ObliCon Vitug

TABLE OF CONTENTS
BOOK IV
OBLIGATIONS AND CONTRACTS
TITLE I OBLIGATIONS
Chapter 1 GENERAL PROVISIONS
Article 1156 ........................................................................... 1

Article 1157 ........................................................................... 1
Article 1158 ........................................................................... 1
Article 1159 ........................................................................... 1
Article 1160 ........................................................................... 1
Article 1161 ........................................................................... 1
Article 1162 ........................................................................... 2
Chapter 2 NATURE AND EFFECT

OF OBLIGATIONS
Article 1163 ........................................................................... 4

Article 1164 ........................................................................... 4
Article 1165 ........................................................................... 4
Article 1166 ........................................................................... 4
Article 1167 ........................................................................... 4
Article 1168 ........................................................................... 4
Article 1169 ........................................................................... 4
Article 1170 ........................................................................... 5
Article 1171 ........................................................................... 5
Article 1172 ........................................................................... 5
Article 1173 ........................................................................... 5
Article 1174 ........................................................................... 6
Article 1175 ........................................................................... 6
Article 1176 ........................................................................... 6
Article 1177 ........................................................................... 6
Article 1178 ........................................................................... 6
iii
Chapter 3 DIFFERENT KINDS
OF OBLIGATIONS
Section 1 Pure and Conditional Obligations
Article 1179 ........................................................................... 27

Article 1180 ........................................................................... 28
Article 1181 ........................................................................... 28
Article 1182 ........................................................................... 28
Article 1183 ........................................................................... 28
Article 1184 ........................................................................... 28
Article 1185 ........................................................................... 28
Article 1186 ........................................................................... 29
Article 1187 ........................................................................... 29
Article 1188 ........................................................................... 29
Article 1189 ........................................................................... 29
Article 1190 ........................................................................... 30
Article 1191 ........................................................................... 30
Article 1192 ........................................................................... 31
Section 2 Obligations with a Period
Article 1193 ........................................................................... 38

Article 1194 ........................................................................... 39
Article 1195 ........................................................................... 39
Article 1196 ........................................................................... 39
Article 1197 ........................................................................... 39
Article 1198 ........................................................................... 39
Section 3 Alternative Obligations
Article 1199 ........................................................................... 43

Article 1200 ........................................................................... 43
Article 1201 ........................................................................... 44
Article 1202 ........................................................................... 44
Article 1203 ........................................................................... 44
Article 1204 ........................................................................... 44
Article 1205 ........................................................................... 44
Article 1206 ........................................................................... 45
Section 4 Joint and Solidary Obligations
Article 1207 ........................................................................... 48

Article 1208 ........................................................................... 48
Article 1209 ........................................................................... 49
Article 1210 ........................................................................... 49
Article 1211 ........................................................................... 49
Article 1212 ........................................................................... 49
iv
Article 1213 ........................................................................... 49
Article 1214 ........................................................................... 49
Article 1215 ........................................................................... 49
Article 1216 ........................................................................... 49
Article 1217 ........................................................................... 50
Article 1218 ........................................................................... 50
Article 1219 ........................................................................... 50
Article 1220 ........................................................................... 50
Article 1221 ........................................................................... 50
Article 1222 ........................................................................... 51
Section 5 Divisible and Indivisible

Obligations
Article 1223 ........................................................................... 55

Article 1224 ........................................................................... 56
Article 1225 ........................................................................... 56
Section 6 Obligations with a

Penal Clause
Article 1226 ........................................................................... 57

Article 1227 ........................................................................... 57
Article 1228 ........................................................................... 58
Article 1229 ........................................................................... 58
Article 1230 ........................................................................... 58
Chapter 4 EXTINGUISHMENT OF
OBLIGATIONS
GENERAL PROVISIONS
Article 1231 ........................................................................... 61
Section 1 Payment or Performance
Article 1232 ........................................................................... 62

Article 1233 ........................................................................... 62
Article 1234 ........................................................................... 62
Article 1235 ........................................................................... 62
Article 1236 ........................................................................... 62
Article 1237 ........................................................................... 62
Article 1238 ........................................................................... 62
Article 1239 ........................................................................... 63
Article 1240 ........................................................................... 63
Article 1241 ........................................................................... 63
v
Article 1242 ........................................................................... 63
Article 1243 ........................................................................... 63
Article 1244 ........................................................................... 63
Article 1245 ........................................................................... 64
Article 1246 ........................................................................... 64
Article 1247 ........................................................................... 64
Article 1248 ........................................................................... 64
Article 1249 ........................................................................... 64
Article 1250 ........................................................................... 65
Article 1251 ........................................................................... 65
Article 1252 ........................................................................... 78
Article 1253 ........................................................................... 78
Article 1254 ........................................................................... 78
Article 1255 ........................................................................... 80
Article 1256 ........................................................................... 81
Article 1257 ........................................................................... 82
Article 1258 ........................................................................... 82
Article 1259 ........................................................................... 82
Article 1260 ........................................................................... 82
Article 1261 ........................................................................... 82
Section 2 Loss of the Thing Due
Article 1262 ........................................................................... 85

Article 1263 ........................................................................... 85
Article 1264 ........................................................................... 85
Article 1265 ........................................................................... 85
Article 1266 ........................................................................... 86
Article 1267 ........................................................................... 86
Article 1268 ........................................................................... 86
Article 1269 ........................................................................... 86
Section 3 Condonation or Remission

of the Debt
Article 1270 ........................................................................... 89

Article 1271 ........................................................................... 90
Article 1272 ........................................................................... 90
Article 1273 ........................................................................... 90
Article 1274 ........................................................................... 90
Section 4 Confusion or Merger

of Rights
Article 1275 ........................................................................... 91

Article 1276 ........................................................................... 91
Article 1277 ........................................................................... 91
vi
Section 5 Compensation
Article 1278 ........................................................................... 92

Article 1279 ........................................................................... 92
Article 1280 ........................................................................... 92
Article 1281 ........................................................................... 93
Article 1282 ........................................................................... 93
Article 1283 ........................................................................... 93
Article 1284 ........................................................................... 93
Article 1285 ........................................................................... 93
Article 1286 ........................................................................... 93
Article 1287 ........................................................................... 93
Article 1288 ........................................................................... 94
Article 1289 ........................................................................... 94
Article 1290 ........................................................................... 94
Section 6 Novation
Article 1291 ........................................................................... 97

Article 1292 ........................................................................... 97
Article 1293 ........................................................................... 97
Article 1294 ........................................................................... 97
Article 1295 ........................................................................... 98
Article 1296 ........................................................................... 98
Article 1297 ........................................................................... 98
Article 1298 ........................................................................... 98
Article 1299 ........................................................................... 98
Article 1300 ........................................................................... 98
Article 1301 ........................................................................... 98
Article 1302 ........................................................................... 98
Article 1303 ........................................................................... 99
Article 1304 ........................................................................... 99
TITLE II CONTRACTS
Article 1305 ........................................................................... 106

Article 1306 ........................................................................... 106
Article 1307 ........................................................................... 106
Article 1308 ........................................................................... 106
Article 1309 ........................................................................... 106
Article 1310 ........................................................................... 106
Article 1311 ........................................................................... 106
Article 1312 ........................................................................... 107
Article 1313 ........................................................................... 107
Article 1314 ........................................................................... 107
vii
Article 1315 ........................................................................... 107
Article 1316 ........................................................................... 107
Article 1317 ........................................................................... 107
Chapter 2 ESSENTIAL REQUISITES

OF CONTRACTS
GENERAL PROVISIONS
Article 1318 ........................................................................... 119

Article 1319 ........................................................................... 123
Article 1320 ........................................................................... 123
Article 1321 ........................................................................... 123
Article 1322 ........................................................................... 123
Article 1323 ........................................................................... 123
Article 1324 ........................................................................... 123
Article 1325 ........................................................................... 123
Article 1326 ........................................................................... 124
Article 1327 ........................................................................... 124
Article 1328 ........................................................................... 124
Article 1329 ........................................................................... 124
Article 1330 ........................................................................... 124
Article 1331 ........................................................................... 124
Article 1332 ........................................................................... 124
Article 1333 ........................................................................... 124
Article 1334 ........................................................................... 125
Article 1335 ........................................................................... 125
Article 1336 ........................................................................... 125
Article 1337 ........................................................................... 125
Article 1338 ........................................................................... 125
Article 1339 ........................................................................... 125
Article 1340 ........................................................................... 125
Article 1341 ........................................................................... 126
Article 1342 ........................................................................... 126
Article 1343 ........................................................................... 126
Article 1344 ........................................................................... 126
Article 1345 ........................................................................... 126
Article 1346 ........................................................................... 126
Article 1347 ........................................................................... 133
Article 1348 ........................................................................... 133
Article 1349 ........................................................................... 133
Article 1350 ........................................................................... 134
Article 1351 ........................................................................... 134
Article 1352 ........................................................................... 134
Article 1353 ........................................................................... 134
Article 1354 ........................................................................... 135
Article 1355 ........................................................................... 135
viii
Chapter 3 FORM OF CONTRACTS
Article 1356 ........................................................................... 137

Article 1357 ........................................................................... 137
Article 1358 ........................................................................... 138
Chapter 4 REFORMATION OF
INSTRUMENTS (n)
Article 1359 ........................................................................... 143

Article 1360 ........................................................................... 143
Article 1361 ........................................................................... 143
Article 1362 ........................................................................... 143
Article 1363 ........................................................................... 144
Article 1364 ........................................................................... 144
Article 1365 ........................................................................... 144
Article 1366 ........................................................................... 144
Article 1367 ........................................................................... 144
Article 1368 ........................................................................... 144
Article 1369 ........................................................................... 144
Chapter 5 INTERPRETATION
OF CONTRACTS
Article 1370 ........................................................................... 146

Article 1371 ........................................................................... 147
Article 1372 ........................................................................... 147
Article 1373 ........................................................................... 147
Article 1374 ........................................................................... 147
Article 1375 ........................................................................... 147
Article 1376 ........................................................................... 147
Article 1377 ........................................................................... 147
Article 1378 ........................................................................... 147
Article 1379 ........................................................................... 148
Chapter 6 RESCISSIBLE CONTRACTS
Article 1380 ........................................................................... 150

Article 1381 ........................................................................... 150
Article 1382 ........................................................................... 151
Article 1383 ........................................................................... 151
Article 1384 ........................................................................... 151
Article 1385 ........................................................................... 151
Article 1386 ........................................................................... 151
Article 1387 ........................................................................... 152
Article 1388 ........................................................................... 152
Article 1389 ........................................................................... 152
ix
Chapter 7 VOIDABLE CONTRACTS
Article 1390 ........................................................................... 158

Article 1391 ........................................................................... 158
Article 1392 ........................................................................... 158
Article 1393 ........................................................................... 159
Article 1394 ........................................................................... 159
Article 1395 ........................................................................... 159
Article 1396 ........................................................................... 159
Article 1397 ........................................................................... 159
Article 1398 ........................................................................... 159
Article 1399 ........................................................................... 159
Article 1400 ........................................................................... 159
Article 1401 ........................................................................... 160
Article 1402 ........................................................................... 160
Chapter 8 UNENFORCEABLE
CONTRACTS (n)
Article 1403 ........................................................................... 163

Article 1404 ........................................................................... 165
Article 1405 ........................................................................... 165
Article 1406 ........................................................................... 165
Article 1407 ........................................................................... 165
Article 1408 ........................................................................... 165
Chapter 9 VOID OR INEXISTENT

CONTRACTS
Article 1409 ........................................................................... 168

Article 1410 ........................................................................... 169
Article 1411 ........................................................................... 169
Article 1412 ........................................................................... 169
Article 1413 ........................................................................... 169
Article 1414 ........................................................................... 170
Article 1415 ........................................................................... 170
Article 1416 ........................................................................... 170
Article 1417 ........................................................................... 170
Article 1418 ........................................................................... 170
Article 1419 ........................................................................... 170
Article 1420 ........................................................................... 170
Article 1421 ........................................................................... 171
Article 1422 ........................................................................... 171
TITLE III NATURAL OBLIGATIONS
Article 1423 ........................................................................... 176

Article 1424 ........................................................................... 176
x
Article 1425 ........................................................................... 176
Article 1426 ........................................................................... 176
Article 1427 ........................................................................... 176
Article 1428 ........................................................................... 177
Article 1429 ........................................................................... 177
Article 1430 ........................................................................... 177
TITLE IV ESTOPPEL (n)
Article 1431 ........................................................................... 180

Article 1432 ........................................................................... 180
Article 1433 ........................................................................... 180
Article 1434 ........................................................................... 180
Article 1435 ........................................................................... 180
Article 1436 ........................................................................... 180
Article 1437 ........................................................................... 180
Article 1438 ........................................................................... 181
Article 1439 ........................................................................... 181
TITLE V TRUSTS
Article 1440 ........................................................................... 190

Article 1441 ........................................................................... 190
Article 1442 ........................................................................... 190
Chapter 2 EXPRESS TRUSTS
Article 1443 ........................................................................... 192

Article 1444 ........................................................................... 192
Article 1445 ........................................................................... 192
Article 1446 ........................................................................... 192
Chapter 3 IMPLIED TRUSTS
Article 1447 ........................................................................... 193

Article 1448 ........................................................................... 193
Article 1449 ........................................................................... 194
Article 1450 ........................................................................... 194
Article 1451 ........................................................................... 194
Article 1452 ........................................................................... 194
Article 1453 ........................................................................... 194
Article 1454 ........................................................................... 194
Article 1455 ........................................................................... 194
Article 1456 ........................................................................... 195
Article 1457 ........................................................................... 195
xi
SPECIAL CONTRACTS
TITLE VI SALES
Chapter 1 NATURE AND FORM

OF THE CONTRACT
Article 1458 ........................................................................... 199

Article 1459 ........................................................................... 199
Article 1460 ........................................................................... 199
Article 1461 ........................................................................... 199
Article 1462 ........................................................................... 200
Article 1463 ........................................................................... 200
Article 1464 ........................................................................... 200
Article 1465 ........................................................................... 200
Article 1466 ........................................................................... 200
Article 1467 ........................................................................... 200
Article 1468 ........................................................................... 201
Article 1469 ........................................................................... 201
Article 1470 ........................................................................... 201
Article 1471 ........................................................................... 201
Article 1472 ........................................................................... 201
Article 1473 ........................................................................... 201
Article 1474 ........................................................................... 202
Article 1475 ........................................................................... 202
Article 1476 ........................................................................... 202
Article 1477 ........................................................................... 203
Article 1478 ........................................................................... 203
Article 1479 ........................................................................... 203
Article 1480 ........................................................................... 203
Article 1481 ........................................................................... 203
Article 1482 ........................................................................... 203
Article 1483 ........................................................................... 204
Article 1484 ........................................................................... 204
Article 1485 ........................................................................... 204
Article 1486 ........................................................................... 204
Article 1487 ........................................................................... 204
Article 1488 ........................................................................... 204
Chapter 2 CAPACITY TO BUY OR SELL
Article 1489 ........................................................................... 205

Article 1490 ........................................................................... 205
Article 1491 ........................................................................... 205
Article 1492 ........................................................................... 206
xii
Chapter 3 EFFECTS OF THE CONTRACT
WHEN THE THING SOLD HAS BEEN LOST
Article 1493 ........................................................................... 224

Article 1494 ........................................................................... 224
Chapter 4 OBLIGATIONS OF THE VENDOR
Section 1 General Provisions
Article 1495 ........................................................................... 224

Article 1496 ........................................................................... 224
Section 2 Delivery of the Thing Sold
Article 1497 ........................................................................... 225

Article 1498 ........................................................................... 225
Article 1499 ........................................................................... 225
Article 1500 ........................................................................... 225
Article 1501 ........................................................................... 225
Article 1502 ........................................................................... 225
Article 1503 ........................................................................... 226
Article 1504 ........................................................................... 227
Article 1505 ........................................................................... 227
Article 1506 ........................................................................... 228
Article 1507 ........................................................................... 230
Article 1508 ........................................................................... 230
Article 1509 ........................................................................... 231
Article 1510 ........................................................................... 231
Article 1511 ........................................................................... 231
Article 1512 ........................................................................... 232
Article 1513 ........................................................................... 232
Article 1514 ........................................................................... 232
Article 1515 ........................................................................... 233
Article 1516 ........................................................................... 233
Article 1517 ........................................................................... 233
Article 1518 ........................................................................... 233
Article 1519 ........................................................................... 234
Article 1520 ........................................................................... 234
Article 1521 ........................................................................... 244
Article 1522 ........................................................................... 245
Article 1523 ........................................................................... 245
Article 1524 ........................................................................... 246
Article 1525 ........................................................................... 246
Article 1526 ........................................................................... 246
Article 1527 ........................................................................... 247
Article 1528 ........................................................................... 247
Article 1529 ........................................................................... 247
xiii
Article 1530 ........................................................................... 248
Article 1531 ........................................................................... 248
Article 1532 ........................................................................... 249
Article 1533 ........................................................................... 249
Article 1534 ........................................................................... 250
Article 1535 ........................................................................... 251
Article 1536 ........................................................................... 251
Article 1537 ........................................................................... 251
Article 1538 ........................................................................... 251
Article 1539 ........................................................................... 251
Article 1540 ........................................................................... 252
Article 1541 ........................................................................... 252
Article 1542 ........................................................................... 252
Article 1543 ........................................................................... 252
Article 1544 ........................................................................... 253
Article 1545 ........................................................................... 264
Article 1546 ........................................................................... 264
Article 1547 ........................................................................... 265
Subsection 1 Warranty in Case

of Eviction
Article 1548 ........................................................................... 265

Article 1549 ........................................................................... 265
Article 1550 ........................................................................... 266
Article 1551 ........................................................................... 266
Article 1552 ........................................................................... 266
Article 1553 ........................................................................... 266
Article 1554 ........................................................................... 266
Article 1555 ........................................................................... 266
Article 1556 ........................................................................... 267
Article 1557 ........................................................................... 267
Article 1558 ........................................................................... 267
Article 1559 ........................................................................... 267
Article 1560 ........................................................................... 267
Subsection 2 Warranty Against Hidden

Defects of or Encumbrances Upon
the Thing Sold
Article 1561 ........................................................................... 268

Article 1562 ........................................................................... 268
Article 1563 ........................................................................... 268
Article 1564 ........................................................................... 268
Article 1565 ........................................................................... 269
Article 1566 ........................................................................... 269
Article 1567 ........................................................................... 269
Article 1568 ........................................................................... 269
xiv
Article 1569 ........................................................................... 269
Article 1570 ........................................................................... 269
Article 1571 ........................................................................... 269
Article 1572 ........................................................................... 270
Article 1573 ........................................................................... 270
Article 1574 ........................................................................... 270
Article 1575 ........................................................................... 270
Article 1576 ........................................................................... 270
Article 1577 ........................................................................... 270
Article 1578 ........................................................................... 271
Article 1579 ........................................................................... 271
Article 1580 ........................................................................... 271
Article 1581 ........................................................................... 271
Chapter 5 OBLIGATIONS OF THE

VENDEE
Article 1582 ........................................................................... 281

Article 1583 ........................................................................... 281
Article 1584 ........................................................................... 281
Article 1585 ........................................................................... 282
Article 1586 ........................................................................... 282
Article 1587 ........................................................................... 282
Article 1588 ........................................................................... 282
Article 1589 ........................................................................... 282
Article 1590 ........................................................................... 286
Article 1591 ........................................................................... 287
Article 1592 ........................................................................... 287
Article 1593 ........................................................................... 287
Chapter 6 ACTIONS FOR BREACH OF

CONTRACT OF SALE OF GOODS
Article 1594 ........................................................................... 306

Article 1595 ........................................................................... 307
Article 1596 ........................................................................... 307
Article 1597 ........................................................................... 308
Article 1598 ........................................................................... 308
Article 1599 ........................................................................... 308
Chapter 7 EXTINGUISHMENT
OF SALE
Article 1600 ........................................................................... 313
Section 1 Conventional Redemption
Article 1601 ........................................................................... 313

Article 1602 ........................................................................... 313
xv
Article 1603 ........................................................................... 314
Article 1604 ........................................................................... 314
Article 1605 ........................................................................... 314
Article 1606 ........................................................................... 314
Article 1607 ........................................................................... 315
Article 1608 ........................................................................... 315
Article 1609 ........................................................................... 315
Article 1610 ........................................................................... 315
Article 1611 ........................................................................... 315
Article 1612 ........................................................................... 315
Article 1613 ........................................................................... 315
Article 1614 ........................................................................... 316
Article 1615 ........................................................................... 316
Article 1616 ........................................................................... 316
Article 1617 ........................................................................... 316
Article 1618 ........................................................................... 316
Section 2 Legal Redemption
Article 1619 ........................................................................... 324

Article 1620 ........................................................................... 324
Article 1621 ........................................................................... 324
Article 1622 ........................................................................... 324
Article 1623 ........................................................................... 325
Chapter 8 ASSIGNMENT OF CREDITS

AND OTHER INCORPOREAL RIGHTS
Article 1624 ........................................................................... 330

Article 1625 ........................................................................... 330
Article 1626 ........................................................................... 330
Article 1627 ........................................................................... 330
Article 1628 ........................................................................... 330
Article 1629 ........................................................................... 331
Article 1630 ........................................................................... 331
Article 1631 ........................................................................... 331
Article 1632 ........................................................................... 331
Article 1633 ........................................................................... 331
Article 1634 ........................................................................... 331
Article 1635 ........................................................................... 332
Article 1636 ........................................................................... 335

Article 1637 ........................................................................... 336
xvi
TITLE VII BARTER OR EXCHANGE
Article 1638 ........................................................................... 337

Article 1639 ........................................................................... 337
Article 1640 ........................................................................... 337
Article 1641 ........................................................................... 337
xvii
CIVIL LAW
By
JOSE C. VITUG, LL.B., LL.M., M.N.S.A.

Senior Professor, Philippine Judicial Academy
Formerly an Associate Justice of the Supreme Court
of the Philippines
Volume III
(Articles 1156-1641)
Second Edition
2006
Published & Distributed by
856 Nicanor Reyes, Sr. St.

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1
BOOK IV
OBLIGATIONS AND CONTRACTS
TITLE I. OBLIGATIONS
Chapter 1
General Provisions
Article 1156. An obligation is a juridical necessity

to give, to do or not to do. (n)
Art. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. (1089a)
Art. 1158. Obligations derived from law are not
presumed. Only those expressly determined in this
Code or 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 Book. (1090)
Art. 1159. Obligations arising from contracts have
the force of law between the contracting parties and
should be complied with in good faith. (1091a)
Art. 1160. Obligations derived from quasi-contracts
shall be subject to the provisions of Chapter 1, Title
XVII, of this Book. (n)
Art. 1161. Civil obligations arising from criminal
offenses shall be governed by the penal laws, subject
1
2 CIVIL LAW Arts. 1156-1162
to the provisions of Article 2177, and of the pertinent

provisions of Chapter 2, Preliminary Title, on Human
Relations, and of Title XVIII of this Book, regulating
damages. (1092a)
Art. 1162. Obligations derived from quasi-delicts
shall be governed by the provisions of Chapter 2, Title
XVII of this Book, and by special laws. (1093a)
Concept and Birth of Obligations

An obligation, a juridical necessity to give, to do or
not to do, is constituted upon the concurrence of the
essential elements thereof, viz.: (a) the vinculum juris or
juridical tie which is the efficient cause established by
the various sources of obligations (law, contracts, quasi-
contracts, delicts, and quasi-delicts); (b) the object which
is the prestation or conduct required to be observed (to
give, to do, or not to do); and (c) the subject-persons who,
viewed from the demandability of the obligations, are the
active (obligee) and the passive (obligor) subjects.
The juridical tie binding the active and the passive
subjects together is created by any of the sources of
obligations expressed in Article 1157 of the Code (Leung
vs. OBrien, 38 Phil. 182), to wit:
(1) Law Obligations ex lege or those derived from
law are not presumed. Only those expressly
stated by the Code or by special laws are
demandable. They shall be regulated by the
precepts of the law which establishes them, and
as to what has been foreseen, by the provisions
of the Code on Obligations and Contracts (see
Art. 1158, Civil Code; Bautista vs. F.O. Borromeo,
Inc., 30 SCRA 119).
(2) Contracts A contract is a meeting of the minds
between two persons whereby one binds himself
to the other to give something or to render some
service (Art. 1305, Civil Code). Obligations
arising from contracts have the force of law
Arts. 1156-1162 OBLIGATIONS AND CONTRACTS 3
Title I. Obligations
between the contracting parties and should be

complied with in good faith (Art. 1159; see Art.
1308, Civil Code; see also Maritime Company of
the Philippines vs. Reparations Commission, 40
SCRA 170).
(3) Quasi-contracts Quasi-contracts are certain
lawful, voluntary and unilateral acts which give
rise to a juridical relation to the end that no
person may unjustly enrich himself at the
expense of another (Art. 2142, Civil Code).
Obligations derived from quasi-contracts based
on the presumed will of the parties are
demandable (see Title XVII, infra.; Cf. Art. 1160,
Civil Code).
(4) Acts or omissions punished by law Civil obli-
gations arising from criminal offenses are
governed by the penal laws, subject to the
provisions of Article 2177 and other pertinent
provisions of the Civil Code (see Preliminary
Title on Human Relations, supra., and Title XVII,
infra.; Tejuco vs. Squibb & Sons, 103 Phil. 594;
Art. 1161, Civil Code).
(5) Quasi-delicts Quasi-delicts are extra-con-
tractual relations resulting from certain acts or
omissions causing damage to another, there
being fault or negligence on the part of the per-
son responsible therefor (see Art. 2176, Civil
Code). Obligations may be derived from such
quasi-delicts (see Title XVII, infra.; Barredo vs.
Garcia, 73 Phil. 607; Art. 1162, Civil Code).
These sources of patrimonial obligations, as
distinguished from those that are correlatively due or
arising from purely personal and intransmissible rights,
are said to be exclusive (see Sagrado Orden de Predi-
cadores vs. NACOCO, 91 Phil. 503) and so of the essence
that those sources, independently, can justifiably be called
the fourth element of obligations.
Chapter 2
Nature and Effect of Obligations
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. (1094a)
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. (1095)
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
fortuitous event until he has effected the delivery. (1096)
Art. 1166. The obligation to give a determinate
thing includes that of delivering all its accessions and
accessories, even though they may not have been
mentioned. (1097a)
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)
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)
Art. 1169. Those obliged to deliver or to do some-
thing incur in delay from the time the obligee judicially
or extrajudicially demands from them the fulfillment of

their obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1) When the obligation or the law expressly so
declares; or
(2) When from the nature and 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
(3) 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)
Art. 1171. Responsibility arising from fraud is
demandable in all obligations. Any waiver of an action
for future fraud is void. (1102a)
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)
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, para-
graph 2, shall apply.
If the law or contract does not state the diligence

which is to be observed in the performance, that which
is expected of a good father of a family shall be
required. (1104a)
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)
Art. 1175. Usurious transactions shall be governed
by special laws. (n)
Art. 1176. The receipt of the principal by the
creditor, without reservation with respect to the interest,
shall give rise to the presumption that said interest
has been paid.
The receipt of a later installment of a debt without
reservation as to prior installments, shall likewise raise
the presumption that such installments have been paid.
(1110a)
Art. 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)
Art. 1178. Subject to the laws, all rights acquired
in virtue of an obligation are transmissible, if there has
been no stipulation to the contrary. (1112)
Compliance with Obligations

Basically, the standard norm in the observance of an
obligation by both the active and passive subjects may be
said to be that which Article 19 of the Code prescribes,
viz.: Every person must, in the exercise of his rights and
in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.
(1) In Obligations to Give

Every person obliged to give a determinate thing
must deliver, and the obligee may compel the delivery of,
that itself which was promised, and the obligor cannot
substitute it unless the obligee agrees (Art. 1244, in
relation to Art. 1165, Civil Code) or the right is reserved
such as in alternative obligations (see infra.). The obligor
is also obliged to take care of the things 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 (see Art. 1163, Civil Code; E. Razon, Inc. vs. Court of
Appeals, 161 SCRA 356). The obligation to give a deter-
minate thing includes that of delivering all its accessions
and accessories, even though they may not have been
mentioned (Art. 1166, Civil Code).
The creditor has a right to the fruits of the thing
from the time the obligation to deliver it arises. He shall,
however, acquire no real right (including ownership or
title) over it until the same has been delivered to him
(Art. 1164, Civil Code; Cruzado vs. Bustos, 34 Phil. 17;
see Art. 1187, infra., as regards conditional obligations).
If the thing to be delivered is generic, the obligor
must deliver a thing of the quality specified; if none is
fixed, he must deliver one of average quality, nor can the
obligee demand one of superior quality. The creditor may
ask that the obligation be complied with at the expense of
the debtor (see Art. 1246 and 1165, Civil Code).
(2) In Obligations to Do
If a person is obliged to do something, it must be
done as so promised, and it cannot be substituted by
another act or forbearance against the obligees will (see
Art. 1244, Civil Code). If the obligor fails to do it, the
same shall be executed at his cost (see Chavez vs. Gonzales,
32 SCRA 547) albeit he may not be compelled to do so
personally or by himself. 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 (see Art. 1167, Civil Code).
(3) In Obligations Not to Do

When the obligation consists in not doing, and the
obligor does what has been forbidden him, it shall be
undone at his expense (see Art. 1168, Civil Code; Cui vs.
Chan, 41 Phil. 523).
Breach of Obligations
Subject to such exceptions or qualifications as the
law or the parties themselves may provide, obligations
must be complied with precisely (identity of obligations)
and completely (integrity of obligations) as promised or
required. The receipt, however, of the principal by the
creditor, without reservation with respect to the interest,
shall give rise to the presumption that said interest has
been paid. The receipt of a later installment of a debt,
without reservation as to prior installments, shall likewise
raise the presumption that such installments have been
paid (Art. 1176, Civil Code; for further discussions on
Payment or Performance, see infra.).
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 without the need for a contractual stipulation
or prior agreement thereon (see Art. 1170, Civil Code;
Boysaw vs. Interphil Promotions, Inc., 148 SCRA 635;
Arrieta vs. NARIC, 10 SCRA 79; CMS Investments and
Management Corp. vs. Intermediate Appellate Court, 139
SCRA 75; Magat vs. Medialdea, 121 SCRA 418).
Fraud
Responsibility arising from fraud (malice) is demand-
able in all obligations. Any waiver of an action for future
fraud is void (Art. 1171, Civil Code).
Fraud, in the context of its use as a mode of breaching

an obligation, is bad faith in the performance of an
obligation, oftentimes referred to as malice (see Flores vs.
Miranda, 105 Phil. 266), as distinguished from fraud in
the celebration of contracts, also commonly known as
deceit (dolo) which may constitute a ground for annulment
of the contract if substantial (dolo causante) or which
may merely call for a reparation for damages if incidental
(dolo incidente), such as when, although fraud is absent
or not exercised, the other party would have nonetheless
entered into the agreement on significantly the same
terms.
Negligence
Responsibility arising from negligence in the per-
formance of every kind of obligation is also demandable,
but such liability may be regulated by the courts, according
to the circumstances of each case (Art. 1172, Civil Code;
E. Razon, Inc. vs. Court of Appeals, supra.).
The fault or negligence (culpa) 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.
If the law or contract does not state the diligence which is
to be observed in the performance, that which is expected
of a good father of a family shall be required (Art. 1173,
Civil Code). Gross or reckless imprudence could amount
to or be indicative of bad faith that can call for the
application of the provisions of Article 1171 on Fraud and
Article 2201, 2nd paragraph, on Damages.
Negligence in the performance of obligations, in
general, although akin in many respects to, is not exactly
the same as, culpa contractual. The source of liability in
culpa contractual being contracts exclusively, the rule on
the privity or relativity of contracts applicable to liability
in culpa contractual may not accurately be pertinent to
culpa in the performance of obligations derived from other

sources such as law. Neither is negligence in the
performance of an obligation and culpa contractual, on
the one hand, to be likened to culpa aquiliana, on the
other, which is the negligence referred to as a quasi-delict
(Art. 2176, Civil Code) as a source of an obligation (Art.
1157, Civil Code). The distinctions between culpa
contractual and culpa aquiliana (see Cangco vs. Manila
Railroad Co., 38 Phil. 769; Rakes vs. AG & P, 7 Phil. 359)
may be exemplified in the following illustrative appli-
cation:
Facts
Two taxicabs, one owned and operated by X & Co.
and the other by Y & Co., have figured in a collision.
Both drivers of the taxicabs are negligent. As a result of
the incident, A, a passenger of the taxicab owned and
operated by X & Co., suffers injuries. He institutes an
action for damages against X & Co., Y & Co., and the
two drivers.
Basic differences in the Liabilities of the Several
Defendants
(1) The primary (principal) cause of action by A
against X & Co. is culpa contractual and the
source of liability against all others is culpa
aquiliana (also culpa criminal in the case of the
drivers).
(2) X & Co. may not raise the defense of due
diligence in the selection (culpa in eligiendo)
and supervision (culpa in vigilando) of its
employees, although Y & Co. may do so (De
Guia vs. Manila Electric Co., 40 Phil. 706).
(3) In case direct evidence is bereft of the existence
or non-existence of negligence, X & Co. can
still be held liable, since fault or negligence is
presumed in culpa contractual; in culpa aqui-
liana, fault or negligence must, as a rule, be
established.
(4) In culpa contractual, the privity of contracts

would bar non-successors from claiming from
X & Co. (in case A dies); in culpa aquiliana,
relatives and dependents (although non-heirs)
may claim damages.
Discussions
(1) Although the cause of action against X & Co.
is basically one of breach of contract (culpa
contractual), the factual circumstances, however,
would also point to the existence of tort as a
mode of breach. Where, without a pre-existing
contract between two parties, an act or omission
could have nevertheless constituted an action-
able tort between them, the mere existence then
of a contract between such parties will not
militate against the application of the rules on
tort liability or even the predominance of tort in
the resolution of the case (see Singson vs. BPI,
23 SCRA 1117; Air France vs. Carrascoso, 18
SCRA 155). Accordingly, X & Co. could become
a joint tortfeasor with the other defendants,
rendering themselves solidarily liable (Art. 2194,
Civil Code). Likewise, the possibility of Y &
Co. being liable for moral damages for the injury
of A because of quasi-delict under Article 2219
of the Civil Code may not altogether be dis-
counted in appropriate cases.
(2) While X & Co. may not raise the defense of
due diligence in the selection and supervision of
its employees as against its passenger A (the
latters cause of action still being basically one
of culpa contractual), the proof of such diligence,
however, is not all that immaterial or
inconsequential. Once established, such due
diligence will work to operate an extenuation of
any possible tort liability, and X & Co. could
no longer be considered a joint tortfeasor. In
this case, neither liability under Article 2194 of

the Civil Code nor liability for moral damages
to A under Article 2219 of the same Code (in
the absence of gross negligence amounting to
bad faith) would be applicable. X & Co.,
however, would still be liable but purely on the
basis of culpa contractual.
(3) If the drivers of the colliding vehicles were con-
victed in a criminal case for their negligence, X
& Co. and Y & Co., being both engaged in an
industry, can be held liable subsidiarily for their
respective drivers civil liability (Arts. 100-103,
Revised Penal Code).
In FGU Insurance Corporation vs. G.P. Sarmiento

Trucking Corp., G.R. No. 141910, 06 August 2002, the
Supreme Court said:
In culpa contractual, upon which the action of
petitioner rests as being the subrogee of Concepcion
Industries, Inc., the mere proof of the existence of
the contract and the failure of its compliance justify,
prima facie, a corresponding right of relief. The law,
recognizing the obligatory force of contracts, will not
permit a party to be set free from liability for any
kind of misperformance of the contractual undertak-
ing or a contravention of the tenor thereof. A breach
upon the contract confers upon the injured party a
valid cause for recovering that which may have been
lost or suffered. The remedy serves to preserve the
interests of the promisee that may include his ex-
pectation interest, which is his interest in having
the benefit of his bargain by being put in as good a
position as he would have been in had the contract
been performed, or his reliance interest, which is
his interest in being reimbursed for loss caused by
reliance on the contract by being put in as good a
position as he would have been in had the contract
not been made; or his restitution interest, which is
his interest in having restored to him any benefit

that he has conferred on the other party. Indeed,
agreements can accomplish little, either for their
makers or for society, unless they are made the basis
for action. The effect of every infraction is to create a
new duty, that is, to make recompense to the one
who has been injured by the failure of another to
observe his contractual obligation unless he can show
extenuating circumstances, like proof of his exercise
of due diligence (normally that of the diligence of a
good father of a family or, exceptionally by stipula-
tion or by law such as in the case of common carri-
ers, that of extraordinary diligence) or of the attend-
ance of fortuitous event, to excuse him from his en-
suing liability.
Respondent trucking corporation recognizes the
existence of a contract of carriage between it and
petitioners assured, and admits that the cargoes it
has assumed to deliver have been lost or damaged
while in its custody. In such a situation, a default on,
or failure of compliance with, the obligation in this
case, the delivery of the goods in its custody to the
place of destination gives rise to a presumption of
lack of care and corresponding liability on the part of
the contractual obligor the burden being on him to
establish otherwise. GPS has failed to do so.
Respondent driver, on the other hand, without
concrete proof of his negligence or fault, may not
himself be ordered to pay petitioner. The driver, not
being a party to the contract of carriage between
petitioners principal and defendant, may not be held
liable under the agreement. A contract can only bind
the parties who have entered into it or their succes-
sors who have assumed their personality or their
juridical position. Consonantly with the axiom res
inter alios acta aliis neque nocet prodest, such con-
tract can neither favor nor prejudice a third person.
Petitioners civil action against the driver can only
be based on culpa aquiliana, which, unlike culpa

contractual, would require the claimant for damages
to prove negligence or fault on the part of the de-
fendant.
A word in passing. Res ipsa loquitur, a doctrine
being invoked by petitioner, holds a defendant liable
where the thing which caused the injury complained
of is shown to be under the latters management and
the accident is such that, in the ordinary course of
things, cannot be expected to happen if those who
have its management or control use proper care. It
affords reasonable evidence, in the absence of expla-
nation by the defendant, that the accident arose from
want of care. It is not a rule of substantive law and,
as such, it does not create an independent ground of
liability. Instead, it is regarded as a mode of proof, or
a mere procedural convenience since it furnishes a
substitute for, and relieves the plaintiff of, the bur-
den of producing specific proof of negligence. The
maxim simply places on the defendant the burden of
going forward with the proof. Resort to the doctrine,
however, may be allowed only when (a) the event is
of a kind which does not ordinarily occur in the ab-
sence of negligence; (b) other responsible causes, in-
cluding the conduct of the plaintiff and third per-
sons, are sufficiently eliminated by the evidence; and
(c) the indicated negligence is within the scope of the
defendants duty to the plaintiff. Thus, it is not ap-
plicable when an unexplained accident may be at-
tributable to one of several causes, for some of which
the defendant could not be responsible.
Res ipsa loquitur generally finds relevance
whether or not a contractual relationship exists be-
tween the plaintiff and the defendant, for the infer-
ence of negligence arises from the circumstances and
nature of the occurrence and not from the nature of
the relation of the parties. Nevertheless, the require-
ment that responsible causes other than those due
to defendants conduct must first be eliminated, for

the doctrine to apply, should be understood as being
confined only to cases of pure (non-contractual) tort
since obviously the presumption of negligence in
culpa contractual, as previously so pointed out, im-
mediately attaches by a failure of the covenant or its
tenor. In the case of the truck driver, whose liability
in a civil action is predicated on culpa acquiliana,
while he admittedly can be said to have been in
control and management of the vehicle which fig-
ured in the accident, it is not equally shown, how-
ever, that the accident could have been exclusively
due to his negligence, a matter that can allow, forth-
with, res ipsa loquitur to work against him.
Fortuitous Event
No person shall be responsible for those events which
could not be foreseen (accident) or which, though fore-
seen, are inevitable (force majeure), collectively referred
to simply as fortuitous event (see Art. 1174, Civil Code).
In order that a fortuitous event can be the basis of
exemption from liability, a number of circumstances must
be shown. The Supreme Court, in Lasam vs. Smith (45
Phil. 657; reiterated in Austria vs. Court of Appeals, 39
SCRA 527; Servando vs. Phil. Steam Navigation, 117
SCRA 832), has held:
In discussing and analyzing the term caso for-

tuito the Encyclopedia Juridica Espaola says: In a
legal sense and, consequently, also in relation to con-
tract, a caso fortuito presents the following essential
characteristics: (1) The cause of the unforeseen and
unexpected occurrence, or of the failure of the debtor
to comply with his obligation, must be independent
of the human will; (2) It must be impossible to fore-
see the event which constitutes the caso fortuito, or
if it can be foreseen, it must be impossible to avoid;
(3) The occurrence must be such as to render it im-
possible for the debtor to fulfill his obligation in a

normal manner; and (4) The obligor (debtor) must be
free from any participation in the aggravation of the
injury resulting to the creditor (Encyclopedia
Juridica Espaola, 309).
There is no caso fortuito where a ship captain pro-

ceeded en route despite a typhoon advice close to the area
where the vessel will pass. In Pedro Vasquez vs. Court of
Appeals (138 SCRA 553), it appeared that when a ship,
owned and operated by private respondent, had left Ma-
nila for Cebu, its officers were aware that a typhoon was
building up in Mindanao. Good weather prevailed until
the vessel reached Romblon. Upon passing Tanguingui
Island, however, the weather suddenly changed. Although
the officers knew that the island was within the typhoon
zone, they still decided to proceed on course. Visibility
dropped to zero. The ship struck a reef and sank. The
petitioners herein, relatives of some of the passengers,
sued the respondent for damages. The respondent pleaded
force majeure. The Supreme Court has ruled:
To constitute a caso fortuito that would exempt
a person from responsibility, it is necessary that (1)
the event must be independent of the human will;
(2) the occurrence must render it impossible for the
debtor to fulfill the obligation in a normal manner;
and that (3) the obligor must be free of participation
in, or aggravation of, the injury to the creditor. x x x
Under the circumstances, while, indeed, the

typhoon was an inevitable occurrence, yet, having
been kept posted on the course of the typhoon by
weather bulletin at intervals of six hours, the captain
and crew were well aware of the risk they were taking
as they hopped from island to island from Romblon
up to Tanguingui. They held frequent conferences,
and oblivious of the utmost diligence required of very
cautious persons, they decided to take a calculated
risk. In so doing, they failed to observe that extra-
ordinary diligence required of them explicitly by law

for the safety of the passengers transported by them
with due regard for all circumstances and unneces-
sarily exposed the vessel and passengers to the tragic
mishap. They failed to overcome that presumption
of fault or negligence that arises in cases of death or
injuries to passengers. (see also Nakpil & Sons vs.
Court of Appeals, 144 SCRA 596).
A decision that has received critical attention is the

case of Overseas Bank vs. Court of Appeals (105 SCRA 49,
113 SCRA 778), the Supreme Court there holding that a
bank should not be made liable to pay interest on deposits
during the period that its operations are ordered
suspended by the Monetary Board of the Central Bank.
The criticism lies mainly on the thesis that (a) the ruling
appears to have misapplied fortuitous event which, in
this context, can merely be a causative factor to loss as a
mode of extinguishing an obligation to deliver a specific
thing but never as the mode itself and (b) the fact that an
obligation to pay money (a genus) is incapable of being
lost. In any event, the Supreme Court has felt that it
would be utterly unfair to require such a bank to pay the
stipulated interest for what enables a bank to do so is its
ability to generate funds from its authorized operations.
If the situation cannot, strictly speaking, be legally termed
as force majeure, it should be held, as a matter of simple
equity, that it be treated as such, and that conventional
wisdom dictates this inexorable and just conclusion. (But
see Central Bank of the Philippines vs. Court of Appeals,
139 SCRA 46).
Mechanical defects of carriers have been held not to
constitute fortuitous event (Sweet Lines vs. Court of
Appeals, 121 SCRA 769; Sons vs. Cebu Autobus, 94 Phil,
892; Landingin vs. Pangasinan Transp. Co., 22 SCRA
284; Necessito vs. Paras, 104 SCRA Phil. 75). A tire blow-
out, that causes a public utility jeep to jump into a ditch,
has been ruled to be insufficient to overcome the
presumption of negligence. The fact alone that the tire
may have still been good because its grooves are still
visible does not make the explosion a fortuitous event. If
there is no evidence that the driver has taken due pre-
cautions to compensate for any condition liable to cause
accidents, such as the road condition, a tire blow-out could
not unlikely be caused, for instance, by too much air
pressure, overloading or speeding at the time of the
accident (Juntilla vs. Fontanar, L-45637, 31 May 1985).
The existence of a fortuitous event negates the
liability that might otherwise arise in the breach of obli-
gations. In Victorias Planters Assn., Inc. vs. Victorias Mill-
ing Co., Inc. (97 Phil. 318), the Supreme Court has elabo-
rated, thusly:
Fortuitous event relieves the obligor from ful-
filling a contractual obligation (Art. 1105, old Civil
Code; Art. 1174, new Civil Code). The stipulation in
the contract that in the event of force majeure the
contract shall be deemed suspended during said
period does not mean that the happening of any of
those events stops the running of the period agreed
upon. It only relieves the parties from the fulfillment
of their delivering sugar cane and the respondent
central from milling it. In order that the respondent
central may be entitled to demand from the
petitioners the fulfillment of their part in the
contracts, the latter must have been able to perform
it but failed or refused to do so and not when they
were prevented by force majeure such as war. To
require the petitioners to deliver the sugar cane which
they failed to deliver during the six years is to demand
from them the fulfillment of an obligation which was
impossible of performance at the time it became due.
Nemo tenetur ad impossibilia. The respondent central
not being entitled to demand from the petitioners
the performance of the latters part of the contracts
under those circumstances cannot later on demand
its fulfillment. The performance of what the law has
written of cannot be demanded and required. The
prayer that the petitioners be compelled to deliver

sugar cane for six years to make up for what they
failed to deliver, the fulfillment of which was im-
possible, if granted, would in effect be an extension
of the terms of the contracts entered into by and
between the parties.
Fortuitous events will not extenuate liability (a) in

cases expressly specified by law, such as when the obligor
is in default or has promised to deliver the same thing to
two or more persons who do not have the same interest
(see Art. 1165, Civil Code); (b) when it is otherwise dec-
lared by stipulation (see Insular Government vs. Punzalan,
7 Phil. 546); or (c) when the nature of the obligation
requires the assumption of risk, such as in the aleatory
contract of insurance (see Art. 1174, Civil Code).
Delay
Those obliged to deliver or to do something but fail
incur delay (mora) from the time the obligee judicially
or extrajudicially demands from them the fulfillment of
their matured obligation (see Art. 1169, Civil Code).
Without such demand, the mere non-performance of the
obligation on the time fixed therefor does not necessarily
put the obligor in default (see Rose Packing Company,
Inc. vs. Court of Appeals, 167 SCRA 309; Adiarte vs. Court
of Appeals, 92 Phil. 758). A demand before the maturity
of the obligation is ineffective. Demand, however, by the
creditor shall not be necessary in order that delay may
exist when
a. the obligation or the law expressly so declares
(see Siulong & Co. vs. Ylagan, 43 Phil. 393); or
b. 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 (see Hanlon
vs. Hausserman, 40 Phil. 796); or
c. the demand would be useless, as when the obli-

gor has rendered it beyond his power to perform
(see Art. 1169, Civil Code; CETUS Dev., Inc. vs.
In reciprocal obligations, neither party incurs in de-
lay 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 obliga-
tion, delay by the other begins (see Art. 1169, Civil Code;
Cf. Alano vs. Cortes, 110 Phil. 74; Central Bank of the
Philippines vs. Court of Appeals, 139 SCRA 46; Limjuco
vs. Court of Appeals, 37 SCRA 663).
Delay or mora has generally been categorized
into
(1) Mora solvendi (delay of the debtor)
a. Mora solvendi ex persona (when demand is
necessary)
b. Mora solvendi ex re (when demand is unne-
cessary)
(2) Mora accipiendi (delay of the creditor; see
Villaruel vs. Manila Motor Co., 104 Phil. 926).
(3) Compensatio morae (mutual delay of parties that
would cancel the effects of delay by said parties).
Delay has the effect of rendering liable the guilty
party for damages that the other might suffer (PNCC vs.
NLRC, 172 SCRA 887), as well as of being responsible
even for a fortuitous event, inclusive of the assumption of
any risk of loss (see Arts. 1165 and 1170, Civil Code).
Contravention of Tenor of Obligations

The faithful observance of an obligation according to
its tenor is mandated by law; an unexcused failure thereof
renders the obligor liable for losses and damages that are
caused thereby (see Art. 1170, Civil Code; Arrieta vs.
NARIC, 10 SCRA 79).
Remedies for Breach of Obligations

Appropriate legal remedies are available in order to
allow redress upon the breach of obligations. The leni-
ency or laxity of the party entitled to enforce the obliga-
tion does not diminish his rights thereunder (National
Power Corporation vs. EIN Chem. Corporation, 145 SCRA
529).
The judicial remedies, in general, would include: (a)
The principal remedies (i) of specific performance in obli-
gations to give specific things (Articles 1165 and 1167 of
the Civil Code), substitute performance in an obligation
to do or to deliver generic things (Article 1165 of the Civil
Code) and equivalent performance for damages (Articles
1168 and 1170 of the Civil Code); and (ii) of rescission or
resolution of reciprocal obligations; and (b) the subsidi-
ary remedies that may be availed of when the principal
remedies are unavailable or ineffective such as (i) accion
subrogatoria or subrogatory action (Article 1177 of the
Civil Code; see also Articles 1729 and 1893 of the Civil
Code); and (ii) accion pauliana or rescissory action (Arti-
cles 1177 and 1381 of the Civil Code). And, in order to
secure the integrity of final judgments, such ancillary
remedies as attachments, replevin, garnishments, receiv-
ership, examination of the debtor, and similar remedies,
are additionally provided for in procedural law.
The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may exer-
cise 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 (Art. 1177, Civil Code;
Gold Star Mining Co., Inc. vs. Lim-Jimena, 25 SCRA
597; Pascual vs. Secretary of Public Works, 110 Phil. 331).
Subject to applicable laws, all rights acquired by virtue of
an obligation, are transmissible if there has been no stipu-
lation to the contrary (Art. 1178, Civil Code; see Bastida
vs. Dy Buncio & Co., Inc., 93 Phil. 195).
The principal remedies open to an obligee, upon the

breach of an obligation, are generally judicial in nature
and must be independently sought in litigation, i.e., an
action for performance (specific, substitute or equivalent)
or rescission (resolution) of a reciprocal obligation. The
right to rescind (resolve) is recognized in reciprocal obli-
gations; it is implicit, however, in third paragraph of Ar-
ticle 1191 of the Civil Code that the rescission there con-
templated can only be invoked judicially. Hence, the mere
failure of a party to comply with what is incumbent upon
him does not ipso jure produce the rescission (resolution)
of the obligation.
Exceptionally, under the law and, to a limited de-
gree, by agreement of the parties, extrajudicial remedies
may become available such as, in the latter case, an op-
tion to rescind or terminate a contract upon the violation
of a resolutory facultative condition. In the case of
lease agreements, despite the absence of an explicit stipu-
lation, that option has been reserved by law in favor of a
lessee under Article 1673 of the Civil Code by providing
that the lessor may judicially eject the lessee for, among
other grounds, a violation of any of the conditions agreed
upon in the contract. The provision, read in conjunction
with Section 2, Rule 70, of the 1997 Rules of Civil Proce-
dure, would , absent a contrary stipulation, merely re-
quire a written demand on the lessee to pay or to comply
with the conditions of the lease and to vacate the premises
prior to the institution of an action for ejectment. The
above provisions, in effect, authorizes the lessor to termi-
nate extrajudicially the lease (with the same effect as
rescission) by simply serving due notice to the lessee.
Extrajudicial Remedies
Extrajudicial remedies (remedies that may be
exercised without need of resorting to court action) may
be available or resorted to
(1) When the law expressly grants such remedies
such as in the case of the rights of an unpaid
seller of personal property (Arts. 1526, et seq.

and 1593, Civil Code, where a reservation to
rescind by mere notice, although preferable, is
not indispensable); or
(2) When the right is reserved by a party in an
agreement (see De Motors Corp. vs. Sanson, G.R.
No. 55655, 8 February 1989; but see Bacolod-
Murcia Co. vs. Court of Appeals, 182 SCRA 24)
such as in the sale of real property (see Art.
1592, Civil Code) and, in general, in an option
to terminate or rescind a contract upon the vio-
lation of a resolutory facultative condition
(Consing vs. Jamandre, 64 SCRA 1; De la Rama
Steamship Co. vs. Tan, 99 Phil. 1034; Angeles
vs. Calasanz, 135 SCRA 323; Ponce Enrile vs.
Court of Tax Appeals, 29 SCRA 504).
Notice of resolution, however, must be given to the
other party when the right is exercised (Banez vs. Court
of Appeals, 59 SCRA 15; Palay, Inc. vs. Clave, 124 SCRA
638). But whether the extrajudicial remedy is granted by
law or by agreement, its exercise may be subject to judi-
cial scrutiny at the instance of the other party (see Conso-
lidated Plywood Industries vs. IFC Leasing, 149 SCRA
448; University of the Philippines vs. De los Angeles, 35
SCRA 102). Similarly, resort to courts may be necessary
when the right involves the retaking of property which is
not voluntarily surrendered by the other party, this rule
being predicated on the thesis that no one should take
the law into his own hands (see Zulueta vs. Mariano, 111
SCRA 206).
Judicial Remedies
The judicial remedies may be grouped into
(1) Principal Remedies
a. Action for specific performance in obligations to
give specific things (Arts. 1165 and 1167, Civil
Code), substitute performance in an obligation
to do (since the obligor cannot be compelled to

himself perform the undertaking) or to deliver
generic things (Art. 1165, Civil Code), or equi-
valent performance for damages (Arts. 1168 and
1170, Civil Code); or
b. Rescission (resolution) of a reciprocal obligation
(Boysaw vs. Interphil Promotions, supra.) unless
there is a just cause to fix a period (see Univer-
sal Corporation vs. Court of Appeals, 33 SCRA
1). In reciprocal obligations, the obligation or
promise of each party is the consideration for
that of the other and until one has done or is
ready to do his part the other incurs no default
(Central Bank vs. Court of Appeals, 139 SCRA
46).
These remedies are not cumulative but alternative
(Osario vs. Bennet, 41 Phil. 301; see Rose Packing Com-
pany, Inc. vs. Court of Appeals, supra.; Bacordo vs.
Alcantara, 14 SCRA 730). If, however, fulfillment becomes
impossible, the injured party may still seek rescission
even after he has chosen specific performance (Ayson-
Simon vs. Adamos, 131 SCRA 439). The court shall de-
cree rescission where fulfillment is prohibited by lawful
authority (see Central Bank vs. Court of Appeals, supra).
The right to rescind is not absolute; rescission of a con-
tract 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 (Ocampo vs. Co, 52 SCAD 610, 233 SCRA 551;
Laforteza vs. Machuca, 127 SCAD 798, 333 SCRA 643).
The court may instead grant a period (Gaboya vs. Cui, 38
SCRA 85; Angeles vs. Calasanz, 135 SCRA 323). Without
a just cause, however, there would be no reason to fix a
period (Roman vs. Court of Appeals, 137 SCRA 563; see
Article 1191, Civil Code). Until the obligation is resolved,
the parties are obligated to perform under the old terms
of their reciprocal obligations (Delta Motors Corporation
vs. Genuino, 170 SCRA 29).
Article 1191 of the Civil Code contemplates judicial

action, and a court decree is the only operative act that
can result in the resolution of the obligation (Ocejo vs.
International Banking Corp., 37 Phil. 631; Republic vs.
Hospital de San Juan de Dios, 84 Phil. 820; Tan vs. Court
of Appeals, 175 SCRA 656). Thus, a seller cannot unilat-
erally and extrajudicially rescind a contract of sale where
there is no express stipulation to that effect (Laforteza vs.
Machuca, 333 SCRA 643; Co vs. Court of Appeals, 312
SCRA 528). In a contract containing a resolutory faculta-
tive condition to rescind in the event of breach, judicial
recourse would be unnecessary although the act of can-
cellation, which must be known to the other party, could
later be subject to judicial scrutiny and review (see Ange-
les vs. Calasanz, supra.; Cruz vs. Intermediate Appellate
Court, 180 SCRA 703; see also discussion on Extrajudi-
cial Remedies, supra.). The object of judicial review in
contracts providing for automatic revocation in case of
violation of the terms thereof is not to obtain a court
declaration rescinding a contract which is already deemed
rescinded by virtue of an agreement, but to determine
whether or not the rescission has been proper. Where
such propriety is sustained, the court decision will be
merely declaratory of revocation and is not itself to be
deemed the revocatory act (Spouses Pangilinan vs. Court
of Appeals, 87 SCAD 468, 279 SCRA 590).
An interesting ruling case was that of Central Bank
of the Philippines vs. Court of Appeals (supra.). In April of
1965, Island Savings Bank had approved the loan appli-
cation of P80,000 of Sulpicio M. Tolentino who correspond-
ingly executed a real estate mortgage over his 100-hec-
tare land. In May of 1965, the bank released only P17,000
payable within three years at semi-annual installments.
The bank failed to make further releases until the Cen-
tral Bank prohibited it from making new loans and in-
vestments and ultimately prohibited it from doing busi-
ness. The acting superintendent of banks was put in
charge of the bank. In 1968, the bank, in view of the non-
payment of the P17,000 released amount, filed an appli-
cation for the extrajudicial foreclosure of the mortgage.

