GINEZ A2024 ObliCon Reviewer

BELLE GINEZ | ALS A2024 OBLIGATIONS AND CONTRACTS | Dean Maita Chan-Gonzaga

HELLO! BRIEF HISTORY OF THE NEW CIVIL CODE OF THE PHILIPPINES

This is a compilation of my personal notes, notes from lecture sessions with Dean Maita ● Primarily Spanish rules which came from Roman Law
Chan-Gonzaga, notes from reference books and other materials, and Block A2024’s notes ● 1889: Codification of Spanish Civil Code
and digests. ○ December → Applied to Philippines
● 1899: End of Spanish Colonization in the Philippines
Special thanks to Daryll Castro, Tobz Napili, and Liz Ludan for contributing to the contents ● Laws survived due to non-political nature
of this reviewer. ● Mid-1950s: Pres. Roxas called to draft NCC
○ 55 - 57% are derived from Spanish Civil Code
Reference Books: ● Currently, there are moves for recodification but no significant progress yet
Primary Textbook: JOTTINGS AND JURISPRUDENCE IN CIVIL LAW (OBLIGATIONS
AND CONTRACTS), Ruben Balane, 2020 Edition
BOOK III – DIFFERENT MODES OF ACQUIRING OWNERSHIP
Secondary Textbooks: TITLE V – PRESCRIPTION
● COMMENTS AND CASES ON OBLIGATIONS AND CONTRACTS, Hector De
Leon & Hector De Leon, Jr, 2019 Edition
● OBLIGATIONS AND CONTRACTS TEXT AND CASES, Melecio Sta Maria, Jr, CHAPTER 1 – GENERAL PROVISIONS
2017 Edition
OUTLINE OF PROVISIONS
Other Reference Materials:
● San Beda Law Centralized Bar Operations – Memory Aid 2019
● ObliCon Reviewer, Jo Valles 1106 Acquiring and losing rights and actions by prescription

1107 Persons capable of acquiring property or rights by prescription

IMPORTANT
This reviewer is meant for sharing. Law school is already a difficult place to be in. Let 1108
us not make it even harder by refusing to share. Sharing is caring!
Always read originals! Do not use this as a substitute to reading cases and readings in 1109 Between husband & wife/ parents & children/ guardian & ward
full.
1110 Married women
There is always room to be better. Do not compete with others, compete with yesterday’s
version of yourself. 1111 Co-proprietors and co-owners
Don’t forget to take care of yourself! Rest is an important part of the hustle. 1112 Renouncing prescription
Lagi’t lagi, Para sa Bayan! Let us study law not for ourselves but with the purpose of 1113 Objects of prescription
helping others and our country.
1114 Availment of creditors of debtor’s prescription
1115 Specific provisions

Date Last Updated: June 7, 2021
1116 Transitory provisions
For any corrections/concerns/comments, feel free to message me or send an e-mail to
[email protected].
ARTICLE 1106 of said ownership or real

rights in another
By prescription, one acquires ownership and other real rights through the lapse of time
in the manner and under the conditions laid down by law. As a Defense Can be proven under the Should be affirmatively
general issue without its pleaded and proved to bar
In the same way, rights and actions are lost by prescription. (1930a) being affirmatively pleaded the action or claim of the
adverse party
PRESCRIPTION → It is a means of acquiring ownership and other real rights or losing

rights or actions to enforce such rights through the lapse of time Prescription Laches
● Purpose: Regarded as a statute of repose whose object is to suppress
fraudulent and stale claims from springing up at great distances when the facts
Fact of delay Effect of delay
have become obscure from the lapse of time or the defective memory or death
or removal of witnesses (Sinaon vs. Sorongon)
Matter of time Principally a question of inequity of
permitting a claim to be enforced;
KINDS OF PRESCRIPTIONS
Doctrine of Stale Demands; Based upon
1. Acquisitive — The acquisition of a right by the lapse of time in the manner and
grounds of public policy
under the conditions laid down by law (Art. 1106, par. 1)
● Also called adverse possession and usucapcion
● Expressly ‘vests the property’ and raised a new title in the occupant Statutory Not statutory
2. Extinctive prescription— Rights and actions are lost by the lapse of time (Arts.
1106, par. 2 and 1139) Equity Applies independently of prescription
● Also called Limitation of Actions/Statute of Limitations
● Bars the right of action Cannot be availed of unless it is Need not be specifically pleaded; Court
especially pleaded as an affirmative
allegation
Acquisitive Extinctive
Based on fixed time Not based on fixed time
As to the Operative Act Relationship between the One does not look at the
occupant and the land in possessor but at the Requisites
terms of possession is neglect of the owner; 1. Conduct on the part of the defendant,
capable of producing legal Owner out of possession or of one under whom he claims,
consequences; it is the which he/she controls giving rise to the situation of which
possessor who is the actor complaint is made and for which the
complaint seeks a remedy;
As to Requisites Requires possession by a Requires inaction of the 2. Delay in asserting the complainant’s
claimant who is not the owner or neglect of one rights, the complainant having had
owner with a right to bring his knowledge or notice of the
action defendant’s conduct and having
been afforded an opportunity to
As to its Applicability Applicable to ownership Applies to all kinds of institute a suit;
and other real rights rights, whether real or 3. Lack of knowledge or notice on the
personal part of the defendant that the
complainant would assert the right on
As to its Legal Effect Vests ownership or other Produces the extinction of which he bases his suit; and
real rights in the rights or bars a right of 4. Injury or prejudice to the defendant in
occupants; Results in the action; Results in the loss the event relief is accorded to the
acquisition of ownership or of a real or personal right, complainant, or the suit is not held
other real rights in a or bars the cause of action barred
person as well as the loss to enforce said right
Without any colorable title recognized by law, both rules will never apply to registered Absentees w/ administrators
lands. Social justice and equity cannot be used to justify the grant of property to one at ● Prescription will run against an absentee if:
the expense of another who may have a better right under the law. ○ He leaves an administrator or the court appoints an administrator for
him
■ Art 381, NCC: A person disappears from his domicile, his
ARTICLE 1107 whereabouts being unknown, and without leaving an agent to
administer his property, the judge may appoint a person to
Persons who are capable of acquiring property or rights by the other legal modes may represent him in all that may be necessary.
acquire the same by means of prescription. ■ Also applicable when power conferred by the absentee has
expired
Minors and other incapacitated persons may acquire property or rights by prescription, ○ He can go back to his domicile but he intentionally does not want to
either personally or through their parents, guardians or legal representatives. (1931a) return
● EXCEPT: If such person does not have administrators
● Absentees cannot manage his affairs as he cannot go back to his domicile
WHO CAN ACQUIRE BY PRESCRIPTION
The following can acquire property or rights by means of prescription: Persons Living Abroad w/ managers/administrators
1. Persons who are capable of acquiring property or rights by the other legal
● EXCEPT: If such person does not have administrators or managers
modes ● Must be shown that they cannot return to their domicile within the period when
2. Minors and other incapacitated persons — personally or through their parents, prescription should have run
guardians or legal representatives
● If acquired by a minor personally — annullable or voidable, but may be Juridical Persons
ratified when minor comes of age
● Those endowed by law of the attributes of a natural person
● If the acquisition of the minor is through his parents or guardian — ● EXCEPT: State and its subdivisions
completely valid. ○ When acting in their sovereign capacity – The State and its
● Emancipation shall terminate parental authority over the person and subdivisions cannot be the subject of prescription.
property of the child. It takes place by attainment of majority (18 yrs). ■ Republic vs. Philippine National Bank — The AFP filed a case
for recovery of a sum of money which the defendant-bank
ARTICLE 1108 negligently paid to unauthorized persons. Suit was dismissed
on the ground that action had already been prescribed. The
Prescription, both acquisitive and extinctive, runs against: SC ruled that the plea of prescription cannot be maintained,
1. Minors and other incapacitated persons who have parents, guardians or other since the State cannot be subject to prescription.
legal representatives; ○ EXCEPTION TO THE EXCEPTION: When a political subdivision is
2. Absentees who have administrators, either appointed by them before their acting in its proprietary capacity – Prescription will lie against it.
disappearance, or appointed by the courts; ■ National Development Company vs. Tobia — The SC upheld
3. Persons living abroad, who have managers or administrators; a decision concerning the National Development Corporation,
4. Juridical persons, except the State and its subdivisions. a GOCC, which filed a collection case that was dismissed on
the ground that the claim had prescribed. The Court ruled that
Persons who are disqualified from administering their property have a right to claim like all other corporations capitalized by the Government, a
damages from their legal representatives whose negligence has been the cause of business corporation, the National Development Corporation's
prescription. (1932a) cause of action was subject to the statute of limitation.
WHO DOES PRESCRIPTION RUN AGAINST
Minors and Incapacitated Persons w/ parents/guardians/ legal representatives

● EXCEPT: If such person does not have legal representatives or guardians who
are supposed to take care of their affairs
● Vda. De Alberto vs. Court of Appeals — IIllegitimate children cannot claim
exemption from the effects of prescription. The illegitimate child still has a living
parent, his mother.
ARTICLE 1109 ARTICLE 1111
Prescription does not run between husband and wife, even though there be a separation Prescription obtained by a co-proprietor or a co-owner shall benefit the others. (1933)
of property agreed upon in the marriage settlements or by judicial decree.
Neither does prescription run between parents and children, during the minority or CO-OWNERSHIP – Present when the ownership of an undivided thing or rights belongs
insanity of the latter, and between guardian and ward during the continuance of the to different persons
guardianship. (n)
Illustrative Example
● A, B and C co-own a particular land and, by virtue of such co-ownership they all
HUSBAND AND WIFE reside in the same.
GENERAL RULE – Prescription does not apply to husband and wife ● B occupies a portion of land adjoining the co-owned property, which he
● Pacio vs. Billion — The Supreme Court rejected a contention that, although a adversely and publicly holds the land continuously for the required period of
husband’s donation to his first wife was invalid, the first wife acquired the donation time
through acquisitive prescription considering that the void donation constituted a ● Valid acquisition for him and also in favor of A and C
title and that the first wife possessed the property for about 29 years. The ruling
was based on the lack of proof of an adverse possession on the part of the first SUMMARY OF AGAINST WHOM PRESCRIPTION DOES AND DOES NOT RUN
wife and Article 1109 of the 1950 Civil Code.
● Even if there is a regime of separation of property in the marriage
AGAINST WHOM PRESCRIPTION AGAINST WHOM PRESCRIPTION
EXCEPTION: Unless the law otherwise provides RUNS (Arts. 1108, 1110) DOES NOT RUN (Arts. 1108, 1109,
1111)
● Example: A case of legal separation between husband and wife must be filed
within 5 years from the occurrence of the cause.
Minors and other incapacitated persons Minors and other incapacitated persons
PARENT AND CHILD who have parents, guardiians or other who do not have parents, guardians or
GENERAL RULE: No prescription lies between parent and child during the latter’s insanity legal representativees other legal representativees
or minority
● Natural bond of filiation Absentees who have administrators, Absentees who do not have
● Parents are his natural guardians without the need of a court appointment either appointed by them before their administrators, either appointed by them
disappearance, or appointed by the courts before their disappearance, or appointed
EXCEPTION: Special cases by the courts
● Example: Husband may impugn the legitimacy of the child of his wife
● Upon reaching the age of majority and if the daughter or son is not insane, Persons living abroad, who have Persons living abroad, who do not have
prescription will apply. managers or administrators managers or administrators
GUARDIAN AND WARD Juridical persons, including the State but State and its subdivisions (only with
GENERAL RULE: Prescription will not lie during the period of guardianship only with regard to patrimonial property regards to properties of public dominion
● Due to the fiduciary relationship between the guardian and the ward
● Give adequate remedy to the ward for the abuses of the guardian Married woman Between husband and wife during the
marriage even though there be a
separation of property agreed upon in the
ARTICLE 1110 marriage settlements or by judicial decree
Prescription, acquisitive and extinctive, runs in favor of, or against a married woman. (n) Between parents and children during the
minority or insanity of the latter
Whether married or unmarried, prescription runs in favor of or against a married woman.
Between guardian and ward during the
continuance of guardianship
In favor of a co-owner or co-heir against

his co-owners or co-heirs as long as the ARTICLE 1113

co-ownership is recognized
All things which are within the commerce of men are susceptible of prescription, unless
otherwise provided. Property of the State or any of its subdivisions not patrimonial in
Under the Constitution, an alien cannot acquire any land in the Philippines even by
character shall not be the object of prescription. (1936a)
prescription. (CONST, Art XII, Sec 3 par 1, and Sec 7)
OBJECT OF PRESCRIPTION
ARTICLE 1112
GENERAL RULE – All things within the commerce of men may be acquired by
prescription.
Persons with capacity to alienate property may renounce prescription already obtained,
● These can be appropriated under Art. 530 of Civil Code; Since possession is
but not the right to prescribe in the future.
required for prescription, it follows that things which are not susceptible of being
appropriated CANNOT be the object of prescription.
Prescription is deemed to have been tacitly renounced when the renunciation results
● Property of public dominion and common things cannot be acquired by
from acts which imply the abandonment of the right acquired. (1935)
prescription.
● Director of Forest Administration v Fernandez – Forest land cannot be owned by
RENOUNCING PRESCRIPTION ALREADY OBTAINED private persons. It is not registerable whether the title is a Spanish title or a torrens
● Unilateral act and does not require the acceptance of the person to be benefited title.
by it ● Lovina v. Moreno – The ownership of a navigable stream or of its bed is not
● Where the party acknowledges the correctness of the debt and promises to pay acquired by prescription
it after the same has prescribed and with full knowledge of the prescription, he ○ Republic v CA – Particular area adjacent to a bay was determined to be
hereby waives the benefit of prescription allowable for registration and can be subject to prescription.
○ BUT: A simple promise which contains new and positive promise to pay ● Patrimonial property of the State may be acquired as they are acquired and
the debt which has prescribed does not amount to a renunciation of treated the same way as property of private individuals.
prescription ○ Period of possession of public land before it became patrimonial is not
● DBP v Adil – Where a party makes a new promise to pay a debt barred, the statute counted for the purposes of completing the prescriptive period.
of limitations can no longer apply. It is to be regarded as reanimating the old ● Res nullius (property without an owner) is acquired by occupation and not by
promise and enabling the creditor to recover upon his original contract. prescription because prescription presupposes a previous owner.
● Caltex v Singzon Aguirre – Defendant manifested that he renounced the
prescription already obtained; thus, Court cannot reverse the dismissal of the EXCEPTIONS: [RSM]
complaint since the waiver is binding on both parties. ● Lands Registered under the Torrens system (Art 1126)
● Properties of Spouses, parents, and children and guardians and wards under
Requisites [C-PORK] certain conditions as between themselves (Art 1109)
1. The person renouncing must have Capacity to alienate property ● Movables possessed through a crime (Art 1133)
2. The renunciation must refer to Prescription already obtained
3. It must be made by the Owner of the right; hence, administrator, executor, agent,
ARTICLE 1114
eetc cannot renounce unless given special power of attorney
4. It must not prejudice the Rights of creditors or third persons
Creditors and all other persons interested in making the prescription effective may avail
5. The person renouncing must have Knowledge of the existence of the right
themselves thereof notwithstanding the express or tacit renunciation by the debtor or
proprietor. (1937)
ADVANCED RENUNCIATION –– Void
RENUNCIATION BY REPRESENTATIVES – Only persons with capacity to alienate EFFECT OF RENUNCIATION TO CREDITORS
property can renounce prescription already obtained, not guardians, executors, In the event that the time within which to pay has already prescribed but nevertheless the
administrators. debtor renounces prescription such that the creditor can still collect from him, and should
the debtor again fail to pay, thereby prompting the debtor to demand payment from the
guarantor, the guarantor can resist for he shall not be prejudiced by the act of waiving.
ARTICLE 1115 CHAPTER 2 – PRESCRIPTION OF OWNERSHIP AND OTHER REAL RIGHTS
The provisions of the present Title are understood to be without prejudice to what in this
Code or in special laws is established with respect to specific cases of prescription.
(1938)
1117 Ordinary and Extraordinary Acquisitive Prescription
The codification of these rules does not mean that this would do away with all other rules 1118 Possession
in the matter of prescription. In case of conflict, follow the more specific provision if other
provisions of the Civil Code or other special laws provide for the prescriptive period.
1119 Possessory Acts
BUT: If different statutes are involved with conflicting prescriptive periods and causes of
action, they do not exclude each other from being availed of by the parties.
1120 Interruption
ARTICLE 1116
1121 Natural Interruption
Prescription already running before the effectivity of this Code shall be governed by laws
previously in force; but if since the time this Code took effect the entire period herein
1122
required for prescription should elapse, the present Code shall be applicable, even
though by the former laws a longer period might be required.
1123 Civil Interruption
Effectivity of the Civil Code is on August 30, 1950. Hence:
● If lapsed before effectivity – Old rule applies
1124
● If running from old law until the effectivity of the new law, but the 1950 Civil Code
provides a different period for the same situation – 1950 Civil Code shall prevail
provided that such period counted from the effectivity of the 1950 Civil Code has
1125 Express Recognition
already lapsed even though it may not have yet lapsed under the old law
● If the prescriptive period under the old law is still running upon the effectivity of
1126 Registered Properties
the 1950 Civil Code and the remaining balance of such period since the effectivity
of the 1950 Civil Code is shorter than that provided in the 1950 Civil Code for
exactly the same situation – Old prescriptive period will apply 1127 Good Faith
Illustrative Examples
1128
● If under an old law previous to the 1950 Civil Code, X has 30 years within which
to file a particular suit and by the time the 1950 Civil Code takes effect his
remaining time, pursuant to the period provided by the old law, is only 12 years, 1129 Just Title
he cannot file the case on the 12th or even on the 11th year if the 1950 Civil Code
provides only 10 years as prescriptive period for exactly the same kind of case.
● However, if the remaining period provided by the old law is only 9 years, the old 1130
law shall prevail.
1131
1132 Period of Ordinary and Extraordinary Prescriptive Acquisition
1133 Movables possessed through crime

○ Acts of possessory character which are merely tolerated do not

1134 Period of prescription for immovables constitute possession.
● Ramirez v. CA – An antichretic creditor cannot ordinarily acquire by prescription
1135 Possessing an area greater or less than that in title the land surrendered to him by the debtor, because his possession is not in the
concept of owner.
1136 Possession in wartime ● Republic v. CA – The U.S. Navy’s possession of a property for recreational
purposes only, resembling commodatum, can never translate to acquisitive
1137 Extraordinary acquisitive prescription for immovables prescription.
● Ramos v CA – Acquisitive prescription has set in especially when the claimant
1138 Rules for computing prescription has undertaken acts clearly showing his claim of ownership.
PUBLIC
ARTICLE 1117 ● Notorious holding of the property known to the community
● Not surreptitious [or kept in secret]
Acquisitive prescription of dominion and other real rights may be ordinary or ● Manifest or visible to all, especially to the person against whom the possession is
extraordinary. being adversely affected
● Must be known to the owner of the thing
Ordinary acquisitive prescription requires possession of things in good faith and with just
title for the time fixed by law. (1940a) PEACEFUL
● Acquired and maintained without any violence, physical or moral
○ Unless force used is reasonably necessary to repel or prevent an actual
ORDINARY ACQUISITIVE PRESCRIPTION – Requires uninterrupted possession for the or physical invasion of the property
required statutory period of years in good faith and with a just title ● No valid interference from others claiming their rights to the property
● For the period of years required by law
EXTRAORDINARY ACQUISITIVE PRESCRIPTION – Requires uninterrupted
possession for the required statutory period of years without the need of good faith with UNINTERRUPTED
a just title ● Continuity in holding of the property
● Requisites [CTPT] ● Heirs of Bienvenido and Aracelii Tayag v Salome Gabriel – Unbroken, not
○ Capacity to acquire by prescription intermittent or occasional
○ A Thing capable of acquisition by prescription ● Not understood in absolute sense; No acts of deprivation of enjoyment of the
○ Possession of thing under certain conditions things by a third person, or any other act which interrupts prescription
○ Lapse of Time provided by law
ARTICLE 1119
ARTICLE 1118
Acts of possessory character executed in virtue of license or by mere tolerance of the
Possession has to be in the concept of an owner, public, peaceful and uninterrupted. owner shall not be available for the purposes of possession.
CHARACTERISTICS OF POSSESSION TO BE THE BASIS OF PRESCRIPTION ACTS OF POSSESSORY CHARACTER

[OPPU] ● Holding of property by virtue of consent of the owner shows acknowledgment of
1. Concept of an Owner the part of the possessor that somebody else owns the property.
2. Public ● Possession by tolerance does not imply an assertion of ownership.
3. Peaceful ○ Example: Informal settlers
4. Uninterrupted
License – Positive act of the owner in favor of the holder of the thing
CONCEPT OF AN OWNER
● Possessor must assert dominion on the property to the exclusion of all others Tolerance – Passive acquiescence of the owner to acts being performed by another which
● Must be an adverse, continuous, and notorious possession appear to be contrary to the rights of the former.
○ A mere lessee or a mere mortgagee or an agent does not hold the
property in the concept of an owner since it cannot ripen into ownership
by acquisitive prescription
the property is his and requests A to vacate the premises. To avoid complications,
ARTICLE 1120 A left the place. However, it turns out that Z is a defrauder and it is actually M who
has previously bought the property from B before A did. Upon learning that Z’s
Possession is interrupted for the purposes of prescription, naturally or civilly. claim is fraudulent, A returned to the property and stayed there for another 7
years. M now claims the property and requests A to leave.
INTERRUPTION OF POSSESSION ● Can A invoke Acquisitive Prescription? No.
● No continuity in the holding of the property ○ While he may have possession of the property for a total of 11 years, it
● Possession must be uninterrupted for it to strengthen the adverse right of the was interrupted.
possessor. ○ His subsequent possession of 7 years cannot be added to his previous
● Interruption is distinct from discontinuity. Former is a positive act of third person, 4 years.
while the latter is a negative act or abstention on the part of the possessor himself. ○ In effect, his period of possession for purposes of prescription is only 7
years which obviously has not complied with the 10-year period required
KINDS OF INTERRUPTION by law for ordinary acquisitive prescription.
1. Natural (Arts. 1121 - 1122) ● Assuming the interruption is not two years but only one year or less, can A invoke
2. Civil (Arts. 1123 - 1124) Acquisitive Prescription? Yes.
○ Prescription will be set in favor of A because the law clearly provides
EFFECT OF INTERRUPTION – All the benefits acquired so far from the possession cease. that if the natural interruption is for one year or less, the time elapsed
When the prescription runs again, it will be an entirely new one. shall be counted in favor of prescription.
DISTINGUISH PRESCRIPTION FROM SUSPENSION – If prescription is merely ARTICLE 1123

suspended, the old possession will be added such as when civil courts are closed during
the war or where there is a moratorium on payment of debts. Civil interruption is produced by judicial summons to the possessor.
ARTICLE 1121
ARTICLE 1124
Possession is naturally interrupted when through any cause it should cease for more
than one year. Judicial summons shall be deemed not to have been issued and shall not give rise to
the interruption:
The old possession is not revived if a new possession should be exercised by the same
adverse claimant. (1) If it should be void for lack of legal solemnities;
(2) If the plaintiff should desist from the complaint or should allow the proceedings
to lapse;
ARTICLE 1122 (3) If the possessor should be absolved from the complaint.
If the natural interruption is for only one year or less, the time elapsed shall be counted In all these cases, the period of the interruption shall be counted for prescription.
in favor of the prescription.
CIVIL INTERRUPTION
NATURAL INTERRUPTION – When through any cause prescription should cease for ● It is NOT the filing of the complaint in court which interrupts the possession. It is
more than one year interrupted upon receipt of the possessor of the judicial summons after the filing
● Old possession loses all its juridical effects, and even if the possession is of the complaint
reacquired, the old possession cannot be tacked to the new possession ● However, for the following instances, judicial summons shall be deemed not
issued:
Possession de facto – Lost if new possession of another has lasted longer than 1 year 1. When the judicial summons lack legal solemnities such as when the
● If for 1 year or less, it is counted in favor of prescription. copy of the complaint has been served by a person not authorized by
the court.
Illustrative Example 2. When the plaintiff should desist from the complaint thus voluntarily
● A is in possession of an unregistered property in the concept of an owner in good having the case dismissed while allowing the proceedings to lapse.
faith and with a just title for a period of 4 years. The land is formerly owned by B 3. When the possessor is absolved, thus the complaint has not been fully
and was acquired by A as the successful bidder in a public auction. Z claims that substantiated to support any adverse claim by the complainant.
● If the possession is recovered, it can be connected to the time that has elapsed apparently obtained the property from some apparent mode of conveyance such
as if it were in fact continuous, the period of interruption is to be counted for the as donation or sale.
prescription ○ Proof is important.
Any express or tacit recognition which the possessor may make of the owner’s right also The good faith of the possessor consists in the reasonable belief that the person from
interrupts possession. whom he received the thing was the owner thereof, and could transmit his ownership.
EXPRESS OR TACIT RECOGNITION

● Interrupts possession because possession must always be in the concept of an ARTICLE 1128
owner
○ One cannot consider himself as an owner if he recognizes somebody The conditions of good faith required for possession in Articles 526, 527, 528 and 529
else as having a superior right as an owner of this Code are likewise necessary for the determination of good faith in the prescription
● Corpus v. Padilla – One cannot recognize the right of another at the same time of ownership and other real rights.
claim adverse possession which can ripen to ownership, through acquisitive
prescription DETERMINING GOOD FAITH ON MATTERS OF PRESCRIPTION (from provisions of the
● Dinoso v CA – Where the sale is subject to the owner’s right of redemption, the 1950 Civil Code)
purchaser’s possession has been held in subordination to the title of the owner ● Art 526: He is deemed a possessor in good faith who is not aware that there exists
prior to the expiration of the redemption period. in his title or mode of acquisition any flaw which invalidates it.
He is deemed a possessor in bad faith who possesses in any case contrary to
REQUISITES [PT-VaB] the foregoing.
1. Recognition must be made by the Possessor himself, or if made by a Third Mistake upon a doubtful or difficult question of law may be the basis of good faith.
person, the recognition must be authorized or ratified by the possessor ● Art 527: Good faith is always presumed, and upon him who alleges bad faith on
2. Recognition must be Valid and efficacious in law the part of a possessor rests the burden of proof.
● If the act of recognition was obtained through violence, intimidation, ● Art 528: Possession acquired in good faith does not lose this character except in
fraud or any other cause which vitiates consent, it will not interruption the case and from the moment facts exist which show that the possessor is not
possession unaware that he possesses the thing improperly or wrongfully.
3. Recognition must have been made Before prescription has already been ● Art 529: It is presumed that possession continues to be enjoyed in the same
obtained character in which it was acquired, until the contrary is proved.
ARTICLE 1126 ACTUAL OR CONSTRUCTIVE NOTICE

● Good faith cannot be invoked if the claimant has actual or constructive notice of
Against a title recorded in the Registry of Property, ordinary prescription of ownership or the legal and valid rights of possession of another during the prescriptive period.
real rights shall not take place to the prejudice of a third person, except in virtue of
another title also recorded; and the time shall begin to run from the recording of the ARTICLE 1129
latter.
For the purposes of prescription, there is just title when the adverse claimant came into
As to lands registered under the Land Registration Act, the provisions of that special law possession of the property through one of the modes recognized by law for the
shall govern. acquisition of ownership or other real rights, but the grantor was not the owner or could
not transmit any right.
● Dimayuga v CA – No title to registered land in derogation to that of the registered
owner shall be acquired by prescription or adverse possession.
● Reyes v CA – There can be no acquisitive prescription considering that the parcel ARTICLE 1130
of land in dispute is titled property.
● Although prescription will not apply to registered property, the doctrine of laches The title for prescription must be true and valid.
is applicable in cases where the possessor or transferee can prove that he
ARTICLE 1131 ● Art. 1505 - Subject to the provision of this Title, where goods are sold by a person
who is not the owner thereof, and who does not sell them under authority or with
For the purposes of prescription, just title must be proved; it is never presumed. the consent of the owner, the buy acquires no better title to the goods than the
seller had, unless the owner of the goods is by his conduct precluded from
JUST TITLE denying the seller’s authority to sell.
Colorable title; Adverse claimant came into possession of the property through one of the
modes recognized by law for the acquisition of ownership or other real rights but the grantor Nothing in this Title, however, shall affect:
was not the owner or could not transmit any right 1. The provisions of any factors’ acts, recording laws or any other
provisions of law enabling the apparent owner of goods to dispose of
TRUE AND VALID them as if he were the true owner thereof;
● Doliendo v. Biarnesa – A “true and valid” title does not mean one which is 2. The validity of any contract of sale under statutory power of sale or under
“sufficient to transfer ownership without the necessity of the lapse of the the order of a court of competent jurisdiction
prescriptive period.” Rather, it is one “which a person has when he buys a thing, 3. Purchases made in a merchant’s store, or in fairs, or markets, in
in good faith, from one whom he believes to be the owner.” accordance with the Code of Commerce and special laws. [end of
provision]
Examples of Just and Valid Titles
● Adverse possession can apply even when the one who claims ownership by ARTICLE 1133
adverse possession has the following “title”:
○ Title acquired via a transaction at a public auction, even if the vendor Movables possessed through a crime can never be acquired through prescription by the
had no authority to sell the property at the auction (Doliendo v. Biarnesa) offender.
○ Title acquired by a void donation (Solis v. CA)
RATIONALE – No one must benefit from an evil act.

ARTICLE 1132
SCOPE – True for both ordinary and extraordinary prescription
The ownership of movables prescribes through uninterrupted possession for four years
in good faith. AS TO THIRD PERSONS
● Benefit of prescription is denied to offender; If the thing was passed tto a
The ownership of personal property also prescribes through uninterrupted possession subsequent holder, prescription begins to run.
for eight years, without need of any other condition.
With regard to the right of the owner to recover personal property lost or of which he has ARTICLE 1134
been illegally deprived, as well as with respect to movables acquired in a public sale,
fair, or market, or from a merchant’s store, the provisions of Articles 559 and 1505 of Ownership and other rights over immovable property are acquired by ordinary
this Code shall be observed. prescription through possession of ten years.
PERIOD FOR ACQUISITIVE PRESCRIPTION ORDINARY ACQUISITIVE PRESCRIPTION FOR IMMOVABLES

● Ordinary acquisitive prescription for movables = 4 years, coupled with good faith ● 10 years of possession
○ Possession must be in the concept of an owner, adverse, public, and ● Possession must be by virtue of a just and valid title
uninterrupted ● In the concept of an owner
● Extraordinary prescription = 8 years, with no other condition required ● Uninterrupted
● Adverse
PROPERTY LOST OR OF WHICH HE HAS BEEN ILLEGALLY DEPRIVED ● Public
● Art. 559 - The possession of movable property acquired in good faith is equivalent
to a title. Nevertheless, one who has lost any movable or has been unlawfully
deprived thereof, may recover it from the person in possession of the same. If the
possessor of a movable lost or of which the owner has been unlawfully deprived,
has acquired it in good faith at a public sale, the owner cannot obtain its return
without reimbursing the price paid therefor. [end of provision]
● Use of “grantor” and “predecessor in interest” show that transfer of property must
ARTICLE 1135 be in a manner provided by law
In case the adverse claimant possesses by mistake an area greater, or less, than that Examples
expressed in his title, prescription shall be based on the possession. ● B donates to A a property which has been in B’s possession for 8 years. If A has
been occupying the property for 3 years, A can add B’s possession of the property
SIZE OF THE LOT on top of A’s own possession.
● The extent of the property subject to prescription is that which is actually ○ 8 years possession by B + 3 years possession by A = 11 years → A can
possessed by the claimant, regardless of the size of the lot in the title. be said to have been in possession of the property for 11 years already,
for purposes of prescription.
ARTICLE 1136 RULE 2: PRESUMPTION

● Presumption is based on facts.
Possession in wartime, when the civil courts are not open, shall not be counted in favor ● It must be proven that the person presently possessing the property also was in
of the adverse claimant. possession of the same property before that.
● The presumption can be destroyed by evidence to show that he was not in
possession of it during the interval.
POSSESSION IN WARTIME
● If there is no way for a person claiming title to file a case because courts are Example
closed, possession of adverse claimant shall not be counted. ● A person was in possession of a property in 1997, and also shown to be in
● Civil courts must be closed. Even if there is war but courts are open, the period possession of it in 1988 → there is a presumption that he was in possession of it
may be counted in adverse claimant’s favor. from 1989 to 1996.
RULE 3: FIRST DAY EXCLUDED, LAST DAY INCLUDED

ARTICLE 1137
Example
● A person possesses property from Jan. 1, 1980 to Jan 15, 1990. → Count the
Ownership and other real rights over immovables also prescribe through uninterrupted
prescriptive period from Jan. 2, 1980 to Jan 15, 1990.
adverse possession thereof for thirty years, without need of title or of good faith.
What if possession begins in good faith but is later converted to bad faith?
ORDINARY ACQUISITIVE PRESCRIPTION FOR IMMOVABLES ● Prescription will be extraordinary but the possession in good faith shall be
● 30 years computed in the proportion that the period of extraordinary prescription bears to
● No other condition that of ordinary prescription
ARTICLE 1138 CHAPTER 3 – PRESCRIPTION OF ACTIONS
In the computation of time necessary for prescription the following rules shall be OUTLINE OF PROVISIONS
observe:
1. The present possessor may complete the period necessary for prescription by 1139 Prescription of Actions
tacking his possession to that of his grantor or predecessor in interest;
2. It is presumed that the present possessor who was also the possessor at a
previous time, has continued to be in possession during the intervening time, 1140
unless there is proof to the contrary;
3. The first day shall be excluded and the last day included.
1141 Immovables
RULE 1: TACKING POSSESSION TO GRANTOR OR PREDECESSOR IN INTEREST

● Present possessor may complete the period necessary for prescription by tacking 1142 Actions of Mortgage
his possession to that of his grantor/predecessor in interest
GENERAL RULE: If period prescribed by law lapses, action cannot be filed anymore.
1143 No Prescription ● Law fixes time within action may be filed.
● The set of provisions dealing with prescription of actions is known as the Statute
of Limitations
1144 Contracts/Law/Judgment
● No extinctive prescription unless period provided by law expires
1145 Oral Contracts and Quasi-Contracts EXCEPTION: Contractual stipulation for the period of time to file action prevail over rules
of prescription of actions.
1146 Quasi-Delicts and Injuries APPLICABILITY – Apply only to civil actions and not to special proceeds nor criminal
actions
1147 Forcible Entry and Defamation PRESCRIPTION TO BE PLEADED

● Obligation subsists until he avails himself of prescription. Courts of justice will not
1148 Special Laws supply the defense if the debtor himself does not do so.
● Right to prescription may be waived or renounced. It is deemed waived if not
1149 Prescription of Other Actions raised before or during the hearing of the case.
● Even if not pleaded, if it is apparent on the face of the complaint, it may be
favorably considered.
1150
ARTICLE 1140
1151 Actions for Payment
Actions to recover movables shall prescribe eight years from the time the possession
thereof is lost, unless the possessor has acquired the ownership by prescription for a
1152 less period, according to Article 1132, and without prejudice to the provisions of Article
559, 1505, and 1133.
1153 Actions on Accounting

GENERAL RULE: A person can recover lost personal or movable property which he
claims belong to him within a period of eight years.
1154 Fortuitous Event
EXCEPTION: If all the requisites of an ordinary acquisitive prescription of movable
property are present, the possessor of the same becomes the owner of the movable
1155 Interruption
property after only 4 years of uninterrupted possession in good faith.
The action shall likewise be without prejudice to the provisions of Articles 559, 1505,, and
ARTICLE 1139 1133.
Actions prescribe by the mere lapse of time fixed by law.
PRESCRIPTION OF ACTION ARTICLE 1141
Concept – Prescription of action/limitation of action is the time within which an action may Real actions over immovables prescribe after thirty years.
be brought or some act done to preserve the right. Legal and not natural cause of the
extinguishment of obligations. This provision is without prejudice to what is established for the acquisition of ownership
and other real rights by prescription.
Statute of Limitations – Acts limiting the time within which actions shall be brought; Do
not confer any right of action, but are enacted to restrict the period within which the right,
otherwise limited, might be asserted GENERAL RULE: The prescriptive period in connection with immovables is thirty years.
● In extraordinary acquisitive prescription, if the immovable property is adversely in ACTIONS WHICH DO NOT PRESCRIBE
the possession of the possessor for thirty years, the right to sue prescribes with ● Right to demand a right of way regulated in Article 649
the acquisition of the title. ● Right thing to bring an action to abate a public or private nuisance
● Action to declare a contract null and void.
EXCEPTION: If within the thirty year period, all the requisites for ordinary acquisitive ● Action to quiet title initiated by the person having possession of the property.
prescription are already present in favor of the possessor, then the possessor shall be ● Action to partition a property among co-heirs
considered the owner of the property after 10 years of uninterrupted, adverse, public ● More listed in Beda Memaid!
possession of the property in the concept of an owner in good faith.
Prescription does not supervene when the trust is merely an implied one unless expressly
PERIOD OF PRESCRIPTION TABLE repudiated by the trustee.
Movables Immovables ARTICLE 1144
Good Faith The following actions must be brought within ten years from th the time the right of
action accrues:
1. Upon a written contract;
4 years 10 years 2. Upon an obligation by law;
3. Upon a judgement.
Bad Faith
8 years 30 years ● For a contract to fall under this article, the agreement must be in writing.
○ For example, a purchaser of a real estate evidenced by a written contract
of sale may file a case for delivery of the property to him. Barring the
applicability of laches, the purchaser has ten years within which to file
ARTICLE 1142
the case for delivery. The cause of action on a written contract accrues
when a breach or violation thereof occurs.
A mortgage action prescribes after ten years.
● Huang v. Court of Appeals – An implied trust, whether a constructive or resulting
trust, is normally not subject to prescription.
● A mortgage action prescribes after ten years. ○ However, if the trustee openly and adversely repudiates the trust, it is
only from that time when prescription can set in:
MORTGAGE – It is an accessory contract. ■ The prescriptive period is ten (10) years from the repudiation of
● It is constituted to secure a debt so that if the debtor fails to pay the principal the trust. It is ten (10) years because just as a resulting trust is
obligation, a public sale or bidding and the proceeds thereof are used to pay off an offspring of the law, so is the corresponding obligation to
the principal debt and interest if any. convey the property and the title thereto to the true owner. In
● If there is any deficiency, the creditor can still go against the principal debtor to this context, and vis-a-vis prescription,
collect such deficiency. ■ The following actions must be brought within 10 years from the
● DBP v Tomeldan – Suit for the recovery of the deficiency after the foreclosure of time the right of action accrues: (a) Upon a written contract; (b)
a mortgage is in the nature of a mortgage action Upon obligations created by law; (c) Upon a judgment.
● Rural Bank of Malasiqui v Ceralde – Does not apply to annul the foreclosure of a ■ The reckoning point is repudiation of the trust by the trustee
mortgage; What is applicable is Art 1144 as the annulment is based on a written because from that moment his possession becomes adverse.
contract ■ However, before the period of prescription may start, it must be
shown that: (a) the trustee has performed unequivocal acts of
repudiation amounting to an ouster of the cestui que trust; (b)
ARTICLE 1143 such positive acts of repudiation have been made known to the
cestui que trust; and (c) the evidence thereon is clear and
The following rights, among others specified elsewhere in this Code, are not conclusive.
extinguished by prescription:
1. To demand a right of way, regulated in Article 649;
2. To bring an action to abate a public or private nuisance.
● Illustrative Example
ARTICLE 1145 ○ The fault or negligence resulting in the liability of manufacturers and
processors of foodstuffs, drinks, toilet articles and similar goods. They
The following actions must be commenced within six years: shall be liable for death or injuries caused by any noxious or harmful
1. Upon an oral contract; substances used, although no contractual relations exists between them
2. Upon a quasi-contract. and the consumer
○ Coca-Cola Bottlers Philippines, Inc. vs. CA – where a complaint filed on
Illustrative Example May 7, 1990 makes reference to the reckless and negligent manufacture
● A orally borrowed P2,000 from B to be paid on June 1, 1997 and B failed to pay of “adulterated food items intended to be sold for public consumption” in
on such date despite demand from A. A has six years from June 1, 1997 to file that the soft drinks sold to the private respondent “contained fiber-like
the case for collection against B matter and other foreign substances or particles” causing damage to the
private respondent’s business when he sold sometime in August 1989
Quasi-contracts the soft drinks to students who suffered sickness, the SC rejected the
● Certain lawful, voluntary and unilateral acts give rise to the juridical relation of contention of the petitioner that the action had prescribed on the ground
quasi-contracts to the end that no one shall be unjustly enriched or benefited at that the prescriptive period to file such action was 6 months from the
the expense of another delivery of the thing sold pursuant to Article 1571 of the Civil Code, and
● Governed by Book IV, Title XVII, Chapter 1 of the 1950 Civil Code ruled that the allegations in the complaint clearly established a quasi-
○ Solutio indebiti delict which prescribes in 4 years pursuant to Article 1146 of the New
■ Kind of quasi-contract Civil Code
■ Occurs if something is received when there is no right to ○ Diocosa vs. Sarabia – An action based on quasi-delict is governed by
demand it, and it has been unduly delivered through mistake, Article 1150 of the Civil Code as to the question of when the prescriptive
thereby giving rise to the obligation to return what has been period of four years shall begin to run, that is, “from the day (the action
unduly received may be brought,” which means from the day the quasi-delict occurred or
■ Municipality of Opon vs. Caltex – 13 where a taxpayer was committed.
mistakenly paid an amount which is not due, the SC ruled that ○ Kramer, Jr. vs. CA – An action for damages based on quasi-delict
the prescriptive period was 6 years as it is a quasi-contract of resulting from the collision of 2 vessels has a prescriptive period of 4
solutio indebiti years from the day of the collision
○ ABC v CA – where in his third-party complaint filed on June 17, 1987,
the debtor alleged that “by reason of the tortious interference by the
ARTICLE 1146 Central Bank with the affairs of GENBANK, private respondent was
prevented from performing his obligation under the loan such that he
The following actions must be instituted within four years: should not be held liable,” and where the “tortious interference” referred
1. Upon an injury to the rights of the plaintiff; to was the Central Bank’s ordering GENBANK on March 25, 1980 to
2. Upon a quasi-delict. desist from doing business, the SC ruled that such third party complaint
was barred by prescription, because quasi-delicts prescribe after 4 years
from the time the cause of action accrues, which in this case was on
Upon an injury to the rights of the plaintiff March 25, 1980
● When one is arbitrarily and unjustly deprived of his job or means of livelihood, the
action instituted to contest the legality of one’s dismissal from employment
constitutes, in essence, an action predicated “upon injury to the rights of the ARTICLE 1147
plaintiff,” as contemplated under Art. 1146 of the New Civil Code, which must be
brought within 4 years. The following actions must be filed within one year:
1. For forcible entry and detainer;
Upon a quasi-delict 2. For defamation.
● Quasi-delict
○ Article 2176 of the Civil Code provides that “whoever by act or omission
causes damage to another, there being fault or negligence, is obliged to ● Vda, De Borromeo v. Pogoy – Under Article 1147 of the Civil Code, the period for
pay for the damage done. Such fault or negligence, if there is no pre- filing actions for forcible entry and detainer is one year, and this period is counted
existing contractual relation between the parties, is called quasi-delict.” from demand to vacate the premises. The prescriptive period for forcible entry
○ Governed by Book IV, Title XVII, Chapter 2 of the 1950 Civil Code and detainer is long enough to comply with prerequisites provided by law for the
filing of such a case.
ARTICLE 1148 3. Revoke or reduce

donation based on the
The limitations of action mentioned in Articles 1140 to 1142, and 1144 to 1147 are birth, appearance or
without prejudice to those specified in other parts of this Code, in the Code of adoption of a child (Art
Commerce, and in special laws. 763)
4. Revoke donation
based on non-
● The phrase “without prejudice” means that, in proper cases, the prescriptive compliance with a
period in this chapter may be availed of notwithstanding other special provisions condition (Art 764)
in other parts of the Civil Code, in the Code of Commerce and in special laws 5. Rescission of contracts
● Virgilio Callanta vs. Carnation Phil., Inc.,– Illegal and unlawful dismissal suffered (Art 1389, Par 1)
by the plaintiff in the said case falls within the ambit of “injury to the rights of the 6. Annul a contract (Art
plaintiff,” 1391, Par 1)
1. Forcible entry and 1 year

ARTICLE 1149
detainer (Art 1147)
2. Defamation (Art 1147)
All other actions whose periods are not fixed in this Code or in other laws must be
3. Recover possession de
brought within five years from the time the right of action accrues.
facto (Art 1147)
4. Revoke a donation on
SUMMARY OF PRESCRIPTIVE PERIODS the ground of
ingratitude (Art 769)
5. Rescind or recover
Actions Movable Immovable damages if immovable
is sold with non-
Action to recover (Art 8 years from the time 30 years apparent burden or
1140-1141) possession is lost servitude (Art 1560)
6. Enforce warranty of
Foreclosure of mortgage 10 years solvency in assignment
(Art 1142) of credits (Art 1629)
All other actions whose Within 5 years from the time the right of action accrues
periods are not fixed in the ARTICLE 1150
Code (Art 1149)
The time for prescription for all kinds of actions, when there is no special provision which
1. Upon a written 10 years from the time the right of action accrues ordains otherwise, shall be counted from the day they may be brought.
contract;
2. Upon an obligation by
law; ● Tolentino vs. CA – It is the legal possibility of bringing the action which determines
3. Upon a judgement. the starting point for the computation of the period of prescription
(Art 1144)
1. Upon an oral contract; 6 years ARTICLE 1151

2. Upon a quasi-contract
(Art 1145) The time for the prescription of actions which have for their object the enforcement of
obligations to pay principal with interest or annuity runs from the last payment of the
annuity or of the interest.
1. Upon an injury to the 4 years
rights of the plaintiff;
2. Upon a quasi-delict (Art
1146)
ARTICLE 1152 Actions to demand the fulfillment of From the time the judgment became final
obligations declared by a judgment
The period for prescription of actions to demand the fulfillment of obligations declared
by a judgment commences from the time the judgment became final. Actions to demand accounting From the day the persons who should
render the same cease in their functions
● It is only when the judgment becomes final that the same can be effectively Action arising from the result of the From the date when said result was
enforced. Hence, the prescriptive period is not counted from the time the accounting recognized by agreement of the
judgment was rendered but from the time it became final. interested parties
● PNB vs. Bondoc – The purpose of the revival of judgment is to give a creditor a
new right of enforcement from the date of revival and the rule seeks to protect
judgment creditors from wily and unscrupulous debtors who, in order to evade
attachment and execution, cunningly conceal their assets and wait until the ARTICLE 1155
statute of limitations set in.
The prescription of actions is interrupted when they are filed before the court, when there
is a written extrajudicial demand by the creditors, and when there is any written
ARTICLE 1153 acknowledgment of the debt by the debtor. (1973a)
The period for prescription of actions to demand accounting runs from the day the
INTERRUPTION OF PRESCRIPTION
persons who should render the same cease in their functions.
● When they are filed before the court
The period for the action arising from the result of the accounting runs from the date ○ Interrupts as to the parties-defendants
when said result was recognized by agreement of the interested parties. ○ The dismissal or voluntary abandonment by the plaintiff of a civil action
takes no time out of the period of prescription, because it would be as if
no action had been commenced at all
○ The prescriptive period is interrupted from the date of filing, regardless
ARTICLE 1154 of the date when the summons is received
○ Filing of motion for reconsideration continues the suspension of the
The period during which the obligee was prevented by a fortuitous event from enforcing running of prescription period, which runs again after the court
his right is not reckoned against him. (n) proceedings have finally been terminated
○ When prescription is interrupted by a judicial demand, the full period for
the prescription must be reckoned from the cessation of the interruption
FORTUITOUS EVENT
● When there is a written extrajudicial demand by the creditors
● Unseen event or seen event which is inevitable; an act of God
○ Must be made before the expiration of the period fixed by law
● When, due to some fortuitous event, prescription is interrupted, an entirely new
● When there is any written acknowledgment of the debt by the debtor
one will commence when there is no longer a fortuitous event
○ Not all acts of acknowledgment of a debt interrupt prescription; the
○ Past period is not resumed
acknowledgment must be written
○ Can be implied but it must be in writing
DIFFERENT KINDS OF ACTION AND CORRESPONDING RECKONING POINT OF
○ The acknowledgement must be such as to apply to a particular and
COMPUTATION OF PRESCRIPTION PERIOD (Arts 1150 - 1153)
specific debt to interrupt prescription
○ Can be made by a legal representative
Action Reckoning Point of Computation of ○ If obligation is acknowledged after the prescription period, it is not
Period of Prescription sufficient to renew the period of prescription
■ There must be a renunciation of the prescription already
When there is no special provision which From the day they may be brought acquired for the action to be acquired
ordains the time for prescription for all ■ Mere acknowledgement of debt does not constitute
kinds of action renunciation of prescription already acquired
○ Ex. A letter acknowledging the validity of a deed of sale & promising to
Actions which have for their object the From the last payment of the annuity or of comply with its commitments interrupts the period & begins it anew for
enforcement of obligations to pay the interest another 10 years (written contract)
principal with interest or annuity ○ Payment interrupts the running of the prescription period.
■ But if acknowledgment is written BUT payment is not ● Arias Ramos – A juridical relation whereby a person (called the creditor) may
accompanied by communication signed by the payor, demand from another (called the debtor) the observance of a determinate
payment would not interrupt the running of the prescription conduct, and, in case of breach, may obtain satisfaction from the assets of the
period latter.
● Diaz Pairo – A juridical relation whereby a person should engage or refrain from
engaging in a certain activity for the satisfaction of the private interest of another
BOOK IV - OBLIGATIONS AND CONTRACTS who, in case of non-fulfillment of such duty, may obtain from the patrimony of the
TITLE I - OBLIGATIONS former, through a proper judicial proceeding, the very prestation due, or, in default
thereof, the economic value that it represents.
● Roman Law (defined in the Institutes, from Justinian) – An obligation is a legal tie,
CHAPTER 1 – GENERAL PROVISIONS OF OBLIGATIONS by which we are bound to the performance of something, in accordance with the
laws of the State.
Etymology and History – All terms used in early Roman law connote a bond, or a tying
together which underscored the idea of a highly personal relationship between creditor and
1156 Definition of an Obligation debtor.
1157 Sources of Obligations Juridical Necessity – Debtor must comply with this obligation, his failure will bring
undesirable consequences
1158 Law as a Source ● There are some obligations that can’t be enforced because they are not
recognised as binding by the law.
1159 Contracts as a Source ● In case of non-compliance, the courts of justice may be called upon to enforce its
fulfillment or, in default thereof, the economic value that it represents
1160 Quasi-Contracts as a Source
NATURE OF OBLIGATIONS UNDER CIVIL CODE – These are civil obligations
1161 Delicts as a Source ● They give the creditor or obligee a right of action in courts of justice to enforce
their performance
1162 Quasi-delicts as a Source ● NOT natural obligations which are based on positive law, equity, natural law since
these do not grant a right of action (Discussed in Title III, Book IV of NCC)
Balane Civil Notes Flow: 1156 → 1157 → 1158 → 1159 → 1160 → 1161 → 1162 ESSENTIAL REQUISITES
1. Passive subject (debtor/obligor)
● Must be determinate and determinable at the time of the constitution of
ARTICLE 1156 the obligation
2. Active subject (creditor/obligee)
An obligation is a juridical necessity to give, to do or not to do. (n)
● Must be determinate and determinable at the time of the constitution of
the obligation
DEFINITION OF AN OBLIGATION 3. Object or prestation (subject matter of the obligation)
● Gives the definition in its passive aspect and merely stressed the duty under the ● Object always constitutes an act, or conduct, or activity (or in negative
law obligations, abstention from an activity)
● Derived from “obligatio” which means a tying or binding ● Requisites:
○ Must be licit
Balane – Criticized on two grounds ○ Must be possible
1. Advisability of defining – Definitions are best left to tribunals, treatises, and ○ Must be determinate or determinable
teachers. 4. Juridical/legal tie (efficient cause/vinculum juris) – reason why the obligation
2. Inadequacy of definition – Only views obligations from the debt side exists
● That which makes the performance of the obligation demandable and
Alternative definitions: enforceable in the courts of law
● Manresa – An obligation is a legal relation created between one person (the
creditor) and another (the debtor), in which the latter is bound to comply with a Other commentators – Additional two elements:
prestation which the former has a right to demand from him. 1. Causa (cause debendi or cause obligationis) – raison d’etre of the obligation
2. Form – There must exist certain external manifestations or bases from which the EXCLUSIVITY – YES. The five enumerated sources are the only ones recognized by law.
obligation arises (Sagrada Orden v NACOCO)
● Balane – Making unilateral public offers (such as rewards) is common in modern
FORMS OF OBLIGATIONS practice. Where should they fall under any of the sources?
GENERAL RULE: Law does not require any form for obligations arising from contracts to ○ German Code – Recognized under sources of law
be valid. These may be oral, in writing, or partly both. ○ UP Law Code Commission – Proposed a provision on this that some
● EXCEPTION: Obligations arising from other sources do not have any form at all. future body could consider
○ De la Rosa v BPI – SC seemed ready to recognize a public offer as a
KINDS OF OBLIGATIONS AS TO PRESTATION source
1. Real obligation – obligation to give
● Specific obligation
● Generic obligation ARTICLE 1158
2. Personal obligation
● Positive personal obligation – obligation to do Obligations derived from the law are not presumed. Only those expressively determined
● Negative personal obligation – obligation not to do in this code or in special laws are demandable, and shall be regulated by the precepts
○ Not to do subsumes not to give of the law, which established them.
Obligation Right Wrong LAW AS A SOURCE OF OBLIGATIONS

