Obligations

 and  Contracts   when   rights   and   obligations   are   intransmissible   by  

Midterm  reviewer   nature  or  by  stipulation  or  by  provision  of  law.  
  Obligations   arising   from   quasi-­‐contracts   (Ex   Quasi  
Obligation   –   juridical   necessity   to   give,   to   do   or   not   to   Contractu)  
do.   Juridical   relation   whereby   a   person   (creditor/oblige)   • Juridical   relation   arising   from   certain   lawful,  
may   demand   from   another   (debtor/obligor)   the   voluntary   and   unilateral   acts   with   the   objective   of  
observance  of  a  determinate  conduct.   preventing   unjust   enrichment   or   benefit   at   the  
*In   case   of   breach,   may   obtain   satisfaction   from   the   expense  of  another.  
assets  of  the  latter.   • Implied  contract  –  contract  which  arises  where  the  
  intention   of   the   parties   is   not   expressed   but   an  
Elements  of  obligation:   agreement  in  fact,  creating  an  obligation  is  implied  
1. Juridical  tie  or  vindiculum  juris  –  efficient  cause   or  presumed,  show  a  mutual  intent  to  contract.  
established  by  various  sources  of  obligations  of    
law.   Distinction  of  quasi  contract  from  implied  contract:  
2. Object   (Objective   element)   –   prestation   or   Quasi  –  Contract   Implied  Contract  
particular   conduct   required   to   be   observed   by   Not   predicated   on   a   Requires   consent   of   the  
the  debtor  (to  give,  to  do  or  not  to  do).   consent,  unilateral  act   parties  
3. Active   subject   (subjective   element)   –   oblige   or   Basis:   to   the   end   that   Basis:  will  of  the  parties  
creditor,   person   who   can   demand   the   there   be   no   unjust  
fulfillment  of  an  obligation.   enrichment  
4. Passive  subject  (subjective  element)  –  obligor  or    
debtor,   person   from   whom   the   obligation   is   Forms   of   quasi-­‐contracts:   Negotiorum   gestio   and  
juridically  demandable.   Solutio  indebiti  
   
Two  standpoints  of  obligations:   Negotiorum   Gesto   –   juridical   relation   arises   when  
• From  active  subject,  it  is  a  right   person   voluntarily   takes   charge   of   the   agency   or  
• From  passive  subject,  it  is  a  debt   management   of   another’s   abandoned   or   neglected  
  business  or  property  without  the  owner’s  authority.  
Sources  of  obligations:    
1. Law  –  obligations  emanate  from  law  and;   Requisites:  
2. Contracts  –  private  acts,  bilateral  acts   1. Person  (officious  manager  or  gestor)  voluntarily  
3. Quasi  –  contract  –  private  acts,  unilateral,  lawful   assumes   the   management   or   business   of  
acts   another.  
4. Delict  –  private  acts,  unilateral,  unlawful  acts   2. Property   must   be   neglected   or   abandoned.  
5. Quasi  –  delict  -­‐  private  acts,  unilateral,  unlawful   Otherwise,   results   to   a   case   of  
acts   unauthorized/unenforceable  contract.  
  3. No   authorization   from   owner,   whether  
Obligations  arising  from  Law  (Ex  Lege)     expressly   or   implied.   Otherwise,   it’s   a   contract  
• Not  presumed.  ONLY  those  expressly  determined  in   of  agency.  
the  NCC  or  special  laws  are  demandable.   4. Assumption   of   agency   must   be   done   in   good  
  faith.  
Obligations  arising  from  Contracts  (Ex  Contractu)    
• Obligatory   force   of   contracts.   Has   force   of   law   Obligations  created  in  Negotiorum  Gestio  
A. On  part  of  the  officious  manager  or  gestor:  
between   the   contracting   parties   and   should   be  
a. Obliged   to   continue   with   the   agency   or  
complied  with  in  good  faith.  
management   until   the   termination   of   the  
• Relativity   of   contracts.   Effective   only   between   the  
affair   of   its   incidents.   Exception:   Can   only  
parties,   including   their   heirs   and   assigns   except  
require   owner   to   substitute   him   if   the  
owner  can  do  so  (requires  proof)  
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 b. Obliged   to   observe   the   diligence   of   a   good   assumed   to   save   thing   or   business   from  
father   of   a   family.   If   owner   suffers   damage   imminent  danger  
by   reason   of   the   fault   or   negligence   by   the    
gestor,   he   is   liable   to   pay   damages   to   the   B. On   part   of   the   owner,   he’s   liable   to   the   gestor   for  
former.   Courts   may   increase   or   moderate   the  following:  
the   indemnity   according   to   the   a. Obligations  incurred  in  his  interest  
circumstance.   b. Necessary  and  useful  expenses  
c. Ordinarily,   not   liable   for   any   loss   or   damage   c. Damages   suffered   by   gestor   in   the  
to   property   or   business   by   reason   of   performance   of   his   duties   in   the   following  
fortuitous  event  except:   situations:  
i. Undertakes   risky   operations   which   i. Owner   enjoys   the   advantages   of  
owner   was   not   accustomed   or   gestor’s  management  
embark  upon   ii. Management’s   prevention   of   an  
ii. Prefers   his   own   interest   to   that   of   imminent   and   manifest   loss,  
the  owner   although  no  benefit  may  have  been  
iii. Fails   to   return   the   property   or   derived  
business   after   demanded   by   the   iii. Even  if  he  did  not  derive  any  benefit  
owner   and   there   has   been   no   imminent  
iv. Assumes  management  in  bad  faith   danger  to  property,  provided  that:  
v. Manifestly   unfit   to   carry   on   the   1. Gestor  acted  in  good  faith  
management   except   when   the   2. Property   or   business   is  
same   was   assumed   to   save   intact,  ready  to  be  returned  
property   or   business   from    
imminent  danger   Modes  of  extinguishing  officious  management:  
vi. Prevents  a  more  competent  person   A. Repudiation  by  the  owner,  expressly  or  tacitly  
from  taking  up  the  management  by   B. Putting  an  end  to  management  by  the  owner  
his   intervention,   except   when   the   C. Death,   civil   interdiction,   insanity   or   insolvency  
same   was   assumed   to   save   of  either  party  
property   or   business   from   D. Withdrawal   from   management   by   the   gestor,  
imminent  danger   but   he   can   only   do   so   if   the   owner   is   in   a  
d. Personally  liable  for  contracts  which  he  has   position  to  substitute  for  him  
entered   into   with   third   persons   even    
though  he  acted  in  the  name  of  the  owner   Solutio   indebiti   –   juridical   relation   arises   when  
i. Rule:   there   shall   be   no   right   of   something  is  received  when  there’s  no  right  to  demand  
action  between  the  owner  and  such   it,  unduly  delivered  through  mistake.  
third   persons,   except   1)   if   the    
owner   has   ratified   the   Requisites:  
management,  expressly  or  tacitly  or   1. Payment   is   made   when   there   exists   no   binding  
2)   when   the   contract   refers   to   relation   between   the   payor,   who   has   no   duty   to  
things   pertaining   to   the   owner   of   pay,  and  the  person  who  received  the  payment  
the  business   2. Payment  is  made  through  mistake,  not  through  
e. If  gestor  delegates  to  another  person  all  or   liberality  or  some  other  causes  
some  of  his  duties,  he’s  liable  for  the  acts  of    
the   delegate   without   prejudice   to   the   direct   Obligations  created  in  Solutio  Indebiti  
obligation  of  delegate  to  the  owner.   A. Recipient  has  the  obligation  to  return  what  has  
f. Liability   of   2   or   more   gestors:   obligation   is   been  unduly  delivered  
solidary.   Jointly   when   management   was   B. If   he   acted   in   bad   faith,   he’s   also   liable   to   a)   pay  
legal   interest   if   sum   of   money   is   involved   b)  

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 return   the   fruits   he   received   or   those   which   others   wherein   no   civil   liability   arises   on   the  
should   have   been   received,   if   the   thing   part   of   the   offender   either   because   1)   there   are  
produces  fruits   no   damages   to   be   compensated   or   2)   there   is  
C. If  in  good  faith,  responsible  for  the  impairment   no  private  person  injured  by  the  crime  
or   loss   of   the   thing   or   its   accessories   and    
accessions  as  he  has  thereby  been  benefitted.  If   *Criminal   liability   will   give   rise   to   civil   liability   only   if   the  
he   has   alienated   it,   obliged   to   return   to   the   same   felonious   act   or   omission   results   in   damage   or  
price  or  assign  the  action  to  collect  the  sum   injury  to  another  and  is  the  direct  and  proximate  cause  
D. Responsibility   of   two   or   more   payees,   when   thereof  
there’s   been   payment   of   what   is   not   due,   is   *Damage   or   injury   to   another   is   evidently   the  
solidary.   foundation  of  civil  action  
   
Presumption   of   mistake:   if   something   which   had   never   Two  kinds  of  acquittal:  
been   due   or   had   already   been   paid   was   delivered,   1. Not  author  of  act  or  omission  –  closes  the  door  
recipient  may  prove  that  the  delivery  was  made  out  of   to   civil   liability,   person   who   has   been   found   to  
liberality  or  for  any  other  just  cause.     be   not   the   perpetuator   of   any   act   or   omission  
  cannot  and  can  never  be  held  liable.  
Concept   of   in   rem   verso:   action   for   recovery   in   solutio   Rule  III  of  RoC:  Civil  action  based  on  delict  shall  
indebiti   be   deemed   extinguished   if   there   is   a   final  
Elements:   judgment   in   criminal   action   that   the   act   or  
1. Defendant  has  been  enriched   omission  from  which  the  civil  liability  may  arise  
2. Plaintiff  has  suffered  a  loss   did  not  exist.  
3. Enrichment  is  without  just  or  legal  ground   Sec  2  of  Rule  II  applies  only  to  civil  action  arising  
4. Plaintiff  has  no  other  action  based  on  contract,   from   crime   and   not   from   quasi-­‐delicts   or   culpa  
quasi  contract,  crime  or  quasi  delict   aquiliana—will   not   be   extinguished   by   an  
  acquittal  
Distinctions  between  In  Rem  Verso  and  Solutio  Indebiti:   *An   acquittal   or   conviction   in   criminal   case   is  
In  Rem  Verso   Solutio  Indebiti   entirely   irrelevant   in   the   civil   case   based   on  
Mistake  not  necessary   Mistake   is   an   essential   quasi-­‐delict  or  culpa  aquiliana  
element   2. Reasonable   doubt   –   Art.29   of   NCC,   civil   action  
Auxiliary  action,  available     for  damages  is  for  the  same  act  or  omission  
only   when   there’s   no    
other  remedy   Instances   where   acquittal   does   not   extinguish   civil  
Art.  22  of  NCC  –  principle     liability:  
of  unjust  enrichment  
1. Acquittal   is   based   on   reasonable   doubt   as   only  
 
preponderance  of  evidence  is  required.  
Other  forms  of  quasi-­‐contracts:  
2. Court  declares  the  liability  of  the  accused  is  only  
• Support  and  funeral  expenses  
civil  
• Accidents  and  calamities   3. Civil  liability  does  not  arise  from  or  is  not  based  
  upon   the   crime   of   which   the   accused   is  
Obligations  arising  from  Delicts  (Ex  Delicto):   acquitted  
Art.   100   of   NCC   –   every   person   criminally   liable   for   a    
felony  is  also  civilly  liable.   General   rule:   when   criminal   action   is   instituted,   the   civil  
Dual  Character  of  a  crime:   action  for  recovery  of  civil  liability  ex  delicto  is  deemed  
1. As   an   offense   against   the   state   because   of   the   instituted  with  the  criminal  action.  
disturbance  of  social  order   Exceptions:  
2. As   an   offense   against   the   private   person   injured   1. When  offended  party  waives  civil  action    
by   the   crime   unless   it   involves   the   crime   of   2. Reserves  his  right  to  institute  it  separately  
treason,   rebellion,   espionage,   contempt   and  
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 3. Institutes  the  civil  action  prior  to  criminal  action   Negligence   merely   Negligence   is   substantive  
  incidental   to   already   and  independent  
Effect   of   death   of   accused   on   pending   appeal   of   existing  obligation  
conviction:   Vinculum   juris   exists   Negligence   itself   creates  
1. Criminal   liability   and   civil   liability   arising   from   independently   of   the   the  vinculum  
delict  is  extinguished     negligence  
2. Civil   liability   arising   from   other   source   of   Not   necessary   to   prove   Burden   of   proof   rests  
negligence:   proof   of   upon   the   plaintiff   to  
obligation  survives,  should  be  filed  separately  
contract   is   sufficient   prove.  
 
prima  facie  
 
 
 
 
Obligations  arising  from  quasi-­‐delicts  (Ex  Cuasi  Delicto)  
Kinds  of  Obligation  
Requisites  for  recovery:  
Basis:   from   the   viewpoint   of   their   juridical   quality  
1. Damage  suffered  by  plaintiff  
and/or  efficaciousness  
2. Fault  or  negligence  of  defendant  
Civil  obligations  –  based  on  positive  law,  gives  the  right  
3. Connection   of   cause   and   effect   between   the  
of  action  to  compel  their  performance  
fault   or   negligence   of   defendant   and   the  
Natural   obligations   –   based   on   equity   and   natural   law,  
damage  incurred  by  the  plaintiff.  
do   not   grant   the   right   of   action   to   enforce   their  
 
performance  
Distinction  between  delicts  and  quasi-­‐delicts  
• Authorize  retention  of  what  has  been  delivered  
Delict   Quasi-­‐delict  
by   reason   after   voluntary   fulfillment   by   the  
Crimes   affect   public   Affect   only   private  
obligor.  
interest   matters  
 
Penal   Code,   punishes   or   Civil   code   merely   repairs  
corrects  the  criminal  act   the   damage   by   *Both  kinds  of  obligations  are  not  enforceable  in  courts,  
indemnification   performance  depends  upon  one’s  conscience.  
Only   punishes   if   there   is   Broad,  includes  all  acts  in   • In   natural   obligation,   there’s   juridical   tie.   None  
penal  law  covering  them   which   any   kind  of   fault   or   in  purely  moral  obligations.  
negligence  intervenes   • Juridical   tie   may   be   rendered   ineffective—
  prescription  or  statute  of  limitations.  
Scope  of  quasi-­‐delicts:   • Law   does   not   recognize   any   legal   consequence  
1. Covers  acts  or  omissions  criminal  in  character   arising   from   purely   moral   obligation,   but   it  
a. May  produce  2  kinds  of  civil  liability   recognizes   certain   legal   effects   out   of   natural  
i. Crime  (Art.  100  of  RPC)   obligation:  
ii. Quasi-­‐Delict  (Art.  2176  of  NCC)   o In  case  of  voluntary  fulfillment,  creditor  
2. Damage   to   property   –   no   distinction   between   is   authorized   to   retain   what   has   been  
“damage  to  persons”  and  “damage  to  property   delivered  or  reason  thereof  
3. Prohibition  against  double  recovery  –  expressly   o To   be   considered   voluntary,   debtor  
prohibited  in  NCC   must   have   acted   with   knowledge   that  
  he  cannot  be  compelled  to  perform  the  
*When   an   act   constitutes   a   breach   of   contract   would   obligation   if   it’s   by   reason   of   mistake,  
have   itself   constituted   the   source   of   a   quasi-­‐delictual   debtor   can   recover   through   solution  
liability   and   no   contract   existed   between   the   parties,   indebiti  
the   contract   can   be   said   to   have   been   breached   by   tort,   o Natural   obligation   can   be   ratified   and  
allowing  rules  on  tort  to  apply.   converted  into  civil  obligations.  
  o It   can   also   be   guaranteed,   which   in  
Culpa  contractual   Culpa   Aquiliana   (ex   result  will  be  ratified  and  converted  into  
contractual)   the  same  civil  obligation  
Source:  contract   Source:  quasi-­‐delict    
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Real  and  personal  obligations   -­‐ Performance   done   either   in   poor   manner   or   in  
Basis:  view  point  of  the  kind  of  prestation  present  in  an   contravention  of  the  tenor  of  the  obligation  
obligation   Compulsion:   creditor   may   not   compel   debtor   to  
  perform   against   debtor’s   will   –   involuntarily   servitude,  
  prohibited   under   constitution.   Compulsion   may   amount  
Real  obligation  –  obligation  to  give  or  to  deliver,  either:   to  coercion,  penalized  in  RPC.  
• Determinate   or   specific   obligation   –   obligation   to    
deliver  a  determinate  or  specific  thing   Remedy  in  case  of  non-­‐performance:  
• Indeterminate   or   generic   obligation   –   obligation   to   -­‐ Ask   another   person   to   perform,   cost   charged  
deliver  an  indeterminate  or  generic  thing   against  debtor  +  right  to  recover  damages  
Personal   obligation   –   obligation   to   do   or   not   to   do,   o If   personal   qualifications   of   the   debtor  
either:   is  taken  into  consideration,  this  remedy  
• Positive  –  to  do   is  unavailing  
• Negative  –  not  to  do   -­‐ Only  remedy  is  to  demand  payment  of  damages  
*Considered  determinate  when  it  has  been  particularly   from  debtor  
designated  or  physically  segregated  for  all  others  of  the    
same  class  or  species.   Remedy  in  case  of  poor  performance:    
  -­‐ Demand   undoing   at   the   expense   of   debtor   +  
Principal   obligation   (determinate):   to   deliver   the   thing   right  to  avail  remedies  
due.      
Accessory   obligation:   preserve   the   thing   with   proper   Negative   personal   obligation   –   right   of   the   creditor   is  
diligence   of   a   good   father   of   a   family   unless   law   or   not  to  demand  an  act  (forbidden)  but  an  omission.  
parties  require  another  standard  of  care,  deliver  fruits  if   Remedies:   creditor   may   demand   undoing   at   the  
creditor   is   already   entitled   to   it,   and   to   deliver   expense   of   the   obligor,   right   to   recover   damages.   If  
accessions  and  accessories  even  though  not  mentioned.   physically   and   legally   impossible,   only   remedy   is   right   to  
  recover  damages.  
In  case  of  breach,  creditor  has  the  right  to:    
-­‐ Compel   the   debtor   to   deliver   the   determinate   Remedies  of  creditor  to  protect  and  enforce  his  credit:  
thing  due,  with  right  to  recover  damages   -­‐ Exhaust  all  the  properties  of  debtor,  subsidiary:  
-­‐ Rescind   the   obligation   (proper   cases),   with   right   Accion   subragatoria   –   subrogated   to   all   rights  
to  recover  damages   and   actions   of   the   debtor,   save   those   inherent  
-­‐ Right   to   recover   damages,   where   it’s   the   only   in  person  
feasible  remedy   Accion   pauliana   –   impugn   all   of   the   acts   which  
  debtor  may  have  done  to  defraud  him  
*Considered   indeterminate   when   it   has   been    
designated  merely  by  class  or  genus.   Breach   of   obligations,   causes   of   non-­‐performance   may  
  either  be:  
In  case  of  breach,  creditor  has  the  right  to:   Involuntary   –   independent   of   the   will   of   the   parties—
-­‐ Compel   the   debtor   to   deliver   the   thing,   with   fortuitous  event  and  force  majeure  
right  to  recover  damages   Voluntary   –   arises   from   the   will   of   the   parties—1)  
-­‐ Ask   another   person   to   deliver   out   the   expense   mora/delay,  2)  dolo  or  fraud,  3)  culpa  or  negligence  and  
of  debtor,  with  right  to  recover  damages   4)  contravention  of  the  tenor  of  the  obligation  
-­‐ Rescind   the   obligation   (in   proper   cases),   with    
right  to  recover  damages   Kinds  of  delay/mora:  
  1. Mora  Solvendi  (Debtor’s  default)  –  delay  in  the  
Positive  personal  obligation,  considered  breach  when:   fulfillment   of   obligation,   by   reason   of   a   cause  
-­‐ Debtor  fails  to  do  the  obligation   imputable  to  debtor,  may  be  of  dolo  or  culpa.  
 

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 Requisites:   2. Debtor   becomes   liable   for   damages.   Payment   of  
-­‐ Obligation   be   demandable   and   already   interest   shall   be   agreed   upon,   in   absence   of  
liquidated   stipulation  –  legal  interest  (6%  per  annum)  
-­‐ Debtor  delays  performance   3. Debtor   remains   liable   if   thing   was   lost   after   he   has  
-­‐ Creditor   requires   performance   judicially   and   incurred   delay   even   if   loss   was   not   his   fault   or   by  
extrajudicially.   Once   creditor   makes   a   demand,   fortuitous  event.  
debtor  incurs  mora.  No  demand  –  no  mora.    
2. Mora   Accipiendi   (Creditor’s   default)   –   delay   on   Dolo   or   Fraud   –   deliberate   and   intentional   evasion   of  
the   part   of   the   obligee   in   accepting   the   the  normal  fulfillment  of  obligations.  Distinguished  from  
performance  of  the  obligation.   culpa  by  presence  of  deliberate  intent.  
Requisites:   *Any  waiver  of  an  action  for  future  fraud  is  void.  
-­‐ Offer   of   performance   by   debtor   (has   required    
capacity)   Kinds  of  fraud,  may  be  employed:  
-­‐ Offer  must  comply  with  prestation   1. During   the   perfection   of   the   contract,   either   dolo  
-­‐ Creditor  refuses  without  just  cause   causante  or  dolo  incidente  
3. Compensation   Morae   (Both   parties’   default)   –   2. Only   during   performance   of   an   already   existing  
neither   has   completed   their   part   in   their   obligation,  renders  the  debtor  liable  for  payment  of  
reciprocal  obligation   damages  (Article  1170  &  1171)  
Mora  Solvendi:    
*Mora  may  only  occur  in  obligations  to  give  and  to  do,   Culpa  or  negligence  –  omission  of  diligence  required  by  
not  in  obligations  not  to  do.   nature   of   obligation   and   corresponds   with   the  
Form   of   demand:   any   form,   provided   that   it   can   be   circumstances   of   the   persons,   of   the   time   and   place.  
proven.   Proof   of   demand   will   be   incumbent   upon   the   Failure   to   observe   the   protection   of   the   interests   of  
creditor   another  person,  by  reason  other  person  suffers  injury.  
Exceptions   to   the   requirement   of   demand,   debtor   may    
incur   mora   even   in   absence   in   the   following   Kinds  of  Culpa:  
circumstances:   1. Culpa   Aquiliana   (ex   contractual)   –   wrongful   or  
1. When  obligation  and  law  expressly  provide   negligent   act   or   omission.   Creates   vindiculum  
-­‐ If   it   does   not   expressly   add   that,   upon   juris   and   gives   rise   to   obligation   between   two  
expiration   thereof,   delay   shall   commence.   persons   not   formally   bound   by   contract.  
Mere   expiration   of   period   fixed   by   the   Governed  by  Art.  2176  of  NCC  
parties  will  not  cause  delay   2. Culpa   Contractual   –   fault   or   negligence   in   the  
2. Designation   of   time   is   a   controlling   motive   for   performance   of   an   obligation   which   already  
establishment  of  contract   existed,   increases   the   liability   from   already  
-­‐ Whether  time  is  of  the  essence,  there  must   existing   obligation.   Governed   by   Art.   1170   –  
be   sufficient   manifestation   either   in   1174  of  NCC  
contract   or   surrounding   circumstances   of    
that  intention.  
Culpa  Aquiliana   Culpa  Contractual  
3. When   demand   would   be   useless—obligor   has  
Source:   Negligence   of   Source:  Negligence  in  the  
rendered  it  beyond  his  power  to  perform   tortfeasor   performance   of   a  
  contractual  obligation  
Effects  of  mora  solvendi:   Clearly   established   in   Breach   of   contract,   can  
1. No  demand  =  no  mora.  As  long  as  the  obligor  is  not   basis  of  action   be   prosecuted   merely   by  
guilty  of  some  omission  violative  of  obligee’s  rights,   proving   existence   of  
latter   has   no   cause   of   action.   Prescriptive   period   contract  and  its  breach  
does  not  commence  until  demand  is  made    
*Culpa   becomes   dolo   when   negligence   shows   bad   faith,  
tantamount  to  fraud.  Provisions  on  fraud  also  apply.  

  6  
   3. When   nature   of   the   obligation   requires  
Casa   Fortuito   or   Fortuitous   event   –   an   extraordinary   assumption  of  risks  
event   which   could   not   be   foreseen,   or   though   foreseen,    
is   inevitable.   Includes   acts   of   God   and   acts   of   man   Instances  where  law  expressly  provides  for  liability  even  
(Force  majeure)   in  cases  of  fortuitous  events:  
Rule:   no   person   shall   be   responsible   for   a   fortuitous   1. Obligor  delays  or  promised  to  deliver  the  same  
event.  To  exempt,  these  requisites  must  occur:   thing  to  2  or  more  persons  who  do  not  have  the  
1. Cause   of   breach   of   obligation   must   be   same  interest  
independent  to  the  will  of  the  debtor   2. Possessor  in  bad  faith  in  every  case  
2. Event  must  be  unforeseeable  or  unavoidable   3. Common   carrier   negligently   incurs   delay,  
3. Event   must   be   such   as   to   render   it   impossible   natural  disaster  shall  not  free  such  carrier  from  
for  the  debtor  to  fulfill  his  obligation  in  a  normal   responsibility  
manner   4. Borrower  uses  the  thing  for  a  different  purpose  
4. Debtor   must   be   free   from   any   participation   in,   from   intended,   delays   return,   receives   the   thing  
aggravation  of,  injury  to  the  creditor.   under  appraisal,  lends  it  to  a  third  person,  saves  
  own  property  instead  of  thing  borrowed  
*Burden  of  proving  loss  due  to  fortuitous  event  rests  on   5. Depositary   who   uses   the   thing   without  
who  invokes  it.   depositor’s   permission,   delays   return   or   allows  
*If   negligence   or   fault   of   obligor   coincided   with   others  to  use  it  
occurrence  of  the  fortuitous  event,  it  cannot  shield  the   6. Negotiorum   gestor   undertakes   risky  
obligor   from   liability   for   his   negligence.   Whole   transactions,   prefers   own   interest,   fails   to  
occurrence  is  humanized  and  removed  from  the  rules  of   return   properly   after   demand   of   owner,  
applicable  to  a  fortuitous  event.   assumes  management  in  bad  faith  
  7. When   obligation   to   deliver   proceeds   from   a  
Carnapping   –   does   not   automatically   give   rise   to   a   criminal   offense,   unless   prior   to   its   loss   the  
fortuitous  event.  Must  be  proved  and  established  that  it   person   who   should   receive   it   refused  
was   an   act   of   God   or   was   done   solely   by   third   party   and   acceptance  without  justification  
that   neither   claimant   nor   the   person   alleged   to   be    
negligent  has  any  participation.   Dolo   causante   –   causal   fraud   (Art.   1338)   those  
*Does   not   foreclose   the   possibility   of   fault   or   deceptions  or  misrepresentations  of  a  serious  character  
negligence.   employed   by   one   party   and   without   which   the   other  
  part  would  not  have  entered  into  contract.  Determines  
Robbery   –   like   carnapping,   not   a   fortuitous   event.   The   or  is  the  essential  cause  of  the  consent  
unforeseen   event   must   take   place   without   any    
concurrence   fault   on   the   debtor’s   part   in   order   to   be   Dolo   incidente   –   Incidental   fraud   (Art.   1344)   not   serious  
appreciated  as  a  fortuitous  event.   in   character   and   without   which   the   other   party   would  
  still   have   entered   into   contract.   Some   particular   or  
Tire   blowout   –   may   not   be   considered   a   fortuitous   accident  of  the  obligations.  
event.    
*defects   in   automobile   or   through   negligence   of   its   Effect:  
driver   is   not   a   caso   fortuito   that   would   exempt   the   Dolo  Causante  -­‐  nullity  of  the  contract  +  indemnification  
carrier  from  liability  for  damages.   of  damages  
  Dolo  Incidente  –  obliges  the  person  employing  it  to  pay  
Exceptions  to  the  foregoing  rule:  obligor  remains  liable   damages  
for  breach  by  reason  of  fortuitous  event  in  the  following    
instances:   Pure,  Conditional  and  Obligations  with  a  Period  
1. When  the  law  expressly  specifies   Basis:   presence   or   absence   of   a   condition   or   term  
2. When  otherwise  declared  by  the  parties   (period)  

  7  
   Suspensive   condition   (Condition   precendent)   –  
• Pure   obligation   –   not   subject   to   any   condition   or   acquisition   of   rights   or   the   existence   of   obligations   is  
term  (period)   made   to   depend   upon   the   fulfillment   of   the   condition.  
• Conditional  obligation  –  subject  to  a  condition   Condition  fulfilled,  obligation  arises.  
• Obligation   with   a   term   or   period   –   effects   are    
subjected  in  one  way  or  another  to  the  expiration  of   Pendency:  
said  term.   • Obligation  does  not  arise  yet,  cannot  be  demanded  
  • Debtor  may  recover  what  during  the  same  time  he  
Pure:   no   condition   is   placed,   nor   a   day   fixed   for   its   has  paid  by  mistake  
compliance   • Creditor   does   not   acquire   a   right   until   the  
Effect:  immediately  demandable.  Same  as  1)  obligations   happening  of  the  event  
with   a   resolutory   condition   and   2)   obligations   with   a   • Only   an   expectancy   based   upon   the   occurrence   of  
resolutory  term  or  period   the  condition  of  which  he  has  the  right  to  protect  by  
  taking  appropriate  actions.  
Condition:  uncertain  event  which  wields  an  influence  on    
a  legal  relation.  Every  future  and  uncertain  event  upon   Effects  of  fulfillment:  happening  gives  birth  to  the  right  
which   an   obligation/provision   is   made   to   depend.   of  the  creditor  or  to  the  obligation  of  the  debtor  
Essential  thing  –  uncertainty.    
  Retroactivity,  to  give:    
Term  –  it  is  sure  to  happen  but  there  is  uncertainty  as  to   • Once   the   suspensive   condition   is   fulfilled,   the  
the  date  of  arrival.   effects  of  a  conditional  obligation  to  give  retroact  to  
  the   day   on   which   the   obligation   was   constituted   –  
Kinds  of  Condition:   obligation  is  then  considered  as  if  it  were  pure  and  
a) Suspensive  &  Resolutory   simple  from  the  first  day.  
S  –  happening  gives  rise  to  an  obligation    
R  –  happening  of  which  extinguishes  an  obligation   Reciprocal   prestations:   the   fruits   and   interests   during  
b) Potestative,  casual  &  mixed   the   pendency   of   the   condition   are   deemed   to   have  
P  –  fulfillment  depends  upon  the  will  of  one  of  the   been   mutually   compensated.   Purpose:   to   avoid   the  
parties  to  the  juridical  relation   necessity   of   mutual   accounting   of   the   fruits   and  
C   –   fulfillment   depends   exclusively   upon   chance   or   interests  received.  
other  factors,  including  the  will  of  third  persons    
M  –  mixture  of  P  and  C   Unilateral  obligations  –  the  debtor  owns  all  the  fruits  &  
c) Positive  &  Negative   interests   received   up   to   the   day   the   condition   is  
P  –  condition  refers  to  an  act   fulfilled,   unless   by   the   nature   &   circumstances   of   the  
N  –  condition  refers  to  an  omission   obligation   it   should   be   inferred   that   the  intention   of   the  
d) Divisible  &  Indivisible   person  constituting  it  was  different.  
D  –  can  be  performed  in  parts    
I  –  cannot  be  performed  in  parts   To   do   or   not   to   do:   courts   may   determine   the  
e) Conjunctive  &  Disjunctive   retroactive   effect   of   the   condition   that   has   been  
C  –  requires  fulfillment  of  all  conditions   complied   with,   including   fixing   the   date   of   such  
D  –  requires  fulfillment  of  one  condition   retroactive  effect.  
f) Express  &  Implied    
E  –  stated  condition   Effect   of   loss,   deterioration   or   improvement   occurring  
I  –  merely  inferred  condition   during   the   pendency   of   condition   (if   condition   is   later  
g) Possible  &  Impossible   on  fulfilled):  
P  –  fulfillment  is  possible   • Lost:   considered   lost   when   it   perishes,   goes   out   of  
I  –  fulfillment  is  impossible,  physically  and  legally   commerce   or   it   disappears   and   existence   is  
  unknown   or   cannot   be   recovered.   Without   the   fault  

  8  
 of   debtor—obligation   is   extinguished   (unless   Effect  of  L,  D  or  I  during  pendency  (if  condition  is  later  
contrary  stipulation).  Through  the  fault  of  debtor— on  fulfilled):  Art.  1189,  NCC  is  applicable  to  the  creditor;  
liable  for  damages  upon  fulfillment  of  condition.   in  that  respect  he  becomes  a  debtor.  
• Deteriorated:   without   the   fault   of   debtor—  
impairment   is   borne   by   creditor.   Fault   of   debtor— Reciprocal  obligations:  arise  from  the  same  cause  where  
creditor   has   options:   1)   rescission   +   indemnity   for   each   party   is   both   creditor   and   debtor   to   one   another,  
damages  or  2)  fulfillment  +  indemnity  for  damages   obligation   is   dependent   upon   the   obligation   of   the  
• Improved:   without   intervention   of   debtor— other—must  be  performed  simultaneously.  
advantageous   to   the   creditor.   At   the   expense   of   the   Right   to   rescind   is   implied,   in   case   one   of   the   obligors  
debtor—only  has  usufructuary  rights:   should   not   comply   with   what   is   incumbent   upon   him.  
o Not   entitled   to   demand   reimbursement   of   But   it   must   be   invoked   judicially   in   the   absence   of   a  
expenses   stipulation  to  the  contrary.  
o He  can  remove  improvement  if  it’s  possible   *However,   a   judicial   action   for   rescission   of   contract   is  
without  damaging  the  property   not   necessary   where   the   contract   provides   that   it   may  
o Off   set   improvements   to   any   damage   he   be   revoked   and   cancelled   for   violation   of   any   terms   and  
caused  to  the  property   conditions.  
   