Tolentino filed a petition for injunction, specific perform-
ance or rescission and damages. The case reached the
Supreme Court, which held:
Since Island Savings Bank was in default in
fulfilling its reciprocal obligation under their loan
agreement, Sulpicio M. Tolentino, under Article 1191
of the Civil Code, may choose between specific per-
formance or rescission with damages in either cases.
But since Island Savings Bank is now prohibited
from doing business by Monetary Board Resolution
No. 967, WE cannot grant specific performance in
favor of Sulpicio M. Tolentino.
Rescission is the only alternative remedy left.
WE rule, however, that rescission is only for the
P63,000 balance of the P80,000 loan, because the
bank is in default only insofar as such amount is
concerned , as there is no doubt that the bank failed
to give P63,000. x x x
The general provisions of Article 1191 are inapplica-
ble if what might be thought to be reciprocal obligations
are really separate and distinct obligations (see Songcuan
vs. Intermediate Appellate Court, 191 SCRA 28) or where
specific remedies are provided for in certain juridical re-
lations such as Article 1786 and Article 1788 on partner-
ships (Sancho vs. Lizarrage, 55 Phil. 601). The remedies
on a secured debt have been held to be either an action to
collect or to foreclose (Caltex vs. Intermediate Appellate
Court, 176 SCRA 741). In the Margarita Suria case (Suria
vs. Intermediate Appellate Court, 151 SCRA 661), the
Supreme Court, denying the resolution of an obligation
secured by a mortgage, has ruled that foreclosure should
be the proper remedy. It might be submitted, however,
that the remedies for the breach of an obligation are not
necessarily lost by the availability of accessory undertak-
ings which are not themselves constitutive nor in the
nature of alternative obligations.
Art. 1179 OBLIGATIONS AND CONTRACTS 27
(2) Subsidiary Remedies (where the principal remedies

are unavailable or ineffective)
a. Accion subrogatoria (subrogatory action) an
action against the debtors debtor (see Art. 1177,
Civil Code, supra.), although, exceptionally, the
law permits a direct action against the latter
such as in actions by workers against the owner
in contracts for a piece of work (Art. 1729, Civil
Code), and by the principal against the sub-
agent (Art. 1893, Civil Code).
b. Accion pauliana (rescissory action) an action
to rescind contracts entered into by the debtor
in fraud of creditors (Arts. 1177 and 1381, Civil
Code).
(3) Ancillary Remedies
Remedial law or procedural rules provide cer-
tain remedies, such as attachments, replevin,
garnishment, receivership, examination of the debtor
and similar other remedies, in order to secure the
integrity of final judgments.
Chapter 3
Different Kinds of Obligations
The Civil Code classifies obligations primarily into

(a) pure and conditional (Arts. 1179-1192), (b) with a pe-
riod (Arts. 1193-1198), (c) alternative (Arts. 1199-1206),
(d) joint and solidary (Arts. 1207-1222), (e) divisible and
indivisible (Arts. 1223-1225), and (f) with a penal clause
(Arts. 1226-1230).
Section 1 Pure and Conditional Obligations
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 demand-
able at once.
Every obligation which contains a resolutory con-

dition shall also be demandable, without prejudice to
the effects of the happening of the event. (1113)
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. (n)
Art. 1181. In conditional obligations, the acquisi-
tion of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happen-
ing of the event which constitutes the condition. (1114)
Art. 1182. When the fulfillment of the condition
depends upon the sole will of the debtor, the condi-
tional obligation shall be void. If it depends upon
chance or upon the will of a third person, the obliga-
tion shall take effect in conformity with the provisions
of this Code. (1115)
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. (1116a)
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 indubita-
ble that the event will not take place. (1117)
Art. 1185. The condition that some event will not
happen at a determinate time shall render the obliga-
tion effective from the moment the time indicated 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)
Art. 1186. The condition shall be deemed fulfilled

when the obligor voluntarily prevents its fulfillment.
(1119)
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 circum-
stances of the obligation it should be inferred that the
intention of the person constituting the same was dif-
ferent.
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. (1120)
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. (1121a)
Art. 1189. When the conditions have been imposed
with the intention of suspending the efficacy of an ob-
ligation 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 under-
stood that the thing is lost when it perishes, or goes out
of commerce, or disappears in such a way that its exist-
ence 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 rescis-
sion of the obligation and its fulfillment, with indem-
nity 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. (1122)
Art. 1190. When the conditions have for their pur-
pose, 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 obligations to do and not to do, the provi-
sions of the second paragraph of Article 1187 shall be
observed as regards the effect of the extinguishment
of the obligation. (1123)
Art. 1191. The power to rescind obligations is im-
plied 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, un-
less there be just cause authorizing the fixing of a pe-
riod.
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 Mort-
gage Law. (1124)
Art. 1192. In case both parties have committed a

breach of the obligation, the liability of the first infrac-
tor shall be equitably tempered by the courts. If it can-
not be determined which of the parties first violated
the contract, the same shall be deemed extinguished,
and each shall bear his own damages. (n)
A pure obligation is one whose performance does not

depend upon a condition or a period. A condition is a
future and uncertain event, or a past event unknown to
the parties (the condition being the parties later becom-
ing aware or coming to know of the past event). A period
or a term is a day certain that which must necessarily
come although it may not be known when (see Arts.
1173 and 1193, Civil Code). When an obligation is subject
neither to a condition nor to a period, it is demandable at
once (see Art. 1179, Civil Code; Schenker vs. Gemperle, 5
SCRA 1042). An obligation which contains a resolutory
condition shall also be demandable, without prejudice to
the effects of the happening of the event (Art. 1179, Civil
Code).
In conditional obligations, the acquisition of rights
(suspensive), or the extinguishments or loss of those al-
ready acquired (resolutory), shall depend upon the hap-
pening of the event which constitutes the condition (Art.
1181, Civil Code). But 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 (Art. 1180, Civil Code), revok-
ing the rule under the regime of the old Civil Code (Berg
vs. Magdalena Estates, Inc., 92 Phil. 1101).
The condition is suspensive when the acquisition of
rights or demandability of the obligation must await the
occurrence of the condition (People vs. Capule, 65 Phil.
582); it is resolutory when the obligation is at once due
and demandable (Art. 1179, Civil Code; Villanueva vs.
Girged, 110 Phil. 478) but the right is extinguished or
lost upon the fulfillment of the condition (see Art. 1181,
Civil Code). The non-payment of the purchase price in a

sale is a resolutory condition, for which the remedy could
either be specific performance or rescission under Article
1191 (Central Bank of the Philippines vs. Bichara, 123
SCAD 697, 328 SCRA 807).
The condition that some event happen at a deter-
minate time shall extinguish the obligation as soon as
the time expires or if it has become indubitable that the
event will not take place (Art. 1184, Civil Code; see Luzon
Brokerage Co., Inc. vs. Maritime Shipping Co., Inc., 46
SCRA 381). The condition that some event will not happen
at a determinate time shall render the obligation effec-
tive the moment the time indicated has elapsed, or if it
has become evident that the event cannot occur. If no
time has been fixed, the condition shall be deemed ful-
filled at such time as may have probably been contem-
plated, bearing in mind the nature of the obligation (Art.
1185, Civil Code). The condition shall be deemed fulfilled
when the obligor voluntarily prevents its fulfillment (Art.
1186, Civil Code; Recto vs. Harden, 100 Phil. 427; Philip-
pine Long Distance Telephone Co. vs. Jeturan, 97 Phil.
981).
Potestative, Casual, and Mixed Conditions

A condition is potestative when its fulfillment
depends upon the will of the parties; it is casual when
its occurrence depends upon chance or the will of a third
person or stranger; and it is mixed when it is partly
potestative and partly casual.
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, or partly upon chance or will of a third
person and partly upon the will of the parties, the obliga-
tion shall take effect (see Art. 1182, Civil Code; Smith
Bell & Co. vs. Motti, 44 Phil. 874; Hermosa vs. Longra, 93
Phil. 971; Romero vs. Court of Appeals, G.R. 107207, 23
November 1995). In a suspensive potestative condition

dependent upon the sole will of the debtor, the whole
obligation becomes void (Trillana vs. Quezon College, Inc.,
93 Phil. 393), but not when such condition is resolutory
(Art. 1113, Civil Code; Taylor vs. Uy, 43 Phil. 873). In
Liebenow vs. Philippine Vegetable Oil Co. (39 Phil. 60), on
the legal effect of a stipulation in an employment con-
tract that the employee would be entitled to such amount,
in addition to his fixed salary, by way of bonus as the
Board of Directors might see fit to grant, the Supreme
Court held:
We see no reason to doubt that a promise of
this character creates a legal obligation binding upon
the promissor, although in its actual results it may
not infrequently prove to be illusory. Such a promise
is not, in our opinion, nugatory, under Article 1115 of
the Civil Code, as embodying a condition precedent
exclusively upon the will of the obligor. Nor can it be
held invalid under Article 1256 of the same Code,
which declares that the validity and performance of
a contract cannot be left to the will of one of the
contracting parties. The uncertainty of the amount
to be paid by way of bonus is also no obstacle to the
validity of the contract (Art. 1273, Civil Code), since
the contract itself specifies the manner in which the
amount payable is to be determined, namely, by the
exercise of the judgment and discretion of the em-
ployer.
Where the potestative condition is imposed, not on
the birth of the obligation but on its fulfillment, only the
condition must be deemed avoided, leaving unaffected
the obligation itself (see Osmea vs. Rama, 14 Phil. 99).
Thus, the condition to pay a previously contracted in-
debtedness when the debtor decides to sell his house,
although itself void as being potestative and exclusively
dependent on his will, does not invalidate the pre-exist-
ing obligation itself (see Trillana vs. Quezon College, Inc.,
93 Phil. 383). In Tible vs. Aquino (65 SCRA 207), the con-
dition that payment of a promissory note shall depend on

whether or not the obligor will operate concession was
similarly declared void as being solely dependent on the
will of the debtor but not the obligation under the pro-
missory note itself. When such obligation relates to the
payment, not the constitution, of an obligation, it would
seem preferrable to apply Article 1180, in relation to
Article 1197, instead of Article 1182, of the Code and to
construe the condition as a period, authorizing thereby
the courts to fix it if the parties themselves fail to do so.
In Patente vs. Omega (93 Phil. 218), the Supreme Court
has ruled:
Article 1115 (now Art. 1180) of the Civil Code

provides: When the fulfillment of a condition depends
upon the exclusive will of the debtor, the conditional
obligation shall be void. It should be void and of no
effect because if the will of the debtor be complied
with, the collection would be impossible, and the
right of the creditor illusory. The condition being
declared void, should the obligation be likewise de-
clared pure and unconditional? We believe not. If, by
inadvertence or ignorance, the parties agree on a
condition of payment contrary to law, why, upon the
annulment of the condition, should the principal
obligation be converted to pure, immediately
demandable, when the original intention was to grant
the debtor time for payment? To declare the obligation
pure is to impose a judgment completely distinct
from that agreed upon; another term should be
determined compatible with the law and the will of
the parties, and it is evident that a new condition
should not depend solely on the creditor; it is likewise
unjust to leave it to the exclusive will of the debtor,
as to leave it to the sole discretion of the creditor.
The Court should determine the period taking into
consideration the circumstances under which the loan
was granted (Art. 1128 now Art. 1197). Therefore, we
conclude that when the period of payment in an obli-
gation is left to the exclusive will of the debtor, said

condition should be annulled; but its annulment does
not convert the obligation into simple or uncondi-
tional; and the remedy of the creditor in such case is
to ask the Court to fix the period of payment. As the
plaintiff claims payment of an obligation without
first having obtained from the Court an order to fix
the period of payment, the filing of the complaint is
premature.
Impossible Conditions
Impossible conditions, those contrary to good cus-
toms 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 af-
fected 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 (Art. 1183,
Civil Code; Litton vs. Luzon Surety Co., Inc., 90 Phil.
783). In the law on donations, and so in testamentary
succession as well, such conditions are simply disregarded
and considered not imposed (Arts. 727 and 873, Civil
Code).
Effects of Conditions
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 but not as to such
fruits and interests meanwhile accruing. The fruits and
interests during the pendency of the condition shall be
deemed to have been mutually compensated when the
obligation imposes reciprocal prestations upon the par-
ties. If the obligation is unilateral, the debtor shall ap-
propriate 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 (see Art. 1187, Civil Code). 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 (Art. 1187, Civil Code; see PLDT
vs. Jeturian, 97 Phil. 981).
The creditor may, before the fulfillment of the condi-
tion, bring the appropriate actions for the preservation of
his right. The debtor may recover that which during the
same time he had paid by mistake in case of a suspensive
condition (Art. 1188, Civil Code).
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 under-
stood 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 (Art. 1189, Civil Code; see
Laureta vs. Mata, 44 Phil. 668).
When the conditions have for their purpose the ex-

tinguishment 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, dete-
rioration or improvement of the thing, the provisions
which, with respect to the debtor, are laid down in Article
1189 (supra.), shall be applied to the party who is bound
to return. As for obligations to do and not to do, the
provisions of the second paragraph of Article 1187 (su-
pra.) shall be observed as regards the effect of the
extinguishments of the obligation (Art. 1190, Civil Code).
In reciprocal obligations, the power to rescind is im-
plied in case one of the obligors should not comply with
what is incumbent upon him and the other is ready, the
two parties being obligors and obligees of each other. The
injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages
in either case. These remedies are alternative, not cumu-
lative (Ramirez vs. Court of Appeals, 98 Phil. 225), but
rescission may still be sought even after fulfillment is
chosen if, and within four years after, the latter should
become impossible (Matute vs. Cheong, 37 Phil. 372; Ayson-
Simon vs. Adamos, 131 SCRA 439). The court shall de-
cree the rescission claimed, unless there be just cause
authorizing the fixing of a period such as when the breach
is not so substantial and fundamental as to defeat the
object of the parties in making the agreement (Banahaw,
Inc. vs. Dejarme, 55 Phil. 338, cited in Gaboya vs. Cui, 38
SCRA 85; see also Angeles vs. Calasanz, supra.). In any
case, these remedies are without prejudice to the rights
of third persons (see Art. 1191, Civil Code).
The breach contemplated in Article 1191 of the Civil
Code is the obligors failure to comply with an obligation
already extant, not a failure of a condition to render bind-
ing that obligation (Padilla vs. Court of Appeals, 328
SCRA 434; Ong vs. Court of Appeals, 310 SCRA 1; Odys-
sey Park vs. Court of Appeals, 87 SCAD 735, 280 SCRA
38 CIVIL LAW Art. 1193
253). In a contract to sell real property on installments,

the full payment of the purchase price is a positive
suspensive condition, the failure of which is not consid-
ered a breach, casual or serious, but simply an event
which prevents the obligation of the vendor to convey
title from acquiring any obligatory force. It is an oft-
repeated rule that there can be no rescission of an obliga-
tion that is still non-existent, such as when the suspensive
condition has yet to happen (Rillo vs. Court of Appeals,
83 SCAD 905, 274 SCRA 461).
The liability of the first infractor shall be equitably
tempered by the courts in case both parties have commit-
ted a breach of the obligation. 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 (Art. 1192, Civil Code; see Camus vs. Price,
Inc., 5 SCRA 581).
While damages may be assessed in favor of the preju-
diced party, only those kinds of damages consistent with
the remedy of rescission may be granted, keeping in mind
that had the parties opted for specific performance, other
kinds of damages would have been called for which are
absolutely distinct from those kinds of damages accruing
by reason of rescission (Asuncion vs. Evangelista, 114
SCAD 384, 316 SCRA 848).
Section 2 Obligations 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 deemed conditional, and
it shall be regulated by the rules of the preceding Sec-

tion. (1125a)
Art. 1194. In case of loss, deterioration or improve-
ment of the thing before the arrival of the day certain,
the rules in Article 1189 shall be observed. (n)
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. (1126a)
Art. 1196. Whenever in an obligation a period is
designated, it is presumed to have 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. (1127)
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 pe-
riod when it depends upon the will of the debtor.
In every case, the courts shall determine such pe-
riod as may under the circumstances have been prob-
ably contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them. (1128a)
Art. 1198. The debtor shall lose every right to make
use of the period:
(1) When after the obligation has been con-
tracted, he becomes insolvent, unless he gives a guar-
anty 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 pe-
riod;
(5) When the debtor attempts to abscond. (1129a)
Obligations subject to a suspensive period or for

whose fulfillment a day certain has been fixed shall be
demandable only when that day comes (ex die). Obliga-
tions with a resolutory period take effect at once, but
terminate upon arrival of the day certain (in diem). A day
certain is understood to be that which must necessarily
come, although it may not be known when. If the uncer-
tainty consists in whether the day will come or not, the
obligation is considered conditional and shall be regu-
lated by the rules on conditional obligations (see Art.
1193, Civil Code; Cf. Caldero vs. Carrion, 107 Phil. 549;
Berg vs. Magdalena Estates, Inc., 92 Phil. 110).
In case of loss, deterioration or improvement of the
thing before the arrival of the day certain, the rules in
Article 1189 (supra.) shall be observed (Art. 1194, Civil
Code).
Anything paid or delivered before the arrival of the
period, the obligor being unaware of the period or believ-
ing that the obligation has become due and demandable,
may be recovered, with the fruits and interest (Art. 1195,
Civil Code). Dr. A. Tolentino and Dr. A. Padilla have ex-
pressed the view that the premature payment could be
governed by the rules on solutio indebiti (see Arts. 2159-
2160, Civil Code, infra.). Justice E. Caguio has taken the
position that since the obligation is, in fact, owing, al-
though not yet demandable, solutio indebiti would be
inapplicable. Under Article 1164, the creditor has a right
to the fruits of the thing from the time the obligation to
deliver it arises. In a conditional obligation, the rights of
the parties over the fruits is rather explicit (see Art. 1187,
Civil Code, supra.); the matter, unfortunately, is not that
defined in an obligation with a term. It would seem, how-
ever, that the obligation to deliver (to give) meant by
Article 1164 is really when it is constituted, rather than

when the delivery can be demanded. Justices JBL Reyes
and R. Puno would appear to have this view.
When Courts May Fix Period

If the obligation does not fix a period, but from its
nature and circumstances it can be inferred that a period
has been 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. The courts shall
determine in every case 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 (see Art. 1197, Civil Code; Gregorio
Araneta, Inc. vs. Phil. Sugar Est. Dev., 20 SCRA 330;
Gonzales vs. Jose, 66 Phil. 369; Concepcion vs. People, 74
Phil. 63; Patente vs. Omega, 93 Phil. 218; Cf. Arts. 1180,
1191 [supra.], 1682, 1687, Civil Code), unless by a new or
novatory agreement (see Salvante vs. Cruz, 88 Phil. 236).
In the foregoing cases, no cause of action to demand
performance exists until after the period is fixed, since
before that, the obligation is technically not yet due and
demandable (Calero vs. Carrion, L-13246, 30 March 1960).
In Borromeo vs. Court of Appeals (47 SCRA 65), the Su-
preme Court has implicitly held that the courts may fix
such period not necessarily in a separate action but con-
currently in the judicial demand for performance itself
upon the justification that technicalities should not sub-
ordinate practical and substantial justice (see also
Gregorio Araneta, Inc. vs. Philippine Sugar Development
Co., Ltd., 20 SCRA 330; Chavez vs. Gonzales, 32 SCRA
547). In Buccat vs. Dispo (160 SCRA 240), the Court has
ruled that when a lease is for an indefinite period (i.e.,
as long as the land will serve the purpose for which it is
intended as a school site x x x), the right of action for the
fixing of the period (Art. 1197, Civil Code), where the
validity of the lease is questioned in court, should be
reckoned not when the parties entered into the contract
but when the decision of the court upholding the validity

of the contract is promulgated.
Benefit or Use of the Period

Whenever in an obligation a period is designed, it is
presumed to have 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
(Art. 1196, Civil Code; see Pastor vs. Gaspar, 2 Phil. 392;
Sarmiento vs. Villasenor, 43 Phil. 880; Abesamis vs.
Woodcraft, Ltd., 30 SCRA 372). Thus, neither may the
creditor demand nor the debtor tender the performance
of the obligation before the arrival of the period, unless
the contrary intention appears such as when the pay-
ment is to be made on or before a certain period which
would indicate its being for the debtors benefit.
Fortuitous event has been held to relieve the obligor
from fulfilling his obligation during the time that the
event prevents due compliance; the duration thereof, how-
ever, does not correspondingly extend the term or period
of the obligation (see Victoria Planters vs. Victorias Mill-
ing, 97 Phil. 318).
The debtor shall lose every right to make use of the
period: (1) when he becomes insolvent after the obliga-
tion has been contracted, 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 prom-
ised; (3) when by his own acts he has impaired said
guaranties or securities after their establishment, and
when through 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; and (5) when the
debtor attempts to abscond (Art. 1198, Civil Code; see
Visayan Distributors, Inc. vs. Flores, 92 Phil. 145; Daguhoy
Ent. vs. Ponce, 96 Phil. 15; Song Fo & Co., vs. Oria, 33
Phil. 3; Recto vs. Harden, 100 Phil. 427).
Grace Period
A grace period is a right, not an obligation, of the
debtor. When unconditionally conferred, the grace period
is effective without further need of demand either calling
for the payment of the obligation or for honoring the
right. The grace period must not be likened to an obliga-
tion the non-payment of which, under Article 1169 of the
Civil Code, would generally still require judicial or extra-
judicial demand before default can be said to arise. 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. The de-
mand by the creditor, however, shall not be necessary in
order that delay may exist: (1) When the obligation or the
law expressly so declares; or (2) When from the nature
and the circumstances of the obligation it appears that
the designation of the time when the thing is to be deliv-
ered or the service is to be rendered was a controlling
motive for the establishment of the contract; or (3) When
demand would be useless, as when the obligor has ren-
dered it beyond his power to perform. In reciprocal obli-
gations, 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 (Bricktown Development Corp. [its new corporate
name Multinational Realty Development Corporation] and
Mariano Z. Veralde vs. Amor Tierra Development Corp.
and the Court of Appeals, G.R. No. 112182, 12 December
1994, 239 SCRA 126).
Section 3 Alternative Obligations

Art. 1199. A person alternatively bound by differ-
ent prestations shall completely perform one of them.
The creditor cannot be compelled to receive part
of one and part of the other undertaking. (1131)
Art. 1200. The right of choice belongs to the debtor,
unless it has been expressly granted to the creditor.
The debtor shall have no right to choose those

prestations which are impossible, unlawful or which
could not have been the object of the obligation. (1132)
Art. 1201. The choice shall produce no effect ex-
cept from the time it has been communicated. (1133)
Art. 1202. The debtor shall lose the right of choice
when among the prestations whereby he is alterna-
tively bound, only one is practicable. (1134)
Art. 1203. If through the creditors acts the debtor
cannot make a choice according to the terms of the
obligation, the latter may rescind the contract with dam-
ages. (n)
Art. 1204. The creditor shall have a right to in-
demnity for damages when, through the fault of the
debtor, all the things which are alternatively the object
of the obligation have been lost, or the compliance of
the obligation has become impossible.
The indemnity shall be fixed taking as a basis the
value of the last thing which disappeared, or that of
the service which last became impossible.
Damages other than the value of the last thing or
service may also be awarded. (1135a)
Art. 1205. When the choice has been expressly
given to the creditor, the obligation shall cease to be
alternative from the day when the selection has been
communicated to the debtor.
Until then the responsibility of the debtor shall be
governed by the following rules:
(1) If one of the things is lost through a fortui-
tous event, he shall perform the obligation by deliver-
ing that which the creditor should choose from among
the remainder, or that which remains if only one sub-
sists;
(2) If the loss of one of the things occurs through
the fault of the debtor, the creditor may claim any of
those subsisting, or the price of that which, through
the fault of the former, has disappeared, with a right to
damages;
(3) If all the things are lost through the fault of

the debtor, the choice by the creditor shall fall upon
the price of any one of them, also with indemnity for
damages.
The same rules shall be applied to obligations to
do or not to do in case one, some or all of the
prestations should become impossible. (1136a)
Art. 1206. When only one prestation has been
agreed upon, but the obligor may render another in
substitution, the obligation is called facultative.
The loss or deterioration of the thing intended as
a substitute, through the negligence of the obligor, does
not render him liable. But once the substitution has
been made, the obligor is liable for the loss of the
substitute on account of his delay, negligence or fraud.
(n)
There may be one or several objects or prestations in

an obligation; where there are two or more, the prestations
may be conjunctive, in which case both or all must be
complied with; alternative, in which case the obligor shall
completely perform one of the alternatives (Art. 1199,
Civil Code); and facultative, in which case one prestation
is due but the obligor may render another in substitution
(Art. 1206, Civil Code).
Alternative Prestations at Debtors Choice

In alternative obligations, the right of choice belongs
to the debtor, unless it has been expressly granted to the
creditor (Art. 1200, Civil Code). The creditor may not be
compelled to receive part of one and part of the other
undertaking (Art. 1199, Civil Code). When the debtor has
the right of choice, he cannot choose those prestations
which are impossible, unlawful or which could not have
been the object of the obligation (see Art. 1200, Civil
Code). The choice shall produce no effect except from the
time it has been communicated (Art. 1201, Civil Code),
and it is binding once made (Reyes vs. Martinez, 55 Phil.
492). The debtor shall lose the right of choice when among
the prestations, whereby he is immediately bound, only
one is practicable (Art. 1202, Civil Code). If through the
creditors acts the debtor cannot make a choice according
to the terms of the obligation, the latter may rescind the
contract with damages (Art. 1203, Civil Code).
The creditor shall have a right to indemnity for dam-
ages when, through the fault of the debtor, all the things
which are alternatively the object of the obligation have
been lost, or the compliance of the obligation has become
impossible. The indemnity shall be fixed, taking as a
basis the value of the last thing which disappeared or
that of the service which last becomes impossible. Dam-
ages other than the value of the last thing or service may
also be awarded (Art. 1204, Civil Code). It is logical that
the law points to the last thing or the service which last
became impossible since until the choice is made by the
debtor, the risks and benefits on the different objects of
the obligation, except the one that is finally and properly
chosen (the effect of which choice retroacts to the date of
the constitution of the obligation) or last to disappear or
to become impossible, as the case may be, would solely be
for the debtors account.
Alternative Obligations at Creditors Choice

When the choice has been expressly given to the
creditor, the obligation shall cease to be alternative from
the day when the selection has been communicated to the
debtor. Until then, the responsibility of the debtor shall
be governed by the following rules:
(1) If one of the things is lost through a fortuitous
event, he shall perform the obligation by deliv-
ering that which the creditor should choose from
among the remainder, or that which remains if
only one subsists;
(2) If the loss of one of the things occurs through
the fault of the debtor, the creditor may claim
any of those subsisting, or the price of that

which, through the fault of the former, has dis-
appeared, with a right to damages;
(3) If all the things are lost through the fault of the
debtor, the choice by the creditor shall fall upon
the price of any one of them, also with indem-
nity for damages;
(4) If all the things are lost through a fortuitous
event, the obligation is extinguished subject to
the exceptional cases when the obligor renders
himself liable even for a fortuitous event.
The same rules shall be applied to obligations to do
or not to do in case one, some, or all of the prestations
should become impossible (Art. 1205, Civil Code).
In ordinary alternative obligations, a mere choice
categorically and unequivocally made and then commu-
nicated by the person entitled to exercise the option con-
cludes the parties. The creditor may not thereafter exer-
cise any other option, unless the chosen alternative proves
to be ineffectual or unavailing due to no fault on his part.
This rule, in essence, is the difference between alterna-
tive obligations, on the one hand, and alternative rem-
edies, upon the other hand, where, in the latter case, the
choice generally becomes conclusive only upon the exer-
cise of the remedy. For instance, in one of the remedies
expressed in Article 1484 of the Civil Code, it is only
when there has been a foreclosure of the chattel mort-
gage that the vendee-mortgagor would be permitted to
escape from a deficiency liability. Thus, if the case is one
for specific performance, even when this action is se-
lected after the vendee has refused to surrender the mort-
gaged property to permit an extrajudicial foreclosure, that
property may still be levied on execution and an alias
writ may be issued if the proceeds thereof are insufficient
to satisfy the judgment credit. So, also, a mere demand to
surrender the object which is not heeded by the mortga-
gor will not amount to a foreclosure, but the repossession
thereof by the vendor-mortgagee would have the effect of

foreclosure (Daniel L. Borbon II and Francisco L. Borbon
vs. Servicewide Specialists, Inc. and Hon. Court of Ap-
peals, G.R. No. 106418, 11 July 1996, 258 SCRA 634).
Facultative Obligations
When only one prestation has been agreed upon, but
the obligor may render another in substitution, the obli-
gation is called facultative. The loss or deterioration of
the thing intended as a substitute, through the negli-
gence of the obligor, does not render him liable. But once
the substitution has been made, the obligor is liable for
the loss of the substitute on account of his delay, negli-
gence or fraud (Art. 1205, Civil Code; Quizana vs.
Redugerio, 94 Phil. 218). Unless and until the debtor
(with whom the option always lies) makes the substitu-
tion by communicating that decision to the creditor, there
is but one prestation (the principal), in legal contempla-
tion, and the loss, deterioration or improvement of the
substitute would have no bearing on the rights and obliga-
tions of the parties. Conversely, once substitution is made,
anything that may thenceforth affect the principal (origi-
nal) prestation would be of no legal consequence to the
obligation.
Section 4 Joint and Solidary Obligations
Art. 1207. The concurrence of two or more credi-

tors or of two or more debtors in one and the same
obligation does not imply that each one of the former
has a right to demand, or that each of the latter is
bound to render, entire compliance with the prestations.
There is a solidary liability only when the obligation
expressly so states, or when the law or the nature of
the obligation requires solidarity. (1137a)
Art. 1208. If from the law, or the nature or the
wording of the obligations to which the preceding arti-
cle refers the contrary does not appear, the credit or
debt shall be presumed to be divided into as many
equal shares as there are creditors or debtors, the cred-

its or debts being considered distinct from one an-
other, subject to the Rules of Court governing the mul-
tiplicity of suits. (1138a)
Art. 1209. If the division is impossible, the right of
the creditors may be prejudiced only by their collective
acts, and the debt can be enforced only by proceeding
against all the debtors. If one of the latter should be
insolvent, the others shall not be liable for his share.
(1139)
Art. 1210. The indivisibility of an obligation does
not necessarily give rise to solidarity. Nor does soli-
darity of itself imply indivisibility.
Art. 1211. Solidarity may exist although the credi-
tors and the debtors may not be bound in the same
manner and by the same periods and conditions. (1140)
Art. 1212. Each one of the solidary creditors may
do whatever may be useful to the others, but not any-
thing which may be prejudicial to the latter. (1141a)
Art. 1213. A solidary creditor cannot assign his
rights without the consent of the others. (n)
Art. 1214. The debtor may pay any one of the
solidary creditors; but if any demand, judicial or extra-
judicial, has been made by one of them, payment should
be made to him. (1142a)
Art. 1215. Novation, compensation, confusion or
remission of the debt, made by any of the solidary
creditors or with any of the solidary debtors, shall ex-
tinguish the obligation, without prejudice to the provi-
sions of Article 1219.
The creditor who may have executed any of these
acts, as well as he who collects the debt, shall be
liable to the others for the share in the obligation cor-
responding to them. (1143)
Art. 1216. The creditor may proceed against any
one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them
shall not be an obstacle to those which may subse-
quently be directed against the others, so long as the

debt has not been fully collected. (1144a)
Art. 1217. Payment made by one of the solidary
debtors extinguishes the obligation. If two or more
solidary debtors offer to pay, the creditor may choose
which offer to accept.
He who made the payment may claim from his co-
debtors only the share which corresponds to each,
with the interest for the payment already made. If the
payment is made before the debt is due, no interest for
the intervening period may be demanded.
When one of the solidary debtors cannot, because
of his insolvency, reimburse his share to the debtor
paying the obligation, such share shall be borne by all
his co-debtors, in proportion to the debt of each. (1145a)
Art. 1218. Payment by a solidary debtor shall not
entitle him to reimbursement from his co-debtors if
such payment is made after the obligation has pre-
scribed or become illegal. (n)
Art. 1219. The remission made by the creditor of
the share which affects one of the solidary debtors
does not release the latter from his responsibility to-
wards the co-debtors, in case the debt had been totally
paid by anyone of them before the remission was ef-
fected. (1146a)
Art. 1220. The remission of the whole obligation,
obtained by one of the solidary debtors, does not enti-
tle him to reimbursement from his co-debtors. (n)
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 extin-
guished.
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 credi-
tor, the provisions of the preceding paragraph shall
apply. (1147a)
Art. 1222. A solidary debtor may, in actions filed
by the creditor, avail himself of all defenses which are
derived from the nature of the obligation and of those
which are personal to him, or pertain to his own share.
With respect to those which personally belong to the
others, he may avail himself thereof only as regards
that part of the debt for which the latter are responsi-
ble. (1148a)
The plurality of subjects, whether it exists among

the active (creditors) or the passive (debtors) subjects or
both, may result in joint or solidary obligations. A solidary
obligation (mancomunidad solidaria, in solidum, or joint
and several) arises when each of the creditors has a
right to demand, or that each of the debtors is bound to
render, entire compliance with the prestation (see Art.
1207, Civil Code). In a joint obligation (mancomunidad
simple, or pro rata), however, the credit or debt is deemed
divided into as many equal shares as there are creditors
or debtors to each other, each resulting credit or debt
being considered distinct from one another (see Art. 1208,
Civil Code).
Solidarity is not presumed (World Wide Insurance &
Surety vs. Jose, 96 Phil. 45); solidary obligations exist
only if (a) expressed by law, such as the liability of joint
tort-feasors under Article 1294, the civil liability of co-
perpetrators of felonies under Article 112 of the Revised
Penal Code and the liability of two or more promissors in
negotiable instruments who use I instead of We in
expressing their promise under Section 17 of the Nego-
tiable Instruments Law (see also Arts. 1824, 1911, 1915,
1945, 1946 and 2157, Civil Code); (b) stipulated by the
parties, such as by using solidary, individually and
collectively, joint and several, individual and joint or
equivalent terms or statements that would denote any
one of the obligors liability to perform the whole obliga-

tion (see Ronquillo vs. Court of Appeals, 132 SCRA 274);
or (c) when the nature of the obligation calls for solidar-
ity by its very essence (Art. 1208, Civil Code). The indivi-
sibility of an obligation does not necessarily give rise to
solidarity. Nor does not solidarity of itself imply indivis-
ibility (Art. 1210, Civil Code). But solidarity may exist
among creditors (active solidarity) and/or among debtors
(passive solidarity).
Illustrative Application
A, B, and C owe P9,000 to X, Y and Z. Who can
demand up to how much and against whom the payment
of the obligation?
(1) If A, B, and C are joint debtors and X, Y, and Z
are likewise joint creditors, X, Y, and Z may each demand
P1,000 only from each debtor; hence, X may demand
P1,000 from A, P1,000 from B and P1,000 from C; Y may
demand P1,000 from A, P1,000 from B and P1,000 from
C; and Z may demand P1,000 from A, P1,000 from B, and
P1,000 from C (Romulo vs. Desalla, 108 Phil. 346).
If the obligation is indivisible, like an obligation to
deliver a horse, then the demand can be made, and the
compliance shall be met, only by their collective acts;
hence, X, Y, and Z, acting collectively, may demand the
delivery of the horse from A, B, and C, collectively (see
Art. 1209).
The inability or failure of a debtor to comply with
the obligation converts the indivisible prestation to one
of indemnity for damages; the debtors who may have
been ready to fulfill the prestation are liable only to the
extent of their corresponding portion of the price of the
thing or value of the service in which the obligation con-
sists (see Art. 1224, Civil Code).
(2) If A, B, and C are solidary debtors and X, Y, and
Z are solidary creditors, any one, any two or all of the
creditors X, Y, and Z may demand the entire sum of P9,000

from any one, any two, or all of the debtors A, B, and C
(see Art. 1216, Civil Code; see also Imperial Insurance
Inc. vs. David, 133 SCRA 317 and PNB vs. Independent
Planters Assn., 122 SCRA 113).
Payment to one of the solidary creditors made by
one of the solidary debtors extinguishes the obligation. If
two or more solidary debtors offer to pay, the creditor to
whom the offers are made may choose which offer to
accept (see Article 1217, Civil Code; Camus vs. Court of
Appeals, 107 Phil. 4).
While the debtor may pay any one of the solidary
creditors, if any demand, judicial or extrajudicial, has
been made by one of them, however, payment should be
made to him (see Art. 1214, Civil Code).
The same rules apply if the obligation is indivisible,
e.g., to deliver a horse; in this case, the default of one of
the solidary debtors renders all of them liable as far as
the creditors are concerned, although among the debtors
themselves, the non-defaulting debtors may proceed
against the defaulting debtor.
(3) If A, B, and C are joint debtors and X, Y, and Z
are solidary creditors, any one, any two or all of the credi-
tors may demand P3,000 only from each of the joint debt-
ors, i.e., P3,000 from A, P3,000 from B, and P3,000 from
C.
If the prestation is indivisible, the demand by any,
some or all of the creditors must be made against A, B,
and C, collectively. Art. 1224 would be applicable where
one or some but not all are not ready to fulfill the obliga-
tion.
(4) If A, B, and C are solidary debtors and X, Y, and
Z are joint creditors, each of the creditors may only de-
mand P3,000 each from any one, any two or all of the
debtors; hence, X may demand P3,000 from any one, any
two or all three of the debtors A, B, and C; Y and Z may
proceed on their respective shares of P3,000 against any

one, any two or all three of the debtors.
Additional Rules on Solidary Obligations

A solidary creditor cannot assign his rights without
the consent of the other solidary creditors (Art. 1123,
Civil Code). Each one of the solidary creditors may do
whatever may be useful to the others, but not anything
which may be prejudicial to the latter (Art. 1212, Civil
Code). This provision is intended primarily for the solidary
creditors among themselves and not as far as such ac-
tions might affect the debtors.
Novation, compensation, confusion or remission of
the debt, made by any of the solidary creditors or with
any of the solidary debtors on grounds not personal to the
latter (see Universal Motors Corporation vs. Court of Ap-
peals, 205 SCRA 448), shall extinguish the obligation,
without prejudice to the provisions of Article 1219 (in-
fra.). The creditor who may have executed any of these
acts, as well as he who collects the debt, shall be liable to
the others for the share in the obligation corresponding
to them (Art. 1215, Civil Code). The remission made by
the creditor of the share which affects one of the solidary
debtors does not release the latter from his responsibility
towards the co-debtors, in case the debt had been totally
paid by anyone of them before the remission was effected
(Art. 1219, Civil Code). The remission of the whole obli-
gation, obtained by one of the solidary debtors, does not
entitle him to reimbursement from his co-debtors (Art.
1220, Civil Code).
He who makes the payment may claim from his co-
debtors only the share which corresponds to each, with
the interest for the payment already made. If the pay-
ment is made before the debt is due, no interest for the
intervening period may be demanded. When one of the
solidary debtors cannot, because of his insolvency, reim-
burse his share to the debtor paying the obligation, such
share shall be borne by all his co-debtors, in proportion to

the debt of each (Art. 1217, Civil Code). Payment by a
solidary debtor shall not entitle him to reimbursement
from his co-debtors if such payment is made after the
obligation has prescribed or become illegal (Art. 1218,
Civil Code).
If the thing has been lost or if the prestation has
become impossible without the fault of the solidary debt-
ors, the obligation shall be extinguished. If there was
fault on the part of any one of them, all shall be responsi-
ble to the creditor for the price and 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 (Art. 1221, Civil Code). The rule
applies only to the debtors among themselves. Insofar as
the creditors are concerned, the default of one solidary
debtor is default by the other solidary debtors.
A solidary debtor may, in actions filed by the credi-
tor, avail himself of all defenses which are derived from
the nature of the obligation and of those which are per-
sonal to him, or pertain to his own share. With respect to
those which personally belong to the others, he may avail
himself thereof only as regards that part of the debt for
which the latter are responsible (Art. 1222, Civil Code;
see Chinese Chamber of Commerce vs. Pua, 16 Phil. 406;
Inchausti vs. Yulo, 34 Phil. 978; Luzon Surety Co. vs.
Marbella, 109 Phil. 734).
Section 5 Divisible and Indivisible

Obligations
Art. 1223. The divisibility or indivisibility of the

things that are the object of obligations in which there
is only one debtor and only one creditor does not alter
or modify the provisions of Chapter 2 of this Title.

(1149)
Art. 1224. A joint indivisible obligation gives rise
to indemnity for damages from the time anyone of the
debtors does not comply with his undertaking. The
debtors who may have been ready to fulfill their prom-
ises shall not contribute to the indemnity beyond the
corresponding portion of the price of the thing or of
the value of the service in which the obligation con-
sists. (1150)
Art. 1225. For the purposes of the preceding arti-
cles, obligations to give definite things and those which
are not susceptible of partial performance shall be
deemed to be indivisible.
When the obligation has for its object the exe-
cution of a certain number of days of work, the accom-
plishment of work by metrical units, or analogous things
which by their nature are susceptible of partial per-
formance, it shall be divisible.
However, even though the object or service may
be physically divisible, an obligation is indivisible if so
provided by law or intended by the parties.
In obligations not to do, divisibility or indivisibil-
ity shall be determined by the character of the
prestation in each particular case. (1151a)
An obligation may be divisible or indivisible. It is

indivisible when the object or service which is the subject
matter of the prestation is not susceptible of partial com-
pliance either because of its nature (physical) or because
it is provided by law (legal) or it is intended by the parties
(contractual). Generally, obligations are indivisible since
the integrity of obligations requires their payment or per-
formance completely (see Arts. 1233 and 1248, Civil Code).
Obligations to give definite things and those which
are not susceptible of partial performance are deemed to
be indivisible. When the obligation has for its object the
execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous

things which by their nature are susceptible of partial
performance, it shall be divisible. Even when the object
or service may be physically divisible, an obligation is
indivisible if it is so provided by law or so intended by the
parties. In obligations not to do, divisibility or indivisibil-
ity shall be determined by the character of the prestation
in each particular case (see Art. 1225, Civil Code). The
divisibility or indivisibility of the things that are the ob-
ject of obligations in which there is only one debtor and
only one creditor does not alter or modify the governing
rules on the nature and effect of obligations (see Chapter
2, supra.; Art. 1223, Civil Code).
A joint indivisible obligation gives rise to indemnity
for damages from the time anyone of the debtors does not
comply with his undertaking. The debtors who may have
been ready to fulfill their promises shall not contribute to
the indemnity beyond the corresponding portion of the
price of the things or of the value of the service in which
the obligation consists (Art. 1224, Civil Code). In a solidary
indivisible obligation, the indemnity for damages is de-
mandable against the other solidary debtors but the
latter cannot seek indemnification against the defaulting
solidary debtor.
Section 6 Obligations with a Penal Clause
Art. 1226. In obligations with a penal clause, the

penalty shall substitute the indemnity for damages and
the payment of interests in case of noncompliance, if
there is no stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the
obligation.
The penalty may be enforced only when it is de-
mandable in accordance with the provisions of this
Code. (1152a)
Art. 1227. The debtor cannot exempt himself from
the performance of the obligation by paying the pen-
alty, save in the case where this right has been expressly
reserved for him. Neither can the creditor demand the
fulfillment of the obligation and the satisfaction of the
penalty at the same time, unless this right has been
clearly granted him. However, if after the creditor has
decided to require the fulfillment of the obligation, the
performance thereof should become impossible with-
out his fault, the penalty may be enforced. (1153a)
Art. 1228. Proof of actual damages suffered by
the creditor is not necessary in order that the penalty
may be demanded. (n)
Art. 1229. The judge shall equitably reduce the
penalty when the principal obligation has been partly
or irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscion-
able. (1154a)
Art. 1230. The nullity of the penal clause does not
carry with it that of the principal obligation.
The nullity of the principal obligation carries with
it that of the penal clause. (1155)
An obligation with a penal clause is one that contains

an accessory undertaking, primarily intended to induce
faithful performance of the principal prestation that be-
comes due and demandable under the terms thereof, as
and when there arises a breach of the obligation.
A penalty clause, expressly recognized by law, is an
accessory undertaking to assume greater liability on the
part of an obligor in case of breach of an obligation. It
functions to strengthen the coercive force of the obliga-
tion and to provide, in effect, for what could be the liqui-
dated damages resulting from such a breach. The obligor
would then be bound to pay the stipulated indemnity
without the necessity of proof on the existence and on the
measure of damages caused by the breach. Although a
court may not at liberty ignore the freedom of the parties
to agree on such terms and conditions as they see fit that
contravene neither law nor morals, good customs, public

order or public policy, a stipulated penalty, nevertheless,
may be equitably reduced by the courts if it is iniquitous
or unconscionable or if the principal obligation has been
partly or irregularly complied with (Ligutan vs. Court of
Appeals, G.R. No. 138677, 12 February 2002, 376 SCRA
560).
Effects
Under Article 1226, in obligations with a penal clause,
the penalty shall substitute the indemnity for damages
and the payment of interest in case of non-compliance,
except: (1) when the contrary is stipulated; (2) when the
debtor refuses to pay the penalty in the obligation in
which case the creditor is entitled to interest on the
amount of the penalty in accordance with Article 2209;
and (3) when the obligor is guilty of fraud in the fulfillment
of the obligation (Country Bankers, Ins. vs. Court of Ap-
peals, 201 SCRA 458; Pamintuan vs. Court of Appeals, 94
SCRA 556; Cabarroguis vs. Vicente, 107 Phil. 340). The
penalty may be enforced only when it is demandable in
accordance with the provisions of the Code (Art. 1226,
Civil Code; Araneta vs. Paterno, 91 Phil. 686).
The debtor cannot exempt himself from the perform-
ance of the obligation by paying the penalty, save in the
case where this right has been expressly reserved for him
(Vitug-Dimatulac vs. Coronel, 40 Phil. 686). Neither can
the creditor demand the fulfillment of the obligation and
the satisfaction of the penalty at the same time, unless
this right has been clearly granted to him. If, however,
after the creditor has decided to require the fulfillment of
the obligation, the performance thereof should become
impossible without his fault, the penalty may be enforced
(see Art. 1227, Civil Code).
Proof of actual damages suffered by the creditor is
not necessary in order that the penalty may be demanded
(Art. 1228, Civil Code; Palacios vs. Cavite, 12 Phil. 140).
The court shall equitably reduce the penalty when the

principal obligation has been partly or irregularly com-
plied with by the debtor. Even if there has been no per-
formance, the penalty may also be reduced by the court if
it is iniquitous or unconscionable (Art. 1229, Civil Code;
see Makati Dev. Corporation vs. Empire Ins. Co. Inc., 20
SCRA 557). The question of whether a penalty is reason-
able or iniquitous can be partly subjective and partly
objective. Its resolution would depend on such factors as,
but not necessarily confined to, the type, extent and pur-
pose of the penalty, the nature of the obligation, the mode
of breach and its consequences, the supervening reali-
ties, the standing and relationship of the parties, and the
like, the application of which, by and large, is addressed
to the sound discretion of the court. In Rizal Commercial
Banking Corp. vs. Court of Appeals, just an example, the
Court has tempered the penalty charges after taking into
account the debtors pitiful situation and its offer to set-
tle the entire obligation with the creditor bank. The stipu-
lated penalty might likewise be reduced when a partial
or irregular performance is made by the debtor. The stipu-
lated penalty might even be deleted such as when there
has been substantial performance in good faith by the
obligor, when the penalty clause itself suffers from fatal
infirmity, or when exceptional circumstances so exist as
to warrant it. (Ligutan vs. Court of Appeals, G.R. 138677,
12 February 2002). The power of the courts to reduce
penalties is inapplicable to final and executory judgments
(Comm. Credit Corp. vs. Court of Appeals, 169 SCRA 1).
These provisions hardly make any real difference between
penalty and liquidated damages (governed by Arts. 2226-
2228, Civil Code) as far as their legal consequences are
concerned (Lambert vs. Fox, 26 Phil. 288) although the
Civil Code deals primarily with these two matters sepa-
rately (Joes Radio vs. Alto Electronics, 104 Phil. 333).
The nullity of the penal clause does not carry with it
the nullity of the principal obligation, but the nullity of
the principal obligation carries with it that of the penal
clause (see Art. 1230, Civil Code). Where the penalty is a

nullity, Article 1229 of the Civil Code would obviously be
inapplicable.
Chapter 4
Extinguishment of Obligations
General Provisions
Art. 1231. Obligations are extinguished:

(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of
creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations,
such as annulment, rescission, fulfillment of a reso-
lutory condition, and prescription, are governed else-
where in this Code. (1156a)
Modes of Extinguishing Obligations

Obligations are extinguished: (1) by payment or per-
formance; (2) by the loss of the thing due; (3) by the
condonation or remission of the debt; (4) by the confusion
or merger of the rights of creditor and debtor; (5) by
compensation; and (6) by novation.
Other causes of extinguishments of obligations in-
clude annulment, rescission, fulfillment of a resolutory
condition, and prescription (see Art. 1231, Civil Code).
The enumeration under Article 1231 is not exclusive (see
Tejuco vs. E.R. Squib & Sons, 103 Phil. 594); death and
fortuitous event, among other causes, as well as discharge
in insolvency and discharge of a negotiable instrument
under special laws, may also be cited. Mutual desistance,
said the Supreme Court in Saura Import & Export Co. vs.
DBP (44 SCRA 445), is likewise a mode of extinguishing
obligation.
Section 1 Payment or Performance
Art. 1232. Payment means not only the delivery of

money but also the performance, in any other manner,
of an obligation. (n)
Art. 1233. A debt shall not be understood to have
been paid unless the thing or service in which the
obligation consists has been completely delivered or
rendered, as the case may be. (1157)
Art. 1234. If the obligation has been substantially
performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment,
less damages suffered by the obligee. (n)
Art. 1235. When the obligee accepts the perfor-
mance, knowing its incompleteness or irregularity, and
without expressing any protest or objection, the obliga-
tion is deemed fully complied with. (n)
Art. 1236. The creditor is not bound to accept pay-
ment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there
is a stipulation to the contrary.
Whoever pays for another may demand from the
debtor what he has paid, except that if he paid without
the knowledge or against the will of the debtor, he can
recover only insofar as the payment has been benefi-
cial to the debtor. (1158a)
Art. 1237. Whoever pays on behalf of the debtor
without the knowledge or against the will of the latter,
cannot compel the creditor to subrogate him in his
rights, such as those arising from a mortgage, guar-
anty, or penalty. (1159a)
Art. 1238. 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 the payment is in any case valid as to the

creditor who has accepted it. (n)
Art. 1239. In obligations to give, payment made
by one who does not have the free disposal of the
thing due and capacity to alienate it shall not be valid,
without prejudice to the provisions of Article 1427 un-
der the Title on Natural Obligations. (1160a)
Art. 1240. Payment shall be made to the person in
whose favor the obligation has been constituted, or
his successor in interest, or any person authorized to
receive it. (1162a)
Art. 1241. Payment to a person who is incapa-
citated to administer his property shall be valid if he
has kept the thing delivered, or insofar as the payment
has been beneficial to him.
Payment made to a third person shall also be valid
insofar as it has redounded to the benefit of the credi-
tor. Such benefit to the creditor need not be proved in
the following cases:
(1) If after the payment, the third person acquires
the creditors rights;
(2) If the creditor ratifies the payment to the third
person;
(3) If by the creditors conduct, the debtor has
been led to believe that the third person had authority
to receive the payment. (1163a)
Art. 1242. Payment made in good faith to any per-
son in possession of the credit shall release the debtor.
(1164)
Art. 1243. Payment made to the creditor by the
debtor after the latter has been judicially ordered to
retain the debt shall not be valid. (1165)
Art. 1244. The debtor of a thing cannot compel
the creditor to receive a different one, although the
latter may be of the same value as, or more valuable
than that which is due.
In obligations to do or not to do, an act or

forbearance cannot be substituted by another act or
forbearance against the obligees will. (1166a)
Art. 1245. Dation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law on sales. (n)
Art. 1246. When the obligation consists in the de-
livery of an indeterminate or generic thing, whose qual-
ity and circumstances have not been stated, the credi-
tor cannot demand a thing of superior quality. Neither
can the debtor deliver a thing of inferior quality. The
purpose of the obligation and other circumstances shall
be taken into consideration. (1167a)
Art. 1247. Unless it is otherwise stipulated, the
extrajudicial expenses required by the payment shall
be for the account of the debtor. With regard to judicial
costs, the Rules of Court shall govern. (1168a)
Art. 1248. Unless there is an express stipulation
to that effect, the creditor cannot be compelled par-
tially to receive the prestations in which the obligation
consists. Neither may the debtor be required to make
partial payments.
However, when the debt is in part liquidated and
in part unliquidated, the creditor may demand and the
debtor may effect the payment of the former without
waiting for the liquidation of the latter. (1169a)
Art. 1249. The payment of debts in money shall
be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency
which is legal tender in the Philippines.
The delivery of promissory notes payable to or-
der, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they
have been cashed, or when through the fault of the
creditor they have been impaired.
In the meantime, the action derived from the origi-
nal obligation shall be held in abeyance. (1170)
Art. 1250. In case an extraordinary inflation or de-

flation of the currency stipulated should supervene, the
value of the currency at the time of the establishment of
the obligation shall be the basis of payment, unless
there is an agreement to the contrary. (n)
Art. 1251. Payment shall be made in the place
designated in the obligation.
There being no express stipulation and if the un-
dertaking is to deliver a determinate thing, the pay-
ment shall be made wherever the thing might be at the
moment the obligation was constituted.
In any other case the place of payment shall be
the domicile of the debtor.
If the debtor changes his domicile in bad faith or
after he has incurred in delay, the additional expenses
shall be borne by him.
These provisions are without prejudice to venue
under the Rules of Court. (1171a)
Payment means not only the delivery of money but

also the performance, in any other manner, of an obliga-
tion (Art. 1232, Civil Code). Payment or performance, if
properly made, puts an end to obligations. At times, how-
ever, it may itself also create or give rise to a new juridi-
cal relation, such as in legal subrogation or in payment to
a third person in possession of the credit, in which cases
payment may also be considered as a juridical act and not
a mere event or fact by which normally it is character-
ized.
Integrity of Payment
A debt shall not be understood to have been paid
unless the thing or service in which the obligation con-
sists has been completely delivered or rendered, as the
case may be (Art. 1233, Civil Code). The creditor cannot
be compelled to receive the prestation partially, and nei-
ther may the debtor be required to make partial pay-
ments (see Art. 1248, Civil Code). The burden of proof of
payment lies with the debtor (Pinon vs. De Osorio, 30

Phil. 365; however, see presumption of payment of inter-
est and installments under Art. 1176, supra.).
Some exceptions from strict integrity of payment are
provided for by law: The first is when the obligation has
been substantially performed in good faith, in which case
the obligor may recover as though there has been a strict
and complete fulfillment, less damages suffered by the
obligee (see Art. 1234, Civil Code; JM Tuason & Co. vs.
Javier, 31 SCRA 829); the second is when the obligee ac-
cepts the performance, knowing its incompleteness or ir-
regularity, and without expressing any protest or objec-
tion, in which case the obligation is deemed fully complied
with (Art. 1235, Civil Code; see Joes Radio vs. Alto Elec-
tronics, 104 Phil. 333), but a mere receipt of payment is
not necessarily acceptance (see Esguerra vs. Villanueva,
21 SCRA 1314); the third is when there is an express stipu-
lation; and the fourth is when the debt is in part liqui-
dated and in part unliquidated (Art. 1248, Civil Code).
The Payor and the Payee

Normally, payment is made by the debtor and to the
creditor or by and to their respective agents or succes-
sors-in-interest; such, however, is not always the case. In
these cases, generally, the rules may be said to be as
follows:
(1) In the case of payors

(a) If payment is made by the debtor, his agent or
successor-in-interest, the obligation is simply
extinguished, and the payment does not give
rise to a new juridical relation, subject to cer-
tain exceptions such as in dation in payment
where implied warranties may become opera-
tive (see Art. 1245, Civil Code).
(b) If payment is made by a third person interested
in the fulfillment of an obligation (such as by a
guarantor or surety or by a creditor paying a

preferred creditor), the obligation is extin-
guished. In turn, he can be subrogated to the
rights of the creditor (see Art. 1237, also Art.
1302, Civil Code; BPI vs. McCoy, 52 Phil. 831).
(c) If payment is tendered or made by a third per-
son not interested in the fulfillment of an obli-
gation
(i) The creditor is not bound to accept pay-
ment, unless there is a stipulation to the
contrary (see Art. 1236, Civil Code);
(ii) If accepted, the payor may demand what
he has paid (reimbursement), except that
if he paid without the knowledge or against
the will of the debtor, in which case he can
recover only insofar as the payment has
been beneficial to the debtor (see Art. 1236,
Civil Code) at the time payment is made
(RFC vs. Court of Appeals, 94 Phil. 985),
and he cannot compel the creditor to sub-
rogate him in his rights, such as those aris-
ing from a mortgage, guaranty, or penalty
(Art. 1237, Civil Code). Legal subrogation
is presumed when payment is made with
the express or tacit approval of the debtor
(Art. 1302, Civil Code). These rules are in-
applicable to the exercise of the right of
repurchase which is not a debt but a right
(Gonzaga vs. Garcia, 27 Phil. 7).
(iii) 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; the payment, however,
is in any case valid as to the creditor who
has accepted it (Art. 1238, Civil Code).
In obligations to give, payment must be made by one
who has the free disposal of the thing due and capacity to
alienate; otherwise, it shall not be valid, without preju-

dice to the provisions of Article 147 (infra.) under the
Title on Natural Obligations (see Art. 1239, Civil Code).
(2) In the case of payees

(a) Payment should be made to the person in whose
favor the obligation has been constituted, or his
successor-in-interest, or any person authorized
to receive it (see Art. 1240, Civil Code; see Banco
de Oro vs. Equitable Bank, 157 SCRA 188;
Aranas vs. Tutaan, 127 SCRA 838; Tuason vs.
Zamora & Sons, 2 Phil. 305). Payment to a per-
son who is incapacitated to administer his prop-
erty shall be valid if he has kept the thing deliv-
ered, or insofar as the payment has been benefi-
cial to him (see Art. 1241, Civil Code). Payment
made to the creditor by the debtor after the
latter has been judicially ordered to retain the
debt shall not be valid (Art. 1243, Civil Code).
(b) Payment to a third person shall be valid insofar
as it has redounded to the benefit of the credi-
tor. Such benefit to the creditor need not be
proved (a) if after the payment, the third person
acquires the creditors rights; (b) if the creditor
ratifies the payment to a third person; or (c) if
by the creditors conduct, the debtor has been
led to believe that the third person had author-
ity to receive the payment (Art. 1241, Civil Code).
(c) Payment made in good faith to any person in
possession of the credit shall release the debtor
(Art. 1242, Civil Code). The term credit does
not necessarily mean the document evidencing
the right. A person in possession of the credit
refers to a person who is not the creditor but
who, on the face of the instrument, appears to
be the rightful holder thereof. In negotiable in-
struments, that person would be the possessor
of a bearer instrument who is neither the law-

ful holder (creditor) thereof nor the latters
agent. Exceptionally, it might likewise refer to
a person in possession of an instrument pay-
able to the order of another person where both
their names are completely identical.
Identity of Payment
The identity of payment requires that the very thing,
service or forbearance, as the object of the prestation,
must be performed or observed. The debtor of a thing
cannot compel the creditor to receive a different one, al-
though the latter may be of the same value as, or more
valuable than, that which is due. In obligations to do or
not to do, an act or forbearance cannot be substituted by
another act or forbearance against the obligees will (Art.
1244, Civil Code; see Florentino vs. PNB, 98 Phil. 99).
The parties may agree on dation in payment whereby
property is alienated to the creditor in satisfaction of a
debt in money; in this case, the payment shall be gov-
erned by the law on sales (see Art. 1245, Civil Code). To
constitute dation in payment, however, the true inten-
tion of the parties, express or implied, must be clear
(Filinvest vs. Philippine Acetylene Co., 111 SCRA 421; see
also Lopez vs. Court of Appeals, 114 SCRA 671). Dacion
en pago requires a transfer of ownership of the thing
(PNB vs. Pineda, 197 SCRA 1).
When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and cir-
cumstances have not been stated, the creditor cannot
demand a thing of superior quality. Neither can the debtor
deliver a thing of inferior quality. The purpose of the
obligation and other circumstances shall be taken into
consideration in resolving the matter (Art. 1246, Civil
Code).
Unless it is otherwise provided, the extrajudicial
expenses required by the payment shall be for the account
of the debtor. With regard to judicial costs, the Rules of

Court shall govern (Art. 1247, Civil Code).
Uniform Currency Act and Art. 1249

In money obligations, the Civil Code provides:
Art. 1249. The payment of debts in money shall

be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the cur-
rency which is the legal tender in the Philippines.
The delivery of promissory notes payable to or-
der, or bills of exchange or other mercantile docu-
ments shall produce the effect of payment only when
they have been cashed or when through the fault of
the creditor they may have been impaired.
In the meantime, the action derived from the
original obligation shall be held in abeyance.
The first part of the above article was modified by

Republic Act No. 529 (approved on June 16, 1950), as
amended by Republic Act No. 4100. The amendatory law
was itself repealed by Republic Act No. 8183 (An Act
Repealing Republic Act Numbered Five Hundred Twenty-
Nine, As Amended, entitled An Act to Assure the Uniform
Value of Philippine Coin and Currency), approved on
June 11, 1996. The then R.A. No. 529 declared null and
void any provision in an obligation contracted in the
Philippines that would require payment (a) in gold or in
foreign currency, or (b) in Philippine currency measured
in gold or in foreign exchange. The obligation itself was
valid, and it was to be discharged by payment in legal
tender. Any other domestic obligation incurred was to be
discharged in Philippine legal tender.
Under R.A. No. 8183, obligations contracted in the
Philippines can be denominated and valued at any
convertible currency acceptable to the Bangko Sentral ng
Pilipinas. Its essence is to allow parties to agree on what
currency they wish to utilize in their business trans-

actions.
The former doctrine under R.A. No. 529 was that the
legal tender should be measured in the prevailing rate of
exchange at the time the obligation was incurred (Arrieta
vs. NARIC, 10 SCRA 74). It was subsequently held, how-
ever, that if the obligation was incurred after the enact-
ment of R.A. No. 529, the rate of exchange should be that
prevailing at the time of payment since the law itself did
not provide for the rate of exchange for the payment of
such obligation (Kalalo vs. Luz, 34 SCRA 337). In Ponce
vs. Court of Appeals (90 SCRA 533), the Supreme Court
reiterated the rule by holding that when the obligation
was incurred in, or based on, foreign exchange, the legal
tender to be paid would be at the rate of exchange pre-
vailing at the time of payment.
In General Insurance & Surety Corp. vs. Union Insur-
ance Society of Canton, Ltd. (179 SCRA 530, elaborated
in Republic Resources Dev. Corp. vs. Court of Appeals,
203 SCRA 164, and San Buenaventura vs. Court of Ap-
peals, 181 SCRA 197), the Court held:
(a) If the obligation was incurred prior to the en-
actment of R.A. No. 569 and required payment
in a particular kind of coin or currency other
than the Philippine currency, the same shall be
discharged in Philippine currency at the pre-
vailing rate of exchange at the time the obliga-
tion was incurred, except in case of a loan made
in a foreign currency in which event the rate of
exchange prevailing at the stipulated date of
payment shall prevail.
(b) If, however, the obligation was incurred after
the enactment of R.A. No. 529, the provision of
the law which requires payment at the prevail-
ing rate of exchange when the obligation was
incurred cannot be applied. R.A. No. 529 does
not provide for the payment of obligation after
the enactment of the said Act. Logically, there-

fore, the rate of exchange shall be that prevail-
ing at the time of payment rather than on the
date of incurrence.
R.A. No. 529, concededly, left some gaps on its proper

application. While it did fail to provide for the payment of
obligations incurred after its effectivity, it indeed seemed
logical to conclude that the law meant to apply the rate of
exchange prevailing at the time of payment but only to
obligations incurred in, or based on, foreign currency.
This view was also just and fair in that it maintains and
preserves the real value of the foreign exchange-incurred
obligation to the date of its payment. When, however, the
obligation was incurred in Philippine currency, there
should be no need for the law to still make any reference
to any rate of exchange or to a measure of value in foreign
currency in its payment. The obligation should instead
be then understood to be payable in the same amount of
Philippine currency conformably with Article 1250 of the
Civil Code. An adjustment in value, under this provision,
could only be made in the event of extraordinary inflation
or deflation and only if the parties did not stipulate against
such adjustment. To assume otherwise would be to defeat
the clear intendment of the law for not only did Republic
Act No. 529 prohibit a stipulation requiring payment in
foreign currency or in gold but likewise a stipulation pro-
viding for payment in Philippine currency measured in
its value in gold or in foreign currency.
To exemplify the measure of payment of obligations
incurred after the effectivity of the law then in force un-
der this view
(1) If incurred in Philippine currency, no adjust-
ment was to be made (hence, if P10,000 was
borrowed, payable in a foreign currency, the
same amount of P10,000 would be due upon
payment irrespective of any change in the rates
of exchange prevailing at the time the obliga-
tion was constituted and the time it is paid)

except to the extent that Article 1250 of the
Civil Code on extraordinary inflation or defla-
tion could apply;
(2) If incurred in foreign currency or in Philippine
currency but based on foreign exchange values,
the payment would be made in the Philippine
currency measured at the rate of exchange pre-
vailing at the time of payment (hence, a $1 obli-
gation incurred at a time when the rate of ex-
change was $1:P10 and when payable the rate
becomes $1:P20, would be paid in Philippine
currency at P20).
The excepted transactions under R.A. No. 529 in-
cluded: (a) transactions involving identifiable funds of
foreign governments and international financial institu-
tions; (b) transactions affecting high priority economic
projects financed by or through foreign funds; (c) forward
exchange transactions between banks or between banks
and other persons; and (d) import-export and other inter-
national banking, financial investment and industrial
transactions (see Zagala vs. Jimenez, 152 SCRA 147).
The second part of Article 1249 relates to payments
in mercantile documents. A negotiable instrument, like
some other mercantile documents, may be a medium of
exchange but is not quite legal tender for the payment of
money obligations (Belisario vs. Natividad, 60 Phil. 156).
The established jurisprudence is that a creditor may not
be compelled to accept payment in mercantile documents
(see Soco vs. Militante, 123 SCRA 160; Villanueva vs.
Santos, 67 Phil. 648); an acceptance thereof, however, by
the creditor may produce the effect of payment under the
circumstances declared by Article 1249 of the Civil Code,
that is, upon the mercantile documents being cashed or
by its impairment due to the creditors fault.
In New Pacific Timber vs. Seneris (101 SCRA 684),
the Supreme Court considered it unjustified for a cash-
iers check to be rejected by a judgment creditor as pay-

ment of the redemption price by the debtor of the prop-
erty levied on execution by the sheriff. Citing Section 63
of the Central Bank Act (to the effect that a check which
would have been cleared and credited to the account of
the creditor should be equivalent to a delivery to the
creditor of cash in an amount equal to the amount cred-
ited to the latters account), the tribunal ruled that the
act of the holder who would procure that check to be
certified operates as an assignment of funds to the credi-
tor.
It would seem, however, that the cited provision of
the Central Bank Act might be pertinent, if at all, only
when the creditor has an account with the same bank.
Under Section 189 of the Negotiable Instruments Law,
the certification by the bank merely operates as an as-
signment of funds to the credit of the drawer, not the
payee. Perhaps, Article 19 of the Code should have enough
justification for the Courts conclusion. But whatever
misimpression one might gather from the language of the
above case, subsequent decisions of the Court make it
crystal clear that a check, whether a managers check or
an ordinary check, is not legal tender and an offer of a
check in payment of a debt is not a valid tender of pay-
ment and may be refused receipt by the creditor (Roman
Catholic Church vs. Court of Appeals, G.R. No. 72110, 16
November 1990). When accepted, however, it can become
effective as a means of payment subject to the conditions
expressed in Article 1249 of the Civil Code (see Fortunado
The rules do not necessarily apply in the exercise of
a right. Thus, in Leticia Co vs. PNB (114 SCRA 842), the
Court has ruled that the use by a mortgagor of a bank
managers check is a valid means to exercise the redemp-
tion right.
In NAMARCO vs. FUND (49 SCRA 238), the Sup-
reme Court has said that Article 1249 of the Civil Code,
providing that the delivery of notes, bills or other mer-

cantile documents shall produce the effect of payment
when impaired by the creditors fault, does not apply to a
check issued by the debtor himself, since no prejudice to
him can result thereby. This is to say that an issuer of a
negotiable instrument, to the extent that he is not preju-
diced, may be required to re-issue a replacement of the
impaired or lost instrument.
Extraordinary Inflation or Deflation

The term extraordinary inflation or deflation is
explained in Filipino Pipe and Foundry Corp. vs. MWSS
(161 SCRA 32) thusly: Extraordinary inflation (or defla-
tion) exists when there is a decrease or increase in the
purchasing power of the Philippine currency which is
unusual or beyond the common fluctuation in the value
of said currency, and such decrease or increase could not
have been reasonably foreseen or was manifestly beyond
the contemplation of the parties at the time of the estab-
lishment of the obligation. An example of extraordinary
inflation, the Court has observed, is the situation that
has happened to the Deutchmark:
More recently, in the 1920s Germany expe-

rienced a case of hyperinflation. In early 1921, the
value of the German mark was 4.2 to the U.S. Dol-
lar. By May of the same year, it had stumbled to 62
to the U.S. Dollar. And as prices went by rapidly, so
that by October 1923, it had reached 4.2 trillion to
the U.S. Dollar (Bernardo M. Villegas & Victor R.
Abola, Economics, An Introduction [Third Edition]).
In Huibonhoa vs. Court of Appeals (117 SCAD 281,

320 SCRA 625), the Court has expressed that there is
inflation when there appears to be an increase in the
volume of money and credit relative to available goods,
resulting in a substantial and continuing rise in the gen-
eral price level. The decline in the purchasing power of
the Philippine currency is of judicial notice and cannot be
considered unforeseeable, for this is simply a universal

trend that has not spared our country. The party alleging
the supervening event of extraordinary inflation must
lay down the factual basis for the application of Article
1250 because the same is never assumed (Singson vs.
Caltex, 134 SCAD 219, 342 SCRA 91). Article 1250 of the
Civil Code needs an official declaration of inflation or
deflation, as the case may be, by competent government
authorities for the law to apply (Mobile Oil Philippines
vs. Court of Appeals, 180 SCRA 651; Hahn vs. Court of
Appeals, G.R. No. 55372, 31 March 1989).
Article 1250 does not apply in non-contractual obli-
gations. Accordingly, no adjustment would be authorized
in obligations arising from tort (Velasco vs. Meralco, 42
SCRA 556), in expropriation proceedings (Commissioner
of Public Highways vs. Burgos, 96 SCRA 831), and in the
subrogatory rights of an insurer against the person whose
negligence or fault has caused the insurers liability (St.
Paul Insurance vs. Macondray & Co., 70 SCRA 122),
these obligations not being contractual in nature. In Com-
missioner of Public Highways vs. Francisco Burgos (96
SCRA 831), the Court has ruled that Article 1250 of the
Civil Code seems to be the only provision in our statutes
which provides for payment of an obligation in an amount
different from what has been agreed upon by the parties
because of the supervening of extraordinary inflation or
deflation. It is clear that the provisions of the said article
applies only to cases where a contract or agreement is
involved. It does not apply where the obligation to pay
arises from law, independent of contract. The taking of
private property by the government in the exercise of its
power of eminent domain does not give rise to a contrac-
tual obligation. Moreover, the law clearly provides that
the value of the currency at the time of the establishment
of the obligation shall be the basis of payment which, in
cases of expropriation, would be the value of the peso at
the time of the taking of property when the obligation of
the government to pay arises.
In fine, Article 1250 would apply in order to warrant

a revaluation or devaluation of the obligation (adjusted
according to present values) when the following condi-
tions concur
(1) existence of extraordinary inflation or deflation
of the currency stipulated;
(2) an obligation to pay a sum certain in money;
(3) the obligation is contractual in nature; and
(4) there exists no stipulation to the contrary.
When the above conditions concur, an adjustment
shall be made so that the value of the currency at the
time of the establishment of the obligation shall be the
basis of payment. Hence, if P1 were required to pur-
chase a specific thing at the time a contractual obligation
is constituted and at the time of payment as a result of
extraordinary inflation one would need P10 to buy the
same thing, then the amount to be paid thereupon, un-
less otherwise stipulated, shall be P10 less whatever may
be considered the ordinary inflation between the time of
incurrence and the time of payment. By extraordinary
inflation or deflation of currency is meant one that is
uncommon and abrupt or sudden; where the inflation, for
instance, would simply be the equivalent of, or would
merely approximate, the normal cost of money or stand-
ard rates of interest in loan obligations, the inflation can
only be considered as ordinary. The payment of legal in-
terest, said the Court in Republic vs. Juan (92 SCRA 26),
should be considered sufficient compensation for any in-
flation that may have arisen. The parties, however, may
stipulate to allow an adjustment of the obligation even in
cases of ordinary inflation or deflation.
Place of Payment
Payment shall be made in the place designated in
the obligation. There being no express stipulation and if
the undertaking is to deliver a determinate thing, the
payment shall be made wherever the thing might be at

the moment the obligation was constituted (see Warner,
Barnes & Co. vs. Inza, 43 Phil. 505). In any other case,
the place of payment shall be the domicile of the debtor
(Gomez vs. Ng, 76 Phil. 555). If the debtor changes his
domicile in bad faith or after he has incurred in delay, the
additional expenses shall be borne by him. These rules,
however, are without prejudice to venue under proce-
dural laws (see Art. 1251, Civil Code).
Special Forms of Payment
a. Application of Payments
Art. 1252. He who has various debts of the same
kind in favor of one and the same creditor, may declare
at the time of making the payment, to which of them
the same must be applied. Unless the parties so
stipulate, or when the application of payment is made
by the party for whose benefit the term has been
constituted, application shall not be made as to debts
which are not yet due.
If the debtor accepts from the creditor a receipt in
which an application of the payment is made, the former
cannot complain of the same, unless there is a cause
for invalidating the contract. (1172a)
Art. 1253. If the debt produces interest, payment
of the principal shall not be deemed to have been made
until the interests have been covered. (1173)
Art. 1254. When the payment cannot be applied in
accordance with the preceding rules, or if application
cannot be inferred from other circumstances, the debt
which is most onerous to the debtor, among those due,
shall be deemed to have been satisfied.
If the debts due are of the same nature and burden,
the payment shall be applied to all of them proportion-
ately. (1174a)
The rules on application of payments under Articles

1252 and 1253 apply only when: (a) there are several
debts; and (b) the several debts are owing from one debtor
to a single creditor.
Hence, where a P500 debt, secured by a guarantor
up to P200, is payable in installments all of which have
matured without being paid, the rules on application of
payments would not apply since there is but one obliga-
tion. Accordingly, a partial payment can be rejected by
the creditor; if accepted by the latter, neither is the debtor
entitled nor can the guarantor claim that the part pay-
ment shall be deemed to be that portion guaranteed as
being more onerous (see Reparations Commission vs.
Universal Deep-Sea Fishing and Manila Surety Co., 83
SCRA 764).
The rules apply to a person owing several debts of
the same kind to a single creditor. Thus, a payment made
by the surety or guarantor entitles the latter, not the
debtor, to have payment applied exclusively to the guar-
anteed liability (see Magdalena Estate, Inc. vs. Rodri-
guez, 18 SCRA 967; Socony-Vacuum Corp. vs. Miraflores,
67 Phil. 304).
In cases where the provisions on application of pay-
ments apply, the following rules govern:
(1) The debtor may declare at the time of making
the payment to which of them the same must be
applied. Unless the parties so stipulate, or when
the application of payment is made by the party
for whose benefit the term has been constituted,
application shall not be made as to debts which
are not yet due (see Art. 2252, Civil Code). If the
debt produces interest, payment of the princi-
pal shall not be deemed to have been made un-
til the interest has been covered (Art. 1253, Civil
Code).
(2) If the debtor accepts from the creditor a receipt
in which an application of the payment is made,
the former cannot complain of the same, unless
there is a cause for invalidating the contract

(3) When the payment cannot be applied in accord-
ance with the preceding rules, or if the applica-
tion cannot be inferred from other circum-
stances, the debt which is most onerous to the
debtor, among those due, shall be deemed to
have been satisfied. If the debts due are of the
same nature and burden, the payment shall be
applied to all of them proportionally (Art. 1254,
Civil Code), an exception from the rule of integ-
rity of payments.
The first choice in the application of payment lies
with the debtor (U.P. Recreation Club, Inc. vs. Alto Surety
& Insurance Co., 104 Phil. 534); once made, the applica-
tion is final (Bachrach Garage and Taxicab Co. vs.
Galingco, 39 Phil. 912). The debtor, however, may only
make his application to debts that have become due, un-
less he has the benefit of the period, and in interest-bear-
ing debts, the debtors payment must first be applied to
the interest and then only to the principal (see Guanzon
vs. Llantada, 94 Phil. 234). No choice having been made
at the moment of payment, the creditor may state in the
receipt of the debt to which the payment is to be applied
which becomes operative if the debtor accepts it without
objections (see Sanz vs. Lavin Brothers, 6 Phil. 299). If
neither the debtor nor the creditor has made the applica-
tion, the payment shall be by operation of law, i.e., the
payment shall apply to the debt most onerous to the debtor.
A secured debt is more onerous than an unsecured obli-
gation (Ligget & Myers Tobacco Corp. vs. Associated In-
surance & Surety Co., 109 Phil. 1093), and a sole debt is
more onerous than a solidary indebtedness (Common-
wealth vs. Far Eastern Surety & Ins. Co., 83 Phil. 305).
b. Payment by Cession
Art. 1255. The debtor may cede or assign his prop-
erty to his creditors in payment of his debts. This ces-
sion, unless there is stipulation to the contrary, shall

only release the debtor from responsibility for the net
proceeds of the thing assigned. The agreements which,
on the effect of the cession, are made between the
debtor and his creditors shall be governed by special
laws. (1175a)
The debtor may cede or assign his property to his

creditors in payment of his debts. This cession, unless
there is a stipulation to the contrary, shall only release
the debtor from responsibility for the net proceeds of the
thing assigned. The agreements, which on the effect of
the cession are made between the debtor and his credi-
tors, shall be governed by special laws, e.g., laws on insol-
vency (see Art. 1255, Civil Code; Act No. 1956, as amended;
see Ignacio vs. Martinez, 33 Phil. 576). There can be no
payment by cession under Article 1255 where there is
only one creditor; the article contemplates the existence
of two or more creditors and involves the assignment of
all the debtors property (DBP vs. Court of Appeals, 284
SCAD 14).
c. Tender of Payment and Consignation
Art. 1256. If the creditor to whom tender of pay-

ment has been made refuses without just cause to
accept it, the debtor shall be released from responsi-
bility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect
in the following cases:
(1) When the creditor is absent or unknown, or
does not appear at the place of payment;
(2) When he is incapacitated to receive the pay-
ment at the time it is due;
(3) When, without just cause, he refuses to give
a receipt;
(4) When two or more persons claim the same
right to collect;
(5) When the title of the obligation has been lost.

