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the use of the recipient or for its simple possession

(e.g. sale, deposit, pledge, donation)

A juridical necessity to give, to do, or not to do (Art. 4. Prestation/ Object – see above definition
1156).
Kinds:
A legal relation established between one party and a.To give -- obligation to deliver a movable or an
another whereby the latter is bound to the immovable thing in order to create a real right,
fulfillment of a prestation which the former may or for
demand of him (8 Manresa 13).

Juridical necessity
In case of noncompliance, there will be legal
sanctions. (Pineda, Ernesto L., Obligations & [Type text]
Contracts, 2000 ed., p.1]).
b.To do -- covers all kinds of works or services
Prestation whether physical or mental. It may involve
Not the thing or object, but the particular conduct some work on the part of the debtor such as in
of the debtor which may consist in giving, doing, or contracts of employment or professional
services, but in other cases, it may be merely
not doing something.
the necessity of concluding a juridical
operation, such as, when a person promises to
Elements of Obligation:
give a bond.
1.Active Subject -- one who can demand the c. Not to do -- consists in abstaining from doing
fulfillment of the prestation; he who in his favor, some act. This obligation includes the obligation
the obligation is constituted or created. He is “not to give.”
called the obligee/creditor.
Requisites of Prestation:
Note: The active subject may be TEMPORARILY
a.Physically and Juridically possible;
indefinite, as in the case of a negotiable
b.Determinate or at least determinable according
instrument payable to bearer (Tolentino, Arturo to
M., Commentaries and Jurisprudence on the Civil pre-established elements or criteria;
Code of the Philippines, 1991 ed., Vol. 4, p. 57). c. Must be within the commerce of man;
d.Must be licit; and
2.Passive Subject -- one bound to perform the
e.Possible equivalent in money.
prestation. He is called the obligor/debtor.
Note: Pecuniary interest need not be for the
Note: Subjects pertain to both natural and
benefit of one of the parties, it maybe for the
juridical persons. They need not be determined in
benefit of a 3rd person.
the act constituting the obligation, but they MUST
be determinable in some manner. When either
It is a generally established principle that the
subject cannot be determined the obligatory tie
prestation should be susceptible of pecuniary
can have no effect.
appreciation. However, it need not be of an
economic character to have pecuniary value,
3.Juridical Tie or Vinculum Juris -- the efficient cause
because all interests, even moral ones in view of
which creates the relation between the
the protection given to them by law, have some
obligor/debtor and obligee/creditor and is
pecuniary value (Tolentino, Arturo M.,
established by: Commentaries and Jurisprudence on the Civil Code
a. Law of the Philippines, 1991 ed., Vol. 4, p. 57).
b. Bilateral Acts (Contracts giving rise to the
obligations Note: FORM is sometimes added as a sixth requisite
stipulated therein) but as a general rule however, it cannot be
c. Unilateral Acts (Crimes & Quasi-Delicts) considered as essential. An obligation arising from
law can be said to have no form at all.
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Primary Classifications under the New Civil Code: b.Bilateral -- also known as synallagmatic
1.Pure & Conditional (Arts. 1179-1192). contracts where two parties are reciprocally
a.Pure -- demandable at once bound (e.g. purchase and sale).
b.Conditional -- fulfillment or extinguishment
depends upon a future and uncertain event Kinds of Obligations: It may also be classified as
A. Viewpoint of Sanction
2.With a Period or Term (Arts. 1193-1198). Its 1.Civil Obligations -- an obligation, which if not
fulfillment or extinguishment depends upon a fulfilled when it becomes due and
future and certain event demandable, may be enforced in court
through an action.
3. Alternative & Facultative (Arts. 1199-1206). 2.Natural Obligations -- not based on positive
a.Alternative -- involves multiple prestations but law but on equity and natural law; do not
debtor will only perform one or some but not grant a right of action to enforce their
all, depending whose choice it is performance, but after voluntary fulfillment
by the obligor, they authorize retention of
b.Facultative -- multiple prestations with a what has been delivered or rendered by
principal obligation and substitute prestations, reason thereof.
choice is generally given to the obligor
Civil Obligation Natural Obligation Article
4. Joint & Solidary (Arts. 1207-1222). 1156 Article 1423
a.Joint -- each can be made to pay only his share Based on equity and
in the obligation Based on positive law
b.Solidary -- one can be made to pay for the natural law
whole
obligation subject to reimbursement Enforceable by courtaction or coercive Not

5. Divisible & Indivisible (Arts. 1223-1225) enforceable by courtaction power/authority

Performance of the prestation, not to thing,
whether it can be fulfilled in parts of not F
3.Moral Obligations -- those that cannot be
6. With a penal clause (Arts. 1226-1230).
enforced by action but which are binding on
Accessory undertaking to assume greater
the party who makes it in conscience and
liability in case of a breach.
natural law.
7. Individual and collective (Arts. 1207, 1223).
B. Viewpoint of Performance
a.Individual -- involves only one subject
1. Positive Obligation -- to give; to do
b.Collective -- involves several subjects
2. Negative Obligation -- not to do
8. Accessory and principal (Arts. 1166, 1226).
C. Viewpoint of Subject Matter
a.Accessory -- existence depends upon a
principal obligation (e.g. pledge, mortgage) 1. Personal Obligation -- to do or not to do
b.Principal -- exist without depending upon 2. Real Obligation -- to give
another obligation a.Determinate or specific -- one that is
individualized and can be identified or
Secondary Classifications under the New Civil distinguished from others of its kind; its
loss extinguishes the obligation
Code:
b.Indeterminate or Generic -- indicated
1.Legal (Art. 1158) -- arises from Law
merely by its class or genus without being
2.Conventional (Art. 1159) -- arises from Contracts designated or distinguished from others of
3.Penal (Art. 1161) -- arises from commission of the same kind; its loss does not extinguish
crime the obligation for genus never perishes
4.Real and Personal (Art. 1163-1168). (genus nunquam perit).
5.Determinate and generic (Arts.1163-1166). c.Limited generic thing -- when the generic
6.Positive and negative (Arts. 1167-1168). objects are confined to a particular class,
7.Unilateral and bilateral (Arts. 1169-1191). e.g. an obligation to deliver one of my
a.Unilateral -- only one party is bound to horses (Tolentino, Arturo M.,
perform an obligation (e.g. simple donation, Commentaries and Jurisprudence on the
to give support)
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Civil Code of the Philippines, 1991 e., Vol. and should be complied with in GOOD FAITH
4, p. 91). (Art. 1159).

D. Viewpoint of Person Obliged Contract is the MEETING OF THE MINDS

1. Unilateral -- only one party is bound between TWO PERSONS whereby one binds
2. Bilateral -- both parties are bound himself, with respect to the other, to give
something or to render some service (Art. 1305).
Sources of Obligations (Art 1157):
Note: Compliance in good faith is performance
1. Law
in accordance with the stipulation, clauses,
2. Contracts terms and conditions of the contract.
3. Quasi-contracts
4. Delicts The terms of the contract determine the
5. Quasi-delicts respective obligations of the parties thereto. If
the terms of a contract are clear and leave no
Note: The list of sources is EXCLUSIVE (Sagrado doubt upon the contracting parties’ intention,
Orden vs. Nacoco, G.R. No. L-3756, June 30, 1952). such terms should be applied in their literal
HOWEVER, Tolentino gives another source: meaning (Sps. Dumlao vs. Marlon Realty Corp.,
unilateral promise. It may be based on (1) G.R. No. 131491, August 17,
contract or (2) law. It may be said that customs 2007)
sanction its validity
Pre-Contractual Obligations
1. LAW (Ex-Lege) Can damages suffered by a party during the period
Obligations derived from law are NOT of negotiations be recovered, if the contract is not
PRESUMED. Only those EXPRESSLY finally perfected?
DETERMINED in the New Civil Code or in Special Yes. Should the offer be clear and definite and
Laws are DEMANDABLE, and shall be leads the offeree in good faith to incur expenses
REGULATED by the PRECEPTS OF THE in the expectation of entering into the contract;
LAW which establishes them (Art. 1158). and the withdrawal of the offer is without
legitimate cause, if offeror:
In case of conflict between NCC and a special a. Is guilty of fault or negligence, the liability would
law, the latter prevails unless the contrary has be based on Quasi-Delict
been stipulated. b. Is not guilty of fault or negligence but the
withdrawal was based in abuse of right, the
In obligations arising from law, the law creates liability would be based on Art. 19 of the NCC
obligation and the act upon which it is based is
nothing more than a mere factor for 3. QUASI-CONTRACTS (Quasi Ex-Contractual)
determining the moment when it becomes Juridical relations arising from LAWFUL,
demandable. (Pineda, VOLUNTARY, UNILATERAL ACTS, by virtue of
Ernesto L., Obligations & Contracts, 1991 ed., which the parties become bound to each other,
p.10). based on the principle that no one shall be
unjustly enriched or benefited at the expense of
Note: In the other sources of obligation, there is another (Art. 2142).
always some individual act which gives rise to the
obligation, the law intervenes only to provide a Kinds:
sanction or to prevent injustice. a. Negotiorum Gestio (Officious Management)
Whoever voluntarily takes charge of the
To say that the law is an independent source of agency or management of the business of
obligation, it does not mean that law and human property of another, WITHOUT ANY POWER
acts exclude each other completely. Once such from the latter, is OBLIGED to CONTINUE the
human acts exist, the obligations arising same until the TERMINATION of the affair and
therefrom by virtue of the express provisions of its incidents, or to REQUIRE the person
the law are entirely independent of the will of the concerned to SUBSTITUTE him, if the owner is
parties. in a position to do so (Art. 2144).
2. CONTRACTS (Ex-Contractu) Note: This juridical relation DOES NOT arise in
Obligations arising from contracts have the either of these instances:
FORCE OF LAW between the contracting parties

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i. when the property or business is not 2.Person below 18 years old
NEGLECTED or ABANDONED. 3.Acting under compulsion of an irresistible
ii. if in fact the manager has even TACITLY force
(implied from actions or statements) 4.Acting under the impulse of an uncontrollable
authorized by the owner. fear of an equal or greater injury.
b.Solutio Indebiti (Payment Not Due) If
something is RECEIVED when there is NO Note: The civil liability for crimes is extinguished
RIGHT to DEMAND it, and it was UNDULY by the same causes provided by the Civil Code
delivered through for the extinguishment of other obligations.
MISTAKE, the OBLIGATION TO RETURN it arises Such liability continues notwithstanding the fact
(Art. 2154). that the offender has served his sentence or has
not been required to serve the same by reason
c.Other Quasi-Contracts (also known as support of amnesty, pardon etc.
given by strangers)
Articles 2144, 2154, 2167, 2174, 2150, 2164, Rule 111 of the Criminal Procedure provides
2168, 2169, 2170, 2171, 2172, 2173, 2174, 2175 that: “When a criminal action is instituted, the
civil action for the recovery of civil liability
Note: A quasi-contract is a UNILATERAL contract arising from the offense charged shall be
DEEMED INSTITUTED with the criminal action
created by the sole act or acts of the gestor; no
UNLESS the offended party WAIVES THE CIVIL
express consent given by the other party. The ACTION, RESERVES THE RIGHT TO INSTITUE IT
consent needed is provided by LAW through SEPARATELY or INSTITUTES THE CIVIL ACTION
PRESUMPTION (Pineda, Ernesto L., Obligations & PRIOR THE criminal action.”
Contracts,2000 ed., p.14).
5. QUASI-DELICT (Quasi Ex-Delicto) Fault or
This consent is referred to as presumptive negligence of a person who by his acts or
consent. It gives rise to multiple juridical omissions, connected or unconnected with, but
relations which result in obligations for the independent from, any contractual relation,
delivery of the thing or rendition of service causes damage to another person. The
(Perez v. Pomar, 2 Phil. 682). equivalent of the term “tort” in Anglo-American
law.
4. DELICT (Ex-Delictu, Culpa Criminal) Civil
obligations arising from CRIMINAL OFFENSE Whoever by act or omission causes damage to
shall be governed by the PENAL LAWS (Art. another, there being FAULT or NEGLIGENCE, is
1161). OBLIGED to pay for the damage done (Art.
2176).
Every person criminally liable for a felony is also
civilly liable (Art. 100, Revised Penal Code). Art. 2176, where it refers to fault or negligence,
covers not only acts not punished by law but
Civil liability may be in the form of Restitution, also acts criminal in character, whether
Reparation of damage caused, or intentional or voluntary or negligent (Elcano vs.
Indemnification for consequential damages. Hill, G.R.No. L-24303, May 26, 1977).

General rule: Civil liability is a NECESSARY It is based on the undisputed principle of equity
CONSEQUENCE of criminal liability. that fault or negligence cannot prejudice anyone
else besides its author and in no case should its
Reason: The commission of a crime causes not consequences be borne by him who suffers the
only moral evil but also material damage. harm produced by such fault or negligence.

Exception: Treason, Rebellion, Gambling Note: It has been ruled that tort liability can
exist even if there are already contractual
Article 12 of the Revised Penal Code, provides relations, but this should be interpreted to mean
for exempting circumstances and as such the that the tort liability itself does not arise because
perpetrator do not incur CRIMINAL LIABILITY of the contract, but because of some other fact
but is NOT (Paras, Edgardo L., Civil Code of the Philippines
EXEMPT from civil liability. These are: Annotated V, 2008 ed., p.1102).
1.Imbecile or insane person (unless acting in
lucid interval Fault or Negligence

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Negligence is the failure to observe for the about to be pursued? If so, the law imposes a
protection of the interests of another person, duty upon him to refrain from that course or
that degree of care, precaution and vigilance take precautions, and failure to do so constitutes
which the circumstances justly demand (US vs. negligence.
Barrias, 23 Phil. 434).
Elements of Negligence:
Test of Negligence: Would a prudent man, in the 1.The fault or negligence of the defendant;
position of the person to whom negligence is 2.The damage suffered or incurred by the plaintiff;
attributed, foresee harm to the person injured and
as a reasonable consequence of the course

3.The relation of cause and effect between the fault Not as broad as only civil liability for
or negligence of the defendant and the damage quasidelict, can be damages
incurred by the plaintiff. punished only when
Actionable in any act
there is a penal law
or omission wherein
A single act or omission can give rise to different clearly
fault or negligence
causes of action, subject to the prohibition against penalizing it intervenes
double recovery under the Rules of Court.
Form of redress is
either fine or
Obligations arising from quasi-delict are imprisonment or both
demandable not only from the person directly Either by
responsible for the damage incurred, but also Must be proven compensation or
against the persons mentioned in Art. 2180. beyond reasonable indemnification
doubt
Kinds of Negligence: Requires
1.Culpa Aquilana -- quasi-delict; negligence as a Can never be preponderance of
source of obligation compromised evidence
2.Culpa Contractual -- negligence in the
performance of a contract Employer’s liability is Can be compromised
3.Culpa Criminal -- criminal negligence subsidiary. The as
employee must have any other civil liability
Distinctions between Culpa Aquilana & Culpa first been convicted
and sentenced to pay Employer’s liability is
Contractual primary can be sued
civil indemnity and it
Culpa Aquilana Culpa Contractual must be shown that directly by the injured
he is insolvent. party and may recover
Negligence as a source Negligence in the from his employee
performance of a Employer is liable only
when he is engaged in
of obligation contract Fault or negligence which some kind of business
constitutes an Fault or negligence of or industry
independent source of the debtor as an All employers whether
obligation between incident in the fulfillment they are engaged in
parties not previously of an existing obligation some enterprise or not
bound Quasi-delict are liable, this includes
Criminal intent is not house helpers.
Delict necessary for it is
possible that there is
Criminal intent is necessary for the NO criminal charge but
existence of liability

Distinction between delict & quasi-delict DETERMINATE OR SPECIFIC THING DUTIES OF THE
Delict Quasi-delict OBLIGOR
Public Right: wrong Private Right: wrong
against the State against the individual 1. Deliver the thing itself
NATURE AND EFFECTS OF OBLIGATION General rule: The debtor of a thing CANNOT
I. OBLIGATION TO GIVE (REAL) COMPEL the creditor to RECEIVE A DIFFERENT
ONE, although the latter may be of the same

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value as, or more valuable than which is due ACCESSORIES, even though they may not have
(Art. 1244 Par. 1). been mentioned (Art. 1166).
Exceptions:
a.By agreement or consent, the debtor Exceptions: By contrary intention of the
may deliver a different thing or perform parties Difference between Accessions and
a different prestation in lieu of that Accessories
stipulated (either a Dation in Payment or Accessions/Accession Accessories Continua
Objective Novation)
Includes everything Destined
b.Waiver of defect, the creditor with
for which is produced by a
knowledge of defect accepts the thing
embellishment, use or thing, or which is
without protest or disposes it.
preservation of another incorporated or
attached thing or have for their thereto,
2. Preserve the thing with due care General
either naturally object the completion of
rule: Every person obliged to give
or artificially. another thing
something is also OBLIGED to TAKE CARE of
it with the PROPER DILIGENCE OF A GOOD
FATHER OF A FAMILY (Art. 1163). Includes:
1. Accesion Natural- e.g.Fault or negligence
Exception: The LAW or the STIPULATION of ofthe debtor as an
the parties requires another standard of
care (Art. 1163).
alluvion
2. Accesion Industrial- incident in the
Basis: Absence of the duty of obligor to take fulfillmentof an existing obligation
care of the thing, the obligation to deliver e.g. building, planting
would be illusory.
4. Deliver the fruits
Also, failure to preserve the specific thing
would give rise to liability for damages The creditor has a RIGHT to the FRUITS of the
unless due to a FORTUITOUS EVENTS/ thing from the TIME the obligation to deliver it
FORCE MAJEURE. arises. However, there is NO real right UNTIL the
same has been delivered to him (Art. 1164 Par.
1).
If the law or contract does not state the
diligence which is to be observed in the
performance, that which is expected of a Note: The ownership of things is transferred not
good father of a family shall be required only by mere agreements but by delivery (Non
(Art. 1173 Par 2). Nudis Pactis, Sed Traditione Domina Rerum
Transferentur).
Diligence
When does the obligor’s obligation to deliver
It is the attention and care required of a arise?
person in a given situation and is the
a.If obligation is based on law, quasi-delict,
opposite of negligence.
quasicontract or crime, the specific provisions
of applicable law shall determine when the
Kinds: delivery shall be effected.
a. Simple diligence b.If obligation is subject to a suspensive
b. Extraordinary Diligence condition, it arises from the happening of the
c. Diligence of a good father of a condition.
family/Bonos Pater Familia -- measure of c. If obligation is subject to a suspensive term or
prudence or activity as is properly to be period, it arises upon the lapse of the term.
expected from, and ordinarily exercised d.If obligation is not subject to any of the
by a reasonable and prudent man under foregoing, it arises from the constitution or
the particular circumstances (Black’s Law perfection of the obligation.
Dictionary, 6th Ed., p.457).
Principle of Balancing of Equities as Applied in
3. Deliver the ACCESSIONS and ACCESSORIES Actions for Specific Performance
General rule: Obligation to give a
In specific performance, equity requires that the
determinate thing includes that of
contract be just and equitable in its provisions, and
DELIVERING ALL its ACCESSIONS &
that the consequences of specific performance
likewise be equitable and just. The general rule is
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that this equitable relief will not be granted if CIRCUMSTANCES shall be taken into
the result of the specific performance of the consideration (Art. 1246).
contract would be harsh, inequitable, oppressive
or result in an unconscionable advantage to the Note: If the debtor can no longer perform the
plaintiff (Agcaoili vs. GSIS, G.R. No. 30056, principal obligation, the creditor may ask for
August 30, 1988). compliance by a 3rd person at the debtor’s
expense (Art. 1165).
Kinds of Fruits
1.Natural -- spontaneous products of the DUTIES OF THE OBLIGOR:
soil, the young without intervention of 1.To deliver the thing of the quality intended by
human labor. the parties, taking into account the purpose of
2.Industrial -- those produced by lands of the obligation, intent of the parties and other
any kind through cultivation brought by circumstances;
intervention of human labor.
3.Civil -- those derived by virtue of juridical 2.To be liable for damages in case of breach due to
relation delay, fraud, negligence or contravention of the
(e.g. rents of building) tenor thereof (Art. 1170).

CORRELATIVE RIGHTS OF THE OBLIGEE: CORRELATIVE RIGHTS OF THE OBLIGEE:

1. Right to specific performance 1. Right to ask for rescission
2. Right to rescission or resolution3. 2. Right to damages due to:
Right to damages due to the a. failure to deliver
following (DeDeNeFraCo): b. fraud
a. failure to deliver c. negligence
General rule: If due to fortuitous even, d. delay
obligor is not liable e. any matter in contravention of the tenor of the
Exceptions: obligation
i. Law (e.g. Articles 1942, 2001,2147,
1993) ii. Stipulation to the contrary II. OBLIGATION TO DO (PERSONAL)
iii.Nature of the obligation requires
assumption of General rule: In obligations to do or not to do, an
risk ACT or FORBEARANCE CANNOT be SUBSTITUTED by
iv.Fraud or malice (bad faith)- such as another act or forbearance AGAINST the obligee’s
obligor delivers to two or more persons will (Art. 1244 Par. 2).
having different interest (Art. 1165 Par.
3). Exception: In facultative obligation where the
debtor reserves the right to substitute another
v.Debtor was already in delay when the
prestation.
fortuitous
even took place Note: If a person is obliged to do something and
b. Delay or default fails to do it, the same shall be EXECUTED at his
c. Negligence in the performance of the COST. The same rule may be observed if he does it
obligation in
d. Fraud CONTRAVENTION of the tenor of the obligation.
e. Any manner in contravention of the tenor Furthermore, it may be decreed that what has
of been poorly done be undone (Art. 1167).
obligation
DUTIES OF THE OBLIGOR:
Indeterminate/Generic Thing 1. To do it (Art. 1167).
When the obligation consists in the delivery of 2. To shoulder the cost if someone else does it (Art.
an 1167).
INDETERMINATE or GENERIC THING, whose 3. To undo what has been poorly done (Art. 1167).
QUALITY and CIRCUMSTANCES have not been 4. To pay damages (Arts. 1170-1172, 2201-2202).
STATED, the creditor cannot DEMAND a thing
of SUPERIOR quality. Neither can the debtor III. OBLIGATIONS NOT TO DO
deliver a thing of INFERIOR quality. The In obligations to do or not to do, an ACT or
PURPOSE of the obligation and other FORBEARANCE CANNOT be SUBSTITUTED by

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another act or forbearance AGAINST the In negative obligations delay or mora is not
obligee’s will (Art. 1244 Par. 2). possible unlike in positive obligations (Jurado,
Desiderio, Comments and Jurisprudence on
Note: Performance cannot be delegated or be
performed by an agent. Obligations and Contracts,2010 ed., p.55).

No legal accessory obligations arise as compared Cases Where the Remedy Granted under Article
to obligation to give. 1168 is NOT available:
1.Where the effects of the act which is forbidden,
When the obligation consists in not doing, and are definite in character - even if it is possible
the obligor does what has been forbidden for the obligee to ask that the act be undone at
him, it shall also be undone at his expense the expense of the obligor, consequences
(Art. 1268). permanent in character and contrary to the
object of the obligation will be produced
DUTIES OF THE OBLIGOR:
1. Not to do what should NOT be done For instance, should a TV star be absolutely
prohibited by his contract with his home station
2. To shoulder the cost to UNDO what should
to appear in programs of other TV stations, the
not have been done
effects of the breach thereof can no longer be
3. To pay damages
undone.
2.Where it is physically or legally impossible to
RIGHTS OF A CREDITOR IN PERSONAL undo what has been undone because of the
OBLIGATIONS: “TO DO OR NOT TO DO” (Arts. very nature of the act itself or of a provision of
11671168) law, or because of conflicting rights of third
Positive Personal Negative Personal persons
Obligations Obligations
(Art. 1167) (Art. 1168) Note: In either case, the only feasible remedy is
indemnification for damages.
The obligee can: If the obligor does what
1.Have the obligation has been forbidden
him, performed or executed the obligee
BREACH OF OBLIGATION may be:
shall have at the expense of the the
following remedies: obligor (EXCEPT 1.Voluntary -- arises either by fraud, negligence,
delay, and in any manner contravene to the tenor
1.Have it undone at the when the
of the obligation (Art. 1170).
prestation expense of the consists of an
2.Involuntary -- arises due to fortuitous events
act obligor; and
where the personal 2.To ask for damages
OR
and
special 1.Substantial -- amount to non-performance which
qualification of the is the basis for rescission and payment of
obligor is the damages
principal motive 2.Casual -- a part of the obligation has been
for performed and gives rise to liability for damages
the establishment
of the obligation. In
Note: Rescission will not be permitted for a slight or
such case the causal breach of the contract, but only for such
remedy is an action breaches which are substantial as to defeat the
for damages intention of the parties in making the agreement.
under Art. 1170)
2.Ask that what The Supreme Court said that Hawaiian-Philippine
has been poorly Co. does not have the right to rescind the contract.
done be It should be noted that the time of payment
undone stipulated for in the contract should be treated as
3.Recover of the presence of the contract. There was only a
damages slight breach of contract when the payment was
because of breach delayed for 20 days after which Hawaiian-
of the obligation Philippine Co. accepted the payment of the
overdue accounts and continued with the contract,
waiving its right to rescind the contract. The delay
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in the payment of Song Fo & Co. was not such a ATTRIBUTED to the non-performance of the
violation for the contract. (Song Fo v. Hawaiian obligation (Art. 2201 Par 2).
Phils, 47 SCRA 821).
Negligence
Different Modes of Breach Any voluntary act or omission, there being no
Those who in the performance of their malice, which prevents the normal fulfillment
obligations are guilty of FRAUD, NEGLIGENCE, or of an obligation
DELAY and those who in any manner
CONTRAVENE THE TENOR thereof, are liable for Effects of Negligence:
damages (Art. 1170). a.Damages are demandable which the court
may regulate according to circumstances;
1.FRAUD (Dolo) -- is the voluntary execution and
of a wrongful act, or a willful omission b.Invalidates defense of fortuitous event.
which prevents the normal realization of the
prestation, knowing, and intending the Kinds of Negligence:
effects which naturally and necessarily arise a.Civil Negligence
from such act or omission.
i. Culpa contractual -- fault or negligence of
Implies some kind of malice or dishonesty
obligor by virtue of which he is unable to
and cannot cover cases of mistake and
perform his obligation arising from a pre-
errors in judgment made in good faith. In
existing contrac
such case obligor can be held liable for
ii. Culpa aquiliana/quasi-delict -- fault or
damages.
negligence of a person, whose failure to
observe the required diligence to the
Test: The element of INTENT and not the
obligation causes damage to another
HARM done.
The negligence of the defendant in both cases is
Effect of Fraud: Liability for damages.
characterized by the omission of that diligence
which is required by the nature of the obligation
Waiver of Fraud and corresponds with the circumstances of the
Responsibility arising from fraud is persons, of the time and of the place.
DEMANDABLE in ALL OBLIGATIONS. Any
waiver of action for FUTURE FRAUD is VOID. b.Culpa Criminal -- fault or negligence which results
Note: The law prohibits the renunciation of in
action for damages on the ground of future
the commission of a crime.
fraud but it DOES NOT prohibit fraud
ALREADY COMMITTED.

