Obligations and Contracts

Introduction
Our Civil Code follows the Gaian order which is of three parts: Persons, Things
and Obligations.
The title of Book I of the Civil Code is inaccurate. !hile the title is
"Obligations and Contracts#, it should onl$ be "Obligations# since b$ including
"Contracts# in the title, it is putting the latter on e%ual footing with the for&er' but
this is not correct since contracts is onl$ one of the sources of obligations.
Obligations is the &ost i&portant, &ost abstract and &ost difficult of all of
civil law. It is the entiret$ of private law. If $ou don(t know obligations and
contracts, $ou will never understand co&&ercial law.
The ter& "obligations# was derived fro& the words "ob# and "ligare# which
&eans "to bind or tie together#. ")igare# is the source of several co&&on words
such as "liga&ent# and "ligation#. *)igation and asecto&$ have the sa&e purpose:
to tie and to cut off, the fallopian tube, for the for&er, and the vas deferens, for the
latter.+
"Obligatio# was initiall$ a ph$sical act of being chained *with shackles+.
Before, under ,o&an law, if the debtor cannot pa$, the creditor can bring hi& to the
&agistrate and the &agistrate can authori-e the creditor to cuff the debtor and offer
hi& for sale for . da$s, the proceeds of which go to the creditor. The debtor then
beco&es a slave. If he is not bought, the creditor can have hi& chopped into little
pieces or have hi& sold to the barbarians.
/s ti&e passed, cruelt$ softened. B$ the ti&e of Cicero, "ligatio# does not
&ean vinculu& of chains but vinculum juris *bond of law+. Obligation beca&e
&etaphorical and not literal.
I. Obligations
A. Definition of Obligation
Art. 1156. An obligation is a juridical necessity to give, to do or not to
do.
This provision is the soul of brevit$. It was borrowed fro& 0anche-
,o&an. 1owever, &an$ co&&entators sa$ it is inco&plete because the
"obligation# is onl$ fro& the point of view of the debtor. To &ake it
co&plete, it &ust cover the points of view of both the debtor and creditor.
Obligations are bilateral. It should include what can be re%uired, the
re&ed$ and the &eans b$ which the creditor can take to pursue the
re&ed$.
/n obligation is a 2uridical relation whereb$ a person should engage or
refrain fro& engaging in a certain activit$ for the satisfaction of the
private interest of another who, in the case of non3fulfill&ent of such dut$,
&a$ obtain fro& the patri&on$ of the for&er through proper 2udicial
proceedings the ver$ prestation due or in default thereof, the econo&ic
e%uivalent that it represents *4ia- Piero+.
/n obligation is a 2uridical relation whereb$ a person *called a creditor+
&a$ de&and fro& another *called the debtor+ the observance of a
deter&inate conduct, and, in case of breach, &a$ obtain satisfaction fro&
the assets of the latter */rias ,a&os+.
B. Characteristics of Obligations
5. It represents an e6clusivel$ private interest
7. It creates ties which are b$ nature transitor$
Because obligations are e6tinguished. But the period is relative 8
could be seconds *e.g., bu$ing coke+ and could be $ears *e.g.,
partnership, lease+
.. It involves the power to &ake the 2uridical tie defective in case of non3
fulfill&ent through satisfaction of the debtor(s propert$
C. Trends in the Modern Law of Obligations
1. Progressive spiritualization of the la on obligations
Before, obligations were ver$ for&al and ritualistic. If it was not in the
proper for&, no obligations will assu&e. 9ow, the e&phasis is in the
&eeting of the &inds, and not on the specific for&. There is even no
need that it be in writing, as a !eneral "ule, since consensualit$ is
the prevailing doctrine. /s long as it can be &anifest 8 and an$ kind
of &anifestation will do 8 it is sufficient.
,o&an )aw was for&alistic. estiges of ,o&an )aw in the Civil Code
can be seen in the law governing donations, which is ver$ for&al.
:ven for sales, the re%uire&ent of for& is onl$ for enforceabilit$ and
not for validit$. This is to &ake it conducive to business and facilitate
co&&ercial transactions.
This is still an ongoing trend: e3co&&erce added another option in
for& and proof of contracts *but this is not applicable to all, usuall$
onl$ for business, not applicable to wills+.
#. $he principle of autono%y of ill of the parties is no subject to
several restrictions
!hile the principle still operates, the e6ceptions *prohibited areas+
have grown larger and larger.
/rticle 5.;< gives the five restrictions: not contrar$ to law, &orals,
good custo&s, public order, or public polic$. Those which are against
these five restrictions are void, as can be seen in /rticle 5=;>
?
.
1owever, now we have restrictions such as social 2ustice,
environ&ental preservation, etc. This is because of the rising tide of
social discontent, hence social legislation ca&e to be for the
underprivileged.
&. $he %itigation of the principle that the debtor should anser ith
all his property
*
Art. 1409. The following contracts are ine6istent and void fro& the beginning:
*5+ Those whose cause, ob2ect or purpose is contrar$ to law, &orals, good custo&s, public
order or public polic$'
Before, the debtor had to answer his debts with all his propert$. 9ow,
certain properties are e6e&pt and these can be found in substantive
law *i.e., ho&e+ and in procedural law *i.e. support, etc.+
/lso, the debtor &a$ not be i&prisoned for non3pa$&ent of debts.
The theor$ is to leave the debtor so&ething to live decentl$ b$.
'. $he ea(ening of the principle that liability arises fro%
responsibility
This is basicall$ the principle in %uasi3delicts. 9ow, in &an$ cases, a
person &a$ be held liable even if not responsible.
@or e6a&ple, under work&an(s co&pensation, the e&plo$er is liable to
co&pensate the e&plo$ee even if the e&plo$er was not negligent.
). $he tendency of unity in %odern legislation
This can be &anifest in the rise of a "global village#. This can be seen
particularl$ in trade laws.
The tendenc$ now is to &ake things unifor& especiall$ in co&&erce.
4ifferent rules would i&pede co&&erce.
*. Essential Reqisites of Obligations
1. Active subject
The active sub2ect is called a creditor if the obligation is to give. The
active sub2ect is called an obligee if the obligation is to do.
The active sub2ect is alwa$s a person whether 2uridical or natural.
7. Passive subject
The passive sub2ect is called a debtor if the obligation is to give. The
passive sub2ect is called an obligor if the obligation is to do.
The passive sub2ect &ust be deter&inate or deter&inable
1ow can both sub2ects be deter&inate or deter&inableA
a. Obligations where the sub2ects are co&pletel$ and absolutel$
deter&ined at the birth of an obligation.
If / and B are parties to a contract of sale and B doesn(t co&pl$. /
cannot sue C.
a. Obligations where one sub2ect is deter&ined at the &o&ent of the
birth of the obligation and the other sub2ect is to be deter&ined
subse%uentl$ at so&e fi6ed criterion, which criterion is fi6ed at the
start of the obligation.
B &akes a pro&issor$ note pa$able to B or order. In this case, the
creditor is not necessaril$ B. The creditor is either B or to
who&ever the pro&issor$ note is endorsed.
/t the ti&e of the birth of the obligation, the pa$ee is not $et
known but the obligation is valid.
b. Obligations in which sub2ects are deter&ined in accordance with its
relation to a thing.
The Creal( rights
/ &ortgaged propert$ to D pursuant to a loan. The &ortgage
attaches to the propert$. If / sells the propert$ to B, the
annotation in the TCT will follow and B beco&es the &ortgagor. If
/ doesn(t pa$, D goes against B.
The obligor in this case is whoever owns the land. D doesn(t care
whether its / or B.
.. Object of the obligation
The ob2ect of the obligation alwa$s consists in an activit$ or conduct to
be observed b$ the debtor towards the creditor. This conduct to be
observed is also known as the prestation.
In a contract of sale for e6a&ple, the ob2ect of the obligation is the
conduct of the vendor in delivering the car. The car, on the other
hand, is the ob2ect of the prestation.
0o&eti&es, the co&&entators confuse the car as the ob2ect of the
obligation, but this is wrong. The ob2ect is not the car but the
prestation.
/ccording to Professor Balane, the distinction between the ob2ect of
the obligation and the ob2ect of the prestation has been blurred b$
/rticles 5.=E35.=>.
,e%uisites of the Ob2ect of the Obligation
a. )icit *)egal+
Example: Can(t validl$ enter into a contract for se6ual services
b. Possible both in fact and in law
4eter&ined b$ the rules of e6perience
c. 4eter&inate or deter&inable
Can(t sa$ that "I pro&ise to sell $ou so&ething#.
Example of determinate: I pro&ise to sell $ou &$ car.
Example of determinable: I pro&ise to sell $ou &$ riceland in
Bicol in 9ove&ber *will beco&e deter&inate when ti&e co&es+.
d. Bust have pecuniar$ value
=. !incl" #ris
The vinculum juris is the legal tie. It consists of the enforceabilit$ of
the obligation. If the debtor does not confor&, the creditor has the
power to go to court to &ake the debtor perfor& 8 coercive.
!hat &akes an obligation is the power of the creditor to haul the
debtor before the court, su&&oning powers of the state if needed.
oluntariness goes into entering into an obligation. But once $ou
enter, it beco&es involuntar$.
F. Casa
Castan adds a F
th
essential re%uisite 8 causa. /lso known as causa
debendi or causa obligationes. Causa &eans the wh$ of an obligation.
The ob2ect of an obligation answers the %uestion "!hat is owedA#
*Guid+. The causa answers the %uestion "!h$ is it owedA# *Cur+.
@or e6a&ple, / will deliver a car to B since / e6pects to get P.;;,;;;.
The P.;;,;;; is the causa of the obligation.
obligation
prestation
car
*ob2ect of the obligation+ deliver the car
*ob2ect of the prestation+
<. +or%
/nother co&&entators sa$ that the <
th
essential re%uisite is for&.
@or& &eans so&e &anifestation of intent. In so&e cases the
&anifestation is specific such as in the case of donations.
/ccording to Professor Balane that the general rule is that there is no
specific for& for a valid obligation. 1owever, if for& &eans that there
is so&e e6ternal &anifestation, fine, since we are not telepathic after
all. 1owever, there should still be no specific for&.
,. $orces of Obligations */rticle 55FE+
Art. 115%. Obligations arise fro%-
.1/ 0a1
.#/ Contracts1
.&/ 2uasi3contracts1
.'/ Acts or o%issions punished by la1 and
.)/ 2uasi3delicts.
There is reall$ onl$ one source of obligations 8 2ust law. !ithout the law
sa$ing that a particular contract is enforceable, the contract will not give
rise to an obligation. 1owever, "source# can be understood in both the
ulti&ate and i&&ediate sense. In the ulti&ate sense, law is the solitar$
source. In the i&&ediate sense, there are F, those enu&erated in /rticle
55FE. )aw is therefore both an i&&ediate and ulti&ate source. :6a&ples
of law being an i&&ediate source are pa$&ent of ta6es and accession.
Is this enu&eration of the sources of obligation e6clusiveA The 0upre&e
Court in the case of agrada !rden vs. "AC!C! see& to answer it in the
affir&ative. 1owever, this is onl$ b$ i&plication or indication. The Court
did not &ake an e6plicit state&ent that it is.
Ban$ co&&entators including Professor Balane believe that the list is not
e6clusive. The$ critici-e the case because it is not a good wa$ of
enu&erating. /t present, there is one &ore possible source of obligations
8 public offer.
Example: In co&&ercials, there is an offer to replace .; sachets of Tide
for one enetian3cut glass until the end of the $ear. There is no contract
or %uasi3contract. But if before the end of the $ear, $ou present $our Tide
sachets, $ou can de&and for $our glass. Public offer is in fact a source of
obligation under the BGB *the Ger&an Civil Code+, /rticle <FE which
provides that a person who b$ public notice announces a reward in the
perfor&ance of the act is liable even if such person did not act in view of
such reward.
/lthough public officers are supple&ented b$ 4TI regulations, Professor
Balane thinks that public offer should be &ade part of the law since
regulations easil$ change.
5. 0a */rticle 55FH+
Art. 115&. Obligations derived fro% la are not presu%ed.
Only those e4pressly deter%ined in this Code or in special las are
de%andable, and shall be regulated by the precepts of the la
hich establishes the%1 and as to hat has not been foreseen, by
the provisions of this Boo(.
There is onl$ 5 ulti&ate source of obligations 8 law. 1owever, there
are F pro6i&ate sources of obligations */rticle 55FE+.
7. Contract */rticle 55F>+
Art. 115'. Obligations arising fro% contracts have the force
of la beteen the contracting parties and should be co%plied
ith in good faith.
Contract is onl$ 5 of the sources of obligations.
This provision co&bines two concepts of ,o&an law 8 e%uit$ or good
faith #ius gentium$ and strict co&pliance b$ the parties #ius c%inile$.
/ contract is a &eeting of &inds between 7 persons whereb$ one
binds hi&self, with respect to the other, to give so&ething or to render
so&e service */rticle 5.;F+
Contractual obligations have the force of law between the contracting
parties and should be co&plied with in good faith */rticle 55F>+.
The contracting parties &a$ establish such stipulations, clauses, ter&s
and conditions as the$ &a$ dee& convenient, provided the$ are not
contrar$ to law, &orals, good custo&s, public order, or public polic$
*/rticle 5.;<+.
Contracts are perfected b$ &ere consent, and fro& that &o&ent the
parties are bound not onl$ to the fulfill&ent of what has been
e6pressl$ stipulated but also to all the conse%uences which, according
to their nature, &a$ be in keeping with good faith, usage and law
*/rticle 5.5F+.
In case of doubt, the interpretation consistent with good faith is
followed #&eople's Car vs. Commando ecurit($.
Part$ cannot e6cuse the&selves on the ground that it has beco&e
unprofitable. )aw will not protect $ou fro& $our own bad 2udg&ent.
.. 2uasi3contract */rticle 55<;+
Art. 116(. Obligations derived fro% 5uasi3contracts shall be
subject to the provisions of Chapter 1, $itle 67II, of this Boo(.
=. *elict */rticle 55<5+
Art. 1161. Civil obligations arising fro% cri%inal offenses
shall be governed by the penal las, subject to the provisions of
article #188, and of the pertinent provisions of Chapter #,
Preli%inary $itle, on 9u%an "elations, and of $itle 67III of this
Boo(, regulating da%ages.
!eneral "ule- If $ou co&&it a cri&e, $ou are liable both cri&inall$
and civill$.
E)ce*tion+ 9o private offended part$ *e.g. conte&pt, etc.+
The Civil Code deals with the civil aspect *i.e. inde&nification for loss
of earning capacit$+.
F. 2uasi3delict */rticle 55<7+
Art. 116,. Obligations derived fro% 5uasi3delicts shall be
governed by the provisions of Chapter #, $itle 67II of this Boo(,
and by special las.
Guasi3delict is a civil law ter& while tort is a co&&on law ter&.
4ifference between Contractual )iabilit$ and Guasi34elict
In %uasi3delict, the obligation arises onl$ when there is a violation.
!ithout violation, there is no obligation. It is the breach itself
which gives rise to the obligation.
In contracts, there is alread$ an obligation which e6ists prior to or
even without a breach. The breach of the contract is i&&aterial to
the legal obligation.
Example: Contract of sale of watch. If both parties perfor& their
obligation, the contract is e6tinguished. There is no breach, but
there is an obligation.
#Compare t%e above example )it% t%e one belo)$
Example: 4riving recklessl$, / hits a child. !hen did the obligation
ca&e to beingA !hen there was in2ur$ due to negligence.
*9egligence per se does not give rise to a %uasi3delict unless there
is in2ur$.+
Breach and %uasi3delict are inseparable. But contract and breach
&a$ be separable.
2uestion- /re contracts and %uasi3delicts &utuall$ e6clusiveA
Answer+ 9o.
In *utierre+ vs. *utierre+, there was a collision between a bus and a
car and a passenger of the bus was in2ured. It was proven that the
driver of the car was a &inor and an inco&petent driver. The
passenger sued against the& all. The 0upre&e Court held that the
bus driver, bus owner and the driver of the car *through his father+ are
2ointl$ and severall$ liable to the passenger. The liabilit$ of the owner
of the bus and the bus driver rests on that of a contract. On the other
hand, the father is responsible for the acts of his son and is therefore
responsible for the negligence of the &inor. 1ere, it is clear that
breach of contract and %uasi3delict are separate.
1owever, the$ can overlap as can be seen in the following e6a&ple:
Bus driver drives recklessl$ and the bus hits a tree. / passenger is
in2ured. The passenger and sue the driver for %uasi3delict *due to
negligence+ or for cri&e or the bus co&pan$ for breach of contract of
carriage or for %uasi3delict *negligence in the selection and
supervision+.
The cause of action one chooses deter&ines the:
5. Parties involved
7. 4egree of proof
.. 4efenses
One can tailor his suit depending on the cause of action he chooses.
+. -atre and Effect of Obligations
5. :inds of Prestations
a. $o give */rticles 55<.355<<+
Art. 116.. ,very person obliged to give so%ething is
also obliged to ta(e care of it ith the proper diligence of a
good father of a fa%ily, unless the la or the stipulation of the
parties re5uires another standard of care.
Art. 116/. $he creditor has a right to the fruits of the
thing fro% the ti%e the obligation to deliver it arises. 9oever,
he shall ac5uire no real right over it until the sa%e has been
delivered to hi%.
Art. 1165. ;hen hat is to be delivered is a deter%inate
thing, the creditor, in addition to the right granted hi% by
article 118<, %ay co%pel the debtor to %a(e the delivery.
If the thing is indeter%inate or generic, he %ay as( that
the obligation be co%plied ith at the e4pense of the debtor.
If the obligor delays, or has pro%ised to deliver the sa%e
thing to to or %ore persons ho do not have the sa%e
interest, he shall be responsible for any fortuitous event until
he has effected the delivery.
Art. 1166. $he obligation to give a deter%inate thing
includes that of delivering all its accessions and accessories,
even though they %ay not have been %entioned.
i. ,o give a determinate t%ing
Pri%ary Obligation- Giving what is supposed to be given.
. Accessor0 Obligations+
5. /fter constitution of the obligation and before deliver$, to
take care of it with the proper diligence of a good father of
the fa&il$ */rticle 55<.+
!eneral "ule- 4iligence of a good father of the fa&il$
E)ce*tion+ )aw or stipulation re%uires different
standard of care
If through negligence, so&ething causes the thing
da&age, the debtor is liable for da&ages.
This is not applicable to a generic thing.
7. ,o account and deliver to t%e creditor t%e fruits if t%e t%ing
bears fruits upon t%e time t%e obligation to deliver it arises
*/rticle 55<=+.
1owever, ownership is transferred onl$ b$ deliver$.
1ence, creditor(s right over the fruits is &erel$ personal.
Example: / sold B a &ango plantation to be delivered
on Ianuar$ 5. Co&e Ianuar$ 5, / did not deliver. /
instead sold the fruits to C, a bu$er in good faith. B
sues / for specific perfor&ance. Court awards the
plantation to B. 4oes B have a right to the fruitsA Jes,
as against /. 9o, as against C, because B(s right over
the fruits is onl$ personal. B(s re&ed$ is to go against /
for the value of the fruits.
.. ,o deliver t%e accessions and accessories */rticle 55<<+
4on(t take accession in the technical sense *or else, it
&ight overlap with ii+. Knderstand it to &ean things
that go with the thing to be delivered *i.e. radio of the
car+.
,e&edies /vailable to the Creditor
5. 0pecific perfor&ance 8 the debtor &ust perfor& it
personall$
7. :%uivalent perfor&ance 8 da&ages
4a&ages &a$ be obtained e6clusivel$ or in addition to
the 5
st
action.
,ules regarding I&prove&ent, )oss or 4eterioration */rticles
55H>, 55>;, 55>= +
Art. 11&'. ;hen the conditions have been
i%posed ith the intention of suspending the efficacy of
an obligation to give, the folloing rules shall be
observed in case of the i%prove%ent, loss or
deterioration of the thing during the pendency of the
condition-
.1/ If the thing is lost ithout the fault of the
debtor, the obligation shall be e4tinguished1
.#/ If the thing is lost through the fault of the
debtor, he shall be obliged to pay da%ages1 it is
understood that the thing is lost hen it
perishes, or goes out of co%%erce, or disappears
in such a ay that its e4istence is un(non or it
cannot be recovered1
.&/ ;hen the thing deteriorates ithout the fault of
the debtor, the i%pair%ent is to be borne by the
creditor1
.'/ If it deteriorates through the fault of the debtor,
the creditor %ay choose beteen the rescission
of the obligation and its fulfill%ent, ith
inde%nity for da%ages in either case1
.)/ If the thing is i%proved by its nature, or by ti%e,
the i%prove%ent shall inure to the benefit of the
creditor1
.=/ If it is i%proved at the e4pense of the debtor, he
shall have no other right than that granted to the
usufructuary.
Art. 11'(. ;hen the conditions have for their
purpose the e4tinguish%ent of an obligation to give, the
parties, upon the fulfill%ent of said conditions, shall
return to each other hat they have received.
In case of the loss, deterioration or i%prove%ent
of the thing, the provisions hich, ith respect to the
debtor, are laid don in the preceding article shall be
applied to the party ho is bound to return.
As for the obligations to do and not to do, the
provisions of the second paragraph of article 11>8 shall
be observed as regards the effect of the e4tinguish%ent
of the obligation.
Art. 11'/. In case of loss, deterioration or
i%prove%ent of the thing before the arrival of the day
certain, the rules in article 11>? shall be observed.

5. ,e%uisites
a. Obligation has a suspensive condition, a resolutor$
condition or ter&
b. The obligor is obligated to deliver a deter&inate thing
c. There is i&prove&ent, loss or deterioration before the
fulfill&ent of the condition or the period
d. The condition is fulfilled or the period arrives
7. ,ules Proper
a. If the thing is lost without the fault of the debtor, the
obligation is e6tinguished
b. If the thing is lost through the fault of the debtor, he
&ust pa$ da&ages
The thing is lost when it perishes, goes out of
co&&erce or disappears in such a wa$ that its
e6istence is unknown or cannot be recovered.
c. If the thing deteriorates without the fault of the debtor,
the creditor &ust accept the thing in its i&paired
condition
d. If the thing deteriorates through the fault of the debtor,
the creditor &a$ choose between
i. ,esolution */rticle 55H>+ plus da&ages
ii. @ulfill&ent of the obligation plus da&ages
e. If the thing is i&proved b$ nature or b$ ti&e, the
i&prove&ent shall inure to the benefit of the creditor
f. If the thing is i&proved at the e6pense of the debtor, the
debtor shall the sa&e rights as a usufructuar$
L
ii. ,o give a generic t%ing
,e&edies /vailable to the Creditor
5. 0pecific perfor&ance 8 the debtor &ust perfor& it
personall$
7. 0ubstitute perfor&ance 8 done b$ so&eone else *perfor& at
the e6pense of the debtor+
.. :%uivalent perfor&ance 8 da&ages
4a&ages &a$ be obtained e6clusivel$ or in addition to
the 5
st
7 actions.
c. To do */rticle 55<E+
Art. 116%. If a person obliged to do so%ething fails to do
it, the sa%e shall be e4ecuted at his cost.
$his sa%e rule shall be observed if he does it in
contravention of the tenor of the obligation. +urther%ore, it
%ay be decreed that hat has been poorly done be undone.
i. Onl$ the obligor can do *personalisimo$
,e&edies /vailable to the Creditor
5. :%uivalent perfor&ances 8 da&ages
ii. /n$one else can do it *not personalisimo+
,e&edies /vailable to the Creditor
5. 0ubstitute perfor&ance 8 done b$ so&eone else *perfor& at
the e6pense of the debtor+
7. :%uivalent perfor&ance 8 da&ages
4a&ages &a$ be obtained e6clusivel$ or in addition to
the 5
st
7 actions.
b. -ot to do */rticle 55<H+
Art. 116&. ;hen the obligation consists in not doing,
and the obligor does hat has been forbidden hi%, it shall also
be undone at his e4pense.
This includes the obligation not to give.
,e&edies /vailable to the Creditor
i. 0ubstitute perfor&ance 3 done b$ so&eone else *perfor& at the
e6pense of the debtor+
ii. :%uivalent perfor&ance 3 da&ages
4a&ages &a$ be obtained e6clusivel$ or in addition to the
5
st
7 actions.
Summary of the rules regarding remedies available to the creditor in
obligations to give, to do and not to do.
Obligation
@pecific
Perfor%ance
,5uivalent
Perfor%ance
@ubstitute
Perfor%ance
1. $o give
a. *eter%inate thing M M N
b. *eter%inable thing M M M
#. $o do
a. 7ery personal N M N
b. Aot very personal N M M
&. Aot to do N M M
0pecific perfor&ance is the perfor&ance of the prestation itself.
In obligations to do or not to do, specific perfor&ance is not
available since it will go against the constitutional prohibition
against involuntar$ servitude.
:%uivalent perfor&ance is the pa$&ent of da&ages
0ubstitute perfor&ance is when so&eone else perfor&s or so&ething
else is perfor&ed at the e6pense of the debtor.
7. Irregularity in Perfor%ance
a. Attribtable to the Debtor 1cl*able2
/rticle 55E; provides that those who in the perfor&ance of their
obligations are guilt$ of fraud, negligence, or dela$ and those who
in an$ &anner contravene the tenor thereof, are liable for
da&ages. /ccording to Professor Balane, the phrase " who in an$
&anner contravene the tenor thereof# is a catch3all provision.
1owever, such is unnecessar$. 9othing will escape fraud,
negligence or dela$.
i. -raud */rticles 55E;, 55E5+
Art. 11%(. $hose ho in the perfor%ance of their
obligations are guilty of fraud, negligence, or delay, and
those ho in any %anner contravene the tenor thereof, are
liable for da%ages.
Art. 11%1. "esponsibility arising fro% fraud is
de%andable in all obligations. Any aiver of an action for
future fraud is void.
The proble& with fraud is the ter&. It is used in different
&eanings in the Code.
@raud &a$ be defined as the voluntar$ e6ecution of a wrongful
act, or willful o&ission, knowing and intending the effects which
naturall$ and necessaril$ arise fro& such act or o&ission.
@raud is the deliberate and intentional evasion of the nor&al
fulfill&ent of the obligation. It is distinguished fro& negligence
b$ the presence of deliberate intent, which is lacking in the
latter. #.egaspi !il vs. CA$
@raud under /rticle 55E; is &ore properl$ called as &alice.
@raud under /rticle 55E; &ust not be confused with fraud
under /rticle 5..H

. @raud under /rticle 5..H is &ore properl$

called as deceit.
In /rticle 5..H, fraud pree6ists the obligation, thus the
obligation is voidable. 4eceit vitiates consent in contracts.
4eceit is antecedent fraud. The deceit occurs b$ using insidious
words &achinations. !ithout this deceit, the other part$ would
not have entered into the contract.
In /rticle 55E5, there was alread$ an obligation before the
fraud e6ists. Balice is subse%uent fraud.
Example of fraud as deceit under Article 1//0: / and B entered
into a contract of sale of a dia&ond necklace. 1owever, the
necklace was reall$ &ade of glass. @raud here is deceit. There
was vitiation of consent hence the contract is voidable.
Example of fraud as malice under Article 1111. / and B
entered into a contract. B will deliver furniture &ade of narra
but B delivered one &ade of pl$wood. @raud here is malice. It
will not affect the validit$ of the contract.
:ffects of @raud */rticles 55E;, 55E5+
5. Creditor &a$ insist on proper substitute or specific
perfor&ance */rticle 57..

+' or
7. ,escissionO,esolution */rticle 55>5

+
.. 4a&ages in either case */rticle 55E;+
ii. "egligence
9egligence is the absence of due diligence */rticle 55E.+
Art. 11%.. $he fault or negligence of the obligor
consists in the o%ission of that diligence hich is re5uired
by the nature of the obligation and corresponds ith the
_
Art. 1//0. There is fraud when, through insidious words or &achinations of one of the
contracting parties, the other is induced to enter into a contract which, without the&, he
would not have agreed to.
_
/rt. 57... / debt shall not be understood to have been paid unless the thing or service in
which the obligation consists has been co&pletel$ delivered or rendered, as the case &a$ be.
_
Art. 1191. The power to rescind obligations is i&plied in reciprocal ones, in case one of the
obligors should not co&pl$ with what is incu&bent upon hi&.
The in2ured part$ &a$ choose between the fulfill&ent and the rescission of the
obligation, with the pa$&ent of da&ages in either case. 1e &a$ also seek rescission, even
after he has chosen fulfill&ent, if the latter should beco&e i&possible.
The court shall decree the rescission clai&ed, unless there be 2ust cause authori-ing
the fi6ing of a period.
This is understood to be without pre2udice to the rights of third persons who have
ac%uired the thing, in accordance with articles 5.HF and 5.HH and the Bortgage )aw.
circu%stances of the persons, of the ti%e and of the place.
;hen negligence shos bad faith, the provisions of articles
1181 and ##<1, paragraph #, shall apply.
If the la or contract does not state the diligence
hich is to be observed in the perfor%ance, that hich is
e4pected of a good father of a fa%ily shall be re5uired.
Art. 11%,. "esponsibility arising fro% negligence in
the perfor%ance of every (ind of obligation is also
de%andable, but such liability %ay be regulated by the
courts, according to the circu%stances.
)ike fraud, negligence results in i&proper perfor&ance. But it
is characteri-ed b$ lack of care, unlike fraud which is
characteri-ed b$ &alice.
)ack of care &eans lack of due diligence or the care of a good
father of the fa&il$ #bonus paterfamilias$ under /rticle 55<..
In :nglish law, due diligence is called the diligence of a prudent
business&an, since the$ are &ore co&&erce3oriented.
7 T$pes of 9egligence
5. 0i&ple
7. Gross
The deter&ination of due diligence is alwa$s relative. It will
depend on
5. The nature of the obligation
7. 9ature of the circu&stances of
a. Person
b. Ti&e
c. Place
Example: The diligence re%uired in shipping hinges is
different fro& the diligence re%uired in shipping the
&ieta de 2ic%aelangelo. The shipper &ust observe the
diligence of a good father of the fa&il$ in both cases but
the standard of care is different. It is &uch higher for
the &ieta.
The diligence of a good father of the fa&il$ is the
i&aginar$ standard.
:ffects of 9egligence */rticles 55E;, 55E7+
5. Creditor &a$ insist on proper substitute or specific
perfor&ance */rticle 57..+' or
7. ,escissionO,esolution */rticle 55>5+
.. 4a&ages in either case */rticle 55E;+
iii. 3ela( #2ora$
Art. 116'. $hose obliged to deliver or to do
so%ething incur in delay fro% the ti%e the obligee judicially
or e4trajudicially de%ands fro% the% the fulfill%ent of their
obligation.
9oever, the de%and by the creditor shall not be
necessary in order that delay %ay e4ist-
.1/ ;hen the obligation or the la e4pressly so declare1
or
.#/ ;hen fro% the nature and the circu%stances of the
obligation it appears that the designation of the
ti%e hen the thing is to be delivered or the service
is to be rendered as a controlling %otive for the
establish%ent of the contract1 or
.&/ ;hen de%and ould be useless, as hen the
obligor has rendered it beyond his poer to
perfor%.
In reciprocal obligations, neither party incurs in delay
if the other does not co%ply or is not ready to co%ply in a
proper %anner ith hat is incu%bent upon hi%. +ro% the
%o%ent one of the parties fulfills his obligation, delay by
the other begins.
4ela$ has nothing to do with %ualit$ but onl$ with punctualit$.
4ela$ is the non3fulfill&ent of the obligation with respect to
ti&e. In fraud and negligence, the %uestion is the %ualit$ even
if perfor&ed on ti&e. In dela$, even if the %ualit$ is e6cellent
but the perfor&ance is not in due ti&e, the debtor is liable.
,e%uisites of dela$ # vs. 2oon)al4$
Obligation is de&andable and li%uidated
4ela$ is through fault or negligence
Creditor re%uires perfor&ance either 2udiciall$ *through
court action+ or e6tra2udiciall$ *an$ co&&unication b$ the
creditor to debtor+.
In reciprocal obligations *obligations with a counterpart
prestation+ which re%uire si&ultaneous perfor&ance, de&and is
still needed.
5%at is t%e form of suc% demand6 /n$ co&&unication of a
part$ that he is read$ and willing to co&pl$ with his
obligation. If after receipt of de&and and the other part$
does not co&pl$ with his obligation, he is in dela$.
. Pinds of 4ela$
5. 2ora solvendi
4ela$ in perfor&ance incurred b$ the debtor.
,e%uisites:
a. The obligation is de&andable and li%uidated
b. 4ebtor dela$s perfor&ance either because of dolo or
culpa
c. The creditor de&ands the perfor&ance either
2udiciall$ or e6tra2udiciall$
!eneral "ule- 4e&and is necessar$. *mora solvendi
ex persona+. Thus, no de&and, no dela$.
E)ce*tions+ *mora solvendi ex re+ 8 /rticle 55<>
a. !hen the obligation or the law e6pressl$ so declares
Bere setting of due date is not enough. This
does not constitute auto&atic dela$.
There &ust be an e6press stipulation to the
following effect: "9on3perfor&ance on that da$ is
dela$ without need of de&and.# #3ela 7osa vs.
8&9$
b. !hen it appears fro& the nature and circu&stances
of the obligation that ti&e was a controlling &otive
for the establish&ent of the contract.
Example: The wedding gown has to be read$
before the wedding.
c. !hen de&and would be useless, when obligor has
rendered it be$ond his power to perfor&.
Example: / sold the fruits of the &ango
plantation he alread$ sold to B to C. B need not
&ake a de&and on / to deliver the fruits since
de&and would be useless.
:ffects of 2ora olvedi
a. !hen the obligation is to deliver a deter&inate thing,
the risk is placed on the part of the debtor */rticle
55<F