Resolutory   condition   (Condition   subsequent)   –   Alternative   remedies   in   case   of   breach   of   RO:   injured  
extinguishment   of   rights   and   obligations   is   dependent   party  has  the  choice:  
on   the   fulfillment   of   the   obligation.   Immediately   • Rescission,   payment   for   damages   (cannot   ask  
demandable   but   extinguished   upon   the   happening   of   for  performance  of  obligation)  
the   condition.   If   the   condition   does   not   take   place,   legal   • Fulfillment   of   obligation,   payment   for   damages  
relation  is  consolidated.   (may   still   seek   rescission,   if   it   becomes  
  impossible  to  fulfill)  
Pendency:    
• Debtor   has   expectancy   that   the   thing   he   delivered   Right  to  ask  rescission  not  absolute:    
to   the   creditor   will   be   returned   to   him   upon   • Cannot  be  demanded  by  injured  party  who  is  not  in  
fulfillment  of  the  condition   a  position  to  return  what  he  had  received  (Art  1385,  
• Resolutory   condition   for   principal   obligation   par  1,  NCC).  
becomes  suspensive  condition  for  the  obligation  to   • No   rescission   when   object   of   contract   is   in  
return.   possession   of   a   third   person   that   has   not   acted   in  
• Debtor   entitled   to   take   appropriate   actions   to   bad  faith  (Art  1385,  par  2,  NCC)  
protect  his  expectancy  (Art.  1188,  NCC)   • Non-­‐compliance  by  the  other  is  with  respect  only  to  
  time—court   will   instead   fix   or   grant   a   period   when  
Effects  of  fulfillment:  extinguishment  of  obligation  is  as   there   exists   a   just   cause   (discretionary   power   to  
though  it  had  not  existed,  also  results  to  extinguishment   refuse  rescission)  (Art  1191,  par  3,  NCC)  
of   rights   already   acquired.   Parties   must   make   mutual   o Discretionary   power   may   not   be   exercised  
restitution   of   what   they   received   from   each   other,   when  there  is  refusal  to  perform  
including  fruits  and  price  paid  with  its  interest.  This  will   • General   rule:   rescission   not   permitted   for   slight   or  
be   absolute:   each   one   must   restore   everything   he   has   casual  breach  of  contract,  only  to  breaches  that  are  
received;   an   obligation   that   has   not   existed   could   not   substantial   and   fundamental   as   to   defeat   the   object  
have  produced  any  effects.   of  the  parties  making  agreement.  
   
Retroactive   effects   in   to   do   or   not   to   do:   Courts   shall   Prescriptive  period:  from  the  accrual  of  right  of  action,  
determine   the   retroactive   effects   of   the   fulfillment   of   o 10  years  for  written  contracts  (Art  1144,  NCC)  
resolutory  condition  (Art.  1190,  NCC)   o 6  years  for  verbal  contracts  (Art  1145,  NCC)  
   

  9  
Effect  of  rescission  under  Art  1191:  SC  applied  effects  of   Impossible  conditions,  effect:  
rescission  under  Art  1385  to  rescission  under  Art  1191.   o If   attached   to   simple   or   remuneratory   donation:  
Mutual   restitution   is   also   required   for   rescission   under   condition   not   imposed,   simply   disregarded   (Art.  
Art  1191.   727,   NCC).   Impossible   condition   shall   not   affect  
  validity  of  donation.  
Both  parties  committed  a  breach,  reciprocal  obligations:   o If   attached   to   testamentary   disposition:   condition  
o If   first   infractor   can   be   determined:   he   is   liable   for   not   imposed,   simply   disregarded.   Shall   not   affect  
damages,  but  same  shall  be  equitable  tempered  by   the  validity  of  TD  and  shall  in  no  manner  prejudice  
courts  (Art  1192,  NCC).  Second  infractor  is  not  liable   the  heir,  even  if  testator  provides  otherwise.  
for   damages   at   all—compensated   by   mitigation   of   o If   attached   to   an   obligation   arising   from   contracts:  
the  first  infractor’s  liability  for  damages  arising  from   conditions   shall   render   the   obligation   void.   If  
earlier  breach.   obligation   is   divisible,   part   that   is   not   affected   by  
o If  first  infractor  cannot  be  determined:  obligation  is   impossible  or  unlawful  condition  shall  be  valid.  
deemed   extinguished,   each   party   shall   bear   own    
damages  (Art  1192,  NCC)   Condition   not   to   do   an   impossible   thing:   considered   not  
  agreed   upon   or   not   written   because   it   is   useless.  
Potestative  condition,  effect:   Obligation   should   be   regarded   as   pure.   (Art   1183,   par   2,  
o If  also  suspensive:     NCC)  
o Fulfillment   is   dependent   upon   the   sole   will    
of   the   debtor—non   demandable,   illusory.   Positive   condition:   certain   event   will   happen   within   a  
Such   condition   renders   the   obligation   specific   period—extinguishing   obligation   dependent  
dependent  upon  it  void.  (Art  1182,  NCC)   from  the  moment  (Art  1184,  NCC):  
o Fulfillment  that  is  dependent  upon  the  sole   o Said  period  lapses  without  the  condition  having  
will   of   debtor   relates   to   fulfillment   of   an   been  fulfilled  
already   existing   obligation   and   not   to   its   o When   it   becomes   certain   that   event   will   not  
inception,  avoided  as  being  contrary  to  law   take  place  even  before  the  said  period  expires    
and   public   policy   (Art   1306,   NCC)   leaving    
unaffected  the  obligation  itself   Negative   condition:   some   event   will   not   happen   at   a  
o If  also  resolutory:   determinate   time—rendering   obligation   effective   from  
o Valid,   even   though   the   condition   is   made   to   the  moment  (Art  1185,  NCC):    
depend  upon  the  sole  will  of  the  debtor.   o Period  indicated  has  elapsed  
o On   part   of   the   creditor:   If   condition   is   made   to   o If   it   has   become   evident   that   event   cannot  
depend   upon   the   sole   will   of   the   creditor,   VALID— occur  
he   is   interested   in   its   fulfillment   and   will   fulfill   the    
same.   Obligations  subject  to  term  or  period:  A  term  or  period,  
  having  an  influence  on  obligation,  either  suspends  their  
Casual  and  mixed  conditions,  effect:   demandableness  or  produces  their  extinguishment.  
o Valid    
o Mixed   conditions,   as   to   the   part   that   depends   on   Distinction:  Condition  and  Term  
the   will   of   the   debtor,   Art   1186   of   NCC   will   be     Condition   Term  
applicable—condition   shall   be   deemed   fulfilled   In  their   Uncertain  event   Certain,  must  
when  the  obligor  voluntarily  prevents  its  fulfillment.   fulfillment   happen  sooner  
  or  later  at  a  date  
Possible  and  impossible  conditions:   known  
Considered   impossible:   Physically   or   legally   beforehand  or  at  
a  time  cannot  be  
impossible—conditions   that   are   contrary   to   nature,  
determined  but  
good   customs   or   public   policy   and   those   that   are  
must  necessarily  
prohibited  by  law.  
happen  
  10  
Influence  on   May   cause   Does  not  go   Distinguished  from  suspensive  condition:  
obligation   obligation   to   beyond  imposing   Suspensive  Condition   Suspensive  Term  
have  or  not  have   limitation  as  to   Affects   very   existence   of   Does   not   affect   the  
effects;   cause   or   time  on   obligation,   does   not   arise   existence  of  obligation  but  
cease  it  to  exist   production  of   if  condition  is  not  fulfilled   only  the  demandability  
obligation;    
Except  in  special   In   case   of   L,   D,   I:   before   the   arrival   of   the   period,   Art  
agreement,   1189  shall  be  observed  
period  does  not  
 
carry  with  it  the  
Payment  by  mistake:  anything  paid  or  delivered  before  
same  retroactive  
the   arrival   of   term   may   be   recovered   with   fruits   and  
effects  that  
follow  a   interests,   if   obligor   was   unaware   of   the   period   or  
condition   believed   that   obligation   had   become   due   and  
Will  of  debtor   Fulfillment   left   If  designation  of   demandable  (Art  1195,  NCC)  
exclusively   upon   period  is  left    
will   of   the   exclusively  upon   Resolutory  term,  effect:  
debtor,   same   the  will  of  the   Rule:   demandable   at   once   but   terminated   upon   arrival  
renders   the   debtor,   of  the  term  specified  
obligation  void   obligation    
remains  valid   Distinguished  from  resolutory  condition:  
but  empowers   Resolutory  Condition   Resolutory  Term  
court  to  fix   Upon   its   happening,   Upon   arrival   of   period,  
period  for  its   extinguishes  the  obligation   simply   terminates   the  
performance   as   though   it   had   not   obligation   without  
  existed   annulling   the   fact   of   its  
Classifications  of  term/period:   existence.   As   a   rule,   does  
Suspensive  or  resolutory:   not   carry   with   it   the   same  
o Suspensive   term   (ex   die)   –   must   lapse   before   accompaniment   of  
performance  of  obligation  can  be  demanded   retroactive   effects   that  
o Resolutory  term  (in  diem)  –  Upon  the  arrival  of  said   follow  a  condition.  
date,  obligation  is  terminated.    
Definite  or  indefinite:   Benefit  of  term/period  
o Definite  –  known  date  or  time   Presumption:   whenever   obligation   is   designated,   it   is  
o Indefinite   –   event   which   will   necessarily   happen   but   presumed   to   have   been   established   for   the   benefit   of  
date   is   unknown.   (Art   1193,   par   3,   NCC)   If   the   both  creditor  and  debtor.  Importance—creditor  cannot  
uncertainty  consists  in  whether  the  day  will  come  or   demand  payment  and  debtor  cannot  make  an  effective  
not,  obligation  is  conditional.  (Art  1193,  par  4,  NCC)   tender   and   consignation   of   payment   before   the  
Legal,  voluntary  or  judicial:   stipulated  period.  
o Legal  –  period  granted  by  law    
o Voluntary  –  period  stipulated  by  parties   Presumption  can  be  rebutted:  proof  that  by  tenor  of  the  
o Judicial  –  period  allowed  by  courts   obligation   or   other   circumstances   the   term   appears   to  
  have   been   established   for   the   benefit   of   one   of   the  
Suspensive  term/period,  effect:   parties  only.    
Rule:  obligation  demandable  upon  the  arrival  of  certain   If   it   appears   for   the   benefit   of   the   creditor   only   –   he  
day  fixed  for  its  performance.  (Art  1193,  par  1,  NCC)   may  demand  performance  at  any  time,  even  before  the  
  arrival  of  term  but  debtor  cannot  compel  him  to  accept  
  before  period  lapses.  
  If   it   appears   for   the   benefit   of   the   debtor   only   –   he   may  
  make   payment   at   any   time   even   before   the   expiration  

  11  
of  the  period  but  he  may  oppose  a  premature  demand   o Benefit   is   preserved   if   debtor   gives   a   new  
for  payment.   security  
o Reasons  why  creditor  may  not  be  bound  to  receive   o Violation  by  debtor  of  undertaking  
payment  before  maturity:   o Must   be   such   that   in   consideration,   creditor  
o Payment  of  interests   has  agreed  to  the  period  
o Creditor   may   want   to   keep   his   money   o Debtor  attempts  to  abscond  
invested   safely   instead   of   having   it   in   his    
hands   When  courts  may  fix  period,  on  grounds:  
o By   fixing   a   period,   creditor   may   want   to   o Obligation  does  not  fix  a  period  but  the  nature  of  it  
protect   himself   against   sudden   decline   in   and   circumstances   warrant   the   interference   that   a  
the   purchasing   power   of   the   currency   period   must   have   been   intended   (Art   1197,   par   1,  
loaned   specially   at   a   time   where   there   are   NCC)  
other   many   factors   that   may   influence   o When   obligation   is   payable   on   demand—
fluctuation  of  currency   without   term,   becomes   due   and  
Unless   creditor   consents,   the   debtor   has   no   right   to   demandable   only   upon   demand.   Court   is  
accelerate   the   time   of   payment   even   if   the   premature   not  authorized  to  fix  period.  
tended  included  an  offer  to  pay  principal  and  interest  in   o When   duration   of   period   depends   upon   the   will   of  
full.   the  debtor  (Art  1197,  par  2,  NCC):  
Stipulation  of  payment  made  “within”  is  for  the  benefit   o When   debtor   binds   himself   to   pay   “when  
of   debtor   only.   Either   1)   payment   made   at   the   end   of   his   means   permit   him   to   do   so,”   obligation  
the  term  or  2)  any  time  within  said  term   is   not   conditional   but   deemed   to   be   one  
  with   a   period—period   shall   be   fixed   by  
Instances   where   debtor   loses   benefit   of   term,   court.   (Art   1180,   NCC)   Obligation   is   valid  
circumstances  where  debtor  loses  the  right  to  make  use   because  period  does  not  affect  its  existence  
of  the  period  (creditor  need  not  wait  for  the  expiration   o Obligation   subject   to   suspensive   condition  
but   may   treat   obligation   due   and   demandable,   and   the   fulfillment   depends   upon   the   sole  
otherwise  creditor  runs  the  risk  of  debtor  not  being  able   will   of   the   debtor—obligation   is   illusory   and  
to  comply  with  obligation):   non-­‐demandable.   Such   condition   renders  
o Insolvency  of  the  debtor   the  obligation  void.  
o Except  when  he  gives  a  security  or  guaranty   o “Little  by  little”  duration  of  period  is  left  to  
o Must   occur   after   obligation   has   been   the   sole   will   of   the   debtor.   Court   is  
contracted   authorized  to  fix  the  period.  
o Insolvency  need  not  be  judicially  declared   o Non-­‐compliance   by   one   of   the   parties   in   reciprocal  
o Failure  to  furnish  promised  guaranty  or  security   obligations  is  with  respect  to  time,  court  may  fix  or  
o Debtor   may   preserve   the   benefit   of   the   grant  a  period  if  there  exists  a  just  cause  (Art  1191,  
term  by  giving  the  security   par  3,  NCC  
o Impairing   guaranty   or   security   after   its    
establishment  by  debtor’s  own  acts   Action  to  fix  term  or  period:  fulfillment  of  the  obligation  
o Sufficient   that   guaranty   be   impaired   by   itself   cannot   be   demanded   until   after   the   court   has  
debtor’s  own  acts   fixed   the   period   for   compliance   and   such   period   has  
o Benefit   is   preserved   if   debtor   gives   new   arrived.    
security   *In   exceptional   circumstances,   an   action   combining  
o Loss  or  destruction  of  guaranty  or  security  through   action  to  fix  period  and  action  for  specific  performance  
fortuitous  event   may   be   allowed   if   it   can   be   shown   that   separation   of  
o Required  that  the  guaranty  must  disappear   actions  would  be  a  mere  formality  
o Absolute   disappearance   is   not   required.   If    
guaranty   deteriorates   that   it   becomes   Period  fixed  is  final:  Once  the  period  has  been  fixed  by  
illusory,  it  is  deemed  to  have  disappeared   the  court,  it  becomes  part  of  the  contract  and  cannot  be  

  12  
subsequently  changed  or  extended  by  the  court  without   Effect  of  loss  of  prestation/s:  
consent   of   both   parties.   But   parties   may   change   the   Reason  for  loss   Right   of   Choice   Right   of   Choice  
period,  as  in  novation.   (Debtor)   (Creditor)  
  Fortuitous:   all   Obligation   is   Obligation   is  
Prescription   of   action   to   fix   period:   not   more   than   10   prestations   are   extinguished   extinguished  
years   lost  
  Fortuitous:   one   Obligation   Obligation  
Alternative  and  facultative  obligations   prestation  left   becomes  simple   becomes  simple  
Fortuitous:   one   Obligation   still   Obligation   still  
Basis:  number  of  prestations  involved  
or   some   were   alternative,   alternative,  
 
lost;   several   debtor   may   creditor   may  
Simple  (1  prestapon)  
Compound  (2  or  more  
prestapons)   others  remained   choose   from   choose   from  
remaining   remaining  
prestation   prestation  
Distribupve  (various  
Conjuncpve  
(demandable  jointly)  
prestapons  may  be  
demanded)  
Debtor’s   fault:   Debtor   may   still   Creditor   may  
one  or  some  but   choose   from   the   either:   1)   claim  
not  all  were  lost   remaining   any   of   those  
Alternapve   subsisting   or   2)  
price   of   that  
which  
Facultapve   disappeared   +  
  indemnity   for  
Alternative   obligations   –   there   are   various   prestations   damages  
which   are   due   and   obligation   is   fulfilled   by   the   Debtor’s   fault:   Creditor   entitled   Choice   of   the  
performance   of   one   of   them.   Debtor   cannot   compel   all  were  lost   to   recover   the   creditor   shall   fall  
creditor   to   receive   part   of   one   and   part   of   the   other   value   of   the   last   upon   the   price  
undertaking  (Art  1199,  NCC)   thing   that   of  any  one  of  the  
  disappeared   +   prestations  
*Right   of   choice   pertains   to   the   debtor.   Creditor   may   indemnity   for   which   was   lost   +  
exercise  the  right  only  when  expressly  granted  to  him.   damages   indemnity   for  
Limitations,   debtor   may   not   choose   prestations   which   damages  
are:   Creditor’s   fault:   Debtor   may   No   effect.  
o Impossible   one  or  some  but   choose:   Creditor  may  still  
not  all  were  lost   1)   perform   or   choose   from   the  
o Unlawful  
choose   from   remaining  
o Could  not  have  been  the  object  of  obligation  
remaining   prestations.   If  
When   only   one   among   various   prestations   is   prestations   only   one   is   left,  
practicable,   debtor   loses   his   right   of   choice.   Obligation   (without   obligation  
becomes  simple.   damages)   becomes  simple  
  2)   rescind  
*Choice   becomes   effective   only   from   the   time   it   has   contract   +  
been   communicated—becomes   binding   only   when   the   damages  
other  gains  knowledge  of  such  choice.   Creditor’s   fault:   Obligation   is   Obligation  
No  form  is  required  provided  that  it  is  sufficient  to  make   all  were  lost   extinguished     extinguished  
the  other  party  know  that  election  has  been  made.    
*Consent   of   the   other   party   not   necessary,   choice   to   Facultative  Obligations  –  only  one  prestation  is  due  but  
become  effective  is  a  mere  notice.   the   debtor   has   the   power   to   fulfill   the   obligation   by  
Effect:   from   the   time   the   choice   is   communicated,   the   giving  or  rendering  something  else.  
obligation   ceases   to   be   alternative   and   becomes   a    
simple  obligation.    
   

  13  
Distinguished  from  Alternative  obligations   obligation   is   solidary   to   prove   such   through  
Facultative  Obligations   Alternative  Obligations   preponderance  of  evidence.  
Only  one  thing  promised  is   All  things  or  objects  of  the    
subject   to   obligation,   but   prestation   are   subject   to   When   solidarity   exists:   Well-­‐entrenched   rule   that  
not   the   other   which   the   obligation   up   to   the   time   solidary  obligations  cannot  be  inferred  lightly—must  be  
debtor   has   reserved   to   the  election  is  made   positively  and  clearly  expressed.  
himself  the  right  to  deliver   *A   liability   is   solidary   “only   when   the   obligation  
in  lieu  of  the  first  
expressly  so  states,  when  law  provides  or  when  nature  
Since   only   one   thing   is   The   loss   of   one   produces   a  
of  the  obligation  requires.  
owing,   the   lost   of   that   deleterious   influence   on  
 
thing   which   may   be   the  obligation  
substituted   does   not   Solidary  liability  provided  by  law:  
affect  juridical  relations   • Instrument   contains   “I   promise   to   pay”   signed   by  
The   choice   to   substitute   Right   of   choice   may   be   two   or   more   persons—deemed   jointly   and   severally  
lies  only  with  the  debtor   granted   to   either   debtor   liable.   Language   of   the   instrument   is   ambiguous.  
or  creditor   (Art  17(g),  NIL)  
  • Two   or   more   heirs   take   possession   of   the   estate,  
Effect  of  loss  of  substitute:   they   shall   be   solidarily   liable   for   the   loss   or  
*Substitution  becomes  effective  only  from  the  time  the   destruction  of  a  thing  devised  or  bequeathed,  even  
same  has  been  communicated  to  the  creditor   though   only   one   of   them   should   have   been  
If  lost  prior  to  substitution   If  lost  after  substitution   negligent.  (Art  927,  NCC)  
At   which   time   the   Obligation  of  the  debtor  is   • All  partners  are  solidarily  liable  with  the  partnership  
substitution   is   not   what   is   limited   to   the   for  everything  chargeable  to  the  partnership  for  loss  
due,   the   debtor   is   not   performance   of   the   or  injury  caused  to  any  person  by  any  wrongful  act  
liable   even   if   L   or   D   is   by   substitute   prestation.   Loss   or   omission   of   any   partner   in   the   ordinary   course   of  
his   fault.   (Art   1206,   par   2,   by   his   fault   shall   render   business.  Also  for  the  money  or  property  of  a  third  
NCC)   him   liable   for   damages.   If  
person   misapplied   by   a   partner   in   the   course   of  
loss   by   fortuitous   event  
partnership   business.   (Art   1824,   in   rel   to   Art   1823,  
and   without   debtor’s   fault  
and   prior   to   him   incurring   NCC)  
delay,   obligation   is   • Principal   is   solidarily   liable   with   the   agent   even  
extinguished   (Art   1262,   when   the   latter   exceeded   his   authority,   if   the  
par  1,  NCC)   former   allowed   him   to   act   as   though   he   had   full  
  powers.  (Art  1911,  NCC)  
Joint  and  Solidary  Obligations   • 2   or   more   persons   have   appointed   an   agent   for  
  common   transaction   or   undertaking,   they   are  
Joint   obligation   –   each   debtor   is   liable   only   for   a   solidarily   liable   to   the   agent   for   all   the  
proportionate   part   of   the   debt   and   creditor   is   entitled   consequences  of  the  agency.  (Art  1915,  NCC)  
to  demand  only  a  proportionate  part  of  the  credit  from   • Commodatum—two   or   more   bailees   are   solidarily  
each  debtor.   liable  for  a  thing  loaned  in  same  contract  (Art  1945,  
  NCC)  
Solidary  obligation  –  each  of  the  debtors  is  liable  for  the   • Responsibility   of   two   or   more   officious   managers  
entire  obligation  and  each  of  the  creditors  is  entitled  to   shall  be  solidary,  unless  management  was  assumed  
demand   the   satisfaction   of   the   whole   obligation   from   to  save  thing  or  business  from  imminent  danger  (Art  
any  or  all  of  the  debtors.   2146,  par  2,  NCC)  
  • Solutio   indebiti—responsibility   or   two   or   more  
Presumption  in  favor  of  joint  obligation:  In  the  absence   payee  is  solidary  (Art  2157,  NCC)  
of   express   and   indubitable   terms   characterizing   the   • Quasi-­‐delict—responsibility  of  two  or  more  persons  
obligation   as   solidary,   the   presumption   is   that   the   liable.  (Art  2194,  NCC)  Lessees  or  sublessees  refuse  
obligation   is   only   joint;   incumbent   upon   party   alleging   to   vacate   the   leased   property   after   expiration   of  
  14  
 lease   period   and   despite   due   demands   by   lessor— Solidary  liability  by  nature  of  obligation:  
they   can   be   held   jointly   and   severally   liable   to   pay   • Civil   liability   arising   from   crime   (Art   110,   RPC),   the  
for  the  use  of  property—basis  is  not  the  contract  of   obligations   of   two   bailees   (Art   1945,   NCC),   of   two  
lease   but   the   fact   that   they   have   become   joint   officious  managers  (Art  2146,  par  2,  NCC)  or  of  two  
tortfeasors   tortfeasors  (Art  2194,  NCC)  
• Principals,  accomplices  and  accessories  each  within   • When  several  heirs  of  a  deceased  partner  continued  
their   respective   class   shall   be   liable   severally   (in   with   the   business   and   management   of   the  
solidum)   among   themselves   for   their   quotas   and   partnership   against   the   will   of   the   other   partner,  
subsidiarily  for  those  of  other  persons  liable.   the   obligation   of   said   heirs   to   undertake   an  
  inventory,   render   an   accounting   of   partnership  
Solidarity  liability  by  express  stipulation:   assets  and  wind  up  the  partnership  affairs—solidary  
• Word   “solidary”   need   not   be   used—it   is   sufficient   by  nature.  
that  stipulation  states  for  example,  “each  one  of  the   • Workmen’s   Compensation   Act   –   enacted   to   give   full  
debtors  can  be  compelled  to  pay  the  totality  of  the   protection   to   the   employee,   reason   demands   that  
debt   or   that   each   one   of   them   is   obligated   for   the   nature   of   obligation   of   employers   to   pay  
entire  value  of  obligation   compensation   to   the   heirs   of   their   employee   who  
• “Joint   and   severally”   means   the   obligation   is   died  in  line  of  duty,  should  be  solidary  
solidary.   The   choice   is   left   to   solidary   creditor   to    
determine  against  whom  he  will  enforce  collection.   Joint  obligations  
Dismissal  of  the  case  against  one  of  the  signatories   Division   of   joint   credits   or   debts:   specified   in   the  
may  not  be  deemed  as  having  discharged  the  others   obligation   when   debtors   specified   their   liabilities   and  
from  liability  as  well   creditors  specified  sum  for  each  entitled.  If  obligation  is  
o In   this   jurisdiction,   “jointly”   when   used   by   silent,   it   shall   be   presumed   to   be   divided   into   as   many  
itself   is   equivalent   to   the   word   equal  parts.  
mancomunadamente.  It  is  necessary  to  use    
“joint   and   several”   to   convey   Correlativity   of   distinct   credits   and   debts   with   each  
solidariamente  (in  solidum)   other:  
o Well-­‐settled   doctrine—when   it   is   not   • Joint   creditors   unequal,   joint   debtors   also  
provided   in   a   judgment   that   the   defendants   unequal—debts  and  credits  divided  can  be  matched  
are  liable  to  pay  jointly  and  severally,  none   with  each  other  
of  them  are  compelled  to  satisfy  in  full  said   • Number   of   creditors   and   debtors   unequal   or  
judgment,  even  if  under  the  contract  it  was   although  equal,  the  credits  to  each  joint  creditor  is  
joint  and  several  in  character.  Reason:  after   entitled   and   the   share   of   the   joint   debt   for   each  
judgment   has   become   final,   the   court   has   joint   debtor   is   answerable   are   unequal,   each  
no   power   to   amend   it   to   convert   a   creditor   may   ask/each   debtor   may   pay   all   in  
defendant’s   liability   into   a   solidary   proportion   to   respective   credits   and   debts—may   be  
obligation.   subject  to  equal  contingencies  
• Juntos   o   separademente   –   creates   the   same    
obligation   as   the   phrase   “mancomun   o   insolidium”   Effects   of   joint   obligation   –   most   essential   and  
and   “in   solidium”   used   in   a   contract   in   connection   characteristic  effect  of  joint  obligation:  share  of  each  of  
with   the   nature   of   the   liability   of   the   parties— the   joint   creditors   or   debtors   in   credit   or   debt   is   distinct  
sufficient   to   create   an   individual   (or   solidary)   to  each  other.  (Art  1208,  NCC)  
liability    
• “Individually   and   collectively”   –   creates   solidary   Extinction   –   Extinction   of   one   does   not   necessarily  
liability.   Also,   individually   liable   or   individually   and   affect  the  debts  of  others.  
jointly  liable   Delay   –   Delay   on   the   part   of   one   does   not   produce  
  effects   with   respect   to   others.   If   delay   is   produced  
 