Kinds of Fraud:
1.Fraud in the performance of the Culpa Culpa Culpa contractual
obligation
aquiliana criminal
(Art.1171). Negligence is
2.Fraud in the execution/ creation/ birth of
contract merely Negligence is Negligence incidental to
a. Dolo Causante (Art. 1344). the direct, is direct,
b. Dolo Incidente (Art. 1338).
performance of substantive, substantive,
2.NEGLIGENCE (Culpa) an obligation and and
The fault or negligence of the obligor
consists in the OMISSION OF THAT already existing independent independent because
DILIGENCE which is required by the NATURE of a
of obligation and corresponds with the contract
circumstances of the persons, of the time
and place (Art. 1173 Par 1). There is always There may ormay not be a

In case of fraud, bad faith, malice or wanton Noexisting prea pre-existing

attitude, the obligor shall be responsible for
contractualpre-existingcontractual
ALL DAMAGES which may be REASONABLY
contractualrelation
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relation (culpa)
relation
Source of Source of Fraud (dolo) Negligence (culpa)

Source of obligation: obligation:

Mere want of care or
obligation: breach or Willfulness or deliberate intent
defendant’s defendant’s
diligence and
nonfulfillment of negligent act criminal act to cause damage orinjury to another
contract or omission
Requires proof Requires proof Requires not the
voluntariness of act or omission
by by proof beyond
preponderance preponderance reasonable Liability cannot be mitigated Liability may be
of evidence of evidence doubt mitigated by
Defense of a Defense of a Defense of a by courts courts
good father of agood father of good father
family in the a family in the of a family
in selection and selection and the Waiver for future fraud isVOID Waiver for future
selection supervision ofsupervision of and negligence VALID if SIMPLE
employees is employees is a supervision
NOT a proper proper and of VOID if GROSS
Culpa Culpa Culpa contractual
Presumed from the breachof a contractual
aquiliana criminal
obligation Must be clearly proved
employ
ees is
NOT
proper. Standard of Diligence Required
The If 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
ordefense, though complete FAMILY is required.
employee’s Note: When the negligence is so gross that it
complete guilt
amounts to wanton attitude on the part of the
is it may mitigatedamages obligor, the laws in case of fraud shall apply.
automatically
defense the employer’s If the obligor acted in good faith, he shall be liable
only for natural and probable consequences of
guilt if the former is insolvent.
the breach of obligation and which the parties
Proof of have foreseen or could have reasonably foreseen
existence of a Plaintiff has to Accused is at the time the obligation was constituted.

contract and prove presumedinnocent If the obligor acted in bad faith, the boundaries
between negligence and fraud disappear
until breach thereof negligence of altogether. Obligor can be held responsible for all
damages which may be reasonably attributed to
gives rise to apresumption of the the nonperformance of the obligation. Any
waiver or renunciation which is made in
defendant the contraryis proved fault anticipation of such liability is null and void.

If there was contributory negligence of the

obligee, the effect is to reduce or mitigate the
damages which he can recover.
Difference between fraud (dolo) and
negligence If the negligent act or omission of the obligee was
the proximate cause of the event which led to

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damage or injury complained of, he cannot (Tolentino, Arturo M., Commentaries and
recover. Jurisprudence on the Civil Code of the
Philippines, 1991 ed., Vol. 4, p.101).
Robbery, per se, like carnapping, does NOT
foreclose the possibility of negligence. It is not In RECIPROCAL obligations, neither party incurs
a fortuitous event (Sicam, et al. vs. Jorge, GR delay if the other DOES NOT COMPLY or is NOT
No. 159617, August 8, 2007). READY to comply in a PROPER MANNER with
what is INCUMBENT upon him. From the
3. DELAY (Mora) moment one of the parties fulfills his
Those obliged to DELIVER or TO DO something obligation, delay by the other begins.
incur
DELAY from the time the obligee JUDICIALLY or
EXTRAJUDICIALLY DEMANDS from them the Requisites in order to consider the obligor in
fulfillment of their obligation (Art. 1169). default: (SSS vs. Moonwalk Development and
Housing Corpoation, G.R. No. 73345, April 7,
Delay Non-fulfillment of obligation with
respect to time. 1993)
1.Obligation is demandable and already
Note: There is SIMPLE delay as one fails to liquidated
perform the obligation and this delay is 2.The obligor/debtor delays performance
converted to a LEGAL DELAY which arises when 3.The creditor requires performance judicially
the obligee judicially or extrajudicially or extrajudicially
demands their fulfillment. The delay which the
law speaks about is one that is LEGAL. A grace period is not an obligation of the
debtor but a right. It must not be likened to an
Delay in the performance of the obligation, obligation the nonpayment of which under Art.
however, must be either malicious or 1169 would generally still require judicial or
negligent. If delay is only due to inadvertence extrajudicial demand before default can arise.
without any malice or negligence, the obligor When unconditionally conferred, it is effective
cannot be liable under Art. 1170 (RCBC vs. CA, without need of demand either for the
G.R. No. 133107, March 25, 1999). payment of the obligation or for the honoring
of the right (Bricktown Dev’t. Corp. vs. Amor
General rule: There must be demand in order Tierra Devt. Corp., G.R. No. 112182, December
for the debtor to incur delay. 12, 1994).

Exceptions: KINDS OF DELAY:

a.When the obligation or law expressly so 1.Mora Solvendi -- delay on the part of the
declares. debtor and may either be:
b.When from the nature and circumstances a.Ex Re -- obligations to give
of the obligation it appears that the b.Ex Persona -- obligations to do
DESIGNATION OF THE TIME when the
thing to be delivered or the service is to Requisites:
be rendered was a controlling motive for i. Prestation is demandable and already liquidated
the establishment of the contract. Note: There is no delay in natural obligations for
c. When demand would be USELESS: the performance of such is optional and
i. Caused by some act or fault of the voluntary.
debtor
ii. Impossibility caused by fortuitous event ii. The debtor is in delay of the performance due to
causes imputable to him and not by acts such as
Purpose of the Demand: The fortuitous events
presumption of good faith. iii. The creditor requires or demands the
performance judicially or extrajudicially.
Note: There can only be delay in obligations
“to give and to do” (positive obligations) If extrajudicial: date of demand
and not in obligations “not to give or not to If uncertain: date of filing of complaint
do” (negative obligations)
Note: A mere reminder cannot be considered a
demand for performance, because it must appear
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that the tolerance or benevolence of the c. All expenses incurred by the debtor for the
creditor must have ended (Tolentino, Arturo preservation of the thing after the delay
M., Commentaries and Jurisprudence on the shall be chargeable to the creditor.
Civil Code of the Philippines, 1991 ed., Vol. 4, p d.The creditor becomes liable for damages.
102). e.The debtor may relieve himself of the
obligation by consignation of the thing.
Commencement of a suit is sufficient demand f. If the obligation bears interest, the debtor
(Palmares vs. CA, G.R. No. 126490, March 31, does not have to pay from the moment of
1998) the mora;

But even without demand, debtor incurs delay Remedy:

if he acknowledges his delay such as requesting a.Consign it in court
for an extension of time for payment. b.Keep it to himself (he’s not liable for
damages)

3. Compensation Morae -- delay of the parties

Effects of Mora Solvendi in a reciprocal obligation
Debtor is liable for interest in obligations to pay
money, or damages. In the absence of extra- General rule: Parties in a bilateral contract
judicial demand, the interest shall commence can REGULATE the ORDER in which they
from the filing of the complaint. shall comply with their reciprocal
prestations. Otherwise, the fulfillment must
Interest to be paid as indemnity for damages is be SIMULTANEOUS and RECIPROCAL.
based on what has been agreed upon by the
parties, in the absence thereof, the legal Exception: Contrary stipulation (e.g.
interest (Art. 2209). installment basis)

Debtor is liable even for fortuitous event when Effects of Compensation Morae:
the obligation is to deliver a specific thing. But a.Delay of the obligor cancels delay of the
court may equitably mitigate damages if debtor obligee and vice versa.
proves that the loss would have still resulted b.No actionable default on the part of both
even if he had not been in default. parties.
c.If delay of one party is followed by that of
For generic things, debtor may still be the other, the liability of the first infractor
compelled to deliver a thing of the same kind or shall be equitably balanced by the courts.
be held liable for damages. If it cannot be determined which of the
2.Mora Accipiendi -- delay in the parties is guilty of delay, the contract shall
performance based on the omission by be deemed extinguished and each shall
the creditor of the necessary cooperation, bear his own damages (Art. 1192).
especially acceptance on his part.
Cessation of the Effects of Delay (mora) The
Requisites: benefits arising from default or delay may cease
a.Offer of performance by the debtor who upon (1) renunciation by the creditor, express or
has the required capacity; implied and (2) prescription.
b.Offer must be to comply with the
prestation as it should be performed; 4. Contravention of Tenor
c. Creditor refuses the performance Under Art. 1170, the phrase “in any manner
without just cause. contravene the tenor” of the obligation includes
not only any illicit act which impairs the strict
Effects of Mora Accipiendi: and faithful fulfillment of the obligation, but also
a.Responsibility of the debtor for the every kind of defective performance.
thing is reduced and limited to fraud
and gross negligence. Unless excused in proper cases by fortuitous event
b.Debtor is exempted from the risks of
loss of the thing, which automatically Note: The following do not excuse fulfillment:
passes to the creditor. a.Increase in cost of performance
b.Poverty
c.War between the subjects of a neutral country
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REMEDIES OF CREDITOR IN CASE OF BREACH General rule: When the obligation consists
Primary Remedies: in NOT DOING, and the obligor does what
1. Action for Performance (Specific Performance has been forbidden him, it shall be UNDONE
or Substituted Performance) at his EXPENSE (Art. 1168).
2. Action for Damages (exclusively or in addition
to action for performance) Exceptions: When the only feasible remedy
3. Action for Rescission is indemnification for the damages cause by
reason that:
Subsidiary Remedies: i. it has become impossible to undo the
thingphysically or legally.
1. Accion Subrogatoria ii. if the act is definite and will not cease
2. Accion Pauliana even if
3. Other Specific Remedies undone.

2. ACTION FOR DAMAGES

Recoverable damages include ANY and ALL
PRIMARY REMEDIES damages that a human being may suffer.
Responsibility for damages is INDIVISIBLE.
1. ACTION FOR PERFORMANCE

a.Action for Specific Performance (in 3. ACTION FOR RESCISSION

obligation to give a determinate thing) The POWER to RESCIND obligation is IMPLIED
When what is to be delivered is a in RECIPROCAL OBLIGATIONS, in case one of
DETERMINATE THING, the creditor, in the obligors should not comply with what is
addition to his right for indemnification of incumbent upon him (Art. 1191).
damages, may COMPEL the debtor to MAKE
THE DELIVERY (Art. 1165 Par 1). The injured party may choose between
FULFILLMENT and RESCISSION of the obligation,
Note: This remedy implies that the basis is a with the payment of damages in either case.
contractual relation between the creditor
and debtor. Should he choose fulfillment and the same should
become impossible, the injured party may still seek
b.Action for Substituted Performance (in for rescission.
obligation to given indeterminate thing)
If the thing is indeterminate or generic, he Note: The court SHALL decree the rescission
may ASK the obligation be COMPLIED with claimed UNLESS there be a just cause authorizing
at the EXPENSE of the DEBTOR (Art. 1165 the fixing of the period.
Par. 2).
BREACH BY BOTH PARTIES:
Note: Debtor cannot avoid obligation by 1.If first infractor can be determined, his liability
paying damages if the creditor insists on shall be EQUITABLY TEMPERED by the courts
the performance. (Art. 1192).
2.If the first infractor cannot be determined, the
c.Action for Substituted Performance or obligation shall be EXTINGUISHED and EACH shall
Undoing of Poor Work (in obligation to bear his own damages (Art. 1192).
do)
Note: The remedy under Art. 1191 is ALTERNATIVE.
If a person obliged to do something fails Party seeking rescission can only elect one between
to do it, the SAME shall be executed at fulfillment and rescission. There can be no partial
HIS COST. This same rule shall be performance and partial rescission.
observed if he does it in CONTRAVENTION
OF THE TENOR of the obligation. The remedy only applies to RECIPROCAL
Furthermore, it may de decreed that what OBLIGATIONS as when there is reciprocity between
has been done poorly be UNDONE (Art. the parties.
1167).
Rescission required JUDICIAL APPROVAL to
d. Action for Undoing (in obligation not to produce LEGAL EFFECT
do)
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Effects of Rescission name and for the account of the debtor after
1.Extinguishes obligatory relation as if it had exhausting all of the assets of the latter.
never been created; extinction has a
retroactive effect. In order to exercise the accion subrogatoria, a
2.Mutual restitution previous approval of the court is not necessary
(Tolentino, Arturo M., Commentaries and
SUBSIDIARY REMEDIES: Jurisprudence on the Civil Code of the
1.To exhaust the property in possession of the Philippines,1991 ed., Vol. 4, p.138).
debtor generally by attachment, subject to
exemptions provided by law EXCEPTIONS TO ACCION SUBROGATORIA:
a.Inherent rights of the debtor
Note: Correlate with Art 2236 which states
i. Right to existence ii. Rights or relations of a
that the debtor is liable with all his property, public character iii. Rights of an honorary
present and future, for the fulfillment of his character iv. Rights consisting of powers
obligations subject to exemptions provided by which have not been used (i.e., the power to
law. carry out an agency or deposit)
v. Non-patrimonial rights (i.e., the action for
2.Accion Subrogatoria (Subgratory Action) Action legal separation or annulment of
which the creditor may exercise in place of the
marriage)
negligent debtor in order to preserve or
vi.Patrimonial rights not subject to execution
recover for the patrimony of the debtor the
(i.e., right to a government gratuity or
product of such action, and then obtain
pension)
therefrom the satisfaction of his own credit.
vii.Patrimonial rights inherent in the person
of the debtor (i.e., right to revoke a
Right to be subrogated to all the rights and
donation by reason of ingratitude)
actions of the debtor save those which are
inherent in his person.
b.Only those who at the time of the donor’s
death have a right to the legitime and their and
Note: The creditor is entitled only to so
successors in interest may ask for the reduction
much as is needed to satisfy his credit and
or inofficious donations (Art. 772).
any balance shall pertain to the debtor.
3. Accion Pauliana - creditors have the right to set
RIGHTS OF THE CREDITOR: aside or revoke acts which the debtor may have
a.Levy by attachment and execution upon done to drefaud them.
all the property of the debtor, except such
as exempt by law from execution. Note: All acts of the debtor which reduce his
b.Exercise all the rights and action of the patrimony in fraud of his creditors, whether by
debtor, except such as inherently personal GRATUITOUS or ONEROUS title, can be revoked
to him. by this action.
c. To ask for rescission of the contracts
made by the debtor in fraud of their BUT
rights.
Payments of PRE-EXISTING OBLIGATIONS which
are already DUE, whether NATURAL or CIVIL,
Requisites: cannot be impugned by this action.
a.Debtor to whom the right of action
properly pertains must be indebted to the Requisites:
creditor
a.Creditor has a credit prior to the alienation by
b.Creditor must be prejudiced by the
the debtor, although demandable later.
inaction or failure of the debtor to
b.Debtor has made a subsequent contract , giving
proceed against the third person
advantage to a 3rd person.
c.Creditor must have first pursued or
exhausted all the properties of the debtor c. Creditor has no other remedy but to rescind
which are not exempted for execution. the debtor’s contract to the 3rd person.
d.Act being impugned is fraudulent.
There is no change of creditor in accion
subrogatoria. The creditor merely acts in the Note: Presumption of fraud may be found in
Art. 1387 (gratuitous transfer without leaving
sufficient funds for obligations or gratuitous
transfer by judgment debtor).
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4.Third person who received the property is an 3. When prohibited by STIPULATION of the
accomplice in the fraud. parties.

Difference between Accion Subrogatoria & EXTINGUISHMENT OF LIABILITY IN CASE OF

Accion Pauliana BREACH DUE TO FORTUITOUS EVENT
Except in cases EXPRESSLY specified by law, or
Accion Subrogatoria Accion Pauliana when it is otherwise declared by stipulation, or
when the NATURE of the obligation requires the
ASSUMPTION OF RISK, NO PERSON shall be
1.Not essential that 1.Credit must have RESPONSIBLE for those events which COULD
credit is prior to the existed before NOT be FORESEEN or which, THOUGH foreseen,
acquisition of debtor’s debtor’s fraudulent were INEVITABLE (Art. 1174).
right. act.
2. Intent to defraud 2. Intent to defraud Fortuitous Event (Force Majeure/Caso Fortuito)
creditor is not creditor is required.
1.By Nature or Acts of God (i.e., earthquakes,
required. 3. Action prescribes 3.No period storms, floods etc.) -- absolutely independent
of within four years from prescription. the of human intervention.
discovery of the 2.By the act of man or force majeure (i.e., armed
fraud. invasion, attack by bandits, robbery etc.) -- an
event which arises from legitimate or
New debts contracted by an insolvent debtor illegitimate acts of persons other than the
are NOT included within the scope of accion obligor.
pauliana because only acts which impair the
assets of the debtor are covered by the Requisites:
provision and those which merely increase his 1.Event must be independent of the will of the
liabilities are not (4 Tolentino p. 140). obligor;
Ruggiero, however, maintains that the accion 2.It must be either unforeseeable or inevitable;
pauliana covers also acts of the debtor which
3.Must be of such a character as to render it
tend to make his economic condition more
impossible for the obligor to fulfill his obligation
serious, such as when he contracts new
in a normal manner; and
obligations.
4.Obligor must be free from any participation in the
Note: 2nd and 3rd remedies are subsidiary to aggravation of the injury resulting to the obligee.
the 1st. It can only be availed of in the absence
of any other legal remedy to obtain Note: It must not only be the proximate cause but
reparation for the injury. it must be the ONLY and SOLE CAUSE.

Take note of the cases of accion directa under Note: Fortuitous event includes unavoidable
the Civil Code in which a person may directly accidents, even if there has been an intervention of
sue another even if there is no privity of human element, provided fault or negligence
contract between them (Arts. 1652, 1608, cannot be imputed to the debtor.
1729, 1893)
Contributory negligence of the debtor renders him
TRANSMISSIBILITY OF RIGHTS liable despite the fortuitous event; courts may
equitably mitigate damages.
Transmissibility of Rights Acquired by Virtue
If the negligence was the proximate cause, the
of an Obligation (Art. 1178) obligation is not extinguished. It is converted into a
monetary obligation for damages.
General Rule: Rights acquired by virtue of an
obligation are transmissible in character.
Liability in case of fortuitous event:
Exceptions: General Rule: No liability in case of fortuitous
1. When prohibited by LAW which are purely event.
personal in character.
2. When prohibited by PERSONAL Exceptions:
QUALIFICATION or circumstances of the 1.When expressly declared by law
transferor which is material ingredient
e.g. Article 552(2), 1165(3), 1268, 1942, 2147,
attendant in the obligation.
2148, 2001, 1198 and 2159 of the Civil Code.
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2.When expressly declared by stipulation or presumption that the interest (or prior
contract installment) has been paid.
3.When the NATURE of the obligation requires
the assumption of risk The presumptions in Art.1176 do not apply
Note: The principle is based on social justice. 1. When there is a reservation made orally or
in writing
4.When the object of the prestation is generic 2. If the receipt does not recite that it was
Note: Fluctuation of currencies is not issued for a particular installment due as
considered as a fortuitous event since the when the receipt is only dated
fluctuation rate is foreseeable. If considered 3. To payment of taxes
fortuitous, it will set a precedent such that 4. Where non-payment of the prior obligations
there will be a shift of burden to banks. has been proven

The general rule in Art. 1174 can be applied only Pure Obligations
to obligations to give determinate things and not Obligations whose performance DOES NOT depend
to generic ones. upon a FUTURE or UNCERTAIN event or upon a
past event UKNOWN to the parties is
Where the contract stipulated that in case of a DEMANDABLE AT ONCE (Art. 1179 Par 1).
fortuitous event, the period provided in the
contract for delivery shall be suspended, the Obligations which contains no terms or conditions
period of time when the contract was whatever upon which depends the fulfillment of
suspended CANNOT be deducted from the the obligation contracted by the obligor.
term of the contract because to add the said
years upon the resumption of the contract Note: Though demandable at once, the debtor
would in effect be an extension of the should be given a reasonable period to perform the
contract (Victorias Planters Assoc, Inc vs. obligation depending on the nature and complexity
Victorias Milling Co, G.R. No. L-6648, July 25, of such.
1955).
A demand note is subject to neither a suspensive
condition nor a suspensive period. The demand is
not a condition precedent, since the effectivity and
Principle of Assumed or Created Risk Based binding effect of the note does not depend upon
on the doctrine of volenti non fit injuria -- no the making of the demand. It follows therefore,
wrong is done to one who consents. that a demand note is strictly a pure obligation, and
payment therefore is immediately demandable in
As applied to obligations, it refers to situations the absence of other restrictions.
in which the obligor, with full knowledge of
the risk enters into some relation with the
Conditional Obligations
obligee (Jurado, Desiderio P., Comments and
Jurisprudence on Obligations and Contracts, Obligations in which the ACQUISITION of RIGHTS as
2010 ed., p.98). well as the EXTINGUISHMENT or LOSS of those
ALREADY acquired, shall DEPEND upon the
The event which produces loss may be HAPPENING of the EVENT which constitutes the
fortuitous event typical of a particular kind of condition (Art. 1181).
business, such as derailment of a train; it is
only just that those who are injured thereby Characteristics of Conditional Obligations:
be indemnified by the transportation 1.Every future and uncertain event upon which an
company. This liability, however, cannot obligation or provision is made to depend.
extend to dangers which are not typical of the 2.Even though the event is uncertain, it should be
business such as lightning or earthquake POSSIBLE.
(Tolentino, Arturo M., Commentaries and 3.The condition must be imposed by the WILL of
Jurisprudence on the Civil Code of the the party and NOT a necessary legal requisite.
Philippines, Vol. 4, p 134 [1991]). 4.Past event but unknown to parties (the
knowledge to be acquired in the future of a past
Extinguishment of Interest and Prior event which at that moment is unknown to
Installments (Art. 1176) parties interested - it is only in that sense that the
Receipt of the principal (or later installment) event is be deemed uncertain).
without reservation as to the interest (or prior
installment) shall give rise to a disputable
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Note: When the debtor binds himself to pay In this case, the creditor must first ask the court to
when his means permit him to do so, the fix the period, otherwise the action to collect the
obligation shall be deemed to be one with a debt would be
period (Article 1180).

DIFFERENT KINDS OF OBLIGATIONS

premature.

Effects of Failure to Comply with Condition:

1.If condition is imposed on the PERFECTION of a unless intention was otherwise, as inferred
contract -- results in the failure of the contract from nature and circumstances
2.If condition is imposed on the PERFORMANCE of
the obligation -- gives the other party an option In obligations to do or not to do (personal
either to refuse to proceed with the compliance obligations): No fixed rule; Courts are
of the obligation or to waive the condition. empowered to determine the retroactive effect
of the suspensive condition.
Classifications of Conditions:
1. As to the effect of obligation Note: This rule also applies to an obligation w/
resolutory condition (Art. 1190, par. 3).
a. Suspensive -- the obligation arises, but if the
condition DOES NOT happen, the obligation b. Resolutory - fulfillment of the condition results
does not come into existence. in
extinguishment of rights arising out of the
Principle of retroactivity in suspensive obligation.
condition (Art. 1187)
The principle of retroactivity, under Art. 1187, is 2. As to the origin of condition
limited to the effects of the obligation. The a. Potestative - one which depends upon the
cause of action for the enforcement of the will of one of the contracting parties; it is in
obligation accrues and the prescription of the the power of one of the parties to realize or
action must still be computed from the to prevent.
moment of the happening of the suspensive
condition. Kinds:
i. Simple Potestative -- presupposes not only
In obligations to give amanifestation of will but also the
Ratio: the condition is only an accidental realization of an external act of a 3rd party.
element of a contract. An obligation can exist
even without being subject to a condition Note: Does not prevent formation of a valid
obligation because in part it depends on
Rule on retroactivity has no application to: contingencies over which the debtor has no
i. Real contracts; they are perfected only by control.
delivery of the object of the obligation;
principle only applies to consensual contract ii. Purely Potestative -- if it depends solely
ii. Contracts in which the obligation arising andexclusively upon the will of the debtor,
therefrom can only be realized within it is VOID for the debtor cannot fulfill an
successive periods or intervals (e.g. lease, obligation arising from his own choice. BUT
hire of service, life annuity). It is valid if depends on the will of the
creditor.
Retroactive effect as to the fruits and interests
in obligations to give: Note: Applicable only to suspensive
conditions and not to resolutory. Hence,
i. In Reciprocal Obligations: no retroactivity
resolutory potestative conditions are valid
-mutually compensated (fruits may be
even if made to depend upon the debtor
natural,
since the obligation is already in force.
industrial or civil
ii. In Unilateral Obligations: no retroactivity, iii. Casual - depends exclusively upon chance,
debtor appropriates the fruits and interests will of a third person, or partially by chance
received because it is usually gratuitous and partially by will of a third person, or
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other factors and not upon the will of the moment the TIME has elapsed of it has become
contracting parties. EVIDENT that the event CANNOT occur (Art.
1185) .
iv. Mixed - depends upon the will of one of
the contracting parties and other Note: If there is no period fixed in the foregoing,
circumstances, including the will of third Art. 1185 Par. 2 shall apply. Intention of the
persons or chance. parties is controlling and the time shall be that
which the parties may have probably
3. As to possibility - impossible conditions, those contemplated, taking into account the nature of
contrary to good customs or public policy and the obligation.
those prohibited by law shall ANNUL the
obligation which depends upon them (Art. Effects of suspensive, resolutory, potestative,
1183). mixed, casual condition (Art. 1181-1182):
1.Suspensive condition -- obligation shall only be
a.Impossible - may either be PHYSICAL (contrary effective upon the fulfillment of the condition;
to law of nature) or LEGAL (contrary to law, upon constitution of obligation, before
morals, public policy, good customs). fulfillment, obligee acquires a mere hope or
expectancy, protected by law.
Note: The impossible condition must exist at
the time of the creation of the obligation a.Before fulfillment - Demandability and the
otherwise that would fall under Art. 1266 acquisition of the rights arising from the
(Subsequent obligation is suspended. Obligation of obligor
Impossibility). to comply with the prestation is held in
suspense until fulfillment of condition.
General rule: Impossible conditions annul the Anything paid by mistake during such time
obligations dependent upon them may be recovered
b.After the fulfillment - The obligation arises or
Exceptions: becomes effective; obligor can be compelled
i. Pre-existing obligation to comply with what is incumbent upon him.
ii. Divisible obligation
iii.Negative Impossible Things iv. Testamentary If it becomes certain that the condition will not
deposition be fulfilled, the conditional creditor loses all
hope of becoming a real creditor, and likewise
Note: If the obligation is divisible, that part not loses the power to exercise the actions granted
affected by the impossible or unlawful by Art. 1188 for the preservation of his rights.
condition shall be VALID.