+
b. 4a&ages
c. ,escissionO ,esolution */rticle 55>5+
7. 2ora accipiendi
The creditor incurs in dela$ when debtor tenders
pa$&ent or perfor&ance, but the creditor refuses to
accept it without 2ust cause.
2ora accipiendi is related to pa$&ent *consignation+.
_
Art. 11:;. !hen what is to be delivered is a deter&inate thing, the creditor, in addition to
the right granted hi& b$ article 55E;, &a$ co&pel the debtor to &ake the deliver$.
If the thing is indeter&inate or generic, he &a$ ask that the obligation be co&plied
with at the e6pense of the debtor.
If the obligor dela$s, or has pro&ised to deliver the sa&e thing to two or &ore
persons who do not have the sa&e interest, he shall be responsible for an$ fortuitous event
until he has effected the deliver$.
,e%uisites:
a. /n offer of perfor&ance b$ the debtor who has the
re%uired capacit$
b. The offer &ust be to co&pl$ with the prestation as it
should be perfor&ed
c. The creditor refuses the perfor&ance without 2ust
cause.
:ffects of 2ora Accipiendi:
a. ,esponsibilit$ of debtor for the thing is li&ited to
fraud and gross negligence
b. 4ebtor is e6e&pted fro& risk of loss of thing wOc
auto&aticall$ pass to creditor
c. :6penses incurred b$ debtor for preservation of thing
after the dela$ shall be chargeable to creditor.
d. If the obligation has interest, debtor shall not have
obligation to pa$ the sa&e fro& the ti&e of the
dela$
e. Creditor beco&es liable for da&ages
f. 4ebtor &a$ relieve hi&self b$ consignation of the
thing
.. Compensatio morae
4ela$ on both sides in reciprocal obligations, cancel each
other out.
b. -ot Attribtable to the Debtor 1non3cl*able2
-ortuitous event
Art. 11%/. ,4cept in cases e4pressly specified by the
la, or hen it is otherise declared by stipulation, or hen
the nature of the obligation re5uires the assu%ption of ris(,
no person shall be responsible for those events hich could
not be foreseen, or hich, though foreseen, ere inevitable.
/lso governed b$ /rticle 5775

but is called Closs( there, a cause

fo e6tinguish&ent of obligation.
/lso called caso fortuioto, force marjeure, act of God.
,e%uisites #"a4pil vs. CA$

Art. 1<<1. If the thing has been lost or if the prestation has beco&e i&possible without the
fault of the solidar$ debtors, the obligation shall be e6tinguished.
If there was fault on the part of an$ one of the&, all shall be responsible to the
creditor, for the price and the pa$&ent of da&ages and interest, without pre2udice to their
action against the guilt$ or negligent debtor.
If through a fortuitous event, the thing is lost or the perfor&ance has beco&e
i&possible after one of the solidar$ debtors has incurred in dela$ through the 2udicial or
e6tra2udicial de&and upon hi& b$ the creditor, the provisions of the preceding paragraph shall
appl$.
5. The cause of the unforeseen and une6pected occurrence, or
the failure to co&pl$ with his obligations, &ust be
independent of the hu&an will
7. It &ust be i&possible to foresee the event which constitute
the caso fortuito, or if it can be foreseen, it &ust be
i&possible to avoid
.. The occurrence &ust be such as to render it i&possible for
the debtor to fulfill his obligation in a nor&al &anner
=. The obligor &ust be free fro& an$ participation in the
aggravation of the in2ur$ resulting to the creditor
!eneral "ule- !hen a debtor is unable to fulfill his obligation
because of a fortuitous event or force majeure, he cannot be
held liable for da&ages or non3perfor&ance.
E)ce*tions+
5. !hen the law so provides *i.e. /rticle 55<F, Q7

+
7. !hen there is e6press stipulation
@ortuitous event $ields to contrar$ stipulation.
.. !hen the nature of the obligation re%uires the assu&ption
of risk *i.e. insurance contracts+
.. Other Provisions
Art. 11%5. Bsurious transactions shall be governed by
special las.
/rticle 55EF is dead letter law because of the lifting of the ceiling on
interest rates. Thus, usur$ has been decri&inali-ed, but the
decri&inali-ation cannot be given retroactive effect *with respect to
the civil aspect+.
0o&e decisions have struck down high interests, not because the$
were usurious but because such rates were unconscionable.
Correlate /rticle 55EF with /rticles 5>FE, 5=5. and 5><5

.
Art. 11%6. $he receipt of the principal by the creditor
ithout reservation ith respect to the interest, shall give rise to
the presu%ption that said interest has been paid.
`
Article 11:;, =<. If the obligor dela$s, or has pro&ised to deliver the sa&e thing to two or
&ore persons who do not have the sa&e interest, he shall be responsible for an$ fortuitous
event until he has effected the deliver$.
`
Art. 19;1. Contracts and stipulations, under an$ cloak or device whatever, intended to
circu&vent the laws against usur$ shall be void. The borrower &a$ recover in accordance with
the laws on usur$.
Art. 141/. Interest paid in e6cess of the interest allowed b$ the usur$ laws &a$ be
recovered b$ the debtor, with interest thereon fro& the date of the pa$&ent.
Art. 19:1. Ksurious contracts shall be governed b$ the Ksur$ )aw and other special
laws, so far as the$ are not inconsistent with this Code.
$he receipt of a later install%ent of a debt ithout
reservation as to prior install%ents, shall li(eise raise the
presu%ption that such install%ents have been paid.
7 Presu&ptions regarding:
a. Interest bearing debt
Presu&ption that interest has been paid if the principal has
been received without reservation regarding interest,
b. 4ebt pa$able in install&ents
Presu&ption that earlier install&ents have been paid if the later
install&ent has been received without reservation regarding the
previous install&ents.
These are onl$ rebuttable presu&ptions, $ou can prove through other
evidence. Jou can prove &istake.
Art. 11%%. $he creditors, after having pursued the property
in possession of the debtor to satisfy their clai%s, %ay e4ercise all
the rights and bring all the actions of the latter for the sa%e
purpose, save those hich are inherent in his person1 they %ay
also i%pugn the acts hich the debtor %ay have done to defraud
the%.
:nforce&ent of Creditor(s ,e&edies
a. )ev$ and e6ecution of the debtor(s non3e6e&pt properties */rticles
55EE, 77.<

+
b. Accion subrogatoria
0ubrogator$ action pre&ised on the theor$ that "the debtor of
&$ debtor is &$ debtor.#
,e%uisites:
i. Creditor has a right of credit against the debtor.
ii. Credit is due and de&andable.
iii. @ailure of debtor to collect his own credit fro& a third
person either through &alice or negligence.
iv. Insufficienc$ of assets of the debtor to satisf$ the creditor(s
credit
v. ,ight *of account+ is not intuitu personae
c. Accion pauliana */rticles 5.H;35.H>+
,ight of creditors to rescind alienations b$ debtor which are
pre2udicial to the& to the e6tent of the pre2udice.
Example: / donates land to C but he owes B. / has no other
propert$. B can rescind the donation to C. The donation is
rescissible to the e6tent of the debt.

Art. <</:. The debtor is liable with all his propert$, present and future, for the fulfill&ent of
his obligations, sub2ect to the e6e&ptions provided b$ law.
,e%uisites:
i. There is a credit in favor of the plaintiff
ii. The debtor has perfor&ed an act subse%uent to the
contract, giving advantage to other persons.
iii. The creditor is pre2udiced b$ the debtor(s act which are in
favor of third parties and rescission will benefit the creditor.
iv. The creditor has no other legal re&ed$.
v. The debtor(s acts are fraudulent.
d. Accion directa
/ direct *not subrogator$+ action b$ the creditor against his
debtor(s debtor, a re&ed$ which gives the creditor the
prerogative to act in his own na&e, such as the actions of the
lessor against the sublessee */rticle 5<F7

+, the laborer of an
independent contractor against the owner */rticle 5E7>
?
+, the
principal against the subagent */rticle 5H>.

+, and the vendor3

a3retro against the transferee of the vendee */rticle 5<;H

+.
This is an e6ception to the relativit$ of contracts.
Example 1:
There are two separate contracts here: The contract of lease
between / and B and the contract of sub3lease between B and
C. C owes B PE;;;. B owes / PF;;;.
Ordinaril$, / cannot sue C since there is no relationship
between the&, but in /rticle 5<F7, / can sue C for PF;;;.

Art. 1:;<. The sublessee is subsidiaril$ liable to the lessor for an$ rent due fro& the lessee.
1owever, the sublessee shall not be responsible be$ond the a&ount of rent due fro& hi&, in
accordance with the ter&s of the sublease, at the ti&e of the e6tra32udicial de&and b$ the
lessor.
Pa$&ents of rent in advance b$ the sublessee shall be dee&ed not to have been
&ade, so far as the lessorRs clai& is concerned, unless said pa$&ents were effected in virtue
of the custo& of the place.
*
Art. 11<9. Those who put their labor upon or furnish &aterials for a piece of work
undertaken b$ the contractor have an action against the owner up to the a&ount owing fro&
the latter to the contractor at the ti&e the clai& is &ade. 1owever, the following shall not
pre2udice the laborers, e&plo$ees and furnishers of &aterials:
*5+ Pa$&ents &ade b$ the owner to the contractor before the$ are due'
*7+ ,enunciation b$ the contractor of an$ a&ount due hi& fro& the owner.
This article is sub2ect to the provisions of special laws.
_
Art. 109/. In the cases &entioned in 9os. 5 and 7 of the preceding article, the principal
&a$ further&ore bring an action against the substitute with respect to the obligations which
the latter has contracted under the substitution.
_
Art. 1:00. The vendor &a$ bring his action against ever$ possessor whose right is derived
fro& the vendee, even if in the second contract no &ention should have been &ade of the
right to repurchase, without pre2udice to the provisions of the Bortgage )aw and the )and
,egistration )aw with respect to third persons.
sub3lease lease
/ B C
Example <:
/gain, there are two separate contracts here: The contract for
a piece of work between / and B and the contract of labor
between B and C. / owes B P5;,;;; which is not full$ paid $et.
B owes C PF;;; for unpaid wages. C can go after / directl$ for
PF;;;.
Art. 11%&. @ubject to the las, all rights ac5uired in virtue
of an obligation are trans%issible, if there has been no stipulation
to the contrary.
,ights are trans&issible unless the rights are personal.
!. Different 4inds of Obligations
5. According to *e%andability */rticles 55E>355>7+
Art. 11%'. ,very obligation hose perfor%ance does not
depend upon a future or uncertain event, or upon a past event
un(non to the parties, is de%andable at once.
,very obligation hich contains a resolutory condition shall
also be de%andable, ithout prejudice to the effects of the
happening of the event.
Art. 11&(. ;hen the debtor binds hi%self to pay hen his
%eans per%it hi% to do so, the obligation shall be dee%ed to be
one ith a period, subject to the provisions of article 11?8.
Art. 11&1. In conditional obligations, the ac5uisition of
rights, as ell as the e4tinguish%ent or loss of those already
ac5uired, shall depend upon the happening of the event hich
constitutes the condition.
Art. 11&,. ;hen the fulfill%ent of the condition depends
upon the sole ill of the debtor, the conditional obligation shall be
void. If it depends upon chance or upon the ill of a third person,
the obligation shall ta(e effect in confor%ity ith the provisions of
this Code.
Art. 11&.. I%possible conditions, those contrary to good
custo%s or public policy and those prohibited by la shall annul
the obligation hich depends upon the%. If the obligation is
divisible, that part thereof hich is not affected by the i%possible
or unlaful condition shall be valid.
$he condition not to do an i%possible thing shall be
considered as not having been agreed upon.
Art. 11&/. $he condition that so%e event happen at a
deter%inate ti%e shall e4tinguish the obligation as soon as the
piece of work
/
#customer$
labor
C B
contract of contract for a
#contractor$ #)or4er$
ti%e e4pires or if it has beco%e indubitable that the event ill not
ta(e place.
Art. 11&5. $he condition that so%e event ill not happen at
a deter%inate ti%e shall render the obligation effective fro% the
%o%ent the ti%e indicated has elapsed, or if it has beco%e
evident that the event cannot occur.
If no ti%e has been fi4ed, the condition shall be dee%ed
fulfilled at such ti%e as %ay have probably been conte%plated,
bearing in %ind the nature of the obligation.
Art. 11&6. $he condition shall be dee%ed fulfilled hen the
obligor voluntarily prevents its fulfill%ent.
Art. 11&%. $he effects of a conditional obligation to give,
once the condition has been fulfilled, shall retroact to the day of
the constitution of the obligation. Aevertheless, hen the
obligation i%poses reciprocal prestations upon the parties, the
fruits and interests during the pendency of the condition shall be
dee%ed to have been %utually co%pensated. If the obligation is
unilateral, the debtor shall appropriate the fruits and interests
received, unless fro% the nature and circu%stances of the
obligation it should be inferred that the intention of the person
constituting the sa%e as different.
In obligations to do and not to do, the courts shall
deter%ine, in each case, the retroactive effect of the condition that
has been co%plied ith.
Art. 11&&. $he creditor %ay, before the fulfill%ent of the
condition, bring the appropriate actions for the preservation of his
right.
$he debtor %ay recover hat during the sa%e ti%e he has
paid by %ista(e in case of a suspensive condition.
Art. 11&'. ;hen the conditions have been i%posed ith the
intention of suspending the efficacy of an obligation to give, the
folloing rules shall be observed in case of the i%prove%ent, loss
or deterioration of the thing during the pendency of the condition-
.1/ If the thing is lost ithout the fault of the debtor, the
obligation shall be e4tinguished1
.#/ If the thing is lost through the fault of the debtor, he shall
be obliged to pay da%ages1 it is understood that the thing
is lost hen it perishes, or goes out of co%%erce, or
disappears in such a ay that its e4istence is un(non or
it cannot be recovered1
.&/ ;hen the thing deteriorates ithout the fault of the
debtor, the i%pair%ent is to be borne by the creditor1
.'/ If it deteriorates through the fault of the debtor, the
creditor %ay choose beteen the rescission of the
obligation and its fulfill%ent, ith inde%nity for da%ages
in either case1
.)/ If the thing is i%proved by its nature, or by ti%e, the
i%prove%ent shall inure to the benefit of the creditor1
.=/ If it is i%proved at the e4pense of the debtor, he shall
have no other right than that granted to the usufructuary.
Art. 11'(. ;hen the conditions have for their purpose the
e4tinguish%ent of an obligation to give, the parties, upon the
fulfill%ent of said conditions, shall return to each other hat they
have received.
In case of the loss, deterioration or i%prove%ent of the
thing, the provisions hich, ith respect to the debtor, are laid
don in the preceding article shall be applied to the party ho is
bound to return.
As for the obligations to do and not to do, the provisions of
the second paragraph of article 11>8 shall be observed as regards
the effect of the e4tinguish%ent of the obligation.
Art. 11'1. $he poer to rescind obligations is i%plied in
reciprocal ones, in case one of the obligors should not co%ply ith
hat is incu%bent upon hi%.
$he injured party %ay choose beteen the fulfill%ent and
the rescission of the obligation, ith the pay%ent of da%ages in
either case. 9e %ay also see( rescission, even after he has chosen
fulfill%ent, if the latter should beco%e i%possible.
$he court shall decree the rescission clai%ed, unless there
be just cause authorizing the fi4ing of a period.
$his is understood to be ithout prejudice to the rights of
third persons ho have ac5uired the thing, in accordance ith
articles 1&>) and 1&>> and the Cortgage 0a.
Art. 11',. In case both parties have co%%itted a breach of
the obligation, the liability of the first infractor shall be e5uitably
te%pered by the courts. If it cannot be deter%ined hich of the
parties first violated the contract, the sa%e shall be dee%ed
e4tinguished, and each shall bear his on da%ages.
a. 5re
/ pure obligation is one which has neither a condition nor a ter&
attached to it. It is one which is sub2ect to no contingenc$.
/ pure obligation is de&andable at once */rticle 55E>+.
b. Conditional
/ condition is a future and uncertain event.
/ll conditions are future.
/rticle 55E> &entions the ter& "past event unknown to the
parties#. This has been critici-ed b$ &an$ co&&entators. This is a
contradiction in ter&s. The condition in a past even unknown to
the parties is knowledge b$ the parties of the past event.
In conditional obligation, the happening of the condition deter&ines
its birth or death. In ter&, the happening of the ter& deter&ines
its de&andabilit$.
T$pes of Conditions
i. 5. uspensive
The fulfill&ent of a suspensive condition results in the
ac%uisition of rights arising out of the obligation.
The condition that so&e event happen at a deter&inate
ti&e shall e6tinguish the obligation as soon as the ti&e
e6pires or if it has beco&e indubitable that the event will
not take place */rticle 55H=+
The condition that so&e event will not happen at a
deter&inate ti&e shall render the obligation effective
fro& the &o&ent the ti&e indicated has elapsed, or if it
has beco&e evident that the event cannot occur */rticle
55HF+.
The &o&ent the suspensive condition happens, the
obligation beco&es effective and enforceable. 1owever,
the effects of the obligation retroact to the &o&ent
when such obligation was constituted or created. B$ the
principle of retroactivit$, therefore, a fiction is created
whereb$ the binding tie of the conditional obligation is
produced fro& the ti&e of its perfection, and not fro&
the happening of the condition */rticle 55HE+
The law does not re%uire the deliver$ or pa$&ent of the
fruits or interests accruing before the happening of the
suspensive condition. The right to the fruits of the thing
is not within the principle of retroactivit$ of conditional
obligations */rticle 55HE+
If the obligation i&poses reciprocal prestations, fruits
and interest are dee&ed &utuall$ co&pensated.
Example: I pro&ise to sell &$ &ango plantation at
PF;;;Ohectare if $ou pass the bar e6a&ination.
I do not have to give $ou the fruits fro& the ti&e of the
agree&ent to the release of the bar e6a&s.
If the obligation is unilateral, debtor appropriates the
fruits.
In obligations to do and not to do, the courts shall use
sound discretion to deter&ine the retroactive effect of
the fulfill&ent of the condition */rticle 55HE+
The creditor &a$, before the fulfill&ent of the condition,
bring the appropriate actions for the preservation of his
right */rticle 55HH, 5
st
Q+. IB) ,e$es critici-es the use of
the word "bring#. The 5
st
Q of /rticle 55HH does not li&it
itself to 2udicial actions. Thus, the word "take# is better.
The debtor who paid before the happening of the
condition &a$ recover onl$ when he paid b$ &istake and
provided the action to recover is brought before the
condition */rticle 55HH+.
7. 7esolutor(
The fulfill&ent of the resolutor$ condition results in the
e6tinguish&ents of rights arising out of the obligation.
If the resolutor$ condition is fulfilled, the obligation is
treated as if it did not e6ist. Thus, each part$ is bound
to return to the other whatever he has received, so that
the$ &a$ be returned to their original condition before
the creation of the obligation */rticle 55>;+.
,esolution */rticle 55>5+ is found on the conditional
obligations because if there is a breach, the breach is a
resolutor$ condition which e6tinguishes the obligation.
/rticle 55>5 uses the ter& "rescission#. The better
ter& is "resolution#. The ter& rescission is also found in
/rticle 5.H5

, rescissible contracts. ,esolution is

different fro& rescission. ,esolution is based on the
non3fulfill&ent of the obligation. ,escission is based on
econo&ic pre2udice. @urther&ore, the character of
resolution is principal and retaliator$ while the character
of rescission is subsidiar$. This &eans that in resolution
there is no need to show that there is no other re&ed$.
In rescission, the plaintiff &ust show that there is no
other recourse.
The right of resolution applies to reciprocal obligations.
/ reciprocal obligation has 7 ele&ents
5. 7 prestations arising fro& the sa&e source
7. :ach prestation is designed to be the counterpart of
the other
/n e6a&ple of a reciprocal obligation is a contract of
sale.
0u&&ar$ of ,ulings on ,esolution
5. The right to resolve is in inherent in reciprocal
obligations.
_
Art. 1/01. The following contracts are rescissible:
*5+ Those which are entered into b$ guardians whenever the wards who& the$ represent
suffer lesion b$ &ore than one3fourth of the value of the things which are the ob2ect
thereof'
*7+ Those agreed upon in representation of absentees, if the latter suffer the lesion stated
in the preceding nu&ber'
*.+ Those undertaken in fraud of creditors when the latter cannot in an$ other &anner
collect the clai&s due the&'
*=+ Those which refer to things under litigation if the$ have been entered into b$ the
defendant without the knowledge and approval of the litigants or of co&petent 2udicial
authorit$'
*F+ /ll other contracts speciall$ declared b$ law to be sub2ect to rescission.
7. The breach of the obligation &ust be substantial.
Proof of substantial breach is a prere%uisite for
resolution.
.. The right of resolution can be e6ercised
e6tra2udiciall$ and will take effect upon
co&&unication to the defaulting part$. This notice of
resolution is necessar$.
=. The e6ercise of this right can be the sub2ect of
2udicial review.
F. Kpon resolution, there &ust be &utual restitution of
the ob2ect and its fruits
The parties are returned to their original situation
8 status >uo ante.
<. If the aggrieved part$ has not perfor&ed the
prestation and resolves e6tra2udiciall$, then all the
aggrieved part$ has to do is to refuse to perfor& his
prestation.
E. If the aggrieved part$ has perfor&ed the prestation,
the aggrieved part$ can de&and recover$. If the
defaulting part$ refuses to return it, the aggrieved
part$ &ust go to court in order to recover.
In 9lingan vs.CA #eptember <:, <001$ case, there was
an obiter dictum that the operative act that resolves a
contract is the decree of court and the right should be
e6ercised 2udiciall$. Professor Balane sa$s this is wrong.
1owever, the ratio of the case said that the
co&&unication &ust be a notarial notice.
ii. 5. &otestative
In a potestative condition, the fulfill&ent of the condition
depends upon the will of a part$ to the obligation.
If the condition depends upon the will of the creditor,
then the obligation is valid. In this case, there is a
vinculum juris. The creditor can co&pel the debtor to
perfor& the obligation.
Example: I will give $ou &$ po&elo plantation if $ou
establish per&anent residence in 4avao.
This is a suspensive condition dependent on the sole will
of the creditor. It beco&es pure and de&andable at
once.
/rticle 55H7 prohibits a suspensive potestative condition
dependent on the will of the debtor. The entire
obligation is void.
Example: I will sell $ou &$ car if I want to.
5%( does it annul t%e entire obligation6
Because there is no 2uridical tie. ,e&e&ber, an
obligation is one which has to be perfor&ed regardless
of the will of the debtor. There is no ele&ent of
co&pulsion. In the e6a&ple above, the creditor can
never co&pel, can never have a cause of action.
In reciprocal obligations, the law onl$ talks about the
first prestation, the reciprocal prestation is not taken
into consideration.
7. Casual
In a casual condition, the fulfill&ent of the condition
depends upon chance andOor upon the will of a .
rd
person and not on the will of a part$.
Example: I will give $ou &$ house if the Philippines
renounces its foreign debt in F $ears. *4ependent solel$
on the will of a third person or on chance+.
.. 2ixed
In a &i6ed condition, the fulfill&ent of the condition
depends partl$ upon the will of a part$ to the obligation
and partl$ upon chance andOor the will of a .
rd
person.
!hen the condition depends not onl$ upon the will of
the debtor, but also upon chance or will of the others,
the obligation is valid.
Example: I will give $ou &$ house if $ou &arr$ hi&
within . $ears. *The condition here is a &i6ed condition.
In this case, the condition of &arriage depends partl$
on the creditor, a part$ to the obligation, and partl$ on a
.
rd
person.+
4octrine of Constructive Co&pliance
The condition shall be dee&ed fulfilled when the obligor
voluntaril$ prevents its fulfill&ent */rticle 55H<+.
The principle underl$ing constructive fulfill&ent of
conditions is that a part$ to a contract &a$ not be
e6cused fro& perfor&ing his pro&ise b$ the non3
occurrence of an event which he hi&self prevented.
,e%uisites
5. Intent of the debtor to prevent
fulfill&ent of the obligation
!here the act of the debtor, however, although
voluntar$, did not have for its purpose the
prevention of the fulfill&ent of the condition, it
will not fall under the doctrine of constructive
co&pliance.
7. /ctual prevention of co&pliance
The doctrine of constructive co&pliance applies
to potestative and &i6ed conditions.
iii. 5. &ossible
/ condition is possible when it is capable of reali-ation
according to nature, law, public polic$ or good custo&s.
7. 9mpossible
/ condition is i&possible when it is not capable of
reali-ation according to nature, law, public polic$ or
good custo&s.
The effect of an i&possible condition is to annul the
obligation */rticle 55H.+. The effect of an i&possible
condition regarding donations and succession is
different. In donations and succession, an i&possible
condition is si&pl$ disregarded. The distinction can be
e6plained b$ the fact that /rticle 55H. refers to onerous
obligation whereas donations and succession are
gratuitous.
1owever, if the obligation is divisible and that part of the
obligation is not unaffected b$ the i&possible condition,
then the obligation is valid */rticle 55H.+.
Iustice Paras distinguishes as follows:
5. Positive condition to do so&ething i&possible
oid condition and obligation
7. 9egative condition not to do so&ething i&possible
4isregard the condition, the obligation is valid
.. 9egative condition not to do so&ething illegal
alid condition and obligation
iv. 5. &ositive
/ condition is positive when the condition involves the
perfor&ance of an act.
7. "egative
/ condition is negative when the condition involves the
non3perfor&ance of an act.
v. 5. 3ivisible
/ condition is divisible when the condition is susceptible
of partial reali-ation.
7. 9ndivisible
/ condition is indivisible when the condition is not
susceptible of partial reali-ation.
vi. 5. Conjunctive
/ condition is con2unctive when there are several
conditions, all of which &ust be reali-ed.
7. Alternative
/ condition is alternative when there are several
conditions, onl$ one of which &ust be reali-ed.
vii. 5. Express
/ condition is e6press when the condition is stated
e6pressl$.
7. 9mplied
/ condition is i&plied when the condition is tacit.
c. Ter" */rticles 55>.355>H+
Art. 11'.. Obligations for hose fulfill%ent a day
certain has been fi4ed, shall be de%andable only hen that day
co%es.
Obligations ith a resolutory period ta(e effect at once,
but ter%inate upon arrival of the day certain.
A day certain is understood to be that hich %ust
necessarily co%e, although it %ay not be (non hen.
If the uncertainty consists in hether the day ill co%e
or not, the obligation is conditional, and it shall be regulated by
the rules of the preceding @ection.
Art. 11'/. In case of loss, deterioration or i%prove%ent
of the thing before the arrival of the day certain, the rules in
article 11>? shall be observed.
Art. 11'5. Anything paid or delivered before the arrival
of the period, the obligor being unaare of the period or
believing that the obligation has beco%e due and de%andable,
%ay be recovered, ith the fruits and interests.
Art. 11'6. ;henever in an obligation a period is
designated, it is presu%ed to have been established for the
benefit of both the creditor and the debtor, unless fro% the
tenor of the sa%e or other circu%stances it should appear that
the period has been established in favor of one or of the other.
Art. 11'%. If the obligation does not fi4 a period, but
fro% its nature and the circu%stances it can be inferred that a
period as intended, the courts %ay fi4 the duration thereof.
$he courts shall also fi4 the duration of the period hen
it depends upon the ill of the debtor.
In every case, the courts shall deter%ine such period as
%ay under the circu%stances have been probably
conte%plated by the parties. Once fi4ed by the courts, the
period cannot be changed by the%.
Art. 11'&. $he debtor shall lose every right to %a(e use
of the period-
.1/ ;hen after the obligation has been contracted, he
beco%es insolvent, unless he gives a guaranty or
security for the debt1
.#/ ;hen he does not furnish to the creditor the guaranties
or securities hich he has pro%ised1
.&/ ;hen by his on acts he has i%paired said guaranties
or securities after their establish%ent, and hen
through a fortuitous event they disappear, unless he
i%%ediately gives ne ones e5ually satisfactory1
.'/ ;hen the debtor violates any underta(ing, in
consideration of hich the creditor agreed to the
period1
.)/ ;hen the debtor atte%pts to abscond.
/ ter& is a length of ti&e which, e6erting an influence on an
obligation as a conse%uence of 2uridical acts, suspends its
de&andabilit$ or deter&ines its e6tinguish&ent.
/ ter& is a future and certain event *i.e. death+
!hen the debtor binds hi&self to pa$ when his &eans per&it hi&
to do so, the obligation is one with a ter& */rticle 55H;+. /lthough
/rticle 55H; looks like a condition dependent on the sole will of the
debtor, the law treats it as a ter&.
If prepa$&ent is &ade without the debtor being aware that the
period had not $et arrived, then the thing and the fruits can be
recovered */rticle 55>F+. If prepa$&ent is &ade and the debtor
was aware that the period had not $et arrived, then the debtor
waives the benefit of the ter&.
/n obligation was entered on Ba$ 5, 7;;7 between / and B.
The obligation is to be perfor&ed on October 5, 7;;7. /
delivers on 0epte&ber 5, 7;;7 b$ &istake to B. / discovers his
&istake and tells B to return the ob2ect and the fruits delivered.
/rticle 55>F does not answer who is entitled to the fruits which
have been produced in the &eanti&e *Ba$ 5, 7;;7 to October
5, 7;;7+.
/ccording to the 0panish Code, the debtor */+ can onl$ fruits.
There are 7 views:
i. The debtor is entitled to the fruits produced in the
&eanti&e *Tolentino+
This is because deliver$ is not re%uired until October 5.
ii. The creditor is entitled to the fruits since the obligation is
de&andable onl$ when the period arrives
This is because the obligation is alread$ e6isting
although it is not $et de&andable.
Professor Balane believes that the fruits belong to the
debtor. !h$ would /rticle 55>F allow the debtor to recover
the fruits if he should still give the& back after the ter&
co&es.
Instances when the @ruits Cannot be ,ecovered
i. !hen the obligation is reciprocal and there has been
prepa$&ent of both sides
ii. !hen the obligation is a loan and the debtor is bound to pa$
interest
iii. !hen the period is e6clusivel$ for the creditor(s benefit
iv. !hen the debtor is aware of the period and pa$s an$wa$ 8
waiver
The presu&ption is that the period is for the benefit of both the
debtor and the creditor */rticle 55><+. The effect of this
presu&ption is that the creditor cannot de&and pa$&ent before
the period arrives nor can the debtor de&and the creditor to accept
pa$&ent before the period arrives.
Example: / issues a pro&issor$ note to B de&andable on October
5F. / cannot insist on prepa$&ent nor can B insist that he be paid
on 0epte&ber.
If the period is for the benefit of the creditor onl$, the creditor can
de&and perfor&ance at an$ ti&e, but the debtor cannot co&pel
hi& to accept pa$&ent before the period e6pires.
If the period is for the benefit of the debtor onl$, the debtor can he
&a$ oppose a pre&ature de&and for pa$&ent, but &a$ validl$ pa$
at an$ ti&e before the period e6pires.
!hen the obligation is worded such that pa$&ent it to be &ade
"within < &onths#, the period is for the benefit of the debtor.
!hen the obligation is worded such that pa$&ent is to be &ade
"on or before#, the period is for the benefit of the debtor.
The debtor shall lose ever$ right to &ake use of the period:
i. !hen after the obligation has been contracted, the debtor
beco&es insolvent unless he gives a guarant$ or securit$ for
the debt */rticle 55>H *5++
The insolvenc$ here need not be 2udicial. It can be actual
insolvenc$.
ii. !hen he does not furnish to the creditor the guaranties or
securities which he has pro&ised */rticle 55>H *7++
iii. !hen b$ his own acts he has i&paired the said guaranties or
securities after their establish&ent, and when through a
fortuitous event he$ disappear, unless he i&&ediatel$ gives
new ones e%uall$ satisfactor$ */rticle 55>H *.++
iv. !hen the debtor violates an$ undertaking, in consideration of
which the creditor agreed */rticle 55>H *=++
v. !hen the debtor atte&pts to abscond */rticle 55>H *F++
vi. !hen the creditor is deceived on the substance or %ualit$ of the
thing pledged, the creditor &a$ either clai& another thing in its
stead or de&and i&&ediate pa$&ent of the principal obligation
*/rticle 75;>+
T$pes of Periods
i. 5. uspensive *ex die+
The period is suspensive when the obligation beco&es
de&andable onl$ upon the arrival of the period.
7. 7esolutor( #in diem+
The period is resolutor$ when the perfor&ance &ust
ter&inate upon the arrival of the period.
ii. 5. .egal
/ period is legal when it is granted b$ law.
7. ?oluntar(
/ period is voluntar$ when it is stipulated b$ the parties.
.. @udicial
/ period is 2udicial when it is fi6ed b$ the courts.
If the obligation does not fi6 a period, but fro& its
nature and the circu&stances it can be inferred that a
period was intended, the courts &a$ fi6 the duration
thereof */rticle 55>E, 5
st
Q+.
7 steps involved in an action for fi6ing a period:
5. The court should deter&ine that the obligation does
not fi6 a period but it can be inferred that a period is
intended due to the circu&stances O, the period is
dependent on debtor(s will.
7. Court shall decide what period was probabl$
conte&plated b$ the parties.
Court should &ake an educated guess.
Court should not fi6 a period which it thinks is fair
or reasonable but rather the period which was
probabl$ conte&plated b$ the parties.
Generall$, $ou cannot ask for specific perfor&ance
because fi6ing a period conte&plates so&ething in the
future, hence to ask for specific perfor&ance would be
illogical.
Instances !hen Court Ba$ @i6 a Period
5. /rticle 55>E, Q5
Art. 11'%6 71. If the obligation does not
fi4 a period, but fro% its nature and the
circu%stances it can be inferred that a period
as intended, the courts %ay fi4 the duration
thereof.
:6ceptions
a. /rticles 5<H7 and 5<HE, 5
st
sentence
Art. 16&,. $he lease of a piece of
rural land, hen its duration has not
been fi4ed, is understood to have been
for all the ti%e necessary for the
gathering of the fruits hich the hole
estate leased %ay yield in one year, or
hich it %ay yield once, although to or
%ore years have to elapse for the
purpose.
Art. 16&%6 1
st
sentence. If the
period for the lease has not been fi4ed, it
is understood to be fro% year to year, if
the rent agreed upon is annual1 fro%
%onth to %onth, if it is %onthly1 fro%
ee( to ee(, if the rent is ee(ly1 and
fro% day to day, if the rent is to be paid
daily.
b. &acto de retro sales */rticle 5<;<+
Art. 16(6. $he right referred to in
article 1=<1, in the absence of an
e4press agree%ent, shall last four years
fro% the date of the contract.
@hould there be an agree%ent, the
period cannot e4ceed ten years.
9oever, the vendor %ay still
e4ercise the right to repurchase ithin
thirty days fro% the ti%e final judg%ent
as rendered in a civil action on the
basis that the contract as a true sale
ith right to repurchase.
c. Contract of services for an indefinite period
Court cannot fi6 a period or else it would
a&ount to involuntar$ servitude.
7. /rticle 55>E, Q7
Art. 11'%6 7,. $he courts shall also fi4
the duration of the period hen it depends
upon the ill of the debtor.
.. /rticle 55>5, Q.
Art. 11'16 7.. $he court shall decree the
rescission clai%ed, unless there be just cause
authorizing the fi4ing of a period.
=. /rticle 5<HE, 7
nd
, .
rd
and =
th
sentences
Art. 16&%6 ,
nd
6 .
rd
and /
th
sentences.
9oever, even though a %onthly rent is paid,
and no period for the lease has been set, the
courts %ay fi4 a longer ter% for the lease after
the lessee has occupied the pre%ises for over
one year. If the rent is ee(ly, the courts %ay
li(eise deter%ine a longer period after the
lessee has been in possession for over si4
%onths. In case of daily rent, the courts %ay
also fi4 a longer period after the lessee has
stayed in the place for over one %onth.
F. /rticle 55H;
Art. 11&(. ;hen the debtor binds
hi%self to pay hen his %eans per%it hi% to
do so, the obligation shall be dee%ed to be one
ith a period, subject to the provisions of
Article 11?8.
iii. 5. :6press
/ period is e6press when the period is specificall$
stated.
7. Tacit
/ period is tacit when a person undertakes to do so&e
work which can be done onl$ during a particular season.
iv. 5. !riginal
7. *race
/ grace period is an e6tension fi6ed b$ the parties or b$
the court.
v. 5. 3efinite
/ period is definite when it refers to a fi6ed known date
or ti&e.
7. 9ndefinite
/ period is indefinite when it refers to an event which
will necessaril$ happen but the date of its happening is
unknown *i.e. death+
7. According to Plurality of Object */rticles 55>>357;<+
Art. 11''. A person alternatively bound by different
prestations shall co%pletely perfor% one of the%.
$he creditor cannot be co%pelled to receive part of one and
part of the other underta(ing.
Art. 1,((. $he right of choice belongs to the debtor, unless
it has been e4pressly granted to the creditor.
$he debtor shall have no right to choose those prestations
hich are i%possible, unlaful or hich could not have been the
object of the obligation.
Art. 1,(1. $he choice shall produce no effect e4cept fro%
the ti%e it has been co%%unicated.
Art. 1,(,. $he debtor shall lose the right of choice hen
a%ong the prestations hereby he is alternatively bound, only one
is practicable.
Art. 1,(.. If through the creditorDs acts the debtor cannot
%a(e a choice according to the ter%s of the obligation, the latter
%ay rescind the contract ith da%ages.
Art. 1,(/. $he creditor shall have a right to inde%nity for
da%ages hen, through the fault of the debtor, all the things
hich are alternatively the object of the obligation have been lost,
or the co%pliance of the obligation has beco%e i%possible.
$he inde%nity shall be fi4ed ta(ing as a basis the value of
the last thing hich disappeared, or that of the service hich last
beca%e i%possible.
*a%ages other than the value of the last thing or service
%ay also be aarded.
Art. 1,(5. ;hen the choice has been e4pressly given to the
creditor, the obligation shall cease to be alternative fro% the day
hen the selection has been co%%unicated to the debtor.
Bntil then the responsibility of the debtor shall be governed
by the folloing rules-
.1/ If one of the things is lost through a fortuitous event, he
shall perfor% the obligation by delivering that hich the
creditor should choose fro% a%ong the re%ainder, or that
hich re%ains if only one subsists1
.#/ If the loss of one of the things occurs through the fault of
the debtor, the creditor %ay clai% any of those subsisting,
or the price of that hich, through the fault of the for%er,
has disappeared, ith a right to da%ages1
.&/ If all the things are lost through the fault of the debtor,
the choice by the creditor shall fall upon the price of any
one of the%, also ith inde%nity for da%ages.
$he sa%e rules shall be applied to obligations to do or not to
do in case one, so%e or all of the prestations should beco%e
i%possible.
Art. 1,(6. ;hen only one prestation has been agreed upon,
but the obligor %ay render another in substitution, the obligation
is called facultative.
$he loss or deterioration of the thing intended as a
substitute, through the negligence of the obligor, does not render
hi% liable. But once the substitution has been %ade, the obligor is
liable for the loss of the substitute on account of his delay,
negligence or fraud.
a. Alternati8e
/n obligation is alternative when several ob2ects or prestations are
due, but the pa$&ent or perfor&ance of 5 of the& would be
sufficient.
/ pro&ises to deliver either F;; kgs of rice or 5;;; liters of gas.
The obligation is alternative. The debtor cannot perfor& the
obligation b$ giving 7F; kgs of rice and F;; liters of gas unless the
creditor agrees. In which case there is a novation.
!eneral "ule- The right of choice the right to belongs to the
debtor.
E)ce*tions+
i. !hen it is e6pressl$ granted to the creditor
ii. !hen it is agreed upon b$ the parties that a .
rd
person shall
&ake the choice
The act of &aking the choice is called concentration. Once the
choice has been &ade, then the obligation is concentrated in 5
ob2ect.
!hoever has the right of choice &ust co&&unicate it to the other
part$ */rticle 57;5+. The creditor has to co&&unicate his choice
to the debtor so that the debtor will know. On the other hand, in
!ng *uan vs. Centur( 9nsurance, the 0upre&e Court said that the
purpose for notice to the creditor is to give the creditor the
opportunit$ to e6press his consent or to i&pugn the election &ade
b$ the debtor. Professor Balane does not agree with this state&ent
since the creditor does not have the right to i&pugn, otherwise,
the obligation would not be an alternative obligation. / better
reason according to Professor Balane is to give the creditor ti&e to
prepare.
Example: The choice is either to give dia&ond ring or a Bercedes
Ben-. The debtor should notif$ the creditor so the creditor can
either rent a safet$ deposit bo6 or prepare a garage.
1owever, according to Professor Balane, the best reason is because
once the choice is co&&unicated, the obligation ceases to be
alternative. The risk of loss belongs to the creditor now.
Choice Belongs to the 4ebtor
i. !hen through fortuitous event or through the debtor(s acts,
there is onl$ 5 prestation left, the obligation ceases to be
alternative */rticle 57;7+.
ii. !hen the choice of the debtor is li&ited through the creditor(s
own acts, then the debtor has the re&ed$ of resolution */rticle
55>5+ plus da&ages */rticle 57;.+
iii. !hen all the things are lost due to the debtor(s fault, the
creditor can sue for da&ages */rticle 57;=+
iv. !hen so&e things are lost due to the debtor(s fault but there
are still so&e things re&aining, then the debtor can choose
fro& what(s left
v. !hen all the things are lost due to a fortuitous event, the
obligation is e6tinguished
vi. !hen all but 5 of the things are lost due to a fortuitous event
and the last ob2ect is lost through the debtor(s fault, then the
creditor can sue for da&ages
vii. !hen all but 5 of the things are lost through the debtor(s own
acts and the last ob2ect is lost through a fortuitous event, the
obligation is e6tinguished
Choice Belongs to the Creditor */rticle 57;F+
i. !hen 5 or so&e of the ob2ects are lost through fortuitous
events, then the creditor chooses fro& the re&ainder
ii. !hen 5 or so&e of the ob2ects are lost due to the debtor(s
fault, the creditor &a$ choose fro& the re&ainder or get the
value of an$ of the ob2ects lost plus da&ages in either case
iii. !hen all of the things are lost due to the debtor(s fault, the
creditor can get the value of an$ of the ob2ects lost plus
da&ages
iv. !hen so&e are lost through the debtor(s fault, the creditor
chooses fro& the re&ainder
v. !hen all the ob2ects are lost due to a fortuitous event, then the
obligation is e6tinguished
vi. !hen all the ob2ects are lost due to the creditor(s fault, the
obligation is e6tinguished
b. 9acltati8e
/n obligation is facultative when onl$ 5 ob2ect or prestation has
been agreed upon b$ the parties to the obligation, but the debtor
&a$ deliver or render another in substitution.
@acultative obligations bear a rese&blance to alternative
obligations particularl$ when the choice in an alternative obligation
is with the debtor.
In a facultative obligation, the right of choice is alwa$s with the
debtor.
In an alternative obligation, if 5 of the prestations is i&possible,
then there are other choices. In a facultative obligation, if the
principal obligation is i&possible, then ever$thing is annulled.
In theor$, it is eas$ to distinguish a facultative obligation fro& an
alternative obligation. In practice, it is difficult to do so since &ost
of the ti&e, the words are a&biguous. @or e6a&ple, I pro&ise to
deliver &$ 1onda /ccord, but I reserve &$ right to substitute this
with &$ Gold ,ole6. In this case, it is not ver$ clear whether the
obligation is alternative or facultative. /ccording to Professor
Balane, the rule is that one &ust look at the circu&stances of the
obligation. If it is i&possible to deter&ine which one, then the
doubt should be resolved in the favor of an alternative obligation
since its effects are less radical.