● Only ultimate source of all obligations
Act or performance which Power which a person has Cause of action; Act or ● Without law, there is no juridical tie
the law will enforce under the law to demand omission (breach of ● Law as a proximate source – Many obligations arise directly or proximately from
from another any contract/tort or quasi- law.
prestation delict) of one party in ○ Tax obligations
violation of the legal right ○ Arising from family relations
or rights of another, ○ Arising from laws and administrative regulations concerning the
causing injury to the latter. environment
○ Arising from labor laws
○ Arising from election laws
*De Leon discusses in detail the requirements for a cause of action to arise and the ● Generally imbued with public policy considerations
differences between injury, damages, and damage ● Existing law enters into and forms part of a valid contract without the need for
parties to expressly make a reference to it
ARTICLE 1157
Special laws – laws not in the civil code. E.g. Corporation code, negotiable instruments
law, insurance code, national internal revenue code, revised penal code, labour code
Obligations arise from:
1. Law
2. Contracts ARTICLE 1159
3. Quasi-contracts
4. Act or omissions punished by law, and Obligations arising from contracts have the force of law between the contracting parties
5. Quasi-delicts. and should be complied with in good faith.
SOURCES OF OBLIGATIONS CONTRACTS AS A SOURCE OF OBLIGATIONS

Contract – meeting of minds
Quasi-contracts – Arise from lawful, voluntary and unilateral acts which are enforceable 1. Binding force – can’t be valid if against the law
to the end that no one shall be unjustly enriched or benefitted at the expense of the other 2. Requirement of a valid contract – not contrary to laws, morals, good customs,
public order and policy
Quasi-delicts or torts – Arise from the damage cause to another through an act/omission
there being fault or negligence but no contractual relations exists between the parties Force of law between parties – Stresses obligatory nature of a binding and valid
agreement where willful non-fulfillment may involve sanctions
Compliance in good faith – performance in accordance with the stipulation of the contract ● Cause of action would be the civil liability arising from crime
● Injured party can elect which cause of action to pursue (civil liability arising from
criminal action OR independent civil action), subject to the restriction that double
ARTICLE 1160 or multiple recovery cannot be had (Art 2177)
Obligations from quasi-contracts shall be subject to the provisions of Chapter 1, Title
XVII of this book.
ARTICLE 1162
QUASI-CONTRACTS AS A SOURCE OF OBLIGATIONS
Obligation derived from quasi-delicts shall be governed by the provisions of Chapter 2,
KINDS OF QUASI-CONTRACTS Title XVII of this book, and by special laws.
● Negotiorum Gestio (Articles 1888 to 1894) – voluntary management of property
or affairs of another without knowledge of latter
● Solutio Indebiti (Articles 1895 to 1901) – juridical relation created when QUASI-DELICTS AS A SOURCE OF OBLIGATIONS
something is received when there is no right to demand it
○ Requisites REQUISITES FOR QUASI-DELICTS
■ There is no right to receive the thing delivered 1. There must be an act/omission;
■ The thing was delivered by mistake 2. There must be fault/negligence;
○ Whether the payment was made bi mistake is a judicial matter; thus, for 3. There must be damaged caused;
solutio indebiti to apply, there must be evidence establishing the frame 4. There must be a direct relation or connection between the act or omission and
of mind of the payor at the time payment was made. the damage; and
● Expansion of field of quasi-contracts – Code adds several others in Articles 2166 5. There is no pre-existing relation between the parties.
to 2175
CIVIL LIABILITY ARISING FROM QUASI-DELICTS
● Moral evil and material damages – every person criminally liable for an act or
ARTICLE 1161 omission is also civilly liable for damages
● Others, failure to pay contractual debt
Civil obligations arising from criminal offenses shall be governed by the penal laws.
CRIME QUASI-DELICTS
DELICTS AS A SOURCE OF OBLIGATIONS
Malicious intent Only negligence
TWO ASPECTS OF CRIMES
1. Public Aspect – Offense against the State Punishment Indemnification
2. Private Aspect – Within premises of civil law since it is concerned with civil
indemnification Affect public interests Private interests
● Does not exist in victimless crimes
● In crimes with no material damage (like contempt, insults to person in Criminal/civil liability Only civil
authority, gambling, violations of traffic regulations), there is no civil
liability to be enforced.
Can’t be compromised by parties Can be
themselves
SCOPE OF CIVIL LIABILITY
● Restitution – return the thing or pay the value if the thing is lost
The guilt of the accused must be proved Preponderance (i.e. superior/greater
● Reparation
beyond reasonable doubt weight) of evidence
● Indemnification for consequential damages – pay for damages
● Art 100, RPC – Civil liability attaches to any individual who is found to be criminally Liability of person responsible for the Direct and primary
liable author of the negligent act or omission is
○ Person not criminally liable may still be liable civilly when the obligation subsidiary
arises from quasi-delict or tort not alleged and proved as constituting a
criminal offense
Culpa Contractual Culpa Aquilana Delict 1169 Delay
Who may be sued Employer/owner/op Employer alone Employee, where 1170 Grounds for Liability
erator only /employee employer can be
alone/both as subsidiarily liable 1171 Waiver of Fraud
solidary obligors
1172 Negligence
Quantum of proof Mere breach raises Employer – Prove beyond
a rebuttable Rebuttable reasonable doubt 1173 Diligence Required
presumption of fault presumption of
or negligence. vicarious liability 1174 Fortuitous Event
(Failure to select or
supervise properly 1175 Usurious Transactions
the person in
charge; Direct and 1176 Presumptions
primary liability;
Can be rebutted 1177 Remedies of Creditors
with convincing
proof of due 1178 Transmissibility of Rights
diligence for both
selection and
supervision) Balane Civil Notes Flow: 1163 - 1166 → 1167 → 1168 → 1170 → 1171 - 1174 → 1175
→ 1176 → 1177 → 1178
Employee – Need
to prove with
preponderance of ARTICLE 1163
evidence
Every person obliged to give something is also obliged to take care of it with the proper
Damages Depends on extent and kind of cause of action chosen by diligence of a good father of a family, unless the law or the stipulation of the parties
injured party requires another standard of care.
Specific/determinate thing – Particularly designated or physically segregated from others

CHAPTER 2 – NATURE AND EFFECT OF OBLIGATIONS of the same class
● Object is determinate, specific, and individualized
OUTLINE OF PROVISIONS ● No substitution is allowed without creditor’s consent (Identity requisite)
● No other thing of its kind exists; not replaceable if lostt
1163 Diligence of a Good Father of the Family Generic/indeterminate thing – Class or genus to which it pertains and cannot be pointed
out with particularity
1164 When Obligation to Deliver Fruits Arises
DUTIES FOR DETERMINATE THING
1165 Remedies of Creditor in Real Obligation Primary Obligation: Deliver the thing itself
1166 Accessions and Accessories Ancillary Obligations:

1. Preserve the thing with due diligence (Art 1163)
1167 Positive Personal Obligation 2. Deliver the fruits of the thing (Art 1164)
3. Deliver the accessions and accessories (Art 1166)
1168 Negative Personal Obligation 4. Answer for damages in case of non-fulfillment or breach
DUTIES FOR GENERIC THING Real right – Right over a specific thing - no definite passive subject, directed against the
1. To deliver the thing with quality intended whole world
● Not necessarily a duty to preserve a thing because a generic thing, even ● He shall not acquire any real right over it until the same has been delivered to
if lost, is replaceable him.
2. To be liable for damages in case of fraud ● In the case that the creditor has not delivered the thing, the debtor cannot ask for
recovery of possession but only specific performance or rescission of the
DUE DILIGENCE obligation.
● Arises from the time of the constitution of the obligation to the time of delivery ● Should the debtor, after due date but before the delivery, sell the fruits to a third
● General standard of care is that of a good father of a family person in good faith, the third person acquires lawful title to those fruits, without
○ Equated with ordinary care or that diligence which a reasonably prudent prejudice to the debtor’s obligation to indemnify the creditor.
person person would exercise over his own property
● Another standard of care – If the law or stipulation of parties provide for another
standard of care, that will prevail (Arts 1173, 1174) ARTICLE 1165
○ Example: Extraordinary care for courier services and banks
○ BUT: Parties cannot stipulate waiver of the most ordinary diligence When what is to be delivered is a determinate thing, the creditor, in addition to the right
● Factors to be considered – Nature of obligation, circumstances, contractual granted him by Art. 1170 may compel the debtor to make the delivery.
stipulations, debtor’s not at fault if it wasn’t his fault/negligence (fortuitous If the thing is indeterminate, he may ask for the obligation is complied with at the expense
event/force majeure) of the debtor.
● Reasons for debtor’s obligation – Thing would subsist in the same condition as it If the obligor delays, or has promised to deliver the same thing to two or more persons
was when the obligation was contracted who do not have the same interest, he shall be responsible for fortuitous event until he
has effected the delivery.
ARTICLE 1164
REMEDIES OF CREDITOR IN REAL OBLIGATION
The creditor has the right to the fruits of the thing from the time the obligation to deliver ● Specific real obligation
it arises. However, he shall acquire no real right over it until the same has been delivered ○ Primary Remedy – Specific performance, with damages; or
to him. ■ Must be the very thing itself and it has to be the debtor who can
comply
■ Can’t use force to compel, must be brought to court
KINDS OF FRUITS ○ Rescission or cancellation, with damages; or
● Natural – spontaneous products of the soil or other products from animals ○ Demand payment for damages, where it is the only feasible remedy
● Industrial – produced by lands of any kind through cultivation or labour ● Generic real obligation
● Civil – derived by virtue of a juridical relation (e.g. Rent) ○ Primary Remedy – Direct performance, with damages; or
○ Can be done at the expense of the debtor (Substitute performance)
○ Right to recover damages
WHEN CREDITOR HAS RIGHTS TO THE FRUITS – The day when the debtor is obliged ● Personal obligations – Art 1167 and 1168 + Alternative Remedies
to deliver the thing
IN CASE OF FORTUITOUS EVENT
WHEN OBLIGATION TO DELIVER FRUITS ARISES GENERAL RULE – The debtor is relieved from his obligation to give if the object of the
● In a pure obligation – Time of its creation; immediately demandable prestation is lost through delivery.
● In obligations with suspensive conditions – fulfilment of condition unless otherwise
stated EXCEPTIONS: A fortuitous event will not excuse the obligor:
● In obligations with suspensive period – Before the arrival of the term, the 1. If the obligor delays, or
obligation has arisen (in the sense of having come into existence) but the 2. He has promised to deliver the same thing to two or more persons who do not
obligation to delivery has not yet arisen have the same interest.
● Otherwise, contracting parties may stipulate. In such cases, he shall be responsible for any fortuitous event until he has effected the
delivery.
NATURE OF CREDITOR’S RIGHT
Personal right – Right or power of creditor to demand from debtor to give, do or not do –
directed against a particular person
1. Performance done by himself, at the expense of the debtor;

ARTICLE 1166 2. Ask another person to perform the obligation, at the expense of the
debtor;
The obligation to give a determinate thing includes that of delivering all its accessions ● Substitute performance not possible when obligation is highly
and accessories, even though they may have not been mentioned personal
3. Recover damages in either case
ACCESSIONS AND ACCESSORIES OF A DETERMINATE THING ● Done in contravention of the tenor of the obligation OR compiled but done poorly
● All are included although they may have not been mentioned 1. Be undone, if it is still possible, at debtor’s expense;
● Follows principle of “The accessory follows the principal” 2. Demand for the payment of damages
● BUT: Parties may stipulate that accessions and accessories will not be included.
● Unless otherwise stipulated, an obligation to deliver the accessions or ARTICLE 1168
accessories of a thing does not include the thing itself.
When the obligation consists of not doing, and the obligor does what has been forbidden,
Accessions – fruits of thing or additions or improvements upon a thing it shall be undone at his expense.
● House or trees on land
● Rents of a building
● Profits or dividends accruing from shares of sttock REMEDIES OF CREDITOR IN NEGATIVE PERSONAL OBLIGATION
● Air conditioner of a car ● There is no delay in this type of obligation
● Plantation of grapes on a farmland
● Stipulated interest on money borrowed by the debtor 1. Undoing of the forbidden act at debtor’s expense; or
2. Creditor can ask another person to undo, at debtor’s expense;
Accessories – Anything joined to or included with the principal for the embellishment, 3. Demand for damages from debtor
better use or completion
● Equipment in a factory SUMMARY OF REMEDIES OF CREDITOR
● Tools and spare parts for repairs of a machine
● Keys of a house
Specific Substitute Equivalent
● Case or container of a thing
● Tires of a car Performance Performance (Damages)
● Doors and windows of a house
Generic Real ✓ ✓ ✓
● While accessions are not necessary to the principal thing, the accessory and the Obligation
principal thing must go together but both accessions and accessories exist only
in relation to the principal Specific Real ✓ ✘ ✓
Obligation
ARTICLE 1167 Positive Personal ✘ ✘ ✓

Obligation – Highly
If a person is obliged to do something fails to do it, the same shall be executed at his Personal
cost.
Positive Personal ✘ ✓ ✓
The same rule shall be observed if he does it in contravention of the tenor of the Obligation – Not
obligation. Furthermore, it may be decreed that what has been poorly done be undone. Highly Personal
APPLICABLE TO – Obligations to do
Negative Personal ✘ ✓ ✓
Obligation
SPECIFIC PERFORMANCE – Specific personal obligations cannot be ordered to do
because it is involuntary servitude
REMEDIES OF CREDITOR IN POSITIVE PERSONAL OBLIGATION

● Failed to comply
ARTICLE 1169 Judicial Demand Extrajudicial Demand
Those obliged to deliver or to do something incur in delay from the time the obligee Made by the creditor when he files a Made when the creditor demand, either
judicially or extra-judicially demands from them the fulfilment of the obligation. complaint in court against the debtor orally or in writing, from the debtor the
demanding for the performance of the performance of the obligation but outside
However, the demand by the creditor shall not be necessary in order that delay must obligation of the court
exist:
1. When the obligation or the law expressively so declares;
● Law does not make it a prerequisite that an extrajudicial demand be made prior
2. When from the nature and the circumstances of the obligation it appears that
to filing of a suit UNLESS:
the designation of the time when the thing is to be delivered or the service is to
○ Parties stipulate to the contrary
be rendered was a controlling motive for the establishment of the contract; or
○ Ejectment cases when the ground is failure of lessee to pay rent or
3. When the demand would it be useless, as when the obligor has rendered it
comply with conditions of the lease
beyond his power to perform.
○ Consignment cases, unless tender of payment is excused
In reciprocal obligations, neither party incurs in delay if the other does not comply or is
WHEN THE DEMAND IS NOT NECESSARY TO PUT THE DEBTOR IN DELAY (Mora
not ready to comply in a proper manner with what is incumbent upon him. From the
solvendi ex re)
moment one of the parties fulfils his obligation, delay by the other begins.
1. When the obligation so provides
● Has to expressly state that non-performance will give rise to delay
MEANING OF DELAY – Non-fulfillment with respect to time without need of demand
● Ordinary Delay – failure to perform an obligation on time 2. When the law so provides (i.e., paying taxes)
● Legal Delay or default or mora – failure to perform an obligation on time and after ● Has to expressly state that non-performance will give rise to delay
the creditor has demanded from the debtor, whether judicially or extrajudicially, without need of demand
the performance of the obligation; Only when Art 1170 applies 3. When time is of the essence (i.e., wedding gown)
● There must be sufficient manifestation of that situation
KINDS OF DELAY OR DEFAULT 4. When the demand would be useless (i.e., unfinished house)
● Mora Solvendi – delay on the part of the debtor to fulfil his obligation 5. When there is a performance by one party in a reciprocal obligation
● Mora Accipiendi – delay on the part of the creditor to accept the performance of ● From the moment one of the parties fulfills his obligation, delay by the
the obligation other begins
● Compensatio Morae – delay of the obligors in reciprocal obligations
● No delay in negative personal obligations EFFECT OF PARTIAL PAYMENT ON DEMAND – Partial payment does not ipso facto
mean an abandonment of the creditor of his prior demand.
REQUISITES OF LEGAL DELAY OR DEFAULT BY THE DEBTOR [DDD] ● To imply that the creditors accept partial payment as complete performance, the
1. Obligation be Due and demandable and already liquidated acceptance must be made under circumstances that indicate their intention to
● Liquidated when the amount is known or is determinable by inspection consider the performance complete and to renounce their claim.
of the relevant promissory notes and related documentation
2. Demand was made by the creditor (judicial or extrajudicial) EFFECTS OF DELAY
● Creditor has burden of proof of proving previous demand ● Mora Solvendi
3. Debtor Delays performance, through fault or negligence ○ Debtor is guilty of breach.
○ He is liable to the creditor for interest or damages.
GENERAL RULE FOR DEMAND – Demand is necessary to constitute the debtor in delay ○ He is liable even for a fortuitous event, which is to deliver a determinate
(Mora solvendi ex persona); No demand, no delay. thing.
● Must be a categorical assertion for the fulfillment of an obligation that is due and ■ But if he was able to prove that the loss would have resulted
demandable the same thing even if he weren’t in default, the court can
○ Inaccurateness of the amount will not nullify the effect of the demand mitigate damages.
● Obligor is liable for damages from the time of the judicial or extrajudicial demand ○ He is not relieved of his liability if the obligation was to deliver a generic
● Demand cannot be furnished prior to maturity date of the obligation thing.
● Necessary even if a period has been fixed in the obligation ● Mora Accepiendi
○ Creditor is guilty of breach
○ He is liable for damages suffered, if any by the debtor
○ He bears the risk of loss of the thing
○ Debtor is not liable for interest

○ Debtor may release himself from the obligation by the consignation of If any of these four bases of liability co-exist with a fortuitous event, the obligor cannot be
deposit in court excused from being liable on his obligation.
● Compensatio Morae
○ There is no default or delay on the part of both parties. If the delay of
one party follows the other, the court shall equitably temper the liability ARTICLE 1171
of the first infractor.
○ If it can’t be determined, the contract is deemed extinguished and both Responsibility arising from fraud is demandable in all obligations. Any waiver of action
bear their own damages – Art 1192 for future fraud is void.
● In Monetary Obligations
○ If contract stipulates from what time interest will be counted – Stipulation TYPES OF FRAUD
prevails. 1. Antecedent Fraud (Deceit) – Fraud employed at the time of the perfection of the
○ If no stipulation in contract – Interest will run only from the time of judicial contract
or extrajudicial demand. ● Produces vitiated consent → Voidable contract
● Remedy is to file for annulment of the contract
GRACE PERIOD 2. Subsequent Fraud (Malice) – Fraud employed at the time of the performance of
● When a grace period is granted, the grace period is effective without further need the obligation
of demand either calling for the payment of the obligation or honoring the right. ● Assumes the existence of a previously valid contract; thus, obligation
● Grace period is a right, and not an obligation. Rules on demand are not applicable. itself is valid
● Remedy is to ask for damages
ARTICLE 1170
EFFECTS OF FRAUD
Those who are guilty of fraud, negligence, or delay and those who in any manner ● Creditor may insist on proper performance
contravene the tenor thereof, are liable for damages. ● Creditor may resolve the obligation
● In either case, appropriate damages may be recovered
GROUNDS FOR LIABILITY [FNeDCo] EFFECTS OF WAIVER

1. Fraud (Malice) – deliberate/ intentional evasion; done in bad faith or with a ● Waiver of past fraud is valid – Act of generosity
malicious intent ● Waiver of future fraud is void – Contrary to law and public policy
● Incidental (Dolo Incidente) – committed during the performance of the
obligation
● Casual (Dolo Causante) – Done for the contract to be executed (vitiates ARTICLE 1172
consent)
2. Negligence (Fault/Culpa) – voluntary act or omission, no bad faith Responsibility arising from negligence in the performance of every kind of obligation is
3. Delay (Mora) demandable, but the courts, according to circumstances, may regulate such liability.
4. Contravention of the terms of the tenor
● Serves as the catch all term for any instance of culpable irregularity that Negligence – absence of due diligence; failure to observe the protection of the interests
may not be considered under fault, negligence, or delay of another person
FRAUD NEGLIGENCE KINDS OF NEGLIGENCE

● Contractual Negligence (culpa contractual) – In contracts; Not a source of
Deliberate intentions No intention obligation
● Civil Negligence (culpa aquiliana) – in torts / quasi-delicts
Waiver of liability of future fraud is void Waiver of liability of future negligence is ● Criminal Negligence (culpa criminal) – damages, crimes
allowed
VALIDITY OF WAIVER OF ACTION ARISING FROM NEGLIGENCE
Must be clearly proven Presumed 1. Future negligence may be renounced except where the nature of the obligation
requires the exercise of extraordinary diligence.
2. When negligence shows bad faith, it is considered fraud.
Liability cannot be mitigated Can be mitigated
WHEN INJURED PARTY IS ALSO GUILTY OF NEGLIGENCE (Art 2179)

● If injured party’s own negligence was the immediate and proximate or direct cause ARTICLE 1174
of his injury he cannot recover damages
● If the injured party's own negligence was not the immediate and proximate or Except in cases expressly specified by the law, or when it is otherwise declared by the
direct cause of his injury and it was merely contributory, the injured party can still stipulation, or when the nature of the obligation requires the assumption of risk, no
recover damages. person shall be responsible for these events which could not be foreseen of which
● To be entitled for full damages, the negligence of the debtor must be the sole though foreseen, were inevitable.
cause of damage
Fortuitous Event (Casa Fortuito) – event that could not be foreseen, if foreseen, is
ARTICLE 1173 inevitable.
● The law does not require the impossible
The fault of negligence of the obligor consists in the omission of that diligence is required ● Interchangeable with the term force majeure
by the nature of obligation and corresponds with the circumstances of the
person, of the time, and of the place. When negligence shows bad faith the provisions KINDS OF FORTUITOUS EVENTS
of article 1171 shall apply. ● Act of God – Due directly and exclusively to natural causes without human
intervention (earthquakes, storms, floods, epidemics, fires, etc)
If the law or contract does not state the diligence which is to be observed in the ● Act of Man – Result of participation of man e(armed invasion, attack by bandits,
performance, that which is expected of a good father of a family shall be required. government prohibitions, robbery, etc)
REQUISITES OF A FORTUITOUS EVENT [IFIF]

FACTORS TO BE CONSIDERED 1. Independent of the human will or at least debtor’s will
1. Nature of the obligation 2. Event could not be Foreseen, or if foreseen is inevitable
2. Circumstances of the person 3. Renders it Impossible for the debtor to comply with his obligation in a normal
3. Circumstance of time manner
4. Circumstance of place 4. Debtor must be Free from any participation in or the aggravation of, the injury of
the creditor, that is, there is no concurrence negligence on his part
MEASURE OF LIABILITY OF DAMAGES
● Good faith – liable for natural and probable consequences GENERAL RULE – Debtor shall not be liable for loss or damage due to a fortuitous event.
● Bad faith – liable for all damages ● Exculpatory clause (exempt from performance)
○ Does not simply connote bad judgment; Must import a dishonest ● Not liable for damages
purpose or some moral obliquity and conscious doing of a wrong
EXCEPTIONS
KINDS OF DILIGENCE REQUIRED 1. When expressly specified by the law
1. Agreed upon by the parties ● Art 1170: The debtor is guilty of fraud, negligence, or delay, or
2. Required by law contravention of the tenor
3. If silent, that of a good father of a family ● Art 1165, Par 3: The debtor has promised to deliver the same specific
thing to two or more persons who do not have the same interests
EFFECTS OF NEGLIGENCE ● Art 1268: The obligation arises from a crime
● Creditor may insist on proper performance 2. When declared by stipulation
● Creditor may resolve the obligation 3. When the nature of the obligation requires the assumption of risk
● In either case, appropriate damages may be recovered 4. When the thing to be delivered is generic (Art 1263)
● Creditor cannot demand a thing of superior quality, nor can debtor insist
MUTUAL NEGLIGENCE on delivering one of inferior quality
● Default of once cancels the negligence of the other ● Genus Nunquam Perit (Genus never perishes)
● Rights and obligations may be determined under the law proscribing unjust
enrichment
Usurious transactions shall be governed by special laws. The creditors, after having pursued the property in possession of the of the debtor to
satisfy their claims, may exercise all the rights and bring all actions of the latter for the
same purpose, save for those which are inherent in his person; that they may also
● Now inoperative due to abolition of interest ceilings (CB Circular 905) impugn (dispute) the acts which the debtor may have done to defraud them.
● Creditor can charge any interest as long as it is not iniquitous or unconscionable
(unjust or unreasonable) – Relate to Art 1306
REMEDIES
1. Specific performance with damages
ARTICLE 1176 2. Pursue levy and execution of debtor’s non-exempt property
3. Creditor is given the right to act on his debtor’s behalf, except those that are
The receipt of the principal by the creditor, without reservation with the respect to the personal to debtor (Accion Subrogatoria)
interest, shall give rise to the presumption that said interest has been paid. 4. Ask the court to rescind or impugn acts or contracts which the debtor may have
done to defraud him (Accion Pauliana)
The receipt of a later instalment of a debt without reservation as to prior instalments, 5. Accion Directa
shall likewise raise the presumption that such instalments have been paid.
● These measures are successive measures that may be taken by a creditor before
Presumption – Inference of a fact not actually known arising from its usual connection he may bring an action for rescission of an allegedly fraudulent act.
with another which is known or proved.
LEVY AND EXECUTION
KINDS OF PRESUMPTIONS ● Property already existing in debtor’s ownership and actual possession
● Conclusive – one which cannot be contradicted by evidence ● Procedure is provided for by Rule 39, Rules of Court
● Disputable – one which can be contradicted by presenting proof ● BUT: There are certain classes of property that are exempt from execution, as
provided for in the Rules of Court
DISPUTABLE PRESUMPTIONS IN THIS ARTICLE
1. Receipt of the principal by the creditor, without reservation with the respect to the ACCION SUBROGATORIA
interest, shall give rise to the presumption that said interest has been paid ● “The debtor of my debtor is my debtor”
● Rationale – In ordinary business transactions, interest due should be ● No transfer of credit but a kind of agency granted by law to the creditor’s creditor
paid before the principal. ● Real party in interest is still the debtor. Creditor is not suing in his own name but
● Burden of proving that interest has been paid shifts to creditor in that of his debtor
2. Receipt of a later instalment of a debt without reservation as to prior instalments, ● Requisites:
shall likewise raise the presumption that such instalments have been paid ○ Debt due that is not purely personal to the debtor of the suing creditor
● Rationale – Installments are paid in chronological order. ○ Willful failure or refusal of the suing credtor’s debtor to collect
○ Insufficiency of the debtor’s assets to satisfy the credit
WHEN PRESUMPTIONS DON’T APPLY ● Suing creditor may only recover the full amount or the entire property from his
1. With reservation as the interest debtor’s debtor and will be subject to all the defenses which the debtor’s debtor
2. Receipt without indication of particular instalment paid can set up against the debtor
3. Receipt for part of the principal ● Excess of value recovered is turned over to the debtor
4. Payment of taxes ● EXCEPT: Personal rights (support)
5. Non-payment proven
ACCION PAULIANA
● Allows creditors to set aside transfers of property by their debtors which defraud
them
● Requisites:
○ Plaintiff asking for rescission has a credit prior to the alienation, although
demandable later
○ Debtor has made a subsequent contract conveying a patrimonial benefit
to a third person
○ Creditor has no other legal remedy to satisfy his claim
○ Act being impugned is fraudulent
○ Third person who received the property conveyed, if it is by onerous title,

has been an accomplice in fraud CHAPTER 3 – DIFFERENT KINDS OF OBLIGATIONS
● Creditor’s right to rescind is limited to the amount he needs to have his credit
satisfied
● EXCEPT: Inheritance renunciation Section One – Pure and Conditional Obligations
ACCION DIRECTA OUTLINE OF PROVISIONS

● Creditors are given the right to proceed against certain parties who may be
indebted to their debtors
● Similar to Accion Subrogatoria but creditor here can demand only to the extent of Art 1179 Pure Obligations
his claim
● Examples: Art 1180 W/ Period; Debtor’s Means
○ Lessor’s right against sublessee (Art 1652)
○ Laborer’s right against owner (Art 1729) Art 1181 Conditional Obligations
Art 1182 Potestative, Casual, Mixed

ARTICLE 1178
Art 1183 Possible, Impossible
Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there
has been no stipulation to the contrary.
Art 1184 Positive Condition
GENERAL RULE: All rights acquired in virtue of an obligation are transmissible. Art 1185 Negative Condition
● By a subjective novation or by means of assignment of credit or by virtue of
succession Art 1186 Doctrine of Constructive Compliance
● Person who transmits the right cannot transfer greater rights than he possesses
● Person to whom rights are transmitted can have no greater interest than that Art 1187 Retroactive Fulfillment of Suspensive Condition
possessed by the transmitter at the time of the transmission
Art 1188 Rights Pending Fulfillment of Suspensive Condition
EXCEPTIONS Art 1189 Loss, Deterioration, Improvements

1. Prohibited by law or by nature as personal to debtor
● Contract of a partnership Art 1190 Resolutory Condition
● Contract of agency
● Contract of Commodatum Art 1191 Remedies in Reciprocal Obligations
2. Prohibited by stipulation of the parties
Art 1192 Both in Breach
Balane Civil Notes Flow: Pure (1179) → W/ Period; Debtor’s Means (1180) → Conditional
Suspensive (1181, 1184, 1185, 1187, 1188, 1189) → Resolutory (1190, 1191) →
Potestative, Casual, Mixed (1182) → Doctrine of Constructive Compliance (1186) →
Possible, Impossible (1183) → Both in Breach (1192)
Every obligation whose performance does not depend upon the future or uncertain When the debtor binds himself to pay when his means permit him to do so, the
events, or upon a past event unknown to the parties, are demandable at once. obligation shall be deemed to be one with a period, subject to the provisions of Article
1197.
Every obligation which contains a resolutory condition shall also be demandable,
without prejudice to the effects of the happenings of the event.
WHEN THE DURATION OF THE PERIOD DEPENDS ON THE DEBTOR → Art 1197
1. The debtor promises to pay when his means permit him to do so
“Pure Obligation” → one that is not subject to any condition and no specific date of a. Law presumes that he really intends to satisfy his obligation
fulfilment (term) is mentioned b. What is left to his will is the duration of the period and not the
● Defined negatively compliance with the obligation
● Immediately demandable; Unqualified 2. Other cases
a. Little by little
“Condition” → a future and uncertain event or a past event unknown to the parties, b. As soon as possible
upon the happening of which, the effectivity or extinguishment of an obligation subject to c. From time to time
it depends d. At any time I have the money
● Codal uses or, but it should be future AND uncertain e. In partial payments
○ Error was inherited from Spanish Civil Code f. When I am in a position to pay
○ If future OR uncertain, it would be a term.
● All conditions are future. Rationale → Situation contemplated is one in which the creditor has parted with value;
● “Past events unknown to the parties” – This has been criticized by many Any doubt should be resolved in favor of the validity of such an obligation
commentators. This is a contradiction in terms. The condition in a past even
unknown to the parties is knowledge by the parties of the past event. When payment should be made? → Art 1197 (Courts will determine)
“Conditional Obligation” → one whose consequences are subject in one-way or Balane – Article is misplaced. Since it speaks of an obligation with a term, it should be
another to the fulfilment of a condition. under Obligations with a Period.
CHARACTERISTICS OF AN OBLIGATION
1. Future and uncertain ARTICLE 1181
2. Past but unknown
*Condition must not be impossible. In conditional obligations, the acquisition of rights, as well as the extinguishment or
loss of those already acquired, shall depend upon the happening of the event which
TWO PRINCIPAL KINDS OF OBLIGATIONS constitutes the condition.
1. “Suspensive Condition” (precedent/antecedent) – fulfilment will give rise to an
obligation EFFECTS OF HAPPENING OF CONDITION
2. “Resolutory Condition” (subsequent) – fulfilment will extinguish the obligation ● Acquisition of rights → Suspensive
● Loss of rights already acquired → Resolutory
DISTINCTION BETWEEN SUSPENSIVE AND RESOLUTORY
1. Upon fulfilment, obligation arises vs. extinguishes
2. If it doesn’t take place, the tie of law doesn’t exist vs. it is still consolidated ARTICLE 1182
3. Until it takes places, it is just a mere hope vs. hovers over the possibility of
extinction When the fulfilment of the condition depends upon the sole will of the debtor, the
obligation shall be void. If it depends upon chance or upon the will of a third person,
WHEN AN OBLIGATION IS DEMANDABLE AT ONCE the obligation shall take effect in conformity with provisions of this Code.
1. When it is pure
2. When it is subject to a resolutory condition
3. When it is subject to a resolutory period CLASSIFICATIONS OF CONDITIONS
1. As to effect
a. Suspensive
b. Resolutory
2. As to form WHEN RESOLUTORY CONDITION DEPENDS SOLELY ON THE WILL OF THE

a. Express – condition is clearly stated DEBTOR
b. Implied – merely inferred → It is valid. Examples is “I will let you live in my house until such time that I decide to
3. As to possibility return from the United States. “
a. Possible – capable of fulfilment
b. Impossible
4. As to cause or origin ARTICLE 1183
a. Potestative – depends on the will of one of the contracting parties
b. Casual – depends on chance or third party Impossible conditions, those contrary to good customs or public policy and those
c. Mixed – depends on partly chance and partly will of third party prohibited by law shall annul the obligation which depends on them. If the obligation is
5. As to mode divisible that part thereof which is not affected by the impossible or unlawful condition
a. Positive – performance of act shall be valid.
b. Negative – omission of act
6. As to numbers The condition not to do an impossible thing shall be considered as not having been
a. Conjunctive – several prestations must all due agreed upon.
b. Disjunctive – several prestations and one or some must are due
7. As to divisibility APPLICABLE TO –– Suspensive conditions
a. Divisible – susceptible to partial performance
b. Indivisible TWO KINDS OF IMPOSSIBLE CONDITIONS
1. Physically impossible → Those that in the nature of things, cannot exist or
WHEN SUSPENSIVE CONDITION DEPENDS ON THE WILL OF THE DEBTOR cannot be done; Considered not imposed
→ VOID. a. Ex. I will pay you P20, 000 if you grow a plant on your forehead.
● It is an obligation that does not bind (no vinculum juris) 2. Legally impossible → Those that are contrary to law, morals, good customs,
● Ex: If X and Y enter into an agreement for the sale of X’s house for a given public order or public policy; Renders the obligation annulled
consideration whenever X desires it, the obligation is void; “I will pay you if I want”; a. Ex. A contract of sale of a house and lot with a stipulation that the
“I will pay you after I obtain a loan/sale of my house” vendee shall not use the property for the manufacture of shabu.
○ Debtor has option w/n to comply b. Ex. I will pay you if you kill A.
● Conditional obligation is void
○ BUT: If there was a pre-existing obligation that does not depend upon EFFECTS OF IMPOSSIBLE CONDITIONS
the fulfillment by the debtor, only the condition is void GENERAL RULE –
■ Meaning: Only affects the fulfillment and not the birth of the Conditional obligation void – both obligation and condition is void
obligation
■ Ex: D borrowed P10, 000 from C payable in 2 months. EXCEPTIONS –
Subsequently, D promised to pay C after D sells his car, a 1. Conditional obligation valid – if the condition is negative, obligation becomes
condition which was also agreed by D. In this case, only the pure and valid
condition is void, but not the pre-existing obligation of D to pay a. Ex: I will give you P10, 000 if you do not grow a plant on your forehead
C. 2. Only the affected obligation is void – if the obligation is divisible
■ When the condition is declared void and the obligation a. Ex: I will give you P10, 000 if you pass the CPA board exam, and a car
subsists, the parties will be considered as having intended a if you kill A.
period within which the valid obligation is to be complied with, 3. Only the condition is void – if there was a pre-existing obligation
such that the creditor should ask the court to fix a period for a. Ex: D promised to give P1, 000 to C. Later on, D said that he will only
compliance. make good of his promise if C kills X.
WHEN SUSPENSIVE CONDITION DEPENDS SOLELY ON THE WILL OF THE
CREDITOR
→ It is valid. Example is a promissory note payable on demand.
WHEN SUSPENSIVE CONDITION DEPENDS ON CHANCE/3RD PARTY

→ It is valid.
Paras – Summarized below: 2. If A turns 24 without getting married yet, my obligation to A is extinguished. The
time expired without the event taking place.
Positive condition to do something Void condition and obligation 3. If A dies before her 23rd birthday without getting married, my obligation is likewise
impossible extinguished because it has become indubitable that the condition will not take
place.
Negative condition not to do something Disregard the condition, the obligation is
impossible valid IF RESOLUTORY CONDITION → Non-occurrence of the condition will make the right
absolute
Negative condition not to do something Valid condition and obligation
illegal
ARTICLE 1185
DETERMINATION OF TIME OF IMPOSSIBILITY The condition that some event will not happen at a determinate time shall render the
● Original impossibility – Referred to by Art 1183; Condition that is impossible from obligation effective from the moment the time indicated has elapsed, or if it has
the time of the creation of the obligation become evident that the event cannot occur.
● Supervening impossibility – Condition originally possible but becomes impossible
subsequently but before delay sets in; Obligation is extinguished (Art 1184, 1262, If no time has been fixed, the condition shall be deemed fulfilled at such time as may
1266) have probably been contemplated, being in the mind the nature of the obligation.
NATURE OF NEGATIVE SUSPENSIVE CONDITIONS
● Can sometimes function like a resolutory condition since fulfillment will extinguish APPLICABLE TO –– Suspensive conditions
the obligation
● True only if no determinate time but is indefinite or permanent NEGATIVE CONDITION
○ Otherwise, Art 1185 governs The obligation shall become effective and binding –
1. From the moment the time indicated has elapsed without the event taking place;
FOR DONATIONS AND TESTAMENTARY DISPOSITIONS – When there is physical or or
legal impossibility, the impossible condition is simply disregarded and the disposition is 2. From the moment it has become evident that the event cannot occur, although
made not void but pure. the time indicated has not elapsed.
EXAMPLE: I will give you P1M if A does not get pregnant before she turns 18.
ARTICLE 1184 1. If A does not get pregnant and she is already 28 years old, I am liable to pay
you P1M. In this case, the time indicated has elapsed.
The condition that some event happen at a determinate time shall extinguish the 2. If she dies on her 17th birthday, I am also liable to pay because it has become
obligation as soon as the time expires or if it has become indubitable that the event will evident that the event cannot occur. Clearly, A cannot get pregnant when she is
not take place. dead.
APPLICABLE TO –– Suspensive conditions IF NEGATIVE RESOLUTORY CONDITION → Non-occurrence will extinguish the
obligation
Balane – Faulty wording since the non-occurrence of the condition does not extinguish
the obligation but prevents it from arising ARTICLE 1186
POSITIVE CONDITION The condition shall be deemed fulfilled when the obligor voluntarily prevents its
The obligation is extinguished – fulfilment.
1. As soon as the time expires without the event taking place; or
2. As soon as it has become indubitable that the event will not take place even
though the time has not expired. APPLICABLE TO –– Suspensive conditions
IF NO TIME IS FIXED → Apply 2nd paragraph of Art 1185 and last paragraph of Art 1197 CONSTRUCTIVE COMPLIANCE → Considers as fulfilled a condition even if it has not
been in fact fulfilled
EXAMPLE: I promise to give you P1M if A gets married before turning 23. ● Founded on justice and equity
1. If A gets married before turning 23, I will be liable to A.
● Party whose right depends on a condition which is within his power to bring RETROACTIVE EFFECTS AS TO FRUITS AND INTEREST IN OBLIGATIONS TO
about, is entitled to that right if he does everything necessary to bring about the GIVE
condition but whose occurrence is prevented by the intentional acts of the 1. Reciprocal obligations – no retroactivity because they have been mutually
debtor compensated.
● Not applicable to casual that it is dependent upon chance 2. Unilateral obligations – fruits belong to the debtor during the pendency of the
condition unless stated otherwise
REQUISITES OF CONSTRUCTIVE FULFILMENT OF SUSPENSIVE OBLIGATION –
1. Condition is potestative or mixed or casual that is dependent upon will of 3rd EXAMPLE: On February 1, 2019, A promised to sell his dog to if B for P20, 000 if B wins
party in her upcoming moot court match. On February 10, 2019, A sold his dog to C. On
2. The obligor prevents the fulfilment of the condition maliciously or at the very February 20, 2019, B won in her match.
least, voluntarily ● Before February 20,2019, B had no right to demand fulfillment of A’s obligation.
3. Actual prevention of compliance However, when the condition was fulfilled, B was entitled to the dog starting
February 1, 2019. Note that what is being referred to here is the thing itself
EXAMPLE: A will pay B P1M if B passes the November 2022 bar exam. If, the night (dog), and not its fruits.
before the first day, A (obligor), turns off the alarm of B so that B was unable to make it to
the exam, A is liable to pay B the agreed amount of P1M. in this case, the obligor FOR PERSONAL OBLIGATIONS – Case-to-case basis
voluntarily prevented the fulfillment of the condition. Hence, A is liable as though the
condition was fulfilled. RULE OF RETROACTIVITY
● Diachronic – Recognized only if stipulated (German Code)
CONSTRUCTIVE FULFILMENT OF RESOLUTORY OBLIGATION ● Synchronic – No need for stipulation
→ Debtor is bound to return what he has received upon the fulfilment of the obligation
IMPLIED TERM DOCTRINE (Sta Maria/De Leon) ARTICLE 1188

The good faith obligation of the parties includes an implied term on the part of said
parties not to impede, hinder, obstruct, or prevent the fulfilment of the obligation. When The creditor may, before the fulfillment of the condition, bring the appropriate actions
these acts are undertaken, they constitute a breach and therefore the obligation is for the preservation of his right. The debtor may recover what during the same time he
deemed fulfilled, according to the law. has paid by mistake in case of a suspensive condition.
ARTICLE 1187 APPLICABLE TO –– Suspensive conditions
The effects of a conditional obligation to give, once the condition has been fulfilled, RIGHTS PENDING THE FULFILLMENT OF SUSPENSIVE CONDITION
shall retroact to the day of the constitution of the obligation. Nevertheless, when the 1. Rights of the Creditor – preservation of his rights to prevent alienation or
obligation imposes reciprocal prestations upon the parties, the fruits and interests concealment of the property
during the pendency of the condition shall be deemed to have been mutually ● Balane – Defective terminology in using “bring the appropriate actions”
compensated. If the obligation is unilateral, the debtor shall appropriate the fruits since it refers only to judicial remedies but that is not the case; Should
and interests received, unless from the nature and circumstances of the obligation it be “take appropriate action”
should be inferred that the intention of the person constituting the same was different. ● Includes causing the annotation of an adverse claim on the title
● Since before the happening of the condition, one is only a potential
In obligations to do and not to do, the courts shall determine, in each case, the creditor, this article is in line with the right of the creditor to ensure that
retroactive effect of the condition that has been complied with. his credit, once condition occurs, is not rendered illusory
2. Rights of the debtor – recover what he has paid by mistake (solutio indebiti)
● Requisites:
APPLICABLE TO –– Suspensive conditions ○ Payment was made by mistake (premature)
■ If creditor acted in good faith – Creditor liability under
RETROACTIVE FULFILMENT OF SUSPENSIVE CONDITION Art 2160 is only for impairment
1. Obligation to give – Effects shall retroact to the day when the obligation has ■ If creditor acted in bad faith – Creditor liability under
been constituted Art 2159 includes legal interest and other damages
2. Obligation to do or not to do – No fixed rule is provided, depends on the court ■ If both were in bad faith – Condition is deemed
waived
○ Demand to recover is made by the debtor before the
happening of the condition
● Consider prescription prior to recovery 2. Loss through the debtor’s fault – Creditor can demand damages plus incidental
damages
a. Art 1265 lays down a disputable presumption of fault/negligence on the
ARTICLE 1189 part of the debtor when the loss occurs while the thing is in his
possession unless it was lost in a fortuitous event
When the conditions have been imposed with the intention of suspending the efficacy 3. Deterioration without the debtor’s fault – Creditor suffers
of an obligation to give, the following rules shall be observed in case of the 4. Deterioration with the debtor’s fault – Rescission plus damages or specific
improvement, loss or deterioration of the thing during the pendency of the condition: performance plus damages
1. If the thing is lost without the fault of the debtor, the obligation shall be a. The extent of the deterioration must be substantial.
extinguished; 5. Improvement by the nature or by time – Creditor benefits
2. If the thing is lost through the fault of the debtor, he shall be obliged to pay a. Includes anything that enhances the value of the things EXCEPT fruits
damages; it is understood that the thing is lost when it perishes, or goes out since Art 1187 provides that fruits pendente condicione belong to the
of commerce, or disappears in such a way that its existence is unknown or it debtor
cannot be recovered; 6. Improvement of thing at the expense of the debtor – Debtor can enjoy the use of
3. When the thing deteriorates without the fault of the debtor, the impairment is fruits as long as it's with him
to be borne by the creditor;
4. If it deteriorates through the fault of the debtor, the creditor may choose
between the rescission of the obligation and its fulfillment, with indemnity for W/O Fault W Fault
damages in either case;
5. If the thing is improved by its nature, or by time, the improvement shall inure Loss Extinguished Damages
to the benefit of the creditor;
6. If it is improved at the expense of the debtor, he shall have no other right than Deterioration Borne by creditor Rescission/fulfillment +
that granted to the usufructuary. *Choice is always with damages in either case
creditor regardless of the
degree of deterioration
APPLICABLE TO –– Suspensive conditions caused by the debtor
APPLIES IF – Improvement Inure to benefit of creditor If at the expense of debtor,
1. Obligation is a real obligation and the object is specific/determinate; he shall have rights of
2. Obligation is subject to a suspensive condition; usufructuary (Art 579, 580)
3. Condition is fulfilled;
4. There is loss (Par 1 and 2), deterioration (Par 3 and 4), or improvement (Par 5
and 6) during the pendency of the condition. If the deterioration is so grave that the object goes out of commerce, it can be considered
lost and the creditor can seek damages from the debtor.
KINDS OF FORTUITOUS LOSS
● Physical loss – perishes USUFRUCT ---> This is the right to enjoy the use and the fruits of a thing belonging to
○ Ex: House burns down another.
● Legal loss – out of commerce ● The usufructuary may make on the property held in usufruct such useful
○ Ex: Obligation to deliver pinball machines upon the happening of some improvements or expenses for mere pleasure as he may deem proper provided
condition but before the condition happens, pinball machines are he does not alter its form or substance; but he shall have no right to be
banned and declared illegal indemnified therefor.
● Civil loss – existence is unknown or cannot be recovered as a matter of fact/law ● He may, however, remove such improvements should it be possible to do so
○ Ex: Dog runs away; Ring is dropped from the ship at sea; Property is without damage to the property
lost through prescription ● The usufructuary may set off the improvements he have made on the property
● Art 1189 contemplates total loss. If partial loss, Art 1264 is applicable. against any damages to the same
RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT DURING

PENDENCY OF SUSPENSIVE CONDITION
1. Loss of the thing without the debtor’s fault (fortuitous loss) – obligation is
extinguished and debtor is not liable
a. UNLESS: There is a contrary stipulation (Art 1174)
REMEDIES IN RECIPROCAL OBLIGATIONS

