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OBLIGATIONS AND CONTRACTS Ø Prescription and laches (Nielson & Co. v. Lepanto Mining Co., 1966):
Obligations and Contracts: Text and Cases Prescription Laches
Ateneo Block 1C – Dean Melencio Sta. Maria • Concerned with the fact of delay. • Concerned with the effect of delay.
• A matter of time. • A question of inequity being
founded on some change in the
WARNING
condition of the property or the
This document shall not be used as primary reference in lieu of the relation of the parties.
annotated books and reviewers it is based on. HIDE THIS IN CLASS. • Statutory. • Not statutory.
• Applies at law. • Equity applies.
• Based on fixed time. • Not based on fixed time.
TITLE V. – PRESCRIPTION

CHAPTER 1: GENERAL PROVISIONS Ø Laches

ART. 1106. BY PRESCRIPTION, ONE ACQUIRES OWNERSHIP AND OTHER REAL RIGHTS THROUGH
THE LAPSE OF TIME IN THE MANNER AND UNDER THE CONDITIONS LAID DOWN BY LAW.
IN THE SAME WAY, RIGHTS AND ACTIONS ARE LOST BY PRESCRIPTION.
Ø Prescription – a statute of repose whose object is to suppress fraudulent and stale claims
from springing up at great distances of time and surprising the parties or their
representatives when the facts have become obscure from the lapse of time or the defective
memory or death or removal of witnesses. (Sinaon v. Sorongon, 1985)
Ø Two kinds of prescription:
1. Acquisitive prescription
§ Also known as adverse possession and usucapcion.
• May be interposed even if a shorter time had elapsed and the prescriptive period
has not yet expired. (Z.E. Lotho v. Ice and Cold Storage, 1961)
• May bar the filing or prosecution of a suit.
• A registered landowner may lose his right to recover the possession of his
registered property by reason of laches. (Catholic Bishop of Balanga v. CA,
1996).
ART. 1107. PERSONS WHO ARE CAPABLE OF ACQUIRING PROPERTY OR RIGHTS BY THE OTHER
LEGAL MODES MAY ACQUIRE THE SAME BY MEANS OF PRESCRIPTION.
MINORS AND OTHER INCAPACITATED PERSONS MAY ACQUIRE PROPERTY OR RIGHTS BY
PRESCRIPTION, EITHER PERSONALLY OR THROUGH THEIR PARENTS, GUARDIANS OR LEGAL
REPRESENTATIVES.

§ Rights and actions are acquired by the lapse of time.

§ One looks at the acts of the owner.
§ Important feature: Claimant is in possession.
2. Extinctive prescription
§ Also known as limitation of action.
§ Rights and actions are lost by the lapse of time.
§ One looks at the neglect of the owner.
§ Important feature: Owner out of possession controls.
Ø Requisites of Doctrine of Stale Demands (laches)
1. Conduct on the part of the defendant, or of one under whom he claims, giving
rise to the situation of which complaint is made and for which the complaint
seeks a remedy;
2. Delay in asserting the complainant’s rights, the complainant having had
knowledge or notice of the defendant’s conduct and having been afforded an
opportunity to institute a suit;
3. Lack of knowledge or notice on the part of the defendant that the complainant
would assert the right on which he bases his suit; and
4. Injury or prejudice to the defendant in the event relief is accorded to the
complainant, or the suit is not held barred.
Ø Prescription does not apply to registered property. (Catholic Bishop of Balanga v. CA,
1996)
Ø The acquisition of a minor who personally acquires property or rights without the
assistance of his parents or guardian is annullable or voidable. However, when such minor
comes of age, he may ratify the acquisition.
Ø Emancipation takes place by the attainment of majority (18 years old). It shall terminate
parental authority over the person and property of the child who shall then be qualified and
responsible for all acts of civil life, save the exceptions established by existing laws in
special cases.
Ø Prescription automatically runs for/against minors because parental authority is lodged in
the parents without need of a court order.
Ø Minors and incapacitated persons may acquire property either:
1. Personally; or through
2. Parents;
3. Guardians; or
4. Legal Representatives

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ART. 1108. PRESCRIPTION, BOTH ACQUISITIVE AND EXTINCTIVE, RUNS AGAINST:
(1) MINORS AND OTHER INCAPACITATED PERSONS WHO HAVE PARENTS, GUARDIANS OR
OTHER LEGAL REPRESENTATIVES;
(2) ABSENTEES WHO HAVE ADMINISTRATORS, EITHER APPOINTED BY THEM BEFORE
THEIR DISAPPEARANCE, OR APPOINTED BY THE COURTS;
(3) PERSONS LIVING ABROAD, WHO HAVE MANAGERS OR ADMINISTRATORS;
(4) JURIDICAL PERSONS, EXCEPT THE STATE AND ITS SUBDIVISIONS.
PERSONS WHO ARE DISQUALIFIED FROM ADMINISTERING THEIR PROPERTY HAVE A RIGHT TO
CLAIM DAMAGES FROM THEIR LEGAL REPRESENTATIVES WHOSE NEGLIGENCE HAS BEEN THE
CAUSE OF PRESCRIPTION.
(1) Minors and other incapacitated persons who have parents, guardians or other legal
representatives.
• If A is insane, prescription does not run against him unless he has a legal
representative or a guardian who, under the law, is supposed to take care of his
affairs during his insanity.
• The illegitimate child who has a living parent falls under this article. (Vda. de
Alberto v. CA, 1989)
(2) Absentees who have administrators, either appointed by them before their disappearance,
or appointed by the courts.
• If the absentee can go back to his domicile but he intentionally does not want to
return, prescription will lie against him.
• The judge, at the instance of an interested party, a relative, or a friend, may
appoint a person to represent the absentee in all that may be necessary. (Art. 381,
Civil Code).
• Prescription will run against absentee if:
§ With administrator, either appointed by him before disappearance or
appointed by the court; or
§ If absentee can go back to domicile, but intentionally does not want to.
(3) Persons living abroad, who have managers or administrators.
• For persons living abroad, it must be shown that they cannot return to their
domicile within the period when prescription should have run.
(4) Juridical persons, except the State and its subdivisions.
• Juridical persons – endowed by law of the attributes of a natural person and hence
can acquire and lose properties and rights.
• If the political subdivision is acting in its proprietary character, not in its
sovereign function, prescription will lie against it. (National Development
Company v. Tobia, 1963).
• Even Agricultural and Industrial Bank, a government-owned and controlled
corporation, cannot be said to exercise a sovereign function. It is a business
corporation.
Ø Persons who are disqualified from administering their property have a right to claim
damages from their legal representatives whose negligence has been the cause of
prescription.
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ART. 1109. PRESCRIPTION DOES NOT RUN BETWEEN HUSBAND AND WIFE, EVEN THOUGH
THERE BE A SEPARATION OF PROPERTY AGREED UPON IN THE MARRIAGE SETTLEMENTS OR BY
JUDICIAL DECREE.
NEITHER DOES PRESCRIPTION RUN BETWEEN PARENTS AND CHILDREN , DURING THE MINORITY
OR INSANITY OF THE LATTER, AND BETWEEN GUARDIAN AND WARD DURING THE
CONTINUANCE OF THE GUARDIANSHIP.
Ø Prescription does not run between:
1. Husband and wife;
§ Prescription, even by adverse possession, cannot run between husband
and wife. (Pacio v. Billion, 1961)
§ A law may provide that prescription applies between husband and
wife. The Family Code provides that a case of legal separation must be
filed within 5 years from the occurrence of the cause. For annulment,
it is generally 5 years from the particular starting point provided.
2. Parent and child, during the minority or insanity of the latter; or
§ The basis for this rule is the natural bond of filiation between parents
and children.
§ A law may provide for a prescriptive period between parent and child.
The Family Code provides that a husband may impugn the legitimacy
of the child of his wife on grounds provided by law within 1 year, 2
years or 3 years from his knowledge of the birth of the child or its
recording in the civil registry, depending on the residence of the
husband and the place of birth of the child.
3. Guardians and ward during the continuance of the guardianship.
Ø Prescription will not lie during the period of guardianship to give adequate remedy to the
ward for the abuses of the guardian.
ART. 1110. PRESCRIPTION, ACQUISITIVE AND EXTINCTIVE, RUNS IN FAVOR OF, OR AGAINST A
MARRIED WOMAN .
ART. 1111. PRESCRIPTION OBTAINED BY A CO-PROPRIETOR OR A CO-OWNER SHALL BENEFIT
THE OTHERS.
Ø Co-ownership – whenever the ownership of an undivided thing or right belongs to different
persons.
Ø If B occupies, as a co-owner with A and C, a portion of land adjoining the co-owned
property, and he adversely and publicly holds such adjacent potion of land continuously to
the exclusion of all others who are not in the co-ownership for the required period of time,
there can be a valid acquisition not only in his favor but also in favor of A and C even
though they do not actually possess the said portion.

ART. 1112. PERSONS WITH CAPACITY TO ALIENATE PROPERTY MAY RENOUNCE PRESCRIPTION
ALREADY OBTAINED, BUT NOT THE RIGHT TO PRESCRIBE IN THE FUTURE.
PRESCRIPTION IS DEEMED TO HAVE BEEN TACITLY RENOUNCED WHEN THE RENUNCIATION
RESULTS FROM ACTS WHICH IMPLY THE ABANDONMENT OF THE RIGHT ACQUIRED.
Ø When a debt is already barred by prescription, it cannot be enforced by the creditor. But a
new contract recognizing and assuming the prescribed debt would be valid and enforceable.
Ø Where, therefore, a party acknowledges the correctness of a debt and promises to pay it
after the same has prescribed and with full knowledge of the prescription he thereby waives
the benefit of prescription.
Ø It is this new promise, either made in express terms or deduced from an acknowledgment
as a legal implication, which is to be regarded as reanimating the old promise, or as
imparting vitality to the remedy and thus enabling the creditor to recover upon his original
contract.
ART. 1113. ALL THINGS WHICH ARE WITHIN THE COMMERCE OF MEN ARE SUSCEPTIBLE OF
PRESCRIPTION, UNLESS OTHERWISE PROVIDED. PROPERTY OF THE STATE OR ANY OF ITS
SUBDIVISIONS NOT PATRIMONIAL IN CHARACTER SHALL NOT BE THE OBJECT OF PRESCRIPTION.
Ø All contracts are agreements, but not all agreements are contracts. In contracts, there is a
proprietary exchange.
Ø Where a particular area adjacent to a bay, was at times covered by water due to rain and
not due to the rising of the tide, the Supreme Court said that such area can be registered
and can be subject to prescription.
Ø Property which includes parcels of the Philippine territory is either:
1. Private ownership
2. Public dominion (Public lands)
§ Those which, under existing legislation are not the subject of private
ownership, and are reserved for public purposes.
§ Forest lands of the public domain cannot be acquired by prescription.
Its possession, no matter how long, cannot ripen into private
ownership. (Director of Forest Administration v. Fernandez, 1990)
§ Ownership of a navigable stream or its bed is not acquired by
prescription. (Lovina v. Moreno, 1963)
§ The following are property of public dominion: (Arts. 240 and 502)
1. Those intended for public use;
2. Those which belong to the State without being for public use,
and are intended for some public service or for the
development of the national wealth;
3. Rivers and their natural beds;
4. Continuous or intermittent waters of springs and brooks;
5. Waters rising continuously or intermittently on lands of
public domain; and
6. Lakes and lagoons formed by nature on public lands and
their beds.
§ Natural bed – the ground covered by their waters when at their highest
ordinary depth.
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§ Highest ordinary depth – highest depth of the waters during the dry
season, such depth being the regular, common, natural, which occurs
always or most of the time during the year.
§ Foreshore land – the strip of land that lies between the high and low
water marks and that is alternately wet and dry according to the flow
of the tide.
Ø Registration of land under the Torrens System was never for the purpose of acquiring land,
but merely for the registration of land already possessed. (Republic v. CA, 1984)
ART. 1114. CREDITORS AND ALL OTHER PERSONS INTERESTED IN MAKING THE PRESCRIPTION
EFFECTIVE MAY AVAIL THEMSELVES THEREOF NOTWITHSTANDING THE EXPRESS OR TACIT
RENUNCIATION BY THE DEBTOR OR PROPRIETOR.
Ø A is indebted to B in the amount of Php50,000. C guarantees the indebtedness and waives
his benefit of excussion (B need not necessary proceed against A before proceeding against
C). In the event that the time within which to pay has already prescribed, but A nevertheless
waives the prescription such that B can still collect from him. Should A again fail to pay,
C may resist payment on the ground that the collection of the debt of A has already
prescribed. C will not be prejudiced by the act of A in waiving the prescription.
ART. 1115. THE PROVISIONS OF THE PRESENT TITLE ARE UNDERSTOOD TO BE WITHOUT
PREJUDICE TO WHAT WITHIN THIS CODE OR IN SPECIAL LAWS IS ESTABLISHED WITH RESPECT
TO SPECIFIC CASES OF PRESCRIPTION.
Ø In case of conflict between the period provided in this Title and the period provided in
another portion of the Civil Code, the more specific provision will prevail.
Ø If different statutes are involved providing for different prescriptive periods, as well as the
types of cause of action contemplated by them are apparently conflicting, they do not
exclude each other from being availed of by the aggrieved parties.
• Ex. While a claim for money in labor cases prescribes in 3 years under the Labor
Code, it will not bar the aggrieved party from availing of the 4-year prescriptive
period for “injury to the plaintiff” under Art. 1146 of this Code, that the claim
also arises from illegal dismissal which results to an injury to the plaintiff.
ART. 1116. PRESCRIPTION ALREADY RUNNING BEFORE THE EFFECTIVITY OF THIS CODE SHALL
BE GOVERNED BY LAWS PREVIOUSLY IN FORCE; BUT IF SINCE THE TIME THIS CODE TOOK
EFFECT THE ENTIRE PERIOD HEREIN REQUIRED FOR PRESCRIPTION SHOULD ELAPSE, THE
PRESENT CODE SHALL BE APPLICABLE, EVEN THOUGH BY THE FORMER LAWS A LONGER
PERIOD MIGHT BE REQUIRED.
Ø The article provides for 3 scenarios:
1. If the prescriptive period under the old law has already lapsed before August 30,
1950, such prescriptive period shall apply.
2. If the prescriptive period under the old law is still running upon the effectivity of
the 1950 Civil Code which however provides for a different period for the same
situation, the 1950 Civil Code shall prevail provided that such period counted
from the August 30, 1950 has already lapsed, although under the old law the
period has not yet lapsed.
§ Ex. Under the old law, X has 30 years within which to file a particular
suit. By the time the 1950 Civil Code takes effect, the remaining time
is only 12 years. If the 1950 Civil Code provides only 10 years, that
action will have lapsed because the remaining time of 12 years from
the old civil code is longer than the 10-year period from the 1950
Civil Code.
3. If the prescriptive period under the old law is still running upon the effectivity of
the 1950 Civil Code and the remaining balance of such period since the
effectivity of the 1950 Civil Code is shorter than that provided in the 1950 Civil
Code for exactly the same situation, the old prescriptive period will apply.
§ Ex. Following the example in No. 2, if the balance of the period which
started under the old civil code is 12 years counted from the effectivity
of the 1950 Civil Code, and the latter provides 15 years, the prescriptive
period under the old law will prevail.
CHAPTER 2: PRESCRIPTION OF OWNERSHIP AND OTHER REAL RIGHTS
ART. 1117. ACQUISITIVE PRESCRIPTION OF DOMINION AND OTHER REAL RIGHTS MAY BE
ORDINARY OR EXTRAORDINARY.
Ø Concept of an owner
• The possessor asserts dominion on the property to the exclusion of all others. It
must be an adverse possession.
• Ex. If an informal settler lives in a property for even a thousand years, he can
never acquire it by prescription because there is no concept of an owner.
• Antichretic creditors (debtor pledges real property to the creditor, allowing the
use and occupation of the pledged property in lieu of interest on the loan) cannot
ordinarily acquire by prescription the land surrendered to him by the debtor.
(Ramirez v. CA, 1986).
Ø Public
• There must be a notorious holding of the property known to the community.
• Registry of the deed of sale in the Registry of Property is constructive notice to
the whole world of its contents.
Ø Peaceful
• For the period of years required by law for acquisitive prescription to apply, there
must be no valid interference from others claiming or asserting their rights to the
property.
Ø Uninterrupted
• Continuity in the holding of the property.

ORDINARY ACQUISITIVE PRESCRIPTION REQUIRES POSSESSION OF THINGS IN GOOD FAITH AND Fig. 1. Acquisitive Prescription
WITH JUST TITLE FOR THE TIME FIXED BY LAW.

Ø Kinds of acquisitive prescription:

1. Ordinary prescription
a. Uninterrupted possession for the required statutory period of years.
b. In good faith.
c. Period (movable, 4 years; immovable, 10 years)
d. Just Title
2. Extraordinary prescription
a. Uninterrupted possession for the statutory period of years.
b. Period (movable, 10 years; immovable, 30 years)
Ø Ex. A donates property to X. After 15 years, the heirs of A are claiming the donated
property on the ground that the donation was void because the notary public was actually
the driver of A. Who has a better right to the property? 30yrs
ü X, because X acquired the property by ordinary prescription. He was in good
faith for having no knowledge of the fact that the notary public was only the
driver of A, and the document signed to his knowledge serves as the just title.
Lastly, the period of prescription of 10 years has lapsed.

ART. 1118. POSSESSION HAS TO BE IN THE CONCEPT OF AN OWNER, PUBLIC, PEACEFUL AND
UNINTERRUPTED. ART. 1119. ACTS OF POSSESSORY CHARACTER EXECUTED IN VIRTUE OF LICENSE OR BY MERE
TOLERANCE OF THE OWNER SHALL NOT BE AVAILABLE FOR THE PURPOSES OF POSSESSION.

Ø Possession must be:
• In the concept of an owner; Ø The fact that the possessor holds the property by virtue of the consent of the owner shows
• Pupblic; that such possessor acknowledges that somebody else owns the property.
• Peaceful; and
• Uninterrupted.

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ART. 1120. POSSESSION IS INTERRUPTED FOR THE PURPOSES OF PRESCRIPTION, NATURALLY
OR CIVILLY.
Ø Kinds of interruption:
1. Natural interruption
2. Civil interruption – produced by judicial summons to the possessor. (Ex. Notice
pursuant to the filing of a suit for reconveyance)
ART. 1121. POSSESSION IS NATURALLY INTERRUPTED WHEN THROUGH ANY CAUSE IT SHOULD
CEASE FOR MORE THAN ONE YEAR.
THE OLD POSSESSION IS NOT REVIVED IF A NEW POSSESSION SHOULD BE EXERCISED BY THE
SAME ADVERSE CLAIMANT.
ART. 1122. IF THE NATURAL INTERRUPTION IS FOR ONLY ONE YEAR OR LESS, THE TIME
ELAPSED SHALL BE COUNTED IN FAVOR OF THE PRESCRIPTION.
Ø If natural interruption is for only 1 year or less, it shall be counted for the purpose of
prescription.
1. Ex. A has been in possession of an unregistered property for 4 years through
public auction. Z claims the property is his and requests A to leave, which the
latter complies with. After 2 years, A discovers that Z is a defrauder, then returns
and possesses the land for another 7 years. M now claims the property is his. Can
A invoke acquisitive prescription?
§ No. Although the possession of 11 years in total is more than the 10-
year period required by law, the 4 years should be disregarded because
the interruption when A left the property was for 2 years. Thus, a new
possession was commenced when A returned. If, however, A returned
within 2 year, A could invoke acquisitive prescription because the time
lapsed would be counted in favor of prescription.
ART. 1123. CIVIL INTERRUPTION IS PRODUCED BY JUDICIAL SUMMONS TO THE POSSESSOR.
Ø Possession is civilly interrupted upon receipt of the judicial summons after the filing of the
complaint.
Ø Ex. Notice pursuant to the filing of a suit for reconveyance.
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ART. 1124. JUDICIAL SUMMONS SHALL BE DEEMED NOT TO HAVE BEEN ISSUED AND SHALL
NOT GIVE RISE TO INTERRUPTION:
(1) IF IT SHOULD BE VOID FOR LACK OF LEGAL SOLEMNITIES;
(2) IF THE PLAINTIFF SHOULD DESIST FROM THE COMPLAINT OR SHOULD ALLOW THE
PROCEEDINGS TO LAPSE;
(3) IF THE POSSESSOR SHOULD BE ABSOLVED FROM THE COMPLAINT.
IN ALL THESE CASES, THE PERIOD OF THE INTERRUPTION SHALL BE COUNTED FOR THE
PRESCRIPTION.
Ø Civil interruption commences upon receipt of the possessor of the judicial summons after
the filing of the complaint, because it is only at that time that the court acquires jurisdiction
over the person of the possessor.
(1) If it should be void for lack of legal solemnities
• If the summons as well as the copy of the complain have been served by a
person not authorized by the court, it shall be deemed as not issued, thereby
no interruption occurs.
(2) If the plaintiff should desist from the complaint or should allow the proceedings to
lapse
• Desistance – voluntarily having the case dismissed.
• Allowing the proceedings to lapse clearly manifests the lack of interest to
prosecute the case.
(3) If the possessor is absolved from the complaint
• Absolution – the complaint has not been fully substantiated to support any
adverse claim by the complainant.
ART. 1125. ANY EXPRESS OR TACIT RECOGNITION WHICH THE POSSESSOR MAY MAKE OF THE
OWNER’S RIGHT ALSO INTERRUPTS POSSESSION.
Ø One cannot recognize the right of another and at the same time claim adverse possession
which can ripen to ownership, thru acquisitive prescription. (Corpus v. Padilla, 1962).
Ø Possession of a buyer subject to the right of repurchase of the seller does not become
adverse until the expiration of the period of purchase. (Diñoso v. CA, 1963)
ART. 1126. AGAINST A TITLE RECORDED IN THE REGISTRY OF PROPERTY, ORDINARY
PRESCRIPTION OF OWNERSHIP OR REAL RIGHTS SHALL NOT TAKE PLACE TO THE PREJUDICE OF
A THIRD PERSON, EXCEPT IN VIRTUE OF ANOTHER TITLE ALSO RECORDED; AND THE TIME
SHALL BEGIN TO RUN FROM THE RECORDING OF THE LATTER.
AS TO LANDS REGISTERED UNDER THE LAND REGISTRATION ACT , THE PROVISIONS OF THAT
SPECIAL LAW SHALL GOVERN.
Ø No title to registered land in derogation to that of the registered owner shall be acquired by
prescription or adverse possession. (Dimayuga v. CA, 1984).
Ø Although prescription will not apply to registered property, the doctrine of laches is
applicable.

• Relief will be denied to a litigant whose claim or demand has become stale or who
has acquiesced for an unreasonable length of time, or who has not been vigilant or
who has slept on his right either by negligence, folly or inattention. (Catholic
Bishop of Balanga v. CA, 1996).
ART. 1127. THE GOOD FAITH OF THE POSSESSOR CONSISTS IN THE REASONABLE BELIEF THAT
THE PERSON FROM WHOM HE RECEIVED THE THING WAS THE OWNER THEREOF, AND COULD
TRANSMIT HIS OWNERSHIP.
Ø Good faith lies in the: (Negrete v. City of Marinduque, nd)
1. Honest belief in the validity of one’s right;
2. Ignorance of superior claim; and
3. Absence of intention to overreach another.
ART. 1128. THE CONDITIONS OF GOOD FAITH REQUIRED FOR POSSESSION IN ARTICLES 526,
527, 528 AND 529 OF THIS CODE ARE LIKEWISE NECESSARY FOR THE DETERMINATION OF
GOOD FAITH IN THE PRESCRIPTION OF OWNERSHIP AND OTHER REAL RIGHTS.
Article 526. He is deemed a possessor in good faith who is not aware that there
exists in his title or mode of acquisition any aw which invalidates it.
He is deemed a possessor in bad faith who possesses in any case contrary to the
foregoing.
Mistake upon a doubtful or dif cult question of law may be the basis of good
faith.
Article 527. Good faith is always presumed, and upon him who alleges bad faith
on the part of a possessor rests the burden of proof.
Article 528. Possession acquired in good faith does not lose this character except
in the case and from the moment facts exist which show that the possessor is not
unaware that he possesses the thing improperly or wrongfully.
Article 529. It is presumed that possession continues to be enjoyed in the same
character in which it was acquired, until the contrary is proved.
Ø Good faith cannot likewise be invoked if the claimant has actual or constructive
notice of the legal and valid rights of possession of another during the prescriptive
period.
ART. 1129. FOR THE PURPOSES OF PRESCRIPTION, THERE IS JUST TITLE WHEN THE ADVERSE
CLAIMANT CAME INTO POSSESSION OF THE PROPERTY THROUGH ONE OF THE MODES
RECOGNIZED BY LAW FOR THE ACQUISITION OF OWNERSHIP OR OTHER REAL RIGHTS, BUT THE
GRANTOR WAS NOT THE OWNER OR COULD NOT TRANSMIT ANY RIGHT.
ART. 1130. THE TITLE FOR PRESCRIPTION MUST BE TRUE AND VALID.
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ART. 1131. FOR THE PURPOSES OF PRESCRIPTION, JUST TITLE MUST BE PROVED; IT IS NEVER
PRESUMED.
Ø Kinds of title:
1. Perfect title – titutlo verdadero y valido – When the four modes of acquisition
have no infirmity, prescription is irrelevant.
2. Colorable title – titulo colorado – Which a person has when he buys a thing, in
good faith, from one whom he believes to be the owner.
3. Putative Title – Which is supposed to have preceded the acquisition of a thing,
although in fact it did not, as might happen when one is in possession of a thing
in the belief that it had been bequeathed to him.
Ø Even a void donation may be the basis of a claim of ownership which may ripen into title
by prescription. (Pensader v. Pensader, 1924).
• Whether the party has a right to the possession or not, if he entered under the
claim of such right and remained in possession for the period named in the Statute
of Limitations, the right of action of the plaintiff who has the better title is barred
by that adverse possession.
ART. 1132. THE OWNERSHIP OF MOVABLES PRESCRIBES THROUGH UNINTERRUPTED
POSSESSION FOR FOUR YEARS IN GOOD FAITH.
THE OWNERSHIP OF PERSONAL PROPERTY ALSO PRESCRIBED THROUGH UNINTERRUPTED
POSSESSION FOR EIGHT YEARS, WITHOUT NEED OF ANY OTHER CONDITION.
WITH REGARD TO THE RIGHT OF THE OWNER TO RECOVER PERSONAL PROPERTY LOST OR OF
WHICH HE HAS BEEN ILLEGALLY DEPRIVED, AS WELL AS WITH RESPECT TO MOVABLES
ACQUIRED IN A PUBLIC SALE, FAIR, OR MARKET, OR FROM A MERCHANT’S STORE THE
PROVISIONS OF ARTICLES 559 AND 1505 OF THIS CODE SHALL BE OBSERVED.
Article 559. The possession of movable property acquired in good faith is
equivalent to a title. Nevertheless, one who has lost any movable or has been
unlawfully deprived thereof, may recover it from the person in possession of
the same.
If the possessor of a movable lost or of which the owner has been unlawfully
deprived, has acquired it in good faith at a public sale, the owner cannot obtain
its return without reimbursing the price paid therefor.
Article 1505. Subject to the provisions of this Title, where goods are sold by a
person who is not the owner thereof, and who does not sell them under authority
or with the consent of the owner, the buyer acquires no better title to the goods
than the seller had, unless the owner of the goods is by his conduct precluded
from denying the seller’s authority to sell.

Nothing in this Title, however, shall affect:
(1) The provisions of any factors’ acts, recording laws, or any other provisions
of law enabling the apparent owner of goods to dispose of them as if he were
the true owner thereof;
(2) The validity of any contract of sale under statutory power of sale or under
the order of a court of competent jurisdiction;
(3) Purchases made in a merchant’s store, or in fairs, or markets, in accordance
with the Code of Commerce and special laws.
Ø Ordinary acquisitive prescription for movables is 4 years; extraordinary
prescription is 8 years.
• Remember that shares are movable property.
ART. 1133. MOVABLES POSSESSED THROUGH A CRIME CAN NEVER BE ACQUIRED THROUGH
PRESCRIPTION BY THE OFFENDER.
Ø However, if the thing was in the meanwhile passed to a subsequent holder, prescription
begins to run (4 or 8 years, depending on the existence of good faith).
Ø Ex. A stole B’s car. A can never acquire title to it even if the prescriptive period lapses and
even if B did not make any demand for its return. However, if it was passed to C,
prescription starts to run. The benefits of prescription are denied only to the offender.
ART. 1134. OWNERSHIP AND OTHER REAL RIGHTS OVER IMMOVABLE PROPERTY ARE
ACQUIRED BY ORDINARY PRESCRIPTION THROUGH POSSESSION OF TEN YEARS.
Ø Ordinary prescription for immovable property is 10 years; extraordinary prescription is 30
years.
ART. 1135. IN CASE THE ADVERSE CLAIMANT POSSESSES BY MISTAKE AN AREA GREATER, OR
LESS, THAN THAT EXPRESSED IN HIS TITLE, PRESCRIPTION SHALL BE BASED ON THE
POSSESSION.
Ø The extent of property subject to the prescription shall be the one actually possessed or
held by the claimant regardless of the size indicated or described in the title.
ART. 1136. POSSESSION IN WARTIME, WHEN THE CIVIL COURTS ARE NOT OPEN, SHALL NOT BE
COUNTED IN FAVOR OF THE ADVERSE CLAIMANT.
Ø Because a claimant cannot file a case to recover the same during this period.
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Ø However, even if there is a war but the civil courts are functioning, the possession of the
adverse claimant may be counted in his favor.
ART. 1137. OWNERSHIP AND OTHER REAL RIGHTS OVER IMMOVABLES ALSO PRESCRIBE
THROUGH UNINTERRUPTED ADVERSE POSSESSION OF THIRTY YEARS, WITHOUT NEED OF TITLE
OR OF GOOD FAITH.
Ø Where a person had adverse possession of ap articular land by virtue of an invalid will for
30 years, the Supreme Court ruled that extraordinary prescription had set in. (Parcotilo v.
Parcotilo, 1964).
Ø The Public Land Act – alienable public land held by a possessor, personally or through his
predecessors-in-interest, openly and continuously for the prescribed statutory period of 30
years, is converted to private property by the mere lapse of said period, ipso jure.
ART. 1138. IN THE COMPUTATION OF TIME NECESSARY FOR PRESCRIPTION THE FOLLOWING
RULES SHALL BE OBSERVED:
(1) THE PRESENT POSSESSOR MAY COMPLETE THE PERIOD NECESSARY FOR
PRESCRIPTION BY TACKING HIS POSSESSION TO THAT OF HIS GRANTOR OR
PREDECESSOR IN INTEREST;
(2) IT IS PRESUMED THAT THE PRESENT POSSESSOR WHO WAS ALSO THE POSSESSOR AT
A PREVIOUS TIME, HAS CONTINUED TO BE IN POSSESSION DURING THE INTERVENING
TIME, UNLESS THERE IS PROOF TO THE CONTRARY;
(3) THE FIRST DAY SHALL BE EXCLUDED AND THE LAST DAY INCLUDED.
(1) The present possessor may complete the period necessary for prescription by tacking
his possession to that of his grantor or predecessor in interest
• Tacking – uniting the prescriptive periods of successive adverse possessors.
• Tacking possession is allowed only when there is a privity of contract or
relationship between the previous and present possessors.
§ A deed does not itself create privity between the grantor and the
grantee as to land not described in the deed but occupied by the
grantor in connection therewith.
§ In such possession, the prescriptive period should be limited only
to that of the successor in interest.
• There must e a transfer in a manner provided by law of property from one
person to another.
• Where the possessor meant to tack a lot not included in the Transfer
Certificate of Title, the Supreme Court rejected because even if predecessors
did occupy the same, it could not have been included in the transfer.
Furthermore, it does not suffice privity of contract. (South City Homes v.
Republic, 1990)
(2) It is presumed that the present possessor who was also the possessor at a previous
time, has continued to be in possession during the intervening time, unless there is
proof to the contrary
• For the presumption to apply, there must be a prior showing of the fact that
the person presently possessing the property was also the one in possession
of the same property before the intervening time.
(3) The first day shall be excluded and the last day included.
CHAPTER 3: PRESCRIPTION OF ACTIONS
ART. 1139. ACTIONS PRESCRIBE BY THE MERE LAPSE OF TIME FIXED BY LAW.
ART. 1143. THE FOLLOWING RIGHTS, AMONG OTHERS SPECIFIED ELSEWHERE IN THIS CODE,
ARE NOT EXTINGUISHED BY PRESCRIPTION:
(1) TO DEMAND A RIGHT OF WAY, REGULATED IN ARTICLE 649;
(2) TO BRING AN ACTION TO ABATE A PUBLIC OR PRIVATE NUISANCE.

Ø If the period prescribed by law lapses, the action cannot be filed anymore.
Ø Statute of Limitations – the set of provisions dealing with prescription of actions. Ø Certain actions which likewise do not prescribe:
Ø Special proceedings (support, guardianship, custody, etc.) are imprescriptible. 1. Action to declare a contract null and void;
2. Action to quiet title initiated by the person having possession of the property;
and
ART. 1140. ACTIONS TO RECOVER MOVABLES SHALL PRESCRIBE EIGHT YEARS FROM THE TIME
3. Action to partition a property among co-heirs; and
THE POSSESSION THEREOF IS LOST, UNLESS THE POSSESSOR HAS ACQUIRED THE OWNERSHIP BY
4. When the trust is merely an implied one, unless expressly repudiated by the
PRESCRIPTION FOR A LESS PERIOD, ACCORDING TO A RTICLE 1132, AND WITHOUT PREJUDICE
trustee.
TO THE PROVISIONS OF ARTICLES 559, 1505 AND 1133.
Ø Prescription does not supervene when the trust is merely an implied one, unless expressly

repudiated by the trustee.
Ø For purposes of extinctive prescription of movables, the periods are:
1. 4 years, if the possessor is in good faith; and ART. 1144. THE FOLLOWING ACTIONS MUST BE BROUGHT WITHIN TEN YEARS FROM THE TIME
2. 8 years in all other cases, except where the loss was due to a crime in which case, THE RIGHT OF ACTION ACCRUES:
the offender cannot acquire the movable by prescription, and an action to recover
it from him is imprescriptible. (1) UPON A WRITTEN CONTRACT;
Ø Ex. A has been in possession of a car for 6 years bought through public auction, peaceful, (2) UPON AN OBLIGATION CREATED BY LAW;
uninterrupted. B claims ownership within the 8-year period of Art. 1140. Can A invoke (3) UPON A JUDGMENT.
acquisitive prescription?
1. Yes, because under Art. 1132, the proper period is 4 years for
acquiring through ordinary prescription. Ø Types of contracts:
1. Oral
ART. 1141. REAL ACTIONS OVER IMMOVABLES PRESCRIBE AFTER THIRTY YEARS. 2. Written
3. Express
THIS PROVISION IS WITHOUT PREJUDICE TO WHAT IS ESTABLISHED FOR THE ACQUISITION OF 4. Implied
OWNERSHIP AND OTHER REAL RIGHTS BY PRESCRIPTION.
(1) Upon a written contract
• The cause of action on a written contract accrues when a breach or violation
Ø If within the 30-year period, all the requisites of ordinary acquisitive prescription are thereof occurs. (Gallar v. Husain, 1967).
already present in favor of the possessor, then the possessor shall be considered the owner • The right accrues when there exists a cause of action:
of the property after 10 years of uninterrupted, adverse, public possession of the property 1. A right in favor of the plaintiff;
in the concept of an owner in good faith. (Art. 1134, Civil Code) 2. An obligation on the part of such defendant to respect such right;
and
3. An act or omission on the part of the defendant violative of the
ART. 1142. A MORTGAGE ACTION PRESCRIBES AFTER TEN YEARS. right of the plaintiff.

(2) Upon an obligation created by law
Ø Mortgage – constituted to secure a debt so that if the debtor fails to pay the principal • If a trustee openly and adversely repudiates the trust, it is only from that
obligation, the creditor can foreclose on the mortgage by selling the same in a public sale time when prescription can set it. The prescriptive period is 10 years from
or bidding and the proceeds thereof are used to pay off the principal deft and interest if any. the repudiation of the trust.
(Ex. A suit for the recovery of the deficiency after foreclosure) 1. Trustee has performed unequivocal acts of repudiation amounting
Ø If there is any deficiency, the creditor can still go against the principal debtor to collect to an ouster of the cestui que trust;
such deficiency. 2. Such positive acts of repudiation have been made known to the
cestui que trust; and

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3. Evidence thereon is clear and conclusive. ART. 1148. THE LIMITATIONS OF ACTION MENTIONED IN ARTICLES 1140 TO 1142, AND 1144
TO 1147 ARE WITHOUT PREJUDICE TO THOSE SPECIFIED IN OTHER PARTS OF THIS CODE, IN THE
(3) Upon a judgment CODE OF COMMERCE , AND IN SPECIAL LAWS.

ART. 1145. THE FOLLOWING ACTIONS MUST BE COMMENCED WITHIN SIX YEARS:
Ø Without prejudice – the prescriptive period in this chapter may be availed of
(1) UPON AN ORAL CONTRACT; notwithstanding other special provisions in other parts of the Civil Code, in the Code of
(2) UPON A QUASI -CONTRACT. Commerce and in special laws.
Ø As a general rule, a statue of limitation extinguishes the remedy only. Although the remedy
to enforce a right may be barred, that right may be enforced by some other available remedy
which is not barred.
(1) Upon an oral contract
• An action based on an oral contract must be commenced within 6 years from ART. 1149. ALL OTHER ACTIONS WHOSE PERIODS ARE NOT FIXED IN THIS CODE OR IN OTHER
the time the cause of action accrues. LAWS MUST BE BROUGHT WITHIN FIVE YEARS FROM THE TIME THE RIGHT OF ACTION ACCRUES.
• Ex. A orally borrowed Php2,000 from B to be paid on June 1, 1997 and A
failed to pay B despite demand. B has 6 years from June 1, 1997 to file the
case for collection against A.
ART. 1150. THE TIME FOR PRESCRIPTION FOR ALL KINDS OF ACTIONS, WHEN THERE IS NO
SPECIAL PROVISION WHICH ORDAINS OTHERWISE, SHALL BE COUNTED FROM THE DAY THEY
(2) Upon a quasi-contract
MAY BE BROUGHT.
• Solutio indebiti – occurs if something is received when there is no right to

demand it, and it has been unduly delivered through mistake, thereby giving
rise to the obligation to return what has been unduly received. (Art. 2154, Ø Unless the law makes an action imprescriptible, it is subject to bar by prescription and the
Civil Code). period of prescription is 5 years from the time the right of action accrues when no other
period is prescribed by law.
ART. 1146. THE FOLLOWING ACTIONS MUST BE INSTITUTED WITHIN FOUR YEARS: Ø The fact that the supposed violation is a continuous one does not change the principle that
the moment the breach occurs, the right of action accrues. (Soriano v. Sternberg, 1920)
(1) UPON AN INJURY TO THE RIGHTS OF THE PLAINTIFF; Ø It is the legal possibility of bringing the action which determines the starting point for the
(2) UPON A QUASI -DELICT. computation of the period of prescription. (Español v. Phil. Veterans Administration,
1985).

(1) Upon an injury to the rights of the plaintiff ART. 1152. THE TIME FOR THE PRESCRIPTION OF ACTIONS WHICH HAVE FOR THEIR OBJECT THE
• One’s employment, profession, trade or calling is a property right, and the ENFORCEMENT OF OBLIGATIONS TO PAY PRINCIPAL WITH INTEREST OR ANNUITY RUNS FROM
wrongful interference therewith is an actionable wrong. THE LAST PAYMENT OF THE ANNUITY OR OF THE INTEREST.
(2) Upon a quasi-delict
• Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, ART. 1152. THE PERIOD FOR PRESCRIPTION OF ACTIONS TO DEMAND THE FULFILLMENT OF
if there is no pre-existing contractual relation between the parties, is called OBLIGATIONS DECLARED BY A JUDGMENT COMMENCES FROM THE TIME THE JUDGMENT
a quasi-delict. (Art. 2176, Civil Code). BECAME FINAL.
• From the day the quasi-delict occurs. Immediately after collision, aggrieved
party can file. No need to wait for the determination by a board.
Ø The rule seeks to protect judgment creditors from wily and unscrupulous debtors who, in
order to evade attachment and execution, cunningly conceal their assets and wait until the
ART. 1147. THE FOLLOWING ACTIONS MUST BE FILED WITHIN ONE YEAR:
statute of limitations set it.
(1) FOR FORCIBLE ENTRY AND DETAINER;
(2) FOR DEFAMATION. ART. 1153. THE PERIOD FOR PRESCRIPTION OF ACTIONS TO DEMAND ACCOUNTING RUNS FROM
THE DAY THE PERSONS WHO SHOULD RENDER THE SAME CEASE IN THEIR FUNCTIONS.

(1) For forcible entry and detainer THE PERIOD FOR THE ACTION ARISING FROM THE RESULT OF THE ACCOUNTING RUNS FROM
• Period is counted from demand to vacate the premises. THE DATE WHEN SAID RESULT WAS RECOGNIZED BY AGREEMENT OF THE INTERESTED PARTIES.
(2) For defamation

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ART. 1154. THE PERIOD DURING WHICH THE OBLIGEE WAS PREVENTED BY A FORTUITOUS Fig. 2. Rules on Prescription (Arts. 1106-1155)
EVENT FROM ENFORCING HIS RIGHT IS NOT RECKONED AGAINST HIM.
Prescriptive Commences To Run
Nature/Action
Period From
Ø When prescription is interrupted, all the benefits acquired so far from the possession cease
Extraordinary acquisitive prescription of From the date of adverse
and when prescription starts anew, it will be entirely a new one. (Providence Bank v. CA,
immovable property possession
1993). 30 years
Extinctive prescription of actions From the date the right
involving real property rights accrues
ART. 1155. THE PRESCRIPTION OF ACTIONS IS INTERRUPTED WHEN THEY ARE FILED BEFORE
THE COURT, WHEN THERE IS A WRITTEN EXTRAJUDICIAL DEMAND BY THE CREDITORS, AND From the date of adverse
Ordinary acquisitive prescription of
WHEN THERE IS ANY WRITTEN ACKNOWLEDGMENT OF THE DEBT BY THE DEBTOR. possession with good faith
immovable property
and just title
Ø Prescription is interrupted when: Extinctive prescription arising from
1. Filed before the court; mortgage
10 years
2. Any written extrajudicial demand; or Extinctive prescription of rights arising From the date the right
3. Any written acknowledgment by the debtor of his debt. from: accrues
Ø Kinds of interruption: a. Written contract (For judgment, from the
1. Natural interruption b. Obligation created by law date of final judgment)
2. Civil interruption – effected by summons. c. Judgment
Ø The interruption of the 10-year prescriptive period through a judicial demand means that
the full period of prescription commenced to run anew upon the cessation of the suspension. Extraordinary acquisitive prescription of From the date of adverse
(Florendo v. Organo, 1951) movable property possession
8 years
Ø The period of prescription, when interrupted by such a written acknowledgment, begins to Extinctive prescription of actions From the date the right
run anew. (National Railways v. NLRC, 1989) involving movable property accrues
Ø The period of prescription, when interrupted by written extrajudicial demand, begins to run
anew. (Ledesma v. CA, 1993) Extinctive prescription of action arising
Ø When prescription is interrupted by a judicial demand, the full time for the prescription from: From the date the right
6 years
must be reckoned from the cessation of the interruption. The whole period during which a. Oral contract accrues
the case had been pending cannot be counted for arriving at the prescriptive period. b. Quasi-contract
Ø Civil actions are deemed commenced from the date of filing and docketing of the complaint From the date the right
with the Clerk of Court, without taking into account the issuance and service of summons. 5 years Periods not fixed within the provisions
accrues
(Sotelo v. Dizon, 1939).
From the date of adverse
Ø While a civil action stops the running of the statute of limitation, its dismissal or voluntary Ordinary acquisitive prescription of
possession with good faith
abandonment by the plaintiff leaves the parties in exactly the same position as though no movable property
and just title
action had been commenced at all. (Olympia International v. CA, 1989)
4 years Extinctive prescription involving rights
arising from: From the date the right
a. Injury to the plaintiff accrues
b. Quasi-delict
Extinctive prescription involving:
From the date the right
1 year a. Forcible entry and detainer
accrues
b. Defamation
Imprescriptible
1) Demanding a right of way or easement;
2) Abating a public of private nuisance;
3) Declaring a contract null and void. (Ex. Declaration of nullity of marriage);
4) An action to quiet title;
5) Partitioning property among heirs; and
6) Enforcing express trust.

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Commencement of Special Cases principle that existing laws enter into and form part of a valid contract
without need for the parties expressly making reference thereto.
Actions which have for their object the enforcement of From the last payment of 2. Contracts;
obligations to pay principal with interest annuity or interest 3. Quasi-contracts;
From the date the 4. Delicts; and
Actions for obligations arising from judgment 5. Quasi-delicts.
judgment becomes final
Ø The enumeration for sources of obligation under this particular article is exclusive.
From the day the person Ø Civil obligation – give a right of action to compel their performance.
who should render the Ø Natural obligation – not based on positive law, but on equity and natural law, does not grant
Actions to demand accounting
same ceases their a right of action to enforce performance, but after voluntary fulfillment by the obligor,
functions authorizes the retention of what has been delivered or rendered by reason thereof.
From the date said result
Actions arising from the result of accounting is recognized by ART 1158. OBLIGATIONS DERIVED FROM LAW ARE NOT PRESUMED. O NLY THOSE EXPRESSLY
agreement of the parties DETERMINED IN THIS CODE OR IN SPECIAL LAWS ARE DEMANDABLE, AND SHALL BE
REGULATED BY THE PRECEPTS OF THE LAW WHICH ESTABLISHES THEM; AND AS TO WHAT HAS
BOOK IV: OBLIGATIONS AND CONTRACTS NOT BEEN FORESEEN, BY THE PROVISIONS OF THIS BOOK .

TITLE I. – OBLIGATIONS
Ø Among the sources of obligations, the law is the most important one. It does not depend on
CHAPTER 1: GENERAL PROVISIONS the will of the parties. It is imposed by the State and is generally imbued with some public
policy considerations.
Ø It is a principle that existing laws enter into and form parts of a valid contract without need
ART. 1156. AN OBLIGATION IS A JURIDICAL NECESSITY TO GIVE, TO DO OR NOT TO DO.
for the parties expressly making reference thereto.

Ø A contract is understood to incorporated therein the provisions of law specifying the
Ø Obligation – a legal bond whereby constraint is laid upon a person or group of persons to obligations of the parties under the contract.
act or forbear on behalf of another person or group of persons.
• Elements ART. 1159. OBLIGATIONS ARISING FROM CONTRACTS HAVE THE FORCE OF LAW BETWEEN THE
1. Juridical tie (vinculum juris) – efficient cause established by the CONTRACTING PARTIES AND SHOULD BE COMPLIED WITH IN GOOD FAITH.
various sources of obligations;
2. Object – prestation or conduct required to be observed; and
• To give; Ø Contract – a meeting of minds between wo or more persons whereby one binds himself,
• To do; or with respect to the other, to give something or to render some service.
• Not to do. • Elements of a contract:
3. Active subject (obligee, because he is the one who demands); and 1. Consent;
4. Passive subject (obligor, because he waits for the obligee’s demand). 2. Object; and
• Subjects may be natural and juridical persons. 3. Cause.
Ø Whatever stipulations, clauses, terms and conditions are included in a contract, as long as
they are not contrary to law, morals and good customs, public policy or public order, such
ART. 1157. OBLIGATIONS ARISE FROM : contract is the law between the parties. (Phil-Am v. Mutuc, 1974)
Ø Contracts which are private laws of the contracting parties should be fulfilled according to
(1) LAW; the literal sense of their stipulations, if their terms are clear and leave no room for doubt as
(2) CONTRACTS; to the intention of the contracting parties.
(3) QUASI-CONTRACTS; Ø Contracts are generally perfected by mere consent.
(4) ACTS OR OMISSIONS PUNISHED BY LAW (DELICTS); AND Ø Doctrine of implied term – one party must not prevent the other party from fulfilling the
(5) QUASI-DELICTS. obligation.

ART. 1160. OBLIGATIONS DERIVED FROM QUASI-CONTRACTS SHALL BE SUBJECT TO THE
Ø Obligations arise from: PROVISIONS OF CHAPTER 1, TITLE XVII, OF THIS BOOK.
1. Laws;
§ Most important because it is imposed by the State, and is generally
imbued with public policy considerations. It is highlighted by the legal

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Ø Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-
contract to the end that no one shall be unjustly enriched or benefited at the expense of the
other. (Art. 2142, Civil Code)
Ø Solutio indebiti – if something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises.
Ø Negotiorum gestio – whoever voluntarily takes charge of the agency or management of the
business or property of another, without any power from the latter, is obliged to continue
the same until the termination of the affair and its incidents, or to require the person
concerned to substitute him, if the owner is in a position to do so. (Art. 2144, Civil Code)
• Exceptions:
1. Property or business is neglected or abandoned;
2. If in fact the manager has been tacitly authorized by the owner.
ART. 1161. CIVIL OBLIGATIONS ARISING FROM CRIMINAL OFFENSES SHALL BE GOVERNED BY
THE PENAL LAWS, SUBJECT TO THE PROVISIONS OF ARTICLE 2177, AND OF THE PERTINENT
PROVISIONS OF CHAPTER 2, PRELIMINARY TITLE, ON HUMAN RELATIONS, AND OF TITLE
XVIII OF THIS BOOK, REGULATING DAMAGES.
Ø May be penalized by:
1. Incarceration;
2. Payment of fine; or
3. Both.
Ø Civil liability attaches to any individual who is found to be criminally liable.
Ø It cannot be denied that the victim of a crime is usually an individual, a natural person who
must be compensated for his injury. For this purpose, civil damages may be awarded to
him.
Ø Damages – compensation in money imposed by law for loss or injury.
ART. 1162. OBLIGATIONS DERIVED FROM QUASI-DELICTS SHALL BE GOVERNED BY THE
PROVISIONS OF CHAPTER 2, TITLE XVII OF THIS BOOK , AND BY SPECIAL LAWS.
Ø Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict, and is governed by the
provisions of this Chapter. (Art. 2176, Civil Code)
CHAPTER 2: NATURE AND EFFECT OF OBLIGATIONS
ART. 1163. EVERY PERSON OBLIGED TO GIVE SOMETHING IS ALSO OBLIGED TO TAKE CARE OF
IT WITH THE PROPER DILIGENCE OF A GOOD FATHER OF A FAMILY, UNLESS THE LAW OR THE
STIPULATION OF THE PARTIES REQUIRES ANOTHER STANDARD OF CARE .
Ø “Something,” as used in this article, must refer to a determinate object.
Ø Determinate object – definite, known, and has already been distinctly decided and
particularly specified as the matter to be given from among the same this belonging to the
same kind. (Ex. Computer with serial number 7777)
Ø Standard of care is normally that of a good father of a family.
12 YAP, K. | ATENEO LAW
• Because it is a commonly-accepted notion that the father will always do
everything to take care of his concerns.
• If the law does not specify the diligence supposed to be observed in the
performance of an obligation, that which is expected of a good father of a family
is required.
Ø Standard of care may be varied if the law or the stipulation of the parties requires another
standard of care. (Ex. Common carriers – extraordinary diligence)
Ø Stipulations may lessen the standard of care, but may never relinquish the same.
ART. 1164. THE CREDITOR HAS A RIGHT TO THE FRUITS OF THE THING FROM THE TIME THE
OBLIGATION TO DELIVER IT ARISES. HOWEVER, HE SHALL ACQUIRE NO REAL RIGHT OVER IT
UNTIL THE SAME HAS BEEN DELIVERED TO HIM.
Ø Real right – power belonging to a person over a specific thing, without a passive subject
individually determined, against whom such right may be personally exercised. It is
enforceable against the whole world.
• The real right only accrues when the thing or object of the prestation is delivered
to the creditor.
Ø Personal right – power of one person to demand of another, as a definitive passive subject,
the fulfillment of an obligation.
• The personal right of the creditor can be defeated by a third person in good faith
who has innocently acquired the property prior to the scheduled delivery
regardless of whether or not such third person acquired the property after the
right to the delivery of the thing has accrued in favor of the creditor.
• The aggrieved creditor can go against the debtor for damages as the debtor should
have known that the fruits should have been delivered to the creditor alone.
Ø In constructive delivery, you can stipulate that the mere signing means delivered.
Ø Ex. A buys a mango orchard from X to be delivered on March 1. If B only delivers mango
orchard on March 30, A can demand for fruits accruing from March 1.
• If X had sold the fruits to B on March 20, B has a better title because A had no
real right over the fruits yet, only personal.
ART. 1165. WHEN WHAT IS TO BE DELIVERED IS A DETERMINED THING, THE CREDITOR, IN
ADDITION TO THE RIGHT GRANTED HIM BY ARTICLE 1170, MAY COMPEL THE DEBTOR TO
MAKE THE DELIVERY.
IF THE THING IS INDETERMINATE OR GENERIC, HE MAY ASK THAT THE OBLIGATION BE
COMPLIED WITH AT THE EXPENSE OF THE DEBTOR.
IF THE OBLIGOR DELAYS, OR HAS PROMISED TO DELIVER THE SAME THING TO TWO OR MORE
PERSONS WHO DO NOT HAVE THE SAME INTEREST , HE SHALL BE RESPONSIBLE FOR
FORTUITOUS EVENT UNTIL HE HAS EFFECTED THE DELIVERY.
Ø Generic object – any object belonging to the same kind/species. (Ex. Pen)
• In the event of non-delivery, the creditor may have it accomplished or delivered
in any reasonable and legal way charging all expenses in connection with the
fulfillment to the debtor.
• The creditor may ask a third party to deliver the same thing of the same kind with
all the expenses charged to the debtor.

