Obligations and Contracts

Prof. E.A. Labitag

AY 2009-2010

Title I. Obligations
Chpater I. General Provisions
I. Concept
A. Definition
CC, 1156. An obligation is a juridical necessity to give, to do or not to do.
Criticism. Incomplete, in that it views obligations only from the debt side
Complete Definition: An obligation is a juridical relation whereby a person (creditor) may demand from another (debtor) the observance
of a determinate conduct, and, in case of breach, may obtain satisfaction from the assets of the latter.
Obligation is a juridical necessity because in case of non-compliance, the courts of justice may be called upon by the aggrieved party to
enforce its fulfillment, or, in default thereof, the economic value it represents
B. Elements
1. Active subject creditor/obligee; has the power to demand the prestation
2. Passive subject debtor/obligor; bound to perform the prestation
3. Prestation or object not a ting but a particular conduct of the debtor
- Object of an obligation is thus always a prestation, which may consist in giving or doing or not doing something
- Obligation to give the prestation consists in the delivery of a thing [sale, deposit, lease, antichresis, pledge, donation]
- Obligation to do all kinds of work or services
- Obligation not to do consists in abstaining from some act
- Requisites
o It must be possible physically and juridically
o Must be determinate, or at least, determinable according to pre-established elements or criteria
o Must have a possible equivalent in money
rd
Need not be for one of the parties; may benefit 3 persons to the contract
The prestation, however, need not be of an economic character to have pecuniary value
There are some obligations which have for their object purely moral interests if they do not have an economic value in
themselves, the law attributes to them that value, following a criterion of ideal justice
Interest v. object
The creditors interes need not be economic or patrimonial; it may be sentimental, moral or ideal. But the object of the
prestation must have economic value or in case of nonfulfillment, be susceptible of substitution in money or something of
patrimonial value
4. Efficient cause or juridical tie or vinculum juris may either be a relation established by law or by bilateral acts or by unilateral acts
5. * Form (not essential)
- As a general rule, the law does not require any form in obligations arising from contracts for their validity or binding force
(1356)
- Obligations arising from other sources do not have any form at all
C. Distinction Between Natural and Civil Obligations
Natural Obligation
Civil Obligations
As to enforceability
Cannot be enforced by court action but Can be enforced by court action or the
depends exclusively upon the good coercive power of public authority
conscience of the debtor
As to basis
Binding on the party in conscience and Derive their binding force from positive
according to equity and natural justice
law
Obligation
The act or performance which the law will
enforce

Right
The power which a person has under the
law, to demand from another any
prestation

Wrong (cause of action)

An act or omission of one party in
violation of the legal right/s of another
Essential elements:
- A legal right in favor of a person
- A correlative legal obligation on the
part of another; to respect or not to
violate said right
- An act or omission by the latter in
violation of said right with resulting
injury to the former

Sources of Obligation
CC, 1157. Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts.
A. Law
CC, 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are
demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the
provisions of this Book.
Examples: obligation to pay taxes, obligation to support ones family
B. Contracts
CC, 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good
faith.
- Compliance in good faith means compliance or performance in accordance with the stiopulations or terms of the contract or
agreement
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Obligations and Contracts

Prof. E.A. Labitag
AY 2009-2010

C.

D.

E.

CC, 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.
Example: The obligation to repay a loan by virtue of an agreement
- Expresses autonomy of the will; presupposes that the contract is valid and enforceable
- Pre-contractual obligations: the offer must be clear and definite, thus leading the offeree in good faith to incur expenses in the
expectation of entering into the contract; and the withdrawal of the offer must be without any legitimate cause
Quasi-Contracts
CC, 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book
CC, 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 actually have not done so, and irrespective of their intention, to prevent
injustice
- There is no consent but the same is supplied by fiction of law the law considers the parties as having entered into a contract,
although they
1. Kinds
a. Negotiorum gestio: CC, 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.
b. Solution indebiti: CC, 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.
c. Other quasi contracts
CC, 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
CC, 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
CC, 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
CC, 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
CC, 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
CC, 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
CC, 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.
CC, 2171. The rights and obligations of the finder of lost personal property shall be governed by Articles 719 and 720.
CC, 2172. The right of every possessor in good faith to reimbursement for necessary and useful expenses is governed by
Article 546
CC, 2173. When a third person, without the knowledge of the debtor, pays the debt, the rights of the former are governed by
Articles 1236 and 1237
CC, 2174. When in a small community a nationality 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.
CC, 2175. Any person who is constrained to pay the taxes of another shall be entitled to reimbursement from the latter.
Acts or omission punished by law
CC, 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
Example: the obligation of a thief to return the stolen goods; duty of a killer to indemnify heirs of victim.
- Civil liability springs out of and is dependent upon facts, which, if true, would constitute a crime; such is a necessary consequence of
criminal responsibility
- Exempted persons (in exempting circumstances) are not exempt from civil liability for their acts
- Liability continues, notwithstanding the fact that the offender has served his sentence
- As a general rule, after a criminal action has been commenced, no civil action arising from the same offense can be prosecuted
- Criminal and civil actions arising from the same offense may be instituted separately, but after the criminal action has been
commenced the civil action cannot be instituted until final judgment has been rendered in the criminal action, except when an
independent civil action is allowed by law.
- A civil action may be validly instituted, without the necessity of first instituting the criminal action, not only for the restitution of what
has been taken or otherwise illegally appropriated, but also for the reparation of any damage cause, and the indemnity for
consequential damages
- Independent civil action: obligations not arising from the crime; violations of constitutional rights, defamation, fraud or physical
injuries; refusal or failure of police to render protection to life or property
- Acquittal in a criminal case is a bar to civil liability Tolentino: only when the civil action is based on the very same facts on which
the acquitted criminal action was based.
Quasi-delicts
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Obligations and Contracts

Prof. E.A. Labitag
AY 2009-2010
CC, 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special
laws.
CC, 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter.
Requisites
- There must be an act or omission;
- There must be fault or negligence
- There must be damage caused
- There must be a direct relation or connection of cause and effect between the act or omission and the damage
- There is no pre-existing contractual relation between the parties
Basis of liability is founded upon an undisputable principle of equity fault or negligence cannot prejudice anyone else besides its
author, and in no case should its consequences be borne by him who, without will or cause on his part, becomes the victim of the
results, or suffers the harm produced by such fault or negligence
Negligence: the failure to observe for the protection of the interests of another person, that degree of care, precaution and vigilance
which the circumstances justly demand, whereby such other person suffers injury.
Doctrine of proximate cause such adequate and efficient cause as, in the natural order of events, and under the particular
circumstances surrounding the case, would necessarily produce the event; natural cause when either it acts directly producing the
injury, or sets in motion other causes so producing it and forming a continuous chain in natural sequence down to the injury
1. Distinction between quasi-delicts and crimes
Quasi-delict
Crime
- Private concern
- Affects public interest
- There is only negligence
- There is criminal intent
- Civil Code repairs damage through indemnification
- RPC punishes
- Includes all acts of fault/negligence
- Punished only by penal law
- Only civil liability
- Generally 2 liabilities: criminal and civil
- May be settled through compromise
- No compromise
- Proof: Preponderance of evidence sufficient
- Proof beyond reasonable doubt
Liability for fault of others obligation arising from quasi-delict is demandable not only for ones own acts or omissions, but also
those of persons fro whom one is responsible.
CC, 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of
persons for whom one is responsible. The father and, in case of his death or incapacity, the mother, are responsible for the
damages caused by the minor children who live in their company. Guardians are liable for damages caused by the minors or
incapacitated persons who are under their authority and live in their company. The owners and managers of an establishment or
enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are
employed or on the occasion of their functions. Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or
industry. The State is responsible in like manner when it acts through a special agent; but not when the damage has been caused
by the official to whom the task done properly pertains, in which case what is provided in Article 2176 shall be applicable. Lastly,
teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students or
apprentices, so long as they remain in their custody. The responsibility treated of in this article shall cease when the persons
herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage.
FC, 218. The school, its administrators and teachers, or the individual, entity or institution engaged in child are shall have special
parental authority and responsibility over the minor child while under their supervision, instruction or custody. Authority and
responsibility shall apply to all authorized activities whether inside or outside the premises of the school, entity or institution
FC, 219. Those given the authority and responsibility under the preceding Article shall be principally and solidarily liable for
damages caused by the acts or omissions of the unemancipated minor. The parents, judicial guardians or the persons exercising
substitute parental authority over said minor shall be subsidiarily liable. The respective liabilities of those referred to in the
preceding paragraph shall not apply if it is proved that they exercised the proper diligence required under the particular
circumstances. All other cases not covered by this and the preceding articles shall be governed by the provisions of the Civil Code
on quasi-delicts.
3. Civil liability arising from crime
CC, 1161.
Rules on Criminal Procedure, Rule 111.
Classification of Obligations
A. Primary Classification under the Civil Code
1. Pure and conditional (CC, 1179-1192)
2. With a period or term (CC, 1193-1198)
3. Alternative and facultative (CC, 1199-1206)
4. Joint and Solidary (CC, 1207-1222)
5. Divisible and Indivisible (CC, 1223-1225)
6. With a penal clause (CC, 1226-1230)
B. Secondary classification
1. Legal (1158); Conventional (1159); Penal (1161)
2. Real (to give) and personal (to do or not to do)
- REAL: that in which the subject matter is a thing which the obligor must deliver to the obligee
- PERSONAL: that in which the subject matter is an act to be done or not to be done
3. Determinate and generic (as to subject matter of obligation
4. Positive (to do, to give) and Negative (not to give, not to do)
2.

II.

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Obligations and Contracts

Prof. E.A. Labitag
AY 2009-2010
5.

Unilateral and bilateral

Unilateral: one party bound to perform obligation [e.g., simple and remuneratory donation; to give support]
Bilateral: two parties reciprocally bound [e.g. purchase and sale; ease]
6. Individual and collective
7. Accessory and principal
8. As to object or prestation
- Simple
- Multiple
o Conjunctive
o Distributive
Alternative
Facultative
9. Possible and impossible
Chapter II. Nature and Effects of Obligations
I. Kinds of Prestation
A. Obligation to give
1. A specific thing one that is individualized and can be identified or distinguished from others of its kinds
a. Duties of the obligor
i.
To deliver thing itself CC, 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the
latter may be of the same value as, or more valuable than that which is due. In obligations to do or not to do, an act or
forbearance cannot be substituted by another act or forbearance against the obligee's will.
ii. To preserve thing CC, 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.
- Diligence of a good father of a family equated with ordinary care or that diligence which a reasonably prudent person
exercises over his own property
- Another standard of care however, if the law or the stipulation of the parties provides for another standard of care,
said law or stipulation must prevail.
o Example: CC, 1755. common carrier utmost [extraordinary] diligence of very cautious persons
- Contrary to public policy to stipulate for the avsolute exemption from liability of the obligor for any fault or negligence
on his part
- Factors to be considered diligence required necessarily depends upon the nature of the obligation and corresponds with
the circumstances of the person, of the time and of the place
- Reason: to insure that the thing to be delivered would subsist in the same condition as it was when the obligation was
contracted
iii. To deliver the accessions and accessories CC, 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.
- Distinction between accession and accessory
Accessions
Accessories
The fruits of a thing or additions to or improvements upon Things joined to or included with the principal thing for
a thing
the latters embellishment, better use, or completion
Houses or trees on a land
Key of a house
Rents of a building
Frame of a picture
Air-conditioner in a car
Bracelet of a watch
Profits or dividends accruing from share of stocks
Machinery in a factory
Bow of a violin

iv.

- The general rule is that all accessions and accessories are considered included in the obligation to deliver a determinate
thing although they may not have been mentioned principle: accessory follows principal.
- Unless otherwise stipulated, an obligation to deliver accessions or accessories of a thing does not include the latter
To deliver the fruits CC, 1164 (1). The creditor has a right to the fruits of the thing from the time the obligation to deliver
it arises.
- Different kinds of fruits
o Natural spontaneous products of the soil, the young and other products of animals [produced without human
intervention]
o Industrial those produced by lands of any kind through cultivation of labor
o Civil those derived by virtue of a juridical relation [rent, price of leases, etc.
- Intention of law: to protect the interest of the oblige should the obligor commit delay in the fulfillment of his obligation
- When obligation to deliver fruits arises
o Generally, the obligation to deliver the thing due, and consequently, the fruits thereof arises from the time of the
perfection of the contract perfection: refers to rthe birth of the contract or to the meeting of the minds between
the parties
o If the obligation is subject to a suspensive condition or period, it arises upon the fulfillment of the condition or arrival
of the term. However, the parties may make a stipulation to the contrary as regards the right of thecreditor ro the
fruits of the thing
o In a contract of sale, the obligation arises from the perfection of the contract even if the obligation is subject to a
suspensive condition or period where the price has been paid
o In obligations to give arising from law, quasi-contracts, delicts, and quasi-delicts, the time of performance is
determined by the specific provisions of the law applicable
CC, 1164(2). However, he shall acquire no real right over it until the same has been delivered to him
- Personal right v. real right
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Obligations and Contracts

Prof. E.A. Labitag
AY 2009-2010
Personal right
right or power of a creditor to demand from debtor, the
fulfillment of the latters obligation

2.

