties. (1273)
Determinate as to its kind or species Ex. A horse, Carabao, a book
Not determinate as to its kind or species Ex. Something, an animal
Hidden act the true agreement between the parties

What is the status of a contract with an unlawful object? Void or Inexistent
Ex: A deed of sale of a piece of land is executed by parties to conceal their true
agreement which is a donation
Art. 1409. The following contracts are inexistent and void from the beginning:
Note: If the concealed or hidden act is lawful, it is enforceable if the essential requisites
are present.
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation,

when it does not prejudice a third person and is not intended for
Those whose cause or object did not exist at the time of the transaction;
Those whose object is outside the commerce of men; C. Cause
any purpose contrary to law, morals, good customs, public order or public policy binds
the parties to their real agreement. (n)
What is the cause of contracts?
The nullity of an absolutely simulated contract is based on want of true consent where
the parties do not have any intent to be bound at all. It is generally fraudulent and for
the purpose of injuring third persons.
Art. 1350. In onerous contracts the cause is understood to be, for each contracting
party, the prestation or promise of a thing or service by the other; in remuneratory ones,
the service or benefit which is remunerated; and in contracts of pure beneficence, the
mere liberality of the benefactor. (1274)
If the purpose of the contract is licit, then the parties may prove the simulation in order
to recover what may have already been given. If it has an illegal object, please see Arts.
1411 and 1412 under Void Contracts.
Onerous Contracts cause is the prestation Remuneratory Contracts cause is the

service rendered
The relatively simulated contract is valid, except when it prejudices third persons or has
an illicit purpose.
B.
Object (Prestation)
Contract of Pure Beneficence essentially a donation where cause is the generosity or

liberality of the benefactor
Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists
and is lawful, unless the debtor proves the contrary. (1277)Art. 1350
What can be the object of a contract?

Things within the commerce of men
Transmissible rights
Licit things
Unless the contrary is proved, a contract is presumed to have a good and sufficient
consideration. The presumption, however, applies only when no cause is stated in the
contract.
Differentiate motive from cause.
Determinate things
Possible things
Art. 1347. All things which are not outside the commerce of men, including future
things, may be the object of a contract. All rights which are not intransmissible may also
be the object of contracts.
No contract may be entered into upon future inheritance except in cases expressly
authorized by law.
All services which are not contrary to law, morals, good customs, public order or public
policy may likewise be the object of a contract. (1271a)
Requisites of Object:
Within the commerce of man
Licit
Possible
Determinate as to its kind
Things outside the commerce of man those things which are not susceptible of
appropriation or private ownership, and are not transmissible
Ex. Perpetual servitude or slavery, Personal rights (marital authority), Public offices,
Right of suffrage, Property pertaining to public dominion (roads, plazas, rivers), Sacred
things
Art. 1348. Impossible things or services cannot be the object of contracts. (1272)
Art. 1351. The particular motives of the parties in entering into a contract are different
from the cause thereof. (n)
CAUSE
Objective, intrinsic
and
reason for the existence of the
contract itself
Objective of a party in entering into
the contract
Always the same for each kind of
contract
Essential requisite
which
validity or enforceability of a contract
MOTIVE
juridical
Psychological, individual or personal
purpose of a party to a contract
Persons reason for wanting to get
such objective
Differs with each person
affects
Does not affect the validity or
existence of a contract
What is the status of a contract with an unlawful cause? Void

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, public order or
public policy. (1275a)
Ex. An agreement to resume concubinage which had been interrupted by quarrels
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;
(3) Those whose cause or object did not exist at the time of the transaction;

What is the status of a contract with a false cause? Void, if not founded upon another
licit cause
Impossible Things not susceptible of existing, or are outside the commerce of men, or
personal services beyond the ordinary power of man.
Art. 1353. The statement of a false cause in contracts shall render them void, if it
should not be proved that they were founded upon another cause which is true and
lawful. (1276)
Note: The impossibility must be actual and contemporaneous with the making of the
contract.
Kinds of Impossibility:

Absolute or Objective nobody can perform it. Effect: Contract is nullified

Relative or Subjective it cannot be performed due to special conditions or
qualifications of the debtor
Effect: If permanent, contract is nullified
If temporary, contract is not nullified
VII. Reformation of Instruments

When may a contract be reformed? When equity demands it and only when the true
intention of the parties is not expressed in the document or instrument
Art. 1359. When, there having been a meeting of the minds of the parties to a contract,
their true intention is not expressed in the instrument purporting to embody the
42
agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the

parties may ask for the reformation of the instrument to the end that such true intention
may be expressed.
Upon reformation of an instrument, the effect relates back to the time of its original
execution, especially as between the parties.
Those which are entered into by guardians whenever the wards whom they represent
suffer lesion by more than one fourth of the value of the things which are the object
thereof;
Those agreed upon in representation of absentees, if the latter suffer the lesion stated
in the preceding number;
Those undertaken in fraud of creditors when the latter cannot in any other manner
collect claims due them;
Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority;
All other contracts specially declared by law to be subject to rescission. (1291a)
Rationale: Reformation and an action to enforce instrument are inconsistent remedies,
the latter being an affirmance of the written contract. An action to enforce the instrument
necessarily entails ratification of the same.
Note: The statute of frauds is no impediment to the reformation of an instrument.
Distinguish the actions for reformation and annulment?
Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably in
such a way that the instrument does not show their true intention, the former may ask
for the reformation of the instrument.
Art. 1359. When, there having been a meeting of the minds of the parties to a contract,
their true intention is not expressed in the instrument purporting to embody the
agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the
parties may ask for the reformation of the instrument to the end that such true intention
may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds
of the parties, the proper remedy is not reformation of the instrument but annulment of
the contract.
Requisites of Reformation:
Meeting of the minds upon the contract
Instrument or document evidencing the contract does not express the true
agreement of the parties
Due to mistake, fraud, inequitable conduct or accident
Where one party to an instrument has made a mistake and the other knows it and
conceals the truth from him, such as when one party is illiterate and the other party fails
to correct his mistake, then this is sufficient ground for reformation.
The mistake of one party must refer to the content of the instrument, not the subject
matter or principal conditions of the contract.
Art. 1363. When one party was mistaken and the other knew or believed that the
instrument did not state their real agreement, but concealed that fact from the former,
the instrument may be reformed.
Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on the part
of the person drafting the instrument or of the clerk or typist, the
instrument does not express the true intention of the parties, the courts may order that
the instrument be reformed.
This article refers to mistake committed by the clerk or typist. Ex. Typographical errors
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 right of
repurchase, reformation of the instrument is proper.
Rule 130 - Sec. 9 PAROL EVIDENCE RULE
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds
of the parties, the proper remedy is not reformation of the instrument but annulment of
the contract.
REFORMATION
Presupposes a valid existing contract

contract was made
between the parties
Only the document signed by them
not meet, or
does not correctly express their
agreement
Gives life to the contract upon
nullification of the
certain corrections
contract
(c)The validity of the written agreement; or

(d)The existence of other terms agreed to by the parties or their successors in interest
after the execution of the written agreement.
The term "agreement" includes wills. (7a)
When may a contract not be reformed?
Simple donations inter vivos wherein no condition is imposed
Wills
Real agreement is void
Action to enforce instrument is instituted
Art. 1366. There shall be no reformation in the following cases:
No
real
and
valid
Minds of the parties did

consent was vitiated
Effect
is
complete
Do third parties have personality to file an action for reformation? YES