.. According to Plurality of @ubject */rticles 57;E35777+
Art. 1,(%. $he concurrence of to or %ore creditors or of
to or %ore debtors in one and the sa%e obligation does not
i%ply that each one of the for%er has a right to de%and, or that
each one of the latter is bound to render, entire co%pliance ith
the prestation. $here is a solidary liability only hen the obligation
e4pressly so states, or hen the la or the nature of the
obligation re5uires solidarity.
Art. 1,(&. If fro% the la, or the nature or the ording of
the obligations to hich the preceding article refers the contrary
does not appear, the credit or debt shall be presu%ed to be
divided into as %any shares as there are creditors or debtors, the
credits or debts being considered distinct fro% one another,
subject to the "ules of Court governing the %ultiplicity of suits.
Art. 1,('. If the division is i%possible, the right of the
creditors %ay be prejudiced only by their collective acts, and the
debt can be enforced only by proceeding against all the debtors. If
one of the latter should be insolvent, the others shall not be liable
for his share.
Art. 1,1(. $he indivisibility of an obligation does not
necessarily give rise to solidarity. Aor does solidarity of itself
i%ply indivisibility.
Art. 1,11. @olidarity %ay e4ist although the creditors and
the debtors %ay not be bound in the sa%e %anner and by the
sa%e periods and conditions.
Art. 1,1,. ,ach one of the solidary creditors %ay do
hatever %ay be useful to the others, but not anything hich %ay
be prejudicial to the latter.
Art. 1,1.. A solidary creditor cannot assign his rights
ithout the consent of the others.
Art. 1,1/. $he debtor %ay pay any one of the solidary
creditors1 but if any de%and, judicial or e4trajudicial, has been
%ade by one of the%, pay%ent should be %ade to hi%.
Art. 1,15. Aovation, co%pensation, confusion or re%ission
of the debt, %ade by any of the solidary creditors or ith any of
the solidary debtors, shall e4tinguish the obligation, ithout
prejudice to the provisions of article 1#1?.
$he creditor ho %ay have e4ecuted any of these acts, as
ell as he ho collects the debt, shall be liable to the others for
the share in the obligation corresponding to the%.
Art. 1,16. $he creditor %ay proceed against any one of the
solidary debtors or so%e or all of the% si%ultaneously. $he
de%and %ade against one of the% shall not be an obstacle to
those hich %ay subse5uently be directed against the others, so
long as the debt has not been fully collected.
Art. 1,1%. Pay%ent %ade by one of the solidary debtors
e4tinguishes the obligation. If to or %ore solidary debtors offer
to pay, the creditor %ay choose hich offer to accept.
9e ho %ade the pay%ent %ay clai% fro% his co3debtors
only the share hich corresponds to each, ith the interest for the
pay%ent already %ade. If the pay%ent is %ade before the debt is
due, no interest for the intervening period %ay be de%anded.
;hen one of the solidary debtors cannot, because of his
insolvency, rei%burse his share to the debtor paying the
obligation, such share shall be borne by all his co3debtors, in
proportion to the debt of each.
Art. 1,1&. Pay%ent by a solidary debtor shall not entitle
hi% to rei%burse%ent fro% his co3debtors if such pay%ent is
%ade after the obligation has prescribed or beco%e illegal.
Art. 1,1'. $he re%ission %ade by the creditor of the share
hich affects one of the solidary debtors does not release the
latter fro% his responsibility toards the co3debtors, in case the
debt had been totally paid by anyone of the% before the re%ission
as effected.
Art. 1,,(. $he re%ission of the hole obligation, obtained
by one of the solidary debtors, does not entitle hi% to
rei%burse%ent fro% his co3debtors.
Art. 1,,1. If the thing has been lost or if the prestation has
beco%e i%possible ithout the fault of the solidary debtors, the
obligation shall be e4tinguished.
If there as fault on the part of any one of the%, all shall be
responsible to the creditor, for the price and the pay%ent of
da%ages and interest, ithout prejudice to their action against
the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the
perfor%ance has beco%e i%possible after one of the solidary
debtors has incurred in delay through the judicial or e4trajudicial
de%and upon hi% by the creditor, the provisions of the preceding
paragraph shall apply.
Art. 1,,,. A solidary debtor %ay, in actions filed by the
creditor, avail hi%self of all defenses hich are derived fro% the
nature of the obligation and of those hich are personal to hi%, or
pertain to his on share. ;ith respect to those hich personally
belong to the others, he %ay avail hi%self thereof only as regards
that part of the debt for hich the latter are responsible.
a. $ingle
/n obligation is single when there is onl$ 5 debtor and 5 creditor.
b. :oint
/n obligation is 2oint when each of the debtor is liable onl$ for a
proportional part of the debt, and each creditor is entitled onl$ to a
partial part of the credit.
/ 2oint obligation is also called mancomunada, pro rata,
mancomunada si&ple.
!eneral "ule- The obligation is 2oint since 2oint obligations are
less onerous.
E)ce*tions+
i. /gree&ent of the parties
ii. )aw *i.e. tort feasors are solidaril$ liable+
iii. 9ature of the obligation
/ccording to &an$ co&&entators, this is superfluous since
a solidar$ obligation arises because of law.
EE",9A. "A,A7E: There are as &an$ obligations as there are
creditors &ultiplied b$ as &an$ debtors.
T$pes of Ioint Obligations
i. Active joint
In active 2oint, there are &ultiple creditors.
/, B, and C are creditors, and D is the debtor. If the
obligation is 2oint, there are . obligations 8 D(s obligation to
/, D(s obligation to B, and D(s obligation to C.
The de&and of 5 creditor on 5 debtor will not constitute a
de&and on the others.
The prescription of 5 of the debts will not affect the other
debts.
ii. &assive joint
In passive 2oint, there are &ultiple debtors.
D, J, and S are debtor, and / is the creditor. If the
obligation is 2oint, there are . obligations 8 D(s obligation to
/, J(s obligation to /, and S(s obligation to /.
The de&and of 5 creditor on 5 debtor will not constitute a
de&and on the others.
The prescription of 5 of the debts will not affect the other
debts.
The insolvenc$ of 5 of the debtors will not affect the burden
of the other debtors.
iii. 2ixed joint
In &i6ed 2oint, there are &ultiple creditors and debtors.
D, J, and S are debtors, and /, B, and C are the creditors.
If the obligation is 2oint, there are > obligations 8 D(s
obligation to /, D(s obligation to B, D(s obligation to C, J(s
obligation /, J(s obligation to B, J(s obligation to C, S(s
obligation to /, S(s obligation to B, and S(s obligation to C.
c. $olidar0
/n obligation is solidar$ when an$ of the debtors can be hled liable
for the entire obligation, and an$ of the creditors is entitled to
de&and the entire obligation.
/ solidar$ obligation is also called 2oint and several, 2oint and
individual, and in solidum.
If a pro&issor$ sa$s, "I pro&ise to pa$,# and it is signed b$ P, B,
and B, then the obligation is solidar$.
/n obligation is solidar$ when
i. The parties so agree
ii. !hen the law so provides *i.e. tort feasors are solidaril$ liable+
iii. !hen nature of the obligation re%uires the obligation to be
solidar$
/ccording to &an$ co&&entators, this is superfluous since
a solidar$ obligation arises because of law.
T$pes of 0olidar$ Obligations
i. Active solidar(
In active solidar$, there are &ultiple creditors.
Characteristics of /ctive 0olidar$
/ credit once paid is shared e%uall$ a&ong the creditors
unless a different intention appears.
The debtor &a$ pa$ an$ of the creditors, but if an$
de&and, 2udicial or e6tra2udicial is &ade on hi&, he
&ust pa$ onl$ to the one de&anding pa$&ent
*/rticle 575=+.
/rticle 575= can be open to abuse. @or e6a&ple,
if / writes J de&anding the perfor&ance of the
obligation and / takes no further action, B and C
cannot de&and fro& J. This is open to collusion.
0uppose /, B, and C are creditors of D. /
de&ands the pa$&ent of the loan worth P>,;;;.
D instead pa$s to B. The pa$&ent to B will be
treated as a pa$&ent to a .
rd
person. Therefore,
D &ust still pa$ / the a&ount of the loan &inus
the share of B. 0o, D has to pa$ P<,;;; to /.
ii. &assive solidar(
In passive solidar$, there are &ultiple debtors.
Characteristics of Passive 0olidar$
:ach debtor &a$ be re%uired to pa$ the entire obligation
but after pa$&ent, he can recover fro& his co3debtors their
respective shares.
iii. 2ixed solidar(
In &i6ed solidar$, there are &ultiple debtors and creditors.
Characteristics of Bi6ed 0olidar$
/ credit once paid is shared e%uall$ a&ong the creditors
unless a different intention appears.
The debtor &a$ pa$ an$ of the creditors, but if an$
de&and, 2udicial or e6tra2udicial, is &ade on hi&, he
&ust pa$ onl$ to the one de&anding pa$&ent */rticle
575=+.
/ccording to Professor Balane, /rticle 575= is
proble&atic. @or e6a&ple, D owes /, B and C. B
&akes an e6tra2udicial de&and on D. D cannot pa$
/ or C an$&ore. The proble& is when B does not
follow up the de&and, it can keep the obligation in
suspension indefinitel$.
The rule in the 0panish Code was that the debtor
cannot pa$ the other non3de&anding solidar$
creditors onl$ if one of the solidar$ creditor &akes a
2udicial de&and.
0uppose the debtor upon who& the de&and is &ade
pa$s a creditor who did not &ake a de&and. The
pa$&ent is considered a pa$&ent to a third person.
Therefore the debtor can still be &ade to pa$ b$ the
one who &ade the de&and on hi&.
Example: D owes / and B. B de&anded fro& D. D
pa$s /. D &ust still pa$ B P<;;;.
But the pa$&ent to the de&anding creditor can be
reduced b$ the share of the paid creditor.
The debtor can still recover fro& the paid creditor
*un2ust enrich&ent+.
0uppose / and B are creditors while D and J are
debtors. / de&ands fro& J. 9ow, D pa$s B. The
pa$&ent of D to B e6tinguishes the entire solidar$
obligation. D is not bound b$ the de&and b$ / on J.
There is no violation of /rticle 575=.
:ach debtor &a$ be re%uired to pa$ the entire obligation
but after pa$&ent, he can recover fro& his co3debtors
their respective shares.
Is there a conflict between /rticle 5757 and /rticle 575F

A /rticle
5757 provides that each of the solidar$ creditors &a$ do whatever
&a$ be useful to the others, but not an$thing which &a$ be
pre2udicial to the latter. But /rticle 575F allows novation,
co&pensation, confusion or re&ission on the part of the solidar$
creditor. !h$A /ccording to Professor Balane, this is absurd.
One wa$ of reconciling is that under /rticle 575F, an$ creditor can
re&it or condone the obligation. But because the obligation is
e6tinguished, the condoning creditor &ust be liable for the other
creditor(s share. 1ere, there is no pre2udice.
1owever, another proble& arises if the condoning creditor later on
beco&es insolvent.
Art. 1,1'. $he re%ission %ade by the creditor of the share
hich affects one of the solidary debtors does not release
the latter fro% his responsibility toards the co3debtors, in
case the debt had been totally paid by anyone of the%
before the re%ission as effected.
/ is the creditor of !, D, J, and S. !, D, J, and S owe / P<,;;;.
The obligation is solidar$. / re&its J(s share 8 P5,F;;. / can go
_
Art. 1<1<. :ach one of the solidar$ creditors &a$ do whatever &a$ be useful to the
others, but not an$thing which &a$ be pre2udicial to the latter.
Art. 1<1;. 9ovation, co&pensation, confusion or re&ission of the debt, &ade b$
an$ of the solidar$ creditors or with an$ of the solidar$ debtors, shall e6tinguish the obligation,
without pre2udice to the provisions of article 575>.
The creditor who &a$ have e6ecuted an$ of these acts, as well as he who collects the debt,
shall be liable to the others for the share in the obligation corresponding to the&. /rt. 575F.
9ovation, co&pensation, confusion or re&ission of the debt, &ade b$ an$ of the
solidar$ creditors or with an$ of the solidar$ debtors, shall e6tinguish the obligation, without
pre2udice to the provisions of article 575>.
The creditor who &a$ have e6ecuted an$ of these acts, as well as he who collects the
debt, shall be liable to the others for the share in the obligation corresponding to the&.
after D for onl$ P=,F;;. The re&ission benefits D initiall$ since D
onl$ has to pa$ P=,F;; instead of <,;;;. 1owever, D can onl$
recover P.,;;; fro& ! and S.
/ is the creditor of !, D, J, and S. !, D, J, and S owe / P<,;;;.
The obligation is solidar$. / re&its J(s share 8 P5,F;;. / can go
after J for the balance since J is still a solidar$ debtor for the
balance. Otherwise, the effect of re&ission would be e6tended.
1owever, J can recover P=,F;; fro& !, D, and S.
/ is the creditor of !, D, J, and S. !, D, J, and S owe / P<,;;;.
The obligation is solidar$. / re&its J(s share 8 P5,F;;. S beco&es
insolvent. / sues ! for the balance of P=,F;;. /rt. 575E &ust be
applied. Thus, the insolvenc$ of S is shouldered b$ !, D, and J.
0o, ! can recover P7,;;; fro& D and PF;; fro& J instead of
collecting P.,;;;. ! has to shoulder PF;; as a loss due to S(s
insolvenc$.
. Pinds of 4efenses
i. ,eal defenses
These are defenses derived fro& the nature of the
obligation.
/ real defense is a total defense. It benefits all the debtors.
ii. Personal defenses
Personal defenses &a$ either be total or partial defenses.
/n e6a&ple of a total personal defense is if the consent of
the debtors were all vitiated.
/n e6a&ple of a partial defense is that a certain a&ount is
not $et due. It is partial since there &a$ be a&ounts which
are alread$ due. Thus, the debtor has to pa$ for those
a&ounts which are due.
iii. 4efenses which are personal to the other co3debtors
The debtor can onl$ avail hi&self of these defenses onl$
with regard to the part of the debt which his co3debtors are
responsible for.
These defenses are partial.
The debtor sued can invoke all three kinds of defenses. The
difference is whether such defense would result in total or partial
e6culpation.
=. According to Perfor%ance */rticles 577.3577F+
Art. 1,,.. $he divisibility or indivisibility of the things that
are the object of obligations in hich there is only one debtor and
only one creditor does not alter or %odify the provisions of
Chapter # of this $itle.
Art. 1,,/. A joint indivisible obligation gives rise to
inde%nity for da%ages fro% the ti%e anyone of the debtors does
not co%ply ith his underta(ing. $he debtors ho %ay have been
ready to fulfill their pro%ises shall not contribute to the inde%nity
beyond the corresponding portion of the price of the thing or of
the value of the service in hich the obligation consists.
Art. 1,,5. +or the purposes of the preceding articles,
obligations to give definite things and those hich are not
susceptible of partial perfor%ance shall be dee%ed to be
indivisible.
;hen the obligation has for its object the e4ecution of a
certain nu%ber of days of or(, the acco%plish%ent of or( by
%etrical units, or analogous things hich by their nature are
susceptible of partial perfor%ance, it shall be divisible.
9oever, even though the object or service %ay be
physically divisible, an obligation is indivisible if so provided by
la or intended by the parties.
In obligations not to do, divisibility or indivisibility shall be
deter%ined by the character of the prestation in each particular
case.
4ivisible and indivisible obligations have nothing to do with the ob2ect
of the prestation. / co&&on &isconception is if the ob2ect of the
prestation is divisible, then the obligation is also divisible.
a. 4ivisible
/n obligation is divisible when it is susceptible to partial
perfor&ance.
b. Indivisible
/n obligation is indivisible when it cannot be validl$ perfor&ed in
parts.
!eneral "ule- Obligations are indivisible.
E)ce*tions+
i. !hen the parties provide otherwise */rticles 577F, .
rd
Q, 57=H

+
ii. !hen the nature of the obligation necessaril$ entails the
perfor&ance of the obligation in parts
Example: 1iring a securit$ guard to guard fro& Hp& to 7a&
dail$ for < &onths. This obligation cannot be perfor&ed
indivisibl$. Jou can(t co&press ti&e.
!hen the obligation has for its ob2ect the e6ecution of a certain
nu&ber of da$s of work, the acco&plish&ent of work b$
&etrical units, or analogous things, which b$ their nature are

Art. 1<40. Knless there is an e6press stipulation to that effect, the creditor cannot be
co&pelled partiall$ to receive the prestations in which the obligation consists. 9either &a$ the
debtor be re%uired to &ake partial pa$&ents.
1owever, when the debt is in part li%uidated and in part unli%uidated, the creditor &a$
de&and and the debtor &a$ effect the pa$&ent of the for&er without waiting for the
li%uidation of the latter.
susceptible of partial perfor&ance, it shall be divisible */rticle
577F, 7
nd
Q+
E)ce*tion to the E)ce*tion+ 1owever, even though the
ob2ect or service &a$ be ph$sicall$ divisible, an obligation is
indivisible if
5. 0o provided b$ law' or
7. Intended b$ the parties.
iii. !hen the law provides otherwise
There are provisions on pa$&ent which provide that
perfor&ance &a$ be divisible.
4ivisibilit$ of the ob2ect does not &ean that the obligation is also
divisible. But indivisibilit$ of the ob2ect necessaril$ &eans an indivisible
obligation.
The test of divisibilit$ of an obligation is whether or not it is susceptible
of partial perfor&ance.
@or e6a&ple, if D is supposed to deliver 5;;; kilos of sugar, this
does not &ean that D can deliver the sugar in install&ents.
F. According to @anction for Breach */rticles 577<357.;+
Art. 1,,6. In obligations ith a penal clause, the penalty
shall substitute the inde%nity for da%ages and the pay%ent of
interests in case of nonco%pliance, if there is no stipulation to the
contrary. Aevertheless, da%ages shall be paid if the obligor
refuses to pay the penalty or is guilty of fraud in the fulfill%ent of
the obligation.
$he penalty %ay be enforced only hen it is de%andable in
accordance ith the provisions of this Code.
Art. 1,,%. $he debtor cannot e4e%pt hi%self fro% the
perfor%ance of the obligation by paying the penalty, save in the
case here this right has been e4pressly reserved for hi%. Aeither
can the creditor de%and the fulfill%ent of the obligation and the
satisfaction of the penalty at the sa%e ti%e, unless this right has
been clearly granted hi%. 9oever, if after the creditor has
decided to re5uire the fulfill%ent of the obligation, the
perfor%ance thereof should beco%e i%possible ithout his fault,
the penalty %ay be enforced.
Art. 1,,&. Proof of actual da%ages suffered by the creditor
is not necessary in order that the penalty %ay be de%anded.
Art. 1,,'. $he judge shall e5uitably reduce the penalty
hen the principal obligation has been partly or irregularly
co%plied ith by the debtor. ,ven if there has been no
perfor%ance, the penalty %ay also be reduced by the courts if it is
ini5uitous or unconscionable.
Art. 1,.(. $he nullity of the penal clause does not carry
ith it that of the principal obligation.
$he nullity of the principal obligation carries ith it that of
the penal clause.
a. -o *enal clase
b. ;ith *enal clase
/ penal clause is an accessor$ undertaking to assu&e greater
liabilit$ in case of breach # vs. 2oon)al4$.
Penal clauses are governed b$ /rticles 777<3777H

, the provisions
on li%uidated da&ages since a penal clause is the sa&e as
li%uidated da&ages #.ambert vs. -ox$.
Penal clauses &a$ be reduced b$ the courts if unconscionable.
7 @unctions of a Penal Clause * vs. 2oon)al4+
i. To provide li%uidated da&ages
The creditor can de&and li%uidated da&ages without having
to prove actual da&ages.
The onl$ li&itation that the courts will reduce the li%uidated
da&ages if the sa&e is scandalousl$ unconscionable.
ii. To strengthen the coercive force of the obligation b$ the threat
of greater responsibilit$ in case of breach
0tipulates a penalt$ which is greater than one without a
penal clause. Thus, 7obesB-rancisco states that =T interest
is not a penal clause.
7 Characteristics of a Penal Clause
i. 0ubsidiar$ or alternative */rticle 577E+
!eneral "ule- Kpon breach of the obligation, the creditor
has to choose whether to de&and the principal or the
penalt$.
E)ce*tion+ The principal obligation and the penalt$ can be
de&anded when the penal clause is 2oint or cu&ulative.
This occurs when it is the creditor has been clearl$ granted
such right */rticle 577E, 7
nd
sentence+, either e6pressl$ or
i&pliedl$. The i&plied right &ust be one ascertainable fro&
the nature of the obligation. /n e6a&ple is in the
construction industr$ where the contractor &ust pa$ the
penalt$ if the work is co&pleted after the stipulated ti&e
fra&e but &ust also finish the agreed construction.
`
Art. <<<:. )i%uidated da&ages are those agreed upon b$ the parties to a contract, to be
paid in case of breach thereof.
Art. <<<1. )i%uidated da&ages, whether intended as an inde&nit$ or a penalt$, shall
be e%uitabl$ reduced if the$ are ini%uitous or unconscionable.
Art. <<<0. !hen the breach of the contract co&&itted b$ the defendant is not the
one conte&plated b$ the parties in agreeing upon the li%uidated da&ages, the law shall
deter&ine the &easure of da&ages, and not the stipulation.
ii. :6clusive */rticle 577<+
!eneral "ule- The penalt$ clause takes the place of other
da&ages *that(s wh$ in i&posing a penalt$ clause, &ake
sure that the penalt$ is stiff+.
E)ce*tion+ Both the penalt$ and actual da&ages &a$ be
recovered in the following:
5. :6press stipulation
7. ,efusal b$ the debtor to pa$ the penalt$
.. The debtor is guilt$ of fraud *&alice+ in the perfor&ance
of the obligation.
In &amintuan vs. CA, the 0upre&e Court said that
the e6cess of da&ages absorbs the penalt$.
Professor Balane said that this is a wrong application.
Jou can de&and both the e6cess and the penalt$.