Real right
the right or interest of a person over a specific thing
(ownership, possession, mortgage), without a definitive
passive subject against whom the right may be personally
enforced
There is a definite active subject and a definite passive There is only a definite active subject without any definite
subject
passive subject
Binding or enforceable only against a particular person
Directed against the whole world
Example: if Y claims possession of land, X has personal Example: X is the owner of a parcel of land. His ownership
right to recover from Y the property
is a real right directed against anybody
- Ownership and other real rights are acquired and transmitted by tradition or delivery
- CC, 1164(2) creditor does not become the owner until the specific thing has been delivered to him.
A generic thing one that is indicated only by its kinds, without being designated and distinguished from others of the same kind
CC, 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.
Duties of Debtor:
To deliver a thing which is of the quality intended by the parties taking into consideration the purpose of the obligation, and
other circumstances [1246]
To be liable for damages in case of fraud, negligence, or delay, in the performance of his obligation, or contravention of the
tenor thereof [1170]
Specific thing
Generic thing
Identified by its individuality; debtor cannot substitute it with Identified only by its species. The debtor can give anything of
another although the latter is of the same kind and quality the same class so long as it is of the same kind
without the consent of the creditor

B.

II.

Obligation to do CC, 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the
same value as, or more valuable than that which is due.
C. Obligation not to do CC, 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be
of the same value as, or more valuable than that which is due.
Breach of Obligation
A. Concept
1. Distinction between substantial and casual/slight breach
B. Modes of Breach CC, 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are liable for damages.
1.

2.

Fraud (dolo) the deliberate or intentional evasion of the normal fulfillment of an obligation
As a ground for damages, it implies some kind of malice or dishonesty and it cannot cover cases of mistake and errors of judgment
made in good faith
Synonymous to bad faith in that, it involves a design to mislead or deceive another
a. Concept
i.
vs. dolo incidente committed in the performance of an obligation already existing because of contract
ii. vs. dolo causante fraud employed in the execution of a contract (1338), which vitiates consent
b. Non-waiver CC, 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future
fraud is void.
c. Effects
Negligence CC, 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but
such liability may be regulated by the courts, according to the circumstances.
- Any voluntary act or omission, there being no malice, which prevents the normal fulfillment of an obligation
- Courts given wide discretion in fixing the measure of damages negligence is a question which must necessarily depend upon
the circumstances of each particular case
a. Concept CC, 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the
nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence
shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply. If the law or contract does not state the
diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.
Factors to be considered
Nature of the obligation
Circumstances of the person
Circumstances of time
Circumstances of the place
i.
Culpa v. dolo
Culpa
Dolo
Mere want of care or diligence
Involves willfulness or deliberate intent to cause damage or
It is not the voluntary act or omission, as such or in itself, injury to another
which gives rise to the responsibility, but the want of care
required by the circumstances
Waiver of liability may be allowed in negligence (1172)
Waiver of liability for future fraud is void (1171)
Liability may be reduced according to circumstances
Cannot be mitigated or reduced by the courts
Voluntary committed with volition
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Obligations and Contracts

Prof. E.A. Labitag
AY 2009-2010
ii.

Culpa aquiliana v. culpa contractual

Culpa aquiliana [quasi-delict]
Negligence as a source of obligation between the parties
not so related before by any pre-existing contract

Culpa contractual
Negligence in the performance of a contract
Not a source of obligation it merely makes the debtor liable
for damages in view of his negligence in the fulfillment of a
pre-existing obligation

b.

3.

Standard care required CC, 1173 (2). If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required
c. Effects
Delay (mora) CC, 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 declare; 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. 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.
a. Concept
Delay is used in this article as synonymous to default or mora, which means dealy in the fulfillment of obligations
It is non-fulfillment with respect to time
To be in default, however, is different from mere delay in the grammatical sense, because it involves the beginning of a
special condition or status which has its own peculiar effects or results
There can be delay only in positive obligations (to do and to give).
When demand is not necessary to put debtor in delay
o When the obligation so provides
o When the law so provides
o When time is of the essence
o When demand would be useless
o When there is performance by a party in reciprocal obligations
b. Kinds
i.
Mora solvendi delay on the part of the debtor to fulfill his obligation
- Requisites
a. Failure of the debtor to perform his obligation on the date agreed upon
b. Demand (not mere reminder or notice) made by the creditor upon the debtor to comply with his obligation which
demand may be either judicial or extra-judicial
c. Failure of the debtor to comply with the demand
Presupposes that the obligation is already due or demandable
Creditor has the burden of proving that demand has been made
Incumbent upon debtor to prove that the delay is not caused by his fault to relieve himself from liability
- General rule CC, 1169.
- Exceptions
ii. Mora accipiendi delay on the part of the creditor to accept the performance of the obligation
- Requisites
o An offer of performance by the debtor who has the required capacity
o The offer must be to comply with the prestation as it should be performed
o Creditor refuses performance without just cause
- CC, 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be
exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered
by him to the person who should receive it, the latter refused without justification to accept it.
iii. Compensatio morae delay of the obligors in reciprocal obligations
- Requisites
c. Effects
i.
Mora solvendi
- The debtor is guilty of breach or violation of the obligation
- He is liable to the creditor for interest or damages. In the absence of extra-judicial demand, the interest shall commence
from the filing of the complaint
- He is liable even for a fortuitous event when the obligation to deliver a determinate thing. However, if the debtor can
prove that the loss would have resulted just the same even if he had not been in default, court may equitably mitigate
damages.
- In an obligation to deliver of generic thing, debtor not relieved from liability for loss due to a fortuitous event; he can
still be compelled to deliver a thing of the same kind, or held liable for damages.
ii. Mora accipiendi
- Creditor is guilty of breach of obligation
- He is liable for damages suffered, if any, by the debtor
- He bears the risk of loss of the thing due
- Where the obligation is to pay money, the debtor is not liable for interest from the time of creditors delay
- The debtor may release himself from the obligation by the consignation or deposit in court of the thing or sum due.
iii. Compensatio morae
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Obligations and Contracts

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- Delay of the obligor cancels the delay of the obligee and vice versa. Legally speaking, there is no default or delay on part
of both
- If delay of one party is followed by that of the other, the liability of the first infractor shall equitably be tempered or
balanced by the courts
- If it cant be determined which of the parties is guilty of delay, the contract shall be deemed extinguished and each shall
bear his own damages.
4. Contravention of the tenor CC, 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for
future fraud is void.
III. Remedies of Creditor in Case of Breach
A. Action for performance
1. Action for specific performance in obligation to give a specific thing
- CC, 1165(1). When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1170,
may compel the debtor to make the delivery.
o In a specific real obligation, the creditor may exercise the following remedies or rights in case the debtor fails to comply:
a) Demand specific performance or fulfillment of the obligation with a right to indemnity for damages; or,
b) Demand rescission or cancellation of the obligation, also with a right to recover damages; or
c) Demand payment of damages only, where it is the only feasible remedy
- ROC 39, Sec. 10.
2. Action for substituted performance in obligation to give a generic thing
- CC, 1165(2). If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the
debtor.
o A generic real obligation can be performed by a third person since the object is expressed only according to its family or genus
o In any case, the creditor has the right to recover damages under CC,1170 in case of breach or violation of the obligation.
3. Action for substituted performance or undoing of poor work in obligation to do
- CC, 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost. This same rule shall be observed
if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be
undone.
o Situations contemplated
Debtor fails to perform an obligation to do
The debtor performs an obligation to do but contrary to the terms thereof
The debtor performs an obligation to do but in poor manner
o Remedies of creditor in positive personal obligation
If debtor fails to comply with his obligation to do, creditor has the right:
a) To have the obligation performed by himself or by another, unless personal considerations are involved, at the debtors
expense; and,
b) To recover damages
In case the obligation is done in contravention of the terms of the same or is poorly done, it may be ordered that it be
undone if it still possible to undo what was done
o Performance by a third person
A personal obligation to do can be performed by a third person. Creditor cannot compel debtor to do because it may amount
to involuntary servitude
- Exception: Where, however, the personal qualifications of the debtor are the determining motive for the obligation contracted
(e.g. to sing in a night club), the performance of the same by another would be impossible or would result to be so different that
the obligation could not be considered performed. Hence, the only feasible remedy of the creditor is indemnification for damages.
4. Action for undoing in obligation not to do
- CC, 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.
o In an obligation not to do, the duty of the obligor is to abstain from an act.
o There is no specific performance
- As a rule the remedy of the obligee is the undoing of the forbidden thing plus damages.
- Exception: If it not possible to undo what was done, either physically or legally or because of the rights acquired by third persons
who acted in good faith, or for some other reason, his remedy is an action for damages caused by the debtors violation of his of
his obligation.
B. Action for damages CC, 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who
in any manner contravene the tenor thereof, are liable for damages.
C. Action for rescission
- CC, 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The
court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without
prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
- CC, 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.
IV. Subsidiary Remedies of Creditor
A. Accion subrogatoria CC, 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.
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Concept in order to satisfy claims against the debtor, creditors have the following successive rights: (1) to levy by attachment and
execution upon all the property of the debtor, except such as are exempt by law; (2) to exercise all the rights and actions of the
debtor, except such as are inherently personal to him; and, (3) to ask for the rescission of the contracts made by the debtor in fraud
of their rights
- In order to exercise the accion subrogatoria, a previous approvcal of the court is not necessary
2. Requisites
a. The creditor has an interest in the right or action not only because of his credit but because of the insolvency of the debtor
b. Malicious or negligent inaction of the debtor in the exercise of his right or action of such seriousness as to endanger the claim
of the creditor
c. The credit of the debtor against a third person is certain, demandable, and liquidated
d. The debtors right against the third person must be patrimonial, or susceptible of being transformed to patrimonial value for
the benefit of the creditor. It is not essential that the creditors claim be prior to the acquisition of the right by the debtor
3. Exceptions inherent rights of debtor CC, 772. That cannot be exercised by the creditor
- Right to existence, thereby exempting from the reach of creditors whatever he may be receiving subject support
- Rights or relations of a public character
- Rights of an honorary character
- Rights consisting of powers which have not been used
- Non-patrimonial rights action to establish debtors legitimacy
- Patrimonial rights not subject to execution, e.g. government gratuity or pension
- Patrimonial rights inherent in the person o the debtor
Accion Pauliana last recourse
Creditors have the right to set aside or revoke the acts which the debtor may have done to defraud them
creditors may rescind fraudulent reductions of the properties of the debtor which constitute a guaranty for his debts
all acts of the debtor which reduce his patrimony in fraud of his creditors whether by gratuitous or onerous title can be revoked
by this action
include alienations of property, payment of debts which are not due, renunciation of rights such us the right of usufruct or an
inheritance, assignment of credit, and remission of debts
but payments of pre-existing obligations already due cannot be impugned by an accion pauliana
CC, 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.
CC, 1381(3). The following contracts are rescissible: (3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them.
1. Concept
a. Distinction between accion pauliana and accion subrogatoria
1.

B.