Art. 1368. Reformation may be ordered at the instance of either party or his successors
in interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his
heirs and assigns.
Who may file action:
Mutual Mistake
Either party
Evidence of written agreements. When the terms of an agreement have been

reduced to writing, it is considered as containing all the terms agreed upon and there
can be, between the parties and their successors in interest, no evidence of such terms
other than the contents of the written agreement. However, a party may present
evidence to modify, explain or add to the terms of written agreement if he puts in issue
in his pleading:
(a)An intrinsic ambiguity, mistake or imperfection in the written agreement; (b)The
failure of the written agreement to express the true intent and agreement of the parties
thereto;
ANNULMENT
Successors interest
One party is at fault
Injured party
Heirs or assigns of injured party
third person, and which for equitable reasons may be set aside even if it is valid.
(Tolentino)
When are contracts rescissible?
Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by
law. (1290)
Rescission A remedy granted by law to the contracting parties and even to third
persons, to secure the reparation of damages caused to them by a contract, by means
of the restoration of the restoration things to their condition prior to the celebration of
said contract. (Tolentino, quoting
Manresa)
Simple donations inter vivos wherein no condition is imposed;
Relief for the protection of one of the contracting parties AND third persons
from all injury and damages the contract may cause OR protect some incompatible and
preferent right created by the contract.
Wills;
When the real agreement is void.
Implies a contract which, even if initially valid, produces a lesion or

pecuniary damage to someone.
Set asides the act or contract for justifiable reasons of equity.
Grounds for rescission can only be for legal cause.
Voidable contracts may also be rescinded.
Rationale: An action to reform a written instrument is in the nature of an action for

specific performance and requires a valuable consideration, something that is lacking in
wills and donations.
Art. 1367. When one of the parties has brought an action to enforce the instrument, he
cannot subsequently ask for its reformation.

KINDS OF RESCISSIBLE CONTRACTS

Art. 1381. The following contracts are rescissible:
43
The test as to whether or not conveyance is fraudulent is, does it prejudice the rights of
creditors?
VIII. Defective Contracts
A.
Rescissible
Both elements must be present else a conveyance may be set aside as to creditors
Founded on good consideration
made with bona fide intent
a contract that has caused a particular damage to one of the parties or to a
Good consideration - creditor is not prejudiced because the property was merely
replaced or substituted.
BADGES OF FRAUD (INDICIA OF FRAUD):
1 and 2) Contracts entered into by GUARDIANS for their wards, or trustees or

administrators for the ABSENTEES, are rescissible if the party represented
fictitous/ insufficient consideration

conveyance is after suit is filed and while it is pending
sale on credit by insolvent debtor
evidence of insolvency or large indebtedness
transfer of all or nearly all of debtor's property
transfer is between father and son when some of above is present

suffers lesion of by more than one-fourth of the value of the things which are objects of
the contract.
Lesion injury which one of the parties suffers by virtue of a contract which is
disadvantageous to him. (Tolentino)
EXCEPTION: Article 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall
not take place with respect to contracts approved by the courts. (1296a)
* As a rule, guardians cannot enter into contracts involving a disposition of the ward's
property without approval of the guardianship court since a guardian is only authorized
to manage the estate. Therefore, the contracts contemplated by Article 1381 are
contracts entered into by the guardians for the ward which would not require court
approval i.e. contracts which constitute mere acts of administration.

g) failure of vendee to take exclusive possession of the property
4) Things under litigation, without knowledge and approval of litigant or of competent
judicial authority.
EXAMPLE: In a suit of replevin, where a plaintiff seeks to recover personal property
from the defendant, the latter, during the pendency of the suit, cannot sell in bad faith
the property being litigated to any third person. If he does and the transferee also acts
in bad faith, the contract is rescissible. (Sta.
3) Contracts in Fraud of Creditors
Maria)
Accion Pauliana the rescissory action to set aside contracts in fraud of creditors
5) Provided for by law to be subject to rescission
Article 1177. The creditors, after having pursued the property in possession of the
debtor to satisfy their claims, may exercise all the rights and bring all the actions of the
latter for the same purpose, save those which are inherent in his person; they may also
impugn the acts which the debtor may have done to defraud them. (1111)
Articles 1526, 1534, 1538, 1539, 1542, 1556, 1560, 1567 and 1659
Requisites of Accion Pauliana:
GENERAL RULE:
that the plaintiff asking for recission has a credit prior to the alienation,
although demandable later.
Lesion or inadequacy of cause will not subject the contract to rescission.
that the debtor has made a subsequent contract conveying a patrimonial

benefit to a 3rd person.
that the creditor has no other legal remedy to satisfy his claim, but would
benefit by the recission of the conveyance to the 3rd person.
that the act being impugned is fraudulent.
that the 3rd person who received the property conveyed, if it is by onerous
title, has been an accomplice in the fraud.
* It must be shown that the conveyance was fraudulent or with intent to prejudice
creditors of the party making the conveyance.
* The fraud may be established by presumption, under Article 1387, or from evidence,
independently of such presumption.
*Without proof of fraudulent intent, the contract cannot be rescinded.
GENERAL RULE:
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 influence. (n)
EXCEPTION:
Those mentioned in Article 1381, or if attended by fraud, mistake or undue influence.
Art. 1382. Payments made in a state of insolvency for obligations to whose fulfillment
the debtor could not be compelled at the time they were effected, are also rescissible.
(1292)
Where a debtor transfers property to a creditor in payment of a debt which has not yet
matured, at a time when the debtor is insolvent, and when the consideration for the
transfer was grossly inadequate, compared to the actual value of the property
transferred, the transfer is fraudulent and may be set aside by creditors prejudiced
thereby.
* insolvency law: all payments made by debtor after the mere filing of insolvency will not
be rescissible, but will be void under the insolvency law.
Credit must be existing at the time of the fraudulent alienation, even if it is
Art. 1189. When the conditions have been imposed with the intention of suspending the
efficacy of an obligation to give, the following rules shall be observed in case of the
improvement, loss or deterioration of the thing during the pendency of the condition:
At the time the accion pauliana is brought, the credit must already be due
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the
rescission of the obligation and its fulfillment, with indemnity for damages in either case;
not yet due.
EXCEPTIONS:
Accion pauliana can also be brought in the following cases:
The alienation is prior to the credit and the debtor purposely and in bad
faith deprives himself of the ability to meet the consequences of obligations he intends
to incur in the future.
Parties who may appear to have become creditors after the alienation, but
may be considered as having a prior right.
Those whose claims were acknowledged by the debtor after the alienation, but the
origin of which antedated the alienation.
Those who become subrogated, after the alienation, in the rights of creditors whose
credits were prior to the alienation.
TEST of FRAUD:
* Prior to the fulfillment of a suspensive condition, If the object of the prestation

deteriorates through the fault of the debtor, the creditor could choose to rescind the
contract with damages.
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
(1124)
44
Rescission Art 1380 Distinguished from Resolution Art 1191

Who may bring action for rescission?
1191
Similarities 1.
2.
Who may
demand
Grounds
1380
Presupposes contracts validly entered into and existing
Mutual restitution when declared proper
Only by a party to the contract

1. Party to the contract
suffering lesion
2. Third parties
prejudiced by the
contract
Non-performance (implied tacit
Various reasons of equity
condition in reciprocal provided by the grounds,
obligations) mainly economic injury
or lesions
Scope of Judicial
Court determines sufficiency of
Sufficiency of reason
Control
reason to justify
does not affect right to
extension of time to perform
ask for rescission (cannot
obligation be refused if all the
(whether slight or casual breach)
requisites are satisfied)
Kind of
Only to reciprocal
Unilateral, reciprocal
Obligation
applicable to
Even when contract is
fully fulfilled
Character
Principal Remedy
Secondary/ Subsidiary
The creditor injured by the contract