(1176a)
Art. 1257. In order that the consignation of the
thing due may release the obligor, it must first be an-
nounced to the persons interested in the fulfillment of
the obligation.
The consignation shall be ineffectual if it is not
made strictly in consonance with the provisions which
regulate payment. (1177)
Art. 1258. Consignation shall be made by deposit-
ing the things due at the disposal of judicial authority,
before whom the tender of payment shall be proved, in
a proper case, and the announcement of the consigna-
tion in other cases.
The consignation having been made, the inter-
ested parties shall also be notified thereof. (1178)
Art. 1259. The expenses of consignation, when
properly made, shall be charged against the creditor.
(1179)
Art. 1260. Once the consignation has been duly
made, the debtor may ask the judge to order the can-
cellation of the obligation.
Before the creditor has accepted the consigna-
tion, or before a judicial declaration that the consigna-
tion has been properly made, the debtor may withdraw
the thing or the sum deposited, allowing the obligation
to remain in force. (1180)
Art. 1261. 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. (1181a)
If the creditor to whom tender of payment has been

made refuses without just cause to accept it, the debtor
shall be released from responsibility by the judicial con-
signation of the thing or sum due (see Art. 1256, Civil
Code).
In order that tender of payment and consignation

may be valid and effective against a creditor, the follow-
ing requisites should concur:
(1) The debt sought to be paid must be due;
(2) There must be a valid and unconditional tender
of payment; consignation alone or tender of pay-
ment may be dispensed with in the following
cases:
(a) When the creditor is absent or unknown,
or does not appear at the place of payment;
(b) When he is incapacitated to receive the
payment at the time it is due;
(c) When, without just causes, he refuses to
give a receipt;
(d) When two or more persons claim the same
right to collect; and
(e) When the title of the obligation has been
lost (Art. 1256, Civil Code; Rural Bank of
Paraaque vs. Court of Appeals, 104 SCRA
151).
A check, whether a managers check or ordinary

check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and
may be refused receipt by the creditor. Thus, in one case,
where a buyer had offered a certified personal check for
the payment of the last installment of the purchase price
of land, said check being neither legal tender nor the
currency stipulated in the contract, there was, the Court
ruled, no valid tender of payment, and it would be error
to conclude that there was tender payment by a buyer
simply because said buyer had sufficient available funds
on or before the grace period for paying the purchase
price expired. Tender of payment involves a positive and
unconditional act by the obligor of offering legal tender
currency as payment to the obligee for the formers obli-
gation and demanding that the latter accept the same

(Roman Catholic vs. Court of Appeals, G.R. No. 72110, 16
November 1990). However, an offer in writing to pay a
specific sum of money, if rejected on some other grounds,
is equivalent to the actual production and tender of the
money (see Sec. 24, Rule 123, Rules of Court; see also
McLaughlin vs. Court of Appeals, 144 SCRA 693);
(3) The consignation of the thing due must first be
announced to the persons interested in the
fulfillment of the obligation;
(4) Consignation shall be made by depositing the
things due at the disposal of judicial authority
(Ercillo vs. Court of Appeals, 192 SCRA 163),
before whom the tender of payment shall be
proved, in a proper case, and the announcement
of the consignation in other cases; and
(5) The consignation having been made, the inter-
ested parties shall also be notified thereof (Art.
1258, Civil Code; see Valdellon vs. Tengco, 141
SCRA 321; Soco vs. Millante, 123 SCRA 160;
Ponce de Leon vs. Syjuco, 90 Phil. 311; Philip-
pine National Bank vs. Relativo, 92 Phil. 203).
Once the consignation has been duly made, the debtor
may ask the judge to order the cancellation of the obliga-
tion. Before the creditor has accepted the consignation,
or before a judicial declaration that the consignation has
been properly made, the debtor may withdraw the thing
or the sum deposited, allowing the obligation to remain
in force (Art. 1260, Civil Code). If, the consignation hav-
ing 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, guar-
antors and sureties shall be released (Art. 1261, Civil
Code).
A tender of payment, without valid consignation,
does not discharge the obligation (Capalungan vs.
Medrano, 108 Phil. 22), and the debtor continues to be
liable for interest payments due thereon (Llamas vs.

Abaya, 60 Phil. 502). Mora accipiendi does not excuse
consignation (Manuel vs. Court of Appeals, 199 SCRA
603). In one case, the Supreme Court excused the pay-
ment of interest despite what is considered a defective
consignation (due to a tender of payment in checks but
where the creditors rejection of the offer was based on an
entirely different reason) on the grounds of equity and
justice (Gregorio Araneta, Inc. vs. Tuason de Paterno, 91
Phil. 786, reiterated in Francisco vs. Gorgonio, 115 SCRA
345).
The rules on tender of payment and consignation
have been held inapplicable to options or rights of re-
demption which are not in the nature of debts (see
Immaculata vs. Navarro, 160 SCRA 197; Quirino vs.
Palanca, 29 SCRA 1; Asturias Sugar Central vs. Pure
Cane Molasses Co., 60 Phil. 255).
Section 2 Loss of the Thing Due
Art. 1262. An obligation which consists in the de-

livery 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.
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 respon-
sible for damages. The same rule applies when the
nature of the obligation requires the assumption of
risk. (1182a)
Art. 1263. In an obligation to deliver a generic
thing, the loss or destruction of anything of the same
kind does not extinguish the obligation. (n)
Art. 1264. The courts shall determine whether, un-
der the circumstances, the partial loss of the object of
the obligation is so important as to extinguish the obli-
gation. (n)
Art. 1265. Whenever the thing is lost in the posses-
sion of the debtor, it shall be presumed that the loss
was due to his fault, unless there is proof to the con-

trary, and without prejudice to the provisions of Article
1165. This presumption does not apply in case of earth-
quake, flood, storm or other natural calamity. (1183a)
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 obli-
gor. (1184a)
Art. 1267. When the service has become so diffi-
cult as to be manifestly beyond the contemplation of
the parties, the obligor may also be released therefrom,
in whole or in part. (n)
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 justifi-
cation to accept it. (1185)
Art. 1269. The obligation having been extinguished
by the loss of the thing, the creditor shall have all the
rights of action which the debtor may have against
third person by reason of the loss. (1186)
A thing is lost when it perishes, or goes out of com-

merce, or disappears in such a way that its existence is
unknown or (even if known) it cannot be recovered (see
Art. 1189, Civil Code). In obligations to do, the equivalent
term of loss is impossibility.
Broadly in law, the risk of loss lies with the owner
under the res perit domino rule; in the law on obligations
and contracts, however, the generally applicable princi-
ple is the res perit creditori that places upon the creditor
the burden of loss (see Reyes vs. Caltex, 47 O.G. 1293;
Villaruel vs. Manila Motors, 104 Phil. 926; see also Arts.
1255 and 1262, Civil Code).
In effect, therefore, the debtor is relieved from his
obligation, leaving to the creditor all the rights of action
which the debtor may have against third persons by rea-

son of the loss (see Art. 1269, Civil Code). In reciprocal
obligations, the debtor whose obligation has thus been
extinguished by the loss of the thing can still require the
other party to comply with his own undertaking to the
former, except as otherwise expressly provided by law,
such as in the sale of goods (Art. 1504, Civil Code), lease
of things (Art. 1655, Civil Code), and contract for a piece
of work (Art. 1717, Civil Code), where res perit domino
appears to be the rule.
In the following cases, however, the debtor is not
discharged from liability nor entitled, in a reciprocal
obligation, to claim from the other party the latters
performance of his undertaking:
(1) When the loss occurs after the debtor has
incurred in delay or the loss is not without his
fault (see Art. 1262, Civil Code). 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
(without prejudice to the provisions of Art. 1165,
supra.), but this presumption does not apply in
case of loss occurring during the occasion of an
earthquake, flood, storm or other natural
calamity (see Art. 1265, Civil Code).
(2) When despite the loss of the thing because of
a fortuitous event (loss without the debtors
fault)
(a) The law places the burden of loss on the
debtor such as in obligations to deliver
generic things under the maxim genus
nunquam perit (Art. 1263, Civil Code),
which would include money (see Central
Bank of the Philippines vs. Court of Ap-
peals, 139 SCRA 46, where the debtors in-
solvency was held not to discharge a con-
tractual obligation but as a breach thereof)
and similar obligations (see Ramirez vs.

Court of Appeals, 98 Phil. 225; Republic vs.
Grijaldo, 15 SCRA 681; De Leon vs. Soriano,
87 Phil. 551); when the debt proceeds from
a criminal offense, unless the thing having
been offered to the person who should re-
ceive it, the latter refuses without justifi-
cation to accept it (Art. 1268, Civil Code);
and when the obligor promises the same
thing to two or more persons having differ-
ent interests (Art. 1165, Civil Code); or
(b) The debtor has agreed by stipulation to as-
sume the risk of loss (see Lawyers Coop-
erative Publishing Co. vs. Tabora, 13 SCRA
762).
(3) When the nature of obligation requires the as-
sumption of risk on the part of the debtor such
as that of an insurer in a contract of insurance.
In Co vs. Court of Appeals (95 SCAD 34, 291 SCRA
111), the Supreme Court has said that carnapping per se
could not be considered a fortuitous event. A fortuitous
event should be understood as being an act of God or act
done solely by third parties and that neither the claimant
nor the person alleged to be negligent has had any par-
ticipation therein. Under Article 1174 and Article 1262 of
the Civil Code, liability would still attach even if the loss
were due to a fortuitous event if the nature of the obliga-
tion requires the assumption of risk. Carnapping, ob-
served the Court, is a normal business risk for those
engaged in the repair of motor vehicles, and for just as
the owner is exposed to that risk so also is the repair shop
to which the car has been entrusted.
Partial Loss; Theory of Imprevisibility

Loss or impossibility must be of a nature that would
render the obligation incapable from being complied with
in a normal manner (see PNCC vs. NLRC, 193 SCRA
401; General Enterprises, Inc. vs. Lianga Bay Logging

Co., 11 SCRA 733; Labayen vs. Talisay-Silay, 52 Phil.
440). In a partial loss of the object of the obligation, the
courts may determine whether, under given circum-
stances, such loss is so important as to extinguish the
obligation (Art. 1264, Civil Code).
In obligations to do, the debtor shall be released
when the prestation becomes legally or physically impos-
sible without his fault (Art. 1266, Civil Code). 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 (Art. 1267, Civil
Code). Neither partial loss of the thing in an obligation to
deliver nor extreme difficulty in an obligation to do (also
referred to as the Theory of Imprevisibility or Frustration
of Enterprise in Contracts) authorizes the courts to re-
make or revise a contract; if at all, these circumstances
may only serve to release the debtor from his obligation
in whole or in part (see Occena vs. Jabson, 73 SCRA 637;
in respect to lease of agricultural lands, see Art. 1680,
Civil Code).
In contracts, where the impossibility of things and
services occur prior to perfection, no obligation is deemed
constituted (see Art. 1348, Civil Code) and the loss pre-
vents the contract from acquiring an obligatory force (see
Section 3 Condonation or Remission

of the Debt
Art. 1270. Condonation or remission is essentially

gratuitous, and requires the acceptance by the obligor.
It may be made expressly or impliedly.
One and the other kind shall be subject to the
rules which govern inofficious donations. Express
condonation shall, furthermore, comply with the forms
of donation. (1187)
Art. 1271. The delivery of a private document evi-

dencing a credit, made voluntarily by the creditor to
the debtor, implies the renunciation of the action which
the former had against the latter.
If in order to nullify this waiver it should be claimed
to be inofficious, the debtor and his heirs may uphold
it by proving that the delivery of the document was
made in virtue of payment of the debt. (1188)
Art. 1272. Whenever 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, unless the contrary is proved. (1189)
Art. 1273. The renunciation of the principal debt
shall extinguish the accessory obligations; but the
waiver of the latter shall leave the former in force. (1190)
Art. 1274. It is presumed that the accessory
obligation of pledge has been remitted when the thing
pledged, after its delivery to the creditor, is found in
the possession of the debtor, or of a third person who
owns the thing. (1191a)
Condonation is the forgiveness of a debt or the waiver

of its enforcement (see Babez vs. Young, 92 Phil. 1067);
the remission is essentially gratuitous and requires the
acceptance by the obligor. It may be made expressly or
impliedly. Express condonation shall comply with the
forms of donation (Art. 1270, Civil Code). The delivery of
a private document evidencing a credit, voluntarily made
by the creditor to the debtor, implies the renunciation of
the action which the former had against the latter (see
Art. 1271, Civil Code). Whenever 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, unless the contrary is proved (Art. 1272, Civil
Code). Conversely, the possession of the instrument of
credit by the creditor is prima facie proof of non-payment
(Torbio vs. Foz, 34 Phil. 913). These presumptions may
certainly be overcome by evidence (see Lopez Liso vs.
Tambunting, 33 Phil. 226; Prising vs. Springer, 13 Phil.
223). An express condonation, upon the other hand, does

not give rise to a mere presumption; precisely, the law
requires it to comply with the forms of donation in order
to set it free from further dispute or doubt.
The renunciation of the principal debt shall extin-
guish the accessory obligations; but the waiver of the
latter shall leave the former in force (Art. 1273, Civil
Code). It is presumed that the accessory obligation of
pledge has been remitted when the thing pledged, after
its delivery to the creditor, is found in the possession of
the debtor, or of a third person who owns the thing (Art.
1274, Civil Code).
Condonation is subject to the rules which govern
inofficious donations (see Art. 1270, Civil Code). If in
order to nullify this waiver it should be claimed to be
inofficious, the debtor and his heirs may uphold it by
proving that the delivery of the document was made in
virtue of payment of the debt (see Art. 1271, Civil Code).
Section 4 Confusion or Merger of Rights
Art. 1275. The obligation is extinguished from the

time the characters of creditor and debtor are merged
in the same person. (1192a)
Art. 1276. Merger which takes place in the person
of the principal debtor or creditor benefits the guaran-
tors. Confusion which takes place in the person of any
of the latter does not extinguish the obligation. (1193)
Art. 1277. Confusion does not extinguish a joint
obligation except as regards the share corresponding
to the creditor or debtor in whom the two characters
concur. (1194)
The obligation is extinguished from the time the

characters of creditor and debtor are merged in the same
person (Art. 1275, Civil Code; see Yek Tong vs. Yusingco,
64 Phil. 1062). Merger as one of the means of extinguish-
ing an obligation has the following elements: (1) the
merger of the characters of the creditor and debtor must

be in the same person; (2) it must take place in the person
of either the principal creditor or the principal debtor;
and (3) it must be complete and definite (Valmonte vs.
Court of Appeals, 103 SCAD 509, 303 SCRA 278).
Merger which takes place in the person of the princi-
pal debtor or creditor benefits the guarantors. Confusion
which takes place in the person of any of the latter does
not extinguish the obligation (Art. 1276, Civil Code).
Confusion does not extinguish a joint obligation except
as regards the share corresponding to the creditor or
debtor in whom the two characters concur (Art. 1277,
Civil Code).
Section 5 Compensation
Art. 1278. Compensation shall take place when

two persons, in their own right, are creditors and debt-
ors of each other. (1195)
Art. 1279. In order that compensation may be
proper, it is necessary:
(1) That each one of the obligors be bound prin-
cipally, 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 reten-
tion or controversy, commenced by third persons and
communicated in due time to the debtor. (1196)
Art. 1280. Notwithstanding the provisions of the
preceding article, the guarantor may set up compen-
sation as regards what the creditor may owe the prin-
cipal debtor. (1197)
Art. 1281. Compensation may be total or partial.

When the two debts are of the same amount, there is a
total compensation. (n)
Art. 1282. The parties may agree upon the com-
pensation of debts which are not yet due. (n)
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. (n)
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.
(n)
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 ces-
sion, 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. (1198a)
Art. 1286. Compensation takes place by operation
of law, even though the debts may be payable at differ-
ent places, but there shall be an indemnity for expenses
of exchange or transportation to the place of payment.
(1199a)
Art. 1287. Compensation shall not be proper when
one of the debts arises from a depositum or from the
obligations of a depositary or of a bailee in commoda-
tum.
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. (1200a)
Art. 1288. Neither shall there be compensation if
one of the debts consists in civil liability arising from a
penal offense. (n)
Art. 1289. If a person should have against him
several debts which are susceptible of compensation,
the rules on the application of payments shall apply to
the order of the compensation. (1201)
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 debt-
ors are not aware of the compensation. (1202a)
Compensation takes place when two persons, in their

own right, are creditors and debtors of each other (Art.
1278, Civil Code; see Ong vs. Court of Appeals, 177 SCRA
402; Sycip vs. Court of Appeals, 134 SCRA 317; De Borja
vs. Gella, 8 SCRA 602). Compensation may be total (when
the two debts are of the same amount) or partial (when
the two debts vary in amounts, in which case compen-
sation shall only be to the extent of the concurrent
amount). Compensation may also be legal (by operation
of law), conventional (by agreement), or judicial (by judg-
ment).
Legal Compensation
In order that compensation may be proper, it is nec-
essary:
(1) That each one of the obligors be bound prin-
cipally, and that he be at the same time a prin-
cipal creditor of the other;
(2) That both debts consist in a sum of money, or if
the things due are consumable, that 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; thus,
compensation cannot take place if ones claim
against the other is still the subject of litigation
(see Solinap vs. del Rosario, 123 SCRA 640);
(5) That over neither of them there be any reten-
tion or controversy, commenced by third per-
sons and communicated in due time to the debtor
(Art. 1279, Civil Code; Solinap vs. Judge del
Rosario, 123 SCRA 640; Sycip vs. Court of Ap-
peals, 134 SCRA 317). These provisions not-
withstanding, the guarantor may set up com-
pensation as regards what the creditor may owe
the principal debtor (see Art. 1280, Civil Code;
see Basilio vs. Natividad, 80 Phil. 52).
When all requisites for legal compensation occur,
compensation takes effect by operation of law (Mindanao
Portland Cement vs. Court of Appeals, 120 SCRA 930)
and extinguishes both debts to the concurrent amount,
even though the creditors and debtors are not aware of
the compensation and even though the debts may be pay-
able at different places, but there shall be an indemnity
for expenses of exchange or transportation to the place of
payment (Art. 1290, in relation to Art. 1286, Civil Code).
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 (Art. 1289, Civil Code).
When one or both debts are rescissible or voidable,
they may be compensated against each other before they
are judicially rescinded or avoided (Art. 1284, Civil Code).
The debtor who has consented to the assignment of
rights made by a creditor in favor of a third person can-
not 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 compensa-

tion. 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 compensa-
tion of all credits prior to the same and also later ones
until he had knowledge of the assignment (Art. 1285,
Civil Code).
Compensation shall not be proper when one of the
debts: (a) arises from a depositum or from the obligation
of a depositary; (b) arises from the obligation of a bailee
in commodatum; (c) is a claim for support due by gratui-
tous title, except those in arrears (see Art. 301, Civil
Code); and (d) consists in civil liability arising from a
penal clause (Arts. 1287 and 1288, Civil Code).
In Republic vs. Mambulao Lumber Co. (6 SCRA 622),
the Supreme Court has enunciated the rule that taxes
are not subject to set-off or legal compensation. In the
subsequent case of Domingo vs. Garlito (8 SCRA 443),
the tribunal has reversed itself by holding that where the
taxes and the taxpayers claim are fully liquidated, due
and demandable, legal compensation (Art. 1279, Civil
Code) can take place by operation of law, and both debts
are extinguished to the concurrent amount. The decision
in the Mambulao Lumber case, supra, which has adopted
the prevailing rule in common law, appears to be the
better view for, among other things, the following rea-
sons: (1) taxes are of a distinct kind, essence and nature,
and these impositions cannot be so classed in merely the
same category as ordinary obligations; (2) the applicable
laws and principles governing each are peculiar, not nec-
essarily common, to each; and (3) public policy is better
subserved if the integrity and independence of taxes be
maintained. Where, however, the two claims are pleaded
and proved before the same court which has jurisdiction
over both said claims, conventional wisdom would dictate
the practicability of set-off. The Mambulao Lumber case
has been subsequently restored in Francia vs. Intermedi-

ate Appellate Court (162 SCRA 753).
Conventional Compensation
Conventional compensation is the mutual set-off of
obligations by the will or agreement of the parties. The
parties may agree upon the compensation of debts which
are not yet due (see Art. 1282, Civil Code).
Judicial Compensation
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 (Art. 1283, Civil Code). The set-off must be pleaded
by the claimant and adjudged by the court (Yap vs. Chua,
14 Phil. 602).
Section 6 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. (1203)
Art. 1292. In order that an obligation may be ex-
tinguished 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. (1204)
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 credi-
tor. Payment by the new debtor gives him the rights
mentioned in Articles 1236 and 1237. (1205a)
Art. 1294. If the substitution is without the knowl-
edge 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.
(n)
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 insol-
vency was already existing and of public knowledge,
or known to the debtor, when he delegated his debt.
(1206a)
Art. 1296. When the principal obligation is extin-
guished in consequence of a novation, accessory obli-
gations may subsist only insofar as they may benefit
third persons who did not give their consent. (1207)
Art. 1297. If the new obligation is void, the origi-
nal one shall subsist, unless the parties intended that
the former relation should be extinguished in any event.
(n)
Art. 1298. The novation is void if the original obli-
gation was void, except when annulment may be
claimed only by the debtor, or when ratification vali-
dates acts which are voidable. (1208a)
Art. 1299. If the original obligation was subject to
a suspensive or resolutory condition, the new obliga-
tion shall be under the same condition, unless it is
otherwise stipulated. (n)
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 es-
tablished in order that it may take effect. (1209a)
Art. 1301. Conventional subrogation of a third per-
son requires the consent of the original parties and of
the third person. (n)
Art. 1302. It is presumed that there is a legal sub-
rogation:
(1) When a creditor pays another creditor who
is preferred, even without the debtors knowledge;
(2) When a third person, not interested in the

obligation, pays with the express or tacit approval of
the debtor;
(3) When, even without the knowledge of the
debtor, a person interested in the fulfillment of the ob-
ligation pays, without prejudice to the effects of confu-
sion as to the latters share. (1210a)
Art. 1303. Subrogation transfers to the person sub-
rogated the credits with all the rights thereto apper-
taining, either against the debtor or against third per-
sons, be they guarantors or possessors of mortgages,
subject to stipulation in a conventional subrogation.
(1212a)
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. (1213)
Novation, in its broad concept, may either be

extinctive or modificatory. Obligations may be altered by
changing their object or principal conditions, substitut-
ing the person of the debtor, or subrogating a third per-
son in the rights of the creditor (Art. 1291, Civil Code;
Lopez vs. Court of Appeals, 114 SCRA 671); or by making
any change in any of the elements of an obligation. It is
extinctive when the old obligation is extinguished by the
creation of a new one that takes the place of the former;
or modificatory when the old obligation subsists, as
amended, to the extent it remains compatible with the
novatory agreement. No novation of a contract occurs
when the new agreement entered into between the par-
ties is intended to give life to the old one (Huibonhoa vs.
a. Extinctive Novation
An extinctive novation results either by changing
the object or principal conditions either by changing the
object or principal conditions (objective or real), or by
substituting the person of the debtor or subrogating a

third person in the rights of the creditor (subjective or
personal). Under this mode, novation would have dual
functions one to extinguish an existing obligation, the
other to substitute a new one in its place requiring a
conflux of four essential requisites: (1) a previous valid
obligation; (2) an agreement of all parties concerned to a
new contract; (3) the extinguishment of the old obliga-
tion; and (4) the birth of a valid new obligation. The
animus novandi, whether totally or partially, must ap-
pear by express agreement of the parties, or by their acts
that are too clear and unequivocal to be mistaken.
The extinguishment of the old obligation by the new
one is a necessary element of novation which may be
effected either expressly or impliedly. The term expressly
means that the contracting parties incontrovertibly
disclose that their object in executing the new contract is
to extinguish the old one. Upon the other hand, no specific
form is required for an implied novation, and all that is
prescribed by law would be an incompatibility between
the two contracts. While there is really no hard and fast
rule to determine what might constitute to be a sufficient
change that can bring about novation, the touchstone for
contrariety, however, would be an irreconcilable incom-
patibility between the old and the new obligations. There
are two ways which could indicate, in fine, the presence
of novation and thereby produce the effect of extinguish-
ing an obligation by another which substitutes the same.
The first is when novation has been explicitly stated and
declared in unequivocal terms. The second is when the
old and the new obligations are incompatible on every
point. The test of incompatibility is whether or not the
two obligations can stand together, each one having its
independent existence. If they cannot, they are incom-
patible and the latter obligation novates the first.
Corollarily, changes that bread incompatibility must be
essential in nature and not merely accidental. The in-
compatibility must take place in any of the essential ele-
ments of the obligation, such as its object, cause or princi-

pal conditions thereof; otherwise, the change would be
merely modificatory in nature and insufficient to extin-
guish the original obligation (Leonida C. Quinto vs. Peo-
ple of the Philippines, G.R. No. 126712, 14 April 1999,
305 SCRA 708).
Extinctive novation requires: first, a previous valid
obligation; second, the agreement of all the parties to the
new contract; third, the extinguishments of the old obli-
gation; and fourth, the validity of the new one (Tiu vs.
Habana, 45 Phil. 707). Novation is never presumed; in
order that an obligation may be extinguished by another
which substitutes the same, it is imperative that it be
(express) so declared in unequivocal terms, or (implied)
that the old and the new obligations be on every point
incompatible with each other. It does not necessarily mean,
however, that the new agreement is complete in itself;
certain terms and conditions may be carried, expressly or
impliedly, over to the new obligation (see Art. 1292, Civil
Code; Ligutan vs. Court of Appeals, G.R. No. 138677, 12
February 2002; Goni vs. Court of Appeals, 144 SCRA 222;
Osmena vs. Court of Appeals, 120 SCRA 395; Lopez vs.
Court of Appeals, 114 SCRA 671; Sandico vs. Piguing, 42
SCRA 322; Joes Radio vs. Alto Electronics, 104 Phil. 333;
Guerrero vs. Court of Appeals, 29 SCRA 791; Pacific Mills
When not expressed, incompatibility is required so
as to ensure that the parties did really intend such nova-
tion despite their failure to express it in categorical terms.
The incompatibility, to be sure, should take place in any
of the essential elements of the obligation, viz.:
(1) The juridical relation or tie, such as from a mere
commodatum to lease of things, or from nego-
tiorum gestio to agency, or from a mortgage to
antichresis (see Jagunap vs. Mirasol [CA], 48
O.G. 3911), or from a sale to one of loan (Soncuya
vs. Azarraga, 65 Phil. 635);
(2) The object or principal conditions, such as a

change of the nature of the prestation; or
(3) The subjects, such as the substitution of a debtor
(Azarraga vs. Rodriguez, 9 Phil. 637) or the sub-
rogation of the creditor.
Extinctive novation does not necessarily imply that
the new agreement should be complete by itself; certain
terms and conditions, even some of the essential elements
of the old obligations, expressly or by implication, may be
carried over to the new obligation. What may, instead, be
significant is that the old obligation is extinguished so as
to affect the accessory undertakings thereto (see Art. 1296,
infra.). A novation may, however, be conditional the non-
fulfillment of which condition may render it legally inef-
fective (see Integrated Construction Services vs. Relova,
146 SCRA 360).
The rule on consensuality of contracts requires the
consent of all parties to the new agreement but not neces-
sarily of the parties to the old obligation since that
consensuality does not apply to the extinguishments
thereof. Neither does the consensuality rule apply to le-
gal subrogation which arises by operation of law rather
than by contract. In conventional subrogation, however,
the law expressly requires the consent of the original
parties and of the third person (Art. 1301, Civil Code).
Substitution of Debtors
Novation, which consists in substituting a new debtor
in the place of the original one, may be made even with-
out the knowledge or against the will of the latter, but not
without the consent of the creditor. It is necessary that
the old debtor be released from the old obligation; other-
wise, the third person merely becomes a joint or solidary
co-debtor as the circumstances warrant (see Mercantile
Insurance vs. Court of Appeals, 196 SCRA 197; La
Campana Food Products, Inc. vs. PCIB, 142 SCRA 394).
Where there is a unilateral substitution of the obligor,
the aggrieved creditor is not bound to deal with the sub-

stitute (Boysaw vs. Interphil Promotions, Inc., 148 SCRA
635; see also Servicewide Specialists, Inc. vs. Intermedi-
ate Appellate Court, 174 SCRA 80; GSIS vs. Court of
Appeals, 169 SCRA 244). Payment by the new debtor
gives him the rights mentioned in Article 1236 and Arti-
cle 1237 (supra.; Art. 1293, Civil Code; see Lopez vs. Court
of Appeals, 114 SCRA 671; Rodriguez vs. Reyes, 37 SCRA
196). If the substitution is without the knowledge or
against the will of the debtor (expromission), the new
debtors insolvency or non-fulfillment of the obligation
shall not give rise to any liability on the part of the origi-
nal debtor (Art. 1294, Civil Code). The insolvency of the
new debtor, who has been proposed by the original debtor
(delegacion) 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 (Art. 1295, Civil Code).
Subrogation
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 the
Code; the latter must be clearly established in order that
it may take effect (Art. 1300, Civil Code). Subrogation
transfers to the person subrogated the credit with 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 sub-
rogation (Art. 1303, Civil Code).
Conventional subrogation of a third person, unlike
in a simple assignment of credit (see Arts. 1624-1628,
Civil Code), requires the consent of the original parties
and of the third person.
It is presumed that there is legal subrogation: (a)
when a creditor pays another creditor who is preferred,
even without the debtors knowledge; (b) when a third

person, not interested in the obligation, pays with ex-
press or tacit approval of the debtor; or (c) when even
without the knowledge of the debtor, a person interested
in the fulfillment of the obligation pays, without preju-
dice to the effects of confusion as to the latters share
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
Effects
When the principal obligation is extinguished in con-
sequence of a novation, accessory obligations may subsist
only insofar as they may benefit third persons who did
not give their consent (Art. 1296, Civil Code).
If the new obligation is void, the original one shall
subsist, unless the parties intended that the former rela-
tion should be extinguished in any event (Art. 1297, Civil
Code; see Ong vs. Court of Appeals, 124 SCRA 578). 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 (Art.
1298, Civil Code).
If the original obligation is subject to a suspensive or
resolutory condition, the new obligation shall be under
the same condition, unless it is otherwise stipulated (Art.
1299, Civil Code).
b. Modificatory Novations
A change in the incidental elements of, or an addi-
tion of such elements to, an obligation, unless otherwise
expressed by the parties, will not result in its extinguish-
ment (Young vs. Court of Appeals, 196 SCRA 795). Altera-
tions of the terms and conditions of the obligation would

generally result only in modificatory novation (Tiu vs.
Habana, 45 Phil. 707) unless such terms and conditions
are considered to be the essence (and thereby become an
essential part of the object) of the obligation itself (see
Young vs. Court of Appeals, 196 SCRA 795). Thus, a change
on the rate of interest (BPI vs. Abaladejo, 53 Phil. 14), on
the compounding of such interest (see Garcia vs. Court of
Appeals, G.R. No. 80201, 20 November 1990), on the man-
ner or method of payment (Ramos vs. Gibbon, 67 Phil.
371; Zapanta vs. De Rotaeche, 21 Phil. 154), or on the
place of delivery (North Negros Sugar vs. Compania Gen-
eral de Tobacco, 100 Phil. 1103), will merely be modifica-
tory and will not affect accessory undertakings (Garcia
vs. Court of Appeals, G.R. No. 80201, 20 November 1990).
An increase or reduction does not change the nature
of the object of the obligation to pay a sum of money and
should merely be modificatory. Accordingly, a guarantor
would still be liable, albeit never beyond his original un-
dertaking. In Macondray & Co., Inc. vs. Ruiz (66 Phil.
562), however, the change has been held to be extinctive;
although in Millar vs. Court of Appeals (38 SCRA 642),
the Court has said that a mere reduction of the amount
due would only result in a modificatory novation. A mere
extension of time to pay, said the Court in Inchausti &
Co. vs. Yulo (34 Phil. 978), is modificatory but a reduction
of that period results in incompatibility (Kabankalan
Sugar Co. vs. Pacheco, 55 Phil. 555). Ultimately, in the
absence of an express statement made by the parties, the
question would largely rest on the appreciation of the court
on the circumstances of each particular case, the inten-
tion of the parties on the matter being always crucial. It
seems that, as a rule of thumb, changes that are substan-
tially more onerous to the debtor than before would be
treated as being of the essence of the obligation, thereby
resulting in incompatibility and extinctive novation.
106 CIVIL LAW
TITLE II. CONTRACTS
Chapter 1
General Provisions
Art. 1305. A contract is a meeting of minds be-

tween two persons whereby one binds himself, with
respect to the other, to give something or to render
some service. (1254a)
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)
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)
Art. 1308. The contracts must bind both contract-
ing parties; its validity or compliance cannot be left to
the will of one of them. (1256a)
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)
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)
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
106
Title II. Contracts
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)
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 Regis-
tration laws. (n)
Art. 1313. Creditors are protected in cases of
contracts intended to defraud them. (n)
Art. 1314. Any third person who induces another
to violate his contract shall be liable for damages to
the other contracting party.
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)
Art. 1316. Real contracts, such as deposit, pledge
and commodatum, are not perfected until the delivery
of the object of the obligation. (n)
Art. 1317. No one may contract in the name of
another without being authorized by the latter, or unless
he has by law or right to represent him.
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)
Concept
A contract is a meeting of minds between two per-
sons whereby one binds himself, with respect to the other,
to give something or to render some service (Art. 1305,
Civil Code; see Lao Sok vs. Sabaysabay, 138 SCRA 134).
Contracts may either be nominate (the Special Con-
tracts regulated by Book IV of the Civil Code), such as
those which the law designates by name (e.g., sales), or
innominate (contractual relations recognized by law with
no special designation) which are broadly grouped into
do ut des (I give and you give), do ut facias (I give and
you do), facio ut des (I do and you give), facio ut facias (I
do and you do) primarily based on unjust enrichment
(Corpus vs. Court of Appeals, 98 SCRA 424). Innominate
contracts are regulated by the stipulations of the parties,
by the provisions of Titles I and II of Book IV of the Code,
by the rules governing the most analogous contracts, and
by the customs of the place (Art. 1307, Civil Code), in that
order.
Principles or Tenets of Contracts

1. Autonomy of Contracts
The contracting parties may establish such stipu-
lations, clauses, terms and conditions as they may deem
desirable or convenient, provided they are not contrary to
law, morals, good customs, public order, or public policy
(Art. 1306, Civil Code; Castro vs. Court of Appeals, 99
SCRA 722). A contract is the law between the parties
and, absent any showing that its provisions are wholly or
in part contrary to law, morals, good customs, public order
or public policy, it shall be enforced to the letter by the
courts (Metropolitan Bank & Trust Co. vs. Wong, G.R. No.
120859, 26 June 2001, 150 SCAD 178; Salvatiera vs.
Court of Appeals, 73 SCAD 586, 261 SCRA 45). Courts
cannot make for the parties better or equitable agreements
than they themselves have been satisfied to make, or
rewrite contracts because they operate harshly or unjustly
Title II. Contracts
to one of the parties, or alter them for the benefit of one

party and to the detriment of the other, or by construction,
relieve one of the parties from terms which he voluntarily
consented to or impose on him those which he did not
(Angel Bautista vs. Court of Appeals, G.R. No. 123655, 19
January 2000, 118 SCAD 327). The fact that the
contractual stipulations may thus turn out to be
financially disadvantageous will not relieve parties thereto
of their obligations; contracts bind the parties not only to
what has been expressly stipulated, but also to all
necessary consequences thereof which, according to their
nature, may be in keeping with good faith, usage and law
(Torres vs. Court of Appeals, 117 SCAD 94, 320 SCRA
428). A contract may happen to be a foolish or unwise
investment, but the law will not relieve a party from its
effects once the contract has been executed with all the
required formalities and with full awareness of his actions
(Heirs of Joaquin Teves vs. Court of Appeals, 114 SCAD
181, 316 SCRA 632).
In Banco Filipino Savings and Mortgage Bank vs.
Hon. Navarro and Valle (152 SCRA 346, reiterated in
Insular Bank of Asia and America vs. Salazar, 159 SCRA
133; Macasaet vs. Commission on Audit, G.R. No. 83748,
12 May 1989) the validity of escalation or escalator
clauses in contracts has been upheld, the Court saying
Some contracts contain what is known as an
escalator clause which is defined as one of which
the contract fixes a base price but contain a provision
that in the event of specified cost increases, the seller
or contractor may raise the price up to a fixed
percentage of the base. Attacks on such a clause
have usually been based on the claim that, because
of the open price provision, the contracts, was too
definite to be enforceable and did not evidence an
actual meeting of the minds of the parties, or that
the arrangement left the price to be determined
arbitrarily by one party so that contract lacked
mutuality. In most instances, however, these attacks
have been unsuccessful. (17 Am. Jur. 2d, pp. 786-

787)
The Court further finds as a matter of law that
the cost of living index adjustment, or escalator
clause, is not substantively unconscionable.
Escalation clauses are not basically wrong or legally

objectionable as long as they are not solely potestative
but based on reasonable and valid standards (see PNB
vs. Intermediate Appellate Court, 183 SCRA 133; PNB vs.
The freedom of contract has been said to be both a
constitutional and statutory right (Gabriel vs. Monte de
Piedad, 71 Phil. 497), and an essence of our contractual
system (Republic vs. PLDT, 26 SCRA 629; see also People
vs. Pomar, 46 Phil. 440). The right, however, is not without
limitations; hence, contracts or stipulations may not con-
travene the law, morals, good customs, public order or
public policy (Art. 1206, Civil Code; see Lita Enterprises,
Inc. vs. Intermediate Appellate Court, 129 SCRA 79;
Baluyot vs. Venegas, 22 SCRA 412). The law, meant in
this context, refers to mandatory or prohibitory laws (nor-
mally expressed in the Law on Obligations and Contracts,
such as by the phrase any stipulation to the contrary
shall be void or words of similar import) and not to those
provisions which are merely intended to be suppletory to
the agreement of the parties. Morals and good customs,
being both based on a norm of conduct or standard of
fairness and justice, practically overlap each other except
that the good customs are more localized than the other
(see Report of the Code Commission; De los Reyes vs.
Alojado, 16 Phil. 499) and, therefore, must be proved (see
Art. 12, in relation to Art. 11, Civil Code). Public order
relates to the public weal, peace, safety and health of the
community (Report of the Code Commission) which is
permanent and essential in any institution (Ollendorf vs.
Abrahamson, 38 Phil. 585). Public policy is determined
by the circumstances of time, place and events; it gener-
Title II. Contracts
ally connotes the public good and welfare, the interest of

society, and the security of individuals and the preserva-
tion of their rights (see Gabriel vs. Monte de Piedad, 71
Phil. 497). In order to be against public policy, actual
injury need not be shown; it is enough if the potentiali-
ties for harm are present (Sy Suan vs. Regala, L-9506,
30 June 1959).
By way of illustration, the following agreements have
been held to contravene the above limitations: a sale of
land covered by a homestead patent within the 5-year
prohibitory period, as being contrary to law (Castro vs.
Opiano, 90 Phil. 491; see also Gacayan vs. Leano, 121
SCRA 260); a promise of marriage where carnal relation
is the consideration of the promise, as being contrary to
morals (Batarra vs. Marcos, 7 Phil. 156); an employment
contract providing that within five years from its termi-
nation, the employee shall not enter into any new em-
ployment except by the written permission of the em-
ployer, as being an unreasonable restraint and contrary
to public policy (Ferrazzini vs. Gsell, 34 Phil. 957); and a
waiver to transfer to another school in a scholarship grant,
as being contrary to public order and public policy (Qui
vs. Arellano University, 2 SCRA 205).
Police power has been held to subordinate the non-
impairment clause of the Constitution (Ortigas & Co.,
Limited Partnership vs. Feati Bank and Trust Co., 94
SCRA 533), which yields to the interest of public health,
safety and morals and, in general, to public regulations
intended for the general welfare of the community (Anglo-
Fil Trading Corp. vs. Lazaro, 124 SCRA 495).
Restrictive covenants on land ownership have been
sustained. In the case of Fajardo, Jr. vs. Freedom To
Build, Inc., G.R. No. 134692, 01 August 2000, the Su-
preme Court has held:
Restrictive covenants are not, strictly speak-
ing, synonymous with easements. While it may be
correct to state that restrictive covenants on the use
of land or the location or character of buildings or

other structures thereon may broadly be said to cre-
ate easements or rights, it can also be contended
that such covenants, being limitations on the man-
ner in which one may use his own property, do not
result in true easements, but a case of servitudes
(burden), sometimes characterized to be negative
easements or reciprocal negative easements. Nega-
tive easement is the most common easement created
by covenant or agreement whose effect is to preclude
the owner of the land from doing an act, which, if no
easement existed, he would be entitled to do.
Courts which generally view restrictive cov-
enants with disfavor for being a restriction on the
use of ones property, have, nevertheless, sustained
them where the covenants are reasonable, not con-
trary to public policy, or to law, and not in restraint
of trade. Subject to these limitations, courts enforce
restrictions to the same extent that will lend judicial
sanction to any other valid contractual relationship.
In general, frontline restrictions on constructions
have been held to be valid stipulations.
The provisions in a restrictive covenant prescribing
the type of the building to be erected are crafted not
solely for the purpose of creating easements, generally of
light and view, nor as a restriction as to the type of con-
struction, but may also be aimed as a check on the subse-
quent uses of the building conformably with what the
developer originally might have intended the stipulations
to be. x x x
There appears to be no cogent reasons for not up-
holding restrictive covenants aimed to promote aesthet-
ics, health, and privacy or to prevent overcrowding.
xxx
This Court is not unaware of its ruling in Ayala
Corporation vs. Ray Burton Development Corpora-
Title II. Contracts
tion, which has merely adjudged the payment of dam-

ages in lieu of demolition. In the aforementioned
case, however, the elaborate mathematical formula
for the determination of compensatory damages
which takes into account the current construction
cost index during the immediately preceding 5 years
based on the weighted average of wholesale price
and wage indices of the National Census and Statis-
tics Office and the Bureau of Labor Statistics is ex-
plicitly provided for in the Deed of Restrictions en-
tered into by the parties. This unique and peculiar
circumstance, among other strong justifications
therein mentioned, is not extant in the case at bar.
In Alcuaz vs. PSBA (161 SCRA 7), the Supreme
Court has held that a student once admitted by the school
would be considered enrolled for one semester; thus, af-
ter the close of the first semester, the school would no
longer have any existing contract either with the teach-
ers or with the intervening teachers. The Court, in the
subsequent Non vs. Dames (185 SCRA 523), has refused
to apply the termination of contract theory that would
consider the contract between the school and the student
as expiring after each semester for collegiate courses,
holding that the said contract is not to be considered as
an ordinary contract but as one being imbued with public
interest. Impositions by a school of sanctions on students
require procedural due process, among them being the
right to a hearing and of representation by counsel. Aca-
demic deficiencies can be proper grounds but not the
students exercise of his constitutional rights of free speech
and assembly (see also Capitol Medical Center vs. Court
of Appeals, 178 SCRA 493). The ruling in Non vs. Dames,
however, should not be given a retroactive effect to cases
that have arisen before its promulgation on May 20, 1990.
A contrary view would result in oppression to the schools
relying on the decision in Alcuaz case promulgated only
on May 2, 1988 (Unciano Paramedical College, Inc. vs.
The decision in Isabelo, Jr. vs. Perpetual Help Col-

lege of Rizal, Inc., G.R. No. 103142, 08 November 1993, is
noteworthy. There
The petitioner claims that the real reason why
PHCR has voided his enrollment as a senior gradu-
ating student had been because of his active partici-
pation in opposing PHCRs application for tuition
fee increase with the DECS.
The private respondent, on the other hand, in-
vokes academic freedom in dropping the petitioner
from its roll of students. It argues that the petitioner
has only been allowed to enroll conditionally dur-
ing the first semester of school year 1991-92 pending
the completion of his remedial classes in CMT, in
which he has failed.
The Supreme Court said:
The rule in this jurisdiction since Garcia vs.
Loyola School of Theology, reiterated in Tangonan
vs. Pao, has been to uphold the rule that admission
to an institution of higher learning is discretionary
upon the school and that such an admission is a mere
privilege, rather than a right, on the part of the stu-
dent. In Ateneo de Manila University vs. Capulong
this Court cited with approval the formulation made
by Justice Felix Frankfurter of the essential freedoms
subsumed in the term academic freedom encom-
passing not only the freedom to determine . . . on
academic grounds who may teach, what may be
taught (and) how it shall be taught, but likewise who
may be admitted to study. We have thus sanctioned
its valid invocation by a school in rejecting students
who are academically delinquent, or a laywoman
seeking admission to a seminary, or students violat-
ing School Rules on Discipline.
Like any other right, however, academic free-
dom has never been meant to be an unabridged
Title II. Contracts
license. It is a privilege that assumes a correlative

duty to exercise it responsibly. An equally telling
precept is a long recognized mandate, so well ex-
pressed in Article 19 of the Civil Code, that every
person must, in the exercise of his rights and in the
performance of his duties, act with justice, give eve-
ryone his due, and observe honesty and good faith.
Another observation. In Non vs. Dames II, we
have already abandoned our earlier ruling in Alcuaz
vs. PSBA (that enrollment of a student is a semes-
ter-to-semester contract, and that the school may
not be compelled to renew the contract) by recogniz-
ing instead the right of a student to be enrolled for
the entire period required in order to complete his
course. We have also stressed that the contract
between the school and the student, imbued, as it is,
with public interest, is not an ordinary contract.
2. Consensuality of Contracts
It is indispensable in any contract that the parties
thereto give their consent (Arts. 1305, 1306 and 1315,
Civil Code). Thus, although the landowner has an option
under Article 448 of the Code to compel the builder or
planter to buy the land and the sower to pay the rent, an
action for specific performance is not available since such
action would presuppose a contract of sale or lease, as the
case may be, which, without mutual consent, cannot ex-
ist (see discussions on Art. 448, supra.).
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. A contract entered into the name
of another by one who has no authority or legal repre-
sentation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly,
before it is revoked by the other contracting party (Art.
1317, in relation to Art. 1403 and Art. 1898, Civil Code),
meanwhile rendering it, in effect, a continuing offer.
3. Mutuality of Contracts
The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of
them (Art. 1308, Civil Code). A contract containing a con-
dition whose efficacy or fulfillment is dependent solely on
the uncontrolled will of one party is void (Garcia vs. Rita
Legarda, 21 SCRA 555; PNB vs. Court of Appeals, 196
SCRA 536).
The determination, however, of the performance un-
der the contract may be left to a third person whose
decision shall not be binding until it has been made known
to both contracting parties (see Art. 1309, Civil Code),
but this determination shall not be obligatory if it is
evidently inequitable. In this latter case, the courts shall
decide what is equitable under the circumstances (see
It has been held that a lease which provides that the
lessee can continue in the premises so long as the rentals
are paid is violative of mutuality (Encarnacion vs.
Baldomar, 77 Phil. 470; Lao Lim vs. Court of Appeals,
191 SCRA 150). It may be preferable, however, to hold
such contract as instead providing for a period and as
having been contemplated by the parties or as being left
to the will of the debtor, under Article 1197 of the Code,
and which would permit the courts to fix the period of the
contract if the parties are unable or unwilling to fix it
themselves. The termination of the contract does not
necessarily require mutuality, and it can even be validly
left to one party (see Taylor vs. Uy Tieng Piao, 43 Phil.
873) by agreement or under a resolutory facultative
condition. In the Baldomar case (supra.), the Supreme
Court, in effect, had given to the lessor, and withheld
from the lessee, the decision to terminate the lease.
Furthermore, by considering the lease to be violative of
mutuality, the contract itself must inescapably be deemed
to have suffered from a fatal infirmity which the Court
did not seem to have conceded.
Title II. Contracts
4. Obligatoriness of Contracts
The contract, once perfected, has the force of law
between the parties, with which they are bound to com-
ply in good faith, and neither one may, without the con-
sent of the other, renege therefrom (see Art. 1159, Civil
Code; LTB vs. Manubat, 58 SCRA 650; Phoenix Assn. Co.,
Ltd. vs. United States Lines, 22 SCRA 674; National Mar-
keting Corp. vs. Atlas Development Corp., 21 SCRA 359).
The autonomy of contracts allows the parties to establish
such stipulations, clauses, terms and conditions as they
may deem appropriate provided only that they are not
contrary to law, morals, good customs, public order or
public policy. The standard norm in the performance of
their respective covenants in the contract, as well as in
the exercise of their rights thereunder, is expressed in
the cardinal principle that the parties in that juridical
relation must act with justice, honesty and good faith
(Bricktown Development Corp. [its new corporate name
Multinational Realty Development Corporation] and
Mariano Z. Veralde vs. Amor Tierra Development Corp.
and the Court of Appeals, G.R. No. 112182, 12 December
1994, 239 SCRA 126).
5. Relativity of Contracts
Contracts take effect only between the parties, their
assigns and heirs, except in cases where the rights and
obligations arising from the contract are not transmissi-
ble by their nature, or by stipulation or by provision of
law. An heir, however, is not liable beyond the value of
the property he received from the decedent (see Baranda
vs. Baranda, 150 SCRA 59; Art. 1311, Civil Code).
In consonance with the axiom res inter alios acta
aliis neque nocet prodest, a contract can only obligate the
parties who had entered into it, or their successors who
assumed their personalities or juridical positions, and
that, concomitantly, a contract can neither favor nor preju-
dice third persons. As a consequence of the rule that a
contract takes effect only between the contracting par-

ties and that third persons cannot be obligated thereun-
der, a person who is not a party to a contract has no legal
standing to challenge its validity or to prosecute an ac-
tion for its rescission, except only to the extent that the
contract may be prejudicial to him. Verily, in some ways,
third persons may be affected in varying degrees. In
contracts creating real rights, third persons who come
into possession of the object of the contract may be bound
thereby under the provisions of mortgage laws and land
registration laws (Art. 1312, Civil Code). Creditors are
protected in cases of contracts intended to defraud them
(Art. 1313, Civil Code). Accion directa is allowed by law
in certain cases (see Art. 1729, Civil Code). Any third
person who induces another to violate his contract can be
made liable for damages to the other contracting party
(Art. 1314, Civil Code; National Union of Bank Employ-
ees vs. Lazaro, 157 SCRA 123). Exceptionally, contracts
may confer benefits to a third person or what are other-
wise known as stipulation pour autrui.
Stipulation Pour Autrui

If a contract should contain a stipulation in favor of
a third person, he may demand its fulfillment, provided
he has communicated his acceptance to the obligor before
its revocation. A mere incidental benefit or interest of a
person is not sufficient. It is essential that the contracting
parties have clearly and deliberately conferred a favor
upon the third person (Art. 1311, Civil Code). In fine, in
order that the third person benefited by a stipulation
pour autrui may demand its fulfillment, the following
requisites must be shown:
(1) There is a clear and deliberate conferment of
benefit upon a third person, that is not condi-
tioned or compensated for by any kind of obliga-
tion, and for whom neither of the contracting
parties bears legal representation or author-
ization;
Title II. Contracts
(2) The stipulation is communicated to the third

person intended to be benefited by the parties;
(3) The third person accepts the benefit and com-
municates such acceptance to the obligor before
its revocation (see Young vs. Court of Appeals,
G.R. No. 79518, 13 January 1989). The accept-
ance may either be express or implied; such as
by the enjoyment of benefits of the contract with
the knowledge of the obligor (Florentino vs.
Encarnacion, L-27696, 30 September 1977). The
stipulation must merely be an incidental, not
the main element of purpose, of the contract;
otherwise, the contract itself would either
amount to a donation or place the beneficiary
as a real party thereto and would accordingly
be governed elsewhere as such.
Once the requisites of the stipulation pour autrui
have concurred, the same is enforceable (see Coquia vs.
Fieldmans Insurance, Co., 26 SCRA 178), and no longer
can it be revoked. The stipulation may be revoked before
its acceptance; but to be effective, both contracting par-
ties should exercise the revocation. A revocation by only
one party would be violative of the obligatoriness and
mutuality of contracts (see Kauffman vs. National Bank,
41 Phil. 182). It has been held that where an agent is not
the beneficiary of a stipulation pour autrui, the fact that
he did not obtain his commission or recoup his advances
because of the non-performance of the contract does not
entitle him to file an action against the buyer (Uy vs.
Chapter 2
Essential Requisites of Contracts
General Provisions
Art. 1318. There is no contract unless the follow-
ing requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of

the contract;
(3) Cause of the obligation which is established.
(1261)
Stages and Elements of Contracts