Principle of Indivisibility of Conditions 2.Resolutory condition – obligation becomes

The indivisibility of the condition passes to the demandable immediately after its constitution
heirs of the debtor: hence, some heirs cannot and rights are immediately vested in the obligee,
demand partial performance of the obligation but such rights are always subject to the threat
by offering to fulfill part of the condition or danger of extinction. Principle of retroactivity
corresponding to them. applies (Art. 1190 par. 1).
a.Before fulfillment - right recognized in Art.
Exception: The condition may de divisible: 1188, par. 1 in case of a suspensive condition
i.By nature of the condition should likewise be available in obligations
ii.By stipulation with a resolutory condition.
b.After fulfillment - Whatever may have been
iii.By law
paid or delivered by one or both of the parties
upon the constitution of the obligation shall
4. As to mode have to be returned upon the fulfillment of
a.Positive -- condition that some event happen the condition. There is a return to the status
at a determinate time shall EXTINGUISH the quo.
obligation as soon as the time expires or
become indubitable that the event will not take Aside from the actual things received, the
place (Art. 1184). fruits or the interests thereon should also be
b.Negative -- the condition that some event WILL returned after deducting the expenses made
NOT HAPPEN at a determinate time shall for their production, gathering and
render the obligation EFFECTIVE from the preservation.
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When condition is not fulfilled, rights are testamentary disposition, condition is considered
consolidated and they become absolute. not imposed while the obligation is valid.

3. Potestative condition Note: The impossibility of the condition must exist

a.When it depends exclusively upon the will of at the time of the creation of the obligation; a
creditor –- condition and obligation is valid. supervening impossibility does not affect the
b.When it depends exclusively upon the will of existence of the obligation.
debtor in case of a suspensive condition –
condition and obligation are void; to allow Effects of positive and negative condition (Art.
such condition would be to sanction illusory 11841185):
obligation, in direct contravention of the In positive condition, obligation is extinguished as
principle announced in Art. 1308. soon as the time expires or if it becomes
c. When it depends exclusively upon the will of indubitable that the event will not take place.
debtor in case of a resolutory condition –
condition and obligation is valid; the position In negative condition, the obligation is effective
of the debtor is exactly the same as the from the moment the time indicated has lapsed,
creditor in a suspensive condition and does or if it has become evident that the event cannot
not render the obligation illusory. occur, although the time indicated has not yet
F lapsed.
Note: If the obligation is a pre-existing one, and
does not depend for its existence upon the The intention of the parties, taking into
fulfillment by the debtor of the potestative consideration the nature of the obligation, shall
condition, only the condition is void leaving govern if no time has been fixed for the
unaffected the obligation itself. Here, the fulfillment of the condition.
condition is imposed not on the birth of the
obligation but on its fulfillment (valid obligation). Doctrine of constructive fulfillment of suspensive
F condition (Art. 1186)
If condition is declared void but the obligation is
still valid, in converting the obligation into a pure 1.Condition is deemed fulfilled when the obligor
and demandable one, an arrangement may be actually prevented the obligee from complying
enforced which is not within the contemplation with the condition; prevention must have been
of the parties. The best solution is to consider the voluntary or willful in character.
parties as having intended a PERIOD within which
the valid obligation is to be complied with such Reason: One must not profit by his own fault.
that the creditor should ask the court to fix a
period for compliance. (Patente vs. Omega, G.R. 2.Doctrine applies only to suspensive condition. It
No. L-4433, May 29, 1953). can have no application to an external
4.Casual condition - the obligation and condition contingency which is lawfully within the control
shall take effect. of the obligor (Taylor vs. Uy Tieng Pao, GR No.
5.Mixed condition - the obligation and condition L-16109, October 2, 1922).
shall take effect.
3.The mere intention of the debtor to prevent its
Effects of impossible conditions (Art. 1183): happening or the mere placing of ineffective
1. Conditional obligation is void -- both obligation obstacles to its compliance, without actually
and condition are void. preventing fulfillment is not sufficient
2. Conditional obligation is valid -- if condition is (Manresa).
negative, it is disregarded and obligation is
rendered pure and valid. Note: When the voluntary act of the debtor did
3. Only the affected obligation is void -- if the not have for its purpose the prevention of the
obligation is divisible, the part not affected by the fulfillment of the condition, it will not fall under
impossible condition shall be valid. constructive fulfillment. The same is true when
4. Only the condition is void -- if obligation is the debtor acts pursuant to a right (Tolentino,
preexisting, not depending on fulfillment of the Arturo M., Commentaries and Jurisprudence on
condition which is impossible for its existence, the Civil Code of the Philippines, Vol. 4, p 161
only the condition is void. [1991]).
5. Condition considered not imposed - if
impossible/unlawful condition is attached to a Requisites of Constructive Fulfillment:
simple or remuneratory donation as well as to a 1. Condition is suspensive

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2. Debtor actually prevents the fulfillment of the The thing, pending the happening of the condition,
condition in case of improvement, loss or deterioration, the
3. He acts voluntarily following rules shall be observed:
1.If loss without fault of debtor, OBLIGATION IS
Rights of the Creditor before the fulfillment of the EXTINGUISHED.
condition: 2.If loss through the fault of the debtor, OBLIGED
1. The creditor, may, before the fulfillment of the TO PAY DAMAGES.
obligation, bring the appropriate action for the
PRESERVATION of his right (Art. 1188). 3.If thing deteriorates without fault of the debtor,
IMPAIRMENT TO BE BORNE BY THE CREDITOR.
Note: No preference of credit is granted to the
creditor. 4.If thing deteriorates through the fault of the
debtor,
Right of the Debtor before the fulfillment of the CREDITOR MAY CHOOSE BETWEEN
FULFIMMENT OR RESCISSION WITH DAMAGES
condition:
IN EITHER CASE.
1.The debtor may recover what he paid by mistake 5.If improvement is through the nature or time,
BEFORE the happening of the suspensive INURES TO THE BENEFIT OF CREDITOR
condition. 6.If improvement is at the expense of the debtor,
2.If the payment was for a determinate thing, RIGHTS SIMILAR TO THAT GRANTED TO THE
debtor may file an accion reivindicatoria. USUFRUCTUARY (see Arts. 579 and 580).
3.If the payment was for an indeterminate thing,
there is solution indebiti. Note: Consequently, the debtor cannot ask
4.If payment was made with knowledge of the reimbursement for the expenses incurred for
condition, debtor impliedly waives the condition useful improvements of for improvements for
and cannot recover. mere pleasure (Art. 579). He can only ask
5.If payment was with knowledge but the condition reimbursement for necessary expenses (Art. 546).
did not happen, the debtor can recover lest the
creditor will be unjustly enriched. The above rules apply to the following:
1.Determinate things only because the genus of a
Note: Art. 1188 does not provide for recovery of thing never perishes (genus nun quam peruit)
the fruits or interest by the debtor who has paid
2.Obligation with a period
before the happening of the condition. However,
the silence of the law should not bar the recovery 3.Those who have a duty to return in case of loss,
of fruits or interest by the debtor (Jurado, deterioration or improvement of the thing in an
Desiderio, Comments and obligation with a resolutory condition (Art.
Jurisprudence on Obligations and Contracts [2010]). 1190, par. 2).

The happening of a resolutory condition does not

LOSS, DETERIORATION OR IMPROVEMENT
ipso jure re-vest ownership in the original debtor;
PENDING THE HAPPENING OF THE CONDITION he merely becomes entitled to the delivery which
would give him ownership anew.
Loss
A thing is lost when it: (1) Perishes; (2) Goes out of The original debtor merely has a personal right
the commerce of men; and (3) Disappears in such a which is enforceable only against his creditor who
way that its existence is unknown or it cannot be has become a debtor obliged to make restitution.
recovered.
Expenses incurred by the person obliged to make
Deterioration restitution relating to the production, gathering,
Any reduction or impairment in the substance or and preservation of the fruits should be deducted
value of a thing which does not amount to loss; the from the gross value of the fruits to be returned.
thing is less than when the obligation was
constituted.

Improvement
Anything added to, incorporated in, or attached to In Obligations to do or not to do:
the thing that is due. The provision of Art. 1187 Par.2, in which the courts
shall determine, shall be observed as regards the
In Obligations to give: effect of the extinguishment of the obligation.

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RESCISSION OF RECIPROCAL OBLIGATIONS IN 1.One of the parties failed to comply with what is
GENERAL (Art. 1191) incumbent upon him.
2.The injured party chose rescission over fulfillment
Reciprocal obligations or performance is no longer possible.
Those which are created or established at the same 3.The breach is substantial so as to defeat the
time, out of the same cause, and which result in object of the parties in making the agreement.
mutual relationships of creditor and debtor
between the parties. Right to Rescind NOT Absolute
The court is given discretionary power to fix a
General Rule: If one of the parties fails to comply period within which the obligor in default may be
with what is incumbent upon him, there is a right permitted to comply with what is incumbent
on the part of the other to rescind (or resolve) the upon him (Art. 1191 par. 3). But the discretionary
obligation (tacit resolutory condition). power of the court cannot be applied to
reciprocal obligations arising from a contract of
Implied in reciprocal obligations and is more lease because they are governed by Art. 1659.
appropriately referred to as RESOLUTION.
The termination of a contract must not be contrary
Based on breach of faith, violative of reciprocity to law, morals, good customs, public order or
between the parties, committed by the person who public policy.
is supposed to comply with the obligation as
compared to the rescission referred to in Art. 1380 Waiver of Right
which involves damage or lesion, or injury to the The right to rescind may be waived, expressly or
economic interest of a person. impliedly (Sps. Francisco vs. DEAC Construction,
Inc., et al, G.R. No. 171312, February 4, 2008).
Permitted only for such breaches as are substantial
and fundamental as to defeat the object of the Effects:
parties in making the agreement (Universal Food 1.If there is a stipulation granting the right of
Corp. vs. CA, G.R. No. L-29155, May 13, 1970). rescission on the part of the aggrieved party
and he validly rescinds the contract pursuant to
Can be demanded only if the plaintiff is ready, such express grant, any court decision
willing, and able to comply with his own obligation adjudging the propriety of the rescission extra-
and the other is not (Seva vs. Berwin, G.R. No. L- judicially made is NOT the REVOCATORY act of
24321, January 11. 1926), and the party who has rescission but merely DECLARATORY or an
not performed his part of the agreement is not affirmation of the revocation (De Luna vs.
entitled to sue/ rescind; the right belongs to the Abrigo, G.R. No. 57455, January 18, 1990).
injured party. 2.The decree of rescission shall be without
prejudice to the rights of third persons who
A right which belongs to the injured party alone have acquired the thing in accordance with
(Mateos vs. Lopez, 6 Phil. 206). Arts. 1385 and 1388 and Mortgage Law (Art.
1191 par. 4).
Must be invoked judicially UNLESS contract
contains a facultative resolutory provision, in
Art. 1191 does NOT apply to the following:
which case, judicial permission to cancel or rescind
the contract is no longer necessary – act of 1.Contracts of partnership where a partner fails
rescission must be communicated to other party to pay the whole amount which he has bound
(Jison vs. CA, G.R. No. L-45349, August 15, 1988). to contribute to the common fund (see Arts.
1786 and 1788).
Mere failure of a party to comply with what is 2.Sales of real or personal property by
incumbent upon him does not ipso jure produce installments. The first being governed by Recto
the rescission or resolution of the obligation. Law while the latter is governed by Maceda
Law.
3.Action for rescission is not required upon
Requires restitution or bringing parties back to
breach of compromise agreement; Article 2041
original status prior to the contract (Unlad confers upon the party concerned the authority
Resources Dev. Corp., et al. vs. Renato Dragon, et to regard it as rescinded and to insist upon the
al., G.R. No. 149338, July 28, 2008). original demand.
Alternative remedies of injured party (Art. 1191,
Requisites: par.
2):
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1.Fulfillment of the obligation with damages be known when. If the uncertainty consists in
WHETHER THE DAY will COME or NOT, the
Even after the injured party has chosen obligation is a conditional one.
fulfillment and such fulfillment should become
impossible, he can still seek the rescission of the When the debtor bind himself to pay WHEN his
obligation. MEANS PERMIT him, the obligation shall be
deemed to be one with a period (Art. 1180).
2.Rescission of the obligation with damages
Term/Period
Note: An alternative prayer for fulfillment or Interval of time, which, exerting an influence on
rescission in the complaint is not incompatible. an obligation as a consequence of a juridical act,
The presumption is that he is leaving the matter either suspends its demandability or produces its
to the sound discretion of the court. extinguishment.

Effects of Rescission: Requisites:

1.Duty upon the court to require the parties to 1. Future;
surrender whatever they may have received from 2. Certain; and
the other (without prejudice to the obligation of
3. Possible, legally and physically.
the party who was not able to comply with what
is incumbent upon him). When the period is too short for the prestation,
2.Can no longer be demanded when he who as when Atoy is to build a ten-story building in 24
demands is no longer in the position to return hours, the obligation is void (See Tolentino Vol.
whatever he may be obliged to restore; neither IV, p 188).
can it be demanded when the thing which is the
object of the contract is already in the possession Note: What is suspended by the term is not the
of a third person who obtained it in good faith acquisition of the right or the effectivity of the
obligation but its demandability.
Remedy: proceed against the party responsible
for the transfer or conveyance for damages. When Period of Prescription Begins It
commences from the time the term in the
If the thing is acquired in bad faith, the injured obligation arrives, for it is only from that date
party can still go after the property. that it is due and demandable (Ullman vs.
Hernaez, G.R. No. L-9816, March 10, 1915).
If the thing can no longer be recovered, the only
remedy is to proceed against the third person who
Term/Period and Condition Distinguished
acted in bad faith for damages.
Term/Period Condition
Note: There can be partial rescission or fulfillment Interval of time which is Fact or event
under Art. 1191 (Central Bank vs. CA, G.R. No. L- which is future and certain future and
45710, October 3, 1985). uncertain Must necessarily come, although it
may not be May or may not happen
Effects of breach by both parties (Art. 1192): known when
1.The liability of the first infractor shall be equitably
Exerts an influence upon Exerts an influence upon
tempered by the courts;
2.If it cannot be determined which of the parties
first violated the contract, the same shall be the time of demandability or extinguishment of an
deemed extinguished, and each shall bear his the very existence of the obligation itself
own damages.
obligation
OBLIGATIONS WITH A PERIOD No retroactive effect unless there is an
Obligations whose fulfillment a DAY CERTAIN has agreement to Has retroactive effect
been fixed, shall be DEMANDABLE only when that the contrary
day COMES. Obligations with a RESOLUTORY
PERIOD takes effect at once but terminate upon When it is left exclusively
the ARRIVAL of the day certain (Art. 1193). to the will of the debtor, the When it is left
exclusively existence of the obligation to the will of
Note: A DAY CERTAIN is understood to be that the debtor, the is not affected; empowers
which must necessarily come, although it may not

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very existence of the the court to fix the duration b.Legal - period fixed by law such Articles 1682
obligation is affected of the obligation and
Must be possible, Must be possible, 1687
otherwise, obligation is otherwise, obligation is c.Judicial - set my courts in case of implied and
void void indefinite period

Kinds of Period/Term: Note: In case of loss, deterioration or

improvement the same rules as discussed under
1. As to Effect conditional obligations apply.
a.Suspensive (Ex Die) -- Obligations whose
fulfillment a DAY CERTAIN has been FIXED, shall EFFECT OF PAYMENT IN ADVANCE
be DEMANDABLE only when that day comes
(Art. 1193 Par. 1). Effect of Advance Payment or Delivery In
obligations to give, the obligor can recover what
Thus, the period must lapse before the he has paid or delivered with fruits and interests
performance of the obligation can be (Art. 1195).
demanded.
Note: There can be no right of recovery if the
Note: If a fortuitous event supervenes, the obligor delivers the thing voluntarily or with the
obligor is merely relieved of the obligation to knowledge of the period or term or the fact that
fulfill at that time and does NOT stop the the obligation has not yet become due and
running of the period because in effect that demandable
would be an extension of the term of the
contract (Victoria’s Planters vs. Victorias
Period for whose benefit (Art. 1196)
Milling Co., G.R. No. L-6648,nJuly 25, 1955).
General Rule: For the benefit of both parties in the
Fortuitous event does NOT interrupt the absence of stipulation or in case of doubt.
running of the period.
Exception: If it can be shown that the period has
b.Resolutory (In Diem) -- Obligations with a been established in favor of the creditor or of the
resolutory period take effect AT ONCE but debtor.
TERMINATE upon arrival of the day certain (Art.
1193, Par 2). Period for the Benefit of the Creditor Creditor
may demand the fulfillment of the obligation at
Thus, the arrival of the period terminates the any time but the obligor cannot compel him to
obligation. accept payment before the expiration of period
(e.g. “on demand”).
2. As to expression
a.Express -- when specifically stated. Period for the Benefit of the Debtor
b.Implied -- when it can be deduced that the Debtor cannot be compelled to perform obligation
parties intended a period such as in the case of prematurely, but he can do so if he desires.
Art. 1180 when one promises to pay when able.
Judicial Term/Period
3. As to definiteness When fixed by a competent court in accordance
a.Definite -- refers to a FIXED known date or time with the causes expressly recognized by law. Once
b.Indefinite -- even which will necessarily happen fixed, the period can no longer be judicially
but changed.
the date of its happening is unknown
When Court May Fix Period
Note: The uncertainty of the date of occurrence General Rule: Courts are WITHOUT power to fix
DOES NOT convert into a condition so long as period.
there is no uncertainty whether the event WILL
HAPPEN or NOT. Exceptions:
1.If the obligation does not fix a period, but from its
4. As to source nature and circumstances it can be inferred that a
a.Conventional - made by agreement of the period was intended (Art. 1197).;
parties 2.If the duration of the period depends upon the
will of the debtor (Art. 1197, Par. 2).;
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3.If under the circumstances the parties have 5.He violates any undertaking, in consideration of
contemplated a period (Art. 1197, Par. 3). which the creditor agreed to the period (i.e. if
4.If the debtor binds himself when his means an employee commits a substantial breach of
permit him to do so (Art. 1180). his employment contract, the employer may
terminate the employment).
Note: The remedy cannot be applied to contract of 6.He attempts to abscond.
services and pure obligations. The period of
employment is understood to be implicitly fixed, in It is not essential that there be actual absconding.
default of express stipulation, by the period for the
payment of the salary of the employee in Note: If IMPAIRMENT is without the fault of the
accordance with customs. debtor, he shall retain the right.

Applies to a lease agreement where a contract of When obligations comprehend several objects it
lease clearly exists. may be:
1.Conjunctive - when all the objects or prestations
The fulfillment of the obligation cannot be are demandable at the same time.
demanded until after the court has fixed the period 2.Distributive- when only one is demandable. It
and such period has arrived. Such technicality need may either be alternative or facultative.
not be adhered to when a prior and separate action
would be a mere formality and would serve no ALTERNATIVE AND FACULTATIVE OBLIGATIONS
other purpose than to delay (Borromeo vs. CA, G.R.
1.Conjunctive - all prestations must be
No. L-22962, September 28, 1972).
performed to extinguish the obligation; or
2.Disjunctive - one or some prestations must
There can be no possibility of any breach of be performed to extinguish the obligation a.
contract or failure to perform the obligation unless
Alternative
the period is fixed by courts.
b. Facultative
It is NOT necessary that the creditor, in his
ALTERNATIVE OBLIGATION:
complaint, must expressly ask the court to fix the
duration of the term or period, such may be The debtor must perform one of several
granted although the complaint does not ask for obligations, the choice belongs to the debtor
such relief where the essential allegations of the UNLESS expressly given to the creditor (Art.
pleadings describe an obligation with an indefinite 1200).
period.
Limitation: The debtor shall have NO right to
Once fixed by court, the period can no longer be choose those prestations which are impossible,
judicially changed. However, Art. 1197, par. 3 does unlawful or which could not have been the object
not prohibit parties to set a different period than of the obligation (Art. 1200, Par. 2).
that fixed by court.
Note: Grant of choice to creditor cannot be
implied.
When Debtor Loses Right to Make Use of Period
Also, right of choice may be entrusted to a third
(Art. 1198):
person.
1.He becomes insolvent, unless he gives a guaranty
or security for the debt (the insolvency need not A person ALTERNATIVELY BOUND by different
be judicially declared).
prestations shall completely perform one of the
(Art 1199, Par. 1).
2.He does not furnish to the creditor the guaranties
or securities which he has promised.
Limitation: The creditor cannot be compelled to
3.If, after their establishment, the guaranty or
receive part of one and part of the other
security is impaired through the fault of the
undertaking (Art. 1199, Par. 2).
debtor, he shall lose his right to the benefit of
the period; however, if it is impaired without
his fault, he shall retain his right. Effect of Notice of Choice:
1.Limits the obligation to the object or prestation
Note: Impairment need not be total. selected with all the consequences which the law
provided.
4.If the guaranty or security disappears through any 2.The obligation is converted to a simple obligation
cause, even without the fault of the debtor. to perform the prestation chosen.

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3.Once the selection has been communicated, it 2.Compliance of the obligation has become
becomes irrevocable. impossible unless due to fortuitous event.

Note: The indemnity shall be fixed based on the

value of the LAST THING which disappeared OR
that of the
When Notice Produces Effect: SERVICE which LAST became IMPOSSIBLE (Art.
1204, Par. 2).
The CHOICE shall PRODUCE effect EXCEPT from the
TIME it has been COMMUNICATED (Art. 1201). Damages other than the above-mentioned may
also be rewarded (Art. 1204, Par. 3).
Notice of selection may be in any form provided
that it is sufficient to make the other party know When Alternative Obligation Cease to be such:
that the election has been made. It may be: When the CHOICE has been EXPRESSLY given to
1. Orally the CREDITOR, the obligation shall CEASE to be
2. In Writing alternative from the day when the SELECTION has
3. Tacitly been communicated to the debtor (Art. 1205 Par.
a.Performance by the debtor who has the right to 1).
choose or in the acceptance of a prestation by
the creditor when he has a right of selection. Effects of Loss of Objects of Alternative Obligation
b.When the creditor sues the debtor for the (Art. 1204- 1205):
performance of one of the prestation.
A. When choice belongs to debtor:
Note: The law does not require the other party to 1. Due to Fortuitous Event
consent to the choice made by the party entitled to a. All are lost – debtor is released from the
choose UNLESS the debtor has chosen a prestation obligation
which could not have been the object of the b. Some but not all are lost – deliver that
obligation and the creditor consents thereto which which he shall choose from among the
amount to a novation. remainder
c. Only one remains – deliver that which
The right to choose is not lost by the mere fact that remains
the party entitled to choose delays in making his
selection. 2. Debtor’s fault
a. All are lost – creditor shall have a right to
In case the person entitled to choose, does not indemnity for damages based on the value
make his selection, the other party can ask the of the last thing which disappeared or
court for a 3rd party to choose. service which become impossible
Effect of Loss or Impossibility of One or All
Prestations: b. Some but not all are lost – deliver that
The debtor shall LOSE the RIGHT of CHOICE, when which he shall choose from among the
among the prestations whereby he is remainder without damages
alternatively bound, only one is practicable (Art. c. Only one – deliver that which remains
1202).
B. When choice belongs to creditor:
Note: The obligation then is converted to a SIMPLE 1. Due to Fortuitous Event
and PURE obligation. a. All are lost – debtor is released from the
obligation
If the debtor cannot make a choice according to b. Some but not all are lost – deliver that
the terms of the obligation through the creditor’s which he shall choose from among the
act, the former may rescind the contract with remainder
damages (Art. 1203). c. Only one remains – deliver that which
remains
When creditor is entitled to indemnity for
damages (Art. 1204): 2. Debtor’s fault
When through the fault of the debtor: a. All are lost – creditor may claim the
1.All the things which are alternatively the object of price/value of any of them with indemnity
the obligation have been lost; OR for damages

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b. Some but not all are lost – creditor may obligation which is still 2.Nullity of the
claim any of those subsisting without a right principal in force with respect prestation
to damages OR price/value of the thing lost invalidates to those which have the
with right to damages obligation.
no vice. 3.Only the debtor can
FACULTATIVE OBLIGATION (Art. 1206) 3.Right to choose may choose the substitute.
An obligation wherein only one object or prestation be given to the 4.Impossibility of the
has been agreed upon by the parties to the creditor. principal prestation is
obligation, but which may be complied with by the 4.Only the sufficient to extinguish
delivery of another or the performance of another IMPOSSIBILITY OF the obligation, even if ALL
prestation in substitution. Art. 1201 can be applied the prestations the substitute is due
by analogy with respect to the time/moment when WITHOUT the possible. fault of the debtor
the substitution will take effect. extinguished the obligation.