ARTICLE 1190 GENERAL RULE – Has a choice of remedies
● Specific performance plus damages; or
When the conditions have for their purpose the extinguishment of an obligation to give, ● Rescission plus damages
the parties, upon the fulfillment of said conditions, shall return to each other what
they have received. Note: The remedies are alternative and not cumulative. The injured party forfeits
the other when he chooses the other.
In case of the loss, deterioration or improvement of the thing, the provisions which,
with respect to the debtor, are laid down in the preceding article shall be applied to the EXCEPTION – Remedy for rescission for non-compliance period to do specific
party who is bound to return. performance, when guilty is willing to comply but just needs more time
As for the obligations to do and not to do, the provisions of the second paragraph of RECISSION
Article 1187 shall be observed as regards the effect of the extinguishment of the To rescind does not merely mean to terminate the contract from the beginning but to
obligation. restore the parties to their relative positions as if no contract has been made.
● This requires restitution or the return of the benefits that each party may have
APPLICABLE TO –– Resolutory conditions received as a result of the contract
● Rescission can be carried out only when he who demands rescission can return
EFFECTS OF FULFILMENT OF RESOLUTORY CONDITION whatever he may have received. (Article 1385)
1. In obligation to give ● Rescission cannot take place when the things which are the object of the
a. Return to the status quo (Mutual Restitution) contract are legally in the possession of third persons who acted in good faith.
b. If it legally owned by a third party, the remedy of the party entitled is (Article 1385)
against the other ● The action for rescission must be commenced within 4 years. (Article 1389)
c. Also applies to the fruits and interest LIMITATIONS ON RIGHT TO DEMAND RESCISSION
2. In obligation to do or not to do → Courts shall determine 1. Resort to the courts – cannot take law into our own hands
2. Power of the court to fix a period (discretionary)
LOSS, DETERIORATION, IMPROVEMENT – In any of these instances, the debtor in Art 3. Right of a third person – if with another person already, rescission is not
1189 is the party obliged to return. available
4. Must be substantial violation
5. Waiver of right may be express or implied
ARTICLE 1191 a. Implied – Through court action
b. Express – No need for court intervention; Court judgment only
The power to rescind obligations is implied in reciprocal ones, in case one of the determines w/n rescission was proper
obligors should not comply with what is incumbent upon him. The injured party may c. There must always be notice to the defaulter before rescission can take
choose between the fulfillment and the rescission of the obligation, with the payment of effect.
damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible. The court shall decree the rescission Balane – Article 1191 uses the term ―rescission. The better term is ―resolution. The
claimed, unless there be just cause authorizing the fixing of a period. This is term rescission is also found in Article 1381, rescissible contracts. Resolution is different
understood to be without prejudice to the rights of third persons who have acquired the from rescission. Resolution is based on the non-fulfillment of the obligation. Rescission is
thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. based on economic prejudice. Furthermore, the character of resolution is principal and
retaliatory while the character of rescission is subsidiary. This means that in resolution
there is no need to show that there is no other remedy. In rescission, the plaintiff must
KINDS OF OBLIGATION ACCORDING TO THE PERSON OBLIGED show that there is no other recourse.
● “Unilateral” – where only one party is obliged to comply with a prestation
● “Bilateral” – when both parties are mutually bound to one another
● “Reciprocal” – arise from the same cause in which each party is a debtor and
creditor of the other, such that the performance of one is designed to be the
equivalent and the condition of the performance of the other
● “Non-reciprocal” – Performance on one is not dependent
In case both parties have committed a breach of the obligation, the liability of the first Obligations for whose fulfillment a day certain has been fixed shall be demandable only
infractor shall be equitably tempered by the courts. If it cannot be determined which of when that day comes. Obligations with a resolutory period take effect at once but
the parties first violated the contract, the same shall be deemed extinguished, and terminate upon arrival of the day certain.
each shall bear his own damages.
A day certain is understood to be that which must necessarily come, although it may not
be known when.
WHERE BOTH PARTIES ARE GUILTY OF BREACH If the uncertainty consists in whether the day will come or not, the obligation is
1. First infractor known – his liability will be equitably reduced conditional, and it shall be regulated by the rules of the preceding Section
2. First infractor cannot be determined – contract is extinguished and each shall
bear his own costs
Obligation with a period → one whose effects or consequences are subjected to the
PRESUMPTION OF SIMULTANEITY – Failure to establish the sequence of the breaches expiration or arrival of said period or term
raises this presumption.
Example: I will give you Php 10,000 on September 2, 2021.
EXAMPLE:
A sold an iPhone X to B. The agreement was to deliver on January 1, 2019. If A delivers Period
only on January 31, 2019 despite repeated demands from B, and B delays in the payment → Future and Certain event
of the purchase price, then the liability of A as first infractor will be tempered by the courts, ● As to time – Determinable date/time
taking into consideration the breach on the part of B. ● As to fact – Only occurrence is sure
→ can also refer to a day certain which must necessarily come although it may not be
However, if both alleged that the other was the first infractor and the court cannot determine known when; In other words, if we are sure that an event will surely happen, except that
who the first infractor is, the contract shall be deemed extinguished and each shall bear his we just do not know the exact day when it will happen, the event is still considered a period.
own damages. → Used interchangeably with “term”
→ Interval of time, which, exerting an influence on an obligation as a consequence of a
juridical act, either suspends its demandability or produces its extinguishment.
Section Two –Obligations with a Period → Must also be Possible, legally and physically
OUTLINE OF PROVISIONS Period Condition
1193 Obligation with a Period Fulfillment Certain Uncertain
1194 Loss, Deterioration, Improvement Time Refers only to the future May also refer to a past
event unknown
1195 Prepayment
Influence of the obligation Fixes the time Mere hope/extinguishment
1196 Benefit of the Period
When left to the debtor’s Court fixes the duration Invalid obligation
1197 No Period Provided/Left to WIll of Debtor will
1198 When Obligation Can Be Demandable Prior ot Lapse of Period Retroactivity None There is retroactivity
Balane Civil Notes Flow: 1193 → 1180 → 1195 → 1196 → 1198 → 1197 KINDS OF PERIOD OR TERM
1. According to effect
a. Suspensive (ex die) – arises or becomes demandable only upon arrival
of the period
i. Example: I will deliver to you my watch four months from now,
If this promise is made on March 31, 2021, the debtor’s
obligation to deliver the watch will become demandable only on Balane – Article is misplaced. Since it speaks of an obligation with a term, it should be
July 1, 2021. under Obligations with a Period.
b. Resolutory (in diem) – becomes demandable at once, but terminates or
is extinguished only upon arrival of the period
i. Example: I will lend you my watch for one year. If this promise ARTICLE 1194
is made on March 31, 2021, the debtor will immediately deliver
the watch to the creditor on that same day. The creditor can In case of loss, deterioration, or improvement of the thing before the arrival of the day
use the watch for one year until March 31, 2022, when the certain, the rules in Article 1189 shall be observed.
creditor will be obliged to return the watch back to the debtor.
In this case, the arrival of the period, March 31, 2022, has the APPLICABLE TO –– Suspensive periods
effect of terminating or extinguishing the debtor’s obligation to
the creditor. APPLIES IF –
2. According to source 1. Obligation is a real obligation and the object is specific/determinate;
a. Legal period – provided by law 2. Obligation is subject to a suspensive period;
b. Conventional or voluntary period – agreed by the parties 3. Period is fulfilled;
c. Judicial period – fixed by the court 4. There is loss (Par 1 and 2), deterioration (Par 3 and 4), or improvement (Par 5
3. According to definiteness and 6) during the pendency of the condition.
a. Definite – fixed known date or time
b. Indefinite – event which will necessarily happen but the date of its KINDS OF FORTUITOUS LOSS
happening is known (i.e. death) ● Physical loss – perishes
4. According to form ○ Ex: House burns down
a. Express – When period is specifically stated ● Legal loss – out of commerce
b. Tacit – When a person undertakes to do some work which can be done ○ Ex: Obligation to deliver pinball machines upon the happening of some
only during a particular season condition but before the condition happens, pinball machines are
banned and declared illegal
ARTICLE 1180 ● Civil loss – existence is unknown or cannot be recovered as a matter of fact/law
○ Ex: Dog runs away; Ring is dropped from the ship at sea; Property is
When the debtor binds himself to pay when his means permit him to do so, the lost through prescription
obligation shall be deemed to be one with a period, subject to the provisions of Article ● Art 1189 contemplates total loss. If partial loss, Art 1264 is applicable.
1197.
RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT DURING
PENDENCY OF SUSPENSIVE CONDITION
WHEN THE DURATION OF THE PERIOD DEPENDS ON THE DEBTOR → Art 1197 1. Loss of the thing without the debtor’s fault (fortuitous loss) – obligation is
1. The debtor promises to pay when his means permit him to do so extinguished and debtor is not liable
a. Law presumes that he really intends to satisfy his obligation a. UNLESS: There is a contrary stipulation (Art 1174)
b. What is left to his will is the duration of the period and not the 2. Loss through the debtor’s fault – Creditor can demand damages plus incidental
compliance with the obligation damages
2. Other cases a. Art 1265 lays down a disputable presumption of fault/negligence on the
a. Little by little part of the debtor when the loss occurs while the thing is in his
b. As soon as possible possession unless it was lost in a fortuitous event
c. From time to time 3. Deterioration without the debtor’s fault – Creditor suffers
d. At any time I have the money 4. Deterioration with the debtor’s fault – Rescission plus damages or specific
e. In partial payments performance plus damages
f. When I am in a position to pay a. The extent of the deterioration must be substantial.
5. Improvement by the nature or by time – Creditor benefits
Rationale → Situation contemplated is one in which the creditor has parted with value; a. Includes anything that enhances the value of the things EXCEPT fruits
Any doubt should be resolved in favor of the validity of such an obligation since Art 1187 provides that fruits pendente condicione belong to the
debtor
When payment should be made? → Art 1197 (Courts will determine) 6. Improvement of thing at the expense of the debtor – Debtor can enjoy the use of
fruits as long as it's with him
W/O Fault W Fault This provision is based on solutio indebiti, i.e, the creditor cannot unjustly enrich himself
by collecting payment even if it is not yet due. Hence, if the creditor does collect payment
Loss Extinguished Damages from the debtor before the debt is due, the creditor is obliged to return it. Collection will
have to be made again when the debt matures or becomes due.
Deterioration Borne by creditor Rescission/fulfillment +
*Choice is always with damages in either case PERIOD COVERED IN RECOVERY → From the time of prepayment until the period
creditor regardless of the arrives
degree of deterioration
caused by the debtor IF PERIOD HAD ARRIVED → Debtor has no right to recover the thing itself but only the
fruits and interest.
Improvement Inure to benefit of creditor If at the expense of debtor, ● Based on Art 1164, creditor only has real rights to the fruits and interest once the
he shall have rights of thing has been delivered.
usufructuary
FRUITS PRODUCED IN THE MEANTIME
If the deterioration is so grave that the object goes out of commerce, it can be considered ● 1st view (Tolentino) – The debtor is entitled to the fruits produced in the meantime
lost and the creditor can seek damages from the debtor. ○ Balane – Agrees with this view; Why would Art 1195 allow the debtor to
recover the fruits if he should still give them back after the period arrives
USUFRUCT ---> This is the right to enjoy the use and the fruits of a thing belonging to ● 2nd view – Creditor is entitled to the fruits since the obligation is only demandable
another. only when the period arrives; obligation is already existing but not demandable
● The usufructuary may make on the property held in usufruct such useful yet
improvements or expenses for mere pleasure as he may deem proper provided
he does not alter its form or substance; but he shall have no right to be INSTANCES WHEN FRUITS CANNOT BE RECOVERED
indemnified therefor. 1. When the obligation is reciprocal and there has been prepayment on both sides
● He may, however, remove such improvements should it be possible to do so a. But if prepayment is only on one side, the party who paid by mistake may
without damage to the property recover.
● The usufructuary may set off the improvements he have made on the property 2. When the obligation is a loan and the debtor is bound to pay interest
against any damages to the same 3. When the period is exclusively for the creditor‘s benefit
4. When the debtor is aware of the period and pays anyway – waiver
ARTICLE 1195 PERSONAL OBLIGATIONS → No recovery since it is physically impossible to recover a

service already rendered and one cannot recover what he has not done
Anything paid or delivered before the arrival of the period, the obligor being unaware of
the period or believing that the obligation has become due and demandable, may be PREPAYMENT MADE CONSCIOUSLY – Code is silent. By implication from Art 6 of NCC,
recovered, with the fruits and interests. there can be no recovery.
APPLICABLE TO – Suspensive periods; Obligations to give; Similar to Art 1188, Par 2 ARTICLE 1196
OLD CODE – If prepayment was made by mistake, only fruits/interest can be recovered. Whenever in an obligation a period is designated, it is presumed to have been
established for the benefit of both the creditor and the debtor, unless from the tenor of
GENERAL RULE: the same or other circumstances it should appear that the period has been established
It is always presumed that the debtor is aware of the period for his obligation. Hence, if he in favor of one or of the other.
pays prematurely, he can no longer recover from the creditor what he has paid since the
debtor essentially waives the benefit of the term.
PRESUMPTION → Period is for the benefit of both debtor and creditor
EXCEPTION: ● General principle of mutuality/bilaterality
However, if the debtor pays prematurely, he can recover from the creditor what he has
given, plus fruits and interest IF he is able to prove at the same time that : EFFECT WHEN THE PERIOD IN AN OBLIGATION IS ESTABLISHED FOR THE
1. he was unaware of the period; or BENEFIT OF BOTH THE DEBTOR AND THE CREDITOR
2. he believed that the obligation has become due and demandable; 1. The debtor cannot make premature payment to the creditor. The creditor has
the right to refuse the payment if the debtor pays prematurely.
2. The creditor cannot collect prematurely. The creditor cannot compel the debtor not want to accept payment yet. However, C may demand from D payment of the P100,000
to pay before the maturity date. at any time before December 31, 2013, and D cannot refuse to pay if demand is made by
C.
Example : On January 1, 2013, D borrowedP100,000 from C due on December
31, 2013 plus 10% interest. EXCEPTION TO THE EXCEPTIONS: The benefit of the period may be waived by the
● D cannot pay and compel C to accept payment before December 31. person in whose favor it was constituted.
● Neither can C demand payment, and compel D to pay before December ● If a creditor accepts partial payment, it is presumed that the period is waived.
31.
ACCELERATION BY DEBTOR OF TIME OF PAYMENT
Reason: It is presumed that both parties will benefit from the period The following may be reasons why a creditor may not be bound to receive payment before
designated in the obligation. D is benefited because he can use the maturity:
money for one year. C is also benefited because of the interest the ● Payment of interest
money would earn for one year. ● Creditor may want to keep money safely invested instead of having it in his hands
● Protect himself against sudden decline in the purchasing power of the currency
Question: What if D offers to pay his obligation on June 30, 2013 plus loaned
interest corresponding to one year, does C have the right to refuse
payment? Unless the creditor consents, the debtor has no right to accelerate the time of payment
even if the premature tender included an offer to pay principal and interest in full.
Answer: C cannot refuse payment because if the interest for one year
was to be paid by D, C would not be losing his benefit under the COMPUTATION OF PERIOD
obligation despite premature payment by the debtor D. → Guided by Art 13 of NCC and Administrative Code of 1987
For purposes of computing the legal period, the Administrative Code of 1987 has impliedly
EXCEPTIONS TO THE GENERAL RULE repealed the Civil Code.
If these are stipulated:
1. Terms is for the benefit of the debtor alone – He cannot be compelled to pay
Year 12 calendar months
prematurely but he can if desires to do so
2. Terms is for the benefit of the creditor alone – He may demand fulfillment even
before the arrival of the term but debtor cannot require him to accept payment
before expiration of period Months 30 days, unless it refers to a specific calendar month in
which case it shall be computed according to the number
EFFECT WHEN THE PERIOD IN AN OBLIGATION IS ESTABLISHED FOR THE of days the specific month contains
BENEFIT OF THE DEBTOR ONLY
The debtor can make premature payment to the creditor. However, the creditor cannot
Day 24 hours
demand premature payment from the debtor, if the debtor refuses to pay before the due
date of the obligation.
● Payment to be made “within six months”
Night From sunrise to sunset
● “On or before”
Example: On January 1, 2013, D borrowed P100,000 from C due on or before December

31, 2013 without interest. D may pay C the P100,000 at any time before December 31 if D Calendar month – a month designated in the calendar without regard to the
wants. However, C cannot compel D to pay before December 31 if D does not want to number of days it may contain:
make payment yet. ● The period of time running from the beginning of a certain numbered day up to,
but not including, the corresponding numbered day of the next month, & if there
EFFECT WHEN THE PERIOD IN AN OBLIGATION IS ESTABLISHED FOR THE is not a sufficient number of days in the next month, then up to & including the
BENEFIT OF THE CREDITOR ONLY last day of that month
The creditor can demand premature payment from the debtor. However, the debtor cannot ● Ex. One calendar month from Dec. 31, 2007 will be from Jan. 1, 2008 to Jan. 31,
make premature payment to the creditor if the creditor refuses to accept payment before 2008
the maturity date of the obligation. ● Ex. One calendar month from Jan. 31, 2008 will be from Feb. 1, 2008 until Feb.
29, 2008.
Example: On January 1, 2013, D borrowed P100,000 from C due on December 31, 2013,
or upon demand by C. D cannot compel C to accept payment on June 30, 2013, if C does In counting a period, the first day shall be excluded, while the last day is included
INSTANCES WHEN THE COURTS MAY FIX A PERIOD

1. Article 1197, Par 1 – If the obligation does not fix a period, but from its nature
ARTICLE 1197 and the circumstances it can be inferred that a period was intended, the courts
may fix the duration thereof.
If the obligation does not fix a period, but from its nature and the circumstances it can ● Exceptions
be inferred that a period was intended, the courts may fix the duration thereof. ○ Articles 1682 and 1687, 1st sentence
■ Art. 1682. The lease of a piece of rural land, when its
The courts shall also fix the duration of the period when it depends upon the will of the duration has not been fixed, is understood to have
debtor. been for all the time necessary for the gathering of
the fruits which the whole estate leased may yield in
In every case, the courts shall determine such period as may under the circumstances one year, or which it may yield once, although two or
have been probably contemplated by the parties. Once fixed by the courts, the period more years have to elapse for the purpose.
cannot be changed by them. ■ Art. 1687, 1st sentence. If the period for the lease
has not been fixed, it is understood to be from year
GENERAL RULE: to year, if the rent agreed upon is annual; from month
If the obligation does not fix a period and no period is intended by the parties, the courts to month, if it is monthly; from week to week, if the
are not authorized to fix a period for the parties. rent is weekly; and from day to day, if the rent is to
be paid daily.
EXCEPTION: ○ Pacto de retro sales (Article 1606)
Under Article 1197, there are, however, two (2) instances when the courts are authorized ■ Art. 1606. The right referred to in article 1601, in the
to fix the period for the parties : absence of an express agreement, shall last four
1. When no period is fixed by the parties in an obligation, but a period was years from the date of the contract. Should there be
really intended for the performance of the obligation. (Article 1197, par. 1) an agreement, the period cannot exceed ten years.
However, the vendor may still exercise the right to
Example: D agreed to construct the house of C. The parties failed to fix the period repurchase within thirty days from the time final
within which the construction is to be finished. It has been two years now but still judgment was rendered in a civil action on the basis
D did not finish constructing the house which by its area should have been that the contract was a true sale with right to
finished in 14 months. repurchase.
● C can go to court, and ask the court to fix a period. Here, the court can ○ Contract of services for an indefinite period
fix the term for it is obvious that the parties intended that D should ■ Court cannot fix a period or else it would amount to
construct the house within a certain period. involuntary servitude.
● The court will then state: “D is given until December 15, 2013 within 2. Article 1197, Par 2 – When it depends upon the will of the debtor
which to finish the construction.” 3. Article 1191, Par 3 – The court shall decree the rescission claimed unless there
● If D does not finish the construction until December 15, 2013, D will be just cause for fixing a period.
already be considered in legal delay, and will now be liable for damages. 4. Article 1687, 2nd, 3rd and 4th sentences – However, even though a monthly
rent is paid, and no period for the lease has been set, the courts may fix a
2. When the period depends upon the will of the debtor. (Article 1197, par. 2) longer term for the lease after the lessee has occupied the premises for over
● Forestall the possibility that the obligation may never be fulfilled or to one year. If the rent is weekly, the courts may likewise determine a longer period
cure a defect in a contract after the lessee has been in possession for over six months. In case of daily
● When suspensive period depends upon the will of the debtor, existence rent, the courts may also fix a longer period after the lessee has stayed in the
of the obligation is not affected. It is only the performance with respect place for over one month.
to time that is left to the will of the debtor. 5. Article 1182 – When the potestative suspensive condition was declared void
● BUT: If suspensive condition dependent upon the will of the debtor → because the fulfillment was left to the sole will of the debtor but such condition
Void did not give birth to the obligation, the court may fix a period.
Example: An example of this is Article 1180 which states that, “(W)hen the 6. Article 1180 – When the debtor binds himself to pay when his means permit
debtor binds himself to pay when his means permit him to do so, the obligation him to do so, the obligation shall be deemed to be one with a period, subject to
shall be deemed to be one with a period, subject to the provisions of article the provisions of article 1197.
1197. 7. Art 448 – For the lease if the landowner (who cannot exercise the option of
selling the land to the builder or planter in good faith because the value of the
land is considerably greater than that of the improvement) decides to lease the
land to the builder
GENERAL RULE:
2-STEP PROCESS WHEN THE COURT FIXES A PERIOD (Araneta, inc v Philippine Obligations are not demandable before the lapse of the period.
Sugar Estates)
1. Courts must determine that the obligation does not fix a period and if from the WHEN OBLIGATION CAN BE DEMANDED BEFORE LAPSE OF PERIOD [IFIVA]
nature and circumstances, that a period was intended OR the period is 1. When after the obligation has been contracted, he becomes Insolvent,
dependent on the debtor’s will. unless he gives a guaranty or security for the debt
2. Decide what period was probably contemplated by the parties ● The insolvency need not be judicially declared. It is sufficient that the
a. Court should make an educated guess assets are less than the liabilities, as long as it occurs after the
b. Court should not fix a period which it thinks is fair or reasonable but contracting of the obligation.
rather the period which was probably contemplated by the parties 2. When he does not Furnish to the creditor the guaranties or securities which
he has promised;
EXCEPTION IS FILING OF SEPARATE ACTION TO FIX THE PERIOD ● Suppose that the creditor agrees to give the debtor one month to pay
● GR: Remedy is to ask the court to determine the term which the obligor must the latter’s debt, upon the condition that the latter will give a ring as
comply with his obligation before asking for specific performance. security. Should the debtor fail to do so, the benefit of the period is lost
● UNLESS: The prior or separate action would be a mere formality and would serve and the obligation becomes demandable immediately.
no other purpose than to delay. 3. When by his own acts he has Impaired said guaranties or securities after
their establishment, and when through a fortuitous event they disappear,
FACTS TO BE ALLEGED IN THE COMPLAINT unless he immediately gives new ones equally satisfactory;
● Showing that a contract was entered into ● If only through the acts of the debtor, the securities need only be
● Showing or from which an inference may reasonably be drawn that a period for impaired.
performance was intended ● If through a fortuitous event, it is necessary that the securities disappear.
● If the complaint does not ask for a period to be fixed, the Court cannot fix the 4. When the debtor Violates any undertaking, in consideration of which the
period unless the complaint is amended. However, the court may fix the duration creditor agreed to the period;
of the period if the ultimate facts above are sufficiently alleged ● Suppose that the creditor agrees to give the debtor one month to pay
the latter’s debt, upon the condition that the latter will repaint his gate.
PERIOD FIXED CANNOT BE CHANGED BY THE COURTS Should the debtor fail to do so, the benefit of the period is lost and the
● If there is an expired period agreed upon by parties, the Court cannot fix another obligation becomes demandable immediately.
period. 5. When the debtor attempts to Abscond.
● If the court fixes a period and parties consent to it, the period is then binding. ● A mere attempt to abscond is enough
● Period fixed in a final judgment is res judicata. ● Example is if the debtor changes his address without informing the
creditor for the purpose of escaping from his obligation.
ARTICLE 1198 ADDITIONAL → When the creditor is deceived on the substance or quality of the thing
pledged, the creditor may either claim another thing in its stead or demand immediate
The debtor shall lose every right to make use of the period: payment of the principal obligation (Article 2109)
1. When after the obligation has been contracted, he becomes insolvent, unless
he gives a guaranty or security for the debt;
2. When he does not furnish to the creditor the guaranties or securities which he Section Three – Alternative Obligations
has promised;
3. When by his own acts he has impaired said guarantees or securities after their
establishment, and when through a fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory;
4. When the debtor violates any undertaking, in consideration of which the creditor 1199 Alternative Obligations Definition
agreed to the period;
5. When the debtor attempts to abscond. 1200 Right of Choice
1201 Communication of Choice

APPLICABLE TO – Obligations with a period that is for the benefit of the debtor
1202 Only One Practicable Prestation
EFFECT OF EXCEPTIONS – Convert to pure obligation (immediately demandable)
1203 When May Debtor Rescind
1204 Effects of Loss of the Objects of the Obligation When Choice is Will EXCEPTION:
of the Debtor It may be exercised by the creditor when expressly stipulated.
1205 Effects of Loss of the Objects of the Obligation When Choice is Will → Any doubt as to whom the choice is given must always be interpreted in favor of the
of the Creditor debtor. Only by express grant of choice can a creditor have the right to choose which
prestation is to be performed.
1206 Facultative Obligations Definition
LIMITATIONS ON THE DEBTOR’S PREFERENTIAL CHOICE
Balane Civil Notes Flow: 1199 → 1200 → 1201 → 1205 → 1206 1. The debtor must choose, and completely perform, only ONE alternative
prestation. He cannot choose part of one prestation and part of another
prestation. (Article 1199, par. 2)
ARTICLE 1199 2. The debtor cannot choose those prestations which are impossible, unlawful,
or which could not have been the object of the obligation. (Article 1200, par.
A person alternatively bound by different prestations shall completely perform one of 2)
them. The creditor cannot be compelled to receive part of one and part of the other 3. The debtor loses his right of choice when only one alternative prestation is
undertaking. practicable of performance. (Article 1202)
KINDS OF OBLIGATION ACCORDING TO OBJECT ARTICLE 1201

1. Simple Obligation – one prestation
2. Compound Obligation – two or more prestations The choice shall produce no effect except from the time it has been communicated.
a. Conjunctive Obligation – one where there are several prestations and
all are due
b. Distributive Obligation – one where one two or more of the prestations APPLICABLE TO – All varieties of alternative obligations
is due
i. Alternative Obligation – several prestations are due but the COMMUNICATION OF NOTICE THE CHOICE HAS BEEN MADE
performance of one is sufficient 1. Effect of notice
ii. Facultative Obligation – one where only one prestation is due a. Once given, obligation becomes simple
but the debtor may substitute another b. Choice is irrevocable, if it needs to be changed, consent by both parties
are needed
Partial performance of different prestations cannot be considered fulfillment of the i. It is not required that the creditor give his consent to the choice
obligation and therefore cannot be done unless the creditor accepts such partial made by the debtor. The debtor’s right of choice would be
performance as complete performance. rendered useless if he was to get the creditor’s approval of what
● UNLESS: Debtor is authorized to perform combinations of prestations. alternative prestation to choose.
c. Choice is given legal effects upon communication
ALTERNATIVE OBLIGATION → One where various prestations are due but the 2. Proof and form of notice – orally or in writing, provided that it clearly conveys the
performance of one of them is sufficiently determined by the choice which, as a general unmistakable choice of the debtor
rule, belongs to the debtor.
RATIONALE OF GIVING NOTICE
● Ong Guan v Century Insurance – Give the creditor the opportunity to express his
ARTICLE 1200 consent or to impugn the election made by the debtor
○ Balane disagrees since if consent is needed, the obligation would not be
The right of choice belongs to the debtor, unless it has been expressly granted to the alternative.
creditor. The debtor shall have no right to choose those prestations which are ● To give the creditor time to prepare
impossible, unlawful, or which could not have been the object of the obligation. ● Once the choice is communicated, the obligation ceases to be alternative. The
risk of loss belongs to the creditor now.
CONCENTRATION → Another term used for the act of making the choice REMEDY OF CREDITOR IF DEBTOR FAILS TO MAKE CHOICE
● Code is silent
GENERAL RULE: ● Reference to closest analogue of the situation (Sarmiento v Sagana) – File suit to
The right to choose the alternative belongs to the DEBTOR. compel debtor
● Alternative opinion of Tolentino based on French and German views: Court itself INDEMNITY TO CREDITOR
will make the choice (French view) or he may file suit for an alternative judgment ● Note that the debtor will not be liable for reducing the alternatives from 3 to 2
alternatives, provided that what remains are lawful, practicable, possible or
consistent with the object of the obligation.
ARTICLE 1202 ● The debtor may even cause the loss of the thing or render the service
impossible as long as what remains is or are lawful.
The debtor shall lose the right of choice when among the prestations whereby he is ● In order for the creditor to be indemnified, all prestations must be lost or must
alternatively bound, only one is practicable. become impossible.
If more than one prestation is practicable – Article 1200; Obligation is still alternative Example: A is obliged to deliver any of the following to B:
If only one is practicable – Article 1202; converts into simple obligations a. Car- P20M
b. Ring- P15M
● Means capable of being done or feasible c. House- P17M
● Impossible or unlawful prestations cannot be chosen because they are d. Love
impracticable.
● However, impracticable prestations also include lawful or possible ones but Suppose that before the day the obligation becomes due, A accidentally set fire to the
because of some special attendant circumstances that do not necessarily make house, crashed the car, and lost the love.
them unlawful or impossible, they cannot be done. ● The prestation that remains is only the ring being the only possible prestation, A
○ Example: Kissing a lepper has to deliver the ring to B.
● A will not indemnify B because the right of choice belongs to A and A can simply
not choose to deliver the other prestations.
ARTICLE 1203
Suppose in continuation that A lost the ring.
If through the creditor's acts the debtor cannot make a choice according to the terms of ● Having lost the only possible prestation, A is liable for damages under Article
the obligation, the latter may rescind the contract with damages. 1204.
● The amount of damages is the value of the ring, which was the last object lost.
“MAY” → If the creditor performs acts that prevent the debtor from making a choice, the
debtor may choose between rescission of the contract or carrying on with the same. He is ARTICLE 1205
not bound to rescind.
When the choice has been expressly given to the creditor, the obligation shall cease to
be alternative from the day when the selection has been communicated to the debtor.
ARTICLE 1204
Until then the responsibility of the debtor shall be governed by the following rules:
The creditor shall have a right to indemnity for damages when, through the fault of the 1. If one of the things is lost through a fortuitous event, he shall perform the
debtor, all the things which are alternatively the object of the obligation have been lost, obligation by delivering that which the creditor should choose from among the
or the compliance of the obligation has become impossible. remainder, or that which remains if only one subsists;
2. If the loss of one of the things occurs through the fault of the debtor, the creditor
The indemnity shall be fixed taking as a basis the value of the last thing which may claim any of those subsisting, or the price of that which, through the fault
disappeared, or that of the service which last became impossible. Damages other than of the former, has disappeared, with a right to damages;
the value of the last thing or service may also be awarded. 3. If all the things are lost through the fault of the debtor, the choice by the creditor
shall fall upon the price of any one of them, also with indemnity for damages.
The same rules shall be applied to obligations to do or not to do in case one, some or
EFFECTS OF THE LOSS OF OBJECTS OF THE OBLIGATION
all of the prestations should become impossible.
1. Some of the objects – obligation goes on; no liability
2. All of the objects – creditor has the right to indemnity of damages. Value will be
based on the last thing, which has disappeared. The consequences will really depend upon whether the right of choice was given to the
a. If through fortuitous event – extinguished debtor or to the creditor.
→ When the choice is given to the creditor, the conferment of such right must always be
EXPRESS.
→ Before creditor makes the selection, the debtor cannot incur in delay.
RULES IN CASE THE LOSS BEFORE THE CREDITOR HAS MADE CHOICE FACULTATIVE OBLIGATION → When only one prestation has been agreed upon, but
1. When 1 or some of the objects are lost through fortuitous events, then the creditor the obligor may render another in substitution, the obligation is called facultative.
chooses from the remainder (Article 1205) ● Example: D obliged himself to deliver his grand piano to C on August 1, 2013.
a. When a thing is lost through a fortuitous event but only one of the However, if D’s sister decides to take piano lessons, D will deliver his BMW car
alternatives remain – becomes a simple obligation; creditor may demand to C instead.
only the remainder ● In facultative obligations, the right of choice belongs ALWAYS to the DEBTOR
2. When 1 or some of the objects are lost due to the debtor‘s fault, the creditor may (Article 1206, par. 1)
choose from the remainder or get the value of any of the objects lost plus ● Once the substitution is made, the obligation is converted into a simple one to
damages in either case (Article 1205) deliver or perform the substituted prestation.
3. When all of the things are lost due to the debtor‘s fault, the creditor can get the ● The substitution also becomes effective only from the time the debtor
value of any of the objects lost plus damages communicates to the creditor his choice to perform the substitute prestation.
4. When some are lost through the debtor‘s fault, the creditor chooses from the
remainder EFFECT OF LOSS
5. When all the objects are lost due to a fortuitous event, then the obligation is 1. Before substitution
extinguished (Article 1174) ● If the principal thing is lost through a fortuitous event, then obligation is
6. When all the objects are lost due to the creditor‘s fault, the obligation is extinguished.
extinguished ● If not through fortuitous event but debtor’s fault, he is liable for damages.
● If the substitute is lost whether due to his fault or to a fortuitous event,
WHEN THE RIGHT OF CHOICE BELONGS TO THE DEBTOR doesn’t render him liable.
1. When through fortuitous event or through the debtor‘s acts, there is only 1 2. After substitution
prestation left, the obligation ceases to be alternative (Article 1202) ● If the principal thing is lost whether due to his fault or to a fortuitous event,
2. When the choice of the debtor is limited through the creditor‘s own acts, then the he is not liable.
debtor has the remedy of resolution (Article 1191) plus damages (Article 1203) ● If the substitute is lost, it would depend if it was the fault of the debtor or
3. When all the things are lost due to the debtor‘s fault, the creditor can sue for not.
damages (Article 1204)
4. When some things are lost due to the debtor‘s fault but there are still some things
remaining, then the debtor can choose from what‘s left (Article 1200) Alternative (Art. 1199) Facultative (Art. 1206)
5. When all the things are lost due to a fortuitous event, the obligation is extinguished
(Article 1174) # of prestations Several One but can be substituted
6. When all but 1 of the things are lost due to a fortuitous event and the last object
is lost through the debtor‘s fault, then the creditor can sue for damages Right of choice Debtor, creditor or third Debtor only
7. When all but 1 of the things are lost through the debtor‘s own acts and the last person
object is lost through a fortuitous event, the obligation is extinguished
Loss through fortuitous Doesn’t extinguish Extinguishes if the lost
→ Even if the loss of the other alternatives was due to the debtor’s fault, the debtor will not event object is the principal
be liable for damages since he has the right of choice, and the obligation can still be object
performed. This is an exception to the general rule established in Article 1170 regarding
liability for damages arising from negligence. Loss through fault of Generally, not liable; May Of principal prestation –
debtor affect the obligation if the Extinguished
PERSONAL OBLIGATIONS → Rules in 1205 are also applicable. right of choice is given to
the creditor Of substitute prestation –
Loss of substitute does not
ARTICLE 1206 affect if loss occurs prior to
substitution
When only one prestation has been agreed upon, but the obligor may render another in
substitution, the obligation is called facultative. Nullity of prestation Does not invalidate other Of principal prestation
The loss or deterioration of the thing intended as a substitute, through the negligence of choices; Can choose – Invalidates the
the obligor, does not render him liable. But once the substitution has been made, the among the remainder obligation;
obligor is liable for the loss of the substitute on account of his delay, negligence, or fraud.
Of substitute prestation
– Valid obligation but right
of substitution not 1217 Effects of Payment by a Solidary Debtor

available; Debtor is not
bound to choose the 1218 Effect of Payment when Obligation is Prescribed/Illegal
substitute
1219 Effect of Remission of Share After Payment
PERSONAL OBLIGATIONS → Also applies.
1220 No Right to Reimbursement in Cases of Remission
WHEN SUBSTITUTION TAKES EFFECT – Article is silent BUT by analogy with Article
1201 and theory of cognition, the choice takes effect upon the receipt by the creditor of the 1221 Thing is Lost or Becomes Impossible
notice of the debtor’s election
1222 Defenses Available to Solidary Debtor
HOW TO DISTINGUISH → Look at the circumstances of the obligation. If it is impossible
to determine which one, then the doubt should be resolved in the favor of an alternative Balane Civil Notes Flow: 1207 → 1208 → 1214 → 1212 & 1215 → 1219 → 1222
obligation.
ARTICLE 1207
Alternative Obligations Alternative Remedies
The concurrence of two or more creditors or of two or more debtors in one and the
Mere choice categorically and The choice generally becomes conclusive same obligation does not imply that each one of the former has a right to demand, or
unequivocally made and then only upon the exercise of the remedy. that each one of the latter is bound to render, entire compliance with the prestation.
communicated concludes the parties. There is a solidary liability only when the obligation expressly so states, or when the
law or the nature of the obligation requires solidarity.
Section Four – Joint and Solidary Obligations

ARTICLE 1208
If from the law, or the nature or the wording of the obligations to which the preceding
article refers the contrary does not appear, the credit or debt shall be presumed to be
1207 Definition of Joint and Solidary Obligations
divided into as many shares as there are creditors or debtors, the credits or debts
being considered distinct from one another, subject to the Rules of Court governing the
1208 Nature and Effects of Joint Obligations multiplicity of suits. (1138
1209 Joint Indivisible Obligations
KINDS OF OBLIGATIONS ACCORDING TO THE NUMBER OF PARTIES
1210 Indivisibility and Solidarity Relationship 1. Individual Obligation – where there is only one obligor or one obligee
2. Collective Obligation – where there are two or more debtors and/or two or more
1211 Nature and Effects of Solidary Obligations creditors; Can be joint or solidary
a. Joint Obligation – Whole obligation to be paid proportionately by the
1212 Act of Solidary Creditor Useful/Prejudicial to Others different debtors and/or is to be demanded proportionately by the
different creditors
1213 Assignment by Solidary Creditor of His Rights b. Solidary Obligation – One where each one of the debtors is bound to
render, and/or each one of the creditors has a right to demand from any
1214 Payment to Any of the Solidary Creditors of the debtors, entire compliance with the prestation.
1215 Liability of Solidarity Creditor in case of Extinguishment of COLLECTIVE OBLIGATION PRESUMED TO BE JOINT
Obligations ● No problem in the determination of:
○ Person liable to pay
1216 Right of Creditor to Proceed Against any Solidary Debtor ○ Person entitled to demand payment
○ Extent of the liability of the debtor
○ Extent of the liability of the creditor
● Where there is a plurality of parties and the share of each of them in the obligation KINDS OF SOLIDARITY
is specified, the correlative rights and obligations are known. 1. According to parties bound
● When it is not specified, we follow the presumption, and as a consequence: a. Passive Solidarity – Only debtors are in solidarity (one creditor/several
○ There are as many debts as there are debtors debtors)
○ There are as many credits as there are creditors i. Plurality of debtors, unity of prestation
○ The debts and/or credits are considered distinct and separate from one ii. Its nature is of a mutual guaranty
another iii. More common
○ Each debtor is liable only for a proportionate part of the debt b. Active Solidarity – Only creditors are in solidarity (several creditors/one
○ Each creditor is entitled only to a proportionate part of the credit debtor)
○ In the absence of specification as to their proportionate share, the i. Mutual representation among the solidary creditors with powers
creditors and the debtors in a joint obligation shall be entitled to equal to exercise the rights of the others in the same manner as their
portions. rights
● This presumption is subject to rules on multiplicity of suits in Rules of Court Rule c. Mixed Solidarity – Both debtors and creditors are in solidarity with each
3, Sec 6. Otherwise, situations may arise where there are as many suits as other.
there are debtors and creditors. 2. According to source
a. Conventional Solidarity – Solidarity is agreed upon by both parties (Art.
INDICATOR WORDS 1306)
Joint Obligations – Mancomunada, Mancomunadamente, Pro rata, Proportionately, i. If nothing is mentioned, the obligation is only joint.
Conjoint, “We promise to pay” when signed by two or more persons, Jointly b. Legal Solidarity – Solidarity imposed by law
c. Real Solidarity – Solidarity is imposed by the nature of the obligation
Solidary Obligations – Jointly and severally, Severally, Solidaria, In solidum, Together, i. The purpose is to have the obligation satisfied in full but the law
Separately, Individually and/or collectively, Individually and jointly, Juntos, itself does not expressly require solidarity
Separadamente, “I promise to pay” signed by two or more persons ii. Ex: Workmen’s Compensation Law, Vehicles that operate
● Sufficient that the obligation declares that each one of the debtors can be under “kabit system”
compelled to pay the entire obligation, or can be proceeded against for the full iii. Some commentators question if this is a true source of
amount of the obligation, or that demand may be made against any of them, etc. solidarity since it was not expressly stated; May be based on
Abuse of Right doctrine (Art 19 to 22)
→ What determines the nature of the obligation is the tenor of their contract itself, not the
admission of the parties. INSTANCES OF LEGAL SOLIDARITY
● Art 94 and 121, FC –– If the ACP or CPG is insufficient to cover the liabilities for
CHARACTERISTICS OF SOLIDARY OBLIGATION – Unity of object and plurality of ties; which they are liable, the spouses are solidarily liable for the balance.
Prestation due is one and the same thing ● Art 143,1246, FC – Liability of spouses to creditors for family expenses shall be
solidary when the property regime is separation of properties.
ESSENCE OF SOLIDARITY – Each and every one of the solidary creditors can demand ● Art 911, NCC – Even when the agent has exceeded his authority, the principal is
and each of the debtors must satisfy the same prestation, with the resulting duty on the solidarily liable with the agent if the former followed the latter to act as though he
part of the creditor who received payment to pay to each of his co-creditors what belongs had full powers
to him, and the resulting right on the part of the debtor who made payment to claim from ● Art 927, NCC – If two or more heirs take possession of the estate, they shall be
his co-debtors the share which corresponds to each. solidarily liable for the loss or destruction of a thing devised or bequeathed, even
though only one of them should have been negligent
BASIS OF SOLIDARITY – Legal fiction; Mutual agency among those interested in the ● Art 1723, NCC – If the engineer or architect supervises the construction of a
same obligation; Form of joint obligation building, he shall be solidarily liable with the contractor for damages for any defect
in the construction
WHEN IS AN OBLIGATION SOLIDARY ● Art 1822-1824, NCC – All partners are solidarily liable with the partnership for any
1. Obligation expressly says so crime or quasi-delict committed by any partner acting in the ordinary course of
2. Law requires solidarity business of the partnership or with the authority of his co-partners
3. The nature of the obligation requires solidarity ● Art 1915, NCC – If two or more persons have appointed an agent for a common
transaction or undertaking, they shall be solidarily liable to the agent for all the
→ Solidarity is NOT presumed because it is very burdensome. consequences of the agency
→ Also exists when imposed in a final judgment against several defendants ● Art 1945, NCC – When there are 2 or more bailees to whom a thing is loaned in
the same contract, they are liable solidarily
● Art 2146, NCC – The responsibility of 2 or more inofficious managers is solidary
● Art 2157, NCC – The responsibility of 2 or more payees when there is payment
of what is not due is solidary. a Debtor co-debtors still be made to pay the whole
amounts
● Art 2194, NCC – The responsibility of 2 or more persons who are liable for quasi-
delict is solidary.
● Art 110, RPC – In a felony, the principal, accomplices, and accessories, each Effect of Demand Demand on one debtor does Demand by one is demand by
within their respective class, shall be liable severally among themselves for their not affect other debtors all; Demand to one is demand
quotas, and subsidiarily for those of other persons liable. to all
● Arts. 106 107, 109, Labor Code – Every employer or indirect employer shall be
held responsible with his contractor for subcontractor for any violation of any Insolvency of One Does not give rise to liability of Any of the other debtors can
provisions of the Labor Code Debtor co-debtors still be made to pay the whole
amounts
Passive Solidarity Solidarity Guaranty Effect of Payment Extinguishes his share of the Extinguishes in whole or to
(Art 2047, Par 2) by One Debtor obligation but not his co- the extent of the payment,
debtors’ share with right to reimbursement
Solidary debtor, like surety, answers for a debt which is not properly his own and after
paying, he may demand reimbursement from the debtor personally bound in the
obligation paid. ARTICLE 1209
Liable not only for the debt of another but Does not incur liability unless the principal If the division is impossible, the right of the creditors may be prejudiced only by their
also for one properly his own debtor is held liable; Considered as being collective acts, and the debt can be enforced only by proceeding against all the
the same party as the principal debtor debtors. If one of the latter should be insolvent, the others shall not be liable for his
share.
Debtor who made the payment may claim Entitled to be indemnified by the principal
reimbursement from his co-debtors debtor with the right to be subrogated → Relates to 1224
Extension granted by creditor to one of Extension granted to principal debtor, APPLICABLE TO – Joint Indivisible Obligations
the solidary debtors, without consent of without consent of surety, has effect of
others, does not release other solidary extinguishing suretyship ● It is joint as to liabilities of debtors or rights of creditors but indivisible as to
debtors from obligation compliance
● Constitutes the middle ground between a joint obligation and a solidary
obligation
Joint Obligations Solidary Obligations
Example: Deliver a particular car
Nature Consists of several obligations; Single obligation even if there
There are as many obligations are multiple parties FEATURE – Performance by the debtors (if passively joint) must be done by all of them
as the number of debtors together
multiplied by the number of
creditors EFFECT OF NON-COMPLIANCE BY ONE OF THE DEBTORS – Debt will convert into
one for damages, with each debtor responsible for their own proportionate shares.
Who can be sued Each of the debtors Active Solidarity – Any of the ● Should any of the debtors be insolvent, but the creditor, and not the co-debtors,
and how much can proportionate to their share creditors may demand the carries the burden of the proportionate share of the unwilling debtor. Co-debtors
be sued whole amount from the debtor still pay for their proportionate shares but if they suffer any damages, they can
recover them from the unwilling debtor.
Passive Solidarity – Creditor
may demand the whole DAMAGES FROM THE CONTRAVENING DEBTOR – Liable to co-debtors
amount from any of the
debtors
Failure/Refusal of Does not give rise to liability of Any of the other debtors can
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does Each one of the solidary creditors may do whatever may be useful to the others, but
solidarity of itself imply indivisibility. not anything which may be prejudicial to the latter.
APPLICABLE TO – Active Solidarity

Indivisibility Solidarity
● If any creditor performs any act prejudicial to the others, the obligation is
Refers to prestations Refers to the juridical or legal tie that extinguished and he shall be responsible for damages.
binds the parties ○ Balane – This is based on Roman law
■ More contemporaneous solution: Power of creditor to represent
Only the debtor guilty of breach is liable All debtors are liable for the breach of one is only for beneficial acts but not to prejudicial ones
for damages debtor ■ Balane prefers Roman law solution (See discussion in Art
1215)
● As far as the debtor or debtors are concerned, the act shall be valid and binding.
Can exist with only one debtor and At least two debtors or creditors ● This rule is based on mutual agency
creditor ○ “Mutual agency” – The right of one to act for and in the name of the
others
The other debtors are not liable for the They are all liable ○ A joint creditor CANNOT act in representation of the others
insolvency of one debtor
ARTICLE 1213
ARTICLE 1211 A solidary creditor cannot assign his rights without the consent of the others.
Solidarity may exist although the creditors and the debtors may not be bound in the
same manner and by the same periods and conditions. ● In the absence of consent of the others, a solidary creditor cannot assign his rights
to a third person
○ Rationale: Each creditor represents the others and the assignee may not
KINDS OF SOLIDARY OBLIGATIONS have the confidence of the original solidary creditors.
1. Uniform – when the parties are bound by the same stipulation ○ Critics’ Comments:
2. Non-uniform or varied – when the parties are not subject to the same ■ JBL Reyes – Places an unnecessary restriction on the rights of
stipulations or clauses the solidary creditor upon his share
■ Representation is created by law and not by consent of parties
● There may be a solidary obligation although the parties are not bound in the same ■ Manresa – Should be “A solidary creditor who assigns his rights
manner and by the same period and conditions without the consent of co-creditors shall answer subsidiarily for
● Creditor may bring his action in toto against any of the solidary debtors less the any prejudice caused to the latter by the assignee in connection
shares of the other debtors with unexpired terms or unfulfilled conditions with the credit.”
● The parties may stipulate that any solidary debtor already bound may be made ● If the assignment is to a co-creditor, then the consent of the other creditors is not
liable for the entire obligation. necessary.
● Effect of unauthorized assignments → Invalid/merely unenforceable assignment;
JOINT OBLIGATION ON ONE SIDE, SOLIDARY ON THE OTHER Does not extinguish obligation; Cured by ratification
● May be joint on the side of creditors and solidary on the side of debtors, or vice
versa
● In such cases, the rule applicable to each subject of the obligation should be ARTICLE 1214
applied.
The debtor may pay any one of the solidary creditors; but if any demand, judicial or
extrajudicial, has been made by one of them, payment should be made to him.
APPLICABLE TO – Active and Mixed Solidarity

● Article 1212 provides that each of the solidary creditors may do whatever may
GENERAL RULE – Debtor may pay any one of the solidary creditors be useful to the others, but not anything which may be prejudicial to the latter.
But Article 1215 allows novation, compensation, confusion or remission on the
EXCEPTION – When a demand, judicial or extrajudicial, has been made by one of them, part of the solidary creditor.
payment should be made to him ● According to Professor Balane, this is absurd.
● To avoid confusion and prejudice to the more diligent creditor ● One way of reconciling is that under Article 1215, any creditor can remit or
● Otherwise, the obligation will not be extinguished except insofar as the creditor- condone the obligation. But because the obligation is extinguished, the
payee's share is concerned condoning creditor must be liable for the other creditor‘s share. Here, there is no
prejudice. However, another problem arises if the condoning creditor later on
EFFECT OF DEMAND – Terminates mutual agency among the solidary creditors becomes insolvent.
COMPARISON TO SPANISH CODE – The exception in NCC is broader to include

extrajudicial demand. The present provision is criticized to be impractical and potential ARTICLE 1216
prejudicial to the other creditors.
● May be open to collusion – If A writes Y demanding the performance of the The creditor may proceed against any one of the solidary debtors or some or all of
obligation and A takes no further action, B and C cannot demand from Y. them simultaneously. The demand made against one of them shall not be an obstacle
to those which may subsequently be directed against the others, so long as the debt
has not been fully collected.
ARTICLE 1215
Novation, compensation, confusion or remission of the debt, made by any of the APPLICABLE TO – Passive Solidarity
solidary creditors or with any of the solidary debtors, shall extinguish the obligation,
without prejudice to the provisions of article 1219. ESSENCE OF PASSIVE SOLIDARITY – Any one or some or all of the solidary debtors,
simultaneously, may be made to pay the debt so long as it had not been fully collected
The creditor who may have executed any of these acts, as well as he who collects the
debt, shall be liable to the others for the share in the obligation corresponding to them. RIGHT OF CREDITOR TO PROCEED AGAINST ANY SOLIDARY DEBTOR
● Solidary debtors are not indispensable parties in a suit filed by the creditor
● Bringing of an action against a solidarity debtor to enforce the payment of the
APPLICABLE TO – Active Solidarity obligation does not preclude the bringing of another to compel the others to fulfill
their obligations
MODES OR CAUSES OF EXTINGUISHMENT OF OBLIGATIONS (Chap 4, Art 1231 - ● A solidarity debtor is also a surety
1304) ● In case of death of one of the solidary debtors, the creditor has thee choice to
● Novation – It is the total or partial extinction of an obligation through the creation proceed against the estate of the deceased solidary debtor along or against any
of a new one which substitutes it or all of the surviving solidary debtors whose liability is independent of and
● Compensation – the extinguishment to the concurrent amount of debts of two separate from the deceased debtor
persons who, in their own rights, are debtors and creditors of each other ● Choice is left to the solidary creditor to determine against whom he will enforce
● Confusion or merger – It is the meeting in one person of the qualities of creditor collection
and debtor with respect to the same obligation. ● As compared to Art 1252 which contemplates the situation where a debtor has
● Remission or condonation– It is the gratuitous abandonment of the creditor of various debts, this article is when each solidary debt is imputable to several
his right against the debtor (FORGIVE or form of donation) debtors
● This rule may be modified by agreements of the parties
LIABILITY FOR SOLIDARY CREDITOR
● The creditor who executed any of these actions should be liable to the others for
their corresponding shares considering that such acts are prejudicial to them.
EFFECT ON JOINT OBLIGATIONS

● These actions do not extinguish or modify the obligation except with respect to
the creditor or debtor affected, without extending its operations to any other part
of the debt or of the credit.
CONFLICT BETWEEN ARTICLE 1212 AND ARTICLE 1215