Ø Determinate object - definite, known, and has already been distinctly decided and
particularly specified as the matter to be given from among the same this belonging to the
same kind. (Ex. Computer with serial number 7777)
• In case of non-delivery, the creditor may file an action to compel the debtor to
make the delivery, also known as specific performance.
• If the debtor is guilty of fraud, negligence, delay or contravention in the
performance of the obligation, the creditor can likewise seek damages against the
debtor.
Ø Fortuitous event – an event which could not be foreseen, or though foreseen, was inevitable.
• Elements:
1. Cause of the breach of the obligation is independent of the will of the
debtor;
2. Event is unforeseeable or unavoidable;
3. Event renders it impossible for the debtor to fulfill his obligation in a
normal manner; and
4. Debtor must be free from any participation in, or aggravation of the
injury.
• General rule: A debtor is relieved from his obligation to give an object that is lost
through a fortuitous event.
§ Exceptions (Art. 1165, par. 3)
1. If the obligor delays;
2. If he has promised to deliver the same thing to two or
more persons who do not have the same interest; or
3. Contributory negligence.; and
4. Assumption of risk.
ART. 1166. THE OBLIGATION TO GIVE A DETERMINATE THING INCLUDES THAT OF DELIVERING
ALL ITS ACCESSIONS AND ACCESSORIES, EVEN THOUGH THEY MAY NOT HAVE BEEN
MENTIONED.
Ø The principal always includes its accessories and accessions which the law likewise gives
to the creditor as part of what he should receive.
Ø Accession – increase by something added.
ART. 1167. IF A PERSON OBLIGED TO DO SOMETHING FAILS TO DO IT, THE SAME SHALL BE
EXECUTED AT HIS COST .
THE SAME RULE SHALL BE OBSERVED IF HE DOES IT IN CONTRAVENTION OF THE TENOR OF THE
OBLIGATION. FURTHERMORE , IT MAY BE DECREED THAT WHAT HAS BEEN POORLY DONE BE
UNDONE.
ART. 1168. WHEN THE OBLIGATION CONSISTS IN NOT DOING, AND THE OBLIGOR DOES WHAT
HAS BEEN FORBIDDEN HIM, IT SHALL ALSO BE UNDONE AT HIS EXPENSE .
Ø The creditor can ask any third person to perform the obligation due from the debtor should
the latter fail to do the same. The debtor will be liable for all expenses in connection with
the performance or fulfillment of the obligation undertaken by a third person.
13 YAP, K. | ATENEO LAW
Ø In cases when the obligation to do is poorly done, the creditor has the right to have
everything undone at the expense of the debtor.
• Reason is to prevent the debtor from taking his obligation lightly.
Ø Damnum absque injuria – injury without damage (ex. breach of promise to marry)
Ø “At his cost” implies:
1. Right to have somebody else perform the obligation; and
2. Right to charge the expenses thereof against the debtor.
ART. 1169. THOSE OBLIGED TO DELIVER OR TO DO SOMETHING INCUR IN DELAY FROM THE
TIME THE OBLIGEE JUDICIALLY OR EXTRAJUDICIALLY DEMANDS FROM THEM THE
FULFILLMENT OF THEIR OBLIGATION.
HOWEVER, THE DEMAND BY THE CREDITOR SHALL NOT BE NECESSARY IN ORDER THAT DELAY
MAY EXIST:
1. WHEN THE OBLIGATION OR THE LAW EXPRESSLY SO DECLARES; OR
2. WHEN FROM THE NATURE AND THE CIRCUMSTANCES OF THE OBLIGATION IT APPEARS
THAT THE DESIGNATION OF THE TIME WHEN THE THING IS TO BE DELIVERED OR THE
SERVICE IS TO BE RENDERED WAS A CONTROLLING MOTIVE FOR THE ESTABLISHMENT OF
THE CONTRACT ; OR
3. WHEN DEMAND WOULD BE USELESS, AS WHEN THE OBLIGOR HAS RENDERED IT BEYOND
HIS POWER TO PERFORM.
(4) IN RECIPROCAL OBLIGATIONS, NEITHER PARTY INCURS IN DELAY IF THE OTHER DOES NOT
COMPLY OR IS NOT READY TO COMPLY IN A PROPER MANNER WITH WHAT IS INCUMBENT UPON
HIM. FROM THE MOMENT ONE OF THE PARTIES FULFILLS HIS OBLIGATION, DELAY BY THE
OTHER BEGINS.
Ø Requisites of delay:
1. Obligation is demandable and already liquidated;
2. Debtor delays performance; and
3. Creditor requires performance judicially or extrajudicially.
Ø Mora solvendi – delay committed by the debtor.
Ø Mora accipiendi – delay committed by the creditor.
• In Mora accipiendi, the debtor may consign whatever is due to the creditor in
court if the circumstances warrant.
Ø Delay in the performance of the obligation must be malicious or negligent. Otherwise, the
debtor will not be held liable.
Ø General Rule: For an obligation to become due, there must be a demand. Without such
demand, judicial or extra-judicial, the effects of default will not rise.
Ø An obligor is liable for damages for the delay from the time of extra-judicial or judicial
demand.
Ø Art. 1169 applies only when the obligation is to do something other than the payment of
money. In such cases, Art. 2209 applies, wherein there is payment of the interest agreed
upon. In the absence of stipulation, the legal interest is 6% per annum. Default occurs only
after judicial or extra-judicial demand.
Ø If the contract stipulates from what time the interest will be counted, said stipulation
controls, and, therefore interest is payable from such time and not from the date of filing
the complaint. Otherwise, from the time of judicial or extrajudicial demand.

Ø General Rule: An action or suit can be filed at anytime after the non-compliance of the 2. Knowledge of the existence of such right; and
other party of his obligation because the cause of action of the aggrieved party will always 3. Actual intent to relinquish the right.
start from such time. However, damages or interest shall start to run only after judicial or
extra-judicial demand. ART. 1172. RESPONSIBILITY ARISING FROM NEGLIGENCE IN THE PERFORMANCE OF EVERY
• Exception (demand is not necessary): KIND OF OBLIGATION IS ALSO DEMANDABLE, BUT SUCH LIABILITY MAY BE REGULATED BY THE
1. When law or obligation expressly so declares; COURTS, ACCORDING TO THE CIRCUMSTANCES.
• “without necessity of demand.”
2. Nature of obligation (time is of the essence); or
3. Debtor rendered it beyond his power to perform.
• Exceptions to the exception (extrajudicial demand is necessary): ART. 1173. THE FAULT OR NEGLIGENCE OF THE OBLIGOR CONSISTS IN THE OMISSION OF THAT
DILIGENCE WHICH IS REQUIRED BY THE NATURE OF THE OBLIGATION AND CORRESPONDS WITH
1. Ejectment cases – there must first be an extra-judicial demand for the
THE CIRCUMSTANCES OF THE PERSONS, OF THE TIME AND OF THE PLACE. WHEN NEGLIGENCE
lessee to vacate.
SHOWS BAD FAITH, THE PROVISIONS OF A RTICLES 1171 AND 2201, PARAGRAPH 2, SHALL
2. Consignment cases – there must first be an extra-judicial demand for
APPLY.
the creditor to accept payment of the obligation.
Ø Delay constitutes a material breach of the contract where time is of the essence.
Ø Reciprocal obligation – created and established at the same time, out of the same cause and
Ø Negligence – the omission of that diligence which is required by the nature of the obligation
which results in a mutual relationship of creditor and debtor between the parties. (Ex.
and corresponds with the circumstances of the persons, of the time and of the place.
Contracts of loan, lease, or sale)
• Negligence is relative or comparative. Its application depends on the situation of
• The performance of one is conditioned upon the simultaneous fulfillment of the
the parties and the degree of care and vigilance which the circumstances
other.
reasonably require.
• The obligation of one is a resolutory condition of the obligation of the other, the
• General Rule: Negligence must always be proven.
non-fulfillment of which entitles the other party to rescind the contract.
Ø Bad faith – a state of mind affirmatively operating with furtive design or with some motive
Ø Judicial or extra-judicial demand is not a condition sine qua non to file a case.
of ill-will. Conscious doing of a wrong. Synonymous with fraud. (Samson v. CA, 1994)
Ø If time is a controlling factor, the other part should know that time of the essence.
Ø Negligence with bad faith falls under Art. 1171.

ART. 1170. THOSE WHO IN THE PERFORMANCE OF THEIR OBLIGATIONS ARE GUILTY OF FRAUD,
ART. 1174. EXCEPT IN CASES EXPRESSLY SPECIFIED BY THE LAW, OR WHEN IT IS OTHERWISE
NEGLIGENCE, OR DELAY, AND THOSE WHO IN ANY MANNER CONTRAVENE THE TENOR
DECLARED BY STIPULATION, OR WHEN THE NATURE OF THE OBLIGATIONS REQUIRES THE
THEREOF, ARE LIABLE FOR DAMAGES.
ASSUMPTION OF RISK, NO PERSON SHALL BE RESPONSIBLE FOR THOSE EVENTS WHICH, COULD

NOT BE FORESEEN, OR WHICH , THOUGH FORESEEN, WERE INEVITABLE.
Ø Liable for damages when guilty of:
1. Fraud;
2. Negligence; Ø General Rule: No one should be held to account for fortuitous cases.
3. Delay; or Ø Act of God – an accident, due directly and exclusively to natural causes without human
4. Contravention of the tenor of the obligation. intervention, which by no amount of foresight, pains or care, reasonably to have been
Ø Obligations must be complied with so as not to prejudice persons who are directly expected, could have been prevented.
interested therein. Ø When the object of the prestation is generic, the debtor cannot avail of the benefit of a
Ø If any of the four bases of liability (fraud, negligence, delay, or contravention) co-exist with fortuitous event.
a fortuitous event or aggravates the loss caused by a fortuitous event, the obligor cannot be Ø Elements of a fortuitous event:
excused from being liable on his obligation. 1. Cause of the breach of the obligation is independent of the will of the debtor;
Ø Fraud and negligence are the same if they are done in bad faith. 2. Event is unforeseeable or unavoidable;
3. Event renders it impossible for the debtor to fulfill his obligation in a normal
ART. 1171. RESPONSIBILITY ARISING FROM FRAUD IS DEMANDABLE IN ALL OBLIGATIONS. manner; and
ANY WAIVER OF AN ACTION FOR FUTURE FRAUD IS VOID. 4. Debtor must be free from any participation in, or aggravation of the injury.
Ø Maior casus est, cui human infirinis resitere no potest – no one shall be liable for events
which could not be foreseen, or foreseen but inevitable.
Ø This article contemplates the dolo or fraud that necessarily involves a valid agreement, but Ø War is a force majeure. Thus, Victorias Milling could not demand the fulfillment of the
in the performance of the same, fraud is committed. It is not the dolo or fraud which is obligation of the planters to deliver the sugar cane. (Victorias planters v. Victorias Milling,
committed to induce a party to enter into a contract, thereby making a contract annullable. 1955)
Ø Requisites of a valid waiver: Ø Even if there is a fortuitous event, a person can still be held responsible for the performance
1. Existing right; of the obligation if the law, or the stipulation of the parties, or when the nature of the
obligation so requires. (Ex. Art. 1165, par. 3)
14 YAP, K. | ATENEO LAW

Ø When the parties declare that they shall be liable even for loss due to a fortuitous event,
they shall be so liable.
Ø When the nature of the obligation requires the assumption of risk, the person obliged to
perform the obligation shall likewise not be excused should a fortuitous event occur.
• Precautions should be taken.
ART. 1175. USURIOUS TRANSACTIONS SHALL BE GOVERNED BY SPECIAL LAWS.
Ø Usury – lending money at unreasonably high rates.
Ø A special law may prohibit usurious interest, allow it, or merely put a ceiling as to what
can be the highest interest that can legally be imposed.
ART. 1176. THE RECEIPT OF THE PRINCIPAL BY THE CREDITOR, WITHOUT RESERVATION WITH
RESPECT TO THE INTEREST, SHALL GIVE RISE TO THE PRESUMPTION THAT SAID INTEREST HAS
BEEN PAID.
THE RECEIPT OF A LATER INSTALLMENT OF A DEBT WITHOUT RESERVATION AS TO PRIOR
INSTALLMENTS, SHALL LIKEWISE RAISE THE PRESUMPTION THAT SUCH INSTALLMENTS HAVE
BEEN PAID.
Ø Presumption must always arise from a fact or a set of facts.
Ø To have probative value, the creation of a presumption must be provided by law.
• Examples:
1. The payment of a principal amount without reservation is gives rise to a
presumption that the interest on the principal has already been paid. This
is because, in ordinary business transactions, interest is paid first.
2. The payment of a later installment gives rise to a presumption that the
prior installments have already been paid.
Ø The receipt must clearly indicate that it is the latest installment.
ART. 1177. THE CREDITORS, AFTER HAVING PURSUED THE PROPERTY IN POSSESSION OF THE
DEBTOR TO SATISFY THEIR CLAIMS, MAY EXERCISE ALL THE RIGHTS AND BRING ALL THE
ACTIONS OF THE LATTER FOR THE SAME PURPOSE, SAVE THOSE WHICH ARE INHERENT IN HIS
PERSON; THEY MAY ALSO IMPUGN THE ACTS WHICH THE DEBTOR MAY HAVE DONE TO
DEFRAUD THEM.
Ø The creditor, after exhausting all means to satisfy his claim, is given the opportunity to
bring all actions which the obligor can institute against his own debtors to protect and
satisfy his claims against the said obligor. The creditor may:
1. Exhaust the properties of the debtor through levying by attachment and execution
upon all the property of the debtor, except those exempt from execution;
2. Accion subrogatoria – exercise all rights and actions of the debtor, save those
personal to him; and
3. Accion pauliana – seek rescission of the contracts executed by the debtor in fraud
of their rights. (Dean Mel’s definition – impugn the acts which the debtor may
have done to defraud.)
Ø Except those personal to the debtor.
15 YAP, K. | ATENEO LAW
Ø The creditor’s rights against the debtor is only a personal right to receive payment for a
loan; not a real right. (Adorable, v. CA, 1999)
ART. 1178. SUBJECT TO THE LAWS, ALL RIGHTS ACQUIRED IN VIRTUE OF AN OBLIGATION ARE
TRANSMISSIBLE, IF THERE HAS BEEN NO STIPULATION TO THE CONTRARY.
Ø General Rule: Rights growing out of an obligation are transmissible.
• The person who transmits the right cannot transfer greater rights than he himself
has by virtue of the obligation.
• The person to whom the rights are transmitted can have no greater interest than
that possessed by the transmitter at the time of transmission of the rights.
• Exceptions:
1. As may be provided by law; or
2. Stipulation of the parties.
Ø The transmissibility of rights may be limited, or altogether prohibited by stipulation of the
parties.
Ø Transmission must likewise be subject to pertinent laws.
Ø Transmissible if real rights are involved. Personal rights are intransmissible.
CHAPTER 3: DIFFERENT KINDS OF OBLIGATIONS
SECTION ONE: PURE AND CONDITIONAL OBLIGATIONS
ART. 1179. EVERY OBLIGATION WHOSE PERFORMANCE DOES NOT DEPEND UPON A FUTURE OR
UNCERTAIN EVENT, OR UPON A PAST EVENT UNKNOWN TO THE PARTIES , IS DEMANDABLE AT
ONCE.
EVERY OBLIGATION WHICH CONTAINS A RESOLUTORY CONDITION SHALL ALSO BE
DEMANDABLE, WITHOUT PREJUDICE TO THE EFFECTS OF THE HAPPENING OF THE EVENT.
Ø Pure obligation – an unqualified obligation which is demandable immediately, and whose
performance does not depend upon a future or uncertain event, or past event unknown to
the parties.
Ø Conditional obligation – performance depends upon a future or uncertain event or upon a
past event unknown to the parties, and its obligatory force is subordinated to the happening
of a future or uncertain event.
Ø Condition – an act or event, other than the lapse of time, which, unless the condition is
excused, must occur before a duty to perform a promise in the agreement arises, or which
discharges a duty of performance that has already arisen.
Ø Kinds of condition:
1. Resolutory condition
§ Once the condition is established and acknowledge, the right
immediately exists and therefore the obligation concomitant to the
right can be demanded at once.
§ Once the future or uncertain event happens, it operates to discharge the
obligation.
§ Obligation is extinguished by operation of law.

§ Such resolution can be made effective at a later date if the parties so ART. 1180. WHEN THE DEBTOR BINDS HIMSELF TO PAY WHEN HIS MEANS PERMIT HIM TO DO
stipulate in their contract, such as when it is stipulated that resolution SO, THE OBLIGATION SHALL BE DEEMED TO BE ONE WITH A PERIOD, SUBJECT TO THE
becomes effective only upon written notice thereof is sent. PROVISIONS OF ARTICLE 1197.
§ In a reciprocal obligation, the obligation of one is the resolutory
condition of the obligation of the other, the non-fulfillment of which
entitles the other party to rescind the contract. Ø Debtor – usually the passive subject of the prestation because he is the one who can be
2. Suspensive condition compelled to give or to do t the prestation.
§ Gives rise to the performance of an obligation. Ø Creditor – usually the active subject because he is the one who can compel performance.
§ Demandable only upon the happening of future or unknown event or a Ø When the debtor binds himself to pay when his means permit him to, the law presumes that
past event unknown to the parties. the debtor really intends to satisfy the obligation, the only problem is that the creditor is
§ Upon the happening of a suspensive condition, the performance of the left to speculate as to when the obligation may occur as it depends principally on the debtor.
obligation arises. Ø To balance the presumed intention of the debtor to pay and the interest of the creditor to be
§ If the condition does not take place, the parties would stand as if the paid, the law classifies this condition as a period.
conditional obligation had never existed. Ø The parties may ask the court to fix the duration of the period within which payment is to
Ø Reciprocal obligation necessarily involves a resolutory condition. Obligation of one is a be made.
resolutory condition of the obligation of another, non-fulfillment entitles the other party
to rescind.
Ø Contract to sell and conditional contract of sale. ART. 1181. IN CONDITIONAL OBLIGATIONS, THE ACQUISITION OF RIGHTS, AS WELL AS THE
EXTINGUISHMENT OR LOSS OF THOSE ALREADY ACQUIRED, SHALL DEPEND UPON THE
Contract to sell Conditional contract of sale
HAPPENING OF THE EVENT WHICH CONSTITUTES THE CONDITION.
• Consent or meeting of the minds • There is already consent, although
relative to the transfer of ownership it is conditioned upon the
is not present happening of a contingent event Ø Condition precedent – an act or event, other than a lapse of time, which must exist or occur
which may or may not occur. before a duty to perform a promised performance arises.
Ø Condition subsequent – an event, the existence of which, by agreement of the parties,
• The seller expressly reserves the • The seller may likewise reserve title operates to discharge a duty of performance that has arisen.
transfer of title to the prospective to the property subject of the sale
buyer until the happening of the until the fulfillment of a suspensive ART. 1182. WHEN THE FULFILLMENT OF THE CONDITION DEPENDS UPON THE SOLE WILL OF
suspensive condition. condition. THE DEBTOR, THE CONDITIONAL OBLIGATION SHALL BE VOID . IF IT DEPENDS UPON CHANCE OR
UPON THE WILL OF A THIRD PERSON, THE OBLIGATION SHALL TAKE EFFECT IN CONFORMITY
• A third party buying such property • A second buyer who may have had WITH THE PROVISIONS OF THIS CODE.
despite the fulfillment of the actual or constructive knowledge of
suspensive condition cannot be a defect in the seller’s title, or at
deemed a buyer in bad faith and the least was charged with the Ø When fulfillment of a condition – connotes a suspensive character of the prestation. There
prospective buyer cannot seek the obligation to discover such effect, is the expectation of the existence or accomplishment of a duty to give or to render some
relief of reconveyance of the cannot be a registrant in good faith. service in the future.
property. In case the title is issued to the Ø Potestative suspensive condition – if the fulfillment depends upon the sole will of the
second buyer, the first buyer may debtor, then it is essentially a condition because whether the debtor will or will not fulfill
seek the reconveyance of the the obligation is a future and uncertain event, which is void.
property. Ø If the potestative condition is imposed upon the birth or creation of the obligation
• Title to the property will transfer to • Title to the property is (condition gives rise to the prestation), the whole obligation is void.
the buyer after registration because automatically transferred to the Ø If the potestative condition is imposed upon the fulfillment of the obligation (condition
there is no defect in the title per se, buyer such that the seller will no gives rise to the implementation of the prestation already existing), the condition alone is
but the latter may be sued for longer have any title to transfer to voided but the obligation is valid.
damages by the intending buyer. any third person. A second buyer Ø In the event that the condition is declared void but the obligation is still valid, should the
cannot defeat the title of the first obligation be declared pure and unconditional?
buyer. • No. If converted, an arrangement might be enforced which is not within the
contemplation of the parties.
• Hence, the best solution is to consider the parties as having intended a period
within which the valid obligation is to be complied with such that the creditor
should ask the court to fix the period for compliance.

16 YAP, K. | ATENEO LAW


Ø Mixed obligations – those which depend not only upon the will of the debtor but also upon
a chance and some other factors.
Ø A resolutory that depends upon the will of a third person is not void.
ART. 1183. IMPOSSIBLE CONDITIONS, THOSE CONTRARY TO GOOD CUSTOMS OR PUBLIC
POLICY AND THOSE PROHIBITED BY LAW SHALL VOIDANNUL THE OBLIGATION WHICH
DEPENDS UPON THEM. IF THE OBLIGATION IS DIVISIBLE, THAT PART THEREOF WHICH IS NOT
AFFECTED BY THE IMPOSSIBLE OR UNLAWFUL CONDITION SHALL BE VALID.
THE CONDITION NOT TO DO AN IMPOSSIBLE THING SHALL BE CONSIDERED AS NOT HAVING
BEEN AGREED UPON .
Ø It is not only the condition which is annulled, but the whole obligation itself.
Ø To make as a condition the doing of an impossible thing is a useless stipulation which
should be considered as not having been agreed upon.
Ø A condition not to do an impossible thing is void, but the obligation subsists as if there is
no condition at all, because it implies that the debtor intends to perform the obligation.
Ø All suspensive conditions are void.
Ø All resolutory potestative conditions are valid.
• Resolutory conditions are always potestative because it depends upon the will of
the debtor.
ART. 1184. THE CONDITION THAT SOME EVENT HAPPEN AT A DETERMINATE TIME SHALL
EXTINGUISH THE OBLIGATION AS SOON AS THE TIME EXPIRES OR IF IT HAS BECOME
INDUBITABLE THAT THE EVENT WILL NOT TAKE PLACE.
Ø This article deals with the existence of an obligation as soon as the condition happens at a
particular time and it is extinguished should the condition not happen within the said
period.
Ø If the condition is the election of X as president on or before 1998 and the prestation is the
giving of a particular car and the effect is the extinguishment of the obligation when the
time expires, then –
• Once X becomes the president prior to or in 1998, the obligor has to give the car.
• If X dies even before he files his candidacy, it is clear that his becoming president
will never happen. Thus, the obligation to give the car is extinguished.
ART. 1185. THE CONDITION THAT SOME EVENT WILL NOT HAPPEN AT A DETERMINATE TIME
SHALL RENDER THE OBLIGATION EFFECTIVE FROM THE MOMENT THE TIME INDICATED HAS
ELAPSED, OR IF IT HAS BECOME EVIDENT THAT THE EVENT CANNOT OCCUR.
IF NO TIME HAS BEEN FIXED, THE CONDITION SHALL BE DEEMED FULFILLED AT SUCH TIME AS
MAY HAVE PROBABLY BEEN CONTEMPLATED, BEARING IN MIND THE NATURE OF THE
OBLIGATION.
Ø This article deals with the effectivity of an obligation in case the condition does not happen
at a particular time.
Ø If the condition is the election of X as president on or before 1998 and the prestation is the
giving of a particular car and the effect is the effectivity of the obligation when the condition
does not happen, then –
17 YAP, K. | ATENEO LAW
• Once X does not become become the president prior to or in 1998, the obligor
has to give the car.
• If X becomes president on or before 1998, the car should not be given.
• If X dies before he files his candidacy, it is clear that his becoming president will
not happen anymore. Thus, the obligation to give the car immediately arises.
ART. 1186. THE CONDITION SHALL BE DEEMED FULFILLED WHEN THE OBLIGOR VOLUNTARILY
PREVENTS ITS FULFILLMENT.
Ø The good-faith obligation of the parties includes an implied term on the part of the said
parties not to impede, hinder, or obstruct or prevent the fulfillment of the obligation.
Ø If preventive acts are undertaken, they constitute a breach of the contract and therefore are
unwarranted and unlawful.
Ø Constructive fulfillment – if the obligor voluntarily prevents the fulfillment of the condition
in an obligation, the law states that the obligation shall be deemed fulfilled.
ART. 1187. THE EFFECTS OF A CONDITIONAL OBLIGATION TO GIVE, ONCE THE CONDITION HAS
BEEN FULFILLED, SHALL RETROACT TO THE DAY OF THE CONSTITUTION OF THE OBLIGATION.
NEVERTHELESS, WHEN THE OBLIGATION IMPOSES RECIPROCAL PRESTATIONS UPON THE
PARTIES, THE FRUITS AND INTERESTS DURING THE PENDENCY OF THE CONDITION SHALL BE
DEEMED TO HAVE BEEN MUTUALLY COMPENSATED. IF THE OBLIGATION IS UNILATERAL, THE
DEBTOR SHALL APPROPRIATE THE FRUITS AND INTERESTS RECEIVED, UNLESS FROM THE
NATURE AND CIRCUMSTANCES OF THE OBLIGATION IT SHOULD BE INFERRED THAT THE
INTENTION OF THE PERSON CONSTITUTING THE SAME WAS DIFFERENT.
IN OBLIGATIONS TO DO AND NOT TO DO, THE COURTS SHALL DETERMINE, IN EACH CASE, THE
RETROACTIVE EFFECT OF THE CONDITION THAT HAS BEEN COMPLIED WITH.
Ø Applicable only to obligations with suspensive conditions.
Ø Retroactivity in cases of resolutory conditions is not relevant.
Ø In suspensive conditions, the efficacy of the obligation is merely suspended or held in
abeyance until the condition is fulfilled.
Ø When the suspensive condition occurs, the effect of a conditional obligation “to give”
retroacts to the day of the constitution of the obligation.
• The obligor is duty bound to take care not only of the car but also its accessories
from the time the obligation has been constituted.
ART. 1188. THE CREDITOR MAY, BEFORE THE FULFILLMENT OF THE CONDITION, BRING THE
APPROPRIATE ACTIONS FOR THE PRESERVATION OF HIS RIGHT.
THE DEBTOR MAY RECOVER WHAT DURING THE SAME TIME HE HAS PAID BY MISTAKE IN CASE
OF A SUSPENSIVE CONDITION.
Ø It is always in the interest of the creditor to have the prestation complied with for his
benefit. Thus, to prevent this eventuality, the law allows the creditor to protect his interest
even if the condition in a conditional obligation has not yet been fulfilled.
Ø Ex. An employer enters into a collective bargaining agreement (CBA) with his employees,
providing that the former will give the latter P500,000 on their 60th birthdays. However,

1,000 employees had the turned 60 on the same day. The employer instead will give the
benefit in 100 yearly installments. Valid?
• Invalid. Contravention of the tenor of the obligation. Furthermore, severance of
the juridical tie (CBA) and object of the contract. Thus, the employees may file
an injunction.
ART. 1189. WHEN THE CONDITIONS HAVE BEEN IMPOSED WITH THE INTENTION OF
SUSPENDING THE EFFICACY OF AN OBLIGATION TO GIVE, THE FOLLOWING RULES SHALL BE
OBSERVED IN CASE OF THE IMPROVEMENT, LOSS OR DETERIORATION OF THE THING DURING
THE PENDENCY OF THE CONDITION:
(1) IF THE THING IS LOST WITHOUT THE FAULT OF THE DEBTOR, THE OBLIGATION SHALL
BE EXTINGUISHED;
(2) IF THE THING IS LOST THROUGH THE FAULT OF THE DEBTOR, HE SHALL BE OBLIGED
TO PAY DAMAGES; IT IS UNDERSTOOD THAT THE THING IS LOST WHEN IT PERISHES,
OR GOES OUT OF COMMERCE, OR DISAPPEARS IN SUCH A WAY THAT ITS EXISTENCE
IS UNKNOWN OR IT CANNOT BE RECOVERED ;
(3) WHEN THE THING DETERIORATES WITHOUT THE FAULT OF THE DEBTOR, THE
IMPAIRMENT IS TO BE BORNE BY THE CREDITOR;
(4) IF IT DETERIORATES THROUGH THE FAULT OF THE DEBTOR, THE CREDITOR MAY
CHOOSE BETWEEN THE RESCISSION OF THE OBLIGATION AND ITS FULFILLMENT,
WITH INDEMNITY FOR DAMAGES IN EITHER CASE;
(5) IF THE THING IS IMPROVED BY ITS NATURE, OR BY TIME, THE IMPROVEMENT SHALL
INURE TO THE BENEFIT OF THE CREDITOR;
(6) IF IT IS IMPROVED AT THE EXPENSE OF THE DEBTOR, HE SHALL HAVE NO OTHER
RIGHT THAN THAT GRANTED TO THE USUFRUCTUARY .
Ø Lost – when it (1) perishes, or (2) goes out of commerce, or (3) disappears in such a way
that its existence is unknown or cannot be recovered.
Ø If the thing is lost, the existence or extinguishment of the obligation depends on whether
or not the loss occurred to to the fault of the debtor.
1. If without fault of the debtor, the obligation is extinguished unless the thing to
be given is generic.
2. If through fault of the debtor, he shall be liable for damages.
Ø If the thing deteriorates without fault of the debtor, any impairment is to be borne by the
creditor.
Ø If the deterioration is caused by the debtor, the creditor can choose between (with damages
in either case):
1. Rescission of the obligation; or
2. Its fulfillment.
Ø The choice belongs to the creditor regardless of the degree of the deterioration caused by
the debtor.
Ø If the thing is improved by nature, or by time, the improvement shall inure to the benefit of
the creditor because once the condition is fulfilled, the effects of the obligation retroact to
the day of constitution.
Ø If it is improved at the expense of the debtor, his only right would be that of a usufruct.
Ø Usufruct – gives a right to enjoy the property of another with the obligation of preserving
its form and substance unless the title constituting it or the law otherwise provides.
Ø If all the parties are in good faith, always borne by the creditor because it retroacts to the
constitution of the obligation.
18 YAP, K. | ATENEO LAW
ART. 1190. WHEN THE CONDITIONS HAVE FOR THEIR PURPOSE THE EXTINGUISHMENT OF AN
OBLIGATION TO GIVE, THE PARTIES UPON THE FULFILLMENT OF SAID CONDITIONS, SHALL
RETURN TO EACH OTHER WHAT THEY HAVE RECEIVED.
IN CASE OF THE LOSS, DETERIORATION OR IMPROVEMENT OF THE THING, THE PROVISIONS
WHICH, WITH RESPECT TO THE DEBTOR, ARE LAID DOWN IN THE PRECEDING ARTICLE SHALL BE
APPLIED TO THE PARTY WHO IS BOUND TO RETURN .
AS FOR OBLIGATIONS TO DO AND NOT TO DO, THE PROVISIONS OF THE SECOND PARAGRAPH OF
ARTICLE 1187 SHALL BE OBSERVED AS REGARDS THE EFFECT OF THE EXTINGUISHMENT OF
THE OBLIGATION.
Ø Upon fulfillment of the resolutory condition, there must be restitution of what has been
obtained.
Ø While the resolutory condition has not yet been fulfilled –
• If the car is destroyed without the fault of the obligor, the obligation to return is
extinguished.
• If the car is lost through the fault of the debtor, he shall be liable for damages.
• If the car deteriorates without the fault of the obligor, the obligee may choose
between the rescission of the obligation and its fulfillment, with damages either
way.
• If the car is improved by its nature, or by time, the improvement shall inure to
the benefit of the obligee.
• If the car improves at the expense of the debtor, he shall have no other right than
that granted to the usufructuary.
Ø In obligations to do and not to do, the court shall determine the effect of the extinguishment
of the obligation.
ART. 1191. THE POWER TO RESCIND OBLIGATIONS IS IMPLIED IN RECIPROCAL ONES, IN CASE
ONE OF THE OBLIGORS SHOULD NOT COMPLY WITH WHAT IS INCUMBENT UPON HIM.
THE INJURED PARTY MAY CHOOSE BETWEEN THE FULFILLMENT AND THE RESCISSION OF THE
OBLIGATION, WITH THE PAYMENT OF DAMAGES IN EITHER CASE. HE MAY ALSO SEEK
RESCISSION, EVEN AFTER HE HAS CHOSEN FULFILLMENT, IF THE LATTER SHOULD BECOME
IMPOSSIBLE.
THE COURT SHALL DECREE THE RESCISSION CLAIMED, UNLESS THERE BE JUST CAUSE
AUTHORIZING THE FIXING OF A PERIOD.
THIS IS UNDERSTOOD TO BE WITHOUT PREJUDICE TO THE RIGHTS OF THIRD PERSONS WHO
HAVE ACQUIRED THE THING, IN ACCORDANCE WITH A RTICLES 1385 AND 1388 AND THE
MORTGAGE LAW.
Ø Reciprocal obligations – those which arise from the same cause and in which each party is
both a debtor and a creditor of the other, such that the obligation of one is dependent upon
the obligation of the other.
• In case of non-compliance, the aggrieved party has an implied power to rescind
or, more properly, to resolve the contract (not rescind).

• Rescind – to abrogate the contract from the beginning and to restore the parties
to their relative positions as if no contract had ever been made.
• Rescission or resolution is predicated on the breach of faith by any of the parties
to a contract that violates the reciprocity between them.
• The power to rescind is not absolute and must be based on a serious or substantial
breach of an obligation as to defeat the object of the parties in making the
agreement.
• A mere casual breach does not justify rescission of the contract.
• Slight delay is not a substantial breach unless time is of the essence. (Tan v. CA,
1989)
• Where the fulfillment of the condition (in a conditional obligation) does not
depend on the will of the obligor, but on that of a third person, the obligor’s part
of the contract is complied with if he does all that is in his power and it then
becomes incumbent upon the other contracting party to comply with the terms of
the contract.
• The implied power to rescind can only be enforced through court action, in the
absence of stipulation to the contrary.
Ø The remedy in case of non-compliance with the obligation is either fulfillment or
rescission, with the payment of damages in either case.
• The injured party may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
• However, the law does not authorize the injured party to rescind the obligation
and at the same time seek its partial fulfillment under the guise of recovering
damages.
• The power to rescind need not be implied in all cases. It can be expressly
stipulated in the contract.
• Facultative resolutory condition – when parties enter into an agreement providing
that the violation of the terms of the contract shall cause the cancellation,
termination or rescission thereof even without court intervention.
• Notice must always be given to the defaulter before rescission can take effect.
• It must be understood that the act of a party in treating a contract as cancelled or
resolved on account of infractions by the other contracting party must be made
known to the other and is always provisional, being ever subject to scrutiny and
review by the proper court.
• The party who deems the contract violated may consider it resolved or rescinded,
and act accordingly, without previous court action, but it proceeds at its own risk.
• It is only the final judgment of the court (revocatory act) that will conclusively
and finally settle whether the action taken was or was not correct in law.
• Extra-judicial steps to protect the aggrieved party’s interest is allowed by law.
The law itself requires that he should exercise due diligence to minimize its own
damages.
• If there is a stipulation granting the right of rescission on the part of the aggrieved
party and he or she validly rescinds the contract pursuant to such express grant,
any court decision adjudging the propriety of the rescission extra-judicially made
is not the revocatory act of rescission but merely declaratory or an affirmation of
the revocation.
Ø In case of an implied power of rescission which has been exercised, the court shall decree
the rescission claimed, unless there be just cause authorizing the fixing of a period.
• The fixing of a period will not be granted if it would be a mere technicality and
formality and would serve no purpose than to delay or lead to an unnecessary
and expensive multiplication of suits.
19 YAP, K. | ATENEO LAW
Ø Valid rescission – creates an obligation to return the things which were the object of the
contract.
Ø Rescission can only be made when the one who demands it can return whatever he or she
may be obliged to restore.
• If one of the parties has already paid the price pursuant to the contract but has
not yet received what should be delivered to him under the contract, he has
nothing to restore but is entitled to the return of what he or she has paid.
• In a contract of sale, the vendor had lost ownership of the thing sold and cannot
recover it, unless the contract of sale is rescinded and set aside.
• In a contract to sell, the vendor remains the owner for as long as the vendee has
not complied fully with the condition of paying the purchase price. If the vendor
should eject the vendee for failure to meet the condition precedent, he is
enforcing the contract and not rescinding it.
Ø If implied power, you always have to go to court.
Ø Mere casual breach is substantial if time is of the essence.
ART. 1192. IN CASE BOTH PARTIES HAVE COMMITTED A BREACH OF THE OBLIGATION, THE
LIABILITY OF THE FIRST INFRACTOR SHALL BE EQUITABLY TEMPERED BY THE COURTS. IF IT
CANNOT BE DETERMINED WHICH OF THE PARTIES FIRST VIOLATED THE CONTRACT , THE SAME
SHALL BE DEEMED EXTINGUISHED, AND EACH SHALL BEAR HIS OWN DAMAGES.
Ø The liability of the first violator shall be tempered by the court as the injury to the other
party-violator might not have been so great had it not for the subsequent infraction of such
other party-violator. (Doctrine of In pari delicto)
Ø Contravention of the tenor of the contract.
Ø In case of mutual negligence, law on unjust enrichment will prevail.
SECTION TWO: OBLIGATIONS WITH A PERIOD
ART. 1193. OBLIGATIONS FOR WHOSE FULFILLMENT A DAY CERTAIN HAS BEEN FIXED, SHALL
BE DEMANDABLE ONLY WHEN THAT DAY COMES.
OBLIGATIONS WITH A RESOLUTORY PERIOD TAKE EFFECT AT ONCE, BUT TERMINATE UPON
ARRIVAL OF THE DAY CERTAIN.
A DAY CERTAIN IS UNDERSTOOD TO BE THAT WHICH MUST NECESSARILY COME, ALTHOUGH IT
MAY NOT BE KNOWN WHEN.
IF THE UNCERTAINTY CONSISTS IN WHETHER THE DAY WILL COME OR NOT, THE OBLIGATION IS
CONDITIONAL, AND IT SHALL BE REGULATED BY THE RULES OF THE PRECEDING SECTION.
Ø Period – designates a particular time which is certain to happen as the moment when the
obligation will either be effective or be extinguished.
Ø Kinds of Period
1. Suspensive period – gives rise to the effectivity of the obligation upon arrival of
the period.
2. Resolutory period – extinguishes the obligation upon arrival of the period.
Ø While the obligation is constituted at a much earlier date, the effectivity only commences
on a certain future period of time.

Ø A period refers to a day certain.
Ø Day certain – understood to be that which must necessarily come, although it may not be
known when.
Ø The difference between a period and a condition is that, in a period, the day/event will
come but it is uncertain as to when. In a condition, it is uncertain whether the day/event
will even come.
ART. 1194. IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT OF THE THING BEFORE THE
ARRIVAL OF THE DAY CERTAIN, THE RULES IN ARTICLE 1189 SHALL BE OBSERVED .
Ø Rules laid down in Art. 1189:
1. If the thing is lost without the fault of the debtor, the obligation shall be
extinguished;
2. If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages; it is understood that the thing is lost when it perishes, or goes out of
commerce, or disappears in such a way that its existence is unknown or it cannot
be recovered;
3. When the thing deteriorates without the fault of the debtor, the impairment is to
be borne by the creditor;
4. If it deteriorates through the fault of the debtor, the creditor may choose between
the rescission of the obligation and its fulfillment, with indemnity for damages
in either case;
5. If the thing is improved by its nature, or by time, the improvement shall inure to
the benefit of the creditor;
6. If it is improved at the expense of the debtor, he shall have no other right than
that granted to the usufructuary.
ART. 1195. ANYTHING PAID OR DELIVERED BEFORE THE ARRIVAL OF THE PERIOD, THE
OBLIGOR BEING UNAWARE OF THE PERIOD OR BELIEVING THAT THE OBLIGATION HAS BECOME
DUE AND DEMANDABLE, MAY BE RECOVERED WITH THE FRUITS AND INTERESTS.
Ø General Rule: The creditor has no right to obtain the thing until arrival of such period.
• Exception: Unless the debtor and the creditor, with full knowledge of the period,
decide to give and accept the thing to be delivered or the payment.
ART. 1196. WHENEVER IN AN OBLIGATION A PERIOD IS DESIGNATED, IT IS PRESUMED TO HAVE
BEEN ESTABLISHED FOR THE BENEFIT OF BOTH THE CREDITOR AND THE DEBTOR; UNLESS FROM
THE TENOR OF THE SAME OR OTHER CIRCUMSTANCES IT SHOULD APPEAR THAT THE PERIOD
HAS BEEN ESTABLISHED IN FAVOR OF ONE OR OF THE OTHER.
Ø The benefit of the period may be waived by the person in whose favor it was constituted.
20 YAP, K. | ATENEO LAW
ART. 1197. IF THE OBLIGATION DOES NOT FIX A PERIOD BUT FROM ITS NATURE AND THE
CIRCUMSTANCES IT CAN BE INFERRED THAT A PERIOD WAS INTENDED, THE COURTS MAY FIX
THE DURATION THEREOF.
THE COURTS SHALL ALSO FIX THE DURATION OF THE PERIOD WHEN IT DEPENDS UPON THE
WILL OF THE DEBTOR.
IN EVERY CASE, THE COURTS SHALL DETERMINE SUCH PERIOD AS MAY UNDER THE
CIRCUMSTANCES HAVE BEEN PROBABLY CONTEMPLATED BY THE PARTIES. ONCE FIXED BY
THE COURTS, THE PERIOD CANNOT BE CHANGED BY THEM.
Ø Two-step process when the court fixes a period:
1. Determine that the obligation does not fix a period (or that a period is made to
depend upon the will of the debtor), but from the nature and the circumstances it
can be inferred that a period was intended; and
2. Decide what period was probably contemplated by the parties.
Ø Remember that once fixed by the courts, the period cannot be changed by them.
Ø The objectives for the Art. 1197 (3) are:
1. To put a sense of definiteness in an otherwise highly ambiguous situation; and
2. To finally put the parties in a position where their obligations are predictable.
Ø Ex. Lender gives money debtor executes promissory note with interest. Debtor wants to
pay earlier. Creditor declines payment. Debtor files consignment case in court, will it
prosper?
• No. Period is for the benefit of both parties (creditor due to interest, debtor due
to time allotted to pay). Creditor will lose the right to interest if he accepts.
Ø “Term” and “period” are interchangeable.
Ø Difference between condition and period:
1. Condition – uncertain as to whether it will even happen.
2. Period – it will happen, just uncertain as to when exactly.
ART. 1198. THE DEBTOR SHALL LOSE EVERY RIGHT TO MAKE USE OF THE PERIOD:
(1) WHEN AFTER THE OBLIGATION HAS BEEN CONTRACTED, HE BECOMES INSOLVENT,
UNLESS HE GIVES A GUARANTY OR SECURITY FOR THE DEBT;
(2) WHEN HE DOES NOT FURNISH TO THE CREDITOR THE GUARANTIES OR SECURITIES
WHICH HE HAS PROMISED;
(3) WHEN BY HIS OWN ACTS HE HAS IMPAIRED SAID GUARANTIES OR SECURITIES AFTER
THEIR ESTABLISHMENT, AND WHEN THROUGH A FORTUITOUS EVENT THEY
DISAPPEAR, UNLESS HE IMMEDIATELY GIVES NEW ONES EQUALLY SATISFACTORY ;
(4) WHEN THE DEBTOR VIOLATES ANY UNDERTAKING, IN CONSIDERATION OF WHICH
THE CREDITOR AGREED TO THE PERIOD;
(5) WHEN THE DEBTOR ATTEMPTS TO ABSCOND.
Ø Applies whether the period has been contracted for the benefit of the debtor alone or of
both the debtor and the creditor.
Ø Guarantee – a formal promise that certain conditions will be fulfilled.
Ø Securities – negotiable financial instruments that represent some type of financial value. It
may take the form of real-estate mortgages or pledges.
Ø Does not apply to reciprocal obligations because each party is both creditor and debtor.

Ø When after the obligation has been contracted, he becomes insolvent, unless he gives a
guaranty or security for the debt
• Insolvent – may have the resources to pay, but does not have enough resources
to pay when all liabilities fall due; when liabilities are more than the assets.
• Insolvency need not be declared.
• If a debtor has been given up to January 8, 1996 to pay his obligation, and he
becomes insolvent, the creditor need not wait up to January 8, 1996 to demand
payment.
• However, if the debtor asked a third person to guarantee his debt, or if the debtor
puts up his house as collateral for the debt, he will again have the benefit of the
period.
• By putting up the guarantee or security, the interest of the creditor is safeguarded
as he will have other means to satisfy his claim.
Ø When he does not furnish to the creditor the guaranties or securities which he has promised
• Usually, in the event the debtor fails to pay the creditor and the latter has
exhausted all avenues to satisfy his claim against the debtor without any
favorable result, the creditor can turn to the guarantor for payment.
• If the guarantor has committed himself solidarily, the creditor can even go
against the guarantor immediately without need of going against the principal
debtor.
• If the loan is collateralized through the mortgage of a house and the debtor does
not pay, the mortgage will be foreclose, and the house will be sold in a public
bidding and a sufficient amount of the proceeds to satisfy the indebtedness of the
debtor will go to the creditor.
Ø When by his own acts he has impaired said guaranties or securities after their establishment,
and when through a fortuitous event they disappear, unless he immediately gives new ones
equally satisfactory
• The debtor loses the benefit of the period even if the guaranties or securities
disappear through a fortuitous event, unless new ones equally satisfactory are
immediately given.
• If the house used as collateral is hit by lightning, the debtor will still lose the right
to the period unless he gives another house of the same quality as the collateral.
• Ex. A borrows P1,000,000 from bank. House and lot as collateral. A, without
pre-nuptial agreement, marries B then registers the house. Can bank immediately
demand?
§ Yes. A impaired the collateral by marrying B because then also the latter
has an interest in the house.
§ Practical: Wife/husband should sign to protect the interest of the other
party.
Ø When the debtor violates any undertaking, in consideration of which the creditor agreed to
the period
• If the debtor persuaded the creditor to allow him to pay his indebtedness on
March 17, 1998 instead of January 30, 1998 and the creditor agrees because the
debtor, who is a singer, promises the creditor that he (debtor) will sing in his
nightclub for three consecutive nights for only half his talent fee, and the debtor
fails to sing as promised, he loses the right to the period. The creditor can
immediately demand payment of the obligation.
Ø When the debtor attempts to abscond
• If the debtor attempts to flee from his obligations, or to move away to evade
payment of his indebtedness, the debt can be demanded from him immediately.
21 YAP, K. | ATENEO LAW
If the debtor absconds, he may not be heard of again and the creditor cannot
effectively collect his credit.
SECTION THREE: ALTERNATIVE OBLIGATIONS
ART. 1199. A PERSON ALTERNATIVELY BOUND BY DIFFERENT PRESTATIONS SHALL
COMPLETELY PERFORM ONE OF THEM.
THE CREDITOR CANNOT BE COMPELLED TO RECEIVE PART OF ONE AND PART OF THE OTHER
UNDERTAKING.
Ø Partial performance of the different prestations cannot be considered fulfillment of the
obligation and therefore cannot be done unless the creditor accepts such partial
performance as complete performance.
• Ex. If the obligor can either give a house and a car or paint two murals for the
satisfaction of the obligation, he cannot give only the car and one mural. It will
be considered an incomplete satisfaction.
Ø If all but one of the alternatives becomes legally impossible to fulfill, the obligation will
cease to be alternative.
• Ex. Where a loan was payable in Philippine Peso or US Dollars, and the
obligation became due during the Japanese Occupation, payment in US Dollars
was prohibited. Thus, the loan was payable only in Philippine Peso and ceased
to be an alternative obligation.
ART. 1200. THE RIGHT OF CHOICE BELONGS TO THE DEBTOR, UNLESS IT HAS BEEN EXPRESSLY
GRANTED TO THE CREDITOR.
THE DEBTOR SHALL HAVE NO RIGHT TO CHOOSE THOSE PRESTATIONS WHICH ARE IMPOSSIBLE,
UNLAWFUL OR WHICH COULD NOT HAVE BEEN THE OBJECT OF THE OBLIGATION.
Ø The law gives the choice to the debtor because he is the passive subject, thus the one
obliged to give, to do or not to do.
Ø Any doubt as to whom the choice is given must always be interpreted in favor of the debtor.
Ø Only by express grant of choice can a creditor have the right to choose which prestation is
to be performed.
ART. 1201. THE CHOICE SHALL PRODUCE NO EFFECT EXCEPT FROM THE TIME IT HAS BEEN
COMMUNICATED.
Ø The creditor is always entitled to be notified of the choice.
• Communication to the creditor gives effect to the choice.
• The manner by which the communication is made can vary provided that it
clearly conveys the unmistakable choice of the debtor.
Ø When the alternatives are all possible, lawful or consistent with the object of the obligation,
the creditor has no right to oppose the choice.
• However, if some of the prestations are impossible, unlawful or which could not
have been the object of the obligation, the creditor can relay his objection to the
same so that the debtor will know.
• Creditor may only reject choices which are unlawful, impossible, or could not
have been the object of the obligation.
• In any event, the debtor has no right to choose such proscribed alternatives.
ART. 1202. THE DEBTOR SHALL LOSE THE RIGHT OF CHOICE WHEN AMONG THE PRESTATIONS
WHEREBY HE IS ALTERNATIVELY BOUND , ONLY ONE IS PRACTICABLE.
Ø Majority of the choices must be practicable. Otherwise, there will be no use of the various
alternative prestations given.
Ø If only one is practicable, the creditor has no right to complain about such situation because
such affects only the debtor who will lose his right of choice.
Ø Practicable – capable of being done, or simply feasible.
Ø Prestations that are not practicable may also include lawful and possible prestations but,
because of some special attendant circumstances which do not necessarily make them
unlawful or impossible, they cannot be done.
• Ex. The prestation to kiss a leper is lawful, but not practicable as it would
endanger the health of the debtor.
ART. 1203. IF THROUGH THE CREDITOR'S ACTS THE DEBTOR CANNOT MAKE A CHOICE
ACCORDING TO THE TERMS OF THE OBLIGATION, THE LATTER MAY RESCIND THE CONTRACT
WITH DAMAGES.
Ø The debtor will not be liable in any way –
• If he reduces the alternatives from 3 to 2 alternatives, provided what remains are
lawful, practicable, possible or consistent with the object of the obligation.
• If he converts his alternative obligation to a simple one where there is only one
lawful and possible prestation.
• If he causes the loss of the thing, or renders the service impossible.
Ø When the debtor is responsible for losing or rendering all the alternative prestations, the
creditor is entitled to damages.
Ø The last thing which disappeared or become impossible is the basis for indemnity because
had it not been lost nor rendered impossible, it would have been the prestation to be
fulfilled, being the only remaining choice.
ART. 1205. WHEN THE CHOICE HAS BEEN EXPRESSLY GIVEN TO THE CREDITOR, THE
OBLIGATION SHALL CEASE TO BE ALTERNATIVE FROM THE DAY WHEN THE SELECTION HAS
BEEN COMMUNICATED TO THE DEBTOR.
UNTIL THEN THE RESPONSIBILITY OF THE DEBTOR SHALL BE GOVERNED BY THE FOLLOWING
RULES:
(1) IF ONE OF THE THINGS IS LOST THROUGH A FORTUITOUS EVENT, HE SHALL PERFORM THE
OBLIGATION BY DELIVERING THAT WHICH THE CREDITOR SHOULD CHOOSE FROM AMONG THE
REMAINDER, OR THAT WHICH REMAINS IF ONLY ONE SUBSISTS ;
(2) IF THE LOSS OF ONE OF THE THINGS OCCURS THROUGH THE FAULT OF THE DEBTOR, THE
CREDITOR MAY CLAIM ANY OF THOSE SUBSISTING, OR THE PRICE OF THAT WHICH, THROUGH
THE FAULT OF THE FORMER, HAS DISAPPEARED, WITH A RIGHT TO DAMAGES;
(3) IF ALL THE THINGS ARE LOST THROUGH THE FAULT OF THE DEBTOR, THE CHOICE BY THE
CREDITOR SHALL FALL UPON THE PRICE OF ANY ONE OF THEM, ALSO WITH INDEMNITY FOR
DAMAGES.