  15  
through   the   acts   of   only   one   of   joint   creditors,   others   • Beneficial   act:   each   one   of   the   solidary   creditors  
cannot  take  advantage.   may   do   whatever   is   beneficial   to   other   solidary  
Interruption  of  prescription  –  by  judicial  demand  of  one   creditors.   (Art   1212,   NCC)   Any   solidary   creditor   may  
creditor   upon   a   debtor   does   not   benefit   the   other   make   demand,   judicial   or   extrajudicial,   upon   the  
creditors   nor   interrupt   the   prescription   as   to   other   debtor   or   debtors   (Art   1214,   NCC)   or   proceed  
debtors.  Partial  payment  or  acknowledgement  made  by   against   any   one   or   some   or   all   of   solidary   debtors  
one   of   the   joint   debtors   does   not   stop   the   running   of   (Art  1216,  NCC)  
statute  of  limitations  as  to  the  others.   o Applies   to   relationship   of   solidary   creditors  
Vices  of  each  obligation  –  arising  from  personal  defect   to  solidary  debtors  
of   a   particular   debtor   or   creditor,   do   not   affect   the   • Prejudicial   act:   Existence   of   mutual   agency   does   not  
validity  of  other.   authorize   each   one   of   the   solidary   creditors   to   do  
Insolvency   of   a   debtor   –   does   not   increase   liability   of   anything  which  may  be  prejudicial  to  other  solidary  
co-­‐debtors,   nor   authorize   a   creditor   to   demand   creditors  (Art  1212,  NCC)  
anything  from  his  co-­‐creditors.   o Applies   to   relationship   of   solidary   creditors  
Defense   of   res   judicata   –   Divisible   joint   obligation:   among  themselves  
defense  is  not  extended  from  one  debtor  to  another— o Effect   of   prejudicial   act   to   debtors:   Art  
no   debtor   has   more   obligation   than   his   own,   nor   may   1215,  NCC  –  efficacy  to  most  prejudicial  acts  
each   creditor   claim   more   right   than   what   respectively   that   a   solidary   creditor   may   execute.  
pertains  to  him.   Novation,   compensation,   confusion   or  
  remission   of   debt   made   by   any   of   the  
Solidary  obligations,  kinds:   solidary   creditors   with   any   of   the   solidary  
• Active  solidary  –  exists  among  creditors—tie  among   debtors  shall  extinguish  the  obligation.  (Art  
several   creditors   of   the   same   obligation:   each   of   1215,  par  1,  NCC)  
them   is   creditor   only   as   to   his   share   in   the   o Effect   of   prejudicial   act   to   creditors:   Article  
obligation   and   he   represents   all   of   them.   Essential   1212,   NCC   –   none   of   the   solidary   creditors  
feature:   existence   of   mutual   agency   or   can   execute   any   act   prejudicial   to   others  
representation.   without   the   same   time   incurring   obligation  
• Passive   solidarity   –   exists   among   debtors—tie   of   indemnifying   the   latter.   Creditor   who  
among  several  debtors:  they  are  bound  to  payment   may   have   made   any   prejudicial   acts   shall   be  
of   the   whole   credit.   Essential   feature:   existence   of   liable   to   others   for   the   share   in   the  
mutual  guaranty.   obligation   corresponding   to   them.   (Art  
• Mixed   solidarity   –   exists   on   the   part   of   both   1215,  par  2,  NCC)  
creditors  and  debtors.    
Joint   creditors,   solidary   Each   creditor   can   demand   Effect  of  novation  
debtors   only   his   share   in   the   Mere   extension   of   time:   given   by   the   creditor   to   a  
obligation,   but   each   solidary   debtor,   does   not   release   the   others   from   the  
debtor   may   be   compelled   obligation  
to   pay   the   entire   In   substitution   of   debtor:   When   novation   consists   in  
obligation  to  creditors   substitution   of   the   person   of   the   debtor,   creditor   who  
Solidary   creditors,   joint   Creditors   can   demand   the   effects  the  novation  shall  be  liable  to  other  creditors  for  
debtor   entirety   of   the   obligation,  
the  latter’s  shares  in  the  obligation.  
but   each   debtor   can   only  
Novation   by   subrogation:   the   creditor   effecting   the  
pay  for  his  share  
novation  is  likewise  liable  to  the  other  creditors  for  their  
 
share   in   the   credit   since   subrogation   transfers   to   the  
Active  solidarity  
person  not  in  the  rights  of  the  other  creditors  (Art  1303,  
Mutual   agency   or   representation   –   each   one   of   the  
NCC),  but  in  his  place—amounts  to  an  assignment  of  his  
solidary  creditors  can  claim  or  enforce  the  rights  of  all,  
right   which   he   could   not   do   without   the   consent   of  
with   resulting   obligation   of   paying   everyone   what  
others  (Art  1213,  NCC)  
belong  to  him.  As  a  consequence:  
  16  
   Partial   remission   –   in   favor   of   a   solidary   debtor,   his  
Effect   of   compensation   –   solidary   creditor   whose   character   as   solidary   debtor   continues   with   respect   to  
personal   debt   has   been   compensated   by   the   credit   creditors   and   co-­‐debtors.   He   can   be   made   to   pay   the  
subject  matter  of  the  solidary  obligation  becomes  liable   balance  of  the  obligation  (Art  1219,  NCC)  
to   the   other   solidary   co-­‐creditors   for   their   share   in   the    
credit.   Assignment  of  rights  of  a  solidary  creditor  
  In  favor  of  stranger  –  solidary  creditor  cannot  assign  his  
Effect   of   confusion   –   extinguishment   is   limited   to   rights   without   the   consent   of   others   (Art   1213,   NCC)   If  
portion   corresponding   to   creditor   or   debtor   in   whom   made   in   favor   of   a   stranger   considered   invalid   since   it   is  
the  two  characters  concur  (Art  1277,  NCC).  The  solidary   prohibited  (Art  5,  NCC)  the  assignee  cannot  be  regarded  
creditor   in   whom   the   confusion   took   place   remains   as   a   solidary   creditor—any   payment   made   by   the  
liable  to  the  other  solidary  creditors  for  their  share.   debtor  to  such  assignee  would  be  payment  to  a  wrong  
  person,   may   not   extinguish   obligation.   A   suit   filed   by  
Effect  of  remission     such  assignee  cannot  interrupt  prescription.  
Entire   obligation   –   has   the   effect   of   extinguishing   the   In   favor   of   co-­‐creditor   –   consent   of   other   solidary  
entire   obligation   (Art   1215,   par   1,   NCC)   but   solidary   creditors   is   no   longer   necessary   because   assignee   is   one  
debtor   who   obtained   the   remission   of   the   whole   as  to  whom  the  confidence  of  others  already  exists.  
obligation   is   not   entitled   to   reimbursement   from   co-­‐  
debtors   (Art   1220,   NCC).   Remission   is   essentially   Effect   of   demand   by   solidary   creditor,   general   rule:  
gratuitous.   debtor   may   pay   any   one   of   the   solidary   creditors   (art  
• If   effected   by   one   solidary   creditor   –   becomes   1214,  NCC)  
liable   to   his   co-­‐creditors   for   their   shares   (Art   Effect   of   demand   –   general   rule   does   not   apply   if   any  
1215,  par  2,  NCC)   demand  (judicial  or  extrajudicial)  has  been  made  by  one  
• If   effected   by   several   but   not   all   –   no   action   of   the   solidary   creditors—payment   should   be   made   to  
between   those   who   made   it;   but   all   will   be   him  (Art  1214,  NCC)  If  debtor  pays  to  a  creditor  who  did  
liable   for   the   shares   of   the   creditors   who   did   not   make   a   demand,   payment   is   deemed   made   to   a  
not  remit.  If  one  is  insolvent,  his  share  shall  be   wrong   person,   in   so   far   as   the   shares   of   the   others   in  
made   up   by   the   others   who   concurred   in   the   the   credit   are   concerned.   The   payment   made   to   any  
remission   other  creditor  will  not  extinguish  the  obligation  except,  
  insofar  as  the  payee’s  share  is  concerned.  
Full  share  of  a  solidary  debtor    
• Effect   as   to   solidary   creditors   –   he   ceases   to   Application   to   mixed   solidarity   –   when   one   creditor  
have   any   relation   with   the   creditors,   thereby   makes  a  demand  upon  one  of  the  debtors,  latter  cannot  
released  unless  the  continuation  of  his  solidary   pay   to   any   other   creditor   but   the   one   who   made   the  
relation   has   been   expressly   reserved.   In   this   demand.   Prohibition   does   not   apply   to   other   debtors  
case,   he   will   be   a   surety   for   the   other   debtors.   upon  whom  demand  has  not  been  served—the  may  pay  
The   balance   of   the   obligation   may   not   be   to  any  creditor  who  may  not  be  the  one  who  made  the  
collected  from  him.   demand.  
• Effect   as   to   solidary   debtors   –   Still   bound,    
notwithstanding   his   release   with   respect   to   Obligation   of   creditor   who   collects   credit   –   solidary  
creditors—if   one   od   the   latter   is   made   to   pay   creditor   who   collects   the   debt   shall   be   liable   to   others  
the   share   of   an   insolvent,   the   released   debtor   for   share   in   the   obligation   corresponding   to   them.  
will   still   have   to   share   in   the   portion   of   the   Creditor  who  has  collected  the  debt  is  converted  into  a  
insolvent.  Same  rule  applies  in  case  the  debt  is   debtor   liable   to   his   co-­‐creditors   for   the   share  
totally   paid   by   anyone   of   the   solidary   debtors   corresponding  to  each  of  the  latter.  
before  remissions  was  effected  (Art  1219,  NCC)    
   
 

  17  
Passive  solidarity   o If   payment   is   made   before   debt   is   due,   no  
Mutual   guaranty   –   Each   one   of   the   debtors   answers   not   interest   for   the   intervening   period   may   be  
only   for   the   portion   affecting   him   but   also   for   the   demanded  (Art  1217,  par  2,  NCC)  
portion   pertaining   to   others.   Creditors   may   proceed   o If   payment   is   made   after   obligation   has  
against  any  one  of  the  solidary  debtors  or  some  or  all  of   prescribed   or   becomes   illegal,   debtor   who  
them   simultaneously.   The   demand   made   against   one   paid  shall  not  be  entitled  to  reimbursement  
shall   not   be   an   obstacle   to   those   that   may   subsequently   (Art  1218,  NCC)  
be   directed   against   the   others   as   long   as   the   debt   has    
not  been  fully  collected.  (Art  1216,  NCC)   Effect   of   insolvency   of   one   of   solidary   debtors:   If   after  
  payment   has   been   made,   one   debtor   becomes  
Solidary   debtor   distinguished   from   surety   –   difference   insolvent,   the   other   debtors,   including   the   debtor   who  
lies   in   the   respective   faculties   of   the   solidary   debtors   paid   the   debt   and   seeking   reimbursement   are  
and   surety   to   seek   reimbursement   for   the   sums   they   proportionately   liable   for   the   insolvent’s   share.   (Art  
paid  out  to  the  creditor.   1217,  par  3,  NCC)  
Solidary  debtor   Surety    
Art   1217,   NCC:   may   claim   Solidarily   bound   with   the   No  real  case  of  subrogation:  by  paying  entire  obligation,  
from   his   co-­‐debtors   only   principal   debt   or   to   the   solidary   debtor   does   not   become   a   subrogee   of   the  
the   share   which   creditor.     creditor,  because  the  original  obligation  is  extinguished  
corresponds   to   each,   with   and  a  new  one  is  created.  The  paying  solidary  co-­‐debtor  
interest   for   the   payment   does   not   become   a   creditor   as   he   cannot   collect   the  
already  made  
whole   amount   of   the   loan   from   anyone   but   is   only  
Will   not   be   able   to   recover   Surety   who   does   pay   the  
entitled   to   claim   from   his   co-­‐debtors   the   share  
from   co-­‐debtors   the   full   creditor   has   the   right   to  
pertaining   to   each   with   interest   on   the   amount  
amount   already   paid— recover   the   full   amount  
right   to   recovery   extends   paid   from   the   principal   advanced.   The   right   of   the   paying   co-­‐debtor   to   be  
only   to   proportional   share   debtor/s.   reimbursed  is  based  upon  the  payment  made  by  him.  
of  co-­‐debtors    
  Right   to   full   Effect   of   loss   of   thing   or   supervening   impossibility   of  
reimbursement   fall   within   prestation:  
the   other   rights,   actions   Without   fault   of   solidary   Fault   of   any   one   of   them  
and   benefits   which   pertain   debtors   or   due   to   fortuitous   event  
to   the   surety   by   reason   of   after  a  debtor  has  incurred  
the   subsidiary   obligation   delay  
assumed     Obligation   is   extinguished   All   shall   be   liable   to   the  
  (Art  1221,  par  1,  NCC)   creditor   (Price   and  
Effect  of  payment  made  by  one  solidary  debtor   payment   of   damages   and  
• Extinguishment   of   obligation   –   payment   by   one   interest)  
extinguishes   the   obligation   but   if   there   be   two   or     Innocent   debtors   have   a  
more   solidary   debtors   offering   to   pay,   the   creditor   right   of   action   to   recover  
from   guilty   debtor   (full  
may  choose  which  offer  to  accept  (Art  1217,  par  1,  
amount   of   indemnity   they  
NCC)  
paid  to  creditor)  
• Right   of   solidary   debtor   who   made   the   payment   –  
  If   creditor   recovers   from  
solidary  debtor  who  pays  the  entire  obligation  may   guilty   debtor,   he   cannot  
collect  from  his  co-­‐debtors:  share  corresponding  to   get   any   contribution   from  
each   +   interest   from   the   time   of   payment   until   his   debtors   (Art   1221,   par  
reimbursed  by  co-­‐debtors.  (Art  1217,  par  2,  NCC).  In   2,  NCC)  
other   words,   the   debtor   who   made   the   payment    
becomes   a   creditor   of   his   co-­‐debtors   for   the   share    
that   corresponded   to   each   of   the   latter   in   the  
obligation  extinguished.  Qualifications:  
  18  
Defenses   available   to   every   solidary   debtor:   in   actions   Divisible  and  Indivisible  Obligations  
filed  by  a  solidary  creditor   Divisible  obligation  –  object  a  thing  or  an  act  that  in  its  
• Defenses   which   arise   from   the   nature   of   the   delivery   or   performance   is   susceptible   of   division.   Basis:  
obligation   (Art   1222,   NCC)   –   tend   to   weaken   or   whether   or   not   the   obligation   is   susceptible   of   partial  
destroy  the  legal  tie  or  vindiculum  juris.  Constitutes   fulfillment   according   to   the   purpose   of   the   said  
a   total   defense   by   which   can   be   availed   by   any   of   obligation.  
the  solidary  debtors  as  against  entire  obligation:   Indivisible   obligation   –   does   not   admit   division   or   even  
o Contract  is  void  or  inexistent   though   it   does,   neither   the   nature   of   the   contract   nor  
o Contract   is   unenforceable—infringes   the   the  intention  of  the  parties  permits  it  to  be  fulfilled  by  
Statute  of  Frauds   parts  
o Entire   contract   is   voidable—defect   in    
capacity   or   consent   of   ALL   the   debtors   Rules   for   determining   divisibility/indivisibility   of  
(minority,  insanity,  mistake,  violence,  undue   obligations:  purpose  of  the  obligation  is  the  controlling  
influence  or  fraud)   circumstance  
o Obligation   already   extinguished   (payment,   • In  obligations  to  give:  
remission,  novation,  etc)   o Definite  thing  such  as  animal  or  vehicle  are  
o Non-­‐fulfillment   of   suspensive   condition   or   indivisible  (Art  1225,  par  1,  NCC)  
non-­‐arrival   of   the   period   affecting   the   o Even   though   the   object   may   be   physically  
entire  obligation   divisible,   an   obligation   is   indivisible   if   so  
o Any  other  defense  which  may  invalidate  the   provided   by   law   or   intended   by   the   parties  
original   contract   from   which   the   (Art  1225,  par  3,  NCC)  
right/action   of   the   creditor   against   the   • In  obligations  to  do:  
debtors   arises   (res   judicata,   prescription,   o Generally   indivisible.   Even   though   the  
etc)   service   may   be   physically   divisible,   it   is  
• Defenses   personal   to   the   debtor   being   sued   or   indivisible  if  provided  by  law  or  intended  by  
pertaining   only   to   his   share   (Art   1222,   NCC)   –   the  parties  (Art  1225,  par  3,  NCC)  
defenses   include   not   only   those   affecting   the   o Divisible,  when  (Art  1225,  par  2,  NCC):  
capacity/consent  of  the  debtor  being  sued,  but  also   § The   execution   of   a   certain   number  
those   referring   particularly   to   his   portion   of   of  days  of  work  
obligation  (condition  or  term):   § The   accomplishment   of   work   by  
o Total   defense   –   personal   to   the   debtor   metrical  units  
being   sued,   sufficient   causes   to   annul   § Analogous   things   which   by   their  
consent   (minority,   insanity,   fraud,   violence,   nature   are   susceptible   of   partial  
or   intimidation)   will   serve   as   a   complete   performance  
exemption  of  the  defendant  from  liability  to   o In   obligations   no   to   do,   it   shall   be  
the  creditor.   determined   by   the   character   of   the  
o Partial   defense   –   forms   of   special   terms   or   prestation   in   each   particular   case   (Art   1225,  
conditions   affecting   only   his   part   of   the   par  4,  NCC)  
obligation—he   may   invoke   the   same   only    
with   respect   to   his   part.   He   can   still   be   sued   Solidarity   and   indivisibility,   rule:   indivisibility   of   an  
for   the   portions   not   subject   to   terms   or   obligation  does  not  necessarily  give  rise  to  solidarity  nor  
conditions  because  he  is  solidarily  liable.   does   solidarity   of   itself   imply   indivisibility   (Art   1210,  
• Defenses  which  belong  to  another  debtor  (Art  1222,   NCC)  
NCC)  –  whether  total  or  partial,  personally  belong  to   Reason:   they   are   two   distinct   concepts.   They   differ   in  
other   co-­‐debtor   who   is   actually   sued,   with   the   origin,  basis  and  in  their  effects:  
qualification   that   he   may   avail   himself   only   as    
regards   that   part   of   the   debt   for   which   the   debtor    
to  whom  the  defense  belongs  is  responsible.    

  19  
Origin  and  basis:   o If   one   of   the   debtors   becomes   insolvent,  
Solidarity   Indivisibility   the   others   shall   not   be   liable   for   his   share  
Refers   to   the   legal   tie,   Refers  to  the  object  of  the   (Art  1209,  NCC)  
vindiculum  juris  that  binds   prestation  (Art  1223,  NCC)   • As  to  creditors:  joint  creditors  are  each  entitled  only  
the  parties  (Art  1207,  NCC)   to   his   aliquot   share   (distinct   from   others),   the  
Requires   plurality   of   Not  required   collective  action  of  all  the  creditors  is  also  necessary  
subjects   (creditors   or   in  order  to  enforce  the  credit.  
debtors)  
o Debtor  can  extinguish  his  obligation  only  by  
Effects:  
delivering   the   object   to   all   the   creditors  
Solidarity   Indivisibility  
jointly,  unless  they  have  authorized  any  one  
Each   debtor   answers   for   Plurality   of   subject:   each  
of  them  to  receive  the  payment  
the  default  of  another  and   debtor   is   liable   for   and  
o The   foregoing   principle   applies   even   if   the  
for   a   co-­‐debtor’s   each   creditor   is   entitle   to  
insolvency,   entitling   only   his   aliquot   share— act   executed   by   one   of   the   creditors   is  
creditor  to  recover  the  full   each   is   distinct   and   beneficial  to  them,  such  as  interrupting  the  
amount  of  such  damages.   separate  from  others   period  of  prescription.  
  In   case   of   non-­‐ o Since   obligation   is   joint   and   credit   is  
performance   or   breach   distinct,   there   is   not   mutual   agency—the  
where   the   obligation   is   act   of   one   alone   is   ineffective   considering  
now   converted   into   that   the   indivisibility   of   the   obligation  
indemnity   for   damages,   requires   the   collective   action   to   be  
damages   can   only   be   effective.  
demanded   from   the   • Effect  of  breach:  obligation  is  converted  into  one  for  
debtor   responsible   for   the  
payment   of   indemnity   for   damages   from   the   time  
breach;   other   debtors  
anyone   of   the   debtors   does   not   comply   with   his  
ready   to   fulfill   their   parts  
undertaking  (Art  1224,  NCC)  
shall  not  contribute  to  the  
indemnity   beyond   the   o Responsible   debtor   shall   bear   the   liability  
corresponding   portion   of   for  all  the  damages  suffered  by  the  creditor;  
the  price  of  the  thing   those   who   have   been   ready   to   fulfill   their  
  promises   shall   not   contribute   to   the  
Joint   indivisible   obligations,   concept:   Obligation   is   joint   payment   of   damages—their   liability   is  
as   to   parties   but   indivisible   to   compliance.   As   a   rule,   limited  to  their  respective  share  of  the  price  
obligation  is  presumed  to  be  joint  in  case  of  plurality  of   of  the  thing  or  value  of  the  service  in  which  
subjects   (Art   1207,   NCC).   Presumption   applies   even   if   obligation  consists.  
the   obligation   is   indivisible   because   the   indivisibility   of    
an  obligation  does  not  necessarily  give  rise  to  solidarity   Obligations   with   a   penal   clause:   one   with   an   accessory  
(Art  1210,  NCC)   undertaking   by   virtue   of   which   the   obligor   assumes   a  
*Obligation   preserves   its   character   for   being   joint   in   greater  liability  in  case  of  breach  of  the  obligation.  
case   of   plurality   of   subjects   notwithstanding    
indivisibility,   so   that   credit/debit   is   apportioned   among   Penal   clause   –   accessory   obligation   attached   to   a  
several   creditors   or   debtors—each   credit/debit   is   principal   obligation   for   the   purpose   of   insuring   the  
considered  distinct  from  one  another  (Art  1208,  NCC)   performance   thereof   by   imposing   on   the   debtor   a  
  special   prestation   in   case   obligation   is   not  
Consequences  of  joint  indivisible  obligations:   fulfilled/irregularly  or  inadequately  fulfilled.  
• As   to   debtors:   debt   can   be   enforced   only   by   *intended  to  prevent  the  obligor  from  defaulting  in  the  
proceeding   against   all   the   debtors   (Art   1209,   NCC),   performance   of   his   obligation—if   there   should   be  
although  they  are  each  liable  only  for  his  part.   default,  penalty  should  be  enforced  
o Requires  the  concurrence  of  all  the  debtors,    
although  each  for  his  part.    

  20  
Dual  function:   Creditor  may  not  demand  both  the  principal  obligation  
1. to  provide  for  liquidated  damages   and   penalty,   general   rule:   creditor   cannot   demand   the  
2. to   strengthen   the   coercive   force   of   the   fulfillment   of   the   obligation   and   the   satisfaction   of   the  
obligation   by   threat   of   greater   responsibility   in   penalty  at  the  same  time  (Art  1227,  NCC)  
the  event  of  breach   • Exception:   may   only   be   entitled   to   both   rights   if   it  
  has  been  granted  to  him    
Penalty  vs  condition:   • If   principal   obligation   becomes   impossible:   If   after  
Penalty   Condition   the  creditor  has  decided  to  require  the  fulfillment  of  
Constitutes   obligation   Does   not   constitute   the   obligation   the   performance   thereof   should  
(accessory)   obligation   become   impossible   without   his   fault,   the   penalty  
May  be  demanded  in  case   Can   never   be   demanded   may  be  enforced  
of   non   fulfillment   of   to  be  fulfilled  but  whether   • No  need  for  proof  of  actual  damages:  creditor  need  
principal   obligation   and   it  happens  or  not,  only  the  
not  to  present  proof  of  actual  damages  suffered  by  
even  with  it  alone   obligation   which   it   affects  
him   in   order   that   the   penalty   may   be   demanded.  
may  be  demanded  
(Art  1228,  NCC)  
 
o No   difference   between   penalty   and  
Penalty  as  substitute  for  damages  and  interest,  general  
liquidated   damages.   Primary   purpose   is   to  
rule:  penalty  takes  place  of  the  indemnity  for  damages  
avoid   the   necessity   of   recovering   the   sum  
and  the  payment  of  interest  (Art  1226,  NCC)  
stipulated  for  damages.  
Exception:  indemnity  for  damages,  in  addition  and  apart  
o Obligor   is   bound   to   pay   the   stipulated  
from   penalty   stipulated,   may   be   recovered   in   three  
amount   without   the   need   for   proof   on   the  
cases:  
existence   and   on   the   measure   of   damages  
• Express  stipulation  to  that  effect  
caused  by  the  breach.  
• Obligor   having   failed   to   comply   with   the   principal  
• When  penalty  may  be  reduced  by  court:  
obligation   also   refuses   to   pay   penalty—creditor   is  
o Principal   obligation   has   been   party   or  
entitled   to   interest   in   the   amount   of   penalty   (Art  
irregularly  complied  with  by  the  debtor  
2209,  NCC)  
o Even   if   there’s   no   performance,   if   the  
• Obligor   is   guilty   of   fraud   in   the   fulfillment   of   the  
penalty  is  iniquitous  or  unconscionable  
obligation  (Art  1226,  NCC)  
Effect  of  nullity  (Art  1230,  NCC):  
o Proof   of   such   fraud   is   incumbent   upon   the  
• Nullity  of  penalty  clause  –  does  not  carry  with  it  that  
creditor.   In   case   he   demands   indemnity   +  
of   principal   obligation—principal   can   exist   with   the  
addition   to   the   penalty   stipulated,   proof   of  
accessory  
existence  and  amount  of  damages  shall  also  
• Nullity   of   principal   obligation   –   carries   with   it   the  
correspond  to  him  
nullity   of   penalty   clause—accessory   may   not   exist  
§ Creditor   may   only   demand  
without  the  principal.  
difference   of   such   amount   over  
 
amount   of   penalty   stipulated   (he  
Extinguishment  of  obligations,  principal  causes:  
cannot  recover  both)  
1. Payment  or  performance  
§ Entitled   only   to   Stipulated   penalty   +  
2. Loss  of  the  thing  due  
(Stipulated   penalty   –   proven  
3. Condonation  or  remission  of  the  debt  
damages)  
4. Merger  or  confusion  of  rights  
 
5. Compensation  
Penalty   may   not   replace   principal   obligation,   general  
6. Novation  
rule:   penalty   is   not   a   substitute—debtor   cannot   exempt  
 
himself   from   the   performance   of   the   obligation   by  
Payment   –   means   not   only   delivery   of   money   but  
paying  penalty  (Art  1227,  NCC)  
performance,   in   any   other   manner,   of   an   obligation   (Art  
• Exception:   When   foregoing   right   is   expressly  
1232,  NCC)  
reserved  for  the  debtor  (Art  1227,  NCC)  
 