○ BUT: The statute of limitations may be superseded or modified by a

ARTICLE 1217 contract between the parties.
● Art 1144 – The following actions must be brought into action within 10 years from
Payment made by one of the solidary debtors extinguishes the obligation. If two or the time the right of action occurs:
more solidary debtors offer to pay, the creditor may choose which offer to accept. ○ Upon a written contract
○ Upon an obligation created by law
He who made the payment may claim from his co-debtors only the share which ○ Upon a judgment
corresponds to each, with the interest for the payment already made. If the payment is ● Art 1145 – The following actions must be commenced with six years
made before the debt is due, no interest for the intervening period may be demanded. ○ Upon an oral contract
○ Upon a quasi-contract
When one of the solidary debtors cannot, because of his insolvency, reimburse his ● Art 1146 – The following actions must be instituted within four years
share to the debtor paying the obligation, such share shall be borne by all his co- ○ Upon an injury to rights of the plaintiff
debtors, in proportion to the debt of each. ○ Upon a quasi-delict
REFERS TO – Payment by one of the passive solidary debtors; Not applicable when no EFFECT OF PARTIAL EXTINGUISHMENT – Will apply only to the portion that has been
payment is made extinguished
EFFECTS OF PAYMENT BY A SOLIDARY DEBTOR RECOVERY FROM CREDITOR – Will depend on whether or not the rules on solutio
● Between the solidary debtors and creditors – Payment in full of one solidary indebiti applies
debtor extinguishes the whole obligation. Creditors can choose from whom to
accept if two or more debtors offer to pay. ARTICLE 1219
● Among the solidary debtors – After payment of the debt, the paying debtor can
demand reimbursement from his co-debtors for their proportionate share with The remission made by the creditor of the share which affects one of the solidary
interest (will only accrue from the due date). debtors does not release the latter from his responsibility towards the co-debtors, in
○ Liability is based on payment made by co-debtor which creates a joint case the debt had been totally paid by anyone of them before the remission was
obligation of reimbursement (Art 1208) effected.
■ BUT: In case of insolvency of one solidary debtor, the co-
debtors will assume the burden of that share of the insolvent by
pro rata basis. APPLICABLE TO – Cases of remission by the creditor of a co-debtor’s share AFTER
○ Payment doesn’t automatically result in a corresponding obligation of co- another co-debtor has made full payment
debtors. If payment is only in part, he can recover reimbursement only ● Remission does not excuse the debtor whose share has been remitted, from
insofar as his payment exceeded his share. If the amount is equal to his contributing his share
proportionate share, he pays only what is due from him. If payment is
less than his share, he cannot demand reimbursement. EFFECT OF REMISSION OF SHARE AFTER PAYMENT
○ The amount to be recovered is computed from when he made the ● If the payment is made first, the remission has no effect.
payment, not from the date the debt was constituted. ● If the remission is made before the payment and payment is made, solutio indebiti
● Among the solidary creditors – The receiving creditor is responsible for the others arises.
corresponding shares. ○ Up to the debtor whose debt is remitted to prove priority of the remission
to the payment
○ Share that has been remitted is extinguished; Paying debtor cannot
ARTICLE 1218 collect
○ Creditor may demand payment of the reduced amount from any of the
Payment by a solidary debtor shall not entitle him to reimbursement from his co- co-debtors, including the debtor himself whose share has been remitted
debtors if such payment is made after the obligation has prescribed or become illegal.
RATIONALE – To forestall the fraud where the debt, having been paid, the creditor, who
EFFECT OF PAYMENT WHERE OBLIGATION HAS ALREADY PRESCRIBED OR does not stand to suffer any loss or damage, remits the share of a particular debtor;
BECOME ILLEGAL Secures equality and justice to the paying debtor
● When the obligation is already prescribed or becomes illegal, it is extinguished.
● By prescription – one acquires the ownership and other rights through the lapse
of time in the manner and under the condition laid down by the law. (Art 1106)
DEFENSES AVAILABLE TO A SOLIDARY DEBTOR

ARTICLE 1220 1. Defenses derived from the nature of the obligation – third party pays, fraud,
prescription, remission, illegality, or absence of consideration, res judicata, non-
The remission of the whole obligation, obtained by one of the solidary debtors, does performance of a suspensive condition
not entitle him to reimbursement from his co-debtors. ● Complete/real defense because it nullifies the obligation or renders it
ineffective
APPLIES WHEN – There is remission of the whole obligation 2. Defenses personal to, or which pertain to share of, debtor sued – insanity,
incapacity, mistake, violence, minority
NO RIGHT TO REIMBURSEMENT IN CASE OF REMISSION ● Personal defense since it is only with respect to his/her share
● Debtor who obtains remission pays nothing to the creditor since remission is ● May be total defense if it consists of vitiation of consent
essentially gratuitous. No payment made, no reimbursement. ● May also be partial defense, valid insofar as debtor’s share – such as
● But in the case of novation, compensation, or confusion, the debtor with whom it different due dates for the shares
is affected is entitled to recover from his co-debtors their corresponding shares. 3. Defenses personal to other debtors
● Partial/personal defense since it is only with respect to his/her share
ARTICLE 1221 The debtor sued can invoke all three kinds of defenses. The difference is whether such
defense would result in total or partial exculpation.
If the thing has been lost or if the prestation has become impossible without the fault of
the solidary debtors, the obligation shall be extinguished.
Section Five – Divisible and Indivisible Obligations
If there was fault on the part of any one of them, all shall be responsible to the creditor,
for the price and the payment of damages and interest, without prejudice to their action OUTLINE OF PROVISIONS
against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the performance has become 1223 Indivisible and Divisible Obligations
impossible after one of the solidary debtors has incurred in delay through the judicial or
extrajudicial demand upon him by the creditor, the provisions of the preceding 1224 Non-Compliance of Debtor in Joint Indivisible Obligation
paragraph shall apply.
1225 Obligations Deemed Indivisible/Divisible
RULES IN CASE THING HAS BEEN LOST OR PRESTATION HAS BECOME

IMPOSSIBLE Balane Civil Notes Flow: 1223 → 1224 → 1225
1. Loss is without fault and before delay → Extinguished obligation
2. Loss is due to the fault on the part of a solidary debtor → They are all liable for ARTICLE 1223
the price of the thing and damages. But the debtor at fault cannot ask for
reimbursement from his co-debtors if he paid for the price and damage. The divisibility or indivisibility of the things that are the object of obligations in which
● As far as the creditor is concerned, fault or delay of one is fault or delay there is only one debtor and only one creditor does not alter or modify the provisions of
of all. Chapter 2 of this Title.
3. Loss is without fault but after delay – Same as (2)
APPLICABLE TO – Real or personal obligations; “Things” is used in its broad sense

ARTICLE 1222
DEFINITIONS
A solidary debtor may, in actions filed by the creditor, avail himself of all defenses ● Divisible Obligation – one the object of which, in its delivery or performance, is
which are derived from the nature of the obligation and of those which are personal to capable of partial fulfillment
him, or pertain to his own share. With respect to those which personally belong to the ● Indivisible Obligation – one the object of which, in its delivery or performance,
others, he may avail himself thereof only as regards that part of the debt for which the is not capable of partial fulfillment
latter are responsible.
TEST FOR DISTINCTION – Refers to performance of the obligation, not to its object
● Purpose of the obligation, or Intention of the parties
● NOT if the object is physically divisible or the service can be partially performed
still pay for their proportionate shares but if they suffer any damages, they can
PRESUMPTION – An obligation is presumed indivisible when there is only one recover them from the unwilling debtor.
creditor and one debtor. (Art 1225)
DAMAGES FROM THE CONTRAVENING DEBTOR – Liable to co-debtors
KINDS OF DIVISION
● Qualitative division – based on quality
● Quantitative division – based on quantity ARTICLE 1225
● Ideal or Intellectual division – one which exists only in the minds of the parties
For the purposes of the preceding articles, obligations to give definite things and those
KINDS OF INDIVISIBILITY which are not susceptible of partial performance shall be deemed to be indivisible.
● Legal indivisibility – Law declares it so
○ Art 1248, Par 2 – When debt is in part liquidated and in part When the obligation has for its object the execution of a certain number of days of
unliquidated work, the accomplishment of work by metrical units, or analogous things which by their
○ Art 1208 – Joint indivisible obligations nature are susceptible of partial performance, it shall be divisible.
○ Art 1211 – Solidarity obligations in which the debtors are bound under
different terms or conditions However, even though the object or service may be physically divisible, an obligation is
○ Art 1290 – In cases of compensation, when a balance is left indivisible if so provided by law or intended by the parties.
○ Art 1720 – If a piece of work is to be delivered partially, the price of In obligations not to do, divisibility or indivisibility shall be determined by the character
each part having been fixed, the price is also payable partially of the prestation in each particular case.
○ Art 2065 – Debts guaranteed by several guarantors who are entitled to
the benefit of division CONTROLLING CIRCUMSTANCE TO DETERMINE DIVISIBILITY/INDIVISIBILITY –
○ Impossibility or extreme difficulty of a single performance Purpose of the obligation
● Conventional indivisibility – agreed upon by the parties
● Natural indivisibility – nature of the object or prestation OBLIGATIONS DEEMED INDIVISIBLE
● Obligations to give definite things
APPLICABILITY OF CHAP 2, TITLE 1 ○ Ex: To give a particular car
● Chap 2, Title 1 (Nature & Effect of Obligations) are also applicable to divisible or ○ Due to nature of subject matter
indivisible obligations even if they contemplate obligations involving only one ● Obligations not susceptible to partial performances
creditor and one debtor ○ Ex: To sing a song
● Since divisibility or indivisibility refers to the object or prestation, it does not alter ○ Requires the performance of all parts
or modify said the nature of the obligation ○ BUT: If the obligation has more than one participant, obligation becomes
divisible as far as the participants are concerned
ARTICLE 1224 ● Obligations provided by the law to be indivisible even if thing or service can be
divisible
A joint indivisible obligation gives rise to indemnity for damages from the time anyone ○ Ex: Taxes (although not recently)
of the debtors does not comply with his undertaking. The debtors who may have been ● Obligations intended by the parties to be indivisible even if thing or service can be
ready to fulfill their promises shall not contribute to the indemnity beyond the divisible
corresponding portion of the price of the thing or of the value of the service in which ○ Ex: Deliver P10,00 at one time and as a whole
the obligation consists. ○ BUT: If there are two debtors, obligation becomes divisible as far as the
debtors are concerned
→ Relates to Art 1209
OBLIGATIONS DEEMED DIVISIBLE
FEATURE OF JOINT INDIVISIBLE OBLIGATIONS – Performance by the debtors (if ● Obligations which have for their object the execution of a certain number of days
passively joint) must be done by all of them together of work
● Obligations which have for their object the accomplishment of work by metrical
EFFECT OF NON-COMPLIANCE BY ONE OF THE DEBTORS – Debt will convert into units
one for damages, with each debtor responsible for their own proportionate shares. ● Obligations which by their nature are susceptible of partial performance
● Creditor cannot ask for specific performance or rescission because there is no
cause of action against the other debtors who are willing to fulfill their promises DIVISIBILITY OR INDIVISIBILITY IN OBLIGATIONS NOT TO DO
● Should any of the debtors be insolvent, but the creditor, and not the co-debtors, ● The character of the prestations in each particular case will determine their
carries the burden of the proportionate share of the unwilling debtor. Co-debtors divisibility and indivisibility
○ Ex of Indivisible – Not to sell cigarettes in store of one year Obligation with a Penal Clause – One which contains an accessory undertaking to pay
○ Ex of Divisible – Not to sell cigarettes in store during weekends a previously stipulated indemnity in case of breach of the principal prestation intended
● Obligations “to do” or “not to do” are generally indivisible primarily to induce its fulfillment
○ EXCEPT: Obligations to do in Art 1225, Par 2 are divisible
PURPOSES OF PENAL CLAUSE
EFFECT OF PARTIAL NON-PERFORMANCE – Tantamount to total non-performance ● Insure performance by creating an effective deterrent against breach
● EXCEPT when: ○ If the stipulation produces an effect that is not burdensome, then it is not
○ Substantial performance in good faith (Art 1234) a penal clause.
○ Waiver by the creditor (Art 1235) ● Substitute a penalty for the indemnity of damages and payment of interests in
● For divisible obligations – Art 1191 will determine the effect of the partial breach case of non-compliance/Provide for liquidated damages
and the extent of the recoverable damages ○ Spare the parties the process of having to prove the extent and amount
of damages
○ In our Code, there is really no difference between a penal clause and
Section Six – Obligations with a Penal Clause liquidated damages. The provisions on the latter are found in Art 2226
to 2228. (Lambert v Fox)
OUTLINE OF PROVISIONS ■ Liquidated damages – Penalty meant to impress upon the
defaulting party the grave consequences of his own culpability
■ Penalty – May be for reparation, not punishment
1226 Obligation with Penal Clause Definition ■ Separate treatments of the two concepts in separate parts of
the Code are criticized by JBL Reyes and Sen Tolentino
1227 Assumed Subsidiary ■ Whatever difference exists between them as a matter of
language, they are treated the same legally such as when it can
1228 Proof Needed be reduced for being unconscionable or iniquitous.
1229 When Penalty Can Be Reduced by the Court WHAT CAN CONSTITUTE THE PENALTY → Generally and most frequently consists in
a sum of money but legally it could involve other things or acts or an abstention
1230 Accessory Follows Principal
Penal Clause Condition
Balane Civil Notes Flow: 1229 → 1228 → 1227 → 1226 → 1230
Constitutes to an obligation although Does not
accessory
ARTICLE 1226
Demandable at default Never demandable
In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no
stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses KINDS OF PENAL CLAUSE
to pay the penalty or is guilty of fraud in the fulfillment of the obligation. 1. As to its origins
a. Legal penal clause – provided by law
The penalty may be enforced only when it is demandable in accordance with the b. Conventional penal clause – agreed upon by the parties
provisions of this Code. 2. As to its purpose
a. Exclusive/Compensatory penal clause – penal clause takes the place
of damages
Principal Obligation – one which can stand by itself and does not depend for its validity b. Inclusive/Punitive penal clause – penalty is merely a punishment for
and existence upon another obligation breach
3. As to its demandability or effect
Accessory Obligation – one, which is, attached to a principal obligation a. Subsidiary or alternative penal clause – only the penalty clause can
be enforced
Penal Clause – accessory undertaking attached to an obligation to assume greater liability b. Joint or cumulative penal clause – both the principal obligation and
in case of breach penalty clause can be enforced; applies when there is a clear grant
→ GENERAL RULE: Penal clause is subsidiary (Art 1227) and exclusive (Art 1226).
● If the debtor is allowed to pay in lieu of performance, it is an alternative obligation.

WHEN CREDITOR CAN RECOVER DAMAGES
On top of the penalty (Inclusive/Punitive) – PENAL CLAUSE ASSUMED SUBSIDIARY
● When so stipulated by the parties; ● When there is performance – There is no need to demand for penalty unless ”this
○ In this case, penalty is demandable apart from the interest when so right has been clearly granted”.
stipulated by the parties. ● When there is no performance – the creditor may ask for penalty or specific
● When the obligor refuses to pay the penalty, in which case the creditor can performance. These remedies are alternative. But he can ask for a penalty, if the
recover legal interest thereon; or choice was specific performance and it has become impossible to do so without
● When the obligor is guilty of fraud in the fulfillment of the obligation the fault of the debtor.
○ Fraud in this context refers to the fraud under Art 1170 and 1171
WHEN PENAL CLAUSE JOINT – When the right to pay penalty in lieu of performance has
WHEN PENALTY IS DEMANDABLE – when there is a breach in the obligation been expressly reserved for him
WHEN FORTUITOUS EVENT – Parties may validly stipulate the payment of a penalty
even if non-compliance due to FE. ARTICLE 1228
HOW CONSTRUED – Obligations with penal clauses are strictly construed since it is an Proof of actual damages suffered by the creditor is not necessary in order that the
exception to the general rules on recovery of losses and damages. penalty may be demanded.
Obligations with a Conditional Alternative Facultative APPLICABLE TO – When the penalty is fixed by the parties to substitute the indemnity for
Penal Clause Obligation Obligation Obligation damages
There is a principal Existence of the There is only one There is only one PROOF OF ACTUAL DAMAGES
obligation to which obligation is obligation but there thing due ● All the creditor has to prove is the violation of the obligation by the debtor.
the accessory uncertain. are two things due notwithstanding the ○ Penal clause constitutes predetermined damages.
obligation of penal alternatively and right conferred ● Creditor may enforce penalty whether he suffered damages or not.
clause is joined. obligation may be upon the debtor to ○ BUT: He cannot recover more than the stipulated amount even if he
Debtor cannot satisfied by the satisfy the proves the amount of his damages is greater.
choose to pay in performance of one obligation by
lieu of of them. substituting another FOR PUNITIVE PENAL CLAUSE (Damages recoverable in addition to the penalty) –
performance, in its place. creditor must provide evidence of such damages.
unless expressly
granted. Balane – New article is correct but superfluous since it only makes explicit what the
definition of a penal clause already contains.
ARTICLE 1229
ARTICLE 1227
The judge shall equitably reduce the penalty when the principal obligation has been
The debtor cannot exempt himself from the performance of the obligation by paying partly or irregularly complied with by the debtor. Even if there has been no
the penalty, save in the case where this right has been expressly reserved for him. performance, the penalty may also be reduced by the courts if it is iniquitous or
Neither can the creditor demand the fulfillment of the obligation and the satisfaction of unconscionable.
the penalty at the same time, unless this right has been clearly granted him. However,
if after the creditor has decided to require the fulfillment of the obligation, the
performance thereof should become impossible without his fault, the penalty may be WHEN PENALTY CAN BE REDUCED BY THE COURT
enforced. 1. When there is partial or irregular performance
● Penalty should be more or less proportionate with the extent of the
breach
GENERAL RULE: Penalty is not a substitute for performance except when he is expressly ● Presumed that the parties contemplate only a total breach of contract
given the right to do so. 2. When the penalty agreed upon is iniquitous or unconscionable
● EXCEPT: When the right has been expressly reserved for him
●Penalty is not void, but subject merely to the equitable reduction of the
court
● Addressed to the sound discretion of the court and on several factors: ARTICLE 1231
○ The type, extent and purpose of the penalty, the nature of the
obligation, the mode of breach and its consequences, the Obligations are extinguished:
supervening realities, the standing and relationship of the 1. By payment or performance;
parties 2. By the loss of the thing due;
○ Can be partly subjective/objective 3. By the condonation or remission of the debt;
3. When necessary to protect the rights of innocent third persons 4. By the confusion or merger of the rights of creditor and debtor;
5. By compensation;
PURPOSE – Evident justice; contrary to morals 6. By novation.
Other causes of extinguishment of obligations, such as annulment, rescission,

ARTICLE 1230 fulfillment of a resolutory condition, and prescription, are governed elsewhere in this
Code. (1156a)
The nullity of the penal clause does not carry with it that of the principal obligation.
The nullity of the principal obligation carries with it that of the penal clause. CAUSES OF EXTINGUISHMENT OF OBLIGATIONS – Enumerate in Art 1231
1. By payment or performance;
2. By the loss of the thing due;
RULE – Accessory follows the principal and not vice-versa 3. By the condonation or remission of the debt;
4. By the confusion or merger of the rights of creditor and debtor;
BASIS – Accessory obligation cannot subsist without the principal obligation but the latter 5. By compensation;
can subsist without the former. 6. By novation.
7. Other causes – annulment, rescission (Art 1191; Art 1380-1389), fulfillment of a
IF PENAL CLAUSE IS VOID – Principal obligation simply becomes one subject to the resolutory condition (Art 1179), prescription (Art 1106 - 1155)
general rules on damages in case of breach.
OTHER CAUSES OF EXTINGUISHMENT OF OBLIGATIONS – Governed in other
EXCEPTIONS: chapters of the Civil Code
1. When the penalty is undertaken by a third person precisely for an obligation 1. Death of a party in case the obligation is a personal one (Art 1311, Par 1)
which is unenforceable, voidable, or natural, in which case it assumes the form 2. Mutual desistance or withdrawal
of a guaranty which is valid under Art. 2052 a. When parties, before full performance, agree to cancel or discontinue
2. When the nullity of the principal obligation itself gives rise to liability of debtor for the contract
damages/due to fault of debtor who acted in bad faith b. Since mutual agreement can create a contract, mutual disagreement by
a. Vendor knew thing due was nonexistent at the time of the contracts → the parties can cause its extinguishment
Liable for damages 3. Happening of a fortuitous event (Art 1174)
b. Since penalty is merely a substitute for damages, it can be enforce 4. Arrival of a resolutory period (Art 1193, Par 2)
5. Impossibility of fulfillment (Art 1266)
IF PRINCIPAL OBLIGATION IS VOID – Penal clause is likewise void although it is itself 6. Doctrine of Unforeseen Events (Art 1267)
valid; Cannot stand alone 7. Compromise (Art 2028)
8. Judicially declared insolvency
a. Insolvency does not extinguish obligation unless judicially declared and
CHAPTER 4 – EXTINGUISHMENT OF OBLIGATIONS a discharge was given
9. Waiver by the creditor (Art 6)
10. Change of civil status
General Provisions a. Example: Extinguishment of obligation to support in case of annulment
11. Withdrawal by one of the parties in a partnership (Art 1380)
OUTLINE OF PROVISIONS 12. Disappearance or cessation of creditor’s interest (Art 662)
● Writeoff is not one of the legal grounds for extinguishing an obligation under the
1231 Causes of Extinguishment of Obligations Civil Code. This is a financial accounting concept.
CLASSIFICATION OF THE MODES OF EXTINGUISHMENT OF OBLIGATIONS

1. Voluntary 1239 Free disposal, Capacity to alienate
a. By performance
i. Payment 1240 Person to whom payment shall be made
ii. Consignation
b. By substitution 1241 Payment to incapacitated person or third person
i. Conveyance for payment (Dacion en pago)
ii. Novation 1242 Payment to 3rd person in possession of credit
c. By release agreement
i. Agreement subsequent to the constitution of the obligation 1243 When payment to creditor is invalid
1. Mutual waiver
2. Unilateral waiver 1244 Identity Requisite; Substitution of prestation
3. Remission
ii. Agreement simultaneous to the constitution of the obligation 1245 Special forms of payment
1. Resolutory condition
2. Extinctive period 1246 Rule of medium quality
2. Involuntary
a. By reason of the subject 1247 Extrajudicial expenses and judicial costs
i. Confusion
ii. Death of the contracting parties in the cases where the 1248 Complete performance necessary; Valid partial performance
obligations are personal
b. By reason of the object 1249 Currency of debt; Legal tender
i. Loss of the thing due or impossibility of performance
c. By failure to exercise (right of action) 1250 Extraordinary inflation or deflation
i. Extinctive prescription
1251 Place of payment
RATIONALE FOR PAR 2 – These last grounds possess other characteristics than just
being modes of extinguishments and are governed in other parts of the Code; Attempt to
complete the enumeration of the modes of extinguishment
ARTICLE 1232
Section One – Payment or Performance
Payment means not only the delivery of money but also the performance, in any other
manner, of an obligation. (n)
1232 Meaning of Payment

MEANING OF PAYMENT → May consist of not only in the delivery of money but also the
1233 When debt considered paid giving of a thing (other than money), the doing of an act, or not doing of an act
● Normal, perfect mode of extinguishment of obligations → Paradigm of all other
1234 Recovery allowed, in case of substantial performance in good faith modes
○ Other modes are abnormal
1235 Recovery allowed, when incomplete or irregular performance ● Payment – Proper term of obligations to give
waived ● Performance – Obligations to do or not to do
● In law, payment and (specific) performance are synonymous and used
1236 Who can pay interchangeably.
ELEMENTS OF PAYMENT
1237 Right of 3rd person to subrogation
Under the common law doctrine –
● Persons, who may pay and to whom payment may be made
1238 3rd person, does not want reimbursement
● Thing or object in which payment must consists
● The cause thereof REQUISITES FOR THE APPLICATION OF ART. 1234

● The mode or form thereof 1. There must be substantial performance.
● The place and the time in which it must be made ● The existence of such depends upon the circumstances of each case.
● The imputation of expenses occasion made by it 2. The obligor must be in good faith.
● The special parts which may modify the same and the effects they generally ● Good faith is presumed in the absence of proof to the contrary.
produce
EXISTENCE OF SUBSTANTIAL PERFORMANCE – When there is compliance with the
BURDEN OF PROVING PAYMENT – Upon the debtor who pleads payment or offers such essential requirements, whether of a contract or a statute
defense to the claim of the creditor; Must prove with preponderance of evidence ● Breach is of inconsequential nature → Substantial performance
● There is a disputable presumption that money paid by one to another was due to ● Breach is material and not merely slight or technical and unimportant → No
the latter substantial performance; Has right to resolution (Art 1191)
● Operation of Art 1234 prevents application of Art 1191
ARTICLE 1233
ARTICLE 1235
A debt shall not be understood to have been paid unless the thing or service in which
the obligation consists has been completely delivered or rendered, as the case may be. When the obligee accepts the performance, knowing its incompleteness or irregularity,
(1157) and without expressing any protest or objection, the obligation is deemed fully complied
with. (n)
WHEN DEBT CONSIDERED PAID
1. Integrity – how payment should be made, it should be complete (not only specific RECOVERY ALLOWED, WHEN INCOMPLETE OR IRREGULAR PERFORMANCE
thing but all of its accessions and accessories) WAIVED
2. Identity – what is to be paid, payment should be the very same ● Other exception to Art 1233
obligation/prestation promised to be performed/not performed ● Founded on the principle of estoppel – If payment is incomplete or irregular,
creditor has the right to reject. In case of acceptance, law considers that creditor
GENERAL RULE OF INTEGRITY: Partial or irregular performance will not produce the waives his right.
extinguishment of an obligation
REQUISITES FOR THE APPLICATION OF ART. 1235
EXCEPTIONS TO RULE OF INTEGRITY 1. The obligee knows that the performance is incomplete or irregular
1. Substantial performance in good faith (Art 1234) 2. He accepts the performance without expressing any protest or objection
2. Waiver by creditor/obligee (Art 1235 or Art 6)
3. If there are several debts of the same nature and burden, and they are all due, “ACCEPT” → To take as satisfactory or sufficient; To give assent to; To agree or accede
the remittance of an amount less than the total of all the debts will be applied pro to an incomplete or irregular performance
rata to them all under the rules on application of payments (Art 1254, Par 2) ● Mere receipt of partial payment is not equivalent to acceptance of performance
● The acceptance must be made under circumstances that indicate his intention to
consider the performance complete and renounce his claim arising from defect
ARTICLE 1234 ○ Example: Creditor kept on receiving the original rent fee of debtor without
any protest or reservation
If the obligation has been substantially performed in good faith, the obligor may recover
as though there had been a strict and complete fulfillment, less damages suffered by the FORM OF PROTEST OF CREDITOR – Not specified by the provision
obligee. (n) → Acts of creditor at the time of the incomplete or irregular payment by the debtor, or within
a reasonable time after, evince that the former is not satisfied or agreeable to said payment
RECOVERY ALLOWED, SUBSTANTIAL PERFORMANCE IN GOOD FAITH or performance
● First exception to Art 1233 → No requirement for promptness.
● Adopted from American Law – basis is justice and equity
○ In case of substantial performance, the obligee is benefitted.
○ There must be just compensation for the relative breach committed by
the obligor.
WHO CAN PAY OR PERFORM THE OBLIGATION ● If without knowledge or against the will – Cannot compel
○ What if the creditor willingly permits the subrogation to 3rd person?
■ No. This article is for the benefit of the debtor so subrogation
ARTICLE 1236 can only take place with his consent.
● Legal subrogation by operation of law is presumed in certain cases (Art 1302)
The creditor is not bound to accept payment or performance by a third person who has
no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. APPLICATION – Arts 1236 and 1237 do not apply where there is no debtor-creditor
relationship with the person on whose behalf the third person made payment and payee.
Whoever pays for another may demand from the debtor what he has paid, except that if
he paid without the knowledge or against the will of the debtor, he can recover only
insofar as the payment has been beneficial to the debtor. (1158a) Subrogation Reimbursement
Payer acquires not only right to Merely the bare right to be refunded to the
PERSONS FROM WHOM THE CREDITOR MUST ACCEPT PAYMENT reimbursement for what he paid but also extent provided in Art 1236, Par 2 (what
1. The debtor all other rights which creditor could have he has paid)
2. Any person who has an interest in the obligation (like a guarantor, agent/legal exercised in relation to the credit
representative)
3. A third person who has no interest in the obligation when there is a stipulation that No real extinction, only a change of
he can make payment/consent of creditor creditor
CREDITOR MAY REFUSE THIRD PERSON
● Old Civil Code provided that creditor cannot refuse
● Change is because creditor should have a right to insist on the liability of the ARTICLE 1238
debtor
Payment made by a third person who does not intend to be reimbursed by the debtor is
● Creditor should not be compelled to accept payment from third person whom he
may dislike or distrust deemed to be a donation, which requires the debtor's consent. But the payment is in any
case valid as to the creditor who has accepted it. (n)
EFFECT OF PAYMENT BY A THIRD PERSON
● If made without knowledge or against the will of debtor – PAYMENT BY A THIRD PERSON WHO DOES NOT INTEND TO BE REIMBURSED
○ Recover only up to the extent or amount of the debt at the time of ● “No one should be compelled to accept the generosity of another”
payment (Art 1236, Par 2) ● Deemed a donation which require debtor’s consent to be valid
○ Not subrogated to the rights of the creditor (Art 1237) ● If creditor accepts, it is valid to him and obligation is extinguished even if debtor
● If made with the knowledge of the debtor does not consent.
○ Has right to reimbursement, recover what he has paid (not necessarily ○ Remedy of 3rd person is to ask reimbursement from debtor since there
the amount of the debt) from the debtor is essentially no donation
■ Nothing beyond what has been paid ○ Can non-consenting debtor refuse to reimburse? No.
■ Except if payment is intended as a donation to debtor
○ Has right to subrogation
○ If opposition is to be made, it must be before or at the time the payment ARTICLE 1239
is made, not subsequently since effect of payment is determined at the
time it was made. In obligations to give, payment made by one who does not have the free disposal of the
thing due and capacity to alienate it shall not be valid, without prejudice to the provisions
of article 1427 under the Title on "Natural Obligations." (1160a)
ARTICLE 1237
Whoever pays on behalf of the debtor without the knowledge or against the will of the Free disposal of the thing due → Thing to be delivered must not be subject to any claim
latter, cannot compel the creditor to subrogate him in his rights, such as those arising or lien or encumbrance of a third person
from a mortgage, guaranty, or penalty. (1159a)
Capacity to alienate → Must have capacity to contract ;Person is not incapacitated to
enter into contracts (Arts 1427 and 1329); Can dispose of thing due
RIGHT OF THIRD PERSON TO SUBROGATION
● If with knowledge – Entitled to subrogation
GENERAL RULE – In obligations to give, payment made by one who does not have the
free disposal of the thing due and capacity to alienate it shall not be valid and thing paid ARTICLE 1241
can be recovered.
● Creditor cannot be compelled to accept payment when person paying has no Payment to a person who is incapacitated to administer his property shall be valid if he
capacity has kept the thing delivered, or insofar as the payment has been beneficial to him.
● If creditor is aware of debtor’s lack of right or incapacity to dispose – Accepts the
thing at his own risk Payment made to a third person shall also be valid insofar as it has redounded to the
● If creditor is unaware – Debtor or person who has a better right to property may benefit of the creditor. Such benefit to the creditor need not be proved in the following
recover the same cases:
● In either case, the debtor may ratify or validate the payment previously made 1. If after the payment, the third person acquires the creditor's rights;
should he subsequently acquire the right and capacity. 2. If the creditor ratifies the payment to the third person;
3. If by the creditor's conduct, the debtor has been led to believe that the third
EXCEPTION – Minors between 18 - 21 without parental/guardian consent who voluntarily person had authority to receive the payment. (1163a)
pays or performs have no right to recover from obligee if the thing has been consumed in
good faith (Art 1427) EFFECT OF PAYMENT TO AN INCAPACITED PERSON
● Dead-letter, repealed by RA 6809 which set majority age to 18 ● Incapacity is to administer or manage his property
● Generally, invalid unless
TO WHOM PAYMENT SHOULD BE MADE ○ incapacitated person kept the thing paid or delivered or
○ was benefited by the payment
ARTICLE 1240 ● Proof of such benefit is incumbent upon the debtor who paid
● Payment should be made to his legal representative
Payment shall be made to the person in whose favor the obligation has been constituted, ○ If not possible, through consignation in court of the thing or the sum due
or his successor in interest, or any person authorized to receive it. (1162a)
EFFECT OF PAYMENT TO A THIRD PERSON
● Generally invalid except insofar as it has redounded to the benefit of the creditor
PERSON TO WHOM PAYMENT MUST BE MADE ● Immaterial that debtor acted in good faith and by mistake as to person of creditor
1. Creditor or obligee (person in whose favor the obligation has been constituted) or through error induced by fraud of a third person
● Must be creditor at the time the payment is to be made ● That the creditor was benefited by payment is not presumed
● Read together with Art 1626 – Debtor who, before having knowledge of ○ Must be satisfactorily proved by person interested in proving this fact
assignment, pays his creditor shall be released from the obligation ● Extent of payment is only to the extent of the benefit
2. Successor in interest (like an heir/assignee)/Transferee/Representative
3. Any person authorized to receive it WHEN BENEFIT TO CREDITOR NEED NOT BE PROVED BY DEBTOR
● Not only a person authorized by the creditor, but also a person 1. Subrogation of the payer in the creditor’s rights
authorized by law to receive payment 2. Ratification by the creditor – Retroactive convalidatory effect on the originally
defective payment
GENERAL RULE – In order to discharge an obligation, payment must be made to proper 3. Estoppel on the part of the creditor
person as set forth in this article. When payment is made to the wrong party, the obligation
is not extinguished as to creditor who is without fault or negligence. ● In these cases, benefit is presumed.
● Under the law, the debtor who, before having knowledge of the assignment of
EXCEPTION – When payment is made in good faith to any person in possession of the credit to a third person, pays the original creditor, shall be released from the
credit (Art 1242) obligation (Art 1626)
ARTICLE 1242
Payment made in good faith to any person in possession of the credit shall release the
debtor. (1164)
PAYMENT TO THIRD PERSON IN POSSESSION OF CREDIT

● Another instance when there is valid payment to a third person
● In facultative obligations (Art 1206)

“POSSESSION” – Credit itself and not merely of the document or instrument evidencing ● In case of waiver by the creditor or substitution is allowed byy stipulation with the
the credit consent of the creditor
● Mere possession of the instrument (unless transferable by delivery) does not
entitle the holder to payment nor does payment release the debtor EXCEPTIONS TO RULES OF IDENTITY
● This does not necessarily mean having a document evidencing the credit. 1. Dacion en pago (RT 1245)
2. Novation
GOOD FAITH – Honest belief that he is making a valid payment and that the payee is the
owner of the credit; Presumed
ARTICLE 1245
ARTICLE 1243 Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt
in money, shall be governed by the law of sales. (n)
Payment made to the creditor by the debtor after the latter has been judicially ordered
to retain the debt shall not be valid. (1165)
SPECIAL FORMS OF PAYMENT
1. Dation in payment (Art 1245)
WHEN PAYMENT TO CREDITOR NOT VALID 2. Application of payments (Art 1254)
● In an action against the debtor who is the creditor of another, the latter, during the ● Strictly speaking, not a special form of payment.
pendency of the case, may be ordered by the court (or any competent authority if 3. Payment by cession (Art 1255)
it be administrative) to retain the debt until the right of the plaintiff, the creditor in 4. Tender of payment and consignation (Arts 1256 - 1261)
the main litigation is resolved.
● If payment is subsequently made by the debtor who is creditor of another, it is DATION IN PAYMENT (Dacion en pago or adjudication) → Conveyance of ownership of
invalid if plaintiff in main litigation wins the case and cannot collect the payment a thing by the debtor to the creditor as an accepted equivalent of an outstanding
made. Such payment is made in bad faith. performance of a monetary obligation
● Benefit here can only be invoked by the creditor who secures the order of ● Special form because debt in money is satisfied not through payment of money
retention. but by transmission of ownership of a thing by debtor to his creditor
GARNISHMENT OF DEBTOR’S CREDIT –– Proceeding for the purpose of subjecting a REQUISITES

debtor’s credit to the payment of his debt to another 1. There must be performance of the prestation in lieu of payment (animo solvendi)
● Effectively freezes such credit which may consist in the delivery of a corporeal thing or a real right or a credit
● Should hold the payment of the debt in abeyance and await further orders of the against a third person
court 2. There must be some difference between the prestation due and that which is
● Specie of attachment given in substitution (aliud pro alio)
● Nature of an involuntary novation by the substitution of one creditor for another 3. There must be an agreement between the creditor and debtor that the obligation
is immediately extinguished by reason of the performance of a prestation different
from that due
ARTICLE 1244
NATURE OF DATION IN PAYMENT
The debtor of a thing cannot compel the creditor to receive a different one, although the ● Specie of sale – Creditor is really buying the thing or property of the debtor,
latter may be of the same value as, or more valuable than that which is due. payment for which is charged against debtor’s debt
○ Criticism: When parties into agreement, there was never really an
In obligations to do or not to do, an act or forbearance cannot be substituted by another intention to enter into a sale
act or forbearance against the obligee's will. (1166a) ● Objective novation of obligation – Thing offered as an accepted equivalent of the
performance of an obligation is considered as the object of contract sale while
IDENTITY REQUISITE debt is the purchase price; No dation when there is no transfer of ownership in
● Par 1 – Refers to obligation to deliver a determinate thing creditor’s favor.
● Par 2 – Refers to personal obligations ○ Criticism: No replacement of obligation with another
● Third Theory (Castan) – Species or variation of payment implying an onerous
WHEN PRESTATION MAY BE SUBSTITUTED transaction akin to a sale
● Can be made if the obligee consents
GOVERNING LAW – Law of sales

● Essential elements of a contract of sale must be present – consent, object certain RULE OF THE MEDIUM QUALITY
and cause or consideration ● Purpose of the obligation and other circumstances shall be taken into
consideration
● Principle of equity – supplies justice in cases where there is lack of precise
Sale Dation in Payment declaration or when there is disagreement by parties
No pre-existing credit There is MAY BE WAIVED
● By the creditor by accepting a thing of inferior quality
Obligations are created Obligations are extinguished ● By the debtor by delivering a thing of superior quality
Cause is the price paid from the viewpoint Extinguishment of obligation from
of the seller, or acquisition of thing sold viewpoint of debtor, or acquisition of the ARTICLE 1247
from viewpoint of buyer object in lieu of the credit from viewpoint
of creditor Unless it is otherwise stipulated, the extrajudicial expenses required by the payment
shall be for the account of the debtor. With regard to judicial costs, the Rules of Court
More freedom in fixing the price According to obligation shall govern. (1168a)
Buyer still has to pay the price Payment is received before contract is
EXTRAJUDICIAL EXPENSES
perfected which is to be charged against
● General Rule: Debtor pays.
creditor’s debt
● Rationale – Obligation is extinguished when payment is made and it is debtor who
primarily benefited
Parties deliver and receive the thing as Debtor and creditor ● Exceptions:
seller and buyer
○ Parties made a stipulation as to who will bear the expenses
○ Expenses incurred by creditor in going to debtor’s domicile to collect (Art
TRANSMISSION OF OWNERSHIP TO CREDITOR 1251)
● Dation in payment required the delivery and transmission of ownership of a thing ○ Reciprocal obligations (unless otherwise stipulated)
to the creditor who accepts it as equivalent of payment of an outstanding debt
● Where repossession of the thing was merely to secure the payment of the debtor’s JUDICIAL COSTS – Statutory amounts allowed to a party to an action for his expenses
loan obligation and not to transfer ownership, it is not dation in payment. incurred in the action (Rule 142, Rules of Court)
● General Rule: Paid by the losing party
REQUIREMENT OF CONSENT – Must be consent of both parties ● Exceptions:
○ For special reasons, Court may adjudge either party shall pay the costs
APPLICABILITY TO OBLIGATIONS OTHER THAN MONEY DEBTS – Difficult to or it be divided equitably
reconcile since article clearly mentions “debts in money” ○ No costs are allowed against the Government
● Argument for possibility is only analogy to barter ■ Unless provided by law
EXTENT OF EXTINGUISHMENT – Extent of the value of the thing delivered unless the
ARTICLE 1248
parties, by agreement, express or implied, consider the thing as equivalent to the
obligation, in which case, the obligation is totally extinguished
Unless there is an express stipulation to that effect, the creditor cannot be compelled
partially to receive the prestations in which the obligation consists. Neither may the
ARTICLE 1246 debtor be required to make partial payments.
When the obligation consists in the delivery of an indeterminate or generic thing, whose However, when the debt is in part liquidated and in part unliquidated, the creditor may
quality and circumstances have not been stated, the creditor cannot demand a thing of demand and the debtor may effect the payment of the former without waiting for the
superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of liquidation of the latter. (1169a)
the obligation and other circumstances shall be taken into consideration. (1167a)
APPLICABLE TO – Delivery of generic thing GENERAL RULE – Complete performance of an obligation is necessary.
● Creditor cannot be compelled to accept partial payment and debtor cannot be

compelled to make partial payment LEGAL TENDER (Sec 4, R.A. No. 7653) → Currency prescribed by law ot be accepted for
● Hence, the creditor cannot be considered in delay if he refuses to accept partial the payment of debts
performance.
CURRENCY (Sec 4, R.A. No. 7653) → All Philippines notes and coins issued or circulating
EXCEPTION in accordance with provisions of this Act (Bangko Sentral ng Pilipinos)
Partial payment is allowed when:
1. There is an express stipulation to that effect (Art 1248) PAYMENT BY MEANS OF INSTRUMENT OF CREDITS
2. The creditor accepts such partial payment ● Promissory notes, checks, bills of exchange and other commercial documents are
● Because while the creditor cannot be compelled to accept partial not legal tender. Creditor cannot be compelled to accept them.
payments, nothing in the provision prohibits him from accepting such ○ Should the creditor accept, the demandability of original obligation is
payments. suspended until payment by the commercial document is actually
3. When the debt is in part liquidated and in part unliquidated (Art 1248) realized.
4. Joint divisible obligations (Art 1208) ● Not applicable for payment for purpose of redemption since mere tender of checks
5. When the different prestations in which the obligation consists are subject to in redemption is sufficient
different terms or conditions which affect some of them (obligation to pay in ● Payment by means of mercantile documents does not extinguish obligation unti:
installments) (Art 1211) ○ They have been cashed OR
6. When the parties know that the obligation reasonably cannot be expected to be ○ They have been impaired through fault of creditor
performed completely at one time (Art 1225) ■ Only possible if check is issued by a third person
7. When there is abuse of right or if good faith requires acceptance ● Exception: Where parties agree beforehand on payment by means of bills of
8. In compensation, when a balance is left (Art 1290) exchange
9. If the work is to be delivered partially, the price for each part having been fixed,
price also payable partially (Art 1720) APPLICABILITY OF IMPAIRMENT CLAUSE OF ARTICLE 1249
10. Several guarantors who demand division (Art 2065) ● Applicable not only to those instruments executed by third persons, which debtor
11. Impossibility or extreme difficulty of single performance delivers to creditor, but also to a note executed by debtor himself and delivered
to creditor
● However, the clause relative to impairment of negotiable character of commercial
ARTICLE 1249 paper by fault of creditor is only for instruments executed by third persons
● Acceptance of a check implies an undertaking of due diligence on the part of the
The payment of debts in money shall be made in the currency stipulated, and if it is not payee in presenting it for payment
possible to deliver such currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other ARTICLE 1250
mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired. In case an extraordinary inflation or deflation of the currency stipulated should
In the meantime, the action derived from the original obligation shall be held in the supervene, the value of the currency at the time of the establishment of the obligation
abeyance. (1170) shall be the basis of payment, unless there is an agreement to the contrary. (n)
PAYMENT OF DEBTS IN MONEY PAYABLE IN PHILIPPINE CURRENCY INFLATION → Sharp sudden increase of money or credit or both without corresponding
● Par 1 not applicable where contract is to pay in PH currency increase in business transactions; Causes drop in value of money and higher price levels
CURRENCY STIPULATED – Refers to money different from that which is the legal tender DEFLATION → Reduction in the volume and circulation of available money or credit,
or legally current in the Philippines resulting in a decline of the general price level
RA 8183 – Repealed RA No. 529 (June 11, 1996); There is no longer any legal impediment REQUISITES FOR APPLICATION OF ART 1250
to having obligations or transactions paid in a foreign currency as long as parties agree to 1. There is an official declaration of extraordinary inflation or deflation from Bangko
such. Sentral ng Pilipinas
2. Obligation is contractual in nature
LEGAL TENDER (Black’s Law Dictionary) → Currency which a debtor can legally compel 3. Parties expressly agreed to consider the effects of the extraordinary inflation or
a creditor to accept in payment of a debt in money when tendered by the debtor in the right deflation
amount
WHEN THERE IS NEED FOR STIPULATION TO CONSIDER SUCH EFFECTS 2. If no place is expressly designated
● When a contractual obligation is involved – Parties must agree to recognize the a. Art 1251 Par 2 – There being no express stipulation and if the
effects of extraordinary inflation or deflation undertaking is to deliver a determinate thing the payment shall be made
● When no contractual obligation is involved – This article does not apply. wherever the thing might be at the moment the obligation was
○ Example: Cases of eminent domain constituted.
b. Art 1251 Par 3 – In any other case (not to deliver a determinate thing),
BASIS OF PAYMENT IN CASE OF EXTRAORDINARY INFLATION OR DEFLATION the place of payment shall be at the domicile of the debtor.
● Purchasing value of the currency at the time of the establishment of the obligation c. Art 1251 Par 4 – If the debtor changes his domicile in bad faith, or after
● SUbject to agreement of parties to contrary he has incurred in delay, the additional expenses shall be borne by him.
● Burden of proof is upon party who alleges it (Absent such circumstances, it will be borne by the creditor)
WHEN INFLATION OR DEFLATION EXTRAORDINARY ● Order as above enumerated is successive and exclusive
● Never assumed; Must lay down factual basis
● Meaning is not specifically defined in this Code VENUE – Place where a court suit or action must be filed or instituted
● Where there is an unimaginable increase or decrease in the purchasing power of
the Philippiine currency, or fluctuation in the value of pesos which could not have DOMICILE → Place of a person’s habitual residence; Requires bodily presence as an
been reasonably foreseen or was manifestly beyond the contemplation of the inhabitant and intention to make it one’’s domicile
parties at the time of the establishment of the obligation
RESIDENCE → Only an element of domicile; Simply requires bodily presence as an
RATIONALE OF PROVISION – Abate uncertainty and confusion concerning contracts and inhabitant
payments made during World War II and to help provide just solution to future cases
● Domicile and residence when used in statutes fixing venues are synonymous and
convey the same meaning as the term “inhabitant”
Devaluation Depreciation
Involves an official reduction in the value Downward change in the value of one Subsection One – Application of Payments
of one currency from an officially fixed currency in terms of the currencies of
level imposed by monetary authorities other nations which occurs as a result of
market forces in the foreign exchange
market
1252 Application of Payments
● PH uses floating foreign exchange rate system so any lowering of the value of
1253 Interest Earned Paid Ahead Of Principal
peso as a result is a depreciation
● If devaluation is used in the sense of decrease in the value of currency by the
contracting parties, it may be held synonymous with depreciation. 1254 Application Where Preceding Rules Cannot Be Applied Or Inferred
Balane Civil Notes Flow: 1252 → 1253 → 1254

ARTICLE 1251
Payment shall be made in the place designated in the obligation. There being no express
stipulation and if the undertaking is to deliver a determinate thing, the payment shall be
made wherever the thing might be at the moment the obligation was constituted. In any
other case the place of payment shall be the domicile of the debtor. If the debtor changes
his domicile in bad faith or after he has incurred in delay, the additional expenses shall
be borne by him. These provisions are without prejudice to venue under the Rules of
Court. (1171a)
PLACE WHERE OBLIGATION SHALL BE PAID

1. In the designated place in the obligation (Art 1251, Par 1)
● Shall be applied indiscriminately, even if the amount paid or remitted

ARTICLE 1252 exactly corresponds to the amount of one of the debts
● Statutory exception to the requirements integrity and indivisibility of
He who has various debts of the same kind in favor of one and the same creditor, may payment
declare at the time of making the payment, to which of them the same must be applied. 7. If neither party has exercised its option and there is disagreement as to debts to
Unless the parties so stipulate, or when the application of payment is made by the party which payment must be applied, the court will apply the payment according to the
for whose benefit the term has been constituted, application shall not be made as to justice and equity of the case, taking into consideration all its circumstances.
debts which are not yet due.
APPLICABLE TO – Person owing several debts of the same kind to a single creditor
If the debtor accepts from the creditor a receipt in which an application of the payment ● Not applicable to a person whose obligation as a mere surety is both contingent
is made, the former cannot complain of the same, unless there is a cause for invalidating and singular
the contract. (1172a) ● Can be for non-monetary obligations, provided that they are of the same nature
● Will come into play when the debtor remits to the creditor an amount that is less
APPLICATION OF PAYMENTS → Designation of the debt to which should be applied the than the total of all the obligations
payment made by a debtor who has various debts of the same kind in favor of one and the
same creditor LIMITATIONS ON DEBTOR’S RIGHT TO MAKE APPLICATION
1. He cannot apply the payment to the principal if there is an outstanding interest
REQUISITES 2. He cannot apply the amount in such a way that the requisite of integrity or
1. There must be one debtor and one creditor indivisibility will be violated
2. There must be two or more debts
3. The debts must be of the same kind SECOND PARAGRAPH – Constitutes debtor’s assent
4. The debts to which payment made by the debtor has been applied must be due ● Balane – Should be “Unless there is a cause for invalidating the debtor’s assent”
5. The payment made must not be sufficient to cover all the debts
ARTICLE 1253
APPLICATION AS TO DEBTS NOT YET DUE – Cannot be made UNLESS
1. There is a stipulation that debtor may so apply; or If the debt produces interest, payment of the principal shall not be deemed to have been
2. Made by the party for whose benefit the term has been constituted made until the interests have been covered. (1173)
RULES ON APPLICATION OF PAYMENTS
1. Primary Rule – Agreement between the parties INTEREST EARNED PAID AHEAD OF PRINCIPAL
2. Secondary Rule – The debtor has the first choice. ● This is a mandatory rule. Debtor cannot choose to credit his payment to the
● Must indicate which particular debt is being paid at the time of making principal before the interest is paid.
payment and not afterwards ● Creditor can refuse the application of debtor when it is made contrary to the
● Application of payment made by the debtor without objection from the provisions of Article 1253.
creditor is binding upon the latter ● The rule is subject to any agreement between the parties, or to waiver by the
3. The right to make the application once exercised is irrevocable unless the creditor creditor. In this sense, Art 1253 is merely directory.
consents to the change. ○ It is the duty of the creditor to inform the debtor of the amount of interest
4. Tertiary Rule – Debtor’s right to apply payment is not mandatory but merely that falls due and that he is applying the installment payments to cover
directory said interest.
● If the debtor does not apply payment, the creditor has the subsidiary right ○ Creditor who accepts payment from a surety of the amount of a bond
to make the designation by specifying in the receipt which debt is being does not thereby waive his right to recover from the debtor the interest
paid. due on said amount.
● “If the debtor accepts” – Debtor has liberty to reject
● Acceptance of the receipt is a contract in itself independent of the
principal obligation
5. Quaternary Rule – If the creditor has also not made the application, or if the
application is not valid, the debt which is most onerous to the debtor among those
due shall be deemed to have been satisfied.
6. Quinary Rule – If the debts are of the same nature and burden, the payment shall
be applied to all of them proportionately.
When the payment cannot be applied in accordance with the preceding rules, or if The debtor may cede or assign his property to his creditors in payment of his debts. This
application can not be inferred from other circumstances, the debt which is most onerous cession, unless there is stipulation to the contrary, shall only release the debtor from
to the debtor, among those due, shall be deemed to have been satisfied. responsibility for the net proceeds of the thing assigned. The agreements which, on the
effect of the cession, are made between the debtor and his creditors shall be governed
If the debts due are of the same nature and burden, the payment shall be applied to all by special laws. (1175a)
of them proportionately. (1174a)
PAYMENT BY CESSION → Another special form of payment; Assignment or
APPLICATION WHERE PRECEDING RULES CANNOT BE APPLIED OR INFERRED abandonment of all the properties of the debtor for the benefit of his creditors in order that
● If the creditor has also not made the application, or if the application is not valid the latter may sell the same and apply the proceeds thereof to the satisfaction of their
→ The debt which is most onerous to the debtor among those due shall be credits
deemed to have been satisfied.
● If the debts are of the same nature and burden → The payment shall be applied REQUISITES
to all of them proportionately. 1. There must be two or more creditors
2. The debtor must be (partially) insolvent
WHEN A DEBT IS MORE ONEROUS THAN ANOTHER – No fixed rule; Case-to-case 3. The assignment must involve all the properties of the debtor
basis; Question of relative appreciation 4. The cession must be accepted by the creditors
However, the Court has given some rules which can be used as a guide: ● Does not require plurality of debts
1. An interest-bearing debt is more onerous than a non-interest bearing debt.
2. A debt as a sole debtor is more onerous than as a solidary debtor. REQUIREMENT OF CONSENT – Consent of both parties is essential; Creditors may
3. A debt where the debtor is bound as principal debtor is more onerous than one in refuse this mode of payment
which he is subsidiarily bound.
4. All things being equal, older debts are more onerous. EFFECT OF PAYMENT BY CESSION
5. Debts secured by a mortgage or by pledge are more onerous than unsecured ● Assignment does not make the creditors the owners of the property of the debtor
debts. ○ Creditors only acquire the right to sell; SOme form of agency
6. Of two interest-bearing debts, the one with a higher rate is more onerous. ● Debtor is released from his obligation only up to the net proceeds of the sale of
7. An obligation with a penalty clause is more burdensome than one without. the property assigned
8. Unpaid rentals due from the purchaser of property occupied by him are more ○ Liable if there is a balance
onerous than the balance of the price of the property. ○ Net proceeds of the sale shall be applied in accordance with the
9. A liquidated debt is more onerous than an unliquidated one. agreement of the parties
■ If none, rules on preference of credits will apply.
● EXCEPTION: When parties stipulate to the contrary
Subsection Two – Payment by Cession
REFERS TO → Contractual assignment, which requires the consent of all the creditors;
OUTLINE OF PROVISIONS Merely involves a change of the object of the obligation
1255 Payment by Cession Dation in Payment (Art 1245) Payment by Cession (Art 1255)
Usually only one creditor Several creditors