9. E)tingish"ent of Obligations
Art. 1,.1. Obligations are e4tinguished-
.1/ By pay%ent or perfor%ance-
.#/ By the loss of the thing due-
.&/ By the condonation or re%ission of the debt1
.'/ By the confusion or %erger of the rights of creditor and
debtor1
.)/ By co%pensation1
.=/ By novation.
Other causes of e4tinguish%ent of obligations, such as
annul%ent, rescission, fulfill%ent of a resolutory condition, and
prescription, are governed elsehere in this Code.
5. Pay%ent or Perfor%ance */rticles 57.7 8 57F5+
Art. 1,.,. Pay%ent %eans not only the delivery of %oney
but also the perfor%ance, in any other %anner, of an obligation.
Art. 1,... A debt shall not be understood to have been paid
unless the thing or service in hich the obligation consists has
been co%pletely delivered or rendered, as the case %ay be.
Art. 1,./. If the obligation has been substantially
perfor%ed in good faith, the obligor %ay recover as though there
had been a strict and co%plete fulfill%ent, less da%ages suffered
by the obligee.
Art. 1,.5. ;hen the obligee accepts the perfor%ance,
(noing its inco%pleteness or irregularity, and ithout
e4pressing any protest or objection, the obligation is dee%ed fully
co%plied ith.
Art. 1,.6. $he creditor is not bound to accept pay%ent or
perfor%ance by a third person ho has no interest in the
fulfill%ent of the obligation, unless there is a stipulation to the
contrary.
;hoever pays for another %ay de%and fro% the debtor
hat he has paid, e4cept that if he paid ithout the (noledge or
against the ill of the debtor, he can recover only insofar as the
pay%ent has been beneficial to the debtor.
Art. 1,.%. ;hoever pays on behalf of the debtor ithout
the (noledge or against the ill of the latter, cannot co%pel the
creditor to subrogate hi% in his rights, such as those arising fro%
a %ortgage, guaranty, or penalty.
Art. 1,.&. Pay%ent %ade by a third person ho does not
intend to be rei%bursed by the debtor is dee%ed to be a donation,
hich re5uires the debtorDs consent. But the pay%ent is in any
case valid as to the creditor ho has accepted it.
Art. 1,.'. In obligations to give, pay%ent %ade by one ho
does not have the free disposal of the thing due and capacity to
alienate it shall not be valid, ithout prejudice to the provisions of
article 1'#8 under the $itle on EAatural Obligations.E
Art. 1,/(. Pay%ent shall be %ade to the person in hose
favor the obligation has been constituted, or his successor in
interest, or any person authorized to receive it.
Art. 1,/1. Pay%ent to a person ho is incapacitated to
ad%inister his property shall be valid if he has (ept the thing
delivered, or insofar as the pay%ent has been beneficial to hi%.
Pay%ent %ade to a third person shall also be valid insofar
as it has redounded to the benefit of the creditor. @uch benefit to
the creditor need not be proved in the folloing cases-
.1/ If after the pay%ent, the third person ac5uires the
creditorDs rights1
.#/ If the creditor ratifies the pay%ent to the third person1
.&/ If by the creditorDs conduct, the debtor has been led to
believe that the third person had authority to receive the
pay%ent.
Art. 1,/,. Pay%ent %ade in good faith to any person in
possession of the credit shall release the debtor.
Art. 1,/.. Pay%ent %ade to the creditor by the debtor after
the latter has been judicially ordered to retain the debt shall not
be valid.
Art. 1,//. $he debtor of a thing cannot co%pel the creditor
to receive a different one, although the latter %ay be of the sa%e
value as, or %ore valuable than that hich is due.
In obligations to do or not to do, an act or forbearance
cannot be substituted by another act or forbearance against the
obligeeDs ill.
Art. 1,/5. *ation in pay%ent, hereby property is
alienated to the creditor in satisfaction of a debt in %oney, shall
be governed by the la of sales.
Art. 1,/6. ;hen the obligation consists in the delivery of an
indeter%inate or generic thing, hose 5uality and circu%stances
have not been stated, the creditor cannot de%and a thing of
superior 5uality. Aeither can the debtor deliver a thing of inferior
5uality. $he purpose of the obligation and other circu%stances
shall be ta(en into consideration.
Art. 1,/%. Bnless it is otherise stipulated, the
e4trajudicial e4penses re5uired by the pay%ent shall be for the
account of the debtor. ;ith regard to judicial costs, the "ules of
Court shall govern.
Art. 1,/&. Bnless there is an e4press stipulation to that
effect, the creditor cannot be co%pelled partially to receive the
prestations in hich the obligation consists. Aeither %ay the
debtor be re5uired to %a(e partial pay%ents.
9oever, hen the debt is in part li5uidated and in part
unli5uidated, the creditor %ay de%and and the debtor %ay effect
the pay%ent of the for%er ithout aiting for the li5uidation of
the latter.
Art. 1,/'. $he pay%ent of debts in %oney shall be %ade in
the currency stipulated, and if it is not possible to deliver such
currency, then in the currency hich is legal tender in the
Philippines.
$he delivery of pro%issory notes payable to order, or bills of
e4change or other %ercantile docu%ents shall produce the effect
of pay%ent only hen they have been cashed, or hen through
the fault of the creditor they have been i%paired.
In the %eanti%e, the action derived fro% the original
obligation shall be held in the abeyance.
Art. 1,5(. In case an e4traordinary inflation or deflation of
the currency stipulated should supervene, the value of the
currency at the ti%e of the establish%ent of the obligation shall be
the basis of pay%ent, unless there is an agree%ent to the
contrary.
Art. 1,51. Pay%ent shall be %ade in the place designated
in the obligation.
$here being no e4press stipulation and if the underta(ing is
to deliver a deter%inate thing, the pay%ent shall be %ade
herever the thing %ight be at the %o%ent the obligation as
constituted.
In any other case the place of pay%ent shall be the do%icile
of the debtor.
If the debtor changes his do%icile in bad faith or after he
has incurred in delay, the additional e4penses shall be borne by
hi%.
$hese provisions are ithout prejudice to venue under the
"ules of Court.
)ike obligee and creditor, pa$&ent and perfor&ance are twin ter&s.
Pa$&ent refers to obligations to give while perfor&ance refers to
obligations to do.
Pa$&ent and perfor&ance is the paradig&atic &ode. !hen
obligations are entered into, the parties e6pect pa$&ent or
perfor&ance. /ll other &odes of e6tinguishing obligations are
abnor&al &odes.
,e%uisites of Pa$&ent
a. As to *restation
i. 9dentit(
Identit$ &eans that the ver$ prestation &ust be perfor&ed.
@or e6a&ple, if the obligation is to give a car, one cannot
fulfill the obligation pa$ giving a house.
If the prestation is specific, the debtor &ust give or deliver
the specific thing which was agreed upon */rticle 57==

+.
If the prestation is generic, the creditor cannot de&and a
thing of superior %ualit$. 1owever, the debtor cannot give a
thing of inferior %ualit$ */rticle 57=<

+.
The pa$&ent of debts in &one$ shall be &ade in the
currenc$ stipulated, and if it not possible to deliver such
currenc$, then in the currenc$ which is legal tender in the
Philippines */rticle 57=>

, 5
st
Q+.
,./. 9o. F7> has been repealed b$ ,./. 9o. H5H. which
allows pa$&ent in different currenc$. 1owever, in the
absence of an agree&ent, pa$&ent shall be &ade in P.
9egotiable papers and other co&&ercial docu&ents can be
refused b$ the creditor unless there is stipulation to the
contrar$.
If the negotiable papers and other co&&ercial docu&ents
are accepted b$ the creditor, it has onl$ a provisional effect.
There is pa$&ent onl$ in the following */rticle 57=>

, 7
nd
Q+.
5. !hen the$ have been honored and cashed' or
7. !hen through the fault of the creditor, the$ have been
i&paired
`
Art. 1<44. The debtor of a thing cannot co&pel the creditor to receive a different one,
although the latter &a$ be of the sa&e value as, or &ore valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be substituted b$
another act or forbearance against the obligeeRs will.

Art. 1<4:. !hen the obligation consists in the deliver$ of an indeter&inate or generic thing,
whose %ualit$ and circu&stances have not been stated, the creditor cannot de&and a thing of
superior %ualit$. 9either can the debtor deliver a thing of inferior %ualit$. The purpose of the
obligation and other circu&stances shall be taken into consideration.

Art. 1<49. The pa$&ent of debts in &one$ shall be &ade in the currenc$ stipulated, and if
it is not possible to deliver such currenc$, then in the currenc$ which is legal tender in the
Philippines.
The deliver$ of pro&issor$ notes pa$able to order, or bills of e6change or other
&ercantile docu&ents shall produce the effect of pa$&ent onl$ when the$ have been cashed,
or when through the fault of the creditor the$ have been i&paired.
In the &eanti&e, the action derived fro& the original obligation shall be held in the
abe$ance.
In the case of "A2A7C!, the check &ust be the check of
another person, not a part$, before there will be
i&pair&ent.
@or e6a&ple, / gave B a check as pa$&ent for a loan. B did
not encash the check as a result of which, the check
beca&e stale. There is no i&pair&ent here. B can still ask
/ for pa$&ent of the loan.
1owever, if B endorsed a check &ade b$ / to C as pa$&ent
for a loan and C did not encash the check which beca&e
stale, then C can no longer ask B to pa$ hi& again.
In the case of &acific ,imber, the 0upre&e Court said that a
certified check or a &anager(s check is considered as good
as cash. But newer cases sa$ that such instru&ents are not
considered legal tender and thus, the creditor can refuse to
accept. @or e6a&ple, / gives B a &anager(s check and
bank closes for a bank holida$.
/rticle 57F;
?
was applied onl$ during the Iapanese
occupation.
:6ceptions to the ,e%uire&ent of Identit$
5. 3acion en pago */rticle 57=F+
Art. 1,/5. *ation in pay%ent, hereby
property is alienated to the creditor in satisfaction
of a debt in %oney, shall be governed by the la
of sales.
7. 9ovation
ii. 9ntegrit(
Identit$ &eans that the entire prestation &ust be
perfor&ed 8 co&pleteness */rticle 57..

+
:6ceptions to Integrit$
5. 0ubstantial co&pliance in good faith
*/rticle 57.=+
Art. 1,./. If the obligation has been
substantially perfor%ed in good faith, the obligor
%ay recover as though there had been a strict and
co%plete fulfill%ent, less da%ages suffered by the
obligee.
7. !aiver */rticle 57.F+
*
Art. 1<;0. In case an e6traordinar$ inflation or deflation of the currenc$ stipulated should
supervene, the value of the currenc$ at the ti&e of the establish&ent of the obligation shall be
the basis of pa$&ent, unless there is an agree&ent to the contrar$.
_
Art. 1<//. / debt shall not be understood to have been paid unless the thing or service in
which the obligation consists has been co&pletel$ delivered or rendered, as the case &a$ be.
Art. 1,.5. ;hen the obligee accepts the
perfor%ance, (noing its inco%pleteness or
irregularity, and ithout e4pressing any protest or
objection, the obligation is dee%ed fully co%plied
ith.
.. In application of pa$&ents if the debts
are e%uall$ onerous */rticle 57F=, 7
nd
Q+
Art. 1,5/6 ,
nd
7. If the debts due are of the
sa%e nature and burden, the pay%ent shall be
applied to all of the% proportionately.
iii. Indivisibilit$
Indivisibilit$ &eans that the obligor &ust perfor& the
prestation in one act and not in install&ents */rticle 57=H+.
The creditor can validl$ refuse if the perfor&ance is not in
one act.
:6ceptions to Indivisibilit$ *Cases when the law allows
install&ent perfor&ance+
5. In case of e6press stipulation */rticle 57=H+
Art. 1,/&. Bnless there is an e4press
stipulation to that effect, the creditor cannot be
co%pelled partially to receive the prestations in
hich the obligation consists. Aeither %ay the
debtor be re5uired to %a(e partial pay%ents.
9oever, hen the debt is in part li5uidated
and in part unli5uidated, the creditor %ay de%and
and the debtor %ay effect the pay%ent of the
for%er ithout aiting for the li5uidation of the
latter.
7. In prestations which necessaril$ entail partial
perfor&ance */rticle 577F, 7
nd
Q+
Art. 1,,56 ,
nd
7. ;hen the obligation has
for its object the e4ecution of a certain nu%ber of
days of or(, the acco%plish%ent of or( by
%etrical units, or analogous things hich by their
nature are susceptible of partial perfor%ance, it
shall be divisible.
.. If the debt is li%uidated in part and unli%uidated in part
*/rticle 57=H+
Art. 1,/&. Bnless there is an e4press
stipulation to that effect, the creditor cannot be
co%pelled partially to receive the prestations in
hich the obligation consists. Aeither %ay the
debtor be re5uired to %a(e partial pay%ents.
9oever, hen the debt is in part li5uidated
and in part unli5uidated, the creditor %ay de%and
and the debtor %ay effect the pay%ent of the
for%er ithout aiting for the li5uidation of the
latter.
=. In 2oint divisible obligations */rticle
57;H+
Art. 1,(&. If fro% the la, or the nature or
the ording of the obligations to hich the
preceding article refers the contrary does not
appear, the credit or debt shall be presu%ed to be
divided into as %any shares as there are creditors
or debtors, the credits or debts being considered
distinct fro% one another, subject to the "ules of
Court governing the %ultiplicity of suits.
F. In solidar$ obligations when the
debtors are bound under different ter&s and conditions
*/rticle 5755+
Art. 1,11. @olidarity %ay e4ist although the
creditors and the debtors %ay not be bound in the
sa%e %anner and by the sa%e periods and
conditions.
<. In co&pensation where there is a
balance left */rticle 57>;+
Art. 1,'(. ;hen all the re5uisites
%entioned in article 1#8? are present,
co%pensation ta(es effect by operation of la,
and e4tinguishes both debts to the concurrent
a%ount, even though the creditors and debtors are
not aare of the co%pensation.
E. If the work is to be delivered partiall$,
the price or co&pensation for each part having been
fi6ed */rticle 5E7;+
Art. 1%,(. $he price or co%pensation shall
be paid at the ti%e and place of delivery of the
or(, unless there is a stipulation to the contrary.
If the or( is to be delivered partially, the price or
co%pensation for each part having been fi4ed, the
su% shall be paid at the ti%e and place of delivery,
in the absence if stipulation.
H. In case of several guarantors who
de&and the right of division */rticle 7;<F+
Art. ,(65. @hould there be several
guarantors of only one debtor and for the sa%e
debt, the obligation to anser for the sa%e is
divided a%ong all. $he creditor cannot clai% fro%
the guarantors e4cept the shares hich they are
respectively bound to pay, unless solidarity has
been e4pressly stipulated.
$he benefit of division against the co3
guarantors ceases in the sa%e cases and for the
sa%e reasons as the benefit of e4cussion against
the principal debtor.
>. In case of i&possibilit$ or e6tre&e
difficult of a single perfor&ance
@or e6a&ple, / is obligated to deliver 5 &illion bags
of ce&ent. Knder the circu&stances, this &a$ be
e6tre&el$ difficult.
b. As to the *arties
i. &a(or, !bligor, 3ebtor
!ho &a$ be the Pa$or
5. !ithout the consent of the creditor
a. The debtor hi&self
b. The debtor(s heirs or assigns
c. The debtor(s agent
d. /n$one interested in the fulfill&ent of the obligation
*e.g. guarantor+
7. !ith the consent of the creditor
/n$one can pa$ if the creditor consents
:ffect of Pa$&ent b$ a .
rd
Person
5. Pa$&ent was with the 4ebtor(s Consent
!eneral "ule- The pa$or steps into the shoes of
the creditor and beco&es entitled not onl$ to recover
what he has paid, but also to e6ercise all the rights
which the creditor could have e6ercised 8
subrogation */rticles 57.<, 57.E

+.
There is no e6tinguish&ent of the obligation but
a change in the active sub2ect.
E)ce*tion+ 9o subrogation if intended to be a
donation */rticle 57.H

+.
7. Pa$&ent was without the 4ebtor(s Consent
The .
rd
person &a$ de&and repa$&ent to the
e6tent that the debtor has benefited */rticle 57.<,
7
nd
Q

+.
ii. &a(ee, !bligee, Creditor
!ho &a$ be the Pa$ee
_
Art. 1</:. The creditor is not bound to accept pa$&ent or perfor&ance b$ a third person
who has no interest in the fulfill&ent of the obligation, unless there is a stipulation to the
contrar$.
!hoever pa$s for another &a$ de&and fro& the debtor what he has paid, e6cept that
if he paid without the knowledge or against the will of the debtor, he can recover onl$ insofar
as the pa$&ent has been beneficial to the debtor.
Art. 1</1. !hoever pa$s on behalf of the debtor without the knowledge or against
the will of the latter, cannot co&pel the creditor to subrogate hi& in his rights, such as those
arising fro& a &ortgage, guarant$, or penalt$.
_
Art. 1</0. Pa$&ent &ade b$ a third person who does not intend to be rei&bursed b$ the
debtor is dee&ed to be a donation, which re%uires the debtorRs consent. But the pa$&ent is in
an$ case valid as to the creditor who has accepted it.
5. The creditor hi&self */rticles 57=;, 5<7<

+
7. The creditor(s successor or transferee */rticle 57=;+
.. The creditor(s agent */rticle 57=;+
=. /n$ third person sub2ect to the following conditions:
a. Provided it redounded to the creditor(s benefit and
onl$ to the e6tent of such benefit */rticle 57=5

, 7
nd
par+
b. If it falls under /rticle 57=5 Q7 *5+, *7+ and *.+, the
benefit is total.
F. /n$one in possession of the credit */rticle 57=7

+
<. In all these F instances, it is re%uired that the debt
should not be garnished */rticle 57=7+. If there is
pa$&ent despite garnish&ent, then there is no
pa$&ent.
c. As to the ti"e and *lace of *erfor"ance
i. 5%en &a(ment %ould be 2ade
Pa$&ent should be &ade when it is due.
:ven if the pa$&ent is due, the !eneral "ule is that
de&and is still necessar$.
_
Art. 1<40. Pa$&ent shall be &ade to the person in whose favor the obligation has been
constituted, or his successor in interest, or an$ person authori-ed to receive it.
Art. 1:<:. The debtor who, before having knowledge of the assign&ent, pa$s his
creditor shall be released fro& the obligation.

Art. 1<41. Pa$&ent to a person who is incapacitated to ad&inister his propert$ shall be
valid if he has kept the thing delivered, or insofar as the pa$&ent has been beneficial to hi&.
Pa$&ent &ade to a third person shall also be valid insofar as it has redounded to the benefit
of the creditor. 0uch benefit to the creditor need not be proved in the following cases:
*5+ If after the pa$&ent, the third person ac%uires the creditorRs rights'
*7+ If the creditor ratifies the pa$&ent to the third person'
*.+ If b$ the creditorRs conduct, the debtor has been led to believe that the third person
had authorit$ to receive the pa$&ent.
`
Art. 1<4<. Pa$&ent &ade in good faith to an$ person in possession of the credit shall
release the debtor.
/rticle 55<>

provides the instances when de&and is not

necessar$
5. !hen the obligation or the law
e6pressl$ so declares
7. Ti&e is the controlling &otive for the
establish&ent of the contract
.. 4e&and would be useless
ii. 5%ere &a(ment %ould be 2ade:
Pri%ary "ule- /gree&ent of the parties
@econdary "ule- Place where the thing was at the ti&e the
obligation was constituted if the obligation is to deliver a
deter&inate thing
$ertiary "ule- 4ebtor(s do&icile *not residence+
= 0pecial @or&s of Pa$&ent
a. Dacion en *ago */rticle 57=F+
Art. 1,/5. *ation in pay%ent, hereby property is
alienated to the creditor in satisfaction of a debt in %oney,
shall be governed by the la of sales.
3acion en pago is the act of e6tinguishing the obligation b$ the
substitution of pa$&ent. It is the deliver$ and trans&ission of
ownership of a thing b$ the debtor to the creditor as an
accepted perfor&anceOpa$&ent of an obligation.
B$ agree&ent of the parties, the prestation is changed.
3acion en pago is a special for& of pa$&ent since it does not
co&pl$ with the re%uisite of identit$.
Other ter&s for dacion en pago include dation in pa$&ent,
dation en paiement and datio in solutum.
3acion en pago is governed b$ the law on sales */rticle 57=F+.
There are 7 wa$s of looking at dacion en pago. The traditional
wa$ is to view dacion en pago as a sale.
`
Art. 11:9. Those obliged to deliver or to do so&ething incur in dela$ fro& the ti&e the
obligee 2udiciall$ or e6tra2udiciall$ de&ands fro& the& the fulfill&ent of their obligation.
1owever, the de&and b$ the creditor shall not be necessar$ in order that dela$ &a$
e6ist:
*5+ !hen the obligation or the law e6pressl$ so declare' or
*7+ !hen fro& the nature and the circu&stances of the obligation it appears that the
designation of the ti&e when the thing is to be delivered or the service is to be
rendered was a controlling &otive for the establish&ent of the contract' or
*.+ !hen de&and would be useless, as when the obligor has rendered it be$ond his power
to perfor&.
In reciprocal obligations, neither part$ incurs in dela$ if the other does not co&pl$ or
is not read$ to co&pl$ in a proper &anner with what is incu&bent upon hi&. @ro& the
&o&ent one of the parties fulfills his obligation, dela$ b$ the other begins.
Example: / owes B P5;;,;;;. / has no cash when the loan
falls due but he offers the car if B wants it. B accepts.
1ere, the debt is in &one$ but pa$&ent is in so&ething else.
/ccording to the old traditional concept, it is like a sale because
P5;;,;;; see&ed to be the purchase price and the car is the
ob2ect.
1owever, the &odern view is to look at dacion en pago as a
novation.
Castan has another view of dacion en pago. 1e believes that it
is neither a sale nor a novation but a special for& of pa$&ent.
It is a speciesOvariation of pa$&ent i&pl$ing an onerous
transaction si&ilar to but not e%ual to a sale. It is not novation
since there is no new obligation.
3acion en pago will take place onl$ if the parties consent.
3acion en pago e6tinguishes the obligation up to the value of
the thing delivered unless the parties agree that the entire
obligation is e6tinguished #.ope+ vs. CA$.
b. A**lication of *a0"ents */rticles 57F7357F=+
Art. 1,5,. 9e ho has various debts of the sa%e (ind
in favor of one and the sa%e creditor, %ay declare at the
ti%e of %a(ing the pay%ent, to hich of the% the sa%e
%ust be applied. Bnless the parties so stipulate, or hen
the application of pay%ent is %ade by the party for hose
benefit the ter% has been constituted, application shall not
be %ade as to debts hich are not yet due.
If the debtor accepts fro% the creditor a receipt in
hich an application of the pay%ent is %ade, the for%er
cannot co%plain of the sa%e, unless there is a cause for
invalidating the contract.
Art. 1,5.. If the debt produces interest, pay%ent of
the principal shall not be dee%ed to have been %ade until
the interests have been covered.
Art. 1,5/. ;hen the pay%ent cannot be applied in
accordance ith the preceding rules, or if application can
not be inferred fro% other circu%stances, the debt hich is
%ost onerous to the debtor, a%ong those due, shall be
dee%ed to have been satisfied.
If the debts due are of the sa%e nature and burden,
the pay%ent shall be applied to all of the% proportionately.
/pplication pa$&ent is the designation of the debt which is
being paid b$ a debtor who has several obligations of the sa&e
kind in favor of the creditor to who& pa$&ent is &ade.
The situation in application of pa$&ents is that a debtor owes
his creditor. There are several debts due, but the debtor cannot
pa$ all of the debts due.
Example: / owes B P7;;;, P.;;; and P5;,;;;. / gives B
P5F,;;;. There is no application of pa$&ent here because it is
e%ual to the total a&ount due.
The creditor can alwa$s not accept application of pa$&ents
since the creditor cannot be co&pelled to accept partial
perfor&ance of the obligation. 1owever, this &a$ not be wise
since the debtor &a$ have other creditors.
The rules on application of pa$&ent solve the proble& of
distributing the pa$&ent which is less than the total obligation.
,ules in /pplication of Pa$&ent
1
st
"ule- /ppl$ in accordance with the agree&ent
#
nd
"ule- If there is no agree&ent, the debtor has the right
to appl$
&
rd
"ule- If the debtor does not choose, the creditor can
choose.
'
th
"ule- /ppl$ to the &ost onerous debt */rticle 57F=, Q5+
,ules to 4eter&ine !hich is the Bore Onerous
Obligation
i. /n interest bearing obligation is &ore onerous than a
non3interest bearing obligation.
ii. /n older debt is &ore onerous than a recent debt
iii. /n obligation where the part$ is bound as a principal
is &ore onerous than an obligation is bound as a
suret$
iv. /n obligation which is secured is &ore onerous than
an obligation which is unsecured
v. /n obligation with a penal clause is &ore onerous
than an obligation without a penal clause
)
th
"ule- If e%uall$ onerous, appl$ proportionatel$ */rticle
57F=, Q7+
c. 5a0"ent b0 cession */rticle 57FF+
Art. 1,55. $he debtor %ay cede or assign his
property to his creditors in pay%ent of his debts. $his
cession, unless there is stipulation to the contrary, shall
only release the debtor fro% responsibility for the net
proceeds of the thing assigned. $he agree%ents hich, on
the effect of the cession, are %ade beteen the debtor and
his creditors shall be governed by special las.
The situation is conte&plated here is that the debtor has
several creditors and several debts. 1e turns over propert$ to
his creditors who are given the authorit$ to sell the propert$
and to appl$ the proceeds to his debt.
In pa$&ent b$ cession, propert$ is turned over b$ the debtor to
the creditors who ac%uire the right to sell it and divide the net
proceeds a&ong the&selves.
In pa$&ent b$ cession, the creditors do not own the propert$
to be sold. The creditors onl$ have the power to sell. The net
proceeds of the sale will be distributed according to the
agree&ent.
Pa$&ent b$ cession is a special for& of pa$&ent because there
is no co&pleteness of perfor&ance 8 integrit$. In &ost cases,
there will be a balance due.
Pa$&ent b$ Cession 4istinguished fro& 3acion en &ago
In dacion en pago, there is a transfer of ownership fro& the
debtor to the creditor. In pa(ment b( cesion, there is no
transfer of ownership. The creditors si&pl$ ac%uire the
right to sell the properties of the debtor and appl$ the
proceeds of the sale to the satisfaction of their credit.
Pa$&ent b$ cession does not generall$ ter&inate all debts
due since nor&all$ there is still a balance due. The balance
will continue to be due unless the parties agree otherwise.
Ksuall$, the ter&ination is onl$ to the e6tent of the net
proceeds. The e6tinguish&ent of the obligation is pro tanto.
Pa$&ent b$ cession &ust be distinguished fro& insolvenc$.
7 Pinds of Insolvenc$
i. :6tra2udicial or oluntar$
In e6tra2udicial insolvenc$, if there is a balance left,
the debtor &ust still pa$.
1owever, the debtor &a$ li&it which properties will
be sold b$ the creditors since the agree&ent is
contractual.
ii. Iudicial
In 2udicial insolvenc$, the obligation is totall$
e6tinguished even if there(s still a balance.
In 2udicial insolvenc$, ever$ propert$ which is not
e6e&pt fro& attach&ent or e6ecution is &ade
available for sale.
d. Tender of *a0"ent and consignation */rticle 57F<357<5+
Art. 1,56. If the creditor to ho% tender of pay%ent
has been %ade refuses ithout just cause to accept it, the
debtor shall be released fro% responsibility by the
consignation of the thing or su% due.
Consignation alone shall produce the sa%e effect in
the folloing cases-
.1/ ;hen the creditor is absent or un(non, or does not
appear at the place of pay%ent1
.#/ ;hen he is incapacitated to receive the pay%ent at
the ti%e it is due1
.&/ ;hen, ithout just cause, he refuses to give a
receipt1
.'/ ;hen to or %ore persons clai% the sa%e right to
collect1
.)/ ;hen the title of the obligation has been lost.
Art. 1,5%. In order that the consignation of the thing
due %ay release the obligor, it %ust first be announced to
the persons interested in the fulfill%ent of the obligation.
$he consignation shall be ineffectual if it is not %ade
strictly in consonance ith the provisions hich regulate
pay%ent.
Art. 1,5&. Consignation shall be %ade by depositing
the things due at the disposal of judicial authority, before
ho% the tender of pay%ent shall be proved, in a proper
case, and the announce%ent of the consignation in other
cases.
$he consignation having been %ade, the interested
parties shall also be notified thereof.
Art. 1,5'. $he e4penses of consignation, hen
properly %ade, shall be charged against the creditor.
Art. 1,6(. Once the consignation has been duly
%ade, the debtor %ay as( the judge to order the
cancellation of the obligation.
Before the creditor has accepted the consignation, or
before a judicial declaration that the consignation has been
properly %ade, the debtor %ay ithdra the thing or the
su% deposited, alloing the obligation to re%ain in force.
Art. 1,61. If, the consignation having been %ade, the
creditor should authorize the debtor to ithdra the sa%e,
he shall lose every preference hich he %ay have over the
thing. $he co3debtors, guarantors and sureties shall be
released.
Consignation is the act of depositing the thing due wO the court
or 2udicial authorities whenever the creditor cannot accept or
refuses to accept pa$&ent and it generall$ re%uires a prior
tender of pa$&ent.
It is defined in the case of oco vs. 2ilitante as a deposit of the
ob2ect of the prestation in a co&petent court in accordance with
the rules prescribed b$ law, after tender of pa$&ent was
refused or circu&stances which render pa$&ent i&possible or
inadvisable.
/ccording to Professor Balane, the title of the subsection is
wrong. It should have been consignation onl$ because that is
the special &ode of pa$&ent and not the tender of pa$&ent.
Tender of pa$&ent is a &anifestation &ade b$ the debtor of his
willingness, readiness and abilit$ to pa$.
It is a special &ode of pa$&ent because pa$&ent is &ade not
to the creditor but to the court.
Consignation is an option on the part of the debtor because
consignation assu&es that the creditor was in mora accipiendi
when the creditor without 2ust cause, refuses to accept
pa$&ent. Of course, if the creditor without 2ust cause refuses
to accept pa$&ent, the debtor &a$ 2ust dela$ pa$&ent. But
so&ething still hangs above his head. 1e is therefore, given
the option to consign.
,e%uisites:
i. That there was a debt due
ii. That the consignation of the obligation had been &ade
because of so&e legal cause, either because
5. Tender of pa$&ent was un2ustl$ refused b$ the creditor
or
7. There is no need for tender of pa$&ent due to
circu&stances which &ake tender of pa$&ent i&possible
or inadvisable
Circu&stances !hich Bake Tender of Pa$&ent
Knnecessar$ */rticle 57F<+
a. The creditor was absent or unknown, or does not
appear at the place of pa$&ent
b. The creditor was incapacitated to receive the
pa$&ent at the ti&e it was due
Pa$&ent &ade to an incapacitated person
does not count e6cept to the e6tent that the
incapacitated person is benefited.
c. The creditor, without 2ust cause refuses to give a
receipt
/ccording to Professor Balane, this is wrong.
This is not a special case wherein $ou don(t
need tender of pa$&ent. This presupposes
that there has been a prior tender of
pa$&ent.
d. 0everal persons clai&ed to be entitled to receive
the a&ount due
The debtor should file interpleader with
consignation
e. The title of the obligation has been lost
iii. That previous notice of the consignation had been given to
the person interested in the perfor&ance of the obligation
*/rticle 57FE+
iv. That the a&ount due was placed at the disposal of the court
*consignation proper+
v. That after the consignation had been &ade the person
interested was notified thereof *second notice.+
@ailure of an$ of these re%uire&ents is enough ground to
render a consignation ineffective.
7. 0oss of the $hing *ue */rticles 57<7357<>+
Art. 1,6,. An obligation hich consists in the delivery of a
deter%inate thing shall be e4tinguished if it should be lost or
destroyed ithout the fault of the debtor, and before he has
incurred in delay.
;hen by la or stipulation, the obligor is liable even for
fortuitous events, the loss of the thing does not e4tinguish the
obligation, and he shall be responsible for da%ages. $he sa%e rule
applies hen the nature of the obligation re5uires the assu%ption
of ris(.
Art. 1,6.. In an obligation to deliver a generic thing, the
loss or destruction of anything of the sa%e (ind does not
e4tinguish the obligation.
Art. 1,6/. $he courts shall deter%ine hether, under the
circu%stances, the partial loss of the object of the obligation is so
i%portant as to e4tinguish the obligation.
Art. 1,65. ;henever the thing is lost in the possession of
the debtor, it shall be presu%ed that the loss as due to his fault,
unless there is proof to the contrary, and ithout prejudice to the
provisions of article 11=). $his presu%ption does not apply in case
of earth5ua(e, flood, stor%, or other natural cala%ity.
Art. 1,66. $he debtor in obligations to do shall also be
released hen the prestation beco%es legally or physically
i%possible ithout the fault of the obligor.
Art. 1,6&. ;hen the debt of a thing certain and
deter%inate proceeds fro% a cri%inal offense, the debtor shall not
be e4e%pted fro% the pay%ent of its price, hatever %ay be the
cause for the loss, unless the thing having been offered by hi% to
the person ho should receive it, the latter refused ithout
justification to accept it.
Art. 1,6'. $he obligation having been e4tinguished by the
loss of the thing, the creditor shall have all the rights of action
hich the debtor %ay have against third persons by reason of the
loss.
)oss of the thing here is not to be taken in the strict legal &eaning of
"loss#. )oss can be applied in an obligation to give a deter&inate
thing */rticle 57<7+, in an obligation to give a generic thing */rticle
57<.+ and in an obligation to do */rticle 57<<+.
The ter& loss e&braces all causes which &a$ render i&possible the
perfor&ance of the prestations 8 i&possibilit$ of perfor&ance .
/ thing is lost when it perishes, or goes out of co&&erce, or
disappears in such a wa$ that its e6istence is unknown or it cannot be
recovered.
!hen the debt of a thing certain and deter&inate proceeds fro& a
cri&inal offense, the debtor shall not be e6e&pted fro& the pa$&ent
of its price, whatever &a$ be the cause for the loss, unless the thing
having been offered b$ hi& to the person who should receive it, the
latter refused without 2ustification to accept it */rticle 57<H+.
Pinds of I&possibilit$ /ccording to Ti&e
a. Original I&possibilit$
If the i&possibilit$ had alread$ e6isted when the contract was
&ade, then the result is not e6tinguish&ents but inefficac$ of
the obligation under /rticles 5.=H and 5=>.