The heirs of the creditor injured by the contract.
The creditors of the creditor injured by the contract by virtue of the right
granted by Article 1177 (accion subrogatoria)
PRESUMPTIONS OF FRAUD
Art. 1387. All contracts by virtue of which the debtor alienates property by
Under Art. 1191, the power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him. The injured
party may choose between
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 before the donation.
Alienations by onerous title are also presumed fraudulent when made by persons
against whom some judgment has been issued. The decision or attachment need not
refer to the property alienated, and need not have been obtained by the party seeking
the rescission.
In addition to these presumptions, the design to defraud creditors may be proved in any
other manner recognized by the law of evidence. (1297a)
Applies only when the there has been in fact an alienation or transfer or
transfer.
Rebuttal by evidence that conveyance was made:
in good faith
for a sufficient cause
Art. 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall
indemnify the latter for damages suffered by them on account of the alienation,
whenever, due to any cause, it should be impossible for him to return them.
Art. 1203. If through the creditor's acts the debtor cannot make a choice according to
the terms of the obligation, the latter may rescind the contract with damages. (n)
If there are two or more alienations, the first acquirer shall be liable first, and so on
successively. (1298a)
* In alternative obligation, if the debtor is has been prevented from making a choice due
to the fault of the creditor, the debtor can ask for the rescission of the contract with
damages.
PRESCRIPTIVE PERIOD
Art. 1192. In case both parties have committed a breach of the obligation, the liability of
the first infractor shall be equitably tempered by the courts. If it cannot be determined
which of the parties first violated the contract, the same shall be deemed extinguished,
and each shall bear his own damages. (n)
Art. 1389. The action to claim rescission must be commenced within four years.
For persons under guardianship and for absentees, the period of four years shall not
begin until the termination of the former's incapacity, or until the domicile of the latter is
known. (1299)
in pari delicto (in equal fault) both parties are equally at fault, the court may deem
the contract extinguished if it cannot determine who is the first infractor.
* prescriptive period begins to run after the aggrieved party has unsuccessfully
exhausted all possible remedies to enforce the obligation or to recover what has been
lost.
EFFECTS OF RESCISSION
UNIVERSAL FOOD v CA, G.R. No. L-29155; May 13, 1970
Art. 1385. Rescission creates the obligation to return the things which were
FACTS:
the object of the contract, together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who demands rescission can return
whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the object of the contract
are legally in the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the
loss. (1295)
In restitution, the parties, shall be placed in the same position where they
were before they entered into the assailed contract. The objective is to restore the
parties to their original position. Not only should the parties return the object subject of
the rescissible contract but also the fruits or interest if any. If the object of the contract
cannot be restored because of loss, damages may be claimed from the person
responsible for the loss. (Sta. Maria)
A party cannot rescind the and at the same time retain the consideration,
or part of the consideration, received under the contract. One cannot have the benefits
of rescission without assuming its burdens.
When things, which are the object of a contract ,is legally in the possession
of a third person who acquired them in good faith, rescission cannot take place.
EXTENT OF RESCISSION
Art. 1384. Rescission shall be only to the extent necessary to cover the damages
caused. (n)
That as far back as 1938, plaintiff Magdalo V. Francisco, Sr. discovered or

invented a formula for the manufacture of a food seasoning (sauce) derived from
banana fruits popularly known as MAFRAN sauce.
Due to lack of sufficient capital to finance the expansion of the business, in
1960, said plaintiff secured the financial assistance of Tirso T. Reyes who, after a series
of negotiations, formed with others defendant Universal Food Corporation eventually
leading to the execution on May 11, 1960 a "Bill of Assignment".
Conformably with the terms and conditions, plaintiff Magdalo V. Francisco,
Sr. was appointed Chief Chemist and plaintiff Victoriano V. Francisco was appointed
auditor and superintendent. Since the start of the operation of defendant corporation,
plaintiff Magdalo V. Francisco, Sr., when preparing the secret materials inside the
laboratory, never allowed anyone, not even his own son, or the President and General
Manager Tirso T. Reyes, of defendant, to enter the laboratory in order to keep the
formula secret to himself.
Thereafter, however, due to the alleged scarcity and high prices of raw
materials, on November 28, 1960, Secretary-Treasurer Ciriaco L. de Guzman of
defendant issued a Memorandum, that only Supervisor Ricardo Francisco should be
retained in the factory and that the salary of plaintiff Magdalo V. Francisco, Sr., should
be stopped for the time being until the corporation should resume its operation.
Plaintiff Magdalo V. Francisco, Sr. received his salary as Chief Chemist in
the amount of P300.00 a month only until his services were terminated on November
30, 1960.
Due to these successive memoranda, without plaintiff Magdalo V.
Francisco, Sr. being recalled back to work, the latter filed the present action on
February 14, 1961.
About a month afterwards, in a letter dated March 20, 1961,
* The extent of the revocation is only to the amount of the prejudice suffered by the
creditor who instituted the action for rescission. As to the excess, the alienation is
maintained.
45
defendant, thru its President and General Manager, requested said plaintiff to report for
duty, but the latter declined the request because the present action was already filed in
court
HELD: Yes
Agreement rescinded, without the necessity of any judicial suit ALUMCO continued its
logging operations, but again incurred an unpaid account. On July 19,1965, UP
informed ALUMCO that it had, as of that date, considered rescinded and of no further
legal effect the logging agreement, and that UP had already taken steps to have
another concessionaire take over the logging operation. ALUMCO filed a petition to
enjoin UP from conducting the bidding. The lower court ruled in favor of ALUMCO,
hence, this appeal.
RATIO:
ISSUE: Can petitioner UP treat its contract with ALUMCO rescinded, and may
disregard the same before any judicial pronouncement to that effect?
ISSUE: WON Franscisco can rescind the contract


HELD: Yes.
fulfillment and rescission of the obligation, with payment of damages in either case.
RATIO:
The general rule is that rescission of a contract will not be permitted for a
slight or casual breach, but only for such substantial and fundamental breach as would
defeat the very object of the parties in making the agreement. The question of whether
a breach of a contract is substantial depends upon the attendant circumstances. The
dismissal of the respondent patentee Magdalo V. Francisco, Sr. as the permanent chief
chemist of the corporation is a fundamental and substantial breach of the Bill of
Assignment. He was dismissed without any fault or negligence on his part. Thus, apart
from the legal principle that the option to demand performance or ask for rescission
of a contract belongs to the injured party, the fact remains that the respondentsappellees had no alternative but to file the present action for rescission and damages.
In the first place, UP and ALUMCO had expressly stipulated that upon default by the
debtor, UP has the right and the power to consider the Logging Agreement of
December 2, 1960 as rescinded without the necessity of any judicial suit. As to such
special stipulation and in connection with Article 1191 of the Civil Code, the Supreme
Court, stated in Froilan vs. Pan Oriental Shipping Co:
There is nothing in the law that prohibits the parties from entering into agreement that
violation of the terms of the contract would cause cancellation thereof, even without
court intervention. In other words, it is not always necessary for the injured party to
resort to court for rescission of the contract.
MAGDALENA ESTATE v MYRICK, G.R. No. 47774, March 14, 1941