Communication is necessary to make substitution

effective. JOINT AND SOLIDARY OBLIGATIONS

Effect of Loss of Substitute in Facultative Joint Obligation (Obligación Mancomunada) The

Obligation (Art. 1206): whole obligation is to be paid or fulfilled
proportionately by different debtors or demanded
Loss of the thing intended as substitute proportionately by different creditors.
1. Before substitution is made:
a.If due to bad faith or fraud of obligor – obligor Solidary Obligation (Obligación Solidaria)
is liable Each one of the debtors is bound to render,
b. If due to the negligence of the obligor – obligor and/or each one of the creditors has a right to
is demand entire compliance with the prestation.
not liable
F Nature of a Collective Obligation (Art. 1207)
Note: According to Jurado: “It is submitted that General Rule: Obligation is presumed joint if
whatever may be the cause of the there is concurrence of several creditors OR of
loss/deterioration of the thing intended as a several debtors OR of several creditors and
substitute, such loss or debtors in one and the same obligation.
deterioration shall not render the debtor liable.”
F Exceptions:
2. After substitution is made: 1. The obligation expressly states that there is
The loss or deterioration of the substitute on solidarity (i.e. “jointly and severally”,
account of the obligor’s delay, negligence or “individually and collectively”, “I promise to
fraud – obligor is liable because once pay” followed by the signatures of two or more
substitution is made, the obligation is converted persons;)
into a simple one with the substituted thing as
the object of the obligation. 2. The law requires solidarity ex. tort, quasi-
contracts, liability of principals, accomplices
Note: Creditor cannot be compelled to receive and accessories of a felony, obligations of
part of one and part of another undertaking. devisees and legatees, bailees in commodatum.

Difference between Alternative and Facultative Our law recognizes solidary responsibility for
Obligations wrongful acts whether they are crimes or quasi-
delicts. A moral wrong cannot be divided into
Alternative Facultative parts; hence the liability for it must be solidary.

1.Various prestations all 1.Only the principal 3. Nature of the obligation requires solidarity.
of which constitute prestation constitutes 4. When a charge or condition is imposed upon
parts of the obligation. the obligation, the heirs or legatees, and the testament expressly
2.Nullity of one of the accessory being only makes the charge or condition in solidum
prestation does not a means to facilitate (Manresa).
invalidate the payment. 5. When a solidary responsibility is imputed by a
final judgment upon several defendants.
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Principal Effects of Joint Liability: 1. No creditor can act in representation of the
1.Vices of each obligation arising from the personal other;
defect of a particular debtor or creditor does not
affect the obligation or right of the others If not all of the creditors demand the
2.Insolvency of one debtor does not make others prestation, the debtor may legally refuse to
responsible for his share. deliver to them or he can insist that all the
3.Demand by the creditor on one joint debtor puts creditors together receive the thing, and if any
him in default, but not the others since the debts of them refuses to join the others, the debtor
are distinct. may deposit the thing by way of consignation.
4.When the creditor interrupts the running of the
prescriptive period by demanding judicially from 2. No debtor can be compelled to answer for the
one, the others are not affected. liability of others;
5.Defenses of one debtor are not necessarily
available to the others. If there are two or more debtors, the fulfillment
of or compliance with the obligation requires
Note: Even if the parties stipulated in their contract the concurrence of all the debtors, although
that the obligation of the debtor is solidary, but each for his own share
such contract was superseded by a JUDICIAL
DECISION declaring the obligation to be merely In case of insolvency of one of the debtors, the
joint, the said decision must be enforced in a joint others shall not be liable for his shares. To hold
manner (Oriental Philippines Company vs. Abeto, otherwise would destroy the joint character of
G.R. No. L-4239, October 10, 1934). the obligation.

Solidary liability is determined by the tenor of the Breach of Joint Indivisible Obligation (Art. 1224)
contract, NOT by judicial admission by the party. Obligation can be enforced only by proceeding
against all of the debtors.
Joint Divisible Obligation (Art. 1208) Each creditor
can demand only for the payment of his If anyone of the debtors should fail or refuse to
proportionate share of the credit; each debtor can comply with the obligation, it is converted into
be held liable only for the payment of his one of indemnity for damages.
proportionate share of the debt.
Debtors who may have been ready to comply with
what is incumbent upon them shall not contribute
Credit or debt shall be presumed to be
to the indemnity beyond the corresponding portion
divided into as many equal shares as there of the price of the thing or the value of the service
are creditors or debtors, the credits or debts in which the obligation consists.
considered distinct from one another subject
to the Rules of Court governing multiplicity of The debtor who failed or refused to comply with
suits. the prestation shall bear the burden of paying all of
the damages to the creditor/s and shall indemnify
In case of breach of obligation by one of the the other debtors for damages suffered as a result
debtors, damages due must be borne by him of the transformation of the obligation into one of
alone; if there is any defense purely personal to indemnity.
one of the debtors, he alone can avail himself of
such defense. Interruption of Period of Prescription
Two Views:
Note: The co-creditors or co-debtors may
1.The act of one joint creditor beneficial to others,
regulate their rights or liabilities in their internal
as for instance the interruption of period of
relations with each other.
prescription, is sufficient since Art. 1209 merely
provides that the right of creditors may be
Joint Indivisible Obligation (Art. 1209)
prejudiced only by their collective acts (Manresa).
Midway between joint and solidary obligations, 2.The act of a joint creditor which would ordinarily
preserving the two characteristics of the joint interrupt the period of prescription would not be
obligation, in that no creditor can do an act valid because the indivisible character of the
prejudicial to others, and no debtor can be made obligation requires collective action of the
to answer for others. creditors (De Buen).
Characteristics: Note: Both Jurado and Tolentino are inclined with
the view of De Buen.
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Indivisibility and Solidarity Distinguished The debtors who may have been ready to fulfill or
(Art. 1210) perform what was incumbent upon them shall not
Indivisibility Solidarity contribute to the indemnity beyond the
corresponding portion of the price of the thing or
Refers to the legal tie the value of the service in which the obligation
or Refers to the prestation vinculum juris, consists (Art. 1224).
and that is not capable of consequently to
the partial performance. subjects or SOLIDARITY (Art. 1211)
parties of the obligation.
Solidarity may exist although creditors and
debtors may not be bound in the same manner
and by the same periods and conditions.
Exists even if there is only one creditor and one
Kinds of Solidarity
Exists only if there is more than one 1. As to source
a.Legal – imposed by law
b.Conventional – agreed upon by the parties
creditor or more debtor. than one debtor
c. Real – imposed by the nature of the obligation

(plurality of subjects). 2. As to parties bound

a.Active – solidarity on the part of the creditors,
where any one of them can demand the
Each creditor cannot fulfillment of the entire obligation.
Each creditor may demand
Effect: Mutual representation among the
demand more than his share and each debtor is the solidary creditors with powers to exercise the
rights of others in the same manner as their
rights.
entire prestation and each debtor is bound to not
b.Passive – solidarity on the part of the debtors,
where any one of them can be made liable for
bound to pay more than his share. pay the the fulfillment of the entire obligation.

Effect: Mutual guaranty relationship is created.

entire prestation. c. 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
Effect of breach: obligation creditors has a right to demand, entire
is converted into indemnity Effect of breach: compliance with the obligation.
solidarity for damages; indivisibility is remains
terminated 3. As to uniformity
Only the debtors guilty of breach of obligation is
All the debtors are liable for the breach of the a.Uniform – parties are bound by the same
stipulations.
b.Non-uniform or Varied – parties are not subject
liable for damages. obligations committed by a to the same stipulations.
debtor.
Effect: Creditor can commence an action against
All debtors are Other anyone of the debtors for compliance with the
debtors are not liable proportionately liable entire obligation minus the portion or share
for if one debtor is insolvent. the insolvency which corresponds to the debtor affected by the
of one debtor. condition or period.

Distinguished from a surety (fiador in solidum)

In case of non-performance by the debtors, the
obligation to pay the damages arises. With Passive Solidary Surety (Solidary
respect to the damages, the prestation becomes Debtor Guarantor)
divisible and each creditor can recover separately. Both are solidarily liable to the creditor for the
payment of the entire obligation Liable not
only for the Liable only for the debt payment of
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the debt of of another another, but also for the Reason: When one creditor makes an
payment of a debt which is properly his own extrajudicial or judicial demand for payment, the
Has a right to demand Acquires a right of tacit representation by the other creditors is
reimbursement from his reimbursement from considered revoked and during the pendency of
the co-debtors of their principal debtor of the the action, the creditors who did not sue lose
shares, if he pays the entire amount he has their representation of the others.
entire amount of the paid
obligation As to the effect of res judicata to the other
An extension of time An extension of time creditors. Under Art. 1214, once an action is filed
granted by the creditor granted by the creditor by a solidary creditor, he represents all the others
to one of the solidary to the principal debtor and payment can be made only to him. If the
debtors without the would release the filing of the action consolidates in the plaintiff
surety knowledge of the other from the creditor all the rights of the other co-creditors,
the latter must benefit from the favorable results
obligation solidary debtors would not have the
and suffer from the adverse consequences of
effect of releasing the latter from obligation
such action.
Effects of Prejudicial and Beneficial Acts (Art.
However the other creditors will not be adversely
1212): affected, if the judgment is based on a cause
1.Each one of the solidary creditors may do personal to the plaintiff in the first action
whatever may be useful or beneficial to the (Tolentino, Arturo M., Commentaries and
others, but not anything which may be prejudicial Jurisprudence on the Civil Code of the Philippines,
to the latter. Vol. 4, p 242 [1991]).
2.As far as the debtor/s is/are concerned, a
prejudicial act performed by a solidary creditor is EFFECT OF NOVATION,
valid and binding; as between the solidary COMPENSATION, CONFUSION, AND
creditors, the creditor who performed such act
shall incur the obligation of indemnifying the REMISSION IN SOLIDARY OBLIGATIONS (Art. 1215,
others for damages (Castan). Arts. 1219-1220)

Reason: Art. 1212 must be harmonized with Art. Novation

1215. Art. 1215 expressly recognizes the 1.If prejudicial, the solidary creditor who effected
effectiveness of acts of extinguishment by a the novation shall reimburse the others for
solidary creditor. damages incurred by them;

Effects of Assignment of Rights in Solidary 2.If beneficial and the creditor who effected the
Obligations (Art. 1213) novation is able to secure performance of the
obligation, such creditor shall be liable to the
General Rule: A solidary creditor CANNOT assign others for the share which corresponds to them,
his right as it is predicated upon mutual not only in the obligation, but also in the
confidence, i.e., personal qualification of each benefits;
creditor had been taken into consideration. 3.If effected by substituting another person in place
of the debtor, the solidary creditor who effected
Exceptions: the novation is liable for the acts of the new
debtor in case there is deficiency in performance
1.Assignment to a co-creditor
or in case damages are incurred by the other
2.Assignment is with consent of co-creditor solidary creditors as a result of the substitution;
4.If effected by subrogating a third person in the
To Whom Payment Made in Solidary Obligation rights of the solidary creditor responsible for the
(Art. 1214) novation, the obligation of the debtor or
creditors is not in reality extinguished; the
General Rule: Payment may be made to any of the relation between the other creditors not
solidary creditors substituted and the debtor/s is maintained;
5.If the novation is effected by subrogating a third
Exception: If demand, judicial or extra-judicial, person in the rights of all the solidary creditors,
has been made by one of them, payment should the creditor responsible for such novation is
be made to him. liable to the other creditors for the share which
corresponds to them in the obligation.

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Compensation and Confusion Effect of Payment to a Creditor
1.PARTIAL: rules on application of payment shall If one of the solidary creditors is able to collect
apply, without prejudice to the right of other the entire amount of the debt from one or some
creditors who have not caused the confusion or or all of the solidary debtors, the obligation is
compensation to be reimbursed to the extent totally extinguished, although there arises a
that their rights are diminished or affected; consequent obligation on his part to render an
2.TOTAL: obligation extinguished, what is left is the account to his co-creditors (Art.1215, par.2).
ensuing liability for reimbursement within each
group – the creditor causing the confusion or Effect of Demand upon a Solidary Debtor (Art.
compensation is obliged to reimburse the other 1216) The demand made against one of them
creditors; the debtors benefited by the shall not be an obstacle to those which may
extinguishment of the obligation are obliged to subsequently be directed against the others so
reimburse the debtor who made the confusion or long as the debt has not been fully collected.
compensation possible.
The creditor may proceed against any one of the
Remission solidary debtors or against all of them
1.ENTIRE OBLIGATION: obligation is totally simultaneously.
extinguished but the solidary debtor who
obtained it does not entitle him to A creditor’s right to proceed against the surety
reimbursement from his codebtors; exists independently of his right to proceed
against the principal (Palmares vs. Court of
Reason: Said debtor gives or loses nothing Appeals, G.R. No. 126490, March 31, 1998).

2.For the benefit of one of the debtors covering his Because of the unity of the legal tie in solidarity,
entire share: he is completely released from the although the solidary debtors may be individually
creditor/s; distinct from each other, they constitute legally
3.For the benefit of one of the debtors and it one and the same party (Tolentino, Arturo M.,
covers only part of his share: his character as a Commentaries and Jurisprudence on the Civil
solidary debtor is not affected. Code of the Philippines, Vol. 4, p 243 [1991]).

4.Total or partial remission: Creditor/s responsible Note: If a claim from one of the solidary debtors
for the remission are liable to reimburse others has been dismissed by a court on grounds other
for the share in the obligation corresponding to than the extinguishment of the whole obligation or
them. that the claim has prescribed, it does not
5.Total or partial remission: if the creditor/s necessarily mean that the solidary indebtedness
proceed against any one of the solidary debtors cannot be claimed against the other solidary
for the payment of the entire obligation, such debtors who were not impleaded in the case or
debtor can always avail himself of the defense of against those who were impleaded but whose
partial remission (Art. 1222) liability was found by the court as proper (Inciong
vs. CA, G.R. No. 96405, June 26, 1996).
The above rules cannot be applied in case the
debt has been totally paid by anyone of the Effect of Payment by a Debtor (Art. 1217 and Art.
solidary debtors before the remission was 1218)
effected (Art. 1219). Payment made by one of the solidary debtors
either totally or partially extinguishes the obligation
Effect of Death of Principal Debtor Under the law depending upon whether the entire amount of
and jurisprudence, the creditor may sue, debt is paid or only a part thereof.
separately or together, the principal debtor and
the surety, in view of the solidary nature of their If two or more solidary debtors offer to pay, the
liability. The death of the principal debtor will not creditor may choose which offer to accept.
work to convert, decrease or nullify the
substantive right of the solidary creditor. Solidary debtor who made the payment merely
Evidently, despite the death of the principal entitles him to claim from his co-debtors the share
debtor, the creditor may still sue the surety alone which corresponds to them with interest from the
in accordance with the solidary nature of the time of payment; does not create a real case of
latter’s liability under the performance bond subrogation; if payment was made before the debt
(Stronghold Insurance Co. vs. Republic – Asahi is due, no interest for the intervening period may
Glass Corp., G.R. No. 147561, June 22, 2006). be demanded.

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Reason: The right of the paying co-debtor to be 4.Defenses personal to the others, but only as
reimbursed is not based on the original obligation regards that part of the debt for which the latter
but upon the payment made by him. are responsible – constitutes partial defense only
for the debtor-defendant.
No reimbursement if payment is made after the
obligation has prescribed or has become illegal. Example: The co-debtor’s share is not yet due, so
the creditor can only compel the debtor to give
Share of the insolvent solidary debtor shall be his share.
borne by ALL his co-debtors, in proportion to the
debt of each. Divisible Obligations
Those which have as their object a prestation
Computation of Interest which is susceptible of partial performance
Two Views: without the essence of obligation changed.
1.From the time payment was made
2.From the time the debt became due Indivisible Obligations
Those which have as their object a prestation
Effect of Loss or Impossibility of Performance in which is not susceptible of partial performance,
Solidary Obligation (Art.1219-Art. 1221): otherwise, the essence of the obligation will be
changed.
1.If it is not due to the fault and before delay of the
solidary debtors, the obligation is extinguished.
2.If the loss or impossibility is due to the fault of Three Kinds of Division
one of the solidary debtors OR due to a fortuitous 1.Quantitative- the thing can be materially divided
event after one of the solidary debtors had into parts and such parts are homogenous to
already incurred each other.

in delay, the obligation is converted into an Movable- parts are actually separated from each
obligation of indemnity for damages but the other.
solidary character of the obligation remains.
Immovable- the limits of the parts are fixed by
Defenses Available to a Solidary Debtor (Art. metes and bounds.
1222):
2.Qualitative- the thing can be materially divided
1.Defenses derived from the nature of the but the parts are not exactly homogenous (i.e.,
obligation – total defense; all the solidary co- inheritance)
debtors are benefited.
3.Ideal/Intellectual- the thing cannot be separated
into material parts (i.e., co-ownership)
Example: Payment or performance, res
judicata, prescription, those that causes defects
Test of Divisibility: Whether the prestation is
in the contracts and others of similar nature susceptible of partial compliance or not (Art. 1225,
par. 1).
2.Defenses personal to him – constitutes total
defense and partial defense.
The susceptibility of partial compliance should be
understood in the sense of the possibility of
Example of total defense: Minority, insanity, and realizing the end or purpose which the obligation
other defenses that causes the annulment of
seeks to attain (Sanchez Roman).
consent
In obligations to give, even though the object may
Example of partial defense: Special terms or be physically divisible, the obligation is still
conditions affecting his part of the obligation indivisible if it is provided by law or it is so intended
by the parties (Art. 1225, par. 3).
3.Defenses pertaining to his own share –
constitutes a partial defense; only the debtor is In obligations to do, the obligation shall be
benefited. considered divisible when it has for its object (Art.
1225, par. 2):
Example: Share of debtor is not yet due, the 1. The execution of a certain number of days of
creditor can only compel the share of other co- work
debtors 2. The accomplishment of work by metrical units

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3. The accomplishment of analogous things which Penal Clause Condition
by their nature are susceptible of partial
Does not
performance. Constitutes an obligation
constitute an
obligation May become
In obligations not to do, it depends upon the
character of the prestation in each particular case demandable upon
(Art. 1225, par. 3).
default of the
unperformed obligation
Effect of Divisible or Indivisible Obligation
(Art. 1223) Never demandable and sometimes jointly
Divisibility/indivisibility is of little significance as with it
implied under Art. 1223
Purpose of Penalty:
General Rule: Creditor cannot be compelled 1.Función coercitiva o de garantia - to insure the
partially to receive the prestation in which the performance of the obligation;
obligation consists; neither may the debtor be 2.Función liquidatoria - to liquidate the amount of
required to make partial payments damages to be awarded in case of breach of the
principal obligation (compensatory)
Exceptions: 3.Función estrictamente penal - in certain
1.When the obligation expressly stipulates the exceptional cases, to punish the obligor in case
contrary of breach of the principal obligation (punitive).
2.When the different prestations constituting the Does not resolve the question of damages
objects of the obligation are subject to different
terms and conditions A penal clause is attached to an obligation in order
3.When the obligation is in part liquidated and in to insure performance and has a double function:
part unliquidated (1) to provide for liquidated damages, and (2) to
strengthen the coercive force of the obligation by
Whether a contract is entire or severable depends the threat of greater responsibility in the event of
in general upon the consideration to be paid, not breach (Filinvest Land, Inc. vs. Court of Appeals,
upon its object. If the consideration is single, the G.R. No. 138980, September 20, 2005).
contract is entire, but if the consideration is
expressly or by implication apportioned, as when Kinds of Penalty:
the part to be performed by one party consists in 1. As to origin
several and distinct items, and the price is a.Legal – constituted by law
apportioned to each of them, the contract is
b.Conventional – constituted by parties
severable.
2. As to purpose
Note: When there is plurality of debtors and
creditors, the effect of divisible /indivisible a.Compensatory or Reparatory – indemnity for
character of the obligation depends on whether damages
the obligation is joint or solidary. b.Punitive – punishment for breach
If solidary – Arts. 1211 to Art. 1222 apply
If joint divisible – Art. 1208 is applicable 3. As to effect
If joint indivisible – Art. 1209 and 1224 apply a.Subsidiary – only penalty may be demanded
b.Joint or Complementary – both penalty and
Art. 1224: Breach of Joint Indivisible Obligation. principal obligation may be demanded
See previous discussion on joint indivisible
obligation (p. 184).

OBLIGATION WITH A PENAL CLAUSE

An obligation to which an accessory undertaking
(penal clause/ penalty) is attached for the
purpose of insuring its performance by virtue of
which the obligor is bound to pay a stipulated Obligations with a Penal Clause Distinguished
indemnity or perform a stipulated prestation in from Other Obligations
case of breach.
A. As against a conditional obligation
Penal Clause and Condition Distinguished Obligation with a Conditional Obligation
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Penal Clause the principal obligation and the guarantor is
There is already an No obligation before the
existing obligation from suspensive condition the
very beginning happens thesame

Penalty is dependent Principal obligation itself

Principal obligation andthe penalty can be
uponperformance of the the Principal debtor cannotbe the guarantor of the

non- is dependent upon theuncertain event

assumed by the samepersonsame obligation
principal obligation

B. As against an alternative obligation As a rule, penalty isextinguished by the Guaranty

Obligation with a Alternative Obligation
Penal Clause subsists evenwhen the principal nullity of the
There is only one Two or more obligations
prestation are due
obligation is
principalobligation
Impossibility of the The impossibility of one,

principal extinguishesalso the penalty without voidable,

unenforceable or a
the fault of thedebtor, leaves the other
natural one
subsisting
Effect of Penalty (Art. 1226, par. 1)
The obligor cannot Debtor can choose General Rule: The penalty shall substitute the
choose to pay the which prestation to fulfill indemnity for damages and payment of interest
penalty to relieve himself of the principal, in case of noncompliance
unless this right is expressly granted to him
Exceptions:
C. As against a facultative obligation 1.When there is a stipulation to the contrary
Obligation with a Facultative Obligation 2.When the obligor refuses to pay the penalty
Penal Clause Payment of the penalty in 3.When the obligor is guilty of fraud
lieu of the principal Power of the debtor to Note: See Art. 1170
obligation can be made make the substitution
is Enforceability of Penalty (Art. 1226 par. 2)
only by express absolute Penalty, as a stipulation in a contract, is
stipulation demandable only if there is a breach of the
The creditor can The obligation and it is not contrary to law, morals,
creditor can never demand both good customs, public order or public policy.
demand both
prestations prestations Where both of the contracting parties are unable to
comply with their respective obligations, although
D. As against a guaranty the breach is not willful or culpable, the penal
clause cannot be invoked by anyone of them to the
Obligation with a Guaranty
prejudice of the other (Reyes vs. Formoso, CA, 46
Penal Clause Off. Gaz. 5621).

Obligation to pay thepenalty is different from Limitation upon the Right of the Debtor in
Obligations with a Penal Clause (Art. 1227)

Object of the obligationsof the principal debtor General Rule: Debtor cannot exempt himself from
the performance of the principal obligation by
paying the stipulated penalty
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Exception: Unless this right has been clearly and 4.Confusion or merger
expressly granted to him. 5.Compensation
6.Novation
Limitations on the Right of the Creditor in 7.Annulment
Obligations with a Penal Clause (Art. 1227) 8.Rescission
9.Fulfillment of a resolutory condition
General Rule: Creditor cannot demand the
10.Prescription
fulfillment of the principal obligation and demand
the satisfaction of the penalty at the same time.
Note: Enumeration under Art. 1231 is NOT
exclusive.
Exception: Unless the right has been clearly
granted to him
Other Forms of Extinguishment Not Under (Art.
If creditor has chosen fulfillment of the principal 1231)
obligation and performance thereof became 1.Death (for personal or intransmissible obligation)
impossible without his fault, he may still demand 2.Mutual desistance or withdrawal
satisfaction of the penalty. 3.Arrival of resolutory period
4.Compromise
If there was fault on the part of debtor, creditor 5.Impossibility of fulfillment of condition
may demand not only satisfaction of penalty but
6.Fortuitous event
also the payment of damages.
Payment or Performance
Proof of Actual Damages (Art. 1228)
Fulfillment of the prestation due. A fulfillment
The rule that proof of actual damages is not
that extinguishes the obligation by the realization
necessary; it is applicable only to the general rule
of the purposes for which it was constituted.
stated in Art. 1226 and not to the exceptions.
JURIDICAL ACT which is VOLUNTARY, LICIT, and
Penalty is exactly identical with what is known as
MADE with the INTENT to EXTINGUISH the
“liquidated damages” under Art. 2226.
obligation.
When Penalty May Be Reduced (Art. 1229):
Requisites:
1.If the principal obligation has been partly
1. Person who pays
complied with;
2.If the principal obligation has been irregularly 2. Person to whom payment is made
complied with; and 3. Thing to be paid
3.If the penalty is iniquitous or unconscionable 4. Manner, time, and place of payment
even if there has been no performance.
Kinds of Payment:
The power of a judge to reduce the penalty refers 1.Normal- when the debtor voluntarily performs
only to penalties prescribed in contracts. theprestation as agreed upon
2.Abnormal- when debtor is forced by means of
Effect of Nullity of Obligation or Penalty ajudicial proceeding either to comply with the
(Art. 1230) prestation or pay indemnity
If principal obligation is void, penal clause shall
also be void because the penalty is merely an Characteristic of a valid payment:
accessory obligation. But if penal clause is void, 1.Identity – only the prestation agreed upon and no
principal obligation is NOT affected. other must be complied with
2.Completeness – the thing or service must be
completely delivered or rendered
EXTINGUISHMENT OF OBLIGATIONS
3.Indivisibility – payment or performance must be
indivisible.

Extinguishment of Obligations Note: As a general rule, the above characteristics

must concur.
(NoCoMeRePaLo Pre Re Ful An)
1.Payment/performance Principle of Integrity (Art. 1233)
2.Loss of the thing due General Rule: A debt shall not be understood to
3.Condonation or remission of debt have been paid unless the thing or service in which
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the obligation consists has been completely Exception: Unless there is a stipulation to the
delivered or rendered, as the case may be. contrary.

Exceptions: Effects of Payment

1.When the obligation has been substantially 1.Third person is entitled to full reimbursement.
performed in good faith (Art. 1234) less damages 2.There is legal subrogation as the third person
suffered by the oblige steps into the shoes of the creditor.
2.When the obligee accepts performance, knowing
its incompleteness or irregularity and without Note: The creditor may refuse to accept
expressing any protest or objection; based on the payment.
principle of estoppel (Art. 1235).
D. Third person who is NOT an interested party
Who must pay? and WITHOUT knowledge or AGAINST the will
A. In general of the debtor
1. Debtor General Rule: Whoever pays for another may
2. Anyone acting on the debtor’s behalf demand from the debtor what he has paid
a. Duly authorized agent or representatives (Art. 1236, Par. 2).
b. Heirs (provided that the debtor is already Exception: If payment was made without the
deadfor otherwise they are considered as knowledge or against the will of the debtor.
third persons interested in the obligation)
c. Successors-in-interest and assignees In such case, he can only recover insofar as the
payment has been beneficial to the debtor.
Note: The creditor cannot refuse valid tender of
payment from the abovementioned individuals. Effects of Payment:
1. Third person can only be reimbursed insofar as
B. Third person who is an INTERESTED PARTY payment has been beneficial to the debtor.