The three stages of a contract include its negotiation
or preparation, its birth or perfection, and its fulfillment
or consummation. Negotiation covers the period from the
time the contracting parties indicate interest in the con-
tract to the time the contract is concluded (perfected).
The perfection of the contract takes place upon the con-
currence of its essential elements. Contracts which are
consensual as to perfection are established upon the meet-
ing of the minds (concurrence of offer and of acceptance)
on the object and the cause of the contract. Real con-
tracts require, in addition, the delivery of the object of
the contract; solemn contracts require certain formalities
to be observed in order to make said agreements valid,
the prescribed form becoming an essential element
thereof. The stage of consummation begins when the
parties perform their respective commitments under the
contract culminating in the death or extinguishment of
the contract.
Negotiation
Negotiation is formally initiated by an offer. An im-
perfect promise (policitation) is merely an offer. Public
advertisements or solicitations and the like are generally
construed as mere invitations to make offers or propos-
als. These circumstances, unless and until a contract is
perfected, are not considered as binding commitments.
Thus, at any time prior to the perfection of the contract,
either negotiating party may stop the negotiation. The
offer, at this stage, may be withdrawn; the withdrawal is
effective immediately after its manifestation, such as by
its mailing and not necessarily when the offeree learns of
Title II. Contracts
the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where

a period is given to the offeree within which to accept the
offer, the following rules can be said to govern:
(1) If the period is not itself founded upon or sup-
ported by a consideration, the offeror is still
free and has the right to withdraw the offer
(before its acceptance) by communicating such
withdrawal to the offeree (see Art. 1324, Civil
Code; see also Atkins, Kroll & Co. vs. Cua, 102
Phil. 948, wherein it has been held that this
rule is applicable to a unilateral promise to sell
under Art. 1479, modifying the previous deci-
sion in South Western Sugar vs. Atlantic Gulf,
97 Phil. 249), that is, before the offerors coming
to know of the acceptance (see Art. 1319, Civil
Code; Rural Bank of Paraaque vs. Court of
Appeals, 135 SCRA 408; Sanchez vs. Rigos, 45
SCRA 368). The right to withdraw, however,
must not be exercised whimsically or arbitrar-
ily; otherwise, it could give rise to a damage
claim under Article 19 of the Code which or-
dains that every person must, in the exercise
of his rights and in the performance of his du-
ties, act with justice, give everyone his due, and
observe honesty and good faith. An action for
specific performance would be voidable.
(2) If the period has a separate consideration, a
contract of option is deemed perfected, and it
would be a breach of that contract to withdraw
the offer during the agreed period. The option,
however, is to be distinguished from the main
contract which is yet to be concluded. If, in fact,
the optioner withdraws the offer before its ac-
ceptance by the optionee, the latter may not sue
for specific performance, but merely for dam-
ages, since the main contract has failed from
being perfected. The optioner-offeror renders
himself liable for the breach of option. In these
cases, care should be taken of the real nature of

the consideration given, for if, in fact, it is in-
tended as part consideration for the main con-
tract with a right of withdrawal on the part of
the optionee, the main contract could be deemed
perfected; a similar instance would be an ear-
nest money in contract of sale that may evi-
dence its perfection (Art. 1482, Civil Code).
(3) If the contract is perfected, i.e., the offer is ac-
cepted before the offer is withdrawn, neither
party is permitted to renege therefrom.
Perfection
A consensual contract is perfected (birth of contract)
at the moment there is a meeting of minds upon the
object and the cause thereof, i.e., when its essential ele-
ments concur. Its essential elements include: (1) the con-
sent of the contracting parties; (2) object certain which is
the subject matter of the contract; and (3) cause of the
obligation which is established (Art. 1318, Civil Code; see
Ramon Magsaysay Award Foundation vs. Court of Ap-
peals, 134 SCRA 136; National Grains Authority vs. In-
termediate Appellate Court, 171 SCRA 131; Salonga vs.
Farrales, 105 SCRA 359). In real and solemn contract,
delivery and due observance of prescribed formalities,
respectively, are additional essential elements to perfect
the contract (see Royal Lines, Inc. vs. Court of Appeals,
143 SCRA 608). In contracts by correspondence, the Code
of Commerce expresses the manifestation theory (Art.
54), perfecting the contract at the moment when accept-
ance is declared or made by the offeree. This rule may be
considered as having been superseded by the cognition
theory adopted by Article 1319 of the Civil Code that
considers the acceptance to effectively bind the offeror
only from the time it came to his knowledge. The view
has been expressed, however, that Article 54 of the Code
of Commerce would still apply to commercial contracts
premised upon the rule that implied repeals are not
Title II. Contracts
favored and that, accordingly, not having been expressly

repealed, the Code of Commerce is still the governing law
in commercial transaction, at least in those contracts
that are still specifically governed by the latter Code,
such as bottomry and respondentia.
1. Consent
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 quali-
fied 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)
Art. 1320. An acceptance may be express or im-
plied. (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 ac-
cepted from the time acceptance is communicated to
him. (n)
Art. 1323. An offer becomes ineffective upon the
death, civil interdiction, insanity, or insolvency of ei-
ther party before acceptance is conveyed. (n)
Art. 1324. When the offerer has allowed the of-
feree a certain period to accept, the offer may be with-
drawn at any time before acceptance by communicat-
ing 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 of-
fers, 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, un-
less the contrary appears. (n)
Art. 1327. The following cannot give consent to a
contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes
who do not know how to write. (1263a)
Art. 1328. Contracts entered into during a lucid in-
terval are valid. Contracts agreed to in a state of drunk-
enness or during a hypnotic spell are voidable. (n)
Art. 1329. The incapacity declared in Article 1327
is subject to the modifications determined by law, and
is understood to be without prejudice to special dis-
qualification established in the laws. (1264)
Art. 1330. A contract where consent is given
through mistake, violence, intimidation, undue influ-
ence, or fraud is voidable. (1265a)
Art. 1331. In order that mistake may invalidate con-
sent, 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 iden-
tity or qualifications have been the principal cause of
the contract.
A simple mistake of account shall give rise to its
correction. (1266a)
Art. 1332. When one of the parties is unable to
read, or if the contract is in a language not understood
by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof
have been fully explained to the former. (n)
Art. 1333. There is no mistake if the party alleging
it knew the doubt, contingency or risk affecting the
object of the contract. (n)
Title II. Contracts
Art. 1334. Mutual error as to the legal effect of an

agreement when the real purpose of the parties is frus-
trated, may vitiate consent. (n)
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 spouse,
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 ones claim through compe-
tent 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)
Art. 1337. There is undue influence when a per-
son takes improper advantage of his power over the
will of another, depriving the latter of a reasonable free-
dom of choice. The following circumstances shall be
considered: the confidential, family, spiritual and other
relations between the parties, or the fact that the per-
son alleged to have been unduly influenced was suf-
fering from mental weakness, or was ignorant or in
financial distress. (n)
Art. 1338. There is fraud when, through insidious
words or machinations of one of the contracting par-
ties, the other is induced to enter into a contract which,
without them, he would not have agreed to. (1269)
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)
Art. 1340. The usual exaggerations in trade, when
the other party had an opportunity to know the facts,
are not in themselves fraudulent. (n)
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 formers special know-
ledge. (n)
Art. 1342. Misrepresentation by a third person does
not vitiate consent, unless such misrepresentation has
created substantial mistake and the same is mutual.
(n)
Art. 1343. Misrepresentation made in good faith is
not fraudulent but may constitute error. (n)
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.
Incidental fraud only obliges the person employ-
ing it to pay damages. (1270)
Art. 1345. Simulation of a contract may be abso-
lute or relative. The former takes place when the par-
ties do not intend to be bound at all; the latter, when
the parties conceal their true agreement. (n)
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
any purpose contrary to law, morals, good customs,
public order or public policy binds the parties to their
real agreement. (n)
Consent is manifested by the meeting of the offer

and the acceptance upon the thing and the cause which
are to constitute the contract. (see Art. 1319, Civil Code;
Yuviengco vs. Dacuycuy, 104 SCRA 668). A contract being
basically consensual in nature, it can only be perfected
upon a concurrence of the offer and the acceptance. The
offer must be certain and the acceptance must be abso-
lute, unconditional and without variance of any sort from
the proposal. A qualified acceptance constitutes a coun-
ter-offer. Such a qualified acceptance cannot be the equiva-
lent of consent, and it will, in fact, have the effect of a
rejection or an annulment of the original offer (Cesar P.
Uy, Beatriz F. Uy and Anita Papa vs. Hon. Victorino P.
Title II. Contracts
Evangelista, Presiding Judge, Regional Trial Court,

Quezon City, Branch 223, et al., G.R. No. 140365, 11 July
2001, 361 SCRA 95).
Verily, consent could be given not only by the party
himself but by anyone duly authorized and acting for and
in his behalf. A contract entered into in the name of an-
other by one who ostensibly might have but who, in real-
ity, had no authority or legal representation, or who, hav-
ing such authority, acted beyond his powers, would be
unenforceable, however, it is susceptible to ratification
but that ratification should be made before its revocation
by the other contracting party (Regal Films, Inc. vs.
Gabriel Concepcion, G.R. No. 139532, 09 August 2001,
362 SCRA 504).
The Offer
The offer must be certain (Art. 1319, Civil Code; see
Rosentock vs. Burk, 46 Phil. 217). It may fix the time,
place, and manner of acceptance, all of which must be
complied with (Art. 1321, Civil Code; Matias vs. Court of
Appeals, 141 SCRA 217; Leoquinco vs. Postal Savings, 47
Phil. 772). It may be made personally or through an
agent (Art. 1322, Civil Code). Unless it appears other-
wise, business advertisements of things for sale are not
definite offers, but mere invitations to make an offer (Art.
1325, Civil Code). 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 (Art. 1326, Civil Code; Leoquinco vs.
Postal Savings Bank, 47 Phil. 772).
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 (Art. 1324, Civil Code; see
discussion on Negotiation, supra.).
An offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before
acceptance is conveyed (Art. 1323, Civil Code), i.e., no

contract is deemed perfected if those circumstances should
arise before the offeror learns of the acceptance. In con-
tracts by correspondence, the withdrawal of an offer is
effective upon its manifestation or when it is sent so long
as the offeror has not yet learned of the acceptance by the
offeree.
The Acceptance
The acceptance must be absolute (Art. 1319, Civil
Code; Yuviengco vs. Dacuycuy, 104 SCRA 668; Valencia
vs. RFC, 103 Phil. 444), and may be express or implied
(Art. 1320, Civil Code). A qualified acceptance consti-
tutes a counter-offer (Art. 1319, Civil Code; Batungan vs.
Cojuangco, 78 Phil. 481) and has the effect of rejecting
the offer (see Logan vs. Phil. Acetylene, 32 Phil. 177). An
acceptance made by letter or telegram does not bind the
offeror except from the time it came to his knowledge.
The contract, in such a case, is presumed to have been
entered into the place where the offer is made (Art. 1319,
Civil Code; Japan Overseas Commercial Co. vs. Baquer &
Co., 3 C.A. Reports 961). If the offer fixes the time, place
and manner of acceptance, all such conditions must be
complied with (Art. 1321; Montinola vs. Victorias Milling
Co., 54 Phil. 782). An offer made through an agent is
accepted from the time acceptance is communicated and
made known to him (Art. 1322, Civil Code).
The Parties
The contracting parties must have juridical capacity
and capacity to act (see discussion on Law on Persons,
supra.) and, in proper cases, authority and must not be
otherwise disqualified (see Arts. 1327-1329).
Effects of Want of Capacity or Authority and

Disqualification
In general, incapacity of a party would result in a
voidable contract (Art. 1390, Civil Code); where both par-
Title II. Contracts
ties are incapacitated to give consent, the contract be-

comes unenforceable (Art. 1403, Civil Code). Where the
issue is one of authority such as in a contract entered into
by an agent, want of authority renders the contract unen-
forceable (Art. 1403, Civil Code; Frias vs. Esquivel, 67
SCRA 487), except where the party with whom the agent
acts is aware of such lack of authority in which case it is
considered void unless the principal ratifies the act en-
tered into by the agent without or in excess of his author-
ity (Art. 1898, Civil Code; National Power Corp. vs. Na-
tional Merchandising Corp., 120 SCRA 628). A convey-
ance of conjugal real property by the wife, who is not the
administratrix, without the husbands consent, is void
(see Arts. 96 and 124, Family Code), but until revoked, it
shall be considered a continuing offer.
A contract entered into by one who by law is disqua-
lified, being prohibitory in nature, is void (Art. 5, Civil
Code; Rubias vs. Batiller, 51 SCRA 120; examples of dis-
qualification are contained in Arts. 133, 1490 and 1491,
Civil Code; see also the effect of a void contract under
Arts. 1409 to 1419, infra.).
Vices of Consent
Consent must be free and voluntary. A contract where
consent is given through mistake, violence, intimidation,
undue influence, or fraud is merely voidable (see Art.
1330, Civil Code; Pangadil vs. Court of First Instance,
116 SCRA 347; Rio Grande Rubber Est. Co. vs. Board of
Liquidator, 104 SCRA 863) and may, therefore, be rati-
fied (see Art. 1390, Civil Code). Violence, intimidation
and undue influence affect volition, while mistake and
fraud, as well as incapacity, affect cognition.
Mistake
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 disqualification has been the principal cause
of the contract. A simple mistake of account shall give
rise to its correction (Art. 1331, Civil Code; Dumasug vs.
Modelo, 34 Phil. 252). Mutual error as to the legal effect
of an agreement normally would not render the contract
voidable (Luna vs. Linatoc, 74 Phil. 15) but when the real
purpose of the parties is frustrated, it may be held to
vitiate consent (see Art. 1334, Civil Code).
There is no mistake if the parties alleging it knew
the doubt, contingency or risk affecting the object of the
contract (Art. 1333, Civil Code).
When one of the parties is unable to read, or if the
contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the con-
tract must show that the terms thereof have been fully
explained to the former (Art. 1332, Civil Code; see Bunyi
vs. Reyes, 39 SCRA 504; Tang vs. Court of Appeals, 90
SCRA 236). Article 1332 of the Civil Code is intended for
the protection of a party to a contract who might be at a
disadvantage due to his illiteracy, ignorance, mental weak-
ness or other handicap and contemplates a situation
wherein a contract has been entered into, but the consent
of one of the parties is vitiated by mistake or fraud com-
mitted by the other contracting party (Hemides vs. Court
of Appeals, 316 SCRA 347).
Violence and Intimidation

There is violence when in order to wrest consent,
serious or irresistible force is employed. There is intimi-
dation 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 upon the person or
property of his spouse, descendants or ascendants, to
give his consent. In determining the degree of the intimi-
dation, the age, sex and condition of the person shall be
borne in mind. A threat to enforce ones claim through
Title II. Contracts
competent authority, if the claim is just or legal, does not

vitiate consent (Art. 1335, Civil Code; see Vales vs. Villa,
35 Phil. 769; Papa vs. Montenegro, 54 Phil. 231). Vio-
lence or intimidation shall annul the obligation, although
it may have been employed by a third person who did not
take part in the contract (Art. 1336, Civil Code).
Undue Influence
There is undue influence when a person takes im-
proper 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 con-
fidential, family, spiritual, and other relations between
the parties, or the fact that the person alleged to have
unduly influenced is suffering from mental weakness or
is ignorant or in financial distress (Art. 1337, Civil Code;
Martinez vs. Hongkong and Shanghai Banking Corp., 15
Phil. 252).
For undue influence to justify the cancellation of an
instrument, three elements must be present: first, a per-
son who can be influenced; second, the fact that improper
influence is exerted; and third, submission to the over-
whelming effect of such unlawful conduct. A confidential
or fiduciary relationship may include any relationship
between persons, allowing one to dominate the other with
the opportunity to use that superiority to the others dis-
advantage. Included are those of attorney and client,
physician and patient, nurse and invalid, parent and child,
guardian and ward, member of a church or sect and spir-
itual adviser, a person and his confidential adviser, or
whenever a confidential relationship exists as being a
fact. Undue influence is not to be inferred alone from age,
sickness, or debility of body if sufficient intelligence re-
mains (Loyola vs. Court of Appeals, 326 SCRA 285).
Fraud
There is fraud (deceit or dolo) when, through insidi-
ous words or machinations of one of the contracting par-
ties, the other is induced to enter into a contract which,

without them, he would not have agreed to (Art. 1338,
Civil Code). Failure to disclose facts, when there is a
duty to reveal them, as when the parties are bound by
confidential relations, constitutes fraud (Art. 1339, Civil
Code; Strong vs. Repide, 41 Phil. 947). In order that
fraud may make a contract voidable, it should be serious
(dolo causante) and should not have been employed by
both contracting parties (see Valdez vs. Sibal, 46 Phil.
930). Incidental fraud (dolo incidente) only obliges the
person employing it to pay damages (Art. 1344, Civil
Code; see Woodhouse vs. Halili, 93 Phil. 526).
The usual exaggerations in trade are not in them-
selves fraudulent when the other party has had an oppor-
tunity to know the facts (Art. 1340, Civil Code; Song-co
vs. Sellmer, 37 Phil. 254). A mere expression of an opin-
ion does not signify fraud, unless made by an expert and
the other party has relied on the formers special knowl-
edge (Art. 1341, Civil Code). Misrepresentation (unlike
violence or intimidation) by a third person does not viti-
ate consent, unless such misrepresentation has created
substantial mistake and the same is mutual (Art. 1342,
Civil Code; Co vs. Court of Appeals, 193 SCRA 198; Rural
Bank of Caloocan vs. Court of Appeals, 104 SCRA 151;
Hill vs. Veloso, 31 Phil. 160). Misrepresentation made in
good faith is not fraudulent but may constitute error (Art.
1343, Civil Code; see Asian vs. Jalandoni, 45 Phil. 296).
Simulation of Contracts
Simulation of contracts 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 (Art. 1345, Civil Code). An absolutely
simulated or fictitious contract is void. A relative simula-
tion, when it does not prejudice a third person and is not
intended for any purpose contrary to law, morals, good
customs, public order or public policy, binds the parties to
their real agreement (Art. 1346; see also Arts. 1359-1369
Title II. Contracts
and 1409, Civil Code, infra.; Gardner vs. Court of Ap-

peals, 131 SCRA 585; Lagang vs. Court of Appeals, 131
SCRA 361).
2. Object of Contracts
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 intrans-
missible may also be the object of contracts.
No contracts may be entered into upon future in-
heritance except in cases expressly authorized by law.
All services which are not contrary to law, morals,
good customs, public order, or public policy may like-
wise be the object of a contract. (1271a)
Art. 1348. Impossible things or services cannot
be the object of contracts. (1272)
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 exist-
ence of the contract, provided it is possible to deter-
mine the same, without the need of a new contract
between the parties. (1273)
All things which are not outside the commerce of

man, including future things, all rights which are not
intransmissible and all services which are not contrary
to law, morals, good customs, public order or public policy
may be the object of a contract (see Arts. 1347, 1178 and
1461, Civil Code). 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 (Art. 1349, Civil Code; see Yu Tek & Co. vs. Gon-
zalez, 29 Phil. 384).
The following may not be the object of contract:
(1) Things which are outside the commerce of man
(Art. 1347, Civil Code), such as communal prop-
erty for public use (Mun. of Cavite vs. Rojas, 30

Phil. 602);
(2) Intransmissible rights (Art. 1347, Civil Code),
such as purely personal and political rights
(Saura vs. Sandico, L-13403, 23 March 1960);
(3) Future inheritance except in cases expressly
provided by law (Art. 1347, Civil Code; see also
Art. 1080, Civil Code; Chavez vs. Intermediate
Appellate Court, G.R. No. 68282, 8 November
1990, where a partition inter vivos in the form
of deeds of sale was not deemed to be a contract
with respect to future inheritance; Tordilla vs.
Tordilla, 60 Phil. 162);
(4) Impossible things and services (Art. 1348, Civil
Code); and
(5) Services which are contrary to law, morals, good
customs, public order or public policy (Art. 1347,
Civil Code).
3. Cause of Contracts
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)
Art. 1351. The particular motives of the parties in
entering into a contract are different from the cause
thereof. (n)
Art. 1352. Contracts without cause, or with unlaw-
ful cause, produce no effect whatsoever. The cause is
unlawful if it is contrary to law, morals, good customs,
public order or public policy. (1275a)
Art. 1353. The statement of a false cause in con-
tracts shall render them void, if it should not be proved
that they were founded upon another cause which is
true and lawful. (1276)
Title II. Contracts
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. 1355. Except in cases specified by law, le-
sion or inadequacy of cause shall not invalidate a con-
tract, unless there has been fraud, mistake or undue
influence. (n)
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
(Art. 1350, Civil Code; Rodriguez vs. Rodriguez, 20 SCRA
908). To illustrate, if a contract mainly would require A
to deliver his horse to B, and B to deliver his cow to
A, the horse and the cow would be the objects of the
contract; the cause, however, is viewed from each partys
proximate reason for concluding the contract which may
not thus be common to both parties hence, the cause as
to A would be the delivery of the cow and as to B the
delivery of the horse (see General Enterprises, Inc. vs.
Lianga Bay Logging Co., 11 SCRA 733). The parties may
have their own reasons, personal to each of them, why
they desire the exchange properly termed their mo-
tives. In contracts where money is used as the medium of
exchange, such as in sales or leases, the law considers
money as the cause or consideration thereof, and it makes
the object and the cause as being viewed from the stand-
point of the contract itself and thus common to both par-
ties.
Contracts without cause, or with unlawful cause,
produce no effect whatsoever. The cause is unlawful if it
is contrary to law, morals, good customs, public order or
public policy (Art. 1352, Civil Code). The absence or
illegality of the cause renders the contract not merely
voidable but void (see Batarra vs. Marcos, 7 Phil. 156).
The particular motives of the parties in entering into a
contract are different from the cause thereof (Art. 1351,
Civil Code; see Basic Books, Inc. vs. Lopez, 16 SCRA 291;
Gonzalez vs. Trinidad, 67 Phil. 682). Motive is that which
induces a party, personal to him, into concluding a con-
tract specifically over which the other party has no legal
concern nor has made any direct covenant. True, at times,
the line that separates the motive and the cause of con-
tracts may be so thin as to make them interlink.
In Liguez vs. Lopez (102 Phil. 577), a married man
donated a conjugal parcel of land to a 16-year old girl so
that he might live maritally with her. The latters par-
ents would not allow her to live with him without the
donation. The Supreme Court ruled the donation to be
tainted by an immoral cause and, therefore, void and of
no effect (see discussion on Donations). The Court said:
x x x It is argued that under Article 1274 of the
Civil Code of 1889 (which was the governing law in
1943 when the donation was executed), in contracts
of pure beneficence the consideration is the liberal-
ity of the donor, and that liberality per se can never
be illegal, since it is neither against the law nor
morals or public policy. The flaw in this argument
lies in ignoring that under Article 1274, liberality of
the donor is deemed causa only in those contracts
that are pure beneficence; that is to say, contracts
designed solely and exclusively to procure the wel-
fare of the beneficiary, without any intent of produc-
ing any satisfaction for the donor; contracts, in other
words, in which the idea of self-interest is totally
absent on the part of the transferor. For this very
reason, the same Article 1274 provides that in
remuneratory contracts, the consideration is the serv-
ice or benefit for which the remuneration is given;
causa is not liberality in these cases because the
contract or conveyance is not made out of pure be-
neficence, but solvendi animo.
The existence and legality of the cause of the con-
tract are presumed, although the same may not be therein
Title II. Contracts
stated, unless the debtor proves the contrary (Art. 1354,

Civil Code; Ong vs. Ong, 139 SCRA 133).
In one case, the Supreme Court has said that in
deeds of conveyance adhering to the Anglo-Saxon practice,
it is not unusual to state that the consideration given is
P1.00 although the actual consideration may be more. A
one-peso consideration on a sale may be suspicious; but
this alone does not justify one to infer that the buyers are
not buyers in good faith and for value. Neither does such
inference warrant one to conclude that the sale is void ab
initio. Bad faith and inadequacy of monetary consideration
do not render a conveyance inexistent. The assignors
liberality could also be sufficient cause for a valid con-
tract (Ong vs. Ong, supra.; see Art. 1350, Civil Code).
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 (Art. 1355, Civil
Code; see Rosal vs. Gan, 55 Phil. 527). A natural obliga-
tion may be a sufficient cause (Villaruel vs. Estrada, 71
Phil. 14) but not a mere or purely moral obligation (Fisher
vs. Robb, 69 Phil. 101). Statement of a false cause in
contracts shall render them void (see Mapalo vs. Mapalo,
17 SCRA 114), unless it be proved that they are founded
upon another true and lawful cause (Art. 1353, Civil Code).
Chapter 3
Form of Contracts
Art. 1356. Contracts shall be obligatory, in what-
ever 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 re-
quirement is absolute and indispensable. In such cases,
the right of the parties stated in the following article
cannot be exercised. (1278a)
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 com-

pel each other to observe that form, once the contract
has been perfected. This right may be exercised simul-
taneously with the action upon the contract. (1279a)
Art. 1358. The following must appear in a public
document:
(1) Acts and contracts which have for their ob-
ject the creation, transmission, modification or
extinguishment of real rights over immovable property;
sales of real property or of an interest therein are gov-
erned by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of
hereditary rights or of those of the conjugal partner-
ship of gains;
(3) 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;
(4) 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)
Generally, contracts are obligatory in whatever form

they may have been entered into, provided all the essen-
tial requisites for their validity are present. When, how-
ever, the law requires that a contract be in some form in
order that it may be valid or enforceable, or that a con-
tract be proved in a certain way, that requirement is
absolute and indispensable (see Art. 1356, Civil Code).
Thus, Section 127 of the Land Registration Act (Act 496,
now Sec. 112 of P.D. No. 1524), requiring deeds of convey-
ance to be acknowledged, does not allow the registration
of a private document of sale (Gellardo vs. Intermediate
Appellate Court, 155 SCRA 248).
Title II. Contracts
A certain form may be prescribed by law for any of

the following purposes: for validity, for enforceability or
for greater efficacy of the contract. When the solemnity
requirement is for validity, its non-observance renders
the contract void and of no effect. The non-compliance of
a form prescribed for enforceability will not permit the
contract, upon the objection of a party and although oth-
erwise valid, to be proved or enforced by action. Formali-
ties intended for greater efficacy or convenience or to
bind third persons, if not done, would not adversely affect
the binding effect, validity or enforceability of the con-
tract between the contracting parties themselves (Dauden-
Hernaez vs. De Los Angeles, 27 SCRA 1276); in this case,
the parties may compel each other to observe the form,
once the contract has been perfected, and this right may
be exercised simultaneously with an action upon the con-
tract (see Art. 1357, Civil Code).
Illustrative cases
(1) In the following cases, the prescribed formalities by
law are for the validity of the contract or agreement:
In writing
(a) Donations of personal property where its value
exceeds P5,000 (Art. 748, Civil Code);
(b) Stipulations reducing the common carriers ex-
traordinary diligence and limiting its liability
(Arts. 1744-1750, Civil Code);
(c) Agents authority in the sale of land or any in-
terest therein (Art. 1874, Civil Code);
(d) Stipulations to pay interest on loans (Art. 1956,
Civil Code); and
(e) Antichresis (Art. 2134, Civil Code).
In a Public Document
(a) Donations of real property (Art. 749, Civil Code);
and
(b) Partnerships where real property is contributed

(Arts. 1771 and 1773, Civil Code).
Transfer of Certificate of Registration

Sales of large cattle (Art. 1581, Civil Code; Sec.
22, Act No. 1147).
Substantial Compliance with Form Prescribed by

Law
Chattel morgages (Art. 2140, Civil Code; Act
No. 1508).
(2) In the following cases, the contract must be in writ-
ing in order that it may be enforceable:
(a) An agreement that by its terms is not to be per-
formed within a year from the making thereof;
(b) A special promise to answer for the debt, de-
fault, or miscarriage of another;
(c) An agreement made in consideration of mar-
riage, 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 accepts and
receives part of such goods and chattels, or the
evidences, or some of them, of such things in
action, or pays at the time some part of the pur-
chase money; but when a sale is made by auc-
tion and entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount
and kind of property sold, terms of sale, price,
name of the purchasers and person on whose
account the sale is made, it is a sufficient memo-
randum;
(e) An agreement for the leasing for a longer period
than one year, or for the sale of real property or
of an interest therein; and
Title II. Contracts
(f) A representation as to the credit of a third per-

son (see Art. 1403, Civil Code).
In the foregoing transactions, the agreement 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 (Art. 1403, Civil Code).
The term statute of frauds is descriptive of stat-
utes which require certain classes of contracts to be in
writing. The purpose of the statute is to prevent fraud
and perjury in the enforcement of obligations depending
for their evidence on the unassisted memory of witnesses
by requiring certain enumerated contracts and transac-
tions to be evidenced by a writing signed by the party to
be charged (Rosencor Development Corporation vs. Paterno
Inquing, 145 SCAD 484, 354 SCRA 119). The Statute of
Frauds cannot apply to transactions not therein enume-
rated (ibid.).
When a verbal contract has already been either fully
consummated or partially executed, its enforceability will
not be barred by the Statute of Frauds, and oral evidence
may thus be admitted to prove the agreement (Cordial
vs. Miranda, 140 SCAD 271, 348 SCRA 158). Verily, the
application of the Statute of Frauds presupposes the ex-
istence of a perfected contract (Villanueva vs. Court of
Appeals, 78 SCAD 484, 267 SCRA 89).
Not all agreements affecting land must be put into
writing to attain enforceability. Setting up of bounda-
ries, the oral partition of real property, or an agreement
creating a right of way are not covered by the provisions
of the statute of fraud (Rosencor Development Corpora-
tion vs. Paterno Inquing, supra.).
(3) In the following cases, the requisite form is merely
for greater efficacy or convenience and the failure to
comply therewith does not affect the validity and
binding effect of the act between the parties (Philip-
pine National Railways vs. Intermediate Appellate

Court, G.R. No. 66715, 18 September 1990).
In a Public Document
(a) Acts and contracts which have for their object
the creation, transmission, modification or
extinguishments of real rights over immovable
property; sales of real property or of an interest
therein are governed by Articles 1403, No. 2
and 1405;
(b) The cession, repudiation or renunciation of he-
reditary rights or of those of the conjugal prop-
erty of gains;
(c) 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; and
(d) The cession of actions or rights proceedings from
an act appearing in a public document (Art. 1358,
Civil Code; Manotok Realty vs. Court of Appeals,
L-35367, 9 August 1987).
Article 1358 does not require the accomplishment of
an act or contract in a public document in order to vali-
date the act or contract, but only for its greater efficacy,
convenience of the parties, and to bind third persons.
The private conveyance of a real property is therefore
valid, and the vendee has the right to compel the vendor
or his heirs to execute the necessary document to prop-
erly convey the property (Cenido vs. Apacionado, 115
SCAD 798, 318 SCRA 688).
In Writing
All contracts where the amount involved exceeds
five hundred pesos except in sales of goods, chattels or
things in action which are governed by the Statute of
Frauds (Arts. 1403, No. 2, and 1405, supra., in relation to
Title II. Contracts
Registration
All acts or transactions affecting real property (see
Arts. 708-709; Art. 2125, Civil Code; Act No. 496).
The fact alone that the two deeds are registered five
years after the date of their execution would not adversely
affect their validity nor would such circumstance alone
be indicative of fraud. The registration of the documents
is a ministerial act and merely creates a constructive
notice of the contents against all third persons. Among
the parties, the instrument would remain completely valid
and binding (Rebecca Viado Non vs. Court of Appeals, 121
SCAD 166, 325 SCRA 652).
Chapter 4
Reformation of Instruments (n)
Art. 1359. When, there having been a meeting of

the minds of the parties to a contract, their true inten-
tion 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.
Art. 1360. The principles of the general law on
the reformation of instruments are hereby adopted in-
sofar as they are not in conflict with the provisions of
this Code.
Art. 1361. When a mutual mistake of the parties
causes the failure of the instrument to disclose their
real agreement, said instrument may be reformed.
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. 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.
Art. 1365. If two parties agree upon the mortgage
or pledge of real or personal property, but the instru-
ment states that the property is sold absolutely or with
a right of repurchase, reformation of the instrument is
proper.
Art. 1366. There shall be no reformation in the
following cases:
(1) Simple donations inter vivos wherein no con-
dition is imposed;
(2) Wills;
(3) When the real agreement is void.
Art. 1367. When one of the parties has brought an
action to enforce the instrument, he cannot subse-
quently ask for its reformation.
Art. 1368. Reformation may be ordered at the in-
stance 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.
Art. 1369. The procedure for the reformation of
instruments shall be governed by rules of court to be
promulgated by the Supreme Court.
The purpose of reformation is to set aright and clear

up whatever may have been an error, imperfection or
ambiguity in the instrument and to make it truly reflec-
tive of the real intention of the parties but not to remake
the contract or to create a new one (see Cosio vs. Palileo,
Title II. Contracts
14 SCRA 170; City of Cabanatuan vs. Lazaro, 39 SCRA

653; Jardenil vs. Salas, 73 Phil. 626). The right of refor-
mation is necessarily an invasion or limitation of the
parol evidence rule since, when a writing is reformed, the
result would be that an oral agreement is by court degree
made legally effective. Consequently, the courts, as the
agencies so authorized by law to exercise the power to
reform an instrument, must necessarily exercise that
power sparingly, with great caution and zealous care.
The remedy, being an extraordinary one, must be subject
to such limitations as may be provided by law. A suit for
reformation of an instrument must be brought within the
period prescribed by law, otherwise, it will be barred by
lapse of time (Rosello-Bentir vs. Leanda, 125 SCAD 322,
330 SCRA 591).
Reformation would, for instance, be proper in the
following cases:
(a) When a mutual mistake of the parties causes
the failure of the instrument to disclose their
real agreement (see Art. 1361, Civil Code);
(b) If one party is mistaken and the other has acted
fraudulently or inequitably in such a way that
the instrument does not show their true inten-
tion (see Art. 1362, Civil Code);
(c) When one party is mistaken and the other knew
or believed that the instrument did not state
their real agreement, but concealed that fact
from the former (see Art. 1362, Civil Code);
(d) When through the ignorance, lack of skill, neg-
ligence 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 inten-
tion of the parties (see Art. 1364, Civil Code);
(e) 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 (see Arts. 1365, 1602,

Civil Code); or
(f) When there is relative simulation that does not
prejudice a third person and is not unlawful
Reformation may be ordered at the instance of either

party or his successors in interest if the mistake is mu-
tual; otherwise, upon petition of the injured party or his
heirs and assigns (Art. 1368, Civil Code).
Reformation may not be asked in: (a) simple dona-
tions inter vivos wherein no condition is imposed; (b) wills
and testaments; (c) when the real agreement is void (Art.
1366, Civil Code); or (d) when one of the parties has
brought an action to enforce the instrument and subse-
quently seeks its reformation (Art. 1367, Civil Code).
The principles of the general law on interpretation
of instruments are applicable in the reformation of in-
struments to the extent that they are not in conflict with
the provisions of the Code (see Art. 1360, Civil Code).
The procedure for the reformation are governed by the
Rules of Court (see Art. 1369, Civil Code).
Under the Rules of Court, an action for reformation
of an instrument is instituted as a special civil action for
declaratory relief, the purpose of which is to secure an
authoritative statement of the rights and obligations of
the parties for their guidance in the enforcement thereof
or compliance therewith; hence, it must be instituted be-
fore the breach of the obligation (Rosello-Bentir vs. Leanda,
supra.).
Chapter 5
Interpretation of Contracts
Art. 1370. If the terms of a contract are clear and

leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall con-
trol.
Title II. Contracts
If the words appear to be contrary to the evident

intention of the parties, the latter shall prevail over the
former. (1281)
Art. 1371. In order to judge the intention of the
contracting parties, their contemporaneous and sub-
sequent acts shall be principally considered. (1282)
Art. 1372. However general the terms of a contract
may be, they shall not be understood to comprehend
things that are distinct and cases that are different from
those upon which the parties intended to agree. (1283)
Art. 1373. If some stipulation of any contract
should admit of several meanings, it shall be under-
stood as bearing that import which is most adequate
to render it effectual. (1284)
Art. 1374. The various stipulations of a contract
shall be interpreted together, attributing to the doubt-
ful ones that sense which may result from all of them
taken jointly. (1285)
Art. 1375. Words which may have different
significations shall be understood in that which is most
in keeping with the nature and object of the contract.
(1286)
Art. 1376. The usage or custom of the place shall
be borne in mind in the interpretation of the ambigui-
ties of a contract, and shall fill the omission of stipula-
tions which are ordinarily established. (1287)
Art. 1377. The interpretation of obscure words or
stipulations in a contract shall not favor the party who
caused the obscurity. (1288)
Art. 1378. When it is absolutely impossible to set-
tle doubts by the rules established in the preceding
articles, and the doubts refer to incidental circum-
stances of a gratuitous contract, the least transmis-
sion of rights and interests shall prevail. If the contract
is onerous, the doubt shall be settled in favor of the
greatest reciprocity of interests.
If the doubts are cast upon the principal object of
the contract in such a way that it cannot be known
what may have been the intention or will of the parties,

the contract shall be null and void. (1289)
Art. 1379. The principles of interpretation stated
in Rule 123 of the Rules of Court shall likewise be
observed in the construction of contracts. (n)
The intention of the parties is primordial (Kasilag

vs. Rodriguez, 69 Phil. 217). If the terms of a contract are
clear and leave no doubt upon the intention of the con-
tracting parties, the literal meaning of its stipulation
shall control (GSIS vs. Court of Appeals, 145 SCRA 311;
Visayan Surety & Ins. Co., vs. Tabares, 67 Phil. 743). If
the words appear to be contrary to the evident intention
of the parties, the latter shall prevail over the former
(Art. 1370, Civil Code; Sy vs. Court of Appeals, 131 SCRA
116). Resort to extrinsic aids and other extraneous sources
are not necessary in order to ascertain the intent of the
parties when there is no ambiguity in the terms of the
agreement (Baylon vs. Court of Appeals, 312 SCRA 502).
In case of doubt, the following rules shall govern:
(a) In order to judge the intention of the contract-
ing parties, their contemporaneous and subse-
quent acts shall be principally considered (Art.
1371, Civil Code; GSIS vs. Court of Appeals,
supra.; Serrano vs. Court of Appeals, L-46357, 9
October 1985; Nielsen & Co. vs. Lepanto Con-
solidated Mining Co., 18 SCRA 1040).
(b) The terms of a contract, however general, shall
not be understood to comprehend things that
are distinct and cases that are different from
those upon which the parties intended to agree
(Art. 1372, Civil Code; Buiser vs. Cabrera, 81
Phil. 669).
(c) If some stipulation of any contract should ad-
mit of several meanings, it shall be understood
as bearing that import which is most adequate
to render it effectual (Art. 1373, Civil Code; Luna
Title II. Contracts
vs. Linatoc, 74 Phil. 15). Termed as the princi-

ple of effectiveness, the rule is to the effect that
when two interpretations of a contract are pos-
sible, that which will render the contract opera-
tive, rather than that which will make it mean-
ingless, will be preferred (PNB vs. Utility As-
surance, G.R. No. 39215, 1 September 1989).
(d) The various stipulations of a contract shall be
interpreted together, attributing to the doubt-
ful ones that sense which may result from all of
them taken jointly (Art. 1374, Civil Code;
NAPOCOR vs. Court of Appeals, G.R. No. 43706,
14 November 1986; Peoples Trust & Trust Co.
vs. Odom, 64 Phil. 126).
(e) Words which may have different significations
shall be understood in that which is most in
keeping with the nature and object of the con-
tract (Art. 1375, Civil Code; Cerman & Co. vs.
Donaldson, Sim & Co., 1 Phil. 63).
(f) The usage or custom of the place shall be borne
in mind in the interpretation of the ambiguities
of a contract and shall fill the omission of stipu-
lations which are ordinarily established (Art.
1376, Civil Code; Andreas vs. Bank of P.I., 47
Phil. 795).
(g) The interpretation of obscure words or stipu-
lations in a contract shall not favor the party
who caused the obscurity (Art. 1377, Civil Code;
Equitable Bank vs. Intermediate Appellate
Court, G.R. No. 74451, 25 May 1988; Bayview
Hotel vs. Ker & Co., 116 SCRA 327).
(h) A contract of adhesion is construed and inter-
preted against the party who drafted it (Ange-
les vs. Casalanz, supra.).
When it is absolutely impossible to settle doubts by
the rules established above
(1) If the doubts refer to incidental circumstances,

the doubt in the case of a gratuitous contract
shall be resolved in favor of the least trans-
mission of rights and interest, and in onerous
contracts, the doubt shall be settled in favor of
the greatest reciprocity of interests.
(2) If the doubts are cast upon the principal object
of the contract in such a way that it cannot be
known what may have been the intention or
will of the parties, the contract shall be null and
void (see Art. 1378, Civil Code; see Labasan vs.
Lacuesta, 86 SCRA 16).
The principles of interpretation and construction
under the Rules of Court shall likewise be observed in
the interpretation and construction of contracts (see Art.
1379, Civil Code; Rule 123, Rules of Court).
Defective Contracts
Civil law, in its usual sophistication, classifies defec-
tive contracts into: first, the rescissible contracts (Arts.
1381-1382, Civil Code), which are the least infirm; sec-
ond, the voidable contracts (Art. 1390, Civil Code); third,
the unenforceable contracts (Art. 1403, Civil Code); and
finally, the void contracts (Art. 1409, Civil Code).
Chapter 6
Rescissible Contracts
Art. 1380. Contracts validly agreed upon may be

rescinded in the cases established by law. (1290)
Art. 1381. The following contracts are rescis-
sible:
(1) 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;
Title II. Contracts
(2) Those agreed upon in representation of ab-

sentees, if the latter suffer the lesion stated in the pre-
ceding number;
(3) Those undertaken in fraud of creditors when
the latter cannot in any other manner collect the claims
due them;
(4) Those which refer to things under litigation
if they have been entered into by the defendants with-
out the knowledge and approval of the litigants or of
competent judicial authority;
(5) All other contracts specially declared by law
to be subject to rescission. (1291a)
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)
Art. 1383. The action for rescission is subsidiary;
it cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation
for the same. (1294)
Art. 1384. Rescission shall be only to the extent
necessary to cover the damages caused. (n)
Art. 1385. Rescission creates the obligation to re-
turn the things which were the object of the contract,
together with their fruits, and the price with its inter-
ests; 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 de-
manded from the person causing the loss. (1295)
Art. 1386. Rescission referred to in Nos. 1 and 2
of Article 1381 shall not take place with respect to con-
tracts approved by the courts. (1296a)
Art. 1387. All contracts by virtue of which the

debtor alienates property by gratuitous title are pre-
sumed 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 rendered in any instance or some
writ of attachment 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)
Art. 1388. Whoever acquires in bad faith the things
alienated in fraud of creditors, shall indemnify the lat-
ter for damages suffered by them on account of the
alienation, whenever, due to any cause, it should be
impossible for him to return them.
If there are two or more alienations, the first ac-
quirer shall be liable first, and so on successively.
(1298a)
Art. 1389. The action to claim rescission must be
commenced within four years.
For persons under guardianship and for absen-
tees, the period of four years shall not begin until the
termination of the formers incapacity, or until the domi-
cile of the latter is known. (1299)
In terms of their efficaciousness, rescissible contracts

are regarded, among the four, as being the closest to
perfectly executed contracts. A rescissible contract con-
tains all the requisites of a valid contract and are consid-
ered legally binding, but by reason of injury or damage to
either of the contracting parties or to third persons, such
as creditors, it is susceptible to rescission at the instance
of the party who may be prejudiced thereby. A rescissible
contract is valid, binding and effective until it is rescinded.
Title II. Contracts
The proper way by which it can be assailed is by an action

for rescission based on any of the causes specified by law
(Borja vs. Addison, 44 Phil. 895).
Rescissible contracts are validly agreed upon but, by
reason of lesion or economic prejudice, may be rescinded
in the cases established by law (see Art. 1380, Civil Code;
Cf. Ibanez vs. Hongkong & Shanghai Bank, 22 Phil. 572).
The following contracts are rescissible:
(1) Those which are entered into by guardians
whenever the wards whom they represent suf-
fer lesion by more than one-fourth of the value
of the things which are the object thereof;
(2) Those agreed upon in representation of absen-
tees, if the latter suffer lesion by more than
one-fourth of the value of the things which are
the object thereof;
(3) Those undertaken in fraud of creditor when the
latter cannot in any other manner collect the
claims due them;
(4) Those which refer to things under litigation if
they have been entered into by the defendant
without the knowledge and approval of the liti-
gants or of competent judicial authority;
(5) All other contracts specially declared by law to
be subject to rescission (Art. 1381; see also Arts.
1177 and 1098, Civil Code).
Payments made in a state of insolvency for obliga-
tions to whose fulfillment the debtor could not be com-
pelled at the time they were effected are likewise rescis-
sible (Art. 1382, Civil Code; Asia Banking vs. Nable, 51
Phil. 763). Under the Insolvency Law, transfers declared
to be fraudulent are not merely rescissible but void (De la
Paz vs. Garcia, 18 SCRA 779; Act 1956). Rescission re-
ferred to in Nos. 1 and 2, Article 1381 (supra.), however,
shall not take place with respect to contracts approved by
the court (see Art. 1386, Civil Code).
Rescission creates the obligation to return the things

which have been 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 rescis-
sion 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 per-
son causing the loss (Art. 1385, Civil Code; see Cordovero
vs. Villaruz, 46 Phil. 473).
In respect to the third type of rescissible contracts,
all contracts by virtue of which the debtor alienates prop-
erty by gratuitous title are presumed to have been en-
tered 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 rendered in any instance
or some writ of attachment 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 (Art. 1387, Civil Code;
see Provincial Sheriff vs. Court of Appeals, 22 SCRA 798;
Gatchalian vs. Manalo, 68 Phil. 708; Oria vs. Mcmicking,
21 Phil. 243).
Accion pauliana requires that: (1) the party asking
for rescission has a credit prior to the alienation, although
demandable later; (2) the debtor has made a subsequent
contract conveying a patrimonial benefit to a third per-
son; (3) the creditor has no other legal remedy to satisfy
his claim; (4) the act being impugned is fraudulent; and
(5) the third person who received the property conveyed,
if it is by onerous title, has been an accomplice in the
fraud (Siguan vs. Lim, 318 SCRA 725). An action to
rescind must be of last resort, availed of only after all the
Title II. Contracts
legal remedies have been exhausted and proven futile

(Khe Hong Cheng vs. Court of Appeals, 355 SCRA 701).
Article 1381 of the Civil Code would allow the rescission
of contract in fraud of creditors only when the latter can-
not in any manner collect the claims due them (Adorable
vs. Court of Appeals, 319 SCRA 200). Thus, an action for
rescission cannot be instituted when the party suffering
damage has other legal means to obtain reparation for
the same (Art. 1383, Civil Code; Goquiolay vs. Sycip, 108
Phil. 947). The rescission sought shall be only to the
extent necessary to cover the damages sustained (Article
1384, Civil Code). Consequently, only the creditor who
brought the action for rescission can benefit therefrom;
those who are strangers to the action cannot benefit from
its effects (see Siguan vs. Lim, supra.).
Rescission under Article 1191 termed resolution by
the old Civil Code, unlike rescission under Article 1383,
is a principal action based on a breach of a party. Rescis-
sion under Article 1383, upon the other hand, is a sub-
sidiary action limited to cases of lesion thereunder speci-
fied (Ong vs. Court of Appeals, 310 SCRA 1). Elabo-
rating on the distinctions between the rescission of re-
scissible contracts and resolution set forth in Article 1191,
Justice J.B.L. Reyes, in his concurring opinion in UFC vs.
Court of Appeals (33 SCRA 1) said:
x x x The rescission on account of breach of
stipulation is not predicated on injury to economic
interests of the party plaintiff but on the breach of
faith by the defendant, that violates the reciprocity
between the parties. It is not a subsidiary action,
and Article 1191 may be scanned without disclosing
anywhere that the action for rescission thereunder
subordinated to anything other than the culpable
breach of his obligation by the defendant. This re-
scission is a principal action retaliatory in character,
it being unjust that a party be held bound to fulfill
his promises when the other violates his. As ex-
pressed in the old Latin aphorism: Non servanti
ifdem, non est fides servanda. Hence, the repara-

tion of damages for the breach is purely secondary.
Under Article 1389 of the Civil Code, the action to

claim rescission must be commenced within four years.
It is the legal possibility of bringing the action which
determines the starting point for the computation of the
four-year prescriptive period provided for in Article 1389
of the Civil Code (see Khe Hong Cheng vs. Court of Ap-
peals, supra.). However, the period of four years shall not
begin until the termination of the incapacity of the per-
son under guardianship, or until the domicile of the ab-
sentee is known (Art. 1389, Civil Code).
Re Right of First Refusal

A right of first refusal is not a perfected contract.
Neither does it qualify as an option under the second
paragraph of Article 1479, which itself must be supported
by a consideration separate and distinct from the price
itself, nor an offer which Article 1319 of the Code re-
quires to be definitive and certain both as to object and
cause of the contemplated agreement. Even while the
object in a right of first refusal might be determinate,
the exercise of the right, nevertheless, would still be de-
pendent not only on the grantors eventual intention to
enter into a binding juridical relation but also on terms,
including the price, that obviously are yet to be fixed. It
would be absurd to suggest that a right of first refusal
can be the proper subject of an action for specific per-
formance but, of course, neither would it be correct to say
that a breach of such right would be totally inconsequen-
tial. A grantor who unjustly discards his own affirmation
violates the basic dogma in human relations so well ex-
pressed as in Article 19 of the Civil Code to the effect that
every person is expected to act with justice, give another
is due and observe honesty and good faith. When ignored,
the legal feasibility of an action for damages not an ac-
tion for rescission under Article 1381 of the Code which is
Title II. Contracts
subsidiary and merely to obtain reparation is a matter

now long settled.
Unfortunately, it would seem, Article 1381 (para-
graph 3) of the Civil Code has been invoked to be the
statutory authority for the rescission of the contract of
sale between Carmelo & Bauermann, Inc., and Equato-
rial Realty Development, Inc., in the case of Equatorial
Realty Development, Inc. vs. Mayfair Theater, Inc. (G.R.
No. 106063, 21 November 1996). The action for rescission
under that provision of the law, unlike in the resolution
of reciprocal obligations under Article 1191 of the Code, is
merely subsidiary and relates to the specific instance
when a debtor, in an attempt to defraud his creditor,
enters into a contract with another that deprives the
creditor to recover his just claim and leaves him with no
other legal means, than by rescission, to obtain repara-
tion. Thus, the rescission is only to the extent necessary
to cover the damages caused (Article 1384, Civil Code)
and, consistent with its subsidiary nature, would require
the debtor to be an indispensable party in the action (see
Gigante vs. Republic Savings Bank, 135 Phil. 359).
The concept of a right of first refusal as a simple
juridical relation, and so governed (basically) by the Civil
Codes title on Human Relations, is not altered by the
fact alone that it might be among the stipulated items in
a separate document or even in another contract. A
breach of the right of first refusal can only give rise to
an action for damages primarily under Article 19 of the
Civil Code, as well as its related provisions, but not to an
action for specific performance set out under Book IV of
the Code on Obligations and Contracts. That right,
standing by itself, is far distant from being the obligation
referred to in Article 1159 of the Code which would have
the force of law sufficient to compel compliance per se
or to establish a creditor-debtor or obligee-obligor
relation between the parties. If, as it is rightly so, a right
of first refusal cannot even be properly classed as an offer
or as an option, certainly, and with much greater reason,
it cannot be the equivalent of, nor be given the same legal

effect as, a duly perfected contract. It is not possible to
cross out, such as what has been said in Ang Yu Asuncion
vs. Court of Appeals (238 SCRA 602), the indispensable
element of consensuality in the perfection of contracts. It
is basic that without mutual consent on the object and on
the cause, a contract cannot exist (Art. 1305, Civil Code);
corollary to it, no one can be forced, least of all perhaps by
a court, into a contract against his will or compelled to
perform thereunder.
Chapter 7
Voidable Contracts
Art. 1390. The following contracts are voidable or

annullable, even though there may have been no dam-
age to the contracting parties:
(1) Those where one of the parties is incapable
of giving consent to a contract;
(2) Those where the consent is vitiated by mis-
take, violence, intimidation, undue influence, or fraud;
These contracts are binding, unless they are an-
nulled by a proper action in court. They are suscep-
tible of ratification. (n)
Art. 1391. The action for annulment shall be
brought within four years.
This period shall begin:
In cases of intimidation, violence or undue influ-
ence, from the time the defect of the consent ceases.
In case of mistake or fraud, from the time of the
discovery of the same.
And when the action refers to contracts entered
into by minors or other incapacitated persons, from
the time the guardianship ceases. (1301a)
Art. 1392. Ratification extinguishes the action to
annul a voidable contract. (1309a)
Title II. Contracts
Art. 1393. Ratification may be effected expressly

or tacitly. It is understood that there is a tacit ratifica-
tion 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)
Art. 1395. Ratification does not require the con-
formity of the contracting party who has no right to
bring the action for annulment. (1312)
Art. 1396. Ratification cleanses the contract from
all its defects from the moment it was constituted. (1313)
Art. 1397. The action for the annulment of con-
tracts 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 in-
timidation, violence, or undue influence, or employed
fraud, or caused mistake base their action upon these
flaws of the contract. (1302a)
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 provided by law.
In obligations to render service, the value thereof
shall be the basis for damages. (1303a)
Art. 1399. When the defect of the contract con-
sists in the incapacity of one of the parties, the inca-
pacitated person is not obliged to make any restitution
except insofar as he has been benefited by the thing
or price received by him. (1304)
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)
Art. 1401. The action for annulment of contracts
shall be extinguished when the thing which is the ob-
ject 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)
Art. 1402. As long as one of the contracting par-
ties 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 following contracts are voidable or annullable,

even though there may have been no damage to the con-
tracting parties:
(1) Those where one of the parties is incapable of
giving consent to a contract; and
(2) Those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled
in a proper action in court. Deceit by a third person with-
out connivance with a party does not render the contract
voidable unless it results in mutual error (Art. 1342, Civil
Code; Co vs. Court of Appeals, 193 SCRA 198). Voidable
contracts are susceptible of ratification (see Arts. 1390
and 1327, Civil Code, supra.; Gonzales vs. Lopez, 160
SCRA 346; Vda. de Buncio vs. Estate of De Leon, 156
SCRA 352; Tumalad vs. Vicencio, 41 SCRA 143).
The action for annulment shall be brought within
four years which shall begin, in cases of intimidation,
violence or undue influence, from the time the defect of
the consent ceases, and in case of mistake or fraud, from
Title II. Contracts
the time of the discovery of the same. When the action

refers to contracts entered into by minors or other inca-
pacitated persons, the period starts from the time the
guardianship ceases (Art. 1391, Civil Code; see Reyes vs.
Ferrer, 156 SCRA 314; Bael vs. Intermediate Appellate
Court, 169 SCRA 617; Armentia vs. Patriarca, 18 SCRA
1253; Braganza vs. De Villar Abrille, 105 Phil. 456). The
discovery of fraud or mistake is deemed to have taken
place from the execution of the contract or its registra-
tion if there is an allegation that it did not express the
true intention of the parties. (Bael vs. Intermediate Ap-
pellate Court, supra.).
Ratification extinguishes the action to annul a void-
able contract (Art. 1392, Civil Code). Ratification may be
effected either expressly or tacitly. It is understood that
there is a tacit ratification if, with knowledge of the rea-
son 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 inten-
tion to waive his right (Art. 1393, Civil Code). Implied
ratification may take the form of accepting and retaining
the benefits of a contract (Julian Francisco vs. Pastor
Herrera, G.R. No. 139982, 21 November 2002). Ratifica-
tion may be effected by the guardian of the incapacitated
person (Art. 1394, Civil Code). Ratification does not re-
quire the conformity of the contracting party who has no
right to bring the action for annulment (Art. 1395, Civil
Code). Ratification cleanses the contract from all its de-
fects from the moment it is constituted (Art. 1396, Civil
Code; see Tang vs. Gonzales, 52 Phil. 180).
The action for the annulment of contracts may be
instituted by all who are thereby obliged principally or
subsidiarily, or although not being parties, may be preju-
diced by such contracts. Persons, however, who are capa-
ble cannot allege the incapacity of those with whom they
are 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 con-
tract (see Art. 1397, Civil Code; see Singson vs. Isabela
Sawmill, 88 SCRA 623; City Council of Cebu City vs.
Cuizon, 47 SCRA 325; De Santos vs. City of Manila, 45
SCRA 409; Wolfson vs. Estate of Martinez, 20 Phil. 340).
Effects of Annulment
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 provided
by law. In obligations to render service, the value thereof
shall be the basis for damages (Art. 1398, Civil Code;
Cadwallader & Co. vs. Smith Bell & Co., 7 Phil. 461).
When the defect of the contract consists in the incapacity
of one of the parties, the incapacitated persons is not
obliged to make any restitution except insofar as he has
been benefited by the thing or price received by him (Art.
1399, Civil Code; Braganza vs. De Villa Abrille, 105 Phil.
456).
Effect of Loss of Thing

The rules may be stated thusly
(1) If the thing is lost after the decree of annulment
(a) If the thing is lost because of the fault of the
obligor (who may either be the plaintiff or the
defendant bound by the judgment to make res-
titution), he shall return the fruits received and
the value of the thing at the time of the loss,
with interest from the same date (Art. 1400,
Civil Code).
(b) If the thing is lost due to fortuitous event
(i) If the vice of consent is attributable to the
obligor, the latter is liable as in (1) above;
(ii) If the vice of consent is not attributable to
the obligor, the general rule of res perit
creditori applies; where, however, the obli-
Title II. Contracts
gation annulled is analogous to, is the

equivalent of, or approximates a sale of
goods, lease of things or contract for a piece
of work, the res perit domino rule should
apply. (Thus, in Dumasag vs. Modelo [34
Phil. 252], where the defendant was
required to return the carabao sold after
annulment of the sale, the loss of the
carabao because of fortuitous event did not
excuse the defendant [as its owner at the
time of lost] from paying its value to the
plaintiff).
(2) Where the thing is lost before the action to annul is
brought
(a) If the thing is lost due to the fault of the party
entitled to bring the action, the right to bring
such action is extinguished (Art. 1401, Civil
Code).
(b) If the thing is lost because of fortuitous event,
should the a contrario rule apply? It is believed
that the res perit domino rule should instead
apply since at this point in time no obligation to
return has as yet arisen; accordingly, if at the
time of loss the party who has the right to bring
the action was the owner thereof, the action
should likewise fail. Article 1402 of the Civil
Code appears to sanction this rule indirectly by
providing that if in virtue of a decree (once given)
one fails to restore what he is bound to return,
the other is not compelled to comply with what
is incumbent upon him.
Chapter 8
Unenforceable Contracts (n)
Art. 1403. The following contracts are unenforce-

able, unless they are ratified:
(1) Those entered into in the name of another

person by one who has been given no authority or
legal representation, or who has acted beyond his pow-
ers;
(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;
(b) A special promise to answer for the debt,
default, or miscarriage of another;
(c) 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 ac-
cept 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 auc-
tion and entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount
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 memo-
randum;
(e) An agreement for the leasing for a longer
period than one year, or for the sale of real prop-
erty or of an interest therein;
(f) A representation as to the credit of a
third person.
(3) Those where both parties are incapable of
giving consent to a contract.
Title II. Contracts
Art. 1404. Unauthorized contracts are governed

by Article 1317 and the principles of agency in Title X
of this Book.
Art. 1405. Contracts infringing the Statute of
Frauds, referred to in No. 2, of Article 1403, are ratified
by the failure to object to the presentation of oral evi-
dence to prove the same, or by the acceptance of ben-
efits under them.
Art. 1406. When a contract is enforceable under
the Statute of Frauds, and a public document is neces-
sary for its registration in the Registry of Deeds, the
parties may avail themselves of the right under Article
1357.
Art. 1407. In a contract where both parties are
incapable of giving consent, express or implied ratifi-
cation by the parent, or guardian, as the case may be,
of one of the contracting parties shall give the contract
the same effect as if only one of them were incapa-
citated.
If ratification is made by the parents or guardians,
as the case may be, of both contracting parties, the
contract shall be validated from the inception.
Art. 1408. Unenforceable contracts cannot be as-
sailed by third persons.
Unenforceable contracts are those that cannot be

enforced by court action, upon the timely objection of a
party. The following contracts are unenforceable, unless
they are ratified:
(1) Those entered into in the name of another per-
son by one who has not been given authority or
legal representation, or who has acted beyond
his powers (Frias vs. Esquivel, 66 SCRA 29),
except that, if the other party is aware of the
agents want of authority, the contract is ren-
dered void (see Art. 1898, Civil Code, infra.;
National Power Corp. vs. National Merchandis-
ing Corp., 117 SCRA 789);
(2) Those that do not comply with the Statute of

Frauds which requires certain agreements or
some kind of note or memorandum thereof to
be in writing, and subscribed by the other party
charged, or by his agent; otherwise, the same
shall be unenforceable and evidence of the
agreement cannot be received without the
writing, or a secondary evidence of its contents.
These are
(a) An agreement that by its terms is not to be
performed within a year from the making
thereof (see Arroyo vs. Azur, 76 Phil. 493);
(b) A special promise to answer for the debt,
default, or miscarriage of another (see
Colbert vs. Bachrach, 12 Phil. 83 [but not a
direct or primary liability]);
(c) An agreement made in consideration of
marriage, other than a mutual promise to
marry (see Atienza vs. Castillo, 72 Phil.
589);
(d) An agreement for the sale of goods, chat-
tels or things in action, at a price not less
than five hundred pesos, unless the buyer
accepts and receives part of such goods and
chattels, or the evidences, or some of them,
of such things in action, or pays at the time
some part of the purchase money; but when
a sale is made by auction and entry is made
by auctioneer in his sales book, at the time
of sale, price, names of the purchasers and
person on whose account the sale is made,
it is a sufficient memorandum;
(e) An agreement for the leasing for a longer
period than one year, or for the sale of real
property or of an interest therein (Santos
vs. Ganayo, 116 SCRA 431; Ipapo vs. In-
termediate Appellate Court, G.R. No. 72740,
Title II. Contracts
27 January 1987; Montilla vs. Court of Ap-

peals, 161 SCRA 167; see also Art. 1443 on
express trust) but not all dealings involving
real property are covered (Cruz vs. Tuason
& Co., 76 Phil. 543), such as an agreement
settling a boundary dispute (Hernandez vs.
Court of Appeals, 160 SCRA 821) or a par-
tition of co-owned property (Espina vs.
Ayala, 196 SCRA 312);
(f) A representation as to the credit of a third
person (see Surety Co. vs. Teodoro, 101 Phil.
684);
(3) Those where both parties are incapable of giv-
ing consent to a contract (see Art. 1403, Civil
Code).
Unauthorized contracts are additionally governed
by Article 1317 and the principles of agency in Title X of
Book IV of the Code (see Art. 1404, Civil Code).
Contracts infringing the Statute of Frauds referred
to in No. 2 of Article 1403 (supra.) are ratified by the
failure to object to the presentation of oral evidence to
prove the same (see Conlu vs. Araneta, 15 Phil. 587,
requiring the objection to be made at the first opportu-
nity; and Abenica vs. Gonda, 34 Phil. 739, wherein it was
held that cross-examination on the contract was deemed
a waiver of the defense of the Statute of Frauds), or by
the acceptance of benefits thereunder (Art. 1405, Civil
Code). The Statute of Frauds is applicable only to execu-
tory contracts, not to those that are totally or partially
performed (Victoriano vs. Court of Appeals, 194 SCRA 19;
Clarin vs. Ralona, 127 SCRA 512; Facturan vs. Sabanal,
81 Phil. 512; Diana vs. Macalibo, 75 Phil. 71; Carbonell
vs. Poncio, L-11231, 12 May 1958; Inigo vs. Estate of
Manolo, 21 SCRA 246). The full compliance by one party
to the contract renders said contract enforceable (see PNB
vs. Phil. Vegetable Oil Co., 49 Phil. 857; Shoetime vs. La
Tondea, 68 Phil. 24). The same rule applies when par-
tial compliance is made by such party (Valenzuela vs.