Balane Civil Notes Flow: 1255
Does not presuppose the insolvency of Debtor is insolvent at the time of the
the debtor or a situation of financial assignment
difficulties
Does not involve all property of the debtor Extends to all the property of the debtor
subject to execution
Creditor becomes the owner of the thing Creditors only acquire the right to sell the ARTICLE 1256
given by the debtor thing and apply the proceeds to their
credit pro rata If the creditor to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation of the thing
Really an act of novation Not an act of novation or sum due. Consignation alone shall produce the same effect in the following cases:
1. When the creditor is absent or unknown, or does not appear at the place of
Substitute forms of payment or performance payment;
2. When he is incapacitated to receive the payment at the time it is due;
3. When, without just cause, he refuses to give a receipt;
Governed by the law on sales 4. When two or more persons claim the same right to collect;
5. When the title of the obligation has been lost. (1176a)
VARIETIES OF PAYMENT BY CESSION TENDER OF PAYMENT AND CONSIGNATION

● Contemplated in this article is the contractual kind ● Tender of Payment → Act, on the part of the debtor of offering to the creditor the
● If done through a judicial proceeding, it will be governed by the Insolvency Law thing or amount due
○ Act preparatory to the consignation, which is the principal, and from
PROPERTY CEDED IS LAND OR AN INTEREST THEREIN – When a sale of a piece of which are derived the immediate consequences which the debtor
land or any interest therein is through an agent, the authority of the latter shall be in writing; desires or seeks to obtain
otherwise, the sale shall be void (Art 1874, NCC) ● Consignation → Act of depositing the thing or amount due with the proper court
or judicial authorities when the creditor does not desire, or refuses to accept
payment, or cannot receive it, after complying with the formalities required by law
Subsection Three – Tender of Payment and Consignation ○ Necessarily judicial
○ Generally requires a prior tender of payment, which is necessarily
extrajudicial
CONSIGNATION
1256 Tender of Payment and Consignation ● Premised on mora accipiendi (delay by creditor)
○ Actual – culpable kind, when creditor refuses without justification to
1257 Prior Notice accept payment; Requires previous tender of payment
○ Constructive – Does not import culpability but impossibility or
impracticability of direct payment (5 enumerated cases); Does not
1258 Proper Judicial Authority
require prior tender of payment
● Nature – Facultative remedy which the debtor may or may not avail of
1259 Expenses of Consignation
○ If made by the debtor, creditor merely accepts if he wishes; or the court
declares that it has been properly made → Extinguishes the obligation
1260 Withdrawal by Debtor ○ Law allows debtor to make a withdrawal of the thing or the sum
deposited before creditor accepts or court cancels the obligation
1261 Effect of Withdrawal with Creditor’s Authority ○ If debtor has right to withdraw, he also has the right to refuse to make
the deposit in the first place.
Balane Civil Notes Flow: 1256 1257 1258 1259 1260 1261 ○ If debtor refuses, creditor’s remedy is through the proper coercive
processes provided by law such as attachment, judgment and execution.
● Purpose is to avoid the performance of an obligation more onerous to the debtor
by reason of causes not imputable to him
○ For failure to consign the thing, the debtor may become liable for
damages and/or interest but such failure does not amount to breach of
contract when by the fact of tendering payment, he was willing and able
to comply with the obligation.
REQUISITES OF A VALID CONSIGNATION REQUISITES OF VALID TENDER OF PAYMENT – There must be fusion of intent, ability
1. The existence of a valid debt which is due (Art 1256, Par 1) and capability to make good such offer, which must be absolute and must cover the amount
2. Valid prior tender of payment by the debtor and refusal without justification by the due.
creditor to accept it (Art 1256, Par 1) 1. Tender of payment must comply with the rules of payment.
3. Previous notice of the consignation to persons interested in the fulfillment of the ● Legal tender
obligation (Art 1257, Par 1) ● Made in good faith
4. Consignation of the thing or sum due with the proper court (Art 1258, Par 1) ● Tender exempts debtor from liability for interest, even if not completed
● Constitutive act of consignation by consignation
5. Subsequent notice of consignation made to the interested parties (Art 1258, Par 2. It must be unconditional and for the whole amount.
2) ● Cannot be presumed by a mere inference from surrounding
circumstances
● Absence of any of the requisites renders it ineffective. Compliance is mandatory ● Tender of payment of only a portion of an obligation and remains unpaid
● Law makes no distinction between real and personal property. upon default of an installment may be validly refused by the creditor.
3. It must be actually made.
NECESSITY OF MAKING TENDER OF PAYMENT AND CONSIGNATION ● Manifestation of a desire or intention to pay is not enough.
● Both tender of payment and consignation must be validly done in order to effect ● A proof that an act could have been done is no proof it was actually done.
the extinguishing of the obligation.
● Substantial compliance is not enough since law uses “shall” and “must”, meaning PROOF OF TENDER OF PAYMENT
it is imperative that all the essential elements are complied with. ● Tender must be proved by debtor in the proper case since it must precede
● Consignation and tender of payment must not be encumbered by conditions if consignation.
they are to produce the intended result of fulfilling the obligation.
● Deposit of the redemption money with the sheriff is sufficient to effect payment of
the redemption price; when tender has been refused, it is not necessary that such ARTICLE 1257
tender be followed by consignation.
○ Mere tender of payment is not in itself a payment that relieves the vendor In order that the consignation of the thing due may release the obligor, it must first be
or mortgagor from his liability to pay the redemption price. announced to the persons interested in the fulfillment of the obligation. The consignation
● Art 1256 authorizes consignation alone in certain circumstances. shall be ineffectual if it is not made strictly in consonance with the provisions which
regulate payment. (1177)
● When tender is not required, only prior notice to interested persons of the
consignation needs to be proven. PRIOR NOTICE TO INTERESTED PERSONS REQUIRED
WHEN TENDER OF PAYMENT NOT REQUIRED ● Absence of this act shall render consignation as void.
1. When the creditor is absent or unknown, or does not appear at the place of ● Purpose is to give the creditor a chance to reflect on his previous refusal to accept
payment; payment considering that the expenses of consignation shall be charged against
● There is no one to whom tender can be made him and that in case the thing is lost, he shall bear the risk. (Art 1258 and 1262)
2. When he is incapacitated to receive the payment at the time it is due; ● This should not be a mere warning.
● Juridically ineffective; exercise in futility, since creditor is incompetent ● Should fix the date and hour of the consignation and the name of the court where
3. When, without just cause, he refuses to give a receipt; the same would be made
● Illusory, not a true exception ● Tender of payment and notice of consignation may be done in the same act.
● Illustration of the general rule
4. When two or more persons claim the same right to collect; CONSIGNATION MUST COMPLY WITH PROVISIONS ON PAYMENT
● Produce a reasonable doubt or uncertainty in the mind of the debtor, ● Must be made in legal tender
tender of payment becomes risky ● There must be unmistakable evidence on record that the prerequisites of a valid
● Remedy is to proceed to consignation and ask the various claimants to consignation are present, especially the conformity of the proffered payment to
interplead among themselves the terms of the obligation which is to be paid.
5. When the title of the obligation has been lost
● Risk the possibility of double payment on the part of the debtor TENDER OF PAYMENT OF JUDGMENT
● Tender of payment of the amount due on a judgment into court is NOT the same
as tender of payment of a contractual debt and consignation of the money due
from a debtor to a creditor.
● Articles 1256 and 1257 do not apply.
● In case of refusal of such tender, the court may direct the money to paid into court, ○ Lessee with option to buy who desires to exercise the right of optio as
and after this payment is done, order satisfaction of the judgment to be entered. he has no obligation to pay the price until the execution of the deed of
sale in his favor
WHO ARE INTERESTED PARTIES ● Formal offer to redeem by a co-owner or adjoining owner accompanied by a bona
● Creditor himself fide tender of payment within the redemption period is sufficient to preserve the
● Guarantors right of redemption.
● Suerties ○ BUT: Where the effect of a judgement allows the vendor a retro to
● Co-debtors repurchase the property within a certain period, it is to definitely settle by
● Co-creditors judicial declaration the respective rights of the parties and fix relations.
● Creditors of the creditor Here, the vendor must consign the full amount of the repurchase price,
● All persons whose interest may be affected by the payment by the debtor to the if the vendee refuses to allow redemption.
creditor
PROPERTY DEPOSITED WITH COURT IS EXEMPT FROM ATTACHMENT
● Money deposited with a clerk of court is exempt from attachment and not subject
ARTICLE 1258 to execution
● In custodia legis and cannot be withdrawn without an express order of the court
Consignation shall be made by depositing the things due at the disposal of judicial ● If no subsequent notice of consignation, it is immaterial. However, debtor is still
authority, before whom the tender of payment shall be proved, in a proper case, and the liable for the obligation.
announcement of the consignation in other cases. The consignation having been made,
the interested parties shall also be notified thereof. (1178)
ARTICLE 1259
PROPER JUDICIAL AUTHORITY The expenses of consignation, when properly made, shall be charged against the
● Must deposit with the proper judicial authority creditor. (1179)
● Cannot be made elsewhere unless otherwise prescribed by special law (e.g., P.D.
No. 25 re: rentals)
● A written tender of payment alone, without consignation in court of the sum due, CREDITOR IS LIABLE FOR EXPENSES OF CONSIGNATION
does not suspend the accruing of regular or monetary interest. ● The consignation was made necessary because of the fault or unjust refusal of
● Where an obligar fails to make a consignation after a valid tender of payment, the the creditor to accept payment.
court may allow him time to pay the obligation without rescinding the contract. ● Creditor may also be held liable for damages
● If the judgment of CA is remanded to lower court, the CA is no longer the property ● Applicable for actual and constructive mora accipiendi
entity to make consignation to. ● EXCEPTION: If consignation is not properly made, charges are to the debtor.
● The consignation has a retroactive effect. The payment is deemed to have been
made at the time of the deposit of the thing in court or when it was placed at the WHEN CONSIGNATION DEEMED PROPERLY MADE
disposal of the judicial authority. In any of the following circumstances:
● Rules on consignation also apply to immovable property. 1. When the creditor accepts the thing or sum deposited, without objection, as
payment to the obligation
SUBSEQUENT NOTICE/SECOND NOTICE 2. When the creditor questions the validity of the consignation, and the court, after
● This may be fulfilled by the service of summons upon the defendants together hearing, declares that it has been properly made
with a copy of the complaint. 3. When the creditor neither accepts nor questions the validity of the consignation,
● Purpose of the second notice is to enable the creditor to withdraw the thing or and the court after hearing, orders the cancellation of the obligation
sum deposited or take possession in case he accepts the consignation.
The creditor may accept the consignation with reservation or qualification; therefore, he is
CONSIGNATION APPLICABLE ONLY TO PAYMENT OF DEBT not barred from raising such against the debtor.
● Judicial consignation is an incident to an action to compel acceptance by the
creditor of payment of a debt. It is not applicable when there is no obligation to
pay.
● Not necessary in case where a privilege or rights exists; In such cases, tender of
payment would be sufficient to preserve the right or privilege.
○ Mortgage-debtor who desires to redeem the mortgaged property
○ Co-heir or co-owner or a vendor a retro who wants to repurchase the
property sold
Once the consignation has been duly made, the debtor may ask the judge to order the If, the consignation having been made, the creditor should authorize the debtor to
cancellation of the obligation. Before the creditor has accepted the consignation, or withdraw the same, he shall lose every preference which he may have over the thing.
before a judicial declaration that the consignation has been properly made, the debtor The co-debtors, guarantors and sureties shall be released. (1181a)
may withdraw the thing or the sum deposited, allowing the obligation to remain in force.
(1180)
WITHDRAWAL WITH AUTHORITY OF CREDITOR – Consignation is for the benefit of
creditor so he may authorize the debtor to withdraw the deposit after he has accepted the
CONSUMMATION OF CONSIGNATION – Terminates upon acceptance by the creditor or same or after the court has issued an order cancelling the obligation
a judicial declaration of the consignation
EFFECT OF WITHDRAWAL MUTUALLY AGREED UPON
EFFECTS OF CONSIGNATION 1. Principal obligation is revived
1. The obligation is extinguished and the debtor is released 2. Accessory obligations, such as mortgage and guaranty, are not revived.
2. Accessory obligations, such as mortgage, pledge, guaranty, etc are likewise 3. Creditor loses any preference over the thing, such as preference over subsequent
extinguished mortgages and other security transactions
3. If no prior tender of payment was required, interest ceases to run. 4. Should the debt be passively solidary, (i.e., there are several co-debtors), the
● If prior tender was required and had been made, interest would have bond of solidarity that was dissolved by the perfected consignation is not revived.
ceased running when the tender was made. The co-debtors, however, of the party who was allowed to withdraw the thing
4. Risk of loss transfers to the creditor (Art 1165, Par 3) consigned can be required by the creditor to pay their individual shares, unless,
5. Creditor is entitled to any appreciation or bears any depreciation subsequently in the meantime, they have already paid their share to the debtor who withdraws
occurring the thing consigned.
WITHDRAWAL BY DEBTOR OF THING OR SUM DEPOSITED

● Withdrawal is a matter of right, as long as it is done: Section Two – Loss of the Thing Due
○ Before the creditor has accepted the consignation, or
○ Before a judicial declaration that the consignation has been properly OUTLINE OF PROVISIONS
made
● Expenses by collateral parties (like guarantors and mortgagors, cannot legally
prevent the debtor from exercising this right. Any expenses incurred by these 1262 Loss of Thing Due or Impossibility of Performance for Obligation to
collateral parties as a result of their participation in the proceedings will have to Deliver Specific Thing
be reimbursed by the debtor.
● In such cases, obligation shall continue to remain in force. All expenses are paid 1263 Loss of Thing Due or Impossibility of Performance for Obligation to
by the debtor. Deliver Generic Thing
● If the withdrawal is with consent of the creditor, Art 1261 applies.
● The depositor cannot recover the thing or sum without an express order of 1264 Partial Loss
restitution.
○ A formal complaint must be commenced with the proper court to provide 1265 Presumption of Debtor’s Fault/Negligence
the venue for the determination.
1266 Legal or Physical Impossibility
RISK OF LOSS OF THING OR SUM CONSIGNED
● For account of creditor – When there is valid consignation and without the fault of 1267 Doctrine of Unforeseen Events
the debtor, loss occurs before the acceptance of consignation by the creditor or
court’s approval 1268 Debtor’s Liability for Fortuitous Event
● For account of debtor – Risk of loss before acceptance by the creditor or approval
by the court is mutual if it be determined that there was no valid consignation 1269 Right of Subrogation to Creditor
Balane Civil Notes Flow: 1262 1263 1264 1265 1266 1266 1267 1268
1269
ARTICLE 1262 GENERAL RULE: No extinguishment by loss of obligation

• Genus numguam perit – Genus never perishes
An obligation which consists in the delivery of a determinate thing shall be
extinguished if it should be lost or destroyed without the fault of the debtor, and EXCEPTION: If entire genus perishes either through supervening physical impossibility or
before he has incurred in delay. legal impossibility
• Example: Government makes pinball machines illegal
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of
the thing does not extinguish the obligation, and he shall be responsible for LIMITED GENERIC OBLIGATION – If the prestation is to deliver a thing from among a
damages. The same rule applies when the nature of the obligation requires the specified mass or group; Governed by Art 1262
assumption of risk. (1182a)
ARTICLE 1264
WHEN IS A THING LOST – A thing is lost when it perishes, or goes out of commerce, or
disappears in such a way that its existence is unknown or it cannot be recovered. The courts shall determine whether, under the circumstances, the partial loss of the
object of the obligation is so important as to extinguish the obligation. (n)
LOSS OF THING DUE OR IMPOSSIBILITY OF PERFORMANCE
• In obligations to give, the term used is loss.
• In obligations to do, the proper term is impossibility of performance. PARTIAL LOSS
• Need to determine whether the extent or degree of the loss completely nullifies
IN RELATION TO FORTUITOUS EVENT (Art 1174) – This article applies to cases of loss any possible benefit that the creditor may derive from the performance or whether
without the fault of the debtor aka a fortuitous event. some applicable benefit is still possible.
• EXCEPTIONS: Provision of law, stipulation of the parties, nature of the obligation • Court will determine the extent of what debtor will be required to perform, if any.
KIND OF LOSS/IMPOSSIBILITY
• Art 1262 refers to Supervening Loss That which occurs AFTER the obligation ARTICLE 1265
is created and BEFORE the debtor incurs in delay
• Original/Prevenient or Antecedent Loss Where prestation involves the delivery Whenever the thing is lost in the possession of the debtor, it shall be presumed that
of a thing or the performance of a service which is non-existent or impossible ab the loss was due to his fault, unless there is proof to the contrary, and without
origine; No obligation to extinguish prejudice to the provisions of article 1165. This presumption does not apply in case of
earthquake, flood, storm, or other natural calamity. (1183a)
EFFECT OF LOSS/IMPOSSIBILITY OF ONE OF THE PRESTATIONS IN A
RECIPROCAL OBLIGATION – The debtor whose prestation has been lost is absolved DISPUTABLE PRESUMPTION OF DEBTOR’S FAULT/NEGLIGENCE – Arises if the
from the duty to perform. But is the other party also excused? thing to be delivered is lost while in his possession
• VIEW 1 (German; Tolentino) – The other party is also absolved because the effect • Consistent with duty to take care of the thing with due diligence
of the loss is to extinguish the entire juridical relation. • Fortuitous event must be proven by the debtor
o Cites Art 22 of Civil Code
• VIEW 2 (Roman; JBL Reyes) – Other party remains bound to perform his own IN RELATION TO ART 1165 – Debtor is still liable, even when there is a fortuitous event,
prestation. if he has previously already incurred in delay or has promised the same thing to 2 or more
o Cites Art 1269 of Civil Code persons
APPLICABLE TO – Applies only to obligations to deliver a specific thing LOSS ON THE OCCASION OF NATURAL CALAMITIES
• If loss occurs in conditional obligations to give, the governing provision is Art 1189. • Last sentence creates a rebuttable presumption of no fault in a fortuitous event
• In case of natural calamity, lack of fault on the part of the debtor is more likely
ARTICLE 1263 making it unjust to presume negligence
In an obligation to deliver a generic thing, the loss or destruction of anything of the

same kind does not extinguish the obligation. (n)
APPLICABLE TO – Applies only to obligations to deliver a generic thing

The debtor in obligations to do shall also be released when the prestation becomes When the debt of a thing certain and determinate proceeds from a criminal offense, the
legally or physically impossible without the fault of the obligor. (1184a) debtor shall not be exempted from the payment of its price, whatever may be the
cause for the loss, unless the thing having been offered by him to the person who
should receive it, the latter refused without justification to accept it. (1185)
APPLICABLE TO – Obligations to do
DEBTOR’S LIABILITY FOR FORTUITOUS EVENT – If the obligation to give a

ARTICLE 1267 determinate thing arises from a criminal offense, the person obliged becomes the insurer
of the thing, making him liable even in cases of fortuitous events.
When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in EXCEPTION – When the creditor unjustifiably refuses tender of the thing
part. (n) • If there is a supervening negligence or fault on the part of the debtor, he is liable
for damages or loss.
DOCTRINE OF UNFORSEEN EVENTS (Rebus Sic Stantibus) DEBTOR’S OPTIONS IN CASE OF CREDITOR’S UNJUSTIFIED REFUSAL TO
• Also known as frustration of the enterprise, or frustration of the commercial object ACCEPT
1. To consign the thing and release himself from liability
BASIS OF REBUS SIC STANTIBUS – Contracts which involve successive performances 2. To retain the thing in his possession and take care of it with the diligence of a
or for performances over a long period of time are to be understood in the context of good father of a family
conditions prevailing at the time they were entered into (From Bartolus and his pupils)
• Meant to be a qualification to pacta sunt servanda In either case, he ceases to be liable for fortuitous event.
SCOPE OF OPERATION – Applies where the performance of the prestation, though not ARTICLE 1269
impossible, has become so manifestly and extremely difficult as to be beyond the
contemplation of both parties The obligation having been extinguished by the loss of the thing, the creditor shall
• Not enough that the service is manifestly beyond the contemplation of the parties have all the rights of action which the debtor may have against third persons by reason
but it must be extremely difficult of the loss. (1186)
• If conditions radically and unforeseeably change in the future, the contract loses
its basis due to a reason akin to failure of cause
OPERATION OF ARTICLE – Grants the right of subrogation to the creditor who can
REQUISITES exercise the right of the debtor to demand indemnity from any third persons who may, by
1. The event or change in circumstances could not have been foreseen at the time fault of negligence, be responsible for the loss of the thing to be delivered.
of the execution of the contract • Usually applied to insurance cases
2. It makes the performance of the contract extremely difficult but not impossible • Reinforces view that in reciprocal obligations, the loss does not excuse other party
3. The event must not be due to the act of any of the parties from performance
4. The contract is for a future prestation (i.e., successive performances or for a long
period)
Section Three – Condonation or Remission of Debt
JURISPRUDENCE DOCTRINES
• Occeña v Jabson – Courts only have the power of relief but not revision. OUTLINE OF PROVISIONS
• Naga v CA – Operation of the article is not restricted to obligations to do because
the term “service” takes on the wider meaning of “performance of the obligation”.
Neither is the article confined to contracts for future service. 1270 Condonation or Remission
1271 Presumptions when debt is evidenced by private document
1272
1273 Accessory follows principal ARTICLE 1271
1274 Presumption of remission of pledge The delivery of a private document evidencing a credit, made voluntarily by the
creditor to the debtor, implies the renunciation of the action which the former had
against the latter.
Balane Civil Notes Flow: 1270 1271 1272 1273 1274
If in order to nullify this waiver it should be claimed to be inofficious, the debtor
ARTICLE 1270 and his heirs may uphold it by proving that the delivery of the document was
made in virtue of payment of the debt. (1188)
Condonation or remission is essentially gratuitous, and requires the acceptance
by the obligor. It may be made expressly or impliedly.
PRESUMPTION – In cases where the debt is evidenced by a private document, the
One and the other kind shall be subject to the rules which govern inofficious donations. voluntary delivery of such document by the creditor to the debtor raises the rebuttable
Express condonation shall, furthermore, comply with the forms of donation. (1187) presumption that the creditor has remitted the debt.
RATIONALE – By surrendering the only evidence of debtor’s indebtedness, the creditor

CONDONATION OR REMISSION An act of liberality by virtue of which, without deprives himself of proof to his claim.
receiving any onerous consideration or equivalent, the creditor renounces the enforcement
of the obligation, thus extinguishing it in its entirety or in the part or aspect of the same to JURISPRUDENCE DOCTRINES
which the condonation refers • Go Tong v BPI Family – Possession by the creditor of the instrument of
indebtedness raises the opposite presumption of non-payment
NATURE – Gratuitous; Law treats it as a donation and subjects it to the rules of donations o Inapplicable to situation where credit is evinced by a public document
REQUISITES REBUTTAL OF PRESUMPTION – When creditor shows sufficient evidence showing that
1. The debt must be existing, not necessarily due, when the condonation is made the delivery of the private document was made by mistake, or through any involuntary
2. It must be gratuitous means, or made without intent to remit
3. The creditor must have capacity to contract and to dispose of his property. • Debtor allowed to make a counter-rebuttal but Balane believes that this is immoral
4. The debtor must have capacity to accept the condonation. and absurd since it endorses fabrication and falsehood
KINDS OF CONDONATION
• Express – That which is made explicitly and formally; Considered a donation ARTICLE 1272
• Implied – That which is made by inference or tacitly through the conduct of the
parties; Tantamount to a waiver Whenever the private document in which the debt appears is found in the possession
of the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the
GOVERNED BY RULES ON DONATIONS – Arts 725 to 773 contrary is proved. (1189)
• Express condonation shall comply with the forms of donation.
• Art 748 – Donation and acceptance of a movable, the value of which exceeds Php PRESUMPTION – In cases where the debt is evidenced by a private document, the
5,000, must be made in writing creditor voluntarily delivered the document to the debtor.
• Art 749 – Donation of immovables must be made in a public document • This has the effect of producing the presumption in Art 1271 – the voluntary
delivery was made with intent to remit.
CONDONATION VIS-À-VIS WAIVER
• Balane believes that the creditor’s desistance from taking action to enforce his PRESUMPTION OF REMISSION IN JOINT AND IN SOLIDARY OBLIGATIONS
claim will constitute waiver. His inaction, if sufficiently extended, will cause • Joint Obligations
prescription to run its full course and extinguish the obligation. o Joint active (several creditors) – Only the share of the delivering creditor
is remitted
o Joint passive (several debtors) – Only the share of the debtor in
possession of the document is remitted
• Solidary Obligations – Covers the entire amount
EXTINCTIVE EFFECT OF CONFUSION – Creditor becomes his own debtor, or the debtor
ARTICLE 1273 becomes his own creditor; Renders impossible the exercise of rights flowing away from the
obligation
The renunciation of the principal debt shall extinguish the accessory obligations;
but the waiver of the latter shall leave the former in force. (1190) REQUISITES OF CONFUSION
1. It must take place between the creditor and the principal debtor
2. The very same obligation must be involved
• Accessory obligations cannot exist with the principal obligation, but the principal
can subsist without the accessory. USUAL CAUSES OF CONFUSION – Succession (compulsory, testate, intestate),
Donation, Negotiation of a negotiable instrument
ARTICLE 1274
ARTICLE 1276
It is presumed that the accessory obligation of pledge has been remitted when the
thing pledged, after its delivery to the creditor, is found in the possession of the debtor, Merger which takes place in the person of the principal debtor or creditor benefits the
or of a third person who owns the thing. (1191a) guarantors. Confusion which takes place in the person of any of the latter does not
extinguish the obligation. (1193)
RATIONALE – Necessary consequence of the possessory nature of the contract of pledge
WHEN DOES CONFUSION TAKE PLACE – If it occurs in the person of the creditor or
NATURE OF PRESUMPTION OF REMISSION OF PLEDGGE – Rebuttable; There may principal debtor
be instances when the possession by the pledger or the owner of the thing pledged • No confusion if person who acquires credit is not the principal debtor aka a
subsequent to the constitution of the pledge may have come about by mistake, fraud, or subsidiary debtor
duress
ARTICLE 1277
Section Four – Confusion or Merger of Rights
Confusion does not extinguish a joint obligation except as regards the share
OUTLINE OF PROVISIONS corresponding to the creditor or debtor in whom the two characters concur. (1194)
1275 Confusion or Merger of Rights CONFUSION IN JOINT OBLIGATIONS

• The nature of joint obligations shows that there are really as many distinct debts
1276 When does confusion take place as the number of creditors multiplied by the number of debtors
• Confusion will only affect the person in whom the role of a creditor and debtor
1277 Confusion in joint obligations concur
Balane Civil Notes Flow: 1275 1276 1277 Section Five – Compensation
ARTICLE 1275 OUTLINE OF PROVISIONS
The obligation is extinguished from the time the characters of creditor and debtor are
1278 Compensation
merged in the same person. (1192a)
1279 Requisites of Legal Compensation
CONFUSION OR MERGER Meeting in one person of the qualities of creditor and debtor
with respect to the same obligation 1280 Guarantor’s Liability in Compensation
• Illustration: Acquisition by the debtor, through testate or intestate succession, of
a credit which his ascendant had against him 1281 Extent of Compensation
• May overlap with other modes of extinguishment such as remission or payment
1282 Conventional or Contractual Compensation
1283 Judicial Compensation ARTICLE 1279
1284 Rescissible or Voidable Debts In order that compensation may be proper, it is necessary:
1. That each one of the obligors be bound principally, and that he be at the
1285 Assignment of Credit same time a principal creditor of the other;
2. That both debts consist in a sum of money, or if the things due are
1286 Automatic operation of Legal Compensation consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
1287 Facultative compensation
3. That the two debts be due;
4. That they be liquidated and demandable;
1288
5. That over neither of them there be any retention or controversy, commenced
1289 Several Compensable Debts by third persons and communicated in due time to the debtor. (1196)
1290 Manner of Legal Comepensation

REQUISITES OF LEGAL COMPENSATION
• First requisite – Subjective requisite
Balane Civil Notes Flow: 1278 1279 1280 1281 1282 1283 1284 1285 • Next 5 requisites – Objective requisites
1286 1287 1288 1289
REQ 1 – That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other
ARTICLE 1278
• Personal and principal nature of the legal tie that binds the parties
Compensation shall take place when two persons, in their own right, are creditors and • Legal compensation not possible for agents, representatives, guarantors, or
debtors of each other. (1195) sureties
• Attorney’s fees is a proper subject of legal compensation (Gan Tion v CA)
COMPENSATION Mode of extinguishing to the concurrent amount the obligations of
persons who in their own right and as principals are reciprocally debtors and creditors of REQ 2 – That both debts consist in a sum of money, or if the things due are consumable,
each other they be of the same kind, and also of the same quality if the latter has been stated
• Commonly referred to as set-off • Things constituting the debt must be of the same nature and quality
• Most common and frequently-occurring mode of extinguishment • “Consumable” should be “fungible” One which, by intent or agreement is
• Happens in inter-bank transactions capable of replacement or substitution with another thing of the same kind
RATIONALE – Form of mutual payment

REQ 3 – That the two debts be due
• Law provides for this method of “short-hand payment” in order to simplify and
expedite the extinguishment of the obligations • Before the debt falls due, the debtor is not yet under obligation to pay
• Can be called abbreviated payment
REQ 4 – That they be liquidated and demandable
KINDS OF COMPENSATION AS TO CAUSE • Amounts must be fixed and determined
• Legal – That which takes place automatically and by operation of law when all the
• If amount is pending litigation, it cannot be liquidated
requisites of Art 1279 are present
• Conventional or contractual – That which takes place by agreement of the parties
even if not all of the requisites in Art 1279 are present REQ 5 – That over neither of them there be any retention or controversy, commenced by
• Facultative – That which takes place at the option of the party to whom the law third persons and communicated in due time to the debtor
grants the right to invoke it • Example is a garnishment of a debt in favor of a third person
• Judicial – That which is decreed by the court in cases where the defendant sets
up a counterclaim of the same nature and both the plaintiff’s claim and the REQ 6 – That compensation be not prohibited by law
defendant’s counterclaim are granted • Example is tax liability to the government
Notwithstanding the provisions of the preceding article, the guarantor may set up When one or both debts are rescissible or voidable, they may be compensated against
compensation as regards what the creditor may owe the principal debtor. (1197) each other before they are judicially rescinded or avoided. (n)
RATIONALE – Guarantor’s liability is only a subsidiary one. RATIONALE – Rescissible or voidable obligations are effective unless and until rescinded
• Should principal debtor himself have a credit against his creditor and all reqs are or annulled.
present, compensation takes place automatically and both debts are ipso facto
extinguished to the concurrent amount. NATURE OF COMPENSATION – Must be itself rescissible or voidable
Compensation may be total or partial. When the two debts are of the same amount, The debtor who has consented to the assignment of rights made by a creditor in favor
there is a total compensation. (n) of a third person, cannot set up against the assignee the compensation which would
pertain to him against the assignor, unless the assignor was notified by the debtor at
the time he gave his consent, that he reserved his right to the compensation.
EXTENT OF COMPENSATION – Operates only to the concurrent amount of the two
obligations; Can be total or partial If the creditor communicated the cession to him but the debtor did not consent
• In case of partial compensation, the balance remains due and demandable thereto, the latter may set up the compensation of debts previous to the cession, but
• Partial compensation is an exception to integrity of payment not of subsequent ones.
ARTICLE 1282 If the assignment is made without the knowledge of the debtor, he may set up the
compensation of all credits prior to the same and also later ones until he had
The parties may agree upon the compensation of debts which are not yet due. (n) knowledge of the assignment. (1198a)
CONVENTIONAL OR CONTRACTUAL COMPENSATION SITUATION – Creditor in one of the obligations assigns or cedes his credit to a third person
• Legal compensation cannot take place because Req 3 is absent • Can the debtor in the obligation that has been assigned or ceded set up against
• Principle of contractual freedom governs the scope of the agreement subject to the assignee the credit that he holds against the assignor?
Art 1306 restrictions • Presupposes that both debts are already due
• The parties must have contractual capacity as well as capacity to dispose inter
vivos of their property FACTORS – If debtor had (1) knowledge of the assignment/cession and (2) consented to
such/gave reservation
ARTICLE 1283
ARTICLE 1286
If one of the parties to a suit over an obligation has a claim for damages against the
other, the former may set it off by proving his right to said damages and the amount Compensation takes place by operation of law, even though the debts may be payable
thereof. (n) at different places, but there shall be an indemnity for expenses of exchange or
transportation to the place of payment. (1199a)
JUDICIAL COMPENSATION
• Legal compensation cannot take place because Req 4 is absent APPLICABLE TO – Legal compensation under Art 1279
• Presupposes that the other credit is also monetary
COMPENSATION OF DEBTS PAYABLE IN DIFF PLACES
• There shall be a mutual accounting of incurred expenses
• Indemnity for such unless otherwise agreed upon by the parties
Compensation shall not be proper when one of the debts arises from a When all the requisites mentioned in article 1279 are present, compensation takes effect
depositum or from the obligations of a depositary or of a bailee in commodatum. by operation of law, and extinguishes both debts to the concurrent amount, even though
the creditors and debtors are not aware of the compensation. (1202a)
Neither can compensation be set up against a creditor who has a claim for support
due by gratuitous title, without prejudice to the provisions of paragraph 2 of article
301. (1200a) MANNER OF OPERATION – Operates automatically; No act of the parties is required to
make it effective
PAR 1 – LEGAL COMPENSATION NOT POSSIBLE IN DEPOSIT OR COMMODATUM WHEN DIFFERENT KIINDS OF COMPENSATION BECOME EFFECTIVE
• These are fiduciary relationships in which the depositor or the bailor has reposed
• Legal – When all the requisites of Art 1279 are present
trust and confidence in the depositary or bailee respectively
• Conventional – Upon the effectivity of the agreement between the parties
• Prohibition extends to both principal and incidental obligations of the depositary
or bailee • Facultative – Upon receipt by the debtor of the notice of election by the creditor
• Can be facultative compensation when depositor or bailee sets up compensation entitled to claim the compensation
• Judicial – Upon finality of the judgment
PAR 2 – SUPPORT CANNOT BE SUBJECT MATTER OF COMPENSATION
• A claim for support cannot be set off against any claim the person owing it may RENUNCIATION OF COMPENSATION
have against the recipient because it is necessary for life • Can be renounced by the parties
• Law does not distinguish between current support or in arrears • May be express or implied
• Support in arrears may be set up by recipient as a facultative compensation o Art 1285 – When debtor consents without reservation to the assignment
• The excess in amount beyond that required for legal support is subject to legal o Payment by debtor with knowledge of the presence of the requisites for
compensation, but not that required in legal support compensation
ARTICLE 1288
Section Six – Novation
Neither shall there be compensation if one of the debts consists in civil liability arising
from a penal offense. (n) OUTLINE OF PROVISIONS
RATIONALE – Considerations of public policy 1291 Definition of Novation
FACULTATIVE COMPENSATION – When the offended party, at his option, set up 1292 Requisites of Novation
compensation against the guilty party for whatever may be owing to the latter
1293 Substitution
ARTICLE 1289
1294
If a person should have against him several debts which are susceptible of Effect of new debtor’s insolvency or non-fulfillment of obligation
compensation, the rules on the application of payments shall apply to the order of the 1295
compensation. (1201)
IF ONE OF THE DEBTORS HAS SEVERAL COMPENSABLE DEBTS – Apply rules on 1296 Effect of novation on accessory obligations
application of payments
1297 Effect when the new obligation is void or voidable
1298 Effect when the old obligation is void or voidable

KINDS OF NOVATION
1299 Presumption where original obligation is subject to a condition 1. According to origin
a. Legal – That which takes place by operation of law (Arts. 1300, 1302,
1300 Subrogation 1224)
b. Conventional – That which takes place by agreement of the parties (Arts.
1301 Conventional subrogation 1300, 1301)
2. According to how it is constituted
1302 Legal subrogation a. Express – When it is so declared in unequivocal terms (Art. 1292)
b. Implied – When the old and the new obligations are essentially
1303 Effects of subrogation incompatible with each other
3. According to extent or effect
1304 Effect of partial subrogation a. Total or extinctive – When the old obligation is completely extinguished
b. Partial or modificatory – When the old obligation is merely modified, i.e.
the change is merely incidental to the main obligation
Balane Civil Notes Flow: 1291 → 1302 → 1300 → 1301 → 1304 → 1303 → 1293 →
4. According to the subject
1294 → 1295 → 1292 → 1298 → 1299 → 1297 → 1296
a. Real or objective – When the object or principal conditions of the
obligation are changed (Art 1291(1))
ARTICLE 1291 b. Personal or subjective – When there is a change in subject
i. Active – When a third person is subrogated in the rights of the
Obligations may be modified by: creditor (Subrogation)
(1) Changing their object or principal conditions; ii. Passive – When the person of the debtor is substituted
(2) Substituting the person of the debtor; (Substitution)
(3) Subrogating a third person in the rights of the creditor. (1203) c. Mixed – When the object or principal condition of the obligation and the
debtor or the creditor or both the parties, are changed; Combination of
real and personal novations
NOVATION → Total or partial extinction of an obligation through the creation of a new one
which substitutes it
● Substitution or change of an obligation by another, resulting in its extinguishment ARTICLE 1292
or modification, either by changing its object or principal conditions, or by
substituting the person of the debtor, or by subrogating a third person in the rights In order that an obligation may be extinguished by another which substitutes the same,
of the creditor. it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other. (1204)
DUAL FUNCTION OF NOVATION – One to extinguish or modify an existing obligation,
and the other to substitute a new one in its place
ESSENTIAL REQUISITES OF EXTINCTIVE NOVATION [PCAEV]
● Novation is a juridical act with a dual function, unlike the other modes of
1. The existence of a Previous valid obligation
extinguishing obligations
2. The intention or Agreement and Capacity of the parties to extinguish or modify
○ Compromise is a form of novation.
the obligation (animus novandi)
● Does not operate as an absolute extinction but only as a relative extinction since
3. The Extinguishment or (substantial) modification of the obligation
it creates a new one in place of the old which is thus only “modified”
4. The creation or birth of a Valid new obligation
● Does not necessarily imply that the new agreement must be complete in itself.
Certain terms and conditions may be carried over.
● Relate Requisite 1 to Art 1298
● Where the change is not extinctive but is merely modificatory, old obligation
subsists to the extent it remains compatible with the amendatory agreement
● Requisite 3 – Balane considers this as an effect rather than a requisite of
○ The new agreement will not have the effect of extinguishing the first but
novation
would merely supplement it or supplant some but not all of its provisions.
● Whether the effect is extinctive or merely modificatory, is dependent on the nature
of the change in the obligation and the intention of the parties
EXISTENCE OF 2 INCOMPATIBLE BINDING CONTRACTS OR OBLIGATIONS –
● Novation can take place even in the absence of an express agreement as when
There can be no novation unless two distinct and successive binding contracts take
there is total incompatibility between the old and the new obligations (implied
place, between the same parties with the second designed to replace the preceding
novation), in which case, the novation is extinctive.
convention.
● Modifications introduced before a bargain becomes obligatory and cannot be old debtor is not released, no novation occurs and the third person who
constituted as novation. has assumed the obligation of the debtor becomes merely a co-debtor
● A new contract recognizing and assuming a prescribed debt is a valid novation. or surety or a co-surety.
● Where either or both parties involved are juridical entities, proof that the second ● For both, the parties in the new contract must be the same parties in the old
contract was executed by persons with the proper authority to bind their contract.
respective principals is necessary.
BURDEN OF PROOF – The party who asserts its existence must prove novation by clear
IN RELATION TO JUDGMENT – A final judgment of a court that had been executed but and convincing evidence.
not yet fully satisfied, may be novated by compromise. ● Accentuated where the obligation of the debtor has already matured
● Judgment cannot subsequently be executed because the agreement
supersedes the judgement. IMPLIED/SUBJECTIVE NOVATION
● Novation may be subject to a suspensive condition. ● When not expressed, incompatibility is required so as to ensure that the parties
have indeed intended such novation despite their failure to express it in
IN RELATION TO CRIMINAL LIABILITY – Novation is not a mode of extinguishing categorical terms.
criminal liability. ● Incompatibility should take place in any of the essential elements of the
● It may prevent the rise of criminal liability as long as it occurs prior to the filing of obligation:
the criminal information in court. ○ Juridical tie (Ex. Sale to loan, Mere commodatum to lease)
● It is only limited to the civil aspect of liability. ○ Object (Ex. Change of the nature of the prestation)
● Novation theory does not apply where the offer to pay by the debtor and ○ Subjects (Substitution or subrogation)
accepted by the creditor, turns out to be merely an empty promise. ● The test is whether the two obligations can stand together. If they cannot,
incompatibility arises, and the second obligation novates the first. If they can
NOVATION NOT PRESUMED – Since novation involves a question of fact, it requires stand together, no incompatibility results and novation does not take place.
the factual determination of the existence of the essential requisites. ● Does not mean that the parties did not expressly agree to novate; Instead, the
parties expressly agreed to a new obligation which is incompatible with the old
General Rule: No form of words or writing is necessary to give effect to novation. obligation such that even if the parties did not expressly state that the new
Exception: It must be clearly and unmistakably established by express agreement or by obligation was intended to novate the old obligation, novation exists
the acts of the parties, as novation is never presumed.
● Implied novation is never favored. EFFECTS OF MODIFICATIONS OF ORIGINAL OBLIGATION
● Even if novation were sufficiently shown, the presumptive rule in Art 1299 is that ● Relevant Issue: W/N the change in the conditions is principal or merely
conditions attached to the old obligation also attach to the new obligation. incidental
● If the amount of debt is increased, Castan thinks that there is a novation while
WAYS OF EFFECTING CONVENTIONAL NOVATION – Subsequent obligation Caguioa thinks there is no novation. Balane thinks that Castan is correct. The
supersedes or novates the first [OI] old obligation is merged with the new.
1. Objective Novation – By express agreement of the parties or acts of equal or ● Balane – If the change involves principal conditions, there is novation. But if the
equivalent import change involves only incidental conditions, there is no novation because the
● Must be proven original obligation is not extinguished.
● Either a change in object or a change in conditions of the obligation ● Slight modification – When made with consent of parties, they do not abrogate
● To take effect, it is imperative that the new obligation expressly declare the entire contract and the respective rights and obligations. Only the original
that the old obligation is thereby extinguished, or that the new contract continues in force except as the altered terms and conditions of the
obligation be on every point incompatible with the old one. obligation are considered to be the essence of the obligation itself.
● Ex. Dacion en pago ○ Art 1291(1) states that the change must involve the “principal” conditions
2. Implied/Subjective Novation – By the irreconcilable incompatibility of the 2 of the obligation
obligations with each other in every material respect ○ Balane – This should not be referred to modificatory novation since it is
● Does not need express agreement; no specific form not novation per se.
● Implied consent may be inferred from the acts of the creditor ● Material deviations or changes – Where the original contract is deviated from in
● Must still be proven material terms so that the object or principal condition cannot be reasonably
● If subjective novation by a change in the person of the debtor is to recognized as that originally contracted, the original contract should be treated as
occur, it is not enough that the juridical relation between the parties to abandoned.
the original contract is extended to a third person.
● It is essential that the old debtor be released from the obligation, and
the third person or new debtor take his place in the new relation. If the
● If the payment was made with the consent of the original debtor or on his own
ARTICLE 1293 initiative (delegacion), the new debtor is entitled to reimbursement and
subrogation under Art. 1237.
Novation which consists in substituting a new debtor in the place of the original one,
may be made even without the knowledge or against the will of the latter, but not ACCEPTANCE BY CREDITOR OF PAYMENT FROM THIRD PERSON
without the consent of the creditor. Payment by the new debtor gives him the rights ● Acceptance by the creditor of payment from a third person is not automatically
mentioned in articles 1236 and 1237. (1205a) novation.
● While this may have the effect of adding to the number of persons liable, it does
KINDS OF PERSONAL NOVATION not necessarily imply extinguishment of the liability of the first debtor. It is essential
1. Substitution – When the person of the debtor is substituted that an old debtor is released.
2. Subrogation – When a third person is subrogated in the rights of the creditor ● Mere fact that the creditor receives a guarantee or accepts payment from a third
person who has agreed to assume the obligation, where there is no agreement
KINDS OF SUBSTITUTION (OR PASSIVE SUBJECTIVE NOVATION) that the first debtor shall be released from responsibility, does not constitute a
● Essential distinction – W/N the initiative for the substitution came from the original novation, and the creditor can still enforce the obligation against the original
debtor; If yes, it is delegacion. If not, it is expromision. debtor
○ Applies to a surety bond which is not a new and separate contract but
1. Expromision – When a third person of his own initiative and without the knowledge an accessory of the principal
or against the will of the original debtor ● The substitute must be placed in the same position of original debtor.
● Essential that the old debtor be released from his obligation; otherwise
there is no expromision ARTICLE 1294
● Requires the consent of the third person (new debtor) and the creditor
● The intent of the parties must be to release the old debtor. The release If the substitution is without the knowledge or against the will of the debtor, the new
of the old debtor is absolute even if it turns out that the new debtor is debtor's insolvency or nonfulfillment of the obligations shall not give rise to any liability
insolvent. on the part of the original debtor. (n)
● Cases of expromission are quite rare
2. Delegacion – When the creditor accepts a third person to take the place of the
debtor at the instance of the latter NEW DEBTOR’S INSOLVENCY OR NON-FULFILLMENT IN EXPROMISION
● The creditor may withhold approval ● Does not revive the action of the creditor against the old debtor whose obligation
● All the parties, the old debtor, the new debtor, and the creditor must is extinguished by the assumption of the debt by the new debtor
agree ○ This is because replacement of the old debtor is not made at his own
● The intent of the parties must be to release the old debtor. The release initiative
of the old debtor is not absolute, subject to exceptions in Art 1295. ● Apparent implication that if the original debtor knew of, or consented, to the
substitution, the new debtor’s insolvency or non-performance will revive the
CONSENT OF CREDITOR – Essential for both modes of substitution obligation is unintended and is the result of what Sen Tolentino refers to as
● Novation implies a waiver of the right which the creditor had to his credit before “inexpert or defective drafting”
the novation. Thus, such waiver must be express.
● Consent is an indispensable requirement because substitution may be prejudicial
to the creditor and may take the form of delay in the fulfillment of the obligation, ARTICLE 1295
or contravention of its tenor, or non-performance thereof by the new debtor
● Creditor has the right to refuse payment by third person without interest in the The insolvency of the new debtor, who has been proposed by the original debtor and
obligation accepted by the creditor, shall not revive the action of the latter against the original
● The word “express” was not to be given an unqualified meaning. The existence obligor, except when said insolvency was already existing and of public knowledge, or
of the creditor’s consent may also be inferred from the creditor’s acts but such known to the debtor, when the delegated his debt. (1206a)
acts need to be “a clear and unmistakable expression of the creditor’s consent”
● Consent may be given at any time and in any form while the agreement of the NEW DEBTOR’S INSOLVENCY IN DELEGACION
debtors subsists ● Article speaks only of insolvency
● When there is garnishment there is involuntary novation by substitution of debtor. ● If the non-fulfillment of the obligation is due to other causes, the old debtor is not
liable even in the event of exceptions mentioned in this article.
RIGHTS OF NEW DEBTOR WHO PAYS
● In expromision, payment by the new debtor gives him the right to beneficial
reimbursement under Art. 1236 (2).
GENERAL RULE: Old debtor is not liable to the creditor in case of the insolvency of the ● But the moment it is annulled, the novation must be considered as not having
new debtor. taken place, and the original one can be enforced, unless the intention of the
parties is otherwise.
EXCEPTION: Old debtor may be held liable when –
● The said insolvency was already existing and of public knowledge (although it
was not known to the old debtor) at the time of the delegacion; or ARTICLE 1298
● The insolvency was already existing and known to the debtor (although it was
not of public knowledge) at the time of the delegacion. The novation is void if the original obligation was void, except when annulment may be
claimed only by the debtor or when ratification validates acts which are voidable.
Purpose of these exceptions is to prevent fraud on the part of the original debtor. (1208a)
EXCEPTION TO THE EXCEPTIONS: There is no liability on the part of the old debtor EFFECT WHERE THE OLD OBLIGATION IS VOID OR VOIDABLE
when the creditor knew of the new debtor’s pre-existing insolvency. ● Stresses the essential requirement that the new obligation must be valid
● A void obligation cannot be novated because there is nothing to novate.
ARTICLE 1296 ● However, if the original obligation is only voidable or if the voidable obligation is
validated by ratification, the novation is valid.
When the principal obligation is extinguished in consequence of a novation, accessory ● Balane – Art 1298 refers to old obligations which are not void but voidable or
obligations may subsist only insofar as they may benefit third persons who did not give unenforceable since it speaks of annulment or ratification. Void obligations
their consent. (1207) cannot be confirmed nor ratified or need to be annulled.
EFFECT OF NOVATION ON ACCESSORY OBLIGATIONS ARTICLE 1299