2. Requisites
Other Specific Remedies
CC, 1652. The sublessee is subsidiarily liable to the lessor for any rent due from the lessee. However, the sublessee shall not be
responsible beyond the amount of rent due from him, in accordance with the terms of the sublease, at the time of the extrajudicial
demand by the lessor. Payments of rent in advance by the sublessee shall be deemed not to have been made, so far as the lessor's
claim is concerned, unless said payments were effected in virtue of the custom of the place.
CC, 1729. Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against
the owner up to the amount owing from the latter to the contractor at the time the claim is made. However, the following shall not
prejudice the laborers, employees and furnishers of materials: (1) Payments made by the owner to the contractor before they are due;
(1) Payments made by the owner to the contractor before they are due. This article is subject to the provisions of special laws.
CC, 1608. The vendor may bring his action against every possessor whose right is derived from the vendee, even if in the second
contract no mention should have been made of the right to repurchase, without prejudice to the provisions of the Mortgage Law and
the Land Registration Law with respect to third persons.
CC, 1893. the cases mentioned in Nos. 1 and 2 of the preceding article, the principal may furthermore bring an action against the
substitute with respect to the obligations which the latter has contracted under the substitution
Extinguishment of Liability in Case of Breach Due to Fortuitous Event
CC, 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were
inevitable.
A. Concept of fortuitous event any event which cannot be foreseen, or which, though foreseen, is inevitable.
Essence: consists of being a happening independent of the will of the debtor and which happening, makes the normal fulfillment of the
obligation impossible
1. Act of God they refer to what is called majeure or those events which are totally independent will of every human being
[earthquake, flood, rain, shipwreck]
2. Act of Man fortuitous event independent of the will of the obligor but not of other human wills [war, fire, robbery, murder,
insurrection]
KINDS:
1. Ordinary those events which are common and which the contracting parties could reasonably foresee
2. Extra-ordinary those event which are uncommon and which the contracting parties could not have reasonably foreseen
B. Requisites
a. The event must be independent of the human will or at least of the debtors will
b. The even could not have been foreseen, or if foreseen, is inevitable
c. The event must be of such a character as to render it impossible for the debtor to comply with his obligation in a normal manner
C.

V.

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d.

The debtor must be free from any participation in, or aggravation of, the injury to the creditor, i.e., there is no concurrent negligence
on his part.
** mere pecuniary inability or poverty is not an excuse for the non-fulfillment of an obligation
** neither is mere difficulty to foresee the happening of an event different from impossibility to foresee the same
1. Effect of concurrent fault
C. Extinguishment of Liability, Exceptions
CC, 1174.
o A person is not, as a rule, responsible for loss or damages caused to another resulting from fortuitous events
o Exceptions
When expressly specified by law
Debtor is guilty of fraud, negligence, or delay, or contravention of the tenor of the obligation
Debtor has promised to deliver the same thing to two or more persons who do not have the same interests.
Obligation to deliver a specific thing arises from a crime
Thing to be delivered is generic
When declared by stipulation
When the nature of the obligation requires the assumption of risk

o
CC, 1165(3). If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event until he has effected the delivery.
o An indeterminate thing cannot be the object of destruction by fortuitous event because genus nunquam perit (genus never perishes)
CC, 552. A possessor in good faith shall not 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
CC, 1942. The bailee is liable for the loss of the thing, even if it should be through a fortuitous event: (1) If he devotes the thing to any
purpose different from that for which it has been loaned; (2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has been constituted; (3) If the thing loaned has been delivered with appraisal
of its value, unless there is a stipulation exemption the bailee from responsibility in case of a fortuitous event; (4) If he lends or leases
the thing to a third person, who is not a member of his household; (5) If, being able to save either the thing borrowed or his own thing,
he chose to save the latter.
CC, 1979. The depositary is liable for the loss of the thing through a fortuitous event: (1) If it is so stipulated; (2) If he uses the thing
without the depositor's permission; (3) If he delays its return; (4) If he allows others to use it, even though he himself may have been
authorized to use the same.
CC, 2001. The act of a thief or robber, who has entered the hotel is not deemed force majeure, unless it is done with the use of arms or
through an irresistible force.
CC, 2147. The 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.
VI. Usurious Transactions
CC, 1175. Usurious transactions shall be governed by special laws.
Simple loan (mutuum) contract whereby one of the parties delivers to another, money or other consumable thing, upon the condition that
the same amount of the same kind and quality shall by paid. It may be gratuitous or with a stipulation to pay interest.
Usury contracting for or receiving interest in excess of the amount allowed by law for the loan or use of money, goods, chattels or credits.
Requisites for recovery of interest:
1) The payment of interest must be expressly stipulated
2) The agreement must be in writing
3) Interest must be lawful
A. PD 858; PD1685
B. Central Bank Circular 416
C. Monetary Board Circular #905 the rate of interest and other charges on a loan or forbearance of money, goods, or credit, regardless of
maturity and whether secured or unsecured, that may be charged or collected shall not be subject to any ceiling prescribed under the
Usury Law. Usury is now legally non-existent, parties are now free to stipulate any amount of interest
v. Art. 2209
VII. Fulfillment of Obligations
A. See Payment (Chapter IV)
B. Presumptions in payment of interests and installments
CC, 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.
Presumption the inference of a fact not actually known arising from its usual connection with another which is known or proved
Kinds of presumption
a. Conclusive one which cannot be contradicted
b. Disputable [rebuttable] one that can be contradicted by presenting proof to the contrary.
When presumptions in 1176 do not apply:
1) With reservation as the interest
2) Receipt without indication of particular installment paid
3) Receipt for a part of the principal
4) Payment of taxes
5) Non-payment proven
VIII. Transmissibility of Rights
CC, 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary.
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Exceptions:
Prohibited by law
Prohibited by the stipulations of parties
Chapter III. Different Kinds of Obligations
I. Pure and Conditional Obligations
A. Pure Obligations
CC, 1179(1). 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.
A pure obligation is one which is not subject to any condition and no specific date is mentioned for its fulfillment and is therefore,
immediately demandable.
B. Conditional Obligations
CC, 1181. Conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition.
A conditional obligation is one whose consequences are subject in one way or another to the fulfillment of a condition
1. Condition
a. Concept a condition is a future and uncertain event, upon the happening of which, the effectivity or extinguishment of an
obligation (or right) subject to it depends
Future and uncertain
Past but unknown a past even cannot be said to be a condition since the demandability of an obligation subject to a
condition depends upon whether the event will happen or will not happen. What is really contemplated is the knowledge to be
acquired in the future of a past event which at the moment is unknown to the parties interested.
b. Condition v. period/term
A period is a future and certain event upon the arrival of which the obligation subject to it either arises or is extinguished
What depends upon the partys will is not whether he should fulfill the obligation; what is left only to his will is the duration of
the period within which he shall fulfill the obligation
2. Kinds of condition
a. As to effect on obligation
CC, 1181.
i.
Suspensive (precedent)
- Retroactive effect when condition is fulfilled
- A condition the fulfillment of which will give rise to an obligation
- The demandability of the obligation is suspended until the happening of the uncertain event which constitutes the
condition
CC, 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.
Obligations to give subject to a suspensive condition becomes demandable only upon the fulfillment of the
condition. However, once the condition is fulfilled, its effects shall retroact to the day the obligation was constituted.
Why? The condition is only accidental to the contract
In obligations to do or not to do, courts shall fix retroactive effect
Retroactive effect as to fruits and interests:
o In reciprocal obligations, there is no retroactivity because the fruits and interests received during the pendency of
the condition are deemed to have been mutually compensated
o In unilateral obligations, there is usually no retroactive effect because they are gratuitous
Acts of administration by debtor are not affected by the retroactivity
- Rights of creditor and debtor before fulfillment of condition
CC, 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.
Creditor cannot enforce the obligation; his right is a mere expectancy
Debtor cannot make contracts disposing of or alienating or encumbering the specific thing, or otherwise creating a
real right over the thing incompatible with creditors right
Creditor: may go to court to prevent alienation of property
Debtor: entitled to recover what he has paid by mistake prior to the happening of the suspensive condition; but once
suspensive condition is fulfilled, he cannot recover what he has prematurely paid.
ii. Resolutory (subsequent)
- Fulfillment of which will extinguish an obligation already existing
b. As to cause or origin
CC, 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be
void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the
provisions of this Code.
i.
Potestative
- Effect if fulfillment of condition depends solely on will of debtor
o The conditional obligation is void
o Only the condition is void if the obligation is a pre-existing one and does not depend for its existence upon the
fulfillment by the debtor of the potestative condition.
- Debtors promise to pay when he can is not a conditional obligation
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3.

CC, 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to
be one with a period, subject to the provisions of Article 1197
If the suspensive condition depends upon the will of the creditor: valid.
Where resolutory condition depends upon will of the debtor valid
ii. Casual the condition depends upon chance or upon the will of a third person
iii. Mixed the condition depends partly upon chance and partly upon the will of a third person
c. As to possibility
CC, 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the
obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or
unlawful condition shall be valid.
i.
Possible
ii. Impossible
- Physically impossible when they, in the nature of things, cannot be exist or cannot be done
- Legally impossible when they are contrary to law, morals, good customs, public order or public policy
- Effect
o Conditional obligation void impossible conditions annul the obligation which depends upon them. Both the
obligation and the condition are void.
o Conditional obligation valid if the condition is negative, that is, not to do an impossible thing, it is disregarded and
the obligation is rendered pure and valid
o Only the affected obligation void if the obligation is divisible, the part thereof not affected shall be valid
o Only the condition void if the obligation is a pre-existing obligation and does not depend upon the fulfillment of
the condition which is impossible, for its existence
d. As to mode
i.
Positive
CC, 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.
The obligation is extinguished:
1. As soon as the time expires without the event taking place
2. As soon as it has become indubitable that the event will not take place although the time specified has not expired
ii.
Negative
CC, 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.
The obligation shall become effective and binding:
1) From the moment the time indicated has elapsed without the event taking place
2) From the moment it has become evident that the event cannot occur, although the time indicated has not
yet elapsed
Rules in case of loss, deterioration or improvement pending the happening of the condition
CC, 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.
Requisites for application:
a. The obligation is a real obligation
b. The object is a specific or determinate thing
c. The obligation is subject to a suspensive condition
d. The condition is fulfilled
e. There is loss, deterioration, or improvement of the thing during the pendency of the condition
CC, 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment
of said conditions, shall return to each other what they have received. In case of the loss, deterioration or improvement of the thing,
the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to
return. As for the obligations to do and not to do, the provisions of the second paragraph of Article 1187 shall be observed as
regards the effect of the extinguishment of the obligation.
Effects of fulfillment of resolutory condition:
In obligations to give, the obligation is extinguished and the parties are obliged to return to each other what they have received
under the obligation [return to status quo]
Obligation of mutual restitution applies not only to the thing received but also to the fruits and interests
Exception: when the intention of the parties is otherwise
In obligations to do/not to do courts discretion
The fulfillment of the resolutory condition converts the creditor into debtor, and the debtor into creditor
a. Meaning of loss, deterioration, and improvement
CC, 1189(2). 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: (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the
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C.

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
LOSS:
Physical when the thing perishes (burnt house)
Legal when a thing goes out of commerce (when expropriated) or when a legal thing becomes illegal
Civil when a thing disappears such that its existence unknown, or even if known, cant be recovered whether as a matter of
fact or of law
DETERIORATION a thing deteriorates when its value is reduced or impaired
IMPROVEMENT when its value is increased or enhanced by nature or by time or at the expense of the debtor or creditor
b. Effect of loss or deterioration
i.
Without debtors fault
- loss: obligation extinguished
- deterioration: creditor will have to suffer the deterioration or impairment
ii. With debtors fault
- Loss: creditor entitled to demand damages
- Deterioration: creditor may choose between rescission with damages or fulfillment of the obligation with damages
c. Effect of improvement
i.
By nature or time creditor shall be entitled to improvement
ii. At the debtors expense debtor has the right granted to a usufructuary with respect to the improvement [usufruct: right
to enjoy the use and fruits of a thing belonging to another]
4. Effect of prevention of the fulfillment of the condition by the obligor
CC, 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
Requisites:
1. The condition is suspensive
2. The obligor actually prevent the fulfillment of the condition;
3. He acts voluntarily
Reciprocal Obligations
CC, 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The
court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without
prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
- This article recognizes an implied or tacit resolutory condition a condition imposed exclusively by law, even if there is no
corresponding agreement between the parties
- In reciprocal obligations, when one party has performed his part of the contract, the other party incurs delay
CC, 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.
1. Concept reciprocity arises from identity of cause, and necessarily the two obligations are created at the same time
Reciprocal obligations, therefore, are those which arise from the same cause, and in which each party is a debtor and a creditor of
the other, such that the obligation of one is dependent upon the obligation of the other.
They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the
other.
2. Alternative remedies of injured party in case of breach
a. Action for fulfillment
i.
When fulfillment no longer possible; effect
- Rescission with damages to the injured party is proper although the latter had sought specific performance
b. Action of rescission
Vs. 1381: the principal action for rescission for non-performance under 1191 must be distinguished from the subsidiary action
for rescission by reason of lesion or damage under 1381
i.
Requisites
ii. How made
- May take place by the declaration of the injured party rescission is a power which does not require the previous
declaration of rescission by the courts
- Extra-judicial declaration of the creditor electing rescission produces legal effect
- If debtor impugns the declaration of rescission, it shall be subject to judicial determination
- Court may grant guilty party term for performance should there be just cause
iii. Effects
- The exercise of the power to rescind extinguishes the obligatory relation as if it had never been created, the extinction
having a retroactive effect
- Rescission is equivalent to invalidating and unmaking the juridical tie
- Where a contract is rescinded, it is the duty of the court to require both parties to surrender that which they have
respectively received and to place each other as far as practicable in his original situation, the rescission has the effect of
abrogating the contract in all parts
- So long as there has been no judgment declaring rescission, the creditor who asked for it may change his mind and
demand specific performance instead, or vice-versa.
Limitations on right to demand rescission
1) Resort to the courts par. 3
2) Power of court to fix period
3) Right of third person
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Substantial violation rescission not granted to slight breaches of contract, the violation should be substantial as to
defeat the object of the parties in making the agreement
5) Waiver of right right to rescind may be waived
Rescission without previous judicial decree
1) Where automatic rescission expressly stipulated
2) Where contract is still executory
Obligation with a Period one whose consequences are subjected in one way or another to the expiration of said period or term
A. Period or Term
1. Concept a space of time which, exerting an influence on obligations as a consequence of a juridical act, suspends their
demandability or determines their extinguishment
2. Period/term v. condition
Condition
Period/term
As to fulfillment
An uncertain event
An event that must necessarily come,
whether on a date known beforehand or
** even when an event must necessarily at a time which cannot be predetermined
happen, the obligation will be conditional
when the condition that such even shall
or shall not happen within a certain time
As to influence on the obligation
Give rise to an obligation or extinguishes Has no effect upon the existence of
one already existing
obligations, but only their demandability
or performance
4)

II.