Court of Appeals, 181 SCRA 524). When a contract is
enforceable under the Statute of Frauds, and a public
document is necessary for its registration in the Registry
of Deeds, the parties may avail themselves of the right
under Article 1357 (Art. 1406, Civil Code), i.e., to compel
each other to observe the requisite form to permit such
registration.
In a contract where both parties are incapable of
giving consent, express or implied ratification by the par-
ent or guardian, as the case may be, of one of the con-
tracting parties shall give the contract the same effect as
if only one of them were incapacitated. The contract shall
be deemed validated from its inception if the ratification
is made by the parents or guardians, as the case may be,
of both contracting parties (Art. 1407, Civil Code). Unen-
forceable contracts cannot be assailed by third persons
(Art. 1408, Civil Code). One case has held a consum-
mated verbal sale to be valid between the parties but
when a third person disputes the ownership of the buyer,
the latter could be precluded, said the Court, from offer-
ing proof, unless the writing is shown (Claudel vs. Court
Chapter 9
Void or Inexistent Contracts
Art. 1409. The following contracts are inexistent

and void from the beginning:
(1) Those whose cause, object or purpose is con-
trary to law, morals, good customs, public order or
public policy;
(2) Those which are absolutely simulated or fic-
titious;
(3) Those whose cause or object did not exist at
the time of the transaction;
(4) Those whose object is outside the commerce
of men;
Title II. Contracts
(5) Those which contemplate an impossible serv-

ice;
(6) Those where the intention of the parties rela-
tive to the principal object of the contract cannot be
ascertained;
(7) Those expressly prohibited or declared void
by law.
These contracts cannot be ratified. Neither can
the right to set up the defense of illegality be waived.
Art. 1410. The action or defense for the declara-
tion of the inexistence of a contract does not prescribe.
Art. 1411. When the nullity proceeds from the ille-
gality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being
in pari delicto, they shall have no action against each
other, and both shall be prosecuted. Moreover, the pro-
visions of the Penal Code relative to the disposal of
effects or instruments of a crime shall be applicable to
the things or the price of the contract.
This rule shall be applicable when only one of the
parties is guilty; but the innocent one may claim what
he has given, and shall not be bound to comply with
his promise. (1305)
Art. 1412. If the act in which the unlawful or for-
bidden cause consists does not constitute a criminal
offense, the following rules shall be observed:
(1) When the fault is on the part of both con-
tracting parties, neither may recover what he has given
by virtue of the contract, or demand the performance
of the others undertaking;
(2) When only one of the contracting parties is
at fault, he cannot recover what he has given by rea-
son of the contract, or ask for the fulfillment of what
has been promised him. The other, who is not at fault,
may demand the return of what he has given without
any obligation to comply with his promise. (1306)
Art. 1413. Interest paid in excess of the interest
allowed by the usury laws may be recovered by the
debtor, with interest thereon from the date of the pay-

ment.
Art. 1414. When money is paid or property deli-
vered for an illegal purpose, the contract may be repudi-
ated by one of the parties before the purpose has been
accomplished, or before any damage has been caused
to a third person. In such case, the courts may, if the
public interest will thus be subserved, allow the party
repudiating the contract to recover the money or prop-
erty.
Art. 1415. Where one of the parties to an illegal con-
tract is incapable of giving consent, the courts may, if
the interest of justice so demands, allow recovery of
money or property delivered by the incapacitated per-
son.
Art. 1416. When the agreement is not illegal per
se but is merely prohibited, and the prohibition by the
law is designed for the protection of the plaintiff, he
may, if public policy is thereby enhanced, recover what
he has paid or delivered.
Art. 1417. When the price of any article or com-
modity is determined by statute, or by authority of law,
any person paying any amount in excess of the maxi-
mum price allowed may recover such excess.
Art. 1418. 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. 1419. 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. 1420. In case of a divisible contract, if the
illegal terms can be separated from the legal ones, the
latter may be enforced.
Title II. Contracts
Art. 1421. The defense of illegality of contracts is

not available to third persons whose interests are not
directly affected.
Art. 1422. A contract which is the direct result of
a previous illegal contract, is also void and inexistent.
Article 1409 of the Civil Code of the Philippines has

grouped together contracts which have theretofore been
jurisprudentially considered void ab initio under the old
code. The nullity of these contracts is rather definitive in
nature and cannot thereby be cured by ratification. There
are, however, other judicial relations which are specifi-
cally declared to be void by law under separate provisions
of the code like the sale of a piece of land or any interest
therein made through an agent whose authority is not
reduced in writing or when the agent exceeds the scope of
his authority. In these special instances, it would be
important and prudent to take a minute longer to look at
the law for, at times, the rationale for their being can
justify a divergence from the standard rules governing
void contracts in general. Thus, although by statute and
jurisprudence denominated void, Article 1874 sales, are,
in fact, susceptible to ratification. This intent of the law
can be gleaned from some provisions of the code.
The susceptibility to ratification could prompt one to
say that the contract should, in essence, be deemed merely
unenforceable. That, too, may not be totally accurate for
outside that feature, other principles of a void contract
could, nevertheless, be apt and relevant. To exemplify,
the rule in evidence to the effect that the unenforceable
character of a contract is lost by a failure to object at the
first opportunity to the presentation of oral evidence to
prove the questioned transaction would not necessarily
be applicable to contracts specially declared void under
Article 1874 of the Code which sanctions ratification
only if done by an act of affirmation by the principal
(Claudio De Los Reyes and Lydia De Los Reyes vs. Court
of Appeals and Aluyong Gabriel, G.R. No. 129103, 03

September 1999, 313 SCRA 632, Concurring Opinion).
Void contracts cannot be ratified (Manotok Realty
vs. Court of Appeals, 149 SCRA 372). Neither can the
right to set up the defense of illegality be waived (Art.
1409, Civil Code; see Martin vs. Adil, 130 SCRA 406;
Arsenal vs. Court of Appeals, 143 SCRA 40; see also dis-
cussions on Autonomy and Elements of Contracts, su-
pra.; also Arts. 5, 17, 1306, 1345-1358, Civil Code, su-
pra.). A contract which is the direct result of a previous
illegal contract is itself null and void (Art. 1422, Civil
Code; E. Razon, Inc. vs. Philippine Ports Authority, 151
SCRA 233). The action or defense for the declaration of
the inexistence of a contract does not prescribe (Art. 1410,
Civil Code; see Cabral vs. Court of Appeals, 130 SCRA
498; Trigal vs. Tobias, 25 SCRA 1154). Mere lapse of time
cannot give efficacy to a void contract (Vda. de Catindig
vs. Heirs of Roque, 74 SCRA 83). A promise to convey a
homestead after the 5-year prohibitory period is itself
void and neither prescription or laches nor implied trust
can be invoked (see Homena vs. Casa, 157 SCRA 188).
The inexistence or absolute nullity of a contract cannot
be invoked by a person whose interests are not directly
affected thereby (Chavez vs. PCGG, 307 SCRA 394).
Effects
When the nullity proceeds from the illegality of the
cause or object of the contract and the act constitutes a
criminal offense, both parties being in pari delicto, they
shall have no action against each other, and both shall be
prosecuted. Furthermore, the provisions of the Penal Code
relative to the disposal of effects or instruments of a
crime shall be applicable to the things or the price of the
contract. This rule shall be applicable when only one of
the parties is guilty; but the innocent one may claim
what he has given and shall not be bound to comply with
his promise (Art. 1411, Civil Code; Iribar vs. Millat, 5
Phil. 362).
Title II. Contracts
If the act in which the unlawful or forbidden cause

consists does not constitute a criminal offense, the follow-
ing rules are observed:
(1) When the fault is on the part of both contract-
ing parties, neither may recover what he had
given by virtue of the contract, or demand the
performance of the others undertaking; and
(2) When only one of the contracting parties is at
fault, he cannot recover what he has given by
reason of the contract, or ask for the fulfillment
of what has been promised him. The other, who
is not at fault, may demand the return of what
he has given without any obligation to comply
with his promise (Art. 1312, Civil Code; see
Yuchengco vs. Velayo, 115 SCRA 307; see also
Umali vs. Court of Appeals, 189 SCRA 529;
Bough vs. Contiveros, 40 Phil. 209).
When the agreement is not illegal per se but is merely
prohibited and the prohibition by the law is designed for
the protection of the plaintiff, he may, if public policy is
thereby enhanced, recover what he has paid or delivered
(Art. 1416, Civil Code; see Guiang vs. Kintanar, 106 SCRA
49). Thus, recovery has been allowed in the sale of land
acquired under the Public Land Act within the prohib-
ited period (see Ras vs. Sua, 25 SCRA 153). In the sale of
land to aliens, the sellers right of recovery (Phil. Bank-
ing Corp. vs. Lui, 21 SCRA 52), however, is lost if mean-
while the land is conveyed to a qualified national (Yap vs.
Rico, 121 SCRA 244) or if the buyer himself becomes a
naturalized citizen (Republic vs. Intermediate Appellate
Court, 175 SCRA 398; De Castro vs. Tan, 129 SCRA 85).
Interest paid in excess of the interest allowed by the
usury laws may be recovered by the debtor, with interest
thereon from the date of the payment (Art. 1413, Civil
Code; see discussion on Contracts of Loan, infra.; see
Angel Warehousing Co. vs. Chelda Ent., 23 SCRA 119,
allowing recovery of the whole interest; see also Briones
vs. Camnayo, 41 SCRA 404). Central Bank Circular No.

905, issued conformably with Presidential Decree No.
116, as amended, has done away with the interest ceil-
ings prescribed by the Usury Law (Act No. 2655, as
amended).
Summary on the Civil Effects of a Void Contract

1. Neither party may seek to enforce a void con-
tract, irrespective of the reason that makes it
void (Bough vs. Contiveros, 40 Phil. 209). From
this rule, there is no exception and neither pre-
scription or laches nor the doctrine of implied
trust may be invoked that would lend the court
itself to its enforcement which the parties may
not do (see Homena vs. Casa, 157 SCRA 188).
2. Neither party may seek the aid of the law or the
courts, and both parties shall be deemed in pari
delicto. Hence, the expressions ex dolo malo
non eritor getio or in pari delicto potior est con-
ditio dependentis. From this rule there are ex-
ceptions so as to permit the return of that which
may have been given under a void contract, such
as by
(a) The innocent party (Arts. 1411-1412, Civil
Code);
(b) The debtor who pays usurious interest (Art.
1413 Civil Code);
(c) The party repudiating the void contract
before the illegal purpose is accomplished
or before damage is caused to a third per-
son and if public interest is subserved by
allowing recovery (Art. 1414, Civil Code);
(d) The incapacitated party if the interest of
justice so demands (Art. 1515, Civil Code);
(e) The party for whose protection the prohibi-
tion by law is intended if the agreement is
Title II. Contracts
not illegal per se but merely prohibited and

if public policy would be enhanced by
permitting recovery (Art. 1416, Civil Code);
and
(f) The party for whose benefit the law has
been intended such as in price ceiling laws
(Art. 1417, Civil Code) and labor laws (Arts.
1418-1419, Civil Code).
Resum on Distinctive Features of Defective Contracts
As to Rescissible Voidable Unenforceable Void

1. Causes Lesion/fraud Vice of Consent Failure of form, Lack of essen-
against creditors want of author- tial elements or
ity, or incapacity illegality
of both parties
2. Prescription Prescriptible Prescriptible Imprescriptible Imprescriptible
3. Ratification Need not Can be ratified Can be ratified Cannot be rati-
be ratified fied
4. Binding Binding unless Binding until Not enforceable Not binding
efficacy rescinded annulled unless totally or
partially per-
formed or the
objection is
waived
5. Assailability Parties or third Parties or third Parties only Parties and
persons who are persons who are third persons
defrauded prejudiced whose interests
are directly
affected
176 CIVIL LAW
TITLE III. 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.
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.
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.
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, after the
annulment of the contract voluntarily returns the whole
thing or price received, notwithstanding the fact that
he has not been benefited thereby, there is no right to
demand the thing or price thus returned.
Art. 1427. When a minor between eighteen and
twenty-one years of age, who has entered into a
contract without the consent of the parent or guardian,
voluntarily pays a sum of money or delivers a fungible
thing in fulfillment of the obligation, there shall be no
176
Title III. Natural Obligations
right to recover the same from the obligee who has

spent or consumed it in good faith. (1160a)
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.
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.
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.
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 warrant 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 (see Art. 1423,
Civil Code; Ansay vs. NDC, 107 Phil. 997). Moral obliga-
tions, unlike natural obligations, have no legal
consequence. Natural obligations may be distinguished
from moral obligations in that the former must have
initially been or be founded upon civil obligations that,
for some reasons, cannot be enforced or are no longer
enforceable by court action.
The codal provisions are merely illustrative, i.e., not
exclusive, of natural obligations.
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 (Art.

1424, Civil Code). In Development Bank of the Philippines
(DBP) vs. Adil (161 SCRA 307), a second promissory note
that was executed covering a sum in a previous promissory
note which had theretofore prescribed was held to be
enforceable. The new note, the Court said, amounted to
renunciation and waiver of the right of prescription of
action, adding that the consideration of the new pro-
missory note was the obligation under the old promissory
note, and the statute of limitation merely barred the
remedy but did not discharge the debt.
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 (Art. 1425, Civil Code). When such payment by a
third person is with the knowledge or consent of the debtor,
the former may demand, unless he intended it to be a
donation, from the debtor what he has paid but he cannot
compel the creditor to subrogate him in his rights (see
Arts. 1236, 1237 and 1238, Civil Code).
Republic Act No. 6809, lowering the age of majority
to 18 years from twenty-one, renders obsolete the provi-
sions of Article 1426 and Article 1427 of the Civil Code. A
person, at least eighteen years of age, is now qualified for
all acts of civil life except as may be specifically so provided
otherwise.
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 (Art. 1428, Civil Code). But payment made
after the defendant has been judicially ordered to retain
the debt shall not be valid (Art. 1243, Civil Code).
An heir is not obligated to pay a debt owing from the
deceased, but when the heir voluntarily pays a debt of
Title III. Natural Obligations
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 (Art. 1429, Civil Code).
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 (Art. 1430, Civil Code). The term legacy
must be understood in a generic sense as also including
any testamentary disposition in favor of an heir, legatee
or devisee.
180 CIVIL LAW
TITLE IV. ESTOPPEL (n)
Art. 1431. Through estoppel an admission or repre-

sentation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against
the person relying thereon.
Art. 1432. The principles of estoppel are hereby
adopted insofar as they are not in conflict with the
provisions of this Code, the Code of Commerce, the
Rules of Court and special laws.
Art. 1433. Estoppel may be in pais or by deed.
Art. 1434. When a person who is not the owner of
a thing sells or alienates and delivers it, and later the
seller or grantor acquires title thereto, such title passes
by operation of law to the buyer or grantee.
Art. 1435. If a person in representation of another
sells or alienates a thing, the former cannot subse-
quently set up his own title as against the buyer or
grantee.
Art. 1436. A lessee or a bailee is estopped from
asserting title to the thing leased or received, as against
the lessor or bailor.
Art. 1437. When in a contract between third per-
sons concerning immovable property, one of them is
misled by a person with respect to the ownership or
real right over the real estate, the latter is precluded
from asserting his legal title or interest therein, provided
all these requisites are present:
(1) There must be fraudulent representation or
wrongful concealment of facts known to the party
estopped;
180
Title IV. Estoppel
(2) The party precluded must intend that the

other should act upon the facts as misrepresented;
(3) The party misled must have been unaware of
the true facts; and
(4) The party defrauded must have acted in
accordance with the misrepresentation.
Art. 1438. One who has allowed another to assume
apparent ownership of personal property for the purpose
of making any transfer of it, cannot, if he received the
sum for which a pledge has been constituted, set up his
own title to defeat the pledge of the property, made by
the other to a pledgee who received the same in good
faith and for value.
Art. 1439. Estoppel is effective only as between
the parties thereto or their successors in interest.
Through estoppel an admission or representation is

rendered conclusive upon the person making it and cannot
be denied or disproved against the person relying thereon
(Art. 1431, Civil Code; Laurel V vs. Civil Service Com-
mission, 203 SCRA 195; Servicewide Specialists vs.
Intermediate Appellate Court, 174 SCRA 80). Estoppel,
however, cannot give validity to an act that is prohibited
by law or against public policy (Development Bank of the
Philippines vs. Court of Appeals, 90 SCAD 12, 284 SCRA
14). The principles of estoppel have been adopted by the
Civil Code insofar as they are not in conflict with its
provisions, the Code of Commerce, the Rules of Court
and special laws (see Art. 1432, Civil Code; Cf. Lazo vs.
Republic Surety & Ins. Co., 31 SCRA 329).
Article 1433 of the Code classifies estoppel into
estoppel in pais or by deed. It may also be promissory in
character (Philippine National Bank vs. Intermediate
Appellate Court, 189 SCRA 680). Estoppel is in pais when
the admission or representation arises from the conduct
of the party in estoppel such as by his act or declaration,
omission or silence. Since estoppel is based on equity and
justice, it is essential that before a person can be barred
from asserting a fact contrary to his admission or repre-

sentation, it must be shown that such admission or rep-
resentation has been intended and would unjustly
cause harm to those who are misled if the principle were
not applied against him. Generally, it has been said that
the following elements must be shown so as to put a
party in estoppel by his conduct:
(1) Insofar as the party in estoppel is concerned, it
should appear that
(a) His conduct amounts to a false representation
or concealment of material facts or at least is
calculated to convey the impression that the
facts are otherwise than, and inconsistent with,
those which the party subsequently attempts to
assert;
(b) There is an intent or at least expectation that
his conduct shall be acted upon by, or at least
influence, the other party; and
(c) He has knowledge, actual or constructive, of the
real facts.
(2) Insofar as the party invoking estoppel is con-
cerned, it must be shown that
(a) He has lack of knowledge and of the means of
knowledge of the truth as to the material facts;
(b) He has relied in good faith upon the conduct or
statements of the party to be estopped; and
(c) His reliance thereon is of such character as to
change his position or status to his injury,
detriment or prejudice (Kalalo vs. Luz, 34 SCRA
347).
Estoppel by laches and estoppel by silence may be
considered as forms of estoppel in pais. Estoppel by laches,
in a general sense, is the failure or neglect for an
unreasonable or unexplained length of time to do that
which, by exercising due diligence, could or should have
Title IV. Estoppel
been done earlier warranting a presumption that he has

abandoned his right or has declined to assert it (Madeja
vs. Patcho, 132 SCRA 540). Mere lapse of time cannot
give efficacy to a void contract (Catindig vs. Roque, 74
SCRA 83), but estoppel may bar a party who makes no
categorical objection to (Northern Cement vs. Intermediate
Appellate Court, 158 SCRA 408), or who fails to promptly
repudiate, an invalid contract (Cadano vs. Cadano, 49
SCRA 33; De Castro vs. Tan, 129 SCRA 85). The law aids
the vigilant, not those who slumber on their rights
vigilantibus sed non dormientibus jura subveniunt. The
doctrine of laches is a creation of equity applied only to
bring about equitable results, and it is largely addressed
to the sound discretion of the court (Central Azucarera
del Danao vs. Court of Appeals, 137 SCRA 295).
The elements of laches are
(1) conduct of the defendant which gives rise to a
cause of action for which the plaintiff can seek a remedy;
(2) delay in asserting the right, complainant being
aware of defendants conduct and having the opportunity
to institute a suit;
(3) lack of knowledge on the part of defendant that
complainant would assert the right on which he bases his
suit; and
(4) injury or prejudice to defendant in the event
relief is accorded to the complainant, or the suit is not
barred (Chacon Enterprise vs. Court of Appeals, 124 SCRA
784; Cimafranca vs. Intermediate Appellate Court, 147
SCRA 611; Alba vs. Santander, 160 SCRA 8; Bailon-
Casilao vs. Court of Appeals, 160 SCRA 738).
The equitable principle of laches has been distin-
guished from prescription, viz.:
(1) Prescription is concerned with the fact of delay;
laches relates to the effects of delay.
(2) Prescription is statutory; laches is a creation of
equity; and
(3) Prescription is a matter of time; laches is a mat-

ter of injustice (see Heirs of Lacamen vs. Heirs of Laruan,
65 SCRA 605).
Estoppel by silence or inaction assumes that there
must be an obligation or duty, not merely a right and
opportunity, to speak (see 19 Am. Jur. 663). Mere innocent
silence will not create estoppel. There must also be some
element of turpitude or negligence connected with the
silence by which another is misled to his injury based on
moral and natural justice; its applicability to any
particular case to a large extent depends upon the special
circumstances of the case (Beronilla vs. GSIS, 36 SCRA
44, citing Mirasol vs. Mun. of Tabaco, 43 Phil. 610; see
also Santiago Syjuco, Inc. vs. Castro, 175 SCRA 171).
Estoppel by deed refers to admissions or represen-
tations in an instrument or deed. Thus, a privy to a
contract would be precluded from asserting against the
other party any right in derogation of the deed or from
denying the truth of any material fact found therein (see
31 C.J.S. 195; Banco de Oro vs. Equitable Bank, 157
SCRA 188).
The code enumerates instances of estoppel, albeit
non-exclusive in nature; hence
(a) When a person who is not the owner of a thing
sells or alienates and delivers it, and later the seller or
grantor acquires title thereto, such title passes by
operation of law to the buyer or grantee (Art. 1434, Civil
Code). If the thing sold is yet undelivered when title
passes to the seller, the latter shall be bound to deliver it
to the buyer.
(b) If a person in representation of another sells or
alienates a thing, the former cannot subsequently set up
his own title as against the buyer or grantee (Art. 1435,
Civil Code). A sale by a non-owner can be perfected, and
it obligates the seller to acquire title to the thing and
deliver it to the buyer.
Title IV. Estoppel
(c) A lessee or a bailee is estopped from asserting

title to the thing leased or received, as against the lessor
or bailor (Art. 1436, Civil Code). The possession of the
thing by the lessee or bailee, not being adverse to the
lessor or bailor, may not ripen into ownership by
acquisitive prescription.
(d) When in a contract between third persons
concerning immovable property, one of them is misled by
a person with respect to the ownership or real right over
the real estate, the latter is precluded from asserting his
legal title or interest therein, provided all these requisites
are present:
(1) There must be fraudulent representation
or wrongful concealment of facts known to the party
estopped;
(2) The party precluded must intend that the
other should so act upon the facts as misrepresented;
(3) The party misled must have been unaware
of the true facts; and
(4) The party defrauded must have acted in
accordance with the misrepresentation (Art. 1437,
Civil Code).
(e) One who has allowed another to assume appa-
rent ownership of personal property for the purpose of
making any transfer of it, cannot, if he received the sum
for which a pledge has been constituted, set up his own
title to defeat the pledge of the property, made by the
other to a pledgee who received the same in good faith
and for value (Art. 1438, Civil Code).
Persons Bound by Estoppel

Estoppel is effective only as between the parties
thereto or their successors in interest (Art. 1439, Civil
Code). In Mapa vs. Guanzon (77 SCRA 837), it has been
ruled that while no title in derogation to that of a regis-
tered owner may be acquired by prescription or adverse
possession, this legal guarantee may in appropriate cases

yield to the right of third persons under the equitable
principle of laches (see also Caragay-Layno vs. Court of
Appeals, 133 SCRA 718). Neglect or omissions of public
officers as to their duties will not work as estoppel against
the State, and the government is never estopped by the
mistakes or errors of its agent (Manila Lodge vs. Court of
Appeals, 73 SCRA 116; Auyong Hian vs. Court of Tax
Appeals, 59 SCRA 110; Bachrach Motors vs. Unson, 50
Phil. 981). Certain affirmative acts of public officials may,
however, give rise to estoppel (see Bachrach Motors vs.
Unson, 50 Phil. 981; Pineda vs. CFI, 52 Phil. 803; Boada
vs. Posadas, 58 Phil. 184). The Central Bank may be
guilty of promissory estoppel (Central Bank vs. Court of
Appeals, 106 SCRA 143; see also Central Bank vs. Inter-
mediate Appellate Court, 179 SCRA 752). In Republic vs.
Alagad (169 SCRA 455), the Republic assailed the deci-
sion insofar as it had sustained the lower court in dis-
missing the petition for failure of the Republic to appear
for pre-trial. In holding that the Court of Appeals was
guilty of grave abuse of discretion, the Supreme Court
said:
It is well-established that the State cannot be
bound by, or estopped from, the mistakes or negligent
acts of its officials or agents, much more, non-suited
as result thereof.
This is so because:
x x x [T]he state as a person in law is the judicial
entity, which is the source of any asserted right to
ownership in land under the basic doctrine embodied
in the 1935 Constitution as well as the present
charter. It is charged moreover with the conservation
of such patrimony. There is need therefore of the most
rigorous scrutiny before private claims to portions
thereof are judicially accorded recognition, especially
so where the matter is sought to be raised up anew
after almost fifty years. Such primordial considera-
Title IV. Estoppel
tion, not the apparent carelessness, much less the

acquiescence of public officials, is the controlling norm
...
The cases of Ramos vs. Central Bank of the
Philippines and Nilo vs. Romero, cited by the Court
of Appeals in support of its decision, are not
applicable. In Ramos, we applied estoppel upon
finding of bad faith on the part of the State (the
Central Bank) in deliberately reneging on its
promises. In Nilo, we denied efforts to impugn the
jurisdiction of the court on the ground that the
defendant had been erroneously represented in the
complaint by the City Attorney when it should have
been the City Mayor, on the holding that the City
Attorney, in any event, could have ably defended the
City (Davao City). In both cases, it is seen that the
acts that gave rise to estoppel were voluntary and
intentional in character, in which cases, it could not
be said that the Government had been prejudiced by
some negligent act or omission.
On the matter of court jurisdiction, the ruling in

People vs. Casiano (111 Phil. 72; see also People vs. Munar,
53 SCRA 278; Nieva vs. Manila Banking Corp., 124 SCRA
453) is instructive.
The operation of the principle of estoppel on
the question of jurisdiction seemingly depends upon
whether the lower court actually had jurisdiction or
not. If it had no jurisdiction, but the case was tried
and decided upon the theory that it had jurisdiction,
the parties are not barred, on appeal, from assailing
such jurisdiction, for the same must exist as a matter
of law, and may not be conferred by consent of the
parties or by estoppel (5 C.J.S. 861-863). However, if
the lower court had jurisdiction, and the case was
heard and decided upon a given theory, such, for
instance, as that the court had no jurisdiction, the
party who induced it to adopt such theory will not be
permitted, on appeal, to assume an inconsistent po-

sition that the lower court had jurisdiction. Here,
the principle of estoppel applies. The rule that
jurisdiction is conferred by law, and does not depend
upon the will of the parties, has no bearing thereon.
When a court which lacks jurisdiction over a case

but subsequently acquires it by an invocation of an
affirmative defense by the defendant, the latter is barred
by estoppel against a claim of lack of jurisdiction. A party
may not reject that jurisdiction with respect to the part of
the decision unfavorable to him and accept it as regards
the portion that favors him (Balais vs. Balais, 159 SCRA
47). Also, a person, who is not an original party to an
action but who fully participates, voluntarily appeared
and seen the proceedings before the appellate court,
cannot be permitted to run about and repudiate later the
said appellate courts jurisdiction (Limpin, Jr. vs.
Intermediate Appellate Court, 147 SCRA 516).
On estoppel by judgment, the case of Pealosa vs.
Tuason (22 Phil. 303; see also Manila Electric Co. vs.
Court of Appeals, 114 SCRA 173) can be well in point:
The two main rules based on the doctrine of res
judicata or estoppel by judgment as known to Anglo-
American jurisprudence are as follows:
(a) That judgment rendered by a court of
competent jurisdiction on the merits is a bar to any
future suit between the same parties or their privies
upon the same cause of action, so long as it remains
unreversed;
(b) A point which was actually and directly in
issue in a former suit, and was there judicially passed
upon and determined by a domestic court of compe-
tent jurisdiction, cannot be again drawn in question
in any future action between the same parties or
their privies, even when the causes of action in the
two suits are wholly different.
Title IV. Estoppel
The difference between the effect of a judgment

as a bar or estoppel against the prosecution of a
second action upon the same claim or demand, and
its effect as an estoppel in another action between
the same parties upon a different claim or cause of
action, is that in the former case the judgment, if
rendered upon the merits, constitutes an absolute
bar to a subsequent action, and is a finality as to the
claim or demand in controversy, concluding parties
and those in privity with them, not only as to every
matter which was offered and received to sustain or
defeat the claim or demand, but as to any other
admissible matter which might have been offered
for that purpose. While in the latter case the
judgment in the prior action operates as an estoppel
only as to those matters in issue or points contro-
verted upon the determination of which the finding
or judgment was rendered.
The first which renders the judgment conclusive be-
tween the parties on the matters directly adjudged is
what we might term as res judicata, and the second which
precludes the parties from raising any question that might
have been put in issue by them is commonly referred to as
estoppel by judgment.
TITLE V. TRUSTS
Chapter 1
General Provisions
Art. 1440. A person who establishes a trust is

called the trustor; one in whom confidence is reposed
as regards property for the benefit of another person
is known as the trustee; and the person for whose
benefit the trust has been created is referred to as the
beneficiary.
Art. 1441. Trusts are either express or implied.
Express trusts are created by the intention of the trustor
or of the parties. Implied trusts come into being by
operation of law.
Art. 1442. The principles of the general law of
trusts, insofar as they are not in conflict with this Code,
the Code of Commerce, the Rules of Court and special
laws are hereby adopted.
A trust is a juridical relationship that exists between

one person having the equitable title or beneficial enjoy-
ment of property, real or personal, and another having
the legal title thereto (see Deluao vs. Casteel, 29 SCRA
368). The person who establishes the trust is the trustor
(or grantor); one in whom confidence is reposed as re-
gards property for the benefit of another person is known
as the trustee (fiduciary), and the person for whose benefit
the trust has been created is referred to as the beneficiary
(cestui que trust). The Code has adopted the principles of
the general law of trusts, insofar as they are not in conflict
with its provisions, the Code of Commerce, the Rules of
Court and special laws (see Arts. 1440 and 1442, Civil
Code).
190
Title V. Trusts
Trust is either express or implied. Express trusts

are created by the intention of the trustor or of the par-
ties. Implied trusts come into being by implication of law
(Art. 1441, Civil Code). Implied trusts, in turn, may ei-
ther be: (a) resulting trusts which are presumed to have
been contemplated by the parties, the intention as to
which is to be found in the nature of their transaction but
not expressed in the deed itself (see 89 C.J.S. 275), such
as those contained in Articles 1448 to 1455 of the Code,
and (b) constructive trusts which are created, not by any
word evincing a direct intention to create a trust, but by
operation of law based on equity in order to satisfy the
demands of justice, such as Article 1456 (infra.) of the
Code (Eschay vs. Court of Appeals, 61 SCRA 369; Ramos
vs. Ramos, 61 SCRA 284; Magallon vs. Montejo, 146 SCRA
282; Salao vs. Salao, 70 SCRA 65). One basic distinction
between an implied trust and an express trust is that
while the former may be established by parol evidence,
the latter cannot. Even then, in order to establish an
implied trust in real property by parol evidence, the proof
should be as fully convincing as if the acts giving rise to
the trust obligation are proven by an authentic docu-
ment. An implied trust, in fine, cannot be established
upon vague and inconclusive proof (Heirs of Lorenzo Yap,
namely Sally Sun Yap, Margaret Yap-Uy and Manuel Yap
vs. The Honorable Court of Appeals, Ramon Yap and
Benjamin Yap, G.R. No. 133047, 17 August 1999, 312
SCRA 603).
Neither laches nor prescription is a bar to enforce an
express trust (see Government vs. Abadilla, 46 Phil. 642;
Fabian vs. Fabian, 22 SCRA 231). In Valdez vs. Olorga
(51 SCRA 71), the Supreme Court has ruled:
From the standpoint of acquisitive prescrip-
tion, or prescription of ownership, this court has held
numerous decisions involving fiduciary relations such
as those occupied by a trustee with respect to the
cestui que trust that, as a general rule, the formers
possession is not adverse and therefore cannot ripen
into a title by prescription. Adverse possession in

such case requires the concurrence of the following
circumstances: (a) that the trustee has performed
unequivocal acts of repudiation amounting to ouster
of the cestui que trust; (b) that such positive acts of
repudiation have been made known to the cestui que
trust; and (c) that the evidence thereon should be
clear and conclusive.
Either laches or prescription, however, may consti-
tute a bar to enforce an implied trust (see Fabian vs.
Fabian, 22 SCRA 231; Sinaon vs. Sorogon, 136 SCRA
407). Thus, an action to recover an immovable under a
constructive trust prescribes in 10 years (Gicano vs.
Gegato, 157 SCRA 140; De Portugal vs. Intermediate Ap-
pellate Court, 159 SCRA 178) counted from the date the
Transfer Certificate of Title is issued in the name of the
repudiating possessor (Villagonzalo vs. Intermediate Ap-
pellate Court, 167 SCRA 535; Bergado vs. Court of Ap-
peals, 173 SCRA 497).
Chapter 2
Express Trusts
Art. 1443. No express trusts concerning an im-

movable or any interest therein may be proved by parol
evidence.
Art. 1444. No particular words are required for the
creation of an express trust, it being sufficient that a
trust is clearly intended.
Art. 1445. No trust shall fail because the trustee
appointed declines the designation, unless the con-
trary should appear in the instrument constituting the
trust.
Art. 1446. Acceptance by the beneficiary is neces-
sary. Nevertheless, if the trust imposes no onerous
condition upon the beneficiary, his acceptance shall
be presumed, if there is no proof to the contrary.
Title V. Trusts
Express trusts are those which are created by the

direct and positive acts of the parties, by some writing or
deed, or by will, or by words evincing an intention to
establish a trust. No particular words are required for
the creation of an express trust, it being sufficient that a
trust is clearly intended (Art. 1444, Civil Code). No ex-
press trusts concerning an immovable or any interest
therein may be proved by parole evidence (Art. 1443,
Civil Code; Ferrer-Lopez vs. Court of Appeals, 150 SCRA
393; Asuncion vs. Pineda, 175 SCRA 719; Cuaycong vs.
Cuaycong, 21 SCRA 1193).
No trust shall fail because the trustee appointed de-
clines the designation, unless the contrary should appear
in the instrument constituting the trust (Art. 1445, Civil
Code). Acceptance by the beneficiary is necessary. Never-
theless, if the trust imposes no onerous condition upon
the beneficiary, his acceptance shall be presumed unless
there is proof to the contrary (Art. 1446, Civil Code). This
acceptance by the beneficiary is not subject to the law on
donation (see Cristobal vs. Gomez, 50 Phil. 810).
Chapter 3
Implied Trusts
Art. 1447. The enumeration of the following cases

of implied trust does not exclude others established
by the general law of trust, but the limitation laid down
in Article 1442 shall be applicable.
Art. 1448. There is an implied trust when property
is sold, and the legal estate is granted to one party but
the price is paid by another for the purpose of having
the beneficial interest of the property. The former is
the trustee, while the latter is the beneficiary. However,
if the person to whom the title is conveyed is a child,
legitimate or illegitimate, of the one paying the price of
the sale, no trust is implied by law, it being disputably
presumed that there is a gift in favor of the child.
Art. 1449. There is also an implied trust when a

donation is made to a person but it appears that al-
though the legal estate is transmitted to the donee, he
nevertheless is either to have no beneficial interest or
only a part thereof.
Art. 1450. If the price of a sale of property is loaned
or paid by one person for the benefit of another and
the conveyance is made to the lender or payor to se-
cure the payment of the debt, a trust arises by opera-
tion of law in favor of the person to whom the money
is loaned or for whom it is paid. The latter may redeem
the property and compel a conveyance thereof to him.
Art. 1451. When land passes by succession to
any person and he causes the legal title to be put in
the name of another, a trust is established by impli-
cation of law for the benefit of the true owner.
Art. 1452. If two or more persons agree to pur-
chase property and by common consent the legal title
is taken in the name of one of them for the benefit of
all, a trust is created by force of law in favor of the
others in proportion to the interest of each.
Art. 1453. When property is conveyed to a person
in reliance upon his declared intention to hold it for, or
transfer it to another or the grantor, there is an implied
trust in favor of the person whose benefit is contem-
plated.
Art. 1454. If an absolute conveyance of property
is made in order to secure the performance of an obli-
gation of the grantor toward the grantee, a trust by
virtue of law is established. If the fulfillment of the
obligation is offered by the grantor when it becomes
due, he may demand the reconveyance of the property
to him.
Art. 1455. When any trustee, guardian or other
person holding a fiduciary relationship uses trust funds
for the purchase of property and causes the convey-
ance to be made to him or to a third person, a trust is
established by operation of law in favor of the person
to whom the funds belong.
Title V. Trusts
Art. 1456. If property is acquired through mistake

or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit
of the person from whom the property comes.
Art. 1457. An implied trust may be proved by oral
evidence.
Implied trusts are those which, without being ex-

press, are deducible from the nature of the transaction as
matters of intent or, independently of the particular in-
tention of the parties, as being super-induced on the trans-
action by operation of law basically by reason of equity.
These species of implied trust are ordinarily subdivided
into resulting and constructive trusts. A resulting trust is
one that arises by implication of law and presumed al-
ways to have been contemplated by the parties, the in-
tention as to which can be found in the nature of their
transaction although not expressed in a deed or instru-
ment of conveyance. Resulting trusts are based on the
equitable doctrine that it is the more valuable considera-
tion than the legal title that determines the equitable
interest in property. Upon the other hand, a constructive
trust is a trust not created by any word or phrase, either
expressly or impliedly, evincing a direct intention to cre-
ate a trust, but one that arises in order to satisfy the
demands of justice. It does not come about by agreement
or intention but in main by operation of law construed
against one who, by fraud, duress or abuse of confidence,
obtains or holds the legal right to property which he
ought not, in equity and good conscience, to hold.
Although, ordinarily, a certificate of title becomes
incontrovertible one year after it is issued pursuant to a
public grant, the rule does not apply when such issuance
is null and void. An action to declare the nullity of that
void title does not prescribe; in fact, it is susceptible to
direct, as well as to collateral, attack. The ten-year pre-
scriptive period is applicable to an action for reconvey-
ance if it is based on an implied or constructive trust
predicated on Article 1456 of the Civil Code.
The enumeration of the cases of implied trust by the

law does not exclude possible other instances established
by the principles of the general law of trusts (see Art.
1442, in relation to Art. 1447, Civil Code).
(a) An implied trust is created when property is
sold and the legal estate is granted to one party but the
price is paid by another for the purpose of having the
beneficial interest of the property. The former is the trus-
tee, while the latter is the beneficiary. If the person to
whom the title has been conveyed is a child, legitimate or
illegitimate, of the one paying the price of the sale, no
trust is implied by law, it being disputably presumed that
there is a gift in favor of the child (Art. 1448, Civil Code).
(b) An implied trust arises when a donation is made
to a person but it appears that, although the legal estate
is transmitted to the donee, he is nevertheless either to
have no beneficial interest or to only have a part thereof
(Art. 1449, Civil Code). The remaining part, in the latter
case, is covered by the implied trust.
(c) If the price of a sale of property is loaned or paid
by one person for the benefit of another and the convey-
ance is made to the lender or payor to secure the payment
of the debt, a trust arises by operation of law in favor of
the person to whom the money is loaned or for whom it is
paid, allowing the latter to redeem the property and com-
pel a conveyance thereof to him (Art. 1450, Civil Code).
(d) When land passes by succession to any person
and he causes the legal title to be put in the name of
another, a trust is established by implication of law for
the benefit of the trust owner (Art. 1451, Civil Code).
(e) If two or more persons agree to purchase prop-
erty and by common consent the legal title is taken in the
name of one of them for the benefit of all, a trust is
created by force of law in favor of the others in proportion
to the interest of each (Art. 1452, Civil Code). If the agree-
ment is explicit on the trust relationship, the trust may
be considered express rather than implied.
Title V. Trusts
(f) When property is conveyed to a person in reli-

ance upon his declared intention to hold it for, or transfer
it to another or to the grantor, there is an implied trust in
favor of the person whose benefit is contemplated (Art.
1453, Civil Code; Valera vs. Inserto, 149 SCRA 533).
(g) If an absolute conveyance of property is made
in order to secure the performance of an obligation of the
grantor toward the grantee, a trust by virtue of law is
established. If the fulfillment of the obligation is offered
by the grantor when it becomes due, he may demand the
reconveyance of the property to him (Art. 1454, Civil Code).
Related to this illustrative implied trust are the provi-
sions of the Civil Code on a contract presumed to be an
equitable mortgage under Article 1602 of the Civil Code.
(h) When any trustee, guardian or other person
holding a fiduciary relationship uses trust funds for the
purchase of property and causes the conveyance to be
made to him or to a third person, a trust is established by
operation of law in favor of the person to whom the funds
belong (Art. 1455, Civil Code; Valera vs. Inserto, 149 SCRA
533).
(i) If property is acquired through mistake or fraud,
the person obtaining it is, by force of law, considered a
trustee of an implied trust for the benefit of the person
from whom the property comes (Art. 1456, Civil Code;
Adille vs. Court of Appeals, 157 SCRA 455; Caro vs. Court
of Appeals, 180 SCRA 401; Tale vs. Court of Appeals, 208
SCRA 266).
When a property is transferred to the paramour,
which property has been acquired by the husband during
his marriage, a constructive trust is deemed to have been
created by operation of law under the provisions of Arti-
cle 1456 of the Civil Code (Belcodero vs. Court of Appeals,
45 SCAD 400, 227 SCRA 303). An action for reconvey-
ance of a parcel of land based on an implied or construc-
tive trust prescribes in ten years, the point of reference
being the date of registration of the deed or the date of
the issuance of the certificate of title over the property.

This rule finds applicability only when the plaintiff is
not in possession of the property, since if a person
claiming to be the owner thereof is in actual possession of
the property, the right to seek reconveyance, which
in effect seeks to quiet title to the property, does not
prescribe (Heirs of Olviga vs. Court of Appeals, 45 SCAD
427, 227 SCRA 234).
An implied trust, unlike an express trust involving
real property or an interest therein, may be proved by
oral evidence (Art. 1457, in relation to Article 1443, Civil
Code).
199
SPECIAL CONTRACTS
TITLE VI. SALES
Chapter 1
Nature and Form of the Contract
Art. 1458. By the contract of sale one of the

contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its
equivalent.
A contract of sale may be absolute or conditional.
(1445a)
Art. 1459. The thing must be licit and the vendor
must have a right to transfer the ownership thereof at
the time it is delivered. (n)
Art. 1460. A thing is determinate when it is parti-
cularly designated or physically segregated from all
others of the same class.
The requisite that a thing be determinate is satis-
fied if at the time the contract is entered into, the thing
is capable of being made determinate without the ne-
cessity of a new or further agreement between the par-
ties. (n)
Art. 1461. Things having a potential existence may
be the object of the contract of sale.
The efficacy of the sale of a mere hope or expect-
ancy is deemed subject to the condition that the thing
will come into existence.
The sale of a vain hope or expectancy is void. (n)
199
Art. 1462. The goods which form the subject of a

contract of sale may be either existing goods, owned
or possessed by the seller, or goods to be manu-
factured, raised, or acquired by the seller after the per-
fection of the contract of sale, in this Title called fu-
ture goods.
There may be a contract of sale of goods, whose
acquisition by the seller depends upon a contingency
which may or may not happen. (n)
Art. 1463. The sole owner of a thing may sell an
undivided interest therein. (n)
Art. 1464. In the case of fungible goods, there
may be a sale of an undivided share of a specific mass,
though the seller purports to sell and the buyer to buy
a definite number, weight or measure of the goods in
the mass, and though the number, weight or measure
of the goods in the mass is undetermined. By such a
sale the buyer becomes owner in common of such a
share of the mass as the number, weight or measure
bought bears to the number, weight or measure of the
mass. If the mass contains less than the number, weight
or measure bought, the buyer becomes the owner of
the whole mass and the seller is bound to make good
the deficiency from goods of the same kind and qual-
ity, unless a contrary intent appears. (n)
Art. 1465. Things subject to a resolutory condi-
tion may be the object of the contract of sale. (n)
Art. 1466. In construing a contract containing pro-
visions characteristic of both the contract of sale and
of the contract of agency to sell, the essential clauses
of the whole instrument shall be considered. (n)
Art. 1467. A contract for the delivery at a certain
price of an article which the vendor in the ordinary
course of his business manufactures or procures for
the general market, whether the same is on hand at the
time or not, is a contract of sale, but if the goods are
to be manufactured specially for the customer and upon
his special order, and not for the general market, it is a
contract for a piece of work. (n)
Title VI. Sales
Art. 1468. If the consideration of the contract con-

sists partly in money, and partly in another thing, the
transaction shall be characterized by the manifest in-
tention of the parties. If such intention does not clearly
appear, it shall be considered a barter if the value of
the thing given as a part of the consideration exceeds
the amount of the money or its equivalent; otherwise,
it is a sale. (1446a)
Art. 1469. In order that the price may be consid-
ered certain, it shall be sufficient that it be so with
reference to another thing certain, or that the determi-
nation thereof be left to the judgment of a specified
person or persons.
Should such person or persons be unable or un-
willing to fix it, the contract shall be inefficacious, un-
less the parties subsequently agree upon the price.
If the third person or persons acted in bad faith or
by mistake, the courts may fix the price.
Where such third person or persons are prevented
from fixing the price or terms by fault of the seller or
the buyer, the party not in fault may have such rem-
edies against the party in fault as are allowed the seller
or the buyer, as the case may be. (1447a)
Art. 1470. Gross inadequacy of price does not af-
fect a contract of sale, except as it may indicate a
defect in the consent, or that the parties really intended
a donation or some other act or contract. (n)
Art. 1471. If the price is simulated, the sale is
void, but the act may be shown to have been in reality
a donation, or some other act or contract. (n)
Art. 1472. The price of securities, grain, liquids,
and other things shall also be considered certain, when
the price fixed is that which the thing sold would have
on a definite day, or in a particular exchange or mar-
ket, or when an amount is fixed above or below the
price on such day, or in such exchange or market,
provided said amount be certain. (1448)
Art. 1473. The fixing of the price can never be left
to the discretion of one of the contracting parties. How-
ever, if the price fixed by one of the parties is accepted

by the other, the sale is perfected. (1449a)
Art. 1474. Where the price cannot be determined
in accordance with the preceding articles, or in any
other manner, the contract is inefficacious. However, if
the thing or any part thereof has been delivered to and
appropriated by the buyer, he must pay a reasonable
price therefor. What is a reasonable price is a question
of fact dependent on the circumstances of each
particular case. (n)
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)
Art. 1476. In the case of a sale by auction:
(1) Where goods are put up for sale by auction
in lots, each lot is the subject of a separate contract of
sale.
(2) A sale by auction is perfected when the auc-
tioneer announces its perfection by the fall of the ham-
mer, or in other customary manner. Until such an-
nouncement is made, any bidder may retract his bid;
and the auctioneer may withdraw the goods from the
sale unless the auction has been announced to be with-
out reserve.
(3) A right to bid may be reserved expressly by
or on behalf of the seller, unless otherwise provided
by law or by stipulation.
(4) Where notice has not been given that a sale
by auction is subject to a right to bid on behalf of the
seller, it shall not be lawful for the seller to bid himself
or to employ or induce any person to bid at such sale
on his behalf or for the auctioneer, to employ or in-
duce any person to bid at such sale on behalf of the
seller or knowingly to take any bid from the seller or
any person employed by him. Any sale contravening
this rule may be treated as fraudulent by the buyer. (n)
Title VI. Sales
Art. 1477. The ownership of the thing sold shall

be transferred to the vendee upon the actual or con-
structive delivery thereof. (n)
Art. 1478. The parties may stipulate that owner-
ship in the thing shall not pass to the purchaser until
he has fully paid the price. (n)
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)
Art. 1480. Any injury to or benefit from the thing
sold, after the contract has been perfected, from the
moment of the perfection of the contract to the time of
delivery, shall be governed by Articles 1163 to 1165,
and 1262.
This rule shall apply to the sale of fungible things,
made independently and for a single price, or without
consideration of their weight, number, or measure.
Should fungible things be sold for a price fixed
according to weight, number, or measure, the risk shall
not be imputed to the vendee until they have been
weighed, counted, or measured, and delivered, unless
the latter has incurred in delay. (1452a)
Art. 1481. In the contract of sale of goods by de-
scription or by sample, the contract may be rescinded
if the bulk of the goods delivered do not correspond
with the description or the sample, and if the contract
be by sample as well as by description, it is not
sufficient that the bulk of goods correspond with the
sample if they do not also correspond with the de-
scription.
The buyer shall have a reasonable opportunity of
comparing the bulk with the description or the sample.
(n)
Art. 1482. Whenever earnest money is given in a
contract of sale, it shall be considered as part of the
price and as proof of the perfection of the contract.

(1454a)
Art. 1483. Subject to the provisions of the Statute
of Frauds and of any other applicable statute, a con-
tract of sale may be made in writing, or by word of
mouth, or partly in writing and partly by word of mouth,
or may be inferred from the conduct of the parties. (n)
Art. 1484. In a contract of sale of personal prop-
erty the price of which is payable in installments, the
vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the
vendee fail to pay;
(2) Cancel the sale, should the vendees failure
to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing
sold, if one has been constituted, should the vendees
failure to pay cover two or more installments. In this
case, he shall have no further action against the
purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void. (1454-A-
a)
Art. 1485. The preceding article shall be applied
to contracts purporting to be leases of personal prop-
erty with option to buy, when the lessor has deprived
the lessee of the possession or enjoyment of the thing.
(1454-A-a)
Art. 1486. In the cases referred to in the two pre-
ceding articles, a stipulation that the installments or
rents paid shall not be returned to the vendee or les-
see shall be valid insofar as the same may not be
unconscionable under the circumstances. (n)
Art. 1487. The expenses for the execution and reg-
istration of the sale shall be borne by the vendor, un-
less there is a stipulation to the contrary. (1455a)
Art. 1488. The expropriation of property for public
use is governed by special laws. (1456)
Title VI. Sales
Chapter 2
Capacity to Buy or Sell
Art. 1489. All persons who are authorized in this

Code to obligate themselves, may enter into a contract
of sale, saving the modifications contained in the fol-
lowing articles.
Where necessaries are sold and delivered to a
minor or other person without capacity to act, he must
pay a reasonable price therefor. Necessaries are those
referred to in Article 290. (1457a)
Art. 1490. The husband and the wife cannot sell
property to each other, except:
(1) When a separation of property was agreed
upon in the marriage settlements; or
(2) When there has been a judicial separation of
property under Article 191. (1458a)
Art. 1491. The following persons cannot acquire
by purchase, even at a public or judicial auction, either
in person or through the mediation of another:
(1) The guardian, the property of the person or
persons who may be under his guardianship;
(2) Agents, the property whose administration
or sale may have been intrusted to them, unless the
consent of the principal has been given;
(3) Executors and administrators, the property
of the estate under administration;
(4) Public officers and employees, the property
of the State or of any subdivision thereof, or of any
government-owned or -controlled corporation, or
institution, the administration of which has been
intrusted to them; this provision shall apply to judges
and government experts who, in any manner whatso-
ever, take part in the sale;
(5) Justices, judges, prosecuting attorneys,
clerks of superior and inferior courts, and other offic-
ers and employees connected with the administration
of justice, the property and rights in litigation or levied

upon an execution before the court within whose juris-
diction or territory they exercise their respective func-
tions; this prohibition includes the act of acquiring by
assignment and shall apply to lawyers, with respect to
the property and rights which may be the object of any
litigation in which they may take part by virtue of their
profession.
(6) Any others specially disqualified by law.
(1459a)
Art. 1492. The prohibitions in the two preceding
articles are applicable to sales in legal redemption, com-
promises and renunciations. (n)
1. Concept
A sale is a contract whereby a person, called the
seller, obligates himself to deliver and to transfer owner-
ship of a thing or right to another, called the buyer, for a
price certain. A contract of sale may be absolute or condi-
tional (Art. 1458, Civil Code). Where the sale is condi-
tional, such as in Contracts to Sell when ownership is
retained until the fulfillment of a positive suspensive
condition, e.g., full payment of the purchase price, the
breach of the condition will prevent the obligation to con-
vey title from acquiring an obligatory force (Roque vs.
Lapuz, 96 SCRA 741; Agustin vs. Court of Appeals, 186
SCRA 375; see also Spouses Gimenez vs. Court of Ap-
peals, 195 SCRA 205). Where the condition is imposed
upon the perfection of the contract itself, the failure of the
condition would prevent such perfection (Romero vs. Court
of Appeals, G.R. No. 107207, 03 November 1995, 250 SCRA
223; Peoples Homesite & Housing Corp. vs. Court of Ap-
peals, 133 SCRA 777). If the condition is imposed on the
obligation of a party which is not fulfilled, the other party
may either refuse to proceed or waive said condition (Art.
1545, Civil Code; Delta Motor vs. Genuino, 170 SCRA 29;
see discussions, infra., on right of first refusal stipula-
tions on lease agreements and contracts in general).
Title VI. Sales
In Dignos vs. Court of Appeals (158 SCRA 375), it

was held that a sale, although denominated as a Deed of
Conditional Sale, is absolute where the contract is de-
void of any proviso that the title is reserved or the right to
unilaterally rescind is stipulated, e.g., until or unless the
price is paid. Ownership will then be transferred to the
buyer upon actual or constructive delivery (i.e., by a pub-
lic document) of the property sold. The sale being abso-
lute is governed by the provisions of Article 1592 of the
Civil Code, allowing rescission the exercise of which would
require, said the Court, a public document conformably
with Article 1358 of the Civil Code. Observe, however,
that Article 1358 of the Civil Code requires a public in-
strument merely for greater efficacy; Article 1592 speci-
fies a notarial rescission instead.
In Delpher Trades Corporation vs. Intermediate Ap-
pellate Court (157 SCRA 349), a lease contract provided
that should the lessor decide to sell the property leased,
the lessee would have the priority to buy the same. The
lessor later exchanged the property for no par value shares
in a corporation (Sec. 135, now Sec. 134, National Inter-
nal Revenue Code), a business conduit of the lessor which
was part of the familys estate planning for tax avoid-
ance purposes. The Supreme Court held the exchange as
not amounting to a sale since there was no real transfer
of ownership or interest to a third party but that the fami-
lys ownership was merely changed from one form to an-
other.
The stipulation that the payment of the full consid-
eration based on a survey shall be due and payable in five
(5) years from the execution of a formal deed of sale is
not a condition which affects the efficacy of the contract
of sale. It merely provides the manner by which the full
consideration is to be computed and the time within which
the same is to be paid (Heirs of Juan San Andres vs.
Rodriguez, 127 SCAD 178, 332 SCRA 769).
Transfer of rights may either be by assignment or by
negotiation, such as when the evidence of credit is a nego-
tiable document (see discussions, infra., on Documents of

Title and Assignment of Credits).
Distinguished from a Piece of Work Contract

A contract for the delivery at a certain price of an
article which the vendor in the ordinary course of his
business manufactures or procures for the general mar-
ket, whether the same is on hand at the time or not, is a
contract of sale, but if the goods are to be manufactured
specially for the customer and upon his special order, and
not for the general market, it is a contract for a piece of
work (Art. 1467, Civil Code). The mere fact alone that
certain articles are made upon previous orders of custom-
ers will not argue against the imposition of the sales tax
if such articles are ordinarily manufactured by the tax-
payer for sale to the public (Celestino Co. vs. Collector, 99
Phil. 841). The distinction between a contract of sale and
one for work, labor and materials is tested, said the Su-
preme Court in Commissioner vs. Engineering Equip-
ment and Supply Company (64 SCRA 590), by the in-
quiry whether the thing transferred is one not in exist-
ence and which never would have existed but for the
order of the party desiring to acquire it, or a thing which
would have existed and had been the subject of sale of
some other person even if the order had not been given. If
the article ordered by the purchaser is exactly such as
the manufacturer makes and keeps on hand for sale to
anyone, and no change or modification of it is made at the
others request, it is a contract of sale even though it may
be entirely made after, and in consequence of, the latters
order of it.
Distinguished from Barter

If the consideration of the contract consists partly in
money, and partly in another thing, the transaction shall
be characterized by the manifest intention of the parties.
If such intention does not clearly appear, it shall be con-
sidered a barter if the value of the thing given as a part of
Title VI. Sales
the consideration exceeds the amount of the money or its

equivalent; otherwise, it is a sale (Art. 1468, Civil Code).
Expropriation
The expropriation of property for public use is gov-
erned by special laws (Art. 1488, Civil Code).
2. Elements (Perfection)
a. Consent
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 (delivery of the thing
sold is not required to perfect the contract). From that
moment, the parties may reciprocally demand perform-
ance, subject to the provisions of the law governing the
form of contracts (Art. 1475, Civil Code; see Clarin vs.
Rulona, 127 SCRA 512). Non-payment of the purchase
price constitutes a very good reason to rescind a sale, for
it violates the very essence of the contract of sale (Central
Bank of the Philippines vs. Bichara, 123 SCAD 697, 328
SCRA 807). Where the parties have yet to agree on how
and when the down payment and the installment pay-
ments are to be paid, the sale cannot as yet be deemed to
be a perfected contract (see Velasco vs. Court of Appeals,
51 SCRA 439).
In Maharlika Publishing Corporation vs. Tagle (142
SCRA 553), it was shown that in 1963, the GSIS entered
into a conditional contract to sell a parcel of land to peti-
tioner Maharlika Publishing Corporation. One of the con-
ditions of the contract was that said petitioner should
pay the GSIS in monthly installments and that failure to
pay any installment within 90 days from the due date
would render the contract automatically cancelled. The
petitioner failed to pay several installments. After warn-
ing the petitioner, GSIS cancelled the contract and pub-
lished an invitation to bid the property on 12 February
1971. On 11 February 1971, the petitioner, represented
by its president, Adolfo Calica, addressed to the GSIS a

letter-proposal for the payment of the arrearages. Calica
discussed the proposal with GSIS Vice Chairman Leonilo
Ocampo, who sent a note to GSIS General Manager Ro-
man Cruz, Jr., which read: It sounds fair and reasonable
subject to your wise judgment, as usual. The letter-pro-
posal and Ocampos note were taken to Cruz who wrote
on the face of Ocampos note a note to one Mr. Ibaez
which read: Hold bidding. Discuss with me. The letter-
proposal together with two checks amounting to P11,000
were submitted to the office of Cruz and were received by
his secretary. Nevertheless, the public bidding was held
and Calica participated but his bid was rejected as im-
perfect. In the court proceedings that followed, the ques-
tion was whether petitioner had repurchased the prop-
erty. The Supreme Court ruled:
In Article 1475 of the Civil Code, we find that
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 per-
formance, subject to the law governing the form of
contracts. x x x
We note that the petitioners are not complete
strangers entering into a contract with respondent
GSIS for the first time. There was an earlier con-
tract to sell the same properties to the petitioners.
That contract was perfected and there had been par-
tial compliance with its terms. The transaction now
under question in this case merely referred to the
curing of certain defects which led to the cancella-
tion of the earlier contract by GSIS. Under the pecu-
liar circumstances of this case, therefore, the accept-
ance of the petitioners letter-proposal by Mr. Ro-
man Cruz, Jr., the person with authority to do so,
and his order to his subordinates to stop the bidding
so that they could first discuss the matter with him,
Title VI. Sales
created an agreement of binding nature with the

petitioners.
In the case of a sale by auction:
(1) Where goods are put up for sale by auction in
lots, each lot is the subject of a separate contract of sale.
(2) A sale by auction is perfected when the auction-
eer announces its perfection by the fall of the hammer, or
in other customary manner. Until such announcement is
made, any bidder may retract his bids; and the auction-
eer may withdraw the goods from the sale unless the
auction has been announced to be without reserve.
(3) A right to bid may be reserved expressly by or
on behalf of the seller, unless otherwise provided by law
or by stipulation.
(4) Where notice has not been given that a sale by
auction is subject to a right to bid on behalf of the seller,
it shall not be lawful for the seller to bid himself or to
employ or induce any person to bid at such sale on his
behalf or for the auctioneer, to employ or induce any
person to bid at such sale on behalf of the seller or know-
ingly to take any bid from the seller or any person em-
ployed by him. Any sale contravening this rule may be
treated as fraudulent by the buyer (Art. 1476, Civil Code).
A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable (Art. 1479, Civil
Code). An accepted unilateral promise which specifies
the thing to be sold and the price to be paid, when cou-
pled with a valuable consideration apart from the price,
is what may be so properly termed as the perfected con-
tract of option. This contract is legally binding and con-
forms with the 2nd paragraph of Article 1479 of the Civil
Code (Ang Yu Asuncion vs. Court of Appeals, 238 SCRA
602; Co vs. Court of Appeals, 312 SCRA 528). Without
such consideration, the option is not binding (Natino vs.
Intermediate Appellate Court, 197 SCRA 332). An option
contract is separate and distinct from that which the
parties may enter into upon the consummation of the

option (Laforteza vs. Machuca, 127 SCAD 798, 333 SCRA
643; Co vs. Court of Appeals, 57 SCAD 163, SCAD 312
SCRA 528). An option, as used in the law of sales, is a
continuing offer or contract by which the owner stipu-
lates with another that the latter shall have the right to
buy the property at a fixed price within a time certain, or
under, or in compliance with, certain terms and condi-
tions, or which gives to the owner of the property the
right to sell or demand a sale. It is also sometimes called
an unaccepted offer. An option is not of itself a pur-
chase, but merely secures the privilege to buy. It is not a
sale of property but a sale of the right to purchase. It is
simply a contract by which the owner of property agrees
with another person that he shall have the right to buy
his property at a fixed price within a certain time. He
does not sell his land, nor does he agree to sell it; but he
does sell something, i.e., the right or privilege to buy at
the election or option of the other party. Its distinguish-
ing characteristic is that it imposes no binding obligation
on the person holding the option, aside from the consid-
eration for the offer. Until acceptance, it is not, prop-
erly speaking, a contract, and does not vest, transfer, or
agree to transfer, any title to, or any interest or right in
the subject matter, but is merely a contract by which the
owner of the property gives the optionee the right or
privilege of accepting the offer and buying the property
on certain terms.
To elucidate. 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, Observe, however,
that the option is not the contract of sale itself. The
Title VI. Sales
optionee has the right, but not the obligation, to buy. Once
the option is exercised timely, i.e., the offer is accepted
before a breach of the option, a bilateral promise to sell
and to buy ensues and both parties are then reciprocally
bound to comply with their respective undertakings.
A negotiation is formally initiated by an offer. An
imperfect promise (policitacion) is merely an offer. Public
advertisements or solicitations and the like are ordinar-
ily construed as mere invitations to make offers or only
as proposals. These relations, until a contract is perfected,
are not considered binding commitments. Thus, at any
time prior to the perfection of the contract, either negoti-
ating party may stop the negotiation. The offer, at this
stage, may be withdrawn; the withdrawal is effective
immediately after its manifestation, such as by its mail-
ing and not necessarily when the offeree learns of the
withdrawal. Where a period is given to the offeree within
which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or sup-
ported by a consideration, the offeror is still free and has the
right to withdraw the offer before its acceptance, or, if an
acceptance has been made, before the offerors coming to
know of such fact, by communicating that withdrawal to the
offeree. The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to a
damage claim under Article 19 of the Civil Code which
ordains that every person must, in the exercise of his rights
and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.
(2) If the period has a separate consideration, a
contract of option is deemed perfected, and it would be a
breach of that contract to withdraw the offer during the
agreed period. The option, however, is an independent
contract by itself, and it is to be distinguished from the
projected main agreement (subject matter of the option)
which is obviously yet to be concluded. If, in fact, the
optioner-offerer withdraws the offer before its acceptance
(exercise of the option) by the optionee-offeree, the latter

may not sue for specific performance on the proposed
contract (object of the option) since it has failed to reach
its own stage of perfection. The optioner-offeror, however,
renders himself liable for damages for breach of the op-
tion. In these cases, care should be taken of the real
nature of the consideration given, for if, in fact, it has
been intended to be part of the consideration for the main
contract with a right of withdrawal on the part of the
optionee, the main contract could be deemed perfected; a
similar instance would an earnest money in a contract
of sale that can evidence its perfection (Ang Yu Asuncion
vs. Court of Appeals and Buen Realty Development Corp.,
G.R. No. 109125, 02 December 1994, 238 SCRA 602).
In Atkins Kroll vs. Co. vs. Cua (102 Phil. 948; reiter-
ated in Sanchez vs. Rigos, 45 SCRA 368; and Rural Bank
of Paraaque, Inc. vs. Remolado, 135 SCRA 409), the
Supreme Court has said that there is no distinction be-
tween Article 1324 on an offer and Article 1479 on a mere
unilateral promise to sell (modifying the ruling in South-
ern Sugar and Molasses Co. vs. Atlantic Gulf & Pacific,
97 Phil. 249; see discussion on Art. 1324, supra.). The
contract of sale is perfected upon acceptance of the option
to buy, although it is not accompanied by an actual pay-
ment of the price (Nietes vs. Court of Appeals, 46 SCRA
654). A mutual promise to buy and sell, however, is recip-
rocally demandable (Mas vs. Lanuza, 5 Phil. 457).
Whenever earnest money is given in a contract of
sale, it is considered as part of the price and as proof of
the perfection of the contract (Art. 1482, Civil Code; Salas-
Rodriguez vs. Leuterio, 47 Phil. 818). Earnest money is
something of value to show the buyer being really in
earnest and is given to bind the bargain (Topacio vs.
Court of Appeals, 211 SCRA 291). An earnest money must
be distinguished from an option money, thusly: (a) ear-
nest money is part of the purchase price, while option
money is the money given as distinct consideration for an
Title VI. Sales
option contract; (b) earnest money is given only where

there is already a sale, while option money applies to a
sale not yet perfected; and (c) the buyer is bound to pay
the balance whenever earnest money is given, while when
the would be buyer gives option money, he is not required
to buy but may even forfeit it depending on the terms of
the option (Limson vs. Court of Appeals, G.R. No. 135929,
20 April 2001).
Right of First Refusal

