Oblicon Reviewer

OBLIGATIONS AND
CONTRACTS
Block B2014 Finals
Reviewer
Prof. Solomon Lumba
TABLE OF
CONTENTS
CIVIL OBLIGATIONS
General
What is an
obligation?........................................................................
.2
Sources of
Obligation
..2
Duties of
Obligor
....5
Kinds of Obligations
Pure and Conditional.
14
Obligations
with
a
Period..
19
Alternative
...24
Joint
and
Solidary
26
Divisible
and
Indivisible.
.28
Obligations
with
a
Penal
Clause...29
Extinguishment of Obligations
Payment or
Performance.
.31
Loss
of
the
Thing
Due
..34
Condonation
or
Remission
..35
Confusion
or
Merger
of
Rights...
.37
Compensations.
..37
Novation
..42
Prescription
47
Agreement
.53
Difficulty
..54
Impossibility
.....55
Other Performance Excuses
Volenti Non Fit
Injuria
55
Fortuitous
Event
...56
NATURAL OBLIGATIONS
What is a natural obligation?
............................................................................................................................
58
CONTRACTS
General
What is a contract?.............................................................................60
Kinds of
contracts.
..69
Stipulation Pour
Autrui.
..75
Tortious
Interference
77
Essential Requisites
Consent.
....81
Object.
....87
Cause
...88
Reformation of Instruments
Defective Contracts
Rescissible.
..90
Voidable
...96
Unenforceable
...101
Void
104
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CIVIL OBLIGATIONS
157
I. GENERAL
What is an obligation?
Art. 1156. An obligation is a juridical necessity to give,
to do, or not to do.
JURIDICAL NECESSITY juridical tie; connotes that in case

of
noncompliance, there will be legal sanctions.
-An obligation is nothing more than the duty of a person
(obligor) to satisfy a specific demandable claim of another

person (obligee) which, if breached, is enforceable in court.
-A contract necessarily gives rise to an obligation but an

obligation does not always need to have a contract.
KINDS OF OBLIGATION
A. From the viewpoint of sanction

(a)CIVIL OBLIGATION that defined in Article 1156; an
obligation, if not fulfilled when it becomes due and
demandable, may be enforced in court through action; based

on law; the sanction is judicial due process
(b)NATURAL OBLIGATION defined in Article 1423; a special
kind of obligation which cannot be enforced in court but which

authorizes the retention of the voluntary payment or
performance made by the debtor; based on equity and natural
law. (i.e. when there is prescription of duty to pay, still, the
obligor paid his dues to the obligee the obligor cannot recover
his payment even there is prescription) the sanction is the
law,
but only conscience had originally motivated the payment.
(c) MORAL OBLIGATION the sanction is conscience or
morality, or the law of the church.
B. From the viewpoint of subject matter

REAL OBLIGATION the obligation to give
UNILATERAL where only one of the parties is bound

158
BILATERAL where both parties are bound
- may be:
(b.1)
reciprocal
(b.2) non-reciprocal where performance by one is non
dependent upon performance by the other
ELEMENTS OF AN OBLIGATION
ACTIVE SUBJECT (Creditor / Obligee) the person

who
is
demanding
the performance of the obligation;
PASSIVE SUBJECT (Debtor / Obligor) the one bound to

perform the prestation or to fulfill the obligation or duty;
PRESTATION (to give, to do, or not to do) object;
subject matter of the obligation; conduct required to be
observed by the debtor;
Requisites of Prestation / Object:
licit (if illicit, it is void)
possible (if impossible, it is void)
determinate or determinable (or else, void)
pecuniary value
INJURY wrongful act or omission which causes loss or
harm to another DAMAGE result of injury (loss, hurt,
harm)
d) EFFICIENT CAUSE the JURIDICAL TIE which binds the

parties to the obligation; source of the obligation.
Art. 1423. Obligations are civil or natural. Civil obligations

give a right of action to compel their performance. Natural
obligations, not being based on positive law but on equity
and natural law, do not grant a right of action to enforce
their performance, but after voluntary fulfillment by the
obligor, they authorize the retention of what has been
delivered or rendered by reason thereof. Some natural

obligations are set forth in the following articles.
)
PERSONAL OBLIGATION the obligation to do or not to do (e.g.
What are the sources of obligations?
the duty to paint a house or to refrain from committing a
Art. 1157. Obligation arises from (1) law; (2) contracts;
nuisance)
(3) quasi-contracts;
(4) acts or omissions punished by law; (5)quasi-delicts.
C. From the affirmativeness and negativeness of the obligation POSITIVE OR AFFIRMATIVE OBLIGATION the obligation to
give or to do
(1) LAW (Obligation ex lege) imposed by law itself; must
be expressly or impliedly set forth and cannot be
NEGATIVE OBLIGATION the obligation not to do (which
presumed
naturally includes not to give)
- [See Article 1158]
D. From the viewpoint of persons obliged - sanction -

CONTRACTS (Obligation ex contractu) arise from

stipulations of the parties: meeting of the minds / formal
agreement
QUASI-CONTRACTS (Obligation ex quasi-contractu) arise
from lawful, voluntary and unilateral acts and which are
enforceable to the end that no one shall be unjustly enriched or
benefited at the expense of another
DELICTS (Obligation ex maleficio or ex delicto) arise
from civil liability which is the consequence of a criminal
offense
QUASI-DELICTS / TORTS (Obligation ex quasi-delicto or ex
quasi-maleficio) arise from damage caused to another
through an act or omission, there being no fault or negligence,
but no contractual relation exists between the parties
Art. 1158. Obligations from law are not presumed. Only
those (1) expressly determined in this code or (2) in
special laws are demandable, and shall be regulated by
the precepts of the law which establishes them; and as
to what has not been foreseen, by the provisions of
this code.
-Unless such obligations are EXPRESSLY provided by
law, they are not demandable and enforceable, and
cannot be presumed to exist.
-The Civil Code can be applicable supplementary to
obligations arising from laws other than the Civil Code itself.
-Special laws refer to all other laws not contained in the Civil
Code.
Art. 1159. Obligations arising from contracts have the
force of law between the contracting parties and should
be complied with in good faith.
CONTRACT meeting of minds between two persons whereby

one binds himself, with respect to the other, to give, to do
something or to render some service; governed primarily by
the agreement of the contracting parties. VALID CONTRACT
it should not be against the law, contrary to morals, good
customs, public order, and public policy. In the eyes of law, a
void contract does not exist and no obligation will arise from
it.
OBLIGATIONS ARISING FROM CONTRACTS primarily
governed by the stipulations, clauses, terms and
conditions of their agreements.
If a contracts prestation is unconscionable (unfair) or

unreasonable, even if it does not violate morals, law, etc., it
may not be enforced totally. Interpretation of contract involves
a question of law.
COMPLIANCE IN GOOD FAITH compliance or performance in
accordance with the stipulations or terms of the contract or
agreement.
FALSIFICATION OF A VALID CONTRACT only the unauthorized

insertions will be disregarded; the original terms and
stipulations should be considered valid and subsisting for the
parties to fulfill.
Art. 1160. Obligations derived from quasi-contracts
shall be subject to the provisions of chapter 1, title
17 of this book.
QUASI-CONTRACT juridical relation resulting from lawful,
voluntary and unilateral acts by virtue of which, both
parties become
bound to each other, to the end that no one will be
unjustly enriched or benefited at the expense of the
other. (See Article 2142)
NEGOTIORUM GESTIO juridical relation which takes place
when somebody voluntarily manages the property affairs of
another without the knowledge or consent of the latter; owner
shall reimburse the gestor for necessary and useful expenses
incurred by the latter for the performance of his function as
gestor.
SOLUTIO INDEBITI something is received when there is no
right to demand it and it was unduly delivered through mistake;
obligation to return the thing arises on the part of the recipient.
(ex. storekeeper gives excess change, you have the obligation
to return the excess)
Art. 1161. Civil obligations arising from criminal

offenses shall be governed by the penal laws, subject to
the provisions of Article 2177, and of the pertinent
provisions of Chapter 2, Preliminary in Human Relations,
and of Title 18 of this book, regulating damages.
Governing rules:
Pertinent provisions of the RPC and other penal laws

subject to Art 2177 Civil Code [Art 100, RPC Every person
criminally liable for a felony is also civilly liable]
Chapter 2, Preliminary title, on Human Relations ( Civil

Code )
Title 18 of Book IV of the Civil Code on damages

- Every person criminally liable for a felony is also criminally
liable (art. 100, RPC)
CRIMINAL LIABILITY INCLUDES:
RESTITUTION restoration of property previously taken
away; the thing itself shall be restored, even though it be
found in the possession of a third person who has acquired
it by lawful means, saving to the latter his action against the
proper person who may be liable to him.
REPARATION OF THE DAMAGE CAUSED court determines
the amount of damage: price of a thing, sentimental value,
etc.
INDEMNIFICATION FOR CONSEQUENTIAL DAMAGES
includes damages suffered by the family of the injured

party or by a third person by reason of the crime.

Effect of acquittal in criminal case:
when acquittal is due to reasonable doubt no civil

liability
when acquittal is due to exempting circumstances

there is civil liability
when there is preponderance of evidence there is civil

liability
Art. 1162. Obligations derived from quasi-delicts
shall be governed by the provisions of chapter 2, title
17 of this book, and by special laws.
Art. 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to
pay for the damage done. Such fault or negligence, if
there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the
provisions of this Chapter.
Art. 2180. The obligation imposed by Article 2176 is
demandable not only for one's own acts or omissions,
but also for those of persons for whom one is
responsible.
QUASI-DELICT (culpa aquiliana) an act or omission by a
person which causes damage to another giving rise to an
obligation to pay for the damage done, there being fault or
negligence but there is no pre-existing contractual relation
between parties.
- Requisites:
omission
negligence
damage caused to the plaintiff

direct relation of omission, being the cause, and the
damage, being the effect
no pre-existing contractual relations between parties

Fault or Negligence consists in the omission of that
diligence which is required by the nature of the
obligation and corresponds with the circumstances of
the person, time, and of the place.
Obligations derived from quasi delicts are also applicable for
persons for whom one is responsible such as:
father / in case unavailable, mother for their minor

children
guardians
employers for their employees

owners / managers of establishments for their
employees
the state through its special agent
teachers / heads of establishments of arts and trades

for students in their custody
Requisites of liability
there exists a wrongful act or omission imputable to the

defendant by reason of his fault or negligence
there exists a damage or injury which must be proved

by the person claiming recovery
there must be a direct causal connection or a relation

of cause and effect between the fault or negligence and the
damage or injury, or that the fault or negligence be the cause
of the damage or injury.
RULE 111 - Prosecution of Civil Action
Section 1. Institution of criminal and civil actions.
When a criminal action is instituted, the civil action for
the recovery of civil liability arising from the offense
charged shall be deemed instituted with the criminal
action unless
offended party waives the civil action
reserves the right to institute it separately

institutes the civil action prior to the
criminal action.
SAGRADA ORDEN v
NACOCO J. Labrador
-FACTS: Alien Property Administration had the control
administration of the property by express provision of
law. Theres no agreement b/w the APA and NACOCO to
rentals on the property. Previous occupant also did not
rentals.
and
the
pay
pay
- HELD: No crime since NACOCO entered the premises since it

occupied the property with the permission of the APA. Also, no
contract or obligation between APA and Taiwan Tekkosho.
Therefore, APA occupied the property IN
GOOD FAITH.
FGU INSURANCE v
SARMIENTO J. Vitug
- FACTS: Insured company got into an accident. FGU
Insurance had to pay for the damages as a result of the
accident. They now seek to recover from the trucking
company, the other party in the accident.

HELD: A private hauler is not a common carrier and it

was not proven that the driver was negligent.
FGU is the subrogee of the rights and interests of

Concepcion industries so it had a right to seek reimbursement
for the amount it had paid to the latter from the trucking
corporation. However, the liability arose from a contract. A
breach upon the contract confers upon the injured party a valid
cause for recovering that which had been lost or suffered.
Failure in the compliance of an obligation, in this case

the delivery of goods, gives rise to a presumption of lack of
care and corresponding liability on the part of the contractual
obligor.
Driver may not be held liable since he was not a party to

the contract of carriage between petitioners principal and
defendant. But, civil action may be filed against him based on
culpa aquiliana. Negligence must be proved first.
-Kinds of Interest:
Expectation interest - the interest of a party to a breached
contract in receiving the benefit of the bargain by being put in
a position as good as that which would have resulted had the
contract been performed. It is based on the actual value the
contract would have had to the injured party if the contract had
been performed.
- you pay 1 peso for a car that that should have been
delivered. Person did not deliver car. He owes you 1 peso for
the car not delivered.
Reliance interest - the interest of a party to a breached
contract in being compensated for detriments suffered (as
expenses incurred) in reliance on the agreement
Reliance damages protect a party's reliance interest. Neal
spent $100 in reliance on the contract, which constituted
Neal's reliance interest.
Since reliance damages equal to the value of the reliance
interest of the injured party, Matt owes Neal $100. This puts
Neal in the same economic position as if the contract never
happened.
- another example would also be buying mags for a car which was
not delivered
Restitution interest - interest in having restored to him

any benefit that he has conferred on the other party....
Example: A, a social worker, promises B to render personal
services to C in return for B's promise to educate A's children. B
repudiates the contract after A has rendered part of the
services. A can get restitution from B for the services, even
though they were not rendered to B, because they conferred a
benefit on B.
COCA COLA v. CA
J. Davide Jr.
FACTS: Proprietress of a school canteen found

foreign substances in the softdrinks she sells at her
canteen.
HELD: Liability for quasi delicts may exist even with a

contract if the nature that breaks the contract may also be a
tort. Existence of a contract does not preclude the action for
quasi delicts
LRTA v NAVIDAD
J. Vitug
FACTS: Man and guard had an altercation. Man fell

on the railway tracks of LRT just as the train was
approaching. He died.
HELD: Agency can never be liable if guard is not liable.

Agency may be liable if guard is liable except if it establishes
that it exercised extraordinary diligence in choosing
employees. Obligation is based on quasi delict.
LRTA is a common carrier so carrier is presumed to be

at fault upon proof of the injury. Burden shifts on the carrier to
prove that the injury is due to an unforeseen event or force
majeure.
LRTAs liability is the contract of carriage and its

obligation to indemnify the victim arises from the breach of that
contract by reason of its failure to exercise the high diligence
required of the common carrier.
LG FOODS v AGRAVIADOR
J. Garcia
FACTS: Boy died after being hit by the van of the

petitioners. The driver who was driving the van and an
employee of the petitioners killed himself.
HELD: Civil liability arising from the criminal act.

Judgement is required. Since driver killed himself, Art 2180
was used (for persons for whom one was responsible). LG
foods is principally liable. It was sufficiently alleged that the
death of the son was caused by the drivers negligence. LG
foods impliedly admitted the action for quasi delicts by using
the defense that they exercised extraordinary diligence to
choose its employees.
What are the duties of the obligor in obligations to give?
To take care of the thing with the diligence of a good father of a
family
Art. 1163. Every person obliged to give something is
also obliged to take care of it with the proper diligence
of a good father of a family, unless the law or the
stipulation of the parties requires another standard of

care.


Speaks of an obligation to care of a DETERMINATE thing
(that is one which is specific; a thing identified by its
individuality) which an obligor is supposed to deliver to
another.
Reason: the obligor cannot take care of the whole class/genus
DUTIES OF DEBTOR:
Preserve or take care of the things due.
DILIGENCE OF A GOOD FATHER a good father does not
abandon his family, he is always ready to provide and protect
his family; ordinary care which an average and reasonably
prudent man would do.
Defined in the negative in Article 1173

ANOTHER STANDARD OF CARE extraordinary diligence
provided in the stipulation of parties.
FACTORS TO BE CONSIDERED diligence depends on the nature
of obligation and corresponds with the circumstances of the
person, time, and place.
Art. 1173. The fault or negligence of the obligor

consists in the omission of that diligence which is
required by the nature of the obligation and
corresponds with the circumstances of the persons, of
the time and of the place. When negligence shows bad
faith, the provisions of Articles 1171 and 2201,
paragraph 2, shall apply.
If the law or contract does not state the diligence
which is to be observed in the performance, that which
is expected of a good father of a family shall be
required. (1104a)
FRAUD
Negligence
There is deliberate intention to

cause
damage.
Liability cannot be mitigated.
Waiver for future fraud is void.
There is no deliberate intention

to
cause damage.
Liability may be mitigated.
Waiver for future negligence
may be
allowed in certain cases:
- This provision provides for a negative definition of proper

diligence of a good father of a family
DILIGENCE the attention and care required of a person in a
given situation and is opposite of negligence.
NEGLIGENCE consists in the omission of that diligence

which is required by the nature of the particular obligation
and corresponds with the circumstances of the persons, of
the time, and of the place.
KINDS of DILIGENCE:
DILIGENCE OF A GOOD FATHER a good father does not

abandon his family, he is always ready to provide and protect his
family; ordinary care which an average and reasonably prudent
man would do.
Diligence required by the law governing the particular

obligation
Diligence stipulated by the parties

To deliver the thing
Art. 1169. Those obliged to deliver or to do something
incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exists:
-When the law or obligation so expressly declares;
-When from the nature of the contract, time us the
essence and motivating factor for its establishment;
-When demand would be useless (prestation is
impossible);
-In reciprocal obligations, from the moment one of the
parties fulfills his obligation;
-When the debtor admits he is in default

ORDINARY DELAY mere failure to perform an obligation at
the appointed time.
LEGAL DELAY (DEFAULT) tantamount to non-fulfillment of the
obligation and arises after an extrajudicial or judicial demand
was made upon the debtor.
KINDS OF DEFAULT :
a) MORA SOLVENDI delay on the part of the debtor to fulfill
his obligation;
REQUISITES:
failure of the obligor to perform obligation on the DATE

agreed upon;
demand (judicial/extrajudicial) by the creditor;
failure to comply with such demand

EFFECTS:
debtor liable for damages and interests
debtor liable for the loss of a thing due to a fortuitous

event
KINDS:
mora solvendi ex re default in real obligations (to give)
mora solvendi ex persona default in personal

obligations (to do)

MORA ACCIPIENDI delay on the part of the

creditor to accept the performance of the obligation;
Effects:
1. creditor liable for damages
2. creditor bears the risk of loss of the thing
3. debtor not liable for interest from the time of creditors
delay
4. debtor release himself from the obligation
COMPENSATIO MORAE delay of the obligors in

reciprocal obligation. Effect: the default of one compensates
the default of the other; their respective liabilities shall be
offset equitable. Default / Delay in negative obligation is not
possible. (In negative obligation, only fulfillment and violation
are possible)
Art. 712. Ownership is acquired by occupation and by
intellectual creation. Ownership and other real rights
over property are acquired and transmitted by law, by
donation, by estate and intestate succession, and in
consequence of certain contracts, by tradition.
They may also be acquired by means of prescription.
Art. 1164. The creditor has a right to the fruits of the
thing from the time the obligation to deliver it arises.
However, he
shall acquire no real right over it until the same has
been delivered to him.
REAL RIGHT (jus in re) right pertaining to person over a
specific thing, without a passive subject individually determined
against whom such right may be personally enforced.
- a right enforceable against the whole world
PERSONAL RIGHT (jus ad rem) a right pertaining to a person
to demand from another, as a definite passive subject, the
fulfillment of a prestation to give, to do or not to do.
a right enforceable only against a definite person or

group of persons.
Before the delivery, the creditor, in obligations to give,

has merely a personal right against the debtor a right to ask
for
delivery of the thing and the fruits thereof.
Once the thing and the fruits are delivered, then he

acquires a real right over them.
Ownership is transferred by delivery which could

be either actual or constructive. (Art. 1477)
- The remedy of the buyer when there is no delivery despite

demand is to file a complaint for SPECIFIC PERFORMANCE
AND DELIVERY because he is not yet the owner of the
property before the delivery.
ACTUAL DELIVERY actual delivery of a thing from the hand of
the grantor to the hand of the grantee (personally), or
manifested by certain possessory acts executed by the
grantee with the consent of the grantor (realty).
FRUITS:
NATURAL spontaneous products of the soil, the young

and other products of animals;
INDUSTRIAL produced by lands of any cultivation or

labor;
CIVIL those derived by virtue of juridical relation.

Art. 725. Donation is an act of liberality whereby a
person disposes gratuitously of a thing or right in
favor of another, who accepts it.
Art. 1165. When what is to be delivered is a determinate

thing, the creditor may compel the debtor to make
delivery.
If the thing is indeterminate or generic, he may ask
that the obligation be complied with at the expense of
the debtor. If the obligor delays or has promised to
deliver the same thing to two or more persons who do
not have the same interest, he shall be responsible for
any fortuitous event until he has effected the delivery.
*This provision applies to an obligation to give.
DETERMINATE THING
something which is susceptible of particular designation

or specification;
obligation is extinguished if the thing is lost due to

fortuitous events.
Article 1460: a thing is determinate when it is

particularly designated and physically segregated from all
others of the
same class.
INDETERMINATE THING
something that has reference only to a class or genus;
obligation to deliver is not so extinguished by

fortuitous events. REMEDIES FOR FAILURE OF
DELIVERY (determinate thing)
1. Complaint for specific performance an action to compel

the fulfillment of the obligation.
2. Complaint for rescission of the obligation action to rescind
3. Complaint for damages action

compensation of damages suffered
to
claim
for


As a general rule, no person shall be responsible
for those events which could not be foreseen, or which,
though foreseen, are inevitable, except: 1. in cases
expressly specified by the law
2. when it is stipulated by the parties
3. when the nature of the obligation requires assumption of risk
An indeterminate thing cannot be object of destruction

by a fortuitous event because genus never perishes.
Art. 1477. The ownership of the thing sold shall be
transferred to the vendee upon the actual or
constructive delivery thereof. (n)
To deliver the fruits of the thing
Art. 1164. The creditor has a right to the fruits of the
thing from the time the obligation to deliver it arises.
However, he shall acquire no real right over it until the
same has been delivered to him.
Art. 441. To the owner belongs:
The natural fruits;
The industrial fruits;
The civil fruits. (354)
Art. 442. Natural fruits are the spontaneous
products of the soil, and the young and other
products of animals.
Industrial fruits are those produced by lands of any
kind through cultivation or labor.
Civil fruits are the rents of buildings, the price of
leases of lands and other property and the amount of
perpetual or life annuities or other similar income.
(355a)
Art. 443. He who receives the fruits has the obligation to
pay the expenses made by a third person in their
production, gathering, and preservation. (356)
Art. 444. Only such as are manifest or born are

considered as natural or industrial fruits.
To deliver the accessions and accessories of the thing
Art. 1166. The obligation to give a determinate thing
includes that of delivering all its accessions and
accessories, even though they may not have been
mentioned.
ACCESSIONS fruits of the thing or additions to or

improvements upon the principal
-those which are naturally or artificially attached to
the thing ACCESSORIES things included with the
principal for the latters embellishment, better use,
or completion
When does right to fruits arise? from the time the obligation
to deliver arises -Conditional from the moment the condition
happens
With a term/period upon the expiration of the

term/period
Simple from the perfection of the contract

Art. 445. Whatever is built, planted or sown on the
land of another and the improvements or repairs
made thereon, belong to the owner of the land,
subject to the provisions of the following articles.
Art. 447. The owner of the land who makes thereon,
personally or through another, plantings, constructions
or works with the materials of another, shall pay their
value; and, if he acted in bad faith, he shall also be
obliged to the reparation of damages. The owner of the
materials shall have the right to remove them only in
case he can do so without injury to the work
constructed, or without the plantings, constructions or
works being destroyed. However, if the landowner acted
in bad faith, the owner of the materials may remove
them in any event, with a right to be indemnified for
damages.
Art. 459. Whenever the current of a river, creek or torrent
segregates from an estate on its bank a known portion of
land and transfers it to another estate, the owner of the
land to which the segregated portion belonged retains the
ownership of it, provided that he removes the same within
two years.
To pay for damages in case of fraud, negligence, delay or

contravention of tenor
extrajudicially demands from them the fulfillment of
their obligation.
necessary in order that delay may exist:
When the
declare; or
obligation
or
the
law
expressly
so
When from the nature and the circumstances of the

obligation it appears that the designation of the time
when the thing is to be delivered or

the service is to be rendered was a controlling motive

for the establishment of the contract; or
(3) When demand would be useless, as when the
obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligation,
delay by the other begins. (1100a)
Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor
thereof, are liable for damages. (1101)
FRAUD (dolo) deliberate intentional evasion of the faithful
fulfillment of an obligation;
NEGLIGENCE (culpa or fault) voluntary act or omission of
diligence, there being no malice, which prevents the normal
fulfillment
of an obligation;
DELAY (mora) default or tardiness in the performance of an
obligation after it has been due and demandable;
CONTRAVENTION OF TERMS OF OBLIGATION (violation)
violation of terms and conditions stipulated in the obligation;
this must
not be due to a fortuitous event.
Art. 1171. Responsibility arising from fraud is
demandable in all obligations. Any waiver of an action
for future fraud is void. (1102a)
INCIDENTAL FRAUD (applicable provisions are Arts. 1170 &
1344) committed in the performance of an obligation already
existing because of a contract; incidental fraud obliges the
person employing it to pay damages.
CAUSAL FRAUD (Art. 1338) employed in the execution of
contract in order to secure consent; remedy is annulment
because of
vitiation of consent.
Art. 1172. Responsibility arising from negligence in the
performance of every kind of obligation is also
demandable, but such liability may be regulated by the
courts, according to the circumstances. (1103)
Courts discretion because:
negligence depends upon the circumstances of a case

good or bad faith of the obligor may be considered as well as
the conduct or misconduct of the obligee;
it is not as serious as fraud.
Negligence lack of foresight or knowledge
Imprudence lack of skill or precaution
TEST OF NEGLIGENCE
Did the defendant, in doing the alleged negligent act, use the
reasonable care and caution which an ordinary prudent man
would
have used in the same situation?
Two Types of Negligence:
Basis
Culpa Aquiliana
(Quasi
Delict)
Definition
Negligence between
parties not so
related by
pre-existing contract
Nature of Negligence Direct, substantive
and
independent
Good Father of the
Presumption of
Complete and
proper
defense (parents,
guardians,
employers)
No presumption
negligence
injured party must
family defense
prove negligence of
Culpa Contractual
(Breach of Contract)
Negligence in the
performance of
contractual
obligation
Incidental to the
performance of the
obligation
Not complete and
proper defense in the
selection of
employees
There is presumption
of
negligence by the
fact
that the contract was
the
defendant
breached. Must show

that they are not
negligent and breach

was caused by
fortuitous events.

Ex, Bus with passengers bumps a car. A was a passenger of the

bus. B was the driver of the car. There is culpa contractual with
regards to A and the bus driver and culpa aquiliana with
regards to the car driver and bus driver.
Question: Does the employer still have to prove extraordinary
diligence in choosing his employees in an action for culpa
aquiliana if it was proven that the driver was not negligent? NO!
Art. 2199. Except as provided by law or by stipulation,
one is entitled to an adequate compensation only for
such pecuniary loss suffered by him as he has duly
proved. Such compensation is referred to as actual or
compensatory damages.
Art. 2200. Indemnification for damages shall
comprehend not only the value of the loss suffered, but
also that of the profits which the obligee failed to
obtain. (1106)
Art. 2201. In contracts and quasi-contracts, the
damages for which the obligor who acted in good faith is
liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which
the parties have foreseen or could have reasonably
foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude,
the obligor shall be responsible for all damages which
may be reasonably attributed to the non-performance
of the obligation. (1107a)
Art. 2202. In crimes and quasi-delicts, the defendant
shall be liable for all damages which are the natural
and probable consequences of the act or omission
complained of. It is not necessary that such damages
have been foreseen or could have reasonably been
foreseen by the defendant.
Art. 2216. No proof of pecuniary loss is necessary in order
that moral, nominal, temperate, liquidated or exemplary
damages, may be adjudicated. The assessment of such
damages, except liquidated ones, is left to the discretion
of the court, according to the circumstances of each case.
Art. 2217. Moral damages include physical suffering,

mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Though incapable of
pecuniary
computation, moral damages may be recovered if

they are the proximate result of the defendant's
wrongful act for omission.
Art. 2221. Nominal damages are adjudicated in
order that a right of the plaintiff, which has been
violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose
of indemnifying the plaintiff for any loss suffered by
him.
Art. 2224. Temperate or moderate damages, which are
more than nominal but less than compensatory
damages, may be recovered when the court finds that
some pecuniary loss has been suffered but its amount
can not, from the nature of the case, be provided with
certainty.
Art. 2226. Liquidated damages are those agreed
upon by the parties to a contract, to be paid in case
of breach thereof.
Art. 2229. Exemplary or corrective damages are
imposed, by way of example or correction for the public
good, in addition to the moral, temperate, liquidated or
Kinds of Damages MENTAL

MORAL - Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar
injury. Though incapable of pecuniary computation, moral
damages may be recovered if they are the proximate result of
the defendant's wrongful act for omission. Includes sentimental
value of property EXEMPLARY - Exemplary or corrective
damages are imposed, by way of example or correction for the
public good, in addition to the moral, temperate, liquidated or
NOMINAL - Nominal damages are adjudicated in order that a
right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by
him.
TEMPERATE - Temperate or moderate damages, which are
more than nominal but less than compensatory damages, may
be recovered when the court finds that some pecuniary loss
has been suffered but its amount can not, from the nature of
the case, be provided with certainty.
ACTUAL / Compensatory - adequate compensation only for
such pecuniary loss suffered by him as he has duly proved
| Baldueza | Buena | Calderon | Cardenas | Eguico | Flordeliza | Mendoza | Navarro | Velasco |

Page 10 of 106
LIQUIDATED - Liquidated damages are those agreed upon by

the parties to a contract, to be paid in case of breach thereof.
ARRIETA v. NATIONAL RICE
J. Regala
Source of obligation: contract
failure of the opening of the letter of credit was the

cause for the breach of contract
it is clear that what singularly delayed the opening of

the stipulated letter of credit and which, in turn, caused the
cancellation of the allocation in Burma, was the inability of the
appellant corporation to meet the condition importation by the
Bank for granting the same.
liability and culpability arises from the willful and

deliberate assumption of contractual obligations even as it
was well aware of its financial incapacity to undertake the
prestation
NARIC knew the bank requirements for opening a letter

of credit and that it could not meet its requirement. Despite
that, it still continued with the bidding. Hence , it must be
similarly held to have bound itself to answer for all and every
consequences that would result from the representation. aptly
observed by the trial court.
Those who in the performance of their obligation

are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are liable in
damages.
The NARIC would also have this Court hold that the
subsequent offer to substitute Thailand rice for the originally
contracted Burmese rice amounted to a waiver by the appellee
of whatever rights she might have derived from the breach of
the contract. We disagree. Waivers are not presumed, but must
be clearly and convincingly shown, either by express stipulation
or acts admitting no other reasonable explanation.
damages were based on estimates , cost studies, and

evidence. Award should be in Philippine peso. Exchange rate is to
be when the obligation was incurred.
CATHAY PACIFIC v VAZQUEZ

J. Davide
Source of obligation: contract of carriage
breach of contract of carriage -> upgrading the seats

from business class to first class is a breach of contract
breach of contract - failure without legal reason to

comply with the terms of a contract.*5+ It is also defined as
the *f+ailure, without legal excuse, to perform any promise
which forms the whole or part of the contract
By insisting on the upgrade, Cathay breached its

contract of carriage with the
Vazquezes even when the Vasquezs waived their privilege
in not taking the upgraded seats
the upgrading of the seats were not in bad faith. Bad

faith is defined as a dishonest purpose or some moral
obliquity and conscious doing of a wrong, a breach of a known
duty through some motive or interest or ill will that partakes of
the nature of fraud
there was no bad faith since the Vasquez spouses were

not induced by deceit in upgrading their seats and it was not
for a devious or evil purpose.
overbooking the business class section was not in bad

faith since it is in accordance with law (Section 3 of the
Economic Regulation No. 7 of the Civil Aeronautics Board)
there are no moral damages since it requires the

following:
(1) there must be an injury clearly sustained by the claimant,
whether physical, mental or psychological; (2) there must be a
culpable act or omission factually established; (3) the wrongful act
or omission of the defendant is the proximate cause of the injury
sustained by the claimant; and (4) the award for damages is
predicated on any of the cases stated in Article 2219 of the Civil
Code.
- Moral damages predicated upon a breach of contract of

carriage may only be recoverable in instances where the carrier
is guilty of fraud or bad faith or where the mishap resulted in
the death of a passenger.[ Where in breaching the contract of
carriage the airline is not shown to have acted fraudulently or in
bad faith, liability for damages is limited to the natural and
probable consequences of the breach of the obligation which
the parties had foreseen or could have reasonably foreseen. In
such a case the liability does not include moral and exemplary
damages. Nominal damages is applicable since it deals with the
right of the spouses.
PLEASANTVILLE v CA
J. Panganiban
there was good faith in Kee building the properties in the

disputed lot.
Good faith consists in the belief of the builder that the

land he is building on is his and his ignorance of any defect or
flaw in his title. And as good faith is presumed, petitioner has
the burden of proving bad faith on the part of Kee. At the time
he built improvements on Lot 8, Kee believed that said lot was
what he bought from petitioner. He was not aware that the lot
delivered to him was not Lot 8. Thus, Kees good faith.
Petitioner failed to prove otherwise.
Kees contract violation -> only applicable in contractual

breach

Page 11 of 106

provision on contract of sale regarding erosion is
not applicable to the negligence of the sellers agent.
waiver to contract away rights to recover

damages from negligence is contrary to public policy
and is not allowed.
principal is responsible for the acts of the agent, done

within the scope of his authority, and should bear the damage
caused to third persons. cause of the issue was the agents
negligence.
Holding of the CA would unjustly enrich KEE:

a. If Eldred Jardinico decides to appropriate the improvements
and, thereafter, remove these structures, the third-party
defendants shall answer for all demolition expenses and the
value of the improvements thus destroyed or rendered
useless;
b. If Jardinico prefers that Kee buy the land, the third-party
defendants shall answer for the amount representing the
value of Lot 9 that Kee should pay to
Jardinico.
Kee and Jardincio has already amicably settled through their
deed of sale their rights and obligations with regards to Lot 9.
What are the duties of the obligor in
obligations to do? To do it
To shoulder the cost if someone
else does it To undo what has been
poorly done
Art. 1167. If a person obliged to do something fails to
do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in
contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been
poorly done be undone. (1098)
their obligation.
(1) When the obligation or the law expressly so
declare; or
When from the nature and the circumstances of

the obligation it appears that the designation of the
time when the thing is to be delivered or the service is
to be rendered was a controlling motive for the
establishment of the contract; or
When demand would be useless, as when the
required. (1104a)
(See annotations above)
What are the duties of the obligor in
obligations not to do? Not to do what should
not be done
To shoulder the cost to undo what should not have been done
Art. 1168. When the obligation consists in not doing, and

the obligor does what has been forbidden him, it shall also
be undone at his expense. (1099a)
Page 12 of 106
* This provision applies to an obligation to do.

THREE SITUATIONS:
a) Debtors failure to perform an obligation
creditor may do the obligation, or by another, at the expense
of the debtor;-recover damages
Performance was contrary to the terms agreed upon - order
of the court to undo the same at the expense of the debtor
Performance in a poor manner - order of the court to

undo the same at the expense of the debtor
To pay damages
Art. 2201. In contracts and quasi-contracts, the
damages for which the obligor who acted in good faith is
liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which
the parties have foreseen or could have reasonably
foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude,
the obligor shall be responsible for all damages which
may be reasonably attributed to the non-performance
of the obligation. (1107a)
Art. 2202. In crimes and quasi-delicts, the defendant
shall be liable for all damages which are the natural
and probable consequences of the act or omission
complained of. It is not necessary that such damages
have been foreseen or could have reasonably been
foreseen by the defendant.

their obligation.
When the obligation

declare; or
or
the
law
expressly
so
When from the nature and the circumstances of

the obligation it appears that the designation of the
time when the thing is to be delivered or the service is
to be rendered was a controlling motive for the
establishment of the contract; or
When demand would be useless, as when the
required. (1104a)
(see annotations above)

Page 13 of 106
II. Kinds of Obligations

A. Pure and Conditional Obligations
What is a pure obligation?
Art. 1179. Every obligation whose performance does
not depend upon a future or uncertain event, or upon
a past event unknown to the parties, is demandable
at once.
Every obligation which contains a resolutory
condition shall also be demandable, without
prejudice to the effects of
the happening of the event.
What is a conditional obligation?
Art. 1181. 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 constitutes the condition.
PURE OBLIGATION an obligation which does not contain
any condition or term upon which the fulfillment is made to
depend;
immediately demandable by the creditors and the debtor
cannot be excused from not complying with his prestation.
CONDITIONAL OBLIGATION an obligation which depends upon
a future or uncertain event, or upon a past event unknown to
the contracting parties.
an obligation subject to a condition.
an event which is not uncertain but must

necessarily happen cannot be a condition; the obligation
will be considered as one with a term
past event cannot be called a condition but rather, a

basis of the contract. Even when unknown to the parties, a
past event is not a condition.
it is not the fact stated which serves as a condition but

the proof of such fact; the contract or obligation arises, not
when the vent happened or the fact came into existence ,
which would be in the past, but when the proof of such fact or
event is presented, which would be the future.
Resolutory Condition the happening of such extinguishes
rights already existing; obligation is treated as if it never
came into existence
cannot be enforced against a 3rd party as it is a

personal right which he can enforce only against his creditor
who has become a debtor obliged to make restitution
in case of loss of a thing, deteriorations or

improvements, the party who has to make the restitution
being considered the debtor
- mutual restitution happens not just for the object and the
price but also for the fruits and the interests
Suspensive Condition happening of such gives rise to an
obligation
What is a resolutory condition?
Art. 1179. Every obligation whose performance does
not depend upon a future or uncertain event, or upon
a past event unknown to the parties, is demandable
at once.
Every obligation which contains a resolutory
condition shall also be demandable, without
prejudice to the effects of
the happening of the event.
Art. 1190. When the conditions have for their purpose
the extinguishment of an obligation to give, the parties,
upon the fulfillment of said conditions, shall return to
each other what they have received.
In case of the loss, deterioration or improvement of the
thing, the provisions which, with respect to the debtor,
are
laid down in the preceding article shall be applied to
the party who is bound to return.
As for the obligations to do and not to do, the

provisions of the second paragraph of Article 1187
shall be observed
as regards the effect of the extinguishment of the
obligation.
-Refers to the fulfillment of a resolutory condition.
-When the resolutory condition happened, the obligation is
considered as if it did not exist.
-The parties are bound to return or restore whatever they have
received from each other reciprocal restitution
-Donation by reason of marriage if the marriage does not
happen, such donation should be returned to the donor.
-Loss, deterioration and improvement governed by 1189.
-In obligations to do and not to do, the courts shall determine,
in each case, the retroactive effect of the condition that has
been complied with.
What is a potestative condition?
Art. 1182. When the fulfillment of the condition depends
upon the sole will of the debtor, the conditional
obligation shall be void. If it depends upon chance or
upon the will of a third person, the obligation shall take
effect in conformity with the provisions of this Code.