FACTS:
Magdalena Estate, Inc. sold to Louis Myrick lots No. 28 and 29 of Block 1,
Parcel 9 of the San Juan Subdivision, San Juan, Rizal. Their contract of sale provides
that the Price of P7,953 shall be payable in 120 equal monthly installments of P96.39
each on the second day of every month beginning the date of execution of the
agreement.
In pursuance of said agreement, the vendee made several payments
amounting to P2,596.08, the last being due and unpaid was that of May 2, 1930. By
reason of this, the vendor, through its president, notified the vendee that, in view of his
inability to comply with the terms of their contract, said agreement had been cancelled,
relieving him of any further obligation thereunder, and that all amounts paid by him had
been forfeited in favor of the vendor. To this communication, the vendee did not reply,
and it appears likewise that the vendor
thereafter did not require him to make any further disbursements on account of the
purchase price.
Voidable or Annullable
a contract in which the consent of one party is defective, either because of want of
capacity or because it is vitiated, but which contract is valid until set aside by a
competent court. -Tolentino
KINDS OF VOIDABLE OR ANNULLABLE CONTRACTS
Art. 1390. The following contracts are voidable or annullable, even though there may
have been no damage to the contracting parties:
Those where one of the parties is incapable of giving consent to a contract;
Those where the consent is vitiated by mistake, violence, intimidation,
undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They
are susceptible of ratification. (n)
There may have been be no damage to the contracting parties
ISSUE: Was the petitioner authorized to forfeit the purchase price paid?
want of capacity
HELD: No.
RATIO:
The contract of sale contains no provision authorizing the vendor, in the event of failure
of the vendee to continue in the payment of the stipulated monthly installments, to
retain the amounts paid to him on account of the purchase
vitiated consent
CHARACTERISTICS OF VOIDABLE CONTRACTS
Their defect consists in the vitiation of consent of one of the contracting
parties
price. The claim therefore, of the petitioner that it has the right to forfeit said sums in its
favor is untenable. Under Article 1124 of the Civil Code, however, he may choose
between demanding the fulfillment of the contract or its resolution. These remedies are
alternative and not cumulative, and the petitioner in this case, having elected to cancel
the contract cannot avail himself of the other remedy of exacting performance. As a
consequence of the resolution, the parties should be restored, as far as practicable, to
their original situation which can be approximated only be ordering the return of the
things which were the object of the contract, with their fruits and of the price, with its
interest, computed from the date of institution of the action.
U.P. v DELOS ANGELES, G.R. No. L-28602

FACTS:
On November 2, 1960, UP and ALUMCO entered into a logging agreement whereby
the latter was granted exclusive authority to cut, collect and remove timber from the
Land Grant for a period starting from the date of agreement to December 31, 1965,
extendible for a period of 5 years by mutual agreement.
On December 8, 1964, ALUMCO incurred an unpaid account of P219,362.94. Despite
repeated demands, ALUMCO still failed to pay, so UP sent a notice to rescind the
logging agreement. On the other hand, ALUMCO executed an instrument entitled
Acknowledgment of Debt and Proposed Manner of
They are binding until they are annulled by a competent court

They are susceptible of convalidation by ratification or by prescription
MERCADO v ESPIRITU, G.R. No. L-11872; December 1, 1917

FACTS:
Margarita Espiritu, the mother of the plaintiffs, on May 25, 1894 sold to Luis Espiritu,
her brother, a portion of her land for P2000 which she acquired from her father, Lucas
Espiritu. On 1896/1897 however, Margarita died and she left to her children Domingo
and Josefa 12 hectares of land in Bulacan. The widower, Wenceslao Mercado, as the
administrator of the property of his children sold under pacto de retro on May 14, 1901
a parcel of land worth P375 to Luis to "cover his children's needs". And this amount
being insufficient he successively borrowed from said Luis Espiritu other sums of
money aggregating a total of p600, but later, on May 17, 1910, the plaintiffs, alleging
themselves to be of legal age, executed, with their sisters ratifying said sale under
pacto de retro of the land that had belonged to their mother, effected by their father in
favor of Luis Espiritu for the sum of p2600. Because of the past revolution, official
documents like birth certificates were burned. It is important to note that Wenceslao
kept a personal journal which states that the plaintiffs were indeed minors upon the sale
of the land in 1894. So, on May 20, 1901, a notarized deed of the land is procured by
Wenceslao in his name and the name of his children (who allege that they were minors
at the time) and at the same time, proves that a portion of the land in question was sold
to Luis in 1894.
Payments. It was approved by the president of UP, which stipulated the following:
3. In the event that the payments called for are not sufficient to liquidate the foregoing
indebtedness, the balance outstanding after the said payments have been applied shall
be paid by the debtor in full no later than June 30, 1965.
By 1904, Wenceslao died, his children files for the annulment of the sale Luis Espiritu,
who also died, so the case is filed against his son, Jose Espiritu.
ISSUES:
Whether or not the plaintiffs were minors at the date of the sale in 1894.
5. In the event that the debtor fails to comply with any of its promises, the Debtor
agrees without reservation that Creditor shall have the right to consider the Logging
46
Whether or not the plaintiffs can ask for the nullification of the sale due to
their minority.
HELD:
There are insufficient facts to prove the plaintiffs' minority
No. Minors were held liable because of active misrepresentation.
INCAPABLE OF GIVING CONSENT

Article 234. (Family Code). Emancipation takes place by the attainment of majority.
Unless otherwise provided, majority commences at the age of twenty-one years.
Emancipation also takes place:
RATIO:
By the marriage of the minor; or
The statement made by one of the adult parties of said deed, in reference
to certain notes made in a book or copybook of a private nature, which she said their
father kept during his lifetime and until his death, is not sufficient to prove the plaintiffs
minority on the date of the execution of the deed.
By the recording in the Civil Register of an agreement in a public

instrument executed by the parent exercising parental authority and the minor at least
eighteen years of age. Such emancipation shall be irrevocable. (397a, 398a, 400a,
401a)
The courts, in their interpretation of the law, have laid down the rule that
the sale of real estate, made by minors who pretend to be of legal age, when in fact
they are not, is valid, and they will not be permitted
Art. 1327. The following cannot give consent to a contract:


to excuse themselves from the fulfillment of the obligations contracted by them, or to

have them annulled in pursuance of the provisions of Law 6, title 19, of the 6th Partida;
and the judgment that holds such a sale to be valid and absolves the purchaser from
the complaint filed against him does not violate the laws relative to the sale of minors'
property, nor the juridical rules established in consonance therewith.
BRAGANZA v DE VILLA ABRILLE, G.R. No. L-12471; April 13, 1959
FACTS:
Unemancipated minors;
Insane or demented persons, and deaf-mutes who do not know how to

write. (1263a)
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in
a state of drunkenness or during a hypnotic spell are voidable.
(n)
minors
deaf-mutes who cannot write
insane
imbeciles or demented
under civil interdiction
hypnotized
intoxicated
Petitioners received from Villa Abrille, as a loan, on October 30, 1944

P70,000 in Japanese war notes and in consideration thereof, promised in writing
(Exhibit A) to pay him P10,000 "in legal currency of the P. I. two years after the
cessation of the present hostilities or as soon as International Exchange has been
established in the Philippines", plus 2 % per annum.
Because payment had not been made, Villa Abrille sued them in March
1949.
VITIATED CONSENT
Defendants claimed to have received P40,000 only instead of P70,000

as plaintiff asserted. They also averred that Guillermo and Rodolfo were minors when
they signed the promissory note Exhibit A.
a) MISTAKE
The Court of Appeals found them liable pursuant to the following