 
  21  
Burden   of   proof:   One   who   pleads   payment   has   the   • Creditor   is   not   bound   to   accept   the   payment  
burden   of   proving   it.   Even   where   the   plaintiff   must   (Art  1236,  par  1,  NCC)  his  refusal  to  accept  the  
allege   non-­‐payment,   burden   rests   on   the   defendant   to   payment  is  justified  and  shall  not  authorize  the  
prove  payment.   debtor   to   resort   to   consignation   (Art   1257,   par  
• Where   the   debtor   introduces   some   evidence   of   2,  NCC)  
payment,   the   burden   of   going   forward   with   the   • If  the  creditor  accepts,  the  payment  is  valid  and  
evidence   shifts   to   the   creditor—under   the   duty   of   shall   extinguish   debtor’s   obligation   even   if   the  
producing  some  evidence  to  show  non-­‐payment   payment   was   made   without   the   knowledge   or  
  against  the  will  of  the  debtor  
Requisites:   • Made  without  the   knowledge  or  against  the  will  
1. Complete  and  regular   of   the   will   of   the   debtor:   a)   payor   can   recover  
a. Refers  to  the  integrity  of  the  payment   from   debtor   only   insofar   as   such   payment   has  
b. Completely   delivered   or   rendered   (Art   been   beneficial   to   the   latter   (Art   1236,   par   2,  
1233,  NCC)   NCC)   and   b)   payor   is   not   entitled   to   be  
c. Creditor   cannot   be   compelled   to   partially   subrogated   to   the   rights   of   the   creditor   (Art  
receive   the   presentations   (but   he   may   1237,  NCC)  
choose   to   accept)   and   neither   may   debtor   • Made   with   consent   of   debtor:   a)   payor   may  
be   required   to   make   partial   payment   unless   demand  from  the  debtor  what  he  has  paid  (Art  
there   is   express   stipulation   to   that   effect   1236,  par  2,  NCC)  and  b)  he  can  be  subrogated  
(Art  1248,  par  1,  NCC)   to   the   rights   of   the   creditor,   such   as   those  
i. Express   stipulation:   partly   arising  from  mortgage,  guaranty  or  penalty  (Art  
liquidated,   partly   unliquidated   or   1237,  NCC)  
subjected  to  terms  and  conditions   • If  payor  does  not  intend  to  reimburse,  payment  
Exceptions   –   Incomplete   or   irregular   payment   may   is  deemed  a  donation  if  done  with  the  consent  
extinguish  obligation  in  two  instances:   of   the   debtor.   If   without   consent,   not   a  
• Substantial  performance  in  good  faith:   donation   but   still   valid—shall   extinguish  
o Debtor   may   recover   as   though   there   had   debtor’s   obligation   but   payor   (if   he   change   his  
been  a  strict  and  complete  fulfillment   mind)   may   demand   reimbursement   from  
o But   creditor   may   deduct   the   damages   debtor   but   only   insofar   as   such   payment   has  
suffered  by  him  (Article  1234,  NCC)   been   beneficial   to   the   latter   (Art   1236,   par   2,  
• Waiver:   creditor   waives   (expressly   or   impliedly)   his   NCC)  
right   to   insist   on   a   complete   and   regular    
performance,   as   when   he   accepts   it,   knowing   the   Reimbursement   Subrogation  
incompleteness   or   irregularity   and   without   Covers   only   refund   of   the   Includes  not  only  the  right  
expressing   any   protest   or   objection—obligation   is   amount   paid   (Art   1303,   to   reimbursement   but   also  
deemed  complied  with  (Art  1235,  NCC)   NCC)   rights   of   action   against  
  debtor   and   other   third  
2. Tendered  by  the  proper  person   persons   whether   they   are  
a. Debtor   himself   or   duly   authorized   guarantors   or   mortgagees  
(Art  1303,  NCC)  
representative  
Person   paying   for   another   Person   who   pays   acquires  
b. Third   person   who   has   been   authorized   by  
only  has  personal  action  to   not   only   right   to   be  
the  parties  to  make  payment  (Art  1236,  par  
recover   what   he   has   paid   reimbursed   for   what   he  
1,  NCC)     without   rights,   power   and   paid   but   also   rights  
c. Third   person   who   has   an   interest   in   the   guaranties   attached   to   attached   to   the   obligation  
fulfillment   of   the   obligation   (Art   1236,   par1,   original  obligation   originally   contracted   by  
NCC)   the  debtor  
Effect   of   payment   coming   from   persons   other   than    
those  mentioned  above:  

  22  
3. Person   paying   must   have   the   capacity   to   make   oIf,  after  payment,  third  person  acquires  the  
payment   creditor’s  rights  
a. Effect,   payment   by   incapacitated   person:   o If  creditor  ratifies  the  payment  to  the  third  
creditor   cannot   be   compelled   to   accept   it;   person  
consignation   will   not   be   proper;   in   case   he   o If  by  creditor’s  conduct,  debtor  has  been  led  
accepts,  payment  will  not  be  valid   to   believe   that   the   third   person   had  
b. Capacity   (To   give):   must   be   made   by   a   authority  to  receive  payment  
person  having  free  disposal  of  the  thing  due    
and  capacity  to  alienate  it.   • Payment   made   in   good   faith   to   any   person   in  
4. Should  be  made  to  proper  person   possession  of  the  credit  (Art  1242,  NCC)  
a. Person   in   whose   favor   the   obligation   has    
been  constituted  (or  original  creditor)   Requisites:  
b. Successor-­‐in-­‐interest   (if   credit   is   already   o Payment  is  made  to  a  person  in  possession  
transferred)   of  the  credit  
c. Person   authorized   by   creditor   or   by   law:   o Payor   acted   in   good   faith,   believing   that   the  
guardian,   executor,   administrator   of   estate   person   demanding   the   payment   of   the   debt  
of   a   deceased   persons,   assignee   or   or   the   person   in   whose   name   the   payment  
liquidator  of  a  partnership  or  corporation   is   demanded,   is   the   true   owner   of   the  
**Any   payment   made   to   persons   other   than   mentioned   credit.  
above  is  payment  made  to  a  wrong  person.   *Payment  is  required  to  be  made  to  a  possessor  of  the  
  credit,  not  of  the  document  representing  or  evidencing  
Effect,  payment  to  wrong  person:  not  a  valid  payment,   such  credit  
debtor   does   not   extinguish   obligation   as   to   creditor   *Possessor   of   the   credit   referred   to   in   Art   1242   of   the  
(without   fault   or   negligence),   even   if   debtor   acted   in   NCC  must  be  a  wrong  person  who  is  not  entitled  to  the  
good  faith.  If  it  becomes  impossible  to  recover,  any  loss   payment.  
shall  be  borne  by  the  deceived  debtor,  who  is  the  only   *Payment   must   be   made   in   good   faith   for   the   debtor   to  
one   responsible   for   his   own   acts   unless   there   is   a   be  released  of  his  obligation.  
stipulation  to  the  contrary  or  unless  the  creditor  himself    
is  responsible  for  the  wrongful  payment.   • Debtor   pays   the   creditor   prior   to   acquiring  
Exceptions:   considered   valid   and   shall   extinguish   knowledge  of  the  assignment  of  credit  made  by  the  
debtor’s   obligation   if   made   in   any   of   the   following   latter  (Art  1626,  NCC)  
situations:   o Debtor’s   consent   not   necessary—law  
• Payment   redounded   to   the   benefit   of   the   creditor   requires   assignment   of   credit   not   consent  
(Art  1241,  par  2,  NCC)   but  merely  notice  to  him.  
o Debtor   has   the   burden   of   proving—debtor   o Creditor   may   validly   assign   his   credit   and   its  
committed   the   mistake   and   he   is   the   one   accessories  without  the  debtor’s  consent  
interested   in   the   extinguishment   of   the   o Effect   of   payment   made   by   debtor   to  
obligation   assignor   prior   to   notice   of   assignment:   even  
o Cannot   be   invoked   without   the   conclusive   without   the   debtor’s   consent,   if   the   debtor  
proof   of   the   benefit   to   the   creditor,   pays   the   assignor   without   knowledge   of  
especially   when   there   is   not   the   slightest   assignment,  payment  is  valid  
evidence   that   the   third   person,   to   whom    
payment   was   made,   had   any   claim   Effect  of  garnishment:  Payment  made  by  creditor  by  the  
whatever  to  the  creditor’s  right   debtor   after   the   latter   has   been   judicially   ordered   to  
  retain   the   debt   shall   not   be   valid,   (Art   1243,   NCC)  
Exception   to   requirement   of   proof:   instances   where   insofar   as   the   party   who   obtained   the   garnishment   is  
proof  is  not  necessary  and  payment  is  considered  valid:   concerned.  Debtor  can  be  required  to  pay  again  to  the  

  23  
party  who  secured  the  garnishment  up  the  extent  of  the   • All   notes   and   coins   issued   by   the   BSP   and  
amount  of  the  judgment  in  his  favor.   guaranteed   by   the   PH   are   considered   legal   tender  
  for  all  debts,  public  and  private.  
5. Person   to   whom   payment   is   made   must   have   the   • For  coins,  legal  tender  is  limited:  
capacity  to  receive  it   o 1-­‐piso,   5-­‐piso   and   10-­‐piso   –   up   to   maximum  
a. General   rule:   payment   made   by   an   amount  of  1,000  only  
incapacitated   person   is   not   considered   a   o 1-­‐sentimo,   5-­‐sentimo,   10-­‐sentimo,   25-­‐
valid  payment   sentimo   –   up   to   maximum   amount   of   100  
b. Exception:   only  
i. If  he  has  kept  the  thing  delivered   • A  check  is  not  legal  tender  and  an  offer  of  a  check  in  
ii. The  payment  has  been  beneficial  to   payment  of  a  debt  is  not  a  valid  tender  of  payment  
the  debtor   and  may  be  refused  receipt  by  the  creditor—but  he  
  has   the   option   and   discretion   of   refusing   or  
6. Identity  of  the  prestation  must  be  preserved   accepting  it.  
a. Determinate   thing   –   debtor   cannot   compel   • Delivery   of   checks   (promissory   notes   or   other  
the   creditor   to   receive   a   different   one,   even   mercantile   documents)   shall   produce   the   effect   of  
though   it   is   of   greater   value   than   which   is   payment  only  when:  
due.   o They  have  been  encashed  
b. Indeterminate   (generic)   thing   –   creditor   o They  have  been  impaired  through  the  fault  
cannot   demand   a   thing   of   superior   quality   of  the  creditor  
and   debtor   may   not   deliver   a   thing   of   • Sufficiency  of  tender  of  checks:  tender  of  check  may  
inferior   quality—should   be   of   average   be  deemed  sufficient  depending  on  the  purpose  for  
quality.  Purpose  of  the  obligation  and  other   which  the  check  is  delivered:  
circumstances   shall   be   taken   into   o Payment   of   obligation   –   Article   1249   is  
consideration.   applicable;   check   is   not   legal   tender   and  
c. Obligation   to   do   or   not   to   do   –   an   act   or   creditor   may   validly   refuse   tender   of  
forbearance   cannot   be   substituted   by   payment.  
another   act   or   forbearance   against   the   o Exercise   of   right   –   Article   1249   is   not  
creditor’s  will  (Art  1244,  par  2,  NCC)   applicable;   mere   tender   of   a   check   is  
d. Obligation   to   pay   debts   in   money   –   Art   sufficient  to  compel  redemption.  
1249,  NCC  should  apply:    
i. Payment   should   be   made   in   the   7. Must  be  tendered  in  the  proper  place  
currency   stipulated;   otherwise,   o Rule:   tender   of   payment   must   be   made   at   the  
creditor   may   validly   refuse   the   proper   place,   otherwise,   the   creditor   may   not  
tender  of  payment   be  compelled  to  accept  the  payment.  
ii. In   absence   of   such   stipulation,   or   if   o General   rule:   domicile   of   the   debtor.  
it   is   not   possible   to   deliver   the   Still   applied   even   if   the   debtor   changes  
current   stipulated,   payment   should   his   domicile   in   bad   faith   except   the  
be   in   the   currency   which   is   legal   additional   expenses   in   collecting   the  
tender   in   PH;   otherwise,   the   credit  shall  be  borne  by  the  debtor  (Art  
creditor   may   validly   refuse   the   1251,  NCC)  
tender  of  payment.   o Exception:   foregoing   rule   does   not  
  apply:  
Legal   tender   –   currency   which   has   been   made   suitable   § If   there   is   another   place   of  
by   law   for   the   purpose   of   a   tender   in   the   payment   of   payment   designated   in   the  
debts.   obligation  
§ In   absence   of   agreement   and  
when   obligation   is   to   deliver   a  

  24  
 determinate  thing,  the  payment   d. Where   the   alienation   of   the   property   was  
shall   be   made   wherever   the   by   was   of   security,   and   not   by   way   of  
thing   might   be   at   the   moment   satisfying   the   debt,   there   is   no   dacion   en  
the  obligation  was  constituted.   pago  
  e. Requisites:  
Rule  on  expenses  related  to  collection:   i. There   must   be   performance   of   the  
• Extrajudicial   expenses   –   incurred   in   connection   with   prestation   in   lieu   of   payment  
and   as   a   consequence   of   the   normal   and   private   (animo  solvendi)  which  may  consist  
payment  or  performance  of  the  obligation   in   the   delivery   of   a   corporeal   thing  
o They   are   for   the   account   of   the   debtor   or  a  real  or  a  credit  against  the  third  
unless  the  parties  stipulated  otherwise   person  
o Debtor   shall   also   be   liable   for   the   additional   ii. There   must   be   some   difference  
expenses  that  may  be  incurred  in  collecting   between   the   prestation   due   and  
the  credit  if  the  debtor  changes  his  domicile   that   which   is   given   in   substitution  
in  bad  faith  or  after  he  has  incurred  in  delay   (aliud  pro  alio)  
• Judicial   expenses   –   arise   by   reason   of   the   judicial   iii. There   must   be   an   agreement  
proceeding   and   they   shall   be   regulated   by   the   RoC   between   the   creditor   and   debtor  
(Art  1247,  NCC)   that   the   obligation   is   immediately  
• Expenses   of   consignation   –   expenses   which   are   extinguished   by   reason   of   the  
consequences  of  the  consignation   performance   of   a   prestation  
o Document   evidencing   the   tender   of   different  from  that  due  
payment     f. Effect:   extinguishes   the   obligation   to   the  
o Announcement  of  the  consignation   extent   of   the   value   of   the   thing   delivered  
o Deposit  and  fee  thereof   either   as   agreed   upon   by   the   parties   by  
o Notification  of  such  deposit   agreement  (express  or  implied)  
o Withdrawal  of  the  deposit  in  order  that  the   g. Exception:   or   by   their   silence,   consider   the  
creditor  may  make  the  collection   thing   as   equivalent   to   the   obligation,   in  
o Ordinary  form  –  shall  be  for  the  account  of   which   case   the   obligation   is   totally  
the  debtor   extinguished.  
§ When   consignation   is   properly   h. Dation   in   payment   does   not   necessarily  
made,   such   expenses   are   for   the   mean  total  extinguished  of  the  obligation—
account   of   the   creditor   (Art   1259,   only   when   the   parties,   by   agreement,  
NCC)   otherwise,   they   shall   be   borne   express   or   implied,   or   by   their   silence,  
by  the  debtor.   consider   the   thing   as   equivalent   to   the  
  obligation.  
Special  forms  of  payment   i. Governed   by   law   on   sales—essential  
1. Dation  in  payment  (dacion  en  pago)   elements   of   a   contract   of   sale   (consent,  
a. Original   obligation   must   be   to   pay   money,   object  certain,  cause  or  consideration  must  
substitute   must   be   property—alienation   of   be  present)  
property   to   the   creditor   in   satisfaction   of   a   2. Cession  
debt  in  money   a. Governed  by  Art  1245,  NCC  
b. Requires   delivery   and   transmission   of   b. Consists  in  the  abandonment  of  the  totality  
ownership   of   a   thing   owned   by   the   debtor   of  the  property  of  the  debtor  in  favor  of  the  
to   the   creditor   as   an   accepted   equivalent   of   creditors   in   order   that   the   same   may   be  
the  performance  of  the  obligation   applied  for  the  satisfaction  of  their  credits  
c. No   dation   when   there   is   no   transfer   of    
ownership    
 

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Dation  in  payment   Cession   iv. Cannot   be   presumed   by   a   mere  
To  pay  obligation   To  take  possession   inference   from   surrounding  
Transfers   the   ownership   Only   the   possession   and   circumstances  
over   the   thing   alienated   to   administration   are   v. Mere  sending  of  a  letter  expressing  
the  creditor   transferred   to   the   intention   to   pay,   without   the  
creditors   accompanying   payment,   is   not  
Does   not   require   plurality   Requires   plurality   of   considered   a   valid   tender   of  
of  creditors   creditors  
payment—statement   of   intention  
Does   not   require   the   Presupposes  the  existence  
must   be   accompanied   by   an   actual  
debtor  to  be  insolvent   of   insolvency   on   the   part  
and   simultaneous   tender   of  
of  the  debtor  
payment  
Involves   specific   thing   or   Involves   totality   of   the  
property   property  of  the  debtor    
May   totally   extinguish   the   Only   releases   the   debtor   Tender  of  payment   Consignation  
obligation   resulting   to   the   from   responsibility   for   the   Antecedent   of   Act  of  depositing  the  thing  
release  of  the  debtor   net   proceeds   of   the   thing   consignation:   act   due   with   the   court   or  
assigned,   unless   there   is   preparatory   to   the   judicial   authorities  
stipulation  to  the  contrary   consignation,   which   is   the   whenever   the   creditor  
  principal,   from   which   are   cannot   accept   or   refuses  
3. Tender  of  payment  and  (valid)  consignation   derived   the   immediate   to  accept  payment  
consequences   that   the  
a. Tender   of   payment   (even   if   valid)   does   not  
debtor   desires   or   seeks   to  
by  itself  produce  legal  payment,  unless  it  is  
obtain.  
completed  by  consignation.  
May   be   extrajudicial;   Generally   requires   a   prior  
i. Must   be   accompanied   by   priority   of   the   first   is   the   tender  of  payment  
consignation   in   order   that   the   attempt  to  make  a  private  
effects   of   payments   may   be   settlement   before  
produced   proceeding   to   the  
ii. Effect  or  a  valid  tender  of  payment:   solemnities   of  
merely   to   exempt   the   debtor   from   consignation  
payment   of   interest   and/or    
damages   When   consignation   alone   is   sufficient   (exceptions   from  
b. Concept,   tender   of   payment:   definitive   act   tender  of  payment):  
of   offering   the   creditor   what   is   due   him   or   1. Creditor  is  absent  
her,   together   with   the   demand   that   the   2. Creditor  is  unknown  
creditor  accept  the  same.   3. Credit  does  not  appear  at  the  place  of  payment  
i. Presupposes   not   only   that   the   4. Creditor  is  incapacitated  to  receive  the  payment  
obligor   is   able,   ready   and   willing,   at  the  time  it  is  due  
but   more   so,   in   the   act   of   5. Without   just   cause,   creditor   refuses   to   give   a  
performing  his  obligation.   receipt  
ii. In   obligations   to   pay   in   money   –   6. When   two   or   more   persons   claim   the   same  
involves   a   positive   and   right  to  collect  
unconditional   act   by   the   obligor   of   7. When  the  title  of  the  obligation  has  been  lost  
offering   legal   tender   currency   as    
payment   and   demanding   the   latter   Requisites  of  effective  consignation:  
accept  the  same   1. There   was   debt   due.   Consignation   requires   the  
iii. Under   the   civil   code,   tender   of   existence  of  a  debt  
payment   to   be   valid   must   be   a. Consignation   is   inapplicable   in   cases   of  
unconditional   right   of   redemption   since   the   right   to  
redeem  is  a  right  not  an  obligation.  It  is  

  26  
 not   necessary   to   preserve   the   right   to   been   properly   made,   the   debtor   may   no   longer  
redeem.   withdraw  the  same  without  the  consent  of  the  creditor.  
b. Consignation   had   been   made   because   Retroactive   effect:   consignation   has   retroactive   effect—
the   creditor   to   whom   tender   of   payment   is   deemed   to   have   been   made   at   the   time   of  
payment  was  made  refused  to  accept  it   the  deposit  of  the  money  in  court,  or  when  it  was  place  
without  justifiable  cause;  or  because  he   at  the  disposal  of  the  judicial  authority.  
was   absent   or   incapacitated   (Mora    
accipiendi)   Effects  of  consignation:  
c. Previous  notice  of  the  consignation  had   If  valid:  
been   given   to   the   person   interested   in   • Produces   the   effect   of   payment,   thereby   releasing  
the   performance   of   the   obligation.   the  debtor  from  all  responsibility  (Art.  1256,  NCC)  
Without   notice,   consignation   as   a   • The   accrual   of   interest   on   the   obligation   is  
payment  is  void   suspended  from  the  moment  of  consignation  
d. Amount  due  was  placed  at  the  disposal   • Loss   of   the   thing   or   amount   consigned   occurring  
of  the  court   without   the   fault   of   the   debtor   before   acceptance  
e. After   consignation,   person   interested   of   consignation   by   creditor   or   approval   by   court  
was   notified   of   the   action—to   enable   (should  account  for  the  creditor)  
the   creditor   to   withdraw   the   goods   or   • Retroactive   effect:   fruits,   products   or   interest   of   the  
money   deposited.   It   will   be   unjust   to   thing   consigned   shall   belong   to   the   creditor   from  
make   him   suffer   the   risk   for   any   the  moment  the  consignation  was  made  
deterioration,   depreciation   or   loss   of   • Expenses   of   consignation   shall   be   charged   against  
such  goods  or  money  by  reason  of  lack   the  creditor  (Art  1259,  NCC)  
of  knowledge  of  the  consignation   If  invalid:  
i. Failure   to   prove   any   of   the   • Obligation  remains;  no  suspension  of  the  accrual  of  
requisites   is   enough   ground   to   the  interest  
render   a   consignation   • Consignor  shall  bear  the  loss  
ineffective   • Expenses   of   consignation   shall   be   for   the   account   of  
ii. These   essential   requisites   must   the  debtor  (Art  1259,  NCC)  
be   complied   with   fully   and    
strictly   in   accordance   with   the   Application  of  payment:  
provisions   of   Articles   1256   to   Concept:   process   of   designating   the   debt   to   which   the  
1261.   Substantial   compliance   is   payment   made   is   applied,   when   the   debtor   has  
not  enough.   different  obligations  in  favor  of  the  same  creditor  
   
*Consignation   is   completed   at   the   time   the   creditor   Requisites:  
accepts  the  same  without  objections,  or  if  he  objects,  at   1. Only  one  debtor  and  one  creditor  
the   time   the   court   declares   that   it   has   been   validly   2. Between   them,   there   must   be   several  
made  in  accordance  with  law.   obligations  
*When  the  amount  consigned  does  not  cover  the  entire   3. Various  debts  be  of  the  same  kind  
obligation,  the  creditor  may  accept  it,  reserving  his  right   4. All   debts   must   be   due,   except   when:   a)   the  
to  the  balance   parties  so  stipulate  or  b)  the  application  is  made  
*Before   the   creditor   has   accepted   the   consignation     or   by   the   party   for   whose   benefit   the   term   has  
before   a   judicial   declaration   that   the   consignation   has   been  constituted  
been   properly   made,   the   debtor   may   withdraw   the   5. Payment   made   is   not   sufficient   to   cover   all  
thing   or   the   sum   deposited,   allowing   the   obligation   to   obligations  
remain  in  force.    
After   the   creditor   has   accepted   the   consignation   or   *Cannot   be   made   applicable   to   a   person   whose  
after   a   judicial   declaration   that   the   consignation   has   obligation   as   a   mere   surety   is   both   contingent   and  
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singular;  liability  is  confined  to  such  obligation,  entitled   2. If  debts  due  are  of  the  same  nature  and  burden,  
to   have   all   payments   made   applied   exclusively   to   said   the   payment   should   be   applied   to   all   of   them  
application  and  to  no  other.   proportionately.  
   
Right  to  make  application  –  primarily  belongs  to  debtor   Onerous  debts:  
(merely   directory,   not   mandatory)—right   must   be   1. Guaranteed   debts   are   deemed   to   be   more  
exercised   by   the   debtor   at   the   time   of   payment   and   not   onerous   than   those   not   guaranteed,   and  
afterwards.  Once  exercised,  it  is  irrevocable  and  debtor   entitled   to   priority   in   the   application   of   the  
has  no  more  right  to  change  his  application  of  payment.   debtor’s   payments—debtor   may   be   subjected  
*If   debtor   fails   to   exercise   right   at   the   time   of   payment,   to   action   by   creditor   and   guarantor.   Payment   of  
it   is   extinguished—application   is   thereafter   governed   by   guaranteed   debt   liberates   the   debtor   from  
law,   unless   creditor   determines   the   application   and   his   liability   to   the   creditor   and   guarantor,   while  
decision  is  accepted  by  the  obligor.   payment   of   unsecured   obligation   only  
*Debtor’s   right   to   apply   payment   can   be   waived   and   discharges  him  from  possible  action  by  only  one  
even  granted  to  the  creditor  if  the  debtor  so  agrees.   party,  the  unsecured  creditor.  
*Where  debtor  has  not  expressly  elected  any  particular   2. Mortgage  debt  is  more  onerous  than  unsecured  
obligation   to   which   the   payment   should   be   applied   at   advances  
the  time  of  making  the  payment,  the  creditor  may  make   3. When   there   are   various   debts,   the   oldest   ones  
such  application  (Art  1252,  NCC)   are   more   burdensome—payments   should   be  
  applied  to  them  first  
Requisites   for   application   made   by   creditor   to   be   valid   4. Debt   that   bears   interest   is   more   onerous   than  
and  lawful:   one  that  does  not  even  if  the  latter  is  older.  
1. The   creditor   expresses   such   application   in   the   5. When   a   person   has   two   debts,   one   as   sole  
corresponding  receipt  that  he  issued   debtor   and   other   solidary   co-­‐debtors,   his   more  
2. The   debtor   must   have   assented   to   such   onerous   obligation   is   to   be   applied   to   his   debt  
application,   as   shown   by   his   acceptance   of   the   as  sole  debtor.  
receipt  without  protest  (debtor  has  the  right  to    
object)   Limitations:  
*Creditor   depends   upon   the   debtor’s   acquiescence— 1. If   debt   produces   interest,   payment   of   the  
debtor  is  not  bound  by  application  of  payments  without   principal   shall   not   be   deemed   to   have   been  
his  knowledge  and  consent.   made   until   the   interest   have   been   covered  
*Once   the   debtor   accepted   without   any   protest   the   (mandatory,  creditor  may  choose  to  waive)  (Art  
receipt   in   which   the   creditor   specified   expressly   and   1253,  NCC)  
unmistakably  the  obligation  to  which  such  payment  was   a. Art  1253  only  applies  in  the  absence  of  
to   be   applied,   such   acquiescence   is   equivalent   to   an   verbal   or   written   agreement.   Merely  
agreement  and  has  the  force  and  efficacy  of  contract— directory,   not   mandatory.   Application  
debtor  can  no  longer  contest  the  application  made  nor   of  accrued  interest  must  be  deemed  to  
demand   that   the   payment   be   applied   to   another   debt,   have   been   agreed   upon   by   parties,  
unless  there  is  a  cause  for  invalidating  the  contract.   same   cannot   now   be   changed   without  
  the  consent  of  the  debtor.  
Application  of  payment  pursuant  to  provisions  of  law:   2. If   a   partner   authorized   to   manage   collects   a  
Neither   the   debtor   nor   the   creditor   has   specified   to   demandable  sum,  which  was  owed  to  him  in  his  
which  the  several  debts  the  payment  should  be  applied   own   name,   from   a   person   who   owed   the  
or   if   application   cannot   be   inferred   from   other   partnership  another  demandable  sum,  the  sum  
circumstance,  following  rules  should  be  applied:   collected   shall   be   applied   to   the   two   credits   in  
1. Payment   should   be   applied   first   to   the   debt   proportion   even   though   he   may   have   given   a  
which  is  most  onerous  to  the  debtor   receipt   for   his   own   credit   only;   but   should   he  
have  given  it  for  the  account  of  the  partnership  

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 credit,   amount   shall   be   fully   applied   to   the   obligation  is  not  extinguished  but  converted  
latter  (Art  1792,  NCC)   into  payment  of  indemnity  for  damages  
  o Loss   occurs   before   the   debtor   has   incurred  
Loss  of  the  thing  due  and  impossibility  of  performance   in   delay,   otherwise   obligation   is   not  
• In  real  obligations  (to  give)   extinguished  but  converted  into  payment  of  
o A  thing  is  considered  lost  when   indemnity  for  damages  
§ It  perishes   o Debtor   must   not   have   obligated   himself   to  
§ Goes  out  of  commerce   deliver  the  same  thing  to  2  or  more  persons  
§ Disappears   in   such   a   way   that   its   who   do   not   have   the   same   interest,  
existence   is   unknown   or   cannot   be   otherwise   he   shall   be   responsible   for   the  
recovered   loss   of   the   thing   by   reason   of   fortuitous  
§ Loss  or  destruction  must  be  total   event  until  he  has  effected  the  delivery  (Art  
o In  case  of  partial  loss,  court  shall  determine   1165,  par  3,  NCC)  
whether   the   same,   under   the   • Rule:   unless   there   is   proof   to   the   contrary,   it   is  
circumstances,   is   so   important   as   to   presumed   that   loss   was   due   to   the   fault   of   debtor  
extinguish  the  obligation  (Art  1264,  NCC)   whenever   the   thing   is   lost   in   his   possession   (Art  
§ If   the   portion   that   was   lost   is   of   1265,  NCC)  
such   important   in   relation   to   the   • Exception:   rule   does   not   apply   in   case   of  
whole   obligation,   it   will   be   earthquake,  flood,  storm,  or  other  natural  calamity.  
considered  extinguished   • Debtor   is   liable   for   loss   cause   by   fortuitous   event  
o Not  applicable  to  generic  obligations  –  only   when:  
a  determinate  or  specific  obligation  may  be   o When  law  expressly  provides  
extinguished   through   loss   of   the   thing   due,   o When  parties  stipulate  the  contrary,  hence,  
not  indeterminate  or  generic  obligation.   it   is   lawful   for   parties   to   stipulate   that   the  
o In  obligation  to  deliver  a  generic  thing  –  loss   debtor   shall   still   be   responsible   even   for  
of   anything   of   the   same   kind   even   without   fortuitous  event  
the   debtor’s   fault   and   before   incurring   o When   nature   of   obligation   requires  
delay   will   not   extinguish   obligation—genus   assumption  of  risk  (Art  1263,  par  2,  NCC)  
of   a   thing   can   never   perish   (Genus   • When   obligation   to   deliver   a   determinate   thing  
nunquam  perit)   arise   from   a   crime   (ex   delicto)   –   loss   of   the   thing  
§ Does   not   apply   to   “delimited”   due   does   not   extinguish   the   obligation,   including  
generic   obligations—when   the   fortuitous   event—obligor   remains   liable   to   pay   for  
same   embraces   the   genus,   limiting   the  value  of  the  thing  lost.  
the   object   of   the   obligation   to   a   • Exception:   When   prior   to   loss,   debtor   offered   to  
specified   group   determined   by   return  the  thing  to  the  person  but  latter  refused  to  
special   qualities—if   the   loss   accept   without   any   justification—obligation   is  
includes   the   things   covered   by   the   extinguished  upon  loss  of  thing,  no  need  for  debtor  
genus   already   limited,   it   will   to   resort   to   consignation   because   mode   of  
produce   the   extinguishment   of   this   extinguishment  is  not  payment  but  loss  of  the  thing  
class  of  obligation   due.  
• Requisites:  exempts  debtor  from  further  liability   • In  positive  personal  obligations  (Obligations  to  do)  –  
o Obligation   consists   of   delivering   a   also   covers   loss   of   object   for   obligations   to   do.   For  
determinate  thing   latter,   the   debtor   may   be   released   from  
o Loss   must   be   posterior   to   the   constitution   responsibility   by   reason   of   loss   in   the   following  
of  the  obligation   cases:  
o Loss   must   have   occurred   without   the   fault   o When   prestation   becomes   legally   or  
of   the   debtor.   If   debtor   intervenes,   physically   impossible   without   fault   of   the  
debtor  (Art  1266,  NCC)  