Ø Ex. The three prestations are (1) to give a particular car; (2) to sing at a particular night THE SAME RULES SHALL BE APPLIED TO OBLIGATIONS TO DO OR NOT TO DO IN CASE ONE,
club; or (3) not to resign from his job. The creditor burns the nightclub where the debtor SOME OR ALL OF THE PRESTATIONS SHOULD BECOME IMPOSSIBLE.
should sing.
• The debtor has been prevented from making a choice from the three alternatives,
due to the fault of the creditor. Ø When the choice is given to the creditor, the conferment of such right must always be
• Thus, the debtor can ask for the rescission of the contract with damages. expressed. Once the choice of the creditor has been communicated to the debtor, the
Ø Remember that the debtor may already rescind the moment one of the alternatives is obligation ceases to be alternative.
rendered impossible by the creditor. Ø For the second instance, the creditor shall be entitled to damages regardless of which
Ø If, despite the act of the creditor, the debtor still wants to maintain the contract, said debtor alternative he chooses.
can make his selection from the remaining choices. Ø The difference between Arts. 1204 and 1205 (3) is that in the latter, the choice was given
to the creditor.
Fig. 3. Effects of Loss
ART. 1204. THE CREDITOR SHALL HAVE A RIGHT TO INDEMNITY FOR DAMAGES WHEN,
Prestation Affected Cause Effect
THROUGH THE FAULT OF THE DEBTOR, ALL THE THINGS WHICH ARE ALTERNATIVELY THE
OBJECT OF THE OBLIGATION HAVE BEEN LOST, OR THE COMPLIANCE OF THE OBLIGATION HAS
Perform any of the
BECOME IMPOSSIBLE.
One of the things is lost Fortuitous event remaining, or that which
subsists
THE INDEMNITY SHALL BE FIXED TAKING AS A BASIS THE VALUE OF THE LAST THING WHICH Creditor may claim any of
DISAPPEARED, OR THAT OF THE SERVICE WHICH LAST BECAME IMPOSSIBLE.
those subsisting, or the price
One of the things is lost Fault of the debtor
of that which was lost, plus
DAMAGES OTHER THAN THE VALUE OF THE LAST THING OR SERVICE MAY ALSO BE AWARDED. damages
Choice of the creditor shall
All things are lost Fault of the debtor fall upon the price of any,
plus damages

22 YAP, K. | ATENEO LAW


ART. 1206. WHEN ONLY ONE PRESTATION HAS BEEN AGREED UPON, BUT THE OBLIGOR MAY
RENDER ANOTHER IN SUBSTITUTION, THE OBLIGATION IS CALLED FACULTATIVE.
THE LOSS OR DETERIORATION OF THE THING INTENDED AS A SUBSTITUTE, THROUGH THE
NEGLIGENCE OF THE OBLIGOR, DOES NOT RENDER HIM LIABLE. BUT ONCE THE SUBSTITUTION
HAS BEEN MADE, THE OBLIGOR IS LIABLE FOR THE LOSS OF THE SUBSTITUTE ON ACCOUNT OF
HIS DELAY, NEGLIGENCE OR FRAUD .
Ø This provision deals with a facultative-alternative obligation.
Ø Undertaking the substitute prestation is not mandatory in the event that the principal
prestation is not performed as the creditor only agrees that it may be given as a substitute.
• If the substitute, however, is given, the creditor cannot refuse it unless it is
unlawful.
• However, there is nothing to prevent the parties from stipulating that the giving
of the substitute prestation is mandatory in the event the principal obligation
cannot be performed.
Ø If the substitute is lost through the negligence of the debtor, it does not affect the principal
obligation and hence the debtor will not be liable.
Ø If there is bad faith on the part of the debtor, it will depend on the situation.
• If the substitute was one of the main reasons which induced the creditor to enter
into the contract with the debtor, but the latter did not really intend to constitute
it as a substitute, this could be an act of fraud on the part of the debtor, which
could make the whole contract voidable.
• Ex. A debtor negotiates with a creditor in order to let the debtor pay the obligation
by giving two cars to the creditor instead of a particular car which is preferred by
the creditor.
§ The creditor resists, but eventually, he on the promise of the debtor to
give not only one but two cars of the same type, which the debtor
represents as owned by him, as substitute prestation in the event that
the principal prestation is not performed.
§ After the signing of the contract and before the fulfillment of the
principal obligation, the creditor learns that the debtor does not own
the cars.
§ The act of the debtor may constitute fraud and the whole contract may
be annulled.
§ If the creditor does not make any move to annul the contract and
accepts the giving of the boat as satisfaction of the obligation, he can
no longer assail the contract as his acceptance cured the defect of said
voidable contract.
§ However, if the promise to give two substitute cars did not constitute
the reason for which the creditor entered into the contract, the debtor
would not be liable for his bad faith if the principal obligation can still
be performed.
23 YAP, K. | ATENEO LAW
SECTION FOUR: JOINT AND SOLIDARY OBLIGATIONS
ART. 1207. THE CONCURRENCE OF TWO OR MORE CREDITORS OR OF TWO OR MORE DEBTORS
IN ONE AND THE SAME OBLIGATION DOES NOT IMPLY THAT EACH ONE OF THE FORMER HAS A
RIGHT TO DEMAND, OR THAT EACH ONE OF THE LATTER IS BOUND TO RENDER, ENTIRE
COMPLIANCE WITH THE PRESTATION. THERE IS A SOLIDARY LIABILITY ONLY WHEN THE
OBLIGATION EXPRESSLY SO STATES, OR WHEN THE LAW OR THE NATURE OF THE OBLIGATION
REQUIRES SOLIDARITY.
Ø Solidary obligation – a situation where there are debts or obligations incurred by two or
more debtors in favor of two or more creditors, and giving anyone, some or all of the
creditors the right to demand from anyone, some or all of the debtors the satisfaction of the
total obligation and not merely the share of each debtor in the debts or obligations.
Ø A solidary obligation exists only:
1. When the obligation expressly so states; or
2. When the law or the nature of the obligation requires solidarity.
Ø Ex. Surety – binds himself to pay the obligation of the debtor when it becomes due. He
becomes a solidary debtor in that the creditor need not go against the principal debtor first
before he can collect from the surety.
Ø A guarantor, by stipulation of the parties, can also make himself solidarily liable for the
indebtedness. Absent such stipulation, the creditor must first exhaust all means to collect
from the principal debtor.
Ø Several obligations – one by which one individual binds himself to perform the whole
obligation.
Ø Other phrases denoting solidary obligation –
• Juntos o separadamente, mancomun o insolidum, jointly and severally
guaranteed, individually and jointly, etc.
• Where the contract reads “I promise.” or “I hereby bind myself,” and is signed
by two or more promisors.
§ Does not apply when both creditor and debtor are exactly named.
• Where the contract reads “I promise to pay” and signed by one person at the
bottom, and another on the back thereof.
§ Does not apply when both creditor and debtor are exactly named.
• “We or either of us,” or “we jointly and severally promise” usually give rise to a
joint and several obligation.
• It must be noted that the debtors who were referred merely as “I” were not
identified in the body or content of the document itself. If identified, it is clear
that the others cannot be held liable as joint and solidary debtors. The rest will
only be treated as witnesses.
Ø If parties stipulate in their contract that the obligation of the obligor is joint and solidary
but such contract was superseded by a judicial decision arising from the said contract
between the parties judicially declaring the obligation to be merely joint, the decision must
be enforced in a joint manner.
Ø If a decision does not state that the obligation of the judgment debtors is solidary, the writ
of execution enforcing such decision cannot be implemented in a solidary manner among
the judgment debtors.
Ø The law can likewise provide for a solidary nature of the obligation. (Ex. Family Code –
Arts. 94 and 121 on the insufficiency of absolute community or conjugal property)
Ø Solidary obligations shall likewise exist if the nature of the obligation requires it.

ART. 1208. IF FROM THE LAW, OR THE NATURE OR THE WORDING OF THE OBLIGATIONS TO
WHICH THE PRECEDING ARTICLE REFERS THE CONTRARY DOES NOT APPEAR, THE CREDIT OR
DEBT SHALL BE PRESUMED TO BE DIVIDED INTO AS MANY SHARES AS THERE ARE CREDITORS
OR DEBTORS, THE CREDITS OR DEBTS BEING CONSIDERED DISTINCT FROM ONE ANOTHER,
SUBJECT TO THE RULES OF COURT GOVERNING THE MULTIPLICITY OF SUITS.
Ø The presumption of the law is that an obligation is always joint.
Ø The joint debtors are obliged to pay only their share in the indebtedness while the creditors
can only claim their share in the credit.
Ø Ex. In a joint obligation, A and B are creditors, C and D are debtors owing the former
P1,000. How much can A collect from D?
• P250 because A and B are each entitled to P500, and C and D owe each creditor
P250.
ART. 1209. IF THE DIVISION IS IMPOSSIBLE, THE RIGHT OF THE CREDITORS MAY BE
PREJUDICED ONLY BY THEIR COLLECTIVE ACTS, AND THE DEBT CAN BE ENFORCED ONLY BY
PROCEEDING AGAINST ALL THE DEBTORS. IF ONE OF THE LATTER SHOULD BE INSOLVENT, THE
OTHERS SHALL NOT BE LIABLE FOR HIS SHARE.
Ø A waiver of the obligation cannot be made by anyone of the creditors unless such waiving-
creditor has been authorized by the others to undertake such act.
Ø Joint indivisible obligation – gives rise to indemnity for damages from the time anyone of
the debtors does not comply with the undertaking.
• Creditors must act collectively; proceeding must be against all debtors. However,
the others shall not be liable for their insolvent co-debtor.
ART. 1210. THE INDIVISIBILITY OF AN OBLIGATION DOES NOT NECESSARILY GIVE RISE TO
SOLIDARITY. NOR DOES SOLIDARITY OF ITSELF IMPLY INDIVISIBILITY.
Ø Solidarity refers to the nature of the obligation attaching to the obligor and obligee, while
indivisibility refers to the nature of the object of the prestation.
Ø Ex. A creditor, B C and D debtor owing P3,000 solidarily. B partially paid P500 of his
share. Can B demand reimbursement from C and D?
• No. The only time when B can demand reimbursement is if he pays more than
his share (at least P1,001).
Ø When is a solidary obligation applied jointly?
1. In case of reimbursement to a co-debtor; and
2. As a personal defense.
ART. 1211. SOLIDARITY MAY EXIST ALTHOUGH THE CREDITORS AND THE DEBTORS MAY NOT
BE BOUND IN THE SAME MANNER AND BY THE SAME PERIODS AND CONDITIONS.
Ø Ex. A, B and C are solidarily indebted to D in the amount of P15,000, D can collect from
anyone of the debtors the whole amount of the indebtedness.
• If A is required to pay only on August 1, 1997, B only on May 1, 1998 and C
immediately, the creditor D can collect from anyone of them the whole amount
of P15,000 at the time when the periods imposed on the particular debtors have
been fulfilled.
24 YAP, K. | ATENEO LAW
• However, if D demands payment from C on January 6, 1997, he can pay only
P5,000 which pertains to his share considering that the liability of A and B has
not yet matured. On August 2, 1997, Creditor D can still demand payment of the
balance from C who can legally pay only P5,000 representing A’s share
considering that B’s liability has not yet matured.
ART. 1212. EACH ONE OF THE SOLIDARY CREDITORS MAY DO WHATEVER MAY BE USEFUL TO
THE OTHERS, BUT NOT ANYTHING WHICH MAY BE PREJUDICIAL TO THE LATTER.
Ø The satisfaction of a judgment obtained against the debtors by one solidary creditor will
discharge their obligation to the other solidary creditor and vice versa.
Ø If one of the solidary creditors makes an extra-judicial demand for the debtor to pay, this
will benefit also the other creditors as the demand will effectively make the prescriptive
period for the fulfillment of the obligation run anew.
Ø The solidary creditor however should not do anything which may be prejudicial to the other
solidary creditors.
• Non-acceptance is clearly prejudicial to the other solidary creditors, as it would
lead to a delay or default on the part of the creditors for which they may be held
liable.
• The fact that the other solidary creditors were prejudiced will not invalidate the
extinguishment of the obligation. Their remedy is to collect their share of the
indebtedness from the solidary creditor who made the remission.
ART. 1213. A SOLIDARY CREDITOR CANNOT ASSIGN HIS RIGHTS WITHOUT THE CONSENT OF
THE OTHERS.
Ø Ideally, the relationship between and among solidary creditors is one of mutual trust.
ART. 1214. THE DEBTOR MAY PAY ANY ONE OF THE SOLIDARY CREDITORS; BUT IF ANY
DEMAND, JUDICIAL OR EXTRAJUDICIAL, HAS BEEN MADE BY ONE OF THEM, PAYMENT SHOULD
BE MADE TO HIM.
Ø Once a court case has been filed by one solidary creditor, the debtor cannot pay the other
solidary creditor who is not included in the case.
Ø As soon as one of the creditors make the demand, the mutual representation of the creditors
with respect to each other, which is the basis of a solidary obligation, momentarily ceases,
and therefore the debtor must only pay the one who, at the moment of demand, seeks the
full payment of the obligation.
Ø Opinion of Dean Sta. Maria: The better rule is to make payment to the other non-
demanding creditors valid. It must be noted that Art. 1214 does not by itself expressly make
invalid or void payment to the other non-demanding creditors.
• It must be interpreted merely as giving a preference to the demanding-creditor
without necessarily curtailing the rights of the other creditors to be paid or the
right of the debtor to pay the other creditors their rightful due.
• Applying Art. 1214 in this manner will also be consistent with Art. 1222 which
provides that a solidary debtor may, in actions filed by the creditor, avail himself
of all defenses which are derived from the nature of the obligation and of those
which are personal to him, or pertain to his own share.


ART. 1215. NOVATION, COMPENSATION, CONFUSION OR REMISSION OF THE DEBT, MADE BY Ø The choice is left to the solidary creditor to determine against whom he will enforce
ANY OF THE SOLIDARY CREDITORS OR WITH ANY OF THE SOLIDARY DEBTORS, SHALL
payment.
EXTINGUISH THE OBLIGATION, WITHOUT PREJUDICE TO THE PROVISIONS OF ARTICLE 1219.
Ø Ex. A, B, C are solidary debtors of D for P1,5000 due on March 1. D collects payment of
P1,500 from A. Obligation is extinguished.
THE CREDITOR WHO MAY HAVE EXECUTED ANY OF THESE ACTS, AS WELL AS HE WHO • A can now collect P500 from B and P500 from C, their corresponding shares.
COLLECTS THE DEBT, SHALL BE LIABLE TO THE OTHERS FOR THE SHARE IN THE OBLIGATION • If A paid interest, it shall likewise be collected from B and C. However, if A paid
CORRESPONDING TO THEM. on February 1, A cannot collect the same.
• If C becomes insolvent, A and B will bear the share of C, P500. A and B will be
liable for P250.
Ø The modes of extinguishing an obligation are –
1. Novation – the change of creditors, debtors or the principal condition of the
contract. The novation must however be clear to release the solidary obligation ART. 1218. PAYMENT BY A SOLIDARY DEBTOR SHALL NOT ENTITLE HIM TO REIMBURSEMENT
FROM HIS CO- DEBTORS IF SUCH PAYMENT IS MADE AFTER THE OBLIGATION HAS PRESCRIBED
of the debtors.
OR BECOME ILLEGAL.
2. Compensation – when two persons, in their own right, are creditors and debtors
of each other.
3. Confusion – the merger of the characters of creditor and debtor in the same
Ø Ex. A and B are solidary debtors in a loan agreement due on March 1. Creditor demanded
person. (Ex. A owes B P5,000. B dies and in his will makes A the only heir. The
on March 1, but collected only 12 years after.
debt is extinguished because A is both debtor to the estate, and the estate is debtor
• If A pays the creditor thereafter, A cannot claim reimbursement from B because
to A as sole heir.)
4. Remission – the condonation of an obligation. the same had prescribed prior to payment.

ART. 1216. THE CREDITOR MAY PROCEED AGAINST ANY ONE OF THE SOLIDARY DEBTORS OR ART. 1219. THE REMISSION MADE BY THE CREDITOR OF THE SHARE WHICH AFFECTS ONE OF
THE SOLIDARY DEBTORS DOES NOT RELEASE THE LATTER FROM HIS RESPONSIBILITY TOWARDS
SOME OR ALL OF THEM SIMULTANEOUSLY. THE DEMAND MADE AGAINST ONE OF THEM SHALL
THE CO-DEBTORS, IN CASE THE DEBT HAD BEEN TOTALLY PAID BY ANYONE OF THEM BEFORE
NOT BE AN OBSTACLE TO THOSE WHICH MAY SUBSEQUENTLY BE DIRECTED AGAINST THE
THE REMISSION WAS EFFECTED.
OTHERS, SO LONG AS THE DEBT HAS NOT BEEN FULLY COLLECTED.

ART. 1220. THE REMISSION OF THE WHOLE OBLIGATION, OBTAINED BY ONE OF THE SOLIDARY
Ø Joint obligation – each of the debtors is liable only for a proportionate part of the debt and
DEBTORS, DOES NOT ENTITLE HIM TO REIMBURSEMENT FROM HIS CO -DEBTORS.
the creditor is entitled only to a proportionate part of the credit.

Ø Solidary obligation – the creditor may enforce the entire obligation against one of the
debtors.
Ø The consequences of remission in favor of anyone of the solidary debtors depend upon the
Ø Joint and several obligation – each of the debtors is answerable for the whole obligation
time when the remission was in fact given by the creditor.
with the right to seek contribution from his co-debtors.
Ø Ex. A, B, and C are solidarily liable to D for P1,500. If A convinces D to condone, it will
Ø The solidary creditor has a right not to accept partial payment from the solidary debtors.
also benefit B and C.
However, if he does accept partial payment from some of them, this will not prevent him
1. A cannot thereafter collect from B and C.
from demanding or claiming from the others who have not actually paid.
2. If C, however, paid when the debt became due, and A convinced D to condone
thereafter, C can still claim from A because the time it was condoned, the debt
ART. 1217. PAYMENT MADE BY ONE OF THE SOLIDARY DEBTORS EXTINGUISHES THE was already extinguished.
OBLIGATION. IF TWO OR MORE SOLIDARY DEBTORS OFFER TO PAY, THE CREDITOR MAY Ø Art. 1219 is applicable only when there is one creditor. If there are many solidary creditors
CHOOSE WHICH OFFER TO ACCEPT. involved, remission of the debt by one of the said creditors without the consent of the others
will constitute an act which is prejudicial to the other solidary creditors and therefore,
HE WHO MADE THE PAYMENT MAY CLAIM FROM HIS CO-DEBTORS ONLY THE SHARE WHICH violative of Art. 1212.
CORRESPONDS TO EACH, WITH THE INTEREST FOR THE PAYMENT ALREADY MADE. IF THE
PAYMENT IS MADE BEFORE THE DEBT IS DUE , NO INTEREST FOR THE INTERVENING PERIOD MAY
BE DEMANDED.

WHEN ONE OF THE SOLIDARY DEBTORS CANNOT, BECAUSE OF HIS INSOLVENCY, REIMBURSE
HIS SHARE TO THE DEBTOR PAYING THE OBLIGATION, SUCH SHARE SHALL BE BORNE BY ALL
HIS CO-DEBTORS , IN PROPORTION TO THE DEBT OF EACH.

25 YAP, K. | ATENEO LAW


ART. 1221. IF THE THING HAS BEEN LOST OR IF THE PRESTATION HAS BECOME IMPOSSIBLE
WITHOUT THE FAULT OF THE SOLIDARY DEBTORS, THE OBLIGATION SHALL BE EXTINGUISHED.
IF THERE WAS FAULT ON THE PART OF ANY ONE OF THEM, ALL SHALL BE RESPONSIBLE TO THE
CREDITOR, FOR THE PRICE AND THE PAYMENT OF DAMAGES AND INTEREST, WITHOUT
PREJUDICE TO THEIR ACTION AGAINST THE GUILTY OR NEGLIGENT DEBTOR.
IF THROUGH A FORTUITOUS EVENT, THE THING IS LOST OR THE PERFORMANCE HAS BECOME
IMPOSSIBLE AFTER ONE OF THE SOLIDARY DEBTORS HAS INCURRED IN DELAY THROUGH THE
JUDICIAL OR EXTRAJUDICIAL DEMAND UPON HIM BY THE CREDITOR, THE PROVISIONS OF THE
PRECEDING PARAGRAPH SHALL APPLY. for damages.
Ø The solidary debtors will be relived from their obligation if the thing is lost or the prestation
becomes impossible without their fault.
• However, if one of them is at fault or if there is previous delay on the part of
anyone of the solidary debtor before the loss or impossibility of the prestation
due to fortuitous event, all the solidary debtors will still be held liable. Thereafter,
the co-debtors may file an action against the negligent debtor.
ART. 1222. A SOLIDARY DEBTOR MAY, IN ACTIONS FILED BY THE CREDITOR, AVAIL HIMSELF
OF ALL DEFENSES WHICH ARE DERIVED FROM THE NATURE OF THE OBLIGATION AND OF THOSE
WHICH ARE PERSONAL TO HIM, OR PERTAIN TO HIS OWN SHARE. WITH RESPECT TO THOSE
WHICH PERSONALLY BELONG TO THE OTHERS, HE MAY AVAIL HIMSELF THEREOF ONLY AS
REGARDS THAT PART OF THE DEBT FOR WHICH THE LATTER ARE RESPONSIBLE. CHARACTER OF THE PRESTATION IN EACH PARTICULAR CASE.
Ø The solidary debtor may set up defenses personal to him or to his co-debtor with respect to
the whole obligation or to only a part thereof which pertains to the respective share/s of the
co-debtor/s in the obligation.
Ø Ex. A, B, and C are solidarily liable to D P1,500 with the following conditions: A shall pay
when he reaches 18 years old; B shall pay when he passes the 1996 Bar Exam; and C shall
pay on January 2, 1997.
o If B passes the Bar in 1996, and D collects from hi, B can set up defense in favor
of C because it is not yet 1997, and A because A was a minor at the time the
obligation was constituted. Nevertheless, B still has to pay P500 as for his share.
SECTION FIVE: DIVISIBLE AND INDIVISIBLE OBLIGATIONS
ART. 1223. THE DIVISIBILITY OR INDIVISIBILITY OF THE THINGS THAT ARE THE OBJECT OF
OBLIGATIONS IN WHICH THERE IS ONLY ONE DEBTOR AND ONLY ONE CREDITOR DOES NOT
ALTER OR MODIFY THE PROVISIONS OF CHAPTER 2 OF THIS TITLE.
ART. 1224. A JOINT INDIVISIBLE OBLIGATION GIVES RISE TO INDEMNITY FOR DAMAGES FROM
THE TIME ANYONE OF THE DEBTORS DOES NOT COMPLY WITH HIS UNDERTAKING. THE
DEBTORS WHO MAY HAVE BEEN READY TO FULFILL THEIR PROMISES SHALL NOT CONTRIBUTE
TO THE INDEMNITY BEYOND THE CORRESPONDING PORTION OF THE PRICE OF THE THING OR OF
THE VALUE OF THE SERVICE IN WHICH THE OBLIGATION CONSISTS .
26 YAP, K. | ATENEO LAW
Ø Joint debtors are only bound to perform their respective portion in a particular
indebtedness.
• If their obligation is divisible, a creditor may demand from each joint obligor
payment of his respective share of the obligation.
• If the obligation is indivisible, each debtor must coordinate with the rest of the
debtors for the fulfillment of the obligation.
• Ex. A, B, and C are jointly liable to D for a computer worth P30,000. D demands
and A and B are ready to fulfill. C, however, for not good reason, is not.
• D can now file for damages against A, B, and C. A and B are only
liable to the extent of the price of the computer. Only C may be liable
ART. 1225. FOR THE PURPOSES OF THE PRECEDING ARTICLES, OBLIGATIONS TO GIVE DEFINITE
THINGS AND THOSE WHICH ARE NOT SUSCEPTIBLE OF PARTIAL PERFORMANCE SHALL BE
DEEMED TO BE INDIVISIBLE.
WHEN THE OBLIGATION HAS FOR ITS OBJECT THE EXECUTION OF A CERTAIN NUMBER OF DAYS
OF WORK, THE ACCOMPLISHMENT OF WORK BY METRICAL UNITS, OR ANALOGOUS THINGS
WHICH BY THEIR NATURE ARE SUSCEPTIBLE OF PARTIAL PERFORMANCE, IT SHALL BE
DIVISIBLE.
HOWEVER, EVEN THOUGH THE OBJECT OR SERVICE MAY BE PHYSICALLY DIVISIBLE, AN
OBLIGATION IS INDIVISIBLE IF SO PROVIDED BY LAW OR INTENDED BY THE PARTIES.
IN OBLIGATIONS NOT TO DO, DIVISIBILITY OR INDIVISIBILITY SHALL BE DETERMINED BY THE
Ø Indivisible obligation – an obligation which is not susceptible of partial performance.
Ø Divisible obligation – an obligation has for its object the execution of a certain number of
days of work, the accomplishment of work by metrical units, or analogous things, which
by their nature are susceptible of partial performance.
Ø The wording of the contract will be very material to show the characterization of the
obligation.
SECTION SIX: OBLIGATIONS WITH A PENAL CLAUSE
ART. 1226. IN OBLIGATIONS WITH A PENAL CLAUSE , THE PENALTY SHALL SUBSTITUTE THE
INDEMNITY FOR DAMAGES AND THE PAYMENT OF INTERESTS IN CASE OF NONCOMPLIANCE , IF
THERE IS NO STIPULATION TO THE CONTRARY . NEVERTHELESS, DAMAGES SHALL BE PAID IF
THE OBLIGOR REFUSES TO PAY THE PENALTY OR IS GUILTY OF FRAUD IN THE FULFILLMENT OF
THE OBLIGATION.
THE PENALTY MAY BE ENFORCED ONLY WHEN IT IS DEMANDABLE IN ACCORDANCE WITH THE
PROVISIONS OF THIS CODE.
Ø Penal clause – an accessory obligation which the parties attach to the principal obligation
for the purpose of insuring the performance thereof by imposing on the debtor a special
prestation in case the obligation is not fulfilled or is irregularly or inadequately fulfilled.
Ø If the principal obligation has been complied with, the penal clause has lost its efficacy or
applicability.

Ø The application of the penal clause may be governed by the stipulation of both parties.
Otherwise, Art. 1226 will apply.
Ø Absent any stipulation, the law will apply. Thus, penalty clause will substitute:
1. Any claim for damages; and
2. Payment of interest.
Ø Penalty vis-à-vis liquidated damages in foreign jurisdictions –
• A penalty needs proof of loss, but liquidated damages may be made without proof
of loss.
• In the Philippines, in either case, the party to whom payment is to be made is
entitled to recover the sum stipulated without the necessity of proving damages.
Ø Liquidated damages – amount which has been designated by the parties during the
formulation of the contract for the injured party to collect upon a specific breach.
• Does imposition of the liquidated damages for breach of contract bar any award
for additional damages for the same breach?
§ The parties may stipulate such bar.
Ø The purpose of the penalty is to highlight the mandatory and important character of an
obligation which should be fulfilled.
Ø The penal clause may be in any form which is determined or liquidated.
Ø The penalty may be claimed only when there is demand, whether judicial or extra-judicial,
unless the law, the stipulation of the parties or the nature of the contract otherwise demands.
Ø Percentage is allowed so long as the penalty is determinable.
Ø Generally, the penalty clause substitutes the general law on damages.
• Exception: By stipulation that the general law on damages shall also apply. (Ex.
“…without prejudice to any claim for damages.”)
ART. 1227. THE DEBTOR CANNOT EXEMPT HIMSELF FROM THE PERFORMANCE OF THE
OBLIGATION BY PAYING THE PENALTY, SAVE IN THE CASE WHERE THIS RIGHT HAS BEEN
EXPRESSLY RESERVED FOR HIM. NEITHER CAN THE CREDITOR DEMAND THE FULFILLMENT OF
THE OBLIGATION AND THE SATISFACTION OF THE PENALTY AT THE SAME TIME, UNLESS THIS
RIGHT HAS BEEN CLEARLY GRANTED HIM. HOWEVER, IF AFTER THE CREDITOR HAS DECIDED
TO REQUIRE THE FULFILLMENT OF THE OBLIGATION, THE PERFORMANCE THEREOF SHOULD
BECOME IMPOSSIBLE WITHOUT HIS FAULT, THE PENALTY MAY BE ENFORCED.
Ø The payment of the penalty is merely an accessory obligation.
Ø Once the obligation has been complied with and extinguished, the penal clause has lost its
raison diêtre (the most important reason for someone or something’s existence).
• Nevertheless, the parties can stipulate in their contract that payment of the
penalty, and satisfaction of the obligation can be demanded at the same time.
ART. 1228. PROOF OF ACTUAL DAMAGES SUFFERED BY THE CREDITOR IS NOT NECESSARY IN
ORDER THAT THE PENALTY MAY BE DEMANDED.
Ø Payment of the penalty in the penal clause is mandatory as long as there is irregular or no
compliance with the principal obligation regardless of whether or not the person seeking it
suffers damages.
27 YAP, K. | ATENEO LAW
ART. 1229. THE JUDGE SHALL EQUITABLY REDUCE THE PENALTY WHEN THE PRINCIPAL
OBLIGATION HAS BEEN PARTLY OR IRREGULARLY COMPLIED WITH BY THE DEBTOR. EVEN IF
THERE HAS BEEN NO PERFORMANCE , THE PENALTY MAY ALSO BE REDUCED BY THE COURTS IF
IT IS INIQUITOUS OR UNCONSCIONABLE.
Ø General Rule: Neither the law nor the courts will extricate a party from an unwise or
undesirable contract he or she entered into with (1) all the required formalities and with (2)
full awareness of its consequences.
o Exception: If the penal clause is unconscionable, the court may temper, reduce
or, in some cases, delete it.
Ø Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.
Ø In obligations with a penal clause, the judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the debtor.
Ø In cases where there has been a partial or irregular compliance with the provisions in a
contract for special indemnification in the event of failure to comply with its terms, the
courts will rigidly apply the doctrine of strict construction and against the enforcement in
its entirety of the indemnification, where it is clear from the terms of the contract that the
amount or character of the indemnity is fixed without regard to the probable damages which
might be anticipated as a result of a breach of the terms of the contract.
Ø Penal clauses are construed against the one enforcing it. If it is so unconscionable as to
constitute an undue deprivation or confiscation of the property of the obligor, the courts
can strike it down as an invalid one.
ART. 1230. THE NULLITY OF THE PENAL CLAUSE DOES NOT CARRY WITH IT THAT OF THE
PRINCIPAL OBLIGATION.
THE NULLITY OF THE PRINCIPAL OBLIGATION CARRIES WITH IT THAT OF THE PENAL CLAUSE .
Ø The penal clause could never exist if the main obligation does not exist.
CHAPTER 4: EXTINGUISHMENT OF OBLIGATIONS
GENERAL PROVISIONS
ART. 1231. OBLIGATIONS ARE EXTINGUISHED:
(1) BY PAYMENT OR PERFORMANCE;
(2) BY THE LOSS OF THE THING DUE;
(3) BY THE CONDONATION OR REMISSION OF THE DEBT;
(4) BY THE CONFUSION OR MERGER OF THE RIGHTS OF CREDITOR AND DEBTOR;
(5) BY COMPENSATION;
(6) BY NOVATION.
OTHER CAUSES OF EXTINGUISHMENT OF OBLIGATIONS, SUCH AS ANNULMENT, RESCISSION,
FULFILLMENT OF A RESOLUTORY CONDITION, AND PRESCRIPTION, ARE GOVERNED ELSEWHERE
IN THIS CODE.

Ø Modes of extinguishing obligations: Ø Complete delivery/service – comprises everything that is necessary to satisfy the obligation
1. Payment or performance consistent with the object of the same.
2. Loss of the thing due Ø Anything les than a complete performance may essentially be considered a breach of the
3. Condonation or remission of debt obligation.
4. Confusion or merger of the rights of creditor and debtor
5. Compensation ART. 1234. IF THE OBLIGATION HAS BEEN SUBSTANTIALLY PERFORMED IN GOOD FAITH, THE
6. Novation OBLIGOR MAY RECOVER AS THOUGH THERE HAD BEEN A STRICT AND COMPLETE
7. Annulment FULFILLMENT, LESS DAMAGES SUFFERED BY THE OBLIGEE.
8. Rescission
9. Fulfillment of resolutory condition
10. Prescription
Ø For the doctrine of substantial performance to apply, the part unperformed must not destroy
Ø Death of a party does not extinguish an obligation unless the obligation is personal in nature
the value or purpose of the contract. Provided further, that the substantial performance has
or intransmissible.
been done in good faith.
• Death of a party does not excuse non-performance of a contract which involves
• Contemporary view: even a conscious and intentional departure from the contract
a property right.
specifications will not necessarily defeat recovery, but may be considered as one
• In criminal actions, the death of the offender generally extinguishes the crime, of the several factors involved in deciding whether there has been full
which in turn, extinguishes the liability. performance.
§ Exceptions:
• Other factors in deciding whether there has been substantial performance
1. If the death occurs after final judgment
1. Extent to which the owner will be deprived of a reasonably expected
2. If the civil liability is independent from the criminal liability
benefit; and
2. Extent to which the builder may suffer forfeiture.
SECTION ONE: PAYMENT OR PERFORMANCE
Ø Measure of damages:
• the difference between the value substantially performed and the value it would
ART. 1232. PAYMENT MEANS NOT ONLY THE DELIVERY OF MONEY BUT ALSO THE have had had the performance been done strictly according to the contract; or
PERFORMANCE, IN ANY OTHER MANNER, OF AN OBLIGATION. • Contract price les the cost of correction of the defects of the unfinished work.

Ø Payment means:
1. Delivery of money; and
2. Performance of an obligation.
Ø Obligation to pay by the delivery of money means obligation to pay by delivering that
which the law recognizes as money at the time of payment.
Ø Payment is not exclusively limited to the giving of money, but also includes any manner
of performing the obligation with the end in view of extinguishing it.
Ø Presumptions in payment (Art. 1176, Civil Code):
1. The receipt of the principal by the creditor, without reservation with respect to
the interest, shall give rise to the presumption that said interest has been paid;
and
2. The receipt of a later installment, without reservation as to those prior, shall
likewise give rise to the presumption that the prior installments have been paid.
Ø The burden of proof to show payment once the debt has been fully established by evidence
is on the debtor.
• Promissory note in the hands of the creditor are proofs of indebtedness rather
than proofs of payment. (Biala v. CA, 1990)
ART. 1233. A DEBT SHALL NOT BE UNDERSTOOD TO HAVE BEEN PAID UNLESS THE THING OR
SERVICE IN WHICH THE OBLIGATION CONSISTS HAS BEEN COMPLETELY DELIVERED OR
RENDERED, AS THE CASE MAY BE . Ø
ART. 1235. WHEN THE OBLIGEE ACCEPTS THE PERFORMANCE, KNOWING ITS INCOMPLETENESS
OR IRREGULARITY, AND WITHOUT EXPRESSING ANY PROTEST OR OBJECTION, THE OBLIGATION
IS DEEMED FULLY COMPLIED WITH.
Ø Obligation is deemed complied with if:
1. Obligee accepts performance;
2. Knowledge of incompleteness or irregularity; and
3. No protest or objection on the part of obligee.
Ø The substantial compliance contemplated herewith connotes the waiver of the oblige of
damages arising from the breach of contract which resulted in the incompleteness or
irregularity of the obligation.
Ø Accept – to take as satisfactory or sufficient, or to give assent to, or to agree or accede to
an incomplete or irregular performance.
Ø So long as the acts of the creditor, at the time of the incomplete or irregular payment by the
debtor, or within a reasonable time thereafter, evince that the former is not satisfied with
or agreeable to said payment or performance, the obligation shall not be deemed fully
extinguished.
Ø Implied acceptance – if a party fails to interpose any objection to the entries or conditions
in an invoice furnished to him by the other party, he will be liable to pay the amount stated
therein.
Involves a waiver of damages.

Ø Payment – full satisfaction of the debt or the obligation.

28 YAP, K. | ATENEO LAW


ART. 1236. THE CREDITOR IS NOT BOUND TO ACCEPT PAYMENT OR PERFORMANCE BY A THIRD • If the creditor accepts payment from a third person because this has been allowed
PERSON WHO HAS NO INTEREST IN THE FULFILLMENT OF THE OBLIGATION, UNLESS THERE IS A in his contract with the debtor, then clearly the debtor agrees with such payment
STIPULATION TO THE CONTRARY . beforehand, and therefore the effect is the same as no. 3.
• If the third person pays the creditor without intending to be reimbursed by the
WHOEVER PAYS FOR ANOTHER MAY DEMAND FROM THE DEBTOR WHAT HE HAS PAID, EXCEPT debtor, the obligation is extinguished whether or not the consent of the debtor is
THAT IF HE PAID WITHOUT THE KNOWLEDGE OR AGAINST THE WILL OF THE DEBTOR, HE CAN obtained.
RECOVER ONLY INSOFAR AS THE PAYMENT HAS BEEN BENEFICIAL TO THE DEBTOR. § Payment will be treated as a donation which requires the debtor’s
consent.
§ If the debtor does not consent to the payment, the obligation will still
• Ex. A is liable to B for P1,000. C, a third person, pays P1,000 to B on behalf of A, without be extinguished insofar as the creditor is concerned.
A’s knowledge.
• C can only reimburse insofar as benefit has redounded to A.
ART. 1239. IN OBLIGATIONS TO GIVE, PAYMENT MADE BY ONE WHO DOES NOT HAVE THE FREE
DISPOSAL OF THE THING DUE AND CAPACITY TO ALIENATE IT SHALL NOT BE VALID, WITHOUT
ART. 1237. WHOEVER PAYS ON BEHALF OF THE DEBTOR WITHOUT THE KNOWLEDGE OR PREJUDICE TO THE PROVISIONS OF ARTICLE 1427 UNDER THE TITLE ON "NATURAL
AGAINST THE WILL OF THE LATTER, CANNOT COMPEL THE CREDITOR TO SUBROGATE HIM IN OBLIGATIONS."
HIS RIGHTS, SUCH AS THOSE ARISING FROM A MORTGAGE , GUARANTY, OR PENALTY.

Ø Free disposal of the thing due / capacity to alienate – can be done by an individual only if
he is the owner of the thing or has been given authority by the owner to use the property as
ART. 1238. PAYMENT MADE BY A THIRD PERSON WHO DOES NOT INTEND TO BE REIMBURSED
payment for the obligation “to give.”
BY THE DEBTOR IS DEEMED TO BE A DONATION, WHICH REQUIRES THE DEBTOR'S CONSENT.
Ø General Rule: Any contract entered into by a minor with respect to the alienation of
BUT THE PAYMENT IS IN ANY CASE VALID AS TO THE CREDITOR WHO HAS ACCEPTED IT.
something which he owns is annullable.
• Exception: Art. 1247. A minor has no right to recover any fungible thing used as
Ø Payment by a third person and accepted by the creditor can extinguish an indebtedness or payment for an obligation from the creditor who has spent or consumed it in good
an obligation. faith.
Ø Good faith or bad faith of the third person is immaterial.
Ø Whether the third party acquires the rights of the creditor as against the debtor depends on ART. 1240. PAYMENT SHALL BE MADE TO THE PERSON IN WHOSE FAVOR THE OBLIGATION HAS
whether payment was made without the knowledge of the debtor or against the will of the BEEN CONSTITUTED, OR HIS SUCCESSOR IN INTEREST, OR ANY PERSON AUTHORIZED TO
debtor. RECEIVE IT.
Ø As to what is beneficial to the debtor can be invoked only by such debtor, but whether it is
beneficial is determined by law and not the will of the debtor.
Ø Payment shall only be made to:
1. The beneficial effects must be determined at the time the payment was made.
1. Creditor or oblige
Ø The following situations may arise:
2. Successors-in-interest
• If a third person pays the creditor without the knowledge or against the will of
3. Any person authorized to receive it
the debtor, the third person can only recover from the debtor to the extent that
§ A person authorized by the same creditor or authorized by law (ex.
the debtor has been benefited.
guardian).
§ Legal subrogation – transfers to the person subrogated the credit with
all the rights thereto appertaining, either against the debtor or against
third persons, be they guarantors, or possessors of mortgages. ART. 1241. PAYMENT TO A PERSON WHO IS INCAPACITATED TO ADMINISTER HIS PROPERTY
§ If the third party who paid has an interest in the obligation, such as a SHALL BE VALID IF HE HAS KEPT THE THING DELIVERED, OR INSOFAR AS THE PAYMENT HAS
guarantor, surety, or co-debtor, legal subrogation is presumed. BEEN BENEFICIAL TO HIM.
• If a third person pays the creditor with the knowledge of the debtor, but over the
debtor’s objection, then the effect is the same as no. 1 because the situation is PAYMENT MADE TO A THIRD PERSON SHALL ALSO BE VALID INSOFAR AS IT HAS REDOUNDED
clearly against the will of the debtor. TO THE BENEFIT OF THE CREDITOR. SUCH BENEFIT TO THE CREDITOR NEED NOT BE PROVED IN
• If the third person pays the creditor with the knowledge and consent of the debtor, THE FOLLOWING CASES :
the third person can recover from the debtor the amount he has paid to the
creditor. He can likewise compel the creditor to transfer to him any guaranty or (1) IF AFTER THE PAYMENT, THE THIRD PERSON ACQUIRES THE CREDITOR'S RIGHTS;
penalty. (2) IF THE CREDITOR RATIFIES THE PAYMENT TO THE THIRD PERSON;
§ In this case there is legal subrogation. (3) IF BY THE CREDITOR'S CONDUCT, THE DEBTOR HAS BEEN LED TO BELIEVE THAT THE THIRD
PERSON HAD AUTHORITY TO RECEIVE THE PAYMENT.

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Ø For an incapacitated person to be able to administer his property and to be able to transact ART. 1244. THE DEBTOR OF A THING CANNOT COMPEL THE CREDITOR TO RECEIVE A
business, the court must appoint a guardian to handle his affairs. DIFFERENT ONE, ALTHOUGH THE LATTER MAY BE OF THE SAME VALUE AS, OR MORE
• Parents of a minor, however, shall be the legal guardians of the property of the VALUABLE THAN THAT WHICH IS DUE.
minor without need of court appointment.
Ø Two situations when payment made to an incapacitated person is effective: IN OBLIGATIONS TO DO OR NOT TO DO, AN ACT OR FORBEARANCE CANNOT BE SUBSTITUTED
1. When he has kept the thing delivered by the time he reaches the age of majority. BY ANOTHER ACT OR FORBEARANCE AGAINST THE OBLIGEE'S WILL.
§ This act of holding on to the thing is considered as a ratification of the
payment which cured its irregularity.
2. Insofar as the payment is beneficial to him.
§ Ex. When the minor uses it to pay his school tuition fees. Ø Unless the prestation is subject o an alternative or facultative condition, a debtor has no
Ø In paying to an incapacitated person under a voidable contract, the capacitated person, who choice in the payment of his obligations except by giving what has been agreed upon by
may have even acted in good faith, is at a disadvantage in two ways: the parties.
• The capacitated person cannot ask for the annulment of the contract on the basis
of the incapacity of the other party. ART. 1245. DATION IN PAYMENT, WHEREBY PROPERTY IS ALIENATED TO THE CREDITOR IN
• In the event that the contract is annulled, the incapacitated person is not obliged SATISFACTION OF A DEBT IN MONEY, SHALL BE GOVERNED BY THE LAW OF SALES.
to make restitution except insofar as he has been benefited by the thing or price
received by him.
Ø Dation (Dacion en Pago) – the delivery and transmission of ownership of a thing by the
Ø If payment to a third person is made in favor of the creditor, such payment shall be effective
debtor to creditor as an accepted equivalent of the performance of an obligation. It involves
only insofar as it has redounded to the benefit of the creditor.
a change in the object of the contract/obligation.
Ø 3 cases when benefit to the creditor need not be proven:
Ø Elements of a valid dation in payment:
1. If after payment, the third person acquires the creditor’s rights.
1. Performance of the prestation in lieu of payment (animo solvendi)
§ A is indebted to B for P1,000. A does not pay be on the due date,
2. Difference between the prestation due and the substitute (aliud pro alio)
therefore interest accrues. A makes pays the principal amount to X.
3. Agreement between the creditor and debtor that the obligation is immediately
The payment is not effective.
extinguished by reason of the performance of the substitute.
• However, if B empowers X to also receive the payment of § Agreement may be:
the interest for himself, then the benefit to the creditor need 1. Express;
not be proven since X has acquired B’s rights. 2. Implied; or
2. When the creditor ratifies the payment to the originally unauthorized third person. 3. By silence.
§ When B, after learning that payment was made to X, approves of the Ø Elements of Pactum comissorium:
payment to the latter, the debt is extinguished. 1. There must be a creditor-debtor relationship between the parties
3. When by the creditor’s conduct, the debtor has been led to believe that the third 2. The property of the debtor was used as security fo the loan
person has authority to receive the payment. (Estoppel) 3. There was automatic appropriation of the property upon non-payment by the
§ B tells A that he can transact business with X, including the P1,000 debtor
indebtedness, and A pays X. B is estopped from claiming that X had Ø Mere repossession of machinery and equipment as security is not a dation in payment.
no authority to accept payment. (PNB v. Pineda, 1991)
Ø Dacion en Pago Pactum commisorium
ART. 1242. PAYMENT MADE IN GOOD FAITH TO ANY PERSON IN POSSESSION OF THE CREDIT
• Before the creditor becomes the • The parties agree generally in one
SHALL RELEASE THE DEBTOR.
owner of the property collateralized single contract, that, in the event
to secure the debt, an intervening that the debtor fails to pay the debt,
Ø A person in possession of the credit is presumed to own the credit. agreement subsequent and the mortgaged or pledged property
Ø The risk is always on the creditor provided payment is made by the debtor in good faith. independent from the original of the debtor shall automatically
Ø This is an exception to the general rule that the debtor is obliged to pay only the creditor. contract is entered into by the creditor be appropriated or owned by the
and the debtor to have the property creditor.
collateralized in the original • Pactum commisorioum is void in
ART. 1243. PAYMENT MADE TO THE CREDITOR BY THE DEBTOR AFTER THE LATTER HAS BEEN
agreement as payment of the debt, accordance with Art. 2088 of the
JUDICIALLY ORDERED TO RETAIN THE DEBT SHALL NOT BE VALID.
thereby extinguishing the obligation. Civil Code.
Ø The purpose of this provision is to protect the other creditors of the debtor and to prevent
any transaction intended to defraud said creditors.
Ø The debtor is prohibited to pay that particular creditor during the effectivity of the court
order. Payment in this situation would be invalid.

30 YAP, K. | ATENEO LAW


ART. 1246. WHEN THE OBLIGATION CONSISTS IN THE DELIVERY OF AN INDETERMINATE OR
GENERIC THING, WHOSE QUALITY AND CIRCUMSTANCES HAVE NOT BEEN STATED, THE
CREDITOR CANNOT DEMAND A THING OF SUPERIOR QUALITY. NEITHER CAN THE DEBTOR
DELIVER A THING OF INFERIOR QUALITY. THE PURPOSE OF THE OBLIGATION AND OTHER
CIRCUMSTANCES SHALL BE TAKEN INTO CONSIDERATION.
Ø Obligations must be complied with in good faith and any act which tends to implement an
obligation in a manner which is not consistent with its goal or purposes should always be
discouraged.
• Ex. Obligee requests any rented car for a simple wedding ceremony.
§ Obligee cannot demand the obligor to rent them a multi-million Rolls
Royce
§ Obligor cannot deliver a car which is so old that it would not start
unless it is pushed.
ART. 1247. UNLESS IT IS OTHERWISE STIPULATED, THE EXTRAJUDICIAL EXPENSES REQUIRED
BY THE PAYMENT SHALL BE FOR THE ACCOUNT OF THE DEBTOR. WITH REGARD TO JUDICIAL
COSTS, THE RULES OF COURT SHALL GOVERN. Ø
Ø The reason for this provision is that the creditor usually benefits from the obligation. It is
always in the creditor’s favor that the debtor gives, does some service or not to do some
service.
ART. 1248. UNLESS THERE IS AN EXPRESS STIPULATION TO THAT EFFECT, THE CREDITOR
CANNOT BE COMPELLED PARTIALLY TO RECEIVE THE PRESTATIONS IN WHICH THE OBLIGATION
CONSISTS. NEITHER MAY THE DEBTOR BE REQUIRED TO MAKE PARTIAL PAYMENTS.
HOWEVER, WHEN THE DEBT IS IN PART LIQUIDATED AND IN PART UNLIQUIDATED, THE
CREDITOR MAY DEMAND AND THE DEBTOR MAY EFFECT THE PAYMENT OF THE FORMER
WITHOUT WAITING FOR THE LIQUIDATION OF THE LATTER.
Ø Liquidated part may be partially fulfilled, while waiting for the liquidation of the other part.
• Ex. Obligation is the payment of P1,000 and by delivering what money the debtor
will get from the estate of his deceased father.
§ Obligee may already demand for payment of P1,000 without having to
wait for the determination of the amount of money the debtor will get
from the estate of his deceased father.
Ø Partial payment can be made if there is an express stipulation by the parties allowing the
same or if the debt is partially liquidated and partially unliquidated.
Ø Even if there is no express stipulation, partial payment can likewise be effective if the
creditor accepts such partial payment and benefits from it.
Ø General Rule: A creditor cannot be compelled to accept partial performance.
• Exceptions, wherein the creditor will incur in delay (Barsons Marketing v. CA,
1998):
1. If good faith necessitates acceptance
2. If the creditor abuses his right in not accepting
31 YAP, K. | ATENEO LAW
ART. 1249. THE PAYMENT OF DEBTS IN MONEY SHALL BE MADE IN THE CURRENCY
STIPULATED, AND IF IT IS NOT POSSIBLE TO DELIVER SUCH CURRENCY, THEN IN THE CURRENCY
WHICH IS LEGAL TENDER IN THE PHILIPPINES.
THE DELIVERY OF PROMISSORY NOTES PAYABLE TO ORDER, OR BILLS OF EXCHANGE OR OTHER
MERCANTILE DOCUMENTS SHALL PRODUCE THE EFFECT OF PAYMENT ONLY WHEN THEY HAVE
BEEN CASHED, OR WHEN THROUGH THE FAULT OF THE CREDITOR THEY HAVE BEEN IMPAIRED.
IN THE MEANTIME, THE ACTION DERIVED FROM THE ORIGINAL OBLIGATION SHALL BE HELD IN
THE ABEYANCE.
Ø R.A. 8183 – all monetary obligations shall be settled in Philippine currency which is legal
tender in the Philippines. However, the parties may agree that the obligation or transaction
shall be settled in any other currency at the time of payment.
Ø Delivery of negotiable instruments shall have the effect of payment only when:
1. Encashed; or
2. Through the fault of the creditor they have been impaired.
Promissory note
• a document where a promise to pay is made by the debtor to the creditor.
• An unconditional promise in writing made by one person to another, signed by
the maker, engaging to pay on demand or at a fixed or determinable future time,
a sum certain in money to order or to bearer.
Ø Bill of exchange – an unconditional order in writing addressed by one person to another
signed by the person giving it, requiring the person to whom it is addressed to pay on
demand or at a fixed or determinable future time a sum certain in money to order or to
bearer.
Ø Check – a bill of exchange drawn on a bank payable on demand.
Ø If negotiable instruments are given to pay a debt, such debt will not be extinguished unless
these mercantile documents are encashed.
Ø Requisites of a valid negotiable instrument:
1. It must be in writing and signed by the maker or drawer
2. There must be an unconditional promise to pay a sum certain in money
3. Payable on demand or at a fixed determinable future time
4. Payable to order or to bearer
5. When addressed to a drawee, he shall be named therein with reasonable certainty.
Ø A check must be presented for payment within a reasonable time after its issuance or the
drawer will be discharged from liability thereon to the extent of the loss caused by the
delay.
• A check becomes stale if it has not been presented to the bank within 6 months
after issuance.
• If a creditor allows his checks to become stale, it does not mean that the debtor
who drew the check will necessarily be discharged from his debt, or that his
obligation will be extinguished.
• It is only when the creditor does not present the check for payment and thereafter
the bank collapses or fails to the point that it cannot meet the demands for
payment that the debtor will be discharged.
• Debtor is still liable notwithstanding the lapse of time when:
§ He had no funds in the bank or banker’s hands
§ After drawing the check and before its presentment for payment, he
had withdrawn his funds.