. The contract is
void.
b. 0upervening I&possibilit$
The i&possibilit$ of perfor&ance &ust be subse%uent to the
e6ecution of the contract in order to e6tinguish the obligation.
Change in the Circu&stances
7ebus sic stantibus literall$ &eans "things as the$ stand.#
It is short for clausula rebus sic stantibus 8 agree&ent of
things as the$ stand. /lso called 7iesgo imprevisible
*0panish+, ,%eorie d'imprevision *@rench+ and
?ersc%uvinden des *rundgesc%Cftes *Ger&an+.
Art. 1,6%. ;hen the service has beco%e so
difficult as to be %anifestly beyond the conte%plation
of the parties, the obligor %ay also be released
therefro%, in hole or in part.
In ,o&an law, no &atter how difficult the obligation is, it
has to be perfor&ed or else the obligor &a$ be liable for
da&ages #pacta sunt servanda$. In Bedieval ti&es,
although agree&ents should be co&plied with, in certain

Art. 1/40. I&possible things or services cannot be the ob2ect of contracts.

Art. 149/. If at the ti&e the contract of sale is perfected, the thing which is the ob2ect
of the contract has been entirel$ lost, the contract shall be without an$ effect.
But if the thing should have been lost in part onl$, the vendee &a$ choose between
withdrawing fro& the contract and de&anding the re&aining part, pa$ing its price in
proportion to the total su& agreed upon.
e6tre&e circu&stances, the debtor can be released because
of the difficult$ in perfor&ance.
This is a principle of international law which holds that when
7 states enter into a treat$, the$ enter taking into account
the circu&stances at the ti&e it was entered into and
should the circu&stances change as to &ake the fulfill&ent
of the treat$ ver$ difficult, one &a$ ask for a ter&ination of
the treat$. This principle of international law has spilled
over into Civil law.
The underl$ing philosoph$ here is that when parties enter
into an agree&ent, the parties conte&plate e6isting
circu&stances. !hen things supervene, the parties &a$ be
discharged because the$ did not conte&plate such difficult
circu&stances.
This doctrine is also called the doctrine of e6tre&e difficult$
and frustration of co&&ercial ob2ect or enterprise.
The attitude of the courts on this doctrine is ver$ strict.
This principle has alwa$s been strictl$ applied. To give it a
liberal application is to under&ine the binding force of an
obligation. :ver$ obligation is difficult. The perfor&ance
&ust be e6tre&el$ difficult in order for rebus sic stantibus
to appl$.
,e%uisites
i. The event or change could not have been foreseen at
the ti&e of the e6ecution of the contract
ii. The event or change &akes the perfor&ance e6tre&el$
difficult but not i&possible
iii. The event &ust not be due to an act of either part$
iv. The contract is for a future prestation.
If the contract is of i&&ediate fulfill&ent, the gross
ine%ualit$ of the reciprocal prestation &a$ involve lesion or
want of cause.
Obligation to Give
a. Obligation to give a deter&inate thing
The happening of a fortuitous event in itself does not
necessaril$ e6tinguish an obligation to deliver a deter&inate
thing. /n obligation consisting in the deliver$ of a specified
thing, shall be e6tinguished when the said thing is lost or
destro$ed without the fault of the obligor and before he is in
default.
!henever the thing is lost in the possession of the debtor, it
shall be presu&ed that the loss was due to his fault, unless
there is proof to the contrar$, and without pre2udice to the
provisions of /rticle 55<F. This presu&ption does not appl$ in
case of earth%uake, flood, stor& or other natural cala&it$
*/rticle 57<F+
b. Obligation to give a generic thing
The happening of a fortuitous event does not e6tinguish the
obligation to deliver a generic thing *enus nun>uam perit D
Egenus never perishes.# This is the general rule. 0o&eti&es,
though, the entire genus perishes because it beco&es illegal.
!hat is not covered b$ this rule is an obligation to deliver a
li&ited generic.
Example: I pro&ise to deliver to $ou one of &$ Amorsolos *I
have =+. This is not generic because I onl$ have four but not
specific because I did not specif$ which one. This is governed
b$ /rticle 57<7. In this case, the obligation &a$ be
e6tinguished b$ the loss of all the things through fortuitous
event.
Obligation to do
The debtor in obligations to do shall also be released when the
prestation beco&es legall$ or ph$sicall$ i&possible without the
fault of the obligor */rticle 57<<+.
The i&possibilit$ here &ust be supervening. If it is original, then
the contract is void.
Pinds of I&possibilit$ /ccording to 9ature
a. Ob2ective I&possibilit$
In ob2ective i&possibilit$, the act cannot be done b$ an$one.
The effect of ob2ective i&possibilit$ is to e6tinguish the
obligation.
b. 0ub2ective I&possibilit$
In sub2ective i&possibilit$, the obligation beco&es i&possible
onl$ wO respect to the obligor. There are . views as to the
effect of a sub2ective i&possibilit$:
i The obligation is not e6tinguished. The obligor should ask
another to do the obligation.
ii. The obligation is e6tinguished.
iii. / third view distinguishes one prestation which is ver$
personal and one which are not personal such that
sub2ective i&possibilit$ is a cause for e6tinguishes a ver$
personal obligation but not an obligation which is not ver$
personal.
:ffect of )oss on Creditor(s ,ights
The obligation having been e6tinguished b$ the loss of the thing,
the creditor shall have all the rights of action which the debtor &a$
have against the third person b$ reason of the loss.
/ co&&on e6a&ple of this is insurance.
.. Condonation or "e%ission of the *ue
Art. 1,%(. Condonation or re%ission is essentially
gratuitous, and re5uires the acceptance by the obligor. It %ay be
%ade e4pressly or i%pliedly.
One and the other (ind shall be subject to the rules hich
govern inofficious donations. ,4press condonation shall,
further%ore, co%ply ith the for%s of donation.
Art. 1,%1. $he delivery of a private docu%ent evidencing a
credit, %ade voluntarily by the creditor to the debtor, i%plies the
renunciation of the action hich the for%er had against the latter.
If in order to nullify this aiver it should be clai%ed to be
inofficious, the debtor and his heirs %ay uphold it by proving that
the delivery of the docu%ent as %ade in virtue of pay%ent of the
debt.
Art. 1,%,. ;henever the private docu%ent in hich the
debt appears is found in the possession of the debtor, it shall be
presu%ed that the creditor delivered it voluntarily, unless the
contrary is proved.
Art. 1,%.. $he renunciation of the principal debt shall
e4tinguish the accessory obligations1 but the aiver of the latter
shall leave the for%er in force.
Art. 1,%/. It is presu%ed that the accessory obligation of
pledge has been re%itted hen the thing pledged, after its
delivery to the creditor, is found in the possession of the debtor, or
of a third person ho ons the thing.
Condonation or re&ission is an act of liberalit$ b$ virtue of which,
without receiving an$ e%uivalent, the creditor renounces enforce&ent
of an obligation which is e6tinguished in whole or in part.
,e%uisites
a. The debt &ust be e6isting
Jou can re&it a debt even before it is due.
Example: I owe / P5B. I pro&ised to pa$ on Iul$ .5, 7;;7
with interest. On Ba$ .5, / condones the obligation. The
obligation is e6isting but not $et due but it can be condoned.
b. The renunciation &ust be gratuitous
If renunciation is for a consideration, the &ode of
e6tinguish&ent &a$ be so&ething else. It &a$ be novation,
co&pro&ise or dacion en pago for e6a&ple.
c. There &ust be acceptance b$ the debtor
d. The parties &ust have capacit$
The creditor &ust have capacit$ to give awa$.
The debtor &ust have capacit$ to accept.
@or&
a. If the renunciation is e6press, then it is a donation.
The for& of donation &ust be observed. If the condonation
involves &ovables, appl$ /rticle E=H

. If it involves
i&&ovables, appl$ /rticle E=>

.
b. If the renunciation is i&plied, then it is tanta&ount to a waiver.
There is no prescribed for& in a waiver */rticle <
?
+. @or
e6a&ple, the creditor can 2ust refuse to collect the debt.
/ccording to Professor Balane, /rticles 57E5 and 57E7

refer to
a kind of i&plied renunciation when the creditor divests hi&self
of the proof credit.
The deliver$ of a private docu&ent, evidencing a credit, &ade
voluntaril$ b$ the creditor to the debtor, i&plies the
renunciation of the action which the for&er had against the
latter.
If in order to nullif$ this waiver it should be clai&ed to be
inofficious, the debtor and his heirs &a$ uphold it b$ providing
that the deliver$ of the docu&ent was &ade in virtue of
pa$&ent of the debt */rticle 57E5+.
/rticle 57E5 has no application to public docu&ents because
there is alwa$s a cop$ in the archives which can be used to
prove the credit. Private docu&ent refers to the original in
order for /rticle 57E5 to appl$.

Art. 140. The donation of a &ovable &a$ be &ade orall$ or in writing.

/n oral donation re%uires the si&ultaneous deliver$ of the thing or of the docu&ent
representing the right donated.
If the value of the personal propert$ donated e6ceeds five thousand pesos, the
donation and the acceptance shall be &ade in writing, otherwise, the donation shall be void.
*<.7a+
Art. 149. In order that the donation of an i&&ovable &a$ be valid, it &ust be &ade
in a public docu&ent, specif$ing therein the propert$ donated and the value of the charges
which the donee &ust satisf$.
The acceptance &a$ be &ade in the sa&e deed of donation or in a separate public
docu&ent, but it shall not take effect unless it is done during the lifeti&e of the donor.
If the acceptance is &ade in a separate instru&ent, the donor shall be notified thereof
in an authentic for&, and this step shall be noted in both instru&ents.
*
Art. :. ,ights &a$ be waived, unless the waiver is contrar$ to law, public order, public polic$,
&orals, or good custo&s, or pre2udicial to a third person with a right recogni-ed b$ law.
_
Art. 1<11. The deliver$ of a private docu&ent evidencing a credit, &ade voluntaril$ b$ the
creditor to the debtor, i&plies the renunciation of the action which the for&er had against the
latter.
If in order to nullif$ this waiver it should be clai&ed to be inofficious, the debtor and
his heirs &a$ uphold it b$ proving that the deliver$ of the docu&ent was &ade in virtue of
pa$&ent of the debt. *55HH+
Art. 1<1<. !henever the private docu&ent in which the debt appears is found in the
possession of the debtor, it shall be presu&ed that the creditor delivered it voluntaril$, unless
the contrar$ is proved.
B$ delivering the private docu&ent, the creditor deprives
hi&self of proof.
The second paragraph of /rticle 57E5 i&plies that the
voluntar$ return of the title of credit is presu&ed to be b$
reason of re&ission and not b$ reason of the pa$&ent of
debt. /ccording to Professor Balane, this is ano&alous.
This provision is absurd and i&&oral in that it authori-es
the debtor and his heirs to prove that the$ paid the debt,
when the provision itself assu&es that there has been a
re&ission, which is gratuitous.
!henever the private docu&ent in which the debt appears is
found in the possession of the debtor, it shall be presu&ed that
the creditor delivered it voluntaril$, unless the contrar$ is
proved */rticle 57E7+.
7 Presu&ptions:
i. If a private docu&ent is found in the possession of the
debtor, then it is presu&ed that the creditor voluntaril$
delivered it to hi&
ii. 0ince the creditor voluntaril$ delivered the private
docu&ent, then there is a presu&ption of re&ission
!a$s of ,e&ission
a. B$ will
b. B$ agree&ent
:ffect of Partial ,e&ission
The renunciation of the principal debt shall e6tinguish the
accessor$ obligations' but the waiver of the latter shall leave the
for&er in force */rticle 57E.+.
Example: )oan secured b$ a &ortgage. If I condone the loan, I
condone the &ortgage. But if I condone the &ortgage, I do not
condone the loan which &erel$ beco&es unsecured.
The obligation of the guarantor is e6tinguished at the sa&e ti&e as
that of the debtor, and for the sa&e causes as all other obligations
*/rticle 7;E<+.
The guarantors, even though the$ be solidar$, are released fro&
their obligation whenever b$ so&e act of the creditor the$ cannot
be subrogated to the rights, &ortgages, and preferences of the
latter */rticle 7;H;+.
It is presu&ed that the accessor$ obligation of pledge has been
re&itted when the thing pledged, after its deliver$ to the creditor,
is found in the possession of the debtor, or of a third person who
owns the thing */rticle 57E=+.
/ccording to Professor Balane, the accessor$ obligation of
pledge is e6tinguished because pledge is a possessor$ lien. The
presu&ption in this case is that the pledgee has surrendered
the thing pledged to the pledgor. 1owever, this is not a
conclusive presu&ption according to /rticle 755;, Q7.
This presu&ption is not applicable in a &ortgage since there is
no possessor$ lien.
In addition to the re%uisites prescribed in article 7;HF, it is
necessar$, in order to constitute the contract of pledge, that the
thing pledged be placed in the possession of the creditor, or of a
third person b$ co&&on agree&ent */rticle 7;>.+
The debtor cannot ask for the return of the thing pledged against
the will of the creditor, unless and until he has paid the debt and its
interest, with e6penses in a proper case */rticle 75;F+.
=. Confusion or Cerger of "ights
Art. 1,%5. $he obligation is e4tinguished fro% the ti%e the
characters of creditor and debtor are %erged in the sa%e person.
Art. 1,%6. Cerger hich ta(es place in the person of the
principal debtor or creditor benefits the guarantors. Confusion
hich ta(es place in the person of any of the latter does not
e4tinguish the obligation.
Art. 1,%%. Confusion does not e4tinguish a joint obligation
e4cept as regards the share corresponding to the creditor or
debtor in ho% the to characters concur.
Confusion is the &eeting in one person of the %ualities of the creditor
and debtor with respect to the sa&e obligation.
Confusion or &erger of rights e6tinguishes the obligation because the
creditor beco&es his own debtor. Therefore, how can the creditor sue
hi&self.
,e%uisites of Confusion
a. It &ust take place between the creditor and the principal debtor
*/rticle 57E<+
/ borrowed P 5B fro& B with C as guarantor. If C ac%uires the
right to collect the P 5B, there is no confusion since C is neither
a principal debtor or creditor. The effect is that the guarant$ is
e6tinguished. The principal obligation re&ains.
b. The ver$ sa&e obligation &ust be involved */rticle 57EF+
Ksual Causes of Confusion
a. 0uccession *co&pulsor$, testate, intestate+
b. 4onation
c. 9egotiation of a negotiable instru&ent
Confusion can overlap with re&ission or pa$&ent.
Example of confusion overlapping )it% remission: D owes O P5;;,;;;.
O be%ueath to D that credit. /nd then she died. In this case, there is
e6tinguish&ent both b$ &erger. But in this case, &erger could overlap
with re&ission.
Example of confusion overlapping )it% pa(ment. / &akes a
pro&issor$ note and endorses it to B. B endorsed it to C. C to 4. 4
endorsed it back to /.
F. Co%pensation
Art. 1,%&. Co%pensation shall ta(e place hen to
persons, in their on right, are creditors and debtors of each
other.
Art. 1,%'. In order that co%pensation %ay be proper, it is
necessary-
.1/ $hat each one of the obligors be bound principally, and
that he be at the sa%e ti%e a principal creditor of the
other1
.#/ $hat both debts consist in a su% of %oney, or if the things
due are consu%able, they be of the sa%e (ind, and also of
the sa%e 5uality if the latter has been stated1
.&/ $hat the to debts be due1
.'/ $hat they be li5uidated and de%andable1
.)/ $hat over neither of the% there be any retention or
controversy, co%%enced by third persons and
co%%unicated in due ti%e to the debtor.
Art. 1,&(. Aotithstanding the provisions of the preceding
article, the guarantor %ay set up co%pensation as regards hat
the creditor %ay oe the principal debtor.
Art. 1,&1. Co%pensation %ay be total or partial. ;hen the
to debts are of the sa%e a%ount, there is a total co%pensation.
Art. 1,&,. $he parties %ay agree upon the co%pensation of
debts hich are not yet due.
Art. 1,&.. If one of the parties to a suit over an obligation
has a clai% for da%ages against the other, the for%er %ay set it
off by proving his right to said da%ages and the a%ount thereof.
Art. 1,&/. ;hen one or both debts are rescissible or
voidable, they %ay be co%pensated against each other before
they are judicially rescinded or avoided.
Art. 1,&5. $he debtor ho has consented to the assign%ent
of rights %ade by a creditor in favor of a third person, cannot set
up against the assignee the co%pensation hich ould pertain to
hi% against the assignor, unless the assignor as notified by the
debtor at the ti%e he gave his consent, that he reserved his right
to the co%pensation.
If the creditor co%%unicated the cession to hi% but the
debtor did not consent thereto, the latter %ay set up the
co%pensation of debts previous to the cession, but not of
subse5uent ones.
If the assign%ent is %ade ithout the (noledge of the
debtor, he %ay set up the co%pensation of all credits prior to the
sa%e and also later ones until he had (noledge of the
assign%ent.
Art. 1,&6. Co%pensation ta(es place by operation of la,
even though the debts %ay be payable at different places, but
there shall be an inde%nity for e4penses of e4change or
transportation to the place of pay%ent.
Art. 1,&%. Co%pensation shall not be proper hen one of
the debts arises fro% a depositu% or fro% the obligations of a
depositary or of a bailee in co%%odatu%.
Aeither can co%pensation be set up against a creditor ho
has a clai% for support due by gratuitous title, ithout prejudice
to the provisions of paragraph # of article &<1.
Art. 1,&&. Aeither shall there be co%pensation if one of the
debts consists in civil liability arising fro% a penal offense.
Art. 1,&'. If a person should have against hi% several
debts hich are susceptible of co%pensation, the rules on the
application of pay%ents shall apply to the order of the
co%pensation.
Art. 1,'(. ;hen all the re5uisites %entioned in article 1#8?
are present, co%pensation ta(es effect by operation of la, and
e4tinguishes both debts to the concurrent a%ount, even though
the creditors and debtors are not aare of the co%pensation.
Co&pensation is a &ode of e6tinguishing, to the concurrent a&ount,
the obligations of those persons who in their own right are reciprocall$
debtors and creditors of each other.
Perhaps, ne6t to pa$&ent, co&pensation is the &ost co&&on &ode of
e6tinguishing an obligation.
Co&pensation 4istinguished fro& Confusion
In co&pensation, there are 7 parties and 7 debts, whereas in
confusion, there are 7 debts and onl$ 5 part$.
Pinds of Co&pensation
a. Legal */rticle 57E>+
)egal co&pensation takes place auto&aticall$ b$ operation of
law once all the re%uisites under /rticle 57E> are present.
,e%uisites
i. The parties &ust be &utuall$ debtors and creditors of each
other in their own right and as principals.
There can be no co&pensation if 5 part$ occupies onl$ a
representative capacit$ *i.e. agent+. )ikewise, there can
be no co&pensation if in one obligation, a part$ is a
principal obligor and in another obligation, he is a
guarantor.
ii. The things due &ust be fungible
/rticle 57E> uses the word "consu&able#. This is wrong.
The proper ter&inolog$ is "fungible# which refers to
things of the sa&e kind which in pa$&ent can be
substituted for another.
iii. The 7 debts &ust be due
iv. The 7 debts &ust be li%uidated and de&andable
4e&andable &eans that the debts are enforceable in
court, there being no apparent defenses inherent in
the&. The obligations &ust be civil obligations,
e6cluding those that are purel$ natural. Before a 2udicial
decree of rescission or annul&ent, a rescissible or
voidable debt is valid and de&andable' hence, it can be
co&pensated.
/ debt is li%uidated when its e6istence and a&ount are
deter&ined. /nd a debt is considered li%uidated, not
onl$ when it is e6pressed alread$ in definite figures wOc
do not re%uire verification, but also when the
deter&ination of the e6act a&ount depends onl$ on a
si&ple arith&etical operation.
v. 9either of the debts &ust not be garnished
vi. Co&pensation &ust not be prohibited b$ law
/rticles 57HE, 57HH and 5E>=

are e6a&ples of when

legal co&pensation is not allowed.
)egal co&pensation is not allowed when there is
conventional or facultative co&pensation.
:ffect of )egal Co&pensation
If a person should have against hi& several debts which are
susceptible of co&pensation, the rules on the application of
pa$&ents shall appl$ to the order of the co&pensation
*/rticle 57H>+
!hen all the re%uisites &entioned in article 57E> are
present, co&pensation takes effect b$ operation of law, and
e6tinguishes both debts to the concurrent a&ount, even
though the creditors and debtors are not aware of the
co&pensation */rticle 57>;+
_
Art. 1194. :ver$ partner is responsible to the partnership for da&ages suffered b$ it
through his fault, and he cannot co&pensate the& with the profits and benefits which he &a$
have earned for the partnership b$ his industr$. 1owever, the courts &a$ e%uitabl$ lessen this
responsibilit$ if through the partnerRs e6traordinar$ efforts in other activities of the
partnership, unusual profits have been reali-ed.
b. 9acltati8e */rticles 57HE, 57HH+
@acultative co&pensation takes place when co&pensation is
clai&able b$ onl$ one of the parties but not of the other.
Co&pensation shall not be proper when one of the debts arises
fro& a depositu& or fro& the obligations of a depositar$ or of a
bailee in co&&odatu&.
9either can co&pensation be set up against a creditor who has
a clai& for support due b$ gratuitous title, without pre2udice to
the provisions of paragraph 7 of article .;5 */rticle 57HE+
The prohibition of co&pensation when one of the debts
arises fro& a depositu& or co&&odatu& is based on
2ustice. / deposit is &ade or a co&&odatu& is given on
the basis of confidence in the depositar$ or the borrower. It
is therefore, a &atter of &oralit$, that the depositar$ or the
borrower should in fact perfor& his obligation' otherwise,
the trust or confidence of the depositor or lender would be
violated.
!ith respect to future support, to allow its e6tinguish&ents
b$ co&pensation would defeat its e6e&ption fro&
attach&ent and e6ecution */rticle 7;F, @a&il$ Code+ and
&a$ e6pose the recipient to &iser$ and starvation.
1owever, support in arrears can be co&pensated.
The depositar$ cannot set up co&pensation wO respect to
the things deposited to hi&. But the depositor can set up
the co&pensation.
Example: / is a warehouse&an. B deposits 5;;; >uedans
of rice with /. B also owes / 5;;; kilos of rice. / cannot
clai& co&pensation but B can set up co&pensation.
9either shall there be co&pensation if one of the debts consists
in civil liabilit$ arising fro& a penal offense */rticle 57HH+
If 5 of the debts consists in civil liabilit$ arising fro& a penal
offense, co&pensation would be i&proper and inadvisable
because the satisfaction of such obligation is i&perative.
The person who has the civil liabilit$ arising fro& the cri&e
cannot set up co&pensation. 1owever, the offended part$
is entitled to set up co&pensation.
c. Conventional or Contractual */rticle 57H7+
Contractual or conventional co&pensation takes place when
parties agree to set3off even if the re%uisites of legal
co&pensation are not present.
The parties &a$ agree upon the co&pensation of debts which
are not $et due.
The parties &a$ co&pensate b$ agree&ent an$ obligations, in
wOc the ob2ective re%uisites provided for legal co&pensation are
not present.
d. Fudicial */rticle 57H.+
Iudicial co&pensation is co&pensation decreed b$ the court in
a case where there is a counterclai&.
If one of the parties to a suit over an obligation has a clai& for
da&ages against the other, the for&er &a$ set it off b$ proving
his right to said da&ages and the a&ount thereof.
:ffect of /ssign&ent */rticle 57HF+
ituation:
There are two credits 8 credit I and credit II. In credit I, / is the
creditor and B is the debtor. In credit II, B is the creditor and / is the
debtor. / wants to assign credit I to C. / cannot assign credit II since
it is passive sub2ective novation. Can B now invoke against C the
co&pensation of credit IIA
It depends:
a. If the assign&ent is with the debtor(s *B(s+ consent
4ebtor cannot set up co&pensation at all unless the right is
reserved.
b. If the assign&ent is with the debtor(s *B(s+ knowledge but without
consent
The debtor can set up co&pensation with a credit alread$
e6isting at the ti&e of the assign&ent.
c. If the assign&ent is without the debtor(s *B(s+ knowledge
4ebtor can set up as co&pensation an$ credit e6isting at the
ti&e he ac%uired knowledge even if it arose after the actual
assign&ent.
<. Aovation
Art. 1,'1. Obligations %ay be %odified by-
.1/ Changing their object or principal conditions1
.#/ @ubstituting the person of the debtor1
.&/ @ubrogating a third person in the rights of the creditor.
Art. 1,',. In order that an obligation %ay be e4tinguished
by another hich substitute the sa%e, it is i%perative that it be so
declared in une5uivocal ter%s, or that the old and the ne
obligations be on every point inco%patible ith each other.
Art. 1,'.. Aovation hich consists in substituting a ne
debtor in the place of the original one, %ay be %ade even ithout
the (noledge or against the ill of the latter, but not ithout the
consent of the creditor. Pay%ent by the ne debtor gives hi% the
rights %entioned in articles 1#&= and 1#&8.
Creditor
/
C
B
4ebtor
4ebtor Creditor
I
II
Art. 1,'/. If the substitution is ithout the (noledge or
against the ill of the debtor, the ne debtorDs insolvency or non3
fulfill%ent of the obligations shall not give rise to any liability on
the part of the original debtor.
Art. 1,'5. $he insolvency of the ne debtor, ho has been
proposed by the original debtor and accepted by the creditor, shall
not revive the action of the latter against the original obligor,
e4cept hen said insolvency as already e4isting and of public
(noledge, or (non to the debtor, hen the delegated his debt.
Art. 1,'6. ;hen the principal obligation is e4tinguished in
conse5uence of a novation, accessory obligations %ay subsist only
insofar as they %ay benefit third persons ho did not give their
consent.
Art. 1,'%. If the ne obligation is void, the original one
shall subsist, unless the parties intended that the for%er relation
should be e4tinguished in any event.
Art. 1,'&. $he novation is void if the original obligation as
void, e4cept hen annul%ent %ay be clai%ed only by the debtor
or hen ratification validates acts hich are voidable.
Art. 1,''. If the original obligation as subject to a
suspensive or resolutory condition, the ne obligation shall be
under the sa%e condition, unless it is otherise stipulated.
Art. 1.((. @ubrogation of a third person in the rights of the
creditor is either legal or conventional. $he for%er is not
presu%ed, e4cept in cases e4pressly %entioned in this Code1 the
latter %ust be clearly established in order that it %ay ta(e effect.
Art. 1.(1. Conventional subrogation of a third person
re5uires the consent of the original parties and of the third person.
Art. 1.(,. It is presu%ed that there is legal subrogation-
.1/ ;hen a creditor pays another creditor ho is preferred,
even ithout the debtorDs (noledge1
.#/ ;hen a third person, not interested in the obligation, pays
ith the e4press or tacit approval of the debtor1
.&/ ;hen, even ithout the (noledge of the debtor, a person
interested in the fulfill%ent of the obligation pays, ithout
prejudice to the effects of confusion as to the latterDs
share.
Art. 1.(.. @ubrogation transfers to the persons subrogated
the credit ith all the rights thereto appertaining, either against
the debtor or against third person, be they guarantors or
possessors of %ortgages, subject to stipulation in a conventional
subrogation.
Art. 1.(/. A creditor, to ho% partial pay%ent has been
%ade, %ay e4ercise his right for the re%ainder, and he shall be
preferred to the person ho has been subrogated in his place in
virtue of the partial pay%ent of the sa%e credit.
9ovation is the e6tinguish&ent of an obligation b$ the substitution or
change of the obligation b$ a subse%uent one which e6tinguishes or
&odifies the first, either b$ changing the ob2ect of principal conditions,
or b$ substituting the person of the debtor, or b$ subrogating a third
person in the rights of the creditor.
9ovation is the &ost unusual &ode of e6tinguishing an obligation. It
is the onl$ &ode whereb$ an obligation is e6tinguished and a new
obligation is created to take its place. The other &odes of
e6tinguishing an obligation are absolute in the sense that the
e6tinguish&ent of the obligation is total. 9ovation, on the other hand,
is a relative &ode of e6tinguishing an obligation.
/ co&pro&ise is a for& of novation. The difference is that a
co&pro&ise has so&e 2udicial participation. The effect of co&pro&ise
is the sa&e as novation.
Classification of 9ovation
a. 0ub2ective or Personal 9ovation 8 change of one of the sub2ects
i. /ctive sub2ective
This a change of creditor.
This is also known as subrogation.
7 Pinds of 0ubrogation
5. )egal */rticle 5.;7+
It is presu&ed that there is legal subrogation:
a. !hen a creditor pa$s another creditor who is
preferred, even without the debtorRs knowledge'
b. !hen a third person, not interested in the
obligation, pa$s with the e6press or tacit
approval of the debtor
c. !hen, even without the knowledge of the debtor,
a person interested in the fulfill&ent of the
obligation pa$s, without pre2udice to the effects
of confusion as to the latterRs share'
7. Conventional
Conventional subrogation of a third person re%uires
the consent of the original parties and of the third
person */rticle 5.;5+
:ffect of 0ubrogation
5. / creditor, to who& partial pa$&ent has been &ade,
&a$ e6ercise his right for the re&ainder, and he shall be
preferred to the person who has been subrogated in his
place in virtue of the partial pa$&ent of the sa&e credit
*/rticle 5.;=+
7. 0ubrogation transfers to the person subrogated the
credit with all the rights thereto appertaining, either
against the debtor or against third persons, be the$
guarantors or possessors of &ortgages, sub2ect to
stipulation in a conventional subrogation */rticle 5.;.+
ii. Passive sub2ective
This is a change of debtor.
T$pes of Passive 0ub2ective
5. Expromission */rticle 57>.+
In expromission the changing of the debtor is not
upon the old debtorRs initiative. It could be upon the
initiative of the creditor or of the new debtor.
This re%uires the consent of the creditor since the
changing of the debtor &a$ pre2udice hi&. This
re%uires the consent of the new debtor since he is
the one who will pa$.
The consent of the old debtor is not re%uired.
The intent of the parties &ust be to release the old
debtor. The release of the old debtor is absolute even
if it turns out that the new debtor is insolvent.
Cases of expromission are %uite rare.
7. 3elegacion */rticle 57>F+
In delegacion the change is at the debtor(s initiative.
The consent of the old debtor *delegante+, the new
debtor *delegado+, and the creditor *delegatario+ are
all re%uired.
The intent of the parties &ust be to release the old
debtor. 1owever, release of the old debtor is not
absolute. 1e &a$ be held liable
a. If the new debtor was alread$ insolvent at the
ti&e of the delegacion' and
b. 0uch insolvenc$ was either known to the old
debtor or of public knowledge
b. Ob2ective or ,eal 9ovation
In ob2ective novation there is a change in the ob2ect or in the
principal conditions.
9ovation b$ a change in the principal conditions is the &ost
proble&atic kind of novation because one has to deter&ine
whether or not the change in the conditions is principal or
&erel$ incidental.
If the a&ount of debt is increased, Castan thinks that there is a
novation while Caguioa thinks there is no novation. Professor
Balane thinks that Castan is correct. The old obligation is
&erged with the new.
If the a&ount of the debt is decreased, according the 0C in
andico vs. &iguing, there is no novation. One can look at the
decrease of the a&ount as a partial re&ission.
In 2illar vs. CA, there is no novation if the ter&s of the
pa$&ent are changed. In this case, there was a change fro&
lu&p su& to install&ent pa$&ents.
In -ua vs. Fap, not onl$ was the a&ount reduced, &ode of
pa$&ent was changed fro& single pa$&ent to install&ent.
@inall$, a &ortgage was constituted. The 0C said in -ua vs.
Fap that there was a novation. Therefore, a &ere change in
the a&ount or &ode of pa$&ent if taken singl$ is not a
novation. But taken together, there is a novation.
In 9nc%austi vs. Fulo, the 0C said that the &ere e6tension of
ti&e is not a novation for the period does affects onl$ the
perfor&ance and not the creation of an obligation. In another
case, the 0C said that the shortening of the period is a
novation.
c. Bi6ed 9ovation
Bi6ed is a co&bination of both sub2ective and ob2ective
novation.
,e%uisites of 9ovation
a. There &ust be a previous valid obligation
The novation is void if the original obligation was void, e6cept
when annul&ent &a$ be clai&ed onl$ b$ the debtor, or when
ratification validates acts which are voidable */rticle 57>H+
b. There &ust be an agree&ent of the parties to create the new
obligation
If the original obligation was sub2ect to a suspensive or
resolutor$ condition, the new obligation shall be under the
sa&e condition, unless it is otherwise stipulated */rticle 57>>+
c. There &ust be an e6tinguish&ents of the old obligation
Professor Balane considers this as an effect rather than a
re%uisite of novation.
In order that an obligation &a$ be e6tinguished b$ another
which substitute the sa&e, it is i&perative that it be so
declared in une%uivocal ter&s, or that the old and the new
obligations be on ever$ point inco&patible with each other
*/rticle 57>7+
d. The new obligation &ust be valid
If the new obligation is void, the original one shall subsist,
unless the parties intended that the for&er relation should be
e6tinguished in an$ event */rticle 57>E+
:ffect of 9ovation
/ccessor$ obligations &a$ subsist onl$ insofar as the$ &a$ benefit
third persons who did not give their consent, e.g., stipulation pour
autrui
!eneral "ule- In a novation, the accessor$ obligation is
e6tinguished.
E)ce*tion+ In an active sub2ective novation, the guarantors,
pledgors, &ortgagors are not released.
Knder /rticle 5.;., accessor$ obligations are not e6tinguished. 0o
there is a conflictA 1ow do $ou resolveA /ccording to
co&&entators, /rticle 5.;. is an e6ception to /rticle 57><.
B owes P P5 B. B is a guarantor of B. B is substituted b$ K. B is
released. B is also released under /rticle 57><. B is released since
he guarantees B(s perfor&ance and not B(s. B &ight have a good
credit standing but K &a$ not. B &ight be pre2udiced if he has to
guarantee K(s perfor&ance.
If there is a change in the creditor under /rticle 5.;., the
guarantor is not released since it doesn(t &ake a difference. !hat
the guarantor guarantees is the integrit$ of the debtor.
E. /nnul&ent
H. ,escission
>. @ulfill&ent of a ,esolutor$ Condition
5;. Prescription
55. 4eath in Certain Instances
57. @or e6a&ple, death e6tinguishes obligations which are purel$ personal
*i.e. obligations in &arriage, obligation to support, obligations in a
partnership, etc.+
5.. ,enunciation b$ the Creditor */rticle <+
The creditor waives the obligation.
The renunciation need not be in an$ specific for&.
,enunciation and re&ission are 7 different things. / renunciation is a
refusal b$ the creditor to enforce his clai& with the intention of
waiving it. / re&ission is in the nature of a donation.
5=. Co&pro&ise
5F. /rrival of a ,esolutor$ Ter&
5<. Butual 4issent or 4esistance *aura vs. 38&+
5E. Knilateral !ithdrawal
!eneral "ule- Knilateral withdrawals are not allowed.
E)ce*tion+ Partnership
5H. Change of Civil 0tatus
@or e6a&ple, if the &arriage is annulled, certain obligations are
e6tinguished, like the obligations to live together and to support one
another.
5>. 7ebus ic tantibus */rticle 57<E+
7;. !ant of Interest
Example: / owns a peking duck restaurant with a secret recipe for
preparing peking duck. / disclosed the secret recipe to B, his cook. B
is then prohibited in his e&plo$&ent contract to work in another
restaurant within F $ears fro& leaving /(s restaurant. Two $ears after
B left, / closes his restaurant and opens a hardware store. B can now
work in a restaurant.
75. Iudicial Insolvenc$
The effect of 2udicial insolvenc$ is that all unpaid debts are written off
for good. Thus, even if the debtor has i&proved his financial situation
because of 2udicial insolvenc$, there is no need for the debtor to pa$
his unpaid debts.
II. Contracts
A. <eneral 5ro8isions
1. *efinition
Art. 1.(5. A contract is a %eeting of the %inds beteen #
persons hereby one binds hi%self, ith respect to the other, to
give so%ething or to render so%e service.
Professor Balane thinks that the definition in /rticle 5.;F is inaccurate.
The ter& "persons# should be sub&itted b$ the ter& "parties#. /lso,
contracts &a$ be &ultilateral' there can be &ore than 7 parties
involved *i.e. partnership+.
#. Characteristics of Contracts
a. Obligator0 force
Art. 1.15. Contracts are perfected by %ere consent, and
fro% that %o%ent the parties are bound not only to the
fulfill%ent of hat has been e4pressly stipulated but also to all
the conse5uences hich, according to their nature, %ay be in
(eeping ith good faith, usage and la.
!eneral "ule- Contracts are perfected b$ &ere consent 8 the
principle of consensualit$ */rticle 5.5F+
E)ce*tion+ ,eal contracts, such as deposit, pledge, and
co&&odatu& are not perfected until the deliver$ of the ob2ect of
the obligation */rticle 5.5<+
Obligations arising fro& contracts have the force of law between
the parties and should be co&plied with in good faith */rticle 55F>+
Art. 1.1/. Any third person ho induces another to
violate his contract shall be liable for da%ages to the other
contracting party.
It is not clear whether /rticle 5.5= is a tortious liabilit$ or a
contractual liabilit$. Professor Balane considers it as onl$ a tortious
liabilit$ so it is not violative of the rule on relativit$ of contracts.
/rticle 5.5= is reall$ a %uasi3delict.
,e%uisites
i. :6istence of a valid contract
ii. Pnowledge b$ the .
rd
person of the e6istence of the contract
iii. Interference b$ the .
rd
person in the contractual relation
without legal 2ustification
b. Mtalit0
Art. 1.(&. $he contract %ust bind both contracting
parties1 its validity or co%pliance cannot be left to the ill of
one of the%.
Art. 1.('. $he deter%ination of the perfor%ance %ay be
left to a third person, hose decision shall not be binding until
it has been %ade (non to both contracting parties.
Art. 1.1(. $he deter%ination shall not be obligatory if it
is evidently ine5uitable. In such case, the courts shall decide
hat is e5uitable under the circu%stances.
/n e6a&ple of a deter&ination &ade b$ a .
rd
person */rticle 5.;>+
is the fi6ing of the price b$ the .
rd
person.
The contract &a$ be revoked if there is &utual dissent.
c. Relati8it0
Art. 1.116 71. Contracts ta(e effect only beteen the
parties, their assigns and heirs, e4cept in case here the rights
and obligations arising fro% the contract are not trans%issible
by their nature, or by stipulation or by provision of la. $he
heir is not liable beyond the value of the property he received
fro% the decedent.
!eneral "ule- The contract is binding onl$ upon the parties and
their successors */rticle 5.55+. 1owever, if the contract is purel$
personal *intuitu personae+, then the contract will not bind assigns
and heirs.
E)ce*tion+ . parties are affected b$ the contract in the following
instances and can take appropriate action
i. Accion pauliana */rticle 55EE+
Art. 11%%. $he creditors, after having pursued the
property in possession of the debtor to satisfy their
clai%s, %ay e4ercise all the rights and bring all the
actions of the latter for the sa%e purpose, save those
hich are inherent in his person1 they %ay also i%pugn
the acts hich the debtor %ay have done to defraud
the%.
/n rescissor$ action involving a contract in fraud of
creditors.
Art. 1.1.. Creditors are protected in cases of
contracts intended to defraud the%.
ii. Accion directa
/ direct *not subrogator$+ action b$ the creditor against his
debtor(s debtor, a re&ed$ which gives the creditor the
prerogative to act in his own na&e, such as the actions of
the lessor against the sublessee */rticle 5<F7