Interested party Benefit to the creditor is presumed in the

One who has an interest in the extinguishment of following cases (Art. 1241): RES
the obligation such as: 1. Co-debtors a. If the creditor ratifies the payment to the
third person (ratification);
2. Sureties b. If by the creditor’s conduct, the debtor has
3. Guarantors been led to believe that the third person
4. Owners of mortgages property or pledge had authority to receive the payment
(estoppel);
Note: Even without the knowledge of the c. If after the payment, the third person
debtor, a person interested in the fulfillment of acquires the creditor’s rights (subrogation).
the obligation can pay (Art. 1302 ,Par. 3).
Art. 1237 states that whoever pays on behalf of
Effects of Payment: the debtor without the knowledge or against
the will of the latter, CANNOT compel the
1. The obligation is extinguished.
creditor to subrogate him in his rights.
2. The debtor is to fully reimburse the third
personinterested.
To Whom Payment Must Be Made (Art. 1240)
3. The third person interested is subrogated to
therights of the creditor. 1.The person in whose favor the obligation has
been constituted.
2.His successor in interest.
Note: The creditor cannot refuse valid tender of
payment from the abovementioned individuals. 3.Any person authorized to receive it – by law or
by the creditor at the time when payment is
C. Third person who is NOT an INTERESTED due and not when the obligation was
constituted.
PARTYbut with DEBTOR’s CONSENT
General Rule: The creditor is NOT BOUND to Effect of payment to unauthorized persons in
accept payment or performance by a third
person who has NO interest in the fulfillment obligation to give:
of the obligation (Art. 1236, Par. 1).
General Rule: It shall NOT be valid, even though
made in good faith.

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Exceptions: debtor during the intervening period as “the
1.Payment made to a third person, provided that action derived from the original obligation shall
it has redounded to the benefit of the creditor. be held in abeyance.”

Benefit to the creditor is presumed in the Legal Tender: Such currency which may be used
following cases (Art. 1241): (RES) for the payment of all debts, whether private or
a.If the creditor ratifies the payment to the public. Its significance is manifested by the fact
third person (ratification); that it is such which the debtor may compel a
b.If by the creditor’s conduct, the debtor has creditor to accept in payment of the debt.
been led to believe that the third person had
authority to receive the payment (estoppel); Legal tender in the Philippines would be all NOTES
c. If after the payment, the third person AND COINS issued by the Bangko Sentral (Circular
acquires the creditor’s rights (subrogation); No. 537):
1.1-Peso, 5-Pesos and 10-Peso coins: in amounts
2. Payment to the possessor of the credit, made in not exceeding P1,000.00
good faith (Art. 1242) 2.25 centavo coin or less: in amounts not exceeding
P100.00
This refers to the possession of credit not the Take note that bills, regardless of denomination,
document evidencing it. are legal tender up to whatever amount.

Note: In obligations to give, payment to R.A. 8183 provides that all monetary obligations
incapacitated person is valid when: shall be settled in the Philippine currency which is
legal tender in the Philippines. The parties may
a.The incapacitated has kept the amount or thing agree that the obligation or transaction be settled
paid or delivered . in other currency at the time of payment.
b.Payment has been beneficial to the
incapacitated person Art. 1241. Extraordinary inflation or deflation (Art. 1250)

Payment made to the creditor by the debtor Requisites:

after the latter has been judicially ordered to 1.There must be a decrease or increase in the
retain the debt shall NOT be valid (Art. 1243); purchasing power of the currency which is
UNLESS otherwise stipulated, extrajudicial unusual or beyond the common fluctuation in the
expenses required by the payment shall be for value of the currency;
the account of the debtor (Art. 1247). 2.Such decrease or increase could not have been
reasonably foreseen or which was manifestly
Rule in monetary obligations (Art. 1249) beyond the contemplation of the parties at the
1.Must be made in the currency stipulated; if it is time the obligation was established.
not possible to deliver such currency, then in
the currency which is legal tender in the Take note that that Art. 1250 mentions “in the
Philippines. currency STIPULATED. Thus, it applies ONLY to
2.Delivery of promissory notes payable to order contractual obligations.
or bills of exchange or other mercantile
documents shall not produce the effect of Value of currency at the time of the establishment
payment except: of the obligation shall be the basis of payment. The
a.When they have been cashed or credited; or law does not say it should be the amount paid
b.When through the fault of the creditor they (Jurado & Desideri, Comments and Jurisprudence
have been impaired. on Obligations and Contracts, 2010 ed., p.263).

Note: The impairment of the negotiable Note: Even if the price index of the goods and
instrument through the fault of the creditor services may have risen during the intervening
contemplated by Art. 1249 is applicable ONLY to a period (Sangrador vs. Valderrama, GR No. 79552,
document executed by a THIRD PERSON and November 29, 1988), this increase, without more,
delivered by the debtor to the creditor and does cannot be considered as resulting in “extraordinary
not apply to instruments executed by debtor inflation” as to justify the application of Article
himself and delivered to the creditor. 1250 (Telengtan & Sons, Inc. vs. United States
Lines, Inc., et. al., G.R. No. 132284, February 28,
Pending the cashing of the mercantile document, 2006).
the creditor cannot bring an action against the

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There must be a declaration of such extraordinary damages at the time of application of
inflation or deflation by the Bangko Sentral. payment.
Without such declaration, the creditors cannot
demand an increase, and debtors a decrease, of 3. All the debts must be due except if there is
what is due to or from them (Ramos vs. CA, GR No. stipulation to the contrary OR application of
119872, July 7, 1997 and Mobil Oil Phils. vs. CA, GR payment is made by the party for whose
No. 103072, August 20, 1993). benefit the term has been constituted (Art.
1196); and
Place of Payment (Art. 1251) 4. Amount paid by the debtor is insufficient to
1. Place stipulated by the parties. cover the total amount of all the debts.
2. If there is no stipulation and the obligation is to
deliver a determinate thing, payment shall be Rules on Application of Payment:
made at the place where the thing might be at 1.The right to designate the debt to which the
the time the obligation was constituted. payment shall be applied belongs primarily to
3. In any other case, the payment shall be made the debtor.
at the domicile of the debtor.
2.If the debtor does not apply, the creditor may
Note: If the debtor changes his domicile in bad designate which debt is paid by specifying in
faith or after he has incurred in delay, the the receipt.
additional expenses shall be borne by him. 3.If the creditor did not apply or if application is
void, debt which is the most onerous, is the one
Art. 1251 governs unilateral obligations. Reciprocal satisfied. It is evident in the circumstances laid
obligations are governed by special rules. by Art. 1254, that it is the law which makes the
application.
Special Forms of Payment:
A. Application of Payment – Designation of the Why the most onerous debt? In making the
debt to which the payment must be applied application of payments, the law considers
when the debtor has several obligations of the particularly the interest of the debtor. It is
same kind in favor of the same creditor. assumed that if the debtor had chosen the debt
to be paid, he would have relieved himself first of
Requisites: the most burdensome debt.
1.There must be only one debtor and only one
Which is more onerous?
creditor;
1.OLDEST debts are more onerous than more
Under Art. 1792, application of payment may recent ones;
be had even if there are two creditors -- the 2.INTEREST BEARING debts are more onerous
partnership and the managing partner than those which do not, even if the latter were
(Jurado, p. 265), but the law allows such incurred at an earlier debt;
application in favor of the managing partner 3.A SECURED debt is more onerous than that
only if the personal credit of the partner which is not;
should be more onerous to him. 4.A debt in which the is PRINCIPALLY bound is
more onerous than that which he is merely a
Neither the requirement that there must be guarantor or surety;
only one debtor militates against the 5.A debt in which he is solidarily bound is more
possibility of extending the rules on onerous than that which he is only a sole
application of payment to solidary debtor;
obligations. The solidary debtor who paid may 6.Within a solidary obligation, the share which
have other obligations in favor of the creditor. corresponds to a solidary debtor would be most
onerous;
2.There must be two or more debts of the same 7.An obligation for INDEMNITY is more onerous
kind; than that which is by way of penalty;
8.LIQUIDATED DEBTS are more onerous than
The fact that the debts are of the same kind is unliquidated ones.
reckoned from the time of the application of
payment, not from the time of constitution of No hard and fast rule, however, can be put up. As
the obligation. A non- monetary obligation, a last resort, when it cannot definitely be
for instance, may be converted into one of determined whether one debt is more
burdensome than the other, the
abovementioned rules may be applied.
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Debts due of the same nature, payment shall be 3. Satisfaction of the money obligation of the
applied proportionately. debtor.

Must conform to the general rules on payment C. Payment by Cession (Art. 1255) - special form
(Arts. 1232-1251). of payment whereby the debtor
assigns/abandons ALL of his property for the
Applying both rules, should a debtor have two benefit of his creditors in order that from the
debts of the same nature and burden amounting proceeds thereof, the latter may obtain
to P100 and P200 and he pays only P100, the payment of their credits.
same shall not be applied proportionately as the
creditor cannot be compelled to accept partial Requisites:
payment. Consequently, his payment shall be 1.Plurality of debts;
fully applied to the debt amounting to P100. 2.Partial or relative insolvency of the debtor; and
3.Acceptance of the cession by the creditors.
Note: If the debt produces interests, payment
of the principal shall not be deemed to have
Kinds of Payment by Cession:
been made until the interests have been
covered (Art. 1253); applies only in the absence 1.Contractual (Art. 1255)
of an agreement to the contrary and is merely 2.Judicial (governed by Insolvency Law)
directory and not mandatory. It means that the a.Voluntary
benefits of Art. 1253 may be waived by way of b.Involuntary
stipulation.
Dation in Payment and Payment by Cession
B. Dation in Payment (Dacion en pago) – Delivery Distinguished
and transmission of ownership of a thing by the Dation in Payment Payment By Cession
debtor to the creditor as an accepted
equivalent of the performance of the One creditor Plurality of creditors
obligation.
Debtor not necessarily Debtor must be
Requisites:
partially in state of financial difficulty or
1. Existence of a money obligation;

Take note, however, that it is precisely in relatively insolvent

obligations which are not money debts, in
which the true juridical nature of dation in Thing delivered is
payment becomes manifest. The fact that Universality of property
there must be a prior agreement of the
parties on the delivery of the thing in lieu of considered as
equivalent of of debtor is what is
the original prestation shows that there is a ceded
novation which extinguishes the original
obligation, and the delivery is a mere performance Extinguishes obligation to the
performance of the obligation (Tolentino, extent of the Merely releases debtor value of
Arturo M., Commentaries and Jurisprudence the thing for net proceeds of delivered as
on the Civil Code of the Philippines, 1991 ed., agreed things ceded or upon, proved or
Vol. 4, p.294). implied assigned, unless there from the
conduct of the is contrary intention creditor
Thus, if the creditor is evicted from the thing Does not involve all Involves all the properties
given in dation in payment, the original of debtor properties of the debtor
obligation is not revived.

It is submitted that the question of whether Creditor becomes Creditor does not
the preexisting obligation in dation in
payment is in money has significance only in become the
owner of property ofdebtor
determining whether the resulting contract is
that of sale and not whether the original
owner.
obligation has been extinguished. Possession is only transmitted.

2. Alienation to the creditor of a property by the

debtor with the consent of the former; and
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D. Tender of Payment and Consignation With respect to the creditor, this notice can be
(Art. 1256) made simultaneously with the tender of
payment (i.e. by way of warning that should the
Tender of Payment payment be not accepted the thing will be
Manifestation of the debtor to the creditor of his deposited in court). Separate notices must be
decision to comply immediately with his given to other interested parties such as
obligation; preparatory act and extrajudicial in guarantors. (Id.)
character.
4.Consignation – amount or thing due placed at the
disposal of the court
Consignation
Deposit of the object of the obligation in a 5.Subsequent notice of consignation to enable the
competent court in accordance with the rules creditor to withdraw the goods or money
prescribed by law, after refusal or inability of the deposited.
creditor to accept the tender of payment;
principal act and judicial in character.
It would be unjust to make the creditor suffer the
risk of deterioration, depreciation or loss of such
goods or money by reason of lack of knowledge
Consignation, being a form of payment, of the consignation
presupposes that there must be a debt that must
be paid. Tender of payment ALONE would be Note: Since consignation is a special form of
sufficient to preserve the right of the payment. It must conform not only with the
redemptioner or the vendee a retro. special requirements prescribed by law, but also
with all the requisites of a valid payment.
In case of exercise of right of repurchase by
tender of check, such tender is valid because it is Instances where consignation shall produce the
an exercise of a right and not made as mode of
effects of payment without prior tender of
payment of an obligation. Article 1249 is not
applicable (Adelfa Properties, Inc. vs. CA, G.R. No. payment (Art. 1259, par. 2):
111238, January 25, 1995). 1.Creditor is absent or unknown, or does not
appear at the place of payment.

Special Requisites of Consignation: Absence need not be judicially declared. He

must however, have no legal representative to
1. Existence of a valid debt which is due.
accept the payment.
2. Tender of payment by the debtor; creditor’s
refusal without just cause to accept it or any of
2.Creditor is incapacitated to receive the payment
the cases provided in Art. 1256 par. 2 exists. at the time it is due.
a.Tender must precede consignation; 3.When without just cause, the creditor refuses
b.It must have been unconditional to give a receipt.
c. Refusal must be without just cause At the
time of deposit, however it is not necessary It appears in this case that the refusal to issue a
for the debtor to show want of cause for the receipt preceded the tender of payment.
refusal of the creditor; this fact may be
established during the hearing of the case. 4.When two or more persons claim the right to
collect (as in the case of interpleader).
3.Previous notice of consignation to person 5.When the title of the obligation has been lost.
interested in the fulfillment of the obligation, in
order to give the creditor the opportunity to The list is not exclusive. The rule also applies if
reconsider his unjustified refusal and to accept the creditor, prior to the tender of payment,
payment to avoid consignation and the intimated that he will not accept the debtor’s
subsequent litigation. payment.

Lack of previous notice does not invalidate the Effects of consignation:

consignation, but simply makes the debtor 1.If the creditor accepts the thing or amount
liable for the expenses occasioned thereby deposited without contesting the validity or
(Tolentino, Arturo M., Commentaries and efficacy of the consignation, the obligation is
Jurisprudence on the Civil Code of the cancelled/extinguished.
Philippines,1991 ed., Vol. 4, p.324)

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2.If the creditor contests the validity of the LOSS OF THE THING DUE
consignation or if the creditor is not interested Effects of Loss in Determinate Obligation to Give
or unknown or is absent, the result is litigation. (Art. 1262): Obligation is extinguished if the thing
If during the trial, the plaintiff-debtor is able to is lost or destroyed without the fault of the
establish that all the requisites of consignation debtor and before he has incurred in delay.
have been complied with, the obligation is
extinguished. General Rule: Loss of a determinate thing through
fortuitous event shall extinguish the obligation.
Effects of withdrawal of the object/ amount
deposited: Exceptions:
1.Before creditor accepted consignation or 1. When the law so provides;
judicial declaration of consignation (Article 2. When the stipulation so provides;
3. When the nature of the obligation requires an
1260, par. 2) Obligation remains in force. assumption of risk;
4. Loss of the thing is partly due to the fault of the
Withdrawal by the debtor at this stage is a debtor;
matter of right because he still owns the thing. 5. Loss of the thing occurs after the debtor
incurred in delay;
Should the debtor opt not to withdraw the 6. When the debtor promised to deliver the same
thing at this stage, can another creditor thing to two persons who do not have the same
attach the same property since the debtor interest;
still owns the thing? No. Property deposited 7. When the obligation to deliver arises from a
with court is exempt from attachment and criminal offense; and
not subject to execution; it is said to be in 8. When the obligation is generic.
custodia legis and cannot be withdrawn
without an express order from the court. If the loss is through theft the debtor is considered
negligent having placed the thing within the reach
2.With consent of the creditor (Art. 1261) of thieves and not in a secure and safe place. In
a.Creditor loses every preference which he may theft, taking is accomplished without the use of
have over the thing. violence or force.
b.Solidary co-debtors, guarantors and sureties
are released. Effect of Partial Loss (Art. 1264) General Rule:
c. Solidary debtors are released only from Partial loss does not extinguish the obligation.
their solidary liability but not from their
shares of their obligation. Exception: When the partial loss or destruction of
d.The obligation is revived, but without the thing is of such importance that would be
prejudice to other interested parties. tantamount to a complete loss or destruction.

Withdrawal by the debtor at this stage is a Rule if the thing is in debtor’s possession
matter of privilege
(Art. 1265)
Note: To have the effect of payment, the law General Rule: If it is lost while in the possession of
requires the twin acts of tender of payment and the debtor, it is presumed that the loss was due to
consignation. Tender of payment without his fault, unless there is proof to the contrary.
consignation only frees the debtor from the
obligation to pay interest on the outstanding Exception: No such presumption in case of
amount from the time the unjustified refusal earthquake, flood, storm or other natural calamity.
takes place (Go Sinco vs. CA, et. al., GR No.
151903, October 9, 2009). Effect of impossibility of performance in obligation
to do (Art. 1266): When the obligation becomes
Creditor can be held liable for damages under legally or physically impossible without the fault of
Article 19 for unjustified refusal to accept the debtor, obligor is released from the obligation.
payment (Go Sinco vs. CA, Ibid). Take note that the provision mentions that the
prestation BECOMES impossible and thus, would
The expenses of consignation, when properly contemplate subsequent impossibility.
made, shall be charged against the creditor (Art.
1259). The legal and physical impossibility must have
occurred after the constitution of the obligation.

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Note: Does not apply to obligations to give. Edgardo L. Civil Code of the Philippines Annotated
IV,2008 ed., p.439). Jurado however is of the
Natural Impossibility and Impossibility In Fact opinion that the word “service” should be
Distinguished understood as referring to the “performance” of
the obligation (p.293).
Natural Impossibility Impossibility In Fact
In the absence of Must It is not a requirement under Art. 1267 that the
contract be for future service with future unusual
consist in the inherent impossibility in nature change.
of the thing to bedone and not the inability The impossibility is RELATIVE because the difficulty
of performance triggers a manifest disequilibrium
the nature of the thing in the prestations, such that one party would be
stipulated to placed at a disadvantage by the unforeseen event.

be of the party to do so performed, which is Principle of Subjective Impossibility

When there is no physical or legal loss but the
onlyimprobable or out of the power of the object of the obligation belongs to another, the
performance by the debtor of the obligation
obligor undoubtedly becomes impossible. Failure of
performance is imputable to the debtor. Thus, the
Renders the contract Does not render the debtor must indemnify the creditor for the
void contract void damages suffered by the latter (Tolentino, Arturo
M., Commentaries and Jurisprudence on the Civil
Natural impossibility is reckoned from the time of Code of the Philippines, 1991 ed., Vol. 4, p.336).
constitution of the obligation. Thus, the
obligation remains void even if the prestation Effect of Loss on Reciprocal Obligations
subsequently becomes possible. First view – If an obligation is extinguished by the
loss of the thing or impossibility of performance
In case of subsequent partial impossibility the rule through fortuitous events, the counter-prestation is
in Art. 1264 may be applied. also extinguished. The debtor is released from
liability but he cannot demand the prestation which
Temporary impossibility does not extinguish the has been stipulated for his benefit. He who gives
obligation but merely delays its fulfillment. This nothing has no reason to demand (Tolentino,
presupposes that the duration of impossibility has Arturo M., Commentaries and Jurisprudence on the
been contemplated by the parties; otherwise, the Civil Code of the Philippines, 1991 ed., Vol. 4, p.337-
same may extinguish the obligation under Art. 338).
1267. In the latter case, the fact that the
prestation later becomes possible does not revive Second View – The loss or impossibility of
the obligation. performance must be due to the fault of the
debtor. In this case, the injured party may ask for
Effect of Relative Impossibility rescission under Article 1191 plus damages. If the
Doctrine of Unforeseen Events (Art. 1267) loss or impossibility was due to a fortuitous event,
When the service has become so difficult as to be the other party is still obliged to give the prestation
manifestly beyond the contemplation of the due to the other (J.B.L. Reyes).
parties, the court should be authorized to release
the obligor in whole or in part. (This is also Rule if obligation arises from criminal offense (Art.
referred to as the Doctrine of Frustration of 1268)
Enterprise) General Rule: Debtor shall not be exempted from
the payment of the price whatever may be the
The intention of the parties should govern and if cause for the loss.
it appears that the service turns out to be so
difficult as to have been beyond their Exception: When the thing having been offered by
contemplation, it would be doing violence to the the debtor to the person who should receive it, the
intention to hold the obligor still responsible. latter refused without justification.
It will be noted that Art.1267 speaks of a Note: The offer referred in Art. 1268 should not be
“service,”- a personal obligation. Thus, real confused with consignation; the latter refers only
obligations are not within its scope (Paras
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to the payment of the obligation, the former refers provision presupposes that the accessory contract
to the extinguishment of the obligation through of pledge has been perfected.
loss by fortuitous event.
CONFUSION
CONDONATION OR REMISSION OF THE DEBT It is the merger of the characters of the creditor
An act of liberality by virtue of which the obligee, and the debtor in one and the same person by
without receiving any price or equivalent, virtue of which the obligation is extinguished.
renounces the enforcement of the obligation, as a
result of which it is extinguished in its entirety or Example:
in that part or aspect of the same to which the Atoy makes a check payable to bearer, and hands it
remission refers. to Joey, who hands it to Kaye who finally hands it to
Atoy. Here Atoy owes himself and thus, his
It is the gratuitous abandonment by the creditor of obligation is extinguished.
his right; a form of donation.
If however, the reason for the confusion ceases, the
Requisites of remission: obligation is revived. Thus, should Kaye deliver the
1.It must be gratuitous; note to Atoy in the performance of a void
2.It must be accepted by the obligor; obligation, Atoy’s obligation is recreated. But the
3.The obligation must be demandable; time intervening between the merger and its
4.Parties must have the capacity; revocation is not to be computed in the
determination of the period for prescription.
5.Not inofficious; and
6.Must comply with the forms of donation SHOULD Requisites of Merger
IT BE EXPRESS (Arts. 748 and 749).
1.Merger of the characters of the creditor and
debtor must be in the same person;
Note: Whether express or implied, the extent of
2.Must take place in the person of either the
remission or condonation shall be governed by
principal creditor or the principal debtor; and
the rules regarding inofficious donation.
3.Whether the merger refers to the entire
obligation or only part thereof, there must be
If the creditor voluntarily delivers the private
complete and definite meeting of all qualities of
document evidencing the credit to the debtor,
creditor and debtor in the obligation or in the
there is a presumption that he renounces his right
part thereof affected by the merger.
of action against the latter for the collection of
the said credit (Art. 1271). When such private
document is found in possession of the debtor, it Effects of confusion/ merger (Arts. 1276-1277)
shall be presumed that the creditor delivered it 1.If confusion takes place in the person of either
voluntarily, unless the contrary is proved (Art. the principal creditor or principal debtor –
1272). extinguishment of entire obligation.
2.If confusion takes place in the person of a
When the obligation is joint, and the private subsidiary creditor or subsidiary debtor (e.g.
document evidencing a debt is found in the guarantor) – no extinguishment of principal
possession of one of the debtors, the obligation; only substitution of creditor or debtor
presumption of remission can refer only to the 3.If confusion takes place in one of the joint
portion of the debtor who is in the possession of debtors – principal obligation is extinguished up
the instrument. If the obligation is solidary, to the share which corresponds to him.
Articles 1215, 1219 and 1220 shall apply. 4.If confusion takes place in one of the solidary
debtors – entire obligation is extinguished.
If the remission refers to the principal obligation, However, the debtor in whom confusion took
all the accessory obligations are extinguished. place may claim reimbursement from co-debtors
However, if remission refers only to the accessory for the shares which correspond to them.
obligation, the principal obligation continues to
subsist (Art. 1273). COMPENSATION
Mode of extinguishing in the concurrent amount of
It is presumed that the accessory obligation of the obligation of those persons who are
pledge has been remitted when the thing reciprocally debtors and creditors of each other.
pledged, AFTER ITS DELIVERY to the creditor, is
found in the possession of the debtor, or of a Most Fundamental Effect: It extinguishes both
third person who OWNS the thing (Art.1274). The debts to the extent that the amount covered by
the amount of the other.
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Compensation and Confusion; Distinguished in amount.
Compensation Confusion
Requisites of compensation (Art. 1279)
Two persons who, in their Only one person in
whom own right, are creditors and the qualities of 1. There must be two parties, who, in their own
right, are principal creditors and principal
debtor and debtors of each other creditor are
debtors of each other except in case of a
merged
guarantor (Art. 1280);
There must be at least two There is only one 2. Both debts must consist in sum of money, or if
obligation obligations the things due are fungibles (consumables),
they must be of the same kind and quality;
Compensation and Payment; Distinguished
General Rule: Compensation is not possible in
Compensation Payment obligations to do because of the difference in the
The requisites prescribed by law for compensation respective capacities of the obligors (Jurado,
are different from those prescribed by law for Desiderio, Comments and Jurisprudence on
payment. Obligations and Contracts,2010 ed., p.317).
Takes effect by operation of Takes effect by act of 3. Both debts must be due;
the
law parties EXCEPTION: Voluntary compensation (Article 1282)
Capacity to give and to Capacity to give and to
acquire is not necessary acquire is essential 4. Both debts must be liquidated and
demandable;
As a rule, law permits As a rule, complete and 5. There must be no retention or controversy
commenced by third persons over either of the
partial extinguishment of obligation indivisible debts and communicated in due time to the
debtor;
6. The compensation must not be prohibited by
Compensation and Counterclaim; Distinguished law.
Compensation Counterclaim
Right of guarantor to set-up compensation (Art.
Requires that two debts must consist
in money or if Not necessary 1280)
fungibles, same kind and quality The guarantor, in case the payment of the debt is
demanded from him, may set up compensation,
As a rule, both debts must Does not require that
not only for what the creditor owes him, but also
debts
for what the creditor owes the principal debtor.
be liquidated be liquidated
Need not be pleaded; takes Must be pleaded to Rule in case of rescissible or voidable debts (Art.
be effect by operation of law effectual 1284)
Rescissible or voidable obligations may be
Kinds of Compensation: compensated against each other before they are
1. As to cause judicially rescinded or avoided.
a. Legal- takes effect by operation of law from
the moment all of the requisites are present.
b. Voluntary -- when parties who are mutually Effects of assignment of rights (Art. 1285)
creditors and debtors agree to compensate 1.If with consent of debtor – debtor cannot set-up
their respective obligations, even though all compensation unless he reserved his right to
of the requisites for compensation may not compensation.
be present. 2.If with knowledge but without consent of debtor
c. Judicial -- takes effect by judicial decree. – debtor may set-up compensation prior to the
d. Facultative assignment but not subsequent ones
3.If without knowledge of the debtor – may set-up
2. As to effect compensation of all credits which he may have
against the assignor and which may have become
a.Total –- debts to be compensated are equal in demandable, before he was notified of the
amount. assignment.
b.Partial –- debts to be compensated are not equal

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Debts Which Cannot Be Compensated novation),consequently, extinguishment of the
(Arts. 1286-1287): obligation; and
1. Debts arising from contracts of depositum 5.Validity of the new obligation.
2. Debts arising from contracts of commodatum
Two-fold Purpose of Novation:
3. Claims for support due by GRATUITOUS title
1.Original obligation is extinguished
Take note that the law did not limit itself to 2.A new obligation is created
legal support and thus would include other
rights which have for their purpose the Kinds of Novation
subsistence of the debtor, such as pensions. 1. As to its essence
a. Objective/Real
4. Obligations arising from criminal offenses (Art. b. Subjective/Personal -- substitution of debtor
1288) or by subrogation.
5. Certain obligations in favor of government (e.g. c. Mixed – change in the object or principal
taxes, fees, duties, and others of a similar condition and change in the persons of either
nature). creditor and debtor of an existing obligation.