reasoning:
. . . . These two appellants did not make it appears in the promissory note that they
were not yet of legal age. If they were really to their creditor, they should have
appraised him on their incapacity, and if the former, in spite of the information relative to
their age, parted with his money, then he should be contended with the consequence of
his act. But, that was not the case. Perhaps defendants in their desire to acquire much
needed money, they readily and willingly signed the promissory note, without disclosing
the legal impediment with respect to Guillermo and Rodolfo. When minor, like in the
instant case, pretended to be of legal age, in fact they were not, they will not later on be
permitted to excuse themselves from the fulfillment of the obligation contracted by them
or to have it annulled. (Mercado, et al. vs. Espiritu, 37 Phil., 215.)
ISSUE: WON Rodolfo and Guillermo Braganza could be legally bound by their
signatures in Exhibit A? No!
RATIO:
The Mecado case cited in the decision under review is different because
the document signed therein by the minor specifically stated he was of age; here
Exhibit A contained no such statement. In other words, in the Mercado case, the minor
was guilty of active misrepresentation; whereas in this case, if the minors were guilty at
all, which we doubt it is of passive (or constructive) misrepresentation.
In order to hold infant liable, however, the fraud must be actual and not
constructure. It has been held that his mere silence when making a contract as to age
does not constitute a fraud which can be made the basis of an action of decit.
The fraud of which an infant may be held liable to one who contracts with
him in the belief that he is of full age must be actual not constructive, and mere failure
of the infant to disclose his age is not sufficient.
Upon the other hand, these minors may not be entirely absolved from
monetary responsibility. In accordance with the provisions of Civil Code, even if their
written contact is unenforceable because of non-age, they shall make restitution to the
extent that they have profited by the money they received. (Art. 1340) There is
testimony that the funds delivered to them by Villa Abrille were used for their support
during the Japanese occupation. Such being the case, it is but fair to hold that they had
profited to the extent of the value of such money.
Wherefore, as the share of these minors was 2/3 of P70,000 of
P46,666.66, they should now return P1,166.67.3 Their promise to pay P10,000 in
Philippine currency, (Exhibit A) can not be enforced, as already stated, since they were
minors incapable of binding themselves. Their liability, to repeat, is presently declared
without regard of said Exhibit A, but solely in pursuance of Article 1304 of the Civil
Code.
Art. 1331. In order that mistake may invalidate consent, it should refer to the substance
of the thing which is the object of the contract, or to those conditions which have
principally moved one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent only
when such identity or qualifications have been the principal cause of the contract.
A simple mistake of account shall give rise to its correction. (1226a)
Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk
affecting the object of the contract. (n)
Mistake should refer to the substance of the thing which is the object of the
contract, or those conditions which principally induced the parties to enter into a
contract.
Conditions must not be mere incidents to the consideration.
b) VIOLENCE and INTIMIDATION
Art. 1335. There is violence when in order to wrest consent, serious or irresistible force
is employed.
There is intimidation when one of the contracting parties is compelled by a reasonable
and well-grounded fear of an imminent and grave evil upon his person or property, or
upon the person or property of his house, descendants or ascendants, to give his
consent.
To determine the degree of intimidation, the age, sex and condition of the person shall
be borne in mind.
A threat to enforce one's claim through competent authority, if the claim is just or legal,
does not vitiate consent. (1267a)
Art. 1336. Violence or intimidation shall annul the obligation, although it may have been
employed by a third person who did not take part in the contract. (1268)
The violence must be serious and irresistible.
The duress or intimidation must be more than the general feeling of fear.
There must be acts or instances of such nature and magnitude as to have, of
themselves, inflicted fear or terror upon the subject thereof that his execution of the
questioned deed or act cannot be considered voluntary.
c) UNDUE INFLUENCE
Art. 1337. There is undue influence when a person takes improper advantage of his
power over the will of another, depriving the latter of a reasonable freedom of choice.
The following circumstances shall be considered: the confidential, family, spiritual and
47
other relations between the parties, or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness, or was ignorant or in financial
distress. (n)
Undue influence is unrighteous, illegal and designed to perpetrate wrong.
The party influenced must be deceived by some false representation, stratagem or by
coercion, physical or moral.
Not all influence is prohibited by law. Solicitations and entreaties, fair
argument and persuasion, or appeals to the emotions or affections will not amount to
undue influence unless they overcome the will of the person and take away his ability to
act as a free agent.
Capable parties cannot allege the incapacity of those with whom they
contracted
Parties who exerted intimidation, violence or undue influence or employed
fraud or caused mistake
third person who is stranger to the contract. UNLESS he can prove that the
contract prejudiced his rights with respect to one of the contracting parties, he


may ask for annulment e.g. guarantors and sureties.
d) FRAUD
Art. 1391. The action for annulment shall be brought within four years.
Art. 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to. (1269)
This period shall begin:
PRESCRIPTIVE PERIOD
In cases of intimidation, violence or udue influence, from the time the defect of the
consent ceases.
* Generally, fraud, either at law or in equity, is a false representation of a material fact

made by word or conduct with knowledge of its falsehood or in reckless disregard of its
truth, in order to induce and actually inducing another to act thereon to his injury.
In case of mistake or fraud, from the time of the discovery of the

same.
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)
And when the action refers to contracts entered into by minors or other incapacitated
persons, from the time the guardianship ceases. (1301a)
* The mere fact that one of the parties has superior knowledge of the value of the
property subject of the transaction than the other party does not per se constitute fraud.
There is only fraud when a legal or equitable duty is imposed upon the dominant party
to reveal certain facts material to the transaction or where there is a confidential
relationship between the parties.
Period shall begin:
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to
know the facts, are not in themselves fraudulent. (n)
Incapacity- from the time guardianship ceases
Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an
expert and the other party has relied on the former's special knowledge. (n)
Intimidation, violence or undue influence- from the time consensual defect ceases
Mistake or fraud- from the time of discovery of the same
Extinctive prescription shall apply not only to action for annulment, but also
the the defense of nullity
applies to parties to the contract, but not to third parties.
Other party must know that he is an expert.

Other party relied on the opinion based on that knowledge
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual. (n)
OTHER INSTANCES WHERE AN ACTION FOR ANNULMENT IS EXTINGUISHED

Art. 1392. Ratification extinguishes the action to annul a voidable contract. (1309a)
* Ratification the act of curing the defect which made the contract annullable
* Where both parties gave consent to a contract due to a substantial mistake caused by
a third party, the contract can be annulled.
Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute
error. (n)
Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is
a tacit ratification if, with knowledge of the reason which renders the contract voidable
and such reason having ceased, the person who has a right to invoke it should execute
an act which necessarily implies an intention to waive his right. (1311a)
Art. 1394. Ratification may be effected by the guardian of the incapacitated person. (n)
Every fraud is a misrepresentation, but not every misrepresentation is

fraudulent.
Misrepresentation may be made without knowledge of its falsity and
therefore completely done in good faith. In such a case, it would constitute a mistake.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and
should not have been employed by both contracting parties.
Art.1395. Ratification does not require the conformity of the contracting party who has
no right to bring the action for annulment. (1312)
* Ratification is a unilateral act. It is usually done by the injured party and not by the
party causing the injury. The consent of the injuring party is not required because such
party normally desires the effectivity of the contract anyway from its inception.
Incidental fraud only obliges the person employing it to pay damages. (1270)
Must not be in pari delicto
Must not be dolo incidente which is accidental and collateral fraud
Must be dolo causante which refers to the very cause why the other party
entered into the contract
WHO MAY AND MAY NOT INSTITUTE AN ACTION FOR ANNULMENT
Art. 1397. The action for the annulment of contracts may be instituted by all who are
thereby obliged principally or subsidiarily. However, persons who are capable cannot
allege the incapacity of those with whom they contracted; nor can those who exerted
intimidation, violence, or undue influence, or employed fraud, or caused mistake base
their action upon these flaws of the contract. (1302a)
Who May:
All who are obliged principally or subsidiarily
Interest in the contract there must be legal capacity by being bound to
the contract either principally or subsidiarily
victim and not party responsible for the defect he who comes to the court
must come with clean hands (clean hands doctrine)
Art. 1396. Ratification cleanses the contract from all its defects from the moment it was
constituted. (1313)
* Ratification transforms the contract completely as one without infirmity. This curing
effect retroacts to the day when the contract was entered into. Hence, upon ratification,
it is as if the contract has never been visited by any infirmity or defect at all.
Art. 1401. The action for annulment of contracts shall be extinguished when the thing
which is the object thereof is lost through the fraud or fault of the person who has a
right to institute the proceedings.
If the right of action is based upon the incapacity of any one of the contracting parties,
the loss of the thing shall not be an obstacle to the success of the action, unless said
loss took place through the fraud or fault of the plaintiff. (1314a)
It is a rule that no one can come to court with unclean hands. Hence, the
injured party lost the thing which is the object of the obligation by his fault, he cannot
seek the annulment of the contract as such right will be considered extinguished.
However, if the party is one who is incapacitated, the mere fact that the
thing which is the object of the obligation has been lost, the incapacitated person is not
obliged to make any restitution except when it has benefited him.
EFFECT OF ANNULMENT
Who May Not:

48
Art. 1398. An obligation having been annulled, the contracting parties shall restore to
each other the things which have been the subject matter of the contract, with their
fruits, and the price with its interest, except in cases
It applies exlusively to actions for specific performance of the contract or

for damages.
o

provided by law.
In obligations to render service, the value thereof shall be the basis for damages.
(1303a)
* When the annulment of the contract has been decreed, the contracting parties must
be returned to their original position. Hence, whatever has been given must be returned
to the giver.
Art. 1399. When the defect of the contract consists in the incapacity of one of the
parties, the incapacitated person is not obliged to make any restitution except insofar as
he has been benefited by the thing or price received by him. (1304)
* However, the law states that when the defect of the contract consists in the incapacity
of one of the parties, the incapacitated person is not obliged to make any restitution
except insofar as has been benefited by the thing or price received by him.
Art. 1400. Whenever the person obliged by the decree of annulment to return the thing
can not do so because it has been lost through his fault, he shall return the fruits
received and the value of the thing at the time of the loss, with interest from the same
date. (1307a)
It applies only to the agreements or contracts enumerated in Art. 1403, 2.
The defense of the Statute of Frauds may be waived.

The Statute of Frauds is a personal defense. A contract infringing it cannot be assailed
by third persons (Art. 1408).
The Statute of Frauds is only concerned with the admissibility of evidence, not the
credibility or weight thereof.
An agreement not covered by the Statute of Frauds is provable by oral evidence.
Required Note or Memorandum by the Statute of Frauds (may be in one
writing or in separate ones)
The names of the parties
o
The terms and conditions of the agreement
A description of the subject matter sufficient to render it capable of
identification
o
The date and place of the making of the agreement
The signature of the party assuming the obligation
Exception: sale by auction
The amount and kind of property sold
* When the object to be returned cannot be returned because it was lost by the person
obliged to return it due to fault of the said person, the value of the object, its fruits, and
interest shall be given instead to satisfy the order of restitution.
The terms of the sale
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 compelled to
comply with what is incumbent upon him. (1308)
The names of the purchasers and persons on whose account the sale is made
* Restitution requires the return by the parties of what each has received from the other.
If one of them cannot restore to the other what he has received from the said other,
such other person cannot be compelled to return what he, in turn, has received.
(However, Article 1399)
Unenforceable Contracts
Contracts that cannot be enforced unless ratified in the manner provided

by law
Occupies an intermediate ground between voidable and void contracts
Unenforceable
Rescissible & Voidable
Legal Effect No legal effect unless
With legal effects unless set
ratified
aside by a competent court
Defectiveness
Nearer to absolute nullityFarther from absolute nullity
The price
6 Agreements Covered by the Statute of Frauds (Art. 1403, 2)

An agreement that by its terms is not to be performed within a year
from the making thereof
o Only full or complete performance by one side will take the case out of the operation
of the Statute
A special promise to answer for the debt, default, or miscarriage of
another
o Subsidiary or collateral promise to pay, contract of guaranty
An agreement made in consideration of marriage other than a mutual
promise to marry
o Marriage settlements, donations propter nuptias
An agreement for the sale of goods, chattels, or things in action, at a price
not less than five hundred pesos
o In separable contracts, each article is taken separately, and the application of the
Statute depends upon its price.
Kinds of Unenforceable Contracts

Unauthorized contracts (Art. 1403, 1)
Those that fail to comply with the Statute of Frauds (Art. 1403, 2)
Those where both parties are incapable of giving consent to a contract
(Art. 1403, 3)
Unauthorized contracts: contracts entered into by a person for and in the name of
another, without authority to do so.
An unauthorized contract may be ratified, expressly or impliedly, by the
person on whose behalf it has been executed, before it is revoked by the other
contracting party (Art. 1317).
The agent assumes personal liability until it is ratified.
Exceptions: partial payment, buyers acceptance of part of the goods

An agreement for the leasing for a longer period than one year, or for the
sale of real property or of an interest therein
Lease of real property for more than one year
Sale of real property, regardless of price
A representation as to the credit of a third person
Not a guaranty for there is no promise to answer for anothers debt; only an assurance
by a person who does not take part in the contract proper
Under Art. 1443, the Statute of Frauds also applies to express trusts
concerning an immovable or any interest therein.
If the agent contracts in the name of the principal, exceeding the scope of
his authority, and the other party is aware of the limits of the powers granted by the
principal, and the principal does not ratify the contract, it shall be void. However, the
agent is liable if he undertook to secure the principal's ratification (Art. 1898).
Contracts where both parties are incapable of giving consent:
Contracts not in compliance with the Statute of Frauds: contracts which are not put into
writing as required by law
Ratification of Unenforceable Contracts
Statute of frauds: It is descriptive of laws, statutes or provisions requiring

certain agreements to be in writing before they can be enforced in a judicial action
Purpose: To prevent fraud and perjury in the enforcement of obligations
Effect: Only makes ineffective the action for specific performance
General rules of application:
o
It applies only to executory contracts and not to partially or completely
executed contracts.
Upon ratification by one party, the unenforceable contract is converted to a voidable

one.
Mere lapse of time does not ratify an unenforceable contract.

Unenforceable Contract Ratification
Unauthorized
Express or implied, by the person
on whose behalf the contract has
been executed
Infringing the Statute of Frauds
Failure to object to the
presentation of oral evidence to
prove the contract OR
Acceptance of benefit under the
contracts
Both parties are incapacitated
Express or implied,
Voidable if by the parent or the
guardian of one of the parties
49
Valid if by the parents or the

guardians of both parties
Issue: WON Fernandez letter to Litonjua is a sufficient note or memorandum required

by the Statute of Frauds
Ortega v. Leonardo (1958) Facts:

Held:
Ortega was occupying a parcel of land in San Andres, Malate. The said land was
assigned by the Government to the Rural Progress Administration. As occupant, she
asserted her right to purchase the land. Leonardo asserted the similar right, alleging
occupancy of the same land. He promised Ortega that he would sell to her a portion of
the lot if she would desist from pressing her claim. There were conditions given by
Leonardo. Ortega must: 1) pay for the surveying and subdivision of the Lot; and 2)
continue holding the lot as tenant by paying a monthly rental of P10.00 until said portion
shall have been segregated and the purchase price fully paid. Upon Leonardos
acquisition of the title, Ortega fulfilled all the conditions. She tendered to him the
purchase price which the latter refused to accept.
Issue: WON their oral agreement to sell the piece of land is covered by the Statute of
Frauds
Held:
No. The contract has been partially performed by Ortega. Partial payment of the
purchase price alone is not sufficient to constitute partial performance. However, in the
case at bar, there were several circumstances indicating partial performance: 1)
relinquishment of rights, 2) continued possession, 3) building of improvements on the
land, 4) tender of payment, 5) surveying of the lot at
No. The letter revealed a consistent denial of having a commitment to sell the
properties. There was no perfected contract of sale or contract to sell. There was even
no evidence to show that the owners of the land authorized Fernandez to sell their
properties. The application of the Statute of Frauds presupposes the existence of a
perfected contract. However, the required note or memorandum must contain the
essential elements of the contract expressed with certainty: 1) all the essential terms
and conditions of the sale of the properties; 2) an accurate description of the property
subject of the sale; and, 3) the names of the owners of the properties. This was not the
case in the letter sent by Fernandez to the Litonjuas. Fernandez and the owners, then,
could not be held liable in the action for specific performance with damages.
D.
Void
Contracts which have no force and effect from the very beginning, as if it
had never been entered into
Characteristics of Void Contracts
The action or defense for their declaration as inexistent does not prescribe (Art. 1410).
Ortegas expense, 6) payment of rentals. None of these would separately suffice, but
the combination of relinquishment, survey and tender, is more than enough.
Babao v. Perez (1957) Facts:
Celestina Perez owned a parcel of land in San Juan, Batangas. Her niece married
Santiago Babao. Babao and she entered into a verbal agreement. Babao would
improve the land by leveling and clearing all the forest trees, and by planting crops. He
would also act as the administrator of the land, with all expenses at his cost. Perez, in
turn, would convey to him or to his wife half of the land, together with all the
improvements thereon. Babao left 50 of 156 hectares unimproved. A few days before
Perez died, she sold 127 ha. of the land in question. This deprived Babao of
possession and administration of the land.
Issue: WON the alleged verbal agreement falls within the prohibition of the Statute of
Frauds
Held:
Yes. The alleged verbal agreement appears to be one with terms of non-performance
within one year. In such case, all that is required is complete performance within one
year by one party. Nothing less than full performance by one party will suffice. Babao,
therefore, did not fully comply with the alleged contract. Also, the agreement cannot be
considered as a sale of real property
or of an interest therein, which could accept the partial performance of Babao. It is
because such an oral agreement must not be vague and ambiguous for it to be
enforceable on the ground of partial performance. It must be clear and definite. In this
case, the agreement did not specify the number of hectares to be planted with
coconuts, rice, corn or other crops. A witness even testified to the vagueness and
ambiguity of the agreement. Therefore, Babao cannot recover half of the land by virtue
of the oral agreement. His oral evidence was submitted in violation of the Statute of
Frauds.
Cabague v. Auxilio (1952) Facts:
Auxilio and his daughter promised marriage to Cabagues son on the condition that the
Cabagues would improve the Auxilios house and spend for the wedding feast and the
needs of the bride. Relying on the other partys promise, the Cabagues made the
improvement and spent P700. The Auxilios, however, refused to fulfill their part.
Issue: WON their oral transaction may be proved in court
Held:
No. The transaction actually involves two kinds of agreements. One is the lovers
mutual promise to marry. The other is an agreement made upon consideration of the
marriage. Cabagues son may sue the girl for damages by reason of breach of their
mutual promise to marry. But Cabague cannot sue anyone for the other agreement. It
cannot be enforced because it was covered by the Statute of Frauds oral evidence is
not admissible to prove an agreement made upon the consideration of marriage, other
than a mutual promise to marry.
Litonjua v. Fernandez (2004) Facts:
Two brokers offered to sell parcels of land in San Pablo City to the Litonjuas. They
arranged to meet Fernandez who was representing the owners of the said land. It was
agreed that the Litonjuas would purchase the land, and such sale would be finalized on
a certain date. This did not take place because Fernandez was encountering some
problems with the tenants. The Litonjuas demanded the finalization of the transaction,
the execution of the Deed of Absolute Sale, and the turnover of the subject properties.
In reply, Fernandez wrote a letter denying her agreement to sell the land. She also said
that because of the problem with the tenants, the sale would not push through
anymore. They would no longer be selling the property until all the problems had been
settled.
The right to set up the defense of illegality cannot be waived (Art. 1409), and may be
considered on appeal even if not raised in the trial court.
The defense of illegality of contracts is not available to third persons whose interests
are not directly affected (Art. 1421).
Cannot give rise to a contract; a contract which is the direct result of a previous illegal
contract is also void and inexistent (Art. 1422)
Generally produces no effect
No action for annulment is necessary, because the nullity exists ipso jure; a judgment of
nullity would be merely declaratory
Cannot be ratified (Art. 1409)
Technically, the action to annul a void or inexistent contract does not
prescribe. Nonetheless, it may be barred by laches.
Void Contract
Rescissible Contract
Defect inherent in the contract itself Defect in their effects, either to one of
the parties or a third party
Nullity a matter of law and public
Nullity based on equity and more a
interest
matter of private interest
No legal effects even if no action is Remains valid and produces all its
taken to set it aside
effects if no action is taken to set it
aside
Action to declare nullity never
Action to rescind prescribes
prescribes
Void Contract
Voidable Contract
Cannot be ratified
May be ratified
Generally, effects are not produced at
Produces effects until annulled
all
Ordinarily, the defect is that public
The defect is due to incapacity or
policy is militated againstvitiated consent
Void from the very beginning so
Valid until annulled
generally, no action is required to set
it aside, unless the contract has
already been performed
Cannot be cured by prescription
May be cured by prescription
Defense may be availed of by anybody
Defense may be invoked only by the
whose interest is directly affected
parties, principally or subsidiarily
liable, or their successors in interest
and privies
Referred to as absolute nullity
Referred to as relative or conditional
nullity
Void Contract
Unenforceable Contract
Cannot be ratified
May be ratified
No contract at all
There is a contract but it cannot be
enforced by a court action
Can be assailed by anybody directly Cannot be assailed by third parties
affected
7 Kinds of Void and Inexistent Contracts (Art. 1409)
Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy
o Restricts the freedom to contract
50
Those which are absolutely simulated or fictitious

If relatively simulated, the hidden or intended contract is generally binding.
to the people and be voted to public office. Such rights may not be bargained for they
are conferred for the public good and interest. The action for damages by Saura cannot
be entertained because it would result in limiting the choice of the electors to only those
persons selected by a small group or party bosses.
Those whose cause or object did not exist at the time of the transaction
But there can be valid contracts involving future property, e.g. sale of future or afteracquired property
Those whose object is outside the commerce of men
Those which contemplate an impossible service
Those where the intention of the parties relative to the principal object of
the contract cannot be ascertained
Those expressly prohibited or declared void by law
Effects of Declaration of Nullity