Ø Generally, delivery of a check does not constitute full payment.
• Exceptions:
1. By stipulation; and
2. If the check is fully-funded.
ART. 1250. IN CASE AN EXTRAORDINARY INFLATION OR DEFLATION OF THE CURRENCY
STIPULATED SHOULD SUPERVENE, THE VALUE OF THE CURRENCY AT THE TIME OF THE
ESTABLISHMENT OF THE OBLIGATION SHALL BE THE BASIS OF PAYMENT, UNLESS THERE IS AN
AGREEMENT TO THE CONTRARY. IF THE DEBTOR ACCEPTS FROM THE CREDITOR A RECEIPT IN WHICH AN APPLICATION OF THE
Ø Extraordinary inflation – when there is a decrease or increase in the purchasing power of
Philippine currency which is unusual or beyond the common fluctuation in the value of
said currency, and such decrease or increase could not have been reasonably foreseen or
was manifestly beyond the contemplation of the parties at the time of the establishment of
the obligation.
Ø There is a need for an official declaration by competent authorities (Bangko Sentral ng
Pilipinas, Department of Finance). Without such declaration, creditors cannot demand an
increase of what is due them.
Ø The provision applies only to cases where a contract or agreement is involved, an
agreement is needed for the effect of an extraordinary inflation to be taken into account to
alter the value of the currency at the time of the establishment of the obligation which, as
a rule, is always the determinative element.
Ø Value of the currency – the purchasing power of the currency. Often referred to as “par
value,” “legal exchange rate,” or “par of exchange.”
• Par value – the value as officially defined in terms of gold, or, under the silver
standard, where there was such a standard, in terms of silver.
• Par of exchange – applies only between countries having a fixed metallic content
for their currency unit.
ART. 1251. PAYMENT SHALL BE MADE IN THE PLACE DESIGNATED IN THE OBLIGATION.
THERE BEING NO EXPRESS STIPULATION AND IF THE UNDERTAKING IS TO DELIVER A
DETERMINATE THING, THE PAYMENT SHALL BE MADE WHEREVER THE THING MIGHT BE AT THE
MOMENT THE OBLIGATION WAS CONSTITUTED.
IN ANY OTHER CASE THE PLACE OF PAYMENT SHALL BE THE DOMICILE OF THE DEBTOR.
IF THE DEBTOR CHANGES HIS DOMICILE IN BAD FAITH OR AFTER HE HAS INCURRED IN DELAY,
THE ADDITIONAL EXPENSES SHALL BE BORNE BY HIM.
THESE PROVISIONS ARE WITHOUT PREJUDICE TO VENUE UNDER THE RULES OF COURT.
Ø The parties can agree as to where the payment shall be made.
Ø Absent such agreement, this provision shall apply.
Ø Domicile – place of habitual residence.
Ø The additional expenses attendant in making payment shall be borne by the debtor in the
event that he changes his domicile in bad faith.
Ø In case of determinate thing, place of payment is where the thing might be at the moment
the obligation was constituted.
32 YAP, K. | ATENEO LAW
SUBSECTION ONE: APPLICATION OF PAYMENTS
ART. 1252. HE WHO HAS VARIOUS DEBTS OF THE SAME KIND IN FAVOR OF ONE AND THE SAME
CREDITOR, MAY DECLARE AT THE TIME OF MAKING THE PAYMENT, TO WHICH OF THEM THE
SAME MUST BE APPLIED. UNLESS THE PARTIES SO STIPULATE, OR WHEN THE APPLICATION OF
PAYMENT IS MADE BY THE PARTY FOR WHOSE BENEFIT THE TERM HAS BEEN CONSTITUTED,
APPLICATION SHALL NOT BE MADE AS TO DEBTS WHICH ARE NOT YET DUE.
PAYMENT IS MADE, THE FORMER CANNOT COMPLAIN OF THE SAME , UNLESS THERE IS A CAUSE
FOR INVALIDATING THE CONTRACT.
Ø The rules from Art. 1252 to 1254 apply to a person owing several debts of the same kind
to a single creditor.
Ø The choice to which debt the payment is to be applied is given to the debtor. The debtor
must make a declaration as to which debt the payment should apply.
Ø The provisions in this subsection must conform to the general rules on payment from Arts.
1232 to 1251.
• If the debtor makes the declaration, the creditor can validly refuse such
declaration if the payment is to be applied to a debt which will only partially pay
the particular indebtedness.
Ø Application of payment cannot be made on debts which are not yet due, unless the parties
stipulate such.
Ø For the second paragraph to apply, the debtor must not merely receive the receipt but he
must accept the receipt.
• The doctrine of estoppel applies.
Ø Promissory notes in the hands of the creditor are proofs of indebtedness, not payment.
(Biala v. CA, 1990)
Ø Purpose of the declaration as to which debt the payment is to be applied is so that the
creditor may validly object the payment.
ART. 1253. IF THE DEBT PRODUCES INTEREST, PAYMENT OF THE PRINCIPAL SHALL NOT BE
DEEMED TO HAVE BEEN MADE UNTIL THE INTERESTS HAVE BEEN COVERED.
Ø Although interest only attaches to the principal, the payment of both principal and interest,
in effect, constitute two payments by the debtor.
Ø The right to apply payment to the interest first can be waived.
Ø In contracts involving payment in installments, it is the duty of the creditor to inform the
debtor the amount of interest that falls due and that he is applying the installment payments
to cover said interest.
Ø This article is merely directory, not mandatory.
Ø In contracts involving installment payments, the creditor has the duty to inform the debtor
of the amount of interest that falls due and that he is applying the installment payment to
cover said interest. (Rapanut v. CA, 1995)
Ø A surety is liable only up to the extent of his agreement with the principal debtor.
(Magdalena Estates v. Rodriguez, 1966)

ART. 1254. WHEN THE PAYMENT CANNOT BE APPLIED IN ACCORDANCE WITH THE PRECEDING
RULES, OR IF APPLICATION CAN NOT BE INFERRED FROM OTHER CIRCUMSTANCES, THE DEBT
WHICH IS MOST ONEROUS TO THE DEBTOR, AMONG THOSE DUE, SHALL BE DEEMED TO HAVE
BEEN SATISFIED.
IF THE DEBTS DUE ARE OF THE SAME NATURE AND BURDEN, THE PAYMENT SHALL BE APPLIED
TO ALL OF THEM PROPORTIONATELY. CONSIGNATION ALONE SHALL PRODUCE THE SAME EFFECT IN THE FOLLOWING CASES:
Ø Most onerous debt – indebtedness which exacts the heavier burden from among many. (Ex.
Debt with acceleration clause, debt secured by mortgage, etc.)
• Ex. A owes G a due debt of (1) P30,000 with an interest rate of 12% per annum,
(2) P22,000 without interest but secured by his silver watch, and (3) P24,000
collateralized by the house of the debtor and payable in equal installment with
the first installment already due and with an acceleration clause. The 3rd is the
most onerous.
Ø If the debts due are of the same nature and burden, the payment shall be applied to all of
them proportionately.
• Ex. A owes B 3 due debts (1) P10,000 (2) P20,000 and (3) P30,000 and the B
agrees to partial payment. A payment of P6,000 will be applied in 1:2:3. Thus,
(1) P1,000 (2) P2,000 and (3) P3,000.
Ø “Nature and burden” – refers to money; legal effect of the provisions; increase in the
liability of the debtor.
Ø An unpaid bank rentals is more onerous than the purchase price of a thing in installments.
(Espina v CA, 2000)
• If amortization or purchase installment, latter more onerous because non-
payment of installment will cause the return (replevin) of the object.
SUBSECTION TWO: PAYMENT BY CESSION
ART. 1255. THE DEBTOR MAY CEDE OR ASSIGN HIS PROPERTY TO HIS CREDITORS IN PAYMENT
OF HIS DEBTS. THIS CESSION, UNLESS THERE IS STIPULATION TO THE CONTRARY, SHALL ONLY
RELEASE THE DEBTOR FROM RESPONSIBILITY FOR THE NET PROCEEDS OF THE THING
ASSIGNED. THE AGREEMENTS WHICH, ON THE EFFECT OF THE CESSION, ARE MADE BETWEEN
THE DEBTOR AND HIS CREDITORS SHALL BE GOVERNED BY SPECIAL LAWS.
Ø Cession herein presupposes
• Financial difficulties on the part of the debtor; and
• Refers to a situation where the debtor owes to or more creditors.
Ø There can be a situation when the debts are more than the number of creditors.
Ø Cession applies to all of the properties of the debtor which are susceptible of and not
exempted by law from being alienated. (Ex. family home)
Ø The creditors must agree to cession, and must likewise agree amongst themselves as to
which debt will be paid first or as to the proportioning of the payment.
Ø The creditors will be authorized to sell or alienate the property for purpose of obtaining
enough resources or money to pay off their respective debts.
Ø Insolvency Law – places the assets of the debtor for judicial liquidation for the purpose of
paying off his obligations.
Ø Cession is presently called “assignment.”
Ø Normal assignment is considered a sale, not within the ambit of this article.
33 YAP, K. | ATENEO LAW
SUBSECTION THREE: TENDER OF PAYMENT AND CONSIGNATION
ART. 1256. IF THE CREDITOR TO WHOM TENDER OF PAYMENT HAS BEEN MADE REFUSES
WITHOUT JUST CAUSE TO ACCEPT IT, THE DEBTOR SHALL BE RELEASED FROM RESPONSIBILITY
BY THE CONSIGNATION OF THE THING OR SUM DUE .
(1) WHEN THE CREDITOR IS ABSENT OR UNKNOWN, OR DOES NOT APPEAR AT THE PLACE OF
PAYMENT;
(2) WHEN HE IS INCAPACITATED TO RECEIVE THE PAYMENT AT THE TIME IT IS DUE;
(3) WHEN, WITHOUT JUST CAUSE, HE REFUSES TO GIVE A RECEIPT;
(4) WHEN TWO OR MORE PERSONS CLAIM THE SAME RIGHT TO COLLECT;
(5) WHEN THE TITLE OF THE OBLIGATION HAS BEEN LOST.
Ø In a right of redemption, consignation is not necessary/proper because the vendor is
exercising a right, not discharging an obligation. (Badayos v. CA, 1992)
ART. 1257. IN ORDER THAT THE CONSIGNATION OF THE THING DUE MAY RELEASE THE
OBLIGOR, IT MUST FIRST BE ANNOUNCED TO THE PERSONS INTERESTED IN THE FULFILLMENT
OF THE OBLIGATION.
THE CONSIGNATION SHALL BE INEFFECTUAL IF IT IS NOT MADE STRICTLY IN CONSONANCE
WITH THE PROVISIONS WHICH REGULATE PAYMENT.
ART. 1258. CONSIGNATION SHALL BE MADE BY DEPOSITING THE THINGS DUE AT THE
DISPOSAL OF JUDICIAL AUTHORITY, BEFORE WHOM THE TENDER OF PAYMENT SHALL BE
PROVED, IN A PROPER CASE, AND THE ANNOUNCEMENT OF THE CONSIGNATION IN OTHER
CASES.
THE CONSIGNATION HAVING BEEN MADE , THE INTERESTED PARTIES SHALL ALSO BE NOTIFIED
THEREOF.
Ø Tender of payment and consignation apply in any contract where there is an obligation to
pay.
Ø Requisites of a valid tender of payment (Far East Bank v. Diaz Realty, 2001):
1. Fusion of intent, ability and capability to make good such offer; and
2. Absolute and must cover the amount due.
Ø Requisites of a valid consignation:
1. Debt due
2. Creditor to whom the tender of payment was made refused to accept payment
without just cause, or when the creditor is –
§ Absent or unknown, or does not appear at the place of payment
§ Incapacitated
§ Refuses to give a receipt without just cause
§ Two or more persons claim the same right to collect
§ Title of the obligation has been lost
3. Notice was given to the creditor prior to consignment

§ To give the creditor the opportunity to reconsider his unjustified ART. 1260. ONCE THE CONSIGNATION HAS BEEN DULY MADE , THE DEBTOR MAY ASK THE
refusal and to accept payment thereby avoiding consignation and the JUDGE TO ORDER THE CANCELLATION OF THE OBLIGATION.
subsequent litigation.
4. Amount placed at the disposal of the court BEFORE THE CREDITOR HAS ACCEPTED THE CONSIGNATION, OR BEFORE A JUDICIAL
5. Notice was given to the creditor after consignment DECLARATION THAT THE CONSIGNATION HAS BEEN PROPERLY MADE, THE DEBTOR MAY
§ To enable the creditor to withdraw the goods or money deposited. WITHDRAW THE THING OR THE SUM DEPOSITED, ALLOWING THE OBLIGATION TO REMAIN IN
Ø It is consignation, not mere tender of payment, which is essential in order to extinguish FORCE.
debtor’s obligation to pay the balance.
Ø Provision refers to consignation as one of the means for the payment or discharge of a debt,
therefore there must be an obligation to pay the said price. Ø The consignation has a retroactive effect.
• In exercises of rights of option or redemption, consignation is not necessary. • The payment is deemed to have been made at the time of the deposit of the money
Ø In order to be valid, tender must be made in lawful currency. in court or when it was placed at the disposal of the judicial authority.
Ø Tender Consignation Ø Prior to any withdrawal of the debtor of the amount, the creditor may accept the amount
consigned either unconditionally or with reservation.
• May be extra-judicial. • Necessarily judicial.
• If there is no reservation made, it means that the creditor waives his other claims
• Priority is the attempt to make a
under the contract.
private settlement before proceeding
Ø Depositor has the right to withdraw at any time before the creditor accepts or before judicial
to the solemnities of consignation.
declaration of consignation. (Gamboa v. Tan, 1962)
Ø Consignation alone releases the debtor from his obligation when:
1. Creditor is absent or unknown, or does not appear at the place of payment ART. 1261. IF, THE CONSIGNATION HAVING BEEN MADE , THE CREDITOR SHOULD AUTHORIZE
§ Ex. A owes B P1,000 payable on April 11, 1997 at the Manila Hotel. THE DEBTOR TO WITHDRAW THE SAME, HE SHALL LOSE EVERY PREFERENCE WHICH HE MAY
B is not at the Manila Hotel, then consignation can immediately be HAVE OVER THE THING. THE CO- DEBTORS, GUARANTORS AND SURETIES SHALL BE RELEASED.
made in court without looking for B.
2. Creditor is incapacitated to receive the payment at the time it is due
Ø Once the court finds that there has been proper consignation and cancels the obligation, it
§ Ex. A owes B who later became insane. A can immediately consign
is incumbent upon the creditor to obtain from the court the money deposited as payment.
the money in court so that he will be relieved of any responsibility such
Ø If the creditor allows the debtor to withdraw the money deposited, it is interpreted as a
as the running of the interest.
revival of the indebtedness.
3. Creditor refuses to give a receipt without just cause
• In this case, the creditor will lose preference to the thing previously deposited.
§ Debtor must protect himself by all means possible and one of these
Thus, other creditors may go after it.
protections is the receipt which he can demand from the creditor upon
Ø Other solidary debtors, guarantors and sureties shall likewise benefit from the
payment.
extinguishment of the obligation.
4. Two or more persons claim the same right to collect
§ There is no use tendering payment to any because that person might
SECTION TWO: LOSS OF THE THING DUE
not be lawfully entitled to the payment.
5. The title of the obligation has been lost
§ It is better for the court to declare that the obligation has been ART. 1262. AN OBLIGATION WHICH CONSISTS IN THE DELIVERY OF A DETERMINATE THING
extinguished. SHALL BE EXTINGUISHED IF IT SHOULD BE LOST OR DESTROYED WITHOUT THE FAULT OF THE
DEBTOR, AND BEFORE HE HAS INCURRED IN DELAY.

ART. 1259. THE EXPENSES OF CONSIGNATION, WHEN PROPERLY MADE, SHALL BE CHARGED
WHEN BY LAW OR STIPULATION, THE OBLIGOR IS LIABLE EVEN FOR FORTUITOUS EVENTS, THE
AGAINST THE CREDITOR.
LOSS OF THE THING DOES NOT EXTINGUISH THE OBLIGATION, AND HE SHALL BE RESPONSIBLE
FOR DAMAGES . THE SAME RULE APPLIES WHEN THE NATURE OF THE OBLIGATION REQUIRES
THE ASSUMPTION OF RISK.
Ø Because it was the creditor’s failure to accept payment that led to the consignation.
Ø When the object of the prestation is a determinate thing, the debtor shall be excused from
performing his obligation if such thing is lost without his fault.
• However, if it is his fault or if it has been lost after the debtor has incurred in
delay, he shall answer for damages.
Ø In cases of stipulated liability for fortuitous event, or when the obligation requires an
assumption of risk, damages can be obtained from the debtor. (Art. 1174)

34 YAP, K. | ATENEO LAW


ART. 1263. IN AN OBLIGATION TO DELIVER A GENERIC THING, THE LOSS OR DESTRUCTION OF
ANYTHING OF THE SAME KIND DOES NOT EXTINGUISH THE OBLIGATION .
Ø A generic thing, which is the object of the prestation, cannot really be lost or destroyed
unless the whole class of said thing is destroyed.
ART. 1264. THE COURTS SHALL DETERMINE WHETHER, UNDER THE CIRCUMSTANCES, THE
PARTIAL LOSS OF THE OBJECT OF THE OBLIGATION IS SO IMPORTANT AS TO EXTINGUISH THE
OBLIGATION. HIM TO THE PERSON WHO SHOULD RECEIVE IT, THE LATTER REFUSED WITHOUT JUSTIFICATION
Ø If the partial loss renders the object totally useless, the debtor can go to court and declare
that the partial loss has extinguished his obligation.
ART. 1265. WHENEVER THE THING IS LOST IN THE POSSESSION OF THE DEBTOR, IT SHALL BE
PRESUMED THAT THE LOSS WAS DUE TO HIS FAULT, UNLESS THERE IS PROOF TO THE
CONTRARY , AND WITHOUT PREJUDICE TO THE PROVISIONS OF ARTICLE 1165. THIS
PRESUMPTION DOES NOT APPLY IN CASE OF EARTHQUAKE, FLOOD, STORM, OR OTHER
NATURAL CALAMITY. Ø
Ø General Rule: Presumption that the loss of the thing is due to the fault of the debtor who
possesses it.
o The presumption arises from the fact that it was lost while it was in the possession
of the debtor.
o It is incumbent upon the debtor to proved that the loss is not through his fault or
it has been caused by a fortuitous event.
ART. 1266. THE DEBTOR IN OBLIGATIONS TO DO SHALL ALSO BE RELEASED WHEN THE
PRESTATION BECOMES LEGALLY OR PHYSICALLY IMPOSSIBLE WITHOUT THE FAULT OF THE
OBLIGOR. the creditor decides not to enforce the debtor’s prestation anymore.
Ø When the prestation becomes legally or physically impossible without the fault of the
obligor, it shall be considered a loss which extinguishes the obligation.
ART. 1267. WHEN THE SERVICE HAS BECOME SO DIFFICULT AS TO BE MANIFESTLY BEYOND
THE CONTEMPLATION OF THE PARTIES, THE OBLIGOR MAY ALSO BE RELEASED THEREFROM, IN
WHOLE OR IN PART.
Ø Subjective impossibility – a promissor’s duty is never discharged by the mere fact that the
supervening events deprive him of the ability to perform, if they are not such as to deprive
other persons, likewise, of ability to render such a performance.
Ø Requisites:
1. Prestation has become so difficult to render; and
2. Service has become manifestly beyond the contemplation of the parties.
Ø The intention of the parties should govern and if it appears that the service turns out to be
so difficult as to have been beyond their contemplation, it would be doing violence to that
intention to hold the obligor still responsible.
35 YAP, K. | ATENEO LAW
Ø Rebus sic stantibus – allows non-compliance with agreements due to change in
circumstances; there must be absolutely exceptional changes.
Ø Service – the performance of the obligation.
Ø The court is not authorized by this provision to revise the contract entered into by the parties
(modification), but to terminate the contract.
ART. 1268. WHEN THE DEBT OF A THING CERTAIN AND DETERMINATE PROCEEDS FROM A
CRIMINAL OFFENSE, THE DEBTOR SHALL NOT BE EXEMPTED FROM THE PAYMENT OF ITS PRICE,
WHATEVER MAY BE THE CAUSE FOR THE LOSS, UNLESS THE THING HAVING BEEN OFFERED BY
TO ACCEPT IT
ART. 1269. THE OBLIGATION HAVING BEEN EXTINGUISHED BY THE LOSS OF THE THING, THE
CREDITOR SHALL HAVE ALL THE RIGHTS OF ACTION WHICH THE DEBTOR MAY HAVE AGAINST
THIRD PERSONS BY REASON OF THE LOSS.
This article protects the interest of the creditor.
SECTION THREE: CONDONATION OR REMISSION OF DEBT
ART. 1270. CONDONATION OR REMISSION IS ESSENTIALLY GRATUITOUS, AND REQUIRES THE
ACCEPTANCE BY THE OBLIGOR. IT MAY BE MADE EXPRESSLY OR IMPLIEDLY.
ONE AND THE OTHER KIND SHALL BE SUBJECT TO THE RULES WHICH GOVERN INOFFICIOUS
DONATIONS. EXPRESS CONDONATION SHALL, FURTHERMORE, COMPLY WITH THE FORMS OF
DONATION.
Ø Condonation – connotes that there is a previous demandable obligation but the oblige or
Ø Condonation requires the implied or express consent of the obligor.
Ø In effect, condonation or remission of a debt is considered a donation in favor of the
debtor.
Ø Inofficious donation – if it turns out that the thing or amount donated (remitted or
condoned) encroaches or infringes on the legitime or successional rights of the heirs of
the condoning debtor.
ART. 1271. THE DELIVERY OF A PRIVATE DOCUMENT EVIDENCING A CREDIT, MADE
VOLUNTARILY BY THE CREDITOR TO THE DEBTOR, IMPLIES THE RENUNCIATION OF THE ACTION
WHICH THE FORMER HAD AGAINST THE LATTER.
IF IN ORDER TO NULLIFY THIS WAIVER IT SHOULD BE CLAIMED TO BE INOFFICIOUS, THE
DEBTOR AND HIS HEIRS MAY UPHOLD IT BY PROVING THAT THE DELIVERY OF THE DOCUMENT
WAS MADE IN VIRTUE OF PAYMENT OF THE DEBT.
Ø If a creditor delivers a promissory note to the debtor, the former, in effect, furnishes the
debtor the evidence which could prove the indebtedness of such debtor in his favor.

ART. 1272. WHENEVER THE PRIVATE DOCUMENT IN WHICH THE DEBT APPEARS IS FOUND IN
THE POSSESSION OF THE DEBTOR, IT SHALL BE PRESUMED THAT THE CREDITOR DELIVERED IT
VOLUNTARILY, UNLESS THE CONTRARY IS PROVED.
ART. 1273. THE RENUNCIATION OF THE PRINCIPAL DEBT SHALL EXTINGUISH THE ACCESSORY
OBLIGATIONS; BUT THE WAIVER OF THE LATTER SHALL LEAVE THE FORMER IN FORCE.
Ø The existence of the accessory obligation depends on the existence of the principal
obligation, but the existence of the principal obligation does not depend on the accessory
obligation.
ART. 1274. IT IS PRESUMED THAT THE ACCESSORY OBLIGATION OF PLEDGE HAS BEEN
REMITTED WHEN THE THING PLEDGED, AFTER ITS DELIVERY TO THE CREDITOR, IS FOUND IN
THE POSSESSION OF THE DEBTOR, OR OF A THIRD PERSON WHO OWNS THE THING.
Ø Pledge- involves a movable property constituted by the owner of such property who has
free disposal of it, to secure the fulfillment of a principal obligation and such contract is
perfected only upon the delivery of the thing pledged to the creditor.
Ø A person may even pledge his property for the indebtedness of another person.
Ø In a contract of pledge, the creditor or the obligee must be in possession of the thing
pledged.
• If it is in the possession of the debtor, it is presumed that the accessory obligation
has been condoned or remitted.
SECTION FOUR: CONFUSION OR MERGER OF RIGHTS
ART. 1275. THE OBLIGATION IS EXTINGUISHED FROM THE TIME THE CHARACTERS OF
CREDITOR AND DEBTOR ARE MERGED IN THE SAME PERSON. BY THIRD PERSONS AND COMMUNICATED IN DUE TIME TO THE DEBTOR.
Ø A creditor cannot collect a debt from himself, and a debtor cannot pay a debt to himself.
• Ex. Where the former wife filed a complaint for support in arrears, and was
substituted by her children because of her death, and the father also dies, the
complaint was dismissed since the children become the heirs of both parties in
the case.
ART. 1276. MERGER WHICH TAKES PLACE IN THE PERSON OF THE PRINCIPAL DEBTOR OR
CREDITOR BENEFITS THE GUARANTORS. CONFUSION WHICH TAKES PLACE IN THE PERSON OF
ANY OF THE LATTER DOES NOT EXTINGUISH THE OBLIGATION. §
Ø In this case, the guarantor is clearly benefited because the extinguishment of the principal
obligation extinguishes the accessory obligation of guarantee.
Ø The merger of the persons of the guarantor and the creditor does not extinguish the
obligation, but merely extinguishes the accessory obligation.
Ø The merger of the persons of the debtor and the guarantor extinguishes the accessory
obligation, but not the principal obligation.
36 YAP, K. | ATENEO LAW
ART. 1277. CONFUSION DOES NOT EXTINGUISH A JOINT OBLIGATION EXCEPT AS REGARDS THE
SHARE CORRESPONDING TO THE CREDITOR OR DEBTOR IN WHOM THE TWO CHARACTERS
CONCUR.
Ø Joint debtors owe the creditor only their share in the whole indebtedness and the creditor
can only collect from a joint debtor his share in the total indebtedness.
SECTION FIVE: COMPENSATION
ART. 1278. COMPENSATION SHALL TAKE PLACE WHEN TWO PERSONS, IN THEIR OWN RIGHT,
ARE CREDITORS AND DEBTORS OF EACH OTHER.
Ø Legal compensation – a mode of extinguishing an obligation whereby the parties are
mutually debtors and creditors of each other. They do not have to hand the money or things
due to each other because payment is made by operation of law.
Ø If they owe each other unequal amounts, then ere is compensation up to the extent that the
amounts are covered by their mutual outstanding balance.
Ø Distinctive feature – applies by operation of law; automatic; no action needed.
ART. 1279. IN ORDER THAT COMPENSATION MAY BE PROPER, IT IS NECESSARY:
(1) THAT EACH ONE OF THE OBLIGORS BE BOUND PRINCIPALLY, AND THAT HE BE AT THE SAME
TIME A PRINCIPAL CREDITOR OF THE OTHER;
(2) THAT BOTH DEBTS CONSIST IN A SUM OF MONEY, OR IF THE THINGS DUE ARE
CONSUMABLE, THEY BE OF THE SAME KIND, AND ALSO OF THE SAME QUALITY IF THE LATTER
HAS BEEN STATED;
(3) THAT THE TWO DEBTS BE DUE;
(4) THAT THEY BE LIQUIDATED AND DEMANDABLE;
(5) THAT OVER NEITHER OF THEM THERE BE ANY RETENTION OR CONTROVERSY, COMMENCED
Ø Requisites:
1. Each one of the obligors be bound principally and that each of them be at the
same time a principal creditor of the other.
§ The parties must be mutual creditors and debtors of each other.
§ No offset is admissible against demands for taxes levied for general or
local governmental purposes because taxes are not in the nature of
contracts, but of a duty.
2. Both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated.
There can be no compensation if one debt involves the payment of
money and the other the delivery of a particular thing.
§ Consumable must mean fungible (susceptible to substitution). Thus, it
does not apply to specific determinate things.
3. Both debts are due.
§ The debts need not be contracted or incurred at the same time.
§ A debt cannot be demanded if it is not yet due. However, the parties
can agree that compensation can be made even as to debts which are
not yet due.

4. Both debts are liquidated and demandable. ART. 1283. IF ONE OF THE PARTIES TO A SUIT OVER AN OBLIGATION HAS A CLAIM FOR
§ The debt must be determined certain. DAMAGES AGAINST THE OTHER, THE FORMER MAY SET IT OFF BY PROVING HIS RIGHT TO SAID
§ When there is a running interest still to be paid to a debt, it is not DAMAGES AND THE AMOUNT THEREOF.
considered liquidated.
5. Both have no retention or controversy commenced by third persons and
communicated in due time to the debtor. Ø Judicial set-off – in a collection case, the defendant can file a counterclaim in the same
§ Due time – the period before legal compensation was supposed to take amount claiming damages arising from the same or different transaction and requesting the
place, considering that legal compensation operates so long as the court to just set-off the damages.
requisites concur, even without any conscious intent on the part of the Ø For judicial set-off to apply, the amount of damages or the claim sought to be compensated
parties. must be duly proven.
§ A controversy that is communicated to the parties after “due time” may
no longer undo the compensation which had already taken place by ART. 1284. WHEN ONE OR BOTH DEBTS ARE RESCISSIBLE OR VOIDABLE, THEY MAY BE
operation of law. COMPENSATED AGAINST EACH OTHER BEFORE THEY ARE JUDICIALLY RESCINDED OR AVOIDED.

ART. 1280. NOTWITHSTANDING THE PROVISIONS OF THE PRECEDING ARTICLE, THE

GUARANTOR MAY SET UP COMPENSATION AS REGARDS WHAT THE CREDITOR MAY OWE THE Ø A rescissible or voidable debt is valid up to the time it is rescinded or annulled.
PRINCIPAL DEBTOR. Ø If all the requisites for a valid compensation are present before a contract is rescinded or
annulled, the compensation can occur by operation of law.
Ø Guarantor – a person who promises to pay the creditor in the event that the principal debtor
fails to pay the indebtedness. ART. 1285. THE DEBTOR WHO HAS CONSENTED TO THE ASSIGNMENT OF RIGHTS MADE BY A
CREDITOR IN FAVOR OF A THIRD PERSON , CANNOT SET UP AGAINST THE ASSIGNEE THE
Ø A creditor must first exhaust all possible ways to collect from the principal debtor before
COMPENSATION WHICH WOULD PERTAIN
the former can go against the guarantor, unless the guarantor binds himself solidarily with
TO HIM AGAINST THE ASSIGNOR, UNLESS THE ASSIGNOR WAS NOTIFIED BY THE DEBTOR AT THE
the principal debtor.
TIME HE GAVE HIS CONSENT, THAT HE RESERVED HIS RIGHT TO THE COMPENSATION.
Ø Notwithstanding the provisions of the preceding article – even if the guarantor and the
principal creditor are not mutual debtors and creditors of each other, the obligation of the
guarantor can be extinguished by invoking compensation insofar as the principal debtor is IF THE CREDITOR COMMUNICATED THE CESSION TO HIM BUT THE DEBTOR DID NOT CONSENT
THERETO, THE LATTER MAY SET UP THE COMPENSATION OF DEBTS PREVIOUS TO THE CESSION,
concerned.
BUT NOT OF SUBSEQUENT ONES .
Ø Ex. A creditor, B debtor, X guarantor. There is relationship between A and B. There is
relationship between B and X. There is NO relationship between A and X.
• Nevertheless, X can invoke compensation against A even without the 1st IF THE ASSIGNMENT IS MADE WITHOUT THE KNOWLEDGE OF THE DEBTOR, HE MAY SET UP THE
COMPENSATION OF ALL CREDITS PRIOR TO THE SAME AND ALSO LATER ONES UNTIL HE HAD
requisite.
KNOWLEDGE OF THE ASSIGNMENT.

ART. 1281. COMPENSATION MAY BE TOTAL OR PARTIAL. WHEN THE TWO DEBTS ARE OF THE
SAME AMOUNT, THERE IS A TOTAL COMPENSATION. Ø This article provides 3 cases or situations:
1. When the debtor who has consented to the assignment of rights made by a
creditor in favor of a third person, he cannot set up against the assignee the
Ø Total compensation – when the mutual debts of the parties to each other are equal. compensation which would pertain to him against the assignor, unless the
Ø Partial compensation – when the debts are not equal, in which case, the debts are assignor was notified y the debtor at the time he gave his consent, that he reserved
extinguished to the concurrent amount. his right to the compensation.
2. When the creditor communicated the cession to the debtor but the debtor did not
ART. 1282. THE PARTIES MAY AGREE UPON THE COMPENSATION OF DEBTS WHICH ARE NOT consent thereto, the latter may set up the compensation of debts previous to the
YET DUE. cession, but not of subsequent ones.
3. When the assignment is made without the knowledge of the debtor, he may set
up the compensation of all credits prior to the same and also later ones until he
Ø General Rule: Compensation can only occur when the debts are due and demandable. has knowledge of the assignment.
• Exception: Contractual compensation - the parties may agree upon the Ø 3 types of loan:
compensation of debts which are not yet due. 1. Mutuum (simple loan) – bank loans, etc.
2. Commodatum – borrowing a book from the library, etc.
3. Depositum – safety deposit box in the bank, etc.
Ø Compensation applies only in mutuum.

37 YAP, K. | ATENEO LAW


ART. 1286. COMPENSATION TAKES PLACE BY OPERATION OF LAW, EVEN THOUGH THE DEBTS
MAY BE PAYABLE AT DIFFERENT PLACES, BUT THERE SHALL BE AN INDEMNITY FOR EXPENSES
OF EXCHANGE OR TRANSPORTATION TO THE PLACE OF PAYMENT.
Ø The parties need not notify each other that they intend to have their debts compensated.
Ø If there is partial compensation, indemnity for expenses of exchange or transportation to
the place of payment can arise.
Ø If there is complete compensation, the parties need not do anything as the obligations are
completely extinguished.
ART. 1287. COMPENSATION SHALL NOT BE PROPER WHEN ONE OF THE DEBTS ARISES FROM A
DEPOSITUM OR FROM THE OBLIGATIONS OF A DEPOSITARY OR OF A BAILEE IN COMMODATUM.
NEITHER CAN COMPENSATION BE SET UP AGAINST A CREDITOR WHO HAS A CLAIM FOR
SUPPORT DUE BY GRATUITOUS TITLE, WITHOUT PREJUDICE TO THE PROVISIONS OF PARAGRAPH
2 OF ARTICLE 301.
ART. 1288. NEITHER SHALL THERE BE COMPENSATION IF ONE OF THE DEBTS CONSISTS IN
CIVIL LIABILITY ARISING FROM A PENAL OFFENSE. 2. Creates a new one in lieu of the old.
Ø Compensation will not incur in the following situations even if there is a loan or an
indebtedness existing:
1. Depositum or from the obligations of a depository.
• Deposit – constituted from the moment a person receives a thing
belonging to another with the obligation of safely keeping it and of
returning the same.
2. Obligations of a bailee in commodatum.
• Bailee in commodatum – acquires the use of the thing loaned but not
its fruits.
• The bailee cannot retain the thing loaned on the ground that the bailor
owes him something, even though it may be by reason of expenses.
• The bailee has the right of retention for damages. (Art. 1951)
3. Duty to support.
• A father, who is required to give support to his son, cannot claim that
he need not give the support considering that his son owes him the
same amount of money.
• Allowed in cases of support in arrears.
4. Civil liability arising from a penal offense.
ART. 1289. IF A PERSON SHOULD HAVE AGAINST HIM SEVERAL DEBTS WHICH ARE
SUSCEPTIBLE OF COMPENSATION, THE RULES ON THE APPLICATION OF PAYMENTS SHALL
APPLY TO THE ORDER OF THE COMPENSATION.
38 YAP, K. | ATENEO LAW
ART. 1290. WHEN ALL THE REQUISITES MENTIONED IN ARTICLE 1279 ARE PRESENT,
COMPENSATION TAKES EFFECT BY OPERATION OF LAW, AND EXTINGUISHES BOTH DEBTS TO
THE CONCURRENT AMOUNT, EVEN THOUGH THE CREDITORS AND DEBTORS ARE NOT AWARE OF
THE COMPENSATION.
Ø Compensation is the most expedient way of extinguishing an obligation.
SECTION SIX: NOVATION
ART. 1291. OBLIGATIONS MAY BE MODIFIED BY:
(1) CHANGING THEIR OBJECT OR PRINCIPAL CONDITIONS;
(2) SUBSTITUTING THE PERSON OF THE DEBTOR;
(3) SUBROGATING A THIRD PERSON IN THE RIGHTS OF THE CREDITOR.
Ø Novation under the Civil Code refers to extinctive novation, not modificatory novation.
Ø “Principal condition” – means stipulation, not suspensive or resolutory condition.
Ø Novation – a juridical act with a dual function, namely:
1. Extinguishes an obligation and;
Ø Objective novation – a change of the object or principal conditions of an existing
obligation.
Ø Subjective novation – a change of either the person of the debtor, or of the creditor in an
existing obligation.
Ø Mixed novation – a change of the object or principal conditions of an obligation occurs at
the same time with the change of either the person of the person of the debtor or creditor.
Ø General rule: No form of words or writing is necessary to give effect to a novation so long
as –
1. It can be shown that the intent to novate was present; and
2. Terms are truly incompatible in every aspect.
Ø Novatory clause – “The second contract shall extinguish the first.” (or something with the
same implication)
Ø An extension is not novation because the period is already gone, there is nothing to novate.
Ø Collateral change is not novation because it is not principal condition or object.
ART. 1292. IN ORDER THAT AN OBLIGATION MAY BE EXTINGUISHED BY ANOTHER WHICH
SUBSTITUTE THE SAME, IT IS IMPERATIVE THAT IT BE SO DECLARED IN UNEQUIVOCAL TERMS,
OR THAT THE OLD AND THE NEW OBLIGATIONS BE ON EVERY POINT INCOMPATIBLE WITH EACH
OTHER.
Ø There must be 2 distinct and successive binding contracts which take place, with the later
one designed to replace the preceding convention.
Ø All parties to the original contract consented to or are made parties in the subsequent
contract.
Ø An obligation which intends to substitute another obligation extinguishes the latter
obligation only if –
1. It so expressly declares in certain terms; or

2. The old obligation is completely incompatible with the new obligation in every
aspect.
Ø Novation can never be presumed.
Ø Expressly – contracting parties incontrovertibly disclose that their object in executing the
new contract is to extinguish the old one.
Ø No specific form is required for an implied novation, all that is prescribed by law would be
an incompatibility between the 2 contracts.
• Incompatibility must be essential, not merely accidental.
• Incompatibility must take place in any of the essential elements of the obligation,
to wit –
1. Object;
2. Cause; or
3. Principal conditions.
Ø To cancel – to strike, revoke, rescind, abandon, or terminate.
Ø Requisites of novation:
1. Previous valid obligation;
2. Agreement of all parties to the new contract;
3. Extinguishment of the old contract; and
4. Validity of new contract.
Ø Legal doctrine: an obligation to pay a sum of money is not novated in a new instrument by
changing the term of payment and adding other obligations not compatible with the old
one.
• To sustain novation necessitates that the same be declared in unequivocal terms
or that there is complete and substantial incompatibility between the 2
obligations.
Ø Test to determine implied novation – whether or not the two obligations can stand together,
each one having its independent existence.
Ø Dacion en pago is a form of novation in which a change takes place in the object involved
in the original contract. (Lim Tay v. CA)
ART. 1293. NOVATION WHICH CONSISTS IN SUBSTITUTING A NEW DEBTOR IN THE PLACE OF
THE ORIGINAL ONE, MAY BE MADE EVEN WITHOUT THE KNOWLEDGE OR AGAINST THE WILL OF
THE LATTER, BUT NOT WITHOUT THE CONSENT OF THE CREDITOR. PAYMENT BY THE NEW
DEBTOR GIVES HIM THE RIGHTS. MENTIONED IN ARTICLES 1236 AND 1237.
Ø Art. 1236: Third party may demand from debtor what he has paid.
Ø Art. 1237: Third party may subrogate creditor’s rights.
ART. 1294. IF THE SUBSTITUTION IS WITHOUT THE KNOWLEDGE OR AGAINST THE WILL OF THE
DEBTOR, THE NEW DEBTOR'S INSOLVENCY OR NON -FULFILLMENT OF THE OBLIGATIONS SHALL
NOT GIVE RISE TO ANY LIABILITY ON THE PART OF THE ORIGINAL DEBTOR.
Ø Delegacion – if the old debtor, to extinguish his obligation, suggests to the creditor that he
be substituted by a new debtor of his choice and the creditor agrees. Consent of creditor is
indispensable.
Ø Expromission – if the old debtor is substituted without the knowledge or consent of the old
debtor and the obligation is extinguished. Consent of creditor is indispensable.
39 YAP, K. | ATENEO LAW
ART. 1295. THE INSOLVENCY OF THE NEW DEBTOR, WHO HAS BEEN PROPOSED BY THE
ORIGINAL DEBTOR AND ACCEPTED BY THE CREDITOR, SHALL NOT REVIVE THE ACTION OF THE
LATTER AGAINST THE ORIGINAL OBLIGOR, EXCEPT WHEN SAID INSOLVENCY WAS ALREADY
EXISTING AND OF PUBLIC KNOWLEDGE, OR KNOWN TO THE DEBTOR, WHEN HE DELEGATED HIS
DEBT.
Ø Novation occurs when –
1. Old debtor proposes to the creditor that he be substituted by a new debtor;
2. Understanding that the old debtor will be released from the obligation;
3. Creditor accepts the proposal; and
4. New debtor assumes the indebtedness.
Ø In the event that the new debtor is insolvent, the creditor cannot go against the old debtor
because the latter’s obligation has already been extinguished.
• However, the creditor can go against the debtor in 2 cases:
1. When the insolvency of the new debtor has already been existing
and of public knowledge when the old debtor delegated his debt
and the creditor has no knowledge of the insolvency of the new
debtor; and
2. When the insolvency of the new debtor is known to the old debtor
when he delegated his debt and the creditor has no knowledge of
the insolvency of the new debtor.
• “Already existing” requirement applies to both cases. In the 2nd case, it is
necessarily implied otherwise the debtor would not have known of the same.
ART. 1296. WHEN THE PRINCIPAL OBLIGATION IS EXTINGUISHED IN CONSEQUENCE OF A
NOVATION, ACCESSORY OBLIGATIONS MAY SUBSIST ONLY INSOFAR AS THEY MAY BENEFIT
THIRD PERSONS WHO DID NOT GIVE THEIR CONSENT.
Ø All accessory obligations such as those arising from a contract of mortgage, guarantee, and
pledge are extinguished.
Ø An accessory obligation may subsist only insofar as they may benefit third persons who do
not give their consent to the novation.
Ø Ex. X is indebted to Y for the amount of P100,000. X borrowed P12,000 from Z and entered
into a mortgage (12 months) with a stipulation that X is to pay Z P1,000 per month. X and
Y consolidated, thus no more debt. However, Z did not consent to such consolidation.
ü The mortgage shall subsist.
ART. 1297. IF THE NEW OBLIGATION IS VOID, THE ORIGINAL ONE SHALL SUBSIST, UNLESS THE
PARTIES INTENDED THAT THE FORMER RELATION SHOULD BE EXTINGUISHED IN ANY EVENT.
Ø A subsequent void obligation intended to novate an old one has no legal effect and will be
considered as not having been agreed upon in the first place.
Ø If in coming up with the new but void obligation, the parties agree that it shall in any event
extinguish the old obligation, then such old obligation will not be revived.
ART. 1298. THE NOVATION IS VOID IF THE ORIGINAL OBLIGATION WAS VOID, EXCEPT WHEN
ANNULMENT MAY BE CLAIMED ONLY BY THE DEBTOR OR WHEN RATIFICATION VALIDATES
ACTS WHICH ARE VOIDABLE.
Ø Novation of a principal obligation definitely presupposes a pervious existing obligation Ø The provision provides for 3 situations:
which is valid.
Ø If a previous existing obligation is void, a subsequent obligation intending to novate it shall
likewise be void unless it is clear that the subsequent one can stand on itself and without
any reference to the old one.
Ø In a voidable or annullable obligation, novation can be effected before the obligation is
voided or annulled.
ART. 1299. F THE ORIGINAL OBLIGATION WAS SUBJECT TO A SUSPENSIVE OR RESOLUTORY
CONDITION, THE NEW OBLIGATION SHALL BE UNDER THE SAME CONDITION, UNLESS IT IS
OTHERWISE STIPULATED.
1. When a creditor pays another creditor who is preferred, even without the debtor’s
knowledge.
2. When a third person, not interested in the obligation, pays with the express or
tacit approval of the debtor.
§ There is presumption of legal subrogation.
3. When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion
as to the latter’s share.
§ Person interested in the fulfillment of the obligation – one who will be
affected by payment of the debtor.

ART. 1303. SUBROGATION TRANSFERS TO THE PERSONS SUBROGATED THE CREDIT WITH ALL
Ø In order not to subject the obligation to the previous conditions, there must be an express THE RIGHTS THERETO APPERTAINING, EITHER AGAINST THE DEBTOR OR AGAINST THIRD
statement to that effect in the new obligation as novated. PERSON, BE THEY GUARANTORS OR POSSESSORS OF MORTGAGES, SUBJECT TO STIPULATION IN
A CONVENTIONAL SUBROGATION.

ART. 1300. SUBROGATION OF A THIRD PERSON IN THE RIGHTS OF THE CREDITOR IS EITHER
LEGAL OR CONVENTIONAL. THE FORMER IS NOT PRESUMED, EXCEPT IN CASES EXPRESSLY
MENTIONED IN THIS CODE; THE LATTER MUST BE CLEARLY ESTABLISHED IN ORDER THAT IT
Ø General rule: Effect of subrogation, the third person “steps into the shoes” of the creditor
MAY TAKE EFFECT.
and becomes the new creditor.
• Exception: In conventional subrogation, however, the parties may stipulate the
nature, limits, extent and scope of the subrogation provided these are not contrary
to law, morals, good customs, public order, or public policy.
Ø Legal subrogation takes effect by mandate of law and does not proceed from an agreement
of the parties.
Ø Conventional subrogation must be clearly established by the unequivocal terms of the ART. 1304. A CREDITOR, TO WHOM PARTIAL PAYMENT HAS BEEN MADE, MAY EXERCISE HIS
substituting obligation or by the evident incompatibility of the new and old obligations on RIGHT FOR THE REMAINDER, AND HE SHALL BE PREFERRED TO THE PERSON WHO HAS BEEN
every point. SUBROGATED IN HIS PLACE IN VIRTUE OF THE PARTIAL PAYMENT OF THE SAME CREDIT.
Ø Both kinds of subrogation principally involve the change in the person of the creditor.
Ø Situation: Where a debt has been partially paid by a third person, with the consent of the
ART. 1301. CONVENTIONAL SUBROGATION OF A THIRD PERSON REQUIRES THE CONSENT OF debtor.
THE ORIGINAL PARTIES AND OF THE THIRD PERSON. Ø The only right of the third party who made the payment is to be reimbursed of the amount
he has partially paid pursuant to Art. 1236.
Ø In case the creditor and the third person who made partial payment both demand from the
Ø Contractual – must be agreed upon by the debtor, new creditor and the old debtor. debtor at the same time, the creditor shall be preferred.
Ø If the debtor does not agree and the third party makes payment to the creditor, such third
party – Fig. 3. Extinctive Novation – Balisong, P.
1. Can demand payment from the debtor up to the extent the latter has been
benefited, but
2. Cannot compel the creditor to subrogate him in his rights.

ART. 1302. IT IS PRESUMED THAT THERE IS LEGAL SUBROGATION:

(1) WHEN A CREDITOR PAYS ANOTHER CREDITOR WHO IS PREFERRED, EVEN WITHOUT THE
DEBTOR'S KNOWLEDGE;
(2) WHEN A THIRD PERSON, NOT INTERESTED IN THE OBLIGATION, PAYS WITH THE EXPRESS OR
TACIT APPROVAL OF THE DEBTOR;
(3) WHEN, EVEN WITHOUT THE KNOWLEDGE OF THE DEBTOR, A PERSON INTERESTED IN THE
FULFILLMENT OF THE OBLIGATION PAYS, WITHOUT PREJUDICE TO THE EFFECTS OF CONFUSION
AS TO THE LATTER'S SHARE.

40 YAP, K. | ATENEO LAW


***ADDITIONAL NOTES FOR MIDTERM EXAM***

Ø Doctrine of implied term – one party must not prevent the other party from fulfilling the
obligation.
1. The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment (constructive fulfillment). (Art. 1186)
2. If through the creditor's acts the debtor cannot make a choice according to the
terms of the obligation, the latter may rescind the contract with damages, the
debtor may rescind the contract with damages. (Art. 1203)
3. The creditor shall have a right to indemnity for damages when, through the fault
of the debtor, all the things which are alternatively the object of the obligation
have been lost, or the compliance of the obligation has become impossible.
Creditor may rescind. (Art. 1204)

Ø Situations when the court can fix a period:

1. When the debtor will pay “when his means permit him to do so.” (Art. 1180)
2. Potestative condition, when upon the will of the debtor in fulfillment of the
obligation (Patente v. Omega, 1953)
3. In case of rescission with just cause. (Art. 1191 (3))
4. When obligation does not fix a period but from the nature and circumstances it
can be inferred that the parties intended a period. (Art. 1197)

Ø “Number X ‘to sa exam!!!” (Sta. Maria, 2016-2017) [incomplete]

1. Two-step process when the court fixes a period (Art. 1197) (Gregorio Araneta
v. Phil. Sugar):
1. Determine that the obligation does not fix a period (or that a period is
made to depend upon the will of the debtor), but from the nature and
the circumstances it can be inferred that a period was intended; and
• Text of the contract; and
• Context (intention of the parties)
2 Decide what period was probably contemplated by the parties.
2. When can both penal clause and damages apply?
1. By express stipulation;
2. Non-payment of penalty; and
3. In cases of fraud.
3. Generally, the duty of the court in conflicts involving contracts is only to
determine the rights of the parties.
• (One of the) exceptions: Unconscionable penalty. (Art. 1229)
4. Case of Far East Bank & Trust Company v. Diaz Realty, Inc, 2001.
• Requisites for a valid tender of payment:
1. Fusion of intent, ability and capability to make good such
offer; and
2. Must absolutely cover such full amount.
• Whether the tender of a check is a valid tender of payment.
• Though a check is not legal tender, and a creditor may
validly refuse to accept it if tendered as payment, one who in
fact accepted a fully funded check after the debtor’s
manifestation that it had been given to settle an obligation is
estopped from later on denouncing the efficacy of such
tender of payment.