● Follows the general rule that the extinguishment of the principal carries with it
that of the accessory obligations (ex. Mortgages, pledges, guaranties) If the original obligation was subject to a suspensive or resolutory condition, the new
obligation shall be under the same condition, unless it is otherwise stipulated. (n)
EXCEPTION: In the case of an accessory obligation created in favor of a third person, it
remains in force unless said person gives his consent to the novation PRESUMPTION WHERE ORIGINAL OBLIGATION SUBJECT TO A CONDITION
● A person should not be prejudiced by the act of another without his consent ● If the first obligation is subject to a suspensive or resolutory condition, the
● Another exception is when parties bound in the accessory obligations agree to second obligation is deemed subject to the same condition unless the contrary
continue to be bound thus they waive their rights is stipulated by the parties in their contract.
● In relation to Art 1303, another exception is when in an active subjective ● The efficacy of the new obligation depends upon whether the condition which
novation/subrogaton, the guarantors, pledgors, mortgagors are not released. affects the old obligation is complied with or not.
● If the condition is suspensive, and it is not complied with, no obligation arises;
ARTICLE 1297 and if it is resolutory and it is complied with, the old obligation is extinguished.
● In either case, one requisite of novation, a previous valid obligation, would be
If the new obligation is void, the original one shall subsist, unless the parties intended wanting.
that the former relation should be extinguished in any event. (n)
ARTICLE 1300
EFFECT WHERE THE NEW OBLIGATION VOID
● Stresses the essential requirement that the new obligation must be valid Subrogation of a third person in the rights of the creditor is either legal or conventional.
The former is not presumed, except in cases expressly mentioned in this Code; the
GENERAL RULE: There is no novation if the new obligation is void. latter must be clearly established in order that it may take effect. (1209a)
EXCEPTION: Where the parties intended that the old obligation should be extinguished in SUBROGATION/ACTIVE SUBJECT NOVATION → The substitution of a third person
any event (subrogee) in the place of a creditor (subroger) with reference to a lawful claim or right,
so that he who is substituted succeeds to the right of the other in relation to the claim or
WHEN ONLY VOIDABLE right, including its remedies and securities.
● If the new obligation is only voidable, novation can take place.
● It contemplates full substitution such that it places the party subrogated in the
shoes of the creditor, and he may use all means which the creditor could employ Conventional Subrogation Assignment of Credit
(Arts. 1300 - 1304) (Arts. 1624 - 1627))
to enforce payment (doctrine of substitution)
● Subrogee cannot succeed to a right not possessed by the subrogor
A credit is extinguished There is transfer of the same credit (not
KINDS OF SUBROGATION extinguished)
1. Conventional (Art 1301) – When it takes place by express agreement of the
original parties (the debtor and the original creditor) and the third person (the Consent of the debtor is required Merely notice to the debtor is required
new creditor)
● That the person paying the debt shall succeed to all the rights and Has the effect of extinguishing the Has the effect of transmitting the rights of
remedies of the original creditor obligation and giving rise to a new one the creditor to another person without
● Must be clearly established in order that it may take place modifying/extinguishing the obligation
2. Legal (Art 1302) – When it takes place without any agreement between the
parties to that effect but by operation of law Effects begin from the time of the Effects begin from the date of notification
● Not presumed except in cases expressly provided by law novation itself when the parties give their
consent
ARTICLE 1301 The nullity or defects of the previous The nullity or defects of the obligation are
obligation may be cured by the novation. not remedied because only the correlative
Conventional subrogation of a third person requires the consent of the original parties right of the obligation is transmitted.
and of the third person. (n)
CONSENT OF ALL PARTIES REQUIRED IN CONVENTIONAL SUBROGATION ARTICLE 1302

● The consent of all the parties is an essential requirement.
● Debtor – because he becomes liable under the new obligation to a new creditor It is presumed that there is legal subrogation:
● The old or original creditor – because his right against the debtor is extinguished (1) When a creditor pays another creditor who is preferred, even without the
● The new creditor – because he may dislike or distrust the debtor debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the express or
EFFECT OF SUBROGATION tacit approval of the debtor;
● Transfers to the person subrogated the credit with all the rights thereto (3) When, even without the knowledge of the debtor, a person interested in the
appertaining, either against the debtor or against third persons, be they fulfillment of the obligation pays, without prejudice to the effects of confusion
guarantors or possessors of mortgages, subject to stipulation in a conventional as to the latter's share. (1210a)
subrogation
● Stipulation of the parties shall govern
LEGAL SUBROGATION
● In the three cases enumerated, subrogation takes place by operation of law
ASSIGNMENT OF CREDIT
even without the consent of the parties.
● Articles 1300 and 1301 do not exclude the power of the creditor to transmit his
● The subrogation is produced from payment which may be with or without the
rights without the consent of the debtor to another who would then have the right
debtor’s knowledge or approval
to proceed against him. This is a case of assignment of credit, but no subrogation.
● Assignment of credit → Process of transferring the right of the assignor to the
PAR 1
assignee who would then have the right to proceed against the debtor
● Accessory rights acquired by the non-preferred creditor will extend only to the
○ May be done gratuitously or onerously
credit to which he has been subrogated
○ Governed in Arts. 1624 - 1635
● Debtor can set up against the subrogee-creditor any defenses he could have set
○ Essential difference with conventional subrogation → Consent of debtor
up against the original creditor, unless debtor waives such right
required in subrogation
● Subrogation will extend to the full amount of the credit due, even if the non-
preferred creditor actually paid a lesser amount, provided the original creditor
accepted sum paid as full payment
PAR 2
● Gives third person the accessory rights ARTICLE 1304
● Should be correlated with Arts. 1236 and 1237
● Where the money used to discharge a person’s debt rightfully belonged to the A creditor, to whom partial payment has been made, may exercise his right for the
debtor, the party paying cannot be considered a third-party payor. remainder, and he shall be preferred to the person who has been subrogated in his
place in virtue of the partial payment of the same credit. (1213)
PAR 3
● Co-debtors, guarantors, owners of the thing given as security may be persons EFFECT OF PARTIAL SUBROGATION
interested in the obligation’s fulfillment ● The creditor to whom partial payment has been made by the new creditor
● Rules on merger/confusion may restrict effects of subrogation remains a creditor to the extent of the balance of the debt.
● In case of solidary obligations, right to recover from co-debtors is only insofar as ● In case of insolvency of the debtor, he is given a preferential right under the
that outside his own share above article to recover the remainder as against the new creditor.
ARTICLE 1303 NATURE OF ORIGINAL CREDITOR’S RIGHT OF PREFERENCE

● Preference creates simply a right of one creditor to be paid first the proceeds of
Subrogation transfers to the persons subrogated the credit with all the rights thereto the sale of property as against another creditor.
appertaining, either against the debtor or against third person, be they guarantors or ● It creates no lien on property and therefore gives no interest in property, specific
possessors of mortgages, subject to stipulation in a conventional subrogation. (1212a) or general, to the creditor, but a preference in application of the proceeds after
the sale.
● The right of preference is one which can be made effective only by being
EFFECT OF SUBROGATION asserted and maintained.
● The effect of subrogation is to transfer to the new creditor the credit and all the ● If the right claimed is not asserted and maintained, it is lost.
rights and actions that could have been exercised by the former creditor either
against the debtor or against third persons, be they guarantors or mortgagors.
● Except only for the change in the person of the creditor, the obligation subsists in
all respects as before the novation. BOOK IV - OBLIGATIONS AND CONTRACTS
TITLE II - CONTRACTS
● May not be modified by agreement IF for legal subrogation. If conventional
subrogation, contrary stipulation will govern.
● There are distinctions between the right to be subrogated and the right to
reimbursement CHAPTER 1 – GENERAL PROVISIONS
EXCEPTION TO ART 1296 OUTLINE OF PROVISIONS

● Art 1296 states that accessory obligations may subsist only insofar as they may
benefit third persons who did not give their consent.
● Under Article 1303, accessory obligations are not extinguished. 1305 Meaning of Contract
● According to commentators, Article 1303 is an exception to Article 1296.
○ B owes K P1 M. M is a guarantor of B. B is substituted by U. B is 1306 Autonomy of Contracts and Limitations
released. M is also released under Article 1296. M is released since he
guarantees B‘s performance and not B‘s. B might have a good credit 1307 Innominate Contracts
standing but U may not. M might be prejudiced if he has to guarantee
U‘s performance. 1308 Mutuality of Contract
● If there is a change in the creditor under Article 1303, the guarantor is not released
since it doesn‘t make a difference. What the guarantor guarantees is the integrity 1309 Determination of performance by a third person
of the debtor.
1310 Effect where determination is inequitable
1311 Relativity of contracts
1312 Third persons bound by contracts creating real rights

○ Contract may be superseded by a compromise agreement provided it is

1313 Right of creditor to impugn contracts intended to defraud not contrary to law, morals, good customs, public order or public policy
(Art 1306)
1314 Liability of third person responsible for breach of contract ● A contract may provide that it shall come to an end at the option of one, or either
of the parties and such stipulation, when fairly entered into, will be enforced if not
1315 Consensuality of contracts contrary to equity and good conscience
○ If the party given the option acted in bad faith, he may be liable for abuse
1316 Real contracts of right
● Where one party opts to cancel an existing agreement and the other party
1317 Unauthorized contracts expresses its conformity, the parties enter into another contract for the dissolution
of the previous one, and they are bound by their contract
Balane Civil Notes Flow: Discussed in order ● When a contract is suspended by reason of a lawful order, it temporarily ceases
to be operative. It again becomes operative when a condition occurs or a situation
arises warranting the termination of the suspension of the contract.
ARTICLE 1305
Termination of Contract Rescission of Contract
A contract is a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service. (1254a)
Congruent with an action for unlawful Declare a contract void in its inception
detainer; Necessarily entails enforcement and to put an end to it as though it never
STATUTORY DEFINITION OF CONTRACT → A contract is a meeting of minds between of its terms prior to the declaration of its were
two persons whereby one binds himself, with respect to the other, to give something or to cancellation
render some service
● Mexican Code definition (Art 1792) – A contract is an agreement between two or Need not undergo judicial intervention Not merely to terminate and release
more persons to create, convey, modify, or extinguish an obligation since parties themselves may exercise parties from obligations but it is to
● Sanchez Roman – A contract is a juridical convention manifested in legal fromm, such option; Only upon disagreement as abrogate the contract from the beginning
by virtue of which one or more persons bind themselves in favor of another, or to how it should be undertaken may the and restore the parties to their relative
others, or reciprocally, to the fulfillment of a prestation to give, to do or not to do parties resort to courts positions prior to the contract
BRIEF HISTORY
● Contracts (cum-trahere): To draw together/contractus: a drawing together are one Contract Obligation
of the five enumerated sources of obligation in our Code
One of the sources of obligations (Art Legal tie or relation itself that exists after
NUMBER OF PARTIES TO A CONTRACT – At least two persons or parties 1157) a contract has been entered into
● Balane – Two persons should instead read: “two or more parties”
○ Party is more accurate to avoid ambiguity in auto-contracts There can be no contract if there is no obligation.
● Auto-Contracts → A single person may contract with himself where he represents But an obligation may exist without a contract.
distinct interests subject to specific prohibitions of law against the presence of
adverse or conflicting interests
○ Guardians, executors, or administrators cannot acquire by purchase Contract Agreement
property of persons under their guardianship/administration (Art 1491)
○ If an agent has been authorized to end money at interest, he cannot Agreements enforceable through legal Broader than contract because it may not
borrow it without principal’s consent (Art 1890) proceedings have all the elements of a contract
Agreements which cannot be enforced by

TERMINATION/CANCELLATION OR SUSPENSION OF PRE-EXISTING CONTRACT
action in the courts are merely moral or
● Fully covered in Art 1305
social agreements
● As a rule, the method of terminating a contract is primarily determined by the
stipulation of the parties
All contracts are agreements.
○ Unilateral termination of a contract by a party is violative of the principle
But not all agreements are contracts.
of mutuality of contracts (Art 1308)
a. Executory – When it has not yet been completely performed by both

IMPORTANCE OF A CONTRACT – Necessity of completing the limitations of man and parties
his insufficiency to obtain by himself the means necessary for the fulfillment of his b. Executed – When it has been fully and satisfactorily carried out by both
purposes; Contract is the most adequate instrument by which man acquiesce the means parties (Art 1403)
required for common life and social cooperation 9. According to dependence of part of contract to other parts
a. Indivisible (or entire) – When each part of the contract is dependent upon
CHARACTERISTICS OF CONTRACTS the other parts for satisfactory performance
● Autonomy of contracts (Art 1306) i. Ex. Sale of a dining room table and 8 matching chairs
● Obligatoriness of contracts (Arts. 1159 and 1315) b. Divisible – When one part of the contract may be satisfactorily performed
● Mutuality of contracts (Art 1308) independently of the other parts (Arts. 1223 - 1225)
● Relativity of contracts (Art 1311) i. Ex. Sale of rocking chair and a pair of shoes
● Consensuality of contracts (Art 1315) 10. According to risks involved
a. Commutative – When the undertaking of one party is considered the
CLASSIFICATIONS OF CONTRACTS – Determined by its nature or character as equivalent of that of the other
determined by principles of law, principally, the intention of the parties (Art 1371) i. Ex. Sale, lease
b. Aleatory – When it depends upon an uncertain event or contingency both
1. According to name or designation as to benefit or loss (Art 2021)
a. Nominate – Where the contract has a particular name i. Ex. Insurance, Sale of a hope (sweepstakes tickets)
b. Innominate (Art 1307) – Where the contract does not have a specific 11. According to liability/obligation created
name a. Unilateral – When it creates an obligation on the part of only one of the
2. According to perfection parties
a. Consensual i. Ex. Commodatum, gratuitous deposit
b. Real (Arts 1315, 1316) b. Bilaterrai – When it gives rise to reciprocal obligations for both parties
3. According to cause i. Ex. Sale, lease
a. Onerous – Where there is a material cause (consideration)
b. Remuneratory or remunerative
c. Gratuitous (Art 1350) – Where the cause is liberality (lucrative) ARTICLE 1306
4. According to form
a. Informal, or common The contracting parties may establish such stipulations, clauses, terms and conditions
b. Formal, solemn or simple (Art 1356) as they may deem convenient, provided they are not contrary to law, morals, good
5. According to obligatory force customs, public order, or public policy. (1255a)
a. Valid (Art 1306)
b. Rescissible (Chapter 6) AUTONOMY OF CONTRACTS
c. Voidable (Chapter 7) ● Both a constitutional and statutory right
d. Unenforceable (Chapter 8) ○ Right to enter into contracts
e. Void or inexistent (Chapter 9) ○ Right to choose with whom one desires to contract
6. According to person obliged ● Art III, Sec 10 of the 1987 Constitution prohibits the passage of any law impairing
a. Unilateral the obligation contracts
b. Bilateral (Art 1191) ○ Refers only to legally valid contracts
7. According to dependence to another contract ○ Cannot be invoked as against the police power of the states
a. Preparatory – When it is entered into as a means to an end ● There is no absolute right to enter into any kind of contract
i. Ex. Agency, partnership
b. Accessory – When it is dependent upon another contract it secures or
guarantees for its existence and validity
i. Ex. Mortgage, guaranty
c. Principal – When it does not depend for its existence and validity upon VALIDITY OF CONTRACTS PRESUMED
another contract but is an indispensable condition for the existence of an ● Valid contracts → Those that meet all the legal requirements for the type of
accessory contract agreement involved and the limitations on contractual stipulations and are legally
i. Ex. Sale, lease binding and enforceable
8. According to status ● Legal presumption is always on the validity of contracts
● Courts are enjoined to move with the necessary caution and prudence in holding ○ Generally behavioral norms; Not static
contracts void ○ Often embodied in law BUT those referred to here are those not
○ The binding force of a contract must be recognized as far as it is legally expressed in legal provisions
possible to do so ■ Monetary payment to live as common-law spouses without the
○ The general characterization of a contract as defective without stating benefit of marriage
facts showing its defectiveness, is a mere conclusion of law ■ Agreement to pay usurious interest
■ Render service as a servant without compensation
LIMITATIONS ON CONTRACTUAL STIPULATIONS ● Good customs
● Law → Rule of conduct, just, obligatory, promulgated by legitimate authority, and ○ Consist of habits and practices which through long usage have been
of common observance and benefit followed and enforced by society or some part of it as binding rules of
○ Fundamental requirement that the contract entered into must be in conduct
accordance with, and not repugnant to, an applicable law ○ Has the force of law once recognized and enforced by law
○ Provisions of positive law existing at the time of the execution of the ○ Custom must be proved as a fact, according to rules of evidence (Art 12,
contract are deemed embodied and written in every contract Art 1376)
○ Parties to a contract are charged with the knowledge of existing law at ○ Frequently overlap with morals
the time they enter into the contract and at the time it is to become ● Public order → Refers principally to public safety although it has been considered
operative to mean also the public weal
○ Person is presumed to be more knowledgeable about the law of his ○ Ex. Contract legalizing the commission of adultery or concubinage
country than an alien ● Public policy → Principle under which freedom of contract or private dealing is
○ Where a contract is entered into by the parties on the basis of the law restricted for the good of the community
then obtaining, the repeal or amendment of said law will not affect the ○ Broader than public order; May refer to public safety and considerations
terms of the contract, nor impair the rights of the parties which are moved by the common good
■ Applicable even if one of the parties is the government ○ Examples:
○ Police Power ■ Agreements agreeing not to prosecute crimes
■ Police power is superior to private rights ■ Perpetual restrictions on the right to ownership
■ What is not expressly or impliedly prohibited by law is allowed ■ Contingent fees that are deemed unreasonable
or may be done, except when the contract or any act for that ■ Lower due diligence standard for common carriers
matter is found to be injurious to the public interest or the ■ Contract that restrains a man from entering into a trade or
common good the State has the power and duty to promote business without either a limitation as to time or place
and protect in the exercise of its police power ■ Warrants of attorney to confess judgment
■ All contractual obligations are subject to the possible exercise ■ Parties agreeing to operate under a “kabit system”
of police power of the state.
● Otherwise, important and valuable reforms may be
precluded by the simple device of entering ARTICLE 1307
contracts for the purpose of doing that which
otherwise may be prohibited by law. Innominate contracts shall be regulated by the stipulations of the parties, by the
■ Mere enforcement of one of the conditions deemed imposed in provisions of Titles I and II of this Book, by the rules governing the most analogous
all contracts. nominate contracts, and by the customs of the place. (n)
○ A contract intended to circumvent the law is void.
○ Relevant Civil Code provisions CLASSIFICATION OF CONTRACTS ACCORDING TO ITS NAME OR DESIGNATION
■ Art 1409(1) – A contract cannot be given effect if it is contrary 1. Nominate contract → That which has a specific name or designation in law
to law because law is superior to a contract ● Ex. Commodatum, lease, agency, sale, etc
■ Art 5 – Acts executed against the provisions of mandatory or 2. Innominate contract → That which has no specific name or designation in law
prohibitory laws are void, except when the law itself authorizes
their validity
■ Arts. 1159, 1315 – Although a contract is lhe law between the KINDS OF INNOMINATE CONTRACT
parties, the contracting parties must respect the law which is ● Do ut des (I give that you may give)
deemed to be an integral part of every contract. ○ Already given a name of its own, i.e. Barter or exchange (Art 1638)
● Morals ● Do ut facias (I give that you may do)
○ Deal with norms of good and right conduct evolved in a community ● Facio ut des (I do that you may give)
○ May differ at times and places and with each group of people ● Facio ut facias (I do that you may do)
● When the prestation in obligations to do becomes legally or physically impossible

REASONS AND BASIS FOR INNOMINATE CONTRACTS – Impossibility of anticipating without the fault of the obligor, the debtor may be released (Art 1266)
all forms of agreement on one hand and the progress of man's sociological and economic ● When the performance of the contract has become so difficult as to be manifestly
relationships beyond the contemplation of the parties, the obligor may also be released in whole
● No one shall unjustly enrich himself at the expense of another or in part (Art 1267)
RULES GOVERNING INNOMINATE CONTRACTS

1. The agreement of the parties ARTICLE 1309
2. The provisions of the Civil Code on obligations and contracts
3. The rules governing the most analogous contracts The determination of the performance may be left to a third person, whose decision
4. The customs of the place shall not be binding until it has been made known to both contracting parties. (n)
ARTICLE 1308 DETERMINATION OF PERFORMANCE BY A THIRD PERSON

● Here, the obligation does not depend upon a potestative condition
The contract must bind both contracting parties; its validity or compliance cannot be ● Decisions of the third person shall bind the parties only after it has been made
left to the will of one of them. (1256a) known to the both of them
MUTUALITY OF CONTRACTS → Both (or all) parties must be bound ARTICLE 1310
● Purpose is to nullify a contract containing a condition which makes its fulfillment
or pre-termination dependent exclusively upon the uncontrolled will of one of the The determination shall not be obligatory if it is evidently inequitable. In such cases,
contracting parties the courts shall decide what is equitable under the circumstances. (n)
● Flows from the legal tie which is the essence of all contracts
● Withouts this, it cannot be said that the contract has the force of law between EFFECT WHERE DETERMINATION IS INEQUITABLE
them. It renders the contract void. ● Qualification to Art 1309
● It is entirely licit to leave fulfillment to the will of either of the parties in the negative ● Ex. When 3rd person acted in bad faith or by mistake
form of rescission.
BASIS FOR PRINCIPLE ARTICLE 1311

● Obligatory force of contracts
● Essential equality of contracting parties Contracts take effect only between the parties, their assigns and heirs, except in cases
where the rights and obligations arising from the contract are not transmissible by their
RENUNCIATION OR VIOLATION OF CONTRACT nature, or by stipulation or by provision of law. The heir is not liable beyond the value
● No party can renounce or violate the law of the contract unilaterally or without the of the property he received from the decedent.
consent of the other.
● Just as nobody can be forced to enter into a contract, no one may be permitted If a contract should contain some stipulation in favor of a third person, he may demand
to change his mind or disavow ang go back upon his own acts, or to proceed its fulfillment provided he communicated his acceptance to the obligor before its
contrary, to the prejudice of the other party revocation. A mere incidental benefit or interest of a person is not sufficient. The
● A party to a contract is liable for damages for breach or violation thereof contracting parties must have clearly and deliberately conferred a favor upon a third
● The government is not immune from liability for damages for breach of contract person. (1257a)
PROOF OF ALLEGED DEFECT IN CONTRACT

● Must be conclusively proved since the validity and fulfillment of contracts cannot
be left to the will of one of the contracting parties
● Duty of every contracting party to learn and know the contents of a document
before he signs and delivers it RELATIVITY OF CONTRACTS
● Contracts take effect only between the parties; thus, only the parties may sue to
RELEASE OF OBLIGOR FROM COMPLIANCE enforce it (through performance or damages for breach of contract) or to set it
● Mere fact that a party to a contract has made a bad bargain, may not be a ground aside
for setting aside the agreement ● Res inter alios acta alteri nocere non potest
EFFECTIVITY OF CONTRACT EXTENDS TO HEIRS AND ASSIGNS ● If either contracting party are acting as representative, then the latter
● Heirs and assigns take the place of the contracting parties and assume the would not be a third party but one of the contracting parties and the
contractual relationship rules on agency would apply
● Among the assigns are the new debtor or the new creditor in novation and the 5. The third person communicated his or her acceptance of the favor before its
assignee in assignment of credit revocation
● Generally, these assigns are the successors-in-interest of the original ● This makes it binding
contracting parties ● Must be communicated to the obligor
● With respect to heirs, as far as money debts are concerned, the unpaid creditor ● Before such communication, the contracting parties may set aside or
should pursue his claim against the estate revoke the stipulation through their mutual consent
● No specific form of communication, may be express or implied
EXCEPTION TO TRANSFERABILITY RULE – If the said contract is personal
● Death of the original contracting party will extinguish the contract REMEDY IN CASE OF BREACH OR NON-PERFORMANCE OF STIPULATION POUR
● Ex: Painting of a portrait, partnership, agency, highly personal prestations AUTRUI
● Other exceptions: ● Either the 3rd person or the other contracting party may institute an action for
○ By stipulation of the parties specific performance or resolution, with damages
○ By provision of law ● Credit card holder is considered a third party in a stipulation pour autrui
EXCEPTIONS TO RULE OF RELATIVITY

These are cases where a contract may take effect against, or in favor of, third persons ARTICLE 1312
● Accion pauliana (Arts. 1177, 1381) – When a 3rd person may institute in order
to set aside or rescind a contract entered into by his debtor which has the effect In contracts creating real rights, third persons who come into possession of the object
of prejudicing him of the contract are bound thereby, subject to the provisions of the Mortgage Law and
● Accion directa – When 3rd person is allowed by law to sue to enforce the the Land Registration Laws. (n)
contract
○ Examples: THIRD PERSONS BOUND BY CONTRACTS CREATING REAL RIGHTS
■ Art 1652 – Lessor may sue sublessee for unpaid amounts ● Exception to general rule that a contract binds only the parties (Art 1311)
■ Art 1729 – Workman may sue owner for unpaid amount due ● Real right → Binding against the whole world and attaches to the property over
● In some contracts creating real rights (Art 1312) which it is exercised wherever it goes
● Stipulations pour autrui (Art 1311, Par 2) → One in favor of a 3rd person
conferring a clear and deliberate benefit upon him WHEN REAL RIGHT IS REGISTERED
○ Was initially not allowed in old Roman law but allowed now because ● Real estate mortgage
the minds of the two parties may unite upon an act to be performed in ● Contract subjecting certain real properties to the payment of certain debts,
favor of a third person and the law will now enforce it registered in accordance with the Property Registration Decree
● What constitutes the real right is the publicity given by the Registry, not by the
REQUIREMENTS OF STIPULATION POUR AUTRUI contract since this prejudices the right of third persons
1. The contracting parties clearly and deliberately conferred a favor to the third
person — the favor is not an incidental benefit; WHEN REAL RIGHT IS NOT REGISTERED
● Must be clearly and deliberately conferred by the contracting parties ● Third persons who acted in good faith are protected under the provisions of the
2. There is a stipulation in favor of a third person and it is a part, not the whole, of Property Registration Decree
the contract; ● Persons dealing with registered land have the legal right to rely on the fact of
● If this weren’t present, the contractual stipulation would fall under Art TCTs and to dispense with the need to inquire any further unless there are actual
1317 since if it constituted the whole of the contract, the parties would knowledge of facts
be acting on behalf of the third persons
3. The favor is unconditional and uncompensated;
● If, in the contract, the 3rd person is bound to perform a prestation or ARTICLE 1313
obligation, he becomes a party to said contract and he would not then
be a third party Creditors are protected in cases of contracts intended to defraud them. (n)
4. The contracting parties do not represent, or are not authorized by, the third
party; and
RIGHT OF CREDITOR TO IMPUGN CONTRACTS INTENDED TO DEFRAUD THEM
● Exception to general rule that a contract binds only the parties (Art 1311)
● This is Accion Pauliana ● Examples:

● Example: Contracts undertaken by a debtor in fraud of his creditor without the ○ Third person dissuades another who has entered into a dangerous
knowledge of the latter contract with a bona fide purpose of benefiting the other person
● May sue to rescind the contract ○ Seller giving notice to prospective buyer that unpaid seller has not yet
been paid by the vendor
RIGHT OF CREDITOR TO ENFORCE CONTRACTS OF DEBTOR WITH A THIRD ○ Lessee has the right to sublease the premises leased
PERSON
● Those who put their labor upon or furnish materials for a piece of work undertaken REMEDY – As far as the 3rd person concerned, it’s considered based on a quasi-delict.
by the contractor have an action against the owner up to the amount owing from ● Liability of joint tortfeasors is solidary
the latter to the contractor a the time the claim is made (Art 1729) ● Unless the contracting party is sued based on culpa contractual
● The lessor may recover rent due from a sublessee since the sublessee is ○ Here, liability can be joint
subsidiarily liable to the lessor for any rent due from the lessee (Art 1652)
ARTICLE 1315
ARTICLE 1314
Contracts are perfected by mere consent, and from that moment the parties are bound
Any third person who induces another to violate his contract shall be liable for not only to the fulfillment of what has been expressly stipulated but also to all the
damages to the other contracting party. (n) consequences which, according to their nature, may be in keeping with good faith,
usage and law. (1258)
LIABILITY OF THIRD PERSON RESPONSIBLE FOR BREACH OF CONTRACT
● Rule of American law; Also under the general principles of Philippine law
● A contractual right is property ARTICLE 1316
INTERFERENCE WITH CONTRACTUAL RELATIONS Real contracts, such as deposit, pledge and commodatum, are not perfected until the
● Considered a tort or wrongful conduct delivery of the object of the obligation. (n)
● Presupposes that the contract interfered with is valid and the third person has
knowledge of the existence of the contract or must have known of it after a CLASSIFICATION OF CONTRACTS ACCORDING TO PERFECTION
reasonable inquiry 1. Consensual – That which is perfected by mere consent (Art 1315)
● “Induce” – Refers to situations where a person causes another to choose one ● Ex. Sale, lease, agency
course of conduct by persuasion or intimidation 2. Real – That which is perfected, in addition to the above, by the delivery of the
○ Violates the property rights of a party in a contract to reap the benefits thing subject matter of the contract (Art 1316)
that should result therefrom ● Ex. Depositum, pledge, commodatum
○ Injunction is the appropriate remedy to prevent a wrongful interference 3. Solemn – That which requires compliance with certain formalities prescribed by
with contracts by strangers to such contracts where the legal remedy is law such prescribed form being thereby an essential element thereof
insufficient and the resulting injury is irreparable
STAGES IN THE LIFE OF A CONTRACT
ELEMENTS OF TORT INTERFERENCE 1. Preparation or Negotiation
1. Existence of a valid contract ● Includes all the steps taken by the prospective parties beginning from
2. Knowledge on the part of the third person of the existence of contract the time they manifest interest in entering into the contract
3. Interference of the third person is without legal justification or excuse ● Not yet arrived at aunty definite agreement
● Either party may stop the negotiations or withdraw offers made
2. Perfection or Birth
● Takes place when the parties have come to a definite agreement or
MALICE NOT NECESSARY meeting of the minds regarding the terms
● It is sufficient that the defendant must have been driven by purely impious reasons ● Upon concurrence of the essential elements of the contract
to injure the plaintiff 3. Consummation or Termination
● His act cannot be justified ● Occurs when the parties have fulfilled or performed their respective
obligations or undertakings agreed upon in the contract and the contact
WHERE LEGAL JUSTIFICATION EXISTS may be said to have been fully accomplished or executed, resulting in
● Third person is not liable where sufficient justification for interference or extinguishment
inducement can be shown
● Once consummated, its existence and binding effect can no longer be GUIDANCE IN PERFORMANCE OF CONTRACT
disputed ● Provides guide to settle questions that may arise between parties in absence of
● Contract may also be terminated after its perfection not by performance, a stipulation
but by mutual agreement of the parties ○ First, determine the nature of the contract
○ Second, Obligation arising from the same shall be performed in
HOW CONTRACTS ARE PERFECTED accordance with good faith, usage, and law
● Until the contract is perfected, it cannot, as an independent source of obligation, ○ Aside from the express contract, an implied one may arise from the
serve as a binding juridical relation conduct of parties.
● Consensual contracts ● A judicial or quasi-judicial body cannot impose upon the parties a judgment
○ As a general rule, contracts are perfected by mere consent of the parties different from their real agreement or against the terms and conditions of the
regarding the subject matter and the cause of the contract contract
○ Obligatory in whatever form they have been entered into as long as all ● A condition imposed on the perfection of a contract results in the failure of a
the essential elements are met contract while a condition imposed merely for the performance of the obligation
○ Almost all contracts are consensual as to perfection gives the other party options and/or remedies to protect his interests
○ In the absence of delivery, perfection does not transfer title or create real ● In the exercise of its equity jurisdiction, the court may adjust the rights of parties
right yet, it gives rise to obligations binding upon both parties in accordance with the circumstances obtaining at the time of rendition of
● Real contracts judgment
○ Exception to the general rule ○ Particularly applicable when there has been a depreciation of currency
○ Perfected by the delivery, actual or constructive, of the object of the ● Courts have no power to amend or modify the stipulations of the parties
obligation
○ Ex: Pledge, mutuum, or commodatum PERTINENT PROVISIONS OF LAW DEEMED INCORPORATED IN CONTRACTS
○ Have for their purpose restitution because they contemplate the return ● An existing law enters into and forms part of a valid contract without the need for
by a party of what has been received from another or its equivalent the parties expressly making reference to it
● Solemn contracts ● Freedom of contract recognized by the Civil Code while it empowers the parties
○ Exception to the general rule to establish such stipulations, etc as they may deem convenient is limited by the
○ When the law requires that a contact be in some form to be valid (Arrt requirement that they should not be “contrary to law”
1356), it is necessary for its perfection, the prescribed form being an
essential requisite of the contract
○ Ex: Donation of real property must be embodied in a public instrument ARTICLE 1317
(Art 749)
No one may contract in the name of another without being authorized by the latter, or
EFFECT OF PERFECTION OF THE CONTRACT unless he has by law a right to represent him.
From the moment the parties come to an agreement on a definite subject matter and valid A contract entered into in the name of another by one who has no authority or legal
consideration, they are bound: representation, or who has acted beyond his powers, shall be unenforceable, unless it
1. To the fulfillment of what has been expressly stipulated is ratified, expressly or impliedly, by the person on whose behalf it has been executed,
2. To all the consequences which according to their nature, may be in keeping with before it is revoked by the other contracting party. (1259a)
good faith, usage, and law
UNAUTHORIZED CONTRACTS ARE UNENFORCEABLE
EXECUTION OF CONTRACT ● As a general rule, a person is not bound by the contract of another of which he
● Execution → Not limited to the signing orr concluding of the contact but includes has no knowledge or to which he has not given his consent
ss well the performance or implementation or accomplishment of all terms and ● Contract involves free will of the parties and only he who enters into the contract
conditions of such contract be bound thereby
● Signing is not generally a legal requirement in entering a contract when there is a ● An unauthorized contract is not to be confused with a contract for the benefit of a
meeting of the minds third person. (Art 1311, Par 2)
● Consent may either be express or implied, unless the law specifically requires a ● Discussed again under Art 1403
particular manner or form of expressing such consent
○ One who approved or authorized such contract may be considered a UNAUTHORIZED CONTRACTS CAN BE CURED ONLY BY RATIFICATION
party and equally liable ● Mere lapse of time cannot give efficacy ot such a contract
● Good faith and regularity are always presumed ● Defect is such that it cannot be cured except by the subsequent ratification (Art
○ Burden of proving otherwise rests on the one claiming such 1405)
● Ratification must be clear and express so as not to admit any doubt or vagueness
● Effects of ratification retroact to the moment of the celebration of the contract ● Accidental Elements – Parties may voluntarily agree upon these
WHEN A PERSON BOUND BY THE CONTRACT OF ANOTHER GOOD FAITH – Immaterial in determining validity of a contract since it is not an essential
1. Person entering into the contract must be duly authorized, expressly or impliedly, element of contract
by the person in whose name he contracts or he must have, by law, a right to
represent him BASES OF CONTRACTS
2. He must act within his power 1. Law
● Imposes the essential elements upon the parties
● Presumes the natural
CHAPTER 2 – ESSENTIAL REQUISITES OF CONTRACTS ● Authorizes the accidental
2. Will
● Yields or conforms to the essential elements
General Provisions ● Accepts, until it rejects, the natural
● Creates or establishes the accidental
● The law is decisive in the first class, supplementary in the second, and permissive
in the third
1318 Essential Requisites of Contracts ● Absent one of the essential requisites, no contract can arise
● The non-observance of the natural or accidental elements may affect the
effectivity but not the validity of the contract
Balane Civil Notes Flow: 1318
TWO TYPES OF VOID CONTRACTS
ARTICLE 1318 1. Void ab initio – Where one of the elements in Art 1318 are not present
● Ex. Conveyances by virtue of a forged document
There is no contract unless the following requisites concur: 2. Those provided for as void under Art 1409 of NCC
1. Consent of the contracting parties; ● Ex. Contracts prohibited by law or those where the object is beyond the
2. Object certain which is the subject matter of the contract; human commerce
3. Cause of the obligation which is established. (1261)
NO CONFLICTS RULE
● No conflicts rule on essential validity of contract is expressly provided for in our
CLASSES OF ELEMENTS OF A CONTRACT law
● Essential Elements – Without these, a valid contract cannot exist; Requisites of a ● Alternative rule adopted by most legal systems → Intrinsic validity of the contract
contract must be governed by lex contractus or “proper law of the contract” aka law
○ Common – Those present in all contracts voluntarily agreed upon by the parties
■ Consent (Arts. 1319 to 1346) ● For PH → Allow parties to select the law applicable to their contract, subject to
■ Object (Arts. 1347 to 1349) the limitation that it is not against the law, morals, or public policy of the forum and
■ Cause (Arts. 1350 to 1355) that the chosen law must bear a substantive relationship to the transaction
○ Special – Those not common to all contracts or those which must be ● Rule on pari delicto does not apply to inexistent contracts or in absolutely
present only in or peculiar to certain specified contracts; Peculiarities simulated contracts
may be
■ As to form (Ex. Public instrument in donation of immovable BALANE ON CONTRACTS WITHOUT CONSENT → What Dean Maita discussed!
property, delivery in real contracts, etc) ● Clemente v CA – Consent when wanting makes the contract non-existent
■ As to subject-matter (Ex. Real property in antichresis, Personal ● Articles 1327 to 1344 provides for contracts in which consent is absent, wanting,
property in pledge) or defective. They are considered not void, but voidable.
■ As to cause (Ex. Price in sale and in lease, liberality in ● Want of consent does not make a contract void but only voidable.
commodatum) ● Balane believes that our Code should contain provisions declaring void those
○ Extraordinary – Those which are peculiar to a specific contract (Ex. price contracts entered into with absolutely no consent.
in sales)
● Natural Elements – Written by the law into the contract and exist even if not
stipulated in the contract Section One – Consent
○ Ex: Warranties in sales, Right of resolution in reciprocal obligations
1342 Fraud by Third Person
1319 Consent 1343 Representation Made in Good Faith
1320 Form of Acceptance 1344 Kinds of Fraud
1321 Terms of the Offer 1345 Simulation of Contract
1322 Communication of Acceptance to Agent 1346 Absolutely and Relatively Simulated Contracts
1323 When offer becomes ineffective

Balane Civil Notes Flow: Discussed in order
1324 Contract of Option
ARTICLE 1319
1325 Business Advertisements and Public Offers
Consent is manifested by the meeting of the offer and the acceptance upon the thing
1326 Advertisement of Bidders and the cause which are to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-offer.
1327 Capacity to Contract
Acceptance made by letter or telegram does not bind the offerer except from the time it
1328 Lucid Interval came to his knowledge. The contract, in such a case, is presumed to have been
entered into in the place where the offer was made. (1262a)
1329 Modified Incapacity
CONSENT → Conformity of wills; Agreement of the will of one contracting party with that
1330 Vices of Consent
of another or others, upon the object and cause of the contract
1331 Mistake
Concurrence of Offer and Acceptance
● It is the meeting of minds; Expresses their intent in entering into the contract
1332 Burden of Proof for Mistake/Fraud respecting the subject matter and the cause or consideration thereof
● Mutual assent or agreement takes place
1333 Knowledge of Risk ● Even if neither has been delivered and notwithstanding that the parties have not
affixed their signatures to its written form
1334 Mistake of Law ○ UNLESS one or both parties consider that certain matters in addition to
object and cause should be agreed upon
1335 Force and Intimidation ● Must meet as to all the terms and nothing is left open for further arrangement
● Changes must be made with the consent of contracting parties
1336 Force and Intimidation by a Third Person ● Whether there is meeting of the minds on the offer and acceptance depends on
the circumstances
1337 Undue Influence
REQUISITES OF CONSENT
1338 Causal Fraud 1. Plurality of subjects
2. Capacity of the parties
1339 Non-Disclosure as Fraud 3. Intelligent and free will
4. Express or tacit manifestation of the parties’ intent
1340 Dolus Bonus 5. Conformity of intent and its manifestation
1341 Expression of Opinion OFFER → Proposal made by one party to another to enter into a contract
● More than an expression of desire or hope
● Promise to act or to refrain from acting on condition that the terms are accepted ○ Presumption is that the offerer read the contents or came to know of the
by offeree acceptance
● Conversely, acceptance produces legal effect only when it similarly becomes
REQUISITES OF OFFER known to the offeror.
1. Definite or certain ● Revocation of offer or of acceptance
2. Complete ○ Any revocation by the offeror of the offer as well as a revocation of the
3. Seriously Intended offeree of his acceptance will take effect only when such revocation
comes to the other party’s knowledge.
● Necessary that the acceptance be identical with the offer to create a contract ■ May take place before the time the contract is perfected
without any further act on the part of the offeror ○ Crossed acceptance and revocation of offer
● Offer made in jest or in anger or while emotionally upset orr in other ways ■ The problem arises when there is a time gap. Under Article
indicating that the same was not seriously intended is not a valid offer 1319, there is perfection of the contract when there is
○ BUT: When lack of serious intent was not apparent to offeree who knowledge of the other party‘s acceptance. This has serious
honestly believed that the offer was seriously intended, the offer is valid consequences.
■ Example: The offer was made in Bacolod on March 1. It was
ACCEPTANCE → Manifestation by the offeree of his assent to the terms of the offer received in Quezon City on March 3. On March 4, the offeree
● Without acceptance, no meeting of the minds sends his acceptance. On March 5, the offeror countermands
● Mere offer produces no obligation offer. Now, both acceptance and countermand of offer are in
● Even if the offer is accepted, no contract can come into existence if it is not certain the mail. Whichever reaches the destination first will be
or definite counted.
REQUISITES OF ACCEPTANCE ACCEPTANCE OF COMPLEX OFFERS

1. Unequivocal ● If a single offer involves two or more contracts, it will depend upon the connection
2. Unconditional or absolute which exists between the contracts or the intent of the person making the offer
whether partial acceptance will create a contract
● The acceptance must not vary the terms of the offer. If it does, it is not an ● As a rule, partial acceptance will not give rise to the perfection of the contract
acceptance but a counter-offer. where the things are interrelated in themselves
● Amplified acceptance – An acceptance that expands the coverage of the offer ○ BUT it will give rise to a perfected contract where the relation between
may either constitute an acceptance of the original offer, an offer covering the the things does not exist,except where, in either case, the intent of the
additional part or a counter-offer replacing the original offer. In a case such as offeror is otherwise
this, the intent of the parties must prevail.
○ If it is clear that the meaning of the acceptance is positively and
equivocally to accept the offer, whether such request is granted or not, ARTICLE 1320
a contract is formed.
○ It will depend on the effect of the alteration An acceptance may be express or implied.
● The offeror may impose the manner of acceptance to be done by the offeree (Art
1321). If done differently, it constitutes a counter offer. FORM OF ACCEPTANCE OF OFFER
● Whether express or implied, the acceptance is effective only if communicated to
COGNITION THEORY the offeror.
● Our code follows the cognition principle or theory as opposed to the manifestation
theory in determining when the offer the acceptance concur. EXPRESS – Through oral or written words
● This is clear from the provision in this article that “acceptance by letter or telegram
does not bind the offer except from the time it came to his knowledge.” IMPLIED – One that is inferred from the act or conduct
● It is the communication of the exercise of the party’s will and not merely the SILENCE – Silence is ambiguous. Silence in itself is neither acceptance nor rejection. Can
manifestation of such exercise that gives legal effect to such exercise of the will. it mean acceptance? One must look at the circumstances.
● The offer is deemed legally made when it comes to the offeree’s knowledge, ● Example: A and B own stalls which sell rice. C delivers 1000 kilos of rice to A
whether actually or constructively. every Sunday. If A is not there, C just leaves it with A‘s assistant. C tries to do
○ Constructive knowledge is where the letter or telegram is received by the business with B. B is not there though. C leaves rice with B‘s assistant. B does
offeror who for some reason did not read it but not where he could not not call C. Both A and B are silent. A accepted the rice because of the
have read it arrangement. If A did not want to accept the rice, then A should have called. B‘s
silence is not acceptance.
● As a general rule, silence cannot be construed as acceptance. ● Consent involves the concurrence of offer and acceptance.
● Exceptions: ● Death, civil interdiction, insanity or insolvency deprives the party concerned of
○ Where the parties agree expressly or impliedly, that it shall amount to contractual capacity and hence will prevent such concurrence from taking place.
acceptance ● Applies to both parties
○ Where specific provisions of law so declare
○ Where under the circumstance such silence constitutes estoppel OTHER CAUSES FOR EXTINGUISHMENT OF OFFER
1. Death, civil interdiction, insanity or insolvency of either the offeror or the offeree
before the perfection of consent (Art 1323)
ARTICLE 1321 2. Rejection by the offeree
3. Lapse of the period stated in the offer without acceptance being communicated
The person making the offer may fix the time, place, and manner of acceptance, all of by the offeree to the offeror (Art 1324)
which must be complied with. (n) 4. Qualified or conditional acceptance (Counter-offer)
5. Communication by the offeror to the offeree of the revocation or withdrawal of his
TERMS OF THE OFFER offer before acquiring knowledge of the offeree’s acceptance (note: this is only
● The offeror has the right to determine the specifics of the offer: not only its terms, possible if there is no binding contract of option)
but also the duration, the time and the manner of acceptance of the offer. 6. Loss of the thing constituting the object of the prestation before the perfection of
● These must be complied with otherwise the offer is terminated. consent (Art 1262)
● Acceptance departing from the terms of the order constitutes a counter offer.
○ Has effect of extinguishing the original offer AND constitutes a new offer ARTICLE 1324
which original offer may accept or reject
● When there is no fixed period for acceptance and the offer is made to a person When the offerer has allowed the offeree a certain period to accept, the offer may be
present, the acceptance must be made immediately. withdrawn at any time before acceptance by communicating such withdrawal, except
● If however there is a contract of option, the terms of the contract shall govern. when the option is founded upon a consideration, as something paid or promised. (n)
ARTICLE 1322 CONTRACT OF OPTION → Preparatory contract giving a person for a consideration a
certain period and under specified conditions within which to accept the offer of the offeror
An offer made through an agent is accepted from the time acceptance is ● Separate and distinct from principal contract
communicated to him. (n) ● Option – may also refer to right or privilege itself given to the offeree to accept an
offer within a certain period
COMMUNICATION OF ACCEPTANCE TO AGENT
● If the offeror appoints a person the act on his behalf there is created an agency OPTION PERIOD → Period given within which the offeree must decide whether or not to
for this purpose and as long as the representative acts within his competence, enter into the principal contract
acceptance made known to him has the effect of acceptance communicated to
the principal. OPTION MONEY → Money paid or promised to be paid as a distinct consideration for an
● In the absence of adequate authority, the person is essentially only a messenger, option contract
even if he acts with the knowledge of the person who sent him. In such a case, ● Not to be confused with earnest money which is actually a partial payment of the
for the consent to be effective it must be relayed to the proper party. purchase price
● The same rule applies to a person acting on the offeree’s behalf. ● Consideration need not be monetary; it may be undertaking or other things but
○ If there is a proper agency, the agent’s acts and decisions are those of must be of vlaie
the offeree. Otherwise the person sent by the offeree is nothing more
than a postman. WITHDRAWAL OF OFFER
● Essentially the rule laid down in Art. 1324 is identical to that laid down in Art. 1479
par. 2, governing options to buy or sell.
ARTICLE 1323
RULES ON WITHDRAWAL OF OFFER
An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of
either party before acceptance is conveyed. (n) General Rule: When the offerer gives to the offeree a certain period within which to accept
the offer, the general rule is that the offer may be withdrawn as a matter of right at any time
before acceptance
WHEN OFFER BECOMES INEFFECTIVE
Exceptions ○ Would withdrawal of the offer entitle the offeree to demand

1. Offer unsupported by a distinct consideration specific performance?
○ In this situation, an offer is made and the offeror grants the offeree a ■ Ang Yu v. CA: If the optioner-offeror withdraws the
period within which to accept. offer before its acceptance by the optionee-offeree,
○ The grant of the period is not supported by a distinct consideration (no the latter may not sue for specific performance on the
compensation distinct and separate from the price) proposed contract since it has failed to reach its own
○ Rules: stage of perfection. The optioner-offeror renders
■ The offeror has a right to withdraw the offer even before the himself liable for damages for breach of option.
expiration of the period granted to the offeree. ■ Balane disputes Ang Yu v. CA: When the option
■ The withdrawal of the offer takes effect upon its communication contract is breached by the offeror , the offeree may
to the offeree. sue for specific performance. What he is demanding
■ Pending notice to the offeree of the withdrawal of the offer, the specific performance of is not the prospective contract
offer subsists and should the offeree, before said notice of of sale but of the contract of option. He is compelling
withdrawal, communicate his acceptance to the offeror, a the offeror to extend to him the option to purchase the
perfected contract arises. property at the predetermined price.
■ The right of the offeror to withdraw the offer before the lapse of 3. Right of First Refusal
the period should not be exercised whimsically or arbitrarily. ● An evolving concept in the law of contracts.
Otherwise, he may be held liable for damages. ● The right of first refusal is a contractual grant, not of the sale of property
2. Offer supported by a distinct consideration but of the first priority to buy in the event the owner sells the same.
● In this situation, the offeree gives a consideration distinct from the price ● Enforceability of right of first refusal
(he pays for the period granted to him). ○ Enforceable through an action for specific performance either
● The consideration distinct from the price may be money or any other against the optioner or grantor or the vendee. If the vendee
thing of value. acted in good faith only an action for damages against the
● Here, there is an option contract. Option contract defined: optioner will lie.
○ One necessarily involving the choice granted to another for a ○ Only after the optionee has failed to exercise his right can the
distinct or separate consideration as to whether or not to owner sell the property to another party under the same terms
purchase or to sell a determinate thing at a predetermined and conditions offered to the optionee or under terms and
price. conditions more favorable to the owner.
○ A preparatory contract in which one party grants to another for ● Need for separate consideration
a fixed period and at a determined price the privilege to buy or ○ Equatorial v. Mayfair: requirement of separate consideration is
sell. not applicable to a right of first refusal.
● Meaning of separate or distinct consideration ■ Authoritative force of this pronouncement is
○ Separate payment which is not part of the purchase price or of weakened by a statement in the same case that the
the consideration for the contract which the offeror is offering to consideration for the lease included the consideration
enter into with the offeree. for the right of first refusal.
○ The prestation for which the offeree is paying a distinct price is ○ Subsequent cases presupposed the requirement of separate
the grant of the period within which he can consider whether or consideration.
not he should enter into the principal transaction. ○ The requirement of a separate consideration in a right of first
○ The payment of an amount intended to form part of the refusal is a logical one, since such a requirement is present in
purchase price does not create an option contract. Such option contracts.
amount will be considered as earnest money and will be proof ● Applicability of the Statute of Frauds
of the perfection of the contract of sale. ○ Not being one of the contracts enumerated in the Statute of
○ An amount given by a prospective buyer merely as a deposit of Frauds (Art. 1403(2)), a right of first refusal need not be in
what would eventually become earnest money or writing to be enforceable.
downpayment is not a distinct consideration. ● Can a right of first refusal be withdrawn?
● Rules for option contract: ○ Considering the similarity in nature between an option contract
○ The offeror is bound to keep the offer open for the period and a right of first refusal, and in light of the fact that they are
agreed upon governed by the same rules as to enforceability and need for
○ Withdrawal of the offer constitutes breach, for which the offeror separate consideration, it is logical to conclude that the rules
would be liable in damages. on withdrawal or revocation applicable to contracts of option
apply as well to a right of first refusal. Thus, a gratuitous right
of first refusal is revocable upon notice to the grantee while an BUSINESS ADVERTISEMENTS
onerous one (supported by a distinct consideration) cannot be ● Advertisements are by definition public notices.
withdrawn by the grantor. ○ Generally public notice of things for sale such as those found in print,
● Right of first refusal v. option contract visual, audio or social media contain only the barest of details which are
hardly sufficient to constitute an offer contemplated in this section.
● This article treats advertisements as mere invitations to make an offer or as
Right of First Refusal Option Contract preludes to negotiations between the party publishing the advertisement and an
interest party.
Contractual grant not of the sale of a A preparatory contract in which one party ● If exceptionally the advertisement contains data which are definite, then such
property but of the first priority to buy the grants to another for a fixed period and at advertisement will constitute an offer.
property in the event the owner sells the a determined price the privilege to buy or
same. sell or to decide whether or not to enter PUBLIC OFFERS
into a principal contract. ● General Rule: When an offer is made to a particular person, no one else can
accept.
May not be supported by consideration Must be supported by consideration ● Exception: When it is a general offer or one that is made to the public or to a
particular class of persons
The object is determinate but there is The offer is definite and the object and ○ These may be accepted by anyone
neither a definite offer to sell nor a cause is determinate. ○ Cannot be ascertained to a certain person immediately
determinate price. ○ As soon as there is an acceptance by a person falling within the class to
whom the offer is made, there is a binding contract
Exercise is dependent upon the grantor’s Option granted for a fixed period and at a
eventual intention to enter into a binding determined price. (Lacking these two
juridical relation with another and on essential requisites, what is involved is ARTICLE 1326
terms, including the price that are yet to only a right of first refusal.)
be firmed up. Advertisements for bidders are simply invitations to make proposals, and the advertiser
is not bound to accept the highest or lowest bidder, unless the contrary appears. (n)
Option Contract Contract of Sale ADVERTISEMENT FOR BIDDERS