  29  
 o Service   has   become   so   difficult   as   to   be   o Dation   in   payment   when   creditor  
manifestly  beyond  the  contemplation  of  the   receives   a   thing   different   from  
parties   stipulated  
§ Court   may   release   obligor   from   his   o Novation   when   object   or   principal  
obligation,  either  wholly  or  partially   conditions  should  be  changed  
depending   on   the   circumstances   o Compromise  when  matter  renounced  is  
and  intention  of  the  parties.   in   litigation   or   dispute   and   in   exchange  
• Article   1266,   NCC   is   applicable   only   to   obligations   of   some   concession   which   creditor  
“to   do,”   which   include   all   kinds   of   work   or   service.   receives  
Paying  of  rental  is  considered  “to  give,”  not  covered   • Requisites  for  valid  condonation  or  remission:  
in  Article  1266.   o Must  be  gratuitous  (Art  1270,  NCC)  
• Doctrine   of   unforeseen   events   (Article   1267)   –   not   o Must  be  demandable  at  the  time  of  the  
absolute   application   of   rebus   sic   stantibus   (which   remission    
would   endanger   the   security   of   contractual   o Must  be  accepted  by  the  obligor  
relations)—parties   stipulate   in   the   light   of   certain   o Must   not   amount   to   an   inofficious  
prevailing   conditions,   and   once   these   conditions   donation  (contrary  to  natural  duty)  
cease  to  exist  the  contract  also  ceases  to  exist.   o Must   be   made   expressly,   must   comply  
o The   contract   must   be   presumed   to   have   with  the  forms  of  donation  
assumed   the   risks   of   unfavorable   • If  it  becomes  a  legacy,  must  be  embodied  in  the  
developments—only   in   absolutely   last   will   and   testament:   obligation   remitted  
exceptional   changes   of   circumstances   that   forms  part  of  the  estate  of  the  creditor  upon  his  
equity   demands   the   assistance   for   the   death.  If  it  turns  out  to  be  inofficious,  it  may  be  
debtor     reduced  (Art  1270  in  relation  to  Art  752,  NCC)  
• Remedy  of  creditor  (if  loss  is  fault  of  third  person):   o Considered   inofficious   if   it   impairs   the  
as  long  as  the  obligation  was  without  fault  of  debtor   legitime   of   the   compulsory   heirs   (Art.  
prior   to   him   incurring   delay,   his   obligation   is   752,  NCC)  
extinguished  (Art  1262,  par  1  and  1266,  NCC)   • Forms:  may  be  made  expressly  or  impliedly:  
o Creditor   acquires   all   the   rights   of   action   o Expressly   –   must   comply   with   forms   of  
which   the   debtor   may   have   against   third   donation.  If  not  followed,  it  is  invalid.  
person  by  reason  of  loss  (Art  1269,  NCC)   § If   it   involves   real   property,  
  remission   and   acceptance   must  
Condonation   or   remission   of   debt   –   an   act   of   liberality   be   made   in   a   public   instrument,  
which   the   oblige   who   receives   no   price   or   equivalent   otherwise,  void  
thereof,   renounces   the   enforcement   of   obligation,   § If   it   involves   personal   property  
which  is  extinguished  in  its  entirety  or  in  part/aspect  of   and   exceeds   5,000,   both  
the  same  which  the  remission  refers     remission   and   acceptance   must  
• Consented   and   accepted   by   debtor:   Requires   be  in  writing,  otherwise,  void.  If  
the   acceptance   of   the   obligor   (Art   1270,   NCC),   it   does   not   exceed   5,000,  
without  it  remission  is  not  valid.   remission   and   acceptance   may  
• A   unilateral   renunciation   of   credit   by   creditor,   be  done  orally.  
without   the   consent   of   debtor   does   not   (by   o Impliedly:   does   not   require   any   form,  
itself)   extinguishes   the   latter’s   obligation—it   but   acceptance   by   debtor   must   also   be  
may   be   possibly   extinguished   through   shown,   though   impliedly,   because  
prescription.   reason   for   requiring   acceptance   is  
• Essential   characteristic:   gratuitous,   no   fundamental.  
equivalent  received  for  the  benefit  given.  Once   • Presumption  of  remission/condonation:  
equivalent  exists,  the  nature  of  the  act  changes:   o Debtor’s   possession   of   a   private  
document   proving   a   debt   creates   the  

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 presumption  that  the  creditor  delivered   • Exists   when   characters   of   creditor   and   debtor   are  
it   voluntary,   unless   contrary   is   proven   merged  into  one  person  (Art  1275,  NCC)  
(Art  1272,  NCC)   • Renders   impossible   the   enforcement   of   obligation  
o Delivery   by   the   creditor   of   private   since   it   is   absurd   that   a   person   should   enforce   an  
document   implies   the   renunciation   of   obligation   against   himself—obligation   is  
action   which   the   creditor   had   for   the   extinguished.  
recovery  of  his  credit  (Art  1271,  NCC)—  
tacit   renunciation   of   debt   may   be   Requisites:  
presumed   in   the   absence   of   proof   that   • Must   take   place   in   the   person   of   the   principal  
delivery   is   for   some   other   reason   than   a   creditor   and   principal   debtor.   If   the   merger   involves  
gratuitous  waiver  of  debt  and  complete   the   creditor   and   the   guarantor,   the   obligation   is   not  
extinction   of   obligation   to   pay   (Art   extinguished.  (Art  1276,  NCC)  
1271,  NCC)   o Any   merger   involving   persons   of   principal  
o For  foregoing  presumption  to  apply,  it’s   creditor   and   debtor   will   also   release   the  
necessary  that:   guarantors   since   accessory   obligation  
§ Document  is  a  private  one   cannot  exist  without  the  principal  obligation  
§ Evidence  of  credit   o When   merger   takes   place   in   the   person   of  
  the   guarantor,   accessory   obligation   is  
Remission   of   accessory   obligation,   effect   –does   not   extinguished   but   principal   obligation  
affect   principal   debt   (Art   1273,   NCC).   Remission   of   continues  
principal  debt  extinguishes  accessory  obligation.   • Must   be   complete   and   definite   because   if   not  
  complete  the  obligation  still  subsists  
Pledge   –  real  contract,  perfected  only  by  the  delivery  of    
the   thing   pledged   to   the   creditor-­‐pledgee   (Art   1316,   In   joint   obligation   –   Confusion   does   not   extinguish   a  
2093,  NCC)   joint   obligation   since   credits   and   debts   in   joint  
o After   its   delivery,   when   thing   pledged   is   obligation   are   considered   distinct   from   each   other,  
found   in   the   possession   of   the   debtor   or   except   as   regards   the   share   corresponding   to   the  
third   person,   it   creates   the   presumption   creditor   and   debtor   in   whom   the   two   characters   concur  
that   the   accessory   obligation   of   pledge   has   (Art  1277,  NCC)  
been   remitted   (paid/extinguished).   (Art    
1274,  NCC)   In   solidary   obligation   –   Article   1215,   NCC   expressly  
o If   thing   pledged   is   returned   by   pledgee   to   provides   that   confusion   has   the   effect   of   extinguishing  
pledger,   pledge   is   extinguished   and   any   the  obligation.  
stipulation   to   the   contrary   is   void.   (Art    
2110,  NCC)     Compensation   –   mode   of   extinguishing   to   the  
o If   subsequent   to   the   perfection,   thing   is   in   concurrent  amounts  the  obligations  of  persons  who,  in  
possession   of   the   pledger,   there   is   prima   their   own   right   and   as   principals,   are   reciprocally  
facie   presumption   that   it   has   been   returned   creditors  and  debtors  of  each  other.  (Must  consist  of  at  
by  pledgee.   least  2  obligations  that  will  be  weighed)  
o Presumption   also   exists   if   thing   pledges   is    
with   a   third   person   who   has   received   it   Kinds:  
from   the   pledger   or   owner   after   the   • Legal  –  ipso  jure,  when  all  the  requisites  of  law  are  
constitution  of  the  pledge  (Art  2110,  par  2,   present  (no  need  for  consent  of  parties)  
NCC)   • Conventional   or   voluntary   –   occurs   when   both  
  parties  agree  to  the  mutual  extinguishment  of  their  
Confusion  or  merger  of  rights  –  meeting  in  one  person   credits   or   to   compensate   their   mutual   obligations  
of  the  qualities  of  the  creditor  and  debtor  with  respect   even   in   the   absence   of   some   legal   requisites   (no  
to  the  same  obligation.   requisites  needed)  

  31  
• Judicial  –  takes  place  when  court  allows  the  set  off   5. Over   neither   of   them   there   be   any   retention   or  
or   counterclaim   of   the   defendant   as   against   the   controversy,   commenced   by   third   persons   and  
claim  of  the  plaintiff.   communicated  in  due  time  to  the  debtor.  
• Facultative   –   right   to   interpose   compensation   a. “In   due   time”   should   meant   the   period  
belongs  only  to  one  of  the  parties.   before  legal  compensation  was  supposed  to  
  take   place,   considering   that   it   operates   so  
Minimum  requirement:  whatever  kind  of  compensation   long   as   the   requisites   concur   even   without  
involved,   there   must   be   confluence   of   characters   of   the   conscious   intent   on   the   part   of   the  
mutual   debtors   and   creditors—their   rights   as   such   parties  
creditors,  or  their  obligations  as  such  debtors,  need  not   b. Controversy   communicated   to   the   parties  
spring  from  one  and  same  contract/transaction.   after   that   time   may   no   longer   undo   the  
  compensation  that  had  taken  place  by  force  
Legal  compensation  (operation  of  law),  requisites:   of  law  
   
1. Parties   must   be   mutually   creditors   and   debtors   of   Effect   of   legal   compensation   –   when   all   requisites   are  
each  other  in  their  own  right   present,  compensation  takes  effect  by  operation  of  law  
a. Must   show   that   rights   and   obligations   and  extinguished  both  debts  to  the  concurrent  amount,  
properly   pertain   or   belong   to   the   parties   even  though  the  creditor  and  debtors  are  not  aware  of  
themselves   the  compensation  (Art  1290,  NCC)  
2. Parties  must  be  bound  principally   • It   operates   even   against   the   will   of   the   interested  
a. There   can   be   no   compensation   when   one   parties  and  even  without  the  consent  of  them.  Ipso  
party  is  a  principal  creditor  in  one  obligation   jure—its  effects  arise  in  the  very  day  on  which  all  its  
but  is  only  a  guarantor  in  the  other.   requisites  concur  
b. Exception:   guarantor   may   set   up   • When   used   as   a   defense,   it   retroacts   to   the   date  
compensation   as   what   the   creditor   may   when  its  requisites  are  fulfilled.    
owe  the  principal  debtor  (Art  1280,  NCC)    
c. Guarantor   may   set   up   credits   which   Conventional   or   voluntary   compensation   –   when  
personally   belong   to   him   (Article   1278,   parties,   who   are   mutually   creditors   and   debtors   agree  
general   rule   of   compensation)   and   credits   to   compensate   their   respective   obligations,   even  
which   belong   to   his   principal   (Article   1280,   though   not   all   requisites   for   legal   compensation   are  
Virtue  of  the  exception)   present.  The  parties  may  agree  upon  the  compensation  
3. Both   debts   consist   in   sum   of   money,   or   if   of  debts  that  are  not  yet  due.  
consumable,   be   of   the   same   kind,   and   also   same    
quality  if  the  latter  has  been  stated.  (Art  1279,  NCC)   Requirements  of  conventional  compensation:  
4. Both   debts   must   be   due,   liquidated   and   • That   each   of   the   parties   can   dispose   credit   he  
demandable   seeks  to  compensate  
a. Compensation   is   not   proper   where   the   • That   they   agree   to   the   mutual   extinguishment  
claim   of   the   person   asserting   the   set-­‐off   of  their  credits  
against  the  other  is  not  clear  not  liquidated    
b. Compensation   cannot   extend   to   Debts   that   may   not   be   subject   of   compensation  
unliquidated,   disputed   claim   existing   from   (compensation  is  not  proper):  
breach  of  contract   1. When  one  of  the  debts  arises  from  a  depositum  
c. If   obligation   is   payable   on   demand   and   2. When   one   of   the   debts   arises   from   the   obligations  
there  has  been  no  demand  made,  it  follows   of  a  depositary  or  of  a  bailee  in  commodatum  
that  the  obligation  is  not  yet  due—may  not   3. When   one   of   the   debts   arises   from   a   claim   for  
be   subject   to   compensation   for   lack   of   a   support  due  by  gratuitous  title  (Art  1287,  NCC)  
requisite  under  the  law.   4. When   one   of   the   debts   consists   in   civil   liability  
arising  from  a  penal  offense  (Art  1288,  NCC)  

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5. When   one   of   the   debts   consists   in   the   claim   of   assignee  the  compensation  which  would  pertain  to  
government  for  payment  of  taxes.   him   against   the   assignor,   UNLESS   the   debtor   has  
  notified   the   assignor   at   the   time   that   he   gave   his  
*Taxes   cannot   be   subject   to   compensation— consent   that   he   was   reserving   his   right   to   the  
government   and   taxpayer   are   not   creditors   and   debtors   compensation  (Art  1285,  par  1,  NCC)  
of  each  other:   • Assignment  was  made  with  the  debtor’s  knowledge  
• Debts   are   due   to   the   government   in   its   but   without   his   consent   –   he   may   set   up   the  
corporate  capacity   compensation   of   debts   existing   previous   to   the  
• Taxes   are   due   to   the   government   in   its   assignment,   but   not   of   subsequent   ones   (Art   1285,  
sovereign  capacity   par  2,  NCC)  
  • Assignment   was   made   without   the   knowledge   of  
Debts  that  may  be  subject  of  compensation:   the  debtor  –  he  may  set  up  the  compensation  of  all  
• When   one   of   the   debts   is   in   the   form   of   ordinary   credits   existing   prior   to,   or   even   after,   the  
bank   deposit—legal   compensation   may   take   place   assignment,   until   he   had   knowledge   of   the  
when  all  the  requisites  mentioned  in  Art  1279,  NCC   assignment.  (Art  1285,  par  3,  NCC)  
are  present    
• When   one   or   both   are   rescissible   or   voidable,   they      
may   be   compensated   against   each   other   before  
they   are   judicially   rescinded   or   avoided—
obligations  are  valid  and  binding  at  that  time.  
 
Assignment   of   credit   –   defined   as   an   assignment   of  
credit   has   been   defined   as   an   agreement   by   virtue   of  
which   the   owner   of   a   credit   (assignor)   by   a   legal   cause  
and   without   need   of   the   debtor’s   consent,   transfers  
that   credit   and   its   accessory   rights   to   another  
(assignee),   who   acquires   power   to   enforce   it,   to   the  
same   extent   as   the   assignor   could   have   enforced   it  
against  the  debtor.  
• Law   requires   mere   notice,   not   consent   of   the  
debtor—creditor   may   validly   assign   his   credit   and  
its  accessories  without  the  debtor’s  consent.  
• Purpose  of  notice:  inform  the  debtor  that  from  the  
date  of  the  assignment,  payment  should  be  made  to  
the  assignee  and  not  to  the  original  creditor.  
 
Effect   if   assignment   is   made   after   requisites   of  
compensation   had   taken   place   –   any   assignment   of  
credit  that  will  be  made  thereafter  will  no  longer  affect  
the   debtor   since   his   obligation   to   the   assignor   has  
already  been  extinguished  prior  to  the  assignment.    
• Remedy   of   the   assignee   is   not   against   the   debtor  
but  against  the  assignor,  
 
Effect  if  assignment  is  made  prior  to  legal  compensation  
taking  place:  
• Assignment   was   made   with   the   consent   of   the  
debtor   –   he   can   no   longer   setup   against   the  
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Obligations  and  Contracts   o By  substituting  the  person  of  the  debtor  or  
Finals  Reviewer   subrogating   a   third   person   in   the   rights   of  
  creditor  (subjective  or  personal)  
Novation   –   juridical   act   with   a   dual   function—it   Requisites:    
extinguishes   and   obligation   and   creates   a   new   one   in   • Modificatory  –  old  obligation  subsists  to  the  extent  
lieu   of   the   old;   extinguishment   of   an   obligation   by   it   remains   compatible   with   the   amendatory  
substitution   or   change   of   the   obligation   by   subsequent   agreement  
one  which  extinguishes  or  modifies  the  first  either  by:   o Alteration   of   terms   and   conditions,   only  
• Changing  the  object   modificatory   unless   those   changes   will   be  
• Changing  the  principal  condition   the  essence  of  the  obligation  itself  
• Substituting  another  in  place  of  the  debtor   o Changes   brought   about   by   any   subsequent  
• By   subrogating   a   third   person   in   the   rights   of   the   agreement  is  merely  incidental  
creditor   o Modificatory   in   nature,   insufficient   to  
  extinguish  the  original  obligation  
Requisites:    
• There  must  be  a  previous  valid  obligation   Objective  (Real)  and  Subjective  (Personal)  
o Indispensable  requirement   • Objective/Real   –   change   of   object   or   principal  
o Novation   is   void   if   the   original   obligation   is   conditions  of  an  existing  obligation  
void,  except:   • Subjective/Personal   –   change   of   either   the   person  
§ When   annulment   may   be   claimed   of  debtor  or  creditor  in  existing  obligation  
only   by   the   debtor   and   he   o Mere   fact   that   creditor   receives   guaranty   or  
consented  to  the  novation   payments   from   third   person   does   not  
§ When   ratification   validates   which   constitute   novation;   there   must   be   an  
are  voidable   express  release  from  responsibility  
• Parties  concerned  must  agree  to  a  new  contract   • Mixed   Novation   –   when   change   of   object   or  
• Old  contract  must  be  extinguished   principal   conditions   occurs   at   the   same   time   with  
• There  must  be  a  valid  new  contract   change  of  either  person  of  creditor  or  debtor.  
o Necessary  that  new  obligation  is  valid    
o If  new  obligation  is  void,  original  will  subsist   Express  and  Implied  
§ Will  not  subsist  if  the  parties  clearly   • Express  –  Takes  place  when  the  contracting  parties  
intended   that   former   relation   expressly   disclose   that   their   object   in   making   the  
should  be  extinguished  in  any  event   new   contract   is   to   extinguish   the   old   one;   new  
o If   original   obligation   was   subject   to   obligation   declares   in   unequivocal   terms   that   old  
suspensive   or   resolutory   condition,   new   obligation  is  extinguished  
obligation   shall   be   the   same   unless   • Implied   –   new   obligation   is   on   every   point  
stipulated   otherwise—original   obligation   incompatible   with   the   old   one—change   must   refer  
may   be   conditional;   new   obligation   is   pure   to  the  object,  the  cause,  or  the  principal  conditions  
and  vice  versa.   of  the  obligation  (essential  change)  
  • Test   of   incompatibility   –   whether   the   two  
Kinds  of  Novation:   obligations   can   stand   together,   each   one   with   its  
Extinctive  and  Modificatory   own  independent  existence.  
• Extinctive  –  old  obligation  is  terminated  by  creation    
of  new  one   Extinctive   novation   is   never   presumed,   there   must   be  
o Twin   effects   –   extinguishing   an   existing;   express  intention  to  novate;  in  implied  cases,  the  acts  of  
creating  new  one   the   parties   must   clearly   demonstrate   their   intent   to  
o Results   by   either   changing   the   object   or   dissolve  old  obligation.  
principal  conditions  (objective  or  real)  or    
Novation  by  Substitution  of  Debtor  
  34  
• Necessary   to   take   place   the   third   person   in   the   Novation  by  Subrogation  
same  position  occupied  by  the  original  debtor.   Subrogation  –  transfer  of  all  rights  of  creditor  to  a  third  
• Old   debtor   must   be   released   expressly   and   new   person,  who  substitutes  him  in  all  his  rights  
debtor  assumes  his  place    
• No   novation   when   old   debtor   is   not   released;    
person   who   assumes   debtor’s   obligation   becomes   Kinds:  
merely   a   co-­‐debtor   or   surety;   at   most,   it   only   Legal  subrogation  –  takes  place  without  agreement  but  
creates   a   juridical   relation   of   co-­‐debtorship   or   by  operation  of  law  because  of  certain  acts.  
suretyship  on  the  part  of  such  third  persons   • Not  presumed,  except  in  following  cases:  
  o When  creditor  pays  another  creditor  who  is  
Forms:  substituting  person  of  debtor   preferred,   even   without   the   debtor’s  
• Expromision   –   initiative   does   not   come   from   the   knowledge  
debtor  and  may  be  made  without  his  knowledge  or   o When   3rd   person   (not   interested   in  
against   his   will.   Logically   requires   consent   of   third   obligation)   pays   with   express   or   tacit  
person  and  creditor   approval  of  the  debtor  
o Effect   (done   w/o   knowledge   or   against   will   o When,   even   without   the   knowledge   of  
of  debtor):  3rd  person  is  entitled  to  demand   debtor,   person   interested   in   fulfillment   of  
reimbursement   only   up   to   the   extent   that   obligation   pays,   without   prejudice   to   the  
the   payment   has   been   beneficial   to   the   effects  of  confusion  as  to  the  latter’s  share.  
debtor,   but   not   entitled   to   right   of   • No   true   subrogation   in   case   of   solidary   co-­‐debtor,  
subrogation.   by  his  payment  obligation  is  extinguished.  Although  
• Delegacion   –   debtor   offers   and   creditor   accepts,   a   co-­‐debtor   who   paid   can   make   a   claim   upon   his   co-­‐
third   person   who   consents   to   the   substitution   and   debtors  for  their  share  in  the  amount  he  paid  for.  
assumes   the   obligation—thereby   releasing   the   Conventional   subrogation   –   takes   place   by   agreement  
original   debtor   from   the   obligation.   Intervention   of  parties.  
and  consent  of  all  three  persons  are  necessary.   • Requires   consent   of   all.   Consent   of   debtor   is  
  required  for  the  effectivity  of  the  subrogation.  
Effect  of  novation,  whether  expromision  or  delegacion:    
old   debtor   is   already   extinguished.   Insolvency   of   the   Conventional  subrogation   Assignment  of  credit  
new   debtor   shall   not   give   rise   to   any   liability   of   old   Transfer   of   all   the   rights   of   Process  of  transferring  the  
debtor.   True,   even   when   done   with   or   without   the   creditor   to   a   third   right   of   the   assignor   to   the  
knowledge  of  the  old  debtor.   person,   who   substitutes   assignee   who   would   then  
When   new   debtor   has   been   proposed   by   the   old   debtor   him  in  all  of  his  rights   have   the   right   to   proceed  
against  the  debtor  
and   new   debtor’s   insolvency   was   already   existing   at   the  
Requires   agreement   Debtor’s   consent   not  
time  of  substitution  and  of  public  knowledge,  or  known  
among   the   three   parties   necessary,   mere   notice   is  
to  the  old  debtor,  creditor’s  action  against  old  debtor  is  
concerned.   okay  
revived.  
Extinguishes   obligation   Same   right   which   passes  
  and   gives   rise   to   a   new   from   one   person   to  
Creditor’s   consent   necessary,   whether   expromision   or   one   another  
delegacion,  indispensable  requirement.   Nullity   of   old   obligation   Nullity   of   obligation   not  
-­‐ Aggrieved  creditor  is  not  bound  to  deal  with   may   be   cured   by   new   remedied  
the   substitute   when   the   contract   is   obligation—perfectly  valid  
unlawfully   novated   by   an   applicable   and    
unilateral   substitution   of   the   obligor   by   In   determining   whether   conventional   subrogation   or  
another.   assignment   of   credit,   intention   of   the   parties   shall  
-­‐ Creditor’s   consent   need   not   be   given   prevail.    
expressly   Effect  of  subrogation:  
-­‐    

  35  
In   legal   subrogation   –   transfers   to   the   person   which  produce  patrimonial  
subrogated  the  credit,  plus  all  the  rights.  Whether  those   liabilities  
rights  be  against  the  debtor  or  against  the  third  person.    
Transfer  of  rights  strictly  observed.   Implied   contract   –   A   contract   can   also   exist   by  
  implication.  Arises  where  the  intention  of  the  parties  is  
In   conventional   subrogation   –   same   effects   as   legal   not   expressed,   but   an   agreement   in   fact,   creating   an  
subrogation,   may   be   modified   by   parties   by   express   obligation,   is   implied   or   presumed   from   their   acts—
agreement   shows  mutual  intent  to  contract  
   
Partial   subrogation,   creditor   receives   partial   payment   Implied  contract   Quasi-­‐contract  
only:   he   is   entitled   to   exercise   his   right   for   the   Requires   consent   of   Unilateral   act,   not  
remainder.   His   rights   co-­‐exist   with   the   newly   acquired   parties   predicated  on  consent  
rights  of  the  person  who  has  been  subrogated,  he  shall   Basis  is  will  of  the  parties   Basis   is   law   to   prevent  
be   preferred   over   that   of   the   person   who   has   been   unjust  enrichment  
partially  subrogated.    
  Distinguised  from  Obligation  –  Contract  is  an  agreement  
Effect  of  extinctive  novation  upon  accessory  obligations   which  creates  the  obligation.  Under  NCC,  it’s  one  of  the  
• In   novation   changing   the   object   or   principal   sources  of  obligation.  Contract  is  the  cause,  obligation  is  
conditions  +  novation  by  substitution  of  the  debtor:   the  result.  
principal   obligation   is   extinguished.   As   a   rule,    
accessory  obligations  are  also  extinguished.   Meeting   of   minds   –   Art   1305,   intent   of   the   parties   in  
*However,   if   there’s   stipulation   in   favor   of   3rd   persons,   entering   into   the   contract.   Contract   is   perfected   by  
accessory  obligations  subsist  insofar  as  they  may  benefit   mere   consent,   does   not   require   special   from,   binding  
such  third  persons  who  have  not  given  their  consent  to   from   the   moment   that   the   essential   requisites   are  
the  novation.   present.   Meeting   of   the   minds   gives   rise   to   a   binding  
contract.  
• In  novation  by  subrogation:  accessory  obligation  not  
 
extinguished—new  creditor  is  entitled  to  exercise  of  
Classification  of  Contracts  
accessory  rights.  
According  to  degree  of  dependence—  
*However,   parties   may   modify   through   express  
agreement  in  the  case  of  conventional  subrogation.   • Principal   –   can   exist   independently   of   other  
  contracts  
CONTRACTS   • Accesory   –   cannot   exist   without   a   valid   principal  
• Meeting   of   minds   between   two   persons   whereby   contract,   exists   merely   to   tsecure   the   fulfillment   of  
one   binds   himself,   with   respect   to   the   other,   to   give   a  principal  obligation  
something  or  to  render  some  service.     • Preparatory  –  not  an  end  by  itself  but  only  a  means  
• Juridical   convention   manifested   in   legal   form,   by   of  the  execution  of  another  contract.  
virtue   of   which   one   or   more   persons   bind    
themselves   in   favor   of   another,   or   reciprocally,   to   According  to  manner  of  perfection—  
the   fulfillment   of   a   prestation   to   give,   to   do   or   not   • Consensual  –  perfected  by  mere  consent  
to  do.   • Real   –   perfected   not   by   mere   consent   but   by  
  delivery   of   the   object   of   contract   (Deposit,   pledge,  
Distinguished  from  convention   mutuum,  commodatum)  
Contract  (cum  traho)   Convention    
Agreement  or  convention   Not   every   convention   is   a   According  to  nature  of  the  obligation  produced—  
contract,   broad   enough   to   • Bilateral   –   creates   obligation   on   both   sides   or   both  
include   any   kind   of   parties  
agreement   • Unilateral   –   creates   obligation   only   on   one   side   or  
Limited   to   agreements     one  party  

  36  
   • Rights   –   provided   that   they   are   not   personal   or  
According  to  their  name—   instransmissible  
• Nominate   (nominado)   –   distinguished   by   a    
particular  or  special  name  in  the  Civil  Code   According  to  defects—  
• Innominate   (innominado)   –   recognized   in   the   Civil   • Perfectly  valid  –  Not  suffering  from  any  defect  
Code   but   not   specially   named   or   classified   in   the   • Rescissible  
said   Code.   Regulated   by   the   stipulation   of   parties,   • Voidable  
provisions  of  Obligations  and  Contracts   • Unenforceable  
o Do  ut  des  –  I  give  that  you  give   • Void  or  inexistent  
o Do  ut  facias  –  I  give  that  you  do    
o Facio  ut  des  –  I  do  that  you  give   Characteristics  of  Contracts  
o Facio  ut  facias  –  I  do  that  you  do   • Obligatory  force  or  character  of  contracts  
  • Autonomy  of  contracts  
According  to  cause—   • Mutuality  of  contracts  
• Onerous   –   the   prestation   or   promise   of   a   thing   or   • Relativity  of  contracts  
service  by  the  other    
• Remuneratory   –   Cause   is   the   service   or   benefit   for   Principle,   Obligatory   force   –   obligations   arising   from  
which  the  remuneration  is  given   contracts  have  the  force  of  law  between  the  contracting  
• Gratuitous   –   cause   is   the   mere   liberality   of   the   parties  and  should  be  complied  with  in  good  faith.  
benefactor    
  Consequence  –  from  the  perfection  of  contract,  parties  
According  to  risk  involved—   are  bound  to  the  fulfillment  of  what  has  been  expressly  
• Commutative   –   parties   gives   and   receives   an   stipulated   and   all   consequences.   Courts   have   no  
equivalent  or  there  is  a  mutual  exchange  of  relative   alternative   but   to   enforce   it   as   they   were   agreed   upon  
values   and  written.  
• Aleatory  –  both  parties  reciprocally  bind  themselves    
to  give  or  to  do  something  in  consideration  of  what   Requisites  –  perfected,  valid  and  enforceable  
the   other   shall   give   or   do   upon   the   happening   of   an    
event  which  is  uncertain,  or  which  is  to  occur  at  an   Principle,  Autonomy  –  contracting  parties  are  accorded  
indeterminate   time.   Element   of   risk   is   dependent   with  liberality  and  freedom  to  establish  contract  as  they  
on  chance,  predominant   may   deem   convenient   provided   that   it   is   not   contrary  
  tolaw,   morals,   good   customs,   public   order   or   public  
According  to  requirement  of  form  or  solemnity—   policy.  
• Common  –  does  not  require  any  form,  provided  all    
the  essential  requisites  for  their  validity  are  present   Freedom  of  contract  protected  –  The  right  to  enter  into  
• Special   or   solemn   –   requires   certain   formalities   lawful   contracts   constitutes   one   of   the   liberties   of   the  
either  for  its  validity  or  enforceability   people   of   the   state.   If   not,   there   would   be   substantial  
  impairment   of   the   liberty   of   the   people   under   the  
According  to  purpose—   constitution.   Such   freedom   is   protected   by   the  
• To  transfer  ownership  –  sale  or  barter   constitution:  
• To  convey  the  use  –  commodatum  or  lease   • Due   process   clause   –   no   person   shall   be   deprived   of  
• To  give  security  –  pledge  or  mortgage   life,  liberty  or  property  without  due  process  of  law  
• To  render  some  service  –  agency   o May   be   subjected   to   restrictions   varies   in  
  character,   as   long   as   due   process   is  
According  to  their  subject-­‐matter—   observed.  
• Things  –  sale,  pledge  or  mortgage   • Non-­‐impairment   clause   –   no   law   shall   be   passed  
• Services  –  lease  of  services  or  agency   impairing  obligation  of  contracts  