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TITLE II. – CONTRACTS
CHAPTER 1: GENERAL PROVISIONS
ART. 1305. A CONTRACT IS A MEETING OF MINDS BETWEEN TWO PERSONS WHEREBY ONE
BINDS HIMSELF, WITH RESPECT TO THE OTHER, TO GIVE SOMETHING OR TO RENDER SOME
SERVICE.
Ø Contract – a juridical convention manifested in legal form, by virtue of which one or more
persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of
a prestation to give, to do or not to do.
Ø In rem – pertains to a real right.
Ø In personam – pertains to a personal right.
Ø Stages of a contract:
1. Negotiation – from the time the prospective contracting parties indicate interest
in the contract to the time the contract is concluded (perfected).
2. Perfection – upon the concurrence of the essential elements thereof.
§ A contract may be consensual as to perfection, and is so established
upon a mere meeting of the minds, i.e., the concurrence of offer and
acceptance, on the object and on the cause thereof.
§ Real contract – a contract which requires, in addition to the other
elements, the delivery of the object of the agreement, as in pledge or
commodatum.
§ Solemn contract – the prescribed form is an essential element thereof.
Compliance with certain formalities prescribed by law, such as in
donation of real property, is essential in order to make the act valid.
3. Consummation – when the parties perform their respective undertakings under
the contract, culminating the extinguishment thereof.
Ø Two-fold duty in a contract:
1. Good faith duty; and
2. Duty to follow the stipulations because it has the force of law.
Ø Ex. A and B enter into a contract wherein A shall sell B property for 1 million, offered by
A, accepted by B. A offers manner of payment which is 2 installments, but B refuses. B
then files a case, asserting that they had passed the perfection stage, thus A committed a
breach.
ü B is wrong. Manner should also be determined upon perfection.
Ø Differentiate real contracts from solemn contracts.
ü Real contracts are perfected upon delivery of the object of the contract, while
solemn contracts are perfected upon the complete satisfaction of the formalities
required by law.
ART. 1306. THE CONTRACTING PARTIES MAY ESTABLISH SUCH STIPULATIONS, CLAUSES,
TERMS AND CONDITIONS AS THEY MAY DEEM CONVENIENT, PROVIDED THEY ARE NOT
CONTRARY TO LAW, MORALS , GOOD CUSTOMS, PUBLIC ORDER, OR PUBLIC POLICY.
Ø This provision provides for the autonomous nature of contracts.
• This freedom also prohibits a party from coercing or intimidating or unduly
influencing another to enter into a contract.
42 YAP, K. | ATENEO LAW
• The principle of party autonomy in contracts is not, however, an absolute
principle. Stipulations should not be contrary to laws, morals, good customs,
public order or public policy. (Pakistan International Airlines v. Ople, 1990)
Ø In order to declare void as against public policy, it must be found that the contract, as to
the consideration or thing to be done – (Teves v. People’s Homesite and Housing
Corporation, 1968)
1. Has a tendency to injure the public;
2. Is against the public good or contravenes some established interest of society; or
3. Is inconsistent with sound policy and good morals which tends to undermine the
security of individual rights.
Ø Only laws existing at the time of the execution of a contract are applicable thereto and that
later statutes do not govern said contract unless the latter is specifically intended to have a
retroactive effect.
• A later law which enlarges, abridges or in any manner changes the intent of the
parties to the contract necessarily impairs the contract itself and cannot be given
retroactive effect without violating the constitutional prohibition against
impairment of contracts. (Art. III Sec. 10)
• Non-impairment of contracts or vested rights clauses will have to yield to the
superior and legitimate exercise by the State of police power to promote the
health, morals, peace, education, good order, safety and general welfare of the
people.
Ø If the contracting parties stipulate something against the law, is it necessarily void?
ü No, unless the law is mandatory or prohibitory in nature.
Ø In credit cards, if the total interest exceeds 40%, it is void, and the legal interest of 12%
shall apply. (Recent case decided by the SC)
Ø Labor code protects a higher interest. Remember that a void contract cannot be ratified.
Ø Arellano required a student to indemnify the scholarship grants given to him because the
student will transfer to a different school. Student signs such agreement.
ü Still void because it is against public policy. Student may ask for reimbursement
if he indemnified the school. (Emeterio Cui v. Arellano University, 1961)
ART. 1307. INNOMINATE CONTRACTS SHALL BE REGULATED BY THE STIPULATIONS OF THE
PARTIES, BY THE PROVISIONS OF TITLES I AND II OF THIS BOOK , BY THE RULES GOVERNING
THE MOST ANALOGOUS NOMINATE CONTRACTS, AND BY THE CUSTOMS OF THE PLACE.
Ø Innominate contracts – those which are not specifically governed by any provision in the
Civil Code or special laws, but which likewise involve the fulfillment or accomplishment
of some prestations.
Ø Innominate contracts are governed by:
1. Stipulation of the parties
• Following the general rule on contracts, they can therefore stipulate
any provision, term and condition that will govern the enforceability
of their agreement provided they are not contrary to law, morals, good
customs, public order, or public policy
2. Provisions in the law of obligations and contracts under Titles I and II of the Civil
Code
§ Though they may be innominate, they are still contracts which are
sources of obligations.
3. Rules governing the most analogous nominate contracts

§ The various types of nominate contracts are: sale, barter or exchange,
lease, partnership, agency, loan, deposit, aleatory contracts,
compromises, guaranty, pledge, mortgage, and antichresis.
4. Customs of the place
• Custom – a rule of conduct formed by repetition of acts uniformly
observed as a social rule, legally binding and obligatory and it must be
proved as a fact according to the rules of evidence.
Ø Classifications of innominate contracts:
1. Do ut des – where the parties mutually give each other a certain thing.
2. Facio ut facias – where the parties mutually render a service.
3. Do ut facias/Facias ut des – mixed prestations.
Ø Lawyer-client retained agreement is an innominate contract. The most analogous nominate
contract is contract of agency.
Ø Modelling contract is an innominate contract. Most analogous nominate contract is a
contract of appease of work, or a sale (of service).
Ø Why are nominate and innominate contracts under the principle of autonomy?
• Because the parties can stipulate their own terms and conditions in both nominate
and innominate contracts.
ART. 1308. THE CONTRACT MUST BIND BOTH CONTRACTING PARTIES; ITS VALIDITY OR
COMPLIANCE CANNOT BE LEFT TO THE WILL OF ONE OF THEM.
Ø In giving the vendor the right to unilaterally rescind or terminate the contract in the event
the other party fails to pay any of the required installments of the purchase price, there is
no violation of this provision. (Garcia v. Rita Legarda, Inc., 1967)
• The above stipulation, to our mind, merely gives the vendor “the right to declare
this contract cancelled and of no effect” upon fulfillment of the conditions therein
set forth. It does not leave the validity or compliance of the contract “entirely to
the will of one of the contracting parties.
Ø Contract of adhesion – one wherein a party, usually a corporation, prepares the stipulations
in the contract, while the other party merely affixes his signature or his “adhesion” thereto.
• Contracts of adhesion are not per se void. There must be a showing that it is
highly inequitable for such contract to be invalidated.
• These types of contracts are as binding as ordinary contracts. Because in reality,
the party who adheres to the contract is free to reject it entirely
Ø Mutuality of contracts – both parties are in a position of essential equality.
• If there is an escalation clause, there must also be a lowering clause to satisfy
essential equality.
• Stipulation that a party may, for any cause, terminate the contract is valid because
both parties have the same right to terminate, but it just so happens that one of
the parties will exercise it first.
• Stipulations that violate the mutuality of contracts are necessarily void.
Ø Reconcile Arts. 1308 and 1309.
• In 1309, the contract parties already entered into a contract, and thereafter
constitute a third person to determine the manner of performance.
ART. 1309. THE DETERMINATION OF THE PERFORMANCE MAY BE LEFT TO A THIRD PERSON,
WHOSE DECISION SHALL NOT BE BINDING UNTIL IT HAS BEEN MADE KNOWN TO BOTH
CONTRACTING PARTIES.
43 YAP, K. | ATENEO LAW
Ø The parties may constitute a third party to determine the performance of the contract. The
decision shall become effective when both of the contracting parties already have
knowledge of the decision.
• It will not be binding if only one of the parties knows of the decision.
ART. 1310. THE DETERMINATION SHALL NOT BE OBLIGATORY IF IT IS EVIDENTLY
INEQUITABLE. IN SUCH CASE, THE COURTS SHALL DECIDE WHAT IS EQUITABLE UNDER THE
CIRCUMSTANCES.
Ø The determination must not be evidently inequitable.
• Ex. A and B enter into a contract whereby A will sing in the nightclub of B for 2
days. For 2 days, A is to be paid P5,000 for such number of songs as to be
determined by X. X makes a determination that A is to sing 20 songs continually
without break from 6:00pm to 2:00am, and if the club is filled with people, A
will gibe an encore 3 times divided into 30 minutes each time. A shall only sing
those specifically requested by the audience, and if A does not know the song,
this will be deducted from A’s fee.
§ A can go to court which will decide what is equitable under the
circumstances.
Ø Court intervention is necessary in order that the intent of the parties will not be rendered
nugatory by the inequitable terms and conditions of a third party.
ART. 1311. CONTRACTS TAKE EFFECT ONLY BETWEEN THE PARTIES, THEIR ASSIGNS AND
HEIRS, EXCEPT IN CASE WHERE THE RIGHTS AND OBLIGATIONS ARISING FROM THE CONTRACT
ARE NOT TRANSMISSIBLE BY THEIR NATURE, OR BY STIPULATION OR BY PROVISION OF LAW.
THE HEIR IS NOT LIABLE BEYOND THE VALUE OF THE PROPERTY HE RECEIVED FROM THE
DECEDENT.
IF A CONTRACT SHOULD CONTAIN SOME STIPULATION IN FAVOR OF A THIRD PERSON, HE MAY
DEMAND ITS FULFILLMENT PROVIDED HE COMMUNICATED HIS ACCEPTANCE TO THE OBLIGOR
BEFORE ITS REVOCATION. A MERE INCIDENTAL BENEFIT OR INTEREST OF A PERSON IS NOT
SUFFICIENT. THE CONTRACTING PARTIES MUST HAVE CLEARLY AND DELIBERATELY
CONFERRED A FAVOR UPON A THIRD PERSON .
Ø Relativity of contracts – transmissible rights and obligations.
• Exceptions:
1. Stipulations pour autrui. (Art. 1311)
2. In real rights, a third person is bound, subject to Mortgage Law and
Land Registration Act. (Art. 1312)
3. Contracts intended to defraud creditors. (Art. 1313)
4. Third party induces another to violate his contract. (Art. 1314)
Ø Generally, contracts take effect only between the immediate parties to the same.
• A stranger cannot invoke the contract of another for his own interest or for a
source of an alleged prejudice.
• A party to a contract cannot impose any obligation or liability to one who, under
its terms, is a stranger to the said contract.
Ø Contract pour autrui – a contract which contains a stipulation conferring benefit to a third
party.

• The basic civil law principle of relativity of contracts provides that contracts can
only bind the parties who entered into it, and it cannot favor or prejudice a third
person, even if he is aware of such contract and has acted with knowledge
thereof. (Integrated Packing Corporation v. CA, 2000)
• Requisites of a stipulation pour autrui:
1. Stipulation in favor of a third person;
2. Stipulation must be a part, not the whole of the contract;
3. Contracting parties must have clearly and deliberately conferred a
favor upon a third person, not a mere incidental benefit or interest;
4. Neither of the contracting parties bears the legal representation or
authorization of the third party; and
5. Favored party must have communicated his acceptance.
• It is unnecessary that such third person be always named in the contract.
• The law requires that the third party must communicate his acceptance to the
obligor before its revocation.
• It is not necessary as a general rule for the third party to make a formal acceptance
prior to bringing of the suit. The assent of the beneficiary will be presumed. The
commencement of an action to enforce a promise is sufficient as an acceptance.
• Relate credit card transactions to stipulations pour autrui.
§ A and Bank entered into agreement that bank will issue him a credit
card. Upon payment by A to any shop, there is a stipulation that “the
credit card will be honored as payment to whomever it will be
presented provided it is a clientele of the bank.”
o The shop is the third person benefited.
o Swiping is the manifestation of acceptance.
• Ex. A loans money from B. X is surety of B. Is the stipulation between X and B
pour autrui?
§ No, because it is the whole, not only part of the agreement.
• Ex. A borrowed money from B. A collateralized his house as mortgage. A and B
are parties to the mortgage contract. A sold house to X. A did not pay
indebtedness. B foreclosed the collateralized house. X refused. Is X’s refusal
valid?
§ No. As a general rule, only A and B should be bound by the mortgage
contract. However, Art. 1312 provides that third persons come into
possession of the object of the contract shall be bound thereby.
Ø The basic principle of relativity of contracts extends to the principal parties’ assigns and
heirs.
• Ex. the period of a contract of lease is binding upon the heirs of the lessor.
Likewise, a sublessee is bound by the terms of the principal contract of the lessor
and the lessee.
Ø Transmission of rights and obligations in a contract may likewise be agreed upon by the
parties.
• If the transferee is the heir of the decedent, he shall not be held liable beyond the
value of the property he received from the decedent.
• If the property is not sufficient to satisfy the debt, the creditor cannot personally
go against the heir to collect the deficiency.
Ø Cases when contracts cannot take effect with respect to the heirs or assigns:
1. When the nature of the contract does not allow transmission;
2. When the parties stipulate that no transmission of rights shall be allowed; and
3. When the law provides non-transmission.
44 YAP, K. | ATENEO LAW
ART. 1312. IN CONTRACTS CREATING REAL RIGHTS, THIRD PERSONS WHO COME INTO
POSSESSION OF THE OBJECT OF THE CONTRACT ARE BOUND THEREBY, SUBJECT TO THE
PROVISIONS OF THE MORTGAGE LAW AND THE LAND REGISTRATION L AWS.
Ø A lease of real estate recorded in the Registry of Property between a lessor and a lessee
shall bind a subsequent buyer who purchases and comes into the possession of the
contract’s object which is the property leased.
• Likewise, a sublessee is bound by the contract of the lessor and the lessee.
Ø The following can be ejected in an ejectment suit despite the fact that they were not made
parties to the ejectment suit:
1. Trespassers, squatters, or agents of the defendant-lessee;
2. Guest or other occupants of the premises with the permission of defendant-
lessee;
3. Transferees pendent lite;
4. Sub-lessees;
5. Co-lessees; and
6. Members of the family, relatives and other privies of the defendant-lessee.
Ø A property mortgaged as a collateral of a debt and recorded in the Registry of Property
shall bind any subsequent possessor-owner of the same.
ART. 1313. CREDITORS ARE PROTECTED IN CASES OF CONTRACTS INTENDED TO DEFRAUD
THEM.
Ø Ex. In Art. 1381 (3), a contract shall be rescissible if it is undertaken in fraud of creditors
when the latter cannot in any other manner collect the claim due them.
• In such a case, even if the creditor is not a party to the contract intended to
defraud him, he is given legal personality by law to terminate the contract.
Ø Ex. A entered into a contract of sale with X, his son, to evade judgment in favor of B, the
creditor of A. B is nothing to the contract of sale, but what can he do?
• B can ask for the rescission of the contract of sale because the contract was
intended to defraud him.
ART. 1314. ANY THIRD PERSON WHO INDUCES ANOTHER TO VIOLATE HIS CONTRACT SHALL BE
LIABLE FOR DAMAGES TO THE OTHER CONTRACTING PARTY.
Ø Contracts are binding between and among the parties who entered into the same. The
parties therefore are expected to comply with the contract in keeping with good faith, usage
and law.
Ø A stranger does owe to the parties to the agreement a duty not to interfere with its
performance.
Ø An action for damages is not, however, the sole remedy. In a proper case one may properly
be enjoined from in any way procuring the violation of lawful and valid contract.
Ø Damage – the loss, hurt, or harm which results from injury.
Ø Damages – the recompense or compensation awarded for the damage suffered.
Ø One becomes liable in an action for damages for a non-trespassory invasion of another’s
interest in the private use and enjoyment of asset if:
1. The other has property rights and privileges with respect to the use or enjoyment
interfered with;
2. Invasion is substantial;

3. Defendant’s conduct is a legal cause of the invasion; and
4. Invasion is either intentional and unreasonable or unintentional and actionable
under general negligence rules.
Ø Elements of tort interference:
1. Existence of a valid contract;
2. Knowledge on the part of the third person of the existence of contract; and
3. Interference of the third persons is without legal justification or excuse.
§ As a general rule, justification for interfering with the business
relations of another exists where the actor’s motive is to bene t himself.
§ Where there was no malice in the interference of a contract, and the
impulse behind one’s conduct lies in a proper business interest rather
than in wrongful motives, a party cannot be a malicious interferer.
(Gilchrist v. Cuddy, 1915)
ART. 1315. CONTRACTS ARE PERFECTED BY MERE CONSENT, AND FROM THAT MOMENT THE
PARTIES ARE BOUND NOT ONLY TO THE FULFILLMENT OF WHAT HAS BEEN EXPRESSLY
STIPULATED BUT ALSO TO ALL THE CONSEQUENCES WHICH , ACCORDING TO THEIR NATURE,
MAY BE IN KEEPING WITH GOOD FAITH, USAGE AND LAW.
Ø Consequences of entering into a contract, among others:
1. The parties are bound to exercise the diligence of a good father of a family with
respect to the thing sought to be delivered unless there is another standard of care
stipulated by the parties or required by a law.
2. There is an implied obligation or duty to do the act contracted to be performed
with reasonable care in order that the person or property of others may not be
injured by any force which he sets in motion or by any agent or agency for which
he is responsible.
3. The party is obliged to deliver with the determinate thing which is the object of
the contract all its accessions and accessories even though they may not have
been mentioned.
4. They shall be liable for fortuitous event in case of delay.
Ø General rule: a contract is perfected by mere consent of the parties.
• Exception: However, ownership over the object of the contract of sale is
transferred only upon actual or constructive delivery. Moreover, in real contracts,
the delivery of the object of the contract is necessary for its perfection.
ART. 1316. REAL CONTRACTS, SUCH AS DEPOSIT, PLEDGE AND COMMODATUM, ARE NOT
PERFECTED UNTIL THE DELIVERY OF THE OBJECT OF THE OBLIGATION.
Ø An accepted promise to deliver something by way of commodatum is binding upon the
parties, but the commodatum itself shall be perfected upon the delivery of the object of the
contract.
Ø A contract of pledge is constituted by the owner of the object to be pledged to secure a
loan. In a pledge, it is indispensable that the thing pledged be placed in the possession of
the creditor, or of a third person by common agreement.
Ø In a contract of deposit, a deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation and principal purpose of safely keeping it and of
returning the same.
45 YAP, K. | ATENEO LAW
ART. 1317. NO ONE MAY CONTRACT IN THE NAME OF ANOTHER WITHOUT BEING AUTHORIZED
BY THE LATTER, OR UNLESS HE HAS BY LAW A RIGHT TO REPRESENT HIM.
A CONTRACT ENTERED INTO IN THE NAME OF ANOTHER BY ONE WHO HAS NO AUTHORITY OR
LEGAL REPRESENTATION, OR WHO HAS ACTED BEYOND HIS POWERS, SHALL BE
UNENFORCEABLE, UNLESS IT IS RATIFIED, EXPRESSLY OR IMPLIEDLY, BY THE PERSON ON
WHOSE BEHALF IT HAS BEEN EXECUTED, BEFORE IT IS REVOKED BY THE OTHER CONTRACTING
PARTY.
Ø Contract of agency – a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.
• The principal of the agent must comply with all the obligations which the agent
may have contracted within the scope of his authority.
• As for obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly.
• Even when the agent exceeded his authority, the principal is solidarily liable with
the agent if the former allowed the latter to act as though he had full powers.
Ø When a sale of a piece of land or any interest therein is through an agent, the authority of
the latter shall be in writing; otherwise, the sale shall be void.
Ø A contract entered into in the name of another by one who ostensibly might have but who,
in reality, had no real authority or legal representation, or who, having such authority, acted
beyond his powers, would be unenforceable unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked by the other
contracting party.
Ø If there was revocation first, ratification is unnecessary. In the case herein, there was
revocation when Regal Films filed a case in court. The subsequent ratification made by
Gabby Concepcion in court by accepting the compromise agreement is ineffective because
the offer was already revoked. (Regal Films v. Concepcion, 2001)
CHAPTER 2: ESSENTIAL REQUISITES OF CONTRACTS
GENERAL PROVISIONS
ART. 1318. THERE IS NO CONTRACT UNLESS THE FOLLOWING REQUISITES CONCUR:
(1) CONSENT OF THE CONTRACTING PARTIES;
(2) O BJECT CERTAIN WHICH IS THE SUBJECT MATTER OF THE CONTRACT;
(3) CAUSE OF THE OBLIGATION WHICH IS ESTABLISHED.
Ø Concur – means that all 3 requisites must be present. Absence of one negates the existence
of the contract.
Ø 2 types of void contracts:
1. Ostensible but void contracts – there appears to be a contract, all elements
concur.
2. Void and inexistent contracts
§ Inexistent contracts can be invoked by any person whenever juridical
effects founded thereon are asserted against him.
Ø The rule on in pari delicto as between the parties does not apply in case of inexistent
contracts. It only applies to ostensible but void contracts; none o the parties may file in
court to declare the deed of sale void.

SECTION ONE: CONSENT
ART. 1319. CONSENT IS MANIFESTED BY THE MEETING OF THE OFFER AND THE ACCEPTANCE
UPON THE THING AND THE CAUSE WHICH ARE TO CONSTITUTE THE CONTRACT. THE OFFER
MUST BE CERTAIN AND THE ACCEPTANCE ABSOLUTE. A QUALIFIED ACCEPTANCE CONSTITUTES
A COUNTER-OFFER.
ACCEPTANCE MADE BY LETTER OR TELEGRAM DOES NOT BIND THE OFFERER EXCEPT FROM
THE TIME IT CAME TO HIS KNOWLEDGE. THE CONTRACT, IN SUCH A CASE, IS PRESUMED TO
HAVE BEEN ENTERED INTO IN THE PLACE WHERE THE OFFER WAS MADE.
ART. 1320. AN ACCEPTANCE MAY BE EXPRESS OR IMPLIED.
Ø Consent – the concurrence of the wills of the offerer and the acceptor as to the thing and
the cause which constitute a contract.
Ø Consent constitutes:
1. Offer; and
2. Acceptance.
Ø Offer – a manifestation of a willingness to enter into a bargain so made as to justify another
person in understanding that his assent to that bargain is invited and will conclude it.
Ø Even though the offer is made with the intention that its acceptance will create mutual
obligations, it will not accomplish this purpose unless its terms are sufficiently complete.
• It must be so complete that its acceptance will form an agreement containing all
the terms necessary and intended by the parties, for it is obvious that there can
be no agreement until its terms are settled, and that an offer which is not complete
is merely a step in the negotiations.
• The offerer herein therefor empowers the person offered to create a contract.
Ø An imperfect promise (policitacion) is merely an offer. Likewise, public advertisements or
solicitations and the like are ordinarily construed as mere invitations to make offers or only
as proposals.
• Not considered binding commitments. At any time prior to the perfection of the
contract, either negotiating party may stop the negotiation. The withdrawal is
effective immediately after its manifestation.
Ø The essence of consent is the conformity of the parties on the terms of the contract, the
acceptance by one, of the offers made by the other. (Salonga v. Farrales, 1981)
Ø Except where a formal acceptance is so required, it may be made either in a formal or an
informal manner, and my be shown by acts, conduct, or words of the accepting party that
clearly manifest a present intention or determination to accept the offer to buy or sell.
(Adelfa Properties, Inc. v CA, 1995)
Ø Acceptance must be:
1. Unconditional;
2. Identical to the terms of the offer; and
3. Must not vary from the proposal either by way of omission, addition or alteration.
Ø Manner of acceptance may be stipulated.
Ø A qualified acceptance is considered by law as a counter-offer. Thus, until the original
proponent accedes to the modification imposed and gives notice to that effect, the contract
is not perfected.
• If the terms and conditions were imposed on the performance of the obligation
rather than the perfection of the contract, it is not a qualified acceptance. (Jardin
Davies v. CA, 2000)
46 YAP, K. | ATENEO LAW
• If the condition is imposed on the perfection of a contract, failure to comply
results in the failure of a contract. If the condition is imposed merely on the
performance of an obligation, failure to comply merely gives the other party
options and/or remedies to protect interests. (Babasa v. CA, 1998)
Ø The requirement is that the person making the offer must have actual knowledge of the
acceptance.
• If A offered B his property, and B through telegram sent his acceptance. Before
A actually received the telegram, he informs B of the revocation of his offer.
Thus, no contract is perfected yet.
Ø At any time prior to the perfection of the contract, either negotiating party may stop the
negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective
immediately after its manifestation; such as by its mailing and not necessarily when the
offeree learns of the withdrawal. (Laudico v. Arias, 1922)
Ø Ex. I offer to sell you my car. You are in Baguio, so I sent the offer through snail mail. You
publish the acceptance in newspaper of general circulation. Is there a contract?
• No. Constructive knowledge cannot apply because the law expressly provides
that acceptance must “come to offerer’s actual knowledge.”
• If you snail mail your acceptance to me, but I snail-mailed my withdrawal of the
offer as well. However, I received your acceptance first. Is there a contract?
§ No, remember that according to the Laudico case, there is such a thing
as constructive withdrawal.
ART. 1321. THE PERSON MAKING THE OFFER MAY FIX THE TIME, PLACE, AND MANNER OF
ACCEPTANCE , ALL OF WHICH MUST BE COMPLIED WITH.
Ø The offerer will not be bound by an acceptance made by the acceptor in any other manner
than that specified by the offerer, unless the latter acquiesces in the change.
Ø In a contract of sale, the manner of payment of the purchase price is an essential element
before a valid and binding contract of sale can exist.
• A disagreement on the manner of payment is tantamount to a failure to agree on
the price.
ART. 1322. AN OFFER MADE THROUGH AN AGENT IS ACCEPTED FROM THE TIME ACCEPTANCE
IS COMMUNICATED TO HIM.
Ø Contract of agency – a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.
Ø The principal must comply with all the obligations which the agent may have contracted
within the scope of his authority. However, when the agent exceeds his authority, the
principal is not bound except when he ratifies it expressly or tacitly.
Ø If the offer is made through an agent, acceptance of the offer can be made to such agent.
• However, when a sale of a piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing, otherwise the sale shall be
void.

ART. 1323. AN OFFER BECOMES INEFFECTIVE UPON THE DEATH, CIVIL INTERDICTION,
INSANITY, OR INSOLVENCY OF EITHER PARTY BEFORE ACCEPTANCE IS CONVEYED.
Ø There can be no contract (inexistent) when, before acceptance is conveyed, either parties:
1. Dies;
2. Suffers civil interdiction; or
3. Becomes insane or insolvent.
Ø Before acceptance is conveyed – before acceptance has come to the actual knowledge of
the offerer.
ART. 1324. WHEN THE OFFERER HAS ALLOWED THE OFFEREE A CERTAIN PERIOD TO ACCEPT,
THE OFFER MAY BE WITHDRAWN AT ANY TIME BEFORE ACCEPTANCE BY COMMUNICATING
SUCH WITHDRAWAL , EXCEPT WHEN THE OPTION IS FOUNDED UPON A CONSIDERATION, AS
SOMETHING PAID OR PROMISED.
Ø Option – a contract granting a privilege to buy or sell at a determined price within an agreed
time.
Ø Rules in case the offerer has allowed the offeree a certain period, otherwise known as an
option period, to accept the offer: (Ang Yu Asuncion v. CA, 1994)
1. If the period is not itself founded upon or supported by a consideration, the
offerer is still free and has the right to withdraw the offer before its acceptance.
2. If an acceptance has been made, before the offerer’s coming to know of such
fact, by communicating that withdrawal to the offeree, the offerer is still free and
has the right to withdraw the offer before its acceptance.
3. The right to withdraw must not be exercised whimsically or arbitrarily.
Otherwise, it could give rise to a damage claim under Article 19 of the Civil
Code.
4. If the period has a separate condition, a contract of option is deemed perfected,
and it would be a breach of that contract to withdraw the offer during the agreed
period.
§ The option, however, is an independent contract by itself and it is to be
distinguished from the projected main agreement.
5. If in fact the optioner-offerer withdraws the offer before its acceptance by the
optionee-offeree, the latter may not sue for specific performance on the proposed
contract since it failed to reach its own stage of perfection.
§ The optioner-offerer, however, renders himself liable for damages for
breach of the option.
Ø An optional contract is a privilege existing only in one party – the buyer. For a separate
consideration paid, he is given the right to decide to purchase or not, a certain merchandise
or property, at any time within the agreed period, at a fixed price. Thus, he may not be
compelled to exercise the option to buy before the period expires. (Serra v. CA, 1994)
Ø Consideration in an option contract may be anything of value, unlike in sale where it must
be the price certain in money or its equivalent. (San Miguel Properties v. Huang, 2000)
Ø Earnest money – different from option money in an option contract; considered part of the
price in a contract of sale and can be a proof of the perfection of the contract of sale.
• However, it is not the giving of earnest money per se, but proof of the
concurrence of all the essential elements of the contract of sale which establishes
the existence of a perfected sale.
47 YAP, K. | ATENEO LAW
• An earnest deposit (to guarantee that the buyer will not back out from the sale)
is not earnest money that can be considered as proof of the perfection of the
contract.
Ø Upon expiration of the option period and the person given such option does not manifest
his or her acceptance, the offerer may offer the intended contract to somebody else,
considered done in good faith. (Limson v. CA, 2001)
Ø Ex. You went to the supermarket and saw a person selling condominium units. You paid
the reservation fee. However, you opted not to buy the condo instead. Can the reservation
fee be reimbursed?
• No. Reservation fee was merely option money; money paid to avail the period.
Unlike option money, earnest money paid is considered part of the purchase
price.
ART. 1325. UNLESS IT APPEARS OTHERWISE, BUSINESS ADVERTISEMENTS OF THINGS FOR SALE
ARE NOT DEFINITE OFFERS , BUT MERE INVITATIONS TO MAKE AN OFFER.
Ø If a seller advertises that he intends to sell his house to any willing purchaser, it is an
invitation for the purchaser to make an offer or to negotiate as to how he intends to buy the
house.
• The offer of the purchaser should include all the essential requirements to make
a valid contract such as the price of the house.
Ø Unless it appears otherwise – the advertisement may constitute an offer which is certain.
ART. 1326. ADVERTISEMENTS FOR BIDDERS ARE SIMPLY INVITATIONS TO MAKE PROPOSALS,
AND THE ADVERTISER IS NOT BOUND TO ACCEPT THE HIGHEST OR LOWEST BIDDER, UNLESS
THE CONTRARY APPEARS.
Ø A person who entertains an advertisement to bid does not automatically become the other
party to a contract, he is only allowed to make proposals or offers.
• If he makes his bid, he thereby makes an offer which is not binding unless it is
accepted.
Ø The dissemination of “Terms and Conditions of the Bidding” to the bidders constitutes an
advertisement to bid in the project. The bid proposals or quotations are the offers. The
favorable reply of the company to one of the bidders is the acceptance. (Jardine Davies v.
CA, 2000)
ART. 1327. THE FOLLOWING CANNOT GIVE CONSENT TO A CONTRACT:
(1) UNEMANCIPATED MINORS;
(2) INSANE OR DEMENTED PERSONS, AND DEAF-MUTES WHO DO NOT KNOW HOW TO WRITE.
Ø Emancipation takes place by the attainment of majority age (18 years old).
Ø Any contract entered into by an unemancipated person is annullable or voidable.
• However, the persons who are capable cannot allege the incapacity of those with
whom they contracted to annul the contract, only such incapacitated person may
invoke the same.
• Furthermore, the incapacitated person is not obliged to make any restitution
except insofar as he has been benefited by the thing or price received by him
(such as using it for tuition fees).

Ø Some authorities consider a false representation as to age inducing a contract may be the
basis of an action in tort on the theory that such misrepresentation is not a part of the
contract. However, in order to hold the infant liable, the fraud must be actual and not
constructive.
• Mere silence when making a contract as to one’s age does not constitute a fraud
which can be made the basis of an action of deceit. Thus, the minor may annul
the contract. (Braganza v. De Villa Abrille, 1959)
• When there is active misrepresentation in the age of a minor, misrepresenting
himself to be of legal capacity, it shall constitute a fraud. Thus, contract entered
into is not voidable. (Mercado v. Espiritu, 1917)
Ø Contracts entered into by insane or demented persons are likewise annullable.
• Classes of persons suffering from mental incapacity:
1. Idiot – one who has been insane from birth.
2. Lunatic – one who was at one time sane, but who from some cause or
other has lost use of his reason.
3. Those who are not legally totally incapacitate but are mentally weak –
all forms of mental weakness which do not render the person totally
incapable of transacting business or managing his affairs.
Ø To annul a contract, it is always important to prove the insanity of the other party at the
time of the perfection of the contract.
• The contract of one who is insane as to be unable to understand its nature and
effect is voidable at his option, except for necessaries.
§ This is a privilege personal to the insane party and the agreement
cannot be avoided by the other party or a third person.
§ However, a person of unsound mind is liable on his contract for
necessities.
• When the insane person is not under a guardian and the other party has no
reasonable cause to believe him to be insane, the agreement is valid if equitable
and beneficial to such insane person, and has been so far executed that the other
party cannot be placed in status quo.
• The insanity alleged must have a direct bearing on the agreement. If unconnected
with the subject matter of the contract, it does not destroy its binding force.
Ø Contracts entered into by deaf-mutes who do not know how to write are also annullable.
• Being a deaf-mute alone is insufficient, the deaf-mute must likewise not know
how to write.
Ø The law clearly presumes in the situations in this provision, that the contract has been
entered into by competent persons.
ART. 1328. CONTRACTS ENTERED INTO DURING A LUCID INTERVAL ARE VALID. CONTRACTS
AGREED TO IN A STATE OF DRUNKENNESS OR DURING A HYPNOTIC SPELL ARE VOIDABLE.
Ø Lucid interval – that period of time when an insane person acts with reasonable
understanding, comprehension and discernment with respect to what he is doing.
• Where one is shown to have been mentally deranged at a recent period anterior
to the execution of the contract, that condition is presumed to continue and the
burden is on the other party to show that the agreement was entered into during
a lucid interval or after recovery, unless the derangement is caused by a
temporary ailment such as fever, fits or the like.
48 YAP, K. | ATENEO LAW
Ø Contracts entered into in a state of drunkenness may likewise be annulled, provided the
such intoxication must be of a character as to perpetuate an undue advantage over the
drunken person.
• Does not apply to agreements for necessities.
• The contracts of an intoxicated person may be voidable under any of the
following:
1. When it appears that the drunkenness was brought about by the
opposite party;
2. A fraudulent disadvantage was taken of it; and
3. Drunkenness was so complete as to deprive the party of his reason of
an agreeing mind.
• Mere intoxication unmixed with any equitable conduct on the part of the other
party to the agreement is insufficient to invalidate a contract entered into while
in such condition, unless the party is so drunk as to be incapable of understanding
the nature and effect of the agreement.
§ He must be rendered incapable of intelligent assent and deprived of the
power to know what he is doing.
• If one party in the transaction procures the intoxication of the other, it is voidable
at the intoxicated person’s option, notwithstanding that the degree of
drunkenness may not have been excessive.
Ø A contract entered into during a hypnotic spell is likewise voidable.
• Hypnosis – an artificially induced state, resembling sleep, but characterized by
exaggerated suggestibility and continued responsiveness to the voice of the
hypnotist.
ART. 1329. THE INCAPACITY DECLARED IN ARTICLE 1327 IS SUBJECT TO THE MODIFICATIONS
DETERMINED BY LAW, AND IS UNDERSTOOD TO BE WITHOUT PREJUDICE TO SPECIAL
DISQUALIFICATIONS ESTABLISHED IN THE LAWS .
ART. 1330. A CONTRACT WHERE CONSENT IS GIVEN THROUGH MISTAKE, VIOLENCE,
INTIMIDATION, UNDUE INFLUENCE, OR FRAUD IS VOIDABLE.
Ø To create a contract, the meeting of the minds must be:
1. Free;
2. Voluntary;
3. Willful; and
4. With a reasonable understanding of the various obligations the parties intend to
be bound.
Ø The common element in mistake, violence, intimidation, undue influence and fraud is that
there is no real assent to the contract.
Ø Acts of duress – includes intimidation, violence and undue influence; as a result of which,
the coerced party is compelled to execute the contract against his will.
Ø The party under duress is not bound under the agreement, unless the other party deals with
him in:
1. Good faith;
2. Ignorance of the improper influence; and
3. Belief that the party is acting voluntarily.
Ø A contract obtained through duress or mistake is voidable or annullable under Art. 1390.

ART. 1331. IN ORDER THAT MISTAKE MAY INVALIDATE CONSENT, IT SHOULD REFER TO THE
SUBSTANCE OF THE THING WHICH IS THE OBJECT OF THE CONTRACT , OR TO THOSE CONDITIONS
WHICH HAVE PRINCIPALLY MOVED ONE OR BOTH PARTIES TO ENTER INTO THE CONTRACT .
MISTAKE AS TO THE IDENTITY OR QUALIFICATIONS OF ONE OF THE PARTIES WILL VITIATE
CONSENT ONLY WHEN SUCH IDENTITY OR QUALIFICATIONS HAVE BEEN THE PRINCIPAL CAUSE
OF THE CONTRACT.
A SIMPLE MISTAKE OF ACCOUNT SHALL GIVE RISE TO ITS CORRECTION.
Ø For mistake to make a contract voidable or annullable, the consent must either refer to the:
1. Substance of the thing which is the object of the contract; or
2. Conditions which principally induced the parties to enter into a contract.
§ Said conditions must not be mere incidents to the consideration.
Ø A unilateral mistake in the making of an agreement, of which the other party is entirely
ignorant and to which he in no way contributes, will not affect the agreement or afford
ground for its avoidance or rescission, unless such mistake goes to the substance of the
agreement itself.
Ø Ignorance – the absence of knowledge with respect to a thing.
Ø Mistake – a wrong conception about said thing, or a belief in the existence of some
circumstance, fact, or event which in reality does not exist.
Ø Mistake can also refer to those conditions which have principally moved one or both parties
to enter into the contract.
• Ex. A lent money to X only because A was informed that it was the special
request of Z to A, who owed Z a favor which A wanted to reciprocate, and only
because there was an apparent assurance from Z that he will be a solidary debtor.
X knew that if it were not for the request of Z and his engagement as solidary
debtor the loan would not have been consummated. However in reality, Z only
vouched for the credit worthiness of X.
§ The said agreement can be annulled by A on the ground that there was
an invalid consent as the condition which principally moved both
parties to enter into the contract was a mistake.
Ø Mistakes as to the identity or qualifications of one of the parties will vitiate consent only
when such identity or qualification has been the principal cause of the contract.
• Mistakes as to the identity of the person with whom the contract is made arise
where A contracts with X believing him to be M; that is, where the offerer has in
contemplation a definite person with whom he intends to contract.
Ø A simple mistake of account shall give rise to its correction because a simple accounting
error does not go into the essentials of a contract.
ART. 1332. WHEN ONE OF THE PARTIES IS UNABLE TO READ, OR IF THE CONTRACT IS IN A
LANGUAGE NOT UNDERSTOOD BY HIM, AND MISTAKE OR FRAUD IS ALLEGED, THE PERSON
ENFORCING THE CONTRACT MUST SHOW THAT THE TERMS THEREOF HAVE BEEN FULLY
EXPLAINED TO THE FORMER.
Ø In entering into a contract, the parties are presumed to have understood the terms of the
contract they voluntarily signed especially when there is proof that they are educated.
Torres v. CA, 1999)
49 YAP, K. | ATENEO LAW
Ø For Art. 1332, the person invoking the same must first prove that he has the conditions
descripted therein. He must prove the fact that he is unable to read or he does not understand
the language of the contract.
• Thereafter, the burden will shift to the person enforcing the contract to show that
the terms thereof have been explained to the person who is unable to read or who
does not understand the language of the contract. (Sales v. CA, 1992)
Ø Wherein the question whether the Deed of Definite Sale was in reality an equitable
mortgage where the subject property was merely intended to secure an existing debt by
way of mortgage, the SC ruled that it was an equitable mortgage on the ground that the
petitioner was illiterate, and it was not explained to her that the contract was a Deed of
Definite Sale. Respondent herein failed to satisfy the burden of proof showing that the
contract was explained to the petitioner. (Lustan v. CA, 1997)
Ø As a general rule, there must be mutual mistake in order to annul the contract.
• However, one could be mistaken provided that the mistake is in the substance of
the object or in the condition which is the principal cause of the contract.
• Ex. A shall buy the boat of B named “Isabel.” When A went to the port, there
were 2 boats named Isabel. Is there a contract?
• No. There is a mistake in the substance of the thing.
Ø If mistake of law is considered as mistake of fact, there must be mutual error in order for
the contract to be annullable.
ART. 1333. THERE IS NO MISTAKE IF THE PARTY ALLEGING IT KNEW THE DOUBT,
CONTINGENCY OR RISK AFFECTING THE OBJECT OF THE CONTRACT.
Ø Situations contemplated:
1. If the parties indicate an intention not to be bound unless certain facts exist, the
performance of such facts prevents any contractual duty, such being intended to
operate, and operating, as a condition precedent to the obligation.
2. Where the parties to an agreement indicate an intention to be bound irrespective
of the existence of certain facts and take the risk of their non-existence, the
validity of their agreement is not at all dependent upon the existence of such
facts.
3. Where the parties are conscious that the existence of particular facts is doubtful
and make their agreement on this assumption, the non-existence of such facts
does not affect the validity of the agreement, the risk of their existence being
taken by the parties.
4. Where all the parties voluntarily enter into an agreement in the fact of their
conscious, present want of knowledge of facts, which they all then manifestly
concluded would not influence their action or induce them to refrain from
entering into the agreement, whatever the facts might be, there is no such a
mistake as affects the validity of the agreement.
5. If the parties are conscious of their ignorance as to the existence of some facts,
the non-existence of such facts is no consequence.
6. Where, although the parties must know that the existence of a fact is at least
somewhat doubtful, they nevertheless make an agreement on the assumption that
it exists, its non-existence affects the validity of the agreement. (17 Am Jur 2d
492)
Ø This is said to be predicated upon common experience that if people contract under such
circumstances, they usually intend to abide by the resolution either way of the known
uncertainty, and have insisted on, and received, consideration for taking that chance.

ART. 1334. MUTUAL ERROR AS TO THE LEGAL EFFECT OF AN AGREEMENT WHEN THE REAL
PURPOSE OF THE PARTIES IS FRUSTRATED, MAY VITIATE CONSENT.
Ø General rule: Unilateral mistakes as to the legal effect of an agreement is generally not a
ground to cancel a contract:
• Exception (Requisites for vitiated consent in mistake of law):
1. Mistake as to the legal effect is mutual; and
2. Mutual mistake frustrates the real purpose of the parties.
• If A leases to B a property where B will construct a building, but it turned out
that such building cannot be erected because of an ordinance prohibiting the
same, the contract can be annulled.
Ø This is because the document embodying the agreement is drafted the way the parties have
intended it to be such that only its legal effect is different from what the parties have
assumed.
ART. 1335. THERE IS VIOLENCE WHEN IN ORDER TO WREST CONSENT, SERIOUS OR
IRRESISTIBLE FORCE IS EMPLOYED.
THERE IS INTIMIDATION WHEN ONE OF THE CONTRACTING PARTIES IS COMPELLED BY A
REASONABLE AND WELL- GROUNDED FEAR OF AN IMMINENT AND GRAVE EVIL UPON HIS
PERSON OR PROPERTY, OR UPON THE PERSON OR PROPERTY OF HIS SPOUSE, DESCENDANTS OR
ASCENDANTS, TO GIVE HIS CONSENT.
TO DETERMINE THE DEGREE OF INTIMIDATION, THE AGE, SEX AND CONDITION OF THE PERSON
SHALL BE BORNE IN MIND.
A THREAT TO ENFORCE ONE'S CLAIM THROUGH COMPETENT AUTHORITY, IF THE CLAIM IS JUST
OR LEGAL, DOES NOT VITIATE CONSENT.
Ø Violence – when in order to wrest consent, serious or irresistible force if employed.
• There is total absence of free will in case a person is compelled to enter into a
contract through violence.
• Violence must be:
1. Serious; and
2. Irresistible.
• Ex. A coerces B into a contract by continually beating him until he signs the
contract. A, in effect, imposes his will on B and therefore, no valid consent is
obtained from B. The contract is clearly annullable.
Ø Intimidation – when one of the contracting parties is compelled by a reasonable and well-
grounded fear of an imminent and grave evil upon his person or property, or upon the
person or property of his spouse, descendants or ascendants, to give his consent.
• To determine the degree of intimidation, the following shall be borne in mind:
1. Age;
2. Sex; and
3. Condition.
Ø Threats and circumstances must be:
1. Of a character as to excite the reasonable apprehensions of a person of ordinary
courage;
2. Agreement be made under the influence of such threat or menace; and
50 YAP, K. | ATENEO LAW
3. Threat must be tangible and direct.
Ø The duress or fear must be more than the general feeling of fear on the part of the occupied
over the show of might by the occupant.
• There must be specific acts or instances of such nature and magnitude as to have
inflicted gear or terror upon the subject thereof that his execution of the
questioned deed or act cannot be considered voluntary. In this case, the petitioner
was only told that her life would be endangered, no specific act of duress was
cited. (Vda. de Lacson v. Granada, 1961)
• When a person was directly told by the Japanese military authorities that he
should sell his house, otherwise it will be considered a sign of hostility to the
Japanese, the SC ruled that there was direct intimidation. Thus, the contract may
be annulled. (Lapreal v. Rogers, 1965)
Ø A threat to enforce ones claim through competent authority, if the claim is just or legal,
does not vitiate consent.
Ø General rule: The institution or threatened institution of a civil suit, or ordinary legal
proceedings to enforce a legal demand does not constitute duress, even though it may be
made in a period of business depression.
• Exceptions:
1. If a civil proceeding actually begun or threatened is wrongful and
oppressive in its nature and brought or threatened with the intention of
coercing the adverse party and does in fact coerce such party in to the
payment of money or the formation of a contract, such payment or
contract is made under duress and may be voided.
2. A threatened civil action may also amount to duress where the parties
are not on an equal footing.
3. Threatening litigation while the defendant is ill, or to continue
litigation when the circumstances are oppressive has been held to
amount to duress.
Ø Requisites for intimidation:
1. Intimidation must be the determining cause of the contract or consent given;
2. Threatened act must be unjust or unlawful;
3. Threat must be evil and serious, there being disproportion leading to the choice
of a lesser evil; and
4. Reasonable and well-grounded fear from the fact that the person intimidating has
the necessary means to inflict the same.
ART. 1336. VIOLENCE OR INTIMIDATION SHALL ANNUL THE OBLIGATION, ALTHOUGH IT MAY
HAVE BEEN EMPLOYED BY A THIRD PERSON WHO DID NOT TAKE PART IN THE CONTRACT.
Ø The contracting party who is not the subject of the violence or the intimidation may not
even know that the other party has been coerced.
Ø Ex. A is coerced to enter into a contract with X because G threatens to kill the children of
A if he does not do so.
• Contract may be annulled whether or not X knew of the intimidation by G.

ART. 1337. THERE IS UNDUE INFLUENCE WHEN A PERSON TAKES IMPROPER ADVANTAGE OF
HIS POWER OVER THE WILL OF ANOTHER, DEPRIVING THE LATTER OF A REASONABLE FREEDOM
OF CHOICE. THE FOLLOWING CIRCUMSTANCES SHALL BE CONSIDERED: THE CONFIDENTIAL,
FAMILY, SPIRITUAL AND OTHER RELATIONS BETWEEN THE PARTIES, OR THE FACT THAT THE
PERSON ALLEGED TO HAVE BEEN UNDULY INFLUENCED WAS SUFFERING FROM MENTAL
WEAKNESS, OR WAS IGNORANT OR IN FINANCIAL DISTRESS.
Ø Annulling a contract based on undue influence is grounded upon principles of highest
morality, it reaches every case and grants relief where influence is acquired and abused, or
where confidence is reposed and betrayed.
Ø The following circumstances shall be considered:
• Confidential, family, spiritual and other relations between the parties; and
• Whether the person alleged to have been unduly influenced was suffering from
mental weakness or was ignorant or in financial distress.
Ø Undue influence – “undue” because it is unrighteous, illegal and designed to perpetrate a
wrong. It must amount to coercion.
Ø There is no undue influence when the transfer of rights was not done solely on the strength
of the letter from a senator, but also from the recommendation by the Head Executive
Assistant. (Bañez v. CA, 1974)
Ø The use of personal influence and solicitation rather than an appeal to the judgment of the
official on the merits of the object sough is contrary to public police, and thus null and
void. (Marubeni Corporation v. Lirag, 2001)
ART. 1338. THERE IS FRAUD WHEN, THROUGH INSIDIOUS WORDS OR MACHINATIONS OF ONE
OF THE CONTRACTING PARTIES, THE OTHER IS INDUCED TO ENTER INTO A CONTRACT WHICH,
WITHOUT THEM, HE WOULD NOT HAVE AGREED TO.
Ø Fraud – a false representation of a material fact made by word or conduct with knowledge
of its falsehood or in reckless disregard of its truth, in order to induce and actually inducing
another to act thereon to his injury.
• There must always be damage or injury in cases of fraud.
• Ex. A, an expert jeweler and in order to be able to ell his glass figurine, told X
that such is made of diamond from South Africa, and on such fals representation,
X bought the figurine.
§ The contract of sale can be annulled by X.
ART. 1339. FAILURE TO DISCLOSE FACTS, WHEN THERE IS A DUTY TO REVEAL THEM, AS WHEN
THE PARTIES ARE BOUND BY CONFIDENTIAL RELATIONS, CONSTITUTES FRAUD.
Ø Each party is bound to be as diligent and circumspect as possible in entering into a contract
and therefore each party is not duty-bound to make known to each other any fact which is
both within their knowledge or within their opportunity to know.
Ø There is only fraud when, under the special and peculiar circumstances of each case, a legal
or equitable duty is imposed upon the dominant party to reveal certain facts material to the
transaction or when there is a confidential relationship between the parties.
ART. 1340. THE USUAL EXAGGERATIONS IN TRADE, WHEN THE OTHER PARTY HAD AN
OPPORTUNITY TO KNOW THE FACTS, ARE NOT IN THEMSELVES FRAUDULENT.
51 YAP, K. | ATENEO LAW
Ø If a party is induced by such usual exaggerations, there may be fraud amounting to active
misrepresentation.
• However, if it is within the means of the other party to investigate the truthfulness
of such exaggeration and he does not do so, there will be no fraud despite the
exaggerations.
ART. 1341. A MERE EXPRESSION OF AN OPINION DOES NOT SIGNIFY FRAUD, UNLESS MADE BY
AN EXPERT AND THE OTHER PARTY HAS RELIED ON THE FORMER'S SPECIAL KNOWLEDGE.
Ø Opinions are generally not regarded as representation of facts.
• However, if it is made by an expert and the other party has relied on the former’s
special knowledge, fraud can be invoked to annul the contract. The opinion will
be considered as a fact.
Ø There is a difference in saying that a thing “is worth so much,” an opinion which the buyer
may adopt if he will, and saying one “gave so much for it,” an assertion of fact which, if
false to the knowledge of the seller, is fraudulent.
ART. 1342. MISREPRESENTATION BY A THIRD PERSON DOES NOT VITIATE CONSENT, UNLESS
SUCH MISREPRESENTATION HAS CREATED SUBSTANTIAL MISTAKE AND THE SAME IS MUTUAL.
Ø When an elderly woman was induced to co-sign a promissory note, and the same was
successfully misrepresented to the bank, to which the bank granted the loan, the loan
agreement signed by the elderly woman can be annulled on the ground of mistake in the
giving of consent by the parties. (Rural Bank of Caloocan v. CA, 1981)
• The misrepresentation of the third person herein resulted to the elderly woman
and the bank committing a mistake in giving their consent to the contracts.
• Such may be invalidated on the ground of substantial mistake mutually
committed by them as a consequence of the fraud and misrepresentation inflicted
by the third person.
Ø A contract may be annulled on the ground of vitiated consent if deceit by a third person,
even without connivance or complicity with one of the contracting parties, resulted in
mutual error on the part of the parties to the contract. (Hill v. Velosos, 1915)
ART. 1343. MISREPRESENTATION MADE IN GOOD FAITH IS NOT FRAUDULENT BUT MAY
CONSTITUTE ERROR.
Ø Practically every fraud is a misrepresentation, but every misrepresentation is not
fraudulent.
• A misrepresentation as to the subject matter of or parties to a contract may be
innocently made and, if so, it does not amount to fraud.
Ø Misrepresentations may be made without the knowledge of its falsity and therefore
completely done in good faith. It may constitute a mere error.
Ø May be a ground for the annulment of the contract.

ART. 1344. IN ORDER THAT FRAUD MAY MAKE A CONTRACT VOIDABLE , IT SHOULD BE
SERIOUS AND SHOULD NOT HAVE BEEN EMPLOYED BY BOTH CONTRACTING PARTIES.
INCIDENTAL FRAUD ONLY OBLIGES THE PERSON EMPLOYING IT TO PAY DAMAGES.
Ø There must be an intention to injure and that damage or injury in fact resulted.
Ø The parties must not be in pari delicto.
Ø It must not be dolo incidente which is accidental and collateral fraud which does not
necessarily bear on the decision of the party defrauded to enter into the contract.
Ø It must be dolo causante which refers to the very cause the other party entered into the
contract.
ART. 1345. SIMULATION OF A CONTRACT MAY BE ABSOLUTE OR RELATIVE. THE FORMER
TAKES PLACE WHEN THE PARTIES DO NOT INTEND TO BE BOUND AT ALL; THE LATTER, WHEN
THE PARTIES CONCEAL THEIR TRUE AGREEMENT.
Ø Absolute simulation – when the parties do not intend to be bound at all by the contract;
renders the contract null and void.
• The basic characteristic is that the apparent contract is not really desired or
intended to either produce legal effects or in any way alter the juridical situation
of the parties.
Ø Relative simulation – when the parties conceal their true agreement.
ART. 1346. AN ABSOLUTELY SIMULATED OR FICTITIOUS CONTRACT IS VOID. A RELATIVE
SIMULATION, WHEN IT DOES NOT PREJUDICE A THIRD PERSON AND IS NOT INTENDED FOR ANY
PURPOSE CONTRARY TO LAW, MORALS, GOOD CUSTOMS, PUBLIC ORDER OR PUBLIC POLICY
BINDS THE PARTIES TO THEIR REAL AGREEMENT.
Ø An absolutely simulated contract is necessarily void.
Ø A relatively simulated contract binds the parties if:
1. It does not prejudice a third person; and
2. Is not intended for any purpose contrary to law, morals, good customs, public
order or public policy.
Ø When the person who allegedly entered in to the contract was not even conceived at the
time the contract was executed, the contract was definitely absolutely simulated. (Pua v.
CA, 2000)
Ø When a debtor was lured by the creditor to make it appear that the debtor sold to the creditor
the collateralized property of the debtor, noting that the scheme was necessary so that the
creditor can borrow money from a certain bank and make use of the property as collateral,
the SC ruled that it was clearly simulated to facilitate the transaction with the bank as there
was absolutely no consideration at all and the parties clearly did not intend to be bound by
the deed of sale and its accompanying documents. (Velasquez v. CA, 2000)
Ø When 2 illegitimate daughters claimed that they bought 2 properties from their deceased
father, but it was evident that at that time they could not have had enough money to
purchase the same, the “Kasulatan sa Ganap na Bilihan” was deemed to be an absolutely
simulated contract. (Francisco v. Francisco-Alfonso, 2001)
SECTION TWO: OBJECT OF CONTRACTS
52 YAP, K. | ATENEO LAW
ART. 1347. ALL THINGS WHICH ARE NOT OUTSIDE THE COMMERCE OF MEN, INCLUDING
FUTURE THINGS, MAY BE THE OBJECT OF A CONTRACT. ALL RIGHTS WHICH ARE NOT
INTRANSMISSIBLE MAY ALSO BE THE OBJECT OF CONTRACTS.
NO CONTRACT MAY BE ENTERED INTO UPON FUTURE INHERITANCE EXCEPT IN CASES
EXPRESSLY AUTHORIZED BY LAW.
ALL SERVICES WHICH ARE NOT CONTRARY TO LAW, MORALS, GOOD CUSTOMS, PUBLIC ORDER
OR PUBLIC POLICY MAY LIKEWISE BE THE OBJECT OF A CONTRACT.
Ø Any property or service can be the object of a contract provided that it is within the
commerce of man.
• Property belonging to the public domain is not susceptible to private
appropriation and acquisitive prescription, and cannot be registered under the
Torrens System. (Maneclang v. IAC, 1986)
Ø Future things that can be reasonably ascertained can be the object of a contract.
• In a contract of sale, things having a potential existence may be the object of such
contract. The efficacy of the sale of a mere hope or expectancy is deemed subject
to the condition that the thing will come to existence.
• Ex. All future puppies of a particular pregnant dog can be the object of a contract
although the puppies are not yet born.
• However, the sale of a vain hope or expectancy is void.
Ø Rights may likewise be the object of contracts provided they are transmissible, and there
are no contractual and legal stipulations prohibiting its transmissibility.
Ø Future inheritance cannot be the object of a contract because its extent, amount, or quantity
is not determinable.
• Future inheritance – any property or right not in existence or capable of
determination at the time of the contract, that a person may in the future acquire
by succession.
• This is so because it may happen that the father, at the time of his death, may
have some debts to pay and, under the rules of succession, these obligations have
to be paid first before the exact amount of inheritance can be determined and
distributed.
• In the case where the wife agreed to give whatever her share in the conjugal
partnership property to her heirs once the husband dies, the SC declared that it is
not future inheritance, but existing properties which she will receive by operation
of law on the death of her husband, because it is her share in the conjugal assets.
ART. 1348. IMPOSSIBLE THINGS OR SERVICES CANNOT BE THE OBJECT OF CONTRACTS.
Ø One cannot be bound to do the impossible.
ART. 1349. THE OBJECT OF EVERY CONTRACT MUST BE DETERMINATE AS TO ITS KIND. THE
FACT THAT THE QUANTITY IS NOT DETERMINATE SHALL NOT BE AN OBSTACLE TO THE
EXISTENCE OF THE CONTRACT, PROVIDED IT IS POSSIBLE TO DETERMINE THE SAME, WITHOUT
THE NEED OF A NEW CONTRACT BETWEEN THE PARTIES.
Ø The object must be one that can be ascertained with reasonable certainty as to its kind.
• A contract engaging a certain person to perform a deed, without specifying what
deed it is, does not make the service determinable and is therefore void.