● An advertisement to submit bids is similar to the notice referred to in the preceding
Unaccepted offer; States the terms and Fixes definitely the relative rights and article. It is not the advertiser making the offer but the bidder.
conditions on which the owner is willing to obligations of both parties at the time of ● General rule: Advertiser is not bound to accept either the highest or the lowest
sell his property, if the holder elects to its execution; Offer and acceptance are bidder.
accept them within the time limited. If the concurrent, since the minds of the ○ Exceptions:
holder does so elect, he must give notice contracting parties meet in the terms of ■ When the contrary appears such as when the advertiser binds
to the other party, and the accepted offer the agreement himself to accept the highest or the lowest bid
thereupon becomes a valid and binding ■ When a law requires the advertiser to accept the highest or
contract. If an acceptance is not made lowest bid (Ex. judicial sales)
within the time fixed, the owner is no ● One who submits a bid not only signifies assent to the terms and conditions of a
longer bound by his offer and the option is proposal, but impliedly binds himself to them, if and when the bid is considered
at an end. ● This right should not be exercised arbitrarily or capriciously so as to constitute
abuse of right.
Test – W/N the agreement could be specifically enforced
ARTICLE 1327
ARTICLE 1325 The following cannot give consent to a contract:

1. Unemancipated minors;
Unless it appears otherwise, business advertisements of things for sale are not definite 2. Insane or demented persons, and deaf-mutes who do not know how to write.
offers, but mere invitations to make an offer. (n) (1263a)
CAPACITY – To form a valid and legal agreement, it is necessary that there be a party 2. Insane or demented persons – Insanity must exist at the time of contracting
capable of contracting and a party capable of being contracted with ● Unless proved otherwise, a person is presumed to be of sound mind at
any particular time and the condition is presumed too continue to exist
CLASSIFICATIONS OF CAPACITY ● Deprive him of the discretion and understanding required for contractual
1. Natural consent
● Only natural persons have this BUT in order that they may have full ● Mental state of the party at the time the contract is entered
capacity to contract, they must not only have the natural capacity to ● Include states of imbecility, idiocy, schizophrenia and various other
contract, but also the legal capacity medical or psychological terms indicating mental disorder
● Absent of natural capacity results in natural incapacity 3. Deaf-mutes – Deaf and dumb
○ Based on nature or real absence of aptitude to consent, i.e. ● If deaf-mute knows how to write, the contract is valid since he is capable
insane of giving intelligent consent
2. Legal
● Refers to natural and artificial persons RATIONALE FOR DISQUALIFICATION – These persons may easily be victims of fraud
● Absence of legal capacity results in legal incapacity as they are not capable of understanding or knowing the nature or import of their actions
○ Based on positive provisions of law
○ Exist as limitations of natural capacity, i.e. civil interdiction
● Legal incapacities are primarily based – ARTICLE 1328
○ On the existence of superior rights of third persons, like the
incapacity of the insolvent Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of
○ On the ground of public policy, or for the protection of public drunkenness or during a hypnotic spell are voidable. (n)
interest, as in the case of the incapacity of certain specially
disqualified persons enumerated in Art 1491 to purchase LUCID INTERVAL – Temporary period of sanity
certain kinds of property ● If an insane or demente person enters into a contract during a lucid interval, it is
valid.
PRESUMPTION – Capacity to give consent is presumed. ● Must be shown that there is a full return of the mind to sanity as to enable him to
● Civil Code does not define who has capacity. It defines those who do not have. understand the contract he is entering into
● Person of advanced years or who has physical infirmities is not automatically
incapacitated. It must be shown by clear and convincing evidence that his age or DRUNKENNESS AND HYPNOTIC SPELL – Renders a contract voidable
infirmities impair his mental faculties severely. ● Impair the capacity of a person to give intelligent consent
● When capacity is shown to have previously existed in other acts done or contracts ● Equivalent to temporary insanity
entered into, it is presumed to continue. ● It is not required that such state was procured by the circumvention of the other
● Burden is on the party who asserts incapacity. party
● Admit of degrees or stages
VOIDABLE CONTRACT – Valid and binding until it is annulled by a proper action in court; ● Rule applies to intake of any other substance (like drugs or hallucinogens)
Susceptible of ratification
PERSONS WHO CANNOT GIVE CONSENT ARTICLE 1329

● There is no effective consent without the capacity to give such consent. It renders
the contract voidable. The incapacity declared in Article 1327 is subject to the modifications determined by
law, and is understood to be without prejudice to special disqualifications established
1. Unemancipated minors – Those who have not attained age of emancipation (18 in the laws. (1264)
years) and are still subject to parental authority
● In the absence of false representations by a minor as to hsi age, the
mere fact that the person believed him to be of age does not render the MODIFIED INCAPACITY AS DECLARED IN ART 1327
contract valid. ● Valid contract if entered through a guardian or legal representative
● Misrepresentation by a minor as to his age does not estop him from ● Valid contract where the minor who was near majority age misrepresented his
denying that was of age at the time he entered into a contract. actual age and convincingly led the other party to believe in his legal capacity
● When a minor has already passed the age of puberty and is nearing the ○ In order to hold a minor liable, the misrepresentation must be actual and
adult age pretending to have already reached the age of majority enters not constructive.
into the sale of real estate, it is valid because the other party had good ● When necessities such as food, are sold and delivered to a minor or other person
reason to believe the minor’s capacity. without capacity to act, he must pay a reasonable price.
● A minor may contract for life, health, and accident, as long as the insurance is
taken on his life and the beneficiary appointed is the minor’s estate or the minor’s ● Defects of the will and impairs the characteristics of consent
father, mother, spouse, brother or sister ● Courts are given wide discretion to weigh facts and circumstances of such cases
● If entered into by 2 minors, a contract is unenforceable.
Causes vitiating consent Causes of incapacity
PERSONAL DEFENSE – Minority and incapacity due to insanity cannot be invoked by co-
defendants.
Temporary More or less permanent
OTHER SPECIAL DISQUALIFICATIONS PROVIDED BY LAW
● Person suffering accessory penalty of civil interdiction Refer to contract itself Refer to person entering the contract
● Hospitalized lepers
● Prodigals (spendthrifts) Both make a contract voidable or annullable only
● Deaf and dumb who are unable to read and write
● Those who are of unsound mind even though they have lucid intervals
● Those who, by reason of age, disease, weak mind and other similar causes, CONSENT RELUCTANTLY GIVEN
cannot without outside aid, take care of themselves and manage their property ● One acts voluntarily and independently in such cases
● Insolvents until discharged ● There is no difference between this and when one acts spontaneously and
● Married women in specific cases joyously
● Husband and wife in certain circumstances regarding property
● Purchase of property by persons occupying positions of trust or confidence
ARTICLE 1331
WEAKNESS OF MIND
● If not caused by insanity, this alone cannot be a ground for avoiding a contract. In order that mistake may invalidate consent, it should refer to the substance of the
thing which is the object of the contract, or to those conditions which have principally
moved one or both parties to enter into the contract.
ARTICLE 1330
Mistake as to the identity or qualifications of one of the parties will vitiate consent only
A contract where consent is given through mistake, violence, intimidation, undue when such identity or qualifications have been the principal cause of the contract. A
influence, or fraud is voidable. (1265a) simple mistake of account shall give rise to its correction. (1266a)
CHARACTERISTICS OF CONSENT MISTAKE OR ERROR – False notion of a thing or a fact material to the contract
● Intelligent – There is legal capacity to act; made with sufficient understanding
● Free and voluntary – No threat or intimidation; no restraint on its exercise NATURE OF MISTAKE
● Conscious or spontaneous – No mistake, undue influence, or fraud (causal) ● May be of fact or of law
● Art 1331 refers to substantial mistake of fact which may arise from ignorance or
CAUSES THAT VITIATE CONSENT/VICES OF CONSENT lack of knowledge
1. Error or mistake ● Party would not have entered into the contract or given his consent had he known
2. Violence or force of the mistake
3. Intimidation or threat or duress ● Mistake must be material and go to the essence of the contract
4. Undue influence ○ Not every mistake will make a contract voidable
5. Fraud or deceit ● No material distinction between ignorance (absence of comprehension of a thing)
and error (mistaken notion of a thing)
FACTORS VITIATING INTELLIGENCE ○ In both cases there is a failure or lack of knowledge regarding a thing
1. Incapacity ● Although mistake does not necessarily involve fraud or deceit, the effect of these
2. Mistake two factors is the same, mainly, to deprive the party of intelligent consent.
3. Fraud ○ In this sense, mistake is broader than fraud and subsumes it.
FACTORS VITIATING FREEDOM ELEMENTS OF MISTAKE OF FACT

1. Violence In order that mistake may vitiate consent, it must refer to
2. Intimidation 1. The substance of the thing which is the object of the contract; or
3. Undue influence
2. Those conditions which have principally moved one or both parties to enter into ● Provision contemplates a situation where the consent of one contracting party
the contract; or was given but vitiated by mistake or fraud by the other
○ Test will be the intent of the parties as derived from the relevant or ● Not applicable when there is a complete absence of consent
attendant circumstance such as their agreement, preliminary
negotiations, and purpose of the contract DUTY OF COURTS WHEN ONE OF THE PARTIES IS AT A DISADVANTAGE – Be more
3. The identity or qualifications of one of the parties, provided, the same was the vigilant for the protection of contracting party with the interior position
principal cause of the contract
○ Usually qualifications
○ Nationality, skin color, religious affiliation, civil status, ethnic or linguistic ARTICLE 1333
affiliation are generally not principal or even relevant qualifications but
may be determinative in some circumstances. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting
the object of the contract. (n)
WHEN NOT VITIATING – As long as it does not go to the essence of the contact
● Error as regards the incidents of a thing or accidental qualities EFFECT OF KNOWLEDGE OF RISK
● Mistake as to quantity or amount ● Assumed that he is willing to take chances and cannot claim mistake
● Error as regards the motives of the contract ● True when the contract is aleatory in nature
● Mistake as regards the identity or qualifications of the other party ● Agreement becomes a contract of hazard (aleatory contract) or one subject to a
● Error which could have been avoided by the party alleging it suspensive condition

When one of the parties is unable to read, or if the contract is in a language not Mutual error as to the legal effect of an agreement when the real purpose of the parties
understood by him, and mistake or fraud is alleged, the person enforcing the contract is frustrated, may vitiate consent. (n)
must show that the terms thereof have been fully explained to the former. (n)
MISTAKE OF LAW → Arises from ignorance of some provisions of law, or form an

BURDEN OF PROOF IN CASE OF MISTAKE OR FRAUD erroneous interpretation of its meaning, or from an erroneous conclusion as to the legal
General Rule – When a person signs a document, it is done with full knowledge of its effect of an agreement, on the part of one of the parties
contents and consequences. Should he allege fraud or mistake, the allegation must be
sufficiently proven. EFFECT – Does not invalidate consent because “ignorance of the law excuses no one
from compliance”
Exception in Art 1332 – When one of the parties is unable to read, or if the contract is in a
language not understood by him WHEN DOES MISTAKE OF LAW VITIATE CONSENT – When there is mistake on a
● Burden of proof shifts to the other party doubtful question of the law or on the construction of its application
● Necessary in the PH where there is still a fairly large number of the population ● Analogous to mistake of fact
who remain illiterate
● Policy promoting social justice REQUISITES FOR APPLICATION
● Illiterate persons who cannot read are negligent if they fail to procure some 1. The error must be mutual
reliable person to read the contract and explain it to them before they sign 2. It must be as to the legal effect of an agreement
3. It must frustrate the real purpose of the parties
REQUIREMENTS FOR APPLICATION
● Must be established convincingly that the illiterate person could not read or UNILATERAL MISTAKE OF LAW
language is not understood by him ● Traditional and more widely held position: ignorance of the law excuses no one
(Art. 3) whether unilateral or mutual (when not falling within the situation
REQUISITES mentioned above) does not vitiate consent.
1. One of the parties to the contract is illiterate or unfamiliar with the language in ● Another school of thought holds that mistake of law, if material to the contract,
which the contract is written vitiates consent and prevents a valid contract from arising.
2. Mistake (or fraud) is alleged by said party ○ Art. 3 should not be viewed with such remorseless rigidity.
○ Flexibility on acting by mistake on a doubtful or difficult question of law
DUTY TO PROVE – Does not apply to a party who is not seeking to enforce the contract
There is violence when in order to wrest consent, serious or irresistible force is Violence or intimidation shall annul the obligation, although it may have been
employed. There is intimidation when one of the contracting parties is compelled by a employed by a third person who did not take part in the contract. (1268)
reasonable and well-grounded fear of an imminent and grave evil upon his person or
property, or upon the person or property of his spouse, descendants or ascendants, to
give his consent. To determine the degree of intimidation, the age, sex and condition of VIOLENCE OR INTIMIDATION BY A THIRD PERSON
the person shall be borne in mind. ● To make the contract voidable, it is necessary that the violence or intimidation
must be of the character in Art 1335
A threat to enforce one's claim through competent authority, if the claim is just or legal,
does not vitiate consent. (1267a) UNDUE INFLUENCE BY A THIRD PERSON
● The code is silent on the effect of undue influence employed by a third person on
one of the contracting parties.
NATURE OF VIOLENCE OR FORCE ● Balane thinks this should be included in addition to violence and intimidation as a
● Violence requires the employment of physical force vitiating factor even if perpetrated by a third person.
● Force employed must be serious or irresistible
● Essential that the force employed must be the determining cause or reason for MEANING OF THIRD PERSON
giving consent ● A third person is one who acts without the authority (express or tacit) or consent
of a contracting party.
REQUISITES OF VIOLENCE
1. Force must be irresistible
2. Force must be the direct and determining cause in obtaining consent ARTICLE 1337
REQUISITES OF INTIMIDATION OR THREAT There is undue influence when a person takes improper advantage of his power over
1. It must produce a reasonable and well-grounded fear of an evil and that the the will of another, depriving the latter of a reasonable freedom of choice. The following
person making it can and will carry it out circumstances shall be considered: the confidential, family, spiritual and other relations
2. Evil or threatened harm must be imminent and grave/ serious between the parties, or the fact that the person alleged to have been unduly influenced
3. Evil must be upon his person or property, or that of his spouse, descendants, or was suffering from mental weakness, or was ignorant or in financial distress. (n)
ascendants
4. It is the reason why he enters into the contract UNDUE INFLUENCE → Must be of a kind that so overpowers and subjugates the mind of
5. Threatened act must be unjust or unlawful a party as to destroy his free agency and make him express the will of another, rather than
his own
● Intimidation need not resort to physical force ● It is the most subjective among the factors vitiating freedom.
● Intimidation is internal; violence is external ● The two variable are:
● Substantial evidence must support the annulment of consent ○ The ascendancy of the active subject
● If the threat is to enforce a just or legal claim. It is justified as long as it is within ○ The emotional or psychological vulnerability of the passive subject
realm of law
ELEMENTS
FACTORS TO DETERMINE DEGREE OF INTIMIDATION 1. A person who can be influenced
● Age 2. The fact that undue or improper influence was exerted
● Sex, and 3. Submission to the overwhelming effect of such unlawful conduct
● Condition of the person
● Other circumstance PROOF – Depends upon circumstances of each case as established by clear and
convincing evidence
THEORY OF COLLECTIVE OF GENERAL DURESS
● There must be specific acts or instance of such nature and magnitude as to have, DISTINGUISHED FROM DUE INFLUENCE
in themselves, inflicted fear or terror upon the subject that his execution of the ● Undue influence is attained by superiority of will, mind, or character under
questioned deed or act cannot be considered voluntary circumstances which give dominion over the will of another tot such an extent as
● If party is compelled by a reasonable and well-grounded fear, this cannot apply to destroy free agency orr to constrain him to do against his will what he is unable
to refuse
● Examples of due influence: ● Insidious machinations – Deceitful scheme or plot with an evil design or with a
○ Solicitation fraudulent purpose
○ Importunity ○ False representation may be made by conduct
○ Argument ● Committed not only by misrepresentation but also by means of concealing or
○ Persuasion omitting to state material facts
○ Advertisements
● If a competent person has once assented to a contract freely and fairly, he is REQUISITES OF CAUSAL FRAUD
bound to it 1. There must be misrepresentation or non disclosure by a party to or simultaneous
to the consent or creation of the contract
CIRCUMSTANCES FOR CONSIDERATION 2. Must be serious in character
● Confidential, family, spiritual and other relations between the parties 3. Must have been employed by only one of the contracting parties
● Mental weakness ● If committed by third person, does not vitiate consent unless done in
● Ignorance connivance with a contracting party
● Financial distress of the person alleged to have been unduly influenced 4. Must be made in bad faith or with intent to deceive the other party with no
knowledge of the fraud
5. Must have induced the consent of the other contracting party
UNDUE INFLUENCE INTIMIDATION 6. Must be alleged and proved by clear and convincing evidence; Never presumed
Presupposes a pre-existing power which Presupposes no such antecedent power Add Balane requisites
the perpetrator has over the will of the
passive subject DOLO INCIDENTAL
● Does not play a decisive role in inducing consent.
Does not necessarily involve something Involves something wrongful in the ● Determination of whether the dolo is causante or incidental is often a question of
wrongful either in the threatened act or in threatened act or in the threat itself fact dependent on the particular circumstances of the case: the resolution of the
the threat itself. Involves exercise of moral question always depends on whether the deceit employed was the cause of the
suasion, authority, appeal to emotional consent or not.
ties, or bonds of affection ● There is a liability for damages.
Extent of restriction not as radical but Extent of restriction on freedom is more

must be strong enough to deprive the radical ARTICLE 1339
victim of volition required for contractual
freedom Failure to disclose facts, when there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud. (n)
REQUISITES OF NON-DISCLOSURE TO CONSTITUTE FRAUD

ARTICLE 1338 1. The undisclosed fact or facts are material to the contract
2. There is a duty to reveal the same
There is fraud when, through insidious words or machinations of one of the contracting 3. The non-disclosure is accompanied or motivated by deceit
parties, the other is induced to enter into a contract which, without them, he would not
have agreed to. (1269) ● Silence or concealment by itself does not constitute fraud. It must presuppose a
purpose or design to hide facts which other party ought to know
CAUSAL FRAUD (dolo causante) – Fraud employed by one party prior to or simultaneous ● Injured party may seek to annul whether the failure to disclose is intentional or
with the execution of the contract to secure the consent of the other unintentional as long as there is a duty to disclose
● Fraud must be that which determines or is the essential cause of the contract ● If unintentional, basis of action for annulment is mistake, not fraud
● Involved the use of deceit or deception ○ If unintentional and there is no duty to disclose, parties are bound by the
contract
HOW COMMITTED – Through insidious words or machinations or by concealment ● When a minor fails to disclose his minority, it does not per se constitute fraud
● Insidious words or machinations – Include false promises, exaggerated unless it is actual deceit. Mere failure to disclose does not hold him liable.
expectations or benefits, abuse of confidence, fictitious names, qualitis, or power
● Not necessary that they constitute criminal act
● Fraud must be committed by one party on the other

ARTICLE 1340 ○ Fraud committed by a debtor upon his co-debtor cannot be raised as a
defense
The usual exaggerations in trade, when the other party had an opportunity to know the ● If the fraud perpetrated by the third person causes mutual substantial error, the
facts, are not in themselves fraudulent. (n) contract becomes voidable on the ground of mistake.
DOLUS BONUS ARTICLE 1343

● Literally “good fraud” refers to dealer’s talk, the kind of exaggerations in
advertisement the public is familiar with Misrepresentation made in good faith is not fraudulent but may constitute error. (n)
● The ancient principle still governs in this regard.
○ Caveat emptor: buyer beware
○ Where the means of knowledge are at hand and equally available to all EFFECT OF REPRESENTATION MADE IN GOOD FAITH
parties, one will not be heard to say that he has been deceived ● Misrepresentation without intent to deceive (as when made through negligence
● Representations that do not appear on the face of the contract and these do not or an inaccurate knowledge of the facts) will preclude fraud but could induce
bind the parties mistake on the part of the other party.
● But for mistake to exist so as to vitiate consent, it must involve any of the things
enumerated in Art. 1331.
ARTICLE 1341
A mere expression of an opinion does not signify fraud, unless made by an expert and ARTICLE 1344
the other party has relied on the former's special knowledge. (n)
In order that fraud may make a contract voidable, it should be serious and should not
have been employed by both contracting parties.
EXPRESSION OF OPINION
● The mere expression of an opinion, either by one of the parties or by a third person Incidental fraud only obliges the person employing it to pay damages. (1270)
does not in itself constitute fraud, whether the opinion subsequently turns out to
be accurate or not.
● Such expression will be fraudulent if accompanied by deceit and induces consent. TWO KINDS OF FRAUD
It becomes dolo causante. 1. Causal Fraud – Fraud employed to secure the consent of the other party
● Misrepresentation must refer to facts, not opinions ● Ground for annulment of contract
● May also give rise to action for damages
REQUISITES 2. Incidental Fraud – Fraud employed to secure the consent of the other party but
1. Must be made by an expert which only renders the party who employs it liable for damages since it is not
2. Contracting party has relied on the expert’s opinion serious enough
3. Opinion turned out to be false or erroneous ● Diff from Art 1170 and 1171 which refer to fraud occurring in the
performance of a pre-existing obligation under a valid contract
ARTICLE 1342
Misrepresentation by a third person does not vitiate consent, unless such ARTICLE 1345
misrepresentation has created substantial mistake and the same is mutual. (n)
Simulation of a contract may be absolute or relative. The former takes place when the
parties do not intend to be bound at all; the latter, when the parties conceal their true
FRAUD BY A THIRD PERSON agreement. (n)
General Rule – Third person has no connection with a contract and a misrepresentation
by him does not vitiate consent SIMULATION OF A CONTRACT → Act deliberately deceiving others, by feigning or
pretending by agreement, the appearance of a contract which is neither non-existent or
Exception – If the misrepresentation by 3rd person creates substantial mistake and it concealed or is different from that which was really executed
affects both parties, contract may be annulled on the ground of mistake, even if deceit was ● It is the declaration of a fictitious will, deliberately made by agreement of the
without complicity of one of the parties parties in order to produce for the purpose of deception the appearance of a
juridical act which does not exist or is different from that which was really ○ Absolutely contracts, although void, do not fall under the pari delicto rule
executed. because the reason for their nullity is absolute want of subject-matter,
cause, and consent.
BASIC CHARACTERISTICS – Apparent contract is not really desired or intended to
produce leal effects expressed by its wordings or in any way alter the judicial situation of RELATIVELY SIMULATED CONTRACTS → When the contract entered into by the
the parties parties is different from their true agreement or the parties state a false cause in the
contract to conceal their real agreement
PURPOSE – Nullified because of the absence of true consent ● One that is disguised under the appearance of another contract.
● The parties genuinely intend to enter into a contract but conceal the true nature
REQUISITES FOR SIMULATION of the intended contract by giving it the semblance of another agreement.
1. An outward declaration of will different from the will of the parties ● The parties are bound by their real agreement, provided it does not prejudice a
2. False appearance must have been intended by mutual agreement 3rd person and is not intended for a purpose contrary to law, morals, good
3. Purpose is to deceive third persons customs, public order, or public policy
● Example: X has many creditors, and they are going after X‘s car. X cannot donate
INTENTION OF THE PARTIES – This is the primary consideration in determining the true his car to Y since the creditors will just resort to accion pauliana. So, X antedates
nature of a contract and whether it is simulated or not a contract of sale, selling his car to Y, except that X‘s intention is to donate his car
● Determined from the express terms of the agreement as well as from their to Y.
contemporaneous and subsequent acts ○ The ostensible contract is sale but there is a true contract intended by
the parties is that of donation.
● The essential requisites of a contract are present and the simulation refers only
to the content or terms of the contract.
SIMULATED CONTRACTS FRAUDULENT CONTRACTS ● Pari delicto rule does not apply where both the object and cause are licit and
simulation is only on the consent
Fictitious contracts Serous, real and intended for the
attainment of a prohibited result
Section Two – Object
Intended to hide the violation of a law
ARTICLE 1346
1347 Concept of Object
An absolutely simulated or fictitious contract is void. A relative simulation, when it does
not prejudice a third person and is not intended for any purpose contrary to law, 1348 Impossibility
morals, good customs, public order or public policy binds the parties to their real
agreement. (n) 1349 Quantity of Object
ABSOLUTELY SIMULATED CONTRACTS → When the contract doesn’t really exist and Balane Civil Notes Flow: 1347 → 1348 → 1349
the parties don’t intend to be bound at all by it
● The parties do not intend to be bound at all, either under the apparent contract or
any other contract.
● It is a purely fictitious agreement.
● Example: X pretends to sell his car to avoid tax liability. However X has no real
intention to sell the car.
● Consent, object, and cause are absent.
● Not susceptible to ratification
● Parties may recover from each other what they may have given
● The pari delicto rule does not apply to absolutely simulated contracts because
pari delicto only applies to contracts which are void on account of the illegality of
the cause or object.
● Inheritance ceases to be future upon death of decedent; thus may be the object
ARTICLE 1347 of a contract
All things which are not outside the commerce of men, including future things, may be REQUISITES OF INHERITANCE TO BE CONSIDERED FUTURER
the object of a contract. All rights which are not intransmissible may also be the object 1. The succession has not yet been opened at the time of the contract
of contracts. 2. The object of the contract forms part of the inheritance
3. The promissor has, with respect to the object, an expectancy of a right which is
No contract may be entered into upon future inheritance except in cases expressly purely hereditary in nature
authorized by law.
6. Must be determinate or determinable without the need of a new contract
All services which are not contrary to law, morals, good customs, public order or public between the parties
policy may likewise be the object of a contract. (1271a)
VALIDITY OF CONTRACTS UPON FUTURE INHERITANCE
OBJECT OF A CONTRACT – Subject matter; The thing to be delivered or the service to General Rule: A contract concerning future inheritance is void. These cannot be the
be rendered source of any right nor the creator of any obligation between the parties.
● Object of every contract is the obligation created
● Thing, service, or right which is the object of the obligation is also the object of Exception: Unless expressly authorized by law
the contract ● Future spouses who agree in any other property regime other than ACP
● Partition of property by act inter vivos by a person takes effect upon death
KINDS OF OBJECT OF CONTRACT ● Future inheritance cannot be renounced
● Object certain is the second essential element of a valid contract
● May be things (ex. Sale of property), rights (ex. Assignment of credits), or ARTICLE 1348
services (ex. agency)
Impossible things or services cannot be the object of contracts. (1272)
REQUISITES OF THINGS AS OBJECT OF CONTRACT
1. The thing must be within the commerce of men; that is, it can legally be the
subject of commercial transaction KINDS OF IMPOSSIBILITY
2. Must not be impossible, legally or physically 1. Physical – When a thing or service in the very nature of things cannot exist or be
3. Must be in existence or capable of coming into existence performed
4. Must be determinate or determinable without the need of a new contract a. Absolute – When the act cannot be done in any case so that nobody can
between the parties perform it
5. Must be transmissible b. Relative – When it arises from the special circumstances of the case
2. Legal – When the thing or service is contrary to law, morals, good customs, public
REQUISITES OF SERVICES AS OBJECT OF CONTRACT order, or public policy
1. The service must be within the commerce of men ● Act is contrary to law either because it is forbidden by a penal law or a
2. Must not be impossible, legally or physically rule of law makes it impossible to be done
3. Must be determinate or determinable without the need of a new contract
between the parties EFFECT OF PHYSICAL IMPOSSIBILITY ON VALIDITY OF CONTRACT
● Absolute impossibility – nullifies the contract
RIGHTS AS OBJECT OF CONTRACT ● Relative impossibility – If temporary, does not nullify; If permanent, it annuls the
General Rule: All rights may be the object of a contract. contract
Exceptions: When they are intransmissible by their nature, by stipulation or by provision

of law
● Political rights
● Marital and parental rights
● Right to public office
FUTURE INHERITANCE – Any property or right not in existence or capable of

determination at the time of the contract, that a person may inherit in the future
DISTINGUISHED FROM ENGLISH DOCTRINE OF CONSIDERATION

ARTICLE 1349 ● Consideration may consist either in some legal right, interest, benefit or
advantage conferred upon the promissor, to which he is otherwise not lawfully
The object of every contract must be determinate as to its kind. The fact that the entitled or rin some legal detriments, prejudice, ploss or disadvantage suffered or
quantity is not determinate shall not be an obstacle to the existence of the contract, undertaken by the promisee other than to such as he is at the time of consent
provided it is possible to determine the same, without the need of a new contract bound to suffer
between the parties. (1273) ● English doctrine of considerations is narrower than the continental doctrine of
causa
QUANTITY OF OBJECT NEED NOT BE DETERMINATE
● Need not be specified with absolute certainty DISTINGUISHED FROM OBJECT
● Sufficient that it is possible to determine the same without the need of a new ● In a bilateral agreement like purchase and sale, the cause for one is the subject
contract between the parties matter or object for the other and vice versa
● When the obligation consists in the delivery of a generic things, whose quality ● Distinction is only a matter of viewpoint
and circumstances have not been stated, Article 1246 governs
CLASSIFICATIONS OF CONTRACTS ACCORDING TO CAUSE
1. Onerous – One the cause of which, for each contracting party, is the prestation
Section Three – Cause or promise of a thing or service by the other
2. Remuneratory – One the cause of which is the service or benefit which is
remunerated
OUTLINE OF PROVISIONS 3. Gratuitous – One the cause of which is the mere liberality of the benefactor or
giver
1350 Cause
LIBERALITY AS CAUSE IN CONTRACTS OF BENEFICENCE
1351 Motive ● Deemed causa only in acts of pure beneficence or those designed solely and
exclusively to procure the welfare of the beneficiary without any intent of procuring
1352 Absence of Cause any satisfaction for the donor
● Where the idea of self-interest is totally absent on the part of the transferor
1353 Statement of False Cause
REQUISITES OF CAUSE
1354 Presumption of Existence and Legality of Cause 1. It must be real and not fictitious or simulated
2. It must be licit
3. It must exist at the time the contract is entered into
1355 Effects of Lesion
Balane Civil Notes Flow: 1350 1351 1352 1353 1354 1355 ARTICLE 1351
The particular motives of the parties in entering into a contract are different from the
ARTICLE 1350 cause thereof. (n)
In onerous contracts the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other; in remuneratory ones, the MOTIVE – Purely personal or private reason which a party has in entering into a contract;
service or benefit which is remunerated; and in contracts of pure beneficence, the Condition of the mind which incites to action, but also includes the inference as to the
mere liberality of the benefactor. (1274) existence of such condition from an external fact of a nature to produce such a condition
CAUSE MOTIVE
CAUSE – Essential, direct or proximate purpose or reason which the contracting parties
have in view at the time of entering into the contract
● Why of the contract, the essential reason which moves the contracting parties to Immediate or direct reason Remote or indirect reason
enter into the contract
● Civil Code term for consideration in Anglo-America or common law Always known to the other contracting May be unknown
party
Essential element of a contract Not essential ARTICLE 1354
Illegality affects the validity of the contract Illegality does not render the contract void Although the cause is not stated in the contract, it is presumed that it exists and is
lawful, unless the debtor proves the contrary. (1277)
Essential reason which moves the Particular reason of a contracting party
contracting parties to enter into it and which does not affect the other party
justifies the creation of an obligation PRESUMPTION OF EXISTENCE AND LEGALITY OF CAUSE
through their will ● The cause, even if unstated in the contract, is presumed to be existing, genuine,
and lawful.
● This is without prejudice to special requirements of form such as the Statute of
WHEN MOTIVE REGARDED AS CAUSE Frauds.
● Exceptions to this rule:
General Rule: Motive does not affect validity of a contract. ○ Art. 1353 - where the existence liceity of the cause will have to be proved
if the stated cause is shown to be false
Exceptions: ○ Contracts of option, where a consideration distinct from the price is
● When such motive predetermines the cause of the contract required.
● Made the condition for the efficacy of the contract
● Founded on a fraudulent purpose to prejudice third persons
● Blend to the degree that the contract entered into is null and void ARTICLE 1355
Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
ARTICLE 1352 contract, unless there has been fraud, mistake or undue influence. (n)
Contracts without cause, or with unlawful cause, produce no effect whatever. The
cause is unlawful if it is contrary to law, morals, good customs, public order or public EFFECTS OF LESION
policy. (1275a) 1. Lesion in itself does not affect the cause of the contract, nor does it invalidate
the contract
2. If lesion is the result of vitiated consent, the contract will be voidable on account
ABSENCE OR WANT OF CAUSE – There is a total lack of any valid consideration for the of the vitiation of the consent
contract 3. In certain cases, lesion can render a contract or judicial transaction recissible as
in cases falling under Art. 1381, pars. 1 and 2; and Art. 1088
EFFECT OF ABSENCE OF CAUSE a. Art. 1381 (1) - Those which are entered into by guardians whenever
● Contracts without cause confer no right and produce no legal effect the wards whom they represent suffer lesion by more than one-fourth
● Contract which is absolutely simul of the value of the things which are the object thereof;
b. Art. 1381 (2) - Those agreed upon in representation of absentees, if the
latter suffer the lesion stated in the preceding number
ARTICLE 1353 c. Art. 1088 - Should any of the heirs sell his hereditary rights to a
stranger before the partition, any or all of the co-heirs may be
The statement of a false cause in contracts shall render them void, if it should not be subrogated to the rights of the purchaser by reimbursing him for the
proved that they were founded upon another cause which is true and lawful. (1276) price of the sale, provided they do so within the period of one month
from the time they were notified in writing of the sale by the vendor.
● A false cause is inexistent and the contract would then be void for absence of
cause.
● If a false cause is stated in the contract, the agreement will be valid only if there
is a genuine cause supporting the contract.
● This article establishes a rebuttable presumption of absence of cause should the
stated cause be shown to be false.
● The party seeking to uphold the contract has the burden of proof to show that
there is a genuine and lawful cause.
CHAPTER 3 – FORM OF CONTRACTS ARTICLE 1357
If the law requires a document or other special form, as in the acts & contracts
enumerated in the ff. article, the contracting parties may compel each other to observe
that form, once the contract has been perfected. This right may be exercised
1356 Form of Contracts simultaneously with the action upon the contract.
1357 Nature and Requirement of Writing

ARTICLE 1358
1358
The ff. must appear in a public document:
Balane Civil Notes Flow: 1356 1357 1358 (1) Acts & contracts which have for their object the creation, transmission, modification
or extinguishment of real rights over immovable property; sales of real property or of
an interest therein are governed by Article 1403, No. 2 & 1405;
ARTICLE 1356 (2) The cession, repudiation, or renunciation of hereditary rights or of those of the
conjugal partnership of gains;
Contracts shall be obligatory, in whatever form they may have been entered into, (3) The power to administer property, or any other power which has for its object an act
provided all the essential requisites for their validity are present. However, when the appearing or which should appear in a public document, or should prejudice a 3rd
law requires that a contract be in some form in order that it may be valid or person;
enforceable, or that a contract be proved in a certain way, that requirement is absolute (4) The cession of actions or rights proceeding from an act appearing in a public
& indispensable. In such cases, the right of the parties stated in the following article document.
cannot be exercised. All other contracts where the amount involved exceeds P500 must appear in writing,
even a private one. But sales of goods, chattels or things in action are governed by
Article 1403, No. 2 & 1405.
FORM OF CONTRACTS
General Rule: contracts are consensual – perfected by mere consent (provided all
elements of consent, subject matter & cause are present) NATURE AND REQUIREMENT OF WRITING:
● Contract falling under Art. 1358 – should be contained in a public document (or
Exceptions: in the last paragraph, in writing, even a private one)
1. Those which a specific form is essential for validity i.e. – donations, contracts of ○ Nature of requirement: neither for validity nor enforceability.
partnership in which immovable property is contributed, sales of land through an ○ These contracts are valid & binding and enforceable even without a
agent, stipulation on interest, antichresis leads to void contract public document
2. Those which require a specific form (e.x. in writing) is required for enforceability ○ Reason: writing is required for the purpose of registration, or of
– i.e. those covered by Statute of Frauds (Art. 1403(2)) & Art. 1443 becomes facilitating proof of contract, or affecting 3rd persons
unenforceable ○ Effect of absence of document – does not affect validity.
3. Those which are required to be in a public document not for validity or ○ Here – remedy of compelling each other through a proper court action
enforceability but for effectivity against 3rd persons or for registration (Art. 1357 to execute the document is proper
& Art. 1358)
● These agreements must be in writing to be enforceable:
Note in: (1) & (2) – the form is absolute & indispensable, either for validity or enforceability 1. If the agreement is under the Statute of Fraud (Art. 1381(1)) &
● Neither can the parties compel each other through a judicial process to execute 2. Last paragraph of the article regarding sales of personality, at a price of at least
the required form. This is because such a suit assumes that the contract is binding P500
and enforceable which cannot apply bcos such contracts are either
void/unenforceable.
intention of the parties when some error or mistake has been committed. (Bentir
CHAPTER 4 – REFORMATION OF INSTRUMENT v Leanda)
● Rationale – equity orders reformation of an instrument in order that the true
OUTLINE OF PROVISIONS intention of the contracting parties may be expressed; the courts do not attempt
to make a contract for the parties.
○ It would be unjust & inequitable to allow the enforcement of a written
1359 Reformation of Instrument instrument which does not reflect or disclose the real meeting of the
minds of the parties.
1360 Principles Governing Reformation ● Procedure – Rule 63 of the Rules of Court
1361 Nature of Mistake REQUISITES FOR REFORMATION:

1. There must be an existing valid contract i.e., there must have been a genuine
1362 Fraud or Inequitable Conduct meeting of the minds
2. The contract must have been reduced to writing
1363 Nature of Fraud 3. The document failed to reflect the true intent of the parties
4. The failure have been caused by mistake, fraud, inequitable conduct, accident
1364 Nature of Mistake or relative simulation
1365 Mortgage or Pledges When is reformation allowed? 5 cases in: Arts. 1361, 1362, 1362, 1364, and 1365
1366 When Reformation Not Allowed

ARTICLE 1360
The principles of the general law on the reformation of instruments are hereby adopted
1367 Estoppel
insofar as they are not in conflict with the provisions of this Code
1368 Transmissibility of Reformation
PRINCIPLES GOVERNING REFORMATION
1369 Rules of Court ● The principles of general law in resolving cases on reformation of instruments,
without indicating where those principles are to be found
○ Report of Code Commission identifies “American Law” as the source of
the principles of general law.
1367 1368 1369 ○ Vague; could leave room for Courts to determine law since there are
no standards set
ARTICLE 1359
ARTICLE 1361
When, there having been a meeting of the minds of the parties to a contract, their true
intention is not expressed in the instrument purporting to embody the agreement, by When a mutual mistake of the parties causes the failure of the instrument to disclose
reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask
their real agreement, said instruments may be reformed.
for the reformation of the instrument to the end that such true intention may be
expressed.
NATURE OF MISTAKE
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the ● The mistake must be mutual & it must refer not to the agreement itself but the
minds of the parties, the proper remedy is not reformation of the instrument but manner the true agreement is reflected or expressed in the instrument
annulment of the contract. ● If mistake affects the very agreement – it could render the agreement voidable if
the matter is referred to in Art. 1331
SOURCE OF PROVISION OR REFORMATION OF INSTRUMENT
● Taken from the principles of equity in common law.
DEFINITION
● Reformation of instrument – remedy in equity by means of which a written
instrument is made or construed so as to express or conform to the real
If one party was mistaken & the other acted fraudulently or inequitably in such a way If 2 parties agree upon the mortgage or pledge of real or personal property, but the
that the instrument does not show their true intention, the former may ask for the instrument states that the property is sold absolutely or with a right of repurchase,
reformation of the instrument reformation of the instrument is proper.
MORTGAGE OR PLEDGES
FRAUD OR INEQUITABLE CONDUCT ● The need of reformation here is needed because the instrument neither reflects
● The situation contemplated in this article – one where one of the parties was nor conforms to the true intention of the parties
mistaken & the other acted fraudulently or inequitably – the fraud or inequitable
conduct of the latter may have brought about the: (1) mistake in the former (2)
may have been co-existent, not a causative, circumstance ARTICLE 1366
● Mistake – must NOT refer to the agreement itself BUT to the manner in which the There shall be no reformation in the ff. cases:
agreement is reflected in the instrument. (1) Simple donations inter vivos wherein no condition is imposed;
○ Mistake as to the agreement itself could vitiate consent (2) Wills;
(3) When the real agreement is void.
ARTICLE 1363
WHEN REFORMATION NOT ALLOWED
When one party was mistaken & the other knew or believed that the instrument did not 1. Simple donation – refers to all gratuitous donations (simple, remuneratory and
state their real agreement, but concealed that fact from the former, the instrument may modal [as to the part that is granted gratuitously])
be reformed. a. Reason: donations are formal contracts. Form is essential for their
validity. If not executed in the proper form void; nothing to reform
b. XPN: Onerous donations – these are considered onerous contracts, thus
NATURE OF FRAUD the document embodying them may be reformed
● The fraud of one party consists merely in his failure to disclose to the other party 2. Wills
the failure of the instrument to reflect the true agreement a. Reason: (1) Wills are not contracts (2) wills are formal documents & are
● It is fraud of a passive nature absolutely void if not in the proper form (Art. 805 & 806)
● The party mistaken may demand the appropriate reformation of the instrument 3. Void agreements
a. Where the real agreement is void, there is no legal justification for
reformation, there is law no contract between parties. A void contract,
ARTICLE 1364 even if contained in a document reflective of the intent of the parties,
remains void
When through the ignorance, lack of skill, negligence, or bad faith on the part of the
person drafting the instrument or of the clerk or typist, the instrument does not express
the true intention of the parties, the courts may order that the instrument be reformed. ARTICLE 1367
When one of the parties has brought an action to enforce the instrument, he cannot
NATURE OF MISTAKE subsequently ask for its reformation.
● This article refers to mistakes or inaccuracies in the document which are caused
by the clerk or draftsmen due to a variety of causes
● The remedy of reformation – at the instance of both contracting parties ESTOPPEL
● Basis of article: leased on estoppel. When a contracting party sues on the
document, he is admitting in effect the document’s accuracy & faithfulness. To
allow him to seek reformation is equivalent to allowing him to take inconsistent
positions.
ARTICLE 1368
ARTICLE 1370
Reformation may be ordered at the instance of either party or his successors in
interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his If the terms of a contract are clear & leave no doubt upon the intention of the
heirs & assigns. contracting parties, the literal meaning of its stipulations shall control.
If the words appear to be contrary to the evident intention of the parties, the latter shall
prevail over the former.
TRANSMISSIBILITY OF REFORMATION
● The right of action for reformation may be exercised by – the party prejudiced, RULES FOR INTERPRETATION AND CONSTRUCTION OF CONTRACTS:
or, if the mistake as to the accuracy od the document is mutual, by either party ● Articles 1370 To 1379 lay down rules for the application, interpretation and
● The right is transmissible to the party’s heirs, successors-in-interest unless the construction of contracts
contract Is intuit personae in which case the contract and all rights arising ● These rules apply to interpretation of statutes and wills
thereunder are extinguished by the death of the party. ● These rules are found in Rule 130, Sections 10 to 19 of the Rules of Court
● Where the parties have reduced their contract into writing, the contents of the
writing constitutes the sole repository of the terms of the agreement between the
ARTICLE 1369 parties. Whatever is not found in the writing must be understood as waived and
abandoned. Generally, therefore, there can be no evidence of the terms of the
The procedure for the reformation of instruments shall be governed by rules of court to contract other than the contents of the writing, unless it is alleged and proved that
be promulgated by the Supreme Court. the intention of the parties is otherwise.
PAR 1 – INTERPRETATION ACCORDING TO LITERAL SENSE OF WORDS

CHAPTER 5 – INTERPRETATION OF CONTRACTS ● When the terms of the agreement are so clear and explicit that they do not justify
an attempt to read into it any alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of the contract.
OUTLINE OF PROVISIONS ● When the true intent and agreement of the parties is established, it must be
given effect and prevail over the bare words of the written agreement.
1370 Rules for Interpretation and Construction of Contracts ○ Common sense & experience tells us that words used in the contract
should be understood in their literal, ordinary and grammatical sense,
1371 Contemporaneous and Subsequent Acts because such sense is presumably what the parties intended
● Intent is deduced from the language employed by the parties and the terms of the
1372 General Terms contract, when unambiguous, as in the instant case, are conclusive in the
absence of averment and proof of mistake or fraud – the question being not what
1373 Stipulations with Several Meanings the intention was, but what is expressed in the language used
● Rule 130, Sections 10 & 14
1374 Presumption of Validity and Principle of Integral Concordance ○ Sec. 10 – Interpretation of writing according to its legal meaning – the
language of a writing is to be interpreted according to the legal meaning
it bears in the place of its execution, unless the parties intended
1375 Use of Ambiguous Words
otherwise
○ Sec. 14 – Peculiar significance of terms – the terms of a writing are
1376 Usage and Custom
presumed to have been used in their primary and general acceptance,
but evidence is admissible to show that they have a local, technical, or
1377 Use of Obscure Words otherwise peculiar signification, and were so used and understood in the
particular instance, in which case the agreement must be construed
1378 Irresoluble Doubt accordingly
○ Art. 790 – laws down a similar rule
1379 Principles of Interpretation in Rules of Court
Balane Civil Notes Flow: 1370 → 1371 → 1372 → 1373 → 1374 → 1375 → 1376 →
1377 → 1378 → 1379
PAR 2 – CONFLICT BETWEEN WORDS & INTENT ○ Ut res magis valeat quam pereat – that thing may be valid rather than be
● The controlling norm is the INTENT of the parties nullified
● The words are presumed to give expression to the intent: the words are indicators
of intent; This presumption is overthrown if there is a variance between words &
intent. In such case, intent prevails ARTICLE 1374
The various stipulations of a contract shall be interpreted together, attributing to the

ARTICLE 1371 doubtful ones that sense which may result from all of them taken jointly.
In order to judge the intention of the contracting parties, their contemporaneous &
subsequent acts shall be principally considered. PRINCIPLE OF INTEGRAL CONCORDANCE
● In the construction of an instrument where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will give effect to
CONTEMPORANEOUS AND SUBSEQUENT ACTS AS GUIDES TO all.
INTERPRETATION ● Another aspect of the policy favoring validity is the principle that a contract should
● BASIC RULE: Always to determine and give effect to the intent of the parties be interpreted holistically or integrally – all parts of the contract should be, if
● It is helpful to take into account the acts of the parties at the time of the contract possible, interpreted in such a way that all the parts fit together, without conflict
& subsequent thereto, as such acts relate to the contract. Such acts are or inconsistency. Otherwise, the result would be, at best, partial invalidity
indicators of intent (Lim Yhi Luya v CA)
● Section 13. Interpretation according to circumstances. — For the proper SIMILAR RULES
construction of an instrument, the circumstances under which it was made, ● Section 11. Instrument construed so as to give effect to all provisions. — In the
including the situation of the subject thereof and of the parties to it, may be construction of an instrument, where there are several provisions or particulars,
shown, so that the judge may be placed in the position of those who language such a construction is, if possible, to be adopted as will give effect to all.
he is to interpret. ● Arts 788, and 791 regarding testamentary interpretation
However general the terms of a contract may be, they shall not be understood to Words which may have different significations shall be understood in that which is
comprehend things that are distinct & cases that are different from those upon which most in keeping with the nature & object of the contract.
the parties intended to agree.
WORDS WITH DIFFERENT MEANINGS
GENERAL RULE: Generalia verba sunt generaliter intellegenda – general terms are to ● Refers to words in a contract which may have more than one meaning – the words
be understood in a general sense themselves may cause some ambiguity, uncertainty, or confusion
● The normative & controlling factor however, is the intent of the parties. The ○ In order to clarify ambiguity etc & thus discover true intent of parties –
interpretation and application even of general and inclusive terms cannot go the words should be interpreted and understood in that sense most
beyond the intent of the parties conformable to the nature and purpose of the contract
● Example: if, in a contract of lease, the parties stipulate that any increase in the
areas leased shall “be for the benefit of the lessee, the word benefit is ambiguous
ARTICLE 1373 ○ If the area increased due to accretion, in what does the lessee’s benefit
consist? The logical & rational interpretation of the word is that the lessee
If some stipulation of any contract should admit of several meanings, it shall be shall have the right to use and enjoy the additional area as lessee, not
understood as bearing that import which is most adequate to render it effectual. as owner. That interpretation is keeping with the nature of the lease
contract
PRESUMPTION OF VALIDITY
● Where the instrument is susceptible to two interpretations, one which will make
it invalid and illegal, and another which will make it valid and legal, the latter
interpretation should be adopted.
● Public policy favors the validity of the contracts – in case of doubt presumes such
validity. This is in conformity with the principle of contractual freedom
EFFECT OF IRRESOLVABLE DOUBT