Page 14 of 106
Art. 1308. The contract must bind both contracting

parties; its validity or compliance cannot be left to
the will of one of them. (1256a)
Art. 1309. The determination of the performance may
be left to a third person, whose decision shall not be
binding until it has been made known to both
contracting parties. (n)
Art. 1310. The determination shall not be obligatory if
it is evidently inequitable. In such case, the courts shall
decide what is equitable under the circumstances. (n)
Potestative condition one which depends upon the will
of one of the contracting parties
Casual condition depends exclusively upon chance or other
factors and not upon the will of the contracting parties
Mixed condition one which depends upon the will of one of the
contracting parties and other circumstances, including the will of
a third person
Kinds of Potestative Condition

1.) Simple presupposes not only a manifestation of
will but also the realization of an external act (if you
sell your house)
does not prevent the formation of a valid obligation
it is subject in part to contingencies over which debtor

has no control
2.) Purely Potestative depends solely and exlusively upon
the will ( if I like it or if I deem it proper)
destroys the efficacy of the legal tie;
it is only when the potestative condition depends

exclusively upon the will of
the debtor that the conditional obligation is void. It is valid if it
depends partly on the will of the debtor and the 3rd person,
dependence on the debtor illusory obligations

obligation is void but is applicable only when the condition
is suspensive and cannot apply to resolutory conditions
potestative and resolutory = may be valid
mixed conditions = valid
if dependent on a 3rd person who cannot be compelled

to carry it out, and it is found by the court that the obligor has
done all in his power to comply with the obligation, the other
party may be ordered to comply with his part of the contract
NAGA TELEPHONE v CA
J. Nocon
cause of action one sided contract, petitioners use of

the telephone posts caused damage
cause of action no payment for usage of telephone

posts despite demands or private respondent
cause of action poor service which caused damages

Respondents answered:
not sufficient COA , barred by prescription, estoppel,

their usage could not have caused the deterioration
petitioners refused to comply with private respondents

demands , it was probably because what is due to them from
private respondent is more than its claim against them.
telephone service had been categorized by the

National Telecommunication Corporation (NTC) as "very high"
and of "superior quality.
Issue of the applicability of Art 1267 of the NCC - we
agree with respondent court that the allegations in private
respondent's complaint and the evidence it has presented
sufficiently made out a cause of action under Article 1267. We,
therefore, release the parties from their correlative obligations
under the contract. However, our disposition of the present
controversy does not end here. We have to take into account the
possible consequences of merely releasing the parties therefrom:
petitioners will remove the telephone wires/cables in the posts of
private respondent, resulting in disruption of their service to the
public; while private respondent, in consonance with the contract
will return all the telephone units to petitioners, causing prejudice
to its business. We shall not allow such eventuality. Rather, we
require, as ordered by the trial court: 1) petitioners to pay private
respondent for the use of its posts in Naga City and in the towns of
Milaor, Canaman, Magarao and Pili, Camarines Sur and in other
places where petitioners use private respondent's posts, the sum
of ten (P10.00) pesos per post, per month, beginning January,
1989; and 2) private respondent to pay petitioner the monthly
dues of all its telephones at the same rate being paid by the public
beginning January, 1989. The peculiar circumstances of the present
case, as distinguished further from the Occea case, necessitates
exercise of our equity jurisdiction.
Issue of prescription - Article 1144 of the New Civil Code

provides, inter alia, that an action upon a written contract must
be brought within ten (10) years from the time the right of action
accrues. Clearly, the ten (10) year period is to
Page 15 of 106
be reckoned from the time the right of action accrues which is

not necessarily the date of execution of the contract. This was
when contract was studied since it was disadvantageous (1982)
, 10 years have not yet elapsed.
Issue of Potestation - petitioners allege that there is nothing
purely potestative about the prestations of either party because
petitioner's permission for free use of telephones is not made to
depend purely on their will, neither is private respondent's
permission for free use of its posts dependent purely on its will.
Petitioners' allegations must be upheld in this regard. A

potestative condition is a condition, the fulfillment of which
depends upon the sole will of the debtor, in which case, the
conditional obligation is void. 19 Based on this definition,
respondent court's finding that the provision in the contract, to
wit:
(a) That the term or period of this contract shall be as long as
the party of the first part (petitioner) has need for the electric
light posts of the party of the second part (private
respondent) . . ..
is a potestative condition, is correct. However, it must have
overlooked the other conditions in the same provision, to
wit:
. . . it being understood that this contract shall terminate when
for any reason whatsoever, the party of the second part
(private respondent) is forced to stop, abandoned (sic) its
operation as a public service and it becomes necessary to
remove the electric light post (sic);
which are casual conditions since they depend on chance,
hazard, or the will of a third person. In sum, the contract is
subject to mixed conditions, that is, they depend partly on the
will of the debtor and partly on chance, hazard or the will of a
third person, which do not invalidate the aforementioned
provision.
POLOTAN
v CA J.
Romero
Soutce of obligation contract
PAYMENT OF CHARGES . . . The Cardholder agrees to pay
interest per annum at 3% plus the prime rate of Security Bank
and Trust Company. . . . Provided that if there occurs any

change in the prevailing market rates the new interest rate
shall be the guiding rate of computing the interest due on the
outstanding obligation without need of serving notice to the
Cardholder other than the required posting on the monthly
statement served to the Cardholder.
The Cardholder hereby authorizes Security Diners to

correspondingly increase the rate of such interest in the event
of changes in prevailing market rates and to charge additional
service fees as may be deemed necessary in order to maintain
its service to the Cardholder.
- claims that the terms rates are ambiguous and obscure,
violated laws on Central Bank Circulars, there was bad faith
from diners club
A contract of adhesion is one in which one of the contracting
parties imposes a ready-made form of contract which the other
party may accept or reject, but cannot modify. One party
prepares the stipulation in the contract, while the other party
merely affixes his signature or his "adhesion" thereto, giving no
room for negotiation and depriving the latter of the opportunity
to bargain on equal footing.
Admittedly, the contract containing standard stipulations
imposed upon those who seek to avail of its credit services was
prepared by Diners Club. There is no way a prospective credit
card holder can object to any onerous provision as it is offered
on a take-it-or-leave-it basis. Being a contract of adhesion, any
ambiguity in its provisions trust be construed against private
respondent.
these are considered ordinary binding contracts since

the party to adheres to the contract is free to reject it
is the contract one sided? No . its parties agreed

upon the stipulation and petitioner did not specify what
provision was in question
its not an escalation clause since it refers to the

prevailing market rate. Does not state all increase / decrease
in rate
Escalation clauses are not basically wrong or legally

objectionable as long as they are not solely potestative but
based on reasonable and valid grounds. It is beyond the control
of any of the parties.
What is the effect of impossible conditions? Illegal conditions?
Art. 1183. Impossible conditions, those contrary to
good customs or public policy and those prohibited by
law shall annul the obligation which depends upon
them. If the obligation is divisible, that part thereof
which is not affected by the impossible or unlawful
condition shall be valid.
The condition not to do an impossible thing shall be
considered as not having been agreed upon.

Page 16 of 106
Question: A promised B to give his car if B can hold the sun.

Can B demand the fulfillment of the donation?
Art. 727. Illegal or impossible conditions in simple
and remuneratory donations shall be considered
as not imposed.
indicated has elapsed, or if it has become evident

that the event cannot occur.
If no time has been fixed, the condition shall be deemed
fulfilled at such time as may have probably been
contemplated, bearing in mind the nature of the
obligation. (1118)
- impossibility may be physical or juridical

-physical if contrary to the laws of nature. Juridical if contrary
to law, morals, good customs, public policy and order
intention determines if the act is illicit
impossibility must exist at the time of the creation of

the obligation
illogical conditions is the logical impossibility in an

obligation although the condition is not impossibility (I will
deliver to you my house if it is destroyed)
divisible obligations part not affected by the

impossible or unlawful obligation shall be valid
negative impossible conditions considered to have

been agreed upon. Does not need to wait upon the conditions.
1184 (Positive Suspensive)

A obliges himself to give B
some
money if B recites on or before
June
30
A liable if B recites on or before
June
30
A is not liable if B recites after
June 30
When are conditions deemed fulfilled?

Art. 1184. The condition that some event happen at a
determinate time shall extinguish the obligation as
soon as the time expires or if it has become indubitable
that the event will not take place. (1117)
Art. 1186. The condition shall be deemed

fulfilled when the obligor voluntarily prevents its
fulfillment. (1119)
This provision speaks of the DOCTRINE OF

CONSTRUCTIVE FULFILLMENT Requisites
intent of the obligor to prevent the fulfillment of the

condition
actual prevention of compliance
Positive condition refers to the fulfillment of an event or

performance of an act
Negative condition refers to the non-fulfillment or nonperformance of an act.
POSITIVE SUSPENSIVE CONDITION
The obligation is extinguished:
As soon as the TIME EXPIRES without the event taking

place;
As soon as it has become certain that the EVENT

WILL NOT TAKE PLACE although the time specified has not
yet expired.
Where no period stated 2nd paragraph of 1185 is applicable
Art. 1185. The condition that some event will not happen
at a determinate time shall render the obligation
effective from the moment the time
1185 (Negative Suspensive)

A obliges himself to give B some
money if B will not recite on
June 30
A is not liable if B recites on
June 30
A is liable if B did not recite on
June
30
when the act (voluntary), did not have for its purpose
the prevention of the condition, this article is not applicable
if in preventing the fulfillment of the condition, the

debtor acts pursuant to a right, the condition will not be
deemed as fulfilled
when the condition is resolutory but not dependent on

the will of the debtor, and he unjustifiably provokes or produces
the condition, which would not have happened without his
doing so, uit will be considered as not having been fulfilled and
there will be no extinguishment of rights.
Does the fulfillment of a condition have retroactive effect?
Art. 1187. The effects of a conditional obligation to give,
once the condition has been fulfilled, shall retroact to the
day of the constitution of the obligation. Nevertheless,
when the obligation imposes reciprocal prestations

upon the parties, the fruits and interests during the
pendency of the condition shall be deemed to have been
mutually compensated. If the obligation is unilateral,
the debtor shall appropriate the fruits and interests

received, unless from the nature and circumstances of the
obligation it should

Page 17 of 106
be inferred that the intention of the person

constituting the same was different.
In obligations to do and not to do, the courts shall determine,
in each case, the retroactive effect of the condition that has
been complied with.
moment of the creation of the conditional obligation and

the fulfillment of the suspensive condition, the creditor enforce
the obligation , right is a mere expectancy
cause of action for the enforcement of the obligation

accrues, and the period of prescription of the action has to be
computed from that moment
effects retroact to when the obligation was created
increase in value which the thing may acquire before

the happening of the suspensive condition, inures to the
benefit of the creditor
right to the fruits of the thing is not within the

principle of retroactivity of conditional obligations
in obligations to do or not to do, the courts shall

determine the retroactive effect of the fulfillment of the
conditions
Common question: A promised to give B his house if B passes
the bar. Before the results of the bar came out, A sold his car to
C. Is the sale valid? Can B obtain the rentals for the house from
the time they had an agreement to when the condition was
fulfilled?
Validity of sale: determine if the buyer was in good faith and
if the house has already been delivered. B may take action
against A for damages.
Rentals and Fruits: B cannot obtain the rentals / fruits as the
fruits will remain with the owner before the condition was
fulfilled. Fruits not within the principle of retroactive effect of
the fulfillment of the conditions.
Can rights be acquired prior to the fulfillment of a condition?
Art. 1181. 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 constitutes the condition. (1114)
Can payment prior to the fulfillment of a condition be
recovered?
Art. 1188. The creditor may, before the fulfillment of
the condition, bring the appropriate actions for the
preservation of his right.
The debtor may recover what during the same time he

has paid by mistake in case of a suspensive condition.
Actions available to the creditor:
to prevent the loss or deterioration of the things which

are the objects of the obligation by enjoining or restraining
acts of alienation or destruction by the debtor himself or by
third persons
to prevent concealment of the debtors properties

which constituted the guaranty in case of non performance
of the obligation
to demand security if the debtor becomes insolvent
to compel the acknowledgment of the debtors signature

on a private
document or the execution of the proper public documents for
registration so as to affect 3rd persons
to register the deeds of sale or mortgages evidencing

the contract
to set aside fraudulent alienations made by the debtor
to interrupt the period of prescription by actions

against adverse possessors of the things which are the
objects of the obligations
if payment was made with knowledge of the

condition, there is an implied waiver of the condition ,
cannot be recovered
Rights of the DEBTOR entitled to recover what has been paid

by mistake prior to the happening of the suspensive condition.
Who is liable if the thing that is the object of an obligation to
give is lost prior to the fulfillment of a suspensive condition?
Who is liable if the thing that is the object of an obligation to
give is lost after the fulfillment of a suspensive condition?
Art. 1189. When the conditions have been imposed
with the intention of suspending the efficacy of an
obligation to give,
the following rules shall be observed in case of the
improvement, loss or deterioration of the thing
during the
pendency of the condition:
If the thing is lost without the fault of the debtor,
the obligation shall be extinguished;
If the thing is lost through the fault of the debtor, he
shall be obliged to pay damages; it is understood that
the thing is lost when it perishes, or goes out of
commerce, or disappears in such a way that its
existence is unknown or it cannot be recovered;
When the thing deteriorates without the fault
of the debtor, the impairment is to be borne by
the creditor;

Page 18 of 106
If it deteriorates through the fault of the debtor, the

creditor may choose between the rescission of the
obligation and its fulfillment, with indemnity for
damages in either case;
If the thing is improved by its nature, or by time,
the improvement shall inure to the benefit of the
creditor;
If it is improved at the expense of the debtor, he
shall have no other right than that granted to the
usufructuary (right to enjoy products he does not own).
- applicable to a determinate thing only, not a generic thing
as to fulfillment condition is uncertain , period

must necessarily come whther on a date known before
hand or at a time which cannot be predetermined
influence on the obligation condition gives rise /

extinguishes an obligation, period only has an effect on their
demandability or performance
as to time period refers to the future while condition

may refer to a past event unknown to the parties
will of debtor condition which depends exclusively on

the will of the debtor annuls the obligation , period left to the
debtors will merely empowers the court to fix such period
Requisites of a period future, certain, possible
LOSS
debtor without fault obligation is extinguished
debtor with fault obligation to pay damages
DETERIORATION
debtor without fault impairment is to be borne by the
creditor
debtor with fault creditor chooses: rescission of
obligation, fulfillment, indemnity
IMPROVEMENT
by nature or time improvement: inure to the benefit of the
creditor
at the expense of the debtor granted to the usufructuary
B. Obligations with a Period
What is an obligation with a period?
Art. 1193. Obligations for whose fulfillment a day
certain has been fixed, shall be demandable only when
that day comes.
Obligations with a resolutory period take effect at
once, but terminate upon arrival of the day certain.
A day certain is understood to be that which must
necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come or
not, the obligation is conditional, and it shall be regulated
by the rules of the preceding Section.
Term space of time which exerting an influence on the

obligations as a consequence of the juridical act, suspends
their demandability or determines their extinguishment
Differences from condition
Kinds of terms
According to source legal, voluntary, judicial
Definite or indefinite
Express or tacit
Suspension of a period it only relieves the parties from the
fulfillment of their respective obligations during that time
Who is liable if the thing is that is the object of an obligation to
give is lost prior to the arrival of the period?
Art. 1194. In case of loss, deterioration or
improvement of the thing before the arrival of the day
certain, the rules in Article 1189 shall be observed.
LOSS
debtor without fault obligation is extinguished
debtor with fault obligation to pay damages
DETERIORATION
debtor without fault impairment is to be borne by the
creditor
debtor with fault creditor chooses: rescission of
obligation, fulfillment, indemnity
IMPROVEMENT
by nature or time improvement: inure to the benefit of the
creditor
at the expense of the debtor granted to the usufructuary
When is the court authorized to set a period?
Art. 1197. If the obligation does not fix a period, but
from its nature and the circumstances it can be
inferred that a period was intended, the courts may fix
the duration thereof.

Page 19 of 106
The courts shall also fix the duration of the period when
it depends upon the will of the debtor.
In every case, the courts shall determine such period
as may under the circumstances have been probably
contemplated by the parties. Once fixed by the courts,
the period cannot be changed by them.
Art. 1180. When the debtor binds himself to pay when
his means permit him to do so, the obligation shall be
deemed to be one with a period, subject to the
provisions of Article 1197.
- only refers to the period , not the
obligation itself JUDICIAL PERIOD period
designated by the court.
CONTRACTUAL PERIOD period fixed by the parties in

their contract. Court will fix a period:
When no period is mentioned, but it is inferable

from the nature and circumstances of the obligation that
a period was
intended by the parties.
When the period is dependent upon the will of the

debtor.
-If the obligation does not state and intend a period, the court is
not authorized to fix a period.
-The court must fix the duration of the period to prevent the
possibility that the obligation may never be fulfilled or to cure
a defect in a contract whereby it is made to depend solely
upon the will of one of the parties.
Court cannot fix the period:
If there is a period agreed upon by the parties and it

has already lapsed or expired.
From the very moment the parties give their

acceptance and consent to the period fixed by the court, it
becomes a law governing their contract.
INDICATIONS OF A TERM OR
PERIOD: When the debtor binds
himself to pay -when his
means permit him to do so
-little by little
-as soon as
possible -from
time to time
-as soon as I have the

money -in partial
payment
-when in the position to pay
ARANETA v PHILIPPINE SUGAR ESTATE DEVELOPMENT

J. J.B.L. Reyes
w/ their obligation &/or to pay damages in the event they

failed or refused to perform said obligation.
J. M. Tuason & Co., Inc., owner of the Sta. Mesa Heights Subd.,
sold a portion thereof through Gregorio Araneta, Inc. (GAI), for the
sum of P430,514, to Phil.
Both defendants answered the complaint. GAIs principal

defense was that the action was premature since its obligation
to construct the streets in question was w/o a definite period
w/c needs to be fixed 1st by the court in a proper suit for that
purpose before a complaint for specific performance will
prosper.
Sugar Estates Devt Co., Ltd (PSEDC).
Stipulated in their contract of purchase & sale w/ mortgage:

that the buyer will build on the parcel of land the Sto Domingo
church &convent; while the seller for its part will construct
streets on the NE & NW & SW sides of the land herein sold so
that the latter will be a block surrounded by streets on all 4
sides; & the street on the NE side shall be named Sto. Domingo
Ave.
PSEDC finished the construction of the church & convent, but
GAI, w/c began constructing the streets, is unable to finish the
construction of the street in the NE side because a certain third
party who has been physically occupying a middle part thereof,
refused to vacate the same
Hence, PSEDC filed its complaint against J. M. Tuason & Co.,
Inc., & GAI in the CFI, seeking to compel the latter to comply
Issues having been joined in trial, CFI (May 31, 60)

dismissed plaintiff's complaint, upholding defenses
interposed by GAI
Plaintiff moved to reconsider & modify above decision,
praying that court fix period w/in w/c defendants will comply
w/ their obligation
GAI opposed said motion. But CFI granted plaintiff's MFR &
amending the dispositive portion of the decision of May 31,
60, to read as follows:
"WHEREFORE, judgment is hereby rendered giving
defendant Gregorio Araneta, Inc., a period of Two (2) Years
from notice hereof, within which to comply with its
obligation under the contract, Annex A"

Page 20 of 106
GAI filed MFR but CFI denied. GAI appealed to the CA,
contending that the relief granted, i.e., fixing of a period, was
not justified by the pleadings & not supported by the facts
submitted at the trial of the case in court below & that the
relief granted in effect allowed a change of theory after the
submission of the case for decision
CA upheld the CFI decision. Hence this petition for review by
certiorari to the
SC
WON CFI may fix a period in the same pleading by PSEDC
NO. When GAI pleaded in its answer that the contract w/ PSEDC
gave GAI "reasonable time w/in w/c to comply with its
obligation to construct & complete the streets", what the
answer put in issue was not whether the court should fix the
time of performance, but WON the parties agreed that the
petitioner should have reasonable time to perform its part of
the bargain.
If the contract so provided, then there was a period fixed, a
"reasonable time";
all that the court should have done was to determine if

that reasonable time had already elapsed when suit was filed.
If it had passed, then the court should declare that petitioner
had breached the contract, as averred in the complaint,
fix the resulting damages. On the other hand, if the

reasonable time had not yet elapsed, the court perforce was
bound to dismiss the action for being premature. But in no
case can it be logically held that under the plea above quoted,
court intervention to fix the period for performance was
warranted, for Art. 1197 is precisely predicated on the absence
of any period fixed by the parties
Granting that the court shouldve found that no reasonable
time/no period at all had been fixed, still the complaint not
having sought that the Court should set a period, the court
couldnt proceed to do so unless the complaint was first
amended; for the orig. decision is clear that the complaint
proceeded on the theory that the period for performance had
elapsed already, that the contract had been breached &
defendant was already answerable in damages.
Granting further that it lay within the Court's power to fix the
period of performance, still the amended decision is defective
in that no basis is stated to support the conclusion that the

period should be set at 2 yrs after finality of the judgment. Art.
1197 is clear that the period cannot be set arbitrarily.
All that TC's amended decision says in this respect is that

"the proven facts precisely warrant the fixing of such a
period", a statement manifestly insufficient to explain how
the 2 year period given to petitioner herein was arrived at.
Art. 1197, CC involves a 2-step process.
Court must 1st determine that "the obligation does not fix a
period" (or that the period is made to depend upon the will of
the debtor), "but from the nature & the circumstances it can be
inferred that a period was intended" (Art. 1197, pars. 1&2)
Secondly, it must decide what period was "probably
contemplated by the parties"
Ultimately, the Court can not fix a period merely because in its
opinion it is or should be reasonable, but must set the time that
the parties are shown to have intended.
In this connection, contract shows that the parties were fully
aware that the land described therein was occupied by
squatters, because the fact is expressly mentioned therein. As
the parties must have known that they could not take the law
into their own hands, but must resort to legal processes in
evicting the squatters, they must have realized that the
duration of the suits to be brought would not be under their
control nor could the same be determined in advance. The
parties must have thus intended to defer the performance of
the obligations under the contract until the squatters were duly
evicted, as contended by the GAI
CA objected that it would render the date of performance
indefinite. Yet, the circumstances admit no other reasonable
view; & this very indefiniteness is what explains why the
agreement did not specify any exact periods or dates of
performance.
Holding: Reversed; Time for the performance is fixed at the
date that all the squatters on affected areas are finally
evicted therefrom
CPU v CA
J. Bellosillo

Page 21 of 106
Iloilo, in 1939, Don Ramon Lopez by a deed of donation

donated Lot No. 3174-B-1 of the subdivision plan Psd-1144,
then a portion of Lot No. 3174-B, for which Transfer Certificate
of Title No. T-3910A to CPU.
The deed of donation came with 3 annotations on the land:
1.should be used for a medical college with all its
buildings as part of the curriculum;
shouldnt be sold, transferred, conveyed to any third

party, or encumbered.
should be called "RAMON LOPEZ CAMPUS and it be

written in a cornerstone. Any net income from the land or its
parks shall be in a fund to be known as the "RAMON LOPEZ
CAMPUS FUND" used for improvements of the campus and its
building/s.
After 50 years(May 31,1989), the heirs of the donor, filed a
suit, asking for annulment of donation, reconveyance and
damages against CPU alleging that since 1939 the donee
allegedly didnt comply with the conditions, and tried to
exchange the land for another land owned by the Natl
Housing Authority.
CPU answered that it didnt try to use or exchange the land
contrary to the conditions, and any action after 50 years
has already prescribed.
RTC held that CPU failed to comply with the conditions so
the donation is declared null and void. The land is ordered
to be reconveyed.
CA affirmed that the conditions were resolutory(breach
terminates rights making the donations revocable) but
declared that the conditions didnt have time limits so the
case is remanded for time determination.
SO, CPU petitioned the supreme court alleging that the CA
erred the certificate title to be onerous obligation, and
resolutory condition, that prescription does not deserve
disquisition and remanding to the RTC the determination of
time to fulfill the medical college condition. Issues
WON the obligation was onerous. YES
Clearly, the annotations in the deed of donation from Don

Ramon, proves that he imposes these obligations. Therefore,
these obligations are onerous considerations(one executed for
a valuable consideration which is considered to be en
equivalent of the donation itself).
Under Art. 1181 of the Civil Code, on conditional obligations,

the acquisition of rights, as well as the extinguishment or loss
of those already acquired, shall depend upon the happening of
the event which constitutes the condition.
Thus, when a person donates land to another on the condition
that the latter would build upon the land a school, the
condition imposed was not a condition precedent or a
suspensive condition but a resolutory one. Only after the donee
didnt fulfill the conditions will the rights be revoked. which
brings us to the prescription
WON there is prescription. NO
The time from which the cause of action accrued for the
revocation of the donation and recovery of the property
donated cannot be specifically determined in the instant
case. There being no stipulations in the deed, the time for
the fulfillment of the conditions lay in the will of the donee
and prevented the statute of limitations to affect
in this case.
And to compute for the time from which the cause of action
accrued, it begins with the expiration of a reasonable period
and opportunity for petitioner to fulfill what has been charged
upon it by the donor.
And in this case, no exact time can really be surely stipulated
in the deed, considering the laws on construction, educational
institutions etc. beyond the control of the donee.
Thus, when the obligation does not fix a period but from its
nature and circumstances it can be inferred that a period was
intended, the general rule provided in Art. 1197 of the Civil
Code applies, which provides that the courts may fix the
duration thereof because the fulfillment of the obligation itself
cannot be demanded until after the court has fixed the period
for compliance therewith and such period has arrived.
And yet, Art. 1197 cant be applied because the courts think that
50 years was enough time for them to fulfill the conditions. CPU
has slept on its obligations.
What applies is Art. 1191, when an obligor cant comply with what
is expected of him, the obligee may seek rescission unless the
court fixes a period for a just

Page 22 of 106
cause. In this case, there is no just cause, to fix a period

would be mere technicality and would only result to a
multiplication of suits.
Then the court said that since this is a gratuitous
donation(contradiction, see dissent) the court affirms the
decision of the RTC and modifies that of the CA, CPU is
ordered to reconvey the property to the heirs.
Davide, J. dissenting (Modal Conditions in donations
Important)
He agrees its an onerous obligation, but he sees the
contradiction when the ponente called it a gratuitous
donation in the end.
He makes a distinction between conditions on the laws of
obligation and donation as different(Tolentino). The conditions
spoken does not refer to uncertain events on which the birth or
extinguishment of a juridical relation as with conditional
obligations.
What we have in this case is modal condition, which requires a
prestation.The conditions Don Ramon made, are actually
obligations. They are not resolutory because the moment the
obligations are fulfilled, the rights are not extinguished(in fact
strengthened).
The Parks(footnote in the original case) case do not apply
here. Instead what applies is the Barretto v City of Manila.
Where the court said in cases where there is no fixed period
for the conditions, Art. 1197 applies. Don Ramon wouldnt
have intended for his land to be idle.
He also points out that Osmena v Rama doesnt apply here
because in that case it is the debtor who made the promise to
do, thats why time was in his will to comply. So here applying
Parks and De Luna v Abrigo, even actions for revocation of
donations prescribe too. And the Art.1144 applies that the
prescription of an action upon a
written contract which is what a deed of an onerous donation
is, is 10 years from the time the cause of action accrues. And
the time must be determined by the courts by virtue of Art.
1197.
Accion Pauliana (rescission) - Creditors have the right to set
aside or revoke acts which the debtor may have done to
defraud them. All acts of the debtor which reduce his
patrimony in fraud of his creditors, whether by gratuitous or

onerous title, can be revoked by this action.
Accion Subrogata - Action which the creditor may exercise

in place of the negligent debtor in order to preserve or
recover for the patrimony of the debtor the product of such
action, and then obtain therefrom the
satisfaction of his own credit
When is the obligation immediately demandable prior to
the arrival of the period?
Art. 1198. The debtor shall lose every right to make use
of the period:
When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or
security for the debt;
When he does not furnish to the creditor the
guaranties or securities which he has promised;
When by his own acts he has impaired said
guaranties or securities after their establishment, and
when through a fortuitous event they disappear,
unless he immediately gives new ones equally
satisfactory;
When the debtor violates any undertaking, in
consideration of which the creditor agreed to the
period;
When the debtor attempts to abscond (depart in a

sudden and secret manner)
The period is disregarded and the obligation becomes pure
and immediately demandable: [IGIVA]
[I] When debtor becomes i nsolvent ;
-The insolvency need not be judicially declared. It is sufficient
that debtor could not pay his debts due to lack of
money or funds.
[G] When the debtor does not furnish g uaranties or securities;
[I] When guaranties or securities given have been i
mpaired or have disappeared ;
If security was lost through debtors fault - impairment
If security was lost through fortuitous event disappearance
Ex. House was sold by A to B on an installment basis per month
based on a period. House became the mortgage (guaranty). A
fire destroyed the house and it was established that there was
not negligence involved and it was a fortuitous event. In the
quiz, the accepted answer was that the obligation was
extinguished due to fortuitous events. However if we apply
1998, the period can no longer be used and A can claim the
whole amount (shall lose every right to use the period) unless
debtor gives a new guaranty equally satisfactory.

Page 23 of 106
[V] When debtor v iolates an undertaking ;

If such undertaking is the reason for the creditor to agree
with such period. [A] When debtor attempts to a bscond
(escape).
Mere attempt to abscond is sufficient. It is an indication of bad
faith.
Can mistaken payment prior to the arrival of the period be
recovered?
Art. 1195. Anything paid or delivered before the
arrival of the period, the obligor being unaware of
the period or believing that the obligation has
become due and demandable, may be recovered,
with the fruits and interests.
If he was not aware of the period or he believes that the
obligation has become due and demandable he can recover
what he paid or delivered including fruits and interests;
If he was aware and he paid voluntarily he cannot recover the
delivery made; it is deemed a waiver of the benefit of the term
and the obligation is considered already matured.
The presumption is that the debtor knew that the debt was not
yet due. He has the burden of proving that he was unaware of
the period.
In case of doubt, for whose benefit will a period be construed?
Art. 1196. Whenever in an obligation a period is
designated, it is presumed to have been established for
the benefit of both the creditor and the debtor, unless
from the tenor of the same or other circumstances it
should appear that the period has been established in
favor of one or of the other.
PRESUMPTION: Obligation with a period is for the benefit of
both the creditor and debtor.
EXCEPTION: when it appears that the period is for the
benefit of one or the other
The benefit of the term may be the subject of stipulation of the
parties.
1. Term is for the benefit of the debtor alone he cannot be
compelled to pay prematurely, but he can if he
desires to do so.
- Example: A obliges himself to pay B within 5 years. A cannot

be compelled to pay prematurely, but he can pay anytime
within 5
years (A will benefit because he can pay anytime he wants as

long as it is within 5 years; B will not benefit from the interests
if A decides to pay early).
2. Term is for the benefit of the creditor He may demand
fulfillment even before the arrival of the term but the
debtor cannot require him to accept payment before the
expiration of the stipulated period.
Example: A borrows money from B and is obliged to

make the payment on December 5. B may compel A to make
the payment before December 5, but A may not compel B to
receive the payment before December 5 (B will benefit from
the interests that will accrue before December 5).
The creditor may have reasons other than the maturity

of interest, thats why, unless the creditor consents, the debtor
has no right to accelerate the time of payment even if the
premature tender includes an offer to pay the principal and
interest in full.
C. Alternative Obligations
Kinds of obligations that has many possible prestations to
fulfil in order to extinguish the obligation.
Obligations that require a debtor to perform

completely one of the several prestations provided as
options in the stipulations of the contract.
o
The prestations must be lawful and possible.
(CC1200)
Fulfilment of one of the provided prestations
extinguishes the obligation. Partial fulfilment of any
number of the provided prestations does not fulfil
the obligation. The creditor cannot be compelled to
accept part of one and part of another prestation.
(CC1199)
The prestation to be fulfilled is dependent on whom
the right to choose is given. In default, the right to
choose is given to the debtor. (CC1200)
The choice must be communicated before it becomes
effective. The
choice will only produce effects upon communication.
(CC1201)
o Until the choice is communicated, the person
with the right to choose can change his mind.
When an alternative obligation ceases? > What
happens to the obligation?
o When only one choice is practicable. (CC1202)
o
When the choice has been communicated.
(CC1201) (CC1205)

Page 24 of 106
Right to choose vested on the debtor

If through the acts of the creditor, the debtor
cannot make a choice according to the terms of
the obligation, the debtor
may rescind with damages (CC1203)
Effect of Loss or Impossibility before the
choice has been communicated:
Fortuitous event: One or
Debtor may choose among
some of
the
the prestations are lost or
remaining prestations what
to
became impossible
fulfil
Fortuitous event: All except Debtor must fulfil the
one
remaining
of the prestations are lost or prestation ~ obligation
becomes
became impossible
simple
Fortuitous event: All
Obligation is extinguished
prestations
(See:
are lost or became
Fortuitous Event)
impossible
Debtors fault: One or some Debtor may choose among
of
the
to
became impossible
fulfil
Debtors fault: All except
Debtor must fulfil the
one of
remaining
prestation
became impossible
Debtors fault: All
Debtor must pay creditor
prestations are
the
lost or became impossible
price of the last prestation
that
was lost or became
impossible,
without prejudice to the
creditors right to damages
Right to choose vested on the creditor
choice has been communicated: (CC1204)
(CC1205)
Fortuitous event: One or
Creditor may choose among
some of
the

the
became impossible
debtor will fulfil
Fortuitous event: All except Debtor must fulfil the
one
remaining
of the prestations are lost or prestation
became impossible
Fortuitous event: All
Obligation is extinguished
prestations
(See:
are lost or became
Fortuitous Event)
impossible
Debtors fault: One or some Creditor may choose among
of
the
the
became impossible
debtor fulfil OR the price of
one
of the prestation/s lost due
to
the debtors fault plus

creditors
rights to damages
Debtors fault: All except
Creditor may choose that
one of
the
debtor fulfil the remaining
became impossible
prestation OR the price of
one of
the prestations lost due to
the
debtors fault plus creditors
rights to damages
Debtors fault: All
Creditor may choose the
prestations are
price of
lost or became impossible
one of the prestations lost
due
to the debtors fault plus
creditors rights to damages
Right to choose vested on Third Person
The choice shall not be binding until it has been
made known to both contracting parties
(CC1309)

choice has been communicated: Same rules
as when the choice is by the creditor.
Generic Obligations v Alternative Obligations:
Generic Obligations: prestations must fall on
things of the
same kind.
Alternative Obligations: prestations may be
of different quality, kind and quantity.
Alternative Obligations v Facultative Obligations:
Alternative Obligations:
Obligations that require a debtor to
perform completely one of the several
prestations provided as options in the
stipulations of the contract.
The right to choose the alternative

prestation may
be granted to the creditor or a third
person.
Facultative Obligations:
Obligations when only one prestation has
been provided in the stipulations of the
contract but the debtor may render another
in substitution. (CC1206)
The substitution is always

discretion of the debtor.
at
the

Page 25 of 106
D. Joint and Solidary Obligations

Kinds of obligations that differ in the proportion in which the
debtor is liable and/or the creditor may rightfully claim. These
are the kinds of obligation with many subjects, either active or
passive.
Joint Obligation v Solidary Obligation:
Joint Obligation: Obligations that exist between
several persons, whether creditors or debtors,
among whom the
benefit or the burden of the obligation is divided.

Solidary Obligation: Obligations that are those in
which there being concurrence of several debtors
or several creditors, each creditor is given the
right to demand, and each debtor is bound to
perform the obligation in its entirety.
A mere concurrence of two or more creditors or two or
more debtors in one obligation does not imply solidarity
or the obligation. There is a presumption against
solidarity of obligations. (CC1207)
Solidary obligation exists only when:
It is expressly stated in the stipulation

of the contract.
The law or the nature of the obligation
requires solidarity.
Joint Obligations
Requisites of a Joint Obligation:
Subject:
Must be more than one (either creditors,

debtors or both)
Presumed equal in share unless the law,

nature or wording of the obligation shows
the contrary (CC1208)
Shares are considered distinct from one
another, subject to the rules on multiplicity of
suits. (CC1208)
Effects of a Joint Obligation:

Divisible prestation:
credit.
Indivisible prestation: (CC1209)
Each joint creditor can only demand his share

of the credit.
Each joint debtor can only be required to
pay his share of the debt.
Solidary Obligations
Requisites of a Solidary Obligation:
Subject:
Must be more than one (either creditors, debtors or
both)
Unity of prestation:
Each solidary creditor can collect the

entire obligation. (Mutual Agency of
creditors)
Each solidary debtor can be compelled to
pay or perform the entire obligation.
(Mutual Guaranty
among debtors)
Distribution among solidary parties:
Accounting between creditors for the share of each.
Contribution between debtors for the share of each.

Each creditor may only collect and each debtor may
only be held liable until the extent that

the liability is still not paid.
Kinds of Solidarity based on subjects
Active: Solidarity of Creditors
Passive: Solidarity of Debtors
Kinds of Solidarity
conditions
based
on
uniformity
Uniform: Same terms and conditions for all.
Varied: With different periods and/or conditions for
of
each. (CC1211)
Effects of a Solidary Obligation:
Creditors may individually and independently

demand and compel performance of his share
of the
The debt may be enforced only by

proceeding against all debtors.
But consequential damages are

charged
exclusively to the joint debtor
who was responsible for the
breach.
Multiplicity of Subjects
Shares in the demandability or the liability in the

obligation:
Active: On debtors
Each creditor can collect the

entire debt or extinguish it.
(CC1215)
A creditors right may only be prejudiced

by the collective acts of all the creditors.
Page 26 of 106
Debtors may pay any one of the

solidary creditors but if applicable,
payment must be given to the
creditor making demand. (CC1214)
Novation: any compensation,
confusion or remission made by
any of the solidary creditors shall
extinguish the obligation.
(CC1215)
Active: On co-creditors
The creditors who may have

executed any of the acts that will
extinguish the obligation shall be
liable to the other co-creditors for
the share in the obligation
corresponding to them. (CC1215)
Each of the solidary creditors may
do whatever is useful to the other
co-creditors but not anything that
may prejudice the latter. (CC1212)
A solidary creditor may not assign

his rights without the consent of the
others (CC1213)
Passive: On creditors
Each debtor is bound to perform

the whole obligation. (CC1207)
Demand against one or some of
the debtors shall not bar
subsequent demands to other
debtors to the extent that the debt
has not been fully collected. The
creditor may pursue charges
against one, some or all of the
solidary debtors simultaneously.
(CC1216)
If two or more solidary debtors
offer to pay, the creditor may
choose which offer to accept.
(CC1217)
Payment by one of the solidary
debtors extinguishes the
obligation to the extent of the
payment. (CC1217)
If the thing was lost or if the
prestation has become impossible
without fault of the solidary
debtors before demand of the
creditor, the obligation

shall be extinguished.
(CC1221)
If there was fault on the part of
any one of the debtors, all shall
be responsible to the creditor.
This is without prejudice to the
other debtors action against the
negligent debtor. (CC1221)
Passive: On co-debtors
The solidary debtor who made the

payment may claim from his codebtors their share of the
obligation. (CC1217)
But no share can be collected if
the payment made by one of the
solidary debtor was made after
the obligation has prescribed or
became illegal. (CC1218)
If a solidary debtor paid the
obligation before the remission of
the debt of one debtor was done,
the latter is still liable to the
former who made the payment to
the extent of payment made to
the latters behalf. (CC1219)
Insolvency of one of the solidary
debtors passes the liability to
the others in proportion to the
debt of each. (CC1217)
Defenses that the debtors may raise:
Nature of the obligation:
Prescription
Illegality
Nullity ab initio
Suspensive condition or period
Former payment
Compensation
Release
Compromise
Personal defenses:
o
Incapacity
Vice of consent
Personal to other co-debtors:

Page 27 of 106
Held: No, Justice Plana stated that as provided in

CC1216, the creditor may pursue charges against
any one, some or all of the debtors
simultaneously as long as the liability still exists.
The choice of who to file charges against is given
on the creditor according to the protection of his
rights and his convenience. Therefore, death of
one solidary debtor does not bar the creditor
from pursuing charges against surviving debtors.
The debtor may avail of such defense to the

extent of the other debtors (the one with
excuse) liability.
(CC1222)
Ronquillo v Court of Appeals (G.R. L-55138;

September 28, 1984) Facts: Ernesto Ronquillo
was one of the 4 people who has a debt of
P117,498.98 from Antonio So. The debtors, including
Ronquillo entered a compromise agreement with So
and the other creditors that the debt will be reduced
to P110,000 and that the debtors promised to pay
P55,000 first then P55,000 again after 6 months and
each debtors bind themselves to pay individually
and jointly. Ronquillo offered to pay So P13,750 as
his share in the
P55,000 but So did not want to accept such
payment because So is demanding for the whole
P55,000 debt. When the whole P110,000 was due,
Ronquillo was offering to pay P27,500 but So filed a
case and it was held that Ronquillos furniture
would be sold to fulfil the remaining P82,500 of the
obligation. Ronquillo filed the current action to
prevent the sale of his properties.
Issue: WoN Ronquillo can be held liable for the
whole P110,000 debt to So?
Held: Yes, according to Justice Cuevas, the phrase
individually and jointly liable means solidarily
liable. It is because the word individually is
synonymous to collectively, separately, and/or
distinctively. A person who is individually liable
is liable for a several obligation which binds oneself
to the whole obligation which is equivalent to being
solidarily liable.
Philippine National Bank v Independent Planters
Association (G.R. L-28046; May 16, 1983)
Facts: During the pendency of a case of PNB
against solidary debtors, one of the debtors
Valencia died and the lower court dismissed the
case due to Valencias death.
Issue: WoN the court loses jurisdiction to
proceed with the case against surviving
defendants if one of the solidary debtors died?
E. Divisible and Indivisible Obligation

The kinds of obligations which, by reason of their purpose
are susceptible of being executed by parts or fractions.
Indivisible Obligation
Obligation which are not susceptible of being
executed by parts or fractions.
Divisible Obligation
Obligations which are susceptible of being
executed by parts or fractions.
By the
Source
By the
Parties
By the
Effects
Solidary
Arises from the tie binds
the
parties, debtors or
creditors
Requires at least two
creditors and debtors
Solidary debtor answers
to
the creditor for the
breach of
his co-debtor
Indivisible
Arises from the nature of
the
nature of the thing or
prestation due
Can exist between one
creditor and one debtor
Breach by one indivisible
debtor does not make
the codebtor liable for such
breach
The liability is not understood to have been paid unless

the thing or service in which the obligation consists has
been completely delivered or rendered. (CC1233)
Unless otherwise stipulated (or provided by law), the
creditor cannot be compelled to accept partial
performance, nor the debtor required
to make partial payments. (CC1248)
Exceptions:
Obligations partly liquidated (CC1248)
Instalment contracts (CC1720)

Page 28 of 106
In case of partial illegality, and the obligation

is divisible, legal stipulations are enforceable
(CC1420)
There may be no recovery quantum meruit (in

proportion) unless there is substantial performance.
(CC1234)
Effect of two or more debtors or creditors in an
indivisible obligation: o Joint Indivisible
The creditor must proceed must proceed

against all debtors.
Breach converts the original obligation
into an obligation to pay the value.
Indemnity for damages is recoverable only
from the guilty debtor. (CC1224)
Each debtor may be required to pay the

whole. (CC1207)
Breach of one is breach of all. (CC1221)
Complementary when both the principal

obligation
and the penalty may be enforced.

By the source:
Conventional provided by agreement.