• A contract engaging a person to sing in his nightclub identifies the kind of deed
which is to be performed and therefore valid.
• A contract requiring an obligor to deliver a fruit is so general, but if the contract
is to deliver a kind of fruit such as a mango is valid.
• A contract which engages a person to supply all the ice which a restaurant needs
is valid because f the quantity of ice is easily ascertainable without the need for
a new contract.
Ø “Determinate as to its kind” means that it must at the least be a generic object.
SECTION THREE: CAUSE OF CONTRACTS
ART. 1350. IN ONEROUS CONTRACTS THE CAUSE IS UNDERSTOOD TO BE, FOR EACH
CONTRACTING PARTY, THE PRESTATION OR PROMISE OF A THING OR SERVICE BY THE OTHER;
IN REMUNERATORY ONES, THE SERVICE OR BENEFIT WHICH IS REMUNERATED; AND IN
CONTRACTS OF PURE BENEFICENCE, THE MERE LIBERALITY OF THE BENEFACTOR.
Ø Cause – the essential or more proximate purpose which the contracting parties have in view
at the time of entering into the contract.
• It may or may not be tangible.
• In a case where a corporation decided to sell its property and gave persons living
nearby the preferential right to purchase, and an individual enters into an
agreement with one of the preferred persons to buy the property with a
commitment to resell the same to said person, the consideration is private
respondent’s preferential right to buy the property from the owner. (Dihiansan v.
CA, 1987)
Ø Onerous contract – the cause is understood to be, for each contracting party, the prestation
or promise of a thing or service by the other.
• In cases of compromise agreement designed to terminate the case between
litigating parties to a suit was entered into, the cause of the compromise was the
mutual waiver and abandonment of the parties of their claims against each other.
(Republic v. Cloribel 1970)
Ø Reciprocal contract – the obligation or promise of each party is the consideration for that
of the other.
Ø Remunatory contract – the cause is the service or benefit which is remunerated.
• Ex. A doctor agreed to diagnose a patient, the cause for the patient is for the
doctor to diagnose him. The cause for the doctor is the fee to be received by him
for diagnosis.
Ø Contract of pure beneficence – the mere liberality of the benefactor is the cause of the
contract. It does not involve any material thing but rather it involves only the generosity of
the benefactor.
• Ex. A scholarship contract given by a school where an indigent will not pay
anything has for its cause the liberality and generosity of the benefactor-school.
ART. 1351. THE PARTICULAR MOTIVES OF THE PARTIES IN ENTERING INTO A CONTRACT ARE
DIFFERENT FROM THE CAUSE THEREOF.
Ø Cause is the essential reason for the contract, while motive is the particular reason for a
contracting party which does not affect the other party, and which does not preclude the
existence of a different consideration.
53 YAP, K. | ATENEO LAW
• Ex. The sale of a valuable relic has for its cause the payment of the purchase
price on the part of the seller, and delivery on the part of the buyer. The seller
may have been motivated by an expectation of profit, while the buyer might have
been motivated by beauty and rarity of the relic.
Ø The motive of the parties is independent from the cause of the contract and therefore does
not form an essential part of it.
• Ex. In a contract of lease, the lessee sought to release himself from paying rentals
because the purpose for which he entered the contract did not materialize, the SC
ruled that the cause is the use or enjoyment of the thing, and his particular
purpose which did not materialize does not affect the contract. (PNCC v. CA,
1997)
• General rule: Motive or particular purpose of a party in entering into a contract
does not affect the validity nor existence of the contract.
§ Exception: When the realization of such motive or particular purpose
has been made a condition upon which the contract is made to depend.
Ø The cause is equated to motive when it is clear that the motive predetermines the cause.
• In a case where a Management Contract was entered into, but later on it was
found that in fact the corporation was controlled by a relative of President
Marcos, such particular motive which they had was equated to a cause, and the
contract was deemed void for being contrary to law. (E. Razon v. Philippine Ports
Authority, 1987)
§ A party is a participant in the unlawful intention where he knows and
intends that the subject matter will be used for an illegal purpose and
there would seem to be no doubt that one may be deemed to be a
participant in the other’s unlawful design if he shares in the benefits of
the violation of law, or when he does anything which facilitates the
carrying out of such purpose.
§ Test to determine participation in unlawful contract – whether he
intends to aid the other in the unlawful object.
• In a case where the NHA purchased certain lots and thereafter cancelled the
Deeds of Sale because the lots turned out to be unsuitable for a housing project,
the SC ruled that the cancellation was valid because it was based on the negation
of the cause arising from the realization that the lands, which were the object of
the sale, were not suitable for housing. (Uy v. CA, 1999)
ART. 1352. CONTRACTS WITHOUT CAUSE, OR WITH UNLAWFUL CAUSE , PRODUCE NO EFFECT
WHATEVER. THE CAUSE IS UNLAWFUL IF IT IS CONTRARY TO LAW, MORALS, GOOD CUSTOMS,
PUBLIC ORDER OR PUBLIC POLICY .
Ø A contract to engage a party to steal is unlawful as it is against the law.
Ø A contract between husband and wife to have their respective paramours is contrary to
morals.
Ø A contract to foment riots is contrary to public order.
Ø A contract waiving the right of an employee to receive what is due him under the law is
contrary to public policy.

ART. 1353. THE STATEMENT OF A FALSE CAUSE IN CONTRACTS SHALL RENDER THEM VOID, IF
IT SHOULD NOT BE PROVED THAT THEY WERE FOUNDED UPON ANOTHER CAUSE WHICH IS TRUE
AND LAWFUL.
Ø General rule: A false cause stated in a contract makes the contract void.
• Exception: When a contract, though stating a false consideration, has in fact a
real consideration.
• Ex. Contract stating the consideration of the ball pen is P1,000, but it was only
sold for P500 which the seller accepted is valid. The contract is at the least a
relatively simulated one.
ART. 1354. ALTHOUGH THE CAUSE IS NOT STATED IN THE CONTRACT, IT IS PRESUMED THAT IT
EXISTS AND IS LAWFUL , UNLESS THE DEBTOR PROVES THE CONTRARY.
Ø In a case where a loan of P10,000 was entered into and then another to increase the original
amount by P6,000 was being contested to be usurious, the debtor was unable to prove the
usurious characteristic as no evidentiary hearing was held. (Liam v. Olympic Sawmill Co.,
1984)
ART. 1355. EXCEPT IN CASES SPECIFIED BY LAW, LESION OR INADEQUACY OF CAUSE SHALL
NOT INVALIDATE A CONTRACT , UNLESS THERE HAS BEEN FRAUD , MISTAKE OR UNDUE
INFLUENCE.
Ø In a case where an inadequacy of price was being alleged in the contract involving tobacco,
the SC ruled that it was valid because the appraisal was found to have been diligently made
by the Commissioner of Customs, which presumes regularity, and fraud or negligence was
not proven by the importer. (Auyong Hian v. CTA, 1974)
Ø In a case where an inadequacy of price was invoked to invalidate the sale of a house on a
public land, the SC ruled that the inadequacy of the price is not sufficient proof that the
consideration was for the house alone. What is sought to be transferred and ceded is not
the ownership of land, but the rights, interests, and participation “as public land claimants
thereof.” A valuable consideration, however small or nominal, if stipulated in good faith,
is sufficient. (Penaco v. Ruava, 1981)
Ø If there is fraud, mistake, or undue influence, it is at the least annullable.
CHAPTER 3: FORM OF CONTRACTS
ART. 1356. CONTRACTS SHALL BE OBLIGATORY , IN WHATEVER FORM THEY MAY HAVE BEEN
ENTERED INTO, PROVIDED ALL THE ESSENTIAL REQUISITES FOR THEIR VALIDITY ARE PRESENT.
HOWEVER, WHEN THE LAW REQUIRES THAT A CONTRACT BE IN SOME FORM IN ORDER THAT IT
MAY BE VALID OR ENFORCEABLE, OR THAT A CONTRACT BE PROVED IN A CERTAIN WAY, THAT
REQUIREMENT IS ABSOLUTE AND INDISPENSABLE. IN SUCH CASES, THE RIGHT OF THE PARTIES
STATED IN THE FOLLOWING ARTICLE CANNOT BE EXERCISED.
Ø In a case where a movie actress filed a suit to recover compensation, and the producers
resisted such claim on the ground that the contract was void as there was no written
agreement to the same, the SC ruled in favor of the movie actress because the contract did
54 YAP, K. | ATENEO LAW
not fall within the exceptions to the general rule that the form is irrelevant to the binding
effect. (Dauden-Hernaez v. De Los Angeles, 1969)
Ø General rule: The form is irrelevant to the binding effect inter partes of a contract that
possesses the essential elements.
• Exceptions:
1. Solemn contracts – contracts for which the law itself requires that they
be in some particular form in order to make them valid and
enforceable.
2. Contracts that the law requires to be proved by some writing of its
terms.
Ø A certain form may be prescribed by law for the following purposes:
1. Validity
• Non-observance thereof renders the contract void and of no effect.
2. Enforceability
• Non-observance thereof will allow any of the parties to object to the
contract, or will not permit it to be proved or enforced by action.
3. Greater efficacy
• Non-observance thereof would not adversely affect the validity of
enforceability of the contract between the contracting parties
themselves.
Ø A contract of lease of tractors is not one of those required by law to be in writing or other
particular forms in order to be valid and enforceable. (Deloso v. Sandiganbayan, 1993)
ART. 1357. IF THE LAW REQUIRES A DOCUMENT OR OTHER SPECIAL FORM, AS IN THE ACTS
AND CONTRACTS ENUMERATED IN THE FOLLOWING ARTICLE, THE CONTRACTING PARTIES MAY
COMPEL EACH OTHER TO OBSERVE THAT FORM, ONCE THE CONTRACT HAS BEEN PERFECTED.
THIS RIGHT MAY BE EXERCISED SIMULTANEOUSLY WITH THE ACTION UPON THE CONTRACT.
Ø A party who desires to have his contract reduced in the particular form required by law,
can file an action to compel the other party to comply with such form.
Ø If the requirement of law is directory only and has no bearing on the validity or
enforceability of the contract, the parties can enforce the contract and, at the same time,
demand that it be reduced in the form required by law.
Ø If the agreement concerns the sale of land or of an interest therein, the law requires that the
same shall not only be in writing and subscribed by the party charged, but also that the
writing be in the form of a public document. (Zaide v. CA, 1988)
Ø Remember that a private document is converted to a public document when notarized.

ART. 1358. THE FOLLOWING MUST APPEAR IN A PUBLIC DOCUMENT:
(1) A CTS AND CONTRACTS WHICH HAVE FOR THEIR OBJECT THE CREATION, TRANSMISSION,
MODIFICATION OR EXTINGUISHMENT OF REAL RIGHTS OVER IMMOVABLE PROPERTY; SALES OF
REAL PROPERTY OR OF AN INTEREST THEREIN ARE GOVERNED BY ARTICLES 1403, NO. 2, AND
1405;
(2) THE CESSION, REPUDIATION OR RENUNCIATION OF HEREDITARY RIGHTS OR OF THOSE OF
THE CONJUGAL PARTNERSHIP OF GAINS ;
(3) THE POWER TO ADMINISTER PROPERTY, OR ANY OTHER POWER WHICH HAS FOR ITS OBJECT
AN ACT APPEARING OR WHICH SHOULD APPEAR IN A PUBLIC DOCUMENT, OR SHOULD
PREJUDICE A THIRD PERSON;
(4) THE CESSION OF ACTIONS OR RIGHTS PROCEEDING FROM AN ACT APPEARING IN A PUBLIC
DOCUMENT.
ALL OTHER CONTRACTS WHERE THE AMOUNT INVOLVED EXCEEDS FIVE HUNDRED PESOS MUST
APPEAR IN WRITING, EVEN A PRIVATE ONE. BUT SALES OF GOODS, CHATTELS OR THINGS IN
ACTION ARE GOVERNED BY ARTICLES, 1403, NO. 2 AND 1405.
Ø The failure to put in a public or private document or writing the transactions or matters
enumerated in Article 1358 will not render the agreement void or invalid, and shall still be
effective as between the parties.
Ø The requirement to put the agreement referred under Article 1358 in a public instrument is
only for the purpose of greater efficacy, of convenience or of binding third persons.
Ø Art. 1357 clearly indicates that contracts covered by Article 1358 are binding and
enforceable by action or suit despite the absence of writing. (Dauden-Hernaez v. De Los
Santos, 1969)
Ø A contract of sale is a consensual contract, which means that the sale is perfected by mere
consent. (Dalion v. CA, 1990)
• Delivery may be:
1. Real – placing the vendee in control and possession of the land.
2. Constructive – embodying the sale in a public instrument.
Ø Ex. A and B execute a private document transferring property. The Registry of Deeds
refuses to register the same. Is there a valid contract? Was the Registry correct in refusing?
o Yes. The contract is valid between A and B because the requirement of being in
a public document is only for greater efficacy, to be able to bind third persons to
the agreement. The Registry is correct because the agreement is only in a private
document, which cannot be invoked against the general public, but only between
the parties.
CHAPTER 4: REFORMATION OF INSTRUMENTS
ART. 1359. WHEN, THERE HAVING BEEN A MEETING OF THE MINDS OF THE PARTIES TO A
CONTRACT , THEIR TRUE INTENTION IS NOT EXPRESSED IN THE INSTRUMENT PURPORTING TO
EMBODY THE AGREEMENT, BY REASON OF MISTAKE, FRAUD, INEQUITABLE CONDUCT OR
ACCIDENT, ONE OF THE PARTIES MAY ASK FOR THE REFORMATION OF THE INSTRUMENT TO THE
END THAT SUCH TRUE INTENTION MAY BE EXPRESSED.
IF MISTAKE, FRAUD, INEQUITABLE CONDUCT, OR ACCIDENT HAS PREVENTED A MEETING OF
THE MINDS OF THE PARTIES, THE PROPER REMEDY IS NOT REFORMATION OF THE INSTRUMENT
BUT ANNULMENT OF THE CONTRACT .
55 YAP, K. | ATENEO LAW
Ø Reformation applies only to written contracts contained in an instrument or series of
instruments.
• When the terms of an agreement have been reduced into writing, it is considered
to be containing all the terms agreed upon, except when it fails to express the true
intent and agreement of the parties thereto. In such case, one of the parties may
bring an action for the reformation of the instrument to the end that such true
intention may be expressed.
Ø Reformation connotes a valid contract.
• The parties are able to have a meeting of the minds, but the instrument supposed
to embody the contract does not conform to such contract.
Ø In actions for reformation, what is reformed is the instrument embodying the contract and
not the contract itself.
Ø 2 fundamental matters before reformation can be availed:
1. The instrument embodying the contract does not reveal the true intention of the
parties; and
2. The existence of a real and actual contract entered into by the parties.
Ø General rule: A written instrument should be the final and inflexible criterion and measure
of the rights and obligations of the contracting parties.
• Exception: Reformation. The courts by reformation do not attempt to make a new
contract for the parties, but to make the instrument express their real agreement.
§ The rationale of the doctrine is that it would be unjust and inequitable
to allow the enforcement of a written instrument which does not reflect
or disclose the real meeting of the minds of the parties.
Ø In actions for reformation, the onus probandi is upon the party who insists that the contract
should be reformed.
Ø An action for reformation is in personam, not in rem, even when real estate is involved. It
may not, however, be applied if it is contrary to well-settled principles or rules.
Ø An action for reformation prescribes in 10 years from the time the cause of action accrues,
which is upon the knowledge of the ground, or from the date of the execution of the
instrument embodying the contract if the cause or causes for reformation were already
known at the time of the execution.
Ø An action for reformation is instituted as a special civil action for declaratory relief – to
secure an authoritative statement of the rights and obligations of the parties for their
guidance in the enforcement thereof, or compliance therewith. (Rosello-Bentir v. Leanda,
2000)
ART. 1360. THE PRINCIPLES OF THE GENERAL LAW ON THE REFORMATION OF INSTRUMENTS
ARE HEREBY ADOPTED INSOFAR AS THEY ARE NOT IN CONFLICT WITH THE PROVISIONS OF THIS
CODE.
ART. 1361. WHEN A MUTUAL MISTAKE OF THE PARTIES CAUSES THE FAILURE OF THE
INSTRUMENT TO DISCLOSE THEIR REAL AGREEMENT, SAID INSTRUMENT MAY BE REFORMED.
Ø For mistake to be a cause for reformation, the mistake must be:
1. Mutual; and
2. Generally involves factual matters.
Ø There must have been a valid existing agreement to which the erroneous document can be
made to match or harmonize.

Ø An alleged defect in a contract perfectly valid and binding on its face, must be conclusively
proved. (Josquin v. Mitsumine, 1916)
Ø In a case where there was mutual mistake in the designation of particular lands owned by
2 brothers, since the correct properties were already in the possession of the person to
whom they should rightfully belong, there was no more need for reformation because the
parties actually already implemented the true intention of the contract. (Atilano v. Atilano,
1969)
Ø When mistake of one party is deemed mutual mistake:
1. If one party was mistaken and the other acted fraudulently or inequitably in such
a way that the instrument does not show their true intention. (Art. 1362)
2. If one party was mistaken and the other knew or believed that the instrument did
not state their real agreement, but concealed such fact from the former. (Art.
1363)
3. When through the ignorance, lack of skill, negligence or bad faith on the part of
the person drafting the instrument or of the clerk or typist, the instrument does
not express the true intention of the parties. (Art. 1364)
ART. 1362. IF ONE PARTY WAS MISTAKEN AND THE OTHER ACTED FRAUDULENTLY OR
INEQUITABLY IN SUCH A WAY THAT THE INSTRUMENT DOES NOT SHOW THEIR TRUE
INTENTION, THE FORMER MAY ASK FOR THE REFORMATION OF THE INSTRUMENT.
Ø If the mistake is unilateral and reformation is sought, it must be shown that the other party
has acted fraudulently or inequitably resulting in the drafting of a document which does
not correspond to the actual contract agreed upon.
Ø General rule: Mistake of law or ignorance of the law is not a ground for reformation
because parties must, as a rule, submit to the legal ramifications of their written contracts
clearly pursuant to their true intent and meaning.
• Exception: Where, on account of misplaced confidence, and because of some
artifice or deception fraudulently practiced upon him by the other party, a
material part of the contract was omitted from the writing, or he was otherwise
misled, equity will decree a reformation.
ART. 1363. WHEN ONE PARTY WAS MISTAKEN AND THE OTHER KNEW OR BELIEVED THAT THE
INSTRUMENT DID NOT STATE THEIR REAL AGREEMENT, BUT CONCEALED THAT FACT FROM THE
FORMER, THE INSTRUMENT MAY BE REFORMED.
Ø Knowledge by one party of the other’s mistake regarding the expression of the agreement
is equivalent to mutual mistake.
ART. 1364. WHEN THROUGH THE IGNORANCE, LACK OF SKILL, NEGLIGENCE OR BAD FAITH ON
THE PART OF THE PERSON DRAFTING THE INSTRUMENT OR OF THE CLERK OR TYPIST, THE
INSTRUMENT DOES NOT EXPRESS THE TRUE INTENTION OF THE PARTIES , THE COURTS MAY
ORDER THAT THE INSTRUMENT BE REFORMED.
Ø If the person drafting or typing the instrument is not able to come up with a correct written
document embodying the contract of the parties because of failure to follow instructions or
because of ignorance, lack of skill, negligence or bad faith, the mistake will be deemed
mutual.
56 YAP, K. | ATENEO LAW
Ø Oversight (mistake made because someone forgot or fails to notice something) may not be
attributed to all the parties to the contract, and therefore cannot be considered a valid reason
for the reformation of such. (Huibonhoa v. CA, 1999)
ART. 1365. IF TWO PARTIES AGREE UPON THE MORTGAGE OR PLEDGE OF REAL OR PERSONAL
PROPERTY, BUT THE INSTRUMENT STATES THAT THE PROPERTY IS SOLD ABSOLUTELY OR WITH
A RIGHT OF REPURCHASE, REFORMATION OF THE INSTRUMENT IS PROPER.
Ø In a case where the parties intended the subject house to be a collateral for a particular loan,
but the agreement apparently stated that the house was a conditional sale of residential
building, the SC allowed the reformation of the agreement. (Palileo v. Cosio, 1965)
ART. 1366. THERE SHALL BE NO REFORMATION IN THE FOLLOWING CASES:
(1) SIMPLE DONATIONS INTER VIVOS WHEREIN NO CONDITION IS IMPOSED;
(2) WILLS;
(3) WHEN THE REAL AGREEMENT IS VOID.
Ø When an act of liberality is concerned, there is no prior negotiation before the drafting of
the instrument embodying the will or donation. Wills and donations are gratuitous, not
involving any meeting of the minds.
Ø Reformation implies that there must be a prior agreement between the parties.
ART. 1367. WHEN ONE OF THE PARTIES HAS BROUGHT AN ACTION TO ENFORCE THE
INSTRUMENT, HE CANNOT SUBSEQUENTLY ASK FOR ITS REFORMATION.
Ø A party seeking to enforce an agreement necessarily acknowledges that the instrument
embodies the contract intended by the parties.
ART. 1368. REFORMATION MAY BE ORDERED AT THE INSTANCE OF EITHER PARTY OR HIS
SUCCESSORS IN INTEREST, IF THE MISTAKE WAS MUTUAL; OTHERWISE, UPON PETITION OF THE
INJURED PARTY, OR HIS HEIRS AND ASSIGNS.
Ø If the mistake is mutual, either party or his successor-in-interest may file the action.
Ø If on some other grounds, the injured party or his heirs and assigns are the only persons
given legal standing to sue.
ART. 1369. THE PROCEDURE FOR THE REFORMATION OF INSTRUMENT SHALL BE GOVERNED
BY RULES OF COURT TO BE PROMULGATED BY THE SUPREME COURT.
Ø Reformation is governed by Rule 63 of the 1997 New Rules of Civil Procedure which
provides that:
• Any person interested under a deed, will, contract or other written instrument, or
whose rights are affected by a statute, executive order or regulation, ordinance
or any other governmental regulation may, before breach or violation thereof,
bring an action in the appropriate RTC to determine any question of construction
or validity arising, and for the declaration of his rights and duties, thereunder.

• If before the termination of the case, a breach or violation of an instrument should 3. Assigns
take place, the action may thereupon be converted into an ordinary action, and
the parties shall be allowed to file such pleadings as may be necessary or proper.

Fig. 4. Reformation
CHAPTER 5: INTERPRETATION OF INSTRUMENTS
Reformation
• Instituted as a special action for declaratory relief. ART. 1370. IF THE TERMS OF A CONTRACT ARE CLEAR AND LEAVE NO DOUBT UPON THE
• May not be availed of if there is already a breach or violation of the contract INTENTION OF THE CONTRACTING PARTIES, THE LITERAL MEANING OF ITS STIPULATIONS
• Action prescribes in 10 years after the knowledge of the cause of action. SHALL CONTROL.
• There must be mutual mistake on a substantial matter.
IF THE WORDS APPEAR TO BE CONTRARY TO THE EVIDENT INTENTION OF THE PARTIES, THE
Mistake of one deemed mutual mistake when LATTER SHALL PREVAIL OVER THE FORMER.
One is mistaken in good faith Fraud by the other party
One is mistaken in good faith Concealment by the other party Ø Purpose of interpretation – to be able to know the intent of the parties so that the contract
can be properly implemented.
One is mistaken in good faith Inequitable conduct of the other party Ø Interpretation – the act of making intelligible what was before not understood, ambiguous,
Clerical error, both in good faith or not obvious; a method by which the meaning of language is ascertained.
Ø Interpretation of a contract – the determination of the meaning attached to the words written
Reformation does not apply to or spoken which make the contract.
1. Simple donations inter vivos wherein no condition is imposed; • Differentiated from reformation which is that remedy in equity by means of
2. Wills; and which a written instrument is made or construed so as to express or conform to
3. When the real agreement is void. the real intention of the parties.
Ø In a case where the insurance policy did not include murder and assault as incidents
Who may ask for reformation exempting the insurance company from liability in case of death of the injured, the SC
1. Either of the parties; or applied the statutory construction rule of expression unous exclusion alterius (the mention
If mutual mistake
2. Successors-in-interest. of one thing implies the exclusion of another thing) to make the insurance company liable.
(Finman v. CA, 1992)
1. Injured party; or
Not mutual mistake
2. Heirs; and

57 YAP, K. | ATENEO LAW


Ø The important task in contract interpretation is always the ascertainment of the intention of
the contracting parties by looking to the words used to project such intention. It should be
all the words not just a particular word or two, and words in context not words in isolation.
Furthermore, the title of a contract does not necessarily determine its true nature. (Adelfa
Properties, Inc. v. CA, 1995)
Ø It behooves the parties to examine the terms of a contract thoroughly before signing the
same. They must be diligent enough to read the same before entering into it so that no
complications can arise in the future. (Gaw v. IAC, 1993)
Ø In a case where the contract was executed in the Visayan language which private
respondent understood, he cannot now be allowed to dispute the same. If the contract is
plain and unequivocal in its terms, he is ordinarily bound thereby. (Conde v. CA, 1982)
Ø In a case where a 20-year period of lease was extendable for another period of 20 years,
the SC ruled that the intention is not to automatically extend the lease contract upon
expiration, but to give the party time to ponder and think whether to extend the lease. If so,
a new contract shall be entered into by the lessor and lessee. Otherwise, they could have
easily stated that the contract would be for 40 years straight instead of 20. (Santi v. CA,
1993)
Ø In a case where the contract was renewable “at the option of both parties under such terms,
conditions and rental reasonable at that time,” the SC ruled that if the lease contract was to
be renewed, the option to renew should be made by both parties. (Fernandez v. CA, 1990)
Ø In a case where there was nothing in the contract to show that automatic renewal was
intended, and the contract was so unclear as to who may exercise the option to renew, the
SC ruled that the period of the lease must be construed to be for the benefit of both parties.
The fact that the lessee was allowed to make improvements on the property is not indicative
of the intention to automatically renew the lease. (Buce v. CA, 2000)
Ø Interpretation or construction of a contract does not include its modification or the creation
of a new or different one. The court may not make a new contract or rewrite the contract
under the guise of construction. (Universal Textile Mills, Inc. v. NLRC, 1990)
ART. 1371. IN ORDER TO JUDGE THE INTENTION OF THE CONTRACTING PARTIES, THEIR
CONTEMPORANEOUS AND SUBSEQUENT ACTS SHALL BE PRINCIPALLY CONSIDERED.
Ø The reasons and surrounding circumstances behind a contract’s execution are important in
order to place the interpreter in the situation occupied by the parties concerned at the time
of the writing.
Ø In a case where there is no stipulation in the Deed of Conditional Sale that title to the
property sold is reserved in the seller until fulfillment of the payment of the price, nor is
there a stipulation to give the vendor the right to unilaterally resolve the contract the
moment the buyer fails to pay, and where the vendor delivered actual and constructive
possession of the property to the vendee, the SC ruled that the deed of sale was absolute
although denominated as conditional. (Dignos v. CA, 1988)
Ø In a case where there was a dispute as to the interpretation of the application of the 10%
interest, and where the respondent accepted the payments petitioner religiously made for 4
years, the SC ruled that the respondent’s failure to exercise her right of rescission after
petitioner’s alleged default constitutes a waiver of such right, she is placed in estoppel.
(Rapanut v. CA, 1995)
Ø In a case where there was a disputed as to whether the deed of assignment was limited only
to the particular amount indicated therein, but where the petitioner continued to charge
respondent with interest on its overdue account, the SC ruled that they did not intend the
deed of assignment to have the effect of totally extinguishing the obligation of private
respondent without payment of the applicable interest charges on the overdue account.
(Caltex v. IAC, 1992)
58 YAP, K. | ATENEO LAW
Ø Where the parties to a contract have given it a practice construction by their conduct as by
acts in partial performance, such construction may be considered by the court in construing
the contract, determining its meaning and ascertaining the mutual intention of the parties
at the time of contracting. (Javier v. CA, 1990)
Ø The reasonableness of the result obtained, after said analysis, ought likewise to be carefully
considered. If a provision demands a mandatory application, the word “may” can be
construed as “shall,” vice versa. (Carceller v. CA, 1999)
ART. 1372. HOWEVER GENERAL THE TERMS OF A CONTRACT MAY BE, THEY SHALL NOT BE
UNDERSTOOD TO COMPREHEND THINGS THAT ARE DISTINCT AND CASES THAT ARE DIFFERENT
FROM THOSE UPON WHICH THE PARTIES INTENDED TO AGREE.
Ø Noscitur a sociis – general and unlimited terms are restrained and limited by particular
terms that follow.
Ø Ejusdem generis – a general term joined with a specific one will be deemed to include only
things that are like, of the same genus as, the specific one.
Ø Words are not to be taken in their broadest sense if they are equally appropriate in a sense
limited to the object and the intent of the contract.
ART. 1373. IF SOME STIPULATION OF ANY CONTRACT SHOULD ADMIT OF SEVERAL MEANINGS,
IT SHALL BE UNDERSTOOD AS BEARING THAT IMPORT WHICH IS MOST ADEQUATE TO RENDER
IT EFFECTUAL.
Ø In a case where the term of the lease shall be renewed every 3 years, the SC ruled that the
use of the word “renew” indicates that it is not a continuing lease. Where the instrument is
susceptible of two interpretations, one which will make it invalid and illegal and another
which will make it otherwise, the latter interpretation should be used. (Lao Lim v. CA,
1990)
Ø In the construction of an instrument where there are several provisions or particulars, such
a construction is, if possible to be adopted as will give effect to all. Thus, in a case where
the terms of the deed of assignment were clear, the literal meaning of its stipulations should
control. (Caltex v. IAc, 1992)
Ø Construction of the terms of a contract which would amount to impairment or loss of right
is not favored. (Ridjo Tape & Chemical Corporation v. CA, 1998)
ART. 1374. THE VARIOUS STIPULATIONS OF A CONTRACT SHALL BE INTERPRETED TOGETHER,
ATTRIBUTING TO THE DOUBTFUL ONES THAT SENSE WHICH MAY RESULT FROM ALL OF THEM
TAKEN JOINTLY.
Ø Each provision must be related to each other in order to clearly know the total import and
application of the law and so that a harmonious whole will be attained.
Ø In a case where the contract stated, “Failure to pay 2 successive monthly amortizations will
cause this loan to be automatically due and payable in its entirety. Notwithstanding the
foregoing, this loan shall not run for more than 5 years,” the SC ruled that the phrase
“notwithstanding the foregoing” does not refer to the acceleration clause but to the
stipulation that the loan had to be amortized at the rate of not less than P300...” (Ruiz v.
Sheriff of Manila, 1960)

Ø The word “renewable” should not be taken alone as to mean that the lessee can unilaterally
renew the contract and that the phrase “at the option of the parties” was just a superfluity.
The assent of both lessor and lessee is essential. (Fernandez v. CA, 1988)
Ø Mortgages given to secure future advancements or loans are valid and legal contracts, and
that the amounts named as consideration in said contracts do not limit the amount for which
the mortgage may stand as security if from the four corners of the instrument the intent to
secure future and other indebtedness can be gathered. (China Banking Corp. v. CA, 1996)
Ø The requirements of contract as to notice – as to the time of giving, form and manner of
service thereof – mut be strictly observed because in an obligation where a period is
designated, it is presumed to have been established for the benefit of both parties. (Home
Development Mutual Fund v. CA, 1998)
ART. 1375. WORDS WHICH MAY HAVE DIFFERENT SIGNIFICATIONS SHALL BE UNDERSTOOD IN
THAT WHICH IS MOST IN KEEPING WITH THE NATURE AND OBJECT OF THE CONTRACT.
Ø In a case where the performance bond mentioned “in proportion,” the SC ruled that the
amount of the performance bond did not yet cover the whole unfinished project, but only a
phase thereof. If otherwise intended, it should have stated the the bond was “to cover” the
remaining cost of the unfinished work. (Pasay City Government v. CFI of Manila, 1984)
ART. 1376. THE USAGE OR CUSTOM OF THE PLACE SHALL BE BORNE IN MIND IN THE
INTERPRETATION OF THE AMBIGUITIES OF A CONTRACT, AND SHALL FILL THE OMISSION OF
STIPULATIONS WHICH ARE ORDINARILY ESTABLISHED.
Ø Use of custom/usage – to explain the meaning of words and phrases used in a written
contract and to annex thereto certain incidents which circumstances indicate what the
parties intended when the words used do not necessarily exclude the operation of such
custom or usage but they may not be used to contradict nor vary the plain meaning of the
contract.
• Thus, usage may be admissible to explain what is doubtful; it is never admissible
to contradict what is plain.
• This rule is based upon the theory that parties, if aware of any usage or custom
relating to the subject matter of their negotiations, have so expressed their
intention as to take the contract out of the operation of any rules established by
mere usage or custom.
Ø The true and appropriate use of custom/usage – to interpret the otherwise indeterminate
intentions of the parties and to ascertain the nature and extent of their contracts, arising not
form express stipulations, but from mere implications and presumptions, and acts of a
doubtful or equivocal character.
Ø An express contract of the parties is always admissible to supersede or vary, or control, a
usage or custom; for the latter may always be waived at the will of the parties.
ART. 1377. THE INTERPRETATION OF OBSCURE WORDS OR STIPULATIONS IN A CONTRACT
SHALL NOT FAVOR THE PARTY WHO CAUSED THE OBSCURITY.
Ø Verba accipiuntur forties contra proferentem / Contra proferentem – against the profferer
– against the person who drafted or tendered the documents. The court may construe the
ambiguity against the party who put forward the document and give effect to the meaning
more favorable to the other party.
59 YAP, K. | ATENEO LAW
Ø In a case where the ambiguity as to the scope of the mortgage contract was drafted by the
lawyer of the insurance company, the doubt must be resolved against them. (Capitol
Insurance v. Sadang, 1967)
ART. 1378. WHEN IT IS ABSOLUTELY IMPOSSIBLE TO SETTLE DOUBTS BY THE RULES
ESTABLISHED IN THE PRECEDING ARTICLES, AND THE DOUBTS REFER TO INCIDENTAL
CIRCUMSTANCES OF A GRATUITOUS CONTRACT, THE LEAST TRANSMISSION OF RIGHTS AND
INTERESTS SHALL PREVAIL. IF THE CONTRACT IS ONEROUS, THE DOUBT SHALL BE SETTLED IN
FAVOR OF THE GREATEST RECIPROCITY OF INTERESTS.
IF THE DOUBTS ARE CAST UPON THE PRINCIPAL OBJECT OF THE CONTRACT IN SUCH A WAY
THAT IT CANNOT BE KNOWN WHAT MAY HAVE BEEN THE INTENTION OR WILL OF THE PARTIES,
THE CONTRACT SHALL BE NULL AND VOID.
Ø In a case where the deed of donation required as a condition that the done was to construct
a medical school on the property donated, the SC ruled in favor of the donor by decreeing
the revocation of the donation for non-compliance with the condition, since ambiguity in a
gratuitous contract should be resolved in the least transmission of rights and interests.
(Central Philippine University v. CA, 1995)
Ø In a case where there was ambiguity as to the payment of interest, the SC ruled in the
imposition of lesser burdens which permits greater reciprocity between the parties. (Castelo
v. CA, 1995)
Ø In case of doubt as to the principal object, as the sale of a particular house of the seller in
Quezon City, and he owns 2 houses in such locality, the contract will be considered void if
it cannot be determined which house is the object of the contract.
ART. 1379. THE PRINCIPLES OF INTERPRETATION STATED IN RULE 123 OF THE RULES OF
COURT SHALL LIKEWISE BE OBSERVED IN THE CONSTRUCTION OF CONTRACTS.
Section 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.
Section 11. Instrument construed so as to give effect to all provisions. — In the
construction of an instrument where there are several provisions or particulars,
such a construction is, if possible, to be adopted as will give effect to all.
Section 12. Interpretation according to intention; general and particular
provisions. — In the construction of an instrument, the intention of the parties is
to be pursued; and when a general and a particular provision are inconsistent, the
latter is paramount to the former. So a particular intent will control a general one
that is inconsistent with it.
Section 13. Interpretation according to circumstances. — For the proper
construction of an instrument, the circumstances under which it was made,
including the situation of the subject thereof and of the parties to it, may be shown,
so that the judge may be placed in the position of those whose language he is to
interpret.

Section 14. Peculiar signification of terms. — The terms of a writing are presumed
to have been used in their primary and general acceptation, but evidence is
admissible to show that they have a local, technical, or otherwise peculiar
signification, and were so used and understood in the particular instance, in which
the agreement must be construed accordingly.
Section 15. Written words control printed. — When an instrument consists partly
of written words and partly of a printed form, and the two are inconsistent, the
former controls the latter.
Section 16. Experts and interpreters to be used in explaining certain writings. —
When the characters in which an instrument is written are difficult to be
deciphered, or the language is not understood by the court, the evidence of persons
skilled in deciphering the characters, or who understand the language, is
admissible to declare the characters or the meaning of the language.
Section 17. Of two constructions, which preferred. — When the terms of an
agreement have been intended in a different sense by the different parties to it,
that sense is to prevail against either party in which he supposed the other
understood it, and when different construction of a provision are otherwise equally
proper, that is to be taken which is the most favorable to the party in whose favor
the provision was made.
Section 18. Construction in favor of natural right. — When an instrument is
equally susceptible of two interpretation, one in favor of natural right and the other
against it, the former is to be adopted.
Section 19. Interpretation according to usage. — An instrument may be construed
according to usage, in order to determine its true character.
Ø The description that a contract is “invalid” is imprecise when used in relation to contracts
because the Civil Code uses specific names in designating defective contracts:
1. Rescissible (Art. 1380)
2. Voidable (Art. 1390)
3. Unenforceable (Art. 1403)
4. Void or inexistent (Art. 1409)
CHAPTER 6: RESCISSIBLE CONTRACTS
ART. 1380. CONTRACTS VALIDLY AGREED UPON MAY BE RESCINDED IN THE CASES
ESTABLISHED BY LAW.
Ø The rescissible contracts under Article 1380 are valid, but may subsequently be terminated
on legal grounds.
Ø Being rescissible is not principally premised on a breach of trust by the other party, but on
some economic damage as a result of inequitable conduct by one party.
Ø In 1191, there is a breach of trust. Here, the basis for filing is the economic damage.
Furthermore, in 1191, the total contract is extinguished, while herein there is rescission
“only up to the extent of the damage done.” It may be, but is not necessarily total.
60 YAP, K. | ATENEO LAW
ART. 1381. HE FOLLOWING CONTRACTS ARE RESCISSIBLE:
(1) THOSE WHICH ARE ENTERED INTO BY GUARDIANS WHENEVER THE WARDS WHOM THEY
REPRESENT SUFFER LESION BY MORE THAN ONE-FOURTH OF THE VALUE OF THE THINGS WHICH
ARE THE OBJECT THEREOF;
(2) THOSE AGREED UPON IN REPRESENTATION OF ABSENTEES, IF THE LATTER SUFFER THE
LESION STATED IN THE PRECEDING NUMBER;
(3) THOSE UNDERTAKEN IN FRAUD OF CREDITORS WHEN THE LATTER CANNOT IN ANY OTHER
MANNER COLLECT THE CLAIMS DUE THEM;
(4) THOSE WHICH REFER TO THINGS UNDER LITIGATION IF THEY HAVE BEEN ENTERED INTO BY
THE DEFENDANT WITHOUT THE KNOWLEDGE AND APPROVAL OF THE LITIGANTS OR OF
COMPETENT JUDICIAL AUTHORITY;
(5) ALL OTHER CONTRACTS SPECIALLY DECLARED BY LAW TO BE SUBJECT TO RESCISSION.
Ø Lesion implies economic damage.
Ø Any act of ownership or disposition undertaken by the guardian on behalf of his ward
without court approval is void. If there is court approval, the transaction is valid, whether
or not there is lesion.
• Ex. Where the guardian contracts another party to fix the roof of an apartment
owned by the ward, the ward suffers economic loss because there was, in fact,
no need to make such useless purchase.
§ The ward can rescind the contract between the guardian and the
contractor only if the ward had already exhausted all other means to
claim from the guardian, and if the contractor was in bad faith.
Ø Absence may be declared by the court after 2 years having elapsed without any news about
the absentee, or since the receipt of the last news, or 5 years in case the absentee left a
person in charge of the administration of his property.
Ø In fraud of creditors – a contract entered into in bad faith by the parties to the said contract,
which was purposely designed to evade the due obligations in favor of creditors who have
no other way to collect their debts.
• Only actual creditors can ask for the rescission of the conveyance made by their
debtors in favor of strangers. (Marsman Investment Ltd. V. Philippine Abaca
Development Company, 1963)
• In order that a contract may be rescinded as in fraud of creditors, it is essential
that (1) both parties have acted maliciously and with fraud and for the purpose
of prejudicing said creditors; and (2) the latter are deprived of all means by which
they may effect collection of their claims. (Bobis v. Privincial Sheriff of
Camarines Norte, 1983)
• A contract of sale therefore, entered into in violation of a right of first refusal of
another person, while valid, is rescissible. (Litonjua v. L.R. Corporation, 1999)
ART. 1382. PAYMENTS MADE IN A STATE OF INSOLVENCY FOR OBLIGATIONS TO WHOSE
FULFILLMENT THE DEBTOR COULD NOT BE COMPELLED AT THE TIME THEY WERE EFFECTED,
ARE ALSO RESCISSIBLE.
Ø Insolvency – when a debtor’s liabilities already exceed his assets and who can barely pay
off his debts.
Ø Prior judicial declaration of insolvency is not necessary.

Ø Under the Insolvency Law, the transfer of property made after an insolvency proceeding,
although in fraud of creditors, is not only rescissible, but void.
ART. 1383. THE ACTION FOR RESCISSION IS SUBSIDIARY; IT CANNOT BE INSTITUTED EXCEPT
WHEN THE PARTY SUFFERING DAMAGE HAS NO OTHER LEGAL MEANS TO OBTAIN REPARATION
FOR THE SAME.
Ø A cause of action for rescission under this chapter can only be made in a proper and direct
action filed for that purpose and not on a mere motion incidental to another case.
Ø Action for rescission may not be raised in a summary proceeding through a motion, nor
done in the same case, but through the filing of a separate action. (Air France v. CA, 1995)
Ø An action to rescind or an accion pauliana must be of last resort.
• Accion pauliana presupposes the following:
1. Judgment;
2. Issuance by trial court of a writ of execution for the satisfaction of
judgment;
3. Failure of the sheriff to enforce and satisfy the judgment of the court;
4. Creditor has exhausted the property of the debtor;
5. Credit of the plaintiff antedates that of the fraudulent alienation by the
debtor of his property.
ART. 1384. RESCISSION SHALL BE ONLY TO THE EXTENT NECESSARY TO COVER THE DAMAGES
CAUSED.
Ø Since rescission presupposes a valid contract, it need not be rescinded totally considering
the law provides that such remedy shall be only up to the extent necessary to cover the
damages caused.
ART. 1385. RESCISSION CREATES THE OBLIGATION TO RETURN THE THINGS WHICH WERE THE
OBJECT OF THE CONTRACT, TOGETHER WITH THEIR FRUITS, AND THE PRICE WITH ITS INTEREST;
CONSEQUENTLY, IT CAN BE CARRIED OUT ONLY WHEN HE WHO DEMANDS RESCISSION CAN
RETURN WHATEVER HE MAY BE OBLIGED TO RESTORE.
NEITHER SHALL RESCISSION TAKE PLACE WHEN THE THINGS WHICH ARE THE OBJECT OF THE
CONTRACT ARE LEGALLY IN THE POSSESSION OF THIRD PERSONS WHO DID NOT ACT IN BAD
FAITH.
IN THIS CASE, INDEMNITY FOR DAMAGES MAY BE DEMANDED FROM THE PERSON CAUSING THE
LOSS.
Ø Restitution – the parties shall be placed in the same position where they were before they
entered into the assailed contract.
Ø If the object of the contract cannot be restored because of loss, damages may be claimed
from the person responsible for the loss.
Ø An attempted restoration of the status quo is an essential part of the rescission of a contract.
Ø A party cannot rescind and at the same time retain the consideration, or a part thereof,
received under the contract.
Ø Purchaser in good faith – one who buys the property of another without notice that some
other person has a right or interest in such a property and pays a full and fair price at the
61 YAP, K. | ATENEO LAW
time of the purchase or before he has notice of the claim or interest of some other person
in the property.
Ø In the petition, always remember that it must necessarily include all elements. Always note
that the petitioner must state that he is ready to return what he had obtained.
ART. 1386. RESCISSION REFERRED TO IN NOS. 1 AND 2 OF ARTICLE 1381 SHALL NOT TAKE
PLACE WITH RESPECT TO CONTRACTS APPROVED BY THE COURTS.
Ø Approval by the courts implies that the parties were given their day in court to justify to
the court the necessity and reasonableness of the contract entered into.
ART. 1387. ALL CONTRACTS BY VIRTUE OF WHICH THE DEBTOR ALIENATES PROPERTY BY
GRATUITOUS TITLE ARE PRESUMED TO HAVE BEEN ENTERED INTO IN FRAUD OF CREDITORS,
WHEN THE DONOR DID NOT RESERVE SUFFICIENT PROPERTY TO PAY ALL DEBTS CONTRACTED
BEFORE THE DONATION.
ALIENATIONS BY ONEROUS TITLE ARE ALSO PRESUMED FRAUDULENT WHEN MADE BY
PERSONS AGAINST WHOM SOME JUDGMENT HAS BEEN RENDERED IN ANY INSTANCE OR SOME
WRIT OF ATTACHMENT HAS BEEN ISSUED. THE DECISION OR ATTACHMENT NEED NOT REFER TO
THE PROPERTY ALIENATED, AND NEED NOT HAVE BEEN OBTAINED BY THE PARTY SEEKING THE
RESCISSION.
IN ADDITION TO THESE PRESUMPTIONS, THE DESIGN TO DEFRAUD CREDITORS MAY BE PROVED
IN ANY OTHER MANNER RECOGNIZED BY THE LAW OF EVIDENCE.
Ø Presumptions can only exist form facts or a set of facts.
Ø The maturity of the debts is not a requirement.
Ø An alienation made during the pendency of a suit is not enough. There must already be a
decision or a writ of attachment.
ART. 1388. WHOEVER ACQUIRES IN BAD FAITH THE THINGS ALIENATED IN FRAUD OF
CREDITORS, SHALL INDEMNIFY THE LATTER FOR DAMAGES SUFFERED BY THEM ON ACCOUNT
OF THE ALIENATION, WHENEVER, DUE TO ANY CAUSE, IT SHOULD BE IMPOSSIBLE FOR HIM TO
RETURN THEM.
IF THERE ARE TWO OR MORE ALIENATIONS, THE FIRST ACQUIRER SHALL BE LIABLE FIRST, AND
SO ON SUCCESSIVELY.
Ø The knowledge of the transferee of the evasive and fraudulent designs of the debtor makes
the said transferee’s acquisition tainted with bad faith.
Ø If such buyer is in good faith, his purchase of the property is perfectly valid, thereby making
it impossible for the first transferee to return the property, in which case such first transferee
shall be liable for damages.

ART. 1389. THE ACTION TO CLAIM RESCISSION MUST BE COMMENCED WITHIN FOUR YEARS.
FOR PERSONS UNDER GUARDIANSHIP AND FOR ABSENTEES, THE PERIOD OF FOUR YEARS SHALL
NOT BEGIN UNTIL
THE TERMINATION OF THE FORMER'S INCAPACITY, OR UNTIL THE DOMICILE OF THE LATTER IS
KNOWN.
Ø The period begins to run after the following:
1. For persons under guardianship
a. The time the incapacity terminates; and
b. The aggrieved party has unsuccessfully exhausted all other legal
remedies to be able to enforce his or her rights to recover what has been
lost.
2. For absentees
a. The time the absentee learns of the contract; and
b. The aggrieved party has unsuccessfully exhausted all other legal
remedies to be able to enforce his or her rights to recover what has been
lost.
3. For contracts entered into in fraud of creditors
a. The time of the discovery of the fraud; and
b. The aggrieved party has unsuccessfully exhausted all other legal
remedies to be able to enforce his or her rights to recover what has been
lost.
4. For contracts entered into with respect to things under litigation
a. The time of knowledge of the transaction; and
b. The aggrieved party has unsuccessfully exhausted all other legal
remedies to be able to enforce his or her rights to recover what has been
lost.
CHAPTER 7: VOIDABLE CONTRACTS
ART. 1390. THE FOLLOWING CONTRACTS ARE VOIDABLE OR ANNULLABLE, EVEN THOUGH
THERE MAY HAVE BEEN NO DAMAGE TO THE CONTRACTING PARTIES:
(1) THOSE WHERE ONE OF THE PARTIES IS INCAPABLE OF GIVING CONSENT TO A CONTRACT;
(2) THOSE WHERE THE CONSENT IS VITIATED BY MISTAKE, VIOLENCE, INTIMIDATION, UNDUE
INFLUENCE OR FRAUD.
THESE CONTRACTS ARE BINDING, UNLESS THEY ARE ANNULLED BY A PROPER ACTION IN
COURT. THEY ARE SUSCEPTIBLE OF RATIFICATION.
Ø Voidable contracts are valid until annulled. Hence, any defect or infirmity causing its
annullable nature can be cured by the party aggrieved or injured.
• Ratification – the process of curing the defect.
Ø The effects of an annulment operated prospectively, and do not retroact to the time the
contract was made.
62 YAP, K. | ATENEO LAW
Ø Damage need not exist in case of annulment.
Ø Rescission Voidable
• Contract is rescinded only up to the • Contract is totally extinguished.
extent of the damage.
• There is economic damage. • No economic damage.
• There must be exhaustion of • No exhaustion of remedies.
remedies.
• Deals with consent, an essential
element in a contract.
ART. 1391. THE ACTION FOR ANNULMENT SHALL BE BROUGHT WITHIN FOUR YEARS. THIS
PERIOD SHALL BEGIN:
IN CASES OF INTIMIDATION, VIOLENCE OR UNDUE INFLUENCE, FROM THE TIME THE DEFECT OF
THE CONSENT CEASES.
IN CASE OF MISTAKE OR FRAUD, FROM THE TIME OF THE DISCOVERY OF THE SAME.
AND WHEN THE ACTION REFERS TO CONTRACTS ENTERED INTO BY MINORS OR OTHER
INCAPACITATED PERSONS, FROM THE TIME THE GUARDIANSHIP CEASES.
Ø Prescriptive period – the time within which an aggrieved party can file a case in court to
make a claim or to assert a right or to correct a wrong.
Ø In annulling contracts, the prescriptive period is 4 years. The period begins to run:
1. In case of intimidation, violence or undue influence, from the time the defect of
the consent ceases. Thus, the aggrieved party is excused from not filing a case
for the annulment of the contract while the threat and intimidation are still
existing.
2. In case of mistake or fraud, from the time of discovery of the same. Thus, the
aggrieved party is excused from filing an action to annul the contract during the
time when he is not aware of the fraud.
3. In case of contracts entered into by minors or other incapacitated persons, from
the time the guardianship ceases. Thus, the aggrieved party cannot file a case for
annulment while under guardianship because the guardian at that time is
supposedly the one taking charge of his affairs.
Ø The rule that an extra-judicial demand by a creditor shall interrupt the running of a
prescriptive period applies only to a determinate conduct that can be demanded.
• In a case where the petitioner contended that the demands made to the respondent
to reconvey the property interrupted the prescriptive period, the SC ruled that
since there was no obligation to reconvey on the part of the respondent since the
contract with respect thereto was voidable, the reconveyance of the property by
the respondent could not be a determinate conduct that can be extrajudicially
demanded while the contract is considered valid.
ART. 1392. RATIFICATION EXTINGUISHES THE ACTION TO ANNUL A VOIDABLE CONTRACT.