In the law on sales, the so-called right of first re-
fusal is relatively an innovative juridical relation. Need-
less to point out, it cannot be deemed a perfected contract
of sale under Article 1458 of the Civil Code. Neither can
the right of first refusal, understood in its normal con-
cept, per se be brought within the purview of an option
under the second paragraph of Article 1479 or possibly of
an offer under Article 1319 of the same Code. An option
or an offer would require, among other things, a clear
certainty on both the object and the cause or considera-
tion of the envisioned contract. In a right of first refusal,
while the object might be made determinate, the exercise
of the right, however, would be dependent not only on the
grantors eventual intention to enter into a binding ju-
ridical relation with another but also on terms, including
the price, that obviously are yet to be later firmed up.
Prior thereto, it can at best be so described as merely
belonging to a class of preparatory juridical relations
governed not by contracts (since the essential elements
to establish the vinculum juris would still be indefinite
and inconclusive) but by, among other laws of general
application, the pertinent scattered provisions of the Civil
Code on human conduct. (But see Equatorial vs. Carmelo,
G.R. No. 106063, 21 November 1996).
Even on the premise that such right of first refusal
has been decreed under a final judgment, its breach can-
not justify correspondingly an issuance of a writ of execu-
tion under a judgment that merely recognizes its exist-
ence, nor would it sanction an action for specific perform-

ance without thereby negating the indispensable element
of consensuality in the perfection of contracts. It is not to
say, however, that the right of first refusal would be in-
consequential for, such as already intimated above, an
unjustified disregard thereof, given, for instance, the cir-
cumstances expressed in Article 19 of the Civil Code, can
warrant a recovery for damages (Ang Yu Asuncion vs.
Court of Appeals and Buen Realty Development Corp.,
G.R. No. 109125, 02 December 1994, 238 SCRA 602).
Capacity to Buy or Sell

Generally, all persons who are capable of acting with
civil effects or authorized to obligate themselves may en-
ter into a contract of sale; where, however, necessaries
are sold and delivered to a minor (unemancipated) or
other person without capacity to act, he must pay a rea-
sonable price therefor. Necessaries are those referred to
in Article 290 of the Civil Code (now Art. 194, Family
Code) such as items indispensable for sustenance, dwell-
ing, clothing and medical attendance (see Art. 1489, Civil
Code). In other cases, a contract of sale entered into by a
minor or an incapacitated person would be voidable (see
Disqualifications
The husband and the wife cannot sell property to
each other, except: (1) when a separation of property was
agreed upon in the marriage settlements; or (2) when
there has been a judicial separation of property between
the spouses (Art. 1490, Civil Code).
The following persons cannot acquire by purchase,
even at a public or judicial auction, either in person or
through the mediation of another
(1) The guardian, the property of the person or per-
sons who may be under his guardianship;
Title VI. Sales
(2) Agents, the property whose administration or

sale may have been entrusted to them, unless the con-
sent of the principal has been given:
(3) Executors and administrators, the property of
the estate under administration;
(4) Public officers and employees, the property of
the State or of any subdivision thereof, or of any govern-
ment-owned or -controlled corporation, or institution, the
administration of which has been entrusted to them; this
provision shall apply to judges and government experts
who, in any manner whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks
of superior and inferior courts, and other officers and
employees connected with the administration of justice,
the property and rights in litigation or levied upon on
execution before the court within whose jurisdiction or
territory they exercise their respective functions; this pro-
hibition includes the act of acquiring by assignment and
shall apply to lawyers, with respect to the property and
right which may be the object of any litigation in which
they may take part by virtue of their profession.
(6) Any others specially disqualified by law (Art.
1491, Civil Code).
The foregoing prohibitions (under Arts. 1490-1491)
are applicable to sales in legal redemption, compromises
and renunciations (see Art. 1492, Civil Code). But the
disqualification of an agent does not include the special
power to foreclose real estate mortgages (Fiestan vs. Court
A contract of sale entered into by persons who are
disqualified under the provisions of Article 1490 and Ar-
ticle 1491 is void (Uy Sui Pin vs. Cantollas, 70 Phil. 55;
Maharlika Publishing Corporation vs. Tagle, 142 SCRA
553; Rubias vs. Batiller, 51 SCRA 120).
In general, the law considers as voidable an act or
contract of an incapacitated person (Art. 1390, Civil Code)
or one (act or contract) requiring an approval thereof by

another which is not given (Bautista vs. Montilla, L-6569,
3 April 1956; see Art. 173, Art. 399, Civil Code) and as
void that of a person suffering from disqualification (Art.
5 and Art. 1409, Civil Code). Where a person instead
suffers from want of authority, the resulting act or con-
tract becomes generally unenforceable (Art. 1403, Civil
Code). At times, however, the law expresses a different
rule; thus, a will and testament executed by an incapaci-
tated person renders the will void (Art. 801, in relation to
Art. 839, Civil Code); and a sale of a piece of land by agent
whose authority is not in writing (Art. 1874, Civil Code),
or a contract entered into by an agent in excess of author-
ity with another who is aware of the limits of the powers
granted by the principal in the absence of ratification, is
considered void (Art. 1998, Civil Code).
There have been deviations, too, not by strict posi-
tive law but by judicial decisions. For instance, in Felipe
vs. Aldon (120 SCRA 628), the sale of a conjugal parcel of
land sold by the wife, who was not the administratrix of
the conjugal partnership, was held to be voidable (Art.
124, Family Code, now expresses such sale to be void). In
Yuchengco vs. Velayo (115 SCRA 307), Presidential De-
cree No. 189 and Presidential Decree No. 289, authoriz-
ing rules and regulations to be promulgated by the Min-
istry of Tourism and to give them the force and effect of
law, were held to prohibit the transfer of shares of stock
of the corporation engaged in tourism without the ap-
proval of the Tourism Ministry. A conveyance without
such approval, the Court ruled, resulted in a void con-
tract and entitled the buyers in good faith to recover the
price paid therefor. Justice Aquino, concurring, consid-
ered the contract merely rescissible under Article 1547 of
the Civil Code, thus permitting the purchaser to recover
the price paid under Article 1594. Perhaps, the rule by
the majority of the Justices in the Yuchengco case can be
justified in that the prerequisite approval is governmen-
tal, the absence of which renders the contract contrary to
Title VI. Sales
law and, therefore, void under the provisions of Article

1409.
Under Article 1491 of the Civil Code, a sale between
a lawyer and his client involving property and rights in
litigation is expressly prohibited. In a settlement of estate
proceedings, the property is still considered under
litigation after the project of partition is approved but
before the estate is declared closed and terminated
(Fornilda vs. Br. 164, RTC IVth Judicial Region, Pasig,
166 SCRA 281). In Director of Lands vs. Ababa (88 SCRA
513), the Supreme Court sanctioned a contingent fee
arrangement, whereby the lawyer was to get a share of
the property under litigation, on the ground that the
transfer of the thing (under said arrangement) would
take effect only after the finality of a favorable judgment
(see also Fabillo vs. Intermediate Appellate Court, 195
SCRA 28). But if, as the Supreme Court held in Rubias
vs. Batiller (51 SCRA 120), a violation of Article 1491
renders the contract void, then convalidation would be
improper since a contract is adjudged either as valid or
as void not on circumstances subsequent but on those
contemporary with the contract itself. It would have, of
course, been preferable had the Court simply ruled in
Abada that since the contract was one of lease of service,
the disqualification under Article 1491 did not apply.
b. Object Present and Future (vendor need not

be the owner at perfection but only upon delivery)
The thing must be licit and the vendor must have a
right to transfer the ownership thereof at the time it is
delivered (Art. 1459, Civil Code); he need not be its owner,
however, when the contract is perfected (Martin vs. Reyes,
91 Phil. 666). The thing must also be determinate; it is
determinate when it is particularly designated or physi-
cally segregated from all others of the same class, or if at
the time the contract is entered into, the thing is capable
of being made determinate without the necessity of a new
or further agreement between the parties (see Art. 1460,
Civil Code; Melliza vs. City of Iloilo, 23 SCRA 477). A sale

of up to a certain quantity of palay produced is valid
(National Grains Authority vs. Intermediate Appellate
Court, 171 SCRA 131).
Emptio Rei Speratae

Things having a potential existence may be the object
of the contract of sale (Art. 1461, Civil Code; Pichel vs.
Alonzo, 111 SCRA 341; Sibal vs. Valdez, 50 Phil. 512).
The goods which form the subject of a contract of sale
may either be existing goods, owned or possessed by the
seller, or goods to be manufactured, raised, or acquired
by the seller after the perfection of the contract of sale
(called future goods). There may be a contract of sale of
goods, whose acquisition by the seller depends upon a
contingency which may or may not happen (Art. 1462,
Civil Code; Martin vs. Reyes, 91 Phil. 666). Things sub-
ject to a resolutory condition may meanwhile be the ob-
ject of the contract of sale (Art. 1465, Civil Code; Rodriguez
vs. Francisco, 2 SCRA 649).
Emptio Spei
The efficacy of the sale of a mere hope or expectancy
is deemed subject to the condition that the thing will
come into existence. The sale of a vain hope or expectancy
is void (Art. 1461, Civil Code). The term vain does not
connote impossibility but if the hope or expectancy does
occur, its character as being vain might well be assailed.
Sale of Interest
A co-owner of a thing may sell his undivided interest
therein (Art. 439, Civil Code), but not a definite part
thereof (Clarin vs. Rulona, 127 SCRA 512). A sole owner
may also sell an undivided interest in the thing, render-
ing the buyer a co-owner with the seller (Art. 1463, Civil
Code). In the case of fungible goods, there may be a sale
of an undivided share of a specific mass, though the seller
purports to sell and the buyer to buy a definite number,
Title VI. Sales
weight or measure of the goods in the mass, and though

the number, weight or measure of the goods in the mass
is undetermined. By such a sale the buyer becomes owner
in common of such a share of the mass as the number,
weight or measure bought bears to the number, weight or
measure of the mass. If the mass contains less than the
number, weight or measure bought, the buyer becomes
the owner of the whole mass and the seller is bound to
make good the deficiency from goods of the same kind
and quality, unless a contrary intent appears (Art. 1464,
Civil Code).
Sale of Animals
The sale of animals suffering from contagious
diseases or that are unfit for the use or service stated in
the contract is void (see Art. 1575, Civil Code); otherwise,
the contract is treated just like any sale of goods subject
to the provisions of Act No. 1147 on the sale of large
cattle.
Sale of Credit
When a credit or incorporeal right is transferred,
the contract is commonly referred to as an assignment
(Art. 1624, Civil Code) or as negotiation in the case of
credits or rights which are evidenced by negotiable docu-
ments or instruments (see infra.).
c. Cause Money or its Equivalent
The price must be certain in money or its equivalent
(see Art. 1458, Civil Code; Republic vs. Phil. Resources
Dev. Corp., 102 Phil. 960). In order that the price may be
considered certain, it shall be sufficient that it be so with
reference to another thing certain, or that the deter-
mination thereof be left to the judgment of a specified
person or persons. Should such person or persons be
unable or unwilling to fix it, the contract shall be ineffi-
cacious, unless the parties subsequently agree upon the
price. If the third person or persons acted in bad faith or
by mistake, the courts may fix the price. Where such third
persons are prevented from fixing the price or terms by
fault of the seller or the buyer, the party not in fault may
have such remedies against the party in fault as are
allowed the seller or the buyer, as the case may be (Art.
1469, Civil Code). The fixing of the price can never be left
to the discretion of one of the contracting parties. If, how-
ever, the price fixed by one of the parties is accepted by
the other, the sale is perfected (Art. 1473, Civil Code).
The price of securities, grain, liquids, and other things
shall also be considered certain when the price fixed is
that which the thing sold would have on a definite day, or
in a particular exchange or market, or when an amount
is fixed above or below the price on such day, or in such
exchange or market, provided said amount be certain
(Art. 1472, Civil Code). Where the price cannot be deter-
mined in any other manner, the contract is rendered inef-
ficacious. If, however, the thing or any part thereof has
been delivered to and appropriated by the buyer, he must
pay a reasonable price therefor. What could be a reason-
able price is a question of fact dependent on the circum-
stances of each particular case (Art. 1474, Civil Code).
Gross inadequacy of price does not affect a contract
of sale, except as it may indicate a defect in the consent or
as it may mean that the parties may have really intended
a donation or some other act or contract (Art. 1470, Civil
Code; see Goquiolay vs. Sycip, 108 Phil. 947). If the price
were simulated, the sale is void (Borromeo vs. Borromeo,
98 Phil. 432; Jocson vs. Court of Appeals, 170 SCRA 333;
de Portugal vs. Intermediate Appellate Court, 159 SCRA
179; Ladanga vs. Court of Appeals, 131 SCRA 361), but
again the act may be shown to have been in reality a do-
nation, or some other act or contract (Art. 1471, Civil
Code). The Supreme Court, in Ladanga vs. Court of Ap-
peals (131 SCRA 361), ruled that a contract of sale is void
and without effect where the price, which appears therein
as paid, has in fact never been paid by the purchaser to
the vendor (citing the previous cases of Catindig vs. Heirs
of Roque, 74 SCRA 83 and Mapalo vs. Mapalo, 123 Phil.
Title VI. Sales
979). Such a sale, the Supreme Court said, is inexistent

and cannot be considered consummated (citing Borromeo
vs. Borromeo, 96 Phil. 431). Although the law would con-
sider the sale perfected from the moment the parties agree
on the thing to be sold and the price to be paid therefor
(see Art. 1458 in relation to Art. 1319, Civil Code), it is at
perfection, not consummation, when a contract is to be
adjudged as being either valid or void. The circumstance
of consummation, however, is a strong factor to consider
in determining whether there is absolute simulation that
can, indeed, render an agreement void (see also Art. 1409,
par. 2, Civil Code; Cf. Gardner vs. Court of Appeals, 131
SCRA 585; De Portugal vs. Intermediate Appellate Court,
159 SCRA 179). A sale of property for P1.00 and other
valuable consideration (a common law documentation
practice) would be legally feasible as a sale contract so
long as it can withstand a possibility that, in reality, a
different contract is intended by the parties or that, in
fact, the same is merely a simulated arrangement. In one
case, a sale for P1.00, plus an unspecified and unquantified
services, of a valuable piece of real estate was held to be
fictitious and void (Bagnas vs. Court of Appeals, 176 SCRA
159).
Form of Contract
Subject to the provisions of the Statute of Frauds
and of any other applicable statute, a contract of sale
may be made in writing or verbally, or partly in writing
and partly by word of mouth, or may be inferred from the
conduct of the parties (Art. 1483, Civil Code). In the sale
of large cattle, a transfer of the Certificate of Registra-
tion is required (Sec. 22, Act No. 1147). The sale of goods
worth not less than P500, as well as a sale of real prop-
erty, is covered by the Statute of Frauds and must thus
be in writing to be enforceable (see Art. 1403, Civil Code).
The expenses for the execution and registration of
the sale shall be borne by the vendor, unless there is a
stipulation to the contrary (Art. 1487, Civil Code).
Chapter 3
Effects of the Contract When the Thing Sold
Has Been Lost
Art. 1493. If at the time the contract of sale is

perfected, the thing which is the object of the contract
has been entirely lost, the contract shall be without
any effect.
But if the thing should have been lost in part only,
the vendee may choose between withdrawing from
the contract and demanding the remaining part, pay-
ing its price in proportion to the total sum agreed upon.
(1460a)
Art. 1494. Where the parties purport a sale of spe-
cific goods, and the goods without the knowledge of the
seller have perished in part or have wholly or in a mate-
rial part so deteriorated in quality as to be substantially
changed in character, the buyer may at his option treat
the sale:
(1) As avoided; or
(2) As valid in all of the existing goods or in so
much thereof as have not deteriorated, and as binding
the buyer to pay the agreed price for the goods in which
the ownership will pass, if the sale was divisible. (n)
Chapter 4
Obligations of the Vendor
Section 1 General Provisions
Art. 1495. The vendor is bound to transfer the

ownership of and deliver, as well as warrant the thing
which is the object of the sale. (1461a)
Art. 1496. The ownership of the thing sold is ac-
quired by the vendee from the moment it is delivered
to him in any of the ways specified in Articles 1497 to
1501, or in any other manner signifying an agreement
that the possession is transferred from the vendor to
the vendee. (n)
Title VI. Sales
Section 2 Delivery of the Thing Sold
Art. 1497. The thing sold shall be understood as

delivered, when it is placed in the control and posses-
sion of the vendee. (1462a)
Art. 1498. When the sale is made through a public
instrument, the execution thereof shall be equivalent
to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear
or cannot clearly be inferred.
With regard to movable property, its delivery may
also be made by the delivery of the keys of the place
or depository where it is stored or kept. (1463a)
Art. 1499. The delivery of movable property may
likewise be made by the mere consent or agreement of
the contracting parties, if the thing sold cannot be trans-
ferred to the possession of the vendee at the time of
the sale, or if the latter already had it in his possession
for any other reason. (1463a)
Art. 1500. There may also be tradition constitutum
possessorium. (n)
Art. 1501. With respect to incorporeal property,
the provisions of the first paragraph of Article 1498
shall govern. In any other case wherein said provi-
sions are not applicable, the placing of the titles of
ownership in the possession of the vendee or the use
by the vendee of his rights, with the vendors consent,
shall be understood as a delivery. (1464)
Art. 1502. When goods are delivered to the buyer
on sale or return to give the buyer an option to re-
turn the goods instead of paying the price, the owner-
ship passes to the buyer on delivery, but he may revest
the ownership in the seller by returning or tendering
the goods within the time fixed in the contract, or, if no
time has been fixed, within a reasonable time. (n)
When goods are delivered to the buyer on ap-
proval or on trial or on satisfaction, or other similar
terms, the ownership therein passes to the buyer:
(1) When he signifies his approval or acceptance
to the seller or does any other act adopting the trans-

action;
(2) If he does not signify his approval or accept-
ance to the seller, but retains the goods without giving
notice of rejection, then if a time has been fixed for the
return of the goods, on the expiration of such time,
and, if no time has been fixed, on the expiration of a
reasonable time. What is a reasonable time is a ques-
tion of fact. (n)
Art. 1503. Where there is a contract of sale of
specific goods, the seller may, by the terms of the
contract, reserve the right of possession or ownership
in the goods until certain conditions have been ful-
filled. The right of possession or ownership may be
thus reserved notwithstanding the delivery of the goods
to the buyer or to a carrier or other bailee for the pur-
pose of transmission to the buyer.
Where goods are shipped, and by the bill of lading
the goods are deliverable to the seller or his agent, or to
the order of the seller or of his agent, the seller thereby
reserves the ownership in the goods. But, if except for
the form of the bill of lading, the ownership would have
passed to the buyer on shipment of the goods, the sell-
ers property in the goods shall be deemed to be only
for the purpose of securing performance by the buyer
of his obligations under the contract.
Where goods are shipped, and by the bill of lad-
ing the goods are deliverable to order of the buyer or
of his agent, but possession of the bill of lading is
retained by the seller or his agent, the seller thereby
reserves a right to the possession of the goods as
against the buyer.
Where the seller of goods draws on the buyer for
the price and transmits the bill of exchange and bill of
lading together to the buyer to secure acceptance or
payment of the bill of exchange, the buyer is bound to
return the bill of lading if he does not honor the bill of
exchange, and if he wrongfully retains the bill of lading
he acquires no added right thereby. If, however, the bill
of lading provides that the goods are deliverable to the
Title VI. Sales
buyer or to the order of the buyer, or is indorsed in

blank, or to the buyer by the consignee named therein,
one who purchases in good faith, for value, the bill of
lading, or goods from the buyer will obtain the owner-
ship in the goods, although the bill of exchange has
not been honored, provided that such purchaser has
received delivery of the bill of lading indorsed by the
consignee named therein, or of the goods, without no-
tice of the facts making the transfer wrongful. (n)
Art. 1504. Unless otherwise agreed, the goods re-
main at the sellers risk until the ownership therein is
transferred to the buyer, but when the ownership therein
is transferred to the buyer the goods are at the buyers
risk whether actual delivery has been made or not,
except that:
(1) Where delivery of the goods has been made
to the buyer or to a bailee for the buyer, in pursuance
of the contract and the ownership in the goods has
been retained by the seller merely to secure perform-
ance by the buyer of his obligations under the con-
tract, the goods are at the buyers risk from the time of
such delivery;
(2) Where actual delivery has been delayed
through the fault of either the buyer or seller the goods
are at the risk of the party in fault. (n)
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 its conduct precluded from
denying the sellers authority to sell.
Nothing in this Title, however, shall affect:
(1) The provisions of any factors acts, recording
laws, or any other provision of law enabling the appar-
ent owner of goods to dispose of them as if he were the
true owner thereof;
(2) The validity of any contract of sale under
statutory power of sale or under the order of a court of
competent jurisdiction;
(3) Purchases made in a merchants store, or in

fairs, or markets, in accordance with the Code of Com-
merce and special laws. (n)
Art. 1506. Where the seller of goods has a void-
able title thereto, but his title has not been avoided at
the time of the sale, the buyer acquires a good title to
the goods, provided he buys them in good faith, for
value, and without notice of the sellers defect of title.
(n)
Obligations of Seller, In General

The vendor is bound to transfer the ownership of
and deliver, as well as warrant, the thing which is the
object of the sale (Art. 1495, Civil Code).
Delivery
The vendor is bound to deliver the thing sold and its
accessions and accessories in the condition in which they
were upon the perfection of the contract. All fruits shall
pertain to the vendee from the day on which the contract
was perfected (Art. 1537, Civil Code).
The ownership of the thing sold is acquired by the
vendee upon the actual or constructive delivery thereof
(see Art. 1477, Civil Code) or from the moment it is
delivered to him in any of the ways specified in Articles
1497 to 1501 of the Code (infra.), or in any other manner
signifying an agreement that the possession is trans-
ferred from the vendor to the vendee (see Art. 1496, Civil
Code; Sapto vs. Fabiana, 103 Phil. 683) even when the
price is yet unpaid (Ledesma vs. Court of Appeals, 213
SCRA 195). The rule notwithstanding, the parties may
stipulate that ownership shall not pass to the purchaser
until he has fully paid the price (see Art. 1478, Civil
Code; Edca Publishing vs. Santos, 184 SCRA 614; Bean
vs. Cadwallader, 10 Phil. 606), or the seller may reserve
the right of possession or ownership in the goods until
certain conditions are fulfilled (see Art. 1503, Civil Code).
Delivery may be actual, constructive (which may be sym-
Title VI. Sales
bolic, by tradicio longa manu, by tradicio brevi manu, or

by constitutum possessorium), quasi-tradition and by op-
eration of law (see discussions on Tradition as a Mode of
Acquiring Ownership, supra.).
Illustrative Acts Constituting Delivery

The thing sold shall be understood as delivered when
it is placed in the control and possession of the vendee
(Art. 1497, Civil Code; La Fuerza, Inc. vs. Court of Ap-
peals, 23 SCRA 1217; Chrysler Philippines Corp. vs. Court
of Appeals, 133 SCRA 567; Alliance Tobacco Corporation,
Inc. vs. Philippine Virginia Tobacco Administration, 179
SCRA 336).
When the sale is made through a public instrument,
the execution thereof shall be equivalent to the delivery
of the thing which is the object of the contract if from the
deed the contrary does not appear or cannot clearly be
inferred (Viacrusis vs. Court of Appeals, 44 SCRA 176).
With regard to movable property, its delivery may also be
made by the delivery of the keys of the place or depository
where it is stored or kept (Art. 1498, Civil Code).
The delivery of movable property may likewise be
made by the mere consent or agreement of the contracting
parties if the thing sold cannot be transferred to the pos-
session of the vendee at the time of the sale, or if the
latter already had it in his possession for any other rea-
son (Art. 1499, Civil Code; Board of Liquidators vs. Floro,
110 Phil. 482).
There may also be tradition constitutum possessorium
(Art. 1500, Civil Code) such as when the seller continues
to be in possession as the lessee of the buyer (Amigo vs.
Teves, 96 Phil. 252).
With respect to incorporeal property, the sale made
through a public instrument is equivalent to delivery if
the contrary does not appear or cannot be clearly inferred
(see also Art. 1625, Civil Code). In any other case, the
placing of the titles of ownership in the possession of the

vendee or the use by the vendee of his rights, with the
vendors consent, shall be understood as a delivery (Art.
1501, in relation to Art. 1498, Civil Code).
Delivery on Sale or Return or on Trial on Satisfaction

When goods are delivered to the buyer on sale or
return to give the buyer an option to return the goods
instead of paying the price, the ownership passes to the
buyer on delivery, but he may revest the ownership in the
seller by returning or tendering the goods within the
time fixed in the contract, or, if no time has been fixed,
within a reasonable time.
When goods are delivered to the buyer on approval
or trial or on satisfaction, or other similar terms, the
ownership therein passes to the buyer:
(1) When he signifies his approval or acceptance to
the seller or does any other act adopting the transaction;
(2) If he does not signify his approval or acceptance
to the seller, but retains the goods without giving notice
of rejection, then if a time has been fixed for the return of
the goods, on the expiration of such time, and, if no time
has been fixed, on the expiration of a reasonable time.
What is a reasonable time is a question of fact (Art. 1502,
Civil Code).
Transfers of Goods Covered by Documents of Title

Art. 1507. A document of title in which it is stated
that the goods referred to therein will be delivered to
the bearer, or to the order of any person named in
such document is a negotiable document of title. (n)
Art. 1508. A negotiable document of title may be
negotiated by delivery:
(1) Where by the terms of the document the car-
rier, warehouseman or other bailee issuing the same
undertakes to deliver the goods to the bearer; or
Title VI. Sales
(2) Where by the terms of the document the car-

rier, warehouseman or other bailee issuing the same
undertakes to deliver the goods to the order of a speci-
fied person, and such person or a subsequent indorsee
of the document has indorsed it in blank or to the
bearer.
Where by the terms of a negotiable document of
title the goods are deliverable to bearer or where a
negotiable document of title has been indorsed in blank
or to bearer, any holder may indorse the same to him-
self or to any specified person, and in such case the
document shall thereafter be negotiated only by the
indorsement of such indorsee.
negotiated by the indorsement of the person to whose
order the goods are by the terms of the document
deliverable. Such indorsement may be in blank, to
bearer or to a specified person. If indorsed to a speci-
fied person, it may be again negotiated by the indorse-
ment of such person in blank, to bearer or to another
specified person. Subsequent negotiations may be
made in like manner. (n)
Art. 1510. If a document of title which contains an
undertaking by a carrier, warehouseman or other bailee
to deliver the goods to bearer, to a specified person or
order of a specified person or which contains words of
like import, has placed upon it the words not negoti-
able, non-negotiable or the like, such document may
nevertheless be negotiated by the holder and is a nego-
tiable document of title within the meaning of this Title.
But nothing in this Title contained shall be construed as
limiting or defining the effect upon the obligations of
the carrier, warehouseman, or other bailee issuing a
document of title or placing thereon the words not
negotiable, non-negotiable, or the like. (n)
Art. 1511. A document of title which is not in such
form that it can be negotiated by delivery may be trans-
ferred by the holder by delivery to a purchaser or donee.
A non-negotiable document cannot be negotiated and
the indorsement of such a document gives the trans-
feree no additional right. (n)

negotiated:
(1) By the owner thereof; or
(2) By any person to whom the possession or
custody of the document has been entrusted by the
owner, if, by the terms of the document the bailee issu-
ing the document undertakes to deliver the goods to
the order of the person to whom the possession or
custody of the document has been entrusted, or if at
the time of such entrusting the document is in such
form that it may be negotiated by delivery. (n)
Art. 1513. A person to whom a negotiable docu-
ment of title has been duly negotiated acquires thereby:
(1) Such title to the goods as the person negoti-
ating the document to him had or had ability to convey
to a purchaser in good faith for value and also such
title to the goods as the person to whose order the
goods were to be delivered by the terms of the docu-
ment had or had ability to convey to a purchaser in
good faith for value; and
(2) The direct obligation of the bailee issuing
the document to hold possession of the goods for him
according to the terms of the document as fully as if
such bailee had contracted directly with him. (n)
Art. 1514. A person to whom a document of title
has been transferred, but not negotiated, acquires
thereby, as against the transferor, the title to the goods,
subject to the terms of any agreement with the
transferor.
If the document is non-negotiable, such person
also acquires the right to notify the bailee who issued
the document of the transfer thereof, and thereby to
acquire the direct obligation of such bailee to hold
possession of the goods for him according to the terms
of the document.
Prior to the notification to such bailee by the
transferor or transferee of a non-negotiable document
of title, the title of the transferee to the goods and the
right to acquire the obligation of such bailee may be
Title VI. Sales
defeated by the levy of an attachment of execution

upon the goods by a creditor of the transferor, or by a
notification to such bailee by the transferor or a sub-
sequent purchaser from the transferor of a subsequent
sale of the goods by the transferor. (n)
Art. 1515. Where a negotiable document of title is
transferred for value by delivery, and the indorsement
of the transferor is essential for negotiation, the trans-
feree acquires a right against the transferor to compel
him to indorse the document unless a contrary inten-
tion appears. The negotiation shall take effect as of the
time when the indorsement is actually made. (n)
Art. 1516. A person who for value negotiates or
transfers a document of title by indorsement or deliv-
ery, including one who assigns for value a claim se-
cured by a document of title unless a contrary inten-
tion appears, warrants:
(1) That the document is genuine;
(2) That he has a legal right to negotiate or trans-
fer it;
(3) That he has knowledge of no fact which
would impair the validity or worth of the document;
and
(4) That he has a right to transfer the title to the
goods and that the goods are merchantable or fit for a
particular purpose, whenever such warranties would
have been implied if the contract of the parties had
been to transfer without a document of title the goods
represented thereby. (n)
Art. 1517. The indorsement of a document of title
shall not make the indorser liable for any failure on
the part of the bailee who issued the document or pre-
vious indorsers thereof to fulfill their respective obli-
gations. (n)
Art. 1518. The validity of the negotiation of a ne-
gotiable document of title is not impaired by the fact
that the negotiation was a breach of duty on the part of
the person making the negotiation, or by the fact that
the owner of the document was deprived of the pos-
session of the same by loss, theft, fraud, accident,

mistake, duress, or conversion, if the person to whom
the document was negotiated or a person to whom the
document was subsequently negotiated paid value
therefore in good faith without notice of the breach of
duty, or loss, theft, fraud, accident, mistake, duress or
conversion. (n)
Art. 1519. If goods are delivered to a bailee by the
owner or by a person whose act in conveying the title
to them to a purchaser in good faith for value would
bind the owner and a negotiable document of title is
issued for them they cannot thereafter, while in pos-
session of such bailee, be attached by garnishment or
otherwise or be levied under an execution unless the
document be first surrendered to the bailee or its ne-
gotiation enjoined. The bailee shall in no case be com-
pelled to deliver up the actual possession of the goods
until the document is surrendered to him or impounded
by the court. (n)
Art. 1520. A creditor whose debtor is the owner of
a negotiable document of title shall be entitled to such
aid from courts of appropriate jurisdiction by injunc-
tion and otherwise in attaching such document or in
satisfying the claim by means thereof as is allowed at
law or in equity in regard to property which cannot
readily be attached or levied upon by ordinary legal
process. (n)
The term document of title to goods includes any

bill of lading, dock warrant, quedan, or warehouse re-
ceipt or order for the delivery of goods, or any other docu-
ment used in the ordinary course of business in the sale
or transfer of goods, as proof of the possession or control
of the goods or authorizing or purporting to authorize the
possessor of the document to transfer or receive, either
by indorsement or by delivery, goods represented by such
document (see Art. 1636, Civil Code).
The document may either be negotiable or non-nego-
tiable. A document of title in which it is stated that the
goods referred to therein will be delivered to the bearer
Title VI. Sales
of, or to the order of any person named in, such document is

a negotiable document of title (Art. 1507, Civil Code; Roman
vs. Asia Banking Corp., 46 Phil. 705). The Code also provides:
Art. 1510. If a document of title which contains
an undertaking by a carrier, warehouseman or other
bailee to deliver the goods to bearer, to a specified
person or order (or to the order) of a specified person
or which contains words of like import, has placed
upon it the words not negotiable, non-negotiable or
the like, such document may nevertheless be negoti-
ated by the holder and is a negotiable document of
title within the meaning of this title. But nothing in
this Title contained shall be construed as limiting or
defining the effect upon the obligations of the car-
rier, warehouseman, or other bailee issuing a docu-
ment of title or placing thereon the words not nego-
tiable, non-negotiable, or the like (Words in paren-
thesis added).
A non-negotiable document of title is one in which it
is expressed that the goods covered thereby are to be
delivered to a specified person named therein.
Manner of Transfer
A negotiable document of title is transferred by ne-
gotiation (delivery or indorsement, as the case may be;
see infra.) or by assignment; a non-negotiable document
may only be transferred by assignment. In either case,
i.e., negotiation or assignment, the transferee does not
acquire title more than what the transferor had or had
ability to convey.
Negotiation
A negotiable document of title may be negotiated by
delivery:
(1) Where by the terms of the document the carrier,
warehouseman or other bailee issuing the same under-
takes to deliver the goods to the bearer; or
(2) Where by the terms of the document the carrier,

warehouseman or other bailee issuing the same under-
takes to deliver the goods to the order of a specified per-
son and such person or a subsequent indorsee of the
document has indorsed it in blank or to the bearer.
Where by the terms of a negotiable document of title
the goods are deliverable to bearer or where a negotiable
document of title has been indorsed in blank or to bearer,
any holder may indorse the same to himself or to any
specified person, and in such case the document shall
thereafter be negotiated only by the indorsement of such
indorsee (Art. 1508, Civil Code).
A negotiable document of title may be negotiated by
the indorsement of the person to whose order the goods
are by the terms of the document deliverable. Such in-
dorsement may be in blank, to bearer or to a specified
person. If indorsed to a specified person, it may be again
negotiated by the indorsement of such person in blank, to
bearer or to another specified person. Subsequent nego-
tiations may be made in like manner (Art. 1509, Civil
Code).
Where a negotiable document of title is transferred
for value by delivery, and the indorsement of the transferor
is essential for negotiation, the transferee acquires a right
against the transferor to compel him to indorse the docu-
ment unless a contrary intention appears. The negotia-
tion shall take effect as of the time when the indorsement
is actually made (Art. 1515, Civil Code).
A negotiable document of title may be negotiated: (1)
by the owner thereof; or (2) by any person to whom the
possession or custody of the document has been entrusted
by the owner if, by the terms of the document, the bailee
issuing the document undertakes to deliver the goods to
the order of the person to whom the possession or custody
of the document has been entrusted, or if at the time of
such entrusting the document is in such form that it may
be negotiated by delivery (Art. 1512, Civil Code).
Title VI. Sales
Effects of Negotiation
A person to whom a negotiable document of title has
been duly negotiated acquires thereby: (1) such title to
the goods as the person negotiating the document to him
had or had ability to convey to a purchaser in good faith
for value and also such title to the goods as the person to
whose order the goods were to be delivered by the terms
of the document had or had ability to convey to a pur-
chaser in good faith for value; and (2) the direct obliga-
tion of the bailee issuing the document to hold possession
of the goods for him according to the terms of the docu-
ment as fully as if such bailee had contracted directly
with him (Art. 1513, Civil Code).
The validity of the negotiation of a negotiable docu-
ment of title is not impaired by the fact that the negotia-
tion was a breach of duty on the part of the person mak-
ing the negotiation or by the fact that the owner of the
document was deprived of the possession of the same by
loss, theft, fraud, accident, mistake, duress, or conversion,
if the person to whom the document was negotiated or a
person to whom the document was subsequently
negotiated paid value therefor in good faith without no-
tice of the breach of duty or loss, theft, fraud, accident,
mistake, duress or conversion (Art. 1518, Civil Code; see
National Bank vs. Producers Warehouse Assn., 42 Phil.
608).
If goods are delivered to a bailee by the owner or by a
person whose act in conveying the title to them to a pur-
chaser in good faith for value would bind the owner and a
negotiable document of title is issued for them, they can-
not thereafter, while in possession of such bailee, be at-
tached by garnishment or otherwise or be levied under
an execution unless the document be first surrendered to
the bailee or its negotiation enjoined. The bailee shall in
no case be compelled to deliver up the actual possession
of the goods until the document is surrendered to him or
impounded by the court (Art. 1519, Civil Code).
A creditor whose debtor is the owner of a negotiable

document of title shall be entitled to such aid from courts
of appropriate jurisdiction by injunction and otherwise in
attaching such document or in satisfying the claim by
means thereof as is allowed at law or in equity in regard
to property which cannot readily be attached or levied
upon by ordinary legal process (Art. 1520, Civil Code).
Assignment and its Effects

A document of title, which is not in such form that it
can be negotiated by delivery, may be transferred by the
holder by delivery to a purchaser or donee. A non-negoti-
able document cannot be negotiated and the indorsement
of such a document gives the transferee no additional
right (Art. 1511, Civil Code).
A person to whom a document of title (whether nego-
tiable or non-negotiable) has been transferred, but not
negotiated, acquires thereby, as against the transferor
the title to the goods, subject to the terms of any agree-
ment with the transferor. If the document is non-negoti-
able, such person also acquires the right to notify the
bailee who issued the document of the transfer thereof,
and thereby to acquire the direct obligation of such bailee
to hold possession of the goods for him according to the
terms of the document. Prior to the notification to such
bailee by the transferor or transferee of a non-negotiable
document of title, the title of the transferee to the goods
and the right to acquire the obligation of such bailee may
be defeated by the levy of an attachment of execution
upon the goods by a creditor of the transferor, or by a
notification to such bailee by the transferor or a subse-
quent purchaser from the transferor of a subsequent sale
of the goods by the transferor (Art. 1514, Civil Code).
Liability of Transferor
A person who for value negotiates or transfers a docu-
ment of title by indorsement or delivery, including one
Title VI. Sales
who assigns for value a claim secured by a document of

title, unless a contrary intention appears, warrants:
(1) That the document is genuine;
(2) That he has a legal right to negotiate or trans-
fer it;
(3) That he has knowledge of no fact which would
impair the validity or worth of the document; and
(4) That he has a right to transfer the title to the
goods and that the goods are merchantable or fit for a
particular purpose, whenever such warranties would have
been implied if the contract of the parties had been to
transfer without a document of title the goods represented
thereby (Art. 1516, Civil Code).
The indorsement of a document of title shall not
make the indorser liable for any failure on the part of the
bailee who issued the document or previous indorsers
thereof to fulfill their respective obligations (Art. 1517,
Civil Code).
Double Sales
Art. 1544. If the same thing should have been
sold to different vendees, the ownership shall be
transferred to the person who may have first taken
possession thereof in good faith, if it should be mov-
able property.
Should it be immovable property, the owner-
ship shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Prop-
erty.
Should there be no inscription, the ownership
shall pertain to the person who in good faith was
first in the possession; and, in the absence thereof,
to the person who presents the oldest title, provided
there is good faith.
The above provisions of the Civil Code apply, by ex-

press provision of the law, to double donations (Art. 744,
Civil Code). In agency, when the agent and the principal
contract with regard to the same thing, the law favors
that of the prior date but in case of double sales, Article
1544 is made to apply (see Art. 1916, Civil Code). It may
also be well to note that under Article 1165 (see also Art.
1917 in Agency) of the Code, if an obligor 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.
In sales, Article 1544, providing for the rules to re-
solve the conflicting rights of two or more buyers, is ap-
propriate since the law does not prohibit but, in fact,
sanctions the perfection of a sale by a non-owner, such
as the sale of future things or a short sale, for it is only at
the consummation stage of the sale, i.e., delivery of the
thing sold, that ownership would be deemed transmitted
to the buyer. In the meanwhile, a subsequent sale to
another of the same thing by the same seller can still be a
legal possibility. This rule on double sales finds hardly
any relevance in an ordinary donation where the law
requires the donor to have ownership of the thing or the
real right he donates at the time of its perfection (see
Article 750, Civil Code) since a donation constitutes a
mode, not just a title, in an acquisition and transmission
of ownership.
A conditional sale or contract to sell could only have
the effect of preventing the obligation to convey title from
acquiring an obligatory force if the condition is yet unful-
filled (see Roque vs. Lapuz, 96 SCRA 741). In a contract
of sale, title, too, is not conveyed until, of course, when
and after delivery is made. Clearly, Article 1544 also cov-
ers sales where ownership is not yet transmitted to the
buyer; indeed, it equates some of its rules of preference,
such as priority in possession or registration, to cover
precisely the transfer of ownership (see Alterado vs.
Title VI. Sales
Jimenez [CA], 57 O.G. 9213; see also Land Authority vs.

De Leon, 120 SCRA 128).
The rule on double sales has been held to apply where
the same property was sold to different buyers, first by
its owner and later by the heirs, the latter being deemed
the juridical continuation of the personality of the decedent
(Nuguid vs. Court of Appeals, 171 SCRA 213).
(1) In the double sales of movables, the vendee who
in good faith takes possession has the better right to its
ownership (Tomassi vs. Villa-Abrille, 104 Phil. 310); oth-
erwise, the preference, all things being equal, should be
given to the first buyer (prius tempore, potior jure).
(2) In the double sales of immovables, ownership is
transferred (in the order hereunder stated) to
(a) the first registrant in good faith;
(b) the first in possession in good faith; and
(c) the buyer who presents the oldest title
in good faith.
The governing principle is prius tempore, potior jure
(first in time, stronger in right). Knowledge by the first
buyer of the second sale cannot defeat the first buyers
rights except when the second buyer first registers in
good faith the second sale (Olivares vs. Gonzales, 159
SCRA 33). Conversely, knowledge gained by the second
buyer of the first sale defeats his rights even if he is first
to register, since such knowledge taints his registration
with bad faith (see also Astorga vs. Court of Appeals, 133
SCRA 748). In Cruz vs. Cabaa (129 SCRA 656), it was
held that it is essential, to merit the protection of Article
1544, second paragraph, that the second realty buyer
must act in good faith in registering his deed of sale
(citing Carbonell vs. Court of Appeals, 69 SCRA 99;
Abarquez vs. Court of Appeals, 213 SCRA 414). The knowl-
edge gained by the second buyer of the first sale defeats
his rights even if he is first to register the second sale,
since such knowledge taints his prior registration with
bad faith. Thus, before the second buyer can obtain prior-
ity over the first, he must show that he has acted in good
faith throughout from the time of acquisition until
title is transferred to him by registration or failing regis-
tration, by delivery of possession (Uraca vs. Court of Ap-
peals, 278 SCRA 702, cited in Angel Bautista vs. Court of
Appeals, 118 SCAD 327, 322 SCRA 365). In cases of dou-
ble sales of immovables, what finds relevance and
materiality is not whether or not the second buyer is a
buyer in good faith but whether or not said second buyer
registers such second sale in good faith, that is, without
knowledge of any defect in the title of the property sold
(Bayoca vs. Nogales, 133 SCAD 564, 340 SCRA 154).
Article 1544 does not apply where the first registrants
did not act in good faith, such as where they had notice of
the prior sale of the land to another (Tan vs. Court of
Appeals, G.R. No. 135038, 16 November 2001).
The registration contemplated under Article 1544
has been held to refer to registration under Act 496 Land
Registration Act (now PD 1529) which considers the act
of registration as the operative act that binds the land
(see Mediante vs. Rosabal, 1 O.G. [12] 900; Garcia vs.
Rosabal, 73 Phil. 694). On lands covered by the Torrens
System, the purchaser acquires such rights and interest
as they appear in the certificate of title, unaffected by
any prior lien or encumbrance not noted therein. The
purchaser is not required to explore farther than what
the Torrens title, upon its face, indicates. The only excep-
tion is where the purchaser has actual knowledge of a
flaw or defect in the title of the seller or of such liens or
encumbrances which, as to him, is equivalent to registra-
tion (see Sec. 39, Act 496; Bornales vs. Intermediate Ap-
pellate Court, 166 SCRA 519; Hernandez vs. Sales, 69
Phil. 744; Tajonera vs. Court of Appeals, 103 SCRA 467).
Registration of the second buyer under Act 3344,
providing for the registration of all instruments on land
neither covered by the Spanish Mortgage Law nor the
Torrens System (Act 496), cannot improve his standing
Title VI. Sales
since Act 3344 itself expresses that registration thereun-

der would not prejudice prior rights in good faith (see
Carumba vs. Court of Appeals, 31 SCRA 558). Registra-
tion, however, by the first buyer under Act 3344 can have
the effect of constructive notice to the second buyer that
can defeat his right as such buyer in good faith (see Arts.
708-709, Civil Code; see also Revilla vs. Galindez, 107
Phil. 480; Taguba vs. Peralta, 132 SCRA 700). Article
1544 has been held to be inapplicable to execution sales
of unregistered land, since the purchaser merely steps
into the shoes of the debtor and acquires the latters
interest as of the time the property is sold (Carumba vs.
Court of Appeals, 31 SCRA 558; see also Fabian vs. Smith,
Bell & Co., 8 Phil. 496) or when there is only one sale
(Remalante vs. Tibe, 158 SCRA 138).
In case the first rule, in respect of immovables under
Article 1544, is inapplicable, the ownership goes to the
first in possession, by actual or constructive delivery to
him, in good faith (see Sanchez vs. Ramos, 40 Phil. 614).
The execution of a public instrument evidencing the sale
has been held to transfer the possession of the property
sold to the buyer (Navera vs. Court of Appeals, 184 SCRA
584). In default thereof, the preference belongs to the
buyer who presents the oldest title in good faith who
would generally be the first buyer since the character of
his title is determined as of the time of the sale and not
because of events subsequent thereto.
In Caram vs. Laureta (103 SCRA 7), the Court has
ratiocinated that in order to give full effect to Article
1544, the status of the two contracts must be declared so
that one contract must be declared void to cut off rights
which may arise from said contract; otherwise, Article
1544 would be rendered meaningless. The provision, how-
ever, appears to be self-operating, and it can vest owner-
ship without going into the validity or nullity of the other
sale. If, as the Supreme Court has ruled, the other sale
becomes void, how then could the remedies against the
breach of implied warranty against eviction under Arti-
cle 1553 to Article 1556 become operative. Then, too, a

contract of sale can be an executory contract and the
conveyance of title can be made, as in fact it usually does
occur, after such perfection. The seller, it may be noted,
need not be the owner at the time of the perfection of the
contract of sale, and the law dictates the passing of title
only upon delivery. If, in a double sale, the seller later
reacquires ownership, he must be obligated, as he is obli-
gated, to convey title to the other buyer (see Art. 1434,
Civil Code).
Place and Time of Delivery

Art. 1521. Whether it is for the buyer to take pos-
session of the goods or for the seller to send them to
the buyer is a question depending in each case on the
contract, express or implied, between the parties. Apart
from any such contract, express or implied, or usage
of trade to the contrary, the place of delivery is the
sellers place of business if he has one, and if not his
residence; but in case of a contract of sale of specific
goods, which to the knowledge of the parties when the
contract or the sale was made were in some other
place, then that place is the place of delivery.
Where by a contract of sale the seller is bound to
send the goods to the buyer, but no time for sending
them is fixed, the seller is bound to send them within a
reasonable time.
Where the goods at the time of sale are in the
possession of a third person, the seller has not ful-
filled his obligation to deliver to the buyer unless and
until such third person acknowledges to the buyer that
he holds the goods on the buyers behalf.
Demand or tender of delivery may be treated as
ineffectual unless made at a reasonable hour. What is
a reasonable hour is a question of fact.
Unless otherwise agreed, the expenses of and in-
cidental to putting the goods into a deliverable state
must be borne by the seller. (n)
Title VI. Sales
Art. 1522. Where the seller delivers to the buyer a

quantity of goods less than he contracted to sell, the
buyer may reject them, but if the buyer accepts or
retains the goods so delivered, knowing that the seller
is not going to perform the contract in full, he must
pay for them at the contract rate. If, however, the buyer
has used or disposed of the goods delivered before he
knows that the seller is not going to perform his con-
tract in full, the buyer shall not be liable for more than
the fair value to him of the goods so received.
Where the seller delivers to the buyer a quantity of
goods larger than he contracted to sell, the buyer may
accept the goods included in the contract and reject the
rest. If the buyer accepts the whole of the goods so de-
livered he must pay for them at the contract rate.
Where the seller delivers to the buyer the goods
he contracted to sell mixed with goods of a different
description not included in the contract, the buyer may
accept the goods which are in accordance with the
contract and reject the rest.
In the preceding two paragraphs, if the subject
matter is indivisible, the buyer may reject the whole of
the goods.
The provisions of this article are subject to any
usage of trade, special agreement, or course of deal-
ing between the parties. (n)
Art. 1523. Where, in pursuance of a contract of
sale, the seller is authorized or required to send the
goods to the buyer, delivery of the goods to a carrier,
whether named by the buyer or not, for the purpose of
transmission to the buyer is deemed to be a delivery
of the goods to the buyer, except in the cases pro-
vided for in Article 1503, first, second and third para-
graphs, or unless a contrary intent appears.
Unless otherwise authorized by the buyer, the
seller must make such contract with the carrier on be-
half of the buyer as may be reasonable, having regard
to the nature of the goods and the other circumstances
of the case. If the seller omit so to do, and the goods
are lost or damaged in course of transit, the buyer may

decline to treat the delivery to the carrier as a delivery
to himself, or may hold the seller responsible in dam-
ages.
Unless otherwise agreed, where goods are sent
by the seller to the buyer under circumstances in which
the seller knows or ought to know that it is usual to
insure, the seller must give such notice to the buyer as
may enable him to insure them during their transit,
and, if the seller fails to do so, the goods shall be
deemed to be at his risk during such transit. (n)
Art. 1524. The vendor shall not be bound to de-
liver the thing sold, if the vendee has not paid him the
price, or if no period for the payment has been fixed in
the contract. (1466)
Art. 1525. The seller of goods is deemed to be an
unpaid seller within the meaning of this Title:
(1) When the whole of the price has not been
paid or tendered;
(2) When a bill of exchange or other negotiable
instrument has been received as conditional payment,
and the condition on which it was received has been
broken by reason of the dishonor of the instrument,
the insolvency of the buyer, or otherwise.
In Articles 1525 to 1535 the term seller includes
an agent of the seller to whom the bill of lading has
been indorsed, or a consignor or agent who has him-
self paid, or is directly responsible for the price, or any
other person who is in the position of a seller. (n)
notwithstanding that the ownership in the goods may
have passed to the buyer, the unpaid seller of goods,
as such, has:
(1) A lien on the goods or right to retain them
for the price while he is in possession of them;
(2) In case of the insolvency of the buyer, a right
of stopping the goods in transitu after he has parted
with the possession of them;
Title VI. Sales
(3) A right of resale as limited by this Title;

(4) A right to rescind the sale as likewise limited
by this Title.
Where the ownership in the goods has not passed
to the buyer, the unpaid seller has, in addition to his
other remedies, a right of withholding delivery similar to
and coextensive with his rights of lien and stoppage in
transitu where the ownership has passed to the buyer.
(n)
the unpaid seller of goods who is in possession of them
is entitled to retain possession of them until payment or
tender of the price in the following cases, namely:
(1) Where the goods have been sold without any
stipulation as to credit;
(2) Where the goods have been sold on credit,
but the term of credit has expired;
(3) Where the buyer becomes insolvent.
The seller may exercise his right of lien notwith-
standing that he is in possession of the goods as agent
or bailee for the buyer. (n)
Art. 1528. Where an unpaid seller has made part
delivery of the goods, he may exercise his right of lien
on the remainder, unless such part delivery has been
made under such circumstances as to show an intent
to waive the lien or right of retention. (n)
Art. 1529. The unpaid seller of goods loses his
lien thereon:
(1) When he delivers the goods to a carrier or
other bailee for the purpose of transmission to the
buyer without reserving the ownership in the goods or
the right to the possession thereof;
(2) When the buyer or his agent lawfully obtains
possession of the goods;
(3) By waiver thereof.
The unpaid seller of goods, having a lien thereon,
does not lose his lien by reason only that he has ob-
tained judgment or decree for the price of the goods.

(n)
when the buyer of goods is or becomes insolvent, the
unpaid seller who has parted with the possession of
the goods has the right of stopping them in transitu,
that is to say, he may resume possession of the goods
at any time while they are in transit, and he will then
become entitled to the same rights in regard to the
goods as he would have had if he had never parted
with the possession. (n)
Art. 1531. Goods are in transit within the meaning
of the preceding article:
(1) From the time when they are delivered to a
carrier by land, water, or air, or other bailee for the
purpose of transmission to the buyer, until the buyer,
or his agent in that behalf, takes delivery of them from
such carrier or other bailee;
(2) If the goods are rejected by the buyer, and the
carrier or other bailee continues in possession of them,
even if the seller has refused to receive them back.
Goods are no longer in transit within the meaning
of the preceding article:
(1) If the buyer, or his agent in that behalf, ob-
tains delivery of the goods before their arrival at the
appointed destination;
(2) If, after the arrival of the goods at the ap-
pointed destination, the carrier or other bailee acknowl-
edges to the buyer or his agent that he holds the goods
on his behalf and continues in possession of them as
bailee for the buyer or his agent; and it is immaterial
that further destination for the goods may have been
indicated by the buyer;
(3) If the carrier or other bailee wrongfully
refuses to deliver the goods to the buyer or his agent
in that behalf.
If the goods are delivered to a ship, freight train,
truck, or airplane chartered by the buyer, it is a ques-
Title VI. Sales
tion depending on the circumstances of the particular

case, whether they are in the possession of the carrier
as such or as agent of the buyer.
If part delivery of the goods has been made to the
buyer, or his agent in that behalf, the remainder of the
goods may be stopped in transitu, unless such part
delivery has been under such circumstances as to show
an agreement with the buyer to give up possession of
the whole of the goods. (n)
Art. 1532. The unpaid seller may exercise his right
of stoppage in transitu either by obtaining actual pos-
session of the goods or by giving notice of his claim to
the carrier or other bailee in whose possession the goods
are. Such notice may be given either to the person in
actual possession of the goods or to his principal. In
the latter case the notice, to be effectual, must be given
at such time and under such circumstances that the
principal, by the exercise of reasonable diligence, may
prevent a delivery to the buyer.
When notice of stoppage in transitu is given by
the seller to the carrier, or other bailee in possession
of the goods, he must redeliver the goods to, or ac-
cording to the directions of, the seller. The expenses
of such delivery must be borne by the seller. If, how-
ever, a negotiable document of title representing the
goods has been issued by the carrier or other bailee,
he shall not be obliged to deliver or justified in deliver-
ing the goods to the seller unless such document is
first surrendered for cancellation. (n)
Art. 1533. Where the goods are of perishable na-
ture, or where the seller expressly reserves the right of
resale in case the buyer should make default, or where
the buyer has been in default in the payment of the
price for an unreasonable time, an unpaid seller hav-
ing a right of lien or having stopped the goods in tran-
situ may resell the goods. He shall not thereafter be
liable to the original buyer upon the contract of sale or
for any profit made by such resale, but may recover
from the buyer damages for any loss occasioned by
the breach of the contract of sale.
Where a resale is made, as authorized in this arti-

cle, the buyer acquires a good title as against the origi-
nal buyer.
It is not essential to the validity of a resale that
notice of an intention to resell the goods be given by
the seller to the original buyer. But where the right to
resell is not based on the perishable nature of the goods
or upon an express provision of the contract of sale,
the giving or failure to give such notice shall be rel-
evant in any issue involving the question whether the
buyer had been in default for an unreasonable time
before the resale was made.
It is not essential to the validity of a resale that
notice of the time and place of such resale should be
given by the seller to the original buyer.
The seller is bound to exercise reasonable care
and judgment in making a resale, and subject to this
requirement may make a resale either by public or pri-
vate sale. He cannot, however, directly or indirectly
buy the goods. (n)
Art. 1534. An unpaid seller having the right of lien
or having stopped the goods in transitu, may rescind
the transfer of title and resume the ownership in the
goods, where he expressly reserved the right to do so
in case the buyer should make default, or where the
buyer has been in default in the payment of the price
for an unreasonable time. The seller shall not thereaf-
ter be liable to the buyer upon the contract of sale, but
may recover from the buyer damages for any loss oc-
casioned by the breach of the contract.
The transfer of title shall not be held to have been
rescinded by an unpaid seller until he has manifested
by notice to the buyer or by some other overt act an
intention to rescind. It is not necessary that such overt
act should be communicated to the buyer, but the giv-
ing or failure to give notice to the buyer of the inten-
tion to rescind shall be relevant in any issue involving
the question whether the buyer had been in default for
an unreasonable time before the right of rescission
was asserted. (n)
Title VI. Sales

the unpaid sellers right of lien or stoppage in transitu
is not affected by any sale, or other disposition of the
goods which the buyer may have made, unless the
seller has assented thereto.
If, however, a negotiable document of title has
been issued for goods, no sellers lien or right of stop-
page in transitu shall defeat the right of any purchaser
for value in good faith to whom such document has
been negotiated, whether such negotiation be prior or
subsequent to the notification to the carrier, or other
bailee who issued such document, of the sellers claim
to a lien or right of stoppage in transitu. (n)
Art. 1536. The vendor is not bound to deliver the
thing sold in case the vendee should lose the right to
make use of the term as provided in Article 1198. (1467a)
Art. 1537. The vendor is bound to deliver the thing
sold and its accessions and accessories in the condi-
tion in which they were upon the perfection of the con-
tract.
All the fruits shall pertain to the vendee from the
day on which the contract was perfected. (1468a)
Art. 1538. In case of loss, deterioration or improve-
ment of the thing before its delivery, the rules in Arti-
cle 1189 shall be observed, the vendor being consid-
ered the debtor. (n)
Art. 1539. The obligation to deliver the thing sold
includes that of placing in the control of the vendee all
that is mentioned in the contract, in conformity with
the following rules:
If the sale of real estate should be made with a
statement of its area, at the rate of a certain price for a
unit of measure or number, the vendor shall be obliged
to deliver to the vendee, if the latter should demand it,
all that may have been stated in the contract; but,
should this be not possible, the vendee may choose
between a proportional reduction of the price and the
rescission of the contract, provided that, in the latter
case, the lack in the area be not less than one-tenth of

that stated.
The same shall be done, even when the area is
the same, if any part of the immovable is not of the
quality specified in the contract.
The rescission, in this case, shall only take place
at the will of the vendee, when the inferior value of the
thing sold exceeds one-tenth of the price agreed upon.
Nevertheless, if the vendee would not have bought
the immovable had he known of its smaller area or
inferior quality, he may rescind the sale. (1469a)
Art. 1540. If, in the case of the preceding article,
there is a greater area or number in the immovable
than that stated in the contract, the vendee may accept
the area included in the contract and reject the rest. If
he accepts the whole area, he must pay for the same
at the contract rate. (1470a)
Art. 1541. The provisions of the two preceding
articles shall apply to judicial sales. (n)
Art. 1542. In the sale of real estate, made for a
lump sum and not at the rate of a certain sum for a
unit of measure or number, there shall be no increase
or decrease of the price, although there be a greater or
less area or number than that stated in the contract.
The same rule shall be applied when two or more
immovables are sold for a single price; but if, besides
mentioning the boundaries, which is indispensable in
every conveyance of real estate, its area or number
should be designated in the contract, the vendor shall
be bound to deliver all that is included within said
boundaries, even when it exceeds the area or number
specified in the contract; and, should he not be able to
do so, he shall suffer a reduction in the price, in pro-
portion to what is lacking in the area or number, un-
less the contract is rescinded because the vendee does
not accede to the failure to deliver what has been stipu-
lated. (1471)
Art. 1543. The actions arising from Articles 1539
Title VI. Sales
and 1542 shall prescribe in six months, counted from

the day of delivery. (1472a)
Art. 1544. If the same thing should have been sold
to different vendees, the ownership shall be transferred
to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership
shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall
pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good
faith. (1473)
Whether it is for the buyer to take possession of the

goods or for the seller to send them to the buyer is a
question depending in each case on the contract, express
or implied, between the parties. Apart from any such
contract, express or implied, or usage of trade to the
contrary, the place of delivery is the sellers place of busi-
ness if he has one, and if not, his residence; but in case of
a contract of sale of specific goods, which to the knowl-
edge of the parties when the contract or the sale was
made were in some other place, then that place is the
place of delivery. Where the goods at the time of sale are
in the possession of a third person, the seller has not
fulfilled his obligation to deliver to the buyer unless and
until such third person acknowledges to the buyer that
he holds the goods on the buyers behalf.
Demand or tender of delivery may be treated as inef-
fectual unless made at a reasonable hour. What is a rea-
sonable hour is a question of fact. Where by a contract of
sale the seller is bound to send the goods to the buyer, but
no time for sending them is fixed, the seller is bound to
send them within a reasonable time. Unless otherwise
agreed, the expenses of and incidental to putting the
goods into a deliverable state must be borne by the seller
(Art. 1521, Civil Code). The vendor shall not be bound to

deliver the thing sold if the vendee has not paid him the
price, or if no period for the payment has been fixed in the
contract (Art. 1524, Civil Code; Florendo vs. Fox, 20 Phil.
388).
Delivery to Carrier
Where, in pursuance of a contract of sale, the seller
is authorized or required to send the goods to the buyer,
delivery of the goods to a carrier, whether named by the
buyer or not, for the purpose of transmission to the buyer
is deemed to be a delivery of the goods to the buyer,
except in the cases provided for in Article 1503, first,
second and third paragraphs (infra.) or unless a contrary
intent appears. Unless otherwise authorized by the buyer,
the seller must make such contract with the carrier on
behalf of the buyer as may be reasonable, having regard
to the nature of the goods and the other circumstances of
the case. If the seller omits to do so and the goods are lost
or damaged in course of transit, the buyer may decline to
treat the delivery to the carrier as a delivery to himself,
or may hold the seller responsible in damages. Unless
otherwise agreed, where goods are sent by the seller to
the buyer under circumstances in which the seller knows
or ought to know that it is usual to insure, the seller must
give such notice to the buyer as may enable him to insure
them during their transit, and if the seller fails to do so,
the goods shall be deemed to be at his risk during such
transit (Art. 1523, Civil Code). In Behn, Meyer & Co. vs.
Yengco (38 Phil. 602), the Supreme Court defined com-
monly used terms in the delivery of goods to the carrier,
thus:
The letters c.i.f. found in British contracts
stand for costs, insurance, and freight. They signify
that the price fixed covers not only the cost of the
goods, but the expense of freight and insurance to be
paid by the seller (Ireland vs. Livingston, L.R., 5
H.L., 395). Our instant contract, in addition to the
Title VI. Sales
letters c.i.f., has the word following, Manila. Under

such a contract, an Australian case is authority for
the proposition that no inference is permissible that
a seller was bound to deliver at the point of destina-
tion (Bowden vs. Little, 4 Comm. [Australia], 1364).
With all due deference to the decision of the High
Court of Australia, we believe that the word Manila
in conjunction with the letters c.i.f. must mean that
the contract price, covering costs, insurance and
freight, signifies that delivery was to be made at
Manila. x x x
In mercantile contracts of American origin, the
letters F.O.B. standing for the words Free on Board,
are frequently used. The meaning is that the seller
shall bear all expenses until the goods are delivered
where they are to be F.O.B. According as to whether
the goods are to be delivered F.O.B. at the point of
shipment or at the point of destination determines
the time when property passes. x x x
Both of the terms C.I.F. and F.O.B. merely
make rules of presumption which yield to proof of
contrary intention. As Benjamin, in his work on
Sales, well says: The question, at last, is one of in-
tent, to be ascertained by a consideration of all the
circumstances. (Benjamin on Sales, par. 329). For
instance, in a case of Philippine origin, appealed to
the United States Supreme Court, it was held that
the sale was complete on shipment, though the con-
tract was for goods F.O.B. Manila, the place of des-
tination, the other terms of the contract showing the
intention to transfer the property (United States vs.
R.P. Andrews & Co. [1907], 207 U.S. 229). x x x
A specification in a contract relative to the pay-
ment of freight can be taken to indicate the inten-
tion of the parties in regard to the place of delivery.
If the buyer is to pay the freight, it is reasonable to
suppose that he does so because the goods become
his at the point of shipment. On the other hand, if

the seller is to pay the freight, the inference is equally
strong that the duty of the seller is to have the goods
transported to their ultimate destination and that
title to property does not pass until the goods have
reached their destination (see Williston on Sales, pp.
406-408).
Absent any fault on the part of the seller, the latter
is not liable for mis-delivery by the carrier (Smith Bell &
Co. vs. Gutierrez, 8 SCRA 408).
Where there is a contract of sale of specific goods,
the seller may, by the terms of the contract, reserve the
right of possession or ownership in the goods until cer-
tain conditions have been fulfilled. The right of posses-
sion or ownership may be thus reserved notwithstanding
the delivery of the goods to the buyer or to a carrier or
other bailee for the purpose of transmission to the buyer
Where goods are shipped and, by the bill of lading,
the goods are deliverable to the seller or his agent or to
the order of the seller or of his agent, the seller thereby
reserves the ownership in the goods. But, if except for the
form of the bill of lading, the ownership would have passed
to the buyer on shipment of the goods, the sellers prop-
erty in the goods shall be deemed to be only for the pur-
pose of securing performance by the buyer of his obliga-
tions under the contract.
Where goods are shipped, and by the bill of lading
the goods are deliverable to the order of the buyer or of
his agent, but possession of the bill of lading is retained
by the seller or his agent, the seller thereby reserves a
right to the possession of the goods as against the buyer.
Where the seller of goods draws on the buyer for the
price and transmits the bill of exchange and bill of lading
together to the buyer to secure acceptance or payment of
the bill of exchange, the buyer is bound to return the bill
Title VI. Sales
of lading if he does not honor the bill of exchange, and if

he wrongfully retains the bill of lading he acquires no
added right thereby. If, however, the bill of lading pro-
vides that the goods are deliverable to the buyer or to the
order of the buyer, or is indorsed in blank or to the buyer
by the consignee named therein, one who purchases in
good faith for value, the bill of lading, or goods from the
buyer will obtain the ownership in the goods, although
the bill of exchange has not been honored, provided that
such purchaser has received delivery of the bill of lading
indorsed by the consignee named therein, or of the goods,
without notice of the facts making the transfer wrongful
Risk of Loss
Different rules govern the effects of the loss of the
object of sale, viz.:
(1) If the thing (personal or real) is lost before the
sale could be perfected, the lack of object as an essential
element of the contract would prevent the sale from be-
ing perfected (see Art. 1318, in relation to Art. 1409, Civil
Code). If it is lost in part, the parties may decide on
whether to proceed with their contract or not on the re-
mainder; if the loss is unknown to them and they proceed
with the contract, their mistake can vitiate consent.
(2) If the thing is lost at the time the sale is per-
fected, Article 1493, Civil Code, shall govern, viz.:
Art. 1493. If at the time the contract of sale is
perfected, the thing which is the object of the con-
tract has been entirely lost, the contract shall be
without any effect.
But if the thing should have been lost in part
only, the vendee may choose between withdrawing
from the contract and demanding the remaining part,
paying its price in proportion to the total sum agreed
upon.
(3) If the thing is lost after the sale is perfected but

before it is delivered to the buyer, three provisions of the
Code on Sales, providing for different rules, are expressed,
viz.:
Art. 1480. Any injury to or benefit from the
thing sold, after the contract has been perfected,
from the moment of the perfection to the time of
delivery, shall be governed by Articles 1163 to 1165
and 1262.
This rule shall apply to the sale of fungible
things, made independently and for a single price, or
without consideration of their weight, number, or
measure.
Should fungible things be sold for a price fixed
according to weight, number, or measure, the risk
shall not be imputed to the vendee until they have
been weighed, counted, or measured and delivered,
unless the latter has incurred in delay.
Art. 1504. Unless otherwise agreed, the goods
remain at the sellers risk until the ownership therein
is transferred to the buyer, but when the ownership
therein is transferred to the buyer the goods are at
the buyers risk whether actual delivery has been
made or not, except that:
(1) Where delivery of the goods has been
made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the
goods has been retained by the seller merely to se-
cure performance by the buyer of his obligations un-
der the contract, the goods are at the buyers risk
from the time of such delivery;
(2) Where actual delivery has been delayed
through the fault of either the buyer or seller the
goods are at the risk of the party in fault.
Art. 1538. In case of loss, deterioration or im-
provement of the thing before its delivery, the rules
Title VI. Sales
in Article 1189 shall be observed, the vendor being

considered the debtor.
Undoubtedly, if the loss is due to the fault of one
party or when he is in default, such loss shall be for his
account. If the loss is due to a fortuitous event, Articles
1480 and 1538 express the general rule in the Law on
Obligations and Contracts res perit creditori that places
the burden of loss on the creditor (in this case the buyer)
to whom the obligation to deliver is due (see Art. 1262,
Civil Code, in prestations to give and Art. 1255, in
prestation to do; see also Villaruel vs. Manila Motors, 104
Phil. 926; Reyes vs. Caltex, 47 O.G. 1293). The seller,
whose obligation is extinguished by a fortuitous event,
may thus retain the price, if paid, or demand payment, if
still owing. In the sale of goods (corporeal movable), how-
ever, Article 1504, adopting the res perit domino rule by
way of exception, controls (see Norkis Distributors, Inc.
vs. Court of Appeals, 193 SCRA 700; Chrysler Philippines
Corp. vs. Court of Appeals, 133 SCRA 567) such that
until delivery is effected the risk of loss lies with the
seller (being still the owner). The third paragraph of Arti-
cle 1480 regarding the sale of fungibles conforms with
Article 1504 and applies the res perit domino rule that
would put the burden of loss on the seller until after such
fungibles are delivered to the vendee.
In case of partial loss or deterioration in quality of
specific goods sold, the following provision governs:
Art. 1494. Where the parties purport a sale of
specific goods, and the goods without the knowledge
of the seller have perished in part or have wholly or
in a material part so deteriorated in quality as to be
substantially changed in character, the buyer may
at his option treat the sale:
(1) As avoided; or
(2) As valid in all of the existing goods or in
so much thereof as have not deteriorated, and as
binding the buyer to pay the agreed price for the

goods in which the ownership will pass, if the sale
was divisible.
The term goods referred to in the foregoing rules

includes all chattels or personal property (but not things
in action or money of legal tender in the Philippines), as
well as growing fruits or crops. The term specific goods
embraces goods identified and agreed upon at the time a
contract of sale is made (see Art. 1636, Civil Code).
(4) If the thing is lost after its delivery, the buyer,
subject to contrary stipulations (e.g., delivery on trial or
satisfaction) as well as express and implied warranties,
bears the risk of loss (see Art. 1504, Civil Code; see also
discussion on Risk of Loss in Loss as a mode of extin-
guishing obligations, supra.).
Delivery of Articles with Incorrect Quality