Legal provided by law.
By the purpose:
Punitive where damages may

collected in addition to the penalty.
No mutual agency of co-debtors exists.
Solidary Indivisible
Reparatory
substitutes
damages.
be
where the penalty

indemnification
for
Characteristic of a penal clause:

Accessory Obligation:
Nullity of the principal obligation carries with

it that of the penal clause. (CC1230)
Obligations with a Penal Clause

Penal Clause is an example of accessory stipulation that is
placed in the contract order to compel the complete
performance of the obligation. Penal clauses does not take
into consideration the actual damages that the creditor will
suffer and is usually in excess of the standard damages.
Liquidated Damages v Penal Clauses:
Liquidated Damages:
Stipulated to fix the amount of recoverables

in case of breach.
Bears relation to the damages resulting
from the breach.
Penal Clauses:
Stipulated
to
stimulate
performance by the debtor.
or
induce
May bear no relation to the damages resulting

from the breach.
Penal Clauses are strictly construed against the

creditor due to the nature of the stipulation.
Kinds of Penal Clauses:
By its effect:
Subsidiary when only penalty may be enforced.
Nullity of the penal clause does not

involve the nullity of the principal
obligation. (CC1230)
Requisites for the enforcement of a penal clause

Breach of the principal obligation must be
chargeable to the debtor. (CC1226)
In case of fortuitous event, penalty is not

collectible. Unless it was expressly stated
otherwise.
In case that the breach was due to creditors

acts, penalty is also not collectible.
Penalty may not be enforced if it is contrary to law.
Penalty may not be enforced if both parties

commit culpable
breach
of
reciprocal
obligations.
Principal
obligation
must
be
due
and
demandable.
The debtor cannot be exempted from performing
or paying the obligation by satisfying the penalty,
unless expressly stipulated. (CC1227)
Penalty is not a substitute for performance.
The penalty shall be reduced equitably by a court:
When there is partial performance. (CC1229)
o When the penalty is iniquitous or unconscionable.
(CC1229)
When allowed by CC2215:
Where
the
plaintiff
himself
has
contravened the terms of the contract
Where the plaintiff has derived some
resulting benefit

Page 29 of 106
Where exemplary damages are to be

awarded, that the defendant acted upon the
advice of counsel
Where the loss would have resulted in any event
Where the defendant has tried his best to

minimize the loss or injury (CC2215)(CC2203)
The creditor cannot collect other damages in addition

to the penalty, except:
o If the obligor refuses to pay the penalty. (CC2209)
o If the obligor is guilty of fraud in the fulfilment of
the
obligation.
(CC1171)
(CC1226) o If it is expressly
stipulated.
Country Bankers Insurance Corporation v

Court of Appeals (G.R. 85161; September 9,
1991)
Facts: Oscar Ventanilla Enterprises Corporation
(OVEC), as lessor and Enrique Sy as lessee, entered
into a lease agreement of 3 theaters in Cabanatuan
City for 6 years. After 2 years, OVEC made
demands for repossession due to Sys arrears in the
monthly payments as well as the non-payment of
tax. Sy and OVEC agreed to a penal clause that the
remaining deposit will be forfeited, without
prejudice to any other obligation still owing, in the
event of termination or cancellation of the
agreement by reason of lessees violation of the
terms and conditions of the agreement. Now, Sy
still owes P100,000 to OVEC and Sy is claiming that
the P100,000 should be taken from the remaining
deposit of P290,000.
Issue: WoN the damage of P100,000 to OVEC by

Sy should be taken from the remaining deposit of
P290,000 of Sy to OVEC?
Held: No, Justice Medialdea stated that the

stipulation that the remaining deposit will be
forfeited in case of termination of the agreement
by reason of the lessees acts is a penal clause
that is validly entered into by the parties. Also,
OVEC was able to prove that the damage was
reasonable and was really incurred by OVEC
therefore, aside from the penal clause, such
P100,000 damages may also be recovered by
OVEC from Sy. The obligee may recover from the
obligor not only the penalty but also the

damages resulting from the non-
fulfillment or defective performance of the principal

obligation.
Makati Development Corporation v Empire Insurance
Company (G.R. L-21780; June 30, 1967)
Facts: Makati Development Corporation sold to
Rodolfo
Andal a lot with a special condition that Andal
shall commence and complete at least 50% of the
construction of his residence in the property within 2
years after the sale or else, the bond of P12,000
made by Andal with Empire Insurance Company as
surety would be forfeited. Andal did not build a
house but instead sold the house to Juan Carlos but
until the deadline in March 31, 1961, no house was
built. But by the end of April 1961, more than the
required construction was already finished. The
lower court in hearing the case lowered the P12,000
to P1,500 because on March 31, 1961, the property
was already fenced and walls were already standing
which indicates partial fulfilment of the condition.
Issues: WoN the lower court erred in lowering

the penalty from P12,000 to P1,500?
Held: No, Justice Castro held that partial
fulfilment of the obligation is a reasonable
ground for the courts to mitigate the penalties
stipulated by the parties. It was also held that
such penal stipulations shall be strictly construed
against the enforcement in its entirety of the
indemnification, where it is clear from the
contract that the amount or character of the
indemnity is fixed without regard to the probable
damages which might be anticipated as a result
of a breach of the terms of the contract, or, in
other words, where the indemnity provided for is
essentially a mere penalty having for its object
the enforcement of compliance with the contract.
Due to the substantial fulfilment of the
obligation, it is only correct for the courts to
reduce the penalty.

Page 30 of 106
EXTINGUISHMENT OF OBLIGATIONS
A. Payment or Performance
When is an obligation paid?
Payment means: (a) Delivery of money, (b) Performance
in any other manner of an obligation [A1232]
Payment should be completely delivered or rendered
[A1233]
But if substantially performed in good faith,
debtor may recover as though there had been a
strict and complete fulfillment [A1234]
When creditor accepts incomplete or irregular
performance knowingly, without protest or
objection, obligation is deemed fully complied
with. [A1235]
Payment to creditor after debtor has been judicially
ordered to retain the debt (garnishment) shall NOT be
valid [A1243]
Debtor cannot compel creditor to receive a different
thing, although the thing may be of the same value as,
or more valuable than that which is due. [A1244]
When obligation is to deliver a determinate or generic thing,
whose quality and circumstances have not been stated
Creditor cannot demand a thing of superior

quality
o Debtor cannot deliver a thing of inferior quality
Purpose of obligation and other circumstances
shall be taken into consideration. [A1246]
Payment shall be made: (a) in the currency stipulated, or
(b) that which is the legal tender in the Philippines
(Philippine Peso)
Mercantile documents (e.g., promissory notes
payable to order, bills of exchange) produce the
effect of payment only when they have been
cashed. [A1249]
Extraordinary inflation or deflation

Value of the
currency at the time of the establishment of the
obligation shall be the basis for payment
TELENGTAN v US
LINES J. Garcia
Facts: Telengtan is a domestic corporation doing business
under the name and style La Suerte Cigar & Cigarette Factory.
Respondent US Lines is a foreign corporation engaged in the
business of overseas shipping.
On December 15, 1978, the provisions of Far East Conference
Tariff No. 12 were made applicable to Philippine containerized
cargo. After that date,
consignees who fail to take delivery of their containerized

cargo within the 10-day free period are liable to pay
demurrage charges.
US Lines filed suit against petitioner alleging that between the
years 1979 and 1980, goods belonging to petitioner loaded on
containers aboard respondents vessels arrived in Manila from
US ports. After the 10-day free period, petitioner still failed to
withdraw its goods.
Telengtan said that it has never entered into a contract nor
signed an agreement to be bound by any rule on demurrage. It
likewise maintains that absent an obligation to pay respondent
who made no proper or legal demands in the first place, there is
justifiable reason to refuse payment. It also said that upon
arrival of the vessels, it presented the Bills of Lading and
demanded the delivery of all goods, only to be informed that
respondent already unloaded the goods. It contends that
respondent violated its contractual obligation to deliver when,
instead of delivering the goods to the petitioner as consignee, it
deposited the same in bonded warehouse/s.
Issue: WON Telengtan is liable for the demurrage charges
Held:
Petitioner is at fault when it did not take delivery of the
goods prompting the respondent to store it in bonded
warehouses.
The withdrawal of goods from the ship was with

authority of the Bureau of Customs
Bill of Lading indicates that if the consignee does

not take possession or delivery of the goods as
soon as the goods are at the disposal of the
consignee for removal, the goods shall be at their
own risk and expense, delivery shall be
considered complete
Extraordinary inflation or deflation exists when there is
an unusual increase or decrease in the purchasing power
of the Philippine peso which is beyond the common
fluctuation in the value of said currency, and such
increase or decrease could not have been reasonably
foreseen or was manifestly beyond the contemplation of
the parties at the time of the establishment of the
obligation.
There should be an official pronouncement or

declaration by competent authorities of the
existence of extraordinary inflation or deflation
during a given period.
Article 1250, as couched
General Rule: The value of the peso at

the time of the establishment of the
obligation shall control and be the
basis of payment of the contractual

obligation

Page 31 of 106
Exception: Agreement to the contrary
It is only when there is a contrary

agreement that extraordinary inflation
will make the value of the currency at
the time of payment, not at the time of
the establishment of the obligation.
NOTES from Sir Lumbas discussion:
There was allegedly an extraordinary devaluation of the peso

when Ninoy Aquino was assassinated
Should be computed as to the time when obligation is constituted
But in this case, evidence was not sufficiently established that

inflation was extraordinary
Example of evidence that may be
pronouncements of extraordinary inflation
used:
NEDAs
Is payment by an incapacitated person valid?

NO. Payment by an incapacitated person shall not be
valid because the payor should have FREE DISPOSAL OF
THE THING DUE AND CAPACITY TO ALIENATE IT. [A1239]
Is partial payment allowed?
NO. The creditor cannot be compelled to receive
partial prestations and the debtor is not required to
make partial payments.
Exception: Express stipulation to the contrary.
Note: Sir Lumba cited Article 2226 (liquidated damages). I
think what he is trying to tell us is that when there is partial
payment, it is already considered a breach of the contract, and
thus liquidated damages can now be demanded from the
violator.
Where should payment be made?
Payment shall be made:
In the place designated in the obligation
If no express stipulation and the thing to be
delivered is a determinate thing, payment
shall be made wherever the thing might be
at
the
moment
the
obligation
was
constituted
Domicile of the debtor [A1251]
If the debtor changes his domicile in bad faith or after he has

incurred in delay, additional expenses shall be borne by him.
[A1251]
Rule 4 Sections 1-3

Venue of real actions
court which has jurisdiction over the area of real
property involved
Venue of personal actions
Where the plaintiff or any of the principal
plaintiffs reside
Where the defendant or any of the principal
defendants reside
Where non-resident defendant can be found
Venue of actions against non-residents
Where plaintiff resides
Where property is situated
To whom should the obligation be paid?
Payment shall be made to:
The person in whose favor the obligation has been
constituted
His successor in interest
Any person authorized to receive it. [A1240]
Payment to an incapacitated person shall
be valid if: o He has kept the thing
delivered
o
Insofar as the payment has been beneficial to
him
Payment to a third person is valid if it has redounded to
the benefit of the creditor. There is no need to prove
benefit if:
o After the payment, the third person acquires the
creditors
rights
o
If the creditor ratifies the payment to the third
person
o If by the creditors conduct, the debtor has been
led to believe that the third person had authority
to receive the payment. [A1241]
Payment made in good faith to any person in possession
of the credit (e.g., holder of a promissory note payable to
bearer) shall release the debtor. [A1242]
Payment to creditor by debtor after debtor is judicially
ordered to retain the debt (garnishment) shall NOT be
valid. [A1243]
Does a third person have the right to pay for another?
NO. The creditor is not bound to accept payment

or performance by a third person who has no
interest in the fulfillment of the obligation.

Exception: stipulation to the contrary

Page 32 of 106
What are the rights of a third person who is able to pay for
another?
Beneficial
Reimbursement/
Right
reimbursement
to
Distinguish cession from dacion en pago.

Dation en Pago
Payment by Cession
Article 1302
Transfers the ownership over
the thing alienated to

the
creditor
Legal Subrogation
Assignment of credit
Subrogation
When there are several debts, to which should payment be

applied?
Declaration of debtor at the time of making the
payment
General Rules:
Application shall not be made as to

debts which are not yet due
Exception: Stipulation to the contrary
and when the obligation is for the
benefit of one of the parties
If debtor accepts a receipt from

creditor, he cannot complain of the
creditors choice as to the application
of payment [A1252]
If debt produces interest, payment of

the principal shall not be deemed to
have been made until the interests
have been covered. [A1253]
When application cannot be inferred or
payment cannot be applied, the debt which is
most onerous to the debtor, among those due,
shall be deemed to have been satisfied.
[A1254]
May totally extinguish the
obligation and release

the
debtor
Cession of only some specific
thing
Transfer is in favor of one
creditor to satisfy a
debt
Only the possession and
administration (not the
If he had paid with the consent of the debtor, he

may demand from the debtor what he has paid
[A1236]
Payment made by a third person who does not intend to

be reimbursed by the debtor is deemed to be a
donation, which requires the debtors consent. BUT
payment is valid as to the creditor who accepted it.
[A1238]
Done emus accept the donation personally *A745+
Ceding or assigning the
property of the debtor

to his
creditors in payment of
his
debts
He cannot compel creditor to subrogate him in his

rights [A1237]
creditor in satisfaction
of a
debt in money
If he has 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 [A1236]
Exception:
Property is alienated to the
ownership) are
transferred
to the creitors
BUT with the
authorization
to convert the property
into
cash
Only extinguishes the credits
to the extent of the

amount
realized from the
properties
assigned
Involves all the property of
the debtor
Transfer is in favor of various
creditors
LO v KJS ECO-FORMWORK
SYSTEM PHIL. INC. J. YnaresSantiago
Facts: Lo ordered equipments from respondents worth
540,225. He paid 150,000 as down payment. The balance
was payable in ten monthly installments. Lo was able to
pay the first two monthly installments but not anymore in
succeeding installments.
Petitioner and respondents executed a Deed of Assignment
where petitioner assigned to respondent his receivables in the
amount of 335,462 (which I think, was his loan balance from
respondent) from JRC.
When respondent tried to collect the credit from JRC, it

refused claiming that Lo was also indebted to him (thus,
there was compensation).
Petitioner argues that his obligation was extinguished with
the execution of Deed of Assignment of credit.
Respondent presented the testimony of its employee that
JRC refused to honor the assignment of credit because it

claimed that petitioner had an outstanding indebtedness to
it.
Issue: WON the obligation was extinguished by the assignment
of credit

Page 33 of 106
Held:
An assignment of credit is an agreement by virtue of
which the owner of a credit, known as the assignor, by a
legal cause, such as sale, dacion en pago, exchange or
donation, and without the consent of the debtor,
transfers his credit and accessory rights to another,
known as the assignee, who acquires the power to
enforce it to the same extent as the assignor could
enforce it against the debtor
In dacion en pago, as a special mode of payment, the
debtor offers another thing to the creditor who accepts it
as equivalent of payment of an outstanding debt.
The undertaking really partakes in one sense of

the nature of sale, that is, the creditor is really
buying the thing or property of the debtor,
payment for which is to be charged against the
debtors debt.
As such, THE VENDOR IN GOOD FAITH SHALL BE
RESPONSIBLE,
FOR
THE
EXISTENCE
AND
LEGALITY OF THE
CREDIT AT THE TIME OF THE SALE BUT NOT FOR
THE
SOLVENCY OF THE DEBTOR.
It may be said that assignment of credit, which is in

the nature of a sale of personal property, produced
the effects of a dation in payment which may
Because of its nature as a sale, the vendor is bound by
certain warranties. (see above all caps)
Because the obligation was already extinguished

by compensation, the credit does no longer exist,
thus causing a breach in the obligation. By
warranting the existence of the credit, petitioner
is deemed to have ensured the performance
thereof.
If the creditor refuses to accept payment, is there payment?

YES. According to Article 1256, if creditor refuses
without just cause to accept the payment, the debtor
shall be released from responsibility by the
consignation of the thing or sum due.
Can the debtor consign a thing prior to refusal of the
creditor to accept payment?
NO. Before a debtor can consign the thing or sum due,
tender of payment to the creditor must be made.
HOWEVER, in these cases, tender of payment is not required:
When creditor is absent or unknown, or does not

appear at the place of payment
When he is incapacitated to receive payment at the
time it is due
When, without just case, he refuses to give a receipt
When two or more persons claim the same right to
collect
When the title of the obligation has been lost.
What is the procedure for consignation?
Tender of payment to the creditor
Unjust refusal of creditor
Debtor should announce the notice of consignation to
the persons interested in the fulfillment of the obligation
NOTE: Lack of notice does not invalidate the

consignation it simply makes the debtor liable for the
expenses
Deposit of the thing due at the disposal of judicial

authority
Prove the tender of payment to the judicial authority
NOTE: at this stage, consignation has been duly made
Debtor may now ask the judge to order the cancellation

of the obligation
Notice of acceptance of consignation
Before the creditor has accepted the consignation OR
Before a judicial declaration that he consignation has
been properly made,
Debtor may withdraw the thing or sum
deposited In other words, obligation is
still in force.
If, the consignation having been made, the creditor

should authorize the debtor to withdraw the same, he
shall lose every preference which he may have over the
thing. The co-debtors, guarantors and sureties shall be
released.
Consignation is always judicial.
B. Loss of the Thing Due
What are the requisites in order for loss of the thing to
extinguish the obligation?
Obligation consists in the delivery of a determinate
thing
The determinate thing is lost or destroyed without
the fault of the debtor, and before he has incurred in
delay
When the thing is lost in the possession of the

debtor, it shall be presumed that the loss was due to
his fault
Page 34 of 106
EXCEPT: (a) when there is proof to the

contrary, or (b) earthquake, flood, storm or
other natural calamities.
When loss of a thing does not extinguish an
obligation
Law
Stipulation
When the nature of the obligation requires the
assumption of risk (insurance policies)
Obligation to deliver a generic thing
When the debt arose from a criminal offense
When there was delay, fraud, negligence or
the obligation was done in contravention of
the tenor thereof
When the substitute prestation is lost in
facultative obligations
NOTE: not exclusive
Will partial loss extinguish the obligation?

The courts shall determine whether the partial loss
of the object of the obligation is so important as to
Can the creditor run after the third person who caused the loss
of the thing?
YES. According to Article 1269, The creditor shall have
all the rights of action which the debtor may have
against the third person by reason of the loss.
Can a thief (be) exempted from paying for the thing stolen if it
is subsequently lost?
No, the thief shall not be exempted from the payment
of its price, whatever may be the cause for the loss.
Exception: when he offered the thing, and the person who
should receive it refused without justification to accept it, in
which case he may opt to consign it in the courts.
Art. 1268. When the debt of a thing certain and
determinate proceeds from a criminal offense, the
debtor shall not be exempted from the payment of its
price, whatever may be the cause for the loss, unless
the thing having been offered by him to the person who
should receive it, the latter refused without justification
to accept it.
Condonation or Remission
What is the nature of a condonation?
Condonation or remission is essentially gratuitous,

and requires the acceptance by the obligor. It shall
be subject to the rules which govern inofficious
donations. Express condonation shall comply with
the forms of donation. [A1270]
Discussion on succession
General Rule
There is a basic amount of one-half () that is given
to one heir or one group of heirs.
Exception
Surviving spouse and illegitimate children

Article 900: surviving spouse in a marriage in articulo
mortis
Surviving spouse and illegitimate parents
Rates
Legitimate children
alone
Legitimate Children
Surviving Spouse
One Legitimate Child
Surviving Spouse
Legitimate Children
Illegitimate Children
of estate, divided equally
Share equal to that of one child

(1LC)
Each will get of share of 1LC

( LC)
Legitimate Children
Surviving Spouse
One Legitimate Child
Illegitimate Child
Surviving Spouse
Legitimate Parents
Alone
Legitimate Parents
Legitimate Parents
Surviving Spouse
Legitimate Parents
Surviving Spouse
Surviving Spouse
alone
Surviving Spouse
Illegitimate Child
Surviving Spouse
Illegitimate Parents
LC
1LC
LC
1/
8
1/
3
1/
3

Illegitimate children
alone
Illegitimate parents
alone
Relevant
Provisions
Article 745
The done must accept the donation personally, or

through an authorized person with a special power
for the purpose, or with a general and sufficient
power; otherwise, the donation shall be void.
Article 748
The donation of a movable may be made orally or in
writing.
An oral donation requires the simultaneous delivery
of the thing or of the document representing the
right donated.
If the value of the personal property donated exceeds
Five thousand pesos, the donation and the
acceptance shall be made in writing. Otherwise, the
donation shall be void.
Article 749
In order that the donation of an immovable may be
valid, it must be made in a public document
Article 752
No person may give or receive, by way of donation,
more than he may give or receive by will.
The donation shall be inofficious in all that it may
exceed this limitation.
Article 771
Donations which are inofficious, bearing in mind
the estimated net value of the donors property at
the time of his death, shall be reduced with regard to
the excess
Article 773
If, there being two or more donations, the disposable
portion is not sufficient to cover all of them, those of
the more recent dates shall be suppressed or
reduced with regard to the excess.
Article 908
To the net value of the hereditary estate, shall be
added the value of all donations by the testator that
are subject to collation, at the time he made them.
When is condonation implied?

The delivery of a private document evidencing a
credit, made voluntarily by the creditor to debtor
When 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
The renunciation of the principal debt shall extinguish

the accessory obligations
BUT the waiver of the accessory obligations shall

leave the principal debt in force
Pledge: presumed to have been remitted when

the thing pledged is found in the possession of
the debtor, or of a third person who owns the
thing.
TRANS-PACIFIC INDUSTRIAL
SUPPLIES, INC. v CA J. Bidin
Facts: Petitioner and respondent Bank entered into a loan
agreement evinced by four promissory notes, a real estate
mortgage over three parcels of land and a chattel mortgage
over petitioners stock and inventories.
When petitioner failed to pay, they restructured the loan,

and three new promissory notes were executed by TransPacific.
The mortgaged parcels of land were sold and the proceeds
were given to the bank to be applied against Trans-Pacifics
restructured loan.
Respondent bank returned the duplicate original copies of the
three promissory notes with the word PAID stamped thereon.
However, respondent bank still demanded from Trans-Pacific
the payment of 492,100 representing accrued interest.
Respondent bank said that the promissory notes were
erroneously released.
Issue: WON petitioner has indeed paid in full its obligation to
respondent bank.
Held:
Article 1271: The delivery of a private document
evidencing a credit, made voluntarily by the creditor to
the debtor, implies the renunciation of the action which
the former had against the latter
This is a presumption, not of payment, but of the
renunciation of the credit.
The presumption is not conclusive but merely prima
facie. If there be no evidence to the contrary, the
presumption

Page 36 of 106
stands. Conversely, the presumption loses its

legal efficacy in the face of proof or evidence to
the contrary.
There was no proof that the amounts paid by petitioner

were inclusive of interest.
In this case, the court finds sufficient justification

to overthrow the presumption of payment by the
delivery of the documents evidencing petitioners
indebtedness, the letters of admission and
counsel-induced recalcitrance.
Presumption that interest is paid before principal
obligation is rebuttable.
D. Confusion or Merger of Rights

What is confusion or merger?
It is the meeting in one person of the characters
of the creditor and debtor. [A1275]
Requisites:
Must take place between the creditor and the
principal debtor
o Same obligation must be involved
Must be total
Merger benefits the guarantors.
Merger of characters of creditor and guarantor DOES
NOT extinguish the obligation [A1276]
Does not extinguish a joint obligation except as regards
the share corresponding to the creditor or debtor in
whom the two characters concur. [A1277]
Compensation
What are the requisites of compensation?
Art. 1278. Compensation shall take place when two
persons, in their own right, are creditors and debtors
of each other.
De Leon: Compensation is the extinguishment to the
concurrent amount of the debts of two persons who, in their
own right, are reciprocally principal debtors and creditors of
each other.
The object of compensation is the prevention of unnecessary
suits and payments thru the mutual extinction by operation
of law of concurring debts.
Art. 1279. In order that compensation may be proper, it
is necessary:
That each one of the obligors be bound

principally, and that he be at the same time a
principal creditor of the other;
That both debts consist in a sum of money, or if
the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
That the two debts be due;
That they be liquidated and demandable;
That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the
debtor.
Requisites of Legal Compensation:
That each one of the obligors be bound principally, and
that he be at the same time a principal creditor of the
other;
Examples:
A owes B P10,000, with C as guarantor. B owes C
P10,000. There will be no compensation between B
and C because while B is principally liable to C, C is
merely subsidiarily liable to B. Hence, C can demand
payment from B.
A owes B P10,000. B owes A P10,000, the latter as
guardian or administrator.
There will be no compensation. In this case, A is
personally liable to B, while B is not principally liable
to A. The real creditor of B is the ward under
guardianship or the estate under administration. A is
creditor of B in a representative capacity.
A owes B and C P10,000. B and C are partners in
Partnership P. Partnership P owes A P10,000.
A cannot set up compensation because
B and C are not principally liable to A.
Both debts consist in a sum of money, or
consumable things of the same kind and quality
Examples:
of
A owes B P10,000. B owes A an electric range worth

P10,000.
No compensation will take place.
A owes B 10 sacks of wagwag rice. B owes A

any 10 sacks of rice.
Page 37 of 106
There can be no legal compensation in this case

because of lack of identity of the kind and quality
of the rice due.
However, compensation can be claimed by B since he
can deliver any kind of rice. It would be the same as if
B received 10 sacks of
wagwag rice from A and then returned the same

to A in payment of his debt. But A cannot set up
compensation if opposed by B. This is an example
of facultative compensation.
A owes B P10,000. B owes A P10,000 or a cow.
There can be no legal compensation because
B may prefer to deliver a cow.
But if the right of choice belongs to A,
compensation will take place.
The two debts are due or
demandable Notes:
When the obligation is payable on demand, the
obligation is not yet due where no demand has not
been made.
A debt that has prescribed is no longer demandable
and consequently, cannot be compensated, unless the
compensation has taken place before the lapse of the
period of prescription.
Natural obligations are not legally demandable.

Examples:
A owes B P10,000 due today. B owes A P10,000
payable upon receipt from A of notice to pay. A
owes C a judgment debt of P10,000.
Since Bs obligation appear to be payable on
demand, in the absence of demand made by A, the
obligation of B is not yet due. Without compensation
having taken place, B remains indebted to A for
P10,000. This obligation of B may be garnished in
favor of C to satisfy As judgment debt.
A owes B P10,000 due today. B owes A P10,000 due
next month.
Compensation cannot take place as the debts
are not due on the same date. However, if A has not
yet paid B on the date that the obligation of B
becomes due, there will be compensation on that
date. If the debt of B is subject to a suspensive
condition which has not yet happened, there can
also be no compensation.
The two debts are liquidated.
A debt is liquidated if the amount thereof is

known or can be determined by a simple
computation.
Examples:
A owes B P10,000. B owes A the share of the
latter in a business the amount of which is still
to be ascertained.
Compensation will not take place as
the debt of B is not liquidated. If part of the
debt of B has been liquidated,
compensation takes place with respect to
that part without waiting for the liquidation
of the rest.
D has a savings account with Bank B, which
bank extended to D a loan. Ds loan has become
demandable. His savings account is also
demandable anytime. B has the right to
compensate or off-set Ds outstanding loan with
his deposit account.
No retention or controversy has been commenced
by a third person. There is said to be retention when
the credit of one of the parties is subject to the
satisfaction of the claim of third person, while a
controversy exists when a third person claims he is
the creditor of one of the parties.
The retention or controversy commenced by a third

person must be communicated in due time to the
debtor. By in due time means the period before legal
compensation is supposed to take place, considering
that legal compensation operates so long as the
requisites concur even without any conscious intent on
the part of the parties. A controversy that is
communicated to the parties after that time may no
loner undo the compensation that had taken place by
force of law. Example:
A owes B P10,000. B owes A P10,000. B also owes C
P10,000.
C causes the garnishment of the credit of B against A
and notifies A not to pay B P10,000 as C has a better
right to the said amount.
B may not owe C but the latter claims that he and not B
is the creditor of A.
In this case, compensation cannot take place between A
and in view of a controversy commenced by C, a third
person. In the meantime, the compensation is
suspended.
If C loses the case, compensation shall be deemed to
have taken place as of the date the requisites for legal
compensation concurrent.
Art. 1282. The parties may agree upon the
compensation of debts which are not yet due.

Page 38 of 106
This is the exception to requisite no. 3 under Art. 1279, viz.,

that only debts which are due and demandable can be
compensated.
Voluntary or conventional compensation includes any
compensation which takes place by agreement of the parties
even if all the requisites for legal compensation are not present.
The absence of mutual creditor-debtor relation cannot negate
the conventional compensation.
The only requisites are:
Each of the parties has the right to disposed of the
credit he seeks to compensate
They agree to the mutual extinguishment of their credits
What are the kinds of compensation?
Art. 1281. Compensation may be total or partial. When
the two debts are of the same amount, there is total
compensation.
Total compensation results when the two debts are of
the same amount. If they are of different amounts,
compensation is total as regards the smaller debt, and
partial only with respect to the larger debt.
Kinds of Compensation:
By its effect or extent:
Total
Partial
By its cause or origin:
Legal when it takes place by operation of law
when all the requisites are present even
without the knowledge of the parties.
Conventional or voluntary when it
takes place by agreement of the parties.
Judicial when it takes place by order from a
court in a litigation. (This is actually a form of
legal or voluntary compensation, when declared
by courts by virtue of an action by on of the
parties.)
Facultative when it can be set up only by one of
the parties.
When will compensation not take place?
Art. 1286. Compensation takes place by operation of
law, even though the debts may be payable at different
places, but there shall be an indemnity for expenses of
exchange or transportation to the place of payment.
Example:
A owes B $1,000 payable in New York. B owes A P45,000

(equivalent amount) payable in Manila.
If A claims compensation, he must pay for the expenses of
exchange.
Art. 1290. When all the requisites mentioned in Article
1279 are present, compensation takes effect by
operation of law, and extinguishes both debts to the
concurrent amount, even though the creditors and
debtors are not aware of the compensation.
Compensation occurs automatically by mere operation of
law
From the moment all the requisites mentioned in Article
1279 concur, legal compensation takes place
automatically even in the absence of agreement
between the parties and even against their will, and
extinguishes reciprocally both debts as soon as they
exist simultaneously, to the amount of their respective
sums.
Full legal capacity of parties not required
As it takes place by mere operation of law, and without
any act of the parties, it is not required that the parties
have full legal capacity to give or to receive, as the
case may be.
Art. 1285. The debtor who has consented to the assignment
of rights made by a creditor in favor of a third person, cannot
set up against the assignee the 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.
If the creditor communicated the cession to him but the
debtor did not consent thereto, the latter may set up the
compensation of debts previous to the cession, but not of
subsequent ones.
If the assignment is made without the knowledge of
the debtor, he may set up the compensation of all credits
prior to the same and also later ones until he had knowledge
of the assignment.
Where compensation has taken place before
assignment
When compensation takes effect by operation of law or
automatically, the debts are extinguished to the concurrent
amount. If subsequently, the extinguished debt is assigned by
the creditor to a third person, the debtor can raise the defense
of compensation with respect to the debt. It is well-settled
that the rights of the assignee are not any greater than the
rights of the assignor since the assignee is merely substituted
in the place of the assignor. Example:
A owes B P3,000 due yesterday. B owes A P1,000 due also

yesterday.

Page 39 of 106
Both debts are extinguished up to the amount of P1,000.

Hence, A still owes B P2,000 today.
Now, if B assigns his right to C, the latter can collect only P2,000
from A. However, if A gave his consent to the assignment before it
was made or subsequently (par. 1), A loses the right to set up the
defense of compensation. So A will be liable to C for P3,000 but he
can still collect the P1,000 owed by B. In other words, the
compensation shall be deemed not to have taken place.
Where compensation has taken place after assignment

Assignment with the consent of debtor
A owes B P3,000 due November 15. B owes A P1,000
due November
B assigned his right to C on November 1 with the
consent of A. On November 15, A cannot set up
against C, the assignee, the
compensation which would pertain to him against B,

the assignor. In other words, A is liable to C for P3,000
but he can still collect the P1,000 debt of B.
However, if A, while consenting to the assignment,
reserved his right to the compensation, he would be
liable only for P2,000 to C.
Assignment with the knowledge but without the consent
of debtor A owes B P1,000 due November 1. B owes A
P2,000 due November
A owes B P1,000 due November 15.
A assigned his right to C on November 12. A notified B
but the latter did not give his consent to the
assignment. How much can C collect from B?
B can set up the compensation of debts on November
10 which was before the cession on November 12.
(par. 2) There being partial compensation, the
assignment is valid only up to the amount of P1,000.
But B cannot raise the defense of compensation with
respect to the debt of A due on November 15 which
has not yet matured. So, on November 12, B is liable
to C for P1,000. Come November 15, A will be liable
for his debt of P1,000 to B.
Assignment without knowledge of the debtor
In the preceding example, let us suppose that the
assignment was made without the knowledge of B who
learned of the assignment only on November 16.
In this case, B can set up the compensation of credits

before and after the assignment. The crucial time is
when B acquired knowledge of the assignment and not
the date of the assignment. If B learned of the
assignment after the debts had already matured, he can
raise the defense of compensation; otherwise, he
cannot.
Class discussion
In other words, the debtor can always set up compensation to
extinguish his obligation prior to the debtors knowledge of the
assignment, unless the debtor consents to the assignment.
Art. 1287. Compensation shall not be proper when
one of the debts arises from a depositum or from the
obligation of a depositary or of a bailee in
commodatum.
Neither can compensation be set up against a
creditor who has a claim for support due by
gratuitous title, without prejudice to the provisions of
paragraph 2 of Article 301.
Art. 1288. Neither shall there be compensation if one of
the debts consists in civil liability arising from a penal
offense.
Where one of the debts arises from a depositum
A deposit is constituted from the moment a person
receives a thing belonging to another with the
obligation of safely keeping it and of returning the
same. Note: A bank deposit is not a depositum as
defined in the Civil Code. It is really a loan which
creates the relationship of debtor and creditor.
*Article 1962. A deposit is constituted from the
moment a person receives a thing belonging to
another, with the obligation of safely keeping it and of
returning the same. If the safekeeping of the thing
delivered is not the principal purpose of the contract,
there is no deposit but some other contract.
Example:
A owes B P10,000. B, in turn owes A the amount of
P10,000 representing the value of a ring deposited by
A with B, which B failed to return.
In this case, B, who is the depositary, cannot claim legal
compensation even if A fails to pay his obligation. The
remedy of B is to file an action against A for the
recovery of the amount of P10,000.

Page 40 of 106
The relation of the depositary to the depositor is

fiduciary in character since it is based on trust and
confidence. Bs claim for compensation against A would
involve a breach of that confidence.
B A can set up his deposit by way of compensation
against Bs credit.
This is an example of facultative compensation. The
benefit granted by law is available only to A, as
depositor, and can be waived by him.
Where one of the debts arises from a commodatum
Commodatum is a gratuitous contract whereby one of
the parties
delivers to another something not consumable so that

the latter may use the same for a certain time and
return it.
*Article 1935. The bailee in commodatum acquires the
use of the thing loaned but not its fruits; if any
compensation is to be paid by him who acquires the use,
the contract ceases to be a commodatum.
Example:
In the preceding example, if B borrowed the ring of A, B
cannot refuse to return the ring on the ground of
compensation because no compensation can take place
when one of the debts arises from a commodatum.
The purpose of the law is to prevent a breach of trust and
confidence on the part of the borrower (or depositary in a
depositum).
A, however, can assert compensation of the value of

the ring against the credit of B.
Where one of the debts arises from a claim for
support due by gratuitous title
Support comprises everything that is indispensable for
sustenance, dwelling, clothing, medical attendance,
education and transportation, in keeping with the
financial capacity of the family.
Examples:
A donates to B an allowance of P1,000 a month for five
years for the latters support. However, previous to
the donations, B already owed A P10,000 which
was due and unpaid.
In this case, A cannot say to B, Inasmuch as you
owe me P10,000, I will not pay your allowance for
ten months.
Similarly, if A is the father of B, a minor, who under the law

is entitled to be supported by A, and B owes A P10,000,
A cannot compensate his obligation to support B by
what B owes him because the right to receive support
cannot be compensated with
what the recipient (B) owes the obligor (A).

However, if A failed to support B for some
months, the support in arrears may be
compensated with the debt of B. Compensation
can take place because B no longer needs the
support in arrears as he was able to exist even
without the support of A during those months.
Where one of the debts consists in civil liability arising
from a penal offence
Example:
A owes B P1,000. B stole the ring of A worth
P1,000. Here, compensation by B is not
proper.
But A, the offended party, can claim the right of
compensation. The prohibition in Article 1288
pertains only to the accused by not to the victim of
the crime.
Art. 1283. If one of the parties to a suit over an
obligation has a claim for damages against the
other, the former may set it off by proving his right
to said damages and the amount thereof.
Compensation may also take place when so declared by a

final judgment of a court in a suit (judicial compensation).
A party may set off his claim for damages against his
obligation to the other party by proving his right to said
damages and the amount thereof.
Both parties must prove their respective claims. In the absence
from both parties on their claims, offsetting is improper. The
right to offset may exist but the question of how much is to be
offset is factual in nature.
Art. 1284. When one or both debts are rescissible or
voidable, they may be compensated against each
other before they are judicially rescinded or avoided.
Example:
A owes B P10,000. Subsequently, A, through fraud, was able
to make B sign a promissory note that B is indebted to A for
the same amount.
The debt of A is valid but that of B is voidable. Before the debt
of B is nullified, both debts may be compensated against each
other if all the requisites for legal compensation are present.
Suppose Bs debt is later on annulled by the court, is A still
liable considering that compensation had already taken
place? Yes. The effect of annulment is retroactive. It is the
same as if there had been no compensation.

Page 41 of 106
Can third parties set up compensation?

Art. 1280. Notwithstanding the provisions of the
preceding article, the guarantor may set up
compensation as regards what the creditor may owe
the principal debtor.
This is an exception to the general rule that only the principal
debtor can set up against his creditor what the latter owes him.
Although the guarantor is only subsidiarily, not principally,
bound, he is given the right to set up compensation. The
reason is that the extinguishment of the principal obligation as
a consequence of compensation carries with it the accessory
obligation such as guaranty.
Note: Here, what are compensated against each other are the
principal debts of the principal debtor and principal creditor to
each other. No debt of the guarantor to the creditor is
involved.
If there are several debts, which shall be compensated?
Art. 1289. If a person should have against him several
debts which are susceptible of compensation, the
rules on the application of payments shall apply to the
order of the compensation.
Follow rules of application in Articles
1252 to 1254. Example:
A is indebted to B in the amount of:
P1,000 without interest due today
P1,000 with interest of 12% due also today
P1,000 with interest of 10% due
yesterday B owes A P1,000 due today.
For purposes of the application of payment, A is the debtor. He
must specify to B which of the three debts should be
compensated. If he fails to inform B, then the latter should
apply the compensation to the second obligation of A, namely,
the obligation bearing the 12% interest because it is the most
onerous obligation.
F. Novation
What is novation?
Art. 1291. Obligations may be modified by:
Changing their object or principal conditions;
Substituting the person of the debtor;
Subrogating a third person in the rights of the
creditor.
Novation Novation is the total or partial extinction of an
obligation through the creation of a new one which substitutes
it. It is the substitution or change of an obligation by another,
which extinguishes or modifies the first.
Art. 1292. In order that an obligation may be

extinguished by another which substitutes the same, it
is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on
every point incompatible with each other.
Requisites of novation
Four essential requisites, namely:
The existence of a previous valid obligation;
The intention or agreement and capacity of the parties to
extinguish or modify the obligation;
The extinguishment or modification of the obligation; and
The creation or birth of a valid new obligation.
Novation with respect to criminal liability
Novation is not a mode of extinguishing criminal liability. It
may prevent the rise of criminal liability as long as it occurs
prior to the filing of the criminal information in court. In other
words, novation does not extinguish criminal liability but may
only prevent its rise.
Novation not presumed
While as a general rule, no form of words or writing is necessary
to give effect to a novation, it must be clearly and unmistakably
established by express agreement or by the acts of the parties, as
novation is never presumed.
Ways of effecting conventional novation

There are only two (2) ways which indicate the presence of
novation and thereby produce the effect of extinguishing an
obligation by another which substitutes the same.
By the express agreement of the parties or acts of equal or
equivalent import
By the irreconcilable incompatibility of the two obligations
with each
other in every material respect. This can take
place even in the absence of an express
agreement.
Effect of modification of original obligation
Slight modifications and variations when made with the
consent of the parties, they do not abrogate the entire
contract and the rights and obligations of the parties
thereto, but the original contract continues in force
except as the altered terms and conditions of the
obligation are considered to be the essence of the
obligation itself. This is especially true where the original
contract expressly provides that such modifications and
alterations may be made.
The following are not changes which involve principal

conditions:
A promise by the debtor to pay an extra rate of interest

Page 42 of 106
Mere extension of the term (period) for payment or

performance is not a novation
Addition of a new obligation (guaranty) not inconsistent
with the old one
Where surety subsequently made an agreement with
the creditor to be bound also as principal
Mere reduction of the amount due
Acceptance of partial payment
Material deviations or changes where the original
contract is deviated from in material respects so that
the object or principal condition cannot reasonably be
recognized as that originally contracted for, the original
contract should be treated as abandoned.
Matute v Hernandez (1938) 66 Phil 68
The increase in the price of meat allowed the petitioner by the
Acting Purchasing Agent undoubtedly constitutes a novation of
the contract of December 24, 1936 entered into between the
Government and petitioner after a public bidding had been held
[for that December 24, 1936 contract].
The price of the supply of meat to the Government was one
of the principal conditions of the contract. Therefore, in order
that the renewal [novation of the contract] thereof may be
valid it was necessary to comply with Executive Order No. 16.
In this case, no public bidding, as required by the Executive
Order for contracts of public service, occurred to increase the
price of the meat. The other requirements in the Executive
Order, i.e. consultation and approval by the Auditor-General
and the Secretary of Justice aside from the Secretary of the
Department concerned, were also lacking.
Novation did not take place.
Broadway Centrum v Tropical (1993) 224 SCRA 302
The sole issue confronting [the Court] is whether or not the
letter-agreement dated 20 April 1982 had novated the
Contract of Lease of 28 November 1980. Broadway Centrum is
the lessor, while Tropical is the lessee. Tropical insists that the
letter-agreement novated the contract, while Broadway
believes otherwise.
The 20 April 1982 letter-agreement provided for the provisional
and temporary agreement to a reduction of monthly rentals. It
further contained that this provisional agreement should not
be interpreted as amendment to the lease contract entered
into between the parties.
If objective novation is to take place, it is essential that the new

obligation expressly declare that the old obligation is to be
extinguished, or that new obligation be on every point
incompatible with the old one. The will to novate, whether
totally or partially, must appear by express agreement of the
parties, by their acts which are too clear and unequivocal to be
mistaken.
It is entirely clear to the court that the letter-agreement of 20
April 1982 did not extinguish or alter the obligations of
respondent Tropical and the rights of petitioner Broadway
under their lease contract dated 28 November 1980. Clearly,
the reduction of the monthly rentals was only provisional and
temporary, as agreed to by both parties. This was not to
persist for the rest of the life of the Contract of Lease.
Novation did not take place.
What is expromision?
Art. 1293. Novation which consists in substituting a new
debtor in the place of the original one, may be made
even without the knowledge or against the will of the
latter, but not without the consent of the creditor.
Payment by the new debtor gives him the rights
mentioned in Articles 1236 and 1237. Expromision
This takes place when a third person of his own initiative and
without the knowledge or against the will of the original
debtor assumes the latters obligation with the consent of the
creditor. It is essential that the old debtor be released from
his obligation; otherwise, there is no expromision. Novation is
never presumed; thus, the mere fact that the creditor
receives a guaranty or accepts payment from a third person
who has agreed to assume the obligation, when there is not
agreement that the first debtor shall be released from
responsibility, does not constitute a novation, and the creditor
can still enforce the obligation against the original debtor.
Art. 1294. If the substitution is without the knowledge
or against the will of the debtor, the new debtors
insolvency or non-fulfillment of the obligation shall not
give rise to any liability on the part of the original
debtor.
In expromision, the new debtors insolvency or non-fulfillment
of the obligation will not revive the action of the creditor
against the old debtor whose obligation is extinguished by the
assumption of the debt by the new debtor. Remember that in
expromision, the replacement of the old debtor is not made at
his own initiative.
What is delegacion?
Art. 1295. The insolvency of the new debtor, who has been
proposed by the original debtor and accepted by the
creditor, shall not revive the action of the
Page 43 of 106
latter against the original obligor, except when said

insolvency was already existing and of public
knowledge, or known to the debtor, when he delegated
his debt.
Delegacion
This takes place when the creditor accepts a third person to
take the place of the debtor at the instance of the latter. The
creditor may withhold approval. The new debtor is entitled to
reimbursement and subrogation under Article 1297.
Article 1295 only speaks of insolvency. Hence, in delegacion, if
the non-fulfillment of the obligation is due to other causes, the
old debtor is not liable. The general rule is that the old debtor
is not liable to the creditor in case of the insolvency of the new
debtor.
The exceptions are:
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.
The insolvency was already existing and known to
the debtor (although it was not of public
knowledge) at the time of the delegacion.
Article 1302. It is presumed that there is legal subrogation:
(2) When a third person, not interested in the obligation,

pays with the express or tacit approval of the debtor.
Example:
A owes B P1,000. C pays B with the express or implied
consent of A. In this case, C will be subrogated in the
rights of B.
What is the effect of novation on accessory obligations?
Art. 1296. When the principal obligation is extinguished
in consequence of a novation, accessory obligations
may subsist only insofar as they may benefit third
persons who did not give their consent.
The above article follows the general rule that the
extinguishment of the principal obligation carries with it
that of the accessory obligations.
It provides, however, an exception in the case of an
accessory obligation created in favor of a third person which
remains in force unless said third person gives his consent to
the novation. This is so because a person should not be
prejudiced by the act of another without his consent.
What is the effect if the new obligation is void?