+, the laborer
of an independent contractor against the owner */rticle
5E7>

+, the principal against the subagent */rticle 5H>.

+,
and the vendor3a3retro against the transferee of the vendee
*/rticle 5<;H

+.
iii. Article 1/1<
Art. 1.1,. In contracts creating real rights, third
persons ho co%e into possession of the object of the
contract are bound thereby, subject to the provisions of
the Cortgage 0a and the 0and "egistration 0as.
iv. tipulation pour autrui 8 stipulation in favor of a .
rd
person
Art. 1.116 7,. If a contract should contain so%e
stipulation in favor of a third person, he %ay de%and its
fulfill%ent provided he co%%unicated his acceptance to
_
Art. 1:;<. The sublessee is subsidiaril$ liable to the lessor for an$ rent due fro& the lessee.
1owever, the sublessee shall not be responsible be$ond the a&ount of rent due fro& hi&, in
accordance with the ter&s of the sublease, at the ti&e of the e6tra32udicial de&and b$ the
lessor.
Pa$&ents of rent in advance b$ the sublessee shall be dee&ed not to have been
&ade, so far as the lessorRs clai& is concerned, unless said pa$&ents were effected in virtue
of the custo& of the place.
_
Art. 11<9. Those who put their labor upon or furnish &aterials for a piece of work
undertaken b$ the contractor have an action against the owner up to the a&ount owing fro&
the latter to the contractor at the ti&e the clai& is &ade. 1owever, the following shall not
pre2udice the laborers, e&plo$ees and furnishers of &aterials:
*5+ Pa$&ents &ade b$ the owner to the contractor before the$ are due'
*7+ ,enunciation b$ the contractor of an$ a&ount due hi& fro& the owner.
This article is sub2ect to the provisions of special laws.

Art. 109/. In the cases &entioned in 9os. 5 and 7 of the preceding article, the principal
&a$ further&ore bring an action against the substitute with respect to the obligations which
the latter has contracted under the substitution.
`
Art. 1:00. The vendor &a$ bring his action against ever$ possessor whose right is derived
fro& the vendee, even if in the second contract no &ention should have been &ade of the
right to repurchase, without pre2udice to the provisions of the Bortgage )aw and the )and
,egistration )aw with respect to third persons.
the obligor before its revocation. A %ere incidental
benefit or interest of a person is not sufficient. $he
contracting parties %ust have clearly and deliberately
conferred a favor upon a third person.
,e%uisites
5. There &ust be a stipulation in favor of a .
rd
person
7. That stipulation in favor of a .
rd
person should be a part
and not the whole of the contract
.. / clear and deliberate intent to confer a benefit on a .
rd
person and not &erel$ incidental
In the case of 2andarin ?illa vs. CA, the credit card
holder was held to have a right to sue under the
contract between the establish&ent and the bank.
The 0upre&e Court said that it(s a stipulation pour
autrui to confer benefit on the custo&er to purchase
on credit.
1owever, Professor Balane believes that it is
debatable whether an agree&ent between a credit
card co&pan$ and establish&ent is a clear and
deliberate confer&ent of benefit on a third part$. 1e
would have concurred with the decision in 2andarin
?illa if the basis was %uasi3delict.
=. That the favorable stipulation should not be conditioned
or co&pensated b$ an$ kind of obligation whatever
F. 9either of the contracting parties bears the legal
representation of authori-ation of the .
rd
parties
If the .
rd
parties is represented, then the principles
of agenc$ appl$.
<. The .
rd
person &ust have co&&unicated his acceptance
to the obligor before its revocation
d. Atono"0 of will
Art. 1.(6. $he contracting parties %ay establish such
stipulations, clauses, ter%s and conditions as they %ay dee%
convenient, provided they are not contrary to la, %orals, good
custo%s, public order, or public policy.
&. ,le%ents of a Contract
a. Essential Ele"ents
Art. 1.1&. $here is no contract unless the folloing
re5uisites concur-
.1/ Consent of the contracting parties1
.#/ Object certain hich is the subject %atter of the
contract1
.&/ Cause of the obligation hich is established.
The essential ele&ents are those without which there can be no
contract. These ele&ents are, in turn, subdivided into co&&on
*communes+, special *especiales+, and e6traordinar$
*especialisimos+. The co&&on ele&ents are those which are
present in all contracts, such as consent, ob2ect certain, and cause.
The special ele&ents are present onl$ in certain contracts, such as
deliver$ in real contracts or for& in sole&n ones. The
e6traordinar$ ele&ents are those which are peculiar to a specific
contract *i.e. price in sales+.
i. Consent
5. Consent in General
4efinition of Consent
Art. 1.1'6 1
st
sentence. Consent is
%anifested by the %eeting of the offer and the
acceptance upon the thing and the cause hich
are to constitute the contract.
:le&ents of Consent
a. Pluralit$ of sub2ects
b. Capacit$
c. Intelligent and free will
d. :6press or tacit &anifestation of the will
e. Confor&it$ of the internal will and its &anifestation
7. Offer
/n offer is a unilateral proposition which 5 part$ &akes
to the other for the celebration of a contract.
Art. 1.,1. $he person %a(ing the offer %ay
fi4 the ti%e, place, and %anner of acceptance, all
of hich %ust be co%plied ith.
,e%uisites of Offer
a. 4efinite
The offer &ust be definite, so that upon
acceptance, an agree&ent can be reached on the
whole contract.
b. Co&plete
The offer &ust be co&plete, indicating with
sufficient clearness the kind of contract intended
and definitel$ stating the essential conditions of
the proposed contract as well as the non3
essential ones desired b$ the offeror.
c. Intentional
/n offer without seriousness, &ade in such
&anner that the other part$ would not fail to
notice such lack of seriousness, is absolutel$
without 2uridical effects and cannot give rise to a
contract *i.e. &ust not be &ade in 2est, or a
prank+.
.. /cceptance
a. ,e%uisites of /cceptance
i. Kne%uivocal
ii. Knconditional
If the acceptance is %ualified, then that is a
counter3offer */rticle 5.5>, .
rd
sentence+.
/n a&plified acceptance &a$ or &a$ not be an
acceptance of the original offer. It depends on
the circu&stances.
Example: / offers to sell 5;;; kilos of ce&ent.
B sa$s he wants to bu$ 7;;; kilos of ce&ent. Is
the 5;;; kilos acceptedA It depends. If bu$er
wants a block sale, that is, onl$ 7;;; kilos and
nothing less, then it is a counter3offer.
b. Banifestation of /cceptance
Art. 1.,(. An acceptance %ay be e4press or
i%plied.
0ilence is a&biguous. 0ilence in itself is neither
acceptance nor re2ection. Can it &ean acceptanceA
One &ust look at the circu&stances.
Examples: / and B are own stalls which sell rice. C
delivers 5;;; kilos of rice to / ever$ 0unda$. If / is
not there, C 2ust leaves it with /(s assistant. C tries
to do business with B. B is not there though. C
leaves rice with B(s assistant. B does not call C. Both
/ and B are silent. / accepted the rice because of
the arrange&ent. If / did not want to accept the
rice, then / should have called. B(s silence is not
acceptance.
c. Cognition Theor$
Article 1.1'6 ,
nd
7. Acceptance %ade by
letter of telegra% does not bind the offerer e4cept
fro% the ti%e it ca%e to his (noledge.
This is known as the Cognition Theor$. Co&&ercial
law uses the Theor$ of Banifestation.
Offer and acceptance takes effect onl$ fro& the ti&e
knowledge is ac%uired b$ the person to who& it is
directed. If during intervening ti&e, the offer or
acceptance is e6tinguished b$ deathOinsanit$, such
offer or acceptance has no &ore effect.
Example: Offeror gave offer on Barch 5. The offer
reached the offeree on Barch F. @ro& the point of
view of the offeror, offer is counted fro& Barch F.
1e can still counter&and before Barch F.
If the parties are face to face, then there is no
proble& since there is no ti&e gap.
The proble& arises when there is a ti&e gap. Knder
/rticle 5.5>, there is perfection of the contract when
there is knowledge of the other part$(s acceptance.
This has serious conse%uences.
Example 1. The offer was &ade in 4avao on
@ebruar$ 5. The offer was sent through &ail which is
received in Banila on @ebruar$ F. On the sa&e da$,
the offer is accepted. Bail is sent to 4avao on
@ebruar$ F signif$ing acceptance. On @ebruar$ H,
the part$ in Banila beco&es insane. On @ebruar$ 5.,
the &ail reaches 4avao. /ccording to Professor
Balane, under /rticle 5.7., there is no contract
since there was no contractual capacit$.
Example <. The offer was &ade in Bacolod on Barch
5. It was received in Gue-on Cit$ on Barch .. On
Barch =, the offeree sends his acceptance. On
Barch F, the offeror counter&ands offer. 9ow, both
acceptance and counter&and of offer are in the &ail.
!hichever reaches the destination first will be
counted.
d. Offers Through /gents
Art. 1.,,. An offer %ade through an agent
is accepted fro% the ti%e acceptance is
co%%unicated to hi%.
e. :ffect of 4eath, Insanit$
Art. 1.,.. An offer beco%es ineffective
upon the death, civil interdiction, insanity or
insolvency of either party before acceptance is
conveyed.
f. !ithdrawal of the Offer
Art. 1.,/. ;hen the offeror has alloed the
offeree a certain period to accept, the offer %ay be
ithdran at any ti%e before acceptance by
co%%unicating such ithdraal, e4cept hen the
option is founded upon consideration, so%ething
paid or pro%ised.
/rticle 5.7= is related to /rticle 5=E>, Q7

. The$
actuall$ sa$ the sa&e thing.
`
Art. 1419, =<. /n accepted unilateral pro&ise to bu$ or to sell a deter&inate thing for a
price certain is binding upon the pro&issor if the pro&ise is supported b$ a consideration
distinct fro& the price.
0 offers to sell a car to B for P.;;,;;;. B needs to
think about it, and so B asks for .; da$s and pa$s 0
PF,;;;. The pa$&ent of PF,;;; is a distinct
consideration fro& the price of the car. This distinct
consideration of PF,;;; is pa$&ent for the .; da$s.
B is pa$ing for ti&e. The option contract is separate
fro& the contract of sale. 0 cannot sell the car to
an$bod$ else within that .;3da$ period. If 0 sells
the car to so&eone else within the .;3da$ period, he
is guilt$ of contractual breach. But B can bu$ the car
before the end of the .;3da$ period and such will be
a valid sale.
0 offers to sell a car to B for P.;;,;;;. B needs to
think about it, and so B asks for .; da$s. B does not
pa$ 0 for ti&e, but 0 pro&ises to give B .; da$s. In
this case there is no option contract. 1owever, in
anc%e+ vs. 7igos, the 0upre&e Court said that even
if there was no option contract, 0 &ust still
co&&unicate the withdrawal of the offer to B. If 0
does not co&&unicate his withdrawal, that is
tanta&ount to a continuing offer. Professor Balane
does not agree with this. /ccording to hi&, if there
is no valid option contract, there should be no
continuing offer. /ccording to Professor Balane, the
0upre&e Court should have e6plained that.
0 offers to sell a car to B for P.;;,;;;. B needs to
think about it, and so B asks for .; da$s and pa$s
PF,;;; to 0. B decides to bu$ the car within .;
da$s. The car is not sold to an$bod$ else. 0 does
not want to sell the car to B. B can sue 0 for specific
perfor&ance 8 co&pel 0 to sell hi& the car.
0 offers to sell a car to B for P.;;,;;;. B needs to
think about it, and so B asks for .; da$s and pa$s
PF,;;; to 0. B decides to bu$ the car within .;
da$s. Before B is able to bu$ the car, 0 sells the car
to D. B can sue 0 for da&ages. B cannot sue for
specific perfor&ance since the car has been sold to
an innocent purchaser.
/ right of first refusal is different fro& an option
contract. / right of first refusal is the right to have
first opportunit$ to purchase or the right to &eet an$
other offer. On the other hand, an option contact
li&its the pro&issor(s power to revoke an offer. The
right of first refusal is not covered b$ the Civil Code.
/ right of first refusal is a state&ent b$ a person to
another that if the for&er decides to sell the ob2ect,
the latter will have the first offer. 1ere, the ob2ect is
deter&inable. But the e6ercise of the right to bu$ is
conditioned on the seller(s decision to sell on ter&s
which are not $et certain.
/ccording to E>uatorial vs. 2a(fair, the re%uire&ent
of separate consideration is not applicable in a right
of first refusal. /ccording to Professor Balane, this is
peculiar since an option contract is &ore fir& and $et
it re%uires the pa$&ent of separate consideration but
a right of first refusal does not. 1owever, in .itonjua
vs. CA, the 0upre&e Court said that in a right of first
refusal, the consideration for the loan or &ortgage is
alread$ a part of the consideration for the right of
first refusal.
In Ang Fu vs. CA, the 0C said that an action for
specific perfor&ance will not lie against the
pro&issor. 1owever, a co&plaint under /rticle 5> for
da&ages &a$ be filed if the actions of the pro&issor
are whi&sical. In E>uatorial vs. 2a(fair the right of
first refusal was violated when the vendor sold the
ob2ect to another person. The 0C in E>uatorial vs.
2a(fair said that an action for specific perfor&ance
&a$ be filed. E>uatorial vs. 2a(fair is totall$
inconsistent with Ang Fu vs. CA.
The 0upre&e Court has held #E>uatorial vs. 2a(fair,
&araGa>ue Hings vs. CA, .itonjua vs. CA, &A& vs.
CA$ that the right of first refusal is enforceable b$ an
action for specific perfor&ance. /nd that the actual
vendee &a$ be re%uired to sell the propert$ to the
holder of the right of first refusal at the price which
he bought it.
1owever, in a recent case, 7osencorr vs. CA #2arc%
0, <001$, the 0upre&e Court has held that the right
of first refusal need not be written to be
unenforceable since it is not included in the 0tatute
of @rauds. /lso, if the vendee is in good faith, he
&a$ not be co&pelled b$ specific perfor&ance since
he relied on a title which is clean. The re&ed$ is to
go after the vendor.
In a right of first refusal, there is no definite offer
since the vendor has to option of deciding not to sell
the ob2ect. /lso, in a right of first refusal, there is no
need for a separate consideration. In an option
contract, there is a definite offer. /ccording to
Professor Balane, the right of first refusal is inferior
to an option contract since there is no definite offer.
Professor Balane does not understand wh$ an action
for specific perfor&ance is allowed in violations of
rights of first refusal but not in the case of option
contracts when the ob2ect is sold to another person.
!h$ is the 0C giving greater legal effect to a right of
first refusal which is &ore tentativeA /lso, where the
0C get these rules since the right of first refusal is
not covered b$ the Civil Code.
g. /dvertise&ents
Art. 1.,5. Bnless it appears otherise,
business advertise%ents of things for sale are not
definite offers, but %ere invitations to %a(e an
offer.
Art. 1.,6. Advertise%ents for bidders are
si%ply invitations to %a(e proposals, and the
advertiser is not bound to accept the highest or
loest bidder, unless the contrary appears.
Bost advertise&ents are si&pl$ invitations to &ake
an offer and are not offers in the&selves since not all
the necessar$ ter&s can fit in the advertise&ent.
:ven if the ad had all the necessar$ ter&s, it(s still
an invitation to &ake offer since there is no definite
person to who& the offer is being &ade *public
offer+.
h. 0i&ulated Contracts
Art. 1./5. @i%ulation of a contract %ay be
absolute or relative. $he for%er ta(es place hen
the parties do not intend to be bound at all1 the
latter, hen the parties conceal their true
agree%ent.
Art. 1./6. An absolutely si%ulated or
fictitious contract is void. A relative si%ulation,
hen it does not prejudice a third person and is
not intended for any purpose contrary to la,
%orals, good custo%s, public order or public policy
binds the parties to their real agree%ent.
i. /bsolutel$ 0i&ulated *contrato simulado+
/bsolute si&ulation of a contract takes place
when the parties do not intent to be bound at all
*/rticle 5.=F+.
@or e6a&ple, D pretends to sell his car to avoid
ta6 liabilit$. 1owever D has no real intention to
sell the car.
/n absolutel$ si&ulated or fictitious contract is
void */rticle 5.=<+
ii. ,elativel$ 0i&ulated *contrato disimulado+
,elative si&ulation of a contract takes place
when the parties conceal their true agree&ent
*/rticle 5.=F+.
In a relativel$ si&ulated contract, the parties
enter into a contract but disguise it as another.
@or e6a&ple, D has &an$ creditors, and the$ are
going after D(s car. D cannot donate his car to J
since the creditors will 2ust resort to accion
pauliana. 0o, D antedates a contract of sale,
selling his car to J, e6cept that D(s intention is to
donate his car to J.
/ relativel$ si&ulated contract, when it does not
pre2udice a .
rd
person and is not intended for an$
purpose contrar$ to law, &orals, good custo&s,
public order or public polic$ binds the parties to
their real agree&ent */rticle 5.=<+.
The law will appl$ the rules of the true contract
and not the ostensible contract.
ii. !bject
Art. 1./%. All things hich are not outside the
co%%erce of %en, including future things, %ay be the
object of a contract. All rights hich are not
intrans%issible %ay also be the object of contracts.
Ao contract %ay be entered into upon future
inheritance e4cept in cases e4pressly authorized by la.
All services hich are not contrary to la, %orals,
good custo%s, public order or public policy %ay li(eise
be the object of a contract.
Art. 1./&. I%possible things or services cannot be
the object of contracts.
Art. 1./'. $he object of every contract %ust be
deter%inate as to its (ind. $he fact that the 5uantity is
not deter%inate shall not be an obstacle to the e4istence
of the contract, provided it is possible to deter%ine the
sa%e, ithout the need of a ne contract beteen the
parties.
The ob2ect of the contract is the prestation. Thus, it is
alwa$s the conduct which is to be observed. It is not a
concrete ob2ect like a car. In a contract of sale, the ob2ect is
the deliver$ of the ob2ect and not the ob2ect itself.
The provisions on ob2ect however blur the distinction
between the ob2ect of the contract, the prestation, and the
ob2ect of the prestation. /ccording to Professor Balane,
these provisions are not fatal though.
,e%uisites of Ob2ect
5. The ob2ect &ust be within the co&&erce of &an, either
alread$ e6isting or in potenc$ */rticle 5.=E+
!ithin the co&&erce of &an &eans that the ob2ect
is capable of appropriation and trans&ission.
The ter& "in potenc$# &eans that the ob2ect will
co&e into e6istence in the future.
Generall$ in reciprocal contracts particularl$ sales,
the sale of future things is allowed. @or e6a&ple, it
is possible to sell the future harvest of a far&.
The co&ing into being of the future thing is a
suspensive condition.
Emptio rei speratae is a conditional sale. There is a
suspensive condition. If the future thing does not
co&e into e6istence, then there is no contract of
sale.
Emptio spei is the sale of a hope. :ven if the future
thing does not &ateriali-e, the bu$er &ust pa$ since
the bu$er is taking a chance. *i.e. sale of lotto
ticket+. 1ope is a present thing.
0o&e future things are not allowed to be ob2ects of
the prestation. The law does not allow contracts on
future inheritance.
7. The ob2ect &ust licit, or not be contrar$ to law, &orals,
good custo&s, public polic$ or public order */rticle
5.=E+
.. The ob2ect &ust be possible */rticle 5.=H+
If the ob2ect is i&possible, then the contract is void
for lack of cause.
/rticle 5.=H does not talk of supervening
i&possibilit$ which is a &ode of e6tinguish&ents.
I&possibilit$ under /rticle 5.=H &ust be actual and
conte&poraneous with the &aking of the contract.
=. The ob2ect &ust be deter&inate as to its kind and
deter&inable as to its %uantit$ */rticle 5.=>+
The ob2ect need not be individuali-ed. It &ust be
deter&inate as to its kind or species.
The %uantit$ of the ob2ect &a$ be indeter&inate, so
long as the right of the creditor is not rendered
illusor$.
F. The ob2ect &ust be trans&issible
This is actuall$ a redundanc$ since this is alread$ in
the re%uisite of being within the co&&erce of &an.
iii. Cause
Art. 1.5(. In onerous contracts the cause is
understood to be, for each contracting party, the
prestation or pro%ise of a thing or service by the other1
in re%uneratory ones, the service or benefit hich is
re%unerated1 and in contracts of pure beneficence, the
%ere liberality of the benefactor.
Art. 1.51. $he particular %otives of the parties in
entering into a contract are different fro% the cause
thereof.
Art. 1.5,. Contracts ithout cause, or ith
unlaful cause, produce no effect hatever. $he cause is
unlaful if it is contrary to la, %orals, good custo%s,
public order or public policy.
Art. 1.5.. $he state%ent of a false cause in
contracts shall render the% void, if it should not be
proved that they ere founded upon another cause
hich is true and laful.
Art. 1.5/. Although the cause is not stated in the
contract, it is presu%ed that it e4ists and is laful,
unless the debtor proves the contrary.
Art. 1.55. ,4cept in cases specified by la, lesion
or inade5uacy of cause shall not invalidate a contract,
unless there has been fraud, %ista(e or undue influence.
The cause of a contract is the "wh$ of the contract,# the
i&&ediate and &ost pro6i&ate purpose of the contract, the
essential reason which i&pels the contracting parties to
enter into it and which e6plains and 2ustifies the creation of
the obligation through such contract.
The cause is different fro& consideration. Consideration in
the /nglo3/&erican sense &ust alwa$s be valuable or
capable of pecuniar$ esti&ation. Cause, on the other hand,
need not be &aterial at all, and &a$ consist in a &oral
satisfaction for the pro&issor.
,e%uisites of Cause
5. It &ust e6ist
7. It &ust be true
.. It &ust be licit
Cause is different fro& &otive. Cause is the pro6i&ate wh$
while &otive is the ulti&ate wh$. @or e6a&ple, / wants to
sell his house for P<; B because / is &oving to Canada. B
is willing to bu$ the house for P<; B. In this case, the
cause for / is the P<; B while the cause for B is the house.
/(s &otive is to dispose of the house which he does not
need since / is going to Canada.
)ike failure of or lack of ob2ect, the failure of cause has an
effect on the contract. If there is no cause or the cause is
illegal, then the contract is void. This is unlike the lack of
consent. !hen consent is lacking, the contract is not void.
The contract is &erel$ voidable.
!eneral "ule- @ailure of &otive as a !eneral "ule does
not affect the contract.
E)ce*tion+ Botive affects the contract when
5. The &otive beco&es a suspensive condition' or
7. The reali-ation of the &otive is the cause for the
contract and there is an intervening serious &istake of
fact
In onerous contracts, the cause is the prestation or pro&ise
of a thing or service b$ the other part$.
It has been held that, as a &ortgage is an accessor$
contract, its cause or consideration is the ver$ cause or
consideration of the principal contract, fro& which it
receives its life, and without which it cannot e6ist as an
independent contract #C%ina 8an4 vs. .ic%auco$.
In re&unerator$ contracts, the cause is the service or
benefit which is re&unerated .
/ re&unerator$ contract is one where a part$ gives
so&ething to another because of so&e service or benefit
given or rendered b$ the latter to the for&er, where
such service or benefit was not due as a legal obligation.
In gratuitous contracts, the cause is the &ere liberalit$ of
the benefactor.
4eliver$ 8 for real contracts
@or& 8 for for&al contracts
b. -atral Ele"ents
The natural ele&ents are those which are derived fro& the nature
of the contract and ordinaril$ acco&pan$ the sa&e. The$ are
presu&ed b$ law, although the$ can be e6cluded b$ the
contracting parties if the$ so desire.
i. ,ight to resolve */rticle 55>5+
ii. !arranties in sales contracts
c. Accidental Ele"ents
The accidental ele&ents are those which e6ist onl$ when the
parties e6pressl$ provide for the& for the purpose of li&iting or
&odif$ing the nor&al effects of the contract *i.e. conditions, ter&s,
&odes+
'. @tages of a Contract
a. Preparation, conception, or generation, which is the period of
negotiation and bargaining, ending at the &o&ent of agree&ent of the
parties
b. Perfection or birth of the contract, which is the &o&ent when the
parties co&e to agree on the ter&s of the contract
!eneral "ule- Contracts are perfected b$ &ere consent 8 the
principle of consensualit$ */rticle 5.5F+
E)ce*tion+ ,eal contracts, such as deposit, pledge, and
co&&odatu& are not perfected until the deliver$ of the ob2ect of
the obligation */rticle 5.5<+
c. Consu&&ation or death, which is the fulfill&ent or perfor&ance of the
ter&s agreed upon
F. Classification of Contracts
a. /ccording to 4egree of 4ependence
i. Preparator$
/ preparator$ contract is one which has for its ob2ect the
establish&ent of a condition in law which is necessar$ as a
preli&inar$ step towards the celebration of another subse%uent
contract *i.e. partnership, agenc$+.
ii. Principal
/ principal contract is one which can subsist independentl$ fro&
other contracts and whose purpose can be fulfilled b$
the&selves *i.e. sales, lease+.
iii. /ccessor$
/n accessor$ contract is one which can e6ist onl$ as a
conse%uence of, or in relation with, another prior contract *i.e.
pledge, &ortgage+.
b. /ccording to Perfection
i. Consensual
/ consensual contract is one which is perfected b$ &ere
agree&ent of the parties *i.e. sales, lease+.
ii. ,eal
/ real contract is one which re%uires not onl$ the consent of the
parties for their perfection, but also the deliver$ of the ob2ect
b$ 5 part$ to the other *i.e. co&&odatu&, deposit, pledge+.
c. /ccording to their @or&
i. Co&&on or infor&al
/n infor&al contract is one which does not re%uire so&e
particular for& *i.e. loan, lease+.
ii. 0pecial or for&al
/ for&al contract is one which re%uires so&e particular for&
*i.e. donation, chattel &ortgage+.
d. /ccording to Purpose
i. Transfer of ownership *i.e. sale+
ii. Conve$ance of use *i.e. co&&odatu&+
iii. ,endition of service *i.e. agenc$+
e. /ccording to 0ub2ect Batter
i. Things *i.e. sale, deposit, pledge+
ii. 0ervices *i.e. agenc$, lease of services+
f. /ccording to the 9ature of the Obligation
i. Bilateral
/ bilateral contract is one which gives rise to reciprocal
obligations for both parties *i.e. sale, lease+.
ii. Knilateral
/ unilateral contract is one which gives rise to an obligation for
onl$ 5 of the parties *i.e. co&&odatu&, gratuitous deposit+.
g. /ccording to Cause
i. Onerous
/n onerous contract is one in which each of the parties aspires
to procure for hi&self a benefit through the giving of an
e%uivalent or co&pensation *i.e. sale+.
ii. Gratuitous
/ gratuitous contract is one in which one of the parties
proposes to give to the other a benefit without an$ e%uivalent
or co&pensation *i.e. co&&odatu&+.
h. /ccording to ,isk
i. Co&&utative
/ co&&utative contract is one in which each of the parties
ac%uires an e%uivalent of his prestation and such e%uivalent is
pecuniaril$ appreciable and alread$ deter&ined fro& the
&o&ent of the celebration of the contract *i.e. lease+.
ii. /leator$
/n aleator$ contract is one in which each of the parties has to
his account the ac%uisition of an e%uivalent prestation , but
such e%uivalent, although pecuniaril$ appreciable, is not $et
deter&ined, at the &o&ent of the celebration of the contract,
since it depends upon the happening of an uncertain event,
thus charging the parties with the risk of loss or gain *i.e.
insurance+.
i. /ccording to 9a&e
i. 9o&inate
/ no&inate contract is one which has a na&e and is regulated
b$ special provisions of law *i.e. sale, lease+
ii. Inno&inate
Art. 1.(%. Inno%inate contracts shall be regulated
by the stipulations of the parties, by the provisions of $itles
I and II of this Boo(, by the rules governing the %ost
analogous no%inate contracts, and by the custo%s of the
place.
/n inno&inate contract is one that does not have a na&e and is
not regulated b$ special provisions of law.
/ contract is not void 2ust because it has no na&e. It is not a
re%uisite for validit$. / contract &a$ have no na&e but it can
be valid provided it has all the ele&ents of a contract and all
the restrictions are respected.
= Classes of Inno&inate Contracts
do ut des *"I give that $ou give#+
do ut facias *"I give that $ou do#+
facio ut des *"I do that $ou give#+
facio ut facias *"I do that $ou do#+
B. 9or" of Contracts
Art. 1.56. Contracts shall be obligatory, in hatever for% they
%ay have been entered into, provided all the essential re5uisites for
their validity are present. 9oever, hen the la re5uires that a
contract be in so%e for% in order that it %ay be valid or enforceable,
or that a contract be proved in a certain ay, that re5uire%ent is
absolute and indispensable. In such cases, the right of the parties
stated in the folloing article cannot be e4ercised.
Art. 1.5%. If the la re5uires a docu%ent or other special
for%, as in the acts and contracts enu%erated in the folloing article,
the contracting parties %ay co%pel each other to observe that for%,
once the contract has been perfected. $his right %ay be e4ercised
si%ultaneously ith the action upon the contract.
Art. 1.5&. $he folloing %ust appear in a public docu%ent-
.1/ Acts and contracts hich have for their object the creation,
trans%ission, %odification or e4tinguish%ent of real rights
over i%%ovable property1 sales of real property or of an
interest therein a governed by articles 1'<&, Ao. #, and 1'<)1
.#/ $he cession, repudiation or renunciation of hereditary rights
or of those of the conjugal partnership of gains1
.&/ $he poer to ad%inister property, or any other poer hich
has for its object an act appearing or hich should appear in
a public docu%ent, or should prejudice a third person1
.'/ $he cession of actions or rights proceeding fro% an act
appearing in a public docu%ent.
All other contracts here the a%ount involved e4ceeds five
hundred pesos %ust appear in riting, even a private one. But sales
of goods, chattels or things in action are governed by articles, 1'<&,
Ao. # and 1'<).
!eneral "ule- There is no need for a specific for&, but there &ust still
be so&e &anifestation of consent.
E)ce*tion+ !hen the written for& is re%uired
5. @or validit$
If it not written, the sa&e is void.
:6a&ples are donations */rticles E=H, E=>+, antichresis */rticle
75.=+, interest in a loan */rticle 5>F<+, sale of land b$ an agent
*/rticle 5HE=+, contribution of i&&ovables in a partnership */rticle
5EE.+
7. @or enforceabilit$
The contract is unenforceable if it is not written.
a. /n agree&ent that b$ its ter&s is not to be perfor&ed within a
$ear fro& the &aking thereof */rticle 5=;. *a++
b. / special pro&ise to answer for the debt, default or &iscarriage
of another */rticle 5=;. *b++
c. /n agree&ent &ade in consideration of &arriage, other than a
&utual pro&ise to &arr$ */rticle 5=;. *c++
d. /n agree&ent for the sale of goods, chattels or things in action,
at a price not less than PF;;, unless the bu$er accepts and
receives part of such goods and chattels, or the evidence, or
so&e of the&, of such things in action, or pa$ at the ti&e so&e
part of the purchase &one$' but when a sale is &ade b$
auction and entr$ is &ade b$ the auctioneer in his sales book,
at the ti&e of sale, of the a&ount and kind of propert$ sold,
ter&s of sale, price, na&es of the purchasers and person on
whose account the sale is &ade, it is a sufficient &e&orandu&
*/rticle 5=;. *d++
e. /n agree&ent of lease for a period of &ore than 5 $ear, or the
sale of real propert$ or of an interest therein */rticle 5=;. *e++
f. / representation as to the credit of a .
rd
person */rticle 5=;.
*f++
g. 9o e6press trusts concerning an i&&ovable or an$ interest
therein &a$ be proved b$ parol evidence */rticle 5==.+
.. @or registrabilit$
The following &ust appear in a public instru&ent:
a. /cts and contracts which have for their ob2ect the creation,
trans&ission, &odification or e6tinguish&ent of real rights over
i&&ovable propert$' sales of real propert$ or of an interest
therein governed b$ /rticles 5=;. *7+ and 5=;F
b. The cession, repudiation or renunciation of hereditar$ rights or
of those of the con2ugal partnership of gains
c. The power to ad&inister propert$, or an$ other power which
has for its ob2ect an act appearing or which should appear in a
public docu&ent, or should pre2udice a .
rd
person
d. The cession of actions or rights proceeding fro& an act
appearing in a public docu&ent
Contracts enu&erated in /rticle 5.FH are valid as between the
contracting parties even when the$ have not been reduced to
public or private writings.
:6cept in certain cases where public instru&ents and registration
are re%uired for the validit$ of the contract itself, the legali-ation of
a contract b$ &eans of a public writing and its entr$ in the register
are not essential sole&nities or re%uisites for the validit$ of the
contract as between the contracting parties, but are re%uired for
the purposes of &aking it effective as against .
rd
person.
/rticle 5.FE gives the contracting parties the coercive power to
reciprocall$ co&pel the e6ecution of the for&alities re%uired b$
law, as soon as the re%uisites for the validit$ of the contracts are
present.
C. Refor"ation of =nstr"ents
Art. 1.5'. ;hen, there having been a %eeting of the %inds of
the parties to a contract, their true intention is not e4pressed in the
instru%ent purporting to e%body the agree%ent, by reason of
%ista(e, fraud, ine5uitable conduct or accident, one of the parties
%ay as( for the refor%ation of the instru%ent to the end that such
true intention %ay be e4pressed.
If %ista(e, fraud, ine5uitable conduct, or accident has
prevented a %eeting of the %inds of the parties, the proper re%edy is
not refor%ation of the instru%ent but annul%ent of the contract.
Art. 1.6(. $he principles of the general la on the refor%ation
of instru%ents are hereby adopted insofar as they are not in conflict
ith the provisions of this Code.
Art. 1.61. ;hen a %utual %ista(e of the parties causes the
failure of the instru%ent to disclose their real agree%ent, said
instru%ent %ay be refor%ed.
Art. 1.6,. If one party as %ista(en and the other acted
fraudulently or ine5uitably in such a ay that the instru%ent does not
sho their true intention, the for%er %ay as( for the refor%ation of
the instru%ent.
Art. 1.6.. ;hen one party as %ista(en and the other (ne
or believed that the instru%ent did not state their real agree%ent, but
concealed that fact fro% the for%er, the instru%ent %ay be refor%ed.
Art. 1.6/. ;hen through the ignorance, lac( of s(ill,
negligence or bad faith on the part of the person drafting the
instru%ent or of the cler( or typist, the instru%ent does not e4press
the true intention of the parties, the courts %ay order that the
instru%ent be refor%ed.
Art. 1.65. If to parties agree upon the %ortgage or pledge of
real or personal property, but the instru%ent states that the property
is sold absolutely or ith a right of repurchase, refor%ation of the
instru%ent is proper.
Art. 1.66. $here shall be no refor%ation in the folloing cases-
.1/ @i%ple donations inter vivos herein no condition is i%posed1
.#/ ;ills1
.&/ ;hen the real agree%ent is void.
Art. 1.6%. ;hen one of the parties has brought an action to
enforce the instru%ent, he cannot subse5uently as( for its
refor%ation.
Art. 1.6&. "efor%ation %ay be ordered at the instance of
either party or his successors in interest, if the %ista(e as %utual1
otherise, upon petition of the injured party, or his heirs and assigns.
Art. 1.6'. $he procedure for the refor%ation of instru%ent
shall be governed by rules of court to be pro%ulgated by the @upre%e
Court.
Once the &inds of the contracting parties &eet, a valid contract e6ists,
whether the agree&ent is reduced to writing or not. There are instances
however, where in reducing their agree&ents to writing, the true intention
of the contracting parties are not correctl$ e6pressed in the docu&ent,
either b$ reason of &istake, fraud, ine%uitable conduct or accident. It is in
such cases that refor&ation of instru&ents is proper. The action for such
relief rests on the theor$ that the parties ca&e to an understanding, but in
reducing it to writing, through &utual &istake, fraud or so&e other
reason, so&e provision was o&itted or &istakenl$ inserted, and the action
to change the instru&ent so as to &ake it confor& to the contract agreed
upon.
,efor&ation 4istinguished fro& /nnul&ent
The action for refor&ation of instru&ents presupposes that there is a
valid e6isting contract between the parties, and onl$ the docu&ent or
instru&ent which was drawn up and signed b$ the& does not correctl$
e6press the ter&s of their agree&ent. On the other hand, if the &inds
of the parties did not &eet, or if the consent of either one was vitiated
b$ violence or inti&idation or &istake or fraud, so that no real and
valid contract was &ade, the action is for annul&ent.
/nnul&ent involves a co&plete nullification of the contract while
refor&ation gives life to it upon certain corrections.
Operation and :ffect of ,efor&ation
Kpon refor&ation of an instru&ent, the general rule is that it relates
back to, and takes effect fro& the ti&e of its original e6ecution,
especiall$ as between the parties.
,e%uisites of ,efor&ation
5. There &ust have been a &eeting of the &inds upon the contract
7. The instru&ent or docu&ent evidencing the contract does not e6press
the true agree&ent between the parties
.. The failure of the instru&ent to e6press the agree&ent &ust be due to
&istake, fraud, ine%uitable conduct or accident
,e%uisites of Bistake
a. That the &istake is one of fact
!henever an instru&ent is drawn with the intention of
carr$ing an agree&ent previousl$ &ade, but which, due to
&istake or inadvertence of the drafts&an or clerk, does not
carr$ out the intention of the parties, but violates it, there is
a ground to correct the &istake b$ refor&ing the
instru&ent.
b. That it was co&&on to both parties
/ written instru&ent &a$ be refor&ed where there is a
&istake on 5 side and fraud or ine%uitable conduct on the
other, as where 5 part$ to an instru&ent has &ade a
&istake and the other knows it and conceals the truth fro&
hi&.
The &istake of 5 part$ &ust refer to the contents of the
instru&ent and not the sub2ect &ater or the principal
conditions of the agree&ent. In the latter case, an action
for annul&ent is the proper re&ed$.
If 7 parties agree upon the &ortgage or pledge of real
propert$ or personal propert$, but the instru&ent states
that the propert$ is sold absolutel$ or with a right of
repurchase, refor&ation is proper.
c. The proof of &utual &istake &ust be clear and convincing
)i&itations of ,efor&ation
5. ,efor&ation is not proper in the following cases:
a. 0i&ple donations inter vivos wherein no condition is i&posed
b. !ills
c. !hen the real agree&ent is void
7. !ho &a$ ask for refor&ation
a. If the &istake is &utual
,efor&ation &a$ be ordered at the instance of either part$ or
his successors in interest
b. If the &istake is not &utual
,efor&ation &a$ be ordered upon petition of the in2ured part$
or his heirs and assigns
.. :ffect of enforcing an action
!hen one of the parties has brought an action to enforce the
instru&ent, he cannot subse%uentl$ ask for its refor&ation.
*. =nter*retation of Contracts
!here the parties have reduced their contract into writing, the contents of
the writing constitutes the sole repositor$ of the ter&s of the agree&ent
between the parties. !hatever is not found in the writing &ust be
understood as waived and abandoned. Generall$, therefore, there can be
no evidence of the ter&s of the contract other than the contents of the
writing, unless it is alleged and proved that the intention of the parties is
otherwise.
Art. 1.%(. If the ter%s of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal
%eaning of its stipulations shall control.
If the ords appear to be contrary to the evident intention of
the parties, the latter shall prevail over the for%er.
!hen the ter&s of the agree&ent are so clear and e6plicit that the$ do
not 2ustif$ an atte&pt to read into it an$ alleged intention of the parties,
the ter&s are to be understood literall$ 2ust as the$ appear on the face of
the contract.
!hen the true intent and agree&ent of the parties is established, it &ust
be given effect and prevail over the bare words of the written agree&ent.
Art. 1.%1. In order to judge the intention of the contracting
parties, their conte%poraneous and subse5uent acts shall be
principally considered.
Art. 1.%,. 9oever general the ter%s of a contract %ay be,
they shall not be understood to co%prehend things that are distinct
and cases that are different fro% those upon hich the parties
intended to agree.
Art. 1.%.. If so%e stipulation of any contract should ad%it of
several %eanings, it shall be understood as bearing that i%port hich
is %ost ade5uate to render it effectual.
Art. 1.%/. $he various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense
hich %ay result fro% all of the% ta(en jointly.
!here the instru&ent is susceptible of 7 interpretations, 5 which will
&ake it invalid and illegal, and another which will &ake it valid and legal,
the latter interpretation should be adopted.
In the construction of an instru&ent where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will give
effect to all.
Art. 1.%5. ;ords hich %ay have different significations shall
be understood in that hich is %ost in (eeping ith the nature and
object of the contract.
Art. 1.%6. $he usage or custo% of the place shall be borne in
%ind in the interpretation of the a%biguities of a contract, and shall
fill the o%ission of stipulations hich are ordinarily established.
!hen there is doubt as to the &eaning of an$ particular language, it
should be deter&ined b$ a consideration of the general scope and purpose
of the instru&ent in which it occurs.
/n instru&ent &a$ be construed according to usage in order to deter&ine
its true character.
Art. 1.%%. $he interpretation of obscure ords or stipulations in a
contract shall not favor the party ho caused the obscurity.
The part$ who draws up a contract in which obscure ter&s or clauses
appear, is the one responsible for the obscurit$ or a&biguit$' the$ &ust
therefore be construed against hi&.
Art. 1.%&. ;hen it is absolutely i%possible to settle doubts by
the rules established in the preceding articles, and the doubts refer to
incidental circu%stances of a gratuitous contract, the least
trans%ission of rights and interests shall prevail. If the contract is
onerous, the doubt shall be settled in favor of the greatest reciprocity
of interests.
If the doubts are cast upon the principal object of the contract
in such a ay that it cannot be (non hat %ay have been the
intention or ill of the parties, the contract shall be null and void.
Art. 1.%'. $he principles of interpretation stated in "ule 1#&