As to time
As to will of debtor
As to retroactivity of effects

B.

C.

D.

E.

May refer to a past event unknown

Void
Has retroactive effect

EFFECT: obligations with a term are

demandable only when the day fixed for
their performance arrives
Always refers to the future
Empowers the court to fix such period
Does not carry with it any retroactive
effect

Requisites: future, certain, possible

Kinds of Period/Term
CC, 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.
1. As to effect
a. Suspensive (ex die from a day certain)
CC, 1193(1). Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes.
- The obligation begins only from a day certain upon the arrival of period
b. Resolutory (in diem to a day certain)
CC, 1193(2). Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.
The obligation is valid up to a day certain and terminates upon arrival of the period
2. As to expression
a. Express
b. Implied
3. As to definiteness
a. Definite when it is fixed or it is known when it will come
b. Indefinite when it is not fixed or it is not known when it will come; where the period is not fixed but a period is intended, the
courts are usually empowered by law to fix the same
4. As to source
a. Voluntary when agreed by parties
b. Legal when provided for by laws
c. Judicial when fixed by the court
Rules in case of loss, deterioration or improvement before arrival of period
CC, 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.
CC, 1189.
Effect of payment in advance
CC, 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.
Note: CC, 1197(3). 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.
- Applies only to obligation to give
- similar to 1188(2)
- creditor cannot unjustly enrich himself by retaining the thing or money received before the arrival of the period
- the debtor is presumed to be aware of period he has the burden of proving that he was unaware of the period
- obligor may no longer recover the thing or money once the period has arrived but he can recover the fruits or interests thereof
from the date of premature performance to the date of maturity of the obligation
Benefit of period
1. For whose benefit
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a.

Creditor he may demand performance at anytime, but the debtor cannot compel him to accept payment before period
expires
b. Debtor he may oppose a premature demand for payment, but may validly pay at any time before the period expires
c. Both creditor cannot demand payment and debtor cannot make and effective tender and consignation of payment before the
period stipulated
2. Effects
3. Presumption
CC, 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.
4. When debtor loses right to make use of period
CC, 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.
- The obligation becomes immediately due and demandable even if the period has not yet expired obligation converted into
a pure obligation
1) When the debtor becomes insolvent
2) When debtor does not furnish guaranties or securities promised
3) When guaranties or securities given have been impaired or have disappeared
4) When debtor violates undertaking
5) When debtor attempts to abscond [escape]
F. When court may fix period
CC, 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.
Judicial period
Exceptions
1. Period is implied (no period is fixed but a period was intended)
2. Period depends solely on will of debtor
- Legal effect:
o existence of the obligation is not affected although the period depends upon the sole will of the debtor. It is only the
performance with respect tom time that is left to the will of the debtor
o If the obligation is subject to a condition which depends solely upon the sole will of the debtor, the conditional obligation is
void because in such case, it is actually the fulfillment of the obligation that depends on the will of the debtor
In these 2 cases, the court must fix the duration of the period to forestall the possibility that the obligation may never be fulfilled
Period fixed cannot be changed by courts
If there is a period agreed upon and it has already lapsed
From the very moment the parties give their acceptance and consent to the period fixed by the court, said period acquires the
nature of a contract, because the effect of such acceptance and consent by the parties is exactly the same as if they had
expressly agreed upon it.
III. Alternative Obligations
A. Concept
CC, 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.
- One wherein various prestations are due but the performance of one of them is sufficient as determined by the choice which,
as a general rule, belongs to the debtor
B. Right of choice
CC, 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.
- Right of choice of debtor not absolute
o Debtor cannot choose those prestations which are impossible, unlawful, or which could not have been the object of the
obligation
o Debtor has no more right of choice when among the prestations, only one is practicable
C. Effect of notice of choice
- Until the choice is made and communicated, the obligation remains alternative
- Once notice of election has been given to creditor, obligation ceases to be alternative and becomes simple
- Such choice once properly made and communicated is irrevocable and cannot, therefore, be changed by either party without the
consent of the other
- Concurrence of the creditor to the choice made by the debtor is not required
- PROOF: burden of proof is made upon him who made the choice [no particular form of notice]
D. When notice produces effect
CC, 1201. The choice shall produce no effect except from the time it has been communicated.
E. Effect of loss or impossibility of one or all prestations
CC, 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is
practicable. obligation converted into a simple one
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CC, 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.
o It is the very nature of an alternative obligation that the debtor can make his choice without the consent of the creditor. Hence, the
right given to the debtor to rescind the contract and recover damages if, through the creditors fault, he cannot make a choice
according to the terms of the obligation
CC, 1204. 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. The indemnity
shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible.
Damages other than the value of the last thing or service may also be awarded.
o Some of the objects if some of the objects of the obligation have been lost or have become impossible even through the fault of
the debtor, the latter is not liable since he has the right of choice and the obligation can still be performed
o All of the objects if all of them have become impossible through his fault, the creditor shall have the right to indemnity for
damages since the obligation can no longer be complied with. If the loss is due to fortuitous event, he obligation is extinguished
o Basis of indemnity the value of the last thing which disappeared or that of the service which last became impossible
In case of disagreement, it is incumbent upon the creditor to prove such value or which thing last disappeared or which service
last became impossible
CC, 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. The same rules shall be applied to obligations to do or not to do
in case one, some or all of the prestations should become impossible.
o Before the creditor makes the selection, the debtor cannot incur delay
o Rules applicable to personal obligations
F. Facultative obligation
CC, 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.
1. Concept one where only one prestation has been agreed upon but the obligor may render another in substitution
2. Distinguished from alternative obligation
Alternative
Facultative
Number of prestations
Several are due but compliance with one is Only one prestation is due although the
sufficient
debtor is allowed to substitute it
Right of choice
May be given to the creditor or third Only given to the debtor
person
Loss through a fortuitous event
Loss of one or more of the alternatives The loss of the thing due extinguishes the
does not extinguish the obligation
obligation
Loss through fault of debtor
Loss of one of the alternatives through the Loss of the thing due through his fault
fault of the debtor does not render him makes him liable
liable
Where the choice belongs to the creditor, The loss of the substitute before the
loss of one alternative through the fault of substitution does not render him liable
the debtor gives rise to liability
3. Effect of substitution
Before substitution if the principal thing is lost through a fortuitous event, the obligation is extinguished
After substitution if the principal thing is lost, the debtor is not liable whatever may be the cause of the loss, because it is no
longer due
Once substitution is made, the obligation is converted into a simple one to deliver/perform the substituted thing or prestation
IV. Joint and Solidary Obligations
A. Joint Obligations one where the whole obligation is to be paid or fulfilled proportionately by the different debtors and/or is to be
demanded proportionately by the different creditors
1. Concept
a. Requisites
a) There are as many debts as there are debtors
b) There are as many credits as there are creditors
c) The debts and/or credits are considered distinct and separate from one another
d) Each debtor is liable only for a proportional part of the debt
e) Each creditor is entitled only to a proportionate part of the credit
b. Words used to indicate joint obligations mancomunada, mancomunadamente, pro rata, proportionately; we ppromise to
pay signed by 2 or more persons
2. Presumption
CC, 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

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B.

CC, 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.
Collective obligations are presumed to be joint
Multiplicity of suits prevents forum shopping [suits or complaint for a single cause of action
3. Effects
CC, 1207.
CC, 1208.
- The demand by 1 creditor upon 1 debtor produces the effects of default only with respect to the creditor who demanded and
the debtor on whom demand was made, but not with respect to others
- The interruption of prescription by the judicial demand of one creditor upon a debtor does not benefit the other creditors nor
interrupt the prescription as to other debtors
- The vices of each obligation arising from the personal defectof a particular debtor/creditor does not affect the obligation or
rights of the others
- Insolvency of a debtor does not increase the responsibility of his co-debtors, nor does it authorize a creditor to demand
anything from his co-creditors
- In joint divisible obligation, res judicata is not extended from one debtor to another
a. Extent of liability of debtor liable only for a proportional part of the debt
b. Extent of right of creditor entitled only to a proportionate part of the credit
c. In case of novation, compensation, confusion, remission
CC, 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.
Solidary obligations
1. Concept
a. Requisites
b. Words used to indicate solidary obligations
Sufficient: the obligation declares that each one of the debtors can be compelled to pay the entire obligation, or can be
proceeded against for the full amount of the obligation
Jointly and/or severally
Solidaria; in solidum; together and/or separately; individually and/or collectively; juntos o separadamente
2. Kinds
a. As to source
CC, 1208.
i.
Legal
CC, 1915. two or more persons have appointed an agent for a common transaction or undertaking, they shall be
solidarily liable to the agent for all the consequences of the agency.
CC, 1945. When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily.
CC, 2194. The responsibility of two or more persons who are liable for quasi-delict is solidary
RPC, 119.
ii. Conventional where solidarity is agreed upon by the parties
iii. Real where solidarity is imposed by the nature of the obligation moral wrongs (Art.19-22, CC); a moral wrong cannot
be divided into parts, hence liability must be solidary
b. As to parties bound
i.
Active solidarity on the part of the creditors, where any one of them can demand the fulfillment of the entire obligation;
essential feature: mutual representation among the solidary creditors with powers to exercise the rights of others in the
same manner as their rights
o Death of a solidary creditor does not transmit the solidarity to each of his heirs but to all of them taken together
ii. Passive solidarity on the part of the debtors, where any one of them can be made liable for the fulfillment of the entire
obligation; nature: mutual guaranty
iii. Mixed solidarity on the part of the debtors and creditors, where each one of the debtors is liable to render, and each one
of the creditors has a right to demand, entire compliance of obligation`
c. As to uniformity
i.
Uniform when parties are bound by the same stipulation
ii. Varied/non-uniform when the parties are not subject to the same stipulations
CC, 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.
- Effects: solidarity not affected by diverse stipulations
o Rule: creditor may bring his action in toto against any of the solidary debtors less the shares of the other debtors with
unexpired terms or unfulfilled conditions who are entitled to defenses under 1222. Upon the expiration of the term
or fulfillment of the condition, the creditor will have the right to demand the payment of the remainder
3. Effects
a. Solidary creditor in relation to:
i.
Common debtor
- Right to demand
CC, 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
o The debtor may pay to any solidary creditor, but if a judicial demand is made on him, he must pay only to the
plaintiff
CC, 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with
any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of Article 1219. The
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b.

creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for
the share in the obligation corresponding to them.
o One creditor, however, does not represent the others in such acts as novation, compensation and remission. In
these cases, even if the debtor is released, the other creditors can still enforce their rights against the creditor who
made the novation, compensation or remission
CC, 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously.
The demand made against one of them shall not be an obstacle to those which may subsequently be directed against
the others, so long as the debt has not been fully collected.
o The credit and its benefits are divided equally among the creditors unless there is an agreement among them to
divide differently
o Each creditor may renounce his right, even against the will of the debtor, and the latter need not thereafter pay the
obligation to the former
CC, 1217(1). Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary
debtors offer to pay, the creditor may choose which offer to accept.
- In case of novation, compensation, confusion, remission by a creditor
CC, 1215(1). Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with
any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of Article 1219.
ii. Solidary co-debtor/s
- In case of novation, compensation, confusion, remission by a creditor
CC, 1215(2). The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to
the others for the share in the obligation corresponding to them.
- Prejudicial acts prohibited
CC, 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.
o Each creditor represents the others in the act of receiving payment, and in all other acts which tend to secure the
credit or make it more advantageous
o One creditor, however, does not represent the others in such acts as novation, compensation and remission. In these
cases, even if the debtor is released, the other creditors can still enforce their rights against the creditor who made
the novation, compensation or remission
- Assignment of rights not allowed
CC, 1213. A solidary creditor cannot assign his rights without the consent of the others.
Reason: each creditor represents the others and the assignee may not have the confidence of the original solidary
creditors
IF assignment is made to a co-creditor, the consent of the other creditors is not necessary.
Solidary debtor in relation to:
i.
Common creditor
- Obligation to perform
CC, 1207.
- In case of novation, compensation, confusion, remission by a creditor
CC, 1215(1).
ii. Solidary co-debtor
- In case of payment by a co-debtor
CC, 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors
offer to pay, the creditor may choose which offer to accept. He who made the payment may claim from his codebtors only the share which corresponds to each, with the interest for the payment already made. If the payment is
made before the debt is due, no interest for the intervening period may be demanded. When one of the solidary
debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be
borne by all his co-debtors, in proportion to the debt of each.
o Each debtor can required to pay the entire obligation; but, after payment, he can recover from co-debtors their
respective shares
o The debtor who is required to pay may set up by way of compensation his own claim against the creditor, in this
case, the effect is the same as that of payment
o All the debtors are liable for the loss of the thing due, even if such loss is caused by the fault of only one of them
o The interests due by reason of the delay of one of the debtors are borne by all of them
CC, 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 or become illegal.
o The interruption of prescription by one debtor affects all others; but the renunciation by one debtor of prescription
already had does not prejudice the others
CC, 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 the co-debtors, in case the debt had been totally paid by anyone of them
before the remission was effected.
o When this remission affects only the share of one debtor, the other debtors are still liable for the balance of the
obligation
CC, 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to
reimbursement from his co-debtors.
o The total remission of the debt in favor of a debtor releases all other debtors
- In case of fortuitous event
CC, 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
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C.

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.
- Loss is without fault or delay obligation extinguished
- Loss is due to fault on the part of a solidry debtor all shall be responsible to creditor
- Loss is without fault but after delay
4. Defenses available to a solidary debtor against the creditor
CC, 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.
a. Types
i.
Those derived from the nature of the obligation
- Complete defense
- Example: A&B liable to C, D paid debt. If C sues A, A can raise defense of payment by D.
- Fraud, prescription, remission, illegality/absence of consideration, res-judicata, non-performance of suspensive
condition
ii. Personal defenses [defenses personal to, or which pertain to the share of, debtor sued]
- Complete defense
- Incapacity, insanity, mistake, violence, minority
iii. Defenses pertaining to his share
- Partial defense
- Example: Portion of obligation of B is subject to a suspensive condition which has not yet happened can be set up by
B only in relation to his share, C can demand from B the obligation pertaining to A because B is solidarily liable
iv. Those personally belonging to other co-debtors
- Partial
- If B is insane, A may avail himself of the defense only with regard to that part of the debt for which B is liable
b. Effects
Joint indivisible obligations
1. Concept
Joint indivisible obligation
a. joint because the parties are merely proportionately liable
b. indivisible because the object or subject matter is not physically divisible into different parts
c. joint as to liabilities of the debtors/rights of creditors; indivisible as to compliance
d. middle ground between joint and solidary obligations
i.
Distinguished from joint obligations
ii. Distinguished from solidary obligations
2. Indivisibility distinguished from solidarity
CC, 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility
Indivisibility
Solidarity
Refers to the prestation
Refers to the juridical or legal tie that binds the parties
Only the debtor guilty of breach of obligation is liable for All of the debtors are liable for the breach of the obligation
damages
committed by a debtor
Can exist although there is only one creditor and one debtor
There must be at least two creditors or two debtors
The others are not liable in case of insolvency of one debtor
The other debtors are proportionately liable
3.

V.

Effects
CC, 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
a. Liability for damages in case of breach
CC, 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
If one of the debtors does not comply with the undertaking in a joint indivisible obligation, the obligation is converted into
one for damages. Creditor cannot ask for specific performance or rescission because there is no cause of action against the
other debtors who are willing to fulfill their promises
Divisible and Indivisible Obligations
A. Divisible obligations
1. Concept the object of which is capable of partial fulfillment
Kinds
a. Qualitative
b. Quantitative
c. Ideal or intellectual division
2. Effects
CC, 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.
CC, 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.
B. Indivisible Obligations
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Prof. E.A. Labitag
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Concept the object of which is incapable of partial fulfillment
a. Distinguished from solidary obligations.
2. Kinds
a. Natural
CC, 1225(1). 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.
Example: to deliver a car, to sing, to dance hiphop
b. Legal
CC, 1225(3). 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
Example. Payment of taxes
c. Conventional
CC, 1225(3). 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
Example. C told D to pay him 1,000 at one time and as a whole
3. Presumptions
a. Of indivisibility
CC, 1225(1). 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
b. Of divisibility
CC, 1225(2). 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.
Focus: can the work be done partially?
4. Divisibility and indivisibility in obligations not to do based on continuity
CC, 1225(3).
Indivisibility: A obliged himself to B to not sell cigarettes for a year
Divisibility: A is not to sell cigarettes only on Sundays
5. Effects
CC, 1223
CC, 1233.
CC, 1224.
See joint indivisible obligations
6. Cessation of indivisibility
VI. Obligations with a Penal Clause
A. Concept
A penal clause is an accessory undertaking to assume greater liability in case of breach
It is attached to an obligation in order to insure performance
The penalty is generally a sum of money
1. Principal v. accessory obligation
- Principal: one which can stand by itself and does not depend for its validity and existence upon another obligation
- Accessory: one which is attached to a principal obligation and therefore cannot stand alone
2. Distinguished from conditional obligations
Penal clauses constitute an obligation although accessory; conditions do not
Penal clauses may be demandable in default of the unperformed obligation; conditions are never demandable
3. Distinguished from alternative obligations
4. Distinguished from facultative obligations
5. Distinguished from guaranty
B. Kinds of Penal Clause
1. As to effect
a. Subsidiary/alternative when only the penalty can be enforced
b. Complementary/joint/cumulative when both principal obligation and penal clause can be enforced
2. As to source
a. Conventional when provided for by stipulation of the parties
b. Legal when provided by law
3. As to purpose
a. Punitive to substitute a penalty for the indemnity of damages and the payment of interests in case of non-compliance
b. Reparatory to insure the performance of the obligation by creating an effective deterrent against breach, making the
consequences of such breach as onerous as it may be possible
C. Demandability of Penalty
CC, 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.
D. Effects of Penal Clause
1. Substitute for indemnity for damages and payment of interest; exception
CC, 1226.
As a general rule, in an obligation with a penal clause, the penalty takes the place of interests in case of non-compliance
Proof of damages is not necessary in order that the penalty may be enforced
When creditor may recover damages:
a. When so stipulated by parties
1.

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AY 2009-2010
b. When obligor refuses to pay the penalty, in which case the creditor may recover legal interest thereon
c. When the obligor is guilty of fraud in the fulfillment of the obligation
2. Not exempt debtor from performance; exception
CC, 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.
Generally, the debtor cannot just pay the penalty instead of performing the obligation
Exception: only when this right has been expressly reserved for him
3. Creditor cannot demand both performance and penalty at the same time
CC, 1227.
As a general rule, the creditor cannot demand the fulfillment of the obligation and the satisfaction of the penalty at the same time
a. When there is performance once obligation is fulfilled, there is no need for demanding the penalty; penal clause is subsidiary
and not joint
b. When there is no performance the creditor may ask for the penalty or require specific performance; remedies are alternative
and not cumulative, subject to the exception that the penalty may be enforced if after the creditor has decided to require
fulfillment, the same should become impossible without his fault; if there was fraud on debtors part, the creditor may recover the
penalty as well as damages for non-fulfillment
4. Creditor cannot collect other damages in addition to penalty
CC, 1226.
Penalty may be enforced only when it is demandable in accordance with provisions of CC
The penalty, as a stipulation in a contract, is demandable only if there is a breach of the obligation and it is not contrary to law,
morals
E. When penalty shall be equitably reduced
CC, 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.
F. Nullity of Principal obligation or penal clause
1. Effects
CC, 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
2. Rationale penal clause is an accessory obligation
Chapter IV. Extinguishment of Obligations
I. Modes of Extinguishment
CC, 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.
II. Payment or Performance
A. Concept
CC, 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation.
In ordinary parlance, payment refers only to the delivery of money
As a legal mode of extinguishing an obligation, payment may consist of not only in the delivery of money. But also the giving of s thing,
the doing of an act, or the not doing of an act
B. Requisites (1) the person who pays; (2) the person to whom payment is made; (3) the thing to be paid; (4) the manner, time, place of
payment
1. Who can pay
a. In general the debtor is the one who pays
b. Third person who is an interested party
i.
Meaning of interested party
ii. CC, 1302(3). It is presumed that there is 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.
c. Third person who is not an interested party but with consent of debtor
CC, 1302(2). It is presumed that there is legal subrogation: (2) When a third person, not interested in the obligation, pays
with the express or tacit approval of the debtor
CC, 1236(1). 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.
d. Third person who is not an interested party and without knowledge or against the will of the debtor
CC, 1236(1).
CC, 1236(2). 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.
Subrogation v. reimbursement
Subrogation
Reimbursement
- The person who pays for the debtor is put in the shoes The third person entitled by reason of payment hase merely
of the creditor
the bare right to be refunded to the extent provided in
- Payor acquires not only the right to be reimbursed for 1236(2) without the right to the guarantees and securities of
what he has paid but also all other rights which the the original obligation
creditor could have exercised pertaining to the credit
either against the debtor or against third person
- There is no real extinction of the obligation, only a
change in creditor
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2.

CC, 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.
e. Third person who does not intend to be reimbursed
CC, 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation,
which requires the debtor's consent. But the payment is in any case valid as to the creditor who has accepted it.
f. In obligation to give
CC, 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to
alienate it shall not be valid, without prejudice to the provisions of Article 1427 under the Title on "Natural Obligations."
free disposal to alienate the thing to be delivered must not be subject to any claim or lien or encumbrance
capacity to alienate the person is not incapacitated to enter into contracts
CC, 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.
Effect of incapacity: where the person paying has no capacity to make the payment, the creditor cannot be compelled to
accept it; consignation will not be proper; in case he accepts it, payment will not be valid, except in 1427.
g. In case of active solidarity
CC, 1214.
To whom payment may be made
a. In general creditor
CC, 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest,
or any person authorized to receive it.
Incapacitated person: CC, 1241(1). Payment to a person who is incapacitated to administer his property shall be valid if he has
kept the thing delivered, or insofar as the payment has been beneficial to him.
Requisites
b.

3.

4.

Third person
CC, 1241(2). Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such
benefit to the creditor need not be proved in the following cases: (1) If after the payment, the third person acquires the
creditor's rights; (2) If the creditor ratifies the payment to the third person; (3) If by the creditor's conduct, the debtor has been
led to believe that the third person had authority to receive the payment.
Requisites

When proof of benefit not required

CC, 1241(3). If by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the
payment
CC, 1242. Payment made in good faith to any person in possession of the credit shall release the debtor.
c. In case of active solidarity
CC, 1214.
What is to be paid (identity)
In general - The very thing or service due must be delivered or released
a. In obligations to:
Give a specific thing
CC, 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same
value as, or more valuable than that which is due. In obligations to do or not to do, an act or forbearance cannot be
substituted by another act or forbearance against the obligee's will
- Substitution may be made with obligees consent facultative obligation
Give a generic thing
CC, 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.
Pay money
CC, 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
CC, 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.
RA 529.
RA 4100.
b. Payment of interest
CC, 1956. No interest shall be due unless it has been expressly stipulated in writing.
How is payment to be made (integrity)
a. In general
CC, 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.
The thing or servive has to be completely delivered or rendered before a debt shall be understood as paid
General rule: partial payment not allowed; exceptions
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C.