Art. 1297. If the new obligation is void, the original
one shall subsist, unless the parties intended that the
former relation should be extinguished in any event.
The general rule is that there is no novation if the new
obligation is void, and therefore, the original one shall subsist
from the reason that the second obligation being inexistent, it
cannot extinguish or modify the first.
The exception is where the parties intended that the old
obligation should be extinguished in any event, the old
obligation shall be extinguished.
New obligation is voidable (not void)
If the new obligation is only voidable, novation can take place.
But the moment it is annulled, the novation must be
considered as not having taken place, and the original one can
be enforced, unless the intention of the parties is otherwise.
What is the effect of the old obligation is void?
Art. 1298. The novation is void if the original
obligation was void, except when annulment may be
claimed only by the debtor, or when ratification
validates acts which are voidable.
A void obligation cannot be novated because there is nothing
to novate. However, if the original obligation is only voidable
or if the voidable obligation is validated by ratification, the
novation is valid.
What stipulations in the old obligation are presumptively
carried over in the new obligation?
Art. 1299. If the original obligation was subject to a
suspensive or resolutory condition, the new obligation
shall be under the same condition, unless it is
otherwise stipulated.
The reason for the rule contained in this Article is that the
efficacy of the new obligation depends upon whether the
condition which affects the old obligation is complied with or
not.
What is conventional subrogation?
Art. 1300. Subrogation of a third person in the rights of
the creditor is either legal or conventional. The former
is not presumed, except in cases expressly mentioned
in this Code; the latter must be clearly established in
order that it may take effect.
Subrogation
It is the substitution of one person in the place of another with

reference to a lawful claim or right, so that he who is
substituted succeeds to the right of the
Page 44 of 106
other in relation to a debt or claim, including its remedies and

securities. 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 to enforce
payment.
Conventional Subrogation
It takes place by express agreement of the original parties (the
debtor and the original creditor) and the third person (the new
creditor). Conventional subrogation must be clearly
established in order that it may take place.
Art. 1301. Conventional subrogation of a third person
requires the consent of the original parties and of the
third person.
The consent of all the parties is an essential requirement.
Art. 1303. Subrogation transfers to the person
subrogated the credit will all the rights thereto
appertaining, either against the debtor or against
third persons, be they guarantors or possessors of
mortgages, subject to stipulation in a conventional
subrogation.
The effects of conventional subrogation are subject to the
stipulation of the parties, as contrasted to the effects of legal
subrogation as provided in Article 1303, which may not be
modified by agreement.
What is legal subrogation?
Art. 1302. It is presumed that there is legal subrogation:
When a creditor pays another creditor who is
preferred,
even
without
the
debtors
knowledge;
When a third person, not interested in the
obligation, pays with the express or tacit
approval of the debtor;
When, even without the knowledge of the debtor, a
person interested in the fulfillment of the obligation
pays, without prejudice
to the effects of confusion as to the latters share.

Legal Subrogation
It takes place without agreement but by operation of law. Legal
subrogation is not presumed except in the cases expressly
provided by law (Art. 1302).
Art. 1303. Subrogation transfers to the person
subrogated the credit will all the rights thereto
appertaining, either against the debtor or against
third persons, be they guarantors or possessors of
mortgages, subject to stipulation in a conventional
subrogation.
The effect of legal subrogation is to transfer to the new creditor

the credit and all the 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.
Simply stated, except only for the change in the person of the
creditor, the obligation subsists in all respects as before the
novation.
The effect of legal subrogation as provided in Article 1303 may

not be modified by agreement.
What is partial subrogation?
Art. 1304. A creditor, to whom partial payment has been
made, may exercise his right for the remainder, and he
shall be preferred to the person who has been
subrogated in his place in virtue of the partial payment
of the same credit.
The creditor to whom partial payment has been made by the
new creditor remains a creditor to the extent of the balance of
the debt. In case of insolvency of the debtor, he is given a
preferential right under the above article to recover the
remainder as against the new creditor.
Example:
D is indebted to C for P10,000. X pays C P6,000 with the
consent of D. There is here partial subrogation as to the
amount of P6,000. C remains the creditor with respect to the
balance of P4,000. Thus, two credits subsist. In case of
insolvency of D, C is preferred to X, that is, he shall be paid
from the assets of D ahead of X.
Distinguish subrogation from assignment of credit.
Art. 1624. An assignment of credits and other

incorporeal rights shall be perfected in accordance
with the provisions of Article 1475.
*Article 1475. The contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the object
of the contract and upon the price.
From that moment, the parties may reciprocally
demand performance, subject to the provisions of the law
governing the form of contracts.
Art. 1626. The debtor who, before having knowledge of
the assignment, pays his creditor shall be released from
the obligation.
Art. 1627. The assignment of a credit includes all the
accessory rights, such as a guaranty, mortgage, pledge
or preference.
Art. 1628. The vendor in good faith shall be responsible
for the existence and legality of the credit at the time of
sale, unless it should have been sold as doubtful; but
not for the solvency of the debtor, unless it has been so
expressly stipulated or unless the insolvency was prior
to the sale and of common knowledge.
Even in these cases he shall only be liable for the
price received and for the expenses specified in No. 1
of Article 1616.

Page 45 of 106
The vendor in bad faith shall always be answerable for

the payment of all expenses, and for damages.
*Article 1616. The vendor cannot avail himself of the right
of repurchase without returning to the vendee the price of
the sale, and in addition:
(1) The expenses of the contract, and any other legitimate
payments made by reason of the sale;
Art. 1629. In case the assignor in good faith should have

made himself responsible for the solvency of the debtor,
and the contracting parties should not have agreed
upon the duration of the liability, it shall last for one
year only, from the time of the assignment if the period
had already expired.
If the credit should be payable within a term or
period which has not yet expired, the liability shall
cease one year after the maturity.
Art. 1213. A solidary creditor cannot assign his rights
without the consent of the others.
Conventional Subrogation and Assignment of Credit
Distinguished
Conventional
Assignment of Credit
Subrogation
A credit is extinguished and
There is a transfer of same
another
credit
appears, which the new creditor which belonged to another and
claims as his own
which, upon being transferred,
is not
extinguished
The consent of the debtor is
The consent of the debtor is not
required
so that it may fully produce
required, his knowledge thereof
legal
effects
affecting only the validity of the
payment he might make. What
the
law requires is merely notice to
the
debtor as the assignment takes
effect
only from the time he has
knowledge
thereof.
Its effects begin from the time
The effects with respect to the
of
debtor
novation itself, that is, from the begin from the date of
notification
moment all the parties have
given
their consent
The nullity or defects of the
The nullity or defects of the
previous
obligation
obligation may be cured by the are not remedied, because only
the
novation
correlative right of the
obligation is
transmitted
Class discussion
Article 1301 does not require payment for conventional

subrogation to take place. What is required is the consent of all
parties. On the other hand, in Article 1302 (2), payment is
necessary for legal subrogation to take place.
Licaros v Gatmaitan (2001) 362 SCRA 548
The threshold issue for the determination of [the] Court is
whether the Memorandum of Agreement between petitioner and
respondent is one of assignment of credit or one of conventional
subrogation. This matter is determinative of whether or not
respondent became liable to petitioner under the promissory note
considering that its efficacy is dependent on the Memorandum of
Agreement, the note being merely an annex to the same
memorandum.
Petitioner Licaros invested his funds with the Anglo-Asean Bank,
an offshore bank, but had difficulty retrieving not only the
interests or profits, but even the very investments he had put.
Respondent Gatmaitan, a reputable banker and investment
manager, voluntarily offered to assume the payment of AngloAseans indebtedness to Licaros subject to certain terms and
conditions. A Memorandum of Agreement was executed and
notarized to this effect. A promissory note was appended to the
Memorandum of Agreement representing the amount.
Contained in the Memorandum is the stipulation:

WHEREAS, the parties herein have come to an agreement on
the nature, form and extent of their mutual prestations which
they now record herein with the express conformity of the third
parties concerned.
Hence, included in the signatories of the Memorandum of
Agreement is Anglo-Asean, as Conforme. The document,
however, remained unsigned by the bank. Gatmaitan was
unable to collect from Anglo-Asean, resulting in the
nonfulfillment of his promise to pay Licaros the amount stated
in his promissory note.
Licaros contends that he has a right to collect from Gatmaitan
regardless of the outcome of Gatmaitans efforts.
[The Court] agrees with the finding of the Court of Appeals that
the Memorandum of Agreement was in the nature of a
conventional subrogation which requires the consent of the
debtor, Anglo-Asean Bank, for its validity.
The Memorandum stipulated that there should be express

conformity of the third parties concerned, this third party
admittedly being Anglo-Asean Bank. The consent of the third
party being required by the Memorandum, the agreement
therefore is one of conventional subrogation, and not of
assignment of credit.

Page 46 of 106
Conventional subrogation requires the agreement among the

three parties concerned. On the other hand, in assignment of
credit, a creditor may validly assign his credit and its
accessories without the debtors consent.
The intention of the parties to treat the Memorandum of
Agreement as embodying a conventional subrogation is
shown not only by the whereas clause but also by the
signature space reserved for the signature of a
representative of Anglo-Asean Bank as conforme.
The Memorandum of Agreement embodies a contract for
conventional subrogation and in such a case, the consent of the
original parties and the third person is required. The absence of
such conformity by Anglo-Asean Bank prevented the
Memorandum of Agreement from becoming valid and effective.
No conventional subrogation took place.
Exception: prescription runs between husband and wife

who are legally separated
Art. 1113. All things which are within the commerce of
men are susceptible of prescription, unless otherwise
provided. Property of the State or any of its
subdivisions not patrimonial in character shall not be
the object of prescription. (1936a)
That which is not subject to appropriation cannot be acquired by
prescription
Art. 1136. Possession in wartime, when the civil courts
are not open, shall not be counted in favor of the
adverse claimant.
Art. 1154. The period during which the obligee was
prevented by a fortuitous event from enforcing his right
is not reckoned against him. (n)
G. Prescription
Prescription the acquisition or loss of a right by the lapse of
time based on negligence or presumed abandonment
Art. 1106. By prescription, one acquires ownership and
other real rights through the lapse of time in the manner
and under the conditions laid down by law.
In the same way, rights and conditions are lost by
prescription. (1930a)
Can prescription be waived? Yes

Art. 1112. Persons with capacity to alienate property
may renounce prescription already obtained, but not the
right to prescribe in the future. Prescription is deemed
to have been tacitly renounced when the renunciation
results from acts which imply the abandonment of the
right acquired. (1935)
Renunciation is unilateral, it does not require the
acceptance of the person benefitting
However, renunciation in advance is void; an agreement
based on waiving future prescription is nonbinding. Waiving
of prescription by those without capacity or by ones
representatives is nonbinding.
Distinguish between acquisitive and extinctive prescription.

Acquisitive - the acquisition of a right by the lapse of time
through adverse possession/ usurpation
Rationale: based on the assertion by a usurper of an adverse
right for such a long time as to give rise to the presumption
that the owner has given up such right
Extinctive the loss of a right of action by the lapse of time
Rationale based on the probability that the alleged right
never existed or has been extinguished. To protect vigilant and
not one who sleeps on his rights
When will prescription not run?
Art. 1109. Prescription does not run between husband
and wife, even though there be a separation of property
agreed upon in the marriage settlements or by judicial
decree.
Neither does prescription run between parents and
children, during the minority or insanity of the latter,
and between guardian and ward during the continuance
of the guardianship. (n)
Rationale: influence or affection may often prevent one
bringing an action against the other anyway.
Distinguish between ordinary and extraordinary prescription.

Art. 1117. Acquisitive prescription of dominion and other
real rights may be ordinary or extraordinary.
Ordinary acquisitive prescription requires possession of
things in good faith and with just title for the time fixed
by law. (1940a)
Requisites of prescription:
Capacity to acquire by prescription
The thing is capable of acquisition by prescription
Possession of the thing under certain conditions
Lapse of time provided by law
While the first two are common of all prescriptions the latter
two vary as to WON the prescription is ordinary or
extraordinary.
Ordinary prescription requires
Good faith possession
Just title
Possession for a period of time fixed by law
MOVABLES
Page 47 of 106
Art. 1132. The ownership of movables prescribes

through uninterrupted possession for four years in good
faith.
The ownership of personal property also prescribes
through uninterrupted possession for eight years,
without need of any other condition.
With regard to the right of the owner to recover
personal property lost or of which he has been illegally
deprived, as well as with respect to movables acquired
in a public sale, fair, or market, or from a merchant's
store the provisions of Articles 559 and 1505 of this
Code shall be observed. (1955a)
Art. 1133. Movables possessed through a crime
can never be acquired through prescription by the
offender. (1956a)
IMMOVABLES
Art. 1134. Ownership and other real rights over
immovable property are acquired by ordinary
prescription through possession of ten years. (1957a)
Art. 1137. Ownership and other real rights over
immovable also prescribe through uninterrupted
adverse possession thereof for thirty years, without
need of title or of good faith. (1959a)
When the title is void (e.g. oral donation of real property)
he may acquire ownership under the provision of this
article.
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 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. (464a)
Art. 1505. Subject to the provisions of this Title, where

goods are sold by a person who is not the owner
thereof, and who does not sell them under authority or
with the consent of the owner, the buyer acquires no
better title to the goods than the seller had, unless the
owner of the goods is by his conduct precluded from
denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
The provisions of any factors' act, recording laws, or any
other provision of law enabling the apparent owner of
goods to dispose of them as if he were the true owner
thereof;
The validity of any contract of sale under statutory

power of sale or under the order of a court of
competent jurisdiction;
Purchases made in a merchant's store, or in
fairs, or markets, in accordance with the Code of
Commerce and special laws. (n)
Art. 719. Whoever finds a movable, which is not
treasure, must return it to its previous possessor. If the
latter is unknown, the finder shall immediately
deposit it with the mayor of the city or municipality

where the finding has taken place.
The finding shall be publicly announced by the mayor
for two consecutive weeks in the way he deems best.
If the movable cannot be kept without deterioration, or
without expenses which considerably diminish its
value, it shall be sold at public auction eight days after
the publication.
Six months from the publication having elapsed
without the owner having appeared, the thing found,
or its value, shall be awarded to the finder. The finder
and the owner shall be obliged, as the case may be, to
reimburse the expenses. (615a)
Art. 720. If the owner should appear in time, he shall be
obliged to pay, as a reward to the finder, one-tenth of
the sum or of the price of the thing found. (616a)
Art. 526. He is deemed a possessor in good faith who is
not aware that there exists 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 the foregoing.
Mistake upon a doubtful or difficult question of law may
be the basis of good faith. (433a)
Art. 1127. The good faith of the possessor consists in

the reasonable belief that the person from whom he
received the thing was the owner thereof, and could
transmit his ownership. (1950a)
Art. 1128. The conditions of good faith required for
possession in Articles 526, 527, 528, and 529 of this
Code are likewise necessary for the determination of
good faith in the prescription of ownership and other
real rights. (1951)
Good faith
The well founded belief that the grantor is the owner.It is
the belief in the validity, and not merely ignorance of a
defect.
The belief must be continuous
Any other defect will invalidate the title, and when there is
no just title there can be no prescription
Good faith is always presumed, the burden of proof rests
on those claiming otherwise.
There is a presumption that the possession continues to be
enjoyed in the same character in which it was acquired,
until the contrary is
proven.
Art. 308. Who are liable for theft. Theft is committed by
any person who, with intent to gain but without violence
against or intimidation of persons

Page 48 of 106
nor force upon things, shall take personal property of

another without the latter's consent.
Theft is likewise committed by:
Any person who, having found lost property, shall fail
to deliver the same to the local authorities or to its
owner;
Any person who, after having maliciously damaged
the property of another, shall remove or make use
of the fruits or object of the damage caused by him;
and
Any person who shall enter an inclosed estate or a field
where trespass is forbidden or which belongs to
another and without the consent of its owner, shall hunt
or fish upon the same or shall gather cereals, or other
forest or farm products.
Art. 536. In no case may possession be acquired through
force or intimidation as long as there is a possessor who
objects thereto. He who believes that he has an action
or a right to deprive another of the holding of a thing,
must invoke the aid of the competent court, if the holder
should refuse to deliver the thing. (441a)
Art. 537. Acts merely tolerated, and those executed
clandestinely and without the knowledge of the
possessor of a thing, or by violence, do not affect
possession. (444)
In what concept must be the possession for prescription to run?
Art. 1118. Possession has to be in the concept of an
owner, public, peaceful and uninterrupted. (1941)
Art. 1119. Acts of possessory character executed in
virtue of license or by mere tolerance of the owner shall
not be available for the purposes of possession. (1942)
Concept of owner
necessary for possession
vs license: a positive act of owner in favor of a holder
vs tolerance: passive acquiescence by owner of acts of
another which are contrary to former.
Public - manifest and visible to all, the opposite of clandestine,
there is the presumption that the public and the owner are aware
of the possession. Peaceful acquired and maintained without
violence whether physical or moral. Except that force may be
used to repel an unlawful physical invasion. Uninterrupted
continuous, there must be no act of deprivation of enjoyment of
the thing by a third person or other act which interrupts
prescription. Interruption is a positive act of a third person.
Uninterruption is distinct from
discontinuity, since the former is a positive act of a third person

while the latter is a negative act of the possessor.
Art. 541. A possessor in the concept of owner has in his
favor the legal presumption that he possesses with a
just title and he cannot be obliged to show or prove it.
(448a)
How is prescription interrupted?
Art. 1120. Possession is interrupted for the purposes of
prescription, naturally or civilly. (1943)
Effect of interruption all the benefits acquired so far from
the possession cease, when it resumes the time lapsed will
start anew.
Interruption is the opposite of suspension where in the past
period is included in the computation of the total time lapsed.
Art. 1121. Possession is naturally interrupted when
through any cause it should cease for more than one
year.
The old possession is not revived if a new possession
should be exercised by the same adverse claimant.
(1944a)
Art. 1122. If the natural interruption is for only one year
or less, the time elapsed shall be counted in favor of the
prescription. (n)
Art. 1123. Civil interruption is produced by judicial
summons to the possessor. (1945a)
Art. 1124. Judicial summons shall be deemed not to have
been issued and shall not give rise to interruption:
If it should be void for lack of legal solemnities;
If the plaintiff should desist from the complaint or
should allow the proceedings to lapse;
If the possessor should be absolved from the complaint.
In all these cases, the period of the interruption shall be
counted for the prescription. (1946a)
In civil interruption, the effect of the recovery of the possession
is that the period of interruption is included in the computation
of the prescription. Technically then, it is as if there was no
interruption and that the possession was continuous.
Art. 1125. Any express or tacit recognition which the
possessor may make of the owner's right also interrupts
possession. (1948)
The recognition of the possessor of the owners rights will
interrupt possession.
However, the declaration of a 3rd person that the holder is not
the owner will not interrupt possession.
Art. 1126. Against a title recorded in the Registry of
Property, ordinary prescription of ownership or real
rights shall not take place to the prejudice

Page 49 of 106
of a third person, except in virtue of another title also

recorded; and the time shall begin to run from the
recording of the latter.
As to lands registered under the Land Registration Act,
the provisions of that special law shall govern. (1949a)
Recorded titles as to third persons
Third persons are those who acquire their rights subsequently,
relying on the registration of ownership in the registry. They
cannot be prejudiced by a period of possession prior to their
acquisition. This will apply provided that the following
conditions are met:
acquisition is by onerous title
acquisition is from one who, accdg to the registry, can
transmit the title
acquisition is registered
That the third person has no knowledge of the prescription.
Registered lands adverse possession may not be allowed to
defeat the owners right to possession of lands registered under
the Torrens system, nor will it run against the owners hereditary
successors. But laches may be set up as to registered lands.
Art. 1127. The good faith of the possessor consists in
the reasonable belief that the person from whom he
received the thing was the owner thereof, and could
transmit his ownership. (1950a)
Art. 1129. For the purposes of prescription, there is just
title when the adverse claimant came into possession of
the property through one of the modes recognized by
law for the acquisition of ownership or other real rights,
but the grantor was not the owner or could not transmit
any right. (n)
Art. 1130. The title for prescription must be true and
valid. (1953)
For prescription to run, the title must be just, true, valid, and
proved.
The purpose of just title is the transmission of ownership which
would have transferred ownership if the grantor had really been
the owner. The defect is cured by prescription.
e.g. sale, donation, and dation transfer ownership. But lease,
loan, and deposit do not transfer ownership and therefore do
not give rise just title
A true title is one that actually exists, as opposed to a simulated
title which cannot be the basis of prescription. A false title is
one which does not exist but is believed to exist. It will be
sufficient of the mistake of fact is with regards to acts of a third
person. If the mistake refers to the act of the possessor himself,
it will be considered insufficient.
e.g purchasing from an insane party with knowledge of the

vendors incapacity will render the title insufficient. But
purchasing without such knowledge of the incapacity will render
the title sufficient.
Valid title the title should be sufficient to transfer right if the

grantor had been the owner. Void titles are insufficient and
cannot give rise to prescription. Voidable titles are sufficient so
long as it has not been annulled. For titles with suspensive
condition, prescription only runs from the fulfillment of such a
condition. For titles with resolutory conditions, prescription
begins at once without prejudice to the fulfillment of the
condition
Art. 1131. For the purposes of prescription, just title
must be proved; it is never presumed. (1954a)
Proof of title: required for purpose of prescription. It is an
exception to 541 which refers to an existing fact of possession.
This article refers to the acquisition of right of ownership. Since
a new right is sought to be created, the law becomes more
exacting
How is prescription computed?
Art. 1138. In the computation of time necessary for
prescription the following rules shall be observed:
The present possessor may complete the period
necessary for prescription by tacking his possession to
that of his grantor or predecessor in interest;
It is presumed that the present possessor who was also
the possessor at a previous time, has continued to be in
possession during the intervening time, unless there is
proof to the contrary;
The first day shall be excluded and the last day included.
(1960a)
Tacking means adding the period of possession of the
predecessor to that of the successor. Tacking of possession
requireds:
The present possessor must have obtained it from previous
possessor
There must be privity between them
Tacking is only possible with succession, usurpers cannot tack
Different characteristics of possession: from good to bad faith
and vice versa When the possession of the predecessor is in
good faith and that of the successor is in bad faith, tacking is
permitted. The period of possession in good faith is computed
in the proportion that the period of extraordinary prescription
bears to that of ordinary prescription.
When the possession of the predecessor is in bad faith and that of
the successor is in good faith then tacking does not apply for
ordinary prescription. However, if the period of the predecessor is
so long as to be beneficial to the successor, he may claim tacking
for extraordinary prescription.
Art. 544. A possessor in good faith is entitled to the

fruits received before the possession is legally
interrupted.
Natural and industrial fruits are considered received
from the time they are gathered or severed.

Page 50 of 106
Civil fruits are deemed to accrue daily and belong to the

possessor in good faith in that proportion. (451)
What is the prescriptive period to recover movables
and immovable? Movables 8 years
Immovables 30 years
Art. 1140. 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 less period, according to Articles 1132,
and without prejudice to the provisions of Articles 559,
1505, and 1133. (1962a)
Art. 1141. Real actions over immovables prescribe after
thirty years.
This provision is without prejudice to what is
established for the acquisition of ownership and other
real rights by prescription. (1963)
LOSS OF POSSESSION
Art. 555. A possessor may lose his possession:
By the abandonment of the thing;
By an assignment made to another either by onerous or
gratuitous title;
By the destruction or total loss of the thing, or because
it goes out of commerce;
By the possession of another, subject to the provisions
of Article 537, if the new possession has lasted longer
than one year. But the real right of possession is not lost
till after the lapse of ten years. (460a)
When is prescription interrupted?
Art. 1155. The prescription of actions is interrupted
when they are filed before the court, when there is a
written extrajudicial demand by the creditors, and when
there is any written acknowledgment of the debt by the
debtor. (1973a)
Filing in court interruption of extinctive prescription
commences upon the docketing and continues during the
pendency of the action. Upon dismissal, the prescription runs
anew. However, when an action is filed and the plaintiff desists
in the prosecution, the action is deemed never to have
commenced.
Written extrajudicial demand must be in writing, verbal
demand is insufficient.
Written acknowledgement of debt may be express or implied
in writing. May be made by an agent or legal representative.
However, acknowledgement of a debt after the prescription has
expired does not amount to a renunciation of a prescription
already acquired. Partial payment does not interrupt

prescription because although it can be considered an
acknowledgment of a debt, as long as it is not in writing, there
will be no interruption.
Other causes which do not interrupt prescription:

Death of the debtor
Transfer of creditors rights to another person
Institution of a criminal action
A stay of execution
Incarceration
Extinction of debt of a joint debtor does not necessarily
affect that of co debtors
Cutanda v Cutanda (2000) 335 SCRA 418
The petition is meritorious.
[The Court] held that prescription, not laches is the proper
ground for holding private respondents action to be barred.
Private respondents did not assert ownership over the lands
until 55 years later, when they filed their complaint for recovery
of possession. Insofar as petitioners are concerned, private
respondents cause of action was barred, not by laches but by
extinctive prescription.
Anastacio Cutanda, ascendant of petitioners, was in possession
of the land for a period of 35 years, such possession appearing
to be adverse, continuous and in the concept of owner because
Anastacio Cutanda cultivated the land, thereby, performing an
act of ownership over it. Indeed, ten years after his possession
of the subject parcel of land had begun, Anastacio Cutanda

became owner of the land in question through acquisitive
prescription.
Seraspi v CA (2000) 331 SCRA 293
Marcelino Recasa was the owner of two parcels of land. The
heirs of his second marriage sold the land to the the ascendants
of petitioners, Quirico Seraspi and Purificacion Seraspi. The
Seraspis then mortgaged the land to secure a loan from Kalibo
Rural Bank, Inc. They defaulted and the mortgage was
foreclosed. In 1958, the land eventually was sold to Manuel
Rata, brother-in-law of Quirico Seraspi. Rata allowed Quirico to
administer the property.
In 1974, Quirico, however, had been paralyzed duo to a
storke. Private respondent Simeon Recasa, Marcelinos
child from a third marriage, took advantage of this and
forcibly entered the lands in question and took possession
thereof.
In 1983, the Seraspis purchased the land from Manuel Rata and
afterwards filed a complaint against Simeon Recasa for
recovery of possession of the lands. The question is whether
private respondent has acquired the ownership of the two lands
by prescription.

Page 51 of 106
Acquisitive prescription of dominion and other real rights may

be ordinary or extraordinary , depending on whether the
property is possessed in good faith and with just title or the
time fixed by law.
Private respondent, however, had neither just title
nor good faith. Article 1129 provides:
For purposes of prescription, there is just title when the adverse
claimant came into possession of the property through one of
the modes recognized by law for the acquisition of ownership or
other real rights, by the grantor was not the owner or could not
transmit any right.
Private respondent did not acquire possession of the property
through any of the modes recognized by the Civil Code in Art.
712.
Neither can private respondent claim good faith in his favor.
Good faith consists in the reasonable belief that the person
from whom the possessor received the thing was its owner but
could not transmit the ownership thereof. Private respondent
entered the property without the consent of the previous
owner. For all intents and purposes, he is a mere usurper.
The basis of petitioners claim of ownership is the contract of
sale they had with Rata, but this by itself is insufficient to make
them owners of the property. The ownership of the thing sold is
not transferred to the vendee until actual or constructive
delivery of the property. When they bought the property, the
property was in the possession of private respondent.
However, this does not give private respondent a right to
remain in possession of the property. Petitioners title to the
property prevails over private respondents possession in fact
but without bassi in law.
Private respondent did not acquire the property through
prescription.
United States v Cerna (1912) 21 Phil 144
In December 1902, Sabina Merenguel lost a 3-year old carabao
which joined other carabaos belonging to Julian Nayre and
afterwards strayed away and was not found by Sabino
Merenguel until April 1909, in the possession of Policarpio
Cerna.
Prescription is required to enable the finder or a third person to
acquire title to the find; and the former, as a general rule, must
have possessed if for the extraordinary term of six years, on
account of the lack of good faith and because, for the same
reason, his possession is not equivalent to a title.
Here, Cerna had an uninterrupted possession of the carabao
from January 1, 1903 to April 1909. In April 1909, therefore,
the defendants had already possessed the lost animal for an
uninterrupted period of six years, and the ownership of

personal property prescribes by uninterrupted possession for
six years, without the necessity of any other condition.
Cerna is the owner of the carabao.
In 1980, petitioner Pajunar learned that the disputed female

mestisa carabao was in the possession of private respondent
Eluna, the latter possessing the carabao after bartering this male
cow to a third person Enopio in 1969.
The records show that respondents did not comply with this
requirement. Respondents are not possessors in good faith,
as a possessor in good faith is one not aware that there
exists in his title or more of acquisition any flaw which
invalidates it.
Petitioners are the owners of the carabaos (the mestisa
carabao and its offsprings) in question.
The prescription issue is whether or not the carabao belonged

to private respondent, him being in possession of the carabao
for more than 10 years. The possession in good faith for four
(4) years is not applicable, neither can possession in bad faith
of eight (8) years benefit respondents, for when the owner of a
movable has lost or has been illegally deprived of his property
he can recover the same without need to reimburse the
possessor, as provided in Art. 559 of the Civil Code.
Neither can Art. 716 of the Civil Code apply, for this article
evidently refers to a possessor in good faith.
From the records it is clear that although the animal was
branded ART in her front and hind legs at the time she was
acquired by respondent Eluna, said respondent did not or could
not register the transfer to him in accordance with Section 529
of the Revised Administrative Code (which says that
registration is necessary to validity of transfer of cattle.)
Cajuigan v Natividad (1910) 14 Phil 734

Plaintiff Cajuigan is the administrator of the estate of Capricho
and Morales. It appears that three carabaos are in the
possession of defendant Natividad. Plaintiff commenced the
action to recover the carabaos from the defendant, the
carabaos being part of the estate of the decedents.
The decedents had debts to the defendant worth P486.94.
Upon death of the decedents intestate, Sotero Morales, the
first administrator, delivered the disputed carabaos to the
defendant to satisfy his claim.
The new administrator, plaintiff Cajuigan, now wants to recover
the said carabaos, contending that the first administrator had
no authority to pay the claim of Natividad against the estate,
without the express permission of the court. He also contends
that it was the duty of the defendant, if he had a claim
Pajunar v CA (1989) 175 SCRA 464

Page 52 of 106
against the estate in question, to have presented it to

the committee appointed for the purpose of allowing
claims.
Both contentions are valid.
It is not disputed, however, by the plaintiff, that the carabaos
were turned over to Natividad by the first administrator, Sotero
Morales, and accepted by Natividad in good faith, believing that
the carabaoes had been turned over to him in part payment of
his claim against the said estate.
Can an administrator maintain an action to recover personal
property belonging to an estate, which has been in the
possession of the defendant for a period of more than four
years, he possessing the same in good faith?
The court held in the negative. The Code of Procedure in Civil
Actions provides that an action for the recovery of personal
property shall be limited to four years. The right of the plaintiff
to recover the carabaos in question, therefore, cannot be
sustained.
*Article 1955 of the (Old) Civil Code provides that The
ownership of personal property in prescribes by uninterrupted
possession in good faith, for a period of three years.
Tan v CA (1991) 195 SCRA 355
This petition stems from an action of petitioner Tan for the
reconveyance of shares of stock against the Central Bank.
During the Martial Law regime, Continental Bank was ordered
to close by the Central Bank Monetary Board, due to the
insolvency of the bank. Thereafter, petitioner was arrested
and during detention in 1977, he executed certain
agreements transferring and assigning shares of stock in
Continental Bank to three corporations. Petitioner alleged that
the transfer was due to fraud.
In 1987, petitioners filed a case of reconveyance of shares of
stock.
The question is whether or not any action for reconveyance
has nevertheless prescribed, on the basis of provisions
governing reconveyance.
The rule anent prescription on recovery of movable (shares
of stock in this case) is expressed in Article 1140 of the Civil
Code.
It is evident that the petitioners had at most eight years within
which to pursue a reconveyance, reckoned from the loss of the
shares in 1977, when the petitioner Tan executed the various
agreements in which he conveyed the same in favor of three
corporations.
Since the complaint was filed in 1987, ten years more or less
after the petitioners transferred the shares in question, it is
clear that the petitioners have come to court too late.
*The Court+ cannot accept the petitioners contention that the
period during which authoritarian rule was in force had interrupted
prescription and that the
same began to run only on February 25, 1986, when the

Aquino government too power. It is true that under Art. 1154:
Article 1154. The period during which the obligee was
prevented by a fortuitous event from enforcing his right
is not reckoned against him. fortuitous events have the
effect of tolling the period of prescription.
However, it cannot be say, as a universal rule, that the period
from September 21, 1972 to February 25, 1986, involves force
majeure. This claim should be taken on a case-to-case basis.
*The Court+ is convinced, from petitioner Tans very behavior
(of instituting actions in court that did not involve the
conveyance of shares), that his detention was not an
impediment to a judicial challenge, and the fact of the matter
was that he was successful in obtaining judicial assistance.
Under these circumstances, [the Court] cannot declare
detention, or authoritarian rule for that matter, as a fortuitous
event insofar as he was concerned, that interrupted
prescription.
Prescription was not interrupted. Tans action came too late.
H. Agreement
Saura vs. DBP
Facts:
Saura applied to Rehabilitation Finance Corporation (RFC),
before its conversion into DBP, for an industrial loan of
P500,000 to be used as follows:
P250,000.00 for the construction of a factory
building (for the manufacture of jute sacks);
P240,900.00 to pay the balance of the purchase price of
the jute mill machinery and equipment; and P9,100.00 as additional working capital.
The jute mill machinery had already been purchased by
Saura on the strength of a letter of credit extended by
the Prudential Bank and Trust Co. and that to secure its
release without first paying the draft, Saura, Inc.
executed a trust receipt in favor of the said bank.
RFC passed Resolution No. 145 approving the loan
application for P500,000.00, to be secured by a first
mortgage on the factory building to be constructed, the
land site thereof, and the machinery and equipment to
be installed.
It appears, however, that despite the formal execution of the
loan agreement the reexamination contemplated in
Resolution No. 736 proceeded. In a meeting of the RFC
Board of Governors on June 10,

Page 53 of 106
1954, at which Ramon Saura, President of Saura, Inc.,

was present, it was decided to reduce the loan from
P500,000.00 to P300,000.00.
Saura, Inc. had written RFC requesting that the loan of
P500,000.00 be granted. The request was denied by
RFC.
Saura, Inc. took exception to the cancellation of the loan and
informed RFC that China Engineers, Ltd. "will at any time
reinstate their signature as co-signer of the note if RFC
releases to us the P500,000.00 originally approved by
you.".
RFC passed Resolution No. 9083, restoring the loan to the
original amount of P500,000.00, "it appearing that China
Engineers, Ltd. is now willing to sign the promissory
notes jointly with the borrower-corporation," but with the
following proviso:
xx
That the raw materials (kenaf) needed by the
borrower-corporation to carry out its operation
are available in the immediate vicinity;
xx
However, Saura stated that according to a special study
made by the Bureau of Forestry "kenaf will not be
available in sufficient quantity this year or probably
even next year;"
Saura requested RFC to cancel the mortgage. RFC executed
the deed of cancellation and delivered it to Ramon F.
Saura himself as president of Saura, Inc.
Almost 9 years after the mortgage in favor of RFC was
cancelled at the request of Saura, Inc., the latter
commenced the present suit for damages, alleging
failure of RFC (as predecessor of the defendant DBP) to
comply with its obligation to release the proceeds of the
loan applied for and approved, thereby preventing the
plaintiff from completing or paying contractual
commitments it had entered into, in connection with its
jute mill project.
The trial court rendered judgment for the plaintiff, ruling
that there
was a perfected contract between the parties and that
the defendant was guilty of breach.
Issue: WON there was a perfected contract
between Saura and DBP WON Saura is
entitled to damages
Held:
There was undoubtedly offer and acceptance in this case: the
application of Saura, Inc. for a loan of P500,000.00 was
approved by resolution of the defendant, and the

corresponding mortgage was executed and registered. But
this fact alone falls short of resolving the
basic claim that the defendant failed to fulfill its

obligation and the plaintiff is therefore entitled to
recover damages.
It should be noted that RFC entertained the loan application
of Saura, Inc. on the assumption that the factory to be
constructed would utilize locally grown raw materials,
principally kenaf. Evidently Saura, Inc. realized that it
could not meet the conditions required by RFC stated
that local jute "will not be able in sufficient quantity this
year or probably next year," and asking that out of the
loan agreed upon the sum of P67,586.09 be released "for
raw materials and labor." This was a deviation from the
terms laid down in Resolution No. 145 and embodied in
the mortgage contract, implying as it did a diversion of
part of the proceeds of the loan to purposes other than
those agreed upon.The action thus taken by both parties
was in the nature cf mutual desistance what Manresa
terms "mutuo disenso" 1 which is a mode of
extinguishing obligations. It is a concept that derives
from the principle that since mutual agreement can
create a contract, mutual disagreement by the parties
can cause its extinguishment.
Dispositive: Judgment appealed from is reversed and the
complaint dismissed, with costs against the plaintiff-appellee.
I. Difficulty
What is clausula rebus sic stantibus?
Art. 1267. When the service has become so difficult
as to be manifestly beyond the contemplation of the
parties, the obligor may also be released therefrom,
in whole or in part. (n)
Occena vs. Jabson
Facts:
Tropical Homes, Inc. filed a complaint for modification of the
terms and conditions of its subdivision contract with
petitioners (landowners of a 55,330 square meter parcel
of land in Davao City) alleging that due to the increase
in price of oil and its derivatives and the concomitant
worldwide spiraling of prices, further performance by the
plaintiff under the contract, will result in situation where
defendants would be unjustly enriched at the expense of
the plaintiff; will cause an iniquitous distribution of
proceeds from the sales of subdivided lots in manifest
actually result in the unjust and intolerable exposure of

Page 54 of 106
plaintiff to implacable losses, all such situations

resulting in an unconscionable, unjust and immoral
situation contrary to and in violation of the primordial
concepts of good faith, fairness and equity which
should pervade all human relations.
Petitioners moved to dismiss the complaint principally for
lack of cause of action, and upon denial thereof and of
reconsideration by the lower court elevated the matter
on certiorari to respondent Court of Appeals.
CA set aside the preliminary injunction previously issued
by it and dismissed petition.
Hence, the petition at bar wherein petitioners insist that the
worldwide increase in prices cited by respondent does not
constitute a sufficient cause of action for modification of
the subdivision contract.
Issue: WON the Court should grant the petition

Held:
While respondent court correctly cited in its decision the
Code Commission's report giving the rationale for
Article 1267 of the Civil Code, it misapplied the same
to respondent's complaint.
Respondent's complaint seeks not release from the
subdivision contract but that the court render judgment
modifying the terms and Conditions of the Contract.
The cited article does not grant the courts this authority to
remake, modify or revise the contract or to fix the
division of shares between the parties as contractually
stipulated with the force of law between the parties, so
as to substitute its own terms for those covenanted by
the parties themselves. Respondent's complaint for
modification of contract manifestly has no basis in law
and therefore states no cause of action. Under the
particular allegations of respondent's complaint and the
circumstances therein averred, the courts cannot even
in equity grant the relief sought.
Dispositive: The resolution of respondent appellate court is
reversed and the petition for certiorari is granted and private
respondent's complaint in the lower court is ordered dismissed for
failure to state a sufficient cause of action.
Naga Telephone vs. CA, supra
J. Impossibility
What is the effect of impossibility?
Art. 1266. The debtor in obligations to do shall also be
released when the prestation becomes legally or
physically impossible without the fault of the obligor.
(1184a)
IV. Other Performance Excuses
K. Violenti Non Fit Injuria
What is violenti non fit injuria?
Art. 1174. Except in cases expressly specified by the law,
or when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events
which could not be foreseen, or which, though foreseen,
were inevitable. (1105a)
Latin: "to a willing person, no injury is done" or "no injury is
done to a person who consents"
General Rule: No liability for fortuitous event.
Exceptions: The debtor is responsible for a fortuitous
event in the ff. cases:
o When expressly declared by law (such as when the
possessor is in
bad faith or is in default).
o When expressly declared by stipulation or contract.
o When the nature of the oblig requires the
assumption of risk (Doctrine of Created Risk)
Essential characteristics of a fortuitous event
o
The cause must be independent of the will of the
debtor
o Impossibility of foreseeing or impossibility of avoiding
it, even if
foreseen.
o The occurrence must be such as to render it
impossible for the debtor to fulfil his obligation in
a normal manner.
Loss in a shipwreck
o As a general rule, the loss of the ship due to a
fortuitous event should be borne by the owner;
the loss of the cargo, by their owners, unless the
captain lacked skill or there was malice or
negligence.
Loss because of an act of government

Page 55 of 106
In case there is a law, it shall be considered as an act of

sovereign power and therefore, whatever loss
incurred can be attributed to a force majeure and
certainly the State cannot complain of a loss caused
by itself.
Combination of fortuitous event and negligence
If the fortuitous event was the proximate cause,
the oblig is extinguished.
If the negligence was the proximate cause, the oblig
is not extinguishedconverted to a monetary
oblig for damages.
L. Fortuitous Event
What are the acts of God?
Art. 1174- refer to 104
Art. 1262. An obligation which consists in the delivery of
a determinate thing shall be extinguished if it should be
lost or destroyed without the fault of the debtor, and
before he has incurred in delay.
When by law or stipulation, the obligor is liable even for
fortuitous events, the loss of the thing does not
extinguish the obligation, and he shall be responsible for
damages. The same rule applies when the nature of the
obligation requires the assumption of risk. (1182a)
Examples of instances when the law requires liability even
in the case of a fortuitous event:
o When the debtor is in default (mora)
o When the debtor has promised to deliver the same thing

to two or
more persons (parties) who do not have the

same interest o When the oblig arises from a
crime
o When a borrower (of an object) has lent the thing to
another who is not a member if his own household.
o
When the thing loaned has been delivered with

appraisal of the value, unless there is a stipulation
exempting the borrower from
responsibility in case of a fortuitous event.