of the "ules of Court shall li(eise be observed in the construction of

contracts.
Rule 130, Rules of Court
Sec. 10. Interpretation of a writing according to its legal meaning. The
language of a writing is to be interpreted according to the legal meaning it bears in
the place of its execution, unless the parties intended otherwise.
Sec. 11. Instrument construed so as to give effect to all provisions. n the
construction of an instrument where there are se!eral pro!isions or particulars.
such a construction is, if possible, to be adopted as will gi!e effect to all.
Sec. 1". Interpretation according to intention; general and particular
provisions. n the construction of an instrument, the intention of the parties is to
be pursued# and when a general and a particular pro!ision are inconsistent, the
latter is paramount to the former. So a particular intent will control a general one
that is inconsistent with it.
!hen a general and a particular provision are inconsistent, the particular
provision will control.

9ow, ,ule 5.;, UU5;35>.

Sec. 13. Interpretation according to circumstances. $or the proper
construction of an instrument, the circumstances under which it was made,
including the situation of the sub%ect thereof and of the parties to it, ma& be shown,
so that the %udge ma& be placed in the position of those whose language he is to
interpret.
Sec. 1'. Peculiar signification of terms. The terms of a writing are
presumed to ha!e been used in their primar& and general acceptation, but
e!idence is admissible to show that the& ha!e a local, technical, or otherwise
peculiar signification, and were so used and understood in the particular instance,
in which case the agreement must be construed accordingl&.
Sec. 1(. Written words control printed. )hen an instrument consists
partl& of written words and partl& of a printed form, and the two are inconsistent,
the former controls the latter.
Sec. 1*. Experts and interpreters to be used in explaining certain writings.
)hen the characters in which an instrument is written are difficult to be
deciphered, or the language is not understood b& the court, the e!idence of
persons s+illed in deciphering the characters, or who understand the language, is
admissible to declare the characters or the meaning of the language.
Sec. 1,. Of two constructions, which preferred. )hen the terms of an
agreement ha!e been intended in a different sense b& the different parties to it,
that sense is to pre!ail against either part& in which he supposed the other
understood it, and when different constructions of a pro!ision are otherwise
e-uall& proper, that is to be ta+en which is the most fa!orable to the part& in whose
fa!or the pro!ision was made.
Sec. 1.. Construction in favor of natural right. )hen an instrument is
e-uall& susceptible of two interpretations, one is fa!or of natural right and the
other against it, the former is to be adopted.
Sec. 1/. Interpretation according to usage. 0n instrument ma& be
construed according to usage, in order to determine its true character.
,. Defecti8e Contracts
The re&aining chapters deal with defective contracts. The Civil Code
&ade &a2or and i&portant i&prove&ents on this topic. Knlike the
0panish Code, the defective contracts were a&biguous and had unclear
classifications. The$ were si&pl$ void or voidable. 1ere, in our present
code, there are for t$pes of defective contracts, fro& the serious to less
serious, in the following order:
1owever, our Code still has so&e i&perfections. /s pointed out b$
Tolentino, there &ust be a "relativel$ void# contract. @or e6a&ple, in an
oid
,escissible
Knenforceable
oidable
assign&ent of lease without authorit$, this is void as to third parties, but
valid as between the parties.
There have been several cases decided b$ our 0upre&e Court wherein a
chattel &ortgage over real propert$ was declared void as to third parties
but valid as between the parties.
!hatever i&perfections the Code has, it still is better than other codes on
this topic.
1. "escissible Contracts
Art. 1.&(. Contracts validly agreed upon %ay be rescinded
in the cases established by la.
Art. 1.&1. $he folloing contracts are rescissible-
.1/ $hose hich are entered into by guardians henever the
ards ho% they represent suffer lesion by %ore than one3
fourth of the value of the things hich are the object
thereof1
.#/ $hose agreed upon in representation of absentees, if the
latter suffer the lesion stated in the preceding nu%ber1
.&/ $hose underta(en in fraud of creditors hen the latter
cannot in any other %anner collect the clai%s due the%1
.'/ $hose hich refer to things under litigation if they have
been entered into by the defendant ithout the (noledge
and approval of the litigants or of co%petent judicial
authority1
.)/ All other contracts specially declared by la to be subject to
rescission.
Art. 1.&,. Pay%ents %ade in a state of insolvency for
obligations to hose fulfill%ent the debtor could not be co%pelled
at the ti%e they ere effected, are also rescissible.
Art. 1.&.. $he action for rescission is subsidiary1 it cannot
be instituted e4cept hen the party suffering da%age has no other
legal %eans to obtain reparation for the sa%e.
Art. 1.&/. "escission shall be only to the e4tent necessary
to cover the da%ages caused.
Art. 1.&5. "escission creates the obligation to return the
things hich ere the object of the contract, together ith their
fruits, and the price ith its interest1 conse5uently, it can be
carried out only hen he ho de%ands rescission can return
hatever he %ay be obliged to restore.
Aeither shall rescission ta(e place hen the things hich
are the object of the contract are legally in the possession of third
persons ho did not act in bad faith.
In this case, inde%nity for da%ages %ay be de%anded fro%
the person causing the loss.
Art. 1.&6. "escission referred to in Aos. 1 and # of article
1&>1 shall not ta(e place ith respect to contracts approved by
the courts.
Art. 1.&%. All contracts by virtue of hich the debtor
alienates property by gratuitous title are presu%ed to have been
entered into in fraud of creditors, hen the donor did not reserve
sufficient property to pay all debts contracted before the donation.
Alienations by onerous title are also presu%ed fraudulent
hen %ade by persons against ho% so%e judg%ent has been
issued. $he decision or attach%ent need not refer to the property
alienated, and need not have been obtained by the party see(ing
the rescission.
In addition to these presu%ptions, the design to defraud
creditors %ay be proved in any other %anner recognized by the
la of evidence.
Art. 1.&&. ;hoever ac5uires in bad faith the things
alienated in fraud of creditors, shall inde%nify the latter for
da%ages suffered by the% on account of the alienation, henever,
due to any cause, it should be i%possible for hi% to return the%.
If there are to or %ore alienations, the first ac5uirer shall
be liable first, and so on successively.
Art. 1.&'. $he action to clai% rescission %ust be
co%%enced ithin four years.
+or persons under guardianship and for absentees, the
period of four years shall not begin until the ter%ination of the
for%erDs incapacity, or until the do%icile of the latter is (non.
This is not be to confused with resolution, discussed in /rticle 55>5.
This chapter on rescissible contracts is the proper rescissible.
/ccording to 0caevola, rescission is a process designated to render
inefficacious a contract validl$ entered into and nor&all$ binding, b$
reason of e6ternal conditions, causing an econo&ic pre2udice to a
part$ or to his creditors.
/ rescissible contract is a contract which is valid because it contains all
the essential re%uisites prescribed b$ law, but which is defective
because of in2ur$ or da&age to either of the contracting parties or to
.
rd
persons, as a conse%uence of which it &a$ be rescinded b$ &eans
of a proper action for rescission.
,escission is a re&ed$ granted b$ law to the contracting parties, and
even to .
rd
persons, to secure the reparation of da&ages caused to
the& b$ a contract, even if the sa&e should be valid, b$ &eans of the
restoration of things to their condition prior to the celebration of the
contract.
,e%uisites of ,escission
a. The contact &ust be a rescissible contract under /rticle 5.H5 or
/rticle 5.H7
The following contracts are rescissible
i. Those entered into b$ guardians whenever the who& the$
represent suffer lesion b$ &ore than V of the value of
things which are the ob2ect thereof */rticle 5.H5 *5++
,escission shall not take place with respect to contracts
approved b$ the court */rticle 5.H<+.
/s a rule, when a guardian enters into a contract
involving the disposition of the ward(s propert$, the
guardian &ust secure the approval of the guardianship
court. / guardian is onl$ authori-ed to &anage the
estate of the ward. / guardian has no power to dispose
of an$ portion of the estate without approval of the
court. If &ore than acts of &ere ad&inistration are
involved, 2udicial approval is necessar$.
In case of sale, &ortgage, or other encu&brance of an$
portion of the estate which does not have 2udicial
approval is an unenforceable contract */rticle 5=;. *5++.
Therefore, /rticle 5.H5 *5+ is li&ited to contracts which
constitute &ere acts of ad&inistration *i.e. the purchase
of e%uip&ent for the cultivation of lands, purchase of
&aterials for repair of buildings, etc.+.
)esion is ver$ difficult to appl$ in practice.
@or e6a&ple, / is the agent of B. B owns land worth
P5; B. / sells the land for PE B. @ro& the facts, the
lesion suffered b$ B is .;T. In practice, are $ou sure
that P5; B is the fair &arket value of the land. !hat if
the situation is urgent and that propert$ &ust be
disposed of right awa$A
/nother e6a&ple, / is the agent of B. B owns land
worth P5; B. C wants to bu$ the land. C is willing to
pa$ P E B 8 lu&p su& pa$&ent. 4 is willing to pa$ P 5;
B but on install&ents.
ii. Those agreed upon in representation of absentees, if the
absentee suffers lesion b$ &ore than V of the value of
things which are the ob2ect thereof */rticle 5.H5 *7++
,escission shall not take place with respect to contracts
approved b$ the court */rticle 5.H<+.
/s a rule, when the legal representative of an absentee
enters into a contract involving the disposition of the
absentee(s propert$, he &ust secure the approval of the
court. / legal representative is onl$ authori-ed to
&anage the estate of the absentee. 1e has no power
to dispose of an$ portion of the estate without approval
of the court. If &ore than acts of &ere ad&inistration
are involved, 2udicial approval is necessar$.
In case of sale, &ortgage, or other encu&brance of an$
portion of the estate which does not have 2udicial
approval is an unenforceable contract */rticle 5=;. *5++.
Therefore, /rticle 5.H5 *7+ is li&ited to contracts which
constitute &ere acts of ad&inistration *i.e. the purchase
of e%uip&ent for the cultivation of lands, purchase of
&aterials for repair of buildings, etc.+.
)esion is ver$ difficult to appl$ in practice.
@or e6a&ple, / is the agent of B. B owns land worth
P5; B. / sells the land for PE B. @ro& the facts, the
lesion suffered b$ B is .;T. In practice, are $ou sure
that P5; B is the fair &arket value of the land. !hat if
the situation is urgent and that propert$ &ust be
disposed of right awa$A
/nother e6a&ple, / is the agent of B. B owns land
worth P5; B. C wants to bu$ the land. C is willing to
pa$ P E B 8 lu&p su& pa$&ent. 4 is willing to pa$ P 5;
B but on install&ents.
iii. Those undertaken in fraud of creditors when the creditors
cannot in an$ other &anner collect the clai&s due the&
*/rticle 5.H5 *.++
This is an e6ception to the principle of relativit$ of
contracts.
Creditors, after having pursued the propert$ in
possession of the debtor to satisf$ their clai&s &a$
e6ercise all the rights and bring all the actions of the
latter for the sa&e purpose, save those which are
inherent in his person' the$ &a$ also i&pugn the acts
which the debtor &a$ have done to defraud the&
*/rticle 55EE+.
Creditors are protected in cases of contracts intended to
defraud the& */rticle 5.5.+.
In deter&ining whether or not a certain conve$ance is
fraudulent, the %uestion in ever$ case is whether the
conve$ance was a bona fide transaction or trick and
contrivance to defeat creditors, or whether it conserves
to the debtor a special right.
/ll contracts b$ virtue of which the debtor alienates
propert$ b$ gratuitous tile are presu&ed to have been
entered into in order to defraud creditors, when the
donor did not reserve sufficient propert$ to pa$ all debts
contracted before the donation */rticle 5.HE, 5
st
Q+.
/lienations b$ onerous title are also presu&ed
fraudulent when &ade b$ persons against who& so&e
2udg&ent has been rendered in an$ instance or so&e
writ of attach&ent has been issued. The decision or
attach&ent need not refer to the propert$ alienated, and
need not have been obtained b$ the part$ seeking the
rescission */rticle 5.HE, 7
nd
Q+.
Badges of @raud
5. The fact that the consideration of the conve$ance is
inade%uate
7. / transfer &ade b$ a debtor after suit has begun and
while it is pending against hi&
.. / sale upon credit b$ an insolvent debtor
=. :vidence of large indebtedness or co&plete
insolvenc$
F. The transfer of all or nearl$ all of his propert$ b$ a
debtor, especiall$ when he is insolvent or greatl$
e&barrassed financiall$
<. The fact that the transfer is &ade between father
and son when there are present an$ of the above
circu&stances
E. The failure of the vendee to take e6clusive
possession of all the propert$
iv. Those which refer to things under litigation if the$ have
been entered into b$ the defendant without the knowledge
and approval of the litigants or of co&petent 2udicial
authorit$ */rticle 5.H5 *=++
/rticle 5.H5 *=+ refers to a contract e6ecuted b$ the
defendant in a suit involving the ownership or
possession of a thing, when such contract is &ade
without the knowledge and approval of the plaintiff or
court.
/s in the case of a contract in fraud of creditors, the
re&ed$ of rescission in this case is given to a .
rd
person
who is not a part$ to the contract. The purpose is to
protect the plaintiff.
v. /ll other contracts speciall$ declared b$ law to be the
sub2ect of rescission */rticle 5.H5 *F++
The following provision in sales are e6a&ples of
rescissible contracts declared b$ law 8 /rts 5F7<, 5F.=,
5F.H, 5F.>, 5F=;, 5FF<, 5F<;, 5F<E, 5<F>.
Pa$&ents &ade in a state of insolvenc$ for obligations
to whose fulfill&ent the debtor could not be co&pelled
at the ti&e the$ were effected */rticle 5.H7+
b. The person asking for rescission &ust have no other legal &eans to
obtain reparation for the da&ages suffered b$ hi& */rticle 5.H.+
c. The person de&anding rescission &ust be able to return whatever
he &a$ be obliged to restore if rescission is granted */rticle 5.HF,
5
st
par+
This re%uisite is onl$ applicable if the one who suffers the lesion
is a part$ to the contract.
This re%uisite does not appl$ when a defrauded creditor resorts
to accion pauliana.
d. The things which are the ob2ect of the contract &ust not have
passed legall$ to the possession of a .
rd
person acting in good faith
*/rticle 5.HF, 7
nd
Q+
!hoever ac%uires in bad faith the things alienated in fraud of
creditors, shall inde&nif$ the latter for da&ages suffered b$
the& on account of the alienation, whenever, due to an$ cause,
it should be i&possible for hi& to return the& */rticle 5.HH,5
st
Q+.
If there are 7 or &ore alienations, the 5
st
ac%uirer shall be liable
5
st
, and so on successivel$ */rticle 5.HH, 7
nd
Q+.
e. The action for rescission &ust be brought within the prescriptive
period of = $ears */rticle 5.H>+
7. 7oidable Contracts
Art. 1.'(. $he folloing contracts are voidable or
annullable, even though there %ay have been no da%age to the
contracting parties-
.1/ $hose here one of the parties is incapable of giving
consent to a contract1
.#/ $hose here the consent is vitiated by %ista(e, violence,
inti%idation, undue influence or fraud.
$hese contracts are binding, unless they are annulled by a
proper action in court. $hey are susceptible of ratification.
Art. 1.'1. $he action for annul%ent shall be brought ithin
four years.
$his period shall begin-
In cases of inti%idation, violence or undue influence, fro%
the ti%e the defect of the consent ceases.
In case of %ista(e or fraud, fro% the ti%e of the discovery
of the sa%e.
And hen the action refers to contracts entered into by
%inors or other incapacitated persons, fro% the ti%e the
guardianship ceases.
Art. 1.',. "atification e4tinguishes the action to annul a
voidable contract.
Art. 1.'.. "atification %ay be effected e4pressly or tacitly.
It is understood that there is a tacit ratification if, ith (noledge
of the reason hich renders the contract voidable and such reason
having ceased, the person ho has a right to invo(e it should
e4ecute an act hich necessarily i%plies an intention to aive his
right.
Art. 1.'/. "atification %ay be effected by the guardian of
the incapacitated person.
Art. 1.'5. "atification does not re5uire the confor%ity of
the contracting party ho has no right to bring the action for
annul%ent.
Art. 1.'6. "atification cleanses the contract fro% all its
defects fro% the %o%ent it as constituted.
Art. 1.'%. $he action for the annul%ent of contracts %ay be
instituted by all ho are thereby obliged principally or subsidiarily.
9oever, persons ho are capable cannot allege the incapacity of
those ith ho% they contracted1 nor can those ho e4erted
inti%idation, violence, or undue influence, or e%ployed fraud, or
caused %ista(e base their action upon these flas of the contract.
Art. 1.'&. An obligation having been annulled, the
contracting parties shall restore to each other the things hich
have been the subject %atter of the contract, ith their fruits, and
the price ith its interest, e4cept in cases provided by la.
In obligations to render service, the value thereof shall be
the basis for da%ages.
Art. 1.''. ;hen the defect of the contract consists in the
incapacity of one of the parties, the incapacitated person is not
obliged to %a(e any restitution e4cept insofar as he has been
benefited by the thing or price received by hi%.
Art. 1/((. ;henever the person obliged by the decree of
annul%ent to return the thing can not do so because it has been
lost through his fault, he shall return the fruits received and the
value of the thing at the ti%e of the loss, ith interest fro% the
sa%e date.
Art. 1/(1. $he action for annul%ent of contracts shall be
e4tinguished hen the thing hich is the object thereof is lost
through the fraud or fault of the person ho has a right to
institute the proceedings.
If the right of action is based upon the incapacity of any one
of the contracting parties, the loss of the thing shall not be an
obstacle to the success of the action, unless said loss too( place
through the fraud or fault of the plaintiff.
Art. 1/(,. As long as one of the contracting parties does
not restore hat in virtue of the decree of annul%ent he is bound
to return, the other cannot be co%pelled to co%ply ith hat is
incu%bent upon hi%.
/ voidable contract is a contract in which all of the essential ele&ents
for validit$ are present, but the ele&ent of consent is vitiated either b$
lack f legal capacit$ of 5 of the contracting parties or b$ &istake,
violence, inti&idation, undue influence, or fraud.
oidable contracts are binding unless the$ are annulled b$ a proper
action court. The$ are susceptible to confir&ation.
There is a difference between confir&ation and ratification.
Confir&ation is the process of curing the defect of a voidable
contract. ,atification is the process of curing contracts which are
defective because the$ were entered into without authorit$.
The following contracts are voidable or annullable, even though there
&a$ have been no da&age to the contracting parties
a. Those where one of the parties is incapable of giving consent to a
contract
The following cannot give consent to a contract */rticle 5.7E+:
i. Anemancipated minors
!here necessaries are sold and delivered to a &inor or
other person without capacit$ to act, he &ust pa$ a
reasonable price therefore. 9ecessaries include
ever$thing that is indispensable for sustenance,
dwelling, clothing, and &edical attendance.
Contracts effected b$ &inors who have alread$ passed
the age of pubert$ and adolescence and are near the
adult age, when the$ pretend to have alread$ reached
the age of &a2orit$, while in fact the$ have not, are
valid, and cannot be per&itted afterwards to e6cuse
the&selves fro& co&pliance with obligations assu&ed
b$ the& or seek their annul&ent. This is in consonance
with the rules of estoppel. #2ercado vs. Espiritu$.
1owever in 8ragan+a v, 3e ?illa, the 0C said that the
&isrepresentation of an incapacitate person does not
estop hi& fro& den$ing that he was of age, or fro&
asserting that he was under age, at the ti&e he entered
into the contract. /ccording to Professor Balane, this
view is ver$ logical. If the &inor is too $oung to enter
into contracts, he is too $oung to be estopped.
ii. 9nsane or demented persons, and deaf mutes )%o do not
4no) %o) to )rite
Art. 1.,&. Contracts entered into during a lucid
interval are valid. Contracts agreed to in a state of
drun(enness or during a hypnotic spell are voidable.
Art. 1.,'. $he incapacity declared in article
1&#8 is subject to the %odifications deter%ined by
la, and is understood to be ithout prejudice to
special dis5ualifications established in the las.
b. Those where the consent is vitiated b$ &istake, violence,
inti&idation, undue influence or fraud
Art. 1..(. A contract here consent is given through
%ista(e, violence, inti%idation, undue influence or fraud is
voidable.
i. Bistake
Art. 1..1. In order that %ista(e %ay invalidate
consent, it should refer to the substance of the thing
hich is the object of the contract, or to those conditions
hich have principally %oved one or both parties to
enter into the contract .
Cista(e as to the identity or 5ualification of one of
the parties ill vitiate consent only hen such identity or
5ualifications have been the principal cause of the
contract.
A si%ple %ista(e of account shall give rise to its
correction.
Art. 1..,. ;hen one of the parties is unable to
read, or if the contract is in a language not understood
by hi%, and %ista(e or fraud is alleged, the person
enforcing the contract %ust sho that the ter%s thereof
have been fully e4plained to the for%er.
Art. 1.... $here is no %ista(e if the party alleging
it (ne the doubt, contingency or ris( affecting the
object of the contract.
Art. 1../. Cutual error as to the legal effect of an
agree%ent hen the real purpose of the parties is
frustrated, %ay vitiate consent.
Art. 1./,. Cisrepresentation by a third person
does not vitiate consent, unless such %isrepresentation
has created substantial %ista(e and the sa%e is %utual.
Art. 1./.. Cisrepresentation %ade in good faith is
not fraudulent but %ay constitute error.
ii. iolence
Art. 1..56 1
st
7. $here is violence hen in order to
rest consent, serious or irresistible force is e%ployed.
iolence shall annul the obligation, although it &a$ been
e&plo$ed b$ a .
rd
person who did not take part in the
contract */rticle 5..<+.
,e%uisites of iolence
5. Irresistible ph$sical force is e&plo$ed
7. The force is the deter&ining cause for giving consent
iii. Inti&idation
Art. 1..56 ,
nd
7. $here is inti%idation hen one of
the contracting parties is co%pelled by a reasonable and
ell3grounded fear of an i%%inent and grave evil upon
his person or property, or upon the person or property of
his spouse, descendants or ascendants, to give his
consent.
,e%uisites of Inti&idation
5. The threat &ust be the deter&ining
cause for giving consent
7. The threatened act is un2ust and
unlawful
/ threat to enforce one(s clai& through co&petent
authorit$, if the clai& is 2ust or legal, does not vitiate
consent */rticle 5..F, =
th
Q+.
The threat to enforce a right, should not be ai&ed at
a result which is contrar$ to law or &orals, or which
is un2ust and contrar$ to good faith. /lthough it is
lawful to e6ercise rights, it is not alwa$s lawful to use
the& for purposes different fro& those for which
the$ were created. Thus, although it is lawful to
report cri&es, the threat to report it &a$ be illicit if
the purpose is not to cooperate in the discover$ and
prosecution of the cri&e, but to obtain so&e
prestation fro& the culprit which otherwise could not
be obtained and which does not constitute inde&nit$
for da&ages for the cri&e co&&itted.
Thus, the rule is, generall$, a threat to do so&ething
lawful does not constitute inti&idation.
Example: If $ou don(t &arr$ &$ daughter, I(ll report
$ou to the IBP. This is not unlawful because the
person did co&&it i&&oralit$.
0o&eti&es, though, it &a$ constitute inti&idation.
Example: / saw B co&&it &urder. / threatened B
that he will report hi& to the police unless B gives /
his house. This is inti&idation because there is no
connection between the cri&e and the contract.
.. The threat is real and serious
@or e6a&ple the threat &ust be to kill $ou or burn
$our house and not &erel$ to pinch $ou.
=. The threat produces a well3grounded
fear that the person &aking it can and will inflict har&
To deter&ine the degree of inti&idation, the age,
se6, and condition of the person shall be borne in
&ind */rticle 5..F, .
rd
Q+.
@or e6a&ple, a EF$ear old &an who is bed ridden
and sa$s that he will kill $ou does not produce a
well3grounded fear.
Inti&idation shall annul the obligation, although it
&a$ have been e&plo$ed b$ a .
rd
person who did
not take part in the contract */rticle 5..<+.
iv. Kndue influence
Art. 1..%. $here is undue influence hen a person
ta(es i%proper advantage of his poer over the ill of
another, depriving the latter of a reasonable freedo% of
choice. $he folloing circu%stances shall be considered-
the confidentiality, fa%ily, spiritual and other relations
beteen the parties, or the fact that the person alleged
to have been unduly influenced as suffering fro%
%ental ea(ness, or as ignorant or in financial
distress.
v. @raud
Art. 1..,. ;hen one of the parties is unable to
read, or if the contract is in a language not understood
by hi%, and %ista(e or fraud is alleged, the person
enforcing the contract %ust sho that the ter%s thereof
have been fully e4plained to the for%er.
Art. 1..&. $here is fraud hen, through insidious
ords or %achinations of one of the contracting parties,