ART. 1393. RATIFICATION MAY BE EFFECTED EXPRESSLY OR TACITLY. IT IS UNDERSTOOD
THAT THERE IS A TACIT RATIFICATION IF , WITH KNOWLEDGE OF THE REASON WHICH RENDERS
THE CONTRACT VOIDABLE AND SUCH REASON HAVING CEASED, THE PERSON WHO HAS A RIGHT
TO INVOKE IT SHOULD EXECUTE AN ACT WHICH NECESSARILY IMPLIES AN INTENTION TO
WAIVE HIS RIGHT.
Ø Ratification – the act of curing the defect which made the contract annullable.
• May be expressly or tacitly given.
• It extinguishes the action to annul a voidable contract.
Ø There can be no ratification by a corporation of acts performed by an officer if he has not
been given apparent authority by the corporation, or if his acts are not later validated by
the corporation. (Yao Ka Sin Trading v. CA, 1992)
ART. 1394. RATIFICATION MAY BE EFFECTED BY THE GUARDIAN OF THE INCAPACITATED
PERSON.
Ø Guardian – tasked with the administration of the person and properties of the ward.
Ø The guardian can make an express or tacit ratification of the repair, especially if it will
redound to the benefit of his incapacitated ward.
• Ex. A ward entered into a contract with a carpenter to repair the roof of his
apartment is annullable, unless the guardian ratifies because it redounds to the
benefit of the ward.
ART. 1395. RATIFICATION DOES NOT REQUIRE THE CONFORMITY OF THE CONTRACTING PARTY
WHO HAS NO RIGHT TO BRING THE ACTION FOR ANNULMENT.
Ø Ratification is a unilateral contract.
Ø It is generally done by the injured party and not the party causing the injury.
• The consent of the injuring party is not required because such party normally
desires the effectivity of the contract anyway from its inception.
ART. 1396. RATIFICATION CLEANSES THE CONTRACT FROM ALL ITS DEFECTS FROM THE
MOMENT IT WAS CONSTITUTED.
Ø The curing effect retroacts to the day when the contract was entered into.
• Hence, upon ratification, it is as if the contract has never been visited by any
infirmity or defect at all.
ART. 1397. THE ACTION FOR THE ANNULMENT OF CONTRACTS MAY BE INSTITUTED BY ALL
WHO ARE THEREBY OBLIGED PRINCIPALLY OR SUBSIDIARILY. H OWEVER, PERSONS WHO ARE
CAPABLE CANNOT ALLEGE THE INCAPACITY OF THOSE WITH WHOM THEY CONTRACTED; NOR
CAN THOSE WHO EXERTED INTIMIDATION, VIOLENCE, OR UNDUE INFLUENCE, OR EMPLOYED
FRAUD, OR CAUSED MISTAKE BASE THEIR ACTION UPON THESE FLAWS OF THE CONTRACT.
Ø General rule: Strangers to a contract cannot sue either or both of the contracting parties to
annul and set aside that contract. (Malabanan v. Gaw Ching, 1990)
63 YAP, K. | ATENEO LAW
• Exception: If a stranger is prejudiced in his rights with respect to one of the
contracting parties, but in order that such be the case, it is indispensable to show
the detriment which positively would result to him from the contract in which he
had no intervention. (Ibañez v. Hongkong and Shanghai Bank, 1918)
Ø A brother of the deceased is an intestate heir, but he is not a forced heir. He is not obliged
principally or subsidiarily under the contract. Furthermore, there was no transmission of
any right to the property. (Armentia v. Patriarca, 1966)
Ø Voluntary conveyance, without any consideration whatever, is prima facie good as
between the parties, and such an instrument cannot be declared fraudulent as against
creditors in the absence of proof that there was, at the time of the execution of the
conveyance, a creditor who could be defrauded by such. (Solis v. Chua Pua Hermanos,
1927)
Ø The action for annulment cannot be filed by the person who cause the defect in the contract.
• It is a general rule that a litigant cannot come to court with unclean hands.
• In cases of contracts entered into between capacitated and incapacitated persons,
however, if the case filed is not for annulment but for the enforcement of the
contract, the party who is capacitated may file such action against the minor.
§ Whether or not the minor will be liable depends upon the kind of
misrepresentation which the minor made in entering the contract and
upon the extent of the benefit to the minor.
1. Active – deliberately and intentionally undertakes to inform
the other party and expressly declares in the contract that he
is of majority age, when in fact he is not, the minor is liable
to pay whatever his obligation.
2. Passive – without doing anything to declare his true age, the
minor shall be liable only up to the extent tat he has been
benefited by the contract.
Ø It is important to show:
1. Prejudice; and
2. Interest.
ART. 1398. AN OBLIGATION HAVING BEEN ANNULLED, THE CONTRACTING PARTIES SHALL
RESTORE TO EACH OTHER THE THINGS WHICH HAVE BEEN THE SUBJECT MATTER OF THE
CONTRACT , WITH THEIR FRUITS, AND THE PRICE WITH ITS INTEREST, EXCEPT IN CASES
PROVIDED BY LAW.
IN OBLIGATIONS TO RENDER SERVICE, THE VALUE THEREOF SHALL BE THE BASIS FOR
DAMAGES.
ART. 1399. WHEN THE DEFECT OF THE CONTRACT CONSISTS IN THE INCAPACITY OF ONE OF
THE PARTIES, THE INCAPACITATED PERSON IS NOT OBLIGED TO MAKE ANY RESTITUTION
EXCEPT INSOFAR AS HE HAS BEEN BENEFITED BY THE THING OR PRICE RECEIVED BY HIM.
Ø When the annulment of the contract has been decreed, the contracting parties must be
returned to their original position.
• Ex. If the contract involves some service like the tutoring of a particular child,
the value of the tutoring must be paid to the tutor by way of damages.
Ø When the defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution except insofar as he has been
benefited by the thing or price received by him.

• Ex. In a case where a minor entered into a contract of loan with the bank, the
bank cannot recover such if it has been uselessly spent by the manor.
§ However, if the minor used it to enroll in school, the bank can only
recover by way of a counterclaim in a complaint for annulment filed
by the minor when he reaches the age of majority.
ART. 1400. WHENEVER THE PERSON OBLIGED BY THE DECREE OF ANNULMENT TO RETURN
THE THING CAN NOT DO SO BECAUSE IT HAS BEEN LOST THROUGH HIS FAULT, HE SHALL
RETURN THE FRUITS RECEIVED AND THE VALUE OF THE THING AT THE TIME OF THE LOSS, WITH
INTEREST FROM THE SAME DATE.
Ø If the object is lost with fault, the value of the object, its fruits, and interest shall be given
instead to satisfy the order of restitution.
ART. 1401. THE ACTION FOR ANNULMENT OF CONTRACTS SHALL BE EXTINGUISHED WHEN THE
THING WHICH IS THE OBJECT THEREOF IS LOST THROUGH THE FRAUD OR FAULT OF THE PERSON
WHO HAS A RIGHT TO INSTITUTE THE PROCEEDINGS.
IF THE RIGHT OF ACTION IS BASED UPON THE INCAPACITY OF ANY ONE OF THE CONTRACTING
PARTIES, THE LOSS OF THE THING SHALL NOT BE AN OBSTACLE TO THE SUCCESS OF THE
ACTION, UNLESS SAID LOSS TOOK PLACE THROUGH THE FRAUD OR FAULT OF THE PLAINTIFF.
Ø No one can come to court with unclean hands.
• Ex. In case a deaf-mute who cannot read and write purchases a car and later files
a case to annul the contract of sale, the mere fact that the car has been lost will
not stop the proceedings for annulment. This is so because the incapacitated
person is not obliged to make any restitution except when it has benefited him.
§ However, if the incapacitated person loses the car through his own
fault, the case to annul the contract of sale will be dismissed.
ART. 1402. AS LONG AS ONE OF THE CONTRACTING PARTIES DOES NOT RESTORE WHAT IN
VIRTUE OF THE DECREE OF ANNULMENT HE IS BOUND TO RETURN , THE OTHER CANNOT BE
COMPELLED TO COMPLY WITH WHAT IS INCUMBENT UPON HIM.
Ø If one of them cannot restore to the other what he has received from the said other, such
other person cannot be compelled to return what he, in turn, had received.
• However, if one of the parties is incapacitated, he is not obliged to return what
he has received except insofar as he has been benefited by the thing or price
received by him.
CHAPTER 8: UNENFORCEABLE CONTRACTS
64 YAP, K. | ATENEO LAW
ART. 1403. THE FOLLOWING CONTRACTS ARE UNENFORCEABLE, UNLESS THEY ARE RATIFIED:
(1) THOSE ENTERED INTO IN THE NAME OF ANOTHER PERSON BY ONE WHO HAS BEEN GIVEN
NO AUTHORITY OR LEGAL REPRESENTATION, OR WHO HAS ACTED BEYOND HIS POWERS;
(2) THOSE THAT DO NOT COMPLY WITH THE STATUTE OF F RAUDS AS SET FORTH IN THIS
NUMBER. IN THE FOLLOWING CASES AN AGREEMENT HEREAFTER MADE SHALL BE
UNENFORCEABLE BY ACTION, UNLESS THE SAME, OR SOME NOTE OR MEMORANDUM, THEREOF ,
BE IN WRITING, AND SUBSCRIBED BY THE PARTY CHARGED, OR BY HIS AGENT; EVIDENCE,
THEREFORE, OF THE AGREEMENT CANNOT BE RECEIVED WITHOUT THE WRITING, OR A
SECONDARY EVIDENCE OF ITS CONTENTS:
(A) AN AGREEMENT THAT BY ITS TERMS IS NOT TO BE PERFORMED WITHIN A YEAR FROM THE
MAKING THEREOF;
(B) A SPECIAL PROMISE TO ANSWER FOR THE DEBT, DEFAULT, OR MISCARRIAGE OF ANOTHER;
(C) AN AGREEMENT MADE IN CONSIDERATION OF MARRIAGE, OTHER THAN A MUTUAL
PROMISE TO MARRY;
(D) AN AGREEMENT FOR THE SALE OF GOODS, CHATTELS OR THINGS IN ACTION, AT A PRICE
NOT LESS THAN FIVE HUNDRED PESOS, UNLESS THE BUYER ACCEPT AND RECEIVE PART OF
SUCH GOODS AND CHATTELS, OR THE EVIDENCES, OR SOME OF THEM, OF SUCH THINGS IN
ACTION OR PAY AT THE TIME SOME PART OF THE PURCHASE MONEY; BUT WHEN A SALE IS
MADE BY AUCTION AND ENTRY IS MADE BY THE AUCTIONEER IN HIS SALES BOOK, AT THE TIME
OF THE SALE, OF THE AMOUNT AND KIND OF PROPERTY SOLD, TERMS OF SALE, PRICE, NAMES
OF THE PURCHASERS AND PERSON ON WHOSE ACCOUNT THE SALE IS MADE, IT IS A SUFFICIENT
MEMORANDUM;
(E) AN AGREEMENT FOR THE LEASING FOR A LONGER PERIOD THAN ONE YEAR, OR FOR THE
SALE OF REAL PROPERTY OR OF AN INTEREST THEREIN;
( F ) A REPRESENTATION AS TO THE CREDIT OF A THIRD PERSON.
(3) THOSE WHERE BOTH PARTIES ARE INCAPABLE OF GIVING CONSENT TO A CONTRACT.
Ø Contracts herein are in the executory stage.
Ø Remedy herein is to compel the other party to put it in writing, then to ask for specific
performance.
Ø Does not contemplate actual fraud, but possibility of committing fraud.
• Not within the Statute of Fraud if:
1. In writing;
2. In executory stage;
• Partial performance removes contract from executory stage.
3. Subscribed by the party charged;
• If reciprocal, both parties must sign because if only one
signs, that party may invoke it against anyone.
Ø Remember that void contracts are not within the Statute of Frauds. Art. 1403 (c) has been
repealed by the Family Code.
Ø In Art. 1403 (b), remember that a surety is primarily liable. An exception is the
accommodating party.
ART. 1404. UNAUTHORIZED CONTRACTS ARE GOVERNED BY ARTICLE 1317 AND THE
PRINCIPLES OF AGENCY IN TITLE X OF THIS BOOK.

Ø A contract may have all the requisites for perfection but it may still be unenforceable.
1. If a contract has been entered into without authority, it cannot be enforced.
2. If a contract is entered into by parties who are both incapacitated to enter into a
contract, it cannot be enforced.
3. If the contract does not comply with the Statute of Frauds, it cannot be enforced.
§ Statute of Frauds – mandates that for certain executory contracts to be
enforceable in court, the only evidence that can prove such contract is
a written proof of the agreement like some notes or memoranda. The
reason is to prevent fraud or perjury.
§ An exception for the unenforceability of contracts pursuant to the
Statute of Frauds is the existence of a written note or memorandum
evidencing a contract. (Limketkai Sons Milling, Inc. v. CA, 1995)
§ The written evidence of the contract may not necessarily be in one
document, but in 2 or more notes or memoranda, which taken together
or by reference with other writings, clearly reveal the essential
requisites for the existence of a contract and also the signature of the
parties or parties charged or their agent. (Berg v. Magdalena, 1952)
• Any document or writing, formal or informal, written either
for the purpose of furnishing evidence of the contract or for
another purpose, which satisfies all the requirements of the
statute as to contents and signature, is a sufficient
memorandum or note.
• Paper connected – the rule applied to 2 or more, or a series
of, letters or telegrams, or letters and telegrams sufficiently
connected to allow their consideration together. This rule
also applies to other documents.
Ø The Statute of Frauds only applies to executory contracts and not to contracts which have
been consummated already or those which have been totally or partially performed.
• An oral contract partially performed must be proven in court. (Babao v. Perez,
1957)
• Partial performance can also be manifested when:
1. Improvements are made on the subject property pursuant to the
contract;
2. Rentals are paid;
3. Taking possession on the basis of a verbal contract to purchase the
property;
4. Payment of taxes and relinquishment of rights; and
5. Tender of payment coupled with other acts indicating partial
performance.
• Partial performance takes an oral contract out of the scope of the Statute of
Frauds. Where an oral contract of sale has been partially executed by payment of
the price, oral testimony is admissible to evidence the existence of the contract,
(Almirol and Cariño v. Monserrat, 1925)
• An agreement of a landlord to extend a lease for a specified term of years and a
specified rental, provided the tenant made certain extensive repairs to the
property, was enforceable notwithstanding the Statute of Frauds, where the
tenant fully performed his part of the agreement. (Read Drug & Chemical Co. v.
Nattans, 1917)
Ø The enumeration of contracts under Article 1403(2) that must comply with the Statute of
Frauds is exclusive.
65 YAP, K. | ATENEO LAW
1. An agreement that by its terms is not to be formed within a year from the making
thereof
• If the contract stipulates that the contract shall be executed
immediately upon signing of the agreement, although it has been reset
to another date by agreement of the parties so that it can be finished
only beyond 1 year, the contract is not within the Statute of Frauds.
2. A special promise to answer for the debt, default or miscarriage of another
• A promise is not within this clause of the statute unless there is an
obligation of some third person to the promisee, either already existing
or subsequently existing.
1. The promise must be made to the promisee and not to the
debtor.
2. The promise must be in the nature of a collateral or
subsidiary obligation and not an original one (surety, not
primarily liable.
• A promissor cannot be made to answer for the debt or default of
another unless someone else is primarily liable to the creditor.
• In case the obligation is joint, there is no “special promise” as
contemplated in the Statute of Frauds.
§ However, if one of several promissors is to have the
purchased goods or the borrowed money, the others lending
their credit as security, and this is known to all parties, the
latter are “answering for the debt of another” which is within
the Statute of Frauds.
• The test as to whether a promise is within the Statute of Frauds is
“whether the promise is an original or a collateral one.” (Paul Reiss v.
Jose M. Memije, 1910)
3. An agreement made in consideration of marriage other than a mutual promise to
marry
• Ante-nuptial agreements or marriage settlements or any modifications
thereof shall be in writing, signed by the parties and executed before
the marriage.
4. An agreement for the sale of goods, chattels or things in action, at a price not less
than P500
5. An agreement for the leasing for a longer period than 1 year or the sale of real
property or an interest therein
• Notarization is needed only to bind third persons, and so that the proper
registry of property can accept the deed or contract for resignation.
6. A representation as to the credit of a third person
• A representation therefore of the creditworthiness of another, which
turns out to be untrue may be a cause of action for damages if the same
were given in bad faith.
Ø Examples of those included in the Statute of Frauds:
1. Right of first refusal;
2. Setting up of boundaries;
3. Oral partition of real property; and
4. Agreement creating a right of way.

ART. 1405. CONTRACTS INFRINGING THE STATUTE OF F RAUDS, REFERRED TO IN NO. 2 OF Ø It is useless for a third person to assail an unenforceable contract as it cannot be executed
ARTICLE 1403, ARE RATIFIED BY THE FAILURE TO OBJECT TO THE PRESENTATION OF ORAL
anyway.
EVIDENCE TO PROVE THE SAME , OR BY THE ACCEPTANCE OF BENEFIT UNDER THEM.
CHAPTER 9: VOID AND INEXISTENT CONTRACTS

Ø Contracts infringing the Statute of Frauds are ratified

ART. 1409. THE FOLLOWING CONTRACTS ARE INEXISTENT AND VOID FROM THE BEGINNING:
1. By the failure to object to the presentation of oral evidence. (Limketkai Sons
Milling, Inc. v. CA, 1995)
(1) THOSE WHOSE CAUSE, OBJECT OR PURPOSE IS CONTRARY TO LAW, MORALS, GOOD
2. When the defense fails to object, or ask questions on cross-examination.
CUSTOMS, PUBLIC ORDER OR PUBLIC POLICY;
(Abrenica v. Gonda, 1916)
(2) THOSE WHICH ARE ABSOLUTELY SIMULATED OR FICTITIOUS;
• The reason for this rule is that if the answers of those witnesses were
(3) THOSE WHOSE CAUSE OR OBJECT DID NOT EXIST AT THE TIME OF THE TRANSACTION;
stricken out, the cross-examination could have no object whatsoever,
(4) THOSE WHOSE OBJECT IS OUTSIDE THE COMMERCE OF MEN;
and if the questions were put to the witness and answered by them, they
(5) THOSE WHICH CONTEMPLATE AN IMPOSSIBLE SERVICE;
could only be taken into account by connecting them with the answers
(6) THOSE WHERE THE INTENTION OF THE PARTIES RELATIVE TO THE PRINCIPAL OBJECT OF
given by those witnesses on direct examination.
THE CONTRACT
3. When benefits are already obtained from the agreement.
CANNOT BE ASCERTAINED;
Ø The Statute of Frauds may only be invoked in a case for violation of contracts or for specific
(7) THOSE EXPRESSLY PROHIBITED OR DECLARED VOID BY LAW.
performance.
THESE CONTRACTS CANNOT BE RATIFIED. NEITHER CAN THE RIGHT TO SET UP THE DEFENSE OF
ILLEGALITY BE WAIVED.
ART. 1406. WHEN A CONTRACT IS ENFORCEABLE UNDER THE STATUTE OF FRAUDS, AND A
PUBLIC DOCUMENT IS NECESSARY FOR ITS REGISTRATION IN THE REGISTRY OF DEEDS , THE
PARTIES MAY AVAIL THEMSELVES OF THE RIGHT UNDER A RTICLE 1357.
Ø A contract which is void is no contract at all.
Ø Jurisprudence on contracts which are void for being contrary to law or public policy.
• In a case where the spouses entered into stipulations “in consideration for a
Ø They may exercise this right simultaneously with the action upon the contract. peaceful and amicable settlement of relations between the undersigned and her
Ø Parol evidence of sale is adduced not for the purpose of enforcing performance thereof, but lawful husband,” the SC ruled that the agreement is contrary to law and Filipino
on the basis of the lawful possession of the applicants entitling them to have the land morals and public policy. Thus, they cannot do so without any legal basis. (De
thereby sold registered in their name, the Statute of Frauds is not applicable. (Almirol v. Leon v. CA, 1990)
Monserrat, 1925 • In a case where a contract purporting to be a sale of land was really without
Ø A mere tenant in the subject property cannot invoke the doctrine in the Almirol case. consideration, but intended merely to protect a party to a joint venture for the
(Pascual v. Realty Investment, Inc. cash advances he was to make, the SC ruled that the contract was absolutely
simulated, and was therefore void. (Gardner v. CA, 1984)
ART. 1407. IN A CONTRACT WHERE BOTH PARTIES ARE INCAPABLE OF GIVING CONSENT, • Under the Public Land Act, no encumbrance or alienation should be made of the
EXPRESS OR IMPLIED RATIFICATION BY THE PARENT, OR GUARDIAN, AS THE CASE MAY BE, OF property subject of the government sales patent within 5 years from the issuance
ONE OF THE CONTRACTING PARTIES SHALL GIVE THE CONTRACT THE SAME EFFECT AS IF ONLY thereof. (Prudential Bank v. Panis, 1987)
ONE OF THEM WERE INCAPACITATED. • In a case where the wife of a GSIS official, acting for her husband, was the
awardee of a foreclosed property, the SC ruled that it was in violation of Art.
IF RATIFICATION IS MADE BY THE PARENTS OR GUARDIANS, AS THE CASE MAY BE, OF BOTH 1491 of the Civil Code which prohibits public officers and employees from
CONTRACTING PARTIES, THE CONTRACT SHALL BE VALIDATED FROM THE INCEPTION. purchasing property under their administration in an auction sale. (Maharlika
Publishin Corporation v. Tagle, 1986)
Ø In case both contracting parties are incapacitated, and the guardians of one of the • Refund of the amount of free tuition based on a scholarship may not be refunded
incapacitated persons ratifies the contract, the same shall be transformed into a voidable or by a student scholar who decided to move to another school. It is contrary to
annullable contract. public policy. (Cui v. Arellan, 1961)
Ø If ratification is made by the parents or guardians of both parties, the contract shall be • In determining a public policy of the State, courts are limited to a consideration
completely valid as if it has not been visited by any defect or infirmity at all. of the Constitution, judicial decisions, statutes, and the practice of government
officers. (Zeigel v. Illinois Trust and Savings Bank, 1898)
• Any agreement entered into because of the actual or supposed influence which
ART. 1408. UNENFORCEABLE CONTRACTS CANNOT BE ASSAILED BY THIRD PERSONS. the party has, engaging him to influence executive officials in the discharge of
their duties, rather than an appeal to the judgment of the official on the merits of

66 YAP, K. | ATENEO LAW


the object sought is contrary to public policy. (Marubeni Corporation v. Lirag,
2001)
• A stipulation in a contract prohibiting a mortgagor to sell the property mortgaged
is void as being contrary to the express provision of Art. 2130 of the Civil Code.
§ However, a stipulation prohibiting the re-mortgage to another of the
same property already mortgaged to the creditor-mortgagee is valid.
Ø The non-payment of the purchase price of a valid contract of sale is not among the instances
where the law declares a contract null and void.
• At most, the non-payment gives a cause of action for rescission of the contract
or specific performance on the part of the creditor.
Ø The defect in a void contract is permanent and incurable. Hence, no amount of subsequent
actions of the parties can cure or ratify the defect or infirmity in a void contract.
Ø In a case where a property subject of a homestead patent was bought within the prohibitory
period provided by law, which is therefore void, the SC ruled refused to reward the property
to the buyer even if another contract was subsequently executed to ratify the previous sale.
Furthermore, infirmity can neither be cured by equity. (Arsenal v. IAC, 1986)
ART. 1410. THE ACTION OR DEFENSE FOR THE DECLARATION OF THE INEXISTENCE OF A
CONTRACT DOES NOT PRESCRIBE.
Ø A case is filed merely to declare that the contract, which is already void, is in fact void.
• Thus, the parties can just treat it as void even without a court action making such
contract void. However, a party can file a case to declare it void in order that he
can get back what he has given as valuable consideration for it.
Ø Even the doctrine of laches cannot apply to resist an imprescriptible legal right.
Ø Considering that a void contract is inexistent, restitution should generally apply.
• The declaration of nullity of a contract which is void ab initio operates to restore
things to the state and condition which they were found before the execution
thereof.
ART. 1411. WHEN THE NULLITY PROCEEDS FROM THE ILLEGALITY OF THE CAUSE OR OBJECT
OF THE CONTRACT, AND THE ACT CONSTITUTES A CRIMINAL OFFENSE, BOTH PARTIES BEING IN
PARI DELICTO, THEY SHALL HAVE NO ACTION AGAINST EACH OTHER, AND BOTH SHALL BE
PROSECUTED. MOREOVER, THE PROVISIONS OF THE PENAL CODE RELATIVE TO THE DISPOSAL
OF EFFECTS OR INSTRUMENTS OF A CRIME SHALL BE APPLICABLE TO THE THINGS OR THE PRICE
OF THE CONTRACT.
THIS RULE SHALL BE APPLICABLE WHEN ONLY ONE OF THE PARTIES IS GUILTY; BUT THE
INNOCENT ONE MAY CLAIM WHAT HE HAS GIVEN, AND SHALL NOT BE BOUND TO COMPLY WITH
HIS PROMISE.
Ø Ex dolo malo non oritur actio (from a dishonorable cause an action does not arise) and in
pari delicto potior est conditio (in equal fault, better is the condition of the possessor) are
applicable herein.
Ø The law will not aid either party to an illegal agreement.
• Ex. Where A and B enter into a contract whereby A is to kidnap X to be placed
in custody of B, and the car to be used for the kidnapping shall thereafter be given
to A as B’s payment.
§ Both A and B shall be prosecuted for kidnapping, and the car will be
disposed of as an instrument of the crime in accordance with the RPC.
67 YAP, K. | ATENEO LAW
Ø Arts. 1411 and 1412 do not apply to inexistent contract.
Ø The in pari delicto doctrine applies only to contracts with illegal consideration or subject
matter, whether the attendant facts constitute an offense or misdemeanor, or whether the
consideration involved is merely rendered illegal.
ART. 1412. IF THE ACT IN WHICH THE UNLAWFUL OR FORBIDDEN CAUSE CONSISTS DOES NOT
CONSTITUTE A CRIMINAL OFFENSE, THE FOLLOWING RULES SHALL BE OBSERVED:
(1) WHEN THE FAULT IS ON THE PART OF BOTH CONTRACTING PARTIES, NEITHER MAY
RECOVER WHAT HE HAS GIVEN BY VIRTUE OF THE CONTRACT, OR DEMAND THE PERFORMANCE
OF THE OTHER'S UNDERTAKING ;
(2) WHEN ONLY ONE OF THE CONTRACTING PARTIES IS AT FAULT, HE CANNOT RECOVER WHAT
HE HAS GIVEN BY REASON OF THE CONTRACT , OR ASK FOR THE FULFILLMENT OF WHAT HAS
BEEN PROMISED HIM. THE OTHER, WHO IS NOT AT FAULT, MAY DEMAND THE RETURN OF WHAT
HE HAS GIVEN WITHOUT ANY OBLIGATION TO COMPLY HIS PROMISE.
Ø Although not outrightly penalized as a criminal offense, the kabit system is invariably
recognized as being contrary to public police and is, therefore, void and inexistent under
Article 1409 of the Civil Code. (Lita Enterprises, Inc. v. IAC, 1984)
• Kabit system – a person who has been granted a certificate of convenience allows
another person who owns motor vehicles to operate under such franchise for a
fee.
Ø The mere laps of time cannot give efficacy to contracts that are null and void.
Ø In a case where a teacher bought property in violating the Administrative Code which
prohibits public officials from purchasing property sold by the government for non-
payment of taxes, the SC ruled that since the contract was void because it was contrary to
law, the teacher, as a party to the illegal transaction cannot recover what she gave by reason
of the contract or ask for the fulfillment of what had been promised her pursuant to Article
1412 of the Civil Code. (Heirs of Marciana G. Avila v. CA, 1986)
Ø In a case where a purchased and seller of certain sugar quota, which was previously
mortgaged to a bank, entered into a contract of sale for the purpose of negating the lawful
rights and claim of the banks (mortgagee), the SC ruled that no relief can be granted to
either party. (Compania General De Tobacos De Filipinas v. CA, 1990)
Ø In a case where a mother sold property to her daughter who later sold the same to her father
for the purpose of converting the property of the mother to conjugal property, thereby
vesting half interest on the husband and evading the prohibition of the Family Code against
donations between spouses, the SC ruled that no relief could be granted as all the parties
were guilty and therefor no one can recover what was given by virtue of the contract.
(Rodriguez v. Rodriguez, 1967)
ART. 1413. INTEREST PAID IN EXCESS OF THE INTEREST ALLOWED BY THE USURY LAWS MAY
BE RECOVERED BY THE DEBTOR, WITH INTEREST THEREON FROM THE DATE OF THE PAYMENT.
Ø Under the Usury Law, in case of usurious interest, the whole interest will be recoverable.
Ø “Interest paid in excess of the interest allowed by the usury laws” means the whole usurious
interest, not just that part thereof in excess of the interest allowed by law. (Angel Jose v.
Chelda Enterprises, 1968)

ART. 1414. WHEN MONEY IS PAID OR PROPERTY DELIVERED FOR AN ILLEGAL PURPOSE, THE ART. 1419. WHEN THE LAW SETS, OR AUTHORIZES THE SETTING OF A MINIMUM WAGE FOR
CONTRACT MAY BE REPUDIATED BY ONE OF THE PARTIES BEFORE THE PURPOSE HAS BEEN LABORERS , AND A CONTRACT IS AGREED UPON BY WHICH A LABORER ACCEPTS A LOWER
ACCOMPLISHED, OR BEFORE ANY DAMAGE HAS BEEN CAUSED TO A THIRD PERSON. IN SUCH WAGE, HE SHALL BE ENTITLED TO RECOVER THE DEFICIENCY .
CASE, THE COURTS MAY, IF THE PUBLIC INTEREST WILL THUS BE SUBSERVED, ALLOW THE
PARTY REPUDIATING THE CONTRACT TO RECOVER THE MONEY OR PROPERTY.
Ø This is for the protection of labor.
Ø Ex. If according to law A is to receive P200.00 a day, and he enters into an employment
Ø In a case where the parties entered into a void contract as the consideration was the contract providing that he is to get P150.00 a day, such a contract is void as the same is
termination of the marital relationship, and where the husband’s mother, who already against the law and so A can demand the difference of P50.00.
previously gave P380,000 to the wife pursuant to the void contract, resisted the attempt by
the wife to enforce the other provisions of the agreement on the ground that the contract ART. 1420. IN CASE OF A DIVISIBLE CONTRACT , IF THE ILLEGAL TERMS CAN BE SEPARATED
was void, the SC ruled that the mother may recover since the Letter-Agreement was FROM THE LEGAL ONES, THE LATTER MAY BE ENFORCED.
repudiated before the purpose has been accomplished. (De Leon v. CA, 1990)

Ø If a void provision in a contract directly affects the entirety of the contract, the contract can
ART. 1415. WHERE ONE OF THE PARTIES TO AN ILLEGAL CONTRACT IS INCAPABLE OF GIVING
be considered void.
CONSENT, THE COURTS MAY, IF THE INTEREST OF JUSTICE SO DEMANDS ALLOW RECOVERY OF
• However, if the provision is independently separable from the other provisions,
MONEY OR PROPERTY DELIVERED BY THE INCAPACITATED PERSON .
such provision alone shall be considered void.

Ø Ex. In a case where an insane person enters into a contract of sale of drugs, the insane ART. 1421. THE DEFENSE OF ILLEGALITY OF CONTRACT IS NOT AVAILABLE TO THIRD PERSONS
person may be allowed to recover. WHOSE INTERESTS ARE NOT DIRECTLY AFFECTED.
Ø Such recovery is within the discretion of the court.

Ø General rule: There can only be mutuality of obligations in a contract which affects the
ART. 1416. WHEN THE AGREEMENT IS NOT ILLEGAL PER SE BUT IS MERELY PROHIBITED, AND
parties involved therein.
THE PROHIBITION BY THE LAW IS DESIGNED FOR THE PROTECTION OF THE PLAINTIFF, HE MAY,
IF PUBLIC POLICY IS THEREBY ENHANCED , RECOVER WHAT HE HAS PAID OR DELIVERED.
• Exception: If a third person is greatly prejudiced as his interest is directly
affected, he may file a case for the nullification of a contract or set the same as a
defense.
Ø In a case where a property acquired from the government pursuant to a law designed to
give land to the landless (this is the public policy) was, in violation of the spirit of said law,
ART. 1422. A CONTRACT WHICH IS THE DIRECT RESULT OF A PREVIOUS ILLEGAL CONTRACT, IS
leased to third parties who refused to have the property reconveyed, the SC ruled that the
ALSO VOID AND INEXISTENT.
real owner may recover the property. (Ras v. Sua, 1968)

ART. 1417. WHEN THE PRICE OF ANY ARTICLE OR COMMODITY IS DETERMINED BY STATUTE, Ø A void contract is inexistent. Hence, if a subsequent contract proceeds from such inexistent
OR BY AUTHORITY OF LAW, ANY PERSON PAYING ANY AMOUNT IN EXCESS OF THE MAXIMUM
contract, the former contract is likewise void.
PRICE ALLOWED MAY RECOVER SUCH EXCESS.

Ø If the law provides the highest amount possible that can be charged from a buyer of certain
commodities, it is illegal to charge an amount higher than the statutory ceiling.
• Such an excess from the limit shall be recoverable.

ART. 1418. WHEN THE LAW FIXES, OR AUTHORIZES THE FIXING OF THE MAXIMUM NUMBER OF
HOURS OF LABOR, AND A CONTRACT IS ENTERED INTO WHEREBY A LABORER UNDERTAKES TO Fig. 5. Void Contract
WORK LONGER THAN THE MAXIMUM THUS FIXED, HE MAY DEMAND ADDITIONAL
COMPENSATION FOR SERVICE RENDERED BEYOND THE TIME LIMIT. Void contracts
Ostensible but void Void and inexistent
Ø This provision is designed to prevent the exploitation of employees or laborers. 1. Those whose cause, object or purpose 1. Those which are absolutely simulated
Ø Overtime pay is now regulated by the Labor Code of the Philippines. is contrary to law, morals, good or fictitious.
customs, public order or public policy. 2. Those whose cause or object did not
exist at the time of the transaction.

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2. Those expressly prohibited or declared 3. Those whose object is outside the such case, the courts may, if the public
void by law. commerce of men. interest will thus be subserved, allow
4. Those which contemplate an the party repudiating the contract to
impossible service. recover the money or property. (Art.
5. Those where the intention of the parties 1414)
relative to the principal object of the
• Where one of the parties to an illegal • In case of a divisible contract, if the
contract cannot be ascertained.
contract is incapable of giving consent, illegal terms can be separated from the
Rules the courts may, if the interest of justice legal ones, the latter may be enforced.
so demands allow recovery of money or (Art. 1420.
• The action or defense for the declaration of the inexistence of a contract does not
property delivered by the incapacitated
prescribe. (Art. 1410)
person. (Art. 1415)
• The defense of illegality of contract is not available to third persons whose interests
are not directly affected. (Art. 1421) • When the agreement is not illegal per
• A contract which is the direct result of a previous illegal contract, is also void and se but is merely prohibited, and the
inexistent. (Art. 1422) prohibition by the law is designed for
• Ratification does not apply. the protection of the plaintiff, he may,
if public policy is thereby enhanced,
General Rule: Restitution applies in void contracts. recover what he has paid or delivered.
Exceptions (In pari delicto) (Art. 1416)
• When both parties are in pari delicto, • When the fault is on the part of both
they shall have no action against each contracting parties, neither may recover
other, and both shall be prosecuted. what he has given by virtue of the
(Art. 1411) contract, or demand the performance of
the other's undertaking. (Art. 1412 (1))
Exceptions to the Exception (In pari delicto, but there is still cause of action)
• When only one of the contracting • When the price of any article or
parties is at fault, he cannot recover commodity is determined by statute, or
what he has given by reason of the by authority of law, any person paying
contract, or ask for the fulfillment of any amount in excess of the maximum
what has been promised him. The other, price allowed may recover such excess.
who is not at fault, may demand the (Art. 1417)
return of what he has given without any
obligation to comply his promise. (Art.
1412 (2))
• Interest paid in excess of the interest • When the law fixes, or authorizes the
allowed by the usury laws may be fixing of the maximum number of hours
recovered by the debtor, with interest of labor, and a contract is entered into
thereon from the date of the payment. whereby a laborer undertakes to work
(Art. 1413) longer than the maximum thus fixed, he
may demand additional compensation
for service rendered beyond the time
limit. (Art. 1418) TITLE III: NATURAL OBLIGATIONS
• When money is paid or property • When the law sets, or authorizes the
delivered for an illegal purpose, the setting of a minimum wage for laborers,
contract may be repudiated by one of and a contract is agreed upon by which
the parties before the purpose has been a laborer accepts a lower wage, he shall
accomplished, or before any damage be entitled to recover the deficiency.
has been caused to a third person. In (Art. 1419)

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ART. 1423. OBLIGATIONS ARE CIVIL OR NATURAL. CIVIL OBLIGATIONS GIVE A RIGHT OF
ACTION TO COMPEL THEIR PERFORMANCE. NATURAL OBLIGATIONS, NOT BEING BASED ON
POSITIVE LAW BUT ON EQUITY AND NATURAL LAW, DO NOT GRANT A RIGHT OF ACTION TO
ENFORCE THEIR PERFORMANCE, BUT AFTER VOLUNTARY FULFILLMENT BY THE OBLIGOR,
THEY AUTHORIZE THE RETENTION OF WHAT HAS BEEN DELIVERED OR RENDERED BY REASON
THEREOF. SOME NATURAL OBLIGATIONS ARE SET FORTH IN THE FOLLOWING ARTICLES.
Ø In natural obligations, there is a moral but not legal duty to perform or pay, but the person
thus performing or paying feels that in good conscience he should comply with his
undertaking which is based on moral grounds.
ART. 1424. WHEN A RIGHT TO SUE UPON A CIVIL OBLIGATION HAS LAPSED BY EXTINCTIVE
PRESCRIPTION, THE OBLIGOR WHO VOLUNTARILY PERFORMS THE CONTRACT CANNOT
RECOVER WHAT HE HAS DELIVERED OR THE VALUE OF THE SERVICE HE HAS RENDERED .
Ø If the debtor, despite the lapse of the prescriptive period and knowing that the debt has
already prescribed, pays the creditor, such debtor can no longer recover such payment.
ART. 1425. WHEN WITHOUT THE KNOWLEDGE OR AGAINST THE WILL OF THE DEBTOR, A
THIRD PERSON PAYS A DEBT WHICH THE OBLIGOR IS NOT LEGALLY BOUND TO PAY BECAUSE
THE ACTION THEREON HAS PRESCRIBED, BUT THE DEBTOR LATER VOLUNTARILY REIMBURSES
THE THIRD PERSON , THE OBLIGOR CANNOT RECOVER WHAT HE HAS PAID.
Ø Ex. A is indebted to Z but the collection of such debt has already prescribed and therefore
can no longer be collected. If M pays the debt to Z, and, later on, A voluntarily reimburses
M.
• Such payment shall be considered valid and A cannot recover such amount from
Z on the ground that M should not have paid him.
ART. 1426. WHEN A MINOR BETWEEN EIGHTEEN AND TWENTY-ONE YEARS OF AGE WHO HAS
ENTERED INTO A CONTRACT WITHOUT THE CONSENT OF THE PARENT OR GUARDIAN , AFTER
THE ANNULMENT OF THE CONTRACT VOLUNTARILY RETURNS THE WHOLE THING OR PRICE
RECEIVED, NOTWITHSTANDING THE FACT THAT HE HAS NOT BEEN BENEFITED THEREBY, THERE
IS NO RIGHT TO DEMAND THE THING OR PRICE THUS RETURNED .
ART. 1427. WHEN A MINOR BETWEEN EIGHTEEN AND TWENTY-ONE YEARS OF AGE, WHO HAS
ENTERED INTO A CONTRACT WITHOUT THE CONSENT OF THE PARENT OR GUARDIAN ,
VOLUNTARILY PAYS A SUM OF MONEY OR DELIVERS A FUNGIBLE THING IN FULFILLMENT OF
THE OBLIGATION, THERE SHALL BE NO RIGHT TO RECOVER THE SAME FROM THE OBLIGEE WHO
HAS SPENT OR CONSUMED IT IN GOOD FAITH.
Ø The law provides that an incapacitated person is not obliged to make any restitution except
insofar as he has been benefited by the thing or price received by him.
70 YAP, K. | ATENEO LAW
ART. 1428. WHEN, AFTER AN ACTION TO ENFORCE A CIVIL OBLIGATION HAS FAILED THE
DEFENDANT VOLUNTARILY PERFORMS THE OBLIGATION, HE CANNOT DEMAND THE RETURN OF
WHAT HE HAS DELIVERED OR THE PAYMENT OF THE VALUE OF THE SERVICE HE HAS
RENDERED.
Ø Ex. If A is indebted to B for P1,000 and a civil suit is led to collect the amount but such
suit is dismissed, A need not pay the said amount but, if he voluntarily makes payment, he
can no longer recover such payment.
ART. 1429. WHEN A TESTATE OR INTESTATE HEIR VOLUNTARILY PAYS A DEBT OF THE
DECEDENT EXCEEDING THE VALUE OF THE PROPERTY WHICH HE RECEIVED BY WILL OR BY THE
LAW OF INTESTACY FROM THE ESTATE OF THE DECEASED , THE PAYMENT IS VALID AND
CANNOT BE RESCINDED BY THE PAYER.
Ø Ex. A is indebted to X for P10,000. A later dies, with M as his heir who is entitled only to
P5,000 from the estate of A. If M voluntarily pays X P10,000, M can no longer recover
such an amount.
ART. 1430. WHEN A WILL IS DECLARED VOID BECAUSE IT HAS NOT BEEN EXECUTED IN
ACCORDANCE WITH THE FORMALITIES REQUIRED BY LAW, BUT ONE OF THE INTESTATE HEIRS,
AFTER THE SETTLEMENT OF THE DEBTS OF THE DECEASED, PAYS A LEGACY IN COMPLIANCE
WITH A CLAUSE IN THE DEFECTIVE WILL, THE PAYMENT IS EFFECTIVE AND IRREVOCABLE.
Ø Ex. M provided in his holographic will that his car shall go to his driver X. Later, the
holographic will turns out to be partly type-written and therefore it is void as such will
should be wholly hand-written by the testator.
• If, despite the nullity of the will, M’s heir, Z, still voluntarily gives the legacy of
the car to X, it shall be valid and cannot be revoked anymore.
Fig. 6. Natural Obligations
Natural Obligations
1. When prescription had set in, but the obligor voluntarily performs the action, the
action performed must be retained.
2. When a debt has prescribed, but a third person pays in favor of the debtor, and the
debtor voluntarily reimburses the debtor, debtor cannot recover what he has paid.
3. When a minor enters into a contract, and even when there is no obligation to return,
the minor returns the object, the minor cannot recover the same.
4. When a minor voluntarily pays or delivers in fulfillment of an obligation, there
shall be no right to recover the same from the obligee who has spent or consumed
it in good faith.
5. When an action to enforce a civil obligation had prescribed, and the defendant
voluntarily performs, he cannot demand return or reimbursement.
6. When testate or intestate heir voluntarily pays debt of decedent exceeding the value
of his share, the payment is valid and cannot be rescinded.
7. When a will is declared void because of technical infirmities, but one of the
intestate hairs, after settlement of the debts of the deceased, pays a legacy in
compliance with a clause in the defective will, such payment is effective and
irrevocable.
TITLE IV: ESTOPPEL
ART. 1431. THROUGH ESTOPPEL AN ADMISSION OR REPRESENTATION IS RENDERED
CONCLUSIVE UPON THE PERSON MAKING IT, AND CANNOT BE DENIED OR DISPROVED AS
AGAINST THE PERSON RELYING THEREON.

Ø Estoppel must be determined after carefully considering the material facts of the case lest
injustice may result.
Ø Estoppel cannot be sustained by mere argument or doubtful inference; it must be clearly
proved in all its essential elements by clear, convincing and satisfactory evidence. (Kalalo
v. Luz, 1970)
Ø Estoppel is not applicable:
1. Against the government suing in its capacity as sovereign or asserting
governmental rights.
§ Any error made by a tax official in the assessment or computation of
taxes does not have the effect of relieving the taxpayer from the full
amount of liability as fixed by law. (Collector of Internal Revenue v.
McGrath, 1961)
§ Exception: Government exercising proprietary character.
2. When a law or public policy will be violated.
3. To questions of law.
§ Ex. In a birth certificate, the mother puts that her daughter is
illegitimate but is in fact legitimate, can the mother be estopped?
• No. A mistake of law may not be estopped.

ART. 1432. THE PRINCIPLES OF ESTOPPEL ARE HEREBY ADOPTED INSOFAR AS THEY ARE NOT
IN CONFLICT WITH THE PROVISIONS OF THIS CODE, THE CODE OF COMMERCE, THE RULES OF
COURT AND SPECIAL LAWS.

ART. 1433. ESTOPPEL MAY BE IN PAIS OR BY DEED.

Ø Kinds of estoppel:
1. Estoppel in pais
§ A situation where, because of something which one has done or
omitted to do, a party is denied the right to plead or prove an otherwise
important fact.
2. Estoppel by deed
§ A bar which prejudices one party to a deed and his privies from
asserting as against the other party and his privies any right or title in
derogation of the deed, or from denying the truth of any material facts
asserted in it.
§ When a man has entered into a solemn engagement by deed, he shall
not be permitted to deny any matter which he has asserted therein, for
a deed is a solemn contract to any part of which the law gives effect as
the deliberate admission of the maker; to him it stands for truth, and in
every situation in which he may be placed with respect to him, it is true
as to him.

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Fig. 7. Prescription, Laches, Estoppel in pais, Estoppel by deed
Requisites:
1. Prescription Refer to fig. 2 on p. 10.
1. Conduct on the part of the
defendant, or of one under whom
he claims, giving rise to the
situation of which complaint is
made and for which the complaint
seeks a remedy;
2. Delay in asserting the
complainant’s rights, the
complainant having had
knowledge or notice of the
2. Laches defendant’s conduct and having
been afforded an opportunity to
institute a suit;
3. Lack of knowledge or notice on
the part of the defendant that the
complainant would assert the right
on which he bases his suit; and
4. Injury or prejudice to the
defendant in the even the relief is
accorded to the complainant, or
the suit is not held barred.
1. Conduct amounting to false
representation or concealment of
material facts or at least calculated
to convey the impression that the
facts are otherwise than, and
inconsistent with, those which the
party subsequently attempts to
3. Estoppel in pais
assert;
2. Intent, or at least expectation that
this conduct shall be acted upon,
or at least influenced by the other
party; and
3. Knowledge, actual or
constructive, of the actual facts.
1. There must have been a
representation or concealment of
material facts;
2. The representation must have been
with knowledge of the facts;
4. Estoppel by deed 3. The party to whom it was made
must have been ignorant of the
truth of the matter; and
4. It must have been made with the
intention that the other party
would act upon it.
72 YAP, K. | ATENEO LAW
ART. 1434. WHEN A PERSON WHO IS NOT THE OWNER OF A THING SELLS OR ALIENATES AND
DELIVERS IT, AND LATER THE SELLER OR GRANTOR ACQUIRES TITLE THERETO, SUCH TITLE
PASSES BY OPERATION OF LAW TO THE BUYER OR GRANTEE.
Ø Ex. If A, who is not the owner of a car sells the same to B, the sale is unenforceable because
A has no authority to sell the property.
• However, if A himself delivers the property to B, and later A buys the same from
the real owner N, A cannot claim the property as his on the ground that when he
sold it to B, he was not the owner of the same.
• B shall be preferred by the law and will treat the sale as completely valid even
though at the time it was actually made, the seller is not the owner.
ART. 1435. IF A PERSON IN REPRESENTATION OF ANOTHER SELLS OR ALIENATES A THING, THE
FORMER CANNOT SUBSEQUENTLY SET UP HIS OWN TITLE AS AGAINST THE BUYER OR GRANTEE.
Ø Ex. If A constituted B as his agent to sell a car and the car was in fact sold by B, A cannot
later on claim that he was the owner to invalidate the transaction.
ART. 1436. A LESSEE OR A BAILEE IS ESTOPPED FROM ASSERTING TITLE TO THE THING LEASED
OR RECEIVED, AS AGAINST THE LESSOR OR BAILOR.
Ø The lessee cannot claim ownership over the property he is leasing precisely because, by a
contract of lease, the lessee acknowledges the fact that he is not the owner of the property
and he has only the peaceful possession thereof under such terms and conditions as the
owner and the lessee have mutually agreed.
Ø A bailee likewise acknowledges the fact that he is not the owner of the non- consumable
object delivered to him for his use for a certain period of time with the obligation to return
the same at the expiration of said period.
ART. 1347. WHEN IN A CONTRACT BETWEEN THIRD PERSONS CONCERNING IMMOVABLE
PROPERTY, ONE OF THEM IS MISLED BY A PERSON WITH RESPECT TO THE OWNERSHIP OR REAL
RIGHT OVER THE REAL ESTATE, THE LATTER IS PRECLUDED FROM ASSERTING HIS LEGAL TITLE
OR INTEREST THEREIN, PROVIDED ALL THESE REQUISITES ARE PRESENT :
(1) THERE MUST BE FRAUDULENT REPRESENTATION OR WRONGFUL CONCEALMENT OF FACTS
KNOWN TO THE PARTY ESTOPPED ;
(2) THE PARTY PRECLUDED MUST INTEND THAT THE OTHER SHOULD ACT UPON THE FACTS AS
MISREPRESENTED;
(3) THE PARTY MISLED MUST HAVE BEEN UNAWARE OF THE TRUE FACTS; AND
(4) THE PARTY DEFRAUDED MUST HAVE ACTED IN ACCORDANCE WITH THE
MISREPRESENTATION.
Ø Ex. A and B have a contract of lease where A, the lessee, has been given a preferential right
to buy the property in the event that B, the lessor, decides to sell the property. A approaches
Z, and tells him that the property is his (A’s) already because he (A) has already exercised
his preferential right, and that only the documentation is to be done. A also tells Z that the
property is being eyed by a corporation, which intends to buy the same. This representation
is made to entice Z to buy the property and then later resell it to said corporation, thereby

giving him enormous profit. However, the real owner, in fact, has not yet offered the
property for sale such that A could not have exercised his preferential right. Also there is
really no corporation intending to buy the property. Because A is a seasoned real estate
broker, Z relied on A’s fraudulent representation and buys the property. Therefore, B
ratified the sale.
• Later on A cannot assert a claim on the property contending that the sale is
unenforceable for not having the consent of the true owner, B, at the time it was
sold.
ART. 1438. ONE WHO HAS ALLOWED ANOTHER TO ASSUME APPARENT OWNERSHIP OF
PERSONAL PROPERTY FOR THE PURPOSE OF MAKING ANY TRANSFER OF IT, CANNOT, IF HE
RECEIVED THE SUM FOR WHICH A PLEDGE HAS BEEN CONSTITUTED, SET UP HIS OWN TITLE TO
DEFEAT THE PLEDGE OF THE PROPERTY, MADE BY THE OTHER TO A PLEDGEE WHO RECEIVED
THE SAME IN GOOD FAITH AND FOR VALUE.
Ø A thing pledged must be placed in the possession of the creditor, or of a third person by
common agreement.
Ø Pledge – constituted by the absolute owner of the thing pledged to secure the fulfillment of
a principal obligation.
Ø The person constituting the thing pledged must:
1. Have free disposal of his property; or
2. In absence thereof, be legally authorized for the purpose.
ART. 1439. ESTOPPEL IS EFFECTIVE ONLY AS BETWEEN THE PARTIES THERETO OR THEIR
SUCCESSORS IN INTEREST.
Ø Estoppel must be mutual and reciprocal. Unless both parties to a transaction are bound by
estoppel, neither is bound.
Ø Estoppel operates neither in favor of, nor against, strangers – persons who are neither
parties nor privies to the transaction out of which the estoppel arose.
73 YAP, K. | ATENEO LAW
TITLE V: TRUST
CHAPTER 1: GENERAL PROVISIONS
ART. 1440. A PERSON WHO ESTABLISHES A TRUST IS CALLED THE TRUSTOR; ONE IN WHOM
CONFIDENCE IS REPOSED AS REGARDS PROPERTY FOR THE BENEFIT OF ANOTHER PERSON IS
KNOWN AS THE TRUSTEE; AND THE PERSON FOR WHOSE BENEFIT THE TRUST HAS BEEN
CREATED IS REFERRED TO AS THE BENEFICIARY.
Ø Ex. A is the father and trustor. B is the bank and trustee. The children are the beneficiaries.
• In the title, the bank will appear as the owner thereof, “annotated subject of trust.”
• Naked ownership is with the trustee as to third persons.
ART. 1441. TRUSTS ARE EITHER EXPRESS OR IMPLIED. EXPRESS TRUSTS ARE CREATED BY THE
INTENTION OF THE TRUSTOR OR OF THE PARTIES. IMPLIED TRUSTS COME INTO BEING BY
OPERATION OF LAW.
Ø Trust – the right enforceable solely in equity, to the beneficial enjoyment of property, the
legal title to which is vested in another; duties, relations, and responsibilities which are not
strictly technical trusts.
Ø Kinds of trust:
1. Express Trust – those which are created by the direct and positive acts of the
parties, by some writing or deed, or will, or by words either expressly or
impliedly evincing an intention to create a trust.
2. Implied Trust – those which, without being expressed, are deducible from the
nature of the transaction as matters of intent, or which are superinduced on the
transaction by operation of law as matters of equity, independently of the
particular intention of the parties.
§ Kinds of Implied Trust:
1. Resulting Trust – raised or created by implication of law and
presumed always to have been contemplated by the parties,
the intention as to which is to be found in the nature of their
transaction, but not expressed in the deed or instrument of
conveyance. Intent is considered.
2. Constructive Trust – not created by any words, either
expressly or impliedly evincing a direct intention to create a
trust, but by the construction of equity in order to satisfy the
demands of justice. It is not raised by operation of law. Intent
is immaterial.
Ø Rules of Imprescriptibility in Express Trust – based on the notion that the possession of a
trustee is not adverse, he does not acquire by prescription the property held in trust:
• A trustee cannot acquire by prescription the ownership of property entrusted to
him. (Palma v. Cristobal, 1946)
• An action to compel a trustee to convey property registered in his name in trust
for the benefit of the cestui que trust does not prescribe. (Manalnag v. Canlas,
1954)
• The defense of prescription cannot be set up in an action to recover property held
by a person in trust for the benefit of another. (Sevilla v. De los Angeles, 1955)
• Property held in trust can be recovered by the beneficiary regardless of the lapse
of time. (Marabilles v. Quito, 1956)

Ø The foregoing rules may also apply to Resulting Trusts as long as the trustee has not Ø In a case where certain properties were claimed by different persons, and some of the heirs
repudiated the trust. contended that there was an express trust constituted by some claimant as co-owners, but
Ø Acquisitive prescription may bar the action of the beneficiary against the trustee in an no documentary proof was presented, the SC rejected such contention. (Pascual v.
express recovery of the property held in trust. Meneses, 1967)
• Elements: Ø The expedience of the intestate proceeding, particularly the project of partition, the decision
1. Trustee has performed unequivocal acts of repudiation amounting too and the manifestation as to the receipt of shares negates the existence of an express trust.
an ouster of the cestui que trust; (Ramos v. Ramos, 1967)
2. Positive acts of repudiation have been made known to the cestui que • A trust may be proved by clear, satisfactory, and convincing evidence. It cannot
trust; and rest on vague and uncertain evidence or on loose, equivocal or indefinite
3. Evidence thereon is clear and conclusive. declarations.
Ø Whether trust is Resulting or Constructive, its enforcement may be barred by laches.
Ø An action for reconveyance of registered land based on an implied trust may be barred by ART. 1444. NO PARTICULAR WORDS ARE REQUIRED FOR THE CREATION OF AN EXPRESS
laches. (Slvaterria v. CA, 1996) TRUST, IT BEING SUFFICIENT THAT A TRUST IS CLEARLY INTENDED.
Ø The prescription period for such actions is 10 years from the accrual right of action.
(Armamento v. Central Bank, 1980)
• The registration of an instrument in the Office of the Register of Deeds Ø For as long as the intention to establish a trust is very clear from the proofs, whether by
constitutes constructive notice to the whole world, and therefore, discovery of some writing or deed or will or by words, an express trust is created.
the fraud is deemed to have taken place at the time of registration. Such
registration is deemed to be a constructive notice that the alleged fiduciary or ART. 1445. NO TRUST SHALL FAIL BECAUSE THE TRUSTEE APPOINTED DECLINES THE
trust relationship has been repudiated. (Duque v. Domingo, 1977) DESIGNATION, UNLESS THE CONTRARY SHOULD APPEAR IN THE INSTRUMENT CONSTITUTING
Ø Where an owner of the property expressly told the defendants of his intention to establish THE TRUST.
a trust, the SC ruled that there was an express trust because such facts were clearly stated
in the allegations. (Cuaycong v. Cuaycong, 1967)
Ø Express Trust Implied Trust Ø An express trust clearly indicates that a trustor is delivering his property to a trustee for the
benefit of a beneficiary.
• Created by the intention of the trustor • Created by operation of law. Ø In case of refusal to accept the trust by the trustee, the court will appoint a trustee.
or the parties. • However, if the appointment of the trustee is a material provision, the trustor can
• Created by the direct and positive • Not being expressed, are deducible provide that a refusal of the trustee to accept the trust shall result in the failure or
acts of the parties, by some writing or from the nature of the transaction nullification of the same.
deed or will or by words evidencing by operation of law as matters of
an intention to create a trust. equity, independently of the
ART. 1446. ACCEPTANCE BY THE BENEFICIARY IS NECESSARY. NEVERTHELESS, IF THE TRUST
particular intention of the parties.
IMPOSES NO ONEROUS CONDITION UPON THE BENEFICIARY, HIS ACCEPTANCE SHALL BE
• The intention is clear. • Intent is to be taken from the
PRESUMED, IF THERE IS NO PROOF TO THE CONTRARY .
circumstances or other matters
indicative of such.
• Source: Written agreement (contract) • Source: Law Ø If the beneficiary does not want the trust, the trustor will not be estopped from deciding on
another beneficiary. The acceptance may be expressed or implied.
• However, if the trust imposes no onerous condition upon the beneficiary, his
ART. 1442. THE PRINCIPLES OF THE GENERAL LAW OF TRUSTS, INSOFAR AS THEY ARE NOT IN acceptance shall be presumed, if there is no proof to the contrary.
CONFLICT WITH THIS CODE , THE CODE OF COMMERCE , THE RULES OF COURT AND SPECIAL • Onerous condition – one which the beneficiary is required to perform to make
LAWS ARE HEREBY ADOPTED. the trust effective or is one which should be done for as long as the trust exists.
Ø If there is no onerous condition, it is a sense of gratuity or liberality and therefore the
CHAPTER 2: EXPRESS TRUSTS acceptance of the beneficiary shall be presumed.
• This is based on the ordinary scheme of things that a person who is given a gift
normally accepts the same.
ART. 1443. NO EXPRESS TRUSTS CONCERNING AN IMMOVABLE OR ANY INTEREST THEREIN
MAY BE PROVED BY PAROL EVIDENCE.