When the payee in solutio indebiti is in bad faith
An act of God has been defined as an accident, due directly

and exclusively to natural causes without human
intervention, which by no amount of foresight, pains or
care, reasonably to have been expected, could have been

prevented. (1 Corpus Juris 1174). (Nakpil and Sons vs.
CA)
The principle embodied in the act of God doctrine strictly
requires that the act must be one occasioned
exclusively by the violence of nature and all human
agencies are to be excluded from creating or entering
into the cause of the mischief. When the effect, the
cause of which is to be considered, is found to be in
part the result of the participation of man, whether it be
from active intervention or neglect, or failure to act, the
whole occurrence is thereby humanized, as it were, and
removed from the rules
applicable to the acts of God. (1 Corpus Juris, pp.

1174-1175).
The negligence of the defendant and the third-party
defendants petitioners was established beyond dispute
both in the lower court and in the Intermediate
Appellate Court. Defendant United Construction Co.,
Inc. was found to have made substantial deviations
from the plans and specifications. and to have failed to
observe the requisite workmanship in the construction
as well as to exercise the requisite degree of
supervision; while the third-party defendants were
found to have inadequacies or defects in the plans and
specifications prepared by them. As correctly assessed

by both courts, the defects in the construction and in
the plans and specifications were the proximate causes
that rendered the PBA building unable to withstand the
earthquake of August 2, 1968. For this reason the
defendant and third-party defendants
cannot claim exemption from liability. (Decision,

Court of Appeals, pp. 30-31).
In any event, the relevant and logical observations of
the trial court as affirmed by the Court of Appeals
that "while it is not possible to state with certainty
that the building would not have collapsed were
those defects not present, the fact remains that
several buildings in the same area withstood the
earthquake to which the building of the plaintiff was
similarly subjected," cannot be ignored.
Art. 1221. If the thing has been lost or if the prestation
has become impossible without the fault of the solidary
debtors, the obligation shall be extinguished.
If there was fault on the part of any one of them, all
shall be responsible to the creditor, for the price and the
payment of damages and interest, without prejudice to
their action against the guilty or negligent debtor.

Page 56 of 106
If through a fortuitous event, the thing is lost or the

performance has become impossible after one of the
solidary debtors has incurred in delay through the
judicial or extrajudicial demand upon him by the
creditor, the provisions of the preceding paragraph shall
apply. (1147a)
Loss because of a fortuitous event after defaultthere will
be liability because of the default.
When will force majeure not extinguish an obligation?
Art. 1268. When the debt of a thing certain and
determinate proceeds from a criminal offense, the
debtor shall not be exempted from the payment of its
price, whatever may be the cause for the loss, unless
the thing having been offered by him to the person who
should receive it, the latter refused without justification
to accept it. (1185)
Even for fortuitous event, the oblig is not extinguished.
Exception: When the creditor (the offended party in the
crime) is in mora accipiendi.
Art. 1265. Whenever the thing is lost in the possession

of the debtor, it shall be presumed that the loss was due
to his fault, unless there is proof to the contrary, and
without prejudice to the provisions of article 1165. This
presumption does not apply in case of earthquake, flood,
storm, or other natural calamity. (1183a)
The presumption of fault does not apply in the case if a
natural calamity. Although fire is not a natural calamity,
if a tenant is able to prove that the fire caused in his
apartment was purely accidental, he is not liable.
Art. 1165. When what is to be delivered is a determinate
thing, the creditor, in addition to the right granted him
by Article 1170, may compel the debtor to make the
delivery.
If the thing is indeterminate or generic, he may ask that

the obligation be complied with at the expense of the
debtor.
If the obligor delays, or has promised to deliver the
same thing to two or more persons who do not have the
same interest, he shall be responsible for any fortuitous
event until he has effected the delivery. (1096)
Effect of fortuitous event
o Specific oblig- extinguished by a fortuitous event
of act of God o Generic oblig- never extinguished by
fortuitous event
Two instances where a fortuitous event does not
exempt (3rd par) o If the obligor delays
o If the obligor is guilty of bad faith
National Power Corporation vs. CA
Facts:
The private respondents, owners of different parcels of
land in Angat and Norzagaray, Bulacan, suffered
extensive damage to and lose of their properties as a
result of the inundation.
Demands for the payment thereof having been rejected
by the petitioners, the private respondents filed with
the RTC, an action for damages against the
petitioners.
Petitioners said that they took all the necessary
precautions in anticipation of the typhoon, exercised
due care in the maintenance and operation of the
Angat Hydro-electric plant and sent out early written
warnings. They further rely on the defense of force
majeure, and aver that there exists no causal relation
between the alleged damages and losses suffered by
the plaintiffs.
RTC rendered its decision against the petitioners.
Appellate court affirmed the findings of the trial
court on the negligence of the petitioners.
Issue: WON the petitioners should be liable for damages
Held:
Petition must be dismissed because the losses and
damages sustained by the private respondents had
been proximately caused by the negligence of the
petitioners, although the typhoon which preceded the
flooding could be considered as a force majeure.
Petitioners cannot be heard to invoke the act of God or force
majeure to escape liability for the loss or damage
sustained by the private respondents since they, the
petitioners, were guilty of negligence. This event then

was not occasioned exclusively by an act of God or force
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majeure; a human factor - negligence or imprudence had intervened. The effect then of the force majeure in
question may be deemed to have, even if only partly,
resulted from the participation of man. Thus, the whole
occurrence was thereby humanized, as it were, and
removed from the rules applicable to acts of God.
the failure of the contractors to follow plans and

specifications and violations by the defendants of
the terms of the contract.
Issue: WON the petitioner is liable for damages in this case
Held:
Dispositive: The instant petition is hereby DENIED, with

costs against the petitioners.
Nakpil and Sons vs. CA
Facts:
The private respondent (Philippine Bar Association) hired
the services of the petitioner to make the plans and
specifications for the construction of their office
building.
The building was completed by the contractor but
subsequently, an earthquake struck causing its partial
collapse and damage.
After the protracted hearings, the Commissioner eventually
submitted his report with the findings that while the
damage sustained by the PBA building was caused
directly by the earthquake whose magnitude was
estimated at 7.3 they were also caused by the defects in
the plans and specifications prepared by the third-party
defendants' architects, deviations from said plans and
specifications by the defendant contractors and failure
of the latter to observe the requisite workmanship in the
construction of the building and of the contractors,
architects and even the owners to exercise the requisite
degree of supervision in the construction of subject
building.
Plaintiff commenced this action for the recovery of
damages arising from the partial collapse of the
building against United Construction, Inc. and its
President and General Manager Juan J. Carlos as
defendants. Plaintiff alleges that the collapse of the
To exempt the obligor from liability under Article 1174 of
the Civil Code, for a breach of an obligation due to an "act
of God," the following must concur: (a) the cause of the
breach of the obligation must be independent of the will of
the debtor; (b) the event must be
building was accused by defects in the construction,
Civil and natural obligs

distinguished o Voluntary
fulfilment defined
Voluntary fulfilment means that the debtor complied with the

same even if he knew that he could have been legally forced
either unforseeable or unavoidable; (c) the event must

be such as to render it impossible for the debtor to
fulfill his obligation in a normal manner; and (d) the
debtor must be free from any participation in, or
aggravation of the injury to the creditor.
It has been held that when the negligence of a person
concurs with an act of God in producing a loss, such
person is not exempt from liability by showing that the
immediate cause of the damage was the act of God. To
be exempt from liability for loss because of an act of
God, he must be free from any previous negligence or
misconduct by which that loss or damage may have
been occasioned.
The negligence of the defendant and the third-party
defendants petitioners was established beyond dispute
both in the lower court and in the Intermediate
Appellate Court. Defendant United Construction Co., Inc.
was found to have made substantial deviations from the
plans and specifications. and to have failed to observe
the requisite workmanship in the construction as well as
to exercise the requisite degree of supervision; while
the third-party defendants were found to have
inadequacies or defects in the plans and specifications
prepared by them.
The relevant and logical observations of the trial court as

affirmed by the Court of Appeals that "while it is not
possible to state with certainty that the building would
not have collapsed were those defects not present, the
fact remains that several buildings in the same area
withstood the earthquake to which the building of the
plaintiff was similarly subjected," cannot be ignored.
NATURAL OBLIGATIONS
Distinguish civil and natural obligations.
Art. 1423. Obligations are civil or natural. Civil obligations
give a right of action to compel their performance. Natural
obligations, not being based on positive law but on equity
and natural law, do not grant a right of action to enforce
their performance, but after voluntary fulfillment by the
obligor, they authorize the retention of what has been
delivered or rendered by reason thereof. Some natural
obligations are set forth in the following articles.

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to do so. In case of partial voluntary fulfilment,

there has not yet been created a legal oblig.
Undue payment distinguished from natural oblig
If I pay a debt that has prescribed
Not knowing it has prescribed, I can recover

on the ground of undue payment.
Knowing that it has prescribed, I cannot recover
for this would be a case of a natural oblig.
No juridical tie in moral obligs
While there is a juridical tie in natural obligs, there is none
in moral obligs.
Example of other natural obligs
Obligation to pay interest for use of money, even if not

agreed upon in writing.
Duty to support natural or spurious children (even if

not recognized voluntarily or by judicial
compulsion and even if there is a judgment
denying recognition).
Giving material and financial assistance to children upon

their marriage.
Conversion of moral obligs to civil obligs

Moral obligs may be converted into civil
obligs. Ex. Acknowledgement of a
prescribed debt
Art. 1424. When a right to sue upon a civil obligation has

lapsed by extinctive prescription, the obligor who
voluntarily performs the contract cannot recover what
he has delivered or the value of the service he has
rendered.
Effect of extinctive prescription- By virtue of extinctive
prescription, a right to property has been lost. Hence,
the existence of the Article.
Art. 1425. When without the knowledge or against the

will of the debtor, a third person pays a debt which the
obligor is not legally bound to pay because the action
thereon has prescribed, but the debtor later voluntarily
reimburses the third person, the obligor cannot recover
what he has paid.
Payment with debtors consent- If payment is made with
the consent of the debtor, a civil oblig arises.
Art. 1426. When a minor between eighteen and twentyone years of age who has entered into a contract
without the consent of the parent or guardian,
after the annulment of the contract voluntarily returns

the whole thing or price received, notwithstanding the
fact the he has not been benefited thereby, there is no
right to demand the thing or price thus returned.
Art. 1427. When a minor between eighteen and twentyone years of age, who has entered into a contract
without the consent of the parent or guardian,
voluntarily pays a sum of money or delivers a fungible
thing in fulfillment of the obligation, there shall be no
right to recover the same from the obligee who has
spent or consumed it in good faith. (1160A)
Contract by MinorsNo annulment yet
o Generally, annulment requires mutual restitution.
Here, the oblige who has spent or consumed the
object in good faith is not
required to restore.
o Good faith of the oblige must be present at the time
of the
spending or consuming.
o Note that the majority age today is 18. And
fungible here really means consumable.
Art. 1428. When, after an action to enforce a civil

obligation has failed the defendant voluntarily performs
the obligation, he cannot demand the return of what he
has delivered or the payment of the value of the service
he has rendered.
Winner in an action to enforce a civil obligationHere the
defendant may have realized that he should have lost
the case, instead of winning it, this the existence of the
Article.
Art. 1429. When a testate or intestate heir voluntarily

pays a debt of the decedent exceeding the value of the
property which he received by will or by the law of
intestacy from the estate of the deceased, the payment
is valid and cannot be rescinded by the payer.
Rule in case of payment of debts beyond value of the
decedents estate
o Heirs inherit obligs only to the extent of the value
of the inheritance. This is the reason for the
Article, coupled with the basis for the natural
oblig.

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Art. 1430. When a will is declared void because it has

not been executed in accordance with the formalities
required by law, but one of the intestate heirs, after the
settlement of the debts of the deceased, pays a legacy
in compliance with a clause in the defective will, the
payment is effective and irrevocable.
Payment of legacies despite the fact that the will is void
o If the will is void, the legacy would also be void and
the deceased is considered to have died without a
will. This is the reason for the existence of this
Article.
Analogous cases
o By analogy, all alienations defective for lack of
proper formalities may be included under Art.
1430.
CONTRACTS
V. General
What is a contract?
Art. 1305. A contract is a meeting of minds between two
persons whereby one binds himself, with respect to the
other, to give something or to render some service.
(1254a)
Contract, defined
A contract, from the Latin contractus and from the
French contract, is a juridical convention
manifested in legal form, by virtue of which, one or
more persons (or parties) bind themselves in favour
of another or others, or reciprocally, to the fulfilment
of a prestation to give, to do, or not to do.
Elements of a contract
Essential elements (without them a contract cannot
exist)
Consent
Subject matter
Cause or consideration
Form (some contracts)
Delivery (some contracts)
Natural elements (those found in certain contracts and

presumed to exist, unless the contrary has been
stipulated)
Warranty against eviction and against hidden defects in
the contract of sale
Accidental elements (various particular stipulations

that may be agreed upon by the contracting
parties in a contract. They are called accidental
because they may be present or absent,
depending upon whether or not the parties have
agreed upon them)
Stipulation to pay credit
Stipulation to pay interest

Designation of the particular place for delivery or payment
Classification of contracts
Acc to perfection or formation
Consensual (perfected by mere consent; ex. Sale)
Real (perfected by delivery; ex. Depositum,

pledge, commodatum)
Formal or solemn (where special formalities are

essential before the contract may be
perfected; ex. A donation inter vivos of real
property requires for its validity a public
instrument)
Note: Donation is sometimes considered a contract
even if Art. 712 states that a donation is a mode
of transferring
of real rights.
Acc to cause or equivalence of the value of prestations
Onerous- where there is an interchange
equivalent valuable consideration
of
Gratuitous or lucrative- this is FREE, thus one party

receives no equivalent prestation except a feeling
that one has been generous or liberal
Remunerative- (one where one prestation is given
for a benefit or service that had been rendered
previously)
Acc to importance or dependence of one upon another

Principal- contract may stand alone by itself; ex. Sales, lease
Accessory- depends for its existence upon another

contract; ex. Loan; here the principal contract is one
of loan.
Acc to the parties obligated
Unilateral- one of the parties has an oblig;

Commodatum (like the borrowing of a bicycle)
ex.
Bilateral (or synalagmatic)- both parties are required to
render reciprocal prestatioons; ex. Sale

Acc to their name or designation
Nominate- contract is given a particular or special name;

ex. Commodatum, partnership, sale, agency, deposit

Page 60 of 106
Innominate (contraltos innominados)- not given any

special
name; ex. do ut des meaning I give that you
may give
Acc to the risk of fulfilment
Commutativeparties
contemplate
a
real
fulfilment, therefore, equivalent values are
given; ex. Sale, lease
Aleatory- fulfilment is dependent upon chance, thus
the values may vary because of the risk or
chance
Acc to the time of performance of fulfilment

Executed- one contemplated at the time the
contract is entered into, that is, the oblig are
complied with at this time; ex. Sale of property
which has already been delivered, and which
has already been paid for
Executory- one where the prestations are to be
complied with at some future time; ex. A
perfected sale, where the property has not yet
been delivered and where the price has not yet
been given
Acc to subject matter
Contracts involving things (like sale)
Contracts involving rights or credits (provided these

are transmissible, like a contract of usufruct or
assignment of credits)
Contracts involving services (like agency, lease of

services, a contract of common carriage, a contract
of carriage <simple
carriage>)
Acc to obligs imposed and regarded by the law
Ordinary- like sale, the law considers this as an

ordinary contract
Institutional- like the contract of marriage; the law
considers marriage as an inviolable social institution
Acc to the evidence required for its proof

Those requiring merely oral or parol evidence
Those requiring written proof; ex. Contracts enumerated
under the Stature of Frauds

Acc to the number of persons actually and physically
entering into the contracts
Ordinary- where two parties are represented by
different persons; ex. Sale
Auto-contracts- where only one person represents two
opposite parties, but in different capacities; ex. An
agent
representing his principal sells a specific car to

himself, as a buyer
Acc to the number of persons who participated in the
drafting of the contract
Ordinary- (like a ordinary sale)
Contract of adhesion- (like one prepared by a real

estate company for the sale of real estate; or
one prepared by an insurance company)
Acc to the nature of the contract

Personal
Impersonal
Stages of a contract
Preparation (or conception or Generacion)Here the

parties are progressing with their negotiations; they
have not yet arrived at
any definite agreement, although there may

have been a preliminary offer and
bargaining.
o Perfection (or birth)Here the parties have at long
last came to a definite agreement, the elements of
definite subject matter and valid cause have been
accepted by mutual consent.
Consummation (or death or termination)Here the
terms of the contract are performed, and the
contract may be said to have been fully executed.
Parties to a contract
The law speaks of a meeting of minds between two
persons. The meeting of the minds really refers to two
parties. If at the time of supposed perfection, one of
the parties had already previously died, there can be no
meeting of the minds; hence no contract.
Basic principles or characteristics of a contract

Freedom (or liberty) to stipulate (provided not
contrary to law, morals, good customs, public
order, or public policy)
o Obligatory force and compliance in good faith
Perfection by mere consent (consensuality) as a rule
Both parties are mutually bound
Relatively (Generally, it is binding only between the
parties, their assign and heirs)
Co-existence of a contract with a quasi-delict (tort)
The existence of a contract between the parties does
not constitute a bar to the commission of a tort
by one against the other and the consequent
recovery of damages.
Legal effects of a contract

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The legal effects of a contract are determined by

extracting the intention of the parties from the
language they used and from their contemporaneous
and subsequent acts. This principle gains more force
when third parties are concerned. To require such
persons to go beyond what is clearly written in the
document is unfair and unjust. They cannot possibly
delve into the contracting parties minds and suspect
that something is amiss when the language of the
instrument appears clear and unequivocal.
What is pacta sunt servanda?

Art. 1159. Obligations arising from contracts have the
force of law between the contracting parties and should
be complied with in good faith. (1091a)
Latin: "agreements must be kept"
Obligations ex-contractu
o While obligs arising from a contract have the force of
law between the parties, this does not means that
the law is inferior to contracts. This is so because
before a contract can be enforced, it must first be
valid and it cannot be valid if it is against the law.
Moreover, the right of the parties to stipulate is
limited. Hence,
Art. 1306, CC says: the contracting parties may
establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided
they are not contrary to law, morals, good
customs, public order or public policy.
Meaning of the article
o The article means that neither party may unilaterally and
upon his own exclusive volition, escape his obligs
under the contract, unless the other party assented
thereto, or unless for causes sufficient in
law and pronounced adequate by a competent

tribunal.
o Compliance in good faith means that we must not
interpret not by the letter that killeth but by the
spirit that giveth life.
The right to enter into contracts
o The right to enter into lawful contracts constitute one
of the liberties of the people of the State. If that
right be struck down or arbitrarily interfered with, a
substantial impairment of constitutional rights
would result. Nevertheless, in contracts where
public interest is involved the government has a

right to intervene for the protection of the whole.
Differences between an obligation and a contract
o An oblig is the result of a contract. Hence, while a
contract, if valid, always results in obligs, not all obligs
come from contracts. A
contract always presupposes a meeting of the

minds, this is not necessarily true for all kinds of
oblig.
Be it not, however, from another viewpoint that a
contract may itself be the result of an oblig.
The so-called innominate contractsno express name
Do ut desI give that you may give
o Do ut faciasI give that you
may do o Facio ut desI do
that you may give o Facio ut
faciasI do that you may do
Art. 1315. Contracts are perfected by mere consent, and

from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but
also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and
law. (1258)
This article stresses the CONSENSUALITY OF CONTRACTS
(or perfection by mere consent)
How contracts are perfected
o
Consensual contracts- by mere consent (this is the
general rule);
ex. Contract of sale

o Real contracts- perfected by delivery; ex. Deposit
and pledge o Formal or solemn contracts- here a
special form is required for
perfection; ex. A simple donation inter vivos of real
property, to be valid and perfected must be in a
public instrument
Perfection of consensual contracts
o Consensual contracts are perfected from the
moment there is agreement (consent) on the
subject matter and the cause or consideration
Consequences of perfection
o The parties are bound to the fulfilment of what has been
expressly
stipulated and compliance thereof must be in good

faith
o The parties are also bound to all the consequences
which, acc to their nature may be in keeping with
good faith, usage and law.
Ang Yu vs. CA
Facts:
Plaintiffs (Ang Yu) are tenants or lessees of residential and
commercial spaces owned by defendants (Bobby Cu
Unjieng) in Binondo, Manila.

Page 62 of 106
They have occupied said spaces since 1935 and have

been religiously paying the rental and complying with
all the conditions of the lease contract.
Defendants informed plaintiffs that they are offering to sell
the premises and are giving them priority to acquire the
same; that during the negotiations, Bobby Cu Unjieng
offered a price of P6-million while plaintiffs made a
counter offer of P5-million; that plaintiffs thereafter
asked the defendants to put their offer in writing to
which request defendants acceded.
In reply to defendant's letter, plaintiffs wrote them asking
that they specify the terms and conditions of the offer
to sell.
Since defendants failed to specify the terms and conditions
of the offer to sell and because of information received
that defendants were about to sell the property, plaintiffs
were compelled to file the complaint to compel
defendants to sell the property to them.
Defendants filed their answer denying the material allegations
of the complaint and interposing a special defense of lack
of cause of action.
The court dismissed the complaint on the ground that the

parties did not agree upon the terms and conditions of
the proposed sale, hence, there was no contact of sale
at all.
The Cu Unjieng spouses executed a Deed of Sale transferring
the property in question to Buen Realty and Development
Corporation. Buen Realty, as the new owner of the
subject property, wrote to the
lessees demanding the latter to vacate the premises.

In its reply, it stated that Buen Realty and
Development Corporation brought the property
subject to the notice of lis pendens.
Issue: WON there was a perfected contract between Ang Yu
and Cu Unjieng
Held:
Until the contract is perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation.
In sales, particularly, to which the topic for discussion
about the case at bench belongs, the contract is
perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer
ownership of a thing or right to another, called the
buyer, over which the latter agrees.
When the sale is not absolute but conditional, such as in a
"Contract to Sell" where invariably the ownership of the
thing sold is retained until the fulfillment of a positive
suspensive condition (normally, the full payment of the

purchase price), the breach of the condition will
prevent the obligation to convey title from acquiring

an obligatory force.
An unconditional mutual promise to buy and sell, as long as the
object is made determinate and the price is fixed, can be
obligatory on the parties, and compliance therewith may
accordingly be exacted.
An accepted unilateral promise which specifies the thing to

be sold and the price to be paid, when coupled with a
valuable consideration distinct and separate from the
price, is what may properly be termed a perfected
contract of option. This contract is legally binding, and in
sales, it conforms with the second paragraph of Article
1479 of the Civil Code.
Even on the premise that such right of first refusal has been
decreed under a final judgment, like here, its breach
cannot justify correspondingly an issuance of a writ of
execution under a judgment that merely recognizes its
existence, nor would it sanction an action for specific
performance without thereby negating the
indispensable element of consensuality in the
perfection of contracts. 11 It is not to say, however, that
the right of first refusal would be inconsequential for,
such as already intimated above, an unjustified
disregard thereof, given, for instance, the
circumstances expressed in Article 19 of the Civil Code,

can warrant a recovery for damages.
The final judgment, it must be stressed, has merely
accorded a "right of first refusal" in favor of petitioners.
The consequence of such a declaration entails no more
than what has heretofore been said. In fine, if, as it is
here so conveyed to us, petitioners are aggrieved by the
failure of private respondents to honor the right of first
refusal, the remedy is not a writ of execution on the
judgment, since there is none to execute, but an action
for damages in a proper forum for the purpose.
Regino vs. Pangasinan
Facts:
Petitioner Khristine Rea M. Regino was a first year computer
science student at Respondent Pangasinan Colleges of
Science and Technology (PCST). Reared in a poor family,
Regino went to college mainly through the financial
support of her relatives. During the second semester of
school year 2001-2002, she enrolled in logic and
statistics subjects under Respondents Rachelle A.
Gamurot and Elissa Baladad, respectively, as teachers.

Page 63 of 106
Financially strapped and prohibited by her religion from

attending dance parties and celebrations, Regino
refused to pay for the tickets.She was then
disallowed to take the examinations.
Petitioner filed a Complaint for damages against PCST,
Gamurot and Baladad.
RTC dismissed the Complaint for lack of cause of action.
Issue: WON she has a cause of action against PCST
Held:
In Alcuaz v. PSBA, the Court characterized the relationship
between the school and the student as a contract, in
which "a student, once admitted by the school is
considered enrolled for one semester." Two years later,
in Non v. Dames II, the Court modified the "termination
of contract theory" in Alcuaz by holding that the
contractual relationship between the school and the
student is not only semestral in duration, but for the
entire period the latter are expected to complete it."
Except for the variance in the period during which the
contractual relationship is considered to subsist, both
Alcuaz and Non were unanimous in characterizing the
school-student relationship as contractual in nature.
The terms of the school-student contract are defined at the
moment of its inception -- upon enrolment of the
student. Standards of academic performance and the
code of behavior and discipline are usually set forth in
manuals distributed to new students at the start of
every school year. Further, schools inform prospective
enrollees the amount of fees and the terms of payment.
In the present case, PCST imposed the assailed revenueraising measure belatedly, in the middle of the semester.
It exacted the dance party fee as a condition for the
students' taking the final examinations, and ultimately
for its recognition of their ability to finish a course. The
fee, however, was not part of the school-student
contract entered into at the start of the school year.
Hence, it could not be unilaterally imposed to the
prejudice of the enrollees.
Such contract is by no means an ordinary one. In Non, we
stressed that the school-student contract "is imbued
with public interest, considering the high priority given
by the Constitution to education and the grant to the
State of supervisory and regulatory powers over all
educational institutions".
Non vs. Dames

Facts:
Petitioner students of Mabini Colleges were not allowed to
re-enroll because they participated in student mass
actions against their school the preceding semester.
Petitioners continued their rally picketing, even though
without any renewal permit, physically coercing
students not to attend their classes, thereby disrupting
the scheduled classes and depriving a great majority of
students of their right to be present in their classes
The lower court considered that in signing their enrollment
forms, they waived the privilege to be re-enrolled. The
Mabini College reserves the right to deny admission of
students xxx whose activities unduly disrupts or
interfere with the efficient operation of the college xxx.
Judge Dames decision considering these facts said that
what the students assert is a mere privileges not a
legal right. Respondent Mabini College is free to admit
or not to admit the petitioners for re-enrollment in view
of the academic freedom enjoyed by the school.
Issue: WON schools can deny admission to students
on the ground of termination of contract
Held:
In Alcuaz, it was said that enrollment is a written
contract for one semester and contracts are
respected as the law between the contracting
parties. At the end of each semester, the contract is
deemed terminated.
However, this case is not a simple case about a school
refusing re-admission. The refusal to readmit or to reenroll petitioners was decided upon and implemented
by school authorities as a reaction to student mass
actions
Permissible limitations on student exercise of constitutional
rights within the school. Constitutional freedom of free
speech and assembly also are not absolute. However,
imposition of disciplinary sanctions requires observance
of procedural due process and penalty imposed must be
proportionate to the offense committed. (procedural due
process: right to be informed in writing, right to answer
the charges, right to be informed of the charges against
them, right to adduce evidence, and for this evidence to
be duly considered)
The nature of contract between a school and its students is
not an ordinary contract but is imbued with public
interest. The Constitution

Page 64 of 106
allows the State supervisory and regulatory powers

over all educational institutions. According to par 107
and 137 of the respondent schools manual, a student
is enrolled not just for one semester but for the entire
period necessary for the student to complete his/her
course. BP Blg. 232 gives the students the right to
continue their course up to graduation.
School said most of them had failing grades anyway. In
answer students say they are graduating students and if
there are any deficiencies these do not warrant nonreadmission. Also there are more students with sores
deficiencies who are re-admitted. And some of the
petitioners had no failing marks.
The court held that the students were denied due process
in that there was no due investigation. In fact it would
appear from the pleadings that the decision to refuse
them re-enrollment because of failing grades was a
mere afterthought.
Discipline may be warranted but penalty should be
commensurate to the offense committed with due
process.
Dispositive: Petition GRANTED. Orders of RTC ANNULED. Mabini
College ordered to readmit and allow reenrollment of
petitioners, without prejudice to its taking the appropriate
action, if shown that they have failed to satisfy the school's
prescribed academic standards.
What is freedom of contract?
Art. 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.
(1255a)
Principle of Freedom
o The free entrance into contracts generally without
restraint is one of the liberties guaranteed to the
people. However, the constitutional prohibition
against impairment of contractual obligs refers only
to contracts which are not legal, not to void or
inexistent ones.
Limitations on the nature of the
stipulations o The law
o Moral
o Good customs
Public order
Public policy
Limitations imposed by law
The contractual stipulations must not be contrary to
mandatory
and prohibitive laws. Directory and suppletory laws
need not be complied with, since these are either
discretionary or merely supply the omissions of the
parties.
Contracts must respect the law, for the law forms part of
the contract. Indeed the provisions of all laws are
understood to be incorporated in the contract.
Limitations imposed by morals
Morals deal with right and wrong and with human
conscience.
Limitations imposed by good customs
Good customs are those that have received for a period
time practical and social confirmation. Acc to the Code
Commission, good customs and morals overlap each
other; but sometimes they do not.
Limitations imposed by public order
Public order deals with the public weal and includes public
safety.
Limitations imposed by public policy
Public policy, which varies according to the culture of a

particular
country, is the public social and legal interest in
private law. It is said to be the manifest will of a
State.
A contract is contrary to public policy if it has a
tendency to injure the public, is against the public
good or contravenes some established interest of
society or is inconsistent with sound policy and good
morals or tends clearly to undermine the security of
individuals rights.
Designation of the name of a contract
The parties generally may agree on any contract but the
name
that they give to it should not be controlling for a
contract is what the parties intended it to be not
what they call it.
This is because a contract must be judged by its
character, its nature and its legal qualifications. The
courts will therefore look not so much at the form of
the transaction as at its substance.
Section 10, Art. III, 1987 Constitution. No law

impairing the obligation of contracts shall be
passed.

Page 65 of 106
Republic vs. PLDT

Facts:
PLDT contracted an agreement with RCA Communications
for connecting calls to and from RCA to Philippines and
vice versa. Later, the agreement extended to radio and
telephone messages to and from European and Asiatic
countries.
Later, PLDT made known the termination of the agreement,
complying with the 24-month notice agreement.
Created in 1947, the Bureau of Telecommunication set up a
Government telephone system by renting trunk lines
from PLDT. In doing so, the Bureau has agreed to abide
by the rules and regulations of PLDT, which includes the
prohibition for public use that which was furnished for
private use. In 1948, the Bureau extended service to
the general public.
In 1958, after the termination of the contract of RCA and
PLDT, the Bureau entered into an agreement with RCA
for a joint overseas telephone service. PLDT then
complained that the Bureau was violating their
agreement as the latter was using PLDT's trunk lines for
public use and not just private. PLDT then gave notice
that if these actives continued they would be
disconnecting the service. When no reply was received,
PLDT pulled the plug on the Bureau.
The Bureau proposed an interconnecting agreement
but the negotiations failed.
The Bureau prayed for a judgment commanding PLDT to
execute an agreement allowing it to use PLDT's
facilities, as well as a writ of preliminary injunction to
restrain PLDT from severing existing as well as
restoring those already severed.
Lower court directed PLDT to reconnect. PLDT filed its answer
denying any obligation it has to the Bureau, as well as
assailing the jurisdiction of the CFI. PLDT also claimed that
the Bureau was engaged in commercial telephone
operations which was in excess of its authority.
Court then said that it could not compel the parties to enter
into agreement; that under EO 94, establishing the
Bureau, said Bureau is not limited to government services,
nor was it guilty of fraud, abuse,
of misuse of PLDT's poles, as well as declared the
injunction permanent. Complaint was dismissed,
hence this appeal.
Issue: WON the parties could be compelled to enter into a

contract
Held:
The parties cannot be coerced to enter into a contract where

no agreement had between them as to the principal terms
and conditions
of the contract. Freedom to stipulate such terms and

conditions is of the essence of our contractual system,
and by express provision of the statute, a contract may
be annulled if tainted by violence, intimidation or undue
influence.
But the court has apparently overlooked that while the
Republic may not compel the PLDT to celebrate a
contract with it, Republic may, in the exercise of the
sovereign power of eminent domain, require the
telephone company to permit interconnection of the
government telephone system and that of the PLDT, as
the needs of the government service may require,
subject to the payment of just compensation to be
determined by the court.
However, no cogent reason appears why the said power
may not be availed of to impose only a burden upon the
owner of condemned property, without loss of titled and
possession. The beneficiary of the interconnecting
service would be the users of both telephone systems,
so that the condemnation would be for public use.
Dispositive: Decision of CFI AFFIRMED except in so far as it
dismisses the petition of the Republic to compel the PLDT to
continue servicing the Government telephone system upon

such terms, and for a compensation.
Ollendorf vs. Abrahamson

Facts:
Plaintiff Ollendorf and defendant Abrahamson made and
entered into Contract of Agreement. The first part
hereby agrees to employ the defendant and the party of
the second obliges himself to work for the plaintiff
within the period of two years.
Defendant obligates and binds himself to devote his entire
time, attention, energies and industry on the promotion
of the furtherance of the business and interest of the
party. Failure on the said duty shall entitle the plaintiff
to discharge and dismiss the defendant.
The second part of the contract further binds the party that
he will not enter whether directly or indirectly to engage
in a similar or competitive business.
Under the term of this agreement, the plaintiff left the
employment due to illness and went to U.S.
Some months after his departure for the US, defendant
returns to Manila as the Manager of the Philippine
Underwear Company. Defendant admits that both firms
turn out the same class of goods

Page 66 of 106
and those they are exported to the same market. The

only difference between the two companies is the
method of doing the finishing work- the manufacture of
the embroidered material into finished garments.
Ollendorf commenced the action to prevent, by injunction, any
further breach of that part of defendant's contract of
employment by plaintiff.
Lower court granted a preliminary injunction.

Issue: WON the contract of employment is void
Held:
A contract by which an employee agrees to refrain for a
given length of time after the expiration of the term of
his employment, from engaging in a business
competitive with that of his employer is not void as
being restraint of trade, if the restraint imposed is no
greater in restraint imposed is no greater than that
which is necessary to afford a reasonable protection to
the employer.
The only limitation upon the freedom of contractual
agreement is that the pacts established shall not be
contrary to law, morals, or public order. The industry of
counsel has failed to discover any direct expression of
the legislative will which prohibits such a contract as
that before us. It certainly is not contrary to any moral
precept.
The validity of restraints upon trade or employment is to be
determined by the intrinsic reasonableness of the
restrictions in each case, rather than by any fixed rule,
and that such restrictions may be upheld when not
contrary to the public welfare and not greater than is
necessary to afford a fair and reasonable protection to
the party in whose favor it is imposed.
The restraint imposed upon defendant by his contract is
not unreasonable. The public policy which allows a
person to obtain employment on certain terms
understood by and agreed to by him, and to repudiate
his contract, conflicts with and must, to avail the
defendant, for some sufficient reason, prevail over,
the manifest public policy, which as a rule holds to his
bond.
Star Paper vs. Simbol

Facts:
Respondents Simbol, Comia and Estrella were all regular
employees of the company.
Simbol met Alma, also an employee of the company. When

they got married, Simbol resigned pursuant to the
company policy of the ban of spouses working in the
same company.
Comia also resigned after being advised of the policy.
Estrella got herself pregnant by Zuniga, a co-worker who
was married. She opted to resign from the company.
The respondents each signed a Release and Confirmation
Agreement. They stated that they have no money and
property accountabilities in the company and that they
release the latter of any claim or demand of whatever.
Respondents offer a different version of their dismissal.
Simbol and Comia allege that they did not resign
voluntarily; they were compelled to resign in view of an
illegal company policy.
Estrella alleged that Zuniga misrepresented himself himself
as a married but separated man. After she got pregnant,
she discovered that he was not separated. She then
severed her relationship with him to avoid dismissal.
She met an accident which required her to recuperate
for 21 days. When she returned to work, she was denied
entry. She was directed to proceed to the personnel
office where one of the staff handed her a memorandum
stating that she is dismissed for immoral conduct.
Respondents filed a complaint for unfair labor practice,
constructive dismissal, separation pay and attorney's
fees.
The labor arbiter dismissed the complaint for lack of merit.
NLRC affirned the decision.
CA reversed decision of NLRC.
Issue: WON the policy of the employer banning spouses
from working in the same company violates the rights of the
employee
Held:
The policy of petitioners prohibiting close relatives from
working in the same company takes the nature of an
anti-nepotism employment policy.
Unlike in our jurisdiction where there is no express
prohibition on marital discrimination, there are 20
statutes in the US prohibiting marital discrimination.
In other statutes, they rule that unless the employer
can prove that the reasonable demands of the
business require a distinction based on marital status
and there is no better available or acceptable policy
which would better accomplish the business purpose,
an employer may not discriminate against an

Page 67 of 106
employee based on the identity of the employer's

spouse. This is known as the bonafide qualification
exception.
We do not find a reasonable business necessity in the case
at bar. Petitioners' sole contention that the company did
not just want to have two or more of its employee
related between the third degree by
affinity/consanguinity is lame. It is significant to note
that respondents were hired after they were found fit for
the job, but were asked to resign when they married a
co-employee. Petitioners failed to establish that the
marriage of its employees could be detrimental to its
business operations.
The failure of petitioners to prove a legitimate business
concern in imposing the questioned policy cannot
prejudice the employee's right to be free from arbitrary
discrimination based upon stereotypes of married
persons working together in one company.
The absence of a statute expressly prohibiting marital
discrimination in our jurisdiction cannot benefit the
petitioners. The protection given to labor in our
jurisdiction is vast and extensive that we cannot
prudently draw inferences from the legislature's silence
that married persons are not protected under our
Constitution and declare valid a policy based on a
prejudice or stereotype.
Heirs of Espiritu vs. Landrito
Facts:
Spouses Landrito loan from Spouses Espiritu the amount of
P350,000 payable in 3 month. To secure the loan, the
spouses Landrito executed a mortgage over a lot in
favor Spouses Espiritu. From the P350,000 that the
Landritos were supposed to receive P17,500 was
deducted as interest for the first month which was
equivalent to 5% of the principal debt and P7,500 was
further deducted as service fee.
After three months, when the debt became due and
demandable, the Spouses Landritos were unable to pay
the principal and had not been able to make any
interest payments other than the amount initially
deducted from the proceeds of the loan.
The loan agreement was extended and was restructured in
such a way that the unpaid interest became part of the
principal, thus increasing the principal to P385,000.
Due to the continued inability of the Spouses Landritos to
settle their obligations with the Spouses Espiritu, the
loan was renewed, three more times until the principal

reached P874,125.
The debt remained unpaid and as a consequence the

Spouses Espiritu foreclosed the mortgaged property.
During the auction sale, the property was sold to the
Spouses Espiritu as the lone bidder.
The Spouses Landrito failed to redeem the property
although they alleged that they negotiated for the
redemption of the property. While the negotiated price
for the land started at P1,595,392, it was allegedly
increased by the Spouses Espiritu from time to time.
Spouses Espiritu increased the amount demanded to
P2.5M and gave them until July, 1992 to pay said
amount. However, they found out that on June 24, 1992,
the spouses Espiritu had already executed an Affidavit of
Consolidation of Ownership and registered the mortgged
property in their name and that the TCT was already
issued in the name of Spouses Espiritu.
Spouses Landrito, represented by their son Zoilo Landrito,
filed an action for annulment or reconveyance of title
with damages against Spouses Espiritu.
Trial court dismissed the complaint and upheld the
validity of the foreclosure sale.
CA reversed the decision. Hence, this instant petition.
Issue: WON the interest rates imposed are unreasonable
Held:
The real Estate Mortgage executed between the parties
specified that the "principal indebtedness shall earn
interest at a legal rate". The agreement contained no
other provision on interest or any fees or charges
incident to the debt. The total interest and charges
amounting to P559,125 on the original principal of
P350,000 was accumulated two years and one month.
The records fail to show any computation on how much
interest was charged and what other fees were imposed.
Not only did lack of transparency that characterized the
agreements, the interest rates and the service charged
imposed, at an average 6.39% per month are excessive.
The omission of the Spouses Espiritu in specifying in the
contract the interest rate which was actually imposed,
in contravention of the law, manifested bad faith.
Stipulation authorizing iniquitous or unconscionable
interests are contrary to morals if not against the law.
The debt due is to be considered without the
stipulation of the excessive interest. A legal interest
of 12% per annum will be added in place of the
excessive interest formerly imposed.