the other is induced to enter into a contract hich,
ithout the%, he ould not have agreed to.
This is known as deceit or dolo causante. This is different
fro& dolo incidente which &eans fraud on things which
would not prevent $ou fro& entering into a contract but
&a$ hold the other liable for da&ages.
,e%uisites of @raud
5. @raud is e&plo$ed b$ 5 part$ on the other */rticles
5.=7, 5.==+
7. The other part$ was induced to enter into the contract
*/rticle 5..H+
.. The fraud &ust be serious */rticle 5.==+
=. There is da&age or in2ur$ caused
Art. 1..'. +ailure to disclose facts, hen there is
a duty to reveal the%, as hen the parties are bound by
confidential relations, constitutes fraud.
Art. 1./(. $he usual e4aggerations in trade, hen
the other party had an opportunity to (no the facts, are
not in the%selves fraudulent.
Art. 1./1. A %ere e4pression of an opinion does
not signify fraud, unless %ade by an e4pert and the
other party has relied on the for%erGs special (noledge.
Art. 1./,. Cisrepresentation by a &
rd
person does
not vitiate consent, unless such %isrepresentation has
created substantial %ista(e and the sa%e is %utual.
Art. 1./.. Cisrepresentation %ade in good faith is
not fraudulent but %ay constitute error.
Art. 1.//. In order that fraud %ay %a(e a
contract voidable, it should be serious and should not
have been e%ployed by both contracting parties.
Incidental fraud only obliges the person e%ploying
it to pay da%ages.
If a .
rd
person should co&&it violence or inti&idation on 5
of the contracting parties and this vitiates the contracting
part$(s consent, then the contract &a$ be annulled */rticle
5..<+. B$ analog$, if a .
rd
person should e6ert undue
influence on 5 of the contracting parties and this vitiates the
consent of the contracting part$, then the contract &a$ be
annulled. 1owever, if the .
rd
part$ co&&its fraud, da&ages
is the onl$ re&ed$ unless the fraud co&&itted b$ the .
rd
person has created a &utual substantial &istake */rticle
5.=7+.
,ules ,egarding oidable Contracts
a. oidable contracts are effective unless set aside */rticle 5.>;+.
b. The validit$ of a voidable contract can onl$ be assailed in a suit for
that purpose *i.e. co&plaint or counterclai&+.
The action for annul&ent of contracts &a$ be instituted b$ all
who are thereb$ obliged principall$ or subsidiaril$. 1owever,
persons who are capable cannot allege the incapacit$ of those
with who& the$ contracted' nor can those who e6erted
inti&idation, violence, or undue influence, or e&plo$ed fraud,
or caused ,&istake base their action upon these flaws of the
contract */rticle 5.>E+.
The action for annul&ent shall be brought within = $ears. This
period shall begin
i. Inti&idation 8 fro& the ti&e the defect of the consent
ceases
ii. iolence 8 fro& the ti&e the defect of the consent ceases
iii. Kndue influence 8 fro& the ti&e the defect of the consent
ceases
iv. Bistake 8 fro& the ti&e of the discover$ of the &istake
v. @raud 8 fro& the ti&e of the discover$ of the fraud
The = $ear prescription period to annul contracts entered into
b$ &inors or other incapacitated persons shall begin fro& the
ti&e the guardianship ceases */rticle 5.>5, =
th
Q+.
/n obligation having been annulled, the contracting parties
shall restore to each other the things which have been the
sub2ect &atter of the contract, with their fruits, and the price
with its interest, e6cept in cases provided b$ law */rticle 5.>H,
5
st
Q+.
In obligations to render service, the value thereof shall be
the basis for da&ages */rticle 5.>H, 7
nd
Q+.
!hen the defect of the contract consists in the incapacit$ of
5 of the parties, the incapacitated person is not obliged to
&ake an$ restitution e6cept insofar as he has been
benefited b$ the thing or price received b$ hi& */rticle
5.>>+.
!hat if the Thing to Be ,eturned is )ost
i. )oss due to @ault of 4efendant
4efendant has to pa$ the plaintiff
5. alue of the thing loss
7. @ruits if an$
.. Interest
ii. )oss due to a @ortuitous :vent or due to a .
rd
part$
4efendant has to pa$ the plaintiff
5. alue of the thing loss
7. @ruits if an$
iii. )oss due to @ault or @raud of Plaintiff
The plaintiff loses the right to annul */rticle 5=;5+.
There is fault on the part of the plaintiff once the
plaintiff regains capacit$.
iv. )oss without @ault on the Plaintiff(s Part
Co&&entators have a difference of opinion
5. The right to annul is e6tinguished unless the
plaintiff offers to pa$ the value of the ob2ect at
the ti&e of loss
7. The plaintiff is entitled to annul without having to
pa$ an$thing.
/s long as 5 of the contracting parties does not restore what
in virtue of the decree of annul&ent he is bound to return,
the other cannot be co&pelled to co&pl$ with what is
incu&bent upon hi& */rticle 5=;7+.
The action for annul&ent will not prosper in the following:
i. If the contract has been confir&ed */rticle 5.>7+
ii. If the action to annul has prescribed */rticle 5.>5+
iii. !hen the thing which is the ob2ect of the contract is lost
through the fault or fraud of the person who has a right to
institute the proceedings */rticle 5=;5, 5
st
Q+
iv. :stoppel
c. oidable contracts can be confir&ed.
Confir&ation e6tinguishes the action to annul a voidable
contract */rticle 5.>7+.
Confir&ation is the proper ter& for curing the defect of a
voidable contract.
Confir&ation cleanses the contract fro& all its defects fro& the
&o&ent it was constituted */rticle 5.><+.
,e%uisites of Confir&ation
5. That the contract is a voidable or annullable contract
7. That the ratification is &ade with knowledge of the cause
for nullit$
.. That at the ti&e the ratification is &ade, the cause of nullit$
has alread$ ceased to e6ist
Confir&ation &a$ be effected e6pressl$ or tacitl$. It is
understood that there is tacit confir&ation if, with knowledge of
the reason which renders the contract voidable and such reason
having ceased, the person who has a right to invoke it should
e6ecute an act which necessaril$ i&plies an intention to waive
his right */rticle 5.>.+.
d. oidable contracts can be confir&ed onl$ b$ the part$ whose
consent was vitiated
Confir&ation does not re%uire the confor&it$ of the contracting
part$ who has no right to bring the action for annul&ent
*/rticle 5.>F+.
Confir&ation &a$ be effected b$ the guardian of the
incapacitated person */rticle 5.>=+.
.. Bnenforceable Contracts
Art. 1/(.. $he folloing contracts are unenforceable,
unless they are ratified-
.1/ $hose entered into in the na%e of another person by one
ho has been given no authority or legal representation,
or ho has acted beyond his poers1
.#/ $hose that do not co%ply ith the @tatute of +rauds as set
forth in this nu%ber. In the folloing cases an agree%ent
hereafter %ade shall be unenforceable by action, unless
the sa%e, or so%e note or %e%orandu%, thereof, be in
riting, and subscribed by the party charged, or by his
agent1 evidence, therefore, of the agree%ent cannot be
received ithout the riting, or a secondary evidence of
its contents-
.a/ An agree%ent that by its ter%s is not to be perfor%ed
ithin a year fro% the %a(ing thereof1
.b/ A special pro%ise to anser for the debt, default, or
%iscarriage of another1
.c/ An agree%ent %ade in consideration of %arriage,
other than a %utual pro%ise to %arry1
.d/ An agree%ent for the sale of goods, chattels or things
in action, at a price not less than five hundred pesos,
unless the buyer accept and receive part of such
goods and chattels, or the evidences, or so%e of
the%, of such things in action or pay at the ti%e so%e
part of the purchase %oney1 but hen a sale is %ade
by auction and entry is %ade by the auctioneer in his
sales boo(, at the ti%e of the sale, of the a%ount and
(ind of property sold, ter%s of sale, price, na%es of
the purchasers and person on hose account the sale
is %ade, it is a sufficient %e%orandu%1
.e/ An agree%ent of the leasing for a longer period than
one year, or for the sale of real property or of an
interest therein1
.f/ A representation as to the credit of a third person.
.&/ $hose here both parties are incapable of giving consent
to a contract.
Art. 1/(/. Bnauthorized contracts are governed by article
1&18 and the principles of agency in $itle 6 of this Boo(.
Art. 1/(5. Contracts infringing the @tatute of +rauds,
referred to in Ao. # of article 1'<&, are ratified by the failure to
object to the presentation of oral evidence to prove the sa%e, or
by the acceptance of benefit under the%.
Art. 1/(6. ;hen a contract is enforceable under the @tatute
of +rauds, and a public docu%ent is necessary for its registration
in the "egistry of *eeds, the parties %ay avail the%selves of the
right under Article 1&)8.
Art. 1/(%. In a contract here both parties are incapable of
giving consent, e4press or i%plied ratification by the parent, or
guardian, as the case %ay be, of one of the contracting parties
shall give the contract the sa%e effect as if only one of the% ere
incapacitated.
If ratification is %ade by the parents or guardians, as the
case %ay be, of both contracting parties, the contract shall be
validated fro% the inception.
Art. 1/(&. Bnenforceable contracts cannot be assailed by
third persons.
/n unenforceable contract is a contract which cannot be enforced b$ a
proper action in court, unless the$ are ratified, because either the$ are
entered into without or in e6cess of authorit$ or the$ do not co&pl$
with the 0tatute of @rauds or both the contracting parties do not
possess the re%uired legal capacit$.
The following contracts are unenforceable unless the$ are ratified
*/rticle 5=;.+
a. Those entered into in the na&e of another person b$ 5 who has
been given no authorit$ or legal representation, or who has acted
be$ond his powers
Art. 1.1%. Ao one %ay contract in the na%e of
another ithout being authorized by the latter, or unless he
has by la a right to represent hi%.
A contract entered into in the na%e of another by one
ho has no authority or legal representation, or ho has
acted beyond his poers, shall be unenforceable, unless it is
ratified, e4pressly or i%pliedly, by the person on hose
behalf it has been e4ecuted, before it is revo(ed by the
other contracting party.
!hen a person enters into a contract for and in the na&e of
another, without authorit$ to do so, the contract does not bind
the latter, unless he ratifies the sa&e.
The agent, who has entered into the contract in the na&e of
the purported principal, but without authorit$ fro& hi&, is liable
to .
rd
persons upon the contract.
The proper ter& for this case is "ratification#.
Example: In a sale, J clai&ed that he was an agent of D, even
if not. The contract cannot be enforced against D. /nother
e6a&ple is when the agent is authori-ed to lease the propert$
but the agent instead sells the propert$. The principal is not
bound.
b. Those that do not co&pl$ with the 0tatute of @rauds
This is the &ost fa&ous variet$.
i. /n agree&ent that b$ its ter&s is not to be perfor&ed within a
$ear fro& the &aking thereof
In 8abao vs. &ere+, the 0upre&e Court interpreted the
phrase "not be to perfor&ed within a $ear# to &ean that the
obligation cannot be finished within 5 $ear. Professor
Balane does not agree with this interpretation. /ccording to
Professor Balane the phrase "not to be perfor&ed within a
$ear# should &ean that the obligation cannot begin within a
$ear. @or practical reasons, the contract &ust be in writing
since the parties &ight forget. This rule was &ade to guard
against fallibilit$ *forgetfulness+ of &an and fraud.
/ccording to Professor Balane, the 0upre&e Court(s
interpretation is incorrect. If the obligation cannot be
finished within 5 $ear, the contract is not within the 0tatute
of @rauds because of partial perfor&ance.
ii. / special pro&ise to answer for the debt, default or &iscarriage
of another
The test as to whether a pro&ise is within the statute has
been said to lie in the answer to the %uestion whether the
pro&ise is an original or collateral one. If the pro&ise is an
original one or an independent one, that is, if the pro&isor
beco&es thereb$ pri&aril$ liable for the pa$&ent of the
debt, the pro&ise is not within the statute.
If the pro&ise is collateral to the agree&ent of another and
the pro&isor beco&es &erel$ a suret$ or guarantor, the
pro&ise &ust be in writing.
iii. /n agree&ent &ade in consideration of &arriage, other than a
&utual pro&ise to &arr$
/ &utual pro&ise to &arr$ does not fall within the 0tatute
of @rauds since the$ are not &ade in writing.
/gree&ents &ade in consideration of &arriage other than
the &utual pro&ise to &arr$ are within the 0tatute of
@rauds.
In Cabague vs. Auxilio, the father of the groo& pro&ised to
i&prove his daughter3in3law(s father(s house in
consideration of the &arriage. The father of the groo&
&ade i&prove&ents on the house. The wedding did not
take place. The 0upre&e Court said that the father of the
groo& could not sue on the oral contract which as to hi& is
not "&utual pro&ise to &arr$#. Professor Balane disagrees
with the 0upre&e Court. /ccording to Professor Balane, the
father of the groo& should be able to sue since there was
partial perfor&ance.
iv. /n agree&ent for the sale of goods, chattels or things in action,
at a price not less than PF;;, unless the bu$er accepts and
receives part of such goods and chattels, or the evidence, or
so&e of the&, of such things in action, or pa$ at the ti&e so&e
part of the purchase &one$' but when a sale is &ade b$
auction and entr$ is &ade b$ the auctioneer in his sales book,
at the ti&e of sale, of the a&ount and kind of propert$ sold,
ter&s of sale, price, na&es of the purchasers and person on
whose account the sale is &ade, it is a sufficient &e&orandu&
The re%uire&ent of a written instru&ent or a &e&orandu&
for sales of personal propert$ for a price not less than PF;;,
covers both tangible and intangible personal propert$. It
also covers the assign&ent of choses in action.
!here a contract for the sale of goods at a price not less
than PF;; is oral, and there is neither partial pa$&ent or
deliver$, receipt, and acceptance of the goods, the contract
is unenforceable, and cannot be the basis of an action for
the recover$ of the purchase price, or as the basis of an
action for da&ages for breach of the agree&ent.
!here there is a purchase of a nu&ber of articles which
taken separatel$ does not have a price of PF;; each, but
taken together, the price e6ceeds PF;;, the operation of the
statute of frauds depends upon whether there is a single
inseparable contract or a several one. If the contract is
entire or inseparable, and the total price e6ceeds PF;;, the
statute applies. But if the contract is separable, then each
article is taken separatel$.
v. /n agree&ent of lease for a period of &ore than 5 $ear, or the
sale of real propert$ or of an interest therein
/s long there is a sale of real propert$, the sale &ust be in
writing. There is no &ini&u&.
/n oral contract for a supple&ental lease of real propert$
for longer period than 5 $ear is within the 0tatute of @rauds.
/n agree&ent to enter into an agree&ent is also within the
0tatute of @rauds.
vi. / representation as to the credit of a .
rd
person
/ wants to borrow &one$ fro& C. C does not know /. C
goes to B to ask about /(s credit standing. B sa$s that /(s
credit standing is satisfactor$ even though B knows that / is
insolvent. Knder /rticle 5=;., C can go after B if B(s
representation was in writing.
Professor Balane thinks that this does not belong in the
0tatute of @rauds. There is no contract between C and B. B
did not bind hi&self to pa$ C. !hat we have here is an
unenforceable tort.
/ccording to Professor Balane, "a representation as to the
credit of a .
rd
person# should be replaced b$ /rticle 5==..
/rticle 5==. provides that no e6press trusts concerning an
i&&ovable or an$ interest therein &a$ be proved b$ parol
evidence.
!hen the e6press trust concerns an i&&ovable or an
interest therein, a writing is necessar$ to prove it. This
writing is not re%uired for the validit$ of the trust. It is
re%uired onl$ for purposes of proof. !hen the propert$
sub2ect to the e6press trust, however is not real estate or
an interest therein, then it &a$ be proved b$ an$
co&petent evidence, including parol evidence.
c. Those where both parties are incapable of giving consent to a
contract
9either part$ or his representative can enforce the contract
unless it has been previousl$ ratified. The ratification b$ 5
part$, however, converts the contract into a voidable contract 8
voidable at the option of the part$ who has not ratified' the
latter, therefore, can enforce the contract against the part$ who
has ratified. Or, instead, of enforcing the contract, the part$
who has not ratified it &a$ ask for annul&ent on the ground of
his incapacit$.
The proper ter& is "acknowledge&ent# *and not ratification+.
7 Principles in the 0tatute of @rauds
a. Parol evidence is not ad&issible. 1owever, there are 7 wa$s of
bringing it out.
7 !a$s in !hich Parol :vidence is /d&issible
i. @ailure to ob2ect b$ the opposing law$er when parol
evidence is used */rticle 5=;F+
If there is no ob2ection, then parol evidence is ad&itted.
ii. /cceptance of benefits */rticle 5=;F+
If there has been perfor&ance on 5 side and the other
side accepts, then the 0tatute of @rauds is not
applicable. /lso, estoppel sets in so b$ accepting
perfor&ance, the defect is waived.
b. The 0tatute of @rauds applies onl$ to e6ecutor$ contracts and not
to those which have been e6ecuted in whole or in part.
":6ecuted# here &eans there has been perfor&ance in part and
acceptance b$ the other.
=. 7oid Contracts
Art. 1/('. $he folloing contracts are ine4istent and void
fro% the beginning-
.1/ $hose hose cause, object or purpose is contrary to la,
%orals, good custo%s, public order or public policy1
.#/ $hose hich are absolutely si%ulated or fictitious1
.&/ $hose hose cause or object did not e4ist at the ti%e of
the transaction1
.'/ $hose hose object is outside the co%%erce of %en1
.)/ $hose hich conte%plate an i%possible service1
.=/ $hose here the intention of the parties relative to the
principal object of the contract cannot be ascertained1
.8/ $hose e4pressly prohibited or declared void by la.
$hese contracts cannot be ratified. Aeither can the right to
set up the defense of illegality be aived.
Art. 1/1(. $he action or defense for the declaration of the
ine4istence of a contract does not prescribe.
/ void contract is an absolute nullit$ and produces no effect, as if it
had never been e6ecuted or entered into.
The following contracts are ine6istent and void fro& the beginning
*/rticle 5=;>+
a. Those whose cause, ob2ect or purpose is contrar$ to law, &orals.
Good custo&s, public order or public polic$
b. Those which are absolutel$ si&ulated or fictitious
c. Those whose cause or ob2ect did not e6ist at the ti&e of the
transaction
/ccording to Professor Balane, /rticle 5=;> *.+ should not be
"did not e6ist#. ,ather, the correct phrase should be "could not
co&e into e6istence# because there can be a contract over a
future thing.
:6a&ples of "could not co&e into e6istence# are tangerine
fl$ing elephants and cars running on urine.
d. Those whose ob2ect is outside the co&&erce of &en
e. Those which conte&plate an i&possible service
1ere, there is no ob2ect.
f. Those where the intention of the parties relative to the principal
ob2ect of the contract cannot be ascertained
This is si&ilar to being void for vagueness under the
Constitutional law.
g. Those e6pressl$ prohibited or declared void b$ law
/n e6a&ple of this is sale between husband and wife, sub2ect
to e6ceptions. The 0upre&e Court has held that contingent
fees of law$ers wherein the latter receive part of the propert$
sub2ect of litigation are valid, unless unconscionable in a&ount.
Characteristics of oid Contracts
a. The contract produces no effect whatsoever either against or in
favor of an$one
b. / 2udg&ent of nullit$ would be &erel$ declarator$. There is no
action for annul&ent necessar$ as such is ipso jure.
:ven when the contract is void or ine6istent, an action is
necessar$ to declare its ine6istence, when it has alread$ been
fulfilled. 9obod$ can take the law into his own hands.
The intervention of a co&petent court is necessar$ to declare
the absolute nullit$ of the contract and to decree the restitution
of what has been given under it.
The 2udg&ent of nullit$ will retroact to the ver$ da$ when the
contract was entered into.
c. It cannot be confir&ed, ratified or cured.
d. If it has been perfor&ed, the restoration of what has been given is
in order, e6cept if pari delicto will appl$.
e. The right to set the contract(s nullit$ cannot be waived
f. The action for nullit$ is i&prescriptible */rticle 5=5;+
/s between the parties to a contract, validit$ cannot be given to
it b$ estoppel if it is prohibited b$ law or is against public polic$.
g. /n$ person can invoke the contract(s nullit$ if its 2uridical effects
are felt as to hi&
The defense of illegalit$ of contracts is not available to .
rd
persons whose interests are not directl$ affected */rticle 5=75+.
&ari 3elicto *in e%ual guilt+
Art. 1/11. ;hen the nullity proceeds fro% the illegality
of the cause or object of the contract, and the act constitutes a
cri%inal offense, both parties being in *ari delicto, they shall
have no action against each other, and both shall be
prosecuted. Coreover, the provisions of the Penal Code relative
to the disposal of effects or instru%ents of a cri%e shall be
applicable to the things or the price of the contract.
$his rule shall be applicable hen only one of the parties
is guilty1 but the innocent one %ay clai% hat he has given,
and shall not be bound to co%ply ith his pro%ise.
Art. 1/1,. If the act in hich the unlaful or forbidden
cause consists does not constitute a cri%inal offense, the
folloing rules shall be observed-
.1/ ;hen the fault is on the part of both contracting
parties, neither %ay recover hat he has given by
virtue of the contract, or de%and the perfor%ance of
the otherDs underta(ing1
.#/ ;hen only one of the contracting parties is at fault, he
cannot recover hat he has given by reason of the
contract, or as( for the fulfill%ent of hat has been
pro%ised hi%. $he other, ho is not at fault, %ay
de%and the return of hat he has given ithout any
obligation to co%ply his pro%ise.
/rticles 5=55 and 5=57 refer to the pari delicto rule, which literall$
&eans "in e%ual kind#, or also "in e%ual guilt# 8 in pari delicto oritur
actio and so&eti&es "in e%ual guilt, the position of the defendant is
stronger# 8 in pari delicto potior est condicio defendentis. The position
of the defendant is stronger because the plaintiff(s clai& is not reall$
granted.
The pari delicto rule applies onl$ to contracts which is void for illegalit$
of sub2ect &atter. Thus, if the contract is void for si&ulation, the pari
delicto rule does not appl$ so a part$ can clai& the ob2ect back
through reconve$ance.
Outline:
a. If it constitutes a cri&inal offense
i. If both parties are in pari delicto
9o action for specific perfor&ance can prosper on either
side */rticle 5=55, 5
st
Q+.
9o action for restitution can prosper on either side */rticle
5=55, 5
st
Q+.
Example: / shabu supplier supplies shabu to the shabu
dealer. If the shabu supplier does not deliver the shabu, the
dealer cannot file an action for specific perfor&ance.
ii. If onl$ 5 part$ is guilt$
9o action for specific perfor&ance can prosper on either
side.
/n action for restitution will be allowed onl$ if the innocent
part$ de&ands. The guilt$ part$ is not entitled to
restitution.
b. If it does not constitute a cri&inal offense
i. If both parties are in pari delicto
9o action for specific perfor&ance can prosper on either
side */rticle 5=55, 5
st
Q+.
9o action for restitution can prosper on either side */rticle
5=55, 5
st
Q+.
ii. If onl$ 5 part$ is guilt$
9o action for specific perfor&ance can prosper on either
side.
/n action for restitution will be allowed onl$ if the innocent
part$ de&ands.
:6ceptions to &ari 3elicto
a. Interest paid in e6cess of the interest allowed b$ the usur$ laws
&a$ be recovered b$ the debtor, with interest therefro& fro& the
date of pa$&ent */rticle 5=5.+
b. !hen &one$ is paid or propert$ delivered for an illegal purpose,
the contract &a$ be repudiated b$ 5 of the parties before the
purpose has been acco&plished, or before an$ da&age has been
caused to a .
rd
person. In such case, the courts &a$, if the public
interest will thus be subserved, allow the part$ repudiating the
contract to recover the &one$ or propert$ */rticle 5=5=+.
c. !here 5 of the parties to an illegal contract is incapable of giving
consent, the courts, &a$, if the interest of 2ustice so de&ands,
allow recover$ of &one$ or propert$ delivered b$ the incapacitated
person */rticle 5=5F+.
d. !hen the agree&ent is not illegal per se but is &erel$ prohibited,
and the prohibition b$ law is designed for the protection of the
plaintiff, he &a$, if public polic$ is enhanced, recover what he has
paid or delivered */rticle 5=5<+.
e. !hen the price of an$ article or co&&odit$ is deter&ined b$
statute, or b$ authorit$ of law, an$ person pa$ing an$ a&ount in
e6cess of the &a6i&u& price allowed &a$ recover such e6cess
*/rticle 5=5E+.
f. !hen the law fi6es, or authori-es the fi6ing of the &a6i&u&
nu&ber of hours of labor, and a contract is entered into whereb$ a
laborer undertakes to work longer than the &a6i&u& thus fi6ed,
he &a$ de&and additional co&pensation for service rendered
be$ond the ti&e li&it */rticle 5=5H+.
g. !hen the law sets or authori-es the setting of a &ini&u& wage for
laborers, and a contract is agreed upon b$ which a laborer accepts
a lower wage, he shall be entitled to recover the deficienc$ */rticle
5=5>+.
The above contracts are void but there is so&e re&ed$ for polic$
considerations. /n e6a&ple is the &ini&u& wage law under /rticle
5=5> wherein the e&plo$er and the e&plo$ee freel$ agree to the
ter&s of e&plo$&ent below the &ini&u& wage. /lthough the$
are in pari delicto, $ou don(t follow the rules of pari delicto. There
is a polic$ consideration of social 2ustice involved. This is si&ilar to
the preferential option for the poor of churches.
@inal Provisions
Art. 1/,(. In case of a divisible contract, if the illegal
ter%s can be separated fro% the legal ones, the latter %ay be
enforced.
Art. 1/,1. $he defense of illegality of contract is not
available to third persons hose interests are not directly
affected.
Art. 1/,,. A contract hich is the direct result of a
previous illegal contract, is also void and ine4istent.