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 o Not   absolute   since   it   has   to   be   reconciled   Principle,  Relativity  –  contracts  can  only  bind  the  parties  
with  police  power   who   entered   into   it,   and   it   cannot   favor   or   prejudice   a  
Limitations   on   freedom   of   contract   –   parties   cannot   third   person,   even   if   he   is   aware   of   such   contract   and  
stipulate   against   the   law   as   it   is   supreme   and   always   has  acted  with  knowledge  thereof.  
deemed   to   be   an   integral   part   of   every   contract.   A   • General   rule:   heirs   are   bound   by   contracts  
contract   that   violates   the   constitution   is   null   and   void   entered   into   by   their   predecessors-­‐in-­‐interest  
ab   initio,   vests   no   rights   and   creates   no   obligation— except   when   rights   and   obligations   arising  
produces  no  legal  effect  at  all.  Must  not  contravene:   therefrom  are  not  transmissible  by  their  nature,  
• Which  expressly  declares  their  obligatory  character   stipulation   or   provision   of   law—he   who  
• Which  are  prohibitive   contracts  does  so  for  himself  and  his  heirs.  
• Which   express   fundamental   principles   of   justice,   • Heirs   cannot   escape   legal   consequence   of   a  
cannot  be  overlooked  by  contracting  parties   transaction   entered   into   by   their   predecessor-­‐
• Which   impose   essential   requisites   without   which   in-­‐interest   because   they   have   inherited   the  
the  contract  cannot  exist   property   subject   to   the   liability   affecting  
Freedom   of   contract   is   subject   to   the   limitation   that   the   common  ancestor  
agreement   must   not   be   against   public   policy   and   any   • Monetary   debts   –   heirs   of   deceased   are   not  
agreement   or   contract   made   in   violation   of   this   rule   is   liable  for  the  debts  he  may  leave  at  the  time  of  
not  binding  and  will  not  be  enforced   his   death,   debts   are   chargeable   against   the  
  property  or  assets  left  by  deceased.  If  these  are  
Principle,  Mutuality  –  Art  1308,  contract  must  bind  both   not  sufficient  to  cover  all  of  them,  heirs  cannot  
the  contracting  parties;  its  validity  or  compliance  cannot   be  made  to  pay  the  uncollectible  balance  
be  left  to  the  will  of  one  of  them.  Ultimate  purpose  is  to    
render   void   a   contract   containing   a   condition   which   Exceptions  to  principle  of  relativity—  
makes   its   fulfillment   dependent   solely   upon   the   • Stipulation   pour   autrui,   contract   may   confer  
uncontrolled  will  of  one  of  the  contracting  parties.   benefits  to  a  third  person  
  o Stipulation   in   favor   of   a   third   person  
Determination  of  performance  by  third  person  –  validity   conferring  a  clear  and  deliberate  favor  upon  
or  compliance  of  a  contract  cannot  be  left  to  the  will  of   him,  which  stipulation  is  merely  a  part  of  a  
one   of   the   parties,   determination   of   performance   may   contract.   Such   third   person   may   demand  
be   left   to   a   third   person—shall   be   obligatory   upon   fulfillment   provided   that   he   communicates  
contracting  parties  from  the  moment  it  is  made  known   his   acceptance   to   the   obligor   before   it   is  
to   them   provided   that   such   determination   is   not   revoked  
evidently  inequitable.   o Requisites  
  § Stipulation  in  favor  of  a  third  person  
Contract   of   adhesion   –   imposes   a   ready-­‐made   form   of   § Stipulation   must   be   part   of  
contract   which   the   other   party   may   accept   or   reject   but   contract,  not  the  whole  contract  
cannot   modify.   Generally   valid,   binding   as   ordinary   § Contracting   parties   must   have  
contracts—party  who  adheres  to  the  contract  is  free  to   clearly  and  deliberately  conferred  a  
reject  it  entirely   favor   upon   a   third   person,   not   a  
• When  invalid  –  subversive  to  public  policy,  only   mere  incidental  benefit  or  interest  
when   weaker   party   is   imposed   upon   in   dealing   § Third   person   must   have  
with   the   dominant   bargaining   party   and   communicated   his   acceptance   to  
reduced   to   the   alternative   of   taking   it   or   leaving   obligor  before  revocation  
it,   completely   deprived   of   opportunity   to   § Neither   contracting   parties   bears  
bargain  on  equal  footing   the   legal   representation   or  
• Not   necessarily   void   but   it   will   be   construed   authorization  of  the  third  party  
strictly   against   the   one   who   drafted   the   o To   determine   whether   the   interest   of   third  
contract   person   in   a   contract   is   a   stipulation   pour  

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 autrui  or  merely  incidental  interest  is  to  rely   • Perfection   –   birth   of   the   contract,   parties   agree  
upon   the   intention   of   the   parties   as   upon  the  essential  elements  of  the  contract  
disclosed  in  contract   • Consummation  –  last  stage,  parties  fulfill  or  perform  
• In   contracts   creating   real   right,   third   persons   who   the  terms  agreed  upon  in  the  contract,  culminating  
come   into   possession   of   the   object   of   the   contract   in  the  extinguishment  
may   be   bound   under   provisions   of   mortgage   laws    
and  land  registration  laws   Perfection   –   Prior   to   this   stage,   no   contract   is   created.  
• Creditors   are   protected   in   cases   of   contracts   Until  contract  is  perfected,  it  cannot  serve  as  a  binding  
intended  to  defraud  them   juridical  relation  as  an  independent  source  of  obligation  
o In  order  to  satisfy  claim,  creditors  may:    
§ Pursue   properties   in   possession   of   Manner  of  perfecting  contracts  
the  debtor   • Consensual   contract   –   mere   meeting   of   the   minds.  
§ Accion  subrogatoria   Three  elements:  consent,  object,  cause  
§ Accion  Pauliana—rescission   o Effect:   parties   are   bound   not   only   to   the  
Tort   interference   –   contract   confers   certain   rights   on   fulfillment   of   what   has   been   expressly  
the   person   with   whom   it   is   made,   and   not   only   binds   stipulated  but  also  to  all  the  consequences,  
the   parties   but   also   imposes   to   everyone   the   duty   of   which   according   to   their   nature,   may   be   in  
respecting   that   contractual   obligation.   Thus,   any   third   keeping  with  good  faith,  usage  and  law  
person  who  induces  another  to  violate  his  contract  shall   • Real  contract  –  not  perfected  by  mere  consent  but  
be  liable  for  damages  to  the  other  contracting  party.   by   the   delivery   of   the   object   of   the   contract.   Four  
  elements:  consent,  object,  cause,  delivery  
Elements,   for   contractual   interference   to   be   o Commodatum   and   mutuum   –   accepted  
maintained:   promise  to  deliver  something  is  binding  but  
o Existence  of  a  valid  contract   shall   not   be   perfected   until   delivery   of  
o Knowledge   on   part   of   this   person   of   the   object  
existence  of  contract   o Deposit   –   agreement   to   constitute   is  
o Interference   of   third   person   is   without   legal   binding  but  not  perfected  until  delivery  
justification  or  excuse   o Pledge  –  necessary  to  constitute  a  contract  
  that   thing   pledged   be   places   in   the  
Identity   of   injured   party   –   not   required,   can   be   held   possession  of  creditor  or  of  third  person  by  
liable   for   tort   interference   even   if   he   does   not   know   the   common  agreement  
identity  of  one  of  the  contracting  parties.    
  Essential  requisites  of  Contracts  
Interference   with   lawful   contracts   by   strangers   –   gives   Elements  of  a  contract  
rise  to  an  action  for  damage  in  favor  of  injured  person.   Essential   –   necessary   for   the   very   existence   of   the  
Law  does  not  require  that  responsible  person  shall  have   contract  itself,  absence  of  any  one  will  prevent  creation  
known  the  identity  of  injured  person   or  existence—inexistent  
    Consensual  –  consent,  object,  cause  
• Accion  directa  is  allowed  by  law  in  certain  cases     Real  –  consent,  object,  cause,  delivery  
• Any   third   person   who   induces   another   to   violate   his   Natural  –  not  essential  but  presumed  to  exist  in  certain  
contract   can   be   made   liable   for   damages   to   other   contracts   unless   there   is   an   express   stipulation   to   the  
contracting  party   contrary  
  Accidental   –   exists   only   when   the   parties   expressly  
Perfection  of  Contracts   provide  for  them,  provided  that  they  are  not  contrary  to  
• Negotiation/Preparation   –   begins   when   parties   law,  morals,  good  customs,  public  order  or  public  policy  
manifest   their   interest   and   ends   at   the   moment   of    
agreement  of  parties  

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CONSENT  –  conformity  of  will,  agreement  of  the  will  of   part   of   the   offeror.   If   new   or   further  
one   contracting   party   with   that   of   another   upon   the   agreement   is   necessary   to   clarify   what  
object  and  terms  of  the  contract.   has   been   agreed   upon,   there’s   no  
Essence   –   conformity   of   the   parties   on   terms   of   the   perfection.  
contract,   acceptance   by   one   of   the   offer   made   by   the   • Offer   must   be   communicated   by   the   offeror   to  
other.   the  offeree,  resulting  to  offeree’s  knowledge  of  
Importance  –  There  can  be  no  contract  in  the  true  sense   the  offer  
in   the   absence   of   the   element   of   agreement,   or   of   o Offeree   can   not   accept   an   offer   which  
mutual  assent  of  the  parties   has  not  been  communicated  to  him.  An  
  uncommunicated   offer   cannot   result   in  
Requisites  of  Consent   a  contract,  may  be  withdrawn  any  time  
• Plurality  of  subjects    
• Capacity   Cases  which  are  NOT  considered  as  offers:  
• Intelligent  and  free  will   • Advertisement   of   things   for   sale   –   not   offer   but  
• Express  or  tacit  manifestation  of  the  will   mere   invitations.   May   become   an   offer   if   expressly  
• Conformity   of   the   internal   will   and   its   and  clearly  provided  therein  
manifestation   • Advertisement   for   bidders   –   not   offer   but  
  invitations.   Advertisers   is   not   bound   to   accept   any  
Manifestation   –   meeting   of   the   offer   and   acceptance   bid.   Bid   proposals   or   quotations   are   the   offers   and  
upon   the   thing   and   the   cause,   which   are   to   constitute   reply   of   the   proposer,   the   acceptance/rejection   of  
the  contract.   offer  
Forms  –  Consent  and  acceptance  of  the  offer  may  either   • Auction   Sale   –   not   offer   simply   an   invitation   to  
express  or  implied   make   proposals.   Bid   proposals   submitted   by   the  
  bidder   is   the   offer,   sale   is   considered   perfected   only  
Offer   in   Contract   Law   –   expression   of   willingness   to   when   auctioneer   announces   its   perfection.   Until  
contract  on  certain  terms,  made  with  the  intention  that   such  announcement,  bidder  may  retract  his   bid  and  
it   shall   become   binding   as   soon   as   accepted   by   the   auctioneer   may   withdraw   unless   auction   has   been  
person  to  whom  it  is  addressed.   announced  to  be  without  reserve  
  Offeror  –  party  who  makes  the  offer    
  Offeree  –  party  to  whom  an  offer  is  made   Termination  of  offer  
  • By   action   of   offeror   –   revocation   or   withdrawal   of  
Requisites  for  effective  offer   offer.   Any   time   prior   perfection,   either   negotiating  
• Offeror  must  have  serious  intention  to  become   party   may   stop   the   negotiation.   Offer   may   be  
bound  by  his  offer   withdrawn  or  revoked  by  offeror  as  a  rule.  Power  to  
o Objective   theory   of   contracts   –   revoke   is   implied   that   no   contract   exists   until  
seriousness   is   determined   by   what   a   acceptance   is   known.   Considered   terminated   upon  
reasonable   person   in   the   offeree’s   revocation  or  withdrawal  
position   would   conclude   the   offeror’s   o Revocation   prior   to   perfection   –   unless   the  
words   and   actions   meant   and   not   by   offeror   knows   of   the   acceptance,   there’s   no  
the  subjective  intention  or  beliefs  of  the   meeting   of   the   minds,   no   real   concurrence  
offeror.   Understanding   and   beliefs   are   of  offer  and  acceptance,  
effective  only  if  shared   § When   a   period   is   given   to   offeree  
• Terms  must  be  reasonably  certain,  definite  and   within   which   to   accept   the   offer  
complete,   so   that   parties   and   court   can   and   the   same   has   separate  
ascertain  terms  of  the  offer   consideration,   a   contract   of   option  
o Article  1319  –  only  if  contract  can  come   is   deemed   perfected   and   it   would  
into   existence   by   mere   acceptance   of   be   a   breach   to   withdraw   during  
the   offer   without   any   further   act   on   the   agreed  period  

  40  
 o Time   of   effectivity   of   revocation   –   in   • Separate   agreement   distinct   from   the   contract  
contracts   between   absent   persons—an   which   the   parties   may   enter   into   upon   the  
acceptance   by   letter   of   an   offer   has   no   consummation   of   the   option,   must   be   supported   by  
effect   until   it   comes   to   the   knowledge   of   consideration  
the   offeror.   Before   acceptance   is   known,   it   • Distinguishing   characteristic:   imposes   no   binding  
can  be  revoked.  Revocation  or  withdrawal  is   obligation.  Until  acceptance,  it  is  not  a  contract  and  
effective   immediately   after   its   does  not  vest,  transfer  or  agree  to  transfer,  any  title  
manifestation   to  or  any  interest  or  right  in  the  subject  matter  
• By   action   of   offeree—rejection   of   offer   –   after   • Merely   a   contract   by   which   the   owner   of   property  
rejection   by   offeree,   if   he   changes   his   mind   and   gives  the  optionee  the  right  or  privilege  of  accepting  
chooses  to  accept,  he  will  be  the  new  offeror   the  offer  and  buying  the  property  on  certain  terms  
o Counter-­‐offer  –  important  form  of  rejection,    
rejection   of   the   original   offer   and   Option  contract   Contract  of  sale  
simultaneous   making   of   a   new   offer.   Independent   contract   by   Fixes  definitely  the  relative  
Original   offer   is   terminated   and   original   itself,   distinguished   from   rights   and   obligations   of  
offeree  now  become  the  new  offeror.   projected  main  agreement   both  parties  at  the  time  of  
• By  operation  of  law—   its  execution  
o Lapse   of   time   –   where   time   is   stated   in   an   Unaccepted   offer,   Offer   and   acceptance   are  
offer   for   its   acceptance,   the   offer   is   optionee  has  the  right  but   concurrent,   minds   of   the  
not  the  obligation  to  buy   contracting   parties   meet  
terminated   at   the   expiration   of   the   time  
in   the   terms   of   the  
given  for  its  acceptance.  If  not  period,  offer  
agreement  
terminates   after   the   lapse   of   a   reasonable  
 
time.  
When  option  is  binding  –  period  is  given  to  the  offeree  
§ Offer  made  inter  praesentes  (made  
within   which   to   accept   the   offer   and   founded   upon   or  
to   a   person   present)   must   be  
supported   by   a   separate   consideration—option   is  
accepted   immediately   when   the  
deemed  perfected.  
offeror   has   not   fixed   a   period   for  
• Breach  of  that  contract  (of  option)  to  withdraw  
acceptance  
the  offer  during  agreed  period  
o Effect  of  death,  civil  interdiction,  insanity  or  
• If   optioner-­‐offeror   withdraws   the   offer   before  
insolvency   –   offer   is   rendered   ineffective,  
acceptance  by  optionee-­‐offeree,  the  latter  may  
the  disappearance  of  either  party  or  his  loss  
not   sure   for   specific   performance   on   the  
of   capacity   before   perfection   prevents   the  
proposed  contract  since  it  has  failed  to  reach  its  
contractual  tie  from  being  formed  
own   stage   of   perfection.   Optioner-­‐offeror  
o Supervening   illegality   of   proposed   contract  
renders  himself  liable  for  damages  for  breach  of  
–   termination   occurs   when   a   legislative  
the  option  
enactment   or   cour   decision   makes   the   offer  
 
illegal  after  it  has  been  made  
When   option   is   not   binding   –   period   is   not   itself  
o Destruction   of   subject   matter   –   terminated  
founded   upon   or   supported   by   a   consideration,   the  
when   specific   subject   matter   is   destroyed  
option  does  not  become  a  contract.    
before  the  offer  is  accepted  
• Offeror   is   still   free   and   has   the   right   to  
 
withdraw  the  offer  before  acceptance  
Option   Contract   –   preparatory   contract,   one   party  
• If   an   acceptance   has   been   made   before   the  
grants   to   the   other,   for   a   fixed   period   and   under  
offeror’s   coming   to   know   of   such   fact,   by  
specified   conditions,   the   power   to   decide,   whether   or  
communicating  that  withdrawal  to  the  offeree.  
not  to  enter  into  a  principal  contract  
 
• Binds  the  party  who  has  given  option,  not  to  enter  
Withdrawal   must   not   be   arbitrary   or   whimsical   –  
into   the   principal   contract   with   any   other   person  
otherwise,   it   could   give   rise   to   a   damage   claim   under  
during  the  period  designated.  
Art.  19  of  NCC.  
  41  
 • An   offer   implies   an   obligation   on   the   part   of   the   • Where   there   is   merely   an   offer   by   one   party,  
offeror  to  maintain  in  such  length  of  time  as  to   without   the   acceptance   of   the   other,   there   is  
permit  the  offeree  to  decide  whether  ot  accept   not  consent.  
or   not,   cannot   arbitrarily   revoke   the   offer   • Acceptance   concludes   the   making   of   contract,  
without   being   liable   for   damages   which   the   nothing  further  required  
offeree  may  suffer   • Effect   of   unqualified   acceptance:   contract   is  
  deemed   perfect,   none   of   them   may   disengage  
Acceptance  prior  to  withdrawal  –  results  in  a  perfected   himself   without   being   liable   to   the   other   in   an  
contract  of  sale   action  for  specific  performance.  
  Acceptance   must   be   absolute   –   there   must   be   no  
Consideration   in   option   contract   –   onerous   contract,   condition   or   qualification.   Must   be   plain,   unequivocal,  
consideration   must   be   something   of   value,   although   unconditional,   and   without   variance   of   any   sort   from  
kinds   may   vary—need   not   be   monetary.   If   not   the  proposal.  
monetary,   must   be   clearly   specified   as   such   in   the   • Effect   of   qualified   acceptance   (involves   a   new  
option  contract  or  clause   offer,   constitutes   counter-­‐offer,   rejection   of  
  original   offer)   –   not   sufficient   to   generate  
Consideration   in   option   may   not   be   presumed   –   Art   consent,   any   modification   from   terms   of   the  
1354,   NCC   existence   of   consideration   is   to   be   presumed   offer  annuls  the  offer.  
in  a  contract  does  not  apply  to  the  contract  of  option  or   o Proposal   to   accept   or   an   acceptance  
to   an   accepted   unilateral   promise   buy   or   sell—this   introducing  new  conditions  amounts  to  
should   be   governed   by   Article   1479,   requires   rejection  of  the  offer  and  submission  of  
concurrence  of  a  condition.   counter-­‐proposal   and   puts   an   end   to  
• Promise  cannot  compel  the  promisor  to  comply   the   negotiations   without   forming   a  
with  the  promise,  unless  the  former  establishes   contract   unless   the   party   making   the  
the   existence   of   said   distinct   consideration— offer   renews   it   or   agress   to   the  
promisee   has   the   burden   of   proving   such   suggested  modifications  
consideration   • Mirror-­‐image   rule   –   acceptance   must   be  
  identical  in  all  respects  with  that  of  the  offer  so  
Earnest  Money  –  something  of  value  to  show  that  buyer   as  to  produce  consent  or  meeting  of  the  minds.  
was  really  in  earnest,  given  to  seller  to  bind  the  bargain.   o When   any   of   the   elements   is   modified  
Considered   as   part   of   the   purchase   price   and   proof   of   upon  acceptance,  alteration  amounts  to  
the  perfection  of  contract.   a  counter-­‐offer  
  o When   alleged   changes   made   in   the  
Option  Money   Earnest  Money   acceptance  are  not  material  but  merely  
Given   as   distinct   Part  of  the  purchase  price   clarificatory,  there  is  no  rejection  of  the  
consideration   for   an   offer  
option  contract    
Applies   to   a   sale   not   yet   Given   only   where   there’s   Manner   of   acceptance   –   In   his   offer,   offeror   may   fix  
perfected   already  a  sale  
time,   place   and   manner   of   acceptance,   all   of   which  
When   given,   would-­‐be   When   given,   buyer   is  
must  be  complied  with.  On  the  other  hand,  an  attempt  
buyer   is   not   required   to   bound  to  pay  the  balance  
on   the   part   of   the   offeree   to   accept   the   offer   in  
buy  
different  manner  does  not  bind  the  offeror—absence  of  
 
meeting  of  the  minds.  
Acceptance  of  offer  
Express  acceptance  –  contract  will  be  perfected  only  by  
Requirement   –   to   produce   a   contract   there   must   be  
the  offeror  of  the  express  acceptance  
acceptance,  express  or  implied,  but  must  not  qualify  the  
 
terms  of  the  offer.  

  42  
Form   of   acceptance   –   may   be   express   or   implied,   unless   Effect   of   misrepresentation   by   the   minor   –   upon   18,  
the   law   specifically   requires   a   particular   format   or   they   cannot   annul   the   contract   on   the   ground   of  
manner  of  expressing  such  consent.   minority—already   in   estoppel   (ruling   only   applies   if  
• May   be   shown   by   acts,   conducts,   or   words   of   a   guilty  of  active  misrepresentation)  
party  recognizing  the  existence  of  a  contract   • Passive  misrepresentation,  may  still  annul  upon  
• Through   agent   –   deemed   accepted   from   the   time   reaching  18.  
acceptance  is  communicated  to  said  agent.  Agent  is    
the  extension  of  the  personality  of  the  principal   Insanity   –   manifestation,   language   or   conduct,   of  
• When   acceptance   binds   offeror  –   cognition   theory:   disease   or   defect   of   the   brain,   or   more   or   less  
unless   the   offeror   knows   of   the   acceptance,   there   is   permanently   diseased   or   disordered   and   characterized  
no   meeting   of   the   minds   of   the   parties,   no   real   by   perversion,   inhibition   or   disordered   function   of   the  
concurrence  of  offer  and  acceptance.   sensory   or   the   intellective   faculties   or   by   implied   or  
• Withdrawal   of   acceptance   –   can   be   withdrawn   or   disorder  volition.  
revoked  BEFORE  it  is  made  known  to  offeror.   Effect  –  contract  entered  into  by  an  insane  or  demented  
  person   is   voidable   but   if   contract   is   entered   during   lucid  
CAPACITY  TO  GIVE  CONSENT   interval,  contract  is  valid.  
   
Contractual  Capacity   • Not   every   insanity   will   annul   consent—only   those  
Essential   element   of   consent   –   legal   capacity   of   the   which   prevents   a   person   from   knowing   the  
parties   is   an   essential   element   for   the   existence   of   the   character  of  the  act  that  he  is  performing  as  well  as  
contract—indispensable   condition.   Legal   consent   its  legal  effects—ground  for  annulment  
presupposes  capacity.    
  Presumption   of   insanity   –   law   presumes   that   every  
Effect   of   incapacity   –   not   void,   if   only   one   of   the   person  is  of  sound  mind,  in  the  absence  of  proof  to  the  
contracting   parties   is   incapable,   contract   is   merely   contrary.   Burden   of   proving   incapacity   rests   upon   he  
voidable.   When   both   parties   are   incapable,   contract   is   who   alleges   it;   if   no   sufficient   proof   to   this   effect   is  
unenforceable.   presented,  his  capacity  will  be  presumed.  
  • If   the   contracting   party   is   under   guardianship   by  
Persons  incapable  of  giving  consent:   reason   of   insanity,   there’s   presumption   of  
• Unemancipated  minors   insanity—only   prima   facie,   may   be   rebutted   by  
• Insane  or  demented  persons   evidence.   It   may   be   shown   that   he   executed   the  
• Deaf-­‐mutes  who  do  not  know  how  to  write   contract  during  lucid  interval  
• Persons  suffering  from  civil  interdiction    
• Incompetents  under  guardianship   Civil   interdiction,   old   age   and   illiteracy   –   accessory  
  penalty   imposed   upon   accused   who   is   sentenced   to   a  
Presumption   of   capacity   –   every   person   is   fully   principal   penalty   not   lower   than   reclusion   temporal—
competent   to   enter   into   a   contract   until   satisfactory   deprives   the   offender   during   time   of   sentence   of   the  
proof   to   the   contrary   is   presented.   Burden   of   proof— following:  
individual   asserting   lack   of   capacity   to   contract—clear   o Parental  authority,  guardianship  either  as  to  
and  convincing  evidence.   person  or  property  of  any  ward  
  o Marital  authority  
Minority  –  below  18  years  of  age   o Management  of  his  property  
Effect   –   contract   entered   into   by   a   minor   is   voidable.   o Disposition   of   his   property   by   any   act   or  
Law  gives  the  minor  the  right  to  annul  upon  attainment   conveyance  inter  vivos  
of  age  of  majority,  must  bring  the  action  for  annulment   A   person   suffering   from   the   accessory   penalty   of   civil  
within   4   years   from   majority   otherwise,   barred   by   interdiction   may   not   validly   enter   into   contracts  
statute  of  limitations  or  prescriptions.  He  may  also  ratify   involving   disposition   of   his   property   if   same   will   take  
the  voidable  contract  upon  reaching  18.   effect  during  his  lifetime.  