Page 68 of 106
Since the Spouses Landrito, the debtors, were not given an

opportunity to settle their debt, at the correct amount
and without the iniquitous interest imposed, no
foreclosure proceedings may be instituted. The
foreclosure sale conducted upon their failure to pay
should be nullified since the amount demanded was
overstated.
Macalinao vs. BPI

Facts:
Macalinao was an approved cardholder of BPI Mastercard.
She made some purchases through the use of the said
credit card and defaulted in paying for said purchases.
She subsequently received a demand letter from BPI.
Under the Terms and Conditions Governing the Issuance and
Use of the BPI Credit and BPI Mastercard, the charges or
balance remaining unpaid after the payment due date
indicated on the monthly Statement of Accounts shall bear
interest at the rate of 3% per month and an additional
penalty fee equivalent to another 3% per month.
For failure of Macalinao to settle her obligations, BPI filed

with the MeTC a complaint for a sum of money against
her and her husband. In said complaint, BPI prayed for
the payment of the amount of P154,608.78 plus 3.25%
finance charges and late payment charges equivalent to
6% of the amount due.
For failure to file their answer, MeTC ruled in favor of BPI.
Macalinao appealed in the RTC which affirmed the
decision. CA also affirmed, hence this petition.
Issue: WON the stipulated interest rate was unscionable, and
iniquitous
Held:
In its complaint, BPI originally imposed the interest and
penalty charges at the rate of 9.25% per month or
111% per annum. This was declared unconscionable by
the lower courts for being clearly excessive and was
thus reduced to 2% per month or 24% per annum. CA
modified to 3% per month and 36% per annum.
The interest rate and penalty charge of 3% per month
should be equitably reduced to 2% per annum.
Even if the Terms and Conditions contain the stipulated 3%
interest rate, such stipulation is void for being contrary
to morals, if not against the law. Since the stipulation on
the interest rate is void, it is as if there was no express
contract. Hence, the court may reduce the interest as

reason and equity demand.
The records would reveal that Macalinao made partial

payments to BPI, in addition to the unconscionable
interest rate. Under these circumstances, the Court
finds it equitable to reduce the interest rate in line with
the prevailing jurisprudence and in accordance with
Art. 1229 of the Civil Code.
What are the kinds of contracts?
Art. 1307. Innominate contracts shall be regulated by
the stipulations of the parties, by the provisions of
Titles I and II of this Book, by the rules governing the
most analogous nominate contracts, and by the customs
of the place. (n)
Nominate
Innominateno express name
o Governing rules for innominate contracts
Stipulations
Titles I and II of Book IV- Obligations and Contracts

Rules on the most analogous nominate contracts
Customs of the place
4 kinds of innominate contracts
Do ut des (I give that you may give)

Do ut facias (I give that you may do)
Facio ut des (I do that you may give)
Facio ut facias (I do that you may do)
Consensual
law. (1258)
This article stresses the CONSENSUALITY OF
CONTRACTS (or perfection by mere consent)
How contracts are perfected
o
Consensual contracts- by mere consent (this is the

general rule); ex. Contract of sale
Real contracts- perfected by delivery; ex. Deposit and pledge
Formal or solemn contracts- here a special form is

required for perfection; ex. A simple donation inter
vivos of real
Page 69 of 106
For validity- this is true in formal or solemn contracts

property, to be valid and perfected must
be in a public instrument
Perfection of consensual contracts
Consensual contracts are perfected from the moment
there is agreement (consent) on the subject matter
and the cause or
consideration
Consequences of perfection
The parties are bound to the fulfilment of what has

been expressly stipulated and compliance thereof
must be in good faith
The parties are also bound to all the consequences
which, acc to their nature may be in keeping with
good faith, usage and law.
Art. 1475. The contract of sale is perfected at the

moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law
governing the form of contracts. (1450a)
Solemn
Art. 1356. Contracts shall be obligatory, in whatever
form they may have been entered into, provided all the
essential requisites for their validity are present.
However, when the law requires that a contract be in
some form in order that it may be valid or enforceable,
or that a contract be proved in a certain way, that
requirement is absolute and indispensable. In such
cases, the right of the parties stated in the following
article cannot be exercised. (1278a)
Generally, form is not required- It is enough that there
be consent, subject matter, and cause. This rule
applies however to consensual contracts.
Formal contracts (Solemn contracts) require a

certain specified form, in addition to consent,
subject matter and cause. Ex. Donation must be
in a public instrument
Real contracts require delivery to be valid as a real
contract even as between the parties, in addition
to consent, subject matter and cause.
For enforceability- this is true for the agreements

enumerated under the Statute of Frauds, but of
course this requirement may be waived by
acceptance of benefits (partial) or by failure to
object to the presentation of oral (parol) evidence.
For convenience- this is true for the contracts enumerated
for example under Art. 1385, CC.
Example of formal contracts

If the form is not complied with, Art. 1457
cannot be availed of.
Donations of real property- require a public instrument
Donations of personal property- require a written contract

or document if the donation exceeds P500
Stipulation to pay interest on loans, interest for the use of
the money- must be in writing
Transfer of large cattle- requires the transfer of the
certificate of registration
Sale of land thru an agent- authority of the agent must
be in writing
Contracts of antichresis- principal loan and interest if
any must be specified in writing
Art. 1357. If the law requires a document or other

special form, as in the acts and contracts enumerated in
the following article, the contracting parties may compel
each other to observe that form, once the contract has
been
perfected.
This
right
may
be
exercised
simultaneously with the action upon the contract.
(1279a)
Right of one party to compel the other to execute the
necessary form
The article applies only when form is needed only
for
convenience,
not
for
validity
or
enforceability
In other words, before the contracting parties may be

compelled to execute the needed form, it is
essential that the contract be:
Perfected
Enforceable under the State of Frauds
Art. 1358. The following must appear in a public

document:
When form is important

Page 70 of 106
Acts and contracts which have for their object the

creation, transmission, modification or extinguishment
of real rights over immovable property; sales of real
property or of an interest therein a governed by Articles
1403, No. 2, and 1405;
The cession, repudiation or renunciation of hereditary
rights or of those of the conjugal partnership of gains;
The power to administer property, or any other power
which has for its object an act appearing or which should
appear in a public document, or should prejudice a third
person;
The cession of actions or rights proceeding from an act
appearing in a public document.
All other contracts where the amount involved exceeds
five hundred pesos must appear in writing, even a
private one. But sales of goods, chattels or things in
action are governed by Articles, 1403, No. 2 and 1405.
(1280a)
Form for convenience
The necessity for the public document in the contract
enumerated here is only for convenience, not for
its validity or enforceability.
Formal requirements are for the benefit of 3rd

parties. Non-compliance does not adversely
affect the validity of the contract not the
contractual rights and obligs of the parties.

(609a)
Art. 1403. The following contracts are unenforceable,
unless they are ratified:
(2) Those that do not comply with the Statute of Frauds
as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a
secondary evidence of its contents:
(a) An agreement that by its terms is not to be
performed within a year from the making thereof;
A special promise to answer for the debt, default,

or miscarriage
of another;
An agreement made in consideration of marriage,
other than a
mutual promise to
marry;
(d) An agreement for the sale of goods, chattels or
things in action, at
a price not less than
five
pesos, unless
hundred
the
buyer accept and receive part of such
chattels,
goods and
or the evidences, or some of them, of such things in
action or pay at the
time some part of the purchase money; but when a sale
is
made by auction and
entry is made by the auctioneer
in
his sales book, at the time of the sale, of
amount
the
and kind of property sold, terms of sale, price, names of
the purchasers
and person on whose account the sale is
made, it is a sufficient memorandum;
(e) An agreement of the leasing for a longer
period than one year, or for the sale of real property or
of an interest therein;
(f) A representation as to the credit of a third
person.
The Statute of Frauds
Purpose- to prevent fraud and not to encourage the
same. Thus, certain agreements are required to be
in writing so that they may be enforced.
How the Statue of Frauds prevents fraud
Since memory is many times unreliable, oral

agreements may sometimes result in injustice.
To aid human memory, to prevent the
commission of injustices due to faulty memory,
to discourage intentional misrepresentations,
are the principal aims of the Statute of Frauds.
Some basic and fundamental principles concerning the
Statue of Frauds (General Rules of Application)
The Statute of Frauds applies only to executory

contracts (contracts where no performance has
yet been made) and not partially or completely
executed (consummated contracts). If oral
evidence will not be allowed to prove an

agreement where one party has performed his
oblig, unfairness would result. Indeed, oral or
parol evidence may be introduced to prove
partial performance. If documentary or written

evidence would still be required for the proof of
partial performance, the precise evil sought to
be avoided by the Statute of Frauds would be

Page 71 of 106
present, namely one who has received some

benefits would be allowed to defraud the
grantor thereof.
The Statute of Frauds cannot apply if the action is
neither for damages because of the violation of
an agreement nor for the specific performance
of said agreement.
The Statute of Frauds is exclusive, that is, it
applies only to the agreements or contracts
enumerated therein.
The defense of the Statute of Frauds may be

waived.
The Statute of Frauds is a personal defense, that
is, a contract infringing it cannot be assailed
by 3rd persons.
Contracts infringing the Statute of Frauds are

not void; they are merely unenforceable.
The Statute of Frauds is a Rule of Exclusion, i.e.,
oral evidence might be relevant to the
agreements enumerated therein and might
therefore be admissible were it not for the
fact that the law or the statute excludes
said oral evidence.
The Statute of Frauds does not determine the
credibility or weight of evidence. It merely
concerns itself with the admissibility thereof.
The Statute of Frauds does not apply if it is
claimed that the contract does not express
the true agreement of the parties. As long as
the rule or real agreement is not covered by
the Statute of Frauds, it is proved by oral
evidence.
Express trust concerning real property
It will be observed that while the Statute of

Frauds makes no mention of it, still under Art.
1443, no express trusts concerning an
immovable or any interest therein may be
proved by parol (oral) evidence. Hence, we
can safely conclude that the Statute of Frauds
also applies to such express (conventional)
trust.
Meaning of formal requirements of sufficient memorandum
Our SC has held that no particular form of language

or instrument is necessary to constitute a
memorandum or note in writing under the
Statute of Frauds; any document or writing
under the contract or for another purpose,
which complies with all the statutory
requirements of the statute as to contents and signature,

may be considered as sufficient memorandum or note.
Thus, the memorandum may be

written in pencil or in ink; it may
be filled in or in printed form. It
does not have to be contained in a
single instrument, nor, when
contained in two or more papers,
need each paper be sufficient as
to contents and signature to
satisfy the Statute. If there are two
or more writings which are
properly connected, they may be
considered together; omissions in
one may be supplied or clarified
by the other, and their sufficiency
will depend as to WON when
construed together, they are able
to satisfy the requirement of the
Statute of Frauds as to signature.
Rule on authority of the agent to sell land
or any interest therein
the latter shall be in writing; otw, the sale

shall be void (not unenforceable).
Oral promise to put in writing
An oral promise to put in writing an agreement

that is covered by the Statute is itself
unenforceable.
The 3rd kind of unenforceable contract
The 3rd kind of unenforceable contract is one

where both parties are incapacitated to give
consent.
Real
Art. 1316. Real contracts, such as deposit, pledge and
Commodatum, are not perfected until the delivery of the
object of the obligation. (n)
Perfection of real contracts
Real contracts require consent, subject matter, cause
or consideration and DELIVERY.
Real contracts referred to are

Deposit
Under the CC, when a sale of a piece

of land or any interest therein is
through an agent, the authority of
Pledge
Commodatum- a loan where the identical object must be
returned.
Future real contracts as consensual contracts

Page 72 of 106
A contract to make a deposit, to make a pledge, or to

make a
commodatum is a consensual contract. After

delivery, the contract becomes a real contract.
The contract of carriage
The contract to carry (at some future time) is
consensual and is perfected by mere consent.
The contract of carriage is a real contract, for not until

the carrier is actually used can we consider the
contract perfected, that is, til the moment of
actual use, the carrier cannot be said to have
already assumed the oblig of a carrier.
Art. 1962. A deposit is constituted from the moment a

person receives a thing belonging to another, with the
obligation of safely keeping it and of returning the
same. If the safekeeping of the thing delivered is not the
principal purpose of the contract, there is no deposit but
some other contract. (1758a)
Art. 1963. An agreement to constitute a deposit is
binding, but the deposit itself is not perfected until the
delivery of the thing. (n)
Art. 2085. The following requisites are essential to the
contracts of pledge and mortgage:
That they be constituted to secure the fulfillment of a
principal obligation;
That the pledgor or mortgagor be the absolute owner of
the thing pledged or mortgaged;
That the persons constituting the pledge or mortgage
have the free disposal of their property, and in the
absence thereof, that they be legally authorized for the
purpose.
Third persons who are not parties to the principal
obligation may secure the latter by pledging or
mortgaging their own property. (1857)
Art. 2087. It is also of the essence of these contracts
that when the principal obligation becomes due, the
things in which the pledge or mortgage consists may be
alienated for the payment to the creditor. (1858)
Art. 2088. The creditor cannot appropriate the things
given by way of pledge or mortgage, or dispose of them.
Any stipulation to the contrary is null and void. (1859a)
Art. 2093. In addition to the requisites prescribed in

Article 2085, it is necessary, in order to constitute the
contract of pledge, that the thing
pledged be placed in the possession of the creditor, or of

a third person by common agreement. (1863)
Art. 1934. An accepted promise to deliver something by
way of commodatum or simple loan is binding upon
parties, but the commodatum or simple loan itself shall
not be perfected until the delivery of the object of the
contract. (n)
Art. 1935. The bailee in commodatum acquires the used
of the thing loaned but not its fruits; if any
compensation is to be paid by him who acquires the use,
the contract ceases to be a commodatum. (1941a)
Ang Yu, supra
BPI Investment Corporation vs. CA
Facts:
Frank Roa obtained a loan from Ayala Investment and
Development Corporation (AIDC), predecessor of BPIIC
for the construction of a house. Said house and lot were

mortgaged to AIDC to secure the loan.
Roa sold the house and lot to private respondents ALS and
Litonjua for P850,000. They paid P350,000 in cash and
assumed the P500,000 balance of Roa's indebtedness
with AIDC. The latter, however was not willing to extend
the old interest rate to private respondents and
proposed to grant them a new loan.
On March 1981, private respondents executed a
mortgage deed containing the AIDC stipulations.
ALS and Litonjua updated Roa's arrearages by paying BPIIC
reducing ROA's principal balance to P457,204 which, in
turn, was liquidated when BPIIC applied thereto the
proceeds of private respondents' loan of P500,000.
On September 13, 1982, BPIIC released to private
respondents P7,146.87, purporting to be what was
left of their loan after full payment of Roa's loan.
BPIIC instituted foreclosure proceedings against private
respondents on the ground that they failed to pay
mortgages indebtedness.
ALS and Litonjua filed civil case against BPIIC maintaining

that they should not be made to pay the amortization
before the actual release of the P500,000 loan in
August and September 1982.
Lower court rendered judgment in favor of ALS and Litonjua.

Page 73 of 106
CA affirmed decision, hence this

petition. Issue: WON a contract of loan is a
consensual contract
Held:
A loan contract is not a consensual contract but a real
contract. It is perfected only upon the delivery of the
object of the contract.
A perfected consensual contract can give rise to an action
for damages. However, said contract does not constitute
the real contract of loan which requires the delivery of
the object of the contract for its perfection and which
gives rise to obligations only on the part of the borrower.
In the case, the loan contract between BPI and ALS &
Litonjua was perfected only on Sept. 1982, the date of
the second release of the loan. Following the intentions
of the parties on the commencement of the monthly
amortization private respondents' obligation to pay
commenced only on Oct. 13, 1982, a month after the
perfection of the contract.
What is the principle of mutuality?

Art. 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the
will of one of them. (1256a)
Mutuality of contracts
o Both parties are bound. The principle is based on
the essential equality of the parties. It is
repugnant to bind one party and yet leave the
other free.
Consequences of mutuality
o A party cannot revoke or renounce a contract without the
consent of the other, nor can it have it set aside on the
ground that he had
made a bad bargain.

o When the fulfilment of the condition depends upon
the sole will of the debtor, the conditional oblig is
void if the condition is suspensive. If resolutory, the
oblig is valid. Hence, it is all right for the contract to
expressly give to one party the right to cancel the
same. This is because when the contract is thus
cancelled, the agreement is really being fulfilled.
The decision binds the parties only after it is made known to

both.
Effect of stipulation regarding arbitration
o If in a contract, there is a stipulation for arbitration
and one party, in case of dispute, refuses to submit
the matter to arbitration, the aggrieved party whose
goes to court to request it to order the other party to
submit the matter to arbitration, should not
anymore present to the court the merits of the
disputed matters. The decision on said merits will be
up to the arbitrator. The only function of the Court in
this case would be to decide WON the parties should
proceed to arbitration.
Art. 1182. When the fulfillment of the condition depends
upon the sole will of the debtor, the conditional
obligation shall be void. If it depends upon chance or
upon the will of a third person, the obligation shall take
effect in conformity with the provisions of this Code.
(1115)
Art. 1309. The determination of the performance may be
left to a third person, whose decision shall not be
binding until it has been made known to both
contracting parties. (n)
Who can demand enforcement of contract?

Art. 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are
not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value
of the property he received from the decedent.
If a contract should contain some stipulation in favor of
a third person, he may demand its fulfillment provided
he communicated his acceptance to the obligor before
its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a
third person. (1257a)
Principle of relativity
o Contracts are generally effective only between the
parties, their assigns and their heirs.
Exceptions to the principle of relativity (refer to Paras p576583)
o
Where the oblig arising from the contract are not
transmissible by
their nature, by stipulation or by provision of law.
o Where there is a stipulation pour autrui (a stipulation
in favour of
a third party)
o
Where a 3rd person induces another to violate his
contract.

Page 74 of 106
Where, in some cases, 3rd persons may be adversely

affected by a contract where they did not
participate.
Where the law authorizes the creditor to sue on a
contract entered into by his debtor.
Discussion of the general rule
Contracts take effect only between the parties, their
assigns and
o
heirs and therefore, generally, its terms cannot

determine the rights of 3rd persons. The revocation, for
example of a deed of sale is not conclusive on those
individuals who are parties thereto. However, a person
who takes advantage of a contract, although he
is not a signatory thereto, can properly be bound by

the terms thereof. He cannot take advantage of a
contract when it suits him to do so and reject its
provision when he thinks otw.
o
Reasons for the rule Res inter alios acta aliis

neque nocet prodest. (The act, declaration or
omission of another, cannot affect another, except
as otw provided by law or agreement).
Strangers, thereof, cannot generally demand the

enforcement of a contract.
Heirs are bound to respect the contracts entered into
by their predecessors in interest in view of their
privity of interest with such predecessor.
He must be a compulsory or forced heir for the
simple reason that the deceased could do with
the property whatever he desired as long as he
respects the rights of his compulsory heirs.
o
Can 3rd parties have personality to assail a contract?

Art. 1313. Creditors are protected in cases of contracts
intended to defraud them. (n)
This article represents another instance when an
outsider can in a sense interfere with anothers
contract.
What is a stipulation pour autrui?
Art. 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are
not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value
of the property he received from the decedent.
If a contract should contain some stipulation in favor of

a third person, he may demand its fulfillment provided
he communicated his acceptance to the obligor before
its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a
third person. (1257a)
Mandarin Villa vs. CA
Facts:
Clodualdo de Jesus, a practicing lawyer and businessman,
hosted a dinner for his friends at the petitioner's
restaurant the Mandarin Villa Seafoods Village.
After dinner the waiter handed to him the bill in the
amount of P2,658.50.
Private respondent offered to pay the bill through his credit
card issued by BANKARD. This card was accepted by the
waiter who immediately proceeded to the restaurant's
cashier for card verification. Ten minutes later, however,
the waiter returned and audibly informed private
respondent that his credit card had expired.
Private respondent remonstrated that said credit card

had yet to expire on September 1990, as embossed
on its face.
Private respondent and two of his guests approached the
restaurant's cashier who again passed the credit card
over the verification computer. The same information
was produced, i.e., CARD EXPIRED. Private respondent
and his guests returned to their table and at this
juncture, Professor Lirag, another guest, uttered the
following remarks: "Clody, may problema ba? Baka
kailangang maghugas na kami ng pinggan?"
Private respondent left the restaurant and got his BPI
Express Credit Card from his car and offered it to pay
their bill. This was accepted and honored by the cashier
after verification.
De Jesus filed a suit for damages.
Lower Court renderd decision directing Mandarin Villa and
BANKARD to pay jointly and severally.
Mandarin villa can be faulted for it's cashier's refusal to
accept de Jesus' BANKARD credit card. Mandarin Villa is
affiliated with BANKARD as shown in the Agreement entered
into by petitioner and BANKARD.
Upon appeal, CA found Mandarin solely responsible for damages.
Issue: WON de Jesus is entitled for damages
Held:

Page 75 of 106
conferred a favor upon the private respondent, a holder

of the credit card. This stipulation is a stipulation pour
autrui. Respondent may demand its fulfillment provided
his acceptance to the petitioner before its revocation.
Private respondent's offer to pay by means of BANKARD
credit card constitutes not only an acceptance but also
an explicit communication of his acceptance to the
obligor.
Also, the record shows that petitioner posted a logo inside
Mandarin Seafood Village stating that "Bankard is
accepted". This representation is conclusive upon the
petitioner which it cannot deny or disprove as against
the private respondent, the party relying thereon.
Petitioner, therefore, cannot disclaim its obligation to
accept private respondent's BANKARD credit card
without violating the equitable principle of estoppel.
Uy vs. CA
Facts:
Petitioners William Uy and Rodel Roxas are agents
authorized to sell 8 parcels of land by the owners. They
offered to sell the lands to National Housing Authority to
be utilized and developed as a housing project.
NHA Board passed Resolution No. 1632 approving
acquisition of said lands. The parties executed a series of
Deeds of Absolute Sale. Of the 8 parcels of lands, only 5
were paid for by the NHA because of a report by DENR
that the remaining area is not suitable for a housing
project.
NHA issued another resolution cancelling the sale over the 3
parcels of land.
Petitioners filed before RTC a Complaint for Damages
against NHA and its General Manager Balao.
RTC rendered a decision declaring the cancellation of the
contract to be justified.
CA reversed decision.
Issue: WON the agents are real parties-in-interest
Petitioners are not parties to the contract of sale between

their principals and NHA. They are mere agents of the
owners of the land subject of the sale. As agents, they
only render some service or do something in
representation or on behalf of their principals. The
rendering of such service did not make them parties to the
While private respondent may not be a party to the

agreement, a stipulation in the said agreement
Held:
of sale executed in behalf of the latter. Since a contract

may be violated only by the parties thereto as against
each other, the real parties-in-interest, either as plaintiff
or defendant, in an action upon that contract must,
generally, either be parties to said contract.
Also, petitioners have not shown that they are assignees of

their principals to the subject contracts. While they
alleged that they made advances and that they suffered
loss of commissions, they have not established any
agreement granting them the right to receive payment
and out of the proceeds to reimburse for advances and
commissions before turning the balance over to the
principals.
It does not appear that petitioners are beneficiaries of a
stipulation pour autrui under the second paragraph of
Article 1311 of the Civil Code. Indeed, there is no
stipulation in any of the Deeds of Absolute Sale clearly
and deliberately conferring a favor to any third person.
The fact that an agent who makes a contract for his
principal will gain or suffer loss by the performance or
nonperformance of the contract by the principal or by
the other party thereto does not entitle him to maintain
an action on his own behalf against the other party for
its breach. An agent entitled to receive a commission
from his principal upon the performance of a contract

which he has made on his principals account does not,
from this fact alone, have any claim against the other
party for breach of the contract, either in an action on
the contract or otherwise. An agent who is not a
promisee cannot maintain an action at law against a
purchaser merely because he is entitled to have his
compensation or advances paid out of the purchase
price before payment to the principal.
As petitioners are not parties, heirs, assignees, or beneficiaries
of a stipulation pour autrui under the contracts of sale, they
do not, under substantive law, possess the right they seek
to enforce. Therefore, they are not the real parties-ininterest in this case. Petitioners not being the real partiesin-interest, any decision rendered herein would be pointless
since the same would not bind the real parties-in-interest.
Baluyot vs. CA
Facts:
Petitioners Timoteo Baluyot, Jaime Benito, Benigno Eugenio,
Rolando Gonzales, and Fortunato Fulgencio are residents
of Barangay Cruz-na-Ligas and members of The Cruz-naLigas Homesite Association, Inc.

Page 76 of 106
On March 13, 1992, petitioners filed a complaint for specific

performance and damages against private respondent
University of the Philippines before the RTC. The complaint
was later on amended to include private respondent
Quezon City government as defendant.
Plaintiffs and their ascendants have been in open,

peaceful, adverse and continuous possession in the
concept of an owner since memory can no longer recall
of that parcel of riceland known as Sitio Libis, Barrio
Cruz-na-Ligas.
In 1979, the UP Board of Regents approved the donation of
about 9.2 ha directly to the residents of Brgy. Krus na
Ligas. Despite the willingness of UP to proceed with the
donation, execution of the legal instrument to formalize
it failed because of the unreasonbale demand of the
residents for an area bigger than 15.8 ha.
UP backed-out from the arrangement to donate directly to
the Association, instead it resumed to negotiate the
donation thru Quezon City Government.
QC Government immediately prepared the groundworks,
however, UP under President Abueva had failed to
deliver the certificate of title covering the property to
the donated to enable QC Government to register the
said Deed of Donation so that corresponding of title be
issued under its name.
UP continuously refused despite requests from the QC
Government.
Upon expiration of the period of 18 months, UP through
Pres. Abueva issued Administrative Order No. 21
declaring the deed of donation revoked and the
donated property be reverted to UP.
Trial Court ruled that petitioners did not have a cause of
action for specific performance on the ground that
the deed of donation had already been revoked.
Upon appeal, CA ordered the dismissal of the civil case.
Issue: WON the petitioners have a cause of action
Held:
While, admittedly, petitioners were not parties to the deed
of donation, they anchor their right to seek its
enforcement upon their allegation that they are
intended beneficiaries of the donation to the Quezon
City government. Art. 1311, second paragraph, of the
Civil Code.
If a contract should contain some stipulation in favor of a
third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a

person is not sufficient. The contracting parties
must have clearly and deliberately conferred a favor

upon a third person. Specific paragraphs of the
complaint are sufficient to bring petitioners action
based on Art. 1311.
The contention of the respondents, based on the finding of
the trial court, that the donation has already been
revoked has no merit. The trial court's ruling on this
point was made in connection with petitioners'
application for a writ of preliminary injunction to stop
respondent from ejecting petitioners. The trial court
denied injunction on the ground that the donation had
already been revoked and therefore petitioners had no
clear right to be protected. It is evident that the trial
court's ruling on this question was only tentative,
without prejudice to the final resolution of the question
after the presentation by the parties of their evidence.
Dispositive: Reviewed decision REVERSED and
REMANDED to trial court for trial on the merits.
the
case
Can a contract create a real right?

Art. 1312. In contracts creating real rights, third persons
who come into possession of the object of the contract
are bound thereby, subject to the provisions of the

Mortgage Law and the Land Registration Laws. (n)
This article constitutes one of the exceptions to the general
rule that a contract binds only the parties.
A real right binds the property over which it is exercised.
(609a)
Art. 415. The following are immovable property:
(10) Contracts for public works, and servitudes and
other real rights over immovable property. (334a)
What is tortuous interference?
Art. 1314. Any third person who induces another to
violate his contract shall be liable for damages to the
other contracting party. (n)

Page 77 of 106
Rule if contract is violated thru inducement of 3rd person

o This article gives an instance when a stranger to a
contract can be sued in view of his unwarranted
interference. Whoever is injured may properly sue for
damages.
Gilchrist vs. Cuddy
Facts:
Cuddy was the owner of the film Zigomar. He rented it to
Gilchrist for a week for P125.
A few days prior to this, Cuddy sent the money back to
Gilchrist saying that he had made other arrangements
with his film. The other arrangement was the rental to
Espejo and his partner for P350 for the week and the
injunction was asked by Gilchrist against these parties.
The Court issued mandatory injunction ordering Cuddy to
deliver the film to Gilchrist and an ex parte preliminary
injunction restraining
Espejo and partner from receiving and exhibiting

film until further orders from the court.
Issue: WON Espejo and his partner were liable for interfering
with the contract between Gilchrist and Cuddy
Held:
It is said that the ground on which the liability of a third
party for interfering with a contract between others
rests, is that the interference was malicious. The
contrary view, however, is taken by the Supreme court
of the United States.In Angle vs. Railway, the only
motive for interference was the desire to make a profit
to the injury of one of the parties of the contract. There
was no malice in the case beyond the desire to make an
unlawful gain to the detriment of one of the contracting
parties.
In the case at bar, the only motive for the interference was
a desire to make a profit. There was no malice beyond
this desire, but this fact does not relieve them of the
legal liability for interference with that contract and
causing its breach.
The liability of the appellants arises from unlawful acts and not
from contractual obligations, as they were under no such
obligations to induce Cuddy to violate his contract with
Gilchrist to violate his contract with Gilchrist. Art. 1902 of
the Civil Code provides that a person whi, by act or
omission, causes damage to another when there is fault or
negligence, shall be obliged to repair the damage so done.
But the fact that the appellant's interference was actionable

did not of itself entitle Gilchrist to sue out an injunction
against them. The allowance of the remedy must be
justified under Sec. 164 of the Code of Civil Procedure.
There is nothing in Sec. 164 that before an injunction
may issue, the strangers must know the identity of both
parties. Courts usually grant an injunction where the
profit of the injured person are derived from his
contractual relations with a large and indefinite number
of individuals. Injunction against further interference
with the contract was properly issued.
Daywalt vs. La Corporacion
Facts:
Teodorica Endencia executed a contract where she
obligated herself to convey to Daywalt, a tract of land.
It was agreed that a deed should be executed as soon as
the title is perfected in the proceedings of the Court of
Land Registration and a Torrens title procured
therefore in Endencia's name.
A decree recognizing the right of Endencia as owner was
entered in said court but the Torrens title certificate
was not issued until later.
The parties made a new contract with a view to carrying
their original agreement into effect. The second was not
immediately carried into effect for the reason that the
Torrens certificate was not yet obtainable.
The parties entered into another agreement, replacing the
old.
The Torrens certificate was in time issued to Endencia but
in the course of the proceedings, it was found that the
area of the tract in the contract was about 1,248 ha
instead of 452 ha as stated in the contract.
La Corporacion de los Padres de Recoletos was at this time
the owner of a property immediately adjacent to the
land which Endencia had sold to Daywalt.
Fr. Sanz, its representative whom Endencia is well
acquainted with, was aware of the 1st and 2nd
contract. When the Torrens certificate was finally
issued, Endencia delivered it for safekeeping to the
corporation where it was taken to Manila where it
remained in the custody of Labarga.
When La Corporacion sold the San Jose estate, some cattle
were removed to the estate of the corporation
immediately adjacent to the property which the plaintiff
had purchased from Endencia.

Page 78 of 106
As Endencia still retained possession of said property,

Father Sanz entered into an arrangement with her
where large number of cattle belonging to the
corporation were pastured upon said land.
Daywalt sought to recover from corporation damages for

the use and occupation of the land by reason of
pasturing the cattle.
Daywalt alleged that, by interfering in the performance of
the contract in question and obstructing him in his effort
to secure the certificate of title to the land, the
corporation made itself a co-participant with Endencia in
the breach of the contract.
Issue: WON the corporation will be liable for the damage
through collusion with the Endencia
Held:
Fr. Labarga and his associate believed in good faith that
the contract could not be enforced and that Endencia
would be wronged if it should be carried into effect.
Whatever may be the character of the liability which a
stranger to a contract may incur by advising or assisting
one of the parties to evade performance, there is one
proposition upon which all must agree. A stranger cannot
become more extensively liable in damages for the nonperformance of the contract than the party in whose
behalf he intermeddles. To hold the stranger liable for
damages in excess of those that could be recovered
against the immediately party to the contract would lead
to results at once grotesque and unjust.
If a party enters into contract to go for another upon a
journey to a remote and unhealthful climate, and a third
person with a bona fide purpose of benefiting the one
who is under contract to go dissuades him from the step,
no action will lie. But if the advice is not disinterested and
the persuasion is used for the indirect purpose of
benefiting the defendant at the expense of the plaintiff,
the intermedler is liable if his advice is taken and the
contract broken.
So Ping Bun vs. CA
Tek Hua Trading Co, through its managing partner,

So Pek Giok, entered into lease agreements with
lessor DCCSI.
The contract each had a one-year term. They provided
that should the lessee continue to occupy the premises
after the term, the lease shall be on a month-to-month
basis.
Facts:
When the contract expired, the parties did not renew the
contracts, but Tek hua continued to occupy the
premises.
Tek Hua was dissolved. Later, the original members of Tek
Hua formed Tek Hua Enterprising Corp.
When So Pek Giok, managing partner of Tek Hua Trading died,
his son So Ping Bun, occupied the warehouse for his own
textile business.
Tiong, president of Tek Hua, sent a letter demanding So

Ping Bum to vacate the premises.
So Ping Bun refused and instead requested formal
contracts. DCCSI acceded to the request.
Private respondents filed a petition for injunction for the
nullification of the lease contracts between DCCSI and
petitioner with damages.
Trial court ruled in favor of the respodents. Upon appeal,

the Court of Appeals affirmed. Hence, this petition.
Issue: WON So Ping Bun is liable for tortuous interference of
contract
Held:
A duty which the law of torts is concerned with is respect

for the property of others, and a cause of action ex
delicto may be predicated upon an unlawful interference
by one person of the enjoyment by the other of his
private property. In the present case, petitioner's
Trendsetter Marketing asked DCCSI to execute lease
contracts in its favor, and as a result petitioner deprived
respondent corporation of the latter's property right.
This was a clear case of tortuous interference.
Section 1314 of the Civil Code categorically provides that
"Any third person who induces another to violate his
contract shall be liable for damages to the other
contracting party". While lack of malice precludes
damages, it does not relieve the interferer of the legal
liability for entering into contracts and causing breach of
existing ones. The respondent appellate court correctly
confirmed the permanent injunction and nullification of
the lease contracts between DCCSI and Trendsetter
Marketing without awarding damages. The injunction
saved the respondents from further damage or injury
caused by petitioner's interference.
Tayag vs. Lacson
Facts:
Respondents Angelica Tiotuyco Vda. de Lacson, and her
children
Amancia, Antonio, Juan, and Teodosia, all surnamed
Lacson, were the
| Baldueza | Buena | Calderon | Cardenas | Eguico | Flordeliza | Mendoza | Navarro | Velasco | Page 79 of 106
registered owners of three parcels of land. The

properties, which were tenanted agricultural lands, were
administered by Renato Espinosa for the owner.
A group of original farmers/tillers,individually executed in
favor of the petitioner separate Deeds of Assignment in
which the assignees assigned to the petitioner their
respective rights as tenants/tillers of the landholdings
possessed and tilled by them for and in consideration of
P50.00 per square meter. The petitioner was also
granted the exclusive right to buy the property if and
when the respondents, with the concurrence of the
defendants-tenants, agreed to sell the property. In the
interim, the petitioner gave varied sums of money to the
tenants as partial payments, and the latter issued
receipts for the said amounts.
The petitioner called a meeting of the defendants-tenants
to work out the implementation of the terms of their
separate agreements. However, the defendantstenants, through Joven Mariano, wrote the petitioner
stating that they were not attending the meeting and
instead gave notice of their collective decision to sell all
their rights and interests to Lacson, as tenants/lessees,
over the landholding to the respondents.
The petitioner filed a complaint with the RTC against the
defendants-tenants, as well as the respondents, for the
court to fix a period within which to pay the agreed
purchase price of P50.00 per square meter to the
defendants, as provided for in the Deeds of Assignment.
The petitioner also prayed for a writ of preliminary
injunction against the defendants and the respondents
therein.
The defendants-tenants Tiamson, et al., alleged in their
answer with counterclaim for damages, that the money
each of them received from the petitioner were in the
form of loans, and that they were
deceived into signing the deeds of assignment.

Issue: WON the respondent is liable for tortuous interference
for inducing the defendants-tenants to violate the deeds of
assignment
Held:
For Art. 1314 to apply, the pleader is burdened to prove the
following:
(1) the existence of a valid contract; (2) knowledge by
the third person of the existence of the contract; and (3)
interference by the third person in the contractual
relation without legal justification.
Where there was no malice in the interference of a

contract, and the impulse behind ones conduct lies in
a proper business interest rather than in wrongful
motives, a party cannot be a malicious interferer.
Where the alleged interferer is financially interested, and

such interest motivates his conduct, it cannot be said that
he is an officious or malicious intermeddler.
Even if the respondents received an offer from the defendantstenants to assign and transfer their rights and interests on
the landholding, the respondents cannot be enjoined from
entertaining the said offer, or even negotiating with the
defendants-tenants. The respondents could not even be
expected to warn the defendants-tenants for executing the
said deeds in violation of P.D. No. 27 and Rep. Act No. 6657.
Under Section 22 of the latter law, beneficiaries under P.D.
No. 27 who have culpably sold, disposed of, or abandoned
their land, are disqualified from becoming beneficiaries.
From the pleadings of the petitioner, it is quite evident that his
purpose in having the defendants-tenants execute the
Deeds of Assignment in his favor was to acquire the
landholding without any tenants thereon, in the event that
the respondents agreed to sell the property to him. The
petitioner knew that under Section 11 of Rep. Act No. 3844,
if the respondents agreed to sell the property, the
defendants-tenants shall have preferential right to buy the
same under reasonable terms and conditions.
Under Section 12 of the law, if the property was sold to a third
person without the knowledge of the tenants thereon, the
latter shall have the right to redeem the same at a

reasonable price and consideration. By assigning their
rights and interests on the landholding under the deeds
of assignment in favor of the petitioner, the defendantstenants thereby waived, in favor of the petitioner, who is
not a beneficiary under Section 22 of Rep. Act No. 6657,
their rights of preemption or redemption under Rep. Act
No. 3844. The defendants-tenants would then have to
vacate the property in favor of the petitioner upon full
payment of the purchase price. Instead of acquiring
ownership of the portions of the landholding respectively
tilled by them, the defendants-tenants would again
become landless for a measly sum of P50.00 per square
meter.
The petitioners scheme is subversive, not only of public
policy, but also of the letter and spirit of the agrarian
laws. That the scheme of the petitioner had yet to take
effect in the future or ten years hence is not a
justification. The respondents may well argue that the
agrarian laws had been violated by the defendantstenants and the petitioner by the mere execution of the
deeds of assignment. In fact, the petitioner has
implemented the deeds by paying the defendants-

Page 80 of 106
tenants amounts of money and even sought their

immediate implementation by setting a meeting with
the defendants-tenants. In fine, the petitioner would
not wait for ten years to evict the defendants-tenants.
For him, time is of the essence.
VI. Essential Requisites
A. Consent
When is there consent? When there is a meeting of the
offer and the acceptance upon the thing and the cause
Art. 1319. Consent is manifested by the meeting of the
which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind
the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to
have been entered into in the place where the offer was
made. (1262a)
Consent concurrence of the minds of the parties on the
OBJECT and the CAUSE which are to constitute the contract
Note: Where there is merely an offer by one party without an
acceptance by the other, there is no consent. As Sir Lumba
says, a contract is a promise to a promise.
Ex. I will deliver the car if I want to. No Contract
I will sell you the car if I am able to purchase it.
No Contract Elements of Consent:
Plurality of subjects
Capacity
Intelligence and Free will
Express or tacit manifestation of the will
Conformity of the internal will and its manifestation
Forms of Consent:
Express
Implied
Note: In quasi-contracts, there is what is called presumptive
consent.
OFFER unilateral proposition which one party makes to the
other for the celebration of a contract. It must be
Definite distinguished from mere communications

indicating that a party is disposed to enter into a certain
contract, or inviting the other to make an offer
Ex. I will give you my watch if you buy it
for P1, 500 as opposed to
I am in position and willing to entertain the purchase
of this watch under the following conditions
Complete Sufficient clearness of the kind of contract
intended and definitely stating the conditions of the
contract
Intentional Must be made with seriousness, not for fun or
in jest, or out of courtesy, or as an example in teaching
Note: ACCEPTANCE must be unequivocal and unconditional, and
shall be without any variation whatsoever.
Mere amplification of the offer must be understood as an
acceptance of the original offer, plus a new offer which is
contained in the amplification. However, it is the consent
of the original offeror that controls.
Ex. X offers to sell 5 kilos of mandarin oranges for P20
per kilo. Y answers that he is buying and adds 3 kilos
more to be bought at the same price. The first offer for
5 kilos is already accepted and the other 3 is subject to
the acceptance of X.
Unless the offeror knows of the acceptance, there is no
meeting of the minds between the parties, no real
concurrence of the offer and acceptance.
Ex. Letter, Telegram, Telephone
Art. 1320. An acceptance may be express or implied. (n)
Art. 1321. The person making the offer may fix the time,
place, and manner of acceptance, all of which must be
complied with. (n)
The offeror has the right to prescribe the conditions of the
acceptance (time, place and manner), and when
reasonable must ALL be complied with.
An offer with a period lapses upon the termination of the
period.
An acceptance which is not made in the manner
prescribed by the offeror is not effective, but
constitutes a counter-offer which the offeror may
accept.