Ø Parol evidence – oral evidence.

Ø To prove an express trust over immovable property or any interest therein, there must
always be a showing of some documents proving the same.

74 YAP, K. | ATENEO LAW


CHAPTER 3: IMPLIED TRUSTS Ø Ex. A sold to B his shares of stock in a corporation. While the property is in the name of
B, it is X who pays the property so that he can make use of the benefits of the shares of
ART. 1447. THE ENUMERATION OF THE FOLLOWING CASES OF IMPLIED TRUST DOES NOT stock like the dividends. B is the trustee while X is the beneficiary.
EXCLUDE OTHERS ESTABLISHED BY THE GENERAL LAW OF TRUST , BUT THE LIMITATION LAID
ü If X expressly tells A and B that he intends to create a trust-relationship from the
DOWN IN ARTICLE 1442 SHALL BE APPLICABLE.
transaction, it is clearly an express trust.
ü However, if he does not do so, the law nevertheless considers it an implied trust.
ü If B is the legitimate or illegitimate child of X, no trust is implied by law, it being
Ø The situations giving rise to implied trust provided under this Chapter are not exlusive. disputably presumed that a gift has been made to B by X.
Ø Kinds of Implied Trust: Ø In a case where the mortgagor sold the mortgaged property to a third party who did not
• Resulting Trust Constructive Trust know that, by the time he bought it, it was already foreclosed and consolidated in favor of
•Based on the equitable doctrine that • Created by the construction of the mortgagee, the SC ruled that the mortgagor should be considered as a trustee under an
valuable consideration and not legal equity in order to satisfy the implied or resulting trust for the benefit of the real owner. (Padilla v. CA, 1973
title determines the equitable title or demands of justice and prevent
interest and are presumed always to unjust enrichment. ART. 1449. THERE IS ALSO AN IMPLIED TRUST WHEN A DONATION IS MADE TO A PERSON BUT
have been contemplated by the IT APPEARS THAT ALTHOUGH THE LEGAL ESTATE IS TRANSMITTED TO THE DONEE, HE
parties. NEVERTHELESS IS EITHER TO HAVE NO BENEFICIAL INTEREST OR ONLY A PART THEREOF.
• Arise from the nature or • Arise contrary to intention against
circumstances of the consideration one who, by fraud, duress or abuse
Ø Ex. A donation of a lot and the apartment on it was made by M to N. However, despite the
involved in a transaction whereby of confidence, obtains or holds the
donation, M was still to get all the rentals of the apartment.
one person thereby becomes invested legal right to property, which he
• This is an implied trust where the trustee is the done and the beneficiary is the
with legal title but is obliged inequity ought not, in equity and good
donor. This case is a Resulting Trust.
to hold his legal title for the benefit of conscience, to hold.
another.
Ø A trust will not be created when for the purpose of evading the law prohibiting one from ART. 1450. IF THE PRICE OF A SALE OF PROPERTY IS LOANED OR PAID BY ONE PERSON FOR THE
taking or holding real property, he takes conveyance thereof in the name of a third person. BENEFIT OF ANOTHER AND THE CONVEYANCE IS MADE TO THE LENDER OR PAYOR TO SECURE
Ø When, under a homestead law, a certain person is disqualified from obtaining a homestead THE PAYMENT OF THE DEBT, A TRUST ARISES BY OPERATION OF LAW IN FAVOR OF THE PERSON
patent over a certain property, it cannot be contended that the actual possessor of the TO WHOM THE MONEY IS LOANED OR FOR WHOM ITS IS PAID. THE LATTER MAY REDEEM THE
property is merely a trustee of the disqualified person who claims to be the real beneficiary PROPERTY AND COMPEL A CONVEYANCE THEREOF TO HIM.
of the homestead patent.
• This is so because the alleged trust is of doubtful validity considering that it
would promote a direct violations of the provisions of the Public Land Act as Ø Ex. A wanted to buy the property of Z. X made the payment using his own money for the
regards the acquisition of a homestead patent. benefit of A. The money was a loan to A. When the purchase was made, the property was
• A homestead applicant is required by law to occupy and cultivate the land for his placed under the name of X. This was done so that X will have an assurance that the debt
own benefit, and not for the benefit of someone else. of A can be paid.
Ø However, even if the situation falls under any of the provisions of this Chapter, it is not • In this case, the trustee is the lender. A can later redeem the property by paying
considered an implied trust if there is an exrpress intention of the trustor to create a trust, X the money paid for the property. Thereafter, A can compel X to convey the
thereby making it an express trust. property.
Ø In a case where a representative of the tenants of an apartment, instead of negotiating its
sale, bought the property for himself to the detriment of the tenants, the SC ruled that an ART. 1451. WHEN LAND PASSES BY SUCCESSION TO ANY PERSON AND HE CAUSES THE LEGAL
implied trust was created. (Policarpio v. CA, 1997) TITLE TO BE PUT IN THE NAME OF ANOTHER, A TRUST IS ESTABLISHED BY IMPLICATION OF LAW
Ø A breach of confidence although in business or social relations, rendering an acquisition or FOR THE BENEFIT OF THE TRUE OWNER.
retention of property by one person unconscionable against another, raises a constructive
trust. (Sumaoang v. Judge, 1992)
Ø Ex. A is the only compulsory heir of M who dies. After payment of the debt of M, the net
estate of M should go to A.
ART. 1448. THERE IS AN IMPLIED TRUST WHEN PROPERTY IS SOLD, AND THE LEGAL ESTATE IS • However, if A causes the title to the estate to be placed in the name of Z, an
GRANTED TO ONE PARTY BUT THE PRICE IS PAID BY ANOTHER FOR THE PURPOSE OF HAVING
implied trust is created for the benefit of A.
THE BENEFICIAL INTEREST OF THE PROPERTY. THE FORMER IS THE TRUSTEE, WHILE THE
LATTER IS THE BENEFICIARY. HOWEVER, IF THE PERSON TO WHOM THE TITLE IS CONVEYED IS
A CHILD, LEGITIMATE OR ILLEGITIMATE, OF THE ONE PAYING THE PRICE OF THE SALE, NO
TRUST IS IMPLIED BY LAW, IT BEING DISPUTABLY PRESUMED THAT THERE IS A GIFT IN FAVOR
OF THE CHILD.

75 YAP, K. | ATENEO LAW


ART. 1452. IF TWO OR MORE PERSONS AGREE TO PURCHASE PROPERTY AND BY COMMON
CONSENT THE LEGAL TITLE IS TAKEN IN THE NAME OF ONE OF THEM FOR THE BENEFIT OF ALL,
A TRUST IS CREATED BY FORCE OF LAW IN FAVOR OF THE OTHERS IN PROPORTION TO THE
INTEREST OF EACH.
Ø Ex. A, B and C are co-owners of a particular land in equal parts but, by agreement of all
of them, the whole of the property is registered under the name only of C.
• In this case, C is the trustee of the respective 1/3 shares of A and B. C is the
trustee for the other co-owners.
ART. 1453. WHEN PROPERTY IS CONVEYED TO A PERSON IN RELIANCE UPON HIS DECLARED
INTENTION TO HOLD IT FOR, OR TRANSFER IT TO ANOTHER OR THE GRANTOR, THERE IS AN
IMPLIED TRUST IN FAVOR OF THE PERSON WHOSE BENEFIT IS CONTEMPLATED.
Ø Ex. A told B that the property sold should be in his name because he shall only hold it for
the benefit of X, the real owner.
• An implied trust is created in favor of X.
ART. 1454. IF AN ABSOLUTE CONVEYANCE OF PROPERTY IS MADE IN ORDER TO SECURE THE
PERFORMANCE OF AN OBLIGATION OF THE GRANTOR TOWARD THE GRANTEE, A TRUST BY
VIRTUE OF LAW IS ESTABLISHED. IF THE FULFILLMENT OF THE OBLIGATION IS OFFERED BY THE
GRANTOR WHEN IT BECOMES DUE, HE MAY DEMAND THE RECONVEYANCE OF THE PROPERTY
TO HIM.
Ø Ex. M is indebted to N. A particular property was conveyed to N by M to secure such
indebtedness. N holds the property only in trust for M. N is the trustee.
• Upon payment of the debt, M can demand that the property be returned to his
name.
ART. 1455. WHEN ANY TRUSTEE, GUARDIAN OR OTHER PERSON HOLDING A FIDUCIARY
RELATIONSHIP USES TRUST FUNDS FOR THE PURCHASE OF PROPERTY AND CAUSES THE
CONVEYANCE TO BE MADE TO HIM OR TO A THIRD PERSON, A TRUST IS ESTABLISHED BY
OPERATION OF LAW IN FAVOR OF THE PERSON TO WHOM THE FUNDS BELONG.
Ø Ex. N constituted B as the trustee of his funds for the benefit of B, using the trust fund,
purchased property and placed it under his name or under the name of X.
• A trust is created and the trustee is either B or X and the trust is in favor of Z.
ART. 1456. IF PROPERTY IS ACQUIRED THROUGH MISTAKE OR FRAUD, THE PERSON OBTAINING
IT IS, BY FORCE OF LAW, CONSIDERED A TRUSTEE OF AN IMPLIED TRUST FOR THE BENEFIT OF
THE PERSON FROM WHOM THE PROPERTY COMES.
Ø Ex. A fraudulently made X sign an alleged loan agreement which actually turned out to be
an absolute sale of X’s property.
• The sale is voidable and a trust is deemed created by force of law.
76 YAP, K. | ATENEO LAW
• The trustee is A and therefore is merely holding the property for the benefit of
X.
ART. 1457. AN IMPLIED TRUST MAY BE PROVED BY ORAL EVIDENCE.
Ø The reason for this is because it is deducible from the nature of the transactions as matters
of intent or which are superinduced on the transaction by operation of law, independently
of the particular intention of the parties. It is created by facts, not by writing.
TITLE XVII. – PRESCRIPTION
CHAPTER 1: QUASI-CONTRACTS
ART. 2142. CERTAIN LAWFUL, VOLUNTARY AND UNILATERAL ACTS GIVE RISE TO THE
JURIDICAL RELATION OF QUASI-CONTRACT TO THE END THAT NO ONE SHALL BE UNJUSTLY
ENRICHED OR BENEFITED AT THE EXPENSE OF ANOTHER.
Ø A quasi-contract is not an implied contract.
Ø There is no meeting of the minds.
Ø The purpose for quasi-contracts is so that nobody shall enrich himself at the expense of
another.
ART. 2143. THE PROVISIONS FOR QUASI-CONTRACTS IN THIS CHAPTER DO NOT EXCLUDE
OTHER QUASI- CONTRACTS WHICH MAY COME WITHIN THE PURVIEW OF THE PRECEDING
ARTICLE.
Ø 2 obligations treated herein:
1. Gestion de negocios ajenos – the obligation incident to the officious management
of the affairs of other persons.
2. Cobro de lo indebido – the recovery of what has been improperly paid.
SECTION ONE: NEGOTIORUM GESTIO
ART. 2144. WHOEVER VOLUNTARILY TAKES CHARGE OF THE AGENCY OR MANAGEMENT OF
THE BUSINESS OR PROPERTY OF ANOTHER, WITHOUT ANY POWER FROM THE LATTER, IS
OBLIGED TO CONTINUE THE SAME UNTIL THE TERMINATION OF THE AFFAIR AND ITS
INCIDENTS, OR TO REQUIRE THE PERSON CONCERNED TO SUBSTITUTE HIM, IF THE OWNER IS IN
A POSITION TO DO SO . THIS JURIDICAL RELATION DOES NOT ARISE IN EITHER OF THESE
INSTANCES:
(1) WHEN THE PROPERTY OR BUSINESS IS NOT NEGLECTED OR ABANDONED;
(2) IF IN FACT THE MANAGER HAS BEEN TACITLY AUTHORIZED BY THE OWNER.
IN THE FIRST CASE, THE PROVISIONS OF ARTICLES 1317, 1403, NO. 1, AND 1404 REGARDING
UNAUTHORIZED CONTRACTS SHALL GOVERN.
IN THE SECOND CASE , THE RULES ON AGENCY IN TITLE X OF THIS BOOK SHALL BE
APPLICABLE.

Ø Should not be performed for profit.
Ø Ex. A abandons his property, a Mango plantation, and his business therein. B decides to
manage the business and the property so that the business will earn upon harvest time. B
does this without any authority from A.
• B therefore becomes an officious manager without expectation of any profit or
remuneration. B must continue managing the property or the business until it is
terminated. He can also require A to have him (B) substituted if A is in a position
to do so.
• If the property is not abandoned, all acts of A unauthorized and any contract
entered into by him shall be generally unenforceable.
• If B were authorized, the law on agency shall apply.
Ø Circumstances under which one may undertake to carry out a business matter for another:
1. That they relate to determined things or affairs, and that there be no administrator
or representative of the owner who is charged with the management thereof;
2. That it be foreign to all idea of express or tacit mandate on the part of the owner,
for it very often may happen even without his knowledge; and
3. That the actor be inspired by the beneficent idea of averting losses and damages
to the owner or to the interested party through the abandonment of the things that
belong to him or of the business in which he may be interested, that is, that
administration is not for profit.
Ø In a case where the guardian of certain minors died without paying the redemption price of
a certain property to which the minors were entitled, and the uncle of the said minors
deposited the redemption price in court. The SC ruled that the minors, although usually
incapable of contracting or binding themselves, cannot disavow the efficacy of the
contracted obligation when it redounds to his benefit, because of the principle that no one
may enrich himself to the prejudice of another. (Sison and Azarraga v. Balgos, 1916)
ART. 2145. THE OFFICIOUS MANAGER SHALL PERFORM HIS DUTIES WITH ALL THE DILIGENCE
OF A GOOD FATHER OF A FAMILY, AND PAY THE DAMAGES WHICH THROUGH HIS FAULT OR
NEGLIGENCE MAY BE SUFFERED BY THE OWNER OF THE PROPERTY OR BUSINESS UNDER
MANAGEMENT.
THE COURTS MAY, HOWEVER, INCREASE OR MODERATE THE INDEMNITY ACCORDING TO THE
CIRCUMSTANCES OF EACH CASE.
Ø Diligence of a good father of a family – ordinary degree of care which a reasonable and
prudent person will do given the same circumstances the officious manager is in.
Ø If the officious manager causes damage to the property of the owner, he shall be liable to
such owner.
o However, if his intrusion is with the objective of preserving, managing and taking
care of the property without any intent to gain, a quasi-contract is created.
ART. 2146. IF THE OFFICIOUS MANAGER DELEGATES TO ANOTHER PERSON ALL OR SOME OF
HIS DUTIES, HE SHALL BE LIABLE FOR THE ACTS OF THE DELEGATE, WITHOUT PREJUDICE TO
THE DIRECT OBLIGATION OF THE LATTER TOWARD THE OWNER OF THE BUSINESS.
THE RESPONSIBILITY OF TWO OR MORE OFFICIOUS MANAGERS SHALL BE SOLIDARY, UNLESS
THE MANAGEMENT WAS ASSUMED TO SAVE THE THING OR BUSINESS FROM IMMINENT
DANGER.
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Ø The officious manager can delegate the management of the properties to another. However,
he will be responsible for the acts of such delegate.
Ø The person delegated shall likewise be directly responsible to the owner.
Ø The liability of 2 or more officious managers is solidary – the owner can seek the full
amount of damages from anyone of the officious managers.
ART. 2147. HE OFFICIOUS MANAGER SHALL BE LIABLE FOR ANY FORTUITOUS EVENT:
(1) IF HE UNDERTAKES RISKY OPERATIONS WHICH THE OWNER WAS NOT ACCUSTOMED TO
EMBARK UPON ;
(2) IF HE HAS PREFERRED HIS OWN INTEREST TO THAT OF THE OWNER;
(3) IF HE FAILS TO RETURN THE PROPERTY OR BUSINESS AFTER DEMAND BY THE OWNER;
(4) IF HE ASSUMED THE MANAGEMENT IN BAD FAITH.
Ø Instances when an officious manager shall be liable for loss due to any fortuitous event:
1. If he undertakes risky operations which the owner was not accustomed to embark
upon
§ Ex. When the officious manager decides to allow the storing of highly
inflammable materials in the warehouse wherein the business is simply
providing a warehouse for dolls and toys, the officious manager shall
be liable if the warehouse is burned when struck by lightning.
2. If he has preferred his own interest to that of the owner
§ Ex. When the officious manager takes over the business of
warehousing goods, and he also stores some of his goods in such
warehouse. He shall be liable if a flood occurs and he first saves his
goods before the goods of the owner and the latter’s clients.
3. If he fails to return the property or business after demand by the owner
§ Once the owner demands the return of the business, the officious
manager should readily return it.
4. If he assumed the management in bad faith
§ Ex. When the officious manager takes over a warehousing business so
that he can get the clients of the owner for his own warehousing
business, he shall be liable for any loss caused by a fortuitous event.
ART. 2148. EXCEPT WHEN THE MANAGEMENT WAS ASSUMED TO SAVE PROPERTY OR
BUSINESS FROM IMMINENT DANGER, THE OFFICIOUS MANAGER SHALL BE LIABLE FOR
FORTUITOUS EVENTS:
(1) IF HE IS MANIFESTLY UNFIT TO CARRY ON THE MANAGEMENT;
(2) IF BY HIS INTERVENTION HE PREVENTED A MORE COMPETENT PERSON FROM TAKING UP
THE MANAGEMENT.
Ø Generally, the happening of a fortuitous event affecting an obligation excuses the person
charged from performing the obligation.
• However, Art. 2148 provides for instances when the officious manager shall be
liable even for fortuitous events:
1. If he is manifestly unfit to carry on the management; or
2. If by his intervention he prevented a more competent person from
taking up the management.

ART. 2149. THE RATIFICATION OF THE MANAGEMENT BY THE OWNER OF THE BUSINESS
PRODUCES THE EFFECTS OF AN EXPRESS AGENCY, EVEN IF THE BUSINESS MAY NOT HAVE BEEN
SUCCESSFUL.
Ø Ratification – when the owner agrees to whatever the officious manger has done.
Ø If ratification happens, the law on agency applies and even if the business is not successful,
such agency by virtue of ratification shall be recognized.
ART. 2150. ALTHOUGH THE OFFICIOUS MANAGEMENT MAY NOT HAVE BEEN EXPRESSLY
RATIFIED, THE OWNER OF THE PROPERTY OR BUSINESS WHO ENJOYS THE ADVANTAGES OF THE
SAME SHALL BE LIABLE FOR OBLIGATIONS INCURRED IN HIS INTEREST, AND SHALL REIMBURSE
THE OFFICIOUS MANAGER FOR THE NECESSARY AND USEFUL EXPENSES AND FOR THE
DAMAGES WHICH THE LATTER MAY HAVE SUFFERED IN THE PERFORMANCE OF HIS DUTIES.
THE SAME OBLIGATION SHALL BE INCUMBENT UPON HIM WHEN THE MANAGEMENT HAD FOR
ITS PURPOSE THE PREVENTION OF AN IMMINENT AND MANIFEST LOSS, ALTHOUGH NO BENEFIT
MAY HAVE BEEN DERIVED.
Ø The owner must always reimburse the officious manager for all expenses which have
inured for the benefit or advantage of the owner.
• Even if no benefit has been derived but the officious manager takes over to save
the property or business from imminent loss, the officious manager should
likewise be reimbursed for obligations incurred for the owner’s interest,
including useful and necessary expenses.
ART. 2151. EVEN THOUGH THE OWNER DID NOT DERIVE ANY BENEFIT AND THERE HAS BEEN
NO IMMINENT AND MANIFEST DANGER TO THE PROPERTY OR BUSINESS, THE OWNER IS LIABLE
AS UNDER THE FIRST PARAGRAPH OF THE PRECEDING ARTICLE, PROVIDED:
(1) THE OFFICIOUS MANAGER HAS ACTED IN GOOD FAITH, AND
(2) THE PROPERTY OR BUSINESS IS INTACT, READY TO BE RETURNED TO THE OWNER.
Ø The very fact that the property is intact means that the officious manager has prudently and
with due diligence manager the property.
• Hence, where or not there is benefit or imminent danger is immaterial for
purposes of reimbursing the officious manager of useful and necessary expenses
and of payment made in furtherance of the owner’s interest.
ART. 2152. THE OFFICIOUS MANAGER IS PERSONALLY LIABLE FOR CONTRACTS WHICH HE HAS
ENTERED INTO WITH THIRD PERSONS, EVEN THOUGH HE ACTED IN THE NAME OF THE OWNER,
AND THERE SHALL BE NO RIGHT OF ACTION BETWEEN THE OWNER AND THIRD PERSONS . THESE
PROVISIONS SHALL NOT APPLY:
(1) IF THE OWNER HAS EXPRESSLY OR TACITLY RATIFIED THE MANAGEMENT, OR
(2) WHEN THE CONTRACT REFERS TO THINGS PERTAINING TO THE OWNER OF THE BUSINESS.
Ø If the officious manager buys some decorations to be placed in the property, he shall be the
only one liable for the payment of such decorations even if he acts in the name of the owner.
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• The seller of the decorations has no right of action against the owner in the event
the officious manager does not pay for them.
• However, if the owner shall be liable for when when:
1. He expressly or tacitly ratifies the act of the officious manager; or
2. If the buying and selling of decoration is the very object of the business
of the owner.
ART. 2153. THE MANAGEMENT IS EXTINGUISHED:
(1) WHEN THE OWNER REPUDIATES IT OR PUTS AN END THERETO;
(2) WHEN THE OFFICIOUS MANAGER WITHDRAWS FROM THE MANAGEMENT, SUBJECT TO THE
PROVISIONS OF ARTICLE 2144;
(3) BY THE DEATH, CIVIL INTERDICTION, INSANITY OR INSOLVENCY OF THE OWNER OR THE
OFFICIOUS MANAGER.
Ø The management is extinguished:
1. When the owner repudiates it or puts an end thereto
§ The owner still has the power of dominion over his property or
business. Hence, his decision must prevail over that of the officious
manager.
§ The government, through the PCGG, may not lawfully intervene and
participate in the management and operations of a private mass media
to maintain its freedom and independence as guaranteed by the
Constitution. (Liwayway Publishing Inc., et. al. v. PCGG, 1988)
2. When the officious manager withdraws from the management
§ The officious manager must require the person concerned or the owner
to substitute him if such is in a position to do so. Otherwise, the
officious manager must continue and withdraw only upon the
termination of the affair and its incidents.
3. By the death, civil interdiction, insanity or insolvency of the owner or the
officious manager
§ Civil interdiction – an accessory penalty to a principal penalty as
punishment for the commission of a crime and it deprives the offender
during the time of sentence of:
1. Parental authority;
2. Marital authority;
3. Management, disposal, or conveyance of property by any
act.
§ Insanity – deprives the person of reason.
§ Insolvency – deprives the person of the financial liquidity to manage
his affairs as his liabilities surpass his assets.
SECTION TWO: SOLUTIO INDEBITI
ART. 2154. IF SOMETHING IS RECEIVED WHEN THERE IS NO RIGHT TO DEMAND IT, AND IT WAS
UNDULY DELIVERED THROUGH MISTAKE, THE OBLIGATION TO RETURN IT ARISES.
Ø Solutio indebiti means payment by mistake.
Ø Requisites:
1. There is no right to collect excess sums; and
2. The amounts have been paid through mistake.

Ø Natural obligation Solutio indebiti
• One has knowledge that it is not due, • One believes that the debt is due,
but pays anyway. but it is in fact not due.
• There is no right to reimbursement • It can be returned.
or return.
ART. 2155. PAYMENT BY REASON OF A MISTAKE IN THE CONSTRUCTION OR APPLICATION OF A
DOUBTFUL OR DIFFICULT QUESTION OF LAW MAY COME WITHIN THE SCOPE OF THE PRECEDING
ARTICLE.
Ø Solutio indebiti generally involves only a mistake of fact.
• However, a mistake of law is allowed if the mistake is brought about by the
construction or application of a doubtful or difficult question of law.
• In a case where the appellee paid taxes by mistake because the same were not
due as the appellant was exempted from the same, the SC ruled that there was
solution indebiti. (Gonzalo Puyat and Sons, Inc. v. City of Manila, 1963)
ART. 2156. IF THE PAYER WAS IN DOUBT WHETHER THE DEBT WAS DUE , HE MAY RECOVER IF
HE PROVES THAT IT WAS NOT DUE.
Ø Doubt is a defense.
Ø Ex. a debtor pays a creditor prematurely because he is not sure whether the debt is already
due. The creditor accepts it.
• The debtor can recover what he has paid prior to the due date of the debt provided
that the demand for reimbursement is not made after the debt has become due.
ART. 2157. THE RESPONSIBILITY OF TWO OR MORE PAYEES, WHEN THERE HAS BEEN PAYMENT
OF WHAT IS NOT DUE, IS SOLIDARY.
Ø Ex. A is indebted to B and C for P2,000. The obligation is of a solidary nature such that A
can pay only to one of them the whole obligation, and the debt is considered paid as to
both.
• Thus, if A pays B the amount of P2,000, the debt is considered paid. It is up to C
to claim from B his share of the credit which is P1,000.
• If there is payment by mistake, A can recover from either B or C the amount
which he has paid. This is true, even if in the meantime, C has not yet obtained
his P1,000.
ART. 2158. WHEN THE PROPERTY DELIVERED OR MONEY PAID BELONGS TO A THIRD PERSON,
THE PAYEE SHALL COMPLY WITH THE PROVISIONS OF ARTICLE 1984.
Ø Ex. A is obliged to pay B his obligation by giving B a watch. Despite the fact that the
payment is not yet due, A gives B the watch which turns out to be stolen from X.
• At the time of his receipt of the watch, B has no obligation to ask A questions as
to who owns the watch.
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§ However, if B later finds out that X really owns the watch, B must
advise X that he (B) is in possession of his (X’s) watch. X must claim
the watch within one month from the advice.
• If X does not claim the watch, B is excused from all liability if, A, because of
solutio indebiti, claims back the watch, and B gives back the watch to A.
§ However, if at the time A gives the watch of B, the latter has reasonable
grounds to believe that it has been acquired unlawfully, B can return
the same to A.
ART. 2159. WHOEVER IN BAD FAITH ACCEPTS AN UNDUE PAYMENT, SHALL PAY LEGAL
INTEREST IF A SUM OF MONEY IS INVOLVED, OR SHALL BE LIABLE FOR FRUITS RECEIVED OR
WHICH SHOULD HAVE BEEN RECEIVED IF THE THING PRODUCES FRUITS.
HE SHALL FURTHERMORE BE ANSWERABLE FOR ANY LOSS OR IMPAIRMENT OF THE THING
FROM ANY CAUSE, AND FOR DAMAGES TO THE PERSON WHO DELIVERED THE THING, UNTIL IT
IS RECOVERED .
Ø If the creditor knows that the payment is not yet due and payment is tendered to him, he
must inform the debtor that payment is not yet due.
• Should the creditor accept such premature payment, he is therefor in bad faith
and shall be liable for interest from the time he accepts payment up to the time
he returns it upon demand of the debtor.
ART. 2160. HE WHO IN GOOD FAITH ACCEPTS AN UNDUE PAYMENT OF A THING CERTAIN AND
DETERMINATE SHALL ONLY BE RESPONSIBLE FOR THE IMPAIRMENT OR LOSS OF THE SAME OR
ITS ACCESSORIES AND ACCESSIONS INSOFAR AS HE HAS THEREBY BEEN BENEFITED. IF HE HAS
ALIENATED IT, HE SHALL RETURN THE PRICE OR ASSIGN THE ACTION TO COLLECT THE SUM.
Ø Ex. A is obliged to give B a house on January 1, 1997. Believing that it was due on August
1, 1996, A delivered the house on said date. B likewise did not know that the house was
still due on January 1, 1997. B was in good faith. On November 1996, the house was rented
in the amount of P2,000 per hour by a movie producer for a particular motion picture and,
while shooting, the kitchen was accidentally burned. After the shooting of the motion
picture, B was paid the rent in the amount of P30,000 for 15 hours. On December 1996, A
discovered that the house was not yet due and demanded its return.
• B can return the house and pay the amount of the kitchen which has been
impaired, because he (B) has been benefited by the house when he had it rented.
ART. 2161. AS REGARDS THE REIMBURSEMENT FOR IMPROVEMENTS AND EXPENSES INCURRED
BY HIM WHO UNDULY RECEIVED THE THING, THE PROVISIONS OF TITLE V OF BOOK II SHALL
GOVERN.
Article 546. Necessary expenses shall be refunded to every possessor; but
only the possessor in good faith may retain the thing until he has been
reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with
the same right of retention, the person who has defeated him in the
possession having the option of refunding the amount of the expenses or of

paying the increase in value which the thing may have acquired by reason
thereof.
Article 547. If the useful improvements can be removed without damage to
the principal thing, the possessor in good faith may remove them, unless the
person who recovers the possession exercises the option under paragraph 2
of the preceding article.
Article 548. Expenses for pure luxury or mere pleasure shall not be refunded
to the possessor in good faith; but he may remove the ornaments with which
he has embellished the principal thing if it suffers no injury thereby, and if
his successor in the possession does not prefer to refund the amount
expended.
Article 549. The possessor in bad faith shall reimburse the fruits received
and those which the legitimate possessor could have received, and shall
have a right only to the expenses mentioned in paragraph 1 of Article 546
and in Article 443. The expenses incurred in improvements for pure luxury
or mere pleasure shall not be refunded to the possessor in bad faith; but he
may remove the object for which such expenses have been incurred,
provided that the thing suffers no injury thereby, and that the lawful
possessor does not prefer to retain them by paying the value they may have
at the time he enters into possession.
Ø A deptor who pays in solution indebiti may recover what he has paid by mistake.
Article 550. The costs of litigation over the property shall be borne by every
possessor.
Article 551. Improvements caused by Nature or time shall always inure to
the bene t of the person who has succeeded in recovering possession.
Article 552. A possessor in good faith shall be liable for the deterioration
or loss of the thing possessed, except in cases in which it is proved that he
has acted with fraudulent intent or negligence, after the judicial summons.
A possessor in bad faith shall be liable for deterioration or loss in every
case, even if caused by fortuitous event.
Article 553. One who recovers possession shall not be obliged to pay for
improvements which have ceased to exist at the time he takes possession of
the thing.
Ø For one to recover under Art. 2164, it must be alleged and proved that:
ART. 2162. HE SHALL BE EXEMPT FROM THE OBLIGATION TO RESTORE WHO, BELIEVING IN
GOOD FAITH THAT THE PAYMENT WAS BEING MADE OF A LEGITIMATE AND SUBSISTING CLAIM,
DESTROYED THE DOCUMENT, OR ALLOWED THE ACTION TO PRESCRIBE, OR GAVE UP THE
PLEDGES, OR CANCELLED THE GUARANTIES FOR HIS RIGHT. HE WHO PAID UNDULY MAY
PROCEED ONLY AGAINST THE TRUE DEBTOR OR THE GUARANTORS WITH REGARD TO WHOM
THE ACTION IS STILL EFFECTIVE.
Ø Ex. A is indebted to B in the amount of P1,000. It is an oral contract of loan and hence it
prescribes in 6 years from the time it falls due. X is the guarantor of the indebtedness. As
guarantor, X will only pay B if B has unsuccessfully exhausted all efforts to collect from
80 YAP, K. | ATENEO LAW
A upon the maturity of the debt. The debt becomes due and A fails to pay B. B has not yet
exhausted all efforts to collect from A. Believing that he is principally liable also for the
debt, X pays B on the 5th year since the debt has become due. B also believed in good faith
that he could collect from X and hence accepts the payment from X. In the meantime, more
than six years have already lapsed since the debt has become due. B does not demand from
A anymore because he has already been paid by X on the 5th year. In this case, X paid B
by mistake.
• X cannot recover the money paid by mistake from B because, if this is allowed,
B cannot anymore recover payment from A as B’s cause of action against A has
prescribed. X can only recover from A, the true debtor.
• Since a quasi-contract of solutio indebiti exists from the time X made the
payment on the 5th year, he has six years from such payment within which to file
an action against A, the principal debtor.
§ This is so because, considering that a quasi-contract prescribes after
six years from the time the cause of action accrues, the action to collect
from A is still effective.
ART. 2163. IT IS PRESUMED THAT THERE WAS A MISTAKE IN THE PAYMENT IF SOMETHING
WHICH HAD NEVER BEEN DUE OR HAD ALREADY BEEN PAID WAS DELIVERED; BUT HE FROM
WHOM THE RETURN IS CLAIMED MAY PROVE THAT THE DELIVERY WAS MADE OUT OF
LIBERALITY OR FOR ANY OTHER JUST CAUSE.
• However, the person to whom the payment has been made can show that such
payment is a gift or a donation by showing the proper evidence like a valid deed
of donation.
SECTION THREE: OTHER QUASI-CONTRACTS
ART. 2164. WHEN, WITHOUT THE KNOWLEDGE OF THE PERSON OBLIGED TO GIVE SUPPORT, IT
IS GIVEN BY A STRANGER, THE LATTER SHALL HAVE A RIGHT TO CLAIM THE SAME FROM THE
FORMER, UNLESS IT APPEARS THAT HE GAVE IT OUT OF PIETY AND WITHOUT INTENTION OF
BEING REPAID.
Article 206. When, without the knowledge of the person obliged to give
support, it is given by a stranger, the latter shall have a right to claim the
same from the former, unless it appears that he gave it without the intention
of being reimbursed.
1. Support has been furnished a dependent of one bound to give support but who
fails to do so;
2. The support was supplied by a stranger; and
3. The support was given without the knowledge of the person charged with the
duty.

ART. 2165. WHEN FUNERAL EXPENSES ARE BORNE BY A THIRD PERSON, WITHOUT THE
KNOWLEDGE OF THOSE RELATIVES WHO WERE OBLIGED TO GIVE SUPPORT TO THE DECEASED,
SAID RELATIVES SHALL REIMBURSE THE THIRD PERSON, SHOULD THE LATTER CLAIM
REIMBURSEMENT.
Ø The following are obliged to support each other:
1. Spouses;
2. Legitimate ascendants and descendants;
3. Parents and their legitimate children and the legitimate and illegitimate children
of the latter;
4. Parents and their illegitimate children and the legitimate and illegitimate children
of the latter; and
5. Legitimate brothers and sisters, whether of the full or half blood.
Ø Ex. A was the daughter of X and Y. A died. G was the one who shouldered the expenses
for A’s funeral.
• If G did this benevolent act as an act of charity, X and Y need not reimburse him.
• If G intended to be reimbursed, he can only be paid after demanding payment
from X and Y.
ART. 2166. WHEN THE PERSON OBLIGED TO SUPPORT AN ORPHAN, OR AN INSANE OR OTHER
INDIGENT PERSON UNJUSTLY REFUSES TO GIVE SUPPORT TO THE LATTER, ANY THIRD PERSON
MAY FURNISH SUPPORT TO THE NEEDY INDIVIDUAL, WITH RIGHT OF REIMBURSEMENT FROM
THE PERSON OBLIGED TO GIVE SUPPORT. THE PROVISIONS OF THIS ARTICLE APPLY WHEN THE
FATHER OR MOTHER OF A CHILD UNDER EIGHTEEN YEARS OF AGE UNJUSTLY REFUSES TO
SUPPORT HIM.
Article 207. When the person obliged to support another unjustly refuses or
fails to give support when urgently needed by the latter, any third person
may furnish support to the needy individual, with right of reimbursement
from the person obliged to give support. This Article shall particularly apply
when the father or mother of a child under the age of majority unjustly
refuses to support or fails to give support to the child when urgently needed.
ART. 2167. WHEN THROUGH AN ACCIDENT OR OTHER CAUSE A PERSON IS INJURED OR
BECOMES SERIOUSLY ILL, AND HE IS TREATED OR HELPED WHILE HE IS NOT IN A CONDITION TO
GIVE CONSENT TO A CONTRACT, HE SHALL BE LIABLE TO PAY FOR THE SERVICES OF THE
PHYSICIAN OR OTHER PERSON AIDING HIM, UNLESS THE SERVICE HAS BEEN RENDERED OUT OF
PURE GENEROSITY.
Ø Ex. A is bumped by a car and is seriously injured. He becomes unconscious. X sees A and
brings him to the hospital. A’s injuries need immediate treatment but, since he is in coma,
he cannot give his consent. The doctor nevertheless treats his injuries lest it becomes more
serious.
• When A recovers, he has the obligation to pay the services of the doctor unless
the latter does not want to be paid.
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ART. 2168. WHEN DURING A FIRE, FLOOD, STORM, OR OTHER CALAMITY, PROPERTY IS SAVED
FROM DESTRUCTION BY ANOTHER PERSON WITHOUT THE KNOWLEDGE OF THE OWNER, THE
LATTER IS BOUND TO PAY THE FORMER JUST COMPENSATION.
Ø Ex. The house of A starts to catch fire but A is not in the house. When the garage of the
house is already on fire, goes inside the burning garage and pushes the car of A out of the
same without the knowledge of A. The car is saved from destruction.
• In this case, A is bound to pay Z just compensation unless Z does not want to
accept it.
ART. 2169. WHEN THE GOVERNMENT, UPON THE FAILURE OF ANY PERSON TO COMPLY WITH
HEALTH OR SAFETY REGULATIONS CONCERNING PROPERTY , UNDERTAKES TO DO THE
NECESSARY WORK, EVEN OVER HIS OBJECTION, HE SHALL BE LIABLE TO PAY THE EXPENSES.
Ø Ex. A municipal ordinance prohibits the throwing of spoiled food outside of the house in a
waste can without any plastic bag. A does not abide by the said ordinance and continually
throws spoiled food in a wooden garbage container.
• To prevent the spread of disease, the municipal government can put the spoiled
food inside a plastic bag first and then provide the owner of the house with a
garbage can at the owner’s expense even if he does not want to.
ART. 2170. WHEN BY ACCIDENT OR OTHER FORTUITOUS EVENT, MOVABLES SEPARATELY
PERTAINING TO TWO OR MORE PERSONS ARE COMMINGLED OR CONFUSED, THE RULES ON CO -
OWNERSHIP SHALL BE APPLICABLE.
Ø The commingling here is unintentional as it is the result of an accident or fortuitous event.
Ø Commingling – to join or mix together.
ART. 2171. THE RIGHTS AND OBLIGATIONS OF THE FINDER OF LOST PERSONAL PROPERTY
SHALL BE GOVERNED BY ARTICLES 719 AND 720.
Article 719. Whoever finds a movable, which is not treasure, must return it
to its previous possessor. If the latter is unknown, the finder shall
immediately deposit it with the mayor of the city or municipality where the
finding has taken place.
The finding shall be publicly announced by the mayor for two consecutive
weeks in the way he deems best.
If the movable cannot be kept without deterioration, or without the expenses
which considerably diminish its value, it shall be sold at public auction eight
days after publication.
Six months from the publication having elapsed without the owner having
appeared, the thing found, or its value, shall be awarded to the finder. The
finder and the owner shall be obliged, as the case may be, to reimburse the
expenses.

Article 720. If the owner should appear in time, he shall be obliged to pay, Ø Ex. A is the neighbor of G whose property is about to be forfeited to the government
as a reward to the finder, one-tenth of the sum or of the price of the thing because of unpaid real estate taxes.
found. • A can pay the taxes but G must reimburse him.

ART. 2172. THE RIGHT OF EVERY POSSESSOR IN GOOD FAITH TO REIMBURSEMENT FOR
NECESSARY AND USEFUL EXPENSES IS GOVERNED BY ARTICLE 546.

Article 546. Necessary expenses shall be refunded to every possessor; but

only the possessor in good faith may retain the thing until he has been
reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with
the same right of retention, the person who has defeated him in the
possession having the option of refunding the amount of the expenses or of
paying the increase in value which the thing may have acquired by reason
thereof.

ART. 2173. A THIRD PERSON , WITHOUT THE KNOWLEDGE OF THE DEBTOR, PAYS THE DEBT ,
THE RIGHTS OF THE FORMER ARE GOVERNED BY ARTICLES 1236 AND 1237.

Article 1236. The creditor is not bound to accept payment or performance

by a third person who has no interest in the fulfillment of the obligation,
unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been beneficial to the debtor.

Article 1237. Whoever pays on behalf of the debtor without the knowledge
or against the will of the latter, cannot compel the creditor to subrogate him
in his rights, such as those arising from a mortgage, guaranty, or penalty.

ART. 2174. WHEN IN A SMALL COMMUNITY A MAJORITY OF THE INHABITANTS OF AGE DECIDE
UPON A MEASURE FOR PROTECTION AGAINST LAWLESSNESS, FIRE, FLOOD, STORM OR OTHER
CALAMITY, ANY ONE WHO OBJECTS TO THE PLAN AND REFUSES TO CONTRIBUTE TO THE
EXPENSES BUT IS BENEFITED BY THE PROJECT AS EXECUTED SHALL BE LIABLE TO PAY HIS
SHARE OF SAID EXPENSES.

Ø Ex. the people of a certain barrio decide to engage a security force to protect their
community because of rampant lawlessness. For this reason, the people agree to contribute
to the expenses of this security force. G however refused to make any contribution.
• In the event that the security force apprehends robbers intending to rob the house
of G, G should pay his share in the expenses for the community’s engagement of
the security force to protect the people from criminals.

ART. 2175. ANY PERSON WHO IS CONSTRAINED TO PAY THE TAXES OF ANOTHER SHALL BE
ENTITLED TO REIMBURSEMENT FROM THE LATTER.

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***ADDITIONAL NOTES FOR FINAL EXAM*** 4. Reformation, as it is a special civil action for declaratory relief, may only be
availed of if there has not yet been any breach or violation of the contract. (Art.
Ø Instances when the court can intervene in contracts: 1368)
1. When there is no period, but from the nature of the obligation, a period was 5. #10: Florita Liam v. UCPB on (conventional) subrogation.
intended, the court can fix a period.
2. If the penalty clause is unconscionable, the court can adjust or delete. Ø Notes from 05/11/17
3. In cases of rebus sic stantibus, the court can prematurely terminate the contract. 1. Quantum meruit
4. Courts may fix or adjust the determination made by a third person in a contract. § “As much as he deserved” – Quantum meruit determines the amount
(Art. 1310) to be paid for services when no contract exists or when there is doubt
as to the amount due for the work performed but done under
Ø Attributes of a contract: circumstances when payment could be expected.
1. Autonomy (1306) 2. Lex locis celebrationis and Lex loci contractus
2. Mutuality (1308) § Lex loci celebrationis – law of the land – relates to the law of the place
3. Relativity (1311) of the ceremony or the law of the place where a contract is made.
§ The doctrine of lex contractus or lex loci contractus means the law of
Ø Memorize by heart! the place where a contract is executed or to be performed. It controls
• Art. 1381 – Rescissible Contracts the nature, construction, and validity of the contract and it may pertain
• Art. 1387 – Presumption in Fraud of Creditors to the law voluntarily agreed upon by the parties or the law intended
• Art. 1390 – Voidable Contracts by them either expressly or implicitly.
• Art. 1403 – Unenforceable Contracts 3. Dragnet Clause
• Art. 1409 – Void and Inexistent Contracts § “Blanket mortgage clause” – one which is specifically phrased to
subsume all debts of past or future origins.
Ø Cases mentioned during recit § Mortgages of this character enable the parties to provide continuous
• Found in the Book dealings, the nature or extent of which may not be known or anticipated
§ Regal Films v. Concepcion – revocation came first before the at the time, and they avoid the expense and inconvenience of executing
subsequent acceptance of the offer. (Art. 1317) a new security on each new transaction.
§ Laudico v. Arias – constructive withdrawal, no need to wait for actual § A “dragnet clause” operates as a convenience and accommodation to
knowledge of withdrawal. (Art. 1320) the borrowers as it makes available additional funds without their
§ Uy v. CA – motive equated to cause. (Art. 1351) having to execute additional security documents, thereby saving time,
§ Air France v. CA – action for rescission may not be raised in a travel, loan closing costs, costs of extra legal services, recording fees,
summary proceeding through a motion, nor done in the same case, but etc.
through the filing of a separate action. (Art. 1383) 4. Condition Precedent
• Case Digest 1 § In a contract, an event which must take place before a party to a
contract must perform or do their part.
§ Villahermosa v. Bajao
§ In a deed to a real property, an event which has to occur before the title
§ PEZA v. Pilhino Sales Corporation
(or other right) to the property will actually be in the name of the party
§ Buenaviaje v. Sps. Salonga
receiving title.
§ People v. Layag
§ Magsano v. Pangasinan Savings and Loan Bank, Inc. 5. Right to Top
§ Sps. Pntigon v. Heirs of Sanchez § Right given to a party in a bidding, the exercise of which allows the
party to make a better offer than the top bidder before the contract is
• Case Digest 2
awarded.
§ Malbarosa v. Court of Appeals
§ If the right to top is not exercised within the given period, the award to
§ Lopez v. Bodega
the top bidder becomes final.
§ Lee v. Bangkok Bank
6. Nominal Damages, when awarded
§ Award issued by a court when a legal wrong has occurred, but where
Ø “Number X ‘to sa exam!!!” (Sta. Maria, 2016-2017) and cases discussed in class
there was no actual financial loss as a result of that legal wrong.
1. In credit cards, if the total interest per annum exceeds 40%, it is necessarily void,
§ Under article 2221 of the New Civil Code, these are damages
and legal interest of 12% shall apply. (Recent SC decision)
recoverable in order to vindicate or recognize the rights of the plaintiff
2. Instances when the court can intervene in contracts.
which has been violated or invaded by the defendant
3. In pari delicto only applies to ostensible but void contracts, not to inexistent void
7. Innocent Purchaser for Value
contracts.
§ One who buys the property of another, without notice that some other
person has a right to, or interest in, such property and pays a full and
83 YAP, K. | ATENEO LAW

fair price for the same at the time of such purchase, or before he has
notice of the claims or interest of some other person in the property.
8. Arbitration Clause
§ A clause in a contract that requires the parties to resolve their disputes
through an arbitration process.
9. Non-compete Clause
§ A clause in a contract that prohibits a resigning/retiring employee from
seeking employment in a competitor of the former employer.
10. Swapping Agreement
§ A derivative contract through which two parties exchange financial
instruments. These instruments can be almost anything, but most
swaps involve cash flows based on a notional principal amount that
both parties agree to.
11. Contract of Adhesion, when valid, and remedies
§ A standard form contract drafted by one party (usually a business with
stronger bargaining power) and signed by the weaker party (usually a
consumer in need of goods or services), who must adhere to the
contract and therefore does not have the power to negotiate or modify
the terms of the contract.
§ Courts permit the enforcement of adhesion contracts where there is
plain and clear notification of the terms and an understanding consent,
and if it falls within the reasonable expectations of the weaker party.
§ A contract of adhesion, albeit valid, becomes objectionable only when
it takes undue advantage of one of the parties - the weaker party - by
having such party just adhere to the terms of the contract.
§ Remedies:
• Contra preferentem – when there is ambiguity in the
contract, it shall be resolved against the one who drafted it.
12. Resolution and Rescission
§ Resolution (Art. 1191) applies only to reciprocal obligations such that
a breach on the part of one party constitutes an implied resolutory
condition which entitles the other party to rescission.
• Resolution grants the injured party the option to pursue, as
principal actions, either a rescission or specific performance
of the obligation, with payment of damages in either case.
§ Rescission (Art. 1381) a subsidiary action not based on a party’s breach
of obligation.
• The 4-year prescriptive period provided in Art. 1389 applies
to rescission.
13. If there is a remedy, deficiency is not fatal
§ Laches: The general rule is that the State cannot be put in estoppel by
the mistakes or errors of its official agents.
§ However, this rule is subject to exceptions. The real office of the
equitable norm of estoppel is limited to supplying deficiency in the
law, but it should not supplant positive law.

84 YAP, K. | ATENEO LAW