CC, 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
b. Substantial performance in good faith exception to 1233
CC, 1234. . If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by the obligee.
Requisites: (1) there must be substantial performance; (2) obligor must be in good faith
Substantial performance there must have been an attempt in good faith to perform, without any willful or intentional
departure therefrom; any deviation must be slight; omission/defect must be technical and unimportant
The obligee is benefited, so the obligor should be allowed to recover as if there had been a strict and complete fulfillment, less
damages suffered by obligee.
c. Estoppel
CC, 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.
- If the payment is incomplete or irregular, the creditor may properly reject it. But, in case of acceptance, the law views that
he waives such right; obligation is then extinguished
- Requisites: (1) the obligee knows that the performance is incomplete or irregular; (2) he accepts the performance without
protest or objection
d. Presumptions in payment of interests and installments
CC, 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 receiptent of a later installment of a debt without reservation as to prior
installments, shall likewise raise the presumption that such installments have been paid
5. When payment is to be made
a. In general must be on the date stipulated
CC, 1169.
b. See chapter 2: delay
6. Where payment is to be made
CC, 1251(1). Payment shall be made in the place designated in the obligation.
If no place is expressly designated
CC, 1252(2-4). 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.
7. Expenses of making payment
CC, 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.
Reason: the obligation is extinguished when payment is made, and it is therefore the debtor who is primarily benefited
Judicial costs: statutory amounts allowed to a party to an action for his expenses incurred in the action generally, losing party
pays
Application of Payments
1. Concept
CC, 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the
payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made
by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due. If the
debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same,
unless there is a cause for invalidating the contract
Applictoation of payments designation of the debt to which should be applied the payment made by a debtor who has various
debts of the same kind in favor of one and the same creditor
2. Requisites
a. There must be one debtor and one creditor
b. There must be two or more debts
c. The debts must be of the same kind
d. The debts to which payment made by the debtor has been applied must be due
- Application to debts not yet due cannot be made unless:
o There is a stipulation that the debtor may so apply
o It is made by the debtor or creditor, as the case may be, for whose benefit the period has been constituted
e. The payment made must not be sufficient to cover the all the debt
3. Rules
a. The debtor has the first choice; he must indicate at the time of making payment, and not afterwards, which particular debt is
being paid. If, in making use of said right, the debtor applied payment to a debt, he cannot later claim that it should be applied
to another debt, unless creditor consents to the change
b. If the debtor does not apply payment, the creditor may make the designation by specifying in the receipt which debt is being
paid
c. If the creditor has not also made the application, or if the application is not valid, the debt which is most onerous to the debtor
among those due shall be deemed to have been satisfied
d. If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately
CC, 1252.
CC, 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have
been covered.
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D.

E.

F.

If rules inapplicable and application cannot be inferred

CC, 1254. When the payment cannot be applied in accordance with the preceding rules, or if application cannot be inferred
from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been
satisfied. If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately.
Meaning of most onerous to debtor the debt which is most burdensome on the part of the debtor (e.g., an interest-accruing
debt is more onerous than one with no interest)
Payment by cession
1. Concept assignment or abandonment of all the properties of the debtor for the benefit of his creditors in order that the latter
may sell the same and apply the proceeds thereof to the satisfaction of their credits
CC, 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.
2. Requisites
a. There must be 2 or more creditors
b. The debtor must be partially insolvent
c. The cession must be accepted by the creditors
3. Effects
Unless there is a stipulation to the contrary, the assignment does not make the creditors the owners of the property
Debtor is released from his obligation only up to the net proceeds of the sale of the property assigned debtor is still liable if
there be a balance.
Dation in Payment
1. Concept conveyance of ownership of a thing as an accepted equivalent of performance
CC, 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by
the law of sales.
Distinguished from payment by cession
Dation
Cession
Usually, one creditor
Several creditors
Does not presuppose insolvency of debtor
Debtor is insolvent at the time of assignment
Does not involve all the property of the debtor
Creditors only acquire the right to sell and apply proceeds
thereof to their credits satisfaction
An act of novation
Not an act of novation
2. Requisites
3. Effects
Tender of Payment and Consignation
1. Tender of payment
a. Concept the act, on the part of the debtor, of offering to the creditor the thing or amount due. The debtor must show that
he has in his possession the thing or money to be delivered at the time of the offer
b. Requisites [to be valid]
1) Tender of payment must comply with the rules on payment. The tender, if valid, does not b y itself produce legal payment,
unless it is completed by consignation
2) It must be unconditional and for the whole amount
3) It must actually be made
2. Consignation
a. Concept the act of depositing the thing or amount due to the proper court when the creditor does not desire or cannot
receive it, after complying with the formalities required by law
Always judicial, and it generally requires a prior tender of payment which is by its nature extra-judicial
Purpose
When tender and refusal not required
CC, 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. Consignation alone shall produce the same
effect in the following cases: (1) When the creditor is absent or unknown, or does not appear at the place of payment; (2)
When he is incapacitated to receive the 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.
Two-notice requirement
CC, 1257(1). 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.
CC, 1258(2). The consignation having been made, the interested parties shall also be notified thereof.
Effects of non-compliance
b. Requisites
1) Existence of a valid debt which is due
2) Tender of payment by the debtor and refusal without justifiable reason by the creditor to accept it
3) Previous notice of consignation to persons interested in the fulfillment of the obligation
4) Consignation of the thing or sum due
5) Subsequent notice of consignation to interested parties
c. Effects
CC, 1260(1). Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the
obligation.
d. Withdrawal by debtor before acceptance by creditor or approval by court; effects
CC, 1260(2). Before the creditor has accepted the consignation, or before a judicial declaration that the consignation has been
properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force.
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e.

Withdrawal by debtor after proper consignation

CC, 1261. If, the consignation having been made, the creditor should authorize the debtor to withdraw the same, he shall lose
every preference which he may have over the thing. The co-debtors, guarantors and sureties shall be released.
With creditors approval; effects
Without creditors approval; effects
f. Expenses of consignation
CC, 1259. The expenses of consignation, when properly made, shall be charged against the creditor.
When consignation is properly made:
1) When the creditor accepts the thing or sum deposited, without objection, as payment of the obligation
2) When the creditor questions the validity of the consignation and the court, after hearing, declares that it has been
properly made
3) When the creditor neither accept nor questions the validity of the consignation, and the court, after hearing, orders the
cancellation of the obligation
III. Loss or Impossibility
A. Loss of Thing due
1. Concept a 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
CC, 1189(2)
2. Kinds
a. As to extent
- Total
- Partial
3. Requisites
CC, 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed
without the fault of the debtor, and before he has incurred in delay. When by law or stipulation, the obligor is liable even for
fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule
applies when the nature of the obligation requires the assumption of risk
a. The obligation is to deliver a specific thing
b. The loss of the thing occurs without the falult of the debtor
c. The debtor is not guilty of delay
Exception
- When the law so provides
- When the stipulation so provides
- When the nature of the stipulation requires the assumption of risk
- When the obligation to deliver arises from a crime
4. Presumption
CC, 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.
CC, 1165.
When not applicable
5. Effects
a. In obligation to give a specific thing
CC, 1262.
CC, 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be
exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him
to the person who should receive it, the latter refused without justification to accept it.
b. In obligation to give a generic thing
CC, 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the
obligation.
c. In case of partial loss
CC, 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.
d. Action against third person
CC, 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be
exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him
to the person who should receive it, the latter refused without justification to accept it.
B. Impossibility of Performance
1. Concept
CC, 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.
CC, 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.
2. Kinds
a. As to extent
Total
Partial
b. As to source
Legal obligation becomes impossible by provision of law
Physical when the personal qualifications of the debtor are involved, e.g., if he dies
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AY 2009-2010
3.

Requisites
CC, 1266.
4. Effects
a. In obligations to do
CC, 1266.
CC, 1267.
CC, 1262(2) [by analogy]
impossibility distinguished from difficulty
b. In case of partial impossibility
CC, 1264.
IV. Condonation or Remission
A. Concept gratuitous abandonment by the creditor of his rights against the debtor; it is a form of donation
B. Kinds
1. As to extent
a. Total/complete when it covers the whole obligation
b. Partial when it covers only part of the obligation
2. As to form
CC, 1270(1). Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made
expressly or impliedly.
a. Express when it is made etiher verbally or in writing
b. Implied when it can only be inferred from conduct
C. Requisites
1) It must be gratuitous
2) It must be accepted by obligor
3) The parties must have capacity
4) It must not be inofficious
5) If made expressly, must comply with the forms of donation
a. When formalities required
CC, 1270(2). 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.
D. Presumptions
CC, 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
CC, 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.
CC, 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.
E.

Effects
1. In general
2. In case of joint or solidary obligations
F. Governing Rules
CC, 1270.
G. Renunciation of Principal or Accessory Obligation
1. Effects
CC, 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the
former in force.
2. Rationale
V. Confusion or merger of Rights
A. Concept meeting in one person of the qualities of creditor and debtor with respect to the same obligation
Reason/basis: a person cannot claim payment upon himself; the purposes for which the obligation may have been created are deemed
realized
B. Requisites
1) Must take place between the principal debtor and creditor
2) Must be complete
C. Effects
1. In general extinguishment of the obligation
CC, 1275. The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person.
2. In case of joint or solidary obligations
CC, 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.
CC, 1277. Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or debtor in
whom the 2 characters concur
VI. Compensation
A. Concept the extinguishment to the concurrent amount of debts of two persons, who, in their own right, are debtors and creditors of
each other
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AY 2009-2010
It involves the simultaneous balancing of two obligations in order to extinguish them to the extent in which the amount of one is covered
by that of the other
CC, 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.
Distinguished from confusion
Confusion
Compensation
There is only one person who is a creditor and debtor to himself
There are two persons involved, each of whom is a debtor and
creditor of each other
There is but one obligation
There are 2 obligations
There is impossibility of payment
There is indirect payment
B.

Kinds
1. As to extent
a. Total when both obligations are of the same amount and are entirely extinguished
b. Partial when the 2 obligations are of different amounts and a balance remains [partial only as regards the larger debt]
2. As to origin
a. Legal when it takes place by operation of law even without knowledge of the parties
b. Conventional/voluntary when it takes place by agreement of the parties
CC, 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and
that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be
due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor
Inapplicable: CC, 1282. The parties may agree upon the compensation of debts which are not yet due.
c. Judicial when it takes place by order from court in litigation
CC, 1283. If one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by
proving his right to said damages and the amount thereof.
d. Facultative when it can be set up by only one of the parties
C. Legal Compensation
1. Requisites
a) The parties are principal creditors and principal debtors of each other
b) Both debts consists in a sum of money, or of consumable things of the same kind and quality
c) The 2 debts are due or demandable
d) The 2 debts are liquidated
e) There is no retention or controversy commenced by a third party
CC, 1279.
CC, 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what the
creditor may owe the principal debtor.
Although the guarantor is only subsidiarily bound, he is given the right to set up compensation because the extinguishment of the
principal as a consequence of compensation carries with it the accessory obligations such as guaranty
due distinguished from demandable
2. Effects
CC, 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.
CC, 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.
D. When Compensation is not allowed
CC, 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.
CC, 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense.
E. Effects of Assignment of Credit
1. With consent of debtor
CC, 1285(1). The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up
against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the
debtor at the time he gave his consent, that he reserved his right to the compensation.
2. With knowledge but without consent of debtor
CC, 1285(2). If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the
compensation of debts previous to the cession, but not of subsequent ones.
3. Without knowledge of debtor
CC, 1285(3). If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to
the same and also later ones until he had knowledge of the assignment.
a. rationale
VII. Novation
A. Concept the extinction of an obligation through the creation of a new one the substitutes it
CC, 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
B. Kinds
1. As to form
a. Express when it is so declared in unequivocal terms
b. Implied when the old obligation and the new one are essentially incompatible with each other
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2.

C.

D.

E.