Page 81 of 106
What is the cognition theory?

made. (1262a) Art. 1322. An offer made through an
agent is accepted from the time acceptance is
communicated to him. (n)
When the intermediary has no power to bind either the
offeror or the offeree, then he is not an agent. In this
case, acceptance only occurs when he in turn
communicates acceptance to the offeror.
Malbarosa v. CA [April
30, 2003] Ponente:
Justice Callejo Sr.
Facts: Petitioner Malbarosa was the president and

general manager of Philtectic Corp., a company
belonging to respondent SEADC.
Sometime in January 1990, petitioner expressed through a
letter addressed to Senen Valero, Vice-Chairman of respondent
company, his desire to leave the company and requesting that
his 1989 incentive compensation be paid to him. On March 14,
1990, respondent through Valero signed a letter-offer stating
that petitioner was entitled to a compensation of P251,057.67
and that the amount be satisfied as consisting of: the car valued
at P220,000 and the membership in the Architectural center
valued at around P60,000. Respondent required that if the
petitioner agreed to the offer, he should affix his signature at
the bottom of the page.
On March 16, 1990, Da Costa met with petitioner and handed
him the original copy of the March 14 Letter-offer. Petitioner was
dismayed when he read what he was about to get. Petitioner
refused to sign the letter-offer and said that he would review it.
Despite the lapse of more than two weeks, respondent had not
received the original letter with petitioners signature.
Respondent decided to withdraw its offer.
On April 4, 1990, Philtectic wrote the petitioner withdrawing the
March 14 Letter-offer and demanding petitioner return the car
and his membership certificate. Petitioner wrote Philtectic
informing them that he cant comply with the demand as he
already accepted the offer when he affixed on March 28, 1990

his signature on the original.
Respondent filed a complaint in court to recover the property
but petitioner was able to recover the possession through the
filing of the counter-bond. He
adduced evidence that he had called Da Costas office on March

29 in order to communicate his acceptance but it was the
telephone receptionist who answered. She testified in court that
she relayed the message to Da Costa and he merely nodded.
Trial Court: No perfected contract over the March 14 Letter-offer
due to failure to notify acceptance on petitioners part
Court of Appeals: Affirmed with modification by allowing the
payment of the rental of the car at the rate of P1000.00 per day
Issues:
Whether or not a contract exists between parties by virtue of
petitioners acceptance of the Letter-offer.
Whether or not there was an effective withdrawal by respondent
of said
letter-order.
Held: There is no contract between the parties. Withdrawal of
respondent is valid. Petition is dismissed and CA decision
affirmed.
Ratio:
Under Article 1318 of the CC, the essential requisites of a
contract are: 1) consent of contracting parties; 2) Object
certain which is the subject matter of the contract; and 3)
Cause of the obligation which is established.
Under Article 1319 of the NCC, the consent by a party is

manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the
contract. The acceptance must be absolute, unconditional, and
without variance of any sort from the offer.
The acceptance of an offer must be made known to the offeror.
Unless the offeror knows of the acceptance, there is no meeting
of minds of the parties. The contract is perfected only from the
time an acceptance of an offer is made known to the offeror. An
acceptance which is not made in the manner prescribed
by the offeror is not effective but constitutes a counteroffer which the offeror may accept or reject. The
contract is not perfected if the offeror revokes or
withdraws its offer and the revocation or withdrawal is
the first to reach the offeree.
In the present case, respondent required petitioner to affix his
signature at the bottom of the page to show acceptance, thus
foreclosing other forms of acceptance. Upon receipt, petitioner
refused to act on it saying he needed time to decide. No
contract was perfected.

Page 82 of 106
Despite petitioners claim that he signed the documents on

March 28, way before respondents withdrawal of the offer on
April 4, still the letter of the petitioner accepting the offer was
received on April 7. By then, respondent had already withdrawn
its offer. Indubitably, there was no contract perfected by the
parties.
It must also be underscored that there was no time frame fixed
by respondent for petitioner to accept or reject its offer. When
the offeror had not fixed a period for offeror to accept
the offer, and the offer is made to a person present, the
acceptance must be made immediately. The respondent
had the option to withdraw or revoke the offer.
As regards the effectiveness of the withdrawal, the Court held
that implicit in the authority given to Philtectic Corporation to
demand for and recover from the petitioner the subject car and
to institute the appropriate action against him to recover
possession of the car is the authority to withdraw the
respondent's March 14, 1990 Letter-offer. It cannot be argued
that respondent authorized Philtectic Corporation to demand
and sue for the recovery of the car and yet did not authorize it
to withdraw its March 14, 1990 Letter-offer to the petitioner.
Besides, when he testified, Senen Valero stated that the April 4,
1990 letter of Philtectic Corporation to the petitioner was upon
his instruction and conformably with the resolution of the Board
of Directors of the respondent.
When is there an offer? An offer is a unilateral proposition
which one party makes to the other for the celebration of a
contract.
It must be:
Definite distinguished from mere communications
indicating that a party is disposed to enter into a certain
contract, or inviting the other to make an offer
Ex. I will give you my watch if you buy it
for P1, 500 as opposed to
I am in position and willing to entertain the purchase
of this watch under the following conditions
Complete Sufficient clearness of the kind of contract
intended and definitely stating the conditions of the
contract
Intentional Must be made with seriousness, not for fun or
in jest, or out of courtesy, or as an example in teaching
Art. 1325. Unless it appears otherwise, business

advertisements of things for sale are not definite offers,
but mere invitations to make an offer. (n)
General Rule: Business advertisements of things for sale are not
definite offers. Exception: When the offer is stated with the
necessary specification of essential elements leading to the
future contract
Ex. For immediate sale: 500 sq. m. lot at No. 859
Espana Street,
Manila for P25,000 cash
Art. 1326. Advertisements for bidders are simply
invitations to make proposals, and the advertiser is not
bound to accept the highest or lowest bidder, unless the
contrary appears. (n)
Art. 1340. The usual exaggerations in trade, when
the other party had an opportunity to know the
facts, are not in themselves fraudulent. (n)
Tolerated Fraud (Dolus Bonus) practice has come to
tolerate such false affirmations as advertisements or
testimonies minimizing the defects of the thing,
exaggerating its good qualities, and giving it qualities that it
does not have
These do NOT give rise to an action for damages, either
because of their insignificance or because the
stupidity of the victim is the real cause of his loss.
Can an offer be withdrawn? YES
Art. 1324. When the offerer has allowed the offeree a
certain period to accept, the offer may be withdrawn at
any time before acceptance by communicating such
withdrawal, except when the option is founded upon a
consideration, as something paid or promised. (n)
General Rule: When the offeror has stated a fixed period for
acceptance, the offeree may accept at any time until such
period expires.
However, the law permits the offeror to withdraw the offer at
any time before acceptance, even before the period of
acceptance has expired so long as he has allowed the offeree
sufficient opportunity, depending upon the circumstances
and the nature of the proposed contract, to decide upon his
course of action and communicate his reaction. Otherwise, the
offeror shall be held liable for damages.
Option Contract a preparatory contract in which one party
grants to the other, for a fixed period and under specified
conditions, the power to decide whether or not to enter into a
principal contract. The grant must be exclusive and must be

supported by an independent consideration.
Page 83 of 106
Art. 1479. A promise to buy and sell a determinate thing

for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon
the promissor if the promise is supported by a
consideration distinct from the price. (1451a)
This article is NOT inconsistent with Art. 1324. If the
option is not supported by any independent
consideration distinct from the price certain, the offer
can still be withdrawn even if the offer is already
accepted.
Sanchez v. Rigos [June 14, 1972]
Ponente: C.J. Concepcion
Facts: On April 3, 1961, plaintiff Nicolas Sanchez and defendant
Severina Rigos executed an instrument entitled Option to
Purchase where the latter agreed, promised and committed
to sell to the former a parcel of land situated in San Jose,
Nueva Ecija for P1, 510. It was further stipulated that the option
shall be deemed terminated if Sanchez fails to exercise his right
to buy the property within 2 years. Within the same period,
Sanchez attempted to make several tenders of payment of P1,
510 to no avail because Rigos rejected the same. Because of
this, the former deposited said amount with the CFI of Nueva
Ecija and commenced an action for specific performance and
damages against the latter. The CFI rendered judgment for
Sanchez.
Issue: Whether or not the offer can still be withdrawn after
Sanchez notified Rigos of his acceptance of the option within
the period agreed upon
Held: No.
Ratio: If the option is given without a consideration, it is a mere
offer of a contract of sale which is not binding until accepted. If,
however, acceptance is made before a withdrawal, it
constitutes a binding contract of sale even though the option
was not supported by sufficient consideration.
The option did not impose upon Sanchez the obligation to
purchase her property. The instrument is not a contract to buy
and sell; it is a mere option as evinced by the title of the
document itself.
Moreover, Art. 1324, CC provides the general rule regarding
offer and acceptance that, when the offerrer gives to the
offeree a certain period to accept, the offer may be withdrawn
at any time before acceptance except when the option is
founded upon consideration. In other words, if the option is
given without a consideration, it is a mere offer of a contract of
sale which is not binding until accepted. If, however,
acceptance is made before a withdrawal, it constitutes a

binding contract of sale even though the option was not
supported by a sufficient consideration. The concurrence of
both
actsthe offer and the acceptancegenerates a contract if

there was none existing before.
Antonio, J., concurring: While the law permits the offeror to
withdraw the offer at any time before acceptance even before
the period has expired, the offeror cannot exercise this right in
an arbitrary or capricious manner for the reason that a contrary
view would remove the stability and security of business
transactions. Since Sanchez had offered P1, 510 before any
withdrawal from the contract has been made by Rigos, a
bilateral reciprocal contract to sell and to buy was generated.
Ang Yu v. CA [Supra]
P.U.P. v. CA [November
14, 2001] Ponente: J.
Bellosillo
Facts: In 1965, Firestone leased 2.9 hectares of National
Development
Corporations land in Manila for a period of 10 years, renewable
for another 10 years under the same terms and conditions.
Firestone constructed several buildings on the lot. 3 years
later, Firestone entered into another contract for the use of the
prefabricated warehouses and was agreed to be co-extensive
with the earlier contract. Firestone entered into a similar
contract with NDC in 1974. The contracts were to expire on

1978.
Firestone requested for an extension of the lease and the
parties adopted a resolution for its extension. One of the
conditions added was that in the event
NDC "with the approval of higher authorities, decide to
dispose and sell these properties including the lot, priority
should be given to the LESSEE"
On 22 December 1978, in pursuance of the resolution, the
parties entered into a new agreement for a ten-year lease of
the property, renewable for another ten (10) years, expressly
granting FIRESTONE the first option to purchase the leased
premises in the event that it decided "to dispose and sell these
properties including the lot.
In 1988, FIRESTONE informed NDC latter through several
letters and telephone calls that it was renewing its lease over
the property. NDC did not take any action. Rumors circulated
that NDC will sell the land to PUP.
FIRESTONE instituted an action for specific performance to
compel NDC to sell the leased property in its favor and likewise
prayed for the issuance of a writ of preliminary injunction to
enjoin NDC from disposing of the property pending the
settlement of the controversy.

Page 84 of 106
Memorandum Order 24 conveyed that property from NDC to

PUP which cancelled NDCs obligation of P57 M. PUP then
increased the rentals and demanded that the occupants of
the property vacate it immediately.
Lower court decision ordered PUP to sell to FIRESTONE the "2.6

hectare leased premises or as may be determined by actual
verification and survey of the actual size of the leased
properties where plaintiff's fire brick factory is located" at
P1,500.00 per square meter considering that, as admitted by
FIRESTONE, such was the prevailing market price thereof.
FIRESTONE could exercise its option to purchase the property
until 2 June 1999 inasmuch as the 22 December 1978 contract
embodied a covenant to renew the lease for another ten (10)
years at the option of the lessee as well as an agreement giving
the lessee the right of first refusal. CA affirmed the decision.
Issues:
Whether or not the transfer of the land from NDC to PUP
was one for a sale or was a mere paper transfer
Whether or not FIRESTONE can rightfully invoke its right of
first refusal Held: The transfer of land from NDC to PUP was one
for sale. FIRESTONE has availed and existing right of first
refusal as lessee of the premises. The preponderance of
evidence shows that NDC sold to PUP the whole NDC
compound, including the leased premises, without the
knowledge much less consent of private respondent FIRESTONE
which had a valid and existing right of first refusal. All three (3)
essential elements of a valid sale, without which there can be
no sale, were attendant in the disposition and transfer of
the property from NDC to PUP consent of the parties,
determinate subject matter, and consideration therefor.
Consent to the sale is obvious from the prefatory clauses of
Memorandum Order No. 214 which explicitly states the
acquiescence of the parties to the sale of the property.
Furthermore, the cancellation of NDC's liabilities in favor of the
National Government in the amount of P57,193,201.64
constituted the "consideration" for the sale. The conduct of
petitioner PUP immediately after the transaction is in itself an
admission that there was a sale of the NDC compound in its
favor which are the acts of ownership in ordering the land to be
vacated.
In the instant case, the right of first refusal is an integral
and indivisible part of the contract of lease and is
inseparable from the whole contract. The consideration

for the right is built into the reciprocal obligations of the
parties. The stipulation is part and parcel of the contract of

lease making the consideration for the lease the same as
that for the option.
It is a settled principle in civil law that when a lease contract
contains a right of first refusal, the lessor is under a legal duty
to the lessee not to sell to anybody at any price until after he
has made an offer to sell to the latter at a certain price and the
lessee has failed to accept it.39 The lessee has a right that the
lessor's first offer shall be in his favor.
The option in this case was incorporated in the contracts of
lease by NDC for the benefit of FIRESTONE which, in view of
the total amount of its investments in the property, wanted to
be assured that it would be given the first opportunity to buy
the property at a price for which it would be offered. Consistent
with their agreement, it was then implicit for NDC to have first
offered the leased premises of 2.60 hectares to FIRESTONE
prior to the sale in favor of PUP. Only if FIRESTONE failed to
exercise its right of first priority could NDC lawfully sell the
property to petitioner PUP.
When does an offer become ineffective?
Incapacity of either party before acceptance (Death, Civil
Interdiction, Insanity, or Insolvency)
Lack of authority of offeror

Absence of any of the essential requisites
No acceptance/ Rejection of the offer
Time, manner and place of acceptance not complied with
Withdrawal of offer before acceptance
Art. 1323. An offer becomes ineffective upon the death,
civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed. (n)
The contract is not yet perfected at any time before
acceptance is conveyed. The disappearance or loss of
capacity of either party before acceptance before
perfection prevents the contractual tie from being
formed.
law. (1258)
Art. 1317. No one may contract in the name of another
without being authorized by the latter, or unless he has
by law a right to represent him.

Page 85 of 106
A contract entered into in the name of another by one

who has no authority or legal representation, or who has
acted beyond his powers, shall be unenforceable, unless
it is ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is revoked
by the other contracting party. (1259a)
If the contract is entered into in behalf of another who has
not authorized it, such contract is not valid and binding
upon him unless he ratifies the transaction.
Art. 1318. There is no contract unless the following
requisites concur:
Consent of the contracting parties;
Object certain which is the subject matter of the
contract;
Cause of the obligation which is established. (1261)
Art. 1326. Advertisements for bidders are simply

invitations to make proposals, and the advertiser is not
bound to accept the highest or lowest bidder, unless the
contrary appears. (n)
Mindanao Terminal v. Confesor [May 5, 1997]
Ponente: J. Mendoza
Facts: Mindanao Terminal and Brokerage Service, Inc., and
respondent Associated Labor Unions, entered into a collective
bargaining agreement for a period of five (5) years, starting on
August 1, 1989, and ending July 31, 1994. On the 3rd year, the
parties met for a renegotiation which eventually resulted in a
deadlock.
Art. 1324. When the offerer has allowed the offeree a

certain period to accept, the offer may be withdrawn at
any time before acceptance by communicating such
withdrawal, except when the option is founded upon a
consideration, as something paid or promised. (n)
On December 18, 1992, as a result of a conference called by

the NCMB, the Union and the Company went back to the
bargaining table and agreed on wage increase, VL / SL,
hospitalization benefits, 13th month pay, signing bonus and
seniority. Thus, as the Med-Arbiter noted in the record of the
January 14, 1993 conference, "the issues raised by the notice of
strike had been settled and said notice is thus terminated."
But no sooner had he stated this than the Company claimed
that the wage increases which it had agreed to give to the
employees should be creditable as compliance with future
mandated wage increases. In addition, it maintained that such
increases should not be retroactive. Mediation proved to be
futile. The Secretary of Labor assumed jurisdiction over the
issue and ordered that the wage increases for the fourth and
fifth years of the CBA were not to be credited as compliance
with future mandated increases. In addition, the fourth year
wage increase was to be retroactive to August 1992 and was to
be implemented until July 31, 1993, while the fifth year wage
increase was to take effect on August 1, 1993 until the
expiration of the CBA.
The company sought reconsideration but was denied hence
this petition for certiorari, alleging grave abuse of discretion
on the part of respondent Secretary of Labor.
Issue: Whether or not the parties have reached an agreement
or a contract on the CBA
Held: Yes. Even without any written evidence of the CBA made
by the parties, a valid agreement existed from the moment the
minds of the parties met on all matters they set out to discuss.
Ratio:
Art. 1325. Unless it appears otherwise, business

advertisements of things for sale are not definite offers,
but mere invitations to make an offer. (n)
The two terms, "agreement" and "contract," are indeed similar,

although the former is broader than the latter because an
agreement may not have all the elements of a contract. As in the
case of contracts, however, agreements may

made. (1262a)
Art. 1320. An acceptance may be express or implied. (n)
Art. 1321. The person making the offer may fix the time,
place, and manner of acceptance, all of which must be
complied with. (n)
Art. 1322. An offer made through an agent is accepted
from the time acceptance is communicated to him. (n)

Page 86 of 106
be oral or written. Hence, even without any written evidence of

the Collective Bargaining Agreement made by the parties, a
valid agreement existed in this case from the moment the
minds of the parties met on all matters they set out to discuss.
Art. 1315 of the Civil Code states that contracts are perfected
by mere consent, and from that moment, the parties are bound
not only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law. The
Secretary of Labor found that "as early as January 14, 1993,
well within the six (6) month period provided by law, the
Company and the Union have perfected their agreement." 7
The claim of petitioner to the contrary notwithstanding, this is a
finding of an administrative agency which, in the absence of
evidence to the contrary, must be affirmed.
any purpose contrary to law, morals, good customs,

public order or public policy binds the parties to their
real agreement. (n)
The nullity of an absolutely simulated contract is
based on want of true consent where the parties do not
have any intent to be bound at all. It is generally
fraudulent and for the purpose of injuring third persons.
If the purpose of the contract is licit, then the parties may
prove the simulation in order to recover what may have already
been given. If it has an illegal object, please see Arts. 1411 and
1412 under Void Contracts.
The relatively simulated contract is valid, except when
it prejudices third persons or has an illicit purpose.
What is the effect of simulated consent? Void if absolute

simulation, Can be valid if it is relatively simulated
Art. 1345. Simulation of a contract may be absolute or
relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties
conceal their true agreement. (n)
Simulation defect in declaration. It is a declaration of a
fictitious will, deliberately made by agreement of the parties, in
order to produce, for purposes of deception, the appearance of
a juridical act which does not exist or is different from that
which was really executed.
Absolute Simulation (Simulados) the parties do not have any
intention of being bound by any contract
Ex. A deed of absolute sale of land, stating that possession has
been transferred and the price paid, when in reality there has
been no agreement of sale between the parties.
Relative Simulation (Disimulados) the parties have an
agreement which they conceal under the guise of another
contract. There are two juridical acts involved:
Ostensible act contract that the parties pretend to have
executed
Hidden act the true agreement between the parties
Ex: A deed of sale of a piece of land is executed by parties to
conceal their true agreement which is a donation
Note: If the concealed or hidden act is lawful, it is enforceable if
the essential requisites are present.
What can be the object of a contract?

Things within the commerce of men
Transmissible rights
Licit things
Determinate things
Possible things
Art. 1347. All things which are not outside the commerce
of men, including future things, may be the object of a
contract. All rights which are not intransmissible may
also be the object of contracts.
No contract may be entered into upon future inheritance
except in cases expressly authorized by law.
All services which are not contrary to law, morals, good
customs, public order or public policy may likewise be
the object of a contract. (1271a)
Requisites of Object:
Within the commerce of man
Licit
Possible
Determinate as to its kind
Things outside the commerce of man those things which are
not susceptible of appropriation or private ownership, and are
not transmissible
Ex. Perpetual servitude or slavery, Personal rights (marital
authority), Public offices, Right of suffrage, Property pertaining
to public dominion (roads, plazas, rivers), Sacred things
Art. 1346. An absolutely simulated or fictitious contract is

void. A relative simulation, when it does not prejudice a
third person and is not intended for
Art. 1348. Impossible things or services cannot be the

object of contracts. (1272)
B. Object (Prestation)

Page 87 of 106
Impossible Things not susceptible of existing, or are outside

the commerce of men, or personal services beyond the ordinary
power of man.
Note: The impossibility must be actual and contemporaneous
with the making of the contract.
Kinds of Impossibility:
Absolute or Objective nobody can
perform it. Effect: Contract is
nullified
Relative or Subjective it cannot be performed due to
special conditions or qualifications of the debtor
Effect: If permanent, contract is nullified
If temporary, contract is not nullified
Art. 1349. The object of every contract must be
determinate as to its kind. The fact that the quantity is
not determinate shall not be an obstacle to the
existence of the contract, provided it is possible to
determine the same, without the need of a new
contract between the parties. (1273)
Determinate as to its kind or
species Ex. A horse,
Carabao, a book
Not determinate as to its kind or
species Ex. Something, an
animal
What is the status of a contract with an unlawful object? Void or
Inexistent
Art. 1409. The following contracts are inexistent and
void from the beginning:
(1) Those whose cause, object or purpose is contrary to
law, morals, good customs, public order or public policy;
Those whose cause or object did not exist at the time of
the transaction;
Those whose object is outside the
commerce of men; C. Cause
What is the cause of contracts?
Art. 1350. In onerous contracts the cause is understood
to be, for each contracting party, the prestation or
promise of a thing or service by the other; in
remuneratory ones, the service or benefit which is
remunerated; and in contracts of pure beneficence, the
mere liberality of the benefactor. (1274)
Onerous Contracts cause is the prestation

Remuneratory Contracts cause is the service
rendered
Contract of Pure Beneficence essentially a donation where cause

is the generosity or liberality of the benefactor
Art. 1354. Although the cause is not stated in the

contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary. (1277)Art. 1350
Unless the contrary is proved, a contract is presumed to

have a good and sufficient consideration. The
presumption, however, applies only when no cause is
stated in the contract.
Differentiate motive from cause.
Art. 1351. The particular motives of the parties in
entering into a contract are different from the cause
thereof. (n)
CAUS
MOTIVE
E
Objecti intrins and juridic Psychological, individual or
ve,
ic
al personal
reason for the existence of purpose of a party to a
the
contract
contract itself
Objective of a party in
Persons reason for wanting to
entering into
get
the contract
such objective
Always the same for each
Differs with each person
kind of
contrac
t
Essenti requisit whic affects Does not affect the validity

al
e
h
or
validity or enforceability of a existence of a contract
contract
What is the status of a contract with an unlawful cause? Void
Art. 1352. Contracts without cause, or with unlawful
cause, produce no effect whatever. The cause is unlawful
if it is contrary to law, morals, good customs, public
order or public policy. (1275a)
Ex. An agreement to resume concubinage which had been
interrupted by quarrels
Art. 1409. The following contracts are inexistent and void
from the beginning:
(1) Those whose cause, object or purpose is contrary to
law, morals, good customs, public order or public policy;
(3) Those whose cause or object did not exist at the time
of the transaction;
What is the status of a contract with a false cause? Void, if not
founded upon another licit cause
Art. 1353. The statement of a false cause in contracts
shall render them void, if it should not be proved that
they were founded upon another cause which is true
and lawful. (1276)

Page 88 of 106
VII. Reformation of Instruments

When may a contract be reformed? When equity demands it
and only when the true intention of the parties is not
expressed in the document or instrument
Art. 1359. When, there having been a meeting of the
minds of the parties to a contract, their true intention is
not expressed in the instrument purporting to embody
the agreement, by reason of mistake, fraud, inequitable
conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such true
intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but
annulment of the contract.
Requisites of Reformation:
Meeting of the minds upon the contract
Instrument or document evidencing the contract does not
express the true agreement of the parties
Due to mistake, fraud, inequitable conduct or accident
Upon reformation of an instrument, the effect relates back to
the time of its original execution, especially as between the
parties.
Note: The statute of frauds is no impediment to the
reformation of an instrument.
Art. 1362. If one party was mistaken and the other acted
fraudulently or inequitably in such a way that the
instrument does not show their true intention, the
former may ask for the reformation of the instrument.
Where one party to an instrument has made a mistake and the
other knows it and conceals the truth from him, such as when
one party is illiterate and the other party fails to correct his
mistake, then this is sufficient ground for reformation.
The mistake of one party must refer to the content of the
instrument, not the subject matter or principal conditions of the
contract.
Art. 1363. When one party was mistaken and the other
knew or believed that the instrument did not state their
real agreement, but concealed that fact from the former,
the instrument may be reformed.
Art. 1364. When through the ignorance, lack of skill,
negligence or bad faith on the part of the person
drafting the instrument or of the clerk or typist, the
instrument does not express the true intention of the

parties, the courts may order that the instrument be
reformed.
This article refers to mistake committed by the
clerk or typist. Ex. Typographical errors
Art. 1365. If two parties agree upon the mortgage or
pledge of real or personal property, but the
instrument states that the property is sold
absolutely or with a right of repurchase, reformation
of the instrument is proper.
Rule 130 - Sec. 9 PAROL EVIDENCE RULE
Evidence of written agreements. When the terms of an
agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and
there can be, between the parties and their successors
in interest, no evidence of such terms other than the
contents of the written agreement. However, a party
may present evidence to modify, explain or add to the
terms of written agreement if he puts in issue in his
pleading:
(a)An intrinsic ambiguity, mistake or imperfection in the
written agreement; (b)The failure of the written
agreement to express the true intent and agreement of
the parties thereto;
(c)The validity of the written agreement; or
(d)The existence of other terms agreed to by the parties
or their successors in interest after the execution of the
written agreement.
The term "agreement" includes wills. (7a)
When may a contract not be reformed?
Simple donations inter vivos wherein no condition is
imposed
Wills
Real agreement is void
Action to enforce instrument is instituted
Art. 1366. There shall be no reformation in the following
cases:
Simple donations inter vivos wherein no condition is
imposed;
Wills;
When the real agreement is void.
Rationale: An action to reform a written instrument is in the
nature of an action for specific performance and requires a
valuable consideration, something that is lacking in wills and

donations.
Art. 1367. When one of the parties has brought an

action to enforce the instrument, he cannot
subsequently ask for its reformation.

Page 89 of 106
Rationale: Reformation and an action to enforce instrument

are inconsistent remedies, the latter being an affirmance of
the written contract. An action to enforce the instrument
necessarily entails ratification of the same.
Distinguish the actions for reformation and annulment?
Art. 1359. When, there having been a meeting of the
minds of the parties to a contract, their true intention is
not expressed in the instrument purporting to embody
the agreement, by reason of mistake, fraud, inequitable
conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such true
intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but
annulment of the contract.
REFORMATION
Presupposes a valid
existing contract
between the parties
Only the document signed
by them
does not correctly express
their
agreement
Gives life to the contract
upon
certain corrections
ANNULMENT
No real and valid contract was
made
Minds of the parties did not
meet, or
consent was vitiated
third person, and which for equitable reasons may be set

aside even if it is valid. (Tolentino)
When are contracts rescissible?
Art. 1380. Contracts validly agreed upon may be
rescinded in the cases established by law. (1290)
Rescission A remedy granted by law to the contracting
parties and even to third persons, to secure the reparation of
damages caused to them by a contract, by means of the
restoration of the restoration things to their condition prior to
the celebration of said contract. (Tolentino, quoting
Manresa)
Relief for the protection of one of the contracting parties AND
third persons from all injury and damages the contract may
cause OR protect some incompatible and preferent right
created by the contract.
Implies a contract which, even if initially valid, produces a
lesion or pecuniary damage to someone.
Set asides the act or contract for justifiable reasons of equity.
Grounds for rescission can only be for legal cause.
Voidable contracts may also be rescinded.
KINDS OF RESCISSIBLE CONTRACTS
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;
Those agreed upon in representation of absentees, if
the latter suffer the lesion stated in the preceding
number;
Those undertaken in fraud of creditors when the latter
cannot in any other manner collect claims due them;
Effect is complete nullification

of the
contract
Do third parties have personality to file an action for

reformation? YES
Art. 1368. Reformation may be ordered at the instance
of either party or his successors in interest, if the
mistake was mutual; otherwise, upon petition of the
injured party, or his heirs and assigns.
Who may file action:
Mutual Mistake
Either party
Successors interest
One party is at fault
Injured party
Heirs or assigns of injured party
Those which refer to things under litigation if they have

been entered into by the defendant without the
knowledge and approval of the litigants or of competent
judicial authority;
All other contracts specially declared by law to
be subject to rescission. (1291a)
Art. 1381. The following contracts are rescissible:
1 and 2) Contracts entered into by GUARDIANS for their

wards, or trustees or administrators for the ABSENTEES, are
rescissible if the party represented
VIII. Defective Contracts

A. Rescissible
a contract that has caused a particular damage to one of the
parties or to a

Page 90 of 106
suffers lesion of by more than one-fourth of the value of the

things which are objects of the contract.
Lesion injury which one of the parties suffers by virtue of a
contract which is disadvantageous to him. (Tolentino)
EXCEPTION: Article 1386. Rescission referred to in Nos. 1
and 2 of Article 1381 shall not take place with respect to
contracts approved by the courts. (1296a)
* As a rule, guardians cannot enter into contracts involving a

disposition of the ward's property without approval of the
guardianship court since a guardian is only authorized to
manage the estate. Therefore, the contracts contemplated by
Article 1381 are contracts entered into by the guardians for the
ward which would not require court approval i.e. contracts
which constitute mere acts of administration.
3) Contracts in Fraud of Creditors
Accion Pauliana the rescissory action to set aside
contracts in fraud of creditors
Article 1177. The creditors, after having pursued the
property in possession of the debtor to satisfy their claims,
may exercise all the rights and bring all the actions of the
latter for the same purpose, save those which are inherent in
his person; they may also impugn the acts which the
debtor may have done to defraud them. (1111)
Requisites of Accion Pauliana:
that the plaintiff asking for recission has a credit prior to
the alienation, although demandable later.
that the debtor has made a subsequent contract conveying
a patrimonial benefit to a 3rd person.
that the creditor has no other legal remedy to satisfy his
claim, but would benefit by the recission of the conveyance
to the 3rd person.
that the act being impugned is fraudulent.
that the 3rd person who received the property conveyed, if it
is by onerous title, has been an accomplice in the fraud.
* It must be shown that the conveyance was fraudulent or
with intent to prejudice creditors of the party making the
conveyance.
* The fraud may be established by presumption, under

Article 1387, or from evidence, independently of such
presumption.
*Without proof of fraudulent intent, the contract cannot be
rescinded.
GENERAL RULE:
Credit must be existing at the time of the fraudulent
alienation, even if it is not yet due.
At the time the accion pauliana is brought, the credit must
already be due
EXCEPTIONS:
Accion pauliana can also be brought in the following cases:
The alienation is prior to the credit and the debtor purposely
and in bad faith deprives himself of the ability to meet the
consequences of obligations he intends to incur in the future.
Parties who may appear to have become creditors after the
alienation, but may be considered as having a prior right.
Those whose claims were acknowledged by the debtor
after the alienation, but the origin of which
antedated the alienation.
Those who become subrogated, after the alienation, in the
rights of creditors whose credits were prior to the
alienation.
TEST of FRAUD:
The test as to whether or not conveyance is fraudulent is, does
it prejudice the rights of creditors?
Both elements must be present else a conveyance may be
set aside as to creditors
Founded on good consideration
made with bona fide intent
Good consideration - creditor is not prejudiced because
the property was merely replaced or substituted.
BADGES OF FRAUD (INDICIA OF FRAUD):
fictitous/ insufficient consideration
conveyance is after suit is filed and while it is pending
sale on credit by insolvent debtor
evidence of insolvency or large indebtedness
transfer of all or nearly all of debtor's property
transfer is between father and son when some of above is
present

Page 91 of 106
g) failure of vendee to take exclusive possession of the property

4) Things under litigation, without knowledge and
approval of litigant or of competent judicial authority.
EXAMPLE: In a suit of replevin, where a plaintiff seeks to recover
personal property from the defendant, the latter, during the
pendency of the suit, cannot sell in bad faith the property being
litigated to any third person. If he does and the transferee also
acts in bad faith, the contract is rescissible. (Sta.
Maria)
5) Provided for by law to be subject to rescission
Articles 1526, 1534, 1538, 1539, 1542, 1556, 1560, 1567 and
1659
Art. 1355. Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue
influence. (n)
GENERAL RULE:
Lesion or inadequacy of cause will not subject the contract to
rescission.
EXCEPTION:
Those mentioned in Article 1381, or if attended by fraud,
mistake or undue influence.
Art. 1382. Payments made in a state of insolvency for

obligations to whose fulfillment the debtor could not be
compelled at the time they were effected, are also
rescissible. (1292)
Where a debtor transfers property to a creditor in payment of a
debt which has not yet matured, at a time when the debtor is
insolvent, and when the consideration for the transfer was
grossly inadequate, compared to the actual value of the
property transferred, the transfer is fraudulent and may be set
aside by creditors prejudiced thereby.
* insolvency law: all payments made by debtor after the mere

filing of insolvency will not be rescissible, but will be void under
the insolvency law.
Art. 1189. When the conditions have been imposed

with the intention of suspending the efficacy of an
obligation to give, the following rules shall be
observed in case of the improvement, loss or
deterioration of the thing during the pendency of the
condition:
(4) If it deteriorates through the fault of the debtor,
the creditor may choose between the rescission of the
obligation and its fulfillment, with indemnity for
damages in either case;
The court shall decree the rescission claimed,

unless there be just cause authorizing the fixing of
a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the
Mortgage Law. (1124)
Rescission Art 1380 Distinguished from Resolution Art
1191
* Prior to the fulfillment of a suspensive condition, If the

object of the prestation deteriorates through the fault of
the debtor, the creditor could choose to rescind the
contract with damages.
Similarities
Art. 1191. The power to rescind obligations is implied in

reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
1 Presupposes contracts validly entered into and

. existing
2 Mutual restitution when declared proper
.
Who may
Only by a party to the

contract
The injured party may choose between the fulfillment

and the rescission of the obligation, with the payment
of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should
become impossible.
1191
demand
1380
1. Party to the
contract
suffering lesion
2. Third parties
prejudiced by the
contract

Grounds
Non-performance (implied
tacit
condition in reciprocal
obligations)
Scope of
Judicial
Control
Court determines
sufficiency of
reason to justify
extension of time to
perform
obligation
(whether slight or casual
breach)
Various reasons of
equity
provided by the
grounds,
mainly economic
injury
or lesions
Sufficiency of reason
does not affect right
to
ask for rescission
(cannot
be refused if all the
requisites are
satisfied)
Kind of
Only to reciprocal
Obligation
applicable to
Unilateral, reciprocal
Character
Secondary/
Subsidiary
Principal Remedy
Even when contract

is
fully fulfilled
Art. 1203. If through the creditor's acts the debtor

cannot make a choice according to the terms of the
obligation, the latter may rescind the contract with
damages. (n)
* In alternative obligation, if the debtor is has been prevented
from making a choice due to the fault of the creditor, the
debtor can ask for the rescission of the contract with
damages.
Art. 1192. In case both parties have committed a breach of

the obligation, the liability of the first infractor shall be
equitably tempered by the courts. If it cannot be
determined which of the parties first violated the contract,
the same shall be deemed extinguished, and each shall
bear his own damages. (n)
in pari delicto (in equal fault) both parties are equally at

fault, the court may deem the contract extinguished if it
cannot determine who is the first infractor.
EFFECTS OF RESCISSION
Art. 1385. Rescission creates the obligation to return the
things which were
the object of the contract, together with their fruits,

and the price with its interest; consequently, it can be
carried out only when he who demands rescission can
return whatever he may be obliged to restore.
Neither shall rescission take place when the things
which are the object of the contract are legally in the
possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be
demanded from the person causing the loss. (1295)
In restitution, the parties, shall be placed in the same position
where they were before they entered into the assailed contract.
The objective is to restore the parties to their original position.
Not only should the parties return the object subject of the
rescissible contract but also the fruits or interest if any. If the
object of the contract cannot be restored because of loss,
damages may be claimed from the person responsible for the
loss. (Sta. Maria)
A party cannot rescind the and at the same time retain the
consideration, or part of the consideration, received under the
contract. One cannot have the benefits of rescission without
assuming its burdens.
When things, which are the object of a contract ,is legally in the
possession of a third person who acquired them in good faith,
rescission cannot take place.
EXTENT OF RESCISSION
Art. 1384. Rescission shall be only to the extent
necessary to cover the damages caused. (n)
* The extent of the revocation is only to the amount of the
prejudice suffered by the creditor who instituted the action for
rescission. As to the excess, the alienation is maintained.
Who may bring action for rescission?
The creditor injured by the contract
The heirs of the creditor injured by the contract.
The creditors of the creditor injured by the contract by virtue
of the right granted by Article 1177 (accion subrogatoria)
PRESUMPTIONS OF FRAUD
Art. 1387. All contracts by virtue of which the debtor
alienates property by

Page 93 of 106
gratuitous title are presumed to have been entered into

in fraud of creditors, when the donor did not reserve
sufficient property to pay all debts contracted before
the donation.
Alienations by onerous title are also presumed
fraudulent when made by persons against whom some
judgment has been issued. The decision or attachment
need not refer to the property alienated, and need not
have been obtained by the party seeking the rescission.
In addition to these presumptions, the design to defraud
creditors may be proved in any other manner recognized
by the law of evidence. (1297a)
Applies only when the there has been in fact an alienation

or transfer or transfer.
Rebuttal by evidence that conveyance was made:
in good faith
for a sufficient cause
Art. 1388. Whoever acquires in bad faith the things
alienated in fraud of creditors, shall indemnify the latter
for damages suffered by them on account of the
alienation, whenever, due to any cause, it should be
impossible for him to return them.
If there are two or more alienations, the first acquirer
shall be liable first, and so on successively. (1298a)
PRESCRIPTIVE PERIOD
Art. 1389. The action to claim rescission must be
commenced within four years.
For persons under guardianship and for absentees,
the period of four years shall not begin until the
termination of the former's incapacity, or until the
domicile of the latter is known. (1299)
* prescriptive period begins to run after the aggrieved party
has unsuccessfully exhausted all possible remedies to enforce
the obligation or to recover what has been lost.
UNIVERSAL FOOD v CA, G.R. No. L-29155; May 13, 1970

FACTS:
That as far back as 1938, plaintiff Magdalo V. Francisco, Sr.
discovered or invented a formula for the manufacture of
a food seasoning (sauce) derived from banana fruits
popularly known as MAFRAN sauce.
Due to lack of sufficient capital to finance the expansion of
the business, in 1960, said plaintiff secured the financial
assistance of Tirso T. Reyes who, after a series of
negotiations, formed with others defendant Universal
Food Corporation eventually leading to the execution on
May 11, 1960 a "Bill of Assignment".
Conformably with the terms and conditions, plaintiff
Magdalo V. Francisco, Sr. was appointed Chief Chemist
and plaintiff Victoriano V. Francisco was appointed
auditor and superintendent. Since the start of the
operation of defendant corporation, plaintiff Magdalo V.
Francisco, Sr., when preparing the secret materials
inside the laboratory, never allowed anyone, not even
his own son, or the President and General Manager
Tirso T. Reyes, of defendant, to enter the laboratory in
order to keep the formula secret to himself.
Thereafter, however, due to the alleged scarcity and high
prices of raw materials, on November 28, 1960,
Secretary-Treasurer Ciriaco L. de Guzman of defendant
issued a Memorandum, that only Supervisor Ricardo
Francisco should be retained in the factory and that the
salary of plaintiff Magdalo V. Francisco, Sr., should be
stopped for the time being until the corporation should
resume its operation.
Plaintiff Magdalo V. Francisco, Sr. received his salary as
Chief Chemist in the amount of P300.00 a month only
until his services were terminated on November 30,
1960.
Due to these successive memoranda, without plaintiff
Magdalo V. Francisco, Sr. being recalled back to work,
the latter filed the present action on February 14,
1961.
About a month afterwards, in a letter dated March 20, 1961,
defendant, thru its President and General Manager,
Under Art. 1191, the power to rescind obligations is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between
requested said plaintiff to report for duty, but the latter
declined the request because the present action was

already filed in court
ISSUE: WON Franscisco can rescind the contract
HELD: Yes
RATIO:

Page 94 of 106
fulfillment and rescission of the obligation, with

payment of damages in either case.
The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the
very object of the parties in making the agreement. The
question of whether a breach of a contract is substantial
depends upon the attendant circumstances. The
dismissal of the respondent patentee Magdalo V.
Francisco, Sr. as the permanent chief chemist of the
corporation is a fundamental and substantial breach of
the Bill of Assignment. He was dismissed without any
fault or negligence on his part. Thus, apart from the
legal principle that the option to demand
performance or ask for rescission of a contract
belongs to the injured party, the fact remains that the
respondents-appellees had no alternative but to file the
present action for rescission and damages.
MAGDALENA ESTATE v MYRICK, G.R. No. 47774, March
14, 1941
FACTS:
Magdalena Estate, Inc. sold to Louis Myrick lots No. 28 and
29 of Block 1, Parcel 9 of the San Juan Subdivision, San
Juan, Rizal. Their contract of sale provides that the Price
of P7,953 shall be payable in 120 equal monthly
installments of P96.39 each on the second day of every
month beginning the date of execution of the
agreement.
In pursuance of said agreement, the vendee made several
payments amounting to P2,596.08, the last being due and
unpaid was that of May 2, 1930. By reason of this, the
vendor, through its president, notified the vendee that, in
view of his inability to comply with the terms of their
contract, said agreement had been cancelled, relieving him
of any further obligation thereunder, and that all amounts
paid by him had been forfeited in favor of the vendor. To
this communication, the vendee did not reply, and it
appears likewise that the vendor
thereafter did not require him to make any further

disbursements on account of the purchase price.
ISSUE: Was the petitioner authorized to forfeit the purchase
price paid?
HELD: No.
RATIO:
The contract of sale contains no provision authorizing the

vendor, in the event of failure of the vendee to continue in the
payment of the stipulated monthly installments, to retain the
amounts paid to him on account of the purchase
price. The claim therefore, of the petitioner that it has the right
to forfeit said sums in its favor is untenable. Under Article 1124
of the Civil Code, however, he may choose between demanding
the fulfillment of the contract or its resolution. These remedies
are alternative and not cumulative, and the petitioner in this
case, having elected to cancel the contract cannot avail himself
of the other remedy of exacting performance. As a
consequence of the resolution, the parties should be restored,
as far as practicable, to their original situation which can be
approximated only be ordering the return of the things which
were the object of the contract, with their fruits and of the
price, with its interest, computed from the date of institution of
the action.
U.P. v DELOS ANGELES, G.R. No. L-28602
FACTS:
On November 2, 1960, UP and ALUMCO entered into a logging
agreement whereby the latter was granted exclusive authority to
cut, collect and remove timber from the Land Grant for a period
starting from the date of agreement to December 31, 1965,
extendible for a period of 5 years by mutual agreement.
On December 8, 1964, ALUMCO incurred an unpaid account

of P219,362.94. Despite repeated demands, ALUMCO still
failed to pay, so UP sent a notice to rescind the logging

agreement. On the other hand, ALUMCO executed an
instrument entitled Acknowledgment of Debt and Proposed
Manner of
Payments. It was approved by the president of UP, which
stipulated the following:
3. In the event that the payments called for are not sufficient
to liquidate the foregoing indebtedness, the balance
outstanding after the said payments have been applied shall
be paid by the debtor in full no later than June 30, 1965.
5. In the event that the debtor fails to comply with any of its
promises, the Debtor agrees without reservation that Creditor
shall have the right to consider the Logging Agreement
rescinded, without the necessity of any judicial suit ALUMCO
continued its logging operations, but again incurred an unpaid
account. On July 19,1965, UP informed ALUMCO that it had, as
of that date, considered rescinded and of no further legal effect
the logging agreement, and that UP had already taken steps to
have another concessionaire take over the logging operation.
ALUMCO filed a petition to enjoin UP from conducting the
bidding. The lower court ruled in favor of ALUMCO, hence, this
appeal.
ISSUE: Can petitioner UP treat its contract with ALUMCO
rescinded, and may disregard the same before any judicial
pronouncement to that effect?