But when the debts are purely contractual and 2. As to its form/ constitution
are not of public interest, compensation can take a.Express – when it is declared in unequivocal
place. terms that the old obligation is extinguished by
a new one which substitutes the same.
Facultative Compensation b.Implied – when the old and new are
Compensation which can be set up only at the incompatible with each other on every point.
option of the creditor when legal compensation
cannot take place because of want of some legal Test of Incompatibility: Whether or not the old
requisites for the benefit of the creditor. The and new obligations can stand together, each
latter can renounce his right to oppose the having its own independent existence. If they can
compensation and he himself can set it up. It stand together, there is no incompatibility hence,
differs from conventional compensation because no novation. If they cannot stand together, there
it is unilateral while the latter depends upon the is incompatibility; consequently, there is
agreement of both parties (Tolentino, Arturo M., novation. Changes that breed incompatibility
Commentaries and Jurisprudence on the Civil must be essential in nature and not merely
Code of the Philippines, 1991 ed., Vol. 4, p.367). incidental.

NOVATION 3. As to extent/effect
It is the substitution or change of an obligation by a. Total
another, resulting in its extinguishment or b. Partial
modification, either by changing its object or
principal conditions, or by substituting another in Note: Novation is never presumed. Unless it is
place of the debtor, or by subrogating a third clearly shown either by express agreement of the
person in the rights of the creditor. parties or by acts of equivalent import, this defense
will never be allowed (Ong vs. Bogñalbal, G.R. No.
Requisites of Novation: 149140 September 12, 2006).
1.Previous valid and existing obligation;
Objective Novation (Art. 1291, par.1)
A new contract, recognizing and assuming a According to Castan, objective novation is effected
prescribed debt, would be valid and by:
enforceable. The prescription, being available to
1. Changing the cause of the obligation
the debtor, can be waived by him. The novation
of a prescribed debt is thus valid.
2. Changing the object of the obligation
2.Capacity of the contracting parties (to the new 3. Changing the principal or essential conditions
contract); of the obligation.
3.Animus novandi or intent to novate (especially for
implied novation and substitution of debtors); Requisites:
4.Substantial difference between the old obligation a.New obligation expressly declares that the old is
and the new obligation (especially for implied extinguished or

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b.New obligation is on every point incompatible you what Atoy owes you. From now on, consider
with the me your debtor. Atoy is to be excused.” Take
old one (Ajax Marketing & Development Corp. vs. note that in this example, there is an agreement
CA, that Atoy will be released from the obligation.
Sans such agreement, there is no novation and
G.R. No. 118585, September 14, 1995)
the creditor (Eugene) can still enforce the
obligation against the original debtor (Atoy).
Note: A change in the rate of interest is merely a
collateral agreement between the creditor and
principal debtor that did not affect the surety. F kKinds of Substitution by Expromisión
The agreement to pay the additional interest was a.Substitution with the knowledge and consent of
an additional burden upon the debtor only. It did the old debtor; and
not in any way affect the original contract. Thus, b.Substitution without the knowledge or against
despite the compounding of the interest, the the will of the old debtor.
liability of the surety remains only up to the
original uncompounded interest (Garcia, Jr. vs. 2. Delegación – effected with the consent of the
CA, G.R. No. L-80201, November 20, 1990). creditor at the instance of the old debtor
(delegante), with the concurrence of the new
The grant of a 45-day credit extension does not debtor (delegado) (reimbursement and
novate the contract as it merely modifies the subrogation).
contract by extending the time for payment.
Requisites:
The obligation to pay a sum of money is not a. Initiative for substitution must emanate from
novated by an instrument that expressly the old
recognizes the old, changes only the terms of the debtor;
payment, adds other obligations not incompatible b. Consent of the new debtor;
with the old ones or the new contract merely c. Acceptance by the creditor; and
supplements the old contract (Sps.Reyes vs. BPI d. Old debtor must be released from his
Family Savings Bank, GR No. 149841-41, March obligation
31, 2006).
Example: Atoy owes Eugene 1K. Atoy texted
If a subsequent contract is designed to novate a Eugene that his friend Joey will pay the debt, and
previous contract and not all parties to the he wishes to be released from the obligation.
original contract consented to or are made Both Joey and Eugene agreed to such terms.
parties in the subsequent contract, there can be Take note again that the substitution must be
no novation made with the intention to release the original
debtor.
Novation by substitution of debtors (Art. 1293) Parties in delegacion
A subjective/personal novation consists in the Delegante- original debtor (Atoy)
substitution of a new debtor in place of the
Delegatorio- the creditor (Eugene)
original debtor.
Delegado- the new debtor (Joey)
Forms of novation by substitution of debtors:
Rights of New Debtor:
1. Expromisión – effected with the consent of the
creditor at the instance of the new debtor even 1.Expromisión
without the consent or even against the will of a. Substitution with knowledge and consent of
the old debtor (beneficial reimbursement). original debtor and payment made by new
debtor with or without knowledge and
Requisites: consent of original debtor:
i. Reimbursement from the original debtor of
a. Initiative for substitution must emanate from
the
the
entire amount paid ii. Subrogation in
new debtor;
all the rights of the creditor
b. Consent of the creditor to the substitution;
b. Substitution without the knowledge and
and
consent of the original debtor, and payment
c. Old debtor must be released from obligation. is made by the new debtor without the
knowledge and consent of the original
Example: Atoy owes Eugene 1K. Joey, a friend of debtor:
Atoy approaches Eugene and tells him: “I will pay
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i. Reimbursement from the original debtor Effects of novation upon accessory obligations
only insofar as the payment has been (Art.
beneficial to such debtor 1296)
ii. No subrogation
When the principal obligation is extinguished in
consequence of a novation, accessory obligation
2.Delegación – Since substitution was effected
may subsist only insofar as they may benefit third
with the consent of all the parties, the new
persons who did not give consent.
debtor can demand reimbursement from the
original debtor of the entire amount which he
Art. 1296 has no application to novation effected by
has paid as well as compel the creditor to
subrogating a third person to the rights of the
subrogate him to all of his rights.
creditor. Such novation is regulated by Arts. 1303-
1304.
Note: The mere fact that the creditor receives a
guaranty or accepts payment from a third person
who agrees to assume the obligation, when there Effects of condition in novation:
is no agreement that the first debtor shall be 1.If the original obligation was subject to
released from responsibility, does not constitute suspensive/ resolutory condition, the new
novation, and the creditor can still enforce the obligation shall be under the same condition,
obligation against the original debtor. If the older unless otherwise stipulated (Art. 1299).
debtor is not released, there is no novation; the 2.If the new obligation and the old obligation are
third person becomes merely a codebtor, surety subject to different conditions:
or co-surety (Mercantile Insurance Co., Inc. vs. a. If the conditions can stand together --
CA, GR No. 85647, April 22, 1991). i. If both are fulfilled -- the new obligation
becomesdemandable
Effect of insolvency or non-fulfillment by new
debtor ii. If only the condition affecting the old
obligation isfulfilled -- old obligation is
(Arts. 1294-1295)
revived while the new obligation loses its
1. Expromisión -- force.
Tolentino: it shall not revive the original iii. If only the condition affecting the new
debtor’s liability to the creditor whether the obligationis fulfilled -- there is no novation
substitution is effected with or without the since the requisite of a previous valid and
knowledge or against the will of the original effective obligation would be lacking.
debtor. b. If the conditions are incompatible – the effect
is to extinguish the old obligation so that only
Jurado: If the substitution was effected with the the new obligation remains and whose
knowledge and consent of the original debtor, it demandability/effectivity depend upon the
shall revive the original debtor’s liability to the fulfillment/non-fulfillment of the condition
creditor. affecting it.
2. Delegación –- The right of the creditor can no Novation by Subrogation (Art. 1300)
longer be revived EXCEPT in the ff. cases:
A personal novation effected by subrogating a third
a. Insolvency already existing and of public
person in the rights of the creditor.
knowledge at the time when the original
debtor delegated his debt
Forms of novation by subrogation:
b. Insolvency was already existing and known
to the original debtor when he delegated his 1.Conventional –- takes place by agreement of the
debt It is submitted that ACTUAL knowledge original creditor, the third person substituting the
of the creditor that new debtor was original creditor, and the debtor (Art. 1301).
insolvent at the time of delegation, will bar 2.Legal –- takes place by operation of law
him from recovering from the old debtor. He
must bear the consequences of his acts Conventional Subrogation and Assignment of
knowingly done. Rights; Distinguished
Conventional Assignment of Rights
Note: A change in the incidental elements of, or an Subrogation
addition of such elements to an obligation, unless
Governed by Arts. 1300- Governed by Arts. 1624-
otherwise expressed by the parties, will not result
in its extinguishment. 1304 1627

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Debtor’s consent is Debtor’s consent is not without Joey’s knowledge pays Cath, Atoy will be
required required subrogated in Cath’s place. By reason of
confusion, or by reason of the fact that Atoy
Has the effect of Has the effect of became a guarantor and a creditor at the same
time, the guaranty is extinguished.
extinguishing the obligationand giving rise to a new STRICTLY SPEAKING, there is no legal subrogation
transmitting the rights of
the creditor to another when a solidary debtor pays the entire obligation.
Solidarity terminates upon the payment of the
whole obligation. Thus, the paying debtor DOES
one person without modifying/ extinguishing the
NOT COMPLETELY step into the shoes of the
obligation
creditor, as he cannot demand from any of his co-
debtors the compliance of the entire obligation
Defects/ vices in the old Defects/ vices in the old but only the proportion which pertains to each.
obligation are cured obligation are not cured The
effects arises from the As far as the debtor is Effects of Subrogation (Arts. 1303-1304)
moment of novation/ concerned, arises from the
1.Total subrogation -- Transfers to the person
subrogation moment of notification
subrogated the credit with all the rights the
original creditor had against the debtor or third
Legal subrogation (Art. 1302) General Rule: persons.

Legal subrogation is not presumed. Accessory obligations are not extinguished; the
person subrogated acquires all the rights the
Exceptions: original creditor had against third persons and
1. When a creditor pays another creditor who is the rule is absolute with respect to legal
preferred, without debtor’s knowledge; subrogation. In conventional subrogation,
accessory obligations may be increased or
Example: Atoy has two creditors, Mhik who is a reduced upon agreement of the parties.
mortgage creditor for P15K and Jerome who is
an ordinary creditor for P6K. Jerome paid Atoy’ 2.Partial subrogation -- A creditor, to whom partial
debt of P15K to Mhik. Jerome will be payment has been made, may exercise his right
subrogated to the rights of Mhik. This means for the remainder, and he shall be preferred to
that Jerome will now be a mortgage creditor for the person who has been subrogated in his place.
P15K and an ordinary creditor for 6K.
Example: Atoy owes Eugene P4K. With the
2. When a third person, not interested in the consent of both Joey pays Eugene P2K. Now
obligation, pays with the express or tacit approval Eugene and Joey are the creditors of Atoy to the
of the debtor; or amount of P2K. By reason of the preferential
right to the remainder, Eugene is to be preferred
Example: Atoy owes Joey 10K secured by in case Atoy has only P2K. The preference,
mortgage. Eugene, a classmate of Atoy, and however, enjoyed by Eugene is only in the assets
having no connection with the contract paid remaining with the debtor (Atoy) and not those
Joey with Atoy’s approval. Subrogation takes already transferred to others.
place and Eugene becomes a mortgage
creditor.

If Eugene pays without the knowledge or A compromise is a contract whereby the parties,
against the will of Atoy, he is only entitled to by making reciprocal concessions, avoid litigation
demand reimbursement as to the extent that or put an end to one already commenced (Art.
Atoy has been benefited by the payment. There 2028).
is no subrogation in this case.
Requisites:
3. When, even without knowledge of the debtor, a
person interested in the fulfillment of the 1.Uncertainty of juridical relation;
obligation pays, without prejudice to the effects 2.An agreement to eliminate the uncertainty
of confusion as to the latter’s share. through reciprocal concessions (5 Tolentino,
p.485)
Example: Joey owes Cath P10K secured by a
mortgage and by a guaranty of Atoy. If Atoy even Kinds:
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1.Judicial-end a pending litigation 2.Extra-
judicial- to prevent a litigation from arising.
Contract
Characteristics: A contract is a meeting of minds between two
1.Consensual persons whereby one binds himself, with respect to
2.Reciprocal the other, to give something or to render some
3.Onerous service.
4.Nominate
5.Accessory (in the sense that a prior conflict is ELEMENTS OF CONTRACTS:
presupposed) 1.Essential – those without which there can be no
6.Once accepted, binding upon the parties except if contract (Art. 1318)
consent is vitiated. a. Common elements -- present in all contracts
7.Principally, settlement of controversy; i. Consent
Incidentally, settlement of claim ii. Object or Subject Matter iii. Cause
or Consideration
Questions on Which There Can be NO Valid b. Special elements -- present only in certain
Compromise contracts. (e.g., delivery in real contracts or
1. The civil status of persons; form in solemn ones)
2. The validity of a marriage or a legal separation; c. Extraordinary elements – peculiar to specific
contract. (e.g., price in a contract of sale.)
3. Any ground for legal separation;
2.Natural -- those which are derived from the
4. Future support;
nature of the contract and ordinarily accompany
5. The jurisdiction of courts; 6. Future legitime (Art. the same; they are presumed by law, although
2035). they can be excluded by the contracting parties if
they so desire.
Effects of Compromise 3.Accidental -- those which exist only when the
A compromise has upon the parties the effect and parties expressly provide for them for the
authority of res judicata; but there shall be no purpose of limiting or modifying the normal
execution except in compliance with a judicial effects of the contract. (e.g. conditions, terms or
compromise (Art. 2037). modes)

If one of the parties fails or refuses to abide by the CLASSIFICATION OF CONTRACTS:

compromise, the other party may either enforce 1. According to their relation to other contracts
the compromise or REGARD it as rescinded and
a.Preparatory – preliminary step towards the
insist upon his original demand (Art. 2041). celebration of another subsequent contract
b.Principal – can subsist independently from
A compromise extinguishes the rights and actions other contracts
which gave rise to it and new obligations are
c. Accessory – can exist only as a consequence of,
created in substitution of those extinguished
or
(Tolentino, Arturo M., Commentaries and
Jurisprudence on the Civil Code of the in relation with, another prior contract
Philippines,1991 ed., Vol. 5, p.492).
2. According to their perfection
If a writ of execution is issued to enforce a a.Consensual – perfected by mere agreement of
judgment based on compromise, the writ cannot the parties
be enforced against a person who although a party b.Real – requires consent of the parties and
to the case, was not a party to the compromise delivery
agreement, and who in fact was absolved from of the object for their perfection
liability (Paras Edgardo L. Civil Code of the 3. According to their form
Philippines Annotated, 2008 ed.,Vol. V, p.994). a.Common or informal – requires no particular
form
(See discussions in Remedial Law) b.Special or formal -- requires some particular
form
Take note of Arts. 748, 749, 1771, 1773, 2134,
1874, 1956, 1744
4. According to their purpose
a. Transfer of ownership – e.g. sale

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b. Conveyance of use – e.g. commodatum Reason: Co-ownership is legally presumed among
c. Rendition of service – e.g. agency the persons having a common interest; rule of the
5. According to their subject matter required majority is imposed upon the minority.
a. Things – e.g. sale, deposit, pledge
b. Services – e.g. agency, lease of services
6. According to the nature of the vinculum which
Contracts of Adhesion
theyproduce
a. Unilateral – e.g. commodatum, gratuitous Contracts in which one of the parties imposes a
deposit readymade form of contract, which the other party
may accept or reject, but which the latter cannot
b. Bilateral – e.g. sale, lease
modify (PCIB vs. CA. G.R. No. 97785 March 29,
7. According to their cause 1996).
a. Onerous – e.g. sale
b. Gratuitous – e.g. commodatum Contract implied in fact/ Implied-in-fact Contract It
8. According to the risk involved is a contract, the existence and terms of which are
a. Commutative – e.g. lease manifested by conduct and not by direct or explicit
b. Aleatory – e.g. insurance words between parties but is to be deduced from
9. According to their names or norms regulating conduct of the parties, language used, or things
them done by them, or other pertinent circumstances
attending the transaction (UP vs. Philab, G.R. No.
a. Nominate – have their own individuality;
152411. September 29, 2004).
regulated by special provisions of law
b. Innominate – lack individuality; not regulated
by special provisions of law Stages of Contracts:
1.Generation – comprehends the preliminary or
Kinds of Innominate Contracts: preparation or conception. It is the period of
negotiation and bargaining.
i. Do ut des - I give that you give
2.Perfection – the moment when the parties come
ii. Do ut facias - I give that you do to agree on the terms of the contract
iii. Facio ut des - I do that you give iv. Facio ut 3.Consummation – it is the fulfillment or
facias - I do that you do Note: Innominate performance of the terms agreed upon in the
contracts shall be regulated by: contract.
1.The stipulations of the parties,
2.The general provisions of the Civil Code on CHARACTERISTICS OF CONTRACTS (OMARC):
obligations and contracts, 1.Obligatory force of contracts
3.The rules governing the most analogous 2.Mutuality
nominate contracts and
3.Autonomy
4.The customs of the place (Art. 1307).
4.Relativity
According to some authorities, do ut des is no 5.Consensuality
longer an innominate contract. It has already
been given a name of its own, i.e. barter or Obligatory Force of Contracts
exchange (Art. 1638). It is a rule that once the contract is perfected, it
shall be of obligatory force upon both of the
Auto-Contract contracting parties.
A kind of contract in which one person acted in
behalf of the other party and himself or another This principle is explicitly recognized in Arts. 1159,
person in another capacity to establish a contract. 1308, 1315, and 1356.

Take note however of the situations involving Mutuality (Art. 1308)

conflict of interest under Art. 1491 and Art. 1890. The contract must bind both parties.

Collective Contracts Note: The validity or fulfillment of a contract

Those where the law authorizes the will of the cannot be left to the will of one of the contracting
majority to bind a minority to an agreement parties.
notwithstanding the opposition of the latter when
all have a common interest in the juridical act (i.e. Validity or fulfillment may be left to (1) the will of
collective bargaining by labor organizations). a third person, whose decision shall not be
binding until made known to both the contracting
parties (Art. 1309) or (2) chance. The
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determination shall not be obligatory if it is 2.When the third person comes into possession of
evidently inequitable. In such case, the courts the object of a contract creating real rights (Art.
shall decide what is equitable under the 1312).
circumstances (Art. 1310). 3.Where the contract is entered into in order to
defraud a creditor(Art. 1313);
Autonomy (Art. 1306)
The contracting parties may establish such Here, the creditor may ask for its rescission.
stipulations, clauses, terms and conditions as they
deem convenient. 4.Where the third person induces a contracting
party to violate his contract (Art. 1314). Such
Limitation to the Principle of Autonomy: third person can be held liable for damages.
Stipulations should not be contrary to law,
morals, good customs, public order, or public Requisites:
policy. a.The existence of a valid contract;
b.Knowledge on the part of the third person of
Relativity (Art. 1311) the existence of the contract; and
c. Interference by third person without legal
General Rule: Contracts take effect only between justification or excuse.
parties, their assigns and heirs.
Consensuality of Contracts (Art. 1315)
HOWEVER with respect to assignees or heirs, the
general rule under Art. 1311 is not applicable if General Rule: Contracts are perfected by mere
the rights and obligations arising from the consent and from that moment, the parties are
contract are not transmissible or purely personal. bound to the fulfillment of what has been expressly
stipulated and to all consequences which, according
Exceptions: to their nature may be in keeping with good faith,
1. Beneficial Stipulation/ Stipulation pour autrui - A usage and law.
stipulation in favor of a third person.
M Requisites: Exception: Real contracts (e.g., deposit, pledge and
a.There must be a stipulation in favor of a third commodatum) are not perfected until the delivery
person; of the object of the obligation.
b.The stipulation must be a part, not the whole of
the contract; There is no contract unless the following requisites
c. The contracting parties must have clearly and concur (COC):
deliberately conferred a favor upon a third 1.Consent of the contracting parties;
person, not a mere incidental benefit or 2.Object certain which is the subject matter of the
interest; contract;
d.The favorable stipulation should not be 3.Cause of the obligation which is established (Art.
conditioned or compensated by any kind of 1318).
obligation whatever;
CONSENT
e.The third person must have communicated his It refers to the conformity of the parties to the
acceptance to the obligor before its revocation; terms of the contract; meeting of the minds
and between the parties on the subject matter and
f. Neither of the contracting parties bears the cause of the contract.
legal representation or authorization of the
third party.
Requisites:
Test of Beneficial Stipulation: It must be the 1.Must be manifested by the concurrence of the
purpose and intent of the parties to benefit the offer and acceptance (Arts. 1319-1326);
third person. The test is whether or not the 2.Parties must possess the necessary legal capacity
(Arts. 1327-1329); and
parties deliberately inserted terms in their
agreement with the avowed purpose of 3.Must be intelligent, free, spontaneous, and real
(Arts. 1330-1346).
conferring a favor upon such third person (Uy
Tam vs. Leonard, GR No. 8312, March 29, 1915).
The fact that the signatures of the witnesses and
the notary public were forged does not negate
the existence of the contract for as long as the
parties consented to it. The signatures of the
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witnesses and the notary public are necessary by the mere acceptance by the offeree, without
simply to make the contract binding on the third any further act on the offeror.
person (Soriano vs. Soriano, G.R. No. 130348,
September 3, 2007).
Requisites (DICD):
Offer 1.It must be definite.
Unilateral proposition which one party makes to 2.It must be intentional.
the other for the celebration of a contract. It 3.It must be complete.
exists only if the contract can come into existence

ESSENTIAL REQUISITES OF A CONTRACT Requisites of acceptance (ADIPC):

4.It must be directed to person or persons 1.A bsolute (no
with whom the offeror intends to enter into 2.D vitiation)
a contract except definite offers which are 3. irected to the
not directed to a particular person but to 4. offeror
the public in general (i.e. public auction). 5.CMade withntention to be
the i Madebound unless
Withdrawal of Offer: Offer/proposal may be within the proper the
withdrawn so long as the offeror has no offeror
time
knowledge of acceptance by offeree
(Manresa, 5th Ed., Bk. 2, p. 373). ommunicated to the offeror and learned knows
of the
by him
Exception: Option Contract (Art. 1324) acceptance.

Counter-offer
This refers to qualified acceptance; involves a
new proposal; a rejection of the original offer. Amplified Acceptance
Under certain circumstances, a mere amplification on
Complex offers the offer must be understood as an acceptance of the
When a single offer involves two or more original offer, plus a new offer which is contained in
contracts, the perfection, where there is only the amplification (Tolentino, Arturo M.,
partial acceptance, will depend upon the Commentaries and Jurisprudence on the Civil Code of
relation of the contracts between the Philippines, 1991 ed., Vol. 4, p.452).
themselves, whether due to their nature or
due to the intent of the offeror (Tolentino, Withdrawal of Acceptance:
Arturo M., Commentaries and Jurisprudence First View (Manresa): “Although the offeror is not
on the Civil Code of the Philippines, 1991 ed., bound until he learns of the acceptance, the same
Vol. 4, p. 452). thing cannot be said of the offeree who, from the
moment he accepts, loses the power to retract such
Rule on Complex offers: acceptance since the right to withdraw between the
1.Offers are interrelated – contract is time of the acceptance and its communication is a
perfected if all the offers are accepted. right which is expressly limited by law to the offeror.
Since the offeree is the first person who knows of the
2.Offers are not interrelated – single
acceptance of each offer results in a concurrence of wills of the parties, as a consequence,
perfected contract unless the offeror has the obligation, as far as he is concerned, must also
made it clear that one is dependent upon commence earlier.
the other and acceptance of both is
necessary. Second View (Tolentino): Acceptance may be revoked
before it comes to the knowledge of the offeror
because in such case there is still no meeting of the
Acceptance
minds, since the revocation has cancelled or nullified
Must be certain or definite and absolute in the acceptance which thereby ceased to have any
character. A qualified acceptance constitutes legal effect.
a counter-offer (Art. 1319). It may be express
or implied (e.g. failure on the part of the heir Note: The offeror may fix the time, place, and manner
to reject the inheritance within 30 days from of acceptance, all of which must be complied with
notice of the order of the court distributing (Art. 1321). Any act to the contrary is a counter-offer.
the estate) (Art. 1320).

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An offer made through an agent is accepted and under specified conditions, to decide whether or
from the time acceptance is communicated to not to enter into a principal contract.
him (Article 1322).
It binds the party who had given the option not to
Art. 1322 is not applicable when an enter into the principal contract with any other
intermediary who has no power to bind either person during the period designated, and within that
the offerer or the offeree is NOT an agent. period, to enter into such contract to whom the
Thus, the communication of the acceptance option was granted if the latter should decide to use
to him does not perfect the contract. the option.