If the act in which the unlawful or forbidden cause consists constitutes a
criminal offense: (Art. 1411)
If both parties are in pari delicto: no action against each other and both shall be
prosecuted
If only one of the parties is at fault: the innocent one may claim what he/she has given
and shall not be bound to comply with his promise
On Labor:
If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense: (Art. 1412)
When the law fixes, or authorizes the fixing of the maximum number of
hours of labor, and a contract is entered into whereby a laborer undertakes to work
longer than the maximum thus fixed, he may demand additional compensation for
service rendered beyond the time limit (Art. 1418).
If both are in pari delicto: cannot recover and cannot demand performance against
each other
When the law sets, or authorizes the setting of a minimum wage for
laborers, and a contract is agreed upon by which a laborer accepts a lower wage, he
shall be entitled to recover the deficiency (Art. 1419).
Cui v. Arellano (1961) Facts:
Cui was enrolled in the College of Law of Arellano University up to the first semester of
his senior year. All the time, he was awarded scholarship grants for scholastic merit. He
was made to sign the following contract or agreement: In consideration of the
scholarship granted to me by the University, I hereby waive my right to transfer to
another school without having refunded to the University (defendant) the equivalent of
my scholarship cash. His semestral tuition was returned to him at the end of the
semester. Capistrano, his uncle was the dean and legal counsel of the said college. But
he left to accept the deanship and chancellorship of the College of Law of Abad Santos
University. Cui could not pay his tuition in Arellano University, and so he enrolled for the
last semester
of his fourth year law in Abad Santos University where he subsequently graduated. For
his application to take the bar exam, he requested his transcript of records from
Arellano University. The latter refused. Cui was asked to pay back the tuition refunded
to him, totaling P1,033.87. He paid the amount under protest. The Bureau of Private
Schools previously issued a memorandum on the subject of scholarship. It upheld Cuis
right to secure his transcript of records without being required to refund.
Issue: WON the contract signed by Cui, waiving his right to transfer to another school
without refunding to Arellano the equivalent of scholarships, is valid
If only one of the parties is at fault: the innocent one may claim what he/she has given
and shall not be bound to comply with his promise
When else may recovery be allowed?
By the debtor: interest paid in excess of the interest allowed by the usury laws, with
interest thereon from the date of the payment (Art. 1413)
By the party repudiating the contract: the money paid or property delivered for an illegal
purpose, when the purpose has not been accomplished or there was no damage
caused to a third person yet, ONLY IF it will further public interest, as will be decided by
the courts (Art. 1414)
By the incapacitated person: money or property paid or delivered in an illegal contract
(Art. 1415)
By the plaintiff: money or property paid or delivered in a merely prohibited agreement
(not illegal per se), and that prohibition is for his/her protection, ONLY IF public policy
will be enhanced (Art. 1416)
By a purchaser: amount in excess of the maximum price, when there is a statute
determining the price of any article or commodity (Art. 1417)
Yu Bun Guan v. Ong (2001)
Facts:
No. The stipulation in question is contrary to public policy, and hence, null and void. The
memorandum issued merely incorporates a sound principle of public policy.
Scholarships are awarded in recognition of merit, and not to keep outstanding students
in school to bolster its prestige. The practice of awarding scholarships to attract
students and keep them in school is not good customs nor has it received some kind of
social and practical confirmation. Scholarships are granted not to attract and to keep
brilliant students in school for propaganda, but to reward merit or help gifted students in
whom society has an established interest.
Ong and Guan were married according to Chinese rites. Using her personal funds, Ong
purchased a parcel of land in Rizal, and registered it under her name. Using their
conjugal funds, the couple purchased a house and lot, registered in their names. Guan
abandoned his wife and three children. But before they got separated, Ong was
convinced by Guan to execute a Deed of Sale of her property in Rizal to him. In return,
Guan promised to construct a commercial building for their children. The consideration
for the simulated sale was a Deed of Absolute Sale to be executed in favor of their
children and that he would pay the loan he obtained. Guan did not pay the
consideration of P200,000 for the sale. Ong kept the new TCT to insure that Guan
would do what he promised.
Saura v. Sindico (1960) Facts:
Issue: WON the in pari delicto principle applies to absolutely simulated or fictitious
contracts
Held:
Saura and Sindico were contesting for nomination as the official candidate of the
Nacionalista party in the congressional elections. They entered into a written agreement
containing a pledge that no one of them shall either run as a rebel or independent
candidate after losing in said convention. Saura was chosen as the Nacionalista Partys
candidate. Sindico, however, still filed her certificate of candidacy for the same office.
Hence, this suit for the recovery of damages for breach of contract.
Issue: WON the written agreement was null and void
Held:
Held:
No. A deed of sale, where the stated consideration has not been paid, is null and void.
The sale in this case was absolutely simulated, thus, void. When the nullity arises from
the illegality of the consideration or the purpose of the contract, recovery to the guilty
parties is denied. But it is different with inexistent contracts such as the simulated sale
between Guan and Ong. In this case, Ong was not in pari delicto with Guan. The
contract was fictitious due to the lack of consideration. The land in Rizal may be
recovered by Ong who purchased the land using her personal funds. The transfer
certificate of title was cancelled, there being no legal basis for its issuance.
Yes. Certain rights of individuals, which the law and public policy have deemed wise to
exclude from the commerce of man, may not be the object of contracts. These include
political rights inferred upon citizens, i.e., right to vote, right to present ones candidacy
51

Civil Obligations

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CIVIL OBLIGATIONS

JURIDICAL NECESSITY juridical tie; connotes that in case of noncompliance, there

B. From the viewpoint of subject matter -

POSITIVE OR AFFIRMATIVE OBLIGATION the obligation to give or to do

UNILATERAL where only one of the parties is bound

ACTIVE SUBJECT (Creditor / Obligee) the person who is demanding the

Requisites of Prestation / Object:

LAW (Obligation ex lege) imposed by law itself; must be expressly or impliedly

REAL OBLIGATION the obligation to give

CONTRACTS (Obligation ex contractu) arise from stipulations of the parties:

COMPLIANCE IN GOOD FAITH compliance or performance in accordance with the

when acquittal is due to reasonable doubt no civil liability

when acquittal is due to exempting circumstances there is civil liability

when there is preponderance of evidence there is civil liability

Reliance interest - the interest of a party to a breached contract in being

QUASI-DELICT (culpa aquiliana) an act or omission by a person which causes

Fault or Negligence consists in the omission of that diligence which is required by

RULE 111 - Prosecution of Civil Action

offended party waives the civil action

reserves the right to institute it separately

institutes the civil action prior to the criminal action.

SAGRADA ORDEN v NACOCO

FACTS: Proprietress of a school canteen found foreign substances in the softdrinks

Defined in the negative in Article 1173

ANOTHER STANDARD OF CARE extraordinary diligence provided in the stipulation

FACTORS TO BE CONSIDERED diligence depends on the nature of obligation and

Expectation interest - the interest of a party to a breached contract in receiving

PERSONAL RIGHT (jus ad rem) a right pertaining to a person to demand from

performance, that which is expected of a good father of a family shall be required.

a right enforceable only against a definite person or group of persons.

*This provision applies to an obligation to give.

-When the law or obligation so expressly declares;

COMPENSATIO MORAE delay of the obligors in reciprocal obligation. Effect:

Art. 712. Ownership is acquired by occupation and by intellectual creation.

They may also be acquired by means of prescription.

When the obligation or the law expressly so declare; or

TWO TYPES OF NEGLIGENCE

EXEMPLARY - Exemplary or corrective damages are imposed, by way of example or

ACTUAL / COMPENSATORY - adequate compensation only for such pecuniary loss

- Source of obligation: contract

- a. If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove

- Source of obligation: contract of carriage

To pay for damages in case of fraud, negligence, delay or contravention of tenor

When the obligation or the law expressly so declare; or

- there are no moral damages since it requires the following:

A. Pure and Conditional Obligations

* This provision applies to an obligation to do.

To pay for damages in case of fraud, negligence, delay or contravention of tenor

What is a resolutory condition?

Every obligation which contains a resolutory condition shall also be demandable,

When the obligation or the law expressly so declare; or

(see annotations above)

II. Kinds of Obligations

Art. 1310. The determination shall not be obligatory if it is evidently inequitable. In

is a potestative condition, is correct. However, it must have overlooked the other

Kinds of Potestative Condition

- telephone service had been categorized by the National Telecommunication

What is the effect of impossible conditions? Illegal conditions?

Positive condition refers to the fulfillment of an event or performance of an act

Actions available to the creditor:

POSITIVE SUSPENSIVE CONDITION

1185 (NEGATIVE SUSPENSIVE)

Requisites of a period future, certain, possible