Page 95 of 106
HELD: Yes.
RATIO:
In the first place, UP and ALUMCO had expressly stipulated that
upon default by the debtor, UP has the right and the power to
consider the Logging Agreement of December 2, 1960 as
rescinded without the necessity of any judicial suit. As to such
special stipulation and in connection with Article 1191 of the
Civil Code, the Supreme Court, stated in Froilan vs. Pan Oriental
Shipping Co:
There is nothing in the law that prohibits the parties from entering
into agreement that violation of the terms of the contract would
cause cancellation thereof, even without court intervention. In
other words, it is not always necessary for the injured party to
resort to court for rescission of the contract.
Voidable or Annullable
a contract in which the consent of one party is defective,
either because of want of capacity or because it is vitiated,
but which contract is valid until set aside by a competent
court. -Tolentino
KINDS OF VOIDABLE OR ANNULLABLE CONTRACTS
Art. 1390. The following contracts are voidable or
annullable, even though there may have been no
damage to the contracting parties:
Those where one of the parties is incapable of giving
consent to a contract;
Those where the consent is vitiated by mistake, violence,
intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a
proper action in court. They are susceptible of ratification.
(n)
There may have been be no damage to the contracting parties
want of capacity
vitiated consent
CHARACTERISTICS OF VOIDABLE CONTRACTS
Their defect consists in the vitiation of consent of
one of the contracting parties
They are binding until they are annulled by a competent
court
They are susceptible of convalidation by ratification or by

prescription
MERCADO v ESPIRITU, G.R. No. L-11872; December 1,

1917
FACTS:
Margarita Espiritu, the mother of the plaintiffs, on May 25, 1894
sold to Luis Espiritu, her brother, a portion of her land for P2000
which she acquired from her father, Lucas Espiritu. On 1896/1897
however, Margarita died and she left to her children Domingo and
Josefa 12 hectares of land in Bulacan. The widower, Wenceslao
Mercado, as the administrator of the property of his children sold
under pacto de retro on May 14, 1901 a parcel of land worth P375
to Luis to "cover his children's needs". And this amount being
insufficient he successively borrowed from said Luis Espiritu other
sums of money aggregating a total of p600, but later, on May 17,
1910, the plaintiffs, alleging themselves to be of legal age,
executed, with their sisters ratifying said sale under pacto de retro
of the land that had belonged to their mother, effected by their
father in favor of Luis Espiritu for the sum of p2600. Because of
the past revolution, official documents like birth certificates were
burned. It is important to note that Wenceslao kept a personal
journal which states that the plaintiffs were indeed minors upon
the sale of the land in 1894. So, on May 20, 1901, a notarized
deed of the land is procured by Wenceslao in his name and the
name of his children (who allege that they were minors at the
time) and at the same time, proves that a portion of the land in
question was sold to Luis in 1894.
By 1904, Wenceslao died, his children files for the

annulment of the sale Luis Espiritu, who also died, so the
case is filed against his son, Jose Espiritu.
ISSUES:
Whether or not the plaintiffs were minors at the date of the
sale in 1894.
Whether or not the plaintiffs can ask for the nullification of
the sale due to their minority.
HELD:
There are insufficient facts to prove the plaintiffs' minority
No. Minors were held liable because of active
misrepresentation.
RATIO:
The statement made by one of the adult parties of said
deed, in reference to certain notes made in a book or
copybook of a private nature, which she said their father
kept during his lifetime and until his death, is not
sufficient to prove the plaintiffs minority on the date of
the execution of the deed.
The courts, in their interpretation of the law, have laid down
the rule that the sale of real estate, made by minors who
pretend to be of legal age, when in fact they are not, is
valid, and they will not be permitted

Page 96 of 106
to excuse themselves from the fulfillment of the

obligations contracted by them, or to have them
annulled in pursuance of the provisions of Law 6, title
19, of the 6th Partida; and the judgment that holds such
a sale to be valid and absolves the purchaser from the
complaint filed against him does not violate the laws
relative to the sale of minors' property, nor the juridical
rules established in consonance therewith.
BRAGANZA v DE VILLA ABRILLE, G.R. No. L-12471; April
13, 1959
FACTS:
Petitioners received from Villa Abrille, as a loan, on October
30, 1944 P70,000 in Japanese war notes and in
consideration thereof, promised in writing (Exhibit A) to
pay him P10,000 "in legal currency of the P. I. two years
after the cessation of the present hostilities or as soon
as International Exchange has been established in the
Philippines", plus 2 % per annum.
Because payment had not been made, Villa Abrille
sued them in March 1949.
Defendants claimed to have received P40,000 only instead
of P70,000 as plaintiff asserted. They also averred that
Guillermo and Rodolfo were minors when they signed the
promissory note Exhibit A.
The Court of Appeals found them liable pursuant to the

following reasoning:
. . . . These two appellants did not make it appears in the
promissory note that they were not yet of legal age. If they
were really to their creditor, they should have appraised him on
their incapacity, and if the former, in spite of the information
relative to their age, parted with his money, then he should be
contended with the consequence of his act. But, that was not
the case. Perhaps defendants in their desire to acquire much
needed money, they readily and willingly signed the promissory
note, without disclosing the legal impediment with respect to
Guillermo and Rodolfo. When minor, like in the instant case,
pretended to be of legal age, in fact they were not, they will not
later on be permitted to excuse themselves from the fulfillment
of the obligation contracted by them or to have it annulled.
(Mercado, et al. vs. Espiritu, 37 Phil., 215.)
ISSUE: WON Rodolfo and Guillermo Braganza could be
legally bound by their signatures in Exhibit A? No!
RATIO:
The Mecado case cited in the decision under review is different

because
the document signed therein by the minor specifically

stated he was of age; here Exhibit A contained no such
statement. In other words, in the Mercado case, the minor
was guilty of active misrepresentation; whereas in this
case, if the minors were guilty at all, which we doubt it is of
passive (or constructive) misrepresentation.
In order to hold infant liable, however, the fraud must be
actual and not constructure. It has been held that his
mere silence when making a contract as to age does not
constitute a fraud which can be made the basis of an
action of decit.
The fraud of which an infant may be held liable to one who
contracts with him in the belief that he is of full age must be
actual not constructive, and mere failure of the infant to
disclose his age is not sufficient.
Upon the other hand, these minors may not be entirely

absolved from monetary responsibility. In accordance with
the provisions of Civil Code, even if their written contact is
unenforceable because of non-age, they shall make
restitution to the extent that they have profited by the
money they received. (Art. 1340) There is testimony that
the funds delivered to them by Villa Abrille were used for
their support during the Japanese occupation. Such being
the case, it is but fair to hold that they had profited to the
extent of the value of such money.
Wherefore, as the share of these minors was 2/3 of P70,000 of

P46,666.66, they should now return P1,166.67.3 Their
promise to pay P10,000 in Philippine currency, (Exhibit A)
can not be enforced, as already stated, since they were
minors incapable of binding themselves. Their liability, to
repeat, is presently declared without regard of said Exhibit
A, but solely in pursuance of Article 1304 of the Civil Code.
INCAPABLE OF GIVING CONSENT
Article 234. (Family Code). Emancipation takes place
by the attainment of majority. Unless otherwise
provided, majority commences at the age of twentyone years. Emancipation also takes place:
By the marriage of the minor; or
By the recording in the Civil Register of an
agreement in a public instrument executed by the
parent exercising parental authority and the
minor at least eighteen years of age. Such
emancipation shall be irrevocable. (397a, 398a,
400a, 401a)
Art. 1327. The following cannot give consent to a
contract:
Unemancipated minors;

Page 97 of 106
Insane or demented persons, and deaf-mutes who do

not know how to write. (1263a)
Art. 1328. Contracts entered into during a lucid interval
are valid. Contracts agreed to in a state of drunkenness
or during a hypnotic spell are voidable.
(n)
minors
deaf-mutes who cannot write
insane
imbeciles or demented
under civil interdiction
hypnotized
intoxicated
VITIATED CONSENT
a) MISTAKE
Art. 1331. In order that mistake may invalidate consent,
it should refer to the substance of the thing which is the
object of the contract, or to those conditions which have
principally moved one or both parties to enter into the
contract.
Mistake as to the identity or qualifications of one of
the parties will vitiate consent only when such
identity or qualifications have been the principal
cause of the contract.
A simple mistake of account shall give rise to its
correction. (1226a)
Art. 1333. There is no mistake if the party
alleging it knew the doubt, contingency or risk
affecting the object of the contract. (n)
Mistake should refer to the substance of the thing which is the
object of the contract, or those conditions which principally
induced the parties to enter into a contract.
Conditions must not be mere incidents to the consideration.
b) VIOLENCE and INTIMIDATION
Art. 1335. There is violence when in order to wrest

consent, serious or irresistible force is employed.
There is intimidation when one of the contracting
parties is compelled by a reasonable and well-grounded
fear of an imminent and grave evil upon his person or
property, or upon the person or property of his house,
descendants or ascendants, to give his consent.
To determine the degree of intimidation, the age, sex
and condition of the person shall be borne in mind.
A threat to enforce one's claim through competent
authority, if the claim is just or legal, does not vitiate
consent. (1267a)
Art. 1336. Violence or intimidation shall annul the
obligation, although it may have been employed by a
third person who did not take part in the contract.
(1268)
The violence must be serious and irresistible.
The duress or intimidation must be more than the general
feeling of fear.
There must be acts or instances of such nature and magnitude
as to have, of themselves, inflicted fear or terror upon the
subject thereof that his execution of the questioned deed or
act cannot be considered voluntary.
c) UNDUE INFLUENCE
Art. 1337. There is undue influence when a person takes
improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice. The
following circumstances shall be considered: the
confidential, family, spiritual and other relations between
the parties, or the fact that the person alleged to have
been unduly influenced was suffering from mental
weakness, or was ignorant or in financial distress. (n)
Undue influence is unrighteous, illegal and designed to

perpetrate wrong. The party influenced must be deceived by
some false representation, stratagem or by coercion, physical or
moral.
Not all influence is prohibited by law. Solicitations and
entreaties, fair argument and persuasion, or appeals to the
emotions or affections will not amount to undue influence
unless they overcome the will of the person and take away
his ability to act as a free agent.

Page 98 of 106
d) FRAUD
Art. 1338. There is fraud when, through insidious
words or machinations of one of the contracting
parties, the other is induced to enter into a contract
which, without them, he would not have agreed to.
(1269)
* Generally, fraud, either at law or in equity, is a false
representation of a material fact made by word or conduct
with knowledge of its falsehood or in reckless disregard of its
truth, in order to induce and actually inducing another to act
thereon to his injury.
Art. 1339. Failure to disclose facts, when there is a duty
to reveal them, as when the parties are bound by
confidential relations, constitutes fraud. (n)
* The mere fact that one of the parties has superior knowledge
of the value of the property subject of the transaction than the
other party does not per se constitute fraud. There is only
fraud when a legal or equitable duty is imposed upon the
dominant party to reveal certain facts material to the
transaction or where there is a confidential relationship
between the parties.
Art. 1340. The usual exaggerations in trade, when
the other party had an opportunity to know the
facts, are not in themselves fraudulent. (n)
Art. 1341. A mere expression of an opinion does not
signify fraud, unless made by an expert and the
other party has relied on the former's special
knowledge. (n)
Other party must know that he is an expert.
Other party relied on the opinion based on that knowledge
Art. 1342. Misrepresentation by a third person does not
vitiate consent, unless such misrepresentation has
created substantial mistake and the same is mutual. (n)
* Where both parties gave consent to a contract due to a
substantial mistake caused by a third party, the contract can
be annulled.
Art. 1343. Misrepresentation made in good faith is not

fraudulent but may constitute error. (n)
Every fraud is a misrepresentation, but not every

misrepresentation is fraudulent.
Misrepresentation may be made without knowledge of its
falsity and therefore completely done in good faith. In such a
case, it would constitute a mistake.
Art. 1344. In order that fraud may make a contract
voidable, it should be serious and should not have
been employed by both contracting parties.
Incidental fraud only obliges the person employing it to

pay damages. (1270)
Must not be in pari delicto
Must not be dolo incidente which is accidental and collateral
fraud
Must be dolo causante which refers to the very cause why
the other party entered into the contract
WHO MAY AND MAY NOT INSTITUTE AN ACTION FOR
ANNULMENT
Art. 1397. The action for the annulment of contracts may

be instituted by all who are thereby obliged principally
or subsidiarily. However, persons who are capable
cannot allege the incapacity of those with whom they
contracted; nor can those who exerted intimidation,
violence, or undue influence, or employed fraud, or
caused mistake base their action upon these flaws of the
contract. (1302a)
Who May:
All who are obliged principally or subsidiarily
Interest in the contract there must be legal capacity by being
bound to the contract either principally or subsidiarily
victim and not party responsible for the defect he who comes
to the court must come with clean hands (clean hands
doctrine)
Who May Not:
Capable parties cannot allege the incapacity of those with
whom they contracted
Parties who exerted intimidation, violence or undue influence
or employed fraud or caused mistake
third person who is stranger to the contract. UNLESS he can prove
that the contract prejudiced his rights with respect to one of the
contracting parties, he

Page 99 of 106
may ask for annulment e.g. guarantors and sureties.

PRESCRIPTIVE PERIOD
Art. 1391. The action for annulment shall be brought
within four years.
This period shall begin:
In cases of intimidation, violence or udue
influence, from the time the defect of the consent
ceases.
In case of mistake or fraud, from the time of the
discovery of the
same.
And when the action refers to contracts entered into
by minors or other incapacitated persons, from the
time the guardianship ceases. (1301a)
Period shall begin:

Intimidation, violence or undue influence- from the time
consensual defect ceases
Mistake or fraud- from the time of discovery of the same
Incapacity- from the time guardianship ceases
Extinctive prescription shall apply not only to action for
annulment, but also the the defense of nullity
applies to parties to the contract, but not to third parties.
OTHER INSTANCES WHERE AN ACTION FOR ANNULMENT
IS EXTINGUISHED
Art. 1392. Ratification extinguishes the action to annul
a voidable contract. (1309a)
* Ratification the act of curing the defect which made the
contract annullable
Art. 1393. Ratification may be effected expressly or
tacitly. It is understood that there is a tacit ratification
if, with knowledge of the reason which renders the
contract voidable and such reason having ceased, the
person who has a right to invoke it should execute an
act which necessarily implies an intention to waive his
right. (1311a)
Art. 1394. Ratification may be effected by the guardian

of the incapacitated person. (n)
Art.1395. Ratification does not require the conformity

of the contracting party who has no right to bring the
action for annulment. (1312)
* Ratification is a unilateral act. It is usually done by the injured

party and not by the party causing the injury. The consent of
the injuring party is not required because such party normally
desires the effectivity of the contract anyway from its inception.
Art. 1396. Ratification cleanses the contract from all

its defects from the moment it was constituted.
(1313)
* Ratification transforms the contract completely as one
without infirmity. This curing effect retroacts to the day when
the contract was entered into. Hence, upon ratification, it is as
if the contract has never been visited by any infirmity or defect
at all.
Art. 1401. The action for annulment of contracts shall
be extinguished when the thing which is the object
thereof is lost through the fraud or fault of the person

who has a right to institute the proceedings.
If the right of action is based upon the incapacity of any
one of the contracting parties, the loss of the thing
shall not be an obstacle to the success of the action,
unless said loss took place through the fraud or fault of
the plaintiff. (1314a)
It is a rule that no one can come to court with unclean hands.
Hence, the injured party lost the thing which is the object of
the obligation by his fault, he cannot seek the annulment of
the contract as such right will be considered extinguished.
However, if the party is one who is incapacitated, the mere fact
that the thing which is the object of the obligation has been
lost, the incapacitated person is not obliged to make any
restitution except when it has benefited him.
EFFECT OF ANNULMENT
Art. 1398. An obligation having been annulled, the
contracting parties shall restore to each other the things
which have been the subject matter of the contract, with
their fruits, and the price with its interest, except in
cases
| Baldueza | Buena | Calderon | Cardenas | Eguico | Flordeliza | Mendoza | Navarro | Velasco

| Page 100 of 106
provided by law.
In obligations to render service, the value thereof
shall be the basis for damages. (1303a)
* When the annulment of the contract has been decreed, the
contracting parties must be returned to their original position.
Hence, whatever has been given must be returned to the
giver.
Art. 1399. When the defect of the contract consists in
the incapacity of one of the parties, the incapacitated
person is not obliged to make any restitution except
insofar as he has been benefited by the thing or price
received by him. (1304)
* However, the law states that when the defect of the contract
consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution
except insofar as has been benefited by the thing or price
received by him.
Art. 1400. Whenever the person obliged by the decree of
annulment to return the thing can not do so because it
has been lost through his fault, he shall return the fruits
received and the value of the thing at the time of the
loss, with interest from the same date. (1307a)
* When the object to be returned cannot be returned because
it was lost by the person obliged to return it due to fault of the
said person, the value of the object, its fruits, and interest
shall be given instead to satisfy the order of restitution.
Art. 1402. As long as one of the contracting parties
does not restore what in virtue of the decree of
annulment he is bound to return, the other cannot be
compelled to comply with what is incumbent upon him.
(1308)
* Restitution requires the return by the parties of what each has
received from the other. If one of them cannot restore to the
other what he has received from the said other, such other
person cannot be compelled to return what he, in turn, has
received. (However, Article 1399)
Unenforceable Contracts
Contracts that cannot be enforced unless ratified in

the manner provided by law
Occupies an intermediate ground between voidable
and void contracts
Unenforceable
Rescissible & Voidable
Legal Effect
No legal effect unless With legal effects unless
set
ratified
aside by a competent
court
Defectivenes Nearer to absolute
Farther from absolute
s
nullity
nullity
Kinds of Unenforceable Contracts
Unauthorized contracts (Art. 1403, 1)
Those that fail to comply with the Statute of Frauds (Art.
1403, 2)
Those where both parties are incapable of giving consent to a
contract
(Art. 1403, 3)
Unauthorized contracts: contracts entered into by a
person for and in the name of another, without authority to
do so.
An unauthorized contract may be ratified, expressly or
impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other contracting
party (Art. 1317).
The agent assumes personal liability until it is ratified.
If the agent contracts in the name of the principal,
exceeding the scope of his authority, and the other
party is aware of the limits of the powers granted by the
principal, and the principal does not ratify the contract,
it shall be void. However, the agent is liable if he
undertook to secure the principal's ratification (Art.
1898).
Contracts not in compliance with the Statute of
Frauds: contracts which are not put into writing as required
by law
Statute of frauds: It is descriptive of laws, statutes or
provisions requiring certain agreements to be in
writing before they can be enforced in a judicial
action
Purpose: To prevent fraud and perjury in the
enforcement of obligations
Effect: Only makes ineffective the action for specific
performance
General rules of application:

o It applies only to executory contracts and
not to partially or completely executed
contracts.
It
applies exlusively to actions for specific

performance of the contract or for damages.

| Page 101 of 106
It applies only to the agreements or contracts

enumerated in Art. 1403, 2.
The defense of the Statute of Frauds may be waived.
o
The Statute of Frauds is a personal defense. A

contract infringing it cannot be assailed by third
persons (Art. 1408).
The Statute of Frauds is only concerned with the
admissibility of evidence, not the credibility or
weight thereof.
An agreement not covered by the Statute of

Frauds is provable by oral evidence.
Required Note or Memorandum by the Statute of
Frauds (may be in one writing or in separate ones)
The names of the parties
o The terms and conditions of the agreement
A description of the subject matter sufficient to
render it capable of identification
o The date and place of the making of the
agreement
The signature of the party assuming the obligation
Exception: sale by auction
The amount and kind of property sold

The terms of the sale
The price
The names of the purchasers and
persons on whose account the sale
is made
6 Agreements Covered by the Statute of Frauds (Art.

1403, 2)
An agreement that by its terms is not to be performed
within a year
from the making thereof
o Only full or complete performance by one side
will take the case out of the operation of the
Statute
A special promise to answer for the debt, default, or
miscarriage of
another
o Subsidiary or collateral promise to pay, contract
of guaranty
An agreement made in consideration of marriage other than
a mutual
promise to marry
o Marriage settlements, donations propter nuptias
An agreement for the sale of goods, chattels, or things in
action, at a price not less than five hundred pesos
In separable contracts, each article is taken

separately, and the application of the Statute
depends upon its price.
Exceptions: partial payment, buyers acceptance

of part of the goods
An agreement for the leasing for a longer period than one
year, or for the sale of real property or of an interest
therein
Lease of real property for more than one year
Sale of real property, regardless of price
A representation as to the credit of a third person
Not a guaranty for there is no promise to answer
for anothers debt; only an assurance by a
person who does not take part in the contract
proper
Under Art. 1443, the Statute of Frauds also applies to
express trusts concerning an immovable or any
interest therein.
Contracts where both parties are incapable of giving
consent:
Upon ratification by one party, the unenforceable contract
is converted to a voidable one.
Ratification of Unenforceable Contracts
Mere lapse of time does not ratify an unenforceable
contract.
Unenforceable
Ratification
Contract
Unauthorized
Express or implied, by the
Infringing the Statute of

Frauds
person
on whose behalf the contract
has
been executed
Failure to object to the
presentation of oral evidence

to
prove the contract OR
Acceptance of benefit under
the
contracts
Both parties are incapacitated Express or implied,
Voidable if by the parent or
the
guardian of one of the parties
Valid if by the parents or the
guardians of both parties
Ortega v.
Leonardo (1958)
Facts:
Ortega was occupying a parcel of land in San Andres, Malate.
The said land was assigned by the Government to the Rural
Progress Administration. As occupant, she asserted her right to
purchase the land. Leonardo asserted the similar right,

| Page 102 of 106
alleging occupancy of the same land. He promised Ortega that

he would sell to her a portion of the lot if she would desist from
pressing her claim. There were conditions given by Leonardo.
Ortega must: 1) pay for the surveying and subdivision of the
Lot; and 2) continue holding the lot as tenant by paying a
monthly rental of P10.00 until said portion shall have been
segregated and the purchase price fully paid. Upon Leonardos
acquisition of the title, Ortega fulfilled all the conditions. She
tendered to him the purchase price which the latter refused to
accept.
Issue: WON their oral agreement to sell the piece of land is
covered by the Statute of Frauds
Held:
No. The contract has been partially performed by Ortega. Partial
payment of the purchase price alone is not sufficient to constitute
partial performance. However, in the case at bar, there were
several circumstances indicating partial performance: 1)
relinquishment of rights, 2) continued possession, 3) building of
improvements on the land, 4) tender of payment, 5) surveying of
the lot at
Ortegas expense, 6) payment of rentals. None of these would

separately suffice, but the combination of relinquishment,
survey and tender, is more than enough.
Babao v. Perez
(1957) Facts:
Celestina Perez owned a parcel of land in San Juan, Batangas.
Her niece married Santiago Babao. Babao and she entered into
a verbal agreement. Babao would improve the land by leveling
and clearing all the forest trees, and by planting crops. He
would also act as the administrator of the land, with all
expenses at his cost. Perez, in turn, would convey to him or to
his wife half of the land, together with all the improvements
thereon. Babao left 50 of 156 hectares unimproved. A few days
before Perez died, she sold 127 ha. of the land in question. This
deprived Babao of possession and administration of the land.
Issue: WON the alleged verbal agreement falls within the
prohibition of the Statute of Frauds
Held:
Yes. The alleged verbal agreement appears to be one with terms of
non-performance within one year. In such case, all that is required
is complete performance within one year by one party. Nothing less
than full performance by one party will suffice. Babao, therefore,
did not fully comply with the alleged contract. Also, the agreement
cannot be considered as a sale of real property
or of an interest therein, which could accept the partial

performance of Babao. It is because such an oral agreement
must not be vague and ambiguous for it to be enforceable on
the ground of partial performance. It must be clear and definite.
In this case, the agreement did not specify the number of
hectares to be planted with coconuts, rice, corn or other crops.
A witness even testified to the vagueness and ambiguity of the
agreement. Therefore, Babao cannot recover half of the land by
virtue of the oral agreement. His oral evidence was submitted
in violation of the Statute of Frauds.
Cabague v. Auxilio
(1952) Facts:
Auxilio and his daughter promised marriage to Cabagues son
on the condition that the Cabagues would improve the Auxilios
house and spend for the wedding feast and the needs of the
bride. Relying on the other partys promise, the Cabagues
made the improvement and spent P700. The Auxilios, however,
refused to fulfill their part.
Issue: WON their oral transaction may be proved in court
Held:
No. The transaction actually involves two kinds of agreements.
One is the lovers mutual promise to marry. The other is an
agreement made upon consideration of the marriage.
Cabagues son may sue the girl for damages by reason of
breach of their mutual promise to marry. But Cabague cannot
sue anyone for the other agreement. It cannot be enforced
because it was covered by the Statute of Frauds oral
evidence is not admissible to prove an agreement made upon
the consideration of marriage, other than a mutual promise to
marry.
Litonjua v.
Fernandez (2004)
Facts:
Two brokers offered to sell parcels of land in San Pablo City to the
Litonjuas. They arranged to meet Fernandez who was representing
the owners of the said land. It was agreed that the Litonjuas would
purchase the land, and such sale would be finalized on a certain
date. This did not take place because Fernandez was encountering
some problems with the tenants. The Litonjuas demanded the
finalization of the transaction, the execution of the Deed of
Absolute Sale, and the turnover of the subject properties. In reply,
Fernandez wrote a letter denying her agreement to sell the land.

She also said that because of the
| Page 103 of 106
problem with the tenants, the sale would not push through
anymore. They would no longer be selling the property until all the
problems had been settled.
Issue: WON Fernandez letter to Litonjua is a sufficient note

or memorandum required by the Statute of Frauds
Held:
No. The letter revealed a consistent denial of having a
commitment to sell the properties. There was no perfected
contract of sale or contract to sell. There was even no evidence
to show that the owners of the land authorized Fernandez to
sell their properties. The application of the Statute of Frauds
presupposes the existence of a perfected contract. However,
the required note or memorandum must contain the essential
elements of the contract expressed with certainty: 1) all the
essential terms and conditions of the sale of the properties; 2)
an accurate description of the property subject of the sale; and,
3) the names of the owners of the properties. This was not the
case in the letter sent by Fernandez to the Litonjuas. Fernandez
and the owners, then, could not be held liable in the action for
specific performance with damages.
D. Void
Contracts which have no force and effect from the very
beginning, as if it had never been entered into
Characteristics of Void Contracts
The action or defense for their declaration as inexistent
does not prescribe (Art. 1410).
The right to set up the defense of illegality cannot be
waived (Art. 1409), and may be considered on appeal
even if not raised in the trial court.
The defense of illegality of contracts is not available to
third persons whose interests are not directly affected
(Art. 1421).
Cannot give rise to a contract; a contract which is the
direct result of a previous illegal contract is also void
and inexistent (Art. 1422)
Generally produces no effect
No action for annulment is necessary, because the nullity
exists ipso jure; a judgment of nullity would be merely
declaratory
Cannot be ratified (Art. 1409)
Technically, the action to annul a void or inexistent contract

does not prescribe. Nonetheless, it may be barred by
laches.
Void Contract
Defect inherent in the contract
itself
Nullity a matter of law and
public
interest
No legal effects even if no
action is
taken to set it aside
Action to declare nullity never
prescribes
Void Contract
Cannot be ratified
Generally, effects are not
produced at
all
Ordinarily, the defect is that
public
policy is militated against
Void from the very beginning so
Rescissible Contract
Defect in their effects, either to
one of
the parties or a third party
Nullity based on equity and
more a
matter of private interest
Remains valid and produces all
its
effects if no action is taken to
set it
aside
Action to rescind prescribes
Voidable Contract
May be ratified
Produces effects until annulled
The defect is due to incapacity
or
vitiated consent
Valid until annulled
generally, no action is required

to set
it aside, unless the contract has
already been performed
Cannot be cured by prescription
Defense may be availed of by
anybody
whose interest is directly
affected
Referred to as absolute nullity
Void Contract
Cannot be ratified
No contract at all
Can be assailed by anybody
directly
affected
May be cured by prescription

Defense may be invoked only by
the
parties, principally or
subsidiarily
liable, or their successors in
interest
and privies
Referred to as relative or
conditional
nullity
Unenforceable Contract
May be ratified
There is a contract but it cannot
be
enforced by a court action
Cannot be assailed by third
parties

| Page 104 of 106
7 Kinds of Void and Inexistent Contracts (Art. 1409)

Those whose cause, object or purpose is contrary to law,
morals, good
customs, public order or public policy
o Restricts the freedom to contract
Those which are absolutely simulated or fictitious
If relatively simulated, the hidden or intended
contract is generally binding.
Those whose cause or object did not exist at the
time of the transaction
But there can be valid contracts involving future
property, e.g. sale of future or after-acquired
property
Those whose object is outside the commerce of men
Those which contemplate an impossible service
Those where the intention of the parties relative to the
principal object of the contract cannot be
ascertained
Those expressly prohibited or declared void by law
On Labor:
When the law fixes, or authorizes the fixing of the
maximum number of hours of labor, and a contract is
entered into whereby a laborer undertakes to work
longer than the maximum thus fixed, he may demand
additional compensation for service rendered
beyond the time limit (Art. 1418).
When the law sets, or authorizes the setting of a minimum
wage for laborers, and a contract is agreed upon by which
a laborer accepts a lower wage, he shall be entitled to
recover the deficiency (Art. 1419).
Cui v. Arellano
(1961) Facts:
Cui was enrolled in the College of Law of Arellano University up
to the first semester of his senior year. All the time, he was
awarded scholarship grants for scholastic merit. He was made
to sign the following contract or agreement: In consideration of
the scholarship granted to me by the University, I hereby waive
my right to transfer to another school without having refunded
to the University (defendant) the equivalent of my scholarship
cash. His semestral tuition was returned to him at the end of
the semester. Capistrano, his uncle was the dean and legal
counsel of the said college. But he left to accept the deanship
and chancellorship of the College of Law of Abad Santos
University. Cui could not pay his tuition in Arellano University,

and so he enrolled for the last semester
of his fourth year law in Abad Santos University where he

subsequently graduated. For his application to take the bar
exam, he requested his transcript of records from Arellano
University. The latter refused. Cui was asked to pay back the
tuition refunded to him, totaling P1,033.87. He paid the amount
under protest. The Bureau of Private Schools previously issued a
memorandum on the subject of scholarship. It upheld Cuis right
to secure his transcript of records without being required to
refund.
Issue: WON the contract signed by Cui, waiving his right to
transfer to another school without refunding to Arellano the
equivalent of scholarships, is valid
Held:
No. The stipulation in question is contrary to public policy, and
hence, null and void. The memorandum issued merely
incorporates a sound principle of public policy. Scholarships are
awarded in recognition of merit, and not to keep outstanding
students in school to bolster its prestige. The practice of
awarding scholarships to attract students and keep them in
school is not good customs nor has it received some kind of
social and practical confirmation. Scholarships are granted not
to attract and to keep brilliant students in school for
propaganda, but to reward merit or help gifted students in
whom society has an established interest.
Saura v. Sindico
(1960) Facts:
Saura and Sindico were contesting for nomination as the official
candidate of the Nacionalista party in the congressional
elections. They entered into a written agreement containing a
pledge that no one of them shall either run as a rebel or
independent candidate after losing in said convention. Saura
was chosen as the Nacionalista Partys candidate. Sindico,
however, still filed her certificate of candidacy for the same
office. Hence, this suit for the recovery of damages for breach
of contract.
Issue: WON the written agreement was null and void
Held:
Yes. Certain rights of individuals, which the law and public
policy have deemed wise to exclude from the commerce of
man, may not be the object of contracts. These include political
rights inferred upon citizens, i.e., right to vote, right to present
ones candidacy to the people and be voted to public office.
Such rights may not be bargained for they are conferred for the
public good and interest. The action for damages by Saura
cannot be entertained because it would result in limiting the
choice of the electors to only those persons selected by a small
group or party bosses.

| Page 105 of 106
Yu Bun Guan v. Ong (2001)

Effects of Declaration of Nullity
If the act in which the unlawful or forbidden cause consists
constitutes a criminal offense: (Art. 1411)
If both parties are in pari delicto: no action
against each other and both shall be
prosecuted
If only one of the parties is at fault: the
innocent one may claim what he/she has given
and shall not be bound to comply with his
promise
If the act in which the unlawful or forbidden cause consists
does not constitute a criminal offense: (Art. 1412)
If both are in pari delicto: cannot recover
and cannot demand performance against
each other
If only one of the parties is at fault: the
innocent one may claim what he/she has given
and shall not be bound to comply with his
promise
When else may recovery be allowed?
By the debtor: interest paid in excess of the
interest allowed by the usury laws, with
interest thereon from the date of the payment
(Art. 1413)
By the party repudiating the contract: the money paid
or property delivered for an illegal purpose, when
the purpose has not been accomplished or there
was no damage caused to a third person yet,
ONLY IF it will further public interest, as will
be decided by the courts (Art. 1414)
By the incapacitated person: money or property

paid or delivered in an illegal contract (Art.
1415)
By the plaintiff: money or property paid or
delivered in a merely prohibited agreement
(not illegal per se), and that prohibition is for
his/her protection, ONLY IF public policy
will be enhanced (Art. 1416)
By a purchaser: amount in excess of the maximum
price, when there is a statute determining the
price of any article or commodity (Art. 1417)
Facts:
Ong and Guan were married according to Chinese rites. Using
her personal funds, Ong purchased a parcel of land in Rizal, and
registered it under her name. Using their conjugal funds, the
couple purchased a house and lot, registered in their names.
Guan abandoned his wife and three children. But before they
got separated, Ong was convinced by Guan to execute a Deed
of Sale of her property in Rizal to him. In return, Guan promised
to construct a commercial building for their children. The
consideration for the simulated sale was a Deed of Absolute
Sale to be executed in favor of their children and that he would
pay the loan he obtained. Guan did not pay the consideration of
P200,000 for the sale. Ong kept the new TCT to insure that
Guan would do what he promised.
Issue: WON the in pari delicto principle applies to

absolutely simulated or fictitious contracts
Held:
No. A deed of sale, where the stated consideration has not
been paid, is null and void. The sale in this case was
absolutely simulated, thus, void. When the nullity arises from
the illegality of the consideration or the purpose of the
contract, recovery to the guilty parties is denied. But it is
different with inexistent contracts such as the simulated sale
between Guan and Ong. In this case, Ong was not in pari
delicto with Guan. The contract was fictitious due to the lack
of consideration. The land in Rizal may be recovered by Ong
who purchased the land using her personal funds. The transfer
certificate of title was cancelled, there being no legal basis for
its issuance.

| Page 106 of 106

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OBLIGATIONS AND

| Baldueza | Buena | Calderon | Cardenas | Eguico | Flordeliza | Mendoza | Navarro |

Art. 1156. An obligation is a juridical necessity to give,

to do, or not to do.

JURIDICAL NECESSITY juridical tie; connotes that in case

-An obligation is nothing more than the duty of a person

(obligor) to satisfy a specific demandable claim of another

-A contract necessarily gives rise to an obligation but an

A. From the viewpoint of sanction

obligation, if not fulfilled when it becomes due and

demandable, may be enforced in court through action; based

(b)NATURAL OBLIGATION defined in Article 1423; a special

kind of obligation which cannot be enforced in court but which

performance made by the debtor; based on equity and natural

law. (i.e. when there is prescription of duty to pay, still, the

(c) MORAL OBLIGATION the sanction is conscience or

morality, or the law of the church.

B. From the viewpoint of subject matter

REAL OBLIGATION the obligation to give

UNILATERAL where only one of the parties is bound

BILATERAL where both parties are bound

ACTIVE SUBJECT (Creditor / Obligee) the person

PASSIVE SUBJECT (Debtor / Obligor) the one bound to

subject matter of the obligation; conduct required to be

observed by the debtor;

Requisites of Prestation / Object:

licit (if illicit, it is void)

possible (if impossible, it is void)

determinate or determinable (or else, void)

harm to another DAMAGE result of injury (loss, hurt,

d) EFFICIENT CAUSE the JURIDICAL TIE which binds the

Art. 1423. Obligations are civil or natural. Civil obligations

obligations, not being based on positive law but on equity

and natural law, do not grant a right of action to enforce

their performance, but after voluntary fulfillment by the

obligor, they authorize the retention of what has been

delivered or rendered by reason thereof. Some natural

| Baldueza | Buena | Calderon | Cardenas | Eguico | Flordeliza | Mendoza | Navarro |

CONTRACTS (Obligation ex contractu) arise from

CONTRACT meeting of minds between two persons whereby

If a contracts prestation is unconscionable (unfair) or

FALSIFICATION OF A VALID CONTRACT only the unauthorized

Art. 1161. Civil obligations arising from criminal

Pertinent provisions of the RPC and other penal laws

Chapter 2, Preliminary title, on Human Relations ( Civil

Title 18 of Book IV of the Civil Code on damages

| Baldueza | Buena | Calderon | Cardenas | Eguico | Flordeliza | Mendoza | Navarro |

party or by a third person by reason of the crime.

when acquittal is due to reasonable doubt no civil

when acquittal is due to exempting circumstances

when there is preponderance of evidence there is civil

damage caused to the plaintiff

no pre-existing contractual relations between parties

father / in case unavailable, mother for their minor

employers for their employees

the state through its special agent

teachers / heads of establishments of arts and trades

there exists a wrongful act or omission imputable to the

there exists a damage or injury which must be proved

there must be a direct causal connection or a relation

reserves the right to institute it separately

- HELD: No crime since NACOCO entered the premises since it

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