  43  
Effect   of   old-­‐age   and   physical   infirmity   –   considered   Ø Services   which   imply   an   absolute   submission,  
incapacitated   only   when   such   age   or   infirmities   impair   sacrificing  their  liberty,  independence  or  beliefs  
his   mental   faculties   to   such   extent   as   to   prevent   him   or   disregarding   any   manner   of   equality   and  
from   properly,   intelligently,   and   fairly   protecting   his   dignity  
property  rights    
  • Must   be   real   or   possible,   either   physically   or  
Effect  of  illiteracy   –  when  an  illiterate  alleges  mistake  or   legally  
fraud   in   the   giving   of   his   consent,   he   becomes   o In   existence   at   the   time   of   the  
incapable.     perfection  of  the  contract  
Burden  of  proof  –  Article  1332,  NCC,  where  a  party  to  a   o Has   the   possibility   or   potentiality   of  
contract  is  illiterate,  or  cannot  read  not  understand  the   coming  into  existence  
language  in  which  the  contract  is  written,  the  burden  is   o Donation   CANNOT   comprehend   future  
on  the  party  interested  in  enforcing  the  contract.   things  
  Rule   as   to   future   inheritance—contracts   entered   into  
Requisite  before  invoking  Article  1332:   upon   future   inheritance   are   void.   To   be   considered  
• Convincingly   established   that   the   disadvantaged   future,   succession   must   not   have   been   opened   at   the  
party  is  unable  to  read   time   of   the   contract—prohibited   under   Article   1347,  
• Contract   involved   is   written   in   a   language   NCC.  Following  requisites  must  concur:  
understood  by  him   Ø Succession  has  not  yet  been  opened  
  Ø Object  forms  part  of  the  inheritance  
Article   1332   applies   where   the   contract   is   merely   Ø Promisor   has   an   expectancy   of   a   right   which   is  
voidable—intended   for   the   protection   of   a   party   to   a   purely  hereditary  in  nature  
contract   who   is   at   a   disadvantage   due   to   his   illiteracy,   Exception   –  law  allows  a  person  to  make  a  partition  of  
ignorance,   mental   weakness   or   other   handicap.   Does   his   estate   by   an   act   inter   vivos   provided   that   the  
not  cover  a  situation  where  there  is  a  complete  absence   legitime  of  compulsory  heirs  is  not  prejudiced  
of  consent.    
  Impossibilty  –  may  either  be  absolute  or  relative  
OBJECT  OF  THE  CONTRACTS       Effect:    
Objects  of  contracts  may  be  the  following—   v Absolutely   impossible   is   when   nobody   can  
• All   things   which   are   not   outside   the   commerce   perform   it—nullifies   the   contract,   therefore  
of  men,  including  future  things   void.  
• All  rights  which  are  not  intransmissible   v Relative   impossible   is   when   due   to   the   special  
• All   services   which   are   not   contrary   to   law,   conditions   or   qualifications   of   the   debtor   it  
morals,   good   customs,   public   order   or   public   cannot   be   performed.   If   temporary,   does   not  
policy   nullify  the  contract  but  if  permanent,  it  nullifies  
  the  contract,  therefore  void  
Requisites    
• Must  be  within  the  commerce  of  men   • Should   be   licit   or   not   contrary   to   law,   morals,  
o Susceptible  of  appropriation   good  customs,  public  order  or  public  policy  
o Transmissible   from   one   person   to   • Should   be   determinate   or   determinable,   as   to   is  
another   kind  
Exclusions:   o Sufficient   that   the   object   is  
Ø Sacred,  common  things,  not  appropriated   determinable   at   the   time   of   the  
Ø Property  pertaining  to  public  dominion   perfection  of  the  contract  
Ø Rights  which  are  purely  personal   o As   to   quantity,   it   is   sufficient   that   the  
Ø Public   offices,   inherent   attributes   of   the   public   same  is  determinable  without  the  need  
authority,  political  rights  of  individuals   of  a  new  contract  between  the  parties  
 

  44  
CAUSE   or   consideration   –   is   the   “why   of   the   contracts,   Forms  of  Contracts  
the   essential   reason   which   moves   the   contracting   General   Rule:   contracts   are   obligatory   in   whatever   form  
parties   to   enter   into   the   contract,”   it   is   immediate,   provided   that   all   essential   requisites   for   their   validity  
direct   and   proximate   reason   which   justifies   the   creation   are  present—no  form  is  required.  
of   an   obligation   through   the   will   of   the   contracting   Exceptions:   2   groups   where   from   is   absolute   and  
parties.   indispensible—  
  • Those  which  are  required  to  be  in  some  form  to  be  
Requisites:   valid  
• Must  exist   • Those  which  are  required  to  be  in  some  form  to  be  
o If   contract   has   no   cause,   it   does   not   enforceable  or  in  order  that  they  may  be  proved  in  
produce   any   effect—inexistent   and   void   a  certain  way.  
from  the  beginning    
o There   is   want   of   cause   when   there   is   total   Contracts  which  require  form  for  validity:  
absence   of   consideration.   Difference   of   • Donation   of   personal   property   where   value   exceeds  
want  and  lack:   5k   (Art   748,   donation   &   acceptance   required   to   be  
Want   Lack   in  writing)  
Prevents   the   Right   to   demand   the   • Donation  of  real  property  (Art  749,  regardless  of  the  
existence   of   a   valid   fulfillment   or   value,   donation   &   acceptance   must   be   in   public  
contract   cancellation   of   the   instrument—notarized)  
obligation   o Effect   of   absence:   donation   is   void,   this   rule  
o Cause  is  presumed  to  exist  –  although  cause  
applies   only   in   the   absence   of   evidence   that  
is  not  stated  in  the  contract,  it  is  presumed  
the  claimed  donation  had  been  accepted)  
to   exist   unless   the   contrary   is   proved.  
• Donation   propter   nuptias   (Art   83,   FC,   Art   748   &   749  
Burden   to   prove   the   contrary   rests   on   the  
shall  also  apply)  
party   who   claims   that   the   contract   has   no  
o Special  kind  of  donation,  Requisites—  
valid  or  true  consideration.  
§ Must   be   made   before   the  
• Must  be  true  
celebration  of  the  marriage  
o Statement  of  a  false  cause  renders  contract  
§ Must   be   made   in   consideration   of  
void,   unless   it   can   be   proven   that   they   were  
the  marriage  
founded   upon   another   cause   which   is   true  
§ Must   be   made   in   favor   of   one   or  
and  lawful  
both  of  the  future  spouses  
• Must  be  licit  
• Contract  of  partnership  (general  rule,  this  does  not  
o A   contract   where   the   cause   is   contrary   to  
require   any   form   but)   WHEN   real   property   is  
law,   morals,   good   customs,   public   order   or  
contributed   as   capital   (Art   1773   &   1771,  
public  policy  is  void,  produces  no  effect.    
requirement   is   inventory   of   the   real   property  
o Although   the   cause   is   not   stated,   it   is  
contributed   &   must   be   attached   to   the   public  
presumed  that  it  exists  and  is  lawful,  unless  
instrument)  
debtor  proves  the  contrary  
o Art   1773,   intended   to   protect   the   third  
 
persons—when   the   case   does   not   involve  
Effect   of   lesion   or   inadequacy   of   cause   –   does   not  
third   parties   who   may   be   prejudiced,   they  
invalidate   a   contract,   unless   there   has   been   fraud,  
cannot  deny  the  existence  of  a  partnership  
mistake  or  undue  influence.  
• Sale   of   a   parcel   of   land   or   any   interest   therein  
Lesion  is  a  ground  for  the  rescission  of  the  contract:  
(Generally,   does   not   require   any   form)   but   when  
• In  partition  among  co-­‐heirs,  when  any  one  of  them  
done   through   an   agent   (Art   1874,   Authority   of   the  
received  things  whose  value  is  less  than  ¼  than  the  
agent   must   be   in   writing.   Otherwise,   contract  
share  to  which  he  is  entitled  
entered  into  by  agent  is  void)  
 
 

  45  
• Stipulation   limiting   common   carrier’s   liability   for   Formality   required   –   Agreements   covered   by   the  
loss,   destruction   or   deterioration   of   goods   (Art   Statute   shall   be   unenforceable   by   action,   unless  
1744,  stipulation  must  be  in  writing)   agreement   itself   is   in   writing   and   subscribed   by   the  
• Contract   of   antichresis   (Art.   2134,   Amount   of   party  charged  or  his  agent.  
principal   and   of   the   interest   shall   be   in   writing)   If   • Does   not   require   the   contract   to   be   in   writing,  
principal  amount  and  interest  is  already  included  in   written   note   or   memorandum   embodying   the  
the  principal  contract,  it  is  already  valid   essentials   of   the   contract   and   signed   by   the   party  
• Sale   or   transfer   or   large   cattle   (Art   1174,   must   be   charged   suffices   to   make   the   verbal   agreement  
recorded   in   the   office   of   the   treasurer   in   the   enforceable.  
municpality/city,  public  instrument)   • Note   or   memorandum   need   not   be   contained   in  
o Large   cattle   –   all   members   of   the   bovine   two   or   more   papers,   need   each   paper   to   be  
family   sufficient   as   to   contents   and   signature   to   satisfy   the  
• Chattel   mortgage   contract   (Art.   2140,   must   be   statute.   Exchange   of   written   correspondences  
recorded   in   the   Chattel   Mortgage   Register,   public   between   the   parties   may   constitute   sufficient  
instrument)   writing   to   evidence   the   agreement   for   purposes   of  
  complying  with  the  Statute  of  Frauds  
Effect   of   non-­‐compliance   –   law   expressly   declares   that   • Note   or   memorandum   must   contain   the   name   of  
contract   is   void   or   invalid   if   the   formality   required   by   the  parties,  the  terms  and  condition  of  the  contract,  
law  is  not  complied  with.   and   a   description   of   the   property   sufficient   to  
• Perfected   contract,   complete   with   all   essential   render  it  capable  of  identification  
requisites   but   not   executed   in   the   form   • Note   or   memorandum   must   be   signed   by   said   party  
provided  by  law—VOID   or   his   authorized   agent   to   be   binding   on   the  
  persons  to  be  charged  
Contracts  which  require  form  for  Enforceability:    
• Contracts   in   Article   1403,   par   2   aka   Philippine   Basic  principles  governing  Statute  of  Frauds  
Statute  of  Frauds   • Applicable   only   to   purely   executory   contracts   and  
• Statute   of   Frauds   –   require   certain   classes   of   not  to  contracts  which  are  either  partially  or  totally  
contracts   to   be   in   writing   to   be   enforceable,   does   performed—purpose   of   the   statute   is   to   prevent  
not  deprive  the  parties  of  the  right  to  contract  with   fraud  
respect   to   the   matters   involved,   but   merely   • Not   applicable   to   actions   which   are   neither   for  
regulates   the   formalities   of   the   contract   necessary   violation  nor  for  performance  of  contract  
to  render  it  enforceable   • Defense   may   not   be   availed   of   by   third   parties,   only  
o The  statute  simple  provides  the  method  by   by   parties   of   the   contract,   their   representatives   or  
which   the   contracts   enumerated   may   be   privies  or  those  whose  rights  are  directly  controlled  
proved   but   does   not   declares   them   invalid   by  the  statute.  
because  not  reduced  in  writing   • Defense  may  be  waived  by  either—(ratification)  
EFFECT   –   no   action   can   be   enforced   unless   the   o Failing  to  object  to  the  presentation  of  oral  
requirement  is  complied  with.   evidence  to  prove  the  contract  
• The   statute   is   used   as   a   defense   whenever   a   o Accepting  benefits  under  the  contract  
party   to   an   alleged   contract   falling   within   the   • Limited   to   specific   transaction.   The   following   are  
operation   of   the   statute   attempts   to   enforce   NOT  covered  by  the  Statute  of  Frauds—  
the  agreement   o Agreement   creating   an   easement   of   right-­‐
• Form   required   is   for   evidentiary   purposes   of-­‐way  since  it’s  not  a  sale  of  real  property  
only—if   the   parties   permit   a   contract   to   be   or  interest  
proved,  without  any  objection,  binding  as  if  the   o An   agreement   for   setting   up   of  
statute  has  been  complied  with   boundaries—oral   testimony   to   prove   such  
  agreement  is  admissible  

  46  
 o An   oral   partition   of   real   property   is   • Agreements  in  consideration  of  marriage  –  marriage  
enforceable   since   partition   is   not   settlement,   required   to   be   in   writing.   Donation  
conveyance   of   property   but   simply   a   propter  nuptias—not  governed  by  SoF.  
segregation   and   designation   of   the   part   of   • Sale   of   goods,   chattels   or   things   in   action   at   price  
the  property  which  belongs  to  co-­‐owners   not   less   than   P500   –   covers   both   tangible   and  
o Right  of  first  refusal   intangible  personal  property  +  assignment  of  credit  
o When   one   of   the   parties   is   trying   to   enforce   over  P500.  
the   delivery   to   him   of   3,000   sqm   of   land   • Lease  of  real  property  for  more  than  a  year  and  sale  
which   he   claims   the   defendant   orally   of  real  property  or  an  interest  
promised   to   do   in   consideration   of   her   o Lease   over   1   year   –   SoF   also   covers  
service  as  mediator  in  effecting  compromise   renewals   of   lease   contract.   Alleged   verbal  
of  certain  civil  case  since  such  contract  is  in   assurance   of   renewal   of   lease   is  
no  sense  a  sale  of  real  property   inadmissible—unenforceable  under  SoF  
o Wills   or   to   renunciation   or   partition   of   o Sale   of   real   property   –   to   be   enforceable  
inheritance—not  contracts  of  conveyance   must   be   in   writing   and   subscribed   by   the  
o Innominate  contract   party   charged   or   by   an   agent—a   contract   of  
  sale   of   realty   cannot   be   proven   by   means   of  
Specific  contracts  covered  by  the  Statute:   witnesses   but   must   necessarily   be  
• Agreements  not  to  performed  within  a  year  –  by  its   evidenced  by  written  instrument.  
terms   is   not   to   be   performed   within   a   year   is   • Representation  as  to  credit  of  third  persons  –  must  
required   to   be   in   writing   to   be   enforceable   under   have   been   made   by   a   stranger   to   the   contract   in  
SoF.   which   credit   was   extended.   Representations   as   to  
o Test:   Whether   under   its   own   terms,   the  credit  of  the  person  making  the  representation  
performance   is   possible   with   a   year   from   are  not  within  SoF  
the   making   of   the   contract—outside   SoF,    
need   not   to   be   in   writing   to   be   enforceable.   Other   contracts   or   agreements   which   require   to   be   in  
1   year   period   begins   to   run   from   the   day   some  form  to  be  enforceable—NOT  COVERED  by  SoF  
the  contract  is  made.   • Express   trust   over   immovable—may   not   be   proved  
o Applies   only   to   agreements   not   to   be   by   parol   evidence,   must   be   in   writing   to   be  
performed   on   EITHER   side—agreements   to   enforceable.   Implied   trust   in   real   property   may   be  
be   fully   performed   on   one   side   within   a   proved  by  oral  evidence.  
year  are  taken  out  of  SoF.   • Agreement   of   payment   of   interest—no   interest  
o Effect   of   partial   performance   –  must  appear   shall   be   unless   it   has   been   expressly   stipulated   in  
clearly   that   the   full   performance   has   been   writing.   Verbal   agreement   may   not   be   enforced.   If  
made   by   one   party   within   1   year,   as   borrower   pays   interest   voluntarily   even   without  
otherwise,  the  statute  would  apply   stipulation,   payment   is   valid   and   creditor   is  
• Special   promise   to   answer   for   debt   of   another   –   authorized  to  retain  the  payment  
required   to   be   in   writing   or   to   be   evidence   be   some    
note  or  memorandum  signed  by  the  promisor  to  be   Contracts  which  require  form  only  for  convenience:  
enforceable   against   the   latter—guaranty   proper   Requirement   of   form,   Article   1358   –   only   for  
and  suretyship   convenience,   not   validity   or   enforceability;   Non-­‐
o Test:   whether   a   promise   is   within   the   compliance   with   formal   requisite   does   not   adversely  
statute—whether  the  promise  is  an  original   affect   the   validity   of   the   contract   or   contractual   rights  
or   a   collateral   one.   Original,   not   within   the   and  obligations  of  the  paries.  
statute.   Collateral,   becomes   surety—  
promise  must  be  in  writing   Effect  of  non-­‐recording  of  the  instrument  –  Article  1358,  
requires   embodiment   of   certain   contracts   in   a   public  
instrument   (only   for   convenience),   and   registration   of  

  47  
the   instrument   only   adversely   affects   third   parties.   agreement   which   frustrates   the   real   purpose   of   the  
Formal   requirements   are   for   the   benefit   of   third   contract,  consent  is  vitiated.  Remedy  is  annulment.  
persons    
  Requisites  of  mutual  mistake:  
Contracts   required   to   be   in   a   public   document   for   • Mistake  of  fact  
convenience:   • Should   be   proved   by   clear   and   convincing  
• Acts   and   contracts   which   have   for   their   object   the   evidence  
creation,   transmission,   modification   or   • Mistake  should  be  common  to  both  parties  
extinguishment   of   real   rights   over   immovable    
property.  Sales  of  real  property  are  under  SoF   Instances  where  instrument  MAY  be  reformed:  
• Cession,   repudiation   or   renunciation   of   hereditary   • Mutual   mistake   causes   failure   of   instrument   to  
rights   or   of   those   of   the   conjugal   partnership   of   disclose  real  agreement  
gains   • One   party   is   mistaken   and   other   acted  
• The   power   to   administer   property   or   any   other   fraudulently/inequitably   that   instrument   does   not  
power   which   has   for   its   object   an   act   appearing   or   show  their  true  intention  
which  should  appear  in  a  public  document  or  should   • One  party  was  mistaken  and  other  knew  or  believed  
prejudice  a  third  person   that   instrument   did   not   state   real   agreement,   but  
• Cession  of  actions  or  rights  proceeding  from  an  act   concealed  the  fact  from  the  former  
appearing  in  a  public  document   • Through   ignorance,   lack   of   skill,   negligence   or   bad  
  faith  on  part  of  person  drafting  the  instrument,  the  
Remedy   under   Article   1357   –   contracting   parties   may   instrument   does   not   express   true   intention   of   the  
compel   each   other   to   observe   that   form   and   this   right   parties  
may   be   exercised   simultaneously   with   the   action   upon   • Two   parties   agree   upon   the   mortgage   or   pledge   of  
the  contract.   real   or   personal   property   but   instrument   states   that  
Requisites:   property   is   sold   absolutely   or   with   right   of  
• Contract  must  have  already  been  perfected   repurchase  
• Contract  must  have  been  valid  as  to  form    
• Contract  must  have  been  enforceable  under  SoF   Instances  where  instrument  MAY  NOT  be  reformed  
  • Mistake,  fraud,  inequitable  conduct  or  accident  has  
REFORMATION  AND  CONTRACT  INTERPRETATION   prevented   meeting   of   the   minds—remedy   is  
  annulment  
Concept,   reformation   –   remedy   in   equity,   written   • In   simple   donations   inter   vivos   where   no   condition  
instrument   is   made   or   construed   so   as   to   express   or   is  imposed  
conform   to   the   real   intention   of   the   parties.   It   would   be   • Wills  
unjust   and   inequitable   to   allow   the   enforcement   of   a   • Real  agreement  is  void  
written   instrument   which   does   not   reflect   or   disclose   • One   of   the   parties   brought   an   action   to   enforce  
the  real  meeting  of  the  minds  of  the  parties.   instrument,   he   cannot   subsequently   ask   for  
  reformation  
Requisites:   • Contract  is  unenforceable  because  failure  to  comply  
• Meeting  of  the  minds  of  the  parties  to  the  contract   with  SoF  
• Instrument   does   not   express   the   true   intention   of    
the  parties   Effect  of  simulation  of  contracts  
• Failure   of   the   instrument   to   express   the   true    
intention   of   the   parties   is   due   to   mistake,   fraud,   Simulation  –  declaration  of  a  fictitious  will,  deliberately  
inequitable  conduct  or  accident.   made   by   agreement   of   the   parties   in   order   to   produce  
  for   the   purpose   of   deception,   the   appearance   of   a  
Effect   of   mutual   mistake   –   may   be   reformed   but   when   juridical   act   which   does   not   exist   or   is   different   from  
mutual   error   relates   to   the   legal   effect   of   their   that  which  was  realy  executed.  
  48  
Requisites:   Various   stipulations   construed   together   –   consistent  
• Outward   declaration   of   will   different   from   the   with   the   parties’   contemporaneous   and   subsequent  
will  of  the  parties   acts   as   regards   to   the   execution   of   the   contract.  
• False   appearance   must   have   been   intended   by   Ambiguous   stipulations   should   be   construed   as   to  
mutual  agreement   conform   to   the   sense   that   would   result   if   all   the  
• Purpose  is  to  deceive  third  persons   provisions  were  comprehended  jointly  
  • Complementary-­‐contracts-­‐construed-­‐together  
Kinds  and  effect  of  simulation—   doctrine   –   an   accessory   contract   must   be   read  
• Absolute  simulation  –  when  parties  do  not  have  any   in   its   entirety   and   together   with   the   principal  
intention   to   be   bound   at   all,   void   or   inexistent.   agreement  
Remedy  is  to  declare  the  contract  void  or  inexistent    
• Relative   simulation   –   when   parties   simply   conceal   Other  rules  in  contract  interpretation:  
their  true  agreement.  Remedy  is  reformation  when   • Contract   of   adhesion   –   if   there   are   ambiguities,   it  
it   does   not   prejudice   a   third   person,   not   intended   should  be  construed  against  the  party  that  prepared  
for   any   purpose   contrary   to   law,   morals,   good   it.  If  clear,  literal  meaning  must  be  held  controlling  
customs,   public   order   or   public   policy   and   the   • Obscure   words   or   stipulations   –   to   be   interpreted  
contract  binds  the  parties  to  their  real  agreement   against   the   party   who   cause   the   obscurity.  
  Ambiguities   are   interpreted   against   the   party   that  
Who  may  demand  reformation—if  mistake  was  mutual,   cause  it,  party  that  drafted  and  caused  the  inclusion  
either  party  or  his  successor-­‐in-­‐interest  may  demand.  If   of  the  subject  clause  
mistake   was   not   mutual,   only   the   injured   party   or   his   • General   terms   exclude   things   that   are   distinct   –  
heirs   and   assigns   may   demand.   Party   who   brought   an   shall   not   be   understood   to   include   things   that   are  
action   to   enforce   cannot   subsequently   ask   for   distinct   and   cases   that   are   different   from   those  
reformation.   upon   which   parties   intended   to   agree.   A   particular  
  intent  will  control  a  general  one  that  Is  inconsistent  
Rules  in  Contract  Interpretation   with  it  
  • Words   having   different   significations   –   shall   be  
Cardinal   rule   –   intention   of   the   contracting   parties   understood   in   sense   which   is   most   in   keeping   with  
should   always   prevail   because   their   will   has   the   force   of   the  nature  and  object  of  the  contract  
law  between  them.   • Usage   or   custom   –   shall   be   borne   in   mind   in   the  
The  intention  of  the  parties  is  primordial  and  once  it  has   interpretation   of   the   ambiguities   and   shall   fill   the  
been  ascertained,  the  element  is  deemed  as  an  integral   omission   of   stipulations   which   are   ordinarily  
part   of   the   contract   as   though   it   has   been   originally   established  
expressed  in  unequivocal  terms.   • In   case   doubt   is   not   resolved   by   other   rules   in  
  interpretations  
When   terms   are   clear   –   literal   meaning   of   its   o If   gratuitous   –   interpretation   which  
stipulations  shall  control   establishes   a   less   onerous   transmission   of  
  rights  and  interest  is  to  be  adopted  
When   words   and   intention   are   in   conflict   –   intention   o If   onerous   –   interpretation   which   permits  
shall  prevail  over  the  words   greater   reciprocity   of   interests   is   to   be  
  adopted  
How   to   determine   intention   –   contemporaneous   and    
subsequent  acts  shall  be  principally  considered.   Defective  contracts  
  • Rescissible  contracts  
Principle   of   effectiveness   in   contract   interpretation   –   • Voidable  contracts  
what   will   prevail   is   that   interpretation   which   is   most   • Unenforceable  contracts  
adequate  to  render  the  contract  effective   • Void  and  Inexistent  contracts  
   
  49  
Rescissible  Contracts   contract   and   mutually   inception—parties   are   not  
• Remedy   granted   by   law   to   contracting   and   third   return   things   they   have   restored   to   original  
parties  to  secure  reparation  of  damages  cause  by  a   received  under  it—In  legal   situation;   contract   is   not  
contract,  even  if  it  should  be  valid  by  restoration  at   effect,   parties   have   simply   treated   as   if   it   never  
the   moment   prior   to   the   celebration   of   the   entered   into   another   existed.  
contract   for   dissolution   of    
contract.  
previous  one.  
• Implies   that   even   if   a   contract   is   initially   valid,   it  
Effects:   determined   by   Prior   termination,   parties  
produces  a  lesion  or  pecuniary  damage  to  someone  
agreement   of   parties   or   are   obliged   to   comply   with  
  application   of   other   legal   contractual   obligations.  
Article  1911  (resolution)   Article  1381   principles   except   Article   They  will  be  released  from  
  Presupposes   a   valid   1385.   obligation   only   after  
contract   contract  is  cancelled  
Applicable   to   reciprocal   Subsidiary   action,   limited     Consequences   may   be  
obligations;   arising   from   to   rescission   for   lesion   provided   for   in   the  
the   same   cause   and   each   enumerated   in   article;   by   contract   and   shall   be  
party   is   a   debtor   and   reason   of   economic   respected  by  the  courts  as  
creditor  to  one  another   prejudice   long   as   not   contrary   to  
Principal   remedy,   based   Cannot   be   instituted   law,  etc  
on   breach   of   faith   that   except   when   party   *When   contract   is   rescined,   deemed   inexistent   and  
violates   the   reciprocity   suffering   damage   has   no   parties   return   to   their   status   quo   ante—mutual  
between  the  parties   other   legal   means   to  
restitution  of  benefits  received.  
obtain  reparation  
 
Exclusively   applies   to   Cause   of   action   is  
Rescissible  contracts  under  Article  1381:  
reciprocal  obligations   subordinated   to   existence  
of  a  prejudice   • Contracts   are   valid   and   enforceable   until   rescinded  
Action  may  only  be  availed   Applies   to   all   kinds   of   by  competent  court  (Art  1380)  
by  a  party  to  the  contract   obligation   from   contracts,   • While   valid,   they   cause   pecuniary   lesion   or  
whether  reciprocal  or  not   prejudice   to   one   of   the   contracting   parties   or   to   a  
Prescriptive   period   is   10   Action   may   be   availed   by   third  person  
years   written   contracts   third   party   (Accion   • The   defect   may   not   be   cured   by   ratification  
and   6   years   for   verbal   pauliana)   although   right   of   rescission   may   be   lost   by  
contracts,   from   accrual   of   extinctive  prescription  
right  of  action   • Defect   of   rescissible   contract   cannot   be   attacked  
Court   has   discretionary   Prescriptive   period   is   4  
collaterally.   Action   for   rescission   must   be   set   up   in  
power   to   not   grant   years  from  accrual  of  right  
independent   civil   action   and   only   after   full   blown  
rescission   if   there’s   just   of  action  
cause  for  fixing  the  period   trial.   Independent   civil   action   is   necessary   to   prove  
for   performance   of   that  contract  is  rescissible.  
obligation    
Contract   is   not   defective   Court  has  no  discretionary   Requisites   for   rescission   to   prosper,   under   Art   1381   &  
but  perfectly  valid   power   not   to   grant   1382:  
rescission  as  long  as  any  of   • Action   must   originate   from   any   cause   specified   in  
the   grounds   enumerated   Art  1381  &  1382  
exist   • Party   suffering   damage   and   asking   rescission   has   no  
  Contract   is   classified   as   other  legal  means  to  obtain  reparation  for  damage  
defective   suffered.  
  • Person  demanding  rescission  must  be  able  to  return  
Rescission   VS   Mutual   Dissent   &   Termination   of   what   he   may   be   obliged   to   restore   if   rescission   is  
Contracts   granted  by  court  
Mutual  Dissent   Termination  of  contracts  
Parties   agree   to   cancel   Deemed   invalid   at  
  50  
• Object   of   the   contract   must   not   be   legally   in   the   Absolutely   simulated   Rescissible  contract  
possession   of   third   persons   who   did   not   act   in   bad   contract  
faith   No  existing  contract   Presupposes   existence   of  
• Action  must  be  filed  within  4  years  from  accrual  of   contract  
right  of  action   Can   be   attacked   by   any   Can   be   assailed   only   by  
  creditor   creditors   before   the  
alienation  
Specific   contracts   rescissible   under   Article   1381   and  
Insolvency   not   a   pre-­‐ Requires  insolvency  
1382  
requisite  
• Contracts  by  guardian  in  behalf  of  ward  –  rescissible  
Does  not  prescribe   4-­‐year  prescription  
whenever   the   latter   suffer   lesion   by   more   than   ¼   of    
the  value  of  object   Requisites  of  accion  pauliana  
o If  contract  is  approved  by  court,  no  ground  
• Plaintiff   asking   for   rescission   has   credit   prior   to  
for   rescission   even   if   ward   suffers   lesion   to  
alienation,  although  demandable  later  
extent  provided  in  p1  of  Article  1381  
• Debtor   made   subsequent   contract   conveying  
o Sale  or  encumbrance  of  real  property  of  the  
patrimonial  benefit  to  a  third  person  
ward   must   be   with   prior   court   approval.  
• Creditor   has   no   other   legal   remedy   to   satisfy   his  
Guardian  has  no  authority  to  sell  real  estate  
claim  
of  his  ward  merely  by  his  general  powers—
• Act  being  impugned  is  fraudulent  
considered   void,   even   when   ward   suffered  
• 3rd   person   who   received   the   property,   if   onerous,  
no  damage  
has  been  an  accomplice  in  the  fraud  
• Contracts   by   rep   in   behalf   of   absentee—whenever  
• Conveyance  must  not  be  absolutely  simulated  
the  latter  suffer  lesion  by  more  than  ¼  of  the  value  
 
of  object  
Accion   pauliana   presupposes   judgment,   issuance   by  
o If  contract  is  approved  by  court,  no  ground  
trial   court   of   writ   of   execution   for   satisfaction   of  
for   rescission   even   if   ward   suffers   lesion   to  
judgment   and   failure   of   the   sheriff   to   enforce   and  
extent  provided  in  p2  of  Article  1381  
satisfy  the  judgment  of  the  court.  
o Same   rules   as   above,   powers   and  
 
obligations  of  such  legal  representatives  are  
Existence  of  fraud  or  intent  to  defraud:  
to   be   regulated   by   same   rules   concerning  
• Fraud  presumed  in  following:  
guardians  (Art  382)  
o Alienation  of  property  by  gratuitous  title  by  
• Contracts   in   fraud   of   creditors   –when   creditors  
debtor   who   has   not   reserved   sufficient  
cannot  collect  the  claims  due  them  in  any  manner.  
property   to   pay   his   debts   contracted   before  
Rescissory   action   is   also   known   as   accion   pauliana,  
such  alienation  
available  when  subject  matter  is  conveyance.  
o Alienation   of   property   by   onerous   title  
 
made   by   debtor   against   whom   some  
v Accion  pauliana  –  subsidiary  remedy,  remedy  of  last  
judgment   has   been   rendered   in   any  
resort.   Successive   measures   must   be   taken   by   a  
instance   or   some   writ   of   attachment   has  
creditor  before  AP:  
been   issued.   Decision   or   attachment   need  
o Exhaust   properties   of   debtor   through  
not   refer   to   property   alienated   and   need  
levying   by   attachment   and   execution   upon  
not   have   been   obtained   by   party   seeking  
all   property   of   the   debtor,   except   those  
rescission.  
exempted  by  law  
 
o Exercise   all   rights   and   actions   of   debtor  
• SC  considered  these  instances  as  Badges  of  Fraud:  
(accion  subrogatoria)  
o Fact  that  consideration  of  the  conveyance  is  
o Seek  recission  of  the  contracts  executed  by  
fictitious  or  inadequate  
debtor   in   fraud   of   their   rights   (accion  
o Transfer   made   by   debtor   after   suit   has  
pauliana)  
begun  and  while  pending  against  him  
 
o Sale  upon  credit  by  an  insolvent  debtor  
  51  
 o Evidence  of  large  indebtedness  or  complete   o RFR   need   not   be   written   to   be   enforceable  
insolvency   and  may  be  proven  by  oral  evidence  
o Transfer   of   all   or   nearly   all   his   property   by   o May   not   be   unilaterally   withdrawn   if  
debtor   especially   when   he   is   insolvent   or   founded   on   consideration   –   stipulation  
greatly  embarrassed  financially   forms   part   of   the   entire   lease   contract.   In  
o Fact   that   transfer   is   made   between   father   entering   into   the   contract,   the   lessee   is   in  
and   son,   when   there   are   present   other   of   effect   stating   that   it   consents   to   lease   the  
the  above  circumstances   premises  and  to  pay  the  price  agreed  upon  
o Failure   of   the   vendee   to   take   exclusive   provided   the   lessor   also   consents   that  
possession  of  all  property   should   it   sell,   the   lessee   shall   be   given   the  
  right   to   match   the   offered   purchase   price  
v Test   to   determine   whether   or   not   conveyance   is   and  to  but  the  property  at  that  price.  
fraudulent—does   it   prejudice   the   rights   of    
creditors?  To  be  considered  not  in  fraud:   v Distinguished  from  Option  
o Valuable  consideration   o Option   would   require   a   clear   certainty   on  
o Transaction   must   have   been   made   bona   both   the   object   and   the   cause   or  
fide   consideration  of  the  envisioned  contract.  
  o Option  granted  to  the  offeree  is  for  a  fixed  
v Right  of  first  refusal  –  contractual  grant,  not  of  the   period  at  a  determined  price.  Lacking  these  
sale   but   of   first   priority   to   buy   the   property   in   the   two,  it’s  only  RFR.  
event  the  owner  sells  the  same.  Considered  a  legal    
duty—lessee   has   a   right   that   the   lessor’s   first   offer   • Contracts   relating   to   things   under   litigation   –   if   they  
shall  be  in  his  favor   have   been   entered   into   by   the   defendant   without  
  the   knowledge   and   approval   of   the   litigants   or   of  
v Effect  of  violation  –  contractual  grant,  enforceable   competent  judicial  authority.  
o If   grantor   entered   into   contract   with   3rd   • Payments   made   in   state   of   insolvency   –   for  
person   –   contract   of   sale   entered   into   in   obligations   to   whose   fulfillment   the   debtor   could  
violation  of  a  right  of  first  refusal  of  another   not  be  compelled  at  the  time  they  were  effected  
person  is  rescissble—in  fraud  of  the  creditor   • Other  contracts  specially  declared  by  law:  
(p3   of   Art   1381)   Requisites   of   rescission   o Contract   of   partition   on   the   ground   of  
must  occur  for  it  to  prosper.   lesion  
§ If   third   party   acted   in   bad   faith— o In   case   one   of   the   obligors   in   a   reciprocal  
rescission   obligation   should   not   comply   with   what   is  
§ If   third   party   acted   in   good   faith— incumbent  upon  him  
action  for  damages   o Contract   with   damages   if   through   the  
o If   contract   in   violation   of   right   of   first   creditor’s   acts,   the   debtor   cannot   make   a  
refusal   is   rescinded   –   grantor   may   now   be   choice  in  an  alternative  obligation  
directed   to   comply   with   his   obligation   to   o Right   to   rescind   the   sale   by   the   unpaid  
sell   the   property   to   the   grantee   under   the   seller  of  goods  
same  terms  and  conditions  that  it  had  been   o Rescission  by  vendee  when  inferior  value  of  
sold  to  a  3rd  person   the   real   estate   sold   exceeds   1/10   of   the  
§ Reasonable   terms   and   conditions,   price  agreed  upon  or  lack  in  area  be  not  less  
taking   into   account   the   fair   market   than  1/10  of  stated  or  when  vendee  would  
value  of  property  at  the  time  it  was   not   have   bought   had   he   known   of   its  
sold   smaller  area  or  inferior  quality  
o RFR,   not   covered   by   Statute   of   Frauds   –   o Contract   of   sale   of   immovable   for   single  
because  it  is  not  a  perfected  contract  of  sale   price   if   vendee   does   not   accede   to   the  
of  real  property.   failure  to  deliver  what  has  been  stipulated  