An offer becomes ineffective upon the death, Requisites:

civil interdiction, insanity or insolvency of 1.It is supported by an independent consideration;
either party before acceptance is conveyed
(Art. 1323). If the option is not supported by a consideration
which is distinct from the purchase price, the offer
Theories that determine the exact moment may still be withdrawn even if the offeree has
of perfection when acceptance is made by already accepted it (Jurado, Desiderio, Comments
letter or telegram: and Jurisprudence on Obligations and Contracts,
2010 ed., p. 413).
1.Manifestation Theory – perfected from the
moment the acceptance is declared or
2.It is exclusive.
made. This is adhered to by the Code of
Commerce
Business Advertisements (Art. 1325)
2.Expedition Theory – perfected from the
moment the offeree transmits the They are mere invitations to make an offer, and NOT
notification of acceptance to the offeror. definite offers, unless it appears otherwise.
3.Reception Theory – perfected from the
moment that the notification is in the hands Advertisement for Bidders (Art. 1326)
of the offeror in such a manner that he can, It is simply an invitation to make proposals. The
under ordinary conditions, procure the advertiser is not bound to accept the highest or
knowledge of its contents, even if he is not lowest bidder, unless it appears otherwise.
able to actually acquire such knowledge.
4.Cognition Theory – perfected from the Note: It is not applicable in judicial sales because the
moment the acceptance comes to the highest bid must necessarily be accepted.
knowledge of the offeror.
This is adhered to by the Civil Code. Persons incapacitated to give consent (Art. 1327):
The capacity of the contracting parties is in effect, an
Note: The stipulation of the parties governs essential element of a contract or to be more exact, it
the manner and moment of acceptance as is an indispensable requisite of consent (Jurado,
when they stipulate that it be expressly Desiderio, Comments and Jurisprudence on
accepted. Obligations and Contracts, 2010 ed., p.417).

Silence can be construed as consent. 1. Minors

M EExceptions:
Requisites for silence to be construed as a.When minor misrepresents his age. (It must be an
consent: active not merely constructive representation);
1.There is a duty or possibility to express
oneself; The instant exception is based on estoppel.
2.The manifestation of the will cannot be Estoppel presupposes capacity to misrepresent.
interpreted in any other way; The circumstances of the minor (i.e. he appears
3.There is a clear identity in the effect of the to be of legal age) must be of such nature that it
silence and the undisclosed will (Articles could have been relied upon by the other party.
1670, 1870 to 1873). Otherwise, the contract remains voidable.

Option Contract b.Contracts involving the sale and delivery of

A preparatory contract is one in which one necessaries to minors (Art. 1489).
party grants to the other, for a fixed period c. Contracts by guardians or legal representatives.
d.Upon reaching the age of majority, they ratify the
same (Ibanez v. Rodriguez, 47 Phil 554).
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2.Insane or demented persons, unless the Disqualification to contract (Art. 1329)
contract was entered into during a lucid Article 1327 Article 1329
interval (Art. 1328).
Restrains the exercise of Restrains the very right the
right to contract. itself
An insane or demented person includes any
person, who, at the TIME OF THE
CELEBRATION OF THE CONTRACT, CANNOT Based upon subjectivecircumstances of certain Based
understand the nature and consequences upon public policyand morality
of the act or transaction by reason of any
cause affecting his intellectual or sensitive persons
faculties whether permanent or temporary
(Jurado, Desiderio, Comments and Voidable Void
Jurisprudence on Obligations and Contracts,
2010 ed., p. 420). Vices of consent (Art. 1330): (VIMFU)
1. Vices of the will (vicios de la formacion de la
Take note that contracts agreed to in a voluntad)
state of drunkenness or during a hypnotic a.Violence
spell are VOIDABLE (Art. 1328). The same
b.Intimidation
must be of a degree that obscures
completely the faculties and almost c. Mistake
extinguishes the consciousness of acts. d.Fraud
e.Undue influence
There is a PRIMA FACIE presumption that
every person of legal age possesses the 2. Vices of declaration (vicios de la declaracion) --
necessary capacity to execute a contract simulation of contracts.
(Jurado, Desiderio, Comments and
Jurisprudence on Obligations and According to Manresa, Art. 1330 is a negative
Contracts, 2010 ed., p. 423). enumeration of the requisites of consent: (1)
intelligent, or with an exact notion of the matter to
which it refers, (2) it should be free; and (3) it should
be spontaneous, and (4) real.

In the absence of the first 3 requisites, the contract is

3. Deaf-mutes who do not know how to read voidable.
and write.
In the absence of the fourth requisite, the contract
Being deaf-mute is not by itself alone a may be either void ab initio or valid as far as the real
disqualification for giving consent. The law agreement is concerned, depending upon whether
refers to the deaf-mute who does NOT the simulation is absolute or relative.
know how to write.
A. Mistake (Art. 1331)
If deaf-mute but knows how to write:
Contract is VALID. Requisites:
1. The error must be substantial regarding:
If deaf-mute who knows how to read but a. the object of the contract (error in re)
not write: Contract is VALID because which may be:
reading means that the person is capable i. mistake as to the identity of the thing (error in
of understanding. corpore);
ii. mistake as to the substance of the thing
(See also Rule 93 Sec. 2 for other incompetent (error in substantia); iii. mistake as to the
persons.) conditions of the thing provided; or
iv. mistake as to the quantity of the thing
If both of the parties are incapable of giving (error in quantitate).
consent, the contract is unenforceable (Art. b. the conditions which primarily moved or
1403).
induces one of the parties
c.identity or qualifications (error in persona),
Incapacity to give consent (Art. 1327)
but only if such was the principal
vs.
cause of the contract.
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2. The error must be excusable. Note: There is no mistake if the party alleging it knew
3. The error must be a mistake of fact, the doubt, contingency or risk affecting the object of
andnot of law. the contract (Art. 1333).

Not only wrong conception of the thing B. Violence

but also the lack of knowledge with When in order to wrest consent, serious or
respect to it (Manresa, 5th ed. Bk2, p. 395). irresistible force is employed (Art. 1335).

Two General Kinds of Mistake Requisites:

Mistake of Fact Mistake of Law 1.Must be serious or irresistible;
One or both parties arrive 2.Must be the determining cause for the party
upon whom it is employed in entering into the
One or both contracting at an erroneous contract; 3.It is not justified;
4.It is sufficient.
parties believe that a factexists when in
C. Intimidation (Art. 1335).
conclusion regarding Requisites:
reality it
1.One party is compelled to give his consent by a
reasonable and well-grounded fear of an evil;
the 2.The evil must be imminent and grave;
interpretation of a does not or vice
3.The evil must be upon his person or
property, spouse, descendants or
versa. question of law or legaleffects of a ascendants; 4.It is the reason why he enters
the contract.
certain act or transaction. 5.The evil must be unjust.

Does not vitiate Violence Intimidation

consent except when Refers to physical Refers to moral compulsion
it involves compulsion
External or prevents Internal or induces the will
Vitiates consent mutual error as to theeffect of to manifest the performance of an
an agreement itself act

when the real Consent given through intimidation must be

purpose is frustrated. distinguished from consent given reluctantly and
even against good sense and judgment. It is clear
Requisites of Art. 1334 which will vitiate that one acts as voluntarily and independently in
consent: the eyes of the law when he acts reluctantly and
1.It must be of a past or present fact; with hesitation as when he acts spontaneously and
joyously. Legally speaking, he acts voluntarily and
2.It must not be imputable to the party
freely when he acts wholly against his better sense
mistaken, i.e. mistake is not inadvertent
and judgment (Jurado, Desiderio, Comments and
and excusable; Mistake must be with
Jurisprudence on Obligations and Contracts, 2010
respect to the legal effect of an agreement;
ed., p. 437).
3.It must be mutual; and
4.Parties’ real purpose must have been If a contract is signed merely because of “fear of
frustrated. displeasing persons to whom obedience and
respect are due,” the contract is still VALID, for by
Note: The obligation to show that the terms itself, reverential fear is not wrong (Paras, Edgardo
of the contract had been fully explained to L., Civil Code of the Philippines Annotated I, 2012
the party who is unable to read or ed., p.639 2012).
understand the language of the contract, Note: Violence or intimidation shall annul the
when fraud or mistake is alleged, devolves on obligation, although it may have been employed by
the party seeking to enforce it (Art. 1332). a third person who did not take part in the contract
(Art. 1336).

D. Undue influence
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When a person takes improper advantage Requisites of Fraud under Art. 1338:
of his power over the will of another, 1.One party must have employed fraud or insidious
depriving the latter of a words or machinations
2.It must have been serious;
reasonable freedom of choice (Art. 1337). 3.It induced the other party to enter into a
contract;
Requisites: 4.It must have been employed by one contracting
1. Improper advantage; party upon the other and not employed by both
2. Power over the will of another; contracting parties or by third persons;
3. Deprivation of the latter’s will of a 5.Damage or injury resulted to the other party;
reasonable freedom of choice. 6.It must be made in bad faith, i.e. with knowledge
of its falsity.
Undue influence must be distinguished
from intimidation, in that in intimidation Dolo Causante and Dolo Incidente distinguished
there must be an unlawful or unjust act Dolo Causante Dolo Incidente
which is threatened and which causes
(Art. 1338) (Art. 1344)
consent to be given, while in undue
influence, there need not be an unjust or Refers to those deceptions Refers to those or
unlawful act (Tolentino, Arturo M., Civil misrepresentations of a deceptions or serious
Code of the Philippines, 1987 ed., Vol. 4, p character employed misrepresentations by one
501). party and without which are not serious in which
the other party would character and without not
Test of undue influence: Whether or not have entered into the which the other party
the influence exerted has so overpowered contract would have still entered the contract
or subjugated the mind of a contracting Fraud which is serious in Fraud which is not
party as to destroy his free agency, making character serious in character
him express the will of another rather than It is the cause which It is not the cause that
his own (Coso vs. Fernandez Deza, G.R. No. induces the party to enter induced the party to
16763, December 22, 1921). into a contract enter into a contract Renders the
contract Renders the party liable
Circumstances considered in determining voidable for damages
whether the influence exerted is
unreasonable:
1.Confidential relations Bad faith and fraud are allegations of fact that
demand clear and convincing proof. They are serious
2.Family relations
accusations that can be so conveniently and casually
3.Spiritual relations invoked, and that is why they are never presumed
4.Other relations between the parties (Cathay Pacific Airways, Ltd vs. Spouses Vazquez,G.R.
No. 150843. March 14, 2003).
By analogy, undue influence employed by
a third person may annul the contract. Note: Failure to disclose facts, when there is a duty to
reveal them, constitutes fraud (Art. 1339).
E. Fraud
When, through insidious words or The usual exaggerations in trade, when the other
machinations of one party, the other is party had an opportunity to know the facts, are not in
induced to enter into a contract which, themselves fraudulent (Art. 1340). This is known as
without them, he would not have agreed “tolerated fraud” which includes minimizing the
to (Art. 1338). defects of the thing, exaggerating its good qualities,
and giving it qualities that it does not have (Tolentino,
Kinds of Fraud: Arturo M., Civil Code of the Philippines, 1987 ed., Vol.
1.Fraud in the PERFECTION of the contract: 4, p 510).
a. Causal Fraud (Dolo Causante)
b. Incidental Fraud (Dolo Incidente) A mere expression of an opinion does not signify
fraud unless made by an expert and the other party
2. Fraud in the PERFORMANCE of an
obligation relied on the former’s special knowledge (Art. 1341).
(Art. 1170) Fraud by third person does not vitiate consent and
merely gives rise to an action for damages by the
party injured against such third person UNLESS:
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a.It has created a substantial mistake and the rules applicable to it, and not by those applicable to
same is mutual. the apparent contract.
b.Third person makes the misrepresentation
with the complicity, or at least with the With respect to a third person acting in good faith,
knowledge but without the objection, of the apparent contract must be considered as the true
the favored contracting party. contract. The declaration that the contract is
simulated does not prejudice him.
Misrepresentation made in good faith is not
fraudulent but may constitute error (Art. Relative simulation is presumed by law in case of Art.
1343). 1602.

When two persons constitute one party of the OBJECT

contract with respect to another, the deceit The thing, right or service which is the subject matter
exercised by one of them upon his co- party, of the obligation arising from the contract.
is not a cause for annulment of the contract.
Requisites:
Simulation of Contracts (Arts. 1345-1346) It is 1. Must be within the commerce of man (Art. 1347);
the process of intentionally deceiving others
2. Should be real or possible (Art. 1348);
by producing the appearance of a contract
that really does not exist or which is different 3. Should be licit (Art. 1347); and
from the true agreement. 4. Should be determinate, or at least possible of
determination as to its kind (Art. 1349).
Requisites (DAP):
The genus or kind of the object must be expressed.
1.A deliberate declaration contrary to the will
of the parties.
The fact that the quantity is not determinate shall not
2.Agreement of the parties to the apparently
be an obstacle to the existence of the contract,
valid act.
provided it is possible to determine the same,
3.The purpose is to deceive or to hide from without the need of a new contract between the
third persons although it is not necessary parties.
that the purpose be illicit or for purposes of
fraud. Things which cannot be the object of contracts (Art.
1347-1349):
Kinds of simulation of contract:
1. Absolute (simulados) –parties do not intend General Rule: All things or services may be the object
to be bound by the contract at all. Status: of contracts. This includes future things or rights
VOID. which do not belong to the obligor when the contract
was made.
2. Relative (disimulados) –parties conceal
their true agreement. It binds the parties to
Exceptions:
their real agreement, when it does not
prejudice a third person and is not intended 1. Things outside the commerce of men;
for any purpose contrary to law, morals, 2. Intransmissible rights;
good customs, public order or public policy 3. Future inheritance, except in cases expressly
(i.e. a deed of sale of a piece of land is authorized by law;
executed by the parties to conceal their
two agreement which is a donation). Requisites of Future Inheritance:
a.The succession has not yet been opened;
Two juridical acts in relatively simulated b.The object of the contract forms part of the
contracts: inheritance; and
1. Ostensible Act (Apparent or Fictitious) – c. The promissor has an expectancy of a right which
pretended contract. is purely hereditary in nature.
2. Hidden Act (Real) – true agreement.
After the death of a person, the properties and
Should the hidden act or the concealed rights left by him by way of inheritance can be the
contract be lawful and does not prejudice a subject matter of a contract among or by his heirs,
third person, it is absolutely enforceable. Its even before a partition thereof has been made,
validity and effects will be governed by the because the rights of the heirs are transmitted to
them from the moment of death of the

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predecessor (Tolentino, Arturo Cause Object
Commentaries and Jurisprudence on the
The service or benefit The thing which is given in
Civil Code of the Philippines, 1991 ed., Vol.
which is remunerated remuneration
4, p 524).
The liberality of the donor The thing which is given or
or benefactor donated
Exception to the exception: Prestation or promise of a thing or service by the
a. In case of marriage settlements under The thing or service itself other
Art. 130 ofthe Civil Code; and
b. In case of partition of properties inter Different with respect of May be the same for both
vivos by the deceased under Art. 1080 of each party the parties
the Civil Code. Cause Motive
Direct and most proximate reason of a contract
4. Services contrary to law, morals, good
customs, public order or public policy; Indirect or remote reason
5. Impossible things or services;
Objective or juridical Psychological or purely
reason of a contract personal reason Always the
Note: The law here pertains to ABSOLUTE
same for each Differs for each contracting
impossibility and not relative impossibility.
contracting party party
6. Objects not possible of determination as Its legality affects the Its legality does not affect
to their kind. existence or validity of the the existence or validity of
contract contract
Note: In order that a thing, right or service
may be the object of a contract, it should be
Note: Motive becomes causa when it predetermines
in existence at the moment of the celebration
the purpose of the contract (Jurado, Desiderio
of the contract, or at least, it can exist
Comments and Jurisprudence on Obligations and
subsequently or in the future.
Contracts, 2010 ed., p. 466).
A future thing may be the object of a
Cause in Onerous Contracts: The prestation or
contract. Such contract may be interpreted in
promise of a thing or service by the other.
two possible ways:
1.Conditional contract – if its efficacy should
Cause in Remuneratory Contracts: Past service or
depend upon the future existence of the
benefit which by itself is a recoverable debt.
thing.
Cause in Gratuitous Contracts: Mere liberality of the
2.Aleatory contract – if one of the contracting
benefactor.
parties should bear the risk that the thing
will never come into existence (Manresa).
Cause in Accessory Contracts: The cause in an
accessory contracts (e.g. pledge) is the same as that
In case of doubt about the nature of the
of the principal contract.
contract, it must be deemed conditional as
doubt shall be resolved in favor of greatest
Moral obligation as cause
reciprocity of interests.
Where the moral obligation arises wholly from ethical
CAUSE considerations, unconnected with any civil
obligations, it cannot constitute a sufficient cause or
It is the immediate, direct or most proximate
consideration to support an onerous contract (Fisher
reason which explains and justifies the
vs. Robb, GR No.L46274, November 2, 1939).
creation of an obligation through the will of
the contracting parties.
Where such moral obligation is based upon a
previous civil obligation which has already been
Essential requisites of cause (ELT): barred by the statute of limitations at the time when
1.Existing at the time of the celebration of the the contract is entered into, it constitutes a sufficient
contract; cause or consideration to support a contract
2.Licit or lawful; and (Villaroel vs. Estrada, G.R. No. 47362 Diciembre 19,
3.True. 1940), it is then already a natural obligation.

Cause and Object; Distinguished Effect of Lack of Cause, Unlawful Cause, False
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Cause and Lesion (Arts. 1352-1355) General Rule: Contracts shall be obligatory, in
Cause Effect whatever form they may have been entered into,
provided all the essential requisites for their validity
The contract are present (Art. 1356).
There is a total
Lack of lack or absence confers no Exceptions:
right and produces no cause of cause 1.When law requires that the contract be in a certain
form to be valid (Art. 1356);
legal effect 2.When law requires that the contract be in a certain
The cause is contrary to law, Illegality form to be enforceable (Statute of Frauds);
morals, good The contract is null 3.When required to make the contract effective as
of cause customs, public and against third parties (Art.1357-1358)
void
order and Where the validity of a contract is made to depend
public policy upon a particular formality, an action under Art. 1357
cannot be brought to compel the other party to
The contract
execute such formality. Article 1357 presupposes the
is void if it
existence of a valid contract and cannot possibly refer
should not
to the form to make it valid.
Falsity of be proved that
Contracts which must appear in writing:
cause The cause is stated but is not 1.Donation of personal property whose value exceeds
five hundred pesos (Art. 748);
they were founded upon 2.Sale of a piece of land or any interest therein
through an agent (Art. 1874);
another true cause which 3.Agreements regarding payment of interest in
contracts of loan (Art. 1956); and
is true 4.Antichresis (Art. 2134); and
5.Stipulation limiting common carrier’s duty of
and lawful extraordinary diligence to ordinary diligence (Art.
Lesion or Shall not invalidate 1744)
inadequa the contract, cy of
UNLESS: Contracts which must appear in a public document:
price 1.There is fraud, 1. Donation of immovable properties (Art. 749);
mistake or 2. Partnership where immovable property or real
rights are contributed to the common fund (Arts.
undue influence; 1171 and
or 1773);
2.When the 3. Acts and contracts which have for their object the
parties intended creation, transmission, modification or
a donation or extinguishment of real rights over immovable
some other property; sales of real property or of an interest
contract therein is governed by Articles 1403, No. 2, and
1405 (Art. 1358, no. 1);
Presumption of lawful cause 4. The cession, repudiation or renunciation of
hereditary rights or of those of the conjugal
When the cause is not stated, it shall be
presumed to be in existence and lawful partnership of gains (Art. 1358, no. 2);
unless proof to the contrary is shown 5. The power to administer property, or any other
(Art.1354).. power which has for its object an act appearing or
which should appear in a public document, or
should prejudice a third person (Art. 1358, no. 3);
and
6. The cession of actions or rights proceeding from
Form of Contracts
an act appearing in a public document (Art. 1358,
Art. 1356 retained the “Spiritual System” of no. 4).
the Spanish Code by virtue of which the law
looks more at the spirit rather than the form With respect to those enumerated under Art. 1358
of contracts (items 3 to 6 in the preceding list), they are valid as
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between the contracting parties, the Remedy through which a written instrument is made
requirement that they be executed in a or construed so as to express or conform to the real
particular form is for the purpose of making intention of the parties when some error or mistake
them effective against third persons. has been committed.
However, with respect to items 1 and 2,
formalities are required for the validity of the Rationale: It would be unjust and inequitable to allow
contract. the enforcement of a written instrument which does
not reflect or disclose the real meeting of the minds
Contracts which must be registered: of the parties.
1. Chattel mortgages (Art. 2140)
2. Sale/transfer of large cattle (Cattle The courts, by reformation, do not attempt to make a
Registration Act). new contract for the parties, but to make the
instrument express their real agreement.
Note: Arts. 1357-1358 do not require the
execution of the contract either in a Requisites:
public/private document in order to 1.Meeting of the minds of the parties;
validate/enforce it but only to insure efficacy, 2.Their true intention is not expressed in the
so that after its existence has been admitted, instrument;
the party bound may be compelled to 3.Failure to express true intention is due to mistake,
execute the necessary document. fraud, inequitable conduct or accident and
4.Clear and convincing proof of mistake, accident,
When one of the contracting parties invokes relative simulation, fraud, or inequitable conduct.
Art. 1357 and 1358 by means of proper
action, the effect is to place the existence of
the contract in issue, which must be resolved
by the ordinary rules of evidence;
Reformation Annulment
Actions to compel the execution of the
necessary document and action upon the Presupposes that there The contract was not is a
contract may be exercised simultaneously,
unless it appears that the former action must
precede the latter.
document/instrument
valid contract but the validly
Although Art. 1357, in connection with Art.
1358, do not operate against the validity of
the contract nor the validity of the acts entered into aswhen their minds did not
voluntarily performed by the parties for the
fulfillment thereof, yet from the moment
executed does notexpress their true meet or if
when any of the contracting parties invokes
said provisions, it is evident that under them
execution of the required document must the consentwas vitiated
precede the determination of the obligations
derived from the contract (Jurado, Desiderio,
Comments and Jurisprudence on Obligations intention
and Contracts, 2010 ed., p. 484-485).
Gives life to the contractby making the instrument
R.A. 8792 (E- Commerce Act) provides that
the formal requirements to make contracts
Involves a completenullification of the conform to
effective as against third persons and to
establish the existence of a contract are
deemed complied with provided that the the trueintention of the parties contract
electronic document is unaltered and can be
authenticated as to be usable for future
reference.
When can one party ask for the reformation of the
contract (Arts. 1361-1365):
1. In case of mutual mistake of the parties (Art. 1361)
REFORMATION OF INSTRUMENTS
Reformation of Instruments Requisites:
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a.Mistake must be mutual. Note: Only imperfect or erroneous descriptions of
b.Mistake must be of a fact. persons or property can be corrected; but the
c. There must be clear and convincing manner in which the testator disposes of his
proof of the mutual mistake. property cannot be changed by a reformation of
the instrument (Tolentino, Arturo M., Civil Code of
2. When one party was mistaken and the the Philippines, 1987 ed., Vol. 4, p 556).
other partyacted fraudulently (Art. 1362).
3. When one party was mistaken, the other 3. When the real agreement is void (Art.1366)
knew orbelieved that the instrument does
not show their real intent but concealed Note: Upon the reformation of an instrument, the
that fact to the former (Art. 1363). general rule is that it relates back to and takes
4. In case of ignorance, lack of skill, effect from the time of its original execution as
negligence or badfaith on the part of the between the parties.
person drafting the instrument or the clerk
or typist (Art. 1364). If mistake, fraud, inequitable conduct or accident has
5. When parties agree upon the mortgage or prevented a meeting of the minds of the parties, the
pledge of areal or personal property, but proper remedy is not reformation of the instrument
the instrument states that the property is but annulment of the contract (Art. 1359).
sold absolutely or with a right of
repurchase (Art. 1365). Expediency and Convenience are not grounds for the
reformation of an instrument (Multi-Ventures Capital
Instances when there can be no reformation and Management Corp., vs. Stalwart Management
(Art. 1366): Services Corp., G.R. No. 157439, July 4, 2007).
1.Simple donations inter vivos wherein no
condition is imposed; When one of the parties has brought an action to
Rationale: An action to reform an enforce the instrument, no subsequent reformation
instrument is in the nature of specific can be asked (Principle of estoppel).
performance and requires a
In case of mutual mistakes, reformation may be
valuable consideration – an element lacking ordered at the instance of either parties or his
as between donor and done, and between successors in interest, otherwise it may only be
testator and beneficiary. brought by the petition of the injure party or his heirs
and assigns (Art. 1365).
2. Wills;

COMPARATIVE TABLE OF DEFECTIVE CONTRACTS

Void Voidable Rescissible Unenforceable

Defect is caused by injury/ Defect is caused by lack of

Defect is caused by lack ofessential elements or illegality Defect is caused by vice ofconsent damage

either to one of theparties or to a 3rd person form, authority, or capacity ofboth parties not cured by

prescription

Do not, as a general ruleproduce any legal effectValid and enforceable untilannulled by a competent Valid and

enforceable untilrescinded by a competent Cannot be enforced by aproper action

in court court court

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Action for the declaration or Corresponding action forrecovery, if there was total or nullity or inexistence
or Action for annulment or