ARTICLE 1376 ● Purpose: To dispel any doubt or ambiguity as to the intent of the parties. The
contract is law as between the parties and their intent must always prevail
○ If, however, there exists doubt as to such intent, which proves incapable
The usage or customs of the place shall be borne in mind in the interpretation of the of resolution, the provisions of this article shall apply
ambiguities of a contract, & shall fill the omission of stipulations which are ordinarily
established. 1. Effect is the doubt refers to incidental circumstances –
a. If the contract is gratuitous – the contract shall be interpreted in favor of
USAGE AND CUSTOM AS AIDS TO INTERPRETATION the least transmission of rights.
● Usage and customs, whether general or local, form part of the mind set and i. Since the grantor receives nothing in return of his act, it is better
presupposition of the parties when they enter into an agreement. to err on the side of the less than of greater transmission and
○ It can thus be fairly presumed that, in the absence of any contract thus minimize the diminution of the grantor’s patrimony.
stipulation in the contract, they intended their agreement to be ii. i.e. donation
conformable to these customs & usages. b. If the contract is onerous – the resolution of the doubt should be in favor
○ Should there be any ambiguity in the contractual stipulations, those of the greatest reciprocity between the parties.
usage and customs may therefore be resorted to for clarification i. This is fully in accordance with the nature of onerous contracts,
which involves an exchange of values
HISTORY 2. If the doubt refers to principal circumstances – the contract is void. Such a
● In the old code – it was provided in Art. 6 contract would fall under Art. 1409, Par. 6
● In the present code this is recognized in:
○ Article 11. Customs which are contrary to law, public order or public ARTICLE 1379
policy shall not be countenanced.
○ Article 12. A custom must be proved as a fact, according to the rules of The principles of interpretation stated in Rule 123 [now Rule 130] of the Rules of Court
evidence. shall likewise be observed in the construction of contracts.
● Rule 130, Sec. 19 of the ROC – lays down the same rule
ARTICLE 1377 SUMMARY OF SOME RELEVANT PROVISIONS IN THE RULE 130, RULES OF COURT
The interpretation of obscure words or stipulations in a contract shall not favor the ● Sec. 10. Interpretation of a writing according to its legal meaning. — The language
party who caused the obscurity. of a writing is to be interpreted according to the legal meaning it bears in the place
of its execution, unless the parties intended otherwise.
RATIONALE – Equitable principle that no one should be allowed to profit from his ● Sec. 11. Instrument construed so as to give effect to all provisions. — In the
wrongful conduct; no one can benefit from his own wrong construction of an instrument where there are several provisions or particulars.
● A party who causes an ambiguity -i.e. a party who drafted the agreement, such a construction is, if possible, to be adopted as will give effect to all.
cannot profit from that ambiguity; on the contrary, such ambiguity should be ● Sec. 12. Interpretation according to intention; general and particular provisions.
resolved against him and in favor of the other party (Lim Yhi Luya v CA) — In the construction of an instrument, the intention of the parties is to be pursued;
and when a general and a particular provision are inconsistent, the latter is
paramount to the former. So a particular intent will control a general one that is
ARTICLE 1378 inconsistent with it.
○ When a general and a particular provision are inconsistent, the particular
When it is absolutely impossible to settle doubts by the rules established in the provision will control.
preceding articles, & the doubts refer to incidental circumstances of a gratuitous ● Sec. 13. Interpretation according to circumstances. — For the proper construction
contract, the least transmission of rights & interests shall prevail. If the contract is of an instrument, the circumstances under which it was made, including the
onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. situation of the subject thereof and of the parties to it, may be shown, so that the
judge may be placed in the position of those whose language he is to interpret.
If the doubts are cast upon the principal object of the contract in such a way that it ● Sec. 14. Peculiar signification of terms. — The terms of a writing are presumed
cannot be known what may have been the intention or will of the parties, the contract to have been used in their primary and general acceptation, but evidence is
shall be null and void. admissible to show that they have a local, technical, or otherwise peculiar
signification, and were so used and understood in the particular instance, in which
case the agreement must be construed accordingly.
● Sec. 15. Written words control printed. — When an instrument consists partly of
written words and partly of a printed form, and the two are inconsistent, the former Defective Contracts
controls the latter.
● Sec. 16. Experts and interpreters to be used in explaining certain writings. — ● The methodical classification under the New Civil Code is towards greater clarity
When the characters in which an instrument is written are difficult to be and refinement
deciphered, or the language is not understood by the court, the evidence of ● In the Old Code, the distinction between the voidable and void contracts was in
persons skilled in deciphering the characters, or who understand the language, is no sense clear.
admissible to declare the characters or the meaning of the language. ● Defective contracts, in the order of their defectiveness:
● Sec. 17. Of two constructions, which preferred. — When the terms of an 1. Rescissible [Arts. 1380 - 1389] – One that has caused a particular
agreement have been intended in a different sense by the different parties to it, economic damage to one of the parties or to a third person and may
that sense is to prevail against either party in which he supposed the other consequently be set aside even if intrinsically valid
understood it, and when different constructions of a provision are otherwise 2. Voidable [Arts. 1390 - 1402] – One in which the consent of one of the
equally proper, that is to be taken which is the most favorable to the party in whose parties is defective, either on account of want of capacity, or of the
favor the provision was made. vitiation of said consent; it is effective unless judicially set aside
● Sec. 18. Construction in favor of natural right. — When an instrument is equally 3. Unenforceable [Arts. 1403 - 1408] – One that, for lack of authority, or of
susceptible of two interpretations, one is favor of natural right and the other writing, or for incompetence of both parties, cannot be given effect
against it, the former is to be adopted. unless properly ratified.
● Sec. 19. Interpretation according to usage. — An instrument may be construed 4. Void or inexistent [Arts. 1409 - 1422] – One which is an absolute nullity
according to usage, in order to determine its true character. and produces no effect, as if it had never been executed or entered into
and is incapable of ratification
● Strictly speaking, the term defective contracts only refer to voidable and
CHAPTER 6 – RESCISSIBLE CONTRACTS unenforceable contracts
○ Rescissible contracts contain all the elements of contracts and are
therefore in conformity with contract law. The defect is extrinsic.
OUTLINE OF PROVISIONS ○ Void contracts cannot be referred to as contracts at all.
● Practically, defective contracts are used as a term because they all fall outside
the ambit of valid contracts and yet each of them produce legal consequences.
1380 Rescission ○ Sen Tolentino observes that the classification does not include the
relatively ineffective contracts or those contracts which are ineffective
1381 Kinds of Rescissible Contracts only with respect to certain parties, but are effective as to other persons.
■ Assignment of the lease by the lessee without the consent of
1382 the lessor is ineffective only as regards the lessor
■ Transfer of a debt by the debtor to another, without the consent
1383 Subsidiary Nature of Rescission of the creditor, is ineffective as to the creditor
■ The payment by a debtor to his creditor after the credit has
1384 Extent of Rescission been garnished or attached by a third person, is ineffective as
to the latter
1385 Mutual Restitution ○ Relatively ineffective contracts’ ineffectiveness, with respect to the party
concerned, is produced ipso jure. On the other hand, voidable contracts
1386 When Rescission Not Available do not become inoperative unless an action to annul it is instituted and
allowed
1387 Presumption of Fraud of Creditors
1388 Liability of Acquirer in Bad Faith
1389 Computation of Prescriptive Period
1388 1389
Contracts validly agreed upon may be rescinded in the cases established by law. The following contracts are rescissible:
(1290) 1. Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things
which are the object thereof;
RESCISSION 2. Those agreed upon in representation of absentees, if the latter suffer the
→ Remedy granted by law to the contracting parties and even to third parties, to obtain lesion stated in the preceding number;
compensation for the damages caused by a contract, even if valid, by man of the 3. Those undertaken in fraud of creditors when the latter cannot in any other
replacement of things to the state prior to the celebration of that. manner collect the claims due them;
→ Process or remedy designated to render inofficious a contract validly entered into and 4. Those which refer to things under litigation if they have been entered into by
normally binding, by reason of external conditions, causing an economic prejudice to a the defendant without the knowledge and approval of the litigants or of
party or his creditors. competent judicial authority;
5. All other contracts specially declared by law to be subject to rescission.
AS DISTINGUISHED FROM RESCISSION IN ART. 1191 (1291a)
Art 1380 Art 1191

ARTICLE 1382
Based on economic damage or prejudice Premised on breach
Payments made in a state of insolvency for obligations to whose fulfillment the debtor
Subsidiary remedy Primary remedy could not be compelled at the time they were effected, are also rescissible. (1292)
BASIS OF RESCISSION – Presupposes economic damage or prejudice, either to one of BY A GUARDIAN ON BEHALF OF HIS WARD (ART 1381, PAR 1) AND BY A
the parties of to a third person REPRESENTATIVE ON BEHALF OF AN ABSENTEE (ART 1381, PAR 2)
● Share the common feature of lesion in excess of ¼ of the value of the subject
REQUISITES OF RESCISSION matter of the contract
1. The contract must fall under Art 1381 or 1382 ● Lesion – Economic injury suffered, as a consequence of inequality, by one who
2. The injured party must have no other means of obtaining reparation for the does not receive the full equivalent of what he gives in a commutative contract
economic damage suffered by him (Art 1383) ○ Injury which one of the parties suffers by virtue of a contract which is
3. The injured party must be able to return whatever he may be obliged to return if disadvantageous to him
the contract is declared rescinded (Art 1385, Par 1) ○ Referred to as economic prejudice or pecuniary damage
4. The object of the contract must not have passed legally to a third party in good ● Not enough that there is lesion; Must exceed ¼ of the thing’s value
faith (Art. 1385, Par 2 and 3) ● If the contract is one which requires court approval, these paragraphs will not be
applicable.
EXTENT OF RESCISSION – Only as much as is necessary to make good the damage ○ Rule 95, Sec 1 of Rules of Court
suffered by the injured party (Art 1384) ○ In sales, disposition or encumbrances of real property of the ward, the
● Since contract is intrinsically valid, it remains effective insofar as no economic guardian has to obtain prior judicial approval
damage has been caused ■ If such approval is obtained, the contract cannot be rescinded
■ If approval is not obtained, the contract will not be rescissible
but unenforceable
● If there is no need for judicial approval, then it will be rescissible if it results in
lesion in the proportion specified. Such contracts involved personal property of
the ward or absentee.
● Another case of transaction rescissible for lesion is that in Art 1098: when, in the
partition of the decedent’s estate, one of co-heirs suffers lesion of at least ¼ of
his share. This may be judicial or extrajudicial.
● The amount or extent of such lesion must at least be determinable at the time of
transaction
● The ward of absentee himself is the proper party to demand the rescission
● These payments create an unfair advantage for the payee and cause prejudice
ACCION PAULIANA (ART 1381, PAR 3) to the creditors whose credits are already existing and are or will in the future be
● Also discussed under Art 1177 demandable
● Part of the comprehensive right given to unpaid creditors to exhaust the property ● Act of payment will not be rescissible if there are no creditors who will be
and assets of their debtors in order to obtain satisfaction of their claims prejudiced
● Requisites ● Insolvency here means lack of assets to meet one’s legal obligations (factual
1. The plaintiff asking for rescission has a credit prior to the alienation, insolvency)
although demandable later
2. The debtor has made a subsequent contract conveying a patrimonial
benefit to a third person ARTICLE 1383
3. The creditor has no other legal remedy to satisfy his claim
4. The act being impugned is fraudulent The action for rescission is subsidiary; it cannot be instituted except when the party
5. The third person who received the property conveyed, if it is by onerous suffering damage has no other legal means to obtain reparation for the same. (1294)
title, has been an accomplice in the fraud
● Fraud may be actual or presumed (Art 1387) SECOND REQUISITE - THE INJURED PARTY MUST HAVE NO OTHER MEANS OF
● Good or bad faith of transferee OBTAINING REPARATION FOR THE ECONOMIC DAMAGE SUFFERED BY HIM
○ If the alienation is gratuitous, the good or bad faith of the transferee is
immaterial. It is sufficient that the donor-debtor did not reserve enough Subsidiary remedy → a last-recourse remedy
property. ● Party seeking rescission has the burden of proving unavailability of any other
○ If the alienation is onerous, the complicity of the transferee is required. remedy
The contract will be rescissible only if the transferee acted in bad faith.
FROM WHOM REPARATION IS DEMANDABLE
ART 1381, PAR 4 1. Par. 1 and 2 of Article 1381
● Requisites ○ Offended party → Ward or absentee
1. There is a pending litigation over the thing alienated at the time of its ○ Reparation may be obtained from → the Vendee of the thing; or
alienation Guardian/Representative, although the basis of such claim would be
2. The plaintiff obtains a favorable judgment in the suit quasi-delict, not contractual
● When the plaintiff has a right of rescission 2. Par. 3, 4, and 5 of Article 1381; and Article 1382
○ Same rules as Art 1381, Par 3 ○ Reparation may be obtained from → the other contracting Party
○ If the alienation is gratuitous, the good or bad faith of the transferee is
immaterial.
○ If the alienation is onerous, the complicity of the transferee is required. ARTICLE 1384
The contract will be rescissible only if the transferee acted in bad faith.
Rescission shall be only to the extent necessary to cover the damages caused. (n)
SPECIAL CASES OF RESCISSION (ART 1381, PAR 5)
● Art 1526 – Right of unpaid seller of goods to rescind
● Art 1534 EXTENT OF RESCISSION – Only as much as is necessary to make good the damage
● Art 1539 suffered by the injured party (pro tanto)
● Art 1556 ● Since contract is intrinsically valid, it remains effective insofar as no economic
● Art 1560 damage has been caused
● Art 1567
PAYMENTS MADE BY AN INSOLVENT DEBTOR OF UNCOMPELLABLE DEBTS (ART

1382)
● Makes rescissible those payments made by an insolvent debtor, of debts which
the debtor cannot, at the time of the payment, be compelled to make
○ Payments of obligations which are not legally demandable include those
that are fictitious, void, natural, prescribed, remitted, subject to a
suspensive term that has not yet arrived, subject to a suspensive
condition
● Payment is not a contract but a mode of extinguishing an obligation
Rescission creates the obligation to return the things which were the object of the All contracts by virtue of which the debtor alienates property by gratuitous title are
contract, together with their fruits, and the price with its interest; consequently, it can presumed to have been entered into in fraud of creditors, when the donor did not
be carried out only when he who demands rescission can return whatever he may be reserve sufficient property to pay all debts contracted before the donation.
obliged to restore.
Alienations by onerous title are also presumed fraudulent when made by persons
Neither shall rescission take place when the things which are the object of the contract against whom some judgment has been rendered in any instance or some writ of
are legally in the possession of third persons who did not act in bad faith. attachment has been issued. The decision or attachment need not refer to the property
In this case, indemnity for damages may be demanded from the person causing the alienated, and need not have been obtained by the party seeking the rescission.
loss. (1295)
In addition to these presumptions, the design to defraud creditors may be proved in
any other manner recognized by the law of evidence. (1297a)
THIRD REQUISITE - THE INJURED PARTY MUST BE ABLE TO RETURN WHATEVER
HE MAY BE OBLIGED TO RETURN IF THE CONTRACT IS DECLARED RESCINDED
(par. 1) FRAUD – May be actual or presumed
MUTUAL RESTITUTION PRESUMPTION OF FRAUD OF CREDITORS

● Parties returning what they have received by virtue of the contract that has been ● In gratuitous dispositions, it is presumed when the debtor-donor did not reserve
rescinded sufficient property to pay pre existing debts (Par 1)
● The extent of the mutual restitution depends on the extent of the rescission; may ● In onerous contracts, it is presumed when at the time of the alienation, judgment
be total or partial or writ of attachment has been rendered against the debtor (Par 2)
WHEN NOT APPLICABLE – In some rescissible contracts where damage is suffered by ACTUAL FRAUD – In the absence of the presumption of fraud, it must be proved by actual
a third party since such third party received nothing under the contract and therefore has evidence, whether direct or circumstantial. These circumstances may constitute
nothing to return by virtue of its rescission proofs/badges of fraud
● Art 1381, Par 3 and 4 and transactions in Art 1382 1. Inadequacy of consideration
2. Alienation of the property while suit is pending
IF MUTUAL RESTITUTION IS REQUIRED, BUT CANNOT BE MADE 3. Sale of the thing on credit when the vendor is insolvent
● If the party has lost the thing or if the thing has been passed to a third person in 4. Evidence of large indebtedness or complete insolvency
good faith in an onerous transaction – Indemnity for damages 5. Transfer of all or most of the debtor’s property especially when he is financially
● If the inability to return the thing is caused by a third person's wrongful conduct, embarrassed
the party prejudiced may recover damages from the tortfeasor 6. The vendee’s failure to take possession of the property
Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place with respect Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify
to contracts approved by the courts. (1296a) the latter for damages suffered by them on account of the alienation, whenever, due to
any cause, it should be impossible for him to return them.
If there are two or more alienations, the first acquirer shall be liable first, and so on
successively. (1298a)
LIABILITY OF ACQUIRER IN BAD FAITH

● If alienation is in fraud of creditors – The acquirer, upon proper demand, is liable
to return it
○ If the acquirer is unable to return the thing, he will be liable to indemnify
the creditor for damages
● Whether onerous or gratuitous, there will be BAD FAITH if the acquirer was aware
that the alienation would prejudice the transferor’s creditors 1398 Mutual Restitution
● Arises irrespective of the cause of the inability of acquirer to return the thing,
whether negligence or fortuitous event 1399 Effect of Incapacity on Mutual Restitution
● Exception to the general rule that the only interest of the creditor is to obtain from
the patrimony of the debtor satisfaction of the obligation and third person incurs 1400
no liability for damages if he is willing and able to deliver
Restitution in case of Loss of the Thing to be returned
1401
ARTICLE 1389
The action to claim rescission must be commenced within four years. 1402 Effect of Failure to Restore on the Decree of the Annulment
For persons under guardianship and for absentees, the period of four years shall not
begin until the termination of the former's incapacity, or until the domicile of the latter is Balane Civil Notes Flow: Discussed in order
known. (1299)
ARTICLE 1390
COMPUTATION OF PRESCRIPTIVE PERIOD – 4 years counted from the celebration of
the contract which caused the economic damage The following contracts are voidable or annullable, even though there may have been
● Even if the debt is subject to a period that has not yet arrived, such debt became no damage to the contracting parties:
due from the time the debtor lost his solvency 1. Those where one of the parties is incapable of giving consent to a contract;
● If the fraudulent alienation was not known to the prejudiced creditor, the period 2. Those where the consent is vitiated by mistake, violence, intimidation, undue
should start running only from the time he acquires knowledge thereof influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They
are susceptible of ratification. (n)
EXCEPTION – Contracts falling under Par. 1 and 2 of Art. 1381
● In cases falling under Par. 1 and 2 of Art. 1381, the prescriptive period shall
commence running from the termination of the ward’s incapacity or of the VOIDABLE CONTRACTS → A voidable contract is a contract in which all of the essential
absence as the case may be elements for validity are present, but the element of consent is vitiated either by lack of
legal capacity of one of the contracting parties or by mistake, violence, intimidation, undue
influence, or fraud.
CHAPTER 7 – VOIDABLE CONTRACTS
● Suffer from an intrinsic defect – that of vitiated consent on the part of one of the
parties
CHARACTERISTICS OF VOIDABLE CONTRACTS
1. They are effective unless judicially set aside (Art 1390)
1390 Categories of Voidable Contracts 2. They can be assailed only in a proper action for the purpose (either by means of
a complaint or counterclaim). They cannot be attacked collaterally. (Arts. 1390
1391 Prescriptive Period for Action to Annul and 1397)
3. They can be ratified or confirmed and thus be cured of their defect (Arts 1392 to
1392 Ratification 1396)
4. They can be assailed only by the party whose consent was defective, not by the
1393 Forms of Ratification party who was competent (Art 1397)
1394 Ratification by Guardian CATEGORIES OF VOIDABLE CONTRACTS

1. Those where one of the parties is incapable of giving consent to a contract;
1395 Party to whom right to ratify belongs 2. Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
1396 Retroactivity
CATEGORY 1 – INCAPACITATED
1397 Exercise of right to annul ● Enumerated in Art 1327
● Minors
○ Where necessaries are sold and delivered to a minor or other person ● If vitiated by mistake or fraud – From the time the mistaken or defrauded party
without capacity to act, he must pay a reasonable price therefore. discovers the operative cause of the vitiation
Necessaries include everything that is indispensable for sustenance, ● If vitiated by minority or other incapacity – From cessation of guardianship
dwelling, clothing, and medical attendance. ○ When there is no guardianship, period commences to run from the time
● Insane or demented persons (includes those under a hypnotic spell ot state of contractual capacity is attained or recovered
intoxication)
● Deaf-mutes who do not know how to write The action for annulment will not prosper in the following:
● Code speaks of gradation or distinction. A contract entered into by a minor, is ● If the contract has been confirmed (Article 1392)
voidable, regardless of how many years he falls short of the age of minority. ● If the action to annul has prescribed (Article 1391)
○ Where minor who is close to the age of majority misrepresents to the ● When the thing which is the object of the contract is lost through the fault or
other contracting party that he is of age fraud of the person who has a right to institute the proceedings (Article 1401,
■ Contracts effected by minors who have already passed the Par 1)
age of puberty and adolescence and are near the adult age, ● Estoppel
when they pretend to have already reached the age of
majority, while in fact they have not, are valid, and cannot be
permitted afterwards to excuse themselves from compliance ARTICLE 1392
with obligations assumed by them or seek their annulment.
This is in consonance with the rules of estoppel. (Mercado vs. Ratification extinguishes the action to annul a voidable contract. (1309a)
Espiritu).
■ However in Braganza v, De Villa, the SC said that the RATIFICATION → The act or means by which an obligation or contract which suffers from
misrepresentation of an incapacitate person does not estop the vice of curable nullity is rendered efficacious
him from denying that he was of age, or from asserting that he ● Curing the defect of a voidable contract
was under age, at the time he entered into the contract. ● Spanish code uses the term confirrmacion (confirmation)
According to Professor Balane, this view is very logical. If the
minor is too young to enter into contracts, he is too young to
be estopped. Confirmation Ratification Acknowledgement
○ Contracts entered by minors of tender age – Code does not
distinguish, as compared to our Civil code Mode or process of curing Mode of curing the defect Mode of curing a
■ Balane believes that a distinction should be made such that the defect of a voidable of a contract entered into deficiency of proof (ex. oral
contracts entered by minors of tender age will be considered contract on behalf of a party by one contract subsequently
void and not just voidable who has no authority or reduced into writing)
■ Also applicable to an insane person who is similarly absolutely who has acted in excess of
incapable of giving consent his authority
CATEGORY 2 – VITIATED CONSENT Applies to unenforceable Applies to contracts

● Five vitiating factors under Arts. 1330 to 1344 contracts under Art 1317 covered by the Statute of
and 1403(1) Frauds (Art 1403(2))
ARTICLE 1391
The Code uses ratification to refer to all the three modes.
The action for annulment shall be brought within four years. This period shall begin: In
cases of intimidation, violence or undue influence, from the time the defect of the REQUISITES OF RATIFICATION
consent ceases. In case of mistake or fraud, from the time of the discovery of the 1. The contract is voidable under Article 13900
same. And when the action refers to contracts entered into by minors or other 2. The ratification is made consciously and deliberately
incapacitated persons, from the time the guardianship ceases. (1301a) 3. It must have been made after the cessation of the cause of voidability
4. It must be made by the party whose consent was defective or vitiated, or in proper
cases, by his guardian
PRESCRIPTIVE PERIOD FOR ACTION TO ANNUL – 4 years from the time of the
cessation of the cause of the defect of the contract EFFECTS OF RATIFICATION
● If vitiated by violence, intimidation, or undue influence – From the time the vitiating ● Curative – Converts the contract from a voidable one to a valid one
factor ceases
○ If ratification takes place during the pendency of an action to annul, RETROACTIVITY

action is tolled and the cause of action is extinguished ● When a voidable contract is confirmed, it is raised to the status of a valid contract
○ Once confirmed, it is cleansed of its defect ● Consequences of validity are deemed to arise from the moment of its perfection
● Retroactive – Retroactive to the moment of the perfection of the contract ● Carries with it the waiver of the right to annul but only to the ground encompassed
by the confirmation
ARTICLE 1393
ARTICLE 1397
Ratification may be effected expressly or tacitly. It is understood that there is a tacit
ratification if, with knowledge of the reason which renders the contract voidable and The action for the annulment of contracts may be instituted by all who are thereby
such reason having ceased, the person who has a right to invoke it should execute an obliged principally or subsidiarily. However, persons who are capable cannot allege the
act which necessarily implies an intention to waive his right. (1311a) incapacity of those with whom they contracted; nor can those who exerted intimidation,
violence, or undue influence, or employed fraud, or caused mistake base their action
upon these flaws of the contract. (1302a)
FORMS OF RATIFICATION
● Express – Any statement or declaration by the party entitled to claim annulment
that he is accepting or adopting the contract; May be written or oral REQUISITES FOR THE EXERCISE OF THE RIGHT TO ANNUL
● Tacit – Any act, conduct, or behavior of the party entitled to annul, from which an 1. That the party must have an interest in the contract
intention to abide by or accept the contract may be reasonably inferred; Such as 2. That the victim and not the party at fault should be the party alleging the defect
in total or partial performance
WHO MAY INSTITUTE ACTION FOR ANNULMENT
● Incapacitated partyy
ARTICLE 1394 ● Successors-in-interest of said party
● Subsidiaries of the party whose consent is vitiated
Ratification may be effected by the guardian of the incapacitated person. (n) ○ Unless they were aware of the defect of consent at the time of the
celebration of the contract or the guaranty or suretyship was constituted
RATIFICATION BY GUARDIAN precisely to assume liability in the event of the annulment of the
● Refers to cases where the contracting party was incapacitated obligation
● During period of incapacity, guardian may exercise the right of ratification on his
behalf RIGHT TO ANNUL – Belongs exclusively to the party whose consent is vitiated, his
● No need for court approval successors-in-interest, and his subsidiaries; Party whose consent was not vitiated cannot
annul the contract
ARTICLE 1395
ARTICLE 1398
Ratification does not require the conformity of the contracting party who has no right to
bring the action for annulment. (1312) An obligation having been annulled, the contracting parties shall restore to each other
the things which have been the subject matter of the contract, with their fruits, and the
price with its interest, except in cases provided by law. In obligations to render service,
PARTY TO WHOM RIGHT TO RATIFY BELONGS the value thereof shall be the basis for damages. (1303a)
● Only the party who has the right to have the voidable contract judicially set aside
can confirm it (i.e., party whose consent was defective)
● Act of ratification made by the party whose consent is vitiated does not need the MUTUAL RESTITUTION
other party’s consent ● Annulment of the contract creates the obligation of mutual restitution
● Common feature of resolution of reciprocal obligations and annulment
● When the contract is annulled, it is cancelled and is regarded by law as never
ARTICLE 1396 having existed
Ratification cleanses the contract from all its defects from the moment it was WHAT MUST BE RETURNED
constituted. (1313) ● Each party must return to the other what he received by virtue of the contract
● Each party must also return the fruits or their value produced by the thing while in
the possession of the party obliged to return
○ If party obliged to return is in good faith, he has no obligation to return ○ Damages

the fruits accruing while good faith lasted. ○ If the loss was caused by a fortuitous event –
○ If party obliged to return is in bad faith, he shall be obliged to return the ■ If defendant was in bad faith, he is liable to the same extent as
fruits that were actually received and could have been received. if he were at fault
■ If defendant was in good faith, there are two views
EXCEPTION – Qualified by equitable rule on unjust enrichment ● Sen Tolentino – Defendant remains liable but only for
the price of the thing and its fruits; will not be liable for
LIABILITY FOR DAMAGES – If the cause of the annulment is duress or fraud, the party interest
employing it is liable for damages ● 2nd view – Relieved from the liability to restore
○ Appears more persuasive since as a general
rule, FE excuse from liability
ARTICLE 1399 ● If the thing that is lost is that which the plaintiff (party whose consent was vitiated)
had to return
When the defect of the contract consists in the incapacity of one of the parties, the ○ If the loss occurs through plaintiff’s fault, the right to annul is extinguished
incapacitated person is not obliged to make any restitution except insofar as he has –
been benefited by the thing or price received by him. (1304) ■ Fault or fraud is only possible in cases of duress, fraud or
mistake
EXTENT OF INCAPACITATED PARTY’S OBLIGATION TO RESTORE ○ If loss occurs through a fortuitous event –
● Extends only to the benefit, if any, that the derived from the thing received by him ■ Tolentino – Plaintiff still has the right to annul provided he is
by virtue of the contract willing and able to return the value of the thing lost
● Incapacitated person is not responsible for his acts ■ Caguioa – Plaintiff retains the right to annul without any
● Also another qualification to the duty of mutual restitution obligation to return the value
STANDARD TO MEASURE BENEFIT – Use to which a prudent person would have ARTICLE 1402
devoted the thing
As long as one of the contracting parties does not restore what in virtue of the decree
ARTICLE 1400 of annulment he is bound to return, the other cannot be compelled to comply with what
is incumbent upon him. (1308)
Whenever the person obliged by the decree of annulment to return the thing can not
do so because it has been lost through his fault, he shall return the fruits received and RATIONALE – Since the duty is mutual or reciprocal, failure or refusal of one party to
the value of the thing at the time of the loss, with interest from the same date. (1307a) restore excuses the other from compliance with his own obligation
EFFECT OF FAILURE TO RESTORE ON THE DECREE OF THE ANNULMENT

ARTICLE 1401 ● Decree of annulment remains binding and effective despite the failure to restore
● Any further consequences or effects which the annulled contract would have
The action for annulment of contracts shall be extinguished when the thing which is the produced are barred
object thereof is lost through the fraud or fault of the person who has a right to institute ● Mutual restitution is a consequence of annulment
the proceedings.
CHAPTER 8 – UNENFORCEABLE CONTRACTS
If the right of action is based upon the incapacity of any one of the contracting parties,
the loss of the thing shall not be an obstacle to the success of the action, unless said
loss took place through the fraud or fault of the plaintiff. (1314a) OUTLINE OF PROVISIONS
RESTITUTION IN CASE OF LOSS OF THE THING TO BE RETURNED 1403 Unenforceable Contracts

● If the thing that is lost is that which the defendant (party with capacity) had to
return, defendant is liable for – 1404 Governing Provisions
○ Value of the thing
○ Its fruits 1405 Ratification of Contracts in Statute of Frauds
○ Interest
FIRST CATEGORY - Those entered into on behalf of another either WITHOUT or IN

1406 Remedy of Parties for Statute of Frauds EXCESS OF authority
● This is based on Art. 1317 which provides that:
1407 Ratification/Confirmation ○ “A contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his powers,
1408 Right to Assail Unenforceability shall be unenforceable, unless it is ratified, expressly or impliedly, by the
person on whose behalf it has been executed, before it is revoked by the
Balane Civil Notes Flow: 1403 1404 1405 1406 1407 1408 other contracting party.”
○ Professor Balane points out that there are various decisions made by
the Supreme Court when a person contracting on behalf of another has
ARTICLE 1403 absolutely no authority from the latter and the Court questionably held
that the contract is void for total absence of consent instead of following
The following contracts are unenforceable, unless they are ratified: the clear-cut provision in the Civil Code which provides that it must be
1. Those entered into in the name of another person by one who has been given unenforceable
no authority or legal representation, or who has acted beyond his powers; ● Art 1898 provides that:
2. Those that do not comply with the Statute of Frauds as set forth in this number. ○ “If the agent contracts in the name of the principal, exceeding the scope
In the following cases an agreement hereafter made shall be unenforceable by of his authority, and the principal does not ratify the contract it shall be
action, unless the same, or some note or memorandum, thereof, be in writing, void, if the party with whom the agent contracted is aware of the limits of
and subscribed by the party charged, or by his agent; evidence, therefore, of the the powers granted to the principal. In this case, however, the agent is
agreement cannot be received without the writing, or a secondary evidence of its liable if he undertook to secure the principal's ratification.”
contents: ○ Again, Professor Balane points out that the contract referred to here is
a. An agreement that by its terms is not to be performed within a year from not void, but rather unenforceable
the making thereof;
b. A special promise to answer for the debt, default, or miscarriage of SECOND CATEGORY - The Statute of Frauds
another;
c. An agreement made in consideration of marriage, other than a mutual Requirement of Writing
promise to marry; ● Contracts enumerated by it should be in writing. Writing must be signed.
d. An agreement for the sale of goods, chattels or things in action, at a price ○ Signed by - the party sought to be made liable under the agreement or
not less than five hundred pesos, unless the buyer accept and receive by his duly constituted agent or representative
part of such goods and chattels, or the evidences, or some of them, of ● Lack of writing does not make the contract void. It merely bars suit for
such things in action or pay at the time some part of the purchase money; performance of breach.
but when a sale is made by auction and entry is made by the auctioneer ○ It is a defect that can be cured by acknowledgement or ratification
in his sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of the purchasers and person Basic Rules Underlying the Statute of Frauds
on whose account the sale is made, it is a sufficient memorandum; 1. It does not apply to actions which are neither for violation of the contract nor for
e. An agreement for the leasing for a longer period than one year, or for the the performance thereof
sale of real property or of an interest therein; 2. It does not annul or make void the agreements that fail to comply with the
f. A representation as to the credit of a third person. requirement of writing; it merely bars an action for performance/breach
3. Those where both parties are incapable of giving consent to a contract. 3. It applies only to executory contracts
AGREEMENTS FALLING UNDER THE STATUTE OF FRAUDS

UNENFORCEABLE CONTRACTS → A contract that cannot be sued upon or enforced 1. An agreement that by its terms is not to be performed within a year from the
unless they are ratified making thereof
CATEGORIES/SUBDIVISIONS UNDER UNENFORCEABLE CONTRACTS Two Views to interpret the phrase “performed within a year”
1. Those entered into on behalf of another either WITHOUT or IN EXCESS OF 1. Cannot be completed within a year (Babao v Perez)
authority 2. Cannot be begun or commenced within a year
2. The Statute of Frauds ○ Professor Balane points out that this second view is more
3. Those where both contracting parties are incapable of giving consent consistent with the purpose of the law
○ He also states that this view is more compatible with the
doctrine that performance takes the contract out of the
operation of the Statute (since in the first view, even if there's 5. An agreement for the leasing of a longer period than one year, or for the sale of
already a partial performance but the obligations cannot be real property or of an interest therein
completed within 1 year, the contract still falls under Statute of ○ Covered under this paragraph:
Frauds) i. Lease of real property for a period longer than 1 year
● In any case, there must be a uniform ruling that ii. Sale of real property or interest therein (no price floor
performance on either side takes the agreement out indicated, regardless of value)
of the operation of the Statute of Frauds
6. A representation as to the credit of a third person
2. A special promise to answer for the debt, default or miscarriage of another ○ Unenforceable quasi-delict
○ The contract covered by this paragraph is a contract of guaranty i. There is no contract between the person making the
○ If a person binds himself solidarily with the principal debtor, this does representation and the person being induced to extend credit
not apply to a third person
○ Therefore: oral guaranties are unenforceable ii. What this paragraph forbids is the presentation of oral
evidence in a claim for damages arising from quasi-delict
3. An agreement made in consideration of marriage, other than a mutual promise ○ Not applicable if the representation is made with fraudulent intent
to marry i. If so, the Statute of Frauds will not apply and parol evidence
○ What is excluded: Agreements constituting mutual promise to marry; will be admissible to prove a claim for damages
remedy for this is merely damages (Wassmer v Velez) ○ Example: A wants to borrow money from C. C does not know A. C
○ What is included: Agreements in contemplation of marriage goes to B to ask about A‘s credit standing. B says that A‘s credit
i. Marriage settlements - should be in writing, for validity; not standing is satisfactory even though B knows that A is insolvent. Under
governed by Statute of Frauds Article 1403, C can go after B if B‘s representation was in writing.
ii. Donations propter nuptias - governed by form required for
donations inter vivos
○ Example: ARTICLE 1404
i. In Cabague v. Auxilio, the father of the groom promised to
improve his daughter-in-law‘s father‘s house in consideration Unauthorized contracts are governed by article 1317 and the principles of agency in
of the marriage. The father of the groom made improvements Title X of this Book.
on the house. The wedding did not take place. The Supreme
Court said that the father of the groom could not sue on the
oral contract which as to him is not ―mutual promise to
marry‖. ● These unenforceable contracts – falling under Par. 1 of the preceding article – are
● Professor Balane disagrees with the Supreme Court. those into on behalf of one party by a person without requisite authority
According to Professor Balane, the father of the
groom should be able to sue since there was partial
performance. ARTICLE 1405
4. An agreement for the sale of goods, chattels or things in action at a price not Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are
less than 500 pesos, unless the buyer accepts and receive part of such goods ratified by the failure to object to the presentation of oral evidence to prove the same,
and chattel or the evidence, or some of them, of such things in action, or pay at or by the acceptance of benefit under them.
the time some part of the purchase money, but when a sale is made by auction
and entry is made by the auctioneer in his sales book at the time of sale of the
amount and kind of the property sold ,terms of sale, price, names, persons on RATIFICATION OF CONTRACTS FALLING UNDER THE STATUTE OF FRAUDS
whose account the sale is made, it is a sufficient memorandum ● These unenforceable contracts are ratified/ acknowledged by:
○ All sales of personal property at a price of 500 pesos or more 1. Failure to object to oral evidence
○ The performance must be at the time of sale in order to remove the ● This failure amounts to waiver by the party, against whom the
contract from the coverage of Statute of Frauds contract is being enforced, of his right to invoke the
○ Applies the principle that performance takes out the contract out of the unenforceability of the contract.
coverage of the Statute 2. Acceptance of benefits
○ Applies as well to contracts of barter ● Acceptance of benefits under the contract constitutes partial
or total performance which removes the contract from the
operation of the Statute.
Resisting a claim under an unenforceable contract may take the form of: ARTICLE 1408
1. A motion to dismiss
2. An affirmative defense Unenforceable contracts cannot be assailed by third persons.
3. A timely objection to the presentation of parol evidence
Parol evidence → oral evidence RIGHT TO ASSAIL UNENFORCEABLE CONTRACTS

● Unenforceable contracts cannot be attacked by strangers
● Only the parties against whom they are sought to be enforced can set up the
ARTICLE 1406
defense or unenforceability
● Based on the same principle as that laid down in Article 1397 for voidable
When a contract is enforceable under the Statute of Frauds, and a public document is
contracts
necessary for its registration in the Registry of Deeds, the parties may avail
themselves of the right under Article 1357.
CHAPTER 9 – VOID AND INEXISTENT CONTRACTS
● The contracts referred to in this article are enforceable between the parties but
are unregistrable for lack of public document
● Ex. contract of sale of registered land which is embodied merely in a private
document. Such contract is valid and enforceable but unregistrable 1409 Void Contracts
REMEDY OF PARTIES 1410 Action for Nullity

● Either contracting party has the right to compel the other to execute the needed
public document in order to effect the registration of the contract in the Registry 1411 Pari Delicto Rule
of Property.
1412
ARTICLE 1407
1413 Exceptions to Pari Delicto Rule
In a contract where both parties are incapable of giving consent, express or implied
ratification by the parent, or guardian, as the case may be, of one of the contracting 1414
parties shall give the contract the same effect as if only one of them were incapacitated.
If ratification is made by the parents or guardians, as the case may be, of both 1415
contracting parties, the contract shall be validated from the inception.
1416
RATIFICATION/CONFIRMATION BY ONE OR BOTH 1417

● The ratification or confirmation may be made by:
1. the parents/guardians of the incapacitated or incompetent party or 1418
2. by both party himself after the cause for the incapacity of vitiation of
consent has ceased 1419
● Ratification/ confirmation on both sides cures the contract of its defects and
validates it 1420 Severability Rule
1421 Right of Third Party to Set Up Defense of Nullity
1422 Effect of Previous Illegal Contract
1417 1418 1419 1420 1421 1422
● It has no substance as the parties have no intention to be bound by it. (Art 1345
ARTICLE 1409 - 46)
The following contracts are inexistent and void from the beginning: PAR 3 – Those whose cause or object did not exist at the time of the transaction
1. Those whose cause, object or purpose is contrary to law, morals, good ● Wording is faulty or unclear since things which did not exist at the time of the
customs, public order or public policy; transaction can be objects of the contractual prestation such as sales of future
2. Those which are absolutely simulated or fictitious; things
3. Those whose cause or object did not exist at the time of the transaction; ● What is referred to is a contract whose cause or object could not have existed or
4. Those whose object is outside the commerce of men; could not come into existence at the time of the transaction
5. Those which contemplate an impossible service;
6. Those where the intention of the parties relative to the principal object of the PAR 4 – Those whose object is outside the commerce of men
contract cannot be ascertained; ● These are legally non-existent and the contract is void for lack of object.
7. Those expressly prohibited or declared void by law.
PAR 5 – Those which contemplate an impossible service
These contracts cannot be ratified. Neither can the right to set up the defense of ● Read together with Art 1348
illegality be waived.
PAR 6 – Those where the intention of the parties relative to the principal object of
VOID CONTRACTS → One which has no force and effect from the very beginning, as if it the contract cannot be ascertained
had never been entered into and which cannot be validated either by time or by ratification. ● If there is ambiguity, every effort allowed by the rules of evidence must be made
● Furthest away from validity amongst all defective contracts to discover the parties’ true intent
● A void contract is a no contract. The term void or inexistent contract is an ● Doubts should be resolved in favor of validity
oxymoron. ● If, despite all possible efforts, the intent of the parties cannot be ascertained, the
contract fails for being indeterminable
CHARACTERISTICS OF VOID CONTRACTS
1. Produce no effect whatsoever, either in favor of or against anyone PAR 7 – Those expressly prohibited or declared void by law
2. No action for annulment is necessary because the contract’s nullity exists ipso ● Art 87, FC
jure ● Art 485
3. Can neither be confirmed nor ratified ● Art 905
4. If there has been performance, the restitution of what has been delivered is in ● Art 1347, Par 2
order, except in cases of pari delicto ● Art 1490
5. Right to set up the defense of nullity cannot be waived ● Art 1491
6. An action for, or defense of, nullity does not prescribe ● Art 1492
7. Nullity of the contract may be invoked by anyone against whom any provision or ● Art 1689
effect of the contract is asserted ● Art 1874
● Art 2035
PAR 1 – Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy ARTICLE 1410
● Contractual freedom is limited (Art 1306)
● The object of a contract and its cause must be licit. Here, these essential The action or defense for the declaration of the inexistence of a contract does not
elements are vitiated and legally non-existent. prescribe.
● This should not be confused with the purpose of a contract since it is not an
essential element.
○ A wrongful or illegal motive does not taint the contract with nullity. ACTION FOR NULLITY
○ Illegality of the motive annuls the contract only when such motive is so ● No action is necessary to declare a contract void. Nullity is automatic and ipso
inextricably linked with the cause as to constitute a condition jure.
precedent. (Art 1351) ● May be necessary in certain instances to constitutie an action when one of the
parties is entitled to the restitution of what he has given by reason of the void
PAR 2 – Those which are absolutely simulated or fictitious contract and other party refuses to return it.
● Absolutely simulated contracts are void for want not only of consent but also ○ Decree of nullity is merely declaratory, not constitutive in nature.
subject matter and cause.
PRESCRIPTION – None. A void contract, being legally non-existent, cannot be cured by ● Absolutely simulated contracts do not fall because of absolute want of subject-
time. matter, cause and consent
ARTICLE 1411 WHEN ACT/PRESTATION CONSTITUTES A CRIMINAL OFFENSE (ART 1411)

When the nullity proceeds from the illegality of the cause or object of the contract, and
the act constitutes a criminal offense, both parties being in pari delicto, they shall have Both parties in pari delicto Only one party guilty
no action against each other, and both shall be prosecuted. Moreover, the provisions
of the Penal Code relative to the disposal of effects or instruments of a crime shall be No action for performance on either side No action for performance on either side
applicable to the things or the price of the contract.
No action for restitution on either side The guilty party cannot demand restitution
This rule shall be applicable when only one of the parties is guilty; but the innocent one of what he may have delivered, but the
may claim what he has given, and shall not be bound to comply with his promise. innocent party can.
(1305)
These rules are without prejudice to the institution of the appropriate criminal proceedings.
ARTICLE 1412 WHEN ACT/PRESTATION DOES NOT CONSTITUTE A CRIMINAL OFFENSE,

MERELY UNLAWFUL OR FORBIDDEN (ART 1412)
If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:
1. When the fault is on the part of both contracting parties, neither may recover Both parties in pari delicto Only one party guilty
what he has given by virtue of the contract, or demand the performance of the
other's undertaking; No action for performance on either side No action for performance on either side
2. When only one of the contracting parties is at fault, he cannot recover what
he has given by reason of the contract, or ask for the fulfillment of what has No action for restitution on either side The guilty party cannot demand restitution
been promised him. The other, who is not at fault, may demand the return of of what he may have delivered, but the
what he has given without any obligation to comply his promise. (1306) innocent party can.
THE PARI DELICTO RULE

ARTICLE 1413
● Where the parties are equally guilty, the position of the defendant is stronger.
● No action arises when both parties are guilty.
Interest paid in excess of the interest allowed by the usury laws may be recovered by
● No one should be allowed to invoke the protection of the law or to derive any
the debtor, with interest thereon from the date of the payment.
benefit from his wrongdoing.
ESSENCE – Denies to either party any right to enforce the contract, recover anything EXCEPTIONS TO THE PARI DELICTO RULE (Arts. 1413 - 1419)
delivered by virtue thereof, or demand damages as a consequence thereof. The law will ● Although both parties are culpable, one of them is entitled to recover under the
leave the parties exactly where they are and will afford them no relief. void contract or stipulation.
● Dictated by public policy because the prohibitions of these articles are intended
RATIONALE for the protection of one of the contracting parties.
● Courts should not lend their good offices to mediating disputes among
wrongdoers USURIOUS INTEREST
● Denying judicial relief to an admitted wrongdoer is an effective means of deterring ● Currently inoperative due to CB Circular 905
illegality
EXCESSIVE INTEREST RATES
SCOPE AND APPLICATION ● Although the Usury Law was suspended, nothing in it grants lenders carte balance
● Does not apply to all void contracts to raise interest rates to levels which will enslave their borrowers or lead to a
● Applies only to contracts which are void on the account of the illegality of the hemorrhaging of the assets.
cause of object ● Stipulations authorizing excessive interest rates are inexistent and void ab initio.
● Nullity of excessive interest rate does not affect principal contract.
● Legal rate at present is 6% p.a.

● In Castro De Leon Tan - It has been held in jurisprudence that parties to a loan ARTICLE 1416
agreement have a wide latitude to stipulate on any interest rate but whenever they
are unconscionable, they may still be declared illegal. When the agreement is not illegal per se but is merely prohibited, and the prohibition
● In Heirs of Espiritu v Landrito: by the law is designed for the protection of the plaintiff, he may, if public policy is
1. Although the Usury Law was suspended, by CB Circular 905 in 1982, nothing in thereby enhanced, recover what he has paid or delivered.
it grants lenders carte blanche authority to raise interest rates to levels which
enslave their borrowers or lead to a hemorrhaging of their assets ILLUSTRATION
2. Stipulations authorizing iniquitous or unconscionable interests are contrary to ● Where a homestead grantee sells the land within the prohibited period of five
morals, if not against the law. years
- Under Article 1409, these contracts are inexistent and void ab initio.
3. Nullity of excessive interest rate does not affect the principal contract
- Nullity of the stipulation on interest does not affect the lender’s right to recover the ARTICLE 1417
principal – the principal itself remains due & demandable will bear the legal rate
of 12% (now 6%) When the price of any article or commodity is determined by statute, or by authority of
law, any person paying any amount in excess of the maximum price allowed may
recover such excess.
ARTICLE 1414
REFERS TO – Violations of price control laws or regulations
When money is paid or property delivered for an illegal purpose, the contract may be
repudiated by one of the parties before the purpose has been accomplished, or before INTENDED BENEFICIARY – A person purchasing an item beyond the price ceiling is given
any damage has been caused to a third person. In such case, the courts may, if the the right to recover the excess
public interest will thus be subserved, allow the party repudiating the contract to
recover the money or property.
ARTICLE 1418
RATIONALE – Seeks to encourage repudiation of the illegal purpose of the contract; When the law fixes, or authorizes the fixing of the maximum number of hours of labor,
Reward the party’s change of heart and a contract is entered into whereby a laborer undertakes to work longer than the
maximum thus fixed, he may demand additional compensation for service rendered
REQUISITES beyond the time limit.
1. The contract must have an illegal purpose
2. Money or property is delivered by virtue thereof
3. One of the parties repudiates the contract
ARTICLE 1419
4. Repudiation is made before the illegal purpose is accomplished
5. The public interest will be promoted or subserved by the return to the repudiating
When the law sets, or authorizes the setting of a minimum wage for laborers, and a
party of what he has delivered
contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled
to recover the deficiency.
ARTICLE 1415
LABOR LAWS – Sec 83 and 99, Labor Code; Art XIII, Sec 3, 1987 Constitution
Where one of the parties to an illegal contract is incapable of giving consent, the courts
may, if the interest of justice so demands allow recovery of money or property
INTENDED BENEFICIARY – Worker/laborer may demand the rightful amount fixed by law
delivered by the incapacitated person.
even if he agreed to something less
JUSTIFICATION – Incapacitated party is not really culpable, being incapable of ggiving

ARTICLE 1420
consent
● Contemplates a voidable contract; Annullable at instance of the incompetent
In case of a divisible contract, if the illegal terms can be separated from the legal ones,
the latter may be enforced.
SEVERABILITY RULE
ARTICLE 1421
The defense of illegality of contract is not available to third persons whose interests are
not directly affected.
RIGHT OF THIRD PARTY TO SET UP DEFENSE OF NULLITY

● Since a void contract produces no juridical effects, any person – whether a party
to such contract or not – may invoke its nullity should anyone seek to enforce it
against him.
ARTICLE 1422
A contract which is the direct result of a previous illegal contract, is also void and
inexistent.
BASIS OF RULE – A void contract produces no effect and gives rise to no juridical
consequences.
EXCEPTIONS – Where the parties who have executed a void contract may subsequently
enter into a valid judicial transaction over the object of the previous void contract

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BELLE GINEZ | ALS A2024 OBLIGATIONS AND CONTRACTS | Dean Maita Chan-Gonzaga

HELLO! BRIEF HISTORY OF THE NEW CIVIL CODE OF THE PHILIPPINES

1107 Persons capable of acquiring property or rights by prescription

1115 Specific provisions

ARTICLE 1106 of said ownership or real

PRESCRIPTION → It is a means of acquiring ownership and other real rights or losing

WHO DOES PRESCRIPTION RUN AGAINST

Minors and Incapacitated Persons w/ parents/guardians/ legal representatives

ARTICLE 1109 ARTICLE 1111

In favor of a co-owner or co-heir against

his co-owners or co-heirs as long as the ARTICLE 1113

ARTICLE 1115 CHAPTER 2 – PRESCRIPTION OF OWNERSHIP AND OTHER REAL RIGHTS

1132 Period of Ordinary and Extraordinary Prescriptive Acquisition

1133 Movables possessed through crime

○ Acts of possessory character which are merely tolerated do not

CHARACTERISTICS OF POSSESSION TO BE THE BASIS OF PRESCRIPTION ACTS OF POSSESSORY CHARACTER

DISTINGUISH PRESCRIPTION FROM SUSPENSION – If prescription is merely ARTICLE 1123

ARTICLE 1125 ARTICLE 1127

EXPRESS OR TACIT RECOGNITION

ARTICLE 1126 ACTUAL OR CONSTRUCTIVE NOTICE

RATIONALE – No one must benefit from an evil act.

PERIOD FOR ACQUISITIVE PRESCRIPTION ORDINARY ACQUISITIVE PRESCRIPTION FOR IMMOVABLES

ARTICLE 1136 RULE 2: PRESUMPTION

RULE 3: FIRST DAY EXCLUDED, LAST DAY INCLUDED

ARTICLE 1138 CHAPTER 3 – PRESCRIPTION OF ACTIONS

RULE 1: TACKING POSSESSION TO GRANTOR OR PREDECESSOR IN INTEREST

1147 Forcible Entry and Defamation PRESCRIPTION TO BE PLEADED

1153 Actions on Accounting

Actions prescribe by the mere lapse of time fixed by law.

PRESCRIPTION OF ACTION ARTICLE 1141

Movables Immovables ARTICLE 1144

ARTICLE 1148 3. Revoke or reduce

1. Forcible entry and 1 year

1. Upon an oral contract; 6 years ARTICLE 1151

Obligation Right Wrong LAW AS A SOURCE OF OBLIGATIONS

SOURCES OF OBLIGATIONS CONTRACTS AS A SOURCE OF OBLIGATIONS

Culpa Contractual Culpa Aquilana Delict 1169 Delay

Specific/determinate thing – Particularly designated or physically segregated from others

1166 Accessions and Accessories Ancillary Obligations:

1. Performance done by himself, at the expense of the debtor;

ARTICLE 1167 Positive Personal ✘ ✘ ✓

REMEDIES OF CREDITOR IN POSITIVE PERSONAL OBLIGATION

ARTICLE 1169 Judicial Demand Extrajudicial Demand

○ Debtor is not liable for interest

GROUNDS FOR LIABILITY [FNeDCo] EFFECTS OF WAIVER

FRAUD NEGLIGENCE KINDS OF NEGLIGENCE

WHEN INJURED PARTY IS ALSO GUILTY OF NEGLIGENCE (Art 2179)

REQUISITES OF A FORTUITOUS EVENT [IFIF]

ARTICLE 1175 ARTICLE 1177

○ Third person who received the property conveyed, if it is by onerous title,

ACCION DIRECTA OUTLINE OF PROVISIONS

Art 1182 Potestative, Casual, Mixed

EXCEPTIONS Art 1189 Loss, Deterioration, Improvements

ARTICLE 1179 ARTICLE 1180

2. As to form WHEN RESOLUTORY CONDITION DEPENDS SOLELY ON THE WILL OF THE

WHEN SUSPENSIVE CONDITION DEPENDS ON CHANCE/3RD PARTY

IMPLIED TERM DOCTRINE (Sta Maria/De Leon) ARTICLE 1188

ARTICLE 1187 APPLICABLE TO –– Suspensive conditions

RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT DURING

REMEDIES IN RECIPROCAL OBLIGATIONS