  52  
 o Contract   of   sale   of   immovable   if    
encumbered   with   non-­‐apparent   burden   or   v Applicability   of   p1   of   Article   1385—only   applies   to  
servitude   rescission  on  the  ground  of  lesion.  
o Rescission   on   account   of   eviction   of   o Rescission   on   ground   of   fraud   can   have   no  
substantial   portion   of   the   property   sold   or   obligation   on   part   of   plaintiff-­‐creditor   to  
loss  of  one  of  things  sold  jointly  for  a  lump   restore   anything   since   he   has   not   received  
sum   anything.  
o Contract   of   lease   if   either   the   lessor   or   the    
lessee   should   not   comply   with   their   v Effect   if   object   is   now   in   possession   of   third  
respective  obligations   persons—rescission   cannot   take   place   when   object  
o Rescission   of   adoption   by   adopted   on   any   is  legally  in  possession  of  third  persons  who  did  not  
grounds   in   Sec   19   of   RA   No.   8552   (Domestic   act   in   bad   faith.   Indemnity   for   damages   may   be  
Adoption  Act)   demanded  instead.  
o In  obligation  to  give,  if  subject  to  suspensive   o If   object   is   real   property—obstacle   to   the  
condition,   the   thing   deteriorates   through   efficaciousness   of   the   action   for   rescission  
fault  of  the  obligor   only  when  two  requisites  are  present  
  § 3rd   person   is   in   lawful   possession—
v Commencement  of  Prescriptive  period:   protected   by   law   against   said   action  
o For   contracts   by   guardians   in   behalf   of   by   registration   in   the   registry   of  
ward:   4-­‐year   period   begins   only   from   the   property  
termination  of  the  ward’s  incapacity   § he  did  not  act  in  bad  faith  
o For  contracts  by  representatives  in  behalf  of    
absentees:   4-­‐year   period   begins   from   the   v Extent  of  rescission:  only  to  the  extent  necessary  to  
time  the  domicile  of  absentee  is  known   cover  the  damage  caused.  
o For   contracts   in   fraud   of   creditors:   accrues    
only   when   the   creditor   discovers   that   he   Rescission  under  Article  1191:  
has  no  other  legal  remedy  other  than  accion   • Statutorily   recognized   in   reciprocal   obligations.  
pauliana.     When   obligor   fails   to   comply   with   a   reciprocal  
  obligation,  remedies  are:  
v Effect  of  rescission:   o Specific  performance  
o According   to   jurisprudence,   to   rescind   is   to   o Judicial  rescission  
declare  void  in  its  inception  and  puts  an  end   • Article  1191  applies  only  to  reciprocal  obligations—
to  it  as  though  it  never  were—to  abrogate  it   must  be  performed  simultaneously    
from   the   beginning   and   restore   the   parties   • Right  to  rescind  is  implied.  If  absent  of  any  provision  
to   relative   positions   before   conception   of   in   the   contract,   parties   can   still   rescind.   The   right  
contract   must  be  invoked  judicially  by  injured  party.  
o CONTRA:  Not  void  ab  initio—until  set  aside   • Extra-­‐judicial   rescission—not   prohibit   in   Article  
in   appropriate   action,   it   is   legally   valid   and   1191.   In   contracts   with   automatic   revocation,  
binding.   The   effects   of   rescission,   judicial   intervention   is   necessary   to   determine  
prospective,   can   come   about   only   after   whether   or   not   the   rescission   was   proper.   If   proper,  
proper  declaration.   decision   of   the   court   is   merely   declaratory   but   not  
o According   to   NCC,   Rescission   creates   the   itself  the  revocatory  act.  
obligation   to   return—object,   fruits,   price   • Not  an  absolute  right  –  will  only  be  ordered  where  
with   interests.   Mutual   restitution   is   breach   is   substantial   as   to   defeat   the   object   of   the  
required.   parties.    
o Unmaking   of   a   contract,   or   its   undoing   from   o Courts   have   discretion   to   refuse   order   of  
the   beginning   and   not   merely   its   rescission   if   there   is   a   just   cause   authorizing  
termination.   the  fixing  of  period.  

  53  
   subject   to   prescription   or   statue   of  
• Effects:   Article   1385   is   also   applicable   to   Article   limitations  
1191—mutual  restitution  is  also  required.   o Can   be   assailed   only   in   a   direct  
  proceeding   for   that   purpose,   not  
• Article   1191   does   not   apply   to   contract   to   sell—no   collaterally  
rescission   to   an   obligation   that   is   non-­‐existent,    
considering   that   suspensive   condition   has   not   yet   Annulment   –   reduce   to   nothing,   annihilate,   obliterate,  
happened.   to  make  void  or  of  no  effect,  to  nullify,  to  abolish  or  to  
o In   contract   to   sell,   title   remains   with   the   do  away  with.    
vendor   under   it   is   paid   in   full—positive    
suspensive  condition.   Annulled  contract  presupposes  that  it  subsists  but  later  
o Failure   to   pay   is   not   a   mere   breach   but   a   ceases   to   have   a   legal   effect   when   terminated   through  
situation   that   prevents   the   obligation   of   court  action.    Judgment  of  the  court  produces  invalidity  
vendor   to   convey   title   from   acquiring   an   of  the  contract  
obligatory  force    
  Distinguished   from   nullity   of   void   contracts:   Null   and  
• Effect  of  breach  by  both  parties:   void   means   does   not   exist   from   the   beginning.   Void  
o If   first   infractor   can   be   determined:   he   is   contract   =   invalid   from   the   beginning.   Court   is   simply  
liable   while   second   infractor   is   not   liable   for   declaring  status  that  already  exists  from  the  beginning.  
damages  at  all    
o If   first   infractor   cannot   be   determined:   Annulment   Rescission  
obligation   is   deemed   extinguished   and   each   Declares  inefficacy   Produces  inefficacy  
shall  bear  his  own  damages.   Defect  is  intrinsic   Defect  is  extrinsic  
  Annullability   is   based   on   Rescissibility   is   based   on  
Voidable  Contracts   law   equity  
• Contract   is   voidable   when   all   essential   Not   just   a   remedy   but   a   Merely  a  remedy  
sanction  
requisites   are   present   but   the   element   of  
Direct   influence   of   public   Private   interests  
consent  is  defective  because  of  want  of  capacity  
interests   predominates  
to   contract   with   respect   to   one   of   the   parties   or  
Annullable   even   if   no   Not   rescissible   when  
because   of   vitiation   of   consent   by   mistake,   damage  or  prejudice   there’s   no   damage   or  
violence,   intimidation,   undue   influence   or   prejudice  
fraud.   Nullity   based   on   vice   Compatible   with   the  
• Characteristics:   which  invalidates  consent   perfect   validity   of   the  
o Valid   and   binding,   produces   all   civil   contract  
effects  until  set  aside  by  final  judgment   Susceptible  of  ratification   Cannot  be  ratified  
of   competent   court   for   annulment   of   May   be   invoked   only   by   May   be   invoked   by  
action   contracting  parties   contracting   party   or  
o Suffers   from   a   defect—vitiation   of   prejudiced  third  persons  
consent   by   reason   of   want   of   capacity,   *Both   are   identical   in   that   they   render   the   contract  
error,   violence,   intimidation,   undue   inefficacious  
influence  or  deceit    
o May   be   rendered   perfectly   valid   by   Requisites  to  file  action  for  annulment,  either:  
ratification  (express  or  implied),  such  as   • The   party   obliged   principally   or   subsidiarily   in   the  
by   accepting   and   retaining   the   benefits   contract  which  he  seeks  to  annul  
of  a  contract   o Exception:   person   who   is   not   obliged   may  
o Susceptible   of   convalidation   by   exercise   an   action   for   annulment   if   he   is  
prescription—action   for   annulment   is   prejudiced  in  his  rights  with  respect  to  one  
of   the   contracting   parties   or   he   can   show  

  54  
 detriment   that   positively   result   him   from    
the   contract   in   which   he   has   no   Exception:   Mutual   error   as   to   legal   effect   of   an  
intervention   agreement   when   real   purpose   of   the   parties   is  
• Party   suffering   from   incapacity   to   give   consent   or   frustrated   may   vitiate   consent,   with   the   following  
the  victim  of  intimidation,  violence,  undue  influence   requisites  be  present:  
fraud   or   mistake.   Persons   who   are   capable   cannot   • Mistake  must  be  with  respect  to  legal  effect  of  
allege.   an  agreement    
  • Mistake  must  be  mutual  
Prescriptive   period   of   action   for   annulment:   4   years   • Real   purpose   of   the   parties   must   have   been  
from—   frustrated  
• In   cases   of   intimidation,   violence   or   undue    
influence—the   time   the   defect   of   the   contract   Fraud  –  insidious  words  or  machinations  that  induce  the  
ceases   other   party   to   enter   into   a   contract,   without   which   they  
• In  cases  of  mistake  or  fraud—the  time  of  discovery   would   not   have   agreed—determining   cause   or   must  
of  the  same   have  caused  the  consent  to  be  given.  
• In   cases   of   incapacity   to   give   consent—the   time   Fraud   referred   to   is   causal   fraud   or   dolo   causante—
guardianship  ceases   employed   by   one   of   the   parties   in   order   to   secure   the  
  consent  of  the  other.  
Grounds   for   annulment—contracts   are   Consent  may  be  vitiate  by  fraud,  it  is  essential  that  the  
voidable/annullable   even   when   there’s   no   damage   to   following  requisites  must  concur:  
the  contracting  parties  when:   • Employed   by   one   of   the   contracting   parties   upon  
• One  of  the  parties  is  incapable  of  giving  consent  to  a   the  other  
contract   o Misrepresentation  by  third  person  does  not  
• Consent   is   vitiated   by   mistake,   violence,   vitiate   consent   unless   such  
intimidation,  undue  influence  or  fraud   misrepresentation   has   created   substantial  
v Only   one   of   the   parties   is   incapable,   contract   is   mistake  and  same  is  mutual  
merely  voidable   • Induced  the  other  party  to  enter  into  the  contract  
v Both  parties,  contract  is  unenforceable   o If   not   determining   cause,   merely  
  incidental—obliges  the  person  employing  it  
Effect  of  vitiation  of  consent   to   pay   damages,   may   not   make   contract  
• Through   mistake,   violence,   intimidation,   undue   voidable  
influence   or   fraud—voidable.   Defects   of   the   will,   • Serious  
impairs   the   freedom,   intelligence,   spontaneity   and   • Resulted   damage   and   injury   to   the   party   seeking  
voluntariness  of  the  parties  in  giving  consent   annulment  
   
Mistake  or  error  –  may  invalidate  consent  if  it  refers  to   v Silence   or   concealment   does   not   constitute   fraud  
either:   unless    
• Object  of  the  contract   o There’s   special   duty   to   disclose   facts   and  
• Conditions   which   have   principally   moved   one   or   when   parties   are   bound   by   confidential  
both  parties  to  enter  contract   relations  
• Mistake   as   to   identity   or   qualifications   of   one   of   the   o According   to   good   faith   and   usages   of  
parties—only   when   it’s   the   principal   cause   of   the   commerce,  communication  should  be  made  
contract.   v Usual  exaggerations  in  trade,  when  other  party  can  
A  simple  mistake  of  account—correction   know  the  facts,  are  not  fraudulent  
  v Mere   expressions   of   opinion   does   not   signify   fraud  
Mistake   includes   ignorance—lack   of   full   and   correct   unless  made  by  an  expert  and  other  party  has  relied  
knowledge   about   the   thing   but   it   should   only   be   with   on  the  former’s  special  knowledge  
respect  to  mistake  of  facts,  not  law.    
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Burden  of  proof  in  case  of  mistake  or  fraud    
General   rule:   whoever   alleges   must   substantiate   his   Undue   influence   –   improper   advantage   of   his   power  
allegation.   It’s   presumed   that   a   person   takes   ordinary   over   the   will   of   another,   depriving   the   latter   of   a  
case  for  his  concerns  and  that  private  transactions  have   reasonable   freedom   of   choice.   Following   should   be  
been  fair  and  regular   considered:   confidential,   family,   spiritual   and   other  
Exception:  Illiterate  or  cannot  read  nor  understand  the   relations   between   the   parties   or   the   fact   that   person  
language—burden   is   on   the   party   interested   in   alleged   to   have   been   unduly   influenced   was   suffering  
enforcing   the   contract.   Otherwise,   mistake   or   fraud   is   from  mental  weakness,  ignorant  or  in  financial  distress.  
presumed.    
  Requisites  of  annulment  based  on  undue  influence:  
Requirement   for   application   of   Article   1332—before   it   • A  person  who  can  be  influenced  
can   be   invoked,   it   must   be   established   that   • The  fact  that  improper  influence  was  exerted  
disadvantaged  party  is  unable  to  read  or  understand  the   • Submission   to   the   overwhelming   effect   of   such  
contract.  Party  invoking  has  the  burden  of  proving  that   unlawful  conduct  
he   is   really   unable   to   read   or   understand.   Only   after   it    
has  been  proved  will  the  burden  of  proving  the  terms  of   Influence   obtained   by   persuasion,   argument   or   by  
contract  be  shifted  to  the  party  enforcing  the  contract.   appeal  is  not  prohibited  either  in  law  or  morals,  and  not  
v If   party   enforcing   contract   failed   to   prove,   obnoxious  even  in  courts  of  equity.  
contract   is   considered   voidable   and   not   void    
and  inexistent   Effects  of  Annulment:  
  Mutual  restitution  –  parties  should  be  restored  to  their  
Intimidation   –   one   of   the   contracting   parties   is   original   position   by   mutual   restitution.   As   long   one   of  
compelled   by   a   reasonable   and   well-­‐grounded   fear   of   the   contracting   parties   does   not   restore   what   he   is  
an   imminent   and   grave   peril   upon   his   person   and   bound   to   return,   the   other   cannot   be   compelled   to  
property,  or  his  spouse,  descendants,  ascendants     comply  with  what’s  incumbent  upon  him.  
  Exception:   when   defect   in   contract   consists   in   the  
Requisites  –  intimidation  may  vitiate  consent:   incapacity  of  one  of  the  parties,  incapacitated  person  is  
• Intimidation  must  be  the  determining  cause  or  must   not   obliged   to   make   any   restitution   except   insofar   as   he  
have  cause  the  consent  to  be  given   has  been  benefitted  by  the  thing  or  price  he  received.  
• Threatened  act  be  unjust  or  unlawful    
• Threat   be   real   and   serious—evident   disproportion   In   obligations   to   give:   parties   to   restore   to   each   other  
between  evil  and  resistance   the   object   of   the   contract,   fruits   and   price   with   its  
• Produces   reasonable   and   well-­‐grounded   fear— interest  
person  that  intimidated  must  have  necessary  means   In   obligations   to   do:   value   of   service   shall   be   the   basis  
or  ability  to  inflict  threatened  injury   for  damages  
   
v Threat   to   enforce   one’s   claim   through   competent   Effect  of  loss  of  object  of  the  contract  
authority,   if   the   claim   is   just   or   legal,   does   not   • If  lost  by  person  who  has  right  to  annul  
vitiate  consent.   o Through   his   fraud   or   fault   –   action   for  
  annulment   is   extinguished,   even   if   at   the  
Violence   –   serious   irresistible   force   is   employed.   When   time   of   the   loss   the   plaintiff   was   still  
merely   serious   and   not   irresistible,   there   is   still   suffering  from  incapacity  
violence—consent  is  not  free.   o Without   his   fraud   or   fault   –   contract   may  
  still  be  annulled  if  plaintiff  offers  to  pay  the  
If  employed  by  a  third  person—may  still  vitiate  consent   value   of   the   object   as   substitute   for   itself  
and  may  render  contract  voidable.  Misrepresentation  of   but  without  obligation  to  pay  interest  
third   person   does   not   vitiate   consent,   unless   such   has   • If  lost  by  person  obliged  to  return  the  object  
created  substantial  mistake  and  the  same  is  mutual.  

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 o Through   his   fault   –   return   fruits   received   Characteristics  
and   value   of   the   thing   at   the   time   of   loss,   • Valid   contracts   but   cannot   be   enforced   by   proper  
with  interest  from  same  date   action  in  court  
o Without   his   fault   –   action   for   annulment   is   • Susceptible  of  ratification  
not  extinguished,  shall  pay  the  value  of  the   • Defect  is  of  permanent  nature  and  will  exist  as  long  
thing   at   the   time   of   loss   but   without   as  the  contract  is  not  duly  ratified.  
interest   o Mere   lapse   of   time   cannot   give   efficacy   to  
  such  contract  
Ratification   or   confirmation   –   efficacy   is   given   to   a   o Defect   cannot   be   cured   except   by  
contract  that  suffers  from  a  vice  of  curable  nullity   subsequent  ratification  
  • Cannot  be  assailed  by  third  persons  
Requisites:    
• Contract  has  all  the  essential  requisites  but  it  is   Contracts  made  without  or  in  excess  of  authority  
tainted  with  a  vice  which  is  susceptible  of  being   Status:   unenforceable   unless   ratified,   expressly   or  
cured   impliedly,   by   the   person   on   whose   behalf   it   has   been  
• Effected   by   a   person   who   is   entitled   to   do   so   executed,  before  it  is  revoked  by  the  other  contracting  
under  law.  Party  who  has  right  to  ratify  =  party   party.  
who  has  the  right  to  bring  action  for  annulment.   • Contract   entered   into   by   one   in   behalf   of  
Although   ratification   may   be   effected   by   another   without   authority   is   made   without  
guardian  of  incapacitated  person.  Conformity  of   consent   of   the   latter—enforceable,   subject   to  
the  contracting  party  who  has  no  right  to  bring   ratification.   Even   if   alleged   principal   did   not  
action  for  annulment  is  not  required   ratify  made  in  his  behalf  without  authority  
• Effected   with   the   knowledge   of   the   vice   or   • CONTRA:   legal   capacity   of   parties   is   an   essential  
defect.   Knowledge   of   its   existence   must   be   element   for   the   existence   of   a   contract   because  
known  to  parties  before  ratifying   it  is  an  indispensable  condition  for  the  existence  
• Cause   of   the   nullity   or   defect   should   have   of  consent.  Legal  capacity  presupposes  consent.  
already  disappeared   o COMMENT:   In   Delos   Reyes   v   CA,  
  contract   is   declared   void   because   of  
Manner   of   effecting   ratification   –   expressly   or   tacitly— failure   to   comply   with   the   formalities   of  
necessarily  implies  intention  to  waive  the  right  to  annul,   Article  1874,  not  merely  because  of  the  
such   as   accepting   and   retaining   the   benefits   of   a   absence   of   consent   of   the   alleged  
contract   principal.  
   
Effects   of   ratification   –   cleanses   the   contract   from   all   its   Article  1403(1)  does  not  apply  to  sale  of  parcel  of  land—
defects   from   the   moment   it   was   constituted—thereby   Article  1874  requires  authority  of  agent  to  be  in  writing  
extinguishing  the  action  to  annul  a  voidable  contract.   in  case  of  sale  of  parcel  of  land,  otherwise,  sale  is  void.  
Unenforceable  Contracts    
• Unenforceable   contracts   cannot   be   sued   upon   or   • Sale   or   encumbrance   of   real   property   of   ward   or  
enforced  by  a  proper  court  action,  unless  ratified.   absentee  by  their  guardians  or  legal  reps  –  must  be  
  with   prior   court   approval.   Without   authority   from  
Kinds   the  court,  it  is  considered  void.  
• Those   entered   into   in   the   name   of   another   person    
by  one  who  has  no  authority  or  legal  representation   v Contracts  where  both  parties  are  incapacitated  
or  who  acted  beyond  his  powers   o Effect   of   incapacity   to   give   consent   –   only  
• Those  that  do  not  comply  with  the  Statute  of  Frauds   one   of   the   parties   is   incapable,   merely  
• Those   where   both   parties   are   incapable   of   giving   voidable;  both  parties,  unenforceable  
consent  to  a  contract   o Effect   of   ratification   in   a   contract   which   is  
  unenforceable  because:  
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 § Both   parties   incapable   of   consent   • Intention   of   the   parties   relative   to   the   principal  
with   express   or   implied   ratification   object  cannot  be  ascertained  
by  parent  or  guardian  of  one  of  the    
contracting   parties   shall   give   the   Requisites,  void  contracts:  
contract   the   same   effect   as   if   only   • Cause,  object  or  purpose  is  contrary  to  law,  morals,  
one   of   them   were   incapacitated— good  customs,  public  order  or  public  policy  
contract  becomes  voidable.   o Motive   may   be   regarded   as   causa   when   it  
§ If   the   ratification   is   made   by   the   predetermines  the  purpose  of  the  object  
parents   or   guardians   of   both   • Object  is  outside  the  commerce  of  men  
contracting   parties—contract   shall   • Contemplates  an  impossible  service  
be  validated  from  the  inception.   • Expressly  prohibited  or  declared  void  by  law  
   
Void  and  Inexistent  Contracts   When  nullity  proceeds  from  illegality  of  cause  of  object:  
  • Act   constitutes   a   criminal   offense—following   rules  
Void   Inexistent   shall  be  observed:  
Perfected,   complete   Does   not   exist,   any   o Where   both   parties   are   in   pari   delicto—
essential   requisites   but   essential   requisite   is   shall   have   no   cause   of   action   against   each  
contract   is   invalid   from   its   wanting  
other,  both  shall  be  prosecuted  
inception  
o Where   only   one   of   the   parties   is   guilty—
Pari  delicto  is  applicable   Pari   delicto   is   not  
innocent   party   may   claim   what   he   has  
applicable  
Eventually   produce   legal   Cannot  produce  any  effect   given,  shall  not  be  bound  to  comply  with  his  
effects   if   principle   is   whatsoever   promise  
applied   • Act   does   not   constitute   a   criminal   offense—
A   contract   which   is   direct     following  rules  shall  be  observed:  
result   of   a   previous   illegal   o Both   parties   are   at   fault—neither   may  
contract   is   also   void   and   recover   what   he   has   given,   or   demand   the  
inexistent   performance  of  the  other’s  undertaking  
  o When   only   one   is   at   fault—one   at   fault  
Characteristics  of  Void  and  Inexistent  contracts   cannot   recover   what   he   has   given   or   ask   for  
• Not  susceptible  of  ratification   the   fulfillment   of   what   has   been   promised.  
• Nullity   of   these   contracts   is   definite   and   cannot   be   The  other,  who  is  not  at  fault,  may  demand  
cured  by  ratification   return   of   what   he   has   given   without   any  
• Nullity  is  permanent   obligation  to  comply  with  his  promise.  
• Right   to   setup   defense   of   inexistence   or   absolute    
nullity  cannot  be  waived  or  renounced   Pari  delicto  rule:  
• Action  or  defense  for  declaration  of  the  inexistence   • In  void  contracts,  nullity  proceeds  from  the  illegality  
or   absolute   nullity   does   not   prescribe—defect   is   of   the   cause   or   purpose   of   contract,   whether   facts  
permanent,  mere  lapse  of  time  cannot  give  efficacy   constitute   offense   or   misdemeanor   or   whether  
• Inexistence  or  absolute  nullity  cannot  be  invoked  by   consideration   involved   is   merely   rendered   illegal,  
person  whose  interests  are  not  directly  affected   two  parties  are  equally  at  fault,  law  leaves  them  as  
  they   are   and   denies   recovery   by   either   one   of  
Requisites,  inexistent  contracts:   them—no  affirmative  relief  will  be  given  to  both  
• Absolutely   simulated   or   fictitious—lacks   valid   • Applicability:   rule   applies   to   cases   where   nullity  
consent,  contract  is  non-­‐existent   arises   from   the   illegality   of   consideration   or  
• Cause   or   object   did   not   exist   at   the   time   of   purposes   of   contract.   Rule   DOES   NOT   apply   when  
transaction—does   not   produce   any   effect,   contract   is   inexistent—absolutely   simulated  
inexistent  and  void  from  the  beginning.   contract.  Same  rule  in  criminal  law.  
o Exceptions,  pari  delicto  does  not  apply:  
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 o Interest   paid   in   excess   of   allowed   by   usury   o If   contract   has   been   executed—action   to  
laws   may   be   recovered   by   debtor,   with   declare   the   non-­‐existence   of   contract   can  
interest  from  date  of  payment   be   maintained   for   the   purpose   of  
o When   money   is   paid   or   property   delivered   recovering   what   has   been   given.   Although  
for   an   illegal   purposes—contract   may   be   void,   when   any   of   its   terms   have   been  
repudiated   by   one   of   the   parties   before   performed   an   action   to   declare   its  
accomplishment   or   damage   has   been   inexistence  is  necessary  to  allow  restitution.  
caused   to   third   persons.   When   public   Action   does   not   prescribe   according   to  
interest   subserved,   courts   may   allow   the   (Article  1410)  
party   repudiating   the   contract   to   recover    
the  money  or  property   Effect  of  declaration  of  nullity  or  inexistence  
o Where   one   of   the   parties   to   an   illegal   • General   rule—since   contracts   produce   no   effect,  
contract   is   incapable   of   giving   consent— parties  are  entitled  to  recover  what  they  may  have  
court   may   allow   recovery   of   money   or   been   given   in   an   action   to   declare   its   absolute  
property  delivered  by  incapacitated  person   nullity  or  inexistence  
o When   agreement   is   not   illegal   per   se   but   • Exception:  No  right  to  recover  when—  
prohibited—designed   for   the   protection   of   o Pari  delicto  is  applicable  
plaintiff,   if   public   policy   is   thereby   o When   action   is   declared   to   be   barred   by  
enhanced,  he  may  recover  what  he  has  paid   laches.  
or   delivered.   (Pari   delicto   is   held    
inapplicable  only  where  the  same  violates  a    
well  established  public  policy)    
o When   price   of   any   article   or   commodity   is    
determined   by   statute   or   law,   any   person    
paying  excess  amount  may  recover  
o When   law   fixes   or   authorizes   fixing   of    
maximum   number   of   hours   of   labor—
laborer   may   demand   additional  
compensation   for   service   rendered   beyond  
time  limit  
o When   law   sets   or   authorizes   setting   of   a  
minimum  wage  for  laborers  and  contract  is  
agreed  upon  where  laborer  accepts  a  lower  
wage,   he   shall   be   entitled   to   recover   the  
deficiency.  
 
Effect  of  declaration  of  absolute  nullity  or  inexistence  of  
the  contract:  
• Need   for   filing   of   an   action—no   need   of   action   to  
set  aside,  such  action  cannot  logically  exist  though  it  
can   be   maintained   then   plaintiff   may   recover   what  
he  has  given  by  virtue  of  that  contract.  
o If   contract   is   fully   executor—no   party   need  
to   bring   an   action   to   declare   nullity.   If   any  
party   should   bring   action   to   enforce   it,  
other   party   can   setup   the   nullity   as   a  
defense  

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