In the contract of sale of goods by description or by
sample, the contract may be rescinded if the bulk of the
goods delivered does not correspond with the description
or the sample, and if the contract be by sample as well as
by description, it is not sufficient that the bulk of goods
corresponds with the sample if it does not also corre-
spond with the description. The buyer shall have a rea-
sonable opportunity of comparing the bulk with the de-
scription or the sample (Art. 1481, Civil Code).
Delivery of Incorrect Quantity

goods less than what he contracted to sell, the buyer may
reject them, but if the buyer accepts or retains the goods
so delivered, knowing that the seller is not going to per-
form the contract in full, he must pay for them at the
contract rate. If, however, the buyer has used or disposed
of the goods delivered before he knows that the seller is
not going to perform his contract in full, the buyer shall
Title VI. Sales
not be liable for more than the fair value to him of the
goods so received.
goods larger than what he contracted to sell, the buyer
may accept the goods included in the contract and reject
the rest. The buyer must pay at the contract rate if he
accepts the whole of the goods so delivered.
Where the seller delivers to the buyer the goods he
contracted to sell mixed with goods of a different descrip-
tion not included in the contract, the buyer may accept
the goods which are in accordance with the contract and
reject the rest.
In the preceding two paragraphs, if the subject mat-
ter is indivisible, the buyer may reject the whole of the
goods. These rules are subject to any usage of trade, spe-
cial agreement, or course of dealing between the parties
The obligation to deliver the thing sold includes that
of placing in the control of the vendee all that is men-
tioned in the contract. In the case of real estate
(a) If the sale should be made with a statement of
its area, at the rate of a certain price for a unit of meas-
ure or number, the vendor shall be obliged to deliver to
the vendee, if the latter should demand it, all that may
have been stated in the contract; but should this be not
possible, the vendee may choose between a proportional
reduction of the price and the rescission of the contract,
provided that, in the latter case, the lack in the area be
not less than one-tenth of that sale. The same shall be
done, even when the area is the same, if any part of the
immovable is not of the quality specified in the contract.
The rescission, in this case, shall only take place at the
will of the vendee, when the inferior value of the thing
sold exceeds one-tenth of the price agreed upon. If, never-
theless, the vendee would not have bought the immov-
able had he known of its smaller area or inferior quality,
he may rescind the sale (see Art. 1539, Civil Code). In

case, however, there is a greater area or number in the
immovable than that stated in the contract, the vendee
may accept the area included in the contract and reject
the rest. If he accepts the whole area, he must pay for the
same at the contract rate (see Art. 1540, Civil Code).
These provisions are applicable to judicial sales (see Art.
1541, Civil Code).
(b) In the sale of real estate, made for a lump sum
and not at the rate of a certain sum for a unit of measure
or number, there shall be no increase or decrease of the
price, although there be a greater or lesser area or number
than that stated in the contract. The same rule shall be
applied when two or more immovables are sold for a
single price; but if, besides mentioning the boundaries
which is indispensable in every conveyance of real estate,
its area or number should be designated in the contract,
the vendor shall be bound to deliver all that is included
within said boundaries, even when it exceeds the area or
number specified in the contract; and, should he not be
able to do so, he shall suffer a reduction in the price, in
proportion to what is lacking in the area or number, un-
less the contract is rescinded because the vendee does not
accede to the failure to deliver what has been stipulated
In a sale pursuant to Article 1542 of the Civil Code,
the vendors obligation is to deliver everything within the
boundaries, for it is the entirety thereof that distinguishes
the determinate object. A vendee of land, when sold in
gross or when its area is described by more or less, does
not, however, take all risk of quantity in the land. More
or less or words of similar import covers only a reason-
able excess or deficiency (Veronica Robles vs. Dominador
Arbasa, G.R. No. 130707, 31 July 2001, 152 SCAD 115).
The actions arising from Articles 1539 and 1542 pre-
scribe in six months, counted from the day of delivery
Title VI. Sales
Sale by Non-Owner of Goods

Where goods are sold by a person who is not the
owner thereof, and who does not sell them under author-
ity or with the consent of the owner, the buyer acquires
no better title to the goods than what the seller had
(thus, the maxim caveat emptor or buyer beware),
unless the owner of the goods is by his conduct precluded
from denying the sellers authority to sell. The rule, how-
ever, does not affect:
(1) 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;
(2) The validity of any contract of sale under statu-
tory power of sale or under the order of a court of compe-
tent jurisdiction;
(3) Purchases made in a merchants store, or in
fairs, or markets, in accordance with the Code of Com-
merce and special laws (see Art. 1505, Civil Code; see
Hidalgo vs. La Tondea, 16 SCRA 619; Gutierrez
Hermanos vs. Orense, 28 Phil. 571; Mallorca vs. De
Ocampo, 32 SCRA 48; Luna vs. Valle, 48 SCRA 361; Chua
Hai vs. Kapunan, 104 Phil. 110). Where the seller of
goods has a voidable title thereto, but his title has not
been avoided at the time of the sale, the buyer acquires a
good title to the goods, provided he buys them in good
faith, for value, and without notice of the sellers defect of
title (Art. 1506, Civil Code; see Aznar vs. Yapdiangco, 13
SCRA 486; Chua Hai vs. Kapunan, supra.).
It may not be amiss to correlate some rules on the
sale of property by a non-owner, thus
a. Where goods are sold by one who is neither the
owner nor the representative of the owner, the
buyer acquires no title to the goods, subject,
however, to the provisions of Article 1505 (su-
pra.) and of Article 559 in case the goods (mov-
able property) are placed in the possession of

the buyer who had acted in good faith (see dis-
cussions on Art. 559, supra.).
b. When said person, who is not the owner of thing
(movable or immovable) sold, sells and delivers
it, and he later acquires title thereto, such title
passes by operation of law to the buyer pursu-
ant to Article 1434 of the Civil Code.
c. When a person contracts the sale in a repre-
sentative capacity but he acts without or in ex-
cess of authority, the sale is unenforceable un-
der the general provisions of Article 1403 of the
Code but if the other party is aware of the agents
lack or excess of authority, unless ratified by
the principal, the contract is considered void by
Article 1898. In case the sale involves a piece of
land, or any interest therein, the authority of
the agent must be in writing; otherwise, the
sale is void under Article 1874 of the Civil Code.
Conditions and Warranties

Art. 1545. Where the obligation of either party to a
contract of sale is subject to any condition which is
not performed, such party may refuse to proceed with
the contract or he may waive performance of the con-
dition. If the other party has promised that the condi-
tion should happen or be performed, such first men-
tioned party may also treat the nonperformance of the
condition as a breach of warranty.
Where the ownership in the thing has not passed,
the buyer may treat the fulfillment by the seller of his
obligation to deliver the same as described and as war-
ranted expressly or by implication in the contract of
sale as a condition of the obligation of the buyer to
perform his promise to accept and pay for the thing. (n)
Art. 1546. Any affirmation of fact or any promise
by the seller relating to the thing is an express war-
ranty if the natural tendency of such affirmation or
Title VI. Sales
promise is to induce the buyer to purchase the same,

and if the buyer purchases the thing relying thereon.
No affirmation of the value of the thing, nor any state-
ment purporting to be a statement of the sellers opin-
ion only, shall be construed as a warranty, unless the
seller made such affirmation or statement as an expert
and it was relied upon by the buyer. (n)
Art. 1547. In a contract of sale, unless a contrary
intention appears, there is:
(1) An implied warranty on the part of the seller
that he has a right to sell the thing at the time when
the ownership is to pass, and that the buyer shall from
that time have and enjoy the legal and peaceful pos-
session of the thing;
(2) An implied warranty that the thing shall be
free from any hidden faults or defects, or any charge
or encumbrance not declared or known to the buyer.
This article shall not, however, be held to render
liable a sheriff, auctioneer, mortgagee, pledgee, or other
person professing to sell by virtue of authority in fact
or law, for the sale of a thing in which a third person
has a legal or equitable interest. (n)
Subsection 1 Warranty in Case of Eviction
Art. 1548. Eviction shall take place whenever by a

final judgment based on a right prior to the sale or an
act imputable to the vendor, the vendee is deprived of
the whole or of a part of the thing purchased.
The vendor shall answer for the eviction even
though nothing has been said in the contract on the
subject.
The contracting parties, however, may increase,
diminish, or suppress this legal obligation of the ven-
dor. (1475a)
Art. 1549. The vendee need not appeal from the
decision in order that the vendor may become liable
for eviction. (n)
Art. 1550. When adverse possession had been

commenced before the sale but the prescriptive period
is completed after the transfer, the vendor shall not be
liable for eviction. (n)
Art. 1551. If the property is sold for nonpayment
of taxes due and not made known to the vendee before
the sale, the vendor is liable for eviction. (n)
Art. 1552. The judgment debtor is also responsi-
ble for eviction in judicial sales, unless it is otherwise
decreed in the judgment. (n)
Art. 1553. Any stipulation exempting the vendor
from the obligation to answer for eviction shall be void,
if he acted in bad faith. (1476)
Art. 1554. If the vendee has renounced the right
to warranty in case of eviction, and eviction should
take place, the vendor shall only pay the value which
the thing sold had at the time of the eviction. Should
the vendee have made the waiver with knowledge of
the risks of eviction and assumed its consequences,
the vendor shall not be liable. (1477)
Art. 1555. When the warranty has been agreed
upon or nothing has been stipulated on this point, in
case eviction occurs, the vendee shall have the right
to demand of the vendor:
(1) The return of the value which the thing sold
had at the time of the eviction, be it greater or less
than the price of the sale;
(2) The income or fruits, if he has been ordered
to deliver them to the party who won the suit against
him;
(3) The costs of the suit which caused the
eviction, and, in a proper case, those of the suit brought
against the vendor for the warranty;
(4) The expenses of the contract, if the vendee
has paid them;
(5) The damages and interests, and ornamental
expenses, if the sale was made in bad faith. (1478)
Title VI. Sales
Art. 1556. Should the vendee lose, by reason of

the eviction, a part of the thing sold of such impor-
tance, in relation to the whole, that he would not have
bought it without said part, he may demand the rescis-
sion of the contract; but with the obligation to return
the thing without other encumbrances than those which
it had when he acquired it.
He may exercise this right of action, instead of
enforcing the vendors liability for eviction.
The same rule shall be observed when two or more
things have been jointly sold for a lump sum, or for a
separate price for each of them, if it should clearly
appear that the vendee would not have purchased one
without the other. (1479a)
Art. 1557. The warranty cannot be enforced until a
final judgment has been rendered, whereby the vendee
loses the thing acquired or part thereof. (1480)
Art. 1558. The vendor shall not be obliged to make
good the proper warranty, unless he is summoned in
the suit for eviction at the instance of the vendee. (1481a)
Art. 1559. The defendant vendee shall ask, within
the time fixed in the Rules of Court for answering the
complaint, that the vendor be made a co-defendant.
(1482)
Art. 1560. If the immovable sold should be en-
cumbered with any non-apparent burden or servitude,
not mentioned in the agreement, of such a nature that
it must presume that the vendee would not have ac-
quired it had he been aware thereof, he may ask for
the rescission of the contract, unless he should prefer
the appropriate indemnity. Neither right can be exer-
cised if the non-apparent burden or servitude is re-
corded in the Registry of Property, unless there is an
express warranty that the thing is free from all bur-
dens and encumbrances.
Within one year, to be computed from the execu-
tion of the deed, the vendee may bring the action for
rescission, or sue for damages.
One year having elapsed, he may only bring an

action for damages within an equal period, to be
counted from the date on which he discovered the bur-
den or servitude. (1483a)
Subsection 2 Warranty Against Hidden Defects

of or Encumbrances Upon the Thing Sold
Art. 1561. The vendor shall be responsible for war-
ranty against the hidden defects which the thing sold
may have, should they render it unfit for the use for
which it is intended, or should they diminish its fitness
for such use to such an extent that, had the vendee
been aware thereof, he would not have acquired it or
would have given a lower price for it; but said vendor
shall not be answerable for patent defects or those
which may be visible, or for those which are not vis-
ible if the vendee is an expert who, by reason of his
trade or profession, should have known them. (1484a)
Art. 1562. In a sale of goods, there is an implied
warranty or condition as to the quality or fitness of the
goods, as follows:
(1) Where the buyer, expressly or by implication,
makes known to the seller the particular purpose for
which the goods are acquired, and it appears that the
buyer relies on the sellers skill or judgment (whether
he be the grower or manufacturer or not), there is an
implied warranty that the goods shall be reasonably fit
for such purpose;
(2) Where the goods are bought by description
from a seller who deals in goods of that description
(whether he be the grower or manufacturer or not),
there is an implied warranty that the goods shall be of
merchantable quality. (n)
Art. 1563. In the case of contract of sale of a speci-
fied article under its patent or other trade name, there is
no warranty as to its fitness for any particular purpose,
unless there is a stipulation to the contrary. (n)
Art. 1564. An implied warranty or condition as to
the quality or fitness for a particular purpose may be
annexed by the usage of trade. (n)
Title VI. Sales
Art. 1565. In the case of a contract of sale by

sample, if the seller is a dealer in goods of that kind,
there is an implied warranty that the goods shall be
free from any defect rendering them unmerchantable
which would not be apparent on reasonable exami-
nation of the sample. (n)
Art. 1566. The vendor is responsible to the vendee
for any hidden faults or defects in the thing sold, even
though he was not aware thereof.
This provision shall not apply if the contrary has
been stipulated, and the vendor was not aware of the
hidden faults or defects in the thing sold. (1485)
Art. 1567. In the cases of Articles 1561, 1562, 1564,
1565 and 1566, the vendee may elect between withdraw-
ing from the contract and demanding a proportionate
reduction of the price, with damages in either case.
(1486a)
Art. 1568. If the thing sold should be lost in con-
sequence of the hidden faults, and the vendor was
aware of them, he shall bear the loss, and shall be
obliged to return the price and refund the expenses of
the contract, with damages. If he was not aware of
them, he shall only return the price and interest thereon,
and reimburse the expenses of the contract which the
vendee might have paid. (1487a)
Art. 1569. If the thing sold had any hidden fault at
the time of the sale, and should thereafter be lost by a
fortuitous event or through the fault of the vendee, the
latter may demand of the vendor the price which he paid,
less the value which the thing had when it was lost.
If the vendor acted in bad faith, he shall pay dam-
ages to the vendee. (1488a)
Art. 1570. The preceding articles of this Subsec-
tion shall be applicable to judicial sales, except that
the judgment debtor shall not be liable for damages.
(1489a)
Art. 1571. Actions arising from the provisions of
the preceding ten articles shall be barred after six
months, from the delivery of the thing sold. (1490)
Art. 1572. If two or more animals are sold together,

whether for a lump sum or for a separate price for
each of them, the redhibitory defect of one shall only
give rise to its redhibition, and not that of the others;
unless it should appear that the vendee would not have
purchased the sound animal or animals without the
defective one.
The latter case shall be presumed when a team,
yoke, pair, or set is bought, even if a separate price
has been fixed for each one of the animals composing
the same. (1491)
Art. 1573. The provisions of the preceding article
with respect to the sale of animals shall in like manner
be applicable to the sale of other things. (1492)
Art. 1574. There is no warranty against hidden
defects of animals sold at fairs or at public auctions,
or of livestock sold as condemned. (1493a)
Art. 1575. The sale of animals suffering from con-
tagious diseases shall be void.
A contract of sale of animals shall also be void if
the use or service for which they are acquired has
been stated in the contract, and they are found to be
unfit therefor. (1494a)
Art. 1576. If the hidden defect of animals, even in
case a professional inspection has been made, should
be of such a nature that expert knowledge is not suffi-
cient to discover it, the defect shall be considered as
redhibitory.
But if the veterinarian, through ignorance or bad
faith should fail to discover or disclose it, he shall be
liable for damages. (1495)
Art. 1577. The redhibitory action, based on the
faults or defects of animals, must be brought within
forty days from the date of their delivery to the vendee.
This action can only be exercised with respect to
faults and defects which are determined by law or by
local customs. (1496a)
Title VI. Sales
Art. 1578. If the animal should die within three

days after its purchase, the vendor shall be liable if the
disease which caused the death existed at the time of
the contract. (1497a)
Art. 1579. If the sale be rescinded, the animal shall
be returned in the condition in which it was sold and
delivered, the vendee being answerable for any injury
due to his negligence, and not arising from the re-
dhibitory fault or defect. (1498)
Art. 1580. In the sale of animals with redhibitory
defects, the vendee shall also enjoy the right men-
tioned in Article 1567; but he must make use thereof
within the same period which has been fixed for the
exercise of the redhibitory action. (1499)
Art. 1581. The form of sale of large cattle shall be
governed by special laws. (n)
A contract of sale may be subject to conditions, as

well as warranties, express or implied, otherwise, the
caveat emptor (buyer beware) rule may also find appli-
cation (see Filinvest Credit Corporation vs. Court of Ap-
peals, 178 SCRA 188).
Where the obligation of either party to a contract of
sale is subject to any condition which is not performed,
such party may refuse to proceed with the contract or he
may waive performance of the condition (Delta Motor vs.
Genuino, 170 SCRA 29). If the other party has promised
that the condition should happen or be performed, such
first mentioned party may also treat the non-perform-
ance of the condition as a breach of warranty (Delta Mo-
tor vs. Genuino, 170 SCRA 29; see Art. 1545, Civil Code).
Where the ownership in the thing has not passed,
the buyer may treat the fulfillment by the seller of his
obligation to deliver the same as described and as war-
ranted expressly, or by implication in the contract of sale
as a condition of the obligation of the buyer to perform his
promise to accept and pay for the thing (see Art. 1545,
Civil Code).
Express Warranty
Any affirmation of fact or any promise by the seller
relating to the thing is an express warranty if the natural
tendency of such affirmation or promise is to induce the
buyer to purchase the same and the buyer purchases the
thing relying thereon. No affirmation of the value of the
thing, nor any statement purporting to be a statement of
the sellers opinion only, shall be construed as a warranty,
unless the seller made such affirmation or statement as
an expert and it was relied upon by the buyer (Art. 1546,
Civil Code; see Azarraga vs. Gay, 52 Phil. 599; see also
Art. 1599, infra., on the buyers remedies in breach of war-
ranty).
Implied Warranties
In a contract of sale, unless a contrary intention
appears, there is:
(1) An implied warranty on the part of the seller
that he has a right to sell the thing at the time when the
ownership is to pass, and that the buyer shall from that
time have and enjoy the legal and peaceful possession of
the thing; and
(2) An implied warranty that the thing shall be
free from any hidden faults or defects, or any charge or
encumbrance not declared or known to the buyer.
These warranties shall not, however, be held to render
liable a sheriff, auctioneer, mortgagee, pledgee, or other
person professing to sell by virtue of authority in fact or
law for the sale of a thing in which a third person has a
legal or equitable interest (Art. 1547, Civil Code; see Sta.
Romana vs. Imperio, 15 SCRA 625; Chang vs. Santos, 13
Phil. 52; Lim vs. Lang, 51 Phil. 930).
Implied Warranty Against Eviction

Eviction shall take place whenever by a final judg-
ment based on a right prior to the sale or an act imput-
able to the vendor, the vendee is deprived of the whole or
Title VI. Sales
of a part of the thing purchased. The vendee need not

appeal from the decision in order that the vendor may
become liable for eviction. The vendor shall not be obliged
to make good the proper warranty, unless he is summoned
in the suit for eviction at the instance of the vendee. The
defendant vendee shall ask, within the time fixed in the
Rules of Court for answering the complaint, that the ven-
dor be made a co-defendant. The warranty cannot be en-
forced until a final judgment has been rendered, whereby
the vendee loses the thing acquired or a part thereof (Arts.
1548-1549, 1557-1559, Civil Code; Bautista vs. Lasam,
72 Phil. 605; Republic vs. Alto Surety, 103 Phil. 717). The
vendor shall answer for the eviction although the contract
is silent on the subject. The contracting parties, however,
may increase, diminish or suppress this legal obligation
of the vendor (see Art. 1548, Civil Code).
In fine, the vendors liability may be enforced only if
the following requisites concur: (a) there is a final judg-
ment; (b) the purchaser is deprived of the whole or part of
the thing sold; (c) the deprivation is by virtue of a right
prior to the sale in question; and (d) the vendor has been
summoned and made a co-defendant in the suit for evic-
tion at the instance of the vendee (Escaler vs. Court of
Appeals, 138 SCRA 1).
If the property is sold for non-payment of taxes due
and not made known to the vendee before the sale, the
vendor is liable for eviction (Art. 1551, Civil Code). The
judgment debtor is also responsible for eviction in judi-
cial sales, unless it is otherwise decreed in the judgment
(Art. 1552, Civil Code). However, when adverse posses-
sion had been commenced before the sale but the pre-
scriptive period is completed after the transfer, the ven-
dor shall not be liable for eviction (Art. 1550, Civil Code).
Waiver
If the vendee has renounced the right to warranty in
case of eviction (consciente), and eviction should take place,
the vendor shall only pay the value which the thing sold
had at the time of the eviction. Should the vendee have
made the waiver with knowledge of the risks of eviction
and assumed its consequences (intencionada), the ven-
dor shall not be liable (Art. 1554, Civil Code; PNB vs.
Silo, 72 Phil. 141; Andaya vs. Manansala, 107 Phil. 1151).
Any such waiver or stipulation exempting the vendor
from the obligation to answer for eviction shall be void if
he acted in bad faith (Art. 1553, Civil Code; Angelo vs.
Pacheco, 56 Phil. 70).
Effects of Eviction
When the warranty has been agreed upon or noth-
ing has been stipulated on this point, in case eviction
occurs, the vendee shall have the right to demand of the
vendor:
(1) The return of the value which the thing sold
had at the time of the eviction, be it greater or less than
the price of the sale;
(2) The income or fruits, if he has been ordered to
deliver them to the party who won the suit against him;
(3) The costs of the suit which caused the eviction,
and, in a proper case, those of the suit brought against
the vendor for the warranty;
(4) The expenses of the contract, if the vendee has
paid them;
(5) The damages and interest, and ornamental ex-
penses, if the sale was made in bad faith (Art. 1555, Civil
Code).
Should the vendee lose, by reason of the eviction, a
part of the thing sold of such importance, in relation to
the whole, that he would not have bought it without said
part, he may demand the rescission of the contract; but
with the obligation to return the thing without other
encumbrances than those which it had when he acquired
it. He may exercise this right of action, instead of enforc-
Title VI. Sales
ing the vendors liability for eviction. The same rule shall
be observed when two or more things have been jointly
sold for a lump sum, or for a separate price for each of
them, if it should clearly appear that the vendee would
not have purchased one without the other (Art. 1556,
Civil Code).
If the immovable sold should be encumbered with
any non-apparent burden or servitude, not mentioned in
the agreement, of such nature that it must be presumed
that the vendee would not have acquired it had he been
aware thereof, he may ask for the rescission of the con-
tract, unless he should prefer the appropriate indemnity.
Neither right can be exercised if the non-apparent bur-
den or servitude is recorded in the Registry of Property,
unless there is an express warranty that the thing is free
from all burdens and encumbrances. Within one year, to
be computed from the execution of the deed, the vendee
may bring the action for rescission or sue for damages.
One year having elapsed, he may only bring an action for
damages within an equal period, to be counted from the
date on which he discovered the burden or servitude (Art.
1560, Civil Code).
Implied Warranty Against Hidden Defects of or

Encumbrances Upon the Thing Sold
The vendor shall be responsible for warranty against
the hidden defects which the thing sold may have, should
they render it unfit for the use for which it is intended or
should they diminish its fitness for the same such an
extent that, had the vendee been aware thereof, he would
not have acquired it or would have given a lower price for
it. The vendor is responsible for any such hidden faults or
defects even though he was not aware thereof. This war-
ranty shall not, however, apply if the contrary has been
stipulated and the vendor was not aware of the hidden
faults or defects in the thing sold. The said vendor shall
not also be answerable for patent defects or those which
may be visible, or for those which are not visible but the
vendee is an expert who, by reason of his trade or profes-

sion, should have known them (see Arts. 1561 and 1566,
Civil Code; Gochengco vs. Dean, 47 Phil. 687). In the case
of contract of sale of a specified article under its patent or
other trade name, there is no warranty as to its fitness
for any particular purpose, unless there is a stipulation
to the contrary (Art. 1563, Civil Code).
In a sale of goods, there is an implied warranty or
condition as to the quality or fitness of the goods, as
follows:
(1) Where the buyer, expressly or by implication,
makes known to the seller the particular purpose for
which the goods are acquired, and it appears that the
buyer relies on the sellers skill or judgment (whether he
be the grower or manufacturer or not), there is an im-
plied warranty that the goods shall be reasonably fit for
such purpose;
(2) Where the goods are bought by description from
a seller who deals in goods of that description (whether
he be the grower or manufacturer or not), there is an
implied warranty that the goods shall be of merchantable
quality (Art. 1562, Civil Code; McCullough vs. Aenlle &
Co., 3 Phil. 285).
An implied warranty or condition as to the quality or
fitness for a particular purpose may be annexed by the
usage of trade (Art. 1564, Civil Code).
In the case of a contract of sale by sample, if the seller
is a dealer in goods of that kind, there is an implied war-
ranty that the goods shall be free from any defect render-
ing them unmerchantable which would not be apparent
on reasonable examination of the sample (Art. 1565, Civil
Code; McCullough vs. Aenlle & Co., 3 Phil. 285).
Effects of Hidden Defects or Encumbrances

The remedy against violations of the warranty
against hidden defects is either to withdraw from the
Title VI. Sales
contract (redhibitory action) or to demand a proportion-

ate reduction of the price (accion quanti minoris) with
damages in either case (Engineering & Machinery Corpo-
ration vs. Court of Appeals, 67 SCAD 113, 252 SCRA 156;
see Consolidated Plywood Industries, Inc. vs. IFC Leas-
ing and Acceptance Corporation, 149 SCRA 448).
If the thing sold should be lost in consequence of the
hidden faults and the vendor was aware of them, he shall
bear the loss and shall be obliged to return the price and
refund the expenses of the contract, with damages. If he
was not aware of them, he shall only return the price and
interest thereon and reimburse the expenses of the con-
tract which the vendee might have paid (Art. 1568, Civil
Code).
If the thing sold had any hidden fault at the time of
the sale and should thereafter be lost by a fortuitous
event or through the fault of the vendee, the latter may
demand of the vendor the price which he paid, less the
value which the thing had when it was lost. If the vendor
acted in bad faith, he shall pay damages to the vendee
The foregoing rules shall be applicable to judicial
sales, except that the judgment debtor shall not be liable
for damages (see Art. 1570, Civil Code).
Actions arising from the above responsibilities of the
vendor for hidden defects or encumbrances shall be barred
after six months from the delivery of the thing sold (see
Art. 1571, Civil Code; La Fuerza vs. Court of Appeals, 23
SCRA 1217). In G.A. Machineries, Inc. vs. Yaptinchay
(126 SCRA 78), Yaptinchay agreed to purchase from GAMI
a brand-new diesel engine. Pursuant to the contract,
GAMI delivered an engine to Yaptinchay. A few days after
delivery, the engine malfunctioned and continued to mal-
function after repeated repairs. Yaptinchay, became con-
vinced that the engine delivered to him was not brand-
new. Eventually he filed a suit for damages. The trial
court ruled in his favor. The decision was affirmed by the
Court of Appeals. GAMI went to the Supreme Court,

contending that Yaptinchays cause of action had pres-
cribed. GAMI said the respondents cause of action was
for breach of warranty against hidden defects as pro-
vided under Article 1561 and Article 1565 of the Civil
Code, and Article 1571 provides for a six-month prescrip-
tive period from the delivery of the thing sold to the filing
of an action for breach of warranty against hidden de-
fects. GAMI said that when respondent filed the case
more than six months had already elapsed. It contended
that Yaptinchays cause of action was premised on the
delivery of a defective engine and that the allegations in
the complaint that the engine was not brand-new were
mere specifications of the precise nature of the hidden
defects. The Supreme Court ruled:
A cursory reading of the complaint shows that
the petitioners arguments are not well-taken.
The main thrust of the complaint is the con-
tention that the Fordson diesel engine delivered by
the petitioner to the respondent was not brand-new
contrary to the representations of the former and
the expectations of the latter. The complaint was
couched in a manner which shows that instead of
the brand-new Fordson diesel engine which was
bought by the respondent from the petitioner, an-
other engine which was not brand-new was deliv-
ered resulting in the damages sought to be recov-
ered. It is evident, therefore, that the complaint was
for a breach of contract of sale rather than a breach
of warranty against hidden defects.
There is no implied warranty as to the condition,
adaptation, fitness, suitability or quality of a thing sold
as and for a secondhand article, said the Court in Moles
vs. Intermediate Appellate Court (169 SCRA 777), unless,
as provided in Article 1562 of the Civil Code, when the
buyer, expressly or by implication, makes known to the
seller the particular purpose for which the goods are
Title VI. Sales
acquired, and it appears that the buyer relies on the

sellers skill on judgment in which case there is an
implied warranty that the goods shall be reasonably fit
for such purpose. A redhibitory defect contemplated in
Article 1561, referring to an imperfection or defect of
such nature as to engender a certain degree of importance,
which prescribes in six months under Article 1571, refers
to an implied warranty. Where the case involves an express
warranty, such as a certification by the seller that the
articles sold are in A-1 condition, the general rule on
rescission of contracts within four years instead applies.
In Schmid & Oberly, Inc. vs. RJL Martinez Fishing
Corp. (166 SCRA 493), an indentor, the Court noted, is
one who, for compensation, acts as a middleman in
bringing about a purchase and sale of goods between a
foreign supplier and a local purchaser. Not being the
vendor, an indentor cannot be held liable for the implied
warranty for hidden defects under Article 1561 of the
Civil Code. An indentor, however, is not prevented from
voluntarily warranting the thing sold. To some extent,
the indentor is an agent of both the vendor and the vendee,
and he may expressly obligate himself to undertake the
obligations of the principal. A mere expression of opinion
however, e.g., the equipment is very good, cannot be
construed as such express warranty.
Redhibitory Defects of Animals

If two or more animals are sold together, whether for
a lump sum or for a separate price for each of them, the
redhibitory defect of one shall only give rise to its
redhibition, and not that of the others; unless it should
appear that the vendee would not have purchased the
sound animal or animals without the defective one. The
latter case shall be presumed when a team, yoke, pair, or
set is bought, even if a separate price has been fixed for
each one of the animals composing the same (Art. 1572,
Civil Code; this particular provision has been made to
likewise apply, under Art. 1573, to the sale of other things).
If the hidden defect of animals, even in case a profes-

sional inspection has been made, should be of such a
nature that expert knowledge is not sufficient to discover
it, the defect shall be considered as redhibitory. But if the
veterinarian, through ignorance or bad faith should fail
to discover or disclose it, he shall be liable for damages
There is no warranty against hidden defects of ani-
mals sold at fairs or at public auction, or of livestock sold
as condemned (Art. 1574, Civil Code).
Redhibitory Action
The redhibitory action, based on the faults or defects
of animals, must be brought within forty days from the
date of their delivery to the vendee. This action can only
be exercised with respect to faults and defects which are
determined by law or by local customs (Art. 1577, Civil
Code).
If the animal should die within three days after its
purchase, the vendor shall be liable if the disease which
caused the death existed at the time of the contract (Art.
1578, Civil Code). If the sale be rescinded, the animal
shall be returned in the condition in which it was sold
and delivered, the vendee being answerable for any in-
jury due to his negligence, and not arising from the re-
dhibitory fault or defect (Art. 1579, Civil Code).
In the sale of animals with redhibitory defects, the
vendee may also elect between withdrawing from the
contract and demanding a proportionate reduction of the
price, with damages in either case, but he must make use
thereof within the same period which has been fixed for
the exercise of the redhibitory action (Art. 1580, in rela-
tion to Art. 1567, Civil Code).
The form of sale of large cattle is governed by special
laws (Art. 1581, Civil Code; see Sec. 22, Act No. 1147,
requiring a Certificate of Registration).
Title VI. Sales
Chapter 5
Obligations of the Vendee
Art. 1582. The vendee is bound to accept delivery

and to pay the price of the thing sold at the time and
place stipulated in the contract.
If the time and place should not have been stipu-
lated, the payment must be made at the time and place
of the delivery of the thing sold. (1500a)
Art. 1583. Unless otherwise agreed, the buyer of
goods is not bound to accept delivery thereof by
installments.
Where there is a contract of sale of goods to be
delivered by stated installments, which are to be
separately paid for, and the seller makes defective de-
liveries in respect of one or more installments, or the
buyer neglects or refuses without just cause to take
delivery of or pay for one or more installments, it de-
pends in each case on the terms of the contract and
the circumstances of the case, whether the breach of
contract is so material as to justify the injured party in
refusing to proceed further and suing for damages for
beach of the entire contract, or whether the breach is
severable, giving rise to a claim for compensation but
not to a right to treat the whole contract as broken. (n)
Art. 1584. Where goods are delivered to the buyer,
which he has not previously examined, he is not deemed
to have accepted them unless and until he has had a
reasonable opportunity of examining them for the pur-
pose of ascertaining whether they are in conformity with
the contract if there is no stipulation to the contrary.
Unless otherwise agreed, when the seller tenders
delivery of goods to the buyer, he is bound, on re-
quest, to afford the buyer a reasonable opportunity of
examining the goods for the purpose of ascertaining
whether they are in conformity with the contract.
Where goods are delivered to a carrier by the
seller, in accordance with an order from or agreement
with the buyer, upon the terms that the goods shall not
be delivered by the carrier to the buyer until he has

paid the price, whether such terms are indicated by
marking the goods with the words collect on deliv-
ery, or otherwise, the buyer is not entitled to examine
the goods before the payment of the price, in the ab-
sence of agreement or usage of trade permitting such
examination. (n)
Art. 1585. The buyer is deemed to have accepted
the goods when he intimates to the seller that he has
accepted them, or when the goods have been deliv-
ered to him, and he does any act in relation to them
which is inconsistent with the ownership of the seller,
or when, after the lapse of a reasonable time, he re-
tains the goods without intimating to the seller that he
has rejected them. (n)
Art. 1586. In the absence of express or implied
agreement of the parties, acceptance of the goods by
the buyer shall not discharge the seller from liability in
damages or other legal remedy for breach of any prom-
ise or warranty in the contract of sale. But, if, after
acceptance of the goods, the buyer fails to give notice
to the seller of the breach in any promise of warranty
within a reasonable time after the buyer knows, or ought
to know of such breach, the seller shall not be liable
therefor. (n)
Art. 1587. Unless otherwise agreed, where goods
are delivered to the buyer, and he refuses to accept
them, having the right so to do, he is not bound to
return them to the seller, but it is sufficient if he notifies
the seller that he refuses to accept them. If he
voluntarily constitutes himself a depositary thereof, he
shall be liable as such. (n)
Art. 1588. If there is no stipulation as specified in
the first paragraph of Article 1523, when the buyers
refusal to accept the goods is without just cause, the
title thereto passes to him from the moment they are
placed at his disposal. (n)
Art. 1589. The vendee shall owe interest for the
period between the delivery of the thing and the pay-
ment of the price, in the following three cases:
Title VI. Sales
(1) Should it have been so stipulated;

(2) Should the thing sold and delivered produce
fruits or income;
(3) Should he be in default, from the time of ju-
dicial or extrajudicial demand for the payment of the
price. (1501a)
The vendee is bound to accept delivery and to pay

the price of the thing sold at the time and place stipu-
lated in the contract. If the time and place should not
have been stipulated, the payment must be made at the
time and place of the delivery of the thing sold (Art. 1582,
Civil Code). The goods are deemed to be in a deliverable
state when they are in such condition that the buyer
would, under the contract, be bound to take delivery of
them (see Art. 1636, Civil Code).
Acceptance of Delivery
The buyer may reject the sellers delivery of a quantity
of goods less than that contracted (Art. 1522, Civil Code;
Chrysler Philippines Corp. vs. Court of Appeals, 133 SCRA
567). Unless otherwise agreed, the buyer of goods is not
bound to accept delivery thereof by installments. Where
there is a contract of sale of goods to be delivered by stated
installments, which are to be separately paid for, and the
seller makes defective deliveries in respect of one or more
installments, or the buyer neglects or refuses without just
cause to take delivery of or pay for one or more installments,
it depends in each case on the terms of the contract and the
circumstances of the case, whether the breach of contract is
so material as to justify the injured party in refusing to
proceed further and suing for damages for breach of the
entire contract, or whether the breach is severable, giving
rise to a claim for compensation but not to a right to treat
the whole contract as broken (Art. 1583, Civil Code).
Where the goods are delivered to the buyer, which
he has not previously examined, he is not deemed to have
accepted them unless and until he has had a reasonable

opportunity of examining them for the purpose of ascer-
taining whether they are in conformity with the contract,
if there is no stipulation to the contrary. Unless other-
wise agreed, when the seller tenders delivery of goods to
the buyer, he is bound, on request, to afford the buyer a
reasonable opportunity of examining the goods for the
purpose of ascertaining whether they are in conformity
with the contract. Where goods are delivered to a carrier
by the seller, in accordance with an order from or agree-
ment with the buyer, upon the terms that the goods shall
not be delivered by the carrier to the buyer until he has
paid the price, whether such terms are indicated by mark-
ing the goods with the words collect on delivery, or oth-
erwise, the buyer is not entitled to examine the goods
before the payment of the price, in the absence of agree-
ment or usage of trade permitting such examination (Art.
1584, Civil Code).
The buyer is deemed to have accepted the goods
when he intimates to the seller that he has accepted
them, or when the goods have been delivered to him, and
he does any act in relation to them which is inconsistent
with the ownership of the seller, or when, after the lapse
of a reasonable time, he retains the goods without inti-
mating to the seller that he has rejected them (Art. 1585,
Civil Code).
Effects of Acceptance or Rejection

In the absence of express or implied agreement of
the parties, acceptance of the goods by the buyer shall
not discharge the seller from liability in damages or other
legal remedy for breach of any promise or warranty in
the contract of sale. But, if, after acceptance of the goods,
the buyer should fail to give notice to the seller of the
breach in any promise of warranty within a reasonable
time after the buyer knows, or ought to know of such
breach, the seller shall not be liable therefor (Art. 1586,
Civil Code; this provision did not exist under the old Civil
Title VI. Sales
Code during which regime the case of Ker & Co. vs. De La
Rama, 11 Phil. 456, was decided).
Unless otherwise agreed, where goods are delivered
to the buyer, and he refuses to accept them, having the
right so to do, he is not bound to return them to the seller,
but it is sufficient if he notifies the seller that he refuses
to accept them. If he voluntarily constitutes himself a
depository thereof, he shall be liable as such (Art. 1587,
Civil Code).
The title to the goods passes to the buyer from the
moment they are placed at his disposal when his refusal
to accept them is without just cause (see Art. 1588, Civil
Code).
Payment of Price
The vendee shall owe interest for the period between
the delivery of the thing and the payment of the price, in
the following three cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce
fruits or income;
(3) Should he be in default, from the time of judi-
cial or extrajudicial demand for the payment of the price
Should the vendee be disturbed in the possession or
ownership of the thing acquired, or should he have rea-
sonable grounds to fear such disturbance, by a vindicatory
action or a foreclosure of mortgage, he may suspend the
payment of the price until the vendor has caused the
disturbance or danger to cease, unless the latter gives
security for the return of the price in a proper case, or it
has been stipulated that, notwithstanding any such con-
tingency, the vendee shall be bound to make the pay-
ment. A mere act of trespass shall not authorize the sus-
pension of the payment of the price (Art. 1590, Civil Code;
Bareng vs. Court of Appeals, 107 Phil. 641).
Should the vendor have reasonable grounds to fear

the loss of immovable property sold and its price, he may
immediately sue for the rescission of the sale. Should
such ground not exist, the provisions of Article 1191
shall be observed (Art. 1591, Civil Code).
Where there is a flaw or defect in a contract of sale,
the remedy is rescission or annulment but not refusal to
pay the balance of the purchase price and at the same
time retaining the goods purchased by the buyer (see
Embee Transportation Corporation vs. Camacho, 80 SCRA
477).
3. Remedies in Sales
Generally, the remedies of an aggrieved party in con-
tracts are judicial in nature predicated upon a basic legal
principle that no one should be permitted to take the law
into his own hands, although it is, too, recognized that in
a reciprocal obligation a party thereto may refuse to per-
form his part of the undertaking if the other does not
himself comply or is not ready to comply with what is
incumbent upon him (see Art. 1169, Civil Code), in turn,
premised on the maxim exceptio non adimpleti
contractus.
The law on sales, mainly perhaps because of the
highly reciprocal nature of the contract, grants or recog-
nizes rather extravagant remedies, judicial as well as
extrajudicial, more than perhaps in any other agreement.
a. Extrajudicial Remedies in Sales
Art. 1590. Should the vendee be disturbed in the

possession or ownership of the thing acquired, or
should he have reasonable grounds to fear such dis-
turbance, by a vindicatory action or a foreclosure of
mortgage, he may suspend the payment of the price
until the vendor has caused the disturbance or danger
to cease, unless the latter gives security for the return
of the price in a proper case, or it has been stipulated
Title VI. Sales
that, notwithstanding any such contingency, the vendee

shall be bound to make the payment. A mere act of
trespass shall not authorize the suspension of the pay-
ment of the price. (1502a)
Art. 1591. Should the vendor have reasonable
grounds to fear the loss of immovable property sold
and its price, he may immediately sue for the rescis-
sion of the sale.
Should such ground not exist, the provisions of
Article 1191 shall be observed. (1503)
Art. 1592. In the sale of immovable property, even
though it may have been stipulated that upon failure to
pay the price at the time agreed upon the rescission of
the contract shall of right take place, the vendee may
pay, even after the expiration of the period, as long as
no demand for rescission of the contract has been
made upon him either judicially or by a notarial act.
After the demand, the court may not grant him a new
term. (1504a)
Art. 1593. With respect to movable property, the
rescission of the sale shall of right take place in the
interest of the vendor, if the vendee, upon the expira-
tion of the period fixed for the delivery of the thing,
should not have appeared to receive it, or having ap-
peared, he should not have tendered the price at the
same time, unless a longer period has been stipulated
for its payment. (1505)
(1) Of the Buyer

(a) The buyer need not pay unless there is de-
livery (see Art. 1582, Civil Code; Barretto vs.
Compaia Maritima, 62 SCRA 147).
(b) The buyer may reject improper deliveries
(see Arts. 1522, 1540, 1583 and 1587, Civil Code);
and
(c) The buyer may, if he is disturbed in the
possession or ownership of the thing, or should he
have reasonable grounds to fear such disturbance
(but not because of mere act of trespass), suspend

payment of the price (Art. 1590, Civil Code).
(2) Of the Seller
(a) The vendor is not bound to deliver the thing
sold if the vendee has not paid the price, or if no
period for the payment has been fixed in the con-
tract, or in case the vendee loses the right to make
use of the term (see Arts. 1524 and 1536, in relation
to Art. 1198, Civil Code; Cf. Katigbak vs. Court of
Appeals, 4 SCRA 243).
(b) Additional or Special Remedies
(i) In Conditional Contracts of Sale or to
Sell (where seller reserves title or to retake pos-
session if conditions do not occur):
In the case of movable property, the non-fulfillment
of the condition (e.g., non-payment of the price) prevents
the obligation to convey title from acquiring an obliga-
tory force. To retake possession, however, judicial action
is required. Rescission is unnecessary once the period of
the fulfillment of the condition (or non-payment of the
price) expires without such condition having occurred;
where no period is stipulated, Article 1191 (resolution)
may be sought, although Article 1593 could be applicable
(by analogy at least) that may permit an extrajudicial
rescission (by mere notice).
In the case of immovable property, substantially the
same results would follow, hence, if the buyer fails to pay
in accordance with the terms of the agreement, the seller
is entitled to rescind. Article 1592, which permits the
vendee to pay even after the expiration of the period as
long as no demand for rescission is made upon him either
judicially or by notarial act, does not apply to contracts to
sell or deeds of conditional sale (see Alfonso vs. Court of
Appeals, 186 SCRA 400; Joseph & Sons Enterprises, Inc.
vs. Court of Appeals, 143 SCRA 663). Where no time for
the fulfillment of the condition (e.g., payment of the price)
Title VI. Sales
is fixed, Article 1191 (not Article 1592 [see Roque vs.

Lapuz, 96 SCRA 741; Caridad Est. vs. Sautno, 71 Phil.
114]), unless the parties have agreed otherwise (see
Torralba vs. De los Angeles, 96 SCRA 69), would be appli-
cable, i.e., the seller need not meanwhile deliver, and he
may choose between fulfillment or resolution. Until re-
solved by the courts, the contractual obligation remains
indefinite although subject to other legal principles, such
as laches, prescription, and so forth.
(ii) In Installment Sales:
Of Personal Property
Art. 1484. In a contract of sale of personal prop-
erty the price of which is payable in installments,
the vendor may exercise any of the following rem-
edies:
(1) Exact fulfillment of the obligation, should
the vendee fail to pay;
(2) Cancel the sale, should the vendees fail-
ure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing
sold, if one has been constituted, should the vendees
failure to pay cover two or more installments. In this
case, he shall have no further action against the
purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void.
Art. 1485. The preceding article shall be ap-
plied to contracts purporting to be leases of personal
property with option to buy, when the lessor has
deprived the lessee of the possession or enjoyment of
the thing.
Art. 1486. In the cases referred to in the two
preceding articles, a stipulation that the installments
or rents paid shall not be returned to the vendee or
lessee shall be valid insofar as the same may not be
unconscionable under the circumstances.
The remedies under Article 1484 of the Civil Code,

where a sale of personal property on installments is se-
cured by a chattel mortgage on the thing sold, are alter-
native and exclusive, not cumulative, remedies (see
Servicewide Specialists, Inc. vs. Intermediate Appellate
Court, 174 SCRA 80). The rule applies to lease-purchase
contracts of personal property (see Filinvest Credit Corp.
The meaning of [Article 1484 of the Civil Code]

has been repeatedly enunciated in a long line of cases.
Thus: Should the vendee or purchaser of a personal
property default in the payment of two or more of
the agreed installments, the vendor or seller has the
option to avail of any of these three remedies
either to exact fulfillment by the purchaser of the
obligation, or to cancel the sale, or to foreclose the
mortgage on the purchased personal property, if one
has been constituted. These remedies have been rec-
ognized as alternative, not cumulative, that the ex-
ercise of one would bar the exercise of the other.
(Nonato vs. Intermediate Appellate Court, 140 SCRA
255.)
When the seller assigns his credit to another person,

the latter would be bound by the same law. Accordingly,
when the assignee forecloses on the mortgage, there can
be no further recovery of the deficiency, the assignee hav-
ing acquired no rights better than those of the assignor
(Zeyas vs. Luneta Motors, 117 SCRA 726); and when the
property is foreclosed, the seller-mortgagee is deemed to
have renounced all other rights; hence, a foreclosure of
additional property would be a nullity (Ridad vs. Filipinas
Investment and Finance Corp., 120 SCRA 246).
In the event the seller-mortgagee seeks, instead, the
enforcement of the additional mortgages, guarantees or
other security arrangements, he must then be deemed to
have lost by waiver or non-choice his lien on the chattel
Title VI. Sales
mortgage of the personal property sold by and mortgaged

to him, although, similar to an action for specific per-
formance, he may still levy on it on execution.
In ordinary alternative obligations, a mere choice
categorically or unequivocally made and communicated
by the person entitled to exercise it concludes the parties.
He may not thereafter exercise any other option, unless
the opted alternative proves to be ineffectual or unavail-
ing due to no fault on his part. This rule, in essence, is the
meaning of alternative obligations in substantive law as
distinguished from alternative remedies in procedural
law where the choice generally becomes conclusive upon
the exercise of the remedy. Under Article 1484 of the
Civil Code, it is only when there has actually been a
foreclosure of the chattel mortgage that the vendee-mort-
gagor is not liable for deficiency. If the case is one for
specific performance, even when this action is chosen
after the vendee has refused to surrender the mortgaged
property to permit an extrajudicial foreclosure, that prop-
erty may be levied on execution and an alias writ may be
issued if the proceeds thereof are insufficient to satisfy
the judgment credit (Industrial Finance Corp. vs. Ramirez,
77 SCRA 152). A mere demand to surrender the object
which is not heeded by the mortgagor because the prop-
erty is in the possession of a repair shop will not amount
to a foreclosure (see Industrial Finance Corporation vs.
Tobias, 78 SCRA 28).
In Filinvest vs. Philippine Acetylene Company (111
SCRA 421), the Court held that a mere return of the
mortgaged vehicle, which had unpaid taxes, upon de-
mand by the seller-mortgagee that the mortgagor-buyer
either pay the unpaid price or return the vehicle,
amounted to neither a foreclosure or cancellation nor a
dacion en pago. (To be considered as the equivalent of
dation in payment, there must, the Court ruled, be an
express or implied but clear intention of both parties that
the delivery was an accepted equivalent of performance
of the obligation.)
Of Real Property Covered by Republic Act No. 6552

(Realty Installment Buyer Protection Act)
Republic Act 6552 is a special law on the sale on
installments of certain real property, the full text of which
provides:
Section 1. This Act shall be known as the Re-
alty Installment Buyer Protection Act.
Sec. 2. It is hereby declared a public policy to
protect buyers of real estate on installment pay-
ments against onerous and oppressive conditions.
Sec. 3. In all transactions or contracts involv-
ing the sale or financing of real estate on installment
payments, including residential condominium
apartments but excluding industrial lots, com-
mercial buildings and sales to tenants under Re-
public Act Numbered Thirty-eight hundred forty-
four as amended by Republic Act Numbered Sixty-
three hundred eighty-nine, where the buyer has
paid at least two years of installments, the buyer is
entitled to the following rights in case he defaults
in the payment of succeeding installments:
(a) To pay, without additional interest, the
unpaid installments due within the total grace pe-
riod earned by him, which is hereby fixed at the
rate of one month grace period for every one year
of installment payments made: Provided, That this
right shall be exercised by the buyer only once in
every five years of the life of the contract and its
extensions, if any.
(b) If the contract is cancelled, the seller shall
refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty per
cent of the total payments made and, after five years
of installments, an additional five per cent every
year but not to exceed ninety per cent of total pay-
ments made: Provided, That the actual cancellation
of the contract shall take place after thirty days
from receipt by the buyer of the notice of cancella-
tion or the demand for rescission of the contract by
Title VI. Sales
a notarial act and upon full payment of the cash

surrender value to the buyer.
Down payments, deposits or options on the
contract shall be included in the computation of
the total number of installments made.
Sec. 4. In cases where less than two years of
installments were paid, the seller shall give the
buyer a grace period of not less than sixty days
from the date the installments became due. If the
buyer fails to pay the installments due at the expi-
ration of the grace period, the seller may cancel
the contract after thirty days from receipt by the
buyer of the notice of cancellation or the demand
for rescission of the contract by a notarial act.
Sec. 5. Under Sections 3 and 4, the buyer shall
have the right to sell his rights or assign the same
to another person or to reinstate the contract by
updating the account during the grace period and
before actual cancellation of the contract. The deed
of sale or assignment shall be done by notarial act.
Sec. 6. The buyer shall have the right to pay in
advance any installment or the full unpaid balance
of the purchase price any time without interest
and to have such full payment of the purchase price
annotated in the certificate of title covering the
property.
Sec. 7. Any stipulation in any contract hereaf-
ter entered into contrary to the provisions of Sec-
tions 3, 4, 5 and 6 shall be null and void.
Sec. 8. If any provision of this Act is held invalid
or unconstitutional, no other provision shall be af-
fected thereby.
Sec. 9. This Act shall take effect upon its ap-
proval.
(Note: See Presidential Decree No. 1344, Executive

Order No. 648, 7 February 1981, and Executive Order
No. 90, 17 December 1986; see also C.T. Torres Enter-
prises, Inc. vs. Hibionada, 191 SCRA 268). Where the
development work in a housing subdivision is delayed or

incomplete, the buyer has the option to demand reim-
bursement of installments thus far paid or wait for its
completion; in the meantime, the seller may not rescind
the sale (Relucio vs. Brillante-Garfin, 187 SCRA 405).
While Republic Act No. 6552 recognizes the right of
the vendor to cancel the contract upon breach and non-
payment of stipulated installments by the vendee, it like-
wise grants the latter the right to receive the cash sur-
render value of the payments already made in case he
defaults in the payments of succeeding installments (Rillo
vs. Court of Appeals, 274 SCRA 461; see also Carmelita
Leao vs. Court of Appeals, G.R. No. 129018, 15 Novem-
ber 2001). In Vda. de Roxas vs. Court of Appeals (143
SCRA 77), it was ruled that there would be no legal basis
for notarial cancellation where the vendors decision is
not so much because the vendee was not paying due
installments on time as the vendors desire to be paid an
amount higher than what was being paid and accepted
regularly.
(iii) In Contracts of Sale:

Of Personal Property
Rights under Article 1593, Civil Code
Art. 1593. With respect to movable property,

the rescission of the sale shall of right take place in
the interest of the vendor, if the vendee, upon the
expiration of the period fixed for the delivery of the
thing, should not have appeared to receive it, or,
having appeared, he should not have tendered the
price at the same time, unless a longer period has
been stipulated for its payment.
Rescission shall of right take place if the vendee,
on the date fixed for delivery of the thing, does not appear
or pay, unless a longer period has been stipulated for
payment (Guevarra vs. Pascual, 12 Phil. 311). A notice of
Title VI. Sales
rescission appears to be required in other cases of breach

of the contract (see Art. 1597, Civil Code, infra.). A stipu-
lation reserving the right of rescission is preferable but
not required. These rules are inapplicable if the vendor
has already effected delivery (but in this case, Article
1526 might still be applicable; see infra.).
Rights under Article 1526, Civil Code

Art. 1526. Subject to the provisions of this Ti-
tle, notwithstanding that the ownership in the goods
may have passed to the buyer, the unpaid seller of
goods, as such, has:
(1) A lien on the goods or right to retain them
for the price while he is in possession of them;
(2) In case of the insolvency of the buyer, a
right of stopping the goods in transitu after he has
parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise lim-
ited by this Title.
Where the ownership in the goods has not
passed to the buyer, the unpaid seller has, in addi-
tion to his other remedies, a right of withholding
delivery similar to and co-extensive with his rights
of lien and stoppage in transitu where the owner-
ship has passed to the buyer.
The seller of goods is deemed to be an unpaid seller:

(1) When the whole of the price has not been paid
or tendered;
(2) When a bill of exchange or other negotiable in-
strument has been received as conditional payment, and
the condition on which it was received has been broken
by reason of the dishonor of the instrument, the insol-
vency of the buyer, or otherwise. The term seller (for
purposes of Arts. 1525-1535, Civil Code) includes an agent

of the seller to whom the bill of lading has been indorsed,
or a consignor or agent who has himself paid, or is di-
rectly responsible for the price, or any other person who
is in the position of a seller (Art. 1525, Civil Code).
The unpaid seller of goods who is in possession thereof
is entitled to retain possession of them until payment or
tender of the price in the following cases, namely:
(1) Where the goods have been sold without any
stipulation as to credit;
(2) Where the goods have been sold on credit, but
the term of credit has expired;
(3) Where the buyer becomes insolvent.
The seller may exercise his right of lien notwith-
standing that he is in possession of the goods as agent or
bailee for the buyer (Art. 1527, Civil Code).
Where an unpaid seller has made part delivery of
the goods, he may exercise his right of lien on the remain-
der, unless such part delivery has been made under such
circumstances as to show an intent to waive the lien or
right of retention (Art. 1528, Civil Code; Katigbak vs.
The unpaid seller of goods loses his lien thereon: (1)
when he delivers the goods to a carrier or other bailee for
the purpose of transmission to the buyer without reserv-
ing the ownership in the goods or the right to the posses-
sion thereof (see Cebu United Enterprises vs. Gallofin,
106 Phil. 491); (2) when the buyer or his agent lawfully
obtains possession of the goods; or (3) by waiver thereof.
The unpaid seller of goods, having a lien thereon,
does not lose his lien by reason only that he has obtained
judgment or decree for the price of the goods (Art. 1529,
Civil Code).
When the buyer of goods is or becomes insolvent, the
unpaid seller who has parted with the possession of the
Title VI. Sales
goods has the right of stopping them in transitu, that is

to say, he may resume possession of the goods at any time
while they are in transit, and he will then become enti-
tled to the same rights in regard to the goods as he would
have had if he had never parted with the possession (Art.
1530, Civil Code). Goods are in transit:
(1) From the time when they are delivered to a
carrier by land, water, or air, or other bailee for the pur-
pose of transmission to the buyer, until the buyer, or his
agent in that behalf, takes delivery of them from such
carrier or other bailee;
(2) If the goods are rejected by the buyer, and the
carrier or other bailee continues in possession of them,
even if the seller has refused to receive them back.
Goods are no longer in transit:
(1) If the buyer, or his agent in that behalf, obtains
delivery of the goods before their arrival at the appointed
destination;
(2) If, after the arrival of the goods at the appointed
destination, the carrier or other bailee acknowledges to
the buyer or his agent that he holds the goods on his
behalf and continues in possession of them as bailee for
the buyer or his agent; and it is immaterial that further
destination for the goods may have been indicated by the
buyer;
(3) If the carrier or other bailee wrongfully refuses
to deliver the goods to the buyer or his agent in that
behalf. If the goods are delivered to a ship, freight train,
truck, or airplane chartered by the buyer, it is a question
depending on the circumstances of the particular case,
whether they are in the possession of the carrier as such
or as agent of the buyer. If part delivery of the goods has
been made to the buyer, or his agent in that behalf, the
remainder of the goods may be stopped in transitu, un-
less such part delivery has been under such circumstances
as to show an agreement with the buyer to give up pos-
session of the whole of the goods (Art. 1531, Civil Code).
The unpaid seller may exercise his right of stoppage

in transitu either by obtaining actual possession of the
goods or by giving notice of his claim to the carrier or
other bailee in whose possession the goods are. Such no-
tice may be given either to the person in actual posses-
sion of the goods or to his principal. In the latter case the
notice, to be effectual, must be given at such time and
under such circumstances that the principal, by the exer-
cise of reasonable diligence, may prevent a delivery to
the buyer. When notice of stoppage in transitu is given by
the seller to the carrier, or other bailee in possession of
the goods, he must redeliver the goods to, or according to
the directions of, the seller. The expenses of such delivery
must be borne by the seller. If, however, a negotiable
document of title representing the goods has been issued
by the carrier or other bailee, he shall not be obliged to
deliver or justified in delivering the goods to the seller
unless such document is first surrendered for cancella-
tion (Art. 1532, Civil Code).
Where the goods are of perishable nature, or where
the seller expressly reserves the right of resale in case the
buyer should make default, or where the buyer has been
in default in the payment of the price for an unreason-
able time, an unpaid seller having a right of lien or hav-
ing stopped the goods in transitu may resell the goods.
He shall not thereafter be liable to the original buyer
upon the contract of sale or for any profit made by such
resale, but may recover from the buyer damages for any
loss occasioned by the breach of the contract of sale. Where
a resale is made, conformably with the foregoing, the
buyer acquires a good title as against the original buyer.
It is not essential to the validity of a resale that notice of
the time and place of such resale should be given by the
seller to the original buyer. The seller is bound to exercise
reasonable care and judgment in making a resale, and
subject to this requirement, may make a resale either by
public or private sale. He cannot, however, directly or
indirectly buy the goods (Art. 1533, Civil Code).
Title VI. Sales
An unpaid seller, having the right of lien or having

stopped the goods in transitu, may rescind the transfer of
title and resume the ownership in the goods where he
expressly reserved the right to do so in case the buyer
should make default, or where the buyer has been in
default in the payment of the price for an unreasonable
time. The seller shall not thereafter be liable to the buyer
upon the contract of sale, but may recover from the buyer
damages for any loss occasioned by the breach of the
contract. The transfer of title shall not be held to have
been rescinded by an unpaid seller until he has mani-
fested by notice to the buyer or by some other overt act an
intention to rescind. It is not necessary that such overt
act should be communicated to the buyer, but the giving
or failure to give notice to the buyer of the intention to
rescind shall be relevant in any issue involving the ques-
tion whether the buyer had been in default for an unrea-
sonable time before the right of rescission was arrested
The unpaid sellers right of lien or stoppage in tran-
situ is not affected by any sale, or other disposition of the
goods which the buyer may have made, unless the seller
has assented thereto. If, however, a negotiable document
of title has been issued for goods, no sellers lien or right
of stoppage in transitu shall defeat the right of any pur-
chaser for value in good faith to whom such document
has been negotiated, whether such negotiation be prior
or subsequent to the notification to the carrier, or other
bailee who issued such document of the sellers claim to a
lien or right of stoppage in transitu (Art. 1535, Civil Code;
see Roman vs. Asia Banking Corp., 46 Phil. 705).
While the goods remain in his possession, the ven-
dor has the preferential right to the purchase price (Unson
vs. Urquijo, etc., 51 Phil. 329) and no action is essential to
rescind the sale (Hanlon vs. Hausserman, 40 Phil. 796,
see also Art. 1593, Civil Code). If the goods, however, are
already in the buyers possession, judicial action (specific
performance or resolution) can be taken. A right to re-
scind without judicial action, however, may be reserved

by the seller. In this case, notice to the buyer of rescission
would be required; to retake possession of the goods not
voluntarily surrendered, judicial action is necessary to
obtain the return of the property.
Of Real Property
Art. 1592. In the sale of immovable property,

even though it may have been stipulated that upon
failure to pay the price at the time agreed upon the
rescission of the contract shall of right take place,
the vendee may pay, even after the expiration of the
period, as long as a demand for rescission of the con-
tract has been made upon him either judicially or by
a notarial act. After the demand, the court may not
grant him a new term (Civil Code).
This provision which permits the vendee to pay, even

after the expiration of the period, as long as no demand
for rescission of the contract has been made upon him
either judicially or by notarial act, does not apply to a
contract to sell or deed of conditional sale where the seller
reserves title until full payment of the price (Alfonso vs.
Court of Appeals, 186 SCRA 400); the latter is entitled to
rescind without regard to Article 1592 (see Joseph & Sons
Enterprises, Inc. vs. Court of Appeals, 143 SCRA 663). In
one case, the Court ruled that a contract to sell condi-
tioned on the payment of the price acquires no obligatory
force if the price is unpaid (Agustin vs. Court of Appeals,
186 SCRA 373).
In the case of Palay, Inc. vs. Clave (124 SCRA 638),
the Court said that judicial action for the rescission of a
contract is not necessary where the contract provides
that it may be revoked or cancelled for violation of any of
its terms and conditions, but as held in previous juris-
prudence, there must be at least a written notice sent to
the defaulter informing him of the rescission.
Title VI. Sales
Where the sale is absolute in nature, the applicable

provision is Article 1592 of the Code (Taguba vs. Vda. de
De Leon, 132 SCRA 722; Dignos vs. Court of Appeals, 158
SCRA 375).
In contracts of sale, judicial resolution (Art. 1191,
Civil Code) is necessary unless extrajudicial rescission is
reserved; in the latter case, a rescission by notarial act is
essential short of judicial action. To retake possession, if
the buyer is unwilling to surrender it, judicial processes
must be sought. A stipulation, entitling one party to take
possession of the land sold if the other party violates the
contract does not ex proprio vigore confer upon the former
the right to take possession thereof, if objected to by the
latter, without judicial intervention and determination
(Zulueta vs. Mariano, 111 SCRA 206).
Unlike the resolution of the contract contemplated
in Article 1191 of the Code, the rescission prescribed un-
der Article 1592 does not authorize the court to grant a
new period for compliance (Bucoy vs. Paulino, 23 SCRA
248). In the interest of justice and equity, however, such
as when there has been a substantial performance in
good faith, it has been held that a court may grant a new
term upon the authority of Article 1234 (supra.) of the
Code (Angeles vs. Calasanz, 135 SCRA 323, citing J.M.
Tuason & Co., Inc. vs. Javier, 31 SCRA 829).
Effect of Mortgage
In Suria vs. Intermediate Appellate Court (151 SCRA
661), the Supreme Court held:
By the contract of sale, the vendor obligates
himself to transfer the ownership of and to deliver a
determinate thing to the buyer, who in turn, is obli-
gated to pay a price certain in money or its equiva-
lent (Art. 1458, Civil Code). From the respondents
own arguments, we note that they have fully com-
plied with their part of the reciprocal obligation. As
a matter of fact, they have already parted with the
title as evidenced by the transfer certificate of title

in the petitioners name as of June 27, 1875.
The buyer, in turn, fulfilled his end of the bar-
gain when he executed the deed of mortgage. The
payments on an installment basis secured by the
execution of a mortgage took the place of a cash
payment. In other words, the relationship between
the parties is no longer one of buyer and seller be-
cause the contract of sale has been perfected and
consummated. It is already one of a mortgagor and a
mortgagee. In consideration of the petitioners prom-
ise to pay on installment basis the sum they owe the
respondents, the latter have accepted the mortgage
as security for the obligation.
The situation in this case is, therefore, differ-
ent from that envisioned in the cited opinion of Jus-
tice J.B.L. Reyes. The petitioners breach of obliga-
tions is not with respect to the perfected contract of
sale but in the obligations created by the mortgage
contract. The remedy of rescission is not a principal
action retaliatory in character but becomes a sub-
sidiary one which by law is available only in the
absence of any other legal remedy (Art. 1384, Civil
Code).
Foreclosure here is not a remedy accorded by
law but as earlier stated, is a specific provision found
in the contract between the parties.
The petitioners are correct in citing this Courts
ruling in Villaruel vs. Tan King (43 Phil. 251) when
we stated:
At the outset it must be said that since the
subject matter of the sale in question is real property,
it does not come strictly within the provisions of
Article 1124 of the Civil Code, but is rather subjected
to the stipulations agreed upon by the contracting
parties and to the provisions of Article 1504 of the
Civil Code.
Title VI. Sales
The pacto commisorio or ley comisoria is noth-

ing more than a condition subsequent of the contract
of purchase and sale. Considered carefully, it is the
very condition subsequent that is always attached to
all bilateral obligations according to Article 1124;
except that when applied to real property it is subor-
dinate to the stipulations made by the contracting
parties and to the provisions of the article on which
we are now commenting (Article 1504). (Manresa,
Civil Code, volume 10, page 286, second edition).
Now, in the contract of purchase and sale be-
fore us, the parties stipulated that the payment of
the balance of one thousand pesos (P1,000) was guar-
anteed by the mortgage of the house that was sold.
This agreement has the two-fold effect of acknowl-
edging indisputably that the sale had been consum-
mated, so much so that the vendee was disposing of
it by mortgaging it to the vendor, and of waiving the
pacto commisorio, that is the resolution of the sale in
the event of failure to pay the one thousand pesos
(P1,000) such waiver being proved by the execution
of the mortgage to guarantee the payment, and in
accord therewith the vendors adequate remedy, in
case of nonpayment, is the foreclosure of such mort-
gage. (At pp. 255-256)
x x x xxx xxx
There is, therefore, no cause for the resolution
of the sale as prayed for by the plaintiff. His action,
at all events, should have been one for the foreclos-
ure of the mortgage, which is not the action brought
in this case.
Article 1124 of the Civil Code, as we have seen,
is not applicable to this case. Neither is the doctrine
enunciated in the case of Ocejo, Perez & Co. vs. Inter-
national Banking Corporation (37 Phil. 631), which
plaintiff alleges to be applicable, because that prin-
ciple has reference to the sale of personal property.
Upon the breach of an obligation, the aggrieved party,

as reiterated in Consolidated Plywood Industries, Inc. vs.
IFC Leasing and Acceptance Corporation (149 SCRA 448),
may opt for specific performance or resolution of the obli-
gation under Article 1191 of the Civil Code. The remedies
are not cumulative but alternative (Osorio and Tirona vs.
Bennet and Prov. Board of Cavite, 41 Phil. 301; Siy vs.
Court of Appeals, 138 SCRA 536). Obviously, the choice is
with the aggrieved party. Thus, where the remedy of spe-
cific performance is chosen, the resolution of the obliga-
tion can no longer be sought unless, of course, the
fulfillment of the obligation is impossible or becomes un-
lawful (see Ayson-Simon vs. Adamos, 131 SCRA 439).
Thus, it is submitted, if the obligation is secured, such as
by a mortgage, the foreclosure thereof would amount to,
in effect, a pursuit of specific performance, and resolu-
tion would no longer be available. The existence of acces-
sory contracts to secure the principal obligations does not
militate nor warrant against the alternative remedy of
resolution. It is not only when there are specific remedies
provided for in certain juridical relations, such as those
found in Articles 1786 and 1788 in partnership, that Arti-
cle 1191 would be inapplicable (see Sancho vs. Lizariaga,
55 Phil. 601). The passing of title of the property sold is
no ground for withholding from the seller the right of
resolution where the buyer breaches his obligation under
his contract. Neither can the execution of the mortgage to
secure the unpaid price be tantamount to the payment of
the price nor the substitute thereof. The essence of the
mortgage is still to the payment compliance in the con-
tract of sale.
Could the vendor demand the rescission of a con-
tract for the sale of a parcel of land for a cause traceable
to his own failure to have the squatters on the subject
property evicted within the contractually-stipulated pe-
riod? The question was posed in Virgilio R. Romero vs.
Hon. Court of Appeals and Enriqueta Chua Vda. De
Ongsiong, G.R. No. 107207, 23 November 1995. The Su-
preme Court ruled:
Title VI. Sales
The term condition in the context of a per-

fected contract of sale pertains, in reality, to the com-
pliance by one party of an undertaking the fulfillment
of which would beckon, in turn, the demandability of
the reciprocal prestation of the other party. The re-
ciprocal obligations referred to would normally be,
in the case of vendee, the payment of the agreed
purchase price and, in the case of the vendor, the
fulfillment of certain express warranties (which, in
the case at bench is the timely eviction of the squat-
ters on the property).
xxx
From the moment the contract is perfected,
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.
Under the agreement, private respondent is obli-
gated to evict the squatters on the property. The
ejectment of the squatters is a condition the opera-
tive act of which sets into motion the period of com-
pliance by petitioner of his own obligation, i.e., to
pay the balance of the purchase price. Private re-
spondents failure to remove the squatters from the
property within the stipulated period gives peti-
tioner the right to either refuse to proceed with the
agreement or waive that condition in consonance
with Article 1545 of the Civil Code. This option clearly
belongs to petitioner and not to private respondent.
We share the opinion of the appellate court
that the undertaking required of private respondent
does not constitute a potestative condition depend-
ent solely on his will that might, otherwise, be void
in accordance with Article 1182 of the Civil Code but
a mixed condition dependent not on the will of the
vendor alone but also of third persons like the squat-
ters and government agencies and personnel con-
cerned. We must hasten to add, however, that where
the so-called potestative condition is imposed not

on the birth of the obligation but on its fulfillment,
only the condition is avoided, leaving unaffected ob-
ligation itself.
In contracts of sale particularly, Article 1545 of
the Civil Code, aforementioned, allows the obligee to
choose between proceeding with the agreement or
waiving the performance of the condition. It is this
provision which is the pertinent rule in the case at
bench. Here, evidently, petitioner has waived the
performance of the condition imposed on private re-
spondent to free the property from squatters.
In any case, private respondents action for re-
scission is not warranted. She is not the injured party.
The right of resolution of a party to an obligation
under Article 1191 of the Civil Code is predicated on
a breach of faith by the other party that violates the
reciprocity between them. It is private respondent
who has failed in her obligation under the contract.
Petitioner did not breach the agreement. He has
agreed, in fact, to shoulder the expenses of the ex-
ecution of the judgment in the ejectment case and to
make arrangements with the sheriff to effect such
execution. In his letter of 23 June 1989, counsel for
petitioner has tendered payment and demanded
forthwith the execution of the deed of absolute sale.
Parenthetically, this offer to pay, having been made
prior to the demand for rescission, assuming for the
sake of argument that such a demand is proper under
Article 1592 of the Civil Code, would likewise suffice
to defeat private respondents prerogative to rescind
thereunder.
Chapter 6
Actions for Breach of Contract of Sale of Goods
Art. 1594. Actions for breach of the contract of

sale of goods shall be governed particularly by the
provisions of this Chapter, and as to matters not spe-
Title VI. Sales
cifically provided for herein, by other applicable provi-

sions of this Title. (n)
Art. 1595. Where, under a contract of sale, the
ownership of the goods has passed to the buyer, and
he wrongfully neglects or refuses to pay for the goods
according to the terms of the contract of sale, the seller
may maintain an action against him for the price of the
goods.
Where, under a contract of sale, the price is pay-
able on a certain day, irrespective of delivery or of trans-
fer of title, and the buyer wrongfully neglects or refuses
to pay such price, the seller may maintain an action for
the price although the ownership in the goods has not
passed. But it shall be a defense to such an action that
the seller at any time before the judgment in such action
has manifested an inability to perform the contract of
sale on his part or an intention not to perform it.
Although the ownership in the goods has not
passed, if they cannot readily be resold for a reasonable
price, and if the provisions of Article 1596, fourth para-
graph, are not applicable, the seller may offer to deliver
the goods to the buyer, and, if the buyer refuses to
receive them, may notify the buyer that the goods are
thereafter held by the seller as bailee for the buyer.
Thereafter the seller may treat the goods as the buyers
and may maintain an action for the price. (n)
Art. 1596. Where the buyer wrongfully neglects or
refuses to accept and pay for the goods, the seller
may maintain an action against him for damages for
non-acceptance.
The measure of damages is the estimated loss
directly and naturally resulting in the ordinary course
of events from the buyers breach of contract.
Where there is an available market for the goods
in question, the measure of damages is, in the ab-
sence of special circumstances showing proximate
damage of a different amount, the difference between
the contract price and the market or current price at
the time or times when the goods ought to have been
accepted, or, if no time was fixed for acceptance, then

at the time of the refusal to accept.
If, while labor or expense of material amount is
necessary on the part of the seller to enable him to
fulfill his obligations under the contract of sale, the
buyer repudiates the contract or notifies the seller to
proceed no further therewith, the buyer shall be liable
to the seller for labor performed or expenses made
before receiving notice of the buyers repudiation or
countermand. The profit the seller would have made if
the contract or the sale had been fully performed shall
be considered in awarding the damages. (n)
Art. 1597. Where the goods have not been deliv-
ered to the buyer, and the buyer has repudiated the
contract of sale, or has manifested his inability to per-
form his obligations thereunder, or has committed a
breach thereof, the seller may totally rescind the con-
tract of sale by giving notice of his election so to do to
the buyer. (n)
Art. 1598. Where the seller has broken a contract
to deliver specific or ascertained goods, a court may, on
the application of the buyer, direct that the contract
shall be performed specifically, without giving the seller
the option of retaining the goods on payment of dam-
ages. The judgment or decree may be unconditional, or
upon such terms and conditions as to damages, payment
of the price and otherwise, as the court may deem just. (n)
Art. 1599. Where there is a breach of warranty by
the seller, the buyer may, at his election:
(1) Accept or keep the goods and set up against
the seller, the breach of warranty by way of recoupment
in diminution or extinction of the price;
(2) Accept or keep the goods and maintain an
action against the seller for damages for the breach of
warranty;
(3) Refuse to accept the goods, and maintain an
warranty;
Title VI. Sales
(4) Rescind the contract of sale and refuse to

receive the goods or if the goods have already been
received, return them or offer to return them to the
seller and recover the price or any part thereof which
has been paid.
When the buyer has claimed and been granted a
remedy in anyone of these ways, no other remedy can
thereafter be granted, without prejudice to the provi-
sions of the second paragraph of Article 1191.
When the goods have been delivered to the buyer,
he cannot rescind the sale if he knew of the breach of
warranty when he accepted the goods without protest,
or if he fails to notify the seller within a reasonable
time of the election to rescind, or if he fails to return or
to offer to return the goods to the seller in substan-
tially as good condition as they were in at the time the
ownership was transferred to the buyer. But if deterio-
ration or injury of the goods is due to the breach of
warranty, such deterioration or injury shall not prevent
the buyer from returning or offering to return the goods
to the seller and rescinding the sale.
Where the buyer is entitled to rescind the sale
and elects to do so, he shall cease to be liable for the
price upon returning or offering to return the goods. If
the price or any part thereof has already been paid, the
seller shall be liable to repay so much thereof as has
been paid, concurrently with the return of the goods,
or immediately after an offer to return the goods in
exchange for repayment of the price.
Where the buyer is entitled to rescind the sale
and elects to do so, if the seller refuses to accept an
offer of the buyer to return the goods, the buyer shall
thereafter be deemed to hold the goods as bailee for
the seller, but subject to a lien to secure the payment
of any portion of the price which has been paid, and
with the remedies for the enforcement of such lien
allowed to an unpaid seller by Article 1526.
(5) In the case of breach of warranty of quality,
such loss, in the absence of special circumstances
showing proximate damage of a greater amount, is the
difference between the value of the goods at the time

of delivery to the buyer and the value they would have
had if they had answered to the warranty. (n)
Where, under a contract of sale, the ownership of the

goods has passed to the buyer, and he wrongfully ne-
glects or refuses to pay for the goods according to the
terms of the contract of sale, the seller may maintain an
action against him for the price of the goods. Where the
price is payable on a certain day, irrespective of delivery
or of transfer of title, and the buyer wrongfully neglects
or refuses to pay such price, the seller may maintain an
action for the price although the ownership in the goods
has not passed. But it shall be a defense to such an action
that the seller at any time before the judgment in such
action has manifested an inability to perform the con-
tract of sale on his part or an intention not to perform it.
Although the ownership in the goods has not passed, if
they cannot readily be resold for a reasonable price, and
if the provisions of Article 1596, fourth paragraph (in-
fra.), are not applicable, the seller may offer to deliver
the goods to the buyer, and, if the buyer refuses to receive
them, may notify the buyer that the goods are thereafter
held by the seller as bailee for the buyer. Thereafter, the
seller may treat the goods as the buyers and may main-
tain an action for the price (see Art. 1595, Civil Code; see
also Matute vs. Cheong Boo, 37 Phil. 372).
Art. 1596. Where the buyer wrongfully neglects

or refuses to accept and pay for the goods, the seller
may maintain an action against him for damages for
non-acceptance.
The measure of damages is the estimated loss
directly and naturally resulting in the ordinary
course of events from the buyers breach of contract.
Where there is an available market for the
goods in question, the measure of damages is, in the
absence of special circumstances showing proximate
Title VI. Sales
damage of a different amount, the difference between

the contract price and the market or current price at
the time or times when the goods ought to have been
accepted, or, if no time was fixed for acceptance,
then at the time of the refusal to accept.
If, while labor or expense of material amount
is necessary on the part of the seller to enable him to
fulfill his obligations under the contract of sale, the
buyer repudiates the contract or notifies the seller to
proceed no further therewith, the buyer shall be li-
able to the seller for labor performed or expenses
made before receiving notice of the buyers repudia-
tion or countermand. The profit the seller would have
made if the contract or the sale had been fully per-
formed shall be considered in awarding the damages
(Civil Code).
In case the goods have not been delivered to the
buyer and the buyer has repudiated the contract of sale,
or has manifested his ability to perform his obligations
thereunder, or has committed a breach thereof, the seller
may totally rescind the contract of sale by giving notice of
his election so to do to the buyer (Art. 1597, Civil Code).
Where the seller has broken a contract to deliver
specific or ascertained goods, a court may, on the applica-
tion of the buyer, direct that the contract shall be per-
formed specifically, without giving the seller the option of
retaining the goods on payment of damages. The judg-
ment or decree may be unconditional, or upon such terms
and conditions as to damages, payment of the price and
otherwise, as the court may deem just (Art. 1598, Civil
Code).
In the event of breach of warranty by the seller, the
buyer may, at his election:
(1) Accept or keep the goods and set up against the
seller, the breach of warranty by way of recoupment in
diminution or extinction of the price;
(2) Accept or keep the goods and maintain an

action against the seller for damages for the breach of war-
ranty;
(3) Refuse to accept the goods, and maintain an
warranty;
(4) Rescind the contract of sale and refuse to re-
ceive the goods or if the goods have already been re-
ceived, return them or offer to return them to the seller
and recover the price or any part thereof which has been
paid. When the buyer has claimed and been granted a
remedy in any of these ways, no other remedy can there-
after be granted, without prejudice to the provisions of
the second paragraph of Article 1191 (supra.). Where the
goods have been delivered to the buyer, he cannot rescind
the sale if he knew of the breach of warranty when he
accepted the goods without protest, or if he fails to notify
the seller within a reasonable time of the election to re-
scind, or if he fails to return or to offer to return the goods
to the seller in substantially as good condition as they
were in at the time the ownership was transferred to the
buyer. But if deterioration or injury of the goods is due to
the breach of warranty, such deterioration or injury shall
not prevent the buyer from returning or offering to re-
turn the goods to the seller and rescinding the sale. Where
the buyer is entitled to rescind the sale and elects to do
so, he shall cease to be liable for the price upon returning
or offering to return the goods. If the price or any part
thereof has already been paid, the seller shall be liable to
repay so much thereof as has been paid, concurrently
with the return of the goods, or immediately after an
offer to return the goods in exchange for repayment of the
price. Where the buyer is entitled to rescind the sale and
elects to do so, if the seller refuses to accept an offer of the
buyer to return the goods, the buyer shall thereafter be
deemed to hold the goods as bailee for the seller, but
subject to a lien to secure the payment of any portion of
the price which has been paid, and with the remedies for
Title VI. Sales
the enforcement of such lien allowed to an unpaid seller

by Article 1526.
(5) In the case of breach of warranty of quality,
such loss, in the absence of special circumstances show-
ing proximate damage of a greater amount, is the differ-
ence between the value of the goods at the time of deliv-
ery to the buyer and the value they would have had if
they had answered to the warranty (Art. 1599, Civil Code).
Cases which are not specifically covered by the fore-
going rules are governed by the other provisions of the
Code on sales (see Art. 1594, Civil Code) and, in their
default, by the remedies applicable to obligations and
contracts in general.
Chapter 7
Extinguishment of Sale
Art. 1600. Sales are extinguished by the same

causes as all other obligations, by those stated in the
preceding articles of this Title, and by conventional or
legal redemption. (1506)
Sales are extinguished by the same causes as all

other obligations, by those stated in the preceding provi-
sions on Sales, and by conventional or legal redemption
(see Art. 1600; see also Art. 1231, Civil Code), regardless
of whether the contract is a perfected sale or a consum-
mated sale (Ocejo, Perez & Co. vs. International Bank, 37
Phil. 631).
Section 1 Conventional Redemption
Art. 1601. Conventional redemption shall take

place when the vendor reserves the right to repurchase
the thing sold, with the obligation to comply with the
provisions of Article 1616 and other stipulations which
may have been agreed upon. (1507)
Art. 1602. The contract shall be presumed to be
an equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repur-

chase is unusually inadequate;
(2) When the vendor remains in possession as
lessee or otherwise;
(3) When upon or after the expiration of the right
to repurchase another instrument extending the period
of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part
of the purchase price;
(5) When the vendor binds himself to pay the
taxes on the thing sold;
(6) In any other case where it may be fairly in-
ferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the
performance of any other obligation.
In any of the foregoing case, any money, fruits, or
other benefit to be received by the vendee as rent or
otherwise shall be considered as interest which shall
be subject to the usury laws. (n)
Art. 1603. In case of doubt, a contract purporting
to be a sale with right to repurchase shall be con-
strued as an equitable mortgage. (n)
Art. 1604. The provisions of Article 1602 shall also
apply to a contract purporting to be an absolute sale.
(n)
Art. 1605. In the cases referred to in Articles 1602
and 1604, the apparent vendor may ask for the
reformation of the instrument. (n)
Art. 1606. The right referred to in Article 1601, in
the absence of an express agreement, shall last four
years from the date of the contract.
Should there be an agreement, the period cannot
exceed ten years.
However, the vendor may still exercise the right
to repurchase within thirty days from the time final
judgment was rendered in a civil action on the basis
Title VI. Sales
that the contract was a true sale with right to repur-

chase. (1508a)
Art. 1607. In case of real property, the consolida-
tion of ownership in the vendee by virtue of the failure
of the vendor to comply with the provisions of Article
1616 shall not be recorded in the Registry of Property
without a judicial order, after the vendor has been duly
heard. (n)
Art. 1608. The vendor may bring his action against
every possessor whose right is derived from the
vendee, even if in the second contract no mention
should have been made of the right to repurchase,
without prejudice to the provisions of the Mortgage
Law and the Land Registration Law with respect to
third persons. (1510)
Art. 1609. The vendee is subrogated to the ven-
dors rights and actions. (1511)
Art. 1610. The creditors of the vendor cannot make
use of the right of redemption against the vendee, until
after they have exhausted the property of the vendor.
(1512)
Art. 1611. In a sale with a right to repurchase, the
vendee of a part of an undivided immovable who ac-
quires the whole thereof in the case of Article 498, may
compel the vendor to redeem the whole property, if the
latter wishes to make use of the right of redemption.
(1513)
Art. 1612. If several persons, jointly and in the
same contract, should sell an undivided immovable
with a right of repurchase, none of them may exercise
this right for more than his respective share.
The same rule shall apply if the person who sold
an immovable alone has left several heirs, in which
case each of the latter may only redeem the part which
he may have acquired. (1514)
Art. 1613. In the case of the preceding article, the
vendee may demand of all the vendors or co-heirs that
they come to an agreement upon the repurchase of the
whole thing sold; and should they fail to do so, the

vendee cannot be compelled to consent to a partial
redemption. (1515)
Art. 1614. Each one of the co-owners of an undi-
vided immovable who may have sold his share sepa-
rately, may independently exercise the right of repur-
chase as regards his own share, and the vendee can-
not compel him to redeem the whole property. (1516)
Art. 1615. If the vendee should leave several heirs,
the action for redemption cannot be brought against
each of them except for his own share, whether the
thing be undivided, or it has been partitioned among
them.
But if the inheritance has been divided, and the
thing sold has been awarded to one of the heirs, the
action for redemption may be instituted against him
for the whole. (1517)
Art. 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;
(2) The necessary and useful expenses made on
the thing sold. (1518)
Art. 1617. If at the time of the execution of the
sale there should be on the land, visible or growing
fruits, there shall be no reimbursement for or prorating
of those existing at the time of redemption, if no in-
demnity was paid by the purchaser when the sale was
executed.
Should there have been no fruits at the time of
the sale, and some exist at the time of redemption,
they shall be prorated between the redemptioner and
the vendee, giving the latter the part corresponding to
the time he possessed the land in the last year, counted
from the anniversary of the date of the sale. (1519a)
Art. 1618. The vendor who recovers the thing sold
shall receive it free from all charges or mortgages con-
Title VI. Sales
stituted by the vendee, but he shall respect the leases

which the latter may have executed in good faith, and
in accordance with the custom of the place where the
land is situated. (1520)
Conventional redemption shall take place when the

vendor reserves the right to repurchase the thing sold,
with the obligation to return to the vendee the purchase
price and the expenses of the contract and other legiti-
mate expenses made by reason of the sale, as well as the
necessary and useful expenses made on the thing sold,
and other stipulations which may have been agreed upon
(Art. 1601, in relation to Art. 1616, Civil Code). Mean-
while, the vendee is subrogated to the vendors rights
and actions (see Art. 1609, Civil Code; Floro vs. Granada,
83 Phil. 487).
The contract, however, shall be presumed to be an
equitable mortgage in any of the following cases:
(1) When the price of a sale with right to repur-
chase is unusually inadequate (Cabigao vs. Lim, 50 Phil.
844);
(2) When the vendor remains in possession as les-
see or otherwise (see Capulong vs. Court of Appeals, 130
SCRA 245);
(3) When upon or after the expiration of the right
to repurchase another instrument extending the period
of redemption or granting a new period is executed (Reyes
vs. De Leon, 20 SCRA 369);
(4) When the purchaser retains for himself a part
of the purchase price (Escoto vs. Arcilla, 89 Phil. 199);
(5) When the vendor binds himself to pay the taxes
on the thing sold (see Dalandan vs. Julio, 10 SCRA 400);
and
(6) In any other case where it may be fairly in-
ferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the
performance of any other obligation (Diaz vs. Court of

Appeals, 84 SCRA 483; Buce vs. Court of Appeals, 157
SCRA 330; Escudero vs. Dulay, 158 SCRA 69; Bundalian
In any of the foregoing cases, any money, fruits, or
other benefit to be received by the vendee as rent or
otherwise shall be considered as interest which shall be
subject to usury laws (see Art. 1602, Civil Code). In case
of doubt, a contract purporting to be a sale with right to
repurchase shall be construed as an equitable mortgage
(Art. 1603, Civil Code; see De la Paz vs. Garcia, 18 SCRA
779).
The provisions of Article 1602 shall also apply to a
contract purporting to be an absolute sale (see Art. 1604,
Civil Code; Ramos vs. Court of Appeals, 180 SCRA 635).
In this case, as well as in those referred to in Article
1602, the apparent vendor may ask for the reformation of
the instrument (see Art. 1605, Civil Code; Buce vs. Court
The right to repurchase (referred to in Art. 1601), in
the absence of an express agreement, shall last for four
years from the date of the contract (Heirs of Parco vs.
Haw Pia, 45 SCRA 164; Medel vs. Francisco, 51 Phil.
367; Rosales vs. Reyes, 25 Phil. 495). It was held in one
case that where the sale provided that the repurchase
cannot be made within two years, the four-year period is
to be counted from the time the right can be exercised
(Badayos vs. Court of Appeals, 207 SCRA 209). Should
there be an agreement, the intent of the parties is pri-
mordial (Alojado vs. Lim, 51 Phil. 339). But the period
cannot exceed ten years counted from the execution of
the contract (Dalandan vs. Julio, 10 SCRA 400; Baluyot
vs. Venegas, 22 SCRA 412); the excess shall be deemed
void (Anchuelo vs. Intermediate Appellate Court, 147
SCRA 434; see also Art. 1606, Civil Code). The vendor,
however, may still exercise the right to repurchase within
thirty days from the time final judgment was rendered in
Title VI. Sales
a civil action on the basis that the contract was a true

sale with right to repurchase (Art. 1606, Civil Code; Feria
vs. Sava, 91 Phil. 963; Gerardino, Sr. vs. CFI [Br. III],
Capiz, 80 SCRA 646). This rule allowing, in effect, the
vendor who failed to repurchase the property within the
period agreed upon to still redeem the property within 30
days from final judgment in a civil action in which the
true nature of the contract (whether it is a sale with
pacto de retro or an equitable mortgage) is the main issue
(see Gonzales vs. De Leon, 4 SCRA 333; Rosario vs.
Rosario, 110 Phil. 394), does not apply where the transac-
tion is admittedly a sale with a right of repurchase. The
pendency of action tolls the terms of the right of redemp-
tion where the action concerning the validity of a sale
with pacto de retro is brought in good faith, said the
Court in Consolidated Bank and Trust Corporation
(Solidbank) vs. Intermediate Appellate Court (150 SCRA
591; reiterating Fernandez vs. Suplido, 96 Phil. 541).
The rule is also applicable to statutory rights of redemp-
tion and appeals (citing Philadelphia Mortgage Co. vs.
Gusters, 75 N.W. 1107).
The non-payment of a balance of the purchase price
does not relieve the vendor-a-retro from exercising within
the time stipulated the right to repurchase the property
by a valid tender of payment, preferably (but not a neces-
sity) followed by consignation. In fine, the fact that the
purchase price is not as yet fully paid does not suspend
the efficacy of the repurchase provisions (Catangcatang
vs. Legayada, 84 SCRA 51).
Persons Entitled to Exercise Redemption

The vendor-a-retro himself normally exercises the
right of redemption. He may also bring his action against
every possessor whose right is derived from the vendee
even if in the second contract no mention should have
been made of the right to repurchase, without prejudice
to the provisions of the Mortgage Law and the Land Reg-
istration laws with respect to third persons (see Art. 1908,

Civil Code; Rivera vs. Court of Appeals, 176 SCRA 169;
Alarcon vs. Esteva, 16 SCRA 123). The creditors of the
vendor cannot make use of the right of redemption against
the vendee until after they have exhausted the property
of the vendor (Art. 1610, Civil Code).
Each one of the co-owners of an undivided immov-
able, who may have sold his share separately, may
independently exercise the right of repurchase as regards
his own share, and the vendee cannot compel him to
redeem the whole property (Art. 1614, Civil Code). The
vendee, however, of a part of an undivided immovable
who acquires the whole thereof in the case of Article 498
(supra., on Co-ownership) may compel the vendor to re-
deem the whole property, if the latter wishes to make use
of the right of redemption (see Art. 1611, Civil Code).
If several persons, jointly and in the same contract,
should sell an undivided immovable with a right of re-
purchase, none of them may exercise this right for more
than his respective share. This rule shall also apply if the
person who has sold an immovable alone has left several
heirs, in which case each of the latter may only redeem
the part which he may have acquired (see De Guzman vs.
Court of Appeals, 148 SCRA 75; Art. 1612, Civil Code). In
this latter case, the vendee may demand of all the ven-
dors or co-heirs that they come to an agreement upon the
repurchase of the whole thing sold; and should they fail
to do so, the vendee cannot be compelled to consent to a
partial redemption (Art. 1613, Civil Code).
If the vendee should leave several heirs, the action
for redemption cannot be brought against each of them
except for his own share, whether the thing be divided, or
it has been partitioned among them. But if the inherit-
ance has been divided and the thing sold has been awarded
to one of the heirs, the action for redemption may be
instituted against him for the whole (Art. 1615, Civil
Code).
Title VI. Sales
Exercise and Effects of Redemption

Art. 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;
(2) The necessary and useful expenses made
on the thing sold. (Civil Code; see Calagan vs. Court
of First Instance, 95 SCRA 498).
The proper exercise of the conventional right of re-

demption requires a tender of payment; a mere letter
expressing that desire is not sufficient (Uy Lee vs. Court
of Appeals, 68 SCRA 196). Judicial consignation is not
necessary (see Badayos vs. Court of Appeals, 207 SCRA
209; Legaspi vs. Court of Appeals, 142 SCRA 82).
The right of redemption is correctly availed of, held
the Court in Anchuelo vs. Intermediate Appellate Court
(147 SCRA 434), by returning the price of the sale; it is
not sufficient to intimate or to state to the vendee a retro
the vendors desire to redeem, who must thereupon offer
to repay the price (citing Fructo vs. Fuentes, 15 Phil. 394
and other cases). In Hulganza vs. Court of Appeals (147
SCRA 77), the Court was more explicit, thus:
The only issue raised herein, is whether or not
it is necessary that the formal offer to redeem the
land in question be accompanied by a bona fide ten-
der of the redemption price, or the repurchase price
be consigned in Court, within the period of redemp-
tion even if the right is exercised through the filing
of a judicial action. (Brief for Petitioners, p. 5; Rollo,
p. 110).
x x x
The issue has already been laid to rest in suc-
cessive decisions of the Supreme Court which ruled:
The formal offer to redeem, accompanied

by a bona fide tender of the redemption price,
within the period of redemption prescribed by
law, is only essential to preserve the right of re-
demption for future enforcement beyond such
period of redemption and within the period pre-
scribed for the action by the statute of limita-
tions. Where, as in the instant case, the right to
redeem is exercised thru the filing of judicial
action within the period of redemption pre-
scribed by the law, the formal offer to redeem,
accompanied by a bona fide tender of the re-
demption price, might be proper, but it is not
essential. The filing of the action itself, within
the period of redemption, is equivalent to a for-
mal offer to redeem. Any other construction,
particularly with reference to redemption of
homesteads conveyed to third parties, would
work hardships on the poor homesteaders who
cannot be expected to know the subtleties of the
law, and would defeat the evident purpose of the
Public Land Law to give the homesteader or
patentee every chance to preserve for himself
and his family the land that the state granted
him as a reward for his labor in cleaning and
cultivating it. (Avendao vs. Hao Su Ton, 47 Off.
Gaz., 357; Pascua vs. Talens, 45 Off. Gaz., Supp.
No. 9, 413; Reveros vs. Abel, et al., 48 Off. Gaz.,
5318-5319 [1952]; recently reiterated in
Tolentino vs. Court of Appeals, 106 SCRA 526
[1981]).
In view of the foregoing consideration, it ap-
pears evident that the bona fide tender of the redemp-
tion price or its equivalent consignation of said
price in court is not essential or necessary in the case
at bar where the filing of the action itself is equiva-
lent to a formal offer to redeem.
If at the time of the execution of the sale there should
be on the land visible or growing fruits, there shall be no
Title VI. Sales
reimbursement for or prorating of those existing at the

time of redemption if no indemnity was paid by the pur-
chaser when the sale was executed. Should there have
been no fruits at the time of the sale and some exist at the
time of redemption, they shall be pro-rated between the
redemptioner and the vendee, giving the latter the part
corresponding to the time he possessed the land in the
last year, counted from the anniversary of the date of the
sale (Art. 1617, Civil Code). The parties, however, may
provide for different rules (see Almeda vs. Daluro, 79
SCRA 327).
The vendor who recovers the thing sold shall receive
it free from all charges or mortgages constituted by the
vendee, but he shall respect the leases which the latter
may have executed in good faith, and in accordance with
the custom of the place where the land is situated (Art.
1618, Civil Code).
Failure of Redemption
If the vendor fails to redeem the property within the
prescribed period, the right is lost and all rights pertain-
ing to the property and all those incidental thereto are
irrevocably consolidated in the buyer (see Penaco vs.
Ruaya, 110 SCRA 46). In the case of real property, how-
ever, the consolidation of ownership in the vendee by
virtue of the failure of the vendor to comply with the
provisions of Article 1616 (see supra.) shall not be re-
corded in the Registry of Property without a judicial or-
der in an ordinary civil action, after the vendor has been
duly heard (see Art. 1607, Civil Code; Yturralde vs. Court
of Appeals, 43 SCRA 313). The judicial hearing refers not
to the consolidation itself which vests by operation of law
but to the registration of the consolidation (De Bayquen
vs. Balaoro, 143 SCRA 412; but see Flores vs. So, 162
SCRA 117 and Medida vs. Court of Appeals, 208 SCRA
887 on foreclosed property).
Section 2 Legal Redemption
Art. 1619. Legal redemption is the right to be sub-

rogated, upon the same terms and conditions stipu-
lated in the contract, in the place of one who acquires
a thing by purchase or dation in payment, or by any
other transaction whereby ownership is transmitted by
onerous title. (1521a)
Art. 1620. A co-owner of a thing may exercise the
right of redemption in case the shares of all the other
co-owners or of any of them, are sold to a third per-
son. If the price of the alienation is grossly excessive,
the redemptioner shall pay only a reasonable one.
Should two or more co-owners desire to exercise
the right of redemption, they may only do so in propor-
tion to the share they may respectively have in the
thing owned in common. (1522a)
Art. 1621. The owners of adjoining lands shall also
have the right of redemption when a piece of rural land,
the area of which does not exceed one hectare, is alien-
ated, unless the grantee does not own any rural land.
This right is not applicable to adjacent lands which
are separated by brooks, drains, ravines, roads and
other apparent servitudes for the benefit of other es-
tates.
If two or more adjoining owners desire to exer-
cise the right of redemption at the same time, the owner
of the adjoining land of smaller area shall be preferred;
and should both lands have the same area, the one
who first requested the redemption. (1523a)
Art. 1622. Whenever a piece of urban land which
is so small and so situated that a major portion thereof
cannot be used for any practical purpose within a rea-
sonable time, having been bought merely for specula-
tion, is about to be re-sold, the owner of any adjoining
land has a right of pre-emption at a reasonable price.
If the re-sale has been perfected, the owner of the
adjoining land shall have a right of redemption, also at
a reasonable price.
Title VI. Sales
When two or more owners of adjoining lands wish

to exercise the right of pre-emption or redemption, the
owner whose intended use of the land in question ap-
pears best justified shall be preferred. (n)
Art. 1623. The right of legal pre-emption or re-
demption shall not be exercised except within thirty
days from the notice in writing by the prospective ven-
dor, or by the vendor, as the case may be. The deed of
sale shall not be recorded in the Registry of Property,
unless accompanied by an affidavit of the vendor that
he has given written notice thereof to all possible
redemptioners.
The right of redemption of co-owners excludes
that of adjoining owners. (1524a)
Legal redemption is the right to be subrogated, upon

the same terms and conditions stipulated in the contract,
in the place of one who acquires a thing by purchase or
dation in payment, or by any other transaction whereby
ownership is transmitted by onerous title (Art. 1619, Civil
Code).
Illustrative Instances
(1) A co-owner of a thing may exercise the right of
redemption not right of pre-emption (Reyes vs. Hon. Judge,
190 SCRA 171) in case the shares of all the other co-
owners or of any of them are sold to a third person. If the
price of the alienation is grossly excessive, the
redemptioner shall pay only a reasonable one. Should
two or more co-owners desire to exercise the right of
redemption, they may only do so in proportion to the
share they may respectively have in the thing owned in
common (Art. 1620, Civil Code; see Salatandol vs. Retes,
162 SCRA 568). In Villanueva vs. Florendo (139 SCRA
329), the petitioners and respondent Concepcion
Villanueva were the children of the spouses Macario
Villanueva and Basilia Garcia. The spouses owned a small
lot in Aparri. In 1944, Basilia Garcia died intestate. In
1964, Macario Villanueva sold to Erlinda Villangca, wife
of Concepcion Villanueva, one-half of the lot. The lot had

not been partitioned. Having been informed of the sale,
the petitioners signified the intention to redeem the por-
tion of the lot sold but the vendee refused to allow the
redemption, contending that redemption would not lie
against her. The petitioners filed a complaint for rescis-
sion of sale and legal redemption. The trial court ren-
dered judgment declaring the vendee the absolute owner
of the lot. The petitioners went to the Supreme Court.
The Supreme Court ruled:
A co-owner of a thing may exercise the right of
redemption in case the shares of all the other co-
owners or of any of them are sold to a third person.
x x x
It is not disputed that co-ownership exists but
the lower court disallowed redemption because it
considered the vendee, Erlinda Villangca, a co-heir,
being married to Concepcion Villanueva, and the
conveyance was held valid since it was in favor of
the conjugal partnership of the spouses in the ab-
sence of any statement that it is paraphernal in char-
acter. Within the meaning of Article 1620, the term
third person or stranger refers to all persons who
are not heirs in succession, and by heirs are meant
only those who are called either by will or the law to
succeed the deceased and who actually succeed. In
short, a third person is any one who is not a co-
owner. x x x
The co-owners should therefore be allowed to
exercise their right to redeem the property sold to
Erlinda Villangca.
The law grants a co-owner the exercise of the right of
redemption when the shares of the other owners are sold
to a stranger or third person. There is no legal redemp-
tion either in case of a mere lease and the purchaser is
also a tenant (Fernandez vs. Spouses Tarun, G.R. No.
143868, 14 November 2002).
Title VI. Sales
(2) The owners of adjoining lands shall have the

right of redemption when a piece of rural land, the area
of which does not exceed one hectare, is alienated, unless
the grantee does not own any rural land. This right is not
applicable to adjacent lands which are separated by
brooks, drains, ravines, roads and other apparent
servitudes for the benefit of other estates. If two or more
adjoining owners desire to exercise the right of redemp-
tion at the same time, the owner of the adjoining land of
smaller area shall be preferred; and should both lands
have the same area, the one who first requested the re-
demption (Art. 1621, Civil Code).
(3) Whenever a piece of urban land which is so
small and so situated that a major portion thereof cannot
be used for any practical purpose within a reasonable
time, having been bought merely for speculation, is about
to be resold, the owner of any adjoining land has a right
of pre-emption at a reasonable price. If the resale has
been perfected, the owner of the adjoining land shall have
a right of redemption, also at a reasonable price. When
two or more owners of adjoining lands wish to exercise
the right of pre-emption or redemption, the owner whose
intended use of the land in question appears best justi-
fied shall be preferred (Art. 1622, Civil Code). This provi-
sion of the Civil Code only deals with small urban lands
that have been purchased for speculation where only ad-
joining lot owners can exercise the right of pre-emption
or redemption (Sen Po Ek Marketing Corporation vs.
Martinez, 120 SCAD 712, 325 SCRA 210).
The right of redemption of co-owners excludes that
of adjoining owners (Art. 1623, Civil Code; Alonzo vs.
Intermediate Appellate Court, 150 SCRA 259).
Period of and Exercise of Redemption

The right of legal pre-emption or redemption shall
not be exercised except within thirty days from the notice
in writing by the prospective vendor, or by the vendor, as
the case may be. The deed of sale shall not be recorded in
the Registry of Property, unless accompanied by an affi-

davit of the vendor that he has given written notice thereof
to all possible redemptioners (Art. 1623, Civil Code;
Cabrera vs. Villanueva, 160 SCRA 672, Salatandol vs.
Retes, 162 SCRA 568). Notice is indispensable, and ac-
tual knowledge by the redemptioner is not legally suffi-
cient (Conejero vs. Court of Appeals, 16 SCRA 775). In a
later case, however, it was held that written notice to a
co-owner is not necessary if the latter is actually aware,
being an intermediary, of the sale (see Distrito vs. Court
of Appeals, 197 SCRA 606). In Spouses Si vs. Court of
Appeals (135 SCAD 754, 342 SCRA 653), it was held that
a written notice should be treated as being a formal req-
uisite to make certain that the co-owners had actual no-
tice of the sale to enable them to exercise their right of
redemption within the limited period of thirty days. But
where the co-owners had actual notice of the sale at the
time thereof and/or afterwards, a written notice of a fact
already known to them would be superfluous.
To exercise the right, tender of payment, unlike in
conventional redemption, is not required; it is enough
that an offer to redeem is made in proper form (see Torio
vs. Del Rosario, 93 Phil. 800). Substantial compliance
with the requirements for legal redemption is sufficient
to exercise the right to redeem the property. Thus, the
failure to include in the redemption price the registration
fee of P3.00 paid by the auction buyer is not a substantial
defect (see Rosales vs. Yoa, 120 SCRA 869).
Other instances of legal redemption include the right
of redemption in the foreclosure of mortgages (Sec. 6, Act
3135), execution sales (Sec. 29, Rule 39), levy of real prop-
erty for unpaid taxes (National Internal Revenue Code
and Local Government Code) and other cases under spe-
cial laws. In execution sales, the exercise of the right of
redemption is not conditioned upon ownership of the prop-
erty sold on execution but by virtue of a writ of execution
directed against such judgment debtor. Thus, it is the
judgment debtor who has the right to redeem the prop-
Title VI. Sales
erty and not any third-party claimant. In no case may a

third party claimant be allowed to exercise right of re-
demption unless he is a successor-in-interest of the judg-
ment debtor or a redemptioner (creditor) (CMS Stock
Brokerage, Inc. vs. Court of Appeals, G.R. No. 124347, 21
July 1997).
The use of a check is not improper in the exercise of
the right of redemption by judicial action (Tolentino vs.
Redemption Distinguished from Option to Buy

One must take note of the distinction between the
right of repurchase and an option to buy. In Villarica vs.
Court of Appeals (26 SCRA 189; reiterated in Vda. de
Cruzo vs. Carriaga, Jr., 174 SCRA 330), the Supreme
Court made this observation:
x x x. An option to buy is different and distinct
from the right of repurchase which must be reserved
by the vendor, by stipulation to that effect, in the
contract of sale. This is clear from the provision of
Article 1601 of the Civil Code.
The right of repurchase is not a right granted
the vendor by the vendee in a subsequent instru-
ment, but is a right reserved by the vendor in the
same instrument of sale as one of the stipulations of
the contract. Once the instrument of absolute sale is
executed, the vendor can no longer reserve the right
to repurchase, and any right thereafter granted the
vendor by the vendee in a separate instrument can-
not be a right of repurchase but some other right like
the option to buy in the instant case.
Where the deed of sale and option to repurchase,
although written on separate documents, are executed
on the same date, the same, said the Court in one case,
can be considered as a sale with a right of repurchase
(Claravall vs. Court of Appeals, 190 SCRA 439; Capulong
vs. Court of Appeals, 130 SCRA 248). When made after
the sale, the right to repurchase, without independent

consideration becomes a mere promise to sell (Diamante
vs. Court of Appeals, 206 SCRA 52). In a pacto de retro
sale, the vendor imposes the right to repurchase as a
condition of the sale; in an option to buy or in a promise to
sell, it is the vendee who grants the right and subjects
the act to the rules governing offers or options.
Chapter 8
Assignment of Credits and Other
Incorporeal Rights
Art. 1624. An assignment of credits and other in-

corporeal rights shall be perfected in accordance with
the provisions of Article 1475. (n)
Art. 1625. An assignment of a credit, right or ac-
tion shall produce no effect as against third persons,
unless it appears in a public instrument, or the instru-
ment is recorded in the Registry of Property in case
the assignment involves real property. (1526)
Art. 1626. The debtor who, before having know-
ledge of the assignment, pays his creditor shall be
released from the obligation. (1527)
Art. 1627. The assignment of a credit includes all
the accessory rights, such as a guaranty, mortgage,
pledge or preference. (1528)
Art. 1628. The vendor in good faith shall be re-
sponsible for the existence and legality of the credit at
the time of the 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 insol-
vency 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 answer-
able for the payment of all expenses, and for damages.
(1529)
Title VI. Sales
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.
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. (1530a)
Art. 1630. One who sells an inheritance without
enumerating the things of which it is composed, shall
only be answerable for his character as an heir. (1531)
Art. 1631. One who sells for a lump sum the whole
of certain rights, rents, or products, shall comply by
answering for the legitimacy of the whole in general; but
he shall not be obliged to warrant each of the various
parts of which it may be composed, except in the case
of eviction from the whole or the part of greater value.
(1532a)
Art. 1632. Should the vendor have profited by some
of the fruits or received anything from the inheritance
sold, he shall pay the vendee thereof, if the contrary
has not been stipulated. (1533)
Art. 1633. The vendee shall, on his part, reimburse
the vendor for all that the latter may have paid for the
debts of and charges on the estate and satisfy the
credits he may have against the same, unless there is
an agreement to the contrary. (1534)
Art. 1634. When a credit or other incorporeal right
in litigation is sold, the debtor shall have a right to
extinguish it by reimbursing the assignee for the price
the latter paid therefore, the judicial costs incurred by
him, and the interest on the price from the day on
which the same was paid.
A credit or other incorporeal right shall be con-
sidered in litigation from the time the complaint con-
cerning the same is answered.
The debtor may exercise his right within thirty
days from the date the assignee demands payment
from him. (1535)
Art. 1635. From the provisions of the preceding

article shall be excepted the assignments or sales
made:
(1) To a co-heir or co-owner of the right assign-
ed;
(2) To a creditor in payment of his credit;
(3) To the possessor of a tenement or piece of
land which is subject to the right in litigation assigned.
(1536)
Assignment of Credit
An assignment of credit is an act of transferring,
either onerously or gratuitously, the right of an assignor
to an assignee who would then be capable of proceeding
against the debtor for enforcement or satisfaction of the
credit. The transfer of rights takes place upon perfection
of the contract, and ownership of the right, including all
appurtenant accessory rights, is thereupon acquired by
the assignee. The assignment binds the debtor only upon
acquiring knowledge of the assignment but he is entitled,
even then, to raise against the assignee the same defenses
he could set up against the assignor. Where the assign-
ment is on account of pure liberality on the part of the
assignor, the rules on donation would likewise be perti-
nent; where valuable consideration is involved, the as-
signment partakes of the nature of a contract of sale or
purchase.
Upon an assignment of a contract to sell, the as-
signee is effectively subrogated in place of the assignor
and in a position to enforce the contract to sell to the
same extent as the assignor could (Project Builders Inc.
vs. Court of Appeals, G.R. No. 99433, 19 June 2001, 358
SCRA 626).
An assignment of credit and other incorporeal rights
is perfected, as in a contract of sale, at the moment there
is a meeting of the minds upon the object and the consid-
eration of the transfer (see Art. 1624, in relation to Art.
Title VI. Sales
1475, Civil Code; see also Arts. 1459, 1461 and 1462,
Civil Code; C & C Commercial Corporation vs. Philippine
National Bank, 175 SCRA 1). An assignment of a credit,
right or action shall produce no effect, however, as against
third persons (not successors-in-interest), unless it ap-
pears in a public instrument, or the instrument is re-
corded in the Registry of Property in case the assignment
involves real property (see Art. 1625, Civil Code). The
debtors consent is not required (Rodriguez vs. Court of
Appeals, 207 SCRA 553), but a debtor who pays his credi-
tor before having knowledge of the assignment shall be
released from the obligation (see Art. 1626, Civil Code;
Elizalde & Co. vs. Bian Transp. Co. [CA], 56 O.G. 5886).
Where the juridical relation intended to be established is
one of conventional subrogation, such as when it varies
certain rights and obligations of the parties, Articles 1300-
1304 (supra.) of the Code govern.
Effects of Assignment
In General
The assignment of a credit includes all the accessory
rights, such as guaranty, mortgage, pledge or preference
The vendor in good faith shall be responsible for the
existence and legality of the credit at the time of the 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 (supra.). The vendor in
bad faith shall always be answerable for the payment of
all expenses and for damages (Art. 1628, Civil Code). In
case the assignor in good faith should have made himself
responsible for the solvency of the debtor, and the con-
tracting parties should not have agreed upon the dura-
tion of the liability, it shall last for one year only from the
time of the assignment if the period had already expired.

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 (Art. 1629, Civil Code).
A person is deemed insolvent who either has ceased
to pay his debts in the ordinary course of business or
cannot pay his debts as they become due, whether insol-
vency proceedings have been commenced or not (see Art.
1636, Civil Code).
In Sale of Inheritance
One who sells an inheritance, without enumerating
the things of which it is composed, shall only be answer-
able for his character as an heir (Art. 1630, Civil Code).
Should the vendor have profited by some of the fruits or
received anything from the inheritance sold, he shall pay
the vendee thereof if the contrary has not been stipulated
(Art. 1632, Civil Code). The vendee shall, on his part,
reimburse the vendor for all that the latter may have
paid for the debts of and charges on the estate and satisfy
the credits he may have against the same, unless there is
an agreement to the contrary (Art. 1633, Civil Code).
But a contract upon future inheritance is not al-
lowed except in cases expressly authorized by law (Art.
1347, Civil Code) such as one that partakes the nature of
a partition inter vivos of an estate (Art. 1180, Civil Code,
Chavez vs. Intermediate Appellate Court, 191 SCRA 211).
An affidavit of conformity seeking to validate or ratify a
sale of future inheritance is a useless document (Tanedo
vs. Court of Appeals, 67 SCAD 57, 252 SCRA 80).
One who sells for a lump sum the whole of certain
rights, rents, or products shall comply by answering for
the legitimacy of the whole in general; but he shall not be
obliged to warrant each of the various parts of which it
may be composed, except in the case of eviction from the
whole or the part of greater value (Art. 1631, Civil Code).
Title VI. Sales
In Sale of Credit under Litigation

When a credit or other incorporeal right in litigation
is sold, the debtor shall have a right to extinguish it by
reimbursing the assignee for the price the latter paid
therefor, the judicial costs incurred by him, and the inter-
est on the price from the day on which the same was paid.
A credit or other incorporeal right shall be considered in
litigation from the time the complaint concerning the
same is answered. The debtor may exercise his right
within thirty days from the date the assignee demands
payment from him (Art. 1634, Civil Code; see NIDC vs.
De los Angeles, 40 SCRA 487). From these provisions
shall be excepted the assignments or sales made:
(1) To a co-heir or co-owner of the right assigned;
(2) To a creditor in payment of his credit;
(3) To the possessor of a tenement or piece of land
which is subject to the right in litigation assigned (see
Chapter 9
General Provisions
Art. 1636. In the preceding articles in this Title

governing the sale of goods, unless the context or
subject matter otherwise requires:
(1) Document of title to goods includes any
bill of lading, dock warrant, quedan, or warehouse
receipt or order for the delivery of goods, or any other
document used in the ordinary course of business in
the sale or transfer of goods, as proof of the posses-
sion or control of the goods, or authorizing or purport-
ing to authorize the possessor of the document to trans-
fer or receive, either by indorsement or by delivery,
goods represented by such document.
Goods includes all chattels personal but not
things in action or money of legal tender in the Philip-
pines. The term includes growing fruits or crops.
Order relating to documents of title means an

order by indorsement on the documents.
Quality of goods includes their state or condi-
tion.
Specific goods means goods identified and
agreed upon at the time a contract of sale is made.
An antecedent or pre-existing claim, whether for
money or not, constitutes value where goods or
documents of title are taken either in satisfaction
thereof or as security therefore.
(2) A person is insolvent within the meaning of
this Title who either has ceased to pay his debts in the
ordinary course of business or cannot pay his debts
as they become due, whether insolvency proceedings
have been commenced or not.
(3) Goods are in a deliverable state within the
meaning of this Title when they are in such a state that
the buyer would, under the contract, be bound to take
delivery of them. (n)
Art. 1637. The provisions of this Title are subject
to the rules laid down by the Mortgage Law and the
Land Registration Law with regard to immovable prop-
erty. (1537a)
The definition of terms in Article 1636 are helpful

guides but are subordinate to the express stipulation of
the parties. Article 1637 must be understood to include
such special laws as may be made explicitly applicable.
337
TITLE VII. BARTER OR EXCHANGE
Art. 1638. By the contract of barter or exchange

one of the parties binds himself to give one thing in
consideration of the others promise to give another
thing. (1538a)
Art. 1639. If one of the contracting parties, having
received the thing promised him in barter, should prove
that it did not belong to the person who gave it, he
cannot be compelled to deliver that which he offered
in exchange, but he shall be entitled to damages.
(1539a)
Art. 1640. One who loses by eviction the thing
received in barter may recover that which he gave in
exchange with a right to damages, or he can only de-
mand an indemnity for damages. However, he can only
make use of the right to recover the thing which he
has delivered while the same remains in the posses-
sion of the other party, and without prejudice to the
rights acquired in good faith in the meantime by a
third person. (1540a)
Art. 1641. As to all matters not specifically pro-
vided for in this Title, barter shall be governed by the
provisions of the preceding Title relating to sales.
(1541a)
One of the parties to a contract of barter or exchange

binds himself to give one thing in consideration of the
others promise to give another thing (Art. 1638, Civil
Code; see Murphy vs. Trinidad, 44 Phil. 649).
If one of the contracting parties, having received the
thing promised him in barter, should prove that it did not
belong to the person who gave it, he cannot be compelled
to deliver that which he offered in exchange, but he shall
337
be entitled to damages (Art. 1639, Civil Code; see Biagtan

vs. Oller, 62 Phil. 933).
One who loses by eviction the thing received in bar-
ter may recover that which he gave in exchange with a
right to damages, or he may only demand an indemnity
for damages. However, he can only make use of the right
to recover the thing which he has delivered while the
same remains in the possession of the other party, and
without prejudice to the rights acquired in good faith in
the meantime by a third person (Art. 1640, Civil Code).
As to all matters not specifically provided for above,
barter shall be governed by the provisions of the Code
relating to sales (see Art. 1641, Civil Code).

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TABLE OF CONTENTS

Chapter 1 GENERAL PROVISIONS

Article 1156 ........................................................................... 1

Chapter 2 NATURE AND EFFECT

Article 1163 ........................................................................... 4

Section 1 Pure and Conditional Obligations

Article 1179 ........................................................................... 27

Section 2 Obligations with a Period

Article 1193 ........................................................................... 38

Section 3 Alternative Obligations

Article 1199 ........................................................................... 43

Section 4 Joint and Solidary Obligations

Article 1207 ........................................................................... 48

Section 5 Divisible and Indivisible

Article 1223 ........................................................................... 55

Section 6 Obligations with a

Article 1226 ........................................................................... 57

Article 1231 ........................................................................... 61

Section 1 Payment or Performance

Article 1232 ........................................................................... 62

Section 2 Loss of the Thing Due

Article 1262 ........................................................................... 85

Section 3 Condonation or Remission

Article 1270 ........................................................................... 89

Section 4 Confusion or Merger

Article 1275 ........................................................................... 91

Article 1278 ........................................................................... 92

Article 1291 ........................................................................... 97

Chapter 1 GENERAL PROVISIONS

Article 1305 ........................................................................... 106

Chapter 2 ESSENTIAL REQUISITES

Article 1318 ........................................................................... 119

Article 1356 ........................................................................... 137

Article 1359 ........................................................................... 143

Article 1370 ........................................................................... 146

Chapter 6 RESCISSIBLE CONTRACTS

Article 1380 ........................................................................... 150

Article 1390 ........................................................................... 158

Article 1403 ........................................................................... 163

Chapter 9 VOID OR INEXISTENT

Article 1409 ........................................................................... 168

TITLE III NATURAL OBLIGATIONS

Article 1423 ........................................................................... 176

TITLE IV ESTOPPEL (n)

Article 1431 ........................................................................... 180

Chapter 1 GENERAL PROVISIONS

Article 1440 ........................................................................... 190

Chapter 2 EXPRESS TRUSTS

Article 1443 ........................................................................... 192

Chapter 3 IMPLIED TRUSTS

Article 1447 ........................................................................... 193

Chapter 1 NATURE AND FORM

Article 1458 ........................................................................... 199

Chapter 2 CAPACITY TO BUY OR SELL

Article 1489 ........................................................................... 205

Article 1493 ........................................................................... 224

Chapter 4 OBLIGATIONS OF THE VENDOR

Section 1 General Provisions

Article 1495 ........................................................................... 224

Section 2 Delivery of the Thing Sold

Article 1497 ........................................................................... 225

Subsection 1 Warranty in Case

Article 1548 ........................................................................... 265

Subsection 2 Warranty Against Hidden