F.
G.

As to origin
a. Conventional takes place by stipulation of parties
b. Legal takes place by operation of law
3. As to object
a. Objective or real when the object/cause/principal conditions are changed
b. Subjective or personal when the person of the debtor is substituted and/or when a third person is subrogated in the rights of
the creditor
Requisites
CC, 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.
1) A previous valid obligation
2) Capacity and intention of the parties to modify/extinguish the obligation
3) The modification/extinguishment of the obligation
4) The creation of a new valid obligation
Novation never presumed
Effects
1. In general
CC, 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.
2. When accessory obligation may subsist
CC, 1296. when it is created in favor of a third person unless said person gives his consent to the novation
Effect of the Status of the Original or New obligation
1. Nullity or voidability of original obligation
CC, 1298. The novation is void if the original obligation was void, except when annulment may be claimed only by the debtor or
when ratification validates acts which are voidable.
a void obligation cannot be novated because there is nothing to novate
But if it is merely voidable (meaning void until annulled) or if the voidable obligation has been ratified or has prescribed, then the
novation is valid
2. Nullity or voidability of new obligation
CC, 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.
3. Suspensive or resolutory condition of original obligation
CC, 1299. If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same
condition, unless it is otherwise stipulated.
Objective Novation
Meaning of principal conditions
Subjective Novation
1. By change of debtor [substitution]
a. Expromision
Requisites
CC, 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
A third person assumes the debtors obligation
The debtor has no knowledge or it is against his will to such
Creditor consented
Third person given right to beneficial reimbursement
Effects
CC, 1294. If the substitution is without the knowledge or against the will of the debtor, the new debtor's insolvency or nonfulfillment of the obligations shall not give rise to any liability on the part of the original debtor.
b. Delegacion
Requisites
Third person takes the place of the debtor
Such took place at the instance of the debtor
Creditor must approve
New debtor entitled to reimbursement and subrogation
Vs. CC, 1293.
Effects
CC, 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 the delegated his debt.
2. By change of creditor: subrogation of a third person in the rights of the creditor
CC, 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed,
except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect.
Subrogation is the substitution of one person in the place of the creditor with reference to a lawful claim and right, giving the former
all the rights of the latter, including the right to employ remedies to enforce payment
a. Conventional subrogation
Requisites
- Consent from all three parties required
CC, 1301. Conventional subrogation of a third person requires the consent of the original parties and of the third person.
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b.

Distinguished from assignment of credit

Effects
CC, 1303. Subrogation transfers to the persons subrogated the credit with all the rights thereto appertaining, either against
the debtor or against third person, be they guarantors or possessors of mortgages, subject to stipulation in a conventional
subrogation
- To transfer to the new creditor the credit and all the rights and actions that could have been exercised either against the
rd
debtor or 3 persons
- May not be modified by agreement
CC, 1304. A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be
preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit.
Creditor to whom partial payment has been made by the new creditor remains a creditor to the extent of the balance of the
debt
In case of insolvency of debtor, old creditor is given a preferential right to recover the remainder as against the new creditor
Legal subrogation
Requisites
When presumed
CC, 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.
Effects
CC, 1303.
CC, 1304.

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Title II. Contracts

Chapter I. General Provisions
A. Definition
CC, 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.
- Contract is one of the sources of obligation. Obligation is the legal tie or relation itself that exist After a contract has been entered into
B. Elements
1. Essential Requisites
a. Consent
b. Object
c. Cause
2. Natural elements those which exist as part of the contract even if the parties do not provide for them, because the law creates them
3. Accidental elements those agreed upon by the parties and which cannot exist without being stipulated
C. Characteristics
1. Obligatory force
CC, 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good
faith
2. Mutuality
CC, 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.
CC, 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.
o C determining the reasonable price of the land in order for S&B to be able to contract with each other
CC, 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.
CC, 1473. The fixing of the price can never be left to the discretion of one of the contracting parties. However, if the price fixed by one
of the parties is accepted by the other, the sale is perfected.
3. Relativity
a) Contracts take effect only between parties, their assigns and heirs
CC, 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.
General rule: contract takes effect only between the parties, their assigns, and heirs.
Exceptions: when the obligations are intransmissible: (a) by their nature [singing, dancing]; (b) by stipulation [in accordance with the
principle of freedom to contract; or (c) by provision of law [when death extinguishes legal relationships]
b) No one may contract in the name of another
CC, 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
4. Freedom to contract
5. Consensuality of parties
D. Parties
1. Auto-contracts
2. Freedom to contract
CC, 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.
a. Special disqualifications
1) FC, 87. Every donation or grant of gratuitous advantage, direct or indirect, between the spouses during the marriage shall be
void, except moderate gifts which the spouses may give each other on the occasion of any family rejoicing. The prohibition shall
also apply to persons living together as husband and wife without a valid marriage.
2) CC, 1490. The husband and the wife cannot sell property to each other, except: (1) When a separation of property was agreed
upon in the marriage settlements; or (2) When there has been a judicial separation or property under Article 191.
3) CC, 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the
mediation of another: (1) The guardian, the property of the person or persons who may be under his guardianship; (2) Agents,
the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been
given; (3) Executors and administrators, the property of the estate under administration; (4) Public officers and employees, the
property of the State or of any subdivision thereof, or of any government-owned or controlled corporation, or institution, the
administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any
manner whatsoever, take part in the sale; (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and
other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon
an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition
includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the
object of any litigation in which they may take part by virtue of their profession; (6) Any others specially disqualified by law.
1) CC, 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal
partnership.
3. What they may not stipulate
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E.

F.

CC, 1306.
a. Contrary to law, e.g.
1) Pactum commissorium
CC, 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to
the contrary is null and void.
2) Pactum leonina
CC, 1799. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and
damages from the time he should have complied with his obligation. The same rule applies to any amount he may have taken
from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use
3) Pactum de non alienando
CC, 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall be void.
b. Contrary to morals
c. Contrary to good customs
d. Contrary to public order
e. Contrary to public policy
Classification
1. According to subject matter
a. Things
b. Services
2. According to name
a. Nominate that which has a specific name or designation in the law [sale, lease, agency, commodatum]
b. Innominate
CC, 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.
1) Do ut des [I give that you may give]
2) Do ut facias [I give that you may do]
3) Facio ut facias [I do that you may do]
4) Facio ut des [I do that you may give]
Reason: the impossibility of anticipating all forms of agreement on one hand, and the progress of mans sociological and economic
relationships on the other
Governing rules:
1) Agreement of the parties
2) Provision on oblicon
3) Rules governing the most analogous contracts
4) Customs of the place
3. According to perfection
a. By mere consent (consensual)
CC, 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.
b. By delivery of the object (real)
CC, 1316. Real contracts, such as deposit, pledge and Commodatum, are not perfected until the delivery of the object of the
obligation.
c. Solemn contract: that which requires compliance with certain formalities prescribed by law, such formalities being an essential
requisite thereof
4. According to its relation to other contracts
a. Preparatory
b. Principal
c. Accessory
5. According to form
a. Common or informal
b. Special or formal
6. According to purpose
a. Transfer of ownership, e.g. sale
b. Conveyance of use, e.g. commodatum
c. Rendition of services, e.g. agency
7. According to the nature of the vinculum provided
a. Unilateral
b. Bilateral
c. Reciprocal
8. According to cause
a. Onerous
b. Gratuitous or lucrative
9. According to risk
a. Commutative
b. Aleatory
Stages
1. Preparation or negotiation all the steps taken by the parties leading to the perfection of the contract
2. Perfection or birth when the parties have come to a definite agreement or meeting of the minds regarding the subject matter and the
cause of the contract
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3.

Consummation or death when the parties have performed their respective obligations and the contract may be said to have been fully
accomplished, resulting in termination thereof
G. As distinguished from a perfected promise and an imperfect promise (policitacion)
H. With respect to third persons
1. Stipulation pour autrui
CC, 1311(2). 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.
- It is a stipulation in a contract clearly and deliberately conferring a favor upon a third person who has a right to demand its
fulfillment provided he communicates his acceptance to the obligor before its revocation
- 2 classes: (1) those where the stipulation is intended for the sole benefit of such person [essentially, donation]; (2) those where an
obligation is due from the promise to the third person which the former seeks to discharge by means of such stipulation
- Requisites
o The contracting parties by their stipulation must have clearly andf deliberately conferred a favor upon a third person
o The third person must have communicated his acceptance to the obligor before its revocation by the oblige or the original parties
o The stipulation in favor of the third person should be a part, not the whole, of the contract
o The favorable stipulation should not be conditioned or compensated by any kind of obligation whatsoever
rd
o Neither of the contracting parties bears the legal representation or authorization of the 3 person for otherwise, rules on agency
applies.
rd
2. Possession of the object of contract by 3 persons
CC, 1312. In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby,
subject to the provisions of the Mortgage Law and the Land Registration Laws.
3. Creditors of the contracting parties
CC, 1313. Creditors are protected in cases of contracts intended to defraud them.
4. Interference by third persons
CC, 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party.
Chapter II. Essential Requisites of Contracts
A. Consent: Requisites conformity or concurrence of wills and with respect to contracts, it is the agreement of the will of one contracting party
with that of another upon the terms and object of the contract
CC, 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
a. Must be manifested by the concurrence of the offer and acceptance
1) Offer proposal made by one party to another to enter into a contract
a) Must be certain
CC, 1319.
b) What may be fixed by offeror
CC, 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with.
c) When made through an agent
CC, 1322. An offer made through an agent is accepted from the time acceptance is communicated to him.
d) Circumstances when offer becomes ineffective
CC, 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before
acceptance is conveyed.
A contract is perfected after acceptance
e) Business advertisements of things for sale
CC, 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to
make an offer.
f) Advertisements for bidders
CC, 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.
2) Acceptance manifestation by the offeree of his assent to the terms of the offer
a) Must be absolute
CC, 1319.
b) Kinds
Express may be oral or written
CC, 1320. An acceptance may be express or implied.
Implied
CC, 1320.
Qualified
CC, 1319.
c) If made by letter or telegram
CC, 1319(2).
4 theories on when contract is perfected
1. Manifestation theory
2. Expedition theory
3. Reception theory
4. Cognition theory [CC, 1319(2)]
d) Period of acceptance
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b.

c.

CC, 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.
e) Contract of option
CC, 1324. one giving a person for a consideration a certain period within which to accept the offer
Option period: period given within which the offeree must accept the offer
Option money: money paid or promised to be paid in consideration for the oprion
Necessary legal capacity of the parties
1) Who cannot give consent
CC, 1327. The following cannot give consent to a contract: (1) Unemancipated minors; (2) Insane or demented persons, and deafmutes who do not know how to write.
2) When offer and/or acceptance is made
a) During a lucid interval
b) In a state of drunkenness
c) During a hypnotic spell
The consent must be intelligent, free, spontaneous, and real
1) Effect
2) Vices of consent
a) Mistake or error
Kinds the false notion of a thing or a fact material to the contract
1. Mistake of fact may arise from ignorance or lack of knowledge
a. As to substance of the object includes mistake as to the nature of the contract
b. As to principal conditions
c. As to identity or qualifications of one of the party
d. As to quantity, as distinguished from a simple mistake of account
2. Error of law
a. General rule: CC, 3. [Ignorantia legis neminem excusat]. Ignorance of the law excuses no one from compliance
therewith.
b. Exception: mutual error of law
CC, 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated,
may vitiate consent.
Requisites: (1) error must be mutual; (2) must be as to the legal effect of the agreement; (3) must frustrate the
real purpose of the parties
When one of the parties is unable to read
CC, 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.
Inexcusable mistakes
CC, 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the
contract.
b) Violence and intimidation
CC, 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.
Effect: CC, 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.
c) Undue influence
CC, 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.
d) Fraud or dolo
CC, 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.
Kinds
1. Dolo causante
CC, 1338.
2. Dolo incidente
3. CC, 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.
Failure to disclose facts; duty to reveal them
CC, 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential
relations, constitutes fraud.
Usual exaggerations in trade; opportunity to know the facts
CC, 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in
themselves fraudulent.
Mere expressions of an opinion
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CC, 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.
Effects: CC, 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.
e) Misrepresentation
By a third person
CC, 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created
substantial mistake and the same is mutual.
Made in good faith
CC, 1343. Misrepresentation made in good faith is not fraudulent but may constitute error.
Active/passive
f) Simulation of contracts
Kinds
CC, 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
1. Absolute
2. Relative
Effects
CC, 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.
B. Object of Contracts
1. What may be the objects of contracts
CC, 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.
a. All things not outside the commerce of man
b. All rights not intransmissible
c. All services not contrary to law, morals, good customs, public order or public policy
2. Requisite must be determinate as to its kind
CC, 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.
3. What may not be the objects of contracts
a. Future inheritance, except when authorized by law
CC, 1347(2). No contract may be entered into upon future inheritance except in cases expressly authorized by law.
b. Impossible things or services
CC, 1348. Impossible things or services cannot be the object of contracts.
C. Cause of Contracts
1. Meaning of cause
CC, 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.
a. In onerous contracts
b. In remuneratory contracts
c. In contracts of pure beneficence
2. As distinguished from motive
CC, 1351. The particular motives of the parties in entering into a contract are different from the cause thereof.
3. Defective causes and their effects
a. Absence of cause and unlawful cause
CC, 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.
b. Statement of a false cause in the contract
CC, 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.
c. Lesion or inadequacy of cause
CC, 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.
4. Presumption of existence and lawfulness of a cause, though not stated in contract
CC, 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.
Chapter III. Form of Contracts
A. General Rule: contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their
validity are present (spiritual system of the Spanish Code)
CC, 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their
validity are present.
B. Exception. When the law requires that a contract be in some form in order that it may be valid or enforceable [Anglo-American principle]

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C.