Action for rescission may

defense of nullity orinexistence does not defense of annulability mayprescribe prescribe

partial performance of theunenforceable contract under prescribe No. 1 or 3 of Article 1403

mayprescribe

Not cured by prescription

Not cured by prescriptionCured by prescription Cured by prescription except in case of Art. 1403
nos. 1 or 3
Cannot be ratified Can be ratified Need not be ratified Can be ratified
Assailed by a contracting Assailed only by a contracting Assailed by a contracting Assailed only by a contracting
party and a third person party party and a third person who party whose interest is directly is
prejudiced or damaged by affected the contract
Assailed directly or Assailed directly collaterally collaterally
or Assailed directly only Assailedcollaterally directly or
These are contracts which are valid but are parties from further contract has been made
because of injury or damage to either of the obligations form each
defective
contracting other To declare the contract void at its
RESCISSIBLE CONTRACTS parties or to inception and to put an
third persons, as a consequence of which it may be end to it though it
rescinded by means of a proper action for never was
rescission.
May demanded only by May be demanded by
Resolution for Breach of Stipulation Rescission by athird party prejudiced in
Reason of Lesión or Damage Distinguished a party to the contract
(Congregation of the Religious of the Virgin Mary, the contract May be
et.al., vs. Orola, et.al., G.R. No. 169790, April 30, denied by court Extension of time does when
2008) there is sufficient not affect the right to ask
reason to justify theextension of time for
Resolution for Breach Rescission by Reason of rescission
Stipulation (Art. of Lesión or Damage
Non-performance is the Various reasons of only
1191) ground for the right equity are grounds for
Principal action; Subsidiary action and retaliatory to rescission rescission
action against involves partial the other party
Applies whether
resolution
Based on lesion or Applies only to reciprocal reciprocal or unilateral
economic prejudice, rendering the obligations where one obligations and whether
contract Based on breach of trust rescissible party has not performed the contract has been
by law (Note: not all fully fulfilled
economic prejudices are
recognized by law) Rescission shall be only to the extent necessary to
cover the damages caused (Art. 1384).
Requires mutual Requires mutual restitution as
CHARACTERISTICS OF RESCISSIBLE CONTRACTS:
governed restitution as governed
1.Its defect consists in injury or damage either to
by Art. 1191 by Art. 1381 one of the contracting parties or to third
Abrogation of the persons.
contract from the 2.Before rescission, it is valid, and therefore,
beginning and to legally effective.
restore 3.It can be attacked directly only and not
Termination of the the parties to their obligation collaterally.
and release of relative positions as if no the
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4.It can be attacked only by a contracting party or measure or number and the vendor failed to
a third person who is injured or defrauded. deliver the area stated, the vendee may ask
5.It is susceptible of convalidation only by for rescission of the contract if the lack of area
prescription and not ratification. is not less than 1/10th of that stated. (Art.1539)
6. The vendee does not accede to the failure to
REQUISITES OF RESCISSION: deliver what has been stipulated (Art. 1542);
1.Contract must be rescissible under Articles 1381 7. When through eviction, the vendee loses a
and 1382; part of the thing sold of such importance, in
2.Party asking for rescission must have no other relation to the whole, that he would not have
legal means to obtain reparation for the bought it without said part (Art. 1556);
damages suffered by him (Art. 1383); 8. If immovable sold is encumbered with any
3.Person demanding rescission must be able to nonapparent burden or servitude of such
return whatever he may be obliged to restore if nature that it cannot be presumed that the
rescission is granted (Art. 1385); vendee could not have acquired it had he been
4.Things which are the object of the contract must aware thereof, the vendee may ask for
not have passed legally to the possession of a rescission. (Art. 1560)
third person acting in good faith (Art. 1385); and 9. Election of the vendee to withdraw from the
5.Action must be brought within four years (Art. contract in the cases under Arts. 1561, 1562,
1389). 1564,
1565 and 1566 (Art. 1567);
CONTRACTS THAT ARE RESCISSIBLE (Arts. 10.Rescission by the aggrieved party in a contract
13811382): of lease when the other party does not comply
1.Those entered into by guardians where the ward with Arts. 1654 and 1657 (Art. 1659)
suffers lesion of more than ¼ of the value of the
things which are objects thereof; Requisites before a contract entered into in
behalf of wards or absentees may be rescinded
2.Those agreed upon in representation of on the ground of LESION:
absentees, if the latter suffer lesion by more Lesion
than ¼ of the value of the things which are The injury which one of the parties suffers by
subject thereof; virtue of a contract which is disadvantageous for
3.Those undertaken in fraud of creditors when the him. To give rise to rescission, the lesion must be
latter cannot in any manner claim what are due known or could have been known at the time of
them; making of the contract.
4.Those which refer to things under litigation if 1. Contract was entered into by a guardian in
they have been entered into by the defendant behalf of his ward or by a legal representative
without the knowledge and approval of the in behalf of an absentee;
litigants and the court; 2. It was entered into without judicial approval;
5.All other contracts especially declared by law to
3. Ward or absentee suffered lesion of more than
be subject to rescission; and
¼ of the value of the property which is the
6.Payments made in a state of insolvency for
object of the contract;
obligations whose fulfillment the debtor could
4. There is no other legal means of obtaining
not be compelled at the time they were
reparation for the lesion;
effected.
5. Person bringing the action must be able to
return whatever he may be obliged to restore;
Examples of contracts declared to be subject to and
rescission: 6. Object of the contract must not be legally in
1. Partition of inheritance where an heir suffers the possession of a third person who did not
lesion of at least ¼ of the share to which he is act in bad faith.
entitled (Art.
1098) Take note that a guardian is authorized only to
2. Deterioration of the thing through the fault of MANAGE the estate of the ward; should he
the debtor, if the creditor chooses to rescind DISPOSE a portion thereof without authority from
(Art. 1189 (4)); the court by way of a contract, the same is
3. Right of unpaid seller to rescind (Art. 1526(4)); unenforceable under Art. 1403 (1), irrespective of
4. Deterioration of the object of the sale (Art. whether there is lesion or not.
1538);
5. Sale of real estate with a statement of its area, Requisites before a contract entered into in
at the rate of a certain price for a unit of FRAUD OF CREDITORS may be rescinded:
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1.There is a credit existing prior to the celebration rendered in any instance or some writ of
of the contract; attachment has been issued.
2.There is fraud, or at least, the intent to commit
fraud to the prejudice of the creditor seeking Badges of fraud:
rescission; 1. The fact of inadequate or fictitious cause or
3.Creditor cannot in any legal manner collect his consideration of the conveyance;
credit; and 2. Transfer by a debtor after suit has been begun
4.Object of the contract must not be legally in the and while it is pending against him;
possession of a third person who did not act in 3. Sale on credit by an insolvent debtor;
bad faith. 4. Evidence of large indebtedness or complete
insolvency
The action to rescind contracts in fraud of 5. Transfer of all or nearly all of debtor’s
creditors is known as accion pauliana. property by him, especially when insolvent or
greatly
Accion pauliana presupposes a judgment and embarrassed financially;
unsatisfied execution which cannot exist when the 6. Transfer between father and son, where
debt is not yet demandable at the time the others of the above circumstances are
rescissory action is brought (Tolentino,Arturo, present;
Commentaries and Jurisprudence on the Civil Code 7. Failure of the vendee to take exclusive
of the Philippines, 1991 ed., Vol. 4 p. 576). possession of all the property.
Even secured creditors are entitled to accion Requisites before Payment Made by Insolvent
paulina
can be Rescinded:
(Tolentino,Arturo, Commentaries and
1. It was made in a state of insolvency; and
Jurisprudence on the Civil Code of the Philippines,
2. Obligation must have been one which the
1991 ed., Vol. 4, p. 579). debtor could not be compelled to pay at the
time such payment was effected.
Do all creditors benefit from the rescission of the
contract? As a rule, the rescission should benefit Apparent Conflict between Art. 1382 and Art.
only the creditor who obtained the rescission,
because the rescission is to repair the injury 1198
caused to him by the fraudulent alienation. If a [1] if the Obligation is subject to Suspensive
balance is left after satisfying the claim of the Period: Under Article 1382, payment made by an
creditor who brought the action, other creditors insolvent is rescissible. Under Article 1198 [1], a
who are qualified to bring an accion pauliana debtor can be compelled to pay by the creditor
should be given the benefit of rescission, instead even before the expiration of the period since by
of requiring them to bring other rescissory actions. his insolvency he has already lost his right to the
However, creditors who only became such after benefit of such period.
the fraudulent alienation, cannot benefit from the
rescission (Tolentino, Arturo, commentaries and The conflict can easily be resolved by considering
Jurisprudence of the Civil Code of the Philippines, the priority of dates between the two debts. If the
1991 ed., Vol. 4, p. 583). obligation with a period became due before the
obligation to the creditor seeking the rescission
Presumption of Fraud (Art. 1387) Test of fraud: became due, then the latter cannot rescind the
payment even if such payment was effected
Does it prejudice the rights of the creditors?
before the expiration of the period; but if the
(Tolentino, Arturo, Commentaries and obligation with a period became due after the
Jurisprudence on the Civil Code of the Philippines, obligation to the creditor seeking rescission
1991 ed., Vol. 4 p. 580) became due, then the latter can rescind the
payment.(Manresa)
When Alienation of Property Presumed in Fraud
of Creditors: Parties who may institute action:
1.Alienation by gratuitous title if the debtor has 1.The creditor who is defrauded in rescissory
not reserved sufficient property to pay all of his actions on ground of fraud, and other person
debts contracted before alienation; authorized to exercise the same in other
2.Alienation by onerous title if made by a debtor rescissory actions.
against whom some judgment has been 2.Their representatives
3.Their heirs

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4.Their creditors by virtue of the subrogatory 1.Those where ONE of the parties is incapable of
action define in Art. 1177 of the NCC giving consent to a contract;
2.Those where the consent is vitiated by mistake,
The action for rescission is SUBSIDIARY; it cannot violence, intimidation, undue influence or fraud.
be instituted except when the party suffering (Art.
damage has no other legal means to obtain 1390)
reparation for the same (Art. 1383). Rescission
shall be only to the extent necessary to cover the Take note that Art. 1390 refers to a “proper action
damages caused (Art. 1384). in court.” The validity of a voidable contract may
only be attacked either by way of a direct action or
EFFECT OF RESCISSION (Art. 1385): by way of defense via a counterclaim, and not a
1. As to the parties – mutual restitution together special or affirmative defense.
with the fruits and interest.
Even though there are no damages between the
Note: This is applicable only to rescissory actions contracting parties, the contracts enumerated in
on the ground of lesion and not to rescissory Art. 1390 are still voidable.
actions on the ground of fraud.
If the consent is absolutely lacking or simulated,
2. As to third person the contract is inexistent.
a. Bad faith or not legally in possession – obliged
toreturn Modes to Extinguish an action for Annulment:
b. Legally in possession and not in bad faith – 1. Prescription;
norescission; however, indemnity for 2. Ratification; and
damages may be demanded from the person 3. Loss of the thing which is the object of the
causing the loss PRESCRIPTIVE PERIOD FOR contract through fraud or fault of the person
ACTION FOR who is entitled to institute the action.
RESCISSION (Art. 1389):
1.Under Art. 1381 no. 1 – within 4 years from the Prescriptive Period: Action for Annulment (Art.
time of the termination of the incapacity of the 1391):
ward 1.Contracts entered into by incapacitated person –
2.Under Art. 1381 no. 2 – within 4 years from the within 4 years from the time guardianship
time the domicile of the absentee is known ceases;
3.Under Art. 1381 nos. 3 and 4 as well as Art. 1382 2.Where consent is vitiated by violence,
– within 4 years from the time of the discovery intimidation or undue influence – within 4 years
of fraud from the time such violence, intimidation or
undue influence ceases;
3.Where consent is vitiated by mistake or fraud –
within 4 years from the time of the discovery of
Voidable Contracts such mistake or fraud.
Voidable or annullable contracts are existent,
valid, and binding, although they can be annulled Note: These periods apply only to the parties to
because of want of capacity or vitiated consent of the contract and not to third persons.
one of the parties; but before annulment, they are
effective and obligatory between the parties. Discovery of fraud must be reckoned from the
Hence, it is valid until it is set aside, and its validity time the document was registered in the office
may be assailed only in an action for that purpose. of the register of deeds. Registration constitutes
constructive notice to the whole world (Carantes
Characteristics of Voidable Contracts: vs. CA, GR No.L-33360, April 25, 1977).
1. Its defect consists of the vitiation of consent of
one ofthe contracting parties. Ratification (Arts. 1392-1396):
2. It is binding until it is annulled. The act or means by virtue of which efficacy is
3. It is susceptible of convalidation by ratification given to a contract which suffers from a vice of
orprescription. curable nullity.
4. Its defect or voidable character cannot be
invoked bythird persons. Forms of Ratification:
1. Express ratification
Voidable or Annullable Contracts:: 2. Implied ratification – there is a tacit ratification
if, withknowledge of the reason which renders
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the contract voidable and such reason having Effects of Annulment in cases of Consummated
ceased, the person who has a right to invoke it Voidable Contracts (Arts. 1398-1399):
should execute an act which necessarily implies Obligation of Mutual Restitution:
an intention to waive his right (Art. 1393).
1.Obligation to give – The parties shall restore to
each other things which have been the subject
Effects of Ratification: matter of the contract with fruits and the price
1.Extinguish the action for annulment of a with interest, except in cases provided by law.
voidable contract. 2.Obligation to do or not to do –There will be an
2.Cleanses the contract of its defects from the apportionment of damages based on the value
momentit was constituted. of such prestation with corresponding interests.
3.When the defect of the contract consists in
Requisites of Ratification: incapacity of one of the contracting parties - the
1.Contract is tainted with a vice susceptible of incapacitated person is not obliged to make
being cured; restitution except insofar as he has been
2.Confirmation is effected by the person who is benefited by the thing or price received by him.
entitled to do so under the law;
It is presumed in the absence of proof that no such
3.It is effected with knowledge of the vice or benefit has accrued to the incapacitated person (8
defect of the contract; and Manresa, 5th Ed., Bk. 2, p. 647).
4.Cause of the nullity or defect have already
disappeared Art. 1399 cannot be applied to those cases were
the incapacitated person can still return the thing
Note: The right to ratify may be transmitted to which he has received. (Jurado, Desiderio,
the heirs of the party entitled to such right. It Comments and Jurisprudence on Obligations and
may likewise be exercised by the guardian of the Contracts, 2010 ed., p. 554).
incapacitated person having such right (Art.
1394). Ratification does not require the Effects of Failure to Make Restitution (Arts.
conformity of the contracting party who has no 14001402):
right to bring an action for annulment (Art.
1385). Where the thing is lost -
1.Due to fault of defendant – he shall return the
Who may institute action for Annulment (Art. fruits received and the value of the thing at the
1397): time of loss, with interest from the same date
2.Due to fault of plaintiff – the action for
General Rule: Action for annulment may be annulment shall be extinguished
instituted by all who are thereby obliged 3.Due to fault of the incapacitated – whether the
principally or subsidiarily. loss occurred during the plaintiff’s incapacity or
after he had acquired capacity, the action for
Requisites: annulment would still be extinguished in
1.Plaintiff must have interest in the contract; accordance with Art.
2.The victim and not the party responsible for the 1401, par. 1
vice or defect must assert the same. 4.Due to fortuitous event – contract can still be
annulled, but the defendant can be held liable
Exception: If a third person is prejudiced in his only for the value of the thing at the time of loss
rights with respect to one of the contracting without interest thereon.
parties, and can show detriment which would
positively result to him from the contract in which
he has no intervention (Teves vs. People’s
Homesite & Housing Corp., GR No. 21498, June 27,
UNENFORCEABLE CONTRACTS
1968).
Unenforceable contract
Those which cannot be enforced by proper action
Effects of Annullment:
in court unless they are ratified, because, either:
1.If contract has not yet been consummated – 1. They are entered into without or in excess of
parties shall be released from the obligations authority (Art. 1403, no.1; Art. 1317);
arising therefrom;
2. They do not comply with the statute of frauds;
2.If contract has already been consummated –
rules provided in Arts. 1398-1402 shall govern. 3. Both contracting parties do not possess the
required legal capacity.

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CHARACTERISTICS OF e. An agreement for the leasing for a longer
UNENFORCEABLE CONTRACTS: period than one year; or for the sale of real
1. It cannot be enforced by a proper action in property or interest therein; and
court. f. A representation as to the credit of a third
person.
2. It susceptible of ratification.
3. It cannot be assailed by third persons. This serves as the basis for an action for damages
against the party who made the representation,
Statute of Frauds (Art. 1403, no. 2): if it turns out to be false or incorrect.
In the following cases, an agreement hereafter
made shall be unenforceable by action, UNLESS Rationale for the Statute of Frauds: To prevent
the same, or some note or memorandum thereof, fraud and perjury in the enforcement of
be in writing, and subscribed by the party charged, obligations.
or by his agent; evidence thereof, of the
agreement cannot be received without the The Statute of Frauds, however, simply provide for
writing, or a secondary evidence of its contents: the manner in which contracts under it shall be
(OMG-DLC) proved. It does not attempt to make such
a. An agreement that by its terms is not to be contracts invalid if not executed in writing, but
performed within one year from the making only makes ineffective the action for specific
thereof; performance (Jurado, Desiderio, Comments and
b. A special promise to answer for the debt, Jurisprudence on Obligations and Contracts, 2010
default or miscarriage of another; ed., p. 617).

If the promise is an original one or independent For a note or memorandum to satisfy the Statute,
one, that is, the promisor becomes thereby it must be complete in itself and cannot rest partly
primarily liable for the payment of the debt, the in writing and partly in parol. The note or
promise is not within the statute. But on the memorandum must contain the names of the
other hand, if the promise is collateral to the parties, the terms and conditions of the contract,
agreement of another and the promisor, the and a description of the property sufficient to
promise must be in writing. render it capable of identification. Such note or
memorandum must contain the essential elements
c. An agreement made in consideration of of the contract expressed with certainty that may
marriage, other than a mutual promise to be ascertained from the note or memorandum
marry; itself, or some other writing to which it refers or
within which it is connected, without resorting to
When the marriage is a mere incident, and to be parol evidence. (Swedish Match, AB vs. CA, G.R.
the end to be attained by the agreement, the No. 128120
contract is not in consideration of marriage, and
October 20, 2004)
oral evidence can prove the agreement.

d. An agreement for the sale of goods, chattels or The statute of frauds applies only to EXECUTORY
things in action, at a price not less than 500 CONTRACTS, not to those that are partially or
pesos, unless the buyer accepted and received completely fulfilled. Further, the statue does not
such goods and chattels or evidences or some apply to actions which are neither for specific
of them, of such things in action or pay at the performance of the contract nor for the violation
time some part of the purchase money; but thereof. Take note that the provision mentions
when a sale is made by auction and entry is “unenforceable by action.” The prohibition, thus,
made by the auctioneer in his sales book, at applies on actions which spring from the
the time of sale, of the amount and kind of enforcement of the contract.
property sold, terms, price, names of the
purchasers and persons to whose account the The Statute of Frauds is EXCLUSIVE, that is, it
sale is made, it is a sufficient memorandum; applies only to the agreements or contracts
enumerated therein.
Where there is a purchase of a number of
articles which separately do not have a price of Ratification of Contracts Infringing the Statute of
500P each but has an aggregate sum exceeding Frauds (Art. 1405):
P500, the statue is only applicable if the
transaction is INSEPARABLE. Such contracts may be ratified by:

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1.Failure to object to the presentation of oral Principle of pari delicto isPrinciple of pari delicto is
evidence to prove such contracts; or applicable not applicable
2.Acceptance of benefits under these contracts
May produce legal Cannot produce any
Note: The unenforceability of a contract can only effects effect
be assailed by parties thereto (Art. 1408). This
defense is personal to the party to the agreement. Void Contracts Inexistent Contracts
Covers Art. 1409 nos. Covers Art. 1409 nos. 2
1,3,4,5,6, and 7 and 3
VOID OR INEXISTENT CONTRACTS
Contracts which are inexistent and Void Ab Initio
(Art. 1409):
Void or Inexistent Contracts 1. Those whose cause, object or purpose is
In general, they are those which lack absolutely contrary to law, morals, good customs, public
either in fact or in law one or some of the order or public policy;
elements essential for its validity. It has no force 2. Those which are absolutely simulated or
and effect from the very beginning, as if it has fictitious;
never been entered into, and which cannot be 3. Those whose cause or object did not exist at
validated either by time or by ratification. the time of the transaction;
4. Those whose object is outside the commerce
Characteristics of Void Contracts: of men;
1.It does not produce any legal effect; 5. Those which contemplate an impossible
2.It is not susceptible of ratification; service;
3.The right to set up the defense of inexistence or 6. Those where the intention of the parties
absolute nullity cannot be waived or renounced; relative to the principal object of the contract
4.The action or defense for the declaration of their cannot be ascertained; and
inexistence or nullity is imprescriptible; 7. Those expressly prohibited or declared void by
5.The inexistence or absolute nullity of a contract law.
cannot be invoked by a person whose interests
are not directly affected. The following stipulations are void:
1.Pactum comissorium (Arts. 2088, 2130 and 1390
Note: The defense of illegality of contract is not - a stipulation that allows the creditor to
available to third persons whose interests are not appropriate the things given by way of pledge or
directly affected (Art. 1421). mortgage or dispose of them.
2.Pactum de non alienado (Art. 2130) - a
A contract which is the direct result of a previous stipulation forbidding the owner from alienating
illegal contract, is also void and inexistent (Art. the immovable mortgaged.
1422). 3.Pactum leonina (Art.1799) - a stipulation which
excludes one or more partners from any share of
Differences between Void and Inexistent the profits or losses.
Contracts Void Contracts Inexistent
Contracts Principle of In Pari Delicto (Arts. 1411-1419):
Those where all of the When the defect of a void contract consists in the
requisites of a contract illegality of the cause or object of the contract and
both of the parties are at fault or in pari delicto,
are present but the Those where one or the law refuses them any remedy and leaves them
where they are.
is contrary to law,
cause, object or purpose Exceptions:
some or all of the requisites essential for 1.Payment of usurious interest (Art. 1413);
2.Payment of money or delivery of property for an
illegal purpose, where the party who paid or
morals, good customs, public order or public delivered repudiates the contract before the
the validity of a contract are absolutely lacking. purpose has been accomplished, or before any
damage has been
policy, or contract itself caused to a third person (Art. 1414);
is prohibited or declared
void by law.
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3.Payment of money or delivery of property made have the necessary efficacy to give rise to an
by an incapacitated person (Art. 1415); action.
4.Agreement or contract not illegal per se but
merely prohibited by law, and the prohibition is In order that there may be a natural obligation
designed for the plaintiff’s protection (Art. there must exist a juridical tie which is not
1416); prohibited by law and which in itself could give a
cause of action but because of some special
5.Payment of any amount in excess of the circumstances is actually without legal sanction or
maximum price of any article or commodity means of enforcing
fixed by law (Art. compliance by intervention of courts (Tolentino,
1417); Arturo, Commentaries and Jurisprudence on the
6.Contract whereby a laborer undertakes to work Civil Code of the Philippines).
longer than the maximum number of hours fixed
by law (Art. 1418); TWO CONDITIONS NECESSARY FOR NATURAL
7.Contract whereby a laborer accepts a wage
OBLIGATIONS:
lower than the minimum wage fixed by law (Art.
1419); 1.That there be a juridical tie between two
8.In case of divisible contracts, the legal terms may persons; and
be enforced separately from the illegal terms 2.That this tie is not given effect by law.
(Art.
The promise to perform a natural obligation is as
1420); and
effective as performance itself and converts it into
9.One who lost in gambling because of fraudulent a civil obligation (7 Planiol and Ripert, page 307-
schemes practiced on him. He is allowed to 308).
recover his losses [Art. 315, 3 (b), RPC] even if
gambling is prohibited.
A natural obligation may also be converted into a
civil obligation by novation (5 Vera, page 51-52),
Note: The principle of in pari delicto is applicable or by confirmation or ratification (3 Salvat, page
ONLY TO VOID CONTRACTS and not to inexistent 160-161).
contracts.
As a general rule, partial payment of a natural
Effects when both are at fault: obligation does not make it civil; the part paid
1.They shall have no action against each other. cannot be recovered but payment of the balance
2.Both shall be prosecuted. cannot be enforced (5 Vera 52).
3.The effects or instruments of the crime shall be
confiscated in favor of the government. Natural Obligation Moral Obligation
There is a juridical tie No juridical tie between the
Effects when only one is at fault:
parties which whatsoever.
1.The guilty party will be prosecuted.
is not enforceable by
2.The instrument of the crime will be confiscated.
court action
3.The innocent one may claim what he has given;
or if he has not given anything yet, he shall not Voluntary fulfillment of Voluntary fulfillment of
be bound to comply with his promise.

such produces legaleffects which the court will

NATURAL OBLIGATIONS
such does not produceany legal effect which the
Natural Obligations
Those based on equity and natural law, which do
not grant a right of action to enforce their recognize and protect. court will recognize
performance, but after voluntary fulfillment by the
obligor, authorize the retention of what has been
andprotect.
delivered or rendered by reason thereof (Art.
1423).
Within the domain
The binding tie of these obligations is in the Within the domain of law
conscience of man, for under the law, they do not of
morals

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Examples of Natural Obligations: c.the party misled must have been unaware of
1.Performance after the civil obligation has the true facts; and
prescribed (Art. 1424); d.the party defrauded must have acted in
2.Reimbursement of a third person for a debt that accordance with the misrepresentation.
has prescribed (Art. 1425);
3.Performance after action to enforce civil Note: Estoppel is effective only as between the
obligation has failed (Art. 1428); parties thereto or their successors-in-interest.
4.Payment by heir of debt exceeding value of
property inherited (Art. 1429); and Note: The government is not estopped by mistake
5.Payment of legacy after will have been declared or error on the part of its officials or agents.
void (Art. 1430).
Laches or “Stale Demands”
Failure or neglect, for an unreasonable and
unexplained length of time, to do that which, by
exercising due diligence, could or should have
been done earlier; it is negligence or omission to
Estoppel A condition or state by virtue of which an
assert a right within a reasonable time, warranting
admission or representation is rendered conclusive
a presumption that the party entitled to assert it
upon the person making it and cannot be denied or
either has abandoned it or declined to assert it.
disproved as against the person relying thereon
(Art. 1431).
Elements of laches:
Kinds of Estoppel: 1. Conduct on the part of the defendant, or of one
under whom he claims, giving rise to the
1.Estoppel in pais or by conduct
situation of which complaint is made and for
a. Estoppel by silence (e.g. Art. 1437) which the complaint seeks a remedy;
b. Estoppel by acceptance of benefits (e.g. Art. 2. Delay in asserting the complainant’s rights, the
1438) complainant having had knowledge or notice of
2.Technical estoppels the defendant’s conduct and having been
a.Estoppel by deed – a party to a deed is afforded an
precluded from asserting as against the other opportunity to institute a suit;
party, material fact asserted therein. 3. Lack of knowledge or notice on the part of the
b.Estoppel by record – a party is precluded from defendant that the complaint would assert the
denying the truth of matters set forth in a right on which he bases his suit and
record whether judicial or legislative. 4. Injury or prejudice to the defendant in the event
3.Estoppel by judgment – a party to a case is relief is accorded to the complainant, or the suit
precluded from denying the facts adjudicated by a is not held to be barred.
court of competent jurisdiction. 4.Estoppel by
laches
Examples of Estoppel: Prescription Laches
1.If a person, in representation of another sells or Concerned with the factConcerned with the effect
alienates a thing, the former cannot of delay of delay
subsequently set up his title as against the buyer
or grantee (Art. 1435). Question or matter of Question of inequity of time
2.A lessess or bailee is estopped from asserting
permitting the claim to beenforced
title to the thing leased or received, as against
the lessor or bailor (Art. 1436).
3.When in a contract between third persons Statutory Not statutory
concerning immovable property, one of them is Applies in law Applies in equity
misled by a person with respect to the Cannot be availed of Being a defense in unless it
ownership or real right over the real estate, the
latter is precluded from asserting his legal title or is specifically equity, it need not be pleaded as an
interest therein, provided all the following affirmative specifically pleaded allegation
requisites are present:
Based on a fixed time Not based on a fixed time
a.there must be fraudulent representation or
wrongful concealment of facts known to the
party estopped;
b.the party precluded must intend that the other
should act upon the facts as misrepresented;

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