CC, 1356. 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.
Kinds of formalities required by law
1. Those required for the validity of contracts
CC, 748. The donation of a movable may be made orally or in writing. An oral donation requires the simultaneous delivery of the thing
or of the document representing the right donated. If the value of the personal property donated exceeds five thousand pesos, the
donation and the acceptance shall be made in writing, otherwise, the donation shall be void.
CC, 749. In order that the donation of an immovable may be valid, it must be made in a public document, specifying therein the
property donated and the value of the charges which the donee must satisfy. The acceptance may be made in the same deed of
donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If the
acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in
both instruments
CC, 1874. 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.
CC, 2134. The amount of the principal and of the interest shall be specified in writing; otherwise, the contract of antichresis shall be
void.
CC, 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary
CC, 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
2. Those required, not for validity, but to make the contract effective as against third persons
CC, 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.
CC, 1358. The following must appear in a public document: (1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a
governed by Articles 1403, No. 2, and 1405; (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.
3. Those required for the purpose of proving the existence of the contract
CC, 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 Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action,
unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:(a) An agreement that by
its terms is not to be performed within a year from the making thereof; (b) A special promise to answer for the debt, default, or
miscarriage of another; (c) An agreement made in consideration of marriage, other than a mutual promise to marry; (d) An agreement
for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer 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 of the leasing for a longer period than one year, or for the sale of real property or of an
interest therein; (f) A representation as to the credit of a third person. (3) Those where both parties are incapable of giving consent to
a contract.

Chapter IV. Reformation of Instruments

A. Requisites
CC, 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.
1. Meeting of the minds upon the contract
2. The true intention of the parties is not expressed in the instrument
3. Failure of the instrument to express the true agreement is due to mistake, fraud, inequitable conduct, or accident
B. Cases where no reformation is allowed
CC, 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.
C. Implied Ratification
CC, 1367. When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation.
D. Who may ask reformation
CC, 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
E. Procedure of Reformation
CC, 1369. The procedure for the reformation of instrument shall be governed by rules of court to be promulgated by the Supreme Court.
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Chapter V. Interpretation of Contracts (Compare with Rules on Statutory Construction
A. Primacy of intention
CC, 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control.
CC, 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.
B. How to determine intention
CC, 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally
considered
C. How to interpret a contract
1. When it contains stipulations that admit several meanings
CC, 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.
2. When it contains various stipulations, some of which are doubtful
CC, 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.
3. When it contains words that have different significations
CC, 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.
4. When it contains ambiguities and omission of stipulations
CC, 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.
5. With respect to the party who cause the obscurity
CC, 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.
6. When it is absolutely impossible to settle doubts by the rules above
CC, 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
a. In gratuitous contracts
b. In onerous contracts
7. When doubts are cast upon the principal objects so that intention cannot be known
CC, 1378.
D. Applicability of Sec. 10-19, Rule 130
Chapter VI. Rescissible Contracts
A. Kinds
CC, 1381. The 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.
B. Characteristics
1. Their defect consists in injury or damage either to one of the contracting parties or to third persons
2. They are valid before rescission
3. They can be attacked directly only, and not collaterally
4. They can be attacked only either by a contracting party or by a third persons who is injured or defrauded
5. They can be convalidated only by prescription, and not by ratification
C. Rescission
CC, 1380. Contracts validly agreed upon may be rescinded in the cases established by law.
1. Definition
2. As distinguished from rescission from Art.1191, CC.
3. Requisites
a. The contract is rescissible
b. The party asking for rescission has no other legal means to obtain reparation
CC, 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.
c. He is able to return whatever he may be obliged to restore if rescission is granted
CC, 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
rd
d. The object of the contract has not passed legally to the possession of a 3 person acting in good faith
CC, 1385.
e. The action for rescission is brought within the prescriptive period of 4 years
CC, 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
4. Effect of rescission
CC, 1385.
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rd

With respect to 3 persons who acquired the thing in good faith: CC, 1385(2-3)
5. Extent of rescission
CC, 1384. Rescission shall be only to the extent necessary to cover the damages caused.
6. Presumptions of fraud
CC, 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 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
a. Badges of fraud
7. Liability for acquiring in bad faith the things alienated in fraud of creditors
CC, 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.
Chapter VII. Voidable or Annullable Contracts
A. Kinds
CC, 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.
B. Characteristics
1. Their defect consists in the vitiation of consent of one of the contracting parties
2. They are binding until they are annulled by a competent court
3. They are susceptible of convalidation by ratification or by prescription
C. Annulment
1. As distinguished from rescission
2. Grounds
CC, 1390
3. Who may and may not institute action for annulment
CC, 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However,
persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation,
violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract.
4. Prescription
CC, 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
5. Effect
a. Mutual restitution
- CC, 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.
- CC, 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.
1)

D.

When one of the parties is incapacitated

CC, 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.
2) When the thing is lost through the fault of the party obliged to return the same
CC, 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.
6. Extinguishment of the action
a. By ratification
CC, 1392. Ratification extinguishes the action to annul a voidable contract.
b. When the thing is lost through the fault of the person who has the right to file the action
CC, 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.
Ratification
1. Requisites
a. The contract is voidable
b. The ratification is made with knowledge of the cause for nullity
c. At the time of the ratification the cause of nullity has already ceased to exist
2. Forms
a. Express or tacit
CC, 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.
b. By the parties themselves or by the guardian in behalf on an incapacitated party
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CC, 1394. Ratification may be effected by the guardian of the incapacitated person.
Effects
a. Action to annul is extinguished
CC, 1392.
b. The contract is cleansed retroactively from all its defects
CC, 1396. Ratification cleanses the contract from all its defects from the moment it was constituted
Chapter VIII. Unenforceable Contracts
A. Characteristics
1. They cannot be enforced by a proper action in court
2. They are susceptible of ratification
3. They cannot be assailed by third persons
B. Kinds
CC, 1403.
1. Unauthorized contracts
a. Governing rules
CC, 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of this Book
See CC, 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
2. Contracts governed by the statue of frauds
a. Purpose of statute
b. How ratified
CC, 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the failure to object to the
presentation of oral evidence to prove the same, or by the acceptance of benefit under them.
c. Right of the parties when a contract is enforceable but a public document is necessary for its registration
CC, 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 Article 1357.
3. Contracts executed by parties who are both incapable of giving consent to a contract
a. Effect of ratification by the parents or guardians of one of the parties
CC, 1407. In a contract where both parties are incapable of giving consent, express or implied ratification by the parent, or guardian,
as the case may be, of one of the contracting parties shall give the contract the same effect as if only one of them were
incapacitated. If ratification is made by the parents or guardians, as the case may be, of both contracting parties, the contract shall
be validated from the inception.
Chapter IX. Void or Inexistent Contracts
A. Characteristics
1. Void from the beginning
2. Produces no effect whatsoever
3. Cannot be ratified
CC, 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy; (2) Those which are absolutely simulated or fictitious; (3) Those whose cause or
object did not exist at the time of the transaction; (4) Those whose object is outside the commerce of men; (5) Those which contemplate
an impossible service; (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.
B. Kinds
1. Contracts that are void
a. Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy
1) When the act constitutes a criminal offense
CC, 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.
a) In pari delicto rule
2) When the act is unlawful but does not constitute a criminal offense
CC, 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
a) In pari delicto rule
3) When the purpose is illegal, and money is paid or property delivered therefor
CC, 1414. When money is paid or property delivered for an illegal purpose, the contract may be repudiated by one of the
parties before the purpose has been accomplished, or before any damage has been caused to a third person. In such case, the
courts may, if the public interest will thus be subserved, allow the party repudiating the contract to recover the money or
property.
4) When the contract is illegal and one of the parties is incapable of giving consent
CC, 1415. Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice
so demands allow recovery of money or property delivered by the incapacitated person.
3.

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5)

C.
D.

When the agreement is not illegal per se but is prohibited

CC, 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designated for the
protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered
6) When the amount paid exceeds the maximum fixed by law
CC, 1417. When the price of any article or commodity is determined by statute, or by authority of law, any person paying any
amount in excess of the maximum price allowed may recover such excess.
7) When by virtue of a contract a laborer undertakes to work longer than the maximum number f hours of works fixed by law
CC, 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a contract is entered into
whereby a laborer undertakes to work longer than the maximum thus fixed, he may demand additional compensation for
service rendered beyond the time limit.
8) When a laborer agrees to accept a lower wage than that set by law
CC, 1419. When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which
a laborer accepts a lower wage, he shall be entitled to recover the deficiency
9) When the contract is divisible
CC, 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced.
10) When the contract is the direct result of a previous illegal contract
CC, 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent.
b. Those whose object is outside the commerce of man
c. Those which contemplate an impossible service
d. Those where the intention of the parties relative to the principal object of the contract cannot be ascertained
e. Those expressly prohibited or declared void by law
2. Contracts that are inexistent
a. Those which are absolutely simulated or fictitious (see CC, 1345 & 1346)
b. Those whose cause or object did not exist at the time of the transaction
Right to set up defense of illegality cannot be waived
CC, 1409.
The action or defense for the declaration of the inexistence of a contract
1. Does not prescribe
CC, 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.
2. Is not available to third persons whose interest is not directly affected
CC, 1421. The defense of illegality of contract is not available to third persons whose interests are not directly affected.

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Title III. Natural Obligations

A.

B.
C.
D.

E.

Definition
CC, 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
As distinguished from civil obligations
CC, 1423.
As distinguished from moral obligations
Conversion to civil obligation
1. By novation
2. By ratification
Examples
CC, 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.
CC, 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.
CC, 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 the he has
not been benefited thereby, there is no right to demand the thing or price thus returned.
CC, 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.
CC, 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.
CC, 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.
CC, 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.

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Title IV. Estoppel

A.

B.

C.
D.

Definition
CC, 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.
Kinds
1. Technical estoppel
a. By record
b. By deed
CC, 1433. Estoppel may be in pais or by deed.
2. Equitable estoppels or estoppels in pais
CC, 1433
Persons bound
CC, 1439. Estoppel is effective only as between the parties thereto or their successors in interest
Cases where estoppels applies
CC, 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.
CC, 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.
CC, 1436. A lessee or a bailee is estopped from asserting title to the thing leased or received, as against the lessor or bailor.
CC, 1437. 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
CC, 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.

40
Janz Hanna Ria
A2013
(annotation of EALabitags Oblicon Syllabus, 2nd semester AY 09-10)

Obligations and Contracts

Prof. E.A. Labitag
AY 2009-2010

Title V. Trusts
Chapter I. General Provisions
A. Definition
B. Governing rules
CC, 1442. The principles of the general law of trusts, insofar as they are not in conflict with this Code, the Code of Commerce, the Rules of
Court and special laws are hereby adopted.
C. Parties
CC, 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.
1. Trustor
2. Trustee
3. Beneficiary or cestui que trust
D. Kinds
CC, 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.
1. Express trusts
a. Proof required
CC, 1443. No express trusts concerning an immovable or any interest therein may be proved by parol evidence.
b. Form
CC, 1444. No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended
c. Want of trustee
CC, 1445. No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the
instrument constituting the trust
d. Acceptance by the beneficiary
CC, 1441.
2. Implied trusts
a. How established
CC, 1441.
b. How proved
CC, 1457. An implied trust may be proved by oral evidence.
c. Examples
CC, 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by
another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the
beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price
of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child.
CC, 1449. There is also an implied trust when a donation is made to a person but it appears that although the legal estate is
transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part thereof.
CC, 1450. If the price of a sale of property is loaned or paid by one person for the benefit of another and the conveyance is made
to the lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of the person to whom the
money is loaned or for whom its is paid. The latter may redeem the property and compel a conveyance thereof to him.
CC, 1451. When land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is
established by implication of law for the benefit of the true owner.
CC, 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.
CC, 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.
CC, 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.
CC, 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.
CC, 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.

41
Janz Hanna Ria
A2013
(annotation of EALabitags Oblicon Syllabus, 2nd semester AY 09-10)